CEMENT CARTEL CASE

Project Report

Submitted to
Mr. Atif Khan
(Faculty Member in Competition Law)

Submitted by

Anuj Singh Chauhan

B. A. LL. B. (Hons.) Student
Semester – VII, Section – A, Roll No. 20

Hidayatullah National Law University

Uparwara Post, Abhanpur, New Raipur – 493661 (C.G.)
 Builders Association of India vs. Cement Manufacturers Association & Ors

ACKNOWLEDGEMENT

I express my deepest regard and gratitude to my teacher, Mr. Atif Khan. His consistent
supervision, constant inspiration and invaluable guidance have been of immense help in
understanding and carrying out this project report.
I would also like to thank my friends without whose support and encouragement, this project
would not have been a reality.
I take this opportunity to also thank the University and the Vice Chancellor for providing
extensive database resources in the Library and through Internet.

Name: Anuj Singh Chauhan

Semester- VII
Section- A
Roll number- 20

2
 Builders Association of India vs. Cement Manufacturers Association & Ors

RESEARCH METHODOLOGY

A doctrinal method has been adopted for this project. The secondary data available
regarding the cement cartel case and anti competitive agreements have been discussed
and analyzed. Both primary and secondary sources of data have been used.

STATEMENT OF PROBLEM

It has become a big arena of debate and discussions around the world, the problems of
cartels in each and every competitive market products and the standards of evidence
required to keep a check on them. A keen understanding is required to deal with such
problems. It is only after that can we invent a way to address the problem of cartelization.

HYPOTHESIS
After going through the facts of the case, it is assumed that the cement industries have
used the trade association as a platform to exchange sensitive information and have
formed a cartel to limit the supply and hike the demand of cement in market and hence
drive out the competition.

3
 Builders Association of India vs. Cement Manufacturers Association & Ors

REVIEW OF LITERATURE
1. Vinod Dhal ed., Competition Law Today – Concepts, Issues and the Law in Practice,
Oxford University Press, January 2007, ISBN 019568802-3.
This book contains various articles written by renowned scholars of competition law
around the world and it has been helpful for the project to understand the idea of different
scholars towards anti competitive agreements.
2. Richard Whish, Competition Law, 6th Ed., Oxford University Press, ISBN 978-0-19-
928938-7.
This book has been really helpful for preparing the project as it provides the basic
framework followed by the EU and US courts in matters of cartelization. Some case laws
have been taken from the book.
3. T.Ramappa, Competition Law in India-Policy,Issues and Developments, 2nd Ed., Oxford
University Press, ISBN 0-19-806353-9.
The book provides a comprehensive understanding of the competition law in India and
has beautifully mentioned the concept of cartelization with case laws pertaining to US
and EU jurisdiction.
4. Abir Roy and Jayant Kumar, Competition Law in India, 2nd Ed., Eastern Law House,
2016, ISBN 978-81-7177-313-8.
The cement cartel case has been very well explained in the book topic wise with proper
arguments and decision and hence helped a lot in understanding the case with the
concepts.

SOURCES OF DATA
Secondary sources have been mainly used for making this project such as books, articles,
and internet websites.

4
 Builders Association of India vs. Cement Manufacturers Association & Ors

RESEARCH QUESTIONS
1. What are Anti Competitive agreements?
2. What is Cartelization?
3. What is nature of agreement required under Section 3?
4. What is appreciable adverse effect and how to determine it?

CHAPTERISATION
The project is divided into five chapters. The first chapter introduces anticompetitive
agreements under section 3. Second chapter discusses about the judgment passed by the
CCI in the matter on 31st August, 2016. The third chapter deals with the findings of the
CCI in detail and the order passed by the CCI in the matter. The fourth chapter analyses
the judgment of the CCI and mentions some critiques of the judgment and fifth chapter
provides the conclusion of the project.

MODE OF CITATION
The 19th edition of the Bluebook has been used for standard formatting uniformly
throughout the project.

SCOPE OF STUDY
The study shall be confined to the case of Builders Association of India vs. Cement
Manufacturers Association & Ors., and the analysis of the judgment with respect to anti
competitive agreements.

5
 Builders Association of India vs. Cement Manufacturers Association & Ors

Contents

ACKNOWLEDGEMENT .............................................................................................................. 2
RESEARCH METHODOLOGY.................................................................................................... 3
STATEMENT OF PROBLEM ....................................................................................................... 3
HYPOTHESIS ................................................................................................................................ 3
REVIEW OF LITERATURE ......................................................................................................... 4
SOURCES OF DATA .................................................................................................................... 4
RESEARCH QUESTIONS ............................................................................................................ 5
CHAPTERISATION ...................................................................................................................... 5
MODE OF CITATION ................................................................................................................... 5
SCOPE OF STUDY........................................................................................................................ 5
INTRODUCTION .......................................................................................................................... 7
ANTI-COMPETITIVE AGREEMENTS UNDER SECTION 3 ................................................... 7
BUILDERS ASSOCIATION OF INDIA VS. CEMENT MANUFACTURERS ASSOCIATION
& ORS. ............................................................................................................................................ 8
FINDINGS BY THE CCI ............................................................................................................... 9
ANALYSIS OF THE JUDGMENT ............................................................................................. 13
CONCLUSION ............................................................................................................................. 14
BIBLIOGRAPHY ......................................................................................................................... 15

6
 Builders Association of India vs. Cement Manufacturers Association & Ors

INTRODUCTION

Anti-competitive agreements are mostly entered into amongst competitors in standard

commodity markets like sugar, cement and steel, where price is the principal condition for
competition, and which are important constituents of a nation’s economy. This is chiefly because
the likelihood that government intervention may itself have anti-competitive effects is
foreclosed. Simply stated, competitors in any market are supposed to compete for the business of
their customers, not secretly co-operate to distort market forces and competition.

Richard Whish has presented a way forward to the countries with relatively new competition
regimes for the enforcement of their government’s competition policies. In the contemporary
world the competition culture can be best enforced by cartel enforcement because cartelization is
1
a force that operates on a global scale. While competition law in India took the form of the
Monopolies and Restrictive Trade Practices Act, 1969, initiative for reform began to be
considered seriously only in 1999, when the Raghavan Committee found this statute lacking in
its ability to address anti-competitive practices in the contemporary era of Indian liberalization.
The publication of this Report led to the enactment of the 2002 Act, which, heeding the advice of
the Committee, aimed more ambitiously to prevent anti-competitive practices that adversely
impact economic welfare. The procedure for enforcement under the new statute involves a rule
of reason analysis, limiting the use of the more limited per se rule to hard-core anti-competitive
behavior, including cartelization.2

ANTI-COMPETITIVE AGREEMENTS UNDER SECTION 3

Anti-competitive agreements are prohibited under Section 3 of the Act, providing that any
agreement in its contravention shall be void. The Act defines the term ‘cartel’ as follows,
characterizing it as a form of anti-competitive conduct that harms both consumers and the
economy :-

1
R. Whish, Control of Cartels and other Anti-Competitive Agreements, COMPETITION LAW TODAY –
CONCEPTS, ISSUES AND THE LAW IN PRACTICE 40, 40-1 (V. Dhall ed., New Delhi: Oxford University
Press, 2008) at 42.
2
A. Kumar, The Evolution of Competition Law in India, COMPETITION LAW TODAY – CONCEPTS, ISSUES
AND THE LAW IN PRACTICE 479, 480 (V. Dhall ed., New Delhi: Oxford University Press, 2008).

7
 Builders Association of India vs. Cement Manufacturers Association & Ors

“cartel” includes an association of producers, sellers, distributors, traders or service providers

who, by agreement among themselves, limit, control or attempt to control the production,
distribution, sale or price of, or, trade in goods or provision of services.3

The application of Section 3 involves the determination of whether an agreement has an

appreciable adverse effect on competition, a term that is not defined in the Act. Section 19(3)
provides assistance with a number of factors that have beneficial and harmful effects on
competition.

India is the second largest producer of cement in the world, only after China. The cement
industry is a vital part of the Indian economy, employing millions of people directly or
indirectly. The Competition Commission of India ("CCI") has recently passed orders
adjudicating allegations of anti-competitive agreements and abuse of dominance amongst the
cement manufacturers under the Competition Act, 2002 (the "Act") and imposed a penalty of
more than INR 60 billion (USD 1.1 billion). The project is aimed to analyze the order passed by
CCI on 31.08.2016 in the matter of Builders Association of India vs. Cement Manufacturers
Association & Ors.4 (Cement Cartel Case).

BUILDERS ASSOCIATION OF INDIA VS. CEMENT MANUFACTURERS

ASSOCIATION & ORS.

Factual matrix

An information was filed under S. 19(1)(a) of the Act by the Builder's Association of India (the
"Informant") against Cement Manufacturers Association ("CMA") and 11 cement manufacturing
companies5 for alleged violation of S. 3 (anti-competitive agreement) and S. 4 (abuse of
dominant position) of the Act. Cement manufacturing units had deliberately reduced their
production and produced much less than their installed capacity to create an artificial scarcity
and raise the prices of cement in order to earn abnormal profits. In addition, the cement

3
Section 2(c), 2002 Act.
4
2012 CCI 42.
5
These are ACC Limited, Gujarat Ambuja Cements Limited (now Ambuja Cements Limited), Ultratech Cements,
Grasim Cements (now merged with Ultratech Cements), JK Cements, India Cements, Madras Cements, Century
Textiles & Industries Limited, Binani Cements, Lafarge India and Jaiprakash Associates Limited.

8
 Builders Association of India vs. Cement Manufacturers Association & Ors

manufacturers increased the price from a minimum of Rs. 10/- to a maximum of Rs. 27/- per bag
between January-March, 2009 and April-June, 2009 as reported in Business Line dated
18.11.2009. Having increased the price of cement per bag by Rs. 10 to Rs. 27 in the first six
months of 2009, the cement industry further increased the prices by Rs. 5 to Rs. 15 per bag
between December, 2009 and January, 2010.

In 2012, the DG inter alia found that there had been a significant rise in cement prices over the
time period under investigation, and such price increases were attributed to more than just
natural reasons, such as rise in cost of raw materials. In June 2012, based on an inquiry
conducted by it, the CCI imposed a penalty of INR 63.17 billion (approximately USD 933.68
million) on the Opposite Parties. This penalty was imposed for using the platform provided by
the CMA to fix cement prices as well as limit and control production and supply of cement in the
market, thereby contravening the relevant provisions the Competition Act, 2002 (Act). This 2012
Order was challenged before the Competition Appellate Tribunal (COMPAT), primarily on
grounds of due process and violations of principles of natural justice and was set aside on these
grounds. The matter was remanded to the CCI for fresh adjudication. Consequently, the CCI re-
heard the Opposite Parties and passed the 2016 Order.

Issues Framed by CCI

1. Whether alleged conduct of the Respondents was an anti-competitive agreement under S.

3?

FINDINGS BY THE CCI

1. Market structure of cement industry

According to the current scenario of Indian market which is highly oligopolistic in nature, CCI
observed that twelve cement companies having about 75% of the total capacity in India with
about 21 companies controlling about 90% market share in terms of capacity. Therefore, each
company takes into account the likely reactions of other companies while making decisions

9
 Builders Association of India vs. Cement Manufacturers Association & Ors

particularly as regards prices. In such a scenario, collusion between companies is possible and
can be adduced from circumstantial evidence.

2. Sharing of sensitive data through the platform of CMA

The CCI held that the competitors were interacting using the platform of the CMA and this gave
them an opportunity to determine and fix prices. The fact that it was being under the instruction
of DIPP did not absolve them of liability.

3. High Power Committee Meetings

The CCI investigated into the facts and found out that just after the High Power Meetings held in
January and February 2011, the prices of cement rose and it was also observed that 2 parties
ACC and ACL who had left the CMA also attended such meetings.

4. Price Parallelism

Price parallelism does not remain a mere reflection of non collusive oligopolistic market but also
mirrors a condition of coordinated behavior and existence of anti competitive agreement in
violation of Section 3(3)(a) of the Act6. The Director General had conducted an investigation and
made an economic analysis of price data which clearly indicates that there exists a strong relation
between the prices of all the companies. This was accepted by the CCI.

5. Limiting and Controlling production and supply

The Report submitted by the DG suggested that whilst capacity utilization increased during the
last four years, the production has not increased commensurately during this period. The CCI
observed that the forces of demand and supply dictated that the dispatch figures should have
been more than or equal to consumption of cement in the corresponding period of the previous
year. However, in two months of November and December 2010, the dispatch was lower than
the actual consumption for the corresponding months of 2009. It was not the case that the market
could not absorb the supplies, but, instead, the lower dispatches coupled with the lower
utilization establishes that the cement companies indulged in controlling and limiting the supply
of cement in the market.

6
Abir Roy and Jayant Kumar, Competition Law In India, Eastern Law House, Reprint 2016, at pg.111.

10
 Builders Association of India vs. Cement Manufacturers Association & Ors

6. Increase in price

The CCI observed that due to the intentional act of shortage of supply and production of cement
by the cement companies there was a high increase in price of cement. In fact, there was no
apparent constraint in demand during November and December, 2010. CCI relied on the T-
mobile case7 where European Court of Justice had held that, in an oligopolistic market (like
cement industry) the exchange of such information that increases the predictability of market
operations between competitors leads to restricted scope for competition.

Ingredients of Section 3

1. Agreement

Section 2(b) of the Competition Act, 2002 has provided a wide definition of the agreement which
states that “any arrangement or understanding or action in concert, whether or not the same is in
formal or in writing or intended to be enforceable by legal proceedings” and includes tacit
agreement and the definition covers situations where the parties act on the basis of a nod or a
wink8. During cartelization parties are very cautious about the fact that they can be caught by
written agreements so these meetings and agreements are hatched in secret and hence the court
has to rely upon the circumstantial evidence to prove agreement between the parties 9. CCI relied
on DyeStuff’s Case10, where European Court of Justice observed that, whether there was a
concerted action can only be correctly determined if the evidence considered as a whole and not
in isolation, bearing in mind the peculiar feature of the market in question. The commission
decision relied upon various pieces of evidence, including similarity of price increases and of
instructions sent out by parent companies to their subsidiaries.11

In the present case also CMA, through its meetings and reports clearly stated that there has been
exchange of information and just after the high power committee meetings which included the

7
Case No. C-8/08, T-Mobile & Ors. v. Commission, 2009 [ECR] I-04529
8
RRTA vs. W.H.Smith and Sons ltd.
9
Para 6.5.10, Builders Association of India vs. Cement Manufacturers Association & Ors, 2012 CCI 42.
10
Case No. 48/69 ICI, [ECR] 619.
11
ICI v. Commission (Dye stuffs case), Cases 48/69 etc [1972] ECR 619.

11
 Builders Association of India vs. Cement Manufacturers Association & Ors

parties which ceased to be member of CMA and price rise of the cement establishes an
agreement.12

2. Appreciable Adverse Effect on Competition

Now, once the burden of establishing an agreement has been dispensed with the CCI went on to
analyze that whether there was any appreciable adverse effect on the competition by the
concerted action of the parties. The CCI said that once contraventions of section 3(3)(a) and (b)
are proved then appreciable adverse effect is presumed to be present. However, CCI held that
while clauses (a)-(c) deal with factors which restrict the competitive process in the markets
where the agreements operate (negative factors), clauses (d)-(f) deal with factors which enhance
the efficiency of the distribution process and contribute to consumer welfare (positive factors).13
In the present case, the parties could not show if there has been any benefit accrued to the
consumers or there has been any improvement in production or distribution of goods. Therefore,
it was held that the respondents were acting in concert and fixing cement prices and have
contravened the provisions of section 3(1) with section 3(3) (a) and (b).

Order of the CCI

The CCI has been empowered to fine the companies in cartel cases up to three times of its profit
for each year of the continuance of the cartel or 10% of its turnover for each year of the
continuance of the cartel, whichever is higher. Additionally, the CMA was fined 10% of its total
receipts for the last two years.

The CCI also directed the companies to ‘cease and desist’ from indulging in agreement or
understanding on prices, production and supply of cement in the market. Similarly, the CMA has
been directed 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.

12
Umakanth Varottil, Summary of CCI’s Order Against Cement Companies, Indiacorp Law, 23rd June, 2012,
available at https://indiacorplaw.in/2012/06/summary-of-ccis-order-against-cemen.html.
13
Supra Note 4.

12
 Builders Association of India vs. Cement Manufacturers Association & Ors

ANALYSIS OF THE JUDGMENT

1. It is presumed that the agreement has appreciable adverse effect on competition in India,
once it is established that concerted action exists. The burden to disprove this
presumption lies upon the alleged parties. It is relevant for companies to keep accurate
price, produce, supply, market feedback and economic strategy. The Trade Associations
should formulate a protocol wherein they not only work for promoting interests of their
members but also for promoting the competition. As stated by COMPAT in its judgment
that if CCI can devise a just and fair procedure for conducting investigation and inquiry
and passing orders then much of the appellate litigations can be avoided. Thus, it is
important that CCI devise (specifically in oligopolistic markets like petrol, steel,
automobiles etc.) regulations to conduct investigations and admitting evidence.

2. The concept of “Appreciable Adverse Effect” though has been borrowed from the EU
antitrust laws but Section 3 of the Act creates a unique kind of presumption which is not
comparable to US and EU law which is “shall presumption”. This has created a midway
between the per se rule and rule of reason wherein the court shall presume the fact to be
true until and unless it is otherwise disproved through any other evidence.14

3. India has a problem with regard to its weak whistle blower and leniency provisions which
fail to provide adequate incentive to firms to provide stronger and more reliable
circumstantial evidence on the basis of which the Commission could arrive at more
legally sound conclusions. Section 46 provides a discretionary power to the commission
to provide relief to whistleblowers but today the law does not provide any guidelines to
the commission to keep in mind while exercising such discretion.

4. At the policy level, it is the duty of the state to evolve a comprehensive framework during
the implementation of competition law in India. The outcome of the cement cartel case
and the fine imposed would have a far reaching effect on the prosecution of cartels and
the investigation which the court will conduct in these cases.

14
Priya Urs and Rishi Shroff, The Cement and Tyre Cartels: What India Can Learn from the US and EU, India Law
Journal, Vol. 6 Issue 2, Article 4, 2007.

13
 Builders Association of India vs. Cement Manufacturers Association & Ors

5. Lastly, the problem with regard to the circumstantial evidence is that India has lowered
the standards in appreciating circumstantial evidence and as a result of this sometimes the
commission fails to take into account those conditions where the firms are forced to act in
similar ways due to natural market conditions. Therefore, there is a lack of well defined
evidentiary standards to be applied by the commission while dealing with cartels that
operate without explicit agreements.

CONCLUSION

India is the second largest producer of cement in the world, only after China.15 The cement
industry is a vital part of the Indian economy, employing millions of people directly or
indirectly. The effect of such an anticompetitive agreement would only make the rich people
more rich and poor more poor. There exists a widespread consensus today that anti-competitive
agreements, particularly hard-core cartel agreements, are a threat to consumer welfare and the
economy. This effect has extended beyond national limits, owing to the globalization of cartels.
The antitrust laws of nations have helped each other to develop their laws relating to cartels and
punish them with the highest penalty to deter them from committing such acts.

Section 3 of the Act is the comprehensive law relating to cartels and anti competitive agreements
in India and discretion is given to the CCI to impose hefty fines on such accused. CCI has also
stated that the trade associations are meant for the betterment of its workers and not a platform to
give rise to anti competitive agreements. Therefore, there is a need to regulate the information
which can be shared in these trade associations. Though there are some lacunae in the antitrust
laws of India and is still developing with the changing scenarios of market conditions. This case
of cement cartel has clarified the position of Indian jurisprudence in the field of cartelization and
has brought out some issues which are to be worked upon and need to be improved. Also, it has
to an extent deterred the companies to practice such arrangements by imposing such heavy fines
on them. It is a landmark judgment in the field of anticompetitive agreements and existence of
cartels in India.

15
See at http://www.cmaindia.org/industry/facts-about-cement-industry.html, last accessed on 27th September, 2017.

14
 Builders Association of India vs. Cement Manufacturers Association & Ors

BIBLIOGRAPHY

BOOKS

1. Competition Law In India, Abir Roy and Jayant Kumar, 2016, Eastern Law House, page
no.111.
2. Competition Law Today – Concepts, Issues and the Law in Practice, 2008, V.Dhall,
Oxford University Press, page no. 42.
3. Vinod Dhal ed., Competition Law Today – Concepts, Issues and the Law in Practice,
Oxford University Press, January 2007, ISBN 019568802-3.
4. Richard Whish, Competition Law, 6th Ed., Oxford University Press, ISBN 978-0-19-
928938-7.
5. T.Ramappa, Competition Law in India-Policy,Issues and Developments, 2nd Ed., Oxford
University Press, ISBN 0-19-806353-9.
6. Abir Roy and Jayant Kumar, Competition Law in India, 2nd Ed., Eastern Law House,
2016, ISBN 978-81-7177-313-8.

ARTICLES

1. Umakanth Varottil, Summary of CCI’s Order Against Cement Companies, Indiacorp

Law, 23rd June, 2012, available at https://indiacorplaw.in/2012/06/summary-of-ccis-
order-against-cemen.html.
2. R. Whish, Control of Cartels and other Anti-Competitive Agreements, COMPETITION
LAW TODAY – CONCEPTS, ISSUES AND THE LAW IN PRACTICE 40, 40-1 (V.
Dhall ed., New Delhi: Oxford University Press, 2008) at 42.
3. A. Kumar, The Evolution of Competition Law in India, COMPETITION LAW TODAY
– CONCEPTS, ISSUES AND THE LAW IN PRACTICE 479, 480 (V. Dhall ed., New
Delhi: Oxford University Press, 2008).
4. Priya Urs and Rishi Shroff, The Cement and Tyre Cartels: What India Can Learn from
the US and EU, India Law Journal, Vol. 6 Issue 2, Article 4, 2007.
5. Sakshi Seth, India: Cement Cartel Cases: Lessons For India's Competition Law Regime,
PSA Legal Counsellers, 27th September, 2016, available at http://www.mondaq.com.

15
 Builders Association of India vs. Cement Manufacturers Association & Ors

6. Anshuman Sakle & Bharat Budholia, The Curious Case of the Cement Carte, Cyril
Amarchand Blogs, November 14, 2016 available at
http://corporate.cyrilamarchandblogs.com/2016/11/curious-case-cement-cartel.
7. Ritu Raj Arora and Runa Sarkar, Detecting Cartels in the Indian cement industry: An
Analytical Framework, IIT Kanpur, available at
https://www.iitk.ac.in/infocell/announce/convention/papers

WEBSITES

1. www.cci.gov.in
2. indiankanoon.org
3. www.scconline.com
4. www.indialawjournal.org

16