Builders Association of India 

v.  Cement
Manufacturer's Association

Competition Law
Internal II

Submitted by:
Mayank Grover

Division: C, Roll No: 13010124253, Class of: 2013-2018

Symbiosis Law School, Pune

Symbiosis International University, Pune
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Introduction
The Competition Commission of India ('CCI') delivered a landmark order on 31st August, 2016 in
the case of Builders Association of India v. Cement Manufacturer's Association1 wherein it
found 11 cement companies and their trade association guilty of Section 3(3) of the
Competition Act, 2002 for fixing prices and creating artificial scarcity. This order was passed
subsequent to the directions of the Competition Appellate Tribunal ('COMPAT') to pass a fresh
order within three months from its own order. Considering that the cement industry is very
critical to the economy of the country, an analysis of the COMPAT order becomes imperative.

Facts of the case

The Builders Association of India ('BAI'), a society registered under the Society Registration Act,
1860 is an association of builders and other entities involved in the construction sector. They
informed the CCI of a possible cartelization by 11 cement companies and the cement
manufacturing association ('CMA'). CMA is an association of cement companies which was used
as a forum for discussion on common issues affecting the cement industry. They contended
that the 11 cement companies used the CMA as a platform to exchange price sensitive
information, production capacity and dispatch information during certain months in 2009-10.
As a result of such exchange information, the cement companies reduced their supply, created
artificial scarcity, maintained prices at a high level and as a consequence make a significant
amount of profit.

The CCI passed a prime facie order finding a possibility of violation of section 3 of the
Competition Act, 2002 ('the Act') and instructed the Director General ('DG') to investigate the
complaint. The DG made a few observations in its investigation.

I. The DG observed that there was a significant reduction in the capacity

utilization2 over the past five years from 90% in 2005-06 to 73% in 2010-11.
II. The DG observed that there was a continuous divergence in cement price index and
cost of inputs of cements for all cement companies.
III. The DG noted that the market for cement was oligopolistic in nature and the
demand of cement was inelastic. There is no firm which has 'significant market
share'.
1
Builders Association of India v. Cement Manufacturer's Association  [2016] 73 taxmann.com 247 (CCI).
2
Capacity utilization means the percentage of utilization done by the cement manufacturing companies in
producing cement.

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 IV. The DG noted that there was an absence of a formal mechanism of determination of
price of cement. The price of cement is determined according to the pricing set by
the market leader in a particular region. The cost of production does not play an
important role in the decision of pricing except when there is substantial change in
taxes or cost of raw materials. These factors make along with the platform of CMA
make collusion among the cement firms to be very likely. The DG also noted that
there were meetings of the High Powered Committee ('HPC') of CMA where even
non-CMA cement companies were present. There was a uniform increase in cement
prices after such meetings were conducted.
V. Lastly, the DG observed that CMA had various publications for its members which
gave production, pricing and dispatch details of all cement companies and this
facilitated collusion. The DG came to a conclusion that there was an agreement
amongst the cement companies to reduce capacity utilization during a period of
peak demand resulting in increased prices of cement and increased profitability for
all cement companies.

Respondent's Contentions
The CMA and the 11 cement companies argued on merits as well as procedure. The CMA
specifically alleged violation of principles of natural justice by CCI by denying CMA the right of
cross examination on witnesses the DG relied on for information for investigation. A common
theme of argument from the cement companies was about the structure of the cement
industry. It was argued that since the cement industry was oligopolistic in nature, the prices of
cement companies would always move in tandem. Since every region has a market leader, the
cement companies would price the cement according to the price of the market leader. They
argued that due to the homogenous nature of the product, the cost of inputs across the
country are more or less the same and price parallelism was a consequence of common inputs
and costs and not due to collusion. They also contested the DG's finding as to the reduced
capacity utilization by producing data from certain states where the capacity utilization was
high.

CCI's Order
The CCI first cleared the air on the preliminary issues raised by the respondents. The first issue
discussed was whether the denial of cross examination was contrary to the principles of natural

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justice. The CCI referred to regulation 41 of the CCI (General) Regulations, 2009 which pertains
to the right of cross examination whenever evidence is given orally to the CCI or the DG. The
CCI held that the wordings of the regulation leaves ample discretion to the CCI or the DG to
deny the request for cross examination if there appears no valid reason for such request. The
right to seek cross examination is not an absolute right. Considering that the prayer for cross
examination was vague and did not point to a specific part of the oral evidence, the request of
cross examination was denied by the CCI. Further, the CCI held that the respondents could
rebut the contents of the oral evidence in their own oral submissions. The second issue was as
to the analysis of data of the cement companies before the year 2009 when the competition act
was not enforceable. The CCI held that the data analysed prior to 2009 was merely to
understand the dynamics of the cement industry. In any case, where the actions of the
companies were prior to the enforcement of the competition act but its effects continue post
the enforcement then it is within the mandate of the CCI to investigate as was affirmed in the
case of Kingfisher Airlines Ltd. v. CCI .

On merits, a major part of the CCI's analysis focused on the role of CMA in facilitating
information exchange and the consequent collusion by cement companies. The Department of
Industrial Policy and Promotion ('DIPP') prior to the enforcement of the competition act had
asked the CMA to supply retail and wholesale prices of cement to be given every month for the
purposes of monitoring the prices. However, after its enforcement there was no attempt taken
by the parties to see if such price share was violating the provisions of the competition act.
Relying on a lot of EU competition jurisprudence, the CCI held that in an oligopolistic market,
price uncertainty is what enables a firm to make predicted and well thought pricing decisions. It
follows that the exchange of information between competitors is liable to be incompatible with
the competition rules if it reduces or removes the degree of uncertainty as to the operation of
the market in question, with the result that competition between firms is restricted or even
eliminated.

A very important circumstantial evidence analysed by the CCI was on the inconsistencies on the
replies of ACC, ACL and other members of the CMA on the presence of ACC and ACL in the HPC
meetings. As noted earlier, ACC and ACL attended the meetings of HPC despite not being
members of CMA as noted by the minutes of the meeting. However, when this was questioned
to different members of cement companies, some of them denied the presence of ACC and
ACL. This was held to be a crucial evidence by the CCI to show that they were trying to hide the
presence of non-member cement companies in HPC.

The CCI used the technique of coefficient correlation method to analyse the price correlation
between various firms. The correlation coefficient was 0.9(very high) for most states which
indicated a high possibility of collusion of prices.

It was observed by the CCI that there was a high growth in the construction sector during 2009-
10 and 2010-11 at 7% and 8.1% respectively which indicated a strong demand. In that contrast,
there was a significantly lower growth in the cement sector of 4.74% and 4.75% for the

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aforementioned years. The CCI held that this divergence in the growth was as a result of
artificial scarcity of cement created by the cement companies through the CMA. It was
observed that the production of cement reduced in a period when there was increasing
demand and there was a uniform increase in prices.

On the issue of high prices, the CCI correctly held that it cannot question any firm's decision to
price a product at a high price. The only mandate the regulator has is to see if such a high price
is an outcome of interplay of normal market forces for determining demand, supply and prices.
As long as there is independent decision making on factors like production, pricing and other
business strategies, the CCI cannot make any claim. However, whenever there is an exchange of
such information resulting in the absence of unilateral decision making by a firm, it is the duty
of CCI to investigate. In this case, the regulator identified exchange of price sensitive
information along with an inference of a decision of reduced production of cement and
thereafter analysed the high prices.

The result was that the CCI found the 11 cement companies and the CMA to be guilty of
cartelization by creating artificial scarcity in the market and thereafter increasing the prices of
cement. The combined penalty levied was more than Rs. 6,400 crore for CMA and the 11
cement companies.

Analysis
The order passed by the CCI was after the COMPAT remanded the matter to the CCI to correct
the order after following the principles of natural justice in investigation. A perusal of the order
bring to light a lot of interesting points.

On the issue of denying cross examination to the cement companies, the CCI has adopted a
very strict approach. It used its discretion to disallow the prayer for cross examination
contending that the request for prayer was vague. It seems that the CCI does not want parties
to use the right of cross examination to delay the matter where it believes is unnecessary. In
the opinion of the author, the CCI should have been liberal in granting the request for cross
examination, considering that most cases are decided in COMPAT on failure to adhere to
principles of natural justice. Recent examples of such reversals include the orders passed by the
COMPAT in Coal India3, Fuel Surcharge Cartel4 and the Himachal Pradesh Society of Chemist &
Druggist Alliance v. Rohit Medical Store5 ('HP Chemist Case'). In the HP Chemist case, the
3
Coal India Ltd. v. CCI, Appeal No 01 of 2014.
4
Interglobe Aviation Ltd. v. Secretary, Competition Commission of India  [2016] 69 taxmann.com 14 (CAT - New
Delhi).
5
Himachal Pradesh Society of Chemist & Druggist Alliance v. Rohit Medical Store  [2016] 66 taxmann.com 171 (CAT
- New Delhi)

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COMPAT specifically reprimanded the CCI for not allowing the appellants to cross examine
witnesses. A similar scenario may occur as and when the matter will be appealed to the
COMPAT.

A very strong factor for fining the cement companies liable was the absence of a price
determination mechanism for all cement companies. The CCI noted the absence of any written
memorandum or document to show any application of mind in the reduction of prices. An
absence of a working mechanism in pricing decisions and consequent price parallelism was a
strong reason for finding airlines guilty in the fuel surcharge cartel case6. Thus, an important
takeaway is that to avoid legal hurdles from the CCI, parties should have written documents
showing working mechanism on how price is determined and changed. A common example
would be sharing minutes of meetings of price discussion and internal memos with the CCI.

The role of trade associations is very important in every industry. Trade associations act as an
important forum for various participants to collectively discuss issues affecting their area of
business. It is also used for representations before the government and for lobbying purposes.
However, when competitors meet, there is a strong possibility of exchange of price sensitive
information. In this regard, the CCI held that:

"In view of the discussion in the preceding paras, it is evident that the opposite party
cement companies were interacting using the platform made available by the trade
association (CMA). Such interactions transgressed the limits in sharing of information and
extended to the discussions on cost, prices, production and capacities, thereby, facilitating
the enterprises in determining prices and production in a concerted and collusive manner
than in a competitive manner. No doubt, trade associations have an important role in
promoting the interests of their members and the industry they serve. However, it is
imperative that all those who participate in association activities through meetings or
otherwise, whether as a member or an executive or manager or employee, have to be
sensitive to the discussions not transgressing advertently or otherwise into anti-trust
behaviour or practices."

Thus, the trade associations have a special responsibility to ensure that their forum is not
misused to share sensitive information.

In the opinion of the author, the circumstances analysed by the CCI points to a very strong
proof of cartelization. The fact that all cement companies reduced their production in a time
when the demand of cement was high is clearly against rational market behaviour. Publications
by the CMA sharing production information along with the CMA sharing price of all cement
companies to the DIPP itself raises serious antitrust concerns. The structure of the cement
6
Ibid

6|COMPETITION LAW
market being oligopolistic along with inelastic demand and a homogenous product makes
cartelization comparatively easier.

COMPAT Order
Aggrieved by CCI's orders, the Respondents appealed before the Competition Appellate
Tribunal ("COMPAT"), on the grounds of violation of principles of natural justice. One of the
questions that rose was, whether CCI's Chairperson who did not participate in the hearing of
arguments of the Respondents could become a party to the final order dated June 20, 2012.
The Respondents also raised objections on the grounds of unfair hearing, bias and pre-
determined mindset. COMPAT noted that thorough consideration was not given to the report
of the Director General ("DG"), parties' submissions and interlocutory orders. 7 COMPAT
observed that procedural defect in nature of non-observance of principles of natural justice
cannot be cured in appeal, because if natural justice is violated in the first stage, the same
cannot be given as true right in an appeal. No party can be compelled to satisfy an unjust trial.
Accordingly, the COMPAT set aside the impugned orders and remitted the matter to the CCI for
fresh adjudication of the issues relating to the alleged violation of S. 3(3)(a) and S. 3(3)(b) 8 read
with S. 3(1)9 of the Act, in accordance with law.

Conclusion
In case of S. 3(3) agreements, once it is established that concerted action exists, it will be
presumed that the agreement has an appreciable adverse effect on competition within India.
The onus to disprove this presumption lies upon the alleged parties. In the light of this, it is
pertinent for companies to maintain accurate price, produce, supply, market feedback and
economic strategy. Further, trade associations should have a protocol where they not only
work in promoting the interests of their members and the industry they serve, but also for
enhancing fair competition. They should be sensitive to the discussions and delineate lines
between facilitating competition and anti-competition. Further, as noted by COMPAT, much of
the appellate litigation would be obviated if CCI devise a just and fair procedure for conducting
investigation and inquiry and passing orders. Thus, it is important that CCI formulate
7
It was evidenced from the fact that two orders were passed (public and confidential versions) despite an earlier
order rejecting confidentiality treatment to the Respondents earlier in December 2011.
8
S. 3(3)(a) and S. 3(3)(b) provides that any agreement between parties such as producers, sellers, distributors,
traders or service providers, i.e. parties that are engaged in identical or similar trade of goods or provision of
services, which (a) directly or indirectly determines purchase or sales price (b) limits or controls production, supply,
markets, technical development, investment or provision of services, would fall within the ambit of prohibited
anti-competitive agreement.
9
S. 3(1) provides for anti-competitive agreements, which are likely to cause an appreciable adverse effect on
competition within India.

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(specifically in oligopolistic markets like petrol, steel, automobiles etc.) regulations for
conducting investigations and admitting evidence.

These two cases implemented the "parallelism plus" approach adopted by the US and European
Courts which requires, showing the existence of "plus factors" beyond merely the firm's parallel
behavior, in order to establish the existence of a cartel. Competition authorities across the
globe are persuading whistleblowers in approaching them to give information about companies
coming together and forming a cartel. The Act provides for leniency provisions 10 where the
party seeking the same can avail concessions by way of cooperating in an inquiry. Awareness of
this can go a long way in detecting and cracking the presence of cartels.

References
i. ‘Competition Commission’s Landmark Rulings’ Article by M. S. Ananth and Pratibha Jain

ii. ‘Recent Orders by CCI against Anti Competetive Practices’ by Mrinali Mudoi

iii. http://www.mondaq.com/article.asp?article_id=530452&signup=true

iv. ‘Cement Cartel Cases: Lessons For India's Competition Law Regime’ by Sakshi Seth

v. http://www.mondaq.com/india/x/349476/Antitrust+Competition/Competition+Commis

sions+Landmark+Ruling+Cracks+The+Whip+On+Auto+Industry

vi. https://corporatelaws.taxmann.com/topstories/105010000000013723/cci

%E2%80%99s-order-in-the-cement-cartel-case-analysis-and-important-

takeaways.aspx#fn2

vii. http://www.mondaq.com/article.asp?article_id=530452&signup=true

viii. https://indiankanoon.org/search/?formInput=competition%20act%20cases

ix. http://www.nishithdesai.com/fileadmin/user_upload/pdfs/Research

%20Papers/Competition_Law_in_India.pdf
10
S.46 provides that on the satisfaction of the CCI any producer, seller, distributor, trader or service provider in
violation of S.3 makes a full, true and vital disclosure in respect of the alleged violation would be imposed with a
lesser penalty.

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 x. http://www.luthra.com/admin/article_images/analysis%20-cci-v.PDF

xi. http://dsklegal.com/pdf/2010/DSK%20Legal%20Knowledge%20Center%20Update

%20Vol%.pdf

xii. http://indiacorplaw.blogspot.in/2012/06/summary-of-ccis-order-against-cement.html

xiii. http://www.cci.gov.in/sites/default/files/292011_0.pdf

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