Aug 31, 2020CCI Refrains from Imposing a Penalty in a Cartel Involving Composite Brake Block Manufacturers
On July 13, 2020, CCI concluded that several composite brake block (‘CBB’) manufacturers cartelized to fix prices, limit supply, allocate market, and rig bids of CBB tenders.[1] CCI had initiated an investigation after receiving complaints from various Indian railway zones (‘Informants’) against ten CBB manufacturers claiming that the CBB manufacturers had cartelized by offering identical bids and reductions in price in response to the tenders floated by the railway zones. The investigative arm of CCI, the Director-General (‘DG’) found that the CBB manufacturers had contravened the cartel provisions of the Act.
CCI’s Findings
Evidence: CCI found incriminating emails, WhatsApp communications, text messages, and call data records against each CBB manufacturer. These documents showed that the CBB manufacturers discussed bid prices and payment of compensation if any of the manufacturers lost the tender. The documents also showed that the CBB manufacturers allocated specific quantities for each tender. DG also found instances of CBB manufacturers having quoted the same prices across tenders. CCI found this evidence to establish the existence of a cartel between the CBB manufacturers.
AAEC: CCI rejected the CBB manufacturers’ argument that they had no control over the final prices and quantities, which were negotiated and determined by the Indian Railways. It held that the Act prohibits any conduct which can potentially cause an AAEC, for example, an agreement to fix prices even when the final price is different from the ‘fixed’ price. It also found that once a cartel is established, it is presumed to cause an AAEC in India and none of the CBB manufacturers were successful in rebutting this presumption.
CCI finally found the CBB manufacturers and their officials to have contravened the Act. While CCI issued a cease and desist direction, it did not impose a monetary penalty on the CBB manufacturers and their officials because of:
• the continued cooperation of the CBB manufacturers during the investigation; • the admission of cartelization by the CBB manufacturers which led to an expedited inquiry; • the low turnover of most of the CBB manufacturers; and • the economic impact of COVID-19 on the credit needs and liquidity of micro, small and medium enterprises.
[1] In Re: Chief Materials Manager, South Eastern Railway v. Hindustan Composites Limited and Ors., Ref. Case Nos. 3 of 2016, 5 of 2016, 1 of 2018, 4 of 2018 and 8 of 2018, Order dated July 13, 2020.