Background
COVID-19 has wreaked havoc across the world. India's response has been proactive keeping in mind the challenges we face, ranging from inadequate healthcare and sanitation infrastructure to poverty which has been worsened by the loss of work for informal/ temporary and daily wage workers. That said, the national lockdown is now extended till 3 May and further extensions are a possibility. Unsurprisingly, businesses and the economy have taken a hit and the effects are likely to unravel in the times ahead. The government has its task cut out for dealing with these issues.
In the circumstances, continued supply, distribution and accessibility of essential commodities to the public is critical. A halt in manufacturing and disruption in supply chains has raised supply side challenges. Bulk buying and hoarding have heightened demand which does not help the situation. The most recent example is the four-day 'intense' lockdown imposed in some cities in Tamil Nadu which triggered panic buying and caused people to throng markets in violation of lockdown protocols.
Situations such as this can trigger a spiralling of prices and add to the burden faced by the public. Governments need to be prepared to curb any price gouging activity: opportunistic activity aimed at profiteering or unfair and exorbitant pricing. The Government of India (GoI) has acted quickly and regulated prices of face masks and sanitizers. In this context, we discuss the key laws in India that enable controls on price gouging practices.
Essential Commodities Act, 1955 (ECA)
The ECA regulates price gouging practices for specified 'essential commodities' which are listed in the schedule to the ECA. The schedule includes drugs, fertilizers, foodstuffs, yarn, petroleum, textiles, etc. GoI is empowered to amend the schedule and add or remove items. Section 3 of ECA gives powers to GoI to issue orders for controlling sale or purchase prices of essential commodities if it considers necessary. These powers have been exercised (either by GoI or by state governments through delegated powers) numerous times to regulate prices of drugs, sugar, kerosene, oils and other items.
Most recently, the Ministry of Consumer Affairs, Food and Public Distribution issued an order adding surgical and N95 masks and hand sanitizers to the list of essential commodities under ECA 1. The prices of 2ply and 3ply surgical masks and raw materials used for manufacturing masks and hand sanitizers were also fixed under a later order2 . State governments were advised to take measures to maintain the demand-supply balance of sanitizers3 .
A contravention of orders under Section 3 of ECA is a cognizable offence and can lead to imprisonment of up to 7 years, fines and also potential forfeiture of the offending property. For offences committed by companies, officers-in-charge, directors, managers and secretaries can be punished.
Prevention of Blackmarketing and Maintenance of Supplies of Essential Commodities Act, 1980 (PBMSECA)
PBMSECA complements the ECA and give powers to GoI to issue orders for detaining any person, for a maximum period of 6 months, if s/he acts in a manner prejudicial to the maintenance of supplies of essential commodities. A person is said to act in a prejudicial manner if s/he commits an offence under the ECA or defeats its provisions by dealing in essential commodities with a view to making gains (amongst other things).
Competition Act, 2002 (CA)
The CA also contains sufficient deterrence to price gouging practices. Section 3 prohibits anti-competitive agreements relating to production, supply, distribution of goods, etc., that cause or are likely to cause an appreciable adverse effect on competition in India (AAEC). Agreements between competitors: persons that trade in identical or similar goods (e.g. two distributors), to engage in price gouging, are presumed to cause or be likely to cause AAEC, unless they can be shown to increase efficiency in production, supply, etc. For agreements between persons at different levels in the production chain (e.g., distributor and retailer) which involve price gouging, AAEC needs to be proved.
Section 4 of the CA restricts exploitative practices by enterprises that enjoy a position of power and can operate independently of competitive market forces or affect competitors or consumers in their favour. These dominant enterprises are prohibited from imposing unfair or discriminatory prices. In 2018, the Competition Commission of India (CCI) investigated alleged abuse of dominance by Max Super Speciality Hospital, Patparganj, Delhi on account of excessive pricing of medical products at Max's in-house pharmacy. CCI did not take any decision, since the investigation had not concluded , but the final outcome will be interesting and may clarify CCI's approach.
In the COVID-19 context, CCI recently issued an advisory5 recognizing the need for some competing businesses to coordinate activities for continuing supply of essentials. CCI indicated that if such activities result in increasing efficiencies, businesses would be protected from sanctions in view of inbuilt safeguards in the CA. Businesses were cautioned against taking advantage of the situation to contravene the CA.
A violation of the CA can result in CCI passing orders for: directing modification of agreements, division of dominant enterprises, discontinuation of anti-competitive practices and/or payment of penalties (10% of the average turnover of the last 3 financial years for each party) and costs.
Industries (Development and Regulation) Act, 1951 (IDRA)
The IDRA regulates equitable distribution of articles relatable to a 'scheduled industry' and the availability of such articles at fair prices. IDRA contains a list of scheduled industries which includes those engaged in manufacturing electrical and electronic appliances, commercial and household equipment, fuel, chemicals, drugs and pharmaceuticals, sugar, processed food, etc.
Section 18G of IDRA gives powers to GoI to issue orders for controlling prices of these articles. Section 15 also gives powers to GoI to investigate price rise in any articles relatable to a scheduled industry or industrial undertaking, following which, GoI can issue directions to control prices of those articles under Section 16. In the past, GoI has issued orders under Section 18G for controlling the price of cement, ethyl alcohol, molasses, paper and others, several of which have been revoked. No such orders have been issued recently.
A contravention of GoI's orders under Section 16 or Section 18G is punishable with imprisonment of up to 6 months and/or fine extending to INR 5,000 (plus INR 500 per day for continuing contraventions). Offences by companies are treated the same way as under the ECA.
Inherent powers of courts
Indian courts have time and again used their inherent powers to pass orders on grounds of equity and justice. Article 142 of the Constitution of India empowers the Supreme Court of India to pass orders for doing complete justice in matters before it. The High Courts have also exercised inherent powers pursuant to Section 151 of the Code of Civil Procedure, 1908 which preserves courts' power to pass necessary orders to meet ends of the justice.
Recently, the Supreme Court recognized the key role of private players in containing COVID-19 and passed an order directing the government to ensure that all COVID-19 testing is done free of cost (in government and private laboratories). The Delhi High Court, while deciding a dispute between an importer and distributor, also directed that prices of imported COVID-19 testing kits, to be supplied to private and public agencies, be capped at INR 400 per piece.
Conclusion
While GoI has often relied on the ECA to regulate commodity prices, the discussion above shows that there is an array of robust laws to choose from to curb price gouging practices. That said, any exercise of power must have statutory basis and any steps taken should not overstep the powers conferred under law. For instance, there has been much debate of late on whether, the orders passed by the Chairperson, National Executive Committee, National Disaster Management Authority directing employers not to deduct employee wages during the lockdown, transcend the powers conferred under the Disaster Management Act, 2005 (DMA). A challenge is pending before the Supreme Court on this point. This highlights the need for carefully thought out and proactive policies and clear decision making especially in times of national crises.
While there have been some incidents of over-charging and blackmarketing of essential commodities in the country so far prompting the police to carry out raids and file complaints under ECA and PBMSECA, the situation seems under control for now. Importantly, price gouging is just one aspect of the overall response needed to deal with crises such as this and the COVID-19 experience has shown that the response needs to be quick, proactive and holistic one.
Footnotes
1 https://consumeraffairs.nic.in/sites/default/files/file-uploads/essential-commodities-order/1087.pdf
2 https://consumeraffairs.nic.in/sites/default/files/file-uploads/latestnews/Notification21mar2020.pdf and https://pib.gov.in/newsite/PrintRelease.aspx?relid=200488
4 Order of 31 August 2018 in Case No. 77/2015: https://www.cci.gov.in/sites/default/files/Case%20No.%2077%20of%202015.pdf
5 https://www.cci.gov.in/sites/default/files/whats_newdocument/Advisory.pdf
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