Cartelisation Need Not Meet The Test Of ‘Beyond Reasonable Doubt’, Says NCLAT In Cement Case
‘The evidence must show that the conduct of the parties cannot be explained other than as a result of a concerted practice... circumstantial evidence is not sufficient ’.
Ten cement companies and their association, facing a combined penalty of Rs 6,300 crore for cartelisation, have argued this for the last six years.
This week, the appellate authority dismissed this argument saying the test to be adopted for proving a cartel under Indian competition law, as well as globally, is one of 'balance of probabilities' and not 'beyond reasonable doubt' as envisaged under criminal law.
What’s Happened In The Last Six years?
In 2012, the Competition Commission of India had found 10 cement manufacturers guilty of cartelisation under Section 3 of the Competition Act that prohibits anti-competitive agreements. The regulator had examined data between January 2007 to March 2011 to conclude:
- Cement Manufacturers Association was the platform for cartelisation.
- Companies increased cement prices simultaneously right after association meetings on January 3, 2011 and February 24, 2011.
- Capacity utilisation and production were reduced in a coordinated manner and not linked to market forces.
- Dispatch parallelism.
- And super normal profits earned by companies.
The CCI order was appealed before the Competition Appellate Tribunal on grounds of principles of natural justice. In December 2015, the appellate tribunal had directed the regulator to hear the matter afresh concluding that there were procedural irregularities.
The CCI re-examined the matter and in August 2016 stuck to its original conclusion that the companies were guilty of cartelisation.
The companies approached the COMPAT yet again but this time on merits. The case was finally decided by the National Company Law Appellate Tribunal after COMPAT was merged with it.
This is the first detailed order on cartelisation by NCLAT and it’s heartening to see that the appellate tribunal has gone into core competition law principles to come to a conclusion, Karan Chandhiok, a competition law partner at Chandhiok & Associates told BloombergQuint.
Why Has The NCLAT Agreed With The CCI?
The NCLAT upheld the evidence and the CCI’s decision on several grounds.
Exchange of Data
The most significant and clinching evidence that the companies were acting in concert was the fact that they used the CMA platform to discuss price and sensitive information relating to production, capacity, dispatch etc. The companies’ argument that CMA collected this data at the behest of the government did not find favor with the appellate tribunal. It held that even if the government had asked for this data, it could’ve been given in a sealed cover by individual companies.
Information exchange can constitute a concerted practice if it reduces strategic uncertainty in the market thereby facilitating collusion, that is to say, if the data exchanged is strategic, NCLAT held.
“All competitive restraints and competition policies were given a total go by the appellant cement companies.”
The appellate tribunal pointed to several instances of unprecedented price increases to conclude coordinated behaviour.
For instance, in southern states- Tamil Nadu, Kerala, Andhra Pradesh and Karnataka - the percentage increase in the month of October 2010 over September 2010 was up to 29.93 percent. The increase continued up to February 2011. In western, eastern and central/north Indian states, the percentage increase in February 2011 over January 2011 was more than in any previous months of the year or of previous years, NCLAT observed.
Dispatch & Production Coordination
The appellate tribunal examined dispatch trends between January 2009 – December 2010 for all the companies. NCLAT pointed out that in November 2010, there was a decrease in dispatch by all companies compared to October 2010. This was coupled with lower capacity utilisation even though there were no demand constraints. This establishes that the cement companies indulged in controlling and limiting the supply of cement in the market, NCLAT concluded.
Production data, too, showed coordinated behaviour, the NCLAT order stated.
“When cement production is compared to the dispatches, it shows that in the months of November and December 2010-11 over 2009-10, production in absolute terms actually fell by 5.43 percent and 3.41 percent. Similarly, the dispatch during the same periods actually fell by 6.33 percent and 4.90 percent; thus showing that in fact the dispatches fell even more than the fall in production.”
Production and dispatch of cement was reduced across all sectors in a period when the demand from the construction sector was positive, the order found.
The NCLAT observed that capacity utilisation fell from 83 percent in 2009-10 to 73 percent in 2010-11. It looked at month-wise capacity utilisation data to conclude that it was lowest in 2010-11 November onwards compared to any other year.
Based on this evidence, the NCLAT upheld the Rs 6,300 crore penalty on the cartel members.
Precedent For Cartel Crimes
The NCLAT has relied on circumstantial evidence to conclude that there was collusion and that’s a little harsh on parties, Amitabh Kumar, a competition law partner at law firm JSA and former director general with the CCI said. In an oligopoly, the outcomes are very similar in terms of pricing, production and supply and give a sense that there is collusion, he added.
The investigation is on the right lines but the exact correlation in terms of exchange of information and price rise has been made out for only two occasions when the period of investigation was four years. They have quoted instances of price rise but the prices fell as well. I’m not saying the parties are not guilty but if the jurisprudence on cartelisation evolves purely on circumstantial evidence, it will not be in line with international standards and parties would find it difficult to defend themselves.Amitabh Kumar, Partner, JSA
There could be other plausible explanations for price rise across industry and it was always possible for the regulator to collect more evidence via dawn raids, he added. ‘The evidence that has been relied upon can be used either ways, to prove meeting of minds or the absence of it, depending upon which side of the table you’re on’, Kumar added.
What’s absent in the NCLAT order is any observation on whether information shared in these CMA meetings could be classified as strategic or competitively sensitive information or whether the information was already historic by the time it reached all the members, Chandhiok pointed out. Also, the order has noted that in the cement sector, prices change week on week and the demand is weekly but the regulator and the appellate tribunal have relied on monthly data to do the competition analysis and that is inconsistent.
Additionally, the order doesn't take into account the principle of making the relevant turnover/profit, the basis of penalty. In relation to multi-product companies like Jaiprakash Associates, the penalty has been levied on net profit of all business divisions, Chandhiok added.