Competition Watchdog CCI Punishes 11 Cement Companies

The Competition Commission of India (CCI), in an investigation carried out as regards charges of cartelization indulged in by cement companies, has finally announced its decision to penalize them. As per the CCI report, there are altogether 11 cement companies which have been proved guilty. The penalty amount will be 50 per cent of the net profit made in the years FY10 and FY11. The firms in violation of the competitive laws have been directed to deposit the penalty within 90 days. Further, the CCI mentions that the scope of the order only applies to the period between May 20, 2009 and March 31, 2011. For any continuation of the offence found after March 31, the CCI has reserved the right to conduct a separate investigation in the future.

The companies have also been directed to ‘cease and desist’ from indulging in any activity relating to agreement, understanding or arrangement on prices, production and supply of cement in the market. Further, the Cement Manufacturing Association (CMA) has been asked to disengage and disassociate itself from collecting wholesale and retail prices through the member cement companies and also from circulating the details on production and dispatches of cement companies to its members.

The cement manufacturers upon whom the penalty has been imposed are ACC, Ambuja Cements Limited, Ultratech Cements, Grasim Cements (now merged with Ultratech Cements), JK Cements, India Cements, Madras Cements, Century Cements, Binani Cements, Lafarge India and Jaypee Cements.

The CCI report states that the cement companies did not utilise their production capacity fully, thereby reducing the supply artificially and then increasing the prices at the time of higher demand. The Commission has observed that the act of these cement companies in limiting and controlling supplies in the market and determining prices through an anti-competitive agreement is not only detrimental to the cause of the consumers but also to the whole economy since cement is a crucial input in the construction and infrastructure industry, which is vital for the country’s economic development.

Basis Of Judgment

The Commission has considered the parallel and coordinated behaviour of cement companies on price, dispatch and supplies in the market. The prices across manufacturers have shown a tendency to move in the same direction in every state, showing the existence of price parallelism among the players. The prices are being determined by the major players in every region who give price signals through advanced media reporting which are then followed by the other players in the market.

History

The cartelization issue was first raised in 2007-2008 when the realtors’ body, Builders Association of India (BAI), had alleged that some of the cement companies were forming a cartel and fixing the prices at similar levels. This sparked off an investigation by the Serious Fraud Investigation Office (SFIO) and later by the CCI. The CCI initiated investigations into the alleged cement caterlization a year ago. Earlier, the SFIO had recommended action against the companies but the concerned ministry, in September, asked the CCI to further probe the charge of cartelization as the SFIO does not have the jurisdiction to prove the charges.

Conclusion

In a press release received by us, ACC and Ambuja Cement will appeal against this order to the appellate tribunal and will seek a stay on the aforesaid penalty. And we believe that if the report is true, it will take a lot of time to prove the same in the court as the companies will initially appeal in the appellate tribunal, then in the High Court and finally the Supreme Court. To provide a case study, the CCI had come up with such a report against DLF but nothing has been proved so far since the legal hearings are still going on.

Also, there is an absence of any documentary evidence proving the cartel charges and most of the allegations are based on various observations. However, there are some concerns too because if the CCI order is proven, this will definitely have a negative impact on the profitability of the cement companies.