Cementing the Competition Commission�s place….Vinod Dhall & Sonam Mathur
Landmark order against cement cartels is also a chance to step up advocacy and awareness of the law
Recently, the Competition Commission of India (CCI) delivered its arguably most high-profile order so far; slapping fines totalling Rs 6,300 crore on 11 cement companies for running a longstanding cartel that kept cement prices artificially high, limiting supply in the market. The CCI, which has so far been perceived as a not particularly firm enforcer of the new competition law, especially after lightly letting off some other cartels, is now in the spotlight.
What was the basis of the CCI�s landmark order? This article does not comment on its merits, which will be determined in the inevitable appeals to follow, and will be settled only in the Supreme Court. But some pertinent observations arise from the case. The first observation is that once again, the CCI found that the cartel was operating under the cover of an association, in this case the Cement Manufacturers Association � in fact, it was being practically operated by the CMA. This disease seems endemic in the country. In several previous complaints brought before the CCI, trade associations have been implicated, or at least involved, for example, travel agents, LPG cylinders, explosives and banking.
In the cement case, the CMA was collecting, on a weekly basis, data relating to retail and wholesale prices and furnishing these to the Department of Industrial Policy and Promotion (DIPP) in compliance with the latter�s directive; thus the CMA pleaded not guilty. The point the CCI made was that the DIPP never asked the CMA to disseminate the data to its members, only to the government. By freely distributing sensitive information about prices, despatches, movements etc, the CMA enabled its members to coordinate prices, production levels, etc leading to inordinately high prices compared to neighbouring countries like China and Pakistan.
Cement has a particularly chequered history in global competition law. Cement cartels have been investigated and punished in several countries in the EU, South Africa, Argentina, Mexico and Taiwan. The CMA members could have avoided this fate if they had, while complying with the government�s directive, built a Chinese wall within the organisation and not allowed members access to this sensitive information. It could have appointed an independent agency to collect this data and send it directly to the government. The CMA, instead, appointed one cement company in each zone to do this work! Either it was insufficiently educated about the competition law�s prohibitions or it was simply opportunistic, exploiting this mandate from the government for its own purpose.
The second point is about the ignorance or negligence of the DIPP. Any student of competition law would understand that information about rivals� prices, capacities, despatches, etc is highly sensitive and may not be shared amongst competitors, who are expected to compete vigorously with each other. Presumably, the DIPP directed the CMA to gather and provide this information with the view of keeping a check on prices. But it clearly lacked the understanding that its directive was likely to create opportunities for collusion, which would defeat this purpose. It did not bother to keep a check on how this data was being used by the CMA. In fact, when the CMA asked the DIPP whether it should continue to gather such information in light of the new Competition Act, the DIPP firmly said yes.
The third point is about the advocacy responsibility of the CCI. The level of ignorance or complicity that exists amongst trade associations and, as this case shows, the lack of awareness within ministries themselves means that the CCI has its work cut out. At one stage, it did take this mandate under the act seriously; it could consider resuming those efforts. Better awareness and fear of the competition law will lead to better compliance, and will reduce the number of complaints coming to the CCI, allowing it to use its limited resources more optimally.
The fourth observation is about the leniency provision in the act, the only law in India with an in-built whistleblower facility. So far, in not a single case has any party to a cartel come up to the CCI and blown the whistle. Why? One reason might be that until recently, the CCI barely imposed any penalty that would bite, so there was little incentive for any party to break ranks with other members of the cartel. Another reason could be a credibility issue � if a party spilled the beans to the CCI, would it actually be given lenient treatment? It is believed the CCI is considering ways to incentivise leniency applications. That will in turn hugely disincentivise cartels.
The cement order, thus, is not merely a major development in itself, but also an opportunity to drive measures on other competition-law-related fronts.
Dhall is a former head of the CCI and presently chairman, Dhall Law Chambers. Mathur is an associate at Dhall Law Chambers