Case BriefsTribunals/Commissions/Regulatory Bodies

Competition Commission of India (CCI): Noting a nationwide cartel amongst certain Beer companies, Coram of Ashok Kumar Gupta (Chairperson) and Sangeeta Verma, Bhagwant Singh Bishnoi (Members) imposed penalty on three beer companies on finding regular communications with respect to planning and coordinating of price hikes to propose to State authorities

CCI initiated the present matter suo motu, pursuant to the filing of an application by Crown Beers India Private Limited (OP-2) and SABMiller India Limited (OP-3), both ultimately held by Anheuser Busch InBev SA/NV (Ab InBev) against the captioned parties (OPs) for alleged cartelization in relation to the production, marketing, distribution and sale of Beer in India.

Commission noted that there appeared existence of collusion amongst OPs 2 and 3 along with United Breweries (OP-1) and Carlsberg India Private Limited (OP-4) to:

  • Align the prices of Beer
  • Seek/implement price adjustments in several States and Union Territories of India, irrespective of whether the model of distribution of alcohol (including Beer) therein was of corporation market, auction market or free market.

The aim of the companies appeared to be to ensure consistency in their pricing policies, in particular, price increases and to achieve this aim, OP1 to OP-4 appeared to have coordinated by way of series of multilateral and bilateral meetings and e-mail exchanges amongst themselves as well as through common platform of All India Brewers’ Association (OP-5).

On 31-10-2017, Commission passed an order forming an opinion that prima facie, the conduct of the OPs appears to be in contravention of the provisions of Section 3(1) read with Section 3(3)(a) of the Act and consequently, directed DG to cause an investigation into the matter. 

DG’s Report

DG noted that the sale of liquor (including Beer) does not fall within the ambit of the Goods and Services Tax (‘GST’). As such, each State/UT in India has its own unique method of regulating the sale of liquor (including Beer) within its territory, leading to differences in pricing regulations and approvals, imposition of different taxes, different excise duties and differing terms of licensing, among others.

Issue

  • Whether the OP’s indulge in cartelization in the domestic Beer market I India in contravention of the provisions of Section 3 of the Act?

DG concluded that OPs 1,3 and 4 indulged in the exchange of vital information amongst themselves about pricing and other confidential and business-sensitive information. These companies approached the State Governments collectively through the common platform of OP-5 to get price revisions to agreed levels so as to avoid price wars among themselves.

Hence, they contravened the provisions of Section 3(3)(a) read with Section 3(1) of the Act.

Analysis

Commission noted that the DG has established cartelization amongst the OPs in 10 States/UTs out of total 36 States/UTs in India.

In view of evidences collected by the DG, and analysed by the Commission, in the following States/UTs, cartelization amongst the OPs stood established:

(1) Andhra Pradesh – Price co-ordination between OP-1 and OP-3 in 2009 and 2013, in contravention of the provisions of Section 3(3)(a) read with Section 3(1) of the Act;

(2) Delhi – Price co-ordination between OP-1, OP-3 and OP-4 through OP-5 in 2013, in contravention of the provisions of Section 3(3)(a) read with Section 3(1) of the Act;

(3) Karnataka – Price-co-ordination between OP-1 and OP-3 from 2011 to 2018 with OP-4 joining in from 2012, in contravention of the provisions of Section 3(3)(a) read with Section 3(1) of the Act; and cartelisation between OP-1 and OP-3 with respect to supply of Beer to premium institutions in the city of Bengaluru in 2010, in contravention of the provisions of Section 3(3)(c) read with Section 3(1) of the Act;

(4) Maharashtra – Price co-ordination between OP-1 and OP-3 from 2011 to 2018 with OP-4 joining in from 2012, in contravention of the provisions of Section 3(3)(a) read with Section 3(1) of the Act; cartelisation between OP-1 and OP-4 to restrict/limit the supply of Beer in 2017, in contravention of the provisions of Section 3(3)(b) read with Section 3(1) of the Act; and sharing of market between OP-1, OP-3 and OP-4 from 2013 to 2017, in contravention of the provisions of Section 3(3)(c) read with Section 3(1) of the Act;

(5) Odisha – Price co-ordination between OP-1 and OP-3 in 2009 and 2010, in contravention of the provisions of Section 3(3)(a) read with Section 3(1) of the Act; price co-ordination by OP-4 in 2015 and 2016, in contravention of the provisions of Section 3(3)(a) read with Section 3(1) of the Act; and cartelisation between OP-1, OP-3 and OP-4, through OP-5, to restrict/limit the supply of Beer in 2015–16, in contravention of the provisions of Section 3(3)(b) read with Section 3(1) of the Act;

(6) Puducherry – Price co-ordination between OP-1, OP-3 and OP-4 in 2017, in contravention of the provisions of Section 3(3)(a) read with Section 3(1) of the Act;

(7) Rajasthan – Price co-ordination between OP-1, OP-3 and OP-4 through OP-5 from 2011 to 2018 with OP-4 joining in from 2014, in contravention of the provisions of Section 3(3)(a) read with Section 3(1) of the Act; and

(8) West Bengal – Price co-ordination between OP-1 and OP-4 through OP-5, from 2012 to 2018, in contravention of the provisions of Section 3(3)(a) read with Section 3(1) of the Act; and cartelisation between OP-1 and OP-4, through OP-5, to restrict/limit the supply of Beer in 2018, in contravention of the provisions of Section 3(3)(b) read with Section 3(1) of the Act.

Second-Hand Bottles

Further, apart from price co-ordination and limiting/restricting supply of Beer in various States/UTs, the DG also reached to a finding of co-ordination amongst OP-1 and OP-3 with respect to purchasing of second-hand bottles.

Commission observed that the provisions of the Act do not just pertain to the end-consumers of goods/services.

“No distinction in the Act, for the purposes of assessment of anti-competitive conduct, is made between the end-consumers, and intermediaries falling in the supply chain.”

 Coram opined that given the sheer magnitude and size of the OP companies, their countervailing buying power over small time bottle collectors, would have been substantial.

Hence, cartelization amongst OP-1 and OP-3 from at least 2009 to 2012 in the purchase of second hand bottles was clearly established.

OP-1 and OP-3 had an ‘understanding’ to share their off-take of old bottles from the market for re-use in their breweries. They had also agreed upon the rate at which they would procure such bottles from the bottle collectors. They closely monitored each other’s purchase of old bottles. Such conduct of OP-1 and OP-3 may have resulted in limiting and controlling the supply of second-hand Beer bottles in the market, amounting to contravention of the provisions of Section 3(3)(b) read with Section 3(1) of the Act.

 OP-4 was not found guilty of cartelization with respect to second-hand Beer bottles.

Commission stated that OP-1 and OP-3 indulged into nation-wide cartelisation from 2009 to at least 10.10.2018 (till the DG conducted search and seizure operation at the premises of the OPs), with OP-4 joining in from 2012 and with OP-5, since 2013, serving as a platform for facilitating such cartelisation, which is in contravention of the provisions of Section 3(3)(a), 3(3)(b) and 3(3)(c) read with Section 3(1) of the Act.

15 individuals were liable for the anti-competitive conduct of their respective companies.

Conclusion

In terms of proviso to Section 27(b) of the Competition Act, in cases of catelisation, Commission is empowered to impose upon the contravening entities penalty of upto 3 times of the profit of each year of the continuance of the cartel, or 10% of its turnover for each year of the continuance of the cartel, whichever is higher.

Commission determined the quantum of penalty imposed on the parties @ 0.5 times profit for each year of the continuance of the cartel or 2% of the turnover for each year of the continuance of the cartel, whichever is higher.

Lastly, the Coram directed the parties to cease and desist in future from indulging in any practice/conduct/activity, which has been found in the present order to be in contravention of the provisions of Section 3 of the Act. [Alleged anti-competitive conduct in the Beer Market in India, In Re.; Suo Motu Case No. 6 of 2017, decided on 24-9-2021]


Advocates before the Commission:

For United Breweries Ltd. (UBL), Mr. Kalyan Ganguly of UBL, Mr. Kiran Kumar of UBL, Mr. Perry Goes of UBL and Mr. Shekhar Ramamurthy of UBL:

Mr. Amit Sibal, Senior Advocate alongwith Mr. Ravishekhar Nair, Ms. Avantika Kakkar, Mr. Sahil Khanna, Mr. Abhay Joshi, Mr. Kirthi Srinivas, Mr. Ambar Bhushan, Mr. Saksham Dhingra, Mr. Animesh Kumar, Ms. Shreya Joshi and Ms. Sree Ramya Hari, Advocates and Mr. Govind Iyengar, Senior VP Legal of UBL, Mr. Kiran Kumar in person, Mr. Perry Goes in person and Mr. Shekhar Ramamurthy in person

For Mr. Shalabh Seth of UBL:

Mr. Ramji Srinivasan, Senior Advocate alongwith Mr. Gaurav Desai, Ms. Apurva Badoni and Mr. Shivkrit Rai, Advocates

For Mr. Steven Bosch of UBL:

Mr. Prashanto Chandra Sen, Senior Advocate alongwith Ms. Nisha Kaur Oberoi, Mr. Gautam Chawla, Mr. Rishabh Juneja and Ms. Shambhavi Sinha, Advocates

For Anheuser Busch InBev SA/NV (i.e., Crown Beers India Private Limited and SABMiller India Limited):

Mr. Manas Kumar Chaudhari, Mr. Pranjal Prateek, Mr. Sagardeep Rathi and Ms. Radhika Seth, Advocates alongwith Ms. Ajita Pichaipillai, Legal and Compliance Director of AB InBev

For Mr. Anil Arya of SABMiller India Ltd.: For Mr. Nilojit Guha of SABMiller India Ltd.:

Mr. Talha Abdul Rahman, Advocate
Mr. Tahir Ashraf Siddiqui, Advocate with Mr. Nilojit Guha in person

For Mr. S. Diwakaran of SABMiller India Ltd.:

Mr. Shreyas Mehrotra, Advocate

For Carlsberg India Pvt. Ltd. (CIPL), Mr. Anil Bahl of CIPL, Mr. Dhiraj Kapur of CIPL, Mr. Mahesh Kanchan of CIPL, Mr. Michael Jensen of CIPL and Mr. Nilesh Patel of CIPL

Mr. Rajshekhar Rao, Ms. Manika Brar, Ms. Atrayee Sarkar, Mr. Anandh Venkataramani, Mr. Nilav Banerjee, Ms. Kajori De, Ms. Afreen Abbassi and Ms. Raveena Sethia, Advocates alongwith Mr. Amit Sethi of CIPL

For Mr. Pawan Jagetia of CIPL:

Ms. Deeksha Manchanda and Mr. Shruti Rao, Advocates

For All India Brewers’ Association (AIBA): For Mr. Sovan Roy of AIBA:

Mr. Subodh Prasad Deo and Ms. Rinki Singh, Advocates, with Mr. Sovan Roy in person

Hot Off The PressNews

Competition Commission of India (CCI): In its recent press release, Competition Commission of India, while giving benefit of reduction in penalty under the provisions of Section 46 of the Competition Act, 2002  of 100%, 40% and 20%   to AB InBev, United Breweries Ltd. (UBL) and  Carlsberg India Private Limited (CIPL), and all their individuals respectively besides passing a cease-and-desist order. a final order against three beer companies namely United Breweries Limited (‘UBL’), SABMiller India Limited (now renamed as Anheuser Busch InBev India Ltd. after being acquired by Anheuser Busch InBev SA/NV) (‘AB InBev’) and (‘CIPL’) for indulging in cartelisation in the sale and supply of beer in various States and Union Territories in India, including through the platform of All India Brewers’ Association (‘AIBA’). The period of cartel was held to be from 2009 to at least 10.10.2018 (the date on which the Director General (‘DG’) conducted search and seizure operations at the premises of the beer companies), with CIPL joining in from 2012 and AIBA serving as a platform for facilitating such cartelisation since 2013. All three beer companies were lesser penalty applicants before CCI.

Engaged in price co-ordination in contravention of the provisions of Section 3(3)(a) of the Competition Act, 2002 (the ‘Act’) in the States of Andhra Pradesh, Karnataka, Maharashtra, Odisha, Rajasthan, West Bengal, National Capital Territory of Delhi and the Union Territory of Puducherry, in collectively restricting supply of beer in the States of Maharashtra, Odisha and West Bengal in contravention of the provisions of Section 3(3)(b) of the Act, and in sharing of market in the State of Maharashtra as well as co-ordination with respect to supply of beer to premium institutions in the city of Bengaluru in contravention of the provisions of Section 3(3)(c) of the Act. CCI also found co-ordination amongst UBL and AB InBev with respect to purchase of second-hand bottles.


PR40-2021-22


Agatha Shukla, Editorial Assistant has reported this news.

Case BriefsTribunals/Commissions/Regulatory Bodies

Competition Commission of India (CCI): Coram of Ashok Kumar Gupta (Chairperson) and Sangeeta Verma and Bhagwant Singh Bishnoi, Members found no cartelization in respect to the skyrocketing prices by the airlines during the Jat Agitation.

Informant had alleged that Jet Airways, Spice Jet and Indigo had contravened the provisions of Section 3 of the Competition Act.

Informant’s Submissions

During the month of February 2016 when Jat Agitation was going on, domestic airlines had skyrocketed their rates particularly between the Delhi-Chandigarh and Delhi-Amritsar routes.

From the above instance, it was noted that the aviation industry had been exploiting the passengers during such conditions as the same was observed during the Chennai Floods and Nepal Earthquake.

Preliminary Conference

Commission on noting the allegations and submission by the Informant held a preliminary conference and made a reference to the Director-General of Civil Aviation in terms of Section 21 A of the Act, later the Commission sought certain information from 5 airlines.

What did the Commission note?

Commission noted that with the use of algorithms, there exists a high possibility of collusion with or without the need of human intervention or coordination between competitors.

Therefore, Commission opined that there was a need for investigation of the algorithms used by airlines, so as to determine whether the fares set by the airlines during the alleged period were an outcome of collusion or not?

 Hence, on 9-11-2018 an order was passed to cause an investigation to be made.

 DG in its investigation report concluded that no contravention of Section 3(3) read with Section 3(1) of the Act was found against the conduct of Spice Jet, Air India, Go Air and Indigo during the period of ‘Jat’ Agitation, but in regard to Jet Airways, DG excluded the same from its purview of investigation since the airline was grounded in April 2019 and due to grounding of Jet Airways and un-availability of any employee/personnel, the Resolution Professional could not provide any price data, booking dates, capacity of flight, number of passengers flown and the number of price buckets used by Jet Airways during the period of ‘Jat’ Agitation.

After the objections and suggestions were filed, parties were directed to appear for a final hearing on the investigation report on 23-02-2021.

On the fixed date of hearing, Commission noted that neither the informant nor its counsel appeared before the Commission.

Further, Commission considered the matter in its ordinary meeting and decided to pass an appropriate order.

What did the investigation try to ascertain?

It was ascertained whether the increase in air-ticket prices during the period of Jat Agitation was the result of an agreement between the OPs?

Whether the price data suggested any uniformity in prices indicative of price parallelism?

DG found no contravention of Section 3(3) read with Section 3(1) of the Act against the conduct of Spice Jet, Air India, Go Air and Indigo during the period of Jat Agitation.

Analysis and Decision

Commission noted that the existence of an ‘agreement’ is sine qua non before ascertaining whether the same is anti-competitive or not in terms of the scheme of Section 3 of the Act.

Definition of ‘agreement’ as given in Section 2(b) of the Act requires inter alia any arrangement or understanding or action in concert whether or not formal or in writing or intended to be enforceable by legal proceedings.

The establishment of ‘agreement’ would require some explicit or tacit arrangement amongst the parties wherefrom a concert between them can be deciphered. This may include, amongst others, exchange of information in the form of communications/ e-mails or in any other form of communication amongst the competitors, whether – explicit or tacit, oral or in writing, formal or informal including through parallel conduct which cannot be otherwise explained etc.

 In the instant matter, no such emails were found which could show any exchange of information among the airlines establishing any form of collusion during or after the period of Jat Agitation.

The investigation did not reveal any price parallelism or identical pricing of tickets by the airlines.

Further, elaborating more, Commission noted that widespread usage of algorithms in price determination by individual firms could pose possible anti-competitive effects by making it easier for firms to achieve and sustain collusion without any formal agreement or human interaction.

Based on DG’s investigation, Commission noted that airlines were using different software’s for the pricing of tickets in different fare bucket.

No evidence on record was found to establish a cartel amongst the airlines during the period of Jat Agitation.

Hence, no case of contravention of the provisions of Section 3(1) of the Competition Act was made out against the airlines. [Shikha Roy v. Jet Airways (India) Ltd., 2021 SCC OnLine CCI 31, decided on 3-06-2021]


Advocates before the Court:

For SpiceJet Limited: Mr. Abhishek Sharma, Advocate along with Mr. Shashi Shekhar, Executive (Legal) of OP-2

For InterGlobe Aviation Limited: Mr. Raj Shekhar Rao, Senior Advocate with Mr. Sagardeep Rathi, Mr. Pranjal Prateek and Mr. Ebaad Nawaaj Khan, Advocates

For Go Airlines (India) Limited: Mr. Vihang Virkar and Mr. Karun Jhangiani, Advocates along with Mr. Prashant Shinde, Senior General Manager (Legal) of OP-4

For Air India Limited: Mr. Pratik Majumdar, DGM of OP-5

Case BriefsHigh Courts

Bombay High Court: The Division Bench of S.C. Gupte and M.S. Karnik, JJ., expressed that for an employer to come to a conclusion of a possible case of cartelization, it is not necessary that the same can happen only after the opening of commercial bids.

Petitioner claimed to be a sole proprietor of a firm carrying on the business of fresh water supply through barges. Petitioner had been one of the contractors supplying water to respondent 1 ONGC.

Respondent 1 invited Indigenous Open Tender for e-procurement for supply of water to its offshore facilities, including the Nhava Supply Base. The said tender was a two bid system – a technical bid followed by a commercial bid.

Along with the petitioner, there were three others who had submitted the bids.

Respondent ONGC had cleared the technical bids of all 4 bidders, including the petitioner and his father at the stage of consideration of commercial bids, the bids of both petitioner and his father were not opened.

Upon evaluation of offers submitted by petitioner and Royal Traders, it came to the notice of Respondent ONGC that the proprietors of two firms were respectively the son and father. Hence considering that the two would have access to vital information pertaining to the bid submitted by the other, the employer concluded that both the bidders have an undisclosed understanding with each other, which would restrict competitiveness thereby offending Section 2 of the Integrity Pact.

Section 2 of the Integrity Pact is as follows:

Commitments of the Bidder/contractor

  1. The Bidder/Contractor will not enter with other Bidders into any undisclosed agreement or understanding, whether formal or informal. This applies in particular to prices, specifications, certifications, subsidiary contracts, submission or non – submission of bids or any other actions to restrict competitiveness or to introduce cartelisation in the bidding process.

Analysis and Decision

High Court stated that the grounds urged by petitioner in support of their challenge to acceptance of bids did not commend the Court.

Though the petitioner and his father had shown as proprietors of different concerns, but they operate from the same premises.

Further, in an earlier contract involving another employer, the petitioner had not only acted both for himself and his father, but had also issued cheques from the same account towards the contracts of himself and his father.

Above being a purely administrative matter, to fault the respondent employer’s decision there must be a case of either perversity in the decision or a colourable exercise on the part of the employer.

Bench expressed that even if the State cannot act in a matter of commercial contract in wholly unreasonable or arbitrary or capricious manner, its administrative decision cannot be put on the pedestal of a quasi-judicial decision.

Court added that as long as the respondent’s decision was reasonably supported by material on record and there was no case of victimization or colourable exercise, the decision could not be faulted.

There is nothing sacrosanct about finding the technical bid of a bidder responsive in a two bid system so as to make it obligatory on the employer to open the commercial bid. The employer may well come upon knowledge of some relevant information, which disqualifies the particular bidder, and in that case may choose not to open his commercial bid. If his disqualification is supported by some material on record, there is nothing further for this Court to inquire.

High Court found no merit in the grounds of challenge urged by the petitioner. [O.K. Marine v. ONGC, 2021 SCC OnLine Bom 799, decided on 8-06-2021]


Advocates before the Court:

Mr. R.D. Soni, i/b. Irvin D’souza, for the Petitioner

Dr. Abhinav Chandrachud, a/w. Mr. Nishit Dhruva, Mr. Prakash Shinde, Ms. Khushbu Chhajed, Mr. Abhishek Bhavsar and Ms. Alisha Shah, i/b. MDP & Partners, for Respondent Nos. 1 and 3.

Mr. Kunal Gaikwad, for Respondent No.4.

Mr. Karl Tamboly, a/w. Mr. Ramiz Shaikh and Mr. Akshay Bafna, i/b. Bafna Law Associates, for Respondent No.5.

Case BriefsTribunals/Commissions/Regulatory Bodies

Competition Commission of India (CCI):  “Cartelisation in the Airlines Industry”? Coram of Ashok Kumar Gupta (Chairperson) and Sangeeta Verma and Bhagwant Singh Bishnoi, Members, addressed a very significant matter and analysed a detailed report of the Director-General pertaining to the same.

Cartelization: Domestic Airlines

The present matter revolved around the allegation with regard to cartelization amongst various domestic airlines operating in India in contravention of Section 3(1) of the Competition Act read with Section 3(3).

The above concern arose on receiving a letter from Lok Sabha Secretariat with a request to examine whether there was any evidence of cartelization in the airlines sector.

Data Analysis

Conduct of airlines was analysed with the help of data pertaining to four major routes, which indicated that airlines maintained some degree of stability in their market shares in both lean and peak seasons during the examined period.

Similar cost structure was observed to facilitate the collusion on price to be charged in contrast to a differentiated cost structure, where low-cost firms usually compete with high cost firms on prices to capture greater market share.

A significant observation was that despite differences in various other fares, the end fares charges by airlines for tickets were almost similar.

Anti-Competitive Conduct

Commission prima facie opined that the airlines viz. Jet Airways (including Jet lite), Indigo, Spice Jet, Go Air and Air India exhibited characteristics of anti-competitive conduct which was in contravention of Sections 3(1) read with 3(3) of Competition Act.

In view of the above Commission had passed an Order dated 26-03-2015 directing DG to cause investigation.

DG found that that the market shares and market positions of different airlines have not remained stable during 2010- 2016.

On analysing further in terms of airfare determination, DG concluded that there was no contravention of Sections 3(1) read with 3(3) of Competition Act.

Role of software/algorithm deployed by the airlines

It was observed by the DG that airlines use softwares for the purpose of revenue management which includes determination of prices.

Use of software by Air India is the least when compared to the other competing airlines in as much as its fare is determined manually by its route controllers a few months before the date of departure.

Route controllers also access external websites like Make My Trip, Clear My Trip, etc. to know the current market situation across the routes and take a final call on pricing of the ticket.

Elaborating more on the above-stated aspects, DG added to its observation that the softwares used by the airlines were noted to be guided by algorithms (formulae) in-built in the software, configured by the software company, on the basis of inputs provided by the revenue management team of each airline to the software developer.

The role of the software is limited to the extent of helping the revenue management team to arrive at a price that will optimize revenue. However, the algorithm as well as the final price of the ticket are determined by the personnel working in the revenue management team of each airline.

Hence, the DG stated that the revenue management team also called route analysts have the final say in fixing the prices. They take into account certain events like IPL matches, some international conferences, cultural events, etc.

Fare Buckets and Route Analysts

An algorithm configured by software allocates the total number of tickets to different fare buckets immediately on opening of the flight. The route analyst after taking into consideration the competitive airfares determine the price for each bucket.

Further, airlines keep on changing the price/inventory allocated to fare buckets due to change in demand and competitive price, which may happen multiple times a day. When a sale happens, the flight fare moves from a lower bucket to a higher bucket.

Data analysis showed that there was no sacrosanct rule for shifting from one bucket to another. However, it was noted that competitive pricing and availability of unsold inventory become the guiding factor for the route analysts to determine the prices at any given point in time.

Nothing amounted to or displayed a pattern towards a wilful concerted action on the part of the airlines.

DG noticed that ticket prices for a relevant route are opened one year in advance for the purpose of booking and the earlier a ticket is booked, lower the fare is and vice-versa. 

Airlines follow the system of dynamic pricing where the same product (economy class seat) is sold at different prices to customers depending on their date of booking.

Conclusive Report of DG

DG on analysis with respect to daily bucket wise movement of price, relationship between price and capacity did not find any evidence suggestive of meeting of minds, no contravention of Section 3(1) and 3(3) of the Competition Act was found.

Commission’s Observation

Bench observed that in order to determine as to whether there was any kind of understanding or arrangement between the airlines in contravention of provisions of the Act, the DG had analysed the market share of five airlines on four sectors during the reference period, as well as their airfare and its determination practices in order to detect any sign of stability or parallelism, or any possibility of communication between the airlines to fix prices, etc., if any.

Commission did not find a pattern of stability or parallelism between the airlines.

Further, the Bench noted that parallel conduct is actionable under the Act only when the adaptation to the market conditions is not done independently and is attributable to information exchanged between the competitors or through some other collusive conduct, the object of which is to influence the market.

Nothing amounting to the above was found.

Commission opined that although softwares for the purpose of revenue management are used, but manual intervention plays a pivotal role in the final determination of the prices.

Revenue management personnel play key role in determination of airfares whereas softwares are merely used to facilitate their decision making.

Hence, nothing on record was found to establish a cartel amongst airlines during the period April 2012-March 2014.[Alleged Cartelization in the Airlines Industry, In re., 2021 SCC OnLine CCI 3, decided on 22-02-2021]

Op EdsOP. ED.

I. Introduction

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.[1] 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.[2] 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.[3] 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.[4] 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.

  1. 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.
  2. 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

V. Conclusion

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.

[1] The Competition Act, 2002, Statement of Objects and Reasons.

[2] S. 18, The Competition Act, 2002; Competition Commission of India v. SAIL, (2010) 10 SCC 744.

[3] Union of India v. Hindustan Development Corporation., (1993) 3 SCC 499.

[4] Neeraj Malhotra v. Deustche Post Bank Home Finance Ltd., 2010 SCC OnLine CCI 28 : (2011) 106 SCL 62.

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).

7 Cyril Shroff and Nisha Kaur Uberoi, Cartel Enforcement in India: Standard and Burden of Proof, CPI Antitrust Chronicle 1 (2013).

8 All India Tyre Dealers’ Federation v. Tyre Manufacturers, 2012 SCC OnLine CCI 65.

9 Ibid.

10 Ibid.

11 Imperial Chemical Industries v. Commission of European Communities, 1972 ECR 619.

12 Ibid.

13 2013 SCC OnLine Comp AT 75.

14 (2017) 8 SCC 47.

15 Ibid.

16 Ibid.

17 Ibid.

18 Ibid.

19 Builders Assn. of India v. Cement Manufacturers’ Assn., 2016 SCC OnLine CCI 46.

20 Ibid.

21 Shroff, supra note 6; Mausam, Deterring Cartel in India: A Half (Un)Done Job?, 7 Indian JL & Just. 167 (2016).

22 Builders Assn. of India v. Cement Manufacturers’ Assn., 2016 SCC OnLine CCI 46.

23  2012 SCC OnLine CCI 65.

24 CCI v. Grasim Industries Ltd., 2019 SCC OnLine Del 10017.

25 (2017) 8 SCC 47.

26 Sushil Sharma v. State (NCT of Delhi), (2014) 4 SCC 317.

27 State of Chhattisgarh v. Ram Sona, 2020 SCC OnLine Chh 9.

28 Chandru v. State, (2019) 15 SCC 666

29 Builders Assn. of India v. Cement Manufacturers’ Assn., 2016 SCC OnLine CCI 46.

30 Organisation for Economic Cooperation and Development, Prosecuting Cartels without Direct Evidence (February 2006).

31 2012 SCC OnLine CCI 12.

32 CCI v. JCB India Ltd., 2019 SCC OnLine SC 625.

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>.

36  Ibid.

37 Cartelisation in Respect of Zinc Carbon Dry Cell Batteries Market in India v. Eveready Industries Ltd., 2018 SCC OnLine CCI 5.

39 Avirup Bose, Circumstantial Evidence and Dawn Raids: A New Era of Antitrust Investigation in India (4-4-2013) Competition Law Reports, April 2013.

40 Competition Commission of India (Lesser Penalty) Regulations, 2009.

41 Competition Commission of India (Lesser Penalty) Amendment Regulations, 2017.

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).

48 Monsanto v. Spray-Rite Service Corpn., 1984 SCC OnLine US SC 56: 79 L Ed 2d 775: 465 US 752 (1984).

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).

50 Ibid.

51 Ibid.

52 Ibid.

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).

Case BriefsTribunals/Commissions/Regulatory Bodies

Competition Commission of India (CCI): While deciding the instant matter which revolved around violation of Section 3 (3) of the Competition Act, 2002 in the tenders floated by the various divisions/ zones of the Indian Railways (including the Informants) and other procuring entities for procuring of different types of Composite Brake Blocks (CBBs), during the period 2009 to 2017, the Coram comprising of Ashok Kumar Gupta (Chairperson) and Sangeeta Verma, Bhagwant Singh Bishnoi, (Members) accepted the complaint registered by the Railway zones against various manufacturing companies for indulging in cartelization (price-fixing) in the Composite Brake Blocks (CBB) market in India, at least from 2009 till 2017, by means of directly or indirectly determining prices, allocating markets, co-ordinating bid response and manipulating the bidding process, which had an “appreciable adverse effect on competition” (AAEC) within India.

Various railway divisions from different zones of the country had given out tenders for procurements of certain Brake blocks and Composite Brake Blocks (CBB), for which vendors were approved by Research Design and Standards Organisation (‘RDSO’). It was alleged that identical/ higher bids were quoted by the Opposite Parties in the instant matter, in tenders floated by various Railway Zones and identical reductions in quoted rates were offered by them in the subsequent negotiations.The Commission, on noting the allegations made against the companies, ordered the Director General to conduct the investigation on the matter. The DG found that 8 of the 10 Opposite Parties had formed a cartel in order to manipulate the rates of the tenders and the other 2 OPs had not been a part of the cartel but did get involve in manipulative practices to exchange bid related information. Thus it was concluded by the DG that the Opposite Parties were found to be in violation of Section 3 of the Competition Act, 2002.

The counsels for OP 1-10 submitted their claims against the report of DG. The main grounds of their respective defenses were – being co-operative in submitting the evidence; no economic injury caused to the railways; ceased participation from the cartel; the company being unaware of its employees engaging in such cartel like behaviour and upon knowing so, withdrawing the employee from such deal; indirect involvement in the business; no opportunity provided to the company for cross-examination of employees found engaging in such behaviour etc. No objections/ suggestions to the investigation report of the DG were made by the Informant Parties (the Railway Zones).

The Commission noted two main issues after hearing the claims of the counsels. The first was whether the Opposite Parties had acted in a manner which is in contravention of the provisions of Section 3 (3) of the Act and the second issue was of the liability of the individuals/ persons/ officials of the Opposite Parties, in terms of Sections 48 (1) or (2) of the Competition Act. The answer to the first question was found in the affirmative by the Commission and hence, it found OP -1 to OP-10 had violated Section 3 (3) (a), Section 3(3) (c) and Section 3 (3) (d) read with Section 3 (1) of the Competition Act, 2002. Commission further ordered the OPs, in term of Section 27 (a) of the 2002 Act, to direct to their officials found to be in contravention of Section 48 (2) of the 2002 Act to desist from indulging in such practices in the future. However, the Commission did not impose any monetary penalty n these companies as it found many of them to be Micro Small and Medium Enterprises (MSMEs) and noting how adverse the monetary situation has been during COVID-19, the Commission, in the interest of justice, refrained from imposing any monetary penalty in the peculiar circumstances of the case. However it did caution these companies to refrain from indulging in such malpractices and any such future behaviour would be constituting recidivism with attendant consequences. [South Eastern Railway West Bengal v. Hindustan Composites Ltd., 2020 SCC OnLine CCI 28 , decided on 10-07-2020]

Case BriefsTribunals/Commissions/Regulatory Bodies

Competition Commission of India (CCI): This reference was filed before Ashok Kumar, Chairperson and  Augustine Peter and U.C. Nahta, Members by the Chief Materials Manager/Sales, Eastern Railway i.e. informant under Section 19(1)(b) of the Competition Act, 2002 against Laxven Systems and Medha Servo Drives (P) Ltd., alleging contravention of provisions of Section 3 of the Competition Act.

Facts of the case were that informant floated a tender for procurement of Microprocessor Control and Fault Diagnostics System for Electric Locos as per Research Designs and Standard Organisation. As per the information brought before Commission, there were initially 4 approved vendors but an amendment was brought in the criteria for selection due to which 2 vendors were delisted. Laxven did not participate in the impugned tender due to which by default, Medha won the tender who quoted a high rate. Negotiation by informant were not accepted and they were forced to accept the high rate quoted by Medha thus, Laxven was alleged for non-participation as a result of bid suppression and formation of a cartel.

Commission observed the fact that Laxven had not participated in other tenders conducted in the 3 Railway Zones and the reason being that they had not developed a Prototype for the required System. Thus, the allegation of bid suppression and cartelization was unsubstantiated. The high rate quoted by Medha was found to be justified due to the improved system which was to be supplied to the informant. Commission on finding no contravention of Section 3 of the Act directed the information to be closed in terms of Section 26(2) of the Act. [Chief Material Manager v. Laxven Systems, 2019 SCC OnLine CCI 1, dated 02-01-2019]

Case BriefsTribunals/Commissions/Regulatory Bodies

Competition Commission of India (CCI): The Bench comprising of Sudhir Mital (Chairperson) and Augustine Peter and U.C. Nahta (Members), closed a matter under Section 26 (2) of the Competition Act, 2002 against the OPs: Ola; Uber; Uber B.V., Amsterdam, Netherlands; and Uber Technologies Inc., San Francisco, USA for alleged contravention of provisions of Sections 3 of Competition Act, 2002.

The informant was stated to be primarily aggrieved by the pricing mechanisms adopted by the aforesaid OPs. It was alleged by him that the algorithmic pricing adopted by the OPs took away the liberty of individual drivers to compete with each other amounting to ‘price fixing’ in contravention of provisions of Section 3 of Competition Act, 2002. Further, algorithm pricing had taken away the freedom of the riders and drivers to choose the other side on the basis of price competition and both have to accept the price set by the algorithm. OPs act as ‘Hub’ where ‘spokes’ (competing drivers) collude on prices.

The Competition Commission drew its observations on keeping the three primary allegations of the informant in mind, i.e., Firstly, Cab Aggregators use their respective algorithms to fix price under Section 3(3)(a) read with Section 3(1) of the Competition Act for every ride and do not allow the drivers to compete on prices. Secondly, Price fixing acts as an imposition of minimum resale price maintenance agreement under Section 3(4)(e) of Competition Act, 2002 between the Cab Aggregators and their drivers. Thirdly, Owing to information asymmetry, i.e., Cab Aggregators possessing considerable personalized information about every rider have been able to price discriminate to the disadvantage of the riders.

Commission by throwing light upon the concept of hub and spoke in a conventional sense stated that it “refers to the exchange of sensitive information between competitors through a third party that facilitates the cartelistic behaviour of such competitors and it does not apply to the facts of the present case. In furtherance to the second allegation regarding resale price maintenance, the commission held it to be not tenable as OPs perform a centralised aggregation function that rests on the algorithmic determination of prices which brings no resale of services. Commission also observed that existence of an agreement, understanding or arrangement, demonstrating the meeting of minds is a sine qua non for establishing contravention under Section 3 of Competition Act, 2002; which in the present case does not appear neither between the Cab Aggregators and their respective driver nor between the drivers inter-se.

Thus the Commission dealt with above said allegations by stating that in its view no case of contravention of Section 3 was made out and hence concluded its order. [Samir Agarwal and ANI Technologies Ltd., In re,2018 SCC OnLine CCI 86, Order dated 06-11-2018]

Case BriefsTribunals/Commissions/Regulatory Bodies

Competition Commission of India (CCI): The 3-Member Bench comprising of Sudhir Mital (Chairperson), Augustine Peter and U.C. Nahta (Members), while pronouncing an order under Section 26(2) of the Competition Act, 2002, dismissed the case in light of no contravention being found as alleged of the provisions of Sections 3 and 4 of the Competition Act, 2002.

The facts of the case are that the Informant had filed the present information under Section 19(1) (a) against OP-1, i.e. Vatika Ltd. and OP-2, i.e. Confederation of Real Estate Developers’ Associations of India (CREDAI) for contravention of Sections 3 and 4 of Competition Act, 2002. The informant had purchased a plot in a township being developed by OP-1 in Gurugram, Haryana. Informant had opted for a “construction linked payment plan” in which he had to pay the total amount within a span of 3 years. Once the initial payment was duly paid a plot was allotted to the informant and further, the agent asked the Informant to sign the buyer’s agreement which was jointly signed by the Informant and his son.

As per the payment plan, the Informant had deposited the second installment and was asked to make the third installment within 15 days when initially at the time of making application for the plot it was decided that the third installment would be payable in 8 to 9 months from the date of booking. For the payment of the third installment, demand letter from OP-1 started to flow and on being asked about the same by informant it was reasoned that because of the construction work had been completed upto the 5th installment plan.

The Informant further stated that, on mailing several queries due to being aggrieved by the above stated circumstances and seeking clarifications on the same, but no reply being received in this regard, the Informant had to send out a legal notice to OP-1 reiterating the details of the one-sided communication to which the response was that the Informant had defaulted in payment of installment and as a consequence the amount already paid by the informant had been forfeited, therefore the Informant was not liable to any refund.

Allegations by the Informant:

  • OP-1 abused its dominant position; by refusing to visit the site, unfair terms of the Buyer’s Agreement, unreasonable demand of instalment payments and not responding to queries which ultimately places the OP-1 in the position of abuse of dominance in the relevant market of residential plots by violating Section 4(2)(a)(i) of the Competition Act, 2002
  • Cartelisation: OP-2 and its members including OP-1 have indulged in common practices by incorporating standard clauses in their agreements.

The Commission on perusal of the information and submissions of the parties has stated that it disagrees with the Informant’s submission that the relevant geographic market should be delineated as “Northern Peripheral Road Corridor.” There are various residential projects in Gurugram other than the projects in Northern Peripheral Road Corridor which could have been considered by consumers desirous of purchasing a residential plot. It is noted that the Informant has assessed the dominance of OP-1 as per the relevant geographic market defined by him. “The Commission notes that OP-1 faces sufficient competitive constraints from various other competitors and would not be able to operate independently of the competitive forces prevailing.”

Therefore, in view of the above-stated allegations and Commission’s view in that respect, no case of contravention of the provisions of Section 3 and 4 arise against the OP. [Ranjit Singh Gujral v. Vatika Ltd., 2018 SCC OnLine CCI 84, dated 16-10-2018]

Case BriefsTribunals/Commissions/Regulatory Bodies

Competition Commission of India: CCI imposed penalty on three leading Indian Zinc-Carbon Dry Cell Battery manufacturers – Eveready Industries India Ltd. (‘Eveready’), Indo National Ltd. (‘Nippo’), Panasonic Energy India Co. Ltd. (‘Panasonic’) and their association AIDCM (Association of Indian Dry Cell Manufacturers) for colluding to fix prices of zinc-carbon dry cell battery in India. CCI invoked the provisions of Section 46 of the Competition Act, 2002 (‘the Act’) read with the Competition Commission of India (Lesser Penalty) Regulations, 2009 (‘Lesser Penalty Regulations’) to reduce the penalty imposed upon Panasonic, Eveready and Nippo by 100 percent, 30 percent and 20 percent respectively .

The case against these battery manufacturers was taken up by CCI suo motu under Section 19 of the Act based on the disclosure by Panasonic under Section 46 of the Act read with the Lesser Penalty Regulations. During investigation, DG (Investigation), CCI in exercise of the powers vested with it under Section 41(3) of the Act carried out simultaneous search and seizure operations at the premises of Eveready, Nippo and Panasonic on 23.8.2016 and seized incriminating material and documents there from. Subsequently, while the investigation was in progress and report from the DG was pending, Eveready and Nippo, approached CCI as lesser penalty applicants.

From the evidence collected, CCI found that the three battery manufacturers, facilitated by AIDCM, had indulged in anti-competitive conduct of price coordination, limiting production/ supply as well as market allocation in contravention of the provisions of Section 3(3)(a), 3(3)(b) and 3(3)(c) read with Section 3(1) of the Act. It was observed that the conduct was continuing from 2008, which is prior to 20.5.2009, the date on which Section 3 of the Act became enforceable, and up till 23.8.2016 i.e. the date of search and seizure operations by the DG.

Considering contravention of provisions of the Act, an amount of Rs. 245.07 crore, Rs. 52.82 crore and Rs. 74.68 crore was computed as leviable penalty on three battery manufacturers i.e. Eveready, Nippo and Panasonic, respectively, in terms of the proviso to Section 27(b) of the Act. While computing leviable penalty, CCI took into consideration all relevant factors including duration of cartel, industry conditions, etc. and decided to levy penalty on the three battery manufacturers at the rate of 1.25 times of their profit for each year from 2009-10 to 2016-17. Also, penalty of Rs. 1.85 Lakh was levied on AIDCM at the rate of 10 percent of average of its receipts for preceding three years. Additionally, considering totality of facts and circumstances of the case, penalty leviable on individual officials/office bearers of the three battery manufacturers and AIDCM was computed at the rate of 10 percent of the average of their income for preceding three years.

Considering the stage at which the lesser penalty application was filed and the co-operation extended in conjunction with the value addition provided in establishing the existence of cartel, CCI granted Panasonic and its individuals 100 percent reduction in the penalty than was otherwise leviable. Eveready and Nippo, along with their individuals, were granted 30 and 20 percent reduction in penalty, reducing it to Rs. 171.55 crore and Rs. 42.26 crore respectively. No penalty was imposed on Panasonic. [In re, Cartelisation in respect of zinc carbon dry cell batteries market in India, 2018 SCC OnLine CCI 5, order decided on 19-04-2018]

Op EdsOP. ED.

The concept of cartelisation is not new in the market. Cartel includes an association of producers, sellers, distributors, traders or service providers who, by agreement amongst themselves, limit, control or attempt to control the production, distribution, sale or price of, or, trade in goods or provision of services.[1] The cartel was however not defined under the Monopolies and Restrictive Trade Practices Act, 1969 (MRTP Act). It is pertinent to note that the cartelisation per se is not illegal in India. The agreement entered into by the virtue of the members of cartel is deemed illegal under the present Competition Act, 2002 as well as its predecessor i.e. MRTP Act. Apart from the statute, Competition Commission of India (CCI), Competition Appellate Tribunal (COMPAT) and courts in plethora of cases affirmed the definition of cartel given under the Act.[2]

The illegal agreement entered into by the cartels, body corporate of any enterprise comes under the radar of the competition law of India. Enterprise means a person or a department of the Government, who or which is, or has been, engaged in any activity, relating to the production, storage, supply, distribution, acquisition or control of articles or goods, or the provision of services, of any kind, or in investment, or in the business of acquiring, holding, underwriting or dealing with shares, debentures or other securities of any other body corporate, either directly or through one or more of its units or divisions or subsidiaries, whether such unit or division or subsidiary is located at the same place where the enterprise is located or at a different place or at different places, but does not include any activity of the Government relatable to the sovereign functions of the Government including all activities carried on by the departments of the Central Government dealing with atomic energy, currency, defence and space.[3] The definition given to enterprise is wide enough to cover every bit of the player in market and not let any player in the market to evade the applicability of Competition Act. Functional approach has been adopted while determining whether an entity in respect of a particular activity was an enterprise for the purpose of Competition Act or not. Various activities of the enterprise are to be considered individually and if some of the activities of the enterprise are in the nature of sovereign functions that does not mean that all other activities of the enterprise have to be considered non-economic.[4]

Agreement includes any arrangement or understanding or action in concert (i) whether or not, such arrangement, understanding or action is formal or in writing; or (ii) whether or not such arrangement, understanding or action is intended to be enforceable by legal proceedings.[5] Hence, the competition is not restricted to the written agreement for the enforceability and the monitoring of market players by the authorities. There has to be some meeting of mind and conscious common practice adopted by that “association”, however loosely or informally knit. Hence, the similarity of conduct, without any meeting of minds, could not come within the ambit of the term “agreement” as defined in Section 2(b) of the Act.[6]

Anti-competitive agreements

Chapter 2 of the Competition Act, 2002 prohibits the illegal agreements among other things. Section 3 of the Act, prohibits the anti-competitive agreements among the enterprise or association of enterprise determining the purchase or sale prices, agreement to limit supply or production, sharing market or source of production, collusive bidding or bid rigging. This section further prohibits tie-in agreement, exclusive supply agreement, and exclusive distribution agreement, agreement on refusal to deal and agreement on resale price maintenance.

This section however contains savings provision to the Copyright Act, 1957; Patents Act, 1970; Trade Marks Act, 1999; Geographical Indications of Goods (Registration and Protection) Act, 1999; and Semiconductor Integrated Circuits Layout-Design Act, 2000.

In Film & Television Producers Guild of India v. Multiplex Assn. of India[7], it was held that that the collective decision taken by OPs not to exhibit the films of the members of the informant in order to determine the price of their services is an anti-competitive agreement under Section 3 of the Act. The collective decision was the key to hold the defaulter responsible for the contravention of the provision of this Act.

The practices of anti-competitive agreements disturb the market situation and tend to create monopoly and abuse of the new players in the market. The question that comes before us is what happens in the case of anti-competitive agreements in a single economic entity and single legal entity. This will be answered in the next part of this article.

Single economic entity (SEE)

This concept was first formulated in the European Commission Guidelines on horizontal cooperation which notes that companies that form part of the same “undertaking” within the meaning of Article 101(1)[8] are not considered to be competitors for the purposes of these guidelines. Article 101 only applies to agreements between independent undertakings. When a company exercises decisive influence over another company they form a single economic entity and, hence, are part of the same undertaking. The same is true for sister companies, that is to say, companies over which decisive influence is exercised by the same parent company. They are consequently not considered to be competitors even if they are both active on the same relevant product and geographic markets.[9] According to the existing jurisprudence, SEE does not have individual functioning capacity. The SEE works on the pleasure of the owner company and have no separate decision-making capabilities. It is however evolved from the concept of holding company and subsidiaries as given in Companies Act, 2013. Subsidiary companies are those in which holding company can exercise control in the composition of Board of Directors and exercises or controls more than one-half of the total share capital.[10] It is a well-settled principle that every company i.e. even subsidiary is a separate legal entity.[11] However, holding companies and subsidiaries can be considered as single economic entity and consolidated balance sheet is the accounting relationship between the holding company and subsidiary company, which shows the status of the entire business enterprises.[12] The subsidiary may be treated as a separate legal entity, yet it is seen that the affairs are totally controlled only by holding company, in other words, if subsidiary has no independent authority to take any decision on its own and they are out and out guided only by holding company, would be in a position to hold that subsidiary and holding company constitute a single economic unit.[13] The concept of subsidiary and holding company is a concept of company law however; the SEE doctrine is exclusive concept of antitrust law.

Exclusion of SEE from the scope of Section 3 of Competition Act, 2002

According to Chapter 2 of the Competition Act, 2002 the scope and ambit of Section 3 extends only over the agreements entered into among two or more enterprise, association of enterprise, persons, group of persons or person and enterprise. The prerequisite of the anti-competitive agreement according to the plain reading of the Act is that, such agreements must be entered between two or more enterprises.[14] However, the member of SEE does not form a separate enterprise to be covered under the definition of enterprise as discussed earlier. They form a part of single enterprise.

In Exclusive Motors (P) Ltd. v. Automobili Lamborghini SpA[15], the COMPAT held that:

… so far as the contravention under Section 3 was concerned, there had to be a proved agreement between two or more enterprises. It held that the agreement between M/s. Lamborghini, the opposite party and its group company Volkswagen India could not be considered to be an agreement between the two enterprises as envisaged under Section 2(h) of the Act. … the agreements between entities constituting one enterprise, could not be assessed under the Act. In that the Commission relied on the internationally accepted doctrine of “single economic entity”.

Further, apart from SEE, there are certain agreements that are exempted from the scope of the Competition Act. For instance, joint ventures agreements that are per se exempted from the scope of anti-competitive agreements under Section 3 of Competition Act. The R&D agreements are also not covered by Section 3 of the Act. In modern economies, innovation is an important feature of productivity and competitiveness. Innovation requires research, experimentation, and the implementation of new ideas into marketable products, services, or technology. Thus, the ability of firms to engage in such research without fear of antitrust attack is essential to economic growth.[16] However, R&D agreements are not per se exempted from the scope of the Act as the R&D agreement has increased the product efficiency and for the consumer welfare. The investment in research and development and to innovate, leading to survival and growth of such companies which keep consumer preference at the top of agenda. While considering impact of an agreement on competition, the potential of damaging competition is also to be seen from the angle of consumer welfare.[17]

Conclusion

The objective of the Competition Act is to provide economic development of a country, to prevent practices having adverse effect on competition, to promote and sustain competition in markets, to protect the interests of consumers and to ensure freedom of trade carried on by other participants in markets, in India, and for matters connected therewith or incidental thereto.[18] The main objective behind the enactment of Section 3 is to prevent collusion among the players of market that causes disturbance to new entrants or the pre-existence players. The single economic entity doctrine provides for vast exploitation of the basic objective of the Act. Many foreign investors purchase the shares of multiple companies indulged in a particular field to enter the Indian market but would not exercise any substantial control over those companies. This would be sufficient for Indian players to enter into anti-competitive agreement and evade themselves from the purview of Competition Act and defraud the administration by invoking the doctrine of single economic entity. Thus, this doctrine is paving a way for a very dangerous jurisprudence, which gives a legal yet morally wrong way to use the vacuum present in the antitrust litigation. The Indian law framers did not anticipate the danger of the doctrine of single economic entity while the drafting of antitrust market laws. The need of the hour is to make a more stringent law to prevent the abuse of the single economic entity doctrine to achieve the true objective of the antitrust law.

 

*  5th year student, BBA LLB (Hons.), Sastra University.

[1]  S. 2(c), Competition Act, 2002.

[2]  Builders Assn. of India v. Cement Manufacturers’ Assn., 2016 SCC OnLine CCI 46; All India Tyre Dealers’ Federation v. Tyre Manufacturers, 2012 SCC OnLine CCI 66.

[3]  S. 2(h), Competition Act, 2002.

[4]  Arshiya Rail Infrastructure Ltd. v. Ministry of Railways, 2012 SCC OnLine CCI 54.

[5]  S. 2(b), Competition Act, 2002.

[6]  Jyoti Swaroop Arora v. Tulip Infratech Ltd., 2015 SCC OnLine CCI 26.

[7]  2013 SCC OnLine CCI 89.

[8]  Treaty on the Functioning of the European Union (TFEU).

[9]  Guidelines on the applicability of Art. 101 of the Treaty on the functioning of the European Union to horizontal cooperation agreements (2011).

[10]  S. 2(87), Companies Act, 2013.

[11]  Balwant Rai Saluja v. Air India Ltd., (2014) 9 SCC 407 : AIR 2015 SC 375.

[12]  Vodafone International Holdings BV v. Union of India, (2012) 6 SCC 757 : (2012) 107 CLA 63.

[13]  Samayanallur Power Investment (P) Ltd. v. Covanta Energy India (Balaji) Ltd., 2005 SCC OnLine Mad 619.

[14]  Yashoda Hospital and Research Centre Ltd. v. Indiabulls Financial Services Ltd., 2011 SCC OnLine CCI 9.

[15]  2014 SCC OnLine Comp AT 1, para 4 : 2014 Comp LR 110

[16]  Ginsburg, Antitrust, Uncertainty, and Technological Innovation, 24 Antitrust Bull. 635 (1979).

[17]  Ramakant Kini v. Dr. L.H. Hiranandani Hospital, 2014 SCC OnLine CCI 15.

[18]  Preamble, Competition Act, 2002 (12 of 2003).