Our Recent Posts

Archive

Tags

No tags yet.

Buyers’ Cartels in India: An Antitrust Oversight?

[Saurabh is a student at National Law School of India University, Bangalore.]


The Competition (Amendment) Bill 2020 (Bill) expands the definition of ‘cartel’ in Section 2(i) of the Competition Act 2002 (Act) to include buyers’ cartels as well. The consequence is that Section 3 of the Act would now be able to scrutinize those agreements that help buyers cartelize. Both the US and the EU competition regimes recognize buyers’ cartels as illegal.[1] The Bill aims to emulate such prohibition in India, and has been hailed as a significant move by many. I argue that such a move is unnecessary because Section 3 of the Act can be understood to envisage buyers’ cartels already. To this end, I critique the reasoning in Pandrol Rahee Technologies v. Delhi Metro Rail Corporation Limited (Pandrol Rahee) and show that an exclusion of buyers’ cartels cannot be reconciled with the purpose of the Act.


Scope of Section 3 and Critique of Pandrol Rahee


A bare perusal of Section 3 suggests that buyers’ cartels can be covered under the law as it exists, since this section deals with anti-competitive agreements. Buyers’ cartels can fall under Section 3(1), which has been understood as a standalone provision by the Competition Commission of India (Commission / CCI). Section 3(1) qualifies the agreement as one being for inter alia ‘acquisition or control of goods’, this being an activity that a buyer can indulge in. Further, buyers’ cartels can also fall under Section 3(3), which specifically deals with situations where an appreciable adverse effect on competition (AAEC) is presumed to exist.


Section 3(3), in its chapeau, qualifies that parties to the agreement should be ‘engaged in identical or similar trade of goods or provision of services’. While there is nothing prima facie that excludes buyers’ cartels from under Section 3(3), especially given that Section 3(3)(a) talks about ‘purchase…prices’, the commission has interpreted otherwise. In Pandrol Rahee, CCI used the definition of ‘trade’ in Section 2(x) to exclude buyers’ cartels from Section 3(3) of the Act.


The definition of ‘trade’ under Section 2(x) has two requirements. First, it expands on the term trade by saying that it means ‘trade, business, industry, profession or occupation’. Buyers’ cartels fulfill the first requirement since they can be in the ‘trade or business’ of buying commodities. Trade as a concept simply means buying or selling of commodities. Hence, the first requirement seems to be fulfilled intuitively and was not argued upon in Pandrol Rahee.


The second requirement further qualifies the ‘trade, business…’ in terms of its function. Here, the definition omits the word ‘acquisition’, which is primarily the activity performed by a buyer involved in trade. The word ‘acquisition’ is included in the definition of ‘enterprise’ in Section 2(h) which uses similar terminology otherwise. The commission took note of this omission. It associated buyers with the word ‘acquisition’ and considered its omission from Section 2(x) to be of significance. It was thus held by the commission that buyers cannot carry out ‘trade’ under the Act and hence, Section 3(3) does not envisage an agreement between buyers.


However, this reasoning is flawed. Understanding ‘acquisition’ as being the only activity carried out by buyers is anomalous, especially since the definition of ‘consumer’ in Section 2(f) mentions ‘whether such purchase of goods is for resale or for any commercial purpose or for personal use’. By virtue of Section 2(f), buyers / consumers, other than end-users, may still be covered under the definition of ‘trade’ in Section 2(x) since they indulge in activities other than ‘acquisition’. Consequently, it seems as if the end user consumers are the only ones excluded. However, the word ‘control’ can be interpreted to include end users too. Buying goods is necessarily related to gaining / seeking to gain control over the goods. Since Section 2(x) says ‘relating to…control’, it can even be argued that Section 2(x) includes within its fold end-user consumers since they acquire control over the goods bought by them. However, such inclusion may be inconsequential since buyers’ cartels have always been identified in intermediate consumers.[2]


Admittedly, the court in Pandrol Rahee followed expressio unius est exclusio alterius. However, the phrase ‘engaged in identical or similar trade of goods or provision of services’ in the chapeau of Section 3(3) qualifies only the parties to the agreement, and not the object of the agreement itself. Once buyers are identified as being potential parties to an agreement under Section 3(3), the absence of ‘acquisition’ in the definition of ‘trade’ cannot have a bearing on the kind of agreement they enter into. If the opposing interpretation were to be accepted, ‘purchase prices’ in Section 3(3)(a) would become redundant since it can only correspond to buyers, given that ‘sale prices’ is separately mentioned. It is a well-accepted principle of statutory interpretation that a provision should be read in a way that no term is rendered redundant or superfluous.


The Commission in Pandrol Rahee further held that since all indicators in Section 19(3) envisage harm caused to competitors or consumers, consumers cannot cause competitive harm. In other words, consumers cannot cause AAEC, thus excluding them from under the ambit of Section 3(1). However, the Commission gave no reasoning for this observation. In fact, a buyers’ cartel distorts competition in the market, which may cause harm to competitors. A buyers’ cartel may lead to contracted supply caused by low prices paid to the upstream supplier, then causing an increase in prices for the final consumers. Thus, buyers’ cartels can even cause harm to consumers. This suggests that there is no merit to the Commission’s observation excluding buyers’ cartels from Section 3(1).


Hence, the reasoning in Pandrol Rahee should not lead to the exclusion of buyers’ cartels from the ambit of Section 3(1) as well as Section 3(3). Such an argument is also in line with the purpose of the Act as discussed below.


Purpose of the Act


The preamble of the Act mentions ‘to promote and sustain competition in markets’ as one of the goals. In Excel Crop Care Limited v. Competition Commission of India, the Supreme Court of India discussed the various goals of competition law and policy. While focusing on anti-competitive agreements, the court held that that the competition policy aims at protecting the competition process itself, which leads to enhancing economic efficiency, greater economic growth and consumer welfare. The importance of competition process is thus quite clear. While the Act does not define ‘competition’ or ‘competition process’, the idea seems to aim to maintain a level-playing field in markets which may in turn have positive macro-effects on the economy, in addition to enhancing consumer welfare.


Keeping this in mind, there is no reason to exclude a buyers’ cartel from the ambit of Section 3. As stated previously, a buyers’ cartel may stifle the competition process and may even lead to a supply contraction thus driving up prices for the consumers. Admittedly, this may not always be the case. However, given that there exists a potential scenario where buyers’ cartels may contradict the purpose of the Act, regulation is merited. Further, in case a buyers’ cartel does not have a negative impact on the competition process, simply bringing it under the ambit of Section 3 does not impair its existence or operation. Section 3(1) requires an AAEC analysis, while Section 3(3) envisages a rebuttable presumption of AAEC. Thus, if the buyers’ cartel does not impact competition negatively, its operation would not be hampered.


Conclusion


In light of the analysis above, it can be concluded that expansion of the term ‘cartel’ sought by the Bill may be unnecessary. In fact, even with the change that the Bill seeks to introduce, buyers’ cartels may still be excluded if the reasoning in Pandrol Rahee is not countered. This is because the Bill simply introduces buyers in the definition of cartel in Section 2(h), but the qualifier in Section 3(3) remains intact. Given that the definition of trade in Section 2(x) remains the same, it can be argued that the qualifier would still exclude buyers’ cartels. Therefore, the Bill fails to address the problem adequately.


Further, an important distinction here needs to be made between buyers’ cartels and buying groups. The Bill fails to acknowledge this crucial difference. The latter is a congregation of buyers to enhance bargaining power. It is used in order to get a favorable price from suppliers by mitigating the adverse effects of seller’s power in the market.[3] It is the former that needs regulation, and the difference between the two can seldom be made using a bright line. While it was not the aim of this article to delve into this distinction and the regulatory safeguards needed, it is nevertheless imperative to recognize this potential oversight in case the Bill was to come into effect.


[1]The US antitrust jurisprudence on buyer’s cartels is the oldest. US does not differential cartel activity of buyers from that of sellers, and believes that all cartel activity is a threat to the “central nervous system of the economy” as stated in See United States v. Socony-Vacuum Oil Co., 310 U.S. 150, 225 (1940). For the landmark case in the US, see United States v. Crescent Amusement Co., 323 U.S. 173 [1944]. For EU position as recent as 2019, see Recyclex and Others v. Commission, Case T- 222/17.

[2]A potential reason for this could be that the competition regime is more focused on consumer welfare, which could seldom be harmed if the end user is negotiating a good price, even though it may be by collusion.

[3]See Zhiqi Chen, Buyer Power: Economic Theory and Antitrust Policy, 22 Research in Law and Economics 17, 19–20 (2007).

©2018 by The Indian Review of Corporate and Commercial Laws. Proudly created with Wix.com