Amazon and Flipkart found violating Competition law in India-DG investigation report out
CCI imposes penalty on Godrej and Boyce for being a member of bilateral “ancillary” cartel
The Competition Commission of India (“CCI/ Commission”) vide order dated 15.01.2019 imposed a penalty of Rs. 85, 01,364/-on Godrej and Boyce manufacturing Co. Limited (“Godrej”) for acting in violation of Section 3(3) read with Section 3(1) of the Competition Act, 2002 (“the Act”).
Background
This is the second case (first being Sou Motu Case No. 02/2017 initiated suo motu by the Commission on the basis of a Leniency/ Lesser Penalty Application filed by Panasonic Corporation, Japan on behalf of itself and its Indian subsidiary , Panasonic Energy India Co. Limited and their respective Directors, officers and employees on 7th September 2016 and subsequent submissions dated 22nd September 2016 which disclosed that there existed a “bilateral ancillary cartel” between Panasonic (India) and Godrej in the institutional sales of dry cell batteries. It was further deduced from the LP application that Panasonic (India) had a primary cartel with Everyday Industries India (Everyday) and Indo National Limited (Nippo), where they coordinated the market prices of zinc-carbon dry-cell batteries and , therefore, Panasonic (India) had the fore knowledge about the time of price increase and it used as a leverage to negotiate and increase the basic price of the batteries being sold by it to Godrej. It was further disclosed in the LP application that Panasonic (India) and Godrej used to agree on the market price of the batteries being sold by them, so as to maintain price parity. Such price parity was in consonance with the prices determined by the Primary cartel consisted of Panasonic, Eveready and Nippo.
Findings of the DG report
The DG concluded a contravention by Panasonic (India) and Godrej basing its reliance on Clause 8.2 of the Product Supply Agreement (“PSA”) whereby, there existed a mutual obligation on both the parties not to take any steps detrimental to each other’s market interests with respect to the market prices and such prices were to be reviewed and maintained at an agreed level. This clause 8.2 when read with clause 17 , which stated that the agreement between Panasonic India and Godrej “was not of joint venture, partnership or agency relationship” revealed the existence of concurrence of intention between “two independent principals” in commercial transaction. In addition to this, it was found that both the parties exchanged commercially sensitive pricing strategies to maintain price parity of dry cell batteries in the market line of the prices jointly determined by the primary cartel.
In addition to concluding anti-competitive conduct by Panasonic, India and Godrej, the DG found the following individuals liable under Section 48 of the Act- (i) Mr Parimal Vazir (General manager, Institutional Sales), (ii) Mr S.K Khurana (Managing Director from 2006-2012 and Chairman and managing director 2012- 310.07.2016) of Panasonic India and (i) Mr Sorabh Parekh (Assistant Vice President) (ii) Mr Sunil Patil (Associate General manager and Head of Battery business) (iii) Mr Rakesh A. (Product and Marketing Manager) and (iv) Mr. Rajiv Jhangiani ( Executive Vice President and Business Head) of Godrej.
CCI Analysis
The Commission agreed to the DG’s findings based on the Product Supply Agreement. The Commission observed that the language of Clause 8.2 of the PSA is not one which is a mere ‘mutual comfort’ clause ( as was claimed by Godrej ), rather it imposed specific obligations on both Panasonic (India) and Godrej not to take detrimental steps against each other, who , as per Clause 17, were independent principals in commercial transactions. Accordingly, CCI observed that the very existence of Clause 8.2 when put in context by a holistic reading of other clauses of the PSA can be very well called anti-competitive. The Commission, in addition to the above conclusion of the DG, focused on the email communications between the parties which clearly showed that clause 8.2 was not only a ‘dead letter’ clause but was a deliberate clause whereby they agreed not to undercut each other in the market for dry cell batteries, by offering lower prices than what was agreed upon from time to time.
Godrej’s argument that Clause 8.2 was mandated upon it and any attempt to exclude such clause would have resulted in deadlock which would restrict its entry in the economy segment of dry cell batteries, was rejected by the CCI. The CCI observed that Godrej had never objected to the presence of the said clause and it could have refused to enter into the PSA but chose to go ahead with the agreement with open eyes and understanding for the sole reason to further its larger business interest.
It was also argued that the email exchange between the parties were only in the context of negotiations for basic price at which Godrej would buy batteries from Panasonic (India) and Panasonic (India) would quote a high procurement/basic price claiming that the market price was going up. To this the Commission observed that the not even in a single email, the terms ‘basic price’ or ‘procurement price’ has been used, and instead, all the mails are in background of maintain price parity of dry cell batteries in the market.
Another argument of Godrej was that Panasonic (India) and Godrej were in a vertical agreement with each other and were not ‘two independent competitors’. In this regard, the Commission observed that both Godrej and Panasonic (India) had themselves agreed that no joint venture, partnership or agency relationship has been constituted between them rather they would operate as two independent principals in commercial transactions. Thus, clause 8.2 of the PSA and the email exchange between the parties cannot be read in the context of buyer-seller relationship. In addition to this, it was also observed by the Commission that, though Godrej procured dry cell batteries from Panasonic (India), it sold the same under its own brand name and not as a distributor of Panasonic (India). Thus, when seen from the demand side (eyes of the consumer), the two were competitors of each other in the market of distribution and/or sale of dry cell batteries in India.
The penalty imposed on Godrej was a sum of INR 85, 01,364 calculated at 4% of the turnover for each year of the continuance of cartel.
A penalty of INR 31,75,63,152 calculated at 1.5 times the profit for each year of continuance of cartel was also decided against Panasonic (India), however, they were granted 100% reduction in the penalty amount as the Commission found that Panasonic (India) and its representatives had provided genuine, full, continuous and expeditious cooperation during the entire course of investigation which not only enabled the Commission to order investigation but also helped in establishing a contravention of Section 3.
Further, a penalty at 10% of the average of the income of three preceeding years was also imposed on the key persons of Godrej.
COMMENT: This the fourth order from CCI based on the Leniency Applications filed by Panasonic Corporation disclosing cartel and subsequent cartel like arrangements with Indian competitors/buyers of the dry cell batteries at cartelized prices fixed by the primary cartel between Panasonic, Eveready and Nippo.
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