On 24 March 2020, the widening COVID-19 pandemic constrained the Government of India to impose a nationwide lockdown. The lockdown introduced sweeping mobility restrictions resulting in multi-sector shutdowns, including walk-in retail, aviation, entertainment and hospitality. Even industries in the essential services that continue to remain operational suffered disruptive demand and supply shocks.
Meeting these challenges raised existential questions to businesses on how to protect operational viability, overcome capacity shortages, labour shortages and coordinate last-mile deliveries. Interestingly, this has led to new partnerships across industries. A case in point is the reported tie-up between fast moving consumer good giant, Marico Limited and food technology platforms, Zomato and Swiggy.1 Similarly, cab-aggregator platforms are reportedly offering their available fleets to Flipkart and Spencer's Retail.2
From a legal perspective, antitrust regulators are concerned that the unprecedented situation may tempt businesses towards efforts which may be anticompetitive and violate antitrust laws, which in the Indian context is encoded under the provisions of the Competition Act, 2002 ("Act"). This includes anticompetitive agreements such as cartelisation and minimum resale price maintenance, which are prohibited under Section 3 of the Act; and the abuse of dominant positions such as through price gouging, prohibited under Section 4 of the Act.
Needless to say, not only does the spread of COVID-19 challenge the functioning of businesses, it also challenges the traditionally envisaged metrics of antitrust enforcement. This is because it is undeniable that the collaborative efforts warranted by the situation are the need of the hour, specifically by businesses catering to essential commodities during these exceptional circumstances. Therefore, the COVID-19 fight introduces the requirement of a balancing act for antitrust enforcement.
In this context, it is relevant to note that the Central Government, under Section 54 of the Act, is empowered to exempt any class of enterprise or any enterprise from the applicability of the provisions of the Act. These exemptions may be granted if, among other things, such exemption is "necessary" in the "interest of security of the State" or "public interest". Previously, the Ministry of Corporate Affairs ("MCA") has utilised its power under Section 54 of the Act to exempt nationalised banks and regional rural banks in the banking sector3, 4 from the application of Section 5 of the Act (merger control regulation). The MCA has also exempted vessel sharing agreements between shipping companies from the application of Section 3 of the Act.5
It may be noteworthy that the European Competition Network ("ECN") issued a joint statement observing that it will not "actively intervene" against "necessary and temporary" cooperation of companies, put in place in order to avoid a shortage of supply.6 The ECN also stated that if companies have doubts about the compatibility of such cooperation initiatives, they should reach out to the European Commission or member state competition authorities for informal guidance.7 However, this does not suggest the suspension of the European Commission's antitrust framework and no special exemptions have been granted to enterprises from the operability of this framework.
In the United States of America, the Antitrust Division of the Department of Justice and the Bureau of Competition of the Federal Trade Commission have issued a joint statement clarifying that certain collaborative actions designed to improve the health and safety response to the current pandemic such as research and development activities, sharing of technical know-how, etc. will be considered consistent with the applicable antitrust laws. 8 However, the regulators stated that this empathetic approach does not prevent them from pursuing civil and criminal action against individuals or businesses that subvert competition under the guise of essential collaboration.
The second approach entails granting exemption to certain sectors from the application of the Act. For instance, in the United Kingdom, the Competition Act, 1998 was recently amended to provide temporary relaxation to retailers and logistics providers that seek to work together to combat this global crisis. However, the relaxation has been clarified to not implicitly allow dishonest businesses to exploit consumers.9
Here, it must be highlighted that while the approaches adopted by foreign antitrust agencies provide useful informal guidance, they do not account for the peculiarities of the overall Indian legal and regulatory framework. More specifically, a primary concern of foreign antitrust agencies is the issue of price-gouging of commodities such as hand sanitisers, facemasks, medicines and such other products used to prevent and contain the pandemic.
Pertinently, amongst several regulatory laws of India the Indian Essential Commodities Act, 1955 ("Essential Commodities Act"), inter alia, imposes restriction on the stock keeping of products to prevent its shortage and/or artificial unilateral conduct of hoarding essential products. Such business conduct causes artificial demand resulting in artificial price rise. The Government of India has been proactive in amending the Schedule of the Essential Commodities Act to include sanitisers and masks in response to the shortage in supply and price gouging in the Indian market. Therefore, it is evident that India already has a dedicated legislation to prevent the final consumers from disruptions in prices and stock keeping of essential commodities. However, issues such as coordination between players on distributors' margin, quantity control on supplies, etc. may not be covered directly under the Essential Commodities Act. These issues come under the purview of the Act which would prevent players from entering into agreements to fix prices, exchange information, or otherwise indulge in conduct which leads to an adverse impact on the market.
Thus, a complete exemption to business from the application of Sections 3 and 4 of the Act through Section 54 of the Act to allay concerns raised by the present situation may not seem feasible and could lead to parties exploiting the present situation in their favour by indulging into anticompetitive conduct having wide and long-lasting ramifications in the market. Further, jurisprudence of the Supreme Court of India suggests that the Central Government must exercise powers such as those under Section 54 of the Act sparingly and only when deemed necessary. 10
The existing Indian antitrust framework in terms of assessing the appreciable adverse effect in competition ("AAEC") is flexible and enables the Competition Commission of India ("CCI"), the Indian antitrust authority, to undertake a case-by-case analysis taking into account any hardship/ peculiarities of the present circumstances. The determination of AAEC requires a balancing of its procompetitive effects against its anticompetitive effects. For instance, one of the factors that the CCI may consider while assessing the impact of an agreement is whether it enables or leads to "improvements in production or distribution of goods or provision of service". Similarly, the determination of whether abuse of dominant position has occurred, requires the CCI to account for objective justifications that the enterprise had (such as, protecting the quality of supply chain, or meet competition) when imposing such restrictions. Thus, in view of the above, a blanket exemption to the applicability of the Act may neither be feasible nor be necessary.
Regardless of the approach adopted, up until a clear path is taken by the Central Government in consultation with the CCI, businesses keep abreast of the developments in the sphere of antitrust regulation as certain desperate measures undertaken now by businesses may contravene antitrust laws later when markets normalise and the CCI commences normal operations. Sections 3 and 4 of the Act follow ex post facto inquiries therefore, it is important to seek expert legal advice now, mitigating risks of antitrust violation, than doing so later when investigation commences.
Manas Kumar Chaudhuri, Partner & Radhika Seth, Senior Associate assisted by Alisha Mehra, Associate and Arvind Pillai, Associate
1. "Marico essential products to be home delivered by Zomato, Swiggy", BusinessLine Bureau (The Hindu) available at https://www.thehindubusinessline.com/companies/marico-essential-products-to-be-home-delivered-by-zomato-swiggy/article31250636.ece last accessed on 07 April 2020.
2. "Uber partners with Flipkart and BigBasket in India to deliver essential items", Manish Singh (TechCrunch) available at https://techcrunch.com/2020/04/06/uber-partners-with-flipkart-and-bigbasket-in-india-to-deliver-essential-items/ last accessed on 07 April 2020.
3. Ministry of Corporate Affairs, Notification S.O. 2828(E), 30 August 2017, available at https://www.cci.gov.in/sites/default/files/notification/Notification%2030.08.2017.pdf last accessed on 6 April 2020; Ministry of Corporate Affairs, Notification S.O. 2561(E), 10 August 2017, available at https://www.cci.gov.in/sites/default/files/notification/Notificiation%20-%2010.08.2017.pdf last accessed on 6 April 2020.
4. Ministry of Corporate Affairs, Notification S.O. 3714(E), 22 November 2017, available at https://www.cci.gov.in/sites/default/files/notification/Notification-22.112017.pdf last accessed on 6 April 2020.
5. Ministry of Corporate Affairs, Notification S.O. 3250(E), 4 July 2018, available at http://www.mca.gov.in/Ministry/pdf/VSAExemption_16072019.pdf last accessed on 6 April 2020.
6. European Competition Network "Antitrust: Joint statement by the European Competition Network (ECN) on application of competition law during the Corona crisis" dated 23 March 2020, available at https://ec.europa.eu/competition/ecn/202003_joint-statement_ecn_corona-crisis.pdf last accessed on 07 April 2020.
8. Joint Antitrust Statement Regarding COVID-19, available at https://www.ftc.gov/system/files/documents/public_statements/1569593/statement_on_coronavirus_ftc-doj-3-24-20.pdf last accessed on 6 April 2020.
9. The Competition Act 1998 (Groceries) (Coronavirus) (Public Policy Exclusion) Order 2020 available at http://www.legislation.gov.uk/uksi/2020/369/made last accessed on 07 April 2020.
10. Jalan Trading Co v. Mill Mazdoor Union (Civil Appeal No. 187 of 1996).
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