Was the 'Cement' decision a 'concrete' one?

Following a lull in activity in June the CCI recently dropped the bombshell with its Cement cartel decision. A fine of Rs.6307 crore (approximately 1.1 billion USD) has sent the media in a frenzy with reports  glorifying or demonizing the CCI in turn. Apart from the sheer size of the penalty, the decision has plenty of other interesting and important points regarding the CCI's approach to cartels and the interpretation of S.3:

1. Notion of 'Agreement': Competition authorities around the world have had to grapple with two interrelated yet separate issues with respect to the notion of an 'agreement'. Firstly, how broadly/narrowly do we construe the term 'agreement'? and secondly, What should  the evidentiary standard be to prove an 'agreement'? 

To my knowledge the CCI has not ventured to give a proper definition of the term 'agreement' so far and perhaps it is not their intention to do so either. It must be noted that the law can ultimately only be laid down by the courts (the Supreme Court or the COMPAT) as and when appeals are decided. However the CCI has indicated in a lot of decisions including the present one that the word 'agreement' is to be construed widely and can include informal arrangements as long as there is a 'meeting of minds'. This certainly seems to be the correct approach to take and is in line with international practice. It remains to be seen how the CCI would construe the term 'agreement' in cases of pure conscious parallelism (also called 'tacit collusion' or  'oligopolistic interdependence' or simply the 'oligopoly problem') and pure information exchanges.

As far as the second question is concerned the CCI goes on to clearly state that circumstantial evidence would be sufficient to establish an 'agreement' in the absence of direct evidence. It lays down various factors from which it inferred an 'agreement' among the cement manufacturers which include price parallelism, production and dispatch parallelism, meetings of the Cement Manufacturers' Association (CMA) where information about retail prices was exchanged  and increases immediately after that, reduced output and capacity utilization and supra normal profits earned by the companies. Thus the CCI has clearly accepted that mere price parallelism although indicative cannot be sufficient proof of an 'agreement'. Other corroborating factors are needed which the CCI found in this case. In a sense the CCI seems to be following the 'plus' factors approach followed in the US where something more than mere parallel behavior is needed to establish an 'agreement'. What is still not clear is to what standard or how much circumstantial evidence is needed to prove an 'agreement' under S.3. Should it be mere 'balance of probability' or 'tending to exclude independent action'? In the EU a presumption is raised that parallel behavior is indicative of concerted action if there seems to be no other plausible explanation for it. Again only the courts can answer this question.

These are of course difficult questions with no ready answers. One way of dealing with this problem would be to actually just go after direct evidence through effective use of the leniency program and investigatory powers of the CCI. This would reduce reliance on circumstantial evidence and improve the enforcement system as a whole. This is something the CCI must focus on more. The CCI has recently announced that it would seek to encourage whistleblowers by making details about ongoing investigations public. (news report can be accessed here)

2. Adverse Effect on Competition: A horizontal price fixing/output limitation agreement is 'presumed' to have an appreciable adverse effect on competition (AAEC) under S.3(3). There has been some debate over whether such a presumption means that these agreements are per se illegal (as they are in the US) i.e no pro-competitive justifications can be offered for these agreements whatsoever. As common sense would tell you a 'presumption' merely means that the burden of proving that the agreement does not have an AAEC shifts to the parties under investigation. Further it is really important that parties have the opportunity to justify their conduct in terms of consumer benefits especially in complex and tricky cases.  Fortunately the CCI has clarified this in the Cement decision by stating that it was open to the parties to put forward any 'efficiency defense' under S.19 (3) of the Competition Act. No efficiency defense was found in this case according to the CCI. Another positive thing the CCI seems to be doing in recent cases is that despite the 'presumption' of AAEC raised under S 3(3) for horizontal agreements, it goes ahead and does a full economic analysis of the case according to the factors mentioned in S.19(3) thus making sure that its decisions are well backed by economic evidence.

3. Level of Penalty: As mentioned above there has been quite a big debate about how the sheer size of the fine imposed in this case. First of all it must be noted that the figure of Rs.6307 crore is the total fine imposed on 11 cement companies. Thus comparisons to the EU Intel fine of 1.3 billion $ which was on a single company are a little misplaced. Further in order to ensure greater transparency in the fining process the CCI is in talks with other competition regulators on coming up with on guidelines on penalties (news report can be accessed here). S.27 of the Competition Act gives full discretion to the CCI to impose any penalty that it deems fit subject to the statutory limits mentioned therein. However generally competition authorities around the world take into account the gravity and duration of the infringement while deciding a penalty and presumably the CCI penalty guidelines will also be guided by these two general factors.

All in all whether the cement decision was a 'concrete' one will depend on how widely the term 'agreement' is construed and to what extent circumstantial evidence is accepted as proof of such 'agreement' by the courts.