Competition Commission of India
In Re: Alleged Cartelisation By Cement ... vs Shree Cement Limited & Ors on 31 August, 2016
COMPETITION COMMISSION OF INDIA
RTPE No. 52 of 2006
In re: Alleged cartelisation by Cement Manufacturers.
Against
1. Shree Cement Limited
2. Cement Manufacturers' Association
3. J. K. Cement Ltd.
4. Binani Cement Limited
5. Lafarge India Private Limited
6. Jaiprakash Associates Ltd.
7. UltraTech Cement Ltd.
8. The India Cements Ltd.
9. Ambuja Cements Limited
(formerly, Gujarat Ambuja
Cement Limited)
10. ACC Limited
(formerly, Associated Cement
Companies Limited )
11. Century Textiles and Industries Limited
12. The Ramco Cements Limited
(formerly, Madras Cement Ltd.)
RTPE No. 52 of 2006 1
CORAM
Mr. Devender Kumar Sikri
Chairperson
Mr. S. L. Bunker
Member
Mr. Sudhir Mital
Member
Mr. Augustine Peter
Member
Mr. U.C. Nahta
Member
Mr. Justice G. P. Mittal
Member
Appearances: Shri Amit Sibal, Senior Advocate alongwith Shri Manas
Kumar Chaudhuri and Gaurav Bansal, Advocates, Shri S. S.
Khandelwal (Company Secretary) and Shri Atul Kharkwal
(Dy. GM) for Shree Cement Limited.
Shri Krishnan Venugopal, Senior Advocate alongwith Shri
Pramod B. Agarwala, Advocate, Shri S. K. Dalmia (Secretary)
and Harish Panchal (Sr. Dy. Secretary) for Cement
Manufacturers' Association.
Shri A. N. Haksar, Senior Advocate alongwith Shri P. K.
Bhalla, Advocate and Shri Anoop Kr. Shukla, V P for J. K.
Cement Ltd..
Mrs. Meenakshi Arora, Senior Advocate alongwith Shri
Siddhesh Kotwal and Shri Raghunatha Sethupathy, Advocates
for Binani Cement Limited.
RTPE No. 52 of 2006 2
Shri Rajshekhar Rao, Ms. Nisha Kaur Uberoi, Shri Bharat
Budholia, Ms. Arunima Chandra, Shri Kaustav Kundu, Ms.
Gauri and Shri Smit Andrews, Advocates alongwith Shri
Ujjwal Batria (CEO), Shri Ajai Jain (General Counsel) and
Shri Ajay Singh (Company Secretary) for Lafarge India
Private Limited.
Shri Amit Sibal, Senior Advocate alongwith Shri G. R. Bhatia,
Ms. Tripti Malhotra and Ms. Kanika Chaudhary Nayar,
Advocates for Jaiprakash Associates Ltd.
Shri Sameer Parekh, Shri Abhinay Sharma and Ms. S.
Lakshmi Iyer, Advocates for UltraTech Cement Limited.
Shri C S Vaidyanatha, Senior Advocate alongwith Shri Aditya
Verma, Ms. Arti Goyal and Shri K Harishankar, Advocates for
The India Cements Ltd.
Shri Ramji Srinivasan, Senior Advocate alongwith Ms. Nisha
Kaur Uberoi, Ms. Anisha Chand and Ms. Aishwarya
Gopalakrishnan, Advocates and Shri Kanaiya Thakker
(General Counsel) for Ambuja Cement Limited.
Shri Ramji Srinivasan, Senior Advocate with Mrs. Pallavi S.
Shroff, Shri Harman Singh Sandhu, Shri Prateek Bhattacharya
and Ms. Nitika Dwivedi, Advocates alongwith Shri Raju
Mehra (Head-Legal) for ACC Limited.
Shri Pramod B. Agarwala and Shri Prashant Mehra,
Advocates alongwith Shri P. K. Dave (Chief Executive) and
RTPE No. 52 of 2006 3
Shri R. S. Doshi (Sr. Ex. President) for Century Textiles and
Industries Limited.
Shri T. Srinivasa Murthy, Shri Rahul Balaji and Ms. Shruti
Iyer, Advocates for The Ramco Cements Limited.
Order under Section 27 of the Competition Act, 2002
1. This case was received on transfer from the office of the Director General (Investigation and Registration) [DG (IR)], Monopolies and Restrictive Trade Practices Commission ('the MRTPC') under Section 66(6) of the Competition Act, 2002 ('the Act'). The MRTPC had taken suo moto cognizance and initiated investigations on the basis of the press reports published in the Economic Times on 09.05.2006 and 29.06.2006 regarding the increase in the cement prices. Subsequently, a complaint dated 16.09.2006 filed by Builders' Association of India ('BAI') was also received by the MRTPC through the then Ministry of Company Affairs on 26.09.2006.
2. Briefly stated, it was alleged that the cement prices were stable at the rate of Rs.125 to Rs.145 per bag between 2003 and 2005, but the prices started an upward movement in December, 2005 and were hovering around Rs.210 to Rs.230 per bag from January, 2006 onwards without there being any corresponding increase in the limestone price, royalty, excise duty, sales tax, railway freight or demand-supply mismatch warranting such abnormal increase. It was also alleged that the cement manufacturing companies have resorted to unfair trade practices by under-production or choking up of supply in the market, thereby raising the sale prices.
3. As per the complaint, the installed capacity of cement during 2005-06 was 179.25 million tones spread over 129 cement plants owned by 54 cement RTPE No. 52 of 2006 4 companies. Consolidation process in the industry initiated since last 4-5 years has given 26.38% of market share in the hands of multinational cement companies and 17% share in the hands of Kumar Birla Group aggregating to 43.73% of the total capacity enabling them to control the supply and price movement of cement.
4. It was narrated that alarmed by such unwarranted price rise, BAI made a representation to the Secretary, Industrial Policy and Promotion (IPP), Ministry of Commerce and Industry and the latter arranged for a joint meeting with the Cement Manufacturers' Association (CMA) on 02.05.2006. CMA in its presentation to the Ministry bearing no.177 (Price)/2006 dated 03.04.2006 stated that the price of cement including profit is Rs.147.80 per bag. The Secretary (IPP) having been convinced directed members of the CMA to bring down the price from Rs.230/- per bag to a realistic level by 12.05.2006. However, the cement industry did not give a positive response. The Minister of Commerce and Industry, therefore, warned that the Government may impose a ban on cement export, and called a meeting of the cement manufacturers on 15.05.2006. Thereat, the manufacturers offered a 5% discount on government purchase. As per the complaint, this offer was deceptive and meaningless as the Government does not purchase cement for supplying to construction entities.
5. It was also mentioned in the complaint that in the absence of any deterrent action by the Ministry, the cement companies were emboldened to charge higher rates. As per the averment, this fact was apparent from the abnormally high operating profit earned by the four cement majors in 4th quarter of fiscal 2005-2006 and the first quarter of 2006-2007 compared to third quarter of 2005-2006. Increased profit is a result of the high price charged by the cement companies.
RTPE No. 52 of 2006 56. As per the complainant, the cement industry from the year 1990 onwards is resorting to unfair trade practices either by under-production route or choking-up of supplies route in a given market for a short period, thereby raising the sale prices.
7. Consequent upon the receipt of the complaint, the erstwhile MRTP Commission ordered an investigation into the matter. Accordingly, the erstwhile DG (I&R) asked all the cement manufacturing companies to furnish their comments as well as break-up of cost of cement per metric ton including state levies. Builders' Association of India was also asked to substantiate its allegations with regard to the increase in prices. The replies of 41 cement manufacturers were received where the allegation of formation of cartel were denied. From the record, it appears that the erstwhile DG (I&R) had not reached any conclusion and had only prepared a draft Preliminary Investigation Report (PIR). At that stage, the matter stood transferred to the Commission. Accordingly, the Commission considered the matter in its ordinary meeting and passed an order dated 24.06.2010 under Section 26(1) of the Act directing the Office of Director General (DG) to conduct an investigation into the matter. Accordingly, the DG conducted the investigation into the matter and submitted his investigation report dated 31.05.2011 to the Commission.
8. Separately, another information was filed by the BAI i.e. Case No. 29 of 2010 under Section 19(1)(a) of the Act against 11 cement companies and CMA with similar allegations whereupon the Commission passed an order dated 20.06.2012 under Section 27 of the Act holding that the cement companies named therein alongwith CMA were parties to a cartel in contravention of the provisions of Section 3 of the Act.
9. So far as the present case is concerned, the Commission vide its final order dated 30.07.2012 passed under Section 27 of the Act found the above RTPE No. 52 of 2006 6 named Opposite Parties in contravention of the provisions of Section 3(3)
(a) and 3(3)(b) read with Section 3(1) thereof.
10. The Commission vide its aforesaid final order dated 30.07.2012 passed under Section 27 of the Act inter alia imposed a penalty of Rs. 397.15 crore upon Shree Cement Limited. As all the parties in the present case (except Shree Cement Limited) were also parties in Case No. 29 of 2010 where they were found to be in cartel and were penalised, the Commission did not deem it fit to order remedies including imposition of penalty on such companies again for the same period of contravention in this case.
11. The aforesaid order of the Commission was challenged by Shree Cement Limited by filing an appeal before the Hon'ble Competition Appellate Tribunal which came to be allowed by an order dated 11.12.2015 upon similar terms as in the order of even date of the Hon'ble Competition Appellate Tribunal in the appeals arising out of the order of the Commission dated 20.06.2012 in Case No. 29 of 2010. The relevant portion of the order of Hon'ble Appellate Tribunal is quoted below:
"10. Since the impugned order is mainly founded on the findings recorded in Case No. 29 of 2010 and the order passed in that case under Section 27 of the Act has been set-aside on the ground of violation of principle that 'only one who hears can decide', the order under challenge is also set aside in similar terms.
11. The detailed reasons recorded in the order passed today in Appeal No.105 of 2012 and connected matters and the directions contained therein shall be read as part of this order."
12. Pursuant to the aforesaid directions of the Hon'ble Competition Appellate Tribunal, the matter was heard at length during 19-22.01.2016 when the RTPE No. 52 of 2006 7 counsel appearing for the parties made elaborate submissions and the order was reserved.
13. Before proceeding any further in the matter, it may be pointed out that the order passed by the Commission in Case No. 29 of 2010 dated 20.06.2012 was also put in appeal before the Hon'ble Competition Appellate Tribunal and which was set aside by order dated 11.12.2015, was also heard by the Commission again and a separate order has been passed therein. Vide that order, the Commission has held the cement companies named therein alongwith CMA as parties to a cartel in contravention of the provisions of Section 3 of the Act. By this order, the Commission is disposing of the present matter i.e. RTPE No. 52 of 2006 consequent upon the remand order dated 11.12.2015 passed by the Hon'ble Competition Appellate Tribunal in this matter, as noted supra.
Directions to the DG
14. Earlier, the Commission after considering the entire material available on record vide its order dated 24.06.2010 passed under Section 26(1) of the Act had directed the Director General (DG) to cause an investigation to be made into the matter. The DG, after receiving the directions from the Commission, had investigated the matter and submitted the investigation report on 31.05.2011.
Investigation by the DG
15. After receiving the order under Section 26(1) of the Act, DG investigated the matter and submitted his report on 31.05.2011.
16. While explaining the methodology adopted for investigation, it has been noted by the DG that since Case No. 29 of 2010 also contained similar RTPE No. 52 of 2006 8 allegations, the investigation is being conducted in both the cases simultaneously to avoid repetition and wastage of resources.
17. Further, it has been mentioned that during the investigation process, through a detailed questionnaire was sent to 42 cement manufacturing companies as well as CMA to seek requisite information, yet the investigation was focused upon the top companies only as the top cement companies were controlling the cement market in all the regions and the small players only followed the trend. From the report of the DG, it is noted that the DG found CMA and the above noted 11 cement companies to be in contravention of the provisions of Section 3 of the Act.
18. In brief, the findings of the DG are noted in the following paras.
(i) The investigation carried out revealed that the major cement manufacturers are controlling the cement market in India.
(ii) The top 5 companies are having a market share of more than 50 %. Further, the cement industry is geographically scattered, as the production is concentrated to various clusters of limestone mines in Andhra Pradesh, Rajasthan, Madhya Pradesh, Gujarat, etc. The cement being a low value high volume product makes transportation as one of the important factors of cost.
(iii)Cement is a homogeneous product having low cross elasticity of demand as there is no substitute of cement for the consumers.
(iv) Investigation also revealed that the market shares of top companies were even higher than the all India shares in a particular region. The region-wise analysis of market share RTPE No. 52 of 2006 9 showed that the top three or four companies control a market share of more than 50%.
(v) During the course of investigation, analysis was done on the basis of market structure, behavioural methodology and by collecting evidences from various stakeholders and third parties. References from various studies and international cases were also made during the course of investigation.
(vi) Investigation hence, revealed that the top cement manufacturers and CMA are violating the provisions of Section 3(1), 3(3)(a) and 3(3)(b) of the Act. The circumstantial evidences as well as the oral evidences gathered during the course of inquiry established that the cement manufacturers were indulging in collusive price fixing. The circumstantial evidences clearly indicated the meeting of mind and coordinated activities.
(vii) Price parallelism was also proved on the basis of analysis of the price data of all the companies. The economic analysis of the price data established that the prices of all the companies were moving in the same direction in all the States. The analysis showed that the coefficient of correlation of price changes in terms of absolute price data as well as price change data was very high and close to 1 which established strong correlation amongst the companies.
(viii) The analysis of cost to sales ratio of all the top cement companies showed that the companies were earning super normal profit by eliminating the competition. The data relating to cost of sales and sales realisation clearly proved that all the companies were earning very good profits since last 4-5 years. The concerted action of the Opposite Parties and top cement RTPE No. 52 of 2006 10 manufacturers with a motive of profiteering and charging unreasonable prices had adversely affected the consumers and various sections of business in India.
(ix) The investigation further revealed that the top cement manufacturers were controlling the supply of cement in the market by way of some tacit agreement. The analysis of production data showed that the companies had regulated the capacity utilisation in the last 3 years by restricting the output to extract maximum profit and maintain higher prices of cement.
(x) The investigation had also revealed that the decision of reduction or increase in the production of cement was taken by all the companies in a coordinated manner as there was a positive correlation in production and dispatch pattern of cement of all the top companies.
(xi) The examination of third parties had established that by entering into the agreement, the Opposite Parties were adversely affecting the competition in the market resulting in losses to the consumers.
(xii) During the course of investigation, the conduct and activities of CMA was also found to be in violation of the provisions of the Act. CMA was providing a platform for coordination amongst the cement manufacturers by way of various meetings including High Power Committee (HPC) meetings. It was found that the companies who had withdrawn from the membership of CMA i.e. ACC and ACL Ltd., were also attending such meetings which were conducted in the guise of some academic/ technical discussions. The collection and dissemination of prices of cement from 34 centres on weekly RTPE No. 52 of 2006 11 basis by way of phone calls and e-mails through nominated cement companies allowed the opportunity of exchanging the prices of cement by the cement manufacturers. The companies collecting data on a continuous basis from all the important centres, in fact, facilitated the exchange of current prices while gathering the information of market prices. Further, the monthly publications of CMA relating to plant-wise, region- wise, as well as company-wise data of cement production, dispatch and movement also facilitated the exchange of vital information relating to the competing cement manufacturers. The activities of CMA had thus, also been found to be anti- competitive, as its various conducts and activities led to lessening the competition in the cement industry.
(xiii) In view of the investigation conducted by the DG, as discussed in detail in the investigation report, the allegations leveled against the Opposite Parties i.e. the top cement manufacturers, had been found to be substantiated and hence the conduct of Opposite Parties was noted by the DG to be anti-competitive and in violation to Section 3(1), 3(3)(a) and 3(3)(b) of the Act.
Consideration of the DG Report by the Commission
19. The Commission considered the investigation report submitted by the DG in its ordinary meeting held on 08.06.2011 and vide its order of even date decided to forward copies thereof to the parties for filing their respective replies/ objections thereto, if any.
Replies/ Objections/ Submissions of the Parties
20. On being notified, the parties filed their respective objections/ suggestions to the report of the DG besides making oral submissions. It may be RTPE No. 52 of 2006 12 observed that all the cement companies arrayed in Case No. 29 of 2010 are also parties in the present case. Besides, Shree Cement Limited is also a party in the present case. Consequent upon the remand orders passed by the Hon'ble Appellate Tribunal, both the matters were heard together during 19-22.01.2016 when parties made common submissions. It is further observed that most of the parties have filed common/ similar replies to the DG Reports in both the cases since the same were similar. These replies have already been captured in detail in the order passed in Case No. 29 of 2010. The only additional plea which was taken in these proceedings by some of the parties related to the jurisdictional issue pertaining to applicability of the Competition Act to the enquiries which were transferred to the Commission from the MRTP Commission. This aspect shall be separately dealt with in this order. As such, it is not necessary to reproduce again the replies of the parties in this order. Hence, only the reply of Shree Cement Limited is being noted in this order.
Objections/ suggestions of Shree Cement Limited
21. Shree Cement Limited ('Shree Cement'), at the outset, has challenged the jurisdiction of the Commission, in so far as Shree Cement has been found to have contravened the provisions of Section 3 of the Act.
22. It is stated that the case against Shree Cement was initiated pursuant a letter dated 16.09.2006 of BAI, which was forwarded by the then Ministry of Company Affairs on 29.06.2006 to the erstwhile Monopolies and Restrictive Trade Practices Commission ("MRTP Commission"). The MRTP Commission took suo moto cognizance and initiated investigation and directed the matter to the Director General (Investigation & Registration) [DG (IR)] for investigation. However, before the DG(IR) could complete the investigation, the Monopolies and Restrictive Trade Practices Act, 1969 ("MRTP Act") was repealed by Section 66 of the Act and RTPE No. 52 of 2006 was transferred to the Commission. The RTPE No. 52 of 2006 13 Commission considered the matter in its meeting held on 24.06.2010 and passed an order under Section 26(1) whereby the DG was directed to conduct an investigation into the matter.
23. Shree Cement has stated that upon the notification of Section 66 of the Act, the inconclusive investigation under RTPE No. 52 of 2006 under the MRTP Act stood transferred to the Commission in terms of the provisions contained in Section 66(6) of the Act. It has been alleged that the method of combining an inquiry instituted under the MRTP Act with another enquiry instituted under the Act, violates the provisions of Section 66 of the Act. It has been stated that pursuant to the provisions of Section 66(6) of the Act, the Commission could not have clubbed the investigation (in RTPE No. 52 of 2006) with the investigation of the DG in Case No. 29 of 2010 and, in any case, the findings recorded in the latter case could not have been relied upon for holding Shree Cement guilty of violating Section 3 of the Act and any order, if any, could only have been passed against Shree Cement under Section 37 of the MRTP Act. It is stated under Section 66(1)(A)(d) of the Act, read with the General Clauses Act, 1897, the Commission is vested with the power to decide whether transferred investigation/proceedings that were pending under the MRTP Act should continue or no further investigation is required. If the Commission were to decide to continue the pending investigation, then such investigation could only be conducted, completed and adjudicated upon as per the provisions of the MRTP Act alone and not as per the provisions of the Act.
24. It has further been alleged by Shree Cement that the letter of BAI showed 11 cement companies with about 65% market share and the remaining 43 cement companies were shown to have only 35% market shares. As Shree Cement did not feature in the top 11 cement companies, it has been alleged that the investigation against it cannot be clubbed with investigation against these 11 cement manufacturers, as it would fall only within the ambit of the "other" 43 companies.
RTPE No. 52 of 2006 1425. It has been further stated that the Commission's order under Section 26(1) of the Act dated 24.06.2010 (in RTPE No. 52 of 2006) was passed after applying its mind to the available materials on record which were only up to 30.09.2007 and the order under Section 26(1) of the Act dated 15.09.2010 (in Case No. 29 of 2010) filed by the BAI against 11 cement companies (not including Shree Cement) and CMA under Section 3 of the Act cannot retrospectively apply to it. Based on the same, Shree Cement has alleged that no material relating to Case No. 29 of 2010 could have been considered by the Commission when it passed the Section 26(1) order to complete the pending investigation under the MRTP Act.
26. Shree Cement has stated that Chapters 1 and 2 of the DG Report pertaining to RTPE 52 of 2006 indicate that the DG prepared a 'gist of allegations' pertaining only to the complaint of BAI dated 16.09.2006 and therefore, it is evident that the DG understood and acknowledged that the material/ information before Commission related only to the period of 2005-2007. However, the DG Report subsequently adopts the same methodology in another investigation in Case No. 29 of 2010. It has been submitted that the very premise of the methodology adopted by the DG is grossly erroneous as all the Opposite Parties of RTPE 52 of 2006 are not the same as those of Case No. 29 of 2010 and Shree Cement is not a party to Case No.29 of 2010. Further, it is stated that the DG has found Shree Cement to be in contravention of the provisions of Section 3 of the Act which is alleged to be beyond the scope of the Commission's Section 26(1) order dated 24.06.2010. Also, the DG on its own motion, has investigated Shree Cement for the period after 20.05.2009 on the alleged contravention of Section 3 of the Competition Act in the absence of any direction in this behalf by the Commission, which is without jurisdiction. It is stated that unlike the DG(IR) under the MRTP Act, the DG-CCI does not have the power to initiate a suo moto inquiry, and accordingly, the DG could have only investigated Shree Cement in terms of the order dated 24.06.2010 in RTPE No. 52 of 2006 15 RTPE No. 52 of 2006. Shree Cement has additionally stated that the DG has failed to investigate the transferred case under Section 11 of MRTP Act in terms of the allegations made under Section 37 read with Sections 33(d) and (g) of the MRTP Act.
27. Further, it was stated that in the event the Commission was to consider the order dated 24.06.2010 in RTPE No. 52 of 2006 as an order under directing investigation under Section 3 of the Act, the same would fail to satisfy the following fundamental requirements of an order under Section 26(1) of the Act set out by the Supreme Court in Competition Commission of India v. Steel Authority of India (2010) 10 SCC 744: (i) there is no information furnished to the Commission that Shree Cement has contravened the provisions of the Act in the period after 20.05.2009; (ii) a prima facie opinion must bear reference to the information alleging the contravention and, in this case, there is no such material; and (iii) a prima facie opinion must record minimum reasons substantiating the formation of such opinion.
28. In addition and without prejudice to the arguments above on lack of jurisdiction, Shree Cement has also made the following submissions on the merits of the DG's finding of a contravention of Section 3(3) of the Act. It was submitted that the DG investigated only 11 cement companies out of 42 cement companies arrayed in RTPE No. 52 of 2006. It is stated that the DG has analysed the important national players and several other regional players in the DG Report, though investigation is only against the top 11 cement companies. It is stated that the DG has considered Shree Cement as only a regional player and yet investigated it though he has arbitrarily left out other strong regional players. It is submitted that such arbitrary selection leaving out other competitors without justification is contrary to the objective of the competition law, as delineated in the duties of the Commission under Section 18 and objectives of the Act enshrined in the Preamble. Shree Cement has further stated that it is a small player in comparison to the other Opposite Parties as the market share of Shree RTPE No. 52 of 2006 16 Cement was only 2.48% in 2006 with 2.6 MMT capacity which increased hardly to 4.46% in 2011 and the capacity rose to 13.5 MMT. It is further stated that Shree Cement has witnessed high growth rate and extraordinary increase in market share, which demonstrates that it has no involvement in any alleged cartel behaviour (as high growth and vastly improved market share is contrary to the stable market share and coordination necessary for imputing cartel behaviour).
29. Shree Cement has also stated that the DG has grossly understated the capacity utilisation by Shree Cement. The DG considers full capacity of the Jobner plant of Shree Cement which commenced its operation in the 11th month of FY 2010-11 i.e. February 2011. By erroneously taking into consideration the entire capacity of the Jobner Plant for the FY 2010-11, the DG has grossly overestimated the available capacity and underestimated the utilisation. Shree Cement has submitted that the DG ought to have considered the pro-rated capacities (based on the number of months in that FY after the plant became operational), in addition to effective capacity utilisation, which would have shown that Shree Cement's capacity utilisation was 82.5%. It is further submitted that Shree Cement sells a portion of its clinker to third parties and does not use it for the purposes of producing cement. The DG ought to have considered this factor as well in assessing capacity utilisation but he has failed to do so while calculating capacity utilisation by Shree Cement.
30. Shree Cement has also challenged the DG's finding that the cement market is an oligopoly where the firms reach at a consensus on the price to charge above competitive levels by coordinating their behaviour. Shree Cement has stated that an oligopoly involves high concentration in the market dominated by 3-4 large players, whereas in the cement industry, there are more than 20 major players as per the DG Report itself and the presence of a large number i.e. 25, players rebuts the DG's findings. Shree Cement has also added that even if it is presumed that there is a cement oligopoly in RTPE No. 52 of 2006 17 India, there is no material to suggest that Shree Cement is a part of the same. Shree Cement is also not in the category of the three top companies with pan-India presence controlling approx. 40% of the market. In any event, it is stated that mere oligopoly is not equivalent to cartel as in an oligopolistic market, producers recognize their interdependence and simply mimic their rival and there is no material or cogent evidence to conclude that the Opposite Parties are not acting independently.
31. Shree Cement has argued that the DG has not followed a uniform methodology for assessing price parallelism and that the DG has compared price figures based on different parameters. For example, UltraTech Cement Ltd. submitted billing rates/month, Ambuja Cements Ltd. submitted monthly averages while Jaiprakash Associates Ltd. and Shree Cement submitted prices for 1st of every month. Further, it is alleged that the DG has relied on correlation analysis based on absolute change as well as percentage change in prices and percentage correlation analysis is a more suitable approach in order to determine price parallelism as compared to absolute change in prices. It is also alleged that Shree Cement's price correlation with other cement manufacturers in Shree Cement's prominent trading States of Punjab, Chandigarh and Rajasthan shows that correlation coefficient is predominantly lower than 0.5. It was further pointed out that for correlation analysis in Rajasthan, the prices of birla cement of Birla Corp. Ltd. appears to have been considered even though Birla Corp. Ltd. has been left out of the investigation by the DG. It is alleged that this has been done only to show an incorrect picture of high-correlation (apart from showing arbitrary selection of Opposite Parties by the DG).
32. In relation to the DG's assessment of dispatch parallelism, it is stated that dispatch parallelism cannot be used as an indicator of parallel behaviour as different dispatch patterns across various parts of India are due to seasonal/ political reasons and festivals which affect dispatches in different parts of India. In relation to the finding of high profit margins of the Opposite RTPE No. 52 of 2006 18 Parties, Shree Cement has submitted that it has captive power plants, from which surplus power (after meeting captive requirements) is sold - these have been included by the DG in calculating the profit margins of Shree Cement. Pure profit margins from cement business are submitted to be much lower. Finally, on the issue of prices of top companies before and after the meetings of HPC of the CMA, Shree Cement has stated that this list does not provide any data relating to Shree Cement and therefore any liability imputed to Shree Cement ought to be disregarded.
Analysis
33. Before examining the case on merits, it would be appropriate if the developments in this case are summarised in chronological order for better appreciation of the issues presented in these proceedings.
34. The instant matter was taken up suo moto by the MRTPC based upon press reports and the letter of BAI which was forwarded to it by the then Ministry of Company Affairs. Subsequently, the matter stood transferred to the Commission in terms of the provisions contained in Section 66 of the Competition Act, 2002. The Commission, after considering the matter in its meeting held on 24.06.2010, passed an order under Section 26(1) of the Act directing the DG to conduct an investigation into the matter.
35. The Commission vide its final order dated 30.07.2012 passed under Section 27 of the Competition Act, 2002 inter alia imposed a penalty of Rs. 397.15 crore upon Shree Cement. As all the parties in the present case (except Shree Cement Limited) were also parties in Case No. 29 of 2010 where they were found to be in cartel and were also penalised therein, the Commission did not deem it fit to order remedies including imposition of penalty on such companies again for the same period of contravention in this case.
RTPE No. 52 of 2006 1936. The aforesaid order of the Commission was challenged by Shree Cement Limited by filing an appeal before the Hon'ble Competition Appellate Tribunal which came to be allowed by an order dated 11.12.2015 upon similar terms as were there in the order of even date of the Hon'ble Competition Appellate Tribunal in the appeals arising out of the order of the Commission in Case No. 29 of 2010. The relevant portion of the order of Hon'ble Competition Appellate Tribunal is quoted below:
"10. Since the impugned order is mainly founded on the findings recorded in Case No. 29 of 2010 and the order passed in that case under Section 27 of the Act has been set-aside on the ground of violation of principle that 'only one who hears can decide', the order under challenge is also set aside in similar terms.
11. The detailed reasons recorded in the order passed today in Appeal No.105 of 2012 and connected matters and the directions contained therein shall be read as part of this order."
37. For ready reference, the directions issued by the Hon'ble Competition Appellate Tribunal in Appeal No.105 of 2012 and connected matters while remanding the matter (Case No. 29 of 2010) back to the Commission, are noted below:
"99. The Commission shall hear the advocates/ representatives of the appellants and BAI and pass fresh order in accordance with law. We hope and trust that the Commission shall pass fresh order as early as possible but within a period of three months from the date, which may be notified after receipt of this order.
100. The parties shall be free to advance all legally permissible arguments. They may rely upon the documents, which formed part of the record of the Jt. DG RTPE No. 52 of 2006 20 or which may have been filed by them before the commencement of hearing on 21.02.2012. The parties shall also be free to press the applications already filed before the Commission. However, no application, which may be filed hereinafter for cross-examination of the persons, whose statements were recorded by the Jt. DG or for any other purpose shall be entertained by the Commission."
38. In the aforesaid backdrop, the present matter may now be examined.
39. To begin with, some of the parties raised the pleas seeking cross- examination and challenging the jurisdiction of the Commission in light of the observations made by the Hon'ble Competition Appellate Tribunal, as noted supra.
40. In this connection, the Commission notes that CMA had raised the plea seeking cross-examination in its reply to the DG Report. This plea was pressed by the CMA during the course of arguments in the present proceedings. It was pleaded that the DG had examined various non- members of CMA besides consumers/ builders/ cement dealers/ highway contractors as witnesses during the course of investigation. It was alleged that no opportunity of cross-examination was afforded to CMA and, as such, it was submitted that the DG had contravened the principles of natural justice rendering the report and the findings arrived by it as untenable and bad in law. Similarly, Ramco Cement Ltd. moved an application dated 13.01.2016 seeking to press the applications dated 14.02.2012 raising preliminary issues. In these applications, it was alleged that the DG has purported to refer, rely and hold the Opposite Parties under the provisions of the Act guilty even for actions prior to May, 2009 in complete ignorance of the fact that Section 3 of the Act itself was brought into force w.e.f. 20.05.2009. Hence, it was submitted that the investigation undertaken by RTPE No. 52 of 2006 21 the DG and the report prepared on the basis of such investigation are without any authority of law and devoid of jurisdiction. It was pleaded that operation of the provisions of a statute is necessarily prospective in nature unless the authority to apply the provisions retrospectively is traceable to the provisions of the statute either expressly or by way of necessary implication. Further, it was argued that the DG Report, in rendering a finding of violation of Section 3 of the Act on the basis of actions and relatable information and data prior to the date of coming into force of the said provision, is contrary to and in ignorance of the express terms of the provisions of Section 66 of the Act. It was also argued that several findings in the DG report are based solely upon the report of the Tariff Commission on the Performance of Cement Industry and the Report of the Department Related Parliamentary Standing Committee on Commerce on the 'Performance of the Cement Industry'. It was alleged that Ramco Cement Ltd. was not provided with copies of these reports. The failure to provide the same was stated to be grossly unfair and in violation of fairness and due process. It was also argued that the DG Report itself states that the cement industry is region specific and as such, there cannot be a national market.
41. The India Cements Limited also raised some preliminary and jurisdictional issues which were taken in its earlier application dated 13.02.2012 including issues relating to retrospective application of the Act, violation of principles of natural justice etc.
42. UltraTech Cement Limited moved an application dated 07.01.2016 bringing out the specific para from its reply dated 14.02.2012 to the DG Report before the Commission whereby liberty was specifically sought to cross-examine the witnesses. It was averred therein that the DG had relied upon oral testimonies of some of the consumers of cement and as such liberty was sought to cross-examine those witnesses. Further, it was pointed out that the DG has extracted the statement of one of the cement dealer and also made reference to various statements made by small cement RTPE No. 52 of 2006 22 manufactures who were not the members of CMA, highway contractors etc. As such, it was prayed that UltraTech Cement Ltd. be permitted to cross- examine the witnesses.
43. Century Textiles and Industries Limited in its reply dated 12.01.2012 stated that the DG examined various witnesses referred to in the Investigation Report to come to the alleged findings of violation of the Act by the answering Opposite Party and others. It was stated that the answering Opposite Party would like to cross-examine the said witnesses to bring out the correct facts.
44. Before adverting to the merits of the case, it would be apposite that the preliminary issues raised by the Opposite Parties including the jurisdictional pleas and applications/ pleas relating to cross-examination are taken up first.
45. So far as the pleas/ applications seeking cross-examination are concerned, it would be appropriate to note the statutory scheme on the issue of cross- examination as envisaged under the framework of the Act and the Competition Commission of India (General) Regulations, 2009 (hereinafter, 'the General Regulations') framed thereunder.
46. In this regard, reference may be made to the provisions contained in Regulation 41 of the General Regulations which deals with the procedure for taking evidence including cross-examination of the persons giving evidence. The same is quoted below:
"Taking of Evidence Regulation 4l(1)...
(2)...RTPE No. 52 of 2006 23
(3)...
(4) The Commission or the Director General, as the case may be, may call for the parties to lead evidence by way of affidavit or lead oral evidence in the matter. (5) if the Commission or the Director General, as the case may be, directs evidence by a party to be led by way of oral submission, the Commission or the Director General, as the case may be, if considered necessary or expedient, grant an opportunity to the other party or parties as the case may be, to cross-
examine the person giving the evidence.
(6)...
(7)..."
47. It is, thus, evident that the Commission or the DG has the discretion to take evidence either by way of Affidavit or by directing the parties to lead oral evidence in the matter. However, if the Commission or the DG, as the case may be, directs evidence by a party to be led by way of oral submissions, the Commission or the DG, as the case may be, if considers necessary or expedient, may grant an opportunity to the other party or parties, as the case may be, to cross-examine the person giving the evidence. Thus, it is only when the evidence is directed to be led by way of oral submissions that the Commission or the DG may grant an opportunity to the other party or parties to cross-examine the person giving the evidence, if considered necessary or expedient. Hence, even when the evidence is led by oral submissions, the Commission or the DG retains the discretion to consider the request for grant of opportunity to the other party or parties to cross- examine the person giving the evidence if the same is considered necessary or expedient. Thus, the only issue which needs to be examined is when it would be necessary and expedient to grant an opportunity to the other party RTPE No. 52 of 2006 24 or parties to cross-examine the person giving evidence by way of oral submissions. Whether an opportunity of cross-examination is to be given or not depends upon the circumstances of each case. In this regard, the Commission notes that the words 'if considered necessary or expedient' are of great import. Whenever the DG, or for that matter the Commission, finds that some incriminating evidence (statement) has come up during investigation before the DG or during inquiry before the Commission against any party, the same has to be put up to the party against whom that evidence has come, and if such party refutes the evidence and gives some explanation, the DG or the Commission (as the case may be) is under an obligation to examine the explanation and accordingly decide whether the witness concerned may be called for cross-examination or not. In the connection, it may be observed that when the information supplied by a party is based on personal knowledge, the other party may be granted the right to cross-examine the party giving evidence. However, when the information provided by a party is documentary or based on documents, the same can be rebutted by filing Affidavits and cross-examination of such party is not required in all cases.
48. Viewed in the aforesaid backdrop, none of the Opposite Parties has been able to justify the prayer seeking cross-examination. The Opposite Parties have made requests in a general way without in any manner specifying the portions of the testimonies/ depositions of the witnesses which they dispute and require cross-examination to controvert the same and which could not be otherwise responded to through replies/ Affidavits. The thrust of the conclusions drawn by the DG is essentially based upon economic analysis and therefore, no prejudice would be caused to the parties if parties are allowed to respond to the DG Report by filing their respective replies/ Affidavits. Further, the parties were granted full opportunity by way of oral submissions before the Commission and as such, the issue of violation of principles of natural justice cannot sustain.
RTPE No. 52 of 2006 2549. Next, the jurisdictional challenge laid by the parties to the maintainability of the present proceedings on the issue of applicability of the Competition Act, 2002 may also be now examined. It was contended that as the allegations in the present matter pertained to the year(s) 2005/ 2006, the case ought to have been examined under the MRTP Act and the Competition Act, 2002 cannot be applied retrospectively. It was argued that as the matter was being investigated by the DG (IR) - MRTPC before being transferred to the Commission, the rights, liabilities and obligations accrued to the parties under the MRTP Act are preserved and protected by virtue of Section 66(1A) of the Competition Act, 2002. Further, it was also argued that the DG, unlike its predecessor DG (IR), does not have power to suo moto investigate any breach of the provisions of the Competition Act but he can only assist the Commission in terms of the provisions contained in Section 41(1) of the Act. Any investigation arising out of the operation of Section 66(6) of the Act does not confer any statutory power upon the Commission to form prima facie view under Section 26(1) of the Act without routing the same through Section 19(1) thereof. It was argued that the Commission formed the prima facie view in the present case without establishing a causal link with Section 19(1) of the Act and as such, the order forming prima facie view is bad in law. It was argued that the Commission could have considered the inconclusive investigation as a piece of information and instituted inquiry under Section 19(1) of the Act under its suo moto powers and proceeded to form the prima facie view in terms of the provisions contained in Section 26(1) of the Act. However, the same has not been done.
50. The Commission has carefully examined the jurisdictional plea raised by Shree Cement and some other parties.
51. Before examining the merits of the plea, it may be observed that the Hon'ble High Court of Delhi in Interglobe Aviation Ltd. v. Competition Commission of India, WP(C) 6805/2010 decided on 06.10.2010 held that RTPE No. 52 of 2006 26 where investigation by DG (IR) - MRTPC remained incomplete and the matter did not crystalise into a "case" before the MRTPC, it was not incumbent on the DG (IR) - MRTPC to transfer the case to the Competition Appellate Tribunal. This view was also reiterated by the Hon'ble High Court of Delhi in Gujarat Guardian Ltd. v. Competition Commission of India, W. P (C) 7766 of 2010 decided on 23.11.2010. In this case, the Petitioner argued that as the matter was pending before DG (IR) - MRTPC, the case ought to have been transferred to the Competition Appellate Tribunal and not to the Commission. It was further contended that the Commission had no power to pass an order under Section 26(1) of the Act in such matters and that the Commission had to proceed only under the provisions of the MRTP Act. While repelling the arguments, the Hon'ble High Court of Delhi held as under:
This Court finds that since the investigation was incomplete the matter was rightly transferred to the CCI. On further consideration of the material on record the CCI formed a prima facie opinion to proceed under Section 26(1) of the CA. This was not contrary to Section 66(6) of the CA. It is possible in the course of investigation that the DG, CCI forms a prima facie opinion to proceed under the provisions of the CA, 2002 itself. There is no illegality per se in such action of the DG, CCI.
52. Further, the aforesaid view also found approval by the Hon'ble Competition Appellate Tribunal in the appeal preferred by Shree Cement against the order passed by the Commission on 30.07.2012 in this very case itself while dealing with the interim application seeking absolute stay upon the penalty. The Hon'ble Competition Appellate Tribunal, while repelling similar contentions urged before it vide its order dated 29.04.2014 passed in Interim Application No. 258 of 2012 in Appeal No. 121 of 2012, observed as under:
RTPE No. 52 of 2006 27"The learned counsel canvassed before us that it was an old case of MRTP Commission, which came to be transferred under section 66(6) of the Competition Act before the CCI. He, therefore, urged that the inquiry before the CCI pertained not to the period after 20.05.2009, when section 3 and 4 came on the anvil, but to the period prior to it and as such the inquiry suffered jurisdictional error. However, during the debate, the learned counsel contended that it could not be said that the CCI did not have the jurisdiction, particularly in view of the clear language of section 66(6). Therefore, there would be no jurisdictional question to be decided. The learned counsel, however, contended that the CCI on the basis of that inquiry could not have found the Appellant guilty of the breach of section 3 because the earlier inquiry pertained to the period prior to 20.05.2009, when sections 3 and 4 came on the anvil. The contention is clearly incorrect, for the simple reason, that in its meeting on 24.06.2010, the CCI had directed the DG to do a thorough inquiry into the matter, which was not restricted only to the period prior to 20.05.2009. The concerned period, in fact was extended right upto 2011. It has been clarified by the CCI in its impugned order that the concerned period of breach was not prior to 20.05.2009, but it pertained to that date upto the year 2010-2011. It can also be seen that under section 26(1), the CCI considered the question of the inquiry and directed a total inquiry. When we see the order dated 24.06.2010, it is clear from the order that the CCI had ordered a thorough inquiry and complete investigation and the investigation was not to be restricted to the pre May 2009 period. It must be seen here that the CCI has suo-moto powers to order an investigation and indeed, one of its duty is to see that RTPE No. 52 of 2006 28 competition law is not breached, which is clear from the language of section 18 of the Competition Act. Under the circumstances, it has to be held that the inquiry ordered by the CCI was not pertaining to the pre Act period, but it pertained to the period when the Act and more particularly sections 3 and 4 were invoked. In that view, we do not find any jurisdictional error by the CCI in ordering the inquiry."
53. A challenge to the aforesaid order of the Hon'ble Competition Appellate Tribunal by Shree Cement before the Hon'ble High Court of Delhi by way of writ petition also remained unsuccessful. The Hon'ble High Court of Delhi vide its order dated 27.05.2014 dismissed the writ petition filed against the said interlocutory order dated 29.04.2014 passed by the Hon'ble Competition Appellate Tribunal.
54. In the present case, the DG (IR) - MRTP Commission undertook preliminary investigation which was still pending when the MRTP Act, 1969 was repealed. As the investigation had not culminated into a "case", the matter was transferred to the Commission by the DG (IR) - MRTPC in terms of the provisions contained in Section 66(6) of the Act as the allegations related to restrictive trade practices. It may be pointed out that by virtue of the provisions contained in Section 66(6) of the Competition Act, all investigations or proceedings, other than those relating to unfair trade practices, pending before the DG (IR) on or before the commencement of the Act shall, on such commencement, stand transferred to the Commission, and the Commission may conduct or order for conduct of such investigation or proceedings in the manner as it deems fit. Thus, in the event the Commission were to order investigation in such matters, the same could have been done only by taking recourse to Section 26 of the Act by treating the complaint as an information. Furthermore, it is pertinent to contrast the provisions of Section 66 (6) of the Act with Section 66(3) RTPE No. 52 of 2006 29 thereof which inter alia provides that all cases pertaining to monopolistic trade practices or restrictive trade practices pending before the MRTP Commission shall stand transferred to the Competition Appellate Tribunal and shall be adjudicated by the Competition Appellate Tribunal in accordance with the provisions of the repealed Act as if that Act had not been repealed.
55. Moreover, if the alleged anti-competitive conduct which started prior to notification of the provisions of Section 3 of the Competition Act and continues post-notification of such provisions, the Commission has the necessary jurisdiction to look into such conduct. This aspect has also been affirmed by decision of the Hon'ble High Court of Bombay in Kingfisher Airlines Limited v. Competition Commission of India, W.P. No. 1785 of 2010. This is also borne out by the suo moto power conferred upon the Commission under Section 19(1) of the Competition Act. In the present case, the DG examined the conduct of the parties during the period spanning from 2005 to 2011 for delineating the market construct and conducting competitive analysis of cement industry in a holistic perspective. However, while determining the contravention of the provisions of the Competition Act and the consequent penalty, the Commission has confined the relevant period from 20.05.2009 (i.e. the date on which the provisions of Section 3 of the Competition Act were notified) to 31.03.2011 i.e. the date till which the DG had examined the conduct of the parties.
56. As such, the Commission finds no merit in the plea challenging the jurisdiction of the Commission.
57. Further, the objection raised by the Opposite Parties on the ground that certain reports relied upon by the DG such as Report of the Tariff Commission on the 'Performance of Cement Industry, Report of the Department Related Parliamentary Standing Committee on the RTPE No. 52 of 2006 30 'Performance of Cement Industry' etc. have not been supplied to them, is also misconceived. The Commission notes that the relevant portions of these documents relied upon by the DG form part of the investigation report which was made available to the Opposite Parties. It is not understood as to how the parties have been prejudiced by the non-supply of the entire reports when the relevant portions thereof have already been supplied to them. Moreover, at this point of time, this plea is of no consequence in as much as the entire record including the documents/ information which were granted confidential treatment have been made available to the parties for inspection during the pendency of the appeals before the Hon'ble Competition Appellate Tribunal.
58. Some of the Opposite Parties have raised objections on the ground that their names have not been properly reported. It is made clear that the correct names of the parties have been correctly reflected in the array of parties in the beginning of this order alongwith the details about the change of name wherever applicable. JK Cements has raised a contention that in the information, it has not even been named as an Opposite Party since the information mentions of some 'JK Group' only. It has also been stated that the Informant made a grave error by combining its capacity, production and market share with the data of another independent and unrelated company operating under the name and style of 'JK Lakshmi Cement Ltd.' and the DG without ascertaining the true facts, simply adopted the data and figures provided by the Informant.
59. In this connection, it may be observed that the DG had issued notices to J K Cements, a part of J K Group and a separate notice to JK Lakshmi Cement Ltd. was not issued. The Informant has also mentioned J K Cement Limited of J K Group as the Opposite Party. The Commission also sought replies from J K Cement only. Thus, while ascertaining the contraventions of the Act, details/ data of J K Cement alone have been considered. As such, RTPE No. 52 of 2006 31 nothing further turns upon this aspect as no prejudice has been caused to this answering party.
60. In view of the above, nothing turns upon the preliminary issues and objections raised by the Opposite Parties and the same are dismissed. Accordingly, the Commission proceeds to examine the substantive issues arising for determination in the present case.
Point for determination
61. On a careful perusal of the information, the Report of the DG, the replies/ objections filed and submissions made by the parties and other materials available on record, the following point arises for consideration and determination in the matter:
Whether the Opposite Parties have contravened the provisions of Section 3 of the Act?
62. Before examining the above point, the Commission deems it appropriate to highlight the conduct of Shree Cement in taking plea to the effect that it was not supplied with the copy of the Investigation Report in Case No. 29 of 2010.
63. The Commission notes that during the course of arguments, no such objection or plea was raised before the Commission. In fact, such plea only finds mention in the post-hearing written synopsis of the arguments dated 25.01.2016.
64. In this regard, it may be observed that the DG submitted two separate, though similar, reports in both the cases i.e. the present case (RTPE No. 52 of 2006) and C. No. 29 of 2010 due to the commonalities involved. As the issues involved were common, the investigation in both the cases was RTPE No. 52 of 2006 32 conducted in parallel by the DG. The Commission notes that though Shree Cement was not arrayed as a party in the information filed in Case No. 29 of 2010, the DG while analysing the data in that case, has taken into consideration the data and conduct relatable to Shree Cement also. In fact, summonses were also issued by the Office of the DG to Shree Cement in Case No. 29 of 2010 to examine it on the facts gathered during the course of investigation in that case. Further, in RTPE No. 52 of 2006 also, information had been sought from Shree Cement and summonses were also issued to Shree Cement, a party being investigated in RTPE No. 52 of 2006. A copy of the DG Report in the said case was duly supplied to enable Shree Cement to file its objections/suggestions.
65. It is, as such, observed that since both the DG Reports were similar, as noted supra, no prejudice, much less gross miscarriage of justice, has been caused as sought to be suggested by Shree Cement. In fact, far from showing any miscarriage of justice, Shree Cement has failed to point out any prejudice which might have been caused to it due to such a course and procedure adopted.
66. It may be noted that post-remand of both the matters, they were heard together during 19-22.01.2016 before the Commission and no exception was taken by any of the parties including Shree Cement challenging such common schedule of hearing.
67. In fact, an application seeking recusal of one Hon'ble Member was made on behalf of Shree Cement Limited based on some past correspondence between the then Secretary, Competition Commission of India and Shree Cement in respect of obtaining of the investigation report in C. No. 29 of 2010. Yet when the Commission heard the arguments on behalf of Shree Cement Limited on 21.01.2016, Shri Amit Sibal, learned Senior Counsel appearing on its behalf, sought the permission of the Commission to withdraw the application dated 18.01.2016 seeking recusal of the Hon'ble RTPE No. 52 of 2006 33 Member. Thus, it is evident that though an application was moved seeking recusal, yet at the time of hearing, no whisper was uttered much less making any request/application, to have a copy of the investigation report in Case. No. 29 of 2010, if at all the same was required. Far from showing any prejudice, Shree Cement continued to take the plea of non-supply of the investigation report in Case No. 29 of 2010 only in its written submissions. Furthermore, from the order dated 29.04.2014 passed by the Hon'ble Competition Appellate Tribunal in Appeal No. 121 of 2012 preferred by Shree Cement against the order of the Commission disposing of the Interim Application seeking stay, it is evident that the learned counsel appearing on behalf of the Commission expressed his willingness to supply a copy of the DG Report in Case No. 29 of 2010 to Shree Cement. However, for reasons not readily discernable, Shree Cement continued to maintain its studied silence before the Hon'ble Competition Appellate Tribunal as well as during the hearing before the Commission post-remand, only to raise this plea of non-supply of DG Report in Case No. 29 of 2010 at a later stage. The Commission deprecates such conduct and sharp practice resorted to by Shree Cement Limited.
Whether the Opposite Parties have contravened the provisions of Section 3 of the Act?
68. The Commission notes that in terms of the provisions contained in Section 3(1) of the Act, no enterprise or association of enterprises or person or association of persons can enter into any agreement in respect of production, supply, distribution, storage, acquisition or control of goods or provision of services, which causes or is likely to cause an appreciable adverse effect on competition within India. Section 3(2) of the Act declares that any agreement entered into in contravention of the provisions contained in sub-section (1) shall be void. Further, by virtue of the presumption contained in sub-section (3), any agreement entered into RTPE No. 52 of 2006 34 between enterprises or associations of enterprises or persons or associations of persons or between any person and enterprise 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- (a) directly or indirectly determines purchase or sale prices; (b) limits or controls production, supply, markets, technical development, investment 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 similar way; (d) directly or indirectly results in bid rigging or collusive bidding, shall be presumed to have an appreciable adverse effect on competition.
69. As the Opposite Party cement companies are engaged in the similar business of manufacturing of cement and, thus, operating at the same level of production chain, the allegations may be examined under Section 3(1) read with Section 3(3) of the Act.
70. Further, it may be noted that the definition of 'agreement' as given in Section 2(b) of the Act requires inter alia any arrangement or understanding or action in concert whether or not formal or in writing or intended to be enforceable by legal proceedings. The definition, being inclusive and not exhaustive, is a wide one. The understanding may be tacit and the definition covers situations where the parties act on the basis of a nod or a wink. There is rarely any direct evidence of action in concert and in such situations, the Commission has to determine whether those involved in such dealings had some form of understanding and were acting in co- operation with each other. In light of the definition of the term 'agreement', the Commission has to assess the evidence on the basis of benchmark of preponderance of probabilities.
RTPE No. 52 of 2006 3571. In view of the above and further considering the fact that prohibition on participating in anti-competitive agreements and penalties the offenders may incur are well known, it is normal that such activities are conducted in a clandestine manner, where the meetings are held in secret and the associated documentation reduced to a minimum. Even if the Commission discovers evidence explicitly showing unlawful conduct between enterprises such as minutes of a meeting, it will normally be only fragmentary and sparse. So it is often necessary to reconstruct certain details by deduction. In most cases, the existence of an anti-competitive practice or agreement must be inferred from a number of co-incidences and indicia which, taken together, may, in the absence of any other plausible explanation, constitute evidence of the existence of an anti-competitive agreement.
72. Parallel behaviour in prices, dispatch and supply accompanied with some other factors indicating coordinated behaviour among the firms may become a basis for establishing concerted action. Even in foreign jurisdictions, circumstantial evidences have been used and relied upon in cartel cases. Such circumstantial evidences are of no less value than direct evidence as the law makes no distinction between direct and circumstantial evidence.
73. In the Dyestuffs case (Case No. 48/69 ICI, [1972] ECR 619), the European Court of Justice observed that "[a]lthough parallel behaviour may not by itself be identified with a concerted practice, it may however amount to strong evidence of such a practice if it leads to conditions of competition which do not correspond to the normal conditions of the market, having regard to the nature of the products, the size and number of the undertakings, and the volume of the said market. This is especially the case if the parallel conduct is such as to enable those concerned to attempt to stabilize prices at a level different from that to which competition would have led, and to consolidate established positions to the detriment of RTPE No. 52 of 2006 36 effective freedom of movement of the products in the common market and of the freedom of consumers to choose their suppliers. Therefore the question whether there was a concerted action in this case can only be correctly determined if the evidence upon which the contested decision is based is considered, not in isolation, but as a whole, account being taken of the specific features of the market in the products in question."
(emphasis added)
74. Applying the aforesaid test to the present case, the Commission is of the considered opinion that nothing turns upon the submissions made by the Opposite Parties to the effect that the DG has found infringement of the provisions of Section 3 of the Act based solely upon economic analysis and market behaviour to prove some kind of meeting of minds and there was no direct evidence to support any cartelisation or anti-competitive agreement amongst them.
75. Accordingly, the Commission may now proceed to examine the conduct of Opposite Parties as to whether they have acted in a concerted manner and thereby violated the provisions of Section 3 of the Act.
Platform of CMA
76. Before dealing with the issue of CMA as a platform for anti-competitive conduct by the cement manufacturing companies, it may be appropriate to deal with some legal pleas raised by CMA during the hearings before the Commission.
77. It was argued that the agreement referred to in Section 3(3) is really an instance of the type of agreement that is prohibited under Section 3(1) which is presumed to have an appreciable adverse effect on competition within India. Under Section 3(3), it is necessary that the agreement must be RTPE No. 52 of 2006 37 among enterprises or associations of enterprises or persons or association of persons or between any person and enterprise who are "engaged in identical or similar trade of goods or provision of services". In other words, an agreement between CMA and a third party is a necessary pre-requisite for violation of Section 3(3) of the Act. Elaborating further, it was submitted that when Section 3(1) and 3(3) are read together with Section 2(b) and 2(c), it is clear that the association itself cannot be made liable unless all of its members together are found to have engaged in the prohibited conduct. Assuming without admitting that some members are found to have engaged in the conduct prohibited by Section 3(3) and 3(1), (i.e., an anti-competitive agreement) under the "umbrella" of the association or by using it as a platform for arriving at a formal or informal arrangement that violates Section 3, this still does not amount to the association itself being guilty of the prohibited conduct.
78. The Commission observes that by virtue of the provisions contained in Section 3(1) of the Act, no enterprise or association of enterprises or person or association of persons shall enter into any agreement in respect of production, supply, distribution, storage, acquisition or control of goods or provision of services, which causes or is likely to cause an appreciable adverse effect on competition within India. Further, by virtue of the provisions contained in Section 3(3) of the Act, any decision taken by any association of enterprises engaged in identical or similar trade of goods or provision of services which are engaged in the specified activities described therein is presumed to have an appreciable adverse effect on competition within India.
79. Thus, when a decision taken by an association of enterprises is explicitly covered within the purview of Section 3(3) of the Act, it is futile for CMA to contend that its conduct cannot be made amenable within the ambit of RTPE No. 52 of 2006 38 Section 3 of the Act as it is not engaged in any trade of goods such as cement.
80. Similarly, the plea taken by CMA that the DG has cherry picked the alleged cartel members is also not tenable. It was argued that CMA had 42 members at the relevant time out of which the DG has chosen to proceed against only 8 members.
81. The Commission notes that the present case was instituted on an information filed by BAI against the parties named therein. It is not a case where the Commission proceeded suo moto and cherry-picked a few cement companies for the purpose of ordering investigation. Needless to add, to ascertain contraventions as alleged by the Informant against the Opposite Parties, the investigation and the consequent inquiry have been confined to the parties named in the information and therefore the question of cherry-picking some or leaving out others does not arise in the present case.
82. The Commission observes from the DG Report that the Opposite Parties participated in the meetings of CMA which provided a common platform to them to interact on a regular basis. The Commission also notes that CMA collected retail prices and wholesale prices of cement from different centres and transmitted it onwards to the Government. The retail prices collected from different centres were transmitted to DIPP, while the wholesale prices were transmitted to the Office of Economic Advisor of the same Department.
83. From the records, it is seen that consequent upon the closure of the Office of the Development Commissioner for Cement Industry (DCCI), at a meeting convened on 13.11.1991 by the Secretary, Ministry of Commerce and Industry, CMA was to collect cement prices (minimum and maximum) on a weekly basis as were earlier being collected by DCCI. Accordingly, the President, CMA, in his letter no. 438/1304/91 dated 09.12.1991 RTPE No. 52 of 2006 39 addressed to the Secretary, Ministry of Commerce and Industry, referring to the decision in the aforesaid meeting, assured that CMA would collect cement prices from the cement companies and give a feedback to the Ministry. On 05.06.2008, CMA wrote a letter to the Under Secretary (DIPP), Ministry of Commerce and Industry seeking clarification as to whether it should continue to furnish the retail cement prices to the Government in light of enactment of the Competition Act, 2002. In response thereto, the Under Secretary (DIPP), vide its letter dated 28.07.2008 requested CMA to continue to furnish retail prices of cement in different consumption centres to DIPP. Accordingly, CMA has been collecting and sending a statement of weekly retail cement prices to DIPP. In this connection, it may be observed that clarification was sought when the relevant provisions of the Act were not even notified. No effort appears to have been made by CMA to seek clarification or appropriate legal advice post-notification of the provisions of Section 3 of the Act on 20.05.2009 when the provisions of Section 3 of the Act relating to anti-competitive agreement came into effect and the prices continued to be collected on a regular basis using CMA as platform. It may, however, be noted that collection of prices by CMA - either at the behest of the Ministry or otherwise - in itself is not anti-competitive unless such information is shared with or otherwise disseminated/ published to the cement companies.
84. It may be seen that CMA used to collect retail cement prices from 34 centres all over the country as detailed below:
Centre Source Cement Co. Mode Concerned Official Delhi Shree Cement Ltd. Phone Mr. Pawan Agarwal Karnal, Rohtak, J.K. Lakshmi Cement E-Mail Mr. Ashwani Sharma Jaipur, Bhatinda, Meerut Chandigarh, Ultra Tech Cement Ltd. E-Mail / Phone Mr. Pawan Kothiyal Ludhiana, Jammu, Simla RTPE No. 52 of 2006 40 Mumbai, Nagpur, Ultra Tech Cement Ltd. E-Mail Mr. Prashant Kaduskar Pune, Ahmedabad, Baroda, Surat, Rajkot Patna, Guwahati, Ultra Tech Cement Ltd. Phone Mr. Shyam Menon Muzaffarpur Silchar NA Kolkata Century Cement Ltd E-Mail Mr. S.K. Sultania Bhubaneshwar OCL E-Mail Mr. S. K Pradhan Chennai, Trivandrum, India Cements Ltd. E-Mail Mr. T.S. Raghupathy Bangalore, Hyderabad, Calicut, Visakhapatnam, Goa Lucknow Birla Corporation Ltd. E-Mail Mr. Manish Maliwal Faizabad, Bhopal Jai Prakash Associates Ltd. E-Mail Mr. Niranjan Singh Bareilly Prism Cement Phone Mr. M.K. Singh
85. CMA also used to collect wholesale prices of cement from 10 centres on a monthly basis viz. Delhi, Jaipur, Kolkata, Bhubaneshwar, Mumbai, Ahmedabad, Chennai, Hyderabad, Lucknow and Bhopal. It was vehemently urged that CMA was collecting prices of cement for transmission to the concerned authorities in the Government. The Commission, however, notes that this does not preclude the possibility of CMA sharing this data with its members. In this connection, the Commission notes from the reply filed by CMA that there is evidence to the effect that target and production data were filed with CMA by the cement companies. Further, it may be noted that production, pricing and demand are interrelated and cannot be segregated in any meaningful sharing of information. Thus, the platform of CMA was apparently used in sharing of critical information amongst the cement companies.
86. In this regard, the Commission observes that in T-Mobile v. Commission, (Case No. C-8/08, T-Mobile & Ors. v Commission, 2009 [ECR] I-04529), in relation to information exchanges amongst competitors, the European RTPE No. 52 of 2006 41 Court of Justice held " ... with regard to the exchange of information between competitors, it should be recalled that the criteria of coordination and cooperation necessary for determining the existence of a concerted practice are to be understood in the light of the notion inherent in the Treaty provisions on competition, according to which each economic operator must determine independently the policy which he intends to adopt on the common market ... While it is correct to say that this requirement of independence does not deprive economic operators of the right to adapt themselves intelligently to the existing or anticipated conduct of their competitors, it does, none the less, strictly preclude any direct or indirect contact between such operators by which an undertaking may influence the conduct on the market of its actual or potential competitors or disclose to them its decisions or intentions concerning its own conduct on the market where the object or effect of such contact is to create conditions of competition which do not correspond to the normal conditions of the market in question, regard being had to the nature of the products or services offered, the size and number of the undertakings involved and the volume of that market ...At paragraphs 88 et seq. of Deere v Commission, the Court therefore held that on a highly concentrated oligopolistic market, such as the market in the main proceedings, the exchange of information was such as to enable traders to know the market positions and strategies of their competitors and thus to impair appreciably the competition which exists between traders. It follows that the exchange of information between competitors is liable to be incompatible with the competition rules if it reduces or removes the degree of uncertainty as to the operation of the market in question, with the result that competition between undertakings is restricted. ... Article 81 EC, like the other competition rules of the Treaty, is designed to protect not only the immediate interests of individual competitors or consumers but also to protect the structure of the market and thus competition as such. ... as the Advocate General observed ... while not all parallel conduct of competitors on the market can be traced to RTPE No. 52 of 2006 42 the fact that they have adopted a concerted action with an anti-competitive object, an exchange of information which is capable of removing uncertainties between participants as regards the timing, extent and details of the modifications to be adopted by the undertaking concerned must be regarded as pursuing an anti-competitive object ... It is for the referring court to determine whether, in the dispute in the main proceedings, the information exchanged at the meeting held on 13.06.2001 was capable of removing such uncertainties .... In the light of all the foregoing considerations, the answer to the first question must be that a concerted practice pursues an anti-competitive object for the purpose of Article 81(1) EC where, according to its content and objectives and having regard to its legal and economic context, it is capable in an individual case of resulting in the prevention, restriction or distortion of competition within the common market. It is not necessary for there to be actual prevention, restriction or distortion of competition or a direct link between the concerted practice and consumer prices. An exchange of information between competitors is tainted with an anti-competitive object if the exchange is capable of removing uncertainties concerning the intended conduct of the participating undertakings" (emphasis added).
87. In the aforesaid backdrop, the Commission notes that CMA had also constituted a HPC which held regular meetings. Details of the meetings of CMA HPC meetings held during the period January, 2010 to March, 2011, as reported by the DG, are as under:
S. No Date of Meeting Venue
1. 04.03.2011 Hotel Orchid, Mumbai
2. 24.02.2011 Hotel Orchid ,Mumbai
3. 03.01.2011 Hotel Grand Hyatt, Mumbai
4. 28.06.2010 Hotel Orchid, Mumbai
5. 09.04.2010 Hotel Sonar, Kolkata
6. 08.03.2010 Hotel Orchid, Mumbai
7. 11.01.2010 Hotel Claridges, New Delhi
RTPE No. 52 of 2006 43
88. As noted by the DG in the investigation report, prices in respect of the Opposite Parties increased after the meetings held in January and February 2011.
Prices of top cement companies before & after the High Power Committee meetings of CMA (Rs. Per Bag) S. No. Name of Company December 2010 January 2011 February 2011 (Prior to the (After the (After the meeting meeting) meeting on on 24.02.2011) 03.01.2011)
1. ACC Ltd.
Delhi 225 227 257 Maharashtra 238 245 260 Tamil Nadu 243 244 245 West Bengal 246 255 2812. ACL Ahmedabad 221 225 254 Delhi 226 227 258 Mumbai 254 257 267 Howarh 246 255 283
3. UltraTech Cement Ltd.
Delhi 230 235 265 Mumbai 253 256 265 Cossipore (W.B) 242 252 279 Chennai 254 255 2574. Jaiprakash Associates Ltd.
Delhi 216 228 275 RTPE No. 52 of 2006 44 Lucknow 207 222 2705. Lafarge India Pvt. Ltd.
West Bengal 247 260 281 Bihar 276 289 2986. Century Textiles and Industries Ltd.
Allahabad 202 235 270 Bihar 220 260 2857. The India Cements Ltd.
Pune 240 242 265 Hyderabad 237 235 2508. JK Cement Ambala 237 250 290 Udaipur 197 215 272
9. Madras Cements Ltd.
Tamil Nadu 240 242 252 Kerala 290 295 300 Andhra Pradesh 215 225 24010. Binani Cement L td.
Delhi 221 249 282 Mumbai 249 254 27189. Though the Opposite Parties have not seriously disputed the above facts, a lot was made of the fact that the DG had not looked into the changes in prices after all the other meetings when either the prices had remained the same or had gone down. The plea is misconceived. In an ongoing cartel activity where prices are being kept high over a long period of time, it is not necessary that prices would increase after every meeting. In any cartelised behaviour, the parties to the arrangement may not always coordinate their RTPE No. 52 of 2006 45 actions and periodically their conduct may also reflect a competitive market structure.
90. In this connection, the Commission also takes cognizance of the fact that CMA issues several publications such as 'Executive Summary-Cement Industry' and 'Cement Statistics-Interregional Movement of Cement' which give details of production and dispatch of each company. Such documents are circulated amongst its members. The sharing of such sensitive information makes co-ordination easier amongst the Opposite Parties.
91. The glaring inconsistencies in the submissions of CMA and the other Opposite Parties in regard to participation in the meetings convened by CMA, only further adds link to the concerted practice under the umbrella of CMA. It may be noted that with regard to the meetings of CMA, there were contradictions in the submissions of CMA and the other Opposite Parties. The DG noted that ACC Ltd. and ACL admitted to have attended two meetings of HPC of CMA, even though they had resigned from the membership of CMA. However, CMA and Jaiprakash Associates Ltd. denied the presence of ACC Ltd. and ACL at these meetings. This inconsistency in the replies of the parties indicates that the parties were hiding the truth. Furthermore, the presence of ACC and ACL at the meetings even though they were not official members of CMA also reflects unnatural conduct, raising serious suspicion about the very object of severing their association with CMA. It appears that the same was actuated more to create a façade of compliance than any serious attempt to de-risk themselves from the anti- competitive behaviour of the association. From the reply filed by CMA, the Commission is constrained to note that instead of being forthcoming about the activities conducted by the association, the tenor of the response has been that of denial and evasion. Instead of pointing out what the DG should or ought to have done during investigation, CMA would have sub-served the cause of its members better RTPE No. 52 of 2006 46 by giving details of the activities carried out by them and the discussions held in meetings. It needs to be highlighted that the proceedings before the DG and the Commission are not adversarial in nature and therefore, any omission on the part of the Informant or the DG could not in itself be of any avail to a party under investigation without it making clean of its activities before the DG or the Commission, as the case may be. From the communications placed by CMA itself which it exchanged with the Government Department, it is abundantly clear that sensitive commercial information was available to its members which could greatly facilitate anti-competitive outcomes.
92. To substantiate the above deductions, it would be appropriate to note the statements recorded by the DG and the replies of the Opposite Parties and CMA:
Statement of Shri Jayanta Datta Gupta, Chief Commercial Officer, ACC Ltd.
Q.59: Whether your company or the senior officers of your company has attended any meeting with other cement companies in the recent past.
Ans: I had attended two meetings in the recent post one on 24.02.2011 and the other on 04.03.2011 in Mumbai on specific invitation to discuss our initiatives with CII on concrete road and post budget excise complexity. In these meetings, representatives of other cement companies were also present.
Statement of Shri B.L. Taparia, Company Secretary, ACL Q.49: Whether any of your officers has attended any meeting of cement industry and where?
Ans: On 24.02.2011, we mode a representation for stimulating demand for cement through concrete roads and on 04.03.2011, we RTPE No. 52 of 2006 47 requested for understanding the changes in excise law in Union budget. Both the meetings took place at Hotel Orchid in Mumbai.
Q.50: Who were the other participants in the above mentioned meetings?
Ans: We did not attend the entire meeting. Our discussions took place with representatives of UltraTech, JK Lakshmi Cement, ACC and Shree cement.
Reply of Cement Manufacturing Association dated 12.01.2012 The Answering Respondent denies that ACC and ACL have attended the meetings of CMA on 24.02.2011 and 04.03.2011 as alleged or otherwise. It is submitted that no invitations was sent to the said companies. The records of the meeting also disclose that none of the representatives/officers of either ACC or ACL had attended the meetings on 24.02.2011 and 04.03.2011 as alleged or otherwise. It is submitted that ACC and ACL ceased to be members of the Answering Respondent they have not attended any High Power Committee meeting of Answering Resident as alleged or otherwise.
With reference to para 6.18.9, it is submitted that the allegations and inferences drawn by the DG are wrong and contrary to records. After ACC and ACL ceased to be members of the Answering Respondent they have not attended any High Power Committee meeting of Answering Respondent as alleged or otherwise.
Reply of ACC Ltd. dated 11.01.2012 During the course of the DG's investigation, Mr. Jayanta Dattagupta, on behalf of ACC stated that he had attended two meetings of the CMA (i.e., on 24.02.2011 and 04.03.2011.) As stated during the summons hearing, the purpose of discussion of the meeting on 24.02.2011 was to discuss the' issues relating RTPE No. 52 of 2006 48 demand through promoting concrete roads and the meeting on 04.03.2011 was to discuss and understand the complexities relating to application of excise duties that would result post the Union budget. After discussions on the above mentioned topics, Mr. Jayanta Dattagupta left the meeting.
Reply of ACL dated 14.02.2012 During the course of the DG's investigation, Mr. B.L. Taparia, on behalf of ACL stated that ACL had made a representation ahead of two meetings of the high powered committee of the CMA, i.e., on 24.02.2011 and 04.03.2011. As stated during the summons hearing, the purpose of discussion of the representation on 24.02.2011 was to discuss the issues relating to stimulation of demand through promoting concrete roads and on 04.03.2011 was to discuss and understand the complexities in relation to application of excise duties that would result post the Union budget. In this behalf, it is important to note that ACL did not attend the entire duration of the meetings.
93. In its reply, while rebutting the findings of the DG, Jaiprakash Associates Ltd. had stated that ACC Ltd. and ACL did not participate in these meetings and therefore, the report of the DG was unreliable. The reply is noted below:
Reply of Jaiprakash Associates Ltd. dated 14.02.2012 The DG in the Report has reached a finding that ACC and ACL have withdrawn themselves from the membership of CMA, however, they have still attended the meetings that took place on 24.02.2011 and 04.03.2011..It is humbly submitted that this fact is not reflected in the minutes of the aforesaid meetings where the presence of all the members of CMA is marked who have attended it. It is submitted with utmost respect that the DG is misleading the RTPE No. 52 of 2006 49 Hon'ble Commission by making such statements in its report without having any evidence to prove the same. As stated above, this clearly demonstrates the DG's attempt to reach his pre-
determined conclusion that the cement manufactures have cartelized even though the DG has been not been able to collect any information to prove his baseless allegations.
Further the DG in its report has reproduced portions of the statements by ACC Ltd. where Mr. Jayanta Datta mentions the fact that he had attended meetings on 24.02.2011 and 04.03.2011 in Mumbai on a specific invitation for discussing the initiatives with CII on concrete road and post budget excise complexity. It is critical to mention here that Mr. Datta has not stated that he ever attended the High Powered Committee Meeting and the DG has very conveniently presumed that the officials of ACC attended the High Powered Committee Meetings to reach his flawed and erroneous conclusions.
Further the DG in its report has referred to the reply submitted by ACL dated 19.04.2011 which contains information relating to the meetings attended by ACL where other cement manufactures were also present and 23 occasions where ACL interacted with other cement manufactures. On a mere perusal of the information submitted, it becomes apparent that ACL has not attended any of the said High Power Committee Meetings and instead attended meetings with Government officials, Clinker Sale or steel manufactures where other cement manufactures have been present. This shows the complete non application of mind by the DG and only making bald allegations to suggest that ACL is still attending the meetings of CMA.
JAL humbly submits that the DG's analysis that ACC and ACL are still attending the High Powered Committee Meetings of CMA is wrong and hence denied and the minutes of the various meetings RTPE No. 52 of 2006 50 that have been submitted by the CMA before the office of the DG are proof of the same.
JAL humbly submits that keeping in view the aforementioned reasons it becomes palpably clear that CMA does not provide a common platform for discussing the information relating to prices to its members.
94. Thus, it is evident that the Opposite Parties have been inconsistent in their response in relation to the issue of interaction by the cement companies under the platform of CMA. The fact that prices had increased after the HPC meetings held in January and February, 2011 further establishes that they co-ordinated their decisions and fixed prices after due consultations.
95. In this connection, it is also useful to refer to the minutes of the meetings of CMA from the records of the DG. These minutes reveal that the cement companies were discussing prices of cement using the platform of CMA.
Minutes of the 84th Meeting of the Managing Committee of Cement Manufacturers' Association held on 15.03.2007 in Mumbai
06. The post-budget 2007-08 ten days were hectic since the President of CMA along with captains of the industry had meetings with Hon'ble Shri P. Chidambaram, Union Finance Minister and Hon'ble Shri Kornai Nath, Union Minister of Commerce and Industry as also Dr. Ajay Dua, Secretary (IPP), MOCI and others. During the discussion there has been pressure from government to reduce cement prices and avail of the excise duty concession. All attempts have been made to establish that pre-budget ruling cement prices (Feb 07) have been lower than the inflation adjusted prices prevailing in 1995 (April 95)-lower by Rs 12 to Rs 48 per bag. All members would reiterate that RTPE No. 52 of 2006 51 improvement in the GDP has improved in all sectors of economy and cement is no exception. However, Cement industry has been ploughing back the profits in creation of additional capacities, which is the need of hour. The cement industry is producing at the optimal level of more than 95% and to meet the growing demand for cement in the XI Plan period (2007-08 to 2011-12), the cement companies have planned for addition of adequate capacity, which would require huge investment. Forced Price Reduction resulting in reduction on margin would adversely affect capacity materialization in time.
(emphasis applied) Minutes of the 92nd Meeting of the Managing Committee of Cement Manufacturers' Association held on 26.03.2009 in New Delhi 7 (a) Supply of Cement in the State of Uttar Pradesh Secretary General, CMA mentioned that Secretary (DIPP) had called a Meeting of Chief Executives of Cement Companies supplying cement in the State of UP and also CMA on 16.03.2009, to discuss the complaint by the UP Govt. Departments, wherein Secretary (DIPP) insisted that the prices be brought down to reasonable levels within 4 weeks' time, failing which he would be obliged to resort to recommending. withdrawal of CVD and SAD on Cement Imports and also reintroduction of Ban on Cement Exports.
Shri Rahul Kumar, COO (Cement), Jaiprakash Associates Ltd. informed Secretary (DIPP) that while the growth of cement supplies during the period April-Oct '08 was only 2.6% over the corresponding period of the previous year, the sudden spurt in demand during Nov.08 to Jan 09 was 24%.
Shri Rahul Kumar, further apprised CMA after attending the Meeting taken by Chief Secretary, Govt. of UP in Lucknow on RTPE No. 52 of 2006 52 17.03.2009 where the cement manufacturing cement to UP were also resent and on behalf of Jaypee Cement that it was agreed by Jaypee to supply cement to the Govt. Departments during the month of March 2009 at the rate of Rs 245/-per bag. The UP Govt. was satisfied and orders were being placed for supply of cement. The other suppliers also similar(ly) responded by offering similar special rates for Govt. supplies and assuring to meet the requirements.
(emphasis applied)
96. Further, not only that CMA was collecting data relating to prices, even company-wise and factory-wise data regarding capacity, production, dispatches and exports etc. was also being collected and furnished by CMA not only to the Ministry of Commerce and Industry but also to the cement companies. This is evident from the minutes of Managing Committee of CMA held on 18.12.2008 at Mumbai.
Managing Committee of CMA held on 18.12.2008 in Mumbai 3.5 Further Company-wise, Factory-wise data regarding capacity, production, dispatches, exports etc. are being collected and regularly furnished by CMA to Ministry of Commerce and Industry and also circulated to Cement Companies.
(emphasis applied)
97. From minutes of the Meeting of CMA HPC held on 04.03.2011 in Mumbai, it is apparent that CMA provides a platform to the members for evaluation and determination of impact of incidence of tax on cost:
"2.1 President referred to the detailed Agenda Note on the subject. She referred to the plus points in the Budget 2011-12 such as GDP Growth, enhancement in the provision under Rural Housing Fund etc. While this will help the Cement Industry, there are certain proposals in the Budget that will have adverse impact such as RTPE No. 52 of 2006 53 increase in Minimum Alternative Tax (MAT), Excise duty on RMC without CANVET Credit. Change of Excise Duty Rates on Cement and Cement Clinker from specific to ad valorem plus fixed (composite rate)- which would further add to the cost of Cement was also considered.
2.2 As regards the new excise duty rates on cement, it was mentioned that some of the cement companies in their own capacity have already referred for/ obtained legal opinion of Experts on various aspects of its applications. Shri H.M. Bangur, Shree Cement Ltd., stated that it is advisable to obtain a legal opinion on applicability of excise duty in different situations by CMA and circulate it to members.
2.3 President requested Shri O.P. Puranmalka, UltraTech Cement Ltd. and Shri S. Chouskey, J K Lakshmi Cement Ltd. to forward to CMA the issues they have formulated in this regard for obtaining clear cut legal opinion. CMA may kindly consolidate the two and frame the issues.
2.4 Clarification/ opinion may also be sought on treatment of Excise Duty on Clinker transferred by Mother Unit to its Grinding Unit -- where Grinding Unit enjoys exemption from the Duty of Excise but the Mother Unit is not exempt from Excise. In such a case whether duty shall he payable by the Mother Unit on Clinker transferred to its other Unit for Grinding and in case such duty is payable then on what value the duty is to be calculated and paid as there is no Sale/ Transaction by the Mother Unit.
2.5 It was decided that CMA should obtain legal opinion of Expert in the light of the discussions held and circulate the some to members.
(emphasis applied) RTPE No. 52 of 2006 54
98. In view of the above discussion, the Commission has no hesitation in holding that the cement companies were interacting with each other at the platform of CMA, sharing information about cost, prices, production and capacities and such interactions facilitated discussions amongst members on determination of prices and production.
99. So far as collection of prices of cement companies from all over India is concerned, as noted in the earlier part of the order, the Minutes of the 95th Meeting of Managing Committee of CMA held on 30.11.2009 in New Delhi are quite pertinent to note:
10.1 Weekly Retail Cement Prices to DIPP 10.1.2 President informed the meeting that CMA has been furnishing weekly Retail Cement Prices to DIPP every Wednesday for the period pertaining to the previous week. The information so furnished gives only the range of prices prevailing in each of the markets (Minimum and Maximum) for the relevant period. CMA, traditionally, has been collecting this information from representatives of certain Cement Companies.
10.1.3 In addition, CMA has also been required to furnish Wholesale Prices to Economic Adviser, Ministry of Commerce and Industry as on the last working day of each month by the 10th of the following month. For this, the companies have been designated by DIPP itself after a meeting of Cement Companies and CMA in Feb.2009. This is the information, which is used by DIPP for working out Wholesale Price Index (WPI).
10.1.4 President further informed that in view of the recent developments, the Stations covered by ACC Ltd. and Ambuja Cements Ltd. would have to be served by some other representatives of the Cement Companies who have a presence in each one of these places.RTPE No. 52 of 2006 55
10.1.5 President requested Members to come forward and voluntarily take this up on a regular basis so that a system and procedure is put in place for collection of this information. The concerned Companies were also requested to send the names of their Nominated representatives to CMA, with their contact numbers, e-mail details, etc. 10.1.6 The following cement companies agreed to furnish range of the Wholesale and Retail cement prices details for the cities mentioned against their names.
Co./Station Retail Cement Price Wholesale price Grasim Inds. Ltd.
Chandigarh Retail Cement Price
Ludhiana -do-
Jammu -do-
Simla -do-
UltraTech Cement Ltd.
Mumbai Retail Cement Price (Already being given
by Grasim Inds. Ltd.)
Ahmedabad -do- Wholesale Price
Nagpur -do-
Pune -do-
Rajkot -do-
Baroda -do-
Surat -do-
India Cements Ltd.
Goa Retail Cement Price
10.1.7 As regards the following stations, it was decided that Jaiprakash Associates Ltd. may furnish the information for Retail Cement Price and also Wholesale Cement Price.
RTPE No. 52 of 2006 56 Faizabad Retail Cement Price
Bhopal -do- Wholesale Price
10.1.8 It was also decided that other Members may also contribute in the exercise for collecting the prices giving maximum and minimum range in whichever market they are comfortable for supplying the price details.
100. Furthermore, in a meeting with Under Secretary, DIPP on 04.02.2009, a decision was taken that information on wholesale prices in each region would be provided by the cement company earmarked for the regions to CMA as on the last day of the month by the 10th of the following month for 10 centers as under:
Region Centers Cos./Unit to provide information on wholesale price as on the last day of the month North Delhi Shree Cement Jaipur Lakshmi Cement East Kolkata Century Cement Bhubneshwar Orissa Cements Ltd South Chennai Madras Cements Hyderabad India Cement West Mumbai Grasim/ Rajashree Cements Ahmedabad Gujarat Ambuja Cement Central Bhopal ACC Lucknow Birla Corporation, Satna
101. It is also seen that with regard to collection of retail prices, CMA itself nominates (and not the Government) companies for collection from different centres, as is evident from the aforesaid minutes of the 95th RTPE No. 52 of 2006 57 meeting of the Managing Committee of CMA held on 30.11.2009 in New Delhi. The Commission notes that this presents clear opportunities for the companies to share commercially sensitive information because the prices are collected over phone and emails. Further, certain rules of CMA which were inconsistent with the provisions of the Act remained in the rule book of CMA till a notice of inquiry was received from the Commission. The amendments in such rules were discussed in the meeting of CMA held on 30.11.2009 and it was considered that in order to be clear of any charges of anti-competitive conduct, amendments in certain rules may be carried out.
However, it may be noted that amendments were not given effect till notice dated 20.08.2010 was issued to CMA under Section 41 (2) of the Act from the Office of the DG. Pursuant to receipt of notice from the Office of DG, an Extra-Ordinary General Meeting of the Association was called on 23.09.2010 in which it was decided to effect the changes in the rules as recommended by the Managing Committee in November, 2009. The existing provisions and the amendments carried out in the rules and regulations are as under:
Rule No. Existing provisions Amendment as per December 2010 Memorandum of Association and Rules 3 (b) To increase co-operation and Deleted unanimity amongst cement producers.
3(d) To collect and disseminate Addition: "and General statistical and technical Public" after the word information in respect of "Association."
cement trade and industry and other industries to the members of the Association.
3(f) To make representation to Substituted clause:
RTPE No. 52 of 2006 58Rule No. Existing provisions Amendment as per December 2010 Memorandum of Association and Rules local and central authorities "To make representation to the on any matter connected with Local and Central Authorities the trade, commerce and on Industry specific issues manufactures of its members. prevalent from time to time." 3(g) To take steps in the settlement Deleted of disputes arising out of commercial transactions between parties.
3(j) For all or any of the purpose Deleted aforesaid or in the interest of all concerned, to assist individual members to commence, continue, defend or refer to arbitration any action, suit of other proceedings whatsoever in any Court of justice or before any other tribunal, authority or person whatever.
2(b) Addition of new clause in Membership in the association Rules and Regulations. shall be recognized as implying that the member is absolutely free to conduct his business exactly as he pleases in every respect and particular.
102. In view of the above discussion, it is evident that the platform of CMA was used by the cement companies for resorting to anti-competitive conduct and RTPE No. 52 of 2006 59 not for merely protecting the legitimate interests of its members. It is noted that there are evidences, as discussed above, which are indicative of the existence of an agreement, arrangement and understanding among the Opposite Parties using the platform of CMA for sharing of information, as well as communication as regards pricing and production among the competing cement companies. These evidences provide strong evidence of coordinated behaviour and existence of anti-competitive agreement amongst the Opposite Parties.
Economic Evidence
103. The Commission observes that in addition to the communicative evidence noted above which is reflective of anti-competitive conduct resorted to by the Opposite Parties, the Commission has also evaluated the economic evidence to ascertain as to whether the Opposite Parties were acting unilaterally in accordance with the normal market forces or under an agreement to collude and co-ordinate their behaviour.
104. The Commission finds it necessary to first assess whether there are structural factors that exist which help facilitate collusion among the Opposite Parties. Thus, it is necessary to analyse the structure of the market before moving to analyse the economic factors.
105. The DG in his report has brought out that there are 49 companies operating with more than 173 large cement plants in India. The Commission notes that, as highlighted earlier, in the cement industry, no single player is dominant and 12 companies control about 75% of the cement market in terms of production capacity. As regards available capacity, the data of CMA for the year 2010 reveals that there were 47 cement companies having 142 plants and installed capacity of 97% of total capacity. The DG has reported that 21 companies control about 90% of the market share in terms of capacity.
RTPE No. 52 of 2006 60106. Based on the analysis in the preceding paragraph, the Commission notes that only a few firms have a pan-India presence with plants located all over the country and remaining firms operate on regional basis. Given that a few large players control majority of the market, the Commission holds that the cement market in India is oligopolistic in nature.
107. In this connection, the Commission also deems it appropriate to deal with the plea of the Opposite Parties that the DG has not delineated the relevant market with respect to which the alleged contravention has been established. There is no requirement under the provisions of Section 3 of the Act read with Section 19(3) thereof to determine and construct a relevant market, although the determination of relevant market for examining the contraventions under the provisions of Section 4 of the Act is prerequisite. Section 3 is concerned with the effect of anti-competitive agreements on markets in India. There is a distinction between 'market' as in Section 3 and 'relevant market' as defined in Section 4 of the Act. There is no need of determination of relevant product market or relevant geographic market for the purposes of establishing any anti-competitive agreement.
108. No doubt in a market which is oligopolistic in nature, it is more than likely that each market player is aware of the actions of the others and influences the others' decisions. Interdependence between firms is an important characteristic 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 its decisions particularly as regards prices. Interdependence between firms may lead to collusion (implicit as well as explicit). However, 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 the demand-supply conditions.
RTPE No. 52 of 2006 61109. In the present structure of the cement market, apart from the ready availability of the platform provided by the CMA to share prices and output, the DG has given his findings on various parameters to establish the presence of collusion and cartelisation amongst the firms. The same are: (i) existence of price parallelism amongst the Opposite Parties involved in the case, (ii) price determination, (iii) low levels of capacity utilisation and reduced rate of growth in production, (iv) existence of production and dispatch parallelism, and (v) super-normal profits earned by the Opposite Parties.
110. The Commission has analysed the aforesaid findings of the DG in light of the submissions of the parties and evaluated the same on the basis of materials on record.
Price parallelism
111. The DG conducted a correlation analysis of the cement prices of all the companies in different States to examine the degree of price parallelism. Correlation analysis is a statistical tool to ascertain the degree of linear association between two variables. The coefficient of correlation ranges between -1 and +1 and provides the direction and strength of the linear association between the two variables. The correlation between two variables can be positive or negative. A coefficient value of 1 represents a perfect positive correlation and a coefficient value closer to 1 represents a high degree of positive correlation between the variables. For instance, a correlation value of 0.9 represents a high degree of positive linear association between the variables vis-a-vis a correlation value of 0.4 which represents a weak positive linear association between the variables. Given below are the tables of correlation analysis conducted by the DG in respect of absolute prices of cement companies in different States for the overall time period between January, 2008 to February, 2011.
RTPE No. 52 of 2006 62Correlation Coefficient Matrix (Absolute Prices) Uttar Pradesh ACC ACL Shree Century UTCL JP India C JK Birla ACC 1 ACL 0.912879 1 Shree 0.887711 0.949671 1 Century 0.971348 0.884849 0.914251 1 UTCL 0.793003 0.832613 0.760742 0.741339 1 JP 0.845788 0.925053 0.945671 0.85369 0.82682 1 India 0.773319 0.824163 0.871433 0.791469 0.66916 0.850831 1 Cement JK 0.971171 0.943648 0.920477 0.9511 0.804604 0.90502 0.797981 1 Birla 0.960714 0.856287 0.88308 0.984963 0.757948 0.831577 0.761198 0.932374 1 Haryana ACC ACL Shree UTCL JP India c JK Birla ACC 1 ACL 0.960768 1 Shree 0.907272 0.958479 1 UTCL 0.945853 0.975601 0.938609 1 JP 0.933102 0.961189 0.944037 0.924325 1 India C 0.887939 0.936759 0.923587 0.909569 0.944077 1 JK 0.885348 0.919743 0.897118 0.911937 0.874799 0.852046 1 Birla 0.890205 0.921076 0.946632 0.886668 0.906738 0.861746 0.865683 1 RTPE No. 52 of 2006 63 Bihar India C JP Birla Lafarge India C 1 JP 0.792783 1 Birla 0.749723 0.93123 1 Lafarge 0.860328 0.852125 0.80026 1 Delhi ACC ACL Shree UTCL India C Birla ACC 1 ACL 0.977984 1 Shree 0.913046 0.901211 1 UTCL 0.883099 0.887902 0.826966 1 India 0.829278 0.804768 0.930655 0.716964 1 Cement Birla 0.911061 0.884534 0.867349 0.715982 0.801589 1 Punjab ACC ACL Shree UTCL JP India C ACC 1 ACL 0.966156 1 Shree 0.93429 0.968923 1 UTCL 0.971017 0.991426 0.951263 1 JP 0.769903 0.814648 0.833246 0.783957 1 India C 0.876276 0.908326 0.927362 0.900343 0.765996 1 Chandigarh ACC ACL Shree India C JK ACC 1 ACL 0.958859 1 Shree 0.966345 0.924327 1 India C 0.915417 0.875399 0.93283 1 JK 0.916699 0.845631 0.877482 0.829813 1 RTPE No. 52 of 2006 64 Rajasthan ACC ACL Shree UTCL India c JK Birla ACC 1 ACL 0.720995 1 Shree 0.675365 0.934529 1 UTCL 0.729528 0.982991 0.895475 1 India C 0.686274 0.92631 0.919718 0.883049 1 JK 0.752857 0.919831 0.825251 0.941018 0.807251 1 Birla 0.66443 0.898871 0.958862 0.837687 0.901974 0.80703 1 Gujarat India c JK Birla ACL India 1 C JK 0.472913 1 Birla 0.680905 0.81913 1 ACL 0.681065 0.861186 0.812779 1 Maharashtra ACC ACL Century India C ACC 1 ACL 0.568086 1 Century 0.792225 0.574761 1 India C 0.526125 0.502294 0.708049 1 RTPE No. 52 of 2006 65 West Bengal ACC ACL Century JP India C Birla UTCL Lafarge ACC 1 ACL 0.98431 1 Century 0.961657 0.961945 1 JP 0.960755 0.958235 0.950428 1 India C 0.898394 0.902056 0.888901 0.890607 1 Birla 0.8389 0.83757 0.854225 0.860972 0.887083 1 UTCL 0.942044 0.964485 0.944394 0.916694 0.821825 0.797429 1 Lafarge 0.972615 0.988729 0.971237 0.950146 0.899963 0.83947 0.960929 1 Assam ACC Century India C ACC 1 Century 0.567726 1 India C 0.40383 0.445605 1 Orissa ACC ACL Century India C UTCL Lafarge ACC 1 ACL 0.983731 1 Century 0.961498 0.933139 1 India C 0.916653 0.911202 0.83018 1 UTCL 0.978123 0.971407 0.930394 0.918547 1 Lafarge 0.959458 0.955127 0.946251 0.879158 0.958367 1 Madhya Pradesh ACC ACL Century UTCL JP India C JK Birla ACC 1 ACL 0.661583 1 Century 0.71322 0.830941 1 UTCL 0.745851 0.965754 0.879976 1 JP 0.803028 0.769198 0.954389 0.847271 1 India C 0.701555 0.835128 0.733503 0.868578 0.746644 1 JK 0.667962 0.877043 0.889456 0.920343 0.855561 0.764143 1 Birla 0.771339 0.959653 0.88366 0.968033 0.840428 0.874248 0.862696 1 RTPE No. 52 of 2006 66 Andhra Pradesh Kesoram Rain ACL UTCL GIL India C ACC Kesoram 1 Rain 0.964316 1 ACL 0.989023 0.954636 1 UTCL 0.983491 0.92902 0.965239 1 GIL 0.980667 0.928726 0.964329 0.992554 1 India C 0.957398 0.941362 0.941607 0.94331 0.936523 1 ACC 0.960398 0.93021 0.957844 0.952676 0.94826 0.970058 1 Kerala Madras India C ACL Dalmia Madras 1 India C 0.91871 1 ACL 0.580648 0.730303 1 Dalmia 0.98221 0.911184 0.593414 1
112. The Commission notes that the price correlation analysis clearly indicates that there was strong positive correlation in the prices of most of the companies in a given State.
113. Some of the Opposite Parties contended that there was no clarity on the source of the data used by the DG for the price correlation analysis. To address this grievance of the Opposite Parties, the Commission independently conducted the State-wise correlation analysis for the time period January 2007 to February 2011 using the data submitted by the Opposite Parties to the DG. It needs to be highlighted that the Commission has used data for the same/ common city as a representative of the price at the State level for each company wherever such data was available. In all other cases, a representative city has been used to reflect the prices at the State level for a company. The correlation tables are as follows:
RTPE No. 52 of 2006 67Uttar Pradesh Ambuja ACC Binani India JP Lafarge Shree UltraTech JK Century Cement Cements Ambuja 1 0.886957 0.742997 0.78657 0.876515 0.415287 0.892705 0.970436 0.827143 0.829469 ACC 1 0.809351 0.96 0.785399 0.575659 0.831658 0.899049 0.883745 0.962488 Binani 1 0.931149 0.670278 0.69289 0.790376 0.797924 0.773343 0.876001 India 1 0.734245 0.709956 0.811339 0.812482 0.890838 0.967404 Cement JP 1 0.389226 0.879717 0.863074 0.714967 0.746718 Lafarge 1 0.462721 0.465657 0.511541 0.619015 Shree 1 0.90126 0.724019 0.806598 Cements UltraTech 1 0.86999 0.865425 JK 1 0.877526 Century 1 Haryana Ambuja ACC Binani India Cement JP Shree UltraTech JK Cement Ambuja 1 0.984879 0.880679 0.940914 0.886211 0.897139 0 975424 0.832862 ACC 1 0.870422 0.948979 0.857526 0.888353 0 982774 0.84911 Binani 1 0.922877 0.738429 0.832999 0.891475 0.78395 India Cement 1 0.891056 0.973443 0 974776 0.878451 Jaypee 1 0.900245 0.891689 0.664131 Shree Cement 1 0 9299 0.747534 UltraTech 1 0.842046 JK 1 Bihar ACC Century India JP Lafarge UltraTech Cements Cement ACC 1 0 901879 0 9527 0.878136 0 992589 0 993179 Century 1 0 924426 0 923155 0.872923 0 911128 Cements India Cement 1 0 935777 0.94202 0 953171 JP 1 0.851875 0 904957 Lafarge 1 0 988469 UltraTech 1 RTPE No. 52 of 2006 68 Delhi Ambuja ACC Binani India Shree UltraTech Cement cement Ambuja 1 0.961835 0.778749 0.924191 0.921828 0.989318 ACC 1 0.794868 0.911475 0.922189 0.95885 Binani 1 0.884526 0.65019 0.759632 India 1 0.902763 0.901372 Cement Shree 1 0.932439 cement UltraTech 1 Punjab Ambuja ACC India Binani Jaypee Shree Ultratech Cement Cement Ambuja 1 0.756567 0.969697 0.495018 -0.13792 0.759692 0.816574 ACC 1 0.968065 0 904388 0.693119 0.959698 0 994775 India 1 0 921891 0.723371 0.964661 0 971225 Cement Binani 1 0.555377 0.869512 0.885214 Jaypee 1 0.688179 0.656855 Shree 1 0 965574 Cement Ultratech 1 Chandigarh Ambuja ACC Binani India Cement Shree JK Cement Ambuja 1 0.929603 0.866727 0.864409 0.878397 0.816656 ACC 1 0.912736 0 984077 0.962971 0.883676 Binani 1 0 918484 0.865459 0.770697 India Cement 1 0.964935 0.848946 Shree Cement 1 0.864451 JK 1 RTPE No. 52 of 2006 69 Rajasthan Ambuja ACC Binani India JP Shree UltraTech JK Cement cement Ambuja 1 0.946477 0.909149 0.961229 0.75 0.93919 0 996327 0.920668 ACC 1 0.948747 0.974784 0.806 0.909657 0 941855 0.895925 Binani 1 0.960061 0.621 0.793517 0 908306 0.917156 India 1 0.946 0.957546 0 961767 0.923024 Cement JP 1 0.920616 0.76761 0.729203 Shree 1 0 933352 0.817127 cement UltraTech 1 0.920446 JK 1 Gujarat Ambuja Binani India Cement JP UltraTech JK Ambuja 1 0.942519 0.942195 0.883019 0.965961 0.877678 Binani 1 0.937007 0.717918 0.887299 0.855489 India Cement 1 0.847954 0.955335 0.894721 JP 1 0.911771 0.79303 UltraTech 1 0.909111 JK 1 Maharashtra Ambuja ACC Binani Century India JP Lafarge UltraTech Cement Cement Ambuja 1 0.77393 0.589279 0.541664 0.274698 0.71833 0.903766 0.962451 ACC 1 0.824584 0.900993 0.650477 0.462644 0.906081 0.859519 Binani 1 0.801032 0.77927 0.5079 0.621541 0.79903 Century 1 0.74513 0.504144 0.856775 0.702968 Cement India 1 0.545164 0.597774 Cement JP 1 0.58023 Lafarge 1 0.944888 UltraTech 1 RTPE No. 52 of 2006 70 West Bengal Ambuja ACC Binani Century India JP Lafarge UltraTech Cement Cement Ambuja 1 0.991542 0.711824 0.976663 0.926271 0.969433 0.980888 0.991849 ACC 1 0.748537 0.986262 0.935604 0.971306 0.987822 0.993071 Binani 1 0.818865 0.810411 0.77674 0.805903 0.715172 Century 1 0.962814 0.97505 0.986592 0.986614 Cement India 1 0.931415 0.944666 0.933695 Cement JP 1 0.96258 0.971557 Lafarge 1 0.990975 UltraTech 1 Assam Century ACC India Century 1 0.578363 0.779326 ACC 1 0.786054 India 1 Orissa ACC Century Lafarge UltraTech ACL India Cement ACC 1 0.965536 0.959422 0.99012 0.986001 0.987283 Century 1 0.968058 0.950721 0.948281 0.965307 Cement Lafarge 1 0.962326 0.947111 0.969315 UltraTech 1 0.984442 0.988197 ACL 1 0.972955 India 1 RTPE No. 52 of 2006 71 Madhya Pradesh Ambuja ACC India Cement Jaypee Lafarge JK Century UltraTech Ambuja 1 0.9192 0.902774934 0.844417 0.821668 0.808799 0.845411 0.953269 ACC 1 0.963536024 0.9277 0.904402 0.817487 0.91702 0.9554 India 1 0.937282 0.921358 0.832018 0.966569 0.92972 Cement Jaypee 1 0.861298 0.761112 0.913302 0.925954 Lafarge 1 0.697569 0.900686 0.873844 JK 1 0.790637 0.857012 Century 1 0.900679 UltraTech 1 Andhra Pradesh Ambuja ACC India Cement Madras Ultra Tech Cement Ambuja 1 0.981133 0.961758 0.935238 0.978572 ACC 1 0.963557 0.932271 0.955592 India Cement 1 0.975201 0.954814 Madras cement 1 0.936492 Ultra Tech 1 Kerala Ambuja ACC India Cement UltraTech Madras Cement Ambuja 1 0.986367 0.982109127 0.979021662 0.940332298 ACC 1 0.93419353 0 98201935 0.937994673 India Cement 1 0.948818761 0.943774429 UltraTech 1 0.947901111 Madras Cement 1 RTPE No. 52 of 2006 72 Karnataka ACC India Madras Ultra Tech JK Cement Cement ACC 1 0.866906 0.87188 0.966436 0.873938 India 1 0 9112 0.92711 0.656687 Cement Madras 1 0.93557 0.884338 Cement Ultra Tech 1 0.903115 JK 1 Tamil Nadu ACC India Cement Madras Cement Ultra Tech ACC 1 0.918569 0.948804 0.935535 India Cement 1 0.942679 0.966881 Madras Cement 1 0.936294 Ultra Tech 1 H.P. Ambuja ACC India JP Cement Ambuja 1 0.944737 0.990734 0.932534 ACC 1 0.935161 0.909206 India Cement 1 -0.98783 JP 1 J&K Ambuja ACC Binani India Cement JP Ambuja 1 0.389465 0.549966 0.413638 0.711925 ACC 1 0.740351 0.749229 0.752253 Binani 1 0.938026 0.732804 India Cement 1 0.522114 JP 1 RTPE No. 52 of 2006 73 Uttarakhand Ambuja ACC JP Lafarge Shree UltraTech JK Century Binani Cement Ambuja 1 0.800023 0.764485 0.736265 0.722674 0.790283 0.287792 0.690756 0.568837 ACC 1 0.917415 0.860448 0.89891 0.972789 0.50619 0.891444 0.81212 JP 1 0.752304 0.904101 0.929457 0.476644 0.774655 0.721037 Lafarge 1 0.748042 0.899716 0.351377 0.680182 0.486436 Shree 1 0.889792 0.554966 0.810749 0.734309 Cement UltraTech 1 0.510307 0.826474 0.729994 JK 1 0 587305 0.440358 Century 1 0.883669 Binani 1 Chhattisgarh Ambuja ACC Century Lafarge UltraTech Ambuja 1 0.990759 0.968025 0.961658 0.986646 ACC 1 0.965597 0.968137 0.986837 Century 1 0.949203 0.966331 Lafarge 1 0.97291 UltraTech 1 Jharkhand Ambuja ACC Century JP UltraTech Cements Ambuja 1 0.990992 0.971712 0.830825 0.990356 ACC 1 0.958193 0.901155 0.986273 Century 1 0.821049 0.982437 Cements JP 1 0.838153 UltraTech 1 RTPE No. 52 of 2006 74
114. From the tables above, it is evident that in several cases the pairwise price correlation has been found to be greater than 0.9 indicating a high degree of positive correlation in prices. In many States such as Delhi, Orissa, Andhra Pradesh, Kerala, H.P., Bihar, Tamil Nadu and Chhattisgarh, most of the correlation values in the correlation matrices were found to be more than 0.9. Thus, the results from the correlation analysis done by the Commission using the data submitted by the Opposite Parties themselves also provide strong price correlation between the parties in different States as was also evident from the State-wise price correlation analysis done by the DG.
115. For assessing price parallelism, the Opposite Parties have argued for use of R2 instead of r, i.e., use of regression instead of correlation. In this regard, it may be observed that statistical tools are only to put a number to the understanding of price parallelism. It is important to point out that R2 measures the explanatory power of an independent variable over a dependent variable. R2 in this context would mean how much change in price of cement of one manufacturer is explained by change in price of cement by another manufacturer, which is not the subject matter of inquiry. What is being verified is whether the price of cement of the Opposite Parties moved in tandem. This is best explained by correlation, which explains the nature and strength of relation and not a cause and effect relationship.
116. The Opposite Parties have further argued that use of correlation of percentage change in prices is more appropriate than correlation of absolute prices. There are a number of possibilities. For instance, one can argue for correlation of absolute prices, correlation of absolute change in prices, correlation of percentage change in prices, correlation of log natural of change in prices etc. The Commission is of the view that such a hair splitting may be of no help, particularly when this does not change the finding of price parallelism. It could have had some bearing if the price parallelism was observed at the margin, say if the correlation was +/- 0.3 or RTPE No. 52 of 2006 75 so. Without getting into the merits of each of the options, it is sufficient to state that the cartel participants do not necessarily change prices in the same ratio, nor do they effect changes on the same day. The same absolute change in prices by two different producers having two different prices before the change would yield two different percentage change in prices and is likely to distort the correlation slightly. Thus, correlation of absolute prices is a sufficient indicator to establish price parallelism.
117. Moreover, the Commission feels that one does not need to use high level econometrics or statistical tools to observe price parallelism. For a visual appreciation, the monthly prices of cement of the Opposite Parties (as used in the correlation analysis) in 22 States for the period January 2007 to February 2011 have been plotted. The State-wise price trend graphs, as incorporated in Annexure-I to this order, depict that the State-wise prices of the Opposite Parties have moved in tandem during the relevant period.
118. As regards specific parallel movements, the following table illustrates that in February 2011 the median percentage increase in cement prices by the Opposite Parties in the States of UP, Haryana, Delhi, Punjab, Chandigarh, Rajasthan, Gujarat, West Bengal, Odisha, Madhya Pradesh and Uttarakhand was around 13%.
UP Haryana Delhi Punjab Chandigarh Rajasthan Gujarat West Odisha Madhya Uttarakhand
Bengal Pradesh
% % % % % change % change % % change % % % change in
change change change change in Price in Price change in Price change change Price (Feb
in Price in Price in Price in Price (Feb 2011 (Feb 2011 in Price (Feb 2011 in in Price 2011 over
(Feb (Feb (Feb (Feb over Jan over Jan (Feb over Jan Price (Feb Jan 2011 )
2011 2011 2011 2011 2011 ) 2011 ) 2011 2011 ) (Feb 2011
over over Jan over over over 2011 over
Jan 2011 ) Jan Jan Jan over Jan
2011 ) 2011 ) 2011 ) 2011 ) Jan 2011 )
2011 )
Ambuja 15.42 13.45 13.66 -5.58 11.72 13.42 12.89 10.98 13.27 12.32 9.92
ACC 14.96 12.81 13.22 10.81 11.33 15.67 10.20 14.35 18.09 11.48
JK 10.43 10.89 8.68 19.61 8.29 13.95
Cement
RTPE No. 52 of 2006 76
Binani 15.98 12.84 13.25 13.11 13.11 12.90 13.19 10.64 16.00
Lafarge 8.08 12.62 16.76 2.85
Jaiprakash 22.06 15.18 11.38 25.29 12.20 15.01 18.26
Century 14.89 5.88 15.35 13.95 14.29
Ultratech 14.20 14.20 12.73 10.02 13.31 11.70 10.28 11.02 12.10 12.46
Shree 19.62 15.38 12.73 15.06 13.92 12.80 18.72
^Cells which are blank indicate that either the OP is not present in that state or data for January and February 2011 were not provided by the OP for that particular State
119. Opposite Parties, however, argued that any parallelism in the cement industry could be attributed to the nature of this industry. It has been stated that price parallelism is expected in an industry with homogenous product and in a market characterised by seasonal increases and decreases in demand. Hence, this tendency cannot be considered as an evidence of cartelisation.
120. The Commission notes that price parallelism in itself may not be decisive of cartelisation or concerted action in any industry, yet the same in conjunction with other plus factors may indicate and establish cartelisation. In the present case, the Commission, apart from noticing price parallelism in the industry, has also considered various other factors such as platform of CMA, as discussed earlier, and other economic evidence by way of low capacity utilisation, production and dispatch parallelism etc., as discussed hereinafter.
Determination of prices
121. The Opposite Parties were asked by the DG to provide the methodology followed by them for determination of cement prices. Based on the submissions of the Opposite Parties with regard to the factors affecting cement price movement, the DG observed that factors such as increase in cost or taxes/ levies of Government and the logistics and transportation costs in a particular territory do have an impact on price determination but RTPE No. 52 of 2006 77 once the basic price is set, these factors do not have any impact on the regular price movements. The changes in the price on a regular basis are the result of market dynamics including market feedback, market forces such as demand and supply of cement and price movement of market leaders. It was also accepted by all the companies that although their decisions of price changes are taken independently but the prices of competitors are regularly monitored to respond to any price change by them.
122. The DG further noted that although it is claimed by almost all the companies that the prices are decided on the market feedback, no formal mechanism or documentation system was found to be maintained by any of the companies to substantiate the argument pertaining to reliance on market feedback.
123. It was submitted that the prices were changed on the basis of feedback received from sales offices. It was found that the communication to the dealers was always made orally on telephone and no written circular or communication was issued by any of the companies regarding change in prices. It was stated that price changes are communicated to the dealers normally one or two days in advance.
124. Further, none of the Opposite Parties was sure about the communication methodology to substantiate their stand that the pricing decisions were based on the feedback of the market. In none of the communications, data relating to demand or any other detail were found to make a case for price changes. The communications reflected merely the prices to be changed and not the reason or any data to show that there was more or less demand.
125. Based on the above, the DG concluded that in such circumstances, it was evident that the argument of the Opposite Parties that prices were changed on the basis of feedback of the market was not supported by documents, RTPE No. 52 of 2006 78 which was a reflection that the prices could be fixed/ changed in a discretionary manner without any plausible reason.
126. Thus, it can be seen that though the Opposite Parties sought to suggest that the changes/ volatility witnessed in the company-wise cement prices was a consequence of market dynamics/ market feedback, yet the companies were not able to corroborate the same by presenting any mechanism/ data used or adopted by them to determine demand conditions in the market. Further, the parties have stated in their submissions that a sharp reduction in capacity utilisation is a result of low demand, yet the companies were charging high prices in 2010-11, a period in which the average capacity utilisation of the companies came down to 73% from 83% in 2009-10. Further, the companies have also submitted that capacity utilisation is maximum during periods of peak demand season and vice versa. However, from the data submitted by some of the parties, it is observed that when price has gone up, production has gone down. In this regard, the companies were unable to provide an explanation as to how they were able to charge such high prices in a period of falling capacity utilisation as well as production. Thus, such conduct indicates that factors other than the prevailing demand-supply conditions in the market had a role to play in explaining the volatility witnessed in cement prices.
Low levels of capacity utilisation
127. The Commission notes from the data in the DG Report that the overall capacity utilisation of the cement companies came down from 83% in 2009-10 to 73% during 2010-11. The DG submitted that while the capacity has increased in the last four years, the increase in production has not been commensurate to the capacity additions.
128. The Opposite Parties in their submissions strenuously challenged the findings of the DG on this count.
RTPE No. 52 of 2006 79129. UltraTech Cement Ltd. contended that capacity utilisation of its old existing plants has risen from 87% to 94% and had even reached 99-101%. It was also stated that in 2010-11, four plants had achieved capacity utilisation of 125%, 109%, 108% and 101%. Further, UltraTech Cement Ltd.'s new plants capacity utilisation had ranged from 39 to 51%. For Grasim Cement also, capacity utilisation of old existing plants ranged from 96% to 101% while the capacity utilisation of its new plants increased from 33% to 55%. It has also been submitted that UltraTech Cement Ltd.'s production from 2007-08 to 2010-11 has increased year on year basis by 7.78 MMT i.e. an increase of 25.56 %.
130. Jaiprakash Associates Ltd. in its replies argued that there are certain factors which have been hindering the full utilisation of the cement plants, such as, availability of the key raw materials, erratic power supply, break down of machinery or stoppage of plants for upgradation, high inventory of clinker, logistic constraints, demand growth and labour disturbance. It has been argued that whenever a new plant is installed, the ramp up of the capacity utilisation to optimum level takes considerable time due to the teething problems encountered in the initial period and therefore, the DG should have taken pro-rate capacity instead of the installed capacity for the whole year. According to JAL, calculated correctly, the actual capacity utilisation for 2009-10 is 81.7 % which is much higher than the DG's calculation.
131. Similarly, Ramco has submitted that the right working of capacity utilisation in its case works out above 90% and not as worked out by the DG. ACC Ltd. and ACL in their replies have also submitted that the DG has not considered the capacity available for production and the actual production and instead has considered nameplate capacity which does not account for ramp-up time, maintenance, age of plants etc. It was also submitted that capacity utilisation across the industry in 2010 averaged at 81% based on available capacity instead of nameplate capacity. Further, RTPE No. 52 of 2006 80 over a twenty year period till 2010, the capacity utilisation levels have ranged between 75-85% and, only on four occasions, they have exceeded 85%. Thus, the performance of the industry during 2010 was comparable to any other normal year.
132. Lafarge India Pvt. Ltd. argued that its capacity utilisation in the last three years has been 100% in 2008, 97% in 2009 and 100% in 2010. It has submitted that installed capacity has outpaced demand and therefore, the findings of the DG that the cement manufacturers are withholding or limiting the output are erroneous. India Cements Limited in its reply has contended that it is incorrect to make general assumptions based on the installed capacity, as production depends upon various factors and lower utilisation of capacity is possible in a period of lack of demand for the product. In its replies, Century Cement has submitted that it had utilised 98.47% of capacity in 2010-11, while it was 97.22% in 2009-10. JK Cement in its submissions has submitted that its capacity utilisation in Northern India plant was around 90% or more except in the year 2010-11 when it was 82% because of major maintenance activity. Its southern plant was also producing at around 49.14% despite the fact that it is taking time for stabilisation and facing teething troubles being a green field project. Binani Cements stated that while alleging that cement industry has underutilised the capacity and withheld supplies, the DG has compared production with the installed capacity of the grinding mill rather than clinker manufacturing capacity of the cement plants. It has argued that the maximum cement that could have been produced by it on an assumption that it had utilised 100% (4 lac MMT) of its clinker capacity could have been 5.25 MMT and it has utilised almost 100% of its installed clinker production capacity.
133. On perusal of the DG Report, it is evident that the capacity utilisation was at its lowest level in 2010-11 when compared with the prevailing levels in the last few years as can be seen from the figures given below:
RTPE No. 52 of 2006 81Installed Capacity and Production of Cement Year Installed Growth in Production Growth in Capacity Capacity in % in MMT % utilisation in MMT % 2005-06 157.35 -- 141.81 -- 90 2006-07 165.64 5.26 155.64 9.75 94 2007-08 179.1 8.12 168.31 8.14 94 2008-09 205.96 14.99 181.61 7.90 88 2009-10 246.75 19.80 205 12.87 83 2010-11 286.38 16.06 210.85 2.85 73
134. It can be seen from the above that the capacity utilisation was around 73% in 2010-11 which was much lower than the levels in the previous years. The Commission notes that evidently the growth rate in production lagged substantially in 2010-11 as against the growth rate of capacity additions. Installed capacity witnessed an increase in growth rate by 16.06%, but the production grew marginally by 2.85% only. In comparison, in the year 2009-10, the growth rate in capacity addition was 19.80% and growth rate in production was 12.87%.
135. The parties have contended that if nameplate additions and capacity additions for the current year are taken out from the calculations of capacity utilisation vis-a-vis available capacity, then capacity utilisation would be higher than as has been assessed and calculated by the DG. In this regard, the Commission viewed capacity utilisation data as reported in publications of CMA titled 'Cement Statistics - 2010' and 'Executive Summary- Cement Industry, March 2011' where capacity utilisation is defined on the basis of capacity available for production.
136. Based on the data available in the publications of CMA, the installed capacity till 31.03.2010 was 222.60 MMT (excluding the data pertaining to ACC and ACL) which increased upto 234.30 MMT on 31.03.2011. The RTPE No. 52 of 2006 82 capacity expansion included new capacity addition of 12.65 MMT and expansion of 1.50 MMT. The following data from the CMA report provides the figures for capacity utilisation, the production and dispatches.
137. As can be seen from the table below, the capacity utilisation of 75% (excluding the data pertaining to ACC Ltd. and ACL) as given in CMA report which is calculated on the basis of available capacity of 224.41 MT of the remaining cement companies as on 31.03.2011 is not very different from the capacity utilisation of 73% as computed by the DG on the basis of installed capacity.
Capacity utilisation based on available and installed capacity Total Installed capacity excluding ACC Ltd. 234.30 MMT and ACL as on 31.03.2011 Total Installed capacity including ACC Ltd. 286.38 MMT and ACL as on 31.03.2011 Actual available capacity excluding ACC 224.41 MMT Ltd. and ACL as on 31.03.2011 Capacity utilisation excluding ACC Ltd. and 168.29 MMT ACL on 31.03.2011 % Capacity utilisation excluding ACC Ltd. 75% and ACL on actual available capacity of 224.41 MMT as on 31.03.2011 % Capacity utilisation including ACC Ltd. 73% and ACL on reported installed capacity of 286.38 MMT as on 31.03.2011
138. Even if due consideration is given to the nameplate capacity additions argument presented by the Opposite Parties and thereby the installed capacity of previous year i.e. 31.03.2010 is taken to calculate the utilisation of capacity in percentage terms in the current year, the utilisation has been around 76% i.e. less than 80%. Therefore, the arguments of the Opposite Parties that if the nameplate capacity addition in current year is taken out RTPE No. 52 of 2006 83 and capacity additions are considered on pro-rata basis, then their capacity utilisation would be much more than what has been computed by the DG, is not tenable.
139. From the details provided in the CMA publications, it is evident that in case of many plants of UltraTech Cement Ltd., capacity utilisation was very low. For instance, the grinding units of Aligarh, Kotputli, Panipat and Ginigera had capacity utilisation of 22.79%, 54.60%, 63.97% and 54.47% respectively. Furthermore, in case of other companies also, the capacity utilisation has been quite low during 2010-11 even when the available capacity is taken as on 31.03.2010 and capacity additions for the current year are not considered.
140. It may be seen that in case of Ramco, for 2010-11, just as in the case of UltraTech Cement Ltd., the capacity utilisation was very low for certain plants. For instance, the capacity utilisation was 21.45% in Kolaghat grinding unit, 50.19% in Uthiramerur and 58.56% in Salem grinding unit. In case of certain plants of The India Cements Ltd., the capacity utilisation was also very low like 56.11% in Parli Plant, 65.69% in Sankaridurg, 67.67% in Yerraguntla Plant and 68.68% in Vallur Plants. In case of Binani Cements, its Sikar grinding unit utilised only 72.86% of capacity during 2010-11. In case of Jaiprakash Associates Ltd. also, its Roorkee Plant had a capacity utilisation of 71.53 % and Wanakbori unit produced at 45.60% of its capacity.
141. The Commission notes that the fact that these companies witnessed low capacity utilisation is also substantiated from the details of total capacity utilisation reported by the aforesaid companies in their annual reports. In case of other companies also, the capacity utilisation as per their own annual reports have gone down during 2009-10 and 2010-11. For instance, while capacity utilisation in case of ACC Ltd. was 91%, 93% and 91% RTPE No. 52 of 2006 84 respectively during the years 2007, 2008 and 2009, it has fallen to about 78% in 2009-10 and to 81% in the 2010-11. In case of JK Cement also, the total capacity utilisation has come down to about 82% from 90 % as per its own admission. The annual reports of Madras Cements Ltd. and The India Cements Ltd. also indicated that the total capacity utilisation had been quite low during 2009-10 and 2010-11. In case of Madras Cements Ltd., capacity utilisation was 79.1% in 2009-10 and 69.6% in 2010-11 while in case of The India Cements Ltd., the capacity utilisation was 74% in 2009-10 and 65.3% in 2010-11.
142. Data collected from the reports of CMA suggests that there has been decline in capacity utilisation in almost all the months of 2009-10 and 2010-11 as compared to the previous year. During 2010-11, the decline in capacity utilisation had been the most significant in the months of November and December when the capacity utilisation has come down to 65% and 74% respectively, the lowest in all the years under reference.
Month-wise capacity utilisation 2005-06 to 2010-11 Month 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 April 90 96 98 90 88 81 May 93 95 99 89 87 80 June 89 94 94 87 85 76 July 82 89 92 87 84 73 August 82 80 88 77 79 71 Sep. 80 88 87 81 73 70 Oct. 90 94 94 86 76 81 Nov. 85 91 89 83 77 65 Dec. 94 98 95 92 86 74 Jan. 98 102 97 93 87 78 Feb. 92 94 95 91 82 78 Mar. 106 107 99 98 88 87 During 90 94 94 88 83 76 the year RTPE No. 52 of 2006 85
143. The Commission has also considered the month wise data as gathered from the records of CMA on actual available capacity and production data in respect of cement companies excluding ACC Ltd. and ACL for the years 2009-10 and 2010-11 as under:
Month-wise capacity and production during 2009-10 and 2010-11 Months Capacity Production in MMT % of Capacity utilisation 2009-10 2010-11 2009-10 2010-11 2009-10 2010-11 April 15.66 18.55 13.40 14.70 88 81 May 15.66 18.55 13.28 14.47 87 80 June 15.86 18.55 13.19 13.77 85 76 July 15.92 18.55 13.01 13.23 84 73 Aug. 16.12 18.55 12.51 12.85 79 71 Sep. 16.60 18.37 11.83 12.67 73 70 Oct. 16.69 18.52 12.39 14.87 76 81 Nov. 16.69 18.52 12.52 11.84 77 65 Dec. 16.75 18.52 14.07 13.59 86 74 Jan. 17.31 19.04 14.65 14.70 87 78 Feb. 17.40 19.16 13.93 14.78 82 78 Mar. 18.55 19.53 15.97 16.82 88 87 Total 199.21 224.41 160.75 168.29 83 76
144. The aforesaid figures of production vis-a-vis actual available capacity show that the capacity utilisation in 2010-11 was much lower in comparison to 2009-10 except in the month of October. The figures show a fall in production in the months of November-December, 2010-11, in comparison to the same months in 2009-10 which translated into lower levels of capacity utilisation. During November, 2010, the utilisation was around 65% as against 77% during November, 2009. Similarly, in December, 2010, the utilisation was 74% as against 86% in December, 2009. For the months of January and February, 2010-11 as well, the utilisation came RTPE No. 52 of 2006 86 down to 78% in comparison to 87% and 82% in the months of January and February, 2009-10, respectively.
Production parallelism
145. The data collated by the DG in respect of trends in production show that during November, 2010, all the companies had reduced the production drastically as compared to October, 2010, although this was not the case for the corresponding months in 2009.
Rajasthan (in tonnes)
Company 2009 2010
October November Remarks October November Remarks
ACC 103327 88425 Decrease 120695 115481 Decrease
Shree 701611 708686 Increase 869064 655290 Decrease
Ultra 275423 249253 Decrease 490792 348675 Decrease
India 316365 300175 Decrease 305757 261469 Decrease
Cements
ACL 149654 152995 Increase 173758 132051 Decrease
Birla 206659 185529 Decrease 234887 200098 Decrease
Madhya Pradesh
Company 2009 2010
October November Remarks October November Remarks
ACC 196936 180052 Decrease 211029 170027 Decrease
Century 270295 323544 Increase 383555 320774 Decrease
Jaypee 445236 539645 Increase 549274 383390 Decrease
Ultra 294250 286842 Decrease 322006 216861 Decrease
Karnataka
Company 2009 2010
October November Remarks October November Remarks
ACC 329822 356502 Increase 411030 393274 Decrease
Madras 17132 14727 Decrease 11802 11701 Decrease
Ultra 253456 275136 Increase 273023 202847 Decrease
RTPE No. 52 of 2006 87
Chhattisgarh
Company 2009 2010
October November Remarks October November Remarks
ACL 120011 111012 Decrease 124043 115123 Decrease
Century 162780 163880 Increase 180980 160400 Decrease
Lafarge 337981 294215 Decrease 366239 316538 Decrease
Tamil Nadu
Company 2009 2010
October November Remarks October November Remarks
ACC 79212 78652 Decrease 79452 68483 Decrease
Ultra 169795 153401 Decrease 184430 121582 Decrease
India 365833 334334 Decrease 343304 239878 Decrease
Cements
Gujarat
Company 2009 2010
October November Remarks October November Remarks
ACL 565768 615864 Decrease 721665 576275 Decrease
Jaypee 2888 9322 Increase 121584 103533 Decrease
Ultra 430472 412498 Decrease 466749 397585 Decrease
Andhra Pradesh
Company 2009 2010
October November Remarks October November Remarks
India 425797 465583 Decrease 449985 317488 Decrease
Ultra 250027 276440 Increase 347702 287377 Decrease
Madras 147632 148362 Increase 112957 104343 Decrease
146. From the data tabulated above, it is evident that during November, 2010, all the cement companies including the Opposite Parties had reduced production, although in 2009, in some cases, there was drop in production and in many cases there was increase also.
RTPE No. 52 of 2006 88147. Hence, the aforesaid conduct further indicates that there was a coordinated effort on part of the Opposite Parties to reduce supplies by curtailing production.
Dispatch Parallelism
148. Based on the analysis conducted by the DG for the company-wise dispatch data of cement for a period of two years from January, 2009 to December, 2010, it may be observed that the pattern of changes in dispatches of cement by the top companies were similar.
Company-wise and month-wise Cement Dispatches (in '000 tonnes) S.No. Company Jan'09 Feb'09 Mar'09 Apr'09 May'09 Jun'09 Jul'09 Aug'09 Sep'09 Oct'09 Nov'09 Dec'09 1 J.K. Group 666 655 743 644 642 707 656 644 604 648 644 789 2 Centrury 690 652 732 679 638 617 629 558 559 584 612 639 Textiles 3 India Cement 710 754 828 784 804 823 896 835 785 837 837 995 4 Grasim Indus. 1499 1461 1713 1581 1617 1691 1539 1544 1471 1436 1476 1656 5 Madras 502 502 581 607 598 624 704 683 647 603 553 653 Cements 6 UltraTech 1484 1436 1628 1580 1534 1422 1135 1317 1270 1351 1411 1590 Cement 7 Jaypee Group 727 688 782 791 807 781 743 695 695 780 954 1000 8 Shree Cement 749 742 837 788 735 779 830 689 680 702 709 858 9 Lafarge India 471 470 546 505 485 516 478 525 425 560 511 629 10 Binani Cement 414 414 471 439 451 455 426 404 406 361 418 472 11 ACC Ltd. 1864 1720 1979 1769 1789 1788 1753 1634 1612 1668 1646 1861 12 Ambuja 1626 1649 1724 1639 1638 1588 1438 1429 1359 1464 1550 1729 Cement RTPE No. 52 of 2006 89 (in '000 tonnes) S. No. Company Jan'10 Feb'10 Mar'10 Apr'10 May'10 Jun'10 Jul'10 Aug'10 Sep'10 Oct'10 Nov'10 Dec'10 1 J.K. Group 840 736 858 812 789 687 620 639 667 834 645 705 2 Centrury 723 633 679 641 595 601 592 617 627 711 611 639 Textiles 3 India Cement 922 929 1045 918 895 911 971 864 819 840 615 711 4 Grasim Indus. 1692 1555 1903 5 Madras 636 639 792 663 625 670 744 665 542 557 433 462 Cements 6 UltraTech 1672 1550 1779 *3363 3333 3141 2897 2942 2831 3403 2643 3252 Cement 7 Jaypee Group 1037 1078 1233 1197 1240 1279 1162 1021 1054 1330 1000 1242 8 Shree Cement 882 771 939 753 846 790 665 706 697 869 655 829 9 Lafarge India 601 494 628 548 478 604 572 484 526 615 547 601 10 Binani Cement 498 463 495 442 459 430 380 384 377 516 402 468 11 ACC 1885 1688 1900 1765 1733 1756 1532 1541 1550 1872 1691 1863 12 Ambuja Cement 1748 1690 1916 1895 1863 1686 1407 1413 1481 1752 1416 1826 * Data of Grasim was merged with UltraTech from Apr'2010 onwards
149. Controverting the aforesaid data, Opposite Parties such as UltraTech Cement Ltd. and Ambuja Cements Ltd. have argued that they increased their dispatches for the period January 2010-December 2010 while the other cement companies have shown a decline in dispatches during the same period. JAL has argued that during Jan-Dec, 2009 it had the highest increase in dispatches in comparison to other cement manufacturers. ACC Ltd. and ACL have argued that there does exist parallelism in the production and dispatches in the cement industry but that is not a result of collusive behaviour, rather, this tendency is a consequence of the inherent market characteristics of this industry i.e. commoditised nature of cement, cyclical nature of cement industry and the ability of competitors to intelligently respond to the actions of their competitors.
RTPE No. 52 of 2006 90150. The plea is misconceived as it can be observed that there was a decline in the dispatches in November 2010 for all the Opposite Parties unlike in November 2009 when there was an increase in dispatches for some Opposite Parties and a decline in dispatches for others.
Company-wise Cement Dispatches (Oct-Nov 2009 and 2010) (in '000 tonnes) Company Oct - 09 Nov- 09 Remarks Oct-10 Nov-10 Remarks J.K. Group 648 644 Decrease 834 645 Decrease Century 584 612 Increase 711 611 Decrease Textiles India Cement 837 837 Same 840 615 Decrease Grasim Indus 1436 1476 Grasim merged with UltraTech Madras 603 553 Decrease 557 433 Decrease Cements Ultra Tech 1351 1411 Increase 3403 2643 Decrease Cement Jaypee Group 780 954 Increase 1330 1000 Decrease Shree Cement 702 709 Increase 869 655 Decrease Lafarge 560 511 Decrease 615 547 Decrease Cement Binani Cement 361 418 Increase 516 402 Decrease ACC Ltd 1668 1646 Decrease 1872 1691 Decrease Ambuja 1464 1550 Increase 1752 1416 Decrease Cement
151. From the analysis of data on production, dispatch and supplies in the market, it is apparent that the cement companies coordinated their actions as is evident from the data of dispatch in November, 2010 which shows identical and similar behavioural pattern. This cannot be a sheer co- incidence. The coordination amongst the Opposite Parties gets facilitated since CMA circulates the production and dispatch details of all the member cement companies on a regular basis. Further, the companies are also RTPE No. 52 of 2006 91 exchanging information through CMA meetings as regards retail and wholesale price, as noted supra.
152. The Commission would also like to emphasise that in any cartelized behaviour, the parties to the arrangement may not always coordinate their actions (as is observed in the company-wise trends witnessed above); periodically their conduct may also reflect a competitive market structure. However, there will be periods when coordination rather than competition will be found to be more gainful. This is reflective in the similar pattern of dispatch observed among the cement companies during November 2010.
153. Further, the Commission notes that dispatch of cement during a year is expected to be on the lines of pattern of consumption during the previous year. Data on aggregate dispatch and consumption as gathered from the records of CMA for its member cement companies is as under:
Month-wise dispatch and consumption during 2009-10 and 2010-11 Month Dispatch in MMT Consumption in MMT 2009-10 2010-11 2009-10 2010-11 April 13.26 14.44 13.03 14.30 May 13.06 14.18 12.93 14.07 June 13.21 13.81 13.23 13.66 July 12.73 13.30 12.69 13.23 August 12.39 12.81 12.27 12.66 Sep. 11.74 12.68 11.61 12.56 Oct. 12.22 14.58 12.06 14.45 Nov. 12.48 11.69 12.37 11.55 Dec. 14.30 13.60 14.17 13.47 Jan. 14.59 14.61 14.41 14.47 Feb. 13.75 14.73 13.61 14.62 Mar. 16.00 16.72 15.87 16.59 RTPE No. 52 of 2006 92
154. In most of the months of 2010-11, dispatch exceeded the actual consumption observed in 2009-10. However, in the two months of November-December, 2010, as is seen from the figures in the table above, the dispatch was lower than the actual consumption of cement during November-December, 2009. Furthermore, as will be seen later, the construction industry which is the most important consumer of cement had been growing significantly during this period which meant a high demand for cement during this time. Based on the above, the Commission observes that lower dispatches in the months of November-December, 2010-11 in comparison to actual consumption in the corresponding months of 2009-10 coupled with lower capacity utilisation in these months even though there were no demand constraints given the strong positive growth in the construction industry, establishes that the cement companies indulged in controlling and limiting the supply of cement in the market.
Increase in prices of cement due to coordinated behaviour
155. To analyse the issue of increase in prices, first, company-wise price trends for the period September, 2010 to February, 2011 and related Excise Duty argument may be examined.
156. From the DG Report, the Commission observes that the price of cement per bag charged by Opposite Parties for the period September, 2010 to February, 2011 showed a distinct upward movement:
Uttar Pradesh (in Rs) Name of Company Sep 2010 Nov 2010 Jan 2011 Feb 2011 ACC 227 242 234 269 Shree 222 225 209 250 Century 209 237 242 282 Birla 191 225 196 250 RTPE No. 52 of 2006 93 Haryana (in Rs) Name of Company Sep 2010 Nov 2010 Jan 2011 Feb 2011 ACC 241 241 242 273 Shree 228 230 221 255 Birla 228.5 220.5 204.5 243.5 Bihar (in Rs) Name of Company Sep 2010 Nov 2010 Jan 2011 Feb 2011 Birla 210 240 200 255 Lafarge 296 294 289 298 Delhi (in Rs) Name of Company Sep 2010 Nov 2010 Jan 2011 Feb 2011 ACC 224 233 227 257 Shree 228.5 235.5 219.5 247.5 Birla 218.5 226.5 204.5 241.5 Punjab (in Rs) Name of Company Sep 2010 Nov 2010 Jan 2011 Feb 2011 ACC 255 259 259 287 Shree 243 248 239 275 Chandigarh (in Rs) Name of Company Sep 2010 Nov 2010 Jan 2011 Feb 2011 ACC 251 254 256 285 Shree 241 246 237 270 Rajasthan (in Rs) Name of Company Sep 2010 Nov 2010 Jan 2011 Feb 2011 ACC 209 213 217 251 Shree 220 223 211 238 Birla 213 217 206 234 RTPE No. 52 of 2006 94 Gujarat (in Rs) Name of Company Sep 2010 Nov 2010 Jan 2011 Feb 2011 JP 170 190 205 230 Birla 161.75 174.75 184.75 208 Maharashtra (in Rs) Name of Company Sep 2010 Nov 2010 Jan 2011 Feb 2011 ACC 219 246 245 260 Century 191 214 206 236 West Bengal (in Rs) Name of Company Sep 2010 Nov 2010 Jan 2011 Feb 2011 ACC 272 278 255 281 Century 261 271 265 275 Birla 236 254 191 242 Lafarge 267 267 260 281 Assam (in Rs) Name of Company Sep 2010 Nov 2010 Jan 2011 Feb 2011 ACC 211 217 218 264 Century 319 316 310 316 Odisha (in Rs) Name of Company Sep 2010 Nov 2010 Jan 2011 Feb 2011 ACC 231 238 216 247 Century 196 206 211 230 Lafarge 215 224 214 241 Madhya Pradesh (in Rs) Name of Company Sep 2010 Nov 2010 Jan 2011 Feb 2011 ACC 197 206 199 235 Century 196.5 201 215 245 Birla 172 198 171 219 Kerala RTPE No. 52 of 2006 95 (in Rs) Name of Company Sep 2010 Nov 2010 Jan 2011 Feb 2011 Madras 250 290 295 300
157. It has been stated by the Opposite Parties that the reason for rise in cement prices in 2011 was on account of change in excise duty. The Commission notes that the change in excise duty was effected after the annual budget for 2011-12 which was presented in the Parliament on 28.02.2011 and therefore, the change in cement prices on account of this could have only been implemented from 01.03.2011. However, the increase was witnessed in many cases in January, 2011 and was uniformly high in February, 2011 in all the cases. In fact, there was a quantum leap in price of cement in the month of February, 2011. Based on the above, the Commission notes that the contention of the Opposite Parties that the increase in cement prices was on account of change in excise duty, is not tenable.
158. Now, the aspect relating to price leadership may be examined to fully analyze the price trends. As discussed previously, the market for cement in India can be divided into 5 regions i.e. North, South, East, West and Central. In this regard, it is noted that each region has a few market leaders controlling a majority of the market share. For instance, in the Northern region ACC Ltd., ACL, UltraTech Cement Ltd. and Shree Cement are the major players controlling more than half of the market share. In the Central region, ACC Ltd., Jai Prakash Associates Ltd. and UltraTech Cement Ltd. are the market leaders and ACL, UltraTech Cement Ltd., The India Cements Ltd., Jai Prakash Associates Ltd. are the market leaders in Western region. While in the Southern region, UltraTech Cement Ltd., ACC, The India Cement Ltd. and Ramco are the leaders.
159. In this regard, the statements recorded by the DG of Opposite Parties on the issue of price leadership indicated that players did follow the prices of a perceived market leader in a region. For instance, Jaiprakash Associates RTPE No. 52 of 2006 96 Ltd. has stated that while determining its price, it does keep the price of the perceived market leader in mind. It also stated that ACC Ltd., Ambuja Cements Ltd., UltraTech Cement Ltd. and Lafarge India Pvt. Ltd. are the perceived market leaders in most of the States. Ramco has stated that big players decide the trend in a particular region and the prices determined by Madras Cements Ltd. do depend upon the prices of the big cement companies to certain extent. It also stated that, in Tamil Nadu - The India Cements Ltd., UltraTech Cement Ltd. and Ramco are the perceived market leaders; in Kerala - India Cements Ltd., Ramco and ACC Ltd. are the perceived market leaders; in Karnataka - UltraTech Cement Ltd. and ACC Ltd. are the leaders; and in West Bengal - ACL, UltraTech Cement Ltd. and Lafarge India Pvt. Ltd. are the perceived market leaders.
Trends in cement production and related demand sectors
160. It would also be necessary to analyse the trends in production and to see whether they are in tandem with the trends in the related demand sector for cement. In this regard, the Commission has looked at the following data to make an assessment:
Revised Estimates of GDP at factor cost by economic activity (at 2004-05 prices) Industry Figures in Rs. crores % change over previous year 2008-09 2009-10 2010-11 2009-10 2010-11 (QE) (QE) Construction 332557 355918 384629 7.0 8.1 GDP 4162509 4493743 4877842 8.0 8.5 RTPE No. 52 of 2006 97 Revised Estimates of GDP at factor cost by economic activity (at current prices) Industry Figures in Rs. crores % change over previous year 2008-09 2009-10 2010-11 2009-10 2010-11 (QE) (QE) Construction 451414 501706 591864 11.1 18.0 GDP 5282086 6133230 7306990 16.1 19.1 Quarterly estimates of GDP for 2010-11 (at 2004-05 prices) Industry % change over previous year 2009-10 2010-11 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Construction 5.4 5.1 8.3 9.2 7.7 6.7 9.7 8.2 GDP 6.3 8.6 7.3 8.9 9.3 8.9 8.3 7.8 Quarterly estimates of GDP for 2010-11 (at current prices) Industry % change over previous year 2009-10 2010-11 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Construction 6.0 5.5 13.0 19.7 18.9 16.3 19.2 17.6 GDP 10.5 13.0 16.8 23.3 21.6 19.2 19.0 17.2 Cement Production and Dispatches Month Cement Production Cement Dispatches In Absolute %age In Absolute %age 2010-11 2009-10 change in 2010-11 2009-10 change in 10-11 over 10-11 over 09-10 09-10 April 14.70 13.40 9.70 14.44 13.26 8.90 May 14.47 13.28 8.96 14.18 13.06 8.58 June 13.77 13.19 4.40 13.81 13.32 3.68 July 13.23 13.01 1.69 13.30 12.73 4.48 August 12.85 12.51 2.72 12.81 12.39 3.39 September 12.67 11.83 7.10 12.68 11.74 8.01 RTPE No. 52 of 2006 98 October 14.87 12.39 20.02 14.58 12.22 19.31 November 11.84 12.52 -5.43 11.69 12.48 -6.33 December 13.59 14.07 -3.41 13.60 14.30 -4.90 January 14.70 14.65 0.34 14.61 14.59 0.14 February 14.78 13.93 6.10 14.73 13.75 7.13 March 16.82 15.97 5.32 16.72 16.00 4.50 Overall 4.74% 4.75%
161. The Commission notes that cement is primarily consumed by the construction industry. Based on the data collected from the publications of CMA and the website of Ministry of Statistics and Programme Implementation (as given above), the Commission observes that the construction industry grew at 7% in the year 2009-10 and at a higher rate of 8.1% in 2010-11 at factor cost and at the rate of 11.1% in 2009-10 and 18% in 2010-11 at current prices. The robust and accelerated growth in the construction industry in 2010-11 which is the main demand driver for cement would mean strong demand for cement during this period. However, the growth in cement production and dispatches had been to the tune of only 4.74% and 4.75% respectively. This indicates that the growth in cement production was not commensurate to the growth observed in the construction industry.
162. The Commission further observes that the third and fourth quarter of 2010- 11 witnessed a GDP growth rate of 8.3% and 7.8% at factor cost respectively and the construction industry witnessed a growth of 9.7% and 8.2% in Q3 and Q4 of 2010-11 respectively. However, the cement industry registered a negative growth rate of 5.43% and 3.41% in cement production in November and December of 2010-11, respectively. Even in case of cement dispatches, a negative growth rate of 6.33% and 4.90% was observed in the months of November and December 2010, respectively, over the corresponding months in the previous year. Even in January, RTPE No. 52 of 2006 99 2010-11, the growth rate in cement production and dispatches was very low.
163. As discussed earlier, the capacity utilisation fell significantly in 2010-11 even though certain Opposite Parties including Lafarge India Pvt. Ltd. and Century Cements have stated that some of their plants were working with a capacity utilisation of 98-100%. The growth in construction sector coupled with high capacity utilisation witnessed by Opposite Parties in certain plants indicates that there was no evident demand constraint which could have caused a negative growth in production and dispatches as well as low levels of overall capacity utilisation. Based on the above, the Commission observes that the companies were deliberately reducing capacity utilisation to manipulate and control the supply in the market and raise prices.
164. Thus, the Commission observes that the cement companies reduced production and dispatches of cement in a period when the demand from the construction sector was positive during November and December, 2010 and thereafter raised prices in the months of January and February, 2011, as discussed earlier in para 157 of this order. Thus, it is evident that the cement companies have been limiting and controlling supply in periods just before the peak demand season to create artificial scarcity in the market in order to sell cement at higher prices in the peak season.
Company-wise trend in Profit Margins and Net Profits
165. The Commission notes that the findings of the DG suggest that cement companies have been making huge profits over the years by limiting and controlling supplies and by charging higher than competitive prices. Opposite Parties in their replies have rebutted these claims by stating that the profit margins have not been abnormal and rather have been falling over the years. It has been stated by the Opposite Parties that the DG has incorrectly considered cost of sales to measure profit margins. It has further been stated by the Opposite Parties that it is not the Commission's mandate RTPE No. 52 of 2006 100 to look into whether the prices being charged by the parties are correct prices or not as long as the prices are being determined using market forces.
166. The Commission has carefully perused the findings of the DG and the contentions of the parties on the issue. There can be no dispute that the Commission is not to look into and determine the measure and degree of profitability of a sector/ commodity/firm as long as it is an outcome of interplay of normal market forces for determining demand, supply and prices. But, in a scenario where competitive forces are impeded in any manner, it is the duty of the Commission to take suitable actions and suggest measures to promote competition.
167. The Commission has perused the information relating to profit margins of all Opposite Parties. It has been observed that in case of ACC Ltd., Ambuja Cements Ltd., Jaiprakash Associates Ltd. and UltraTech Cement Ltd. the Earnings before Depreciation, Interest, Tax and Amortisation (EBDITA) increased in 2010-11 in comparison to 2009-10. Further, the ROCE for ACC Ltd., ACL and UltraTech Cement Ltd. has also been at a high level of around 20% for the period 2008-09 to 2010-11.
Earnings Before Depreciation, Interest, Tax and Amortization Company Name 2008-09 2009-10 2010-11 ACC Ltd 2644.00 1822.00 1921.00 Ambuja Cements Ltd 1971.00 1951.00 1994.00 Jaiprakash Associates 2891.00 3242.00 UltraTech Cement 1810.00 2094.00 2829.00 RTPE No. 52 of 2006 101
168. The DG has analysed the data in respect of cost of sales, sales realisation and margins of Opposite Parties in respect of PPC for the years 2007, 2008 and 2009. The same is noted as under:
ACC Name of Year Cost of Sales Margin Margin Margin as Company sales in realization per bag % of sales rs. of cement realization ACC 2009 2503 3706 1203 60 32 ACC 2008 2466 3415 949 47 27 ACC 2007 2303 3360 1057 52 31 ACL-2009 Unit Year Cost of Sales Margin Margin Margin as sales realization per bag % of sales of cement realization Ambuja 2009 3221 3523 302 15 8 Gaj Ambuja 2009 3110 3580 470 23 13 Darla Ghat 2009 1509 2176 667 33 30 Bhatinda 2009 2796 4150 1354 67 32 Rabriyawas 2009 2436 3416 980 49 28 Sankrail 2009 3073 4076 1003 35 17 Farrakka 2009 3744 4562 818 41 18 Roorkee 2009 3239 3992 753 37 18.8 Average 2891 3684 793 39 21.52 ACL- 2008 Unit Year Cost of Sales Margin Margin Margin as sales realization per bag % of sales of cement realization Ambuja 2008 2733 3488 754 37 21 Gaj Ambuja 2008 2926 3485 559 28 16 Darla Ghat 2008 1982 2804 1822 91 65 Bhatinda 2008 2519 3825 1306 65 34 RTPE No. 52 of 2006 102 Rabriyawas 2008 2360 3054 694 34 22 Sankrail 2008 3074 3969 894 44 22 Farrakka 2008 3738 3981 242 12 6 Roorkee 2008 3173 3782 609 30 16 Maratha 2008 2447 3788 1341 67 35 Bhatpara 2008 2346 2953 607 30 20 Average 2730 3513 783 43 22 ACL- 2007 Unit Year Cost of Sales Margin Margin Margin as sales realization per bag % of sales of cement realization Ambuja 2007 2912 3318 406 20 12 Gaj Ambuja 2007 2569 3463 894 44 25 Darla Ghat 2007 2471 3607 1136 57 31 Bhatinda 2007 2230 2762 1532 76 55 Rabriyawas 2007 2142 3091 949 47 30 Sankrail 2007 2613 3970 1357 67 34 Farrakka 2007 3823 3922 99 5 2.5 Roorkee 2007 3172 4069 897 44 22 Average 2741 3525 784 45 22 UltraTech (Grasim) Average for 2009 Unit Year Cost of Sales Margin Margin as % sales realization of sales realization South 2009 2425 3921 1496 75 (38.1) Aditya 2009 2756 3029 272 13 (9) Panipat 2009 3302 3524 222 11 (6.3) Rajshrree 2009 2607 3619 1012 50 (28) Dadri 2009 3103 3795 692 34 (18.2) Samruddi 2009 3103 3795 691 34 (18.2) (Dadri) Bhatinda 2009 2872 3586 713 35 (19.8) Rawan 2009 2661 3379 717 35 (21) (Raipur) Average 2853 3581 728 20 RTPE No. 52 of 2006 103 UltraTech (Grasim) Average for 2008 Unit Year Cost of Sales Margin Margin as % sales realization of sales realization South 2008 2277 3523 1247 35.3 South unit ii 2008 2670 3595 925 25.7 Aditya 2008 2132 3086 954 30.9 Rajshrree 2008 2202 3266 1064 32.5 Bhatinda 2008 2511 3505 993 28.3 Rawan 2008 2480 3074 594 19.3 Average 2378 3341 963 28 UltraTech (Grasim) Average for 2007 Unit Year Cost of Sales Margin Margin as % sales realization of sales realization South 2007 1783 2706 923 34 Aditya 2007 1737 2691 953 24 Rajashree 2007 1962 2973 1011 34 Bhatinda 2007 2371 3501 1130 32 Rawan 2007 2360 2884 524 18 Average 2042 2951 908 30 India Cements 2009 Unit Year Cost of Sales Margin Margin Margin as sales realization per bag % of sales of realization cement Dalavoi 2008-09 2609 3812 1203 60 31 Malkapur 2008-09 2705 3030 325 16 10 Vishupuram 2008-09 2757 3324 567 28 17 Yemagentha 2008-09 2362 3141 778 39 24 Shankarnagar 2008-09 2731 3901 1170 58 30 Sankaridurg 2008-09 3086 3855 769 38 20 Chilamkur 2008-09 2759 3642 883 44 24 Average 2008-09 2716 3529 814 40 23 RTPE No. 52 of 2006 104 India Cements 2008 Unit Year Cost of Sales Margin Margin Margin as sales realization per bag % of sales of realization cement Dalavoi 2007-08 2246 3484 1238 69 35 Malkapur 2007-08 2115 2837 722 36 25 Vishupuram 2007-08 2277 3055 778 39 25 Yemagentha 2007-08 2116 2938 821 41 28 Shankarnagar 2007-08 2360 3498 1138 57 32 Sankaridurg 2007-08 2822 3427 605 30 17 Chilamkur 2007-08 2361 3202 841 42 26 Average 2328 3207 879 43 27 India Cements 2007 Unit Year Cost of Sales Margin Margin Margin as sales realization per bag % of sales of realization cement Dalavoi 2006-07 2014 2686 671 33 25 Malkapur 2006-07 1897 2540 643 32 25 Vishupuram 2006-07 2058 2514 455 22 18 Yemagentha 2006-07 1924 2474 551 27 22 Shankarnagar 2006-07 2071 2831 760 38 26 Sankaridurg 2006-07 2322 2801 479 24 17 Average 2006-07 2047 2641 594 29 22 RTPE No. 52 of 2006 105 Jaypee Cements Unit Year Cost of Sales Margin Margin as % sales realization of sales realization Bela plant 2008-09 1999 3087 1088 35 Rewa Plant 2008-09 2622 3217 955 29 Chunar 2008-09 3035 3142 106 3 Average 2432 3149 716 22 Unit Year Cost of Sales Margin Margin as % sales realization of sales realization Bela plant 2007-08 1996 3137 1141 36 Rewa Plant 2007-08 2160 3161 1001 31 Blending 2007-08 1958 2927 969 33 Unit Average 2038 3075 1037 33 Shree Cement Company Unit Year Cost of Sales Margin Margin as Sales Realization % of Sales realization Shree Bangur 2008-09 2128 3071 943 30 Cement Nagar Shree Bangur City 2008-09 2253 3058 804 26 Cement Shree Khushkhera 2008-09 2354 3361 1007 29 Cement Average 2245 3163 918 29 Company Unit Year Cost of Sales Margin Margin as % Sales Realization Sales realization Shree Bangur 2007-08 1987 3068 1081 35 Cement Nagar Shree Bangur 2007-08 2420 3110 690 22 Cement City Shree Khushkhera 2007-08 2299 3278 979 29 Cement Average 2235 3152 917 29 RTPE No. 52 of 2006 106 Company Unit Year Cost of Sales Margin Margin as Sales Realization % Sales realization Shree Bangur 2006-07 1652 2806 1153 41 Cement Nagar Shree Bangur 2006-07 2560 2790 230 8 Cement City Average 2106 2798 691.5 24 Binani Cements Unit Year Cost of Sales Margin Margin as % sales realization of sales realization Binanigram 2008-09 2570 3082 512 16 Neemka 2008-09 3108 3261 152 4 thana Binanigram 2007-08 2271 3065 793 25 Binanigram 2006-07 2062 2835 773 27 Average 2839 3172 332 10 Lafarge Cements Unit Year Cost of Sales Margin Margin as % sales realization of sales realization Sonadih 2008 2432 3022 589 19 Arsmeta 2008 2762 3466 704 20 Jojobera 2008 2949 3897 948 24 Average 2714 3462 747 21 Unit Year Cost of Sales Margin Margin as % sales realization of sales realization Sonadih 2007 2220 2732 511 18 Arsmeta 2007 2495 3195 700 21 Jojobera 2007 2593 3394 801 23 Average 2007 2536 3106 570 21
169. The Commission notes that the analysis of the margins indicates that the Opposite Parties have been able to charge high profit margins in spite of RTPE No. 52 of 2006 107 capacity additions over the years and this counters the claims made by the Opposite Parties that they have been earning below the reinvestment levels and incurring losses.
170. A chart showing net profit of all the top cement companies is prepared to show the profit earned by the cement manufacturers as given below:
Name of the Company 2010 2009 2008
Sales (In cr.) Net Profit Net profit as Sales Net Net Sales Net Net profit
(in cr.) % of Sales (In cr.) Profit profit (In Profit as % of
(in cr.) as % cr.) (in cr.) Sales
of
Sales
ACC 7717 1120 14.5 8027 1606 20 7308 1212 16.5
Ambuja Cement 7390 1264 17.1 7077 1218 17.2 6235 1402 22.4
UltraTech 7854 1096 13.9 7340 979 13.3. 5509 1007 18.2
Jai Prakash Associates 10088 1708 16.9 5764 897 15.5 3984 609 15.2
Shree Cement 4014 676 16.8 3091 577 18.6 2517 260 10.3
India Cement 4221 531 12.5 3954 648 16.3 3605 844 23.4
Lafarge Cement 3401 654 19.2 1991 356 17.8 1625 251 15.4
Madras Cement 2800 353 12.6 2456 363 14.7 2011 408 20
Binani Cement 2067 281 13.5 2185 148 6.7 1148 175 15.2
171. Based on the above table, the Commission notes that the companies have been making high net profits. In this regard, the Commission further notes that most of the companies have carried out capacity expansion programme during the above period. Despite the cost of huge investments and interest burden, the cement industry has remained most rewarding for all the players as all of the companies have earned a consistent positive net profit. This trend coupled with the other circumstantial evidences confirms that the RTPE No. 52 of 2006 108 cement manufacturers have generated huge profits by eliminating competition and charging unreasonable prices.
Conclusion
172. In view of the discussion in the preceding paras, it is evident that the opposite party cement companies were interacting using the platform made available by the trade association (CMA). Such interactions transgressed the limits in sharing of information and extended to the discussions on cost, prices, production and capacities, thereby, facilitating the enterprises in determining prices and production in a concerted and collusive manner than in a competitive manner. No doubt, trade associations have an important role in promoting the interests of their members and the industry they serve. However, it is imperative that all those who participate in association activities through meetings or otherwise, whether as a member or an executive or manager or employee, have to be sensitive to the discussions not transgressing advertently or otherwise into anti-trust behaviour or practices. In other words, they must stay within the limits and follow standards within the safeguards laid down to avoid such a risk. The anti- trust laws are not in themselves an impediment to undertaking association activities. Yet, trade associations and their members must be fully aware of the conducts which these laws proscribe while carrying out various activities under the aegis of the associations.
173. In an oligopolistic market, interdependence between firms may lead to collusive conduct resulting in anti-competitive outcomes. In the present case, there is not only evidence available by way of minutes and meetings of CMA to indicate that the cement companies abused the forum of trade association and instead of espousing the legitimate cause of their trade, colluded with each other in indulging in anti-competitive conduct, there is also the parallel conduct exhibited by the parties in determining prices.
RTPE No. 52 of 2006 109174. In view of the economic and other circumstantial evidence available on record, the Commission is of the opinion that the OP cement companies used the platform provided by CMA and shared details relating to prices, capacity utilisation, production and dispatch and thereby restricted production and supplies in the market contravening the provisions of Section 3(1) read with Section 3(3)(b) of the Act. Further, the conduct of the OP cement companies not only exhibited mere price parallelism as the evidence on record establishes that they were acting in concert to fix prices of cement in contravention of the provisions of Section 3(1) read with Section 3(3)(a) of the Act resulting in high prices for consumers and high profit margins for producers.
175. In terms of the provisions contained in Section 3(1) of the Act, no enterprise or association of enterprises or person or association of persons can enter into any agreement in respect of production, supply, distribution, storage, acquisition or control of goods or provision of services, which causes or is likely to cause an appreciable adverse effect on competition within India. Section 3(2) of the Act declares that any agreement entered into in contravention of the provisions contained in sub-section (1) shall be void. Further, by virtue of the presumption contained in subsection (3), any agreement entered into between enterprises or associations of enterprises or persons or associations of persons or between any person and enterprise 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-(a) directly or indirectly determines purchase or sale prices; (b) limits or controls production, supply, markets, technical development, investment 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 similar way; (d) directly or indirectly results in bid rigging or collusive RTPE No. 52 of 2006 110 bidding, shall be presumed to have an appreciable adverse effect on competition.
176. It can therefore be seen that in case of agreements as listed in Section 3(3) of the Act, once it is established that such an agreement exists, it will be presumed that the agreement has an appreciable adverse effect on competition within India; the onus to rebut this presumption would lie upon the Opposite Parties. The parties may rebut the said presumption in light of the factors enumerated in Section 19(3) of the Act. It may be pointed out that by virtue of the provisions contained in Section 19(3) of the Act, the Commission, while determining whether an agreement has an appreciable adverse effect on competition within India under Section 3, shall have due regard to all or any of the following factors, namely: (a) creation of barriers to new entrants in the market; (b) driving existing competitors out of the market; (c) foreclosure of competition by hindering entry into the market;
(d) accrual of benefits to consumers; (e) improvements in production or distribution of goods or provision of services; (f) promotion of technical, scientific and economic development by means of production or distribution of goods or provision of services. Thus, while clauses (a)-(c) deal with factors which restrict the competitive process in the markets where the agreements operate (negative factors), clauses (d)-(f) deal with factors which enhance the efficiency of the distribution process and contribute to consumer welfare (positive factors). An agreement which creates barriers to entry may also induce improvements in promotion or distribution of goods or vice-versa. Hence, whether an agreement restricts the competitive process is always an analysis of a balance between the positive and negative factors listed in Section 19(3) of the Act.
177. In the present case, the Opposite Parties could not rebut the said presumption. It has not been shown by the Opposite Parties as to how the impugned conduct resulted into accrual of benefits to consumers or made RTPE No. 52 of 2006 111 improvements in production or distribution of goods or provision of services. Opposite Parties could not show how the concerted act promoted technical, scientific or economic development by means of production or distribution of goods or provision of services. On the contrary, the analysis on capacity utilisation indicates that capacity utilisation had significantly declined in 2009-10 and 2010-11 over the last few years. This indicates that there has been no efficiency improvement in market. Furthermore, the concerted action has led to a rise in cement prices which acts as a detriment to the consumers in the market.
178. Based on the above discussion, the Commission is of opinion that the Opposite Parties by acting in concert and fixing cement prices and limiting and controlling the production and supply in the market have contravened the provisions of Section 3(1) read with Section 3(3)(a) and 3(3)(b) of the Act.
179. In view of the above, the Commission passes the following:
ORDER
180. Vide a separate order passed by the Commission in Case No. 29 of 2010, the Opposite Parties (except Shree Cement Limited) have been directed to cease and desist from indulging in any activity relating to agreement, understanding or arrangement on prices, production or supply of cement in the market. Besides, monetary penalties have also been imposed upon such parties. As such, the Commission does not deem it appropriate to issue these remedies again against such parties.
181. However, so far as Shree Cement Ltd. is concerned, the Commission, for the reasons recorded below, finds it fit to impose penalty as well. Under the provisions contained in Section 27(b) of the Act, the Commission may RTPE No. 52 of 2006 112 impose such penalty upon the contravening parties, as it may deem fit, which shall be not more than ten per cent 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. Further, in cases of cartelisation, the Commission may impose upon each such cartel participant, a penalty of upto three times of its profit for each year of continuance of the anti-competitive agreement or ten per cent of its turnover for each year of continuance of such agreement, whichever is higher.
182. It is evident that the legislature has conferred wide discretion upon the Commission in the matter of imposition of penalty. It may be noted that the twin objectives behind imposition of penalties are: (a) to impose penalties on infringing undertakings which reflect the seriousness of the infringement; and (b) to ensure that the threat of penalties will deter the infringing undertakings. Therefore, the quantum of penalty 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.
183. The Commission notes that the impugned action of the Opposite Parties was not only detrimental to the interests of the consumers but the Opposite Parties also earned huge profit margins by acting in concert and co- ordination on prices, production and supplies. Such conduct deprives not only the consumers but the economy also from exploiting the optimal capacity utilisation and thereby the reduced prices. Further, the act of the Opposite Parties is also detrimental to the whole economy since cement is a critical input in construction and infrastructure industry - vital for economic development of the country.
184. As per the provisions of Section 2 (c) of the Act, cartel includes an association of producers, sellers, distributors, traders or service providers RTPE No. 52 of 2006 113 who, by agreement amongst themselves, limit, control or attempt to control the production, distribution, sale or price of, or, trade in goods or provision of services. The impugned act of the Opposite Parties unequivocally establishes that they were acting as a cartel. The Commission also notes that the cement companies have been penalised in other jurisdictions also for their anti-competitive acts. Besides, CMA and some of Opposite Parties have also been found to be engaged in restrictive trade practices in the past by the erstwhile MRTP Commission in RTPE 21 of 2001 and RTPE No. 99 of 1990.
185. The Opposite Parties contended that the Report of the DG does not specify the names of the contravening parties and also the period of alleged cartel. In this regard, it may be noted that the present inquiry is limited to the Opposite Parties named in the information. As regards the period of contravention, it may be observed that since the DG has examined the conduct of the parties involved in the cartel only upto March 2011, this order is also confined to the period from the date of enforcement of the relevant provisions of the Act i.e. 20.05.2009 to 31.03.2011.
186. The Commission has given a thoughtful consideration to the issue of imposition of penalty. After carefully examining the pernicious effect emanating out of the cartel and its impact on the economy and consumers, the Commission is of considered opinion that this is a fit case to invoke the proviso to Section 27(b) of the Act.
187. The calculation of penalty limit based on turnover in terms of Section 27(b) is as under:
RTPE No. 52 of 2006 114Name Gross turnover 10% of Gross Turnover 10% of Total (in Rs. crore) for 2009-10 (in Turnover for 2010-11 Turnover as Rs. crore) taking as ( in Rs. Crore) calculated in into account calculated column 4 (in period of in column 2 Rs.crore) contravention (in post-notification Rs.crore) i.e. 20.05.2009 on pro-rata basis (in Rs. crore) Shree Cement 3475.20 347.52 3937.78 393.77 741.29
188. The calculation of penalty limit based on net profit in terms of Section 27(b) is as under:
Name Net Profit 2009-10 3 Times of Net Profit 3 Times of Net Total taking into account Net Profit as 2010-11(in Rs. Profit as (in Rs. period of calculated in crore) calculated in crore) contravention column 2 (in column 4 (in Rs.
post-notification Rs. crore) crore)
i.e. 20.05.2009 on
pro-rata basis (in
Rs. crore)
Shree Cement 585.33 1755.99 209.70 629.10 2385.09
189. It is evident that the amount of three times of net profit calculated as above is higher than 10% of the turnover. As per the provisions of proviso to Section 27(b) of the Act, the penalty may be determined on the basis of net profit or turnover whichever is higher. In the present case, the Commission takes into account the net profits for computing penalties. For the reasons adumbrated earlier, the Commission hereby imposes a penalty of 0.5 times of net profit for 2009-10 (from 20.05.2009) and 2010-11 in case of Shree Cement in this case as follows:RTPE No. 52 of 2006 115
Name Net Profit 2009-10 0.5 Times of Net Net Profit 0.5 Times of Total (in Rs. crore) taking into account Profit as 2010-11 (in Net Profit as period of calculated in Rs. crore) calculated in contravention post- column 2 (in column 4 (in notification i.e. Rs.crore) Rs.crore) 20.05.2009 on pro-
rata basis (in
Rs.crore)
Shree Cement 585.33 292.66 209.70 104.85 397.51
190. Further, Shree Cement is directed to cease and desist from indulging in any activity relating to agreement, understanding or arrangement on prices, production and supply of cement in the market.
191. Lastly, it is clarified that in this order parties have been mentioned by their names/ abbreviated names/ acronyms as used by the DG in the Report for sake of easy reference and convenience. The exact names of the parties as obtaining as on date have been specified in the cause title as noted in the beginning of this order and the directions issued by the Commission are to relate to such names only.
192. Moreover, only one version of the order is issued in view of the order passed by the Hon'ble Competition Appellate Tribunal on 11.10.2012 in the batch of appeals arising out of the original orders of the Commission passed in the matter. For ready reference, the same is noted below:
Mr. Balbir Singh, Learned Counsel for the CCI says that all the copies maintained under Sub Regulation 13 of Regulation 35 of the Competition Commission of India (General) Regulations, 2009 shall be supplied to the concerned Appellants within one week from today. The Appellants have no objection to this.
193. Even otherwise, the data used in the order are historical in nature by now and therefore, it would be enough if only one order is issued.RTPE No. 52 of 2006 116
194. The Commission directs Shree Cement Limited to deposit the penalty amount within 60 days of receipt of this order.
195. The Secretary is directed to communicate a copy of this order to the parties.
196. It is ordered accordingly.
Sd/ (Devender Kumar Sikri) Chairperson Sd/ (S. L. Bunker) Member Sd/ (Sudhir Mital) Member Sd/ (Augustine Peter) Member Sd/ (U.C. Nahta) Member Sd/ (Justice G. P. Mittal) Member New Delhi Date: -----/------/2016 RTPE No. 52 of 2006 117 50 0 100 150 200 250 300 350 50 0 100 150 200 250 300 350 Punjab Jan-07 Jan-07 Chandigarh May-07 Apr-07 Jul-07 Sep-07 Oct-07 Jan-08 RTPE No. 52 of 2006 Jan-08 May-08 Apr-08 Sep-08 Jul-08 Jan-09 Oct-08 May-09 Jan-09 Sep-09 Apr-09 Jan-10 Jul-09 Oct-09 May-10 Jan-10 Sep-10 Apr-10 Jan-11 Jul-10 Oct-10 Jan-11 ACC Binani Jaypee Ambuja Ultratech India Cement Shree Cement JK 122 ACC Binani Ambuja India Cement Shree Cement Rajasthan 300 250 Ambuja 200 ACC Binani 150 India Cement 100 JP Shree cement 50 Ultratech 0 JK May-08 May-07 May-09 May-10 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Sep-07 Sep-08 Sep-09 Sep-10 Haryana 350 300 Ambuja 250 ACC 200 Binani 150 India Cement Jaypee 100 Shree Cement 50 Ultratech 0 JK May-07 May-08 May-09 May-10 Sep-09 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Sep-07 Sep-08 Sep-10 RTPE No. 52 of 2006 123 Bihar 350 300 250 ACC 200 Century Cements 150 India Cement JP 100 Lafarge 50 Ultratech 0 May-07 May-08 May-09 May-10 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Sep-07 Sep-08 Sep-09 Sep-10 Delhi 300 250 200 Ambuja ACC 150 Binani 100 India Cement Shree Cement 50 Ultratech 0 May-07 May-08 May-09 May-10 Sep-09 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Sep-07 Sep-08 Sep-10 RTPE No. 52 of 2006 124 Kerala 350 300 250 Ambuja 200 ACC 150 India Cement 100 Ultratech 50 Madras Cement 0 Jan-08 May-07 May-08 May-09 May-10 Sep-09 Jan-07 Jan-09 Jan-10 Jan-11 Sep-07 Sep-08 Sep-10 Karnataka 300 250 200 ACC 150 India Cement Madras cement 100 Ultra Tech 50 JK 0 May-07 May-08 May-09 May-10 Sep-07 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Sep-08 Sep-09 Sep-10 RTPE No. 52 of 2006 125 HP 50 50 0 0 100 150 200 250 300 350 100 150 200 250 300 Jan-07 Jan-07 May-07 May-07 Tamil Nadu Sep-07 Sep-07 Jan-08 Jan-08 RTPE No. 52 of 2006 May-08 May-08 Sep-08 Sep-08 Jan-09 Jan-09 May-09 May-09 Sep-09 Sep-09 Jan-10 Jan-10 May-10 May-10 Sep-10 Sep-10 Jan-11 Jan-11 ACC ACC Jaypee Ambuja Ultra Tech India Cement India Cement Madras Cement 126 J&K 450 400 350 300 Ambuja 250 ACC 200 Binani 150 India Cement 100 JP 50 0 May-08 May-07 May-09 May-10 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Sep-07 Sep-08 Sep-09 Sep-10 Uttrakhand 350 300 Ambuja 250 ACC JP 200 Lafarge 150 Shree Cement 100 Ultratech 50 JK Century 0 Binani May-07 May-08 May-09 May-10 Sep-09 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Sep-07 Sep-08 Sep-10 RTPE No. 52 of 2006 127 50 50 0 0 100 150 200 250 300 100 150 200 250 Jan-07 Jan-07 Jharkhand May-07 May-07 Chhattisgarh Sep-07 Sep-07 Jan-08 Jan-08 RTPE No. 52 of 2006 May-08 May-08 Sep-08 Jan-09 Sep-08 May-09 Jan-09 Sep-09 May-09 Jan-10 Sep-09 May-10 Jan-10 Sep-10 May-10 Jan-11 Sep-10 Jan-11 JP ACC Ambuja Ultratech ACC Lafarge Ambuja Century Century Cements Ultratech 128