Aggrieved by the Competition Commission of India (CCI)'s decision to investigate the alleged cartelization in Assam and the North-East region by cement manufacturing companies, Star Cement Ltd. (the Petitioner) approached the Gauhati High Court. The Petitioner contended that the CCI had insufficient grounds to establish a prima facie case against them. After hearings parties in length, the High Court held that the price variations among the companies indicated competitive behavior rather than cartelization and, thus, there was no prima facie evidence of cartelization, which is a necessary pre-condition before initiating an inquiry. Consequently, the High Court has set aside CCI's order to investigate the alleged cartelization as well as the hefty penalty of Rs.5,00,000/- imposed on the Petitioner for non-compliance of certain directions.
Star Cement Limited (Petitioner) challenged the decision of the Competition Commission of India (Commission) dated 6th December 2016, in which the Commission ordered an investigation into alleged cartelization by Star Cement and other cement manufacturers in Assam and the North-East region. This inquiry was initiated based on information from the Assam Real Estate and Infrastructure Developers Association, and reference from the Government of Assam. The Association alleged that the petitioner company alongwith some other cement manufacturing companies have been indulging in cartelization and abuse of dominants to manipulate the prices of their respective brands of cement in North-East Region of India. This was based on the premise that said manufacturers had simultaneously increased the price of cement within the State of Assam approximately within the same time frame and that post such synchronies price hike, the price of cement in the State of Assam became substantially higher than the price of cement sold by the same manufacturers in the neighbouring State. Further, where the price of cement differed between manufactures in the neighbouring State, unlike the case in the State of Assam. Lastly, it was alleged that the three cement companies were receiving substantial subsidies under the North-East Industrial and Investment Promotion Policy (NEIIPP) and not passing on the benefits to consumers.
The Commission prima facie found merit in the allegation that certain cement manufacturing companies, including the Petitioner, have indulged in anti-competitive activities, by seeking stifle competition in the market through collusive practices. The Commission accordingly directed the Director General (DG) to investigate the matter. The DG proceeded with the investigation and requested various documents from the Petitioner, which the latter failed to provide. As a result, the Commission imposed a penalty to the tune of Rs. 5,00,000. On 30th May 2018, the Petitioner filed a review application before the Commission. However, the same was rejected, based on lack of merits. Both the orders of the Commission, dismissal of review application as well as the imposing penalty on Petitioner were challenged before the High Court.
The Petitioner contended that the Commission initiated an investigation, without first establishing a prima facie case as required under the law. The Petitioner emphasized that before the CCI can direct an investigation, it must determine whether an anti-competitive practice exists. Without such a determination, any subsequent action by the Commission is illegal and void, and thus, the orders passed were without jurisdiction. Further, regarding imposition of penalty, Petitioner argued that it was unwarranted as the investigation itself was based on an unlawful order.
On the other hand, the Commission contested that the investigation was initiated based on a valid prima facie case and that the order directing the investigation was an administrative action, not subject to judicial review at this stage. The Commission also argued that the Court should not intervene in an ongoing investigation as it was premature.
The Court explained the historical aspect and need for the Anti-Trust law globally, as well as purpose and objectives of the CCI. Against this background, the Court examined whether a "prima facie" case existed for the Commission to direct an investigation, and whether the penalty imposed by the Commission was warranted.
The Court noted that while the companies in question increased their prices, the extent of price increases varied amongst the companies in question. Such variation did not indicate in uniformity in pricing. This lack of uniformity undermines the claim of cartelization, as the different prices suggest competitive behaviour rather than collusion. Basis on this, the Court found that there was no prima facie case, warning initiation of investigation.
Regarding the allegation that the cement companies were not passing on the benefits received under NEIIPP to consumers, the Court observed that the same does not imply a violation of the provisions of the Competition Act. The Court clarified that subsidies given to industries in this region are intended as incentives for establishment and not necessarily for passing on benefits to consumers. Therefore, such allegations cannot be considered as having an adverse effect on competition.
The Court also dealt with the allegation that the cement companies were selling cement at higher prices in the North-Eastern region compared to other states. It was noted that the Petitioner sells cement at a fixed price to wholesalers, offering quantity-based incentive discounts, which wholesalers may partially pass on the discount to customers. Even if the allegation of higher prices were true, the Court concluded that this does not negatively impact competition.
Therefore, the Court concluded that the information submitted by the Respondents to the Commission did not establish a prima facie case. As a result, the Court held that the decision of the Commission to direct an investigation did not meet the mandatory pre-condition required under the Act and was beyond its jurisdiction. Consequently, the Court set aside the orders of the Commission to initiate an investigation into the alleged cartelization, along with the penalty orders.
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