I ENFORCEMENT POLICIES AND GUIDANCE
i Statutory framework
The Competition Act 2002 (the Act), along with various regulations, forms the competition regime in India. While there are many sectoral regulators responsible for maintenance of fair competition in their respective sectors, the Competition Commission of India (CCI), established under Section 7 of the Act, is the principal regulator for anticompetitive behaviour across all sectors.
Provisions of Section 3 of the Act and various regulations, particularly the Competition Commission of India (Lesser Penalty) Regulations 2009 (the Lesser Penalty Regulations), deal with anticompetitive agreements, including cartels. ‘Cartel’ has been defined under the Act to include ‘an association of producers, sellers, distributors, traders or service providers who, by agreement among themselves, limit, control or attempt to control the production, distribution, sale or price of, or, trade in goods or provision of services’. Therefore, to establish the existence of a cartel, existence of an ‘agreement’ needs to be proved first.
‘Agreement’ under the Act has been defined very widely and includes an arrangement or understanding or acting in concert, and is not limited to written formal agreements. Section 3(1) of the Act sets out a general prohibition on all agreements that have or are likely to have an appreciable adverse effect on competition within India, while Section 3(3) specifically sets out that certain horizontal agreements, including cartels, will be presumed to have an appreciable adverse effect on competition in India, thereby shifting the burden of proof to the accused to rebut the presumption. These horizontal agreements include agreements that:
- a directly or indirectly determines purchase or sale prices;
- b limits or controls production, supply, markets, technical development, investment or provision of services;
- c shares the market or source of production or provision of services by way of allocation of geographical area of market, or type of goods or services, or number of customers in the market or any other similar way; or
- d directly or indirectly results in bid rigging or collusive bidding.
The CCI is the enforcing body, assisted by its investigative arm, the Director General (DG). Cartel investigations have mostly been initiated by the CCI upon receipt of information either as a complaint or a leniency application, though the CCI has also initiated suo motu action or has initiated proceedings upon receipt of a reference made by a government or statutory authority. The CCI directs the DG to commence an investigation if it is of the view that there exists a prima facie case warranting investigation. The DG cannot suo motu initiate investigation. Once the DG submits an investigation report to the CCI, the CCI can either direct the DG to investigate further or it can continue with its inquiry and call upon the parties to make written and oral pleadings. On reaching a positive finding of the existence of a cartel and any resulting infraction, the CCI may impose a penalty and pass any other order that it deems fit.
The penalty that may be imposed in case of any anticompetitive conduct cannot be more than 10 per cent of the average of the turnover of the contravening enterprise for the three preceding financial years. However, in the case of a cartel, the CCI can impose a penalty of up to three times the profit of the contravening enterprise or 10 per cent of the turnover of the contravening enterprise, for each year of the continuance of the cartel, whichever is higher. The directors and other employees of the contravening entity found responsible can also be penalised under the Act.
In Neeraj Malhotra v. Deutsche Post Bank Pvt Ltd,2 the CCI held that an agreement by itself cannot be the basis of cartel prosecution, and that there has to be economic consequences arising out of such an agreement. Cases where the CCI has prosecuted cartels, as discussed in detail further in this section, will show that the CCI not only relies on direct evidence but also relies on indirect evidence and economic analysis.
There are no criminal sanctions in India for cartelisation. However, non-compliance with the orders of the CCI or the Competition Appellate Tribunal (Compat) can attract criminal liability.
ii Guidelines and policy
The substantive provisions of the Act dealing with anticompetitive behaviour were only enforced in 2009. Competition jurisprudence is still developing in India. Legal practitioners as well as the CCI regularly rely upon cases decided upon by the courts of the United States and the European Commission for guidance. The CCI has put in place a primer for merger filings but there is no policy or guideline issued by the CCI for cartels.
iii Cartel enforcement and grey areas
Cartel enforcement has been one of the least active areas under the competition regime in India for various reasons. First, the leniency procedure has left the grant of full immunity at the discretion of the CCI. This lack of a guaranteed full and automatic leniency appears to have acted as a deterrent to whistle-blowers and the CCI is still to decide a single case based on a leniency application, although media reports seem to suggest that a few companies have approached the CCI seeking leniency. Any decisions of the CCI in relation to leniency applications have not been revealed. Second, competition law enforcement has been largely complaint-driven. The CCI has the power to suo motu inquire into matters, but exercises it rarely.
There have been a few notable cartel cases decided by the CCI and Compat this year. In June 2012, the CCI found cement companies guilty of cartelisation and levied a penalty of approximately 63.066 billion rupees on the cartel members. The CCI also imposed a penalty of approximately 7.3 million rupees on the Cement Manufacturers Association (CMA) for facilitating cartelisation by providing a platform to the cement companies. This was the first cartel case that was successfully prosecuted by CCI. However, the order was set aside by Compat in December 2015 on the grounds of violation of principles of natural justice and the matter was remanded to the CCI for reconsideration.3 In August 2016, after a fresh inquiry, the CCI passed an order concluding existence of a cartel and imposed a penalty of 63.165 billion rupees on 11 cement companies and 7.3 million rupees on the CMA. While imposing the penalties, the CCI took into consideration aggravating factors, such as detriment caused to the market, to the interests of consumers and to the entire economy in view of the fact that cement is a critical input in the construction and infrastructure industry and is vital for the economic development of the country.4 Some of the cement companies have approached Compat, and the Tribunal has granted an interim injunction on the operation of the order passed by the CCI.
In Jyoti Swaroop Arora v. Tulip Infratech Ltd. and Others,5 the CCI exonerated all 25 builders of cartelisation charges primarily on the basis of insufficiency of evidence. The CCI observed that the common practices that were alleged to be anticompetitive were not as a result of any collusion but were inherent to the nature, needs and contingency of the real estate sector. This decision of the CCI was upheld by the Delhi High Court in May 2016.
In Indian Sugar Mills Association & Ors. v. Indian Jute Mills Association & Ors,6 the CCI imposed a penalty of approximately 800,000 rupees on an association of jute manufacturers and an association of jute traders for cartelising and fixing price of jute products on a daily basis through a publication – the daily price bulletin. In addition, a penalty was imposed on various committee members of the two associations. This decision was partly overturned by Compat in July 2016 on the ground that there is a lack of evidence to establish an agreement or understanding, express or tacit, between the two associations for fixing the price of jute bags. An appeal filed by the other association was dismissed for being time-barred.7
In Maruti & Company v. Karnataka Chemists & Druggists Association & Others,8 the CCI fined Karnataka Chemists & Druggists Association (KCDA), Lupin Limited (Lupin) and their respective office-bearers, for limiting and controlling supply of drugs in the state of Karnataka. The CCI held that even if an agreement cannot be classified as horizontal or vertical, it can still be examined by the CCI. While imposing penalty, the CCI considered KCDA’s recidivism as an aggravating factor and imposed a maximum penalty of 10 per cent of its average turnover, which amounted to 8,60,321 rupees. The CCI also imposed a penalty of 10 per cent of the average income on office-bearers of the KCDA. While imposing a penalty on Lupin, the CCI considered its brief involvement as a mitigating factor and imposed a penalty of 1 per cent of its average turnover, which amounted to 729.6 million rupees. This order has been challenged by Lupin before Compat.
In Association of Third Party Administrators v. General Insurance Public Sector Association and Others,9 the CCI closed a case alleging anticompetitive conduct by four public sector general insurance companies for forming a joint venture (a captive third-party administrator). The CCI held that mere formation of a joint venture between the companies cannot be considered anticompetitive per se, especially when the decision was aimed at combating the inefficiencies and deteriorating services provided by the existing players in the market.
II COOPERATION WITH OTHER JURISDICTIONS
The CCI has been granted extraterritorial jurisdiction over any anticompetitive conduct occurring outside India if such conduct has had or is likely to have an appreciable adverse effect on competition within India. To date, the CCI has not exercised this extraterritorial jurisdiction.
Section 18 of the Act permits the CCI to enter into any memorandum or arrangement, with the prior approval of the central government, with any agency of any foreign country for the purpose of discharging its duties or performing its functions under the Act. The CCI has executed memoranda of understanding on cooperation with several competition agencies, including those of the US, the EU and Australia, in an attempt to set up a framework for cooperation and exchange of information. The scope and contents of these arrangements are not publicly known.
It is believed that there is a fair amount of coordination and dialogue with regulators in other jurisdictions through the International Competition Network and other channels, although there is no provision permitting the CCI to share information or documents with other jurisdictions without the consent of the concerned parties.
III JURISDICTIONAL LIMITATIONS, AFFIRMATIVE DEFENCES AND EXEMPTIONS
As mentioned in Section II, supra, an action taking place outside India that has or is likely to have an appreciable adverse effect on competition in the relevant market in India may be the subject of an inquiry by the CCI under Section 32 of the Act.
The Act does provide for certain affirmative defences and exemptions, namely:
- a joint venture: while certain horizontal agreements have been presumed to harm competition, an exemption from this presumption is offered to an efficiency-enhancing joint venture. The burden of demonstrating such efficiencies lies on the enterprise seeking such an exemption. If the efficiency gain is shown to exceed the harm to competition, the party is not likely to be held to be in contravention of the anticompetitive behaviour on an application of the rule of reason;
- b intellectual property rights defence: the Act provides that notwithstanding the anticompetitive agreement provisions of the Act, a person shall be free to impose restrictions, so far as the restrictions imposed are reasonable and are for the protection and prevention of any infringements of any intellectual property rights granted under the Indian intellectual property laws;
- c export cartels exemption: the Act provides that restrictions relating to anticompetitive agreements, including cartels, do not apply to the right of any person to export goods from India to the extent the agreements relate exclusively to production, supply, distribution or control of goods or provision of services. This exemption may be read to exclude export cartels (i.e., cartelisation of markets outside India); and
- d statutory exemption: under Section 54, the central government can exempt any class of enterprise from application of the competition law in the interest of security of the state or public interest (e.g., exemption from the provisions of Section 3 of the Act has been granted to vessel sharing agreements of the liner shipping industry for a period of one year from 2 March 201610).
IV LENIENCY PROGRAMMES
The leniency policy in India is governed by Section 46 of the Act read with applicable regulations, which list the requirements for qualification, the procedure to be followed for the imposition of a lesser penalty and the benefits available. However, the leniency regime in India has so far been a non-starter.
The applicable regulations provide for a reduction in the penalty of up to 100 per cent if an applicant makes vital disclosure about existence of a cartel to the CCI and if such reduction in penalty has not been granted to any other applicant by the CCI. This benefit of reduction in penalty would be given to an applicant only if the CCI did not have any or sufficient evidence to establish existence of a cartel. However, the regulations only provide for a discretionary immunity and not mandatory immunity even if all the conditions have been fulfilled.
The leniency regime sets out a marker system for applicants. An applicant can approach the CCI on a no-names basis and provide details of the infringement and the evidence in its possession. The CCI will employ a priority status based on the time of initial contact. The first applicant to contact the CCI, albeit orally, will be given the status of first applicant. If the initial contact is oral, the applicant will need to ensure that the documentary evidence is provided to the CCI within 15 calendar days of the initial contact. Failure to do so will result in the loss of the priority status.
The Act and applicable regulations do not provide for any specific guidance as to the nature and level of detail of the evidence required. Once a marker has been given, the CCI does not deal with another applicant until a decision regarding the first applicant is taken.
Conditions that are to be met in order for an applicant to qualify for the benefit of a lesser penalty include:
- a ceasing to have further participation in the cartel from the time of its disclosure unless otherwise directed by the CCI;
- b providing vital disclosure in respect of a violation under Section 3(3) of the Act;
- c providing all relevant information, documents and evidence as may be required by the CCI;
- d cooperating genuinely, fully, continuously and expeditiously throughout the investigation and other proceedings before the CCI; and
- e not concealing, destroying, manipulating or removing the relevant documents in any manner that may contribute to the establishment of a cartel.
Subsequent applicants may be granted a reduction in penalty on making a disclosure by submitting evidence that, in the opinion of the CCI, may provide significant added value over and above the evidence already in the possession of the CCI or the DG to establish existence of a cartel. The applicant marked second in the priority status may be granted a reduction of up to 50 per cent of the leviable penalty, while the applicant marked third in the priority status may be granted a reduction of up to 30 per cent of the leviable penalty. The language of the regulations is worded in a manner that suggests that the CCI may consider more than one applicant as a third marker in the priority status; however, this has not been clarified.
In terms of the applicable regulations, no leniency application can be entertained after the investigation report of the DG is received by the CCI.
Neither a successful nor an unsuccessful applicant for leniency is given immunity from civil claims.
As stated in Section I.iii, supra, the CCI is yet to pass an order in relation to a leniency application.
The extant law provides for the maximum penalty that may be imposed. There are no statutory guidelines on the quantum of the penalty or the factors that need to be taken into account while imposing the penalty. In addition to the imposition of a penalty, the CCI may also, inter alia, pass such orders directing the parties to terminate the agreement and to refrain from re-entering such an agreement or to modify the terms of the agreement.
Until recently, while imposing a penalty as a percentage of turnover, the CCI has considered the turnover of the entire enterprise, irrespective of whether the turnover is attributable to the activity contravening the provisions of the Act. The Act mentions the basis of the calculation of the penalty as the ‘turnover’ of the defaulting company and not the ‘relevant turnover’. While the CCI imposes a penalty on total turnover, Compat is of the view that a penalty is to be imposed on relevant turnover. Some of the decisions of Compat that have overturned findings of the CCI on the quantum of the penalty imposed are pending before the Supreme Court of India.
The Act does not provide for criminal liability other than for wilful default in implementing orders of the CCI. Non-compliance with orders issued by the CCI may result in a fine of up to 250 million rupees or imprisonment of up to three years, or both, while non-compliance with orders issued by Compat may lead to a fine of up to 10 million rupees or imprisonment of up to three years, or both.
Non-cooperation during an investigation may also lead to imposition of a penalty by the CCI. By way of example, the CCI imposed a fine of 10 million rupees on Google for failure to comply with the directions given by the DG seeking information and documents.11
VI ‘DAY ONE’ RESPONSE
The information received from an ‘informant’ or collected suo motu is reviewed by the CCI to determine whether there exists a prima facie case that warrants an investigation by the DG.
While both the CCI and the DG have been conferred with the same powers that a civil court has, including the power to summon any person and enforce his or her attendance, and powers of discovery and enforcement of production of documents, the DG has also been vested with the power to conduct searches and seizures.
Following the repeal of the Companies Act 1956 and the enactment of the Companies Act 2013, the DG is no longer required to obtain a court-issued warrant in order to conduct a search and seizure.
The DG conducted its first dawn raid in September 2014 at the registered and corporate offices of JCB India Limited in relation to an abuse of dominance investigation. However, this raid has been challenged under writ jurisdiction before the Delhi High Court on grounds of procedural lapses. Media reports state that in August 2016, the DG conducted another unannounced inspection at the premises of Eveready Industries Limited’s office in Kolkata.
VII PRIVATE ENFORCEMENT
The Act does not provide for the private enforcement of rights. Compensation claims by private parties for damages have to be filed before Compat. The Compat is yet to pass an order addressing a claim for damages.
The Act states that such claims can be made either after the CCI arrives at a finding of contravention or after Compat arrives at a finding of contravention if the decision of the CCI is appealed. However, as a matter of practice, Compat awaits the decision of the Supreme Court of India on merits before proceeding to hear compensation claims. The Metropolitan Stock Exchange is seeking compensation from Compat after it upheld a judgment of the CCI that the National Stock Exchange of India (NSE) had abused its dominance to oust players from the market. However, Compat has deferred hearing of the compensation application till the Supreme Court of India decides whether the NSE abused its dominance or not.
Although damages jurisprudence is yet to develop in India, it is possible for one or more persons, with the approval of Compat, to file compensation claims on behalf of multiple people.
If loss is shown to have been suffered by a party because of a contravention of the substantive provisions of the Act, the suffering party can approach Compat for an award of restitutive compensation. Where many persons have suffered loss or damage from an action of the same enterprise or a group of enterprises, then even one such person can make an application for award of compensation on behalf of all such persons. However, since the quantum of the fine is indicative of the severity of the offence, it may be an important factor that is considered when calculating the award.
VIII CURRENT DEVELOPMENTS
Recently, Compat set aside an order passed by the CCI that penalised three airlines for fixing fuel surcharge on cargo transport, on grounds of violation of the principles of natural justice. While remanding the matter to the CCI for fresh adjudication, Compat stated that if the CCI disagrees with the findings and conclusions recorded by the DG, it shall indicate the reasons for such disagreement and issue notice to the parties stating the reasons for the disagreement, and allow the parties to file their replies and objections.12
On the issue of rights of persons being investigated by the DG, the Delhi High Court has recently ruled that the CCI is required to furnish all such persons with the available documents of the investigation, with the exception of confidential records.13 In a separate matter, the Delhi High Court has ruled that a person being examined under oath by the DG is entitled to be accompanied by a legal practitioner of choice; however, this decision is being challenged.14
1 Farhad Sorabjee and Amitabh Kumar are partners at J Sagar Associates.
2 Case No. 05 of 2009.
3 Appeal No. 105 of 2012.
4 Case No. 29 of 2010.
5 Case No. 59 of 2011.
6 Case No. 38 of 2011.
7 Appeal No. 77 of 2014.
8 Case No. 71 of 2013.
9 Case No. 107 of 2013.
10 Notification No. SO 646(E) [F.No.5/20/2011-CS], dated 2 March 2016.
11 Case No. 07 and 30 of 2012.
12 Interglobe Aviation Ltd and Others v. Competition Commission of India and others. Appeal No. 7 of 2016.
13 Forech India Limited v. Competition Commission India, Writ Petition No. 11072 of 2015.
14 Oriental Rubber Industries Private Limited v. Competition Commission of India, Writ Petition No. 11411 of 2015.