'Private Enforcement' and 'Umbrella Damages' in the Indian Competition Law Regime
Author: Kamakshi Puri
The author is a student at the Jindal Global Law School, Sonipat
I. Private Enforcement
Private enforcement is the mechanism through which individuals and enterprises invoke competition law rules to claim compensation for losses occurred to them due to the violation by another enterprise. This is secondary to the public enforcement mechanism, which spearheaded by the Competition Commission of India ("CCI"), establishes and subsequently penalizes anti-competitive behaviour of enterprises. The objective of the public enforcement mechanism is to protect the market from unfair competition and it's adverse effects whereas the objective of private enforcement is to seek compensation for losses occurred due to another's anti-competitive acts. Private enforcement is, therefore, a second stage proceeding that comes after competition violation is established by the relevant courts. These can also be understood as follow-on claims. Section 53N of the Competition Act, 2002 ("the Act") provides an avenue to any person or enterprise to approach the Competition Appellate Tribunal ("COMPAT") - now National Company Law Appellate Tribunal ("NCLAT")[i], by way of application under the said section for recovery of compensation from the enterprise whose infringing conduct has caused the loss or damage. Under this section, the applicant has the burden to show existence of three elements (i) competition violation established by the CCI or COMPAT under the Act (ii) loss or damage suffered and (iii) that loss resulted from acts that were in violation of the Act i.e. a causal relation between infringement and effects.
Till today there have been about six compensation applications under Section 53N that have survived, however, there is yet to be a final order on any of these applications. Many like the Amit Jain v. DLF Ltd.[ii] were filed but subsequently withdrawn before order on compensation was passed. From the ones that did survive, three - MCX Stock Exchange Ltd v. National Stock Exchange of India Ltd[iii], Sai Wardha Power Ltd v. Coal India Ltd & Ors[iv] and Maharashtra State Power Generation Company Ltd v. Nair Coal Services Pvt Ltd & Ors[v] - are stuck on the first step of establishing violation as appeals to the COMPAT decision are filed before the Supreme Court. Other applications such as Food Corporation of India v. Excel Corp Care Ltd & Ors[vi], Wasan Exports Pvt. Ltd. v. Canara Bank & Ors[vii] and Satyendra Singh & Ors. v. Ghaziabad Development Authority[viii] are either still on admission stage or are drowning in a sea of adjournments and delayed procedures. With this as the state of compensation applications, a concrete jurisprudence on private enforcement of competition law is yet to be established in India.
II. Umbrella Damages
Umbrella damages is a theory specific to cartel compensation cases where cartels are held liable for the effects of their anti-competitive behaviour not only to their direct customers but also towards the customers of non-cartel competitors who act parallelly in raising their own prices[ix]. The increase in the price of the non-cartelist is directly attributable to the increase in the general price level in the market due to the presence of the cartel. Through this doctrine, remedy for adverse effect is extended to all victims of the prevalent competition violation.
European Union has been forthright in holding cartels responsible for damages for both direct and indirect losses arising from their anti-competitive actions. In 2012, the European Court of Justice (ECJ) confirmed this doctrine of umbrella damages in the case of Kone AG and Others v ÖBB-Infrastruktur AG, C-557/2012. The case pertained to claim for compensation for losses incurred by a non-cartelist competitor’s customer resulting from anti-competitive acts of an elevator cartel in Austria. The court remarked that:
"The victim of umbrella pricing may obtain compensation for the loss caused by the members of a cartel, even if it did not have contractual links with them, where it is established that the cartel at issue was, in the circumstances of the case and, in particular, the specific aspects of the relevant market, liable to have the effect of umbrella pricing being applied by third parties acting independently."
As discussed above, it is Section 53N of the Act that is the sole remedy for claiming compensation for adverse effects from a competition violation under Indian Law. This section allows for 'any enterprise or any person' to claim for compensation. Therefore the section itself does not restrict the remedy to only the customer/contractee of the infringer. It is left open even to indirect sufferers of anti-competitive behaviour to claim for and recover their losses. Therefore the Doctrine of Umbrella Damages, though not used before the Indian courts yet, could be said to fall squarely within the words of the Section 53N. Use of the word 'any' in the Section can be read in a broad extent and the Section be thrown open to include the incidentally affected parties within its purview.
Jurisprudence on private enforcement may have been weak in Indian till now due to various reasons such as out of court settlements and from many a case being stuck in a spiral of appeals at the stage of establishing competition violation (first few years of adjudication at the CCI with the next couple of years on appeal on the COMPAT only to have another appeal to the Supreme Court) all of which acts as an impediment to successful order on compensation application. However, things surely are changing for the last few years. With the Supreme Court finalizing on many competition cases, especially cartel dispute and the robust use of Leniency Programme by cartels (three applications already successfully filed), the first barrier in the process to claiming compensation has cleared the way for multiple compensation applicants. It seems to be not long before the affected of anti-competitive behaviour hold infringing enterprises accountable for their losses.
Further, adopting established doctrines from other jurisdictions (such as the one discussed above) and the use of other remedies within the Act (such as collective suits under Section 53N (4)), India could build a strong strike-back mechanism against cases of cartelization and other anti-competitive behaviours. With dual weapons of fines through public enforcement and compensation by way of private enforcement claims, the Indian competition enforcement framework would be well set towards achieving its goals of promotion of competition, protection of consumers and freedom of trade.
[ii] Compensation Application No. 01/2015
[ix] Chris Bryant and Dave Anderson, 'European Court confirms cartel victims can claim "umbrella" damages' (Bryan Cave Leighton Paiser Blog, 6 June 2014) <https://www.bclplaw.com/en-GB/thought-leadership/european-court-confirms-cartel-victims-can-claim-umbrella-damages.html>