CCI introduces Leniency “Plus” regime in India- Will it suffice?
CCI finds cartel in the domestic industrial and automotive bearings market but no penalty
By way of order dated 05.06.2020, the Competition Commission of India (“CCI/Commission”) has found FAG Bearings India Ltd. (now, Schaeffler India Ltd.). (“Schaeffler), National Engineering Industries Ltd. (“NEI”), SKF India Ltd. (“SKF‟) and Tata Steel Ltd., Bearing Division (“Tata Bearing‟) have indulged in cartelisation in the domestic industrial and automotive bearings market from 2009 to 2014 but did not impose any penalty due to peculiar facts and circumstances of the case.
Background
The case was initiated suo motu pursuant to leniency application (“Application”) filed by Schaeffler which disclosed the existence of the cartel to the Commission. The Application disclosed that when the steel prices started increasing 2009 onwards, there was co-ordinated action amongst the five companies to pass on such increase to the automotive and industrial Original Equipment Manufacturer (“OEM‟) customers and in the distribution segment of the market. The Application further revealed that the five companies agreed on the percentage increase in steel price that each of them would represent to the OEMs, to seek a price increase from them. The rationale behind such co-ordination was to simultaneously send out price increase letters to the OEMs and distributors in the aftermarket, specifying the percentage increase in steel prices and a request to increase the existing supply prices, as otherwise the likelihood of getting a price increase was believed to be less certain. On being prima facie satisfied that a contravention has taken place, the Commission directed the DG to investigate the issue. During the investigation, NEI also filed a leniency application under Section 46 of the Act.
DG Investigation
DG found that representatives of NEI, Schaeffler, SKF and Tata Bearing had attended two meetings in Delhi on 03.11.2009 and 31.01.2011, in which pricing strategies to be adopted for seeking price increase from the Industrial and Automotive OEMs and in the aftermarket were discussed. From the e-mail communications between the representatives, the DG found that agreement upon percentages of price revision to be sought from OEMs was arrived at between these four companies. The DG found that these four competitor companies controlled nearly 3/4th of the market and they shared information which is in the nature of confidential business information with a clear intent and objective to achieve higher than competitive price of bearings sold by them to the OEMs.
Accordingly, the DG found cartelisation amongst the four companies namely NEI, Schaeffler, SKF and Tata Bearing, however, no evidence of cartelisation could be found by the DG against Timken[1]. Moreover, the DG did not find any consensus/ understanding for concerted price increase in aftermarket segment. The DG also noted that there was no indication of any actual concerted price increase except in a few cases like for Bajaj Auto Ltd. during July 2010 and for MSIL in March to July 2011 and that the price revisions did not show that the prices of bearings sold by the four OPs to the OEMs moved in tandem with each other.
CCI Analysis
The Commission observed that on 26.10.2009 Mr. Sarabjit Singh (Schaeffler) had informed Mr. Rajendra Anandpara (Schaeffler) that there was a consensus amongst suppliers for writing price increase letters to all Two-Wheeler OEM customers. In the said email, he had also mentioned that a meeting was arranged at Delhi on 03.11.2009 involving SKF, NEI and Tata Bearing. Further, in the e-mail dated 06.11.2009, Mr. Sarabjit Singh informed Mr. Rajendra Anandpara that the meeting took place on 03.11.2009 and the said meeting was attended by Mr. Sanjeev Taparia, Marketing Head of NEI and Mr. Sanjiv Mohan, Marketing Head of Tata Bearing while Mr. Lokesh Saxena, Head of Two-Wheeler Sales of SKF, had telephonic discussion with the other participants.
CCI Further noted that Mr. Sarabjit Singh (Schaeffler) had informed Mr. Rajendra Anandpara (Schaeffler) via emails dated 03.02.2011 and 05.02.2011 about a meeting held on 31.01.2011 at Delhi Office between NEI (over telephone), Schaeffler, SKF and Tata Bearing as per which price increase of 4-5% would be effected from 01.03.2011 and when Mr. Sarabjit and Mr. Rajendra were confronted with the said e-mails, they accepted the same. Mr. Sanjeev Taparia of NEI also accepted being a part of the meeting telephonically. However, Mr. Lokesh Saxena of SKF was confronted with the statement of Mr. Sarabjit Singh of Schaeffler, he did not recall any such meeting. However, he accepted that he spoke to these two officials of NEI and Schaeffler respectively, on industry trends and input cost trends. Further, representative of Tata Bearings also did not recall attending any such meeting. However, their presence was confirmed by representatives of other companies who had attended the said meeting.
The Commission, accordingly, concluded that representatives of key competitors in the bearings market, namely, NEI, Schaeffler, SKF and Tata Bearing, attended meetings on 03.11.2009 and 31.01.2011 where the pricing strategies to be adopted by these 4 parties for seeking price increase from the Industrial and Automotive OEMs were discussed and agreed to send letters to the OEMs regarding price increases respectively.
The Commission noted that Schaeffler had given details of another e-mail dated 22.04.2011 exchanged between Mr. Sarabjit Singh and Mr. Rajendra Anandpara about a meeting dated 22.04.2011 held between NEI, Timken, Schaeffler, SKF and Tata Bearing, however, the DG could not establish such meeting by the evidences on record.
The Commission noted that these companies had attended these two meetings regarding commercially sensitive price related information and had several telephonic discussions with the view to mutually determine the prices of bearings sold by them to the OEM customers during the period from at least November 2009 to January 2011. It was found that the cartel stood established amongst the 4 parties viz. NEI, Schaeffler, SKF and Tata Bearing, by way of meetings held on two occasions i.e. 03.11.2009 and 31.01.2011 wherein price revision along with minimum percentage of price increase to be quoted to the OEMs were discussed and also through telephonic discussions.
The parties had contended that such agreement between them had caused no AAEC which was evident from the price analysis done in the DG Report itself, and further, even the OEMs when asked by the DG stated that they could not perceive any instance of cartelisation amongst the parties. However, the CCI held that agreements under Section 3(3) are presumed to cause AAEC and prohibits agreements which are ‘likely’ to cause AAEC. The Commission held that by contending that price revisions quoted by the parties to the OEMs are not in accord with what was decided between them, the parties cannot rebut the statutory presumption of AAEC as specified under the provisions of the Act.
The Commission, however, decided not to impose any monetary penalty on any of the 4 companies or their respective office bearers found in contravention of Section 48 of the Act. CCI directed the parties to cease and desist from such cartel like activities in future.
Comment: This is a peculiar case of a cartel forced by buyers, which was considered as a strong mitigating factor by CCI to avoid imposition of any financial penalty on the parties. Admittedly, it was a buyers’ market in which each OEM was unwilling to increase the prices of the automotive bearings on being approached individually by any of the parties , which , forced them to coordinate to send price increase letters to OEMs. Interestingly, none of the customer/buyer-OEMs had any complaint against the parties to the alleged cartel. The case also illustrates how strong oligopsony can become and why there is need to protect the interests of input providers and how buyers’ cartels may suppress the price of the purchased products below competitive levels. In my view, the CCI ought to have investigated the conduct of the buyers which led to such “forced cartel” of suppliers
[1] The leniency application by Schaeffler had disclosed Timken as a member of the cartel.
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