COVID-19: A Defence for Anti-Competitive Behaviour

Reading time: 3-4 minutes.

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.

Also read: Act of god and Contractual obligation: COVID angle

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.

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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.


Coronavirus: Legal angle

Reading time: 6-8 minutes.

“No epidemic is local” is one of the most thought provoking remarks once made by Belgian Microbiologist Pitor Piot and now the milieu is such that the virus, popularly known as the Coronavirus or 2019-nCoV,  first discovered in the 1960s and named after the Latin word ‘corona’ (meaning crown) due to its shape, is spreading exponentially. As of February 6, 2020, the total number of persons who are suspected to be infected stands at 28,344 with 565 deaths around the globe.

The virus spreading trans-border has already affected 26 Countries, making it the third most sprawled contagion after SARs & MERs. India too, is witnessing the adversity of the outbreak as till date, 3 positive cases – all from Kerala – have been reported along with 5123 people being kept under surveillance and 1 under isolation.

What is coronavirus?

The outbreak was first zeroed down when, on the 31st December of 2019, the government of China informed the WHO about the plethora of pneumonia cases particularly in the city of Wuhan in Hubei province. The WHO on the 9th of January, 2020 reported the cause of the contagion to be a virus called Coronavirus.  

Scientists tracked the inception of the virus to be bat,making it cognate of SARs (Severe acute respiratory syndrome) & MERs (Middle East respiratory syndrome), which too originated from mammals. However, the situation gets more critical with nCoV as in case of SARs and MERs, the virus, to develop the ability to infect humans, first had to attack an intermediary host such as camel or civet cats, but the Coronavirus is capable of infecting humans directly from the respiratory tract of Bats.

How it affects the body

The coronaviruses belong to the group of RNA (ribonucleic acid) viruses responsible for bodily proteins. However, RNA lacks the capability of filtering the hostiles due to its rapid mutative process. The outbreak leading to the sixth World Health Emergency is alleged to be an airborne contagion spreading through ‘close contacts’ such as through cough or sneezes. The symptoms are common cough, fever, and difficulty in breathing, etc. Tough till now there have been no signs of vaccines, scientists at the National Institutes of Health along with several companies are striving for an antidote.

Steps taken by the Indian government

The government, post-detection of the third infected person in Kerala, has set up a task force to counter the outbreak. The State government of Kerala declared the 2019-nCoV to be a “state-calamity” as all the positive cases in India hail from Kerala. Moreover, the Indian government airlifted 645 people from China which includes 7 Maldivians, and all of them tested negative for the virus. The government sought to expand the thermal screening of passengers from 7airports to 20, along with an increase in the number of laboratories where the virus can be tested. The check is not only limited to aerodrome; the Mumbai Port Trust been directed to disallow shore permits to vessel setting in from China until health clearance. Following the Central government guidelines, a 24×7 call centre has been made operational along with rapid response teams deployed at key points such as Airports.

Laws in India regarding such epidemics

The legal framework in India is dicey when it comes to the prevention of infectious diseases. It is conceded that though the country has several tattered legal measures to counter epidemic, it is bereft of comprehensive legislation barring the archaic Epidemic Act, 1897.

The plague epidemic in Bombay led to the enactment of the 1897 legislation. The Act with its four sections, empowers the government to adopt transient measures & regulations to preclude the spread of the diseases along with imposing a penalty for disobedience of the regulations.

Additionally, Section 188 of the Indian Penal Code (IPC) also warrants for punishment when a person contravenes an order promulgated by a public servant, thereby inculpating any person who contravenes any order which prescribes for non-spreading of infectious diseases.

On the other hand, The New Delhi Municipal Council Act, 1994 is a more broad-gauged Act when it comes to the prevention of communicable diseases & infections. Chapter XV of the Act which covers Sanitation & Public Heath provides for measures to prevent ‘dangerous diseases’, which is further defined under section 2(10)(b) of the Act empowering the Chairperson to declare a particular disease as dangerous via notification. The Act puts an obligation to inform about any dangerous disease along with measures such as removal of patients suffering from infectious diseases, disinfection & destruction of infected structures. The legislation empowers the Chairperson to impose special measures in case of an outbreak beyond the contemplation of the Act and hence makes it sufficient for exigencies.

The 1994 Act also provides measures which are to be taken to preclude any contagion such as disinfection of building before letting, an obligation to dispose of infected articles only after disinfection, and also empowers the Chairperson to restrict the sale of food & drinks.

Scope of improvement in medical laws

In India, there is immense scope of improvement in medical laws. At the rudimentary level, it is sine qua non to enact a comprehensive central legislation which not only comes into effect when there is an outbreak but also provides sufficiently for forestalling such outbreaks. Moreover, the complexity demands a balance between intellectual property rights and the rights of poor persons to have access to high priced antidotes.

Further, it is required that improvement in medical laws would also seek to fill the institutional voids as a result of which illiterate persons squander their monies on the services which are free of cost and also stand in a vulnerable position due to dearth of knowledge. It has also been evidenced that India holds a poor record regarding communication of risks of outbreaks and information to the World Health Organization which it is legally bound to do under the WHA54.14. Hence, it must be made compulsory for the government to disclose information at the first instance of detection.

It is a fact that while countering an epidemic, public health must be given primacy. However, legislation should also protect the data which is collected from the patients, which if not done, would infringe the right to privacy and hence a proper guideline as to the collection, dissemination, protection, and usages of data must be laid down to preserve confidentiality.

The development in the legal framework must also reflect the changes that were made in International Health Regulations, 2005 with regard to building a system where local governments hold the authority to respond rapidly without falling into the dicey floor of red-tapism. Compulsory disposition by patients should be brought into effect, which may go to the extent of forceful examination and if found positive, the person is to be hospitalized. Hence, what is required is that there must be a proper balance between the rights of individuals and endeavour of the State in securing public health.

Conclusion

At present, it is difficult to contemplate the anti-dote to 2019-nCoV. However, the government, with immediate effect, must enact a legislation to counter such exigencies more efficiently. The legislation is required to define the contours within which the officials should exercise their powers while dealing with an outbreak. It is a fact that archaic legislation like The Epidemic Act, 1897 can no longer be effective.

Thus, instead of relying on contingency measures, a permanent legal backing must be created which not only addresses the exigencies faced during an outbreak but also prevents and provides for measures which prevent such contagion.

Author: Ishan Mazumder from West Bengal National University of Juridical Sciences (NUJS), Kolkata.

Editor: Ismat Hena from Faculty of Law, Jamia Millia Islamia.