The Competition Commission of India (CCI), on September 24, 2021 imposed a penalty of Rs. 873 crore on three leading beer companies - United Breweries Ltd, SAB Miller India Ltd. (now owned by Anheuser Busch InBev India Ltd - (AB InBev) and Carlsberg India Pvt. Ltd, along with the All India Brewers Association (AIBA) and 11 key personnel of the companies for indulging in the cartelization of sale and supply of beer in various states of India, and thereby contravening the provisions of the Competition Act, 2002 (Act).¹

Cartels refer to a group of independent companies that come together and collude to fix prices, limit production or share markets between them. Rather than competing against each other, cartels rely on a mutually agreed course of action and engage in practices that reduce incentives to provide new or better products at competitive conditions. These agreements are often informal and clandestine, and entered into with a single-minded intent of increasing prices and thereby maximizing profit shares.

Background:
The CCI took cognizance of the matter based on an application filed by Crown Beers India Private Limited and SAB Miller India Ltd. (both owned by AB InBev) against the opposing parties, for alleged cartelization with regard to production, marketing, distribution and sale of Beer in India.

The application was filed under Section 46 of the Act (Power to impose lesser penalty), read with Regulation 5 of the Competition Commission of India (Lesser Penalty) Regulations, 2009. The CCI, being cognizant of the difficulty in detecting and identifying cartels, has provided for a 'leniency scheme' by virtue of which the Commission may grant leniency by levying a lesser penalty on a member of a cartel that provides complete, vital information about the functioning and practices of the cartel.

The CCI, based on the disclosures made in the application, was of the view that collusion existed between the parties to align the prices of beer and to seek/implement price adjustments in several States and Union Territories. The companies appeared to aim for consistency in prices and coordinated the process through a series of multilateral and bilateral conversations and emails amongst themselves, dating back to March 2005. They also used the common platform of AIBA to negotiate amongst themselves and with the State Governments.

The Commission was of the opinion that prima facie, the conduct of the parties appears to be in contravention of Section 3(1) read with Section 3(3)(a) of the Act, and therefore directed the Director General (DG) to investigate the allegations and submit a report of the findings.

Findings of the DG:
The DG observed that the manufacture, production, possession, transport, purchase and sale of intoxicating liquors, including beer, falls within the ambit of the State List. Each State or Union Territory in India has its own unique method of regulating the sale of beer, leading to differences in price regulations and approvals, taxation, excise duties and licensing. Any change in the price of beer has to be approved by the State Government - price increase proposals are put forth by beer companies and then accepted by the State Government.

The DG looked at the conduct of the parties while engaging in the four major route-to-market models for the distribution and sale of beer.

It was seen that in States where the Government runs business through fully-owned public sector companies, the parties were in regular contact with each other prior to submitting their bids, even while seeking price revisions in the maximum retail price (MRP) of beer.

Moreover, even though certain States provide significant freedom in fixation of beer prices, the parties coordinated amongst themselves to fix the price of beer to maintain their market share, and also had identical MRPs approved by the State Government.

The DG concluded that the parties indulged in exchange of vital information amongst themselves regarding pricing and other confidential and business-sensitive information. They mutually agreed on price revisions to be sought from the respective State Governments. A host of email communications, WhatsApp messages, SMSs and even conference calls were exchanged between top managerial personnel of these companies to decide prices, follow-up with State Authorities and even coordinate a common response to Show-Cause Notices issued by State Excise Commissioners.

As per the findings of the DG, the parties engaged in several anti-competitive practices:-

• They shared their periodical sales data amongst themselves as a monitoring mechanism to ensure that they adhered to their tacit agreements
• They stopped production and supplies in States whenever State Governments hiked the excise duty or reduced the MRP or Ex-Brewery Price of beer
• They colluded regarding the number of truckloads of second-hand bottles each of them would buy for use in their own plants, and the rates at which they would buy them from the market (limiting the volume of bottles they could procure would directly limit the production of beer)
• They used AIBA as a means of holding discussions amongst themselves and engaging with the State Government

Furthermore, multiple e-mails indicated that the parties were aware that their joint representations to the Authorities and discussions on pricing and other issues violate the provisions of Competition Law. The parties had warned each other from holding such discussions via e-mail and on public platforms.

Therefore, the DG established cartelization amongst the parties in 10 States and Union Territories.

The CCI's Verdict:
Based on the findings of the DG, and the submissions made by the companies as well as the key personnel, the CCI engaged in a detailed State-wise analysis of the conduct of the parties. The Commission examined the e-mail communications between the parties and analyzed the data shared amongst them.

The CCI held that the parties engaged in price coordination in Odisha, Rajasthan, West Bengal, Delhi, Andhra Pradesh, Karnataka, Maharashtra and Puducherry. They engaged in restricting supply of beer in Maharashtra, West Bengal and Odisha and sharing of market in Maharashtra. They also coordinated the supply of beer to whole sellers in Bengaluru.

As all three companies applied for a reduction in penalty at different stages of the investigation, the CCI took cognizance of the same and imposed a penalty of Rs. 750 crore (after 40 per cent reduction) on United Breweries Ltd and a penalty of Rs. 120 crore (after 20 per cent reduction) on Carlsberg India. No penalty was imposed on AB InBev, as the Commission allowed 100 per cent reduction on the penalty applicable to them. They also issued a cease-and-desist order from indulging in cartelization or any other anti-competitive practice in accordance with Section 27(a) of the Act.

Concluding View:
The CCI is a proactive regulator and has taken several advocacy initiatives to ensure healthy competition in the market. The 'leniency regime' established by the Commission has prompted several companies to act as whistleblowers and voluntarily provide information regarding anti-competitive practices while also safe-guarding themselves. The CCI decides on the quantum of leniency based on several factors such as the stage of investigation at which the disclosures were made and how vital the disclosures prove to be in establishing the existence of anti-competitive practices. This mechanism goes a long way in identifying practices such as cartelization that causes significant adverse impact on competition in the market.

By - Muskaan Ahuja