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19 July, 2017
The enforcement of any new law can throw many issues. These become especially prominent in the case of a law that is brought into force in phases – i.e. different provisions are made operational at different times.
The Competition Act, 2002 (Competition Act) is one such legislation. Though the statute was passed in 2003, its phase-wise notification extended up till 2011. More importantly, the sections/ provisions relating to anti-competitive agreements were notified[1] to come into force from 20 May 2009. The application of a provision/ section after an event is one such prickly issue.
The Supreme Court of India (SC) has examined the issue in the context of the Competition Act in the recent decision of Excel Crop Care Limited v Competition Commission of India & Anr[2].
Relevant Facts
The above case concerned an alleged anti-competitive agreement entered into between four manufacturers of Aluminum Phosphide Tablets (ALP) in responding to a tender issued by the Food Corporation of India (FCI) in 2009.
The FCI invited bids for the supply of ALP on 28 March 2009, with a bid deadline of 8 May 2009. The alleged anti-competitive bids were submitted on 8 May 2009. However, the ALP manufacturers were alleged to have violated a relevant provision (Section 3 of the Competition Act), which did not come into force until 20 May 2009.
The ALP manufacturers contended that the relevant provision did not exist on the bid submission date. Additionally, they claimed that even on 20 May 2009, the relevant provision was brought into force prospectively. Therefore, the ALP manufacturers argued that the relevant provision could not apply retrospectively to their bid.
The Competition Commission of India (CCI) differed. It held that the alleged anti-competitive conduct cannot be said to have ended with the submission of bids. Agreeing with the CCI, the Competition Appellate Tribunal (COMPAT) found that the “process of bidding” continued beyond the date of the bid submission and thus, Section 3 of the Competition Act could be enforced against the alleged anti-competitive agreement. Accordingly, the SC had to be the final arbiter of this issue, among other significant issues (for a discussion of these issues, please see this and this) .
SC’s View
The SC had to decide the extent to which the Competition Act could be retrospective, if at all?
According to the SC, the answer depends on the ‘continuing effect’ of the past conduct.
Simply put, the law laid down by the SC suggests that if the conduct in question can be said to have a ‘continuing effect’ post-enactment, the Competition Act can apply. If, however, the conduct/practice has been “executed and completed in its entirety” prior to the relevant provision coming into force, then it would not be anti-competitive.
The SC derived this test from the decision of the High Court of Bombay in Kingfisher Airlines v. Competition Commission of India[3] (Kingfisher case) which dealt with a proposed strategic alliance/agreement entered into between two competitors in the aviation industry. While the CCI was investigating the case, the parties raised a jurisdictional issue. They contended the CCI did not have the jurisdiction to investigate the proposed alliance/agreement since it had been entered into prior to Section 3 of the Competition Act coming into force. The High Court of Bombay set aside the jurisdictional objection by relying on the test of ‘continuing effect’.
However, unlike the Kingfisher case, the present case relates to an alleged bid-rigging agreement among competitors for a tender. There did not exist any written, formal or decipherable agreement. In fact, the parties were disputing the very existence of any such an agreement. Therefore, the SC had to figure out a method to decide the ‘determinative date’ in the context of a bid submitted for a tender.
As noted above, the parties contended that the alleged ‘date of the agreement’, if any, in such a case would be the bid submission date. Thus, according to them, the agreement, if any, had come to an end before the relevant provision came into force. The SC disagreed.
In conclusion, the SC noted the background and objective of competition law and the mischief that it seeks to remedy. It also relied on the ASEAN Regional Guidelines and the views of the International Competition Network, to examine the various benefits of competition law. Based on the above, the SC noted that the objectives of the Competition Act which include, inter alia, elimination of anti-competitive practices, supports the ‘continuing effect’ test.
Applying the test to the facts here, the SC noted that the tender process cannot be said to have come to an end with the submission of the bid on 8 May 2009. The tendering process continued when the price bids were opened (on 1 June 2009). It continued further when the ALP manufacturers offered the negotiated price (on 17 June 2009). Given these facts, the SC held that the role of the parties did not end with submission of the bids. The SC noted that the parties had participated in the “process of bidding”, which continued beyond the date of the relevant provisions of the Competition Act coming into force. Therefore, the SC held that the effect of the arrangement continued beyond 20 May 2009.
The SC has laid down an important test regarding the extent of the CCI’s power to investigate pre-enactment conduct – while the CCI has the power to investigate conduct that has a ‘continuing effect’ post-enactment, the conduct that has been “executed and completed in its entirety” would be beyond its purview.
Key Takeaway
The SC’s approach in examining the history of the Competition Act, the relevant international sources and the pain-staking analysis to decipher the purpose and object of the Competition Act demonstrates that it appreciates the importance of an effective enforcement of the Competition Act.
The SC’s finding indicates that enterprises in sectors involving long-term contracts (infrastructure, energy, real estate, etc.) may become a subject of scrutiny by the CCI, even if their agreements have been entered into prior to the enforcement of relevant provisions.
Additionally, the SC’s finding regarding “executed and completed in its entirety” may trigger a debate as to when an agreement can be considered entirely completed. It will also be interesting to observe the SC’s application of the ‘continuing effect’ test to a case involving an alleged abuse of dominance.
[1] S.O.1242(E), Ministry of Corporate Affairs (15 May 2009).
[2] Excel Crop Care Limited v Competition Commission of India & Anr, 2017 (6) SCALE 241
[3] Kingfisher Airlines v Competition Commission of India, (2010) 4 Comp. LJ 557 (Bom)
* Cyril Amarchand Mangaldas represented Excel Crop Care Limited
For further information, please contact:
Rahul Goel, Partner, Cyril Amarchand Mangaldas
rahul.goel@cyrilshroff.com
