In a landmark decision, the Gauhati High Court has quashed the Competition Commission of India (CCI)‘s proceedings against Star Cement Ltd., Calcom Cement – Dalmia Brand, and Topcem India, which were facing allegations of cartelization and anti-competitive practices in the North-East region.
The judgment, delivered on Friday by Justice Kaushik Goswami, came in response to two writ petitions filed by Star Cement challenging the CCI’s orders that initiated investigations against the company.
The CCI had earlier accused Star Cement and other cement manufacturers of engaging in collusive behaviour to manipulate cement prices in Assam and other North-East states, which allegedly resulted in higher prices compared to other regions.
The CCI’s investigations were based on information provided by the Assam Real Estate and Infrastructure Developers Association and a senior State Government official, claiming coordinated price hikes by the cement companies.
The High Court, however, found that the CCI’s orders lacked a substantial prima facie case against cement companies.
The court noted that for an inquiry under the Competition Act, 2002, the CCI must establish a reasonable basis that an agreement or practice exists which has an appreciable adverse effect on competition. In this case, the court found the evidence insufficient to warrant a full-scale investigation.
Justice Goswami stated that the CCI failed to provide adequate details or justification for initiating an inquiry, thereby making the order “illegal and void ab initio.”
The judgment also criticized the CCI for imposing a penalty of ₹5,00,000 on Star Cement for non-compliance with its directions, stating that the penalty was unwarranted given the lack of a legitimate prima facie case.
“When there was no uniform rising of the prices by the three cement companies, it cannot be said by any stretch of imagination that there was any agreement entered into by three cement companies, which directly or indirectly determined the purchase of sale price.”
“In fact, the different increase in prices and different sale prices of cement instead of having adverse effect of competition would lead to better competition between the cement companies”, reasoned the court while setting aside CCI order.
“The second allegation that the three cement companies were availing huge subsidy under NEIPP for cement production in North Eastern States and were not passing on the benefits of the same to the consumers is not a ground at all which falls under Section 3(3)(a) and Section 3(3)(b) of the [Competition] Act, 2002, inasmuch as, the subsidy which are given for establishment of new Industries in this region is by way of an incentive and the same is not to pass to the consumers is not tenable”, added the court and found the reasoning of CCI as untenable.
This decision is a significant setback for the CCI coming as it does within days of Delhi High Court quashing another investigation by CCI against JCB India, as it underscores the need for regulatory bodies to provide clear, evidence-based reasoning before taking punitive actions against corporations.
Legal experts believe this ruling could prompt a reassessment of CCI’s investigatory standards and processes, especially in cases involving allegations of cartelization.
This ruling may have broader implications for similar cases where the CCI’s investigatory authority is challenged on procedural grounds, economy watchers said. They noted that the judgment could lead to stricter scrutiny of regulatory actions, ensuring they are backed by robust initial evidence.
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Dinoo Muthappa, Competition Law Partner at AZB & Partners, said “The court’s decision will have an impact on 3 issues. First, it has quashed the CCI’s investigation against all three cement companies in its entirety, which is particularly noteworthy since this case was initiated based on complaints forwarded by the government. Second, this ruling is likely to have a direct and immediate bearing on the ongoing alleged cement cartel case currently pending before the CCI for some time now. Finally, this decision may encourage more parties to seek judicial review of CCI investigations, in the hope of securing relief from protracted and burdensome inquiries”.
It could also lead to increased litigation and further delays in CCI’s decision-making process, potentially extending the timeline of future investigations and outcomes, she added.
Dinoo Muthappa, Competition Law Partner at AZB & Partners, said “The court’s decision will have an impact on 3 issues. First, it has quashed the CCI’s investigation against all three cement companies in its entirety, which is particularly noteworthy since this case was initiated based on complaints forwarded by the government. Second, this ruling is likely to have a direct and immediate bearing on the ongoing alleged cement cartel case currently pending before the CCI for some time now. Finally, this decision may encourage more parties to seek judicial review of CCI investigations, in the hope of securing relief from protracted and burdensome inquiries”.
It could also lead to increased litigation and further delays in CCI’s decision-making process, potentially extending the timeline of future investigations and outcomes, she added.