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Pallavi shroff

Pallavi shroff






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    • Competition Act, 2002 Implications for Trade Associations 21 November 2012 By Mrs. Pallavi S. Shroff Senior Partner and Head of Competition Law Practice Amarchand & Mangaldas & Suresh A. Shroff & Co. 216 Amarchand Tower, Okhla Industrial Estate, Phase iii, New Delhi – 110020, India Tel: +91 (0) 11 41000541 Fax:+91 (0) 11 41000540Privileged & Confidential 1
    • DISCLAIMERThis presentation is intended to provide general information, in relation to theactivities of trade associations which are likely to infringe the provisions ofthe Competition Act, 2002 (the Competition Act), in a summary form. It doesnot constitute legal advice and should not be relied upon as such. Formal legaladvice should be sought in particular matters.Privileged & Confidential 2
    • OBJECTIVESTo understand: The fundamental rules of Indian competition law. How competition law impacts trade associations, their day-to day business activities and the dos and don’ts. The consequences of a competition law violation.Privileged & Confidential 3
    • COMPETITION LAW IN INDIA Competition Act applies to the practices carried on or the decisions taken by enterprises and associations of enterprises. Affects the day to day conduct of the business of the associations, resolutions and binding decisions of the management, etc. – that cause or are likely to cause an appreciable adverse effect on competition in the relevant market in India. Severe consequences for non-compliance Huge fines for the infringing firms and the trade associations - up to 10 % of average turnover (for last 3 years); in the case of cartelization - fines of up to three times of profit (for each year of continuance of the agreement) or up to 10% of the turnover for each year of continuance of such agreement, whichever is higher; Personal liability in certain cases -imprisonment and/or personal finesPrivileged & Confidential 4
    • THE COMPETITION ACT The Competition Act  Passed on 13 January 2003;  Adjudicating authority: Competition Commission of India (CCI);  Investigative powers provided to the Director General (DG);  Appeals to Competition Appellate Tribunal (COMPAT);  Appeals from COMPAT to the Supreme Court of India;Privileged & Confidential 5
    • SCOPE OF THE COMPETITION ACT, 2002  Prohibits Anti-Competitive Agreements (S. 3)Competition Act  Prohibits Abuse of Dominance (S. 4)  Regulates Combinations (Ss. 5 &6)Privileged & Confidential 6
    • SNAPSHOT OF THE COMPETITION ACT THREE AREAS OF ENFORCEMENT Agreements among enterprises (Section 3) Agreements that cause or are likely to cause an appreciable adverse effect on competition (AAEC) in India are void – Sections 3(1) and 3(2). Horizontal agreements – Section 3(3)  Agreements between competitors – covers practices carried on or decisions taken by enterprises and association of enterprises.  Presumed to have an AAEC if they fix prices, limit or control production/supply, allocate customers/territories or relate to bid rigging.  Limited exception from presumption for joint ventures which increase efficiencies. Vertical agreements – Section 3(4)  No presumption of AAEC - Rule of reason analysis based on factors set out in Section 19(3).Privileged & Confidential 7
    • WIDE APPLICABILITY OF THE COMPETITION ACT Competition Act applies to “Enterprise” defined widely. Section 3(3) applies to the practices carried on or the decisions taken by associations of enterprises. Any arrangement or understanding or action in concert whether oral or written; formal or informal; whether or not intended to be legally enforceable. Nod, wink and gentleman’s handshake can be caught!Privileged & Confidential 8
    • CARTELSCartel - defined under Section 2(c) of the Competition Act. “Cartel” includes, an association of: Producers Sellers Distributors Traders or service providers who, by agreement amongst themselves, limit, control or attempt to control the production, distribution, sale or price of, or, trade in goods or provision of services.Privileged & Confidential 9
    • CARTELS (CONTD.) Cartels include agreements to: fix prices; limit production and supply; limit technical development or investment; allocate market shares, sales quotas or customers; engage in collusive bidding or bid-rigging in one or more markets. Cartels are presumed to cause an AAEC within the relevant market in India; BUT the presumption is rebuttable. Decisions of associations of enterprises or persons including trade associations may be a cartel. Cartels meant exclusively for exports are excluded from the Competition Act.Privileged & Confidential 10
    • EXAMPLES OF CARTELS Price Fixing  Market/Customer Sharing  Collusion over:  Dividing up: price changes;  Customers; timing of price changes;  territories ; component of pricing;  types of products or services ; other terms of trade (e.g.  Agreeing not to target each commissions, discounts, credit other’s customers or terms, etc.). territories.  Agreeing not to launch a particular product or service at the same time.Privileged & Confidential 11
    • EXAMPLES OF CARTELS (CONTD.)Bid rigging/Collusive bidding“Any agreement…which has the effect of eliminating or reducing competition for bids or adversely affecting or manipulating the process for bidding”.Common forms of bid rigging:  Bid suppression;  Complementary bidding;  Bid rotation;  Sub-contracting;  Agreements not to bid against each other or squeeze other bidders;  Agreements on common terms or pricing formulae.Privileged & Confidential 12
    • INVESTIGATION POWER OF THE DGThe DG has the following investigative powers:Search and seize powers (Dawn raids)  Official and residential premises;  Enterprises need to co-operate with the DG.  Direct any person to produce books, documents relating to his trade or other information in his possession in relation to his trade.  Significant penalties for failure to provide material information  Fine up to Rs.1 Crores .Privileged & Confidential 13
    • POTENTIAL SOURCES OF EVIDENCE Internal documents – memos, circulars, etc.; E-mails; Presentations; Board papers; Agendas and personal diaries; Phone records ; Expense accounts; Competitors’ documents; Oral Evidence.Privileged & Confidential 14
    • ORDERS, PENALTIES AND COMPENSATION Where it finds a breach of the Competition Act, the CCI can:  Pass a “cease and desist” order;  Impose penalty on each member of the cartel, up to three times its profits for each year of continuance of such agreement or 10% of its turnover for each year of continuance, whichever is higher;  Direct modification of the anti-competitive agreement; and  Pass such other orders (including the payment of costs) or issue such directions as the CCI deems fit.Privileged & Confidential 15
    • ORDERS, PENALTIES AND COMPENSATION The Competition Appellate Tribunal (COMPAT) can award compensation to any person for loss or damage caused due to the illegal conduct of a cartel. Class actions may also be instituted before the COMPAT for the same purpose.Privileged & Confidential 16
    • HOW ARE TRADE ASSOCIATIONS COVERED BY THE COMPETITION ACT The Competition Act applies to the decisions, rules, recommendations or other activities carried on by associations of enterprises including trade associations. Trade associations are industry led and industry managed organisations. Provide a common platform for networking and consensus building. Perform the important task of furthering interests of their members. Typically perform the following functions: Representing interests of members to government on legislation, regulations, taxation and policy matters that affect them; Promoting and protecting interests of members in media; Collecting and disseminating statistics and market information; Addressing technical issues including promulgating standards, codes of practices. Providing advisory or consultancy services and training.Privileged & Confidential 17
    • WHEN DO THE TRADE ASSOCIATIONS BECOME PART OF A CARTEL? A trade association becomes a part of a cartel, when it facilitates discussions or facilitates exchange of commercially sensitive information between competitors regarding: Price fixing; Market sharing; Limiting/ controlling production, supply, technical development or investment; collusive bidding or bid-rigging in one or more markets.Privileged & Confidential 18
    • WHEN DO THE TRADE ASSOCIATIONS CROSS THE LINE? Trade Associations cross the line when its decisions, rules, recommendations or other activities carried on by it restrict competition in the market; reduce or remove uncertainties inherent in the process of competition. This includes cases of prohibited information exchange.Privileged & Confidential 19
    • EXCHANGE OF INFORMATION – BASIC PRINCIPLES Trade Associations act in contravention of the Competition Act if they are found to be facilitating exchange of: commercially sensitive information, i.e., strategically useful data (e.g., detailed and recent sales, production, delivers information); non-public information (i.e., not available in public domain); individualized (i.e., company level and non-aggregated) information; and information that is not sufficiently historic, such information exchange is likely to reduce the incentive to actively compete which has the effect of restricting competition and is likely to cause an Appreciable Adverse Effect on Competition in violation of Section 3(1) of the Competition Act.Privileged & Confidential 20
    • POTENTIALLY PROHIBITED EXCHANGE OF INFORMATION Competitors should not discuss Current and future prices and price increases and reductions; Discounts and rebates; General terms of sale, purchase, supply and payment; Quantities produced and sold or exported; Special exceptions granted to specific customers; Production capacity, percentage utilization and projected increases in capacity or proposed cuts in production; Investment plans, market shares; Cost of production and profits, including cost of deliveries, distribution/transportation, or any other matter relating to or affecting prices or any element of price etc.Privileged & Confidential 21
    • GENERALLY ACCEPTED EXCHANGE OF INFORMATION Competitors may discuss Statistical data – aggregated and historical Historic Data - no fixed period - depends on factors, such as, Nature of the relevant market Number of players Market research General industry studies Other publically available data such as current or proposed expansion in the operations of listed companies, etc. Avoid putting confidential data in the public domain.Privileged & Confidential 22
    • TRADE ASSOCIATIONS AND INFORMATION EXCHANGE THINK CHECK BEFORE COMPLIANCEAVOID EXCHANGING EXCHANGING  Current or future data  Historic data  Information where competitors  Aggregated data are individually identifiable  Technical data Always ask yourself : Why do you need to facilitate collection and dissemination of confidential information between competitors? and/or If the exchange of information can compromise the independent business decision making of the competitors? 23Privileged & Confidential
    • STICKY SITUATIONS If you take part in any discussion, call, meeting, or written correspondence among competitors regarding: price fixing; customer or market sharing; bid rigging; exchanging current data etc. YOU SHOULD IMMEDIATELY: Voice your objection and ask the participants to stop the discussion and minute this objection.  Dissociate yourself openly by leaving the meeting/ending the call.  Record this action in an internal minute/memo. Decide on appropriate follow on action.Privileged & Confidential 24
    • CCI’S FINDINGS OF VIOLATION OF SECTION 3(3) BY TRADE ASSOCIATIONS FICCI - Multiplex Association of India v. United Producers/ Distributors Forum (FICCI) Case No. 01/2009. The CCI found that the United Producers/Distributors, the Association of Motion Pictures & TV Programme Producers and the Film & Television Producers Guild of India Ltd, were acting in concert and indulging in cartel-like conduct in boycotting multiplexes. The DG after conducting a detailed investigation concluded that film and TV producers had entered into anti-competitive agreements to collectively stop the distribution of newly released films to multiplexes. The decision to boycott the multiplexes was held to be “as blatant an act of limiting or controlling the production, distribution of films as can be”.Privileged & Confidential 25
    • CCI’S FINDINGS OF VIOLATION OF SECTION 3(3) BY TRADE ASSOCIATIONS (CONTD.) FICCI - Multiplex Association of India v. United Producers/ Distributors Forum (FICCI) Case No. 01/2009. The conduct of the Film Associations’ in fixing the revenue ratio to be shared with multiplexes was also held to be joint price-fixing. The CCI imposed a fine of Rs. 1 lakh on each of the 27 film producers on charges of colluding through a cartel to exploit theatre owners. The decision of the CCI is currently under appeal before the Competition Appellate Tribunal (COMPAT).Privileged & Confidential 26
    • CCI’S FINDINGS OF VIOLATION OF SECTION 3(3) BY TRADE ASSOCIATIONS (CONTD.) Reliance Big Entertainment Ltd. v. Karnataka Film Chamber of Commerce & Ors The CCI particularly found issue with the film distributors’ (Associations) rules, regulations and decisions that restricted competition in the market for film distribution in India. The CCI observed that while the activities of an association may often benefit its members and encourage the growth of an industry, in the instant case it was not so. The rules and regulations of the Associations, which imposed restrictions and penalties for dealing with non-members, required the compulsory registration of a film with the Associations, and restricted the commercial exploitation of Satellite/Video/DTH rights, were all held to be violative of Section 3(3) of the Competition Act. Each member of the cartel was fined the maximum fine (10% of turnover) possible under the Competition Act.Privileged & Confidential 27
    • CCI’S FINDINGS OF VIOLATION OF SECTION 3(3) BY TRADE ASSOCIATIONS (CONTD.) Varca Druggist & Chemist & Ors. V. Chemists and Druggists Association, Goa (CDAG) Case No. MRTP C-127/2009/DGIR4/28 The CCI referred the matter to the DG for further investigation and found that the CDAG indirectly fixed prices of pharmaceuticals and was limiting and controlling the supply of pharmaceuticals, and number of stockists in the market in violation of Sections 3(3)(a) and 3(3)(b) of the Competition Act. The CDAG was fined 10% of the average of their financial receipts, which amounted to INR 20 Million. In addition, the CCI has initiated separate proceedings against the individual members of the Executive Committee of CDAG under Section 27 of the Competition Act.Privileged & Confidential 28
    • CCI’S FINDINGS OF VIOLATION OF SECTION 3(3) BY TRADE ASSOCIATIONS (CONTD.) Cement Cartel Cases Cement Manufacturers’ Association (CMA) collected factory wise company level data for each of the cement manufacturers in relation to Cost; Capacity; Production; Dispatches; exports etc. for providing them to the Government of India. The collected data was shared with the members of CMA at regular intervals. This detailed information was only available to the CMA members and was not available in the public domain.Privileged & Confidential 29
    • CCI’S FINDINGS OF VIOLATION OF SECTION 3(3) BY TRADE ASSOCIATIONS (CONTD.) Cement Cartel Cases Therefore, the consumers could not have access to such detailed information. CCI held that The collection and sharing of price information amounted to price fixing and also facilitated coordination. The collection and dissemination of production and capacity data facilitated interactions among the cement manufacturers for determining cement production.Privileged & Confidential 30
    • CCI’S FINDINGS OF VIOLATION OF SECTION 3(3) BY TRADE ASSOCIATIONS (CONTD.) Cement Cartel Cases Additionally CMA was held to be a platform for collection and dissemination of commercially sensitive information that encouraged the cement manufacturers to engage in anti-competitive conduct. The CCI has imposed a imposed a penalty of approximately INR 6,307.32 Crores (equivalent to 50% of their profits for 2009-10 and 2010-11) on eleven cement companies. The CMA was also directed to disengage itself from collecting and circulating such detailed commercially sensitive information.Privileged & Confidential 31
    • TRADE ASSOCIATIONS – DOS AND DON’TS Dos  Don’ts DO facilitate discussion,  DO NOT facilitate discussion, exchange and/or encourage exchange and/or encourage members to enter into agreements members to enter into agreements in relation to in relation to new technologies;  prices market opportunities;  price changes (including timing of industry standards. such changes);  discounts and rebates;  credit terms or other conditions of sale; or  profit marginsPrivileged & Confidential 32
    • Dos and Don’ts  DON’Ts Dos  DO NOT facilitate members to enter into agreements to: DO collect and publish data that  allocate territories or customers; is or sufficiently  not target each other’s Historic; customers/target only certain Aggregated; and customers; Cannot influence future  rig bids; competitive market behavior.  boycott customers/suppliers. .Privileged & Confidential 33
    • THANK YOU © Amarchand & Mangaldas & Suresh A. Shroff & Co.Privileged & Confidential 34