analysis of cartels vis-À-vis tyre industry of india
TRANSCRIPT
ANALYSIS OF CARTELS VIS-À-VIS TYRE
INDUSTRY OF INDIA
Dissertation submitted in part fulfilment for the requirement of the
Degree of
LL.M
Submitted by Supervised by
ANJALI ARORA DR. RITU GUPTA
NATIONAL LAW UNIVERSITY
DELHI (INDIA)
2016
i
DECLARATION BY THE CANDIDATE
I hereby declare that the dissertation entitled “Analysis of Cartels vis-à-vis Tyre
Industry of India” submitted at National Law University, Delhi is the outcome of
my own work carried out under the supervision of Dr Ritu Gutpa, Associate
Professor, National Law University, Delhi.
I further declare that to the best of my knowledge, the dissertation does not contain
any part of work, which has not been submitted for the award of any degree either in
this University or in any other institution without proper citation.
Anjali Arora
Roll No. 27LLM 15
National Law University, Delhi
New Delhi
May 30, 2016
ii
CERTIFICATE OF SUPERVISOR
This is to certify that the work reported in the LL.M dissertation entitled “Analysis of
Cartels vis-a-vis Tyre Industry of India” submitted by Anjali Arora at National Law
University, Delhi is a bona fide record of his original work carried out under my
supervision. To the best of my knowledge and belief, the dissertation: (i) embodied
the work of candidate herself; (ii) has been duly completed; and (iii) is up to the
standard, both in respect of content and language, for being referred to the examiner.
Dr. Ritu Gupta
Associate Professor,
National Law University, Delhi
New Delhi
May 30, 2016
iii
ACKNOWLEDGEMENTS
The present work has not emerged merely out of my research but in fact it is a real
culmination of the guidance of my mentor, prayers of my family, love and support of
my friends, and above all the will and blessings of the creator.
At very onset, I wish to express my heartfelt gratitude to Dr. Ritu Gupta, my learned
supervisor who has been a blessing in a disguise for me. Her perseverance, hard work,
sincerity and honesty have truly given me a lot to absorb, and radiant. Working with
her and discussing my work with her was really a great experience, which I will
cherish throughout my life.
I also thank to Prof. Ranbir Singh, Prof, Vice Chancellor, NLU Delhi, Prof.
G.S.Bajpai Registrar, NLU Delhi, Dr. Mrinal Satish and the entire teaching and non-
teaching staff of the University for always being upfront and pro-active for the
resolution of students issues and promoting a conducive atmosphere for research.
I want to thank my parents and entire family, who has been always supportive to me
at every stage of my life, including present work. This work would not have been
accomplished without their prayers, support and encouragement. I also want to thanks
my friends from the university who helped in my research.
I thank each and every person who has helped me in any manner in this endeavour of
my mine.
iv
LIST OF ACRONYMS & ABBREVIATIONS
1. ATMA Automotive Tyre Manu fractures Association
2. AAEC Appreciable Adverse Effect on Competition
3. ASEAN Association of South East Asian Nations
4. CA Competition Act
5. CCI Competition Commission of India
6. CEPA Comprehensive Economic Partnership Agreement
7. COMPAT Competition Appellate Tribunal
8. DG Director General
9. Ed. Edition
10. HC High Court
11. MCA Minister of Corporate Affairs
12. MRTP Monopolistic and Restrictive Trade Practices
13. OECD Organisation for Economic Corporation and Development
14. OEM Original Equipment Manufacturer
15. OPEC Organisation of Petroleum Exporting Countries
16. SAFTA South Asian Free Trade Area
17. SC Supreme Court
18. Sec. Section
19. v. Versus
20. VAT Value Added Tax
21. Vol. Volume
22. WTO World Trade Organisation
v
LIST OF CASES
1. All India Tyre Dealer Federation v. Tyre Manufacturers (RTPE-20/2008,
Competition Commission of India-30.10.2012).
2. Arizona v. Maricopa County Medical Society 457 US 332
3. Builder Association of India v. Cement Manufacturers Association( Case No-
29/2010, Competition Commission of India-26.06.2012)
4. Catalano Inc. v Targeted Sales 446 US 643
5. CCI vs. Aluminium Phosphides Tablets Manufacturers ( Case No-02/2011,
Competition Commission of India-23.04.2012)
6. Faqir Chand Gulati v. Uppal Agencies Pvt. Ltd.(2008) 10 SCC 345
7. FCCI Multiplex Association of India New Delhi v. United
Producers/Distributers Forum ,Mumbai ( Case No- 01/2009, Competition
Commission of India-25.06.2011)
8. Films & Television Procedures Guilds of India v. Multiplex Association of
India, Mumbai (Case No-37/2011, Competition Commission of India-
3.01.2013)
9. Kingfisher Airlines Ltd. v. Competition Commission of India ( Case No-
02/2010, Competition Commission of India -10.01.2012)
10. M.P. Malhotra v. Jet Airway ( India) Limited (Case No-4/2009, Competition
Commission of India-26.07.2009)
11. Napp v. Director General of Fair Trading, 2002 Comp AR 13
12. Neeraj Malhotra v. Deutsche Post Bank Home Finance Ltd. & Ors.( Case No-
5/2009, Competition Commission of India-2.12.2010)
13. Northern Pacific Railway Company v. United States [1958] 78 S ct. 514
14. Hamford Empire Company v United States 323 US 86
15. Shri Ashtavinayak Cine Vision Limited v. Eros & ors.(Case No-52/2010,
Competition Commission of India-16.02.2012)
16. Sodhi Transport co. v. State of U.P, AIR 1986 SC 1099
17. Union of India v. Hindustan Development Corporation (1994) CTJ 270 (SC)
(MRTP)
18. United States v. Cohen Grocery 255 US 81
19. United States v. Topto Assocs Inc. [1972] 405 US 596
vi
LIST OF TABLES
TABLE NUMBER PAGE NUMBER
4.1 Regulation 4, Lesser
Penalty Regulation, 2009.
48
5.1 Tyre Industry Profile 51
5.2 Consumption of Raw
materials
53
6.1 Chronology of the event
in tyre cartel case.
71
vii
TABLE OF CONTENTS
TITLE PAGE NUMBER
DECLARATION BY THE CANDIDATE i
SUPERVISOR’S CERTIFICATE ii
ACKNOWLEDGEMENTS iii
LIST OF ACRONYMS & ABBREVIATIONS iv
LIST OF CASES v
LIST OF TABLES vi
CHAPTER-1 1-7
INTRODUCTION 1-3
1.1 LITERATURE REVIEW 3-6
1.2 STATEMENT OF PROBLEM 6
1.3 OBJECTIVES OF STUDY 6
1.4 RESEARCH METHODOLOGY 7
1.5 HYPOTHESIS 7
1.6 FRAMEWORK OF STUDY 7-8
CHAPTER-2 8-20
CARTELS-DEFINATION AND TYPES 8-10
2.1 CARTELS AS DEFINED UNDER
COMPETITION ACT, 2002
10-11
2.2 TYPES OF CARTELS 12
2.2.1 PRICE FIXING 12-14
2.2.2 MARKET SHARING 14-15
2.2.3 OUTPUT CONTROLS OR LIMITING
PRODUCTION
16-17
2.2.4 BID RIGGING 17-20
viii
CHAPTER-3 21-35
EXISTENCE OF CARTEL AND PRICE
PARALLELISM
21
3.1 ESTABLISHING EXISTENCE OF CARTELS 21-23
3.1.1 DIRECT EVIDENCE 23-24
3.1.2 INDIRECT EVIDENCE 24-25
3.1.3 INDIAN STANDARDS OF BURDEN OF PROOF
AND NATURE OF EVIDENCE
25-27
3.1.4 DETERMINATION OF RELEVANT MARKET 27
3.1.5 RULE OF REASON OR PER SE ILLEGAL 28-30
3.2 PRICE PARALLELISM AND ITS LEGAL
IMPLICATION
30-31
3.2.1 PLUS FACTORS-ELEMENTS, SIGNIFICANCE,
LIMITATION
31-34
3.2.2 INDIAN JURISPRUDENCE ON PRICE
PARALLELSIM
34-35
CHAPTER-4 36-39
CARLETIZATION-STRUCTURAL FACTORS
AND DEFENCES
36
4.1 STRUCTURAL FACTORS AIDING
CARTELIZATIONS
36
4.1.1 HIGHLY CONCENTRATED MARKETS 36-37
4.1.2 DEMAND AND SUPPLY CONDITIONS 37-38
4.1.3 HOMOGENOUS PRODUCTS 39-40
4.1.4 ENTRY BARRIERS 40
4.1.5 ACTIVE TRADE ASSOCIATION 41-42
4.2 DEFENCES TO CARTELS 42
4.2.1 JOINT VENTURE DEFENCE 42-46
4.2.2 AGREEMENTS RELATING TO INTELLECTUAL 46-47
ix
PROPERTY RIGHS.
4.2.3 EXEMPTION OF EXPORT CARTEL 47
4.2.4 LENIENCY REGIME 47-49
CHAPER-5 50-62
TYRE INDUSTRY-STRUCTURE,ECOMONIC
FEATURES, AND CHALLENGES AHEAD
50
5.1 STRUCTURE OF TYRE INDUSTRY 51-53
5.1.1 MAJOR PLAYERS AND THEIR MARKET SHARES 54-55
5.1.2 DEMAND DETERMINANTS 55-57
5.1.3 POLICY REGARDING IMPORT AND EXPORTS 57-58
5.2 DOMINANT ECONOMIC FEATURES 58-60
5.3 CHALLENGES TO TYRE INDUSTRY 60-62
CHAPTER-6 63-72
TYREL CARTEL CASE-ANALYSING THE
ORDER AND CURRENT STATUS
63-66
6.1ANALYSING THE ORDER 66-71
6.2CURRENT STATUS 71-72
CHAPTER-7 73-79
CONCLUSION AND RECOMMENDATIONS 73-79
BIBBLIOGRAPHY x-xii
BOOKS x
STATUTES x
REPORTS x-xi
ARTICLES xi-xii
ONLINE SOURCES xii
1
CHAPTER-1
INTRODUCTION
“People of the same trade seldom meet together, even for merriment and
diversion, but the conversation ends in a conspiracy against the public, or
in some contrivance to raise prices. It is impossible indeed to prevent such
meetings, by any law, which either could be executed, or would be
consistent with liberty and justice. But though the law cannot hinder
people of the same trade from sometimes assembling together, it ought to
do nothing to facilitate such assemblies, much less to render them
necessary.1”
– Adam Smith
Cartel is a formal or informal agreement among number of firms in an industry to
restrict competition. These agreements includes anti competitive practices such as,
setting minimum prices, setting limits on output or capacity, restrictions on non-price
competition, division of markets between firms either geographically or in terms of
type of product, or agreed measures to restrict entry to the industry to create a
monopoly in a given industry. The most common form of cartels involves an
agreement between business men not to compete with one another and which
generally can occur in any industry and can involve goods or services at the
manufacturing, distribution or retail level.
In the process of cartelization, industries easily form combinations to control sales
and prices. These restraints are commonly recognised or termed as anti-competitive,
anti-trust, monopolies, restrictive trade practices, restraint of trade. Generally cartels
are formed by the industrial undertakings in the same line of business. The basic
strategy behind a cartel is that the combining enterprises concentrate on production
according to the limits of output fixed by the cartel keeping in view the market
1 ADAM SMITH, AN ENQUIRY INTO NATURE AND CAUSES OF WEALTH OF NATION,
Vol.1, 1776, pg-211
2
conditions and to restrain or regulate the distribution of output for maintaining returns
or the selling price of certain commodities by restrictive trade or marketing practices.
As stated above, that cartels can occur in any industry, the specific part of the research
also includes studying tyre industry in India. The tyre industry of India is one of the
largest industries in the world as well as in India itself. The Indian tyre industry has
been quick in adopting the latest technology trends through foreign collaborations and
tailoring these to Indian needs. The manufacturers are also investing in development
of ‘green tyres’. There have the allegations of cartels in tyre industry even before the
amendment of MRTP act 1991, this research paper will deal with the characteristics
of Indian tyre industry and will also analyse how CCI, dealt with these allegations of
cartels recently.
The objective of completion law is consumer welfare, and the Indian Parliament
enacted the Competition Act, 2002 with two main objectives, first the prohibition of
anti-competitive agreements and second preventing abuse of dominance. It also
provides for the establishment of the Competition Commission (CCI) to enforce
competition laws and to levy penalties. India is one of the few to have separate
regulatory mechanism to enforce competition laws.
Cartels are the agreements which can be traced back from post independence. The
Competition Act, 2002 (CA), provides proper framework to deal with them. It
provides proper legal definition of cartel in terms of competition law, also with
procedure of investigation by Director General (DG). It also empowers the
Competition Commission of India, to take the matter suo moto, and with proper and
specific provision for the imposition of penaly, rectification of orders, and exemptions
to cartels.
Under the tyre industry of India the CCI, has given the clean chit to the major players
of industry including MRF tyres, CEAT tyres, BIRLA tyres, APOLLO Tyres, and
J&K. it was the case earlier with commission established under monopolistic and
restrictive trade practices act (MRTP Act), which came to CCI, after the repealing of
the said act. The investigation by DG, and inquiry by CCI, reflects the developed
competition law of India relating to many anti-competitive concerns and practices
3
today involved in cartels. And now again the allegation of cartelization in tyre
industry against the major firms is pending before the CCI, for the term 2010-2014.if
the allegation is found to be true, no doubt the penalty imposed would b very severe
according to the section 27 of the act.
Competition laws in all over the world study anti-competitive agreements in two
categories namely, horizontal agreements and vertical agreements. Horizontal
agreements are mostly viewed more seriously than the vertical agreements. Firms
enter into agreements, which may have the potential of restricting competition and
hence effecting consumers.. The former, namely the horizontal agreements are those
among competitors and the latter, namely the vertical agreements are those relating to
an actual or potential relationship of purchasing or selling to each other. In my
research, I will be analysing fist cartels, as form of horizontal agreements, and then
cartels with respect to tyre industry of India.
1.1LITERATURE REVIEW
For completing the present research, I have collected, reviewed, and briefed a
huge literature but shortage of space does not permit to me review the whole
collection of literature which I have referred. Therefore I have tried to review
some of the important works in the following pages;
One of first books on the subject that I reviewed is Competition Law in
India, which was written by Abir Roy and Jayant Kumar2 who has
introduced rational and analytical views on Cartel. He has started his work
by defining cartels under the category of anti-competitive agreements. He
has also explained how cartels can be established and standard of evidence
in India. He has also highligtened the main and CCI orders on Cartels.
2 ABIR ROY & JAYANT KUMAR, COMPETITION LAW IN INDIA, (2nd ed. 2014)
4
I have also reviewed the book which was written by T Ramappa3, on
Competition Law in India-Policy Issues Development. This book is very
easy to understand and written in a very lucid language. In this author have
explained the cartel and also highlighted the procedural provisions of CA,
2002 along with important national and international jurisprudence and
cases.
Another systematic and organised book I reviewed is Competition Law
written by Avtar Singh4. This book provides a holistic and comprehensive
approach to cartels. It begins with cartel’s anti-competitive behaviour, and
discusses in detail the concept of price fixing involved in cartels, and
explains the price fixing not being a criminal offence.
The most comprehensive book I referred is written by Richard Whish &
David Bailey5, on Competition Law. This book is one of best books I have
read on competition law. This book elaborates every concept related to the
competition in a very easy language. It provides proper direction to think
the competition matters practically. On the topic of cartels this books is
written in a very lucid manner and have included every substantive and
procedural law to deal with cartels, with proper judicial pronouncements.
The book for understanding the historical background of Tyre Industry of
India, I have reviewed a book named Tyre Industry in India, written by
Rajmanohar and T.P. Gawri Shanker6. The book is written in very easy
language. The history evolution and development of tyre industry is very
well explained.
Apart from books, researcher has also associated and introduced to a large of articles
and research reports available on the official website of CCI, Competition law in India
3 T.RAMAPPA, COMPETION LAW IN INDIA-POLICY, ISSUSES AND DEVELOPMENT (2nd ed.
2009) 4 AVATAR SINGH, COMPETITION LAW, (1st ed. 2012)
5 RICHARD WHISH & DAVID BAILEY, COMPETITION LAW, (7th ed.2012)
6 RAJMANOHAR & T.P. GOWRI SHANKER, TYRE INDUSTRY OF INDIA, ISSUSES AND
OUTLOOK ( 1st ed. 2008)
5
is on developing stage, the CCI provides a large number of reports and material
related to the cartels and many other anti-competitive concerns.
The first research report I have consulted, was on Study of Cartels in
Selected Jurisdictions submitted to CCI, by CUTS International and
National Law University Jodhpur in 2008. This report is very
comprehensive on the subject of cartel. It began with introducing the
concept of cartel, along with its types. It also provides various issues
involved in cartel like price parallelism, price fixing, and investigation of
cartels. It also systematically provides the cartels case before the MRTP,
1991 amendment and after the amendment and before CCI.
Another article which I have reviewed is on Cartels vis-a-vis Competition
Law by Dr. R.Y.Naidu7. In this report the author has given a very holistic
approach towards the concept of cartels by beginning with providing the
historical perspective of cartels. And also provided the Indian experience
of competition law and cartels with relevant Indian legal provisions and
judicial pronouncement.
The OECD, report on Prosecuting Cartels without Direct Evidence8, has
been also reviewed. The report is systematically organised, and well
drafted on issues of circumstantial evidence. The report begins with
defining direct and indirect evidence. It also provides how do competition
agencies use circumstantial evidence? Is evidence of parallel conduct by
competitors sufficient to prove an agreement?
The reports of ATMA (Automotive Tyres Manufactures Association), is
also referred and reviewed for understanding the Tyre Industry of India
profile. The estimated export, import, turnover of the Industry is taken
from this report.
7 R.Y Naidu, Cartels vis-vis-Competition Law-Judicial Analysis, Vol. 7, NALSAR Law Review, 165,
2013 8 OECD Policy Roundtables , Prosecuting Cartels without Direct Evidence, 11st September, 2006
,available at http;//www.oecd.org./competition/cartels/38704302.pdf
6
Another report of Sectoral outlook – Tyre9, is also reviewed. This report is
very systematic and easy to understand. In this report, the tyre Industry
growth is well explained. The trends of domestic tyre demand, export,
import, investment plan, challenges and future outlook of tyre Industry is
provided.
The researcher desires to repeat that review of existing literature briefed above is only
an illustrative one and not comprehensive one. Apart from these many other books,
articles, CCI orders have been reviewed but not stated here for the sake of brevity and
due to paucity of space.
1.2 STATEMENT OF PROBLEM
The problems of cartels is not new, it not only hinders the effective competition in the
market but also affects consumer welfare. From last many years cartels are being
regulated in many countries although in India they are specifically prohibited and
regulated under Competition Act 2002. Cartels can be formed in any of the industry
aviation, cement, coal, tyres, pharmaceutical etc. In this report the cartels will be
discussed at length along with the type of cartels, establishing of cartels. The
structural factors aiding cartels and defences to cartel. Also, the research work being
specific about tyre industry so the structure , economic features, and challenges to tyre
industry in India will be one of main issues along with defining cartelisation under
tyre industry. How competition commission of India dealt with cartels in tyre
industry and the current status of tyre cartel case.
1.3 OBJECTIVES OF THE STUDY
To analyse cartels and types of cartels.
To study how cartels can be established.
To observe the structural factors aiding cartels and defences to cartels.
To study the Tyre industry of India.
To determine how cartels under tyre industry dealt by CCI recently.
9 Indian Tyre Industry to benefit from auto demand and low raw material cost, 7 May 2015, at
www.Indiratrade.com
7
1.4 RESEARCH METHODOLOGY
The method applies for the study of topic is doctrinal. Being literary based research, it
would involve study of both primary sources such as Acts, Notifications, Reports,
Rules, etc. as well as secondary sources such as Books, journals, articles literature
related directly or indirectly to the topic of present research.
1.5 HYPHOTHESIS
.
Whether the current competition law on cartels acts as an effective deterrent for future
1.6 FRAMEWORK OF STUDY
The present study is divided into following chapters;
Chapter-2 introduces and defines the Cartel and types of Cartel, along with
discussion of the provisions of Competition Act, 2002 important in understanding
cartels.
Chapter-3 will include the how the cartels are detected and what is price parallelism
in cartel case.
Chapter-4 will deal with structural factors aiding cartels, defences and exemptions
available to cartels.
Chapter- 5 will include the structure of tyre industry of India
Chapter-6 will discuss the important cases of cartels under tyre industry, and how
CCI dealt them.
Chapter-7 will conclude the study along with recommendations for dealing with
cartels.
8
CHAPTER-2
CARTELS-DEFINITION AND TYPES
Before analysing the cartels, it is important to understand what exactly cartel means.
It is a term of common day to day routine of economy but, to understand its meaning
under competition law is different. In this chapter, I will discuss the meaning of cartel
and what are the types of cartel as defined under Competition Act, 2002. Cartels are a
form of anti-competitive agreements categorised specifically as horizontal agreements
under section 3 of act, and considered to be illegal per se. Cartels falls under the
category of those pernicious agreements which not only tends to cause harm to the
consumers but also to the economy in general. Across the globe, cartels are
considered to be one of the most distortive conducts under any competition regime. It
involves unfair practices in the form of price collusion, which in turns lead to
reduction of choice for the consumers.
Cartelisation distorts prices and leads to the adverse impact on the overall competition
structure in the market. The severity of this conduct is evidenced by the fact, that
cartels have been subjected to the highest penalty under the Competition
Act1.Competition improves quality, lower prices and makes people aware of the
attraction of buying a product or service. Maximum benefits are claimed to flow when
production and supply is competitively carried out. The antithesis of the competition
is monopoly which generally achieved when a few passengers instead of competing
with each other come together and form an association or a cartel. As observed by
Supreme Court of India, in U.O.I vs. Hindustan Department Corporation2,
‘a cartel is an association of producers who by agreement among
themselves attempt to control production, prices, sale of product to
obtain monopoly’.
1 Section 27(b), Competition Act, 2002, Where after inquiry the Commission finds that any agreement
referred to in section 3 or action of an enterprise in a dominant position, is in contravention of section 3
or section 4, as the case may be, it may pass an order to 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: 2 Union Of India vs. Hindustan Department Corporation, (15.4.1993, SC)
9
After removing competition and creating conditions of monopoly, the cartel of
businessmen or by any trade association prevents the market forces from operating
smoothly and also turns the market against the benefit of consumers. The members of
the concerted practice, efforts to increase its own profits by raising prices of the
goods, or services by cutting their output to create conditions of scarcity for raising
prices thereof. The monopoly created by the cartels, can never be conducive, to
progress. It regards growth, impedes the improvement of the levels of living of the
peoples. It can further lead to the dominance by the major firms, leaving behind the
minor firms not being the part of the cartel to loose market and can target their
customers in their favour.
Generally, cartels are considered to be a group of persons or enterprises3 that agree to
coordinate to influence the market price by controlling the production, distribution
and sale of a particular product or service. By this way of illegal behaviour, the actors
of a cartel start involving in a secret conspiracy and tend to make profits at the
expense of the customers. Therefore the cartel directly effect to the consumer and the
consumers have to pay more for the respected goods or service than they would
otherwise pay in an efficient competitive market4.
Analysing there effects of cartels, it is most often seen that the existence of cartels can
be extremely harmful not only to the consumers, but also to the economy and
competition in general. Cartels also denies the consumers their right to choose what
they can buy, and at what price. Cartels shield inefficient business from competition
and thereby damage efficient business by increasing input prices.
3Sec.2(h), Competition Act “enterprise” means a person or a department of the Government, who or
which is, or has been, engaged in any activity, relating to the production, storage, supply, distribution,
acquisition or control of articles or goods, or the provision of services, of any kind, or in investment, or
in the business of acquiring, holding, underwriting or dealing with shares, debentures or other securities
of any other body corporate, either directly or through one or more of its units or divisions or
subsidiaries, whether such unit or division or subsidiary is located at the same place where the
enterprise is located or at a different place or at different places, but does not include any activity of the
Government relatable to the sovereign functions of the Government including all activities carried on
by the departments of the Central Government dealing with atomic energy, currency, defence and
space. 4 AVTAR SINGH, COMPETITION LAW, Cartel’s Anti-Competitive Behaviour, pg-15, ( 1st ed.
2014)
10
The other anti-competitive concern with cartels is, cartels also tend to distort the
ordinary processes of innovation and product development. Therefore, put simply,
cartels are contrary to and efficient competitive market structure. Hence, cartels
across all jurisdictions are considered to be the supreme evil of antitrust regime5.
2.1CARTEL AS DEFINED UNDER COMPETITION ACT, 2002
Cartel is defined under the competition act, and also categorised under horizontal
agreements , the relevant provisions to under cartels are mentioned below.
Cartel as defined under sec. 2(c), the section reads as
“Cartel” includes association of producers, sellers, distributors, traders, or service
providers, who by, agreement amongst themselves, limit , control or attempt to
control the production, distribution, sale or price of, or, trade in goods6 or provision of
services7.
Cartel as anti-competitive agreement the horizontal restraint under sec.3 (3), as it is
provided
“Any agreement entered into between enterprises or associations of enterprises, or
persons, or associations of persons of persons or between any person and enterprises
or practice carried on, or decision taken by , any association of enterprises or
association of persons, including cartels, engaged in identical or similar trade of goods
or provision of services, which –
5 Pradeep S. Mehta, Competition Regulation in India-Leveraging Economic Growth Through Better
Regulation, 2011 6 Section 2(i), Competition Act, 2002 “goods” means goods as defined in the Sale of Goods Act, 1930
(3 of 1930) and includes— (a) products manufactured, processed or mined; (b)debentures, stocks and
shares after allotment; (c) in relation to goods supplied, distributed or controlled in India, goods
imported into India; 7 Section 2(u), Competition Act, 2002 “service” means service of any description which is made
available to potential users and includes the provision of services in connection with business of any
industrial or commercial matters such as banking, communication, education, financing, insurance, chit
funds, real estate, transport, storage, material treatment, processing, supply of electrical or other
energy, boarding, lodging, entertainment, amusement, construction, repair, conveying of news or
information and advertising;
11
a) Directly or indirectly determines, purchase or sell prices,
b) Limits or controls production, supply, markets, technical developments, in
investments or provision of services,
c) Shares the market or source of production or provision of services by way of
allocation of geographical area of market, or type of goods or services or
number of customers in the market or any other similarly,
d) Directly or indirectly results in bid rigging or collusive bidding,
Shall be presumed to have an appreciable adverse effect on competition (AAECC).
Sometimes, cartel in general business terms defined as cartel as an organization
created by a formal agreement between a group of producers of a good or service,
which intends to regulate supply in an effort to manipulate prices. A cartel also
means collection of businesses or countries that agrees to act together as a single
producer and so as to influence prices for certain goods and services through
controlling production and marketing. Cartel is an horizontal agreement because it is
entered between competitors/ distributers/ manufacturers operating at the same level
of the production process i.e., enterprises engaged broadly in the same type of
activity, for example agreement between producers or sellers or retailers dealing with
same kind of goods.
Although the presumption in this sec. is rebuttable one, it on the defendant to prove
the allegation of cartels, with the principle of natural justice as plaintiff given the
change to be heard, represent and then examination is made. The common
characteristics of cartels can be summarised as –
Cartels generally found as function in secrecy.
The members of a cartel, or the parties involved by and large, seek to hide
their activities to avoid detection by the Commission.
The continuation of cartels is ensured through retaliation threats. If any
member cheats, the other cartel members retaliate through temporary price
cuts to take business away or can isolate the cheating member.
Another method for the continuation of a cartel is, known as compensation
scheme, is resorted to in order to discourage cheating. Under this, if a member
12
of a cartel is found to have sold more than its allocated share, it would have to
compensate the other members.
2.2 TYPES OF CARTEL;
Horizontal Agreements are agreements between two or more enterprises that are at the
same stage of production chain and in the same market. The aspect that they are at
same market implies the fact that parties to the agreement must be both producers, or
retailers or wholesalers. The degree of corporation may vary from carrying out
research and development to establishing a new company through the means of a joint
venture.
Thus such agreements can be a means to share risks, save costs, increase investments,
pool know-how, enhance product quality, and facilitate invention. These agreements
therefore can have pro competitive benefits which may be highly beneficial to the
competitive structure of the market and also leads to the synergy of operations by
pooling by resources for ultimate benefits of the consumers8.
There are four preliminary types of cartels. The same have been explained below;
a) Price fixing
b) Market sharing
c) Output control or limiting production
d) Bid rigging
2.2.1Price fixing
Price9 fixing occurs when competing firms make an agreement with the purpose
or effect of fixing, controlling or maintaining the price of the goods or services.
The agreement may be on price or discounts available on goods and services.
8 Supra note 4
9 Section 2 (o), Competition Act, 2002,“price”, in relation to the sale of any goods or to the
performance of any services, includes every valuable consideration, whether direct or indirect, or
deferred, and includes any consideration which in effect relates to the sale of any goods or to the
performance of any services although ostensibly relating to any other matter or thing;
13
Price fixing is an agreement between the potential competitors wherein they lay
down a price to sell their goods. Therefore, as stated above, the aim and result of
every price fixing agreement is to eliminate the o competition. The power to fix
prices, also involves the power to control the market and to fix arbitrary and
unreasonable prices. The reason of this collusion can be many; which can be
determined with the economic features of the markets or the industry involved.
There can be tacit collusion favouring price fixing.
The reasonable prices fixed may become unreasonable at a later date due to
business, socio-economic or legal changes. Once the price established or fixed it
can be maintained unchanged may be because of the absence of competition
secured by agreement for price reasonable when it was fixed. Agreements which
create such potential power may well be held to be in themselves unreasonable or
unlawful restraints without the necessity of minute enquiry whether price fixed are
reasonable or unreasonable10
.
Further the restriction is very comprehensive it can cover all types of collective
agreements including trade terms and conditions like discounts between the sellers
or between the buyers. Such agreements are referred to as the collusive price
fixation or cartel. The cartel is with respect to the price of the product or the grants
of discounts or rebate or in matters of terms of warranty etc. In fact most of the
agreements like agreements entered into by two or more manufactures or suppliers
or two or more dealers would fall within the perspective aspect of cartel.
These kinds of cartels not only give them enormous power to dictate prices but
also other terms of sale to the wholesalers and retailers in the marketing
channel11
.There have been judicial pronouncements to the effect that “agreement
to eliminate, minimize or restrict other terms and conditions for sale such as
discounts, advertising allowance, credit terms, or freight charges, led to illegal
price fixing, and thus, are per se illegal”. In such cases, potential anti-competitive
10
United States vs. Cohen Grocery Co., 255 US 225 (1989) 11
AVATAR SINGH, COMPETION LAW, pg-16 ,( 1st ed. 2012)
14
effects inherent in all price fixing agreements justify their facial invalidation even
if pro competitive justification is offered for some12
.
It has been categorically held that an agreement to fix price is unlawful per se, and
it is no excuse that the prices fixed are themselves reasonable. As has been earlier
mentioned, agreement to fix conditions of sale would be per se illegal. On similar
lines, extending interest free credit for a period of time is equivalent to giving a
discount equal to the value of the use of the purchase price for that period of time;
thus, credit terms must be categorised as inseparable part of the price and an
agreement to terminate the practise of giving credit is tantamount to an agreement
to eliminate discounts and thus falls squarely within the traditional per se rule
against price fixing.
When a particular concerted activity entails and obvious risk of anti-competitive
impact with no apparent potentially redeeming value , the fact that a practise may
be harmless in particular set of circumstances will not prevent its being declared
unlawful per se13
.The principle of price related agreements on miscellaneous
terms have been applied even to professional services. Hence the horizontal
agreements relating to price fixing is a perfect example of pure cartel, it is not
only anti-competitive but also against consumer welfare. The competition
authorities have always been very serious towards these agreements have been
imposing heavy venalities in these cases.
2.2.2 Market Sharing
Market14
sharing refers to agreements between competitors that divide up the market
so that the participants can escape from competition. The agreement can be in the
nature of agreeing on specific locations of operation by one firm and non-intervention
by others. It may also be with respect to transactions with specific customers. This is
in the case of targeted customers and targeted markets. These include a customer
12
Arizona v. Mericopa County Medical Society, 457 US , 351-354, 332 ( 1982) 13
Catalano Inc. v Targeted Sales Inc 446 US 643 14
A market is a medium that allows buyers and sellers of a specific good or service to interact in order
to facilitate an exchange of goods and services. available at
http://www.investopedia.com/terms/m/market (23.05.16).
15
allocation within an explicit cartel which assigns specific customers to specific cartel
members. A geographic allocation within an explicit cartel specifies the geographic
areas where specific cartel members can or cannot sell product. In an explicit cartel,
the market allocation of each member is specified, and also the maximum shares of
within cartel sales that each cartel member is allowed in the market for a given time
period is provided. Combinations of these cartels are easily possible and are most
commonly observed.
For example, explicit cartels often allocate a country where a member has production
facilities exclusively to that producer (geographic allocation) but apply a market share
allocation in regions where there is no cartel production. The agreement relating to
market sharing therefore could follow;
Non production of good in competition with each other,
Not selling in each other’s allocated geographic territories, or
Not soliciting or sell to each other’s existing customers15
.
Judicial pronouncements have also held that horizontal customers or market allocation
is the practise by which the competitors divide the customers or markets and coming
to an agreement of non-compete with each other for sales or in those markets. The
independent firms in a market-sharing cartel can also operate in the same geographic
area. These market-sharing cartels are likely to be unstable due to cheating. Some
market-sharing cartels are sanctioned by law.
For example, local medical and bar associations essentially set the fees that doctors
and lawyers are to charge. The nature of such anti-competitive agreements can also be
termed as concerted refusal to a deal. The term concerted refusals to deal covers
gamut of cases wherein, there is an agreement not to deal with specified group of
suppliers or customers. This also known as group boycott wherein there is a
horizontal concerted refusal to deal involving an agreement between two or more
competitors to refuse to deal with other competitors or class of competitors, or with
15
ABIR ROY & JAYANT KUMAR, COMPETITION LAW IN INDIA,pg-62, (2nd ed. 2014).
16
one or group of suppliers or customers. It must be noted that these activities can be
stand alone or operated in unison with each other.
2.2.3Output controls or limiting production
Output controls can occur in the form of production or sales quota arrangements
between competitors to limit the volume or type of particular good or services in the
market. Agreements related to output or production restrictions are the agreements
between competitors wherein the competitors agree to curtail their output or restrict
production. There is a presumption that such kinds of agreements are made to limit
supply and gain ability to raise prices and such sort of agreements are treated illegal
per se.
The Competition Commission of India(CCI),in the Cement cartel case16
, also
observed that the act of limiting and control of supply on the part of the cement
companies over the years has been aimed at first creating shortages leading to build
up demand thereafter raising prices in the wake of high demand product in the market.
Since in some seasons the demand is more, the cement restricted the supplies just
before the peak demand and thereafter sell cement at higher prices.
For instance the Cement companies reduced production and dispatch of cement even
when demand was positive during November and December 2010, and thereafter
raised prices in the month of January and February 2011, in times of high demand as
outlined in the decision above. It was also seen that the price increased in the month
of January and February 2011 after the meetings of High Power Committee of
CMA17
. Therefore high prices as a result of cartelization may also become an
important key to access the scope and impact of cartelization.
Limiting production-Distribution under sec.3 (3)
16
Builders Association of India vs. Cement Manufactures Association, case no-29/2010, CCI decided
on 26.06.12. (hereinafter Cement case) 17
Supra note16,para 6.9.11.
17
The decision in the Uniglobe18
case, highlighted over the issues of concerted refusal
and whether it tends to limit or control supply, production, markets, technical
development, investment or the provisions of services. Previously certain decisions
under the Monopolistic Restrictive Trade Practices (MRTP), regime clearly indicated
that boycott calls given by trade association are per se restrictive trade practices. Also
CCI held that travel agents in India sell more than ¾th of international tickets in India.
Therefore their role is indispensable.
A concerted refusal on their part to boycott a part of their trading activity (in this case
sale of tickets of Singapore airlines) may cause severe difficulties to the consumers.
Therefore their conduct of boycott was a unilateral effort to restore their own previous
remuneration from the airlines, thereby depriving consumers of their choices to
choose routes and tickets. Thus no benefit accrued to customers but in turn the
boycott harmed them. Hence it was an anti-competitive activity under sec. 3(3).
In this decision, it was also stated, that sale data alone cannot capture the dynamics of
the industries. Therefore one has to see whether boycott has resulted in decreased sale
by travel agent, regardless of whether overall sale has increased (from sources other
than travel agents). The agreement relating to output restriction is that form of cartel
which affects the whole economy of the market, and is intended to bound consumers
to act the way the parties alleged have concerted.
2.2.4Bid rigging
Bid rigging takes place when two or more competitors agree they will not compete
genuinely with each other for particular tenders this process allows one of the
participants in the agreement to win the tender. Participants may take turns and be the
winner on different occasions. Bid rigging is defined under the explanation provided
to section 3(3)19
.
18
Uniglobe Mod Travels Pvt. Ltd vs. Travel Agents Federation of India, case no-03 of 2009,decided by
CCI on 4.10.2011,( herein after uniglobe case) para 60. 19
“bid rigging” means any agreement, between enterprises or persons referred to in sub-section (3)
engaged in identical or similar production or trading of goods or provision of services, which has the
effect of eliminating or reducing competition for bids or adversely affecting or manipulating the
process for bidding
18
The nature of agreement related to bid rigging may envisage of the following terms
with respect to the tenders winning bid;
the bid shall be lower than all others bids, or
It will be the only bid containing terms that will be acceptable.
It can also be the only bid which is submitted, thereby evolving participants to not
participate in the tender process at all20
.Bid rigging agreements are among competing
bidders or potential bidders that affects the prices they will bid for secretly
influencing the outcome of, a contracts or series of contracts. Bid rigging is per se
illegal irrespective of the facts that it does not matter whether the agreements
concerns what the low bid would be, also it is based on the agreement of uncertainty.
Judicial jurisprudence in India also indicates that collusive tendering or bid ridding is
the practice whereby firms agree amongst themselves to collaborate the response of a
tender. The competition authorities identify this process of bid ridding as anti-
competitive under sec. 3(3) of the act, in the case of Aluminium Phosphides case21
. In
this case all the firms set identical prices in their bids. CCI had examined that three
firms had very distinct cost structure and sale prices22
.
Despite this difference, all firms set identical prices for their bids. This goes against
the spirit of commercial prudence which indicates that the identical prices set in this
case, where not the result of identical costs or profit margins. Therefore, this was
evidence enough to indicate that competition is being killed by concerted efforts of
the enterprises.
Bidding, in practice, is intended to enable the procurement of goods or services on
the most favourable terms and conditions. Invitation to bids can be is given both by
Government (and Government entities) and private bodies (companies, corporations,
etc.). But the objective is only of securing the most favourable prices.
20
CCI vs. Aluminum Phosphides Tablets Manufacturers, decided on 23.4.2012, para 7.42 21
Supra note 20, para 7.43 22
Supra note 20, para 7.23
19
Collusive bidding or bid rigging can occur in any of the various ways, and these ways
are found to be most commonly adopted;
agreements to submit identical bids
agreements as to who shall submit the lowest bid,
agreements for the submission of cover bids
agreements not to bid against each other, and
agreements on common norms to calculate prices or terms of bids a
agreements to squeeze out outside bidders.
Bid rigging is the most dangerous to the customers as well as to the other firms in the
competition. It is always prohibited and considered as anti-competitive practice
affecting market structure and market economy at large.
Other forms of cartel-
Apart from these types of cartels, three other forms of cartels also exits including
international cartel, export cartel, and import cartel.
i. An international cartel- an international exist when the members of the cartel,
do not belong to the same country, i.e. all enterprises in that cartel do not
based in the same country, and that cartel affect the economy of more than one
country.
ii. An import cartel – an import cartel, is a cartel in which enterprises (including
an association of enterprises) get together for the purpose of imports into the
country.
iii. An export cartel is made up of enterprises based in one country with an
agreement to cartelize markets in other countries. In the Act, cartels meant
exclusively for exports from India have been excluded from the provisions
relating to anti-competitive agreements.
To deal with these cartels, CCI have been empowered to take the jurisdiction under
section 3223
. It deals with the extra territorial activities, including cartels, taking place
23
Section 32 of COMPETITION ACT 2002. The Commission shall, notwithstanding that,— (a) an
agreement referred to in section 3 has been entered into outside India; or (b) any party to such
agreement is outside India; or have power to inquire [in accordance with the provisions contained in
sections 19, 20, 26, 29 and 30 of the Act] into such agreement or abuse of dominant position or
combination if such agreement or dominant position or combination has, or is likely to have, an
20
outside India but having effect on competition in India would fall within the scope of
act and can be inquired into by the Commission. This is characterise of the
competition act, which empowers the commission to deal with international matters
also affecting economy of our country, but much needed to done to bring this
provision into action.
appreciable adverse effect on competition in the relevant market in India [and pass such orders as it
may deem fit in accordance with the provisions of this Act.]
21
CHAPTER-3
EXISTENCE OF CARTEL AND PRICE PARALLELISM
The cartel is a concerted practice including many discussions, planning, and plotting
between the members. It is not possible to recognise the presence of a cartel in an
industry. Burden of proving the agreement, through evidences is on the defendant. To
collect various information and to analyse them to detect a cartel is the matter of
prudence, well carried on by the competition authorities. There have been many rules
and guiding principles for these authorities while analysing the evidences. Those
principles and standards are dealt in this chapter. Also, the price parallelism is an
important concept in establishment of cartels which is also being discussed in this
chapter.
3.1 DETERMINING THE EXISTENCE OF CARTELS
In order to establish the existence of a cartel, it is important to prove the existence of
i. An agreement1,
ii. Between an association of the producers, sellers, distributers, traders or service
providers and,
iii. Where the objective is to limit, control or attempt to control the production,
distribution, sale or price of, or trade in goods or provision of services.
The analysis of this definition entails several legal standards for the assessment of the
cartel. Each of these standards of assessment has been discussed below.
Burden of Proof for the Existence of Cartel;
While the formation of a cartel among to an anticompetitive trade practice, which is in
disputably against the public interest, the existence of a cartel is seldom through by
1 Section 2(b) of Competition Act, 2002 “agreement” includes any arrangement or understanding or
action in concert,— (i) whether or not, such arrangement, understanding or action is formal or in
writing; or (ii) whether or not such arrangement, understanding or action is intended to be enforceable
by legal proceeding
22
direct evidence. Generally no expressed agreement showing its existence is ever
found. It has to be proved by the circumstantial evidence by setting up a chain of
events leading a common understanding or plan the underlying issues is what at the
minimum, constitutes that meeting of the minds which must be directly or
circumstantially establish to prove that there is a cartel having effect on competition2.
There have been practical difficulties to establish the existence of an anti-competitive
agreement between the firms. The fact is that firms engaging in anti-competitive
behaviour have developed sophisticated ideas and tricks of hiding their behaviour so
that they escape the liability under the antitrust laws. Hence the competition laws of
most of the countries have introduced a safety net in the form of “concerted practice”.
Concerted practice means any act or anything which is planned prior it is done with
an ill motive, and the test for the same is that the parties have substituted for the risk
of competition practical cooperation between the parties, which culminated in a
situation, which does not correspond which the normal conditions of the markets. In
one of the earliest enquiry of the alleged conspiratorial cartelization, Alkali and
Chemical corp. of India ltd. and Bayer India ltd3., were engaged in the manufacture
and sale of rubber chemicals and among themselves commanded a dominant share of
the total market in the product. They were charged with making identical increase in
prices on 5 to 6 occasions on or around the same dates.
There was however, no direct evidence of the existence of concert behind the rapid
increase in the price. in its order, dated 3 July 1984, while dismissing the charges
levelled against the respondents, the MRTP commission made an observation,
“in the absence of any direct evidence of cartel and the circumstantial evidence
not going beyond price parallelism, without their begin even a shred of evidence
in proof of any plus factors to bolster the circumstances of the price parallelism,
we find it unsafe to conclude that the respondent indulged in any cartel for
raising the prices”.
2 Study on Cartel Case Laws in Selected Jurisdictions, By-CUTS International,& National Law
University Jodhpur pg-7,2008 3 Alkali Chemical Corporation of India Ltd v. Union Of India,(22.07.1980-Delhi High Court)
23
First the existence of the cartel may be proved by direct evidence, indirect
(circumstantial) evidence or a combination of both4.
3.1.1 DIRECT EVIDENCE- EXISTENCE OF AN AGREEMENT
Direct evidence includes written agreements among cartel members, statement of
cartel member who attended a meeting and reached an agreement with other
competitors, a memorandum written within a company to report a meeting with
competitors where an agreement was reached, records of telephone conversations
with competitors, or a statement of a person who was approached by the cartel to join
it5.
However, getting direct evidence of cartels tends to be very difficult leading to
reliance on circumstantial evidence. Cartels however are not easy to maintain and
several factors become critical for sustenance of cartel. The channel for coordination
or corporation among the firms is the most common form. Direct evidence can also be
described as 'first hand' proof of a cartel which originates directly from one or more
participants in various cartel meetings, and normally it directly implicates the
participants in the cartel.
Channels for corporation can be varied ranging from organised cartels, with
agreements to simple information exchange between competitors6.There have been
some situations wherein, the decree and the nature of involvement and participation of
the firms in an agreement varies from time to time, with the result that one cartel
could be said to have participated in some of the meetings but it is not always
involved in the operation of the agreement.
Hence, it creates a situation compromising of several sub-agreements. Thus, it has
been held that in such situations there can be an approach known as a single overall
agreement, wherein the agencies approach would be to bind the sub-agreements
together and conclude that a single overall agreement existed without looking at the
4 OECD, Policy Roundtables, Report on Prosecuting Cartels without Direct Evidence, pg-20, para-2.1,
2006, available at http;//www.oecd.org./competition/cartel/ 38704302/pdf. 5 Supera note 4
6 Supera note 4
24
sub-agreements individually7. To corroborate direct evidence for the establishment of
a cartel is easy, but it’s not easy to get the direct evidences easily, cartel are function
in secrecy , and generally participants are careful enough to hide their evidences
which are apparent for their concerted plotting. Thus, there comes the need of
circumstantial evidences.
3.1.2 INDIRECT EVIDENCE-ROLE OF CIRCUMSTANTIAL EVIDENCE
In case of cartels, circumstantial evidence may play a vital role in providing proof,
even in the absence of any formal agreements between the parties.
Circumstantial evidence is that form of evidence which does not specifically describe
the terms of an agreement, or the exact parties involved in it. It includes evidence of
communications among suspected cartel operators and economic evidence concerning
the market and the conduct of the suspected cartel members participating in it that
suggests concerted action. The examples of circumstantial evidence can be restaurant
receipts, credit card bills, travel details, telephone/mobile bills, track of email
conversations etc. In the recent past the competition laws/regulations offer
competition agencies the authority to rely on circumstantial evidence when it comes
to investigating cartels since it is to find any form of written agreement amongst
competitors.
There are two recognized forms of circumstantial evidence- communication evidence
and economic evidence. Communication evidence indicates that cartel operators met
or otherwise communicated, but does not represent the exact substance of their
communication, like what exactly discussed about prices, production etc. It includes
for example- records of telephone conversations among suspected cartels participants,
of their travel to a common destination and notes of records and meetings in which
they participated. Economic evidence on the other hand, can be categorised as either
conduct or structural evidence8.
7 The ‘Polypropylene decision’ ,decided on 23.04.1986, relating to a proceeding under Article 85 of
the EC treaty, pg-14 8 Supera note 4, para 2.1, pg-20
25
The conduct evidence, most importantly, includes the evidence of parallel conducts
by suspected cartel members, examples- simultaneous and identical price increases or
suspicion bidding patterns in public tenders. Structural evidence includes refers to the
more operative evidences and includes evidences of high market concentration and
homogenous products. Of these two types of economic evidence, conduct evidence is
considered the more important. Also, between communication and economic
evidence, communication evidence is considered to be more important as economic
evidence may be ambiguous.
The Indian standard has also been subjected to intense legal interpretation and is still
evolving. Before delving into the Indian case laws one may have to look at the
standards followed in other jurisdictions. In the UK, principles of civil standards of
balance of probabilities are followed. With this standard of evidence much more
‘strong’ evidence is also required to prove cartels. In Napp v. Director General9 of fair
trading, the competition commission appeals tribunal of UK rejected the claim that
criminal standard of proof should be applied and concluded that the civil standards of
proof should be applied. It was clarified that since those cases under the act which
involves penalties are considered to be serious matters, strong and convincing
evidence would still be required before infringements could be found to be proved,
even to the civil standards.
3.1.3 INDIAN STANDARDS OF BURDEN OF PROOF AND NATURE OF
EVIDENCE
Under the act, there has been interpretational ambiguity with respect to the standard of
proof in case of cartels in India. The two diverging standards for burden of proof are –
i. Standard of rule preponderance and probability,
ii. Standard of proof beyond reasonable doubt.
The Uniglobe case, the emails sent by a travel association to its members to
collectively boycott an airline, was considered to be conclusive proof of cartelisation.
9 Napp v. Director General, case no.1001/1/1/01 decided on 15.01.2002, by Competition appellate
tribunal
26
However, in Neeraj Malhotra decision10
it was stated that an anti competitive
agreement and its existence must be unequivocally established.
The order stated that the word “agreement” for the purposes of the act has wide
connotations as defined under sec. 2(b). However, it is crucial that existence of such
an agreement is established without any doubt. The Indian decision relied on
jurisprudence of the EU. Reliance was placed on the EU standard which laid down the
principle of existence of unequivocal agreement with respect to infringements of art.
81(1) of the EC Treaty. In the next case, In Re Sugar Mills11
, the CCI varies its stand
a little and held that, for a Cartel, there be an evidence to prove that Cartel participants
met and decided to take concerted action and that the concerted action has been
implemented by the participants. The decision specifically elaborated on the
following,
a) There must be evidence of the fact, that alleged participants met and decided
to take concerted action,
b) Such concerted action must have been implemented, and
c) There must be conclusive evidence of meeting of minds12
.
Similarly, this case was dismissed by CCI, for the want of conclusive evidence of the
meetings of the mind.
In Film & Television Producers Guilds of India v. Multiplex Association of India
(MAI), Mumbai13
, a dispute arose whereby the informants( production houses)
alleged concerted action on the part of multiplex owners pertaining to the prices
charged for the release of the films in the respected multiplexes the CCI, said that
there was no direct evidence on record that showed that any director was issued by the
respondent through it members asking them not to deal with the producers/
distributers on the individually.
10
Neeraj Malhotra v. Deutsche Post Bank Home Finance ltd.& ors., case no-5/ 2009, ( 2.12.2010-CCI),
para-17.10. 11
Re Sugar Mills, case no-01/2010, (30.11.2011-CCI). 12
Supera note 11 13
Case no-37/2011, decided on 3.01.2013-CCI
27
However, an analysis of circumstantial evidence indicated that on the basis of the
meetings of the respondents held on 25.09.2012 and 29.09.2012 respectively and
subsequent conduct of the opposite parties with regards to the release of the film, the
DG came to the conclusion that all the opposite parties have found a cartel and are
acing in a collusive manner. They are indirectly determining the purchase price of the
films, and are also determining to control the market of exhibition of films. In this
regard, CCI also looked into the listed agenda of the meeting, emails, exchanged
among parties as substantial evidence.
3.1.4 DETERMINATION OF RELEVANT MARKET
The specific meaning to relevant market14
is prescribed by the act. It has been
recognised that there is no requirement under the provisions of sec.3 (1) and sec. 3(3)
of the act as also under sec. 19(3) to construct to determine relevant market, although
that remains sine-qua-non for the determination of contravention under the provisions
of sec. 4 of the act. Judicial decision in India has indicated that sec.3 (1) and sec. 3(3)
are concerned with the effects of anti competitive agreements on markets in India
generally not with relevant market geographically or product particularly.. There is a
distinction between market as in sec 3 and relevant market defined in section 4 of the
act.
Therefore, there is no need of determination relevant product market or relevant
geographic market for the purposes of establishing any anti competitive agreement
including cartels since the determination of relevant market is required while
enquiring into allegations of contraventions of sec. 4, concerning abuse of dominance
to assess an area or range of products within which a dominant player can exercise its
market power profitably at the expense of the consumers or the market or the
competitors15
.
14
Section 2 (r) “relevant market” means the market which may be determined by the Commission with
reference to the relevant product market or the relevant geographic market or with reference to both the
markets 15
Builders Association of India v. Cement Manufactures Association, case no-29/2010, CCI decided
on 26.06.12. (hereinafter Cement case) para 6.5.44
28
3.1.5 Rule of reason or per se illegal
In the section 3(3) of the presumption of adverse effect on competition (AAEC)
seems to be per illegal, but the section has to be read with section of the act, which
provides factors that are to be determine before establishing a cartel having
appreciable adverse effect on the competition. Although the term appreciable adverse
effect on competition is not defined in the act, but while determining the AAEC, of
any agreement, the CCI, required to look factors mentioned under sec. 19(3), they
include and read as;
a) Creates of entry barriers for new entrants in the market;
b) Deriving existing competitors out of the market;
c) Foreclosure of competition by hindering entry into the market;
d) Accrual of benefits to consumers;
e) Improvements of production and distribution of goods or provision of
services;
f) Promotion of technical, scientific and economic.
It is vital to note that the presumption stated in the act, is rebuttable one, and in
instances where an inquiry is conducted by CCI, the burden of proof to show that
concerned agreement does not cause or is not likely to cause an AAEC in India, lies
with the parties to such agreements. Therefore, although the plain reading to the sec.
3(3), would suggest that it is a per se violation, the decisional practice of CCI,
suggests that Cartel arrangement must also results in the AAEC in India. Such
decisional practice does show maturity because ultimately conduct which violates the
basic tenets of competition law must be caught which can be only analyzed under
“Rule of Reason and not plain vanilla use of per se Rule”.
The legal jurisprudence evolved in India, under this provision has been discussed as
below;
29
In FICCI- Multiplex association of India v. United Producers/Distributers Forum16
,
the CCI held that that producers/ distributors with their collusive market power
attempted to ensure that multiplex owners did not get business of film exhibition till
they agree to the offer to enhance revenue share. It was also noted that, the revised
revenue sharing arrangement has resulted in multiplex owners across the country
increasing ticket prices, thereby adversely affecting the consumers; hence Cartel is in
the violation sec. 3(3) of the Act causing AAEC in India.
Another important precedent in relation to the same under the Act is Uniglobe case17
,
where the CCI, took into account all the information on record, and concluded that the
opposite parties were involved in taking into collective decision to issue a boycott call
against Singapore Airlines, on the basis of e-mails, joint notices containing all the
association names and advertisements and the hoardings proclaiming their collective
intention to boycott and pressurize Singapore Airlines to revert to the commission
basis model. The CCI concluded that the Opposite Parties affected consumers, as they
have considerable market power in respect of airline ticket sales.
In Eros case18
, the CCI observed that,
the rules and regulations, act and conduct of association were not making
market perform efficiently,
they were in fact, restricting and limiting their market in the form of limit on
supplies of films since without becoming the members, without registering
their films with association, no producer, distributor can exploit his film and
compete with the members of the association,
also, if the producers, distributors or exhibitors refuse to follow the dictates,
they would be punished, boycotted by association depriving them to
effectively compete in the area.
16
Case no-01/2009, decided on-25.06.2011-CCI 17
Uniglobe Mod Travels Pvt. Ltd v. Travel Agents Federation of India, case no-03 of 2009,decided by
CCI on 4.10.2011,( herein after uniglobe case) para 60 18
Shri Astavinayak Cine Vission Limited v.Eros & Ors. case no71/2011-, decided on -10.01.2013
30
This was enough proof for AAE on competition as per sec. 19 of the CAI, 2002. It is
most often seen that the act of limit and control of production and supplies in the
market causes upward movement in the price of product/ service. Similarly, the
deliberate act of shortage in production and supplies as a result of cartelization in a
product/ service which has inelastic demand, inevitably results in high prices.
Therefore, the rule of reason is applied in cases of cartels, to establish them, the
presumption under the provisions of competition act are rebuttable. Hence, the prelim
burden of proof is always on defendant to prove the appreciable adverse effect on
competition and then it shifts to the alleged firms, or parties to prove why the action
should not be taken against them. The factors aroused against any one from the
section 19, it’s on them rebut all, to a clean chit from the competition authority.
Hence, no per se illegality, but rule of reason is to be followed for establishing cartels,
analysing and penalising cartels.
3.2 PRICE PARALLELISM AND ITS LEGAL IMPLICATION
Price parallelism can be understood as a mirroring effect where traders independently
their ‘unilateral non-corporative actions” in the view of what other competitors or
rival firms are doing. Price parallelism is given by the correlation between prices.
Price parallelism is often used in prosecuting cartels as a tool to determine whether of
collusion can be determined. It is extremely a tricky concept as authorities must
distinguish between situations involving strategic coordination which implies some
sort of illicit collusion or when it’s merely corresponds to spontaneous resulting from
rational response of members to their perceived interdependencies19
.
But the evidence of price parallelism to establish cartel is not enough. Price
parallelism is itself not illegal. It has to be determined with the plus factors to allege
the conscious price parallelism. Therefore before going into price parallelism it is
important to understand what are plus. It is important to gather information on these
plus factors. Also, to give the call for price parallelism in oligopolistic markets one
needs to gather the evidence after looking at the plus factors which can be in the
19
www.antitrustcriminalattorney.com/antitrust-schemes/conscious-parallelism
31
favour of the alleged parties. Price parallelism reflects a pattern of prices set behind
by the firms, may be one state or in the other. It seems to be done individually but
reflects as a strategy of firms to manipulate the prices.
3.2.1Plus factors-elements and significance
Plus factors are economic actions and outcomes, above and beyond parallel conduct
by oligopolistic firms that are not consistent with unilateral conduct but largely
consistent with explicitly coordinated action.
The line between collusive pricing and strategic coordination is quite thin. Therefore,
several economic evidences may be used to substantiate a case, where parallel
movement in price crosses the line into the realm of anti-competitive practices. Thus
the role of ‘plus factors’ assume a great importance. A wide range of circumstantial
evidence can be used to establish the needed plus factors, if indicating the defendants,
rather than acting in a merely parallel manner, have actually acted in concert.
Some of the following plus factors have also been pointed out by scholars/experts20
,
some of them are mentioned below,
1. fixed relative market shares,
2. exchanges of price information,
3. regional price variation,
4. identical bids for non standards products,
5. price , output and capacity changes at the formation of the cartel,,
6. amplitude and fluctuation of price changes,
7. demand elastic at the market price
8. level and pattern of profits
9. market price inversely correlated with number of firms or elasticity of
demands
10. basing point pricing and
11. Exclusionary practices.
20
William E. Kovacic, Robert C. Marshall, Leslie M. Marx, and Halbert L. White, Plus Factors And
Agreements in Antitrust Law,110;333, Michigan Law Review, 394, 415, December 2011
32
There are certain cartel conducts which individually or jointly act as plus factors
involving price elevation, quantity restriction, internal incentive shift, allocation of
collusive gain, communication and monitoring, redistribution of gains and losses,
dominant cartel conduct. Now these will be discussed below.
Price elevation-Most of the cartels involve spending a great deal of energy, and time
on coordinating price announcements. For example, international cartels in the
vitamins industry there was announcements of price increase, including the
designation of which company would lead the price increase. As another example, in
Rubber Chemicals, one of the components of the conspiracy was “issuing price
announcements and price quotations according to the agreements.” Price
announcements are about sellers adjusting buyers’ expectations by an observation
made to the public and, that results in, lowering the buyer resistance to price
increases.
It involves two situations one -where there was no price announcements before but
still buyers have to be confronted with surprisingly higher prices from their
competitive firms and a second where exactly the same bids are submitted by all the
sellers, but in the weeks prior to that bidding the sellers had made similar price
announcements with similar justifications for the price increase.
Now, the matter in the concern is what the buyers are going to choose between the
two scenarios, obviously their have already been manipulated by the cartel. And in the
first scenario generally the buyers prefer to resist the higher prices as compared to the
second because as in the second they are relatively confident that they are not
confronting a different price shock21
.
Quantity restriction- Reduced supply is often observed in day to day business course
as a part of unilateral conduct in response to reduced demand in the times of
recession. Supply restrictions that are the consequences of a cartel agreement will be
weaker evidence of collusion in a business cycle than even if the same conduct of
supply restriction occurs at the height of economic activity. However, restrictions in
21
Supera note 20
33
supply by competing firms or subsets of firms are when demand of product or service
is strong, profits are high, and prices are relatively high. And this leads to the strong
inference of collusion for mainly of two reasons. First, there are substantial profits
from collusion by restricting supply when demand is strong. Second, buyers will be
taking measures to resist price increases at such times.
Internal incentive shifts- Cartel firms finds themselves mostly in the need needing of
shifting the incentives of their sales force after the inception of the cartel in order to
comply with the agreement. Because in the pre-cartel period, there are many sales
forces which have incentives to pursue increases in market share. Such incentives are
counter to cartel allocation agreements.
Allocation of Collusive gains- The allocation of the collusive gain can occur through a
market share agreement, a customer allocation, a geographic allocation, or some
combination of these. These allocations are also part of implementing the supply
restriction, and not only for the allocation of collusive gains. If a firm sells beyond its
market share allocation, then some other firms which are below to them and the
former will be required to buy product from the latter at cartel prices at the end of the
year. The latter firm is thus made whole while the former is incurring a penalty for
overselling – buying product at cartel prices that it could produce at much lower cost.
Communication and monitoring- Communication is a vital part, without which out the
operation of a cartel is not possible. The communication that reflects the ongoing
nature of the conspiracy is what the concern here. Generally if a seller (receiver)
knows something about another seller (sender) an immediate question arises – was
there no other legal means for the sender in communicating such information to the
receiver. Therefore the overall, information is a valuable commodity. For one seller to
know information about a rival is to give that seller a competitive advantage. Hence a
competitor has no unilateral interest in disadvantaging itself relative to its rivals.
Limitations posed by plus factors
However, despite the emergence of these plus factors, courts have face to establish
an analytical framework that explains why specific plus factors has stronger or
34
weaker evidentiary value or to present a hierarchy of such factors. Therefore, one
plus factor determined for one case not applied for other cases, depending on other
factors. Some critics claim that this adhoc approach makes judgements about the
resolution of future cases problematic and gives an impressionistic quality to
judicial decision making any agreement related disputes. However, this is
inevitable, as it is not possible to determine which plus factor has adverse
implication on economy and which might not. Further, competition authorities
cannot give hierarchy to the effect of the plus factor involved.
3.2.2 INDIAN JURISPRUDENCE ON PRICE PARALLELISM
In Indian context too, it is very difficult to distinguish concerted practice from parallel
behaviour. Several judicial decisions in India, have elaborated on the concept and
scope of price parallelism. In tandem with international standards, price parallelism in
India, can be understood by the existence of cluster of prices moving in the same
direction, at each point of time.
The Cement cartel case22
is a classic illustration where the nature and forms of
parallelism were identified and consequently penalised. The CCI, made the following
observations in the case-
Price parallelism may be the result of high and positive correlation in prices of
one enterprises together its other competitors,
It is not a mere reflection of non-collusive oligopolistic market but also
mirrors a condition of coordinated behaviour and existence of anti-
competitive/ agreement in violation of sect. 3 (3) a, of CAI23
.
Price parallelism can be in the form of production parallelism and/or dispatch
parallelism.
Production parallelism means, co-ordinated efforts on the part of enterprises
including their competitors to constantly reduce supplies by curtailing
production, and hence creates an artificial shortfall in the market24
,
22
Builders Association of India v. Cement Manufactures Association, case no-29/2010, CCI decided
on 26.06.12. 23
Supera note 22, para 6.6.13 24
Supera note 22, para 6.8.8
35
Dispatch parallelism indicates a pattern a pattern of co-ordination amongst the
firms and their rivals which is reflected by similar pattern of dispatch.
But, it is still remains to be seen whether, for the purpose of Indian jurisprudence
price parallelism needs to be sustained with a reason.
Further, the CCI is yet to firmly decide on what is tantamount to acceptable as a plus
factor, to corroborate price parallelism as a substantial piece of evidence. The CCI, in
the Tyre case25
, suggested that,
“an analysis of data relation to production, capacity utilization, cost analysis,
cost of sales/ sales realization/ margin, cost of production and natural price
movement, net dealer price and margin and market share constitutes plus
factors”.
Similarly in the cements case, capacity utilization and data pertaining to the sale was
recognized as key index or plus factor providing through for limiting production/
distribution, a criterion under sec. 3(3) of the CA. However, one limitation still
remains that the CCI, has concluded as to how this data collected can result in strong
evidence showing collusion. It is also matter to think that whether a relation with this
data amongst the opposite parties is enough to conclude that a motive has been
established. These issues are yet to be clarified in the future orders of the CCI.
25
All India Tyre Dealer Federation v. Tyre Manufacturers, case no-20/2008, decided on 30.10.2012 –
CCI, para 322.
36
CHAPTER-4
CATERLIZATION- STRUCTURAL FACTORS AND
DEFENCES TO CARTELS
4.1 STRUCTURAL FACTORS AIDING CARTELIZATION
The structural factors can be anything which can be either internal or external. It is
most commonly known that even though cartelization can occur in any industry, there
are some industries in which they are more likely to occur, due to particular features
of the industry or the nature of the product involved. Such characteristics make it easy
for the firms of the industry to control the market.
In this light, economists have opined-
“If market is subject to considerable volatility, the cartelization is unlikely. If
entry is easy or there is competitive fringe with low barriers to expansion, then
again we would not expect collusion to be possible.1”
According to economic literature, market transparency traditionally as it connotes
pro-competitiveness as it eliminates information asymmetries, enhances informed
choice on the part of market participants and in some cases, may even allow
markets to function, (e.g., insurance markets). The key factor to be analysed here
is whether the information shared among all the market members or remained
limited only to the supply side elements.
By artificially increasing transparency in the market, the exchange of strategic
information among suppliers can facilitate co-ordination of companies’
corporative behaviour and results in restricted effects on competition. Through
information exchange, companies can reach a common understanding on terms of
co-ordination, which can leads to collusive market outcomes.
1 SIMON BISHOP &MIKE WALKEER, THE ECONOMIC OF EC COMPETITION LAW, (3rd ed.
2010) p.183-184
37
Exchange of information about intentions concerning future conducts is the most
likely, means to enable companies to reach a common understanding even in the
absence of an explicit agreement.
These include the benefits of colluding, the benefits of cheating, and the extent of
repeated interaction. Some of the structural factors which can facilitate the cartels
in any product market include-
1. Highly concentrated markets
2. Demand supply conditions
3. Homogenous product
4. Entry barriers
5. Active trade association.
4.1.1Highly concentrated markets-
An important observation made in Tyres case, was in a market which is
oligopolistic in nature, there are more chances and a much probability that
each market player is aware of the actions of the others. No doubt
interdependence among the firms is important characteristics of such a
market which would mean that each firm in such a market takes into
account the likely reactions of other firms while making independent
decision particularly regards prices and output2.
Though oligopolistic markets can sometimes lead to competitive outcomes,
the outcomes may not always be market driven but rather the result of
concerted effort or collusion. This interdependence between firms can cause
collusion both implicit as well as explicit, knowing that overt collusion is
easily detected; firms often collude in a manner which leads to non
competitive outcomes resulting in higher prices than warranted by interplay
of market forces3.
2 ABIR ROY & JAYANT KUMAR, COMPETITION LAW IN INDIA, (2nd ed.2014), pg-114-115
3 All India Tyre Dealer Federation v. Tyre Manufacturers, case no-20/2008, decided on 30.10.2012 –
CCI, para 278
38
Therefore high concentration is a structural factor or reason for collusive
action resulting in parallelism (price or output), yet it is very important to
differentiate between rational conscious parallelism rising out of the
interdependence of firms, strategic choices and parallelism stemming from
purely concerted actions. Thus interfering of cartels would require further
evidences.
In the Cement Cartel4 case too, the CCI reached the conclusion;
“It has been a recognised standard of law that oligopolistic markets
can lead to competitive outcomes. However, there is also a
possibility that these outcomes may not be market driven but rather
the result of concerted action or collusion. The interdependence
between firms can lead to collusion both implicit as well as
explicit”.
Therefore oligopolistic market structure can be crucial factor in
ascertainment of cartelization.
4.1.2Demand and supply conditions
In every market, there exist both buyers and sellers. Demand means the
buyers willingness and ability to buy a product on various prices and supply
means the willingness and ability of the seller to supply the product at
various prices.
If the demand of the product of a seasonal and predictable, producers may
take strategic decisions and tends to cartelize. However, if the demand of a
product itself varies because of strong substitutes in the market or
unpredictable sales conditions, strategic decisions cannot be taken and
cartelization may become difficult owing to the uncertain demand supply
4 Builders Association of India v. Cement Manufactures Association, case no-29/2010, CCI decided on
26.06.12., para 6.5.50
39
conditions of the product itself5. Also, if the nature of the product is such
where consumers cannot compromise the quality the cartels are much likely
to occur. Like-academic publishing, crude oil, tyres etc. So the firm’s
involves in the same supply chain are more inclined towards to concerted
practices, so as to collect as much as the market share possible.
Also in an oligopolistic market, there are more chances of collusion and
being aware what other firms are intending to do. By coming in association
the firms manipulate the prices, restrict the production, supply, and bid
rigging, affects the supply of the products whose demand are high. In fact,
the cartel's profit‐maximizing decision is the same as that of a monopolist.
4.1.3 Homogenous product
If the manufactures are producing homogenous product, which are close
substitutes, it may provide a facilitative environment of producers to
cartelise. Examples cartel cases which support the fact that product
homogeneity promotes collusion include the Wood Pulp Cartel of the early
1980s, the Vitamin Cartel of the 1990s, the Lysine Cartel during the mid
1990s and (OPEC), which is still the part of markets today. Involving
negotiations on extremely homogenous products (wood pulp, vitamins,
lysine and petroleum, respectively), these collusion cases all provide
empirical evidence that product homogeneity supports collusion.
By stating this, one doesn’t mean to state that cartels are not possible in
heterogeneous products, but cartels are much easily facilitated in
homogenous product. As in homogenous product the firms need not to look
much on innovation, much change in quality, so two different firms in same
supply chain with not much different quality of the product could come
together and affect the market. This is most common example of cement
cartel case. Homogeneity not only facilitates the cartels but also attracts the
highest market share.
5 Supera note 3, para 280
40
4.1.4 Entry barriers
Before a firm can compete in a market, it should be able to enter the market
smoothly. Many markets have at least some impediments that make it more
difficult for a firm to enter a market. An entry barrier can be anything that
hinders entry and has the effect of reducing or limiting competition.
Market conditions that have several entry barriers may facilitate cartelization.
Whereas if multiple players can enter-exist market, cartelization is dis-
incentivized as players outside the cartel may act as an impediment to the
monopoly of the cartels. When rival firms manage in coordinating their
conduct on incentive collusive strategies, they create an incentive for
outsiders to enter the industry. Firms which cope up and try to prevent entry
can undermine the best-laid collusive plans. In contestable or low barrier to
entry industries, it might happen that firms resist the temptation to collude
because they know that it would only lead to entry.
For maintaining the competition there must be low entry barriers so that
more firms comes and compete and competition remains. There are two
types of entry barriers, structural and stratergic barriers. Structural are those
barriers which are related to the basic of the industry and it can be such as
demand or supply and may exist due to conditions such as economies of
scale and network effects. Generally it is possible to quantify these structural
kinds of barriers as it can be known in advance that how much it will cost to
build an efficient plant or to purchase necessary inputs. Strategic barriers, on
the other hand are those barriers which created intentionally or enhanced by
major firms in the market, possibly for the purpose of restricting entry. These
barriers may arise from behaviour such as exclusive dealing arrangements,
for example. It can be substantially more difficult to measure strategic
barriers. Strategic behaviour may result in the retention of market share
because it is efficient, even though it also happens to raise entry barriers.
Competition authorities sometimes face the difficult problem of determining
which conduct is pro-competitive and which is anti-competitive when both
types of conduct would raise entry barriers law.
41
4.1.5 Active trade association
Trade association can be used as legitimate forum for members of a business
to promote innovation and competition. However, trade associations may
remain to vulnerable to stepping beyond the limits placed by competition
because by definition, they involve meetings, discussions and corporation
amongst various members but all being competitors in same line of business.
Therefore, trade associations/ unions can be an active facilitator for cartel
behaviour.
The organisation cost of a cartel is significantly lowered where a trade
association exists. Trade associations, by lowering the cost and coordinating
activities among firms effects the market, and facilitate the establishment and
enforcement of a cartel6. Having undertaken analysis of 82 cases we found
instances where associations of Lorry Owners, Tyre Industry, Mill Owners,
Cement Manufacturers, Kirana Merchants, etc have formed a cartel and have
been investigated by the MRTPC. Thus, in the near future it is important for
the CCI to keep a check on the activities and behaviour of various different
trade/business associations that exist in India. It is important to note that
though most industries have trade associations that meet regularly, though
not all trade/business associations necessarily form cartels. CCI could target
individual members of the trade associations and give them the incentives to
seek protection as a whistleblower and reveal the formation of cartels.
Other factors facilitating collusion;
In addition to the factors analyzed by the CCI, there can be other factors
facilitating cartels. For example-
6 Study on Cartel Case Laws in Selected Jurisdictions, By-CUTS International,& National Law
University Jodhpur pg-7,2008, page-25.
42
If a company values its current profits through undercutting more
than they could achieve in the future, it is likely to achieve in the
future, it is less likely to achieve a collusive outcome,
Companies that operate within the same market for a long time will
be more committed to coordinate.
4.2 DEFENCES TO CARTELS
The defences to cartels are provided under completion act. Defences mean
something which favours the cartelization or something which is exempted to
be punished. There are following defences available to cartels as-
1. Joint venture defence
2. Agreement related to IPR
3. Exemption for export cartel
4. Leniency regime
4.2.1 Joint venture defence
It is known that a cartel, that causes AAEC, is assumed to be void. However,
the proviso to sec.3 (3), of the CA, provides a limited exemption from an
adverse affect on competition presumption to horizontal agreements,
including cartels. Legally speaking the AAEC presumption will not apply
provided that such agreement increases efficiency in production, supply,
distribution, storage, acquisition or control of goods or provisions of
services. This colloquially referred to as Joint Venture Defence. Cartels can
take efficiency defence if as a result of their co-ordinated practices, certain
improvements in production or distribution of goods or services are caused.
Further, it can be claimed when co-ordination may promote technical,
scientific or economic developments or certain benefits to the consumers.
43
This defence have been pleaded before Indian Competition authorities but
has not been successfully proven. Courts have specifically held that even
though collective barraging for efficiency sake is permitted, yet it cannot take
place in disguise of an anti-competitive agreement7.
The JV defence may become difficult to avail as it requires the high burden
of proof. The onus is on the parties to prove that such agreements (claiming
JV defence),
1. is in the form of a joint venture and
2. it would result in increasing efficiency in the manufacture or
provisions of goods or services which, outweigh the anti-competitive
effects of such agreements8.
Specifically for the purposes of rebutting the AAEC, presumption or
claiming the JV defence, the following needs to be established;
accrual of benefits to consumers and/or improvement in production
and distribution,
proof of cost savings through removal of duplication of services,
improved efficiency through larger scale of manufacture,
availability of more competitive prices through the reduction or
removal of double marginalisation and creation of other efficiencies
which benefits the consumers needs to be established9.
The scope and operation of their limited exemption provided to joint venture
agreements was further clarified by the CCI in its order in FICCI Multiplex
7 Uniglobe Mod Travels Pvt. Ltd v. Travel Agents Federation of India, case no-03 of 2009,decided by
CCI on 4.10.2011,para 68.5.1 8 The JV defense has been considered by the CCI, in M.P.Malhotra v. Jet Airways India ltd. (case no-
4/ 2009), in the context of assessment of the legality of a code sharing arrangement between two
airlines. 9 Faqir Chand Gulati v Uppal Agencies Pvt.Ltd. (10.07.2008-SC)
44
Association of India, New Delhi v United Producers/Distributors Forum10
,
Mumbai.
In this case, the CCI held that the exemption granted to such efficiency
increasing agreements is limited in as much as it exempts such agreements
from the purview of the AAEC presumption in s. 3 of the Act.
Increase of efficiencies in the market:
The benefits that are given must be seen in the light of Article 81 of EC
treaty and improvement has been seen only from the objective viewpoint and
not assessed from subjective point of view of the parties. The purpose of this
condition is to define the types of efficiency gains that can be taken into
account.
It is imperative to note that the pro competitive effects following from the
agreements must out way the anti competitive effects and it is necessary to
verify the link between the agreements and the claimed efficiencies ant the
value of efficiencies. Efficiency normally stems an integration of economic
activities following firms to combine assets or interest certain activities to
them to achieve together synergy of operations. Hence all efficiency claims
must therefore be sustained so that the following could be verified;
i. The nature of claimed efficiencies,
ii. The link between the agreement and the efficiencies,
iii. The likelihood and magnitude of each claimed efficiencies.
The major kinds of efficiencies are cost efficiency and qualitative
efficiencies. Cost efficiencies can stem from a number of sources like
savings from the development of new production technologies and synergies,
which result from integration of exiting assets.
10
Case no-37/2011, decided on 3.01.2013-CCI
45
When the parties to in an agreement combine their respective assets, they
may be able to attain a cost/ output, configuration that would not otherwise
be possible. The combination of two existing technology that have
complementary strengths may reduce production costs or lead to the
production of higher quality products. Cost efficiencies can also result from
economies of scale, i.e., declining costs per unit of output as output
increases.
There can be qualitative efficiencies that can be generated among the
undertakings in question. In a number of agreements, the main factor which
can enhance the efficiency agreement is not cost reduction but it is the
quality improvement and other efficiencies of qualitative natures. Technical
and technological advances form an essential part of community, which
generates significant benefits in the form of new or improved goods and
services.
The parties through the agreement create efficiencies that would have been
possible only with a substantial delay or at higher costs. Agreement capable
of producing efficiency of this nature includes, in particular, R and D
agreements. In the same way the combination of complementary assets can
give rise to cost savings and may also create synergies that create efficiencies
of a qualitative nature.
Allowing the consumers a fair share of resultant benefits
The concept of fair share to the consumers implies that the pass on benefits
must at least compensate for any actual or likely negative impact caused by
an agreement and the rationale for the same is that the net effect of the
agreement must be neutral from the point of view of the consumers. It is not
required that consumers receive the share of each and every efficiency gain
and it would be sufficient that consumer receive a fair share of the overall
benefits11
. The decisive factors to be seen is that the overall on the consumers
11
Guidelines On the Application of Article 81 EC Treaty, (2004/C 101/02) para-115
46
of the products within the relevant market and not on the individual members
of the group of consumers.
It is to be noted that when markets are not perfectly competitive, the parties
are able to influence the market price to greater extent by altering their
output. Cost efficiencies may lead to increase output and lower prices for
consumers. If due to the cost efficiencies the parties to the agreement can
increase the profits by expanding output, consumer may pass on may occur.
In assessing the extent to which the cost efficiency are likely to be passed on
and outcome of the balancing test, the following factors need to be looked in-
a. The characteristic and the structure of the market,
b. The nature and magnitude of the efficiency gain.
c. The elasticity of demand,
d. The magnitude of the restriction of the competition.
Consumer pass on efficiencies can also take the forms of the qualitative
efficiencies such as new and improved products, creating sufficient value
from consumer to compensate for the anti-competitive effects of the
agreements and any such assessment entails value judgement and
fundamental objective of the assessment is to ascertain the overall impact of
the agreement on the consumers within the relevant market.
4.2.2 Agreements related to intellectual property rights
The act provides a limited defence to agreements under sec. 3(5) relating
intellectual property rights, wherein a person has the right to restrain any
infringement of, or impose reasonable conditions, as may necessary, as for
protecting any rights conferred under intellectual property rights legislations12
. As
12
Section 3(5)(i), the right of any person to restrain any infringement of, or to impose reasonable
conditions, as may be necessary for protecting any of his rights which have been or may be conferred
upon him under— (a) the Copyright Act, 1957 (14 of 1957); (b) the Patents Act, 1970 (39 of 1970); (c)
the Trade and Merchandise Marks Act, 1958 (43 of 1958) or the Trade Marks Act, 1999 (47 of 1999);
(d) the Geographical Indications of Goods (Registration and Protection) Act, 1999 (48 of 1999); (e) the
47
a general provision pertaining to all agreements covered under sect. 3, this defence
can be specifically in the context of cartels also.
4.2.3 Exemption for export cartels
The Act also provides that the restriction on cartels would not be applicable to the
right of any person to export goods from India to the right of any person to export
goods from India to the extent such agreements relate exclusively to production,
supply, distribution, or control of goods or provision of services for such export.
To this extent, the Act distinguishes between and exempt export cartel, i.e., a
cartel between enterprises located in India which tend to cartelize in markets
outside India with the aim of cartelizing in a relevant market within India13
.
4.2.4 Leniency regime
Section 4614
, of CAI, 2002 gives the power to the Commission to grant leniency by
levying a lesser penalty on a member of the cartel who provides full, true and vital
information regarding the cartel. The scheme is designed to induce members to help
in detection and investigation of cartels.
The Competition Commission of India (lesser penalty) Regulation, 2009 (the
‘Lesser Penalty Regulations’) govern the procedure and extent to which leniency
by way of reduced penalties could be granted by the CCI, to applicants who make
vital disclosures relating to cartel activity. An application is required to be made to
the CCI, by an enterprise seeking leniency under the Lesser Penalty Regulations,
Designs Act, 2000 (16 of 2000); (f) the Semi-conductor Integrated Circuits Layout-Design Act, 2000
(37 of 2000); COMPETITION ACT, 2002 13
Section 3 (5)(ii) the right of any person to export goods from India to the extent to which the
agreement relates exclusively to the production, supply, distribution or control of goods or provision of
services for such export. COMPETITION ACT, 2002. 14
The Commission may, if it is satisfied that any producer, seller, distributor, trader or service provider
included in any cartel, which is alleged to have violated section 3, has made a full and true disclosure in
respect of the alleged violations and such disclosure is vital, impose upon such producer, seller,
distributor, trader or service provider a lesser penalty as it may deem fit, than leviable under this Act or
the rules or the regulations: Provided further that lesser penalty shall be imposed by the Commission
only in respect of a producer, seller, distributor, trader or service provider included in the cartel,
who[has] made the full, true and vital disclosures under this section.
48
which contains all material information and evidence relating to the establishment
or existence of a cartel.
There under certain conditions which CCI must take into account while granting
reduced penalty, under Lesser Penalty Regulation 2009, includes15
;
a) The applicant should not have further participation in the cartel, from the
tome of making disclosures unless the CCI directs otherwise,
b) The information provided should be a “vital disclosure”,
c) The applicant should co-operate to the best of its ability with the CCI, inter
alia by providing all relevant information, evidences, documents as
required,
d) The applicant should co-operate genuinely, fully, continuously and
expeditiously throughout the investigation and other proceedings before
the CCI, and
e) Relevant evidence should be concealed, destroyed, manipulated or
removed by applicant.
The reduction in penalty may be awarded by the CCI, depending on when
disclosure is made by applicant16
.
Table-4.1
Lesser Penalty Regulations, 2009
Applicant Reduction in penalty
First applicant 100% reduction of penalty
Second applicant up to or equal to 50%
Third applicant up to 30% of the full penalty leviable
15
THE COMPETITION COMMISSION OF INDIA (Lesser Penalty) REGULATIONS, 2009 ,(No. 4
of 2009), regulation 3. 16
Supera note15,regulation 4 (b) (c).
49
However, leniency is granted only if the information is a vital disclosure which
enables CCI, to form a prima facie, opinion related to the existence of a cartel,
and the CCI do not have such opinion, at the time of making the application.
50
CHAPTER-5
TYRE INDUSTRY-STRUCTURE, ECONOMIC
FEATURES AND CHALLENGES AHEAD
A glimpse of the evolution of the tyre industry represents an interesting picture of the
sector which has transformed from an importing industry to domestic manufacturing
industry over a century shaped by the policy regimes prevalent at different periods in
the country, including both pre and post-independent India. The development of
Indian tyre industry was aided by the evolvement from foreign dominated companies
to Indian companies which displays the characteristics of limited players with
technological and high fixed capital cost1.
The Indian tyre industry was established in 1926, when Dunlop Rubber limited set up
first tyre company in West Bengal, MRF followed the same in 1946, since then the
Indian Tyre Industry has grown rapidly. The tyre industry of India has become one of
the most competitive markets all around the world with the development of new
technologies, ultra modern production facilities, and the availabity of raw materials at
lower rate2.
From the past few years on the account of growth in automobiles demand, especially
in passenger vehicles and two-wheeler segments, the Indian tyre industry has been
witnessing tremendous growth. As there is strong demand in automobile OEM
(original equipment manufacturer) sector and replacement market, the India tyre
industry growth has been at higher rate. Although India's market for radial tyres in
commercial vehicles section is still developing, so therefore it is expected the
passenger car segment switched to radial tyres in a short period of time. Also,
penetration level of radial tyre has also started to increase because of increase in
commercial vehicles and truck & bus segment. This segment will be the largest
developed area over the next few years. Not only this the tyre companies are further
1 All India Tyre Dealer Federation v. Tyre Manufacturers ,(30.10.2012-CCI), para 269
2 RAJMANOHAR & T.P. GOWRI SHANKER, TYRE INDUSTRY OF INDIA, ISSUSES AND
OUTLOOK ( 1st ed. 2008)
51
planning for overseas plantation of rubber so that their raw materials need is meet
which will help the companies to acquire raw material at cheaper prices.
Also, another technological development of tubeless tyres is also leading to the
growth of industry. Tubeless tyres are gaining ground in Indian market and now
almost all the automobile manufacturers are launching their vehicles with tubeless
tyres. This predicts that the tubeless tyre market will gain more success in the coming
years.
5.1 STRUCTURE OF TYRE INDUSTRY
To begin with, tyre industry of India, let’s have look on its profile3-
Table-5.1
Tyre industry profile
Number of tyre companies 39
Number of tyre plants 60
Turnover (est.) Rs.50,000 crores ( U.S $ 8.5 Bn)
Export 2014-2015(est.) Rs. 10500 crores (US $ 1.7 Bn)
Industry concentration 10 Large tyre companies account for
95% of Industry Turnover
The top Indian tyre companies such as MRF, Apollo tyres, JK tyres, Ceat have
immensely strong hold in the market, but still they face strong competition from
global tyre companies such Bridgestone, Goodyear etc. to sell their products in the
Indian markets. The Indian MNCs too have set up units in various overseas countries
and some like Apollo Tyres are even acquiring companies there.
During the year 2013-14, the turnover 4of tyre industry was of Rs. 47,500 crores,
producing 123 million tyres. This growth has been aided by two wheelers and tractor
3 Tyre industry profile, http;// www.atmaindia.org
4 Section 2 (y) Competition Act, 2002, “turnover” includes value of sale of goods or services;
52
segments whereas, the overall demand of the replacement segment was modest, and
the OEM was increased by 2-3%5.
The tyre industry is highly raw material intensive and is the biggest consumer of
domestic rubber market. The Indian tyre industry provides direct and indirect
employment to nearly 1 million people, including dealers, retraders, growers of
natural product and employment in raw material sector etc. the Indian tyre industry at
present has 40 large and medium manufacturing companies of which top 10 account
for over 90 percent of country’s tyre product
Pricing trend in tyre industry
The tyre industry is not price sensitive. Consumers prefer tyres according to its
functions, no matter the high or low price is, consumers will finally prefer the quality.
Being the homogenous product, the prices set by companies are more or less same.
Tyre Industrial Segments
1. Vehicle categories
Tyres for vehicles in commercial usage
Tyres for vehicles in personal usage
2. Tyre markets
OEM’s
Replacement demand
Exports
3. Tyre designs
Cross ply tyres
Radial tyres
5 Outlook For Tyre Industry Looks Robust For Near Future,(22.11.2014), http;//www.indiratrade.co
53
Raw materials of tyres
The fifty-five percent (50%) of the total turnover of the Indian tyre industry/
70% of production cost is accounted by raw material cost. Major raw materials
of tyre industry could be segmented to
Natural rubber,
Oil based items ( nylon tyre cord fabric Carbon black, Synthetic rubber,
Rubber chemicals, etc)
Steel based items (steel tyre cord, bead wire)
The prices of the raw materials of tyre have been highly, during the last few years
because of oil and steel price increases and due to increases of natural rubber. In
2004-05, tyre industry consumed 10.36 lacs ton raw material, valued at Rs 7,700
crores. This is no indigenous production of some of the raw materials used by tyre
industry such as tyre grades, synthetic rubber, polester tyre cord (used in radial tyres)
and butyl rubber (used in inner tubes). Further indigenous production of some of the
other raw materials has been less than the required. The resultant gap in demand is
met through imports.
Table-5.2
Consumption of Raw Material6
Raw material Consumption in %
Natural rubber 43%
Natural cord fibre 18%
Carbon black 11%
Rubber chemicals 5%
Butyl rubber 4%
others 19%
6 Consumption of raw material in tyre industry/http;//www.google.com
54
5.1.1 Major players and their market shares
Major players in Industry7-
1. MRF – it is the market leader of tyre manufacturers in India, with a
27% overall market share. With its leadership position, along with its
strong brand recall and high quality, MRF commands the price maker
status. It is also the leader in the two wheeler and three-wheeler
segment and tractor front tyres, and holds second place in the
passenger cars and tractor - rear tyres. The Company has a distribution
network of 2,500 outlets within India and exports to over 65 countries
worldwide.
2. Apollo Tyres (AT) - Apollo Tyres is the second largest player in the
Indian tyre industry, with around 19% market share. It also enjoys a
strong brand recall. ATL derives 80% of its revenues from the
replacement market. It is also a strong player in the domestic market.
3. JK Industries -JK Tyre & Industries Ltd. is the flagship company of JK
Organization. JK Industries has a 16% market share, making it the
third largest player in the industry. The Company ranks first in
Passenger Car tyre segments, with 79% and 7% of its product mix
coming from these segments, respectively. The advent of JK
Organization on the industrial landscape of India almost synchronizes
with the beginning of an era of industrialization. This was way back in
the middle of the 19th century.
4. CEAT – CEAT stands for Cavi Electrici Affini Torino has a 12%
market share, and is an average player across categories. 68% of its
product mix comes from the MHCV segment. Its leading brands in the
7 A look at major players of Tyre Industry/http;//www.business-standard.com
55
T&B segment are Lug XL, Mile XL and Rib XL, Secura in two-
wheelers and Formula-1 in passenger radials. In terms of profitability.
The oldest company of the RPG Enterprises, CEAT Tyres was
established in 1958, and established in collaboration with TATA
group.
The market share of the major tyres companies are as follows8-
Tyre companies shares in %
MRF 27%
Apollo 19%
JK 16%
Ceat 12%
Others 26%
5.1.2 Demand determinants
While analysing any industry, one must need look at the demand of the product in the
market. The demand determinants along with the demand trends in tyre industry of
India are discussed below.
1. General Economic Scenario – the GDP is a reflector of the purchasing
power of consumers, low GDP apparently hinders progress of
manufacturing industries. Consumers tend to defer their investments.
2. Growth Of Automobile Industry -Tyre is a demand-derived product. Its
growth is very closely linked with the automobile segment as can be
seen from the 95.5% correlation coefficient between the sales of
8 Tyre Industry to Benefit From Increasing Auto Demand, Lower Raw Material Costs, (7.6 .2015),
http;//www.indiratrade.com
56
vehicles and tyres. Thus, the growth or fall in automobile sector will be
reflected in growth or fall of tyre industry.
3. Fluctuations In Raw Material Prices –as it is that the tyre industry is
raw material intensive, hence the prices of raw material like natural
rubber, carbon black and the nylon tyre cord directly affects the prices
of the tyre since these inputs constitutes 60% of the total cost. Variable
cost is very high leading to thin profit margins.
4. Relative Importance of Road Transport -With the share of railways in
carrying freight coming down over the past few years, this has resulted
in higher demand for road transport. Thus, increased usage of
commercial vehicles can lead to more demand for tyres. And the poor
road conditions in most parts of the country and overloading of
vehicles would require superior quality tyres
Demand trends in tyre industry9
Demand for tyres can be categorized under four segments - Replacement
Market (RM), the Original Equipment Manufacturers (OEMs), Exports, and
the Government. As per the products, the maximum tyre sales are in the Truck
& Bus segment, followed by Passenger cars and Tractor Trailers. The demand
of the tyres can also be categorized by further two on the basis of type of the
tyre
1) Two wheeler- Bike, Scooter, Motor cycle
2) Four wheeler - SUV, MUV, Cars
3) Passenger Cars Jeep, Bus, Rickshow
4) Others Tractors, JCB, Truck
The Indian tyre industry produces the complete range of tyres required by the Indian
automotive industry, except for aero tyres and some specialized tyres. Domestic
9http;//www.indiabizclub.com/info/spareparts/majorplayersintyreindustry /tyredemand/0302.pdf
57
manufacturers produce tyres for trucks, buses, passenger cars, jeeps, light trucks,
tractors (front, rear and trailer), animal drawn vehicles, scooters, motorcycles,
mopeds, bicycles and off-the-road vehicles and special defence vehicles.
5.1.3 Policy regarding exports and imports.10
Tyre exports are done to over 65 countries worldwide, including high quality
conscious US market. The tyre industry of India exports mainly to U.S.A, U.A.E,
Pakistan, Philippines, Iran, Bangladesh, and other countries. This consistent and
large volume of exports had over the years instilled confidence among the large tyre
companies about the ability of successful competing in world’s market. If India can
compete in global markets, then Indian tyre industries can compete with the tyres
being imported into India.
The export of passenger car radial tyres started a few years back is expected to
gather momentum. This would be followed by export of truck/ bus radial tyres,
though not in large volumes. That would happen later when Indian truck/ bus radial
tyres established exports markets, may be to some extent piggy ridding on the
acceptable level to bais tyre exported from India.
Tyre industry was de-licensed in, 1989. The government policies aids in the growth
of the tyre industry. Some of the important aspects of the policies include- all
categories of tyres can be exported freely, also all categories of new tyres can be
imported freely. No WTO (World Trade Organisation) Bound Rates for tyres and
tubes.
The imports of Second hand/Retreaded tyres (major categories) are restricted under
EXIM policy. Tyres imports under Regional Trade Agreements (Asia Pacific Trade
Agreement, Indo-Sri Lanka, SAFTA, India-Singapore, ASEAN, India-Malaysia etc)
allowed at preferential rates of import duty. All tyre industry related raw-materials
can be imported freely.
10
http;// www.atmaindia.org/indian-tyre-overview.html
58
Also it is important to note that natural Rubber (NR) principal raw material of Tyre
Industry is in the 'Negative List` means it is not eligible for any concession in
custom duty under various Trade Agreements, i.e. India ASEAN Free Trade
Agreement, India Sri Lanka Free Trade Agreement, South Asian Free Trade
Agreement (SAFTA), India Malaysia Comprehensive Economic Cooperation
Agreement (CECA), India-Singapore Comprehensive Economic Cooperation
Agreement and India-South Korea Comprehensive Economic Partnership
Agreement (CEPA).
5.2 Dominant economic features of the industry
The dominant economic features which are related to the tyre industry are given
below:
1) Market size & Growth rate: Tyre industry is one of the most important industries
in India and fastest growing industries. also as we know the demand of tyre is
dependent on the demand of automobiles therefore increasing demand of Two-
Wheelers, Four Wheeler, 44 Passenger cars, Bus, Truck etc. will increase the
growth rate of tyre industry
2) Number of Rivals: There is appreciable number of competitors in this industry,
which keeps it competitiveness maintained. There are major players in this
market like, MRF, APOLLO, JK, and CEAT. These are all very strong players
in the market. Although the number of rivals is not much in the tyre industry, but
the characteristics are enough to make it an oligopolistic market. All the firms in
the industry have good market shares. There are major firms which attracts the
highest market shares although reflects collusion but still small firms also play
well in the industry.
3) Degree of product differentiation: Degree of product differentiation in the tyre
industries is less differentiated because of technology. The product is
homogenous, now technology has brought tubeless tyres and green tyres in
market, but basic characteristic with the product is same.
59
4) Product innovation: Product innovation includes new product design, life of the
product etc. The product category of all the players is same so product
innovation is very much required by the companies so the companies are always
doing innovation in their products. The Indian tyre industry has witnessed a fair
amount of expertise in the technology generation with the versatility to absorb,
adapt and modify international suitable to the conditions of India .This can be
seen from the prompt technology progress from cotton carcass to high-
performance radial tyres in just four decades. In the of globalization which has
led to the linking of the economies of all the nations and therefore major Indian
players in the tyre industry are not only chasing but also developing global
strategies to improve their competitiveness in world markets.
5) Supply & Demand conditions: Demand and supply of any product is an
important and basic of any industry, to understand its economy. The demand for
tyres is always present in industry, this industry have never seen recession.
Hence the supply has to be maintained. Supply of products in the market as per
the demand scenario in the market is always evident and the producers always
produce that much of capacity so that they can meet the demand and the
requirement of the customers. Also, not being the seasonal product or demand
targeted to particular section, the demand is not affected by any of these
characteristic. Hence, the supplies, manufacturers, distributers can easily get
chance to cartelize.
6) Technological change11
: Technology plays a vital role in any business or
industries success because product differentiation is based on how and what kind of
technology is being used in the production process or R & D department and how
well the technological changes are accepted to make the product successful in the
market.
The characteristics of tyre industry and its growth in India, has lead to the fact
that the industry is competent in all aspects, involving big rival firms, large
consumers the oligopoly nature of market, raises the possibility of anti-
11
Parvathi K.Iyer & Vrajendra Upadayay, Tyre Industry of India, Nistads (22.06.2016)
60
competitive practices by the competitors either by concerted practices of
limiting production, supply, manipulating or fixing prices, and tacit collusion.
The allegation of cartels in tyre industry against big market players, like MRF,
CEAT, etc is not new it traces back its history prior to the post amendment of
MRTP, act, which is being dealt by CCI, from 2012.
Future outlook
The growth will be primarily driven by domestic demand growth for tyres and
feasibility of increasing exports. Capacity build up would be a step ahead of
demand growth, one major reason being that each tyre company would look for
a share in the growing size of demand pie. Catering to domestic demand growth
and level of export would also be contingent on the price levels obtained.
Also the over production which is not related to domestic demand growth or
increase in exports will have an impact on bottom line. The increase in impact
volumes will be witnessed with the reduction of import duty in coming years.
India has two main global majors Goodyear and Bridgestone both of them have
shown great increase in their share in India in recent years. Over the medium
term, ICRA expects the competitive intensity in the industry to rise with
expected on-streaming of several Greenfield and Brownfield capacities by
domestic as well as international players.
5.3 Challenges to tyre industry
As every industry faces some or other the challenges, along with the
development, the tyre industry too faces some challenges. The tyre industry as
known to be raw material sensitive gets effected easily with high prices of
natural rubber, also technology effects are also there, environment pressures,
stringent labour laws raises problematic concerns in the tyre industry.
1. Increasing raw material cost- raw material constitutes 70% production
cost of tyres. Being an industry highly dependent on raw material it is
easily affected by the shift in the prices of the raw materials. From the
last few years prices for the important raw material for tyre production
61
like natural rubber and oil is increasing at a very fast pace. Because of
the competitive nature of the tyre industry, the industry is finding
difficult to transfer this increasing cost on the consumers. No indigenous
production or production being insufficient to meet domestic demand,
many of the raw materials used in the production of tyres have to be
imported. And further 15% custom duty on the raw material and 20% in
the case of natural rubber on imported raw materials adds to the costs of
tyres.
2. High rates of taxes-the indirect taxes in India, are still high, comparative
to the other countries, even though the taxes have been coming down in
recent years. The total taxes on the tyres are quite sleep now, 16% is the
current rate of excise duty. Also, from April 2005 Government has
introduced VAT (value added tax), which includes other embedded
taxes as octroi, entry tax, etc. but, this about the Indian scenario, unlike
VAT, in most other countries, where VAT chain operates from the first
point to the last point of indirect tax in India VAT is yet to replace or
absorb many of local levies and taxes.
3. Smaller size of plants- in comparison from the global standards, size of
plants in India are small and hence per unit cost of tyre is high as
compared to giant tyre plants. Hence in order to compete with
international standards, the Indian tyre companies have to expand their
capacities.
4. Technology challenges- there several technological challenges
including new concept development, dematerialisation, shared use of the
product, functional optimisation of products & components, selection of
low impact materials including non-hazardous materials, non-
exhaustible materials. The challenge is of availability of low energy
content materials, recycled materials, recyclable materials, and reduction
of material. For the proper utilization of resources there must techniques
adopted for proper optimization of production techniques, fewer
production processes, low/clean energy consumption, low generation of
62
waste and few clean production consumables. For efficient distribution
system there must be less clean packaging, efficient transport mode, and
efficient logistics. For the reduction of the environmental impact in the
user stage there should be low energy consumption, clean energy source.
For the sustainable use of resources there should be reuse of product and
recycling of materials.
5. Outdates labour laws- the labour laws need to be reviewed due to the
productivity related concerns. This issue has not received the priority
that it deserves. There is stiff resistance for changing or modifying
labour laws not because of trade unions, trade association, but also
because of political issues.
63
CHAPTER-6
TYRE CARTEL CASE- ANALYSING THE ORDER
AND CURRENT STATUS
The concerted practices like price fixing, bid rigging has been evident in tyre
industry before MRTP amendment 1991. One of the interesting cartel cases
under tyre industry of cartel is All India Tyre Dealer Federation vs. Tyre
Manufacture1. This case has a long history and it is also dealt by Competition
Commission of India. This case is also important in the aspect that it helps to
determine the indirect evidence of communication of concerted practices by the
parties alleged for price fixing.
The case before CCI came in 2008-In Re;
All India Tyre Dealers Federation vs. Tyre Manufacturers2
Parties involved
All India Dealers Federation- Informant
Among many tyre dealers, the case involved the five major domestic tyre
dealers-
Apollo Tyres Limited,
MRF Ltd.,
Ceat Tyre Ltd.,
Birla Tyre Ltd. and
JK Tyre Ltd.
Factual background-
1 All India Tyre Dealer Federation v. Tyre Manufacturers, case no-20/2008, decided on 30.10.2012 –
CCI 2 Supera Note 1
64
1. The information was originally filed by the All India Tyre Dealers
Federation (AITDF) against the tyre manufacturers before the Ministry
of Corporate Affairs and which was forwarded by the Ministry to the
MRTP Commission (MRTPC), under MRTP act. But, upon the repeal of
the MRTP Act, the matter was transferred to the Competition
Commission of India (CCI) under section 66 (6) of the Competition
Act3, 2002 (‘the Act’)
2. The information dated 28.12.2007, by AITDF alleged that the tyre
manufacturers were indulging in anti-competitive activities.
3. The allegation was that the domestic tyre industry involved in the anti-
competitive activities and also adopting mal-practices in trade. The tyre
trade has been under the exploitative behaviour of these domestic tyre
majors. The domestic tyre industry, operating at 95%-100% capacity,
with only 25% annual growth in commercial vehicle in last four-five
years.
4. It was also alleged that post independence, the behaviour of domestic
tyre majors has been found to be anti-competitive, and they have been
indulging in various pricing and trade malpractices, which had direct
bearing on the revenue of the state exchequer.
5. The tyre majors are having history of restrictive trade practices and some
three decades back the MRTP Commission had passed its first ‘cease
and desist’ order against the cartelization by domestic tyre industry in
October 1974.
3 Sec 66(6) of COMPETITION ACT -All investigations or proceedings, other than those relating to
unfair trade practices, pending before the Director General of Investigation and Registration on or
before the commencement of this Act shall, on such commencement, stand transferred to the
Competition Commission of India, and the Competition Commission of India may conduct or order for
conduct of such investigation or proceedings in the manner as it deems fit.
65
6. One of the contentions submitted by AITDF was that domestic tyre
industry has been continuously feeding the concerned Central Ministries
about the anti-trade, anti-consumer and restrictive trade practices.
7. After the receipt of the information, the MRTP Commission ordered an
investigation into the matter. But from the DG (I&R) could not complete
the investigation and when the MRTP Act, 1969 was repealed, the
matter was transferred to the Commission.
8. The AITDF also approached vide letter dated 09.06.2007, regarding the
same matter to the Competition Commission of India.
Prima facia opinion of CCI-
The Commission considered the matter and as per the material
available on record and after giving consideration to all the facts and
circumstances of the case, passed an order dated 22.06.2010 under
section 26(1) of the Act and directed the DG (Director General)to
conduct an investigation into the matter. The order specifically
mentioned the five major domestic tyre manufacturing companies
viz. Apollo Tyres Limited, MRF Ltd., Ceat Tyre Ltd., Birla Tyre
Ltd. and JK Tyre Ltd.
Investigation and findings of DG
The DG issued notices to the following tyre manufacturers to seek information
and to collect data:
(i) J K Tyre & Industries Ltd. (J K Tyre)
(ii) Apollo Tyres Ltd. (Apollo)
(iii) Birla Tyres (Unit of Kesoram Industries Ltd.)
(iv) Ceat Tyre Ltd. (CEAT)
(v) MRF Tyres Ltd. (MRF)
(vi) Dunlop India Limited (Dunlop)
(vii) Goodyear India Ltd. (Goodyear)
66
(viii) Bridgestone India Private Limited (Bridgestone)
(ix) Michelin India Tyres Pvt. Ltd. (Michelin)
Apart from the tyre dealers, information was also collected from Original
Equipment Manufacturers (OEMs), AITDF and Automotive Tyre
Manufacturers’ Association (ATMA).After the information submitted by the
above said dealers and other persons concerned, analysis on the basis of market
share, net dealer price, production cost, cost of sales, sale realization, margin,
net dealer price and natural rubber price movement, DG summarised the
findings as-
(i) The tyre companies have not passed on the benefit of reduction
in excise duty to the consumers also they have not reduced the
Net Dealer Price (weighted price) in proportion to the actual
production.
(ii) Price parallelism existed amongst the tyre companies.
(iii)The tyre companies have limited the supply by not utilized their full
capacity The tyre companies in order to reduce the net profit margins
have been inflating some miscellaneous expenses into the cost of
production.
(iv) Also, the analysis resulted that the change in price of natural rubber
had no impact on the cost of production and therefore, it does not
explain the possible reason for the increase in price of tyres.
(v) The five domestic tyre companies occupy about 95% of the market
share of the total production. This high concentration made OEMs and
the replacement market highly dependent on these companies.
(vi) It was concluded that the five major domestic tyre manufacturing
companies (Apollo, MRF, J K Tyre, Birla and CEAT) acted in concert
and ATMA provided the platform to the members for exchange and
sharing of information relating to price, export, import, OEMs etc.,
their conduct stands in the contravention of the provisions of section
3(3)(a) and 3(3)(b) of the Act.
67
6.1 An analysis of CCI order
After the conclusion of DG report, the parties submitted their reply ad matter came
before for further proceeding. The two issues for determination was before CCI-
Whether the Commission has the jurisdiction to proceed with the matter under
the provisions of the Competition Act, 2002?
The CCI noted that in this matter the DGIR, MRTP Commission undertook
the investigation which was still pending when the MRTP Act, 1969 was
repealed vide ordinance dated 14.10.2009. But, as the investigation had not
completed in the matter, so it was directly transferred to the Commission by
the DGIR, MRTPC under the provisions of section 66(6) of the Act as the
allegations involved were related to restrictive trade practices.
Although the CCI has not been conferred with any power to adjudicate any
matter invoking the provisions of repealed MRTP, Act under section 66(3) of
theCA,2002. But the Commission finds that there is no illegality in
entertaining and examining the present case.
In this connection, a decision of the Bombay High Court in Kingfisher Airlines Ltd. v.
Competition Commission of India4 was referred regarding the effect of the CA, 2002
“The Act is not retrospective, it would cover all agreements covered by the
Act though entered into prior to the commencement of the Act but sought to
be acted upon now i.e. if the effect of the agreement continues even after
20.5.2009.Thus, even in cases where the alleged anti-competitive conduct
was started before coming into force of sections 3 and 4, the Commission has
the jurisdiction to look into such conduct if it continues even after the
enforcement of relevant provisions of the Act.”
4 Kingfisher Airlines Ltd. v. Competition Commission of India ( Case No-02/2010, CCI decided on -
10.01.2012)
68
In the present case, practices were anti-competitive and have been found by the
DG to be still continuing and there is nothing on record to contradict the same.
Hence in the light of the above stated rule there is no illegality in the proceedings
in the present case. The conduct of the parties was examined by DG from year
2005 to 2010 for analysis of market and conduct of parties in a holistic perspective,
and the conduct after examination appeared to be continuous and comes under the
provision of CA, 2002. In the light of above, Commission proceeded to deal with
the substantive issue arising for determination in the present case as follows
Whether the tyre manufacturers have contravened the provisions of section 3
of the Act?
In the determination of this issue, CCI initiated with analysing the characteristics of
tyre industry including the background and evaluation of the industry, structure,
demand supply and production trends, nature of the product, effect of innovation,
dependence on consumer, and market concentration. All these observations were
made to examine that whether the economic features of tyre market can be subjected
to cartelization easily.
And, it was found that although that there are some factors which may be conducive
to cartelization but they may be diluted due to other factors like the market
concentration is very high with entry barriers and the product is homogenous, support
cartel formation, but high bargaining powers of OEMs due to the volumes, options to
replacement consumer, increasing radialization, imports effectively being cheaper
even in the brief period of anti dumping duty go against sustaining a cartel structure.
The CCI on the price cost analysis does not agree with findings of DG and noted that
cannot in the absence of detailed analysis of changes in total cost and resulting
changes in prices it cannot be said that the benefit of decline in excise duty and price
of natural rubber has not been passed on to the consumer . Also, it was observed that
the fall in prices of natural rubber was marginal in 2009 while the rise was substantial
in 2010 and no proportionality in price changes can be linked to the same in 2009 or
2010.
69
One of the important issues involved in the case was of the price parallelism. The
Commission carefully examined the submissions made by the parties in this matter
.the CCI also examined the material on communication available to analyse that
whether the circumstantial evidence can establish an agreement or cartel. The exact
legal implication of price parallelism in this case has been also discussed in chapter 3
part 3.2 of the research so the same is not repeated for the sake of brevity. In this
particular case, the parallel pricing pattern is not very sound so it was examined that
if there are any plus factors to suggest that this limited price parallelism is on account
of concerted action.
Therefore the DG, has analyzed and elaborated these plus factors relating to
production; capacity utilization, cost analysis, cost of sales/sales realization/margin;
cost of production and natural price movement; net dealer price & margin and market
share, and the same was considered by the Commission.
In the Capacity utilization it was observed that the tyre manufacturers wilful
suppression of capacity does not make any economic sense as the only beneficiary of
the same will be the importers unless it can be established that the tyre manufacturers
increased prices to such an extent that they gained despite losing huge volumes to
imports5.
In terms of cost of sales, sales realization and margin the cost audit report of year
2005-06, 2006-07, 2007-08,2008-09,2009-10, was analysed, based on the analysis, it
was concluded by the that margins for Apollo tyres have been showing a very healthy
trend and it has reached the highest in year 2009-10.
In the case of JK Tyres, the margin has been improving and has gone up
drastically. The margin, which was 76 during 2009-10, has gone up to 617 in
year 2009-10 which is more than 8 times compared to previous year.
In the case of MRF, the margins have shown significant improvement in the
year 2008-09 and have further improved in 2009-10.
5 Supera note 1 para 324-328
70
In the case of CEAT, it may be noted that in the 2009-10 the company was
able to improve its margins significantly from a negative margin of Rs. 270 in
the year 2008-09 to a positive margin of Rs.111 in the year 2009-10.
Birla Tyres has shown lower margin for 2009-10 compared to previous years6.
From this, it may be noticed that the cost of sales and sales realization have been
evident to be increasing year after year. Also, in this industry the different
manufacturers are differently placed as far as Net Margins are concerned. So it can be
concluded that the bigger the range between the margins of manufacturers, lower are
the chances of cartelization. As when the companies will have lower margins they
have no incentive to collude and will but deviate. Thus, from the above data relating
to cost of sales, sales realization and margins that there is no indication of concerted
action.
The observation of market share has shown that Birla’s market share is shown as
8.9% in 2005-06 and it has grown in 4 years to reach 19.74% in 2009-10. This is not
consistent with general cartel behaviour where market shares remain consistent
through the years. And this also against to the rational business behaviour, where
there would be fear to lose market share to a rival in a cartel set up.
The CCI on alleged conduct of ATMA, of anti-dumping, low cost tyres, blacklisting
of importers, export realization and un-remunerative prices from the supplies made to
OEMs, in the concerted practices, carefully examined the submissions made by it.
CCI agreed with ATMA that the trade associations may adopt the measures, which
are necessary to protect the interests of its members. So as to ensure that the
discussion not to be in the contravention CA, act 2002, the CCI noted that the
activities of ATMA may be described as lobbying as far as anti-dumping duty issue is
concerned. It was concluded that discussions and conduct on other allegations is
general and is not in contravention of the Act based on careful perusal of the minutes
of the ATMA meetings.
6 Supera note 1 para 331-332
71
In the light of the above discussion, analysis and observation, the CCI, held that there
is no sustentative evidence of the existence of a cartel. As a tradable the industry has
always been open to competitive threats from imports. The Commission has found
that there is not sufficient evidence to hold a violation by the tyre companies Apollo,
MRF, J.K. Tyre, Birla, Ceat and ATMA of the provisions of section 3(3) (a) and 3(3)
(b) read with section 3(1) of the Act. The order of CCI went to appeal in 2012 to
COMPAT, but the same was dismissed on technical grounds terming it as non-
maintainable as CCI had not passed the order under certain sections of the
Competition Act, 2002, that allow an appellant to approach it against any CCI
decision.
6.2 Current status of the case
Table-6.1
Chronology of events after CCI order in 2012,
April 2013 COMPAT dismisses AITDF appeal against
the CCI’s October.
November 2013 AITDF gives the fresh presentation to MCA
submits the average prices for the year 2010-
2014.
December 2013 MCA refers the matter to CCI June 2014:
Finding the allegations to be prima facie true
again, CCI ordered DG to investigate again.
December 2015 DG submitted report to CCI on prelim
investigation says companies guilty of
cartelization between(2011-2014).
March 2016 CCI asked the tyre company and complainant
to submit their objections.
A brief of the events took place after CCI, order in 2008, and includes the dismissal of
case for appeal by COMPAT. Later the CCI, in 2013 admitted the under the
rectification of the order. Then fresh presentations made by AITDF were made to
MCA for the year 2010-2014. The CCI accepted the matter and asked the director
72
general to investigate and submit the report. The DG investigated and on the basis of
profit margins and communication through emails again held the five major
companies involved being MRF, CEAT, BIRLA, JK and APOLLO tyres for
cartelization. But the final order by CCI is yet to come for the allegation of cartel, in
the year 201-2014. The allegations of cartel in the tyre industry after every one or two
years or post independence reflects the concerted practices of few major players of
this small industry. But, nothing can be said now as there is no order of authority
which could lead to this conclusion. This is just by far an assumption on the over and
over again allegations against these major players. Although the industry is
developing on a very smooth pace, but still the profit margins shared among few
players or by one major would affect the markets for the tyre. All the economic
features of the industry observed by the CCI, in its order of 2008 are quite indicating
towards an oligopoly structure, and it’s true that tyre industry is an oligopoly and that
what raise the concerns towards the collusion. In that, the chances are higher of
cartelization is higher, but until and unless proper evidences, either direct or indirect
evidence one can assume, but cannot establish any situation.
73
CHAPTER -7
CONCLUSIONS AND RECOMMENDATIONS
The liberalisation of the Indian economy with a wave of de-regularisation has been a
big reason for increase in cartelisation in India. Cartelisation is the biggest
anticompetitive concern and has been always the major hurdle to healthy competition.
The important purpose of competition law is to prohibit the private players from
obstructing market economy and monopolising the market. But, cartelisation
functions against this basic principle of the competition law and is one of the many
anti-competitive practices by which private players obstruct market economy and can
lead to monopolization. It is important to note that neither the cartel definition nor the
concept of cartel was present in MRTP act as compared to its present version in the
Competition Act.
This chapter is about the issues India has faced in the recent past with cartels. It will
include elaborating on the shortcomings of the current law and giving related
suggestions along with the recent cases of tyre and cement cartelisation in India and
how the Indian competition law should adapt itself to deal with international
cartelisation which can have really adverse effects in Indian economy as witnessed in
the Vitamins cartel case.
After so many debates, legislative meetings, the parliament of India, has drafted the
Competition Act, 2002, which was also amended in 2009, for some important
competition legal concern, but a point which is of concern here is that not only the
introduction the Competition Act but also the amendment has focused much on the
impact of the new mandatory merger control regime. In comparison, there has been
very less discussion and mentioning related to the anti-competitive behavioural
provisions, including the prohibition against cartel activity. It is surprising because
there have been many cases of cartels within India and also the worldwide
competition authorities has increased their focus and are very serious about detecting
and punishing cartels. The economic damage by cartels to the interests of consumers
and the wider market is globally acknowledged.
74
But from the record of India, India has had a very poor history of enforcement against
hard-core cartels. The allegation of cartels have been found in various sectors,
including the cement, steel, tyre and trucking industries; many other sectors are
commonly perceived to cartels. These widespread instances of market failure are
particularly damaging in the Indian context, where a gain of even a few rupees
(equivalent to approximately 5 to 10 US cents) can make a vast difference to the
average consumer.1
Also, the Competition Commission of India predecessor – the Monopolies and
Restrictive Trade Practices Commission (MRTPC) – has had the legal authority to
take action against cartels for nearly 30 years, but it has exercised that authority
comparatively in few cases. The MRTPC has done negligible to investigate in matter
of India international cartels that have been uncovered elsewhere and which are likely
to have had an impact on the Indian consumer: for example, the Vitamins cartel,
which was exposed as a global conspiracy in the 1990s by the US and EU authorities.
The UK courts have taken the against the private damage involved but the MRTPC
has not taken it much seriously, despite the complaint by an Indian pressure group.
One of the main reasons for the MRTPC’s unwillingness to engage in cartel cases to
date is that it does not enjoy the power to impose effective sanctions to back up its
decisions. At the most, the MRTPC can impose “cease and desist” orders on the
companies under investigation. The resultant is that the firms can liberally form cartel
until they are summoned before the MRTPC, there is no penalty penalised for the
anti-competitive behaviour up to that point.
In contrast to the MRTPA, the new legislation clearly defines cartels; it also sets out
the presumption that such agreements cause appreciable adverse effects on
competition, shifting the burden of proof onto the defendant. This position of
competition law is consistent with the position in many other mature competition
regimes, the Competition Act also grants the CCI extraterritorial jurisdiction to cover
agreements that have been entered into outside India if the agreement has an effect on
the Indian market(s) –whereas the MRTPA, did not have such extraterritorial
1 Warsha karle, Cartel busting in India, the elephant in the room?,
http;//www.globalcompetitionrewiev.com
75
application. In addition, the CCI has been given extensive powers (in line with
competition authorities elsewhere) with which to punish cartel activity. It can still
issue cease and desist orders. However, much more importantly, the CCI also has the
power to impose severe fines.
Now the concern here is that although the CCI, has now granted with several
extensive powers, in terms of cartels can it be still able mange with upgrading issues
in these regards, there are still many concerns to be considered, and many stances
where still CCI, not been able to enforce the law and powers accordingly, we still
don’t have a single case where CCI, have implemented or use the power of
exterritorial jurisdictions in case of hard core cartels like EU, and US, no order yet
which can lead to the developing the jurisprudence on prevalent matter of price
parallelism or dealing with circumstantial evidences.
There are many issues which Indian system of competition law faces like the extent to
which the unilateral conduct of firms with market power should be controlled, the
extent to which transactions can be modified, the price which a new player or
customer should pay to access an essential facility. The only solution to the problem
is be to scrutinise and carefully examining the agreements between independent firms
which smells of any restrictions of price fixing, output production, market shares and
severity of cartelization. The penal provisions should be set up accordingly which
may amount to imprisonment for the more serious offences. Some other policy
questions includes whether sanctions should be available against individuals as well
as companies and the extent of leniency which can be given to whistle-blowers from
within the cartels.
The other issue, with CCI orders are they are found to be inconsistent with the cartel
cases within two different industries. The leading example of this is Cement cartel2
and tyre cartel3 cases. In cement cartel case the DG in 2012 found that there had been
a significant rise in cement prices over the time period under investigation, and such
2Builders Association of India v. Cement Manufactures Association, case no-29/2010, CCI decided on
26.06.12. 3 All India Tyre Dealer Federation v. Tyre Manufacturers, case no-20/2008, decided on 30.10.2012 –
CCI.
76
price increases were attributed to more than just natural reasons, such as rise in cost of
raw materials. The commission relied on circumstantial evidence, and concluded that
market forces alone did not determine price, with prices moving “in the same manner
and same direction” pursuant to the regular meaning held by the member of Cement
Manu fractures Association Consequently, the Commission imposed a hefty
cumulative fine of Rs. 6,300 crores on the parties.
In comparison to this decision, in October 2012, the Commission in tyre cartel case
found that since the tyre manufacturing market is highly concentrated and
oligopolistic in nature (thereby making it ordinary for each party to know what the
other is doing) meetings held by the manufacturers did not amount to the cartelization
under section 3(3) of the Competition Act. In both cases active industry trade
associations conducted regular meetings. Although the plant capacities were much
higher than what was being produced by both cement and tyre manufacturers, they
still refrained from cutting costs, with Tyre manufacturers even being accused
informally of not passing on the benefit of excise duty reduction to consumers.
In the Cement case specifically, the Commission found that in addition to likeness in
pricing due to prior consultations between the parties, there was also capacity under-
utilisation and production and dispatch parallelism amongst them. Still considering
similar facts in the Tyre case, the Commission was of the view that in the absence of a
more “specific pattern” between the parties, such evidence was, by itself, not enough
to infer guilt.
The result of the different conclusions reached in the Cement and Tyre cases, the
problem exists, is the lack of a well-defined evidentiary standard that has to be
applied by the Commission in the future while dealing with cartels that includes
concerted practices and meeting of minds without framing explicit agreements. The
commission has not only lowered its standard in relying on circumstantial evidence,
but also the Commission has failed to take into account situations where natural
market conditions may also cause firms, operating independently, to act on similar
patterns. It is worthwhile here to not the situations as exists in influential jurisdictions
US, and EU, in US competition authorities pay attention to the substance of the
information exchanged, rather than the mere fact of information exchange and EU
77
competition authorities recognises the importance of conducting an economic analysis
of this possibility – a cartel can only be punished where the possibility of factors other
than anti-competitive motivations may cause undertakings to behave similarly in the
market.
Also, the Competition Act in India, provides the presumption that demands the use of
the per se rule (as in the US), but on the contrary the manner in which analysis has
been carried out in the Cement and Tyre cases illustrates a lack of clarity in the
Commission’s use of the rule of reason in cartel case even where it has to be applied
technically. India do not have strong provisions for whistleblower and leniency ,so it
fails to provide incentive to firms which provides stronger and reliable evidences on
the basis of which the Commission could reach more legally sound conclusions. Also,
the scheme under 46 of leniency regime provides the discretionary power to the
commission, but there is no such guidelines provided to the commission to carry such
power reasonably and in fair means
At a policy level, it is upon the State to evolve a comprehensive framework for the
implementation of competition law within India. Based on this policy, it is the
responsibility of the Commission to give effect to relevant provisions in a manner that
is consistent and predictable. Most recently, the imposition of the Rs. 6,300 crore fine
in the Cement case has currently been stayed and as the matter is pending before the
Competition Appellate Tribunal, the outcome of this proceeding will have far-
reaching consequences for the prosecution of cartels in India, and the manner in
which the Commission will investigate similar cases in the future. The concern with
the international cartels are being increasing day by day , one hurdle faced by India is
lack of tie ups with other governments or signing up international treaties to handle
international cartels that have effects in many different countries.
If International price fixation being done by a multinational company is bound to hit
India because of the simple reason that there are Indians who are buying the goods of
that company and if that company is minting profit out of the cartel it is because there
are Indians who are paying higher prices for their goods. In 2005 Samsung, the South
Korean giant had pleaded guilty and paid a criminal fine of more than US $300
78
million for its role in the dynamic random access memory (DRAM) industry which is
the second largest criminal antitrust fine in history (second only to the Vitamin cartel
case). The relevance of this case is that its ramifications were felt all over the world
but somehow Samsung got away by paying damages only in USA, perhaps a well
drafted International Competition Law or the signing of a multilateral treaty would
prevent the occurrence of such events in future.
The most shocking case was when consumer goods giants Unilever and Proctor and
Gamble were fined £ 280 million for setting up soap and washing powder multi-
national cartel. Also, Surf, Tide and Lux are some of the leading brands in India
which are the product of these MNCs. The Indians paid excessive money in millions,
one of the reasons was that India was not able to bring such cartels to justice nor
could it get any money from the settlement amount due to absence of proper laws and
international agreements
The other reason is non-implementation of section 32 of the act. As of now the
institutions engaged in battling cartelization internationally include Organization for
Economic Co-operation and Development, International Competition Network,
United Nations Conference on Trade and Development and the World Trade
Organization. For India, cooperation with these organizations and entering into
multilateral and bilateral agreements is the need of the hour.
What next can be looked is, that as of now the only mitigating provision is section 46
of the Competition Act 2002 which gives leniency to certain cartels on giving some
vital disclosures. While certain ‘gateways’ may be given to cartels in some cases
where it is in nature of public interest, there should be enough deterrence to stop the
more harmful ones.
Generally strong cartels are run by rich conglomerates and so stiffer penalties are
often justified and that is why in UK there is no cap on upper ceiling of fine while in
India the fine cannot be more than 10% of the turnover or three times the profit made
by the cartel. In India too it will only be in the interest of the economy that this
ceiling is raised. India does not treat an economic crime as grave as cartelisation as a
serious criminal offence while in many other countries cartelization is treated as a
grave criminal offence owing to the serious negative effect it has on a country’s
79
economy and UK and as many as nine OECD countries have such a provision which
includes imprisonment for long terms (limited to three years in India) in addition to
other penalties.
The Competition Commission has the power to imprison the violators of its orders for
a maximum period of three years. Further there should also be a special provision
dedicated to the Director of the Company who if found guilty of ant-competitive
practices like cartelisation should be imprisoned for a considerable duration which
should not be less than 10 years owing to the seriousness of the crime.
India should incorporate provisions similar to those in the US and Korean Law which
enables a private citizen who exposes a cartel of entities who use government fund, to
get a share in any compensation money received. The times has changed and now
more than 111 countries in the world have well drafted Competition Law in place
while 22 years back the number was just 30 and consequently competition authorities
are more competent than ever before to eradicate these hard-core cartels.
India itself got its first comprehensive Competition Legislation in 2002 and now
where we go from here is anybody’s guess but it only seems imperative that the future
holds in establishing more deterrence by coming up with new tools that are needed to
eradicate cartelisation and perhaps the time has come that we go beyond companies
and start making individuals liable for their anti-competitive acts
x
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