The true significance of the Competition Commission of India (CCI)’s recent order penalising 11 major cement companies for violating competition law is to be seen not just in the quantum of penalty, even though at more than Rs.6300 crore it is by far the largest such penalty and one that is sure to dent the profitability of the companies for years to come. By demonstrating its assertiveness in this path breaking order, the CCI hopes firmly to delineate the contours of competition law, which is relatively new to this country. Setting valuable precedents and accumulating case law are important, essential tasks before any regulator. The Competition Act (2002), amended in 2007, prohibits anti-competition agreements and the abuse of dominant position by enterprises, and regulates mergers and acquisitions as well as other forms of combinations in the corporate sector that have, or can have, an adverse impact on competition in India. The CCI has accused the major cement companies of adopting collusive practices, akin to forming cartels to prop up prices. While imposing a stiff penalty, the Commission says it has considered “the parallel and coordinated behaviour of cement companies on price, dispatch and supplies in the market.” Further, that even when capacity was available they did not increase supply to meet the rising demand. Apart from the fine, the companies were told to “cease and desist” from indulging in any anti-competition activity.
The cement companies are sure to go on appeal but even in these early days it is clear that they will cite the lack of direct evidence pointing to collusion. Their supporting arguments are likely to be equally familiar: that input costs covering raw materials, freight fuel and power have been going up across the country. Besides, the industry is very large and forming cartels when there are so many players is neither easy nor sustainable. All of these arguments can be rebutted but it is for the courts to pronounce a final verdict. The order against cement companies is the fourth major order by the CCI. Earlier, two entities, the real estate major DLF and the National Stock Exchange of India Ltd. (NSE) were found to have abused their dominant position and slapped with hefty fines. In the third case, three suppliers of aluminum phosphide, used in storing cereals, were fined Rs.318 crore for colluding with one another in a practice very similar to that of the cement firms. Although located in different parts of the country and having varying cost structures, these firms charged their major buyer, the Food Corporation of India, a uniformly high rate. The battle for an effective competition law has begun in earnest. The CCI’s assertiveness is a welcome sign.