ELP Competition Law & Policy Update – NCLAT Upholds CCI’S Order Imposing Penalties on Cement Companies and Trade Associations for Cartelization

In its very first final judgment issued on July 25, 2018, the National Company Law Appellate Tribunal (NCLAT) upheld the Competition Commission of India’s (CCI) order imposing penalties on 11 cement companies and trade associations i.e. Cement Manufacturers Association (CMA) for cartelization in the cement industry.

After a chequered history of being remanded by the erstwhile Competition Appellate Tribunal (COMPAT) on procedural grounds, the 11 cement companies and CMA, found a significant penalty being re-imposed on them by the CCI vide its order dated August 31, 2016 (Order). The CCI found the cement companies and the CMA to be in contravention of the provisions of Section 3(3) of the Act, which inter alia prohibits cartels. The CCI held that the cement companies used the platform provided by CMA and shared details relating to prices, capacity utilisation, production and dispatch, thereby restricting production and supply of cement in the market in contravention of Section 3(3)(a) and Section 3(3)(b) of the Act.

The CCI accordingly re-imposed a cumulative penalty of over INR 6700 crores on 11 cement companies and CMA.

The NCLAT decided to not interfere with the “mere minimum” quantum of penalty imposed by the CCI.

• Definition of ‘Concerted Practice’ – The NCLAT defined ‘concerted practice’ as a ‘form of coordination’ which may be short of a concluded agreement but amounts to coordination which is knowingly substituted for the risks of competition.
• Exchange of Information amounting to Concerted Practice – The NCLAT held that information exchange can constitute a concerted practice if it reduces strategic uncertainty in the market thereby facilitating collusion. According to the NCLAT, information exchange can amount to a concerted practice, where it reduces the otherwise present strategic uncertainties in the market, thereby facilitating collusion. The NCLAT condemned the “strategy” of cement companies of openly circulating the sale price of cement despite being competitors. The NCLAT acknowledged that while the Government of India had called for the pricing information from companies, the cement companies could have sent their respective pricing information to the Government directly in a sealed cover, rather than using the CMA as a platform to share the information amongst themselves.

Moreover, like the CCI, the NCLAT also condemned the CMA for purposefully acting as a conduit for the cement companies to cartelize. The NCLAT noted that the information relating to production, capacity utilization, prices etc. which CMA was authorized to collect was never meant to be shared with the individual cement companies. Therefore, the NCLAT categorized the information exchanged between CMA and the cement companies as amounting to a meeting of minds (or a concerted practice) for fixation of sale price of cement and for regulation of supply and production of cement in the market.

• Price Parallelism and Limited Supply – To arrive at a finding of price parallelism, the NCLAT identified price increases which were inconsistent with normal price increase trends over the previous years. The NCLAT, therefore, concurred with the CCI’s finding of price fixing in contravention of Section 3(3)(a) of the Act. The NCLAT also noted that the cement companies had decreased their supply in November 2010 followed by a price increase by some companies in January 2011. This shortage of supply of cement by the cement companies was classified as a limitation on the production and supply of cement in the market, in contravention of Section 3(3)(b) of the Act.
• Balance of probabilities – The NCLAT observed that the test to determine a cartel under competition law in India and globally, is one of ‘balance of probabilities’. This test was distinguished from the test of ‘beyond reasonable doubt’. However, the NCLAT held that even if the strictest standards were applied in the present case, the CMA and the cement companies would still be found to be in violation of Section 3(3)(a) and 3(3)(b) of the Act.
• Relevant Market – Echoing the views of the Apex Court in Competition Commission of India v. Coordination Committee of Artists and Technicians of West Bengal Films, the NCLAT also held that it is necessary to delineate a relevant market even in cases of contravention of Section 3(3) of the Act.

The order of the NCLAT may be accessed here.