Cartelisation penalty: NCLAT upholds fine on cement firms, 11 companies and industry body to pay Rs 6300 crore

By: | Updated: July 26, 2018 7:08 AM

Eleven companies and industry body to pay Rs 6,300 cr; may go in appeal to Supreme Court,

sc, supreme court, nclatThe companies have no option now but to appeal against the order in the Supreme Court.

In a major setback for cement manufacturers, the National Company Law Appellate Tribunal (NCLAT) on Wednesday upheld the hefty penalty of about Rs 6,300 crore imposed on 11 leading cement companies by the Competition Commission of India (CCI) through its order in 2012 and 2016 for price cartelisation. The companies include ACC, Ambuja Cement, UltraTech Cement and Jaypee Cement as well as the industry body, Cement Manufacturers Association (CMA).

The CMA as well as the companies concerned had appealed against the CCI’s order imposing the fine in the NCLAT, which the two-member bench headed by the chairman justice SJ Mukhopadhaya dismissed saying that they found no merit in their pleas.

The companies have no option now but to appeal against the order in the Supreme Court.

The companies have already paid 10% of the amount charged from them as per the directions of the NCLAT. While they have not made any provision in their books, most of them have shown the amount as contingent liabilities.

The case dates back to 2012 when the CCI imposed the penalty on the 11 cement firms for price cartelisation during 2009-10 and 2010-11. As per the CCI order, these 11 cement firms together control a market share of around 58% and enjoy a position of dominance and indulged in arbitrary increase of cement prices.

Finding them guilty under Section 4 of the Competition Act (abuse of dominance), the CCI had levied a penalty of 50% of the profits of these companies during the period under consideration. Section 27 of the Competition Act allows the competition watchdog to impose a penalty up to three times the net profit of the company in the last three years or 10% of the gross turnover of each year, whichever is higher.
The CCI had passed the order following a probe by Director General of Investigation on a complaint filed by Builders Association of India.

According to the CCI, the cement companies had not utilised their available capacity, thereby reducing supply in the market. which helped them keep cement prices high.

Prior to the CCI order, the Serious Fraud Investigation Office in the ministry of corporate affairs had found three cement firms — UltraTech, ACC and Ambuja — guilty of cartelisation and price fixing. The report had been forwarded to the CCI when it started its own investigation on the Builders Association of India complaint.

As per the CCI order, four cement companies will have to shell out a penalty exceeding Rs 1,000 crore. These include Jaypee Cement, which will pay a penalty of Rs 1,323.60 crore, followed by UltraTech (Rs 1,175.49 crore), Ambuja (Rs 1,163.91 crore) and ACC (Rs 1,147.59 crore). The other companies found guilty are Grasim Cements (now merged with UltraTech Cement), Lafarge India, JK Cement, India Cements, Madras Cements, Century Cement and Binani Cement.

Following the CCI’s order the cement firms had challenged it in the Competition Appellate Tribunal (Compat), which in December 2015 had set aside the penalty and directed the CCI to hear the matter afresh.

However, this setting aside of the order of the CCI was not on merits of the case but on procedure followed by the CCI in deciding the case, which Compat felt was not in consonance with the principles of natural justice. The chief issue highlighted by Compat was that the CCI chairman did not hear the arguments but was party to writing the judgment and signed the same.

Upon Compat’s direction the CCI heard the matter afresh and reiterated the penalty in its fresh order in August 2016. Since later that year Compat got dissolved and all appeals against CCI’s order were supposed to be heard by the NCLAT, the companies concerned and CMA appealed against the order before the appellate tribunal.

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