CCI (yet again) imposes ₹205.73 crore penalty on seven cement companies

The Competition Commission of India (CCI) has levied a penalty aggregating to ₹205.73 crore on seven cement companies for ‘cartelization’ and ‘bid rigging’ with regard to a tender floated by a central agency of the Government of Haryana (Informant). This penalty has been calculated at 0.3% of the average turnover of the past three preceding financial years..Individual penalties are as follows,.Shree Cement Limited (advised by Khaitan & Co): ₹18.44 crore,.UltraTech Cement (advised by AZB & Partners): ₹68.30 crore,.Jaiprakash Cement Limited (advised by Luthra & Luthra): ₹38.02 crore,.J.K Cement Limited (advised by PK Bhalla) : ₹9.26 crore,.Ambuja Cements Limited (advised by Shardul Amarchand Mangaldas): ₹29.84 crore,.ACC Cements (advised by Shardul Amarchand Mangaldas): ₹5.32 crore,.J.K Lakshmi Cements Limited (advised by Advocate Jeevan Prakash): ₹6.55 crore..While the Competition Act, 2002 (Act) allows imposition of penalty up to 10% of the average turnover for the past three preceding financial years, the CCI in this particular case noted,.“..the quantum of penalties imposed must correspond with the gravity of the offence and the same must be determined after having due regard to the mitigating and aggravating circumstances of the case to the various mitigating circumstances such as cooperation by parties, no harm having been caused to the consumers etc…”.Noting the various mitigating circumstances such as cooperation by parties, no harm being caused to the consumers, the CCI noted,.“Though competition law frowns upon even the agreements which are ‘likely’ to cause appreciable adverse effect on competition, while quantifying penalties, a distinction has to be made between the agreements which actually cause appreciable adverse effect on competition and the agreements which are likely to cause such effects.”.This, however, is the second time in the past five months that the CCI has done so..In August, last year, CCI had imposed a penalty of ₹6,317 crore on ten cement companies. This order was appealed in the Competition Appellate Tribunal, and has been stayed..In this case, while after receiving the bids in 2012, the Informant floated a second tender due to non-competitive behaviour by the participants, it simultaneously made a ‘reference’ to the CCI alleging contravention of the provisions of Section 3(3)d read with Section 3(1) of the Act..Also, in total there were nine bidders including Birla Corp and Cement Corp as well. While they were disqualified during the technical round itself, their roles were also observed. It was observed that Cement Corp and Birla Corp did not reduce the quantity bid in the impugned tender as compared to the previous year and, unlike the other companies that have been fined, their bidding pattern did not undergo a change in the impugned tender..The CCI, passed an order dated 2 January 2014 under Section 26(1) of the Act, directing the Director General to conduct an investigation into the matter..The broad determinants for passing the order were as follows:.(i) Whether the bid prices quoted by the companies in the 2012 tender were unusually higher than the bid prices quoted in the previous tenders? Whether such bid prices were arrived at independently by the companies based on business/ commercial consideration(s)?.The CCI observed that all seven companies had colluded to charge a much higher price than the previous year after accounting for the Wholesale Price Index, arriving at the basic price by (coincidentally) applying the (same) backward calculation method..These details cumulatively brought out the behaviour of the companies which was not seen as consistent with the conduct in case they were competing with each other in a free and competitive market..(ii) Whether the lower quantities quoted by the companies in the impugned tender than the bid quantities quoted in the previous tender, was due to an arrangement to divide the total quantity amongst companies to allocate markets? Whether the bid quantities were arrived at independently by the companies based on business/ commercial consideration(s)?.The CCI noted that the reduction in bid quantity by each of the seven companies in the impugned tender without any convincing basis for such a conduct cannot be but for meeting of minds/ arrangement between them..(iii) Whether the companies have bid for the impugned tender so as to divide the market in order to secure L1 (lowest bidder) status inter se?.In this regard, it was noted by the CCI that since the companies have emerged L1 in certain destinations, it would be natural to expect that they would compete to emerge L1 in the neighbouring/ adjoining destinations as well for optimal utilisation of their competitive wherewithal and economic resources. However, this is not observed to be the case, without providing for any rational explanation for why they quoted higher prices in neighbouring destinations..It is, therefore, evident that this was indicative of the fact that the companies have tried to accommodate each other to emerge as L1 in these neighbouring destinations.(iv) Whether Call Detail Records point towards prior arrangement amongst the companies in submitting their respective bids?.The CCI noted that the fact that timing of SMSes and calls, between top officials of these companies, which have increased steadily and closer to the tender period, it was unlikely that these communications were personal and/ or social in nature, as was claimed..The CCI further noted that it had reasons to believe that communication amongst the top officials of these companies had manifestly an anti-competitive purpose..In a case which was as complex as this one, the CCI noted,.“….in respect of cases concerning cartels which are hidden or secret, there is little or no documentary evidence and evidence may be quite fragmentary. The evidence may also be wholly circumstantial. It is therefore often necessary to reconstitute certain details by deduction. In most cases, the existence of an anti-competitive practice or agreement must be inferred from a number of coincidences and indicia, which, taken together, may in the absence of any other plausible explanation, constitute evidence of infringement of the competition rules. In this case, all other logical explanations are eliminated.”