In Re: Anti-competitive conduct in the paper manufacturing industry (Competition Commission of India)
CCI imposes a penalty on paper manufacturers for indulging in cartelisation
The Competition Commission of India (CCI) issued a final order yesterday against certain companies manufacturing paper from agricultural waste and recycled wastepaper as well as an association, which were found to have contravened the provisions of Section 3(1) of the Competition Act, 2002 (Act), read with Section 3(3)(a) thereof, which proscribe anti-competitive agreements.
The case was initiated suo motu by the Commission on the basis of certain material found during the ongoing investigations of two other cases. Although the DG investigated 21 original paper manufacturers and the association, it only recorded findings of contravention of the provisions of Section 3(1) of the Act read with Section 3(3)(a) thereof against ten (10) such paper manufacturers and the association. The period of cartel was noted by the DG to be from September 2012 till March 2013.
CCI found these companies and an association which provided its platform, for such activities to have indulged in cartelisation in fixing the prices of writing and printing paper.
In this backdrop and further considering that during the pandemic, most businesses moved to the virtual mode thereby reducing the need for paper and affecting the paper business, CCI imposed a symbolic penalty of Rs. 5 lakh each on the ten (10) paper manufacturers found guilty of cartelisation.
Further, a penalty of Rs. 2.5 lakh was imposed on the association for providing its platform for anti-competitive activities. Apart from the above, CCI also directed the above paper manufacturers and the association, and their respective officials who have been held liable in terms of the provisions of Section 48 of the Act, to cease and desist in the future from indulging in anti-competitive conduct.
A copy of the order is available on the CCI website at www.cci.gov.in.
FULL TEXT OF THE ORDER OF COMPETITION COMMISSION OF INDIA
Order Under Section 27 of the Competition Act, 2002
1. The present case was initiated suo motu by the Commission, pursuant to a Note dated 28.04.2016 received from the Office of the Director General (DG), wherein it was stated that, during the ongoing investigations in Case No. 30 of 2014 and Case No. 85 of 2015, certain material was gathered by way of e-mail dumps which indicated that paper manufacturers might have indulged in price manipulation through concerted action. Taking cognizance of the aforesaid Note, the Commission, vide its order dated 31.05.2016 decided to register the instant case as Suo Motu Case No. 05 of 2016 against twenty (20) paper manufacturers and an association which provided its platform for such activities, as identified by the DG.
2. Having perused the material furnished by the DG, the Commission noted that the twenty (20) paper manufacturers used the platform of the association (Indian Agro & Recycled Paper Mills Association/OP-4 Association/IARPMA, which claims to be the apex representative body of non-wood based paper segment, having 114 paper mills as its members) to discuss and agree upon increase in prices of non-wood based paper. The platform of the association was further used to monitor implementation of price increase by attendees/participants. Accordingly, the Commission prima facie opined that there appeared to be a case of contravention of the provisions of Section 3(1) of the Competition Act, 2002 (‘the Act’) read with Section 3(3 (a) thereof, and vide an order dated 06.12.2016, directed the DG to cause an investigation to be made into the matter and submit a report. These 20 paper manufacturers and the association were accordingly arrayed as Opposite Parties, as reflected in the cause title of the matter.
3. Pursuant to the directions issued by the Commission, the DG conducted an investigation and submitted the investigation report to the Commission. During the pendency of investigation before the DG, OP-21 approached the Commission by filing an application under the provisions of Section 46 of the Act read with the Competition Commission of India (Lesser Penalty) Regulations, 2009 (‘pi35’JL
4. The Commission considered the investigation report in its ordinary meeting held on 04.03.2020, and vide an order of even date, directed to forward electronic copies of the non-confidential version of the investigation report to the Opposite Parties (along with their identified individuals), who were found to have contravened the provisions of the Act by the DG for filing their respective objections/suggestions thereto, if any.
5. After receipt of objections/suggestions to the DG report, along with financial details from the aforementioned OPs, the Commission fixed the matter for final hearing during 1 0th±1 2th August 2021. After conclusion of arguments, the Commission decided to pass an appropriate order in due course.
Investigation by the DG:
6. The DG investigated 21 original OPs, out of which, the DG recorded findings of contravention of the provisions of Section 3(1) of the Act read with Section 3(3)(a) thereof against ten (10) OPs, viz. OP-2, OP-5, OP-6, OP-7, OP-8, OP-9, OP- 10, OP- 12, OP- 17 and OP-2 1. As regards other OPs, the DG did not record any specific finding of contravention of the provisions of the Act. The DG, however, found that the platform of OP-4 Association was used by paper manufacturers to discuss and decide on prices to be increased in a concerted manner. The evidence collected by the DG shall be analysed in the succeeding paras of this order and it is unnecessary to reproduce the same at this stage. The period of cartel was noted by the DG to be from September 2012 till March 2013.
Objections/suggestions of the OPs
7. In their written objections/suggestions to the DG report and oral submissions, the OPs, along with their respective individuals, made detailed submissions, and the same are noted in the succeeding paras. It may be pointed out here that, as the DG has recorded finding of contravention against ten (10) OPs besides highlighting the role of OP-4 Association in providing its platform to paper manufacturers for discussing and deciding price increase in concerted manner, as detailed in the preceding para, the conduct of these eleven (11) OPs alone would be considered, and accordingly, objections/suggestions of these OPs alone are noted and considered in this order.
Bindal Papers Mills Limited (OP-2) and its individuals
8. OP-2, in its submissions, stated that the DG has delineated the relevant product market as writing and printing paper made out of agricultural waste and recycled waste paper, and relevant geographic market as Northern India, even though delineation of relevant market is not mandatory. Further, OP-2 objected to the relevant product market and relevant geographic market delineated by the DG as such delineation was stated to be not in line with market reality in the paper industry. It submitted that the DG did not analyse the facts of the case and evidence in the correct perspective. The writing or printing paper manufactured by employing agro residue or waste paper as raw material is substitutable with paper manufactured using wood as a raw material.
9. It was further averred that the OPs are manufacturing different varieties and grades of papers, and the DG did not examine the consumer preferences of whether their end use is interchangeable. In this regard, the fact that there are various grades of paper within the category of non-wood based papers shows that it is not a homogenous/common product manufactured by all the OPs, and hence, the market is not prone to cartelisation.
10. In addition, OP-2 submitted that the DG has only arrived at the conclusion of substitutability on the basis of the statements of few dealers, which have not even been permitted to be cross-examined.
11. Most of the OPs are situated in the northern region of India. However, non-wood based paper producers are spread across India. It would be incorrect to suggest that only parties situated in northern India hold considerable influence over the supply of agro-based paper products in northern India. There is no regulatory trade barrier, local specification requirement, consumer preference, transportation cost, etc., and 800 agro-based and recycled fibre-based paper mills can potentially sell and compete in northern India.
12. According to OP-2, the DG concluded that only 10 mills have indulged in cartelisation, including OP-2, without appreciating the fact that a cartel cannot sustain if majority players are not a part of it, since, in that case, the majority players would undercut the others’ prices.
13. The DG relied on internal emails exchanged between the officers of the Seshasayee Paper and Boards Limited (SPBL) in relation to OPs. However, this cannot be regarded as reliable evidence against the OPs as SPBL was a direct competitor of OP-2 and could have ulterior motives behind writing the emails that hold no evidentiary value in the current legal structure. The emails can also not be relied upon on the grounds that it has no evidentiary value for want of a certificate under Section 65B of the Evidence Act from the competent person.
14. OP-2 has stated that the DG erred in observing that all the competing agro/recycled fibre-based paper manufactures implemented an increase in prices; on a careful perusal of said emails, it is evident that not all OPs increased the prices, and a large chunk of the stock of the OPs was sold to the government at tender rate or to dealers at older rates.
15. Due to a sudden slump during the last quarter of 2012 to the first quarter of 2013, OP-2 was constrained to increase the prices of paper due to market forces in order to maintain cash flow and profitability. Even if it is considered that OPs had discussed prices in the aforementioned meetings, in practice, the prices of paper were fixed by OPs independently as per market forces.
16. OP-2 contended that the DG did not grant the opportunity of cross-examination to OP-2 and other parties to examine the testimony of those who have deposed before the DG in relation to the said emails. The said persons are interested parties, and therefore, their statements could not be relied upon in the absence of cross-examination.
17. In addition to its contentions, OP-2 has submitted that the DG denied cross-examination by, inter alia, stating that it relied on documentary evidence and not oral testimonies of witnesses to conclude against it.
18. OP-2 further stated that the price increase was not in accordance with the alleged discussions in the meetings, yet, the DG arrived at a conclusion that the price trend followed by OP-2 is as per deliberations in the meeting. It has also been stated that the price increase was only made for Ace Maplitho and Copier Paper only, which was attributed to the increasing cost of raw material.
19. There was no price parallelism. Even the dealers examined by the DG have denied any knowledge of cartel in the paper industry and admitted that the prices of paper are seasonal.
20. Further, as per OP-2, the DG failed to demonstrate any evidence of the existence of agreement to price fixing/parallelism, and instead, has built the case on purely circumstantial evidence and suppositions. Further, whilst the Appreciable Adverse Effect on Competition (AAEC) caused by a horizontal agreement to fix prices, etc., may be presumed by the Commission, there must exist proof of an agreement in order for this presumption to arise.
21. OP-2 further submitted that the OPs (including OP-2) did not follow a uniform price trend after the meeting. Though the price circular/price list is published by OP-2, the actual sale with dealers is at a negotiated price. Moreover, as a matter of practice, OP-2 offers trade discounts and cash to dealers. Therefore, the actual sale price is much lower than the published price. In the present matter, although the price increase took place through various circulars, discounts were simultaneously offered, such as Trade Discount, Additional Discount and Cash Discount.
22. In addition, OP-2 has submitted that the DG failed to appreciate that the effect of increase in price is not directly passed to the final consumer.
23. The price trend of OP-2 and the other OPs was not in accordance with alleged deliberation in the alleged meetings. However, as per the DG, in the meetings, a consensus was reached between OPs to increase prices by 6000 PMT during the period September 2012 to March 2013.
24. OP-2 further stated that the paper industry is seasonal, and typically, prices increase from September to March due to high demand and because of increase in the costs of raw material. Further, during September 2012 to February 2013, the paper industry witnessed issues such as escalation in the price of diesel, increase in the cost of raw material, banning of import of second hand machinery, etc., owing to which, the paper mills were forced to increase their selling price to maintain profitability.
25. It was submitted by OP-2 that the alleged cartel was for a short duration – from September 2012 to March 2013.
26. With respect to the role of its office bearers found to have contravened provisions of Sections 48 (1) and 48(2) of the Act by the DG, it has been stated that all decisions in official capacity in respect of increase and decrease in price were taken by keeping in mind, various factors affecting the market.
27. On the basis of above, OP-2 has prayed the Commission to not impose penalty on OP-2 as its business has been badly affected and its paper mill was temporarily closed down because of the lockdown. Further, any penalty is likely to drive OP-2 out of business as it operates on a very thin margin and it is not a habitual offender. In case the Commission decides to levy a penalty, only the relevant turnover generated by the sale of the products to dealers should be considered, as the contravention has no connection with the sales made by OP-2 to institution/exports.
Indian Agro & Recycled Paper Mills Association (OP-4) and its individuals
28. OP-4 submitted that it only organised meetings, i.e., arranging venue, seating arrangements, sending out meeting details and venue details, etc. Such meetings were called to discuss the issues being faced by agro-based paper mills, such as pollution, government policies, etc., and the price of the paper was never on the agenda. It, however, admitted that discussion in respect of price was raised in one of the meetings, but such an attempt was vehemently detested. There was no active discussion of price during the meeting hours and the answering Association cannot be held responsible for what the other members do before or after a meeting. It was also pointed out that the answering Association does not have any authority over manufacturers, buyers and distributors of paper. The determination of MRP is vested with the manufacturing company and not with the Association.
29. In addition, OP-4 has contended that OP-4 and its Secretary General do not fall under the definition of ‘enterprise’ as defined under Section 2(h) of the Act. The DG failed to provide any evidence to suggest that OP-4 benefitted from such activities, which is sine qua non to the allegations made. The DG report does not establish anywhere that there was a meeting of minds between OP-4 Association and other OPs or that the OPs were acting in concert.
K.R. Pulp & Papers Limited (OP-5) and its individuals
30. OP-S submitted that it is mainly present in North India. The paper market throughout India is free, and everyone can purchase from the place/person of their choice. Further, the dealers are not exclusively bound to sell the product of OP-S and are free to sell the product of any mill at any rate.
31. Further, it was submitted that OP-S is dealing in agro-based writing and printing paper and its market share in the year 2011–12 and 2012–13 was 0.71%. The cumulative share of all OPs would hardly be 2 – 3% of the market share, which has ~ 800 paper manufactures.
32. OP-S further submitted that the import of paper plays a pivotal role in determining the possible impact of alleged price manipulation. The DG, while projecting the growth, had taken the figures of 2014–1S instead of comparing it with the relevant period.
33. It was also contended that the DG did not take into account that there is no geographical market for a paper industry, particularly when all the varieties of papers are available across India and in the circumstances when a large part of paper is being imported. The DG report also does not mention the impact and role of other paper manufactures who have been selling paper in North India region.
34. OP-S further does not agree with the findings of the DG that the three varieties of paper are substitutable. The DG also did not examine the consumer preference of whether the end use is interchangeable; since cream wove is not substitutable with maplitho as it is inferior in quality, consumers may not adjust to such a change in quality.
35. Further, as per OP-5, the price increase of paper manufactures who had attended meetings was not in conformity with the prices decided in these meetings. The price increase of OP-5 was never in tandem with the alleged emails; on the contrary, there was a decrease of Rs. 3000/-.
36. Even though OP-5 was an attendee at the meetings of the OP-4 Association, it was not a participant in the alleged cartel and/or a party to the alleged agreement to increase prices, if any.
37. In his deposition, Shri Vijay Kumar Aggarwal, Ex-Vice President Marketing of OP-5, who had attended a few meetings of OP-4 Association on behalf of OP-5, also stated that the agenda of the meeting was never to discuss prices. He stated that some manufacturers chose this platform to discuss prices; however, at no point has it been admitted or accepted that OP-5 was involved in such discussions or that OP-5 participated in any agreement on price increase.
38. As per OP-5, the factum of attending meetings of an association such as OP-4 Association by itself cannot lead to the conclusion of collusion or participation in a cartel. It must be shown that there was a meeting of minds by entering into an agreement with respect to determining sale prices in a manner that is likely to have appreciable adverse effect on competition.
39. It was further submitted that the paper industry is fragmented, market shares are unstable and there is ease of entry. Thus, the pulp and paper industry have all the characteristics of a pure/perfect competitive market. It was also contended that the DG report states that only 10 manufacturers have indulged in cartelisation, which includes OP-5, without appreciating that a cartel cannot sustain if majority players are not part of it, since in that case, the majority players would undercut others’ prices. Further, the contents of the emails relied upon by the DG could not be proved as the person could not remember exactly the discussion that took place at the meeting. Moreover, it was not proved whether the decision allegedly taken in the meeting was complied with or not.
40. As per OP-5, the DG also did not take into account that the hikes in price of paper were due to unfavourable market conditions, which is evident from the email dated 20.09.2012. Further, from the email dated 19.11.2012, it is evident that OP-5 did not increase the price as per the decision in the meeting. Further, no discussion with respect to OP-5 took place in the meeting as per email dated 19.12.2012. OP-5 did not participate in the meeting held on 19.01.2013. However, the DG has concluded that OP-5 raised prices after the 19.01.2013 meeting with competitors.
41. The DG did not carry out any study on the type of market, number of paper manufactures present in North India, the quantum of import of paper, supply of paper by other manufactures in India to consumers in North India, the price differences between the opposite parties and other manufactures in North India and import price and price of manufactures situated elsewhere but supplying paper in North India.
42. No proof of price parallelism in the present proceedings was identified by the DG in its report before declaring that OP-5 participated in cartel for manipulating prices. The DG report did not consider how the meeting and the alleged decision taken at the meeting had impacted competition in the market. The prices of all the paper manufacturers remained the same or similar, which was due to an increase in the Wholesale Price Index (WPI). The emails relied upon by the DG are not admissible until a certificate under Section 65(B) of Indian Evidence Act, 1872 has been provided therewith. There was no appreciable adverse effect on competition in the market, which is an essential condition enshrined in Section 3 of the Act.
43. The DG in its report also ignored a vital question with regard to the profits earned by OP-5 after the alleged cartelisation and increase in sale price. OP-5, at different intervals during the relevant period was also out of operation, and no manufacturing took place during such periods. Further, prices of the manufactures differ from each other, ranging from Rs. 43 per kg to Rs. 46 per kg. Increase in price by OP-5 had no nexus with the alleged price determination in the so-called meetings held on 19.09.2012, 19.11.2012, 19.12.2012 and 19.01.2013, as these price increases happened on account of the demand and supply ratio.
44. Lastly, it was pointed out that OP-5 has also disassociated itself from any such meetings since January 2013, adhering to the very purpose of the enactment. The answering paper mill has been adversely affected due to COVID- 19 since March 2020, and OP-5 has not been able to normalise it until now. Therefore, OP-5 does not have any substantial source of revenue at present and would be severely prejudiced by the imposition of any monetary penalty.
Khanna Paper Mills (OP-6) and its individuals
45. As per OP-6, none of the OPs was the recipient of the four emails written by Shri S. Ramesh of SPBL to his senior, i.e., Shri P. K. Vasist, nor have they admitted the said e-mails or their contents. The said e-mails are nothing more than mere hearsay and hold no credible value in the eyes of the law.
46. The DG has misquoted the internal email between Shri Dhimant Singh and his superior, wherein they discussed market operating prices (MOP) and the price information available in the public domain. The DG has misportrayed and misquoted the statement to conclude that the same indicated that Shri Dhimant Singh will write and ask other competing paper mills to look at the price revisions in the last three months. Further, the price discussions in these emails shows that the discussion was regarding historical prices and had nothing to do with fixing future prices.
47. The said emails are also inadmissible on account of being non-compliant with the Indian Evidence Act, 1872, as no certificate in terms of the provisions of Section 65(B) thereof has been submitted.
48. Further, OP-6 was also denied the right of cross examination of Shri S. Ramesh or Shri Vasist by the DG. The reason for this is that representative(s) of OPs duly accepted the documentary evidence with which they were confronted in their statement recorded under oath.
49. It is settled law that price discussion per se does not result in AAEC unless the same is implemented. The DG report fails to show such implementation. The DG has given a broad finding that writing and printing paper of all categories is substitutable despite their differing end use, characteristics, absolute prices and market of these categories. The DG has not considered the manufacturing process, costing, raw material used, thickness, brightness, absolute prices, surface smoothness and different quality of product produced by each OP and end usage/consumer of each such product.
50. Comparing entities that either only manufacture writing and printing paper or manufacture the same in majority to OP-6, despite the fact that the broad category of relevant product, i.e., writing and printing papers, constitutes the lowest portion of OP-6’T product offering, is unfair, wrong and in no manner reveals any anti-competitive behaviour on the part of OP-6.
51. The premise of substitutability being the dealer’s statements and the cross-examination of such statements being denied despite a request for the same is violative of the principle of natural justice. The DG has not even delineated the geographic boundary of North India and has not taken into account the fact that OP-6 (among other OPs) supplies writing and printing papers to other parts of India as well, including, but not limited to, Gujarat, Delhi, Meerut, Agra, Indore, Ludhiana, Mumbai, Surat, Kanpur and Kolkata.
52. Price increase, even if discussed or decided, was never implemented by OP-6.
53. Given the negligible market share of OPs, there can be no presumption of AAEC in view of the negligible market shares.
54. OP-6 relies highly on the import of raw material, since as much as 60% of the requirement of raw material of OP-6 is met by imported raw material; thus, fluctuation of currency exchange rate has the greatest effect on the prices of OP-6’s products.
55. Instead of any profits, OP-6 suffered a loss in the year 2012–13 whereas, in the previous financial year, there was a profit.
56. The oral statement of Mr. P. G. Mukundan, Secretary General of OP-4 Association, the person who convened the alleged meetings, has not been taken into account in the impugned report. Mr. Mukundan has stated that the meetings were convened for the discussion of technical and immediate issues.
57. From the investigation report, it is evident that no contravention has been committed by OP-6, and the DG has not pointed out even a single instance of consent or connivance or involvement of Shri Dhimant Singh, Shri Rahul Khanna or any other personnel of OP-6.
58. Price increase by OP-6 was attributable to increase in cost and demand surge, and the same was based on MOP.
59. The DG has failed in discharging the burden of proof on it to show/allege any contravention of the provisions of Section 48(1) of the Act by Shri Rahul Khanna. Further, no contravention has been committed by OP-6, and Shri Rahul Khanna was not even aware of the alleged meetings and there was no occasion for Shri Rahul Khanna to exercise due diligence to prevent the commission of such contravention.
60. Shri Rahul Khanna never attended the meetings mentioned in the emails of Shri S. Ramesh of SPBL nor was he apprised of what transpired in the said meetings.
61. Not a single email has been referred to or relied upon in the DG report which would show the involvement of Shri Dhimant Singh or Shri Rahul Khanna in the meetings of OP-4 Association.
62. It was also pointed out that Shri Dhimant Singh was not served any notice notifying that action was being contemplated against him under Section 48(2) of the Act and was denied the opportunity to adduce evidence to the contrary.
63. Lastly, it was prayed that penalty, if levied, may be limited to the sale of the purported relevant product (copier paper) in the relevant geographic area (North India) for the alleged cartel period (September 2012 to March 2013). It was submitted that penal provisions be strictly construed, and reiterated that penalty be restricted to the profit and/or turnover accruing from the offending act, lest the same become inequitable for multi-product companies such as OP-6. The doctrine of proportionality states that punishment, if any, must be proportionate to the offence ought to be applied. It was also prayed to consider mitigation of penalty in view of the prevailing circumstances and the loss of business of the non-wood based paper mills, and OP-6 in particular.
Katyayini Paper Mills Private Limited (OP-7) and its individuals
64. In its response, the answering Opposite Party averred that in the meeting convened by OP-4 Association on 19.12.2012, which was attended by Shri Sanjay Khemka of Katyayini, no discussion of the alleged price rise of Rs. 3000–5000 MT took place between the attending parties. Based on the email evidence on record, the discussion of this alleged price rise only took place in the September 2012 meeting, which was not attended by OP-7, and OP-7’s price rise cannot be arbitrarily attributed to the cartel.
65. The price discussions in the meeting dated 19.12.2012 attended by OP-7 did not pertain to the grade of paper manufactured by OP-7, and only the prices of B-grade paper were discussed in the aforesaid meetings.
66. The observations of the DG that all grades of writing and printing paper are the same are erroneous.
67. No anti-competitive agreement can be inferred since the DG is only basing his findings on mere coincidence with respect to the month in which OP-7 attended a meeting convened by OP-4 Association, and the corresponding price rise.
68. Further, it was pointed out that the DG had noted that Shri T. S. Goraya of Banwari Paper Mills Ltd. had attended two meetings of OP-4 Association during the relevant period. However, the price rise effected by them was not found to be “entirely supportive” of the assertion that they were an active member of the cartel, and hence, they were merely held responsible for not informing the Commission of the cartel.
69. The DG did not consider that the alleged price rise by OP-7 may have been a direct fallout of the high cost of production or the surge in demand for writing and printing papers instead of the decisions of the cartel, and did not even depose Shri Gautam or Shri Rajesh Agarwal of the answering Opposite Party in order to find out the reasoning for such increased prices.
70. The DG, while delineating the relevant product market, has grouped writing and printing paper made of recycled waste paper or agricultural waste together, irrespective of the quality and grade of paper. However, different grades of paper are not direct substitutes of each other vis-à-vis end use, price and quality.
71. Further, the factors enumerated under Section 19(3) of the Act have not been met in order to establish an AAEC in the relevant market, and the presumption against the answering Opposite Party is wholly rebuttable.
72. Given its position as a minor player in the relevant market and the fact that OP-7 participated in one meeting where the relevant price rise was not even discussed, it is clear that OP-7’s alleged conduct has not, noç in any way, contributed to an AAEC in the relevant market.
73. The DG has arrived at conclusions regarding Katyayini’s involvement in the cartel with respect to a grade of paper that Katyayini manufactured and sold in negligible quantities. Without prejudice, Katyayini’s alleged involvement couldnot possibly have caused an appreciable adverse effect on competition
74. With respect to OP-7, the DG has only deposed Shri Amit Dewan, the erstwhile General Manager (Exports) of OP-7, instead of deposing the Managing Director Shri Agarwal or the Accounts Manager, Shri Kapil Gautam, who were aware of OP- L’s local pricing. It was highlighted that Mr. Dewan was a new joinee at OP-7 and who was associated with a division of OP-7 entirely unrelated to the domestic market and which falls outside the purview of the relevant market in the present case. Thus, the provision of Section 48 which lifts the corporate veil and fastens vicarious liability to senior officials of violating companies, cannot be invoked vis-à-vis Shri Dewan. Shri Dewan is neither a director nor a secretary of OP-7. Further, he is not a “manager” within the meaning of the word ascribed to it under Section 48(2) of the Act.
75. It was alleged that, by denying Shri Agarwal, Shri Gautam, and Shri Khemka the right to be heard and duly deposed, the DG has violated the principles of natural justice and violated the rights of OP-7 and its officials.
76. It is submitted that unless a contravention of the provisions of the Act is found against the company, its officials cannot be held liable in terms of Section 48 of the Act.
77. Since there is no anti-competitive agreement between OP-7 and the other OPs, the office-bearers of OP-7 cannot be held liable either under Sections 48(1) of the Act or Section 48(2) thereof.
78. In relation to Mr. Amit Dewan, it has been submitted that after receiving the DG Report in the subject matter, OP-7 tried to contact Shri Dewan for the proceedings before the Commission but he was not contactable. OP-7 has no further association with Shri Amit Dewan or any further information about him.
79. The emails dated 20.09.2012 and 19.12.2012, which have been relied upon by the DG, appear to have been placed on record without an accompanying certificate under Section 65B of the Indian Evidence Act, 1872, and as such, are inadmissible.
80. Lastly, without prejudice to the above submissions, the answering Opposite Party submitted that assuming but not conceding that OP-7 and its officials are guilty of contravening the Act, no monetary penalty should be imposed upon them. OP-7 is a very small player in the relevant market, and its alleged participation in a cartel which spanned several months was very short-lived. OP-7 allegedly only increased its price on one occasion in December 2012 and did not increase it in any other month.
Kuantum Papers Limited (OP-8) and its individuals
81. At the outset, OP-8 contended that the DG built up its entire report on four emails which were allegedly addressed by an employee of SPBL to his superior giving his version of the alleged discussions that took place in the meetings between the members of OP-4 Association, without there being any actual minutes of the meetings. When the answering Opposite Party was not present in the meeting held on 19.09.2012, it is not understood as to how it could have increased the prices as per the discussion that took place on 19.09.2012. Even though the employee of OP-8 was present in the other three meetings, there is nothing in the other three emails to show that OP-8 consented to any change in price. Rather, it is recorded in the other three emails that the mills have not uniformly increased their prices. Further, Shri S. Ramesh belongs to SPBL and is not even a competitor of OP-8, as they deal in wood-based paper, unlike OP-8.
82. The price increase was done by OP-8 after considering multiple commercial and economic factors, irrespective of the occurrence of the meetings. It is incomprehensible as to how mere 20 paper mills can sustain a cartel, especially when there are admittedly more than 750 paper mills in the market.
83. It was pointed out that the increase in prices of various products of different manufacturers during October 2012 to March 2013 has been compared and compiled by the DG. As such, such exercise is inherently defective since it does not account for the fact that the quality of product of each manufacturer is not necessarily comparable. It is an admitted position that there always existed variations in price charged by OP-8 in comparison to the price being charged by the other OPs.
84. The DG has failed to take into account different kinds of paper manufactured by the OP-8, the input cost/cost of manufacturing the particular kind of paper, prices of the product compared and the prices of product after an increase in prices.
85. There exists no reason whatsoever for OP-8 to enter into some arrangement with its competitors to increase the prices, as the profit of OP-8 fell in the year in which the allegation of formation of cartel has been levelled.
86. It is a matter of record that OP-8 and some of the opposite parties increased their prices independent of the alleged discussion at the relevant meetings, as their increase in prices is either below Rs. 3000–4000 PMT or above Rs. 5000 PMT, which does not fall in line with the range of Rs. 3000–4000 as per the alleged discussion in one of the meetings.
87. The DG has failed to consider that there is no evidence of exchange of price/confidential information between OP-8 and other OPs. There is no direct or indirect evidence that OP-8 has indulged in such exchange of confidential information.
88. The absence of entry barriers and the presence of a large number of players in the market preclude the possibility of a small group of manufacturers forming a cartel.
89. The decision to increase the price is based on various factors, including but not limited to, increase in the input cost, market condition, stock position and various other factors. OP-8 increases its prices in the normal course of its business between November to April every year, i.e., even in the years prior to the period of investigation and post the period of investigation, since it is a peak season for the paper industry.
90. The price movement does not show any synchronisation between the OPs, thus demolishing the allegations of cartelisation and violation of the provisions of Section 3 of the Act in the present case.
91. For a cartel to sustain, majority players need to have cartelised to ensure that no one undercuts others’ prices; however, since a iubstantial number of remaining players in the market were not found to be part of the alleged cartel by the DG, price increases by a few paper mills would be inconsequential, as the remaining players would reduce their prices, which would result in a shift of demand to these players, thereby defeating the purpose of a cartel.
92. For a cartel to survive, there must be mechanisms in place for: (a) arriving at a mutually agreeable strategy to ensure successful functioning of the cartel and (b) monitoring behaviour to identify the deviation. However, the same do not exist in the present case.
93. The main reason behind the formation of any cartel is to attain supra-normal profits by each cartel member, and the same can only be achieved if all cartel participants increase their prices in tandem to make the end price similar/same so that a customer will not switch to a cheaper product after the price increase.
94. Lastly, it was submitted that the demand for paper has decreased and continues to remain subdued due the outbreak of COVID- 19 (as court proceedings and classes in schools and colleges, amongst various other things, are being held virtually, which has drastically impacted the demand for paper). The entire paper industry, including OP-8, is continuously struggling for survival; therefore, any penalty will further add to the misery of OP-8.
Madhya Bharat Papers Limited (OP-9) and its individuals
95. At the outset, OP-9 submitted that it was denied an opportunity to test the credibility and reliability of the testimony given by Shri S. Ramesh of SPBL. The evidence gleaned from a cross-examination of Shri S. Ramesh may well provide further material that would need to be considered by the Commission, and in fairness, an opportunity should be provided to OPs to cross-examine Shri S. Ramesh.
96. There are a substantial number of players in the market, each competing for a larger share of the overall market. The market is also characterised by low entry barriers. In addition, the industry faces competition from exports. Customers in this market have considerable negotiating power, since they include government authorities, large publishing houses, etc., who buy paper in large quantities and can, therefore, obtain substantial discounts from manufacturers. Therefore, due to the market structure, the non-wood paper market is not susceptible to cartelisation.
97. The DG report clearly overlooks the basic premise of a cartel, which is that a cartel requires the participation of a majority of players so that others are not able to undercut the cartel. The alleged price increase by just the 10 players identified by the DG could not have influenced the market price.
98. The market share of MBPL by capacity is only around 0.00 1% of the paper market and, as such, is negligible. The annual turnover of the answering Opposite Party is less than one-fifth of the average turnover of the parties that have been alleged to be members of the cartel. As such, OP-9 has little or no market power, and its ability to influence the price in the market is negligible.
99. OP-9 did not increase its prices in the months of September, October, November 2012 and in the month of January 2013 despite the alleged cartel purportedly having agreed to do so. These facts show that although OP-9 was an attendee at the meetings mentioned above, it was not a participant in the alleged cartel and/or the alleged agreement to increase prices, if any.
100. The DG report identifies two price increases implemented by OP-9 during the relevant period, viz., an increase of Rs. 1000 PMT in the month of December 2012 and an increase of Rs. 3000 PMT in the month of February 2013. In this regard, it was submitted that neither of these price increases were made in tandem with any other participant in the meetings or in accordance with the increases mooted in the said meetings.
101. Reading the emails dated 20.09.2012, 19.11.2012, 19.12.2012, and 19.01.2013 as a whole, it is evident that there is no meeting of minds vis-à-vis OP-9 and the other participants. OP-9 was a silent spectator at the meetings, and no role can be attributed to it in the alleged cartel.
102. In the months leading up to February 2013, there had been a steep rise in input costs, and this issue had also been discussed at the OP-4 Association meeting held on 19.09.2012. OP-9 had only increased its prices once in the past 11 months, by Rs. 1000 PMT on 15.12.2012. Therefore, an increase in prices was a prudent business decision dictated by economic realities.
103. The graphs set out in the DG report indicate there is a substantial difference between the average price increase and the highest and lowest price increase. Accordingly, if there had been an agreement among parties as alleged, all firms would have increased their prices at a proportionally similar rate and there would not have been such a high divergence between the average price increase and the highest price increase.
104. A comparison with the same months of the previous year or the same months of the following year may not necessarily indicate the proper scenario since it is not a certainty that prices will always be increased in the same months of every year.
105. A number of other OPs have stated that it were the big paper manufacturing companies that actively participated in discussions and decided on implementing the prices. Again, this would naturally exclude any participation by OP-9 given its negligible market share.
106. Mere mirroring prices of competitors or mere identical pricing/price parallelism cannot lead to the conclusion of cartelisation. It was therefore submitted that price parallelism does not by itself indicate that OP-9 may be acting in concert or that such parallelism is the result of an agreement between it and other players.
107. The pricing analysis in the DG report does not take into account various factors such as: (a) quality and grade of paper; (b) base or starting price of the parties prior to the relevant period; (c) factors unique to the parties, which may affect pricing (for example, local strikes or other issues); and (d) the different cost of production of the parties.
108. The law does not impose a positive obligation on OP-9 to inform the Commission if it comes to know of a potential cartel.
109. The DG report has exonerated certain OPs whose facts resemble those of the answering Opposite Party and who are similarly placed. Despite the striking similarities in the facts and circumstances of these OPs and OP-9, while these other OPs have been rightly exonerated, OP-9 has been held to be in contravention.
110. The liability of Shri Jaydeep Chitlangia can only arise if OP-9 is held liable. In this regard, it was submitted that each of the arguments made on behalf of OP-9 are being adopted and reiterated on behalf of Shri Jaydeep Chitlangia as well.
111. Regarding penalty, if any, to be imposed on OP-9, it was submitted that OP-9 is by far the smallest manufacturer found to have participated in the cartel, and its turnover is less than one-fifth of the average turnover of the other parties who have been found liable.
112. The non-wood paper industry is going through a very difficult phase at the moment as business has been severely affected due to the prevailing pandemic. Therefore, the imposition of any penalty would severely affect the financial position of OP-9. OP-9’s Jill h}s beKn shut sinHe July 2X19 and it has not been able to open the same till now. Therefore, OP-9 does not have any substantial source of revenue at present and would be severely prejudiced by the imposition of any penalty.
113. The market share of OP-9 is negligible (about 0.001% only), and its actions would have little or no impact on the market. OP-9 also urged the Commission to consider the limited duration of participation in the cartel, if any, and the period being minimal, is unlikely to have an AAEC.
114. Lastly, OP-9 submitted that it has made full disclosure and also fully cooperated with the investigation. It has never been in violation of the Act in the past.
Naini Paper Limited (OP-J0) and its individuals
115. OP-10 in its response submitted that products of OP-10 and the wood pulp-based manufacturers are substitutable as the prices of their products impact the demand for each otheT’s product. Thus, they all form part of the same relevant product market. Further, the relevant geographic market should be “Territory of India”.
116. The market leaders and big paper manufacturers facing cartel investigation in the existing cases are imposing/enforcing the cartel and ensuring its compliance by OPs. That bigger players of market created such compelling circumstances so that small players were left with no other option but to abide by their dictates to act as a cartel.
117. The DG report does not prove that Shri Pawan Agarwal of OP-10 attended the meeting dated 19.09.2012. The DG has relied on the email of a third person which was not sent to Shri Pawan Agarwal or any other person/officer of OP- 10. It is the AAEC which can be presumed and not the existence of the agreement. The onus of proving the existence of anti-competitive agreement is on the DG, and once proved, AAEC can be presumed.
118. The increase in price is in tune with the increase in cost of production. The prices of OP-10’s products were increased because of increase in price by other manufacturers. This decision was based on market intelligence/trend.
119. The DG has ignored factors like cost of production, market trend, price parallelism, etc., while arriving at its conclusions. The DG has erred in relying on the price list of OP-10’s product, completely ignoring the discounts being offered by it to its dealers, as it is not the actual price at which the product is sold.
120. OP-10 is a very small player in the industry, having a miniscule turnover during 2012–13 compared to the big players of the relevant market and overall market. Its market share is only 1.65% when seen in the non-wood paper manufacturers market and 0.65% when taken in the overall market of paper manufacturers.
121. It was further pointed out that Shri Pawan Agarwal did not attend any meetings of OP-4 Association and he had no role whatsoever in the alleged cartel.
122. Due to poor demand of paper, the scale of operations is badly dented, and OP-10 is able to run its plant at 40–50% of its installed capacity, and therefore, unable to recover even fixed costs. OP-10 has not passed on the full burden of increased cost to its consumers by way of discounts provided. It has absorbed a portion of the increased cost.
123. Lastly, it was prayed that if any penalty were to be imposed by the Commission, the same may be imposed only on the relevant turnover for the relevant period, i.e., September 2012 to January 2013. It was also submitted that the answering Opposite Party has fully cooperated with the DG during the investigation and with the Commission during inquiry. Imposing any monetary penalty would put a question mark on the very survival and going concern status of OP-10.
Ruchira Papers Limited (OP-12) and its individuals
124. As per OP- 12, the DG itself noted that no one represented it in the meetings held on 19.09.2012, 19.11.2012 and 19.01.2013. However, the DG unilaterally assumed that Shri R. K. Maheshwari, who attended the meeting held on 19.12.2012, was an authorised representative (who was not authorised) of OP-12, despite not having any evidence on record to establish the same.
125. The increase in cost of raw material in 2013 was the reason for increase in price of writing and printing paper. In 2014–15, since raw material prices had stabilised, there was no need to increase prices in 2014–15.
126. From data pertaining to the production of OP-12 achieved during 2010–11 to 2013–14, it can be observed that, during this period, the production levels remained at par or at increasing trend, which is evidence that OP-12 never controlled production at any level during these years.
127. The similarity in the dates of price announcements may be regarded as a direct result of the high degree of market transparency, which does not have to be described as artificial.
128. Further, Shri Umesh Chandra Garg of OP-12, in his statement, submitted that he did not authorise anyone and did not attend any meeting, which has not been challenged or even commented upon by the DG.
129. The DG ought to have factored in that certain industries provide a structural basis that is conducive for cartelisation and that the paper industry in India, being highly oligopolistic and concentrated in nature, having entry barriers and a homogenous product, is conducive for cartelisation, but there are other factors that dilute the above structure and create conditions which do not sustain the maintenance of a cartel.
130. The DG has failed to carry out a detailed analysis of various economic factors like pricing, capacity utilisation, cost of sales, sales margin, cost of production and market share during the relevant period.
Shreyans Industries Limited (OP-1 7) and its individuals
131. OP- 17 in its response to the DG report has submitted that it always acted independently and on market intelligence and trends in determining its commercial affairs and does not engage with its competitors in violation of the provisions of the Act.
132. By not affording the right to cross-examine, the DG proceedings are in gross violation of the principles of natural justice.
133. The credibility of Shri S. Ramesh is also doubtful as he admitted in his deposition that paper manufacturers are unorganised and make changes in their prices as per their market suitability regardless of the behaviour of the competitors.
134. The DG denied the opportunity of cross-examination to OP-17 notwithstanding that the credibility of Shri S Ramesh is doubtful.
135. The DG has also failed to consider that there is no direct evidence of exchange of price/confidential information between the product manufacturers. The DG has ignored this aspect in its entirety while arriving at the conclusion of alleged cartelisation.
136. In relation to price parallelism analysis, the DG report fails to set out the parameters and justifications for comparing the products manufactured by various OPs. Further, the analysis done by the DG does not explain whether the compared products belonged to the same price bracket. The DG has erred in arriving at the conclusion of price parallelism without justifying the: (a) variety of the paper, (b) base grammage of the paper, (c) initial prices of the products compared and (d) the prices of the product after increase in prices.
137. The DG report further suffers from grave infirmities as it fails to specify what grade and quality of paper it used as a basis for conducting its analysis for price parallelism.
138. It was further submitted that the DG has failed to explain whether the prices of paper of OPs were similar to begin with. If the prices of the products manufactured by various OPs were dissimilar, then the conclusion of parallel increase by a certain amount is inaccurate. It was submitted that if the sale prices of OPs did not match at the outset, then the prices subsequent to a simultaneous similar increase would not match either. With different OPs selling the product at different prices, the purpose of a cartel would be defeated.
139. The DG cherry-picked only 21 product manufacturers/OPs from almost 800 players that operate in the non-wood based paper market to conclude that they indulged in alleged cartelisation. Additionally, out of the 21 OPs, the DG has concluded that only 10 have actively indulged in alleged cartelisation. In doing so, the DG failed to note that, for a cartel to sustain, majority players need to have cartelised to ensure that no one undercuts others’ prices. Such an arbitrary exclusion has no tenable basis in law.
140. OP-17 submits that the non-wood based paper market is not prone to cartelisation as the market is not oligopolistic as there are nearly 800 non-wood based paper mills in India, with approximately 40 players that sell in North India.
141. It is commonly understood that for a cartel or concerted practice to survive, there must be mechanisms in place for: (a) coordinating the cartel agreement and ensure successful functioning of the cartel, (b) monitoring the behaviour and conduct of the members of the cartel and (c) punishing members of the cartel who do not fall in line with the decisions of the cartel. The DG has failed to produce any evidence that even remotely suggests that any of the above-mentioned elements is present in the Indian non-wood based paper market, which comprises nearly 800 non-wood based paper mills.
142. The DG also failed to note that the November e-mail clearly records that none of the OPs (except Khanna and Trident) implemented the price increase pursuant to the 19.09.2012 meeting. This categorically establishes that even though OPs attended the relevant meetings, the decisions to increase prices were independent thereof.
143. It was further submitted that the answering OP attended three of the relevant meetings, as these meetings are usually conducted to discuss industry issues such as increase in cost of the raw materials, change in government policy, etc.
144. OP-17 has increased its prices between September to March every year between 2009–10 to 2017–18. Thus, it is a price trend that OP-17 follows every year. Between October and February 2012–13, OP-17 increased its prices because of increase in costs of manufacturing the product from the previous year.
145. SIL Office Bearers can only be found guilty under Section 48 of the Competition Act if SIL is held guilty of violating Section 3(3) of the Competition Act. As explained herein above, SIL has not contravened any provision of the Competition Act, therefore it is humbly submitted that the SIL Office Bearers cannot be held liable under Section 48 of the Competition Act.
146. On penalty, OP-17 submitted that due to COVID-19, OP-17’s business has been adversely affected; it is a relatively small company with only 2% market share; this is the very first competition law violation on the part of OP-17; and it has made full disclosures and cooperated in entirety with the investigations of the DG. Further, given that office bearers of OP- 17 did not send/receive any of the relevant emails or exchange any information and there being no evidence to show that they violated the Act, the office bearers cannot be held liable for the same.
Trident Ltd. (OP-21) and its individuals
147. OP-21 agreed with the conclusion of the DG report that certain paper manufacturers engaged in anti-competitive conduct by participating in meetings where commercially sensitive information was discussed. It was pointed out that different types of paper within the writing and printing paper segment are viewed as substitutable by customers. Non-wood based paper manufacturers have to price writing and printing paper significantly lower to ensure that customers do not switch to better quality A-grade paper.
148. As pointed out previously, OP-21 has filed a leniency application and has cooperated during investigation.
Analysis
149. The Commission has perused the material available on record, including the investigation report and evidences in support thereof as submitted by the DG, the submissions made by the Opposite Parties and has also heard in detail the arguments put forth by the parties during oral hearings.
150. The question which falls for consideration in the present matter is whether the paper mills (including their association) engaged in the manufacture of non‑
wood based writing and printing paper have cartelised and thereby, contravened the provisions of Section 3(1) of the Act read with Section 3(3)(a) thereof.
151. Before examining the aforesaid issue, it would be appropriate to note that OP-21 has filed their Leniency Petition and has admitted to its conduct and has supported the findings made by the DG in the investigation report. During the investigation, OP-21 cooperated fully with the DG and made vital disclosures.
152. In the aforesaid backdrop, the Commission proceeds to examine whether there was an 3agreement’Ebetween the OPs to cartelise, as found by the DG.
153. Before examining this issue, it is apposite to note that the definition of ‘agreement’ as given in Section 2(b) of the Act requires, inter alia, any arrangement or understanding or action in concert, whether or not formal or in writing or intended to be enforceable by legal proceedings. The definition, being inclusive and not exhaustive, is a wide one. An understanding may be tacit, and the definition under Section 2(b) of the Act covers even those situations where parties act on the basis of a nod or a wink. The Commission notes that the Act envisages civil liability. Thus, the standard of proof required to prove an understanding or an agreement would be on the basis of ‘preponderance of probabilities’ and not ‘beyond reasonable doubt’. There is rarely any direct evidence of action in concert, and in such situations, the Commission has to determine whether those involved in such dealings had some form of understanding and were acting in cooperation with each other. In light of the definition of the term ‘agreement’, the Commission has to assess the evidence on the basis of benchmark of preponderance of probabilities.
154. Further, in terms of the provisions contained in Section 3(1) of the Act, no enterprise or association of enterprises or person or association of persons can enter into any agreement in respect of production, supply, distribution, storage, acquisition or control of goods or provision of services, which causes or is likely to cause an appreciable adverse effect on competition within India. Section 3(2) of the Act declares that any agreement entered into in contravention of the provisions contained in sub-section (1) shall be void. Further, by virtue of the presumption contained in sub-section (3), any agreement entered into between enterprises or associations of enterprises or persons or associations of persons or between any person and enterprise or practice carried on, or decision taken by, any association of enterprises or association of persons, including cartels, engaged in identical or similar trade of goods or provision of services, which (a) directly or indirectly determines purchase or sale prices; (b) limits or controls production, supply, markets, technical development, investment or provision of services; (c) shares the market or source of production or provision of services by way of allocation of geographical area of market, or type of goods or services, or number of customers in the market or any other similar way; or (d) directly or indirectly results in bid rigging or collusive bidding, shall be presumed to have an appreciable adverse effect on competition.
155. In case of agreements as listed in Section 3(3)(a) to (d) of the Act, once it is established that such an agreement exists, it will be presumed that the agreement has an appreciable adverse effect on competition; the onus to rebut the presumption would lie upon the parties.
156. In this statutory framework, the Commission proceeds to examine the evidence collected by the DG to assess whether there was an ‘agreement’ between the OPs of the nature which is prohibited in terms of the provisions contained in Section 3(1) of the Act read with Section 3(3) thereof.
157. In this regard, it would be useful to refer the evidences collected by the DG during investigation. For felicity of reference, the analysis, in respect of each of the OPs that have been found to have contravened the provisions of the Act by the DG, shall be done separately and in seriatim, after outlining the background and the broader nature of evidence including the genesis of civil conspiracy.
158. In this regard, the Commission proceeds to analyse the electronic evidence and statements of the representatives and key persons of OPs to ascertain whether there was any ‘agreement’ between them of the nature prohibited by the Act.
159. The DG, during the course of investigation of two other cases, came across four e-mails dated 19.09.2012, 19.11.2012, 19.12.2012 and 19.01.2013 originating from the e-mail box of Shri P. K. Vasist, Vice President (Marketing) of SPBL, containing details of meetings that took place amongst 20 paper mills of North India under the aegis of OP-4 Association, engaged in the manufacture of paper by using agricultural waste or waste paper as their raw material. At this stage, it would be apposite to reproduce the said e-mails for ready reference:
