CCI order: Levy too harsh; cannot use US, EU competition law, says DSK

In an analysis of the CCI penalty on cement companies, Balbir Singh, partner, DSK Legal explains to CNBC-TV18 that the penalty is harsh considering market conditions and the companies' balance-sheets. He also adds that the competition law in India cannot be based on similar laws in the US or EU where the markets are much more mature and the competition is rigourously controlled.

Below is an edited transcript of the analysis on CNBC-TV18. Also watch the accompanying video.
Q: Will the 11 companies that have been fined go to COMPAT (Competition Apellate Tribunal)?
A: Considering the size of penalty which has been imposed, the market conditions and the balance-sheets, the companies will finally depose before the COMPAT. Q: How do you think the cease-and-desist order will be implemented?
A: Trust law across the globe, contains a standard order restraining companies found guilty of forming a cartel from entering any kind of agreement written or oral.  It is not easy to implement and huge penalty will be difficult to pay.
But I assume the Competition Commission is certainly going to keep a watch on balance-sheets and sales. I presume that the implementation is more going to be by complainant side than the Competition Committee. Q: The Competition Act is quite new. Does the Competition Commission ever suo moto look back at its orders and make sure that those companies are actually adhering to the orders that have been passed?
A: Although, there isn’t much of a history as far as the implementation of the Competition Commission’s orders, there is a provision in the law that allows for further penalisation and can be extended to criminal prosecution.
As of today, the order works more as a threat. And though the Competition Commission is new and not in a position to actually implement the order, it will be market dynamics and the complainant or the other affected parties who will report and inform the  Competition Commission.
So I think that is one reason or basis on which the Competition Commission may review the order which they have passed. Also Read: CCI order: After cement biz, tyre cos on radar, says Tulsian Q: Do you think that this lacks the punch perhaps because the CCI has not directed these companies to cut prices or increase utilisation?
A: By virtue of law or order, no company can be forced to utilise the capacity. The government or competition authority can disallow a merger or acquisition.
This order has certainly imposed heavy penalties considering the market situation and the immature level of competition in India, where across all segments industry participants get together and take decisions. Also Read: CCI order: Fine soft at 50%; defies Act levy of 300%: Trilegal
We should not base our existing competition law to those in the US or EU where the markets are very mature and the competitive practices are very rigorously controlled and followed. The Competition Commission should have been a little more mature and realistic while adjudicating the penalty. Q: What is you reaction to fact that the penalty is only 0.5 times of the profit instead of availing the right to levy a fine of upto three times? Also on what grounds can these companies actually appeal at COMPAT?
A: I think it is very clear that the kind of investigation which has been carried out by the director-general investigation is more based on economic factors rather than facts.
The larger part of focus of the investigation has been on dominant participants  determining the price and the rest following those prices. Second, 100% capacities were not utilised to create a scarcity and push prices up.
So I think the actual evidence has not been found against the companies. it's more of economic criteria applied whereas in the probes into competition under a mature jurisdiction, facts are given more weight
The Competition Commission's claim that the 11 defaulters actually split the market in is not correct because most of the companies have production centres in one region and conduct sales in the another region of the country.
I think we need to evaluate the order in a little more detail to arrive at a sustainable basis for taking this order to the next level in the Competition Appellate Tribunal.