The conduct of dominant enterprises is regulated by Section 4 of the Indian Competition Act 2002, as amended (the Act). Section 4 prohibits the abuse of a dominant position by an enterprise or group. Notably, an abuse of a dominant position is prohibited, not dominance itself or the creation of dominance. The Act regulates the conduct of both private and public sector (state-owned) enterprises as well as departments of the government that engage in non-sovereign functions, across all sectors of the Indian economy.
From 20 May 2009, the date Section 4 entered into effect, the Competition Commission of India (the Commission) has enjoyed exclusive jurisdiction for enforcement of Section 4. Section 60 of the Act provides that the Act will have effect notwithstanding any inconsistent provision of any other law currently in force. In addition, Section 62 clarifies that the Act will operate in addition to the other laws currently in force.
Under the Act, the Commission has wide powers of investigation and enforcement. For conducting investigations into alleged anticompetitive conduct, the Commission is assisted by the office of the Director General (DG). Appeals from the Commission's orders are filed with the National Company Law Appellate Tribunal (the Tribunal). The Supreme Court of India is the final appellate authority for all matters under the Act. Recently, the total strength of the Commission was reduced from seven members (comprising one chairperson and six members) to four members (comprising one chairperson and three members). In September 2018, the central government set up a committee to review the Act in view of the changing business environment and to suggest any amendments, if necessary.
Since no formal policy statements in respect of the application of Section 4 have been made by the Commission to date, the Commission's decisions continue to provide the only guidance. In Google,2 for example, in respect of findings relating to the design of Google's search engine results page (SERP), the Commission's assessment shows a pro-innovation stand. While noting that regulatory intervention in the technology markets must be carefully tailored so as not to stifle innovation, the Commission has shown a hitherto unprecedented, self-imposed, regulatory reluctance in interfering with search design.
II Year in Review
During the 2018–2019 period, the Commission issued eight decisions under Section 4 of the Act: All India Chess Federation (AICF),3 Google, Ghaziabad Development Authority (GDA),4 DLF Limited (DLF),5 Esaote SPA (Esaote),6 Public Works Department, Government of Haryana (PWD),7 South Asia LPG Company (SALPG)8 and Indian Sugar Mills Association (ISMA).9 The Commission found infringements in five of these eight cases: AICF, Google, GDA, Esaote and SALPG. The most significant among these is the Commission's Google decision, where the Commission penalised Google for abusing its dominant position in the online general web search and web search advertising services markets in India, by using its search designs to influence search results in a discriminatory manner and entering into intermediation agreements that restrict competition, in contravention of the provisions of Section 4(2)(a)(i), 4(2)(c) and 4(2)(e) of the Act. In the other cases (i.e., PWD, DLF and ISMA), the Commission found no violation of Section 4 of the Act.
In another nine cases involving claims of abuse of dominance, the Commission adopted a prima facie view under Section 26(1) of the Act, directing the DG to investigate complaints under Section 4 of the Act. Some of the important cases in which the Commission has directed investigations are: Intel Corporation10 (in the server processor market in India), Board of Control for Cricket in India11 (in the organisation of private professional league cricket market in India), Oil and Natural Gas Corporation Limited 12 (in the supply of offshore support vessels for exploration and production of natural gas in India) and Ministry of Railways, Union of India13 (in the supply of railway services in India). The Commission has, at the prima facie stage, also rejected more than 30 complaints alleging abuse of dominance, including against players operating in technology-driven markets, such as ANI Technologies (Ola Cabs) and Uber14 (online taxi booking aggregators).
In OLA and Uber, however, the Commission, while rejecting the need for an investigation, acknowledged that common investor ownership may amount to control that could cause potential harm to competition in concentrated markets through coordinated decisions of competing firms having common investor ownership. In addition, common ownership of firms with related and competing commercial interests may increase the risk of exchange of sensitive information, which may facilitate price-collusion or restrict capacity and volumes. In the Commission's view, an institutional investor, despite holding 'passive' investments, may affect the competitive dynamics of the market, and common shareholdings could affect incentives to compete or incentivise collusive behaviour. Nevertheless, allegations of collusion must be based on evidence to warrant an investigation.
The Commission also rejected complaints in the real estate market: Vatika,15 Uttar Pradesh Housing and Development Board 16 and Merlin Developers;17 and in the credit rating market: TransUnion CIBIL.18 And in the e-commerce sector, the Commission rejected complaints filed by an industry association representing online sellers alleging abusive conduct by online marketplaces, such as Amazon and Flipkart.19
The Commission ordered the closure of two cases after issuance of the investigation report by the DG: Vishal Gupta20 and GAIL.21 In Vishal Gupta, the Commission noted that Mr Vishal Gupta (informant) was aggrieved that his company, Shyam Garments (SGL), which operated a Google AdWords account, was suspended as a result of Google trying to unilaterally promote its own remote tech-support service, 'Google Helpout'. Following an investigation, the Commission noted that platforms and users are free to agree upon the terms and policies that will govern their relationship, including enforcement mechanisms. Google's AdWords policies clearly defined minimum standards of use for its advertising platform to protect the vulnerable end-users. The Commission found that Google was prompted to review its advertisement to check compliance with the user safety policy and other relevant policies pursuant to the alerts, triggers and warnings from the Federal Trade Commission and other antitrust regulators. The Commission concluded that suspension of the AdWords account operated by SGL had been undertaken pursuant to multiple violations of Google's policies, which were duly communicated via email to the advertisers, and were not to promote its own tech support services. Google had successfully demonstrated that it followed a fair, legitimate process, using clear, accessible and pro-consumer policies and, therefore, did not infringe the Act.
In GAIL, the Commission noted that six separate complaints were filed against GAIL alleging that GAIL imposed unfair terms and conditions under the gas sale agreement (GSA) for procurement of re-gasified liquefied natural gas (RLNG). Following the DG's investigation and report, the Commission observed that long-term RLNG contracts were fairly common in the energy sector. These contracts were not inherently anticompetitive because the informants were at liberty to enter into short-term contracts, but instead chose to enter into long-term RLNG contracts on account of certain commercial advantages (such as assured and steady supply, and insulation from price volatility). The Commission also scrutinised the 'take or pay' liability clause contained in the GSA, which required the buyer to pay for the contracted quantity of gas for the year even if the buyer did not procure the entire quantity in that year. Nevertheless, the buyer could demand, at a later point of time during the contract period, any shortfall in the quantity not procured from GAIL. The Commission noted that, despite there being 'under-drawals' of gas by the informants, GAIL continued to supply to them without invoking the take or pay liability clause. In fact, GAIL did not invoke the take or pay liability clause as long as the price of gas in the spot market was higher than the price specified in the GSA. The Commission noted that GAIL demanded the differential from the informants only when the spot market prices fell below the contracted price under the GSA or if GAIL was unable to sell the under-drawn gas in the spot market. The Commission also took into account similar obligations that GAIL had with the upstream supplier and, based on all of these findings, concluded that GAIL's actions were directed at mitigating the losses that could have accrued to GAIL from under-drawals by the informants, and did not raise any competition concerns.
The Commission also closed the inquiry into the conduct of AFI,22 the apex body controlling and managing athletic events in India, after receiving a reference from the Department of Sports, Ministry of Youth Affairs and Sports regarding possible contravention of the Act. The Commission noted that AFI's internal memorandum, which mandated 'organisers to seek its permission before organising any marathon/road race at national and international level and cautioned state units/officials/athletes and individuals to not encourage unauthorised marathons or become part of such marathons', was not actually implemented by AFI. In the absence of any implementation, the Commission concluded that there was no contravention of the Act.
In the period 2018–2019, following the merger of the Competition Appellate Tribunal with the Tribunal, the Tribunal has not rendered any notable decisions relating to Section 4. This is largely attributable to the caseload burden relating to company law matters and matters under the Insolvency and Bankruptcy Code 2016, all of which fall within the jurisdiction of the Tribunal, in addition to competition law appeals from the Commission's orders.
III Market Definition and Market Power
Market definition and market power remain the starting point of every competition law assessment for determining dominance and the abuse of dominance by an enterprise.
i Relevant market
The Act defines 'relevant product market' as a market comprising all those products or services that are regarded as interchangeable or substitutable by the consumer, by reason of characteristics of the products or services, their prices and intended use. The notion of 'relevant geographic market' is defined in the Act as a market comprising an area in which the conditions of competition for the supply of goods or provision of services or the demand for goods or services are distinctly homogeneous and can be distinguished from the conditions prevailing in the neighbouring areas. The notion 'relevant market' is defined by the Act as a market that may be determined by the Commission with reference to the relevant product market or the relevant geographic market or with reference to both markets. In Section 19, the Act also identifies factors that the Commission must take into account in defining the relevant market.
In Google, the Commission defined two relevant product markets: the market for online general web search services and the market for online search advertising services. The Commission noted that online general web search services constitutes a distinct relevant product market, which is not substitutable for the direct search option, which requires the users to type the URL of a website in the internet browser. This is because users may not be aware of URLs of all websites that offer the information they are searching for. Search engines, therefore, become the first port of call for a user looking for information online. Accordingly, general web search services cannot be equated with direct search services.
In Google, the Commission also noted that online search advertising services constitute a distinct market. First, online and offline advertising services are not comparable because:
- online advertising is not substitutable with advertising in newspapers, radio or television for advertisers seeking to target user groups having limited internet access;
- advertising rates are much lower for online advertising; and
- online advertising allows the users to accurately monitor the effectiveness of the advertisement in terms of actual views.
Second, search and non-search advertising are different because:
- search advertising is used for demand fulfilment and non-search advertising is used for creating brand awareness; and
- search and non-search advertising have different pricing mechanisms (search advertising is priced based on cost-per-click and non-search advertising is priced based on cost-per-thousand impressions).
With respect to the relevant geographic market, the Commission concluded that the relevant geographic market for online general web search services and online search advertising services are national; that is, the national territory of India.
In SALPG, the Commission found that SALPG was the sole player offering LPG terminalling services at Visakhapatnam Port, and these services offered by SALPG in Visakhapatnam were not available to consumers operating in adjacent ports, such as Haldia and Ennore. The Commission, therefore, defined the relevant market as the 'market for upstream terminalling services at Visakhapatnam Port'.
The market definitions adopted by the Commission in cases relating to the real estate sector continue to remain unpredictable, muddled and inconsistent. In contrast with the earlier DLF cases,23 where the Commission first characterised residential apartments priced at 2 billion rupees (approximately) as high-end apartments and then defined the relevant product market as high-end apartments, the Commission adopted an objective and price-neutral approach for defining the relevant market in the latest case involving DLF. In the most recent DLF case, where the residential apartments under scrutiny were priced in the range of 4 to 6 million rupees, the Commission defined the relevant market as the market for the 'provision of services for development/sale of residential apartments in Gurgaon' without any reference to the cost price of an apartment. However, in GDA, the Commission appears to have reverted to its earlier reasoning and once again has identified the relevant market by reference to the pricing of apartments, and defined the relevant market as low-cost residential flats under affordable housing schemes for economically weaker sections.
In AICF, the Commission identified two relevant markets; that is, the market for the organisation of professional chess tournaments and events, and the market for services of chess players, to assess whether AICF imposed unfair conditions to limit or restrict chess players from actively participating in chess tournaments not authorised by AICF. In this case, the Commission relied on its findings in the Dhanraj Pillay case,24 to note that the product market needs to be analysed from the perspective of the ultimate viewers of sport events (i.e., the end consumers), who influence the popularity of the sport, which, in turn, determines the value proposition of the commercials associated with different sports. In addition, a sports federation requires the services of players, officials, etc. for staging an event that necessarily implies that the sports federations are consumers of the services offered by the players, officials and others. The Commission also noted that AICF hires the services of chess players for organising chess events, which makes it a consumer of chess player services, and AICF cannot substitute the services provided by chess players with any other service. Similarly, from an intended-use perspective, chess, in particular, may not be regarded as substitutable with other forms of general entertainment or sports.
In Esaote, the Italian company Esaote, which operates in the provision of medical diagnostics systems (specifically MRI machines) market, the Commission noted that dedicated standing/tilting MRI machines (G-Scan MRI machines) manufactured by Esaote are distinct from conventional MRI machines, based on physical characteristics and intended use. The Commission then proceeded to define the market as the 'market for dedicated standing/tilting MRI machines in India'.
These 2018 decisions demonstrate that the Commission has continued to define markets narrowly in abuse cases, which naturally facilitates an easier finding of dominance.
In assessing dominance and market power in the relevant market, the Commission is required by Section 19 of the Act to assess dominance in the context of a broad range of non-exhaustive factors, including market share, size and resources of the enterprise, size and importance of the competitors, vertical integration, entry barriers and dependence of consumers on the allegedly dominant enterprise. The role and importance of each of these factors varies depending upon the facts of each case and the alleged theory of harm, but in its decisions, the Commission will assess dominance of the allegedly dominant enterprise under each of the Section 19 factors. Generally, market share and the size and resources of the enterprise will be the most important criteria in the Commission's assessment of dominance.
In Google, despite acknowledging that, in high technology markets (often characterised by network effects), innovation is the key and the market shares of the players are typically transient, the Commission found Google to be dominant in both the relevant markets (i.e., the markets for online general web search services in India and online search advertising services in India). Google's consistently high market shares and other technical and structural advantages were relied upon by the Commission to arrive at this conclusion.
In AICF, the Commission concluded that AICF's dominance was the result of a number of factors, including its regulatory powers, control over infrastructure, control over players, and its ability to regulate and control the conduct and governance of all chess events in India.
In DLF, despite adopting a different market definition from the position taken in the earlier cases involving the same company, the Commission separately assessed DLF's dominance in the market for residential apartments in Gurgaon because of the changed market situation. The Commission noted that, due to the presence of multiple developers that accounted for 90 per cent of the total projects, DLF was no longer dominant in the relevant market. It is notable that several of these developers are new entrants, which casts doubts on the Commission's earlier assessment of barriers to entry.
In the case involving state-owned builders and developers (GDA), the Commission noted that GDA had gained absolute control over the sale and development of residential, institutional or commercial plots (as the case may be) because of the statutory framework in place and the financial backing of the concerned state government. No competitor in the market could match the size and structure of these authorities.
In SALPG, the Commission found that SALPG was the only player offering terminalling services at Visakhapatnam Port and, therefore, enjoyed a 100 per cent market share in the relevant market identified by the Commission. Due to high entry barriers arising from the need for significant financial investment and a long gestation period, and the fact that consumers could not use the terminalling services being offered at the Haldia and Ennore ports, the Commission concluded that SALPG enjoyed an undisputed position of dominance in the relevant market.
In Esaote, the Commission found that the consumers (i.e., hospitals and diagnostic clinics), are entirely dependent on Esaote's G-Scan MRI machines for diagnosis of joint-related ailments, and Esaote remains the sole manufacturer and supplier of G-Scan MRI machines in India. The Commission also found that Esaote was not constrained by any other viable substitute to G-Scan MRI machines, which allowed it to operate independently of competitive forces and, consequently, affect consumers in its favour. Based on these findings, the Commission concluded that Esaote commands a virtual monopoly in the 'market for dedicated standing/tilting MRI machines in India'.
While the Commission's decision in DLF (the latest order) is an improvement over its prior orders against the company, the inconsistency in the definition of markets and the assessment of dominance in the Indian real estate sector is likely to continue until the Supreme Court renders its judgment in the DLF case that has been pending in the Court for a long time. The Competition Commission of India's (CCI) earlier decision in DLF has, itself, arguably been the reason for DLF suffering commercially and losing its relative leading position. The DLF string of cases also highlights how delays in dealing with competition matters in the appeal process frequently result in injury to the appellant company in terms of market perception and the deposit of fines, even in cases where the appellant company may be strong on the merits of the case. The Commission's decision in Esaote demonstrates its inclination to define relevant markets narrowly to facilitate a finding of dominance.
Under Section 4(2) of the Act, an enterprise (or a group) abuses its dominant position if it:
- directly or indirectly imposes unfair or discriminatory conditions in the purchase or sale of goods or services or price in purchase or sale (including predatory price) of goods or services (exclusion: discriminatory conditions or prices that may be adopted to meet competition);
- limits or restricts:
- production of goods or provision of services or markets therefor; or
- technical or scientific development relating to goods or services to the prejudice of consumers;
- indulges in conduct resulting in denial of market access in any manner;
- makes the conclusion of contracts subject to acceptance by other parties of supplementary obligations that, by their nature or according to commercial usage, have no connection with the subject of such contracts; or
- uses its dominant position in one relevant market to enter into or protect another relevant market.
Section 4(2) of the Act appears to contain an exhaustive list of conduct that may constitute abuse of dominance, unlike Article 102 of the Treaty on the Functioning of the European Union (TFEU). The list of 'abuses' in Section 4(2) is sufficiently broad and could cover most exploitative and exclusionary conduct that could be characterised as an abuse of dominance. Section 4(2)(c), in particular, which prohibits any conduct by a dominant enterprise resulting in 'denial of market access in any manner', is frequently used by complainants or informants to cover exclusive dealing, refusal to supply and other theories of anticompetitive harm that do not explicitly fall within any of the other categories in Section 4(2).
It is notable that, unlike Article 102 of the TFEU as interpreted by the EU courts, the Act does not provide for objective justifications as defences to the anticompetitive conduct of dominant enterprises. Under the Act, the only defence recognised for abusive conduct of a dominant enterprise is the 'meeting competition' defence. To date, the Commission has not provided any published guidance, including in its decisions, on the scope of this defence.
ii Exploitative abuses
In Google, while assessing Google's conduct, the Commission placed emphasis on the special responsibilities and obligations of dominant enterprises in digital markets. Digital markets are often characterised by network effects and are capable of creating virtual hegemony of players with strong market positions (due to the 'winner takes all' phenomenon). While acknowledging that network effects promote innovation, the Commission observed that '. . . it cannot be disputed that network effects can raise switching costs for users and barriers to entry for potential competitors. As a consequence, market entries become less likely and users switch less frequently to other suppliers, which has a market power enhancing effect'. The Commission stated that Google, being the gateway to the internet for a vast majority of internet users due to its dominance in the online web search market, is under an obligation to discharge its special responsibility. The Commission also stated that Google's 'special responsibility' is critical in ensuring not only the fairness of the online web search and search advertising markets, but also the fairness of all online markets, given that these are primarily accessed through search engines. The Commission found the following conduct of Google abusive:
- Ranking of universal results: prior to 2010, these were pre-determined to appear at the first, fourth or 10th position on the SERP and were not generated based on their relevance. The Commission found that this practice of Google was unfair to users and was in contravention of the provisions of Section 4(2)(a)(i) of the Act. However, since Google had modified its practice from October 2010 onwards, thus ensuring that the search results were displayed on a free-floating basis, the Commission did not issue any cease-and-desist order and only directed Google to desist from engaging in such practices in the future.
- Prominent display of commercial flight unit: the Commission found the prominent display and placement of Google's commercial flight unit, with links, on the SERP, which led the users of search services to Google's specialised search options and services (Google Flight), to be an infringement of Section 4(2)(a)(i) of the Act. Through its search design, Google had not only placed its commercial flight unit at a prominent position on the SERP, it had also allocated disproportionate space to such units to the disadvantage of non-Google website verticals trying to gain market access.
- Prohibitions under the negotiated search intermediation agreements: prohibitions on the publishers under the negotiated search intermediation agreements were found to be an unfair imposition under Section 4(2)(a)(i) of the Act, restricting the choice of these partners and preventing them from using the search services provided by competing search engines.
In Coal India, the Commission, following the Competition Appellate Tribunal's directions, conducted fresh hearings and passed orders against Coal India. Notably, the Competition Appellate Tribunal had also assessed the Commission's findings against Coal India in a case concerning the e-auction scheme. Both the Commission (in the recent orders) and the Competition Appellate Tribunal have found that Coal India abused its dominant position by taking advantage of being the lone producer and supplier of coal in India, which is the most important raw material for power generation. The Commission found the terms and conditions imposed by Coal India through the fuel supply agreements, particularly those relating to the grading of coal, sampling process, sampling and supply of ungraded coal and force majeure, to be unfair. The Competition Appellate Tribunal found that the conditions in the e-auction schemes were onerous and one-sided.
In GDA, the Commission noted that the conduct of GDA in arbitrarily raising the prices of low-cost residential apartments (under affordable housing schemes for economically weaker sections) from the initial price of the apartments without any enabling provision (either in the brochure or allotment letter) on the pretext of miscalculation of cost of the project (as well as increase in cost over the years due to other extraneous factors) can only be explained by an abuse of its dominance.
In Esaote, the Commission found that despite entering into an agreement for supplying new G-Scan MRI machines, Esaote chose to supply G-Scan MRI machines that were already in its possession for over a year. The G-Scan MRI machines supplied by Esaote broke down frequently and remained unused at the installed sites, namely Hargovind Enclave and Apollo Hospital, for 58 per cent and 76.1 per cent of the time, respectively. The Commission also noted that Esaote imposed unfair prices and conditions in terms of its dealings by supplying a lower-priced opaque cage in place of a 'see-through, perforated radio-frequency cage'; or by refusing to supply the European Conformity-approved head coils, as agreed by the parties. Upon a review of the purchase order placed with Esaote, the Commission also noted that the company had tried to impose arbitrary charges to fulfil its obligations under the contract on the basis of a selective reading of the purchase order. Esaote's overall conduct was found to be in contravention of Section 4 of the Act.
The past year saw a continuation of the unfortunate trend of the Commission continuing to focus more on exploitative abuse cases rather than exclusionary abuse cases, highlighting the fact that complainants (informants) prefer the faster proceedings and decision process of the CCI over the protracted breach of contract civil proceedings in a court of law, and the Commission is willing to entertain such allegations with alacrity. For example, the Esaote matter appears to be a purely contractual dispute between two parties regarding terms of delivery and supply and yet, the Commission expended significant time and resources on this case.
iii Exclusionary abuses
In Google, the Commission found a clause in the negotiated search intermediation agreements, which required the publishers not to implement search technologies on their sites that are the 'same or substantially similar' to that of Google as restrictive of competition. The Commission also found that Google prevented partners, with whom it entered into negotiated search agreements, from implementing search services from a competitor providing similar or substantially similar search services. In addition, the Commission found that by restricting websites from partnering with competing search services, Google denied its competitors access to the search business and further marginalised them. These restrictions were found to be a de facto imposition of online search exclusivity in contravention of Section 4(2)(c) of the Act. The Commission took into account the effects of the exclusivity clauses of the negotiated intermediation agreements in light of the network effects in the online search and search advertising markets and Google's dominance in these markets. Therefore, although the number of intermediation agreements entered into with Indian partners was not substantial and the term of such agreements varied between two and three years, the Commission found that the exclusivity clauses created conditions for extending and preserving Google's dominance in search intermediation in perpetuity. Based on the evidence contained in the DG's report, the Commission held that Google leveraged its dominance in the online general web search market to impose restrictive conditions in the negotiated search intermediation agreements in contravention of Section 4(2)(e) of the Act.
In Vishal Gupta, however, the Commission dismissed an allegation against Google for suspension of the AdWords account operated by SGL for multiple violations of Google's policies, which were duly communicated via email to the advertisers. The Commission noted that Google's policies were accessible and pro-consumer and, therefore, did not infringe the Act.
In SALPG, the Commission found that SALPG was denying East India Petroleum Company access to its LPG terminal infrastructure at Visakhapatnam Port, which was deemed to be an essential facility by the Commission. SALPG submitted that it had certain safety and technical feasibility concerns. Rejecting SALPG arguments, the Commission stated that the justifications advanced by SALPG ignore the inefficiencies resulting from SALPG's conduct and the resulting foreclosure of competition. The Commission then concluded that the infrastructure operated by SALPG was indispensable and denial of the infrastructure amounted to an infringement of Section 4 of the Act.
In AICF, the Commission found that the restrictions imposed by AICF prevented chess players from participating in any tournaments not recognised by AICF. The evidence on record clearly established that AICF created hurdles for competing chess organisers (i.e., Chess Association of India) in the organisation of chess tournaments, as well as prevented chess players, who participated in these non-authorised tournaments, from playing in other chess tournaments. The Commission also noted that, in the absence of any guidelines governing the authorisation or sanctioning of chess tournaments by AICF, AICF could exercise absolute discretion in treating any tournament as unauthorised. In addition, the removal of ELO ratings (for chess players) as a consequence of participating in an unauthorised tournament without offering any opportunity of being heard was also found to be unjustified. The Commission then concluded that AICF had not been able to demonstrate how such a blanket ban was necessary to preserve the integrity and promotion of the sport.
V Remedies and Sanctions
Pending final determination of a case by the Commission, the Commission may issue interim orders restraining the parties from engaging in anticompetitive activities during the course of investigation.
If an enterprise or group is found to have abused its dominant position, in terms of Section 27 of the Act, the Commission may impose fines of up to 10 per cent of the enterprise's or group's average turnover for the preceding three financial years. Keeping in view the principles of proportionality, while deciding the amount of penalty, the Commission takes into account the aggravating or mitigating factors based on the facts and circumstances of each case. In addition, the Commission may pass a cease-and-desist order together with any other orders or directions as the Commission may deem fit. The Commission has not yet issued any guidelines on penalties.
The Supreme Court has clarified that, for determining the amount of penalty, the Commission must take into account the relevant turnover generated from products and services affected by the infringing conduct, as opposed to total turnover, which was considered by the Commission for the purposes of levying penalties prior to the Supreme Court clarification. The Supreme Court noted that any penal law imposing punishment is made for the general good of society and emphasised the principle of proportionality, which requires that the penalties imposed must not exceed what is appropriate and necessary for attaining the objective pursued.
During the 2017–2018 period, the Commission found infringements of Section 4 of the Act by five enterprises: Google, Esaote, AICF, SALPG and GDA. In Google, after considering the aggravating and mitigating factors, the Commission imposed a monetary penalty of 1.35 billion rupees (5 per cent of the average annual revenues generated from Google's India operations in the financial years 2013, 2014 and 2015). Interestingly, the Commission noted that the concept of 'relevant' turnover cannot be applied to a technology platform, such as Google, in the same manner as for a conventional multi-product firm. This is because '. . . [in] a two-sided market, the search side is free whereas the other side is monetised through advertisements. . .' Therefore, although Google's revenues from its various business segments were taken into account, the Commission ultimately considered a sum total of the revenues generated by Google's India operations for calculating the fine. The Commission also imposed certain remedial measures.
In Esaote, AICF and SALPG, the Commission imposed a penalty of 0.93 million rupees (10 per cent of the average annual turnover for the three preceding financial years), 0.69 million rupees (2 per cent of the average annual turnover for the three preceding financial years) and 192.07 million rupees (10 per cent of the average annual turnover for the three preceding financial years), respectively, and also issued certain cease-and-desist orders (in Esaote and AICF) and directions (in SALPG). In GDA, the Commission imposed a penalty of 10.06 million rupees (5 per cent of the average annual turnover for the three preceding financial years), and also passed certain cease-and-desist orders.
The Commission is empowered to proceed against company officials under the provisions of Section 48 of the Act. The High Court of Delhi,25 in exercise of concurrent writ jurisdiction, has recently clarified that the Commission can simultaneously proceed against the company for infringing the Act, and company officials under Section 48 of the Act.
i Proceedings before the Commission
The Act provides the procedure for filing of the information (i.e., the complaint), the investigation process, inquiry by the Commission and the procedure for appeal.
Any person may file a complaint with the Commission, in the prescribed format together with requisite fees, alleging contravention of the provisions of the Act. The informant (i.e., the complainant) may also file an application with the Commission for interim measures by describing the harm that would be caused if no interim protection is granted. Once the information is filed, the Commission, as far as possible, is required to record its opinion on the existence of a prima facie case within 60 days of the filing of the information. If the Commission is of the opinion that there exists a prima facie case, the Commission may direct the DG to conduct an investigation into the alleged anticompetitive conduct and submit its report within the time specified by the Commission.
Upon completion of the investigation, a non-confidential version of the DG's report is provided to the informant and a confidential version of the report is provided to the enterprises under investigation. The parties are then directed to file their respective comments or objections to the report within the time limit specified by the Commission. Thereafter, the Commission schedules the case for hearing the parties – both the informant and the enterprises that allegedly infringed Section 4. The hearing is sometimes attended by a representative of the DG, but the DG is not present to defend the investigation report in all cases. Rather, in a case where the report finds an infringement of Section 4, the Commission relies on the informant to provide its submissions and, where the DG's report is favourable to the informant, to defend the DG's report. Where the report finds no infringement of Section 4, the Commission invites only the informant for a hearing before rejecting the information or complaint. The Commission is not obligated to accept the DG's report, and there have been cases where the Commission has disagreed with the findings of the DG and rejected the report.
ii Appellate procedure
An appeal against the final order of the Commission may be made to the Tribunal within 60 days of the date of receipt of the final order by the party. An appeal against the order of the Tribunal may be made to the Supreme Court of India within 60 days of the date of receipt of the Tribunal's order.
Interim measures are available to parties before the Commission, the Tribunal and the Supreme Court of India. Frequently, parties also file writ petitions before the high courts if they believe that principles of natural justice are being violated or their legitimate legal rights are being ignored by the Commission.
VII Private Enforcement
Although the Act does not provide for private enforcement, it does allow a successful informant or any other person affected by the findings of the Commission, to make an application before the Tribunal for compensation from the dominant enterprise based on the findings of the Commission or the orders of the Tribunal.
VIII Future Developments
i Principles of natural justice
The Competition Appellate Tribunal and the High Court of Delhi (in exercise of concurrent writ jurisdiction) have been very critical of the Commission for procedural irregularities and have clarified some of the important rules of procedure. For example, an order of the Commission must be signed by those members of the Commission who have heard the parties. As a result, any order of the Commission signed by a member who has not attended the hearing will be set aside. Also, a party (being investigated) must be provided with all the materials and evidence that are being used against it. The affected parties must also be given notice if the Commission decides to differ from the findings recorded by the DG in the investigation report. In addition, the right to conduct cross-examinations has been recognised.
On the question of the DG's investigative powers, the Supreme Court has clarified that it is well within the DG's powers to expand the scope of investigation and has noted that the Commission's order directing the investigation, in terms of Section 26(1) of the Act, is merely the starting point for the DG.
ii Dawn raid powers
For conducting investigations into anticompetitive practices, the DG's office has been conferred with wide-ranging investigative powers for collecting evidence, including the powers of a civil court under the Indian Code of Civil Procedure 1908. The DG is also vested with the power to use dawn raids or unannounced search and seizures to inquire into allegations of anticompetitive conduct (including abuse of dominance), and the parties being raided have an obligation to cooperate during the search. Dawn raids may also be carried out by any person appointed by the DG in this regard. While conducting the raid, the DG, or any person authorised by him or her for this purpose, has been granted the power to enter any premises, conduct a search at the premises and seize books, papers and electronic media that he or she considers necessary for the purpose of the investigation. These raids generally occur without any warning and are usually conducted at times when least expected, often at the crack of dawn and may even occur over a weekend. The search and seizure operations are conducted in a covert manner leaving no scope for the party under investigation to scuttle the search in any manner or to 'sanitise' the records. If a company has several offices, it is possible that simultaneous raids will be conducted at more than one office. Dawn raids are regarded as an effective tool for inquiry into anticompetitive practices and are authorised by the Chief Metropolitan Magistrate, New Delhi, through a warrant.
These dawn raid powers have been used sparingly and, thus far, there have been three instances of dawn raids in India, one of which relates to an abuse of dominance enquiry and the other two matters relate to cartel investigations. In the raid relating to the abuse of dominance matter, the Supreme Court has recently clarified that an authorisation for search alone would not be sufficient for purposes of the investigation; the authorisation must extend to both search and seizure.
iii Overlapping jurisdiction
In the Ericsson writ petition, the High Court of Delhi upheld the Commission's jurisdiction to examine issues covered by the Act, and held that areas covered under the Act do not fall within the domain of the patent enforcement authorities under the Indian Patents Act 1971. This decision is presently under appeal before a division bench of two judges in the High Court of Delhi.
In the Jio writ petition, the High Court of Bombay held that, in matters relating to the telecoms sector, regulated, controlled and developed by the authorities under the Telegraph Act and the Telecom Regulatory Authority of India Act (TRAI Act), the Commission must await the decision of the telecoms sector authorities because the telecoms sector authorities were best placed to decide the jurisdictional facts before them. This decision of the High Court of Bombay was challenged by the Commission before the Supreme Court. The Supreme Court noted that, while the Commission was entrusted with the duty to enforce the Act against several types of anticompetitive practices that may have an adverse effect on competition, the Telecom Regulatory Authority of India (TRAI) was assigned the role of overseeing the growth of the telecommunications infrastructure by ensuring technical compatibility and effective inter-relationship between different service providers. The Supreme Court then upheld the judgment of the Bombay High Court and held that, since the matter related to the telecoms sector, which is regulated by the TRAI Act, it would be appropriate for TRAI (the market regulator) in the first instance to decide on the jurisdictional aspects. Subsequently, if the findings of TRAI prima facie indicate that the provisions of the Act have been contravened, the Commission's jurisdiction may be invoked to investigate the matter. On the facts of the Jio case, the outcome was non-controversial, and it remains to be seen whether this approach will apply in all cases of overlapping jurisdiction where the sector is regulated by a sectoral regulator. This approach raises several practical difficulties, such as the possibility of the matter before the sector regulator pending for several years with further appeals to the courts. Would the Commission then have to wait until the matter before the sector regulator is finally decided by the Supreme Court (which could take several years) before the Commission can intervene?
Following this case, the Commission arrived at a similar conclusion in NSE,26 where the Commission, while dealing with the issue of co-location, stated that the case was under adjudication by the Securities Exchange Board of India (SEBI) as a result of a whistle-blower letter to SEBI alleging that NSE gave preferential access to a few high-frequency traders and brokers in respect of the exchange's trading platform. The Commission closed the file after concluding that SEBI was investigating issues similar to those alleged by the informant. The Commission noted that, while
discriminatory and abusive conduct which falls foul of the provisions of the Act falls within the jurisdiction of the Commission and can be independently examined by the Commission based on cogent facts and evidence …, the allegations against the [NSE] are yet to be established in an appropriate proceeding and also there is not sufficient information and data before the Commission about the role attributable to [NSE], in the provision of discriminatory co-location services qua certain trading members, as alleged in the Information to arrive at a prima facie view. Thus, it may not be apposite for the Commission to delve into the allegations contained in the Information at present.
iv Constitutionality of certain provisions of the Act
Recently, the High Court of Delhi struck down the provisions of Section 22(3) of the Act (but not the proviso that provides for a quorum of three members for meetings of the Commission).27 Section 22(3) of the Act provides that a decision must be taken by a majority of the members of the Commission, present and voting, and in the event of equality of votes, the chairperson would have a second or casting vote. The Court observed that the second or casting vote in an adjudicatory process is anathema to the rule of law and principle of collegiality. The Court upheld the remaining provisions of the Act, while directing the Commission to issue guidelines in respect of several matters to ensure procedural fairness and respect for the rules of natural justice, including the principle that 'one who hears must decide'.
1 Anand S Pathak is the managing partner at P&A Law Offices.
2 Case No. 7/2012, In Re: Matrimony.com Limited v. Google LLC and Others; Case No. 30/2012, In Re: Consumer Unity and Trust Society (CUTS) v. Google LLC and Others.
3 Case No. 79/2011, In Re: Hemant Sharma and Others v. All India Chess Federation.
4 Case No. 86/2016, In Re: Satyendra Singh v. Ghaziabad Development Authority.
5 Case No. 73/2013, In Re: Amit Mittal v. DLF Limited and others; Case No. 84/2014, In Re: Vijay Kapoor v. DLF Limited and others.
6 Case No. 9/2016, In Re: House of Diagnostics LLP v. Esaote SpA and others.
7 Case No. 70/2014, In Re: Rajat Verma v. Public Works (B&R) Department, Government of Haryana and others.
8 Case No. 76/2011, In Re: East India Petroleum Private Limited v. South Asia LPG Company Private Limited.
9 Case No. 94/2014, In Re: Indian Glycols Limited v. Indian Sugar Mills Association and others.
10 Case No. 16/2018, In Re: Velankani Electronics Private Limited v. Intel Corporation.
11 Case No. 91/2013, In Re: Pan India Infraprojects Private Limited v. Board of Control for Cricket in India.
12 Case No. 1/2018, In Re: Indian National Shipowners' Association v. Oil and Natural Gas Corporation Limited.
13 Case No. 30/2018, In Re: Meet Shah and another v. Union of India, Ministry of Railways and another.
14 Case No. 25-28/2017, In Re: Meru Travel Solutions Private Limited v. ANI Technologies Private Limited and others.
15 Case No. 23/2018, In Re: Ranjit Singh Gujral v. Vatika Limited and another.
16 Case No. 26/2018, In Re: DK Srivastava v. UP Housing & Development Board.
17 Case No. 50/2017, In Re: Cambridge Residents Welfare Association and others v. Merlin Developers and others.
18 Case No. 36/2018, In Re: M. Venugopal Reddy v. TransUnion CIBIL Limited and another.
19 Case No. 20/2018, In Re: All India Online Vendors Association v. Flipkart India Limited and another.
20 Case No. 6/2016, In Re: Vishal Gupta v. Google LLC and others; Case No. 46/2016, Albion InfoTel Limited v. Google LLC and others.
21 Case No. 16-20/2016, In Re: Rico Auto Industries Limited and Anr v. GAIL (India) Limited; Case No. 45/2016, Omax Autos Limited v. GAIL (India) Limited; Case No. 02/2017, Omax Autos Limited v. GAIL (India) Limited; Case No. 59/2017, Rico Auto Industries Limited v. GAIL (India) Limited; Case No. 62/2017, Rico Castings Limited v. GAIL (India) Limited; Case No. 63/2017, Rathi Bars Limited v. GAIL (India) Limited.
22 Reference Case No. 01/2015, In Re: Department of Sports, Ministry of Youth Affairs and Sports v. Athletics Federation of India.
23 See footnote 5.
24 Case No. 73/2011, In Re: Dhanraj Pillay v. Hockey India.
25 Letters Patent Appeal No. 637 of 2018 before the Delhi High Court, Mahyco Monsanto Biotech (India) Pvt Ltd & Anr v. Competition Commission of India & Ors.
26 Case No. 47/2018, In Re: Jitesh Maheshwari v. National Stock Exchange of India Ltd.
27 WP (C) 11467/2018, CM Appl 44376-44378/2018, Mahindra Electric Mobility Limited and Another v. Competition Commission of India and Others.