CCI cautions against cartelisation, warns of severe penalty

The Competition Commission of India (CCI) has pulled up 11 cement companies for forming a cartel and has penalized them with a fine of Rs 6,300 crore. The commission has asked the companies to pay up 50% of their FY10 profits as penalty.

ACC, Ambuja Cements Limited, Grasim Cement now merged with Ultratech Cement, JK Cement, India Cement, Madras Cement, Century Cement, Binani Cement, Lafarge India and Jaypee Cements include the list of cement manufacturers upon whom the penalty has been imposed.

In an interview with CNBC-TV18, R Prasad, Member of CCI said that the cement companies will have to cease and desist from cartelisation. Their behaviour in the next few months will decide whether they are involved in cartelisation or not. He also warns cement companies may face severe penalties, in the event of further indulgence in cartelisation.

Below is the edited transcript of the interview on CNBC-TV18. Also watch the accompanying video.

Q: The order on cement cartelisation still has not been uploaded on the website. All we know right now is that 11 companies have been found guilty. Their penalty works out to be Rs 6300 crore, computed at 50% of their profits in FY10. Can you corroborate for us, is that what is correct?

A: Yes that is correct, 50% of one year's profit.

Q: The competition lawyer said that the Competition Act actually permits 10% of your profits, but in this case we have seen 50%. So is it a case where you have clubbed together cartelisations spread over 5 years into one order? Is that what has happened?

A: No, it's not like that. If you read the act for a cartel, the provision is different. For a cartel, the maximum is three times the profit for the entire period of cartelisation that you see. If the cartelisation is for 5 years, then 5 years profit has to be taken. But we have taken only 50% and cartelisation is just for a period of nearly 2 years.

Q: But you are only penalizing them for one year. The other thing that I wanted to ask you is in that order have you directed these companies to perhaps cut their prices or increase their utilisation?

A: Yes that is also there.

Q: Can you give us details please?

A: They don't have to cut the prices. What they have to do is, they have to cease and desist from this practice of cartelising. That is what we have ordered.

Q: How will you implement this cease and desists? Are you going to be saying increase your utilisation, is that part of the order?

A: We are nobody to tell them how to utilise your assets. Utilise it whichever way you do, but don't cartelise.

Q: How exactly are you going to implement this cease and desist order? Are you going to ask for an undertaking from these companies, how are you going to make sure that there is no further cartelisation? What do they have to do to prove to you that these companies will not be indulging in cartelisation?

A: Their behaviour in subsequent months will show whether they are still in cartelisation or not. That way we can investigate them again.

Q: Because this is very important news for the street you are telling us that these 11 companies or these cement companies do not have to cut their prices?

A: What I am saying is, pricing is their problem. Our problem is that they should not cartelise. That's all. Pricing and how much capacity to use is their problem, but they cannot sit down together and decide that we will cut down production and will look to increase the prices.

But there can be many other constraints. The reasons could be a strike, a lockout or maybe a breakdown. We cannot say how they don't cut down their production, production is their look out, price is also their lookout. They are doing business. Where there is no a restriction on a business, it's unfair business, which has to be stopped, nothing else.

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Q: Can you tell us on what evidence, on what grounds you have found these companies guilty of cartelisation, what did your investigation throw up?

A: You have to see the order for that. The order will be uploaded on the website. Then you can have a look at the order.

Q: We want to hear from CCI, can you tell us which are the 11 companies that have been found guilty?

A: I don't remember all the names, but there are about 10-11 companies.

Q: By when will you be sending them their show cause notice to pay up the penalty?

A: After 60 days.

Q: After 60 days, you will be sending them the show cause notice for penalty and in case they approach COMPACT, then the CCI does not have to be paid this fine right now?

A: That COMPACT has to decide. It is their jurisdiction.

Q: In this final order, you are just telling them to not indulge in cartelization, but there is no directive on how this should be done, am I getting that correct?

A: Yes it is for them to decide, how not to cartelise.

Q: Your previous landmark orders have been based on tenders, they have been based on buyer agreements, but here it is to do with behaviour of companies. What I am trying to understand is that how exactly will this cease and desist. The order comes through but, how will it be implemented?

A: It is like this - if they cartelise, we can again investigate and once you find them indulging in cartelisation again, you can fine them and the penalty will be heavier. There is no other mechanism. Cartelisation is something which will be evident only after seeing their behaviour in the next 5-6 months. We will see what needs to be done.

Q: So you will take it up suo moto and see whether they are indulging in cartelisation and you are warning them the next time?

A: We can take it suo moto or through a complaint also.

Q: But you are warning them that in case you are found guilty of cartelisation again, the fine will be heavier, is that part of the order?

A: That is not mentioned in the order. That is understood.

Q: There were expectations that the CCI order was going to come out on Tuesday, then they were saying it would come out on Wednesday. It has finally come out on Thursday. Why did it take so long in the last three days to finalize this order?

A: There were some changes to the order which had to be made.

Q: Can you share the details, what was done to change the order?

A: That is an internal thing. There is nothing to discuss about.