This article is written by Meenakshi Dhaked, a first-year student pursuing BBA.LLB from Symbiosis Law School, Noida and Sparsh Agrawal, a student from Symbiosis Law School, Hyderabad. This is an article dealing with the topic Redefining Competition Law amid COVID-19.
Amid the Covid-19 pandemic, it welcomes a 21-days full lockdown by Indian government from 25th March till 14th of April, 2020. Following this measure, its impact hit the Indian economy badly. So, to alleviate its impact certain changes and relaxations have been provided to various sectors by RBI, SEBI etc. ranging from Companies Act, 2013 to Insolvency and Bankruptcy Code. But with the implication of lockdown, essential commodities such as hand sanitizers, face masks etc. felt a shortage of it. In other parts of the world, different Antitrust jurisdictions have taken measures to fulfill those needs by relaxing their respective competition policy under the umbrella head of COVID-19. Whereas, our Indian statutory body Competition Commission of India is still silent on relaxing India’s competition policy temporarily.
What Competition Law is all about?
All over the world competition law has built up its own roots. Each country has its own antitrust laws to deal with unfair trade practices. This law is structured to provide a fair chance for healthy competition between contending competitors in the market. The purpose of bringing this law into force is to ensure a fair marketplace for consumers and restricting unfair practices by bigger and smaller companies through various collaborations and arrangements. Each country has set-up its own regulatory body to take care of Anti-Competitive Practices. Like the U.K has Competitions and Markets Authority (“CMA”), European Countries together have European Competition Network (“ECN”) etc.
Antitrust Law in India
In India, it has its own Antitrust Competition Law which was enacted through Monopolies and Restrictive Trade Practices Act, 1969 (MRTP Act). Thus in 2002, India got its Competition Act, whose primary function is to regulate and conduct fair business practices so as to prevent those practices which are having an Appreciable Adverse Effect on Competition (AAEC) in India.
This Competition Act, 2002 primarily deals in Anti-Competitive Agreements, Abuse of dominant power and regulating combinations through merger control provisions. This Competition law goes through various amendments for its flexible working such as Competition (Amendment) Act, 2007, then in 2009 which later came into force in 2011.
Thus, this whole Competition Act is divided into four main sections, its framework is as follows:
Section 3 of Competition Act, 2002– It tells us about Anti-competitive agreements. These agreements are declared to be void if any enterprise or association enters into an agreement to cause an appreciable adverse effect on competition (AAEC). Thus, we can determine AAEC by following agreements made in respect of-
- Determining purchase or sales of goods or services directly or indirectly.
- Limiting or restricting the production, shortage, supply, technical developments in respect of goods or services in the market.
- If any agreement results in bid rigging or collusive bidding.
Section 3(3) of Competition Act, 2002- It deals with Horizontal Agreements. These agreements are those arrangements which the enterprises made at the same stage of production. That means if there exists an agreement under Section 3(3), then it will be presumed that such an agreement is anti-competitive and has an appreciable adverse effect on competition, it is also known as ‘per se’ rule. Thus, Horizontal agreements are subject to the adverse presumption of being anti-competitive and placed under a special category. It also includes cartels which are involved in similar trade of goods or services to the customer which-
- Determines prices of purchase or sales either directly or indirectly.
- Controls the production and supply of goods or services in the market.
- Segregation of market by allocation of geographical area of market.
- Agreements which results in bid rigging or collusive bidding directly or indirectly.
Exception to Section 3(3) of the act- Joint Venture agreements which are formed in respect of increasing efficiency in storage, supply, production, control of goods will not come in the way of competition act.
Section 3(4) of the Competition Act– It deals with Vertical Agreements. Vertical agreements are those agreements in which enterprises entered into an agreement and operate at different levels of production and adversely affect competition law which are made to pre-fix the production, supply, distribution, price or trade in the following services-
- Exclusive Supply Agreement- This agreement restricts the buyer from purchasing any good from any other seller or competitor.
- Tie-in Arrangement- These are those agreements where the seller of goods keeps a condition to the buyer of purchasing some other goods also with respect to previous goods. This was very well explained by CCI in Sonam Sharma v. Apple & Ors. that for in order to have a tie-in arrangement,
a) There must be two products in hand for the seller can tie that together,
b) The seller must have enough market power so to tie the product through which it can force the buyer to purchase the tied product,
c)through that arrangement it must affect the substantial portion of market.
- Exclusive Distribution Agreement- An agreement which limits or restricts the outlet or supply of any goods or by allocating any area for the disposal of goods.
- Refusal to deal- The agreements which restrict by any way the buying or selling of goods to persons or classes of persons, which were better explained in Shri Shamsher Kataria v. Honda Siel Cars Ltd. & Ors.
- Resale Price Maintenance- It is an agreement having a condition of selling goods on prices which may be charged by the purchaser on resale, these prices shall be regulated by the seller unless it is clearly stated that prices lower than those prices may be charged.
Thus, also vertical anti-competitive agreements do not come under per se rule because they do not have an appreciable adverse effect on competition.
Section 4 of Competition Act, 2002– This section looks into the matters of abuse of dominant position. Thus, according to it any enterprise by using its dominant position in the market indulge by:
- Imposing unfair or discriminatory practices directly or indirectly.
- Agreement which limits the production of goods in any manner to meet the competition.
- Indulging into practices which results in denial of market access.
- Using its own dominant position to enter into a certain market or to protect it.
Section 5 & 6 of the Competition Act, 2002– It deals with the combinations and regulation of these combinations. Thus, if any agreement is made to form a combination which causes an appreciable adverse effect on competition( AAEC) in the markets of India is completely void.
Cooperation between Competitors
In India, the cooperation between the competitors is necessary; provided it is legitimate and pro-competitive and does not go beyond the law. In order to cope up with the crises, there can be a need to exchange competitively sensitive information such as prices, output volumes and customer base. Furthermore, there can be collaborations in terms of logistics or for the improvements in distributions channels to ensure that there are no disruptions caused to the normal supply chains.
In India, there could be legitimate reasons for the competitors to collaborate with each other, in order to facilitate the production or the distribution of essential services such as health care products,food items,groceries, dairy products etc.. However, the Competition Commission of India (CCI) has not exempted such collaborations between competitors. This cooperation and collaboration continues to be anti-competitive by virtue of the Competition Act, 2002.
There have been press releases in India which state that the nationwide lockdown has disrupted the supply chains and the general public are already facing problems for procuring basic necessities. Therefore, the Commission like the other regulators from foreign jurisdictions relaxed their provisions of Competition Law to allow the companies to collaborate and cooperate for meeting the demand of essential healthcare products and services, without having apprehension of breach of the Competition Act.
Section 54 of the Competition Act, 2002 empowers the Central Government to provide an exemption to businesses from the applicability of the provisions of the Act, when there is a “necessity” in terms of “security of the state” or “public interest”. Therefore, in the light of the current COVID-19 crisis, exemptions must be provided to businesses that are dealing with essential goods and services. These forms of arrangements between the companies will ensure that there is a consolidation of learnings and technologies across competitors which can be lucrative to meet the demands induced by the COVID-19 pandemic.
Scope of Exploitation in the market
In the catena of cases, both the Supreme Court and Competition Commission of India (CCI) have accepted the findings from the other Jurisdictions. For example- In the case of Excel Corporation v. CCI (2017), the judgment from South Africa passed by the South African anti-trust regulator with respect to “relevant turnover” was taken into consideration. Now, the aforesaid term is propagated in India in various competition law cases, since it was a landmark judgment decided by the Supreme Court of India.
In the current circumstances, there is no notification that provides exemptions to the companies indulging in essential goods. If at all, a company is indulged in anti-competitive practices, still it can objectively justify its action before the CCI. They would try to find a common law jurisdiction where there is a notification stating how companies indulged in the same practice are exempted. Now, when the notification is produced before the CCI, they can be perplexed about the decision. This is how the companies can exploit the current situation and claim protection by a notification issued by foreign jurisdictions since the CCI has a tendency to follow them.
Section 3 of the Competition Act,2002 prohibits any anti-competitive agreements which can lead to the formation of cartels between the companies and minimum resale price maintenance. Moreover, Section 4 of the aforesaid Act prevents abuse of dominant position in the market by way of price gouging.
Interestingly, in the country, the COVID-19 crisis has led to the formation of a new partnership in various industries. There have been tie-up arrangements made between the fast-food giants, Marico Limited and food technology platforms, Zomato and Swiggy. Moreover, the cab-aggregators are offering their fleets to Flipkart and Spencer’s Retail.
The role of the Indian Essential Commodities Act, 1955 has come into place in the current crisis, which put restrictions on the bulk stock keeping of essential products. The aforementioned ensures that Indian markets do not undergo any shortage of supply and price gouging. However, issues relating to anti-competitive practices such as coordination between the suppliers in order to restrict the supply are not directly covered in the Essential Commodities Act, 1955. Therefore, the Competition Act, 2002 in light of current circumstances can prevent price fixing, unfair sharing of information, which causes an adverse effect in the market.
It is relevant to note that there can be antitrust issues when businesses are functioning in work from the home set-up. The usage of technology for email communications, sharing important documents can lead to leakage of competitively sensitive information. Therefore, such methods should be used carefully to avoid investigation by CCI.
The COVID-19 pandemic has already resulted in unprecedented economic challenges for the countries worldwide. Such economic consequences would require specific political and economic measures. However, it is pertinent to note that the anti-trust regulations and authorities across the globe will keep a close watch on potential competition law infringements and the anti-competitive practices by the organizations, especially when there is cooperation between the big competitors. Therefore, companies must ensure that they are acting in accordance with the law when it comes to collaborating with their competitors.
The outbreak of the COVID-19 pandemic has impacted the merger control regime. Because of the inability of CCI to function during the crisis, there is a closure of those transactions for which merger clearances were pending. Furthermore, with regards to new filings, CCI can take a cue from the other foreign jurisdictions and temporarily shift towards e-filings only. CCI has the procedure for e-filings, however, it must be preceded by a physical filing. Therefore, CCI must streamline the process of e-filing systems in order to do away with the physical filing system.
Relaxations taken by other countries in their competition policies
In order to deal with this pandemic and cater people’s need, the U.K government order dated 25.3.20 looked towards cooperation between competitors as part of the solution and for that they waived U.K Competition Law for a limited period of time to allow Supermarket retailers to share data with each other. Thus, now companies which truly want to cooperate with their competitors so as to serve their customers in need, may have the possibilities to do so. Now the shopkeeper retailers can share distribution depots and delivery vans without facing any violation of antitrust law. This waiver not only allows retailers to pool of staff with one another but also be able to agree on food production of products having common specifications. Also, the U.K Antitrust Regulator, the Competition and Markets Authority (CMA) has set-up a COVID-19 task force where it will advise the government on how to ensure that competition law will not stand in the way of protecting public health and supply of essential goods and services.
The Antitrust regulator in UK i.e. Competition and Markets Authority (governed by Competition Act, 1998) has relaxed rules pertaining to competition law so that supermarkets can work together, essentially allowing them to share information with each other at the stock levels, share distribution facility, transportation, pool staff, and cooperate to keep the stores open. However, if the nature of information shared limits the supply or causes an increase in prices, then such practices will be prohibited under the Competition Act, 1998.
The European Commission has stated that they would not intervene, when the companies cooperate to supply the scarce products as COVID-19 disrupts the normal supply chain. But they clarified that they would still enforce the law in cases of anti-competitive collaborations and unjustified price increase.
And with respect to merger filings, the Commission has requested the companies to delay their notifications until further notice.
On 18th March, the Norwegian-government also relaxed its antitrust policy by announcing a three-month waiver in the transportation sector from Norwegian Competition Law as similar to (“ECN”) the European Competition Network so as to ensure the safe transportation of necessary goods and services across the country. Thus, the ECN has undertaken necessary measures to regulate availability of products at this point of time such as masks, sanitizers, etc. to customers at competitive prices without having any disadvantage, for it can invite heavy penalty from the commission. Another measure is that all these relaxations will not contravene Article 101 of the TFEU (Treaty on the Functioning of the European Union) which work on prohibiting anti-competitive agreements, so that it could ensure the proper functioning of necessary measures to avoid the shortage of supply of essential goods and services.
Australia’s Competition Law regulatory body Australian Competition and Consumer Commission (ACCC) has allowed temporary and necessary collaborations by firms for sharing information between competitors dealing in selective sectors such as banking(only to the extent of operationalizing the national relief packages), supermarkets and medical supplies. So, if firms and companies go by these measures and collaborate in the interest of the general public then it would not trigger any violation of antitrust laws.
In the United States, the Federal Trade Commission and Department of Justice have noted all the public and private enterprises to stand together and tackle this issue through collaborations made in the interest of public health. Thus, any collaboration between the competitors which are contributing in improving public health and safety would not welcome any violation and be consistent with the competition law.
In the USA, both the Federal Trade Commission (FTC) and the Department of Justice (DOJ) by issuing a joint statement, recognized that the healthcare facilities may need to work together in order to assist patients, consumers, and communities affected by the pandemic. Moreover, they also stated that the businesses may have to collaborate to facilitate the production and distribution of healthcare-related supplies. However, they have also issued an advisory, that if companies are involved in practices such as fixing prices or bid rigging for health-related products, they could face criminal prosecution.
With respect to merger filings, the US regulators have made provisions for electronic filing systems and video-conferencing systems for the smooth conducting of depositions and meetings.
The South African Competition Commission has given via order dated 24.3.20 the exemption to all collaborations and agreements between the competitors which are formed to deal in the healthcare sector and further stated that any conduct which is not directly related to the supply and prices of essential goods would lead to violation of antitrust laws.
The Antitrust regulator in South Africa by a press release stated that they would prioritize complaints about rising prices of essential products to ensure that consumers are not exploited during COVID-19. Furthermore, they made a specific team to Fastrack such consumer complaints and refer it to the appropriate tribunal.
In the light of press releases and notifications issued by the prominent Antitrust regulators it can be stated that the whole world is focused on beating the crisis by COVID 19 pandemic. All the regulators across the world are issuing guidelines to ensure that consumers are not exploited because of this unprecedented situation. Furthermore, self-isolation, in order to curb the spread of COVID-19, has become a new norm, which has boosted the need for work-from-home. In order to ensure smooth functioning of the organization the IT teams are working tirelessly. Therefore, it is imperative for the Competition Commission of India and other authorities to issue appropriate guidelines so that there are no disruptions in this digital working space.
Even now the French Competition Authority (Autorite de la concurrence) has stopped all the non-essential activities such as all the mergers which were about to be finalized has been postponed as it has become extremely difficult to receive information from third parties in their usual proceeding time.
Measures taken by Competition Commission of India till now
- To deal with this epidemic, the Competition Commission of India has first adjourned all the filings in relation to Section 3 & 4 of Competition Act till 15th of April.
- All notifications in relation to relation to combination under Section 6 and 20 of the night.
- Rest other filings, submissions and consultations under the Act were adjourned till further notice.
- Pre-filing consultations will be suspended during this time period.
The government of India also With the on-going of lockdown in the country, the graph of demand for essential products has steeply rises, essential services such as (hand sanitizers, face masks) etc. which has caused a shortage of these products leading to increase in prices in the market. So, to fill this gap of demand and supply of products in the markets, the government pro-actively took action by bringing hand sanitizers as essential product under Essential Commodities Act, 1955 and issuing an advisory under the Legal Metrology Act, 2009
However, the commission was still accepting ‘Green Channel’ Filings electronically, and will continue with the filings of other combinations up to 20.3.2020. Thus, the Competition Commission of India has given green light to electronic merger filings under the green channel’s expedited approval process. That means CCI has approved e-filing of mergers through the green channel for deals where there are no overlaps.
Under this Green Channel route, we can see the very first approval by Competition Commission in acquisition of 18.95 % stake in Religare Health Insurance Company by Trishikar Ventures, where Trishikar invests in a variety of companies through acquisition, on the other hand Religare deals in general insurance products relating to health segment.
- Concept of Green Channel Route
The concept of green channel is mainly to allow automatic speedy approval for certain categories of merger and acquisition. It is a kind of automatic system where approvals under this category can be availed in combinations only when there are no vertical relationships, no horizontal overlaps and also no such contemporary business activities between the combining parties or dealing any entity in which any of the combining parties hold shares or have control.
Measures CCI should take to deal with COVID-19
- Exemption from Section 3 & 4 of the Act with respect to coordination between competitors – With the implication of lockdown, demand and supply of essential products have been imbalanced. Thus, to maintain adequate supplies of essential products such as face masks and sanitizers in the market, the collaboration or association of competitors is needed to tackle this situation. Industries dealing in essential product services especially sanitizers, medical supplies, face masks, supermarkets, transport etc. should be allowed relaxation from competition act, so as to cater to public health. Like recently, The ministry of consumer affairs, food & public distribution through its notification addressed that raw materials such as ethyl/extra neutral alcohol/ethanol that is needed in making sanitizers would be made available to the sanitizer industry by collaboration of (AIDA) and Indian sugar mills association. As like in the U.K through a joint statement, allowed temporary relaxations to industries and enterprises dealing only in essential services as one of them is sharing information of essential products in demand in the supermarkets.
- Exemption from Section 5 & 6- The CCI should exempt those enterprises through collaboration and arrangements looking forward to helping the general public. Also relaxing the approval deadline of any combination through Section 54(a) of Act, which provides that the central government can also exempt any enterprise from the application of the competition law i.e it has the power to give exemption to any enterprise if that is necessary in the interest of public health. And such kind of relaxation is surely made for the betterment of the public in the light of COVID-19. As like the U.S does exempt their public and private sector enterprises from any collaboration made in the interest of public health. As in Norway also they have exempted the transportation sector from the purview of competition law.
- Setting up a task force- There may be a possibility that in this time of emergency, there is a demand of face masks, medical supplies, hand sanitizers, groceries and many other essential goods needed to survive and the businesses which are dealing in these items seeks to benefit from this either by indulging in unfair practices as price fixing of goods, controlling the supply, allocating customers etc., or maybe by using their dominant position in the market charge extra for any good or refuse to deal with certain enterprises dealing in essential commodities. These kinds of practices are still prohibited under the Competition Act and the government if came through such practices then should take strict measures against them. As like the U.K, CCI can also set up a task force where it can advise the central government to ensure all the prices and supply of essential products, so that it could not come in the way of Competition law. Also the price hiking issue such as price fixation, price gouging or discriminatory pricing and exploitative practices by the retailers and manufacturers comes under the close scrutiny of the watchdog through this task force.
After certain relaxations by different jurisdictions around the world, firms and enterprises are coming together to cater to the needs of the people by sharing information in supermarkets, transportation, banking, hospitals etc. Thus, if CCI could also take such measures to relax companies dealing in these essential products, then they could also through collaboration and without any fear of violation of the act provide services essential for the people at this time. Apart from Essential Commodities Act and Disaster Management Act, Competition Act can also help in combating this pandemic by providing essential products at reasonable price, ensuring the food supply and its shortage.
LawSikho has created a telegram group for exchanging legal knowledge, referrals and various opportunities. You can click on this link and join: