INTRODUCTION

The Competition Act, 2002 (as amended), [the Act], follows the philosophy of modern competition laws and aims at fostering competition and at protecting Indian markets against anti­-competitive practices by enterprises. The Act prohibits anti­-competitive agreements, abuse of dominant position by enterprises, and regulates combinations (mergers, amalgamations and acquisitions) with a view to ensure that there is no adverse effect on competition in India.

The Act prohibits any agreement which causes, or is likely to cause, appreciable adverse effect on competition in markets in India. Any such agreement is void.

An agreement may be horizontal i.e. between enterprises, persons, associations, etc. engaged in identical or similar trade of goods or provision of services, or it may be vertical i.e. amongst enterprises or persons at different stages or levels of the production chain in different markets.

Cartelisation is one of the horizontal agreements that shall be presumed to have appreciable adverse effect on competition under Section 3 of the Act.

WHAT IS A CARTEL?

Cartel is defined in section 2, clause (c) of the Act:

“Cartel” includes an association of producers, sellers, distributors, traders or service providers who, by agreement amongst themselves, limit, control or attempt to control the production, distribution, sale or price of, or, trade in goods or provision of services;’

Cartels are agreements between enterprises (including a person, a government department and association of persons / enterprises) not to compete on price, product (including goods and services) or customers. The Act gives a detailed definition of an enterprise in section 2 (h). The objective of a cartel is to raise price above competitive levels, resulting in injury to consumers and to the economy. For the consumers, cartelisation results in higher prices, poor quality and less or no choice for goods or/and services.

A cartel is said to exist when two or more enterprises enter into an explicit or implicit agreement to fix prices, to limit production and supply, to allocate market share or sales quotas, or to engage in collusive bidding or bid-rigging in one or more markets. An important dimension in the definition of a cartel is that it requires an agreement between competing enterprises not to compete or to restrict competition.

An international cartel is said to exist, when not all of the enterprises in a cartel are based in the same country or when the cartel affects markets of more than one country.

An import cartel comprises enterprises (including an association of enterprises) that get together for the purpose of imports into the country.

An export cartel is made up of enterprises based in one country with an agreement to cartelize markets in other countries. In the Act, cartels meant exclusively for exports from India have been excluded from the provisions relating to anti-competitive agreements.

EXTRA- TERRITORIAL REACH

Anti-competitive activities, including cartels, taking place outside India but having effect on competition in India would fall within the ambit of the Act and can be inquired into by the Commission. The Act thus has extra territorial reach (section 32).

CARTELS – PRESUMED INJURIOUS

Agreements between enterprises engaged in identical or similar trade of goods or provision of services (commonly known as horizontal agreements) including cartels, of four types specified in the Act are presumed to have appreciable adverse effect on competition and, therefore, are anti-competitive and void.

However, horizontal agreements of the above four types mentioned in the preceding paragraphs, entered into by way of joint ventures are not presumed to have appreciable adverse effect on competition and are excluded from the above provisions of section 3, sub section (3) of the Act if they increase efficiency in production, supply, distribution, storage, acquisition or control of goods or provision of services.

Agreements other than those covered by section 3, sub section (3) of the Act, including

♦ tie-in arrangement

♦ exclusive supply arrangement

♦ exclusive distribution agreement

♦ refusal to deal

♦ resale price maintenance

are commonly known as ‘vertical agreements “ and would not be presumed to have appreciable adverse effect on competition, and would be evaluated by the Commission based on facts using the ‘rule of reason’ approach.

COMMON CHARACTERISTICS OF CARTELS

♦ Usually cartels function in secrecy.

♦ The members of a cartel, by and large, seek to camouflage their activities to avoid detection by the Commission.

♦ Perpetuation of cartels is ensured through retaliation threats. If any member cheats, the cartel members retaliate through temporary price cuts to take business away or can isolate the cheating member.

♦ Another method, known as compensation scheme, is resorted to in order to discourage cheating. Under this scheme, if a member of a cartel is found to have sold more than its allocated share, it would have to compensate the other members.

CONDITIONS CONDUCIVE TO FORMATION OF CARTELS

If there is effective competition in the market, cartels would find it difficult to be formed and sustained. Some of the conditions that are conducive to cartelization are:

♦ high concentration – few competitors

♦ high entry and exit barriers

homogeneity of the products (similar products) a similar production costs

♦ excess capacity

♦ high dependence of the consumers on the product a history of collusion

active trade association

INQUIRY INTO CARTELS

In exercise of powers vested under section 19 of the Act, the Commission may inquire into any alleged contravention of the provisions of section 3 of the Act which inter-alia proscribes cartels.

The Commission, on being satisfied that there exists a prima facie case of ‘cartel’, shall direct the Director General to cause an investigation and furnish a report. The Commission has the powers vested in a Civil Court under the Code of Civil Procedure in respect of matters like summoning or enforcing attendance of any person and examining him on oath, requiring discovery and production of documents and receiving evidence on affidavit. The Director General, for the purpose of carrying out investigation, is vested with powers of civil court besides powers to conduct ‘search and seizure’.

Note: For the details of the procedures related to inquiry and investigations please refer to Regulation No. 2 of 2009 dated May 21, 2009(also available on the CCI website www.cci.gov.in)

POWERS OF THE COMMISSION

The Commission is empowered to inquire into any cartel, and to impose on each member of the cartel, a penalty of up to 3 times of its profit for each year of the continuance of such agreement or 10% of its turnover for each year of continuance of such agreement, whichever is higher. In case an enterprise is a ‘company’, its directors/officials who are guilty are also liable to be proceeded against.

In addition, the Commission has the power to pass inter alia any or all of the following orders (section 27):

♦ direct the parties to a cartel agreement to discontinue and not to re-enter such agreement;

♦ direct the enterprises concerned to modify the agreement.

♦  direct the enterprises concerned to abide by such otherorders as the Commission may pass and comply withthe directions, including payment of costs, if any; and

♦ pass such other order or issue such directions as it may deem fit.

LENIENCY SCHEME

Section 46 of the Act empowers the Commission to grant leniency by levying a lesser penalty on a member of the cartel who provides full, true and vital information regarding the cartel. The scheme is designed to induce members to help in detection and investigation of cartels. This scheme is grounded on the premise that successful prosecution of cartels requires evidence supplied by a member of the cartel. Similar leniency schemes have proved very helpful to competition authorities of foreign jurisdictions in successfully proceeding against cartels.

The Commission has notified the Competition Commission of India (Lesser Penalty) Regulations, 2009 laying the process, procedure and methodology for granting leniency to the cartel members who break the ranks of the cartel and become helpful to the Commission and instrumental in busting the alleged cartel.

Note: For the details of the conditions for lesser penalty please refer to Regulation No. 4 of 2009 dated August 13, 2009 (also available on the CCI website www.cci.gov.in)

INTERIM ORDER

Under section 33 of the Act, during the pendency of an inquiry the Commission may temporarily restrain any party from continuing with the alleged contravention, until conclusion of the inquiry or until further orders, without giving notice to such party, where it deems necessary.

Note: For the details of the procedures related to interim orders please refer to Regulation No. 2 of 2009 dated May 21, 2009 (also available on the CCI website www.cci.gov.in )

APPEALS

The Competition Appellate Tribunal (COMPAT) is established under section 53A of the Act, to hear and dispose of appeals against any direction issued or decision made or order passed by the Commission under specified sections of the Act.

An appeal has to be filed within 60 days of receipt of the order/ direction/ decision of the Commission.

Source- CCI

 

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