CCI: Covid-19 And Competition Law Concerns
The outbreak of the Covid -19 pandemic has disrupted business globally including, in some cases, the disrupters themselves. As companies around the world prepare to respond to the effects of this pandemic on their businesses, they must become aware of the challenges and opportunities that competition law presents.
Businesses that are expecting significant losses due to reduced revenue may look at cooperation with their competitors as the one way of overcoming these tough times. On the other hand, companies selling essential/scarce products such as medical supplies, may attempt to capitalise on this situation by increasing prices or bundling non-essential products with the essential ones. Whilst coordination between competitors (either by way of collaboration or through concerted practices) or imposition of unfair and/or discriminatory prices or conditions may seem to be an obvious and efficient way to respond to or benefit from the current challenges, companies need to be mindful of the fact that the provisions of the Competition Act, 2002 continue to apply even during the tough times, perhaps even more so.
In light of the behavioural tactics that companies may adopt to overcome the negative impact on their businesses, which could have an adverse effect on competitive conditions in the market for the supply chain and resultantly, on the end consumers, the role of competition regulators has become even more critical.
In fact, competition regulators of several jurisdictions such as European Union, the United Kingdom, the United States, Spain, France and South Africa have already announced that they are keeping a close eye on the behaviour of companies during these challenging times so as to maintain competition in the market and protect the interests of consumers. At home, it is expected that the Competition Commission of India would also follow this lead once it has prepared itself to deal with the immediate fallout of suspended operations.
CCI Suspends Filings Until March 31
In an effort to prevent spread of Covid-19 and considering the resource constraints being faced amid a complete lockdown of all establishments/offices (except government offices involved in essential functions such as defence, police and basic utilities) across India, the CCI has announced that it would not accept any filings/submissions until March 31, 2020 including:
(a) any fresh merger filing (including ‘green channel’ filings) and/or submissions in respect of any existing filing that is in the process of being reviewed;
(b) any pre-filing consultation request;
(c) any fresh complaint in respect of anti-competitive (such as cartel and bid rigging) and/or abusive practices; and
(d) any filings/submissions in respect of existing antitrust proceedings.
Even the investigative wing of the CCI i.e., the Office of the Director General, would not accept any filings/submissions in respect of ongoing investigations until March 31, 2020.
In view of the complete lockdown for 21 days announced by the Prime Minister on March 24, now extended till May 3, it appears that the above suspension may be also extended unless the CCI finds a way to dispose some of its more urgent obligations electronically.
Anti-competitive practices such as cartels, bid rigging and abusive conduct of dominant companies continue to amount to violations of the Competition Act. The Indian merger control regime also continues to be mandatory and transactions which trigger a notification with the CCI cannot be consummated without obtaining the CCI’s approval.
In addition to the above, the oral hearings in respect of any competition matter have also been adjourned by the CCI to a date that would be notified subsequently.
Impact On The Merger Control Regime
The temporary suspension of the CCI’s functioning coupled with the inability of its staff to keep business going in the short term have impacted closing of those transactions for which merger clearances were pending. This would especially be detrimental for transactions where parties are looking to close the transaction before the end of the Indian financial year (i.e. March 31).
It is likely that until the CCI becomes at least partly functional, it would keep the clock for the so-called ‘Phase I’ approval timeline (30 working days) frozen. Whilst the government has issued guidelines for working from home to be followed by its officers, we anticipate that this will take some time to play out for the CCI officers, and when it happens, we think that the first priority will likely be combinations.
As regards making new filings, if the situation persists for long, hopefully the CCI would take a cue from its counterparts in other jurisdictions (U.S. and China) and temporarily shift towards only e-filings for mergers.
The CCI already has the facility of e-filing in place for merger filings, however, given that an e-filing had to be followed by a physical set of the filing, it could never become popular amongst stakeholders.
All the CCI needs to do now is to streamline its existing e-filing system and do away with the requirement of submitting a physical set of the filing for the time being. If this works, the CCI could think of continuing with the online merger filing system in the future and possibly even extend this facility for antitrust filings. The CCI will of course need to work on the back-end access to the case teams of these e-filings from remote locations while protecting confidentiality and this may take some time.
Collaboration Between Competitors
In order to fight the negative impact on businesses, there could be legitimate reasons for which competitors may have to collaborate in respect of production, distribution and service network to facilitate uninterrupted production and distribution of essential commodities, medicines, medical supplies/equipment, etc.
However, it is important to note that any form of cooperation or collaboration amongst competitors (except efficiency enhancing joint ventures) continues to be an anti-competitive agreement under the Competition Act unless such collaborations are specifically exempted by the central government on the grounds of public interest (Section 54(a) of the Competition Act).
Looking at the need of the hour, in order to ensure continued supply of necessary commodities, the U.K. government has temporarily relaxed competition laws to enable supermarket retailers to collaborate (i.e., by sharing data with each other on stock levels, pooling staff, cooperating to keep shops open, sharing distribution depots and delivery vans, etc.) for the purposes of meeting the rise in food demand.
Following the U.K., the competition regulators of 27 countries in the EU and the EU Competition Commission have also temporarily allowed suppliers to coordinate distribution of scarce products to cope with the Covid -19 outbreak without apprehensions of breaching cartel rules.
The Federal Trade Commission and the U.S. Department of Justice Antitrust Division have also issued guidelines detailing an expedited antitrust procedure and providing guidance for collaborations of businesses working to protect the health and safety of American citizens.
In India, the press has already started reporting widespread supply chain disruptions in both online as well as offline retail channels due to the lockdown and general public is already facing difficulty in procuring their daily necessities.
Whilst the Indian Government has not exempted the application of competition law so far, it remains to be seen whether the government would take a cue from other jurisdictions/competition regulators and suspend the application of Competition Act for a temporary period (similar to the indication it has given in respect of the possibility of suspending the application insolvency and bankruptcy provisions).
This would enable companies to collaborate with their competitors for the purpose of meeting the demand of essential commodities, medicines, medical supplies/equipment, research and development activities to develop vaccines for Covid-19, etc. during these challenging times without any apprehension of breaching the Competition Act.
It is possible that the businesses which are witnessing a spike in their demand may seek to benefit from the Covid-19 crisis by either
(a) forming a cartel and indulging in practices such as price fixing, allocation of customers, limiting or controlling the supply of products etc., or
(b) abusing their dominant position by over-charging or by refusing to deal with any person in respect of essential commodities. These practices are prohibited under the Competition Act and may not be justified even during the times of pandemic.
Notably, competition authorities of several countries have taken a note of price hikes in respect of face masks, medical supplies and other goods that are in high demand and have warned retailers against price gouging. For instance, the Italian competition authority last month began an investigation into rocketing online prices for hygienic masks and sanitizing gels following Covid-19 outbreak, the South African Competition authority is currently investigating 11 firms that sell sanitisers, face masks and gloves who were suspected of hiking prices.
In India, one must also appreciate the vast powers of the state to cap maximum prices for goods and services – considering that the Ministry of Consumer Affairs, Food and Public Distribution has already declared masks and hand sanitisers to be `essential commodities’ and have fixed the maximum retail prices of these items, it would be interesting to see whether the CCI also takes cognizance of any anti-competitive/abuse practice including any unfair price gouging activities in India and keeps the market players in check. The maximum retail price protects the ultimate consumer and the question still remains whether the business-to-business functioning of companies leave little for the supply chain to gripe about.
Before collaborating with competitors (even to meet public health objectives), it is advisable to take appropriate legal advice and check the competition law position, including your competition compliance programme.
Competitors should not exchange (directly and/or indirectly) any ‘competitively sensitive information’, use any common platform to set prices, restrict output of essential facilities/commodities, allocate customers/divide markets or coordinate on commercial strategy. An irresponsible and ill-informed action during this crisis could result in an investigation by the CCI sooner or later.
At risk of stating the obvious, a negative outcome would not only be financially draining but also impact the company’s reputation more severely than usual.
This article was authored by partners Avaantika Kakkar and Vijay Pratap Singh Chauhan, and Ruchi Verma an associate, in the Mumbai office of Cyril Amarchand Mangaldas.
The views expressed here are those of the authors, and do not necessarily represent the views of BloombergQuint or its editorial team.