This Paper is written by Yaminee Singh, Final Year Law Student at UPES, Dehradun
Introduction
Cartelization is one of the most damaging anti-competitive behaviours that grossly distort market equilibrium, resulting in artificially high prices, suppressed innovation, restricted market entry, and exploitation of consumers. It is collusion between competitors to manipulate prices, restrict output, divide markets, or manipulate bids, eventually hurting consumers and businesses that depend on honest competition. In newly emerging economies such as India, where economic liberalization has helped create a dynamic business environment, cartelization continues to be a serious challenge, detracting from economic efficiency and honest market conduct. The surreptitious character of cartels makes detection and enforcement challenging because the participants tend to act through concealed arrangements, posing a challenge for regulatory agencies in collecting direct proof.
In response to these issues, the Competition Act, 20021 contains a complete regime to stop cartelization, equipping the Competition Commission of India (CCI) with the ability to inquire and punish anti-competitive behaviour. Despite strict legal requirements, cartels keep appearing in different sectors like cement, drugs, automobiles, and the online space, making it necessary for more stringent enforcement powers and cross-border coordination. This article explores the prevalence of cartelization in India, the legal framework regulating it, enforcement issues, and landmark judicial rulings that have had a substantial impact on India’s competition law regime. It also looks at the role of leniency policies, whistleblower programs, and recent trends in anti-cartel enforcement, highlighting the imperative for a proactive regime to deter collusive conduct.
Understanding Cartelization
A cartel is a collection of autonomous enterprises that conspire to manipulate prices, restrict production, or split markets to stifle competition. Cartelization can manifest itself in many forms, such as:
- Price-Fixing Arrangements: Companies collude on a predetermined price for products or services instead of competing. This artificially raises prices and hurts consumers.
- In the Cement Cartel Case (2012), the CCI held that major cement producers conspired prices by way of Cement Manufacturers Association, resulting in huge fines.
- Market-Sharing Arrangements: Rivals split geographical territories or customer segments among themselves, suppressing competition in these segments2.
- The Automobile Spare Parts Cartel (2014) involved major automobile producers limiting the availability of spare parts, thus monopolizing the market.
- Bid-Rigging or Collusive Tendering: Firms make advance agreements regarding bid prices on contracts, eradicating actual competition in public procurement3.
- In Public Sector Procurement Cases, firms have been sanctioned for bid rigging in government projects, resulting in unnecessary expenditure for taxpayers.
- Output Restriction Agreements: Companies come to an understanding to restrict production or supply of goods and services to sustain high prices4.
Cartelization in Emerging Markets
Emerging markets tend to witness cartelization on account of conditions such as gaps in regulation, market concentration, and ineffective mechanisms for enforcement. In contrast to developed economies with well-defined competition laws, emerging markets lack adequate means to identify and punish cartels because of their developing regulatory systems.
The following are the major challenges behind the high level of cartelization in emerging markets: High Market Concentration: Most industries in developing nations have a high concentration of a few large players, increasing the likelihood that they can collude more easily. Laack of significant competition allows firms and industries like these to engage in price- fixing, market allocation and output restrictions without fear of new entrants disrupting their agreements. The absence of diverse market participants reduces competition, making price manipulation and tacit collusion more prevalent.
- Weaknesses in Regulation: Inadequate resources and technical skills in competition authorities result in inefficiencies in detecting and punishing cartels.
- Opaque Business Practices: Most businesses are in informal networks, which render cartel contracts hard to monitor and document.
- Political and Economic Influence: Political influence in some instances is exercised by large corporations, and enforcing against cartelization becomes difficult.
- Limited Public Awareness: Consumers and small businesses in emerging markets are usually not aware of anti-cartel legislation and their rights.
Moreover, cartel formation becomes easier in developing economies due to inadequate market transparency, limited surveillance by the regulators and, the poor corporate governance practices. Political and bureaucratic influences sometimes deter timely investigation which further complicates the enforcement. Additionally, as infrastructure and technological ecosystems in these countries are still evolving, regulatory bodies often lack access to advanced digital tools for surveillance and data analytics which prove to be crucial in detecting sophisticated cartel operations.
Legal Framework: Competition Act, 2002
In India, the Competition Act, 2002, governs anti-competitive practices, including cartelization. The Competition Commission of India (CCI) is the regulatory authority responsible for enforcing the law and penalizing cartels.
Key Provisions Against Cartelization:
Section 3(3): Agreements between enterprises that directly or indirectly determine prices, limit production or allocate markets are presumed to have an appreciable adverse effect in competition.
Section 27: CCI holds the power to impose penalties, including fines which are up to 10% of the average turnover of enterprises involved in cartelization. Additionally, CCI can also order modifications to agreements, restrict future trade practices and direct businesses to cease and prevent cartel activities5.
Section 46: Known as the Leniency Program, this program incentivises whistleblowers by reducing penalties for companies that voluntarily disclose their participation in a cartel. Up to a 100% reduction of fines can be granted to the first applicant to disclose the cartel activities, while subsequent applicants can receive lesser reductions. This provision has been critical in unearthing hidden cartels and increasing corporate compliance6.
Section 48: To ensure that the key decision- makers within the companies are held accountable, it holds directors and officers personally liable for cartel activities7.
Dawn Raids: The CCI, in collaboration with the Director General, has the authority to conduct unannounced inspections, also known as dawn raids, at business premises to gather the evidence of cartelization. This is a tool which has been used to break long- standing cartel agreements effectively.
Major Cartel Cases in India
- Cement Cartel Case: Case: Builders Association of India v. Cement Manufacturers Association & Ors. (2012)8
Facts:-
The case was commenced when Builders Association of India filed complaint alleging that major cement companies were colluding to manipulate the cement prices and control production volumes to create artificial scarcity in the market. The complaint pointed out that instead of competing, the coordinated behaviour where the cement manufacturers were engaged in parallel pricing, deliberate under- utilization of production capacity and synchronization of price- hikes. Allegedly, these actions were allegedly facilitated through the Cement Manufacturers Associations (CMA) which was used to exchange commercially sensitive information and coordinate decision under the garb of industry discussions. Not only did the practice disrupted the demand- supply equilibrium, but it also caused unjustified price volatility across regions, directly affecting the construction sectors and consumers.
CCI Ruling:-
The Director General of CCI, after a detailed investigation held that major 11 cement companies, including ACC, Ambuja Cements, UltraTech, India Cements etc were under section 3(3)(a) and 3(3)(b) of the Competition Act, 2002. It was observed by the CCI that the companies had moved in a manner which was not consistent with normal competitive market behaviour when they used the CMA platform to share pricing and production information. The conclusion of CCI’s findings resulted in the ruling that the cement companies are indeed engaged in price coordination through the Cement Manufacturers Association and a penalty of ₹6,307 crore was imposed on 11 cement manufacturers.
Impact:-
The case was a milestone in India’s anti- cartel enforcement history, reinforcing the CCI’s commitment to maintain market integrity and consumer welfare. A strong signal was sent to both, businesses and trade associations that even under industry- wide forums, collusive behaviour would be dealt with utter strictness. The misuse of trade associations was highlighted in the case which though meant to represent industry interests can become vehicles for anti- competitive coordination if left unchecked. Post this ruling, regulatory scrutiny on industry associations intensified which provided a greater emphasis on transparency, data protection and competitive neutrality. CCI’s stance against cartelization and the highlighted role of trade associations in facilitating collusion was reinforced. It also promoted increased scrutiny of industry associations as potential facilitators of anti- competitive behaviour.
2. Automobile Spare Parts Cartel: Shamsher Kataria v. Honda Siel Cars India Ltd. & Ors. (2014)9
Facts:-
A consumer and car owner, Shamsher Kataria alleged that several automobile manufacturers were engaged in anti- competitive practices by denying independent repairers access to spare parts and technical information necessary for vehicle maintenance. Upon investigation, was found that 14 major car manufacturers had created a monopolistic control over the supply of spare parts and diagnostic tools. Denial of market access to independent players amounted to a clear violation of Sections 3(4) and Section 4 of the Competition Act, 2002.
CCI Ruling:-
The CCI held that 14 automobile manufacturers had indulged in restrictive trade practices and abuse of dominant position which adversely affect competition in the market of spare parts and repair services. It was held that 14 car manufacturers indulged in restrictive trade practices. A penalty of ₹2,545 crore was imposed. Companies were also directed to cease and desist from such practices to make spare parts and were also asked to make technical information available in the open market to ensure fair competition by the CCI.
Impact:-
The need for open market access and the role of competition law in protecting consumer interest was severely emphasized in this case. It also highlighted how monopolistic control over after- sales services can harm competition and consumer rights. The case was a watershed moment in India’s competitive law regime as it brought attention to the crucial but often overlooked after- sales market, especially in the automobile sector. Moreover, a precedent for future investigations in sectors with similar closed- loop systems was set.
3. Airlines Cartel Case: Express Industry Council of India v. Jet Airways & Ors. (2018)10
Facts:-
The Express Industry Council of India (EICI) filed a complaint alleging that leading airline carriers- Jet Airways, IndiGo and SpiceJet was engaged in anti- competitive practices by colluding to fix and uniformly impose fuel surcharge rates on air cargo transportation. Resulting in artificially inflated freight charges for consumers and logistic companies, the airlines, the airlines were accused of coordinating FSC hikes in a manner that was not market- driven but mutually agreed upon. In order to introduce a mechanism which would offset the fluctuating aviation fuel prices, the surcharge was introduced but the simultaneous and uniform increase in FSC even when the period of stable or declining fuel prices is going on raised the suspicion of collusion.
CCI Ruling:-
The Competition Commission of India (CCI), after a detailed investigation, concluded that three airlines had acted in concert by exchanging sensitive pricing information and jointly deciding on the FSC rates in question. The CCI rules that such conduct did in fact amount to cartelization under section 3 of the Competition Act, 2002. A cumulative penalty of Rs 54 crore was imposed on the airlines which was calculated to be a percentage of their relevant turnover. The decision highlighted that even in the absence of a formal written agreement, coordinated conduct and parallel pricing behaviour could suffice to establish cartelization when accompanied by supporting evidence, such as email trails and meeting records.
Impact:-
This case highlighted the vulnerability of the aviation sector- particularly the air cargo segment to anti- competitive practices, especially in markets with high entry barriers and limited competitors. Issue of price coordination in the aviation sector and the dire need of strict regulatory oversight was highlighted in this case. This also demonstrated the importance of monitoring scenarios where collusion is more likely. Additionally, the effectiveness of stakeholder- led complaints in triggering significant enforcement action and encouraged greater vigilance within the industries and trade bodies.
Challenges in Detecting Cartels in India
Unavailability or lack of direct evidence: It is difficult to obtain direct evidence because cartels mostly function through secret agreements. The entire existence of cartels and the quality of its functionality depends on the secrecy of the cartel. Extreme cautions are taken by the members by using indirect communication channels, avoiding written agreements and operating under informal arrangements which makes the detection process more complex.
Weak Whistleblower Culture: Despite the Leniency Program, companies are hesitant to report cartel behaviour. When it comes to the market relations and co-existence of companies together, there is a resistance towards reporting. The fear of retaliation or reputational damage is the reasons why the companies are hesitant to report cartel behaviour. The existence of an inherent resistance in the corporate world, where businesses prefer to maintain harmonious relations rather than expose the anti- competitive practices. Employees also fear career risks, legal consequences or backlash from industry peers which further discourages whistleblowing.
Prolonged Legal Proceedings: Investigations and appeals can take years, delaying justice. Due to the level of secrecy, the number of people involved, the amount and job at stake, the proceedings become complex. Legal proceedings become highly intricate due to the complexity of cartel operations, extensive financial transactions and the detailed evidence- gathering requirements. The impact of penalties is weakened due to the lengthy litigation processes which allows businesses to continue benefitting from anti- competitive gains for extended periods before facing consequences.
Cross-Border Cartels: Globalization has increased cartel activities across jurisdictions, making enforcement complex. Many multinational corporations operate in multiple countries which allows them to shift operations, resources or agreements across cross borders to evade scrutiny. Coordinating with international regulatory authorities ensuring compliance with different legal frameworks and tracking multinational collusion remain significant challenges for Indian authorities.
Conclusion
With still room for improvement un enforcement mechanisms, legal proceedings and corporate awareness, it is safe to say that India has made a significant stride in tackling cartelization. India can focus on strengthening investigative tools by expanding the use of dawn raids, forensic auditing and digital surveillance to detect cartels more effectively. There should be strengthening of the leniency program by offering better protection and incentives for whistleblowers to encourage disclosures. The system should focus on collaborating with foreign competition authorities to track and penalize cross- border cartels and streamlining the investigation and adjudication timelines to ensure timely enforcement of competition laws. Focus should be aligned to conduct training programs, awareness campaigns and stricter monitoring if industries prone to cartelization. The consumers will be benefitted by promoting lower prices, fostering innovation and encouraging small and medium enterprises (SMEs) to thrive. Stronger regulatory enforcement will also help India build a robust economy that attracts investment and sustains long- term growth which in turn, would ensure a competitive and fair market.
- Competition Act, 2002, No. 12, Acts of Parliament, 2003 (India). ↩︎
- Competition Act, 2002, § 3(3)(c), No. 12, Acts of Parliament, 2003 (India). ↩︎
- Competition Act, 2002, § 3(3)(d), No. 12, Acts of Parliament, 2003 (India). ↩︎
- Competition Act, 2002, § 3(3)(b), No. 12, Acts of Parliament, 2003 (India). ↩︎
- Competition Act, 2002, § 27, No. 12, Acts of Parliament, 2003 (India). ↩︎
- Competition Act, 2002, § 46, No. 12, Acts of Parliament, 2003 (India). ↩︎
- Competition Act, 2002, § 48, No. 12, Acts of Parliament, 2003 (India). ↩︎
- Builders Association of India v. Cement Manufacturers’ Association & Ors., Case No. 29/2010, 2012 CompLR 629 (CCI). ↩︎
- Shamsher Kataria v. Honda Siel Cars India Ltd. & Ors., Case No. 03/2011, 2014 CompLR 119 (CCI). ↩︎
- Express Industry Council of India v. Jet Airways (India) Ltd. & Ors., Case No. 30/2013, 2018 CompLR 1 (CCI). ↩︎
