Author: Abhinav Gaur, Research Associate
Though the law cannot hinder people of the same trade from sometimes assembling, it ought to do nothing to facilitate such assemblies; much less to render them necessary ((Adam Smith, The Wealth of Nations, Book IV Chapter VIII, p. 145, para. c 27)).
With the advancing competition and ever-growing need for trade and commerce, countries all over the world have already begun adopting liberal trade and economic policies with a view to advance towards a market economy. It is undeniable that Free and Fair competition is one of the pillars of an efficient market economy. Thus, competition has become a driving force in today’s global world. But, unfortunately like any other sector even this sector is not left untouched by malpractices and frauds leading to adverse effects on not only he customers but also business enterprises, whose sustainability is challenged by anti-competitive practices, such as artificially rigged prices. Thus, to curb such ill-practices in the global market, there arises a need to have strong and effective competition law, which would eliminate odds and nurture the fair and equal competitive process.
India, since time immemorial, has been a target market for trade and inter-course because of the viability and dynamic nature of Indian market. It is immensely surprising to know that India was one of the first developing nations to have a competition law in the form of the Monopolies and Restrictive Trade Practices (MRTP) Act, 1969, which was significantly amended twice- in 1984 and again in 1991.
With the dynamic change in market, recommendations of the Raghavan Committee were called, and the Competition Act, 2002, was passed. While the earlier MRTP Act had focused on curbing monopolies, the Competition Act focuses on promoting competition.
Establishment of the Competition Commission of India
The Competition Act, 2002, was amended by the Competition (Amendment) Act of 2007. The Competition Commission of India (CCI) was established on March 1, 2009, as an autonomous independent body comprised of a chairperson and six members. In addition, an appellate body called the Competition Appellate Tribunal (CAT) was later set up in May 2009, with final appeal lying to the Supreme Court of India. In 2009, the earlier MRTP Act was repealed, and the MRTP Commission established under that act was abolished. The MRTP Commission’s pending cases were transferred to the CCI ((Seema Gaur Chapter 3: India, Part I: Regulator’s Introduction in Adrian Emch , Jose Regazzini , et al. (eds), Competition Law in the BRICS Countries (Kluwer Law International 2012).)).
Cases that are filed with the CCI are called information, not complaints. The CCI also has an extraterritorial jurisdiction with powers to inquire into an anticompetitive agreement or abuse of a dominant position taking place outside India, if the conduct has, or is likely to have, an appreciable adverse effect on competition in India. The CCI has power to look into cases of anticompetitive agreements and abuse of dominance and to take remedial action, including imposition of heavy penalties against firms engaged in practices that impede free and fair competition in the market and which are anti-consumer.
The CCI may impose penalties of up to 10% of the average turnover of an enterprise for the three preceding financial years. In the case of a cartel, the CCI may impose on each member a penalty of up to three times its profits or up to 10% of its turnover, whichever is higher, for each year during which the agreement was in force. However, section 46 of the Competition Act empowers the CCI to grant leniency by levying a lesser penalty on a member of a cartel who provides full, true and vital information regarding the cartel.
Whenever information is received ((Information received under sections 3 and 4 of the Act)), relating to anticompetitive agreements and abuse of dominance, the CCI considers whether there is a prima facie violation. If a prima facie violation is found, it is sent to the Director General (DG) for Investigation. After receiving the DG report, the matter is again considered by the CCI. If needed, the CCI can further investigate the matter and pass an order, including imposition of penalties.
DOMINANCE IN MARKET
Unilateral conduct laws in the BRICS countries and in the European Union constitute a perfect illustration of the worldwide globalization of antitrust rules. Legislatively, all BRICS countries have unilateral conduct regulations. In some countries, such as Russia or China, these regulations are very detailed. BRICS countries, which adopted unilateral conduct regulations at a much later stage ((In the EU, abuses of dominance are regulated since 1957, when the Treaty on the European Community was adopted. Russia has adopted rules which specifically regulate abuses of dominance in 1991; Brazil: 1994; South Africa: 1998; China: 2007; India: the Monopolies and Restrictive Trade Practices Act of 1969 regulated dominant position but the Act prohibiting abuses of dominance came into force in 2009.))than the United States or the European Union, now have a wide range of legislative, institutional or enforcement tools to fight against these anticompetitive practices. From an enforcement perspective, the BRICS country regulations provide heavy sanctions in the form of financial penalties imposed on companies that commit an abuse of dominance, and also, in most cases, criminal sanctions.
In the EU, Article 102 of the Treaty on the Functioning of the European Union (TFEU) governs abuse of dominance ((Article 102 TFEU: Any abuse by one or more undertakings of a dominant position within the internal market or in a substantial part of it shall be prohibited as incompatible with the internal market in so far as it may affect trade between Member States. Such abuse may, in particular, consist in: (a) directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions; (b) limiting production, markets or technical development to the prejudice of consumers; (c) applying dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage; (d) making the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts.)). Contrary to the BRICS’s regulations, this text is less comprehensive and provides very narrow idea as to what constitutes an abuse of dominance. For this reason, the Court of Justice of the European Union (ECJ) has developed extensive case law. The European Commission, through its decisional practice and its Guidelines concerning abuses of dominance, also plays a major role in the fight against this type of anticompetitive conduct ((Philippe RincazauxChapter 6: Comparative Overviews, Part III: Unilateral Conduct in Adrian Emch , Jose Regazzini , et al. (eds),Competition Law in the BRICS Countries (Kluwer Law International 2012).)).
There is a point of conjunction between the EU and BRICS countries’ laws on unilateral conduct which may be noticed with regard to the definition of dominance, and may be noted in the competition authorities’ approach concerning the practices that constitute an abuse, and in the sanctions imposed as a result of such anticompetitive conduct, all of which has been elucidated below.
BRICS on unilateral conduct, very much resemble to the approach by European Commission. The most predominantly used criteria in BRICS to determine whether an entity is dominant is the possibility for the relevant entity to conduct itself independently vis-à-vis other market players.
The European commission defines it as dominance is defined “as a position of economic strength enjoyed by an undertaking, which enables it to prevent effective competition being maintained on a relevant market, by affording it the power to behave to an appreciable extent independently of its competitors, its customers and ultimately of consumers. This notion of independence is related to the degree of competitive constraint exerted on the undertaking in question”.
The definitions of dominance in the BRICS countries and in the EU are clearly along the same lines and governed by the underlying concept of ability of the business operator concerned to behave in an independent manner apropos to its competitors, clients or consumers. But, no BRICS country gives a conclusive definition of what constitutes an abuse, though most of the BRICS countries admit that abusive conduct may be justified by pro-competitive effects.
CHARGES OF CARTELIZATION AND ANTI- COMPETITIVE PRACTICES AGAINST INDIAN OIL, BHARAT PETROLEUM, HINDUSTAN PETROLEUM
On May 9th, 2012, the Competition Commission of India cleared three Public Sector Undertakings (PSUs), namely, Indian Oil, Bharat Petroleum, Hindustan Petroleum of charges of cartelization and anti-competitive practices alleged by M/s Royal Energy Ltd, (the informant), a manufacturer of bio-diesel.
BACKGROUND: National Policy on Bio-fuels (NBP) indicates that the Government aimed at mainstreaming of bio-fuels to increasingly substitute petrol and diesel with an indicative target of 20% blending of bio-fuels by 2017 and to that end, under the Bio-fuel Purchase Policy (BPP) ((Refer Bio-fuel Purchase Policy, with effect from January 1, 2006, Ministry of Petroleum and Natural Gas, Government of India, Paragraph 4.2, (vi).))the government authorized oil marketing companies (OMCs) to buy biodiesel at a uniform price, as may be decided by the OMCs, from time to time, depending upon the circumstances. In addition the government also imposed a prohibition on sale of Bio-diesel in open market other than to OMCs. Thus in effect, the Bio-diesel manufacturers were per force to sell their product only to the OMCs at a price determined by the OMCs and the difficulty arose when the price quoted by the OMCs was below the very cost of manufacturing Bio-diesel ((As per the order the price quoted by OMCs was Rs.26.50/-per litre while price of bio-diesel sold independently by the informant was Rs.31/-per litre)).
In M/s Royal Energy v. IOCL and Ors. ((In M/s Royal Energy v. IOCL and OrsMRTP Case No. 1/28 (C-97/2009/DGIR).)), CCI had erroneously validated state-engineered oligopoly of State Owned Enterprises (SOEs) having inadequate regard to both the executive & legislative intent and the law on the point failing to guarantee competitive neutrality in the Indian Oil sector.
ABUSE OF DOMINANCE BY THE CRICKET REGULATOR (SH. SURINDER SINGH BARMI)
CCI recently imposed a fine of INR 54.24 crore on the Board for Control of Cricket in India (“BCCI”). The CCI found the BCCI to be in a dominant position in the market for organizing private professional league cricket in India and that it abused that position of strength to favor its own commercial venture, the Indian Premier League (“IPL”) by not allowing entry into that market by any potential competitors ((SonamMathur, The Indian Competition Commission finds abuse of dominance by the cricket regulator (Sh. Surinder Singh Barmi), e-Competitions, No. 51800, © e-Competitions – Institute of Competition Law, www.concurrences.com)).
BACKGROUND: The complaint/information was filed by a cricket fan, Mr. Surinder Singh Barmi who alleged that there were irregularities in the conduct of IPL that is, the grant of franchise rights for team ownership, grant of media rights for coverage of the IPL, award of sponsorship rights and other local contracts related to the organization of the IPL. The informant raised these concerns with respect to another competitive league called Indian Cricket League; however, this aspect was not investigated by the CCI in detail as it concerned the time period before the Competition Act, 2002 (“Act”) was enforced in May 2009.
The primary issues that arose in this case are as follows: 1. Whether the BCCI is an “enterprise” under the Act? 2. If yes, whether the BCCI enjoys a dominant position in the relevant market? 3. If yes, whether the BCCI abused that position of dominance?
Cement Manufacturers Association: Fined for forming cement cartel with a record fine of RPS 60 billion
The Competition Commission of India (CCI) has fined eleven cement companies, namely, ACC, Ambuja Cements Limited, Ultratech Cements, Grasim Cements, JK Cements, India Cements, Madras Cements, Century Cements, binani Cements, Lafage India and Jaypee Cements, for fixing prices, and for limiting and controlling the output in the cement markets. The CCI has imposed record fines amounting to RPS 60 billion on the cartelists. Economic evidence, as well as the regular meetings held amongst the members of the Cement Manufacturers Association has been considered to be sufficient to prove the existence of an agreement, and ultimately a cartel ((MarianelaLópez-Galdos, The Indian Competition Commission breaks up a cement cartel and fines cartelists with a record fine of RPS 60 billion (Cement Manufacturers Association), e-Competitions, No. 47952, © e-Competitions – Institute of Competition Law, www.concurrences.com)).