Delays in evolution of jurisprudence
Inherent challenges of the Act
The Competition Act (the Act), and the way that it is enforced by the Competition Commission of India (CCI), is in need of further development. This article considers the inherent challenges of the Act and four cases that show its evolution as of 2021.
Delays in evolution of jurisprudence
The CCI's enforcement of collusive and/or unilateral business conduct cases(1) since 2009 has been inconsistent. Almost all final orders,(2) which concluded with pecuniary penalties, have been appealed by parties aggrieved before the first specialised appellate tribunal (ie, the National Company Law Appellate Tribunal), making the CCI one of the necessary parties.(3)
The appellate process is exhaustive. Other Indian courts and tribunals are statutorily prohibited from admitting competition law cases, much less adjudicating them.(4) One widely used strategy is to have the pecuniary penalties stayed until disposal of the appeal. The timeline for the disposal of the appeals is uncertain. Moreover, all final orders of the appellate tribunal can be brought before the Supreme Court.(5) It was reported a few years ago that the CCI's total recovery of pecuniary penalties stands at approximately 0.6%, As per CCI's annual reports, in the year 2019 to 2020, the CCI imposed a total penalty of 450.89 million rupees but could only recover 17.89 million rupees – a 3.96% recovery rate that does not cover penalties that were imposed earlier.
The Act empowers the CCI to formally institute all valid information, which is provided for under section 19. In all such cases, an order must be passed by the CCI.(6) The orders are binary: either the CCI dismisses the allegations or directs the office of the director general (DG) to investigate the allegations.(7) If it dismisses the complaint at the prima facie stage, then a right of appeal is available to the complainant or informant before the tribunal. On the other hand, if the DG commences the investigation,(8) the process normally takes between two and four years. On receipt of the DG's investigation report, the CCI shares the non-confidential version with the parties and directs them to submit their responses. The inspection and/or receipt of true copies of the confidential version of the investigation report and any other confidential documentary evidence has a separate regulatory procedure and poses a different challenge to the authorities.
Despite this, the disposal of the matter takes approximately six to nine months to complete, if not more. Thereafter, the oral hearing commences before the CCI by the parties and the written submissions of the oral arguments are filed. Therefore, the total approximate lifecycle of an antitrust conduct case before the CCI is between three and five years.
However, if constitutional writ petitions(9) are brought against the CCI and/or the DG before the high courts of India, the lifecycle extends further. Hence, the combined effect of time taken in adhering to the due process issues at the DG and the CCI, coupled with unforeseen delays in appeals and/or in constitutional writ courts, adversely affects the evolution of antitrust jurisprudence and the recovery of pecuniary penalties.
Inherent challenges of the Act
The Act expressly distinguishes a whistleblower(10) from a leniency applicant.(11) A whistleblower may not necessarily be a rival in the business of the respondents, but a leniency applicant is. The intent of the two is clearly discernible and cannot be interchangeable. A whistleblower may be a disgruntled employee, customer or supplier who may be interested in challenging the business model of the respondents, whereas a leniency applicant is primarily willing to exit the cartel that they formed with other competitors and prefers to mitigate its own unforeseen future risks. A whistleblower may not only disclose a cartel against the respondents but may also expose all the respondents engaged in anti-competitive practices including exclusionary and exploitative practices. A leniency applicant, on the other hand, apart from a member of an ongoing cartel, may not legally expose exclusionary and exploitative practices of other competitors. However, both whistleblower and leniency cases are often instituted as suo motu cases by the CCI(12) for protection of commercial confidentiality and the identity of the applicants.
While it may be necessary to protect both the commercial interests and the identity of the applicants, due to the express mandate of the Act that the CCI must abide by the "principles of natural justice",(13) the concealment of identities of the applicants sometimes becomes a cause of action for constitutional writs. Aggrieved parties prefer to know what type of relief the unknown complainant wishes to claim against them. This right arises from the mandate of the Act that the CCI and the DG have the same powers as the civil courts.(14)
The DG is independent from the CCI's operations(15) and acts as the statutory investigative wing mandated to assist the CCI. In several cases, the DG, in abiding by the intent of the prima facie order of the CCI, has exceeded the mandate of the Act. However, in a few final closure orders, the CCI has disagreed with the DG's finding of contravention. Orders that are passed in this scenario are not passed under any provisions of the Act because the Act does not envisage such a situation.
Consequently, the right of appeal is not available against such closure orders of the CCI as the Act specifically mentions the orders of the CCI (by reference to the provision under which they are passed), which are appealable. This is one of the infirmities of the Act that is expected to be remedied by Competition Amendment Bill 2020. However, the respondents in these types of orders have benefited as the litigation terminates conclusively with the CCI's closure order. Some of the parties aggrieved by the closure orders brought writ petitions before the constitutional high courts but did not receive the desired results.
A few closure orders and other orders that are detailed below show the evolution of this unique jurisprudence.
Liquified petroleum gas supplies
A couple of inquiries were initiated following some unknown complainants(16) against a few liquified petroleum gas (LPG) cylinder suppliers (the suppliers), which alleged bid rigging. The basic allegation was that all the suppliers colluded on the bid prices in responses to the tender notices floated by the state-owned-enterprises (SOEs), which were oil marketing companies. After disagreeing with the prices offered by the suppliers, the SOEs directed all the suppliers to supply at a lower fixed price that the SOEs had calculated internally. This forced all the suppliers to agree to the fixed lower price that the SOEs had dictated. Therefore, the CCI relied on a ratio enunciated by the Supreme Court(17) that the prices dictated by the buyer-SOEs cannot be an agreement of bid rigging among suppliers. It was held that the SOEs, in exercise of their oligopsony market powers, substantially lowered the bid prices and dismantled the collusion of suppliers. Thus, both the matters were closed by two separate final orders of the CCI exonerating the suppliers of allegations of collusive bidding.
A series of complaints were filed by customers(18) of regasified liquefied natural gas (RLNG) against GAIL (India) Limited. The customers alleged that the "take or pay" clause in the gas supply agreement (GSA) entered into between the customers and GAIL was an abuse of dominant position alleged to be held by GAIL. GAIL argued that the GSA was based on the basic framework agreement that it entered into with upstream overseas suppliers of RLNG. As similar terms existed in the upstream contracts, GAIL had had no option but to impose similar "take or pay" clause upon the domestic customers. The CCI closed the inquiry, exonerating GAIL from the allegations of abuse of dominant position.
In two cases arising in the pharmaceutical industry, the CCI held that evidence of tacit understanding in the vertical business chain was sufficient to impose penalties.
In one of the cases, which arose in the State of Madhya Pradesh,(19) the prima facie view dated 29 December 2014 against 12 respondents led to an interesting outcome. Three new respondents were not originally named as necessary parties by the complainants but were added under a separate CCI order.(20) In a supplementary investigation report that was submitted by the DG on 27 November 2017, all the original 12 respondents and one new respondent were exonerated but two new respondents were found in breach of the Act. This order does not only raise substantial doubts about the efficacy of the investigative technique but also raises a fundamental question as to how a single piece of evidence between two enterprises in the vertical business chain could confirm a finding of contravention and conclude causing of "appreciable adverse effect on competition" in the entire state of Madhya Pradesh. The final order was passed nearly five years after the complaint was filed before the CCI, yet it suffered palpable and avoidable infirmities. The matter is under appeal.
Zinc dry cells
In a highly concentrated oligopolistic market of zinc dry cells, one of the competing enterprises filed a leniency application(21) that resulted in a "dawn raid" on the premises of the remaining two enterprises. Both of the raided competitors subsequently filed leniency applications. Despite the raided competitors adding substantial evidentiary values, in addition to the evidence that was submitted by the first applicant, the final order imposed hefty and arbitrary penalties on the second and third leniency applicants, leading both to rush to the tribunal to challenge the computation of penalties by the CCI. The penalties imposed were stayed and the appeal is pending.
The Act is one of India's state-of-the-art legislations.(22) However, the "institutional memory loss", both at the CCI and the office of the DG, is a concern. Interpretations of the Act, delays in appeal and writ proceedings, perhaps require a serious nationwide debate. The objective of the Raghavan Committee, which was entrusted to suggest transitioning from the old regime to this new regime (the Competition Act 2002 (as amended)), has not achieved the desired results. Competition advocacy events have not been able to create awareness of this law among consumers. The old law was premised on "deemed illegality", whereas the new law is based on "rule of reason" – but stakeholders are a long way from gaining access to this new benefit. Statutory "safe harbours"(23) are provided for in the Act, yet the stakeholders are still to receive an unambiguous guideline that would allow them to access such benefits.
For further information on this topic please contact Manas Kumar Chaudhuri or Ebaad Nawaz Khan at Khaitan & Co by telephone (+91 120 479 1000) or email ([email protected] or [email protected]). The Khaitan & Co website can be accessed at www.khaitanco.com.
(1) Cases instituted under sections 3 and 4 of the Act.
(2) Provided for under section 27 of the Act.
(3) Sections 53(A) and 53(B) of the Act.
(4) Sections 60 and 61 of the Act.
(5) Section 53 T of the Act.
(6) Sections 19 read with 26 of the Act.
(7) Sections 26(1) and 26(2) of the Act.
(8) Section 41 of the Act.
(9) Article 226 of the Constitution of India.
(10) Section 19 of the Act.
(11) Section 46 of the Act.
(12) Section 19(1)(a) of the Act.
(13) Section 36(1) of the Act.
(14) Sections 36(2) and 41(2).
(15) Section 16 ensures a different appointing authority for the DG office
(16) In suo motu cases No. 05 of 2014 and No. 09 of 2014.
(17) Rajasthan Cylinders v CCI and others.
(18) See cases 16 to 20 of 2016, 45 of 2016 and 2, 59, 62 and 63 of 2017
(19) Case No. 64 of 2014.
(20) Section 26(8) of the Act was invoked to add new respondents.
(21) Suo Motu Case No. 02 of 2016 filed on 25 May 2016 and disposed of on 19 April 2018.
(22) Page 109 of the Organisation for Economic Co-operation and Development Annual Report of 2007.
(23) Sections 3(5), 19(3) (d) to (f) of the Act, drawing persuasive values from 101(3) of the EU Treaty.