PRIVATE ENFORCEMENT OF COMPETITION LAWS
Author : Abhineet Kumar, LLM (Oriental University, Indore)
Research Methodology
The present research work on the topic of “Private enforcement of competition law” is both explorative and analytical. It sought to construct, throughout the analysis of secondary data. Since, the present topic was purely academic it was inevitable and inherently mandatory that only secondary sources be made use of. Therefore, I have made use of journal articles, leading books and of course the source of knowledge for students: Internet.
The nature of the project is purely doctrinal/non empirical. It is purely based on data collected from books, acts, journals and web sources. The methodology also includes data collected both from the primary and secondary sources, but mainly from secondary sources.
Private Enforcement of Competition Law
Abstract
The role of private enforcement of competition/antitrust laws has been the subject of long-standing and vigorous debates in many jurisdictions throughout the industrialized world. In the recent times, competition law claims have been on a rise, but are all parties adequately compensated or just the illegal activity/practice is being curbed. The need of the hour is not restricted to creating awareness by punishing the entities involved in anti-competitive activity or abusing their dominant position in the market but to make good the losses to the injured party. This leads to the requirement of private enforcement of competition law claims but to what extent is it necessarily needs to be tested.
Introduction
The concept of private enforcement in India is one of the most unexplored, yet one of the more prominent areas of competition law which demands litigation or alternative dispute resolution mechanisms as a measure for resolving competition disputes.
Before delving into the intricacies of private enforcement, let us understand the concept with respect to competition law jurisprudence. The primary principle of private enforcement is that of compensation claims, wherein an injured party, out of the established anti-competitive practices, imposes a claim for compensation upon the infringing party to make good the loss and the loss in profits suffered as a result of such anti-competitive practice.
On the whole private enforcement can be defined as “litigation initiated by an individual, a legal entity, an organisation, or a public entity to have a court establish an antitrust infringement and order the recovery of damages suffered and impose injunctive reliefs”. This is secondary to the public enforcement mechanism, which spearheaded by the Competition Commission of India (“CCI“), establishes and subsequently penalizes anti-competitive behaviour of enterprises. The objective of the public enforcement mechanism is to protect the market from unfair competition and its adverse effects whereas the objective of private enforcement is to seek compensation for losses occurred due to another’s anti-competitive acts. Private enforcement is, therefore, a second stage proceeding that comes after competition violation is established by the relevant courts. These can also be understood as follow-on claims.
Section 53N of the Competition Act, 2002 (“the Act“) provides an avenue to any person or enterprise to approach the Competition Appellate Tribunal (“COMPAT“) – now National Company Law Appellate Tribunal (“NCLAT“)[1], by way of application under the said section for recovery of compensation from the enterprise whose infringing conduct has caused the loss or damage.
Under this section, the applicant has the burden to show existence of three elements:
(i) competition violation established by the CCI or COMPAT under the Act
(ii) loss or damage suffered and
(iii) that loss resulted from acts that were in violation of the Act i.e., a causal relation between infringement and effects.
Till today there have been about six compensation applications under Section 53N that have survived, however, there is yet to be a final order on any of these applications. Many like the Amit Jain v. DLF Ltd.[2] were filed but subsequently withdrawn before order on compensation was passed. From the ones that did survive, three – MCX Stock Exchange Ltd v. National Stock Exchange of India Ltd, S[3]ai Wardha Power Ltd v. Coal India Ltd & Ors[4] and Maharashtra State Power Generation Company Ltd v. Nair Coal Services Pvt Ltd & Ors[5]– are stuck on the first step of establishing violation as appeals to the COMPAT decision are filed before the Supreme Court. Other applications such as Food Corporation of India v. Excel Corp Care Ltd & Ors[6], Wasan Exports Pvt. Ltd. v. Canara Bank & Orsṣ[7] and Satyendra Singh & Ors. v. Ghaziabad Development Authority[8] are either still on admission stage or are drowning in a sea of adjournments and delayed procedures. With this as the state of compensation applications, a concrete jurisprudence on private enforcement of competition law is yet to be established in India.
The much-debated issue with respect to private enforcement and competition law, is that of “who can be the claimant for a compensation claim?”. Going by the words of Section 53N of the Act, “Central Government or a State Government or a local authority or any enterprise or any person may make an application to the Appellate Tribunal to adjudicate on a claim for compensation”. Thus, as per the literary rule of interpretation, a state or central government, a local authority or an enterprise or any person can act as a claimant for a compensation claim upon an established anticompetitive practice.
It is important to note that, only when a particular alleged contravention against an infringing party is established by an order by the Competition Commission of India (herein “CCI”) mandating the same, can a claim for compensation for loss or loss in profits be made before the NCLAT.
One of the primary issues often discussed when deciding upon who can be a claimant to a compensation claim is that, whether a final consumer or an end-use customer can be a claimant to such compensation claim.
In the European Union (herein “EU”), the principle with respect to the right to claim compensation is that there should be a “causal relationship” between the loss and the anti-competitive behaviour. This was held by the EU Court of Justice in the case of Otis GmbH & Ors. v. Land Oberösterreich & Ors.
In the US, however, parties who are indirectly affected are not allowed to claim compensation. This view was reiterated by the US Courts in the Illinois Brick Co. v. Illinois case. The three reasons stated by the Court for not permitting indirect consumers to claim compensation were – facilitation of more effective enforcement of antitrust laws, avoidance of complicated damage calculations and eliminating duplicative damages against antitrust defendants. However, the view over the years gradually evolved when in Apple Inc. v. In The Pepper case, the Court allowed app purchasers to claim compensation from Apple because Apple was regarded to be a distributor and app purchasers were regarded to be “direct” customers of Apple. Thus, although the Courts did not overrule the principle laid down in the Illinois case, it took a more robust view in determining the relation between the claimants and the infringing company.
Quantification of damages
Another major issue which often turns out to be a major bone of contention after deliberating upon the locus standi of a prospective claimant to compensation is that of quantifying the damages suffered as a result of the established anti-competitive practice.
Section 53N of the Act mandates that the NCLAT can award compensation depending upon the loss or damage suffered by the claimant as a result of the established anti-competitive practice. Thus, the quantification of damages would depend upon two factors:
- The loss or damage is shown to have been suffered by the claimant.
- The loss or damage ought to have been suffered as a result of the established anticompetitive practice.
It is important to note that the loss or damage suffered should be within the reasonable foresight of the infringing activity. If the loss or damage suffered is not within reasonable foresight of the infringing activity, such claim would not hold veracity.
Another issue, which is often contended while calculating the loss or damage suffered is, whether a loss in profits would also fall under the category of loss and whether it can be made part of the compensation claim.
In India, since till date, there has not been any decree passed with respect to private enforcement and competition law, it cannot be ascertained with utmost surety whether the loss in profits would be computed within the meaning of loss or damage suffered as a result of the established contravention. However, in the UK, loss in profits is also computed for the purpose of a compensation claim.
“Passing on” defence
Passing on in simple words would mean, “passing on” of the loss suffered to the following / next customer in line. Thus, an indirect customer would incur the damage or loss as a result of the infringing act because the direct customer “passed on” the damage or loss to the indirect customer. Let us take an illustration to understand “passing on” and whether the final consumer or the end-user can be a claimant to a compensation claim.
Illustration:
“ABC Ltd.”, a manufacturer sells a particular product “P” at an increased price to “XYZ Ltd.”, a distributor. Now, XYZ Ltd. sells P to a customer “M” at a price inclusive of the increased price. If ABC Ltd., is now guilty of contravention, M, although not a direct consumer of ABC Ltd. may make a claim for compensation from ABC Ltd., as the increased price or loss suffered, was passed on by XYZ Ltd. from itself to M, thereby holding up the locus standi of M with respect to the compensation claim. In this case, the claimant will only be sued by M and not XYZ Ltd., because it “passed on” the loss or damage to M.
The defence of “passing on” is therefore particularly designed such that the actual person who has suffered the damage or loss has the right to claim, and the person or entity which has passed on the loss or damage cannot unduly take advantage and be overcompensated.
The US and EU have opposing principles while dealing with this defence of passing on.
In the Hanover Shoe, Inc. v. United Shoe Machinery Corp., case, the US Supreme Court rejected the plea of passing on and opined that it would be too difficult to compute “actual loss”. However, it is pertinent to note that in US indirect consumers are not allowed to claim compensation thereby ruling out the possibility of a multiplicity of claims.
In the EU, the defence of passing on is permitted under Article 12, which mandates EU member states to lay down rules such that claimants are not overcompensated. Recently, however, in the truck cartel case in Spain, it was decreed by the Court that the defence of passing on would be limited to only the “supply chain”, i.e. with respect to the vertical market of the infringing product or service.
In India, therefore we have to see how the courts interpret this defence of passing on and to what extent would such defence be permitted, in order to determine the extent of damages or loss that may be claimed.
Private Enforcement of Competition Law Issues: Infringement of competition law affects public interest as it has direct repercussions on both structural and proper functioning of market economy and consequently on economic activity of all operators and participants in it.[9] Competition law as a matter of public policy does not generally deal with providing compensation to private parties adversely affected by an infringement but with the investigation and punishment of infringements so as to deter such behaviour in future.[10] The main objective of the law is to encourage healthy competition in trade and business and help stop unscrupulous business activities that, in most cases, are aimed at cheating the consumers and controlling markets through means — fair or foul.[11] However, with the rise in anti-competitive agreements and exclusive arrangements entered between parties, the need to protect the private rights of the parties assumes significance in today’s times.
The primary means of enforcing competition law is done exclusively through competition law authorities established in various jurisdictions. Private enforcement of competition law issues is an established, well-developed and vibrant mode of enforcement in United States constituting the preponderance of Department of Justice (“DOJ”) and Federal Trade Commission (“FTC”).[12] Whereas in United Kingdom and European Union, traditionally though competition law enforcement was within the exclusive domain of administrative authorities, the European Commission and Office of Fair Trading, with the passage of Competition Act, 1998 and Enterprise Act, 2002, private enforcement of competition law disputes has been encouraged.[13]
In the recent past, damages actions for antitrust infringements in Europe were on the increase: national courts were regularly asked to rule on claims in follow-on actions once the European Commission or national competition authority has issued an infringement decision.[14] Compensation for damages constitutes the greatest incentive and most useful instrument with respect to private enforcement of competition law.
In India, the Competition Act, 2002 (“Act”) based on the report of a High-Level Committee on Competition Law and Policy set up by the Government was drafted to suit the needs of the ever-changing economic scenario, adopting a global approach as well as to address the concerns of the competition law regime in India. The very intent of the Act is to promote and sustain competition in markets, to protect the interests of consumers and to ensure freedom of trade carried on by other participants in markets in India.
In furtherance of this objective, the Act empowers the Competition Commission of India (CCI) with multifarious penal powers to ensure compliance with the legal regime. However, such provisions are predominantly directed towards penalising the violators rather than compensating the parties affected by the anti-competitive behaviour of one or more market players. To ensure that the victims of anti-competitive behaviour receive their dues, the Act also lays down a mechanism for such parties to seek compensation for the losses that they may have suffered due to the anti-competitive behaviour.
The private damages regime under the Indian competition law, which came into force in 2009, lays down the legislative foundation for consumers and competitors to sue for compensation in relation to the damages suffered as a result of the anti-competitive behaviour. Considering that the Competition Law is still in nascent stages in India, there has been no ruling pronounced in this space until date. While the case involving the National Stock Exchange (NSE) and the MCX Stock Exchange (MCX- SX)[15] remains the sole case to utilise the private enforcement provisions of the Act, the matter remains sub judice. Curiously, in the celebrated case involving DLF[16], while private damages litigation was drawn up against DLF, it was consequently withdrawn.
Background to the private damage’s litigation in India
Before diving into the details of the NSE case[17], by way of back- ground, the private damages regime is largely encased within Chapters VI and VIII-A of the Act.[18]
Post the recent amendment to the law, where the powers of the Competition Appellate Tribunal (COMPAT) stand transferred to the National Company Law Appellate Tribunal (NCLAT), the NCLAT now has original jurisdiction to hear applications from the Central or State Government or any person or enterprise who has suffered any loss or damage as a result of any contravention of Sections 3, 4, 5 and 6 of the Act, which has been established as a violation by the CCI or the COMPAT.[19]
The private litigation regime makes it mandatory that any claim can only arise after a finding of the violation of the substantive provisions of the Act has been established by the regulator or the appellate authority. Additionally, the enactment also provides for a application to be filed against enterprises when any damage is suffered by the applicant as a con- sequence of the enterprise violating any order or direction of the CCI or the appellate authority for seeking compensation.[20]
The Act, as drafted and amended, is significantly forward looking and provides for remedial actions, such as class action suits, which are at par with global best practices. In a situation where a group of persons have the same claim against the defaulter of the substantive provisions of the Act, a class action suit can be instituted to seek remedy. Although the Act allows one or more persons to file the application on behalf of all interested parties, this is subject to the Civil Procedure Code, 1908[21].
On the procedural front, though the Act does not stipulate the time period within which an application is to be filed for private compensation, guidance may be sought from the erstwhile monopolies and restrictive trade practices (MRTP) cases. In Director General (Investigation and Registration) v. Thermax (P) Ltd.[22] and M.S. Shoes East Ltd. v. Indian Bank[23], the MRTP Commission referred to the Supreme Court case of Corporation Bank v. Navin J. Shah[24], which lays down the “doctrine of laches” i.e., if a claim is to be made, the same must be done within a reasonable time period. Although the scope of “reasonable time” is a matter of factual consideration, in the above- mentioned precedents of the MRTP, the private compensation claims were rejected since they were brought after a delay of more than 5 years.
Background to the NSE case
In the 9 years of the Act being in force, several landmark CCI decisions are pending in appeal before the Supreme Court of India for final adjudication. The NSE case[25] was one of the first major abuse of dominance cases examined in the country and though the violation of the Act was upheld by the CCI and the COMPAT, it is presently sub judicebefore the Supreme Court
However, since the violation was upheld by the CCI and the COMPAT, under the scheme of the Act, a private damages claim was permissible to be brought before the COMPAT and the same was done by MCX-SX.[26]
By way of context, MCX-SX had filed an application against the NSE, alleging that NSE had abused its dominance in the market by engaging in predatory pricing to drive MCX-SX out of the market in the currency derivative (CD) segment. The CCI noted that NSE was dominant in the CD market and accordingly ordered NSE to modify its zero price policy in the relevant market and to cease and desist from its unfair pricing, exclusionary con- duct and unfairly using its dominant position in the other market(s) to protect its own CD market with immediate effect. Additionally, a penalty of INR 55.5 crore was also imposed on NSE.
In the appeal, the COMPAT upheld the CCI’s finding that NSE had abused its dominant position, as well as the penalty and directions given by the CCI.
Private enforcement claim based out of the NSE case
Consequent to the findings of the CCI and the COMPAT, MCX-SX filed an application with the COMPAT for compensation to the tune of INR 588.65 crore from NSE for the damages suffered as a result of the abusive conduct of NSE. Accordingly, when the matter came up for hearing, the same was adjourned as MCX-SX wanted to make amendments to the amount of compensation claimed from the NSE. Subsequently, MCX-SX filed a compensation claim for a monetary sum of INR 856 crore based on the evaluation done by the industry experts. Media report suggests that the revised compensation amount was submitted pursuant to an independent report by a chartered accountant validating the claims and calculating the compensation amount based on that.[27]
Future course of action
As the matter is pending consideration, keen eyes from across the industry will be awaiting a few key observations of the NCLAT, including in relation to the issue of damages under the Act. It remains to be seen what standard will be adopted by the NCLAT to determine the amount of compensation that can be legitimately granted to or claimed by MCX-SX. Although the Act does not provide for punitive damages, it will be interesting to see whether the NCLAT makes any observation on the “passing-on” defence. “Passing-on” defence stipulates that if the person suffering losses from the anti-competitive concerns has passed on the losses to its consumers or other downstream stakeholders, then he is not entitled to claim the amount of losses which he has passed on.
Further, considering that punitive claims are not specifically envisaged under the scheme of the Act, it remains to be seen whether the compensation provided under the Act makes this remedy a viable one compared to the costs incurred (in terms of time and money for achieving so); or whether this provision will remain a paper tiger in the statute book. In either scenario, the NSE case[28] will continue to remain under sharp scrutiny and will lay the road map for the efficiency and mobility of the private damage’s regime in India.
Conclusion
Private enforcement is becoming common in many jurisdictions, and it must be only a matter of time before it takes off in India. A framework and guidelines on the broad contours of private enforcement claims will provide certainty and boost the filing of such claims.
Although the competition paradigm of India awaits a certain number of path-breaking decisions with respect to private enforcement, a set of rules addressing the probable discrepancies towards its enforcement will definitely facilitate coordination among the various competition instruments and avoid unnecessary litigation.
[1] Finance Act, 2017, s 171
[2] Compensation Application No. 01/2015
[3] Compensation Application No. 01/2014
[4] Compensation Application No. 02/2015
[5] Compensation Application No. 02/2018
[6] Compensation Application No. 01/2019
[7] Compensation Application No. 150/1999
[8] Compensation Application No. 1/2018
[9] Why competition matters, A Guide for Policy matters, Office of Fair Trading
[10] Arbitrating Competition Law Disputes: a matter of Policy, Francesca Richmond & Sarah West, Baker & Mckenzie
[11] Competition Law to relieve consumers of unhealthy business practice, Shafique
[12] S Calkins, “Perspectives on Trade and Federal Anti-Trust Enforcement, (2003) 53 Duke L. J. 673, 699-700
[13] Professor Barry Rodger, Competition Law-Litigation in the UK Courts-Cases 2005-2008, Part I, [2009] G.C.L.R
[14] The Current Climate in Anti-Trust Damages Action in the UK and Europe, Douglas Lahnborg
[15] MCX Stock Exchange Ltd. v. National Stock Exchange of India Ltd., 2011 SCC Online CCI 52
[16] Belaire Owner’s Assn. v. DLF Ltd., Case No. 19 of 2010
[17] 2011 SCC Online CCI 52
[18] Sections 53-N, 53-Q and 42-A of the Act
[19] With effect from 26-5-2017, the appellate authority for all matter relating to the Act is the NCLAT. Originally, this power was vested in the COMPAT.
[20] Sections 42-A and 53-Q (2) of the Act.
[21] Rule 8 of Order 1 of the First Schedule
[22] (2003) 1 CPJ 158 (MRTP)
[23] (2003) 1 CPJ 131 (MRTP).
[24] (2000) 2 SCC 628: (2000) 2 CPR 13
[25] 2011 SCC Online CCI 52
[26] MCX-SX has since been renamed as Metropolitan Stock Exchange of India
[27] Ibid.
[28] 2011 SCC Online CCI 52.
