MUMBAI: Companies coming together to overcome covid-19 related disruption will continue to face scrutiny by the Competition Commission of India (CCI) for any potential violation of rules pertaining to unfair market practices, the Confederation of Indian Industry (CII) has warned.
“Many businesses are already facing supply chain disruptions, reduced consumer demand, and resultant cash flow issues. Businesses are certainly pushed hard to find solutions to overcome the crisis caused by the pandemic. The natural instinct of human beings to overcome a crisis like this is to unite and cooperate," said Zia Mody chairman of the CII National Committee on Regulatory Affairs and founding partner of law firm AZB & Partners. “Against this backdrop, it is important for companies to stay conscious of their continuing obligation under competition law," she added.
Companies are increasingly coming together to address logistic hurdles and to ensure supplies of essentials during the pandemic, but such collaboration will only be considered if it addresses concerns arising from covid-19.
“Many in India Inc had sent representations to the government seeking exemptions from CCI provisions to ensure such collaboration is not penalised at a later stage. However, these exemptions were not granted," said a senior lawyer who was coordinating these efforts with the Centre.
According to CCI, any agreement or information exchange between competitors that results in coordination on prices (or any of its components such as cost elements, rebates and surcharges), supply, output planning, suspension of production, capacity reductions, market sharing or customer allocation is prohibited.
“CCI should be fine with it as long as it increases efficiency in the supply chain and is beneficial to consumers," said Girish Vanvari, founder, Transaction Square, a regulatory solutions firm.
To avoid unwarranted and inadvertent error, CII said companies should evaluate whether business operations require close collaboration with competitors and whether it is unavoidable. It must happen in consultation with antitrust lawyers as there are no specific CCI guidelines on the matter; companies should reach out to their external counsel to assess antitrust risks and must avoid information exchanges through trade associations or any other platforms.
CCI is also keeping a close watch on firms that make and sell products such as hand sanitizers, masks, hand wash, disinfectants, groceries and essentials.
“These unique market conditions have inevitably presented a lucrative opportunity for all stakeholders in these sectors to capitalize on this demand-supply imbalance by charging excessive prices for products and/or by imposing the purchase of non-essential products together with such essential high-demand products," said CII in its set of recommendations to companies.
Companies should refrain from excessive pricing, limiting production, services or technical development, and bundling non-essential products and services with essential services.
Any violations in this regard, CCI said, would be liable to legal action under Section 4 of the Competition Act, which prevents any enterprise or group from abusing its dominant position.
“No business arrangements must be in contravention of the Competition Act that adversely impacts customers or leads to an abuse of dominant position in the market. Companies must note that temporary collaboration is not conferred with blanket immunity and thus should be carried out with a view to boost supply chain efficiencies, and not revenues," said Sonam Chandwani, Managing Partner at KS Legal and Associates.
Further, the CII advisory clarified that while any price increase to offset increasing input costs by dominant enterprises would not automatically be considered as excessive pricing, firms must ensure that they have justified reasons for imposing any such price hikes.