Top cement-makers got a reprieve on Friday after the Competition Appellate Tribunal set aside a Competition Commission order that fined them ₹6,316.59 crore for cartelisation.
The tribunal quashed the order on the grounds that the CCI Chairperson “did not have the opportunity of hearing the arguments of the advocates for the parties” between February 21 and 23, 2012. But he was a party to the decision without knowing the nature and contents of the arguments of the senior advocates who had appeared for the companies.
The tribunal asked the CCI to look afresh into allegations against the cement industry that it was anti-competition. It asked the CCI to pass an order within three months.
The tribunal also asked the CCI to return 10 per cent of the penalty that the cement companies had deposited with it.
The cement industry welcomed the tribunal’s order and reiterated its stand that there was no cartelisation among the manufacturers.
The CCI’s order was based on a complaint by the Builders Association of India in July 2010, accusing cement companies and the Cement Manufacturers Association of violating the Competition Act by colluding to limit production and manipulating cement prices.
The CCI ordered an investigation and the Joint Director General filed a report in December 2011 that found manufacturers indulging in “collusive price fixing.” Based on oral and circumstantial evidence the report said there is a “meeting of mind and coordinated activities”.
The CMA “is providing a platform for coordination amongst the cement manufacturers.”
Based on the report, the CCI in June 2012 declared that 11 cement companies [Associated Cement Companies, UltraTech Cement, Grasim Cement (since merged with Ultratech), Jaypee Cement, India Cements, JK Cement, Century Textiles & Industries, Madras Cements (now Ramco Cements), Binani Cement, Lafarge India and Shree Cement] and the CMA were in violation of the Competition Act by working together to limit production and supply to manipulate the cement prices.
The Commission levied a total fine of ₹6,316.59 crore on the companies and the Association amounting to 50 per cent of their net profit for 2009-10 and 2010-11. It slapped a penalty of 10 per cent of its total receipts for two years on the CMA.
Industry reaction N Srinivasan, Vice-Chairman and Managing Director, India Cements, welcoming the order, said, “it is a good first step” as it clears the air regarding the perception of cartelisation.
The industry creates additional capacities ahead of demand and as the economy grows, demand catches up. Buyers have a wide choice in the market with cement prices ranging from ₹330 to ₹400 a bag.
AV Dharmakrishnan, Chief Executive Officer, Ramco Cements, said the order is a vindication of the industry’s stand that there has not been any cartelisation. There are over a 100 manufacturers and each has a different pricing structure.
It is significant that the tribunal has pointed out that the CCI should evolve a “comprehensive protocol and lay down guidelines for conducting investigation in consonance with the rules of natural justice.”
Most of cement companies’ shares edged down on the stock exchanges on Friday, in line with general market sentiments.
UltraTech Cement, ACC, Ambuja Cements, India Cements and Ramco Cements fell in the range of 0.5 per cent to 1.2 per cent. However, Shree Cements closed 0.5 per cent higher at ₹10,707.65 on the NSE.