By Rupin Chopra and Vidhi Oberoi
The Competition Act, 2002 was enacted to encourage and maintain economic competition, for protecting consumer’s interest and to ensure freedom of trade for market participants in India.
Section 7 of the Act deals with the establishment of “Competition Commission of India” (CCI), who is responsible for eliminating practices having adverse effect on competition, including prohibition on cartels.
Legality of Cartels in India:
Cartelization in India is considered as a civil offence, which is prohibited in accordance with the provisions of Section 3 of the Competition Act, 2002.
Section 2(c) of the Act defines cartel as “an 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”.
Section 3(1) of the Act prohibits entering into any agreement in respect of production, supply, distribution, storage, acquisition or control of goods or provision of services, which causes or is likely to cause an adverse impact on market competition in India.
Section 3(3) of the Act deals with the prohibited agreements entered into by cartel enterprises, including
- Determining purchase or sale price, either directly or indirectly
- Limiting or controlling production, supply, markets, technical development, investment or provision of services
- Allocation of geographical area of market
- Engaged in bid rigging or collusive rigging
Any such agreement executed in contravention of Section 3 of the Act shall be declared null and void.
Upon subsequent enquiry if it is found that an agreement has been entered into by cartel, the CCI has the legal authority to pass all or any of the following orders, as per Section 27 of the Act:
- Restrict from entering into such agreement;
- Imposition of penalty equivalent to three times of the amount of profit made out of such agreement OR 10 percent of the average turnover for the last three preceding financial years, whichever is higher;
- Modification in the agreement to the extent and in the manner, as specified.
In accordance with the provision of Section 48 of the Act, any person, who at the time of contravention, was responsible for the conduct of the business, shall be deemed to be guilty and shall be liable to be prosecuted against and punished accordingly.
Exception: Any such person shall not be liable to any punishment, subject to a condition that he proves that the act of misconduct was committed without his prior knowledge or that he exercised all due diligence for preventing the same.
It is well known that the collusive practices are prevalent in market in majority and to prove them is a major task. In order to ensure freedom of trade carried on by market participants in India, the CCI has been changing its approach towards cartel investigations since last few years. Introduction of leniency regime and conducting effective dawn raids are some of the active measures adopted by CCI in this regard.
The first unannounced search operation, popularly known as “dawn raid” was conducted by the Director General of Competition Commission of India (DG) on September 19, 2014 into an alleged abuse of dominant position by JCB India Limited (JCB). An interim application was filed before the Delhi High Court for seeking stay on the investigation, which was set aside by the court. Finally in 2019, the Supreme Court by permitted the DG to proceed with the investigation as well as to use the evidences seized in the dawn raid.
The Leniency Programme is provided for under Section 46 of the Competition Act and regulated by the CCI’s Lesser Penalty Regulations, 2009 as amended in 2017. Under this regime, lesser penalties is granted to applicants who make full and true disclosure of information or evidence, subject to the discretion of the CCI.
Upon subsequent disclosure of evidence to the CCI, parties may avail the benefit from reduction in penalty in the manner listed below:
- The first party can avail the benefit of reduced penalty upto maximum 100%;
- The second applicant can avail the benefit of reduced penalty upto maximum 50%
- The third applicant may get a reduction of upto 30%
Case Ref: Beer Cartel Case (Suo Moto Case No. 06 of 2017)
The CCI vide an order dated September 24, 2021 imposed a penalty on United Breweries Limited (UBL), Carlsberg India Private Limited (CIPL), SABMiller India Limited, and All India Brewers’ Association (AIBA), along with their respective key personnel (collectively, the Opposite Parties) for being found guilty of cartelization in relation to the beer market. 100% reduction in penalty was granted to AIBA for being the first applicant in providing vital information to the CCI. While, UBL and CIPL availed the benefit of 40% and 20% reduction in penalty, respectively.
COMPETITION AMENDMENT BILL 2022:
On August 5, 2022 the government introduced the Competition (Amendment) Bill, 2022 in the Lok Sabha to amend various provisions of the competition law and the bill has been referred to the Parliamentary Standing Committee on Finance. Among the amendments proposed is the introduction of the settlement and commitment framework, which will help to reduce litigations relating to anti-competitive practices.
The new bill incorporates new sections, Section 48A and 48B, for framing Settlement and Commitment Mechanisms, covering offences of anti-competitive agreements and abuse of dominance.
The new section 48A contains the provisions related to Settlement, stating that any enterprise against whom an inquiry has been initiated for violation of the provisions of Section 3 or 4, shall be permitted to submit an application in writing to the Commission for the purpose of settlement of the proceedings for the alleged contraventions, in such form and upon payment of such fee as may be specified by the regulations. It is important to note that an application for settlement can be submitted at any time upon receipt of the order of the Director General but prior to the passing of an order.
Further, in accordance with the provision of Section 48B, parties alleged of anti-competitive conduct may offer commitments for rectifying their behavior, post inquiry orders by the CCI but prior to the receipt of the Director General Report.
It is entirely upon the Commission to accept or reject such application for settlement or commitment after taking into consideration the nature, gravity, impact of the contravention and effectiveness of the proposed scheme. If accepted, all settlement amount realized shall be credited to the Consolidated Fund of India. Further, the CCI has an exclusive authority to revoke the acceptance at any time, if it founds irregularity, and may impose a fine up to Rs.1 crore and direct for reinvestigation.
The Bill is likely have a positive impact if accepted by the government. With the aid of this Settlement and Commitment Mechanisms, the CCI will be able to address the anti-competitive conduct in an efficient manner and the pipeline of cases expected to be handled by CCI shall also be eased, as it will enable out of court settlement without leading to any lengthy legal procedures.
Isha Sharma, Junior Associate Advocate at S.S. Rana & Co. has assisted in the research of this article.