By: Sanchit Khandelwal
The spread of the novel coronavirus has brought an abrupt halt in the lives of people all around the world. Businesses are undertaking every possible measure to sustain themselves in these uncertain times. The pandemic has caused a sudden upsurge in the demand for essential goods including masks, sanitisers, ventilators etc. leading to a shortage of some of the essential products. As enterprises adjust themselves to engage in the changed market conditions, it is important that they are made well-versed with the regulations and restrictions applicable to them. Any violation of the imposed regulations and restrictions can attract the scrutiny of the regulatory body, i.e., the Competition Commission of India (hereinafter ‘CCI’).
NEED FOR JOINT VENTURES
Due to lockdown being imposed throughout the country, the supply chains of such essential goods and services have been affected, to say the least (for a contractual analysis, see here). As a result, several companies across multiple sectors in the last few days are operating in tandem to meet the increased demand for essential items and compensating for the disturbed supply chains. While such actions of business enterprises are praiseworthy and arguably necessary, in the absence of any legislative or executive exemptions from the provisions of the Competition Act (hereinafter ‘the Act’), it is pertinent to note that such cooperation and coordination amongst the enterprises should be in sync with the provisions of the Act.
Additionally, given the challenging time that the businesses are facing, the chances of them entering in a mala fide collusion and engaging in price gouging of essential products cannot be overlooked. The present market situation can lure dominant firms to abuse their position or competitors to engage in benefitting anti-competitive arrangements. Incidents of price gouging, differential treatment and hoarding of essential commodities have already been reported. The regulatory authorities in China, Brazil and Russia have already started probing into the reports alleging price gouging.
Acknowledging the need for joint action between business enterprises in the present time, several jurisdictions have loosened or temporarily exempted collaborations amongst the competitive enterprises to facilitate the production of government-notified essential goods and services.
ADVISORY ISSUED BY THE CCI
Following rapid decision-making by the global competition agencies, the CCI finally, after a month of the lockdown in place, came up with an advisory on 19 April 2020. The CCI, in its advisory, recognised that the spread of COVID-19 has caused disruption in the supply chains and to manage the altered demand and supply patterns, the businesses may need to coordinate amongst themselves. It also acknowledged that such coordination might require exchanges of data on stock levels, timings of operations, sharing of the distribution network and infrastructure, transport logistics, R&D, production etc. for facilitating the uninterrupted supply of essential items. Also, for availing due consideration by the CCI, the activities of the enterprises collaborating should be necessary and proportionate to address the concerns arising out of the present crisis.
There were no exemptions carved out for mitigating the implications of the provisions of the Act upon the coordinated acts of enterprises. Though the advisory reiterated that the Act has inbuilt safeguard mechanisms for such coordinated behaviour aimed at increasing efficiency, practically, it turned out to be opaque as it fails to provide the much-needed flexibility in these times. Unlike several other jurisdictions, even the coordinated efforts in the healthcare sector have not been exempted. The Department of Justice and the Federal Trade Commission have confirmed that the collaborations between firms relating to research & development, exchange of technical know-how and joint purchase agreements between the healthcare enterprises will be presumed to be pro-competitive.
To ensure interrupted production and distribution of pharmaceutical products necessary to combat COVID-19, the EU has exempted cooperation in the health sector. The Australian Competition & Consumer Commission has allowed limited cooperation across several sectors. Similarly, several other jurisdictions have allowed cooperation amongst competitors.
THE INDIAN COMPETITION LAW REGIME
According to section 3(3) of the Act, the agreements (horizontal agreements) between competitors to (a) directly or indirectly determine purchase or sale prices; (b) limit or control production, supply, markets, technical development, investment or provision of services; (c) share the market or the source of production or provision of services by way of allocation of the geographical area of the market, or type of goods or services, or number of customers in the market or any other similar way; or (d) bid-rigging, are presumed to be anti-competitive. Unlike several other jurisdictions (such as the EU), the Indian competition law regime does not recognise ‘crisis cartels’ within its framework. The recognition of ‘crisis cartels’ allows the enterprises, facing challenges because of the crisis, to coordinate amongst themselves to arrive at a solution. As a result, the presumption of appreciable adverse effect on competition under section 3(3) of the Act can only be done away if the joint venture entered between competitive enterprises is targeted at enhancing efficiency in production, supply, distribution, storage, acquisition or control of goods or provision of services.
The CCI has, in the past, considered factors like technological efficiency, benefits to consumers and market inefficiencies that joint ventures seek to resolve to be adequate enough not to attract the provisions of the Act. Also, as reiterated in the issued advisory, section 19(3) of the Act enables the Commission to have due regard, amongst others, to the accrual of benefits to the consumers, improvement in production or distribution of goods or provision of services, and promotion of technical, scientific and economic development by means of production or distribution of goods or provision of services. Strict action can also be taken against those making false or misleading claims about the efficacy of a product.
As per section 54 of the Act, the Central Government, may, by notification, exempt any class of enterprises from the applicability of the Act, if it considers it necessary in the interest of the security of the State or public interest. In the current crisis, the Government of India has not shown any interest in exercising the powers granted to it by section 54 of the Act.
While the antitrust regulatory bodies around the world, to meet the growing demand of essential commodities, are backing joint ventures between the market players by drawing out exclusive exemptions, the CCI is relying on the inherent safeguard mechanisms of the Act. The Indian antitrust authority has, till now, largely adopted a conservative approach. The CCI should consider the economic scenario after the lockdown is over and what pre-emptive measures it would be required to take for the revival or survival of businesses, and take lead on the same.
Though the advisory only echoed about sections 3(3) and 19(3) of the Act, it also reassured the market players that the Act of 2002 has sufficient safeguards in place. In the absence of any specific exemption from the government, the antitrust authorities are likely to closely monitor the activities of the firms seeking to capitalise the increased demands coupled with the reduced supply of essential goods and services. However, the companies would have to be mindful of the fact that the CCI has not allowed any potential collusion which may cause harm to the customers and that any such anti-competitive behaviour may come under scrutiny by the CCI.
(Sanchit is currently a law undergraduate at National Academy of Legal Studies and Research, Hyderabad. He may be contacted at firstname.lastname@example.org.)
Cite as: Sanchit Khandelwal, ‘An Analysis of the Indian Competition Law Regime During the COVID-19 Pandemic’ (The RMLNLU Law Review Blog, 28 May 2020) <https://rmlnlulawreview.com/2020/05/28/an-analysis-of-the-indian-competition-law-regime-during-the-covid-19-pandemic > date of access.