[Legal Article] Combating Cartelisation via Necessary Regulatory Framework: An Analysis by Pooja Tiwari

 

INTRODUCTION

The 18th Century economist highlights the hostility of public policy to Cartelisation in a market where the sellers who are otherwise rivals, rather than compete aggressively for their customers by undercutting each other’s prices, prefer to raise their prices simultaneously^1. Cartelisation is an alteration of market condition when two independent parties, associations, or companies collaborate for the same purpose, which is apt to influence, co-operate & distort competition regarding certain goods or services. The same is further done by colluding to fix prices and restraining or eliminating competition from the market². The Indian definition of cartelization aligns with the definition provided by UNCTAD’s Model Law of Competition. The market players often find it necessary to abide by such cumbersome competition rules to remain in the market and restrain themselves from any competitive impulses³.  

The selling prices of a commodity or purchase of goods are typically controlled by cartelization. It can majorly existent in oligopolies where a market has a small number of market players who are involved in the selling of homogenous goods. Though they are forbidden by the competition laws, yet, they continue functioning formally or informally, openly or secretly, and can be traced even nationally or internationally⁴. Competition laws were primarily brought forth with an objective to control such obstruction caused by the market players in the market economy so that free and fair competition can be maintained which is consumer-friendly and maintains good quality of the products. This, in turn, increases the efficiency of production and keeps the dominant players in order. Additionally, given its impact, cartelization is against the very objective of competition laws and further, causes privatization of the market economy by the market players⁵.

Cartelisation is thus a violation of competition law by causing harm to the existing competition in the market economy which tends to unequivocally damage the market structure while also affecting the fair and transparent market- flow. On the seriousness of cartels, the violation is subject to the ‘Per Se Rule” in the countries like the United Kingdom, the United States, and also India. Thus, even if the act in question may not be causing harm to the markets or the individuals as producers and consumers, cartelization surely violates the anti-competitive laws⁶.  

Cartelisation in India

Cartelisation is generally referred to as agreements that “provides for price fixation, customer and territory allocation, set distribution of goods and services, bid-rigging, restriction of supply, etc. and may be formed by an association of persons or enterprises⁸.” In Alkali Manufacturers Association of India v. Sinochem International Chemicals Co. Ltd⁷ that the term ‘cartel’ was to be given a greater dimension in such a manner that it includes all kinds of combinations and collaborations that are anti-competitive in nature. In India, before the Competition Act, there was no such law that explicitly dealt with anti-competitive practices, though Section 33 (1) d of the Monopoly and Restrictive Trade Practises Act, 1969 impliedly dealt with cartelization.

Later, it was the Raghavan Committee that analyzed the working of the MRTP act on anti-competitive practices and the committee under its report observed that the act did not very well justify the anti-competitive practices situation. Heeding the advice provided by the commission in its report prepared by the committee the Competition Act, 2002 was enacted with the objective to prevent anti-competitive practices from impacting the economic welfare of the country. Pertaining to the seriousness of cartels, in India, the ‘rule of reason’ is generally applicable to the situations and the hard-core anti-competitive practices like cartelization are subjected to the ‘Per Se Rule’⁹.

Builders’ Association of India v. Cement Manufacturers’ Association &Ors

The CCI in the case of Builders’ Association of India v. Cement Manufacturers’ Association &Ors¹⁰ while discussing cartelization, the Apex court observed that the parties were operating cartels from May 2009 to March 2011. And, further CCI relied on the statistical information provided by the Cement Manufacturer’s Associations on the price, supply of cement, its production, and the testimonies provided by the parties and the minutes' reports prepared. 

Observation¹¹ made by the CCI in reaching the decision was:

1.  The definition of “agreement” stated in provision 2(c) of the Competition Act, also includes tacit agreement¹². The parties are usually very careful in providing any direct evidence of their conduct regarding their call records, and paper trail; minutes thus, the inference is based on the circumstantial shreds of evidence that are taken as a whole. Thus, relying on the European Court of Justice’s decision in the Dyestuff case, that to look into the presence of any concerted action, the court should look into the evidence as a whole and not in isolation with each other. It also observed that considering “the clandestine nature of cartels, circumstantial evidence is of no less value than direct evidence to prove cartelization¹³”.
2. There was much information, and reports meetings provided by the Cement Manufacturer’s Association due to which it became easy to predict the market conditions. Thus, relying on the EC J's judgment in T-Mobile &Ors. v. Commission¹⁴ where it held that in any market having an oligopolistic environment, situations like these restricts competition in the market¹⁵.
3. Concerted action can be easily indicated by price parallelism when a situation exists where there is some sort of a strong price correlation between parties that are involved in the dispute raised. And when the same “in conjunct with other "plus factors", such as easy access to competition information, product and dispatch parallelism, and capacity underutilization will suffice to prove cartel”¹⁶.
4. There was deliberation in the conduct of the parties to reduce their production in order to create an artificial scarcity and in lieu to gain extraordinary profits raised the cement prices. 

Relying on the above arguments, it was held that parties breached Section 3(3) (a) and Section 3(3) (b) read with S. 3(1) of the Competition Act¹⁷. Imposing on the parties a penalty of 10% of total receipts they secured over two years and were asked to pay the penalty within 60 days of receipt of the order¹⁸.

Need for Combating Cartelisation in India

It is therefore imperative for the market economies to secure a balanced price range, production, supply chain, economic strategies, etc. And, a protocol should be maintained by the market players or the trade associations by promoting trade to have a healthy market structure enhancing fair competition that also lies in their favor and should try to deject themselves from any sort of discussion encouraging anti-competitive practices. The agreement involving anti-competitive activities, if it is once proved that concerted action was existent, it can easily be presumed that the agreement tried to have an appreciable adverse effect on competition. In a situation like this, it lies on the parties alleged such conduct to disprove such presumption.  

Thus, it would be advisable if the Competition Commission of India tried a better methodology for conducting investigations and further inquiries in such situations before passing any order. Thus, carrying out an extensive analysis of the abovementioned case involving cement cartelization, the Competition Commission of India should try to have a comprehensive framework for the implementation of the competition laws. Giving effect to the relevant related provisions which are more accurate and predictable, they must try to inculcate a more refined mechanism for conducting investigations while collecting the pieces of evidence for proving anti-competitive practices. 

 CONCLUSION

The anti-competitive activities today are globally considered a practice that poses a great danger to the welfare of the consumers and the market economy. With globalization, international trade and investment policies have also increased their pace and so have the anti-competitive practices like cartelization thus, now cartel prosecution has gained international scrutiny, conducted majorly by the OECD. Professionalism should be infused within the regulatory sphere through the right selection and capacity-building backed by the application of Information Technology (IT) to enhance information asymmetry across sectors. Majorly, it has become more convenient for the MNCs to escape such scrutiny process and conduct anti-competitive practices on a global scale. Thus, it has become very significant for competition law jurisprudence to first determine and then charge such conduct of cartelization in any jurisdiction to act as an example for other competition law regimes. 

End References

[1] Andrew R. Dick, “Cartels”, The Concise Encyclopaedia of Economics

 http://www.econlib.org/library/Enc/Cartels.html (Last visited 5th April 2018) 

[2] Maurice Guerrin and Georgios Kyriazis, “Cartels: Proof and Procedural Issues” Fordham International Law Journal Volume 16, Issue 2 1992.

https://ir.lawnet.fordham.edu/cgi/viewcontent.cgi?article=1340&context=ilj (Last visited 5th April 2018) 

[3] See Supra. 

[4] GNLU-MA-SS-0317-01 “Basic Tenets Of Cartelisation And Competition Law In India”

https://www.gnlu.ac.in/monthly-column/GNLU-MA-SS-0317-01.pdf (Last visited 5th April 2018) 

[5] See Supra. 

[6] Pranav Pathak, “Cartelisation: Recent Trends And Issues Faced By India”, International Journal for Law and Legal Jurisprudential Studies, ISSN: 2348 8212 http://ijlljs.in/cartelisation-recent-trends-and-issues-faced-by-india/ (Last viewed on 8th April 2018)

[7] [1999] 98 Comp. Cas. 333(CLB)

[8] See Supra. 

[9] Priya Urs and Rishi Shroff, “The Cement and Tyre Cartels: What India Can Learn from the US and EU”, Indian Law Journal, http://www.indialawjournal.org/archives/volume6/issue-2/article4.html (Last viewed on 8th April 2018)

[10] Builders Association of India v. Cement Manufacturer’s Association, (2012) Comp L.R 629 (CCI)

[11] See Ibid

[12] any arrangement or understanding or action in concert, whether or not the same is informal or in writing or intended to be enforceable by legal proceedings.

[13] See Ibid. 

[14] 2009 [ECR] I-04529

[15] See Ibid.

[16] See Ibid. 

[17] See Ibid. 

[18] See Ibid.

About the Author: This post is prepared by Pooja Tiwari, Research Fellow at the Indian Institute of Corporate Affairs, Manesar. She can be reached at poojatiwari@nujs.edu 

 

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