“People of the same trade seldom meet together, even for merriment or diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.” — Adam Smith

The recent rulings of Competition Commission of India (CCI) in digital markets imposing heavy monetary penalties have brought to the fore the importance of and the need for an effective competition compliance programme, to be followed by enterprises. Any corporate conduct or strategy which falls foul of competition law may have serious consequences.

The Competition Act, 2002 was enacted by Parliament to prevent practices having adverse effect on competition, promote and sustain competition in markets, protect the interests of consumers and ensure freedom of trade. The law prohibits agreements that cause or are likely to cause appreciable adverse effect on competition; forbids abuse of dominant position by enterprises and groups, besides regulating combinations — that is, mergers and acquisitions (M&As).

Any violation of law is visited with severe consequences. For established contraventions, CCI can direct parties to discontinue and not to re-enter anti-competitive conduct (‘cease and desist’ order). It can also impose heavy monetary penalties which can go up to 10 per cent of the average relevant turnover of the enterprise concerned. The penalties can be further aggravated in case of cartels. CCI can also direct modification of agreements. In appropriate cases, CCI can order division of an enterprise enjoying dominant position.

In the case of merger filings, CCI can approve transactions, with or without remedies, or block altogether the transactions depending on whether they are likely to cause appreciable adverse effect on competition.

Further, apart from companies, there is a liability on the individuals of companies if they were in-charge of and responsible for the affairs of the company at the time of contravention. This must put on guard overzealous managers who may think that they can take shelter behind the corporate veil of the enterprise, for their anti-competitive activities.

In fact, the regulatory architecture governing the corporates under the Companies Act, 2013 further provides that a person shall be ineligible for appointment as a managing or whole-time director or a manager if he had been sentenced to imprisonment for any period, or to a fine exceeding ₹1,000, for the conviction of an offence under the Competition Act, 2002.

It is therefore imperative for corporates to put in place a robust competition compliance programme, which will go a long way in not only avoiding costs associated with non-compliance and reputational damage, but can also be pressed as an argument in mitigation if found violating law. Thus, the importance for compliance programme needs hardly any reiteration.

A competition compliance programme offers multiple advantages to the stakeholders. It not only generates a culture of competition compliance but also enables them detect any deviation from competition law norms at an early stage so that corrective measures can be taken at the earliest. Non-compliance can damage goodwill, reputation and brand which have been built assiduously by the corporates over the years. It also helps in reducing litigation costs and ire of the competition regulator.

A well-designed and crafted compliance programme needs to be customised as per the needs of enterprises. A model competition compliance programme provided by CCI can be suitably modified for being adopted as per the specific needs and requirements of the enterprises or trade associations concerned. A competition compliance programme should not remain an ornamental document to seek leniency when found guilty of contravention of competition law, but it should be vigorously and sincerely implemented and the senior management teams or the designated compliance officer should constantly monitor the implementation and the board should also be kept in the loop.

Trade associations

It is important to identify the employees and divisions which are most highly exposed to vulnerabilities. These would include personnel from sales and marketing teams, corporate planners dealing with M&As. Any membership of trade associations or interactions on such platforms should be for legitimate association activities and the platform should not become a forum for devising anti-competitive strategies.

The office bearers of trade associations need to be particularly cognisant of association activities. Although competition law is not an hindrance to legitimate association activity, trade associations and their members must be fully aware of the types of conduct that competition law forbids when carrying out an association’s programmes and activities.

The anti-trust problems that association activities may present relate to agreements that fix prices or pricing terms, agreements to control or limit production or capacity, allocation of customers or markets, group boycott or refusal to deal, abuse of dominant position, etc. Under the competition law, trade associations potentially face anti-trust risks for breaching the provisions of Section 3 of the Competition Act, 2002 which forbids, amongst others, decisions taken by trade associations which directly or indirectly determine purchase or sale prices or otherwise limit or control production/supply in the markets.

Firms enjoying market power need to be particularly cognisant of their special responsibilities as any conduct which directly or indirectly imposes unfair or discriminatory condition or price in purchase or sale of goods may attract closer scrutiny by the competition watchdog. They also need to ensure that their conduct does not limit or restrict production of goods or provision of services or market. Also, they need to ensure that they do not indulge in practices resulting in denial of market access in any manner.

An in-house antitrust audit can help in detecting major violations ex ante and all agreements having exclusivity or restrictive clauses must be carefully parsed to ensure that they do not violate the law.

The writer is Director, Competition Commission of India

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