IRAC method as a tool for legal analysis of a case stands for Issue, Rule, Application / Analysis, Conclusion. It is one way to structure legal analysis. An effective tool where it is organized around each of these elements for each and every issue and sub-issue (s) identified as a legal problem.

This method is used to analysis the present case:
All India Tyre Dealers’ Federation v/s Tyre Manufacturers
Citation No: 2013 COMP LR 92 (CCI) - Application No: MRTP Case - RTPE No. 20 of 2008 - Decided On: 30 October 2012
CCI Team: H.C Gupta (Member), Geeta Gouri (Member), M. L. Tayal (Member), S.N.Dhingra (Member) , Ashok Chawla (Chairperson) The President.

Facts
1. The present information was originally filed by the All India Tyre Dealers’ Federation (AITDF) against the tyre manufacturers before the Ministry of Corporate Affairs and the same was forwarded by the Ministry to the MRTP Commission (MRTPC). Consequently, due to the repeal of the MRTP Act, the matter was transferred to the Competition Commission of India (Commission) under section 66 (6) of the Competition Act, 2002 (‘the Act’).

2. In the said information dated 28.12.2007, AITDF alleged that the tyre manufacturers were indulging in anti-competitive activities. In the information, statements of Ministers of Finance and Corporate Affairs were quoted to indicate that the Ministers were also aware about the behavior of the tyre manufacturers.

3. It was alleged that the domestic tyre industry was the best example of indulgence in the anti-competitive activities and resorting to trade mal-practices. The tyre trade has been reeling under this exploitative behavior of these handfuls of domestic tyre majors. The domestic tyre industry, operating at 95%-100% capacity, on the back of almost 25% annual growth in the commercial vehicle population in last four-five years, has been working in union and usurping the excise duty reduction contrary to the interest of tyre users.

4. The AITDF alleged that since independence, the behavior of domestic tyre majors has been anti-competitive, anti-consumer and they have been indulging in various pricing and trade malpractices, which had a direct bearing on the revenue of the state exchequer.

5. The tyre majors are having a history of restrictive trade practices and even 35 years back the MRTP Commission had passed its first ‘cease and desist’ order against the cartelization by domestic tyre industry in October 1974. Hence, the domestic tyre industry has the ‘distinction’ of being indulgent in restrictive trade practices in the market and as a consequence creating a rift among the dealers and also creating a ‘creamy layer’ within the tyre trade and generally exploiting the tyre user by price rigging and strangulation of production and supplies.

6. AITDF also alleged that the truck and bus operators are not the only victim of their machination, but also the vehicle manufacturers like Tata Motors have been exploited in the recent past by the domestic tyre majors.

7. The AITDF submitted that they have been continuously feeding the concerned Central Ministries about the anti-trade, anti-consumer and restrictive trade practices of domestic tyre majors. The AITDF also approached the Competition Commission of India regarding the anti-competitive behavior of domestic tyre majors with a vide letter dated 09.06.2007.

8. Following the receipt of the information, the erstwhile MRTP Commission ordered an investigation into the matter. From the record, it appears that as the DG (I&R) could not complete the investigation when the MRTP Act, 1969 was repealed, the matter was transferred to the Commission.

9. The Commission considered the matter in its meeting and on carefully reading the material on record and after giving thoughtful consideration to all the facts and circumstances of the case, passed an order dated 22.06.2010 under section 26(1) of the Act directing the Director General (‘DG’) to conduct an investigation into the matter and submit a report. The order of the Commission specifically mentioned the five major domestic tyre manufacturing companies viz. Apollo Tyres Limited, MRF Ltd., Ceat Tyre Ltd., Birla Tyre Ltd. and JK Tyre Ltd.

10. In pursuance of the direction of the Commission, the DG conducted the investigation. During the course of the investigation, the DG issued notices to the following tyre manufacturers to seek information and to collect data:
(i) J K Tyre & Industries Ltd. (J K Tyre)
(ii) Apollo Tyres Ltd. (Apollo)
(iii) Birla Tyres (Unit of Kesoram Industries Ltd.)
(iv) Ceat Tyre Ltd. (CEAT) (v) MRF Tyres Ltd. (MRF)
(vi) Dunlop India Limited (Dunlop)
(vii) Goodyear India Ltd. (Goodyear)
(viii) Bridgestone India Private Limited (Bridgestone) (ix) Michelin India Tyres Pvt. Ltd. (Michelin)

11. Besides, the information was also collected from Original Equipment Manufacturers (OEMs), AITDF and Automotive Tyre Manufacturers’ Association (ATMA).

12. All the above said Tyre Manufacturing Companies, OEMs, AITDF, and ATMA gave a reply by providing their relevant data and everyone denied that there was no price fixing and they were not carrying out any illegal activity which is in contravention of Competition Act, 2002.

13. The DG carried out a detailed analysis of various economic factors like pricing, capacity utilization, cost of sales, sales margin, cost of production and market share and as well as the conduct of ATMA during the reference period of 2005 – 2010. Based on the analysis, the DG came to a conclusion that there existed a cartel amongst Tyre manufacturers and ATMA and that they were acting in concert to distort the domestic tyre market which was in direct violation of the provisions of the Competition Act.

Summary of findings of the DG:
(i) The tyre companies have not passed on the benefit of reduction in excise duty to the consumers
(ii) Price parallelism existed amongst the tyre companies.
(iii) The tyre companies have not reduced the Net Dealer Price (weighted price) in proportion to the actual production.
(iv) The tyre companies have not utilized their full capacity which resulted in limiting the supply.
(v) The companies have been able to earn positive margins in most of the period under investigation.
(vi) The tyre companies have been inflating some miscellaneous expenses into the cost of production to reduce the net profit margins. Similarly, the analysis also explains that the change in the price of natural rubber had no impact on the cost of production and therefore, it does not explain the possible reason for the increase in the price of tyres.
(vii) The tyre companies are operating on high margins and the same is not passed on to the consumers.
(viii) The five domestic tyre companies occupy about 95% of the market share of the total production. This high concentration made OEMs and the replacement market highly dependent on these companies.

14. Based on the above findings, the DG concluded that the major domestic tyre companies acted in concert and ATMA provided the platform to the members for exchange and sharing of information relating to price, export, import, OEMs etc. Thus, the DG concluded that ATMA and its five major domestic tyre manufacturing companies (Apollo, MRF, JK Tyre, Birla and CEAT) have acted in concert in contravention of the provisions of section 3(3)(a) and 3(3)(b) of the Act.

15. In reply to the contentions of the informant and the DG’s report, the Tyre Manufacturers and ATMA stated that the investigation by the DG lacked jurisdiction as the information which formed the basis of the above investigation was filed at the time when enabling provisions of the Competition Act were not in force.

16. Additionally, it was also contended by the Tyre Manufacturers and ATMA that the investigation in the above matter arose from a letter by the informant dated December 28, 2007, however, the DG has stretched the reference period to the year 2005 – 2010, which included the period before the date of the letter.

17. It was further contended by the Tyre Manufacturers and ATMA that the DG had adopted a theoretical approach and that the report was entirely based on circumstantial evidence and facts.

18. One of the Tyre Manufacturers also contended that the DH had adopted wrong economic principles of price parallelism and had not relied on any facts and figured submitted by the Tyre Manufacturers.

19. In addition to countering the contentions of the informant and the findings of the DG report, the Tyre Manufacturers also provided reasons for the price parallelism that exists in the Tyre industry. They also specified that the natural rubber prices are highly volatile and there are price fluctuations on a daily basis and this was the primary reason for the increase in tyre prices over the reference period.

Issues
In view of the contentions raised by the parties and the findings recorded by the DG, the following issues arise for determination:
(i) Whether the Commission has the jurisdiction to proceed with the matter under the provisions of the Competition Act, 2002?
(ii) Whether the tyre manufacturers have contravened the provisions of section 3 of the Act?
(iii) Whether Agreement can be inferred from circumstantial evidence?

Rules
S. 2 – Definitions
(b) “agreement” includes any arrangement or understanding or action in concert,—
(i) whether or not, such arrangement, understanding or action is formal or in writing; or
(ii) whether or not such arrangement, understanding or action is intended to be enforceable by legal proceedings;

S.3 – Anti Competitive Agreements

(1) No enterprise or association of enterprises or person or association of persons shall enter into any agreement in respect of production, supply, distribution, storage, acquisition or control of goods or provision of services, which causes or is likely to cause an appreciable adverse effect on competition within India.
(2) Any agreement entered into in contravention of the provisions contained in subsection (1) shall be void.
(3) Any agreement entered into between enterprises or associations of enterprises or persons or associations of persons or between any person and enterprise or the practice carried on, or decision taken by, any association of enterprises or association of persons, including cartels, engaged in identical or similar trade of goods or provision of services, which-
(a) directly or indirectly determines purchase or sale prices
(b) limits or controls production, supply, markets, technical development, investment or provision of services
(c) shares the market or source of production or provision of services by way of allocation of the geographical area of the market, or type of goods or services, or number of customers in the market or any other similar way;
(d) directly or indirectly results in bid rigging or collusive bidding shall be presumed to have an appreciable adverse effect on competition: Provided that nothing contained in this sub-section shall apply to any agreement entered into by way of joint ventures if such agreement increases efficiency in production, supply, distribution, storage, acquisition or control of goods or provision of services.

Explanation.—For the purposes of this subsection, “bid rigging” means any agreement, between enterprises or persons referred to in sub-section (3) engaged in identical or similar production or trading of goods or provision of services, which has the effect of eliminating or reducing competition for bids or adversely affecting or manipulating the process for bidding.

(4) Any agreement amongst enterprises or persons at different stages or levels of the production chain in different markets, in respect of production, supply, distribution, storage, sale or price of, or trade in goods or provision of services, including-
(b) exclusive supply agreement;
(c) exclusive distribution agreement;
(d) refusal to deal;
(e) resale price maintenance,
shall be an agreement in contravention of sub-section (1) if such agreement causes or is likely to cause an appreciable adverse effect on competition in India.

Explanation: For the purposes of this subsection-
(a) tie-in arrangement includes any agreement requiring a purchaser of goods, as a condition of such purchase, to purchase some other goods;
(b) exclusive supply agreement includes any agreement restricting in any manner the purchaser in the course of his trade from acquiring or otherwise dealing in any goods other than those of the seller or any other person;
(c) exclusive distribution agreement includes any agreement to limit, restrict or withhold the output or supply of any goods or allocate any area or market for the disposal or sale of the goods;
(d) refusal to deal includes any agreement which restricts, or is likely to restrict, by any method the persons or classes of persons to whom goods are sold or from whom goods are bought;
(e) resale price maintenance includes any agreement to sell goods on condition that the prices to be charged on the resale by the purchaser shall be the prices stipulated by the seller unless it is clearly stated that prices lower than those prices may be charged.

S. 26 – Procedure for inquiry under section 19

(1) On receipt of a reference from the Central Government or a State Government or statutory authority or on its own knowledge or information received under section 19, if the Commission is of an opinion that there exists a prima facie case, it shall direct the Director General to cause an investigation to be made into the matter.

Provided that if the subject matter of information received is, in the opinion of the Commission, substantially the same as or has been covered by any previous information received, then the new information may be clubbed with the previous information.

S. 66 – Repeal and savings

(6) All investigations or proceedings, other than those relating to unfair trade practices, pending before the Director General of Investigation and Registration on or before the commencement of this Act shall, on such commencement, stand transferred to the Competition Commission of India, and the Competition Commission of India may conduct or order for the conduct of such investigation or proceedings in the manner as it deems fit.

(3) All cases pertaining to monopolistic trade practices or restrictive trade practices pending (including such cases, in which any unfair trade practice has also been alleged), before the Monopolies and Restrictive Trade Practices commission shall, on the commencement of the competition Amendment Act, 2009 stand transferred to the Appellate Tribunal and shall be adjudicated by the Appellate Tribunal in accordance with the provisions of the repealed Act as if that Act had not been repealed.

Explanation- For the removal of doubts, it is hereby declared that all cases referred to in this sub-section, sub-section(4)and sub-section (5)shall be deemed to include all applications made for the losses or damages under section 12(B)of the Monopolies and Restrictive Trade Practices Act,1969 (54of1969) as it stood before its repeal.

Analysis
1st Issue:
As mentioned in the facts, The opposite parties have contended that present case arose before the MRTP Commission from the complaint of the AITDF dated 28.12.2007 referring to the alleged anti-competitive practices of the tyre manufacturing companies, the DG had no jurisdiction to extend the period of investigation beyond the year 2007 and his report is liable to be rejected on this ground only. It is also contended that the Act has no retrospective operation and as such, the Commission does not have the jurisdiction to look into the present matter. It is true that the present inquiry was instituted with reference to the allegations made in the year 2007. However, the DG has examined the conduct of the Opposite Parties from the year 2005-06 to 2009-10 and has found that alleged anticompetitive conduct of the parties which started prior to coming into force the relevant provisions of the Competition Act continued even after the date when these provisions were notified i.e., May 20, 2009.

No doubt the period of contravention of the provisions of the Competition Act, 2002 has to be reckoned only from the date of its enforcement but this does not imply that either the DG or the Commission cannot examine the conduct of parties post notification where the information/complaint was filed before the MRTP Commission. The Commission, while passing an order under section 26(1) of the Act, did not specify any period for the reason that at that stage, it would not be desirable to curtail the period of examination by the DG. As the proceedings before the Commission are inquisitorial in nature, it would not be appropriate to restrain the DG from fully examining the allegations of cartelization in the tyre industry. As such, it is difficult to agree with the submissions made by the opposite parties that the proceedings are vitiated on any of the grounds so urged. Given this fact, the plea of the opposite parties that the DG had no authority to examine their conduct for a period subsequent to the alleged period of contravention has no force and is liable to be rejected. The Commission is of opinion that the preliminary objections taken by the opposite parties regarding jurisdiction of the DG and/or the Commission are contrary to the scheme of the Act and the legal position on this aspect is quite clear.

In this regard, it is also noted that Hon’ble High Court of Delhi in, Interglobe Aviation Ltd. v. Competition Commission of India W.P. (C) 6805/ 2010 has held on a similar issue that where the investigation by the DGIR, MRTPC remained incomplete and the matter did not crystallize into a ‘case’ before the MRTPC, it was not incumbent on the DGIR, MRTPC to transfer the case to the Competition Appellate Tribunal and not to the Commission.

This view was reiterated by the Hon’ble High Court of Delhi in, Gujarat Guardian Ltd. v. Competition Commission of India W.P. (C) 7766 / 2010. The Delhi High Court rejected the arguments raised by the petitioner and held that This Court finds that since the investigation was incomplete the matter was rightly transferred to the CCI. On further consideration of the material on record the CCI formed a prima facie opinion to proceed under Section 26(1) of the CA. This was not contrary to Section 66(6) of the Competition Act, 2002. It is possible in the course of an investigation that the DG, CCI forms a prima facie opinion to proceed under the provisions of the CA, 2002 itself. There is no illegality per se in such action of the DG, CCI.

Furthermore, the Commission has not been conferred with any power to adjudicate any matter invoking the provisions of repealed MRTP, Act. This premise becomes clear when the provisions of section 66(6) are contrasted with the provisions of section 66(3) of the Act. Whereas the Competition Appellate Tribunal has been specifically conferred power to adjudicate cases pertaining to monopolistic and restrictive trade practices pending before the MRTP Commission in accordance with the provisions of repealed MRTP Act under section 66(3) of the Act, no such power has been given to the Commission under section 66(6) of the Act.
In the backdrop of the provisions of the Act as analyzed above, the Commission finds that there is no illegality in entertaining and examining the present case under the Competition Act, 2002 in which the investigation was pending before the DGIR, MRTPC before the MRTP Act was repealed. In this connection, a reference may be made to the decision of the Hon’ble High Court of Bombay in, Kingfisher Airlines Ltd. v. Competition Commission of India W.P. No. 1785/200, where it was held that though the Act is not retrospective, it would cover all agreements covered by the Act though entered into prior to the commencement of the Act but sought to be acted upon now i.e. if the effect of the agreement continues even after 20.5.2009. Thus, even in cases where the alleged anti-competitive conduct was started before coming into force of sections 3 and 4, the Commission has the jurisdiction to look into such conduct if it continues even after the enforcement of relevant provisions of the Act.

In the present case, practices of the parties alleged to be anti-competitive have been found by the DG to be still continuing and there is nothing on record to contradict the same. Accordingly, the Commission is of the considered view that in the light of legal position as discussed above, there is absolutely no illegality in the proceedings in the present case and the arguments and the contentions of the parties on this aspect have no force. As has been seen above, the Commission does not have the power to adjudicate any matter invoking the provisions of the repealed MRTP Act, therefore, in the present matter the relevant period for the purposes of determining the contravention of the parties under inquiry will commence only from the date of enforcement of section 3 of the Act.

In view of the aforesaid and after dealing with the jurisdictional issues, the Commission proceeds to deal with the substantive issue arising for determination in the present case.

2nd Issue:
The commission examined this aspect as trade association can as observed in other cases, be an active facilitator for cartel behavior. Tyre manufacturing firms have an association under the name Automotive Tyre Manufacturers’ Association (ATMA) as the representative body of the automotive tyre industry in India. All five large tyre companies representing over 90% of the production of tyres in the country are its members. ATMA was set up in 1975 and is registered under the Companies Act. The evidence gathered by the DG has shown that they frequently meet at the platform of ATMA to discuss and perhaps even share sensitive business information. The Association also regularly publishes data on production and export of various categories of tyres. Besides, the Association prepares status notes on various subjects which are of relevance to tyre industry, such as, Tyre Retreading Industry, Regional Trade Agreements & Rules of Origin, Anti-Dumping, etc.

These facts are corroborated from the information available on the website of ATMA. The information available there also proclaims that with the guidance of the Managing Committee the ATMA functions through various committees set up, consisting of different disciplines, such as Marketing, Export, Purchase (Raw Material), Taxation, Technical, etc. Thus, it is noticed that the firms have an active trade association engaged in the above activities. Thus, it is seen that there are some factors which may be conducive to cartelization but they may be diluted due to other factors as has been pointed out in the above discussion. The fact that market concentration is very high with entry barriers and the product is homogenous, support cartel formation, but high bargaining powers of OEMs due to the volumes, options to replacement consumer to retread, increasing radialization, imports effectively being cheaper even in the brief period of anti-dumping duty goes against sustaining a cartel structure. A conclusive finding, however, can only be made after considering other evidence including circumstantial pieces of evidence.

3rd Issue:
A lot has been made by the opposite parties of the fact that the DG has failed to gather any direct evidence to support his findings. Reliance is also placed upon a decision of the Commission in the case of Neeraj Malhotra v. Deutsche Post Bank, Case No. 05 of 2009 to contend that to establish a finding of infringement under section 3(1) read with 3(3) of the Act, the agreement must be established unequivocally. In view of the provisions of the Act, as highlighted below, in this respect, the Commission observes that the plea is misconceived.

The term agreement itself is defined in section 2 (b) of the Act. For felicity of reference, the same is quoted below:
Section 2(b). "agreement" includes any arrangement or understanding or action in concert,-
(i) whether or not, such arrangement, understanding or action is formal or in writing; or
(ii) whether or not such an arrangement, understanding or action is intended to be enforceable by legal proceedings;

It may be noticed that the definition of the term ‘agreement’ as given in the Act includes any arrangement or understanding or action in concert whether or not formal or in writing or is intended to be enforceable by legal proceedings. Clearly, the definition which is inclusive and not exhaustive is a wide one. The agreement does not necessarily have to be in the form of a formal document executed by the parties. Thus, there is no need for an explicit agreement for the existence of an ‘agreement’ within the meaning of the Act.

The same can be inferred from the intention or conduct of the parties. In the cases of conspiracy or existence of any anti-competitive agreement, proof of formal agreement may not be available and the same may be established by circumstantial evidence alone. The concurrence of parties or the consensus amongst them can, therefore, be gathered from their common motive and concerted conduct.

The Commission observes that the existence of a written agreement is not necessary to establish a common understanding, common design, common motive, common intent or the commonality of approach among the parties to an anti-competitive agreement. These aspects may be established from the activities carried on by them, from the objects sought to be achieved and evidence gathered from the anterior and subsequent relevant circumstances. Circumstantial evidence concerning the market and the conduct of market participants may also establish an anti-competitive agreement and suggest concerted action. Parallel behavior in price or sales is indicative of coordinated behavior among participants in a market.

No doubt the parties to such an agreement may offer their own sets of explanations behind the existence of circumstantial evidence. However, it also remains a fact that parties to an anti-competitive agreement will not come out in open and reveal their identity to be punished by the competition agencies. This is also the reason that the legislature in its wisdom has made the definition of agreement inclusive and wide enough and not restricted it only to documented and written agreement among the parties.

Thus, the Commission is not impeded from using circumstantial evidence for making inquiries into the act, conduct, and behavior of market participants. The competition agencies in other jurisdictions have also taken cognizance of circumstantial evidence while inquiring and establishing contravention in cases involving anti-competitive agreements. While noting that the legal system/framework, market structure, firm/consumer behavior etc. differs from jurisdiction to jurisdiction, the Commission finds that the basic competition principles are by and large applicable across jurisdictions.

It is no doubt true that as held by the Commission in Neeraj Malhotra case (supra), an agreement must be established unequivocally. That, however, is not to suggest that an agreement can be established only through direct evidence. As discussed above, circumstantial evidence is of no less value than direct evidence as the law makes no distinction between the two. The Commission is not oblivious of the fact that the anticompetitive conspiracies are often hatched in secrecy. The firms engaged in anti-competitive activities are not likely to leave any trace evidencing the same. Therefore, in the absence of any direct evidence of agreement among the conspirators, circumstantial evidence is required to be looked into. If direct evidence is not present, but circumstantial evidence does indicate harm to the competition at a market place, the Commission will certainly take cognizance of the same. The Commission also observes that among a set of circumstantial evidence, evidence of communication among the participants to an anti-competitive agreement may give an important clue for establishing any contravention. Communication evidences might prove that contravening parties met and communicated with each other to determine their future or present behavior.

On the issue of price parallelism specifically, the CCI was of the opinion that in certain instances, price parallelism may be dictated solely by economic reasons and that t is not a violation of the Competition Act if it does not the result from concerted action. The CCI weighed various parameters and held that the presence of other factors such as the bargaining power of the OEMs, who constitute a majority of the customer base and the options to replacement consumer to retread diluted the factors suggesting collusive actions. It also held that the levy of anti-dumping duty on the imported tyres suggested that cheaper options were available.

In view of the above and taking into consideration the act and conduct of the tyre companies/ ATMA, it is safe to conclude that on a superficial basis the industry displays some characteristics of a cartel there has been no substantive evidence of the existence of a cartel. As a tradable the industry has always been open to competitive threats from imports. The Commission holds that the available evidence does not give enough proof that tyre companies/ ATMA acting together have limited and controlled the production and price of tyres in the market in India.

Conclusion
The Competition Commission Of India (CCI) concluded that there was not enough substantial evidence to corroborate the DG’s report or to support a finding that the Tyre Manufacturers had engaged in cartelization. On the contention of the Tyre Manufacturers that there needs to be an explicit agreement to establish cartelization, the CCI held that certain industries provide a structural basis that is conducive for cartelization and that that tyre industry in India, being highly oligopolistic and concentrated in nature, having entry barriers and a homogenous product is conducive for cartelization but there are other factors that dilute the above structure and create conditions which do not sustain the maintenance of a cartel.

The Commission was of the opinion that price parallelism per se may not violate the provisions of the Act and that in certain cases price parallelism could have been dictated solely by economic reasons and that it was not a violation of the Competition Act if it does not result from the alleged concerted action. The Commission also weighed various parameters and held that the presence of other mitigating factors such as the bargaining power of the Original Equipment Manufacturers known as the OEMs, who constitute a majority of the customer base, and the options to replacement consumer to retreat diluted the factors suggesting collusive actions. It also held that the levy of anti-dumping duty on the imported tyres suggested that cheaper options were available and hence the existence of cartel cannot be established.