GCR Asia Pacific Antitrust Review 2019 – India: Cartels
The Indian Competition Act 2002 (Competition Act) is the law regulating anticompetitive conduct in India. The Competition Commission of India (CCI) is the statutory authority in charge of competition law enforcement. The CCI is aided by its investigative arm, the Office of the Director General (DG), in achieving the objectives of the Competition Act, namely preventing practices causing an appreciable adverse effect on competition (AAEC), promoting and sustaining competition in markets, protecting the interests of consumers and ensuring freedom of trade.
The Competition Act regulates three areas of conduct:
• anticompetitive agreements, including cartels;
• abuse of dominant position; and
• combinations (mergers, acquisitions and amalgamations).
Section 3 of the Competition Act prohibits certain anticompetitive agreements such as agreements between or among competitors (horizontal agreements, including cartels) and agreements between enterprises or persons at different stages or levels of the production chain (vertical agreements). To establish the existence of a cartel, the CCI must find that competitors had entered into an agreement to fix prices, limit supply, share markets or rig bids. The Competition Act broadly defines the term ‘agreement’ to mean:
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 been forceable by legal proceedings.
Once a cartel or horizontal agreement is found to exist it is presumed to cause an AAEC unless the agreement relates to an efficiency-enhancing joint venture. This presumption is rebuttable. However, the CCI’s decisional practice suggests that this burden has been an onerous one, and alleged cartelists have rarely succeeded in rebutting this presumption. The CCI also has the power to search and seize documents, and to collect evidence through dawn raids in order to establish the existence of a cartel agreement.
The CCI is empowered to initiate an inquiry into anticompetitive agreements or unilateral conduct of its own volition, on receipt of any information or on the basis of a reference from the central or a state government or a statutory authority. Decisions of the CCI may be appealed to the National Company Law Appellate Tribunal (NCLAT) and, finally, to the Supreme Court of India (SC).
Developments relating to bid rigging
Bid rigging refers to agreements between competitors or enterprises engaged in identical or similar production or trading of goods or provision of services that have the effect of eliminating or reducing competition for bids or adversely affecting or manipulating the process for bidding. Bid rigging is prohibited under the Competition Act and is presumed to cause appreciable adverse effect on competition. The CCI considers bid rigging to be illegal regardless of the party that won the contract, the party that made the lowest bid and the amount of the bid that was made by other parties. In fact, section 3(3)(d) of the Competition Act is applicable to all existing and prospective bidders with respect to any tender, regardless of whether they were engaged in the business of manufacture or sale of the purported infringing product at the time of bidding. However, in the absence of any evidence of collusion among participating bidders and non-participating companies, or that participating bidders had prior knowledge regarding non-participation of other companies, the allegation of an illegal agreement between the two is not sustainable.
Lately, the CCI has been very proactive in examining bid-rigging cases, especially those involving public procurement. This is evident from the fact that the CCI has initiated investigations into potential bid rigging on its own volition in multiple instances. The CCI may rely on smoking gun or circumstantial evidence to establish bid rigging as direct evidence of bid rigging is not always easily traceable. For instance, in concluding the existence of bid-rigging with respect to the operation and management of solid waste in Pune, the CCI relied on the existence of proxy bidders and technical and price bids that were scanned and uploaded from the same IP address. The circumstantial evidence that the CCI has relied on in its past decisional practice includes:
• quoting of unusually higher rates than previous tenders;
• heightened frequency of calls and SMSs exchanged between bidders prior to the bid;
• exchange of sensitive information prior to the bid;
• common mistakes in tender forms such as typographical errors;
• common pattern in the bidders’ price increases despite different costs of production, taxes and so on;
• consecutive serial numbers for demand drafts;
• quoting of identical freight charges; and
• total quantity tendered matching the total quantity collectively bid for by the bidders.
Further, while price parallelism by itself is insufficient to establish collusion, unexplained price parallelism together with plus factors (as identified above) are helpful in establishing collusive and concerted arrangements among bidders.
The recent SC decision in LPG Cylinder Manufacturer throws light on the elements of oligopsonies and their correlation to bid-rigging concerns. In that case, the SC acknowledged the market conditions that led to an oligopsony such as:
• bidders having an idea of each other’s bid prices due to awareness of price quotations from recent tenders;
• the nature of the market – highly regulated with respect to cost, price, size, specifications of the product; and
• presence of only three buyers of the product, indicated a high degree of influence of buyers in fixing procurement prices.
It then disagreed with the CCI’s reliance primarily on identical price quotations by various manufacturers across states, despite different costs (eg, costs of production, location and input costs) to establish bid rigging. However, it held that if the CCI’s assessment of the evidence placed on record in a particular case points to the fact that identical prices quoted by bidders are not a result of any market force but a consequence of consensus between them, then this could conclusively establish bid rigging.
Developments in the leniency regime
The CCI’s leniency programme seeks to induce cartel participants to break rank and provide information against their fellow cartelists under the Competition Commission of India (Lesser Penalty) Regulations 2009 (Lesser Penalty Regulations). As per the Competition Act, any member of a cartel (enterprise or individual) can file a leniency application with the CCI, at any time prior to the DG submitting its investigation report with the CCI, seeking a reduction in penalty in exchange for ‘full, true and vital disclosure’ of information and evidence of substantial value (eg, regarding the existence of the cartel, its members and duration). The CCI is empowered to grant a reduction in penalty of up to 100 per cent to the first leniency applicant, up to 50 per cent to the second leni- ency applicant and up to 30 per cent to any subsequent leniency applicant if the applicant provides additional valuable information that was previously unknown to the CCI.
In January 2017, the CCI issued its first order under the leniency regime in a case involving bid rigging for tenders relating to the supply of fans to the Indian Railways (Brushless DC Fans). The CCI granted the leniency applicant a reduction in penalty of up to 75 per cent as it was the only participant to accept the existence of a cartel and submit adequate evidence to the CCI, hence revealing the modus operandi of the cartel. The CCI did not grant a 100 per cent reduction in penalty because the application was not made at the very beginning of the investigation, and the CCI was already in possession of some evidence against the cartel participants.
Shortly after this decision, the CCI amended the Lesser Penalty Regulations to streamline and strengthen its leniency programme. The amendment expanded the scope of the Lesser Penalty Regulations by:
• allowing individuals to approach the CCI with evidence on collusion;
• abolishing the earlier upper limit on the number of leniency applicants who could benefit from the penalty waiver (ie, three);
• allowing the DG to disclose confidential information from a leniency application to the other members of the cartel for the purpose of investigation (subject to approval by the leniency applicant or, where the applicant has not agreed to such disclosure, the CCI); and
• requiring the leniency applicant to furnish an estimate of the volume of affected business in India.
The introduction of the leniency regime appears to have been a success given that the CCI has investigated and passed a number of orders pursuant to leniency applications. Further, the recent orders passed by the CCI under the leniency regime provide some clarity regarding the factors the CCI takes into account when determining the quantum of reduction in penalty, including the stage at which the leniency application is made and the standard of evidence. For instance, in a case involving bid rigging between two broadcasting companies, Globecast and Essel Shyam Communications Ltd (ESCL), the CCI found that the parties had contravened section 3(3)(d) of the Competition Act by exchanging sensitive information related to bids for broadcasting of various sporting events such as cricket, Formula One and hockey. Importantly, the CCI granted a 100 per cent reduction in penalty to Globecast for submitting evidence that enabled the CCI to form a prima facie opinion regarding the existence of the cartel, including email correspondence in relation to submission of bids in a concerted manner, sharing sensitive price information, and a forensic report containing mirror images of confiscated laptops and mobiles. While ESCL also furnished certain additional information to the CCI in its leniency application, it was granted only a 30 per cent reduction in penalty as the CCI had already referred the matter to the DG for investigation at the time of receiving its application.
The CCI has granted reduction in penalty even in cases where it already had some evidence regarding the existence of a cartel where the additional information or evidence submitted by the leniency applicant provided ‘significant value addition’ regarding the modus operandi of the cartel. The CCI granted 100 per cent immunity to Panasonic in three cases involving cartel con- duct in the dry cell batteries market in India. In the first case, the CCI found the evidence provided by Panasonic in its leniency application to be crucial in identifying names, locations, and email accounts of key persons involved in the cartel. This information enabled the CCI to conduct search and seizure operations at the premises of three alleged cartel participants, where it found incriminating evidence regarding the existence of the cartel. The CCI granted a 30 per cent reduction in penalty to Eveready for providing evidence indicating the involvement of Geep and the Association of Indian Dry Cell Manufacturers in the cartel. Additionally, the CCI granted a 20 per cent reduction on the penalty imposed on the third cartel participant merely for cooperating and admitting its involvement in the cartel. The CCI also penalised the individuals who played an active role in aiding the cartel, granting each of them a penalty reduction proportionate to that granted to their respective companies. In the second case, the CCI granted 100 per cent immunity to Panasonic as the evidence provided by Panasonic enabled the CCI to order an investigation and establish a contravention of section 3(3) of the Competition Act.
Notably, the evidentiary value of the contents of the leniency applications is of utmost importance. In its most recent decision under the leniency regime, the CCI has clarified that it does not consider exchange of commercially sensitive information between competitors to be sufficient to establish contravention of section 3 of the Competition Act in the absence of its implementation.
Section 27 of the Competition Act empowers the CCI to impose penalties in cartel cases using one of the following metrics:
• up to 10 per cent of the average turnover of the enterprise for the preceding three financial years; or
• up to the higher of three times the profits or 10 per cent of the turnover for each year of the continuation of the cartel.
While the CCI has not issued any guidance on the calculation of penalties, the SC’s decision in Excel Crop Care v CCI & Ors has provided some clarity on a much a debated issue regarding the turnover that the CCI should take into account when determining the fine to be imposed. In that case, the SC clarified there has to be a link between the damage caused and the profits which accrue from the cartel activity. Further, the SC held that imposition of penalties under section 27(b) of the Competition Act should be based on relevant turnover of the company (ie, the turnover of the products to which the infringement relates, rather than its total turnover) and viewed this interpretation as being ‘more in tune with the ethos of the Act [the Competition Act]’. Recently, the CCI has levied lesser penalties on enterprises on account of them not being in a position to influence and dictate the terms of the anticompetitive agreement or due to having insignificant market shares in the relevant market in contrast with other competitors. In the absence of any guidance on penalties, such decisions are likely to pave the path in understanding the CCI’s ration- ale in computation of penalties.
Section 48 of the Competition Act empowers the CCI to impose penalties on the officials of an infringing enterprise. Penalties can be imposed on individuals in two circumstances: first, where the individual was in charge of, and responsible for, the conduct of the business of the company at the time of contravention of the Competition Act; and second, where an infringement occurs with the consent, connivance or negligence of any director, manager, secretary or other officer of such company. Therefore, an official may be held liable for the anticompetitive conduct of an enterprise either on account of the position held by such an official or participation in the alleged anticompetitive conduct.
The size of the penalty that the CCI may impose extends to up to 10 per cent of the average total income derived by the individual in the previous three financial years. However, it is noteworthy that the CCI penalises individuals who hold designations at more than one of the accused enter- prises only once, hence avoiding double jeopardy. Further, where the CCI grants leniency-related penalty reductions to enterprises, it also extends the same percentage of leniency to accused individuals.
National Company Law Appellate Tribunal upholds highest penalty imposed by the CCI to date
In August 2016, the CCI levied a penalty of approximately 63.2 billion rupees – the highest penalty it has levied to date – in the Cement cartel case. The Cement cartel case originated from a complaint filed by the Builder’s Association of India. The complaint alleged that 11 cement manufacturing companies limited the production and supply, and fixed the price of cement using the Cement Manufacturer’s Association (CMA) as a platform. The CCI found that the cement manufacturing companies did in fact use the CMA as a platform to fix prices, and limit and control the production and supply of cement in the market, and imposed penalties on the 11 cement manufacturing companies. The cement manufacturing companies appealed the CCI’s decision before the for- mer Competition Appellate Tribunal (COMPAT). COMPAT set aside the CCI’s order and remanded the case back to the CCI on grounds of due process and violations of principles of natural justice. The CCI heard the case afresh and passed an order in August 2016 finding that the cement manufacturing companies fixed cement prices and limited and controlled the production and supply of cement in the market in contravention of section 3(1), read with section 3(3)(a) and 3(3)(b) of the Competition Act. The CCI relied on a ‘preponderance of probabilities’ standard of evidence in reaching its decision. The cement manufacturing companies and CMA appealed against the CCI’s decision to the NCLAT.
In July 2018, the NCLAT issued its much awaited decision dismissing the appeal and upholding the CCI’s decision. The cement manufacturing companies and CMA argued that that the government of India specifically required the CMA to collect and forward cement price and production data to it, and therefore no adverse inference could be drawn from the CMA collecting and forwarding such data to the Department of Industrial Policy and Promotion (DIPP). On the other hand, the CCI argued, and the NCLAT found, that the information that the DIPP authorised for collection was not meant to be shared with individual cement manufacturing companies. However, the CMA published and circulated various details relating to cement price and production to all of the cement manufacturing companies in its monthly executive summaries. Further, the NCLAT noted that standard of evidence to prove a cartel case in India is one of ‘balance of probabilities’, as distinguished from ‘beyond reasonable doubt’, as envisaged under criminal law. Therefore, the NCLAT relied on corroborative evidence such as price parallelism, similar dispatch and production coordination, and low capacity utilisation to find that the cement manufacturing companies were involved in a cartel.
Delineation of relevant market in cartel cases – mandatory or not?
In April 2014, COMPAT set aside the CCI’s decision in Dubbed Serials, finding cartelisation by members of a film and television artists’ trade union in the state of West Bengal.In March 2017, the Supreme Court (SC) upheld an appeal by the CCI against COMPAT’s decision. In its decision, the SC observed that the first step in its assessment would be to determine the relevant market. This resulted in some uncertainty as to whether it is mandatory to delineate the relevant market when assessing an alleged anticompetitive agreement under section 3 of the Competition Act. In May 2017, the SC, on the CCI’s request for a clarification, issued a clarification order regarding its decision. In its order, the SC clarified that, having regard to the statutory scheme of the Competition Act, it is not mandatory to delineate the relevant market before assessing an alleged violation under section 3 of the Competition Act. While the SC’s decision references section 3, it is likely that the clarification given by the SC is only with respect to section 3(3), which presumes that certain agreements, such as price fixing and market-sharing agreements, per se have an appreciable adverse effect on competition in India.
The Supreme Court’s verdict on balancing the jurisdiction of the CCI and sectoral regulators such as TRAI
In November 2016, Reliance Jio Infocomm Limited (Jio) filed information with the CCI that Bharti Airtel Limited, Vodafone India Limited, and Idea Cellular Limited (Incumbent Operators) had entered into a cartel to deny Jio entry into the telecom sector by refusing access to adequate points of interconnection, resulting in call failures between Jio and other networks. Jio also alleged that the Cellular Operators Association of India facilitated this cartel. Further, Jio filed letters with the Telecommunications Regulator of India (TRAI) complaining against this conduct. The CCI issued an order under section 26(1) of the Competition Act) directing the DG to investigate the alleged cartel. The Bombay High Court (BHC) set aside this order on jurisdictional grounds, stating that the CCI is not empowered to deal with the technical aspects associated with the telecom sector which arise solely from the Telecom Regulatory Authority of India Act (TRAI Act) and related regulations.
In December 2018, the SC, broadly agreeing with the BHC, held that while the CCI’s jurisdiction was not ousted in relation to competition issues in the telecom sector, the CCI can only exercise its jurisdiction after TRAI determines the jurisdictional facts arising from the TRAI Act and reaches a prima facie conclusion that the incumbent operators have indulged in anticompetitive practices. The SC’s judgment is important as it is likely that the ratio of this case will be applied to address conflicts between the jurisdiction of sectoral regulators, more generally, and the CCI going forwards.
The rise in the number of leniency cases in India over the past year reflects an increased aware- ness of the leniency regime in the country. The CCI is a proactive regulator that has undertaken various advocacy initiatives that have added to the discourse between the regulator and potential leniency applicants. Separately, there is a noticeable trend in the number of bid-rigging issues in public procurement. In light of the impact of such illicit activities on sustainable economic development in the country, the CCI is likely to have a keen eye for such cases.
 Section 3 of the Competition Act.
 Section 4 of the Competition Act.
 Section 5 of the Competition Act.
 Section 2(b) of the Competition Act.
 Proviso to section 3(3) of the Competition Act.
 The CCI analyses pro-competitive and anticompetitive factors to determine whether an AAEC could arise. The anticompetitive factors that the CCI considers include:
• the creation of barriers to new entrants in the market;
• the ousting of existing competitors from the market; and
• foreclosure of competition by hindering entry.
The pro-competitive factors that the CCI considers include:
• benefits accruing to consumers;
• improvements in the production or distribution of goods or provision of services; and
• promotion of technical, scientific and economic development.
 So far, we are aware of three instances where the CCI has used its dawn raid powers: CCI v JCB India Ltd & Anr, [SLP (Crl) 5899-900/2016]; In re: Anti-competitive conduct in the Dry-Cell Batteries Market in India [Suo Motu Case No. 2 of 2016]; and Anheuser-Busch InBev (details available at: https://in.reuters.com/ article/india-regulator-brewers/exclusive-carlsberg-united-breweries-plead-leniency-in-india-beer-cartel- probe-sources-idINKBN1OC1QQ).
 Section 19 of the Competition Act.
 With effect from 26 May 2017, the former competition appellate authority, the Competition Appellate Tribunal (COMPAT), has been dissolved and replaced by the NCLAT. Accordingly, fresh appeals are to be filed with the NCLAT and all pending cases have been transferred from the COMPAT to the NCLAT.
 Explanation to section 3(3)(d) of the Competition Act.
 Excel Crop Care Limited v CCI and Anr [Civil Appeal No. 2480 of 2014].
 Eros International Media Limited & Anr v Central Circuit Cine Association, Indore & Ors [Case Nos. 52 & 56 of 2010].
 In re: Nagrik Chetna Manch [Case No. 50 of 2015] and In re: Cartelization in Tender Nos. 21 and 28 of 2013 of Pune Municipal Corporation for Solid Waste Processing [Suo Motu Case No. 3 of 2016].
 In re: cartelization in sale of sugar mills by the Uttar Pradesh State Sugar Corporation Ltd and the Uttar Pradesh Rajya Chini Evam Ganna Vikas Nigam Ltd [Suo Moto Case No. 1 of 2013].
 Based on a report by the Comptroller and Auditor General of India, In re: cartelization in sale of sugar mills by the Uttar Pradesh State Sugar Corporation Ltd. and the Uttar Pradesh Rajya Chini Evam Ganna Vikas Nigam Ltd [Suo Moto Case No. 1 of 2013]; based on information relating to other cases, In re: Cartelization in Tender Nos. 21 and 28 of 2013 of Pune Municipal Corporation for Solid Waste Processing [Suo Motu Case No. 3 of 2016].
 In re: Cartelization in Tender Nos. 21 and 28 of 2013 of Pune Municipal Corporation for Solid Waste Processing [Suo Motu Case No. 3 of 2016].
 Director, Supplies & Disposals, Haryana v Shree Cement Limited and Ors [Case No. Case No. 5 of 2013]
 Western Coalfields v SSV Coal Carriers Private Limited [Case No. 34 of 2015]
 In re: cartelization by Broadcasting service providers by rigging bids submitted in response to the tenders floated by Sports Broadcasters [Suo Motu Case No. 2 of 2013]
 Foundation for Common Cause & People Awareness v PES Installatios Pvt Ltd & Ors [Case No. 43 of 2010]
 Delhi Jal Board v Grasim Industries Ltd [Ref. Case Nos. 3 & 4 of 2013].
 In re: Nagrik Chetna Manch [Case No. 50 of 2015].
 In re: India Glycols Limited v Indian Sugar Mills Association & Ors [Case Nos. 21, 29, 36, 47, 48 & 49 of 2013].
 Rajasthan Cylinders and Containers Limited v Union of India & Anr [Civil Appeal No. 3546 of 2014].
 Western Coalfields v SSV Coal Carriers Private Limited [Case No. 34 of 2015].
 In re: Cartelization in respect of tenders floated by Indian Railways for supply of Brushless DC Fans and other electrical items [Suo Moto Case No. 3 of 2014].
 The Competition Commission of India (Lesser Penalty) Amendment Regulations, 2017 (Amendment).
 Nagrik Chetna Manch v Fortified Security Solutions & Ors [Case No. 50 of 2015].
 In re: Cartelisation in respect of zinc carbon dry cell batteries market in India [Suo Moto Case No. 2 of 2016].
 In re: Anticompetitive conduct in the Dry-Cell Batteries Market in India [Suo Moto Case No. 2 of 2017].
 In re: Alleged Cartelisation in Flashlights Market in India [Suo Moto Case No. 1 of 2017].
 In re: Anti-competitive conduct in the Dry-Cell Batteries Market in India [Suo Moto Case No. 2 of 2017 and Suo Moto Case No. 3 of 2017].
 Section 48(1) of the Competition Act. The burden of proof lies on the individuals to prove that the contravention was committed without their knowledge, or that they had exercised due diligence to prevent the contravention from being committed, for them to be exempt from personal liability. In re: cartelization in respect of zinc carbon dry cell batteries market in India [Suo Moto Case No. 2 of 2016]; Mr G Krishnamurthy v Karnataka Film Chamber of Commerce & Ors [Case No. 42 of 2017].
 Section 48(2) of the Competition Act.
 In re: Cartelisation by broadcasting service providers by rigging the bids submitted in response to tenders floated by Sports Broadcasters [Suo Moto Case No. 2 of 2013]; Sudeep PM & Ors v All Kerala Chemists & Druggists Association [Case No. 54 of 2015].
 Section 27(b) of the Competition Act .
 In re: cartelization in respect of zinc carbon dry cell batteries market in India [Suo Moto Case No. 2 of 2016].
 Builder’s Association of India v CMA & Ors [Case No. 29 of 2010].
 ACC Ltd (ACC), Ambuja Cement Ltd (Ambuja), Binani Cement Ltd (Binani) , Grasim Cement (now merged with Ultratech Cement Limited), Century Textiles & Industries Ltd (Century Cement), India Cement Ltd (India Cement), JK Cement Ltd (JK Cement), Nuvoco Vistas Corporation Limited (Lafarge), Ramco Cements Ltd, (Ramco), Ultra Tech Cement Ltd (Ultra Tech) and Jaiprakash Associates Limited.
 Mr Sajjan Khaitan v Eastern India Motion Picture Association & Ors [Case No. 16 of 2011]; Co-ordination Committee of Artist and Technicians of West Bengal Film and Television Industry v Mr Sajjan Kumar Khaitan & Ors [Appeal No. 131/2012].
 CCI v Co-ordination Committee of Artist and Technicians of West Bengal Film and Television Industry [Civil Appeal No. 6691 of 2014].
 CCI v Co-ordination Committee of Artist and Technicians of West Bengal Film and Television Industry [Miscellaneous Application 490 of 2017 in Civil Appeal No. 6691 of 2014].
Samir. R. Gandhi, Partner
Shruti Hiremath, Senior Associate
Shivam Jha, Associate
The whole publication is available at https://globalcompetitionreview.com/edition/1001312/the-asia-pacific-antitrust-review-2019