Changes in competition law proposed to bring buyer cartels under CCI purview

Buyers forming a cartel may be penalised once the changes proposed by the Ministry of Corporate Affairs (MCA) to the Competition Act are enacted. Currently the CCI deals with seller cartels only. Since buyer cartels are not covered under the purview of Competition Act, the proposed changes would put some light in that direction.

Buyer cartels essentially involve a group of competitors who focus on the input side of the market and attempt to eliminate competition therein either by reducing the price associated with their purchases or by controlling the conduct of the supplier.

The MCA sought to give monetary and penal powers to the Director General for Investigation (DG) under the Competition Commission of India (CCI).

The draft amendments seek to empower the DG to send errant persons behind bars for up to six months or in the alternate impose a fine of Rs. 1 crore if the latter refuses to furnish any papers or documents. Currently, the CCI imposes penalties on companies on the basis of their turnover if they flout competition rules. The CCI however doesn’t have powers to penalise individuals. When it comes to Directors of companies or proprietorship firms, penalties are imposed on the basis of their income.

The draft amendments also propose introduction of a “commitment and settlement” clause in the Competition Act. The clause will allow those found contravening the competition law to “commit” to correct their ways to avoid action even before investigation is completed. A settlement can be entered even in cases where investigation is over, evidence has been found, and the adjudicating process has started.

The companies will be directed to pay fine and avoid legal proceedings after ensuring that they will curb and correct their anti-competitive practices. The proposed amendments also seek to provide clarity to “hub and spoke cartels”. The MCA suggested hubs also be covered under Section 3(3), which deals with cartels that hinder competition.

A hub and spoke cartel is basically an arrangement between companies where a dominant player, called hub, is wooed by other firms, called spoke, to destroy competition by, say, increasing or lowering prices.

The MCA intends to remove the lacunae and has hence suggested that the Bill contain a provision of income, depending on which penalty could be imposed under Section 27 of the Competition Act.

The proposed amendments also seek to expand the composition of the CCI by including part-time members in the Commission. The Commission is currently a four-member body, including the chairman.