As rightly pronounced by Adam Smith “people of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.” In India, cartels are present in both the manufacturing and service industries, indicating the scandalous interconnection between legislators and capitalists.
For alleged cartelization in the sale and supply of beer, the competition watchdog, the Competition Commission of India (CCI) has levied fines of Rs 873 crore on United Breweries Limited (UBL) and Carlsberg India Pvt Ltd (CIPL). All India Brewers Association (AIBA), and eleven other individuals were also penalized for their connection in organizing talks between beer companies on different matters including pricing. Anheuser Busch InBev India was also unearthed to be a component of the cartel fixing beer prices but did not face a penalty as it was the first entity to give main proof in the inquiry.
The CCI found UBL, CIPL and SABMiller India Limited to have been involved in price coordination, delivery constraints, and market share in various states in violation of the law. In 2016, SABMiller India was acquired by Anheuser Busch InBev and renamed Anheuser Busch InBev India Limited.
All three companies -- UBL, CIPL, and AB InBev -- had requested a decrease in fine. However, AB InBev justified the nature of the cartel or lobby and offered proof of email correspondences between central administrative personnel at an initial phase in the investigation. Therefore, the CCI granted the benefit of a complete reduction in penalty for the company. The CCI granted a 40% decrease to UBL and a 20% decrease to CIPL for cooperation with the inquiry. Thus, the final penalty levied on UBL and CIPL was around Rs 752 crore and Rs 121 crore, respectively. A penalty of more than Rs 6.25 lakh has been levied on AIBA, and different individuals have also been penalized by the competition governing body.
Hangover of price-fixing
The era of cartelization was believed to be from 2009 to at least October 10, 2018, with CIPL uniting in from 2012 and AIBA aiding as a podium for enabling such cartelization since 2013. The CCI, which maintains a check on unjust trade conducts across sectors, ordered a comprehensive examination by its investigation arm, the Director-General in October 2017. The matter was considered suo motu by the watchdog respecting a filing of a request as per Section 46 of the Competition Act by Crown Beers India Private Limited and SABMiller India Ltd, both eventually owned by Ab InBev, against UBL, CIPL, and AIBA in July 2017.
According to the source, the DG conducted search and seizure processes at the locations of the beer firms on October 10, 2018. During the investigation, the DG discovered constant correspondences between the three companies to organize price hikes tendered to state authorities for sanction. The inquiry unearthed that chief managerial persons emailed contenders about the price hikes they were planning to propose to state authorities in different states and sought to organize price hikes.
The entities were found to have been involved in “price management” in Andhra Pradesh, Karnataka, Maharashtra, Odisha, Rajasthan, West Bengal, National Capital Territory of Delhi, and Union Territory of Puducherry. In the case of Maharashtra, the CCI discovered that price modification by UBL and AB InBev since 2011 disclosed an “uncanny closeness” in timing with Carlsberg India also joining hands with the two firms in creating price adjustments around the same time since April 2014. The regulator uncovered that beer firms organized reductions in the supply of beer in Odisha, Maharashtra, and West Bengal to resist decisions by State governments to raise excise duties or decrease the price of beer.
Representatives of the beer firms held negotiations among themselves about potential estimates and the way forward with state excise departments and used to meet with excise authority under the parasol of the AIBA so that they would have a superior probability of getting the planned price upsurges permitted. The CCI also mentioned manifold examples of the companies making identical price modifications for competing merchandise. The CCI also discovered that UBL and AB InBev had contracts on the price at which they would buy used bottles from bottle collectors for reprocessing at their breweries.
Responding to the action of the CCI, numerous key administrative workforces from the beer business units cited the necessity to obtain consents from State authorities for any price amendments as the main motive for the need for harmonization among competitors. For instance, an executive of UBL said that as price alterations were only allowed on three particular dates in a year in Karnataka, contenders would exchange notes and price main goods similarly to guarantee that they do not incur huge losses as a consequence of this policy. Emphasizing the point that the final price of their products was subject to the consent of the State establishments, the UBL also mentioned that draconian regulations and customs followed by the States make it impracticable for beer establishments to compete in the normal course of business. Nevertheless, the CCI observed that such policies of the State cannot be utilized as a vindication for entering into price-fixing by the businessmen.
Lesson not learned
Earlier in 2016, the CCI had slapped Rs 6,300 crore penalty on eleven leading cement companies – Ambuja Cements Ltd., ACC Ltd., Jaiprakash Associates Ltd., Cement Manufacturers’ Association, Century Textiles & Industries Ltd., The Ramco Cements Ltd., J.K. Cement Ltd., The India Cements Ltd., Ultra Tech Cement Ltd., Nuvoco Vistas Corporation Ltd. and Binani Cement Ltd. for cartelization of cement prices. Although all the above companies filed the appeals, the National Company Law Appellate Tribunal (NCLAT) has upheld the penalty imposed by the CCI by way of the judgment dated 25 July 2018. The NCLAT also defined the term ‘relevant market’ although the Supreme Court has clarified that the determination of the ‘relevant market’ is not a mandatory pre-condition for undertaking an assessment. Unfortunately, beer manufacturers have not learned a lesson from this incident.
To conclude, for cartels, the law of the land prescribes a penalty of up to three times its profit for each year of the continuance of such an agreement or 10% of the turnover for each year of the continuance of such an agreement, whichever is higher. This has to be observed very strictly. The Centre and the State governments should establish a regulator for the beer business. Or else the beer cartel will be untouched by any law in India and rear its ugly head from time to time. The dirty lobby between our politicians and industry will continue promoting unethical practices and this association will torture our economy.
(The writer is a financial and tax specialist, author and public speaker based in Goa. He can be reached at 9822983420 or email@example.com)