The National Company Law Appellate Tribunal cited “arithmetic errors” to set aside the Rs 1,788-crore penalty imposed on major tyre companies for cartelisation by the Competition Commission India.
The case has been sent back to the CCI to review the “arithmetic errors” and re-examine the penalty, given that the domestic tyre industry is facing a lot of pressure from its global competitors.
The margin of error in the calculations undertaken by the Directorate-General for Competition is huge and reveals non-existence of price parallelism, the NCLAT held.
In the present case, an investigation alleging cartelisation was initiated by CCI against major tyremakers including Apollo Tyres Ltd., MRF Ltd., JK Tyres and Industries Ltd., Birla Tyres Ltd. and the Automotive Tyre Manufacturers’ Association in September 2013.
It investigated the period from 2011 to 2012.
This was based on a representation filed by the All India Tyre Dealers Foundation with the Ministry of Corporate Affairs in 2013.
The foundation, in its representation, had accused the domestic tyre companies of engaging in price control and causing serious challenge to free and fair market in India.
The commission had found the tyre companies guilty of cartelisation, for matching prices of goods with one another, earlier this year.
Cartelisation is an anti-competitive agreement punishable under the Competition Act.
According to tyre companies, the commission has engaged in cherry-picking by excluding the foreign tyre companies from the purview of investigation.
They also submitted how earlier investigations found price parallelism, a common phenomenon in the industry, that doesn’t really need a prior agreement between the parties concerned.
According to the companies, price change, as calculated by the DG, is erroneous as the actual figures do not reflect a close change in prices and the data that has been relied upon was derived incorrectly.
For instance, the price revision for Birla Tyres should have been ideally 16.3% as against the 11.2% calculated by the DG.
The commission was also alleged of limiting its investigation to truck and bus bias tyre segment when the reference was made to all tyres.
Losses made by some of the companies during the period of cartelisation were also provided as evidence against cartelisation, as supernormal profits are an essential requirement for a cartel.
Even the penalty was calculated erroneously, according to the tyre companies. The penalty was levied based on the turnover of preceding three years when the law requires the penalty must be levied for the period of cartelisation.
The errors in calculation of price increase to arrive at a percentage close to one another disproves the existence of any price parallelism, the companies said. Moreover, a match in price alone could not be made a ground for cartelisation, especially in an oligopolistic industry such as tyre, they argued.
The appellate tribunal, in its independent perusal of documents, found “significant arithmetic errors” in the calculations undertaken by the DG.
A margin of error of 0.45% to 4.81% was found in calculating the price changes of various tyre companies. Errors were also found in calculation of correlation.
The appellate tribunal found it appropriate to send the case back to CCI where both the parties would be heard yet again.