By way of a January 19 2017 order, the Competition Commission of India (CCI) imposed a penalty of Rs2.05 billion on seven cement manufacturers – Shree Cement Limited, Ultratech Cement Limited, Jaiprakash Associates Limited, JK Cement Limited, Ambuja Cements Limited, ACC Limited and JK Lakshmi Cement Limited – for bid rigging.(1)

Background

The Haryana Directorate of Supplies and Disposals alleged that in 2012 the rates quoted by the defendants to the Haryana government departments and boards of state for the supply of 400,000 metric tonnes of cement to 30 destinations were 35% to 42% higher than existing rate contracts. Therefore, the rate contract that was negotiated and finalised was unjustified in light of the price index for cement.

The CCI considered a prima facie case of bid rigging and called for a detailed investigation by the director general.

Decision

The director general found that the defendants had conspired to bid for the disputed tender and their conduct had violated Section 3(3)(d) of the Competition Act.

Analysis of the data collected by the director general showed that from 2009 to 2012 the bidding prices for cement quoted by the defendants were, on average, significantly higher than the corresponding increase in the wholesale price index for grey cement, therefore indicating price parallelism and collusive bidding. The defendants offered no satisfactory justification for the increased prices.

The CCI noted the defendants' contention that they first established the final price to be quoted and then worked backwards to arrive at the basic price. The CCI considered this to be "paradoxical" and stated that it "defies logic that without determination of ex-factory/basic price based on the cost of production and then adding various components like freight, [Value Added Tax] etc..., the companies would arrive at the final price".

The CCI also noted that from 2010 to 2011, the cumulative quantity quoted by the defendants was significantly higher than the 2012 total quantity of 420,000 metric tonnes, which was close to the tendered quantity of 400,000 metric tonnes. The defendants offered no satisfactory justification for the quoted quantities.

The CCI found that in relation to the 2012 tender, all of the defendants had acquired L1 status in at least one destination, and none had failed to obtain a bid. Such conduct is unprecedented. Although the defendants had bid for lower prices in certain destinations to achieve L1 status, they had also quoted much higher prices in adjoining destinations.

Finally, the CCI considered the call data records and found that various officials of the defendants had made phone calls and exchanged SMS messages with each other in the month preceding the tender. The frequency and duration of the calls had increased as the date of tender on August 16 2012 approached. The CCI therefore concluded that the defendants' conduct violated Sections 3(1) and 3(3)(d) of the Competition Act.

The CCI issued a cease-and-desist order against the defendants and imposed a penalty at the rate of 0.3% of the average turnover of the preceding three years.

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Endnotes

(1) CCI decision, January 19 2017. For the full text, please see the CCI website.