The Competition Commission of India’s (“CCI”) regular functioning continues to stand suspended amid the COVID-19 pandemic since March 2020. The Indian antitrust regulator however was quick to adapt to the changed circumstances and adopted a modus operandi which allowed for parties to submit merger notifications as well as responses in on-going investigations and new informations online. The last five months have seen the CCI clear a large number of combinations as well as dispose of several informations and pronounce final orders.

Two of the final orders recently pronounced by the CCI finding parties in violation of the cartel and bid-rigging provisions of the Competition Act, 2002 (“Act”) have come as a surprise to many. While the CCI found clinching evidence regarding the existence of an agreement to cartelize and rig bids, for the first time in a case of cartelization, the CCI refrained from imposing penalties and instead only issued ‘cease and desist orders’.

In the case of In Re: Cartelisation in Industrial and Automotive Bearings (Case no. 05 of 2017) by way of a whistleblower application[1], the CCI found four industrial and automotive bearings manufacturers to have an agreement in relation to price revisions and minimum percentage of price increase to be quoted to automotive and industrial original equipment manufacturers (“OEMs”). This fact was established by way of e-mail communication between the cartelists as well as minutes of meetings attended by the representatives of the various companies where such price-related discussions took place.

The bearings manufacturers argued that there was no appreciable adverse effect on competition (“AAEC”) as a result of the discussions amongst them. Firstly, the price-related information discussed was never implemented, and secondly the OEMs themselves exert significant countervailing buyer power which would not allow for any such agreement to subsist amongst the bearings manufacturers. The CCI however, was of the view that the above arguments do not rebut the presumption of AAEC infact, the very factum that the parties met with each other to decide the price revisions to be quoted to the OEMs, compromised their independence. It enabled them to quote price revisions to the OEMs, different than what they would have otherwise quoted independently.

While the CCI held that the bearings manufacturers were operating in a cartel, it decided against imposing a penalty and observed that, “ends of justice would be met if the parties cease such cartel behaviour and desist from indulging in it in future”.

Recently, the CCI continued this approach in the case of In Re: Chief Materials Manager, South Eastern Railway v. Hindustan Composites Limited & Ors. (Reference Case no. 03 of 2016). The information in this case was filed by the chief managers of the various divisions of the Indian railways against ten manufacturers and suppliers of brake blocks for alleged bid-rigging in the tenders floated by the Indian railways. It was alleged that the companies quoted identical prices and subsequently identical reductions in the course of the negotiations in the railways tenders. Further, even the rates quoted in the tenders issued by different divisions were same despite differences in the geographic locations.

The Director General (“DG”) found smoking-gun evidence of collaboration amongst the companies from 2007-2019 through Whatsapp communications, SMS’s, call detail records of the personnel of the companies as well as statements recorded during investigation and admissions by the company representative. The investigation revealed that the companies decided prices to be quoted and quantity allocation inter-se while bidding in the tenders.

The companies argued that the alleged bid-rigging did not result in an AAEC given the monopsony market condition wherein the Indian railways is the sole purchaser whereas there are a large number of suppliers of the given product and therefore the companies are not in a position to impact prices. The CCI remained unimpressed with these arguments and given the direct evidence of cartelization, held that there is nothing which could be more incriminating to conclude the guilt of the companies.

For a second time in a row, the CCI refrained from imposing any penalty upon cartel participants and directed the companies to immediately discontinue and desist from engaging in this conduct again. The CCI in this case considered mitigating factors such as cooperation by the companies, admission of anti-competitive agreement and the role played by the companies, some of the companies being micro, small and medium enterprises with small annual turnover as well as the economic downturn on account of the COVID-19 pandemic to not impose financial penalties.

Given the consequences and impact of cartelization, in the past the CCI has always imposed monetary penalties for this conduct. The CCI under the Act has the power to impose some of the highest financial penalties in India. The Act prescribes a penalty of upto 3 times the profit for the duration of the agreement to cartelize. The penalty provisions confirm that the Act, like international antitrust legislations perceives cartels to be the most pernicious of antitrust offences and consequently punishes them with exemplary penalties.

Another facet of the cartel investigation which is important to highlight is that the Act being a civil legislation does not require a very high threshold for the standard of proof for such cases. The CCI appreciates that it is near impossible to get direct evidence of a cartel unless the information is brought forth by a whistleblower and therefore does not require evidence which proves the violation ‘beyond reasonable doubt’ – the stand of proof adopted in criminal cases. As long as the circumstantial evidence satisfies the CCI that the conduct of the parties cannot be explained in the absence of an agreement to cartelize, a violation is presumed. At this stage the burden of proof shifts to the parties who can now rebut the presumption of guilt. Unless the presumption is rebutted the violation stands proved.

Considering the penalty powers of the CCI and the kind of evidence required in cartel cases it is astounding that the CCI decided to not impose any penalty in two bid-rigging cases where direct evidence was available. While in the brake blocks case, the CCI mentions the economic strain on industries during the pandemic as one of the factors for not penalizing them, it does raise the question whether this new approach sets a good precedent. In this regard, it is important to note that (i) in the brake blocks case the cartel operated for almost 8 years; (ii) both the cases were initiated way before the pandemic and (iii) the anti-competitive conduct had no correlation with the pandemic. It remains to be seen whether this is a COVID-19 specific concession being granted by the CCI or whether the CCI is going to lay greater emphasis on demanding a change in business practices and not just impose high penalties as a penal measure. It would also be interesting to see whether parties are going to be equally invested in appealing cases where the CCI has rendered a finding on violation without any penalty consequences.