In this post I shall briefly discuss the topic of corporate communications from the perspective of competition law.

Among other things, companies need to communicate their business ideas to their potential investors; their product innovativeness to their customers; their performance report card to their shareholders; business strategies, internally; amongst the company‟s managers. But the job of a company communicating information, either internally or externally, either through the written or oral channels of communication, may have become even more complex now that the country‟s antitrust regime is in place.

The developing antitrust jurisprudence of India may be changing the way Indian companies think about doing business. Potential areas of antitrust scrutiny includes, the way a company writes or negotiates an agreement, executes a corporate transaction or even communicates to their investors/stakeholders. The Competition Commission of India (“CCI”), since being fully operational from May 2009, has been increasingly aggressive and has shown a keenness to flex its considerable fining powers, a trend which is likely to continue as the economy grows bigger. Indian businesses need to buck up to this reality and set up procedures which will help them to be in compliance with the rules of Indian competition law. Non compliance is no longer an option.

In this post I shall briefly discuss the topic of corporate communications from the perspective of competition law. Good corporate communication forms a pivotal pillar on which the success of a company may be founded. Among other things, companies need to communicate their business ideas to their potential investors; their product innovativeness to their customers; their performance report card to their shareholders; business strategies, internally; amongst the company‟s managers. But the job of a company communicating information, either internally or externally, either through the written or oral channels of communication, may have become even more complex now that the country‟s antitrust regime is in place.

Prospectus and other Public Documents

On August 12, 2011, the CCI in Belaire Owner's Association v. DLF [1] Limited (the “DLF Order”), inter alia, imposed a penalty amounting to Rs.630 crores (INR 6.3 billion) on DLF Limited (“DLF”) for abusing its dominant position under the provisions of section 4 of the Act by imposing unfair conditions in the agreements entered between DLF and their customers. The high profile nature of DFL and the record amount of penalty imposed by the CCI became the hallmarks of the DLF order. Some welcomed the order as a new age of consumer consciousness and the coming of age of a new economic regulator unafraid of holding powerful Indian businesses accountable to the same standards of competitiveness and trade practices as those of other developed nations, while others cribbed and found the order ill-timed and disturbing for Indian businesses, especially the flagging Indian realty sector. Much less attention was paid as to what the CCI actually said in the DLF Order.

subject to certain defenses available to such persons. the same disclosure. was one of the factors that the CCI considered in order to establish DFL‟s market dominance. if a company is the largest player in a particular sector. companies need to be careful as to what they write in their prospectus and other public documents. K. The Informant relied upon the judgment of the Court of Justice of the European Communities in AKZO Chemie BV v. the Chairman of DLF. published by the company on its website[9]. Statements made in a prospectus are expected to be relied upon by the investors who intend to subscribe to the shares of the issuer company. P. for companies drafting a prospectus the task could not be more difficult. Consequently. it will want to state that fact in order to attract potential investors to subscribe to their shares. 1956 and the Securities and Exchange Board of India Act. that “DLF‟s dominant position in Indian homes segment is established due to its trusted brand with superior execution track record. the [Indian] Companies Act. pioneered townships and group housing in India. it also gave hints as to what companies should not write in their public documents. it should be observed that. The prospectus is a document which convinces an investor regarding the business worthiness of an enterprise. its directors and certain other persons responsible for issue of a prospectus for misstatements and omissions in it. it has the most highly developed marketing organization. both commercially and technically. To the extent possible lawyers should avoid writing open ended . The fact that DLF‟s market share was more than double of that of Unitech.”[6] DLF had stated in its annual report and other company documents that Unitech was its closest competitor. However.”[3] The Annual Report of the DLF for the year 2009. Consequently. The pleas put forward by AKZO in order to deny that it had a dominant position within the organic peroxides market as a whole must therefore be rejected. The CCI may be justified in its reliance on the statements made by DLF in its prospectus given the fact that the company has a legal obligation to state correct facts in such documents. drafting the business section of a prospectus must ensure that disclosure of the competitive advantage or business expertise of a company is adequately qualified or contextualized.largest real estate development company in India in terms of the area of our completed residential and commercial developments. states. DLF had stated in its Draft Red Herring Prospectus fi led before SEBI.The DLF Order not only set the ball rolling on the “abuse of dominance” jurisprudence of Indian competition law. The CCI in order to establish that DLF was a market leader[8] in the real estate sector. that it was the “….C . The CCI held that if a company admits its leadership or dominant position in a public document. complete offering of super luxury. relied upon statements. and wider knowledge than that of their competitors with regard to safety and toxicology (Annexes 2 and 4 to the statement of objections). then it may not be allowed to refute such a position later[7]. E. capital market lawyers. luxury and mid-income homes…”[4] The Informant argued that if a company admits and projects itself as a dominant enterprise in public documents it cannot later argue that it is not a dominant enterprise. Singh. Therefore. he admitted that his company is regarded as the “largest real estate developer in the world and has a pan -India presence with over 50 million square feet under construction. 1992 provide for civil and criminal liabilities against the issuer company. wherein the court observed that: “In addition to the fact that AKZO regards itself as the world leader in the peroxides market. may be used by the CCI as evidence while prosecuting such companies for non compliance with the rules of Indian competition law. Therefore.”[2] In one of the speeches given by Mr. However. as AKZO itself admits. describing the company‟s business.Commission[5]. as we saw in the DLF case.

emails and other internal office communications. Capital market lawyers responsible for drafting a company‟s prospectus need to evaluate whether there is a risk that the company may be in a dominant position in any of the markets in which it operates its business. office memorandum or other internal correspondence may be required by the Directorate General (“DG”). an email or a memorandum detailing the purpose and the procedure of conducting such a strategy would be an essential piece of evidence if such a company is later prosecuted for violations of the provisions of section 4 of the Act. will constitute an abuse of its position. the investigating arm of the CCI. when adopted by a company in a dominant position. was relied upon by the CCI in establishing the leadership position of the company in commercial. Capital market lawyers while performingsuch due diligence should be careful and look out for red flags to ensure that none of the business practices of the issuer company is considered as abusive under section 4(2) of Act. Statements made in an email between officers of the same organization may be later relied upon by the CCI for finding violation of competition law by the company or even for holding such officers personally liable for the antitrust violations committed by their companies. The DG is vested with the power of a civil court under the Code of Civil Procedure. either because of its dominant market shares or business specialization may be considered as a dominant enterprise. lawyers should avoid writing statements like: “DLF’s dominant position in Indian Homes segment is established. to be produced as evidence before the CCI. For example. Capital market lawyers must be careful while conducting the due diligence of issuer companies which may be found to be a dominant enterprise in any of the markets in which it operates its business. Office Memorandum and other internal documents Officers of a company must be careful as to what they write in their internal memorandum. Section 4(2) of the Act provides a list of corporate actions which. a company. Just Dial in the Indian local search engine sector) or have a unique specialization in a niche market (a company in the business of processing bio wastes) are more likely than others to be considered to be in a dominant position in their given market. and offering different prices or terms to similar customers. requiring that customers who purchase a product also buy a second product (tying or bundling). These include charging excessive prices. 1908 for the purpose of . if a company is embarking on a below cost pricing strategy to root out a rival enterprise. usually having more than 50 percent of the relevant market share (e. refusing to supply an existing customer without good reason.g. For example. Under the scheme of explanation (a)(i) to section 4 of the Act. which may be considered as an abuse of a dominant position in a particular market then such considerations must be taken into account while drafting of the IPO related documents.. because of lack of competitive constraints faced by such companies from their competitors. Email. road show presentations etc. retail and office space sectors in India. limiting the production of goods or provision of services. Companies which are a clear market leader in a particular business segment.”[10] The statement made by DLF in its prospectus and other company documents.. If lawyers do find evidence of practices.statements while describing a company‟s business acumen or commercial prospects in a given sector. management presentations. Lawyers while describing the business of such companies must ensure that they choose appropriate language and adequately qualify the disclosures so as not to leave behind an evidence trail for future antitrust prosecutions. All company emails.

in Case No. For example. 25/2010. the charter documents of such film trade associations: “Rule 10 of the Articles of Association of Karnataka Film Chamber of Commerce stipulates that dealing with non-members may attract suspension.”[11] Articles of association of trade associations should provide for built-in self assessment procedures to ensure compliance with the competition law. a trade association or a charitable NGO.[12] Conclusion . behavior of members during a meeting and so on. These facts have also been confirmed by FICCI Multiplex Association of India in its submission wherein it has been brought out that a producer. distributor or exhibitor who does not become a member of the regional associations is prohibited from doing business in that particular territory. As evidence of such mal-practices the CCI looked into. Article 15 of the articles of association of Central Circuit Cine Association also stipulates provisions for suspension from membership. nature and quantity of information exchange. including receiving evidence on affidavit. Charter documents should be reviewed carefully to ensure that such documents do not allow or require the subscribers or members of the incorporated entities to behave in an anti-competitive manner.6 million) collectively on the seven film trade associations for engaging in malpractices and stopping the exhibition of several Bollywood blockbusters in the respective regional markets. For example. the implications of the resolutions and binding decisions of the management committee or full membership in general meetings. 4. whether it is a for-profit company. Charter Documents Lawyers must be careful while drafting the charter documents of an incorporated entity. These associations issue letters/notices to all their registered members urging them not to [do] carry on business with or transact with non-members. Membership rules of such associations should be reviewed to ensure that such rules do not act as entry barriers to a particular sector of the economy. Such procedures should include undertaking periodic formal assessments regarding competitive implications of the day-to-day conduct of the business of an association. 46 lakh (Rs. charter documents of trade associations should not emphasize on collective bargaining strategies or formal industry boycott schemes. Article 18 of Articles of association in case of Bihar and Jharkhand Motion Pictures Association contains a clause which stipulates that a member can be suspended if he/she deals with non-members or with members under suspension.carrying outs its investigation and may require the discovery and production of any document. inter alaia. CCI levied penalty of more than Rs.

” (Para 12. and could be considered on this basis itself. para 12. In the meanwhile it would be prudent upon corporate officers to ensure that their corporations are in compliance with the rules of Indian competition law. [1] Case no. Even rumours of an ongoing investigation can dampen the share price of a listed entity. While the CCI has been aggressive and has produced a plethora of orders under section 3 and 4 of the Act.2 [3] Ibid [4] Ibid [5] Case C-62/86 [6] Para 61 [7] Ibid. Non-compliance can result in both high costs for legal defence and hefty penalties if the Commission finds a company guilty of anti-competitive or unfair trade practices.71 [8] The CCI examined the concept of a „market leader‟ under section 19(4)(m) of the Act and held that a “market leader would…normally have dominance in the market.84-12. para 12. Financial Express. He is qualified to practice law in India and New York. 2012 .87 of the DLF Order) [9] DLF Order. RTPE-52/2006. the actual contours of permissible corporate conduct from a competition law perspective is an evolving legal space.86 [10] Ibid. Avirup Bose is an expert in competition law with the Competition Commission of India. The cement cartel case[13] vividly demonstrates that all businesses operating in India must be aware of the competition law rules. 30 July. pg. the CCI held that the companies were using the platform of the Cement Manufacturers‟ Association as an opportunity to determine and fix prices. This article reflects his personal views. 19/2010 [2] Ibid¸ para 5. at the ministry‟s request. The CCI‟s determination that an act conducted under the auspices of a central government ministry was anticompetitive drives home the point that businesses in India need to ensure that their business practices are in compliance with competition law rules. The fact that the companies were interacting to collect data relating to retail and wholesale cement prices from different parts of the country to be sent to the Ministry of Commerce. was not enough to absolve them of liability.31. 107-108 [12] Competition Law and Trade Associations.It should be noted that the competition law jurisprudence in India is still at its nascent stages. In this case.71 [11] Case No. para 12. to be a dominant firm in the relevant market in terms of provisions of Section 4 of the Act. 2010 [13] In re: Alleged Cartelization by Cement Manufacturers. 25/2010. December 30.

Sign up to vote on this title
UsefulNot useful