THE “HEAVY HAND” OF THE CCI: ANALYZING THE RECENT IMPOSITION OF FINE ON THE BEER CARTEL
This Editorial Column is authored by Talin Bhardwaj (Senior Editor at RFMLR) and Raghav Sehgal (Copy Editor at RFMLR).
In recent times, the increasing presence of many multinational companies working in multifarious sectors, has led to a significant rise in instances of abuse of dominance and anti-competitive practices in India. In this context, the Competition Commission of India (“CCI”), the chief national competition regulator in India has been designated with the responsibility of curbing these anti-competitive practices and ensuring that markets are functioning in a manner that is conducive to the interests of the consumers. In order to ensure the objective of curbing anti-competitive conduct, the CCI scrutinizes various activities of companies such as inter alia market combinations, bid rigging, and cartelization, by imposing fines/penalties to deter the companies from engaging in such activities.
Recently, the CCI imposed a hefty penalty of Rs. 873 Crore on Carlsberg, UBL, All India Brewers' Association ("AIBA"),and eleven individuals for cartelization in the sale and supply of beer. This has been regarded as a landmark move by the CCI as it imposed the record penalty against activities pertaining to cartelisation. Cartels are essentially agreements between sellers or between suppliers in a supply chain to not compete but instead collude to the detriment of their customers. In the present case, the association/companies were found to be engaged in a cartel leading to the imposition of a hefty penalty. This article shall provide a brief insight into the background of the case, the CCI’s decision and the impact that this decision is likely to have on the enforcement against activities of cartelisation.
2. AN INSIGHT INTO BACKGROUND OF THE CASE
The present order of CCI comes nearly four years pursuant to the detailed probe that was ordered by the CCI regarding these anti-competitive practices. On October 31, 2017, the CCI passed an order whereby, it opined that the conduct of the above-mentioned associations/companies and individuals prima facie appears to be in contravention of the provisions of Section 3(1) read with Section 3(3)(a) of the Competition Act, 2002 concerning penalization and prohibition of anti-competitive agreements. Consequently, the Commission directed the Director General (“DG”) to cause an investigation into the matter.
The DG noted that the sale of the liquor does not fall within the ambit of the Goods and Services Tax (GST) and as such, each State/Union Territory in India has its unique method of regulating the sale of liquor within its territory, leading to many differences, including differences in pricing regulations, approvals, imposition of taxes, excise duties and terms of licensing. Based on the investigation's findings, the DG observed that the parties exchanged critical information regarding pricing and other confidential and business-sensitive information amongst themselves. These companies subsequently approached state governments jointly through the AIBA in order to obtain price adjustments to agreed-upon levels in order to prevent any form of price wars amongst themselves.
3. FINDINGS AND DECISIONS OF THE CCI
In its official release based on the findings of the DG during search and seizures conducted as part of the investigation, the CCI stated that these leading companies have been found to be indulging in cartelization in the sale and supply of beer in various States, and Union Territories in India, through the platform of AIBA. The CCI has also found that the companies engaged in price co-ordination in Andhra Pradesh, Karnataka, Maharashtra, Odisha, Rajasthan, West Bengal, Delhi, and Puducherry, and restricted the supply of beer in Maharashtra, Odisha, and West Bengal. The CCI also discovered that key managerial personnel emailed competitors about any increase in the prices that they planned to submit to state authorities in several states. Further, there was coordination between UBL and Anheuser Busch InBev India (AB InBev)about the acquisition of second-hand bottles. Based on these findings, the CCI held four individuals from UBL, four individuals from AB InBev, six individuals from Carlsberg, and the Director-General of AIBA responsible for their respective companies' anti-competitive behaviour, contravening the provisions of Section 3(3)(a) read with Section 3(1) of the Act and hence fines were imposed. The fines on UBL and Carlsberg India are approximately Rs. 752 crore and Rs. 121 crore, respectively. A fine of over Rs. 6.25 lakh was imposed on AIBA and various other individuals were also fined.
Cartels are dealt with seriously by competition regulators around the world. The European Commission (“EC”) has strict regulations for the imposition of fine, which are calculated in proportion to the duration of the cartelisation, and considering the advantage that the companies have gained through the sale of the products in that duration. With increased collaborations amongst companies, it is not uncommon now to find cartels involving operating across national boundaries. There is a consensus on the need to formulate and implement severe anti-cartel enforcement policy, with quantifiable penalties, similar to the model of the EC. In the present case, the firms were engaged in price coordination, restriction of the supply of beer, and coordination regarding the supply of beer to premium institutions in several Indian states contravening the provisions of competition law. The above-mentioned imposition of fine is an instance of the CCI taking a step in the right direction towards deterring cartelisation amongst companies. Therefore, there is a need to act in furtherance of this decision and continue building the regulatory frameworks regarding an anti-cartel policy for abolishing and preventing these anti-competitive practices. This shall not only ensure consumer welfare but also a level playing field for Indian businesses and industrialists.