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Criminal Sanctions for enforcement of Competition Law: An Analysis of Issues and Challenges

India has had its own version of competition law for 40 years, which was implemented by a law called the 1969 Monopolies and Restrictive Trade Practices Act (MRTP Act). This legislation, based on the values of an economy of command and control, was intended to establish a legislative system in the nation that did not permit concentration of financial authority in a few hands that was detrimental to the public interest and thus forbidden any monopolistic and restrictive trade methods.

Post-economic liberalization in 1991, establishing a competition law system that was more responsive to the nation's financial realities and in line with global procedures, became essential. Consequently, a detailed competition law- the Competition Act 2002 was endorsed by the Indian Parliament in 2002 to regulate company practices in India in order to avoid practices with significant negative effects on competition in India.

The efficacy and enforcement of competition law, based on financial punishment and behavioral and structural remedies, has always been a controversial problem. Such enforcement based on fines and other remedies is asserted to have a less deterrent impact than a criminal penalty-based scheme. Some of the lawyers and writers have therefore suggested that criminal sanctions should be included in the enforcement of competition law.

At the same moment, it should be observed that some nations that originally implemented criminal penalties for enforcing competition law eventually decriminalized the same thing and embraced a civil strategy. In the Netherlands, for instance, the Competition Act, which entered into force in 1997, substituted a previous criminal enforcement scheme with a purely administrative scheme with only corporate penalties.

Similarly, in Austria, the 2002 Competition Law reform replaced a system of criminal enforcement by a system of administrative fines for companies. Also, in Luxembourg, the Competition Act, 2004 abolished an earlier competition regime based on criminal enforcement and replaced it by a new regime based on only fines. Given the growing significance of modern competition law, the efficacy of criminal sanctions for the enforcement of competition law needs to be examined. This article therefore seeks to examine the necessity and efficiency of criminal sanctions in enforcing competition law.

Criminal Sanctions Under Competition Law In Other Countries

United Kingdom:
The UK has been having a criminal offense for cartels for a decade. Individuals directly engaged in the most severe type of competitive agreements–price fixing, production restriction, market-sharing or bid-rigging can be convicted of a criminal offense with penalties of up to five years in prison and/or significant private fines.

However, only two prosecutions have been brought in the decade since the introduction of this cartel offence, and only one of them has resulted in a conviction – the prosecution relating to the marine hoses cartel (which was also being prosecuted in the United States), resulting in three executives being imprisoned for periods ranging from two-and - a-half to three years.
The comparative lack of prosecutions under the UK criminal offense for cartels has, of course, resulted in a corresponding weakening of the deterrent impact of the offense ; if there are very few prosecutions, individuals believe there is only a distant danger of facing criminal sanctions.

There has been a belief, within the UK Government and within the UK competition authorities, that the low level of prosecutions under the UK’s cartel offence is, at least partly, attributable to the high statutory threshold for bringing prosecutions under the offence as formulated: namely, that the prosecution needs to prove not only that the individual was directly involved in the agreements concerned, but also that the individual acted dishonestly.

In this context, the UK competition authorities considered the notion of ' dishonesty ' to be vague, problematic and hard to create. An individual who violates the new law may be sentenced up to five years in jail and subjected to an unlimited fine. The length of the jail term and amount of the fine will be left to the sentencing court’s discretion.

Already this year, the EU and Canada have taken action to increase the scope and deterrent effect of their respective civil competition rules. And with the enactment of UK's new antitrust law and its leniency, extradition, and higher investigative powers regulations, people engaged in anticompetitive behavior will have to cope with yet another jurisdiction in which the detection opportunities are high. For those caught in violation of the criminal antitrust law of the United Kingdom, they will face not only heavy penalties, but also up to 60 months in prison. Individuals within and outside the UK should therefore believe closely before entering into any contacts with rivals that might be viewed.

Belgium:
Belgium's new Competition Act entered into force in September 2013 as part of the country's new Code of Business and Economic Law. One innovation is that it will now be feasible to impose penalties on people as well as on businesses for infringements of cartels. Personal fines will be up to € 10,000 (about GB £ 8,350 or US $13,350).

New Zealand:
Comparable developments are taking place in New Zealand, where the proposed legislation–the Cartel Criminalization Bill–is under consideration. This is to provide that individuals directly involved in the most serious types of anti-competitive agreements–price-fixing, market-sharing, production limitations and bid-rigging–will face criminal penalties, including up to seven years in prison.

The legislation is controversial, and debate continues on some of the issues that have also been the subject of controversy in the United Kingdom, such as whether it will be a defense, to show that an individual honestly believed that his or her conduct was reasonably necessary for the purpose of legitimate collaborative action.

United States of America:
There are mainly three federal anti-trust laws that govern anti-competitive practices in the U.S.A.
They are the Sherman Act, clayton Act and the Federal Trade Commission Act. Both the clayton act and Federal Trade Commission Act do not carry criminal penalties. Only the Sherman act endorses criminal penalties for anti-competitive practices.

Since 1890, the Sherman Antitrust Act has been the main law expressing our domestic dedication to a free market economy in which competition free from personal and government restrictions contributes to the highest outcomes for customers. Congress felt so heavily about this undertaking that there was only one vote against the Act.

The Sherman Act outlaws all contracts, combinations, and conspiracies that unreasonably restrain interstate and foreign trade. These include all the agreements that are present in association with competitors who indulge in fixed pricing, rig bids and allocation of customers.

The Sherman Act also makes it a crime to monopolize any portion of interstate trade. An illegitimate monopoly occurs when only one company controls the market for a product or service and has acquired that market power, not because its product or service is superior to others, but by suppressing anti-competitive competition.

Sherman Act violations involving agreements between competitors usually are punished as criminal felonies. The Department of Justice alone is empowered to bring criminal prosecutions under the Sherman Act.

The contemporary proliferation of criminal cartel sanctions can be traced back to the enactment of the Sherman Act in the United States in 1890. This made cartel activity a misdemeanor under section 1 (prohibition of collusive behavior) punishable by up to one year in prison. Congress boosted cartel activity to a felony in 1974 and rose the maximum prison sentence from one to three years. In 2004, the Antitrust Criminal Penalty Enhancement and Reform Act rose the maximum individual penalty from US$ 350,000 to US$ 1 million and the maximum prison term from three to ten years.

Penalties Under The Competiton Act 2002

Competition law in India is governed by the competition law of 2002 and related rules and regulations, the aim of the competition law is to avoid anti-competitive practices, to encourage and maintain competition, to safeguard the interests of customers and to guarantee freedom of trade in markets.

There are no criminal sanctions for a cartel violation under The Competition Act. Although the CCI has the power to enforce remedies in terms on monetary policies. If the CCI comes to a conclusion that any agreement is in breach of Section 3 of The Competition Act, then it can pass any or all of the following orders:
  • Direct the parties involved to discontinue and not re-enter into an anti-competitive agreement – a cease and desist direction.
     
  • Impose a penalty of up to 10% of the average turnover of the contravening enterprise for the three preceding financial years. Where the CCI find a a cartel it may, alternatively, impose a penalty of up to three times the cartel participant’s profit, or 10% of its turnover, for each year of the continuance of cartel, whichever is higher.
     
  • Direct the modification of the terms/clauses of an anti-competitive agreement

  • Direct the enterprise to abide by the directions of the CCI, including payment of costs; and/or
     
  • Pass any other order or direction, as the CCI may deem fit.

The use of criminal law to prevent market failures and to protect the interests of customers is not a fresh concept. Even in ancient India, market malpractice was regarded an offence and an elaborate debate can be found in the Vedas.

The history of other nations also demonstrates that criminal sanctions have been used to prevent market malpractice. For example, in Austria, the seller of adulterated goods had to swallow all of the adulterated products publicly, and in France, in the 16th century, there was a law allowing people to throw eggs at those who sold low-quality eggs. Criminal law has therefore been used to detect, prevent and punish malpractices in the marketplace.

It should be observed that there is a severe weakness in the competition law based on the financial punishment. This is because, in general, a prospective violator of competition law would provisionally calculate the quantity of economic profit that he would make from his anti-competitive practice and would also calculate roughly the quantity of monetary punishment that he might incur if he were captured by law. Although the precise quantity of the fine is hard to calculate, the prospective offender may calculate the approximate quantity by examining the practice of competition authorities. Thus, if the monetary penalty is calculated in terms of net financial profit then there will be no hesitance in taking up anti-competitive practices.

Therefore, in order to remedy this weakness, it is suggested that the Competition Act should criminalise anti-competitive practices and provide for criminal sanctions, such as imprisonment.

Theories Attributing To Inclusion Of Criminal Sanctions In Competition

There are various arguments put forward by jurists in support of the inclusion of criminal sanctions in Competition Act

The Utilitarian Justification of Deterrence
The Utilitarian Justification of Deterrence is based on the assumption that criminal sanctions have more deterrent effect than a civil sanction. It is asserted that, for the first time, this will guarantee efficient dissuasion as opposed to civil penalties. There has been a general agreement that pecuniary sanctions do not fulfil the standard of efficient dissuasion, since these penalties are short-lived compared to the profits made from the infringement.

Applying this theory to competition law would mean that punishment for anti-competitive practices, even if it causes pain, could be justified because it incapacitates the offender.
It specifically deters offenders from future crimes, promotes general deterrence, and may reform the offender. The US Antitrust laws are based on this justification.

The Retributivist Non- Consequential Justification
This argument is based on the retributive theory of punishment, which means that a crime is not aimed merely at the sufferer but is in affront to the community itself which should avenge the wrong and see that retribution overtakes the wrongdoer. Thus, according to this reasoning, offenders deserve penalty because they are morally guilty. Persons or companies engaged in anti-competitive practices have performed wrong both to the person and to society and must therefore be rewarded with punishment for such wrongdoings.

Stigma Effect
The imposition of criminal sanctions is regarded to be stigmatised. This is because criminal acts and their penalties are widely publicized. The hostile reaction of society and the consequential effect on family and friends would assist to dissuade like-minded people from committing and repeating such offences.

To legitimize the Extra Territorial Application of Competition Law
In modern times, owing to advances in international trade, there are no territorial limits to anti-competitive practices. Business practices of multinational companies may influence the market circumstances of more than one country. As a consequence, contemporary competition law must provide for extra territorial implementation where there is an adverse effect on the market. The Competition Act provides for an extra territorial application under Section 32.

It should be observed, however, that the Competition Act is only a civil law. The implementation of civil competition law by one nation in the land of another nation is not permitted under international law. This is because, under international law, every State is equivalent and sovereign, so that no State can impose its civil law in the land of another nation.

no state can exercise jurisdiction on a cause of action arising in another country. However under the criminal jurisdiction extra territorial jurisdiction is permissible on various principles such as active nationality, passive nationality, and protective principle.

To ensure Cooperation among countries
It is further asserted that, in the event of criminal sanctions, it would guarantee collaboration between States in the prosecution of such perpetrators. This is because there is no scheme of extradition for a civil act under international law. In the case of a criminal case, however, such a transfer can be facilitated by means of the extradition treaties between countries. In 2010 UK extradited Mr. Ian Norris to USA for price fixing.

Issues In Enforcement Of Criminal Sanctions Under Competition In India Individuals

There are various reasons and issues as to why criminal sanctions have still not been enforced under competition law in India.

Mens Rea + Actus Reus:
The main problem is that both actus reus and mens rea are crucial in order to constitute a crime. Actus reus is a physical act that is engaged in a crime and mens rea is a guilty mind for committing such an act. The component of actus reus can be established in competition law by creating an anti-competitive contract or an abusive exercise on the part of the accused. However, evidence of men's rea or guilty intent is a herculean task.

This is because the accused is mainly a corporate personality in an anti-competitive practice. The issue therefore occurs as to whether the intention of the manager or the worker or the officer of the company / corporate may be attributed to such a legal entity.

Detection of the Offender:
Another problem that occurs is that an anti-competitive practice may be carried out by a manager / employee or an officer of a corporate body. In such a case, the question is who can be held criminally liable or, in other words, who can be considered an accused?

This is because, in general, anti-competitive practices are carried out on behalf of a company / corporate company. Decisions on such procedures shall be taken at the management level; however, they shall be carried out by staff. The issue therefore arises as to whether the manager or the worker should be regarded as an accused in such a situation or whether the firm can also be regarded as an accused.

Civil Competition law:
The fourth main issue is that the enforcement authority, i.e., initiates proceedings in most of the nations that follow civil competition law, including India. Competition and financial punishment are imposed by the Commission. The Competition Commission can therefore be both an aggrieved party and a decision-maker at the same moment. However, if competition law is of a criminal nature, such implementation is not appropriate.

This is because India has an adversarial criminal prosecution scheme, so both the prosecutor and the judge should not be the same individual. In addition, such a trial would infringe the fundamental right to a fair trial of the accused.

Proof of anti-competitive practices:
The final issue concerns the evidence of anti-competitive practices. This is because the standard of proof required in a criminal case is very high compared with that required in a civil case. In a civil case, the penalty may be imposed on the offender on the grounds of an equilibrium of probabilities; however, in a criminal case, in order to impose a penalty, the case must be established beyond any reasonable doubt.

Therefore, in order to impose a criminal penalty in a competition law case, the guilt of the accused should be established beyond any reasonable doubt.

Moreover, in competition law instances the inquiry is carried out either by the Commission itself or by the Agency as Director General appointed by the Commission. It should be observed that members of the committee or other organisation involved in the inquiry are usually not trained in the inquiry of offenses. Thus, it can be asserted that it is very hard to gather proof and prove the guilt of the accused in a criminal competition situation.

Absence of case prioritization policy
Under the present scenario the Competition Commission is obligated under a legal duty to issue and consider orders which are related to all the information and references that are received. The CCI does have not the power to prioritise cases like the Competition Market Authorities (CMA) in the UK, where the Prioritisation of Principles for the CMA prescribe a range of factors that the CMA is required to consider before commencing an investigation. Under the Competition Act, the CCI has to prima facie determine the case of contravention and issue and order to the DG to investigate the case irrespective of the workload that that DG has.

There is also a scarcity of resources and investigation of a large number of cases they often fail to apply themselves to any case completely. Furthermore, heavy caseloads also leads to inconsistency and irregularity in procedures and investigations which later turns out that the findings by the CCI are overturned.

Lack of penalty guidelines:
Despite the Supreme Court having ruled in the Excel Crop Care that while calculating the penalty, the turnover to be considered should be relevant turnover and not total turnover, there are still no guidelines issued by the CCI on the factors to be taken into account while calculating penalty.

Penalising Individuals:
The responsible individuals and office bearers are being increasingly penalised by CCI under Section 48 of the Competition act for breaching involvement in companies/associations. In the past few years the CCI has been imposing the penalties on people who have been actively participating in giving action to anti-competitive practices. The CCI, has however, not followed a consistent method in penalising individuals.

Conclusion
Therefore, in the light of the above, it is worthwhile to observe that the enforcement of penal sanctions is certainly difficult but is a necessity.

Although it is difficult to establish mens-rea and prove such intention , there should be sanctions where in an anti-competitive structure is created because of the intentions of the market participants.

Competition law is the primary instrument in the hands of governments to generate competition on the market and to eliminate anti-competitive practices. However, the accomplishment of these goals is not an simple task. Therefore, in order to guarantee the efficiency of competition law and to attain its goals, it is suggested that competition law be criminalised. Criminal law is trying to create that a criminal act will not end as a lucrative undertaking, but that it would be a bad deal for the offender. The temptation to retain or encourage one's selfish interest lies at the bottom of every crime.

The following suggestions can be considered to address the issues in enforcement policy
  1. Anti-competitive practices which are deemed to be illegal by different jurisdictions under competition law may be regarded as offences under competition law.

  2. Vicarious liability should be placed on the business and other persons engaged in such operations. Although vicarious responsibility is not a general rule of law in criminal law, a statute may impose vicarious responsibility. Consequently, all individuals engaged at the decision-making stage and the level of execution should be regarded criminally responsible.

  3. The presence of mens rea to constitute liability of a company should be considered.

  4. A proper market investigation body with a sufficient amount of qualified researchers should be created for the inquiry of competition law instances.

Bibliography
  • Crowell.com. (2019). [online] Available at: https://www.crowell.com/pdf/UK.pdf [Accessed 25 Sep.2019].
  • Docs.manupatra.in. (2019). [online] Available at: ..http://docs.manupatra.in/newsline/articles/Upload/C4CC25AB-8C8F-4C9D-9C0E-…A369D01611A9.pdf ..[Accessed 24 Sep. 2019].
  • Justice.gov. (2019). [online] Available at: https://www.justice.gov/atr/file/800691/download [Accessed 25 Sep. 2019].
  • Nlujodhpur.ac.in. (2019). [online] Available at: http://www.nlujodhpur.ac.in/downloads/compettion_law_cirque.pdf [Accessed 25 Sep. 2019].
  • 9 BRENDAN J. SWEENEY, THE INTERNATIONALIZATION OF COMPETITION RULES, 109 (Routledge, USA, 2010
  • Criminalization of Cartel activity – A desirable goals for India’s Competition Regime? – Ariel Ezrachi and jiøí Kindl.
  • The call for criminal sanctions for enforcement of Competition law and its practical concerns- Dr. Aneesh V. Pillai
  • Criminal Sanctions under state and Federal Anti-trust law – John J Flynn
  • Criminal Sanction: An overview of EU and International Perspectives
  • Criminal Cartel Offence around the world.

Written By: Ahilya Pusalkar

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