Monopolies and Restrictive Trade Practices Commission
Alkali Manufacturers Association Of ... vs Sinochem International Chemicals Co. ... on 24 April, 1998
ORDER
Sardar Ali, Member
1. The Alkali Manufacturers Association of India (AMAI) have moved this Commission with a complaint under Section 10(a)(i) and (iv) read with Section 2(o) and Section 33(1)(d)/(j)/(ja) of the Monopolies and Restrictive Trade Practices Act, 1969 (the Act, for brief) and under Section 36B(a)/(d) read with Section 36A of the Act charging respondent No. 1 (R-1 for brief) Sinochem International Chemicals Co. Ltd. (Sinochem for brief) and respondent No. 2 Nahar Industrial Enterprises Ltd. (Nahar for brief) for having indulged in certain restrictive and unfair trade practices, attracting the provisions of Sections 2(o), 33(1)(d)/(j)/(ja) and 36B(a)/(d) read with Section 36A of the Act.
2. In this regard the complainant had moved an injunction application for, inter alia, an ex parte ad interim injunction against the respondents restraining them from despatching the goods by forming a cartel either directly or indirectly and to pass a cease and desist order against the respondents pending enquiry as also restraining customs clearance, delivery or distribution of the Chinese product in India. The Commission did not consider it fit and proper to pass an ex parte ad interim injunction without hearing the respondents and accordingly issued notice on the said injunction application on November 27, 1997. After the service of notice had been effected to the respondents, detailed arguments were heard at length of the complainant as well as respondent No. 2. These arguments were concluded on December 23, 1997, and orders were reserved with liberty given to both the parties to file their written submission. However, none was present on behalf of respondent No. 1 namely Sinochem.
3. On December 31, 1997, respondent No. 1 made a special mention and moved an application under Section 12 read with Section 13(2) and regulation 14 of the MRTPC Regulations with a prayer to grant respondent No. 1 an opportunity to be heard before any order was passed by this Commission. The Commission in its opinion considered it appropriate to issue notice of this application to the complainant returnable on January 2, 1998. Thereafter on January 2, 1998, after hearing the submissions of the parties, this Commission was of the considered view that for proper adjudication of this case and keeping in view equity, justice and good conscience, the participation of respondent No. 1 was necessary and accordingly after allowing the application of respondent No. 1, the parties were permitted to file their written submissions and the case was fixed for arguments. The detailed arguments of all the parties to the complaint including respondent No. 1 were heard on various dates of hearing, Before going into the arguments and submissions made by the parties to this complaint, the brief facts about the complaint filed by AMAI are as hereunder :
According to the complainant it is an association of Alkali Manufacturers of India registered under the Companies Act, 1956. The said association has 34 members. All the six manufacturers of soda ash in India are the members of the complainant. Soda ash or sodium carbonate is a white powder and is used as raw material for the glass making, detergents, paper and metallurgy industries. It is produced in India from limestone and brine by synthetic process. The complainant has averred that the installed capacity of the soda ash manufacturers in India is more than the soda ash demand in the country and considering the demand, the Indian manufacturers were operating their factories below their installed capacities. Relevant data in this regard has been given at para. 5 of the complaint showing that against an installed capacity of 1.84 million MT per annum the production of soda ash during 1996-97 has been 1.62 million MT and the domestic demand for the same has been 1.55 million MT.
4. Soda ash is being sold by the Indian manufacturers to the Indian consumers in India at a basic price of around Rs. 8.600 per MT net of excise, exclusive of freight and other costs. Adding freight to Calcutta and Madras at Rs. 1,500 per MT, the landed price of soda ash at Calcutta and Madras works out to a little over Rs. 10,000 per MT. According to AMAI various producers of soda ash in China are dumping/selling large quantities of soda ash of Chinese origin in the Indian market through the trading combination/cartel known as Sinochem and they have accordingly indulged in restrictive and unfair trade practices prohibited by the provisions of the Act. Sinochem as an export cartel of Chinese producers has the financial capacity to initially sell Chinese soda ash at substantially low prices with a view to prevent fair competition and eventually drive the domestic producers of soda ash in India but of business. It has been alleged by the complainant AMAI that in furtherance of the restrictive and unfair trade practices being adopted by Sinochem, Sinochem is exporting soda ash to India at a price of US $ 160 per MT CFR which corresponds to Rs. 5,760 per MT, taking the conversion rate of $1 being equivalent to Rs. 36. At this price of $160 per MT adding the customs duty, insurance, port expenses and local freight, the landed price of Chinese soda ash in India works out to Rs, 8,330 per MT which is below the price of Rs. 10,000 per MT of the domestic producers at Calcutta/Madras. It has also been alleged by the complainant that the domestic prices of soda ash in China are Yuan 1550/ MT and Yuan 1650/MT corresponding to $187 and $199 per MT respectively in the month of July and August, 1997. In support thereof, the complainants have annexed at annexure B to their complaint two letters received from Technon UK Ltd., and Harrimann Chemsult Ltd., giving details of the prevailing domestic prices of soda ash in China. The complainants have further averred that as the information about China, which is otherwise a closed economy and no access to information being available whatsoever, the cost of production has to be taken as comparable to manufacturers in other countries. The complainants have also alleged that while pricing their product, Sinochem has exported on CFR basis and have accordingly kept the selling price uniform without taking into consideration the ultimate destination of the product which has varying rates of freight. AMAI based upon the information at annexure B of the complaint, about the domestic price of soda ash in China being $ 199 per MT, have notionally reduced 10 per cent. thereof as profit and have arrived at the cost of $ 179 per MT as would be prevailing in China. Accordingly, after adding freight from China to India at $ 30-35 per MT, the CFR cost works out to $ 209-214 per MT. Against this, Sinochem is exporting soda ash to India at $ 160 per MT thus, resorting to selling/dumping soda ash in the Indian market at a predatory price with an intent to restrict, distort and prevent competition in the domestic market in India. AMAI has also averred that under the Chinese economy where no information is available nor accessible to the outside world, the prices of the goods are not determined by free play of market forces, as also, there is no effective control and check on the international trading activities of Chinese manufacturers which are in the nature of restrictive trade practices as China is not a signatory and member of WTO and GATT.
5. Pursuant to the aforesaid averments of the complainant in the complaint and after hearing detailed arguments of the advocates for the complainant, respondent No. 1 and respondent No. 2, we have decided to segregate the submissions under the following broad categories while dealing with the injunction application :
(1) Cartel ;
(2) Predatory pricing ;
(3) Gateways ;
Cartel
6. B. Sen, senior advocate for respondent No. 1 has submitted that Sino-chem is not a cartel as alleged by the complainant and that it is a company under Chinese law. Sinochem is procuring the material for export to India from Chinese manufacturers, some of which are public companies whose stocks are traded at the Hong Kong stock exchange. Sinochem does not have any interest in the Chinese manufacturers of soda ash or nor does it represent the Chinese soda ash manufacturers or any of them. It has been argued that each Chinese soda ash manufacturer has an independent right to export soda ash directly to India or any other country. In support of this contention it has been argued that one of the manufacturers from whom the subject exports were procured by Sinochem has its own independent rights of export as have the other companies in China.
7. For the purposes of showing that Sinochem is not a cartel, B. Sen has relied upon the judgment of Union of India v. Hindustan Development Corporation [1993] 3 SCC 499 ; AIR 1994 SC 988. Our attention has been drawn to page 529 of the said judgment to the paragraph "cartel therefore is an association of producers who by agreement among themselves attempt to control production, sale and prices of the product to obtain a monopoly in any particular industry or commodity". Emphasis has been laid on the words "association of producers", It has been argued that in terms of their order the Hon'ble Supreme Court has held that a cartel can only be that of the producers of goods who by agreement are attempting to control production, sale and prices of products to obtain monopoly. As Sinochem is admittedly not a producer of soda ash but is only trading in the said product it cannot be said to constitute a cartel at all.
8. Also it has been argued that there is no agreement between Sinochem and respondent No. 2 namely Nahar as Nahar is only a purchaser and not an agent of Sinochem. In this regard our attention has been drawn to this fact that besides Nahar, Sinochem has also sold this product to other companies in India directly. Sinochem have averred that the Chinese economy has opened up considerably and there is free trade in China. Sinochem has also averred that with regard to the Chinese export of soda ash worldwide, Sinochem is exporting only 7 per cent. and with regard to Chinese soda ash export to India, it is exporting 40 per cent. of the quantity. Our attention has also been drawn to the brochure of Quingdao annexed at page 26 of the counter-affidavit of respondent No. 1 in support of their arguments that this company had been granted the right to handle import and export business according to the State reforms and open door policy.
9. As regards Nahar, respondent No. 2, they have stated that they have nothing to do with Sinochem except that they are importing soda ash from Sinochem like any other supplier of goods and the only consideration of import from China like any other commercial organisation, is to make gains from the transaction. Nahar have also averred that Sinochem has sold goods directly to other importers in India other than Nahar.
10. In response to the arguments of respondent No. 1 that Sinochem is not a cartel, R. K. Jain, senior advocate for the complainant, has argued that Sinochem is an export cartel of Chinese soda ash manufacturers and that Sinochem which is a Government company has the financial capacity and resources to indulge in restrictive trade practices and to absorb short-term losses for eventual long-term gains. In support of his contention of carteli-sation, Shri Jain has also relied on the Supreme Court judgment of Union of India v. Hindustan Development Corporation [1993] 3 SCC 499 ; AIR 1994 SC 988 wherein it has been held that formation of cartel is an unfair trade practice and is per se against public interest. With regard to the argument of respondent No. 1 that only producers can form a cartel and, therefore, Sinochem is not a cartel, Shri Jain has drawn our attention to that portion in this judgment wherein the Supreme Court while dealing with the definition of the word "cartel" has also taken into account various definitions, viz., "an association by agreement of companies or section of companies having common interests, designed to prevent extreme or unfair competition and allocate markets . .." This is the view also taken in the American jurisprudence. Accordingly, a cartel can also be of various enterprises or companies not necessarily being the producer of the goods. In Union of India v. Hindustan Development Corporation, AIR 1994 SC 988, the words "the association of producers" has been used as this case dealt with ; the price fixation by the producers of a particular commodity. Keeping in view the observation of the Hon'ble Supreme Court while going into various definitions of the word cartel, it is clear that "cartel" would entail all sorts of combinations whether by the producers or otherwise. Shri Jain has also argued that even otherwise this case squarely falls within the parameters of "cartel" as defined in this case of Union of India v. Hindustan Development Corporation, AIR 1994 SC 988, as it is the Chinese manufacturers of soda ash who along with Sinochem have formed a cartel for export of the product to India.
11. It has been argued by R. K. Jain, senior advocate, that Sinochcm in its counter-affidavit has merely denied that it is not a cartel and has placed no evidence on record in support of their averment that they are not a cartel. All along, Sinochem has also not disclosed its constitution as also it has not disclosed the arrangement or the agreement that it has with the domestic soda ash producers in China from whom it is sourcing material for export to India. It has been contended that Sinochem has not produced any information about the price at which it has procured soda ash from various manufacturers in China and how Sinochem has determined the export price. Sinochem has placed on record the cost of production of two companies in China which are at pages 55 and 57 of their counter-affidavit. These companies have been shown to have different costs of production. Similarly manufacturers from whom Sinochem has procured the material would also have different cost of production, Maintaining a uniform selling price by the manufacturers in China and Sinochem in particular, when the cost of production is different for different manufacturers, amounts to cartelisation. In this regard, Shri Jain, has relied upon the judgments in the case of Bengal Tools Ltd., In re [1988] 63 Comp Cas 468 (MRTPC) and Excel Industries Ltd., In re [1988] 64 Comp Cas 531 (MRTPC) in which it had been held that quoting identical rates or prices even when the cost of production varied is a presumption in favour of a cartel and the same is a restrictive trade practice.
12. Shri ]ain has further contended that the complainant had discharged its initial burden of proof showing prima facie restrictive trade practice being indulged in by the respondents and now the onus shifts on to the respondents to show that it is not indulging in the alleged restrictive trade practice, which burden of proof Sinochem has failed to discharge. Section 106 of the Indian Evidence Act supports this contention. This has also been the view taken by this Commission in the aforesaid two cases of Bengal Tools Ltd., In re. [1988] 63 Comp Cas 468 (MRTPC) and Excel Industries Ltd., In re. [1988] 64 Comp Cas 531 (MRTPC). Further, reliance has been placed on the provisions of Section 114 illustration (g) of the Indian Evidence Act, which contemplates that the courts may presume evidence which could be and is not produced and would, if produced, be unfavourable to the person who withholds it. The Hon'ble Supreme Court of India had taken the following view with regard to Section 114 of the Evidence Act in the following case :
In State of Punjab v. Modern Cultivators, AIR 1965 SC 17, in an action for negligence the defendant deliberately failed to produce in spite of the order of the court, reports and documents kept by the defendant in its canal office which would have thrown light on the question of negligence of the defendant. Held, that in the circumstances an adverse inference that the defendant was negligent in the management of the canal arose from the non-production of documents.
13. G. K. Ketkar v. Md. Haji Latif, AIR 1968 SC 1413, a party in possession of the best evidence which would throw light on the issue in controversy, withholding it--the court ought to draw an adverse inference against him notwithstanding that onus of proof does not lie on him--party cannot rely on abstract doctrine of onus of proof or on the fact that he was not called upon to produce it.
14. K. M. Patel v. M. Hussain Rahimbaksh, AIR 1981 SC 977, the non-production of those books by the defendant-firm and the production by it of stray letters and a bill constitute failure on its part to produce the best evidence and a presumption has, therefore, to be raised against it that if such evidence had been produced the same would have gone against the case propounded by it.
15. With regard to Nahar, respondent No. 2 herein, Shri Jain has pointed out that in Nahar's letter at pages 25 and 26 of the complaint, no satisfactory reply has been given to the effect that Nahar has itself held out as a trading partner associate of Sinochem International Co., China, which is the largest trading organisation of the Government of China. Nahar has further averred therein that it has also facilitated import of approx 50,000 MT of soda ash into India for various consumers during the past six months. It has been submitted by Mr. Jain that Nahar is the front of Sinochem in India.
16. It has further been argued by Shri Jain that the facts of this case are similar to the case of Alkali Manufacturers Association of India v. American Natural Soda Ash Corporation [1998] 94 Comp Cas 192 (MRTPC) wherein this Commission had passed injunction orders against ANSAC on the grounds of cartelisation, and that this injunction order had subsequently been confirmed and upheld by the Hon'ble Supreme Court of India. In ANSAC's case six manufacturers had got together to supply through ANSAC and similarly in this case various manufacturers in China have got together to export through Sinochem.
OUR ANALYSIS AND CONCLUSION :
17. Before we go into the submissions and arguments of the parties herein, we would analyse the law as it stands today and also as laid down by the Hon'ble Supreme Court of India which has to be followed by us. It will be appropriate for us to first go into the law as it stands with regard to the restrictive trade practices in India.
18. In the case of Telco v. RRTA [1977] 47 Comp Cas 520 ; AIR 1977 SC 973, and Mahindra and Mahindra v. Union of India [1979] 49 Comp Cas 419 ; AIR 1979 SC 798, it was held that a trade practice does not become a RTP merely because it falls within one or the other clauses of Section 33(1), but that it must also satisfy the definition of restrictive trade practice contained in Section 2(o). Therefore, these trade practices belong to the genus of RTP as defined in Section 2(o) and are treated as statutory illustrations of RTPs which the MRTP legislation seeks to regulate. The net cast by trade practices stated under Sub-section (1) has been made so wide so as to cover all possible restrictive trade covenants. However, subsequent to the aforesaid decisions of the Hon'ble Supreme Court of India, an amendment was brought about by the Legislature to this Sub-section (1) of Section 33 by adding the words "shall be deemed". With this amendment the view initially held by the MRTP Commission that the clauses appearing under Sub-section (1) of Section 33 are an extension or elaboration of the definition of RTP of Section 2(o) and the trade practices so specified are per se restrictive trade practices falling within the meaning of Section 2(o) was statutorily restored.
19. Consequently, in the case of Voltes Ltd. v. Union of India [1995] 83 Comp Cas 228 the Supreme Court, while referring to Sub-section (1) of Section 33, stated that a deeming clause has been introduced by Parliament saying that every agreement falling within one or more of the categories mentioned therein shall be deemed for the purposes of the Act to be an agreement relating to restrictive trade practices. While amending and substituting that part of Section (1) Parliament determined and specified that agreements falling within one or more of the categories mentioned in Clauses (a) to (1) in Sub-section (1) of Section 33 shall be deemed for the purposes of the Act to be agreements relating to restrictive trade practices. This was not the position in the original Sub-section (1). It was also held in this case that the effect of a statute containing a legal fiction is by now well-settled. The Legislature by a statute may create a legal fiction saying that something shall be deemed to have been done which in fact and truth has not been done, but even then the court has to give full effect to such statutory fiction after examining and ascertaining as to for what purpose and between what parties such statutory fiction has been resorted to. In the well known case of East End Dwelling Co. Ltd. v. Finsbury Borough Council [1951] 2 All ER 587 (HL). Lord Asquith had said (page 599) "if one is bidden to treat an imaginary state of affairs as real, one must surely, unless prohibited from doing so, also imagine as real, the consequences and incidents which, if the putative state of affairs had in fact existed, must inevitably have flowed from or accompanied it. . ,". The statute says that you must imagine a certain state of affairs; it does not say that having done so, you must cause or permit your imagination to boggle when it comes to the inevitable corollaries of that state of affairs.
20. It was further held that this court in various cases has dealt in detail with the effect of a statutory faction and the limitation of the court to ignore the mandate of the legislation unless it is violative of any of the provisions of the Constitution. So far as Sub-section (1) of Section 33 is concerned it mandates that agreements covered under different clauses of Sub-section (1) of Section 33 shall be deemed for the purposes of the Act to be agreements relating to restrictive trade practices. It can be said that Parliament, after having examined different trade practices, has identified such trade practices, which have to be held as restrictive practices for the purpose of the Act. To keep such trade practices beyond controversy in any proceedings, a deeming clause has been introduced in Sub-section (1) of Section 33 saying that such trade practices shall be deemed to be restrictive trade practices.
21. It was also held that, after the amendment of Sub-section (1) of Section 33, if an agreement falls within one of the clauses of the said sub-section, specifying a restrictive trade practice then it is no more open to the Commission or to the court to say that it shall not amount to restrictive trade practice. Trade practices enumerated in Clauses (a) to (1) of Sub-section f 1) of Section 33 shall be deemed to have been statutorily determined and specified as restrictive trade practices. Neither the Commission nor the court can question the wisdom of Parliament in having statutorily determined certain trade practices as restrictive trade practices unless in this process there is a contravention of any of the provisions of the Constitution.
22. We shall now proceed to analyse and give our conclusion on the issue of cartel in the light of the arguments and submissions of the parties herein as also the various decisions in this regard. The Hon'ble Supreme Court of India had interpreted and described "cartel" in the case of Union of India v. Hindustan Development Corporation, AIR 1994 SC 988, and held that formation of carte! is an unfair trade practice and is against public interest per se. The Hon'ble Supreme Court had made the following observation (headnote) :
"Analysing the object of formation of a cartel in other words, it amounts to an unfair trade practice which is not in the public interest. The intention to acquire monopoly power can be spelt out from formation of such a cartel by some of the producers. However, the determination whether such agreement unreasonably restrains the trade depends on the nature of agreement and on the surrounding circumstances that give rise to an inference that the parties intended to restrain the trade and monopolise the same."
23. However, while going into the various definitions of the word "cartel" taken into consideration by the Hon'ble Supreme Court, a cartel would essentially entail all sorts of combinations, whether by producers or otherwise for the purposes of restrictive trade practices. At page 1007 of this judgment cartel as in American Jurisprudence Second Volume 54, page 677, is mentioned as "a cartel is an association of companies or sections of companies having common interest, designed to prevent extreme or unfair competition and to allocate markets . . ."
24. It has further been observed by the Hon'ble Supreme Court, at page 1003, of the said judgment wherein the matter of R. K. Garg v. Union of India, AIR 1981 SC 2138 ; [1982] 133 ITR 239, 255, a Constitution Bench of the Supreme Court has observed "another rule of equal importance is that laws relating to economic activities should he viewed with the greater latitude than laws touching the civil rights such as freedom of speech, religion, etc." Accordingly, this being an economic field a greater latitude has to be given to the word "cartel" to include all sorts of combinations, which are anti-competition.
25. The complainants have averred in their complaint and the interim application that Sinochem is a cartel of manufacturers of soda ash in China who have got together to export to India in the form of a cartel through Sinochem. AMAI has submitted that the various manufacturers, who are exporting through Sinochem, have admittedly different cost of production and selling the product at a uniform price which is a restrictive trade practice of cartelisation inasmuch as it fails to take into account the difference in the cost of production of the various manufacturers. Indulging in the restrictive trade practice of cartelisation is bad in law as it negates the possibility of competition between the various domestic Chinese manufacturers and denies the consumers the advantage of competitive prices. AMAI has also contended that in the peculiar circumstances of the Chinese economy no information is available and accessible. AMAI has stressed that the constitution of Sinochem is such that it is a corporation wholly owned by the Government of China and it has the financial resources to absorb the short-term losses for long-term gains.
26. On the other hand, Sinochem has submitted that it is not a cartel as its individual manufacturers are within their rights to export the product to India individually. Sinochem has also said that there are some companies selling the product directly to India besides selling through Sinochem. However, during the course of the arguments the Commission had repeatedly asked Shri Sen to explain the arrangement/agreement between Sinochem and the manufacturers of soda ash in China as also how the price is determined by Sinochem keeping in view the different cost of productions of different manufacturers in China as also how Sinochem is accounting for the subsidies being given in China by the Government of China. However, no explanation has been offered by Sinochem on the exact nature of arrangement between Sinochem and the various manufacturers of soda ash in China, who are exporting through Sinochem. Also no explanation has been given as to how the prices are determined by Sinochem and at what prices the various manufacturers are selling their product to Sinochem for export to India.
27. In the complaint filed by the complainant the facts and circumstances of the case have to be determined and evidence has to be taken before a final adjudication can be made whether Sinochem is a cartel or not. Accordingly the question of Sinochem being a cartel has to be determined during the enquiry proceedings. However, for the present, what has to be taken into account is whether a prima facie case has been made out by the complainants and that there is sufficient prima facie ground to hold that Sinochem has indulged in restrictive trade practice of cartelisation.
28. We refer to the judgments of this Commission in the case of Bengal Tools Ltd., In re [1988] 63 Comp Cas 468 (MRTPC) and Excel Industries Ltd., In re [1988] 64 Comp Cas 531 (MRTPC) where it had been held as under : In Bengal Tools Ltd., In re. (1988] 63 Comp Cas 468 (MRTPC) the respondents were found to have quoted identical rates for various items even though their cost of production varied. The Commission observed that in spite of the fact that no positive evidence of the parties having met and decided on the rates was forthcoming, yet the onus of establishing existence of concert stood discharged by circumstantial evidence. This raised a presumption in favour of a cartel and the onus of disproving the cartel stood shifted to the respondent.
29. In Excel Industries Ltd., In re, [1988] 64 Comp Cas 531 (MRTPC), at page 543, the Commission had held that in the absence of the agreement, the respondents would have competed with each other in respect of the price they were required to quote depending upon their cost of produc--tion, the margin of profit and other market considerations. We, therefore, answer the issue in the affirmative and hold that the respondents have indulged in the restrictive trade practice as stated in the notice of enquiry.
30. As regards respondent No. 2, the learned advocate for Nahar was very fair in his submission that Nahar was into the trading business of imports for gains purely on commercial consideration and that it would not like to be a party to any activity which is against the public interest.
31. Taking into consideration this instant case based upon the aforesaid decided cases, it is prima facie made out that there is different cost of production of soda ash for different manufacturers in China who are selling their product through Sinochem at a uniform price and this has raised a presumption in favour of a cartel being in operation. This is further compounded by the fact that Sinochem has not disclosed, in spite of being repeatedly asked by this Commission about the arrangement/agreement between the manufacturers of soda ash in China and Sinochem and as to how the prices are determined keeping in view the different cost of productions of these manufacturers. We hold that as laid down by this Commission in the Bengal Tools Ltd., In re [1988] 63 Comp Cas 468 (MRTPC) and Excel Industries Ltd., In re [1988] 64 Comp Cas 531 (MRTPC), the complainants had discharged their initial burden and in terms of Section 106 and Section 114 of the Indian Evidence Act as also the cases cited by the complainant in this regard being, (1) State of Punjab v. Modern Cultivators, AIR 1965 SC 17 ; (2) G. K. Ketkar v. Md. Haji Latif, AIR 1968 SC 1413, and (3) K. M. Patel v. Md. Hussain Rahimbaksh, AIR 1981 SC 977, para. 10 as also the circumstances herein, the onus shifts on the defendants, namely, Sinochem, to show they are not indulging in the restrictive trade practice of cartelisation on the grounds that the best evidence is available with Sinochem and it has failed to put the same on record in their defence. From the facts available before us, it is sufficient to arrive at a prima facie view as required at this stage, that Sinochem is a cartel indulging in cartelisation for the purpose of export of soda ash to India. We conclude accordingly.
PREDATORY PRICING :
32. B. Sen, senior advocate for Sinochem, has submitted that Sinochem has not resorted to predatory pricing for sale of Chinese soda ash in India. For this purpose, Shri Sen has invited our attention to para. 15 at page 8 of the complaint where the price comparison of Indian manufacturers and Sinochem has been given by the complainant. Shri Sen has averred that if the freight to Calcutta and Madras, amounting to Rs. 1,500 is not included in the price of the Indian manufacturers, then there would be hardly any difference left between the prices of Indian manufacturers of soda ash and the price of the soda ash supplied by Sinochem in India. Comparison has been made with the Alkali Manufacturers Association of India v. American Natural Soda Ash Co. [1998] 94 Comp Cas 192 where the complainant had not included the domestic freight for the purposes of arriving at their local price in comparison to the CIF price of American soda ash in India. Also, it has been contended that freight element as given by the complainant for its soda ash transportation to Calcutta/Madras from its works in Gujarat is unrealistic at Rs. 1,500 per MT. It has been argued that what this Commission ought to take into consideration is the basic price of soda ash ex-works of the manufacturers in India and the landed price of the soda ash of Sinochem in India.
33. It has also been averred by Shri Sen that the manufacturing process of soda ash is the same in India and China and this process is different from the natural soda ash produced in America. Due to soda ash being available in natural form in America, ANSAC's material is cheaper by about Rs. 1,000 as compared to the domestic process of soda ash in India. Sinochem in their counter-affidavit have at pages 55, 57 and 60 have shown that the cost of production of various manufacturers in China is RMB 818 per MTP corresponding to $ 98.5 per MT. Various invoices in Chinese language annexed to the counter-affidavit of respondent No. 1 but English translation of only two of these invoices have been given at pages 43 and 49 of the said counter-affidavit. These invoices show the selling price of soda ash in China being at $ 132 per MT. Reliance has also been placed on the Harriman Chemsult report giving the export prices in China at pages 30 and 31 of the counter-affidavit. It has been further contended by Shri Sen that the letters from Harriman and Technon UK Ltd., given at pages 27 and 28 of the complaint cannot be relied upon as the brochure of Harriman Chemsult which has been produced by respondent No. 1 in their counter-affidavit is more reliable. It has also been stated that respondent No. 2, Nahar is not the agent of Sinochem and the invoices for the material supplied to Nahar and others in India by Sinochem are at the same prices. It is Nahar who have represented themselves as agents of Sinochem without any concurrence from Sinochem in this regard. In view of all these circumstances, particularly the cost of production figures of soda ash manufacturers in China, as also the invoices giving the domestic prices of soda ash in China, all these go on to show that Sinochem has not resorted to predatory pricing with the aim to dump soda ash in India and consequently drive out the Indian manufacturers of soda ash.
34. In reply to the aforesaid contentions of Sinochem, the complainants have averred that Sinochem is resorting to export of Chinese soda ash to India at predatory pricing. Harriman Chemsult Ltd., and Techon UK Ltd., have confirmed that the domestic prices of soda ash are $ 199 per MT, which is given at pages 27 and 28 of the complaint. Assuming that there is a profit margin of 10 per cent. on the domestic price of soda ash in China, the cost of soda ash works out to $ 179 per MT. If the freight of $ 30-35 from China to India is added, the CFR price to India should be in the range of $ 209-214 per MT. Against this Sinochem is selling its product at $ 150-160 per MT which is far below what the normal CFR price of $ 209-214 per MT should be. Further, the reports of Harriman Chemsult relied upon by Sinochem do not give and indicate the domestic prices of soda ash in China but merely gives the export prices. Hence, the need for the complainant to seek the domestic prices from Harriman Chemsult and Technon was there.
35. The complainant has averred and pointed out various anomalies with regard to the evidence produced on record by Sinochem pertaining to the domestic cost/prices of soda ash in China. The elements of cost of production of Chinese manufacturers at pages 55, 57 and 60 of counter-affidavit of Sinochem have taken into account only raw material, fuel and energy, salary and welfare, manufacturing fee and by-product refunding. Other costs which essentially go into determining the cost of material have not been included such as interest/finance expenses, depreciation on plant and machinery, corporate overheads, internal freight in China, salary and wages--to account for the heavy subsidies given by the Chinese Government, the cost of converting standard soda ash into high quality, etc. All these would add up to a substantial amount and if added to the cost of production given by Sinochem, the landed cost of Chinese material accordingly will be substantially higher.
36. Further at page 29 of the complaint at annexure C, AMAI has worked out the landed price of the Chinese soda ash after including the import duty and clearing and forwarding expenses totalling to $ 289.65 per MT equivalent to Rs. 10,427 per MT. This compares with the prices of soda ash in India at Rs. 10,100 per MT at Calcutta and Madras. This would reinforce the argument that as the process of manufacturing soda ash in China and India is same, the prices would also be more or less the same.
37. Further, AMAI has contended that Sinochem has not produced the cost data and the invoices for the material which it has procured from the various Chinese manufacturers for export to India but have placed on record invoices and cost of production not pertaining to Sinochem soda ash export to India. AMAI has contended that the invoices which have been placed on record do not give the domestic prices of the "high quality" soda ash which is the soda ash exportable and traded internationally. What is given in the invoices is the price of standard soda ash, which is the inferiormost soda ash. AMAI has contended that assuming, without admitting, that these invoices are considered to be correct, the domestic price of soda ash works out to $ 132.53 per MT to one set of invoices in the counter-affidavit of respondent No. 1 and an average of $ 155 per MT for another set of invoices. Adding internal freight in China at $ 10 per MT and freight from China to India at $ 35 per MT, the CFR price in India works out to $ 177.53 per MT and $ 200 per MT respectively. Sinochem accordingly selling of the product between $ 150-160 per MT CFR is definitely a case of predatory pricing.
38. With regard to the freight element of Rs. 1,500 per MT to Calcutta/ Madras included in the price of the product of the Indian manufacturers, AMAI has stated that all the major producers of soda ash in India are located in the State of Gujarat. The material, which is being exported by Sinochem to India, is arriving at Calcutta and Madras. In view thereof, it is essential to compare the landed price of the domestic soda ash in India and Calcutta/Madras with the landed price of Sinochem's soda ash at Calcutta/Madras. The mode of transportation of soda ash in the country is through either rail transportation or road transportation, which works oul to more than Rs. 1,500 per MT and the freight at Rs. 1,500 which has been included by the complainant is essentially on the conservative side. Also the counsel for the complainant AMAI has drawn our attention to the fact that in the case of ANSAC local freight had not been included in the price of soda ash by domestic producers, as the American soda ash had, in that case, arrived at a port in Gujarat and the producers of soda ash are mainly located in that State in India.
39. The advocate for the complainant, R. K. Jain, has also brought to our attention the injury suffered by the domestic industry whereby due to heavy exports of Chinese material to India at low prices, the stocks/inventories as on December 31, 1997, had increased to more than 1.75 lakhs MT for the entire industry. Also it has been brought to the notice of the Commission, the Government of Gujarat's letter addressed to the Central Government giving the adverse impact of Chinese exports in general and Sinochem export in particular to India at a price lower than normal and fair price with the clear attempt to undercut the Indian producers of soda ash. It has been argued by AMAI that Sinochem's intention of exporting to India at predatory prices is brought out by the fact that Sinochem and its associate companies have been subjected to additional as well as antidumping duties in India in the recent past.
OUR ANALYSIS AND CONCLUSION :
40. from the arguments addressed to us by the complainant and the respondents with regard to the prices, a case is made out by the complainant that there is an indication of Sinochem exporting to India at a price lower than the normal price with the intention of under-cutting the domestic manufacturers of soda ash. What is important is that Sinochem has not placed on record any document to show the transactions underlying between Sinochem and the various manufacturers of soda ash in China for their export to India. Sinochem has not discharged its onus satisfactorily to show us that it has not resorted to pricing lower than the normal and fair price of the product. On the other hand, the complainant has been able to show prima facie that the price at which Sinochem is exporting to India is below the normal price. Sinochem's own evidence is pointing towards this aspect. However, as this matter requires to be gone into in detail at the enquiry stage and what is important to us at this stage is to ascertain and determine whether prima facie Sinochem has resorted to restrictive trade practice of selling its goods at below the normal and fair value in an attempt to undercut the Indian manufacturers of soda ash. We answer the same in the affirmative to the effect that prima facie an inference can be drawn that Sinochem is exporting soda ash to India at a price lower than the normal price, which attracts the provisions of Section 33(1)(j) of the Monopolies and Restrictive Trade Practices Act. We conclude accordingly.
GATEWAYS :
41. Respondent No. 1 has also argued that assuming without admitting that all the allegations of the complainant are correct, the first respondent would be entitled to one or more gateways available under Section 38(i)(h). It has been argued that the export of material by Sinochem to India would not restrict competition to any material degree. The exports of soda ash by Sinochem constitute 7 per cent. of the export of Chinese soda ash worldwide and 40 per cent. of the export to India. Compared to the market of soda ash in India, the exports of soda ash by Sinochem constitute only about 3 per cent. of the said market of soda ash in India. There would be no injury to the competition in India and assuming without admitting that there is a marginal injury to the competition then the de-minimus rule would apply. In view thereof Sinochem is entitled to the gateways under Clause (h) and Sub-section (1) of Section 38. This view has also been taken by respondent No. 2 namely, Nahar that no adverse impact would be there to the competition in India arising out of import of soda ash from Sinochem.
42. On behalf of the complainant, it has been submitted that the very fact that Sinochem has raised a plea for gateways is an admission of Sinochem being a cartel engaged in restrictive trade practices. The complainant has submitted that the gateways cannot be pleaded at an interim stage. Even if for the sake of arguments gateways can be pleaded at the interim stage, respondent No. 1 has not submitted any evidence for availing of benefit of the gateways under Section 38 of the Act.
43. In this regard, we have to say that we are still at the threshold of the matter and are at a stage when we are adjudicating on the injunction application. As we have yet to reach the evidence stage and no substantial evidence has been adduced so far. Also whatever evidence has been adduced so far, it is only for the purpose of coming to a prima facie conclusion for adjudicating on the injunction application. Needless to say, reasonable opportunity will be afforded to the respondent at the appropriate stage of enquiry, after the evidence has been lead, in which circumstances this Commission would be in a position to adjudicate on the issue of public interest.
44. We may summarise our conclusions with regard to the aforesaid three issues briefly as follows :
(1) Cartel : Prima facie, Sinochem along with the manufacturers of soda ash in China are a cartel indulging in the alleged restrictive trade practice of cartelisation with regard to the export of soda ash to India.
(2) Predatory pricing : With regard to the predatory pricing a positive inference can be drawn that Sinochem is selling its product to India at a price which is below the normal prices as prevailing in China.
(3) Gateways : As this detailed evidence has to be lead by the parties, it would be open to the respondents to plead gateways at the appropriate stage of the enquiry.
ORDER
45. It is established law that to grant an interlocutory injunction during the pendency of the legal proceedings is a matter requiring the exercise of discretion of the court. While exercising the discretion the court applies the following tests--(i) whether plaintiff has a prima facie case ; (ii) whether the balance of convenience is in favour of the plaintiff; and (iii) whether the plaintiff would suffer an irreparable injury if his prayer for interlocutory injunction is disallowed. The most recent case in this regard has been the case of Gujarat Bottling Co. Ltd. v. Coca Cola Co. [1995] 84 Comp Cas 618 ; AIR 1995 SC 2372, 2388. We are satisfied that the complainant has been able to establish a prima facie case in respect of their allegations regarding restrictive trade practice of the respondents. As regards the balance of convenience, we are of the view that in the present facts and circumstances and also keeping in view the dimension of public interest, the same is in favour of the complainant. We are also satisfied that if the prayer of the complainant for grant of injunction is not allowed at this stage the same would cause an irreparable injury to the domestic industry, rendering it irretrievably sick.
46. In view of the aforesaid we allow the injunction application of the complainant and pass a limited order that respondent No. 1 shall not indulge in the restrictive trade practices of cartelisation, directly or indirectly, which attracts the provisions of the Monopolies and Restrictive Trade Practices Act, 1969, and further that respondent No. 1 and the companies manufacturing soda ash in China and exporting through respondent No. 1 shall not export to India at a price which is below the normal and fair price for export of goods in India. This order is without prejudice to the final outcome of the enquiry as well as the rights of the importers and exporters in their individual capacity. We may add that this order shall not in any manner interfere with the rights of the individual manufacturers and exporters in China to export soda ash to India at a fair and normal price. It shall also be open to the parties to seek any clarification/modification if it becomes legally necessary.
47. In the premises, we direct that a notice of enquiry be issued to the respondents under Sections 33(1)(d), 33(1)(j), 33(1)(ja), Section 2(o) and under Section 36B(a)/(d) read with Section 36A of the Monopolies and Restrictive Trade Practices Act, 1969, returnable on July 2, 1998.