Open Access Research Article
THE EPISTEMOLOGY OF CARTELS IN THE INDIAN LEGAL SYSTEM
Published Paper
Article Details
THE EPISTEMOLOGY OF CARTELS IN THE
INDIAN LEGAL SYSTEM
AUTHORED BY- NINAD BOHIDAR
BBA LLB(H), 5th Year
Amity Law School Noida, Amity
University Uttar Pradesh
Abstract
A cartel
is an organisation made up of manufacturers or vendors of a thing or service
that band together to deliberately control the supply and manipulate pricing of
that good or service in order to get an unfair advantage over other rivals in
the market. A cartel serves as a weapon to suppress current rivals and impede
the entry of new players into the market. A wide range of alternatives and
choices for customers often acts as a catalyst for businesses to provide better
goods and services at more competitive pricing in an extremely competitive
marketplace.
Such an
incentive helps the economy expand and increases output in addition to the
advantages to the customer. When these corporations or enterprises band
together, it hinders the nation's economy from expanding and lessens
competition.
This paper will explore the
epistemology of cartels, study the history and working of a cartel. It will
further talk about the MRTP Act and transition to the
Competition Act of 2002. It shall further discuss the problems
related to Bid-rigging and Price Fixing, the problems that foster within
cartels and the problems faced by the government in the detection of such
cartels. Further this paper will also provide the investigatory and sanctioning
remedies attached to the prosecution of cartels.
Keywords:
Cartels, Epistemology, Competition
Introduction
The bulk
of the people is expected to contribute and participate in the economy of a
country without engaging in activities that might have the opposite impact.
Yet, the previously suggested scenario may actually come true in a perfect
society where everyone's thoughts function in perfect unison. In actuality,
psychology reveals, every individual possesses a specific cognitive process
that serves as the catalyst for a unique viewpoint on the world and oneself.
The entire
idea of cartels and how it affects the economy will be the focus of this essay.
However, putting cartels aside for the time being, what if we focused on the
psychology of certain producers? It is implied that those who work as suppliers
or producers would have a tendency to form a cartel in order to control pricing
and limit output and guarantee a steady stream of income. But every person runs
their firm for their personal gain and expansion, to have the most market
demand and advance comparatively more quickly than their rivals. As a result,
joining a cartel seldom leads to long-term personal development and the ability
to conduct business independently.
Given the
idea that people might readily break away from cartels, provide competitive
rates, and boost their own consumer demand, why then is it so difficult to
attain perfect competition?
This
theory can only be supported by the fact that suppliers and manufacturers fear
fierce competition and believe that sharing revenues equitably among cartel
members is preferable to losing their own companies to dwindling and pointless
revenue. However, the stability and security that these cartel agreements
typically provide come at the expense of other rivals or recent arrivals who
are not members of the cartel. This is against both Article 19(1)(g)[1]—which
deals with the concentration of economic power—and Article 39 (b) & (c)[2],
which guarantee all citizens the freedom to engage in any profession or to
carry on any trade, business, or vocation.
By
agreement among themselves, distributors, sellers, producers, or service
providers who restrict control or attempt to control the production,
distribution, sale or price of, or trade in, goods and services, are referred
to as cartels under Section 2(c) of the Competition Act, 2002[3].
The ‘Monopolies and Restrictive
Trade Practices Act of 1991[4]’ and
after its repeal the ‘Competition Act of 2002[5]’ serves
as the legislation aimed at promoting competition and maintain freedom of
business.
The MRTP
Act was met with a number of objections and restrictions that limited its
effectiveness. These included extensive government supervision and
intervention, which further deterred expansion and investment prospects in
emerging companies. Furthermore, the legislation ignored the effects of
globalisation and the government's liberalization-promoting measures in favour
of regulating monopolies and inspecting restrictive trade practices.[6]
In 1999,
the Indian government established a committee with the aim of offering
suggestions and serving as an advisor to the modernising Indian competition
law. The objective was to bring the legislation into line with global economic
practices and trends, and to establish a legislative framework and structure
for amending the MRTP Act.[7] In
December 2002, ‘the Competition Act of 2002’ was enacted
by the parliament following extensive examination, survey, and deliberations.
The country's economic development was to be supported and encouraged, the ‘Competition
Commission of India’ was to be established, trade freedom in
domestic and international markets was to be strengthened, and consumer
interests were to be protected. [8]
The Competition Act further
acknowledged the existence of cartels and the ways in which they undermine an
ideal market by expressly prohibiting businesses, individuals, or groups from
entering into "Anti-Competitive Agreements" and
designating such agreements and their operation as civil offences. The Act's
Section 3(1) forbids any agreements that could have a significant adverse
effect on competition (AAEC), and Section 3(3) lists the consequences of such
anti-competitive agreements. Businesses, individuals, or associations that
enter into such agreements and engage in a comparable trade of goods or
services risk the following outcomes from their agreements:
·
Price
manipulation
·
Reducing
the amount of products produced or supplied
·
Bid
manipulation - Market division according to region
History of cartels
Throughout
economic history, cartels have played a crucial role in shaping markets and
undermining ideas of fair competition. Cartels have changed in form and
function from antiquity to the present, having a profound effect on economies
all over the world.
The
origins of cartels may be seen in mediaeval guilds and other historical
civilizations like the Roman Empire. Guilds governed a variety of trades and
industries in these prehistoric cultures, setting standards for output, cost,
and quality. By essentially establishing monopolies within their particular
industries, these agreements reduced competition and consolidated economic
power.[9]
European
nations adopted mercantilist strategies from the 16th to the 18th century with
the goal of building up their economies through trade. During this time,
cartels were very important because governments gave chartered firms like the British
East India Company and the Dutch East India Company
exclusive trading rights. These businesses functioned as de facto cartels, monopolising
trade channels and gaining control over large swaths of territory to dominate
world trade.[10] Cartels
gained prominence in the 20th century and then fell apart. International
cartels trying to control global markets rose to prominence in certain areas,
such telecommunications, and pharmaceuticals, while other industries
experienced an increase in regulatory scrutiny and legal challenges. To further
encourage competition and stop anti-competitive behaviour globally,
international organisations such as the European Union (EU)
and the World Trade Organisation (WTO) were established.
Working of a cartel
The cartel
is driven by a main aim, a desire to operate in concert and for each other's
profit, and an unlawful agreement that has an ‘appreciable adverse
effect on competition (AAEC)’ that allows the cartel to monopolise
the market. Cartels are supported by the mutually trusting and dependent
connection that has grown between them. This relationship is vital to their
survival as co-perpetrators, as it allows them to enforce explicit and covert
agreements that limit and control outputs, pricing, and market share. Thus,
eliminating any potential for market competition by designating
responsibilities and prescribing what each member must decide about pricing,
production, bidding, location, and serving a certain customer base.
The
distinction between the two types of mechanisms—Vertical Agreements and Horizontal
Agreements—on which a cartel operates may be made with the use of business
and industrial relations.
Horizontal
agreements are made up of groups of companies or organisations that sell similar
goods or services or operate at the same level of production.
The Competition
Act of 2002 defines horizontal agreements under ‘Section
3(2)’. These corporate arrangements and coalitions, also referred to as
cartels, deal with complimentary, homogeneous, and interchangeable goods. Such
coordinated behaviour among competitor enterprises has the effect of
restricting and impeding competition since it creates the same "market
power" as would arise in a unilateral example of abuse of dominance.
Prices are set by the cartel members for an absolute and predetermined market
profit share. This is another example of collusive behaviour meant to foster
common economic gains at the expense of the general public's interests and
circumstances. The allocation of geographic territory to a cartelist or group
of cartelists in order to divide market earnings and production demands at a
predetermined and set rate is another one of these cartels' detrimental
activities. Cartelists also engage in collusive behaviour while bidding when
they consciously choose to take on non-competitive jobs and designate one
member to pay competitive pricing in order to win the tender and split the
proceeds.
Vertical
agreements are typically made between companies and organisations that operate at
various production levels and rely on one another's goods to run their own
operations. These kinds of supply and production chain agreements typically
hold true when one product is logically required for the proper operation of
the other.
Furthermore,
studies have shown that industries with high levels of population concentration
are more likely to experience cartel formation. Comparably, cartels are also
more common in smaller geographic areas since small marketplaces are less
likely to have a small number of businesses that own a significant percentage
of the corporation. Product homogeneity is also a prerequisite for
cartelization, as companies find it more difficult to determine comparable
prices when their products differ from one another. Every time a product is
changed, a new, similar price needs to be established. Partner dishonesty is
also easily detectable as a cartel only needs to consider one cost. Second,
cartels form when members believe they would lose more money by joining than
they would make. This mostly depends on the likelihood that an individual is believed
to be caught and the severity of the punishment they anticipate receiving. When
there is a higher chance of getting caught and more severe predicted
punishments, the expected profit from forming a cartel decreases. Therefore, in
order to compute the overall benefits of cartel formation, participants must at
least have an idea of the possibility of being found out in order to engage. Finally,
even if a potential cartel managed to gradually raise prices without being
discovered, it would fail if the initial costs of organisation and associated
monitoring charges exceeded the expected profits. In order to prevent cheating,
companies have to keep a close eye on one other's behaviour. Because this type
of work may be costly, members may choose to establish a contributing plan to
help with the costs. To have the lowest operational expenditures feasible, a
cartel should only consist of a small and manageable number of businesses.
Bid-Rigging and
Price-Fixing
Bid
rigging, which is prohibited by the Competition Act, is
considered to be the cause of AAEC. ‘Section 3(3)(d) of the
Competition Act’ genuinely covers all present and prospective
bidders for any tender, irrespective of their involvement in the manufacture or
sale of the products that are allegedly violating at the time of bidding. The
allegation of a bid-rigging arrangement cannot be maintained if there is no
evidence of collaboration between participating bids and non-participating
enterprises, or if participating bidders knew in advance that other companies
were not participating. [11]
The "Competition
Commission of India" oversees and monitors instances of bid
manipulation, mainly involving public tenders, and serves as a watchdog in
these circumstances. When it comes to Suo-moto investigations into possible
bid-rigging incidents in India, the "CCI" has been aggressive. Because
it is difficult to identify bid rigging, CCI depends on inferential evidence.
As a result, the frameworks and procedures for circumstantial evidence that CCI
uses to identify large-scale rigging are:
·
The charges in previous bids were noticeably lower
than those stated now.[12]
·
The upsurge of phone calls and text messages
between bidders preceding the actual bid.[13]
·
The bidders exchanging confidential and sensitive
information prior to the bidding procedure. [14]
·
In spite of different production rates, taxes, and
other factors, bidders are increasing their prices in a comparable manner. [15]
·
Freight costs quoted in a comparable manner.
·
The whole amount offered, which corresponds to the
total amount jointly bid for by the bidders, as well as any communication
included in the call detail logs, message screenshots, and any supporting
documentation submitted with the bids. [16]
Another
functional mechanism that powers a cartel is price fixing. This specific
process is dependent on cartel decisions, which band together to manipulate
market dynamics related to supply and demand and alter pricing. In the same way
that bid-rigging causes AAEC, price-fixing does too. As a result, price-fixing
entails cartel collaboration, which cannot be demonstrated in the absence of
proof from the former. The CCI observed in a "fabric firms' case"
that price parallelism in bid quotations did not always indicate conspiracy
among the fabric industry. As a result,
the CCI closed the case without offering any evidence of a consensus or
agreement. The exchange of information is one of the additional criteria for
establishing and demonstrating price fixing; in contrast, parallel behaviour
alone is insufficient to establish collusion. Charges against many airlines
were dropped by CCI when it was discovered that the airlines had used several
software programmes that produced disparate pricing inputs based on certain
algorithms.[17] In
actuality, this was in line with the CCI's rules, which state that while price
parallelism alone cannot demonstrate collusion, other factors combined with
unexplained price parallelism can help demonstrate deliberate and collusive
agreements.[18]
Detection Of Cartels
It is a
difficult undertaking for the competition authorities to provide tangible
evidence of a cartel's existence.[19] The procedure of locating and
identifying cartels is quite strict. The growth of globalisation has made it
worse since financial transactions are now carried out digitally rather than on
paper and across national borders, enabling various market players to produce,
sell, and buy goods from counterparts in other countries. Distance is not a
problem anymore. Average customers are more susceptible to exploitation since
firms are now more powerful and better equipped to implement their cartel
agreements. Almost
every country with competition laws requires proof that an agreement even
exists. Alternatively said, businesses involved in a partnership case cannot be
convicted only on the basis of parallel pricing; however, parallelism is often
used as an effective defence tactic, beating competing authorities with fewer
resources for knowledge or investigation. Even when it is evident, cartelist
action can be difficult to spot and even then, it can be impeded by several
countermeasures. US and European courts have adopted the
"parallelism plus" strategy, which requires proving the existence
of "plus factors" in addition to the firms' parallel activity
in order to establish the existence of an antitrust violation.
‘The
Secretary of Economic Monitoring (SDE)’ has been
instrumental in creating a framework to oversee and consider matters pertaining
to competition based on pricing trends and profitability. First, the profit
ratio's trend is validated.[20]
The complaint is abandoned in light of the interpretation that a steadily
diminishing profit margin is proof of market competition. Second, it's critical
to determine whether a gain in margin is linked to a narrowing of the price
range. The complaint is withdrawn if not. Third, in the event that a margin
increase takes place, it is necessary to verify if the margin's behaviour and
the price's propagation throughout a state's geographic area follow the same
pattern. If they
do, the claim is dismissed. Therefore, investigations will only be conducted in
cases where a drop in price range that deviates from the official price set by
the State is related with a margin gain.[21]
Factors Determining the Existence of a Cartel
a) Presence of Trade Unions –
The organisational
expenses of a cartel are significantly decreased in the presence of a trade
association. Trade associations lower the cost of meetings and coordinate
activity amongst companies in a market, which helps in the establishment and
maintenance of cartels. According to a recent investigation, trade unions
representing different transport truck owners, cement manufacturers, mill
owners, grocery merchants, etc., may have conspired to create cartels operating
under their auspices. Hence, the CCI will be closely monitoring these
Business/Trade Unions and Associations. It is standard procedure to obtain
whistleblowers from trade unions that experience cartelization by offering
their members incentives and protection in exchange for disclosing information
about how the cartel operates.
b) Public Policies and Cartels
Government policies also
encourage cartel conduct, especially when they divide an industry into small
subsectors or make prices readily available to all parties. The general
assumption that most government policies are created and implemented with the
intention of promoting competition is not always followed. The State
Governments' practice and policy of giving local units priority when making
procurement choices is one example that may be observed in India. Under such a
plan, small-scale business sector units are given preference in pricing and/or
buying in order to protect and promote these units. These could be better in
the context of the state's overall development policy. However,
issues arise when the scheme encourages the formation of a cartel of local
producers that is solely dependent on public assistance. [22]Midway
through the 1980s, the Rajasthan government had issued an order requiring the
purchase of a certain quantity of barbed wire from domestic manufacturers. As a
result, the ‘Rajasthan Barbed-wire Manufacturers Association’ is
claimed to have been established as a "cartel." By tacit agreement,
this group paid the expenses and divided the whole stock of barbed wire among
its members. Collaboration stifled competition, which led to the creation of
inferior barbed wire. But because of its policies, the Government was compelled
to buy barbed wire at a price greater than what was available on the free
market. These local producers were unable to compete because of their
dependency on government assistance. Over time, local units were compelled to
close due to changes in government procurement laws, and the group was
dissolved.
c)
Procurement Policies
Local contractors
participate in a variety of government construction projects by means of
tenders and bids. Project procurement tenders are typically given through a
bidding procedure. This seemingly perfect process was unable to get the desired
results because there are situations in which bidders collude and a contracting
mafia exists. These inclinations suppress competition and make it impossible
for the bidding process to produce useful results. In addition, there is a
trend for contracts to be awarded in bigger packages, which precludes smaller
contractors from bidding on the project, reducing competition and encouraging
larger companies to work together.[23]
d) Excise Policy
Alcohol distribution and
marketing regulations that are not up to par have encouraged cartelization.
Some countries put up for auction licences to sell alcohol across large
geographic regions; this restricts competition to a small number of players who
can afford and have the required financial resources to run their companies. It
so eventually leads to cartelization, which diminishes consumer choice and
reduces government revenue. A lottery system is being used by some state
governments to issue liquor sales licences in an attempt to put an end to this
conspiratorial activity. Because of this, it is now simpler to stop collusive
activity.[24]
Understanding how cartels operate is
essential to identifying them. Understanding the problems cartels face is
particularly important since it often leads to the discovery of evidence of
their existence. A cartel must overcome difficulties or problems in order to
thrive. It must be able to raise prices above the level of competition and hold
them there long enough to produce monopoly profits in order to be successful.
To be successful, the cartel must first and foremost incorporate all
significant and pertinent market players. Second, the cartel's members must
agree on the terms of the pricing to be charged, the division of market share
among them, or any other need. Thirdly, all parties involved must affirm that
they would not try to trick the cartel into giving a little price cut in an
effort to get a significant boost in sales. It's likely that each of these
problems will reveal evidence of the cartel's existence.
a)
Agreement of Cartelists on the Cartel
Agreement-
If
there are major competitors who do not meet the requirements to become members,
the cartel will not be able to function as intended. Outsiders have the
potential to sell for far less than cartelists. Because of this situation, the
cartel members are under pressure to reduce their prices. If a cartel member
competes more directly with an outsider than with other members, the outsider
will put pressure on the member to reduce their pricing. This situation might
lead to internal conflict within the cartel. As a result, the cartel has ample
reason to seek to include all of its main competitors. It may be possible to
show proof of the cartel in an attempt to include every enterprise. Initially, there can be documents
from the cartel firms that indicate discontent with the outsider's decline to
become a member of the cartel. Secondly, the cartel may be mentioned or made
clear via letters or other documents sent to the outsider. Third, a non-member
who has been contacted to join a cartel may reveal the details of the
organisation that were given to them in an attempt to convince them to do so.
b)
Reaching to a consensus
The
cartel needs to come to an agreement on important terms. For example, a cartel
that sets pricing must choose a price. This could not be an easy process
because different firms might have different goals. Lower-cost corporations
will want lower pricing, while higher-cost ones will seek very high cartel
prices. The members of the cartel must agree on a complicated price plan when
there are several items involved. If the products from several firms are not
the same, they will have to make a compromise on the pricing ratio. It becomes
more challenging to come to necessary agreements the more meetings or phone
calls that are necessary.
The more complicated the agreement is, the more likely it is that they
have prepared paperwork explaining, recording, or implementing its terms. In a manner similar to this, a cartel that
splits up bids, territories, or clients must agree on the split.
c)
Internal
Politics
Cartels
are inherently unstable. To put it broadly, all of the participants are capable
of producing and selling substantially more than is allowed under the cartel
agreement. This is because a cartel has to establish pricing in order to
operate. Once the product's cost is raised, less of it can be sold. One way a cartel
member may dramatically increase its revenues is by producing more of the item
and selling it for a bit less than the agreed upon price. But if they all
behave like this, the cartel will fall apart. Therefore, it is essential for the cartels as
a whole to make sure that no member undercuts their prices. Members of the
cartel may also fool the cartel in a variety of ways, such by offering hidden
discounts, raising the calibre of their products, skipping out on shipping
costs, and more. Cartels frequently engage in similar forms of cheating, and it
is typical for them to look into this activity and either cease it entirely or
recognise and address it.
The
evidence that may be acquired to show a cartel agreement is primarily
circumstantial due to the inherent secrecy of cartels. In most circumstances,
even in the lack of direct agreement proof, it is legally possible to continue
a cartel prosecution, despite the fact that doing so is risky. Failure is quite
likely to occur. A cartel prosecutor often seeks more direct evidence; but, as
previously said, this kind of evidence is difficult to get and calls for
specific techniques and resources, such as dawn raids and leniency measures.
Typically,
the initial information a government agency receives about cartel activity
comes from an enemy who may not have been part of the cartel structure, or from
a direct or indirect customer of the cartelized goods. However, information can
also come from any member of the public who just so happens to learn about a
problem or has reason to believe that there is cartel behaviour going on.
Customers and disgruntled employees are frequent sources of information for
agencies on possible cartel activity. Information that is not supported by law
is swiftly identified by a stringent screening process.
In re:
Sugar Mills, the CCI sought evidence of the alleged cartel members' meeting
and determination to undertake coordinated action, evidence of the coordinated
activity's implementation, and conclusive evidence of an exchange of the
collective minds.[25]
Furthermore,
the CCI decided in the ‘Gas Cylinder Manufacturers’ case that the
"balance of probabilities" and "liaison of intention"
standards should be applied to provide proof since cartelization is not
prohibited. Both unintentional and deliberate proof can be used to support
these tests. The CCI noted that while direct evidence of a cartel is difficult
to come by, one might utilise circumstantial evidence to support the validity
of a cartel.[26]
Market
participants are suggesting that their actions and conduct cannot be explained
"but for" a coordinated anti-competitive agreement and activity by
employing the "balance of probability" test to determine an
agreement. The Commission has even gone so far as to prosecute cartels based
merely on circumstantial evidence, undermining the prior stance on the level of
proof required to establish a cartel and contributing to the corpus of knowledge
pertaining to competition law. Currently, the "parallelism plus"
approach is employed by the government to ascertain the existence of cartels.
This implies that specific similar behaviours among the market participants are
necessary to provide proof of collusive activity by a cartel.[27]
The
Commission considered "plus factors" in the Cement
Cartel case, such as a decrease in capacity utilisation and price
adjustments after association meetings that provided a venue for dialogue and
information sharing, in addition to the emergence of price parallelism.[28]
Investigative Mechanisms
To properly understand the
requirements of building a case against a cartel, one must have a thorough
understanding of the Commission's investigation jurisdiction. Section 26(1)[29]
must be followed by the Director General ("DG") when
the Commission requests that the DG investigate any Act infractions. The DG
needs to adhere to the guidelines set forth by the Commission. The evidence
gathered during the investigation is only one factor the Commission takes into
account to bolster its belief that a cartel is in place. Other factors include
market share, cost of sales, the conduct of the participating companies, and
other factors. Before making a decision, the Commission takes the DG's report
into account. The results of the DG's investigation are included in this
report, along with many additional elements that are regarded as circumstantial
evidence. The dynamics of supply and demand, parallelism in price changes, and
comparisons with other players in the relevant market are a few examples of
these factors. There are parallels between competition law and the use of
circumstantial evidence in the criminal prosecution system. When considering a
criminal case, the court considers all relevant factors and decides if any one
element or point contradicts another or shatters the link. If all the evidence
points to the accused's guilt, the court still maintains the conviction. In
criminal law decisions, the court also takes public safety and interest into
account. Similar to what happened in the Cement Cartel case, the
Commission has said that it will penalise parties if there are convincing
circumstantial evidence of a cartel and if the activity is anti-competitive for
the market. The Commission has investigated anti-competitive behaviour and
gathered evidence using a variety of tactics, including as dawn raids and
leniency legislation.
a) Dawn Raids
Unexpected visit to the
workplace of a possible cartel operator with the goal of acquiring digital or
paper documentation of a cartel agreement. Dawn searches are frequently
effective and not too hard to do, particularly if the accused companies don't
want to cooperate. A growing number of competition authorities worldwide are
effectively employing the dawn raid tool. One might probably make the case that
an anti-cartel operation cannot be completely successful if this
evidence-gathering tool is not used. However, it is important to remember that “Section
220 of the Companies Act of 2013”[30]
states that following the
guidelines of the “Code of Criminal Procedure (CrPC)[31]”
is necessary in order to get a warrant. Following this, the legislation should
have also been modified to comply with the present Companies Act, but this
hasn't happened. Regarding the "Beer cartel case,"
morning raids were conducted on the headquarters of Carlsberg, United
Breweries, and Anheuser-Busch following the discovery during this
operation of an email exchange revealing discussions regarding price fixations.[32] This was concrete evidence, the
type that can't be found with a standard investigation. The amendment attempted
to loosen the strict requirements of the court warrant and advised that the
search and seizure procedure adhere to the CrPC by granting the Commission Chairman
the power to authorise the DG to conduct raids on their own. The lengthy wait
times associated with the current warrant application process allow businesses
enough opportunity to destroy any evidence that may be used against them. The
element of a dawn raid, which is a surprise break-in while individuals are
searching for evidence, is also removed.[33]
b)
Leniency Regulations
Referred
to in the Act as the "Competition Commission of India (Lesser
Penalty) Regulations,2009," the leniency plan is to be followed. The applicant who reports the presence of a
cartel may be entitled for a reduced penalty under these provisions, provided
that the essential prerequisites are fulfilled. For example, in accordance with
the Commission's requirements, the applicant must furnish all relevant details
on the purported cartel and abstain from fabricating or altering any
significant documents or data. The applicant must collaborate with the
Commission in a timely and honest manner. It is important to keep in mind that
being lenient is an elective solution. Despite the plan's assurances of confidentiality,
the Commission has to build confidence in the leniency programme to encourage
cartel members to come forward with important information and get in touch with
the agency. These kinds of constraints have made it easier to get direct and
compelling evidence against the participating firms.
Sanctions
of Offences
Under Section
27 of the Competition Act[34],
the CCI may impose on each cartel participant a fine equal to three times the
income for each year the cartel runs, or up to 10% of revenue for each year the
cartel operates, whichever is bigger. However, there are no guidelines for
punishments that list the possible factors to examine when determining the
seriousness of a specific cartel case, nor do they outline any aggravating or
mitigating conditions.
To date,
the CCI has penalised cartelization in a number of ways. The "Aluminium
Phosphide Cartel"[35]
penalised three manufacturers of aluminium phosphide with 9% of their average
turnover, "the Cement Manufacturers' Association"[36]
with 10% of their average turnover, the 48 "LPG manufacturers"[37]
with 7% of their average turnover, and "the Shoemakers Cartel"
with 5% of their average turnover. These sanctions are but a handful of the
many that the CCI has levied against cartelization.
Conclusion
Over
the years since the Competition Act went into effect, the CCI has
investigated businesses involved in the cement, pharmaceutical, steel, real
estate, shoe manufacturing, LPG cylinders, and tyre industries, among other
industries. The CCI has also launched a number of competition advocacy
programmes with a particular focus on cartelization. The CCI has been an aggressive
regulator with a major focus on competition advocacy programmes meant to raise
awareness about basic principles of competition. To incentivize cartel members to become informants and
deter involvement in cartel operations, the CCI's leniency programme is
extensively promoted. It is thought that greater public knowledge will
incentivize informants to disclose instances of cartelization and other
anti-competitive behaviour, which will facilitate the CCI's work of
guaranteeing a competitive market. Enforcement in previous years has also amply
illustrated how urgently the CCI needs to develop penalty guidelines. A
competition compliance programme may serve as a mitigating factor in favour of
the business under investigation, according to informal indications from the
CCI. More clarification is nonetheless required about the aggravating and
mitigating elements that the CCI considers when determining the maximum
penalty—10% of turnover or three times the profit—that may be imposed on a
business for each year the cartel remains in operation. It is
evident that the CCI is going to have the complete backing of both the
government and the industry given the growing sternness with which they view
the importance and necessity for successful regulation of competition in India.
This support will be used to combat the adverse impacts of cartels on Indian
markets through the use of discouragement and education initiatives.
When it comes to executing dawn raids and handling confidentiality issues, the CCI still has a ways to go before reaching the same degree of expertise as the EC. But the former has come a long way in the short time it has existed, and it is obvious that the CCI will probably continue the fight against cartelization in the same manner that the EC has.
[1] The Constitution of India, 1949,
Art. 19(1)(g)
[2] The Constitution of India, 1949,
Art, 39
[3] Competition Act, 2002
[4] Monopolies and Restrictive Trade
Practices Act, 1969
[5] Ibid at 3.
[6] Sharddha Jain, Competition Law in
India, iPleaders, (last visited 02.03.2024), Available at -
https://blog.ipleaders.in/competition-law-in-india-2/#Emergence_of_Competition_Act_2002
[7] Sabapriya Ray, Emergence and
Applicability of Competition Act, 2002 in India’s New Competitive Regime,
IISTE, Journal of Law, Policy and Globalization, ISSN 224-3259, Vol.1,2011.
[8] Supra at 7 .
[9] Chandler, Alfred D. Jr. The Visible Hand: The Managerial
Revolution in American Business. Belknap Press, 1977.
[10] Jones, Geoffrey. "The Growth of Cartels in Europe,
1900-1939." European Review of Economic History, vol. 1, no. 1, 1997, pp.
89-115.
[11] Https://globalcompetitionreview.com/review/the-asia-pacific-antitrust-review/2022/article/india-cartels
[12] Director, Supplies &
Disposals, Haryana v Shree Cement Limited and Ors (Case No. Case No. 5 of 2013)
[13] Western Coalfields v SSV Coal
Carriers Private Limited (Case No. 34 of 2015).
[14] In re Cartelisation by
Broadcasting service providers by rigging bids submitted in response to the
tenders floated by Sports
Broadcasters (Suo motu Case No. 2 of 2013)
[15]
Delhi Jal Board v Grasim Industries Ltd (Ref Case Nos. 3 and 4 of 2013).
[16] Alleged Anti-competitive conduct
in Beer Market in India (suo motu Case No. 06 of 2017)
[17] Ms. Shikha Roy v Jet Airways
(India) Limited and Ors (Case No 32 of 2016).
[18] Builder’s Association of India v
CMA and Ors (Case No. 29 of 2010)
[19] Abhir Roay And Nishchal Joshipura,
“Cartels in India”, Competition Law Insight (January 12, 2010),
https://www.nishithdesai.com/Content/document/pdf/ResearchArticles/Cartels%20in%20India.pdf
[19] (1968) 3 ALL ER 721.
[20] Paolo Buccirossi (2006). “Does
Parallel Behaviour Provide Some Evidence of Collusion”, LEAR –
Rome <http://www.bepress.com/cgi/viewcontent.cgi?article=1027&context=rle>
[21] DAF/COMP/GF/WD (2006).
37,“Contribution from Brazil”, Roundtable on Prosecuting Cartels
Without Direct Evidence of Agreement, Global Forum on
Competition
[22] Dayal,
P and Agarwal, M (2006). “State Government Policies and Competition”, Towards a
functional
competition policy
for India, Pradeep S Mehta (Ed), CUTS International & Academic Foundation
[23] Supra at 21.
[24] Ibid at 21.
[25] In
re: Sugar Mills, Case No. 1 of 2010 (CCI).
[26] Suo
Motu Case Against LPG Cylinder Manufacturers, In re, [2012] CCI
[27] All India Tyre Dealers’ Federation
v. Tyre Manufacturers, 2012 SCC CCI 65
[28] Builders Assn. of India v. Cement
Manufacturers’ Assn., 2016 SCC CCI 46
[29] Competition Act, 2002, S.26
[30] The Companies Act, 2013, s.220
[31] The Code of Criminal
Procedure,1973
[32] Aditya Kalra and Aditi Shah,
Exclusive: Carlsberg, United Breweries plead leniency in India Beer Cartel
Probe – Sources, Reuters (Last Visited 13-2-2024, 7.10 p.m.),
https://www.reuters.com/article/india-regulator-brewers/exclusivecarlsberg-united-breweries-plead-leniency-in-india-beer-cartel-probe-sources-idINKBN1OC1QQ
[33] Avirup Bose, Circumstantial Evidence and Dawn Raids: A New
Era of Antitrust Investigation in India (4-4-2013) Competition Law Reports,
April 2013
[34] Competition Act, 2002, s.27
[35] Aluminium Phosphide Tablets
Manufacturers, In re, 2012 CCI 23.
[36] Builders Assn. of India v. Cement
Manufacturers’ Assn., 2012 CCI 42.
[37]Suo Motu Case Against LPG Cylinder
Manufacturers, In re, 2012 CCI 1
Article Information
THE EPISTEMOLOGY OF CARTELS IN THE INDIAN LEGAL SYSTEM
Authors: NINAD BOHIDAR
- Journal IJLRA
- ISSN 2582-6433
- Published 2024/04/15
- Issue 7
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International Journal for Legal Research and Analysis
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