Restraints of trade and dominance in India: overview

Restraints of trade

Scope of rules

1. Are restrictive agreements and practices regulated? If so, what are the substantive provisions and regulatory authority?

Regulatory framework

The Competition Act, 2002 (Competition Act) is the primary Indian law specifically regulating restrictive agreements and practices. There are no state-level or criminal law statutes dealing with competition laws in India (including restraints of trade).

Apart from the Competition Act, the Indian Contract Act, 1872 also treats agreements in restraint of trade as void. Further, there are some sector-specific laws (such as the Telecom Regulatory Authority of India Act, 1997, Electricity Act, 2003, Petroleum and Natural Gas Regulatory Board Act, 2006 and Aircraft Act, 1934), which empower the respective sectoral regulators to regulate restraints specific to telecom, electricity, aviation, or petroleum and natural gas.

There have been instances of jurisdictional conflict between sectoral regulators and the Indian antitrust authority, the Competition Commission of India (CCI) and the legal position on these is yet to be decisively settled.

Section 3(3) of the Competition Act lists inter-competitor (horizontal) agreements that are presumed to cause an appreciable adverse effect on competition within the relevant market in India (AAEC). These are agreements which:

•       Directly or indirectly determine purchase or sale prices.

•       Limit or control production, supply, markets, technical development, investment or provision of services.

•       Share the market or source of production or provision of services by allocation of geographical area of market, or type of goods or services, or number of customers in the market or any other similar way.

•       Directly or indirectly result in bid-rigging or collusive bidding.

An exception is provided for efficiency enhancing joint ventures, which do not attract this presumption of AAEC.

Section 3(4) of the Competition Act also prohibits and penalises vertical restraints that cause, or are likely to cause an AAEC. Vertical restraints, unlike the aforementioned horizontal agreements, do not carry a presumption of AAEC and are governed by a rule of reason approach. The Indian antitrust regulator, the CCI, can prohibit vertical restraints if it can establish, after investigation, that such restraints cause, or are likely to cause an AAEC. The inclusive list of vertical restraints contains:

•       Tie-in arrangements. A purchaser of goods must purchase any other goods as a condition of purchase.

•       Exclusive supply agreements. Which restrict, in any manner, the purchaser from acquiring or otherwise dealing with the goods of the seller or any person.

•       Exclusive distribution agreements. Which limit, restrict or withhold the supply of goods or allocate any area or market for the disposal or sale of goods.

•       Refusal to deal. Which restricts, or is likely to restrict, by any method, the person or persons from or to whom goods are bought and sold.

•       Resale price maintenance. Any agreement wherein goods are sold on the condition that the resale price will be the price stipulated by the seller, unless clearly stated that prices lower than those prices can be charged.

(Section 3(4), Competition Act.)

To determine the likelihood of an AAEC, the CCI considers the following factors:

•       Creation of barriers to new entrants in the market.

•       Driving existing competitors out of the market.

•       Foreclosure of competition.

•       Accrual of benefits to consumers.

•       Improvements in the production or distribution of goods or provision of services.

•       Promotion of technical, scientific and economic development by means of production or distribution of goods or provision of services.

Regulatory authority

The CCI is the primary regulatory authority responsible for enforcing the prohibitions on anti-competitive agreements across all sectors. The CCI is assisted by its investigative arm, the Director General (DG), in conducting inquiries into contraventions of any of the provisions of the Competition Act.

Sector-specific regulators, such as the Telecom Regulatory Authority of India, also regulate restrictive agreements and practices within their respective sectors.

2. Do the regulations only apply to formal agreements or can they apply to informal practices?

An “agreement” includes any arrangement or understanding or action in concert, irrespective of whether it is formal or in writing or intended to be enforceable by legal proceedings. Therefore, the Competition Act is equally applicable to formal and informal agreements.

Exemptions

3. Are there any exemptions? If so, what are the criteria for individual exemption and any applicable block exemptions?

The Competition Act does not provide for specific exemptions for any kind of agreement or for any specific sector. However, the Central Government can exempt the application of the Competition Act (or any of its provisions) to agreements/practices for a given period for any of the following:

•      Any class of enterprise, if it is in the interests of national security or public interest.

•      Any practice or agreement relating to India’s international obligations.

•    Any enterprise that performs a sovereign function such as functions relating to atomic energy, currency, defence and space.

For example, the Central Government, in public interest, has exempted Vessel Sharing Agreements of Liner Shipping Industry (on a year to year basis) from the provisions of the Competition Act concerning anti-competitive agreements, in respect of carriers of all nationalities operating ships of any nationality from any Indian port. However, such agreements cannot include concerted practices involving fixing of prices, limitation of capacity or sales and the allocation of markets or customers.

There are no “block” or “de minimis” exemptions for restrictive agreements/practices under the Competition Act.

Exclusions and statutes of limitation

4. Are there any exclusions? Are there statutes of limitation associated with restrictive agreements and practices?

Exclusions

The Competition Act exempts restrictive agreements/practices if they are reasonable and necessary for the protection of the parties’ intellectual property rights under the:

•       Copyright Act, 1957.

•       Patents Act, 1970.

•       Trade and Merchandise Marks Act, 1958 or the Trade Marks Act, 1999.

•      Geographical Indications of Goods (Registration and Protection) Act, 1999.

•       Designs Act, 2000.

•       Semi-conductor Integrated Circuits Layout-Design Act, 2000.

Agreements/practices that relate exclusively to production, supply, distribution or control of goods or provision of services for export are also exempted under the Competition Act.

Statutes of limitation

The Competition Act does not provide for any period of limitation. Any restrictive agreement/practice can be investigated and penalised any time after the infringement, provided only that the infringement must have taken place (or, as held by the Bombay High Court, its effects continued to exist) after 20 May 2009 (which is the date on which the relevant provisions of the Competition Act came into effect).

Notification

5. What are the notification requirements for restrictive agreements and practices?

Notification

There is no notification requirement or mechanism for restrictive agreements/practices. Parties must rely on self-assessment.

Informal guidance/opinion

The CCI does not provide for informal guidance/opinion concerning restrictive agreements or practices.

Responsibility for notification

Not applicable.

Relevant authority

Not applicable.

Form of notification

Not applicable.

Filing fee

Not applicable.

Investigations

6. Who can start an investigation into a restrictive agreement or practice?

Regulators

The CCI can direct the DG to investigate restrictive agreements/practices on its own motion or based on a reference from the central or state government or any statutory authority.

Third parties

Any person, consumer or their association/trade association can file a formal complaint (information) with the CCI. The CCI guidelines on how to file information, including the required formats and details, can be found at https://www.cci.gov.in/sites/default/files/cci_pdf/HowToFileInformation.pdf.

The CCI must review any validly submitted information, and decide whether to start an investigation into the allegations contained in the submission.

7. What rights (if any) does a complainant or other third party have to make representations, access documents or be heard during the course of an investigation?

Representations

Informants (that is, complainants) can make submissions (oral or written) during an investigation. The CCI can also, if it deems necessary, ask the informant to attend a preliminary conference to decide whether to pass an order initiating an investigation. On completion of the investigation, the informant can make further submissions (oral or written) in response to the DG’s investigation report.

Third parties can make written applications to the CCI requesting that they be allowed to participate in the proceedings. On review of such an application, if the CCI is satisfied that the third party has substantial interest in the outcome of the proceedings and that it is necessary in the public interest to allow its participation in the matter, the CCI can allow the third party to participate in further proceedings. There is no formal guidance specifying what stage a third party can seek to participate in the proceedings. However, it is unlikely for a third party to be able to seek representation before some formal public disclosure of the proceedings has been made (for example, through a prima facie order of the CCI initiating an investigation).

Investigations/proceedings will not stop if an informant or third party stops participating or seeks to withdraw its allegations/opinions.

Document access

The informant, being a party to the proceedings, can inspect (and obtain copies) of the non-confidential versions of documents filed by other parties during the proceedings on submitting a written application to the Secretary of the CCI and payment of a fee.

Third parties can also access the non-confidential versions of the documents submitted during the proceedings on demonstration of sufficient cause before the CCI. The threshold for demonstrating sufficient cause appears to be relatively high. There is no reported instance of the CCI granting access to case filing comprising submissions made by the parties to the investigation, to third parties.

Be heard

See above, Representations.

8. What are the stages of the investigation and timetable?

Any investigation of a restrictive agreement/practice progresses in the following four stages:

•       Issuance of the prima facie order. The CCI can direct the DG to investigate allegations of restrictive agreements/practices if it is convinced that there is a prima facie case. In the absence of a prima facie case, the CCI must close the proceedings at this stage. While the CCI endeavours to issue a prima facie order within 60 days of receipt of an “information” or statutory reference, this timeline is not binding and is rarely adhered to in practice.

•       The DG investigation. On receipt of the CCI’s direction, the DG must complete the investigation, and submit its investigation report containing its findings and recommendations (DG report) to the CCI within 60 days of the order. However, this timeline is at the CCI’s discretion and can be extended at the request of the DG. In practice, this 60-day timeline is rarely adhered to.

•       Issuance of the DG Report and written or oral submissions. Once the CCI receives the DG report, at its discretion, it can:

•       direct the DG to investigate further and submit a supplementary report within 45 days (extendable at the CCI’s discretion);

•       if it deems necessary, carry out further inquiries by itself; or

•       release the DG report to the parties (or referring authority) and invite their objections/submissions. The parties to the proceedings are also given the opportunity to make oral arguments before the CCI (in addition to their written submissions).

•       CCI’s final order. After reviewing the written submissions and completion of oral arguments (if any) the CCI endeavours to issue its final order within 21 days of the date of final arguments (however, in practice the issuance of the final order usually takes much longer). Where the CCI issues an interim order, the final order must be issued within 90 days of the interim order.

Publicity and confidentiality

9. How much information is made publicly available concerning investigations into potentially restrictive agreements or practices? Is any information made automatically confidential and is confidentiality available on request?

Publicity

Written submissions and oral arguments made before the CCI are not public. Third parties can access “non-confidential” versions of submissions made during the course of the investigation on showing sufficient cause.

However, the CCI’s final and prima facie orders (except prima facie orders in cartel cases) are published on its website (www.cci.gov.in).

Typically, on completion of the investigation, the DG issues an order comprising its assessment of the confidentiality requests of the parties. This order can grant or deny confidentiality over such information. Parties can choose to appeal the DG’s order before the CCI. The decision of the CCI is final and information over which confidentiality has been rejected may appear in either the non-confidential version of the DG report and/or the CCI’s final order. An appeal to the appellate authority, the the National Company Appellate Tribunal (NCLAT) (http://nclat.nic.in/), is not available in relation to confidentiality. However, it is possible for the party to approach the High Court of Delhi in a writ petition, on the basis of violation of natural justice or non-application of mind by the CCI in rejecting the confidentiality requested.

Automatic confidentiality

No information relating to any enterprise can be disclosed by the CCI without the enterprise’s previous written consent. However, no such consent is required if disclosure is in compliance with, or for the purposes of, the Competition Act or any other law in force. Accordingly, in practice, the parties must identify confidential information in their submissions and request its confidential treatment.

Confidentiality on request

As stated above, parties can submit a reasoned request to the DG or the CCI for the confidential treatment of information in their submissions. They must also stipulate the term and expiry of such confidentiality treatment. Requests for confidentiality are only accepted if publicly disclosing the information would:

•       Result in the disclosure of trade secrets.

•       Lead to the destruction or appreciable diminution of the commercial value of any information.

•       Cause serious injury.

Once a confidentiality request is granted, the information does not form part of the “non-confidential” version of the records and is not accessible by other parties.

10. What are the powers (if any) that the relevant regulator has to investigate potentially restrictive agreements or practices?

The CCI and the DG have the powers of a civil court for the purpose of discharging their functions under the Competition Act in respect of the following matters:

•       Summoning and enforcing the attendance of any person and examining them on oath.

•       Requiring the discovery and production of documents.

•       Receiving affidavit evidence.

•       Issuing requests for the examination of witnesses or documents.

•       Requisitioning public records or documents from any office.

The DG also enjoys search and seizure/dawn raid powers (which are only exercised on the basis of a warrant from the Chief Metropolitan Magistrate, New Delhi).

Settlements

11. Can the parties reach settlements with regulators to bring an early resolution to an investigation? If so, what are the circumstances for doing so and the applicable procedure?

The Competition Act does not expressly provide for the administrative settlement of cases. Accordingly, even if the parties settle their grievances and the informant seeks to withdraw the complaint, the CCI can continue to proceed with the matter.

The Madras High Court held that since the CCI is not a body set up to decide private disputes between individuals but rather, mandated to prevent adverse effects on competition and because it has residuary powers to pass any orders/directions as it may deem fit, the scheme of the Competition Act does allow parties to enter into a compromise/settlement and for the CCI to accept the same if it is satisfied that this would not lead to the continuance of anti-competitive practices and would not be prejudicial to consumer interests or freedom of trade (Tamil Nadu Film Exhibitors Association v CCI & Ors., W.A. No. 1086 and 1087 of 2013). However, it remains to be seen how the CCI deals with the issue of settlements in light of this decision.

12. Can the regulator accept remedies (commitments) from the parties to address competition concerns without reaching an infringement decision? If so, what are the circumstances for doing so and the applicable procedure?

There is no mechanism for accepting remedies or commitments from the parties to address competition concerns without reaching an infringement decision under the Competition Act.

Penalties and enforcement

13. What are the regulator’s enforcement powers in relation to a prohibited restrictive agreement or practice?

The Competition Act is not a criminal law statute and therefore infringements only need to be proved up to a civil law standard of proof (preponderance of probabilities). Infringements of the Competition Act attract civil penalties in the nature of fines. However, the Competition Act provides for imprisonment for up to three years where a party breaches the orders of the CCI or the NCLAT. Though, this is not considered a criminal offence.

Orders

In the case of an infringement of the Competition Act, the CCI is empowered to:

•       Issue cease and desist orders against infringing enterprises.

•       Modify the concerned agreements.

•       Impose monetary penalties.

•       Issue any other orders it deems fit, including for the payment of costs.

Fines

For anti-competitive agreements, the CCI can levy a penalty on each party to the agreement of up to 10% of its average relevant turnover (that is, turnover from the infringing products/services) for the previous three financial years (calculated from the date of the CCI’s decision). For cartels, the CCI can impose a penalty of up to three times the cartel’s profits for each year the agreement continued, or up to 10% of its average relevant turnover for the previous three financial years, whichever is higher.

Personal liability

In cases of infringements of the Competition Act by a company, the person in charge of (at the time of the infringement), and responsible for the conduct of that business, is deemed guilty of the infringement. This deemed guilt is rebuttable if the person can show that the infringement occurred without their knowledge or despite their due diligence.

Further, if the CCI finds that an infringement occurred with the assistance or consent of, or due to any neglect on the part of, any director, manager, secretary or other officer of the company, that person can also be held liable for the infringement.

Immunity/leniency

The CCI can impose a lesser penalty on a member of an alleged cartel who makes a “full, true and vital disclosure” in respect of the violations of the Competition Act. The first leniency applicant can secure a reduction in penalty up to 100%. The CCI can grant a reduction up to 50% to the second applicant and 30% to the third or subsequent applicants if they provide significant added value to the evidence already in possession of the CCI or the DG.

Impact on agreements

The CCI can direct modification of agreements and declare void entire, or parts of, agreements with anti-competitive restrictions.

Third party damages claims and appeals

14. Can third parties claim damages for losses suffered as a result of a prohibited restrictive agreement or practice? If so, what special procedures or rules (if any) apply? Are collective/class actions possible?

Third party damages

The NCLAT, which replaces the former Competition Appellate Tribunal (COMPAT) as the appellate body under the Competition Act, is the statutory authority empowered to adjudicate claims for compensation.

On a definite finding of infringement by the CCI or the NCLAT or the Supreme Court of India (in the exercise of their appellate powers), any person aggrieved by the anti-competitive conduct in question can approach the appellate bodies for compensation for the damages suffered as a result of these infringements.

Special procedures/rules

The NCLAT, which has the power to regulate its own procedures (subject to the requirement that those procedures adhere to principles of natural justice), adjudicates on follow-on compensation claims. There is no limitation period prescribed regarding compensation claims.

Collective/class actions

Where damage or loss is caused to numerous individuals, one or more of these individuals, after obtaining the permission of the NCLAT, can make an application for and on behalf of all of these individuals.

15. Is there a right of appeal against any decision of the regulator? If so, which decisions, to which body and within which time limits? Are rights of appeal available to third parties, or only to the parties to the agreement or practice?

Rights of appeal and procedure

Certain decisions of the CCI (though not all), including decisions containing a finding of infringement and closing proceedings because of lack of a prima facie case, can be appealed before the NCLAT within 60 days from the date of receiving the order of the CCI. However, an order finding a prima facie case of infringement cannot be appealed before the NCLAT.

Decisions of the NCLAT can then be appealed before the Supreme Court of India.

Third party rights of appeal

Any party that can credibly demonstrate that he/she has been adversely affected by the decision/order of the CCI can appeal to the NCLAT.

Monopolies and abuses of market power

Scope of rules

16. Are monopolies and abuses of market power regulated under administrative and/or criminal law? If so, what are the substantive provisions and regulatory authority?

Regulatory framework

Abuse of dominance is regulated under section 4 of the Competition Act.

Regulatory authority

The CCI is the regulatory authority responsible for enforcing the prohibitions on abuse of dominance across all sectors.

17. How is dominance/market power determined?

The Competition Act defines “dominant position” as a position of strength enjoyed by an enterprise in a relevant market in India, which allows it to operate independently of competitive forces prevailing in the relevant market or to affect its competitors or consumers or the relevant market in its favour.

Before reaching any finding on dominant position, the CCI must define the “relevant market”, which is determined on the basis of the “relevant product market” (determined broadly by the set of products that are considered substitutable by consumers) and “relevant geographic market” (delineated on the basis of homogeneity of competitive conditions across a region).

The Competition Act sets out factors that the CCI must consider in assessing whether an enterprise enjoys a dominant position in the relevant market, such as (among others):

•       Market share of the enterprise.

•       Size of the enterprise and available resources.

•       Size of the competitors.

•       Economic power of the enterprise.

•       Commercial advantages.

•       Vertical integration.

•       Dependence of consumers on the enterprise.

•       Entry barriers.

18. Are there any broad categories of behaviour that may constitute abusive conduct?

Once it is established that an enterprise enjoys a dominant position in the relevant market, the enterprise is prohibited from the following (abusive) conduct:

•       Imposing unfair or discriminatory:

•       conditions in the purchase or sale of goods or services; and

•       prices in the purchase or sale of goods and services, including predatory pricing.

•       Limiting or restricting, to the prejudice of consumers:

•       production of goods or provision of services or market; or

•       technical or scientific developments relating to goods or services.

•       Indulging in practice(s) that prevent market access.

•       Making the conclusion of contracts subject to acceptance by other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject matter of such contracts.

•       Using its dominant position in one relevant market to enter into or protect other relevant markets.

Exemptions and exclusions

19. Are there any exemptions or exclusions?

The Competition Act does not provide for any exemptions or exclusions in cases of abuse of dominance.

Notification

20. Is it necessary (or, if not necessary, possible/advisable) to notify the conduct to obtain clearance or (formal or informal) guidance from the regulator? If so, what is the applicable procedure?

See Question 5.

Investigations

21. What (if any) procedural differences are there between investigations into monopolies and abuses of market power and investigations into restrictive agreements and practices?

There are no procedural differences between investigations into abuse of dominance and anti-competitive practices (see Question 6 to Question 9 and Question 11 and Question 12).

22. What are the regulator’s powers of investigation?

The CCI’s powers of investigation are the same as for restrictive agreements and practices (see Question 10).

Penalties and enforcement

23. What are the penalties for abuse of market power and what orders can the regulator make?

See Question 13.

In addition, the Competition Act empowers the CCI to order the division of a dominant enterprise to ensure that it does not abuse its dominant position. The CCI has yet to exercise this power.

Third party damages claims

24. Can third parties claim damages for losses suffered as a result of abuse of market power? If so, what special procedures or rules (if any) apply? Are collective/class actions possible?

The position is the same as for restrictive agreements and practices (see Question 14).

EU law

25. Are there any differences between the powers of the national regulatory authority(ies) and courts in relation to cases dealt with under Article 101 and/or Article 102 of the TFEU, and those dealt with only under national law?

Not applicable.

Joint ventures

26. How are joint ventures analysed under competition law?

Joint ventures are not defined under the Competition Act. The presumptive rule of an AAEC associated with horizontal cartel agreements does not apply to efficiency-enhancing joint ventures.

Inter-agency co-operation

27. Does the regulatory authority in your jurisdiction co-operate with regulatory authorities in other jurisdictions in relation to infringements of competition law? If so, what is the legal basis for and extent of co-operation (in particular, in relation to the exchange of information)?

The Competition Act has granted authority to the CCI to enter into any memorandum of understanding or arrangement with foreign agencies, with the prior approval of the Central Government.

The CCI has entered into co-operation agreements with competition authorities in:

•       The European Union.

•       The United States.

•       Canada.

•       Brazil.

•       South Africa.

•       China.

•       The Russian Federation.

•       Australia.

India is also a member of the International Competition Network

Recent cases and trends

28. What are the recent developments, trends or notable recent cases concerning abuse of market power?

The following important decisions were issued on abuse of dominance in India:

•       The Supreme Court issued a decision clarifying the legal position on “denial of market access” (Competition Commission of India v Fast Way Transmission (Civil Appeal No.7215 Of 2014)). The Supreme Court agreed with the CCI’s contention that while assessing allegations of denial of market access by a dominant enterprise, it is irrelevant whether the enterprise being denied market access is a competitor of the dominant enterprise or not.

•       The CCI passed an order finding Google to be abusing its dominant position. The CCI found Google to be dominant in the relevant markets for Online General Web Search and Web Search Advertising Services in India. The CCI held that Google had abused such dominant position by:

•       employing a skewed ranking methodology for its “Universal Results’” before 2010;

•       prominent display and placement of its Commercial Flight Unit; and

•       imposing unfair conditions in its negotiated search intermediation agreements which restricted publishers from using competing search engines.

The CCI imposed a penalty of INR1,358.6 million on Google, while also directing Google to display a disclaimer in the Commercial Flight Unit box indicating clearly that the “search flights” link placed at the bottom leads to Google’s “Flights” page, and not the results aggregated by any other third party service provider, so that users are not misled. The CCI also directed Google not to enforce the restrictive conditions in its search intermediation agreements with Indian partners. Google has appealed the decision and secured an interim stay against the CCI’s order, and the matter is being heard at the NCLAT.

•       In June 2018, in Re: Meru Travel Solutions Private Limited v M/S ANI Technologies Pvt. Ltd., M/S Uber India Private Systems Limited, Uber B.V. and Uber Technologies Inc., the CCI rejected Meru’s allegations against Ola and Uber regarding, among other things, predatory pricing and collective dominance. However, the CCI touched upon the concept of common ownership (noting that Ola and Uber had several common investors) and its likelihood of generating anti-competitive effects in the market. The CCI observed that the effect of common ownership on Ola and Uber (who were the only effective competitors in the radio taxi service industry) is still to be fully examined. The CCI will continue to monitor the behaviour of the parties to determine if any lessening of competition occurs in the future as a result of this common ownership.

•       In July 2018, in Re: East India Petroleum Pvt. Ltd. (EIPL) and South Asia LPG Company Pvt. Ltd. (SALPG), the CCI imposed a penalty at the rate of 10% of SALPG’s average annual turnover for the financial years 2014-15, 2015-16 and 2016-17. The CCI found SALPG to be abusing its dominant position in the relevant market for upstream terminalling services at Visakhapatnam Port. The CCI for the first time imposed the maximum statutorily prescribed penalty of 10%in an abuse of dominance case.

Proposals for reform

29. Are there any proposals for reform concerning restrictive agreements and market dominance?

Currently, there are no proposed reforms concerning restrictive agreements or market dominance.

While there are no formal proposals for reform in place, in September 2018, the Government of India set up a “Competition Law Review Committee” (CLRC) comprised of several experts and initiated the process of stakeholder consultation with a view to review and amend the Competition Act. The CLRC is still working on its mandate and has not issued any formal guidance/paper with proposed amendments.

Authors

Rahul Rai, Partner
Shashank Sharma, Senior Associate
Nitin Nair, Associate

Published In:Practical Law
Date: February 1, 2019