Today’s guest post is by Avinash Amarnath, who is with the Indian law firm Vinod Dhall and TT&A. [Mr. Vinod Dhall was a member and acting chair of the Competition Commission of India from 2003-2008.] Avinash writes often on competition law developments in India and we are fortunate that he will be a guest contributor.
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Introduction to Indian cartel law
Let me start by saying what a pleasure it is to be writing for readers of Cartel Capers and thank Bob for making me a part of this wonderful initiative. Given that competition law in India is relatively new, I thought it might be useful to give a brief overview of Indian cartel law in my first post.
To further its policy on liberalisation, privatisation and globalisation of its economy, India enacted its modern competition law (known formally as the Competition Act, 2002) in 2002. The provisions on cartels, vertical agreements and abuse of dominance came into force in May 2009. The agency vested with the enforcement of the competition law is the Competition Commission of India (CCI) with an appellate tribunal (COMPAT) to hear appeals from decisions of the CCI.
While India’s cartel law is inspired by the law in more evolved jurisdictions such as the European Union (EU) and the United States (US), the Indian cartel law is not a word for word copy from either of these laws and is a unique hybrid of the EU and US law. The Indian law on anti-competitive agreements is structured in a three-fold manner. First, Section 3(1) contains a general prohibition on all agreements that cause/likely to cause an appreciable adverse effect on competition (AAEC) in India. Second, Section 3(3) of the Indian statute declares that horizontal agreements between competitors in the nature of price-fixing, limitation of output, market sharing or bid rigging will be presumed to cause an AAEC. However, as clarified by the CCI in several of its decisions, parties can rebut this presumption if they are able to show that certain pro-competitive efficiencies outweigh the anti-competitive effects. This is similar to the ‘restriction by object’ approach adopted in the EU for cartels of the most pernicious kind. Section 3(3) also covers decisions of trade associations and has an exemption for efficiency enhancing joint ventures. Third, under Section 3(4), vertical agreements will be assessed on a ‘rule of reason’ approach to ascertain whether they cause or are likely to cause an AAEC in India.
It appears that horizontal agreements not falling under the specific categories listed in Section 3(3) such as standardization agreements and R&D agreements will be assessed on a ‘rule of reason’ approach under the general prohibition under Section 3(1). The CCI in a recent decision (Ramakant Kini v. Hiranandani Hospital) clarified that there could be agreements that did not fall under Section 3(3) or Section 3(4) and such agreements could still be caught by the general prohibition under Section 3(1).
A peculiar feature of the Indian competition law is that the factors to be taken into account while conducting the competition analysis (i.e., the test of AAEC) are specifically mentioned in the statute.
The definition of the term ‘agreement’ under the Indian statute is wide and includes even a mere understanding or action in concert. Whether this covers the concept of a ‘concerted practice’ as defined in the EU is still unclear. The CCI and the COMPAT have clarified that a finding of an agreement can be based on circumstantial evidence alone and that the evidentiary standard of proof for finding an agreement is a preponderance of probabilities. They have further clarified (in line with position in the US and EU) that mere price parallelism is insufficient to constitute evidence of an agreement and some “plus factors” have to be shown to prove an agreement.
Although the CCI has a “whistleblower”/”leniency” program for cartels, there have been very few leniency applications primarily due to lack of awareness about the program. Most cartel decisions of the CCI have arisen out of complaints by customers/other affected parties or initiation of investigations by the CCI of its own motion.
As far as procedure is concerned, at present, the Director-General’s office (the investigative wing of the CCI) is empowered to conduct dawn raids with the approval of a magistrate. A proposed amendment to the statute seeks to vest this power of approval with the Chairperson of the CCI.
Penalties for cartels under the statute can be up to 10% of the company’s turnover or up to 3 times its profits. Percentages in cartel cases are generally high. In the Cement cartel decision, the CCI imposed a fine of twice the profits of the companies. In a rather contentious recent decision, the COMPAT held that penalties can be imposed only up to 10% of the ‘relevant turnover’ i.e, the turnover arising from the products/services which were affected by the cartel. However, since then the COMPAT itself seems to have receded from this position. There are provisions in the statute for imposing fines on individuals within the company who were responsible for the cartel and these have been used against the members of a chemist and druggist association in a recent case. However, the Indian statute does not provide for criminal sanctions against individuals.
I’ve tried my best to capture all relevant aspects of the cartel law in India in this post. There may be some omissions of course and I’m happy to try to answer any questions that readers may have. [email protected].