• LexGaze Admin

The COVID-19 Pandemic and its Impact on Competition in India

Updated: Aug 22



[This article is authored by Irith Kapur, Vivekananda Institute of Professional Studies, Delhi]


Introduction

The COVID-19 pandemic has affected various businesses globally. It has tested the businesses in a way like never before and the ensuing upheaval is expected to affect the global economy in the coming months and possibly years. Certain industries like the airlines, hospitality, entertainment, etc. will battle to recover financially. But, the essential commodities industries, such as pharmaceuticals and health-care industries, will experience an explosion in demand. They may try to capitalize on this situation by increasing prices or regulating the supply of essential products. 

To overcome the economic downfall, competitors may join hands to fight the pandemic. This may include situations of collaboration with competitors to manage demand and supply challenges or with potential future overcapacity. The main objective of Competition Law is to ensure that the competitors act independently and are staying afar from anti-competitive practices. While these efforts are somewhat necessary, it is contradictory to the main objective of Competition Law. Companies should be aware that the arrangements of the Competition Act, 2002 keep on applying in any event, even during the current pandemic. Any action of the companies which violate the provisions of the Act will probably be inspected by the Competition Commission of India (CCI).

The task of regulatory authorities becomes crucial during these times since the companies may use tactics that could have an appreciable adverse effect on competition in the market and, eventually, on the consumers. Thus, the regulators of several countries such as the United Kingdom, United States of America, Spain, France, etc. have come to the conclusion that competition law is not to be suspended during the pandemic and that the conduct of the companies will be kept in check to curb any anti-competitive practices in their jurisdiction.

Collaboration

To fight the negative impact of the pandemic on businesses, competitors may collaborate to facilitate the production and distribution of services. Section 3 of the Competition Act, 2002, forbids any agreement amongst enterprises if such agreement causes or is likely to cause an appreciable adverse effect on competition in India. The section further provides an exemption for joint ventures by saying that nothing contained in this section shall apply to any agreement entered into by way of joint ventures if such agreement increases efficiency in production, supply, distribution, storage, acquisition or control of goods or provision of services. [1] The Central Government has the power to exempt any such collaboration in the interest of the security of the state or public interest. [2]

Due to the need of the moment, the European Competition Network (ECN) has issued a statement indicating that ECN members will not intervene against certain forms of cooperation amongst competitors, which are absolutely necessary to ensure that surplus demand is met with adequate supply. 

In India, many companies are allocating their resources for research and development in the field of pharmaceuticals and medical sciences to pave the way for a breakthrough in finding a vaccine for COVID-19. So, it is a possibility that competitors may begin participating in joint research ventures to accelerate this process. However, they would simultaneously have to worry about violating the provisions of the Competition Act. The Government of India has not exempted the application of the Act yet, but it is recommended that they borrow wisdom from regulators of competition in other jurisdictions and defer the operation of antitrust laws in India for a temporary period so as to enable the companies to enter into a collaborative agreement with their rival enterprises for the purpose of accelerating the research and development activities to fight the pandemic efficiently.

Exploitative Conduct

In order to profit from the unprecedented demand, some companies may engage in exploitative conduct, which should be investigated and penalized by the competition regulators of the jurisdiction. Consequently, businesses should abstain from engaging in the following exploitative practices:


  1.  Forming a Cartel [3]

  2.  Limiting the supply of products [4]

  3.  Price fixing [5]

  4.  Allocation of customers [6]

  5.  Abusing their dominant position in the market [7]

The practices which are prohibited by the Act cannot be permitted and justified under any circumstances, even during the ongoing pandemic. 

In India, the Ministry of Consumer Affairs has asserted that face masks and hand sanitizers are considered to be “essential commodities”. The Government has also capped the maximum price that can be charged from the consumers. [8] However, various reports have emerged that these essential commodities are being sold at inflated rates across the country. [9] It must be made sure by the CCI that an inquiry is made into any anti-competitive practices and abuse of dominant position in the market to benefit both, the enterprises and the end consumers.

Functioning of CCI

The CCI has been efficient in embracing different measures to proceed with its working during the pandemic. The following are the key points about the working of CCI during the pandemic:

i. Filings under Sections 3 & 4: In the wake of the pandemic, the CCI issued a notice regarding the suspension of all filings under Sections 3 and 4 of the Act. Further, it issued a notice which said that all filings or compliances up to 14th April 2020, with respect to the pending cases before the CCI, were suspended. Then, as per the latest notice by the CCI, information under Section 3 and 4 of the Act may be filed electronically and fresh dates were to be notified for all compliances due on or before 3rd May 2020.

ii. Hearings before CCI: As a consequence of the nationwide lockdown to combat the pandemic, the CCI adjourned the hearing of all the cases to 31st March 2020. As per the most recent notification by the CCI, fresh dates for hearings listed up to 3rd May 2020, were to be informed to the respective parties. 

iii. Notification of Combinations: By the order of the CCI, all notifications in relation to combinations [10] were delayed until further orders. The succeeding notice authorized the filing of notices with respect to combinations electronically only under the Green Channel. [11] However, the latest notice by the CCI takes into consideration the electronic filing of all combination notices. 

iv. Advisory to Businesses: The CCI has issued an advisory to businesses, acknowledging that the pandemic has led to disturbances in the demand and supply equilibrium of the market. The CCI has agreed to the fact that collaborative agreements between businesses may be required to ensure uninterrupted manufacturing and supply of essential commodities. It has been suggested by the CCI that only those businesses will be considered by it which are necessary to fight the economic concerns arising due to the pandemic. The advisory also contains a warning for all the businesses which are likely to attempt to take advantage of the situation and violate the provisions of the Act.

Conclusion

The COVID-19 pandemic presents unprecedented economic challenges for businesses in India and the world over. There is a need for specific economic measures to counter its negative impact. However, this is not a free pass for companies to infringe competition law. Companies need to be wary of the fact that regulatory authorities will be keeping a close eye on their activities and will surely test any violation of the competition laws. 

Moving ahead, companies should discern that they must remain cautious in the way in which they deal with the pandemic, especially if they are looking to collaborate with their competitors. The actual risk is difficult to ascertain but history suggests that companies should linger towards the safe side. Any activity to deal with the pandemic that puts the consumer at a disadvantage or causes appreciable adverse effect on competition in the market will result in an investigation by the regulatory authorities, sooner or later. 

References

[1] The Competition Act, 2002, No. 12, Acts of Parliament, 2003 (India), Section 3(3)(d) proviso.

[2] The Competition Act, 2002, No. 12, Acts of Parliament, 2003 (India), Section 54(a).

[3] The Competition Act, 2002, No. 12, Acts of Parliament, 2003 (India), Section 2(c).

[4] The Competition Act, 2002, No. 12, Acts of Parliament, 2003 (India), Section 3(3)(b).

[5] The Competition Act, 2002, No. 12, Acts of Parliament, 2003 (India), Section 3(3)(a).

[6] The Competition Act, 2002, No. 12, Acts of Parliament, 2003 (India), Section 3(3)(c).

[7] The Competition Act, 2002, No. 12, Acts of Parliament, 2003 (India), Section 4.

[8] Ministry of Consumer Affairs, Food, and Public Distribution, Essential Commodities Order, GOVERNMENT OF INDIA, Available here

[10] Press Trust of India, Coronavirus: Licenses of 5 medical stores cancelled for selling sanitisers and masks at inflated rates, FINANCIAL EXPRESS, Available here [11] The Competition Act, 2002, No. 12, Acts of Parliament, 2003 (India), Section 6.

[12] The CCI (Procedure in regard to the transaction of business relating to combinations) Amendment Regulations, 2019, Regulations of CCI, 2019, Regulation 5A.


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