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February 05, 2013

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CCI "Cements" its place in the Indian regulatory space


- Zerick Dastur, Senior Associate [ J. Sagar Associates ]

zerick dastur

"The Competition Commission of India has conducted numerous investigations and imposed stringent penalties in cases where violations have been detected. In doing so, it has become a model for other trade associations to follow, where its activities are compliant with the requirements of competition law"

By its Order dated 20th June, 2012, the Competition Commission of India ("CCI") has imposed a penalty of over `6,300 crore on 11 cement manufacturing companies. It has held that these companies had formed a cartel in contravention of the provisions of the Competition Act, 2002 ("Act") and were acting together to limit and control the production and price of cement in the Indian market. The quantum of penalty was fixed at 0.5 times the net profit for the years 2009-10 and 2010-11 in the case of each company. A monetary penalty was also imposed on the Cement Manufacturers Association, which is a trade association of cement manufacturers in India.

Ever since the substantive provisions of the Act were brought into force in May 2009, CCI has conducted numerous investigations and imposed stringent penalties in cases where violations have been detected. These include cases where parties have been found guilty of abusing their dominant position in the relevant market, and instances where parties have entered into collusive anti competitive arrangements for limiting or controlling the price or output of goods and services.

CCI announced its arrival in the Indian regulatory space with an order imposing a penalty of approx `55.5 crore on the National Stock Exchange for abusing its dominant position, pursuant to a complaint filed by the MCX Stock Exchange Limited. This was followed by an order imposing a penalty of approx `630 crores on the real estate major, DLF LTD, on the grounds that it had abused its dominant position and imposed unfair conditions on the purchasers of residential apartments. CCI has also been actively involved in investigating anti competitive and collusive agreements. Recently, it slapped a hefty penalty on a number of LPG cylinder manufacturers for indulging in bid rigging in connection with the bids invited by Indian Oil Corporation Limited for the supply of LPG Cylinders.

The Builders Association of India had filed information under Section 19 of the Act against the Cement Manufacturers Association and 11 other cement manufacturing companies for alleged cartelisation and abuse of dominance. In terms of the prescribed procedure, an investigation was conducted, statements were recorded and a reasoned order was passed after hearing the parties at length. While arriving at its conclusion that the parties were guilty of cartelisation, CCI has heavily relied upon circumstantial evidence.

The Commission has observed that in the present case, price parallelism among the cement manufacturers, supported and corroborated by factors such as limiting and controlling supply by underutilising capacity and maintaining similar and parallel behaviour in production and dispatch of cement with a view to maintaining high prices in the market, establish that the cement companies had acted in concert pursuant to an understanding. It was, however, observed that there was no contravention of Section 4 of the Act, which deals with abuse of dominance by any single cement company.

CCI has also observed that the Cement Manufacturers Association had been used as a platform by the cement companies to discuss the prices of cement. It was observed that the association collected retail and wholesale prices of cement through the competing companies on a weekly and monthly basis, which provided the cement companies with an opportunity to discuss and exchange information on prices. The production and dispatch details of each company were also circulated to all the members by the association.

The Order of CCI is an important part of the developing competition law jurisprudence in India. Most industries have trade associations, which aim at furthering the common commercial, professional and trade interests of their members. These associations perform important functions like representing to the Government and other public bodies, the interests of members on legislations, regulations, taxation and policy matters likely to affect them; promoting and protecting the interests of members in the media; promulgating standards, codes of practice or standard terms of sale; providing a range of services of an advisory or consultancy nature; and, providing advice of a commercial nature to the members.

It is, however, important to ensure that the activities of a trade association are compliant with the requirements of competition law. The very fact that an association brings together competitors, renders it susceptible to stepping outside the boundaries fixed by competition law. It is important to ensure that these bodies do not become a platform for the members of an industry to indulge in activities which would violate the provisions of the Act. This calls for heightened awareness and education on the different facets and compliance requirements of competition law in day-to-day commercial dealings of business enterprises.

Disclaimer–Views of the author are personal

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