Introduction

In the most basic sense, cartels are such agreements or syndicates operating in a market, which manipulate the prices and production of certain goods, in order to satisfy their own ulterior motives. Cartels are not only extremely detrimental to fair competition, but they also impair the rights of the consumers. In fact, the renowned economist Adam Smith, termed them as ‘conspiracies against public’ in his famous work, The Wealth of Nations[1]. Anti-trust provisions all over the world identify cartels as a major hindrance to a free and fair market, and accordingly different jurisdictions have their own laws to deal with this market menace. This article attempts to analyze the position of cartels under the competition laws of India, through relevant statutory provisions and case laws. It tries to understand the scope of Indian anti-trust provisions on this issue.

Cartels and the Indian Competition Act

The Competition Act, 2002[2] (hereinafter referred to as the ‘Act’), is the primary statute in the country that acts as the protector of free and fair competition. Healthy competition is always considered beneficial for the economy, and the Act prohibits any behavior that unfairly benefits someone or causes unfair losses to the other. It also keeps an eye on the abuse of dominant position in the market, and such mergers or acquisitions that have the effect of jeopardizing the consumer’s interests. As defined under section 2(c) of the Act, cartels are 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[3].

To put this simply, cartels are formed when competing enterprises in a market, instead of indulging in fair and healthy competition, come together to fix the prices or production of goods. However, cartels are not only limited to this, and they sometimes also involve allocation of specific markets or consumer bases among the members. Needless to say, these associations are considered to be illegal by the Competition Commission of India (hereinafter referred to as the ‘CCI’). Section 3 of the Act prohibits any such agreements that are anti-competitive in nature and violate the interests of comparatively vulnerable stakeholders such as consumers, and other small businesses.

How to prove cartelization?

An important keyword that must be kept in mind while discussing cartels is “agreements”. The Act has incorporated a very wide meaning of the term “agreements”. Under section 2(b) of the Act, agreements are not required to be in writing, or formal, or even legal. Even a meeting of minds and a common understanding is sufficient to prove an agreement. According to the CCI’s reasoning in the case of All India Tyre Dealers’ Federation v. Tyre Manufacturers[4], no explicit agreement is required in order to prove cartelisation, it may be proved even through the intention or conduct of parties. The Act has rightfully drafted such wide clauses. It needs to be understood that cartels are primarily illegal associations of enterprises. The members of a cartel adopt dishonest and unfair measures in order to gain as much profits as possible. They make it difficult for the new entrants in the market to gain reasonable profits and enjoy healthy competition. Obviously, nobody would want such illegal activity to come to light. Hence, it is quite difficult to find concrete evidence for proving cartelisation.

Cartelisation is essentially a civil offence, and hence, the standard of proof in such cases is different. It is not reasonable to expect that proper, well-documented and watertight evidence can be produced in such cases, given the secretive and shadowy nature of the offence. The CCI has evolved an approach that requires only some sort of circumstantial, coherent evidence to prove cartelisation[5]. Initially, the standard of proof in order to substantially prove cartelisation was ascertained in the case of In re sugar mills[6]. In fact, the standards of proof laid down in this case were very difficult to prove for a secretive activity like cartelisation. To prove cartelisation, the requirements were: conclusive evidence of the members meeting and agreeing to take concerted action, the implementation of this concerted action, and a meeting of minds. It goes without saying that proving all these requirements substantially was not an easy task, and hence a risk of cartels not being detected due to want of evidence was always present. The CCI evolved its approach over time and relaxed the criteria in order to prove cartelisation. In the case of Builders Association of India v. Cement Manufacturers' Association & Ors[7], the CCI provided a more lenient standard of proof in cases of cartelisation. In this case, it was held that if it is not possible to prove cartelisation through concrete evidence, even circumstantial evidence can be considered as sufficient proof of cartelisation. Contributing factors such as price parallelism may also be considered in specific cases to determine cartelisation. Further, it is not necessary to prove cartelisation beyond reasonable doubt, even balance of probabilities can be employed as a test to determine cartelisation, as held in the in Re: suo‐motu case against LPG cylinder manufacturer’s case[8]. This simply means that the court can examine different versions of the same case and check which version is more probable to be true.

Powers of CCI to impose penalties

The Act includes certain sections that empower the CCI to impose penalties in cases where it is found that there has been an unfair collusion that is having an appreciable adverse effect on competition. If, after a proper investigation, it is found that there has been an illegal collusion by enterprises in order to unfairly increase their profits, the CCI can impose penalties on them. According to Section 27 of the Act, the CCI has the power to impose upon every cartel participant a penalty of up to three times its profit for each year of continuance of the cartel, or up to 10 percent of the turnover for every year of the continuance of the cartel, whichever is higher[9]. However, the CCI may not always impose penalties on cartel members. It can issue other directions as well. Under Section 48 of the Act, the Commission may order the cartel members to discontinue the cartel and not to engage in such activities again[10]. It may also direct the modification of agreements as it deems suitable, and might even impose criminal or additional monetary penalties if the concerned parties act in contravention to the commission’s orders.

Leniency applications: an important feature

Leniency applications are an important aspect of competition law. It is well known by now that conclusively proving cartelization is a difficult task, and leniency applications provide another way out of this problem. According to the CCI Lesser Penalty Regulations 2009, leniency applications are considered when a member of a cartel agrees to provide material evidence and information about the cartel, and hence cooperates with the CCI to make a strong case against the cartel. It is also necessary that the member seeking leniency does not further participate in the cartel activities. Based on the cooperation and the value of evidence provided, the applicant seeking leniency can be granted from 30-50 to even 100% penalty reduction[11].

Conclusion

The Indian Competition Law has been able to incorporate such provisions that can effectively deal with cartels. However, there is a scope of defining proper quantitative penalties in cases of cartelization. The standard of proof can further be defined and made more uniform by including definite criteria in the Act itself. Cartelization is highly detrimental to competition, and efforts must always be made to curb it as effectively as possible.