Towards Robust Competition Law In India: Addressing Hub And Spoke Cartels

EVOLUTION THROUGH CASE LAWS:

In recent legal cases adjudicated by the Competition Commission of India (CCI), significant instances of cartelization and anti-competitive behavior have emerged across various sectors. In the case of Builders' Association of India vs. Cement Manufacturers' Association and others, the CCI found that the Cement Manufacturers' Association (CMA) and eleven major cement producers colluded to set prices, restrict production, and manipulate the market. Similarly, in M/s Santuka Associates Pvt. Ltd. vs. All India Organization of Chemists and Druggists (AIOCD) and others, the CCI determined that AIOCD and state-level chemist associations operated a cartel by requiring no-objection certificates (NOCs) for pharmaceutical companies to appoint stockists, thus controlling supply and market access. Another instance involved Shamsher Kataria's complaint against major automobile manufacturers, alleging anti-competitive practices in the spare parts and after-sales service market. The CCI's investigation revealed contracts limiting the sale of authentic spare parts to independent repairers, fostering monopolistic practices and unreasonable charges. In Re: Alleged Cartelization in the Airlines Industry the Competition Commission of India (CCI) looked into claims that a number of domestic airlines had participated in cartelization by coordinating a rise in fares during an Air India employee strike. Evidence of parallel pricing behavior was discovered during the Director General's (DG) investigation, indicating possible airline cooperation. In the end, though, the CCI was unable to uncover enough proof of a direct agreement between the airlines to establish a hub-and-spoke cartel. Conversely, in the XYZ vs. Association of Indian Forging Industry case, allegations centered around collusion and anti-competitive behavior within the forging industry, while the focus of the case concerning cartelization in the supply of bearings by NSK Ltd. and others revolved around anti-competitive actions within the bearing supply sector. Additionally, in Samir Agrawal v. CCI, accusations of anti-competitive behavior against Ola and Uber were dismissed by the court, citing lack of evidence of cooperation or agreement in fixing taxi fares. Furthermore, in M/s Fast Track Call Cab Pvt. Ltd. vs. M/s Meru Cab Company Pvt. Ltd. and others, allegations of price-fixing and market manipulation among radio taxi operators in Bangalore were investigated, revealing a hub-and-spoke cartel facilitated by association. These cases underscore the importance of vigilant enforcement of competition laws to ensure fair market practices and protect consumer interests.

Though The Competition Commission of India (CCI) encountered difficulties in addressing situations where agreements did not cleanly fit into either horizontal or vertical categories under Section 3(1) of the Competition Act since there was no legislative framework that specifically recognized hub-and-spoke agreements. Due to the difficulty of proving direct proof or agreement between individuals who were not in a horizontal relationship, these agreements frequently avoided liability. This statutory gap has been addressed by the amendment act of 2023. Therefore, since the Amendment act lessens the requirement for demonstrating a direct agreement to impute culpability, we can be optimistic that CCI's jurisprudence will develop in providing a practical test for such agreements. If a party engaged in active cartel behavior, it presumes culpability even if the party did not engage in similar trade or was not a horizontal rival.

ADDRESSING THE DILEMMA OF "ACTIVE PARTICIPATION" IN THE AMENDMENT:

Resellers frequently divulge competitively sensitive information to their suppliers in an effort to improve their reputation in the market, bargain for better terms, or obtain larger discounts. However, things can get more complicated if the provider gives this information to competitors' resellers. Therefore, it's imperative that merchants and suppliers don't divulge any private information. Although not all information sharing between merchants and suppliers results in problems, the triangle shape of this kind of behavior can mimic horizontal agreements if disclosed to rival businesses. It might be difficult to recognize these situations and decide when they could be considered anti-competitive activity. In actuality, interactions between direct competitors or resellers via suppliers may imply de facto horizontal associations. If the supplier acts as a conduit between rival resellers, the analysis is simplified, essentially amounting to direct communication between competitors facilitated by the supplier. In such cases, the supplier's involvement does not negate the existence of a horizontal agreement between resellers. A reseller may only be deemed to actively participate if there's a reasonable expectation that information shared with the supplier will be passed on to rivals. The Competition Commission of India (CCI) may view the relationship between resellers and suppliers differently if the reseller shares information with the supplier for legitimate reasons and couldn't have foreseen its transmission to competitors. However, players in vertical markets must exercise caution in exchanging information to guard against potential anti-competitive actions, likely necessitating the implementation of non-disclosure agreements.

Hub-and-spoke cartels have been the focus of significant antitrust scrutiny across various international jurisdictions, leading to several landmark cases. In the Toys "R" Us case , the FTC charged the retailer with pressuring toy manufacturers to limit supplies to warehouse clubs, leading to both horizontal and vertical agreements. In the 2006 Argos Limited and Littlewoods Limited v. Office of Fair Trading case, there were claims that Argos and Littlewoods had fixed the prices of toys and games they sold. The two businesses were discovered to be part of a hub-and-spoke cartel by the Office of Fair Trading (OFT) and supplier Hasbro. Coordinated pricing resulted from Hasbro serving as the hub and enabling the spokes, Argos and Littlewoods, to exchange price information. The OFT found that this arrangement hampered competition, and as a result, the participating corporations had to pay hefty fines. In order to destroy retail competition, Apple and five publishers coordinated e-book prices, according to the European Commission's 2012 complaint (Apple E-Books Case) involving Apple e-books. The Tesco Stores Ltd v. Office of Fair Trading case revolved around allegations that Tesco, along with other supermarkets and dairy processors, participated in a hub-and-spoke cartel to fix the retail prices of dairy products, including milk and cheese . Tesco was charged by the Office of Fair Trading (OFT) of working with other retailers via dairy suppliers to manipulate prices and thereby lessen competition. In addressing these allegations, the Competition Appeal Tribunal's March 2012 ruling underscored how difficult it is to establish this kind of indirect coordination. In the Vitamins Cartel case resulted in significant fines levied by the European Commission and other authorities due to price and market manipulation by several international vitamin makers. These instances demonstrate the complexity and global reach of the enforcement of hub-and-spoke cartels. Parties may trade sensitive information for legitimate purposes, as recognized by the decisions rendered in the UK cases JJB v. Office of Fair Trading and Argos Ltd v. Office of Fair Trading, as well as the measures implemented by the Hungarian Regulator in SCA/Vajda Papír. As a result, they instituted a "state of mind" standard to evaluate culpability. The Supreme Court's position in the Cab Aggregator Case, which maintained that intent is necessary to prove responsibility under Section 3 of the statute, is supported by this worldwide legal precedence.

The proposal of determining culpability in hub-and-spoke cartel proceedings through a rebuttable presumption rule—in which parties are deemed guilty unless proven innocent—was approved by the Competition Law Review Committee (CLRC) in 2019. The CLRC did not, however, support requiring knowledge or intention in order to prove culpability. On the other hand, the recommendation in the Finance Committee's 52nd report about the Competition Amendment Bill, 2022 was to include the purpose factor in the liability determination process. The committee suggested defining "active participation" to include knowing about or intending to participate in the anti-competitive arrangement.

The Competition Commission of India's (CCI) capacity to combat hub-and-spoke cartel activity has been greatly enhanced by the modified statute. The CCI's ability to control tacit collusion is improved by doing away with the need for direct evidence and imputing culpability based on active participation in advancing the agreement. It has been brought to light that in developed foreign jurisdictions, the assignment of culpability is frequently predicated on the active participation in cartel conduct, subject to the qualification of purpose. This strategy not only brings the Indian competition legislation into line with developed nations' norms, but it also makes sure that organizations and consortiums that arrange meetings without disclosing confidential information are not held liable or charged for their services

The author is an Advocate practicing in New Delhi.

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