Federation of Corrugated Box Manufacturers of India Vs Gujarat Paper Mills Association (Competition Commission of India)
CCI issues cease and desist order against Kraft Paper Manufacturers and their four associations for indulging in anti-competitive practices
The Competition Commission of India (CCI) issued a final order today against four regional associations of Kraft Paper manufacturers, including their 115 members which were found to have contravened the provisions of Section 3(3) read with Section 3(1) of the Competition Act, 2002 (the ‘Act’), which proscribe anti-competitive agreements. The case was initiated on the basis of information filed by three federations/associations of corrugated box manufacturers.
It was alleged that the various associations of Kraft Paper Manufacturers, by way of periodic meetings and correspondences, direct their members (i.e., Kraft Paper Mills) to: (i) increase the price of the paper to be sold to the buyers, i.e., corrugated box manufacturers; and (ii) create a condition of shortage to enforce the unjust price increase and shut the operation of the paper mills in a region collectively.
Based on the evidence on record such as minutes of Meetings, e–mail communications, WhatsApp messages exchanged on WhatsApp groups as well as oral depositions of various representatives, the CCI found 119 parties including four regional associations of Kraft Paper Manufacturers in contravention of provisions of Section 3(3)(a) and Section 3(3)(b) read with Section 3(1) of the Act, except one Kraft Paper Mill, which was found guilty of contravention of provisions of Section 3(3)(a) read with Section 3(1) of the Act, only. Of the 119 opposite parties, 31 Kraft Paper Mills were lesser penalty applicants before the CCI. Under Section 46 of the Act, a cartel member may approach the CCI by way of filing an application seeking lesser penalty, in return for providing full, true and vital disclosures in respect of the alleged cartel to the Commission.
Keeping in mind the peculiar facts and circumstances of the case including the fact that the many of the Kraft Paper Manufacturers were MSMEs and were going through economic and financial crisis as a fallout of COVID-19 pandemic, the CCI refrained from imposing any monetary penalty upon the infringing associations and Kraft Paper Manufacturers. Further, several Kraft Paper Manufacturers also admitted their wrongdoings and adopted a cooperative and non-adversarial approach. Thus, the CCI considered the aforesaid as the mitigating factors for not imposing any monetary penalty and issued a cease and desist order against the contravening entities.
FULL TEXT OF THE ORDER OF COMPETITION COMMISSION OF INDIA
ORDER UNDER SECTION 27 OF THE COMPETITION ACT, 2002
Facts:
1. Information in the present matter was filed under Section 19(1)(a) of the Competition Act, 2002 (‘Act’) by the Federation of Corrugated Box Manufacturers of India (‘Informant No.1’/‘IP–1’), Andhra Pradesh Corrugated Box Manufacturers Association (‘Informant No. 2’/‘IP–2’) and Uttar Pradesh Corrugated Box Manufacturers Association (‘Informant No. 3’/‘IP–3’) [Collectively hereinafter, ‘Informants’] against the following Opposite Parties, alleging contravention of the provisions of Section 3 of the Act:
i. Gujarat Paper Mills Association and its aforesaid 61 members (Opposite Party Nos. 1 to 62),
ii. Northern India Paper Mills Association and its aforesaid 16 members (Opposite Party Nos. 63 to 79),
iii. Hyderabad Kraft Paper Mills Association and its aforesaid 26 members (Opposite Party Nos. 80 to 100),
iv. South Indian Kraft Paper Mills Association and its aforesaid 12 members (Opposite Party Nos. 107 to 119),
v. Indian Argo and Recycled Paper Mills Association (Opposite Party No. 120), and
vi. Maharashtra Paper Mills Association and all its members (dropped as Opposite Party by the Commission, based on DG’s finding that no such association exist)
2. The Informants were stated to be the associations of corrugated box manufacturers. IP– 1 is India’s apex body of corrugated box packaging industry, with a membership of over 2,000 corrugated box manufacturers. IP–2 is the body of Andhra Pradesh’s corrugated packaging industry, with a membership of over 100 corrugated box manufacturers and IP–3 is the body of Uttar Pradesh’s corrugated packaging industry. IP–2 and IP–3 are stated to be affiliated to IP–1.
3. South Indian Kraft Paper Mills Association, Maharashtra Paper Mills Association, Gujarat Paper Mills Association, Hyderabad Kraft Paper Mills Association and Northern India Paper Mills Association were stated to be regional associations of Kraft paper manufacturers, while Indian Agro and Recycled Paper Mills Association was stated to be the apex body which represents the non–wood paper segment in India.
4. The Informants submitted that their members, i.e., corrugated box manufacturers, were engaged in the manufacture of corrugated boxes. The primary input for manufacture of corrugated boxes is Kraft paper, which constitutes nearly 70–80% of the input cost and there is no alternative to Kraft paper for manufacture of the corrugated boxes. Thus, it was stated that any escalation in the cost of Kraft paper has a direct effect on the corrugated box manufacturers.
5. As per the Informants, Kraft paper is manufactured by Kraft paper mills located at various regions in India. It was alleged that the various associations of Kraft paper mills, by way of periodic meetings and correspondences, direct their members (i.e., paper mills) to: (i) increase the price of the paper to be sold to the buyers, i.e., corrugated box manufacturers; and (ii) create a condition of shortage to enforce the unjust price increase and shut the operation of the paper mills in a region collectively. The Informants alleged that such raising and fixing prices of Kraft paper by the Kraft paper mills is a violation of Section 3(3)(a) of the Act. Further, the closing of factories in a co–ordinated manner results in limiting the supply of Kraft paper to the corrugated box manufacturers, which is a violation of Section 3(3)(b) of the Act.
6. In view of the above, the Informants prayed the Commission to direct the Director General (‘DG’) to investigate the matter; declare that the Opposite Parties and their members have indulged in anti–competitive behaviour in violation of Section 3 of the Act; direct the Opposite Parties and their members to cease and desist from indulging in anti–competitive activities under the provisions of Section 3 of the Act; impose maximum penalty on the Opposite Parties under Section 27 of the Act; and pass any other order(s) as may be deemed appropriate under the Act.
7. The Commission, after perusing the material available on record, passed an order dated 17.08.2017 under Section 26(1) of the Act forming an opinion that, prima facie, the conduct of the Opposite Parties and their member paper mills as outlined by the Informants appears to be in contravention of the provisions of Section 3(3) of the Act read with Section 3(1) thereof. Thus, the Commission directed the DG to cause an investigation into the matter and submit an investigation report. It was made clear that if, during the course of investigation, the DG comes across any other conduct of the Opposite Parties in addition to those mentioned in the Information to be in contravention of the provisions of the Act, the DG shall also investigate the same. Further, if the DG comes across the involvement of any party(s) other than the Opposite Parties named in the Commission’s order in respect of such contravention, the DG shall investigate the conduct of such other party(s) also. Further, the DG was directed to conduct a detailed investigation without restricting and confining itself to the duration mentioned in the Information.
8. During the pendency of investigation before the DG, the following paper mills approached the Commission by way of filing applications under Section 46 of the Act read with Regulation 5 of the Competition Commission of India (Lesser Penalty) Regulations, 2009 (‘LPR’):
