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Coronavirus crisis: Companies using COVID-19 pandemic to adversely affect consumers may face CCI's wrath

Leadership at companies in India would need to guide their businesses to streamline their practices in the wake of COVID-19 and factor the directives issued by the government for essential goods and services

Soumya Hariharan        Last Updated: March 31, 2020  | 18:16 IST
Coronavirus crisis: Companies using COVID-19 pandemic to adversely affect consumers may face CCI's wrath
The Competition Commission of India (CCI) regulates anti-competitive practices and is empowered to penalise companies and their representatives for violating provisions of the Competition Act, 2002 (Act)

India is in the thick of combating the global pandemic and is currently subject to temporary lockdown due to the spread of novel coronavirus (COVID-19).

We have witnessed disruption in food supplies, shortage of Fast-Moving Consumer Goods (FMCG) and essential commodities, and a sudden increase in demand for certain medical and healthcare products such as, ventilators, face masks, etc over the last few weeks.

The demand for daily staples has precipitously increased due to disruption in logistics, uncertainty in supply-chain across state borders and panic buying.

In such unprecedented times, governments across the world are implementing measures to remedy social and economic concerns on an evolving basis.

In India, competition law aims to promote and sustain competition in markets thereby protecting the interests of consumers by preventing practices that can cause an appreciable adverse effect on competition.

Consumers benefit when market players compete to offer goods and services at lower prices and better quality as opposed to companies coordinating with each other to consumer's disadvantage.

Also Read: Coronavirus: 'Shut my companies but still paying employees,' says Vijay Mallya

The Competition Commission of India (CCI) regulates anti-competitive practices and is empowered to penalise companies and their representatives for violating provisions of the Competition Act, 2002 (Act).

Globally, the pandemic has witnessed companies across sectors vigorously support and offer their resources to governments to overcome the shortages due to deficit in local production on account of manpower, import restrictions in the supply of essential goods and services, restricted movement of goods, and reduced delivery slots by e-commerce retailers.

This scenario may require companies to jointly collaborate and co-operate as necessitated by their governments to maintain adequate production and supply of critical commodities namely food items, face masks, sanitisers, pharmaceuticals, and healthcare products, etc.

To enable temporary co-ordination amongst companies (including competitors), competition regulators across the world have relaxed rules and implemented specific directions for companies engaged in providing such essential commodities.

Such relaxations neither confer an absolute immunity on companies from complying with competition law nor grant companies a waiver to implement arrangements to the detriment of consumers.

Any collaboration to increase prices, allocate markets or for a dominant company to unjustifiably increase prices or stipulate unfair or arbitrary terms, will be subject to existing competition law enforcement.

Competition regulators have issued guidelines to companies on their approach to the pandemic with a clear warning that any 'unjustified breach' in their conduct will not escape competition scrutiny.

The United States (US) and the European Union (EU) have warned of strict action in case of price gouging (sale of goods at inflated prices), in the wake of the crisis.

Companies such as, Amazon, Facebook, Walmart have adopted pre-emptive steps by monitoring the sale and listing of high-demand items on their platforms to prevent price gouging.

Competition regulators have launched investigations against companies alleged to have adopted anti-competitive practices resulting in unfair prices and shortages of critical products during COVID-19.

The Hellenic Competition Commission (Greece) has initiated an investigation into price increases and output restrictions in healthcare materials such as surgical masks/disposable gloves, including antiseptic wipes and solutions.

Similarly, Poland's Office of Competition and Consumer Protection is currently investigating a rise in the prices of food and hygiene products and whether the medical equipment suppliers abused their dominance by restricting doctors' access to personal health protection equipment (surgical masks).

Also Read:L&T to donate Rs 150 crore to support India's fight against coronavirus

The approach adopted by competition regulators signals zero-tolerance in the enforcement of competition law with no blanket immunity to anti-competitive practices.

In India as of date, neither the CCI nor the Ministry of Corporate Affairs (MCA) has issued guidelines that temporarily relax any form of collaboration amongst companies, including competitors from a competition law perspective.

The central government has declared hand sanitisers and protective masks to be "essential commodities" until June 30, 2020 under the Essential Commodities Act, 1955 (EC Act).

This step enhances the availability of both these commodities to the general public at reasonable prices or under the maximum retail price (MRP).

The EC Act has capped the prices of certain commodities, including protective face masks, hand sanitisers at the prices prevailing as of February 12, 2020. The directives issued by the government on a periodic basis are aimed at relieving the hardships faced by the consumers.

In the absence of any specific guidelines from the CCI or the MCA, companies would need to align their business practices with existing competition law principles in India.

Global companies present in India may not benefit from the relaxations they enjoy in other jurisdictions and would need to appropriately design their business practices in India from a local compliance standpoint.

Companies operating on the frontline by providing goods and services in the healthcare, pharmaceutical, FMCG, super-market, medical equipment, and dairy sectors would need to ensure that any modification to their existing business practices to combat COVID-19 are legally compliant.

Any change in market practices (especially unlawful co-operation with competitors) in an attempt to increase their revenue is likely to have far-reaching ramifications.

Collusion by competitors as a reaction to shortage at the state level would squarely fall within the ambit of the CCI's domain. Enterprises that enjoy significant market power have an additional responsibility to act with caution in times of crisis, especially if they are engaged in the supply of essential commodities.

Using COVID-19 as an opportunity to adversely affect consumers could attract scrutiny by competition regulators. Any knee-jerk modifications by companies in a dominant position, particularly engaging in excessive pricing, can attract penalties on the enterprises and their directors/officials who are found to be guilty.

Leadership at companies in India would need to guide their businesses to streamline their practices in the wake of COVID-19 and factor the directives issued by the government for essential goods and services.

Constant monitoring backed by legally compliant measures is required in ensuring that access to essential goods and services is not disrupted and resultantly does not cause harm to the public at large.

(The author is a competition law partner at law firm Trilegal. Nandita Sahai and Sakshi Agarwal are senior associates and Akrathi Shetty, associate at Trilegal also co-authored this piece.)

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