CCI introduces Leniency “Plus” regime in India- Will it suffice?
A recent order passed by the fair market regulator, the Competition Commission of India (“Commission/CCI”) in the context of peculiar facts of the case has put me to thinking on the absence of an effective mechanism for enforcement of the ‘cease-and-desist” orders against a rogue trade union which refuses to respond to its notices!!
By way of an order dated 07.02.2022 Competition Commission of India (“Commission/CCI”) found Dumper Truck Union Sanu Mines area of Jaisalmer, Rajasthan guilty of violating the provisions of Section 3(3)(a) and 3(3)(b) of Competition Act, 2002 (“Act”) but could pass only a cease and desist order as the key office bearer of the Union refused to respond to the notice issued by CCI asking for its turnover or assets . Therefore, the Commission had no choice left except to defer the imposition of penalty to a future date?! This is quite strange and unprecedented.
Background
On 20.10.2018, CJ Darcl Logistics Ltd. (“CJD Logistics/Informant”) participated in the tender floated by JSW Energy (Barmer) Limited (“JSW”) for the transportation of limestone from Sanu Mines, Jaisalmer, to the plant site of JSW at Bhadresh. On 16.03.2019, CJD Logistics was awarded the transportation contract by JSW @ Rs.460/MT.
On 05.04.2019, CJD Logistics was allegedly restrained at the parking lot of Sanu mines by the Dumper Truck Union and its office bearers (“Opposite Parties”) from initiating and executing the contract. The Chairman of the Dumper Truck Union (“Union”) , one Mr. Kunwar Raj Singh and other members of Union not only, did not allow any other transporter or logistics company to ply their vehicles, but also made it mandatory to take vehicles along with drivers from the Union and its members only, and that too, on a higher rate vis-à-vis the contracted rate. @ Rs. 500/MT, which was higher than the rate at which the contract was awarded to CJD Logistics by JSW.
CJD Logistics filed police complaint and also wrote to District Magistrate/Collector of Jaisalmer and Rajasthan State Mines and Minerals Limited, all of which remained unheard. With no response from any of the government authorities CJD was forced to file a writ petition in Rajasthan High Court.
Rajasthan High Court vide its order dated 11.04.2019 directed Superintendent of Police, Jaisalmer, to decide the representation of CJD Logistics strictly and to ensure that the transportation fleet of CJD Logistics was not harmed by the Opposite Parties and there was no hindrance in execution of the transportation work by CJD Logistics.
After passing of the said order, CJD Logistics moved 5 vehicles from Jodhpur to Jaisalmer on the same day, but the same were stopped 5 kms from the loading point by around 6 people belonging to the Union. Vehicles belonging to CJD Logistics coming from Haryana were also stopped, and its drivers were threatened with life if they moved their vehicles any further. Thus, the Union openly flouted the High Court order.
On 12.04.2019, a complaint was again lodged by CJD Logistics with the Superintendent of Police, Jaisalmer, for complying with the directions of the Hon’ble High Court of Rajasthan. However, according to the company, no action was taken by the authorities.
On 15.04.2019, CJD Logistics addressed an email to JSW informing about the difficulties encountered by it on account of obstructions caused by the Union. It also requested JSW to recognize that force majeure conditions existed. On 20.04.2019, JSW wrote to CJD Logistics stating that non-fulfilment of the conditions of the contract would be a breach of terms and conditions on account of CJD Logistics only and CJD Logistics will bear the risks and costs. On 23.04.2019, CJD Logistics again sent an email to JSW, wherein CJD Logistics discussed the hindrances created by the Opposite Parties and the illegal demands made by them.
As no favorable response was received by CJD Logistics from JSW, and to avoid termination of contract with JSW and with no option left with CJD, it was forced to enter into an interim arrangement dated 24.04.2019 with the Opposite Parties for allowing it to provide its transportation services for JSW at the rate of Rs. 500/MT, which was higher than the rate in the tender awarded to it by JSW, i.e., Rs. 460/MT and incurred a loss of approximately Rs. 53,00,000/- till the closure of contract.
In the months of June and July 2019, CJD Logistics wrote several emails to JSW for revision of rates considering the forced interim arrangement with the Union on account of the losses incurred by it. On 20.07.2019, JSW, vide its email, short closed the contract with CJD Logistics and set 31.07.2019 as the last day for lifting of material by it.
Information before CCI
Consequently, CJ Darcl Logistics filed an information before the CCIagainst the Union (“OP-1”) and All Members of the Union (“OP-2”) alleging that:
- Dumper Truck Union and its members restricted CJD Logistics by not letting it carry out transportation work through its own vehicles and by forcing it to use trucks of OP-2 at a higher rate for carrying out its contractual obligations of transportation of limestone.
- Opposite Parties not only did not allow any other transporter or logistics company to ply their vehicles, but also made it mandatory to take vehicles along with drivers from the Dumper Truck Union and its members only, and that too, on a higher rate vis-à-vis the contracted rate.
Prima facie opinion
CCI vide its order dated 08.05.2020 formed its prima facie opinion that there existed a prima-facie case of contravention of the provisions of Sections 3 and 4 of the Act by the Opposite Parties and accordingly directed the Director General (“DG”) to cause an investigation into the matter and also to identify the role of the individuals /office bearers of the Union responsible for the anti-competitive conduct.
DG investigation
DG in its investigation report dated 29.7.2021 found as under:
- The interim arrangement dated 24.04.2019 made between CJD Logistics and the Union on behalf of its members is, per se, anti-competitive.
- By deciding the rate of Rs.500/MT, the Union had directly or indirectly determined the purchase price for providing their services.
- By not allowing CJD Logistics to carry the transportation of limestone through company vehicles and forcing CJD Logistics to use the trucks of their union at the rates arbitrarily fixed by them, which was much higher, the Opposite Parties have limited or controlled the provision of services.
Based on the above findings DG concluded that agreement/understanding between the members of the Union to limit/control the provision of transportation services and to fix the transportation rate and not follow the commercially viable rate arrived at by an open tendering process, has violated the provisions of Section 3(3)(a) and Section 3(3)(b) of the Act.
On the issue of alleged abuse of dominance by the Union , DG noted that to prove the charge of abuse of dominance against the Union , it was first required to prove that the Union was an “Enterprise “ under Section 2(h) of the Competition Act, 2002 ( the Act) and noted that the only case in which a trade association was held to be an Enterprise was the case of Shivam Enterprise Vs Kiratpur Sahib Truck Operators Co-operative Transport Society & Its members[1] ( Shivam Enterprise case) . DG noted that CCI in its earlier order dated 04.02.205 in re ShivamEnterprise case , laid down the following criteria for a trade association/society to be declared as an enterprise :
- The society takes the contracts in its own name and gets them executed through its members.
- The customer makes payment for the services to the society.
- The society passes the payment to the concerned member after retaining a commission/its own administrative charges of Rs.50/- for each trip taken by truck operator/member of society; and\
- The customer has no choice or control over the various members of the union.
Based on the above criteria, and the facts of the present case, DG noted that there is no conclusive evidence to prove that the Union qualified as an “enterprise” under the Act. However, regardless to this, considering the unique facts of the case , DG assumed that the Union was an enterprise and investigated further and delineated the relevant market as market for “provision of services of transportation of minerals/limestone by trucks operating in area of Sanu mines” and held that on account of its hold over the said market and the fact that both the consumers ( e.g. JSW) and the suppliers ( e.g. CJD Logistics ) were wholly dependent upon the Union , the Union was found to exercise enough market power and was found to be dominant within the said relevant market.
Further DG held that on account of the following conducts of the Union:
- imposed unfair conditions on CJD Logistics to hire the trucks of members of Union only and not allowing CJD Logistics to ply its own vehicles
- dictated its transportation rates.
- restraining the CJD Logistics, use of physical force and imposition of higher rates shows that the Opposite Parties have done these acts unflinchingly even though CJD Logistics approached various state authorities.
Based on the above facts, DG concluded that the Union abused its dominant position in the relevant market in terms of the provisions of Section 4(2)(a), Section 4(2)(b)(i) and Section 4(2)(c) read with Section 4(l) of the Act if it would have been termed to be an ‘enterprise’.
The DG also identified Mr. Kunwar Raj Singh (the former Chairman of the Union) as personally responsible for contravention committed by the Union.
CCI Findings
The Commission agreed with the DG regarding directly or indirectly determining the sale price and/or limiting or controlling provision of services and held that that there is an understanding between members of the Union to limit/control the provision of transportation services and to fix the transportation rate at a rate higher than that determined through open tendering process, which is in violation of the provisions of Section 3(3)(a), i.e. ,directly or indirectly determining purchase/sale prices and Section 3(3)(b), i.e., limiting or controlling the provision of services.
Further CCI held that the trucks of the members of the Union were being used charged a uniform price rather than offering competition to each other. The prices that were charged were not independently arrived at, but in concert under the aegis of the said Union. The Commission was, thus, of the view that the Union has contravened Section 3(1) read with Sections 3(3)(a) and Section 3(3)(b) of the Act. Ironically, the Union did not bother to refute or defend its anti-competitive conduct in any manner either by offering their stance before the DG or even before the Commission, despite several opportunities being given.
On the issue of abuse of dominance , CCI held that DG has not given any categoric finding as to whether Union was involved in any economic activity by providing its trucks and drivers for transportation of goods and was collecting considerations received for provision of such services. Therefore, CCI did not determine whether Dumper Truck Union is an “enterprise” under provisions of Section 2(h) of the Act and left the question open. Consequently, no case was made out against the Union for abuse of dominance under Section 4 of the Act.
CCI also agreed with the finding of the DG regarding the individual responsibility for the contravention and held that despite the opportunity, Mr. Kunwar Raj Singh, failed to appear either in the investigation or the inquiry, and his conduct remains unrefuted in any manner.
Accordingly, CCI, in terms of Section 27(a) of the Act, directed the Dumper Truck Union and Mr. Kunwar Raj Singh, its former chairman, who was held liable in terms of the provisions of Section 48 of the Act, to cease and desist in the future from indulging in practices which have been found in the present order to be in contravention of the provisions of Section 3 of the Act.
On the issue of penalty, since neither the Union nor Mr. Kunwar Raj Singh had submitted their financial details as directed by CCI, it was held that a separate order regarding the imposition of monetary penalty may be appropriately passed.
COMMENT: The peculiar facts of this case, on one hand , illustrate the almost absence of “rule of law” in the State of Rajasthan with even the senior police officers failing to implement the orders passed by the Rajasthan High Court to allow a legitimate business transaction , it also demonstrates the lack of awareness about the powers of CCI , on the other hand in the hinterland of India, which must have been noticed by the Commission .
As stated in the beginning , the peculiar facts of the case, particularly, the brazen manner in which the Union and its former chairman and other office bearers did neither presented themselves to the jurisdiction of the Commission nor refuted the allegations in writing or otherwise and even did not submit their financial details, poses a challenge for the CCI as to how it will implement or enforce its “cease and desist” orders against the rogue Union. Noticeably, unlike the regulations to enforce monetary penalty[2], there are no such regulations prescribing the manner for the enforcement of the “cease and desist “orders of the Commission.
The only provision of Section 42 of the Act, which prescribes monetary penalty at the rate of Rupees one lakh per day for each day of contravention, subject to a maximum of Rupees ten crores and even a jail term in case of continued noncompliance or non- payment of the penalty so imposed, has been used sparingly by the Commission so far that too on the complaint filed by the Informant. CCI has not used its suo-motu powers of inquiring into cases on noncompliance of its orders under Section 42 of the Act, which is unfortunate. This is a fit case for use of such suo motu powers under Section 42 of the Act by CCI in my opinion if it wants to strengthen its credibility as an effective regulator of the markets in India.
As stated above, the case also highlights the apparent lack of awareness about the very existence and powers of the CCI as the fair market regulator in the hinterland of India and the Commission may consider spreading its advocacy efforts to Tier 2 and Tier 3 towns in India.
#
CCI #cartel #
[1] Case No. 43 of 2013
[2] The Competition Commission of India ( Manner of Recovery of Monetary Penalty) Regulations, 2011
Related posts
