By way of an order dated July 1 2016, the Competition Appellate Tribunal (COMPAT) set aside an order from the Competition Commission of India (CCI), under which the Indian Jute Mils Association (IJMA) and the Gunny Trade Association (GTA) were penalised for alleged cartelisation in the pricing of jute bags.(1)
It was alleged that the jute manufacturers had established a monopoly as a result of the circular issued by the government under the Jute Price Maintenance Act 1987, which required that all sugar produced by sugar factories be packaged in jute bags (A-twill bags). Taking advantage of this monopoly, the jute mills unreasonably increased the price of jute bags from Rs53.50 per bag in April 2010 to Rs64.50 per bag in February 2011. It was alleged that this increase was possible only because of an agreement between the members of IJMA and GTA, who were conscious of the fact that they enjoyed a complete monopoly.
Thus, it was alleged that IJMA and GTA had a cartel on the market for packaging material for sugar and that by jointly deciding sale prices and limiting technical development of the industry, the two associations had infringed Section 3(3) of the Competition Act. The CCI considered this to be a prima facie violation of Section 3(3)(a) of the act and ordered an investigation into the associations' conduct.
The director general's report, submitted after a detailed investigation, found that IJMA and GTA had been using their position to discuss the price of jute bags before publication in GTA's daily price bulletin. According to the director general, this clearly indicated that IJMA was engaged in price fixing.
The CCI agreed with the director general's findings, primarily based on the fact that a comparison of the price of A-twill and B-twill jute bags showed that there was no correlation between the two, despite the fact that the basic materials and production costs were the same. In fact, the price of A-twill bags on a per-gram basis was approximately 50% higher than that of B-twill bags. Further, actual transactions on the market were in line with GTA's daily price bulletin. In light of this evidence, IJMA and GTA were found to be in violation of Section 3(3)(a) of the act.
The CCI penalised IJMA and GTA at a rate of 5% of their average turnover for the past three years. In total, IJMA was fined Rs768,527 and GTA was fined Rs35,169. The CCI also imposed a penalty on 25 members of IJMA and 19 members of GTA, amounting to 5% of their average income over the past three financial years.
On appeal, COMPAT noted that the participation of UC Nahata, one of the members who joined the CCI more than three years after the case was filed, had violated the principles of natural justice, as he was not a part of the earlier CCI hearings.
In relation to the merits of the CCI order, COMPAT noted that neither the director general nor the informant had collected evidence showing that:
- there was an agreement between GTA and IJMA with regard to the alleged price fixing of A-twill jute bags; or
- the price of the bags was fixed by GTA after discussions with IJMA.
Further, COMPAT found that the CCI had failed to analyse the director general's finding independently, and instead mechanically approved the findings. None of the correspondence between IJMA and GTA showed that they had entered into a price-fixing agreement. Further, the comparison of A-twill and B-twill bags was faulty, as A-twill bags are 1,190 grams, while B-twill bags are 665 grams. COMPAT thus held that the CCI's finding that Sections 3(3)(a) and 3(3)(b) had been violated was unsubstantiated and should be set aside.
Finally, COMPAT held that the penalty imposed on IJMA and GTA was disproportionate and lacked sufficient reasoning. COMPAT thus set aside the CCI's order and the penalties imposed on IJMA and GTA.
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