Under the CA, 'cartels' constitute a subgroup of horizontal agreements prohibited under Section 3(3) of the CA. The term 'cartel' has been defined 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 the provision of services.
As mentioned earlier, horizontal agreements that directly or indirectly determine purchase or sale prices, limit or control production, supply, markets, technical development, investment or provision of services, share the market or source of production or provision of services or lead to rigging of bids or collusive bidding are presumed to have caused AAEC. Hence, a party alleged to be engaged in a cartel must satisfy the CCI that it conducted itself in a manner that did not or would not result in an AAEC within India. The phrase 'shall presume' is regarded as a rebuttable presumption, especially because the CCI is mandated to abide by the principles of natural justice, which includes granting an opportunity of being heard to a suspected delinquent or defaulter before an order is passed against it.
As regards assessing what constitutes an AAEC, the CA has provided six factors that the CCI has to take into consideration:
- creation of barriers to new entrants in the market;
- driving existing competitors out of the market;
- foreclosure of competition by hindering entry into the market;
- accruing benefits to consumers;
- improving the production or distribution of goods or the provision of services; and
- promoting technical, scientific and economic development by means of production or distribution of goods or the provision of services.
The first three factors relate to anticompetitive effects arising out of the agreements in question and the defendant would be running a potential risk if the agreement in question is causing or is likely to cause the listed effects. On the other hand, the remaining three factors relate to generation of pro-competitive effects by the agreement in question and may provide a safe harbour to a party alleged to be in breach. In the Auto Parts case, the CCI has held that whether an agreement restricts the competitive process is always an analysis of the balance between the positive and the negative factors listed above.
The penalties in cases of a proven breach of horizontal agreements, including cartels, are substantial. Besides cease-and-desist orders and other directions, the CCI can impose a pecuniary penalty in non-cartel cases of up to 10 per cent of the average of the relevant annual turnovers for the last three preceding financial years upon each member that is a party to the anticompetitive agreement. In the case of proven cartels, the penalty is up to three times the relevant profits for each year of the continuance of such agreement, or 10 per cent of the relevant annual turnover for each year of the continuance of such cartel, whichever is higher. The CCI can also modify an agreement and impose costs. The CCI uses the terms 'turnover', 'income' and 'revenue' seemingly interchangeably, while the CA does not mention 'income'. When imposing penalties on individuals, the CCI is found to employ the term 'income'.
On 8 May 2017, the Supreme Court, in a landmark decision, upheld the decision of the appellate tribunal, observing that the penalty for anticompetitive practices found to be in violation of the CA should be based on the 'relevant turnover' relating to the infringing product or service and not on the total turnover, particularly for multi-product companies. In addition, where the contravention is by companies, the CCI is empowered to penalise individuals who are responsible for the conduct of business of the company or who had consented to or connived in the infringement taking place or whose negligence resulted in the infringing conduct. The CCI has applied the provisions under Section 48 to fix the liability of individuals and penalise them in a number of cases. However, a major criticism when invoking Section 48 has been that while the CCI has invoked Section 48 in certain cases, it has omitted to invoke Section 48 in other cases without any objective justification.
In relation to cartels, the Supreme Court in Competition Commission of India v. Co-Ordination Committee of Artist and Technicians of West Bengal Film and Television Industry had made certain observations which seemed to indicate that it was necessary for the CCI to define the relevant market in all cases including cartels. However, by way of a clarificatory order dated 7 May 2018, the Supreme Court clarified that delineation of 'relevant market' is not a mandatory pre-condition for making assessment of an alleged violation under Section 3(3) of the CA. Defining the relevant market may only be necessary when the presumption of AAEC is being rebutted in terms of Section 19(3) of the CA.
In cases of non-compliance with orders passed by the CCI, where no appeal has been preferred before the NCLAT within the statutory period prescribed under the CA, and where a CCI order has not been stayed by the NCLAT, further penalties over and above the principal penalties may be imposed. In some circumstances where there is repeated non-compliance with a CCI order, the Chief Metropolitan Magistrate of Delhi, upon an application filed by the CCI before it, may order imprisonment against a defaulter for a term of up to three years or a fine of up to 250 million rupees, or both.
Anticompetitive practices, including cartels outside India yet affecting India, are also amenable to the CCI's jurisdiction by the application of the 'effects doctrine'. The CA enables the CCI to enter into international cooperation arrangements or memorandums of understanding (MOUs) with the prior approval of the central government with overseas competition agencies, so that each authority may share experiences in their respective jurisdictions and raise the enforcement bar across the globe for the benefit of consumers. To date, the CCI has entered into MOUs with the Russian Anti-Monopoly Authority, the United States Department of Justice and the Federal Trade Commission, the Australian Competition and Consumer Commission, the European Commission, CADE (the Brazilian Antitrust Authority), the National Development and Reform Commission (Chinese regulator) and the Canadian Competition Bureau. It is believed that the CCI has cooperated and exchanged relevant information by invoking these MOUs during its examination of several global mergers.
The statutory safe harbour available to a member of a cartel is the leniency programme. As briefly discussed above, an enterprise or an individual willing to avail itself of the benefit of the leniency programme needs to make an application to the CCI under Section 46 of the CA read with the LPR. Certain amendments to the LPR were notified on 22 August 2017 (Amended LPR), which bring clarity to the existing leniency regime in India and provide incentives for companies and individuals to proactively assist in cartel enforcement. Prior to submission of the investigation report by the Office of the Director General (DG) to the CCI, any member of a cartel or an individual who has been involved in the cartel on behalf of the enterprise may file an application to the CCI under Section 46 of the CA read with the LPR. The basic condition for the success of an application under Section 46 of the CA read with LPR is that the party claiming such relief must be a party to the cartel, and must provide true and vital information regarding the cartel in question to the CCI. It should also continue to fully cooperate with the CCI until the conclusion of the proceedings. The CCI may grant a fine reduction of up to 100 per cent to the first applicant, up to 50 per cent to the second applicant and up to 30 per cent to the third applicant and subsequent applicants. The Amended LPR provides important clarifications, for instance it clarifies that there is no limit in the number of applicants that can approach the CCI (so long as an applicant can provide 'significant added value' to the investigation) and individuals who have been involved in the cartel on behalf of an enterprise can also apply for lesser penalty as stand-alone applicants. Apart from the above, the Amended LPR bring in some other important changes. As per the Amended LPR there is a possibility of a reduction in penalty of up to 100 per cent both before and after the forming of the prima facie opinion by the CCI and now names of the individuals who have been involved in the cartel need to be mentioned in the application. It is important to bear in mind that while an applicant under Section 46 of the CA may benefit from reduced penalties, the risk relating to the payment of compensation claims (which arises with the passing of the CCI's order) still remains.i Significant cases
The year 2018 was marked with several decisions emanating from applications under Section 46 of the CA read with the LPR. Arguably, the most significant decision of the CCI in relation to cartels was in the First Zinc Carbon Dry Cell Batteries case, which arose out of an application filed by Panasonic Energy India Co Ltd (Panasonic) under Section 46 of the CA read with the LPR. Panasonic disclosed a cartel controlling the distribution and price of zinc-carbon dry cell batteries in India, involving Eveready Industries India Limited (Eveready) and Indo National Limited (Indo), apart from itself. Based on the disclosure made by Panasonic, the CCI ordered an investigation by the DG (the investigative wing of the CCI). During the course of the investigation, the DG conducted simultaneous dawn raids on the premises of all three participants of the cartel. Eveready filed their application under Section 46 of the CA read with the LPR three days after the dawn raid and Indo filed their application several days after Eveready filed their application. After an investigation, the CCI found that there was coordination among the cartel participants to increase maximum retail prices, monitor and control 'price-competition' at all levels of the distribution chain, control supply and also allocate markets for zinc-carbon dry cell batteries. Price increases were led by Eveready, which would typically announce price increases through a press release. Without any time lag, Panasonic and Indo would also increase their prices on the pretext of following the market leader, even though ordinarily revision of prices required time due to the requirements of changing price labels and packaging, etc.
The decision of the CCI in the First Zinc Carbon Dry Cell Batteries case is an important one because it provides clarity on the factors that the CCI will take into consideration while granting lesser penalties under Section 46 of the CA. The CCI found that the information and evidence provided by Panasonic was 'full and true' disclosure, which not only enabled the CCI to order an investigation but also helped in establishing the contravention. Accordingly, the CCI granted a 100 per cent reduction in the penalty for Panasonic. Notably, this marks the first instance of a grant of a 100 per cent reduction in the penalty under Section 46 of the CA. In respect of Eveready and Indo, the CCI found that even though the information and evidence shared by them was already available to the CCI, owing to the continuous and expeditious cooperation extended by these companies, the CCI granted 30 per cent and 20 per cent reductions in the penalties (on the basis of their respective priority status) to Eveready and Indo, respectively, as against the maximum that would have been available under the LPR.
The second significant decision was in the Broadcasting Services case, which also arose out of an application under Section 46 of the CA read with the LPR. The application in this case was filed by Globecast India Private Limited (Globecast) disclosing a cartel with Essel Shyam Communication Limited (ESCL) to rig tenders for procurement of broadcasting services of various sporting events in India. It was admitted by both Globecast and ESCL that there was exchange of commercially sensitive information in relation to tenders. However, ESCL claimed that the exchange of commercially sensitive information was due to the proposed acquisition of ESCL by Globecast and a teaming arrangement between them. However, Globecast argued that the exchange of commercially sensitive information was due to a consultancy agreement between ESCL and Bharat (an employee of Globecast), a fact that was not known to Globecast. Globecast's position before the CCI was that the entire anticompetitive conduct, involving exchange of commercially sensitive information and subsequent coordination of bids, was the brain child of Bharat and ESCL, and Globecast had no knowledge of the same except for one event in 2012, as all other communications between Bharat and ESCL took place through the personal Gmail ID of Bharat. Bharat, on the other hand, argued that ESCL had placed all bids after discussions with Globecast. The CCI held that as infringement of the CA was accepted by both Globecast and ESCL, contentions pertaining to whether Globecast had knowledge of the infringement were inconsequential to the finding of cartelisation. The CCI clarified that as Bharat was an employee of Globecast at the time of contravention of the provisions of the CA and was responsible for submission of bids on its behalf, Globecast was liable for the conduct that took place through Bharat and which resulted in bid rigging. The CCI granted a 100 per cent waiver of the penalty to Globecast as the information and evidence provided by it was not only crucial in the formation of a prima facie opinion by the CCI but it also helped in establishing infringement of the CA. ESCL had also filed an application under Section 46 of the CA read with the LPR but after the formation of prima facie opinion by the CCI. Accordingly, the CCI granted ESCL a 30 per cent reduction in the penalty for adding value to the investigation.
Other cartel decisions of the CCI arising out of applications under Section 46 of the CA read with the LPR were the Solid Waste Management cases, Flashlights case and the Second Zinc Carbon Dry Cell Batteries case. In the Solid Waste Management cases, the CCI provided an important clarification in respect of grant of confidentiality to the information and evidence disclosed under an application under Section 46 of the CA read with the LPR. The parties in this case alleged that the DG, by disclosing in its investigation report the contents of the statements made before it, had in effect disclosed the contents of their respective applications under Section 46 of the CA read with the LPR, in breach of confidentiality accorded to the applicants under the LPR. However, the CCI clarified that an application under Section 46 of the CA read with the LPR and statements before the DG were separate sets of evidence and the confidential treatment granted under the LPR did not extend to evidence obtained or collected by the DG, even if such an evidence is obtained from an applicant under Section 46 of the CA. Once such information is provided separately before the DG, confidentiality over it would be governed by the Competition Commission of India (General) Regulations, 2009 and not the LPR.
The Flashlights case is another interesting case that arose out of an application under Section 46 of the CA read with the LPR filed by Eveready. The CCI in this case was provided with documentary evidence to establish exchange of commercially sensitive information among the alleged cartelists. The CCI, after conducting a review of the relevant emails of the alleged cartelists, concluded that the agreement to raise prices was never implemented (while a draft press release to jointly raise prices was available, there was email exchange which suggested that due to the CCI being active, parties were hesitant to issue the press release and hence there was no implementation), and hence, there was no infringement of the CA. In the CCI's view the exchange of data relating to production and sales of a product only indicated possibility of collusion and could be only considered as a 'plus factor'.
The Second Zinc Carbon Dry Cell Batteries case arose out of a separate application filed by Panasonic Corporation Japan under Section 46 of the CA read with the LPR, disclosing an 'ancillary' (the primary cartel being the one in the First Zinc Carbon Dry Cell Batteries case discussed above) and 'bi-lateral' cartel between its subsidiary Panasonic and Geep Industries (India) Private Limited (Geep). Panasonic was a contract manufacturer of Geep, and had entered into a product supply agreement containing a clause that obliged Geep to maintain prices agreed between Panasonic and Geep and not to take any steps detrimental to Panasonic's market interests. The CCI found such a clause to be inherently anticompetitive. The CCI in this case also granted a 100 per cent reduction in the penalty for Panasonic, for providing information and evidence that helped the CCI in forming a prima facie opinion and in establishing infringement.
It is manifest that while the cases arising out of applications under Section 46 of the CA read with the LPR outnumbered ordinary course cases, there were a few decisions of significance. One example is the Ethanol case (which arose from multiple complaints filed before the CCI), in which the CCI penalised 18 sugar mills for cartelising in the supply of ethanol to public sector oil marketing companies in India. The CCI imposed a total penalty of 380 million rupees on the sugar mills and two trade associations of ethanol producers. The finding of contravention by the CCI was based on economic evidence such as bids having identical basic prices and net delivered prices despite varying costs of production, bids having identical freight despite varying distances between the sugar mills and the oil depots, and circumstantial evidence such as an increase in the frequency of trade association meetings and calls between competitors and office bearers of trade association near the date of tender.
The year 2018 also witnessed significant developments at the appellate level. The NCLAT on 25 July 2018 confirmed the finding of cartelisation by the CCI in the Cement Cartel case. Importantly, the NCLAT, in upholding the finding of infringement by the CCI ,confirmed that the correct test to be adopted for proving a cartel under the CA is of 'balance of probabilities' and not of 'beyond reasonable doubt'. At the same time, in a landmark ruling the Supreme Court in the LPG Cylinder case set aside a judgment of the erstwhile COMPAT, upholding the findings of bid rigging made by the CCI against several manufacturers of liquefied petroleum gas cylinders. The Supreme Court set aside the finding of infringement mainly on the grounds that in this particular case a finding of existence of a cartel was not sustainable as the procurer had control over negotiation of final prices and a possible explanation for quoting a similar price was not the meeting of minds but market conditions leading to a situation of oligopsony. The Supreme Court also noted that the CCI failed to undertake the required and necessary inquiry to gather more evidence.ii Trends, developments and strategies
A staggering increase in the number of cases involving applications under Section 46 of the CA was witnessed in 2018. It was also observed that in cartel cases the CCI was willing to provide reductions in the penalty to second and subsequent applicants for cooperation even if the information and evidence provided by them was already available to the CCI. This is a positive trend that should encourage more enterprises to approach the CCI. If in a given case, all cartelists wilfully admit wrongdoing, then the CCI can efficiently and speedily remedy the market. However, the CCI has been imposing 'higher than usual penalties' in leniency cases, which may potentially deter second or subsequent applicants from approaching the CCI. Notably, the parties who were applicants under Section 46 of the CA read with the LPR in the First Zinc Carbon Dry Cell Batteries case have preferred an appeal in the NCLAT against the hefty penalties being imposed by the CCI. One must bear in mind that one of the intended objectives of any leniency programme is to avoid protracted litigations.
Following the replacement of the COMPAT with the NCLAT, very few competition appeals have been disposed of. This is a consequence of the NCLAT being overburdened with cases arising out of the Insolvency and Bankruptcy Code, 2016 and various other company cases, which are typically handled as high priority. The Supreme Court's decision in the LPG case has also ushered in a different outlook towards bid-rigging cartels, particularly in oligopolistic markets. The extent to which defendants in similarly placed markets may rely upon the Supreme Court's order before the CCI remains to be seen. The decision of the Supreme Court, which is binding on the CCI under Indian law, is bound to have an impact on future decisions of the CCI.
The Supreme Court's decision in the Telecom Operators case (discussed in detail in Section V of this chapter) is also a noteworthy development. It clears the air in relation to the stage at which the CCI can initiate proceedings in markets where a sectoral regulator is present.
Lastly, it is pertinent to note that the Central Government in India has constituted an expert committee in September 2018 to review the CA and the Rules and Regulations promulgated under it, in view of the changing business environment in India and the international best practices. The committee's recommendations may include changes to the cartel enforcement regime. It is speculated that the committee may recommend bringing clarifications in law on the concepts of 'buyer's cartels' and 'hub and spoke cartels'.iii Outlook
In future, the CCI needs to adopt a pragmatic approach in levying penalties in cartel cases involving applications under Section 46 of the CA read with LPR. The penalties imposed should not be so high that the reduction under Section 46 seems merely notional. The controversial Cement Cartel case is also before the Supreme Court after being upheld by the NCLAT in July 2018. Lastly, in light of the trend of increase in number of leniency driven cases, the CCI needs to keep in mind the resources available with it to deal with such cases. Until now the CCI has been impressively swift in concluding cases arising out of and involving applications under Section 46 of the CA read with the LPR.