The wave of dawn raids by Competition Commission of India (“CCI”) has yet again shown its result in the form of the recent decision of the CCI, which found three beer companies to be operating an all-India cartel. In an order dated 24.09.2021[1], CCI found United Breweries Limited (“UBL”), Carlsberg India Private Limited (“Carlsberg”), SABMiller India Limited (“SABMiller”) (collectively referred to as “Beer Companies”) and the All India Brewers’ Association (“Association”), along with their respective key personnel, colluding in relation to the sale and supply of beer in various States and Union Territories (“UT”) in India.
Background of the case
The investigation into the matter was triggered by a leniency application filed by Crown Beers India Private Limited and SABMiller, both held by Anheuser Busch InBev SA/NV (“AB InBev”). From the allegation made by AB InBev in its leniency application, CCI noted that with an aim to ensure consistency in their pricing policies, the beer companies colluded to (i) align beer prices; and (ii) seek price adjustments while making representations before several States and UTs of India, irrespective of the model of distribution of alcohol being followed therein. The CCI accordingly passed a prima facie order on 31.10.2017 directing the Director General (“DG”) to investigate the matter (“prima facie order”).
Thereafter, the DG conducted search and seizure operations on the premises of the Beer Companies from 10.10.2018 - 11.10.2018 (“Dawn Raid”). In the process, the DG found evidence of regular communication among the Beer Companies in the form of various email exchanges (internal and amongst the Beer Companies), WhatsApp messages, text SMSs etc., demonstrating coordination amongst the Beer Companies and the Association. Immediately after the Dawn Raid, a leniency application was filed by UBL and followed by Carlsberg.
Assessment by the CCI
Given that the supply and sale of liquor (including beer) is a state subject under the Constitution of India (“State List”) giving each state autonomy over taxation and supply of liquor, the CCI conducted a state-wise examination of the anti-competitive activities of the Beer Companies. CCI observed that the Beer Companies: (i) co-ordinated prices in Andhra Pradesh, Karnataka, Maharashtra, Odisha, Rajasthan, West Bengal, Delhi and Puducherry, in violation of Section 3 (3) (a) of the Competition Act, 2002 (as amended) (“Act”); (ii) collectively restricted supply of beer to oppose certain government policies in Maharashtra, Odisha and West Bengal, in contravention of the provisions of Section 3 (3) (b) of the Act, and (iii) colluded with respect to supply of beer to premium institutions in Bengaluru and shared the market in the state of Maharashtra, thereby contravening the provisions of Section 3 (3) (c) of the Act. In addition to this, the CCI also found co-ordination amongst UBL and AB InBev with respect to purchase of second-hand bottles of beer.
Further, the CCI held that the Association, which was the only contesting opposite party, by acting as a platform for facilitating the cartelization, contravened the provisions of Sections 3 (3) (a) and 3 (3) (b) of the Act.
Impact of the anti-competitive conduct
It is worth noting that CCI did not consider the Beer Companies’ argument that coordination/concerted actions benefitted the end consumer as a valid defence. CCI observed that the provisions of the Act are not merely concerned with the end-consumers but also with the intermediaries in the supply chain. Accordingly, an anti-competitive action cannot escape the provisions of the Act solely on the basis of it being beneficial to an end customer, when it is actually causing harm to the functionaries involved in the supply chain.
Further, while analysing the arguments made by the Beer Companies with respect to the absence of appreciable adverse effect on the competition (“AAEC”), CCI observed that Section 3 (1) of the Act proscribes those agreements which cause or are likely to cause AAEC within India. Therefore, exchange of commercially sensitive information, such as, revenue and target details, cost cards and price increase proposals to be made before state governments etc., demonstrate the existence of an agreement that is likely to stifle competition in the market even in the absence of its implementation on account of refusal by some of the state governments to implement the price increase requests. As such, the CCI was of the view that even if the price increase requests were not accepted by the state governments, it is evident that since price revision quotations were submitted to the government in furtherance of the discussions amongst the OPs, implementation of the agreement already stood completed. As such, the threshold for an anti-competitive agreement to determine prices was crossed.
Penalty imposed
Under the CCI’s leniency regime, whistle blowers can seek complete waiver or reduction in the penalty on the basis of the relevance of information provided by them to aid the investigation and the stage of the investigation that the leniency application is filed at. Accordingly, AB InBev was granted absolute immunity by virtue of it being the whistle blower of the cartel and the valuable disclosure made in its leniency application. CCI noted that both, UBL and Carlsberg approached the CCI under the leniency framework after the DG had conducted the Dawn Raid and already had sufficient cogent evidence to establish the cartel from the Dawn Raid and the leniency application filed by AB InBev.
Continuing with its strong commitment towards cartel enforcement and to set an encouraging precedent for the leniency regime, the CCI granted a 40% reduction in penalty to UBL which was the second leniency applicant, reducing its penalty exposure to INR 752 crore. Similarly, a 20% reduction in the total penalty was granted to Carlsberg leading to a fine of INR 121 crore. Separately, a penalty of INR 6.25 lac was imposed on the Association.
With respect to the determination of the quantum of penalty, various mitigating factors were considered by the CCI. This included the sporadic instances of interaction taking place only in certain states, absence of AAEC, Beer Companies being the first-time offenders of competition law, presence of intense volume-based competition amongst the Beer Companies in the beer market and impact of COVID-19 on the beer industry in India etc.
However, the Beer Companies argued that for the determination of the relevant turnover to calculate penalty, only the actual time period for which discussions took place in the particular states affected by the conduct of the Beer Companies should be taken into account. Reliance was placed upon the Hon’ble Supreme Court’s decision in Excel Crop Case[2], wherein it was held that, as per the principle of proportionality, only the relevant and not the total turnover of the offending company is to be considered for the purposes of imposing penalty. CCI, with regards to argument made by the Beer Companies, observed that it would be an erroneous interpretation of the Excel Crop Case to construe that only the turnover of the isolated days on which discussions pertaining to the collusion took place should be taken as a relevant turnover. Moreover, given that a nationwide cartel had already been established amongst the Beer Companies, the relevant turnover in such a case shouldn’t be limited to specific regions where the Beer Companies’ anti-competitive conducts took place.
What the future holds
As per the latest reports, UBL is intending to appeal the CCI’s decision before the Hon’ble National Company Law Appellate Tribunal (“NCLAT”) on the grounds that the DG as well as the CCI failed to take into consideration the heavily regulated nature of the beer market in India while arriving at the decision that the Beer Companies operated an all-India cartel, affecting the price as well as supply in the market. Further, the entities present in the beer industry pose a peculiar challenge on account of high handedness of the state authorities which control every aspect of the beer value chain i.e., production, pricing, sale and imposition of duties/taxes etc. CCI, in the present matter, refused to take the argument of highly regulated nature of the market as a defence to the anti-competitive conduct of the Beer Companies. However, CCI agreed to consider the same as a mitigating factor.
It will be interesting to observe if the NCLAT would consider the limited control of the Beer Companies on the variables influencing competition in the beer industry, owing to the state government being the true driver of the competition, as a defence to coordinated behaviour by the Beer Companies.
Conclusion
So far, the CCI has decided on 9 cases registered pursuant to leniency applications. In two of such cases, the CCI conducted dawn raids at the premises of the opposite parties subsequent to the filing of leniency application. CCI, in such cases, also granted the benefit of leniency regime to the applicants who had filed the lesser penalty application after the dawn raid was conducted. Thereby, encouraging cartel participants to make vital disclosure of information and provide valuable evidences until the DG concludes the investigation.
Further, while most of the cases under the leniency regime are triggered by the lesser penalty applications, the other cases are registered either pursuant to an information filed or a reference made by a party. Accordingly, CCI in the past has also considered lesser penalty applications filed post the initiation of the investigation. However, it is to be noted that while CCI may grant absolute immunity i.e., 100% penalty reduction to the first leniency applicant in the cases where leniency application enables the CCI to initiate the investigation and discloses an unknown cartel in the existence, for cases where leniency applications are filed during an ongoing investigation, the first applicant is qualified only for reduced penalty, based on the stage of investigation at which the parties have approached the CCI.
In the recent past, CCI has refrained from imposing monetary penalty on the Micro, Small and Medium Enterprises (“MSME”) impacted by the global pandemic who have filed the leniency application and have admitted their anti-competitive conduct. Therefore, it can be concluded that CCI is making judicious use of its powers to promote the leniency program in India.
[The authors are Joint Partner and Associate, respectively, in the Competition & Antitrust practice in Lakshmikumaran & Sridharan Attorneys, NewDelhi]
[1] In Re: Alleged anti-competitive conduct in the Beer Market in India, Suo Motu Case No. 06 of 2017.
[2] Excel Crop Care Limited v. Competition Commission of India and Another (2017) 8 SCC 47.
