We would like to ensure that you are still receiving content that you find useful – please confirm that you would like to continue to receive ILO newsletters.
22 November 2018
By way of a 30 August 2018 order, the Competition Commission of India (CCI) imposed a penalty of Rs96.4 million on Geep Industries (India) Private Limited for violating Sections 3(3) and 3(1) of the Competition Act 2002.
The case was initiated by the CCI suo motu on the basis of a lesser penalty application filed on 7 September 2016 by Panasonic Corporation, Japan on behalf of itself and Panasonic Energy India Co Limited and their respective directors, officers and employees. The application disclosed that a "bilateral ancillary cartel" existed between Panasonic (India) and Geep Industries in the institutional sale of dry-cell batteries. It also revealed that Panasonic (India) had established a primary cartel with Eveready Industries India and Indo National Limited (Nippo), through which the companies coordinated the market prices of zinc-carbon dry-cell batteries; therefore, Panasonic (India) had the foreknowledge of price increases, which it used as leverage to negotiate and increase the basic price of the batteries that it sold to Geep Industries. Further, the application revealed that Panasonic (India) and Geep Industries used to agree on the market price of the batteries to maintain price parity, which was consistent with the prices determined by the primary cartel.
The director general conducted an investigation which found that Panasonic (India) and Geep Industries had entered into a product supply agreement, whereby a mutual obligation existed between the parties not to take any steps that were detrimental to each other's market interests with respect to market prices, and under which such prices were to be reviewed and maintained at an agreed level.
As a result, the director general found the following people liable under Section 48 of the Competition Act:
Panasonic (India) attempted to justify the director general's findings by arguing that the clause in the product supply agreement which obliged Geep Industries not to act in detriment to its market interest was merely to ensure discipline in trade. However, the CCI agreed with the director general and stated that such a clause inherently impedes competition.
In addition to the product supply agreement, the director general relied on evidence comprising statements and emails exchanged between representatives of the parties, whereby commercial sensitive information about prevailing and desired market prices for dry-cell batteries were exchanged and a price monitoring system was put in place.
The CCI agreed with the director general's findings based on the product supply agreement. It noted that the initial supply of batteries to Geep Industries by Panasonic (India) occurred on a quotation basis, depending on the quantities demanded and the price plus duties and taxes. However, after the companies entered into the product supply agreement, Geep Industries was obliged to maintain the market prices as agreed by Panasonic (India). The CCI rejected Panasonic (India)'s argument that the clause which prohibited Geep Industries from acting in detriment to Panasonic (India)'s interests was merely to ensure discipline in trade, stating that "the Product Supply Agreement was an agreement in normal commercial trade on a 'principal-to-principal' basis between two independent parties, who are otherwise competitors" and that such an agreement impeded competition and cannot be justified.
Geep Industries argued that it was prohibited by Panasonic (India) from selling the batteries below the price determined. The CCI responded that although Geep Industries was merely a recipient of information on pricing within a larger, primary cartel and that such disclosure was unilateral in nature, it still could not escape liability.
This observation was reinforced by Paragraph 62 of the EU Guidelines on the Applicability of Article 101 of the Treaty on the Functioning of the European Union to Horizontal Cooperation Agreements 2010, which states that:
A situation where only one undertaking discloses strategic information to its competitor(s) who accept(s) it can also constitute a concerted practice… When one undertaking alone reveals to its competitors strategic information concerning its future commercial policy, that reduces strategic uncertainty as to the future operation of the market for all the competitors involved and increases the risk of limiting competition and collusive behaviour.
The CCI observed that when two independent competitors agree to take actions to protect each other's market interest, such an agreement can be considered anti-competitive. The objective of the clause is to restrict or even eliminate fair competition in the market; therefore, no justification is acceptable.
Panasonic Corporation (Japan) submitted to the CCI that since it is not engaged in the manufacture and sale of dry-cell batteries in India directly and since the director general had found no violation by the company, its name should be struck from the case. The CCI denied the submission; however, it noted that since no investigation or finding had been made by the director general in relation to Panasonic Corporation (Japan), it would be inappropriate for the commission to make any analysis or finding against it.
The CCI imposed a penalty of Rs96.4 million on Geep Industries – 4% of the company turnover for each year of the continuance of the cartel (ie, from 1 October 2010, when the product supply agreement was entered into, until 30 April 2016, when the last supplies were made).
The CCI also imposed a penalty of Rs739.33 million on Panasonic (India) – 1.5 times of the company profit for each year of continuance of the cartel. However, it was granted a 100% reduction of the penalty on the grounds that the company and its representatives had provided genuine, full, continuous and expeditious cooperation during the course of the investigation, which not only enabled the CCI to order the investigation, but also helped in establishing a violation of Section 3 of the Competition Act.
Penalties of Rs129,839, Rs110,386 and Rs240,452 were imposed on Pushpa, Joeb Thanawala and Jainuddin Thanawala, respectively – 10% of their average income for the three preceding years – under Section 48 of the act.
This is the first case in which a party which was not part of an original primary cartel has been held liable on the grounds that it was part of a bilateral ancillary cartel with one of the primary cartel members. The primary cartel consisted of Panasonic, Eveready and Nippo, and Geep Industries had only a bilateral relation with Panasonic. As a member of the primary cartel, Panasonic had foreknowledge of the price changes being made by its competitors, which it used to influence prices with Geep Industries. Geep was in a weaker position as the recipient of the information and had little standing in negotiations; however, the CCI held that it should have refused the agreement, as it was fully aware of the primary cartel.
The case also stands out because Panasonic Corporation, Japan – which was the lesser penalty applicant, filing on behalf of itself and Panasonic (India) – appealed to the CCI on the grounds that, as it is not engaged in the manufacture and sale of dry-cell batteries directly in India and the director general found that it had no involvement in the matter, its name should be struck off. Although the CCI held that it would be inappropriate to form an analysis against Panasonic, Japan, it nevertheless refused to strike off the company name throughout the matter.
For further information on this topic please contact MM Sharma at Vaish Associates by telephone (+91 11 4249 2525) or email (email@example.com). The Vaish Associates website can be accessed at www.vaishlaw.com.
The materials contained on this website are for general information purposes only and are subject to the disclaimer.
ILO is a premium online legal update service for major companies and law firms worldwide. In-house corporate counsel and other users of legal services, as well as law firm partners, qualify for a free subscription.
Man Mohan Sharma