Monopolies and Restrictive Trade Practices Commission
Director General (Investigation And ... vs Reliance Industries Ltd. And Anr. on 31 May, 2002
Equivalent citations: II(2003)CPJ56(MRTP)
ORDER
Moksh Mahajan, Member
1. On a complaint received from the Tamil Nadu Small Scale Soap and Detergent Manufacturers' Association, Madras, the Director Genera] of Investigation and Registration (hereinafter referred to as DG) was directed to make an investigation in regard to the allegations against the parties namely Reliance Industries Limited, Bombay (hereinafter referred to as respondent No. 1) and Tamil Nadu Petro Products Limited, Madras (hereinafter referred to as respondent No. 2). In the preliminary investigation report submitted on 20.12.1990 the D.G. has mentioned that from November, 1987 to November, 1990, the prices of Linear Alkaline Benzene (in short LAB) fixed by both the parties moved in tandem within short span of time as is evident from the following :
2. During the period under relevance, LAB a basic raw material required for the manufacture of synthetic detergent products was produced by three companies namely M/s. Reliance Industries Ltd. (RIL), M/s. Tamil Nadu Petro Products Limited, Madras (TPPL) and Indian Petro Chemicals Corporation India, Baroda (IPCL). While IPCL is a Central Government Undertaking, TPPL is a joint sector company which has been manufacturing LAB from the year 1987. RIL on the other hand started its operations in 1988. RIL manufactured LAB by importing the raw material and TPPL extracted it from the kerosene available in the country. In the year 1988 both RIL and TPPL simultaneously increased the price of LAB to Rs. 23,000/- as against Rs, 22,400/- fixed by the IPCL. Taking advantage of the break down in the plant of IPCL and TPPL due to floods, both RIL and TPPL increased their price of LAB by Rs. 4,000/- in the year 1989. Thus despite difference in cost of production, the increase in price was identical. The increase, in the cost of raw material as contended was not found to fully explain the increase in the price of the finished product. These facts along with surrounding circumstances strongly suggested that both the parties colluded together in raising the price by identical amount. The meeting of minds was evident from the resignation of Shri PS. Balasubramanian a Managing Director of TPPL who after resigning from the post joined the services of RIL. Accordingly DG was of the opinion that the Commission might consider issuing a Notice of Enquiry against both RIL and TPPL.
3. On the facts as mentioned in the PIR, a Notice of Enquiry under Section 10(a)(iv) read with Section 37 of the Act was issued to both the parties for having adopted and indulged in restrictive trade practices within the meaning of Sections 2(o) and 33(1)(d) of the Act.
4. Pursuant to the issuance of NOE, both the parties strongly refuted the allegations levelled against them. Emphasizing the absence of any collusion between the respondents, it is contented that mere parallelism in price does not establish that the parties concerted with each other to gain the monopoly in the market. The increase in the cost of inputs was directly responsible for the increase in the price of LAB. While landed cost of imported normal paraffin increased by over Rs. 2,000/- PMT in the financial year 1989, the cost of Benzene supplied by Bharat Petro Chemicals Limited increased from 8,3885.71 PMT in April, 1988 to 10373.97 PMT in August, 1989. Accordingly, average cost of production of LAB increased substantially. Despite the increase in the price of LAB, the respondents could not make the profit as envisaged. Price parallelism on the other hand is a normal feature of oligopolistic market. Otherwise too, in absence of any material to hold that the parties acted in concert the factum of cartelisation cannot be presumed. Thus NOE read with PIR lacks requisite details in support of any agreement or arrangement between the parties for raising the price. On the other hand, the admission on the part of the DG that there was no dearth of the product in question during the years under consideration proves the stand of the respondent.
After the pleadings were complete, the following issues were framed :
(1) Have the respondents or any of them indulged in the restrictive trade practices as mentioned in the Notice of Enquiry ?
(2) If answer to issue No. 1 is in the affirmative, whether the same are not prejudicial to the public interest or interest of the consumer or consumers generally ?
(3) Relief.
5. The DG for its case relied on three documents namely complaint from Tamil Nadu Small Scale Soap and Detergent Manufacturers' Association, Madras, Tamilnadu Industrial Development Corporation and Chamber of Indian Trade and Industries and information collected from the respondents during the course of inquiry conducted. Heavy reliance on the other hand was placed by the respondents on the various judgments of the Supreme Court as well of the Commission for the tests laid down to establish factum of cartelisation. Extensive reference was also made to the statement of Shri Tyagi to displace the case of the DG.
6. We have carefully considered the submissions made on both sides as well the material placed on record. Two sections of the Act have been pressed into service for the charges framed against the respondents. Section 33(1)(d) of the Act reads as under :
"any agreement to purchase or sell goods or to tender for the sale or purchase of goods only at prices or on terms or conditions agreed upon between the sellers or purchasers"
Plain reading of the section reveals that there has to be an agreement to purchase or sell the goods only at price or ...... on terms or conditions agreed upon between the sellers or purchasers. Thus there has to be an agreement either in respect of prices or in regard to terms and conditions on which the goods are to be sold. Existence of an agreement--one of the essential conditions is to be fulfilled to establish a "cartel". The word agreement as defined in Section 2(a) of the Act includes any arrangement or understanding , as is clear from the following :
(a) "agreement" includes any agreement or understanding, whether or not it is intended that such agreement shall be enforceable (apart from any provision of this Act) by legal proceedings ;"
7. Reading the two clauses together it is clear that the agreement need not be in writing or in express terms as both can be oral too. This interpretation is also borne out indirectly by the observations of their Lordships of Hon'ble Supreme Court in the case of Union of India v. Hindustan Development Corporation, reported as (1993) 3 SCC 499 wherein as held, intent of parties can be gathered from surrounding circumstances. Cartel has been described as under :
"The cartel therefore is an association of producers who by agreement among themselves attempt to control production, sale and prices of the product to obtain a monopoly in an particular industry or commodity. Analysing the object of formation of a cartel in other words, it amounts to an unfair trade practice which is not in the public interest. The intention to acquire monopoly power can be spelt out from formation of such a cartel by some of the producers. However, the determination whether such agreement unreasonably restrains the trade depends on the nature of agreement and on the surrounding circumstances that give rise to an inference that the parties intended to restrain the trade and monopolise the same."
8. Therefore the agreement need not to be in writing. However, the same has to be specific in regard to the concerted action suggesting conspiracy. This is as held by the Hon'ble Supreme Court in the case of Union of India v. Hindustan Development Corporation (supra). To quote "a mere offer of a lower price by itself does not manifest the requisite intent to gain monopoly and in the absence of a specific agreement by way of a concerted action suggesting conspiracy, the formation of a cartel among the producers who offered such lower price cannot readily be inferred". This however, does not mean that the cartel can be presumed in absence of any agreement or understanding whether in writing or oral reflecting the intent of the parties regarding fixation of prices on terms and conditions for purchase or sale of goods.
9. There has to be a positive contact between the parties reflecting meeting of minds. Mere suspicion howsoever strong cannot replace an evidence suggesting formation of cartel. Evidence filed by the DG however does not inspire confidence. While the contents of the letter of Indian Trade and Industry addressed to Hon'ble Member for industry have not been proved that of M/s. Tamil Nadu Industrial Development Corporation only emphasised the aspect of profiteering without supporting it with corresponding fact and figures. Closure of factories of IPCL and Reliance Industries stated to be responsible for increase in prices during the period in question is not borne out by the material brought on record.
10. The focus of the complainant and the DG has been on identical increase in prices of the impugned product by both the respondents. In its statement however Shri Srinivasan, informant admitted that the product could also be imported. In his PIR the DG also accepted that there was no shortage of the impugned product and that the total production of LAB exceeded the demand during the relevant period of time.
11. On the other hand the submissions of the respondents regarding increase in cost of production prior to increase in price of LAB as made out in the affidavit of R-1 has remained unrebutted. Reference is made to the affidavit of Shri R.N. Vyas, Deputy General Manager, Marketing of RIL wherein it has been specified that between 17.4.1988 and 20.8.1988, the landed cost of imported normal paraffin increased form Rs. 9,746.09 PMT to Rs. 11,809.29 PMT (Ex. A-4) and there was further increase of Rs. 2,000/-PMT in the landed cost of imported paraffin within a period of less than one and a half years.
12. Whether the increase in price of impugned product is matched by the increase in the cost of inputs, though relevant does not explain the identical increase in the price of impugned product by both the respondents. This is more so when there is a difference in cost of production. Price parallelism has not been denied though the same is stated to be the normal trade of oligopolistic situation. This could as well be a result of market leadership as contended. The question is whether price parallelism is sufficient for establishing the charge of cartelisation against the respondents. Gathered from the observation of their Lordships of Hon'ble Supreme Court in the case of Union of India v. Hindustan Development Corporation (supra), we find that there are three essential pre-requisite conditions to be satisfied before cartel is said to have been formed :
(1) Identity of prices.
(2) Agreement by way of concerted action suggesting conspiracy.
(3) To gain monopoly or restrict or eliminate competition.
These three conditions have to be satisfied cumulatively before any activity can be dubbed as a 'cartel'. As the first condition is satisfied the same need not detain us. It may however be mentioned that increase in price of the product has not taken place on the same date. It is the second condition for which no material has been placed on record to show that there has been meeting of minds. While there is no direct evidence regarding agreement or arrangement between the parties, the joining of Shri. P.S. Balasubramanian, employee of the Company in no way advances the DG's case. The act of Shri P.S. Balasubramanian in no way suggests that prior to his resignation, parties were in contact with each other before effecting increase in prices. It would be pertinent to note that Shri Balasubramanian joined the services of R-1 much after the period under consideration.
13. We are aware of the fact that conspiracy by way of concert can seldom be proved by direct evidence. However, the circumstantial evidence should clearly and conclusively indicate the establishment of a cartel. Except for an identical increase in prices not on the same day, there is no whisper of contact between the parties regarding the time the prices were to be raised in the complaint and the letters relied upon by the DG. On the other hand admittedly TPPL is a company promoted by the Tamil Nadu Industrial Development Corporation (TIDCO) which is wholly owned and controlled by the Govt. of Tamil Nadu. The material relied upon by the DG nowwhere shows that the stated dominance of the two respondents was responsible for increase in prices which is arbitrary and unjustified and that too despite the supply exceeding the demand during the relevant period. The uncontroverted stand of the respondents regarding increase in cost of inputs leading to increase in the price of LAB dispels the cotention regarding manipulation of the prices.
14. Frequent increase in the price of LAB and that too by major players in the market is bound to affect the consumers adversely specifically when the choice regarding price becomes restricted. It is not the case of the DG that either production or supply of LAB in the market has been restricted by the respondents. Emphasis has been placed on the arbitrary increase in the prices. Increase in the cost of the inputs leading to increase in the price of LAB has not been controverted on the part of the DG. Increased cost of inputs may not have exactly matched the increase in prices, but there is also no material to hold that the increase in the prices are arbitrary and unjustified to show that the act of the respondent is prejudicial to the public interest. Incidentally, it may be stated that the major consumers of the products are Nirma and Hindustan Lever. The objection of Chamber of Indian Trade and Industry that discounts to the tune of Rs. 3,000/- PMT has been given to a handful of large manufacturers, though a restrictive trade practice covered under Section 33(1)(e) of the Act, it has not been shown as to how the said factor has led to the act of cartelisation amongst the respondents. The present case cannot be held to be covered under Section 2(o)(ii) of the Act.
Our attention has been drawn to the provisions of Section 37 of the Act for the proposition that the restrictive trade practice should be in continuance before directions to discontinue the same on the conclusion of the inquiry conducted in public interest are given. While on merits we have held that the charge of cartelisation has not been established. The stand regarding the continuance of prohibitive trade practice is supported by the decision of Hon'ble Supreme Court in the case of Alkali Manufacturers' Association of India v. Registrar of Restrictive Trade Agreements and Anr., in Civil Appeal No. 2230 of 1985 relied upon by Mr. S. Ganesh, Senior Advocate for respondent No. 2, To quote :
"The appellant had been issuing trade circulars recommending prices/upward revision of prices from time to time. The proceedings before the MRTP Commission were initiated pursuant to a complaint made in 1984 at the time when there was shortage of caustice soda in the country. It was with regard to the condition which was prevalent at that point of time that the Commission passed a cease and desist order against the appellant.
Mr. S. Ganesh, learned Counsel for the appellant, states that there is now a vast change in the market conditions and though the order of the Commission which is under appeal was stayed by this Court, the respondents will not be able to point out any circumstance which will indicate that the appellants have indulged in any restrictive trade practice. ............
Mr. T.L.V. Iyer, learned Senior Counsel for the respondents submits that there has been a change of circumstances and the respondents will not insist on taking any action on the basis of the order dated 29th March, 1985 passed by the Commission but they reserve their right to take action against the appellant to its constituents if at say point of time it is found that they are indulging in any restrictive trade practice. Therefore the effect to this would be that the appellants would be at liberty to send out circulars as long as they do not infinge the law.
The appeal is disposed of in the afroesaid terms."
The situation in the present case seems to be similar. As the DG has not been able to establish the charges framed against the respondents in the Notice of Enquiry, the Notice of Enquiry deserves and is directed to be discharged. There shall be no order as to costs.