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05 September 2019
On 15 January 2019 the Competition Commission of India (CCI) imposed a penalty of Rs850,136 on Godrej & Boyce Manufacturing Co Ltd for its role in a bilateral ancillary cartel, which violated Section 3(3) read with Section 3(1) of the Competition Act. Godrej's role in the cartel had been revealed via a leniency application.
The CCI initiated the inquiry suo motu following a leniency application filed by Panasonic Corporation, Japan on 7 September 2016 on behalf of itself, its Indian subsidiary (Panasonic Energy India Co Limited (Panasonic (India)) and their respective directors, officers and employees and subsequent submissions of 22 September 2016, which disclosed that a bilateral ancillary cartel existed between Panasonic (India) and Godrej in the dry cell battery retail market. It was further deduced from the leniency application that a primary cartel existed between Panasonic (India), Eveready Industries India and Indo National Limited (Nippo), through which the parties had coordinated the market prices of zinc-carbon dry cell batteries. Therefore, Panasonic (India) had known of the timings of price increases and used this knowledge as leverage to negotiate and increase the basic price of the batteries that it sold to Godrej. It was further disclosed in the leniency application that Panasonic (India) and Godrej had agreed on the market price of the batteries which they sold in order to maintain price parity. Such price parity was in line with the prices determined by the primary cartel consisting of Panasonic, Eveready and Nippo.
The director general concluded that Panasonic (India) and Godrej had contravened the Competition Act. The director general based this decision on Clause 8.2 of the product supply agreement (PSA), whereby:
Clause 8.2 of the PSA, when read with Clause 17 (which stated that the agreement between Panasonic India and Godrej "was not [a] joint venture, partnership or agency relationship") revealed the existence of a 'concurrence of intention' between two independent principals in a commercial transaction. In addition, both parties had exchanged commercially sensitive pricing strategies to maintain the market price parity of dry cell batteries in line with the prices jointly determined by the primary cartel.
The CCI agreed with the director general's findings based on the PSA. The CCI observed that the language of Clause 8.2 of the PSA is not that of a mere 'mutual comfort' clause (as claimed by Godrej). Rather, it imposed a specific obligation on Panasonic (India) and Godrej to take no detrimental steps against each other. Further, under Clause 17, the parties were independent principals in commercial transactions. Accordingly, the CCI observed that Clause 8.2, when read with other clauses of the PSA, was anti-competitive. Like the director general, the CCI focused on the email communications between the parties, which clearly showed that Clause 8.2 was not only a 'dead letter' clause, but also a deliberate clause whereby the parties had agreed not to undercut each other in the dry cell battery market by offering prices which were lower than those which had occasionally been agreed.
The CCI rejected Godrej's argument that Clause 8.2 was mandated and that any attempt to exclude such clause would have resulted in a deadlock which would have restricted its entry into the dry cell battery market. The CCI observed that Godrej had never objected to the presence of said clause and could have refused to enter into the PSA. However, it had entered into the agreement with its eyes open for the sole reason of furthering its already extensive business interest.
It was also argued that:
To this end, the CCI observed that none of the emails included the terms 'basic price' or 'procurement price'; rather, all of the emails concerned maintaining the market price parity of dry cell batteries.
Godrej also argued that it and Panasonic (India) had entered into a vertical agreement and were not independent competitors. In this regard, the CCI held that both Godrej and Panasonic (India) agreed that no joint venture, partnership or agency relationship existed between them; rather, they operated as independent principals in commercial transactions. Thus, Clause 8.2 of the PSA and the email exchange between the parties could not be read in the context of a buyer-seller relationship. In addition, the CCI held that although Godrej had procured dry cell batteries from Panasonic (India), it had sold them under its own brand name and not as a distributor of Panasonic (India). Thus, from a demand-consumer perspective, the two parties were competitors in the market for the distribution and sale of dry cell batteries in India.
The CCI imposed a penalty of Rs850,136 on Godrej (4% of its annual turnover for each year of the cartel's continuance).
Although a penalty of Rs3,175,631 was also levied against Panasonic (India) (one-and-a-half times its annual turnover for each year of the cartel's continuance), the CCI granted it a 100% penalty reduction as the company and its representatives had provided their genuine, full, continuous and expeditious cooperation during the entire investigation (for further details please see "CCI grants first-ever 100% penalty reduction"). This had not only enabled the CCI to order the investigation, but had also helped it to establish a contravention of Section 3 of the Competition Act.
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.
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Man Mohan Sharma