CCI Imposes Hefty Penalty On 6 Tyre Manufacturers For Cartelization

Factual Background

The proceedings were initiated based on a reference received from the Ministry of Corporate Affairs under Section 19(1)(b) of the Competition Act, 2002 wherein it alleged violation of Section 3 of the Act by Apollo Tyres Ltd., MRF Ltd., CEAT Ltd., JK Tyre and Industries Ltd., Birla Tyres Ltd. and Automotive Tyre Manufacturers Association.

The reference was made based on a representation made by SP Singh, convener of All India Tyre Dealers Federation (AITDF) to the MCA. He alleged that all the abovementioned tyre manufacturers together controlled 90% of the tyre production in India and that they were engaged in price parallelism under the aegis of ATMA- Automotive Tyre Manufacturers Association.

The tyre manufacturers raised prices of tyres on the ground of increase in prices of natural rubber and other inputs, but subsequent reduction in the prices of these raw materials was not followed by a decrease in the prices of tyres, which should have otherwise occurred in a competitive market. They were thus maintaining a self-styled 'price control' on tyre pricing and strangulated free and fair play of market forces.

Investigation By DG

On the basis of this, the CCI ordered an investigation by the DG, in which report the DG noted that evidences strongly indicated that the manufacturers had acted in a manner to increase and maintain tyre prices at high levels despite significant fall in rubber prices and other raw materials. This could not have been possible had there been any real competition between the parties. The DG also took into account other factors such as price increase being invariant with fluctuations of market demand in the domestic market and unusual stability in production and market share of the manufacturers.

He concluded that the analysis of financial performance of the manufacturers strongly suggested about the success of a cartel.

The DG after investigation, gave its finding based on the following parameters such as (i) existence of price parallelism amongst the OPs; (ii) financial performance of the OPs; (iii) cost analysis of key raw materials; (iv) circumstances conducive for collusion; and (v) evidence of communication exchanged amongst the OPs.

Issue For Consideration Before The Commission

Whether the OPs/manufacturers have indulged in cartelisation in the domestic tyre market by way of an agreement or understanding amongst themselves for increasing/ maintaining the prices of tyres, particularly in the year 2011 and onwards; thus, violating the provisions of Section 3(3) read with Section 3(1) of the Act?

Decision Of The Commission

Market Concentration: The Commission noted that the tyre manufacturers together control about 83% of the tyre market share in India, and in terms of production of cross ply/ bias type tyres belonging to truck bus tyre segment, they constitute 93/95% of the Indian tyre industry.

It noted that the market is highly concentrated with a few players holding a large chunk, indicting a strong possibility of conducive environment for collusive behaviour. Also, the existence of ATMA that collates sensitive information relating to supply, prices, etc. from various players in the market provides a platform for coordination among the manufacturers.

Price Parallelism: The Commission observed that the prices have gradually increased and stabilized at a certain level. The prices have moved in the same direction, with a very small change, albeit not by identical percentage.

It was noted that as price parallelism cannot be the sole determinant to conclude the existence of collusion, it also took into account parallel movement of prices charged by the manufacturers, despite their being a reduction in prices of inputs.

The Commission took into account the email exchanges between the manufacturers and ATMA, wherein ATMA and the manufacturers engaged in discussions about raw materials. Other sensitive data was also shared by ATMA with the manufactures. There were also regular meetings of ATMA with the tyre manufactures, which served as a platform for discussion.

Thus, the CCI concluded that the platform of ATMA was used by tyre companies to resort to anti-competitive activities and not merely to protect the legitimate interests of ATMA's members. The Commission held that the manufacturers indulged in cartelization under the aegis of ATMA and has contravened the provisions of Section 3(3) r/w 3(1) of the Act.

Liability U/S 48 Of The Competition Act

Section 48 of the Competition Act, 2002 imposes liability on individuals belonging to the erring companies/ associations.

Section 48(1) of the Act provides that where a person committing contravention of any of the provisions of this Act is a company (including a firm or an association of individuals), every person who, at the time such contravention was committed, was in-charge of, and was responsible for the conduct of the business of the company/firm/association, shall be deemed to be guilty of the contravention and shall be liable to be proceeded against and punished accordingly.

Further, the proviso to Section 48(1) of the Act entails that such person shall not be liable to any punishment if he proves that the contravention was committed without his knowledge or that he had exercised all due diligence to prevent the occurrence of such contravention.

Section 48(2) of the Act, on the other hand, attributes liability on the basis of de facto involvement of an individual.

Office-bearers (President, Managing Directors) of the manufacturers were held liable by virtue of Section 48 of the Act.

The Commission also passed a cease and desist order against the manufacturers from indulging in any activity relating to agreement, understanding or arrangement on prices, production of tyres in the market. ATMA was directed to disengage and disassociate itself from collecting wholesale and retail prices through the member tyre companies or otherwise.

The Commission invoked Section 27(b) of the Act to impose penalty upon the contravening parties and imposed a penalty at the rate of 5% of average turnover for the last preceding three financial years.

It imposed a penalty of Rs. 425.53 crore on Apollo Tyres, Rs. 622.09 crore on MRF Ltd., Rs. 252.16 crore on CEAT Ltd., Rs. 309.95 crore on JK Tyre and Rs. 178.33 crore on Birla Tyres along with a penalty of 0.084 crore on ATMA u/s 27(b) of the Act.

Case Title:In Re: Ministry of Corporate Affairs and Appolo Tyres & Ors

Counsel for the Parties- Shri Amit Sibal, Senior Advocate, Ms. Sonam Mathur, Ms. Kabyashree Chaharia, Shri Sanjeev Kumar, Advocates, Shri Deepak Gupta, Legal Head, Shri Sanjay Jain, Legal Consultant, Shri Anil Chopra, Head- Finance & Accounts of OP-1 and its concerned officials.

Shri A.N. Haskar, Senior Advocate, Shri Aditya Narain, Shri Arnav Narain, Advocates, Shri Santhosh C.B., General Manager (Legal), Shri Sam Navin, Senior Manager (Legal) of OP-2 and its concerned officials.

Shri Aditya Narain, Shri Arnav Narain, Advocates, Shri MVH Menon, General Manager (Legal), Shri HNS Rajput, VP-Legal of OP-3 and its concerned officials.

Shri Ramji Srinivasan, Senior Advocate, Smt. Ferida Satarawala Chopra, Shri Vivek Agarwal, Shri Karan Latayan, Shri Tushar Bhardwaj, Advocates, Shri Pawan Kumar Rustagi, VP-Legal of OP-4 and its concerned officials

Shri Somashekhar Sundaresan, Ms. Nisha Kaur Uberoi, Shri Gaurav Bansal, Shri S. Sammith, Ms. Ankita Gulati, Advocates of OP-5 and its concerned officials.

Shri Balbir Singh, Senior Advocate, Shri Abhishek Baghel, Shri G.R. Bhatia, Shri Abdullah Hussain, Ms. Nidhi Singh, Ms. Prerna Parashar, Advocates, Shri Joy Joseph, Senior-Executive Officer of OP-6 and its concerned officials.

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