The Competition Commission of India imposed a hefty collective penalty of Rs. 1,788 crore vide its Order on the country’s top tyre manufacturers namely, Apollo Tyres Limited, MRF Ltd., CEAT Ltd., JK Tyre and Industries Ltd., Birla Tyres Ltd. and the Automotive Tyre Manufacturers Association (“ATMA”). They were all held liable for anti-competitive behaviour. It was alleged that the manufacturers controlled over 90% of the tyre production in India were engaged in price parallelism under the aegis of ATMA and were accordingly in violation of Section 3 the Competition Act, 2002 (‘Act’).
Section 3 of the Act prohibits anti-competitive agreements from being entered into if they “cause or are likely to cause an appreciable adverse effect on competition(‘AAEC’) within India. Anti-competitive agreements may include Horizontal and Vertical Agreements.
Section 3(3) of the Act refers to Horizontal Agreements, which is an agreement between enterprises, each of which operates at the same level in the production or distribution chain. Section 3(3)(a) and 3(3)(b) deal with agreements that directly or indirectly determine purchase or sale prices; lead to the fixing of prices, limiting or controlling output/supply etc.
The Director General (“DG”), CCI in his Report examined the structure of the domestic tyre market and found it to be highly concentrated with the manufacturers having a combined market share in terms of turnover of around 83% of the total industry turnover. The DG based on the evidence suggested that there is a strong indication that the manufacturers had acted in a concerted manner to increase and maintain the tyre prices at higher levels despite a significant decline in the prices of natural rubber and other key raw materials. It was observed by the DG that mere parallel pricing in an oligopolistic market structure alone is not sufficient to infer the existence of a cartel amongst the manufacturers. Therefore, certain ‘Plus Factors’, beyond ‘Conscious Parallelism’, were to be looked at, these were (i) existence of price parallelism amongst the manufacturers; (ii) financial performance of the manufacturers; (iii) cost analysis of key raw materials; (iv) circumstances conducive for collusion; and (v) evidence of communication exchanged amongst the manufacturers, to conclusively establish the existence of a cartel amongst the tyre manufacturers.
The CCI agreed with the DG stated that the existence of an anti-competitive practice or agreement must be inferred from a number of co-incidences and indicia which, if taken together, may, in the absence of any other plausible explanation, constitute evidence of the existence of an anti-competitive agreement. The Commission observed that the market was highly concentrated with a few players holding a large chunk of the market indicating a strong possibility of a conducive environment for collusive behaviour. The Commission observed that the prices charged by the manufacturers had been moving in tandem clearly exhibiting price parallelism.
The Commission concluded that the manufacturers had indulged in cartelisation under the aegis of ATMA during the year 2011-12. This was held to be in contravention of the provisions of Section 3(3) read with Section 3(1) of the Act as it had an AAEC in India. The Commission noted that the manufacturers, by way of tacit co-ordination, had not only increased the prices but also have limited and controlled the production and supply in the market which is a clear contravention the provisions of Section 3(3)(a) and 3(3)(b) read with Section 3(1) of the Act.
By - Arush Khanna & Suradhish Vats