 "Removing legal ambiguity on 'hub-and-spoke' provisions empowers CCI")
The Competition Act was passed by Parliament in 2002, to which the President accorded assent in January 2003. The Act came into effect in 2009 when the government notified its main enforcement provisions except mergers and acquisitions, which were notified in 2011.
The Act plays a pivotal role in regulating and promoting fair competition in markets. It serves as a comprehensive legal framework that aims to prevent anti-competitive practices, ensure a level-playing field for businesses, and protect consumer interests in the markets in India. The Act also aims to maintain a fair and competitive business environment that encourages entrepreneurship, investment, and innovation.
Since its inception, the Act has been amended several times. The Competition Act, 2002, was amended by the Competition (Amendment) Act, 2007 and again by the Competition (Amendment) Act, 2009. The last major amendments were made in 2023. These amendments were mainly suggested by the Competition Law Review Committee (CLRC), which was constituted by the government to review the competition law framework in the country, to examine and make recommendations to enhance its effectiveness, address emerging competition issues, and recommend a "robust competition regime by suggesting changes in both the substantive and procedural aspects of the law. The CLRC submitted its report to the government on July 26, 2019.
One such amendment in the Act is the introduction of the "Hub and Spoke Cartels" provision, which was missing in the Indian Competition Act. The provision of "Hub and Spoke Cartels" is a crucial concept that empowers the authorities to address anti-competitive practices effectively. The Indian Competition Act, under Sub-Section 3 of Section 3, only covers agreements between entities, persons, or associations of persons engaged in identical or similar trade of goods or provision of services. As a result, arrangements where a common agent (hub) controls other players who are engaged in similar or identical trades (spokes), with the hub itself being at a separate level, i.e., not engaged in the same or identical trade in which spokes are engaged. In the absence of any specific provision in the Act, hub-and-spoke kinds of arrangements make it difficult for the competition authorities to establish and prove such collusion between the agent (hub) and other players (spoke), as they are not covered within the scope of cartels under Section 3(3) of the Competition Act. In view of the aforesaid and to cover such common agents (hubs), Sub-section (3) of Section 3 of the Act has been amended (and already notified by the government) by inserting the following proviso:
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"Provided further that an enterprise or association of enterprises or a person or association of persons, though not engaged in identical or similar trade shall also be presumed to be part of the agreement under this sub-section if it participates or intends to participate in the furtherance of such agreement".
However, the phrase "hub and spoke" has not been explicitly mentioned in the amended Act, but the ultimate objective of the legislation is to deal with such agreements where such agreements are entered into among parties.
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Hub-and-spoke arrangements
The "hub and spoke" provision establishes the jurisdictional reach of competition authorities in cases involving anti-competitive practices. It defines the boundaries within which competition authorities can investigate and take enforcement actions. As per the definition given by the OECD: Roundtable on Hub and Spoke Arrangements, Background Note (2019), a hub and spoke cartel can be defined as "the cartels that are not co-ordinated through direct exchanges between the horizontal competitors, but through indirect exchanges via a vertically related supplier or retailer". More precisely, the OECD has defined it as: "Hub-and-spoke arrangements can be characterised as any number of vertical exchanges or agreements between economic actors at one level of the supply chain (the spokes) and a common trading partner on another level of the chain (the hub), leading to an indirect exchange of information and some form of collusion between the spokes. In the extreme, this indirect exchange can achieve the same negative market outcomes as a hardcore price fixing cartel without the horizontal competitors ever having exchanged information directly".
In simple words, hub-and-spoke agreements can be understood as those in which one central entity (the hub) serves as a connecting point for multiple other entities (the spokes). These agreements can have various legal implications and may be subject to scrutiny under antitrust or competition laws in some cases.
Under the "Hub and Spoke Cartel" provision, competition authorities have the authority to investigate and take actions against entities beyond the immediate parties involved in anti-competitive conduct. The primary objective of the "Hub and Spoke" provision is to ensure that the authorities have the power to address anti-competitive practices comprehensively. This approach helps prevent the evasion of accountability by parties attempting to shield themselves from liability. Furthermore, the provision serves to protect competition and consumers by addressing the ripple effects of anti-competitive practices. It acknowledges that collusion or anti-competitive agreements can impact the competitive dynamics of the entire market, leading to increased prices, reduced innovation, and limited consumer choice.
In the Indian context, in the absence of such a provision, it was difficult for the Competition Commission of India (CCI) to deal with such cases where such arrangements had been entered into by the parties. In the past, CCI had received information where allegations were levied against the opposite parties engaging in a "Hub and Spoke" kind of arrangement. The first case of its kind received by the CCI can be considered Jasper Infotech (Snapdeal) v. Kaff Appliances) where claims of developing hub-and-spoke cartels were leveled against the opposition party (OP) by the informant. However, the CCI, in its order passed under Section 26(1), directed the Director General (the DG’), which is the investigation wing of the Commission, to only investigate the alleged contravention of the provision of "resale price management" under Section 3(4)(e) of the Act, i.e., vertical agreements, in the absence of a specific provision for "Hub and Spoke" in the Act.
The CCI, however, used to take up such matters pertaining to "Hub and Spoke" under Section 3(1) of the Act. The first such case that CCI dealt with by invoking Section 3(1) was Ramakant Kini v. L.H. Hiranandani Hospital (Case No. 39 of 2012). The Commission holds that the impugned agreement was in contravention of the provisions of Section 3(1) of the Act and had an adverse effect on competition. Another such case where CCI dealt with the matter under Section 3(1) was Vinayak Pharma v. Alkem Laboratories (Case No. 28 of 2014).
From the above case laws, it is clear that in the absence of a clear legislative principle recognising hub-and-spoke agreements, CCI was dealing with such matters by invoking Section 3(1) of the Act. However, there was still a lacuna in the legislation where there was no specific mention under sub-Section 3 of Section 3 (horizontal agreements) regarding a person, enterprise, or their associations that is not directly engaged in the same or identical trade but are engaged in facilitating such cartels. By introducing the proviso in Section 3(3), the Commission can now expressly cover such models of hub-and-spoke and deal effectively with them without having any legal ambiguity.
Hub-and-spoke in other jurisdictions
"Hub-and-spoke" provisions, also known as hub-and-cartel provisions or hub-and-spoke conspiracies, are typically addressed under competition or antitrust laws by different competition authorities around the world. For example, the European Union, which enforces competition rules in the EU, considers hub-and-spoke agreements as a form of collusion and examines them under Article 101 of the Treaty on the Functioning of the European Union (TFEU). In the United States, the Federal Trade Commission (FTC) has actively pursued cases involving hub-and-spoke agreements. They consider hub-and-spoke conspiracies as potential antitrust violations and investigate and prosecute such cases under Section 1 of the Sherman Act, 1890. In Japan, hub-and-spoke agreements may fall under the provisions of the Antimonopoly Act, which prohibit unfair trade practices.
It's important to note that the specific provisions, terminology, and legal frameworks may differ across jurisdictions. However, the underlying objective of addressing anti-competitive practices that extend beyond direct participants remains consistent.
The introduction of the "hub-and-spoke cartel" provision in the Indian Competition Act empowers the CCI to combat anti-competitive practices comprehensively and effectively without any legal ambiguity. By extending jurisdiction beyond direct participants, this provision strengthens competition enforcement, protects consumers, and fosters a level playing field for businesses, ultimately promoting fair competition and economic growth. Further, it will also ensure accountability for all participants in the cartel, protect the competitive process, and benefit consumers and businesses alike.
The writer is the joint director, the Competition Commission of India
These are the personal opinions of the writer. They do not necessarily reflect the views of www.business-standard.com or the 'Business Standard' newspaper