[By Prakriti Singh]
The author is a student at HNLU.
The Indian Competition Law Regime is bracing for the first amendment to the Competition Act, 2002. The Competition (Amendment) Bill, 2022 has proposed substantial changes for both the arms of the Indian Competition Law Regime, i.e., merger control and cartel enforcement. Cartels are considered to be a heinous offense under the antitrust law. These twenty years of the Competition Act have witnessed a robust anti-cartel drive in India. Unlike the USA, India does not consider cartels to be a crime. However, the imposition of huge penalties is the Competition Commission of India’s (“CCI”) weapon to create a deterrent effect on the cartels.
The Amendment Act has proposed several progressive changes to the Competition Act, 2002. In line with the Competition Law Review Committee Report, it has included hub and spoke cartels under the Act. The Leniency Regime goes hand in hand with the Cartel enforcement. The Amendment Act seeks to revamp the leniency provisions by permitting the withdrawal of leniency petition and dealing with the disclosure of multiple cartels.
While the Amendment Act has taken an active step in recognizing different categories of cartels and advancing the leniency provisions under the Indian Competition Law Regime, it has failed to cure the existing mischief in the cartel enforcement law in India. The primary objective of cartel enforcement law is to alleviate cartel formation and thereby promote competition in the market. The statistics presented in India Chapter of Asia Pacific Antitrust Review, 2022 clearly demonstrates the failure to achieve this goal.
The primary cause is the inconsistency in cartel enforcement on the part of the CCI. In order to prevent the death of enterprises in the wake of the pandemic, the CCI has abstained from imposing penalties in a number of cases. However, this soft approach might be antithetical to the antitrust regime. This article aims to present an analysis of the missing parts in the 2022 Amendment on the cartel enforcement arm. It will suggest some changes in the cartel enforcement provisions in order to strengthen the regime.
Cartel enforcement in India
Monopolies and Restrictive Trade Practices Act, 1969 is the predecessor of the Competition Act, 2002. One of the mischiefs pointed out in the 1969 Act by the Raghavan Committee was the absence of any provision to reduce cartel activity. The 2002 Act brought in provisions to prevent cartel activities in the economy which are extremely secretive and difficult to prosecute. The CCI (Lesser Penalty) Regulation, 2009 was notified in order to enhance the cartel detection rate which has led to the evolution of the cartel enforcement regime. As opposed to relying on mere circumstantial evidence, the CCI has now transitioned to relying on the evidence gathered from dawn raids.
Analysing the inconsistency in the Cartel enforcement- Case Study of the Railway Sector
The Railway market is a monopsony market prone to cartel formation. The first ever order of the leniency regime was related to cartelization in the Railway sector. In recent times, cartel detection in this market has been made possible by the exercise of the Leniency application. However, the inconsistent approach of the regulator is problematic. It even bears the threat of discouraging the leniency petitions.
On 10 June 2022, the CCI released an order imposing penalties on seven firms. These seven firms were engaged in cartelization in the supply of protective tubes. The detection of this cartel was made possible by one of the member firms in the cartel. The Director General in his report had submitted evidence of cartelization relating to the polyacetal protective tube in the Indian Railways. The CCI, after a detailed analysis, concluded that the communication between the firms clearly demonstrated the existence of a cartel arrangement.
The CCI took a harsh stance on the cartel arrangement. The member firms attempted to justify the presence of a cartel in the monopsony Railway market. However, the CCI strictly demonstrated an anti-cartel stance. The monopoly of the Indian Railways is no good ground to engage in cartelization and manipulate the bidding process. Except for the whistleblower, all the firms were penalized. Even in this cartel, there were MSMEs facing economic disruptions caused by the pandemic. However, the CCI, instead of issuing a stringent warning, imposed penalties on these firms.
In 2021, in Eastern Railway, Kolkata v. M/S Chandra Brothers and Others, the CCI found evidence of cartel activity in the Axle Bearings market. This cartel was also detected as a result of a Lesser Penalty Application. Even the suppliers, in this case, attempted to justify a cartel in a monopoly market. This cartel also included MSME enterprises bearing the brunt of the pandemic. The CCI abstained from imposing penalty and rather issued a cease-and-desist order.
In Re: Chief Materials Manager, South Eastern Railway v. Hindustan Composites Limited and Others, the CCI had found evidence of cartel in the supply of Brake Blocks to the Railways. However, it restrained from imposing any penalty as the MSMEs were adversely affected by the pandemic. In this case, the CCI, analysed the turnover of the Opposite Parties, on the basis of which, it issued a cease-and-desist order. Similar leniency towards MSMEs engaging in cartelization in the supply of cartel brushes to the Railways was demonstrated in Mr. Rizwanul Haq Khan, Dy. Chief Material Manager, Office of the Controller of Stores, Southern Railway v Mersen (India) Private Limited and Another.
Thus, within a single market, the CCI’s approach has been replete with inconsistency, that too, while deciding cases with similar circumstances. This inconsistency causes mischief on two counts. Firstly, it dilutes the magnitude of deterrence originally envisioned by the cartel enforcement regime. Secondly, it also dilutes the efficacy of the Leniency Programme. If the applicant has no incentive of getting lenient treatment compared to the other cartel members, the entire process of filing a Lesser Penalty Application would seem to be futile.
A stringent approach to cartels- the cure for the mischief of inconsistency?
In the past two years, a major chunk of inconsistency in the CCI’s approach emanated as a response to the economic adversities brought by the pandemic. The Government has been conscious of aiding the economic recovery of the MSME sector. This has been reflected in several other commercial laws. The Insolvency & Bankruptcy Code was amended to introduce a Pre-Pack Insolvency Resolution Process for the MSMEs.
However, the accommodative efforts between the IBC and the Competition Act could have drastically different impacts. IBC aims to expedite the insolvency resolution process of enterprises. Default in the repayment of debt is an absolutely normal activity, even in the matured insolvency regimes. However, cartelization is a serious offense under any antitrust regime. If not busted, cartels will hinder new entrants from the concerned market.
Even the 2022 Amendment has recognized the fact that cartel enforcement needs a high degree of stringency. Settlements and Commitments are being introduced under the Indian antitrust regime which will encourage speedy resolution of cases through negotiations. However, this new mechanism will remain aloof from cartel enforcement. Cartel enforcement requires an approach that effectively deters potential violators. If the MSMEs can engage in cartelization in adverse circumstances, they must be liable to pay the penalty.
Concluding remarks
Chapter VI of The Competition Act, 2002 lays down Penalty provisions. It is time to include a separate clause for Cartel enforcement in the Chapter. This would be reflective of stringency towards cartels. Except for the Leniency Applicant, all the members of the particular cartel should be penalized. This would provide certainty to the cartel enforcement arm of Indian competition law. Through the recognition of the hub and spoke cartel, the Competition Act will advance in terms of recognition of different forms of cartels. Through the Leniency Plus provisions, the antitrust regime will progress in terms of the rate of cartel detection. The adoption of a reasonable magnitude of stringency towards cartels will complement these reforms in the Competition Law Regime.