India’s antitrust regulator releases new guidance for strengthening antitrust compliance. Avirup Bose and Sagardeep Rathi report
A recent article in IBLJ’s sister publication Asia Business Law Journal – entitled “A Regional Comparison of Competition Law” – analyzed key competition law developments across seven Asian countries, including China, India and Australia. While the focus of the article was on demonstrating the rapidly developing jurisprudence on competition law in the region, and the willingness of enforcement agencies to frequently clamp down on abusive market activity, it concluded that there has “never been a greater need for investors to strengthen compliance and be up to date on laws across the region”.
This is especially true for a jurisdiction like India where antitrust investigations cannot be settled with the regulator and adverse findings against a company could be litigated until a final order by the Supreme Court. Given the backlog of cases before the courts, this could mean years of legal battles and unquantifiable business risk.
Risking more than fines
Further, antitrust scrutiny for large listed multi-product companies could mean much more than the substantial monetary penalties that antitrust regulators are typically empowered to impose. The Competition Act, 2002, allows the Competition Commission of India (CCI) to impose a penalty of up to 10% of the turnover of a company (or three times the profit for a cartelizing firm).
Real estate giant DLF’s shares plummeted 2% on the announcement of the CCI’s decision to impose a penalty of ₹6.3 billion (US$97 million) on it. A series of other related cases were brought against DLF, and while the matter is in appeal before the Supreme Court the company has had to deposit the entire penalty amount before the court. On the announcement of this order DLF’s stock fell a further 4.4%. Similarly, Monsanto India’s shares fell by 4% on news of the CCI’s prima facie order directing a detailed investigation of the company’s joint venture with its US parent. Consequently, for DLF and Monsanto India, the loss of reputation and losses on the stock market was significant.
Minding your Ps and Qs
It is against this backdrop that the CCI has issued its first substantial guidance document called the Competition Compliance Manual for Enterprises. The 50-page compliance manual is a joint initiative of the CCI and India’s Competition Law Bar Association. It has been issued with the belief that stakeholders have to be inspired to inculcate a culture of competition at all levels of their business organization, given that India’s antitrust law is relatively new.
The manual will help companies implement the CCI’s earlier guidance – issued in a 2016 advocacy booklet on competition compliance programmes – that “the existence of a strong compliance programme reflecting the commitment of the management to comply may help in reduced penalties/punishment in case of any violation.”
The manual provides the basic principles of competition law that impact a company’s relationship with customers, agents, suppliers, distributors and competitors. In addition, rather than discussing antitrust principles in abstract terms, it provides a breakdown of actionable items and also permissible levels of business conduct.
As such, the manual provides detailed guidance on what company executives should do if they receive an invitation to discuss business strategies over dinner with a competitor, or a WhatsApp message regarding a proposed meeting of bidders for a tender. It also details issues that should be kept in mind while doing a due-diligence of a competitor and while conducting a trade association meeting. Many of these illustrations have been incorporated from the CCI’s decisions, which have been codified and presented in a convenient question-and-answer format.
Given that India’s anti-trust regime is suspensory, no transaction can be consummated without the CCI’s approval. Consummation, which is not synonymous with closing a transaction, could be inferred if parties take any business action to integrate their businesses. Such action attracts heavy “gun-jumping” antitrust fines.
In order to avoid falling afoul of antitrust laws in this manner, the manual recommends that companies constitute so-called clean-teams while awaiting the CCI’s approval for a transaction. These small teams will consist of a few members of senior management, and internal and external legal counsel, who alone will have access to commercially sensitive information on the merging party.
The aim is to isolate members of senior management involved in the transaction so that they do not consciously or unconsciously access price sensitive information while awaiting the CCI’s approval. This will help them perform their day-to-day business operations – such as determining price, sales quantity, marketing strategy – without being influenced by competitively sensitive information. Thus any inference of the consummation of a transaction without the CCI’s approval can be avoided.
The manual also provides guidance on how a company should comply and cooperate with the CCI during and after an antitrust investigation so as to reduce exposure to antitrust risk.
Until the publication of the manual, there was little information regarding compliance with procedures of an investigation and about anti-trust sanctions. Thanks to the manual, it is now known that parties can pay antitrust fines in instalments and that company executives are not required to be familiar with the CCI (Manner of Recovery of Monetary Penalty) Regulations, 2011, which are often seen as legally verbose.
Avirup Bose is a professor at Jindal Global Law School and Sagardeep Rathi is an associate partner at Khaitan & Co