Competition Law in India: Top Ten Things to Know About the Enforcement Regime

By Arshad (Paku) Khan, Executive Director, Jayati Handa, Associate, and Arunima Chatterjee, Associate, Khaitan & Co LLP¹

Provisions pertaining to enforcement of competition law in India (i.e., Sections 3 and 4 of the Competition Act, 2002 (as amended) (Competition Act)) came into effect on 20 May 2009. Despite being a relatively young regulator, the Competition Commission of India (CCI) has addressed several significant questions of law and fact. This jurisprudence, in effect, has already brought about a paradigm shift, redefining the way businesses are being carried out in India. Set out below are certain key learnings to be kept in mind by businesses in India in relation to compliances under the Competition Act.

Section 3 addresses anti-competitive agreements, which may be oral or written. It prohibits horizontal agreements between competitors that involve fixing prices, allocation of market in terms of areas or customers, limiting technological innovation, production, supply or bid rigging. These actions are (rebuttably) presumed to breach the Competition Act. Vertical agreements such as tying, exclusivity (distribution & purchase), refusal to deal, and fixing minimum resale prices are also prohibited to the extent that such agreements cause an appreciable adverse effect on competition (AAEC) in India.

 

Section 4 deals with the regulation of abuse of dominance. Once it has been established that a party is dominant in a market, such dominance would be considered to have been abused if the party engages in conduct such as limiting or restricting production of goods or services, denial of market access, predatory pricing, making contracts conditional on acceptance of conditions unrelated to the contract and leveraging position in one market to enter/protect another market.

 

 

India is a remarkable jurisdiction as the CCI, and only the CCI, has primary jurisdiction over a complaint alleging a breach of the Competition Act. Judicial courts do not have primary jurisdiction under the Competition Act. As such, there is no "private right of action" under the Competition Act. Stated another way, the CCI is the only arbiter of the Competition Act.

 

This, coupled with the fact that the CCI does not allow withdrawal of a complaint or settlement without a final adjudication on the merits of the case, is important for companies to be aware of. India is a jurisdiction where it is relatively easy and inexpensive for complainants to get a final decision from the CCI about a breach of the Competition Act.

 

Specifically, Section 19 of the Competition Act enables persons to file a complaint (referred to in India as "information") with the CCI for an alleged breach of Sections 3 and/or 4 of the Competition Act. Accordingly, companies or other bodies corporate, individuals, consumers, or consumer or trade associations can, with relative ease, file an information. The CCI can also investigate suspected breaches on its own initiative and through references by Indian State or Central Government and statutory authorities. The CCI may also investigate matters where the anticompetitive conduct stems from jurisdictions other than India under Section 32, if such conduct causes or is likely to cause an AAEC in Indian markets.

Pursuant to Sections 26(1) and 26(2) of the Competition Act, the CCI must pass an order on the merits of every information filed with it.

The office of the CCI's Director General (DG) is the investigative wing of the CCI. The DG has the same powers² as are vested in a Civil Court under the Code of Civil Procedure, 1908 and can summon and enforce the attendance of any person and examine them under oath, require the discovery and production of documents, receive evidence on affidavit, issue commissions for the examination of witnesses or documents, requisition any public record or document, etc.

Dawn raids are also possible and have, in fact, been conducted by the DG, the details of which have been provided in Point 7 below.

The Competition Act provides only for civil consequences for a breach of its provisions. Section 27 of the Competition Act lays down the penalties for contravention of Sections 3 and 4 of the Competition Act. In addition to issuing "cease and desist" orders, the CCI may also impose a monetary penalty of up to 10% of an enterprise's turnover for the preceding three financial years.

 

In case of cartels, the CCI can impose a monetary penalty, upon an enterprise involved in the cartel, of the higher of up to three times the profit or up to 10% of its turnover for each year of the continuance of such cartel agreement. The fines in India for a breach of the Competition Act can be (and have been) very high. For example, the CCI recently levied a penalty of INR 67.14 billion (approximately USD 990 million³; GBP 800 million, EUR 930 million; JPY 112.48 billion) on 11 cement companies and their trade association.⁴

 

To date, the CCI has not promulgated any fining guidelines, preferring to "allow the law to develop" on how fines are computed. There are no decided factors that the CCI is required to consider while calculating fines.

 

The CCI has not recognised the concept of "relevant turnover" and fines multiproduct companies on the totality of their turnover even if only a single product wasthe subject of the breach. However, in several decisions, the Competition Appellate Tribunal (COMPAT) has rejected the CCI's computation of penalties where the CCI has not recognised the concept of "relevant turnover". The CCI is yet to address this concept in its fining orders under Section 27.

 

 

Section 48 of the Competition Act provides for potential liability of individuals who were actively or passively involved in the contravention of the Competition Act.⁵

 

Decisions of the CCI indicate that it proceeds against individuals under Section 27 of the Competition Act wherein the CCI has imposed a penalty of up to 10% of the average income of individuals calculated as per the financial statements.

 

The COMPAT in AN Mohana Kurup and Others v. CCI and Others⁶, held that the CCI was not at liberty to issue any directions to the DG to investigate the role of responsible individuals until the CCI issued a finding of contravention against the company. However, the CCI has relied on provisions similar to Section 48 in other statutes and the decision of the Delhi High Court in Pran Mehra v. CCI and Others⁷ to state that there is no need for two separate proceedings under Sections 27 and 48.

The CCI favoured simultaneous proceedings so as to avoid procedural delays. It is also important to note that directors and managers contravening Section 48 of the Competition Act may also face disqualification under Schedule V of the Companies Act, 2013.

Another development in relation to individual liability in case of leniency applications was the CCI's decision in In Re: Cartelization in respect of tenders floated by Indian Railways for supply of Brushless DC Fans and other electrical items⁸ (Indian Railways Cartel). Although individual liability is not addressed explicitly, the decision indicated that reduction of penalty for the applicant enterprise will result in a commensurate reduction of penalty for the responsible individual as well.

In addition to fines and other sanctions that can be imposed by the CCI, the Competition Act also allows for compensation claims to be made by aggrieved persons under Section 53N of the Competition Act. Applications for compensation claims can be made by aggrieved persons before the COMPAT for loss or damage shown to have been suffered as a result of conduct prohibited under the Competition Act⁹.

With the COMPAT's permission, a class action-type compensation claim in this regard may also be made, wherein loss or damage is suffered by numerous persons having the same interest.

The COMPAT is mandated to conduct an inquiry into the allegations mentioned in such a compensation application and pass orders directing the contravening enterprise to make the payment of the amount determined by it as reasonable as compensation for the loss or damage caused to the applicant as a result of any contravention of the provisions relating to Sections 3 and 4 of the Competition Act.

Although there are claims pending, there have been no final compensation claim decisions as of the date hereof.¹⁰

The power to conduct a dawn raid is conferred upon the DG under the provisions of Section 41 of the Competition Act. Section 41 lays down that the investigation made by the DG is to be conducted in accordance with the provisions of Sections 217 and 220 of the Companies Act, 2013¹¹.

Within the scope of its powers to conduct a dawn raid, the DG is empowered to seize the books and documents of the company. E-mails and electronic evidence are of interest to competition authorities across the world and it is likely that the DG will also seize electronic devices such as computer hard-drives and removable storage devices. The DG also has the power to depose employees or persons connected with the investigation during the dawn raid.

The DG has, in fact, conducted dawn raids in India. While it has not, to date, conducted joint dawn raids with other jurisdictions, it is a possibility, given India's growing stature in the global economy.

The amnesty/leniency programme in India is governed by Section 46 of the Competition Act and the Competition Commission of India (Lesser Penalty) Regulations, 2009 (LPRs). The CCI may grant the first applicant a reduction of penalty of up to 100%. The second applicant may be granted a reduction of penalty of up to 50% and the third applicant may benefit with a reduction of penalty of up to 30%. It is important to note that the benefit of the leniency programme is not available once the DG's investigation report has already been received by the CCI.

 

The LPRs provide for obligations to be met by the applicants¹² and for the factors to be considered by the CCI while deciding the reduction of penalty¹³.

Recently, the CCI granted a reduction of penalty on the basis of an application made under Section 46 and the LPRs in the Indian Railways Cartel¹⁴, for the first time. The decision underlines the criteria that the CCI uses to determine the reduction in penalties in line with Regulation 3(4) of the LPRs such as the stage at which the disclosure was made, the quality of evidence already in possession of the CCI, and the quality of evidence provided by the applicant.

Leniency in India does not extend to compensation claims.

Section 3(4) of the Competition Act provides that any agreement among enterprises or persons at different stages or levels of the production chain in different markets, in respect of production, supply, distribution, storage, sale or price of, or trade in goods or provision of services, including (a) tie-in arrangement; (b) exclusive supply agreement; (c) exclusive distribution agreement; (d) refusal to deal; (e) resale price maintenance, shall be an agreement in contravention of Section 3(1), if such agreement causes or is likely to cause an AAEC in India.

The treatment of vertical agreements under Section 3(4) is unique as the practices covered within its ambit such as tie-in arrangements and refusals to deal, fall within the purview of "abuse of dominance" in more mature competition law jurisdictions such as the European Union (EU).

So far, there has been very limited guidance on vertical agreements from the CCI. The CCI tends to approach the subject of vertical arrangements with a rule of reason and it has been the practice of the CCI to uphold vertical restraints where it finds the market generally competitive. In the limited precedent available, the CCI appears to have not delved into the differences in price related and non-price related vertical restraints. Further, the CCI has not opined on the relevance of intra-brand competition in ensuring the competitiveness of the relevant market.

The CCI tends to look at EU competition law jurisprudence in its orders, so EU guidance on vertical agreements is somewhat useful to guide companies given that there is little case law and no real guidance given the CCI thus far on vertical agreements.

According to Section 53A(1)(a) of the Competition Act, if the Central Government, a State Government, a local authority, enterprise or any person, is aggrieved by any direction, decision or order of the CCI, such direction, decision or order may be appealed before the COMPAT. Accordingly, over the years, there have been several appeals against CCI orders.

In most appeals decided by the COMPAT recently, matters have been remanded to the CCI for fresh hearing for violation of principles of natural justice and due process. This includes significant decisions of the CCI in Cement Manufacturers Case¹⁵, Express Industry Council of India vs. Jet Airways and Ors.¹⁶, and Maharashtra State Power Generation Company Limited and Ors. vs. Mahanadi Coalfields Limited and Ors. and the connected matters¹⁷. Accordingly, great care needs to be taken in any enforcement matter to ensure that all due process/natural justice issues are preserved for argument before the CCI or for subsequent appeals.

 

Aside from decisions being remanded to the CCI for fresh hearing for procedural issues, the COMPAT has also dismissed decisions of the CCI on merits.¹⁸ __________________________

¹The authors can be reached at paku.khan@khaitanco.com, jayati.handa@khaitanco.com, and

arunima.chatterjee@khaitanco.com.

²Section 41(2) read with Section 36(2) of the Competition Act.

³1 USD = INR 67.17, 1 GBP = INR 83.79, 1 Euro = INR 72.19, 1 JPY = INR 0.59, as on 6 February 2017.

⁴Builders Association of India v. Cement Manufacturers' Association and Ors. Case No. 29 of 2010, available

at http://www.cci.gov.in/sites/default/files/292010.pdf.; In re: Alleged cartelisation by Cement

Manufacturers, RTPE No. 52 of 2006, available at http://www.cci.gov.in/sites/default/files/522006_1.pdf.

⁵The individuals within the scope of Section 48 include individuals by the enterprise that they were in charge

of, and were responsible for the conduct of the business of the enterprise.

⁶Appeal No. 05 of 2016, available at

2013/upload/PDFs/judgement-orders-2016/TRUE%20FINALORDER%20%20-

10.5.%20ASH%2009.05.2015%20%20APPEAL%20No.05%20of%202016(N).pdf.

⁷W.P.(C) 6258/2014, available at

2015/RAS26022015CW62582014.pdf.

⁸Suo Moto Case No. 03 of 2014, available at

http://www.cci.gov.in/sites/default/files/Order_Suo_Moto_03_of_2014%20(Final)_1.pdf.

⁹It must be noted that with the passing of the Finance Act, 2017 the COMPAT will be merged into the

National Company Law Appellate Tribunal ("NCLAT") and the appeals from the CCI will lie with NCLAT.

¹⁰As on date, one claim for compensation filed by MCX-SX is being considered by the COMPAT.

Rs800-crore-from-NSE.html.

¹¹Erstwhile Sections 240 and 240A of the Companies Act, 1956.

¹²The obligations include including ceasing any further participation in the cartel, providing "vital" disclosure

and relevant information, documents etc., cooperating genuinely, fully, continuously and expeditiously

(Regulation 3(1) of the LPR).

¹³The following factors will be considered with the CCI determines reduction of penalty: including the stage of

disclosure, the quality of the disclosure, the evidence already in possession of the CCI, and the facts and

circumstances of the case (Regulation 3(4) of the LPR).

¹⁴Suo Moto Case No. 03 of 2014, available at

http://www.cci.gov.in/sites/default/files/Order_Suo_Moto_03_of_2014%20(Final)_1.pdf.

http://compat.nic.in/compat-old-site/CAT-07-2013/upload/PDFs/judgementorders-

http://compat.nic.in/compat-old-site/CAT-07-

http://compat.nic.in/compat-old-site/CAT-07-

http://compat.nic.in/compat-old-site/CAT-07-2013/upload/PDFs/judgement-orders-dec2015/FINAL%20-