Author name: CBCL

[By Sehaj Mahajan] The author is a student of Bharati Vidyapeeth University, New Delhi.   Introduction Recently, the Indian leniency regime has displayed a fair bit of uncertainty on a particular proposition i.e. Whether or not an admission of guilt is necessary in case of a lesser penalty application. On 27 June 2017, the Competition Commission of India (CCI) in Suo Motu Case No. 06 of 2017 (Beer Cartel case) received a Lesser Penalty application filed by Anheuser-Busch InBev SA/NV (AB InBev), containing vital disclosures of cartelisation among five major beer manufacturers. AB InBev, along with all the other lesser penalty applicants, was granted a reduction in penalty to be paid to the regulator. The order of the CCI, which held four of the five beer manufacturers guilty of cartel activity, was challenged before the National Company Law Appellate Tribunal (NCLAT). The appellants argued that a leniency applicant is not sufficient to establish guilt. The NCLAT maintained that a lesser penalty application is considered to be an admission of guilt. Penning down the judgment, Justice Rakesh Kumar stated that enterprises cannot be allowed to “approbate and reprobate simultaneously”, which confirms that enterprises could not be allowed to seek the benefit of a lesser penalty and deny the existence of a cartel. The NCLAT’s analysis drew a comparative framework and analogized the leniency regime with plea bargaining in criminal law. A plea bargaining agreement, essentially involves the accused admitting to the crime in exchange for a more lenient sentence. In their view, just as a plea bargaining agreement, a lesser penalty application also establishes guilt purely on the basis of the application being presented to the regulator. If we boil this down to a grassroots level, a reduction in penalty can only be granted once the party has either admitted wrongdoing, or malfeasance has been established. Hence, the element of autogenous assistance in uncovering proof of cartel activity cannot be disregarded. Regime in India As far as the Indian regime is concerned, moving a lesser penalty application is not considered ipso facto evidence of cartelisation. Point (a) of Regulation 4 of the CCI Lesser Penalty Regulations 2009 (Lesser Penalty rules) allows the CCI to make only a prima facie assumption of cartelisation. Under Point 1(A) of Regulation 3 of the Lesser Penalty rules, an applicant is required to cease all participation in a cartel at the time of filing a lesser penalty application. This can be construed as an admission of participation in cartel activity and of infringement of Section 3(3) of the Competition Act, 2002. The precarious nature of the lesser penalty regime is evident in the lack of clarity on three things – Whether admission of guilt is a condition precedent to furnish a lesser penalty application. Whether an applicant can be found innocent of any wrongdoing, despite filing a lesser penalty application. Whether the existence of a cartel or participation in it, can be presumed solely on the basis of a lesser penalty application.  As far as the existence of a cartel is concerned, the order of the NCLAT in the Beer Cartel appeal has specifically stipulated that the existence of a cartel is assumed once a whistle-blower comes forward. But, in the past, applicants have been exonerated, despite coming forward and making material disclosures. In Suo Motu Case No. 01 of 2017 (Flashlights case), it was established that the parties had exchanged sales data, production data and price information. This was, however, not considered sufficient to amount to a violation of Section 3(3)(a) which talks about the determination of sales or purchase prices by entities engaged in identical trades. The CCI, in its observations, stated that there was no cogent evidence to show that the actions of the parties resulted in determining sale prices. No increase in the prices of flashlights in the markets also contributed to CCI’s decision in the concerned case. This clearly demonstrates that despite assuming the position of a lesser penalty applicant, enterprises and individuals can be absolved. In consonance with the Flashlights case, the Beer Cartel case charted a similar path. Three lesser penalty applicants -, AB InBev (Applicant Number 1),  United Breweries Ltd (Applicant Number 2) and Carlsberg India Pvt Ltd (Applicant Number 3) were held guilty. But, it is important to point out that their guilt is established through evidence unearthed during the DG investigation stage. It is also of consequence that Crown Beers India Pvt Ltd, joint lesser penalty applicant with AB InBev, was not found guilty of any wrongdoing. The judgment of the CCI in the Beer Cartel case inadvertently reaffirmed the precedent in the Flashlights case. In both cases, enterprises were found innocent despite being lesser penalty applicants. If consistency in adjudication is material, then the judgment of the NCLAT can be considered an outlier. Provided the NCLAT decision is to be considered bereft of any legal flaw, then a lesser penalty applicant has admitted the existence of a cartel and their participation in it, by petitioning for a lesser penalty. If the precedent set in the Flashlights case and the Beer Cartel case is considered supreme, then the lesser penalty application has to be followed up with more potent evidence to pronounce the parties guilty. If the NCLAT order is to prevail, the CCI will have to change its approach towards dealing with cartel cases in the future. Contemporary Jurisdictions In the United Kingdom, the Competition and Markets Authority has provided detailed guidelines for leniency applicants, both corporate and individual. Applications are only considered once the applicant enterprise submits an admission of their guilt in cartel activity. Individual applicants must admit participation in the cartel offence under Section 188 of the Enterprise Act, 2002. In the United States, the Department of Justice and the Federal Trade Commission jointly administer the realm of Competition Law enforcement. The Antitrust Division Leniency Policy and Procedures provide procedural guidelines to leniency applicants, for antitrust violations in the United States. These rules provide incentives for corporations and individuals to self-report antitrust

[By Rajdeep Bhattacharjee and Tanishq Rahuja] The authors are students of Symbiosis Law School, Pune.   Introduction The Competition (Amendment) Bill, 2022 proposes the addition of sub-section d in section 5(B) of the Competition Act, 2002. This new provision requires companies to have “substantial business operations” in India to come under the act’s scrutiny. The Director General of the CCI can only launch a probe if there is suspicion of adverse effects on competition in the relevant market in India under sections 5 and 6 of the principal acts. Without a specific definition provided in the bill, the interpretation of the term “substantial business operations” is unjustifiably wide. Hence, it is significant to note that how the term “substantial business operations” is finally construed by the Indian judicial system may determine how the parameter is applied. As a result, in instances of amalgamations, the ability to initiate a probe without any objective parameters may compromise the generality that the law is intended to promote. Therefore, this development opens a wide ambit of interpretations and may be misused by entities as a substantive loophole in this legislation as there exists no specific and distinctive criteria which is laid down for an entity to be regarded as occupied in substantial business operations. Addressing the Issue The lack of a clear definition of “substantial business operations” in the Competition (Amendment) Bill, 2022, poses a threat to the objective efficacy which is sought to be bolstered by this Bill. The primary concern arising out of this ambiguity is that of objectivity and legal inconsistencies that may arise due to the lack of clarity. A probable outcome of this might be prolonged litigation as was in the case of the redundant Monopolies and Restrictive Trade Practices Commission. Hence, such an approach could potentially undermine the fundamental objective of the amendment to make India an attractive destination for foreign investment and businesses by creating unnecessary uncertainty and jeopardizing investment inflows. Furthermore, the absence of an objective definition creates a legislative cavity that is not addressed by the subsequent sub-section/s of the amendment either. Such legislative cavity leaves room for interpretation, which could be exploited by businesses to evade scrutiny. Therefore, definition of “substantial business operations” is essential for the effective implementation of the legislation and the promotion of a level playing field for enterprises. Moreover, without a precise definition, unforeseen repercussions may arise, defeating the primary objective of the act. Possible interpretations Some possible objective criteria which can be employed to measure the extent of substantial business operations, are as follows: –           Geographic scope –           Market share –           Revenue –           An amalgamation of the above three factors The manner in which a lack of objective definition may be misused by entities to escape scrutiny are as follows: Setting up a shell company, wherein they will have a negligible presence in India while the majority of its business operations are conducted through the parent company outside India. Creating complex ownership structures, by setting up multiple subsidiaries or using a network of affiliated companies which will jeopardize the ability of CCI to determine whether the company has substantial business operations in India or not. Misrepresenting data by understating revenue or market share in India, or by overemphasizing the significance of its operations outside India. In furtherance of addressing this conundrum, this piece strives to briefly analyse the future possibilities and comparative models to mitigate the ensuing roadblocks which may arise due to lack of objectivity/clarity. Locus standi of United States of America The Supreme Court of America (SCOTUS) in the case of Goodyear Dunlop Tires Operations, S.A. v. Brown has held that mere presence of substantial sales in a particular jurisdiction does not amount to an entity having substantial business operations in a specific jurisdiction. It was further held that mere exercise of legitimate jurisdiction of a US court over a foreign enterprise, does not indicate that the enterprise necessarily owns or controls a significant amount of tangible or intangible assets there. The fact that a foreign defendant has a US subsidiary with sizeable assets typically will not be enough to “pierce the corporate veil” of the subsidiary and establish a claim against the parent, when full control is not with the parent. Consequently, in accordance with the Horizontal Merger Guidelines, market share, customer base, and resources are evaluated to identify “substantial business operations” for a horizontal merger and weigh the effects on market competition. In the landmark case of U.S. v Waste Management, Inc, the court stated that to determine whether an entity has substantial business operations, it is quintessential to determine whether the entity in question is engaged in competitive activity in the relevant market or markets, and if the disputed activities are competitive in nature. Despite that, it is noteworthy that the US lacks a specific definition of substantial market operations or a threshold, assessing on a case-by-case basis. This jeopardizes business operation standardization and creates investor uncertainty. Precedents have led to some standardization over time. Generally, determination of “substantial business operations” is based on various factors such as: Revenue Assets Physical presence. The German & Austrian Model Through the Joint Guidance on Transaction Value Thresholds for Mandatory Pre-Merger Notification, issued jointly by the German Federal Cartel Office along with the Austrian Federal Competition Authority, the definition of substantial domestic operations has been clearly established. The criteria laid down by the regulatory bodies in their joint notification for assessing substantial domestic operations can be summarised as: Measurement of Domestic Activity; Geographical Allocation of Domestic Activity; Market Orientation and Significance of the same. The sections dealing with the same are Section 35(1a) no. 4 GWB of the German code and its Austrian counterpart, Section 9(4) KartG. In accordance with these sections, merger control will come to the fore where the target company whose acquisition is to be done or its acquisitions have substantial operations in either of the respective jurisdictions. The criteria are also mentioned wherein the specific thresholds for domestic and global turnover have been