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THE CURIOUS CASE OF BUYERS CARTEL UNDER THE INDIAN COMPETITION LAW REGIME

Updated: Sep 21, 2020

[Yash Tayal is a 2nd Year BA.LLB. student at National Law Institute University, Bhopal]

Introduction

The Ministry of Corporate Affairs (“MCA”) has finally put before the public the much awaited amendment bill, Competition Amendment Bill, 2020 (“Bill”). The proposed bill is set to bring substantial sweeping changes in the Indian Corporate Law regime by amending the Competition Act, 2020 (“the Act”). The whole process started in October 2018, when the MCA set up an independent committee rightly called the Competition Law Review Committee (“CLRC”) to conduct a thorough review of the act in light of the changing business landscape in India and propose amendments to make it more comprehensive. The CLRC report suggested a lot of changes, which are aimed to make the system more robust and transparent and hence, entails with them a hope for a more efficient competition law regime.

Inter alia, the committee suggested an expansion of the definition of the term cartel, provided under section 2(c) of the act, to include the term ‘buyer’ into it. Prima facie, this implies that, now, there will be a presumption of appreciable adverse effect on competition (“AAEC”), not only in the case of seller’s cartel but also the buyer’s cartel. The goal of this post is to explicate, evaluate, and critique this proposed amendment. The author in the first half of this blog will try to conceptualize buyers’ cartel and ascertain if there is a need for including buyers’ cartel in such definition, and how difficult it would become for CCI to differentiate buyers’ group from buyers’ cartel for the purpose of penalizing the latter ones under the act. In the next half of the blog, the author will provide a comparative cross jurisdictional analysis of buyers’ cartel between Indian Competition law jurisprudence and US and EU’s competition law regime.

Buyers’ Cartel and the Indian Jurisprudence

Lately, various competition law scholars have realized and expressed concerns over the existence and potential exploitation of buyer’s power, as an emerging threat, capable of causing AAEC in the Indian markets. It has been almost two decades since the competition act came into force, and a bare reading of the text of section 2 (c) of the act, which defines cartels as, “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” exemplifies that framers of this act just had the ‘seller oriented’ approach. They could not anticipate the creation of any such oligopsonistic market in the future.

When we look at the cartels from the buyers’ point of the side, we observe that buyers’ cartels are more inclusive and focus on the input side of the market than output. They work with the twin objective of eliminating competition in the market in some form of their input purchases, so their prices can be reduced or otherwise, controlling supplier products. Some scholars also argue that buyers’ cartel work towards decreasing a commodity’s price and thus facilitating consumer welfare. However, this might not be the case when the objective of such a cartel is to push other competitors out of the market. Moreover, lower the profits for sellers means lower the incentive for more production, leading to a decline in total output. The aim of the competition act is not only to ensure consumer welfare but also a healthy and sustainable competition in the market.

The Indian position has been very whimsical and dicey regarding the inclusion of buyers’ cartel under the purview of section 2(c) of the act. Despite the fact that nowhere under the competition act, the term buyers’ cartel has been mentioned explicitly but still Competition Commission of India (CCI), in its previous judgments, has not totally excluded buyers’ cartel for the purpose of proving AAEC under section 3(3) of the act. Firstly, in the case of Pandrol Rahee Technologies Pvt Ltd. v. Delhi Metro Rail Corporation and Ors, buyers of the rail fastening system were alleged to have been involved in anti competitive trade practices. They were accused of adopting measures like awarding tender on a single proprietary basis, thereby foreclosing further competition. CCI envisaged in the case that definition of trade under section 2(x), which included “production, supply, distribution, storage or control of goods” and therefore, implying that ‘acquisition’ related to a consumer cannot be covered here. However, CCI also took cognizance that there could be a situation where monopoly buyer exercises the option in an anti competitive manner. In another judgment of re XYZ and Indian Oil Corporation and Ors, CCI held that “though the act covers buyers’ cartel within the purview of section 3(1) r/w section 3(3) of the act, treating buyers’ agreement/cartel at par with seller’s cartel may not be appropriate.” Now, after the incorporation of the term explicitly in the act will make it more comprehensive. However, one of the most significant issues before the CCI would be to differentiate between buyers’ groups from buyers’ cartels.

Understanding Buyers Group v. Buyers’ Cartel

In Indian jurisprudence of competition law, these concepts have not been distinguished, but yet there exists a very thin line difference between these two crucial concepts. The basic difference lies in the aim and motive of both; a buyer group works to avail the efficiencies of joint collaborations and enterprises. Unlike cartels, groups collude to gain possible profits, which may arise due to a large volume of purchase, such as reduced transportation cost or reduced per unit cost. To the flipside of it, buyers’ cartel works solely for the purpose of overpowering sellers and restrict healthy competition in the market by pushing other potential buyers out of the market. It becomes impossible at times to differentiate between the legitimate efforts to create a countervailing force and collusive tactics to exploit buyers’ power. We cannot categorically and objectively put down differences between them both; it can only be determined on a case to case analysis.

A Cross-Jurisdictional Analysis with reference to US and EU law

Section 3(3) of the Indian Competition Act provides a per se rule for penalizing the sellers’ cartels, i.e., an appreciable adverse effect on competition is presumed under this section unless rebutted by the respondent. The antitrust law in the US considers buyers’ cartel as anti competitive in nature. Section1 of the Sherman act explicitly declares agreements, which unreasonably restrict trade practices to be illegal and the US Supreme Court in the case of Mandeville Island Farms v. American Crystal Sugar entertained the possibility of buyers’ cartel in the said provision. The court has ruled the buyers’ cartel are per se illegal and makes the buying agreements subject to rule of reason; yet, these two are intricate to distinguish and depend on case-to-case basis. The per se rule presumes any such alleged agreement to be causing AAEC but the rule of reason dictates that the burden of proof is upon the informant to prove that the alleged buyers’ group is invariably causing AAEC in the market. The US antitrust law shows a great tolerance towards buyers’ groups, especially in certain enterprises such as farming and fishing cooperatives. There is an overarching presumption of legality regarding trade practices and conduct towards the supplier groups for most of the groups claiming to be buyers’ groups.

The European Commission, in the case of Raw tobacco Italy, strongly condemned buyers’ cartel as against healthy trade practices and being detrimental to consumer welfare. The treaty on the functioning of the European Union, under Article 101(1)(a) explicitly prohibits and restricts agreements that “directly or indirectly fix purchase or selling prices.” The European court of justice in the case of BNIC v. Clair has iterated that if the object of an agreement is to “restrict or distort the competition”, then it becomes irrelevant for the court to look into the merits or the actual effects of such agreement to set a minimum purchase price.

The competition (Amendment) Bill, 2020, proposes to make buyers’ cartel a per se offence under section 3(3) of the act. The US and EU competition law regimes have also moved on to hold buyers’ cartel liable for abusing a dominant position in the market; but under the Indian regime, section 4, which provides for abuse of dominant position is open for wide interpretation and courts may accommodate a buyers’ cartel as ‘ dominant group’ and therefore, account them liable for abuse of such position.

Conclusion

It needs to be understood that in the present competition law regime, both the sellers and the buyers’ cartel have equal opportunity and ability to dominate the market and restrict or distort the competition. The transition of the civil transactions from the doctrine of caveat emptor to caveat venditor has put the buyers at a driving seat, making them capable of achieving the minimum purchase price even below the competitive market equilibrium. Today, international consensus is in favor of treating buyers’ cartel at par with sellers’ cartel, but CCI’s reluctance towards this inclusive definition of Cartel is a reflection of protectionist approach, which has been adopted by Indian Courts while rendering any judgment involving the interest of the consumers. The courts still hold on to the view that consumer choice is sacrosanct and forget that the aim of competition law should not only be to maintain consumer welfare but also a healthy competition environment for sellers. But this doesn’t mean that courts adopt a very strict approach and start impleading buyer for every consolidation in the market as it may penalize consumer choice and poses a risk for legitimate buyers’ group, which actually work with the motive of consumer welfare. This proposed amendment definitely attunes the law to the present realities of the competitive market and aligns it with the vision with which the new amended competition act came into existence.


The views and opinions expressed in this article are those of the authors alone and do not

necessarily reflect the views of RICLP.

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