Opinion Disagreeing on ‘agreement’

In this case,the director general (DG),in his investigation report,found among other things that,in a meeting of the Indian Banks Association,a collective decision was taken to impose a prepayment charge. Surprisingly,in a sweeping conclusion,the DG had implicated even those HFCs which were not members of the IBA,had never attended the impugned meeting of the IBA,nor received the IBA circular to the member banks; clearly there was no ground for the DG to implicate such HFCs.

Somewhat disconcertingly,the majority decision of the CCI seems to have set an unusually high threshold on the issue of what amounts to an “agreement”,by concluding that the meeting of the IBA did not evidence any agreement or action in concert,but merely a discussion — and,further,that the IBA circular in question had left it to the individual banks to take a decision whether or not to levy the prepayment charge,and if so how much. The leniency displayed by the CCI could have consequences beyond this case in its fight against cartels,allegedly one of the persistent features of the Indian markets.

The Competition Act defines an “agreement” very widely and includes any “arrangement,understanding or action in concert”,“whether or not formal or in writing” or “intended to be enforceable by legal proceedings”. Similarly,in mature jurisdictions,a broad interpretation is given to each of the terms “agreement”,“decision” and “concerted practice”,and there are numerous instances where cartels have been punished based on merely exchange of sensitive commercial information,or acts/ practices well short of a formal legally enforceable agreement.

Indeed,the European Court,in Suiker Unie (1975),observed: “the concept of concerted practice refers to a form of coordination between undertakings which without having been taken to the stage where an agreement properly so-called has been concluded,knowingly substitutes for the risks of competition,practical cooperation between them…” In Tate & Lyle (2001),the European court held the disclosure of intentions by even one of the participants at a meeting amounted to a punishable agreement,or concerted practice. In Arnold Pontiac-GMC,Inc (1987),the US courts were of the view that a memorandum describing the meeting provided direct evidence of the conspiracy amongst competitors.

While respecting the majority view of the CCI,the facts evidence a discussion in the IBA meeting where a normally prohibited subject was discussed and information was shared such that this influenced the independent minds of the member-banks on the issue of levying prepayment charges — thereby adversely affecting the level of competition in the market for home loans. By letting off the IBA member banks lightly (as distinct from those HFCs,which were not members),the CCI may have compromised its ability to punish other suspected cartels of a more insidious nature,including where these allegedly operate through trade associations. The requirement of proving a legally enforceable agreement entered into at a particular point in time sets the bar very high.

In Steel Beams (1999),the European court held that mere attendance by an undertaking at meetings involving anti-competitive activities suffices to establish its participation in those activities in the absence of proof capable of establishing the contrary. An act of “public distancing” is generally necessary to dissociate an enterprise from such actions. In T-Mobile Netherlands (2009),the same court observed that even a single meeting was sufficient — and what matters is whether the meeting afforded the undertakings an opportunity to take account of the information exchanged in order to determine their conduct and knowingly substitute practical cooperation between them for the risks of competition. Thus if one IBA member bank got to know of other banks’ intention to impose pre-payment charges,it could decide that there was low competitive risk if it too decided to introduce such charges.

The IBA has a history of useful work in the banking sector,and in this case,it had not operated in a clandestine manner,and the member banks may not have intended to breach the competition law. This could have been a mitigating factor in deciding on the remedy or the quantum of punishment — but this could not be a ground for not finding a violation of Section 3 of the Competition Act. One would hope that the CCI would soon enough consider a course correction.

The writer is a former chairman of the CCI. This article was co-written with Sonam Mathur express@expressindia.com