The Doctrine of Necessity and CCI’s Combination Regime

[By Aneesh Raj]

The author is a student of National Law University and Judicial Academy, Assam.

 

Necessity knows no law.” – Aesop

INTRODUCTION

The doctrine of necessity and the Competition Commission of India’s (CCI) combination regime are two important concepts in the realm of competition law in India. The doctrine of necessity refers to situations where a law may be relaxed or suspended in cases of emergency or other extreme circumstances. The CCI’s combination regime, on the other hand, pertains to the assessment of mergers and acquisitions that may have an impact on competition in India.

A newspaper article says that the CCI could use the “doctrine of necessity” to look into merger and acquisition deals. The current situation is that there is a lack of the required quorum, which means that many deals are awaiting CCI approval. So, a significant question arises here: in the existing scenario, can CCI invoke the doctrine of necessity to clear its regulatory logjam? In this article, we will explore these two concepts and their relationship in the context of Indian competition law and also find the answer to the above question.

THE DOCTRINE OF NECESSITY

The doctrine of necessity is a legal principle that allows for the relaxation or suspension of laws in cases of emergency or other extreme circumstances. The doctrine is based on the idea that laws are created to serve the public good, and that in certain circumstances, strict adherence to the law may be detrimental to the public interest.

The doctrine of necessity is not a blanket license to ignore the law, but rather a recognition that in certain situations, strict adherence to the law may not be practical or desirable. The Supreme Court has established that the doctrine of necessity should not be invoked on a regular basis for minor matters because it may result in the absence of the rule of law, if given the choice between allowing a biased person to act on a matter or stopping the matter itself, the former will be preferred over the latter, even if the latter may be afflicted by that biased person’s or authority’s bias; however, the decision of that biased person will be upheld.

ORIGIN OF THE PRINCIPLE OF DOCTRINE OF NECESSITY

Necessity is a legal principle that can be used to justify an individual’s actions in an emergency situation that they did not create. This means that if a person is faced with a situation that requires immediate action to prevent harm or danger to themselves or others, they may be allowed to take actions that would normally be considered unlawful or illegal.

In 1954, Chief Judge Muhammad Munir of Pakistan was faced with a situation where the Governor General, Ghulam Moulam, had exercised emergency powers that went beyond the limits of the constitution. Munir recognized the urgency of the situation and made the ground-breaking decision to sanction the Governor General’s actions, coining the term “doctrine of necessity” for the first time. This doctrine essentially meant that in extreme circumstances, such as an emergency or crisis, the law could be temporarily suspended or modified to ensure the safety and well-being of the people.

To support his decision, Chief Judge Munir referred to the ancient legal maxim of Bracton, who stated that “That which is otherwise not lawful is made lawful by necessity.” Munir’s decision was a landmark one that established the concept of the doctrine of necessity in law. It recognized the need for flexibility and pragmatism in times of crisis, while also emphasizing that such extraordinary measures should only be taken as a last resort and with the goal of preserving the rule of law and protecting individual rights.

APPLICATION OF PRINCIPLE IN INDIA

The doctrine of necessity, which allows for the justification of actions taken in emergency situations, was first used in India in the significant case of Gullapalli Nageswara Rao v. APSRTC[1] in 1958. This decision paved the way for the further development of the doctrine, with subsequent cases providing new interpretations, applications, and invocations of the principle.

One such case was the landmark decision of Election Commission of India v. Dr. Subramanian Swamy, which is credited with transforming the necessity doctrine into the absolute necessity doctrine. However, some legal experts have argued that over-reliance on this principle could lead to the erosion of the rule of law. Consequently, the Supreme Court has emphasized that the doctrine of necessity should only be used in the most extreme and urgent circumstances. In other words, while the necessity doctrine provides a means of justifying actions taken in emergencies, it should not be used as a loophole to circumvent the law or justify questionable decisions. Instead, the doctrine should be invoked sparingly, and only when there is no other alternative to address a situation that threatens public safety or welfare.

Even though this is unprecedented for the CCI, Indian regulators have had trouble in the past because of late appointments. Take into account the central government’s four-year difficulty in locating a qualified “technical member” for the patent bench of the Intellectual Property Appellate Board (IPAB), which hears appeals relating to patents. Similarly, after technical member CKG Nair retired in March 2021 and his replacement was appointed almost a year later, India’s highly regarded securities market regulator SEBI’s appeal tribunal, the Securities Appellate Tribunal (SAT), went nearly a year without a technical member. Both of these tribunals’ inability to make critical decisions was hampered by the delay in the appointment of crucial members, which had serious economic and regulatory repercussions.

But when important appointments to statutory bodies and tribunals were not made on time, like in these two cases, the courts stepped in to keep the justice system from getting stuck. The Delhi High Court reinstated and functionalized the IPAB’s patent bench in Mylan Laboratories Limited v. Union of India[2] (2019), noting that the Constitution required that all citizens have the right to access justice, which would be compromised if tribunals were unable to fulfil their legal obligations simply because a quorum was not present. Similar to the non-appointment of a technical member to the SAT, it was determined in Axis Bank v. NSE (2021), that the SAT’s inability to function should not be caused by the lack of a technical member because its rulings were upheld even if its constitution had flaws. The courts did this by using the “doctrine of necessity,” a common law principle that states that activities that might otherwise be unlawful are made legal by necessity.

THE CCI’S COMBINATION REGIME

The CCI is an independent regulatory body established under the Competition Act, 2002. The CCI’s primary function is to ensure that competition in Indian markets is not distorted by anti-competitive practices such as cartels or abuse of dominance. It plays an important role in reviewing mergers and acquisitions and determining their impact on competition. Sections 5 and 6 of the Competition Act, 2002 (“Act”) deal with the regulation of combinations in the country. It states that combinations exceeding a certain threshold require CCI approval. The CCI assesses the proposed combination to determine whether it is likely to have an appreciable adverse effect on competition in India.

RELATIONSHIP BETWEEN THE DOCTRINE OF NECESSITY AND CCI’S COMBINATION REGIME

The relationship between the doctrine of necessity and the CCI’s combination regime arises in situations where a proposed combination may be necessary to address an emergency or other extreme circumstances. For example, a proposed combination between two companies in the healthcare sector may be necessary to address a shortage of critical medical supplies during a public health emergency. In such a situation, the parties may argue that the doctrine of necessity should be invoked to allow the combination to proceed, even if it might otherwise be deemed anti-competitive. Another potential avenue for invoking the doctrine of necessity in this context could be if the merger is deemed essential for the survival of a struggling firm or industry and failure to approve the merger would result in significant job losses or other adverse consequences for the economy.

In such a situation, the CCI may argue that the benefits of approving the merger outweigh the harm to competition and consumers, and therefore, it is necessary to approve the merger in the interest of the economy as a whole

ADVANTAGES OF INVOKING THIS DOCTRINE

The primary advantage of invoking the doctrine of necessity is that it allows the CCI to take a flexible approach to competition law in situations where strict adherence to the law may not be practical or desirable. This can be particularly useful in situations where a proposed combination is necessary to address a public health emergency or other extreme circumstances. By invoking the doctrine of necessity, the CCI can balance the need to address the emergency with the need to preserve competition in the relevant market.

Another advantage is that invoking the doctrine of necessity can help to promote the public interest. In situations where a proposed combination is necessary to address an emergency, allowing the combination to proceed may be in the public interest. For example, a proposed combination between two companies in the healthcare sector may be necessary to address a shortage of critical medical supplies during a public health emergency. By allowing the combination to proceed, the CCI can help to ensure that the public has access to the supplies they need.

CHALLENGES IN INVOKING THIS DOCTRINE

One of the challenges of invoking the doctrine of necessity is that it can potentially lead to the relaxation of competition law in situations where it may not be justified. The doctrine of necessity should not be used as a pretext for suspending or ignoring competition law in situations where it is not necessary to do so. The CCI must therefore be cautious in its application of the doctrine of necessity and ensure that it is not being used to undermine the objectives of the Competition Act.

Another challenge is that invoking the doctrine of necessity may set a precedent for future cases. If the CCI allows a combination to proceed on the grounds of necessity, it may encourage other parties to make similar arguments in the future, even in situations where the necessity is not as clear-cut. This could lead to a weakening of competition law in India over time.

CONCLUSION

The invocation of the doctrine of necessity by the Competition Commission of India (CCI) to approve a merger is a critical decision that must be made with careful consideration of the circumstances and legal framework surrounding the case. The doctrine of necessity allows for actions to be taken in situations where the law may not provide explicit guidance, but where it is necessary to prevent harm or ensure the smooth functioning of a system.

In the context of a merger, the CCI may invoke the doctrine of necessity if it finds that the merger is necessary to prevent significant harm to competition or to ensure the efficient functioning of the market. However, the CCI must also ensure that the merger does not lead to any anticompetitive effects, such as the creation of a dominant market player that could harm consumers or other competitors.

Therefore, the critical condition for the invocation of the doctrine of necessity by the CCI to approve a merger is whether the merger is necessary to prevent significant harm to competition or ensure the efficient functioning of the market, and whether the merger is unlikely to lead to any anti-competitive effects. If the CCI determines that these conditions are met, it may invoke the doctrine of necessity to approve the merger, but only after careful consideration of the legal and economic factors involved, and after seeking input from all relevant stakeholders.

Hence, I suggest that since CCI is in a crisis because it doesn’t have a quorum due to a delay in appointments, it can use the “doctrine of necessity” to keep the public’s best interests safe. However, at the same time, it is important that the central government should make appointments without much delay. This invocation of doctrine should not become the norm. It must be invoked in an extreme situation only; otherwise, the whole purpose of this will be defeated.

[1] Gullapalli Nageswara Rao v. A.P. State Road Transport Corpn., 1959 Supp (1) SCR 319.

[2] Mylan Laboratories Limited v. Union of India, 2019 SCC OnLine Del 9070.

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