Below is a comprehensive post by Avinash Amarnath, attorney with Vinod Dhall & TT&A, New Delhi, India. Mr. Amarnath covers several subjects including the new Chair of the Competition Commission of India.
India Update 2016 – Vol I
Hello and a happy new year to all readers. There were a few significant cartel developments towards the end of 2015 in India which I will be covering in this post along with some recent administrative developments.
New Chairman of CCI appointed
Mr. D. K. Sikri, a former officer of the Indian Administrative Service (IAS) has been appointed by the Government of India as the new Chairman of the Competition Commission of India (CCI). Mr. Sikri succeeds Mr. Ashok Chawla, whose tenure ended on 7 January 2016.
COMPAT sets aside cartel fines against cement companies
The most significant cartel development of 2015 happened to come right at the end. On 11 December 2015, the Competition Appellate Tribunal (COMPAT) set aside an order of the CCI imposing fines amounting to approx. USD 945.4 million on 11 cement companies and their trade association for operating a cartel. The order was set aside on due process grounds and the matter was remitted back to the CCI for a fresh hearing and decision. The cement companies, amongst others, argued before the COMPAT that the CCI’s order violated the rules of natural justice and in particular, the rule that he who hears must decide as the Chairperson of the CCI who did not attend the oral hearings of the parties had participated in the decision making process by signing the order. The CCI’s position was that it only performs administrative functions and therefore, the rules of natural justice should not be applied to it in a strict manner. Further, the CCI argued that no real prejudice had been caused to the parties as a result of this alleged violation of the rules of natural justice.
The COMPAT observed that the basic question to be determined was whether the CCI is merely an administrative body or whether the CCI performs quasi-judicial functions and is therefore, bound by the rules of natural justice. After an extensive review and discussion on the powers of the CCI under the Indian Competition Act, 2002 (Competition Act), the procedure for dealing with a case and several case law of the Supreme Court of India on whether the rules of natural justice apply to administrative and quasi-judicial actions, the COMPAT concluded that it was evident that the CCI performed quasi-judicial functions while hearing and disposing off antitrust cases. Accordingly, the CCI was bound by the rules of natural justice including the rule that he who hears must decide. The COMPAT also rejected the argument of the CCI that no prejudice was caused to the parties as a result of this lapse by distinguishing the facts of this case from other precedents relied on by the CCI. Further, the COMPAT found that actual prejudice had been caused by this lapse as the Chairperson had lent his signature to the final order without having heard the various substantive arguments raised by the parties during oral hearing. In any event, it would be very difficult to judge whether prejudice had been caused as it would be impossible to determine the outcome of the case had the Chairperson not participated in the decision making process. Finally, the COMPAT urged the CCI to evolve a comprehensive protocol and lay down guidelines for investigating and hearing a case in consonance with rules of natural justice.
There can be no doubt that the CCI performs quasi-judicial functions and must follow the rules of natural justice while investigating and hearing a case. Whilst the CCI does not possess powers to impose criminal sanctions, it does possess significant fining powers and can impose penalties of up to 10% of the global turnover or 3 times the profit of an enterprise in a cartel case. There is an argument in the European Union that similar powers vested with the European Commission should be characterized as criminal or quasi-criminal in nature. One could argue that the lapse in the present case i.e. the Chairperson signing the final order despite not attending the oral hearings was not significant enough to warrant setting aside the entire order as proceedings before the CCI tend to be mostly written and a hearing before the CCI cannot be equated to a hearing before a court. However, the counter-argument to that would be that whist it is not mandatory to grant an oral hearing in proceedings before the CCI, once granted, such an oral hearing must conform to the rules of natural justice. Further, the age old adage that justice must not only be done but must also be seen to be done should be respected in such cases. The rules of natural justice assume special significance in the Indian system where the CCI dons the role of both prosecutor and adjudicator. At the same time, it is important to avoid a situation where rules of natural justice are elevated to such a level that it becomes disproportionately difficult for the CCI to enforce the law. In the words of Whish, ‘a balance has to be struck between the private interest of undertakings not to be found guilty of behaviour of which they are innocent and the public interest of punishing serious infringement of the law’.
The COMPAT’s order can be accessed here.
Trade association and pharma company fined for insisting on no objection certificate
Similar to a long line of previous cases against such a practice, on 1 December 2015, the CCI imposed the maximum permissible fine of 10% of turnover (amounting to approx. USD 6500) on the chemist and druggist trade association in the state of Kerala for insisting that pharmaceutical companies should obtain a no objection certificate from the association before appointing a new chemist or druggist in the state. The distinguishing factor in this case is that this is the first case where a pharmaceutical company has also been fined for agreeing with the association to implement this practice. As discussed in my previous post (http://cartelcapers.com/blog/flurry-activity-cci-india-update/), the CCI had found in the Himachal Pradesh Chemist and Druggist Association case that agreements between pharmaceutical companies and trade associations would not qualify as horizontal agreements (falling under Section 3(3) of the Competition Act) or as vertical agreements (falling under Section 3(4) of the Competition Act); nonetheless such agreements could be analysed under the general prohibition on anti-competitive agreements (Section 3(1) of the Competition Act) and would be subject to a rule of reason analysis. In this case, based on a very cursory analysis, the CCI found that Alkem, a pharmaceutical company had an understanding with the trade association and that such an understanding had an appreciable adverse effect on competition in India. Alkem was fined 3% of its turnover (approx. USD 11.16 million).
The CCI’s order can be accessed here.
Mr. Amarnath can be reached email@example.com.