India: Competition News Bulletin - February 6, 2016

Last Updated: 10 March 2016
Article by Vaish Associates Advocates

I. CARTELS AND ANTI-COMPETITIVE AGREEMENTS

INDIA

Competition Commission of India (CCI) closes case against General Insurance Public Sector Undertakings and their association for alleged cartelization

The CCI, by its order dated January 4, 2016, has closed a case alleging anti-competitive agreements between the four PSU general insurance companies and their association.

The Informant is the Association of Third Party Administrators (TPAs) engaged in ensuring that the administration of services in the health insurance market is efficient, consumer centric and serves the needs of India's growing healthcare infrastructure.

It was alleged that the General Insurance Public Sector Association (GIPSA), an informal association of the four PSU insurance companies, has been established and used to further the anti-competitive conduct of the four PSUs. The Informant alleged that despite being an ad-hoc body, the GIPSA issued expression of interest for setting up of a captive Health Insurance Third Party Administer (HITPA) joint-venture, thus demonstrating that GIPSA is indeed a platform for furthering the anti-competitive agreements among the PSU insurance companies.

The Informant supplied a circular issued by the Department of Financial Services (DFS) directing the Chief Managing Directors of the four PSU insurance companies not to obtain any standalone Group Health Insurance business from each other without obtaining express consent from the concerned CMD, to ensure that there is no competition amongst them. The Informant also supplied communication(s) showing compliance of the above said circular(s).

The DG investigation found that the decision of PSUs to have a captive TPA was meant to ensure increased efficiency in delivery of standards. HITPA shall have no exclusive rights of their business and hence would not foreclose the market or lead to Appreciable Adverse Effect on Competition (AAEC). Further, HITPA was not yet operational on the date of submission of DG Report. The DG also considered that the records of meetings supplied for alleging cartelization were incomplete and unsigned, and hence couldn't be considered genuine. As regards instructions issued by DFS, the DG found that the PSUs continued to compete with each other. The actual conduct of PSUs during the investigation showed no violation of provisions of Section 3(3) of the Act.

As regards the JV HITPA, the CCI considered that the mere formation of JV HITPA cannot be considered anti-competitive per se especially since the same was not functional at this nascent stage. The CCI was of the opinion that the formation of HITPA by way of a JV by the PSU insurance companies was a commercial decision aimed at combating the inefficiencies and deteriorated services provided by the existing TPAs. Even on analyzing the impact of the said JV i.e. HITPA in terms of the provisions contained in Section 19(3) of the Competition Act, 2002 (Act), it does not appear that HITPA would affect the market for TPAs in any appreciable adverse manner.

As regarding the alleged business-sharing agreement between the PSUs, the CCI noted that the evidence supplied by the Informant was not just incomplete but unsigned also. It did not even mention the name of the organization/ person/ authority who had purportedly issued the instructions/ guidelines.

Regarding the culpability of the association, the details furnished by the association and the minutes of meeting of its Governing Board did not indicate any discussion which attracted the provisions of Section 3 of the Act. The investigation did not find any anti-competitive arrangement among the four PSUs. The CCI was in agreement with these findings.

Regarding the alleged liability of DFS for issuing the purported circular, the CCI noted that the DFS is only functioning as an extension of the Government and acting on behalf of the President to monitor the overall performance and functioning of PSU insurance companies to achieve their objectives. Hence it does not qualify as an "enterprise" within the realms of Section 2(s) of the Act. However, the CCI did opine that DFS should refrain from issuing any such directions/guidelines to PSUs in the interest of protection of competition.

(Source: Order dated January 4, 2016. For full text see CCI website- www.cci.gov.in)

Competition Appellate Tribunal (COMPAT) directs re-consideration by CCI against movie producers/ distributors for alleged cartelisation in setting unfair standards in cinema exhibition

COMPAT, by its order dated December 8, 2015 reversed the order of CCI dated April 22, 2015 which closed a case without initiating investigation against the 7 movie producers/distributors engaged in the production/distribution of Hollywood movies.

The case was filed by K. Sera Sera Digital Cinema Pvt. Ltd alleging that the 7 opposite parties(OPs) compelled digital providers to use only DCI technology if the Indian digital service providers want to exhibit popular Hollywood films like "Fast and Furious 7" and "Avengers-Age of Ultron".

It was alleged that OPs are forcing equipments which are different from the ones used by K Sera Sera. The technology used by K Sera Sera and similar other service providers is generically called 'E-cinema'. It was alleged that the OPs are doing so with a view to force competition out so that their films can be exclusively projected using DCI technology and equipments made therefor. Thus their conduct amounts to cartelization, anticompetitive arrangement and suppression of competition in India. This also deprives 80% of the cinema halls in India of Hollywood films.

The OPs primarily argued that DCI compliant technology is essentially an open architecture technology prescribing high standards with a view to provide superior quality of performance for the viewer and improved efficiency of exhibition for the digital service provider. It provides open access and a much better viewing experience and though the equipment is expensive, the superior quality and more efficient projection compensates for the slightly higher capital cost.

COMPAT, while considering arguments, was of the opinion that there is no doubt that introducing efficiency in distribution of services through process of standardization is a desirable objective of the Act. However, it is a matter for consideration as to at what point forcing standards can lead to pushing out competition. High standards are not anti-competitive per se, but they should not be used to create anticompetitive conditions in the market or what is termed 'tyranny of standards' in trade literature. COMPAT considered that there are many instances where private standards have muted competition in many ways.

COMPAT ordered that the matter should be remitted to the CCI for reconsideration whether for directing investigation under Section 26(1) of the Act made out or not.

(Source: Order dated December 8, 2015. For full text see COMPAT website- www.compat.nic.in)

COMPAT quashes penalty for individual liability imposed on a member of Executive Committee of a pharmaceutical distributors' association

COMPAT vide its order dated December 7, 2015 set-aside the penalty of INR 47, 63,579/- imposed by CCI on Shri Swapan Kumar Karak (Director, Karak Pharmaceuticals) holding him accountable, as a member of the Executive Committee of Bengal Chemist and Druggist Association (BCDA), for the decision by BCDA to restrict discounts on medicines by the pharmaceutical retailers.

The COMPAT considered that Mr. Karak had categorically stated in its reply before the Director General (DG) that he had resigned from his positions within the Executive Committee of BCDA and that he had no knowledge about the decision taken by the Executive Committee for restraining the sale of drugs and medicines below MRP.

However, post the assertion made by Mr. Karak, the DG did not even try to find out the truth behind the claim of Mr. Karak. The DG did not make any effort in that direction. Not only this, DG solely relied upon the minutes of various meetings of the Executive Committee, in which the Mr. Karak's presence was shown without calling for the original record including the registers in which those participating in the meetings must have signed. CCI approved the DG's findings.

The COMPAT was of the view that there is no escape from the conclusion that the DG and the CCI committed serious error by holding the appellant liable for anti-competitive conduct/activity committed by the BCDA.

(Source: Order dated December 7, 2015. For full text see CCI website- www.cci.gov.in)

To read this Bulletin in full, please click here.

© 2016, Vaish Associates Advocates,
All rights reserved
Advocates, 1st & 11th Floors, Mohan Dev Building 13, Tolstoy Marg New Delhi-110001 (India).

The content of this article is intended to provide a general guide to the subject matter. Specialist professional advice should be sought about your specific circumstances. The views expressed in this article are solely of the authors of this article.

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