Covid-19 & Competition Act Of India

About Competition

What does one understand by the word “Competition”? In common man’s language competition in the market would refer to rivalry between 2 entities selling similar products and/or services with the goal of achieving revenue, profit and market share. Thus it ensures that the entities involved with similar products compete on merits and not with the help of anti-competitive conduct and/or agreements. Such kind of competitive market structure does not flourish naturally but it needs to be promoted, protected and regulated by the Government with a competition policy. Such policy has to include not only ways and means of how to enhance competition in local and national markets but also focuses on anti-monopoly laws.

Competition In India

In India, competition policy has been implemented via the Competition Act, 2002 (referred to as “the Act”) which alongwith its amendment, establishes a Competition Commission Of India to prevent anti-competitive practices, promote and sustain competition, protect the interests of the consumers and ensure freedom of trade in the markets in India.

Thus, through the Act competition is encouraged in India and the Indian market protected from anti-competitive practises by regulating the following 3 areas:

  • prohibiting anti-competitive agreements,
  • prevent abuse of dominant position and
  • by regulating combinations i.e. mergers and acquisitions in such a manner that it does not have any adverse impact on competition in India, at the same time promoting freedom of trade as well as protecting the interests of consumers at large.

Abuse of Dominant Position

While effectively dealing with abuse of dominance, Competition Commission Of India has adopted a 3 way assessment model:

(i) determine relevant market share – in terms of the relevant product market and the relevant geographical market – factors relevant to be considered have been stated under Sections 19(7) [such as physical characteristics of goods, price, consumer preferences, existing specialized producers of said products, exclusion of in-house production classification of industrial products] and 19(6) [regulatory trade barriers, local requirements, national procurement policies, adequate distribution facilities, transport costs, language, consumer preference, need for secure or regular supplies or rapid after sales service]. respectively;

(ii) Assessment of the dominance – factors relevant for consideration have been stated in Section 19(4) of the Act;

(iii) Assessment of abusive conduct – the practices which have specifically been identified as being an abuse of dominant position have been identified under Section 4(2) of the Act which are as follows:

  • imposing unfair or discriminatory conditions on sale or purchase of goods/services, including predatory pricing;
  • limiting or restricting:
  • production of goods or provision of services of a market; or
  • technical or scientific development relating to goods or services to the prejudice of consumers;
  • indulging in practice or practices resulting in denial of market access, in any manner;

making the conclusion of contracts subject to acceptance by other parties of supplementary obligations, which, by their nature according to commercial usage, have no connection with the subject of such contracts; and using one’s dominant position in one relevant market to enter into or protect another  

Anti-Competitive Agreements

The Act deals with two kinds of anti-competitive agreements –  the Horizontal Agreements [Section 3(3)] and Vertical Agreements [Section 3(4)]. Horizontal Agreements are basically made between competing businesses to manipulate competition whereas Vertical Agreements are basically buyer-seller agreements – for eg. where a buyer/ retailer agrees to buy products from one manufacturer ‘X’ but in the agreement is restrained from buying from a competing manufacturer.

Section 3(3) of the Act deals with Horizontal Agreements  which are basically made at the same stage of production. Any agreement falling under categories mentioned under Section 3(3) of the Act would be held to be anti- competitive agreement which causes or is likely to cause an appreciable adverse effect on competition and thus are void agreements. These types of agreement are also known as cartel agreements and include the following:

  • price-fixing agreements, i.e., agreements between competitors, which directly or indirectly have the effect of fixing or determining purchase or sale prices;
  • agreements between competitors, which seek to limit or control production, supply or markets;
  • market-sharing agreements between competitors irrespective of the form that they may take; this includes market sharing by way of product allocation, allocation of geographic markets or source of production; and
  • bid-rigging agreements, i.e., agreements between competitors, which have the effect of eliminating or reducing competition for bids or adversely affecting or manipulating the process of bidding.

Exception to a Horizontal Agreement being held to be anti-competitive under section 3(3) is a joint venture agreement – if such an agreement increases efficiency in production, supply, distributions, storage, acquisition or control of goods or provision of services [proviso to Section 3(3) of the Act]

Vertical Agreements [under Section 3(4) of the Act] on the other hand deals with agreements which are entered into between enterprises and/or persons who are at different stages of productions such as manufacturer-dealer/agents, manufacturers-raw material suppliers etc. Some of the agreements specified in the statute include:

  • Tie-in arrangement
  • Exclusive supply agreement
  • Exclusive distributorship agreement
  • Refusal to deal
  • Resale price maintenance

Regulation of Combinations

Section 5 & 6 of the Act deals with the combinations and regulation of these combinations. Thus, if any agreement is made to form a combination which causes an appreciable adverse effect on competition (AAEC) in the markets of India is completely void.

Competition & COVID-19

Due to the Covid-19 Pandemic, on 24th March 2020, the Government of India announced national lockdown for 21 days as social distancing is the only way out for dealing with the Corona virus disease. However, a day before such announcement, on 23rd March 2020[1] the Competition Commission of India had issued a notification whereby:

  • it adjourned all matters listed before it till 31st March 2020
  • suspended following till 31st march 2020
    • all filings in relation to Section 3 and 4 of the Act
    • all notification in relation to combination under Section 6 and 20 of the Act,
    • all other filing, submissions and proceeding under the Act and regulation made there under including those before the Director general
    • and pre filing consultations.

Thereafter CCI on 13th April, 2020[2] continued with suspension of all activities but allowed electronic filing of combination notices. Vide order dated 20th April, 2020[3], CCI continued with suspension of hearing of matters till 3rd May but allowed submission of information under section 3 and 4 as well as Combination notices electronically at the addresses mentioned in the notice.

With the national lockdown in place, all businesses were forced to shut down and the only activity permitted was what came within the realm of essential services/ commodities – such as grocery stores, chemists, banks (ATMs). Due to the nature of the virus that was the cause of such drastic steps being taken by countries all over the world, there was an immediate sharp increase in the demand for sanitisers and face masks all over the country. Seeing an opportunity to profit at the expense of the general public, in such times of crisis, companies/ entities manufacturing face masks and sanitisers arbitrarily increased, by manifold, prices of such essential products. . For instance, an N-95 mask which was originally sold for Rs.150/- each was now suddenly being offered at Rs. 500/- each.  Similar to the masks, even prices of hand sanitisers shot up through the roof – a 30 ml bottle which would normally cost between Rs.35-50/- was now being sold at Rs.999/-. Thus, prices of such  essential items were manipulated by the manufacturers to fill their pockets, at the health risk of innocent people at large. Infact, in an article that appeared in Economic Times on 5th March, 2020[4], it was reported that “As Covid-19 patients continue to rise in India, some retailers and mask manufacturers are cashing in on the virus terror by jacking up prices by 2 to 3 times”. Similarly, Business Today[5] vide its article published on 9th March 2020 also highlighted the plight of common man due to prices being hiked in respect of essential items like masks, sanitisers and medicines – sometimes prices being increased by 300%!!

As the demand of hand sanitizers and masks increased, the Ministry of Consumer Affair, Food and Public Distribution, in exercise of its powers under the Essential Commodities Act, 1955, issued a notification dated 13th March, 2020 whereby an order was passed directing “masks (2ply & 3ply surgical masks, N95 masks) & hand sanitizers” to be included in the Schedule as an essential commodity to enable the Government to regulate the production, quality, distribution, logistics of masks (2ply & 3ply surgical masks, N95 masks) & hand sanitizers (for COVID 19 management)[6]. Thereafter on 21st of March 2020[7], the Ministry of Consumer Affair, Food and Public Distribution issued another notification seeking to regulate the price of masks and hand sanitizers. Vide the said order, the Ministry directed as follows:

  • The retail prices of Melt Blown non-woven fabric used in manufacturing masks (2 ply and 3 ply) was ordered to be not more than the prices prevailing on 12.02.2020;
  • The retail prices of masks (3ply surgical mask) was directed to be not more than Rs.10 per piece and that of mask (2ply) shall not be more than Rs.8 per piece;
  • The retail prices of hand sanitizer was ordered to be not more that Rs. 100 per bottle of 200ml and for other quantities it was directed to be fixed in proportion of the prices fixed.

The said order was ordered to remain in force till 30th June, 2020.

In fact the situation was so grave that Supreme Court of India entertained a PIL filed by an NGO, Justice For Rights Foundation[8], whereby the Petitioner sought directions from the Supreme Court to the Government to ensure fair and equitable distribution of surgical/ N95 masks and also the sale and distribution of hand sanitizers and liquid soap and to make such items available to the public at large at reasonable prices. Hon’ble Supreme Court vide its order dated 3rd April, 2020 after taking into consideration the steps taken by the Government with regard to availability of surgical/ N95 masks and hand sanitisers at reasonable prices, disposed off the PIL.[9]

The Competition Commission of India also stepped in to issue an advisory to Business in times of Covid-19, aimed to serve as a deterrent to erring businesses indulging in rampant exorbitant increase in prices of certain essential commodities such as ventilators, face masks, gloves, sanitisers, medicines and essential services such as logistics, testing etc. Vide its advisory issued on 19th April, 2020[10] the CCI warned the businesses of various consequences under the Act that could be attracted due to the rampant exorbitant increase in prices of essential commodities – In the words of the Commission, “COVID – 19 has caused disruptions in supply chains, including those of critical healthcare products and other essential commodities/ services. To cope with significant changes in supply and demand patterns arising out of this extraordinary situation, businesses may need to coordinate certain activities, by way of sharing data on stock levels, timings of operation, sharing of distribution network and infrastructure, transport logistics ,R & D, production etc. to ensure continued supply and fair distribution of products.”

Vide the said advisory, CCI informed general public as well as business entities dealing with essential commodities of the various provisions of The Competition Act, 2020 prohibiting conduct that causes or is likely to cause an appreciable adverse effect on competition. It informed businesses of the provisions of Section 3(3), 19(3) of the Act which enables the Commission to conduct competition assessment and in that process it can have due regard, amongst others, to the accrual of benefits to consumers; improvement in production or distribution of goods or provision of services; and promotion of technical, scientific and economic development by means of production or distribution of goods or provision of services. It further warned the business of CCI’s power to impose sanctions on business found guilty of violating the provisions of the Act and while considering such pleas, only such conduct of businesses which is necessary and proportionate to address concerns arising from COVID-19 will be considered. Thus it cautioned the businesses not to take advantage of Covid-19 to contravene any of the provisions of the Act.

CONCLUSION

That the companies involved in the business of the essential commodities should not indulge in the anti-competitive activities and refrain from arbitrarily and unnecessarily increasing prices of essential commodities, especially in times of such crisis being faced by the humanity all over the world – something which the mankind has not seen in this entire century. The Competition Act thus is another mode of keeping erring businesses in check so that essential commodities are made available to the public at large at reasonable and affordable prices, at the same also ensuring adequate supply of said products –which is the only way out for people to keep the spread of Corona virus in check.

Ending the present article on a positive note, it is important to refer to a news article dated 15.03.2020[11] published in ET Healthworld.com (From The Economic Times) which reported about a medical store in Kerala which was selling face masks for Rs.2/- only. The news reporting quoted the owner of the store as under:

“Nadheem, the co-owner of a surgical shop in Kochi, said: “We have sold around 5000 masks at Rs 2 each in two days. We decided to sell masks at a reasonable price especially to the common people like hospital staff and students.”

Author:  Aishani Singh, Litigation Associate at Khurana & Khurana Advocates & IP Attorneys. In case of any queries please contact/write back to us at aishani@khuranaandkhurana.com

References:

[1] https://www.cci.gov.in/sites/default/files/whats_newdocument/scan1.pdf

[2] https://www.cci.gov.in/sites/default/files/whats_newdocument/COVID-19.pdf

[3] https://www.cci.gov.in/sites/default/files/whats_newdocument/Notice20042020.pdf

[4] https://economictimes.indiatimes.com/industry/cons-products/fmcg/coronavirus-terror-in-india-sanitisers-masks-sold-out-prices-peak/articleshow/74487298.cms?from=mdr

[5] https://www.businesstoday.in/current/economy-politics/coronavirus-impact-what-expensive-whats-cheaper-india/story/397892.html

[6] https://consumeraffairs.nic.in/sites/default/files/file-uploads/essential-commodities-order/1087.pdf

[7] https://consumeraffairs.nic.in/sites/default/files/file-uploads/latestnews/Notification21mar2020.pdf

[8] https://main.sci.gov.in/supremecourt/2020/10792/10792_2020_0_2_21583_Order_01-Apr-2020.pdf

[9] https://main.sci.gov.in/supremecourt/2020/10792/10792_2020_0_7_21584_Order_03-Apr-2020.pdf

[10] https://www.cci.gov.in/sites/default/files/whats_newdocument/Advisory.pdf

[11] https://health.economictimes.indiatimes.com/news/industry/covid-19-medical-store-in-kerala-sells-face-masks-for-rs-2/74635843

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