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India's Competition Commission, which was established in
2003 and has been enforcing the cartel provisions of the law since
2009, has imposed fines of approximately US$ 1.1 billion against 11
internationally and locally owned cement manufacturers and their
industry association for price fixing. After years without
making any penalty decisions, the Commission has recently 'come
to life' and made several cartel infringement decisions in
rapid succession, of which this case is the most significant.
To reduce the chance that their first decisions are overturned in
the courts, new competition agencies often prefer to enforce
against blatant breaches through direct evidence. This cartel case
is remarkable in that it relies wholly on circumstantial evidence
to establish a cartel, one consisting of both fixing prices and
limiting output. The Commission's Director General has the
power to demand the production of documents, take compulsory
interviews under oath, and conduct dawn raids. However it appears
there was no use made of these powers to obtain direct
evidence. In establishing what level of evidence should be
regarded as sufficient in such cases, the CCI has cited enforcement
actions in other jurisdictions – the High Fructose Corn
Syrup case (U.S.), the News Paper Cartel case (Brazil), the hen
eggs case (Latvia) – and an OECD discussion
document.
The circumstantial evidence in this case consisted of lay evidence
that there was extensive exchange of price and quantity information
within the industry and quasi-economic evidence, including price
parallelism, low levels of capacity utilization, dispatch
parallelism, and super-normal profits. The parties have
vigorously denied the existence of a cartel and have themselves
relied on economic evidence refuting each element of the
circumstantial evidence against them. It is almost inevitable that
this case will be appealed in the Tribunal and the Courts.
This case stands in stark contrast to the early cement cartel case
by the Competition Commission of neighbor Pakistan, in which there
was a copy of a written cartel agreement found at the cement
industry's headquarters that set prices and output and capacity
limits. In that case auditors were even engaged to ensure
that the parties adhered to the cartel agreement.
The Indian competition law has an administrative decision making
framework, rather than a prosecution framework. Therefore the
question before the courts will be whether the Commission has made
an error in its process or decision, rather than the court itself
directly taking evidence and determining the facts of the
case. In cases involving multiple cartel respondents, a
particularly common weakness is whether the evidence is adequate
against each defendant taken individually. In this regard the
authority may have left itself more open to challenge.
The case also illustrates the way in which the unique Indian
procedure works. The complainant in this case was the very
vocal building industry association, which provided an array of
allegations to commence the process. After the Commission
established that there was a prima face case, it referred the
matter to its independent autonomous Director General for
investigation. The ensuing report was made available to the
accused and the complainant for comment, and comments were lengthy
and detailed. In effect this has resulted in an adversarial
process between the Director General, supported by the complainant
on the one hand, and the accused on the other, with the
Commissioners themselves acting in a quasi-judicial way to decide
which side has the stronger case.
A final point of interest concerns the manner in which the fines
have been calculated. The maximum fine is determined by
reference to the higher of 10% of turnover and three times the net
profit. This echoes the approach in many other countries. In
this case it appears that submissions were not received from the
parties on the quantification of turnover or profits and the
Commission establishes the applicable maximums quite simply.
On the Commission's analysis, the net profit measure is higher
than the turnover measure and the Commission proceeds to then set
the fines for all companies at 50% of the net profit for the cement
producers and 10% of receipts against the industry
association. There is no explicit rationale for choosing
those 50% and 10% figures; in this respect, the decision is likely
to be particularly vulnerable on appeal.
Overall this case is one that has substantially illuminated
business as to the approach of the Indian cartel enforcement
system. It is likely to continue to do so as it works its way
through the appeals process.
The full decision is available at at the CCI's website here.
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