Author: Shivali Mittal, V year of B.A.,LL.B.(Hons.) from Faculty of Law, Jagran Lakecity University, Bhopal (M.P.)
Introduction
The impact of global pandemic has been felt by countries all around the world and India has been no exception to it. The novel Covid 19 has posed unprecedented challenges for countries worldwide and has not only adversely affected the health and welfare sector but also lead to significant legal and economic consequences.
This novel virus has lead to serious repercussions for the states and in order to combat with it various degrees of lockdown has been placed by the countries around the globe. In India 24th March 2020 marked the beginning of the lockdown which eventually lead to the unprecedented disruptions in the normal course of businesses.
Further the pandemic resulted in sudden rise in demand of essential commodities like healthcare and medical products and food products in various states. While the demand for the products increased the production of goods remained scant due to the closure of factories following the norms of lockdown. Such nature of market generally leads to exploitation and collusive activities by the entities prevailing in the market thereby negatively affecting the consumers. However, in extreme situations like the present one there is a fine line between the companies collaborating together for their own benefits and coordinating to bring efficiency in the market. Therefore in such situations the role of antitrust laws becomes of utmost importance for regulating the market for the benefit of all.
Antitrust laws are the laws which protect consumers from exploitative business conducts and ensure fair competition in the market. In India the antitrust laws better known as competition laws are governed by the Competition Commission of India (hereinafter referred as ‘CCI’). In this context the present study assesses the role played and step taken by the Competition Commission of India in such adverse situation. Also it presents how the antitrust laws have been implemented by it for governing the markets and entities prevailing in it and finally concludes it with suggestions which could be further adopted by the CCI in such difficult times.
CCI’s Approach in times of Covid 19
In India, the Competition Commission of India has been closely monitoring the fast-changing, dynamic scenario that has resulted from Covid-19 pandemic, and has taken aggressive steps to interact with stakeholders and provide clarity on its position in these unusual circumstances. CCI has been proactive in responding to the threats and challenges posed by this unprecedented situation both on the administrative and the regulatory front.
Amidst the pandemic CCI took a series of steps on the administrative front to assure continuity of work and to make engagement with parties easier. In this regard, CCI on 13th April, 2020 allowed the parties’ electronic filing of combination notices. Further by order dated 20th April, 2020 CCI allowed submission of information under sections 3 and 4 of the Competition Act, which includes anti-competitive practices in regard to essential commodities and/or services but the Commission, continued the suspension of hearings until the 3rd of May. Furthermore, Combination notices were allowed by CCI via the same notice, to be filled electronically at the addresses specified in the notice.
Pre-Filing Consultation facility for combinations was also made available by CCI through video conference via the notice dated 13th April 2020. Further during the pandemic, a dedicated helpline was established to answer and solve the queries of stakeholders. Relevant public notices were also frequently posted on CCI's website for the benefit of interested parties. Also the Competition Commission of India to avoid physical contact has set up a mechanism for conducting hearing via video conferencing. Even the urgent receipts from the government or legislative entities were processed through this system expeditiously with the required inputs. And as for the physical proceedings CCI made all relevant and necessary arrangements to assure that the proceedings are held in a sterile atmosphere.
Besides these, CCI via the advisory of March 30th known as the Green Channel Advisory allowed the parties to electronically file the Green Channel notification that is the merger cases under sections 5 and 6 of the Competition Act, 2002. Green Channel is a new initiative incorporated into the 2019 Amendment to the Combination Regulations that establishes the parameters for mergers and acquisitions to be cleared automatically.
Under the appraisal of these steps the Commission approved various notifications including the joint venture between Adani Green Energy Limited and Total S.A, acquisition of GMR Kamalanga Energy Limited by JSW Energy Limited and many more through the mechanism of video conferencing.
On the regulatory front, the commission issued advisory dated 19th April 2020 to guide businesses in the times of Covid 19 pandemic. The CCI advisory acknowledge that these unprecedented times needed vigilant steps to resort the markets in India that have been adversely affected by the novel virus. In furtherance of which the advisory clarified the Competition Act’s legislative scheme and enabled the business entities to coordinate certain activities among themselves in order to cope up with market challenges by sharing stock levels, transportation logistics, distribution network and infrastructure, etc brought by these extraordinary circumstances. However, besides this relaxation the businesses are warned not to take any advantage of the pandemic to violate any of the provisions of the Competition Act.
Apart from this to ensure that there is no violation of law by the enterprises in such times the CCI adopted a multi-pronged approach. According to which besides addressing the formal filings the Commission monitors the anticompetitive conduct of the market entities through examining the media reports and if a prima facie matter establishes, suo motu cognizance is taken by the CCI to maintain the ends of justice.
Further to better the situation in India the Competition Commission has been reciprocating ideas with international competition agencies to identify what may be implemented to Indian markets. Also expressing the intention to join efforts to mitigate the impact of Covid 19 CCI has signed ‘Statement of the BRICS Competition Authorities on Covid-19’ with the vision that it will benefit the society and the economy as a whole during and post the pandemic.
Collaboration between Enterprises: Instrumental or Detrimental in times of Pandemic
In the times of pandemic due to shortage of essential commodities like masks, sanitizers, food products and other healthcare and medical products the business entities may feel the need to collaborate and take aggressive measures in order to ensure adequate supply in the market. However such collaborations may also lead to anti-competitive agreements and collusive activities like price fixing, limiting the products or forming cartels which would ultimately affect the markets thereby hampering the interests of the consumers. Therefore even in the present situation the business entities are required to follow the provisions of the competition law as mandate by the CCI in India.
In India horizontal agreements (agreements between entities which operate at the same level of production) which are in the form of bid rigging or collusive bidding, price fixing, limiting production or supply or technological innovation under section 3(3) of the competition act are explicitly prohibited. This prohibition continues even in the times of Covid 19 pandemic. However this prohibition is not applicable on joint ventures if such agreements lead to efficiency in production, supply, distribution or control of goods or provision of services, etc. In this regard, seeking the adverse situation, on 19th April 2020 the CCI has issued an Advisory known as CCI Advisory that eased the constraints on horizontal agreements.
According to the advisory business entities now can coordinator together to assure continuous supply of commodities by sharing stock levels, transportation logistics, and distribution network and infrastructure. However such collaboration should not result in collusive activities as prohibited under section 3(3) of the Competition Act, 2002. Further the advisory allows horizontally linked entities to enter into collaborative agreements to mitigate the economic impact of Covid 19. This relaxation would allow the business entities in India to work with some semblance of normalcy. For instance the fast moving consumer goods companies (FMCG Companies) are collaborating with food delivery aggregators for better supply of the various products in these times. However companies need to ensure while entering into such agreements that they do not share price related information in the name of collaborative agreements. Further the companies are warned at the same time not to use the advisory as a means to further anti-competitive activities.
This advisory has allowed many competitors companies to collaborate in order to survive the impact of Covid 19. Big Bazzar Stores, for example, has partnered with Scootsy, Johnson and Johnson has partnered with Biological-E and many more such alike. Therefore to much extend these relaxations have facilitated the business entities in present times and will continue to be of significance in the post-Covid 19 economy.
Regulation of Combinations by CCI
The mergers and acquisitions are governed by the Competition Commission of India under the head of regulation of combination in the Competition Act, 2002. These are significant for the growth of the businesses.
A firm may grow organically or inorganically. While organically a firm can achieve success through innovation, development of products or the expansion of markets, they can grow inorganically in the form of mergers and acquisitions. This growth allows enterprises to work on large scale and leads to overall development in the economy. However this inorganic growth may also cause detrimental effect on the competition in the markets for it may provide firms with the ability to dominate the markets and thereby indulge in anti-competitive activities. Therefore it becomes important to regulate the combinations especially in the times of global pandemic where businesses might tempt to merge or acquire other enterprises in order to escape from their sufferings posed by the novel virus.
One of the most important steps taken by the Competition Commission of India is the introduction of green channel in the merger regime to facilitate the businesses. According to this advisory in combinations where there is no complementary, horizontal or vertical imbrications the entities can avail green channel whereby they can get automatic approval on notice filing.
The Green Channel Advisory
The Green Channel advisory of March 30th 2020 permitted electronic filing of merger cases of the Competition Act. This new initiative lays down the conditions for automatic clearance of mergers and acquisitions. Further it has been informed that for rapid clearance information provided by merging parties in Form I of Regulation 5A must adhere to the conditions given out in Schedule III, which states that considering all possible definitions of the alternative market the parties to the combinations as mentioned in the schedule:
do not provide similar or identical products or services;
are not involved in any activity involving the production, supply, distribution, storage, sale, or service of products or services at different stages or levels of the production chain; and
are not engaged in any activity relating to production, supply, distribution, storage, sale and service or trade in products or provision of services which are complementary to each other.”
Hence the provision clearly states that there should be no linkage at any level between the merging parties which could lead to monopoly of the entity in the markets. Here relevance lies in defining the term relevant market and relevant product. Section 2(t) of the Act defines relevant product market as the market which comprises of all the products that can be interchanged or substituted by the consumers seeking the characteristics, price and intended use of the products or services. While this definition has been appropriately accepted when applied to traditional markets its relevance to platform markets is under question. It is to be noted that these definitions are open to interpretation and therefore green channel runs the possibility of creating ambiguity.
In these times of Covid 19 mergers of the strong and infirm firms or acquisition of the failing firm specifically in the segments of air travel and hospitality which have been severely affected by the novel virus are of concern in the antitrust circles. The scope of mergers of these strong and infirm firms and acquisitions during the period of lockdown touches subtle area of failing firms. Recently several acquisitions and mergers have been cleared by the CCI however there has been no attempt made to define the term ‘failing firm’.
The Commission has the power to review the mergers within a year from its approval and if required can invoke section 4 of the Act in abuse of dominance on its own motion. With these inbuilt safeguards an unduly cautious Green Channel Combinations (Amendment) Regulation may be unnecessary at this time, when various digital enterprises are looking to set up their businesses in India. However the Green Channel Advisory aptly emphasizes the importance of guidelines for young competition agencies like CCI for which the necessity of guidelines is self-evident in changing market configurations.
Crisis Cartels during Pandemic
In the times of pandemic one of the concerns before the competition authorities is the ‘crisis cartels’. Crisis cartels are agreements between competitors to mitigate the impact of crisis on businesses during extraordinary situations such as the present one. These cartels are formed during the emergency situations without any legal sanctions; however they can also be formed and exempted from any statutory prohibition when the government of a state has allowed their formation due to the necessity factor.
While in such critical times crisis cartels prove to be efficient for the enterprises in limiting the negative impact on their businesses, they may still impose the risk of violating the antitrust laws. Therefore it poses a conundrum before the competition authorities as it is upon them to ensure a balance between the government objectives and antitrust concerns.
Certain countries in these times of global crisis have recognised the concept of crisis cartels. For instance, the European Union on 23rd March, 2020, made a joint-statement permitting the operation of crisis cartels during such extraordinary times wherein to sustain, coordination among the competitors is necessary. Similarly such relaxation has been announced by the Norwegian government in regards to their transport industry. However India has not recognised the concept of crisis cartels but it has adopted a lenient approach towards cartelization seeking the critical situation of market and entities prevailing in it due to the global pandemic.
In two of the cartels cases in the year 2020 the Competition Commission of India adopted a lenient stance wherein despite violation of the provisions of the Competition Act, the Commission did not imposed severe sanctions on the enterprises indulged in the cartelization. One of the first cases was of the railway procurement market wherein the railway vendors were engaged in cartelization from 2009 to 2017 for the purpose of bid-rigging for the procurement of Composite Brake Blocks. In this case in order dated July 10, 2020 the CCI did not impose any heavy financial sanctions as in the normal circumstances it would rather it merely imposed a penalty. In another case wherein the companies engaged in cartelization from 2009 to 2014 the CCI in order dated June 6, 2020 merely imposed a cease and desist order rather than imposing hefty penalty.
While dealing with both the cases, the CCI held that the entities indulge in cartelization cannot claim against the statutory presumption embedded in section 3 of the Act by stating that their cartel agreement had not resulted in adverse effect on the market therefore sanctions are bound to been imposed. Therefore it can be concluded that even in times of crisis the companies are bound to follow the provisions the Competition Act and any leniency in such cases is the discretion of the Commission on reasonable grounds and not the right of the parties involved in such acts.
Conclusion and Suggestions
There is no denial of the fact that the novel virus Covid 19 has made the economies vulnerable and posed an unprecedented paradox before the competition authorities of the world. While at one side the competition authorities are required to take measures by relaxing the restrictions posed by the antitrust laws to curb the impact of pandemic on businesses, on the other side they are needed to keep a close watch on enterprises indulging in anti-competitive activities in such times. This puts an unprecedented challenge before the authorities of tackling the situation in an effective manner so that fair competition can be sustained in the economy.
This pandemic has resulted in unusual situation which has leaded the competition authorities to confide their authority over fundamental matters of importance. Both nationally and internationally countries have tried to take suitable measures to mitigate the adverse effects of Covid 19. Internationally countries have adopted a positive outlook towards permitting activities by enterprises which would otherwise be regarded as anti-competitive in normal circumstances. For instance, the European Commission has allowed the formation of crisis cartels and collaboration between enterprises in such times.
Nationally, the Competition Commission of India also took various measures to curb the impact of the pandemic on the economy. While these measures to an extend facilitated the working of businesses in the country, a better framework with detailed guidelines for enterprises would have proved to be more instrumental in such circumstances, such as a detailed list specifying that which enterprises could collaborate together and share information without falling under the provisions of the Competition Act, 2002. Besides this a more open approach towards practices like mergers and acquisitions, collaboration between enterprises and formation of crisis cartels for the betterment of the economy would have served as a more effective antidote for the situation. Nevertheless, the guidelines provided by the CCI cannot be said to be ineffective or irrelevant. These advisories have not only provided the businesses with certain relaxations regarding the activities undertaken by them during the Covid period but at the same time also warned them of any conduct which is anti-competitive in nature and could affect the market in adverse manner. Thereby it can be concluded that though they have proved to be instrumental in serving the needs of the businesses in such times but not in an unabridged manner.
Suggestions
Besides the measures taken by the CCI it is suggestive that India’s situation could be better by making suitable changes in its approach such as:
Providing proper guidelines specifying which sectors will fall under the Advisory's jurisdiction. For instance, in the United Kingdom the sectors eligible for benefits and exclusion have been clearly stated, as opposed to the simple mention of certain products in India. This would allow the businesses to work without pressure but under caution.
Allowing formation of crisis cartels in such adverse situations with specific guidelines and safeguards for they can play a significant role in driving out surplus capacity and thus allowing healthy competition to sustain in markets.
Clarifying the terms such as ‘failing firms’, ‘necessary and proportionate’ so that there remains no ambiguity and the business entities cannot take undue advantage of these terms but rather take advantage of the provisions.
Further the CCI could establish a task force which could assist the government in matters related to price fixing of essential products or stocking of goods or any like activities undertaken by the enterprises during the pandemic along with advising the government on price related matters so that they do not curb competition in the market.
Furthermore, any self-assessment advice would be welcomed.
REFERENCES
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