India: Investigation Techniques Used By The Director General For Busting Cartels Under The Competition Act, 2002: An Analysis

Introduction

Section 2(c) of the Competition Act, 2002 ('Act') defines 'Cartels' as 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 provisions of services. This paper briefly introduces the reader to the investigation techniques used by the Director General, Competition Commission of India ('DG') for detecting and busting cartels under the Act. The basic purpose underlying this analysis is the current applicability of direct or circumstantial evidence by the DG for the purposes of busting cartels during the course of the investigation.

Legislative Framework

Section 3 of the Act deals with 'anti–competitive agreement' which is as an agreement, either written or oral, legally enforceable or otherwise, entered by and between enterprises or persons, association of enterprises, in respect of production, supply, distribution, storage, acquisition or control of goods or provisions of services, which cause or are likely to cause an appreciable adverse effect on competition ('AAEC') within India.

Anti-competitive agreements may be divided into two broad categories namely (a) Horizontal agreements are those, which are entered into between competitors who deal in same, similar, identical goods or provisions of services. Under Section 3(3) of the Act, there is a presumption of AAEC, if such agreements relate to;

(a) fixing sale or purchase of prices of goods or services; or

(b) sharing of markets; or

(c) limiting production, supply, technical development; or

(d) rigging/colluding in bids.

A 'Cartel', is typically a horizontal agreement whereby a group of similar, independent companies, join hands to fix prices, to limit production or to share markets or customers between them. Cartels are viewed very seriously under the Act and the Competition Commission of India ('CCI') is empowered to impose a penalty which can be as high as three times of its profits for each year of continuance of the cartel or 10% of its turnover for each year of continuance of the cartel, whichever is higher, on each member of the cartel, which is levied under section 27 of the Act.

For the purposes of finding of an infringement of a cartel under Section 3(1) read with 3(3) of the Act, there must be evidence of an agreement being reached between competitors at the same level. If prima facie evidence suggests that an agreement may exist then the CCI may pass an order under section 26(1) of the Act by which it directs the DG which is the investigating arm of the CCI to assist/investigate the matter by collecting and collating direct/circumstantial evidence for finding infringement under cartels. Section 41(2) of the Act confers on the DG all the powers of a Civil Court under the Code of Civil Procedure, 19081 which include summoning of a person and examining him on oath, requiring the discovery and production of documents, receiving evidence on affidavit, issuing commissions for the examination of witnesses or documents. In furtherance of the same under Regulation 41 of the Competition Commission of India (General) Regulations, 20092 the DG and the CCI have been also blessed with the power of deciding the manner in which the evidence has to be adduced before them which includes a mix of direct and circumstantial evidence.

After being given ample powers to cull out the direct evidence from every nook and corner, the DG faces critical challenges of proving that the conduct of competitors which was a result of an agreement or concentrated practice. Cartels are generally hatched in secret and the standard of proof is less in case the infringement is based on direct evidence which isn't that easy to collect. In case of non-availbility of direct evidence the standard of proof is higher for collecting and collating circumstancial evidence which is to hard to collect direct evidence.

Evidentiary Standards for Cartel Offences

Evidence are primarily of two types direct and circumstantial evidence. Direct evidence can be described as 'first hand' proof of a cartel originating directly from one or more participants in cartel meetings, and normally directly implicating the participants in the cartel3. The various examples of direct evidence can be written cartel agreements, minutes of meetings etc.

Circumstantial evidence is the evidence that does not specifically describe the terms of an agreement, or the parties to it. It includes evidence of communications among suspected cartel operators and economic evidence concerning the market and the conduct of those participating in it that suggests concerted action.4 The examples of circumstantial evidence can be restaurant receipts, credit card bills, travel details, telephone/mobile bills etc. In the recent past the competition laws/regulations offer competition agencies the flexibility to rely on circumstantial evidence when it comes to investigating cartels since it is to find any form of written agreement amongst competitors.

The level of credibility of direct evidence is always high and is not easy to contest before the competition authorities whereas circumstantial evidence tends to be of circumstantial value and usually requires corroboration with other evidence to prove the same. The Competition authorities across the world have used a combination of direct and indirect evidence of a collusive agreement to detect cartels.

United States of America & European Union:

In the US, the allegation of parallel conduct (such as price parallelism) without any more evidence to support the claim, cannot entitle the plaintiff to claim, that the conduct is a result of an agreement. In fact it may just as well be result of a 'wide swath of rational and competitive business strategy unilaterally prompted by common perceptions of the market'5. The same court in the case of Matsushita Electric Industrial Co. Ltd. v. Zenith Radio Corp. et al.6, states:"conduct that is as consistent with permissible competition as with illegal conspiracy does not, without more, support even an inference of conspiracy." Further, in a decision regarding proof of conspiracy, Bell Atlantic Corporation v. Twombly,7 (May 21, 2007), the Supreme court of the US at para 1958, again considered the proper standard for pleading an antitrust conspiracy through allegations of parallel conduct. The Court held that:"stating a Section 1 claim requires a complaint with enough factual matter (taken as true) to suggest that an agreement was made and further that an allegation of parallel conduct and a bare assertion of conspiracy will not suffice"

As far as the European Union (EU) is concerned, the decision of the European Court of Justice in Woodpulp II (AhlströmOsakeyhtiö and Others v Commission of the European Communities, Joined cases  C-89/85, C-104/85, C-114/85, C-116/85, C-117/85 and C-125/85 to C-129/85), is the landmark judgment where the Court laid the standard of evidence required to uphold a parallel conduct to be a result of concerted action/agreement. The Court held that:"In determining the probative value of those different factors, it must be noted that parallel conduct cannot be regarded as furnishing proof of concertation (sic) unless concertation (sic) constitutes the only plausible explanation for such conduct. It is necessary to bear in mind that, although Article 85 (now Article 101, Treaty on the Function of the European Union) of the Treaty prohibits any form of collusion which distorts competition, it does not deprive economic operators of the right to adapt themselves intelligently to the existing and anticipated conduct of their competitors." Under the EU law, if nothing can justify why the enterprises in question would engage in parallel conduct, but for, under a conscious commitment to a common scheme, only then can the enterprises be held to have violated EC competition law.

India:

For Section 3(3), the Act presumes AAEC which means that the burden of proving otherwise in cases of cartels lies with the parties. The CCI in its early stages of coming into force was of the view that for the purpose of punishing a cartel there should be an existence of direct evidence. The said approach of the CCI is visible in early cases like Neeraj Malhotra v. Deutsche Post Bank8, In Re: Glass Manufacturers9 and Consumer Online Foundation v. Tata Sky Ltd. &Others10 which clearly state that existence of direct evidence is a must for establishing any contravention under the provisions of the Act. Subsequently, the CCI deviated  from its stand on direct evidence in various cases like Coal India Ltd. v. GOCL Hyderbad11, In Re Aluminium Phosphid Tablets12 and Builders Association of India v. Cement Manufactures Association & Ors13. In these later cases, wherein the CCI decided the issues of corrdinated behaviour, meeting of minds and parallel behaviour amongst competiors on the basis of circumstancial evidence. After giving more weight to the circumstantial evidence wherein direct evidence is not available the CCI in the case of Builders Association of India v. Cement Manufactures Association & Ors has held:

"The Commission notes that the Opposite Parties have cited its decisions in the case of alleged cartelization in Sugar Industry, case of Neeraj Malhotra vs Deutsche Post Bank and others -Case no. 5 of 2009 Banks and Flat Glass manufacturers to drive home the point that existence of direct evidence is must for establishing any contravention under the provisions of the Act. In this regard, the Commission observes that in both the cases the issue was decided based on a detailed market analysis and it was concluded that the competitive construct of the relevant market does not cause any concern for competition based upon existing materials on record. The issue before the Commission in any case is inquiry into prevailing competitive forces in the concerned market and evidences are evaluated accordingly to assess that. If direct evidences are not present, but circumstantial evidences do indicate harm to the competition at a market place, the Commission will certainly take cognizance of the same." (para 5.5.11)

Over the years the DG has evolved different ways and techniques to bust cartels on the basis of circumstantial evidence. However, in collecting circumstantial evidence such as personal/official emails, telephonic records, personal/official credit card details, and other similar information care must also be taken to ensure no other statues are being violated. Recently, the DG has taken to directing internet service providers and telecom operators to provide the e-mails or telephone records, which may violate provisions of applicable statues. The DG has also been provided with the power to carry out search and seizures, which it has exercised on one occasion thus far. This was promptly challenged before the High Court of Delhi as being unlawful for a variety of reasons. The investigation was subsequently stayed and the fate of the seizure is still undecided. The Madras High Court has also on 30th October 2015 passed an interim order staying the production of e-mails before the DG and also permitted the respondent to be accompanied by counsel during a deposition before the DG.

While the DG and CCI are doing commendable job in busting cartels, they must be simultaneously ensure that they respect the right of the parties being investigated and that their efforts are not wasted due to procedural lapses.

Footnotes

1  Section 36 (2) of the Act: Power of Commission to regulate its own procedure.- The Commission shall have, for the purposes of discharging its functions under this Act, the same powers as are vested in a civil court under the Code of Civil Procedure, 1908 (5 of 1908), in respect of the following matters, such as (a) summoning any person and examining him on oath; (b) requiring the discovery and production of documents; (c) receiving evidence on affidavits; (d) issuing commissions for the examination of witnesses or documents; (e) subject to the provisions of sections 123 and 124 of the Indian Evidence Act, 1872 (1 of 1872),  and (f) requisitioning any public record or document or copy of such record or document from any office.

2  Regulation 41(2) of the Competition Commission of India (General) Regulations, 2009 provides the Commission or the Director General, for the purpose of investigation  may record evidence as under:

(a) admit evidence taken in the form of verifiable transcripts of tape recordings, video recording, electronic mail, telephone records; (b) admit on record every document purporting to be a certificate; (c) admit the entries in the books of account; (d) admit opinion of any person acquainted with the handwriting of the person by whom a document is supposed to have been written; (e)admit opinion of  the handwriting experts.

3  Jonathan Faull and Ali Nikpay, "The EU Law of Comeptition", 3rd edition 2014, at para 8.250, page 1136-1137at page 1248.

http://www.ciaonet.org/attachments/11327/uploads

5   (465 U.S. 752)

6  (475 U.S. 574)

7  127 S.Ct. 1955, 550 U.S.

8  Order passed by the CCI in Case No. 05/2009 vide order dated 02.12.2010.

9  Order passed by the CCI in MRTP Case No. 161/2008 vide order dated 24.01.2012.

10  Order passed by the CCI in Case No. 02/2009 vide order dated 24.03.2011.

11  Order passed by the CCI in Case No. 06/2011vide order dated 16.04.2012.

12  Order passed by the CCI in Case No. 02/2011 vide order dated 23.04.2012.

13  Order passed by the CCI in Case No. 29/2010 vide order dated 20.06.2012.

Nidhi is a graduate from NALSAR University of Law, Hyderabad (2009) and with an LLM from George Washington University, United States (2010), and a Senior Associate with the Competition Law Practice Group at Luthra & Luthra Law Offices, New Delhi. With over five years of hands-on experience in Competition/Antitrust Law, she has been actively involved in representing clients across various industry sectors before the Competition Commission of India, the Competition Appellate Tribunal, High Courts, and the Supreme Court of India, in relation to investigations into various behavioural issues emanating under the provisions of the Competition Act, 2002. The sectors represented include real estate, industrial equipment, steel, cement, aviation, IT/ITES, pharmaceutical, automotive parts, tyres, infrastructure, chemicals, etc.

She has also been actively involved in rendering competition law audit and compliance/training services for various multinational and Indian clients. Having been directly intricately involved in several investigations conducted by the Office of the Director General of Investigation, as well as the first ever 'dawn raid' conducted by the DG, she has acquired the knowledge and experience to hand-hold clients and to provide them with holistic legal advice on critical competition law compliance related issues. She can be reached at nidhis@luthra.com.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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