India: CCI Imposes Fine Of Rs 38.05 Crore On Sugar Firms And Their Associations
Last Updated: 19 September 2018
Article by Mr Piyush Gupta

Authored by Piyush Gupta

Vide its order dated 18 September 2018 ('Order'), the Competition Commission of India ('CCI') has imposed penalties upon 18 sugar mills and 2 Associations (Indian Sugar Mills Association and Ethanol Manufacturers Association of India) for rigging the bids in respect of a joint tender floated by Oil Marketing Companies (Bharat Petroleum Corporation Limited – BPCL; Hindustan Petroleum Corporation Limited – HPCL; and Indian Oil Corporation Limited – IOCL; together referred to as OMCs) in 2013 for procurement of ethanol for blending with petrol.

Under the Order, a total penalty of INR 38.05 crore (approx. USD 5.2 million) was imposed on 18 Sugar Mills and their Trade Associations. Besides, a Cease and Desist Order was also issued against them by the CCI.

Brief Background

In 2003, the Government of India introduced the Ethanol Blended Petrol Programme ('EBP Programme') whereunder, the Government mandated that ethanol (a by-product of the sugarcane industry) was to be blended with petrol, keeping in mind the beneficial effects of the same for the agriculture sector as well as towards the country's environment foorprint.

Initially, the EBP Programme could only be partially implemented due to the low availability of ethanol owing to lower sugarcane production.

Pursuant to a Notification dated 02.01.2013 issued by the Ministry of Petroleum & Natural Gas, Government of India ('MoP&NG'), regarding mandatory 5% blending of ethanol with petrol, the OMCs invited quotations for supply of ethanol through a Joint Tender dated 02.01.2013.

Brief Facts

The Informant (India Glycols Limited), had alleged that Indian Sugar Mills Association (ISMA) and Ethanol Manufacturers Association of India (EMAI) had persuaded the OMCs to come-out with a Joint Tender for the purpose of procuring ethanol. The said joint tendering by OMCs was alleged to be an agreement amongst competitors in contravention of the provisions of Section 3 of the Competition Act, 2002 ('the Act') which was likely to cause appreciable adverse effect on competition within India in supply and distribution of ethanol.

A separate allegation of bid-rigging was made wherein, it was alleged that the sugar manufacturers who had participated in the Joint Tender of 2013 manipulated the bids by quoting similar rates and in some cases, identical rates through an understanding and collective action in violation of the provisions of Section 3 of the Act.

CCI's Findings

In its Order, the CCI, while exonerating the OMCs of all charges, held that "since the terms of the tender are same for all the OMCs, floating a joint tender is not only a more efficient option, but is also more cost-effective, as it eliminates cost, time and effort in floating multiple tenders with the same terms and conditions", while going on to say that "floating of joint tender by OMCs for procurement of ethanol per se cannot be construed as anti-competitive particularly when such process has evident efficiency benefits".

This is a landmark decision wherein the CCI has studied the benefits of joint purchasing in-depth and distinguished the same from cartelisation because of the pro-competitive effects accorded by the former as against the adverse impact that the latter has.

Re the second allegation, the Order noted that the sugar manufacturers have indeed engaged in bid-rigging and through their conduct have contravened the provisions of Section 3 of the Act.

Accordingly, a total penalty of INR 38.05 crore (approx. USD 5.2 million) was imposed upon 18 Sugar Mills and their Trade Associations (ISMA/ EMAI). Besides, a Cease and Desist Order was also issued against them. In order to determine the quantum of penalties, the CCI applied the principle of relevant turnover and based the penalties on the revenue generated by the sugar mills from the sale of ethanol only. The penalty was imposed by the Commission @ 7% of the average relevant turnover of the sugar mills. However, penalty @ 10% of the average receipts was imposed upon the Trade Associations viz. ISMA and EMAI keeping in view the key role they played in facilitating bid-rigging.

Kochhar & Co's competition team of Reeta Mishra and Abhishek Verma, led by the competition practice head - Piyush Gupta, represented the OMCs before the CCI.

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