The COVID-19 outbreak has disrupted businesses globally and companies around the world are reeling under the effects of this pandemic. India has imposed an unprecedented nationwide lockdown resulting in major disruption in economic activity.
It is estimated that enterprises across sectors would be impacted by this pandemic and are likely to incur significant revenue losses. The pandemic has also resulted in panic buying by customers of essential products including masks, sanitisers, ventilators, etc. leading to a shortage of some of the essential products.
The crisis has also raised concerns over anti-competitive practices such as price gouging. Companies are facing various difficulties due to the COVID-19 crisis and these unprecedented challenges may lead to companies resorting to some form of cooperation that may not be permissible under the Competition Act, 2002 (Competition Act). This may pose challenges for enterprises which are involved in helping the Government overcome the impact of COVID-19 by ensuring supplies of essential commodities, medicines and testing equipment to the end users. For instance, some pharmaceuticals companies are coming together to help each other to ensure a smooth supply of medicines and medical equipment. While these efforts of enterprises are much needed in these times, they may have implications under the Competition Act.
The Competition Act prohibits enterprises from entering into agreements in respect of production, supply, distribution or storage which causes or is likely to cause an appreciable adverse effect on competition in India (AAEC).
Section 3(3) of the Competition Act presumes certain agreements between enterprises to have an AAEC. The expression 'agreement' is all encompassing and can be formal or informal, written or unwritten. The agreements which are presumed to have an AAEC are the ones which: (a) directly or indirectly determines purchase or sale price; (b) limits or controls production, supply, provision of service, etc.; (c) allocate amongst themselves geographical area of markets, or type of goods or services, or customers or any other similar way; or (d) engage in bid rigging or collusive bidding. The presumption does not apply to a joint venture formed to increase efficiencies in production, supply, distribution, storage, etc.
Section 3(4) of the Competition Act deals with agreements between enterprises engaged at different stages of the production chain, such as suppliers, distributors, retailers, etc. These agreements are not subject to the presumption and are considered anti-competitive only if they cause an AAEC. Similarly, Section 4(2) of the Competition Act restricts dominant enterprises' imposition of unfair or discriminatory pricing, which includes price gouging practices.
The regulator, i.e., the Competition Commission of India (CCI), has the power to inquire into the above practices under Section 19 of the Competition Act. If an enterprise is found to have violated the Competition Act, the regulator has the power to direct modification of agreements, division of the dominant enterprise, discontinuation of anti-competitive practices and/or levy of financial penalty along with costs.
Several jurisdictions such as the United States, the European Union and the United Kingdom recognising that the anti-trust laws may impede necessary cooperation between businesses have taken pro-active steps and issued guidelines and directions.
The regulators seem to be concerned about the potential advantages taken during these unprecedented times for the supply of essential products. The trend seems to be to allow coordinated conduct which increases efficiency so long as such coordination is undertaken to address concerns arising from COVID-19. The guidelines and directions issued by regulators under these jurisdictions seem to suggest that unless there are opportunistic tendencies to take advantage of the current crisis, the regulators may not challenge collaborative activities undertaken by businesses in response to the pandemic.
The Indian Approach
The CCI has issued an advisory acknowledging the disruption in supply chains caused by COVID-19 and recognises that businesses may need to coordinate certain activities to deal with the adverse effects of COVID-19 and ensure fair and continuous distribution of products.
The CCI advisory mentions that the Competition Act has in-built safeguards to protect businesses from sanctions i.e., coordinated arrangements which result in increase in efficiencies. It mentions that Section 19(3) of the Competition Act enables the CCI to have due regard, amongst others, to the accrual of benefits to consumers, improvement in production or distribution of goods or provision of services and promotion of technical, scientific and economic development by means of production or distribution of goods or provision of services.
The CCI has in its advisory also cautioned companies to not take advantage of COVID-19 crisis and indicated that only such coordinated conduct of businesses which is necessary and proportionate to address the COVID-19 crisis would be considered. In other words, the CCI has cautioned against opportunistic collaborations by enterprises seeking to take advantage of the crisis as against collaborating to overcome the effects of the crisis in the larger public interest.
The advisory is a welcome move by the CCI and would help boost cooperation between companies to overcome the effects of the crisis. The advisory does not create any new exemption to allow any collaborative activities which are anti-competitive. It only seeks to reassure businesses that the Competition Act already has sufficient safeguards to protect businesses from any scrutiny and potential penalties so long as such collaborative actions are necessary to overcome the challenges triggered by COVID-19. However, companies would need to be mindful that the CCI has not allowed any potential collusion which causes harm to the customers and any such anti-competitive behaviour may attract scrutiny from the CCI.
Originally published in Business World 10 June 2020
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.