This country-specific Q&A provides an overview to cartels laws and regulations that may occur in India.
This Q&A is part of the global guide to Cartels. For a full list of jurisdictional Q&As visit http://www.inhouselawyer.co.uk/practice-areas/cartels/
What is the relevant legislative framework?
The Indian competition law is governed by the Competition Act, 2002 (Competition Act), and the related rules and regulations. Section 3 of the Competition Act prohibits agreements that cause or are likely to cause an appreciable adverse effect on competition (AAEC) in India, and such agreements are void. Horizontal agreements, including cartels, between competitors which (a) fix prices, (b) limit/control production, supply, markets, technical development, investment or provision of services, (c) share markets or sources of production or provision of services, or (d) result in bid rigging or collusive bidding, are presumed to cause an AAEC under Section 3(3) of the Competition Act. This presumption does not apply to efficiency enhancing joint ventures.
The Competition Act defines “cartel” to “include an association of producers, sellers, distributors, traders or service providers who, by agreement amongst themselves, limit, control or attempt to control the production, distribution, sale or price of, or, trade in goods or provision of services”.
To establish an infringement, does there need to have been an effect on the market?
Yes, there must be an AAEC or a likelihood of an AAEC in India. Cartels are presumed to cause an AAEC, so, once the cartel has been found to exist, the Competition Commission of India (CCI) is not required to assess whether it has or is likely to have an AAEC. The presumption is rebuttable, with the burden of proof then shifting on the parties concerned to establish that the agreement does not cause an AAEC.
Does the law apply to conduct that occurs outside the jurisdiction?
Section 3 of the Competition Act applies even where the agreement is entered into outside India, the parties to the agreement are outside India, or any matter/practice/action arising out of the agreement is outside India, if the agreement causes or is likely to cause an AAEC in India.
Which authorities can investigate cartels?
The CCI along with its independent investigative arm, the Office of the Director General (DG), can investigate cartels.
What are the key steps in a cartel investigation?
The CCI can initiate an investigation into a cartel either: (i) on its own motion (suo moto); (ii) on the basis of a complaint (known as an “information”) filed by any person, consumer or their association or trade association; (iii) following a reference from the central or state government, or a statutory authority. An investigation may also be started on the basis of a leniency application, which the CCI treats as a suo moto investigation.
On the basis of the evidence available before it, if the CCI is of the prima facie view that a contravention of the Competition Act has taken place, it will direct the DG to investigate the matter. If the CCI is of the prima facie view that there is no contravention of the Competition Act, the CCI will close the investigation.
When the DG is directed to investigate the matter, it must conduct the investigation in a time bound manner and submit a report to the CCI containing its findings on the allegations before it (DG Report). The DG is required to submit the DG Report within 60 days from the receipt of the directions of the CCI. However, the DG is allowed to request extensions of time, and the submission of the DG Report generally takes around one to two years.
After consideration of the DG Report, the CCI usually forwards it to the parties concerned, giving them an opportunity to respond. If the CCI is not satisfied with the DG Report, it may conduct its own inquiry or may require the DG to conduct further investigation before forwarding the final DG Report to the parties.
After receiving a response from the parties, the CCI may provide them with an opportunity to be heard. Once any oral hearings in the matter are concluded, the CCI must, as far as practicable, pass its final order in the matter within 21 days of the date of final arguments. In practice, the CCI often takes much longer in issuing its final orders.
What are the key investigative powers that are available to the relevant authorities?
The CCI and the DG have wide powers for discharging their functions. Their powers include:
(a) summoning and enforcing the attendance of any person and examining him on oath;
(b) requiring the discovery and production of documents;
(c) receiving evidence on affidavit; and
(d) issuing commissions for examination of witnesses or documents.
Further, the DG also has the power to conduct dawn raids where there is a strong suspicion that relevant material may be destroyed, mutilated, altered, falsified or secreted by the enterprises and individuals under investigation. Before conducting a dawn raid, the DG must secure a prior authorisation (search warrant) from the Chief Metropolitan Magistrate, New Delhi. This power is being increasingly exercised.
DG officials conducting the dawn raid may:
(a) use reasonable force to access the premises, including domestic premises such as houses, land and other means of transport of individuals;
(b) actively search for information;
(c) examine the books and other records related to the business in physical and electronic form;
(d) seize, take copies and originals of documents. The DG however is required to return the documents not later than the conclusion of the investigation;
(e) seize and copy hard drives, servers and electronic devices including laptops, tablets and mobile phones;
(f) seal any business premises and books or records for the period and to the extent necessary for the inspection; and
(g) take statements for the purpose of collecting information relating to the subject matter of the investigation.
On what grounds can legal privilege be invoked to withhold the production of certain documents in the context of a request by the relevant authorities?
The following documents are covered by legal privilege under Indian law:
(a) written communications regarding legal advice between external lawyers and in-house counsel or employees in relation to a company’s legal rights and obligations, whether or not litigation is pending or contemplated;
(b) written communications (including material from third parties) provided to external lawyers by in-house counsel or company employees for litigation advice;
(c) documents brought into existence by in-house counsel for enabling external lawyers to advise on prospects of making or resisting a claim, even if litigation has not commenced or not imminent but is reasonably in prospect; and
(d) information (by a third party such as a surveyor) called into existence by external lawyers for any pending/ anticipated dispute.
The law on whether the legally privileged documents can be withheld from being produced to the CCI/DG is not clear. A potential interpretation is that legal privilege only prohibits the documents from being used by the CCI/DG, and not the production of the same to the CCI/DG.
Indian law generally only recognises privilege for external legal advice provided by lawyers qualified to practise in India. Legal privilege does not extend to in-house counsel, foreign lawyers, as well as non-lawyers such as accountants and auditors.
What are the conditions for a granting of full immunity? What evidence does the applicant need to provide? Is a formal admission required?
The Indian lesser penalty regime, set out in the Competition Act and the CCI (lesser penalty) Regulations, 2009 (Lesser Penalty Regulations), provides for reduction of penalties on companies and individuals who have applied for a lesser penalty and have satisfied stringent conditions. It should be noted that the regime gives the CCI a considerable discretion in granting the level of reduction and there is no guarantee of full leniency.
The first party to apply and make a vital disclosure to the CCI can benefit from a reduction in penalty up to 100% if the applicant:
(a) made a disclosure which enabled the CCI either: (i) to form a prima facie opinion regarding the existence of a cartel, where the CCI did not have sufficient evidence at the time of the application to form such an opinion; or (ii) to establish contravention of the Competition Act by providing evidence which the DG or the CCI did not have in its possession in a matter under investigation;
(b) ceased further participation in the cartel, unless otherwise directed by the CCI;
(c) extended genuine, full, continuous and expeditious cooperation with the CCI throughout its investigation and other proceedings; and
(d) did not conceal, destroy, manipulate or remove any relevant documents which might establish the existence of a cartel.
Typically, the CCI requires the parties to admit formally to participation in the cartel.
What level of leniency, if any, is available to subsequent applicants and what are the eligibility conditions?
The second applicant can obtain a reduction up to 50% and the third and any subsequent applicants may get a reduction of up to 30%, if the applicants provided significant added value (i.e., they provided evidence which enhanced the ability of the CCI/DG, to establish the existence of a cartel). The second and the subsequent applicants are also required to satisfy the conditions provided in clause (b) to (d) in response to query 3.1 above.
Are markers available and, if so, in what circumstances?
Prior to submitting a complete leniency application, the applicant may place a marker either orally or through a simple letter to preserve its priority status. Following the receipt of a marker by the CCI, the CCI considers it and communicates its acceptance to the applicant. The applicant has a period of 15 days to submit the complete leniency application in the format set out in the Lesser Penalty Regulations. Where there has been a failure to submit a leniency application within this period, the applicant may forfeit its claim for a priority status.
What is required of immunity/leniency applicants in terms of ongoing cooperation with the relevant authorities?
The leniency applicants are required to extend genuine, full, continuous and expeditious cooperation throughout the investigation and other proceedings before the CCI. Neither the Competition Act nor the Lesser Penalty Regulations impose a specific obligation on the leniency applicant to keep confidential the fact that a leniency application has been filed. However, it is generally understood that applicants should not make this fact known.
Does the grant of immunity/leniency extend to immunity from criminal prosecution (if any) for current/former employees and directors?
There is no criminal prosecution for companies or their current/former employees and directors in India for cartel violations. However, current/former employees and directors may benefit from leniency granted to the company where they have been involved in the cartel on behalf of an enterprise.
Is there an ‘amnesty plus’ programme?
An ‘amnesty plus’ programme is not available under the Competition Act or the regulations.
Does the investigating authority have the ability to enter into a settlement agreement or plea bargain and, if so, what is the process for doing so?
The Competition Act does not provide for the CCI to enter into a settlement agreement or plea bargain.
What are the key pros and cons for a party that is considering entering into settlement?
As mentioned above, the Competition Act does not provide for the CCI to enter into a settlement agreement or plea bargain.
What is the nature and extent of any cooperation with other investigating authorities, including from other jurisdictions?
The CCI has entered into Memoranda of Understanding (MoUs) with anti-trust agencies of Australia, Brazil, Canada, China, the European Union, Russia, South Africa, and the United States. It is unclear whether these MoUs are in practice used by the CCI in its cartel enforcement activities.
The Competition Act provides for the CCI to make references to other statutory authorities when it takes or proposes to take a decision which may be contrary to any other legislation whose implementation is entrusted to such a statutory authority. Likewise, the Competition Act also provides for the statutory authorities to make references to the CCI when they take or propose to take a decision which may be contrary to the Competition Act.
The Government e-marketplace, an agency of the Government and CCI entered into a Memorandum of Understanding on 6 February 2019 to enable a fair and competitive environment in the e-Marketplace.
What are the potential civil and criminal sanctions if cartel activity is established?
Where an enterprise has been found to have entered into a cartel, the CCI can pass orders, including orders on cease and desist and imposition of penalty. With regard to penalties, the CCI can impose a penalty of up to 10% of average turnover for the three preceding financial years. Alternatively, in the case of cartels, the CCI can impose a penalty of the higher of up to three times the profit for each year of continuance of the cartel or up to 10% of turnover for each year of the continuance of the cartel.
The Competition Act defines ‘turnover’ to include value of sale of goods or services. The CCI in its early decisions applied the total turnover test in levying penalties. However, the Supreme Court of India (Supreme Court) in the 2014 Excel Crop Care judgment held that, in the case of multi-product enterprises, only the relevant turnover, i.e., the turnover resulting from the activities relating to the product or service covered by the infringement, should be considered.
Individuals can also be investigated and penalised for cartel infringements in India. Every individual who at the time of the contravention was in charge of, and was responsible to the company for the conduct of the business of the company, will be deemed to be guilty and punished accordingly. However, such a person will not be liable to any punishment if he proves that the contravention was committed without his knowledge or that he had exercised all due diligence to prevent the commission of such contravention. In addition, where the contravention is attributable to any neglect on the part of, any director, manager, secretary or other officer of the company, such persons, will also be deemed to be guilty of the contravention and be punished accordingly.
There are no criminal sanctions in India for a cartel conduct. However, criminal penalties, including jail terms, may be imposed where there has been a breach of a CCI order.
What factors are taken into account when the fine is set? In practice, what is the maximum level of fines that has been imposed in the case of recent domestic and international cartels?
The legislation appears to give considerable leeway to the CCI in deciding on penalties. However, limits on this have been set by the Appellate Tribunal (the Competition Appellate Tribunal (COMPAT) and its successor the National Company Law Appellate Tribunal (NCLAT) and by the courts. While arriving at the penalty to be imposed for a cartel conduct, the CCI is expected to:
(i) act in a reasonable manner and evaluate the facts and circumstances of the case and factors such as the nature and age of the industry, its financial health, the nature of the goods or services involved and the existence of competitors in the market; and
(ii) consider aggravating and mitigating circumstances.
As seen above, the CCI can impose penalties of up to 10% of average turnover over three years, or, specifically in the case of cartels, it can alternatively impose a penalty of up to three time the profit or up to 10% of its turnover for each year of continuance of the agreement, whichever is higher. Especially where there have been repeated infringements, the CCI has been prepared to impose the maximum level of penalty. However, in cases where there are mitigating circumstances, the CCI has levied a lower percentage of penalty.
In value terms, the maximum penalty imposed by the CCI in the last year in a case was INR 213.81 crores (approx. USD 32.13 million) imposed on two participants in the Dry-Cell Batteries Cartel, after taking into account reductions in penalty under the Lesser Penalty Regulations. It should also be noted that, in July 2018, the NCLAT upheld the CCI’s order in the Cement Cartel case, maintaining that the INR 6,300 crores (approx. USD 946.97 million) penalty imposed by the CCI as the “mere minimum penalty”.
Are parent companies presumed to be jointly and severally liable with an infringing subsidiary?
Based on the facts of the case, the CCI can hold the parent companies to be jointly and severally liable with their infringing subsidiaries. However, the CCI has not yet done so.
Are private actions and/or class actions available for infringement of the cartel rules?
Any person affected by a contravention of the Competition Act which has been proven before the CCI or the NCLAT on appeal, may file a compensation claim before the NCLAT.
Class action suits may be made for compensation by numerous persons having the same interest with the permission of the NCLAT.
What type of damages can be recovered by claimants and how are they quantified?
Only compensatory damages can be recovered by the claimants. To date, there are only three compensation claims relating to abuse of dominance cases that have been filed before the Appellate Tribunal. It is too early to say how these damages will be quantified by the NCLAT.
On what grounds can a decision of the relevant authority be appealed?
Certain orders passed by the CCI can be appealed before the NCLAT and the orders of the NCLAT can further be appealed before the Supreme Court).
An appeal to the NCLAT and the Supreme Court is a full merits appeal, on both findings of fact and points of law.
What is the process for filing an appeal?
An appeal can be filed before the NCLAT and the Supreme Court within sixty days of the date of communication of the order of the CCI or the NCLAT.
What are some recent notable cartel cases (limited to one or two key examples, with a very short summary of the facts, decision and sanctions/level of fine)?
In the 2018 LPG Cylinders Appeal, the Supreme Court allowed an appeal from a COMPAT order upholding a February 2012 finding by the CCI that 45 suppliers of LPG cylinders had engaged in bid-rigging with respect to a tender floated by Indian Oil Corporation Limited. The Supreme Court held that the CCI, and the COMPAT had wrongly inferred collusive bidding from the fact of parallel pricing and other supporting factors (including a contemporaneous trade association meeting and general market conditions). It found that the buyer was part of an oligopsony, where a few powerful buyers controlled the market and the sellers were likely to quote the same level of prices. The Supreme Court held that in such a situation, the CCI should have considered whether the parallel pricing resulted from the existence of the oligopsony rather than from collusion.
In the 2018 Flashlights case, two of the parties had applied for leniency. Notwithstanding this, the CCI found there was no breach of the Competition Act. An agreement suggestive of price-fixing was not in fact implemented. There was evidence of exchanges of sales, production and past price information, but the CCI held that this in itself is not a violation of the cartel provisions, in the absence of collusion.
In the 2018 Indian Glycols case, the CCI rejected allegations that a number of oil companies had, in floating a joint tender for the supply of ethanol, breached Section 3 of the Competition Act; this could not be regarded as anti-competitive, particularly where there were evident efficiency benefits. However, the CCI found that a number of suppliers of ethanol had quoted the same or similar prices in tenders to public sector oil companies and that they and two trade associations that had facilitated this were guilty of bid rigging. The CCI held that the suppliers did not have any plausible explanation for quoting the same or similar prices and that they had clearly colluded. The CCI imposed penalties on each of the suppliers of ethanol at 7% of the average of their turnover over three years from their ethanol business, amounting in aggregate to INR 37.58 crores (approx. USD 5.5 million), and on each of the associations (for facilitating the cartel) at 10% of its average receipts over three years, amounting in aggregate to INR 47.16 lakhs (approx. USD 68,000).
What are the key recent trends (e.g. in terms of fines, sectors under investigation, applications for leniency, approach to settlement, number of appeals, etc.)?
Historically, the CCI largely imposed a penalty on the basis of up to 10% of the average turnover over three years. However, in recent cases, the CCI has started to apply the optional basis for calculating penalties in cartel cases, which is the higher of up to three times the profit or up to 10% of turnover for each year of continuance of the cartel.
Sectors under investigation
In terms of cartel cases, the FMCG sector has topped the list last year. The automobile sector is also currently under investigation.
There has been a significant rise in the number of orders based on leniency applications. Amongst the ten cases in the last year where the CCI found an infringement, six cases involved leniency applications. In all six cases the CCI reduced penalties for at least some of the applicants. It is also clear that more cases under investigation have resulted from leniency applications, and that this is becoming a more attractive option for cartel participants.
Number of appeals
The bulk of the infringement orders of the CCI have been appealed before the NCLAT. There is a large backlog of cases before the NCLAT and it may take some time before these are decided. Many of these cases will likely go to the Supreme Court which is already currently hearing a number of appeals from NCLAT and its predecessor the COMPAT.
What are the key expected developments over the next 12 months (e.g. imminent statutory changes, procedural changes, upcoming decisions, etc.)?
Competition Law Review Committee
The Indian Government has set up the Competition Law Review Committee (CLRC) to review the Competition Act, “in view of changing business environment and to bring necessary changes, if required”. The CLRC is studying international best practices with a focus on anti-trust law, merger guidelines and handling cross-border competition issues. It is also studying other regulatory regimes, institutional mechanisms and government policies which overlap with the Competition Act. It is expected to submit its report to the Indian Government this year.
The CCI has initiated investigations against several automotive spare-parts companies located outside India for conduct which is believed to have taken place outside India but which it considers may result in an AAEC in India. Some of these investigations have been challenged before the High Courts (a) for lack of reasoning provided in the prima facie order, and (b) for violation of principles of natural justice. The decision of the High Court is expected this year.