Today’s guest post by Avinash Amarnath reports on several actions by the Competition Commission  of India

India update 2015 Vol 3

Its been quite a busy fortnight for the Competition Commission of India (CCI) especially on the cartel front. The CCI has issued three substantive decisions (two infringement decisions and one decision finding no infringement after a detailed investigation) last week which I have analysed below.

Another chemist and druggist association penalised

In its ninth decision against various chemist and druggist trade associations in India, the Competition Commission of India (CCI) fined the Himachal Pradesh (a state in India) Chemist and Druggist Association 10% of its average turnover for imposing rules requiring:

• a no-objection certificate from it before a pharmaceutical company could appoint a stockist in the state of Himachal Pradesh; and

• requiring compulsory payment of ‘product information service’ charges by the pharmaceutical company before launching a drug in the state.

The CCI found that these rules cumulatively resulted in limiting supply in the market and restricted pharmaceutical companies’ ability to launch new drugs onto the market. The president of the trade association was fined 8% of his average income for his liability as an individual.

An interesting takeaway from this decision is the CCI’s analysis of whether pharmaceutical companies can also be found liable for forming an agreement with the trade association to deny stockistship and limit supplies for the want of a no-objection certificate from the trade association. The CCI found that agreements between pharmaceutical companies and the trade association would not qualify as horizontal agreements (falling under Section 3(3) of the Competition Act) or as vertical agreements (falling under Section 3(4) of the Competition Act) as they are neither engaged in identical or similar trade of goods or provision of services  nor operating at different stages or levels of the production chain. However, relying on a previous decision (Ramakant Kini v. Hirandandani Hospital and Ors, a discussion on which appeared in my first post on Cartel Capers), the CCI observed that such agreements could nonetheless be examined under the general prohibition on anti-competitive agreements (Section 3(1) of the Competition Act) and would be subject to a rule of reason analysis. However, in the instant case, the pharmaceutical companies were not found liable as there was no evidence to indicate an agreement between them and the trade association.

The full order of the CCI can be accessed here.

CCI finds no evidence of a cartel amongst builders but still passes strong observations against exploitative and unfair practices adopted by these builders

 The CCI recently closed its investigation into an alleged cartel among builders in India finding insufficient evidence of a cartel agreement amongst them. The allegation was that the builders had used the Confederation of Real Estate Developers’ Association of India (“CREDAI”), a trade association as a platform to fix the contractual terms to be entered into with their customers. The only evidence found by the CCI was that of commonality of clauses in the contracts, which it held was insufficient to establish collusion. While no penalty was imposed on the parties, the CCI did heavily criticise the contractual terms of the builders and observed that they were unfair and exploitative. The CCI recommended that the parties take appropriate voluntary measures to address these concerns and also emphasized the need for a sectoral regulator in the real estate sector.

An interesting takeaway from this decision is the CCI’s observation on the issue of cross-examination. Under the implementing regulations, the CCI or the Director General (DG) can direct a party to submit evidence through oral or written submission. One of the parties in this case sought cross-examination of the informant. The CCI observed that an opportunity of cross-examination may be granted to the parties only if: a) evidence is led by way of oral submission; and b) the CCI or the DG consider it necessary or expedient; the necessity or expediency depending on the factual matrix of each case. The CCI stated that as a general rule, when information supplied by a party is based on ‘personal knowledge’, the other party should be granted the right to cross-examine the party giving evidence. On the other hand, when the information provided by a party is documentary, the other party need not be granted the right to cross-examine the party giving evidence. This seems to be in contrast to the provisions of the Indian Evidence Act, 1872 (which governs the rules of evidence in regular court proceedings) where a party may be cross-examined in relation to previous statements made by him in writing and relevant to the matter in question.

The full order of the CCI can be accessed here.

CCI finds truckers’ society guilty of cartel and abuse of dominance

The CCI fined the Kiratpur Sahib Truck Operators Co-operative Transport Society Limited, a cooperative society of truck operators in the area of Kiratpur, Punjab and its individual office bearers 10% of the average turnover and 5% of the average incomes respectively for collectively fixing prices for trucking services and limiting supply of trucking services by not allowing non-member truckers to operate in the area.  Interestingly, the CCI found these acts to be in violation of the Competition Act both as a cartel of the individual truckers who were members of the society and as an abuse of dominance by the society. However, the individual members of the society were not fined as they were not investigated or examined by the DG in their individual capacity.

The CCI found that the society itself constituted an ‘enterprise’ (the Indian equivalent of the concept of an ‘undertaking’ under EU competition law) as it was actively engaged in activities relating to provision of freight transport services. The CCI, while noting that trade associations usually do not qualify as ‘enteprises’ as they do not carry on any economic activity themselves, observed that this could only be determined by examining the functional aspects of the activities of the association in each case. In the present case, the CCI found that the society entered into freight transport contracts in its own name and got such contracts executed through its members according to its own internal procedure/ management and the customer had no dealing with the various members directly. The customer made payment for the services to the society who then passed on the payment to the concerned member after retaining a commission/ its own administrative charges. The society was then found to be dominant in the relevant market for provision of services of goods transportation by trucks in and around Kiratpur area in Punjab as there was no other enterprise providing such services in this area. The CCI found that the society had abused its dominance by imposing excessive prices on customers and taking various actions including threats and violence to prevent any other truckers from operating in the area.

The same acts were also found to be amounting to a cartel amongst the individual members of the society who were supposed to operate independently but had instead collectively fixed prices and ensured that no other truckers operated in the area.

It appears odd that the CCI felt the need to penalise the society under both cartel and abuse of dominance provisions especially given the fact that the CCI held upfront that the individual members of the society could not be proceeded against. In my view, what the CCI seems to be getting at is that while the society itself being a dominant enterprise had abused its dominant position in its capacity as an enterprise, the individual members who also constituted enterprises had formed a cartel under the aegis of the society. The logical follow on to this finding, of course, would have been to fine the individual members of the society under the cartel provisions, which was however not done due to due process issues.

The full order of the CCI can be accessed here.

Avinash Amarnath can be reached at [email protected].