23 Contemporary Issues In Competition Law

Prof.(Dr.)Harpreet kaur

Introduction: The enforcement of the Competition Act, 2002 was delayed and it was only in 2009 that the Competition Commission of India (CCI) became fully functional. Sectors which have been covered so far by CCI for reviewing anti-competitive practices include stock exchanges, travel, infrastructure, real estate, automobile, pharmaceuticals, mining, manufacturing, entertainment and financial sector. The Commission has imposed penalties of more than Rs 80 billion in five years of its enforcement. The Commission had received more than 150 filings for approval of combinations (1). This indicates that the approach of the Commission in enforcing competition law has been vigorous. Therefore, it is necessary for the students to know recent developments in the competition law and make an effort to understand approach of the Commission in tackling anti-competitive practices in different sectors of the economy.

According to its mandate, CCI has to work for having competitive markets which will have higher efficiency, lower costs and availability of substitutes in the form of new products at lower prices. Advocacy is a very important feature of the Competition Act which has permitted CCI to create awareness amongst the businesses and other stakeholders that competition law is a business friendly law and it is in essence for the benefit of the business and consumers. CCI has drafted seven regulations for effective enforcement of the Act in which general regulations, determination of cost of production, lesser penalty, manner of recovery of monetary penalty, meeting for transaction of business and procedure in regard to transaction of business regulations are the important ones.

Cases undertaken by CCI:

CCI had undertaken 461 cases up to 31, March 2014. Out of which 380 cases were through the information filed under s. 19(1)(a) whereas 16 cases were suo motu taken up by CCI (2).

Recent decisions by CCI:

The CCI has taken the following important decisions in the year 2012-13 which will also indicate that it is now reaching to all important sectors of the economy.

In Coal India Ltd v. Suppliers of Explosives (2012), Coal India Ltd had filed information with CCI about alleged cartelization amongst manufacturers of explosives. CCI conducted the enquiry and investigated the matter. These manufacturers were found engaged in the boycott of e-reverse auction and held guilty under S. 3(3) (b) and (d). CCI passed cease and desist order against all manufacturers from engaging again in anti-competitive activity of bid rigging and imposed penalty at the rate of 3% on average of turnover for three years.

In another case, Varca Druggist & Chemist & Others and Chemists & Druggists Association of Goa in 2012, a complaint was filed by Varca Druggists that Chemists & Druggists Association of Goa has been engaged in restrictive trade practices. The case was transferred to CCI after repeal of the Monopolies and Restrictive Trade Practices Act. The Commission came to the conclusion that the conduct and practices of the Association were limiting and controlled the supply of drugs in district of Baroda under s. 3(3)(b) of the Competition Act. The Association was fined by CCI.

A suo motu case was taken up by CCI in LPG Gas Cylinders case (2012). In this case, manufacturers of LPG cylinders were found to be involved in bid rigging during a tender invited by Indian Oil Corporation Ltd for supply of LPG cylinders. Manufacturers had manipulated the bids to quote identical rates in the bids. All of them were found to be guilty of engaging in anti-competitive practice under s. 3(3) equally and each was held liable to pay a penalty of 7% on the average turnover of the company. No mitigating circumstances were found by the Commission.

In Tyre Cartel case, the Commission could not find any evidence of cartelization. All ndia Tyre Dealers’ Association had filed a complaint with CCI alleging that major tyre manufacturers in the country were engaged in price fixing, restrictions on production and supplies with usurpation of excise duty reduction. The Commission after investigation concluded that although there were some indications of cartelization on superficial basis in the tyre industry but no substantive evidence of existences of a cartel is found . Tyre Dealers’ Association went in appeal against CCI to Competition Appellate Tribunal but their appeal was dismissed (2013).

In Cement Cartelization case, Builders’ Association of India had filed an information with CCI against Cement Manufacturing Association and eleven cement manufacturing companies for their alleged involvement in monopolistic and restrictive trade practices. CCI found their practices in contravention of s. 3(3)(a) and s. 3(3)(b) for directly or indirectly fixing of prices and limiting the production and supply of cement in comparison to actual production capacity of cement manufacturing companies. Penalty was imposed on 0.5% of net profit for the years 2009-10 and 2010-11 against each cement manufacturer. Cease and desist order was also placed by CCI against them from indulging in any agreement or understanding on prices, production and supply of cement. The penalty was found to be excessive by cement companies and the decision of CCI was appealed in COMPAT. The Appellate Tribunal directed them to deposit 10% of the penalty amount before the hearing. Companies went to Supreme Court against this and SC directed them to abide by the order of the Appellate Tribunal (2013).

In the case of Board for Cricket Control in India, the Commission found BCCI in adopting practices leading to denial in access to markets and found it guilty of contravention of s. 4(2)(c). Commission passed a cease and desist order from any practices denying market access to potential customers and penalty at the rate of 6% average annual revenue for last three years was imposed.

In the case of Santuka Associates Pvt. Ltd. v All India Organization of Chemists & Druggists, CCI found abuse of dominant position by All India Organization of Chemists & Druggists by limiting and restricting supply of pharmaceuticals in India and contravention of s. 3(3)(a) and (b). Penalty at the rate of 10% of average receipts for last three years was imposed.

Another suo motu case was taken up by CCI against Aluminium Phosphide Tablets Manufacturers on the information provided by Food Corporation of India. The information was about increase in cost of procurement due to agreements between the aluminium phosphide tablet manufacturers. These tablets are used for preservation of food grains by FCI. The Commission found their agreements to be in contravention of s. 3(3)(b) and (d) and a penalty at the rate of 9% of average turnover of three manufacturers was imposed.

In the case of Micromax, the Commission received a complaint form Micromax that Ericsson was indulged in unfair trade practices by demanding unfair, discriminatory and exorbitant royalty for its GSM technology related patents. The allegations prima facie were found to be true that practices adopted by Ericsson were discriminatory and contrary to fair, reasonable and non-discriminatory terms.

Recently, CCI has found a prima facie case for investigation against DLF Universal Limited, subsidiary of DLF Limited. The informant’s family had booked five units of commercial office space in DLF Corporate Greens project in Gurgaon. Commercial Office Space Buyers Agreements was signed between the parties and as per agreement possession was supposed to be handed over between June 2011 to Sept 2011. The informant alleged DLF to be abusive of its dominant position as the agreement which buyers have to sign is unilateral, one sided and unfair. The Commission found that the agreement include clauses the builder can modify or later the building plant without consent of buyers, can unilaterally abandon project without giving any reason to buyers with liability to refund money with 9% of simple interest. The buyers were required to pay interest between 15% -18% on delayed payment of installments. There was no provision for adequate compensation to buyers in case of delayed possession. CCI referred the matter to Director General for investigation (2014).

A reference was filed by Directorate of Drugs Director of West Bengal with CCI where it was alleged that anti-competitive circulars were issued by Bengal Chemists and Druggists Association where retailers were directed not to offer any discount to consumers. CCI after investigation found the Association, its district and zonal committees were indulged, directly or indirectly, in determining the sale prices of drugs and medicines and controlled or limited the supply of drugs and medicine. A penalty of Rs. 18.38 crores was imposed 1 . The penalty was imposed on the Association as well as its office bearers who were directly responsible for running its affairs and played lead role in its decision making at the rate of 10% and on the executive committee members at the rate of 7% of their respective turnover or income or receipts based on the financial statements2.

In another recent development involving merger of Sun Pharma and Ranbaxy which will make Sun Pharma India’s largest pharmaceuticals company and world’s fifth largest specialty generic drug manufacturer. CCI may refer the combination to second phase of investigation as there is a possibility that this combination may lead to high concentration in many drug categories3.

The CCI fined Google for an amount of one crore for its failure to cooperate in an on-going investigation. Director General of Competition is investigating abuse of dominant position by Google in online search and search advertising.

The above stated few recent cases are indicative of the fact that the Commission has reached to many sectors in last two years where it has examined or is in the process of examination of anti-competitive practices.

Few important developments, issues and challenges:

The need for a strong competition policy has always been emphasized4 but India has not been able to adopt the National Competition Policy, 20115.

“The aim of the competition policy is to create a framework of policies and regulations that will inform other policies to facilitate competitive outcomes in the market. Competition policy is a critical component of any overall economic policy framework. Competition policy is intended to promote efficiency and to maximize consumer/social welfare. It also promotes creation of a business environment, which improves static and dynamic efficiencies, leads to efficient resource allocation and consumer welfare, and in which abuse of market power is prevented/curbed. It also promotes good governance by restricting rent seeking practices of economic actors”.6

Major challenges before the Commission include enforcement of competition law against State Owned Enterprises, public procurement and creation of competition culture. The definition of ‘enterprise’ under s. 2(h) in the Competition Act includes a department of the Government. But it does not include any activity of the Government relatable to the sovereign functions of the Government and activities carried on by departments of atomic energy, currency, defence and space. Although the need for greater functional autonomy, freedom from bureaucratic control and making them open to face competition in the markets has been emphasized7, it is necessary for the Competition Commission to apply the law to all enterprises whether, private or state owned. Bid rigging in the public procurement is another area where competition authorities of BRICS countries raised a common concern. How to detect bid rigging and avoid them to ensure full value of public money has been one of the issues discussed during the BRICS conference in Delhi8. Development of competition culture in the country is third major area for Competition Commission of India. Commission has undertaken advocacy initiatives with Central and State Government ministries and departments, States, trade associations and Knowledge Partnership Initiatives with leading institutions including law schools and universities.

The Commission is asking companies to develop Competition Compliance Programme to avoid contravention of the Competition Act. The consequences of contravention or non-compliance may include loss of business, damage of reputation, cost of fighting contravention or infringement cases, cease and desist orders against the company, heavy fines, award of compensation, division of the dominant enterprise, modification of unfair agreements and disqualifications of directors involved etc9.

Imposition of heavy fines by the Commission has been a cause of concern for companies. Some in favour of high amount of penalties are of the opinion that lack of fear of sanctions had promoted culture of cartelization the country10. Besides a lack of consistency in deciding the fines has been observed in decision making by the Commission which may primarily be due to unavailability of penalty guidelines for the Commission.

Interface between Competition Commission with other sectoral regulators has been an important issue. It has been expressed that there is no conflict of jurisdiction. The Competition Commission has the mandate to regulate competition related matters in any sector as it has the specific mandate for it whereas other regulators have their own specific functions which are not related to market aspects11. Finance and telecom ministries wanted to be excluded from jurisdiction of Competition Commission. In case of mergers of banks although they will not be governed by CCI, the Commission is of the opinion that competition related practices or market practices of banks will fall with the Commission only.

In view of the policy of the Government for increased FDI in different sectors, it is anticipated that India will have more mergers and amalgamations. The present Government is bringing the Insurance Amendment Act in order to raise FDI limit to 49% in the insurance sector. One of the ways FDI comes to any country is through acquisition of Indian companies or establishments of joint ventures with Indian companies or firms12. In such acquisitions or joint ventures, there is a possibility of anti-competitive issues arising when the remaining enterprise or group or any enterprise after acquisition meets threshold limits. There arises the possibility of dominance and likelihood of adverse effect on competition.Competition Commission is yet to take cognizance of anti-competitive practices in the insurance sector but future combinations in this sector will have to seek approval of the Commission if they will meet thresholds fixed under the Act. It is imperative here to mention that the Commission had received information challenging the conduct of Department of Industrial Policy and Promotion to be abusive of its dominant position in modifying the foreign direct investment policy in civil aviation sector. However, the Commission did not find the allegation to be true13.

The Commission has signed Memorandum of Associations with European Union and US Anti-trust authorities for cooperation between the nations. The Commission under s.32 of the Competition Act has the same power of enquiry as it has for acts in India which have or are likely to have adverse effect on competition. S. 32 provides that where the acts, like an arrangement, acquisition, merger, amalgamation or combination, take place outside India but they have or are likely to have adverse effect on competition in India, the Commission shall have the same power of enquiry as if they were taking place in India and pass orders as it may deem fit. For exercise of such power, it is necessary for the Commission to have cooperation agreements with competition authorities of different countries.

A cause of concern was raised last year due to Unfair Competition Law of US which prevents buyers or importers from buying any product which is manufactured from pirated versions of software or hardware used anywhere in the systems. Therefore, if a producer uses pirated software in producing his products which are sold to US buyer, the buyer company will be held liable for damages, which in turn will sue the producer. In the last two years there has been a decline in export share of manufactured goods from 89.1 % to 74.2%. Software piracy rates in India are 61% compared to China where such rate is 79% 14 . Therefore, internationally also competition related issues have to be kept in mind by domestic producers who are exporting their goods.

Capacity building of Competition Commission of India is another area where the Commission is making efforts to recruit people with sound background of competition law as well as improve knowledge of its existing employees through holding of workshops and sessions for training them. In order to have cohesive integration of the economics in competition law enforcement, the Commission has suggested for having a dedicated market research unit for researching in different sectors. The Commission came up with studies in onion market of the country, competition concerns in pharmaceutical industry and concession agreements on infrastructure sector with the help of outside agencies15.

The Competition (Amendment) Bill, 2012 was introduced by the Central Government in order to make certain changes in the Competition Act, 2002. These changes are proposed after the experience gained after few years of working on the Competition Commission. The Bill has not been passed till now.

A fall in the number of complaints received and investigated by the Competition Commission is reported now. It had received 82 complaints in 2009-10, 99 in 2010-11, 147 in 2012-13 and 114 in 2013-14. Major reason reported for this reduction has been lack of awareness about competition law in small towns. Although the Commission has been inviting whistleblowers to come to Commission and also has leniency programme to offer. Other reasons may include less deterrence as only financial penalty is imposed by the Commission and imposition of low penalty by Commission in few cases16.A larger issue which was raised in Brahm Dutt vs. Union of India17 about creation of two separate bodies with expertise under doctrine of separation of powers still seems to be unresolved18.

Summary:

The module has been written to provide information for students that how far Competition Law through Competition Commission has been able to promote fair competition in markets and curb anti-competitive practices in Indian markets. Recent developments and issues in competition law have been briefly discussed along with recent important decisions taken by the Commission.

Web-links:

•http://www.cci.gov.in/Newsletter/nwl8.pdf

•http://www.thehindubusinessline.com/industry-and-economy/cartel-case-rs-669cr-provision-to-hit-11-cement-firms-profits-in-june-quarter/article4895472.ece

•http://articles.economictimes.indiatimes.com/2014-03-28/news/48630056_1_california-based-google-competition-commission-competition-law

•http://articles.economictimes.indiatimes.com/2014-01-02/news/45799354_1_frand-terms-ericsson-patents

•http://articles.economictimes.indiatimes.com/2014-06-13/news/50564414_1_ashok-chawla-fair-trade-norms-competition-law

•http://articles.economictimes.indiatimes.com/2013-11-22/news/44366075_1_competition-commission-competition-law-competition-authority

•http://articles.economictimes.indiatimes.com/2013-11-22/news/44366132_1_brics-competition-law-and-policy-competition-commission

•http://articles.economictimes.indiatimes.com/2013-07-14/news/40554399_1_competition-law-voting-rights-etihad

•http://articles.economictimes.indiatimes.com/2013-01-13/news/36311362_1_chairman-ashok-chawla-brics-countries-competition-commission