CHAPTER 2

CARTELS UNDER THE COMPETITION LAW

When some firms in the Industry try to restrict the competition in the market by making
formal or informal agreement among themselves, it is known as a cartel. Such
agreements can be achieved by the means of setting a certain price of the product or
service, setting product output or capacity limits or limitations on the type of product,
dividing markets geographically or by restricting new entrants in the market by setting
agreed measures to create monopoly in the industry. Such cartels can exist in any type of
industry, be it related to goods or services and can exist at any level- procuring,
manufacturing, distribution or retail. Such anti-competitive cartels are formed to have
control of sales and prices in the industry.

By and large, the industries in the same line of business, form a cartel, which in turn
having the potential of restricting competition in the market, is considered as unlawful
conspiracy and thus is challenged in the court once identified.

2.1 CARTEL: A BASIC UNDERSTANDING

Section 3(3) of the Competition Act, 2002 declares that:

“Any agreement entered into between enterprises or associations of enterprises
or persons or associations of persons or between any person and enterprise or
practice carried on, or decision taken by, any association of enterprises or
association of persons, including cartels, engaged in identical or similar trade
of goods or provision of services, which—

a) Directly or indirectly determines purchase or sale prices;

b) Limits or controls production, supply, markets, technical development,

investment or provision of services;

c) Share the market or source of production or provision of services by way of

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 allocation of geographical area of market, or type of goods or services, or
number of customers in the market or any other similar way;

d) Directly or indirectly results in bid rigging or collusive bidding, shall be

presumed to have an appreciable adverse effect on competition.

Provided that nothing contained in this sub-section shall apply to any agreement
entered into by way of joint ventures if such agreement increases efficiency in
production, supply, distribution, storage, acquisition or control of goods or
provision of services.”

This proviso relating to joint ventures has been analyzed below.

The Organization for Economic Cooperation and Development gave a recommendation

on hardcore cartels, according to which a hardcore cartel is:

“An anti-anticompetitive agreement, anti-competitive concerted practice, or

anti-competitive arrangement by competitors to fix prices, make rigged bids
(collusive tenders), establish output restrictions or quotas, or share or divide
markets by allocating consumers, suppliers, territories, or lines of commerce 14”.

Therefore, all the four forms of hard core cartels mentioned in the OECD definition of
hardcore cartels are included in the Competition Act, 2002. The definition given by
OECD emphasizes on the expression ‘anti-competitive’ which is repeated therein thrice.
This means in OECD recommendations hardcore cartels are per se illegal, but
Competition Act, 2002 provide one of the escape valves in the proviso. This means
Competition Act, 2002 does take care of efficiency aspect even of cartel.

International Cartel: Though this word has not been mentioned in the Act, Act does
provide for effects doctrine. To handle international cartel, under Indian jurisdiction,
Section 32 of the Indian Competition Act, 2002 declares that the act which takes place

14
Recommendation of the Council concerning Effective Action against Hard Core Cartels, C(98)
35/FINAL, March 25, 1998.

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outside India but has any impact on competition on Indian market, would fall within the
ambit of the Act in certain situations. The section states:

The Commission shall, notwithstanding that-

(a) An agreement referred to in section 3 has been entered into outside India; or

(b) Any party to such agreement is outside India; or

(c) Any enterprise abusing the dominant position is outside India; or

(d) A combination has taken place outside India; or

(e) Any party to combination is outside India; or

(f) Any other matter or practice or action arising out of such agreement or dominant
position or combination is outside India, have power to inquire into such agreement
or abuse of dominant position or combination if such agreement or dominant
position or combination has, or is likely to have, an appreciable adverse effect on
competition in the relevant market in India.

Increased liberalization in business has increased firms business to form cartels, by

increasing competition in earlier protected firms in the domestic markets. Such cartels
decrease the benefits of liberalization to the consumers and undermine the international
integration. Along with that, such cartels also undermine political support to
liberalization if the citizens believe that the government-created barriers to trade are
being replaced by the private barriers. Broadly, we can classify international cartels as:

Import and export cartels

An export cartel is made by the firms which belong to one country but make an
agreement to cartelize markets in other country. Instead of forming cartel in their home
market, they conspire to target the export market of participating members’ by fixing
prices or restricting outputs in that market. Generally, the national Competition laws in
many countries exempt the export cartel, but there is no good reason to exempt it from

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the application of competition law, because it is a beggar-thy-neighbor policy on national
basis where one nation benefits at the cost of other nations’ cost.

In competition Act, 2002, export cartels have been exempted from the provisions relating
to anti-competitive agreements. Section 3(5)(ii) confirms it:

“The right of any person to export goods from India to the extent to which the
agreement relates exclusively to the production, supply, distribution or control
of goods or provision of services for such export.”

Another form of international cartel is Import cartel but unlike export cartels here the
members of the cartel belong to one country rather than two or more countries and this
‘one’ country is importing country. Such cartels are formed for the purpose of eliminating
the importers from competing with the members of the cartels. The members of import
cartels form the cartels for the purpose of eliminating the importers from competing with
cartels members. Such cartels hurt both the firm in the foreign country which is trying to
enter the home market as well as the home consumers who have to face inaccurate terms
and conditions in importing goods and services. Therefore, for the sake of domestic
consumers such cartels should also be checked.

The agreements specified above have appreciable adverse effect on competition

according to the Competition Act, 2002. The Act has traced the whole concept of
appreciable adverse effect on competition in section 19 (3) that read as follows:

“The Commission shall, while determining whether an agreement has an

appreciable adverse effect on competition under section 3, have due regard to
all or any of the following factors, namely:

(a) Creation of barriers to new entrants in the market;

(b) Driving existing competitors out of the market;

(c) Foreclosure of competition by hindering entry into the market;

(d) Accrual of benefits to consumers;

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(e) Improvements in production or distribution of goods or provision of services;

(f) Promotion of technical, scientific and economic development by means of

production or distribution of goods or provision of services.”

The first three points mentioned above describe the adverse effects and the next three
points describe the beneficial effects. So to determine whether an agreement or a
particular association of members has any appreciable effect or not, it can be concluded
only after equating the sides, the beneficial and the adverse one.

In case of absence of competition, cartels can regulate output and price, thus generating
profit by selling less number of products or services at a higher price and hence earn
more profit with less input and effort. Thus cartels reduce competition in the market by
creating such entry barriers for new entrants and expelling out the existing producers
from the market.

On the other hand, if this agreement is signed to expand the scale of production so that
they can reap economies of scales or to be able to undertake research and development
investment that needs large scales of investment, such an agreement may not constitute a
cartel rather such agreements lead to better quality or even new products, reduction in
cost and so in prices. Thus the consumers are able to reap the benefits of good quality
new products at lower prices. Commission has to decide on the basis of both sides of an
agreement whether the said act has an appreciable adverse effect or not.

Competition reduces profits and drives away the liberty over market activities, like
pricing and output etc. out of their control. So firms generally detest competition.
Therefore in any given market, the competing firms have an incentive to coordinate their
production and pricing activities so as to mimic like a monopoly, in order to mark up
their collective and individual profits by raising the market price and restricting market
output. Collusion among independent firms in the same industry to co-ordinate pricing,

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production or marketing practices in order to limit competition, maximize market power
and affect market prices is referred to as a ‘cartel’. 15

A cartel can either be a result of explicit agreements or implicit collusion. Explicit

agreements take place when the cartel members physically meet to decide on controlling
the market. Such collusion being illegal in jurisdictions with effective competition laws,
are likely to be highly secret and can take place in a ‘chance’ meeting at a conference or
at a ‘casual’ lunch among the company presidents. 16

Implicit collusion, also termed as tacit collusion, takes place when the members show
their willingness to engage in collusive behaviour through their actions. Price leadership
is a good example of implicit collusion wherein one leading firm sets a price which
boosts profits for the entire industry and other firms follow this price, knowing that they
will make profit by following it.

Cartel Conducts

Price-fixing is the most common practice undertaken by cartels. The simplest form of this
practice is an agreement on the price to be charged from the customers. In addition to
simple agreements on what price to charge, the following are also considered price-
fixing: 17

• Agreement on price increase;

• Agreement on a standard formula, according to which prices will be computed;
• Agreement to maintain a fixed ratio between the prices of competing but non-
identical products;
• Agreement to eliminate discounts or to establish uniform discounts;
• Agreement on credit terms that will be extended to customers;

15
Canadian Economy online,
Available at: http://www.canadianeconomy.gc.ca/english/economy/cartel. html (visited on Jan. 14, 2015).
16
Available at: http://www.amosweb.com/cgi-bin/awb_nav.pl?s=wpd&c=dsp&k=collusion.html. (visited
on Oct. 25, 2016).
17
Q. Rai and Saroliya, Restrictive and Unfair Trade Practices- Where Stands the Consumer? (CUTS,
India, 2003).

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 • Agreement to remove products offered at low prices from the market so as to limit
supply and keep prices high;
• Agreement not to reduce prices without notifying other cartel members;
• Agreement to adhere to published prices;
• Agreement not to sell unless agreed price terms are met; and
• Agreement to use a uniform price as starting point for negotiations.

Another form of Cartel agreement is dividing market among competitors either

geographically by territories or by customers. Such agreements leaving no scope for
competition are more restrictive comparative to price fixing agreement.

Output restriction is the third type of cartel agreement, wherein the firms providing same
type of product or services consent to restrict their supplies to a lower proportion of their
previous sales. The ultimate objective of limiting supplies is to create shortage in the
market and subsequently raise prices of products or services. 18

Bid-rigging cartel is the fourth category of cartel agreement which involves coordinated
actions of firms vis-à-vis tenders for procurement and sales through auction. It is also
known as collusive tendering. It includes competitors collaborating in a certain way to
limit competition in response to a tender issued by a private entity or a public authority.

Bid-rigging includes various types of agreements, as follows:

• Sub contract bidding where some of the bidders opt out of the process under
agreement that some parts of the bid will be subcontracted to them.
• Complementary Bidding where some of the bidders submit bids which are either
too high or contain unacceptable conditions, so that a pre agreed winner will get
the contract. This would be after an agreement among the competitors that all but
one competitor will submit a tender with terms which they know will be
unacceptable to the tendering body. Such bids will to create the appearance of
genuine competitive bidding.

18
CUTS International’s report on Competition Policy and Law Made Easy, p.8 (2001).

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 • Bid rotation where competitors agree to take turns at being the lowest bidder to
give each an opportunity to win a contract.
• Bid suppression where some of the competitors simply decide not to participate so
that a designated competitor’s bid is accepted.
• Market division where competing firms allocate specific customers or types of
customers, products, or territories among themselves and bids are rigged in
accordance with such allocation.
• Common bidding where firms agree to submit common bids, thus eliminating
price competition. 19

2.1.1 DEFINITION

The term ‘cartel’ is defined under section 2, sub section (c) of the Competition Act, 2002:

“Cartel includes an association of producers, sellers, distributors, traders or

service providers who, by agreement amongst themselves, limit, control or
attempt to control the production, distribution, sale or price of, or, trade in
goods or provision of services.”

In a competitive market, the companies do not have the freedom to keep pricing or output
under their control and hence get reduced profits. Therefore firms are reluctant to face
competition and hence in any particular market the competing firms tend to coordinate in
terms of pricing and production so as to mimic like a monopoly, so that they can mark up
their individual as well as collective profits by restricting market output and raising the
market price. This collusion among different independent firms existing in same industry
in order to restrict competition in the market and maximizing market power is referred to
as ‘cartel’. 20

19
Available at: http://www.jftc.com/news&publications/Publications/PDF%20DOCUMENTS/Bidrigging%
20-%20an%20Offence %20Against%20Comp.pdf. (visited on Jan. 12, 2016).
20
Supra note 13.

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 2.1.2 CHARACTERISTICS

Common Characteristics of Cartels:

• Cartels generally function in secrecy.

• Generally, to avoid detection by the Commission the members of a cartel seek to
camouflage their activities.
• Retaliation threats ensure the continuity of cartels. In case of cheating by any
member in the cartel, the others retaliate either by isolating the cheater or by
taking away business through temporary price cuts.
• Cheating in cartels can also be discouraged through compensation scheme, under
which the cartel member who sells more than its allocated shares will have to
compensate the other members.

The conditions favorable for“cartelization are:

• high concentration - few competitors

• high entry and exit barriers
• homogeneity of the products (similar products)
• similar production costs
• excess capacity
• high dependence of the consumers on the product
• history of collusion
• active trade association”

As discussed earlier, cartels function secretly, economic theory predicts that “cartels are
unstable by nature as their members have incentive to cheat. To make the cartel
successful members must take actions to counteract the incentive to defect. Such actions
include mechanism to increase the cost to defection, making cheating more observable,
making cheating more difficult to undertake, creating mechanism to punish cheating and

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so on. Cartel agreement can also include mechanisms that increase the return to
cooperation, such as creation of barriers to entry. The longer a cartel operates the more
likely that it will establish industry practices or barriers that facilitate anticompetitive
practices in the future. So a barrier to entry is inherent in the nature of cartel, as an
incentive not to cheat.

Barriers to entry created by the cartel, either through tariffs, in case of international cartel
for example, patent pooling 21 or distribution agreements will not necessarily disappear
with cartel’s demise and may well limit future entry and stifle innovation. Firms may
move beyond cartel conspiracies to outright mergers, achieving in essence a more stable
and consolidated cartel. Therefore, in addition to the classic (static) deadweight losses,
over time cartels are likely to distort resource allocation through other means.

Further cartels go to great length to cover up their actions. For instance, they use code
names in addressing one another, meet in secret venues, create false covers for their
meetings, use home telephone numbers to contact one another and give explicit directions
to destroy any evidence of the conspiracy. Another general practice of cartel members is
to minimize their contacts in the domestic soil and to conduct their meetings abroad. This
is because of the fear of detection.

Another characteristic of cartels is that they frequently use trade associations as means of
providing cover for their cartel activities, cartels are generally seen to have power to
control prices effective almost immediately. Cartel members tend to meet on a periodic
basis to fix prices. They may set a price range, establish a floor price or set a specific
price. Price fixing often goes hand in hand with allocation of sales volume. Volume
allocation agreements in conjunction with price fixing agreements are known to be
effective in cartelization activity.”

21
A patent pool is an agreement between two or more patent owners to license one or more of their patents
to one another or third party. A patent pool allows interested parties to gather all necessary tools to practice
a certain technology in one place.

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 2.1.3 TYPES

Cartels were known in India from 400 BC, when Kautilya in Arthashastra had discussed
about norms of anti-competitive behaviour. 22 Even during the period when goods were
exchanged under the barter system, collusion of traders for increasing the individual
profits were in existence. During modern times such types of activities can be classified
as cartels. Cartel in the modern days had been defined as an association of producers who
by agreement amongst themselves attempt to control production, sale and prices of the
product to obtain a monopoly in any particular industry or commodity. 23

There are mainly four type of Cartels:

1. Price Fixing

Price fixing: “It is an agreement among competitors to raise, fix, or otherwise maintain
the price at which their goods or services are sold. It is not necessary that the competitors
agree to charge exactly the same price, or that every competitor in a given industry join
the conspiracy. Price fixing can take many forms, and any agreement that restricts price
competition violates the law. Other examples of price-fixing agreements include those to:

22
Pradeep Mehta, ‘Cartelist Behaviour is difficult to detect’, Business Line, The Hindu, New Delhi,
December 26, 2007,
Available at: http://www.thehindubusinessline.com/2007/12/26/stories/ 2007122650 320900.html. (visited
on Feb. 12, 2015).
23
In USA cartels are defined under the Sherman Act, 1890, Section 3(3) as any agreement entered into
between enterprises or associations of enterprises or persons or associations of persons or between any
person and enterprise or practice carried on, or decision taken by, any association of enterprises or
association of persons, including cartels, engaged in identical or similar trade of goods or provision of
services, which:
(a) directly or indirectly determines purchase or sale prices;
(b) limits or controls production, supply, markets, technical development, investment or provision of
services;
(c) shares the market or source of production or provision of services by way of allocation of geographical
area of market, or type of goods or services, or number of customers in the market or any other similar
way;
(d) directly or indirectly results in bid-rigging or collusive bidding, shall be presumed to have an
appreciable adverse effect on competition: Provided that nothing contained in this sub-section shall apply
to any agreement entered into by way of joint ventures if such agreement increases efficiency in
Production, supply, Provision of services, distribution, storage, acquisition or control of goods or provision
of services.

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 • Hold price firm.

• Eliminate or reduce discounts.

• Adopt a standard formula for computing prices.

• Maintain certain price differentials.

• Adhere to minimum fee or price schedule.

• Not advertise prices.

Identical prices may indicate a price-fixing conspiracy, especially when prices stay
identical for long periods of time, prices previously were different, and price increases do
not appear to be supported by increased costs. Further simultaneous elimination of
discounts, especially in the market where discounts historically were given, is a
suspicious action. Usually it is not so easy to detect. Apparent price differences can
conceal collusion. For example, where firms agree on prices, the participants in a cartel
may quote widely different list prices and offer different levels of discounts so that it is
not immediately obvious that they have been colluding. Also, charging higher prices to
local customers than to distant customers and not advertising the prices is also subject to
suspicion.

Analysing price movements over time may be useful in detecting price-fixing cartels. In
particular, any narrowing of the spread of different firms’ prices of a particular product
may indicate an agreement between them to restrict competition. Here the difficulty is
that prices will tend to be very similar and move closely together when markets are
highly competitive as well as when firms collude. The fact that prices are same, even that
they have moved together, is not sufficient to establish the existence of an agreement.
Price fixing is generally considered more likely to occur where there are relatively few
sellers in a particular market. This is because as described above, the smaller the group
the easier it is to reach agreement on a coordinated course of action.

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Warning signs of price- fixing can be as follows:

• Any evidence that two or more sellers of a particular product have agreed to price
their products in a certain way, to sell only certain amounts of their products, or to
sell only in certain areas or to certain customers;

• large price changes by a number of sellers of very similar products, particularly if

the price changes are of similar amount and occur at about the same time;

• A statement by a firm that it cannot sell to you because of an agreement with

another firm that only the latter can supply you;

• Price movements which would not be expected in the prevailing circumstances, in

the absence of some form of contact. For example, are prices increased by the same
amount at the same time in a period of excess capacity. Has the spread of quoted
prices sudden narrowed or are discount levels or structures suddenly changed?

• Price changes which, over time, reveal so regular and systematic a leader/follower
situation as to be inexplicable in the absence of some kind of contact.

• The use of similar phrases or explanations used when announcing price changes.

• ‘Give away’ phrases such as ‘the industry has decided that margins must be
increased to a more reasonable level.’

• Indications of exchanges of information.

2. Quantity limiting

Quantity limiting is an agreement among competitors to fix output quota or to lower the
output. Sometimes firms do not have direct control on prices. By controlling supply they
can control prices at higher level. So quantity limiting is an alternative to price-fixing
cartel. The quantity limiting agreement may take the form of quoting the quantity for
each member of the cartel. If every member is ready to sell not more than quoted quantity

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they will be able to limit the supply and create shortage in the market. This leads to
automatic surge in prices.

3. Market sharing

Market sharing is one more alternative to price-control cartel; firms can attempt to
achieve the same benefits. In market sharing cartel firms agree to divide the relevant
market between them and agree not to sell in each other’s designated area, thereby
enabling each to set prices knowing that the others will not undercut them. At its
simplest, a market-sharing cartel may be no more than an agreement among firms not to
approach each other’s customers or not to sell to those in a particular area. This may
involve secretly allocating specific territories to one another or agreeing lists of which
customers are to be allocated to which firm.

Market-sharing agreements may have two aspects. Firstly, firms may decide on the share
of the market or level of business that each is to get. Secondly in order to achieve this
objective they may then get together regularly to decide which firms will get particular
contracts. This latter practice is known as bid-rigging or collusive tendering.

Participants agree some system for ensuring that contracts are shared out as planned
between them while maintaining the appearance of competition.

The warning sign of market sharing could be as follows:

• Any evidence that two or more sellers of a particular product have agreed not to
sell in each other’s territories
• A statement by a firm that it cannot sell to you because of an agreement with
another firm that only the latter can supply customers in your area;
• Phrases such as ‘such a supplier should not have sold to you because it is not
your territory.’

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 4. Bid Rigging

Bid rigging is an illegal agreement between two or more competitors and incompatible
with the viability of competition in competition Act, 2002. It is a form of price fixing and
market allocation, and involves an agreement in which one party of a group of bidders
will be designated to win the bid and bidders keep the bid amount at a predetermined
high level. It is often practiced where contracts are determined by bid, for example with
govt. construction contracts. Bid rigging is part of horizontal agreement in competition
Act, 2002 and is presumed to have an appreciable adverse effect on competition.”

In the Act it has been defined as:

“Bid rigging means any agreement, between enterprises or persons referred to in

sub-section (3) engaged in identical or similar production or trading of goods or
provision of services, which has the effect of eliminating or reducing competition
for bids or adversely affecting or manipulating the process for bidding.”

Section 3 (3) (d) of competition Act, 2002 declares that - bid rigging is presumed to have
an appreciable adverse effect on competition i.e. it is taken for granted that such
agreement is governed by per se rule in the competition Act, 2002.

In this sense bid rigging can be regarded as a form of cartel that arises when contracts are
awarded by competitive tenders, and where in members of cartel agrees with each other
on who should win a particular contract and at what price.

Bidding and tendering are meant to buy goods at reasonable prices. Purchasers, who are
often government entities, but who may also include private entities, seek to acquire
goods and services by soliciting competing bids. Bid-rigging occurs, for example, when
the competing suppliers conspire and agree in advance on the bids to be submitted by
each, so as to control the outcome of the bid. By so doing the suppliers effectively raise
prices, or keep prices high, and reduce or eliminate competition in the market place.

These agreements are successful because of inherent compensation system. The

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successful bidder has to compensate other members of the agreement to make his success
possible in the terms of direct payment or by providing him a subcontract of the bid at
cheaper terms and conditions than otherwise.

“Bid rigging can be categorized in the following ways:

• Subcontract bid rigging: It occurs where some of the conspirators agree not to
submit bids over to submit cover bids i.e. submission of voluntary inflated bids that
are intended not to be successful, on the condition that some parts of successful
bidders’ contract will be subcontracted to them. In this way they share the profits.
• Bid suppression: In the bid schemes, one or more competitors who otherwise
would be expected to bid, or who have previously bid, agree to refrain from bid or
withdraw a previously submitted bid so that the designated winning competitor’s
bid will be accepted.
• Complementary bidding: It is also known as cover bidding or courtesy bidding,
occurs when some of the bidders bid an amount knowing that it is too high or
contains conditions that they know to be unacceptable to the agency calling for the
bid. Such bids are merely designed to give the appearance of a genuine competitive
bid. They are not intended to secure the buyer’s acceptance of competition and
letting the high priced bid win.
• Bid rotation: It occurs where the bidders take turns being the designated successful
bidder, for example, each conspirator is designated to be the successful bidder on
certain contracts, while his or her co-conspirators are designated to win other
contracts. This is a form of market allocation, where the conspirators allocate or
apportion markets, products, customers or geographic territories among themselves;
so that each will get a ‘fair share’ of the total business, without having to truly
compete with the others for that business.”

These forms of bid-rigging are not mutually exclusive of one another, and two or more of
these practices could occur at the same time. For example, if one member of the bidding
ring is designated to win a particular contract, his or her co-conspirators could avoid

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winning either by not bidding (bid suppression), or by submitting a high bid (cover
bidding).

Pattern of Bid Rigging

Collusive agreements like bid rigging are usually reached in secret with only participants
knowing the scheme of conspiracy. But suspicious may be aroused by unusual bidding.
Certain patterns of bidding would not seem to be in consensus with a competitive market
and suggest the possibility of collusion. “These patterns can be described as follows:

• Do certain suppliers unexpectedly decline an invitation to bid

• Is there an obvious pattern of rotation of successful bidders? This pattern is more
suspicious when same suppliers submit bids each time.
• Is there unusual high margin between the winning and unsuccessful bids
• Do all bids prices drop when a potential new bidder enter the market i.e. bids prices
are dropped. When new player, who is not the member of cartel enter the market.
• Is the same supplier the successful bidder on several occasions in a particular area
or for a particular type of contract? That is if contracts are won in a particular area
by same supplier or a particular type of contract is won by one person again and
again, this need not be due to the competition superiority of this bidder but they
may be due to collusion.
• Are there one or more suppliers who continue to submit bids although they
consistently fail to win a contract? This may be due to collusion between the
competitors.
• Does a successful bidder subcontract works to competitors that submitted
unsuccessful bids on the same project?
• Does company withdraw its successful bid and subsequently get work on
subcontract from the winning bidder.”

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Suspicious Statements or Behaviour

While the firms who collude try to keep their arrangements secret, occasional slips or
carelessness may be a tip-off to collusion. “Moreover, certain patterns of conduct or
statements by bidders or their employees suggest the possibility of collusion. Following
statements and behaviour may be suspicious:

• The proposals or bid forms submitted by different bidders contain irregularities

such as identical calculations or spelling errors or similar handwriting, typeface, or
stationery. This may indicate that the designated low bidder may have prepared
some or the losing bidders’ entire bid.
• Bid or price documents contain white-outs or other physical alterations indicating
last-minute price changes.
• A company request a bid package for itself and a competitor or submits both its and
another’s bids.
• A company submits a bid when it is incapable of successfully performing the
contract.
• A company brings multiple bids to a bid opening and submits its bid only after
determining who else is bidding.”

“A bidder or salesperson makes:

 Any reference to industry-wide or association price schedules.

 Any statement indicating advance knowledge of competitors’ pricing.
 Statement that a particular customer or contract belongs to certain bidder.
 Any statement indicating that bidders have discussed prices among themselves
or have reached an understanding about prices.”

Suspicion of collusion may be raised by these indicators but these do not prove collusion.
For example, collusion can be indicated by either estimates above par or incorrect
estimates. Such conditions are neither necessary nor sufficient for collusion.

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 2.1.4 HISTORICAL BACKGROUND

The term cartel originated for alliances of enterprises roughly around 1880 in Germany.
The name was imported into the Anglo sphere during the 1930s. Before this, other, less
precise terms were common to denominate cartels, for instance: association,
combination, combine or pool. In the 1940s the name cartel gained an anti-German bias,
being the economic system of the enemy. Cartels were the economic structure the
American antitrust campaign struggled to ban globally.

Alliances fall in two main categories: Service Cartels and Trade Cartels. Service cartels
are related to the regulation of terms of employment. Trade cartels are related to the
regulation of trading terms and conditions. Law related to such alliances is closely
associated with that of conspiracy. 24 “In brief the history about the cartels is legislation in
England to control monopolies and restrictive practices were very well in force before the
Norman Conquest. 25 A system of Industrial Monopoly Licenses, similar to modern
patents had been introduced into England in 1561, but, the system was much abused and
used merely to preserve privileges, by the reign of Queen Elizabeth I, encouraging
nothing new in the form of manufacture or innovation. 26 Following three characteristics
of monopoly were identified by the court: (1) price increases (2) quality decrease (3) the
tendency to reduce artificers to idleness and beggary. In 1623 Parliament passed the

24
By the beginning of the nineteenth century the individual was made free to contract as to the terms of his
employment and establishing his right to associate for the purpose. Not only that, the concept of ‘collective
bargaining’ has become the order of the day in labour management relations and significantly the
restrictive practices in this field have reached immense proportions.
25
The Doomsday Book recorded that fore steel i.e. forestalling, the practice of buying up goods before they
reach market and then inflating the prices, was one of three forfeitures that King Edward the Confessor, and
could carry out through England. But concern for fair prices also led to attempts to directly regulate the
market. Under Henry III, an Act was passed in 1266 to fix bread and ale prices in correspondence with corn
prices. A fourteenth century statute labeled forestallers as oppressors of the poor and the community at
large and enemies of the whole country. Under King Edward III the Statute of Laborers 1349 fixed wages
of artificers and workmen and decreed that foodstuffs should be sold at reasonable prices. Around the 15th
century Europe was changing fast. The new world had just been opened up, overseas trade and plunder,
was pouring wealth through the international economy and attitudes among businessmen were shifting.
26
When a protest was made in the House of Commons and a Bill was introduced, the Queen convinced the
protesters to challenge the case in the courts. This was the catalyst for the Case of Monopolies or Darcy v.
Allein. The plaintiff, an officer of the Queen's household, had been granted the sole right of making playing
cards and claimed damages for the defendant's infringement of this right.

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Statute of Monopolies, which for the most part excluded patent rights from its
prohibitions, as well as guilds. 27

Modern Anti-trust law begins with the United States legislation of the Sherman Act of
1890 and the Clayton Act of 1914. Big trusts became synonymous with big monopolies.
The perceived threat to democracy and the free market from these trusts led to the
passing of Sherman and Clayton Acts. These laws, in part, codified part of American and
English common law of restraints of trade. 28 However, recently there has been a wave of
updates especially in Europe to harmonize legislation with contemporary competition
law thinking. The European Community has seen healthy competition as an essential
element in the creation of a common market free from restraints on trade. In accordance
with this many countries enacted competition laws and for example Competition Act
1998 was passed by England and Competition Act 2002 was passed by India.”

Adam Smith long back expressed the problems of these cartel agreements as- A
monopoly granted either to an individual or to a trading company has the same effect as a
secret in trade or manufactures. The monopolists, by keeping the market constantly
under-stocked, by never fully supplying the effectual demand, sell their commodities
much above the natural price, and raise their emoluments, whether they consist in wages
or profit, greatly above their natural rate. 29 He also pointed out that- People of the same
trade seldom meet together, even for merriment and diversion, but the conversation ends
in a conspiracy against the public, or in some contrivance to raise prices. It is impossible
indeed to prevent such meetings, by any law which either could be executed, or would be
27
From King Charles I to King Charles II monopolies continued, especially useful for raising revenue.
Then, in 1684, in East India Company v. Sandy it was decided that exclusive rights to trade only outside
the realm were legitimate on the grounds that only large and powerful concerns could trade in the
conditions prevailing overseas. In 1710 the New Law was passed to deal with high coal prices caused by a
Newcastle Coal Monopoly.
28
Evidence of the common law basis of the Sherman and Clayton Acts is found in the Standard Oil case,
where Chief Justice White explicitly linked the Sherman Act with the common law and sixteenth century
English statutes on engrossing. As the Sherman Act did not have the immediate effects its authors intended,
the Clayton Act of 1914 was passed to supplement the Sherman Act. It was after the First World War,
Countries began to follow the United States' lead competition policy. After World War II, the Allies, led by
the United States, introduced tight regulation of cartels and monopolies. The United Kingdom introduced
the Restrictive Practices Act in 1956.
29
Adam Smith, Wealth of Nations, Book 1, Chapter 7 Para 26 (London, 1776).

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consistent with liberty and justice. But though the law cannot hinder people of the same
trade from sometimes assembling together, it ought to do nothing to facilitate such
assemblies; much less to render them necessary. 30 By the latter half of the nineteenth
century it had become clear that large firms had become a fact of the market economy. 31

John Stuart Mill again observed that, trade is a social act. Whoever undertakes to sell any
description of goods to the public, does what affects the interest of other persons, and of
society in general; and thus his conduct, in principle, comes within the jurisdiction of
society... both the cheapness and the good quality of commodities are most effectually
provided for by leaving the producers and sellers perfectly free, under the sole check of
equal freedom to the buyers for supplying themselves elsewhere. This is the so-called
doctrine of Free Trade, which rests on grounds different from, though equally solid with,
the principle of individual liberty. Restrictions on trade, or on production for purposes of
trade, are indeed restraints; and all restraint, qua restraint, is an evil. 32

Bork argued that both the original intention of anti-trust laws and economic efficiency
was the pursuit, only of consumer welfare, the protection of competition rather than
competitors. 33 The common theme is that government interference in the operation of
free markets does more harm than good.

2.1.5 FACTORS FACILITATING CARTELS

Ironically, the existence of a free market economy by itself does not restrain the existence
of cartels or such other anti-competitive business practices. The available competition

30
Id., Chapter 10 Para 82 Smith also rejected the very existence of corporations, not just dominant and
abusive corporations.
31
Id., Chapter 5 Para 107.
32
John Stuart Mill, Treatise on Liberty Chapter V Para 4 (1859). When only one or a few firms exist in the
market, there is no credible threat of the entry of competing firms. Hence, prices rise above the competitive
level either to a monopolistic or oligopolistic equilibrium price. Production is also decreased resulting in
decreasing social welfare. Sources of this market power are said to include the existence of externalities,
barriers to entry of the market, and the free rider problem. Markets may fail to be efficient for a variety of
reasons, so the exception of intervention of competition laws to the rule of laissez faire is justified.
33
Robert H. Bork, The Anti-trust Paradox 405, (New York Press, 1978) Hence, only a few acts should be
prohibited, namely cartels that fix prices and divide markets, mergers that create monopolies, and dominant
firms pricing predatorily, while allowing such practices as vertical agreements and price discrimination on
the grounds that it did not harm consumers.

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literature on cartels suggests that there are three broad features of a market, which makes
it easier for the firms to reach an agreement to collude to fix prices or otherwise avoid
competition between them. The foremost being the elasticity of demand. “In markets
such as oil and gas, cement, steel, power and other essential products linked to the
automobile or construction sectors, where the demand is inelastic, meaning that there are
no substitute products available and increase in price will have no effect on the demand,
there being greater scope for huge profits by price rise, there is always a chance of such
collusive behaviours among the firms. The second important factor is the level of
competition in the market. The fiercer is the competition and lower is the prices, in
absence of cartel, the greater are the likely benefits from setting up of a cartel. The airline
sector with a large number of private players competing with one another for each
priority route or on favored timings in a busy route such as between metropolitan cities
could be an example. The third factor is the barriers to entry in a given market, which is
again linked to the level of competition. If there are low barriers to entry or expansion in
a given market and the market is open for such entry by a new player or expansion of
capacity by existing players, it will be difficult to sustain a cartel as any new ‘maverick’
player with better efficiencies or low marginal costs can undermine the cartelized price.
Retail consumer sectors such as those of readymade garments, handicrafts etc. could be
examples of such situation.

It should be noted that while it may be easier to form a cartel, it may still be difficult to
sustain a cartel for long for reasons which are interesting to note; the first being, an
inherent tendency amongst each member of a cartel to derive maximum benefits by
cheating on the other cartel members i.e. by undercutting the cartel price. If such cartel
member is more efficient than other members i.e. have lower marginal costs, greater
would be the benefit of such cheating. Such cheating will also be easier in case the cartel
is between firms making many products or brands and operating simultaneously in a
large number of geographic markets. A large number of firms in a given market also
facilitate such cheating as the detection becomes difficult. The second reason is the
likelihood of the cheating being detected by other cartel members. On such detection, the

Page | 43
cartel either fails by itself or clue about the same is invariably given by a victim of such
cheating to competition authorities leading to the detection and successful prosecution of
such cartel by the authorities. The leniency programme of competition authorities comes
as a handy tool for such ‘defectors’ to mitigate their likely punishments. Detection of
cheating is also facilitated by price transparency, small number of firms, homogenous
products and predictability of demand. The third reason is the extent of punishment that
other members of the cartel can impose on the cheater firm. Punishment by the cartel
usually leads to the restoration of the competitive pricing by other cartel members
thereby reducing the benefit of the cheater firm. This again depends upon three factors
viz. availability of spare capacity with the other members, the speed with which the
punishment is resorted to and the number of markets in which it can be enforced upon the
cheater firm.

The punishment also may provide for the other firms to compete in the exclusive territory
of the cheater firm. The longer this punishment can be sustained against such cheater
firms; stronger will be the deterrence against such cheating. Apart from the above broad
reasons on which the sustainability of cartels largely depend, factors such as frequent
interaction among firms whether through trade associations or otherwise, institutional
links between firms such as cross ownership or cross licensing, multimarket interactions
between firms, markets with low fixed cost, small, regular and predictable demand by
buyers, symmetries in costs and capacities of firms, production of same quality goods,
homogeneity of products and absence of buyer power and practices that help companies
to observe their competitors’ prices such as resale price maintenance, meeting the
competition clause etc. also facilitate the formation of cartels. On the other hand cartels
are difficult to be sustained in innovative or networking markets. In conclusion, it can be
said that whether an industry can become cartelized or not depends on how great the
incentives are for the firms in the industry to form a cartel and how sustainable the cartel
is. The incentives to create a cartel depend on the difference between the profitability of
the firms in the presence of a cartel and in the absence of a cartel. A sustainability of a
cartel, in turn, depends whether the incentives of the firms to cheat on the cartel

Page | 44
agreement outweigh the likelihood of the cheating being detected and punished. At the
same time, the supply side responses by non-cartel members can undermine the cartel
especially where the entry in a market is easy or it is easy for non-cartel members of the
industry to expand their output in response to the cartel members raising their prices,
making the cartel no longer sustainable. In this way the supply side responses by non-
cartel members can neutralize a cartel which can also be described as ‘the response of the
market forces’. 34”

2.2 PROCESSING OF CARTELS

2.2.1 DETECTING CARTELS

“The fight against Cartel is legally and practically a demanding task because:

(i) Cartels being secretive and cartelists taking pain to conceal it necessitates the
Competition Authorities to undertake great efforts to detect concealed cartels
(ii) Competition Authority needs extraordinary powers and skill to collect sufficient
evidence to mount a viable case against uncooperative defendants
(iii) Cartels are conspiracies and to destabilize them, Competition Authority needs to
heavily bank upon ‘Leniency Programme’ or to encourage and motivate
whistleblowers
(iv) The jurisdictional reach is often a restraint and constraint in the investigation and
enforcement of overseas cartels and
(v) The ever increasing trend to heavily penalize & criminalize cartel conduct has
necessitated for Competition Authority to adopt a high standard of proof and
procedure.”

Certain special skills are required for busting Cartels which are different from the skills
required for investigation and prosecution of other infringements of competition law. In
case of cartels the focus lies on proving the existence of the arrangement itself rather than

34
Simon Bishop & Mike Walker, The Economics of EC Competition Law, Para 5.31, (Sweet & Maxwell,
2002).

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demonstrating its impact on the market in economic terms. An increasing number of
Competition Authorities, therefore, have set up special cartels branches and the
motivation to do so is to develop centres of excellence with respect to expertise required
in organizing search and raids, interviewing witnesses, covert surveillance beside
successful implementation of leniency programmes. There is an obvious need for
intensive & extensive coordination and cooperation with other specialized agencies such
as sector specific regulatory authorities, tax authorities, police, and ministries dealing
with corporate bodies.

Under the Act, “the Director General, in discharge of his duties, has been vested with
powers as are in a Civil Court which inter-alia includes; namely:

a) summoning and enforcing the attendance of any person and examining him on
oath
b) requiring the discovery and production of documents
c) receiving evidence on affidavits
d) issuing commissions for the examination of witnesses or documents”

In UK, the Enterprise Act, 2002 has now conferred on Office of Fair Trading, a power of
intrusive surveillance and related power of property interference. Intrusive surveillance
involves presence of an individual in the residential or hotel accommodation or
installation of device in a vehicle to see what is happening within the premises or vehicle
and these do not constitute ‘Element of Trespass’. Organizing search, seizure and raids is
a science as well as art and its efficacy and success hinges upon constitution of team,
coordination with other agencies and if it is made unannounced and is without mandate of
a Court. The Sachar Committee while reviewing the MRTP Act, 1969 in its Report
suggested that the Director General should be required to have authorization from
Commission before conducting search and seizures. As and when Commission attains
adequate enforcement experience of law, the specific procedure and paperwork may be
reviewed. Further since evidence is increasingly stored electronically, the availability of
IT skill the investigation team is sine-qua-non as computer illiteracy can seriously impede

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the success of researches. Thus, the need for and usefulness of requisite capacity building
to undertake ‘Search and Seizure’ is inevitable to make meaningful use of these
provisions in detecting Cartels.

Evolving nature of evidence used by the CCI to establish an ‘agreement’ under the
Competition Act

The implementation of the law governing cartels in India has seen an immense change
since its inception. As noted above, the scope of the term ‘agreement’, as defined in the
Competition Act, is wide and extends to a mere ‘arrangement’, ‘understanding’ or ‘action
in concert’, none of which need be in writing or enforceable by law. This broad definition
of the term ‘agreement’ is no accident and was intentionally done to cover any form of
understanding that cartel participants could have among themselves. The policy
justification for such a broad definition also ties into the fact that cartels rarely exist in
explicit contractual form, and it is difficult to find direct evidence in investigations of this
kind. As a result, the CCI has tended to rely on various forms of circumstantial evidence,
which is by nature more attainable (though not exact) to prosecute cartels.

The CCI’s early cartel decisions consider the evidentiary standard required for
establishing the existence of an agreement as being similar to the ‘beyond reasonable
doubt’ approach used in criminal and other penal proceedings. This is borne out in an
early decision of the CCI – the Deutsche Bank case. 35 In this decision, the CCI held that
the existence of an agreement must be established ‘unequivocally’ and could not be
conjectured or circumstantially adduced.

However, over time, the CCI clarified its position in the Tyre Cartel case. 36 While
referring to its finding in the Deutsche Bank case, the CCI observed that however, it is
not suggested that an agreement can be established only through direct evidence. As

35
Neeraj Malhotra v. Deutsche Post Bank Home Finance Limited & Ors, Case No. 5 of 2009.
36
In Re All India Tyre Dealers Federation v. Tyre Manufacturers, Case No. 20 of 2008.

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discussed above, circumstantial evidence is of no less value than direct evidence as the
law makes no distinction between the two.

A similar view was taken in the subsequent Soda Ash Cartel case, 37 where the CCI
observed that there is rarely direct evidence of action in concert and the Commission has
to determine whether those involved in any dealings have some form of understanding
and are acting in coordination with each other. In the light of the definition of the term
‘agreement’, as noted above, the Commission has to find sufficiency of evidence on the
basis of benchmark of preponderance of probabilities.

This was the same rationale applied in the Steel Cartel case. 38 It appears from these
decisions that the CCI is not reluctant to use circumstantial evidence alone to establish
the existence of an agreement, since their view appears to be that direct documentary
evidence is rarely found while investigating cartels. Apart from confirming that
circumstantial evidence may be used to find an agreement, the CCI has also clarified that,
as cartel sanctions in India are civil in nature, the standard of proof applicable to the
evidence adduced by the CCI would be based on the ‘balance of probability’ test. The
CCI elaborated on this in the LPG Cylinder case, 39 wherein it observed:

Cartelization not being a criminal offence the test of proof will be only ‘balance’ of
probability’ and ‘liaison of intention’ which can be established with the support of
indirect or circumstantial evidence.… since the CCI can impose only administrative
fines, the standard of proof required is not that of beyond reasonable doubt.

From a review of these decisions, it seems abundantly clear that the CCI is willing to
base its assessment of the existence of an agreement on circumstantial evidence alone,
both economic 40 and conduct based, 41 and in doing so, it holds itself to the lower ‘balance

37
Shailesh Kumar v. Tata Chemicals Limited & Ors, Case No. 66 of 2011.
38
In Re Alleged Cartelization of Steel Producers, Case No. 09 of 2008.
39
In Re Suo moto case against LPG cylinder manufacturers, Case No. 3 of 2011.
40
The CCI often examines economic evidence, such as the level of market concentration, parallel
movement of prices, trends in capacity utilization and variations in cost structures across firms – while
carrying out cartel inquiries.

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of probabilities’ standard. This has resulted in an onerous burden being placed on
defendant companies who find that the CCI has ‘established’ the existence of an
agreement between competitors, purely on economic inferences and circumstantial
evidence and the defendants are left with the task of rebutting the presumption that such
an agreement does not result in an AAEC. While theoretically this might seem like
parties are afforded a defence based on the rule of reason, in practice there has not been
an instance where alleged cartel participants have successfully been able to rebut this
presumption and absolve themselves of a finding of contravention. The lowering of the
evidentiary standard coupled with the acceptance of circumstantial evidence alone to
establish the existence of an agreement has made cartel defence increasingly difficult.
Not only does the CCI routinely base its findings on selective and fragmented
circumstantial evidence, recent decisions reveal that the nature and quality of evidence
used by the CCI to prove the existence of an agreement have increasingly been watered
down over the past few years.

The trend of less exacting evidence being used to find an agreement is apparent from the
evidence used in recent CCI decisions.

In the Cement Cartel case, 42 the CCI found an agreement among various cement
manufacturers on the ground that they were members of the Cement Manufacturers
Association (CMA) and their participation at the CMA facilitated collusion among them.
Specifically, the CMA provided cement manufacturers an opportunity to exchange
sensitive price and production information with each other. The CCI was not persuaded
by evidence showing that the government directed the collection of price and production
data, as well as market share volatility, which generally counters a narrative of
cartelization.

41
CCI relies on evidence of meetings between competitors, similar or identical bidding prices, membership
of trade associations, any history of cartelization, and suspicious sharing of information.
42
Builders Association of India v. Cement Manufacturers Association & Ors, Case No. 29 of 2010 (CCI).
In December 2015, the COMPAT returned the Cement Cartel case to the CCI on procedural grounds
without going into the merits of the conduct of the cement manufacturers.

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In the Container Manufacturers case, 43 the CCI concluded on the balance of probabilities
that an agreement existed, by relying on two pieces of circumstantial evidence: similar
bids were submitted despite a variance in cost structures among container suppliers; and
the fact that at least 10 of the container suppliers had common board members. Despite
the lack of any direct evidence of an express agreement, the CCI found that the
circumstances facilitated the possibility of information exchange. As a result, the CCI
concluded that there was an agreement between the container suppliers. The CCI’s
practice marks a departure from the settled principle that evidence adduced, even if
circumstantial, needs to be considered in light of the ‘totality of circumstances’
applicable to the particular case, and not piecemeal. 44

In the Airline Fuel Surcharge case, 45 the CCI found an agreement merely on the basis of
the parties’ inability to disprove that they were party to a cartel. Specifically, the CCI
concluded that an agreement existed on the basis that the cartel participants were unable
to provide any plausible explanation for parallel incremental increases in fuel surcharge
rates to negate the existence of a cartel. In particular, the parties were unable to provide
any evidence to support their contention that they determined their respective fuel
surcharge independently. This led the CCI to conclude that a clandestine ‘understanding’
among various airline operators existed. The nature of evidence used by the CCI to find
the existence of an agreement seems to suggest that the burden to prove an agreement,
which is for the CCI to meet, shifted onto the parties (i.e., airliners) to prove that there
was no agreement between them.

This decisional practice leaves little doubt that the CCI may reach a finding that an
agreement exists if the evidence suggests it to be more plausible than not. Moreover, the
kind and quality of evidence used by the CCI to prove the existence of an agreement has
clearly been watered down over the past few years. A possible reason for such a trend

43
In Re M/s Sheth & Co and Ors, Case No. 04 of 2013.
44
Arvind Kumar Anupala Poddar v. State of Maharashtra [2012 (11) SCC 172].
45
In Re Express Industry Council of India, Case No. 30 of 2013.

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could also be the practical difficulties that are faced by the CCI while investigating
cartels, given the lack of direct evidence in such investigations.

The CCI’s approach though is being contested before the Competition Appellate Tribunal
(COMPAT), which has far more exacting standards on the nature of the evidence used to
find the existence of a cartel agreement. Most recently, in October 2015, in the Andhra
Pradesh Films case, 46 COMPAT took exception to the evidence relied on by the CCI to
come to a finding of a violation of section 3(3) of the Competition Act. COMPAT
expressly observed that the lack of evidence collated by the DG and the CCI led the CCI
to arrive at a ‘perverse’ finding of contravention. This contravention was arrived at
without requiring the complainant in the particular case to show that there was, in fact,
any anticompetitive conduct by the alleged cartelists. This demonstrates that COMPAT is
inclined to apply a more robust approach to analysing evidence before it, even while the
CCI on the other end has made it increasingly difficult for companies to defend cartel
charges.

The CCI has further narrowed the window for companies to defend themselves from
cartel allegations on the grounds that they are part of the same ‘single economic
undertaking’. In a recent judgement involving the insurance industry for instance, the
CCI disregarded the commonly accepted ‘single economic undertaking’ defence that was
advanced by companies that were part of the same ‘group’ but were alleged to have acted
together as being part of a cartel.

TOOLS FOR DISCOVERING CARTELS

1. Whistle blowing

Competition authorities face a hurdle in gathering evidence, as the cartel activities are
operated in close rooms and board rooms, this is where a whistleblower is important to

46
Andhra Pradesh File Chamber of Commerce v. M/s Cinergy Independent Film Service Pvt. Ltd. & Ors,
Appeal No. 15 of 2013.

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reveal provide relevant information about the meetings, contacts, participants and the
range of practices covered under the cartel.

Competition authorities across the globe are persuading whistleblowers in approaching

them to give information about companies coming together and forming a cartel.
However, there are certain conditions attached, such as that the whistleblower must not
be the ringleader of the cartel and that he would be cooperating with competition
authority for undertaking the investigation against such companies. Once the conditions
are fulfilled to the satisfaction of the competition authorities, complete immunity is
available from any penalty that might have been imposed, if the competition authorities
discovered the relevant cartel before. 47

2. Dawn Raids & Leniency Provisions

Companies forming a cartel are aware of the unlawfulness of their action and thus they
often come together in jurisdictions where they are likely to be overlooked by the
competition authorities. They use code-names; undertake verbal discussions with nothing
being recorded on paper to avoid detection.

It follows that competition authorities may find it very difficult to compile evidence that
would satisfy a court to the required standard of proof that there has been illegal
behaviour.

Without doubt the adoption of dawn raids and leniency programmes by competition
authorities across the globe have been immensely important and successful in this
respect. It is important that the competition authorities should be given investigative
powers such as unannounced dawn raids, which are effective in gathering direct evidence
such as agreements, participants, recording tapes, etc. to satisfy the standard of proof as
required by law.

47
R. Whilsh, Control of Cartels and Other Anti-competitive Agreements, (London, 2006).

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According to Section 46 of the Indian Competition Act, 2002 the CCI has the power to
impose lesser penalties.

However, there is a catch that the leniency is granted only if the whistle blower
approaches the authorities before the prosecution procedure starts. The same can be seen
in the case of Brazil Competition Authority, which also grants immunity or leniency if
the approach has been made before the authorities discover any evidence themselves.

“Conditions required to be fulfilled by the party seeking shelter under leniency provision:

• The full and true disclosure is made before initiation of investigation/enquiry

• The disclosure is vital in bursting the cartel
• The benefit of lesser penalty is limited to the party who made the disclosure
• The benefit can be rescinded if there is non-compliance of conditions subject to
which lesser penalty was imposed.”

Thus an enterprise can have the benefit of lesser penalty, if it follows the above-
mentioned conditions carefully. However, the reduction in penalty is discretionary, is
only available before the starting of the investigation. However, under the US Anti-trust
Act, leniency is provided before and after the starting of the investigation. To qualify for
post-investigation leniency, a corporation, in essence must, be the first one to come
forward, corporate fully and make restitution to injured parties, where possible. 48

“There is a widespread perception that the ‘fact’ of a market with certain

specific contours is not like other facts capable of definitive proof. For example
though it may be just as difficult to prove the existence of a conspiracy as it is to
prove a market, at least lawyers embark upon the former task confident that
there is ‘real’ answer- there either was a conspiracy or there wasn’t. Market
definition is different.”49

48
Supra note 3.
49
J. Ordover and D. Wall, Understanding Econometric Methods of Market Definition 20, (1989).

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In competition/antitrust law we witness that unlike other disciplines like criminal law we
can never have an intuition that a said behaviour is wrong. So linking it with real time
problems seems the one of the major hints towards judging a behaviour to be of anti-
competent nature.

A major problem could be deduced from the famous short story by Leo Tolstoy titled
‘Master and Man’

“The youthful landowner was asking ten thousand rubles for the grove simply
because Vasli and Reevich was offering seven thousand. Seven thousand was
however only a third of its real value was. Vasli might perhaps have got it down
to his own price, for the woods were in his district and he had a long standing
agreement with other village dealers that no one should run up in price in
another district, but he had now learnt that some timber-dealers from town
meant to bid for the Goryachkin grove and he resolved to go at once and get the
matter settled.”

This might seem to be a contractual issue earlier but the confidence of vasli, raises
eyebrows of all antitrust lawyers. The reason for his confidence is that he through an
agreement is left as the only buyer in the market. This is just an amazing example of how
competition wrongs are available everywhere but what it requires is a sharp investigating
eye and high standard of proof through substantial evidences.

Competition laws are designed to secure two primary goals: deterrence of anticompetitive
behaviour and compensation for injuries suffered by victims of competition law
violations. 50 One of the major challenges that competition policy face is detecting and
assessing various forms of non-competitive behaviours that are classified explicitly or
tactically in the source of anti-trust law.

50
William E. Kovacic, Achieving Better Practices in the Design of Competition Policy Institutions 50
Antitrust Bill.511 (2005).
Available at: http://www.ftc.gov/speeches/other/040420comppolicyinst.pdf (Visited on Feb. 14, 2016).

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Cartel Law is different from most other competition law. It is different because other
areas typically involve difficult analytical questions as to whether certain conduct or
transactions are anti-competitive, whereas cartels are by definition anti-competitive.

2.2.2 INVESTIGATING CARTELS

Case # 1 Essential Factors to Constitute a Cartel 51

Brief details: In DG (IR) v. Modi Alkali and Chemicals Ltd.52: “an anonymous
complaint was received alleging that some of the leading undertakings in Northern India
have formed a cartel for hiking the prices of their products. The prices of chlorine gas and
hydrochloric acid had an increase of 277% and 200% within six and four months
respectively in the year 1992. The same were contended to be a result of an agreement
amongst the parties to create artificial scarcity, in order to raise prices of their products.
Since the prices of raw materials namely sodium chloride and electricity had more or less
remained the same, it was stated to be a fictitious crisis created to take advantage of the
market and increase the prices of their products.

Investigation: The MRTPC directed the DG (IR) to carry out the preliminary
investigation. The DG submitted its preliminary investigation report (PIR) which said
that no case of cartel has been found and recommended that no action should be taken.

However, the MRTPC after considering the PIR was of the view that the case needed
enquiry and directed the issuance of a Notice of Enquiry. The respondents raised an
objection on the ground that the notice of enquiry lacked a concise statement of material
fact on which the notice was based, not meriting to cognizance based upon an anonymous
complaint.

51
Detailed information on market characteristics of the MRTP cases discussed in this section is not
available, due to the inadequate recording system employed then, as well as the absence of an established
mechanism to monitor old cases for future reference. This is a point, which should be noted during the
design and establishment of the new competition regime in India.
52
2002, CTJ 459 (MRTP).

Page | 55
The DG (IR) contended that the present notice of enquiry had been issued under Sec.
10(a)(iv) of the MRTP Act, which empowers the MRTPC to inquire into restrictive trade
practice upon its own knowledge or on a complaint or information. Information can be
derived from an invalid/irregular complaint or from any anonymous letter as held by the
Calcutta High Court in the case of ITC Limited v. MRTP Commission & Ors.(1996) 46
Comp. Case 619. Thus, it was held that the objection with regard to the anonymous
complaint was not valid.”

Order: The Commission then looked into the allegation of formation of a cartel.

‘Cartel’ was not defined in the MRTP Act; however, the Commission referred to a
preceding judicial pronouncements – “cartel is an association of producers who by an
agreement among themselves attempt to control production, sale and prices of the
product to obtain a monopoly in any particular industry or commodity”.

Thus, according to the definition of cartels and the required elements, the Commission
had a view that, no strong evidence existed suggesting meeting of heads or parity of
prices except for the use of the expression cartel. The Commission observed that the
notice of enquiry and the subsequent investigation lacked relevant and necessary
information with regard to the parties forming a cartel leading to distortion and restriction
of competition in the market. With the essential factors not proved, the Commission
agreed with the respondents that “prima facie there was no case of a cartel.

Emerging Issues:

• Cartels were not defined in the MRTP Act, 1969, but the meaning of cartels could
possibly be drawn only from Section 2(o) i.e. restrictive trade practice.
• Key factors required to establish the existence of a cartel were:
 fixing of prices,
 agreement by way of concerted action suggesting conspiracy, and
 Intent to gain monopoly or restrict/eliminate competition,
• Commission initiated the enquiry on the basis of an anonymous complaint.”

Page | 56
Case # 2 Price Parallelism v. Price Fixing

Brief details: In Alkali & Chemical Corporation of India Ltd and Bayer India Ltd: “the
companies were engaged in the manufacture and sale of rubber chemicals and amongst
themselves possessed a dominant share of the total market for these products. There were
charges against them making identical increases in prices on five to six occasions on or
around the same date. However, there was no direct evidence available behind the
increase in prices.”

Investigation and Order: The MRTPC observed while making its judgement, that “in the
absence of any direct evidence of cartel behaviour and the circumstantial evidence not
going beyond price parallelism, without there being even a shred of evidence in the proof
of any plus factor to bolster the circumstances of price parallelism, we find it unsafe to
conclude that the respondents indulged in any cartel for raising the prices”. 53

Emerging Issue:

• Price parallelism as a defense against cartelized price fixation. Factors required

separating price parallelism from cartelized price fixation.

Case # 3 Absence of Penalties

Brief details: In Sirmur Truck Operator’s case 54and Truck Operators Union v. Mr. N.C.
Gupta & Mr. Sardar 55 case, the nature of allegation was the same, i.e. the respondents
had acted in concert while fixing the freight rates for rendering transport services and that
they did not allow non-member truck operators to load and unload goods, unless they
joined the union.

Investigation: In both the cases, the MRTPC instituted an enquiry on the grounds that
practices indulged in by respondents fell under section 33(1)(d) and Section 2(o) of the

53
Supra note 22.
54
(1995) 3 CTJ 332 (MRTPC).
55
(1995) 3 CTJ 70 (MRTPC).

Page | 57
MRTP Act 56. For substantiating the allegations made against the respondents, in the
Sirmaur Truck Operators case, the DG (IR) submitted a lot of documents, such as the
freight rates circulated by the respondent union and the letters exchanged between the
respondents. Taking the freight rates as evidence, it was seen that there was no
information on the freight list, that with the increase or reduction of the rates of diesel oil
by the Government of India, there would be increase or decrease in freight rates fixed by
the respondents.

Thus, there was no doubt that fixing the rates for the truck operators and asking the
members to charge freight only on the rates fixed by the union was an instance of
restrictive trade practice falling under clause (d) of Section 33(1), which states:

“Every agreement falling within one or more of the following categories shall be
deemed, for the purpose of this Act, to be an agreement relating to restrictive
trade practice and shall be subjected to registration, namely… (d) any
agreement to purchase or sell goods or to tender for the sale or purchase of
goods only at prices or on terms or conditions agreed upon between the sellers
or purchasers”.

In the Truck Operator’s union case, “the respondents did not co-operate with the
investigation and the DG (IR) conducted an on-spot investigation to assess the
correctness of the allegations. During the on-spot investigation, they met a member of the
union, who did orally acknowledge that unless the complainant truck owners become
members of the union, they were not permitted to operate.

Order: The MRTPC in the both the cases, concluded on the basis of the evidence, that
preventing and restricting competitors from doing business was undoubtedly a restrictive

56
Monopolies and Restrictive Trade Practices Act, 1969, Section 2(o) ‘restrictive trade practice’ means a
trade practice which has, or may have, the effect of preventing, distorting or restricting competition in any
manner and in particular –
(i) which tends to obstruct the flow of capital or resources into the stream of production, or
(ii) which tends to bring about manipulation of prices, or conditions of delivery or to affect the flow of
supplies in the market relating to goods or services in such manner as to impose on the consumers
unjustified costs or restrictions;

Page | 58
trade practice falling under Section 2(o) of the MRTP Act. Accordingly, the Commission
issued an order of ‘cease and desist’ against the respondents and directed them to stop the
trade practice.

Emerging Issues:

• The MRTPC was not empowered to impose penalties.

• Increase in input cost as defense for price increase.
• Non-cooperation on the part of the defendants could be a speed breaker in the
investigation

Case # 4 Extra Territorial Jurisdiction

Brief details: In American Natural Soda Ash Corporation“(ANSAC) v. Alkali

Manufacturers Association of India (AMAI) and others, ANSAC, a joint venture of six
USA soda ash producers attempted to ship a consignment of soda ash to India. AMAI,
whose members included the major Indian soda ash producers, complained to the
MRTPC to take action against ANSAC for cartelized exports to India.

Investigation: The MRTPC instituted an enquiry and passed an ad interim injunction on

ANSAC restraining it from cartelized exports to India. In June 1997, the Commission
rejected ANSAC's petition for vacating the injunction. Quoting from the ANSAC
membership agreement, it held that ANSAC was prima facie a cartel which was carrying
out part of its trade practices in India, giving the Commission jurisdiction under Section
14 of the MRTP Act, even though the cartel itself was formed outside India. ANSAC
made an appeal to the Supreme Court of India, on the following grounds:

• Under the MRTP Act, the MRTPC had no power to stop import.
• The MRTP Act did not confer extra-territorial jurisdiction to the MRTPC.
• Action could be taken only if an anti-competitive agreement involving an Indian
party could be proved and that too only after the goods had been imported into
India.
• In this case, the shipment had not actually taken place.

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Order: The Supreme Court did not go into the allegation of cartelization, but instead held
that the wording of the MRTP Act did not give the MRTPC any extra territorial
jurisdiction. The MRTPC therefore could not take action against foreign cartels or the
pricing of exports to India, nor could it restrict imports. Action could be taken only if an
anti-competitive agreement involving an Indian party could be proved, and that too only
after the goods had been imported into India. 57 A discussion on the wider implications of
this judgement and Indian competition policy in relation to international trade, in greater
detail can be found in Aditya Bhattacharjea, India’s Competition Policy (2003).

The Supreme Court overturned the order of the MRTPC.

Emerging Issues:

• The MRTP Act did not empower the MRTPC with extra-territorial jurisdiction
powers. It could handle only the cases that emerged in the Indian market but not
that emerged outside India, despite their evident effects on the Indian market.
• Action against an anti-competitive agreement could only be taken if it involved an
Indian party and that too only after the goods have been imported into India.”

Case # 5 Presence of Gateways

Brief details: In DG (IR) v. Sumitomo Corporation, Tokyo, Japan and others 58: “The
MRTPC was called upon to decide on the charges of restrictive trade practices of
manipulating prices of products within the meaning of Section 2(o) (ii) 59 of the MRTP
Act. On the receipt of information by the commission regarding collusive tendering in the
steel industry and quoting of identical prices, the commission appointed a consultant who
reported that the Japanese companies along with their Indian agents have colluded and
were quoting identical prices for input material required by the steel plant.

57
Haridas Exports v. All India Float Glass Manufacturers’ Association [(2002) 6 SCC 600].
58
2004 CTJ 26 (MRTP).
59
Monopolies and Restrictive Trade Practices Act, 1969, Section 2(o) (ii) – “…which tends to bring about
manipulation of prices, or conditions of delivery or to affect the flow of supplies in the market relating to
goods or services in such manner as to impose on the consumers unjustified cost or restrictions”.

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Investigation: In the preliminary investigation, it was revealed that the prices quoted by
the Japanese companies and their Indian agents were identical for 8 items pursuant to a
global tender floated by SAIL. However, there was some sort of negotiations between the
relevant authorities and the Japanese companies, after which the latter revised their rates,
which also were identical to the prices quoted by their apex body, i.e. the Rollers
Exporters Association. The same was the case with regard to another global tender in the
year 1984 invited by the Rourkella Steel Plant (RSP) to supply qualified rolls. On the
basis of a complaint initiated by the RSP, the DG was of the view that the respondents
were indulging in restrictive trade practice within the meaning of section 2(o)(ii) of the
Act. Accordingly a Notice of Enquiry was initiated.”

In response to the investigation, “the defendants submitted their defense on the following
grounds:

• Absence of any factual allegations regarding the manipulation of prices imposing

unjustified cost on consumers, the issuance of notice of enquiry was
misconceived;
• Participation of 35 companies from 13 countries, identical prices as quoted by the
Japanese companies would in no way lead to manipulation of prices imposing
unjustified costs;
• Restriction of competition was to be seen with reference to context of SAIL,
which had 90% of the market share in product and supplies;
• Section 2(o)(ii) – Restrictive Trade Practice – ‘which tends to bring about
manipulation of prices, or conditions of delivery or to affect the flow of supplies
in the market relating to goods or services in such manner as to impose on the
consumers unjustified cost or restrictions’.
• Ultimate decision for placement of orders to suppliers rested with SAIL, as well
as RSP, hence, the uniformity in prices would have no significance;
• Orders under the global tenders that were floated were for 18 rolls out of 228
pieces; and

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 • The Indian agents, also a party to the investigation, pleaded that they had no role
to play in either fixation of prices of the products or in negotiations with the
purchaser.”

The focus of MRTPC was on the depositions made by the defendants, which confirmed
the involvement of their apex body (Rollers Exporters Association) in conducting the
negotiations. The commission paid to the agents on accrued sales also varied but the
purchaser had to pay no difference in price. Hence, a case of price fixing cartel was
established on the basis of these facts. However, the defendants contended that it had in
no way been established that quotations of identical prices by them had been instrumental
in preventing or impairing competition in any manner. In any case, the order for supply
as placed by them was so small that it had virtually negligible effect on competition in the
market and the same would bring the case in the ambit of provisions of Section 38(1)(d)
of the Act:

“(1) For the purposes of any proceedings before the Commission under section
37, a restrictive trade practice shall be deemed to be prejudicial to the public
interest unless the Commission is satisfied of any one or more of the following
circumstances, that is to say that the restriction is reasonably necessary to
enable the persons party to the agreement to negotiate fair terms for the supply
of goods to, or the acquisition of goods from, any one person party thereto who
controls a preponderant part of the trade or business of acquiring or supplying
such goods, or for the supply of goods to any person not party to the agreement
and not carrying on such a trade or business who, either alone or in
combination with any other such persons, controls a preponderant part of the
market for such goods”.

With reference to the definition of cartel, as mentioned above in “DG (IR) v. Modi Alkali
and Chemicals Ltd., quoting of identical prices pursuant to a global tender, negotiation of
prices by the parties other than those who had submitted the tenders, having a close nexus
in the trade dealings were a few factors strongly pointing to an action or activity

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undertaken by the respondents for manipulating the prices, which had adversely affected
competition in the market. In addition to that, it was argued that the arrangements
between the respondents and its allied parties in quoting identical prices had narrowed
down the option of the purchasers to buy the goods, despite there being other 35
companies.

With regard to the allegation that SAIL had 90% market power there was a need to make
a distinction between voluntary decisions by players about not entering the market and
those being pushed by the State Government? Thus, the allegations raised by the
respondents, were not sustainable.

Keeping in mind the facts of the case, it was held that the respondents had indulged in
cartelization. However, the respondents argued that they were liable to be exempted in
lieu of the gateways, to which the Commission also agreed. The Commission agreed that
in terms of both the quantity and value of the rolls, it would have in significant impact on
the cost of rolled products.

Order: In lieu of the gateway available to the defendants, i.e. Section 38(1)(d), the notice
of enquiry was discharged. The allegation of cartelization was only discharged on the
ground of the availability of the gateway to the respondents.

Emerging issues:

• Due to the presence of certain gateways the companies could not be held
guilty for being involved in a restrictive trade practice.
• Order for supply as placed by the respondents was so small that it had
virtually negligible effect on competition in the market.
• One’s own activity of cartelization was justified on the basis that the accuser
is itself a dominant player in the market.

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 2.2.3 CASE SELECTION AND PRIORITISATION

Though investigation into cartels and collection of evidence is important it must be

realized that case selection for such investigation is equally important, Competition
agencies need to prioritize their case selection, given their limited resources. The
following factors need to be considered by competition authorities for case selection and
prioritization 60.

Suspicious Statements or Behaviour

While the firms who collude try to keep their arrangements secret, occasional slips or
carelessness may be a tip-off to collusion. In addition, certain patterns of conduct or
statements by bidders or their employees suggest the possibility of collusion. Following
statements and behaviour may be suspicious:

• The proposals or bid forms submitted by different bidders contain irregularities

such as identical calculations or spelling errors or similar handwriting, typeface,
or stationery. This may indicate that the designated low bidder may have prepared
some or all of the losing bidders’ bid.
• Bid or price documents contain white-outs or other physical alterations indicating
last-minute price changes.
• A company request a bid package for itself and a competitor or submits both its
and another’s bids.
• A company submits a bid when it is incapable of successfully performing the
contract.
• A company brings multiple bids to a bid opening and submits its bid only after
determining who else is bidding.

While these indicators may arouse suspicion of collusion, they are not proof of collusion.
For example, Bids that come in well above the estimate may indicate collusion or simply

60
Available at: http://www.reseauinternationaldelaconcurrence.org/media/library/conference_6th_moscow_
2007/21Anti-CartelEnforcementManualChapter4onCartelCaseInitiation.pdf. (visited on Sep. 18, 2015).

Page | 64
an incorrect estimate. These conditions are neither the necessary nor sufficient condition
for collusion.”

Evidence, Hard Evidence

Proving cartelization is tough. Most cartels leave behind no paper trail of an agreement
that can be used against them and are hush-hush in nature. Getting appropriate
information and enough evidence to build a case against the cartel members too is
difficult. Data collected by government agencies in normal course would be inadequate
and so would be those collected by private institutions for commercial reasons.

In the cement case, the CCI used data on output, capacity, price hike, economic growth,
construction activity and profit margins of 11 cement companies to prove there was a
cartel. It did not have any evidence in the form of communications between the cement
companies to prove that they were cooperating to lower output or increase price from
time to time.

This has raised questions about the sustainability of the CCI order if the affected
companies were to appeal before the Competition Appellate Tribunal. ‘The
circumstantial evidence was very strong’ says the CCI former member Geeta Gouri and
she adds ‘Unless we are able to get accurate evidence, the commission will not
intervene.’

In the past, investigations into the onion cartel fell flat for want of enough evidence,
although it was clear to everyone that there were relationships working all through the
chain starting from the farmers to the stockiest and wholesalers. The Commission may
relook at the case when it gets enough evidence to establish the presence of a cartel.

2.3 CARTELS: INDIAN LEGAL FRAMEWORK

Under the Competition Act, 2002, in India, as amended by the Competition

(Amendment) Act, 2007, cartels include an association of producers, sellers, distributors,
traders or service producers, who, by agreement between themselves, limit, control, or

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attempt to control, the production, distribution, sale or price of, or trade in goods or
provision of services. 61 Harmful cartels which had resulted in lessening of competition in
different jurisdictions had always been considered injurious to the economy. Hardcore
cartels which have anti-competitive effects are always considered to be harmful. 62 Like
India and many countries, stress on detecting and prosecuting harmful cartels to prevent
them from causing notable harm to the economy. 63
For example, the European Union XXXII Report on Competition Policy says about
harmful cartels, that they diminish social welfare, create artificial crisis in the relevant
market, and pass the wealth of the consumers to the cartel members by the price rise of
the relevant products.64

The competition agencies in different countries after handling cartels for considerable
period of time had realized that cartel enforcement should be at the top priority, as huge
amount of money is lost through cartel activities. 65 Economic studies in multiple
jurisdictions and legal decisions (mainly decisions in anti-trust cases) had mentioned that
international cartels (where the participants existed in two or more nations) had an
average increase of price of the commodities by 28%. Domestic cartels also increased the

61
The Indian Competition Act, 2002, (As amended by the Competition (Amendment) Act, 2007), Section
2(c).
62
Neelie Kroes, the European Commissioner had said that hardcore cartels which had anti-competitive
effects had always been harmful. It was also said that harmful cartels had caused billions of dollars of direct
harm in Europe, and by cracking down hard on one cartel; the European Commission felt that another five
harmful cartels could be prevented.
Neelie Kroes, European Commissioner for Competition Policy, Competition, The Crisis and the Road to
Recovery, Address at Economic Club of Toronto, 30th March, 2009,
Available at: http://europa.eukapid/pressReleasesAction.do?reference=SPEECH/09/152&format= HTML&
aged=0&language= EN& guiLanguage=en. (visited on Sep. 19, 2015).
63
Sheridon Scott, Canadian Competition Commissioner had said that all anti-trust agencies across the
world had made it a priority to detect and prosecute harmful cartels, as they have pernicious effect on the
economy. Speaking notes for Sheridon Scott, Commissioner of Competition, Competition Bureau, ‘Cartels
Detection.
Available at: http://www.conipetitionbureau.gc.caleiclsite/cb-bc.nsfieng/02509.html. (visited on Sep. 18,
2015).
64
European Union, XXXIInd Report on Competition Policy, Para 26, (2002).
The report is also called Report on Competition Policy Commission of the European Communities, 2002.
Available at: http://www.earie2006.orgLadmin/papers/AppealspaperEARIE2006_20060328_0638.pdf
(Visited on May 7, 2016).
65
Supra note 8.

Page | 66
prices of the commodities by 18%. 66 Furthermore, as the cartelists in the last century had
very rarer cooperated with the enforcement agencies, and due to the secretive nature of
cartels, most of the competition agencies had realized that cartel enforcement had been a
very difficult task which required tactful handling. Among other procedures, the
mechanisms for extracting evidence to prove cartel activity require specialized tools and
procedure.

When multinational corporations started trading at random in transnational jurisdictions,

the States emphasized upon the need for creation of competition agencies to maintain fair
competition. During 1990s along with most of the developed countries, the developing
countries enacted competition laws. At present, more than 100 countries have
competition laws. Among the different duties and responsibilities of such competition
agencies, cartel enforcement formed one of the major duties. The competition agencies
which had started operating of late, did seek guidance and cooperation from US, EU and
other jurisdictions who had addressed international cartels during the last few years.

The conditions that are conducive to cartels include: (a) homogeneous product, (b) high
concentration and few competitors, (c) high entry and exit barriers, (d) low technological
advancement,. (e) similar production cost, (f) low demand elasticity, (g) large number of
small buyers making frequent purchases, (h) strong ability of competing firms to
exchange information, involvement of trade associations, (i) weak enforcement, less fear
of detection or punishment. In whichever system, these conditions are more; the chances
of existence of cartels are more, too.

Extra-territorial jurisdiction in respect of cartels

Till 1980s, the concept of cartels had national dimension when most of the jurisdictions
did not open up their market. The secret pacts that were formed between different
companies used to be formed by domestic companies and the damage caused used to be
caused within the national borders. At that point of time, the idea of foreign investors

66
Supra note 5.
Available at: http://www.oecd.org/dataoecd/8/61/2376087.pdf. (visited on Sep. 18, 2015).

Page | 67
spending huge sums of money within the domestic market did not exist.

After globalization in the early 1990s, the foreign investors from different jurisdictions
had invested in India's different sectors like telecom, electricity, roadways, airways, they
have combined with many of the domestic companies, at sometimes merging with them,
while at other times acquiring them. Whenever the companies, which were involved with
mergers and acquisitions, having head offices in their own jurisdictions, did business in
India, the possibility of forming cartels has risen.

Their quantum of investment had been huge and the loss suffered by the economy had
been huge. Whenever these companies get involved in cartels, the Competition agency
required the adequate mechanism to detect them at the earliest and punish them.

The extra-territorial jurisdiction of the Competition Commission of India will be tested in

the years to come. In India, the Monopolies and Restrictive Trade Practices Commission
did not have extra-territorial Jurisdiction. It had powers to give cease and desist orders.
When such Powers were exercised against international companies, such companies
questioned the extra-territorial jurisdiction of MRTPC.

So the Competition Commission of India (CCI) was given the extra territorial jurisdiction
by the Indian Competition Act, 2002, as amended by the Competition (Amendment) Act,
2007. The CCI has the power to investigate into any anti-competitive activity, abuse of
dominant position or anti-competitive combination happening outside India, but having a
potential effect within India. 67

67
The Competition Act, 2002, (as amended by the Competition (Amendment) Act, 2007), Section 32
mentions the following: The Commission shall, notwithstanding that-
(a) an agreement referred to in section 3 has been entered into outside India; or
(b) any party to such agreement is outside India; or
(c) any enterprise abusing the dominant position is outside India; or
(d) a combination has taken place outside India; or
(e) any party to combination is outside India; or
(f) any other matter or practice or action arising out of such agreement or dominant position or combination
is outside India, have power to inquire into such agreement or abuse of dominant position or
combination if such practice tends to have, an appreciable adverse effect on competition in the relevant
market in India.

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Extra-territorial jurisdiction had been granted to CCI through the 'effects doctrine'. The
doctrine implies that even if an action or practice occurs outside the shores of India but
has an impact or effect on competition in relevant market in India; it can be brought
within the ambit of the Act, provided the effect is appreciably adverse on competition.

The doctrine had been used in other jurisdictions as well. In the Wood Pulp case, 68 the
European Court of Justice established the 'effects doctrine'. It was a case where wood
pulp producers, having their registered offices outside the EC, in different countries, but
not carrying on business within the EC entered into price fixing agreements among
themselves covering supplies to be made to purchasers within the EC. Some of the
applicants raised submissions regarding the Community's jurisdiction to implement its
competition rules to them. Their contention was regulation of conduct restricting
competition adopted outside the territory of the Community merely by reason of the
economic repercussions. The European Court of Justice rejected this contention and held
that these supplies were to be held as to be in competition for the supply of wood pulp in
the Common Market and that the rules of the EC competition applied to their conduct
also and upheld the fines levied on some of the applicants.

In that respect India is not the only jurisdiction which had adopted the 'effects doctrine'.
The application of the doctrine in the American and European jurisdiction had been
examined before adopting it in the Indian Competition Act, 2002, as amended by the
Competition (Amendment) Act, 2007.

Corporate Leniency in India

India like many other countries, namely, South Africa, UK, USA, etc. had embraced the
corporate leniency provision to persuade members of the cartels to disclose about the
existence of the cartels. Most of the jurisdictions as the investigation agencies found it
extremely difficult to collect evidence in respect of existence of cartels without which the

68
Ahlstrom Osakeyhtio and others v. Commission of the European Communities [1998, ECR 5193],
Judgement of the European Court of Justice of 27th September, 1988,
Available at: http://www.ejil.org/pdfs/17/4/99.pdf (Visited on July 18, 2016).

Page | 69
punishments would have been futile. 69

There is leniency provision for cartel member who makes full discloser relating to the
existence of the cartel before the Competition Commission of India. 70 Under the proviso
to section 27(b) of the Competition Act, 2002, as amended by the Competition
(Amendment) Act, 2007, the Commission may impose penalty on a member of a cartel
for breach of section 3, but it may impose a lesser penalty as permitted by section 46
subject to the conditions set out therein. 71

The additional responsibility that lies on the CCI includes the secrecy that is required
while pursuing the enquiry relating to cartels. Investigating into the activities of a cartel
require specialized knowledge and expertise. Furthermore, as cartels operate across
different jurisdictions, it is not easy to locate a cartel's headquarters from where the
directions are issued, which is not based on formal correspondence.

Important ways of executing corporate leniency include admitting confessions, direct

69
Vinod Dhall, “Governments turn up the heat on business cartel”, Economic Times, April 13, 2007
Available at: http://www.cci.gov.in/images/media/articles/Business_Cartels_13Apri12007 200804090942
21. pdf (visited on July 18, 2016).
70
The Competition Act, 2002, (As amended by the Competition (Amendment) Act, 2007), Section 46.
71
Id., Section 27, Where after inquiry the Commission finds that any agreement referred to in section 3 or
action of an enterprise in a dominant position, is in contravention of section 3 or section 4, as the case may
be, it may pass all or any of the following orders, namely:
(a) direct any enterprise or association of enterprises or person or association of persons, as the case
may be, involved in such agreement, or abuse of dominant position, to discontinue and not to re-
enter such agreement or discontinue such abuse of dominant position, as the case may be;
(b) impose such penalty, as it may deem fit which shall not be more than ten per cent of the average of
the turnover for the last three preceding financial years, upon each of such persons or enterprises
which are parties to such agreements or abuse: Provided that in case any agreement referred to in
section 3 has been entered into by any cartel, the Commission shall impose upon each producer,
seller, distributor, trader or service provider included in that cartel, a penalty equivalent to three
times of the amount of profits made out of such agreement by the cartel or ten per cent of the
average of the turnover of the cartel for the last preceding three financial years, whichever is
higher;
(c) award compensation to parties in accordance with the provisions contained in section 34;
(d) direct that the agreements shall stand modified to the extent and in the manner as may be specified
in the order by the Commission;
(e) direct the enterprises concerned to abide by such other orders as the Commission may pass and
comply with the directions, including payment of costs, if any;
(f) recommend to the Central Government for the division of an enterprise enjoying dominant
position;
(g) pass such other order as it may deem fit.

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evidence about other participants, etc. The evidences are obtained briskly, at low
expenses, if compared with other forms of investigation. 72 As a result of such
information, the competition agencies become capable of resolving the cases in shorter
period of time. The lenient measures that are extended to the parties include lower fines,
less restrictive orders, shorter sentences, etc.

2.4 AUTHORITY DEALING WITH CARTELS IN INDIA

2.4.1 AUTHORITY: COMPETITION COMMISSION OF INDIA

Antitrust/Competition laws in India are primarily captured in the Competition Act, 2002
(the Competition Act), with their enforcement and administration entrusted to the
Competition Commission of India (hereinafter referred as CCI).

The CCI is well equipped to investigate anti-competitive practices, and is aided by its
investigative arm, the director general (DG). The CCI’s powers of investigation extend to
the ability to summon and enforce the attendance of any person, examine him on oath,
receive evidence on affidavit and issue commissions for the examination of witnesses and
documents. Decisions of the CCI may be challenged before the three-member
Competition Appellate Tribunal (COMPAT). A further appeal from the decision of the
COMPAT may lie before the Supreme Court of India.

The CCI may initiate an inquiry in relation to an anti-competitive agreement, 73 including

cartels, of its own volition (suo moto), on receiving any information or on the basis of a
reference from the central or a state government or a statutory authority. Any person,
consumer or their associations can provide information that triggers such inquiries. If the
CCI finds a prima facie case, it directs the DG to carry out a detailed investigation. The
DG submits a report of its findings to which objections may be invited, and the CCI may

72
C. Koob and O. Antoine, Getting the Deal Through - Cartel Regulation, (Global Competition Review,
2006).
Available at: http://www.cci.gov.in/images/media/completed/cartel_report1_20080812115152.pdf (visited
on Apr. 4, 2015).
73
Investigations against abuse of dominance may also be initiated in a similar fashion.

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direct further investigation and conduct oral hearings. Finally, if the CCI finds that an
agreement is anti-competitive or there exists a cartel, it may impose penalties and pass
any other order it deems appropriate.

2.4.2 POWERS OF THE COMMISSION

According to Section 27 of the Competition Act, 2002,

“The Commission is empowered to inquire into any cartel, and to impose on

each member of the cartel, a penalty of up to 3 times of its profit for each year of
the continuance of such agreement or 10% of its turnover for each year of
continuance of such agreement, whichever is higher. In case an enterprise is a
‘company’, its directors/officials who are guilty are also liable to be proceeded
against.”

In addition, “the Commission has the power to pass inter alia any or all of the following
orders:

• direct the parties to a cartel agreement to discontinue and not to re-enter such
agreement;
• direct the enterprises concerned to modify the agreement.
• direct the enterprises concerned to abide by such other orders as the Commission
may pass and comply with the directions, including payment of costs, if any; and
• pass such other order or issue such directions as it may deem fit.”

2.4.3 FUNCTIONS

Section 46 of the Act empowers the Commission to grant leniency by levying a lesser
penalty on a member of the cartel who provides full, true and vital information regarding
the cartel. The scheme is designed to induce members to help in detection and
investigation of cartels.

This scheme is grounded on the premise that successful prosecution of cartels requires
evidence supplied by a member of the cartel. Similar leniency schemes have proved very

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helpful to competition authorities of foreign jurisdictions in successfully proceeding
against cartels.

The Commission has notified the Competition Commission of India (Lesser Penalty)
Regulations, 2009 laying the process, procedure and methodology for granting leniency
to the cartel members who break the ranks of the cartel and become helpful to the
Commission and instrumental in busting the alleged cartel.

2.4.4 JURISDICTION

Extra-Territorial Jurisdiction: Cartel, being an anti-competitive activity, whether taking

place outside India but having effect on Indian market falls within the ambit of the Act
and can be inquired into by the Commission. Thus, the Act has extra territorial reach
under section 32. Till 1980s, the concept of cartels had national dimension when most of
the jurisdictions did not open up their market. The secret pacts that were formed between
different companies used to be formed by domestic companies and the damage caused
used to be caused within the national borders. At that point of time, the idea of foreign
investors spending huge sums of money within the domestic market did not exist.

After globalization in the early 1990s, the foreign investors from different jurisdictions
had invested in India's different sectors like telecom, electricity, roadways, airways, they
have combined with many of the domestic companies, at sometimes merging with them,
while at other times acquiring them. Whenever the companies, which were involved with
mergers and acquisitions, having head offices in their own jurisdictions, did business in
India, the possibility of forming cartels has risen.

Their quantum of investment had been huge and the loss suffered by the economy had
been huge. Whenever these companies get involved in cartels, the Competition agency
required the adequate mechanism to detect them at the earliest and punish them.

The extra-territorial jurisdiction of the Competition Commission of India will be tested in

the years to come. In India, the MRTP Commission did not have extra-territorial
Jurisdiction. It had powers to give cease and desist orders. When such Powers were

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exercised against international companies, such companies questioned the extra-territorial
jurisdiction of MRTPC.

So the Competition Commission of India (CCI) was given the extra-territorial jurisdiction
by the Indian Competition Act, 2002, as amended by the Competition (Amendment) Act,
2007. The CCI has the power to investigate into any anti-competitive activity, abuse of
dominant position or anti-competitive combination taking place outside India, but having
potential effect within India. 74

Extra-territorial jurisdiction had been granted to CCI through the 'effects doctrine'. The
doctrine implies that even if an action or practice occurs outside the shores of India but
has an impact or effect on competition in relevant market in India, it can be brought
within the ambit of the Act, provided the effect is appreciably adverse on competition.

The doctrine had been used in other jurisdictions as well. In the Wood Pulp case, 75 the
European Court of Justice established the 'effects doctrine'. It was a case where wood
pulp producers, having their registered offices outside the EC, in different countries, but
not carrying on business within the EC entered into price fixing agreements among
themselves covering supplies to be made to purchasers within the EC. Some of the
applicants raised submissions regarding the Community's jurisdiction to implement its
competition rules to them. Their contention was regulation of conduct restricting
competition adopted outside the territory of the Community 'merely by reason of the
economic repercussions. The European Court of Justice rejected this contention and held
that these supplies were to be held as to be in competition for the supply of wood pulp in
the Common Market and that the rules of the EC competition applied to their conduct
also and upheld the fines levied on some of the applicants.

In that respect India is not the only jurisdiction which had adopted the 'effects doctrine'.
The application of the doctrine in the American and European jurisdiction had been
examined before adopting it in the Indian Competition Act, 2002, as amended by the

74
Supra note 65.
75
Supra note 66.

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Competition (Amendment) Act, 2007.

2.4.5 COMPOSITION

2.4.6 INTERIM ORDERS

Section 33 of the Act states: “during the pendency of an inquiry the Commission may
temporarily restrain any party from continuing with the alleged contravention, until
conclusion of the inquiry or until further orders, without giving notice to such party,
where it deems necessary.”

2.4.7 APPEALS

The Competition Appellate Tribunal (COMPAT) is established under section 53A of the
Act, to hear and dispose of appeals against any direction issued or decision made or order
passed by the Commission under specified sections of the Act. An appeal can be filed

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against the order of CCI within 60 days of receipt of the order/ direction/ decision of the
Commission to the Appellate Tribunal under section 53 B of the Act.

Any party/person aggrieved by the order of the Appellate Tribunal can prefer an appeal to
the Supreme Court of India within 60 days of receipt of the order/ direction/ decision
under section 53 T of the Act.

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