Presentation on Inquiry and Inveswtigation for CCI Staf

1. Competition Commission of India
INQUIRY
And
INVESTIGATION
by
K.K. Sharma
Advisor(Law) & former Director General
New Delhi 27 May, 2010
1

2. Scheme
 Personal experience sharing
 Introduction
 Overview of the Competition Law
 Investigation
 What
 Why
 How
 Examples
2

3. Meaning
Inquiry
Enquiry
Investigation
3

4. What is an Inquiry
 Inquiry in the matter of
 Murder
 Fraud
 Of Competition
 What is competition
 Expulsion of a member from an association
 Undue extortion by any company/firm
 Terminating a contract before term
 Violations – affecting whom?
4

5. An Eye for a Case
 Everyday examples
 Mineral Water
 Schools
 Restaurants
 Bread
 Milk
 Healthcare
 Fabrics and Artisans
 Electric / Plumbing spare shops/artisans
5

6. Sections 3,4 ,6 or related
 To be within the ambit of provisions
 Section 3 Anti-competitive Agreements
 Section 4 Abuse of Dominant Position
 Section 6 ( Section 20 ) Combinations
 Generally a Macro ,overarching approach
 Not narrow but very broad
 Sometimes there may be a convergence
6

7. How Inquiry can be triggered?
 Information Provider- Person, Consumer/their
assn/Trade assn
 Complainant
 Difference between Information and
Complaint – History
 References- Central/State Govt./Statu Auth
 On its own
 Media-visual-print
 Consequential Information
 Invalid informations/references
7
 Objections from public in combinations

8. Importance
 A big challenge for a new agency
 In a democratic set up
 Approach of Appellate Authorities
 Domain knowledge still evolving
 Expert body will ,generally, be better placed
 Almost all the cases , in beginning, will be lost
on technical grounds – trend already begun
 Even later, most of the cases lost on technical
grounds
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9. Technicalities
 Opportunity of being heard
 How much – extensions for time
 Burdensome information
 Request for inspection
 Copy of documents (clarity/steadfastness)
 Not being allowed to cross examine
 Written submissions not considered
 Confidentiality request not allowed
9

10. Tactics or Technicalities
 Seeking time close to an already liberal
deadline
 Asking for inspection towards the end of
inquiry
 Requesting copies of all types of documents
 Change of representative towards the end
 All the issues raised in WS not considered
10

11. Avoiding Pitfalls
 Standardized Procedures
 Well thought out templates
 Not leaving everything to junior staff
 Unless trained in well calibrated templates
 Case handling is far too important to be left to case
handlers only
 Example of DG Wing
 In the initial phase, there should be identifiable necks
 Seek and follow directions for smallest things
 Never sit over a communication
 Dispose if off – by a well thought out reply
11

12. Handling of Information
 Legal Requirement
 Prima Facie opinion
 Procedure
 Opportunity of being heard
 Any back ground research
 Assistance from professionals
 Assistance from experts
 Options
 There is a case for inquiry
 There is no case for inquiry
12
 Reference to DG

13. ‘Inquiry’ or ‘No Inquiry’
 Very fine distinction
 Distinction from Consumer Grievances
 High Prices
 Poor Quality
 Hoarding
 Great danger of confusion in the initial period
 Lack of awareness – either way
 Complaint against RPM
13

14. Convergence Zone
 Real Estate – Area Available
 Coop Housing Societies – Transfer Fees
 Jewelry Marketing
 Any association supervised prices
 Pre payment penalties
 Overcharging by utilities
 Even if the information is limited , the order of
the Commission will be all encompassing
14

15. Investigation-1
 What is investigation?
 Difference between investigation and inquiry
 The dictionary meaning
 „Investigate‟:
 to search or inquire into
 examine in detail
 „Investigation‟:
 The act of investigating
 Careful inquiry or research
15

16. Investigation-2
 An inquiry by authority as by a legislative
committee, into certain facts
 A systematic examination of some scientific
question
 „Inquiry‟
 The act of inquiring
 Investigation
 Investigation and inquiry used synonymously
 Detailed scrutiny of the facts and
circumstances
16

17. Investigation-3
 Logical deduction from one step to another
 Investigation has got some basic
characteristics – objectives may be different
 Either finding the criminal from the clues at
the scene of the crime or finding the truth
from clues in the economic offences
 Basics
 Psychological game
 Personal safety/gain
 Destroying clues
17

18. Investigation-4
 Violator is very smart
 He knows the law - whichever law
 Examples- Zal‟s view- Noida/ Pak
 Inflation of expenditure
 What you would have done in his place
 Have faith in yourself
 Great fear/temptation of looking at the trees.
Red Herrings
 Look at the woods and not on the trees
 Surprise is the key 18
 Broadly, human beings think alike

19. Investigation-5
 Be focused
 Obvious things will be anticipated
 Cat and mouse game
 Keep the motive of violator in mind
 Do not ignore the faintest clues
 Watch for psychological reactions
 Be prepared for set backs
19

20. Interview
 Be calm
 Give the look of know all
 Proper administration of oath
 Explain the consequences in detail with a
solemn face
 Initially let him tell you stories
 Tell him the consequences of these
 Separate person from the issue , if possible
 Be firm and he will crumble
20

21. Why Investigation
 Wrong doer will not tell the truth
 May try to mislead
 Destroy evidence
 The information may have some indications
 Not enough for passing the judicial scrutiny
 Therefore investigation
21

22. Some Examples-1
 Information from an employee about out of the
books entries by the employer
 Details about the travel expenses from the
payment made for visa fees
 Generation of scrap in cold rolling steel mills
 Details of havala discounts – passing of as
discount charges
 Bogus claim of depreciation for non-existence
machinery
 Clue about betting on tennis players
22

23. Some Examples-2
 Investigation into the share capital
 Debiting of bogus expenditure such as rent,
commission etc.
 Bogus bill giver
 FERA violation and admission
 Case of partially oriented yearn(POY) – weight
gain
 Wheat flour and weight gain
 Agricultural income
 Handwriting case
23

24. Some Examples-3
 Wholesalers (Arhatiyas)
 Brick Kilns (Bhattas )
 Film Producers
 Actors
 Barter Arrangement -Freight
24

25. Status of Enforcement
 Competition Act, 2002 enacted in January 2003
 Competition Commission of India established in
October, 2003
 Legal challenges delayed full constitution of the
Commission and enforcement work
 Competition (Amendment) Act, 2007 passed in
September 2007
 Full constitution of Commission on March 1,2009
 Sections 3 & 4 brought into force on May 20,2009
25

26. Broad Mandate
 Prohibit anti-competitive agreements (S 3)
 Prohibit abuse of dominant position (S 4)
 Regulate combinations (S 6)
 Mandate competition advocacy (S 49)
26

27. Duties of the Commission
 Prevent practices having adverse effect on
competition
 Promote and sustain competition in markets
 Protect the interests of consumers
 Ensure freedom of trade carried on by other
participants in markets, in India
[ Preamble and Section 18]
27

28. The Law
 Prohibits anti-competitive agreements (S 3)
 Prohibits abuse of dominant position (S 4)
 Regulates combinations (S 6)
 Mandates competition advocacy (S 49)
28

29. Salient Features
 All enterprises, whether public or private [S
2(h)]. Departments of government except
activities relatable to sovereign functions
including Atomic energy, Currency, Defence
and Space (S 2(h))
 Extra-territoriality (S 32)
 Co-operation with foreign competition
authorities (S 18)
 Exclusive jurisdiction in competition matters
(S 53B/ 53T /61)
 Confidentiality (S 57)
29

30. Anti-competitive Agreements-I
 Horizontal
competitive
agreements „presumed‟ anti-
(Price fixing, Quantity/supply
limiting, Market sharing, Bid rigging/collusive
bid) ( S 3(3))
 Vertical agreements –if cause AAEC( „rule of
reason‟ )(S 3 (1)/(2))
 Exempted from these provisions:
 Efficiency enhancing JVs exempted from
presumptive rule (S 3(3) proviso)
 Agreement imposing reasonable conditions for
protecting IPRs (S 3(5)(i))
 Agreements for exports (S 3(5)(ii))
30

31. Anti-competitive Agreements-II
 Vertical agreements include:
 Tie-in-sale
 Refusal to deal
 Exclusive supply arrangement
 Exclusive distribution arrangement,
 Resale price maintenance
 IPR s
 Patent
 Trade mark
 Geographical indicators
 Industrial designs
 Semi-conductor Integrated Circuits Layout
Designs 31

32. Factors for AAEC
 Creation for barriers to new entrant
 Driving existing competitors out of market
 Foreclosure of competition by hindering entry
 Accrual of benefits to consumers
 Improvements in production or distribution of
goods/services
 Promotion of technical, scientific and economic
development by means of production or
distribution of goods/services
32

33. Cartel
“ 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, trade in goods or
provision of services” (S 2 (c))
 Cartels are in the nature of prohibited horizontal
agreements and presumed to have AAEC
33

34. Leniency Provisions
 For inducing any member of a Cartel to make full,
true and vital disclosure, the Commission has
been empowered to levy lesser penalty
 The party making disclosure will, however, be
subject to other directions of the Commission as
per provisions of the Act
 Clarity, certainty and fairness are critical to make
leniency programme effective and, for this,
Commission can take suitable measures including
formulation of Regulations etc.(S 46)
 Draft Regulations framed
34

35. Powers of Enforcement
 CCI has powers of a civil court for gathering
evidence
 After prima facie determination CCI shall
direct DG to investigate (S 26(1))
 Includes powers of seizure of documents with
the approval of the Chief Metropolitan
Magistrate, Delhi, when there is reasonable
ground to believe that books, papers or
documents may be destroyed, mutilated,
altered, falsified or secreted. (S 41(3))
35

36. Gathering Evidence
 Powers of a civil court for gathering evidence
 Summoning and enforcing attendance of
any person and examining him on oath;
 Requiring the discovery and production of
documents;
 Receiving evidence on affidavits;
 Issuing commissions for the examination of
witnesses or documents;
 Requisitioning any public record or
document or copy of such record or
document from any office.
36

37. Deterrence & Penalty-I
 CCI empowered to pass following orders
against anti-competitive agreements
(including cartels) :
 Temporary restraint orders– during the
inquiry (S 33)
 Cease and desist order - directing parties to
discontinue and not to re-enter such
agreements (S 27(a))
37

38. Deterrence & Penalty-II
 Modification of agreement -directing parties to
modify the agreements to the extent and in the
manner as may be specified in the order (S 27
(d))
 Penalty – anti-competitive agreements :
 Up to 10% of average turnover of last 3 yrs
 If a cartel- on each member of cartel- up to 3
times of its profit for each year of the
continuance of such agreement or 10% of its
turnover for each year of the continuance of
such agreement, whichever is higher (S 27 (b))
38

39. Abuse of Dominant Position
 Not dominance but its abuse is prohibited (S
4(1))
 Dominance defined in Act, based on several
listed factors ( S 4(2)/19(4))
 Relevant market (product, geographic) to be
determined as defined in Act ( S 19(5)/(6)/(7))
 Abuses listed in Act (exclusive list)
(S 4(2)/factors19(3)) 39

40. Definition
 Position of strength enjoyed by an enterprise in the
relevant market which enables it to:
Operate independently of competitive forces
prevailing in relevant market; or
 Affect its competitors or consumers or the
relevant market in its favour
 Ability to prevent effective competition and
 Ability to behave independently of two sets of
market actors, namely:
 Competitors
 Consumers
40

41. Abuses
 Imposing unfair or discriminatory price or
condition in purchase or sale, including
predatory pricing
 Limits or restricts production of goods or
provision of services or market therefor
 Limiting scientific development to the prejudice
of consumers
 Denial of market access in any manner
 Conclusion of contract subject to supplementary
obligations
 Use of position in one relevant market to enter
into or protect other relevant market
41

42. Remedies for AOD
 Discontinue abuse (S 27(a))
 Abide by such other orders as CCI may pass
(S 27(e))
 Up to 10% of average t.o. of last 3 yrs penalty
(S 27 (b))
 „Division of enterprise‟ (S 28)
 Such other order as may be deemed
appropriate by Commission
42

43. Regulation of Combinations
 Combination defined, includes mergers &
amalgamation, acquisition of shares, assets above
thresholds and domestic nexus (S 5)
 Combination must be above thresholds defined in terms
of total assets or turnover plus domestic nexus (S 5)
 Mandatory pre-notification (S 6 (2))
 Suspensive regime (S 6 (2A))
 Assessment of anti-competitive effect based on listed
factors (S 20(4))
43

44. Thresholds
Assets Turn over
Total (In India) Total (In India)
Only in No Rs. 1000 cr Rs. 3000 cr
India Group
Group Rs. 4000 cr Rs. 12000 cr
In and No US $ 500 m (Rs. 500 cr) US $ 1500 m (Rs. 1500 cr)
outside Group
India Group US $ 2000 m (Rs. 500 cr) US$ 6000 m (Rs. 1500 cr)
44

45. Orders on Combinations
 Competition Commission of India can:
 Approve
 Approve with modifications
 Not approve
 If no order within 210 days, the combination
deemed to have been approved
 Regulations specify shorter time limits- stage I
 Generally, less than 10-15 per cent of the filings
seen to have adverse effect on competition
 Very few (less than one in hundred) blocked
 Approval with Structural and/or Behavioural 45

46. Review Period (s)
Country Stage One Stage Two
EU 25-35 W days 90-125 W days (35+125=160 W days or 224 days in the
least)
France 5-8 weeks Additional 4 months. Further extended by 4 more weeks
(thus 5 ½ Months in total)
Spain 1 month 7 months
Singapore 30 W days 120 W days (30+120=150 W days)
China 30 W days 90-150 W days
Mexico 40 C days 145 (in complex cases)
Japan 30 C days 120 C days (more if information is late)
USA 30/15 C days -----
Germany 1 month 3 months (1+3= 4 months)
India 30 c days (draft 210 C days (150 w days)
regulations)
46
Indian time caps not very different from major jurisdictions

47. Brain Storming
 A -80%
 B -12%
 A - Rebates if 80% requirement or more is
bought
 Customers Happy
 B -Complains
 A -Benefits of economies of scale passed
 Is „buy 2,get 1 free‟ not an old slogan
 What will you do
47

48. Fine on Intel
 On 13 May 2009 the European Commission
fined computer chipmaker Intel €1.06bn
(£948m) (Appx 6400 Crs) for infringing Article 82 EC
after being found to have paid manufacturers
and a major retailer to favour its central
processing units (CPUs) over those of its
main rival, Advanced Micro Devices (AMD).
48

49. The Issue
 The CPUs (a type of computer chip) are an
integral part of the computer, similar to the
engine of a car. Last year Intel made 80.5%
of the CPUs used in computers compared to
AMD's 12%.
 The Commission's 3 year investigation
followed various complaints lodged by AMD
in 2000, 2003 and 2006.
49

50. Findings
 The Commission found that Intel had
infringed Article 82 through its strategy of
offering generous rebates to some computer
manufacturers if they bought at least 80% of
their CPUs from Intel
 The effect of this was that, in order to be able
to compete on price, any rival would have to
sell its CPUs at a loss.
50

51. Direct Payments
 The Commission also found that Intel had
made direct payments to a major retailer,
Media Saturn Holding, to sell only Intel-based
computers
51

52. Biggest Ever
 This fine was Europe's biggest ever penalty
at that time for anti-competitive practices, a
fact which reflects Intel's strong dominance
and, according to the European Commission,
the losses suffered by millions of consumers,
who may have been denied the opportunity to
buy cheaper or more innovative products
52

53. Basis
 The fine was based on the value of Intel's
CPU sales in the EEA over the 5 year and 3
month period of the infringement
 The fine represents 4.15% of Intel's total
2008 global turnover. The Commission has
the power to levy a fine of up to 10% of global
turnover so in theory the fine could have been
anything up to €2.8bn (£2.5bn)
53

54. Defence
 Intel argued that it was offering a
straightforward business deal which involved
a discount for bulk-buying
 It does not accept that there has been any
harm to consumers and states that it was
merely discounting its products to compete in
a highly competitive marketplace, passing on
to its customers the benefits of economies of
scale
54

55. Filing Appeal
 Intel is appealing the decision in order to
clear its name and exonerate the company;
however, as the appeal process runs its
course Intel will work with the Commission to
comply with the decision requiring it to “cease
the illegal practices immediately to the extent
that they are still ongoing”
55

56. Computer Manufacturers
 No action taken against the computer
manufacturers involved, namely Acer, Dell,
HP, Lenovo and NEC
56

57. Indian law in global context
 WTO : “Law is broadly comparable to those of other
jurisdictions with effective laws in this area and, for the
most part, embodies a modern economics - based
approach” (Trade Policy Review of India 2007)
 OECD : “close to state-of-the-art” (Economic Survey India
Report 2007)
57

58. Thank you
kksharmairs@gmail.com
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