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Beer Collusion Case: Road Towards Purposive Interpretation in Uncovering Cartels

Authors: Sriansh Jaiswal [i] & Akshat Tripathi [ii]

 

I. Introduction


In an order dated September 24, 2021, the Competition Commission of India (“CCI”) found that United Breweries Limited (“UBL”), Crown Beers India Private Limited and its parent company SAB Miller India Limited (“SAB”), and Carlsberg India Private Limited (“CIPL”), were all involved in cartelisation in the sale and supply of beer in several states and union territories. Furthermore, it was shown that the collusive activities facilitated via emails and meetings. Based on this application, CCI directed the Director General (“DG”) to investigate this matter.


II. The Model of Collusion in Different States


DG submitted his report on June 28, 2019, and confirmed the existence of the cartel as stated by SAB in its leniency application. Furthermore, DG also found out instances of collusive activities like:

  • Sharing the sales data with each other

  • Fixing the buying-back rate of old beer bottles.

All this together stood in violation of Section 3(3) of the Competition Act, 2002 (“CA, 2002”). CCI divided its final order on a state-by-state basis. Thus, the arguments provided by each beer business, the data collected by the DG, and ultimately the results, were presented independently for each state.


A. Andhra Pradesh

CCI observed that the executives of UBL and SAB had, through emails, SMSs, and WhatsApp, shared commercially sensitive information on the Maximum Retail Price (MRP) and the introductory pricing to be charged to the Andhra Pradesh State Corporation (“APSC”) in 2009 and 2013. CCI additionally found that mere communication of commercially sensitive price information amongst rivals damaged the integrity of the independent bidding process and subsequently inhibited competition between them for the tenders floated by the APSC.


B. Delhi

CCI found that the executives of CIPL, SAB and UBL had coordinated the price rise for beers supplied in Delhi in 2013, taking advantage of the AIBE platform. CCI also relied on internal emails of CIPL, from which it was evident that the officials of CIPL were aware of the anti-competitive character of their conversations.


C. Karnataka

CCI found that the officials of UBL, SAB and CIPL had, through emails, coordinated the price changes that each of them quoted to the Karnataka Government. There was a minor variance in the rate of price rises. CCI highlighted that these price rises quotes in such close range was a direct effect of their previous communications prior to the bid submission deadline. CCI highlighted that the period of infringement for the alleged behaviour commenced from 2011 (with CIPL participating in from 2012) and continued until 2018.


D. Maharashtra

CCI noticed that the officials of UBL, SAB and CIPL had, through emails, coordinated their price changes presented to the Maharashtra Government. CCI said that each of these enterprises would discuss among themselves the specifics of the price cards submitted to the Maharashtra Government, which comprised information about introductory pricing, bottle price, distributor margin and the indicated cost of production. CCI highlighted that the collaboration between UBL, SAB, and CIPL began in 2011 (with CIPL participating in 2012) and lasted until 2018. In 2017, UBL, SAB and CIPL cooperated to deliberately oppose the Maharashtra Government's excise tax increase excise tax policy by jointly resolving to cease production and delivery of beer in the state.


E. Rajasthan

CCI stated that the highest management level executives of UBL, CIPL and SAB had, via e-mails, negotiated the price changes that each of these businesses would quote to the Rajasthan Excise Department. CCI further observed that such collaboration was enabled by talks conducted by some officials of AIBE. CCI reported that the collaboration between UBL, SAB and CIPL began in 2011 (with CIPL joining in from 2012) and lasted till 2018.


III. The Arguments by The Beer Companies


UBL and CIPL tried to justify the various instances of an exchange of commercially sensitive information by arguing that the exchange of pricing information across various states was never followed by the actual implementation of such prices. In other words, the anti-competitive agreement reportedly entered into by UBL, CIPL and SAB in each state was never executed and as a consequence, no culpability was due to the beer businesses.


CCI rejected this claim by ruling that simple sharing of commercially sensitive information was sufficient to damage the integrity of the competitive process and was likely to impede competition in the market.


CCI further stated that some executives of UBL and SAB had discussed certain commercially sensitive information on the procurement of second-hand bottles from the market (including the pace and rate at which second-hand bottles were acquired). This resulted in restricting and regulating the supply of second-hand beer bottles in the market, which in CCI's view amounted to an infringement of Section 3(3)(b) of the Act. In conclusion, UBL, CIPL and SAB were found to have violated Section 3(3)(a) read with Section 3(1) of the Act as the result of sharing of price information across different states/union territories in India.


IV. Penalty


CCI ordered the parties to refrain from engaging in any collusive practice, conduct or action. Furthermore, CCI imposed a hefty penalty of INR 751.83 Crore on UBL, INR 120.56 Crore on Carlsberg and INR 0.6 Crore on AIBA for contravening section 3 and Section 27 of the CA, 2002. However, SAB dodged the penalty owing to being the first leniency applicant contemplated in Section 46 of the CA, 2002.


V. Proactiveness of CCI to Unravel Cartels


CCI in this case enhanced its investigation tactics to reveal the existence of the cartels. The primary difficulty with cartel investigations is that agreements to form them are conducted in utmost secrecy. Therefore, it is rather difficult to discover direct proof.


However, the CCI has lately begun to depend on circumstantial evidence, which has assisted in revealing the cartels. In Excel Crop Care Ltd. v CCI, the Court found that the four firms, which were involved in APT manufacturing, engaged in price parallelism. Furthermore, they often boycotted the same tenders simultaneously. Thus, the Court concluded that these acts were the result of some common understanding between the parties and penalised the firms for contravening Section 3(3)(d) of the Act. In another case, Cement Cartel, the Commission found out that the firms indulged in many anti-competitive activities such as price parallelism that followed every meeting, and concluded that the circumstantial evidence supported an inference of information exchanges.. The present case of the beer cartel is one-step towards unravelling cartels and anti-competitive acts in a more proactive manner.


Another remarkable element of this case was that the CCI decreased SAB’s penalty by 100 per cent, unlike other instances like “Brushless DC Fans Case'' and “PMC Case”, which has shown inconsistencies in this respect. In Brushless DC fans, CCI did not completely reduce the penalty of M/S Pyramid Electricals, despite them being the first and only leniency applicant. In the PMC Case, CCI refused to reduce the penalty on the ground that the companies continued cooperation after the commencement of the investigation. However, the stand of CCI in the above cases is completely in contrast with its stand in Zinc-carbon dry cell manufacturer’s cartel case, where Eveready and Nippo were granted a reduction in penalty despite providing very minimal information to the ongoing investigation. However, CCI in this case has rightly complied with the laws regarding leniency application, providing 100 percent reduction in penalty to the first leniency applicant. This progress will further encourage other corporations to submit leniency applications and aid CCI in uncovering the cartels.


VI. Conclusion


In the present case, the beer companies were involved in many anti-competitive practices like price co-ordination and restriction of the supply of beer in various states. The investigation also pointed out that the beer companies collaborated to create an artificial scarcity in the market to pressure the government to make certain policy changes. The companies which were involved in this cartel account for about 88% of the market share of the beer industry in India. This case brings out the need to regulate the beer market, and perhaps all markets, in a more systematic way for the welfare of consumers and other sellers.

 

[i] 3rd year law student at Dr. Ram Manohar Lohia National Law University

[ii] 3rd year law student at NMIMS, Kirit. P. Mehta. School of Law, Mumbai

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