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20 December 2018
On 25 July 2018 the National Company Law Appellate Tribunal (NCLAT) upheld the Competition Commission of India's (CCI's) 31 August 2016 decision to impose a Rs63 billion penalty on 11 cement companies for cartelisation. The appeals had been filed by:
The NCLAT upheld the CCI's decision on the following grounds.
The NCLAT observed that the cement companies had used the platform of their trade association to discuss pricing and sensitive information relating to production, capacity and dispatch, among other things. The NCLAT, while rejecting the parties' contention that the data had been collected at the government's behest, held that even if the government had asked for this data, the individual companies could have provided it confidentially.
The NCLAT observed that an exchange of information can constitute a concerted practice if it reduces strategic uncertainty in the market, thereby facilitating collusion (ie, if the data exchange is strategic). As such, the NCLAT held that there had been a meeting of minds between the cement companies with regard to fixing the sale prices of cement and regulating its supply and production. Having held that an exchange of information which reduces strategic uncertainty in the market constitutes an agreement under the Competition Act 2002, the NCLAT proceeded to examine whether such an agreement would trigger Section 3(3)(a) or (b) of the act.
The NCLAT held that Sections 3(3)(a) and (b) of the act had been triggered in the case at hand for the following reasons.
The NCLAT, relying on price charts, observed that there had been several instances where the cement companies had hiked the prices of cement in a sharp departure to their normal trends over previous years.
Dispatch and production coordination
While analysing the dispatch trends for the relevant period, the NCLAT observed that there had been a simultaneous reduction in the cement companies' dispatches. This was coupled with lower capacity use, despite the absence of demand constraints.
The NCLAT held that production data also revealed coordinated behaviour. It noted that during the relevant period, production in absolute terms had fallen by 5.43% and 3.41%, while dispatches during the same period had fallen by 6.33% and 4.90%.
It was further observed that the production and dispatch of cement had fallen throughout all sectors during a period when demand from the construction sector was positive.
The NCLAT observed that the cement companies' capacity use had fallen from 83% to 73% during the relevant period.
Based on this evidence, the NCLAT upheld the Rs63 billion penalty imposed by the CCI on the cartel members and dismissed the cement companies' appeals.
For further information on this topic please contact MM Sharma at Vaish Associates by telephone (+91 11 4249 2525) or email (email@example.com). The Vaish Associates website can be accessed at www.vaishlaw.com.
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Man Mohan Sharma