With regard to the alleged anti-competitive conduct in the Beer Market in India, the Competition Commission of India (hereinafter referred to as the “Commission”) initiated a suo motu investigation pursuant to a lesser penalty application filed on 26.07.2017 under Section 46 of the Competition Act, 2002 (hereinafter referred to as the “Act”) read with Regulation 5 of the Competition Commission of India (Lesser Penalty) Regulations, 2009.
FACTS
The application, filed by Crown Beers India Pvt. Ltd. and SABMiller India Ltd., ultimately held by Anheuser Busch InBev SA/NV), disclosed that Crown Beers India Pvt. Ltd. (CBIPL), SABMiller India Ltd. (SMIL), United Breweries Ltd. (UBL) and Carlsberg India Private Ltd. (CIPL) were partaking in cartelisation under the aegis of the All India Breweries Association (AIBA) (hereinafter collectively referred to as “the Opposite Parties”).
Through the disclosures arose from the application, the Commission inferred the presence of a prima facie case of cartelisation and directed the Director General (hereinafter referred to as “DG”) to investigate the matter vide an order dated 31.10.2017.
In furtherance of the order, the DG carried out search and seizures on the premises and communications of the Opposite Parties. The investigation revealed that since 2007, till the day of the investigation, there was evidence revealing cartelisation. The same was inferred from the seized communications which revealed that the Opposite Parties were:
1. Sharing sales and stock data;
2. Communication pertaining to coordination amongst the Opposite Parties regarding restricting supply in states where the State Governments had hiked the excise duty to oppose Government policies. The aforementioned was found to be done in Odisha, Maharashtra and West Bengal and Rajasthan;
3. Agreement to sell to premium institutions (bulk buyers) in Bengaluru at coordinated prices to share benefits and exclude the competition;
4. Colluding in the rate and quantity of purchase of second-hand beer bottles, which have a direct and mammoth effect on beer manufacturers;
5. That the Opposite Parties were well Act and thereby aware of the illegality of their collusion and made the conscious decision to bypass the law.
In addition to the above mentioned, the investigation revealed that AIBA promoted and facilitated the cartelisation since 2013. The operations revealed that AIBA had an active role in the collusion as it facilitated the conference calls amongst the other Opposite Parties, and also proposed the price revisions.
ISSUES BEFORE THE COMMISSION
1. Whether the Opposite Parties indulged in cartelisation in the domestic beer market in India in contravention of the provisions of Section 3 of the Act?
2. If the Opposite Parties were contravening Section 3 of the Act, then who were the persons of the Opposite Parties liable for their company’s/association’s conduct in terms of Section 48 of the Act at the time of the said contravention and what were their roles?
CONTENTIONS OF THE PARTIES
1. Anheuser Busch InBev SA/NV
The major contention of Anheuser Busch InBev SA/NV was that owing to complete fulfilment of requirements under Section 46 of the Act and Anheuser being the first lesser penalty Applicant, the company shall be eligible for a 100% reduced penalty.
In furtherance of this contention, emphasis was supplied on the fact that the disclosures made by Anheuser enabled the DG to find targeted evidence, especially in the case of AIBA which would have otherwise escaped liability.
In addition to providing vital disclosures, Anheuser stated that a 100% reduction is merited as Anheuser has initiated internal definitive corrective administrative and HR measures to ensure accountability for the cartelisation.
2. United Breweries Limited
UBL made multiple contentions opposing the cartelisation allegation. The primary contention was that owing to the high level of regulation in the beer market of India, the standard of application of the Act shall be relaxed owing to the unique challenges presented by this market towards suppliers. This contention was furthered by challenging the nature and object of the information shared.
On the matter of nature of the information, UBL contended that the data shall not be considered commercially sensitive as it could not have influenced the highly regulated beer trade of India. Further, it was stated that the information was shared non-frequently and did not possess the ability to control or determine market dynamics.
Regarding the object of information shared, UBL asserted that the data sharing could not have resulted in any appreciable adverse effect on competition (‘AAEC’) as the date sharing was to either counter the arbitrary actions of the State Government or State Corporations for legitimate interest, or on account of directions from certain State Corporations itself.
Therefore, all impugned communications were contended to have occurred as means to balance the monopsony powers exercised by the State Governments. UBL also put forth its declining profits in states where the cartelisation has been alleged to have occurred.
UBL relied on Excel Crop Care Limited v. Competition Commission of India and Another, [(2017) 8 SCC 47], to urge the Commission to consider the profits arising out of alleged instances of cartelisation to determine the proportionality and relevancy of the alleged infringement.
3. Carlsberg India Private Limited
The contentions made by CIPL were similar to the ones made by UBL. In addition to the contentions by UBL, CIPL relied heavily on the end result of the communications to challenge any contravention of Section 3 of the Act.
CIPL contended that the real power to influence prices lies with the State Excise Authority and not the breweries therefore, any AAEC is impossible to arise from the uncovered communication. All the impugned conduct was therefore, submitted to have taken place in furtherance of survival of the company.
CIPL denied that any instance of AAEC have arisen and it was stated that the coordination was a response to the arbitrary and unpredictable actions of the State Excise Authorities, in pursuance of a collective representation of concerns and prices.
In addition to the above mentioned, CIPL provided a list of mitigating factors to be considered by the Commission while evaluating the penalty. The factors were:
1. The need to preserve margins in the industry when faced with the disproportionate capacity of influence of State Governments/ Corporations.
2. A lack of implementation of coordinated prices in most cases. Implantation was submitted to have occurred in limited states in certain years for example Maharashtra (2016), West Bengal (2012, 2015, 2016 and 2017), Karnataka (2015 and 2017), and Puducherry (2017).
3. CIPL being a first-time offender and not occupying the role of a major market player in the beer industry.
4. Plummeting of sales and other fiscal damage to the company due to the negative impacts of COVID-19 pandemic.
CIPL also submitted that the penalty be decided in a manner that is proportionate and reasonable to the role and turnover of the company.
4. All India Brewers’ Association
The AIBA in its submissions denied all allegations against it arising out of the DG investigation in the investigation report. It was contended that the AIBA lacked involvement in discussion on ‘prospective quotes’ by the breweries. AIBA also denied being a party of any coordination in forwarding such ‘prospective quotes’ to State Excise departments.
AIBA also argued that its actions were in pursuance of protecting the collective interest of the brewery industry, contributing to the economic growth of the country, protecting beer over spirits category, increasing shareholders’ value and ensuring viability in the business of its members.
AIBA denied having any accountability in the price collusion and emphasised on fluctuating duty structures and changes in Ex-Brewery Price (‘EBP’) as driving factors of similar price incidences.
DECISION AND FINDINGS
The Commission concurred with the findings of the investigative report by the DG. An in-depth perusal of communications (emails, whatsapp and other means of messages, call records) between the Opposite Parties was looked into and the Commission carried out a review of all the states in which cartelisation was alleged to have taken place. The findings of the state-by-state review was as follows:
A. Andhra Pradesh: Upon a bare reading of the provisions of Section 3 (1) of the Act, the ambit of the contravention was affirmed to include contracts which have a likelihood of causing AAEC. In light of this, the Commission held the existence of exchange of commercially sensitive pricing information amongst the Opposite Parties in 2009 and 2013 which affected the independence enjoyed in the bidding process.
Thus, the communication amounted to contravention of the provisions of Section 3(3)(a) and 3(3)(d) read with Section 3(1) of the Act and it was held that Andhra Pradesh UBL and Anheuser Busch InBev SA/NV were guilty of said contravention.
B. Daman and Diu: No case of contravention of the Act or cartelisation was held to have occurred in the case of Daman and Diu.
C. Delhi: The Commission held that the exchange of commercially sensitive data to coordinate prices by UBL, CBIPL, Anheuser Busch InBev SA/NV and CIPL is unwarranted even if it occurs in pursuance of mitigation of losses by the company.
In addition to this, AIBA was condemned for collection and dissemination of commercially sensitive data (eg: cost cards) of its members.
Therefore, the conduct of Opposite Parties in the NCT of Delhi in 2013, was held to have amounted to contravention of Section 3(3)(a) read with Section 3(1) of the Act.
D. Karnataka: Upon careful analysis of evidence submitted, the Commission concluded that UBL and Anheuser Busch InBev SA/NV came into an agreement in 2010 for the coordination of supplies to premium institutions (bulk buyers) in Bengaluru, Karnataka. This was done to increase benefits and decrease competition.
Following the rationale used in the case of Andhra Pradesh, the parties were held guilty owing to the fact that any ‘agreement’ which can cause any AAEC in India, amounts to contravention of the provisions of Section 3(3) of the Act.
Thus, the ‘agreement’ between UBL and Anheuser Busch InBev SA/NV was found to be in contravention with the Act.
E. Maharashtra: While deciding upon the contravention of the Act in Maharashtra, the Commission put forth its inference that the unequivocal object behind data sharing between UBL, Anheuser Busch InBev SA/NV and CIPL, was allocation of the market amongst themselves.
Rejecting the merit in the contentions of the Opposite Parties, the Commission held that the presence of AAEC amounted to contravention of the provisions of Section 3(3)(c) read with 3(1) of the Act by UBL, Anheuser Busch InBev SA/NV and CIPL.
F. Odisha: Upon considering the coordinated restriction on supply of Beer by UBL, Anheuser Busch InBev SA/NV and CIPL in the State of Odisha, the Commission concluded that the restriction had in fact caused AAEC in India.
Owing to the inability of the Opposite Parties to provide a meritorious rebuttal, such limited supply was held to have contravened the provisions of Section 3(3)(b) read with Section 3(1) of the Act.
G. Union Territory of Puducherry: The communications between UBL, Anheuser Busch InBev SA/NV and CIPL were held to clearly indicate cartelisation in their price revision proposals in the UT of Puducherry.
The price co-ordination was presumed to have an AAEC within India under the provisions of Section 3(3) of the Act. Hence, the same was decided to have contravened the provisions of Section 3(3)(a) read with 3(1) of the Act.
H. Rajasthan: The Commission determined that identical pricing compounded by the instances of communications and admissions by officials of between UBL and Anheuser Busch InBev SA/NV established cartelisation.
It was held that between UBL, Anheuser Busch InBev SA/NV and CIPL, partook in cartelisation platformed and assisted by AIBA in Rajasthan. This may have caused AAEC through stifling of competition. Therefore, the aforementioned Opposite Parties were held guilty of contravening the Act.
I. West Bengal: In the case of West Bengal, the Commission found price co-ordination between UBL and CIPL AIBA, from 2012 to 2018, which violated the provisions of Section 3(3)(a) read with Section 3(1) of the Act.
Further, the coordination of restricted supply between UBL and CIPL, though AIBA in this instance was held to be in contravention of the provisions of Section 3(3)(b) read with Section 3(1) of the Act.
On the matter of second-hand bottles, the conduct of UBL and Anheuser Busch InBev SA/NV was decided to have been in pursuance of gaining control on the supply of second-hand beer bottles in the market from at least 2009 to 2012.
This was held to have caused harmful effects on the competing companies hence amounted to contravention of the provisions of Section 3(3)(b) read with Section 3(1) of the Act. Owing to the lack of evidence, CIPL was found not guilty in the aforementioned contravention in the context of purchase of second-hand bottles.
On account of the findings stated hereinabove, it was held that the Opposite Parties indulged in cartelisation in the domestic beer market in India in contravention of the provisions of Section 3 of the Act.
In addition to the above, the Commission evaluated the liability of officials in the context of the communications presented as evidence. The Commission, under Section 48 of the Act, held that four officials from UBL and Anheuser Busch InBev SA/NV, six officials from CIPL, and the Director General of AIBA were accountable for the anti-competitive practices indulged in by their respective companies and associations.
The Commission laid down directions under Section 27(a) of the Act, for the Opposite Parties to cease and desist from indulging in any conduct, communications, and activities that have been deemed in the current order to be in violation of Section 3 of the Act.
In addition to this, under Section 27(b) of the Act, the Commission imposed a penalty of INR 6,25,126 on AIBA, INR 7,51,83,28,719 on UBL, and INR 1,20, 56,47,362 on CIPL for their role in the contravention of sections 3(3)(a), 3(3)(b) and 3(3)(c) read with Section 3(1) of the Act. The plea for penalising in proportion to revenue generated was also accepted and kept in sight while evaluating the penalty imposed.
Anheuser Busch in Bev SA/NV’s submission to hold it eligible for reduced penalty was accepted and it was given a 100% reduction in penalty.
AMLEGALS REMARKS
This case is a testament to the developed method of investigation by the Commission. The Commission with this judgment has set a benchmark in exhaustive and methodical investigations in cases of cartelisation spanning multiple years and jurisdictions.
Intellectual Property Rights provides exclusive rights and monopoly to the companies in certain cases. However, it is important to understand that the exclusive rights and monopoly should not amount to violation of anti-competitive laws and unfair competition in the market. The monopoly offered by Intellectual Property Rights should prima facie not be violating the competition policies of the respective market.
In the modern dynamic economy, it is paramount for regulatory bodies such as the Commission to remain organic and responsive in their approach to deterring and penalising anti-competitive practices.
The jurisprudence of Competition Law will benefit from this order as it does not succumb to the whims of corporate giants but also does not turn a blind eye to reasonability in the course of penalisation.
-TEAM AMLEGALS, assisted by Ms. Kashish Gupta (Intern)
For any queries or feedback, feel free to get in touch with chaitali.sadayet@amlegals.com and mridusha.guha@amlegals.com.
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