Home competition COVID-19: IMPACT ON CARTEL FORMATION IN INDIA

COVID-19: IMPACT ON CARTEL FORMATION IN INDIA

CARTELIZATION IN INDIA

The definition of the cartel is provided under section 2(c) of the Competition Act, 2002. It says:

  1. Association of producers, sellers, distributors, traders or service providers;
  2. Who enters into agreement among themselves
  3. To limit, control or attempt to control
  4. Production, distribution, sale or price of goods and services

Section 3(3) of the Act provides that if such cartelization leads to price fixing, output restriction, market division, high entry barrier then it shall be presumed to have an appreciable adverse effect on the competition.

But it provides an exception that if the agreement is entered by way of a joint venture and that increases the efficiency in production, supply, distribution, storage, acquisition then it will not be considered under cartelization. It can be said that the Competition Act does take care of the efficiency aspect even of the cartel. Export cartels are exempted from the application of Act.

The Act provides under section 32 read with section 19(1) the Competition Commission of India with extra-territorial jurisdiction which means that any cartel formed outside India can also be prohibited if it is having adverse effect on the competition in India.

Cartelization is a civil offence under the Act. The Act also provides for leniency programme for companies. It is supplemented by the leniency regulations of 2009. According to leniency programme the exemption will be given to the individual or entity which makes vital disclosure about the cartel formation in any industry.

CARTEL FORMATION: NEED OF THE HOUR

COVID-19 and, therefore, lockdown has greatly impacted the operational capacity of the businesses. It has made their existence difficult. The non-availability of labor, the lockdowns, and non-working due to the fear of infection has greatly made the businesses to have some coordination in certain activities, especially, the businesses providing essential products and services.

This extraordinary situation has led to new partnerships across industries. A fast moving consumer good giant, Marico Limited has entered into a tie-up with food technology platforms, Zomato and Swiggy. Recently, Pfizer and BioNTech entered into an unprecedented collaboration to co-develop and distribute a corona-virus vaccine. These agreements otherwise would have been challenged under the provisions of Competition Act.

So, the Competition Commission of India (CCI) has issued advisory, dated 19-04-2020, acknowledging the disruptions caused in supply chains due to COVID-19. It says that in order to cope with significant changes in supply and demand patterns arising out of this extraordinary situation, businesses may need to coordinate certain activities by way of:

  1. Sharing data on stock levels,
  2. Timings of operations,
  3. Sharing of distribution network and infrastructure,
  4. Transport logistics,
  5. R&D, production, etc.

to ensure continued supply and fair distribution of products (e.g. medical and healthcare products such as ventilators, face masks, gloves, vaccines etc. and essential commodities) &services (e.g. logistics, testing etc.).

The Competition Act under Section 19(3) enables the Commission, while conducting competition assessment, to have due regard, amongst others, to

  1. The accrual of benefits to consumers;
  2. Improvement in production or distribution of goods or provision of services; and
  3. Promotion of technical, scientific and economic development by means of production or distribution of goods or provision of services.

So, it can be said that the Act has in-built safeguards to protect businesses from sanctions for certain coordinated conduct if it results in increased efficiencies. However, the CCI cautioned in its advisory that only such conduct, which is necessary and proportionate to address the concerns arising out of Covid-19, will be considered and that businesses must not take advantage of the current situation to contravene any of the provisions of the Competition Act.

Few countries have also allowed for temporary collaborations in certain activities between competitors during this pandemic, there known as crisis cartel, like US and EU. The Australian Competition and Consumer Commission (ACCC) has granted interim permission to retailers such as Woolworths, Coles, Metcash and Aldi to share sales and stock level data in order to improve supplies during the COVID-19 crisis.

NOT A BLANKET EXEMPTION

Section 54 of the Competition Act empowers the central government to exempt any class of enterprise or any enterprise from the applicability of the provisions of the Act if it is necessary in the interest of the security of the State or public interest. National banks and vessel sharing agreements are exempted under this Act.

The advisory issued by the CCI is not a blanket exemption for any type of businesses collaboration entered during this pandemic. It specifically says that only such conduct, which is necessary and proportionate to address the concerns arising out of Covid-19, will be considered.

The realtor’s apex body Confederation of Real Estate Developers’ Associations of India (CREDAI) has written a letter to Minister of Housing and Urban Affairs alleging price cartelization and unfair trade practices by the manufacturers of cement and steel. The cement and steel rates have increased by 40-50 percent during the lockdown. Due to this increase, the cost of any construction and infrastructure project will increase which will negatively impact the ultimate consumers i.e. home buyers having a cascading impact on them. The advisory issued is for the benefit of consumers and if any cartel is leading to any contrary impact then it will be challenged under the Competition Act.

CONTRAVENING ITS OWN ADVISORY: SETTING A BAD PRECEDENT

CCI vide its order dated 10 July 2020 found that 10 enterprises had indulged in cartelization during the period 2009 to 2017. And, most importantly, the CCI instead of imposing fine or penalty over the enterprises it has just let them off with a warning. The reasons cited for taking such a measure like the current economic scenario, the enterprises being micro, small and medium enterprises (MSME), the cooperation during an investigation by the enterprises, etc. just shows the incapability of CCI in providing justice. This decision is contrary to its own advisory. According to an advisory issued, the collaboration among competitors would be acceptable only if it is necessary and proportionate to address concerns arising from COVID-19.

But the cartels formed between 2009 and 2017 cannot be said necessary to address the concerns arising from an unforeseen and unknown situation of COVID-19 at that time. The reason that enterprises being MSMEs, so exempted, is not a justified reason. Yes, the reason could have attracted less fine or penalty but waiving the penalty altogether is not accepted and allowed under the provisions of CCI. This decision of CCI has set a bad precedent for coming suits and will undoubtedly create a problem for CCI in deciding cases.

CONCLUSION

The existing Indian law on competition is flexible in assessing the appreciable adverse effect in competition and allows the CCI to undertake case by case analysis taking into account the extraordinary situation of that time.

The advisory issued by the CCI does not provide proper guideline for identifying whether the business is in, or contrary to, consumer interest. What will be included in consumer interest is left on CCI and will be decided on case to case basis and so can lead to inequality.

The recent decision of CCI is violating its own Advisory and so making the law laid useless and making fun of it. The present COVID-19 situation cannot be taken advantage of to contravene the provisions of the Act. It is for the benefit of consumers and it should not result in unequal treatment of the enterprises.

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This article is written by Rawal Shweta and edited by Rupreet Kaur Dhariwal.

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