Anti-competitive activities are those activities which hinder the free and fair competition of the market and bring such ideas into action that harm the consumers interest and increase their profit structure. Cartels belong to the same group of activities having anti-competitive nature. In the order dated July 10, 2020 the Competition Commission of India (CCI) passed an order against the offenders who were found guilty of cartel formation. In the matter CCI issued a cease and desist order instead of imposing any monetary penalty on the offenders. In this article an analysis is made in order to see whether this decision of the authority was the need of the hour or will the order serve as a dangerous precedent in the future.
CASE OVERVIEW: DIRECTOR GENERAL’S INVESTIGATION
On receiving the complaint from various railway offices, investigation was conducted by the Director General (DG) appointed by the CCI after which from the various evidences collected by the DG during investigation including e-mails and messages exchanged through SMSs and WhatsApp between the Opposite Parties, from the call detail records of their individuals and from the statements of their officials who were confronted with the evidences available against them it was found out that 10 brake block manufacturers were involved in the process of price fixation and quantities to be quoted in the tenders floated by the railways.
SUBMISSION OF THE PARTIES
In the submissions made by the Opposite Parties statements were made in order to show how the act was not causing any appreciable adverse effect on competition (AAEC). Firstly, As the Indian Railways is the primary buyer, it is the price maker and has significant countervailing buyer power thus the structure of the tender process eliminates all possibility of any price effect from the Opposite Parties’ side and in the absence of any price effect, no AAEC can be caused in the market. Secondly, quoting of established rates in the absence of direct evidence of cartel cannot be inferred as cartelization. Thirdly, the accused should receive the maximum benefit of penalty reduction as they have provided full, true and vital disclosures on its conduct relating to the supply of CBB to the Indian Railways. Lastly, although there was cartel formation but no AAEC was caused in the present matter.
- Whether the Opposite Parties had acted in a manner which is in contravention of the provisions of Section 3 (3) of the Act in the tenders floated by the divisions/ zones of the Indian Railways?
- 2- Who are the individuals/ persons/ officials of the Opposite Parties, who are liable in terms of Section 48 (1) or Section 48 (2) of the Act?
CCI’s FINAL ORDER
CCI in its final order held that the 10 brake block manufacturing companies have contravened the provisions of Section 3 (3) (a), 3 (3) (c) and 3 (3) (d) read with Section 3 (1) of the Competition Act,2002 (Act) during the period 2009 to 2017. The commission also held 11 persons of the 10 opposite parties liable under section 48 (1) of the Act and 26 persons liable under section 48 (2). CCI gave the following reasoning for the objections raised by the opposite parties: Some of the opposite parties have argued that same price was not quoted in the tender. In regard to this CCI observes that DG had relied on many evidences gathered from the email/ whatsapp conversations that same price was quoted in the tender. Hence, the claim of the opposite parties in misconceived. The opposite parties have made the claim that although there has been a cartel formation but there was no AAEC in the present matter. In response to this CCI stated that section 3 (1) of the Act clearly shows that not only the agreements which cause an AAEC but those agreements which are likely to cause an AAEC are forbidden. Furthermore, once an agreement of the types specified under Section 3(3) of the Act is established, the same is presumed to have an AAEC within India. Thus, the claim stands false. In view of the point that Indian Railways being a monopolistic player in the market when it comes to brake blocks the CCI stated that as a consumer Indian Railways is free to negotiate the price as it is for the benefit of the final consumers i.e. the passengers. Thus, Negotiations/ bargaining made by the Indian Railways does not detract from the factum of bid-rigging indulged in by the vendors in flagrant violation of the provisions of the Act. In view of the fact that CCI did not impose any monetary penalty on the accused the following reasons stated by the CCI – The opposite parties have cooperated in all the way possible and even admitted to the wrongdoings which made the investigation go smooth and without any hinderance. The companies in the cartel belong to the MSME sector and looking at the turnover in the CBB business and the in the situation of global crisis observes that most of the opposite parties have small turnover in this segment. The main objective of the punishment is to discipline the behavior of the accused and by the cease and desist penalty imposed by the CCI will fulfill the said objective.
In the order dated July 10, 2020 the CCI did not impose any monetary penalty on the accused and it turned out to be a point of discussion among the industry professionals and others. The main question that arises after this order is that whether this order of the CCI will serve as historic decision in this time of covid-19 or is going to turnout as a dangerous precedent in the future. As the adjudicating authority gave the reason of the global pandemic affecting the MSME sector another question that arises after this judgement is that whether all the judgements are going to be made considering the covid-19 situation and if such is a true fact then will that be fair for the other sectors of the nation. If the MSME sector had a severe blow in this global crisis another alternative could have been a reduction in the monetary punishment but simply ignoring the penalty which is a legislative provision and the fact that all the opposite parties cooperated with the authority and confessed all the wrongdoings conducted and considering that changing the punishment can serve as a dangerous precedent. The commission pointed out that the main objective of the penalty is to discipline the behavior of the opposite parties so that the act performed by the accused is not repeated and the penalty imposed by the CCI will fulfill the same. In response to the following justification by the commission the question arises is that by ignoring the monetary punishment, CCI is showing disrespect to the legislature or not by not imposing the penalty mentioned in the provisions of the Competition Act.
Precedents are an important factor which can affect any judgement in the future. Decision passed without considering any future happening can be disastrous for the legal fraternity. Fair judgements should be passed maintaining the base of equality following the fundamental rights enshrined in the Constitution of India. This article has made an analysis and suggested as to what other measures could have been taken by the CCI instead of passing an order of cease and desist.