The antitrust dilemma: CCI must come out with detailed penalty guidelines to reduce uncertainty

January 22, 2021 7:00 AM

Globally, the competition authorities, including the European Commission, the US, and the UK competition authorities, have issued penalty guidelines to ensure that the penalty imposed does not become disproportionate.

Additionally, parties that had filed for leniency disclosing the existence of the cartel received the same treatment as others.

By Vaibhav Choukse & Nripi Jolly

This year will mark 12 years of enforcement by the Competition Commission of India. Despite several challenges to its jurisdiction and recent upheavals stemming from the pandemic, the CCI has emerged as a strong economic regulator. It has imposed fines of approx Rs 15,000 crore on companies and individuals undertaking such practices. Interestingly, it only recovered 1% of it as most penalty orders have been appealed by the parties challenging its legality, ie, the proportionality of the fines imposed. Recently, the two cartel infringement orders re-opened the never really settled debate on optimal sanctions against cartels—whether the sanctions for cartels were characteristic of over-enforcement or under-enforcement?

The first case relates to cartelisation in the supply of industrial and automotive bearings to automotive manufacturers between 2009 and 2011. The CCI initiated an investigation based on a leniency application filed by Schaeffler, having noted that the Bearing Companies met to discuss pricing strategies for seeking price increase from various automotive manufacturers. While CCI held that they indulged in cartelisation, it decided against imposing a penalty concluding that “ends of justice would be met if the parties cease such cartel behaviour and desist from indulging in it in future”.

The second relates to bid-rigging in the supply of composite brake block (CBB) to Railways by 12 CBB manufacturers between 2009 and 2017. A complaint by IR led the CCI to investigate the case, which found smoking-gun evidence of cartel, including Whatsapp chats of CBB manufacturers, and admissions during deposition by the company representatives on the agreement to fix price quotations and quantity inter se while bidding for the tender. Again, the CCI decided against imposing a penalty because of mitigating factors, including “…economic impact of Covid-19 on the credit needs and liquidity of MSME”.

These orders raised eyebrows at the lenient view taken by the CCI, especially in cartel cases because cartel agreements: (i) culminated in the pre-Covid-19 period, ie, between 2009 and 2017; and (ii) involved bid rigging in public procurement, ie, the use of taxpayers’ money. Additionally, parties that had filed for leniency disclosing the existence of the cartel received the same treatment as others.

The cases have reinforced the need for penalty guidelines. There is a real sense among the competition authorities that, if competition law is about one thing above all, it is the detection and punishment of cartels. Evidence of recent action in this area demonstrates that even the possibility of substantial fines is insufficient to deter firms as firms end up profitable even after they pay all the penalties.

Globally, the competition authorities, including the European Commission, the US, and the UK competition authorities, have issued penalty guidelines to ensure that the penalty imposed does not become disproportionate.

In 2017, the SC in the landmark case of Excel Crop stressed the need for indigenous consideration (rather than reliance on foreign jurisprudence) while determining antitrust penalties and observed that proportionality needs to be factored into any penalty imposed.

Following the lead, in 2019, the Competition Law Review Committee, in its report inter alia acknowledged the need for penalty guidelines and recommended that the CCI should be ‘mandated to issue guidance on imposition and computation of penalties’, which subsequently found a place in the draft Competition (Amendment) Bill, 2020 released by the MCA in March 2020.

Effective competition authorities aim to strike a balance between punitive and appropriate sanctions. While imposing penalties, the CCI has been conscious of striking a balance between the need to deter anti-competitive conduct and keeping the markets competitive instead of killing an enterprise and wiping off competition. While there cannot be soft pedalling in such cases, due consideration needs to be given to aggravating and mitigating factors while arriving at the quantum of penalty. CCI must come out with detailed penalty guidelines to encourage companies not to indulge in such activities.

Choukse is a partner and Jolly an Associate, competition law practice, J Sagar Associates, New Delhi. Views are personal

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