Just 0.3 % of CCI penalties recovered for now, but progress made in handling of antitrust cases

The Competition Commission of India (CCI) hauling up companies for violations of the Competition Act, 2002 has become a common phenomenon today, with penalties of Rs 13,087 crore having been levied over the past seven years. As against this, the CCI has managed to collect only about 0.3% (Rs 43 crore) of the penalties imposed. This low realisation rate is largely on account of companies involved in such matters, challenging CCI orders in various judicial forums namely the National Company Law Appellate Tribunal (NCLAT), the Supreme Court etc. and the cases being stuck at various stages of litigation.

Of late, we have seen some of the earliest orders of CCI reaching conclusion, with NCLAT and SC upholding decisions of the CCI. For instance, recently the NCLAT has upheld the decision of the CCI in the cement cartel matter wherein 10 major cement producers have been fined Rs 6,300 crore for indulging in price fixing cartel. There are many such cases that are nearing a conclusion in the long drawn litigation process. This appears to be a milestone in the evolution and establishment of jurisprudence in handling antitrust matters in India.

While more decisions seem to be getting upheld, what does it mean for companies fighting such legal battles? Do such companies face any other liability apart from penalties on account of decisions being upheld? Does the case end for companies with the payment of penalties imposed? That may not be the case. There could be additional liabilities that such companies may not have factored in and need to be cognisant of. Additionally, there could be further liabilities and legal battles in the form of compensation claims from parties/consumers having been harmed by such conduct.

Theory of harm for follow-on private damage claims

Compensation in the form of private damage claims is a fairly common practice in mature competition jurisdictions such as in the European Union (EU) and the United States (US). Infringement of competition law either by way of joint (collusive) or unilateral conduct (abuse of dominant position) interferes with the interplay of competitive forces in the market. It has the potential of harming stakeholders - such as competitors, potential entrants and purchasers (consumers) - in the relevant goods and/or services consumption value chain. For example, by way of a price fixing cartel, cartelists (e.g., tyre manufacturers) are likely to collectively raise the price of tyres above the level that would prevail in a competitive scenario. Consequently, the tyre purchasers would be required to pay the increased prices. It is this harm in the form of increased prices above the competitive level termed 'overcharge' that can be claimed as compensation in the form of damage claim.

Indian law allows for filing of damage claims despite which there is limited jurisprudence

Competition law in India, through Section 53-N of the Act, permits filing of damage claims before the NCLAT or the SC, by consumers who have been affected by a proven violation of the Act. Further, through Sections 42-A and 53-Q (2) of the Act, compensation may also be claimed in instances of damage ensuing from the violation of orders of the CCI or the NCLAT. The Act also allows for the possibility of filing class action suits - a claim filed jointly by many consumers in case of similar damage. However, despite the presence of extant legal provisions, damage claims have not gained prominence in India. We are aware of only three open cases of damage claims. One of these involves claims worth Rs 856 crore (penalty Rs 55 crore) being filed - the matter while having been upheld by the COMPAT, is currently under adjudication at the SC following on from an appeal.

Damage claims can be brought forward by both direct and indirect purchasers

Purchasers can be both 'direct' and 'indirect'. In the tyre example used above, automobile manufacturers who purchase tyres as inputs would qualify as direct or intermediate purchasers. Individual consumers as purchasers of automobiles/car would qualify as the indirect or the end consumers. Infringements of competition law have the potential to harm not only the direct purchasers but also the indirect purchasers. This is because the price increase faced by direct purchasers may be passed-on in part or entirety to the intermediate and/or final purchasers depending on the market circumstances. As a counter to this, the direct/intermediate purchasers may make an argument that as a result of the increased prices (price effect) downstream to car purchasers, they have suffered a reduction in demand and in turn volume/profit losses (volume effect). According to the European Commission (EC) Damages Directive, claimants have the right to full compensation, i.e., compensation for both the price and volume effect.

Rigorous analysis and evidence required for claim computation

A key point to note is that damage claims need to be substantiated by evidence, the extent of which depends on the nature and size of the claims. There are varied econometric methodologies that can be deployed to arrive at the quantum of the harm suffered by the purchasers, both direct and indirect. These techniques compare the cartel/abuse scenario vis-vis the counterfactual competitive scenario. It is useful to note that the EC allows both direct and indirect purchasers to claim damage compensation while the US federal legislations permit only direct purchasers to claim damages, with the exception of some state specific laws that permit both.

Need for preparedness

There is no doubt that the CCI and Indian judicial system have come a long way in their enforcement activities over the last decade. With slow but sure progress in establishing the jurisprudence in handling antitrust matters in India, we are likely to witness it moving into the next stage wherein we may see compensation claims being filed by parties that may have been harmed. As claim applications could soon become a reality, organisations and consumers alike need to be prepared. They need to be more aware as well as well-versed with the legal provisions, data requirements, and methodologies which would be vital for the adjudication of such cases. While we possibly might see another round of long drawn legal battles on such compensation claims (since jurisprudence would still need to be established), we will reserve that for another debate.

Amit is Partner with Deloitte's Forensic practice in India, Shruti is Senior Manager, and Semanti is Deputy Manager.