ISLAMABAD: In an order passed into a downstream cartelisation case, the Competition Commission of Pakistan (CCP) has ruled that an undertaking/company can benefit from reduction in penalty after initiation of proceedings if the company admits its fault and violation and provide assistance and cooperation throughout the determination or investigation of a prohibited activity.

The CCP passed the order after its enquiry established that a paint company had reached a prohibited price fixing agreement with its dealers. In reply to the CCP's show cause notice, the accused parties showed intention to invoke the leniency provision as they wanted to rectify the anti-competitive behaviour.

While deciding the case, the CCP's bench also explained in the order how the leniency provision can be invoked under the Competition Leniency Regulations.

The order stated that an undertaking can invoke the leniency provision if they accept their fault, assist the Commission with provision of information about the anti-competitive activity/cartel, and rectify their anti-competitive behaviour. Under Regulation 3 of the Leniency Regulations, the Commission may grant total immunity from financial penalties to an undertaking if it is the first to provide evidence to the Commission regarding a prohibited activity that the Commission already does not possess or provide assistance and cooperation throughout the determination or investigation of a prohibited activity.

However, in the instant matter it is more likely to fall under the ambit of Regulation 4, that is, reduction of financial penalty. As per Regulation 4 (b) (ii) an undertaking can benefit from reduction in penalty after initiation of proceedings under Section 30 of the Act but before the Commission passed any Order Pursuant to Section 30. The procedure to make a formal application is set under Regulation 5 by admitting fault and violation of Section 4.

While deciding the matter, the order stated that the Commission received copy of an agreement from an anonymous source bearing the title & quote; Agreement for Retail and Wholesale Rate Fixing & agreement and was ostensibly undertaken between the paint company and its dealers based in the city of Multan. Based on the contents of the agreement, it was noted that on 11 April 2016 a meeting was held at a restaurant in Multan and was presided by General Manager of a paint company and the ten other dealers.

The agenda of the meeting was set as rate fixing. In order to dig deeper into the matter to assess nature and extent of possible contraventions of the Act the Commission authorized a team of officers under Section 34 of the Act to enter and search premises of paint company and to look for evidence of any possible violation of Section 4 of the Act. The CCP search & inspection team was able to impound the proofs of anti-competitive agreement between the paint company and its dealers.

Based on findings of the Enquiry Report, the Commission decided to initiate proceedings under Section 30 of the Act and issued SCNs to the paint unit and its dealers containing alleged violations and directions to submit a written reply before the Commission and to avail an opportunity to be heard.

It is also relevant to highlight that the paint dealers have made submissions before the CCP that they were not aware of the Competition Act and any or all the actions with reference to the Agreement were done by them due to ignorance of law. Moreover, the order stated, there is no conclusive proof to determine whether the dealers actually acted upon the said agreement.

The order stated that in view of the foregoing, the bench is of the considered view that leniency requested on part of the Dealers is an admission and the execution of the Agreement stands proved in terms of the admission made by the Dealers.

In light of above-mentioned facts, it is clear that paint company is not a party to the Agreement, hence no violation of Section 4 of the Act is done on part of Diamond Paints. The dealers, on the other hand, were part of the meeting and they admitted this fact in reply of show cause notices along with their signatures as proof on the agreement, CCP report stated.

The CCP found that the violation of Section 4 of the Act stands proved on part of dealers through execution of the Agreement in violation of Section 4 of the Competition Act.

In terms of Section 38 of the Act, the Commission is empowered to impose such financial penalties upon the contravening party(s), as deems fit in the circumstances which may be up to 75 million or 10 % of the annual turnover of undertakings concerned.

In the instant matter we cannot ignore that the Dealers have filed the Leniency Request and have surrendered themselves before the Commission. Further, no conclusive proof is available on the record that the Dealers have actually acted upon the said agreement, the execution whereof was not denied. Therefore, by taking lenient view, this one time, we are not imposing any penalty on the undertakings.

The CCP, however, directed the Registrar of the Commission to circulate Urdu transcript of this Order along with the English Version amongst all the Chambers of Commerce across Pakistan and paint manufacturers for education of their dealers. Further, The SECP Registrar is directed to communicate the directions of this SECP Bench to the concerned to conduct an advocacy session, initially, for the training of the paint unit personnel and the Dealers vis-a- vis the Competition Act, 2010, SECP added.

Copyright Business Recorder, 2020