the following post, our guest contributor Rahul
Singh analyzes the impact of CCI’s order in Builders Association of India v. Cement Manufacturers Association,
Case No. 29/2010.
is Assistant Professor of Law, National Law School, Bangalore (on leave) & Counsel,
summary of CCI’s order is available here]
a landmark decision, the Competition Commission of India (CCI) has imposed an unprecedented penalty of approximately Rs. 6300
Crores (USD 1.1 Billion) against 10 cement companies for cartelization.
post analyzes certain common questions being asked by the stakeholders.
future pricing ability of the cement companies and their decision related to
utilization of production capacity?
CCI does not have the legislative mandate to dictate future pricing abilities
of the cement companies if such decisions are taken in accordance with
independent economic analysis, leading to independent business justification.
CCI’s order merely finds that there was a tacit understanding amongst the 10 cement
companies to fix prices and to fix output. The trade association body – the
Cement Manufacturers Association – was found to have acted as a platform for
such price fixing and output fixing. Therefore, the CCI has passed a
‘cease-and-desist’ order against such collusive conduct.
the cement companies retain their ability to determine prices or determine
their level of production, based upon their independent economic analysis and
penalty of Rs 6300 Crores?
8 of the CCI order states that “[t]he amount of penalty determined in case of
different entities must…be deposited within a period of 90 days from the date
of receipt of this order”. The CCI typically sends a copy of the order to the
parties through speed post. The parties will have 90 days to pay the penalty. If
the parties fail to pay the penalty within 90 days of the receipt of the order,
the CCI will issue a demand notice against the parties. The demand notice
issued by the CCI usually gives 30 days to the parties to pay the penalty.
Therefore, assuming the speed post will take at least a couple of days to
deliver a copy of the order to the parties, the parties will effectively have a
little over 120 days to pay the penalty.
any event, §53B(2) of the Competition Act, 2002 states that “[e]very
appeal…shall be filed within a period of sixty days from the date on a
copy of the direction or decision or order made by the Commission is received…”.
Since parties have 60 days to file the appeal and 120 days to pay the penalty,
parties will have ample opportunity to argue their case before the appellate
tribunal for a stay on the penalty.
even though the CCI has imposed penalty, none of the contravening parties have
actually paid the penalty?
In each case of contravention, parties have conducted their own cost-benefit
analysis. Where the penalty imposed by the CCI was relatively small (e.g. Rs 1
lakh i.e. approximately, USD 2000), on balance parties found it worthwhile to
pay the penalty to the CCI instead of fighting costly litigation.
where the penalty imposed have been relatively high (e.g. the cases of National Stock Exchange and DLF), parties have vigorously contested
the CCI’s claim and sought a stay on the penalty from the appellate tribunal.
For instance, in the case of National
Stock Exchange, the CCI had imposed a penalty of Rs. 55.5 Crores (USD 9.8
million). Further, in the case of DLF,
a penalty of Rs. 630 Crores (USD 111 million) was imposed. In both cases, a
stay on the penalty was sought for and granted by the appellate tribunal.
appeal? What could be possible grounds for appeal?
the high stakes involved in the case, it is safe to assume that parties will
appeal. Some cement companies have confirmed their decision to appeal. Others
are expected to follow suit. Indeed, since the stakes are very high,
irrespective of the decision of the appellate tribunal, the case is likely to
reach the apex court – the Supreme Court of India.
of the cement companies made their own arguments before the CCI. The arguments
at the appellate tribunal are likely to be both procedural and substantive in
nature. If they stick with similar arguments that have already been made at the
CCI, the appellate tribunal is unlikely to be impressed much. Parties ought to reassess
the arguments that were made at the CCI, take a fresh look at their case and then
approach the appellate tribunal.
likely to do? Will the appellate tribunal at least grant a stay on the
imposition of penalty?
is extremely difficult to predict. Notwithstanding the precedents of National Stock Exchange and DLF, the appellate tribunal is all set
to undergo a massive transformation with Justice VS Sirpurkar, former Judge of
the Supreme Court of India, at the helm of affairs.
Arijit Pasayat, the former Chairperson of the appellate tribunal was reluctant
to decide cases after the Steel Authority
of India Limited episode where a three-judge bench of the Supreme Court
(which included Chief Justice Kapadia) had overturned his order. Indeed, the
grant of stay on the imposition of penalty in National Stock Exchange and DLF
under Justice Pasayat’s leadership was a bundle of contradictions. While
the stay was granted in National Stock
Exchange on the ground of the CCI’s lack of unanimous order (as two CCI
members had dissented), stay was granted in DLF
even though there was a unanimous order of the CCI (with a CCI member
writing a supplementary order augmenting the majority decision).
be sure, the settled jurisprudence on the grant of stay states that the three
ingredients to be analyzed for the purpose of interim stay are: (a) the
existence of a prima facie case; (b)
balance of convenience; and (c) likelihood of irreparable injury.
Interestingly, the appellate tribunal orders in both National Stock Exchange and DLF
took note of these ingredients but also looked at other factors as
discriminatory? Have smaller cement companies been unfairly let off?
The CCI is dealing with two distinct cases against cement companies. While Case
No. 29/2010 against the 10 large cement companies have been disposed off,
another case RTPE No. 52 of 2006 involving several small cement companies is
still pending. Indeed, para 6.14 of the CCI’s order clarifies the following:
“The Commission, however, observes that
decision as regards the involvement of the parties in anti-competitive
agreement and the period of contravention in the instant case is limited to
this case only and is independent of any other information which may be filed
subsequently and also independent of decision in case no. 52 of 2006 pending
before the Commission.”
speculation about the penalty on Tuesday (June 19), and the order is
incidentally dated June 20, why was the order posted online only on late
Thursday evening (June 21)?
of the Competition Act, 2002 states that, “No information relating to any
enterprise, being an information which has been obtained by or on behalf of the
Commission or the Appellate Tribunal for the purposes of the Act, shall,
without the previous permission in writing of the enterprise, be disclosed
otherwise than in compliance with or for the purposes of this Act or any other
law for the time being in force”.
is evident that the media had a whiff about the imposition of the penalty.
While it is unclear whether this was due to any leak from the CCI’s office, the
entire episode is likely to have a bearing upon the CCI’s reputation and its
ability to handle confidential information.
the cement companies?
be sure, the cumulative quantum of the penalty is unprecedented. However, the
Competition Act considers cartelization to be egregious violation of
competition law and mandates a deterrent penalty. Proviso to §27(b) of the
Competition Act states:
agreement referred to in §3 has been entered into by a cartel, the Commission may
impose upon each producer, seller, distributor, trader or service provider
included in that cartel, a penalty of up to three times of its profit
for each year of the continuance of such agreement or ten per cent of
its turnover for each year of the continuance of such agreement, whichever
the benchmark of the 3 times of profit under the legislative mandate indicates
that the ceiling of the penalty on the basis of profits is 300%. The CCI has
imposed 0.5 times or 50% of the profit as penalty, which is way below the ceiling.
Curiously, however, for the benchmark of penalty related to turnover, the CCI
has mistakenly interpreted the absence of discretion and computed the
imposition of penalty on the basis of turnover to be at the rate of 10% and not
has been entered into by any cartel, the Commission shall
of the Competition Act and not the proviso. The main provision of §27(b), in
relevant parts, states: “Where after inquiry the Commission finds that any
agreement referred to in §3 or action of an enterprise in dominant position, is
in contravention of §3 or §4 as the case may be, it may pass all or any of the
following orders, namely… impose such penalty, as it may deem fit which shall
be not more than ten percent of the average of the turnover for the last
three preceding financial years, upon each of such person or enterprises which
are parties to such agreements or abuse”.
are several cases until now where the CCI has imposed penalty. It is high time
that the CCI formulates guidelines for the computation/imposition of such
this order? In addition to the penalty, can the cement companies be held liable
to pay compensation?
is interesting to note that after DLF –
a case against a builder; it is the builders’ association that has been
successful against cement companies, manufacturers of their raw material. DLF case had qualitatively altered the
landscape of Indian competition law with at least 200 cases being filed against
real estate companies due to the DLF-effect. The case against cement companies
is expected to have a similar, if not greater, impact on the emerging jurisprudence
of Indian competition law.
under the Competition Act, besides the payment of penalty, the cement companies
also run the risk of payment of compensation.
of the Competition Act states:
prejudice to any other provisions contained in this Act, the Central Government
or a State Government or a local authority or any enterprise or any person may
make an application to the Appellate Tribunal to adjudicate on claim for
compensation that may arise from the findings of the Commission or the orders
of the Appellate Tribunal in an appeal against any findings of the Commission
or under §42A or under sub-section (2) of §53Q of the Act, and to pass an order
for the recovery of compensation from any enterprise for any loss or damage
shown to have been suffered, by the Central Government or a State Government or
a local authority or any enterprise or any person as a result of any
contravention of the provisions of Chapter II, having been committed by
of the Competition Act states that “all sums realized by way of penalties under
this Act shall be credited to the Consolidated Fund of India”. Therefore, the
penalty is paid to the Government of India ensuring that the CCI does not
harbour any perverse incentive to impose heavy penalty.
– Rahul Singh