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COMPETITION (AMENDMENT) BILL, 2020 – A STEP IN THE RIGHT DIRECTION OR A PERFUNCTORY MEASURE?

INTRODUCTION

The Competition Act, 2002 was introduced on the recommendation of the Raghavan Committee, the report of which found the Monopolies and Restrictive Trade Practices Act of 1969 (“MRTP Act”) as inadequate for dealing with the developments in the economy that happened with time. Since then, there have been amendments to the 2002 Act, the most recently proposed one being the Competition (Amendment) Bill, 2020 (“Bill”).

The most significant part of this Bill is the inclusion of buyer’s cartel in the definition of ‘cartel’ given under Section 2(c) of the Competition Act, 2002 (“Act”). A buyer’s cartel is a group of buyers who collude together to eliminate competition by fixing purchase prices or otherwise controlling the conduct of the seller. Through this amendment, anti-competitive agreements between buyers will also come under the evaluation of the Competition Commission of India (“CCI”). However, the Legislature has erred in merely adding “buyer” in the definition of a cartel, thereby subjecting both the seller’s and the buyer’s cartel to the same adjudicatory criteria, without specifying how to adjudge the Appreciable Adverse Effect on Competition (“AAEC”) for a buyer’s cartel.

This article aims to discuss the concept of buyer’s cartel and its position in India, and goes on to analyse the relationship between this amendment and the Act, and argues against the inclusion of buyer’s cartel in the Act without proper thought.

PRESENT SCENARIO OF BUYERS’ CARTELS IN INDIA

Cartels have been defined in Section 2(c) of the Act 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 provision of services”.  It can be observed that the scope of inquiry under Section 3 of the Act includes only seller-oriented cartels, without referring to buyer’s cartel at all. This appears to be a conscious decision of the Legislature at different instances in the Act shown as follows.

Firstly, the Supreme Court (“SC”) recognized buyers’ agreement under the MRTP Act in Haridas Exports v. All India Float Glass Manufacturer’s Association. It becomes important to note that the Competition Act does away with “any such agreement to purchase”.

Secondly, in CCI v. Coordination Committee, the Supreme Court explained that persons or enterprises not engaged in “economic activity” do not come under the purview of the Act. Thus, the final consumers are automatically excluded from the ambit of cartels.

Pandrol Rahee Technologies v. DMRC Ltd. was the first case where the issue of inclusion of buyer’s cartel cropped up. In this,CCI stated that consumers could not be included under Section 3(3) dealing with cartels as it refers to agreements between persons “engaged in identical or similar trade”. Section 2(x) defines trade to include “production, supply, distribution, storage or control of goods” and notably, does not include any procurement or purchasing of goods that would typically be what a buyer does. Although CCI has not conclusively decided the status of a buyer’s cartel as of now, it stated in XYZ Corporation v. Indian Oil that buyer’s cartel is meant to come under the ambit of the Competition Act. CCI also analysed Section 3(1), which allows for ‘acquisition’ to come within the ambit of anti-competitive evaluation by the CCI. Reading Section 3(1) and 3(3)(a) together, they gave an expansive reading to ‘acquisition’ and stated that buyers fixing prices for the purchase of goods can be included in its purview. But the author believes this was erroneous, as a simple reading of Section 2(a) shows that the scope of acquisition is limited to controlling shares and assets of a company concerning combining of companies. According to rules of statutory interpretation, the provisions should be read in such a manner as would be reasonably inferred from the rest of the provisions.

BUYERS’ CARTEL AND COMPETITION LAW GOALS

According to the preamble, one of the main objectives of the Act is to safeguard the “interests of consumers”. Supreme Court in several decisions[1] has said that even though the laws seek to ensure smooth functioning of the market, its main aim is to “enhance consumer well-being”. However, another aim of this Act is to “promote and sustain competition in the market” and safeguard a person’s freedom to trade. Section 18 makes it CCI’s responsibility to not only protect consumers’ interests but promote competition as well.

Therefore, we do not know if consumer welfare is the end goal of the Act or one of several goals. This becomes essential to determine because if the former is correct then anything promoting consumer welfare even when detrimental to sellers shall not be counted as anti-competitive. This issue is mainly due to the lack of clarity in the Act, Raghavan Committee Report, and the Parliamentary Standing Committee Reports. On one hand, the ultimate goal of ‘consumer welfare’ is depicted as the main reason for departure from MRTP Act in the Standing Committee Report, at the same time, ‘total welfare’ is shown to be the main goal of the Act in the Raghavan Committee Report. Without attempting to deal with these incongruous interpretations, the Bill inserts ‘buyer’s cartel’ into the Act, dangerously widening its scope.

The CCI considers the different factors that affect competition as given under Section 19(3). Under Section 19(3), sub-clause (a), (b), and (c) list negative factors while sub-clause (d), (e), (f) list the positive factors of consumer welfare. With this, the biggest issue plaguing the Bill is that it fails to determine a standard of anti-competitiveness in cases of buyer’s cartel. Same standards cannot be applied for both seller’s and buyer’s cartels. This is because the presumption of AAEC as seen under Section 3(3) and 19(3) read together is suitable to evaluate seller’s cartel but it is difficult to evaluate the social deadweight loss where there is a buyer’s cartel, meaning that the actual loss to society due to buyers’ cartel cannot be determined properly due to no visible detriment to end consumers, unlike in sellers’ cartel. Buyer’s cartels directly benefit the end consumers by reducing the purchase prices for them. Therefore, it might frequently satisfy some of the positive factors under Section 19(3), making the present regime unsuitable for assessing buyer’s cartel.

A buyer’s cartel can protect the consumers from the excessive prices of sellers. Even though sellers may temporarily be driven out of business, buyer’s cartel may not even possess the required market power to substantially impact the interests of sellers. This becomes all the more important to determine due to the divergent goals of the Act. Without determining whether protecting competition is an end goal or a means to meet the goal of safeguarding consumer interests, the Legislature risks expanding the Act’s mandate. Hence, the Legislature needs to clarify the scope of the Act and decide a benchmark for assessing buyer’s cartel.

This does not mean that buyer’s cartel lowering prices in a market cannot harm the markets or consumers. Manufacturers may start retaliating by increasing prices, which would raise the input cost for intermediate parties, thereby increasing the end price to the consumers. Thus, the end-consumers may become the victims of the conflict between the sellers and intermediate buyers. Buyer’s agreements can also lead to relative market power over other competitors to affect entry/exit incentives and reduce healthy competition harming consumer interests. Such differences in the roles of buyers’ cartels have been addressed in other countries’ legislation, such as the Sherman Act of the USA which distinguishes cartels from buyer’s groups. The USA defines a cartel with any anti-competitive effect as illegal, however, it excludes a buyer’s group from its ambit. A buyer’s group is an association of buyers for enhancing the bargaining powers of the consumers to lower their transaction costs while safeguarding competition. The Indian Legislature could have created a similar distinction or a different standard for assessing buyers’ cartels instead of considering them at par with monopolistic cartels.

CONCLUSION

This article highlights the shortcomings of the Bill which seeks to introduce buyer’s cartel under the Act. The author believes there is sufficient evidence to indicate that the main focus of the Act is to promote consumer welfare. However, this has never been confirmed by the Legislature. This makes it important for the Legislature to analyse the goals of the Act, and determine the scope of buyer’s cartel along with it. It must clarify if just efficiency concerns or loss to sellers are sufficient reasons to penalize buyers. For assessing buyer’s cartel, it is the investigating authorities responsibility to, firstly, show that buyers have sufficient market power to lower price below the normal competitive level or to overall distort output for the consumers; secondly, to assess if they exercised such power; and thirdly, to determine the direct threat to competition in the market to promote the goals listed in the preamble. If such an analysis is not done, the Bill, in its current form, can lower the participation of buyers by penalizing them for bargaining with the sellers. Hence, the Legislature needs to rethink the Bill to prevent opening a floodgate of litigation.

Author(s) name: Prashansa Singh (Dr. Ram Manohar Lohiya National Law University, Lucknow)

References:

[1] CCI v SAIL (2010) 10 SCC 744; Excel Crop Care Ltd v Competition Commission of India 2017 8 SCC 47.