Tyre biz cartelisation: NCLAT asks CCI to pass fresh order; review fines to save domestic tyre industry

Appellate tribunal NCLAT has directed the Competition Commission to pass a fresh order in the matter of alleged cartelisation by tyre companies, citing the need to re-examine arithmetical and inadvertent errors as well as to review the penalty to save the domestic tyre industry. The National Company Law Appellate Tribunal’s (NCLAT) order dated December 1 has come on a batch of appeals filed by the tyre makers against the ruling by the Competition Commission of India (CCI) back in August 2018.

The CCI had imposed penalties totalling more than Rs 1,788 crore on the tyre companies.

In its 166-page order, the tribunal has remanded back all cases for review to CCI and also directed the regulator to pass a fresh order “after hearing the parties”.

The regulator should also “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, as per the tribunal.
While noting that there were “inadvertent errors” in the CCI order, the NCLAT said, “since cartel has been found for the year 2011-12 and the same is surrounded by arithmetical errors 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 DG in the calculation of percentage increase in price and the corrected data apparently reveal non-existence of price parallelism.

The Director General (DG) is the investigation arm of the CCI.

“… the calculation of Correlation Coefficient used a wrong period of the financial year 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.

According to the tribunal, promotion of domestic industry is also to be kept in mind by 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.

The tribunal also pointed out that of the companies, Birla Tyre is already under corporate insolvency resolution process.

The NCLAT order has come on appeals filed by leading tyre makers such as Ceat, Apollo Tyres, JK Tyre, MRF, Birla Tyres and Automotive Tyre Manufacturers Association (ATMA) against the CCI order.

On August 31, 2018, the fair trade regulator passed an order imposing penalties on the tyre makers. However, the order was communicated to them only in February 2022 after a final go-ahead by the Supreme Court.

Soon after the CCI passed the order in 2018, an appeal was filed before the Madras High Court and the same was dismissed on January 6, 2022. This was further challenged before the Supreme Court, which had also dismissed plea on January 28, 2022.

Subsequently, almost after four years, the CCI communicated the order to the tyre companies, which then approached the NCLAT.

In the ruling on December 1, the NCLAT also observed that the regulator had imposed a fine on Vice President Marketing CEAT Nitish Bajaj, who “was not employed with CEAT” in 2011.

“Since cartel has been found for the year 2011-12 and the same is surrounded by arithmetical errors may be leading to wrong conclusions apart from other flaws,” it noted. CCI had initiated an investigation based on representation from the corporate affairs ministry and the reference was based on a representation made by the All India Tyre Dealers Federation (AITDF).

The regulator had found that the companies and the association 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.

CCI had imposed penalties of 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 fine of Rs 8.4 lakh was imposed on their association ATMA also.