Competition Bill needs a relook

March 25, 2020 1:30 AM

While the hub-and-spoke arrangement is welcome, the res judicata proposal needs to be reconsidered.

The Bill lends clarity on the inclusion of hub-and-spoke issues, thereby exposing them to fines imposed on cartel participants (10% or turnover of each year of the continuance of the cartel or three times the profit) as opposed to non-cartel offences (10% of the average turnover of the last three years).The Bill lends clarity on the inclusion of hub-and-spoke issues, thereby exposing them to fines imposed on cartel participants (10% or turnover of each year of the continuance of the cartel or three times the profit) as opposed to non-cartel offences (10% of the average turnover of the last three years).

By Abir Roy

The Competition Amendment Bill has proposed some key changes in the Act including organisational structure, investigation procedure and combination laws. This article deals with two proposed amendments that, in the opinion of the author, would significantly alter the enforcement of competition law in India.

Hub-and-spoke arrangement: A great step forward

Under the extant competition law regime, agreements amongst players operating in the same market (horizontal level) with respect to price fixing, customer/territory allocation, quantity allocation and/or bid rigging were included under the definition of cartels. Now, the Bill proposes to increase the scope of agreement by including enterprises that, though not engage in identical or similar trade, act in furtherance of any anticompetitive agreement. This proposed amendment would cover enterprises facilitating the operation of cartels, too. By way of this proposed amendment, the jurisdiction of the CCI would extend to hub-and-spoke arrangement. Although it may be argued that a participant who was not in the same or identical trade (horizontal arrangement) but acts in furtherance of the said arrangement by virtue of a hub-and-spoke arrangement may still be caught under the omnibus clause of being a participant of an anticompetitive agreement.

The Bill lends clarity on the inclusion of hub-and-spoke issues, thereby exposing them to fines imposed on cartel participants (10% or turnover of each year of the continuance of the cartel or three times the profit) as opposed to non-cartel offences (10% of the average turnover of the last three years). Earlier, if the hub-and-spoke arrangement was covered, the penalty would have been limited to cases of non-cartel offences, but with this proposed amendment, the penalty for cartel offences would be squarely applicable to the hub-and-spoke arrangement.

A common method in which cartel arrangements practically operated was when each of the cartel participants imposed resale price maintenance covenants on downstream players, it kept a check on the final price to consumers. This is one of the reasons why vertical agreements having resale price maintenance covenants have been frowned upon, not only in India but internationally also. Now, by virtue of the Bill, such arrangements that are adopted in furtherance of a cartel by upstream players may also be caught in the proviso of the Bill.

A key takeaway of this proposed amendment is that companies would have to ensure that not only their employees and personnel but even the channel partners are well-trained on competition law principles. Any agreement with channel partners must contain a clause to mandate the adoption of competition law compliance manual by such partners, and the said clause must be scrupulously followed to avoid the liability under the Act.

This assumes significance considering that the Bill provides for settlement and commitment option, which is not available for cartel offences. The proposed amendment, if incorporated, would be a great step forward in terms of enforcement.

Adoption of res judicata: Two steps back

The Bill proposes a clause which states that the CCI would not inquire into agreements referred to in Section 3 or into conduct of an enterprise or group under Section 4, if the same or substantially the same facts and issues raised in a previous information have been decided by the CCI in previous orders. This provision seeks to ensure that similar information(s) are not filed which requires the CCI to intervene, but it fails to take into account that market dynamics and state of competition keep on evolving. A classic example under the Indian context is the entire e-commerce analysis. In 2014, the CCI took the view that online and offline are not two different markets, but form a part of the same relevant market, and that online and offline are two different modes of distribution. Conversely, in 2019-20, the CCI took a prima facie view that online is a different market in itself. Thus, the CCI, based on the market dynamics and evidence on record, has adopted a different approach than earlier. This flexibility should be there since competition proceedings are proceedings in rem and there is no lis that is decided between the parties, hence the principle of res judicata or a version thereof, which seems to have been incorporated by way of the draft amendment, must need a relook since it may be counter-intuitive.

The author is founder & advocate, Sarvada Legal

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