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2013: Competition Law Wrap!

Published on Mon, Jan 06,2014 | 18:31, Updated at Mon, Jan 06 at 18:31Source : 

 By: Avaantika Kakkar, Partner, Khaitan & Co.

At the end of the year and on the threshold of the next, does one look back with equanimity or, does one frown with concern over the way things turned out and hope for better outcomes in the coming year?

With regard to the year that was for competition law in India, it would perhaps depend on who you are – the Commission, the Competition Appellate Tribunal, or companies doing business in India!

The Competition Commission of India (Commission) has little reason to not look at the last year with a deep sense of satisfaction. Merger control in India, is on track, the Commission has made it clear that it will not tolerate being taken lightly, and has started to impose penalties for delayed filings and the failure to share information with the Commission even after having disposed of most applications for approval within a reasonably short period of time.

On the enforcement side, the Commission has begun slapping penalties on public sector undertakings for the abuse of dominance at least in the Coal India case, suggesting that these enterprises are not above the law; the Commission continued to find instances of bid rigging among enterprises and came down heavily on the companies engaging in such collusion; the Commission’s zeal for cases involving anti-competitive behaviour in the media and entertainment sector continues unabated and, extended to the Board for Control of Cricket in India (BCCI). The Commission has also ensured that various chemists and druggists associations operating across States in India, including the All India Organisation of Chemists and Druggists and its affiliates receive regular raps on their respective knuckles for the boycott and arm twisting of pharmaceutical companies that these associations engage in.

As regards merger control, one wonders if the Commission is almost simplistic in its reasoning. For instance, in its assessment of the Jet Airways-Etihad merger, the Commission has observed that Indian passengers on the 9 direct Origin & Destination routes that it considered for the purposes of its assessment are generally more price sensitive than time sensitive. How did the Commission arrive at this observation? Or, is it that the Commission truly sees itself as a facilitator and will not object to a merger unless there is something blatantly anti-competitive on the face of the transaction documents?

Perhaps, there will now be occasions when third parties, who have also had the opportunity to understand this new law and its manifold implications, will approach the Commission with arguments and objections to proposed combinations. The Commission may use the opportunity to make a deeper assessment of the facts available with it, approaching third parties for data (which the parties to the combination may not have access to) and perhaps, approaching other competition authorities for their experience in assessing similar transactions based on the international cooperation arrangements / MoUs that the Commission has entered into this year, with the competition authorities of Russia, the US (Department of Justice & the Federal Trade Commission), Australia (Australian Competition and Consumer Commission) and the European Commission.

Again, from the Jet-Etihad orders of the Commission, the exemption for combinations “taking place entirely outside India with insignificant local nexus and effect on markets in India” remains cryptic when the Commission explains it as “the sufficient relevance of the proposed combination to markets in India” rejecting the argument that the words “nexus” and “effect” implied a greater or reasonable probability of the proposed combination causing /raising any competition concern. The lack of clarity on this front could result in delayed filings or omissions to file especially when there are large international mergers and, for commercial reasons, India may not be a priority country.

Abuse of Dominance & Anti-Competitive Arrangements

In any real and reasonable competition law regime, a public sector undertaking would be a usual suspect for abuse of dominance investigations because of the manner in which they are organised and the resources that these companies command. However, the Commission has undertaken a fairly erratic approach to the assessment of Section 4 (abuse of dominance) complaints. There is little clarity on where one is headed, if one were a dominant enterprise, because there is no finality on the early abuse of dominance orders of the Commission. Take for instance the determination of the National Stock Exchange’s dominance in the NSE-MCX case when there was proof of recent market entry in the same relevant market and compare that with the Commission’s rejection of the Director General’s conclusion that Saint Gobain Glass Limited was dominant in India in the manufacture and sale of clear float glass. In the latter case, the Commission found that the recent entry of manufacturers suggested that there were low entry barriers in the market for clear float glass when in fact, the Informant had complained that India had witnessed market entry after many, many years in the float glass market and that one firm was swallowed up by Saint Gobain within a few months of making an entry because of unfairly low pricing by Saint Gobain. Again, in the NSE case, the recent market entrants had acquired a significant market share within a short period of their market entry but this factor was ignored in the assessment of NSE’s dominance although, in the Saint Gobain Glass case, it appears that this was a factor that the Commission relied upon to find that Saint Gobain was not dominant. Some of these cases will see closure in appeals. In others, the informant may run out of steam. It is incumbent upon the regulator and adjudicator to know this when it writes its orders.

As regards the enforcement against cartels in India, the Commission continued to rely upon circumstantial evidence in arriving at a conclusion of violation by companies. The Commission’s findings in the bid rigging arrangements are the ones that the Competition Appellate Tribunal seems to have found easier to uphold. The Commission still fights shy of exercising its powers of search and seizure and, at least in its advocacy programmes, encourages applicants for leniency (voluntary filings that could ensure a waiver of penalty for the first three applicants, as per a marker system and upon the satisfaction of conditions of the relevant regulations issued by the Commission).

The BCCI is the national governing body for all cricket in India and the Commission determined that the BCCI was in fact an enterprise and fell within its jurisdiction. That the BCCI bound itself not to allow any other rival league which could compete with the IPL for a period of 10 years was found to be a violation of the Competition Act, 2002 by the Commission. The Commission’s frowning upon the BCCI may have given succour to many but the question is this: what if it was any other sport? Football, or, India’s malnourished baby, Hockey? What if the sport needs investment and commitment so that it is popularised? Will similar agreements entered into by the governing bodies for other sports in India also suffer the same fate as the BCCI’s agreement with MSM Sony? And will this, in the long term, inhibit the growth of sports in India, cricket, being the exception more than the rule.

As regards the repeated admonishing of the various chemists and druggists associations across the country, the cause is noble but will these penalties work in curbing the malaise? Even the highest of high penalties for these associations amount to meagre sums because the associations’ income or turnover is from membership fees and sundry association related activities. Penalties may not hurt these associations, who have only to conduct fund raising events to make up the deficit or, ask for higher membership or subscription fees. The members of these associations, it would appear, have little or no say in their functioning. Neither, it would appear, do the large pharmaceutical companies that suffer at the hands of these associations. It is also possible, that the arm twisting and boycotts will be conducted in a more sophisticated manner, now that the Commission is hot on their heels. Going forward therefore, will the Commission have the boldness of spirit to see past the camouflage and find the culprits? Will the Commission put them to justice for they would have violated not only the law, but an order of the Commission, and such a violation could result in imprisonment of upto 3 years, or in the payment of a penalty of upto INR 25 crores? And yes, the action that the Commission takes in these cases has a great significance for every person because they deal with the issue of availability of medicines.  

The Competition Appellate Tribunal

The Competition Appellate Tribunal (COMPAT), the adjudicatory body to who appeals from decisions of the Commission lie, has maintained a deafening silence in respect of the DLF case, the NSE case, the Cement Cartel case, and the LPG Cylinder manufacturers bid rigging case, to name a few. The COMPAT has however, made its orders in the explosives manufacturers and the aluminium phosphide cases chiding the Commission for its omissions in not allowing parties opportunity for being heard at the time that it determined the penalty for their having violated the Competition Act. Another admonition that the Commission has received consistently from the COMPAT is the fact that its orders, especially regarding the imposition of penalties were not reasoned orders. However, the COMPAT has also upheld the Commission’s findings of violation of the Competition Act in these cases.

The COMPAT has, most recently ruled, in the aluminium phosphide case, that the turnover or profits on which the Commission imposes a penalty must be the “relevant” turnover or profits of the errant business in respect of which the Commission found a violation and not, in fact, the turnover or profit of the entire enterprise. This is something that the CCI would gripe about. If the CCI appeals against the COMPAT’s ruling it would argue that the COMPAT has acted in excess of its jurisdiction because the Competition Act (Section 27(b)) states that penalty be imposed in respect of the average of the turnover for the last three preceding financial years, upon “each of such person or enterprises which are parties to such agreements or abuse”.  

Will the Supreme Court agree with the CCI? Or, will it explain that a fair and reasonable interpretation is one of the more basic rules of the interpretation of statutes. And, that the COMPAT, in insisting that the turnover attributable to the aluminium phosphide business of the companies that were engaged in various other businesses, is the relevant turnover for the purposes of determining the penalty does not mean that the COMPAT found fault with the legislation, but in fact interpreted the legislation in the balanced and reasonable manner that an adjudicator, such as the Commission, is required to, where the facts and circumstances of the case allow for such reasoning.


We are all finding our feet and the hard work that the Commission is putting into the enforcement of Competition Law in India, is for all to see. Going forward, and in establishing a spirit of compliance with the law, the Commission will have to ensure that its sophistication percolates to the Office of the Director General, and that the same high standards that the Commission has set for itself are reflected during the investigation stage. Leniency programmes will have to be promoted not only in word but also in spirit because the first few applications will set the trend for the future of enforcement activities of the Commission in India.

The signing of the MOUs and the Delhi Accord (jointly signed by the BRICS competition authorities) will improve and strengthen the relationships between these authorities and open the doors for a more universal framework for the enforcement of competition law and companies doing business in India would expect international best practices in the same manner that the Commission has come to expect compliance.


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