IFS Presentation

On
Indian Glycols Ltd Vs. Indian
Sugar Mills Association, IOCL,
HPCL & BPCL
 Parties Involved
Informant Party Opposition Parties
 Indian Glycols Ltd.  Indian Sugar Mills
Association
 IOCL
 HPCL
 BPCL
 Allegations of the Informant
  As per the Informant, OP-1 and OP-2 hold the entire market for sugar mills in
India and supply ethanol to chemical industries and to OP-3 to OP-5.
 It has been alleged that OP-1 is forcing the PSU OMCs to purchase ethanol at an
artificially higher price and the same amounts to violation of Section 4 of the Act.
 It has also been alleged that the role of OP-2 is equally anti-competitive since it
has colluded with OP-1 in artificially raising the price of ethanol in contravention
of the provisions of Section 3 (3) (a) of the Act.
Introduction
On 18 September 2018 the Competition Commission of India (CCI) penalised several sugar
mills in the states of Uttar Pradesh, Gujarat and Andhra Pradesh and their trade associations (the
Indian Sugar Mills Association (ISMA) and the Ethanol Manufactures Association of India
(EMAI)) for indulging in cartelisation in contravention of Section 3(1) read with Section 3(3) of
the Competition Act 2002. The cartel concerned the supply of ethanol in response to the first joint
tender issued by three oil marketing companies (OMCs) (ie, IOCL, HPCL and BPCL) under the
ambitious ethanol blending programme (EBP) launched by the government and the Ministry of
Petroleum and Natural Gas.
In accordance with Section 27 of the act, the CCI imposed heavy fines on the sugar
mills (7% of their average relevant turnover) and their trade associations (10% of their average
earnings for the past three years).
Facts
 The government launched the EBP to reduce its heavy crude oil import expenditure and improve
India's agriculture sector and environmental footprint, between 2002 and 2003.
 launched initially in the states of Maharashtra and Uttar Pradesh
 The programme was only partially implemented between 2003 and 2005 because of a low
availability of ethanol owing to low sugar cane production.
 In September 2006, due to a resurgence in sugar cane production, the programme was extended
across 20 states and eight union territories, subject to commercial viability.
 However, in 2007 and 2008 implementation was once again deferred due to a sugar cane shortage.
 In September 2008 the Union Cabinet approved the National Biofuel Policy and 5% ethanol
blending was made mandatory across all Indian states.
 From November 2006 to November 2009, pursuant to the Union Cabinet's order, OMCs
contracted for 1.4 billion litres of ethanol under the EBP at Rs 21.50 per litre. However, by April
2009, they had managed to procure only 540 million litres of ethanol.
 The Cabinet Committee on Economic Affairs (CCEA) used these to determine the base price for
the procurement of ethanol (ie, Rs27 per litre as an ad hoc interim price).
 Meanwhile, a committee headed by Soumitra Chowdhary was formed to examine the various
issues pertaining to the pricing of ethanol under the EBP.
 After considering the lukewarm response from the sugar mills for supplying ethanol at the fixed
base price determined by the CCEA (Rs27 per litre), the committee recommended that
competitive bidding be introduced to attract sugar mills to supply ethanol at market-driven prices.
 The CCEA considered the committee's report and issued a press release which mentioned, among
other things, that the "the procurement price of ethanol will be decided henceforth between
OMCs and suppliers of ethanol".
 Accordingly, the first joint tender for the procurement of ethanol at competitive market prices
was issued by IOCL, HPCL and BPCL through BPCL.
 Indian Glycols Ltd – anticipating an increase in ethanol prices due to the CCEA's fixed price of
Rs27 per litre.
 Approached the CCI, alleging that the joint tendering by the OMCs at the behest of the CCEA
directives was an act of anti-competitive coordination .
 However, the CCI found the allegation to be devoid of merit and dismissed it on 26 July 2012.
 Later, the CCI opined that there was a prima facie case based on the allegations of collective
decision making to fix prices for the sugar mills' supply of ethanol to the OMCs. As such, it
ordered the director general to investigate the matter and submit a report.
 DG filed an investigation report in which the ISMA and the EMAI were found to have violated
Sections 3(3)(a) and (b) read with Section 3(1) of the Competition Act. Further, the report found
that that the bidders of sugar mills with depots in Uttar Pradesh, Gujarat and Andhra Pradesh had
violated Section (3)(3)(d) of the act by way of the joint tender floated by the OMCs.
 found that sugar mills operating in the states of Uttar Pradesh, Andhra Pradesh and Gujarat
had indulged in anti-competitive conduct.
Issues Raised

 whether the joint tender floated by the OMCs had violated Section 3(1) of the Competition Act read
with Section 3(3);
 whether the tender floated on 2 January 2013 by the OMCs had been rigged by the ISMA, the EMAI
and the National Federation of Cooperative Sugar Factories Limited (NFSCF) in contravention of
Section 3 of the Competition Act.
Legal provisions
 . Anti-competitive agreements.—
 Section 3 in the Competition Act, 2002
 (1) No enterprise or association of enterprises or person or association of persons shall enter into any
agreement in respect of production, supply, distribution, storage, acquisition or control of goods or
provision of services, which causes or is likely to cause an appreciable adverse effect on competition
within India.
 (3) Any agreement entered into between enterprises or associations of enterprises or persons or
associations of persons or between any person and enterprise or practice carried on, or decision
taken by, any association of enterprises or association of persons, including cartels, engaged in
identical or similar trade of goods or provision of services, which—
 (a) directly or indirectly determines purchase or sale prices;
 (d) directly or indirectly results in bid rigging or collusive bidding, shall be presumed to have an
appreciable adverse effect on competition: Provided that nothing contained in this sub-section shall
apply to any agreement entered into by way of joint ventures if such agreement increases efficiency
in production, supply, distribution, storage, acquisition or control of goods or provision of services.
Explanation.—For the purposes of this sub-section, "bid rigging" means any agreement, between
enterprises or persons referred to in sub-section (3) engaged in identical or similar production or
trading of goods or provision of services, which has the effect of eliminating or reducing
competition for bids or adversely affecting or manipulating the process for bidding.
Conclusion

 This case demonstrates the CCI's shift towards punishing apparent coordination between competitors
based on legal grounds and ignoring the market realities. It also illustrates how trade associations
facilitate coordination between competitors.
 The Competition Commission of India (CCI) has imposed a fine of Rs 380 million on sugar companies
and their associations for alleged rigging of the ethanol tender in 2013. Sugar association ISMA has
also been pulled up by the anti-trust regulator. The association, Indian Sugar Mills Association (ISMA),
has been asked to pay 10 per cent of its annual receipts for the year as penalty. The tender was floated
by oil marketing companies — HPCL, BPCL and IOCL — in 2013 for procurement of ethanol for
blending with petrol. CCI based the penalties on the revenue generated by the sugar mills only from
sale of ethanol.
 The penalty was imposed by the commission at 7 per cent of the average relevant turnover of the sugar
mills. However, a penalty at 10 per cent of the average receipts was imposed upon trade associations
that include ISMA and Ethanol Manufacturers Association of India (EMAI), keeping in mind the role
they played in facilitating the rigging of bids.