This article is written by Shubha Ojha who is pursuing Certificate Course in Competition Law, Practice and Enforcement from LawSikho.
Section 3(3) of the Competition Act, 2002 (hereinafter, “Act”) deals with horizontal agreements or agreements between competitors, the existence of which raises a presumption of appreciable adverse effect on competition (hereinafter, “AAEC”). Once the existence of such an agreement is established, the burden of proof shifts on the opposite parties to prove that the agreement or the impugned conduct does not cause AAEC.
The parties, however, have to first prove the existence of the impugned agreement, conduct or practice. The standard of proof requirements in competition matters have not been expressly stipulated by the Act or the related regulations. Such requirements can be culled out from the decisional practice of the Competition Commission of India (hereinafter, “CCI”). The author through the following discourse delves into the said decisional practice in order to highlight the evidentiary standards in the context of Section 3(3) of the Act.
Standards of Proof in case of Cartelization
Cartels essentially represent agreements that harm competition in market. They have been defined under the Act as associations of producers, sellers, distributors, traders or service providers who limit, control or attempt to control the production, distribution, sale or price of, or, trade in goods or provision of services through an agreement amongst themselves.
Decried as “the cancers on the open market economy” and “the supreme evil of antitrust”, cartels mandatorily require existence of meeting of minds. However, no action arises owing to the mere formation of the cartel. The cartelization must give rise to AAEC in order for the conduct to be punishable. Once the existence of a collusive agreement between the parties is proved, a rebuttable presumption arises with respect to the existence of AAEC.
However, uncovering the presence of cartels is a tedious task for regulatory authorities across the globe. Cartels are operations of utmost secrecy and the participating entities go to extreme lengths to escape the eye of the regulatory watchdog.In the contemporary era, there are instances of multi-jurisdictional cartelization, meetings taking place in different parts of the world, parties destroying or hiding inculpatory documentary evidence, parties indulging in acts with the intention of simulating normal business practices, thereby creating hurdles for the CCI to unearth concrete conclusive evidence. Therefore, existence of cartels is seldom proved by “a chain of events formed by circumstantial evidence” due to the paucity of direct evidence.
Under the legal regime of the European Commission (hereinafter, “EC”), evidentiary standards in case of cartels have been elaborated upon by holding that “sufficiently precise and coherent proof” or “firm, precise and consistent body of evidence” must be produced in order to justify that the alleged parallel behaviour was the result of concerted action.
There existed significant similarities between the evidentiary paradigm embraced by the EC and the one endorsed by the CCI, although, with the passage of time, the CCI now relies upon a considerably diluted standard for proving the existence of a cartel. This shift can be observed by delving into the decision-making of the CCI in two cases. In ‘In re: Sugar Mills’, the CCI held non-contravention of Section 3(3)(a) on the ground that there was absence of conclusive evidence to showcase meeting of minds and in support of the fact that the sugar mills in question had indulged in a concerted action for controlling or limiting the supply, production or the market of sugar.
Three years later, in another case, the CCI emphasized the distinction between cartelization and a criminal offence while holding that the test or standard of proof must be eased. It was held that it is onerous to detect cartels using direct evidence and thus, the balance of probabilities/liaison of intention test must be employed that can simply be satisfied through circumstantial or indirect evidence.
It has been observed that competition law matters do no operate in the realm of criminal jurisprudence, which mandates proving “beyond reasonable doubt”. While upholding the “balance of probability” test in cases of cartels, CCI has observed that there is an increase in the probability of cartelization in the presence of the following structural factors- “highly concentrated market”, “demand and supply conditions”, “homogenous product”, “no significant technological changes”, “dependence of customers”, “entry barriers”, “active trade association”. This implies that the competition regulator will deduce the presence of cartelization by scrutinizing a number of indicators and factors.
Evolution of Plus Factors
The Commission takes into consideration certain factors that facilitate the process of scrutiny under Section 3(3). In ‘In Re: Suo-Moto case against LPG cylinder manufacturers’, it was observed that market conditions (predictability of demand), small number of suppliers, few new entrants, active trade association, repetitive bidding, homogenous products, few or no substitutes and lack of significant technological changes constitute ‘facilitating factors’ of cartelization and it was found that all the said factors were present in this case.
In the case of In Re: Alleged cartelization by steel producers, a new term was used for ‘facilitating factors’. This case emphasized the importance of what are called as ‘plus factors’ or additional evidence. Parallelism or identical behaviour cannot alone prove a case of cartelisation; plus factors that can be established using a wide range of circumstantial evidence are needed to strengthen the case. The CCI defined ‘plus factors’ as follows.
“Plus factors are economic actions and outcomes, above and beyond parallel conduct by oligopolistic firms, that are largely inconsistent with unilateral conduct but largely consistent with coordinated action.”
While delving into the ‘parallelism plus factors’, the CCI has also time and again adopted the ‘but for’ test. This test is applied to determine whether the conduct of the parties firms in the nature of parallel behaviour would have taken place “but for the agreement, decision or practices of the enterprises”.
Trade Associations- The New Havens for Cartelization
The increasing participation of members in trade associations has also become a matter of concern for the CCI. The role of trade associations as channels for facilitating cartelisation behaviour has become a subject of strict scrutiny following the decision of the CCI in Builders Association of India v. Cement Manufacturers’ Association, where a case of cartelization was established on account of exchange of price information amongst the members of the Cement Manufacturers’ Association. In relation to this, the CCI had also referred to a decision of the European Court of Justice where such an exchange of information between the competitors was said to be tainted with an anti-competitive object.
However, existence of a trade association does not always raise a red alert. The CCI took a precautionary stance in Film & Television Producers Guild of India v. Multiplex Association of India. It was held that trade associations could be used as platforms for the exchange of information by the competitors in order to conduct concerted activities, however, the mere fact that meetings were conducted for sharing information cannot result in anti-competitive consequences.
Case of Bid Rigging
Bid-rigging or collusive bidding is another form of anti-competitive conduct under Section 3(3). The Act defines ‘bid rigging’ as any agreement between enterprises or persons under Section 3(3) engaged in identical or similar production or trading of goods or provisions of services, which results in elimination or reduction of competition for bids or adverse effect or manipulation of the bidding process.
In the case involving the Aluminium Phosphide Cartel the CCI observed identical bidding prices, even though the parties involved had distinct cost structures, and a similar entry in the visitors’ register in case of all the 3 parties while they submitted the bids. The CCI held that this represented adequate evidence for establishing that there existed an understanding amongst the parties.
The parties appealed before the Competition Appellate Tribunal (hereinafter, “COMPAT”) and argued that the case merely pertained to identical pricing. COMPAT rejected these arguments and stated that identical pricing was not a sweet coincidence but was a “consistent practice and common pattern” that continued for a long duration of time and therefore, the only inference that could be drawn would be the one of cartelization. It was also noted that the appellants had boycotted a tender, which could only have been the result of an agreement or an understanding amongst the parties.
It is therefore evident that conspiracies involving anti-competitive conduct, especially cases of cartelization, often thrive in secrecy. There is scant possibility that the parties involved in such secretive arrangements would leave any direct evidence of their collusive conduct. After venturing into the march of law established through decisions of the CCI, it can be said that circumstantial or corroborative evidence can be taken into consideration if there is paucity or absolute lack of any direct evidence of the anti-competitive conspiracy.
The following observation captures the essence of the above discourse and succinctly affords a conclusive analysis of the evidentiary standards under Section 3(3) of the Act.
“In most cases, the existence of an anti-competitive practice or agreement must be inferred from a number of coincidences and indicia which, taken together, may, in the absence of another plausible explanation, constitute evidence of the existence of an agreement.”
- S.M. Duggar, Guide to Competition Law (7th ed., LexisNexis, 2019).
- Union of India v. Hindustan Development Corporation, (1993) 3 SCC 499.
- Mario Monti, Fighting Cartels Why and How? Why should we be concerned with cartels and collusive behaviour? 3rd Nordic Competition Policy Conference, Stockholm, 11 September 2000, available at https://ec.europa.eu/commission/presscorner/detail/en/SPEECH_00_295.
- Verizon Communications v. Law Offices of Curtis V. Trinko, 540 U.S. 398, 408 (2004).
- Anwesha Singh & Rudhdi Walawalkar, Trade Associations- Toeing the Competition Law Line, (2020) 5 ICLR 16.
- Cases 29/83 and 30/83, Compagnie Royale Asturienne des Mines SA and Rheinzink GmbH v. Commission of the European Communities, decided on 28 March 1984.
- Cases C-89/85, C-104/85, C-114/85, C-116/85, C-117/85 and C-125/85 to C-129/85, A. Ahlström Osakeyhtiö and others v Commission of the European Communities, decided on 31 March 1993 (“Woodpulp judgment”).
- Nisha Kaur Uberoi, Investigation of Cartels: A Comparative Assessment of the Approaches Adopted by the Indian and EU Competition Regulators, 2015 NLS Bus L Rev 57.
- In Re: Sugar Mills, Suo-Moto Case no. 1 of 2010, 30.11.2011.
- Anshuman Sakle, Aftermath of SC’s Verdict: Turning Point for the CCI, The SCC Online Blog, (2017) PL (Comp. L) June 87.
- In Re: Suo-Moto case against LPG cylinder manufacturers, Suo Moto Case No. 03 of 2011, 06.08.2014.
- MDD Medical Systems India Pvt. Ltd. v. Foundation for Common Cause and People Awareness, 2013 Comp LR 327 (CompAT).
- In re: All India Tyre Dealers’ Federation v. Tyre Manufacturers, MRTP Case: RTPE No. 20 of 2008, 30.10.2012.
- In Re: Alleged cartelization by steel producers, RTPE No. 09 of 2008 (MRTP), 09.01.2014.
- Shruti Khaitan, Evidentiary Standards under Section 3(3) of The Competition Act, 2002, The Law Blog, 11 November 2020, available at https://thelawblog.in/2020/11/11/evidentiary-standards-under-section-33-of-the-competition-act-2002/.
- Film & Television Producers Guild of India v. Multiplex Association of India (MAI), Mumbai, Case No. 37 of 2011, 03.01.2013.
- In re: Aluminium Phosphide Tablet Manufacturers (“Aluminium Phosphide Cartel”), Suo-Moto Case No. 02 of 2011, 23.04.2012.
- M/s Excel Crop Care Limited v. Competition Commission of India & Ors, 2013 Comp LR 799 (CompAT).
- Jajati Kesari Samantsinghar, Bid Rigging Under the Competition Act 2002 as Amended by Competition (Amendment) Act, 2007, Odisha Review, August 2015, available at http://magazines.odisha.gov.in/Orissareview/2015/August/engpdf/98-101.pdf.
- Bharat Budholia, Emerging Trends in the Indian Competition Law, 1.1 RFMLR (2014) 95.
- DG of Supplies & Disposals, Ministry of Commerce & Industry, Government of India v. M/s Puja Enterprises and Ors, Ref. Case No. 01 of 2012, 06.08.2013.
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