42 What were the key cases, judgments and other developments of the past year?
Some of the key developments in the cartel cases have been as follows:
Cartelisation in the supply of electric power steering systems
Based on a lesser penalty application filed by NSK, the CCI initiated suo moto proceedings against NSK and JTEKT, along with their Indian subsidiaries, namely, Rane NSK Steering Systems Ltd (RNSS) and JTEKT Sona Automotive India Limited (JSAI) for their alleged anticompetitive conduct in the market for supply of EPS systems to the various automotive original equipment manufacturers (OEMs), having AAEC in India. Direct sales of EPS systems in India are made by NSK and JTKET only through their respective Indian subsidiaries. During the pendency of the investigation, JTEKT also filed its lesser penalty application before the CCI. It was found that upon receipt of global ‘request for information’ (RFI)/ ‘requests for quotation’ (RFQ) from three automobile OEMs for supply of EPS systems, the employees and executives of the aforesaid parties contacted each other and coordinated their prices, allocated market on the basis of geographical regions (India being one such market) and on the basis of type of vehicles/platform/product, thereby rigging the bidding process of the three automobile OEMs. Pertinently, the CCI’s inquiry, which commenced on 17 September 2014, covered the period only from 2005 to 25 July 2011, in view of the fact that Japanese Fair Trade Commission had conducted an onsite inspection of four Japanese companies, including NSK and JTEKT, in connection with alleged cartelisation in another product.
In passing its final orders, the CCI has adopted global best practices on maintaining confidentiality of information received in the course of its enquiry as it has not disclosed the details of the REI/REQ and the names of the products for which the EPS systems were required. Further, the CCI has also not disclosed the names of the three automobile companies nor their tender details in the order. The CCI has also not disclosed the names and designations of the employees of the leniency applicants. In this case the CCI also passed two versions of the order, namely, public version and non-confidential qua parties’ version. Having determined whether the relevant turnover or the relevant profit was higher, the CCI decided to impose upon NSK/RNSS, penalty at 4 per cent of the relevant turnover of RNSS for each year of the continuance of the agreement, and thereafter gave it benefit of reduction in penalty of 100 per cent for its role and assistance in the matter. As regards JTEKT/JSAI, the CCI imposed a penalty at one times of the relevant profit of JSAI for each year of the continuance of the agreement, which was then reduced by 50 per cent as it was the second leniency applicant. The key managerial persons of the parties were granted benefit of similar reductions, as granted to their respective companies, upon the penalty calculated at 10 per cent of the average of their incomes for the last three preceding financial years.
In Re: Alleged cartelisation in supply of Liquified Petroleum Gas Cylinders procured through tenders by Hindustan Petroleum Corporation Ltd
Based on an anonymous letter dated 25 April 2013, alleging bid rigging in tenders issued by Hindustan Petroleum Corporation Ltd (HPCL), the CCI ordered an investigation that was concluded by the DG on 6 October 2016. In this case, the CCI found the bidders had withdrawn their bids simultaneously without any proper justification. Further, the format of such withdrawal letters and wordings were similar as they were found to have been discussed among themselves and exchanged through emails. The CCI also noted that even the IP addresses of the charged parties for submission of the bids tender were identical or the same. Thereafter, after considering the nature of contravention as well as the mitigating factors stated by the charged parties, the CCI decided to impose penalties on the 51 parties at the rate of one per cent of their respective average relevant turnovers for the financial years 2013-14, 2014-15 and 2015-16 and at the rate of one per cent of the respective average relevant income of the 42 key officials of these parties.
In the presence of direct evidence of bid rigging, the CCI decided to impose penalties on the charged parties notwithstanding the fact that its finding in an earlier case of bid rigging by LPG suppliers (Rajasthan Cylinders Case, discussed below) was quashed by the Supreme Court on the ground inter alia that the market for LPG cylinders was an oligopsony and that the charged parties had given adequate justification for their parallel prices despite varying costs.
Madhya Pradesh Chemists and Distributors Federation v Madhya Pradesh Chemists and Druggist Association and others
In yet another case of alleged anticompetitive practices indulged in by trade associations controlling the entire drug distribution system, the CCI imposed penalties not only upon the trade associations involved in mandating the practice of obtaining a No Objection Certificate from them before appointment of stockists selected by the pharmaceutical companies to do business with them but also upon two pharmaceutical companies for cooperating with the trade association in their alleged anticompetitive practices, which was stifling competition in the market by limiting access of consumers to various pharmaceutical products and controlling supply of drugs in the market. Even though the trade associations and the pharmaceutical companies are neither situated horizontally nor vertically, the CCI imposed penalties on two of the leading pharmaceutical companies by stating that it was incumbent upon the companies to have reported the anticompetitive conduct of the trade association before the CCI, despite acknowledging the fact that the pharmaceutical companies cooperated with the trade associations to ensure that there was no disruption in supply of medicines. The CCI imposed a penalty of 10 per cent of their average incomes on the trade associations and at the rate of 1 per cent of their turnover on the pharmaceutical companies.
Zinc Dry Cell Battery Cartel cases
On 25 May 2016, Panasonic Energy India Co Ltd, a subsidiary of Panasonic Corporation, Japan filed a leniency application before the CCI disclosing the existence of cartel among all the major manufacturers of zinc dry cell batteries operating in the Indian market, viz Panasonic India, Eveready Industries India Ltd and Indo National Limited (Nippo) for fixing and increasing the prices of zinc dry cell batteries. The CCI directed investigation and eventually came to a finding that those manufacturers were guilty of cartel conduct.
Interestingly, Panasonic Corporation, Japan filed two separate leniency applications on 7 September 2016, on behalf of itself, the enterprise controlled by it - that is, Panasonic Energy India Co Limited - and their respective directors, officers and employees, disclosing that, in addition to the existence of cartel between the major manufacturers of zinc dry cell battery manufacturers, there existed two other ‘bilateral ancillary cartels’, between Panasonic Energy India Co Ltd and Geep Industries (India) Private Limited and the other between Panasonic Energy India Co Limited and Godrej and Boyce Manufacturing Co. Limited respectively. Pertinently, both Geep and Godrej were re-sellers of zinc dry cell batteries, which they sourced from Panasonic for re-sale in the market under their own brand names.
Making its detailed discussion in the Godrej case, the CCI vide its decision dated 15 January 2019, rejected the contention of Godrej that it could not be prosecuted as a member of the cartel as Panasonic and Godrej had a buyer-seller relationship, on the following grounds:
- the CCI held that even though Godrej sourced zinc dry cell batteries exclusively from Panasonic, they were competitors from the demand side perspective (ie, consumers) as Godrej used to re-sell the batteries under its own brand name;
- the CCI also held that the product supply agreement (PSA), executed between Panasonic and Godrej, was on principle-by-principle basis and was a duly negotiated agreement which stipulated that neither party will take steps detrimental to each other’s market interests with respect to the market prices of zinc dry cell batteries. Thus, the CCI rejected the contention of Godrej that if it had not agreed to the market parity arrangement mandated by Panasonic, then it would have resulted in deadlock and denial of entry of Godrej in the market;
- Godrej used to complain to Panasonic whenever the prices of zinc dry cell batteries offered by Panasonic were lower than that of Godrej and asked Panasonic to increase its prices, and was thus a beneficiary of such cartel;
- the CCI held that if it is taken that it was merely a recipient of information on pricing of a ‘larger cartel’ from Panasonic, which was not sought by it and such disclosure of commercially sensitive information by Panasonic was of unilateral nature, it cannot escape liability because it was fully aware of the existence of cartel between Panasonic, Eveready and Nippo and it chose to maintain price co-ordination in line with their prices;
- the CCI also refused to accept the defence of Godrej that it was in no position to inflict any supply constraints or cause any AAEC in the market, on the ground that AAEC is presumed and that DG has recommended that there was AAEC; and
- the CCI further held that such anticompetitive arrangement between Panasonic and Godrej led to an increase in the prices of zinc dry cell batteries to a very high level causing loss to consumers, foreclosed competition in the market as consumer choice was compromised and did not result in accrual of any benefits to the consumers or promotion of any technical, scientific or economic development.
The decisions in the zinc dry cell battery cases are unique and of an unprecedented nature as the parties had a buyer-seller relationship as well as competitor relationship. When a producer elects to market its goods through distributors, including independent distributors, the latter are not, in an economic sense, competitors of the producer even though the producer also markets some of its goods itself; rather the distributors are fundamentally ‘agents’ of the producer, employed because the producer has determined that it can supply its goods to consumers more efficiently by using distributors than it can by marketing them entirely by itself.
Be as it may, the CCI has held that Panasonic was in competition with its independent dealers/distributors re-selling its own product and has characterised such hybrid relationships as horizontal, and not vertical for reasons adduced above, thereby subjecting it to the presumptive rule of having caused AAEC, and not as a case of resale price maintenance, a vertical restraint that is subject to the rule of reason.
Cadila Healthcare Limited and Anr v Competition Commission of India & Ors
In the case of Cadila Healthcare Limited and Anr v Competition Commission of India & Ors. (LPA No. 160/2018), the division bench of the Delhi High Court, vide its order dated 12 September 2018, has clarified, based on the ratio of the Excel Crop Care order of the Hon’ble Supreme Court of India, that the ‘subject matter’ of DG investigation included not only the one alleged and specified under prima facie of the order of the CCI warranting DG’s investigation but also ‘other allied and unenumerated ones, involving others (ie, third parties)’, as the scope of inquiry is the tendency of market behaviour of the kind frowned upon in the Act. It further observed that when an information is led before the CCI, it has material to form only a prima facie order but if the investigation process is restricted in the manner projected by the appellants, it would defeat the very purpose of the Act, which is to prevent AAEC. Thus, the court rejected the contention of the appellant that a specific order by CCI applying its mind into the role played by it was essential before the DG could proceed with the inquiry against it.
Further, citing the order of the Supreme Court in the Aneeta Hada case, as also of the Delhi High Court in the Pran Mehra case and the order of the CCI in the case of Ministry of Agriculture v M/s Mayhco Monsanto Biotech Ltd, the court also rejected the contention of the appellant that without first recording complicity or otherwise of the enterprise or company, its directors or employees and officials cannot be issued notice for contravention of the Act. The court observed that separate proceedings in respect of the company and of its key officials would both be inefficacious and inexpedient and that such a procedure is not contemplated by the Act. It, however, made it clear that its only when the enterprise or company can be prosecuted that its directors or employees and officials could be vicariously or otherwise held liable for the offence, subject to proof thereof.
Rajasthan Cylinders and Containers Ltd v Union of India and Another
In the case of Rajasthan Cylinders and Containers Ltd v Union of India and Another (C.A. No. 3546/2014), the Supreme Court appears to have raised the standard of proof required to establish an ‘agreement’ under the Competition Act. In this case, the Supreme Court vide its order dated 1 November 2018 has set aside the order of the appellate tribunal, whereby the appellate tribunal had upheld the order of the CCI finding 45 manufacturers of liquified petroleum gas (LPG) cylinders guilty of bid rigging/collusion in the tenders floated by Indian Oil Corporation Limited (IOCL), one of the three government-owned companies authorised to procure the same.
The finding of bid rigging by the CCI was upheld by the appellate tribunal on the basis of various circumstantial evidences, namely, constant need for LPG cylinders (identical product) and repetitive bidding, presence of only three buyers of gas cylinders (the three government-owned companies) operating in the entire market, small number of suppliers in the market, very few entrants, the existence of an active trade association in which almost all the bidders, except seven companies, were members, parties quoting identical bids despite there being variation in their individual costs, few of the manufacturers of gas cylinders participating in a meeting before the submission of bids.
The Supreme Court disagreed. Pertinently, the appellants had argued that the market of LPG cylinders was under the tight control and regulation of the government. It was also submitted that the market was characterised by conditions of monopsony (where buyers have control over input prices) /oligopsony (where there are only few buyers), which precluded the possibility of cartel. It was further contended that the very nature of the industry could not be used to infer collusion, as collusion was a state of mind and intent. The appellants also submitted that there was no AAEC. Thus, it was argued that as there was virtually no scope of competitive forces to operate in the market, there could not be any anticompetitive conduct under the Act.
The court rejected the contention of the appellants that there was no competition in the market and as such the CCI had no jurisdiction to carry out the investigation. It held that the scope and ambit of the Act was very wide and the purpose of the Act was not only to sanction anti-competitive conduct but also to promote and sustain competition in the market. It also opined that the Act was also intended to ensure freedom of trade and protect consumers. As regards the issue of competition, the court also noted that there were 60 suppliers in the market, who would like to quote the lowest prices to get the order, but there were only three buyers. On the issue of collusion, the court ruled that the standard of proof required is one of ‘probability’ and thus when there are indicators that there was practical cooperation between parties who knowingly substitute the risk of competition, the same would amount to anticompetitive practices. The court further noted that there was a meeting of the bidders under the aegis of their trade association just before the submission of the tenders, the parties had submitted identical bids despite varying costs, the products are identical and there are small number of suppliers with few entrants.
However, the court ruled that there was no possibility of horizontal agreement among the bidders in view of the ground realities prevailing in the market, namely:
- that there were only three buyers, and if LPG cylinders of any of the appellant was not bought by these buyers then such appellants would not be able to sell to any other entity;
- the limited number of buyers in the market may deter new entrants;
- ultimately, all bidders supply at the same rate, which is fixed by the buyers after negotiating with the lowest bidder; the only difference being the volume/quantity ordered for supply on the lowest bidders being higher;
- since there are not many manufacturers and supplies of LPG cylinders are needed on regular basis, the government companies ensure that all those manufacturers whose bids are technically viable are given some order for supply so as to keep all the parties afloat, which explains why all the 50 parties obtained order along with 12 new entrants;
- the supply and price of LPG cylinders is controlled by the government under the provisions of the Essential Commodities Act;
- the market was transparent and opening of previous tenders of any of these government companies, coupled with tight price control, becomes the guiding factor for subsequent tenders ruling out possibility of much price variation; and
- in the meeting prior to the opening of the bid, only 19 parties had attended which shows that the reason for quoting similar prices was not the meeting but something else - which is the market condition leading to the situation of oligopsony that prevailed because of limited number of buyers and influence of buyers in the fixation of prices.
In view of this, the court ruled that on a holistic view, the appellants were able to discharge the onus, on the basis of aforesaid indicators, that parallel behaviour was not the result of any concerted practice.
Regime reviews and modifications
43 Are there any ongoing or anticipated reviews or proposed changes to the legal framework, the immunity/leniency programmes or other elements of the regime?
The Government of India had constituted a Competition Law Review Committee on 1 October 2018 to review the existing competition law framework and make recommendations to further strengthen the framework to, inter alia, meet new economy challenges. The key recommendations of the Competition Law Review Committee are as follows:
Regarding the structure and composition of the CCI
- Introduction of a governing board to oversee advocacy and quasi-legislative functions, leaving adjudicatory functions to the whole-time members;
- integration of the DG’s office with the CCI to bring about administrative efficiencies in the direction and scope of investigation, accompanied by functional autonomy for the DG and meaningful internal division of investigation and adjudication functions; and
- opening regional offices of the CCI for carrying out non-adjudicatory functions such as investigation, advocacy, etc.
Regarding the appellate body
Setting up of a dedicated bench of the NCLAT to expeditiously hear and dispose of competition appeals.
Introduction of settlement and commitment mechanisms
Incorporation of additional enforcement mechanisms in the form of settlement and commitment mechanisms In respect of anticompetitive vertical agreements and abuse of dominance, that may be achieved outside of an otherwise relatively lengthy enforcement process.
- Introduction of a ‘Green Channel’ for combination notifications having no major concerns regarding appreciable adverse effects on competition;
- combinations arising out of the insolvency resolution process under the Insolvency and Bankruptcy Code to be eligible for ‘Green Channel’ approvals;
- introducing a ‘material influence’ standard to determine what amounts to ‘control’;
- all permissible time exclusions from the 210-day timeline for assessment of mergers to be codified within the Act itself; and
- introduction of additional thresholds to review combinations of business that are not structured traditionally - especially where they form part of digital markets - when considering non-notifiable mergers, if the transaction value or the deal value of a combination exceeds a certain limit.
On hub and spoke agreements
Incorporating express provision to identify hub and spoke agreements in order to provide clarity on the liability of hubs as well as to address agreements that do not fit within typical horizontal or vertical anti-competitive agreements due to shift in traditional market realities.
CCI must be mandated to issue guidelines on the imposition of penalty.
The definitions of: (i) ‘cartels’ should include buyers’ cartel; (ii) ‘consumer’ should include government departments or agencies; and (iii) ‘turnover’ (used for the purpose of determining combinations) to exclude intra-group sales, indirect taxes and trade discounts.
- To provide for a ‘leniency plus’ regime, which incentivises applicants to come forward with disclosures regarding multiple cartels by providing a penalty reduction to a leniency applicant in the first cartel, which reduction will be over and above any other penalty reductions that such applicant may receive under the normal lesser penalty application framework; and
- to enable a leniency applicant to withdraw leniency application within a prescribed time period but to allow the CCI to use the information submitted by the leniency applicant in accordance with applicable laws.
To allow applications for compensation to be filed post-determination of an appeal by the Supreme Court instead of NCLAT.
Back to top