Introduction

The Competition Commission of India ("CCI") in Re: Ministry of Corporate Affairs and Apollo Tyres and Ors.1 by an order dated 31 August 2018 ("CCI Order") imposed a collective penalty of INR 17.88 billion on five tyre companies and their association, i.e., Automotive Tyre Manufacturers Association ("ATMA"). CCI had imposed the penalty on the tyre manufacturers and ATMA for indulging in cartelisation, and contravening the provisions of Section 3 of the Competition Act, 2002 ("the Act").

Aggrieved by the CCI Order, a writ petition was filed by MRF Ltd. before the High Court of Madras ("High Court") which came to be dismissed. The matter reached before the division bench of the High Court which on 8 March 2018 directed the CCI to keep the CCI Order in a sealed cover till the disposal of the writ appeal. Eventually, vide an order dated 6 January 2022, the division bench of the High Court dismissed the aforesaid appeal. Aggrieved with the decision of the division bench of High Court, the tyre companies preferred special leave petitions (SLPs) before the Hon'ble Supreme Court. The Apex Court while refusing to interfere with the CCI Order left it open to the aggrieved parties to pursue their remedies in accordance with the law.

In this article, we navigate through the facts and findings of the CCI Order.

Brief Facts

The matter was initiated by the Ministry of Corporate Affairs ("MCA") under Section 19(1)(b) that empowers the CCI to inquire into alleged contraventions of the provisions under Section 3 of the Act. The respondents are five tyre companies, namely Apollo Tyres Ltd., MRF Ltd., CEAT Ltd., JK Tyre and Industries Ltd., Birla Tyres Ltd. ("Tyre Companies"), who control over 90% (ninety percent) of the tyre production in India. It was alleged that the Tyre Companies had raised the prices of tyres and tubes on the pretext of increase in prices of natural rubber and other inputs. However, no subsequent corresponding reduction in the prices of the tyres was witnessed upon the decrease in the prices of the raw materials.

In effect, this hindered the free and fair play of market forces because the benefit from the decline in the rubber prices was not being transferred to the tyre consumers as the domestic tyre industry was maintaining a self-styled 'price control'. In furtherance to this, it was also alleged that the Tyre Companies were imposing tariff and non-tariff barriers through their trade association, ATMA, to strengthen their control on the domestic tyre market. This resulted in closing down of inefficient players and monopolisation over the Indian tyre market. On the basis of these allegations alone, vide order dated 24 June 2014, a prima facie case was framed by CCI wherein it observed that such act of not passing on the benefit of reduction in prices to the consumers indicated lack of competition amongst the Tyre Companies. Consequently, an investigation was called upon to find out whether there was any 'agreement' present between the Tyre Companies and ATMA within the meaning of section 3 of the Act.

The investigation was done on five parameters, which included checking the (i) existence of price parallelism, (ii) financial performance, (iii) cost analysis of key raw materials, (iv) circumstances conducive for collusion, and (v) evidence of communication exchanged amongst the Tyre Companies and ATMA. Finally, as per the investigation report, it was concluded that the Tyre Companies under the aegis of ATMA, indulged in cartel activity by indirectly determining the sale prices of tyres in the domestic tyre market. Therefore, the investigation report held that the Tyre Companies and ATMA fell in contravention to the provisions contained in Section 3(3)(a) read with Section 3(1) of the Act.

Pursuant to the investigation report, the CCI called upon the respondents to submit their written and oral submissions, i.e., the Tyre Companies and ATMA.

Issues

The issues that were deliberated upon by CCI are two-folds:

  1. Whether the Tyre Companies along with ATMA had indulged in cartelisation in the domestic tyre market by way of an agreement/understanding amongst themselves for increasing/maintaining the prices of tyres and thus, violated the provisions of Section 3(3) read with Section 3(1) of the Act?
  2. If the Tyre Companies are liable under Section 3, then whether the office bearers of the Tyre Companies will liable under the provisions of Section 48 of the Act?

Decision of the CCI

With regards to the first issue, the CCI observed that in an ongoing cartel where prices are being kept high over a long period of time, it is not necessary that prices increase after every meeting between the members of the cartel. The Tyre Companies under the aegis of ATMA had been meeting every quarter to discuss key issues and challenges faced by the tyre industry. This gave the Tyre Companies a convenient platform to come together and share their individual price sensitive data and take collective decisions on the prices of tyres. Further, the existence of ATMA that collates sensitive information relating to supply, prices, etc. from various players in the market provided a platform for coordination among the manufacturers. Therefore, considering all this, the CCI deduced that as the market is highly concentrated with a few players holding a large share, there is a strong possibility of conducive environment for collusive behaviour.

The CCI also evaluated the direct evidence in form of communicative evidence to ascertain the anti-competitive conduct resorted to by the Tyre Companies. It noted that a bunch of emails sent on various dates by ATMA proved sharing of price sensitive data amongst the Tyre Companies through ATMA. In furtherance to this, the association also formed various sub-groups and conducted meetings where all the companies were regularly meeting on some pretext or the other. The malicious intent was evident when the CCI noted that no minutes had been maintained by ATMA for any of those meetings. A fact that even ATMA concurred to was that it used to collect and compile information relating to company wise and segment wise data (both monthly and cumulative) on production, domestic sales and export of tyres on a real time basis much prior to the publishing of quarterly results in the public domain – such compiled data was circulated amongst its members as well. Therefore, sharing of such sensitive information made the co-ordination easier amongst the companies, and hence the CCI held that the companies along with their association was indulged in anti-competitive practices.

As far as the second issue was concerned, CCI observed that the liability of individuals belonging to the erring companies is enshrined under Section 48 of the Act. More particularly, Section 48(1) of the Act provides that where a company is committing contravention of any of the provisions of the Act, every person who, at the time such contravention was committed, was in-charge of, and was responsible for the conduct of the business of the company/firm/association, shall be deemed to be guilty of the contravention and shall be liable to be proceeded against and punished accordingly. However, Section 48(2) of the Act attributes liability on the basis of de facto involvement of an individual. While the investigation report enlisted 15 persons to be held liable under Section 48, the CCI held only 7 of such persons2 liable on account of the key position, active involvement and knowledge of the discussion relating to price rise they had, therefore, making them liable under Section 48(1) as well as Section 48(2) of the Act.

Accordingly, the CCI directed the Tyre Companies to cease and desist from indulging in any activity relating to agreement, and ATMA to disengage and disassociate itself from collecting wholesale and retail prices through the member tyre companies or otherwise. In furtherance to this, it also imposed penalty upon the contravening parties at the rate of 5% of average turnover for the last preceding three financial years, which was from 2011-2014. A total penalty of INR 425.53 crore was imposed on Apollo Tyres, INR 622.09 crore on MRF Ltd., INR 252.16 crore on CEAT Ltd., INR 309.95 crore on JK Tyre and INR 178.33 crore on Birla Tyres along with a penalty of INR 0.084 crore on ATMA u/s 27(b) of the Act.

Comment

All may not be over yet for the Tyre Companies as the Hon'ble Supreme Court while refusing to interfere with the CCI Order in the SLPs, allowed the aggrieved parties to pursue their remedies in accordance with the law. Therefore, the aggrieved parties may file an appeal against the CCI Order under Section 53(B) of the Act. If an appeal is instituted against the CCI Order, it would be interesting to see how the proceedings would pan out.

The authors would like to acknowledge the research and assistance of Ms. Diya Dutta, a fifth-year law student at the Maharashtra National Law University, Mumbai.

Footnotes

1. Re: Ministry of Corporate Affairs and Apollo Tyres and Ors., Reference Case No. 08 of 2013. Available here.

2. The persons included the (i) vice-chairman and managing director of Apollo Tyres and ex-chairman of ATMA; (ii) president, Asia-Pacific, Middle East and Africa of Apollo Tyres; (iii) executive vice president (marketing) of MRF Ltd.; (iv) executive director (operations) and vice president (marketing) of CEAT Ltd.; (v) marketing director and president of JK Tyre & Industries; (vi) president/chief executive officer of Birla Tyres and (vii) director general of ATMA.

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