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Cartels - Enforcement, Appeals, & Damages actions

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This article was authored by Anantlaw. It was featured by Global Legal Insights as India chapter in their publication on Cartels - Enforcement, Appeals & Damages.

What is the competition Act of 2002?

The Competition Act of 2002 (“Act”), brought into force on 20 May 2009, is aimed at preventing anti-competitive practices, promoting and sustaining market competition, protecting the interests of consumers, and ensuring freedom of trade carried on by market participants in India. It is also the primary legislation regulating cartels in India.

Who is the Competition Commission of India?

The Competition Commission of India (“CCI”) is the statutory regulator, established under the Act, and entrusted with the responsibility of curbing anti-competitive practices in India. Apart from several other rules and regulations, the CCI (General) Regulations, 2009 (“CCI General Regulations”) detail the procedures laid down by the CCI in terms of powers conferred by Section 64 of the Act.

Under Section 19 of the Act, the CCI is empowered to initiate investigations into all anticompetitive agreements and conducts, either suo moto or upon the receipt of information or reference (by Central or state government or statutory authority), or through the leniency programme (referred to as the “Lesser Penalty” regime under the Act). As per the Act, all anti-competitive agreements, especially cartels, are prohibited and void.

Section 2(c) of the Act defines the term “cartel” to include “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”.

However, the proposed Competition Amendment Bill, 2020 (“Competition Bill 2020”), which is yet to enter into force, intends to widen the scope of “cartel” under Section 2 (c) to include buyer cartels as well. This amendment to include buyer cartels has been proposed in light of the developments and lacunas in cartel enforcement.

What is a cartel enforcement?

In terms of cartel enforcement, Section of 3 of the Act not only prohibits anti-competitive agreements between horizontal players, but also attaches a presumption of an appreciable adverse effect on competition (“AAEC”) to such agreements. This presumption of AAEC under Section 3 is to be read in line with the factors stipulated under Section 19 (3) of the Act, i.e., inter alia: creation of barriers to new entrants in the market; driving existing competitors out of the market; and foreclosure of competition by hindering entry into the market. Upon satisfaction of the Section 19 (3) factors, the CCI may initiate an action against the parties in the manner stipulated under Section 26 of the Act and impose appropriate penalties under Section 27.

Upon arriving at a prima facie opinion against the anti-competitive conduct or practices of the parties, the CCI passes an administrative order under Section 26(1) of the Act, ordering the Director General’s office (“DG”) to conduct an investigation into such alleged practices/conduct. As general practice, the prima facie orders passed by the CCI, especially relating to investigations into anti-competitive agreements, are not available in the public domain, i.e., not published by the CCI on its own website. The CCI alone publishes prima facie orders relating to investigations into abuse of dominance. Ironically, the newspapers generally cover and disclose investigations into anti-competitive agreements, even when the details are not officially made available to the public. The occurrence of news reports covering such (confidential) orders (in other words, when such orders are leaked) has been raised before the High Courts in various cases and is under adjudication. The CCI has stated that the orders were not leaked by them and therefore they are not obligated to investigate the same. The CCI’s power of reviewing and recalling its prima facie orders is also subject to challenge before the Supreme Court of India.

The CCI has powers to pass interim orders under Section 33 of the Act.

As part of the investigation process, the DG does not have suo moto powers and can only act on the direction of the CCI. The CCI has powers to impose penalties for failure to comply with directions of the CCI and/or DG. The investigative process is dealt with separately hereunder.

What happens after cartel investigation is completed?

After completing the investigation, the DG submits a report including all the material, evidence and documents, etc., collected during the investigation process. Subsequently, the CCI directs the circulation of the DG’s report to all the parties, asking them to supply submissions in writing and fixing a date for a hearing. The parties may choose to examine and cross-examine the witnesses and their statements recorded by the DG, submit necessary applications, written submissions etc., and participate in a hearing before the CCI. Upon the conclusion of the final hearing, the CCI reserves its right to pass a final order. The nature of final orders passed by the CCI when finding violations of the provisions of the Act include the imposition of penalties and/or issuing appropriate directions against parties that are found to be cartelising and in violation of Section 3 of the Act. An order under Section 27 may also include a direction to cease and desist. Alternatively, in case the CCI is of the opinion that the DG report requires further investigation, the CCI is empowered to direct the same to be done. With respect to quantum of penalties, the Supreme Court of India has held that the penalties for cartelisation, in case of multi-product companies, must be levied on the basis of “relevant turnover”, i.e., the turnover for which a multi-product company was investigated and was found in violation. It is also pertinent to note that not all information, etc. under Section 19 of the Act, filed before the CCI, may result in either a prima facie order or the imposition of a penalty and/or passing of orders establishing the contravention.

The CCI may either close a case by issuing an order under Section 26(2) of the Act if no prima facie case is made out, or pass an order according to Section 26(6) of the Act if it is convinced by the finding of the DG regarding the absence of any contravention.

The final orders passed by the CCI are appealable before the National Company Law Appellate Tribunal (“NCLAT”) under Section 53B of the Act. An appeal against the orders of the NCLAT may be referred to the Supreme Court within a period of 60 days under Section 53T of the Act.

To date, there are several pending proceedings before various High Courts in India as well as the Supreme Court of India, challenging the arbitrariness of the orders passed by the CCI. The issues pending consideration range from the imposition of individual penalties under Section 48 of the Act to the degree of discretion enjoyed by the CCI while granting confidentiality, etc.

Furthermore, for investigations initiated on the basis of leniency applications, the procedure is provided for under the Competition Commission of India (Lesser Penalty) Regulations, 2009 (“Leniency Regulations”). Leniency applications may be filed by a party volunteering to provide vital information regarding the existence of a cartel. Such leniency applications are incentivised with lesser penalties if the leniency applicant is making a “full, true and vital” disclosure and is cooperating with the CCI during the investigations and proceedings.

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