Setting The Competition Law In Right Place: In The Light Of Compat™s Order In Explosive Manufacturers Case

The Competition Appellate Tribunal (the COMPAT) passed a final order on 18^th  April 2013, dismissing the appeals filed by various explosives manufacturers against the Competition Commission of India‘s (CCI) order dated 16 April 2012, unanimously finding them guilty of a contravention of section 3 of the Competition Act, 2002 (the Competition Act).[1]

The CCI had found ten explosives manufacturers guilty of a collective boycott of the electronic reverse auction for procurement of explosives conducted by Coal India Limited (CIL), in violation of Section 3(3)(d) of the Competition Act. Pursuant to information filed by CIL, the CCI had conducted a detailed investigation, following which it passed an order imposing a total fine of approximately Rs 60 crores on the ten explosives manufacturers. In its order today, the COMPAT dismissed the appeals upholding the violation of the Competition Act, but considering various mitigating factors, reduced the fine payable to 10% of the fine imposed by the CCI. The explosives manufacturers included Gulf Oil Corporation, Ideal Industrial Explosives, Solar Industries India, Blastec India, Indian Explosives, Emul Tek, Regenesis Industries & Techno Blasts India, Black Diamond Explosives, and Keltech Energies.

Besides setting the standard for the risks associated with bid rigging, which could include a single instance of boycott, and generally warning competitors against collusion, this Order of the Appellate Tribunal is important for more reasons.

Firstly, the Order undoubtedly puts the onus for agitating one™s rights to a fair hearing on the defendants. Parties to an inquiry before the Commission are obliged to be alert to, and agitate, any breach of the principles of natural justice before they raise such a claim in appeals before the Appellate Tribunal. This does not mean that the principles of natural justice would be discounted. The Appellate Tribunal upholds the infallibility of the principles of natural justice but subject to the condition that defendants ought to have agitated their concerns before the Commission and the tribunal has relied upon precedents of the Apex Court in this regard for tempering these principles.

Secondly, the Order sets the standard for the nature of evidence that the Commission would rely on when assessing the existence of an anti-competitive horizontal agreement. In this particular case, the universal boycott of the auction by all the explosives suppliers who had logged into the system and a few letters by some of these suppliers that were identical, were enough for the Appellate Tribunal to uphold the finding by the Commission that this single circumstance was indeed an instance of bid rigging and a violation of law. The Appellate Tribunal, repeatedly rejects the many justifications offered by the respondents in this case as after thoughts or by simply refusing to accept the universal boycott as a mere coincidence.

Thirdly, the Order imposes on the Commission an obligation to not only explain, the reasons in support of the quantum of penalty but also to consider mitigating factors while imposing such penalty. The Appellate Tribunal reduced the quantum of penalty for mitigating factors including that the respondents were first time offenders, that the intention of the suppliers was only a postponement of the auction.

Fourthly, The Appellate Tribunal has rejected the argument that the Commission was required to proceed with a further enquiry into every case in which it disagreed with the Director General (the investigating arm of the Commission). The Appellate Tribunal makes it clear that the investigation report of the Director General is merely recommendatory in nature and that the Commission will make its order based on the responses and objections that it receives to this report from the various parties involved in the case.

Conclusion:

This Order from the Appellate Tribunal will be closely analyzed not only by the explosive suppliers and Coal India Limited, who are the parties directly affected, but also by every other person who may be involved in inquiries before the Director General (investigation stage), and the Commission (hearings on matters in respect of which the Director General has submitted a report). For the Commission, this Order is a major boost (notwithstanding the reduction in penalty) because it upholds the substantive ruling of contravention and because the Order clearly sets the bar for agitation of procedural irregularities that parties to early cases before the Commission will (quite obviously) rely heavily upon during appeals. Parties are free to agitate irregularities in due process but tied to this freedom is the duty of vigilance and parties will have to agitate their concerns the first time that they spot them. It is not going to be enough to ˜save this for appeals™.

It is noteworthy that this order has provided Procedural clarity in respect of the role of the Director General and the Commission. The Director General™s report is at best, a recommendation. This report is subject to scrutiny by the Commission when the Commission takes on its adjudicatory role. And the Orders of the Commission will be closely scrutinized by the Appellate Tribunal who has – in this case – given some very valuable guidance to the Commission on the determination of penalties and reasoned orders.

It will not suffice to announce a headline grabbing fine, unless the quantum is justified by a discussion on why all the mitigating factors that ought to have been considered have been rejected by the Commission in arriving at the quantum of penalty. The Commission is understood to be working on fining guidelines, which will lend guidance to members of the Commission as well as the parties before it but its orders will still be subject to scrutiny by the Appellate Tribunal.

Welcoming the COMPAT’s order, Mrs. Shroff, representing CIL  said The Hon’ble Tribunal’s and the CCI’s unanimous decisions vindicate Coal India’s position and their objective of ensuring fair competition in the market for procurement of explosives, which are a crucial raw material for producing coal. We hope that the Hon’ble Tribunal’s order is complied with.[2]

This order is a welcome step in the competition law enforcement or in the development of antitrust laws in India. There are so many appeals pending before the Competition Law Appellate Tribunal in respect of Commission™s order and this order brings a ray of hope towards an interesting development in the arena of Competition laws.

–Prarthna Baranwal, Student, Hidayatullah National Law University, Raipur