Penalising cartels & enforcer’s dilemma

October 5, 2020 4:00 AM

The July 10 ruling of the CCI, issuing only a cease-and-desist order to the cartel-players, has sparked off a lot of debate. But, the fact is that the competition law allows the CCI to calibrate punishment, and it acted in the interest of fast market-correction

The CCI has explicitly warned the vendors against indulging in such behaviour in the future, failing which such conduct would be construed as recidivism and will invite aggravated penalties.The CCI has explicitly warned the vendors against indulging in such behaviour in the future, failing which such conduct would be construed as recidivism and will invite aggravated penalties.

By Sukesh Mishra

The July 10 ruling of the Competition Commission of India (CCI) that let off cartel participants with a mere “cease and desist” warning and didn’t impose any monetary penalty has generated a lot of debate and curiosity about the approach of the body in dealing with cartel cases in the future. The CCI concluded that several composite brake block (CBB) manufacturers cartelised to fix prices, limit supply, allocate market and rig bids of CBB tenders. The competition regulator had initiated the probe after receiving references from various Indian railway zones against CBB manufacturers alleging that they had cartelised by offering identical bids and reductions in price in response to the tenders floated by railway zones. After finding the players guilty of cartelisation, the CCI noted various mitigating and attenuating factors such as continued cooperation of the players with investigation and inquiry, admission of guilt, low revenue from cartelised product and the economic impact of COVID-19 on credit needs and liquidity of MSMEs; the commission refrained from imposing any monetary penalty.

No doubt, cartels are considered to be the most pernicious and egregious manifestations of anti-competitive behaviour and, consequently, a serious infraction of the competition law. Yet, the legislature itself, in its wisdom, chose not to criminalise such behaviour; rather, it provided a civil dispensation under the competition law to deal with such behaviour. In fact, recently, the Competition Law Review Committee (CLRC), which revisited the entire competition law, argued against such treatment.

The law prescribes a very enabling and flexible framework and the CCI is explicitly empowered to issue all or any of the remedies provided under the law, which include imposition of monetary penalty or issue of cease and desist order simpliciter. In fact, the law even envisions certain redeeming features of cartels such as efficiency-enhancing arrangements that take such cartels out of the purview of the statutory presumption of appreciable adverse effect on competition, which, in any event is rebuttable, and not absolute. The concept of crisis cartels is well-recognised across jurisdictions. Earlier, when the CCI imposed heavy penalty of Rs 6,300 crore upon cement companies for cartelising, there was criticism on quantum of the penalty, and this ultimately resulted in a ruling by Supreme Court which decreed that only relevant turnover (from cartelised product), and not the total turnover, to be taken into account by the CCI while imposing monetary penalties. This not only substantially and significantly weakened and diluted the deterrence of law, but also created arbitrage opportunities for cartelists.

In this case, the CCI explicitly revealed its mind in choosing against imposition of monetary penalties. To begin with, the parties cooperated during investigation and inquiry stage before the director general and the CCI, respectively and did not dispute and rather admitted their involvement. Such cooperation by the parties facilitated an early completion of investigation and inquiry, which otherwise involved multiple tenders spanning over many years. This resulted in faster market correction. In fact, in the context of leniency applicants (i.e., those who admit guilt and make vital disclosures alongwith continued cooperation), the law itself envisages waiver of penalties upto 100%.

One would appreciate that the ultimate objective of any anti-trust authority is to strive for speedier and faster market-corrections and not imposition of crippling monetary penalties and collection of revenue; these, in any event, are heavily contested and stayed by Appellate Tribunal and Supreme Court before attaining finality, thereby postponing the market-correction to a future and distant time. Markets are dynamic, and any anti-competitive behaviour must be dealt with swiftly. Also, one has to appreciate the impact of such heavy penalties upon the vendors who were mostly MSMEs and the product concerning the infringement (CBB) constituted only a small part of their businesses.

Many governments and competition agencies have relaxed the competition law framework during the pandemic by issuing relevant advisories. Back home, even the Insolvency and Bankruptcy Code has been suspended during the current times. Can this tempered public policy action be seen as a licence to defaulting borrowers and alleged swindlers of public money? On earlier occasions also, the CCI has refrained from imposing monetary penalties due to varied and case-specific facts, including abject lack of awareness of competition law on the part of small players—validating the very reason the legislature gave the CCI room for such flexibility; else, the statute itself could have provided for imposition of specified penalties. So, this is neither a first nor the last case where the CCI has calibrated penalties in proportion to the situation.

The CCI has explicitly warned the vendors against indulging in such behaviour in the future, failing which such conduct would be construed as recidivism and will invite aggravated penalties. This sufficiently protects the interests of procurer in future tenders. So, the regulator has to strike a balance by moulding remedies dynamically, keeping in view the larger goals of faster market-correction, rather than act like a cane-wielding headmaster to discipline market participants.

Finally, it is a settled law that discretion vested with the authorities should be exercised judiciously and fairly. Remedies in each case need to be crafted taking into consideration the specific and peculiar circumstances of each case. Decision in one case cannot set a precedent for future cases without regard to attendant facts.

The author is Adviser (Law). Competition Commission of India Views are personal

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