The Competition Commission of India (CCI) has been one of the few regulators in the nation with what has often been termed as ‘stern regulatory teeth’. CCI has been involved in a plethora of landmark cases, one of the many in the series is the groundbreaking orders issued by the Commission in the Ambuja Cement cartelization case,[1] where a whopping penalty of Rs. 6300 crore was imposed by the Commission on ten cement companies[2] for allegedly forming a cartel in the cement market thereby prejudicing the end customer.
What emanates from the decision is a clear punitive approach adopted by the Commission to discourage such unscrupulous practices in the Indian markets. Although this prima facie may appear analogous to a scenario where the Commission is dictating the ‘pricing abilities’ of the cement manufacturing, thus seemingly interfering in the economic decisions of a commercial entity[3]. It is argued that this assumption is flawed since the Commission, as seen by the decision, has merely reprimanded the companies for charging exorbitant prices, not declaring in the process an ideal price on which the parties are to operate in the market.
CCI Order: A Brief Analysis
The order merely reiterates the observations of the Commission that found the Cement Manufacturers Association (CMA) to be a platform for price and production fixation. This position was corroborated circumstantially given the parallel rise in the price of the units over a relatively shorter time span.
Having been found in contravention of Section 3(3) (a) and (b) of the Act, the Commission was of the opinion that the named parties had been involved in anti-competitive agreements. Given that the cement industry in the nation is structured in a manner that no single individual or body-corporate can be in a ‘dominant position’, within the scope of Section 4, hence the instances of collusion amongst the dominant companies, forming the epicenter of major transactions in the sector, was termed as a likely possibility. Hence a prima facie case, subject to corroboration was made against the cement giants. Needless to say, at this juncture the defendant companies objected to the circumstantial nature of the evidence being adduced by the Commission and focused on the lack of direct evidence. The Commission on the other hand laid emphasis on the internationally acceptable practice of corroborating the claim by circumstantial evidence, considering the covert nature of cartel formation.
CMA, came under strict scrutiny by the Commission, since an unrestricted sharing of information related to price, capacity and circulation was a major indicator of a coordinated process that may have undermined the competitiveness amongst the group members. Taking note of the events occurring during the substantial price hike, the Commission was of the view that the ‘high power committee meetings’ which preceded the hike in the prices strongly demonstrated a plausible link between the unscrupulous practices and the sudden upsurge in the monetary evaluation of the commodity. The Commission structured its argument on the grundnorm of economic analysis, i.e the demand and supply framework. It was of the opinion that had the aforementioned principles dictated the decision of the cement producers, the dispatch figures would have been more elaborate than the conservative figures mentioned in the companies’ records. It could not have been stated with impunity by the companies that the supply won’t have found takers, the consumption pattern indicating otherwise. Thence an artificial scarcity was injected by the involved parties to fully control the dynamics of the relevant market. The evidence of this so termed ‘parallelism’ was echoed in the productional domain, where geographically varied units of distinct commercial undertakings produced in similar quantum over a period of time; the figures were identical for January 2009 to December 2010.
Relevant to the discussion was the issue about ‘price leadership’[4] where the small group of companies operating in the relevant market gave ample opportunity to the involved players to coordinate their respective strategies. The Commission was, rightly so, of the view that the appreciable effect could be presumed once the contravention under Section 3(3) (a) and (b) is proved. The Commission denied to accept the applicability of defenses under Section 19(3) (e) and (f) of the Act. The defense being untenable since the arrangement, quite explicitly, did not cause any increase in the production or distribution of the goods, a much established trail of culpability was thus established by the Commission in its findings.
Is pecuniary liability enough?
Having analyzed the order by the Commission in gist, it is essential to note that this initiative by the Commission is not novel, since its inception it has undertaken investigations and passed orders which have clearly demonstrated its intention to view instances of anti-competitive practices with no mercy. The extravagant social costs involved with such practices necessitates the Commission to take proactive measures in the whole process.
This brings us to the often debated merits/demerits of pecuniary as opposed to penal sanctions, the bone of contention being what efficaciously materializes into a real deterrent, suppressing such commercial honchos to profit over the expense of the larger societal interest. It has been argued that a regulator will be better off with penal powers to be able to handle the situations in a more effective manner, holding the individuals behind the façade of a company liable. The penalties are often routed through the funds/assets etc. of the company thereby shielding the individuals involved, a penal mandate will ascertain accountability of the top management etc.
The situation although has been termed too idealistic to be incorporated and at the moment pecuniary liabilities seem to have worked even if only marginally.
[1] Builders Association of India v. Cement Manufacturers Association, Case No. 29/2010.
[2] The CCI order was against the following commercial entities, the CMA and ACC, Gujarat Ambuja Cements Limited (now Ambuja Cements Limited), Ultratech Cements, Grasim Cements (now merged with Ultratech Cements), JK Cements, India Cements, Madras Cements, Century Textiles & Industries Limited, Binani Cements, Lafarge India and Jaiprakash Associates Limited.
[3] As cited by Rahul Singh, Analyzing the Impact of CCI’s Order Against Cement Companies, available at http://indiacorplaw.blogspot.in/search/label/Competition%20Law?updated-max=2013-06-17T15:22:00%2B05:30&max-results=20&start=5&by-date=false (Last visited on July 26, 2014).
[4] The concept of ‘Price Leadership’ as explained by, Robert F. Lanzillotti, Competitive Price Leadership–A Critique of Price Leadership Models, available at http://www.jstor.org/stable/1926221.
This article has been written by Shivam Bhardwaj, fourth year student at the West Bengal National University of Juridical Sciences.
Comments