Enforcement Highlights – Looking back on the Past Year

Anshuman Sakle, Partner and Anisha Chand, Principal Associate, Cyril Amarchand Mangaldas.
Cite as: (2018) PL (Comp. L) March 94

Anshuman Sakle, Partner                                                                                                           Anisha Chand, Principal Associate


In the last 9 years since its inception, the Competition Commission of India (CCI) has examined more than 850 enforcement decisions and imposed penalties in more than 100 cases[1]. The year 2017 particularly witnessed the considerable amount of action starting with the Supreme Court of India (Supreme Court) passing two landmark decisions on substantive issues of competition law. These decisions set the ball rolling for the year, with the CCI too issuing some of its firsts on contentious issues. This article briefly discusses some of these key decisions over the past year.

Supreme Court’s first substantive order

The Supreme Court’s order[2] being arguably the first of its decisions on substantive issues arising under the provisions relating to anti-competitive agreements under the Competition Act, 2002 (Act), upheld the order of the erstwhile Competition Appellate Tribunal (Compat) in a case of alleged cartelisation by members of a film and television artists’ trade union in the state of West Bengal.

The CCI’s approach to dealing with horizontal agreement cases, as evidenced from its previous jurisprudence, is that horizontal agreements are presumed to have an appreciable adverse effect on competition and consequently, there is no requirement to define a relevant market in such cases. However, the Supreme Court laid down a divergent view, stating that even in cases dealing with horizontal agreements, the definition of a relevant market is of paramount importance in order to effectively deal with such violations of the Act. The Supreme Court also widened the defining factors to include “effected markets”, a concept not explicitly present in the Act, thereby also establishing the requirement to prove the anti-competitive effects of horizontal agreements.

Penalty: Relevant turnover and the principle of proportionality

Although the CCI is empowered to impose the highest economic penalties[3] amongst all regulators in India, such wide powers were not accompanied by any penalty guidelines or regulations which resulted in a highly contentious issue with respect to the quantum of penalty to be imposed, methodology  to be adopted and the reasoning to be provided by the CCI for arriving at such penalty as well as the practice of taking into account the “total turnover” of the enterprise as opposed to the turnover derived from the relevant business activity or division that was found to be engaged in the anti-competitive activity.

The Supreme Court in Excel Crop Care Ltd. v. Competition Commission of India[4], has largely put this debate to rest by affirming the concept of “relevant turnover”. This matter reached the Supreme Court from the order of Compat wherein the Tribunal, while affirming the findings of the CCI pertaining to contravention of the Act by the opposite parties, reduced the quantum of penalty by applying the concept of “relevant turnover”. Based on the fact that the opposite parties in this case were multi-product companies, the Compat held that, although the terminology set out in the Act only refers to “turnover”, this should be interpreted to read as the “relevant turnover” (i.e. the turnover arising out of the business activity or division held to be contravening the Act) and not the entire turnover generated by an enterprise, akin to the approach followed in other anti-trust jurisdictions.

The Supreme Court in upholding the Compat’s order, laid down a two-step approach to determine the quantum of penalty, providing much-needed certainty in this respect, namely, that (i) the penalty should be based on the determination of the relevant turnover; and (ii) the penalty must be determined after considering the aggravating and mitigating circumstances relevant to each case.

Resale price maintenance: A significant decision

In its first substantive order re resale price maintenance (RPM), the CCI imposed a penalty of INR 87 crores (approx. USD 13.54 million) on Hyundai Motors India Ltd. (HMIL)[5], which is engaged in the sale and distribution of Hyundai cars and its parts in India. In this case, the CCI held that HMIL was inter alia engaged in the practice of RPM by fixing the maximum retail price of the cars (which included the pre-fixed margin of the dealers) and the maximum discount which could be offered by the dealers through its discount control mechanism. Further, the CCI also found that HMIL mandated its dealers to purchase engine oil at a specific price, only from its two designated vendors and in the event of non-compliance by the dealers, HMIL threatened to terminate the dealership agreement.

Abuse of dominance in high technology markets

Recently, while rejecting allegations of abuse of dominance by Ola Cabs in Bengaluru[6], the CCI reiterated the position, that in high technology markets, “high market shares, in the early years of introduction of a new technology, may turn out to be ephemeral”. Considering that such markets function on the principle of “networks effect”, market leadership position can be fragile or transient during the initial stage of evolution of the market, being the stage for “network creation”. Thus, acknowledging that the objective of competition law is to “preserve competition” and not “protect competitors”. Additionally, the CCI has shown restraint in regulating market behaviour, particularly to give impetus to new entrants and prevent chilling of competition. To this end, the CCI has also clarified that competition is a means towards a greater end which presumes that competition in or for the market inter alia leads to desirable outcomes for the consumers, ensuring wide variety of quality products/services at best possible prices, and is not an end in itself. Thus, clearly evidencing its intent to not intervene in cases where the harm accrues to competitors alone.

India’s first leniency order

In January 2017, the CCI published its very first order[7] on a leniency application made by a member of a cartel. The order is the culmination of a suo motu investigation undertaken by the CCI based on information forwarded by the Central Bureau of Investigation, including details of an e-mail that contained the quantity and rates to be quoted by the opposite parties in respect of four tenders floated by the Indian Railways and Bharat Earth Movers Ltd. for the supply of electrical equipment. Given that the rates quoted by the opposite parties in two of the four tenders were identical to those mentioned in the e-mail, the CCI held that the e-mail circulated amongst the opposite parties was direct evidence of an anti-competitive arrangement.

The e-mail and other records were corroborated by the statements and submissions of the leniency applicant, M/s Pyramid Electronics (Pyramid). The mutual agreement to rig bids and share the market by mutual allocation of tenders was held to be in contravention of the provisions of Section 3 of the Act.

Following the amendments in the Leniency Regulations, although Pyramid was granted first marker status in terms of the Leniency Regulations and was entitled up to 100% reduction in penalty, the CCI granted a 75% reduction in the penalty imposed on Pyramid and also on the individual who was in-charge of the conduct of Pyramid, who cooperated with the CCI during the investigation.

Conclusion

The year 2017 has been a remarkable year in terms of development of competition law jurisprudence in India. Although still relatively nascent to other mature anti-trust jurisdictions, the enforcement regime grew by leaps and bounds in the span of a year with the CCI, the erstwhile Compat and the Supreme Court dealing with several substantive and procedural competition law issues and providing much-needed certainty and robustness to the enforcement framework. The CCI has also delivered certain landmark orders in the course of the year which is expected to have a positive impact on fostering an environment for competition law compliance by all relevant stakeholders.

 

Anshuman Sakle is a Partner with the Competition Law Practice at Cyril Amarchand Mangaldas and can be contacted at anshuman.sakle@cyrilshroff.com. Anisha Chand is a Principal Associate with the Competition Law Practice at Cyril Amarchand Mangaldas and can be contacted at anisha.chand@cyrilshroff.com. Authors would like to thank Ms Smita Andrews for her contribution.

[1] As on 31-3-2016, there were 101 orders passed by the CCI under S. 27 of the Competition Act, 2002 (Annual Report of the CCI at p. 14).

[2] Competition Commission of India v. Coordination Committee of Artists and Technicians of West Bengal Film and Television, (2017) 5 SCC 17.

[3] Under the Act, the CCI can impose up to 10% of the average turnover for the last three preceding financial years in case of anti-competitive and abuse of dominance. Further, in case of cartels, the CCI has the power to impose penalties on each cartel member up to three times of its profit or 10% of its turnover, whichever is higher, for each year of the continuance of such cartel.

[4] (2017 ) 8 SCC 47.

[5] Fx Enterprise Solutions India (P) Ltd. v. Hyundai Motor India Ltd., 2017 SCC OnLine CCI 26.

[6] Fast Track Call Cab (P) Ltd., Meru Travel Solutions (P) Ltd. v. ANI Technologies (P) Ltd., Case No. 6 & 74 of 2015 .

[7] Cartelisation in respect of tenders floated by Indian Railways for supply of Brushless DC Fans and other electrical items, 2017 SCC OnLine CCI 56.

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