Author: Arjun Kapur* & Om Chandak**
*Fourth- year & **Third- year Law students at Maharashtra National Law University, Mumbai
I. Introduction
In the dynamic landscape of Indian competition law, the recent volte-face by the Competition Commission of India (“CCI”) in the sugar cartelisation case has stirred considerable debate. This dramatic reversal in the CCI's stance has emerged as a significant development, mainly because it involves the same facts that previously led to a starkly different conclusion.
Initially, the CCI had found several major sugar manufacturers guilty of cartelisation, accusing them of conspiring to fix prices and limit production, thereby harming both consumers and market competition. This decision was backed by substantial evidence and was seen as a significant step in curbing anti-competitive practices in one of India’s key agricultural sectors. However, this order was challenged before the National Company Law Appellate Tribunal (“NCLAT”), which identified procedural infirmities in how the CCI conducted its investigation and the eventual order thereafter remanding the case back to the CCI for reconsideration.
What began as a procedural review has led to a startling shift in the CCI's stance. The same sugar mills previously found guilty of collusion are now exonerated, with the CCI's new order suggesting that the initial conclusions of cartelisation have been either overstated or misjudged. This dramatic 180-degree turn has raised concerns about the consistency and reliability of competition law enforcement in India. This blog post delves into the implications of the CCI’s reversed decision, exploring how the same facts can lead to opposed conclusions and what this means for the future of competition law in India.
II. Background of the Case: Investigations and Initial Findings by CCI
CCI investigated two key issues: whether the joint tender floated by Oil Marketing Companies (“OMCs”) violated Section 3(1) in conjunction with Section 3(3), and whether the tender issued on January 2, 2013, was rigged by trade associations, specifically the Indian Sugar Mills Association (“ISMA”), the Ethanol Manufacturers Association of India (“EMAI”), and the National Federation of Cooperative Sugar Factories Limited (“NFCSF”).
The CCI found that the joint tender did not violate Section 3. The DG's investigation concluded that the joint tender arrangement improved the efficiency of ethanol procurement, benefiting all stakeholders by saving time, money, and resources. The CCI observed that the government, holding a majority stake in the OMCs, issued the joint tender to prevent the waste of taxpayers' money. Issuing separate tenders could have led to market inefficiencies, such as one OMC monopolising ethanol procurement, resulting in higher prices for the remaining OMCs due to supply-demand imbalances. The CCI held that the joint tender was the most efficient option, fulfilling the government's mandate for equitable ethanol blending without excluding any OMC, thus exempting the arrangement from being considered anti-competitive.
The CCI analysed the pricing patterns in the tender process, particularly ethanol’s basic price and net delivered cost (“NDC”). It noted that the basic prices were clustered closely, and bidders' NDCs were within a narrow range. Although identical bids were concentrated in a few depots, the CCI found evidence of collusion among bidders, particularly in Uttar Pradesh. Despite varying distances from distilleries, the identical freight charges quoted by bidders were seen as evidence of collusion. However, the CCI found no contravention in Maharashtra, where bidding patterns differed.
The CCI found that ISMA and EMAI had facilitated bid rigging through meetings and coordinated actions among their members, violating Section 3(3) read with Section 3(1). The CCI imposed penalties on sugar mill manufacturers (7% of their average turnover from ethanol sales) and on ISMA and EMAI (10% of their average receipts) for the previous three financial years.
III. NCLAT’s Remand: Procedural Infirmities and Principles of Natural Justice
NCLAT quashed the CCI order, penalising the eighteen sugar mills and two trade associations for not following the ‘Principles of Natural Justice.’ Section 36 (1) states that to discharge the functions of CCI, the bench should take the Principles of Natural Justice as the guiding light. NCLAT identified three specific actions by the CCI that led to the conclusion that the principles of natural justice were not followed.
CCI did not allow the respondent to hear their side after the “Supplementary Investigation Report” (“SIR”) was produced before them by the DG. “Hearing Rule” is the first rule of the principles of natural justice, which says that the impacted party should have the right to be heard. In the present case, the Hearing Rule according to NCLAT was not followed.
The second Act of the CCI that NCLAT led to the violation of natural justice was the lack of quorum at the time of the order. Five judges heard the case when it was with CCI, but only three judges signed the final order. This Act violated the principle of ‘Audi Alteram Partem.’
Regulation 32(2) of the CCI Regulation states that the final order of the CCI should come within 21 working days from the date of final arguments. In the case of Anil Rai v. State of Bihar, it was held that six months is the outer limit for passing the order and the final arguments. In the present case, the CCI took 13 months to place the order after the final arguments. As the Due process of the law is not followed, NCLAT ordered CCI to start a fresh hearing.
IV. Reassessment by the CCI: A Shift in Interpretation and Exoneration
The CCI this time on the same facts, held that there is no violation of Section 3(1) and Section 3(3) of the act. The interpretation of the facts differed from the previous CCI’s order, which held that their Act violated Section 3. Three key allegations were argued before the CCI. The first one was regarding the impact of the joint tender floated. The second one is against the bidder, especially from the state of Uttar Pradesh, and the last issue is the role of industry associations such as ISMA.
When deciding on it, the DG has considered call detail records (“CDRs”), emails, and witness statements. The communication between ISMA directors was also taken into consideration. Identical bids, particularly among UP sugar mills, and similar freight charges further suggested potential price parallelism.
While deciding the order, CCI held that the facts presented before were insufficient to prove cartelisation. CCI increased the threshold for determining anti-competitive behaviour because the order differs based on the same facts. The defence used by the sugar mills and industry is that the same prices were due to market conditions. Either the evidence was held as not sufficient or mere coincidence. This changed CCI’s approach in this case raises questions about the consistency of the Threshold.
V. What Changed? Analysing the Divergence in CCI's Stance
In the case under consideration, the facts are the same, but the order issued and the interpretation of the facts were opposites. The threshold for considering an act as a violation of Section 3(3) has now been much higher than its precedents. It is pertinent to note that a direct agreement is not essential to establish a violation. When there is a price parallelism in a bid-rigging agreement, then there are fewer chances that there will be direct evidence. Therefore, circumstantial evidence, termed coincidences, should be used in this case. However, multiple coincidences may collectively constitute an “agreement”.
In the present case, other than the same price, emails, calls, and meetings were the other' plus factors' that should have been considered. The tribunal termed various incidents as insufficient or coincidental, but this should collectively be termed as an agreement.
The SC, in the case of Rajasthan Cylinders, has taken a similar perspective and held that all the 'plus factors' should be taken into consideration, and it should be decided subjectively. This approach aligns with the primary objective of the Competition Act, which is to prevent anti-competitive behaviour and promote healthy competition.
The present order is against the object of the legislation because an objective approach was applied. All the factors were not analysed collectively in the case, which sets a wrong precedent, violating the doctrine of Stare Decisis of earlier CCI judgments. The higher threshold set through this order is against the healthy market competition.
VI. Conclusion
Despite being based on the same set of facts, the CCI's reversal of its decision on the sugar cartelisation case underscores the complexities inherent in competition law enforcement and the impact of procedural rigour on substantive outcomes. While the NCLAT's remand order highlighted procedural infirmities that needed correction, the CCI's subsequent reassessment and exoneration of the sugar mills signal a deeper issue: the balance between the country's old and new evidentiary standards for cartelisation in a deeply financial globalised world.
Albeit, the SC has overruled its own decisions from time to time. Still, usually, this is based on an interpretation of law or a change in social or economic circumstances due to the passage of time that may warrant such a shift. However, the case before the Commission was merely a re-hearing of the same evidence in 4 years. This further substantiates the claim, indicating a change in the standard of proof required to establish an infringement. The preponderance of probabilities may no longer be sufficient. Still, it is an ironic stand to the global foot put forward by CCI to the cartelisation, extending support and drafting a new presumptive cartelisation policy for the market. The CCI's new decision, whether influenced by procedural adherence and changes in evidentiary standards, highlights the urgent need for a more robust and transparent framework.
Note: This article has been reviewed by Mr. Anshuman Sakle (Partner, Competition/Antitrust Law, Khaitan & Co.) at the Tier II Stage