Case BriefsTribunals/Commissions/Regulatory Bodies

Competition Commission of India (CCI), New Delhi: Coram comprising of Ashok Kumar Gupta (Chairman) and U.C. Nahta and Sangeeta Verma (Members), dismissed an application as the allegations in regard to abuse of dominant position or any other were not found to have been established.

The present case was filed by the Informant under Section 19(1)(a) of Competition Act, 2002, alleging contravention of provisions of Section 4 of the Competition Act, 2002 by Gujarat State Board of School Textbook (Opposite Party).

Opposite party used to publish school textbooks in various languages for the students of standard 1st to 12th. Syllabus for these textbooks was prescribed by the Gujarat Council of Educational Research and Training (GCERT) that was accepted by the Gujarat Government. It has also been submitted that OP has been entrusted with the responsibility of publishing various study materials in the State of Gujarat.

Allegations placed against OP

Opposite Party, without any stipulation in the terms of the contract, started discriminating between the printers by allotting more work to printers using web offset printing. Various printers decided to upgrade their machinery which resulted in the dependence for work on the OP as the customised up-gradation was done for OP’s work.

Opposite Party introduced a new system vide its Tender, as per which provided rates for the different types of category for printing & binding jobs.  After the opening of the commercial bids, it was discovered that 21 bidders had quoted identical bids of minus 31% of the base rate.

The Informant alleged that the said price was collusively decided by the said 21 bidders, forming a cartel. Thus, the said information formed to be the subject-matter of the investigation.

Informant alleged that OP is a dominant enterprise for the printing of textbooks in the State of Gujarat and is thus solely responsible for publishing of study material. Further, it added that the responsibility of getting the printing work done, confers a monopsonistic power on OP in respect of procurement of printing and binding services from the printers and the OP has abused its dominant position by imposing unfair and discriminatory price and conditions in purchase of such services.

Informant along with the allegation of abuse of dominant position also filed a separate application under Section 33 of the Act praying – an interim relief in nature of an interim order to OP to immediately stop the discriminatory price of excluding the Informant.

Analysis & Conclusion

Commission considered the above-stated matter and directed the OP to explain the procedure followed for empanelment of qualified bidders as per its tender and the reasons to exclude the 32 bidders.

Submissions of the OP are briefly stated under and which were noted by the Commission:

  • OP’s main objective is to make basic education affordable. Since the printing cost will directly affect the cost of textbooks which are made available to the students, the Tender cannot be termed as anti-competitive considering that the requirement of printing textbooks is for making basic education affordable.
  • Informant is venting his personal grievance in guise of the present information to coerce the OP to empanel him for the work of textbook printing.
  • Price for the printing of web-offset is actually a more cost-effective way of printing as there is major reduction in labour cost due to advanced technology
  • OP never specified any contractual condition with regard to upgrading of machinery which was, in fact, voluntary conduct on the part of printers to procure majority work against their competitors. Moreover, there is an alternative market for provisions of services of printing as the number of government schools have reduced to 76 % in the State of Gujarat.
  • total production capacities as declared by respective L1 bidders (26 bidders – deriving common L1 bidders for sheet-fed and web offset) were not found to be sufficient by the Opposite Party to complete the estimated requirement in the given timeline
  • Empanelled printers were required to submit a certain bank guarantee as per the stipulated terms. However, most printers were not able to furnish the required bank guarantee.

Commission dealt with the application very carefully and noted the submissions by the parties, further it found no merit in the application filed and no abuse of dominant position under Section 4 was established. [Ashokbhai M. Mehta v. Gujarat State Board of School Textbook, 2019 SCC OnLine CCI 30, decided on 07-08-2019]

Case BriefsTribunals/Commissions/Regulatory Bodies

Competition Commission of India (CCI): The Bench comprising of Ashok Kumar Gupta (Chairperson), U.C. Nahta and Sangeeta Verma, Members, closed the matter in terms of Section 26(2) of Competition Act, 2002 on finding no contravention of provisions of Section 3(3) read with Section 3(1).

In the present case, Informant has alleged the contravention of provisions of Section 3(3) of Competition Act, 2002 by All India Sugar Trade Association (OP-1) and it’s Chairman (OP-2).

It has been alleged that OP-2 has been actively running discussion forums and chat groups with leading sugar traders/millers/refiners and other unknown persons on “Whatsapp”. It has been stated that the stated forum is being used in order to circulate “price sensitive information” like sugar prices and forthcoming policy changes by Government in relation to the sugar industry, which would directly impact the domestic sugar market.

Allegations that have been placed by the Informant against the OPs are as follows:

  • Collecting and disseminating pre-determined purchase price of sugar amongst cartel members through “WhatsApp” and SMS;
  • Restrict the market for other competitors whose bids are based on market forces;
  • Vitiate the tender process so that an enterprise floating the tender has no opinion but to accept the prices determined by OPs;
  • Control the supply of sugar in the market where it is sold to wholesalers and consumers;
  • Affecting player’s of the market in other states (U.P/Karnataka) who are selling/supplying sugar in the same market as the OPs because the former are compelled to lower the prices of sugar due to the elimination of market forces.

Analysis & Decision

Commission on inquiring on the basis of the allegation with respect to “price sensitivity” of data by the Informant found that it could not be addressed by the Informant. Informant had stated that the average prices at APMC were lower than prices on WhatsApp group which could only be a result of “Collusion”. Further, the Commission found no merit in the same.

With regard to the information purportedly exchanged on “WhatsApp” group, Commission observed that it is not clear from the records as to how such alleged acts can be said to have affected “free play of the market forces” with respect to sugar prices.

Commission went on to give the logic that, members of “WhatsApp” group also comprised of millers. There is no rationale as to how millers (as sellers) who have an interest in getting higher prices of sugar, as against that of traders, who want to procure at lower prices, would be agreeable to sell sugar at lower prices.

Furthermore, the sugar commodity is subject to provisions under the Essential Commodities Act, 1955 and orders issued thereunder and, thus, the final market price of sugar is dependent upon numerous factors.

Therefore in view of the above, the Commission finds no case of contravention or provisions against OPs. [Ravi Pal v. All India Sugar Trade Assn. (AISTA), Case No. 25 of 2018, Order dated 22-03-2019]

Hot Off The PressNews

As reported by the media, Joaquin “El Chapo” Guzman — Drug Lord, was convicted after a three month trial in regard to the industrial-scale smuggling operation. 

Cartel boss El Chapo was found guilty of 10 federal criminal accounts against him, including engaging in a continuing criminal enterprise, conspiracy to launder narcotics proceeds, international distribution of cocaine, heroin, marijuana and other drugs, and use of firearms.

There’s a supermax prison in Florence, Colo. , It’s the highest-security penitentiary in the United States. Since opening in 1994, no prisoner has escaped from the Administrative Maximum Facility — known as “the ADX” — one reason former members of federal law enforcement expect the Sinaloa cartel drug lord Joaquín “El Chapo” Guzmán will spend the rest of his life there.

[Source: CNN and Washington Post]

Case BriefsTribunals/Commissions/Regulatory Bodies

Competition Commission of India (CCI): This reference was filed before Ashok Kumar, Chairperson and  Augustine Peter and U.C. Nahta, Members by the Chief Materials Manager/Sales, Eastern Railway i.e. informant under Section 19(1)(b) of the Competition Act, 2002 against Laxven Systems and Medha Servo Drives (P) Ltd., alleging contravention of provisions of Section 3 of the Competition Act.

Facts of the case were that informant floated a tender for procurement of Microprocessor Control and Fault Diagnostics System for Electric Locos as per Research Designs and Standard Organisation. As per the information brought before Commission, there were initially 4 approved vendors but an amendment was brought in the criteria for selection due to which 2 vendors were delisted. Laxven did not participate in the impugned tender due to which by default, Medha won the tender who quoted a high rate. Negotiation by informant were not accepted and they were forced to accept the high rate quoted by Medha thus, Laxven was alleged for non-participation as a result of bid suppression and formation of a cartel.

Commission observed the fact that Laxven had not participated in other tenders conducted in the 3 Railway Zones and the reason being that they had not developed a Prototype for the required System. Thus, the allegation of bid suppression and cartelization was unsubstantiated. The high rate quoted by Medha was found to be justified due to the improved system which was to be supplied to the informant. Commission on finding no contravention of Section 3 of the Act directed the information to be closed in terms of Section 26(2) of the Act. [Chief Material Manager v. Laxven Systems, 2019 SCC OnLine CCI 1, dated 02-01-2019]

Case BriefsSupreme Court

Supreme Court: A Bench comprising of A.K. Sikri and Ashok Bhushan, JJ. dismissed an appeal filed against the judgment of Bombay High Court whereby it held that Competition Commission of India had no jurisdiction to pass order in the instant matter as the issues were covered by Indian Telegraph Act, 1885 and Telecom Regulatory Authority Act, 1997 and the appropriate forum was the Telecom Dispute Settlement and Appellate Tribunal (TDSAT).

In the present matter, the Court was faced with determining the width and scope of the powers of the CCI under the Competition Act, 2002 pertaining to telecom sector vis-a-vis the scope of the powers of TRAI under the TRAI Act, 1997.

Factual Matrix

On 21-10-2013, Reliance Jio Infocomm Ltd. was granted a licence under Section 4 of the Telegraph Act by the Department of Telecom (DoT) for providing telecommunication services in all 22 circles in India. Soon thereafter, RJIL executed interconnection agreements with existing telecom operators including Airtel, Idea and Vodafone. RJIL  requested these companies to augment Point of Interconnection (POIs) for access as the capacity already provided to it was causing huge POI congestion, resulting in call failures on its network. According to RJIL, these companies intentionally ignored the aforesaid request.

Subsequently, in November 2016, RJIL filed information under Section 19 of the Competition Act before the CCI, As per RJIL, the respondent service providers, along with Cellular Operators Association of India, formed a cartel and acted in an anti-competitive manner which is prohibited by the Act. The CCI passed order dated 21-4-2017 under Section 26(1) as per which it came to a prima facie conclusion that case for investigation was made out and directed the Director-General to cause investigation in the case. Aggrieved thereby, respondents filed writ petitions before the High Court which quashed the order of CCI on the ground that CCI lacked jurisdiction to entertain such complaints/information filed under Section 19 as such matter falls within the exclusive jurisdiction of another regulatory authority, namely, TRAI.

Challenging this order passed by the High Court, the appellants were before the Supreme Court.

The Supreme Court considered the matter on following points:

(a) Jurisdiction of CCI

After noting salient features of Competition Act and TRAI Act, the Court concluded that as TRAI is constituted as an expert regulatory body which specifically governs the telecom sector, the aforesaid aspects of the disputes were to be decided by TRAI in the first instance. These were jurisdictional aspects. The High Court was right in concluding that the concepts of “subscriber”, “test period”, “reasonable demand”, etc, arising out of TRAI Act and the policy so declared, are the matters within the jurisdiction of TDSAT under the TRAI Act. Only when the jurisdictional facts in the present matter were determined by the TRAI against the respondents, the next question would arise as to whether it was a result of any concerted agreement between the respondents. It would be at that stage the CCI can go into the question as to whether violation of the provisions of TRAI Act amounts to ‘abuse of dominance’ or ‘anti-competitive agreements’.

(b) Whether TRAI has the exclusive jurisdiction to deal with matters involving anti-competitive practices to the exclusion of CCI altogether?

The function that is assigned to CCI is distinct from the function of TRAI. It is within the exhaustive domain of CCI to find out as to whether a particular agreement will have an appreciable adverse effect on competition within the relevant market in India. Such functions not only come within the domain of CCI, but TRAI is not at all equipped to deal with the same.

The Court, thus, did not agree with the appellants that CCI could have dealt with this matter without availing the inquiry by TRAI. It also did not agree with the respondents that insofar as the telecom sector is concerned, the jurisdiction of the CCI under the Competition Act is totally ousted.

In incidental issues, the Court decided that the petitions field by other companies before the Bombay High court were maintainable. When such jurisdictional issues arise, the writ petition would clearly be maintainable. In view of the above discussion, the Court dismissed the appeal while upholding the decision of the High Court. [CCI v. Bharti Airtel Ltd., 2018 SCC OnLine SC 2678, decided on 05-12-2018]

OP. ED.

The concept of cartelisation is not new in the market. Cartel includes an association of producers, sellers, distributors, traders or service providers who, by agreement amongst themselves, limit, control or attempt to control the production, distribution, sale or price of, or, trade in goods or provision of services.[1] The cartel was however not defined under the Monopolies and Restrictive Trade Practices Act, 1969 (MRTP Act). It is pertinent to note that the cartelisation per se is not illegal in India. The agreement entered into by the virtue of the members of cartel is deemed illegal under the present Competition Act, 2002 as well as its predecessor i.e. MRTP Act. Apart from the statute, Competition Commission of India (CCI), Competition Appellate Tribunal (COMPAT) and courts in plethora of cases affirmed the definition of cartel given under the Act.[2]

The illegal agreement entered into by the cartels, body corporate of any enterprise comes under the radar of the competition law of India. Enterprise means a person or a department of the Government, who or which is, or has been, engaged in any activity, relating to the production, storage, supply, distribution, acquisition or control of articles or goods, or the provision of services, of any kind, or in investment, or in the business of acquiring, holding, underwriting or dealing with shares, debentures or other securities of any other body corporate, either directly or through one or more of its units or divisions or subsidiaries, whether such unit or division or subsidiary is located at the same place where the enterprise is located or at a different place or at different places, but does not include any activity of the Government relatable to the sovereign functions of the Government including all activities carried on by the departments of the Central Government dealing with atomic energy, currency, defence and space.[3] The definition given to enterprise is wide enough to cover every bit of the player in market and not let any player in the market to evade the applicability of Competition Act. Functional approach has been adopted while determining whether an entity in respect of a particular activity was an enterprise for the purpose of Competition Act or not. Various activities of the enterprise are to be considered individually and if some of the activities of the enterprise are in the nature of sovereign functions that does not mean that all other activities of the enterprise have to be considered non-economic.[4]

Agreement includes any arrangement or understanding or action in concert (i) whether or not, such arrangement, understanding or action is formal or in writing; or (ii) whether or not such arrangement, understanding or action is intended to be enforceable by legal proceedings.[5] Hence, the competition is not restricted to the written agreement for the enforceability and the monitoring of market players by the authorities. There has to be some meeting of mind and conscious common practice adopted by that “association”, however loosely or informally knit. Hence, the similarity of conduct, without any meeting of minds, could not come within the ambit of the term “agreement” as defined in Section 2(b) of the Act.[6]

Anti-competitive agreements

Chapter 2 of the Competition Act, 2002 prohibits the illegal agreements among other things. Section 3 of the Act, prohibits the anti-competitive agreements among the enterprise or association of enterprise determining the purchase or sale prices, agreement to limit supply or production, sharing market or source of production, collusive bidding or bid rigging. This section further prohibits tie-in agreement, exclusive supply agreement, and exclusive distribution agreement, agreement on refusal to deal and agreement on resale price maintenance.

This section however contains savings provision to the Copyright Act, 1957; Patents Act, 1970; Trade Marks Act, 1999; Geographical Indications of Goods (Registration and Protection) Act, 1999; and Semiconductor Integrated Circuits Layout-Design Act, 2000.

In Film & Television Producers Guild of India v. Multiplex Assn. of India[7], it was held that that the collective decision taken by OPs not to exhibit the films of the members of the informant in order to determine the price of their services is an anti-competitive agreement under Section 3 of the Act. The collective decision was the key to hold the defaulter responsible for the contravention of the provision of this Act.

The practices of anti-competitive agreements disturb the market situation and tend to create monopoly and abuse of the new players in the market. The question that comes before us is what happens in the case of anti-competitive agreements in a single economic entity and single legal entity. This will be answered in the next part of this article.

Single economic entity (SEE)

This concept was first formulated in the European Commission Guidelines on horizontal cooperation which notes that companies that form part of the same “undertaking” within the meaning of Article 101(1)[8] are not considered to be competitors for the purposes of these guidelines. Article 101 only applies to agreements between independent undertakings. When a company exercises decisive influence over another company they form a single economic entity and, hence, are part of the same undertaking. The same is true for sister companies, that is to say, companies over which decisive influence is exercised by the same parent company. They are consequently not considered to be competitors even if they are both active on the same relevant product and geographic markets.[9] According to the existing jurisprudence, SEE does not have individual functioning capacity. The SEE works on the pleasure of the owner company and have no separate decision-making capabilities. It is however evolved from the concept of holding company and subsidiaries as given in Companies Act, 2013. Subsidiary companies are those in which holding company can exercise control in the composition of Board of Directors and exercises or controls more than one-half of the total share capital.[10] It is a well-settled principle that every company i.e. even subsidiary is a separate legal entity.[11] However, holding companies and subsidiaries can be considered as single economic entity and consolidated balance sheet is the accounting relationship between the holding company and subsidiary company, which shows the status of the entire business enterprises.[12] The subsidiary may be treated as a separate legal entity, yet it is seen that the affairs are totally controlled only by holding company, in other words, if subsidiary has no independent authority to take any decision on its own and they are out and out guided only by holding company, would be in a position to hold that subsidiary and holding company constitute a single economic unit.[13] The concept of subsidiary and holding company is a concept of company law however; the SEE doctrine is exclusive concept of antitrust law.

Exclusion of SEE from the scope of Section 3 of Competition Act, 2002

According to Chapter 2 of the Competition Act, 2002 the scope and ambit of Section 3 extends only over the agreements entered into among two or more enterprise, association of enterprise, persons, group of persons or person and enterprise. The prerequisite of the anti-competitive agreement according to the plain reading of the Act is that, such agreements must be entered between two or more enterprises.[14] However, the member of SEE does not form a separate enterprise to be covered under the definition of enterprise as discussed earlier. They form a part of single enterprise.

In Exclusive Motors (P) Ltd. v. Automobili Lamborghini SpA[15], the COMPAT held that:

… so far as the contravention under Section 3 was concerned, there had to be a proved agreement between two or more enterprises. It held that the agreement between M/s. Lamborghini, the opposite party and its group company Volkswagen India could not be considered to be an agreement between the two enterprises as envisaged under Section 2(h) of the Act. … the agreements between entities constituting one enterprise, could not be assessed under the Act. In that the Commission relied on the internationally accepted doctrine of “single economic entity”.

Further, apart from SEE, there are certain agreements that are exempted from the scope of the Competition Act. For instance, joint ventures agreements that are per se exempted from the scope of anti-competitive agreements under Section 3 of Competition Act. The R&D agreements are also not covered by Section 3 of the Act. In modern economies, innovation is an important feature of productivity and competitiveness. Innovation requires research, experimentation, and the implementation of new ideas into marketable products, services, or technology. Thus, the ability of firms to engage in such research without fear of antitrust attack is essential to economic growth.[16] However, R&D agreements are not per se exempted from the scope of the Act as the R&D agreement has increased the product efficiency and for the consumer welfare. The investment in research and development and to innovate, leading to survival and growth of such companies which keep consumer preference at the top of agenda. While considering impact of an agreement on competition, the potential of damaging competition is also to be seen from the angle of consumer welfare.[17]

Conclusion

The objective of the Competition Act is to provide economic development of a country, to prevent practices having adverse effect on competition, to promote and sustain competition in markets, to protect the interests of consumers and to ensure freedom of trade carried on by other participants in markets, in India, and for matters connected therewith or incidental thereto.[18] The main objective behind the enactment of Section 3 is to prevent collusion among the players of market that causes disturbance to new entrants or the pre-existence players. The single economic entity doctrine provides for vast exploitation of the basic objective of the Act. Many foreign investors purchase the shares of multiple companies indulged in a particular field to enter the Indian market but would not exercise any substantial control over those companies. This would be sufficient for Indian players to enter into anti-competitive agreement and evade themselves from the purview of Competition Act and defraud the administration by invoking the doctrine of single economic entity. Thus, this doctrine is paving a way for a very dangerous jurisprudence, which gives a legal yet morally wrong way to use the vacuum present in the antitrust litigation. The Indian law framers did not anticipate the danger of the doctrine of single economic entity while the drafting of antitrust market laws. The need of the hour is to make a more stringent law to prevent the abuse of the single economic entity doctrine to achieve the true objective of the antitrust law.

 

*  5th year student, BBA LLB (Hons.), Sastra University.

[1]  S. 2(c), Competition Act, 2002.

[2]  Builders Assn. of India v. Cement Manufacturers’ Assn., 2016 SCC OnLine CCI 46; All India Tyre Dealers’ Federation v. Tyre Manufacturers, 2012 SCC OnLine CCI 66.

[3]  S. 2(h), Competition Act, 2002.

[4]  Arshiya Rail Infrastructure Ltd. v. Ministry of Railways, 2012 SCC OnLine CCI 54.

[5]  S. 2(b), Competition Act, 2002.

[6]  Jyoti Swaroop Arora v. Tulip Infratech Ltd., 2015 SCC OnLine CCI 26.

[7]  2013 SCC OnLine CCI 89.

[8]  Treaty on the Functioning of the European Union (TFEU).

[9]  Guidelines on the applicability of Art. 101 of the Treaty on the functioning of the European Union to horizontal cooperation agreements (2011).

[10]  S. 2(87), Companies Act, 2013.

[11]  Balwant Rai Saluja v. Air India Ltd., (2014) 9 SCC 407 : AIR 2015 SC 375.

[12]  Vodafone International Holdings BV v. Union of India, (2012) 6 SCC 757 : (2012) 107 CLA 63.

[13]  Samayanallur Power Investment (P) Ltd. v. Covanta Energy India (Balaji) Ltd., 2005 SCC OnLine Mad 619.

[14]  Yashoda Hospital and Research Centre Ltd. v. Indiabulls Financial Services Ltd., 2011 SCC OnLine CCI 9.

[15]  2014 SCC OnLine Comp AT 1, para 4 : 2014 Comp LR 110

[16]  Ginsburg, Antitrust, Uncertainty, and Technological Innovation, 24 Antitrust Bull. 635 (1979).

[17]  Ramakant Kini v. Dr. L.H. Hiranandani Hospital, 2014 SCC OnLine CCI 15.

[18]  Preamble, Competition Act, 2002 (12 of 2003).