This article is written by Ananya Banerjee, a fourth year student of B.A.LL.B(Honours) from University of Calcutta.
Since the enactment of the Competition Act, 2002, Indian commercial sector has been comprehensive about the impact of the Act. But since the Competition Commission of India (“CCI”), a quasi-judicial body established under the provision of the Act to control and monitor the competition issues, has become fully functional from May, 2009, commercial sector is taking special care to incorporate provisions in their transaction documents, to avoid coming under the radar of CCI.
The CCI closely watches the market practices, including the marketing strategies obtained by several industries. Once CCI is satisfied of the existence of an anti-competitive agreement, or an abuse of dominant position, such business in contravention may have to pay up to ten percent of their average turnover for the preceding three financial years, or a penalty up to three times its profits. So, it is evident that the financial risk of a competition law violation in India can be significant.
Cartelization Issue – CCI has been known to initiate investigative proceedings against businesses on a frequent basis and often imposes penalties which can easily put a huge dent on any industry’s financial viability. CCI follows strict principle against cartelization. For example, In June 2012, CCI imposed a fine of USD 1,00,000,000 (United States Dollar one billion only) on 11(eleven) cement companies for cartelization. CCI claimed that cement companies met regularly to fix prices, control market share and hold back supply which earned them illegal profits.
Abuse of Dominant Position – BCCI Issue – On February 8, 2013, CCI imposed a penalty of USD 8,300,000 (United States Dollar eight point three million only) on the Board of Control for Cricket in India (“BCCI”) for misusing its dominant position. The CCI found that IPL team ownership agreements were unfair and discriminatory, and that the terms of the IPL franchise agreements were loaded in favour of BCCI and franchises had no say in the terms of the contract. CCI ordered BCCI to “cease and desist” from any practice in future denying market access to potential competitors and not to use its regulatory powers in deciding matters relating to its commercial activities.
Check-point for Commercial Transactions
Due to the wide power of CCI in controlling all competition-related issues, all commercial transactions like mergers, joint ventures etc. must be made full-proof, so that they don’t result in any non-compete agreement or action. While carrying on such transactions, the most important thing to keep in mind is the resulting market share post-transaction. If such share exceeds fifty percent, there’s a high chance of being held liable for violation of competition laws. Such transactional documents must also include provisions which prohibit explicitly, any measure that could possibly eliminate the competition. These two check-points must be kept in mind while entering into any co-branding (or bundling) agreement as well.
Loyalty Programmes and CCI
Even the customer loyalty programmes come under the scope and purview of CCI. The principle is simple. Such programmes are a great way of retaining customers and ensuring that they keep coming back to the seller. Be it the loyalty cards issued by the supermarkets, or the offering of cash-back on every purchase by the credit card companies, to the selling of discount coupons on every recharge – loyalty programmes have come a long way. Such programmes can be extremely novel. However, businesses creating such programmes need to ensure that they are not in violation of India’s competition law. Customer loyalty programmes shouldn’t be such as to eliminate fair competition. Such programmes can easily come under the radar of CCI.
The Jet-Etihad Issue– The customer loyalty programme of Jet-Etihad, after their tie, attracted CCI’s interest as it was complained that such programme was against the provisions of Indian competition law. Although, after investigation and hearing, CCI was of the opinion that the proposed combination of Jet Airways and Etihad Airways and their resultant customer loyalty programme, operated through frequent flier miles, was not likely to have appreciable adverse effect on competition in India. The combination was, thus, allowed by CCI.
Discounts and Competition Law
The Competition Commission of India constantly notices and investigates on matters like huge discounts given by industrial or marketing giants. A manufacturer can give as much discount as he wishes. But, he must not reduce the price so as to sell them at a rate lower than the production cost, just to eliminate competition. If he is allowed to do so, there is high probability that such manufacturers would, in order to gain customer’s loyalty and support, sell the products at such a lower rate that other competitors wouldn’t even have a chance to gain any marker share. This would be against the fair market practice.
The Big Discount Day and its Impact – Remember the big billion day sale of Flipkart? Well, there have been a number of such huge discounts offered by several e-commerce sites in recent months. And with that, there has been rising concern of the retailers and small shop owners that the discount sales offered by such e-commerce websites like Flipkart, Amazon and Snapdeal, are anti-competitive in nature. Complaints were filed against a number of such e-commerce sites.
Such complaints were based on two anti-competitive issues:
- the websites and the sellers have entered into agreements of anti-competitive nature by deciding to sell their products at some fixed portals; and
- the discount sales offered by such portals were of anti-competitive nature.
After looking into the matter of the case, CCI decided that there was no such adverse effect on the competitive market due to such exclusive agreements or discount sales and the said e-commerce websites were not in contravention of the competition laws of India. According to CCI, “the exclusive selling arrangements do not create any barrier for new entrants.” The consumers also have freedom in choosing the product which they like. Hence, CCI, in May 2015, rejected all allegations of unfair business practices against five online retail majors – Flipkart, Snapdeal, Amazon, Jabong and Myntra, as it did not find any prima facie evidence of violations against these e-commerce websites.
CCI- the fair trade watchdog
The Competition Commission has thus become the fair trade watchdog of India. In a commercial market like India, cartelization, anti-competitive practices and other unfair trade practices are fairly common. There were many instances of cartelization in Indian history. So, having a regulatory authority to check on all the unfair trade practices helps in controlling the commercial market and also ensures stability of the market prices. With passing of each day, the prominence and importance of competition laws in Indian commercial sector is, thus, increasing.