Monopolies and Restrictive Trade Practices Commission
Director General (Investigation And ... vs Modi Alkali And Chemicals Limited And ... on 1 March, 2002
ORDER
Moksh Mahajan, Member
1. Maintainability of the proceedings initiated as a result of issuance of Notice of Enquiry have been assailed by the respondents, who are ten in number.
2. First the facts in brief in order to appreciate the issue in question. An anonymous complaint was received alleging that some of the leading Undertakings in the Northern India have entered into a cartel for hiking the prices of their products having monopoly therein. The prices of chlorine gas and hydrochloric acid were stated to have registered an increase of 277% and 200% within six and four months respectively in the year 1992. The same were contended to be a result of an agreement amongst the parties to create an artificial scarcity in order to raise the prices of the products. Since the prices of the main raw materials namely, sodium chloride and electricity had more or less remained the same, there was stated to be a fictitious crises created to take advantage of the market position where the demand exceeded the supply. The parties are : Modi Alkali and Chemicals Limited (R-l); Shri Ram Consolidate Limited (R-8); Punjab Alkali and Chemical Limited (R-4); Kanoria Chemicals Limited (R-3); Ballarpur Industries Limited (R-5); Gujarat Alkali Limited (R-6); Grasim Industries Limited (R-7); Shriram Ind. Enterprises Limited (R-9); D.C.M. Chemicals Works (R-2); and all C.P.W. Plants (R-10) (impleaded later).
3. On the strength of the aforesaid facts, the Commission directed the Director General (Investigation and Registration) [hereinafter referred to as DG] to carry out a preliminary investigation regarding the alleged monopolistic and restrictive trade practices followed by certain companies. The DG, after making inquiries, submitted a Preliminary Investigation Report listing the facts in detail regarding the production pattern, prices, market share etc. The conclusion was that no case had been made out either in respect of the 'cartel' or manipulation of prices or conditions of delivery under Section 2(o)(ii) of the Monopolies and Restrictive Trade Practices Act, 1969. He accordingly recommended no action. The Commission after considering the PIR and the information was, however, of the prima facie view that the case needed enquiry and, therefore, directed the issuance of Notice of Enquiry under Section 10(a)(iv) and Section 37 of the Act read with Regulation 51 of the M.R.T.P. Commission Regulations, 1991.
4. Issuance of Notice of Enquiry has been objected to by the respondents on various grounds. It is the common contention of the respondents that the Notice of Enquiry lacks "a concise statement of material facts on which the notice is based" as prescribed in Regulation 51 of the M.R.T.P. Commission Regulations, 1991 not meriting cognizance of the anonymous complaint. The Commission has also not recorded any prima facie satisfaction before issuance of Notice of Enquiry. The order directing the issuance of Notice of Enquiry is not a speaking order and violates the principles of natural justice. Even on the factual matrix, the enquiry is not maintainable for the reason that out of 42 manufacturers in the organized sector all over the country only, 10 manufacturers have been impleaded. Even no enquiry has been made against 33 members of Alkali Manufacturers' Association. The 'pick and choose' policy adopted without any apparent basis reflects the issuance of Notice of Enquiry in a routine manner, which is further strengthened by the fact that the DG himself found no material to initiate the proceedings. Whereas the Act does not contemplate any roving enquiry, there is no material placed on record to show parity of prices, (b) collusive agreement, and (c) market share for forming the basis of conclusion that there is a cartel in respect of the nine parties. The Commission has also not recorded any reasons for coming to the conclusion different from the one arrived at by the DG.
5. Enquiry has also failed to set out the constellation of economic factors relating to the relevant trade - a condition precedent as per the mandate of the Hon'ble Supreme Court. The price of any product amongst other conditions is mainly dependent on the condition of 'demand and supply' in the market. Both the products, chlorine and hydrochloric acid, being the bye-products of caustic soda, their quantity generated is dependent on the quantity of caustic soda manufactured by the parties. The bye-products have no independent cost of their own. A few manufacturers like R-2, R-5 and R-9 are also the captive consumers of the bye-products resulting in a smaller quantity thrown in the market. Because of the explosive nature of the products involving storage problem, the retention of the goods for a long period is not possible belying the belief of creation of artificial scarcity. The products being hazardous material are governed by various rules and regulations under the Factories Act; Explosive Acts; Manufacture, Storage and Import and Hazardous Chemicals Rules, 1989; Environment Protection Act; Gas Cylinders Rules, 1981 and similar enactments. The increase in demand of the products from CPW Units, paper industry, other industries and the shortage in supply gets reflected in the increase in prices as happened in the year 1991-92. In any case, the increased price by itself would not warrant a conclusion of manipulation of prices and conditions of delivery to bring it within the ambit of Section 2(o)(ii) of the Act. In absence of any adverse effect on public interest as well on free competition having been shown, the Notice of Enquiry requires to be discharged.
6. We have given careful thought to the written as well oral submissions and arguments advanced on both sides as also to the decisions cited. Notice of Enquiry in the present case has been issued under Sections 10(a)(iv) and 37 of the Act read with Regulation 51 of M.R.T.P. Commission Regulations, 1991, as referred to in the earlier paragraph. Section 10(a)(iv) of the Act empowers the Commission to enquire into monopolistic or restrictive trade practices upon its own knowledge or information. Information/ knowledge regarding the facts can be gathered from available source. It can be derived from even an invalid/irregular complaint or from an anonymous letter as held by their Lordships of Hon'ble Calcutta High Court in the case of I.T.C. Limited v. M.R.T.P. Commission and Ors., reported in 1976 (46) (Calcutta) Companies Cases 619. Thus, the objection in regard to the complaint being anonymous is not valid.
7. Section 37 of the Act in turn speaks of an enquiry to be made by the Commission into any restrictive trade practice adopted or indulged in by any party, which is prejudicial to the public interest, The scope of enquiry by the Commission is basically against the business undertaking alleged to have indulged in anti-social practice as held by their Lordships in the matter of All India Motors Transport v. Good Year India Limited, reported in (1976) 46 Companies Cases 315. This has to be established.
8. Relevant portion of Regulation 51 of the M.R.T.P. Commission Regulations, 1991, on the other hand reads as under :
"51. Notice of Enquiry--(1) The Notice of Enquiry, referred to in Regulation 50, shall be accompanied by,--
(i) in the case of complaint under Sub-clause (i) of Clause (a) of Section 10 of the Act, a copy of such complaint;
(ii) in the case of reference under Sub-clause (ii) of Clause (a) of Section 10 of the Act, a copy of such reference;
(iii) in the case of an application under Sub-clause (iii) of Clause (a) of Section 10 of the Act, a copy of such application; and
(iv) in case of an enquiry under Sub-clause (iv) of Clause (a) of Section 10 of the Act, a concise statement of material facts on which the notice is based, or a copy of the preliminary investigation report or relevant extract thereof."
9. Reading of the above clearly shows that different requirements have been laid down in respect of Notice of Enquiry issued under different sub-clauses of Section 10 of the Act. In case of Sub-clause (iv) of Clause (a) of Section 10, Notice of Enquiry is to contain either a concise statement of material facts on which the notice is based or a copy of the preliminary investigation report or relevant extract thereof. (Underlined by us). It is either of the three, which has to accompany the Notice of Enquiry to conform to the Regulation 51 of the M.R.T.P. Commission Regulations, 1991. In the present case, Preliminary Investigation Report dated 18.10.1994 has been supplied to the respondents. The aforesaid PIR contains the full facts and particulars in regard to nine companies (including Shri Ram Fertilizers and Chemicals - a Division of D.C.M. Shriram Consolidated Limited). Preliminary Investigation Report by the DG not only refers to the detailed replies of the respondents giving information, amongst others, about the installed capacity of production, actual production in two relevant years i.e. 1991-92 and 1992-93 as well analysis of the information by him as supplied by the respondents. Reference has also been made to the complaint received from another party. The aforesaid information was available before the Commission to arrive at a prima facie satisfaction whether to issue a Notice of Enquiry or not.
10. It is true that the Commission has not recorded its satisfaction in writing while directing the issuance of Notice of Enquiry but there is no such specific stipulation in the provisions of the Act nor have the respondents pointed out any such provision or regulation. At the same time the principles of natural justice have not been excluded in the provisions read with regulation of the M.R.T.P.C. Regulations, 1991. Regulation 51 of the M.R.T.P. Commission Regulations, 1991 provides for furnishing an information in the form of PIR which forms the basis for arriving at a [prima facie satisfaction regarding issuance of notice of enquiry. In the case of Director General (Investigation and Registration) v. Excel Industries Limited, the Commission observed as under:
"We might state that the respondent is not entitled to know in what manner the Commission satisfies itself that the matter requires to be inquired into nor about the question of the sufficiency of the material for such satisfaction. These are matters for the satisfaction of the Commission."
11. Therefore, assailing the Notice of Enquiry on the grounds of non-recording of reasons in writing or absence of statement of facts while issuing directions for notice of enquiry are not valid both on facts as well as on legal grounds.
12. The short question for consideration is whether the facts stated in the Notice of Enquiry are sufficiently relevant with the charges alleged against the respondents which require the enquiry.
13. Closely looking to the Notice of Enquiry, we find that in para 2 of the same, a reference has been made to the complaint wherein it has been alleged that the respondents have formed themselves into a cartel and have increased the prices of chlorine gas and hydrochloric acid excessively and unreasonably without any regard to the cost of production. Cartel though not defined in the Act, but as understood in the light of the judicial pronouncements-'cartel is an association of producers who by agreement among themselves attempt to control production, sale and prices of the product to obtain a monopoly in any particular industry or commodity [Union of India and Ors. v. Hindustan Development Corporation and Ors. with Bhilai Engineering Corporation and Ors. etc., reported in (1993) 3 SCC 499]. It has been further observed by their Lordships that "a mere offer of a lower price by itself does not manifest the requisite intent to gain monopoly and in the absence of a specific agreement by way of a concerted action suggesting conspiracy, the formation of a cartel among the producers who offered such lower price cannot readily be inferred".
14. The three essential ingredients, namely, (1) parity of prices; (2) agreement by way of concerted action suggesting conspiracy; and (3) to gain monopoly or restrict or eliminate competition can be culled out from the aforesaid definition. There is no whisper in respect of any of these ingredients in the notice of enquiry read with PIR, In fact except for the use of expression 'cartel' there is no material to suggest either parity of prices or meeting of minds. Even no such inference can be read into the information as available in the form of PIR wherein the details in regard to the installed capacity, production, sales and price in the relevant years 1991-92 and 1992-93 are given.
15. On the facts and in the circumstances of the case as available on record before issue of Notice of Enquiry, there is not an iota of evidence on record to suggest the formation of a cartel on the part of the respondents as impleaded. In that view of the matter, we are of the considered view that the Notice of Enquiry read with PIR lacks the relevant and necessary information in regard to the parties having formed themselves into a cartel leading to the distortion and restriction of competition in the market and in turn having adverse effect on the public interest. The essential criteria having been not satisfied we would agree with the respondents that prima fade there was no case for issuance of Notice of Enquiry in regard to the first charge of cartel.
16. In regard to the second charge i.e. manipulation of conditions of delivery or prices, we find that in his PIR, the DG while referring to increase in prices of the two products has stated as under :
"It is true that the prices of liquid chlorine gas as well as hydrochloric acid have gone up substantially during 1992-93 without any relation to the cost of production."
He has also concluded that "it is no doubt a fact that the prices of both chlorine gas and hydrochloric acid have gone up abnormally and perhaps there is no economic justification for such steep increases" (Underlined by us). Information furnished by the respondents to the DG reveal that the percentage of increase in prices is not in line with the sales which have either increased slightly or remained the same in the year 1992-93. From the material furnished, a substantial increase in prices of the two products can also not be attributed to increase in raw materials, which in this case are sodium and electricity The explanation that the goods have to be disposed of in a short period of time because of their nature is also not borne out by the figures of production and the sales in the two years under consideration. Whether there was an excessive demand or creation of an artificial scarcity by the respondents is a matter of evidence which can be gone into at the time of trial. Thus, taking into consideration, the DG's observations at places and also the material on record, there is a strong inference in regard to the manipulation of the conditions of delivery or prices leading to distortion and restriction of the competition in the market The latter is definitely prejudicial to the public interest, more so to the smaller industrial units which are consumers of the two products in question. In view of this, we are of the considered view that the notice of enquiry is maintainable in regard to the second charge levelled under Section 2(o)(ii) of the Act. The establishment of the charge is, however, subject to the evidence to be led by both sides at the time of the trial.
17. In view of the above, we would hold that while the noticeof enquiry is not maintainable in respect of charge of 'cartelisation', there is I sufficient material to come to the prima facie view that the charge under Section 2(o)(ii) of the Act needs to be inquired into.
18. In the result, the Notice of Enquiry is directed to be modified so as to delete the first charge regarding cartelisation and the proceedings to continue in respect of the second charge pertaining to manipulation of conditions of delivery or price under Section 2(o)(ii) of the Act.