In August of 2016, the Competition Commission of India (CCI) passed an order in the case of Builder’s Association of India (2016 Order) predominantly re-affirming its earlier order of June 2012 in the same matter (2012 Order).

By way of a brief background, the case originated from a complaint filed in 2010 by the Builders Association of India (BAI) against the Cement Manufacturers’ Association (CMA) and 11 Indian cement manufacturing companies[1] (collectively, the Opposite Parties). In June 2012, based on an inquiry conducted by it, the CCI imposed a penalty of INR 63.17 billion (approximately USD 933.68 million[2]) on the Opposite Parties. This penalty was imposed for using the platform provided by the CMA to fix cement prices as well as limit and control production and supply of cement in the market, thereby contravening the relevant provisions the Competition Act, 2002 (Act). This 2012 Order was challenged before the Competition Appellate Tribunal (COMPAT), primarily on grounds of due process and violations of principles of natural justice and was set aside on these grounds. The matter was remanded to the CCI for fresh adjudication. Consequently, the CCI re-heard the Opposite Parties and passed the 2016 Order.

It is interesting to note that the 2016 Order has essentially endorsed the findings in the 2012 Order, imposing a penalty of 0.5 times of the net profits of the Opposite Parties for the years 2009-10 and 2010-11 for violation of the cartel provisions of the Act. Further, the role of the CMA was also examined by the CCI and it observed that the Opposite Parties exchanged price sensitive information relating to cost, prices, production and capacities using CMA as the platform.

The CCI, in the 2016 Order, also observed that while cartel arrangements may have been implemented at regional levels, the Opposite Parties could have entered into anti-competitive agreement at a national level. This being an enquiry under the cartel provisions of the Act, the CCI did not find the need to define a “relevant market[3]”.On the issue of standard of proof, the CCI maintained that direct evidence was not required for adjudicating such cases and as such, the standard of proof would be that of preponderance of probabilities. The CCI therefore examined circumstantial evidence which was reported as part of its inquiry (as aforementioned) and additionally employed price correlation analysis in its determination of cartel conduct by the Opposite Parties.

The CCI focused on price parallelism amongst the cartel members as the primary indicator of the cartel and found that the price correlation was greater than 0.9, which indicated a high degree of correlation amongst the Opposite Parties. Interestingly, despite the Opposite Parties’ arguments regarding use of correlation of percentage change in prices rather than absolute price, the CCI refused to do a detailed analysis to identify price parallelism. It further maintained that although the correlation of absolute prices is a sufficient indicator to establish price parallelism, it was not the sole indicator of the existence of a cartel.

The CCI also noted that the concentration levels of the cement market signify the oligopolistic nature of the market, which in fact facilitated collusion. Additionally, the CCI focused on dispatch parallelism and found that the Opposite Parties coordinated their actions as dispatch data for November 2010 demonstrated identical behavioural pattern. This was seen in the light of the fact that the dispatch reduced over the months of November and December 2010, even though the construction industry grew in a steadfast manner during this time. The CCI also took into account low levels of capacity utilisation and increasing prices in the months of January and February 2011 by the companies subsequent to the high powered committee meetings of the CMA.

The CCI further took note of the high profit margins and net profits of the Opposite Parties as compared to previous year’s figures, along with the absence of documentary evidence of independent behaviour, as factors for establishing the change in prices by the Opposite Parties amounted to anti-competitive conduct. The CCI did not concur with the Opposite Parties’ argument that such increase was due to market forces, higher investment and interest burden. The CCI, in light of the above, concluded that the Opposite Parties had formed a cartel in contravention of the provisions of the Act.

Although the CCI has tried to do way with procedural errors in light of the COMPAT’s order, several of the Opposite Parties have appealed the 2016 Order before the COMPAT. The decision that will now be passed by the COMPAT is likely to be precedent setting for all future cartel investigations and it can only be hoped that the COMPAT’s decision will provide concrete guidelines and evidentiary thresholds for cartel findings, which are adequate to warrant the imposition of such high economic penalties.

[1] ACC Limited, Ambuja Cements Limited, UltraTech Cements, Grasim Cements (now merged with UltraTech Cements), JK Cements, India Cements, Madras Cements, Century Cements, Binani Cements, Lafarge India and Jaypee Cements.

[2] USD 1 = INR 67.66

[3] The relevant market is a function of relevant product market and the relevant geographic market. The relevant product market is defined as all those products or services that are regarded as interchangeable or substitutable by the consumer, on the basis of the characteristics of the product, its prices and intended use. The relevant geographic market is defined as a market comprising the area in which there exists distinct homogenous competitive conditions in terms of demand and supply of goods or services that can be distinguished from the conditions prevailing in the neighbouring areas.