CCI Investigates Actively

The Competition Commission of India (CCI) in recent times has regularly made its way to the news headlines on account of making public its findings or investigation reports. One of such investigations has centered on cartelization in various sectors in India. When such announcements are made, the stocks of the related industry crash and investors begin to worry about the losses in terms of compensations or penalties which the various companies would have to shell out, thereby impacting the overall profitability.

In June, for instance, the CCI came out with an investigation report regarding the cartelization indulged in by the cement companies. As such, 11 cement companies were penalised with an aggregate amount of more than Rs 6,000 crore. The list of companies on whom the penalty was imposed included ACC, Ambuja Cement, Ultratech Cement, JK Cement, India Cement, etc. For further details, refer to our earlier report titled ‘Competition Watchdog CCI Punishes 11 Cement Companies’.

In August 2012, the CCI was said to have ordered a probe into the activities of Unitech, Parsavnath and Omaxe based on preliminary investigations that suggested abuse of dominant power by the developers. Prior to this, the CCI had imposed a hefty penalty of Rs 630 crore on realty sector heavyweight DLF for abusing its dominant market position based on a complaint filed by The Belaire Association in Gurgaon.  

Further, a report in a recent issue of Economic Times suggested that the CCI has found evidence of cartelization in the country’s tyre manufacturing industry and is expected to issue an order soon. Meanwhile, Times of India reported that even Coal India has allegedly been indulging in unfair trade practices in the supply of coal. A complaint was filed by the Maharashtra State Electricity Board and power utilities NTPC and DVC against Coal India in this respect. According to the report, Coal India was allegedly supplying a huge quantity of stones and boulders along with coal.

The Indian Express has reported that the CCI is also investigating cartelization in various sectors such as pharmaceuticals, telecom, milk distribution, etc. Incidentally, the Company Act does not have a provision to cancel the licenses of firms found guilty of profiteering while the CCI has the right to impose penalties on them.

We at Dalal Street Investment Journal believe that even though the CCI has been doing a good job of being an industry watchdog, there has not been much of an impact in terms of the final outcome. While penalties are imposed, the companies promptly go into the defence mode as has been in the case of the cement companies that have appealed against the order to the appellate tribunal and will seek a stay on the aforesaid penalty.

As per a report in Economic Times, the CCI has been asked not to take any coercive action in the matter till October 11, 2012. Even in the case of DLF nothing has been proved so far and the legal hearings will now go on for a long time before the matter reaches any logical conclusion. As far as the stocks of such companies are concerned, the effect is merely in the short term with no major blow in the medium to long term.