INTERVIEW WITH ARUN JAITLEY
"Competition Bill Is Benign"
It's a Saturday evening but there's little
respite for minister of law, justice, and company affairs Arun
Jaitley. He's had 12-hour days, clearing crucial economic Bills,
ranging from the Competition Bill, which seeks to regulate monopolies, to
the Companies (Amendment) Bill relating to insolvency. In this interview
with BT's Seetha,
Jaitley talks about some of these laws. Excerpts:
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Arun Jaitley |
Q. The past month has seen some important
economic legislation being cleared by the government. Could you take us
through some of them?
A. The Competition Bill, which is
necessary in a free market economy, is perhaps the most important
corporate legislation to be tabled in Parliament.
Then there's the Companies (Amendment) Bill
relating to insolvency. Our insolvency law is located in three different
places. The high courts for commercial insolvency, the Board for
Industrial and Financial Reconstruction (BIFR) for commercial sickness,
and the Company Law Board. Our experience of these three authorities has
not been very encouraging. You could be running in the chakravyuh (maze)
of these three authorities for 10 years and nothing will happen. The Bill
proposes a single National Company Law Tribunal (NCLT). We've also
tightened the law relating to bounced cheques.
Are you are also working on a law relating
to corporatisation of cooperatives?
This is based on a suggestion by Dr V. Kurien
and Amrita Patel (of the National Dairy Development Board). These
cooperatives, particularly the milk cooperatives, function within a state
but have objectives that are nation-wide. But they have to go to the state
governments for permissions relating to day-to-day management. They need
more autonomy. They now compete with multinationals. They also need more
corporate discipline.
Can we have a concept of a hybrid company
where one man-the producer-has only one share, in the nature of a
cooperative? There is no system of proxy, no one man can take control. If
there one lakh members of the cooperative, there are one lakh shareholders
who vote. So it is a de facto cooperative but with the de jure mask of a
company. This enables them to be subjected to financial discipline, access
institutional finance, prepare accounts in accordance with the tests of
professionalism.
The Competition Bill has been extensively
debated. Yet you're now saying that it will not be rushed.
The Competition Bill is a textbook
illustration of how such a legislation should be formulated. An expert
group held public hearings and submitted a report. We made the report
public and invited comments. Then we prepared a draft legislation, made
that public and invited comments. Then various sectoral interests met us
after which the final Bill was prepared. It was circulated to various
ministries, and, finally, the Cabinet approved it.
When I said I am not in a hurry I meant that
we don't want to pass it in the monsoon session. It has gone to a standing
committee, which will again hold public hearings. Because this is one bill
on which no one can claim that his word is the last one.
You have also said that the law will be
implemented in a phased manner.
The first part of the Bill, the educational
functions of the Competition Commission, will be implemented first.
Britain, for example, adopted the Bill in 1998 but the Commission started
functioning in 2000. For two years, they prepared the market for it. And
then you have the other three chapters-relating to anti-competitive
practices, abuse of dominance, and amalgamations and mergers
(A&M)-coming into force periodically. It has been suggested that the
A&M provisions can come into force a little later as that's not such a
serious problem in the Indian market today.
There is a view that the Indian economy
doesn't need a competition law at this point of time.
I strongly disagree. Is the argument that we
don't need the competition law and that we need the Monopolies and
Restrictive Trade Practices (MRTP) law? The MRTP Act was based on the
presumption that size is evil.
The competition law is based on different
principles-that the government has stepped out, the market determines
competition and is going to protect consumer interest. At a macro level, a
competition law is a consumer protection law, based on the principle that
competition is the best protector of the consumer interest. See what
competition has done to the telecom industry. You have more efficient
service, you have phones on demand, and the tariffs are coming down.
Now, one chapter of the Bill deals with
anti-competitive practices like cartelisation, collusive bidding, and
sharing of territories. In a free market, the consumer must be protected
from such aberrations. We have recently seen such an aberration in the
cement industry.
Another part of the Bill relates to
dominance. This law moves on the presumption that size is not bad but if
size is abused to the extent that you can operate independently of the
market forces, that is not permissible.
There are objections to how the law
determines dominance.
It was suggested that dominance should be
determined by percentage of market share. That is not correct. You may
actually control 70 per cent of the market and still not be a dominant
player because the tariff barriers may be so low that the minute you abuse
dominance, foreign players will come in. At the same time, you may control
only 30 per cent of the market but you can still be dominant; the rest is
scattered among smaller players and there is no player outside the
country. So dominance is determined by the size of the market, number of
players, the tariff barriers. There are 20 illustrative factors that
determine abuse of dominance.
The only debate is on mergers and
acquisitions (M&As). There you must have an asset criteria. Asset size
or turnover size is the threshold at which to determine whether or not a
company is examined on the touchstone of competition on M&A. If two
players merge or amalgamate, will it have an adverse reaction on
competition? If it does, then such a merger should not be allowed. Most
countries have a mandatory pre-merger clearance required by a competition
authority. In fact a criticism of this Bill could be that it is too
benign.
There is some vagueness about sectoral
regulators vis a vis the Competition Commission. Whose word will prevail
in case of competition-related issues?
This is one area of debate. I have tried to
study world models. Supposing the telecom or the insurance regulator is
faced with a competition-related question, will it quarrel with the
Competition Commission? The answer is no. According to the Bill, they will
refer it to the Commission, take its opinion, but the ultimate decision
will be of the parent regulator. If necessary this will be clarified.
The Companies (Amendment) Bill doesn't
seem to be much of an improvement over the Sick Industrial Companies Act (Sica).
It is, in many ways. One, there will be one
forum. Two, companies went to the BIFR when their net worth became
negative. Now they will come before the NCLT when 50 per cent of their net
worth is eroded. Because when you are moving towards sickness someone must
start treating you, because the sickness can be cured. Three, the new law
sets strict time limits. Procedures relating to revival and liquidation by
the BIFR and the official liquidators cannot go on till the cows come
home. There are also powers to pass interim orders. Four, companies were
actually using Sica as an iron curtain against creditors. This will not be
possible (now).
Workmen don't get paid during the sickness
period. So we are levying a cess and giving the Tribunal the power to give
interim payment to workmen. The legislation has fixed the cess at 0.005
per cent-Rs 5 for every Rs 1 lakh turnover, which is around Rs 75 crore a
year. This is sufficient to give interim help to workers and post security
guards to prevent asset-stripping.
Also, the liquidation process will now be
done by a panel of private liquidators instead of the lethargic official
liquidators. So the entire approach is far more positive.
But you have continued with mandatory
reference to the NCLT. This provision was responsible for the BIFR being
overburdened with cases.
Unless you have mandatory reference, how do
you take care of sickness? If people have an option, they would keep
sitting outside the ambit of the authority, keep siphoning off assets,
keep losing money and there is no process of recreation or restoring the
health of the company.
Why not let lenders and creditors work it
out among themselves?
If they are able to sort it out before the
Tribunal all the more better.
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