General

General attitudes

What is the general attitude of business and the authorities to competition compliance?

The Competition Act 2002 (the Competition Act) was passed by Parliament in 2002, replacing the Monopolies and Restrictive Trade Practices Act 1969, to which the President assented in January 2003. The provisions of the Competition Act governing abuse of dominant position and anticompetitive agreements, including cartels, came into force on 20 May 2009. The Competition Act became fully operational on 1 June 2011 with the coming into force of the provisions relating to the regulation of combination and merger control provisions. Given that the Competition Act is a relatively new legislation, corporate entities are not very well aware of the implications and the rationale behind competition law. However, in recent years, owing to the constant advocacy initiatives of the Competition Commission of India (CCI) and the advent of technology driven economy, conscious competition compliance has gained momentum among companies. Recent statistics of competition cases, in particular leniency applications, indicate the increasing effectiveness of the competition authorities. Companies have proactively started to adopt competition compliance programmes. Smaller and less organised businesses, however, still lack complete awareness of the significance of competition law and the consequences of non-compliance.           

Government compliance programmes

Is there a government-approved standard for compliance programmes in your jurisdiction?

There are no government-approved standards for competition compliance programmes. However, the Compliance Manual for Enterprises, which was published by the CCI in 2017, comprehensively contains, among other things, a dedicated and separate chapter on ‘Building a Compliance Framework’, which offers substantial guidance on how a competition compliance programme may be formulated.

Applicability of compliance programmes

Is the compliance guidance generally applicable or do best practice and obligations depend on company size and the sector of the economy it operates in?

Company size (in terms of market share) is considered, among other things, when formulating compliance for dominant enterprises or those capable of exercising appreciable adverse effects on competition. Although the Compliance Manual for Enterprises, as released by the CCI, has separate subheadings dealing with vertical agreements and the behaviour of dominant enterprises, it unambiguously recognises that compliance programmes for enterprises (including the focus of those programmes) may vary depending on the market position and nature of the industry in which a particular enterprise operates. Therefore, it is standard practice to prepare competition compliance programmes or guidance based on the sector, industry and operations of the company (while keeping industry and global best practices in mind). Most importantly, a compliance manual must be revised depending on changes to the facts and circumstances of the company and applicable laws (for example, changes in business environment and market share and amendments to competition law) for which it is tailored in first place.

If the company has a competition compliance programme in place, does it have any effect on sanctions?

Having an internal competition compliance manual may be a mitigating factor if the company is found to be in violation of the provisions of the Competition Act; however, it will depend on the facts and circumstances of each case. In the past, the CCI has considered the existence of a competition compliance manual as a mitigating factor while imposing penalties under section 27 of the Competition Act.

Implementing a competition compliance programme

Commitment to competition compliance

How does a company demonstrate its commitment to competition compliance?

The first step in demonstrating commitment towards competition compliance is to have a guidance for competition law available, which may be in the form of a manual or a guidebook. Second, depending on the nature of the business and the sector, it is important to ensure all employees are aware of competition law and related developments, which can be done through training programmes, with visible engagement of senior management. The training programmes and manuals may be made available online over the company’s intranet as well. The employees should undertake those training and guidance sessions on a periodic basis, and a record of attendees should be maintained. Every newly inducted employee must be required to undertake the necessary training at the earliest time possible, perhaps as part of their induction programme. It is important to establish that the company has made sincere efforts towards the adoption and implementation of policies and practices (in letter and spirit) that comply with the Competition Act.

Risk identification

What are the key features of a compliance programme regarding risk identification?

As part of an effective compliance programme, an enterprise must actively identify its compliance risks and reassess those risks at regular intervals. An indicative list of methods for identifying possible competition risks is:

  • the demarcation of the scope of the roles and functions of employees who are likely to interact with competitors (including sales, marketing and distribution; those participating in tenders; those participating or representing in trade or industry association activities, etc) and identify them as those at risk;
  • periodic assessment of, among others, the same suppliers and customers as those of competitors;
  • proposed or existing collaborations, partnerships and joint ventures with competitors;
  • periodic assessment of market shares;
  • periodic internal audit of procedures and documents;
  • periodic internal audit of commercial agreements or arrangements (undertaken and proposed);
  • periodic evaluation of market conduct and proposed schemes;
  • a whistle-blower policy to ensure timely escalation and effective resolution of competition law breaches, with unequivocal assurance on confidentiality;
  • periodic audits to test the employees’, senior management’s and related stakeholders’ awareness of competition law compliance; and
  • identification of whether the industry or sector experiences movement of employees between competitors at ‘short’ intervals

In addition, conducting periodic training programmes for employees and senior management may help in the early identification and detection of competition risks, which will ultimately help in reducing the costs and negative effects of litigation and regulatory interventions and will help companies to enhance their reputation and build goodwill.

Risk assessment

What are the key features of a compliance programme regarding risk assessment?

Once the risks have been identified by periodic internal audits or other means, companies should assess those risks and perform a cost-benefit analysis, keeping in mind the penal provisions and implications (eg, reputational harm) of non-compliance with competition law provisions. Risks faced by the company, in the context of the market, competitors and related stakeholders, should be analysed based on seriousness (if possible, quantified) and the impact on the overall business of the company. It may even be useful to curate a risk matrix or scale (using a matrix to grade the performance of employees is common in the human resources-related functions of most companies). The onus is likely to be on the senior management along with the legal team, if any, of the company to ensure that the risks identified have been duly assessed and resolved. In this regard, the company can resort to legal advisories from external and internal legal teams. The risk assessment should consider, inter alia, the legal and regulatory impact (in the form of investigations, dawn raids resulting in search and seizure orders, penalties, actions against individual employees and senior management, modification of agreements, division of the company enjoying dominance, etc.); the financial impact (in terms of share prices, loss in investor confidence, etc); operational impact on conducting business as usual; and reputational damage. A credible risk assessment requires interdepartmental participation of counsel (in house and external), assessment of the compliance and operational aspects of the business; and identification of the individuals responsible for the implementation of the compliance programme.  

Risk mitigation

What are the key features of a compliance programme regarding risk mitigation?

Risk mitigation for companies involves putting in place policies, procedures and training sessions (including online compliance tools) on a regular basis to ensure they:

  • abstain from entering into any communication with competitors regarding prices, production, market division, bid participation, etc;
  • abstain from incorporating and enforcing terms in agreements that may be considered as anticompetitive under the Competition Act;
  • immediately and completely exit from arrangements that may have already raised or may raise potential anticompetitive concerns;
  • disclose (in appropriate cases) to the Competition Commission of India (CCI) any participation in a cartel-like arrangement;
  • periodically review policies, agreements, commercial arrangements, market conduct and schemes for the early detection of competition risks;
  • have a robust competition law compliance manual in place;
  • educate (train) and brief the employees and top management frequently; and
  • conduct mock drills to test compliance preparedness at all levels of the organisation.

The CCI has observed in various cases that a violation occurring despite the existence of a vibrant compliance programme is normally considered as a mitigating factor. However, whether the benefit will be extended to the parties or not will entirely depend on the facts and circumstances of each case. In addition, as a part of risk mitigation, it is important to identify a point of contact (external or internal legal team) for seeking assistance if there is any doubt.

Compliance programme review

What are the key features of a compliance programme regarding review?

Periodic review of compliance programmes is required to keep pace with changes to the circumstances of the company (in terms of market share, market position, etc) and also to incorporate amendments to laws and regulations and introductions of new rules or regulations and requirements. It is reiterated that periodic review of compliance programmes must incorporate and take note of inputs received as a result of interdepartmental participation of counsel (in house and external), assessment of the compliance and operational aspects of the business and the sharing of insights of changes in experiences owing to changed business circumstances. Evaluation (and incorporation) of relevant (practical) questions received since the implementation of the compliance manual may help in crafting an updated compliance manual as well. 

Dealing with competitors

Arrangements to avoid

What types of arrangements should the company avoid entering into with its competitors?

The company should not generally enter into any conduct (agreement, arrangement, understanding or action in concert) that may fall under the purview of section 3(3) of the Competition Act (anticompetitive conduct among horizontal players) and is likely to have an appreciable adverse effect on competition in the market. These include agreements, arrangements, understanding or practice conducted regarding:

  • the direct or indirect fixing of purchase or sale prices (including the sharing of information of sensitive information exchanges, cartels, etc);
  • restrictions on outputs and the fixing of other trading conditions in the form of limiting or controlling production, supply, markets, technical development or investment;
  • market allocation or market sharing by geographical area, or type of goods or services or number of customers; and
  • collusive bidding (collusive tendering and bid rigging), tenders submitted that have the effect of eliminating competition for bids or manipulating the process of bidding (including bid conditions) or collective boycotts.

An agreement or understanding need not be a formal or written one; even a mere nod may be considered as an agreement between the parties.

Suggested precautions

What precautions can be taken to manage competition law risk when the company enters into an arrangement with a competitor?

In dealing with competitors, an enterprise should take into consideration the following guidance.

  • Do not exchange commercially sensitive information or data (especially those that are non-historic and not publicly available), including strategic information (proposed) that is capable of impacting  individual decisions of prices or quantities of goods or the provision of services of a company. Commercially sensitive information and data  includes:
    • price data (including those of components);
    • quantities (actual and proposed), capacity and utilisation;
    • quality, marketing and other strategic plans (including investments, risks and technology)
    • demand, customers, sales, turnover, profits and margins,
    • the terms of credit, sale, purchase or billing;
    • discounts;
    • delivery or payments terms, including transportation or distribution charges;
    • commissions, rebates or incentives (optional or mandatory, exclusive or otherwise);
    • salaries (maximum, minimum, at band levels, entry-level or otherwise); and
    • any other business sensitive information that disallows companies to act autonomously or independently and instead allows them to tailor their critical business decisions based on such commercially sensitive information or data received from competitors).
  • Do not share markets or customers. These arrangements include the commencement or continuation of supply in a particular geographical area; the withdrawal of supply to such area; and the extent to which the enterprise intends to bid for business from, or make offers to, specific customers or classes of customers, or customers located in particular geographic areas.
  • Do not share confidential documents.
  • Do not exchange information indirectly through agents or by forming hub-and-spoke cartels.
  • Do not use the trade association as a forum or vehicle or platform for coordinating or exchanging commercially sensitive information.
  • Do not meet competitors between the release of tender and the submission of bids.
  • Do not engage common agents to deposit bids.
  • Do not share confidential documents.

When planning to enter into a combination or collaboration with a competitor (in any form) that necessitates it, the exchange of commercially sensitive information (if deemed critical) may be undertaken by creating ‘clean teams’, of members who are not involved in the day-to-day operations of competing companies.   

It is advisable to contact an internal or external legal team or seek legal advice when entering into or contemplating any agreement (including but not limited to a research and development agreement, production or purchasing agreement, standardisation agreement and agreements on commercialisation) with a competitor or even with a non-competitor.

Cartels

Cartel behaviour

What form must behaviour take to constitute a cartel?

‘Cartel’ is defined under section 2(c) of the Competition Act as ‘an association of producers, sellers, distributors, traders or service providers who, by agreement among themselves, limit, control or attempt to control the production, distribution, sale or price of, or, trade in goods or provision of services’.  Summarily, when a (secretive) association of competitors, enterprises or persons aims and agrees to reduce (or cease) competition while giving an impression of there being competition, it may be qualified as a cartel. Another common basis for calling out a cartel includes parallel behaviour in prices, dispatch, supply etc.

The Competition (Amendment) Bill 2020 (the Competition Bill), in addition to attempts to control, includes attempts to limit the production, distribution, sale or price of or trade in goods or the provision of services under the purview of cartel. The Competition Bill also takes into its ambit ‘buyer cartels’.

According to the present definition provided by the Competition Act, there are two essential constituents of a cartel: existence of an agreement and the aim to limit, control or attempt to control. Further, an ‘agreement’ is defined under section 2(b) of the Competition Act to include any arrangement or understanding or action in concert. The understanding or arrangement need not be formal or in writing, and it need not be intended to be enforceable by legal proceedings. Therefore, even a mere nod can constitute an agreement among the parties, and even a mere attempt to cartelise without actually giving effect to it can constitute an infringement of section 3(3) of the Competition Act. In the landmark cases- In Re: Alleged cartelisation in supply of LPG Cylinders procured through tenders by Hindustan Petroleum Corporation Ltd (HPCL) and In Re: Builders Association of India, the Competition Commission of India (CCI) held that the alleged parties cartelised even though there were no express written agreements among the parties to that effect.

In Indian Sugar Mills Association v Indian Jute Mills Association, the CCI found reduced production and capacity utilisation, even when there was a steep increase in the demand, to be an attempt to cartelise and considered it while imposing the penalty under section 27 of the Competition Act.

Avoiding sanctions

Under what circumstances can cartels be exempted from sanctions?

Under section 3(3) of the Competition Act, there is a rebuttable presumption of appreciable adverse effect on competition (AAEC). If a party is able to establish that a conduct has not caused any AAEC, then no violation of section 3(3) (covering cartels) can be established. The Competition Act provides for express exemptions for certain types of horizontal arrangements, as follows.

Horizontal agreement in form of a joint venture

As per the proviso to section 3(3) of the Competition Act, an agreement entered into by way of joint venture is generally considered to increase the efficiency in the production, supply, distribution, storage, acquisition or control of goods and the provision of services; therefore, the presumption of AAEC in the market is not extended to it. The burden of proof to show an AAEC lies on the person alleging that a particular joint venture results in or is likely to result in an AAEC. The CCI in Association of Third-Party Administrators v General Insurers’ Public Sector Insurance and Ors (Case No. 107/ 2013) found a jointly formed captive third-party administrator by all public sector insurance companies to be efficiency enhancing and, accordingly, permissible under the Competition Act. In Indian Glycols Ltd v Indian Sugar Mills Association (Case No. 21/2013), the CCI found joint tendering for ethanol by oil manufacturing companies to be permissible under the Competition Act, thus widening the scope of the joint venture exemption to include agreements with efficiency gains.

Agreements relating to export

Section 3(5)(ii) of the Competition Act exempts an agreement that relates exclusively to the production, supply, distribution or control of goods and services related to exports. In Nirmal Singh Mansahi v Ruchi Soya and Ors (Case No. 76/2012), the CCI found that since 95 per cent of the products were exported, no AAEC in India resulting from the cartel was proven to have been established between the parties.

Agreements entered into to protect IP rights

Section 3(5)(i) of the Competition Act upholds the right to impose reasonable conditions (by way of an agreement) as may be necessary for protecting any of the rights that have been or may be conferred under the Copyright Act 1957; the Patents Act; the Trade and Merchandise Marks Act 1958 or the Trade Marks Act 1999; the Geographical Indications of Goods (Registration and Protection) Act 1999 (48 of 1999); the Designs Act 2000; and the Semiconductor Integrated Circuits Layout Design Act 2000.

Sectoral exemption

The vessel sharing agreements in the liner shipping industry are also exempt from the purview of section 3 of the Competition Act until 3 July 2021.

Exchanging information

Can the company exchange information with its competitors?

There is no specific provision in the Competition Act that provides guidance on the exchange of information among competitors. Generally, companies can exchange information with their competitors provided that the information exchange does not result in the activities prohibited under section 3(3) of the Competition Act. Exchange of information between businesses can be done through various mediums ranging from information shared directly between competitors to information being shared indirectly through a common agency or a third party. Information exchange of commercially sensitive information, such as price-related information or information pertaining to offering discounts; fixing quantities, the production or development of goods or provision of services; marketing, distribution or the supply of goods or the provision of services; market or customer information relating to goods or the provision of services can be seen adversely by the CCI. Commercially sensitive information that is not historical and not anonymised should not be shared with competitors.

The decisional practice of the CCI considers information exchange between competitors that relates to pricing information or provides details of production and dispatch, and where the exchange is accompanied by an impact on prices or production, to be anticompetitive as it facilitates coordination (see Builders Association of India v Cement Manufacturers Association and Ors., Case No. 29/2010). The CCI has, however, in In re: Alleged Cartelisation in Flashlights Market in India (Suo-moto Case No. 01/2017) held that the mere exchange of commercially sensitive information without any impact on prices or production would not be in contravention of the Competition Act. Recently, in Ravi Pal v All India Sugar Trade Association (AISTA) and Ors (Case No. 25/2018), the CCI in relation to the exchange of price sensitive information, such as sugar prices, and forthcoming policy changes by the government on WhatsApp, noted that the information is unlikely to affect free play of the market forces with respect to prices of sugar as it was already available in the public domain.

Leniency

Cartel leniency programmes

Is a leniency programme available to companies or individuals who participate in a cartel in your jurisdiction?

The Competition Act (under section 46as a cartel detection mechanism’) grants the Competition Commission of India (CCI) the power to impose lesser penalties and provides for parties to file applications seeking the reduction of penalties under the leniency regime. The leniency regime is a result of a policy decision to offer whistle-blower protection to encourage the discovery and disclosure of cartels that owing to their secrecy are difficult to unearth and substantiate or prove. The Competition Commission of India (Lesser Penalty) Regulations 2009 (the Leniency Regulations) charters the procedure and lends discretion to the CCI to reduce penalties if full, true and vital disclosures are made, and the applicant continues to cooperate with the CCI until the completion of proceedings before the CCI. To obtain a lesser penalty, all relevant evidence must be disclosed and provided, and nothing should be concealed, manipulated, destroyed or removed by the applicant while filing the leniency application. In addition, the applicant should continue to cooperate with the CCI and participate in the proceedings.

The first case under the Leniency Regulations was filed in 2013 with respect to a cartel in the conveyer belt sector. Although several applications have been received by the CCI under the Leniency Regulations, the first leniency order was passed by the CCI in 2017. In the 2017 case involving the procurement of brushless direct current fans by Indian Railway, not only were penalties imposed on three bidders and their respective office bearers, but in terms of section 46 of the Competition Act, a reduction in penalty (of 75 per cent) was also granted to the leniency applicant. This case was followed by five leniency orders in 2018 and two leniency orders in 2019. Individuals involved in a cartel or any anticompetitive agreement on behalf of an enterprise can also benefit from leniency if they meet the conditions. This was introduced by way of amendment, in 2017, to the Leniency Regulations (the 2017 Leniency Amendment Regulations).

The amount of the reduction in penalties that may be awarded by the CCI also depends on when the disclosure is made (before initiation of investigation, etc). In In Re: Cartelisation in the supply of Electric Power Steering Systems (Suo-moto Case No. 07(01)/2014), the CCI, imposing a penalty on the basis of the marker system, granted a 100 per cent reduction to NSK, which was the first to approach the CCI. Consequently, JTEKT, who approached the CCI for a penalty reduction after NSK, was only granted a 50 per cent reduction. The individuals of these corporate leniency applicants, as identified under section 48 of the Competition Act, were granted the same reduction in penalty by the CCI as was granted to the corporate leniency applicants. Similarly, in In Re: Cartelisation in respect of zinc carbon dry cell batteries market in India (Suo-moto Case No. 02/2016) and in Nagrik Chetna Manch v Fortified Security Solutions & Ors (Case No. 50/2015), the percentage reduction granted by the CCI to individuals was the same as the percentage reduction granted to their corporations. The CCI specifically considered the role played by the individual of Ecoman Enviro Solutions Private Limited (another company under investigation), along with other factors, in facilitating the cartel while granting the reduction in penalty in the Nagrik Chetna case.

Can the company apply for leniency for itself and its individual officers and employees?

The benefit under the Leniency Regulations is extended to the individuals of an enterprise who have been involved in the cartel on behalf of the enterprise. Regulation 3(1)(A) of the Leniency Regulations provides that the enterprise applying for leniency shall also provide the names of the individuals who have been involved in the cartel on its behalf and for whom the lesser penalty is sought by the enterprise. The benefit of leniency was extended to the individuals by the 2017 Leniency Amendment Regulations. Further, for the individual to take advantage of the benefit of leniency, he or she has to adhere to the same standard of cooperation as is applicable on an enterprise. In this regard, the individual should cease participation in the cartel from the time of its disclosure unless otherwise directed by the CCI, provide vital and all relevant information and documents and cooperate expeditiously and without fail throughout the investigation and other ongoing proceedings before the CCI. There shall be no concealment or manipulation in any manner whatsoever of the relevant documents that may be material to the factual existence of a cartel.

Can the company reserve a place in line before a formal leniency application is ready?

The Leniency Regulations under Regulation 5 recognises the concept of a ‘marker system’ for leniency applications. The leniency applicant or its authorised representative may make an application containing all the material information. The information for the purpose of the Leniency Regulations, includes a detailed description of the alleged cartel arrangement, the activities and functions carried out for giving effect to the cartel arrangement, the goods or services involved, the geographic market covered, the date of commencement and the duration of the cartel and the estimated volume of business. The applicant can also approach the designated authority orally or through email or fax for furnishing the information and evidence relating to the existence of a cartel. Once the designated authority receives the application, it has to present the matter within five working days before the CCI. The CCI marks priority status on those applications. Where the priority status has been marked on the basis of information provided orally or through fax or email, the CCI directs the applicant to submit a written application. For granting priority status, the CCI relies upon the date and time recorded by the designated authority or recorded on the server or the facsimile transmission machine of the designated authority. Priority status plays a vital role in determining the reduction of penalty, with the first applicant eligible for up to or equal to a 100 per cent reduction, the second applicant up to or equal to a 50 per cent reduction and the third applicant up to or equal to a 30 per cent reduction. However, apart from the priority status, the reduction also depends on whether the subsequent applicants add substantial value (in terms of ‘full, true and vital disclosures’) to the information already provided by the first applicant.

Whistle-blowing

If the company blows the whistle on other cartels, can it get any benefit?

In accordance with the Competition Act section 46, read with the Leniency Regulations, a leniency applicant or a whistle-blower can only be a producer, seller, distributor, trader or service provider who is (included or) involved in a cartel. However, if one applicant is a participant (as a producer, seller, distributor, trader or service provider) in more than one cartel, then the same provisions of section 46 of the Act as well as the Leniency Regulations can continue to be enjoyed. There have been cases before the CCI where an enterprise was ‘included’ in a cartel for more than one product and accordingly filed separate leniency applications for each product (for which they were in a cartel). A third party or a person who is not a participant of a cartel can (as an ‘informant’) file information with the CCI under section 19(1)(a) of the Competition Act.

Dealing with commercial partners (suppliers and customers)

Vertical agreements

What types of vertical arrangements between the company and its suppliers or customers are subject to competition enforcement?

The rule of reason applies to vertical agreements, which means that vertical agreements are not presumed to have an appreciable adverse effect on competition (AAEC), but are assessed from a legal and economic perspective to determine whether they pose any real threat to competition. Vertical agreements that result in or are likely to result in an AAEC in India fall under the scrutiny of the Competition Commission of India (CCI) under section 3(4) of the Competition Act. Section 3(4) provides an illustrative list of vertical agreements that, if proven to cause an AAEC in India, are prohibited.

Tie-in arrangements

The CCI in Fx Enterprise Solutions India Pvt Ltd and Ors v Hyundai Motor India (Case No. 36/2014) set out three terms that need to be satisfied for an arrangement to qualify as a tie-in arrangement, These are: (1) the presence of two separate products or services that are capable of being tied; (2) the seller must have sufficient market power with respect to the tying product to appreciably restrain free competition in the market for the tied product; and (3) the tying arrangement must affect a ‘not insubstantial’ amount of commerce.

Exclusive supply agreements

In Mr Vijay Gopal v Inox Leisure Ltd & Ors (Case No. 29/2018), the parties were alleged to enter into an exclusive supply arrangement by including a clause in the agreement that ‘Hindustan Coca Cola Beverages Pvt. Ltd. will act as exclusive partner of Inox for beverage availability in the Multiplexes Cinema Theatres of Inox’. However, the clause was discontinued in successive agreements. The CCI, however, did not find that the alleged agreement was likely to cause an AAEC for various reasons, including the insignificant market power of Inox and the choice of Inox to sell competing brands of Cola. The CCI, in this regard, observed that other brands in the open retail market as well as inside other multiplexes were present, which makes the retail sale market of bottled water and cold drinks inside the multiplexes highly contestable.

Exclusive distribution agreements

In the landmark auto parts case (Shamsher Kataria v Honda Siel Cars India Ltd and others, Case No. 03/2011), the CCI imposed a penalty amounting to 25.45 billion rupees on 14 car manufacturers for entering into an exclusive distribution agreement (among other violations). Reliance was placed on the dealership agreement as well as an unwritten understanding between the original equipment manufacturers and their authorised dealers for ascertaining whether a vertical arrangement in the form of an exclusive distribution agreement results in or is likely to result in an AAEC in the market;

Refusal to deal

In the Hyundai Motors case (Fx Enterprise Solutions India Pvt Ltd and Ors v Hyundai Motor India, Case No. 36/2014), even though the CCI found a violation of resale price maintenance, the allegation of refusal to deal was not found. It was held that the mere requirement of prior consent to take a competing dealership does not amount to foreclosure. Moreover, the CCI found no evidence to demonstrate that Hyundai restricted its dealers from acquiring dealerships of competing manufacturers.

Resale price maintenance

In the Hyundai Motors case, the CCI held that by designating the maximum retail price and the maximum permissible discount that could be given by the dealers, Hyundai had effectively set a minimum resale price, thereby engaging in resale price maintenance. However, the Hyundai case has been set aside by the National Company Law Appellate Tribunal and is currently pending adjudication before the Supreme Court of India.

The scope of section 3 of the Competition Act is broad. Even if an agreement does not fall within the ambit of section 3(3) (horizontal agreements) or section 3(4) (vertical agreements) of the Act, the agreement can still be covered under section 3(1) read with section 3(2), which provides that any agreement that results in or is likely to result in an AAEC is void. In addition, an agreement with a consumer does not fall within the purview of section 3(4) since consumers are not part of the production chain.

Would the regulatory authority consider the above vertical arrangements per se illegal? If not, how do they analyse and decide on these arrangements?

Vertical agreements are governed by the rule of reason. Section 3(4) of the Competition Act clarifies that the burden of proof to show that a vertical agreement results in or is likely to result in an AAEC in the market is on the person alleging the vertical agreement to be anticompetitive. The CCI, while analysing vertical agreements under the rule of reason standard, relies upon the factors prescribed under section 19(3) of the Competition Act. It provides for three negative and three positive factors. The negative factors are the creation of barriers to new entrants in the market; the driving of existing competitors out of the market; and the foreclosure of competition by hindering entry into the market. The positive factors are the accrual of benefits to consumers; improvements in the production or distribution of goods or the provision of services; and the promotion of technical, scientific and economic development by means of the production or distribution of goods or the provision of services.

Generally, only when the negative effects of the vertical arrangement overcome the positive effects can the agreement be deemed anticompetitive. However, the CCI, referring to its observations in Shamsher Kataria v Honda Siel (Case No. 03/2011), clarified that ‘where such agreements are entered into by a dominant entity, and where the restrictive clauses in such agreements are being used to create, maintain and reinforce the exclusionary abusive behaviour on part of the dominant entity, then the Commission should give more priority to factors laid down under section 19(3)(a) to (c) than the pro-competitive factors stated under section 19(3)(d) to (f) of the Act, given the special responsibility of such firms not to impair genuine competition in the applicable market’. The factors specified above by no means constitute an exhaustive list, and the competition authorities are free to look beyond them.

The CCI, while analysing vertical arrangements, also takes into consideration whether sound business justification has been provided by the parties and the commercial nature of the agreement between the parties to mutually promote their economic interests. In Shri Sonam Sharma v Apple Inc USA & Ors, while dealing with vertical arrangements, the CCI closed the matter since in the concerned market, none of the alleged parties held a position of strength (in terms of market share) that created entry barriers or drove existing competitors out of the market.

Under what circumstances can vertical arrangements be exempted from sanctions?

Exemptions, as applicable to horizontal arrangements under section 3(3) of the Competition Act, are mutatis mutandis applicable to vertical arrangements. First, if a vertical arrangement does not result in any AAEC in the market or the negative effect does not override the positive effect provided under section 19(3) of the Act, then the CCI will not act upon the arrangement.

Further, the exemption under section 3(5)(i) of the Act is applicable to all the agreements under section 3. It exempts the application of section 3 to all or any agreements restraining the infringement of or imposing reasonable conditions necessary for the protection of intellectual property rights. However, in the FICCI Multiplex case (Case No. 01/2009), the CCI observed that the intellectual property laws do not have any absolute overriding effect on competition law as the exemption is capable of providing a safety valve for the holder of the intellectual property right (IPR) only so long as it is to safeguard the relevant IPR from infringement. More importantly, in order to avail the exemption under section 3(5)(i), the CCI requires the IPR-holder claiming rights over the IPR in question to substantiate the claim by providing relevant documentary proof establishing grant of the IPR. Further, section 3(5)(ii) protects the rights of a person to export goods from India as long as the relevant agreements pertains ‘exclusively to the production, supply, distribution or control of goods or provision of services for such export’.

How to behave as a market dominant player

Determining dominant market position

Which factors does your jurisdiction apply to determine if the company holds a dominant market position?

The dominant position of an enterprise is a reflection of the market power that a firm enjoys and is reflective of the dominant firm’s ability to operate independent of prevailing market forces or affect its competitors or consumers or the relevant market in its favour. Section 4 of the Competition Act defines ‘dominant position’ as:

a position of strength, enjoyed by an enterprise, in the relevant market, in India, which enables it to— (i) operate independently of competitive forces prevailing in the relevant market; or (ii) affect its competitors or consumers or the relevant market in its favour.

In terms of the Competition Act; a firm’s dominance does not depend solely on the size or market share that the firm has, but also on other factors provided under section 19(4) of the Competition Act. These factors include the:

  • market share of the enterprise – however, market share is one of the indicators of dominance, and it cannot be seen in isolation to give a conclusive finding of dominance;
  • size and resources of the enterprises – in the Float Glass case, the Competition Commission of India (CCI) refused to conclude that M/s Saint Gobain Glass India Limited enjoyed a dominant position merely because the data relating to the production facility and the installed capacity led to the inference that Saint Gobain was the largest player in the market;
  • size and importance of the competitors;
  • economic power of the enterprise, including commercial advantages over competitors;
  • countervailing buying power; and
  • market structure and size of market.

Further, it is only within the parameters of a correctly defined relevant market that dominance of an entity can be assessed; therefore, delineation of the relevant market (as prescribed under the Competition Act) is imperative to any dominance analysis.

Abuse of dominance

If the company holds a dominant market position, what forms of behaviour constitute abuse of market dominance? Describe any recent cases.

Though dominance per se is not frowned upon under the Competition Act, a dominant company is subject to a ‘special responsibility’. Therefore, certain exploitative or exclusionary conduct by a dominant company or group is prohibited under the Competition Act.

The special responsibility or duty of the dominant company is to ensure that its conduct does not lessen competition in the market.

Section 4(2) of the Competition Act provides for a list of actions and activities that, if committed by a dominant entity, would amount to an abuse of dominant position. They include:

  • directly or indirectly imposing unfair or discriminatory conditions or prices (including predatory prices) in the purchase or sale of goods or services;
  • limiting or restricting:
    • the production of goods or services or markets thereof; or
    • technical or scientific development relating to goods or services;
  • indulging in practices resulting in the denial of market access in any manner;
  • making the conclusion of contracts subject to unrelated supplementary obligations; and
  • leveraging (using dominance in one relevant market to enter into or protect another relevant market).

Any market conduct of a dominant player that falls under the above-mentioned categories (section 4 of the Competition Act) is considered as an abuse of dominance by the CCI. In the JCB case (Case No. 105/2013), the CCI considered vexatious litigation as abuse of dominant position and stated that predation through abuse of judicial processes presents an increasing threat to competition particularly because of its relatively low antitrust visibility. The recent trends in the CCI’s orders indicate its willingness to extend findings of abuse to novel categories of conduct and markets. Recent findings of search bias by Google is one example: in the Google case (Case Nos. 07 and 30/2014), the CCI found Google to have abused its dominance by (1) resorting to search bias in its universal search results, which were not strictly determined by relevance and thus unfair to users; (2) prominently placing its own commercial flight unit, linked to its specialised search options, which deprived users of additional choice; and (3) using restrictive clauses under intermediation agreements that prevented partners from using competing search engines. In Faridabad Industries Association (FIA) v M/s Adani Gas Limited (Case No. 71/2012), the CCI held that the imposition of unfair or discriminatory conditions in gas supply agreements is in violation of section 4(2)(a)(i) of the Competition Act. Clauses such as minimum guaranteed offtake, payment of interest, force majeure and termination are unfair, discriminatory or unreasonable. The order of the CCI was also upheld by the National Company Law Appellate Tribunal.

Under what circumstances can abusing market dominance be exempted from sanctions or excluded from enforcement?

The only explicit defence that is listed in the Competition Act is the ‘meeting competition’ defence for discriminatory prices or conditions. This defence enables enterprises in dominant positions to respond to moves made by their competitors. In Dhruv Suri v Mundra Port & Special Economic Zone Ltd (Case No. 18/2009), the CCI permitted the discounts charged by a port operator as it was designed to meet the competition put forth by other port operators in the same market.

The Competition Act does not provide for an objective justification defence; however, the CCI has considered sound business justifications while analysing cases for abuse of dominance. The CCI, in the Schott Glass case (Case No. 22/2010), held that Schott Glass was justified to stop dealing with its customer to protect its own trademark. In Faridabad Industries Association (FIA) v M/s Adani Gas Limited (Case No. 71/2012), even though Adani Gas was found to be abusing its dominant position through several clauses in gas supply agreements, the CCI held that a restriction imposed by a dominant enterprise may not be abusive if the dominant enterprise is imposing the restriction because it is subject to the same restriction by a third party or upstream party. Undercutting of prices by a new entrant, who was otherwise incumbent in a different relevant market, was further seen by the CCI as a promotional offer and not as predatory pricing.

Competition compliance in mergers and acquisitions

Competition authority approval

Does the company need to obtain approval from the competition authority for mergers and acquisitions? Is it mandatory or voluntary to obtain approval before completion?

Sections 5 and 6 of the Competition Act, which deal with the regulation of mergers and acquisitions, have been in force since 1 June 2011. Any transaction that qualifies as a combination under the Competition Act is required to be notified to the CCI. Notification to the CCI is mandatory if the jurisdictional thresholds are met. The Competition Commission of India (Procedure in regard to the transaction of business relating to combinations) Regulations 2011 (the Combination Regulations) and various notifications issued by the Ministry of Corporate Affairs are also to be examined when analysing a proposed transaction. In the Etihad Airways PJSC and Jet Airways (India) Limited case (Combination Registration No. C-2013/05/122), the CCI after examining the facts had passed an order approving the combination. However, the Commission, in spite of the approval order, issued a notice under section 43A of the Competition Act for failure to give a notice to it after dismissing Etihad’s argument that the alleged transaction is exempt under the exemptions provided under Schedule I of the Combination Regulations.

However, before considering the jurisdictional financial thresholds mentioned under the Competition Act,  the applicability of exemptions (if any) are to be assessed. Other than the exemptions in terms of section 54 of the Act (where the central government may exempt any class of enterprise by way of notification, the other set of exemptions are provided under Regulation 4 of the Combination Regulations read with Schedule I of the Combination Regulations. These are the categories of transaction that are ‘ordinarily’ not likely to cause an appreciable adverse effect on competition (AAEC) in the relevant market in India and therefore not ‘ordinarily’ necessitating notification to the CCI.

A combination that does not satisfy the de minimis thresholds (ie, the value of the target’s assets is less than 3.5 billion rupees or the target’s turnover is below 10 billion rupees) and meets the jurisdictional threshold prescribed under the Competition Act is required to notify the CCI. In this regard, the asset and turnover thresholds are displayed below.

Jurisdictional thresholds

 

 

Asset

 

Turnover

Enterprise level

India

Over 20 billion rupees

or

 Over 60 billion rupees

Worldwide with an India leg

Over US$1 billion and at least 10 billion rupees in India

Over US$3 billion and at least 30 billion rupees in India

or

Group level

India

Over 80 billion rupees

or

Over 240 billion rupees

Worldwide with an India leg

Over US$4 billion and at least 10 billion rupees in India

Over US$12 billion and at least 30 billion rupees in India

Parties may consider engaging with the CCI and undertake a pre-filing consultation. The consultation does not always require detailed filing or detailed disclosure before the CCI (in terms of seeking assistance in finalising the actual filing of the notification with the CCI) and can also be undertaken for seeking interpretational clarifications.

A combination, if notifiable, cannot be consummated or implemented in any way until clearance has been obtained from the CCI, or a review period of 210 calendar days has passed, whichever is earlier, owing to the suspensory nature of the regime.

How long does it normally take to obtain approval?

The CCI (in terms of Phase I filing) is required to form its prima facie opinion as to whether a combination is likely to result in or has resulted in an appreciable adverse effect on competition in the relevant market in India within 30 working days of receipt of the notice. Clock stops are applied whenever the CCI makes a formal request for information, and the clock is restarted only upon receipt of a satisfactory and complete response from parties as the case may be. The time period of 30 days is extendable up to 15 (additional) working days if the CCI reaches out to third parties or statutory authorities. The time period is extended by 15 more working days if modifications are offered. Finally, when the CCI is of the opinion that the combination does not cause or is likely to cause an AAEC, it will clear the Phase I transaction.

However, if the CCI forms an opinion that the notified combination is likely to cause, or has caused, an AAEC, then the CCI issues a show cause notice to the parties, seeking an explanation as to why an investigation into the combination should not be conducted. Upon receipt of the response from the parties (within 30 calendar days), the CCI may either direct the Director General to conduct a detailed investigation or do so on its own, marking initiation of a Phase II notification.

The CCI directs the parties to publish details of the notified combination in leading daily newspapers, the parties’ websites and the CCI’s website with the objective of inviting comments from the public (and parties’ response to the public’s comments, etc). After examining the additional information sought and so furnished by parties, the CCI reviews the notified combination. If the CCI is of the view that the transaction will cause or is likely to cause an AAEC, then it proposes necessary remedies to the parties and passes final orders approving, prohibiting or suggesting modifications to the notified combination. 

Further, under the Competition Act, the CCI is required to pass an order on a combination under section 31 within 210 days of the date of the notice given to it. The timeline includes both Phase I and Phase II assessment of combinations by the CCI.

Further, the Competition Commission of India (Procedure in regard to the transaction of business relating to combinations) Amendment Regulations 2019, which came into effect on 15 August 2019, added a new Regulation 5(A) to the pre-existing Combination Regulations. Regulation 5(A), among other things, introduces a ‘green channel’ route that allows the combinations of certain types to pass through a route with lesser procedural requirements and restrictions. The combination – wherein the parties to the proposed combination (including their respective group entities or any entity in which they, directly or indirectly, hold shares or control) are not operating at the same or different levels of the production chain nor are engaged in any activity that is complementary to each other – can benefit from the ‘green channel’ route. In other words, parties to the combination that, after considering all plausible alternative relevant market definitions, do not have any horizontal, vertical or complementary overlaps can benefit from the ‘green channel’ route.

If the company obtains approval, does it mean the authority has confirmed the terms in the documents will be considered compliant with competition law?

The order of the CCI approving a combination under section 31 of the Competition Act is for the limited purpose of giving effect to the proposed transaction. Any subsequent violation of the provisions of the Competition Act are outside the ambit of the order. Generally, the order passed by the CCI contains a paragraph that limits the scope of the order passed by the CCI under section 31 of the Competition Act:

It is however to be noted, that the Commission is granting the present approval, under section 31(1) of the Act, and that such approval is being granted, pursuant to the underlying competition assessment, based upon the information/details provided by the Parties, in the notice given under subsection (2) of Section 6 of the Act, as modified and supplemented from time to time. This approval should not be construed as immunity in any manner from subsequent proceedings before the Commission for violations of other provisions of the Act. It is incumbent upon the Parties to ensure that this ex ante approval does not lead to ex-post violation of the provisions of the Act.

Alternatively, it could say: ‘This order shall stand revoked if, at any time, the information provided by the Parties is found to be incorrect.’

Although the above may be the case and although the (earlier) remedies suggested by the CCI largely pertained to non-compete obligations, there have been instances more recently where the CCI, by considering behavioural and structural remedies, which are of much more significance, has demonstrated that it will not be deterred from analysing the agreements in question of a notified combination. 

Failure to file

What are the consequences for failure to file, delay in filing and incomplete filing? Have there been any recent cases?

An Indian combination regime is suspensory; that is, the parties to a notifiable transaction are not allowed to consummate or give effect to the proposed (notifiable) transaction (wholly or partly) in any manner before the CCI grants formal approval. Any action to further a proposed (notifiable) transaction, including the sharing of commercially sensitive information before the proposed (notifiable) transaction is granted approval by the CCI, is likely to be seen as an instance of ‘gun jumping’ and may attract penalties under the Competition Act. Section 43A of the Competition Act (empowering the CCI to impose penalties) would also be attracted in the case of gun-jumping.

If any person or enterprise that qualifies under prescribed thresholds fails to give notice (of a notifiable combination) to the CCI in the requisite manner, the CCI can impose on such person or enterprise a penalty that may extend to 1 per cent, of the total turnover or the assets, whichever is higher, of the combination.

Recently, the CCI imposed a nominal penalty of 100,000 rupees on Airtel (Bharti Airtel Limited, one of the largest telecom operators in India) under section 43A of the Competition Act for violating the standstill obligation under section 6(2)(A) of the Act under which combining entities are required to put the transaction on standby before the CCI gives its approval. In another recent case, the CCI observed that the payment of 1.2 billion rupees as an advance for a proposed transaction amounts to consummating a part of the combination in contravention of section 6(2) read with section 6(2)(A) of the Competition Act and accordingly imposed a nominal penalty of 1 million rupees on the acquirers.

In February 2014, Thomas Cook (India) Limited and Thomas Cook Insurance Services (India) Limited (collectively, Thomas Cook) entered into a part equity, part merger deal with Sterling Holidays Resort Limited, which involved multiple interconnected steps. The parties to the combination, however, analysed all the connected steps in isolation and chose to notify the CCI only of the leg of the multi-step transaction that qualified as a combination under section 5 of the Act. The contesting parties claimed that the remaining steps fall within the de-minimis thresholds, and, accordingly the remaining steps in isolation did not need to be notified. However, the CCI held that the steps are interconnected and interdependent on each other and formed part of a ‘composite combination’ that ought to have been notified and imposed a penalty of 10 million rupees under section 43A of the Competition Act. While upholding the penalty imposed by the CCI, the Supreme Court added that if there is a breach of the statutory provisions of civil law, a penalty is attracted unconditionally on its violation, and there is no requirement of mens rea or an intentional breach to levy a penalty under section 43A of the Competition Act.

If the parties do not disclose facts material to a notified combination or make statements or submissions that are false, then the CCI can impose penalties.

The CCI may invalidate a notification for the filing being incomplete; thereby necessitating re-filing; and the clock being reset. The CCI introduced amendments facilitating ‘pull and refile’ a merger notification that enable parties to offer modifications (remedies) in response to a show cause notice prior to the formal Phase II commencement. In addition, in 2018, the CCI brought into effect the ‘Do It Yourself Notifiability Check’ whereby individuals can take advantage of the portal’s assistance to examine and determine whether a transaction is notifiable or capable of availing any exemptions.

The CCI, in 2018, imposed a penalty of 5 million rupees under section 44 of the Competition Act on UltraTech Cement Limited (a leading cement company in India) for omitting to state material information in relation to the shareholding and control of Kumar Mangalam Birla and his family members in Century and Kesoram, which were competitors of the combining parties in the relevant market considered by the CCI for carrying out the competitive assessment of the combination between Jaiprakash Associates Limited and UltraTech Cement Limited. Further, the CCI imposed a nominal penalty of 500,000 rupees on Telenor ASA, under section 43A, for failure to file notice for certain steps of the combination relating to the acquisition of shares of Telewings Communications Services Pvt Ltd by Lakshdeep Investments & Finance Pvt Ltd. The CCI also imposed a penalty of 1 million rupees on Intellect Design Arena Limited for consummating a combination without giving a notice to the CCI.

Investigation and settlement

Legal representation

Under which circumstances would the company and officers or employees need separate legal representation? Do the authorities require separate legal representation during certain types of investigations?

The Competition Act does not contain provision for mandatory separate legal representation for the company and its officers or employees. Even in terms of section 48 of the Competition Act, which provides for the liability of officers or employees of the company, there is no mandatory requirement of separate legal representation, and the officers or employees can also be represented by the legal representative who is representing the alleged company. The proceedings of the Competition Commission of India (CCI) being quasi-judicial in nature, a party to the proceedings has a right of legal representation. The High Court of Delhi in Oriental Rubbers (LPA 607/2016) held that a party is required to give statements on oath either before the CCI or the Director General (DG) is entitled to proper legal representation. 

Dawn raids

For what types of infringement would the regulatory authority launch a dawn raid? Are there any specific procedural rules for dawn raids?

Section 41(3) of the Competition Act empowers the DG to conduct dawn raids with respect to the matters that are under investigation (ie, behavioural matters, anticompetitive agreements and abuse of dominance). The DG is required to obtain a warrant from the Chief Metropolitan Magistrate, Delhi before conducting a dawn raid on a company’s premises. The Supreme Court of India, referring to its order dated 15 January 2019 in CCI v JCB India Ltd and Others (Criminal Appeal Nos. 76–77 of 2019) held that the seized material during a dawn raid can be used for the purpose of investigation. According to information available in the public domain, the DG has conducted six dawn raids, five of which were in matters relating to cartels or anticompetitive agreements, and one of which was with respect to an abuse of dominance matter.

Failure to comply with the directions of the DG during a dawn raid, without reasonable cause, may attract significant penalties under the Competition Act, which may reach up to 100,000 rupees for each day the failure continues, subject to a maximum of 10 million rupees.

What are the company’s rights and obligations during a dawn raid?

The party to the proceedings must not disturb the course of a dawn raid by the authorised authorities. In that regard, a legal representative and other employees or persons hired by the enterprise are obliged to:

  • enable authorised persons of the CCI to enter the premises (as mentioned in the warrant);
  • enable authorised persons of the CCI to access business documentation and other requested documents, regardless of the manner in which these documents are kept;
  • enable authorised persons of the CCI to access computers and other electronic devices found on the business premises of undertakings, which implies the provision of passwords to access computers, servers, etc;
  • provide answers to authorised persons to inquiries in relation to the premises, belongings and documents relating to the subject matter of the inspection;
  • actively cooperate with officials of the CCI in other manners; and
  • cooperate fully and actively in all other manners with authorised persons of the CCI with the dawn raid investigation.

An indicative list of rights of a company during a dawn raid are listed below.

  • Legal professional privilege – the communications and correspondence between the client and the attorney or advocate is privileged under sections 126 and 129 of the Evidence Act 1872 and, accordingly, they need not be shared with the authorised persons of the CCI.
  • Privilege against self-incrimination and the right to silence – the individual can choose to remain silent if in his or her opinion, answering any question posed by the authorised persons of the CCI may potentially result in self-incriminating. It is a fundamental right protected under article 20(3) of the Constitution of India 1950.
  • The right to privacy – an individual can refuse to answer the question if it is irrelevant and interferes with his or her privacy. It is a fundamental right protected under article 20(3) of the Constitution of India 1950
  • Guard against fishing expeditions – the authorised persons of the CCI conducting the dawn raid cannot go beyond the scope and purpose of the investigation (as stipulated in the warrant). However, CCI officials may insist upon reviewing and taking documents or materials that may not be relevant to the investigation (being undertaken by the DG). In such a scenario, it is advisable to record an objection with the CCI team (conducting the investigation) and write to the CCI. 
  • Judicial review of the inspection decisions – the parties can always challenge the inspection decisions of the authorised persons of the CCI as well as their conduct during dawn raids (including excessive use of power) in writ jurisdiction before the High Courts.
  • Documents and objects seized by the authorities must be returned to the company within 180 days as provided under section 27(3) of the Companies Act 2013.
Settlement mechanisms

Is there any mechanism to settle, or to make commitments to regulators, during an investigation?

Unlike in the European Union, there are currently no provisions in the Competition Act that provide for a settlement or commitment mechanism for conduct pertaining to anticompetitive agreements and abuse of dominance. However, in relation to combinations with an appreciable adverse effect on competition in the market, section 31(6) of the Act provides an option for the parties to suggest modification to the combination if they do not accept the modifications suggested by the CCI. In multiple cases, parties have tried to seek permission from the competition authorities to settle the case on their own.

The Madras High Court in Tamil Nadu Film Exhibitors Association v CCI (Writ appeal Nos. 1806 and 1807 of 2013) gave some reprieve on the settlement of cases. Two major questions of law arose: first, whether it is possible, in the context of the Competition Act, for two adversaries to reach a settlement, thereby closing the doors for an investigation or inquiry; and second, whether the Court can record a memorandum of settlement like the one that the parties reached in this case. The High Court of Madras, while dealing with the issues raised, held that under the Competition Act, it is possible to allow settlements and compromises to be reached between the parties if three basic conditions are met: (1) the settlement and the compromise would not lead to the continuance of anticompetitive practices; (2) the settlement and the compromise would not allow the abuse of dominant position to continue; and (3) the settlement and the compromise would not be prejudicial to the interest of consumers or to the freedom of trade. Keeping in line with this judgment, as long as those conditions are fulfilled, with the assent of the CCI, a collective settlement is permitted between the complainant and the defendant.

However, The Competition (Amendment) Bill 2020 (the Competition Bill) inserts two new sections, 48(A) and 48(B), that introduce provisions in relation to settlement and commitment respectively. Section 48(A) and section 48(B) of the Competition Bill provide that any person allegedly infringing section 3(4) or section 4 of the Competition Act and against whom an inquiry in that regard has been initiated under section 26(1) of the Competition Act, can submit an application in writing proposing for the settlement or commitment of the proceeding initiated for the alleged contraventions. Commitment and settlement decisions of the CCI have been made non-appealable, and the benefit of settlement and commitment has not been extended to contraventions under section 3(3) of the Competition Act (ie, horizontal agreements and cartels) as those contraventions are presumed to be anticompetitive unless proven otherwise.

What weight will the authorities place on companies implementing or amending a compliance programme in settlement negotiations?

Considering that the Competition Act does not provide for settlement proceedings, the CCI has not yet entered into any settlement proceeding. However, considering that the CCI has taken competition compliance programmes as a mitigating factor when imposing penalties under section 27 of the Competition Act, it is likely that (after notification of Competition Bill) the CCI will take compliance programmes as a mitigating factor when entering into settlements with companies. 

Corporate monitorships

Are corporate monitorships used in your jurisdiction?

The Competition Act does not currently provide for corporate monitorships to monitor corporate compliance.

Statements of facts

Are agreed statements of facts in a settlement with the authorities automatically admissible as evidence in actions for private damages, including class actions or representative claims?

The Competition Act currently does not provide for settlement of cases. However, the Competition Act provides for private damages claims (under section 53N) and an application for compensation can be filed before the National Company Law Appellate Tribunal (NCLAT). Under section 53N, the applicant or claimant is not required to re-establish the violation of the Competition Act, and the claimant may rely on the order of the CCI for seeking compensation or private antitrust damages. The NCLAT is likely to rely on statement of facts in a settlement proceeding while examining applications for compensation.

Invoking legal privilege

Can the company or an individual invoke legal privilege or privilege against self-incrimination in an investigation?

The privilege against self-incrimination is a constitutional right protected under article 20(3) of the Constitution of India 1950 and is available to every citizen of India irrespective of whether the investigations or proceedings are civil or criminal in nature. Hence, a person can choose to remain silent if, in his or her opinion, answering any question posed during an investigation may result in self-incrimination. Further, legal professional privilege is afforded under sections 126 and 129 of the Evidence Act 1872, and accordingly, the communications and correspondence between the client and the attorney or advocate need not be shared.

Confidentiality protection

What confidentiality protection is afforded to the company or individual, or both, involved in competition investigations?

Section 57 of the Competition Act provides that information of any enterprise obtained by the CCI shall not be disclosed without the prior permission of the enterprise in writing, otherwise than in compliance with the provisions of the Competition Act or any other law that is in force. Regulation 35 of the General Regulations further narrows the scope of protection granted under section 57 of the Competition Act, clarifying that only in cases where public disclosure would (1) result in the disclosure of trade secrets; (2) result in the destruction or appreciable diminution of commercial value of the information; or (3) reasonably be expected to cause serious injury would confidentiality be granted.

The General Regulations further provide a set of factors that the CCI and the DG may consider at the time of deciding a request for confidentiality, namely: (1) the extent to which the information is known to the public; (2) the extent to which the information is known to employees, suppliers, distributors and others involved in the party’s business; (3) the measures taken by the party to guard the secrecy of the information; and (4) the ease or difficulty with which the information may be acquired or duplicated by others. The CCI can be approached contrary to any confidentiality conferred by the DG; however, the confidentiality order of the CCI is non-appealable.

Further, while dealing with leniency applications, in terms of Regulation 6 of the Lesser Penalty Regulations, the CCI and the DG are obliged to treat the identity of the applicant and the information, documents and evidence provided by the leniency applicant as confidential. However, the Competition Commission of India (Lesser Penalty) Amendment Regulations 2017 introduced Regulation 6(A), which allows the inspection of documents filed by the leniency applicants. Hence, the leniency applicants are required to submit applications in accordance with Regulation 35 of the General Regulations.

Refusal to cooperate

What are the penalties for refusing to cooperate with the authorities in an investigation?

Chapter VI of the Competition Act prescribes penalties for refusing to cooperate with the authorities during an investigation. Section 43 of the Competition Act prescribes a penalty of up to 10 million rupees for non-compliance with the directions of the CCI and the DG given under sections 36(2), 36(4) and 41(2) respectively. Further, the failure to comply with the orders or directions issued by the CCI or pay fines imposed for non-compliance may result in imprisonment for a maximum term of three years or the imposition of a maximum fine of 250 million rupees, or both, as determined by the Chief Metropolitan Magistrate of Delhi.

Infringement notification

Is there a duty to notify the regulator of competition infringements?

The Competition Act does not cast a mandatory duty on any person under section 2(l) of the Competition Act to notify the CCI of any infringements of its provisions.

Limitation period

What are the limitation periods for competition infringements?

The Competition Act does not prescribe any period of limitation for investigating anticompetitive agreements under section 3 or abuse of dominance under section 4 of the Competition Act. However, the CCI’s power to investigate a combination or initiate any inquiry is restricted to one year from the date on which the combination took effect.

Miscellaneous

Other practices

Does your competition regime specifically regulate anticompetitive practices that are not typically covered by antitrust rules?

The Competition Act has specific provisions that regulate anticompetitive agreements (both at the horizontal and vertical levels), abuse of dominance and mergers and acquisitions. However, the competition regulators have, at various times, come across and dealt with practices that do not strictly fall under any specific definition of a strict horizontal or vertical agreement under the Act but are inherently anticompetitive and adversely affect competition dynamics in the market or are detrimental to the interest of consumers at large. For instance, the agreements entered between associations and enterprises, which in a pure sense do not qualify as a vertical or horizontal relationship under section 3(3) or section 3(4) of the Competition Act, are sought to be regulated by the CCI by invoking section 3(1) of the Act, which provides that no enterprise or association of enterprises or person or association of persons shall enter into any agreement that causes or is likely to cause an appreciable adverse effect on competition (AAEC) within India, thus expanding the scope of the existing provision to look beyond what has been specifically provided in the Competition Act. The issue of whether the provisions of section 3(1) can be extended to cover such agreements is pending adjudication before the Supreme Court in Cadila Healthcare Limited v Competition Commission of India (SLP No. 30641 of 2018).

Further, even practices such as excessive pricing have not been specifically covered under abuse of dominance provisions. The difficulty of ascertaining pricing as excessive had been highlighted by the CCI in Kapoor Glass India Private Limited v Schott Glass India Private Limited. The CCI, speaking through R Prasad in his dissenting opinion, however, held that excessive pricing is in violation of section 4(1) read with subsection (2)(a)(ii) of section 4 of the Competition Act. Therefore, the decisional practice of the CCI indicates that in unprecedented situations, the CCI has and is willing to expand the scope of existing provisions to capture any and all anticompetitive practices that in its opinion are likely to have an AAEC in the market.

Future reform

Are there any proposals for competition law reform in your jurisdiction? If yes, what effects will it have on the company’s compliance?

The Competition (Amendment) Bill 2020 (the Competition Bill) has broadened the scope and applicability of the current Competition Act. For instance, the Competition Bill widens the scope of the Competition Act to, inter alia, capture buyers’ cartels and any other enterprise engaged in economic activity and combination in addition to what are traditionally envisaged under section 5 of the Competition Act. Therefore, the compliance requirements for a company under the Competition Bill will become wide and extensive.

Update and trends

Key developments of the past year

What were the key cases, decisions, judgments and policy and legislative developments of the past year?

Proposed Reforms

The Competition Law Review Committee (CLRC) was established by the government to review the Competition Act along with the rules and regulations framed thereunder.  The recommendations of the CLRC were captured in its report, which was submitted to the Ministry of Corporate Affairs on 26 July 2019. Several key proposals suggested by the CLRC Report included, inter alia, the constitution of a separate governing body, appeals from the order passed by the Competition Commission of India (CCI) to be heard by a dedicated bench formed under the Competition Act, insertion of provisions in relation to settlements and commitment to align the Indian competition law regime with the prevalent practices in jurisdictions such as the European Union. Apart from these, the CLRC report also recommended that the CCI should be mandated to issue guidance on the calculation and imposition of penalties under the Competition Act. The recommendations also include expanding definitions, such as ‘cartel’ to include buyers’ cartels, and expanding the cause of action under Section 53N of the Competition Act to file a compensation claim pursuant to the order of the Supreme Court.

A draft of the Competition (Amendment) Bill 2020 (the Competition Bill) was proposed on 12 February 2020 in furtherance of the recommendations of the CLRC report. The Competition Bill was released in the public domain on 20 February 2020 for public comments. Although the Competition Bill captures most of the CLRC’s recommendations, it still leaves out certain major items desired by stakeholders, such as the constitution of a specialised tribunal at the appellate stage, and adds certain items that go beyond the recommendations of the CLRC report; for instance, the CLRC recommended adding a combination threshold on the basis of transaction or deal value to capture combinations in the digital markets, which mostly escape notification under the traditional thresholds. However, instead of introducing a deal value threshold, the Competition Bill introduced a provision that empowers the central government, in consultation with the CCI, to formulate any criteria to make any transaction a notifiable combination. Although, it can be seen as an attempt to capture transactions in the digital markets, the scope however, is expanded beyond certainty. In this regard, several key features of the Competition Bill are as follows.

Buyers’ Cartels

The Competition Bill expands the definition of cartel to include buyers' cartels. This amendment will empower the CCI to inspect and investigate the conduct of enterprises, persons and associations that are collaborating on the demand side. The proposed amendment, however, is likely to also capture certain efficiency enhancing agreements, such as joint tendering and joint-procurement, which in past decisional practices of the CCI were held to be pro-competitive.

Widened scope of ‘enterprise’

The definition of enterprise has been broadened to include any entity that is engaged in economic activity. This proposed amendment is in line with the decisional practice of the CCI in various judgments, including the BCCI case and the recently decided Next Radio Limited and Ors v Prasar Bharti. The broadening of the definition of enterprise is likely to capture a larger number of activities that cause or are likely to cause an appreciable adverse effect on competition in the market. However, the scope, or for that reason the meaning, of ‘economic activity’ has remained unclear.

Expanded scope of horizontal agreements and vertical agreements

The scope of section 3(3) of the Competition Act has been proposed to be expanded to include any active role played in the furtherance of any agreement under it by the players that are not horizontally placed. Further, the scope of section 3(4) has also been widened to include any other agreement that may or may not be among enterprises or persons at different stages. The proposed amendment seems to be introduced to capture any and all agreements that were earlier considered to be outside the purview of sections 3(3) and 3(4) and were regulated by the CCI by invoking section 3(1).

Extension of protection afforded to the holders of intellectual property rights

The Competition Bill, in addition to section 3 of the Competition Act, confers the protection on holders of intellectual property rights, even against any alleged conduct under section 4 (abuse of dominance) of the Act. This proposed amendment, however, is likely to raise concerns where dominant enterprises are the holders of standard essential patents.

Amendment to merger control provisions

Major amendments have been proposed in the merger control regime, which, inter alia, include:

  • the empowerment of the central government in consultation with the CCI to prescribe any criteria, the fulfilment of which will be deemed to be a combination in terms of section 5 of the Competition Act and, hence, notifiable;
  • statutory recognition of a ‘green channel’ process, which was introduced on 15 August 2019 by an amendment to the Combination Regulations;
  • the widening of the definition of ‘control’ to include an ability to exercise material influence, in any manner, over the management or affairs and strategic commercial decisions. This is likely to have an impact on the existing definition of ‘group’;
  • insertion of a new provision 6(A), which dilutes the standstill obligation under section 6(2A) for public bids and hostile acquisitions; and
  • the shortening of the timeline for a combination coming into effect from 210 calendar days to 150 calendar days from the date of notice to the CCI.
Insertion of new provisions regarding settlements and commitments

This is in line with the practices followed in jurisdictions such as the European Union. The alleged parties will have the option to propose commitments and settlements, allowing the CCI to close the investigation. Orders passed by the CCI under these sections are made non-appealable. In addition, there remains a lack in clarity as to whether the right to claim compensation survives pursuant to a settlement.

Significant amendments to the Competition Act and rules, regulations made thereunder

The Competition Commission of India (Procedure in regard to the transaction of business relating to combinations) Amendment Regulations 2019, which came into effect on 15 August 2019, added a new Regulation 5(A) to the pre-existing Combination Regulations. Regulation 5(A), among other things, introduces a ‘green channel’ route that allows the combinations of certain types to pass through a route with lesser procedural requirements and restrictions. The combination – wherein the parties to the proposed combination (including their respective group entities or any entity in which they, directly or indirectly, hold shares or control) are not operating at the same or different levels of the production chain nor are engaged in any activity that is complementary to each other – can benefit from the ‘green channel’ route. In other words, parties to the combination that, after considering all plausible alternative relevant market definitions, do not have any horizontal, vertical or complementary overlaps can benefit from the ‘green channel’ route Further, notifying the CCI about a proposed combination has become an expensive affair. The cost of Form I and Form II has increased to 200,0000 rupees and 6.5 million rupees respectively

The Competition Commission of India (General) Regulations 2009 (the General Regulations) have also gone through certain significant changes. The 2019 amendment to the General Regulations decreased the cost of filing information by a company whose turnover in the preceding year is up to 20 million rupees. It has also classified different classes of informants and accordingly amended the General Regulation to include non-governmental organisations, consumer associations or cooperative societies, and trusts.

Decisional trendsProcedural

The competition authorities also gave significant decisions which ushered clarity on certain procedural aspects concerning the Competition Act and the CCI itself. The Mahindra Judgment was passed by a division bench of the Delhi High Court, directing the CCI to ensure the presence and participation of a judicial member at all times while passing adjudicatory orders (especially final orders). The Mahindra Judgment also directed the central government to take expeditious steps to fill all then existing vacancies in the CCI. The Mahindra Judgment, however, slightly deviates from Brahm Dutt, which observed that a separate body with the presence of a man of law as a member is to be created for the adjudicatory functions performed by the CCI. Further, on 22 January 2020, the division bench of the Delhi High Court passed another landmark order concerning procedural delays by the CCI without providing justified reasoning. The division bench, while dismissing the application of condonation of delay and the appeal, held that the lackadaisical and casual approach adopted by the CCI in processing the case cannot not be justified. Further, the division bench also held that where the CCI has committed to produce all the documents (without setting a precedent), it is on the CCI to adhere to the same, and, thus, the High Court of Delhi found no case, even on merits.

Behavioural

The year 2019 was also significant in terms of behavioural orders passed by the CCI concerning technology driven, big data companies. The CCI directed an investigation into alleged anticompetitive and predatory conduct of Flipkart, which is owned by Amazon and Walmart. Among the allegations were (1) anticompetitive vertical agreements between Flipkart and Amazon with their respective preferred sellers, leading to foreclosure of the online marketplace for other non-preferred sellers, and (2) joint abuse of its dominance by offering deep pocket discounts, engaging in targeted advertisement and preferential treatment. The investigation proceeding directed by the CCI has been stayed by the Karnataka High Court.

In another case concerning technologically driven cab aggregators, the Supreme Court on 3 September 2019 dismissed an appeal filed by Uber against the order of the erstwhile Competition Appellate Tribunal (COMPAT) directing an investigation into the abusive conduct of Uber. The Supreme Court, while upholding the order passed by the COMPAT, directed the Director General to investigate, among other things, (1) whether in competition law economics Uber can be termed as a dominant player in the market for radio taxis in Delhi or in the National Capital Region; (2) whether the conduct of Uber (exclusivity arrangements with drivers and heavy incentives to the drivers by incurring loss) can fall under the purview of predatory pricing.

Combinations

In combination jurisprudence, the CCI highlighted that cooperation that confers exclusivity cannot be approved along with the combination and the same needs to be modified. In the then proposed acquisition of a minority stake of ANI Technologies Pvt Ltd (Ola) and Ola Electric Mobility Pvt Ltd (OEMPL) by Hyundai Motor Company (Hyundai) and Kia Motors Corporation (Kia), the CCI observed that the transaction involved certain strategic cooperation in relation to Ola’s fleet operation and OEMPL’s e-mobility business in India (eg, promotion of leasing Hyundai vehicles to Ola’s drivers). To address the possibility of Ola preferring drivers who own Kia or Hyundai vehicles on its platform, the parties offered certain voluntary modifications that primarily required that the strategic collaboration among the parties would be on a non-exclusive basis and that Ola would ensure that its taxi marketplace algorithm would not discriminate any drivers based on the brand of their vehicle. Accordingly, the combination was approved with modifications.

Law stated date

Correct on

Give the date on which the information above is accurate.

24 February 2020.