COVID-19: A Defence for Anti-Competitive Behaviour

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The Global Economy has been adversely affected due to the outbreak of the COVID-19 pandemic. As many businesses and industries in India prepare to respond to the effects of this pandemic, a sign of relief comes from the Fair-Trade Regulator, the Competition Commission of India (hereinafter referred to as “CCI”) through its advisory dated 19.04.2020. The CCI has understood that in this situation, businesses are incurring substantial losses due to significant changes in supply-demand and reduced revenues, and that to overcome this situation, cooperation with their competitors through sharing of data regarding the quantity of stock, production timing, sharing of distribution network and infrastructure, research & development, transport logistics, etc. may become necessary.

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The Advisory always proposed that businesses should not take advantage of this situation, and warns against the contravention of any of the provisions of the Competition Act, 2002 (hereinafter referred to as “the Act”). However, through its recent orders of Cease & Desist, in the cases of Automotive Bearing Cartel Case (Suo Motu Case-No. 05 of 2017) (hereinafter after referred to as the “Automotive Bearing Case”) and Railways Composite Brake Block Bid-rigging Case (Reference Case-No. 03 of 2016, 05 of 2016, 01 of 2018, 04 of 2018, 08 of 2018) (hereinafter referred to as “Railway CCBs Case”), the CCI has opened its doors to the businesses taking advantage of this situation.

This article is aimed at understanding whether the Commission is setting a wrong precedent, by issuing Cease & Desist orders, as such orders may be considered as a weakness of the Commission, and whether these orders would act as a shield for the businesses involved in anti-competitive behaviour during this pandemic.

Automotive Bearing Case

The CCI initiated a suo-moto case in respect of a leniency application dated 26.06.2017, under  S.46 of the Act read with Regulation 5 of the Competition Commission of India (Lesser Penalty) Regulations, 2009 filed by FAG Bearings India Ltd. (Now, “Schaeffler India Ltd.”), disclosing a cartel conduct, during the period of 2009 to 2014, in the Industrial Bearings Market and the Domestic Automotive, amongst ABC Bearings Limited (Now Timken India Limited “Timken”), National Engineering Industries Ltd. (“NEI”), SKF India Ltd. (“SKF”) and Tata Steel Ltd., Bearing Division (“Tata Bearing”).

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The Director General (hereinafter referred to as “DG”) through its investigation, concluded that cartelisation amongst NEI, Schaeffler, Tata and SKF was present for the period between November 2009 to January 2011. These five companies colluded on simultaneously stipulating the percentage increase of prices of Steel to the Original Equipment Manufacturers (hereinafter referred to as “OEMs”), to increase the existing supply prices. The DG concluded that the competitors met and shared confidential information with an intent to achieve higher profits, and finding such evidences, the CCI on 5th June 2020 concluded that the above mentioned parties were involved in cartelization, however, a Cease & Desist order was issued, with a warning to stop colluding in future.

Railway CCBs Case

In this case various departments of the railways, namely the Chief Materials Manager, South Eastern Railway; Controller of Stores, Central Railway; Chief Materials Manager, Eastern Railway; Chief Materials Manager-I, North Western Railway; and Chief Materials Manager-Sales, North Western Railway; (hereinafter referred to as “Railways”) filed complaints under S.19(1)(b) of the Act, against the Manufacturers and Suppliers of Auto-Components and Composite Brake Blocks (hereinafter referred to as “CCBs”) namely, Hindustan Composites Limited; Industrial Laminates (India) Private Limited; BIC Auto Private Limited; Escorts Limited; Rane Brake Lining Limited; Om Besco Super Friction Private Limited; Cemcon Engineering Co. Private Limited; Sundaram Brake Lining Limited; Bony Polymer Private Limited; Daulat Ram Brakes Mfg. Co.; Hindustan Fibre Glass Works; and Precision Industrial System, alleging that the CCBs indulged in Bid-rigging.

The DG, during  its investigation found e-mail exchanges, WhatsApp communications, SMSs, call detail records, excel sheets etc., along with the evidence of joint meetings, depicting efforts towards deciding their mode of operations and strategy of the cartelization; clearly indicating the collusion for bid-rigging during the period 2009 to 2017 between the CCBs. Moreover, all the above mentioned parties, colluded over the prices to be quoted by them in various tenders offered by the railways. The CCI, accepting these evidences recognized the cartel behaviour leading to bid-rigging, but again, passed a Cease & Desist order.

Understanding the Deterrence Approach- Comparing Previous Cases

The Commission, in its order in the Railway CCBs case stated that several factors, such as the economic effect of the COVID situation on the industries, and some of the enterprises involved in the cartelization were Micro, Small and Medium Enterprises, thus, before penalizing them in monetary terms, their financial strength should be considered. In the light of the advisory, we can reasonably understand that in its order in the Automotive Bearing case, the CCI has not placed any penalty on the parties because of the prevalence of the pandemic. However, this decision of the Commission invites and encourages cartel behaviour amongst the firms, because it shows that the Commission has taken a step-down in its deterrent approach, which had been followed in HPCL LPG Cylinder case, EPS Systems Cartelization case, and the Indian Sugar Mills case. From time to time when the Commission has concluded that there exists a cartel arrangement, it has imposed certain penalties on the parties as a deterrent measure, so that there is no adverse impact on competition.

Also read: Pre-Packaged Insolvency: A Solution in the times of COVID-19

In the HPCL LPG Cylinder case, the CCI had found, identical nature of the withdrawal letters, common agents working for the cylinder manufacturers, e-mails written to each other by the involved parties for the data regarding the bid price, common IP addresses, etc. Observing this evidence, the Commission concluded that there was a cartel arrangement leading to bid-rigging, and thus, imposed a penalty at 1% of their average relevant turnover for the period of 2013-16 on the 51 enterprises involved, along-with penalizing office holders of the Enterprises who were involved in this arrangement. Even though the Railway CBBs case had similar facts depicting a bid-rigging arrangement, no fine has been imposed by the Commission.

Also, the CCI in the Indian Sugar Mills case, issued an order against 18 sugar mills, and imposed a penalty at the rate of 7% of the average relevant turnover for the preceding three years, as it found compelling evidence indicating that they had colluded during the submission of bids for Ethanol’s supply to oil manufacturing companies. A penalty at 10% of their average receipts of the preceding 3 financial years was also imposed on Indian Sugar Mills Association and Ethanol Manufacturers Association of India, as the Commission concluded that they were facilitating the rigging of tenders for Ethanol’s supply. Thus, it can be observed that even in this case of Bid-rigging, the CCI imposed penalty on the parties.

Furthermore, in the EPS System Cartelization case, the Commission had found two Japanese Original Equipment Suppliers, NSK and JTEKT, and their two Indian subsidiaries, RNSS and JSAI respectively, to be involved in a Cartel in the Electric Power Steering market, hence, imposed a penalty at 4% of the relevant turnover of NSK/RNSS and on JTEKT/JSAI  at 1 times of the relevant profit of JSAI for each year of continuance of the agreement. However, as the Leniency Application was filed, reduction was granted. But what is noteworthy is that again deterrence in form of penalty was imposed.

Also read: Doctrine of force majeure: COVID-19 angle

Moreover, in a study submitted to the Commission in 2008, which was undertaken jointly by CUTS International and National Law University, Jodhpur, an emphasis was laid upon the role and need of the imposition of a Penalty or Fine. The study states that fines play a crucial role in the prevention of violations, because they create a deterrence as the parties involved in a Cartel, by creating fear of significant loss in the net turnover. Moreover, penalties act as an incentive for Cartel members to defect and to cooperate with the Commission so as to avoid punishment. Also, the entire process of detection, prosecution and punishing has a significant administrative cost and this cost has the potential of being used in other sectors, thus, imposing of the harshest fines shall be administered on these Firms, as it saves a lot of that cost to the society.

Conclusion

The Commission was established in place of the Monopolies and Restrictive Practises Commission after repealing the Monopolies and Restrictive Practises Act, 1969, with the objective of correcting Market distortions and safeguarding the stakeholders of the Market from behaviours which are detrimental to the Market as well as the consumers, such as the Cartel arrangements. The MRTP Commission did not have the power of penalizing Cartel arrangements; it could only issue Cease & Desist orders, hence, the CCI was created to overcome the shortcomings of the MRTP Act and the MRTP Commission. Thus, if this approach of Cease & Desist Orders is continued, the CCI will defeat the very purpose of the creation of the Act as well as itself. Therefore, the Commission should treat COVID-19 as a Pandemic and not as a excuse or defence for engaging in Anti-Competitive practises. 


Author: Alay Ninad Raje from Institute of Law, Nirma University, Ahmedabad, India.

Editor: Astha Garg, Junior Editor, LexLife India.


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