1 country report plastics industry in india issues and challenges
Pallavi shroff
1. 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 41000540
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2. DISCLAIMER
This presentation is intended to provide general information, in relation to the
activities of trade associations which are likely to infringe the provisions of
the Competition Act, 2002 (the Competition Act), in a summary form. It does
not constitute legal advice and should not be relied upon as such. Formal legal
advice should be sought in particular matters.
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3. OBJECTIVES
To 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.
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4. 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 fines
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5. 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;
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6. 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)
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7. 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).
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8. 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!
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9. CARTELS
Cartel - 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.
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10. 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.
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11. 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.
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12. 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.
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13. 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 .
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15. 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.
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16. 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.
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17. 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.
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18. 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.
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19. 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.
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20. 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.
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21. 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.
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22. 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.
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23. 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? 23
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24. 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.
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25. 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”.
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26. 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).
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27. 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.
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28. 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.
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29. 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.
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30. 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.
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31. 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.
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32. 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 margins
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33. 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.
.
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