The National Company Law Appellate Tribunal (NCLAT) by way of a judgement dated 25 July 2018 has upheld the penalty imposed by the Competition Commission of India (CCI) on 11 cement companies for cartelization. The CCI in its order dated 31 August 2016 had imposed a penalty of INR 6300 on 11 cement companies for cartelization. The appeals were filed by Ambuja Cements Limited, ACC Limited, Jaiprakash Associates Ltd., Cement Manufactures' Association (CMA), Century Textiles & Industries Ltd., The Ramco Cements Limited, J.K. Cement Limited, The India Cements Limited, Ultra Tech Cement Limited, Nuvoco Vistas Corporation Limited and Binani Cement Limited
The NCLAT had upheld the CCI's decision on the following grounds:
Exchange of Data
The NCLAT observed that the cement companies were utilizing the platform of their trade association, the Cement Manufacturers Association (CMA) to discuss price and sensitive information relating to production, capacity, dispatch etc. The NCLAT while rejecting the parties' contention that the data was being collected at the behest of the government, held that even if the government had asked for this data, it could have been given in a sealed cover by individual companies.
It was observed that information exchange can constitute a concerted practice if it reduces strategic uncertainty in the market thereby facilitating collusion, i.e., if the data exchanges is strategic. Based on the same, the NCLAT held that there was a meeting of minds between the cement companies with regard to fixation of sale price of cement and for regulating the supply and production of cement. Having held that exchange of information which has the effect of reducing strategic uncertainty in the market constitutes an agreement under the Competition Act, 2002 ('Act'), the NCLAT proceeded to examine whether such agreement attracts either Section 3(3)(a) or Section 3(3)(b) of the Act.
The NCLAT held that the provisions of Section 3(3)(a) and Section 3(3)(b) are attracted because of the following:
A. Price Parallelism
The NCLAT observed that there are several instances where the cement companies hiked the prices of cement in sharp departure to their normal trends over the previous years.
The NCLAT relied on the price charts on record observed that in southern states- Tamil Nadu, Kerala, Andhra Pradesh and Karnataka - the percentage increase in the month of October 2010 over September 2010 was up to 29.93 percent which continued up to February 2011. It was also observed that in western, eastern and central/north Indian states, the percentage increase in February 2011 over January 2011 was more than in any previous months of the year or of previous years.
B. Dispatch & Production Coordination
With respect to the dispatch trends between January 2009 and December 2010, the NCLAT observed that in November 2010, there was a decrease in dispatch by all companies compared to October 2010, which was coupled with lower capacity utilization despite the absence of demand constraints. The NCLAT held that this establishes that the cement companies indulged in controlling and limiting the supply of cement in the market.
The NCLAT held that production data, too, revealed coordinated behavior, which showed that in the months of November and December 2010-11 over 2009-10, production in absolute terms fell by 5.43 percent and 3.41 percent. Similarly, the dispatch during the same periods actually fell by 6.33 percent and 4.90 percent; thus showing that in fact the dispatches fell even more than the fall in production.
It was further observed that production and dispatch of cement was reduced across all sectors in a period when the demand from the construction sector was positive.
C. Capacity Utilization
The NCLAT observed that capacity utilization of the cement companies fell from 83 percent in 2009-10 to 73 percent in 2010-11. An examination of the month-wise capacity utilization data also revealed that capacity utilization was the lowest in 2010-11 November onwards compared to any other year.
Based on this evidence, the NCLAT upheld the Rs 6,300 crore penalty imposed by CCI on the cartel members and dismissed their appeals or merits.
Comment
While rendering its judgement, the NCLAT reiterated that the test to be adopted from proving a cartel under Competition Law in India is one of balance of probabilities. In addition, the NCLAT also defined the relevant market despite the Hon'ble Supreme Court by its order dated 07 May 2018 clarifying that the determination of the relevant market is not a mandatory pre-condition for undertaking an assessment under Section 3 of the Act.
This article first appeared on the Antitrust & Competition Law Blog.
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