C.C.I. Double Standards Or Bad Reporting ??

The recent reports on the alleged demand of the C.C.I. against a number of builders and C.R.E.D.A.I. “to respond to findings by its investigation arm that they engaged in unfair trade practices such as one-sided contracts with inadequate disclosure” have generated a substantial amount of hype and glee and grimace alike. But to be honest, the news report has (at he risk of sounding stupid) left me confused more than anything else. Listed below are the reasons for my confusion:

1. The report states that the Commission began investigations based on a complaint by an individual, Jyoti Swarup Arora, against Gurgaon-based builder Tulip Infratech, the director of town and country planning, Haryana, and the Haryana Urban Development Authority. However, memory served me correct, as I clearly remember the Case being dismissed at the threshold itself. (It is Case No. 7/2011. Order dated 06.04.2011). There is also no supplementary Order of a later date available on the Commissions website therefore it is difficult to believe that the matter was appealed before the Competition Appellate Tribunal and was referred back from there.

2. As per the report, the “CCI has sought responses from Unitech, Oberoi Realty, BPTP Ltd, Gaursons India, K Raheja Corp, Amrapali Group, Supertech Ltd, Tata Housing Development Company, Ansal Properties & Infrastructure, Purvankara Projects, Prestige Estates Projects and Ambuja Neotia Group.The competition watchdog has also sought responses from Avalon Group, Aparna Construction and Estate, Amit Enterprises Housing, Omaxe, Parsvnath Developers, PS Groups Salarpuria Group and Purohit Construction. The Confederation of Real Estate Developers’ Associations of India (C.R.E.D.A.I.) lobby group has also been asked to comment.”

Notwithstanding what has been stated in point one above, there are already cases which have been filed against some of the above mentioned developers which have raised the exact same issues as given the article, and all of them have been dismissed. Assuming the article is not a case of bad news reporting, surely it is nothing less than double standard on the part of the C.C.I., not to mention that those Orders are Orders In Rem, and thus create a clear balance of convenience against these companies which have been showcaused. The Orders are as follows:

Omaxe (Case No. 77/2013 and Case No. 83/2011)

BPTP (Case No. 25 of 2014 and Case No. 33 of 2013 and Case No. 42/2010)

Raheja Group (Case No. 62/2011)

Supertech (Case No. 86/2013 and Case No. 3/2013 and Case No. 28/2012)

Unitech (Case No. 27/2011 and Case No. 21/2011)

Note: Since many of these developers are also involved in commercial construction market, I have chosen to exclude the Informations/Complaints filed against their commercial/office spaces but rather have limited the Orders on the subject matter at hand, i.e., residential apartments/spaces. But just for the record, all the Orders related to commercial spaces have also been held in favour of the above mentioned developers.

3. To quote directly from the article:

“The complainant alleged an understanding among all real estate players in the market to the detriment of consumers, saying that the code of conduct adopted by Credai indicated collusion among its members. The commission directed the investigation officer to probe the matter after observing that the conduct of Tulip and other members of Credai indicated prima facie violation of the provisions of the Companies Act.”

Not only is the second half of the above quoted stanza factually wrong due to the reasons mentioned in point one, but the very basis of the Complaint/Information as stated in the first half of the stanza is questionable. After all, as per the numerous decisions of the Commission itself, Collective Dominance is presently not recognised under the Competition Act. Furthermore, as the Article creates an impression that these developers are involved in a Cartel through C.R.E.D.A.I., to address this argument, it cannot succeed as the requisites of Section 3(3) of the Act can’t arise and be met in the present case. (There is a reason why all Information’s have been filed under Section 4 of the act.)

I look forward to any form of of clarification or even a correction against me to any and all my doubts. After all, I am purely going by the newspaper report and there is always the possibility that I may have missed something during my analysis.

First Combination Phase – II Investigation !!

For the first time in since it’s inception, the Commission has begun a Phase – II investigation into the proposed Sun-Pharmaceuticals-Ranbaxy Merger. The Commission will in all probability order an investigation to be conducted by the Director General.

It is pertinent to note that the Commission does not seem to be focused on the consequent fifth largest Pharmaceutical Corporation in the world which would be created as a result of the merger, but rather has chosen to keep it’s focus limited to India on the impact on drug prices ans their availability in the Country. (There are approximately forty six drugs which will be manufactured by both together merged as the single entity.) It goes without saying that this is speculative and the focus could widen considerably as the case progresses.

UPDATE:

C.C.I. Invites Public Comments on Sun-Ranbaxy Deal.

Combination Consultations and the “Harvey Two Face” Concern.

With the C.C.I. expanding it’s informal Pre-Notification consultation to include substantive issues regarding filing of notice with the C.C.I., we are now looking at a scenario in competition regulation where there will be a significant growth in the level of interaction between the Regulator and the Practitioner. This growth of informal interaction leads to what I like to call the “Harvey Two-Face” concern (Batman enthusiasts will understand why I choose him for this particular post. Others, maybe not so much.):

1. “Clean face” Harvey: The amendment to the Regulation and the consequent expansion in effective communication Simplifies procedures and most importantly, will result in clearances being granted smoothly within a shorter span of time, thus aiding business growth and consolidation wherever it may be necessary. Plus, it gives a chance for the Commission to be “prepared” for what will be coming and think up replies and make quick decisions to any complications which may be part of the merger proposal.

2. “Burnt face” Harvey: It threatens the impartiality of the entire combination procedure and may probably raise corridor gossip about lobbying to clear combination proposals. As it is, the present lack of “effective combination research”, i.e., effectively assessing complicated market dynamics in complicated mergers(The Jet-Etihad Combination is one such example) at the Commission has created some disquiet among a few (myself included) at the heavy reliance which is being placed on the submissions of parties rather than individual independent research. Handling conflict of interest is not one of the strong suits of the Indian Executive (or to be frank, of Indians in general) and this raises concerns as to overt reliance on the proponent of the Combination to understand it in the first place.

Antitrust Programme for Young Professionals 2014

The Indian Institute of Corporate Affairs (I.I.C.A.), in partnership with the Competition Commission of India (C.C.I.), is pleased to invite applicants for the 2014 first edition of the “Antitrust Programme for Young Professionals 2014”. This Programme is a five-day signature practice oriented workshop and envisaged to be an annual event. It brings together a selected gathering of young lawyers, professionals and researchers drawn from prestigious Universities.
The Summer School provides the unique opportunity for professionals to interact with globally reputed faculty and experts from competition law (including academics, practitioners, in-house counsels, foreign competition law experts) through a combination of coursework that extensively covers lectures, discussions, skill oriented sessions and innovative learning processes like mock trial session, case studies, quiz, movies and peer-group activities.

The I.I.C.A. as part of the programme, is also organising an Antitrust Writing Contest. details for both of them can be found below.

Details

Registration Form.

Tentative Programme.

National Level Essay Competition 2014

The Annual National Essay Competition on Competition Law organised by the C.I.R.C. is back.

The last date for submission of entries is 15th March, 2014.

For further details, click here. Happy writing and all the best !!

Filling Up of Posts in Competition Commission of India on Deputation Basis.

The Competition Commission of India has invited applications for filling up of various posts on deputation on foreign service basis. The details of the posts along with eligibility criteria, educational qualification/experience etc. required for each category of the posts can be found here.

Brief Notes

I have been falling behind in case law readings in recent weeks, which is why a number of posts are presently saved as half finished drafts on the Dashboard of the Blog. Nevertheless, while trying to finish the backlog, I recently had the opportunity to sift through the recent Orders of the Commission. Two of them stand out and thus deserve a special mention.:

The first is that of Mr. Larry Lee Mccallister v. M/s Pangea3 Legal Database Systems Pvt. Ltd., mostly for the reason that as far as can be recalled, this is the first time the Commission has dealt with Non-Compete clauses under the Competition Act. The reasoning seems to be sound on the facts and circumstances of the case as the matter was more about the personal grievances of a particular individual rather than that of anti-competitive or consumer harm. Personally, am waiting for the day when the C.C.I. has to deal with a Telefonica like situation in the context of cooperative joint ventures or M & A transactions.

For those who are not aware about the above mentioned case, in 2010, Telefonica acquired sole control of the Brazilian mobile operator, Vivo, which was previously jointly owned by Telefonica and Portugal Telecom. In the context of this transaction, the parties inserted a clause in the purchase agreement indicating that Telefonica and Portugal Telecom would not compete with each other in Spain and Portugal as between the end of September 2010 and the end of 2011. The European Commission opened an investigation in January 2011, and the parties terminated the non-compete agreement in early February 2011. The European Commission held that, by virtue of the non-compete agreement, Telefonica and Portugal Telecom had deliberately agreed to stay out of each other’s home market. The European Commission considered that this preserved the status quo in Spain and Portugal, which hindered the integration process of the E.U. telecom sector and prevented the parties from competing with each other for offering clients the most advantageous conditions. Despite the short duration of the infringement, which was only 4 months, the European Commission fined Telefonica €66,894,000 and Portugal Telecom €12,290,000.

The second one is Shubham Srivastava v. Department of Industrial Policy & Promotion (D.I.P.P.)/Supplementary Order , which deserves to be added in the growing list of Orders of the Commission on determining the scope of the definition of the term “Enterprise” under Section 2(h) of the Act. In the Order, while dismissing the Information, the C.C.I. has held that D.I.P.P., under the Ministry of Commerce and Industry, would fall under the definition of “Enterprise” under the Act.

Hope this satisfies readers for now. More (finally) finished posts to follow in the next few days. 🙂

In Re M/s Puja Enterprises et. al., Ref. Case No. 01 of 2012 : A Critique

Click here for the Order.

FACTS:

The reference was filed by Director General (Supplies & Disposals), Directorate General of Supplies & Disposals (D.G. S&D), Department of Commerce, Ministry of Commerce & Industry, Government of India, New Delhi (“the Informant”) under Section 19(1)(b) of the Competition Act, 2002 against opposite parties alleging Bid Rigging and market allocation in contravention of the provisions of Section 3 of the Act while bidding against the Tender Enquiry dated 14.06.2011 floated by D.G. S&D for concluding Rate Contracts (R.C.) of product (Polyester Blended Duck Ankle Boot Rubber Sole) for the period from 01.12.2011 to 30.11.2012.

The Wool and Leather (W.L.) Directorate of D.G. S&D had issued Tender Enquiry No. AB(Duck)/WL-6/ RC-11050000/ 1112/ 66 dated 14.06.2011 for conclusion of new Rate Contracts relating to the period from 01.12.2011 to 30.11.2012 for polyester blended duck ankle boots rubber sole (‘the product’), with tender opening date as 29.07.2011. The estimated requirement indicated in the Tender Enquiry was valued at Rs. 10.45 crores. The Tender Enquiry consisted of 45 items of different sizes and colours of the product, as in the previous Rate Contract for the year 2010-11 which was awarded to the eleven parties who were also holding the Rate Contract for the year 2009-10. On scrutiny of the tenders for year 2011-12 opened on 29.07.2011, it was found that the difference in quoted prices of different bidders was in a very narrow range and all the tenderers barring one, had restricted the quantity to be supplied by it during the Rate Contract period. Nine tenderers had also stipulated the maximum quantity to be supplied by them to a particular Direct Demanding Officer (D.D.O.). This
was stated to indicate a pre-determined, collusive and restrictive bidding pattern or cartel formation by the bidders thereby violating the various provisions of the Act.

ISSUE(S):

Only one broad issue. Whether the opposite parties were guilty of Bid Rigging in the Tender ??

CRITIQUE:

While it is best to reserve judgement on the Final decision in the Order of the Commission on whether the parties were actually guilty of Bid Rigging (For all we know, they actually were), the reasoning used to arrive at the conclusion both by the D.G. and the C.C.I. definitely merits some assessment:

1. The fact that the same set of bidders/manufacturers have been bidding consistently since the past few years cannot be a sufficient ground to accuse them of Bid Rigging. This is because if the bidders have over time come to understand the system and have learnt to bid intelligently, it shows that they’ve been smart, but certainly cannot clearly point to Bid Rigging.

2. Following from the above, the quantity restrictions could have easily been a move of efficiency to optimize production with maximum possible profits, again a consequence of having been smart enough to understand the modalities of production and supply of the product in the present tender.

3. It was pointed out on behalf of the opposite parties at the very outset that the units against which the investigation was ordered by the Commission were small/ micro enterprises enjoying certain concessions/ exemptions from the Government of India and the state Governments.

4. The D.G. took into account a meeting organized by Federation of Industries of India (F.I.I.) on 20.10.2009 to presume that the opposite parties could have shared the information and therefore, there was meeting of minds. Frankly, this is a bit absurd. It is one thing to infer such a conclusion when the association was one specific to the industry, e.g., in the Cement Cartel Case. However, to assume similar conclusions in the case of a general industry body is in my respectful view pushing the ambit of circumstantial evidence in Competition Law a bit too far. Furthermore, there does not seem to have been any evidence to suggest that any of the opposite parties discussed the particular Rate Contract in the meeting.

5. Both the D.G. and the Commission seemed to have omitted considering that fluctuation in the prices of raw materials is not a good enough indicator to determine cost for two reasons. Firstly, sensible industries do not buy raw materials at spot rates. They buy them under long term contracts at fixed rates. Secondly, manufacturers will often hedge against the cost of the raw materials to ensure effective cost considerations both during production and accounting.

6. Practical experience while dealing with the government is a good enough reason for anybody to impose quantitative restrictions on production. Ask any businessman having to deal with the government. The unanimous opinion will be that it is a headache when it comes to demand, supply and payment for providing goods and services !!

In conclusion, to reiterate, it is quite possible that the opposite parties actually were guilty of Big Rigging, and in fact, there are certain evidences unearthed by the D.G. in it’s favour. What I really want to indicate through this post is that if the reasoning in Orders are going to be so flawed or open to loopholes and cracks of ambiguity, then it will become all the more easy to defend against them in Appellate forums.