Cartel Enforcement and Competition Law: A Case Study of India

Abstract

This study is an attempt to analyse the effectiveness of cartel enforcement by referring case laws and how they are necessary to be controlled under the Indian Competition Act, 2002.  The author also tries to trace the main reasons for cartel which generally affect an economy and the interest of consumers. First part of the study focuses upon the introduction, definition, types and features of cartels. Part second highlights the Cartels under Indian Competition Law, Identifying Cartel Formation, Enforcement Procedure, Defence against Cartelisation and Powers of the Commission.  Part third reveals the judicial approaches towards the cartels under the competition Act, 2002 and finally, part forth would centre upon conclusion and suggestions.

Introduction

Previous to 1945 most of the world considered that cartels brought extensive profit but after 1945 antitrust information extend across the world and Adam Smith’s overwhelming finding “conspiracies against the public” also highlighted the implications of cartels. Cartels are not basically the contradictory of laissez-faire and competition, but a difference on them which may create effect on quality standards, skill transfers, or risks managing etc that extend outside the conspiratorial encouragement to lift prices in the market. Cartels always hamper competition and innovation is misconceptions about cartels. (Similarly Wurm 1993: 291)[1]. It is very difficult to say what constitute cartels as they appear in such a variety of forms, objectives, and efficiency. “The diversity of actions is very prominent and attests to the originality of industrialists, or at least that of the accountants and lawyers who advise them” (Great Britain Board of Trade, 1944). The determination of cartel is in itself a question of fact which would be decided by considering certain issues like definition, measures of success and failure cartels, and key differences between successful and unsuccessful cartels etc which play a crucial role to deciding these issues (Margaret C and others, 2002)[2]. According to Adam Smith, persons of the similar skill meet together and transformed into a conspiracy against society to lift prices and it is very difficult to stop such meetings.

In India, prior to enactment of MRTP Act, 1969 the Indian Contract Act, (ICA) 1872 was significant in dealing business transactions. Section 23 of the ICA talks about the purpose of an agreement is illegal if court thinks it to be conflicting to public interest. The maker’s of the Indian Constitution being attentive of the likely dangers of Concentration of Economic power, shaped certain philosophies like Article 38 and Article39 (b) and (c) of the Constitution of India. The strength of Article 38 and 39(the Directive Principle of State Policy) of the Constitution of India can be seen in the MRTP Act, 1969 for prevention of economic strength to the common harm, to offer for manage and bar unjust trade practices etc[3].

Definition of Cartel

Collusion can take one of two forms explicit collusion and implicit collusion (clear agreements or implied conspiracy).A cartel can be a consequence of either apparent agreements or inferred conspiracy. Clear agreements occur when participants of the cartel really assemble to make a decision how to manage business. Because of illegal nature of this collusion such a recognized agreement is expected to be extremely secret for deciding price. Hidden involvement/conspiracy, happens when the members through their actions prove their willingness to engage in mutual performance. One of the most noted examples of explicit collusion is a cartel acknowledged as the Organization of Petroleum Exporting Countries (famous as OPEC)[4]. Cartels may be in the form of “a group of similar independent companies who connect mutually to control competition”[5]. Or “An organization of Competition players with the rationale of maintaining prices at a high level and restricting rivalry”[6]. “Action against cartels is a definite type of antitrust enforcement and relies on each other’s decided course of action which are unlawful in its nature and that is why the European Commission also punish with heavy fines if matter connected with cartels” (The European Commission)[7].

Section 2, clause (c) of the Act, also talks about the essence of cartels which includes a union of business players who, by agreement among themselves, limit the production of goods and services[8].

Various Forms of Cartels

It is a division of inter firm collaboration, which ranges from highly markets with no individual market authority to entirely integrated venture hierarchies which cannot be judged on documents. In long-term contracts, more market power can be exercised by unspoken oligopolistic collusion as compare to cartel if it has important outside competitors. In general, individual enterprises to regulate the market through private contractual arrangements (cartels) but it was also managed by State (Forced Cartelization) during wartime. Forms of cartels may not be fixed but still some kinds of cartels can be reffered like private self regulations (Contractual or Condition Cartels, Standards Cartels, Patent-Licensing Cartels etc.). In addition, unlawful rigid cartels include Territorial Cartels, Quota Cartels, Price Cartels, Customer Cartels and Specialization Cartels etc. At High Internalization, Regulation Import/Export Cartels, Rationalization Cartels, Recession Cartels etc are also considered[9].

The cartels can broadly be classified into various categories including import and export cartels at international level as well as horizontal and vertical cartels especially in India under section 3 (3) and (4) of the Act. In Horizontal agreements, the burden of proof is upon defendant as it is presumed to have negative impact on competition. On the other hand, in verticals agreements the burden of proof is upon the complainant and such agreements are not per se illegal. It is also provided that the combined effort for increasing efficiencies is within exception under the proviso (3) of section 3 of the Act. In addition, for determining Cartels certain features may be considered i.e. function in secrecy; hide activity and continuation of cartels etc. Apart from this, there are some conditions which also encourage for creation of Cartels like excess capacity, active trade association and high consumerisms etc.

Cartels Enforcement in India

The rationale of the Act, 2002 focuses upon i.e. stop appreciable adverse effect, encourage and maintain competition, consumer protection, certify liberty of trade in India. Subsequently the CCI is recognized to ensure above mentioned objectives with the help of the Director General (DG), both are complementary to each other for conducting investigation and passing appropriate orders. Primarily, the CCI is to check whether there is any breach under this Act or not. In case of cartels, section 3 of the Act clearly states that agreements shall be void if it creates significant adverse effect on competition in India.

If Commission is satisfied that there is AAEC in India than it can initiate proceeding against section 3 of the Act under section 19 (grounds provided) of the Act, and may pass an appropriate order to the Director General for starting an enquiry and to provide outcomes. The CCI also have the same powers as given to a Civil Court under the Code of Civil Procedure where as the DG can also perform ‘search and seizure ‘operations[10]. Further, Section 32 highlights extra territorial jurisdiction and the CCI can also insist any person for producing documents or records etc. if the DG has rational justification to consider that relevant papers ‘may be damaged than he can move towards court for further actions. Additional, as per Regulation 41(CCI’s own regulation) certain evidences are admissible before commission and right to make appeal before concerned authorities for recovery of damages under section 53 N is also provided. In addition, if wrong doer makes full, true and essential disclosures than authority may impose less penalty under section 46 of the Act. The Act does not offer for detention of executive’s responsibility for cartelization and mainly secondary evidences are preferred rather ‘beyond a reasonable doubt ‘approach as essential in criminal proceedings. Both parties are allowed to have duplicate of the DG’s report before closing order and further appeal can be made before the COMPAT (now NCLAT) and then after to the Supreme Court of India[11].

Apart from this, some defences against cartelization also been considered by the Commission and mere parallel behaviour to fix prices is not sufficient for proving unlawful conduct. Further, to decide the reality of cartels, CCI needs to look into various conditions (circumstantial evidences) to decide the negative impact of such cartels on competition.

Judicial Analysis on Cartels in India

Prior to 1991, the Commission under MRTP Act, 1969 handled many cases but it was established that majority of cases were relating to price cartels i.e. 21 cases, followed by other issues. In addition, Commission settled around 64 cases before 1991 and passed cease and desist orders accordingly. Subsequently, after 1991 nearby 15 cases again related to price cartels and the majority of cases had been connected to the transportation where the truck organisations had been afraid in price-fixation and market share. To support these facts some of the important cases dealing with cartels in India discussed below[12]:

In Somu Pillai v.Municipal Council, Mayavaram[13], court held that if an agreement is conflicting with public policy in formation of monopolies would be void. Further, in Bholanath Shankar Das v. Lachmi Narain  the right of an individual to carry business activity and accountability along with certain principles determined[14] and it was also realised in Bholanath Shankar Das case that for strong and fair rivalry a better regulatory and adjudicatory mechanism is required[15].

In U.O.I & Others v. Hindustan Development Corporation and Others,[16] the Supreme Court identified three important ingredients for cartel i.e. equal price, mutual action regarding conspiracy and control revelry but the charges of cartel could not be acknowledged.

In DGIR v. Modi Alkali and Chemicals Ltd and others,[17] In this case, an unknown complaint taken by the Commission regarding cartel and increased prices of products but informant could not prove intention among players therefore the charge was dropped.

In American Natural Soda Ash Corporation (ANSAC) v. Alkali Manufacturers Association of India (AMAI) and others, ANSAC[18] the Supreme Court held that the MRTPC does not have any additional territorial authority to manage imports but if wrongful act is done by an Indian than it may be considered hence the Court reversed the order.

In Association of State R. Trans. Und. v. K. Mobiles Ltd. & Another [19] case no evidence was produced to confirm that there was collusiveness on the respondent’s part to act in concert against the complainant hence objection was rejected.

In Builders Association of India v. Cement Manufacturers’ Association and Others[20] it was held that the Cement Manufacturers’ organization (CMA) and the cement companies had contravened with concerned law because prices rose just after two meetings by the CMA. The companies had earned huge profit margins and subsequently found that the business players had mutually acted upon and formed a cartel.

In FICCI-Multiplex Association of India v. United Producers/Distributors Forum and Others[21] three associations of Hindi language film producers entered into cartels not to start new movies for display, to get a high profit. Subsequently the assumption of an AAEC was upheld and imposed fine on them.

In Mr. Ramakant Kini v. Dr. L.H. Hiranandani Hospital, Powai, Mumbai[22] it was held that it is a responsibility of the CCI to verify such commercial agreements in respect of services if creating a significant unfavourable result on competition in India shall be invalid. Appreciable adverse effect is not defined by the statute But the statute has specified a list of factors under section19 (3) through which CCI may decide whether an agreement has AAEC or not. Further, Sometimes the CCI may take into consideration the rule of reasons and per se rule to fix the nature of any agreements.

In Builders Association of India  v. The State of Kerala[23], it was found that the Opposite Parties did not indulge in violation of section 3 and further, the information also does not reveal any consent between the players hence it was held that none of the provisions are attracted and the matter is ordered to be closed.

In Zinc carbon dry cell batteries[24] case the Competition Commission of India took the case by suo motu against OP-1, OP-2, and OP-3, and found that they are guilty under section 3 (3) and (4). The Commission further imposed fine upon them and directs the parties to pay the particular fine sum within 60 days.

In F. Ent. Solutions India Pvt. Ltd. v. Hyundai Motor India Ltd[25] the CCI held that Hyundai Motor India Limited (HMIL) violated the law which lead to resale price maintenance by utilizing recommended oils and punishing them if disobey. They found guilty and ordered to pay a fine of Rs. 87 crore.

In M/s House of Diagnostics LLP, v.  M/s Esaote S.p.A and others,[26] the complainant filed  the information under section 19(1) (a) of the competition act,  2002 against M/s Esaote S.p.A & others alleging that they have imposed unreasonable conditions upon complainant and abused their dominant position in the relevant market of MRI machine. Further, the complainant failed to show any evidences in contravention of section 3 of the act. But the commission opinions that it is a fit case for conducting investigation by DG under section 4.

In Delhi Jal Board v. Grasim Industries Ltd.,[27] the informer had suspected that Grasim Industries Limited and some other competitors had concerned in bid-rigging for long period. The Commission found them guilty and imposed fine upon them.

In Grasim Industries Ltd. v. Competition Commission of India,[28] The CCI received a complaint against the manufacturers of Man Made Fibres for imposing unreasonable conditions on Indian Textile Industry which is amount to anti competitive conduct. The main issue raised in this case is “What is the scope and extent of the power of the Director General under the Act?”. The commission finally decided that if during investigation if DG reports the contravention of section 3 as well as section 4 would not be ultra vires his power under the act. In this case the DG decided the terms of investigation and commission did not considered the information alleging contravention of section 4 hence act of DG considered beyond the scope of power.

In Next Radio Limited v. Prasar Bharti & Ministry Of Information and Broadcasting,[29]  the informant filed a complaint before CCI against Prasar Bharti and the Ministry of Information and Broadcasting for imposing migration policy. The defendant subsequently changed the terms and conditions of an agreement of FM Radio Policy and increased the license fees along with fresh execution of an agreement. The commission after considering all relevant facts and evidences found them guilty under section 3 and 4 of the competition act, 2002.

In Vishal Pande v. Honda Motorcycle And Scooter,[30] The informant filed a complainant against Honda Motorcycle and Scooter India Private Limited for contravention f section 3 and 4 of the competition act, 2002. Further, it was also stated that they are guilty of tie-in arrangements, imposed resale price maintenance and also abused their dominant position. In addition, they imposed restrictions on the purchase of oils and consumables, the purchase of accessories, Refusal to deal, Restriction on Annual Maintenance Contract and Restriction regarding the sale of batteries etc. the commission found that it is contravention of section 3 and 4 of the act and issue the direction to DG to complete an investigation within 60 days.

In Reliance Jio v. Other Telcos,[31] In this case Bombay High Court by giving relief to cellular operators including idea, Vodafone and Airtel by setting aside the order of CCI against Reliance Jio. The court further (Justices Anoop Mohta and Bharati Dangre) held that CCI does not have jurisdiction to decide the statutory agreements under telecom sector and every majority decision taken by business players could not be termed as ‘cartelisation’. In addition, the Supreme Court headed by Justice A K Sikri also appreciated the decision of Bombay High Court.

In Express Industry Council of India v. Jet Airways (India) Ltd. & others[32] the Commission get to know about concerted action among players that they have increased the fuel surcharge and also modified the FSC rates which are contradictory to section 3 (3) (a) of the Act. Finally, CCI punish them by charging huge fine.

Conclusion

On the basis of above mentioned facts it is revealed that the Competition Law is also known as anti-competitive legislation and anti-trust law which effectively deal with Cartel agreements and economic efficiency (Dynamic, Productive and Allocative) pursuit of consumer welfare. It is also a wide law which deal with unfair competition practices and allow certain exemptions if practices connected with enlargement of efficiency.

In addition, it is also revealed that the cartels enforcement under the present act also being implemented through the Commission and Judiciary effectively. To support this fact, the Annual Report (2017-18)[33] of CCI ‘Performance Parameters’ exposes that the total number of alleged anti-competitive conduct noticed in 2017 and 2018 are 161 and 72 respectively where as the total number of orders approved in respect of suspected anti-competitive conduct are 167 and 74 respectively which shows that the number of allegation ratio is decreased and resulted less number of order passed during 2017and 2018. On the other hand, it is also seen that the investigation process conducted by the Director General (DG) is performing better as it completed only 23 matters in 2016-17 but in 2017-18 it completed 36 investigations which is a sign of progress. The amount of penalty levied is also jumped from 288.28 to 436.65(Rs. In crore) which is a sign of fear for wrong doer. The number of orders appealed during 2017-18, improved from 39.24 to 56.06 percent. The Annual Report also highlights the proactive role of the Commission and the Supreme Court in dealing with cartels and consumer welfare. Even though, the competitors repeatedly indulge in cartelization and other unfair competition practices which causes harm to economic development. Further, to prevent such practices among business players, the Commission should organise more competition advocacy programmes along with effective cartels enforcement (because as per annual report 2017-18, it is decreased from 122 to 110) and spread awareness among consumers and business players. Apart from this, it is also duty of an individual (consumer and competitors) to be super conscious in dealing with each other so that the real objective i.e. economic development with consumer welfare can easily be achieved.


This Article is written by Dr. Jaswant Singh Saini, Assistant Professor, Faculty of Law, M.D.University Rohtak and Asst. Poof. Narender Kumar (Ph. D. Scholar, Faculty of Law, M.D.University Rohtak) & Assistant Professor, VSLLS Vivekananda Institute of Professional Studies (VIPS) (Affiliated to GGSIP University Delhi).


References:

[1] Jeffrey Fear (2006), “Cartels and Competition: Neither Markets nor Hierarchies” Division of Research, Harvard Business School (07-011) p-1-2, (visited on 11th June 2019 at 11:11 am).

[2] Levenstein M C and Suslow VY (2002), “What Determines Cartel Success?” Vol. 44, No. 1 Journal of Economic Literature  p-1 2006 (visited on 11th June 2019 at 11:14 am).

[3] Cartels report (2019), Cuts International & National Law University, Jodhpur (visited on 12th June 2019 at 8:15 AM).

[4] Implied Collusion, available at: http://www.amosweb.com/cgi-bin/awb_nav.pl?s=wpd&c=dsp&k=collusion (visited on 11th June 2019 at 12:30 PM).

[5] Cartel definition, available at:  https://dictionary.cambridge.org/us/dictionary/english/cartel (visited on 11th June 2019 at 12:40 PM).

[6] Cartel definition, available at: https://www.lexico.com/en/definition/cartel visited on 11th June 2019 at 12:43 PM).

[7] Cartel overview, available at: http://ec.europa.eu/competition/cartels/overview/index_en.html (visited on 11th June 2019 at 12:49 PM).

[8] The Competition Act, 2002, s. 2 (c)

[9] Fear J,(2006), “Cartels and Competition- Harvard Business School” 07-011 available at: http://www.hbs.edu/faculty/publication%20files/07-011.pdf

[10] A. Series on Cartels, CCI, available at: https://www.cci.gov.in/sites/default/files/advocacy_booklet_document/cartel%20book.pdf (visited on 11th June 2019 at 6:36 PM).

[11] Bhattacharjea, A., & De, O. (2017), “Anti-cartel enforcement in India”, Journal of Antitrust Enforcement, 5(2), 166-196.

[12] Study of Cartel Case Laws in Select Jurisdictions (2008) available at: https://www.cci.gov.in/sites/default/files/cartel_report1_20080812115152.pdf

[13] Naidu R.Y., (2013) “CARTELS VIS-À-VIS COMPETITION LAW: JUDICIAL ANALYSIS” NALSAR Law Review, Vol.7  No. 1, (Visited On 11th June 2019 At 10:15 PM).

[14] Ibid.

[15] Ibid.

[16] 1994 AIR 988

[17] Supra note 12.

[18] R.T.P.E. 118 of 1994, order dated 1-3-2002

[19] 1998 3 Comp L J 152 MRTPC

[20] 2002 CTJ 433 (MRTP)

[21] Case N.- 29/2010 (Final Order on 20.06.2012)

[22] Case 01/2009, order dated 25 May 2011

[23] Case no. 39 of 2012

[24] Case No. 42 of 2013

[25] CCI Suo Motu Case N. 02 of 2016

[26] Case No. 09 of 2016, Order- 23.08.2016

[27] Case no. 36/2014 and Case no. 82/2014 (order dated June 14, 2017), Annual Report 2017-18

[28] 2014CompLR109 (Delhi),  Order- 16.05.2018

[29] Case No. 29 of 2016, CCI Order- 4 July, 2017

[30] Case No. 17 of 2017, CCI Order- 14 March, 2018

[31] Supreme Court rejects CCI and Jio’s cartelisation pleas against Airtel, Voda Idea,  available at: https://economictimes.indiatimes.com/industry/telecom/telecom-news/supreme-court-rejects-cci-plea-to-probe-charges-of-cartelisation-against-lcos/articleshow/66949204.cms?from=mdr (visited on 14th August 2019 at 10:50 pm).

[32]Annual Report of CCI, 2017-18.

[33] Annual Report 2017-18, CCI available at: https://www.cci.gov.in/annual-reports (visited on 14 June 2019 at 9 AM).

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