INTRODUCTION
The spread of COVID-19 virus has seriously challenged the functioning of businesses, which also has challenged the well-settled metrics of antitrust enforcement. Therefore, the pandemic calls for a balancing act for antitrust enforcement. This unprecedented situation may induce businesses to resort to anti-competitive conduct and violate antitrust laws, which in the Indian context include anti-competitive agreements such as cartelization and minimum resale price maintenance which are prohibited under Section 3 of The Competition Act, 2002 (“Act”) or the abuse of dominant position which is prohibited under Section 4 of the Act.
The Competition Commission of India (“CCI”) rolled out an ‘Advisory’ that came as a relief for the businesses in the healthcare and essential services sector.[1] It acknowledged that businesses may need to collaborate to ensure continued supply and equitable distribution of medical equipment and other essential products-by exchanging information which is otherwise prohibited for instance, data, research and development, distribution network, etc.[2] However, the author argues that the CCI has taken an extremely lenient stance in recent cartelization cases, which cannot be justified by the conjoint reading of the Act and the Advisory. The repercussions of this soft-approach to cartels are far-reaching, and the businesses might take undue advantage and engage in profit maximization.
In this article, the author highlights the different approaches adopted by the various antitrust regulators across jurisdictions and comments on the CCI’s position. The author argues that the Advisory rolled out by the CCI is ambiguous, and in the Composite Brake Block (“CBB”) Manufacturers case, how CCI has failed to apply it in a coherent way.[3] The author examines the case in detail to highlight the shortcomings of CCI’s order, which is equivalent to granting a “COVID-pass.” The author finally concludes by suggesting certain recommendations which might provide new insight into the conundrum at hand.
Comparative Analysis of the Position Adopted by CCI and other Antitrust Regulators
Antitrust regulators across jurisdictions adopted unique approaches to cartelization, which at times have been contrary to the established antitrust rules set by the respective authorities.[4] The European Competition Network issued a joint statement on 23rd March, 2020, which stated that it would “not actively intervene against necessary and temporary measures put in place in order to avoid shortage of supply” and encouraged companies to seek informal guidance from their respective National Competition Authorities.[5] On 9th June, 2020, the German Bundeskartellamt exempted certain kinds of cooperation between automotive firms from antitrust enforcement.[6] The Norwegian antitrust regulator, Konkurransetilsynet, extended relief to the transportation sector by granting temporary exemptions. [7] This rare exemption allowed Scandinavian Airlines and Norwegian to coordinate their schedules to maintain minimum services for citizens during the outbreak.[8] Similarly, the Finnish Competition Authority gave exemptions to collaborations aimed at securing the essential supply of goods.[9] However, it also stated that it would resolutely intervene in cartels and in any abuse of domination, even during the state of emergency.[10] As per The Competition Act, 1998 (Groceries)(Coronavirus)(Public Policy Exclusion) Order 2020, [“Groceries Exclusion Order”] the UK Competition Authority provided a detailed list of services and products which may be exempted in light of the unprecedented COVID-19 pandemic.[11] It allowed temporary relaxation of competition law for groceries and supermarkets allowing them to work together to ensure continued supply of essential commodities during the crisis.[12]
The State Administration for Market Regulation, which is China’s competition authority, provided general guidance by announcing that it would offer exemptions to collaborations beneficial to technological progress, improvements in efficiency, and public interest.[13] New Zealand’s Commerce Commission (“NZCC”) published a guidance note that set out a list of factors that the NZCC will consider while exercising its discretion.[14] The Australian Competition and Consumer Commission released a notification stating that it would actively engage with businesses and extended relief to life and health insurance, oil and gas, telecom, airline, retail or food, healthcare or hospital industries.[15]
At this juncture, it is important to note that under Section 54 of the Act, the Central Government is empowered to exempt any class of enterprise or any enterprise from the applicability of the provisions of the Act. These exemptions may be granted if such exemption is “necessary”, “in the interest of the security of the State” or “public interest.”[16] Previously, the Ministry of Corporate Affairs has used this power to grant an exemption to nationalized banks and regional rural banks.[17] However, jurisprudence related to Section 54 as propounded by the Supreme Court suggests that such power must be used sparingly by the Central Government, only when deemed necessary.[18] Hence, it is justified that the government has not adopted this route and left it to the CCI to adjudicate the antitrust claims, even during the pandemic.
Pursuant to the Advisory released by the CCI on 19th April, 2020, it has duly acknowledged the difficulty faced by businesses in their operation due to the ongoing pandemic. It took cognizance of the supply chain disruption, primarily in the healthcare and essential service sector.[19] It also noted that the relief extended by the Advisory will be applicable so long the measures adopted by the companies are necessary and proportionate to tackle the current pandemic and it should not become a shield for non-essential collaborations to obtain economic benefits. It also highlights that the Act has inbuilt safeguards to allow collaborations to increase efficiency, and consumer benefit and such factors can be assessed as per Section 19(3) of the Act.[20]
However, the author argues that the non-exhaustive list of products and services that it considers essential is ambiguous considering the Advisory does not specify what constitutes “essential commodities.” For instance, masks and sanitizers were declared “essential commodities” on March 13, 2020, due to shortage of these commodities in wake of the pandemic.[21] It is submitted that the approach adopted by the UK Competition authority i.e. by providing an exhaustive list of essential commodities or like the approach adopted by NZCC by releasing a list of factors that they will take into consideration while exercising their discretion, would have been beneficial and would have provided much clarity. The Groceries Exclusion Order includes a list of eight types of agreement between groceries suppliers that will benefit from exclusion.[22] Some of these agreements relate to coordination on certain groceries to be supplied, coordination on the deployment of staff, sharing information about the services of logistic service providers, etc.[23] On the other hand, NZCC’s guidance note set out factors while deciding whether to take enforcement action in relation to certain conduct.[24] It mentioned that collaborations must be inclusive and not for instance, “exclude smaller or independent businesses from any efforts to co-operate or deny competing businesses access to goods and services.”[25] These factors or clear guidelines enable the businesses to assess the stance adopted by these anti-trust regulators and act accordingly. At a time when businesses are already under sheer distress, clear guidelines would have helped them react to turbulent market forces.
The Advisory also contains ambiguous terms like “necessary and proportional conduct,” which is difficult to interpret by businesses.[26] Moreover, the application of this Advisory to cartelization cases during the pandemic is dismal, which the author examines in the subsequent segment.
COVID-19 As a Blanket Safe Harbor Defence: Analysing The Composite Brake Block Manufacturers Case
Complaints were filed against railway vendors by different zonal departments of Indian Railways alleging a formation of a cartel. It was alleged that the cartel was in operation from 2009 to 2017 to rig the bidding process for the procurement of CBB. The Director-General (‘DG’) found extensive evidence against the vendors in the form of WhatsApp groups, text messages, call data records, etc., which clearly established that CBB manufacturers were in contravention of relevant provisions of the Act.[27] The documents suggested that they discussed bid prices and allocation of specific quantities per tender.[28]
In view of this evidence, the Commission concluded that “nothing can be more incriminating than these” however, it pointed that some of the parties are MSMEs with minimal annual turnover. In light of the COVID scenario and measures adopted by the Government of India to support the liquidity and credit needs of MSMEs, the regulator refrained from imposing penalties “in interest of justice” by highlighting the “peculiar circumstances of the case.”[29]
The lockdown severely affected these small and medium-sized firms from both the domestic demand and supply side.[30] The lockdown affected the import of raw materials and intermediates, which affected the supply chain of the MSME sector.[31] Non-performing assets in this sector are likely to increase as the moratorium on the loan-repayment ends, leading to more job cuts and financial distress.[32] It shall be noted that MSMEs were already struggling in capacity utilization and declining revenues in the lead-up to the pandemic.[33]
The fact that the MSME sector is in sheer distress is not disputed; however, the Advisory issued by the CCI must provide clarity on the extent of exemption that shall be granted to businesses falling under the MSME sector once anti-competitive behavior is established.
This ‘cease and desist’ order echoes the MRTP regime and is bereft of any rationale per se.[34] It is imperative to note that CCI differs from MRTPC in its scope and mandate. It is alleged that MRTPC has been lax and ineffective in performing its mandate.[35] Unlike MRTPC which had the mandate to issue ‘cease and desist’ order, CCI has the power to impose deterrent penalties on those who kill competition in the market.[36]
The order did not rely upon the Advisory that it issued and hence it cannot be argued that the conduct of CBB manufacturers were “necessary and proportionate.” Considering this anomalous lenient approach to cartels adopted by CCI lately, it will be difficult for businesses to interpret the meaning of “necessary and proportionate” conduct.
On comparing this with the more reasoned approach adopted by the High Court of New Zealand in Commerce Commission v. International Racehorse Transport NZ, where no monetary penalty was imposed but the judgment analyzed the financial stability of the defendant, who was severely hit by the lockdowns imposed during the pandemic.[37] After the detailed assessment, they concluded by stating that the defendant did not have the financial position to pay the penalty in light of the pandemic.
Therefore, it is submitted that a case-by-case financial analysis of the defaulting party to assess their ability to pay the penalty is imperative.[38] The lack of it is clearly reflected in CCI orders during the COVID-19 pandemic. By this lax approach, CCI has also ignored the two-prong test for determination of ‘relevant turnover’ as propounded in the Excel Corp case.[39] The Supreme Court’s judgment reinforced a proportional approach to calculate penalties under the Act. Hence, this approach goes against the well-established judicial precedents.
Conclusion
Antitrust authorities have adopted a more pragmatic and economic stance to tackle the financial distress caused by the COVID-19 pandemic. The primary objective of all competition authorities, across jurisdictions is to grant maximum possible relief to essential industries by balancing the public policy interest to keep anti-competitive behavior in check. In the absence of any precedent, due to this unforeseen circumstance, it is argued that businesses may find it difficult to interpret these ambiguously drafted orders/notifications/advisories.
Clear, unambiguous, definite advisories are the need of the hour to tackle this situation, and the CCI must apply the same coherently when faced with such case scenarios. This soft approach adopted by CCI is bereft of any reasoned logic and is not a welcome move. This might set a wrong precedent, thereby causing a spurt in anti-competitive behavior among the business community. This method of adjudication is similar to what Gautam Bhatia calls “Darbaar Jurisprudence” where “everything depends on the will of whomever sits on that chair, and that will can change every five minutes.”[40] In the context of the present case, the industry in question is fraught with anti-competitive activities and is prone to recidivism.[41]
It is absolutely imperative to safeguard the interests of MSMEs and other struggling businesses to keep them afloat, but that should be through a reasoned judgment after proper assessment of the financial condition of businesses involved. The Central Board of Direct Taxation has authorized income tax officers to share financial information with CCI through a notification.[42] The CCI should have adequately assessed the financial position before granting such absolute relief to the parties involved. It is expected that CCI shall take prompt corrective action to mitigate this alarming crisis and safeguard the interests of the consumers at large.
This article has been authored by Sourav Paul, a first-year student at West Bengal National University of Juridical Sciences(NUJS), Kolkata.
[1] Competition Commission of India, Advisory to Businesses in Time of COVID-19 (April 19, 2020).
[2] Id.,¶2.
[3] Competition Commission of India, In Re: Chief Materials Manager, South Eastern Railway, Case No. 03/2016.
[4] International Bar Association, The challenge of Covid-19 for competition authorities, September 22, 2020, available at https://www.ibanet.org/Article/NewDetail.aspx?ArticleUid=9DC34AA3-CB52-4F2F-B110-11413A42306E (Last visited on March 18, 2021).
[5] European Competition Network, Antitrust: Joint Statement by The European Competition Network (ECN) on application of competition law during the Corona crisis, March 25, 2020, available at https://ec.europa.eu/competition/antitrust/coronavirus.html (Last visited on March 6, 2021); See also Concurrences, The European Competition Network Issues a General Joint Statement on the Application of Competition Rules During the COVID-19 Outbreak, March 23, 2020, available at https://www.concurrences.com/en/bulletin/news-issues/march-2020/the-european-competition-network-issues-a-general-joint-statement-on-the (Last visited on March 6, 2021).
[6]Press Release, Bundeskartellamt, June 9, 2020, https://www.bundeskartellamt.de/SharedDocs/Publikation/EN/Pressemitteilungen/2020/09_06_2020_VDA.pdf?__blob=publicationFile&v=4?(Last visited on March 6, 2021).
[7] Konkurransetilsynet, Transportation Sector is granted temporary exemption from the Competition Act, March 19, 2020, available at https://konkurransetilsynet.no/transportation-sector-is-granted-temporary-exception-from-the-competition-act/?lang=en (Last visited on March 6, 2021).
[8] Roschier, Norway allows cooperation between competitors in the transportation sector-exemptions creep back into competition law? March 20, 2020, available at https://www.roschier.com/newsroom/norway-allows-cooperation-between-competitors-in-the-transportation-sector-exemptions-creep-back-into-competition-law/ (Last visited March 18, 2021).
[9] Press Release, Finnish Competition and Consumer Authority, March 23, 2020, https://www.kkv.fi/en/current-issues/press-releases/2020/23.3.2020-exceptional-circumstances-caused-by-the-coronavirus-to-affect-the-application-of-the-competition-act/ (Last visited on March 6, 2021).
[10] Latham and Watkins LLP, Impact of Covid-19 New Exemptions under Antitrust Law, February 1, 2021, available at https://m.lw.com/thoughtLeadership/covid-19-impact-new-exemptions-under-antitrust-law (Last visited on March 18, 2021).
[11] The Competition Act, 1998 (Groceries)(Coronavirus)(Public Policy Exclusion) Order 2020, March 27, 2020, https://www.legislation.gov.uk/uksi/2020/369/made (Last visited on March 6, 2021).
[12] Thomson Reuters, COVID-19: Competition law implications of the coronavirus crisis, available at https://ca.practicallaw.thomsonreuters.com/w-024-8054?originationContext=document&transitionType=DocumentItem&contextData=(sc.Default)&firstPage=true#co_anchor_a727360 (Last visited on March 20, 2021).
[13] State Administration for Market Regulations, State Administration for Market Regulation on Supporting Epidemic Prevention and Control Announcement on Anti-Monopoly Law Enforcement and Resumption, April 5, 2020, available at http://gkml.samr.gov.cn/nsjg/fldj/202004/t20200405_313859.html (Last visited on March 6, 2021).
[14] Commerce Commission New Zealand, Business Collaboration under COVID-19 Guidelines (May 2020).
[15] Australian Competition and Consumer Commission, COVID-19 (coronavirus) information for business, available at https://www.accc.gov.au/business/covid-19-coronavirus-information-for-business (Last visited on March 6, 2021).
[16] Khaitan & Co., Covid-19 Not A Blanket Safe Harbor Defence: Competition Act of India, available at https://www.lexology.com/library/detail.aspx?g=193d7b26-d3ea-41e7-a4f3-3c7c089f3306#_ftn10 (Last visited on March 6, 2021).
[17] Ministry of Corporate Affairs, Exemption conferred pursuant to Section 54(a) to Nationalized Banks and Regional Rural Banks, F. No. Comp.-07/04/2017-Comp-MCA (Notified on August 30, 2017).
[18] Jalan Trading Co. (Pvt. Ltd.) v. Mill Mazdoor Union, (1967) AIR 691.
[19] Supra note 1, ¶1.
[20] Supra note 1, ¶2.
[21] The Hindu, COVID-19: Masks and Sanitizers are now Essential Commodities, March 28, 2020, available at https://www.thehindu.com/news/national/covid-19-coronavirus-masks-and-sanitizers-are-now-essential-commodities/article31081035.ece (Last visited on March 6, 2021).
[22] Herbert Smith Freehills, Covid-19: Pressure Points: UK Competition Act Exclusion Orders Provide Further Guidance on Types of Agreement Permitted and Process Required in order to Benefit from the Exclusions (UK), April 1, 2020, available at https://www.herbertsmithfreehills.com/latest-thinking/covid-19-pressure-points-uk-competition-act-coronavirus-exclusion-orders-provide, (Last visited on March 20, 2021).
[23] Id.; See also Ashurst, The Impact of Covid-19: UK Competition law, potential exclusions and exemption, September 7, 2020, available at https://www.ashurst.com/en/news-and-insights/legal-updates/the-impact-of-covid-19—uk-competition-law-potential-exclusions-and-exemption/ (Last visited on March 20, 2021).
[24] Simpson Grierson, New Guidance on Business Collaborations and Proposed New Authorization Powers during Covid-19, May 7, 2020, available at https://www.simpsongrierson.com/articles/2020/new-guidance-on-business-collaborations-and-proposed-new-authorisation-powers-during-covid-19 (Last visited on March 20, 2021).
[25] Id.
[26] National Law School of India Review, Crisis Cartels During the Pandemic: A Beacon of Hope for the Indian Economy? November 18, 2020, available at https://nlsir.com/crisis-cartels-during-the-pandemic-a-beacon-of-hope-for-the-indian-economy/ (Last visited on March 6, 2021).
[27] Supra note 2, ¶22.
[28] Supra note 2, ¶29.
[29] Supra note 2, ¶35.
[30] Pravakar Sahoo, COVID-19 and Indian Economy: Impact on Growth, Manufacturing, Trade and MSME Sector, Global Business Review 21(5) (September 2, 2020).
[31] Id.
[32] The Economic Times, Small companies’ NPAs set to go up, job cuts on cards, July 23, 2020, available at https://economictimes.indiatimes.com/small-biz/sme-sector/small-companies-npas-set-to-go-up-job-cuts-on-the-cards/articleshow/77118256.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst (Last visited on March 6, 2021).
[33] The Indian Express, Explained: Why are Medium, Small, Micro Enterprises worst hit by Covid-19 lockdown? May 7, 2020, available at https://indianexpress.com/article/explained/coronavirus-india-lockdown-msme-sector-crisis-government-relief-package-6395731/ (Last visited on March 6, 2021).
[34] Bloomberg Quint, Why Is the Competition Regulator Going Easy on Cartels? July 26, 2020, available at https://www.bloombergquint.com/law-and-policy/why-is-the-competition-regulator-going-easy-on-cartels (Last visited on March 6, 2021).
[35] Jaivir Singh, Monopolistic Trade Practices and Concentration of Economic Power: Some Conceptual Problems in MRTP Act, 35 Economic and Political Weekly (December, 2000).
[36] The Economic Times, CCI and MRTPC: Two regulators with different minds, June 3, 2009, available at https://economictimes.indiatimes.com/policy/cci-and-mrtpc-two-regulators-with-different (Last visited on March 20, 2021).
[37] Commerce Commission v. International Transport Racehorse NZ, (2020) NZHC 1716.
[38] Sonam Mathur, Ashu Bharghav, Cartels in Time of Covid-19: Competition Commission of India Adopting a Soft Approach, Kluwer Competition Law Blog, available at http://competitionlawblog.kluwercompetitionlaw.com/2020/12/28/cartels-in-the-time-of-covid-19-competition-commission-of-india-adopting-a-soft-approach/ (Last visited on March 6, 2021).
[39] Excel Crop Care Ltd. v. Competition Commission of India and Ors., (2017) 8 SCC 47, ¶87-89.
[40] Gautam Bhatia, January 11, 2021, available at https://twitter.com/gautambhatia88/status/1348546520262594560 (Last visited on March 6, 2021).
[41] Supra note 11.
[42] Ministry of Revenue, Sharing of Financial Information with CCI, F. No. 225/98/2019-ITA-II (Notified on July 30, 2020).
Picture Source : Economic Times.
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