ANALYSIS OF INDIAN COMPETITION LAW DURING COVID- 19

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INTODUCTION

The sudden outbreak of COVID-19 pandemic affected the businesses worldwide. Due to the pandemic there was a huge increase in the demand of essential commodities like masks, sanitizers, etc. which lead to the shortage of some of the essential products. Businesses and companies took every possible measure to sustain in these uncertain times. The enterprises need to be mindful that they do not violate any rules and regulations applicable to them else they will face the scrutiny of the Competition Commission of India (hereinafter ‘CCI’).

WHAT IS COMPETITION

The word competition is not defined anywhere in the Competition Act, 2002 (hereinafter ‘the Act’). It is basically a process of rivalry between firms striving to gain sales and make profit. It is a branch of economic law to regulate the conduct of enterprises, market participants and ensure that producer of goods and services compete fairly with each other. Competition is not just an event; rather it is a continuous process happening in a market.

COMPETITION IN INDIA

In India the Competition Law is governed by the Competition Act, 2002. Under the Act CCI is established which regulates the competition in India. The main objective of CCI is:-

  • To prevent practices having adverse effect on competition
  • To promote and sustain competition in market
  • To protect the interest of the consumers
  • To ensure freedom of trade

3 main pillars of the Act are:-

  1. Anti- competitive agreements
  2. Abuse of dominant position
  3. Regulation of Combinations

ANTI- COMPETITIVE AGREEMENTS

Section 3 of the Act deals with Anti- competitive agreements. Any agreement made by the enterprises or person that causes or likely to cause appreciable adverse effect on competition in India are prohibited and if any such agreement is made, that will be void under Section 3(2).

Horizontal Agreements are made at the same stage of production. Any agreement under Section 3(3) of the Act will be held to be anti- competitive agreement which causes or likely to cause appreciable adverse effect and thus are void. Section 3(3) of the Act is based on per se rule. Horizontal agreements also include cartel and includes following types of agreements:-

  • Price fixing agreements i.e. the agreements which directly or indirectly determines the purchase or sale price.
  • Agreements which seek to limit or control production, supply or markets.
  • Market sharing agreements like allocation of geographical area, allocation of product or source of production.
  • Bid rigging or collusive bidding which seeks to eliminate or reduce competition for bids or adversely affecting the process of bidding.

Proviso to Section 3(3) of the Act exempts joint venture agreements from presumption of AAEC if such agreement increases efficiency in production, supply, distribution, storage, acquisition or control of goods or provision of services.

Vertical Agreements under Section 3(4) of the Act deals with agreements which are entered into between enterprises and/or persons who are at different stages of productions. Section 3(4) of the Act is based on rule of reason and there is no presumption of AAEC. Five categories of vertical agreements which are specified under Section 3(4) of the Act are;-

  • Tie in arrangement
  • Exclusive supply agreement
  • Exclusive distribution agreement
  • Refusal to deal
  • Resale price maintenance

Under Section 19(3) of the Act certain factors have been laid down to determine whether the agreement has an appreciable adverse effect on competition under Section 3 of the Act or not. 6 factors for determination are:-

  • Creation of barriers to new entrant in the market
  • Driving existing competitors out of the market
  • Foreclosure of competition by hindering entry into the market
  • Accrual of benefits to consumers
  • Improvement in production or distribution of goods or provision of services
  • Promotion of technical, scientific and economic development by means of production or distribution of goods or provision of services.

These factors are applicable to both Horizontal and Vertical Agreements. CCI can take into consideration all or any of the factors.

ABUSE OF DOMINANT POSITION

Section 4 of the Act deals with Abuse of Dominant position. According to Section 4(1) no enterprise or group shall abuse its dominant position.

Abuse of dominant position is subjective to relevant product market and relevant geographical market. To assess whether an enterprise of a group is abusing its dominant position or not the first step is to check whether enterprise or group is in relevant product market or relevant geographical market. Factors for assessment of relevant geographical market are given under Section 19(6) of the Act and factors for assessment of relevant product market are given under Section 19(7) of the Act.

After that factors listed under Section 19(4) are assessed to check whether any enterprise or group is in dominant position or not under Section 4.

If dominant position of an enterprise is established under Section 19(4) of the Act then assessment of abusive conduct is done under Section 4(2) of the Act because dominance is not bad but its abuse is bad and is prohibited under Section 4(1).

Practices which are listed as being abuse of dominant position under Section 4(2) are:-

  • Imposing unfair or discriminatory price or condition in purchase or sale including predatory pricing.
  • Limits or restricts production of goods or provision of services of market or limiting scientific development to the prejudice of consumers.
  • Denial of market access in any manner.
  • Conclusion of contract subject to supplementary obligations.
  • Use of dominant position in one relevant market to enter into or protect other relevant market.

REGULATIONS OF COMBINATIONS

Section 5 and 6 of the Act deals with combination and regulation of combinations respectively. Combinations which cause or are likely to cause appreciable adverse effect on competition are void under Section 6. A combination under Section 5 can be materialized by 3 ways:-

  1. Combination through acquisition of share, voting rights, assets.
  2. Combination through acquisition of control.
  3. Combination through merger and amalgamation.

If the parties to proposed combination hits the threshold limit specified in Section 5 of the Act, then they have to give prior notice to CCI within 14 days. After that CCI may either approve or disapprove the combination or can suggest some modifications to the proposed combination. If the parties to combinations accept the modification then the combination gets approved by CCI.

COVID-19 AND COMPETITION

CCI adapted to the challenges of 2020 very efficiently and main focus was on digital payment platforms and cartel investigations. After the lockdown was announced CCI moved towards electronic filings, meetings and hearings were conducted through video conferencing.

SUSPENSION OF FILINGS

Due to the pandemic a nationwide lockdown was announced on 24th March 2020 by Government of India. A day before that i.e. on 23rd March 2020 a notification was issued by CCI by which all the filings related to Section 3 and 4 of the Act were suspended till 31st March 2020. After that the notice dated 13th April 2020 allowed the electronic filing of information regarding provisions of Section 3 and 4 of the Act.

HEARINGS BEFORE CCI

The notification dated 23rd March 2020 adjourned all the matters listed before it till 31st March 2020. The suspension of hearing of matters continued till 3rd May 2020 vide order dated 20th April 2020. After that hearings were conducted through video conferencing.

PRE FILING CONSULTATIONS

All pre filing consultations, other filings, the submissions and proceedings under the Act were suspended by CCI vide notice dated 23rd March 2020. The notice of 13th April 2020 allowed these consultations through video conferencing.

NOTIFICATION OF COMBINATIONS

The notification of combinations under Section 6 of the Act were also suspended vide the 23rd March notice by CCI. Later on electronic filings were allowed only under green channel vide the notice dated 30th march 2020. Subsequently electronic filings for all combinations were allowed vide notice dated 13th April 2020.

ADVISORY ISSUED BY CCI TO BUSINESSES IN TIME OF COVID-19

An advisory was issued by CCI to businesses on 19th April 2020 in which CCI has acknowledged the fact that COVID-19 has caused various disruptions in the supply chains and thereby said that information sharing and coordination may be required to ensure that there is continuous supply and fair distribution of goods and services. According to Section 3(3) of the Act any kind of coordination among competitors is presumed to have AAEC. However CCI gives due regard to the pro competitive effects such as accrual of benefits to consumers, improvement in production or distribution, promotion of technical, scientific and economic development by means of production or distribution of goods. There the Act has inbuilt safeguard mechanism to protect such arrangements and coordination which have pro-competitive effect. In the advisory CCI noted that to cope up the situation businesses may need to coordinate certain activities by way of sharing data or stock levels, timings of operation, sharing of distribution network and infrastructure, transport logistics. However CCI strictly cautioned in the advisory that this exemption will be given to only such businesses which have favorable consideration and other businesses should not take advantage of prevailing situation and adhere to the provisions of the Act. This advisory did not provide any kind of exemption from provisions of the Act; it merely provided that CCI will consider only exceptional cases.

CRISIS CARTELS

The concept of crisis cartels allows the enterprises who are facing challenges because of any kind of crisis, to coordinate among themselves. Crisis cartels is recognized by several jurisdictions such as the European Union but the Indian Competition Law regime has not explored this and does not recognize crisis cartels within its framework. The Act only recognize the proviso to Section 3(3) which excepts joint venture agreements from presumption of AAEC, if such agreement increases efficiency in production, supply distribution, storage, acquisition or control of goods or provision of services.

CENTRAL GOVERNMENT’S POWER TO EXEMPT

According to Section 54 of the Act, the central government has the power to exempt any class of enterprises from the applicability of the provisions of the Act, if the government thinks it is in the interest of the security of state or public interest. But during this crisis, the Government of India has not exercised this power under Section 54 of the Act yet.

PRICING OF ESSENTIAL PRODUCTS BY GOVERNMENT OF INDIA

The Government of India is empowered to bring certain commodities under the purview of the Essential Commodities Act, 1955 (hereinafter ‘ECA’) and determine their fair prices. The Government determines prices to ensure that the price of these essential commodities do not rise to unreasonable levels. During the pandemic the demand and prices of face masks and hand sanitizers increased unreasonably. To cure this issue of increasing prices the Ministry of Consumer Affairs, Government of India, vide notification dated 13th March 2020 brought hand sanitizers and face masks under the purview of the ECA till 30th June 2020. After that the Ministry further vide notification dated 21st March 2020, determined the fair retail prices for face masks, for fabric used for producing face masks and sanitizers.

PRICING PRACTICE UNDER INDIAN COMPETITION LAW

The Indian Competition Act does not empower the CCI to determine the prices of goods and services. However, there are certain penalty provisions under the Act. CCI has the power to penalize any person or enterprise who indulges in any kind of practice which have AAEC in India or which causes harm to consumers. Therefore the practices like price fixing, price gauging, unfair or discriminatory pricing, predatory pricing are prohibited under the Act as it has effect on both market as well as consumers. Price related conduct can be divided in 2 categories i.e. unilateral conduct and collective conduct.

Unilateral Conduct

  1. Price Gouging- Businesses sometimes increase the prices of their products and services without any justification to increase their revenue and earn profits. This is commonly known as price gouging. Under current crises, excessive pricing of products may get scrutinized by CCI if it is found to be detrimental to consumer. Price gouging is nowhere defined under the Act, but this kind of unjustified pricing may be analyzed under Section 3 of the Act being anti-competitive.
  2. Differential Pricing- Businesses sometimes charge different prices from different set of consumers without any justified criteria, including consumers such as hospitals, public institutions, etc. or sometimes based on the income of consumers in a particular area. This is known as differential pricing and it may harm the interest of consumers.

Also read: CUSTODIAL DEATHS

Collective Conduct

  1. Determination of prices- Two or more entities who are engaged in service or production of similar product, may collectively determine prices of their product to avoid competition. Such collective decision is commonly known as cartelization and is presumed to have AAEC. Cartelization is prohibited under Section 3 of the Act.

CARTEL CASES DURING COVID- 19

CCI is empowered to inquire into cartel and to impose penalty upon the cartel participants. The penalty for cartel is very high; it is 10% of the turnover or 3 times the profit of the entity, for each year of continuance of such conduct.

In the year 2020 CCI passed two orders related to cartel where no penalty was imposed by CCI on cartel participants.

On 5th June 2020, in Re Cartelization in Industrial and Automotive Bearings[1], the CCI passed a cease and desist order. In this case the parties were major players in domestic industrial and automotive bearings market. CCI took suo moto cognizance on receipt of leniency application under Section 46 of the Act filed by one of the cartel participants. On investigation CCI found evidences of cartelization but in spite of that CCI did not imposed any penalty. CCI just passed cease and desist order to refrain the parties from indulging in anti-competitive practices. In this case CCI did not elaborate the reason for not imposing any penalty and cited ‘peculiar circumstances’ which refrained CCI from imposing any monetary penalty.

Then in July 2020, CCI once again did not impose any penalty on cartel participants in Re Railway Brake Blocks Cartel[2]. In this case CCI stated that Micro, Small and Medium Enterprises are facing economic slowdown because of ongoing pandemic so no penalty will be imposed on cartel participants. CCI closed the case with cease and desist order.

CONCLUSION

Despite the challenges faced by the CCI because of this unprecedented pandemic, it continued to function efficiently and regulate mergers and acquisitions. The CCI was kept a vigilant check on enterprises and businesses so that they do not violate any provisions of the Competition Act, 2002 and ensured fair competition. In the year 2020, CCI received about 90 merger filing, out of which 80 got approved by CCI. In December 2020, CCI conducted raids on various offices of cement companies. Various notices regarding merger enforcement was issued by CCI. In 2020,a market study on telecom sector, mergers and acquisitions in digital market, pharmaceutical sector, private equity investments was commenced by the CCI to understand market and its dynamics. The market study on telecom sector was released in January 20221, while the publication of other studies is still awaited.


[1] Suo Moto Case No. 05 of 2017.

[2] Case Nos. 3 of 2016, 5 of 2016, 1 of 2018, 4 of 2018 and 8 of 2018.

Author: Pragyanjali Prakhar, Amity Law School, Amity University, Noida

Editor: Kanishka VaishSenior Editor, LexLife India

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