In March 2020, the first lockdown was announced by the Government of India, as the nation was going through its first wave of global pandemic. As much as this decision was important for ensuring safety in the country, it also had a really bad impact on the Economy. As people were locked inside their houses for months, and everything had practically stopped, it was a great task to revamp the economy again, and hence, the govt. undertook various measures and introduced different schemes to help the business sector, especially Micro-Small Medium Enterprises [MSMEs].
Following a similar pursuit, the Competition Commission of India [CCI] in its decisional practice, refrained from imposing any monetary penalty on various enterprises in some of its recent orders under Section 27 of the Competition Act, 2002 [The Act]. The author in this article is going to analyze some of these recent orders passed by the CCI.
Recent Jurisdictional Practice of The CCI
The first case where CCI did not impose any monetary penalty was not related to MSMEs but was rather concerned with big companies. The case of In Re: Cartelisation in Industrial and Automotive Bearings [Suo Motu Case No. 05 of 2017] was initiated suo motu by the CCI, as they received a leniency application under Section 46 of The Act. The information was filed by Schaeffler India Ltd, disclosing the existence of a cartel to the commission. During the investigation, it was found by the CCI that the “FAG Bearings India Ltd. [Schaeffler India Ltd.]”, “National Engineering Industries Ltd.”, “SKF India Ltd.” and “Tata Steel Ltd., Bearing Division” entered into a cartel, to increase the price to automotive and industrial Original Equipment Manufacturer and distribution segment. Since this information was filed by the party under Section 46 of the Act, CCI did not impose any penalty on the enterprises as this arrangement did not cause Appreciable Adverse Effects on the Competition [AAEC] in the market, and rather its conduct was such that it may cause AAEC in the market in the future, as the customers were likely to face problems in the future, if such conduct continued. Hence, The CCI ordered them to cease and desist from the practice.
Later, in the case of In Re: Eastern Railway, Kolkata and M/s Chandra Brothers, CCI directed investigation on a reference made by Eastern railways against five enterprises namely “M/s Chandra Brothers”, “M/s Chandra Udyog”, “M/s Sriguru Melters and Engineers”, “M/s Rama Engineering works” and “M/s Krishna Engineering works” for engaging in the bid rigging of tenders floated for the purpose of Axle Bearings. During the investigation, the DG identified three more parties, “M/s Janardan Engineering Industries, Mumbai”, “M/s V. K. Engineering Industries, Mumbai” and “M/s Jai Bharat Industries, New Delhi”, and it was held by the CCI that all the eight enterprises were involved in collusive bidding prohibited under Sections 3(1) and 3(3) of The Act. However, CCI did not impose penalty on the enterprises as they were MSMEs already under stress due to the ongoing pandemic.
Following the precedent of the Railway case, the CCI then refrained from imposing any penalty on the small enterprises, which have faced the brunt of COVID pandemic.
In Re: Food Corporation of India and Shivalik Agro Poly Products Ltd., is another case where same reasoning was followed. This case was filed by the Food Corporation of India [FCI] against “Shivalik Agro Poly Products Ltd.”, “Climax Synthetics Pvt. Ltd.”, “Arun Manufacturing Services Pvt. Ltd.” and “Bag Poly International Pvt. Ltd.” alleging that they have engaged in bid rigging for the procurement of Low-Density Poly Ethylene Covers, which was found to be true by the commission. However, again, no penalty was imposed as these enterprises were MSMEs.
However, in the pre-covid era, CCI took a strict stance in the cases of cartelization, some of the provisions that dictate the same under the Indian law are;
The Provisions Related To Cartelisation In India
Section 3(3) of The Competition Act, 2002 lays down prohibition regarding horizontal agreement. It states that any agreement entered into by enterprises, who are engaged in the similar trade of goods/ services shall be presumed to have “Appreciable Adverse Effects on The Competition [AAEC]”, which is prohibited under Section 3(1) of the Act. And Section 2(c) of The Act defines cartels as “association of producers, sellers, distributors, traders or service providers who, by agreement amongst themselves, limit, control or attempt to control the production, distribution, sale or price of, or, trade in goods or provision of services.”
The Act also prescribes the penalty to be levied in the case of Horizontal Agreements. Section 27(b) of The Act, states that in the case of a cartel, the commission may levy upto three times of profit of the continuance of the agreement, or ten percent of the turnover, whichever amount is higher, and Section 42 of The Act further strengthens this clause.
However, parties can also file an application under Section 46 to assist the commission by disclosing all the relevant information, and request to impose lesser penalty on them. In the mentioned cases, the rationale for not imposition of monetary penalties is different. However, in both of the cases, or rather all of the cases that have been referred, all the parties have made such application to the commission. In the next section of this article, author shall be dealing with the relevance of Section 46 of The Act.
Relevance of Section 46
Section 46 of The Act states that,
“The Commission may, if it is satisfied that any producer, seller, distributor, trader or service provider included in any cartel, which is alleged to have violated section 3, has made a full and true disclosure in respect of the alleged violations and such disclosure is vital, impose upon such producer, seller, distributor, trader or service provider a lesser penalty as it may deem fit, than leviable under this Act or the rules or the regulations.”
However, The CCI has certain conditions for allowing such applications for lesser penalty that is only if the parties make true, full and vital disclosure, such exemption may be provided. If the parties make the disclosure after the conclusion of investigation, The CCI does not consider the application for lesser penalties, as such information will not be useful.
In the recent case of In Re: Alleged anti-competitive conduct in the Beer Market in India, CCI reduced the penalty of enterprises according to the time period during which the parties filed the lesser penalty application and their assistance in the investigation. SAB Miller filed the application first, wherein it disclosed the relevant information which helped the CCI in investigation, and hence, CCI granted 100% reduction in penalty, whereas United Breweries limited and Carlsberg were provided 40% and 20% reduction as they were second and third parties to file the application respectively, and the level at which they disclosed the information to assist The CCI.
This is a bold step by the CCI, as they try to aid MSMEs during these testing times. Previously, in their Advisory to Business, the CCI mentioned that any temporary actions taken by the companies to ensure supply of rare items will not be subject to scrutiny under the Competition Law, however firms must not take undue advantage of such leniency granted by The CCI, as in normal situation, penalizing the cartels is a common practice, as evident from various orders passed by the CCI previously.
As much as these orders passed by the CCI for small businesses are appreciated, there exists a future ambiguity regarding this non imposition of penalty on cartels, and the CCI must provide some valid reasoning, apart from the enterprise’s market capitalization, as the effect of COVID on an enterprise cannot be determined by the size of business operations. The CCI must also ensure that a proper balance is maintained, so that the businesses are not adversely affected owing to the pandemic and penalties, while also keeping in check that the leniency granted does not lead to a scenario where their conduct causes AAEC in the country, ultimately harming the interests of the consumers.
This article has been written by Vanshika Agrawal, 4th Year student at Hidayatullah National Law University.
Note – The information contained in this post is for general information purposes only. We try our level best to avoid any misinformation or abusive content. If you found any of such content on this website, please report us at email@example.com
Interested to publish your article on our website? Click Here to submit your article.