This article is written by Khusboo Kharbanda a 5th year BA LLB student at Savitrbai Phule, Pune University. This article has been edited by Ruchika Mohapatra (Associate, Lawsikho).
This article has been published by Sneha Mahawar.
Competition refers to a situation in a marketplace in which firms/ entities or sellers independently enter and compete for attracting a potential group or population of buyers in order to achieve a particular business objective, such as profits, sales, or market share. Competition is not an end unto itself, rather it is a means to achieve economic incentives and welfare objectives. A market can only flourish if there exists free and fair competition. Therefore, competition has become a driving force globally as well for international trade and commerce.
The Indian economy is on a developing path which has helped it in attracting a lot of investments from foreign nations as well. . Recently, the Indian economy has been one of the strongest competitors in the world. However, it has not benefited from its fullest potential which means it could develop further in the coming future. Maintaining an equal level of competition acts as a catalyst in unlocking the potential in many areas of the economy as well as circumstances, which has been held back by certain restrictions, on competition and collaboration in various forms. This pandemic is one such situation that has accelerated the process of Atma Nirbhar Bharat or self-reliant India.
However, due to the pandemic, businesses have been disrupted globally. While the companies which suffered major setbacks and losses had to shut down, the others may look for a way of combinations or mergers to survive this time but they needed to be within the guidelines or relaxations given by the CCI. Companies selling essentials tend to make a profit out of this situation by increasing prices or resorting to unfair trade practices. Due to this, the CCI and other global bodies are closely keeping tabs on the market. Companies need to be aware that the Competition Act,2002, is applicable to all irrespective of the pandemic.
Many relaxations have been provided in various sectors of the Indian economy ranging from the Reserve Bank of India to the Securities Exchange Board of India in view of the downfall of the economy which resulted in unemployment, an increase in loans, financial crisis, etc. Many countries like the United Kingdom, Sweden, etc had already provided relaxations and were keeping a close eye on the competitive activities by them in order to protect the consumers.
This article extensively deals with changes brought by the Competition Commission of India in the given pandemic situation, new hurdles in the market, anti-trust acts, exploitation of the consumers, whether prices could be increased at the whims of the companies, pharmaceutical industries, and steps taken by the Competition Commission of India (CCI).
Competition law – a brief
Before the Competition Act, we had the Monopolies and Restrictive Trade Practices Act,1969 (MRTP Act), which dealt with restrictive trade practices in the market. The main motive of this act was to decentralise the economic power from a handful of people. Even after the implementation of several amendments in order to cope with the changing market situation, this act failed to meet the requirements. Thus, keeping in mind the economic development of the country, a new act was enacted.
The main objective behind the existence of competition in markets is that it boosts the economy and helps it to flourish. It helps in maximum utilisation of resources to their optimum capacity which in turn attracts a large number of consumers who get the products at the best competitive prices and the government generates revenue through it. It is a cycle and one cannot exist efficiently without the other. Due to this the Competition Act, 2002 was enacted keeping in mind all the needs and thus implemented.
With the advent of liberalisation, privatisation, and globalisation, the Competition Act was the need of the hour. This is because many companies and industries were developing in the country together and even attracted foreign investments which led to an increase in unfair trade practices. Industrialists started dominating the market which led to the exploitation of the economy, price and consumers.
The main essence of this Act lies in:
This provides that no enterprise or persons shall enter into agreements that can likely cause an appreciable adverse effect on the competition. A recent example of this is the Make My Trip case which entered into an agreement with Oyo to exclude Treebo and Fab hotels from its website.
Abuse of dominant position
No enterprise is allowed to use its position in the market to manipulate it which reduces the competition. Dominant position basically means that the enterprise operates independently of the competitive forces of the market and affects its competitors or market in its favour. Coal India Case is a classic example of this which was fined rupees 1773 crore.
If two or more enterprises combine due to which there is an effect on competition in the market, the CCI’s role comes into play. Such combinations are void in nature.
Regulation of combinations
Mergers, Amalgamation, or acquisitions of enterprises are dealt with under this section by CCI. Section 29 provides for the investigation of combinations. Section 3 and section 4 of this act are prohibited whereas combinations are regulated.
CCI is the watchdog of such activities in the market and there is an extensive system of penalties that are imposed on such acts by CCI in accordance with the Act. The Competition Act has stopped a lot of unfair practices such as:
- Price- fixing;
- Resale price fixation;
- Exclusive dealing.
Under Section 7, the Government of India has been empowered to establish a commission called the Competition Commission of India. Its head office is in New Delhi. The main functions of CCI include:
- To restrict anti-competitive agreements;
- Ensure fair trade practices;
- Protect the interests of the consumers;
- To promote and sustain competition.
- To eliminate practices that affect the market.
Pandemic and its effect
With the advent of technology and development, not even scientists in this 21st century had anticipated that the human race would be in the middle of such a crisis whose solution would be so difficult and time-consuming to tackle. COVID-19 has led the economy to its greatest downfall globally. It has shaken the roots of every country not only in terms of health but also in wealth. The sudden collapse of the economy was unexpected and there arose a situation in which it was easy to take advantage of the situation. . The first nationwide lockdown in India was announced on 23rd March which lasted for several months but even after the unlock phase the effect of the pandemic has lingered in the economy.
- Largest GDP contraction ever in Q1 (April–June) FY 2020–2021 at -24%;
- Rise in unemployment;
- Pressure on supply chains;
- Decrease in government revenue;
- The collapse of the tourism industry;
- The collapse of the hospitality industry;
- Fall in consumer consumption;
- The collapse of transportation;
The COVID-19 pandemic has shaken the roots of societies and economies across the globe. It has resulted in a health crisis but has also resulted in 53% of businesses suffering immense loss and having to shut down due to coronavirus. Not only the government, but the entire society has been challenged at every stage of how we live, interact, and engage in trade and commerce. The pandemic has brought to light the weaknesses of our markets, supply and demand chains, raised some serious questions about the competition in the market and also the existing laws that govern it.
This pandemic has led to the loss of millions of lives across various countries which makes it difficult for everyone to recover in comparison to the fatalities of the Great Depression. It is completely uncertain as to how long this recession would last. It mainly depends on the demand and supply chains and the conditions prevalent in the market. These include the unlock phase of the businesses and mainly upon the availability of the vaccine. Otherwise, like the United Kingdom which is suffering from the second wave of this virus, other countries may be compelled to undergo complete lockdown again. The above factors account for the GDP evaluation of the year. The IMF, World Bank and OECD forecasts for the global GDP contraction in 2020 are in the range of 3.0–7.5%, and the forecasts for the ensuing global GDP increase in 2021 range from 2.8 to 5.8% (World Bank 2020; IMF 2020; OECD 2020). On March 11, 2020, the World Health Organization (WHO) characterized COVID-19 as a pandemic, pointing to over 3 million cases and 207,973 deaths in 213 countries and territories.
Changes in the system
In light of the given situation, it is possible that the businesses and enterprises may take or adapt steps to overcome their losses which are against the law and which would directly or indirectly affect the market and overall the consumers due to which CCI and other such bodies are on their toes globally. In several countries like European Union, the United Kingdom the United States of America, Spain, France, and South Africa an announcement was already made that they are keeping a close tab on the functioning of companies during these tough times so as to equalise competition in the market and protect consumers interests.
During this pandemic, the CCI has proved its diligence and responsibility by being active and catering to the changing needs of the situation via circulars and public notices.
- The first circular was issued on March 17, 2020, as a precautionary measure by CCI.
- It had further suspended all fresh merger filling, consultation requests, any filling against existing antitrust cases, and any new case related to anti-competitive practices till March which was extended till April 2020.
- Oral hearings related to competition matters were suspended.
- On March 30, 2020, CCI issued a notice which permitted the parties to file the notice related to combination matters under the ‘Green Channel’.
- Under notification of April 20, 2020, it permitted that the information against the anti-competitive agreements and the abuse of dominance can be filed via e-mail to the competent authority. The same process was applicable for filing combination notices.
- The CCI widened its scope for combination matters by allowing video conferencing in the case of pre-filing consultation, which was earlier suspended by the Public Notice dated March 23, 2020.
- On April 19, 2020, CCI issued a notice which highlighted the in-built safeguards of the Competition Act. As per the said advisory, coordination between the businesses involving certain activities is allowed to enhance efficiency, especially of the essential commodities and healthcare products and services. Such cooperation was only provisional and limited to meeting the present necessity. Enterprises or groups were not allowed to indulge in any collaboration or cooperation amongst their competitors if it was non-essential or adversely affected the market.
The CCI did adapt itself but no such relaxations were provided to the enterprises, only preventive measures were taken by it to do damage control. It informed the entities through its circular to avoid taking such advantage of the situation and to adhere to the competition laws. It warned the businesses that the pandemic had not caused any suspension of the act and bid-rigging, anti-competitive agreements, abuse of power and position would lead to violations of the act. The merger regime continues to function in the same way and without the approval of CCI where required, such business cannot be merged.
Scope of exploitation
This is the worst side of the pandemic where consumers may be economically exploited at the whims of businesses. CCI had suspended all its fillings till in view of resource constraints and lockdown of offices except for essential ones. The whole market chain got disrupted due to which there was a sky-high increase in prices of essentials due to lack of supply which is also a signal to allow new entry for production, this brings the CCI to intervene and regulate such activity. Enterprise could seek benefits by
- Forming a cartel and indulging in practices such as price-fixing, allocation of customers, limiting or controlling the supply of products, etc;
- Abusing their dominant position by over-charging or by refusing to deal with any person in respect of essential commodities;
- Hoarding of essential commodities;
- Discriminatory practices.
Any of the above acts were prohibited by the Act under Section 3 and Section 4 and accordingly punishable. While collaborations could be regulated, exploitive agreements and acts would be tracked and punished.
Competition Commission of India has issued an advisory to businesses that clarify that only such conduct of businesses that is necessary and proportionate to address concerns arising from COVID-19 will be considered. Businesses are cautioned not to take advantage of COVID-19 to contravene any of the provisions of the Act.
Against the backdrop of the Competition Law and the CCI Business Advisory, CII has listed a few Guidelines for compliance by companies to ensure they are on the right side of the law. Some of these include:
- For co-operation with competitors, principles to keep in mind for companies to understand what companies can do and cannot do to deal with the current crisis from a competition law perspective – Scope of the collaborations;
- Detailed documentation;
- Firewalling to prevent the exchange of CSI;
- Ex-ante review by legal counsel.
Companies must carefully evaluate their business operations during the COVID-19 period, especially if their business operations might require close collaboration with their competitors.
The crisis has led to the formation of new ventures like Marico Limited and food technology platforms, Zomato and Swiggy. Moreover, the cab-aggregators are offering their fleets to Flipkart and Spencer’s Retail. This is mainly due to relaxations of adverse effects on competition provided by April 19, 2020 notification of joint ventures in the supply of essentials and health services.
CCI also issued an advisory to cope with significant changes in supply and demand patterns arising out of this extraordinary situation, businesses may need to coordinate certain activities, by way of sharing data on stock levels, timings of operation, sharing of distribution network and infrastructure, transport logistics, R & D, production, etc. to ensure continued supply and fair distribution of products (e.g. medical and healthcare products such as ventilators, face masks, gloves, vaccines, etc. and essential commodities) & services (e.g. logistics, testing, etc.).
According to the circumstances, CCI is on high alert with respect to the increase of prices and combinations so as to avoid any such malpractices but is giving certain liberty in terms of essentials and health care facilities.
CCI is imperatively scrutinising business conduct and has also issued various notices and notifications which are now important for enterprises to be aware of it and follow them. It has taken all necessary steps to bridge gaps between the forces of the market. For instance, the government took prompt action to correct the increased prices and low availability of protective face masks and hand sanitizers by amending the schedule of the Essential Commodities Act, 1955 and issuing an advisory under the Legal Metrology Act, 2009. Similarly, the Ministry of Consumer Affairs, Food & Public Distribution, vide its notification addressed the demand-supply gap of sanitizers in the markets. The notification provides that Ethyl Alcohol/ Extra Neutral Alcohol/ Ethanol, which is the most essential component of sanitizers, would be made available to the sanitizer industry by industry associations such as the All-India Distilleries Association (AIDA) and Indian Sugar Mills Association.
The government of the United Kingdom was the first to take steps to provide relaxation to competition laws so that supply could meet the demand. Even European Union had permitted to coordinate the supply of essentials. The USA also issued guidelines in terms of anti-trust procedures for the protection of the health of its citizens.
This is a situation where businesses may unanimously increase the price of their products or services without any justifications just to increase their profits. Such acts are criticised by CCI because it exploits the customers. This concept is not clearly defined in the act but can be read under the umbrella of anti-competitive. For instance, an increase in the price of sanitizers, masks, etc attracted the provisions of the Competition Act. When an enterprise has a monopoly in the market or there is some crisis, it may charge different prices from different sets of consumers for the same product, this is known as differential pricing. Such acts are prohibited under Section 4 that no enterprise shall abuse its dominant position in the market. Thus, prices cannot be charged arbitrarily, it has to be fair and just.
The crisis has compelled the business to make drastic changes as it has led to a shortage of FMCG, medical and essential supplies but they should bear in mind the provisions of the act because that had not been terminated by CCI. Businesses may together determine prices known as cartelization, due to which anti-trust is enforced to regulate such activities. But such cartels may be permitted to cooperate and work for production and distribution purposes to fight the effects of COVID-19 but it cannot be done without CCI’s approval. It has streamlined its e-filing with physical fillings in light of the situation.
For instance, in the pharmaceutical sector, resources have been dedicated to manufacturing vaccines. It is possible that competing enterprises may jointly engage in research and development agreements to speed up this process but this also leads to tensions that they might reduce or control the supply in order to dominate the markets. However, relaxation will be provided keeping in mind the needs of society.
During this period, the CCI has approved several notifications such as the formation of a Joint Venture between Adani Green Energy Limited and Total S.A., in the solar power generation business in India, approval of the acquisition of 100% shareholding of GMR Kamalanga Energy Limited by JSW Energy Limited, approval of the proposed acquisition of 80.1% stake by Hitachi Limited in the power grid business of ABB Limited. These approvals were made during CCI’s meeting held through video conferencing.
Pricing of essentials
Due to this crisis, the Essential Commodities Act, 1955 has come into a role that prohibits hoarding of essential products. This helps in ensuring that the market does not run short of supply and protects consumers from price gouging. However, this act did not explicitly include anti-competitive practices issues due to which Competition authorities and the Act have played a very important role in this crisis. Sanitizers and masks were included under essential categories by the Central Government. CCI has been more vigilant than ever and pharmaceuticals industries that are dedicated to the procurement of vaccines and medical supplies for COVID-19 are under constant surveillance. Businesses may be allowed to combine but all such relaxations will be provided by CCI only after close scrutiny.
The Competition Commission of India wielded significant power in this crisis in the economy which added responsibility to its shoulders to act with utmost caution and care so that no enterprise could exploit the customers. A lot of relaxations have not been provided by CCI during the pandemic but it is constantly adapting to the ever-changing needs and requirements of the market. It has facilitated online functioning as well which is technically important in the coming future. It has maintained check and balance in the market so that no anticompetitive acts can be done to exploit the customers at large. However, the effects of the pandemic have not vanished from the market, it is still a long road ahead for the economy to get back to its feet.
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