The Parliament of India enacted the Competition Act, 2002 (“Act”) with the objective of preventing practices that have an adverse effect on competition. The Competition Commission of India (“Commission”) aims to promote and sustain competition in the market, protect consumer interests while ensuring freedom of trade and “level playing field” for all participants. The benefits of a sound competition policy are numerous to the economy of a country as noted on various occasions and therefore, the Commission is obligated to “eliminate” all anti-competitive activities. One such activity is the formation of a cartel as defined in Section 2(c) of the Act and it is presumed that cartels have an appreciable adverse effect on competition. A cartel attempts to control the production, sale, or prices of a product to obtain a monopoly in a particular industry with an objective that is generally not in the public interest. Cartels are recognised as harmful to consumer interests and the economies of scale across jurisdictions and therefore, a primary objective is to root out cartels, penalise the participants and deter such anti-competitive activities. The severity of the effects of cartels is illustrated by Section 27 of the Act, which imposes a higher penalty on cartel participants entering into an anti-competitive agreement as compared to other parties to another anti-competitive agreement. However, unearthing and successfully proving a cartel is a herculean task and authorities have struggled to find conclusive evidence in various cases. Initially, to make a case of cartelisation under the Indian competition regime the Commission required direct and coherent evidence of a cartel formation and an unequivocal establishment of an agreement. The informant or the authority alleging an infringement of the Act had to provide evidence that cartel participants met, decided to take concerted action and implemented such an action.5 However, with the realisation and acceptance of the inherent secrecy behind the formation of cartels and its direct impact on investigation, the standard of proof has been diluted over the years. The paper seeks to highlight the current position of the standard of proof and the powers of the investigative wing of the Commission. These powers will be contrasted with the inquisitorial committees of developed jurisdictions to analyse the scope of investigative power and the standard to proof for a cartel to effectively catch and penalise those who intend to cause disruptions in the competitive forces in the market.
II. Standard of proof
The standard of proof for cartels have not been specified by any legislative enactment and is determined through judicial decisions. Since cartelisation is considered a civil offence, the informant or authority does not need to prove the existence of a cartel and anti-competitive activities “beyond a reasonable doubt” standard. The Commission has held that the “balance of probabilities” and “liaison of intention” test must be employed to determine cartelisation and this can be established through indirect or circumstantial evidence.6 This is in light of the fact that obtaining documented evidence in such cases is a particularly challenging task owing to the very nature of cartels. Agreements between cartel are undocumented and well-hidden under the radar and therefore, the “agreement” as defined under the Act is wide enough to bring into its scope any informal arrangement.7 The Commission has held that while it is necessary to prove an existence of an agreement, it is not mandatory to prove an explicit agreement between parties and the same can be inferred from the intention or actions of the parties.8 This implies that circumstantial evidence can be used to establish the existence of an agreement suggesting concerted action.9 It has been held that the Commission may inquire into cases of anti-competitive agreements based on indirect and circumstantial evidence which establish facts concerning the conduct of parties which cannot be explained “but for” some sort of anti-competitive agreement or concerted action under the existing framework.10 The Commission has even penalised cartels based on circumstantial evidence alone, thereby, adding to the jurisprudence of competition law and diluting the standard of proof for a cartel from the earlier position. Currently, the “parallelism plus” approach is employed by the authorities to ascertain the existence of cartels. This implies that there must be some parallel behaviour between the participants in the market and some plus factors that point towards collusive actions by a cartel.
Relying on European Court of Justice (“ECJ”), the Commission accepted that mere parallel behaviour was insufficient by itself to prove concerted practice.11 However, it was a strong evidence of concerted behaviour if the actions led to competition conditions which were unresponsive to normal conditions of the market having regard to the nature of product, size of undertaking and volume of the market.12 This approach can be explained by discussing several case laws to provide an insight into how circumstantial evidence are evaluated to establish the existence of an agreement and concerted action.
In MDD Medical Systems India (P) Ltd. v CCI, the Competition Appellate Tribunal was adjudicating an appeal against the decision of the Commission.13 In this case the appellants were alleged to have indulged in the activity of bid rigging and cartelisation. The major issue before the Appellate Tribunal was the correctness of decision of the Commission where the present appellants were found guilty under Sections 3(1) and 3(3) of the Act. The informant had filed a complaint alleging manipulation in the tender process floated by the Union of India. The Tribunal held that the appellants were innocent and that there was no price parallelism. Further, it observed that in order to prove that the appellants had continued to engage in cartelisation activities, independent evidence needs to be produced. The Commission had presupposed the existence of a cartel based on an earlier decision where the same parties had formed a cartel, the Tribunal noted that this approach was erroneous and on the basis of this it cannot be concluded that cartelisation activities continued. The Tribunal acquitted the appellants due to lack of evidence stating that the DG’s report relied on mere circumstances and transactions between the accused companies from which the existence of a cartel could not be inferred. In another case, Excel Crop Care Ltd. v. CCI, it was found that there were four (and only) APT manufacturers in the market and the prices quoted by them for tenders floated by Food Corporation of India (FCI) were identical, they jointly boycotted tenders at times and they were unable to justify this trend.14 Taking a holistic view of the matter, the Court noted that price parallelism in the market was indisputable and had been going on for years despite the fact that the manufacturers had different cost of production, geographical location and profit margins.15 While different prices are quotes for different tenders, the prices quoted by the manufacturers in respect of a particular tender are identical.16 Further, the manufacturers decided to collectively boycott a tender without providing a satisfactory explanation.17 The lack of interest and hundred per cent abstention for the tender, common entry in visitor’s register by the manufacturers for bidding and the past history of quoting identical prices was sufficient to concluded that the boycott was a concerted action resulting out of an understanding between the parties and hence, violative of Section 3(3)(d) of the Act.18
In Cement Cartel case, apart from establishment of price parallelism the Commission considered “plus factors” such as decrease in capacity utilisation, change in price after meetings of Cement Manufacturers’ Associations which also provided an opportunity for discussions and information exchange, dispatch parallelism, inter alia.19 The manufacturers were unable to give a plausible explanation for the trend of the industry and were earning abnormal profits. They also failed to give a consistent answer regarding the discussions in the trade association meetings. The circumstantial evidence was considered sufficient to meet the standard of proof.20 However, it has been alleged that this case creates very low evidentiary standards to prove a cartel and also highlights inconsistency in appraising evidence when contrasted with the Tyre Cartel case.21 Similar to the Cement Cartel case22, in Tyre Cartel case23 it was noted that plant capacity was higher than what was being produced however, the manufacturers refused to cut prices and there existed an active trade association. Apart from price parallelism, the Commission looked at “plus factors” to further assess the evidence. However, the conclusion drastically differed from the cement cartel decision. The Commission emphasised that due to the fairly transparent market structure of the tyre industry the price parallelism was dictated by economic necessity and independent strategic choices rather than concerted action. A detailed analysis was conducted into the cost of production, the unpredictability of demand and supply due to an ancillary retreading tyre market was noted along with substantial curtailing buying power in the industry. The court held that in the absence of a more “specific pattern” between parties, the evidence was inconclusive, and the manufacturers were exonerated. While the facts may contain some similar factors in the two cases, it is important to keep in mind that appraisal of evidence in such cases is a highly technical and complex exercise. It is intrinsically dependent on the nature of product and industry, factors affecting demand and supply and the involvement of trade association to an extent and therefore, while inconsistency ought to be maintained in appraising evidence, due consideration should be given to the background of every case.
III. Investigative powers
For a comprehensive understanding of the requirements of making a case against cartel it is imperative to understand how the Commission is empowered to conduct investigation. The Director General (“DG”) is responsible to investigate any contravention of the Act when directed to do so under Section 26(1) by the Commission. The DG has to act within the language of the Commission’s order. The Delhi High Court’s Division Bench, in 2019, held that the DG can investigate beyond what the Commission has directed it to do as it is his duty to thoroughly examine everything related to the subject-matter of the case.24 It can also look at other violations if required while investigating violations alleged in the original complaint. However, this does not mean that the DG has unfettered powers as it limited by the language in the Commission’s order. In Excel Crop case25, the DG could investigate if there was violation under Section 4 of the Act even though it was not alleged in the complaint, because the Commission’s order was broad enough to permit further examination. Hence, the DG’s powers should be within the language of the order of the Commission. In order to prove the presumption that there exists a cartel, the Commission looks at the evidence gathered from the investigation and also at other plus factors such as market share, cost of sales, conduct of the companies involved, etc. The Commission, while giving an order, relies on the report by the DG. This report contains what the DG found as a result of investigation and various other plus factors which constitute as circumstantial evidence. Such factors include parallelism in price changes, comparison with other players in the concerned market, factors of demand and supply inter alia. Cartels are agreements made in secret and do not have the tendency to be either written or too vocal. Therefore, it usually becomes difficult to find direct evidence that points towards existence of a cartel. Any kind of documented evidence exposing a cartel would be considered as direct evidence and due to lack of such evidence, the Commission heavily relies on circumstantial evidence. However, the problem with solely relying circumstantial evidence is that it can be risky and give the accused members of the presumed cartel a higher chance to escape unscathed.
At this injunction, it may be interesting to note how circumstantial evidence is treated under competition law vis-à-vis criminal law. Universally, direct evidence has more credibility than circumstantial evidence. In a court of law, what value the direct evidence holds cannot be replaced by the latter. In the criminal law of India, at present, circumstantial evidence is admissible.26 However, the cumulative effect of the evidence gathered should be such that must be pointing towards the guilt of the accused. Now the court in criminal law cases even provides for highest forms of punishments solely on the basis of circumstantial evidence.27 It is practically not possible for there to be direct evidence present for all matters. In the cases of competition law, especially when we look at alleged cases of cartels, pure and direct evidence is not always possible to be found as transactions between firms are not visible even during investigations. Earlier, Commission would always strive to find direct evidence to prove the existence of a cartel. Now, it also relies on circumstantial evidence to declare the presence of a cartel. There can be parallel drawn between the reliance on circumstantial evidence in competition law and reliance on it in the criminal law. The Judge in a criminal case, while considering the whole link of tied circumstances, sees if there is any fact or point which indicates otherwise or which breaks the link. However, if all gathered information is against the accused, the Judge affirms the conviction.28 Criminal law is also concerned with public safety and interest which the Judge also keeps in mind while ruling. Similarly, the Commission has noted that if there are circumstantial evidences which point towards a cartel and is anti-competitive for the market, the Commission will order penalty as seen in Cement Cartel case.29 In its article, in 2006, the Organisation for Economic Co-operation and Development (OECD), opinionated that since in the cases of cartels direct evidence is not available, the authority should rely on the cumulative effect of the circumstantial evidence instead of looking at each circumstance in isolation.30 In Suo Motu case against LPG Cylinder Manufacturers, In re, the Commission while holding that there was a cartel, relied on the collusive personality of the market and the fact that price was identical despite different the manufacturers having different cost of production and location.31
To investigate anti-competitive activities and find evidence, the Commission has resorted to methods like leniency regulations and dawn raids inter alia.
- Dawn raids. — Dawn raids are unannounced search and seizure activities that the DG is empowered to conduct as upheld by the Supreme Court of India.32 Under Section 41(3) of the Act, the DG has been vested with the same powers as the Inspector under Section 240-A of the Companies Act, 1956. A warrant could be obtained from the Chief Magistrate to conduct raids.33 However, it is observed that in the Companies Act, 2013, Section 220 states that the Code of Criminal Procedure’s (“CrPC”) provisions have to be followed to get a warrant. Following this, the Act should now be amended as well in accordance with the present Companies Act however, it has not happened. The DG has utilised this vested power to raid Glencore, Africa’s Export Trading Group in 2019 on receiving Intel about cartelisation in the market of pulses.34 There have been dawn raids conducted even with regard to the “beer cartel case” and offices of companies Carlsberg, United Breweries and Anheuser-Busch InBev have been raided.35 Through this raid, exchange of electronic mails was discovered which showed discussions with relation of price fixations.36 This was a direct evidence which in normal investigation is not possible to found. In Dry Battery Cartel case, the DG had conducted a raid and got access to incriminating documents and e-mails and could establish the case of cartelisation.37 The Competition (Amendment) Bill, 2012 was proposed to strengthen dawn raids. It stated that raids could be conducted if a firm was not coordinating with the investigation and allowed the officers to admit to the trial all kinds of documentation (physical as well as electronic) found during the raid. The amendment proposed that the search and seizure procedure should be in accordance to the CrPC and aimed to ease the strict requirement of the judicial warrant by empowering the Commission Chairman to authorise DG to conduct raids itself. The current procedure of obtaining the warrant results in prolonged delay which in turn allows the firms to clear any incriminating evidence and the element of a dawn raid i.e. sudden barging in the firm and searching for evidence is lost.39 However, the Bill was criticised for not having any remedy in case of arbitrary raids by the DG and the wide powers conferred to the Commission. As such the Bill was not passed however, there is a need to increase and make efficient use of dawn raids as it positively impacts the chances of extracting direct and incriminating evidence against cartels.
- Leniency regulations. — Through the leniency regulations, a person who has information approaches the Commission and hands over the details and evidence of the existence of the cartel. The leniency programme is mentioned under the Act and has to be followed as per the Competition Commission of India (Lesser Penalty) Regulations, 2009.40 Under these provisions the applicant, the one who informs about the existence of a cartel is entitled to a lesser penalty if required conditions are fulfilled. For example, the applicant will have to provide all relevant details the applicant knew about the alleged cartel as required by the Commission and not manipulate or conceal any vital information or documents. The applicant has to genuinely and expeditiously cooperate with the Commission. The regulations were recently amended in 2017 in order to change the meaning of applicant under the provisions, the number of applicants and so on.41 However, it is imperative to note that leniency is a discretionary relief. The programme does provide for confidentiality however, the Commission needs to inculcate confidence in the leniency programme to encourage cartel participants to approach the Commission and provide vital information. Through such regulations, it becomes easier to get direct and substantial evidence against the firms involved.
IV. Position in the EU/USA
The competition law in the European Union is governed by Articles 101 and 102 of the Treaty on the Functioning of the European Union (“TFEU”). Article 101(1) of TFEU prohibits any form of horizontal agreements between parties. The key legislation that provides the framework for competition law enforced in EU today is Council Regulation (EC) No. 1/2003 of December 2002 (Regulation 1/2003). However, Regulation 1/2003 does not provide that standard of proof which the European Commission (“EC”) requires if the Article 101 of TFEU is violated. The Regulation 1/2003 provides wide powers to the EC to investigate and gather evidence, but obtaining direct evidence is not always feasible as the modus operandi adopted by the cartels is often complex.42 The EC has often held that the evidence produced should be “sufficiently precise and coherent” to prove violation.43 In the Wood Pulp judgment, the ECJ noted the relationship between conscious parallelism and concert practice.44 The Court observed that parallel behaviour can furnish circumstantial evidence of collusion, however it can only be considered explicit collusion if behaviour cannot be explained by competition conditions of the market. The European Courts have avoided discussions on a precise standard of proof.46 The courts have constantly opined that the evidence should be “firm”, “precise”, “consistent”, “solid”, etc. However, what amounts as “sufficiently precise and coherent” is not quantifiable and can only be decided on a case-to-case basis.
The US competition law is governed by Section 1 of the Sherman Antitrust Act, 1890.47 In United States, cartel laws can be enforced criminally by the Federal Government and civilly by Federal Government, State Government and private parties. Criminal cases under Section 1 of the Sherman Antitrust Act must prove criminal violation “beyond reasonable doubt”, whereas the civil cases must meet the standard of “preponderance of evidence”. The courts consider the economic evidence and “plus factors” like parallel conduct, etc. The proof of parallel conduct should also be accompanied with conscious commitment. To commence a criminal trial, sufficient evidence is needed, but for proving the guilt of cartelisation, the evidence with the prosecutor that meets the highest standard set for proof. Even in the Sherman Antitrust Act, the term “agreement” includes informal type of agreement. However, the Department of Justice (“DOJ”) has to have direct evidence to prove the agreement in criminal cases. Whereas, in the civil cases of cartels, use of circumstantial evidence is permitted; the Supreme Court held that even such evidence should prove that there was enactment in concert with that intent and was not done independently.48 The Court has also held that restraints such as agreements of bid rigging, fixation of prices among the players are to be considered per se illegal.49 In criminal trials, the DOJ has wide powers during investigation along with the Federal Bureau of Investigation (“FBI”).50 The FBI is the wing conducting dawn raids while the DOJ has investigative tools like subpoenas and leniency programmes.51 For attaining warrant, DOJ has to get it from the FBI. In civil cases, civil subpoenas are issued by the State of Federal Agency itself to get documents and other testimonies.52
Since its inception, the Commission has been able to equip itself with much better investigative tools to prove the existence of cartels in the market and is constantly evolving to meet new challenges in the dynamic economy. With regard to the standard of proof of cartelisation, the Commission has come a long way from requiring direct evidence to placing greater reliance on circumstantial evidence. It is now close to the evidentiary standards required by the developed EC and in civil cartel cases in the USA. However, when it comes to the effectiveness of investigative tools, the Commission has ways to go to reach the level of swiftness and sophistication as shown by more developed jurisdictions. It is imperative to adopt innovative methods to detect cartels and to better utilise existing investigative techniques. It may be noted in EU, the EC does not require a judicial warrant to conduct dawn raids but can authorise the investigation itself to avoid delay and minimise the risk of alleged cartel participants to destroy evidence.53 Additionally, in India, the leniency programme provides an application to present information in hypothetical terms wherein, a detailed list of evidence is provided to be disclosed at a later date.54 This protects the identity of the applicant and instils confidence in the programme to encourage whistleblowing. These methods can be adopted within the Indian framework to improve the claws of the Commission in its war against cartels. Betterment of investigative tools and structural improvement in the investigation wings of the Commission will greatly assist in strictly enforcing competition law and deterring anti-competitive activities. Further, the Commission should strive at bringing about consistency in appraisal of evidence to send clear indications to the market about what can constitute as factors pointing towards cartelisation while giving due regard to the subjective nature of every case.
It is the responsibility of the Commission to find the balance. It has certainly done a commendable job in analysing in great details the DG’s report in cases and effectively determining cartel formations. Following the path taken by EU, India aims to deter cartels through imposition of increasingly high fines against cartel participants and competition advocacy.55 The competition law jurisprudence in India is still in developing stages but has shown great tenacity in detecting and penalising cartels. Hence, the Commission must be adequately staffed, sufficiently empowered and abled to protect the interest of the consumers and that of the nation from the detrimental effect of anti-competitive activities.
† 4th year BBA LLB (Hons.) students at Jindal Global Law School, O.P. Jindal Global University, Sonipat.
†† 4th year BBA LLB (Hons.) students at Jindal Global Law School, O.P. Jindal Global University, Sonipat.
††† 4th year BBA LLB (Hons.) students at Jindal Global Law School, O.P. Jindal Global University, Sonipat.
5 Sugar Mills, In re 2011 SCC OnLine CCI 105.
6 Cyril Shroff and Nisha Kaur Uberoi, India’s New Competition Regime Steadily Gaining Ground, 9 Competition L. Int’l 75 (2013).
11 Imperial Chemical Industries v. Commission of European Communities, 1972 ECR 619.
21 Shroff, supra note 6; Mausam, Deterring Cartel in India: A Half (Un)Done Job?, 7 Indian JL & Just. 167 (2016).
30 Organisation for Economic Cooperation and Development, Prosecuting Cartels without Direct Evidence (February 2006).
33 The Competition Act, 2002, No. 12, Acts of Parliament, 2003, S. 41.
34 Reuters, Indian Antitrust Watchdog Raids Glencore Business, Others Over Pulse Prices – Sources, The Economic Times (17-3-2019), <https://economictimes.indiatimes.com/news/economy/agriculture/indian-antitrustwatchdog-raids-glencore-business-others-over-pulse-prices-sources/articleshow/68450549.cms?from=mdr>.
35 Aditya Kalra and Aditi Shah, Exclusive: Carlsberg, United Breweries plead leniency in India Beer Cartel Probe – Sources, Reuters (13-12-2018, 7.10 p.m.), <https://www.reuters.com/article/india-regulator-brewers/exclusivecarlsberg-united-breweries-plead-leniency-in-india-beer-cartel-probe-sources-idINKBN1OC1QQ>.
39 Avirup Bose, Circumstantial Evidence and Dawn Raids: A New Era of Antitrust Investigation in India (4-4-2013) Competition Law Reports, April 2013.
42 Nisha Kaur Oberoi, Investigation of Cartels: A Comparative Assessment of the Approaches Adopted by the Indian and EU Competition Regulators, 2015 NLS Bus L Rev 57 at 64.
43 Compagnie Royale Asturienne des Mines SA and Rheinzink GmbH v. Commission of the European Communities, 1984 ECR 1679.
44 Case C-89/85, Ahlström Osakeyhtiö v. Commission.
46 S. 1, Sherman Antitrust Act, 15 USC §§ 1-7 (1890).
47 S. 1, Sherman Antitrust Act, 15 USC §§ 1-7 (1890).
49 Cuts International and National Law University, Jodhpur, Study of Cartel Case Laws in Select Jurisdictions: Learnings for the Competition Commission of India, Competition Commission of India (25-4-2008).
53 See Arts. 20 and 21 of the European Union Council Regulation.
54 Nisha Kaur Oberoi, supra note 42
55 Ariel Ezrachi and Jiøi Kindl, Criminalization of Cartel Activity – A Desirable Goal for India’s Competition Regime? 23 No.1 Natl. Law School India Rev. 9 (2011).