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23 August, 2016
The path of a cartel case within the Competition Commission of India (“CCI”) is a rather peculiar one, and as the CCI matures and has the opportunity to learn from its actions, it will likely continue to evolve its decision-making processes and practices. The lessening of the burden of proof from “beyond a reasonable doubt” to “the balance of probabilities” that is necessary to show that a cartel or horizontal agreement lies between parties is but one example of its continual evolution. Moreover, in the wake of several appealed cases, the CCI’s strategy of reversing the burden of proof onto the defendants to justify how they did not participate in a cartel may also be a practice that it places under review.
We had a chance to speak with the seasoned Competition lawyers at AZB & Partners to discuss all of this as well as the defendant’s due process rights and the CCI’s heavy reliance on circumstantial evidence, and here is what they had to say.
Conventus Law: In deciding if a cartel exists, the Competition Commission of India (“CCI”) has a relatively low burden of proof (“BOP”) to overcome. What is the BOP that the CCI has to meet before referring the case to the Director General (“DG”) to carry out an investigation in cartel cases brought before it, and how have the cases in the past few years helped to define and shape the BOP?
AZB: The CCI can direct its investigative arm- the Director General (DG) to investigate into possible cartels (and also other forms of potentially anti-competitive conduct) on the basis of –
(a) information received from any person or enterprise;
(b) reference from the Government of India or any of the State Governments or any statutory authority; and
(c) on its own volition.
As a quasi-judicial body, the CCI is duty bound to reach its decision on whether to refer a case to the DG, on the basis of materials/evidence placed before it. The materials placed before the CCI, with a request for conducting an investigation need not contain clinching evidence of a cartel. So long as the materials before the CCI are not frivolous, concern conducts regulated by the Competition Act, 2002 (CA02) and allude towards an anti-competitive conduct, the threshold test of a prima facie opinion on whether a case fit for investigation by the DG would be satisfied. In other words, the burden of proof for initiating an investigation is not as high as the burden involved in establishing an infringement of the provisions of the CA02.
There’s been little debate on whether the very initial materials which form the basis for CCI’s direction to the DG for conducting an investigation contain sufficient evidence for initiating an investigation. Part of the reason for this could be the Supreme Court of India’s decision in Competition Commission of India vs. Steel Authority of India Limited & Ors.[1], where it emphasized that the CCI’s decision to direct the DG to conduct an investigation does not determine the rights and obligations of the relevant parties, making such decisions immune from appeals before the Competition Appellate Tribunal- a position also recognized in the appeal related provisions under the CA02. Although, the Supreme Court of India, in this very case, had also cautioned that the CCI’s decision to direct the conduct of an investigation must be based on the materials/evidence before it and cannot be arbitrary. By this decision, while ensuring that parties do not scuttle CCI’s decision to start investigations at the very initial stage, the Supreme Court has also ensured that the CCI does not act arbitrarily and its decision to start an investigation is well reasoned and based on material placed on record.
CL: The CCI, in cartel cases, heavily relies on circumstantial evidence to prove its case since obtaining direct evidence has proved to be challenging. What kind of circumstantial evidence is typically used to charge parties as engaging in cartel behavior?
AZB: The CA02 seeks to prohibit cartels on the basis of the presumption that they cause an appreciable adverse effect on competition (AAEC) in India. Under Indian law the presumption of AAEC associated with cartels can be rebutted. While the initial burden to prove that a cartel agreement indeed exists lies with the CCI, the burden to rebut the presumption of AAEC associated with cartel agreements vests with the defendants.
The scope of the term ‘agreement’, as defined in the CA02, extends to a mere ‘arrangement’, ‘understanding’ or ‘action in concert’, none of which need be in writing or enforceable by law. When the CA02 became operational in May 2009, the CCI had to select the appropriate standard of proof while assessing cartel arrangements. It could do so by adopting the test of “balance of probabilities” or the relatively more stringent test of “beyond reasonable doubt”.
To prove the existence of a cartel on the balance of probabilities, the CCI would merely have had to show that it is more likely than not that such an agreement exists. In comparison, if the CCI adopted the relatively higher (beyond reasonable doubt) standard of proof, it would have had to ensure that its decision leaves no reasonable doubt as to the existence of such an agreement. A review of CCI’s decisions in cartel related cases indicates that, it started its enforcement endeavors by adopting the relatively higher “beyond reasonable doubt” standard of proof but over the years it seems to have veered towards the “balance of probabilities” test.
In two of the early cases[2], the CCI categorically stated that existence of an agreement must be established ‘unequivocally’, mirroring the “beyond reasonable doubt” standard. Immediately thereafter, the CCI advocated that the applicable standard of proof for establishing the existence of an ‘agreement’ is on the “balance of probabilities”.[3] In both sets of decisions though, in the absence of direct evidence, the CCI has relied on circumstantial evidence- economic and conduct-based, to reach its decision on the existence of a cartel agreement.
The CCI often examines economic evidence, such as the nature of the industry, the number of players in the market, the level of market concentration, parallel movement of prices, trends in production and dispatch, capacity utilization, cost structures, and variations in profit margins across firms, while carrying out cartel inquiries. CCI also relies on conduct based evidence, including evidence of meetings between competitors, similar or identical bidding prices, membership of trade associations, history of cartelization, and information exchange.
CL: Does the CCI afford parties due process in the form of notice and a hearing, where the defendant has the opportunity to refute the allegations?
AZB: The CCI has powers to regulate its own procedure and is required to adhere to the principles of natural justice in passing its decisions. Once the DG submits its investigation report, the CCI generally shares a copy of the report to the parties concerned and invites them to offer written comments and make oral submissions. Second, subject to confidentiality restrictions, parties are also granted permission to conduct periodic inspections of the CCI’s case files to know the progress of their proceedings as well as to request for certified copies of documents.
The CCI is vested with the same powers as a civil court under the Code of Civil Procedure, 1908 while summoning any person and examining him on oath, requiring the discovery and production of documents, receiving evidence on affidavit, issuing commissions for the examination of witnesses, etc. Where the DG or the CCI collects evidence by way of oral submissions, if considered expedient or necessary, it may grant an opportunity to the other parties to cross-examine the person giving evidence.
Interestingly, in the recent past, the Competition Appellate Tribunal (COMPAT) has found several decisions of the CCI to be falling short of the due process norms. For example, in the cement cartel case, without examining the substantive merits of the case, directed that the CCI reconsider its decision due to procedural improprieties at the time the case was being considered by the CCI.
CL: Is there an appeals process?
AZB: Yes, CCI’s decisions can be contested before the COMPAT within a period of 60 days from the date of receipt of the decision by the parties. COMPAT’s decisions may in turn be contested before the Supreme Court of India.
CL: Based on the cases the CCI has brought and those that have been appealed, what can we expect to see in the coming year in relation to the evidentiary burdens of proof and circumstantial evidence in cartel cases?
The CCI appears to have adopted a rather convenient approach in discharging its burden of proof in cartel cases. The burden to establish that a cartel agreement exists, vests squarely on the CCI. As a new regulator, working with limited resources, the CCI has limited ability to dig out direct evidence of collusion. Perhaps being conscious of this, in most cartel cases, the CCI/DG attempt to establish trends in prices, production, dispatch etc. and then flip the burden onto the defendants to show how they reached their business decisions independent of their competitors. Defendants’ failure to meet this reversed burden has often formed the basis for a finding of infringement against them. Thus far, while contesting CCI’s decisions before the COMPAT, the aggrieved parties appear to have focused on procedural improprieties committed by the CCI, which the COMPAT has addressed by remanding CCI’s decisions back for reconsideration.
Near term, we are likely to see the CCI making attempts at addressing procedural issues identified by the COMPAT in its decision making. Thereafter, we reckon that the discourse may shift to CCI’s attempt to nail cartels by reversing the burden onto defendants to justify how they did not participate in a cartel.
[1] (2010) 10 SCC 744
[2] In re All India Tyre Dealers Federation v Tyre Manufacturers, MRTP Case: RTPE No. 20 of 2008. And Neeraj Malhotra v Deutsche Post Bank Home Finance Limited & Ors, Case No. 5/2009.
[3] Shailesh Kumar v M/s Tata Chemicals Ltd & Ors, Case No. 66 of 2011., Reference Case No. 01 of 2012. And In Re Alleged Cartelization of steel producers, Case No. RTPE 09/2008.
For further information, please contact:
Rahul Rai, AZB & Partners
rahul.rai@azbpartners.com
