The Beer Cartel Case: A Way Forward for the CCI

[Prashant Kumar is a 4th-year student of Faculty of Law, Jamia Millia Islamia, New Delhi]

In an order dated September 24, 2021, the Competition Commission of India found United Breweries Limited (UBL), Carlsberg India Private Limited, SABMiller India Limited, and All India Brewers’ Association (AIBA), along with their respective key personnel (collectively, the Opposite Parties) guilty of cartelisation in relation to the sale and supply of beer in 10 states and union territories of India. The Commission also held AIBA guilty of providing a common platform for the exchange of commercially sensitive information and co-ordination between UBL, SABMiller India and Carlsberg.

Brief Facts

suo moto investigation was initiated by way of an order dated October 31, 2017, pursuant to the receipt of a lesser penalty application by Crown Beers India Pvt. Ltd. and SABMiller India Ltd. (collectively held by Anheuser Busch InBev SA/NV/Ab InBev) disclosing coordinated activities with UBL and Carlsberg under the aegis of AIBA to align prices of beer and implement price adjustments across the country. The Director General (DG) conducted search and seizure operations on the premises of the Opposite Parties over the course of the inquiry, after which UBL and Carlsberg filed leniency applications. From 2009 to at least October 10, 2018 (the date on which the DG conducted search and seizure operations at the premises of the beer businesses), the cartel was held with CIPL joining in from 2012 and AIBA serving as a platform for promoting such cartelisation from 2013. The parties allegedly engaged in price co-ordination in contravention of the provisions of section 3(3)(a) of the Competition Act, 2002 in the States of Andhra Pradesh, Karnataka, Maharashtra, Odisha, Rajasthan, West Bengal, National Capital Territory of Delhi and the Union Territory of Puducherry, in collectively restricting the supply of beer in the States of Maharashtra, Odisha and West Bengal in contravention of the provisions of section 3(3)(b) of the Act, and in sharing of the market in the State of Maharashtra as well as coordination with respect to the supply of beer to premium institutions in the city of Bengaluru in contravention of the provisions of section 3(3)(c) of the Act.

Investigation by the DG

An order was passed by the Competition Commission of India in October 2017 directing DG to conduct a detailed investigation in the said matter. In its investigation report, the DG noted that, in India, control over production, distribution, transportation and taxation on alcohol falls under the purview of the states and union territories. The DG observed that different states and union territories in India use one of the four major route-to-market models for beer distribution and sale as follows:

  • Corporation Model: The business is administered by the State Government through a separate public sector company or corporation that is wholly owned by the State Government. This monopoly corporation is in control of alcohol pricing, distribution, and retail (including in beer). By floating annual tenders, the corporation procures beer from manufacturers, either directly or through an agency, and then sells it to customers through a distribution network.
  • Auction Market Model: The relevant state excise authorities auction the license to sell liquor (including beer) in a specific geographical territory to an individual or company on a yearly basis. The items are distributed by the successful bidders’ retail outlets, which are either owned by the bidders themselves or by other private parties authorised by the State Excise Authority to sell liquor products.
  • Open/Free Market Model: Beer producers have the freedom to work with private distributors, who then sell to private shops. Manufacturers must, however, report their maximum retail price (MRP) and have it approved by the appropriate government department. Beer manufacturers have considerable flexibility when it comes to setting their MRPs.
  • Hybrid Model: This distribution market has characteristics of both the corporation and open market models. To acquire and distribute liquor products throughout the region, the state government establishes its own corporation. It also gives distributors and retailers open licences to sell the product throughout the state.

The DG observed that beer manufacturers were in regular contact with one another while making bids to companies while investigating anti-competitive behaviour during the cartel’s period (2007–October 2018). Furthermore, they frequently collaborated to set prices for the beer they sold and discussed pricing strategies in order to obtain favourable price revisions from state governments. Furthermore, it was discovered that the top management of these companies communicated quarterly sales and sales data with one another as a monitoring tool to ensure that everyone was following the ‘understanding/agreement.’ The DG further stated that they collectively decided upon the strategy to oppose unfavourable policies by halting production and delivery in states where state governments increased excise tax due or decreased the ex-brewery price or MRP of beer. The DG discovered AIBA’s involvement in the cartel through the recommendation of price hikes and facilitation of negotiations with excise authorities as well as among the Opposite Parties’ senior management in relation to pricing.

Contravention of Section 3 of the Act

The Commission, agreeing with the DG’s findings, conducted an independent state-by-state review of the Opposing Parties’ anti-competitive behaviour. The Commission based its decision on evidence acquired by the DG about communication between Opposing Parties via official emails, personal emails, SMS texts, WhatsApp messages, and other means. Apart from price coordination and limiting or restricting beer supply in various states or union territories, the DG discovered that UBL and SABMiller were in agreement on the purchase of second-hand bottles. The provisions of the Competition Act, according to the Commission, do not just apply to end-consumers of goods and services. Further, it was discovered that UBL and SABMiller conspired to establish discounts and retain their respective market shares for the sale and supply of beer to Bengaluru’s exclusive institutions.

The Commission relied on several e-mail communications submitted by UBL and deposition statements of various Opposite Parties’ officials to conclude that AIBA and the other Opposite Parties were aware that joint representations to government authorities and discussions amongst themselves in relation to trade restraint, price increases, and other issues were in violation of the Competition Act. The conduct of the Opposite Parties was thus deemed to be in violation of sections 3(3)(a), 3(3)(b), and 3(3)(c) read with section 3(1) of the Act. Crown Beers, on the other hand, was found to be in compliance (as it was not an active participant in this cartel). In accordance with section 48 of the Competition Act, four officials from UBL and Ab InBev, six officials from Carlsberg, and the Director General of AIBA were found accountable for their respective companies’ or associations’ anti-competitive activity.

Order and Penalty

In accordance with section 27(a) of the Competition Act, the Commission directed the parties to cease and desist from engaging in any practice, conduct or activity that has been deemed in the current order to be in violation of section 3 of the Act. Further, under the provisions of section 27(b) of the Act, the Commission imposed a hefty penalty to the tune of INR 751.83 Crore on UBL, INR 120.56 Crore on Carlsberg and INR 0.6 Crore on AIBA for contravening sections 3(3)(a), 3(3)(b) and 3(3)(c) read with Section 3(1) of the Competition Act, 2002.

Conclusion

The Commission has been able to improve its investigation techniques in order to demonstrate the existence of cartels in the market, and it is always evolving in order to meet new hurdles in the dynamic economy. In terms of the proof of cartelisation, the Commission has evolved from requiring direct evidence to relying more on circumstantial evidence. However, when it comes to the reliability of investigative techniques, the Commission still has a long way to go to catch up with more established jurisdictions in terms of speed and sophistication. It has done a commendable job of analysing the DG’s report in depth in cases and effectively determining cartel formations. The Commission has attempted to dissuade cartels by imposing progressively large fines on cartel participants.  India’s competition law jurisprudence is still in its infancy, but it has demonstrated remarkable perseverance in uncovering and punishing cartel cases. As a result, the Commission must be fully staffed, empowered, and capable of protecting consumers’ and the nation’s interests from the negative effects of anti-competitive acts.

Prashant Kumar

About the author

Add comment

Subscribe to Blog via Email

Enter your email address to subscribe to this blog and receive notifications of new posts by email.

Top Posts & Pages

Topics

Recent Comments

Archives

web analytics

Social Media