This post below is from guest contributor Avinash Amarnath. Avinash practices in New Delhi, India and advises clients across various sectors such as automobiles, financial services, pharmaceuticals, steel, private equity, petrochemicals and electronic lab equipment on Indian competition law.
Hello to all readers! Trade associations seem to be the flavor of the day for the CCI these days. Less than 4 days after passing an order fining the Chemists and Druggists Association, Goa, the Competition Commission of India (the “CCI”) has imposed penalties on the Indian Jute Mills Association (“IJMA”), the Gunny Trade Association (“GTA”) and the individuals responsible for their running for indulging in:
a) price fixing of jute packaging material through circulation of daily price bulletins amongst themselves; and
b) limiting and controlling the supply of jute packaging material.
The complaint was brought by the Indian Sugar Mills Association (“ISMA”) against IJMA, GTA and the textiles ministry of the Government of India. In order to encourage the use of jute and support the jute industry in India, the Government of India enacted a statute in 1987 mandating that certain commodities such as sugar must be mandatorily packed using jute materials. ISMA alleged that as a result of this statutory restriction, they were entirely dependent on jute material suppliers for packaging material and that the jute suppliers were fixing prices and exploiting them. The CCI found that the GTA (which was an association of wholesalers) published and circulated daily price bulletins, which were admittedly followed by the members of the IJMA in setting prices for the sale of jute packaging material. The fact that the bulletin prices were followed by the members of the IJMA was evidenced by correspondence between the GTA and the members of the IJMA where the members complained that the price levels set by the GTA were unsatisfactory. The CCI found that these bulletins were decided by mutual consent and were not based on any market factors such as prices prevalent on the previous day. Further, on an assessment of demand and supply conditions, the CCI found that the production of jute packaging material had consistently declined despite there being sufficient capacity available and demand and prices having gone up over the past few years. From this and other circumstantial evidence, the CCI inferred that the IJMA and GTA had deliberately limited the production of jute packaging material. While the CCI exonerated the concerned government ministry as it did not qualify as an ‘enterprise’, the CCI did note that statutory restrictions imposed by the government on sugar producers to use only jute packaging material were against the principles of competition and observed that the Government of India could consider re-examining the current market situation to remove the market distortions arising out of the above policy. The full order of the CCI can be accessed here.
A few observations. First, it is quite strange that while the infringements identified by the CCI seem to have been committed in equal measure (if not more) by the individual jute mills and wholesalers themselves (as members of the respective trade associations), only the trade associations have been penalized. Second, while there was sufficient evidence in this case to establish that the price bulletins were in fact followed by the members of the IJMA, the question arises as to whether mere information exchange in the form of price discussions and the publication of such price bulletins would have also amounted to an infringement of the (Indian) Competition Act. The CCI is yet to deal with a case of pure information exchange and it would be interesting to see what approach the CCI adopts in such cases. Finally, the CCI seems to be increasingly using its powers to fine individuals who are in-charge of running the infringing enterprises. In fact, this seems to be becoming the norm rather than the exception.
In other news (although this is quite old and not exactly cartel related), the Director General’s (DG) office (investigative wing of the CCI) conducted its first ‘dawn raid’ at the offices of British machinery maker, JCB in relation to on an ongoing investigation on abuse of dominance. At present in India, the CCI or the DG requires a warrant from a court magistrate for conducting a dawn raid. However, a proposed amendment to the Competition Act seeks to vest the power of approving a dawn raid with the Chairperson of the CCI.