National Company Law Appellate Tribunal | In a landmark judgment related to cartelization activities of five major domestic tyre manufactures and their association namely Apollo, MRF, Ceat, JK Tyre, Birla Tyres, dating back around 10 years ago, a bench comprising of Rakesh Kumar, J. (Judicial Member) and Dr. Ashok Kumar Mishra* (Technical Member) remanded back the tyre cartel matter back to Competition Commission of India (CCI) to review the penalty of Rs 1789 crores imposed upon the tyre manufacturers including Automotive Tyre Manufactures Association (ATMA).

Factual Matrix

The All-India Tyre Dealers Federation (AITDF) approached the then MRTP Commission alleging Pricing and Trade Malpractices. CCI initiated an investigation into the tire manufacturers for a period from 2005-2006 to 2009-2010 and disposed of the case stating that there was insufficient evidence to sustain the contravention under Ss. 3(3)(a) and 3(3)(b) read with S. 3(1) of the Competition Act, 2002 vide order dated 30-10-2012.

The order dated 30-10-2012 was challenged under S. 53-A of the Competition Act, 2002 before the then Competition Appellate Tribunal. Vide order dated 25-04-2013, the then Competition Appellate Tribunal didn't find any fault in CCI's order.

The CCI vide order dated 24-06-2014 directed the DG to conduct an investigation into contravention under S. 3 of the Competition Act into the tire manufacturers based on representation from the Corporate Affairs Ministry which 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 vide order dated 31-08-2018, 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, Rs 178.33 crore on Birla Tyres and a fine of Rs 8.4 lakh on their association ATMA.

The order was communicated to appellants in February 2022 as an appeal was filed before the Madras High Court which was dismissed on 6-01-2022 and it was further challenged before the Supreme Court, which was also dismissed on 28-01-2022.

The appellants preferred the present appeal under S. 53-B of the Competition Act, 2002 against the impugned order dated 31-08-2018 passed by CCI.

Appellant's Contention

The appellants contended that the AITDF is a habitual litigant and is in a practice to pursue actions against the domestic Tyre manufacturers to take advantage in the process for reduction in the anti- dumping duties to benefit foreign Tyre companies and negatively impacting the domestic Tyre industry. The appellant also stated that the CCI has only picked the appellants but excluded the foreign Tyre companies.

The appellants contended that despite there being no evidence on material supplied by MCA, the CCI passed an order under S. 26(1) to conduct a detailed investigation against the appellants. The appellants also stated that the matter was dismissed by Madras High Court and Supreme Court should also be considered.

Citing Mahindra Electric Mobility Ltd. v. Union of India, 2019 SCC Online Del 8032, where it was held that “Once the hearing commences, all members (who hear the case, be they in quorums of 3 or 5 or seven) should continue to be part of the proceeding, and all hearings, en banc”, the appellants contended that the impugned order was signed by the three Members only but was heard before a four member bench included Mr. S.L. Bunker, Member and he was not in the role of CCI on the date on which the order was signed as his tenure ended prior to the date of signing of the order, therefore, the impugned order is unconstitutional.

The appellants further contended that the data of price revision by the appellants as used by the DG is not correct and there are arithmetic errors in the percentages of the price revisions. The appellants also contended that the calculation of correlation coefficient is based on the financial year 2009-10 instead of 2011-12 and it has taken wrong matrix of absolute price revision instead of percentage of price revision. Thus, there is no violation of S. 3(3) of the Competition Act leading to price parallelism and the finding of CCI is untenable both in fact and in law including imposition of penalty.

The appellants submitted that the scope of the investigation was limited to the TBB Tyre (Truck, Bus Bias) segment when the allegation under reference is with respect to all tyre segments with no specific mention to the TBB Segment.

“…erroneously restricted the investigation to the truck, bus bias tyre segment and also reiterated that the DG Report is misplaced to the extent even on the load bearing tyre and the mileage tyre being a comparison between incomparable. He also submitted that CCI has misplaced the reliance on net dealer price without considering discounts and thereby wrong evaluation of economic evidence has been done by DG and followed by CCI. He also submitted that retreading market as competition totally ignored resulting into non-investigation of a segment having 14-15 million.”

The appellants contended that the CCI failed to consider the global competition impact vs. indigenous production impact and that there was steep decline in profit due to precipitous increase in the cost of key raw materials which made price increase naturally inevitable and justified.

The appellants submitted that Mr. Nitish Bajaj, Vice President Marketing CEAT was not in the employment of CEAT and hence, CCI cannot impose a penalty under S. 27 read with S. 48(1) of the competition Act.

The appellants also contended that the impugned order completely ignores all the submissions of the Appellant be it the completely flawed analysis of price parallelism and correlation, incorrect conclusions on the pirating margins/EBITDA of the tyre manufacturers, failing to consider the different classifications of tyres while imposing penalty, failing to consider the proviso to S. 27(b) of the competition Act; resulted in wrong finding which makes the impugned order non-est.

“In the absence of any economic evidence on price parallelism or coordinated price hike leading to abnormal profits, especially insofar as the Appellant is concerned, the Appellant ought to have been exonerated by the Commission. The Impugned Order is contrary to law, erroneous, without application of mind, and is liable to be set aside.”

Respondent's Contention

The respondent contended that there is specific violation of S. 3(3)(a) on the basis of evidence of collusion and cartelization by the appellants and that there is no error in relation to circumstances conducive for collusion, existence of price parallelism, cost analysis of key raw materials, financial performance of the appellants, evidence of communication exchanged amongst the appellants, arithmetical error, considering the TBB segment for the enquiry, proceeding only against the 5 tyre companies, principle of ‘he who hears must decide', re-investigation of events already closed in previous case, having no direct evidence of cartelization/ prima facie order passed without evidence and violation of principles of natural justice.

Tribunal's Observation

The Tribunal observed that there were ‘inadvertent errors' in the CCI order and stated that “…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”.

The Tribunal also observed that “…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 Tribunal 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 Tribunal also observed that the regulator had imposed a fine on Vice President Marketing CEAT Nitish Bajaj, who “was not employed with CEAT” in 2011.

The Tribunal opined that the promotion of domestic industry shall also to be kept in mind by CCI as the object of the Competition Act requires is also to keep in view the economic development of the country.

“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. One of the Appellant — Birla Tyre is already under Corporate Insolvency Resolution Process.”

Tribunal's Decision

The Tribunal directed the CCI 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.

“…we are of the opinion that matter can be remitted back to the CCI to re-examine the calculation of arithmetical errors & also consider reviewing the penalty to save domestic industry in view of the fact that domestic tyre industry is under lot of pressure from global tyre manufacturing companies where lot of unutilized capacity is available, promotion of domestic industry is also to be kept in mind by CCI, as the object of the Competition Act, 2002 requires to keep in view the economic development of the country also.”

[Ceat Ltd. v. CCI, 2022 SCC OnLine NCLAT 1594, order dated 01-12-2022]

Advocates who appeared in this case :

Mr. Rajshekhar Rao (Sr. Advocate), Mr. Divyansh Prasad, Ms Aanchal Tikmani, Mr. Vivek Agarwal, Counsel for the Appellant;

Mr Kurian Joseph, Chief Legal Officer;

Mr. Samar Bansal, Mr. Arjun Krishnan and Ms. Khushboo Mittal, Mr. Vedant Kapur, Counsel for R1/CCI;

Mr. Davinder Prasad, Dy. Director (Law) Mr. Rohan Arora, Mr. Aakash Kumbhjat, Counsel for JK Tyre;

Mr. Manas Kumar Chaudhuri, Mr. Sagar Deep Rathi, Mr. Armaan Gupta, Counsel for Apollo Tyres.

*Ritu Singh, Editorial Assistant has put this report together.

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