Builders Association of India v. Cement Manufacturers’ Association and Others

The case Builders Association of India v. Cement Manufacturers’ Association and Others (CCI Case no. 29 of 2010) is a landmark decision in the Indian competition law landscape, focusing on anti-competitive practices in the cement industry. The case primarily addresses cartel-like behaviour, price-fixing, and the restriction of production and supply, all of which led to a significant penalty being imposed on the cement manufacturers involved. 

The issue at hand was whether the cement manufacturers, through their association (Cement Manufacturers’ Association, or CMA), violated provisions of the Competition Act, 2002, particularly under Sections 3 and 4, which deal with anti-competitive agreements and abuse of dominance. This case highlights the challenges faced by regulators in identifying and dealing with cartel behaviour, especially when circumstantial evidence is the primary source of proof.

Brief Facts of Builders Association of India v. Cement Manufacturers’ Association

The case revolves around the Builders Association of India v. Cement Manufacturers’ Association, in which the informant, a society registered under the Societies Registration Act, 1860, lodged a complaint against the Cement Manufacturers’ Association (CMA) and 11 cement manufacturing companies. These companies were some of the leading players in the Indian cement industry, including giants such as Associated Cement Co. Ltd., Gujarat Ambuja Cement Ltd., Grasim Cement, Ultratech Cement Ltd., and several others.

The informant accused the cement manufacturers of engaging in monopolistic and restrictive trade practices with the intention of controlling the price of cement. The allegations centred on the coordinated efforts of the cement manufacturers, who, under the umbrella of CMA, were accused of restricting the production and supply of cement in a manner that violated the Competition Act, 2002.

Specifically, the informant argued that the cement companies had simultaneously increased their prices across all geographical zones in India, which indicated a concerted effort to manipulate the market. Furthermore, the manufacturers reduced their capacity utilisation from 88% in March 2009 to 82.46% in March 2010, despite an increase in installed production capacity. This reduction was seen as an artificial attempt to create a supply shortage, thus inflating cement prices.

Additionally, the informant pointed out that, despite various government stimulus packages and concessions in 2008, the cement manufacturers collectively increased their prices from 2008 to 2010. This price hike, even in the face of a slowdown in the construction and real estate sectors, was seen as an indication of the industry’s anti-competitive conduct. Moreover, the cement companies failed to pass on the benefits they received from the free supply of “fly ash”, a raw material used in cement production, to their consumers, further indicating a failure to act in the best interests of the market.

Legal Issues

The key issues raised in the Builders Association of India v. Cement Manufacturers’ Association were as follows:

1. Whether the actions of the cement manufacturers violated Section 4 of the Competition Act, which addresses the abuse of dominant position.
2. Whether the conduct of the cement manufacturers fell under the ambit of Section 3 of the Competition Act, which concerns anti-competitive agreements.
3. Whether there was an agreement or arrangement among the cement companies to share sensitive information regarding prices, production, and capacities through the platform of CMA.
4. Whether these companies directly or indirectly fixed cement prices and limited production and supply.
5. Whether the cement manufacturers engaged in parallel behaviour with regard to production and dispatch.
6. Whether these practices resulted in an increase in cement prices.
7. If so, whether this conduct violated the provisions of Section 3(3) of the Competition Act, which deals with anti-competitive agreements that have an appreciable adverse effect on competition.

CCI’s Analysis and Findings in Builders Association of India v. Cement Manufacturers’ Association

The Competition Commission of India (CCI) undertook a detailed investigation into the allegations presented by the informant in the Builders Association of India v. Cement Manufacturers’ Association case. The CCI examined whether the actions of the cement manufacturers could be classified as anti-competitive and whether there was enough evidence to support the claims made by the informant.

The CCI observed that the cement manufacturers had indeed used the platform of CMA to exchange critical information such as retail and wholesale prices, production capacities, and capacity utilisation. This information exchange facilitated a coordinated effort among the manufacturers to restrict production and supplies, which ultimately helped maintain artificially high prices in the market.

Moreover, the CCI noted the phenomenon of “price parallelism” in the cement industry, where multiple cement manufacturers raised their prices simultaneously across all regions in India. This was seen as clear evidence of coordinated action, as it is unlikely that independent manufacturers would increase their prices in perfect synchronisation without some form of communication or agreement.

The CCI also found that the cement manufacturers, through their coordinated efforts, reduced capacity utilisation from 88% to 82.46%, despite increasing their production capacity during the same period. This move was perceived as a deliberate strategy to reduce the supply of cement in the market, thereby creating an artificial scarcity that allowed manufacturers to increase prices.

In addition to this, the CCI relied on circumstantial evidence to establish that the cement companies had engaged in a cartel-like behaviour. The Commission ruled that a written agreement was not necessary to prove collusion under the definition of “agreement” under Section 2 of the Competition Act. The CCI referred to international precedents, including guidelines from the Organisation for Economic Co-operation and Development (OECD), which support the prosecution of cartels based on circumstantial evidence alone.

The CCI also observed that the cement companies had failed to demonstrate any efficiency gains or improvements in production, distribution, or services resulting from their actions. In fact, the reduction in capacity utilisation over the years pointed to the fact that their conduct was harmful to the market and consumers, rather than being beneficial.

Penalty Imposed

Based on the evidence and findings, the CCI imposed significant penalties on the cement manufacturers involved in the Builders Association of India v. Cement Manufacturers’ Association case. The 11 cement manufacturers were fined 0.5 times their annual profits for the years 2009-10 and 2010-11. The Cement Manufacturers’ Association (OP-1) was fined Rs 73 lakhs, which amounted to 10% of its average turnover over the previous three years.

In total, the penalties amounted to a staggering INR 350 crore (approximately £34 million), which was one of the largest penalties imposed at the time. The CCI also directed the companies to cease and desist from their anti-competitive activities, including sharing sensitive pricing and production data. Furthermore, the CMA was ordered to disassociate itself from the practice of collecting and circulating such information among its members.

Appeal and Outcome in Builders Association of India v. Cement Manufacturers’ Association

Following the CCI’s ruling, the cement manufacturers filed appeals before the Competition Appellate Tribunal (COMPAT), challenging the penalty and the findings of the CCI. In its ruling, COMPAT upheld the decision of the CCI and directed the cement companies to pay 10% of the total penalty amount of INR 6,307 crore. This decision further cemented the view that cartel-like behaviour in the cement industry had resulted in a substantial and unjustified increase in prices.

Conclusion

The Builders Association of India v. Cement Manufacturers’ Association case is a significant example of how anti-competitive practices, such as price-fixing and market manipulation, can severely affect competition and harm consumers. The decision by the CCI to impose substantial penalties on the cement manufacturers was a clear message that collusion and anti-competitive behaviour will not be tolerated in the Indian market. This case serves as an important precedent in competition law, demonstrating the role of circumstantial evidence in proving cartels and highlighting the importance of regulatory bodies in maintaining fair market conditions.