Case Summary: Builders Association of India v. Cement Manufacturers Association & Ors. (2016) | Anti-Competitive Agreements

In one of the most significant cartelisation cases in India, the Builders Association of India (BAI) filed information under Section 19(1)(a) of the Competition Act, 2002 against the Cement Manufacturers’ Association (CMA) and 11 leading cement manufacturers, alleging anti-competitive practices in contravention of Sections 3 and 4 of the Act.

Title of Case: Builders Association of India v. Cement Manufacturers Association & Ors.

Forum: Competition Commission of India (CCI)

Date of Decision: 31 August 2016

Subject: Cartelisation, Price-fixing, Anti-competitive practices under Sections 3 and 4 of the Act

The Competition Commission of India (CCI), through its detailed and reasoned order, reaffirmed its previous findings of cartel conduct and imposed substantial monetary penalties.

Background and Procedural History

The case originated with a 2009 information filed by the BAI against CMA (OP-1) and major cement companies including ACC, Ambuja, UltraTech, India Cements, JK Cement, and others (OP-2 to OP-12). The Commission, after investigation, passed an order on 20.06.2012, holding the parties guilty of cartelisation under Section 3(3) and directed them to cease from anti-competitive practices. However, this decision was set aside by the Competition Appellate Tribunal (COMPAT) in December 2015, which remanded the matter back to the Commission for reconsideration and fresh adjudication following the law.

Informant’s Allegations

The BAI, representing the interests of builders and construction companies, alleged that:

• CMA and its members engaged in anti-competitive practices to fix cement prices, control supply, and manipulate production.
• The manufacturers, despite having surplus capacity, deliberately underutilised production to create artificial scarcity.
• They operated as a cartel under the umbrella of CMA, dividing India into zones to control market operations.
• Some companies like ACC and Ambuja, though they formally exited CMA, continued to participate in its activities, including price benchmarking.
• The alleged conduct had a direct impact on the construction and housing sectors, increasing costs and adversely affecting consumers.

Key Facts and Observations

Market Dominance and Price Patterns

• Despite a slowdown in the construction and real estate sectors post-2008, cement prices kept rising.
• Utilisation of installed capacity decreased despite increased demand and expansion of installed capacity.
• Operating Profit Margins (OPMs) remained high – over 26% in 2008-09 and increased further in subsequent years, indicating profiteering.
• There was no proportional increase in input costs to justify the hike in cement prices.
• Despite geographical dispersion and different costs of production, cement prices were increased simultaneously and uniformly across all five zones.

Collusive Conduct

OPs coordinated their actions by engaging in:

• Limiting supply.
• Fixing prices.
• Sharing sensitive business information.
• CMA played a key role in collecting and disseminating pricing, production, and dispatch data.
• The alleged 'benchmarking exercises' facilitated price parallelism.
• Despite government concessions (e.g., lower excise, energy prices), the cement companies raised prices in 2009-10.

Global History of Offending Conduct

ACC and Ambuja (Holcim Group), as well as Lafarge, had a history of being penalised for anti-competitive practices in other jurisdictions, strengthening the suspicion of habitual cartel behaviour.

Legal Framework

Section 3 of the Competition Act, 2002

Prohibits agreements that cause or are likely to cause appreciable adverse effects on competition (AAEC) in India.

Section 3(3) specifically deems certain horizontal agreements – including those for price-fixing, limiting production/supply, and market allocation – as presumed to have AAEC.

Section 4 of the Act

Prohibits abuse of dominant position by an enterprise or group.

Findings of the Commission

Violation of Section 3(3)

The CCI held that:

• The conduct of the Opposite Parties (OPs) was clearly collusive and amounted to cartelisation.
• The OPs acted in concert to manipulate prices and production, contrary to competitive market behaviour.
• The simultaneous price hikes, underutilisation of capacity, and high profit margins were unexplainable through market forces alone.
• Abuse of Dominance (Section 4)

Though Section 4 was invoked, the Commission did not proceed to record a separate violation under this provision, primarily because the evidence of cartelisation under Section 3(3) was sufficient for adjudication.

Role of CMA

• CMA acted beyond a trade association’s legitimate functions by facilitating anti-competitive conduct through data sharing and coordination.
• The CCI directed CMA to cease collecting and circulating pricing and dispatch data.

Penalty Imposed

Statutory Provision: Section 27(b)

Allows for a penalty of up to 10% of average turnover for the last 3 financial years, or 3 times of profit for each year of continuation of the cartel, whichever is higher.

Quantum of Penalty

• The Commission adopted a proportionate penalty approach, imposing 0.5 times the net profits of FY 2009-10 (from 20.05.2009) and FY 2010-11 for each cement company.
• CMA was fined ₹0.73 crore, being 10% of its average turnover.

Rationale Behind Penalty

The CCI emphasised that:

• Penalties must be commensurate with the gravity of the contravention.
• The objective is not merely punitive but also deterrent.
• The cement industry’s conduct not only harmed consumers but also undermined economic development, given cement’s critical role in infrastructure.

Significance of the Decision

• Landmark Enforcement: This case remains one of the largest and most high-profile cartel enforcement decisions by the CCI, both in terms of economic impact and penalty quantum.
• Role of Trade Associations: The decision laid down crucial guidance on how trade associations like CMA should operate to avoid facilitating anti-competitive behaviour.
• Pro-Consumer Outlook: The order strongly affirmed the CCI’s mandate to protect consumer interest and the economy at large.
• Precedent on Penalty Computation: The method of using net profits (0.5x) instead of turnover marked a calibrated but strict penalty approach, balancing fairness with deterrence.

Conclusion

The decision in Builders Association of India v. Cement Manufacturers Association & Ors. (2016) stands as a landmark judgment in the realm of Indian competition law. It reinforces the strict stance of the CCI against cartels, particularly in critical sectors like cement. By identifying patterns of collusive pricing, underutilisation of capacity, and artificial scarcity, the Commission upheld the importance of fair competition. The penalties imposed not only served justice in the case but also sent a powerful signal to industry players about the consequences of violating competition norms.

Click Here to Read the Official Judgment