Why Is The Competition Regulator Going Easy On Cartels?

Anti-trust regulators around the world rely heavily on circumstantial evidence to prosecute cartels. But in two recent cases, the Competition Commission of India found hard evidence in the form of incriminating emails, WhatsApp messages, and call data records against cartel members. And yet, it chose to impose no penalty on them and issue only a cease and desist order.

The reasons for no penalty? The 10 manufacturers and suppliers of brake blocks to Indian Railways, who’ve been found guilty of bid bidding, have been spared the penalty in light of economic hardship caused due to Covid-19. In the second case, the regulator hasn’t specified why the four automotive bearings manufacturers—who colluded to fix prices of bearings sold to original equipment manufacturers—have been let off the hook with just a warning.

These decisions echo the “cease & desist” era of the repealed MRTP Act, 1969, Manas Chaudhuri, partner at Khaitan & Co., told BloombergQuint.

Regulators elsewhere are saying—if the hardship is Covid-19 specific, a sympathetic view can be taken but the pandemic can’t be an umbrella ground to seek all kinds of reliefs, John Handoll, senior advisor specialising in European competition law at Shardul Amarchand Mangaldas, said.

“Every company in this situation will now use this to say—look you didn’t apply penalty in these cases, and times are hard for us too; so give us the same latitude,” Handoll said. “CCI may now find it difficult to defend its own precedent.”

The Railways Bid-Rigging Case

On a complaint by several zonal departments of Indian Railways, the CCI initiated an investigation against manufacturers of composite brake blocks.

CCI’s investigation wing found WhatsApp messages, emails and SMS exchanges evidencing that the parties decided the prices and quantities to be quoted by them in various tenders, records of allocation of tender quantities in Microsoft Excel sheets, screenshots of their financial bids, and in-person meetings to decide their strategy. Eight of the ten companies even admitted to having formed a cartel to rig the bids.

Taking note of all this evidence, the CCI concluded that “nothing can be more incriminating than these”. It found the ten companies and nine individuals guilty of anti-competitive conduct. But it then went on to point out that some of the parties are medium-sized businesses, with small annual turnover. It also mentioned various measures by the government to support the credit needs of viable MSMEs in light of Covid-19. Based on these factors, the regulator refrained from imposing any monetary penalty.

Since the implementation of Competition Act, Chaudhuri said, the regulator has imposed penalty relying on market economics and circumstantial evidence. “But here, even after the companies agreed that they were party to an anti-competitive agreement and inspite of clinching evidence, it’s unclear why the CCI preferred not to penalise them,” he said.

Handoll agreed with CCI’s logic in this case that the ultimate objective is to correct the market distortion and discipline the behaviour of the market participants. “If that can be achieved by a cease and desist order, sure,” he said. “But I’m not seeing compelling enough reasons for that.”

He pointed out three reasons for saying so.

For one, at least from the order, it’s not forthcoming that all the parties co-operated and owned up the violation. Two, if the regulator is relying on small turnover, then the penalty can be small as well. Third is the Covid factor—here you would’ve expected the CCI to carry out an investigation into the finances of these companies and then come to a no-penalty conclusion.

John Handoll, Senior Advisor, Shardul Amarchand Mangaldas

The regulator should’ve looked at the financials of each party, assessed them and if it still found them to be weak due to the current environment, the conclusion would’ve been justified, he said.

The Bearings Price Fixing Case

The railways bid-rigging case gives businesses some insight into the regulator’s approach. The automotive bearings case is acutely scanty on that.

The investigation started when Schaeffler India disclosed cartelisation in the domestic industrial and automotive bearings market from 2009 to 2014. National Engineering Industries Ltd., Schaeffler India, SKF India Ltd. and Tata Steel Ltd. (Bearing Division) had agreed on the percentage increase in steel prices that each of them would represent to the OEMs, to seek a price increase from them, the regulator noted.

Here too, the CCI relied on meetings and telephone conversations between representatives of these companies to conclude violation of competition law. The parties’ argument that their conduct didn’t result in appreciable adverse effect on competition was rejected by the regulator. But in imposing no penalty, the CCI left it at:

In light of the peculiar facts and circumstances of the present case as detailed in this order, ends of justice would be met if the parties cease such cartel behaviour and desist from indulging in it in future.

CCI Order

Handoll said it’s unclear what those specific facts and circumstances were that justified this stance.

Even if the regulator concluded that this was a borderline AAEC (appreciable adverse effect on competition) case, it should’ve specified that. If the regulator is choosing to exercise its discretion of not imposing a penalty, it needs to provide clear reasons for it.

John Handoll, Senior Advisor, Shardul Amarchand Mangaldas

In most cases, the experts cited earlier said, the regulator applies the penalty and then takes into account the aggravating and mitigating factors to determine the amounts, which is lacking in both these orders.

(Corrected to exclude ABC Bearings Ltd. as one of the parties in the automotive bearings case.)