Changes in CCI norms proposed to bring buyer cartels under competition law

Buyers forming a cartel may be penalised if the changes proposed by the Ministry of Corporate Affairs (MCA) to the Competition Act are enacted.

The ministry sought to give monetary and penal powers to the director general for investigation under the Competition Commission of India (CCI). 

The MCA has put the draft Competition (Amendment) Bill, 2020, in the public domain incorporating these elements, seeking feedback from all stakeholders. Comments on the Bill can be given by March 6, before which Parliament would reconvene after the recess. 

Rahul Goel, partner, IndusLaw, said buyer cartels were not covered under the Competition Act and hence the proposed changes would give clarity to this aspect. 

So far, the CCI has not imposed any penalty on buyer cartels, he said. 

The draft amendments also seek to empower the director general for investigation to send a person to prison for up to six months or impose a fine of Rs 1 crore if the latter refuses to produce any book, paper, or document the former has asked for. Currently, the CCI imposes penalties on companies on the basis of their turnover if they flout competition rules. When it comes to directors of companies or proprietorship firms, penalties are imposed on the basis of their income. However, the law does not have any provision to empower the CCI to impose penalties on the income of individuals.

To remove the lacunae, the MCA suggested the Bill has a provision of income, on which penalty could be imposed under Section 27 of the Competition Act. 

“Including the word ‘income’ in the Act may provide a legal basis to the CCI to impose penalties on individuals,” Goel said. 

However, the amendment does not take into consideration the concept of “relevant turnover” as decided by the Supreme Court in the Excel Crop Care matter in 2017.

As such, penalties may still continue to be an issue of discretion and debate, Goel said.  The draft amendments also call for introducing a “commitment and settlement” clause in the Competition Act. The enabling clause will allow those found in contravention of the competition law to “commit” to correct their ways to avoid action even before investigation is completed. Even in cases where investigation is over, evidence has been found, and the adjudicating process has started, the companies can still enter a settlement. The companies will have to pay a certain amount as fine and avoid legal proceedings after ensuring that any anti-competitive practice will be corrected.The proposed amendments also seek to provide clarity to “hub and spoke cartels”. The MCA suggested hubs also be covered under Section 3(3), which deals with cartels that hinder competition.

A hub-and-spoke cartel is basically an arrangement between companies where a dominant player, called hub, is wooed by other firms, called spoke, to destroy competition by, say, increasing or lowering prices.

Goel said hub-and-spoke agreements were not specifically covered under the Competition Act. 

The CCI has imposed penalties by independently invoking Section 3(1) of the Competition Act.

“However, the CCI’s powers to invoke Section 3(1) independently are pending adjudication before the Supreme Court,” he said. 

The proposed amendments also seek to expand the composition of the CCI by including part-time members in the Commission. The Commission is currently a four-member body, including the chairman.

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