Regional Developments

India

Supreme Court Of India Orders Penalty Under The Competition Act To Be Calculated Based On The Relevant Turnover And Not On The Total Turnover

Abuse of dominant position; Cartels; Fines; India; Motor dealers; Pharmaceutical industry; Resale price maintenance

In a landmark judgment, the Supreme Court of India, vide its order dated 8 May, 2017 passed in the matter of Excel Crop Care Ltd v Competition Commission of India, decided an issue of prime importance regarding interpretation of the word “turnover” for the purpose of imposition of penalty under the Competition Act 2002 on an entity contravening the provisions relating to anti-competitive agreements (s.3 of the Competition Act) or abuse of dominant position (s.4 of the Competition Act). The issue of whether imposition of penalty on an entity should be based on its relevant turnover or total turnover has been finally settled by this order of the apex court.

The question arose when the Competition Commission of India (CCI) passed an order on 23 April 2012 against M/s Excel Crop Care Ltd (ECC”), M/s United Phosphorous Ltd (UPL), M/s Sandhya Organics Chemicals Private Ltd (SOCPL) and Agrosynth Chemicals Ltd (ACL) for forming a cartel in relation to tenders issued by the informant, Food Corp of India (FCI) for supply of Aluminium Phosphide Tablet (APT). The CCI had concluded after carrying out a detailed investigation that ECCL, UPL, SOCPL and ACL had entered into a cartel for supply of APT to FCI and therefore imposed a penalty of nine per cent of the average total turnover of the previous three years of the respective entities.

Aggrieved by the CCI’s order, appeals were filed by these entities before the Competition Appellate Tribunal (COMPAT), inter-alia, challenging the findings of the CCI and the imposition of penalty. The COMPAT, vide its order dated 29 October, 2013 upheld the findings of CCI on the existence of a cartel but on the question of quantum of penalty held that while imposition of penalty of nine per cent of the average turnover of the previous three years was reasonable, the penalty could not be imposed on the “total turnover” and had to be restricted to the “relevant turnover”, i.e. the turnover in respect of the quantum of supplies made qua the product for which cartel was formed. The COMPAT further observed that the entities were multi-product companies and therefore products other than APT could not have been included in calculating the turnover for the purpose of imposition of penalty.

ECCL and the other entities filed an appeal before the Supreme Court of India challenging the part of the order of COMPAT wherein it was observed that the entities had formed a cartel in contravention of the provisions of s.3 of the Competition Act. On the other hand, a cross appeal was also filed by the CCI challenging the part of the order of COMPAT whereby the penalty imposed on the entities was restricted to relevant turnover, i.e. turnover with respect to APT alone instead of total turnover. Dismissing the appeals filed by the entities as well as CCI, the Supreme Court upheld the order of COMPAT with respect to the imposition of the penalty on the relevant turnover of the entities and not the total turnover.

CCI imposes a penalty of INR 8.7 billion on Hyundai Motors

The CCI, vide its order dated 14 June, 2017, has imposed a penalty on Hyundai Motor India Limited (HMIL) of INR 8.7 billion for anti-competitive conduct. CCI started its investigation based on the information received by the dealers of HMIL viz Fx Enterprise Solution India Pvt Ltd and St Antony’s Car Pvt Ltd.

CCI, after investigating into the matter, found HMIL to be imposing arrangements upon its dealers which resulted into resale price maintenance in the sale of passenger cars manufactured by it. Such arrangement also included monitoring of the maximum permissible discount level through a discount control mechanism. Further, HMIL was mandating its dealers to use recommended lubricants/oils and HMIL used to penalise its dealers for using non-recommended lubricants and oils. As such, CCI after investigating found HMIL to be in contravention of s.3(4) of the Competition Act dealing with vertical anti-competitive agreements and s.3(1) of the Competition Act which prohibits any person from entering into any anti-competitive agreement which causes or may cause an appreciable adverse effect on competition within India.

CCI observed in its order that for the purpose of determining the relevant turnover for the impugned infringement, revenue from the sale of motor vehicles alone has been taken into account. After a detailed reasoning in its order CCI imposed a penalty of 0.3 per cent of the average relevant turnover of HMIL of the preceding three years which amounts to INR 8.7 billion and further issued a cease and desist order against HMIL.

CCI orders investigation against Roche

The CCI has formed a prima facie view that F. Hoffmann-La Roche AG, Genentech, Inc and Roche Products (India) P Ltd (collectively referred to as the “Roche Group”) have abused their dominant position and have ordered the Director General to carry out an investigation vide an interim order dated 21 April 2017. The order was passed by the CCI following a complaint filed by Biocon Ltd and Mylan Pharmaceuticals Pvt Ltd (informants) in July 2016, inter alia, alleging anti-competitive conduct by the Roche Group to protect and maintain monopoly of its Trastuzumab drug used in the treatment for early breast cancer and metastatic gastric cancer. It was alleged that the Roche Group misused its dominant position to put into operation a series of actions such as writing to Drugs Controller General of India, National Pharmaceutical Pricing Authority and various other doctors regarding the safety and clinical testing of the nformants’ biosimilars with the intention to obstruct entry and development of the nformants’ biosimilars.

CCI observed in its order that the Roche Group is dominant and independent in the market based on its share, size, first mover advantage, dependence from consumers, absence of countervailing buying power and high entry barriers. CCI further observed that the relevant market, which is the pharmaceutical sector, is predominantly governed by the decision of doctors and therefore influencing doctors by raising concerns on the safety of a drug will affect any company which does not have a strong marketing channel which will thereby result in killing the competition in the relevant market. CCI relied on the European Court of Justice’s decision in AstraZeneca to rule that Roche Group’s acts of influencing regulatory authorities, indulging into negative advertisements vide misrepresentation to tender authorities has created a negative approach with respect to approvals granted to the informants’ biosimilars and has adversely affected the iInformants’ penetration in the relevant market. The CCI thereby concluded that the Roche Group may have prima facie abused its dominant position in the market and therefore may be in violation of s.4 (2) of the Competition Act.

COMPAT scrapped. NCLAT to hearappeals against orders of CCI

The Government of India, vide its notification dated 26 May, 2017 has scrapped the COMPAT and has transferred all pending cases to the newly formed National Company Law Appellate Tribunal (NCLAT).

Suchitra Chitale
Chitale & Chitale Partners, New Delhi

Netherlands  

District Court Of Amsterdam Rules On The Validity Of The Assignments And Prescription Of CDC’s Claims For Damages In Sodium Chlorate Cartel

Assignment; Cartels; Claims management; Date of knowledge; EU law; Limitation periods; Netherlands; Principle of effectiveness; Private enforcement; Validity

On 10 May 2017, the District Court of Amsterdam issued an interim judgment in a damages action filed by claim vehicle CDC against Kemira Chemicals Oy (Kemira), a producer of sodium chlorate. It follows from the judgment that the time-barring of claims is not absolute and that for each individual claimant—taking into account all circumstances of the case—it must be determined whether it would violate the effectiveness of EU law if the claims for damages are time-barred.

CDC based its €61 million claim on a decision of the European Commission of 11 June 2008, in which the Commission fined several producers of sodium chlorate for allocating sales volumes and fixing prices. Twelve groups of purchasers of sodium chlorate that allegedly suffered damage as a result of the cartel subsequently transferred their claims to CDC.

The District Court considered whether the purchasers had validly assigned their claims to CDC under Dutch law. Kemira argued that the assignments were invalid on three different grounds, which were all rejected by the District Court. The Court first dismissed Kemira’s argument that the claims could not be sufficiently determined. Secondly, the District Court rejected Kemira’s argument that the Dutch prohibition on ownership of collateral (fiduciaverbod) had been violated because the purchase price of the claims was partially dependent on the outcome of the proceedings. The District Court ruled that there had been a real transfer of the claims to CDC, confirmed by the assignors’ right to repurchase their claims. Lastly, Kemira argued that the assignments were contrary to the public interest because CDC would transfer any compensation directly to the purchasers and investors, making it hard to recover any costs. However, CDC had reserved €55,000 in its lawyer’s third party account, which according to the District Court was enough to cover the costs.

After concluding that the assignments were valid, the District Court examined whether CDC’s claims were time-barred. Under the Dutch Unlawful Act (Conflict of Laws) Act, the court had to assess this under the laws of the countries of the purchasers’ production locations. The District Court found that under Spanish, Czech and Slovakian law, CDC’s claims were time-barred. As for Finnish and Swedish law, CDC argued that if the claims were time-barred, this would violate the effectiveness of EU law, including the right to effective compensation.

Under Finnish law, part of CDC’s claims was time-barred about six months after the summary of the Commission’s decision was published. CDC argued that the purchasers only became aware of the cartel and possible damages because of this summary. However, the District Court found that the purchasers had been made aware a year earlier when the Commission’s press release was issued, and that CDC had not explained which essential information could be derived from the summary that was not included in the press release. The purchasers therefore had about 18 months to initiate proceedings, which meant that the effectiveness of EU law had not been violated. Under Swedish law, the claims were time-barred before the purchasers had any awareness of the cartel. Yet, CDC did not institute