The case relates to the National Company Law Appellate Tribunal’s (NCLAT’s) December order asking the CCI, India’s anti-monopoly watchdog, to reconsider and recalculate the fine it imposed on tyre companies over alleged cartelisation and price manipulation.
A bench led by Justice Sanjiv Khanna issued notice on Monday to the CCI, and also tagged the MRF’s appeal with that of the one that the CCI had made, ET has reported. In April, the top court, while hearing the CCI’s appeal against the NCLAT order, had refused to stay the appellate tribunal’s order.
How it began
The case at the CCI started more than a decade ago after the Ministry of Corporate Affairs referred it based on allegations of cartelisation against five tyre companies made by the All India Tyre Dealers Federation (AITDF). The AITDF alleged that the five domestic tyre companies were indulging in anti-competitive activities and price parallelism, and they controlled 90% of the tyre production in the country.
It was also alleged that these companies increased tyre prices under the guise of a rise in the prices of raw materials, including natural rubber, but they did not decrease the prices of tyres when raw material prices fell.PenaltiesOn August 31, 2018, the CCI passed an order imposing penalties on the tyre companies. But the order wasn’t delivered to them until February 2022, following the Supreme Court’s final approval.
The CCI passed the order in 2018. However, it was kept in a sealed cover as per the direction of the Madras High Court in a petition filed by MRF Ltd. Later, the division bench of the High Court had dismissed the plea filed by the tyre maker, and subsequently, the matter reached the Supreme Court, which was later dismissed by the apex court on January 28, 2022.
In its order, the CCI had imposed penalties totalling more than Rs 1,788 crore on the tyre companies, including Rs 425.53 crore on Apollo Tyres, Rs 622.09 crore on MRF Ltd, Rs 252.16 crore on CEAT Ltd, Rs 309.95 crore on JK Tyre, and Rs 178.33 crore on Birla Tyres. A penalty of Rs 8.4 lakh was also imposed on their association, the Automotive Tyre Manufacturers Association (ATMA).
What CCI observed
The competition regulator’s order stated that the ATMA indulged in cartelisation by acting in concert to increase the prices of cross-ply/bias tyres variants sold by each of them in the replacement market and to limit and control production and supply in the said market.
“The Commission noted that the tyre manufacturers had exchanged price-sensitive data amongst them through the platform of their association, ATMA and had taken collective decisions on the prices of tyres,” said the regulator in its release on February 2, 2022.
The Commission further observed that the ATMA collected and compiled information relating to company-wise and segment-wise data (both monthly and cumulative) on production, domestic sales and export of tyres on a real-time basis. “Thus, the Commission observed that the sharing of such sensitive information made the coordination easier amongst the tyre manufacturers,” said the CCI.
NCLAT steps in
In December 2022, the NCLAT overturned the order and directed the Commission to pass a fresh order, citing the need to re-examine arithmetical and inadvertent errors as well as to review the penalty to save the domestic tyre industry which was under various pressures.
“Consider reviewing the penalty to save domestic industry” in view of the fact that it is under a lot of pressure from global tyre manufacturing companies where a lot of unutilised capacity is available, the tribunal said. According to the tribunal, promotion of domestic industry is also to be kept in mind by the CCI, as the object of the Competition Act requires to keep in view the economic development of the country also.
“If violations are done by domestic industries, no doubt they should be penalised and be given a chance of reformatory instead of virtually putting the organization on weak health,” it said.
After the observation, the CCI approached the Supreme Court, challenging the tribunal’s order.
The errors in calculation
The NCLAT in its December 2022 observation noted that there were “inadvertent errors” in the CCI order. “Since the cartel has been found for the year 2011–12 and the same is surrounded by arithmetical errors, it may be leading to wrong conclusions apart from other flaws”.
A two-member NCLAT bench comprising Justice Rakesh Kumar and Ashok Kumar Mishra observed that there were errors by the Director General in the calculation of percentage increase in price and the corrected data apparently reveal non-existence of price parallelism. The Director General is the investigation arm of the CCI.
“The calculation of Correlation Coefficient used a wrong period of the financial years 2009-13 instead of financial (year) 2011-12. If correct calculations are made for correlation coefficient, it looks to be much lower… This also provides a ground that there is no violation on account of price parallelism,” the NCLAT noted.
Tyre companies, which have been fined by the CCI, have maintained that there has been no wrong-doing of any kind on their part.
Responding to the imposition of fine and the CCI’s take on the case, CEAT, one of the fine companies, said that there has been no wrongdoing on the company’s part. It said that it was never a part of any cartel and never undertook any anti-competitive practices. “We strongly reiterate that there has been no wrongdoing on the part of CEAT and want to reassure all the stakeholders that CEAT has never indulged in or was part of any cartel or undertook any anti-competitive practices,” the company said in an exchange filing.
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