India: Competition News Bulletin – October 2018

Last Updated: 15 October 2018
Article by Vaish Associates Advocates

I. CARTELS AND ANTI-COMPETITIVE AGREEMENTS

INDIA

Competition Commission of India (CCI) imposes penalty on Geep Industries for being a member of bilateral "ancillary" cartel

By way of order dated August 30, 2018, the CCI imposed a penalty of INR 9,64 06,682 (Nine crores sixty-four lakh six thousand six hundred and eight two) on Geep Industries (India) Private limited ('Geep') for being in a bilateral ancillary cartel with Panasonic (India). Panasonic was a member of a larger primary cartel.

The investigation by the CCI was initiated on the basis of a lesser penalty application ('Leniency Application') filed by Panasonic Corporation, Japan on behalf of itself, Panasonic Energy India Co. Limited, and their respective directors, officers and employees on September 7, 2016. The Leniency Application filed by Panasonic disclosed the existence of a "bilateral ancillary cartel" between Panasonic (India) and Geep industries in the institutional sales of dry cell batteries.

It was further disclosed by the Leniency Application that Panasonic (India) had a primary cartel with Everyday Industries India (Everyday) and Indo National Limited (Nippo), where they coordinated the market prices of zinc-carbon dry-cell batteries. Utilizing its fore knowledge about the timing of price increase, Panasonic used to negotiate and increase the basic price of the batteries being sold by it to Geep. It was further disclosed in the Leniency Application that Panasonic and Geep used to agree on the market price of the batteries being sold by them in order to maintain price parity. Such price parity was in consonance with the prices determined by the Primary cartel, which comprised of Panasonic, Eveready and Nippo.

It was noted by the CCI that initially, the supply of batteries by Panasonic to Geep was on a quotation basis based on the required quantities. Subsequently, however, a Product Supply Agreement was executed between Panasonic and Geep, which obliged Geep to maintain the market prices proposed by Panasonic. As regards the defense taken by Panasonic that the particular clause which obliged Geep to not act in detriment to Panasonic's interest was merely to ensure discipline in trade. The CCI however rejected the defence, holding that the "the Product Supply Agreement was an agreement in normal commercial trade on 'principal-to-principal' basis between two independent parties, who are otherwise competitors. As such, it was held that the agreement impeded competition and cannot be justified.

It was further observed that when two independent competitors agree to protect each other's interest in the market, by no stretch of imagination can such agreement be considered pro-competitive. It was held that the very objective of the clause is to restrict or even eliminate fair competition in the market, and, therefore, no justifications offered are acceptable.

The penalty on Geep was calculated at the rate of 4% of its turnover from FY 2010-11 to 2016-17. However, Panasonic Energy India Co. Limited was granted a 100% reduction in the penalty amount since its representatives had provided genuine, full, continuous and expeditious cooperation during the entire course of investigation which not only enabled the CCI to order investigation but also helped in establishing a contravention of Section 3 of the Competition Act, 2002 ('Act').

The CCI also imposed penalty under Section 48 of the Act on Geep officials, Mr. Pushpa M (In-charge of accounts and finance), Mr. Joeb Thanawala (exchanged emails containing sensitive information), and Mr. Jainuddin Thanawala (Director).

(Source: CCI decision dated August 30, 2018; for full text see CCI website)

VA Comment: This case shows hardening of stance on cartels in India because, this is the first case in which a party which was not a member of the original/Primary cartel was held liable on the ground that it is in a "Bilateral ancillary cartel" with one of the members of the Primary cartel.

CCI imposes penalty on Karnataka Film Chamber of Commerce (KFCC) and its office bearers for limiting production and supply of dubbed movies within Karnataka

By way of an order dated August 30, 2018, the CCI imposed a penalty of INR. 9,72 ,943/- (Nine lakh seventy-two thousand nine hundred and forty-three) on KFFC for limiting production and supply in the market for dubbed movies within Karnataka.

The CCI began investigation into the present case based on an information that KFCC is hindering the release of the Tamil movie originally titled as "Yennai Arindhal" (now titled "Satyadev IPS")in Karnataka.

While finding a contravention of the provisions of the Act, the CCI relied on the video recording of a press meet available on YouTube which was attended by all the opposite parties. The video clip clearly evidenced a meeting of minds to prevent the release of the dubbed movie.

In addition to the Press Meet specifically targeting the release of dubbed films in the State of Karnataka, Jaggesh, a renowned Kannada film star and politician also took to twitter and issued multiple tweets, whereby he tried to charge the emotions of Kannada speaking people and instigated them to agitate against the dubbed cinema by specifically calling for protests at theatres where "Sathyadev IPS" belonging to Informant was scheduled to be screened.

The office bearers of the association, Mr. N.M Suresh (Honorary Secretary of KFFC) and Mr. H. Shivram (Honorary Secretary of Kannada Okkuta) were also found to be individually liable by the CCI.

As regards the role played by Jaggesh, the CCI noted that he was able to mobilise the masses emotionally to counter the release of dubbed content in general and the Informant's film in particular. It was further noted that the tenor of his tweets coupled with his stardom, was instrumental in mobilizing the sentiments of the masses against dubbed movies.

(Source: CCI decision dated August 30, 2018; for full text see CCI website)

VA Comments: This is a case of repeated violation by KFCC i.e. blatantly restricting the exhibition of dubbed movies in the State of Karnataka on grounds of protecting "cultural identity", which the Commission found to have a shade of recidivism.

CCI imposes penalty on Sugar mill manufacturers and Trade Associations (ISMA and EMAI) for collusive bidding in Government tender under the Ethanol Blending Programme.

The Competition Commission of India (CCI/Commission) vide order dated September 18, 2018 has imposed heavy monetary penalties at 7% of their average relevant turnover on sugar mills in Uttar Pradesh (UP), Gujarat and Andhra Pradesh (AP) and at 10% of the average receipts of the last three years on their trade associations (Indian Sugar Mills Association (ISMA) and Ethanol Manufactures Association of India (EMAI) for indulging in cartelization in supply of ethanol in response to a joint tender issued by three Oil Marketing Companies (OMCs) i.e. IOCL, HPCL & BPCL for procurement of ethanol for the ambitious Ethanol Blending Programme (EBP) of the Government of India , Ministry of Petroleum and Natural Gas (Mo PNG) for contravention of Section- 3(1) read with Section 3 (3) of the Act. A brief background of the case is as under.

The Indian Government introduced an ambitious Ethanol Blended Program (EBP), primarily to reduce its heavy crude oil import bill and keeping in mind the beneficial effects it would have for the agriculture sector and country's environmental footprint. Ethanol is produced in India from sugar molasses. From molasses, Rectified Spirit (RS) is produced having a strength of 95%. RS is then further distilled to produce ethanol having strength of 99.80% alcohol which can be blended with petrol.

In the year 2010-11 and 2011-12, OMCs floated tenders on 'Expression of Interest' (EOI) basis for supply of ethanol. The Cabinet Committee on Economic Affairs (CCEA) used to determine the base price for procurement of ethanol i.e. Rs. 27 per litre as an ad hoc interim price. Meanwhile a Committee headed by Sh. Soumitra Chowdhary was formed to examine the various issues pertaining to the pricing of ethanol for EBP Program. The said Committee, considering the pale response from the sugar mills for supply of ethanol against the fixed base price determined by CCEA at the rate of Rs. 27/- per litre recommended to introduce competitive bidding in the procurement to attract the sugar mills to supply ethanol on market driven prices. CCEA considered the Committee's report and issued a Press Release on 22.11.2012 which mentioned inter alia that "the procurement price of ethanol will be decided henceforth between OMCs and suppliers of ethanol ". Accordingly, the first joint tender for procurement of ethanol on competitive market prices was issued by Oil Marketing companies (OMCs), through BPCL, the coordinated Agency nominated for the purpose, on 02 January 2013. The tender process required quotations of basic price of ethanol and Net Delivered Cost (NDC).

The two main issues before the CCI were-

Firstly, whether the joint tenders floated by the OMCs violate Section 3(1) and Section 3(3) of the Act as being an anti-competitive agreement?

Secondly, whether the tender floated by the OMCs rigged by sugar mills and trade associations?

As regards the first issue, the CCI observed that there existed a limited availability of ethanol and in such a situation, if separate tenders would have been issued, the OMC which issued the first tender would have probably procured all or most of the quantity and thereby limiting procurement by the other OEMs. Moreover, since the terms of the tenders were same for all the OMCs, floating a joint tender is the most efficient option (Cost effectiveness, availability of equitable blending ethanol, non-exclusion of any OMC). Therefore, it was concluded that the joint tender did not violate the provisions of the Act.

With respect to the second issue, the CCI found that the bidders located in depots of Uttar Pradesh, Gujarat, Andhra Pradesh acted in a concerted and collusive manner in submitting their bids as indicated by their trade associations i.e. EMAI and ISMA. The collusive behavior was evident in the fact that the total quantity offered by the bidders matched the total required quantity and the absence of any plausible explanations by the bidders as to such happening. In addition to mere price parallelism, the CCI also took notice of the exact matching of freight charges by the bidders despite substantial variance in distance between the distilleries of the bidders and the depots for which they participated in the bidding process. However, for Maharashtra, the CCI noted that the bids for NDCs were not similar and bids for basic price matched only for a few bidders and hence there was no collusive bidding.

On the basis of its findings, the CCI imposed a penalty of 7% of the average relevant turnover of the preceding three financial years arising out of the sale of ethanol on the sugar mills. Further, the CCI imposed a penalty of 10% of the average receipts of preceding three financial years on the trade associations (EMAI and ISMA).

(Source: CCI decisions dated September 18, 2018; for full text see CCI website)

VA Comment: This case amply demonstrates the hardening of stance of the CCI in punishing any apparent coordination between competitors, mainly on legal grounds and ignoring the market realties. The case also illustrates how the trade associations facilitate coordination between competitors.

The ambitious EBP of the Government of India was a nonstarter from the beginning due to the non-remunerative price for the procurement of ethanol fixed by the CCEA i.e. at Rs. 27 per litre whereas the sugar mills / ethanol manufacturers were able to sell the same to other private buyers i.e. distilleries and pharma companies at much higher rates. The informations filed were clearly motivated with vested interest of the distilleries which were themselves procuring ethanol at higher rates from the same sugar mills in UP, for instance, which was mentioned to the CCI during the initial hearings. Thus, the basic price of Rs.35 to Rs. 36 per litre quoted by the sugar mills in UP apparently reflected the competitive market price, which fact was ignored by the CCI. The concept of demand-supply gap plays a major role in market-driven pricing mechanism which seems to have been ignored. The fact that the price of a product is determined based on the demand available of a product in the market cannot be ignored. It is disappointing to observe that the Commission has failed to appreciate the economics factors which has led the sugar mills to quote higher price.

Secondly, it is also surprising how the sugar mills in Maharashtra, which, in furtherance to the diktat given by the President of EMAI had all quoted basic price above Rs. 40/- per litre have been exonerated even when the EMAI itself was penalized.

Finally, it is necessary to question whether the sugar mills were really operating in a cartel, because nearly every OP made party to the instant case made a submission that the price quoted was realized on the basis of demand available in the market.

To read this Bulletin in full, please click here.

© 2018, Vaish Associates Advocates,
All rights reserved
Advocates, 1st & 11th Floors, Mohan Dev Building 13, Tolstoy Marg New Delhi-110001 (India).

The content of this article is intended to provide a general guide to the subject matter. Specialist professional advice should be sought about your specific circumstances. The views expressed in this article are solely of the authors of this article.

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