Competition Commission of India

MRTP Case: RTPE No. 20 of 2008

Dated: 30.10.2012

All India Tyre Dealers Federation Informant

Tyre Manufacturers Opposite Party

Order under Section 27 of the Competition Act

As per R.Prasad (Minority)

This case has arisen out of information submitted by the All India
Tyre Dealers Federation (AITDF) against the manufacturers of tyres.
Incidentally Shri S. P. Singh Convener of AITDF on 28.12.2007 had
submitted a complaint to the Minister of Corporate Affairs for probing
cartels in transport and tyre. It was stated in the complaint that the tyre
dealers have been witnesses to the trade activities of the domestic tyre
industry. It was alleged that the tyre dealers did not fix the prices of
tyres and that pricing and distribution policies were under the strict
domain of each individual tyre manufacturer. It was also alleged that
since independence, the domestic tyre majors have indulged in
anticompetitive, antitrade and anti-consumer practices. For this reason,
the MRTP Commission probed the activities of the trade and issued a
‘cease and desist’ order against cartelisation by the tyre manufacturers.
It was further stated that the tyre manufacturers had indulged in price
rigging and strangulation of production and supplies. It was also alleged
in the information that the domestic tyre industry was operating at 95%
to 100% capacity due to demand in the last four-five years and that the
entire excise duty reduction allowed by the government had been usurped
by the tyre manufacturers and that nothing had been passed on to the
consumers. It was also alleged that the tyre manufacturers had a ‘falcon
like grip’ on the government departments. On this very issue AITDF had
approached the Competition Commission of India. AITDF agreed to assist

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the authorities in the investigation of anticompetitive practices carried out
by the tyre manufacturers. The Minister for Corporate Affairs sent the
complaint to the MRTP Commission in early 2008. The MRTP Commission
directed the Director General (I&R) to investigate the case.

2. Shri S.P. Singh, Convenor AITDF met the Member, Competition

Commission of India in June 2007 and in a written complaint alleged
collusive pricing, tax avoidance and various trade malpractices. It was
stated that these anticompetitive practices have existed in the tyre trade
since independence in 1947. The manufacturers in that period were
Dunlop India Ltd., Goodyear India Ltd., Firestone Tyre and Rubber Ltd.
and India Super Tyre Ltd. The government set up a Tariff Commission on
Fair Prices of Rubber tyres and tubes in 1952 which in its report
submitted in 1955 blamed the tyre companies for concerted price
increases and anticompetitive activities. On the basis of this report, the
government allowed the import of truck/bus tyres. It has been stated in
the complaint that in 1959, the government permitted setting up of tyre
factories by Mansfield Tyres Ltd. (now MRF Ltd.), Inchek Tyres Ltd. (now
Tyre Corporation of India), Premier Tyres Ltd. (taken over by Apollo Tyres
Ltd.) and Ceat Tyres Ltd. As now there were eight players in the tyre
market, the government stopped the import of tyres. An allegation has
been made that these tyre companies along with the earlier four also
started indulging in anticompetitive practices. In the consequence, the
transport operators approached the MRTP Commission and the
Commission after inquiry came to the conclusion that the tyre companies
were indulging in anticompetitive activities. The Commission therefore
passed a ‘cease and desist’ order in 1974. Subsequently the Ministry of
Industry examined the price structure of the tyre industry and came out
with a ‘Tyre Price Control’ order. In 1976-77, four new tyre units – Apollo
Tyres Ltd., J.K.Tyres Ltd., Modi Rubber Ltd. and Vikrant Tyres Ltd.
entered the field of tyre manufacture. But after the stabilisation of
production, these four companies along with the other eight companies
started indulging in anticompetitive prices. The Ministry of Industry
seeing frequent increase in the prices of tyres referred the issue to the
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Bureau of Industries Costs and Prices. Further, whenever there was a
hue and cry over the rise in tyre prices, the Ministry referred the issues to
the Bureau & Industrial Costs and Prices. It was also stated that the
Association of State Transport and Undertakings also went to the MRTP
Commission against price rigging by the tyre manufacturers. AITDF has
alleged under invoicing, tax avoidance and doctored financial results by
the tyre majors. Around 1991, the government delicensed the tyre
industry and four more manufacturers entered the fray especially
Bridgestone and Birla Tyres. For sometime competition existed in the
industry. This led to the exit of Dunlop India, Modi Rubbers Ltd., Tyre
Corporation of India, Vikrant Tyre and Modistone. The market share of
these companies went to Apollo Tyres, MRF, Ceat, J.K. Tyre and Birla
Tyre. In the Finance budget of 2003, the excise duty was reduced from
32% to 24% and in 2004 budget from 24% to 16%. But the benefits of
excise duty were not passed on by the companies to the consumers. In
fact the excise duty on tyres was reduced from 66% to 16% but the
consumers did not benefit. The tyre companies through ATMA moved the
Anti Dumping Authority to levy Anti Dumping Duties on imports from
Thailand and China. This was done in 2005 and the Designated Authority
under the Anti Dumping rules by an order in 2007 held in the favour of
the tyre companies and recommended antidumping duties on import of
LUG tyres from China and Thailand. This order was confirmed in appeal.
But when the tyre companies through ATMA moved the authority again in
the case of radial tyres in the year 2010, the Designated Authority again
levied the Anti Dumping Duty but CESTAT setaside the said order in 2011.
The informant has also alleged that tyre prices were increased when the
rubber prices went up but were not reduced when the rubber prices fell.
It was, therefore, stated that the profits of the tyre companies went up
exponentially in the last four to five years. AITDF wanted the
antidumping duty on imports be removed.

3. As the investigation by the D.G. (I&R) MRTP Commission could not

be completed when the MRTP Act was repealed, under the provisions of
Section 66(6) of the Act, the case was transferred to the Competition
3
Commission of India. The Commission considered the issue in an
ordinary meeting on 22.06.2010. The Commission held that antidumping
duty may be restricting competition in the market. The Commission also
considered that as the issue was before D.G. (I&R), the Commission
considered it fit to continue the investigation. It, therefore, referred the
issue to the Director General for investigation under Section 26(1) of the
Competition Act. The Commission has referred to five tyre companies
namely Apollo Tyres Ltd., Ceat Tyre of India Ltd., J.K. Industries Ltd.,
Kesoram Industries Ltd. and MRF Ltd in its direction under 26(1) of the
Act.

4. The Director General (D.G.) considered the cost of production,

antidumping duty order and a report conducted by JNU on a reference by
the CCI. In addition to above named five tyre companies, some other
tyre companies, AITDF and Automotive Tyre Manufacture Association
(ATMA) were contacted by the D.G. and details were obtained.

5. The D.G. then considered the fact that the tyre manufacturers in
India made tyres for trucks, buses, cars, jeeps, heavy duty equipment
tractors, two wheelers and three wheelers etc. In his view, the tyre
industry is directly related to economic development and growth. He has
held that in buses and trucks two types of tyres are used (i) bias i.e.
diagonal or cross ply tyres (ii) radial tyres. The cars are using radial tyres
but in buses and trucks bias tyres are being used though there is a
tendency to increase the use of radial tyres. The tyres are being sold
separately or along with tubes and flaps. The flaps are used between
tube and the wheel rim to prevent tube burst. But slowly the use of
tubeless tyres is being promoted. The D.G. has held that the tyre market
consists of (i) Original equipment manufacturers (OEM) (ii) replacement
market (iii) export segment and (iv) State Transport Undertakings. Tyres
for buses and trucks mainly radial tyres were being imported whereas
cross ply tyres were being exported from India.

6. The D.G.’s main aim was to examine whether the tyre

manufacturers have entered into a cartel. As it was not possible to
4
examine cartelisation in all the products, the D.G. considering the
commercial utility of truck and bus tyres, limited his investigation mainly
to bias tyres. In his view the bias tyres of different companies are
consumed in large quantities and are substitutable and identical. He
therefore considered these tyres for his analysis. Out of the bias tyres
the tyres selected by him are as under:

Company Tyre (LUG)

Apollo 10.00 – 20 16XT-7

Birla 10.00 – 20 16 PR LUG BT 112

MRF 10.00 – 20 SL 50 Plus N 16 LUG

Ceat 10.00 – 20/16 HCL Super LUG

J.K. Tyre 10.00 – 20 6 JTK LUG

7. During the course of the examination, the D.G. took responses from
the following Cos.

(i) MRF Ltd. (MRF)

(ii) Apollo Tyres Ltd. (Apollo)

(iii) Ceat Tyres Ltd. (Ceat)

(iv) Birla Tyre Ltd. (Birla)

(v) JK Tyre Ltd. (JK)

(vi) Dunlop India Ltd. (Dunlop)

(vii) Goodyear India Ltd. (Goodyear)

(viii) Bridgestone India Pvt. Ltd. (Bridgestone)

(ix) Michelin India (Michelin)

8. The D.G. then examined the submission of J. K. Tyres Ltd. and he

considered the installed capacity and actual production as well as the
production of BIAS and radial tyres. They are reproduced as follows:-

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 Capacity Utilization (Nos in lacs)
YEAR Installed Actual Utilisation % Increase/
Capacity Production decrease from
(Qty in Nos) (Qty in Nos) % previous year
2002-03 56.56 49.59 87.7% 13.3%
2003-04 60.55 53.96 89.1% 8.8%
2004-05 62.96 56.15 89.2% 4.1%
2005-06 62.96 63.61 101.0% 13.3%
2006-07 75.98 70.33 92.6% 10.6%
2007-08 87.00 75.26 86.5% 7.0%
2008-09 87.93 74.86 85.1% -0.5%
2009-10 91.44 79.31 86.7% 5.9%

Truck/Bus Tyre Production (Nos. in lacs)

YEAR Total Production Qty Exported to the total
Production
Bias Radial Bias Radial
(Qty in Nos.) (Qty in Nos.) (Qty in Nos.) (Qty in Nos.)
2005-06 26.44 2.69 5.81 0.69
2006-07 26.33 3.22 6.07 0.6
2007-08 25.43 3.52 6.62 0.55
2008-09 23.10 3.85 4.95 0.08
2009-10 21.62 6.62 3.96 0.09

It was stated by J.K. Tyres Ltd. that it fixed its selling price on the basis of
demand and supply, cost of production, selling expenses and the
competitive position of the company. It was also stated that OEM buyers
like Tata Motors and Ashok Leyland are bulk buyers and are able to
dictate prices. It was stated that some time sales were made to OEM
buyers at a loss.

9. In the case of Apollo Tyres Ltd., the details of capacity utilisation,

production and export for different years as submitted by the Company is
as follows:

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 Capacity Utilization
(Nos. in Lacs)
Particulars Installed Actual Utilization % % increase/
Capacity Production decrease from
(Qty in Nos.) (Qty in Nos.) previous year (over
actual production)
2005-06 7,934,272 7,029,973 89% 18%
2006-07 8,822,612 7,841,008 89% 12%
2007-08 9,656,232 8,867,443 92% 13%
2008-09 9,896,725 8,592,050 87% -3%
2009-10 13,153,934 10,528,299 80% 23%

Production & Export (Nos. in lacs)

Year Production Export
(Qty) (Qty)
Truck Bus Truck Bus Truck Bus Truck Bus
bias Radial bias Radial
2005-06 3,176,419 - 462,330 -
2006-07 3,320,281 5,827 435,020 -
2007-08 3,542,572 35,164 423,936 -
2008-09 3,217,476 68,072 361,980 -
2009-10 3,744,803 81,157 325,030 -

Apollo Tyres Ltd. also gave details of Cost of Production as follows:

Cost of Production

Year Cost of Production

(Rs. Per Unit)
10.00-2016 Amar (in Rs.) 10.00-2016 XT-7 (in Rs.)
2005-06 4674 5144
2006-07 5343 5998
2007-08 5184 5718
2008-09 6206 6612
2009-10 6047 6356

It was stated by Apollo Tyres Ltd. that the price of the tyres was fixed on
the basis of six factors which are (i) desired market share (ii) desired
product positioning (iii) strategic intent of the products (iv) cost inputs of
the products (v) target returns on investment and (vi) financial
fluctuations.

10. Birla Tyres Ltd. submitted to the D.G. details of capacity utilisation
which are as under:-

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 (No. of tyres in Lacs)
YEAR Installed Capacity Actual Production Utilisation
(Qty) (Qty) % (Truck
(Truck Tyres) (Truck Tyres) Tyres)
2004-05 10.66 9.98 93.62
2005-06 11.66 10.58 90.74
2006-07 13.08 11.75 89.83
2007-08 14.58 14.24 97.67
2008-09 13.80 11.26 81.59
2009-10 13.80 14.43 104.57
Increase 29.46 4.59
%age

Birla Tyres Ltd. also stated that raw materials constituted 85% of the cost
of production. Details of raw materials consumed and increase in their
costs are given as below:

% of total RM 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 %

consumption increase
form
2004-05
Natural 42.05 65.82 69.73 95.41 97.24 117.82 110.90 68.49
Rubber
Synthetic 12.06 81.26 100.60 101.03 100.46 159.38 136.46 67.93
Rubber
Carbon 11.04 28.41 32.78 41.74 40.07 54.09 53.02 86.62
Black
Fabric 20.01 170.14 196.54 178.08 171.24 215.84 218.26 28.29
Total 85.16 50.06

It was stated on behalf of Birla Tyres Ltd. that as a percentage of exports/

turnover is falling over the years. This means that the exports of the
company are stagnant in the different years though the turnover had
increased over these years.

11. Ceat Ltd. also submitted the details of capacity utilisation to the
D.G. which are as follows:-

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 Capacity Utilization

Year Plant Installed Actual Utilization %

Capacity Production (%) Increase/decrease
from previous year
2005-06 Nasik 4,310,930 3,864,051 90%
2006-07 Nasik 4,310,930 3,925,091 91% 1%
2007-08 Nasik 4,542,220 3,768,703 83% -8%
2008-09 Nasik 4,542,220 3,411,444 75% -8%
2009-10 Nasik 4,726,048 3,820,647 81% 6%

The details of Tyre Production and export by Ceat Ltd. as submitted are
as follows:-

Tyre Production and export

Year Total Production Qty exported of the total Production
Bias Radial Bias Radial
2005-06 1,771,797 0 495,896 0
2006-07 1,820,828 0 385,068 0
2007-08 1,875,991 0 485,964 0
2008-09 1,737,233 0 340,170 0
2009-10 1,958,922 0 364,233 0

12. The D.G. collected data from MRF Tyres Ltd. regarding installed
capacity which are as under:-

Installed Capacity Actual Production

Year Bias Radial Total Bias Radial Total Utilis % Increased/
ation Decreased
% from previous
year
2005-06 2973333 233333 3206666 2329968 65268 2395236 74.7
2006-07 3192223 168000 3360223 2597438 66170 2663608 79.27 4.57
2007-08 3095540 197502 3293042 2611930 92803 2704733 82.13 2.86
2008-09 3068889 286458 3355347 2630853 81932 2712785 80.85 -1.28
2009-10 3235052 334105 3569157 2957026 220795 3177821 89.04 8.19

The details of production and exports were submitted which are as under:

Production and export

Year Total Production Qty exported of the total Production
Bias Radial Bias Radial
2005-06 2329968 65268 419760 55020
2006-07 2597438 6170 440453 41443
2007-08 2611930 92803 402294 34182
2008-09 2630853 81932 347754 20562
2009-10 2957026 220795 424142
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It was stated on behalf of MRF Ltd. that the selling price for the
replacement market is the net billing price minus the discount reflected in
the invoice.

13. The D.G. also collected data from Dunlop India Ltd. but as Dunlop
India was not in production for a number of years and as it is only a
fringe player in the tyre market, there is no necessity to examine this
data.

14. Goodyear India Ltd. is a world major in the tyre business. In India it
has been active for many years but it has hardly expanded its capacity
and remains a small player. The details of Capacity Utilisation of Truck
and Bus Tyres of Goodyear India Ltd. as submitted by it as follows:-

Year Installed Actual Utilization % Increase/

Capacity Production % decrease from
(Nos.) (Nos.) previous year
(Actual Production)
2005 363600 337516 92.83% -4.50%
2006 300200 271344 90.39% -19.61%
2007 300200 282901 94.24% 4.26%
2008 203319 187107 92.03% -33.86%
2009 155450 147918 95.15% -20.94%
2010 (Ytd 90871 74031 81.47% -49.95%
Oct 2010

The details of production and exports of Goodyear India Ltd. are as

follows:-

Production and export

Year Total Production Qty exported of the total Production
Bias Radial Bias Radial
2005 337516 NIL 56104 NIL
2006 271344 NIL 17832 NIL
2007 282901 NIL 26118 NIL
2008 187108 NIL 30201 NIL
2009 147918 NIL 32013 NIL
2010 (Ytd 74031 NIL 23009 NIL
Oct 2010

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15. Bridgestone India Ltd. is a subsidiary company of Bridgestone
Corporation, Japan, one of world’s topmost manufacturers of tyres. It
does not manufacture any truck or bus tyre in India but it imports these
tyres from Japan and Thailand. As this investigation is limited to the
anticompetitive practices followed in the production of bus and truck
tyres, the data in respect of Bridgestone is not required to be looked into.
But now Bridgestone India is setting up a large unit for the manufacture
of radial tyres in Maharashtra in Pune which is likely to be operational
from the end of 2012.

16. Michelin India Ltd. is a subsidiary of world major Michelin. It does

not manufacture any tyre in India but it imports and sells the same in
India. The import consists of bus and truck radial tyres, two wheelers and
earth mover tyres. It operates primarily in the replacement market. But
Michelin is setting up a large manufacturing unit mainly of radial tyres in
Tamilnadu with an investment of over Rs. 4000 crores.

17. The D.G. obtained responses from the Original Equipment

Manufacturers (OEM) players which are mainly Tata Motors, Eicher Motors
and Ashok Leyland. The OEM players source their tyres from domestic
tyre manufacturers or imports from other countries. The OEMs procure
tyre at a price lower than the replacement market because of the high
volume of purchase.

18. The DG also examined the information provider i.e. AITDF. The
allegations made by the information provider in the original petition were
repeated before the DG and there is no necessity to reproduce the same.

19. The DG also collected materials from Automotive Tyre Manufacture

Association i.e. ATMA. The DG collected the minutes of the meetings from
the Association. The main objectives of the Association are (i) to foster
and promote cooperation amongst the members (ii) to provide a meeting
place of the tyre manufacturers (iii) to arrange and provide facilities of
conferences, exhibitions, demonstrations, lectures, excursions etc.
(iv) to collect, analyse and circulate information and statistics to a

11
 different members of the Association (v) to inform and educate the
general public regarding the tyre industry and (vi) to provide facilities and
machinery for settlement of disputes among the members. The
Association is a Section 25 Company under the Companies Act, 1956..

20. The DG then carried out an analysis of the price data of the five
domestic tyre manufacturing companies i.e. MRF, J. K. Tyre, Birla, Ceat &
Apollo. The DG observed that the major component of the price of the
tyres was the cost of natural rubber and excise duty. Natural rubber
accounts for 43% of the total tyre production cost. Central excise duty
has been reduced over a period of time and during the years under
consideration they were 16% which was reduced to 10% in 2008, further
reduced to 8% in 2009 and increased to 10% in 2010. As far as rubber
prices are concerned they were worked out on weighted average though
there was a decline in prices to Rs. 97/- per kg. in the year 2009. The DG
then examined the net the prices of the five specific lug tyres selected by
him and the prices are reproduced as under

2005 2006 % 2007 % 2008 % 2009 % 2010 %

change change change change change
Apollo 8717 9793 12.34 10364 5.83 10701 3.25 10309 -3.66 10640 3.21
Birla 8057 8968 11.30 9506 5.99 9789 2.97 9280 -5.19 10091 8.73
MRF 8461 8992 6.27 9465 5.26 9973 5.36 9792 -1.81 10475 6.97
CEAT 7880 8720 10.65 9180 5.27 9718 5.86 9161 -5.73 10660 16.36
J.K.Tyre 7800 8904 14.15 9156 3.13 9612 4.98 9122 -5.10 10248 12.34

The DG observed that during the five-year period 2005 - 2010 the net
dealer prices of Apollo tyres was the highest. According to the DG this
showed that Apollo tyre was the market leader. The DG took the net
dealer prices and on the basis of weighted averages, he found that the
movement of net dealer price in terms of actual quantum as well as
percentage change was found to be similar in all the cases. In his view
the net dealer prices showed upward and downward correlation among
the five tyre manufacturers. He also found that in all the years Apollo
Tyres charged a price higher than that charged by the other tyre
companies. He also found that the other tyre companies had prices in the
same band. For this reason the DG came to the conclusion that price

12
 parallelism existed among the five tyre manufacturing companies.

21. The DG then examined the actual production of the lug tyres by the
five companies and the results are reproduced as under:
Actual Production by domestic tyre companies

Company 2005-06 2006-07 2007-08 2008-09 2009-10

Production Production % Production % Production % Production %
(Nos in (Nos in change (Nos in change (Nos in change (Nos in change
Lacs) Lacs) Lacs) Lacs) Lacs)
Apollo 70.30 78.41 12 88.67 13 85.92 -3 105.28 23
Birla 10.58 11.75 11.05 14.24 21.20 11.26 -20 14.43 28.15
MRF 23.95 26.63 11.18 14.24 -21.20 11.26 -20 14.43 28.15
CEAT 38.64 39.25 1.50 37.68 -4 34.11 -9.40 38.2 12
J.K.Tyre 63.61 70.33 10.60 75.26 7.00 74.86 -0.50 79.31 5.90

The DG found the actual production of the domestic tyre companies had
increased in every year except in the financial year 2008 – 2009 when it
registered a fall as compared to the immediately preceding financial year.

22. The DG then considered the capacity utilisation of each of the five
tyre companies and the details are reproduced as under:
Capacity Utilization Movement
Company 2005-06 2006-07 2007-08 2008-09 2009-10
Utilisation% Utilisation% Utilisation% Utilisation% Utilisation%
Apollo 89 89 92 87 80
Birla 90.74 89.83 97.67 81.59 104.57
MRF 74.7 79.27 82.13 80.85 89.04
CEAT 90 91 83 75 81
J.K.Tyre 101 92.6 86.5 85.1 86.7

The DG found that the capacity utilisation had dropped in the cases of
Apollo, Ceat & J.K.Tyre over number of years whereas in the cases of
MRF & BIRLA it had gone up. In the case of J.K.Tyres there was drastic
decline in capacity utilization which is reflected in the under utilization of
capacity. The DG therefore came to the conclusion that these five
companies were not utilizing their capacity to produce tyres and thus
created a shortage in the market.

23. The DG then examined the cost audit reports of the various
companies. The companies produce various types of tyres but the DG
13
 restricted his analysis to only truck tyres. The DG noted that the cost of
production depended mainly in the price of basic raw material which is
natural rubber. The DG also examined the cost of sales realisation in the
market. He found that the margins for Apollo tyres had shown very
healthy trend and that it reached its highest in financial year 2009–10. In
the case of JK tyres he found the profit margin had been improving and
had gone up drastically in Financial Year 2009-10. In fact in the year
2009–10 it had gone to Rs.617 per tyre. He found improvement in the
margins in the case of MRF for the financial year 2009–10. But in the case
of Ceat as well as Birla tyres he found that the margins had come down
substantially in the financial year 2009–10. The DG found that the cost
of sales showed an increasing trend mainly due to increase in the price of
natural rubber. But the DG found that nearly all the companies had shown
substantial profit margins in most of the years under consideration. The
DG has further reported that the five tyre companies had been inflating
miscellaneous expenses so as to reduce the net profit margins. But the
DG has not pointed out as to which items of miscellaneous expenses have
been inflated. He also recorded a finding that the change in the prices of
natural rubber had no impact on the cost of production and that it did not
explain the reason for the increase in the price of tyres. The DG also
recorded a finding of the analysis of data submitted to him that the profit
margins of all the tyre companies had increased. He therefore came to
the conclusion that the domestic tyre manufacturers had been operating
at higher profits but the benefit was not passed on to the consumers by
lowering prices of tyres.

24. The DG then carried out a comparative study of the market share of
each of the tyre companies. The information of the market share was
compiled by ATMA. The detail was submitted by Birla Tyres which is
reproduced as under:
MARKET SHARE
Tyre 2005-06 2006-07 2007-08 2008-09 2009-10
Company
Total Market Total Market Total Market Total Market Total Market
production share production share production share production share productio share
in % in % in % in % n in %

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Apollo 3176420 27 3324776 25.04 3577464 27.23 3274926 25.52 3825960 25.83
Birla 1073464 8.9 2129491 16.03 1488924 11.33 1940653 15.12 2924545 19.74
Ceat 1823257 15.26 1901798 14.32 2012127 15.31 1872357 14.59 2014151 13.59
Goodyear 409653 3.43 352585 2.65 364654 2.77 224378 1.74 215013 1.45
JK/Vikrant 2913063 24.39 2955422 22.26 2894790 22.03 2695745 21.01 2824784 19.07
MRF 2397680 20.07 2520722 18.98 2700833 20.55 2726690 21.25 2896630 19.55
Others 147400 1.23 91900 0.69 97800 0.74 95700 0.74 110100 0.74
Total 11940937 13276694 13136592 12830449 14811183

The DG analysed the figures of market share and found that the market
share of Apollo remained constant at 27% from 2005–2008 and
decreased by around 1.5% in 2008-2009. He also found that the market
share of Birla tyres increased by 10.76% during the period of
investigation. MRF saw a decline of 1.7% in 2009-10. In the case of Ceat
he found no major change in the market share but he observed that the
market share got reduced by 1% in 2009-10. The DG observed that in
the case of JK tyres the market share kept on decreasing throughout the
five-year period by 1 – 1.5% each year. The DG has also observed that
the five domestic tyre companies especially in the lug tyres controlled
95% of the market i.e. that a market share of 95% of the entire
production. According to the DG they showed very high concentration.

25. The DG then considered the Tariff Commission Report of 1985, the
Tariff Commission Report of 1988, JNU market study on tyre industry,
anti-dumping order of the designated authority 2007 and the anti-
dumping orders of the designated authority 2010. The Tariff Commission
observed that the intercompany price variation among five companies is a
matter of concern and needs to be followed specially as the prices
increase in tandem. The bureau of industrial costs and prices in 1983 had
observed that the tyre industry was a very neat cartel and that it was the
duty of the government to see that the competition was encouraged and
that the government should intervene in fixing of the tyre prices because
of excess capacity and competition. It was stated by the bureau that
unified and coordinated increase of tyre prices should be discouraged.

26. The DG then examined the impact of excise duty on tyre prices.
The DG has reported that the increase in price of tyres was much higher
than increase in the price of raw materials. As far as Central Excise was

15
concerned the Bureau of Industrial Costs and Prices had observed that
though the excise duty was reduced the tyre companies did not pass on
the benefit to the consumers.

27. The Tariff Commission Report of 1988 also found concentration in

the tyre market as the three top companies accounted for 50% of the
sales. It observed that in the case of truck tyres the prices had increased
many times. The bureau also observed that the increase in prices was
coordinated by the tyre companies and that even though surplus capacity
existed there was no adequate competition in the market. The bureau
further observed that the price structure and the pricing policy of entire
industry was not desirable and on accepted lines. The study also indicated
the need for price regulation. The bureau recommended that all
categories of tyres should be under the Open General Licence.

28. The JNU market study observed that the tyre industry is cartelised
all over the world. The majority of the tyre sales were in the replacement
market and a small amount of the sales went to the OEMs. The JNU report
also found that as the share of imports was very small the antidumping
duty did not cause any effect. But the report also observed that though
the imports were small they appear to regulate the excess profitability of
the tyre companies. The report stated that the market was concentrated
with five major companies in the market. The study also noted that the
eight largest companies accounted in 80% of the total production. The
JNU report stated that the tyre companies indulged in a price-fixing,
exclusive supply agreement and a tie-in arrangement so as to bind their
dealers.

29. The DG then examined the order of the Designated Authority of the
Directorate of Anti Dumping in the Commerce Ministry. The Designated
Authority passed a detailed order and held that dumping existed in the
imports from Thailand and China. The anti-dumping proceedings were
initiated by ATMA at the behest of the five tyre companies. The Authority
therefore recommended imposition of anti-dumping duty equal to the

16
difference between the amount and landed costs of imports on all imports
of new pneumatic non-radial bias tyres. The designated authority passed
another order in respect of radial tyres in 2010 again at the behest of the
tyre makers in India through the agency of ATMA. Even in the case of
radial tyres the Designated Authority found dumping on the imports from
China and Thailand. The Authority held that the imported product was
consumed only in the replacement market and not in the OEM market.
The Authority did not accept the pleadings of the importers who had
stated that the industry could not cope up with the demand for the tyres
and that for this purpose import was necessary.

30 The DG then considered the behaviour of the Association of the

domestic tyre manufacturers known as ATMA. The DG observed that the
Association members had adopted various course of action under the
umbrella of the Association and these were anti-dumping petitions,
production of low-cost tyres, blacklisting of importers and increase in
export realisation. The DG observed that anti-dumping action was
initiated by the Association against import of passenger car tyres. The
DG also observed that the antidumping duty proceedings were initiated by
the Association by hiring one lawyer for all the manufacturers and the
data was provided by Apollo, Ceat and JK tyres. Same was the case
regarding import of truck and bus radial tyre. Regarding low-cost tyre
strategy, the strategy was adopted by the Association members in order
to tackle the cheap imports of Chinese tyres. The members of Association
i.e. mainly the five tyre manufacturers formed a marketing group to
tackle under invoicing of the import of tyres. To tackle this menace the
marketing committee allocated geographical areas to the tyre companies.
Delhi was allotted to Apollo, Mumbai to Ceat, Indore to JK Tyre and
Vijayawada was given to some other tyre company. On the other hand
the Association stated that no territory was allocated but that an area was
assigned to keep an eye on under invoiced imports so that the same could
be brought to the notice of the concerned customs authorities. Regarding
export realisations the Association decided that the export price should be
increased by US$2.25/tyre. Regarding original equipment manufacturers
17
the Association stated that the price realisation from OEMs was low and
therefore some methods should be adopted that the realisation was
increased. The DG observed that the tyre manufacturers had acted
together to protect themselves from competition especially in the field of
radial tyres. The DG, contrary to what he has stated earlier that the five
tyre companies accounted for 95% of the total tyre production, he has
also stated that there was a high concentration in this industry and that
the industry was very capital intensive. The DG observed price parallelism
among the tyre manufacturers and concerted price action.

31. The DG found Apollo to be the market leader and he also found that
the tyres of Apollo were of higher end. But the prices of the remaining
four domestic tyre companies moved in tandem. In his view Apollo tyres
was the price leader. The DG then took into account that Apollo Tyre
South Africa, Goodyear South Africa, Continental Tyre South Africa and
Bridgestone South Africa who had been fined by the South African
Competition Authorities on account of price-fixing. The DG held that tyre
companies had acted in concert on various issues. They had also indulged
in blacklisting of importers. In his view the Association was a platform of
the tyre companies for sharing information related to price, export and
other issues. He therefore held that the five major companies i.e. Apollo,
MRF, J. K. Tyre, Birla and Ceat had acted in concert in violation of
Sections 3(3)(a) and 3(3)(b) of the Competition Act. In his view price
parallelism indicated a collusive behaviour by the tyre manufacturers. He
found that cost analysis and sales realisations had increased substantially
during the period of investigation and that the tyre companies had
resorted to frequent price changes. The DG was also of the view that the
tyre companies were limiting supply by under utilization of their capacities
during the period of investigation. He also observed that that the benefit
of excise duty was not passed on by the tyre companies to the
consumers.

32. In his conclusion the DG noted that five domestic companies as

mentioned above accounted for 95% of the market share which showed a

18
very high concentration. The conduct of ATMA showed that the tyre
companies had a meeting of minds on various issues and therefore in his
view there was a violation of Sections 3(3)(a) and 3(3)(b) of the
Competition Act by the tyre companies.

33. The D.G. collected details of agreements between the tyre

companies, their stockists, C&F agents etc. These agreements are sample
agreements and are only illustrative. The first such agreement was
between Birla Tyres (a unit of Kesoram Industries Ltd.) and Eastern Tyres
as C&F agent. According to this agreement, the billing limit was to be
fixed by Birla Tyres. The C&F agent was also obliged by this agreement
to keep the goods of Birla Tyres in a separate godown. The second
agreement was an agreement entered into by Ceat Tyres Ltd. and Ganesh
Auto Parts where Ganesh Auto Works Pans appointed a distributor for
Chennai. In accordance with the agreement, Ganesh Auto Parts could
deal only with the products of Ceat India Ltd. Thus, this agreement was
an exclusive sales agreement. The third agreement is an agreement
between Dunlop India Ltd. and Seven Day Foods Pvt. Ltd. who were
appointed C&F agent for an area in North Bengal. According to the terms
of the agreement the C&F agent could not become the C&F agent for any
other company during the period of the existing agreement and for a
period of one year after the termination of the agency. This agreement is
also in the nature of exclusive sales agreement. The fourth agreement is
an agreement between Bridgestone India Pvt. Ltd. and Rainbow Tyres. It
is a dealership agreement. According to the terms of the agreement
Bridgestone put a restriction on the dealer that it would not sell its
products to a competitor. Bridgestone reserved the right to control the
retail price of its products. This amounts to resale price maintenance.
The dealer was also obliged by this agreement not to sell the goods of the
company above the maximum price fixed by it. The dealer also could not
sell its goods below the minimum price fixed by it. This is also a case of
resale price maintenance. The fifth agreement format is that of Michelin
India Tyres Pvt. Ltd. The dealer in this case was appointed as a non
exclusive dealer but the sales were to be made by the dealer on prices
19
fixed by Michelin. This is also a case of resale price maintenance. The
D.G. has not enclosed dealership agreements between MRF Ltd., J.K.
Tyres and Apollo Tyres Ltd. But in the case of J.K.Tyres Ltd. and Apollo
Tyres Ltd. copies of invoices and terms and conditions were submitted.
In the terms of J.K.Tyres Ltd., the dealers are not authorised to export
the goods purchased from it. In the case of Apollo Tyres Ltd., the prices
appear to be fixed by the company. Considering these facts it is seen
that many of the companies are indulging in exclusive sales agreements
and/or resale price maintenance. The agreements also talk of tie in
arrangements as along with tyres, flaps and tubes were required to be
sold.

34. A copy of JNU report has been annexed with DG’s report. The JNU
report mentions that the tyre industry is a very concentrated industry and
that three top companies i.e. Bridgestone, Michelin and Goodyear control
53% of the market. The next four i.e. Continental, Sumitomo, Pirelli and
Yokhama have a world market share of 18%. The report then lists out
cases of Europe where Michelin has been fined by the European
Commission and some national Competition Authorities for
anticompetitive behaviour. The report estimated the turnover for the
entire tyre industry at Rs.14,500Crores in Financial Year 2005-06. It has
been stated in the report that 62% of the market of tyres was of Truck
and Bus Tyres. The total utilisation of the installed capacity was only
78%. These figures were on the basis of ATMA report for June 2006. It
has been stated the major players were Apollo, MRF, J.K.Tyres and Ceat
and they accounted for 80% of the market. Incidentally in India there are
43 companies having 59 factories all over India. This was the position in
Financial Year 2005-06. The report mentions that though imports
accounted for a small percentage of the consumption of tyres,
antidumping duties introduced an anticompetitive element in the industry.
The report also talks of exclusive sales agreement, resale price
maintenance and tie in arrangements. By tie in arrangement, the report
states that a dealer has to buy along with tyres, other items such as

20
tubes and flaps.

35. The other annexures in DG’s report are reports of the Bureau of
Industrial Costs and prices of 1985 and the orders of the Designated
Authority under the Anti Dumping Rules. The annexures are letters
written to the tyre companies by ATMA for data requirement to move
antidumping petition before the Anti Dumping Authority. These letters
are dated October, 2010. According to the DG, it shows concerted efforts
on the part of the tyre companies to protect their turf.

36 The D.G. had obtained minutes of the meetings held in the premises
of ATMA but had not enclosed the minutes in his report. The D.G.
subsequently made it an annexure to this report.

37. In this annexure the DG has dealt with the meetings of ATMA on
11.04.2005, 18.07.2005, 23.05.2006, 21.08.2006 and 23.03.2007. The
minutes of the meetings show that the tyre companies were aggrieved
that the customs duty on rubber was higher than that of the finished
products which were the tyres. The companies were also aggrieved with
the fact that the sales to OEMs were at unsustainable prices because of
the increase in the input costs. Regarding the other raw materials also the
tyre companies felt that as the price increases were substantial, they
would decrease their profitability. The minutes show that the tyre
companies wanted to increase their export realisation by US$2. The tyre
companies were also concerned with the import of used tyres. They were
aggrieved that the low-priced Chinese tyres had low quality. As in the
meetings the tyre companies decided that the customs authorities should
be pursued to value the Chinese truck tyres for the purpose of duty at
US$50/tyre. The customs authorities accepted the view of the tyre
companies. The tyre companies also wanted to introduce low-priced tyres
in the market. In order to preserve their market the tyre companies
wanted that the BIS marking be introduced in the tyre industry. The
Association was incurring expenses with respect to anti-dumping

21
proceedings in the case of the import of rubber chemicals. It was also
discussed in the meetings that the Association was the petitioner before
Anti Dumping Directorate for levying anti-dumping duties on tyres
imported from China. The minutes also show that Bridgestone India
Private Limited became a member of the association with effect from
01.04.2007. The Association was also concerned with the anti-dumping
duty levied by the anti dumping authority of Egypt on the export of tyres
from India. Regarding the regional trade agreements which India entered
with the Asean countries, it was a view of the members of the association
that the government should be approached to include the tyres in the
negative list which was to be prepared by the government. This meant
that the imports from Asean Countries would not be at concessional
custom rates. The tyre companies and the association took upon
themselves the work of fixation of suitable advisory prices of bias tyres
and radial truck and bus tyres. The association wanted that the bias tyres
should be valued at US$99 per tyre and the radial tyres at US$125 a
piece by the customs authorities at the time of import. The meetings
show that the tyre companies wanted the government to stop the exports
of rubber from India. The tyre companies also wanted to increase the use
of synthetic rubber in place of natural rubber as far as possible. The
minutes show that the meetings were attended by the Managing Director
of Ceat India Ltd. as Chairman, the Managing Director of Goodyear India
Ltd. as Vice-Chairman, Managing Director and other members of Apollo
Tyres ltd., representatives of Birla Tyres, Ceat Tyres, J.K. Tyres and MRF.
The DG did not take into account the details of all the meetings of the
Association. He has been very selective and he has not considered the
meetings after 20.03.2007. One of the major issues was that tyre should
be BIS certified. This has been discussed in all the meetings from April
2005 till January 2010. The minutes of 27th April 2006 show that the tyre
companies wanted to increase export target of tyres and allocate the
export market of tyres among the tyre companies who were members of
ATMA.

22
38. The D.G. did not include all the minutes in this annexure. Some of
the tyre companies have taken inspection of the minutes but even if they
had not taken inspection, they were parties in the ATMA meetings and
therefore they had full knowledge of the decisions taken. One of these
meetings was about a study of tyre demand projection in the next 5-6
years. This information was to be obtained from the tyre companies by
ATMA. This also showed sharing of information by the tyre companies
among themselves. In this meeting in Jan 2010, it was decided in the
premises of ATMA, that the production date of member tyre companies
can be shared with ETRMA (European Tyre and Rubber Manufacturer
Association) on industry level but not on individual company level.

39. After the receipt of DG’s report, the Commission sent them to the
following companies for their response.
(i) MRF Tyres Ltd.
(ii) Apollo Tyres Ltd.
(iii) Ceat Tyres Ltd.
(iv) Kesoram Industries Ltd. (prop. of Birla Tyres)
(v) J.K. Tyres Ltd.
(vi) Goodyear India Ltd.
(vii) Dunlop India Ltd.
(viii) Bridgestone India Pvt. Ltd.
(ix) Michelin India
(x) Modi Rubber Ltd.
The tyre companies appeared for oral hearing and also submitted written
submissions. Goodyear India Ltd. appeared and stated that it did not
manufacture truck and bus tyres and as the D.G. had dealt mainly with
LUG BIAS truck & bus tyres, they should be exempted from being a party.
It was also stated that they are not mentioned in D.G.’s report. There
was no response from Dunlop India Ltd. primarily because the company
had stopped operations. Dunlop India was also not been considered by
the Director General in his report. Bridgestone India Pvt. Ltd. was also
not mentioned in the report. It was also stated on behalf of Bridgestone

23
that it manufactured only car tyres and that it sold truck and bus tyres
after importing them. It was also stated that it was not the subject of
investigation by the Director General. As far as Michelin India Ltd. is
concerned, it was not the subject matter of DG’s investigation as it had no
tyre manufacturing facility in India. Modi Rubber stated that its plants are
closed and it was not manufacturing since 2001. Considering these facts,
the Commission deleted the names of Goodyear India Ltd., Dunlop India
Ltd., Bridgestone India Pvt. Ltd., Michelin India Ltd., and Modi Rubber Ltd.
from the list of opposite parties.

40. An argument has been raised that the Commission had no

jurisdiction in this case and therefore before the issues are taken up for
consideration the issue of jurisdiction should be decided. It was stated
that the case was transferred from the MRTP Commission to the
Competition Commission of India in accordance with Section 66(6) of the
Competition Act 2002. It was also stated that the entire information
relates to period prior to 2007 or earlier years. It was stated that the
investigation should be carried out only under the MRTP law and that the
new substantive law i.e. the Competition Act would not apply to the old
petitions. The counsel of the different parties brought to the attention of
the Commission the provisions of Section 66 of the Act. In this
connection it is necessary to refer to the explanation of section 66(1)
which reads as under:

For the removal of doubts, it is hereby declared that nothing in the

proviso shall confer any jurisdiction or power upon the Monopolies
and Restrictive Trade Practices Commission to decide or adjudicate
any case or proceeding arising under the Monopolies and Restrictive
Trade Practices Act, 1969 (54 of 1969) on or after the
commencement of this Act.

41. Attention was invited to Section 66(1)(A) of the Act which reads
as follows

24
 The repeal of the Monopolies and Restrictive Trade Practices Act,
1969 (54 of 1969) shall, however, not affect,-

(a) the previous operation of the Act so repealed or anything duly

done or suffered thereunder; or
(b) any right, privilege, obligation or liability acquired, accrued or
incurred under the Act so repealed; or
(c) any penalty, confiscation or punishment incurred in respect of
any contravention under the Act so repealed; or
(d) any proceeding or remedy in respect of any such right,
privilege, obligation, liability, penalty, confiscation or
punishment as aforesaid, and any such proceeding or remedy
may be instituted, continued or enforced, and any such
penalty, confiscation or punishment may be imposed or made
as if that Act had not be repealed.

Section 66(3) of the Act reproduced as under:

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, after the expiry of two
years referred to in the proviso to sub-section (1) 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.

The section is very clear that any case which was pending with the MRTP
Commission would stand transferred to the Appellate Tribunal and same
would be adjudicated by the Appellate Tribunal as if the MRTP Act had not
been repealed. Therefore any case pending with the MRTP Commission
would be transferred to the Competition Appellate Tribunal which would
adjudicate the case in accordance with the MRTP Act.

42. Section 66(6) of the Act is reproduced as under:

25
 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 conduct of such investigation or proceedings in
the manner as it deems fit.

A reading of Section 66(6) shows that all investigations pending with

Director General (I&R) of the MRTP Commission were required to be
transferred to Competition Commission of India and the Competition
Commission of India would conduct or order for conduct of such
investigations or proceedings in the manner as it deemed fit. But the Act
nowhere states that the Competition Commission would implement the
MRTP Act while dealing with such cases. Further reading of sections
66(3) & 66(6) shows that the legislature wanted to treat the cases
pending with the MRTP Commission on a different footing from the cases
pending investigation with DG (I&R). Section 66(8) of the Act is on the
same lines as section 66(6) of the Act. Section 66(10) states that the
matter referred to in sub sections (3) to (8) Section 66 of the Act shall
not affect the general application of section 6 of General Clause Act 1897
with regard to the effect of repeal.

43. Incidentally the Act was brought in force for enforcement on 20th
May 2009 and therefore after the said date MRTP Commission could not
decide or adjudicate the proceedings under the MRTP Act 1969. But it is
necessary to see section 6 of the General Clauses Act. Section 6 of the
General Clauses Act is as under:

Effect of repeal – Where this Act, or any [Central Act] or Regulation

made after the commencement of this Act, repeals any enactment
hitherto made or hereafter to be made, then, unless a different
intention appears, the repeal shall not –

26
 (a) revive anything not in force or existing at the time at which
the repeal takes effect; or
(b) affect the previous operation of any enactment so repealed or
anything due done or suffered thereunder; or
(c) affect any right, privilege obligation or liability acquired,
accrued or incurred under any enactment so repealed; or
(d) affect any penalty, forfeiture or punishment incurred in
respect of any offence committed against any enactment so
repealed; or
(e) affect any investigation, legal proceeding or remedy in respect
of any such right, privilege, obligation, liability, penalty,
forfeiture or punishment as aforesaid;
any such investigation, legal proceeding or remedy may in
instituted, continued or enforced, and any such penalty, forfeiture
or punishment may be imposed as if the repealing Act or Regulation
had not been passed.

A perusal of the above Section shows that the question to be examined

was whether any right, privilege, obligation or liability is acquired or
accrued to a person by filing of a complaint before the MRTP Commission.
Under the provisions of Section 66(6) & 66(8) of the Competition Act,
cases where the investigation was pending were to be transferred to the
Competition Commission. Does it mean that if a complaint was received
under repealed Act the party mentioned in the complaint would be
acquiring right, privilege, obligation or liability under the said repealed
Act. A common sense approach would show that no right, privilege,
obligation or liability is acquired by any party when a complaint is
received for investigation by an authority. Further the Parliament has
provided in the provisions of the Section 66 of the Competition Act that
the Competition Commission would deal with the complaints as it deems
fit. The Competition Act nowhere states that the adjudication would be in
accordance with the MRTP Act. This is clear from the fact that the
legislature has stated that all the proceedings pending with the MRTP
Commission would be transferred to Competition Appellate Tribunal and
27
said Tribunal would adjudicate them in accordance with the MRTP Act.
But for the Competition Commission of India, the Legislature has not
enacted a similar provision. Therefore the intention of the Parliament is
very clear that it never intended the MRTP Act to be applied to all pending
cases under Sections 66(6) and 66(8) of the Act. In the case of M. S.
Shivananda vs. K.S. R. T. Corporation AIR 1980 SC 77, it was held by the
Supreme Court that Section 6 of the General Clauses Act, 1897 is not
intended to preserve the abstract rights and that it only applies to specific
rights given to an individual upon the happening of one or other of the
events specified in the statute. It has been held in various other cases
that if there was no contrary intention in the repealing Act then section 6
would step in. The only intention of enactment of Section 6 of the
General Clause Act is that the transactions past & closed could not be
vacated by the repealing Act. It has been held in the various cases that
Section 6 of the General Clauses Act cannot be applied in every repeal
provision without regard to the intention of the Parliament and the
language used in the repealing provisions and the object of the repeal and
the existence of repealing clauses. In this particular case the intention of
the legislature is very clear that investigations pending with the DG (I&R)
of the MRTP Commission were to be treated differently from the cases
pending with the MRTP Commission.

44. The Parliament intended that the Competition Commission would

deal with the pending investigations in the manner it deemed fit. The
Competition Commission of India is a creature created by the Competition
Act 2002 and therefore it cannot work under any other Act except the
Competition Act. Therefore, any direction or order of the Competition
Commission would be in accordance with the Competition Act 2002. This
view has been approved by the Delhi High Court in the cases of (i)
Interglobe Aviation Ltd. W.P.(c) 6805/2010 and (ii) Gujarat Guardian Ltd.
W.P.(c) 7766/2010. In this particular case the Commission after
examining the complaints on record received from DG (I&R) MRTP
Commission came to the conclusion that a prima-facie case is made out.
The Commission, therefore, directed the Director General to investigate
28
the case. There is no legal or procedural error which the Commission had
committed. There is also no material in any statute which would show
that Commission was required to implement the MRTP Act. If the
Competition Commission started implementing the MRTP Act then it would
go against intention of the Parliament and it would be illegal. This is clear
from the wordings of Section 66 of the Competition Act. Therefore, the
arguments raised by the different opposite parities are without any merit
and are rejected.

45. Another issue raised by the tyre companies is that as the issue was
raised before the MRTP Commission in 2007, no investigation for a period
after that date can be carried out. It was argued that as the D.G. had
continued his investigation for a period beyond 2007, he had exceeded his
jurisdiction. It was further argued that the Director General had taken
into account data from 2005-2010 i.e. for a period 2005-09 when the
Competition Act was not into force, he had exceeded his jurisdiction. It
was argued that Sections 3 and 4 of the Competition Act were notified
w.e.f. 20.05.2009 and for this reason, neither the D.G. nor the
Commission had any jurisdiction for any period prior to 20.05.2009. It
was argued that the Competition Act had a prospective operation and
therefore the Commission and the Director General had no power to look
prior to 20.05.2009. Further as the complaint related to 2007, therefore
the D.G. and the Commission had no jurisdiction to extend the
investigation till 2010. It was further argued that the D.G. had exceeded
his jurisdiction as he had gone beyond the jurisdiction conferred on him
under Section 26(1) of the Act. It was further argued that the
Commission itself had closed many cases where the contravention took
place prior to 2009. It was also argued that this case cannot be regarded
as a suo moto investigation by the Commission as the Commission itself
had not initiated the case on suo moto basis.

46. The Commission has considered the arguments raised on behalf of

the tyre companies. There is no doubt that the complaint was received
29
by the MRTP Commission in 2007. The said Commission referred the
matter to the DG(I&R), MRTP Commission for investigation. The
investigation was pending with D.G.(I&R) when the Competition Act was
brought in force w.e.f. 20.05.2009. In accordance with the explanation to
Section 66(1) of the Act, the MRTP Commission had no power to decide or
adjudicate any case after the commencement of the Act. Under the
proviso to Section 1 of the Competition Act, commencement of the Act
means a reference to the coming in force of the provisions of the Act
which have been notified by the Central Government in the Official
Gazette. Thus, after the said notification w.e.f. 20.05.2009, the MRTP
Commission had no power to decide or adjudicate any case. But then
Section 66(3) of the Act conferred jurisdiction to the MRTP Commission
over cases pending with the MRTP Commission. According to the proviso
to Section 66(1) of the Act, Section 66(3) of the Act, the MRTP
Commission was required to decide and adjudicate all cases pending with
it as if the MRTP Act was not repealed. A perusal of Section 66 of the Act
makes a distinction between the MRTP Commission and the D.G.(I&R) ,
MRTP Commission i.e. cases which were pending investigation were put
on a different footing from the cases pending adjudication and decision by
the MRTP Commission. In accordance with provision of Section 66(6) and
66(8) of the Act, certain cases pending with D.G.(I&R) MRTP Commission
stood transferred to the Competition Commission and the Commission
could conduct or order conduction of investigation or proceedings in the
manner as it deemed fit. The legislative intention is very clear and no
other interpretation is required especially as there is no ambiguity in the
Act. This in accordance with the view of the Supreme Court in SAIL’s
case.

47. When the case was transferred to the Commission in 2010, the
investigation was pending with D.G.(I&R) for the last two years. If the
arguments of the learned counsels of the opposite parties are accepted,
then in all cases which have been transferred to the Commission no
investigation would be possible because in all these cases the complaint

30
would have been received prior to 20.05.2009. Thus, if the arguments of
the learned counsels of the opposite parties are accepted, the provisions
of Section 66(6) and 66(8) would be reduced to nullity. The Commission
considered these facts. It, therefore, decided to continue the
investigation in accordance with the provisions of the Competition Act,
2002. The information provider had alleged that the tyre companies were
indulging in anticompetitive activities. The Commission also was of the
view that antidumping duty on import of tyres may be restricting
competition in the markets and as the antidumping duty was to continue
for five years from 2007, the effect of anticompetitive elements was a
continuing effect. The tyre companies in 2005 had decided to move a
petition before the Designated Authority, Anti Dumping Authority and the
D.G. received the directions under Section 26(1) of the Act in 2010.
Therefore the D.G. selected the period of anticompetitive behaviour from
2005 to 2010. In these directions under 26(1) of the Act, the Commission
referred to the behaviour of five tyre companies namely Apollo tyres Ltd.,
Ceat Tyre of India, J.K. Tyres Ltd., Kesoram Industries Ltd. and MRF Ltd.
The Commission had not fixed a period for investigation and therefore the
D.G. had not done anything which was not in accordance with law.

48. There is no doubt that the Competition Act had no retrospective

operation and therefore the Commission cannot penalise any person for
any contravention for a period prior to 20.05.2009. But if an
anticompetitive practice which was started in a period prior to 20.05.2009
but was continuing even after 20.05.2009, then the Commission certainly
had jurisdiction. This is what was held by the Bombay High Court in the
case of Kingfisher Airlines. Further, investigation is nothing but a fact
finding exercise. It has been held that by the Supreme Court and various
High Courts that investigation does not cause harm to the parties being
investigated. Therefore the courts have not stopped investigations
carried out by various authorities. There is, therefore, no error in
considering the issues till 2010. The next aspect to be considered is to
the level to which investigation can be carried out by the D.G.

31
49. First of all, one has to distinguish between inquiry and investigation.
Under the laws of India, a court, a tribunal or a quasi judicial authority
carries out an inquiry. Inquiry leads to rights conferred on parties and
penalty is levied on those contravening the law through adjudication or a
decision. The court of quasi judicial authority has to rely on the principles
of natural justice and common law. But investigation does not confer any
rights and no penalties can be levied during investigation. The Supreme
Court in SAIL’s case (supra) held that the Commission carries inquiry
while DG carries out investigation. But investigation of a contravention of
a statute to a large extent cannot be limited in scope, otherwise it would
defeat the very purpose of the Act. In a criminal or a civil case the
investigation is the cornerstone on which the inquiry by the court/quasi
judicial authority is built. The Supreme Court in the case of Hindustan
Development Corporation has held that restrictive trade practices are
anticompetitive practices and breaking such practices is for public good.

50. In the light of this decision of the Supreme Court and the provisions
of the Act, the limitations on the DG’s power to investigate a case has got
to be examined. The Central Government appoints the Director General
for the purpose of assisting the Commission in conducting inquiry into
contraventions of any of the provision of the Act and for performing such
other functions as are, or may be, provided by or under the Act. This is in
accordance with the Section 16(1) of the Act. Thus the D.G. has not only
been given the power to assist the Commission in its work of inquiry but
also can perform other functions as are provided under the Act or
regulations. The power of investigation becomes clear from the
provisions of Section 26(1) of the Act. If the Commission finds a prima
facie case then it can direct the D.G. to investigate the case. No
limitations on the power to investigate a case has been provided under
Section 26(1) of the Act. Section 41(1) of the Act states that the D.G. on
the directions of the Commission is required to assist the Commission in
investigating into any contravention of the provisions of Act or rules or

32
regulations. In this provision also there are no fetters on the DG’s powers
except that the DG on his own cannot start an investigation. The
investigation has to be carried out on the directions of the Commission.
But if during the course of investigation, the DG finds some other areas of
contravention over another period of time by some other persons which
was not in the knowledge of the Commission, then the Act does not put
any limitation on the powers of the D.G. The D.G. can investigate and
report the issues to the Commission. This would be clear from the
numerous decisions of the Supreme Court under the Income Tax Act.
When an assessing officer finds that some income assessable to tax has
escaped assessment then with the approval of the Competent Authority
he can reopen the assessment. But when during the course of
investigation he finds more sources of income which had not been
subjected to tax, then he need not go to the Competent Authority to
reopen the assessments again. The Supreme Court has held that when
the assessment is reopened it is opened for all purpose and there are no
fetters on his powers and therefore all sources of income not hitherto
subjected to tax can be taxed without reference to the Competent
Authority. In the case of the D.G. as there are no limitations on his
powers except that he can investigate only on the directions of the
Commission, the D.G. can investigate the contravention over a period of
time and of numbers of person not mentioned in the Commission’s
directions but contravening the law. This would apply especially in the
case of a cartel where the Commission may have a few names but the
D.G. may find more members of the cartel. As the law stands today, D.G.
can investigate the issues without reference to the Commission. If the
Commission wants to limit the DG’s powers, it can make regulations to
that effect. But there are no regulations putting a brake on the powers of
the D.G.

51. In this particular case, the facts in the complaint were of the year
2007. It was the duty of the D.G. to investigate whether the
anticompetitive practices of 2005 were continuing after 20.05.2009. The
D.G. was not debarred under statute to limit his investigation only for the
33
period after 20.05.2009. The parties could not be penalised for any
contravention prior to 20.05.2009 but investigation which causes no harm
could be carried out for a period prior to 20.05.2009 and it was for the
D.G. to establish that the anticompetitive practices started in 2005 or
2007 were continuing even after 20.05.2009. Considering these facts,
there is no merit in the arguments of the opposite parties that the D.G.
had exceeded his mandate and jurisdiction.

52. Before taking the discussion further it is necessary to examine an

overview of the tyre industry on the basis of report by ICRA. The Indian
Tyre Industry had seen enormous growth primarily due to the growth of
the economy as well as the sales of cars, trucks and buses. The tyre
industry showed strong recovery in Financial Year 2009-10 mainly due to
a low cost structure. But from December 2009 the rubber price surged
which impacted the margins and the tyre companies made price revisions
of tyres on various occasions. The ICRA Report states that the
replacement demand would increase but would be affected by the
increasing demand for the imported tyre especially as the tyre prices
would escalate. There is material to hold that the domestic industry did
not invest in the manufacture of radial truck and bus tyre. In the
consequences there was a demand especially for cheap Chinese truck and
bus radial tyres and this restricted the domestic players in passing on the
price increases on the basis of the input cost. Mainly due to the high
demand in the market for radial tyres of truck and bus, the industry is
pumping 17500crores in order to increase capacity by 47% by the year
2013. ICRA has estimated that the raw material accounted for 65-70% of
the production cost of the tyres which is made up for the following
components:
Natural Rubber – 43% of the total raw material
Synthetic Rubber – 15%
Nylon tyre cord fabric – 18%
Carbon black – 11%
Rubber Chemicals – 5%.

34
The ICRA report states that on an average tyre manufacturers in India
import about 30-40% of their total raw materials. Thailand, Indonesia,
Malaysia and India are the four largest cultivators of natural rubber
accounting for 82% of the global output of over 9.4 million metric tonnes.
Thailand, Indonesia and Malaysia are the largest exporters of rubber in
the world whereas India which is producing around 0.85 million metric
tonnes per annum is a net importer. In fact, the Indian tyre industry
consumed 0.95million metric tonnes of natural rubber in the calendar
year 2010. The ICRA report talks about the duty structure i.e. the duty
on natural rubber stands at 20% as compared to 10% customs duty on
the import of tyres. ICRA report stated that the raw material costs were
low in the period 2008-09 and therefore the tyre industry enjoyed a very
healthy profit in 2009-10. In the report it is also mentioned that the OEM
segment was critical for the tyre manufacturers but the margin on sales in
the OEM was low due to the bulk orders placed by OEM manufacturers. It
was stated that the pricing power in the replacement market has been
curbed to a large extent because of the lower prices of the Chinese
imports. The report also states that the capacity constraints in domestic
markets led some pricing power to tyre manufacturers and therefore
there were at various times price increases by the manufacturers in the
last 12 months i.e. 12 months prior to 2011. In the replacement market
the manufacturers play a big role but in this area tyre retreading industry
is going to play, especially as tyre prices increase considerably. The tyre
industry split into two tyres i.e. cross ply or radial tyres. The radial tyres
are being manufactured since 1940s but in India, in the truck and bus
segment the introduction of radial tyre is only 9-10% compared to a
world average of 68%. It is thus clear that the industry did not invest in
the production of radial tyres. The radial tyre has a longer life 80%
higher and fuel efficiency and effectively cheaper when compared to cross
ply tyres. According to the ICRA Report the world majors Bridgestone
and Goodyear which cater to 85% domestic tyres for passenger cars want
to make India as a hub for the manufacture of radial tyres. The report

35
also shows that the Indian tyre manufacturers invested 0.2-3% of
turnover R&D which is much below to global average of over 2-3%. The
Indian tyre industry enjoyed a turnover of Rs.25,000 Crores in 2009-10.
India imported tyres worth Rs.1,430 crores and exported tyres Rs.3,000
crores to over 60 countries. According to this report MRF is the largest
manufacturer in India with a market share of about 30-32% whereas
Apollo’s market share is 20-22% and J.K. Tyres had a share of 15-16%.
In the truck and bus segment the shares of different companies are as
follows:

T&B
Apollo 21%
Birla 18%
Bridgestone 0%
Ceat 13%
Falcon 0%
Goodyear 0%
J K Tyre 22%
Metro Tyres Ltd. 0%
Modi Tyres 4%
MRF 21%
TVS Srichakra 0%
Others 1%

The estimate is based on ATMA Report. Truck and bus tyres dominate the
industry revenues as 65% of the industry turnover comes from this
segment. Over 51% by volumes of the production of tyres in the T&B
segment goes to the replacement sales and 44% goes to the OEMs and
the balance to exports. The Indian tyre industry consist of 39 companies
with 60 manufacturers plants and key players are in Industry Apollo, MRF,
Birla, Bridgestone, Goodyear, J.K.Tyres etc.
53. During the course of the proceedings and after the receipt of
submissions of DG’s report, oral and written submissions were made on
behalf of Apollo Tyres Ltd. It was stated that there were no specific
allegations against Apollo and that the company had never entered into
an agreement which was in violation of the provisions of Section 3(1) and

36
3(3) of the Competition act. It was argued that DG’s findings were based
purely on circumstantial evidence of parallel behaviour which according to
the DG was a violation of the Competition Act. It was stated that price
parallelism cannot be considered as an evidence of collusive conduct. It
was stated that DG’s report was purely based on speculation and that the
conclusions of parallel behaviour were not sustainable as there existed no
specific or direct evidence relating to Apollo in particular or the alleged
cartel generally. It was argued that the DG’s case was based on hollow
allegations and that it displayed a lack of understanding of the Indian tyre
industry and that the tests under Section 3(3) of the Act were not
satisfied. It was also stated that the time frame of infringement was not
discussed and that the D.G. on his own cannot extend the period and
scope of the investigation beyond 2008 without any direction from the
Commission. It was also argued that there was no material with the D.G.
to indicate that the infringement occurred during the period 2005 to
2010. It was stated that there was no material with the Commission to
extend the investigation of infringement beyond 20.05.2009. It was
therefore argued that in the absence of the time frame when the alleged
contravention occurred, the report of the D.G. was flawed and therefore
the DG’s report should be dismissed in its entirety. It was stated that in
competition jurisprudence for a cartel to survive there has to be a
mechanism which leads to (a) coordination and the functioning of the
cartel (b) monitoring the behaviour and conduct of the members of the
cartel (c) punishing members of the cartel who do not fall in line with the
decisions of the cartel. As the D.G. has not found any such element, he
has failed to establish that a cartel existed. It was stated that the tyre
industry was fragmented, the market shares of each player were unstable
and there were no barriers to entry. It was further stated that the
findings of the D.G. were without any substance and showed a bias
against Apollo. Apollo Tyres Ltd. denied that it had entered into an
agreement of anticompetitive behaviour. It was stated that the D.G. had
not understood the economic principles to support his findings and that
his findings were based on conjectures, absence of direct evidence &

37
presumptions and therefore should be rejected. It was argued that there
existed no direct, precise and coherent evidence which was necessary to
establish an agreement. Reliance was placed on the decision of the
Commission in the case of Neeraj Malhotra vs. Deutsche Post Bank where
it was stated that for finding an infringement of Section 3(1) read with
Section 3(3) of the Act, an agreement should be established
unequivocally. As no agreement has been established in this case, the
proceedings were required to be dropped in this case. It was argued that
there existed no price fixing, no limitation of production and no price
parallelism in this case. It was also stated that the number of products
manufactured were many which were not substitutable, no cartel can
operate in such a market. It was further stated that Apollo’s plants were
working at 89% to 94% of available capacity which could not be
considered as withholding production. It was pointed out that the
capacity utilisation in the tyre industry was 70% to 90%. It was also
stated that the prices of tyres were not above the competitive level in the
case of Apollo. It was stated that the input costs had increased but the
costs were absorbed by the companies themselves and that the margins
of the companies had reduced and many companies had disclosed losses.
This also did not indicate cartelisation.

54. It was further argued on behalf of Apollo Tyres Ltd. that the Indian
tyre industry was very competitive. Further large imports are coming to
India and the largest companies in the world are investing in setting up
tyre manufacturing facilities in India. Further different types of tyres
were being manufactured by the tyre companies which are neither
substitutable nor interchangeable. A chart was submitted which showed
the shares of different tyre companies and imports in respect of Truck and
Bus Tyres (Bias) for the period 2005-2010.

Share of the key domestic tyre manufacturers for Truck and Bus
(Bias) Production for the Period 2005-10
Company 2005-06 2006-07 2007-08 2008-09 2009-10
Apollo 25.5 23.5 24.7 23.5 23.7
38
 Birla 8.6 15.1 10.3 13.9 18.1
Ceat 14.7 13.4 13.9 13.4 12.5
Goodyear 3.3 2.5 2.5 1.6 1.3
JK/Vikrant 23.4 20.9 20 19.3 17.5
MRF 19.3 17.8 18.7 19.6 17.9
Imports 4.1 6.2 9.2 7.9 8.4
Others 1.1 0.6 0.7 0.8 0.6

It was argued that there has been a shift in market shares of different
companies which is contrary to alleged cartelisation in the tyre industry.
It was further argued that when there are low barriers to entry, collusion
or cartelisation is unlikely in such an industry.

55. On behalf of Apollo Tyres Ltd., a concept of capacity available for

production has been introduced in the arguments. The D.G. had observed
that the capacity utilisation was moving downwards over the years. It
was argued that capacity utilisation was relatable to the available capacity
and this was the correct measure and not the installed capacity.

56. It was further argued that capacity utilisation depends on various

factors such as supply of raw materials, labour, power and political
stability. These factors affect the capacity utilisation levels and that the
DG has completely neglected these important factors while calculating the
capacity utilisation figures. The arguments raised as above are not correct
because the DG has relied on the capacity utilisation furnished by Apollo
tyres itself before him.

57. It was further argued that the balance sheet of the last day of the
financial year takes into account the new capacity which has been brought
into existence but it does not take into account the date on which the
capacity was put to use. Therefore though the installed capacity may have
increased it would not show enhanced production for the entire 12
months because the capacity will be added during the accounting period
and therefore reliance on installed capacity would give a wrong figure. It
was argued that all the tyre manufacturers were adding capacity and the
details of capacity added in different years is given in the chart below
39
 Installed capacity (5 major manufacturers)
(nos. in lakh units)
2005-06 2006-07 2007-08 2008-09 2009-10
JK 62.96 75.98 87 87.93 91.44
Apollo 79.34 88.22 96.59 98.97 131.54
Birla 11.66 13.08 14.58 13.8 13.8
CEAT 43.1 43.1 45.42 45.42 47.26
MRF 32.06 33.6 32.93 33.55 35.69
Total 229.12 253.98 276.52 279.67 319.73

Subsequently, the counsel for Apollo Tyre Ltd. went through the
provisions of the Act wherein agreement and cartel were defined. The
counsel then relied on the majority decision in the case of Neeraj Malhotra
vs. Deutsche Post Bank and others, it was held as follows:

“17.7 For an agreement to exist there has to be an act in the nature

of an arrangement, understanding or action in concert including
existence of an identifiable practice or decision taken by an
association of enterprises or persons…..

It was argued that an agreement is a conscious and congruous act that

has to be associated to a point in time. Reliance was again placed on the
decision in the case of Neeraj Malhotra where the Commission had held
that the DG report had not produced any precise and coherent proof of
any agreement of the nature covered in Section 3. It was argued that
even in this case the DG has failed to prove the existence of an
“agreement”. It was argued that parallel behaviour is insufficient to prove
that an agreement existed. It was stated that mere price parallelism is
not sufficient to establish the contravention of the Act. In this connection
reliance was placed on the following decisions:

(i) In Alkali and Chemical of India Ltd. and Bayer Ltd. case, RTPE 21
of 1981.
(ii) State Road Transport Undertakings vs. Kar Mobiles Ltd.
(iii) Ahlstrom Osakeyhtio and Others. Vs. Commission
(iv) Company Royale Asturienne des Mines SA and Rheinzink Gmbh
(ECJ)

40
 (v) Theatre Enterprises vs. Paramount Film Distributing, 346 U.S.
537 (1954)
(vi) Bell Atlantic Corp. vs. Twombly 127 S.Ct. 1955 (2007)
(vii) Monsanto co. vs. Spray-Rite Service Corp, 465 U.S. 752, 768
(1984)
(viii) Petruzzi’s IGA Supermarkets vs. Darling – Delaware Company,
998 F.2d 1224 (1993) US Court of Appeals (1993)
(ix) Baby Food Antitrust Litigation, 166 F.3d 112 US Court of Appeals
(Third Circuit) (1999)

it was stated that instances of competitors responding the same way in

the same set of circumstances do not constitute evidence of conspiracy
and therefore an element of parallel conduct and does not lead to an
association of conspiracy. It was stated that it was not in the public
interest to start an investigation under the competition law issue on every
point wherever there was price parallelism. It was also argued that proof
of parallel business behaviour does not conclusively establish an
agreement or that it constitutes an anti competitive offence. It was
stated that unilateral independent conduct of competitors should not be
punished mainly because the evidence of conscious parallelism is
circumstantial in nature. This means that there should be plus factors in
addition to price parallelism to establish a conspiracy. It was also argued
that legal analysis should show that collusion existed and that some form
of actual agreement among the participants should be there to establish
anti-competitive behaviour. It was argued when that there was
considerable volatility in the market, cartelisation is unlikely. It was
argued that even the economic literature also states that conscious
parallelism is not meaningful and that some other factors should indicate
some sort of agreement between the concerned parties. It stated that the
economists have come to the conclusion that conscious parallelism under
the Sherman Act was recognition of the fact that parallel pricing is
typically unavoidable in an oligopoly. It was argued that the DG had relied
purely on circumstantial evidence to come to a finding that there was

41
collusive behaviour in the tyre industry. Reliance was also placed on
economic literature to show when trade volatility exists cartelisation is
unlikely. If entry in the market is easy then it is not expected that there
would be collusion in the market. It was argued that the DG had rushed
to conclusions on half-hearted attempt proof of price parallelism. In
addition to price parallelism, it was argued that there was no evidence of
cartelisation in the tyre industry. It was argued that on the basis of the
decision of the Commission itself an agreement between enterprises must
be established unequivocally, precisely and coherently. It was further
stated that only one tyre has been selected for the examination by the DG
of each company on the basis of input of AITDF. It was argued that the
correct tyre of Apollo tyres which should have been selected is not XT – 7
but Haulug brand. It was also stated that the comparison of price by the
DG was based on yearly averages which is questionable, as prices
changed several times during a year. Therefore the findings of the DG of
price parallelism were not correct. It was stated that the DG himself had
stated that the price of tyres of Apollo was different from the price of
other manufacturers and therefore there was no price parallelism. It was
further argued that mere price parallelism does not establish an
agreement under Section 3(3) of the Competition Act.

58. It was further argued that there was no limitation of supply and that
high-capacity additions were made in the tyre industry and the utilisation
of capacity also increased. It was argued that the capacity available for
production should have been considered by the DG rather than the
installed capacity. It was also stated that one of the key objectives of a
cartel is to enhance profits of the cartel members by fixing prices at
monopoly levels. It was stated that in a cartel situation surplus capacity is
kept by the players to bring into line any player who does not move along
with the cartel members. It was stated that the industry has not reduced
production but in fact had put in extra installed capacity. It was stated
that the production of tyres is a highly capital intensive industry and the
investment required for producing 16,000 PCR and 6000 TBR tyres per
day to of Rs. 2200 crores. It was argued that Apollo Tyres Ltd had
42
increased its capacity substantially to produce tyres. It was also stated
that 100% of installed capacity was never available for production. It was
conceded that according to the estimates the tyre industry had a capacity
utilisation of anything between 70% and 90%. It was argued that in the
financial years 2008-09 and 2009-10 there were lockouts in the factories
of Apollo tyres Ltd which reduced its available capacity. It was argued
that even after the lockouts in 2009-10 the production of Apollo tyres Ltd
had gone up by 23%. In this connection reliance was also placed on
findings of the Designated Authority of the and Anti Dumping Directorate
who held as follows:

“41(b) The investigation has not shown that the domestic

industry has deliberately withheld production…

As regards the allegation of artificial shortage in the market

created by the domestic industry by withholding supplies, no
evidence to this effect has been provided by the Respondent
exporter.”

It was therefore stated that Apollo tyres had capacity utilisation of over
90% in the last five years despite the constraints suffered by it.

59. It was further argued that the price of tyres was not above the
competitive level and that the price of tyres depends on the raw materials
consumed. It was stated that the prices of all the raw materials have
gone up and this was the reason for the price increase.

60. It was argued that the DG had not considered the price of the other
materials which were mostly petroleum based products. As far as natural
rubber is concerned the average price of natural rubber increased from
Rs.67 per kg to Rs.240 per kg from 2005-06 to 2010-11. It was stated
that the DG had erred in holding that change in the price of natural
rubber had no impact on the cost of production. It was stated that even if
DG’s report is accepted the price of lug tyres increased only 3.21% in
2010-11 as compared to the price in 2009-10. In any case it was stated
that the analysis of the DG was not correct as he had only looked at the
43
 increase in the prices of natural rubber and not of the other raw material
in tyre manufacture. It was stated that the other charges such as salary,
wages etc. had increased during the period 2005-10 by 25-30%. It was
also stated that the costs increased substantially during this period. It
was therefore argued that there was no material with the DG to hold that
the prices of tyres had increased much above the competitive levels.

61. Arguments were raised against the impact of excise duty. The DG
had made general observations that the benefits of the decreased excise
duty was not passed on to the consumers by the tyre manufacturers. In
this connection the chart was submitted to show that the prices were
decreased after reduction in excise duty.

Date of revision Existing New Rate Price Revision Price Revision %

in Excise Duty rate of of Excise date on Net Dealer Price
Excise Duty Duty (NDP)
on date of
revision
1 March 2008 16.48% 14.42% 1 March 2008 Decreased by 1.5%
7 December 2008 14.42% 10.3% 8 December 2008 Decreased by 3%
24 February 2009 10.30% 8.24% 25 February 2009 Decreased by 1.5%
27 February 2010 8.24% 10.3% Respondent has Increased with effect
not increased form 1 April 2010
prices (after absorbing
immediately costs for more than
one month

It was therefore argued that the findings of the DG on this issue were
incorrect. It was stated that the movement in net dealer price and the
excise duty cannot be similar. It was also argued that the excise duty did
not always go down and that in February 2010 the excise duty was
increased from 8.24% to 10.30%. It was further stated that excise duty
is one of the factors that influence the price of tyre and the DG erred in
not taking into account the increase in the price of raw materials. It was
therefore stated that Apollo Tyres had passed on the decreased price of
excise duty to the consumers.

62. The DG defined “margin” as a difference between sales realization

and the cost of sales. The DG further compared the Net Dealer Price and
44
the margins for the same period and on this basis the DG came to the
conclusion that the profits margins of the tyre manufacturers were high
and the manufacturers were not passing on the benefits to the
consumers. It was argued that in the absence of a reasonable return on
capital employed tyre companies will have no incentive to invest in new
capacities and efficient technology. It was stated that Apollo Tyres profit
had fallen over the year as the market conditions were volatile and
competitive. Further it was stated that the profitability was not directly
linked to distortion in the market. Another chart was submitted showing
the margins earned by the different companies in the different financial
year.

Margins (in%)
Company 2005-06 2006-07 2007-08 2008-09 2009-10
Apollo 10.3 9.5 13.6 9.5 14.1
JK Tyre 0.7 0.6 5.8 1.0 7.9
Ceat Ltd. 1.7 1.9 5.1 -3.4 1.5
MRF Ltd. 6.0 4.1 7.1 6.5
Birla Tyres 6.1 6.5 8.3 3.6 0.2

It was further stated that the working of the DG was incorrect because he
did not take the export of tyres into consideration where the margins
were much lower. In fact it was stated that the export sales were made
below cost. It was also argued that the net profit to the turnover in the
case of Apollo tyres was on an average 4% and this concludes that the
tyre manufacturers had not been operating at a large margin. It was also
argued that the return on capital for Apollo Tyres was 9.4% which cannot
be considered as unreasonable. It was further stated that quarterly
report of CEAT Tyres and Birla Tyres for the Financial Year 2011-12 shows
that they were earning losses and that the net operating margins of the
tyre industry had come down to 3.4% in 2010-11 from 5.1% in 2007-08.
It was stated that the DG had not produced any evidence to show that
the higher margins earned by the tyre manufacturers were as a result of
collusive conduct. It was further argued that earning healthy profits does
not lead to the conclusion of contravention of the Competition Act.

45
63. The DG in his report had stated that the five domestic tyre
companies accounted for 95% share of the total production of truck and
bus tyres. The DG worked out the market share of the five key players in
the industry. It was argued that the DG had failed to consider the import
of tyres in India into consideration as the import of tyres varied from 5%
to 7% to the total consumption of tyres in India. It was argued that as
the DG had not taken import of tyres into consideration, a higher market
share of each of the five manufacturers had been worked out. It was
further argued that the market shares of the manufacturers fluctuated
and in the case of such volatility collusion has to be regarded as absent.
It was therefore argued that the argument of the DG that there existed
some form of agreement in violation of provisions of the Competition Act
is without any merit. A chart was submitted showing shares of key
manufacturers of tyres in India. This chart is based on data given by
Automotive Tyre Manufacture Association (ATMA).

Shares of key tyre manufacturers including import data

Company 2005-06 2006-07 2007-08 2008-09 2009-10

Apollo 25.5 23.5 24.7 23.5 23.7
Birla 8.6 15.1 10.3 13.9 18.1
CEAT 14.7 13.4 13.9 13.4 12.5
Goodyear 3.3 2.5 2.5 1.6 1.3
JD/Vikrant 23.4 20.9 20 19.3 17.5
MRF 19.3 17.8 18.7 19.6 17.9
Imports 4.1 6.2 9.2 7.9 8.4
Others 1.1 0.6 0.7 0.8 0.6

It was argued that the chart shows significant changes of market shares
over the years in the case of different manufacturers of tyres and this
does not show any collusion among the tyre manufacturers. It was
argued that the DG had also talked of the dependence of OEM customers
on the tyre industry. It was argued that the OEM customers were very
big in terms of economic strength and as they were bulk buyers they
were able to get tyres very cheap. It was therefore argued that findings of
the DG of the dependence of OEMs on the tyre manufacturers were not
correct.
46
64. Regarding price leadership of Apollo Tyres, it was submitted that
the findings of the DG that Apollo Tyres Ltd. was the price leader is
without any basis. It was further argued that if some competitors follow
the price of another manufacturer it does not amount to contravention of
the Competition Act. It was also argued that the Apollo Tyres Ltd. had
not colluded with any other tyre manufacturers in violation in the
Competition Act.

65. Arguments were advanced on the role of Automotive Tyre

Manufacturer’s Association (ATMA). It was argued that the DG had held
that ATMA was a forum for collusive and cartel activities. Apollo Tyre Ltd.
has been a member of ATMA since its inception and that the activities of
the ATMA were limited to promoting and representing its own interest
before the Government bodies on matters concerning trade and
commerce. It was argued that the DG had not produced convincing or
conclusive evidence in the form of the minutes of the ATMA meetings or
otherwise which suggested that ATMA indulged in anti-competitive
activities. It was further argued that anti-dumping proceedings which
were initiated by ATMA on behalf of tyre manufacturers cannot be
regarded as anti-competitive as such measures were taken to protect the
domestic industry against the exporters who were dumping cheap goods
in India and thus causing injury to the domestic industry. It was argued
that anti dumping duty is a way of checking the market power of foreign
firms and preventing price discrimination. It was argued that anti-
dumping and antitrust complement each other in the domestic markets.
It was further argued that anti-dumping levies are a policy decision of the
Government and therefore Commission has no jurisdiction to sit in
judgements over the levies in such duties. In this connection Reliance
was placed on the judgement of the US Supreme Court in the case of
Noerr Pennington which is reproduced as under:

“We accept, as the starting point for our consideration of the case,
the same basic construction of the Sherman Act adopted by the
courts below – that no violation of the Act can be predicated

47
 upon mere attempts to influence the passage or enforcement
of laws. It has been recognized, at least since the landmark
decision of this Court in Standard Oil Co. vs. United States, that the
Sherman Act forbids only those trade restraints and
monopolizations that are created, or attempted, by the acts of
“individuals or combinations of individuals or corporations.”
Accordingly, it has been held that where a restraint upon
trade or monopolization is the result of valid governmental
action, as opposed to private action, no violation of the Act
can be made out. These decisions rest upon the fact that under
our form of government the question whether a law of that kind
should pass, or if passed be enforced, is the responsibility of the
appropriate legislative or executive branch of government so long
as the law itself does not violate some provision of the
Constitution.”

(emphasis added)

“...[J]oint efforts to influence public officials do not violate

the antitrust laws even though intended to eliminate
competition. Such conduct is not illegal, either standing alone
or as part of a broader scheme itself violative of the Sherman Act”.

It was therefore argued that in view of the ratio of the US Supreme Court,
the findings of DG were erroneous and should be rejected.

66. Regarding the collective black-listing of importers of ATMA, it was

argued that many of the tyre importers were indulging in illegal activities
by circumventing the Government duties by wrong classification and
mis-declaration and for this reason issues were taken up with the
Customs Authorities and the manufacturers set up teams at four places
namely Delhi, Mumbai, Vijaywada and Indore, to locate under-valuation
of imported tyres for the purpose of custom duties. It was stated that
this was done with a view to assist Custom Authorities in checking tax
evasion. It was further argued that Apollo Tyres Ltd. being a responsible

48
corporate citizen of India wanted to ensure that there was no revenue
loss to the Government and therefore agreed for the detection of tax
evasion by the tyre dealers.

67. Regarding low cost tyres it was argued that as Chinese tyre
exporters were dumping low cost tyre in India, the tyre companies who
were ATMA members considered producing low cost tyres in order to
meet the competition in the area of low cost tyres. It was argued that
discussions on development, production and supply of low cost tyres
cannot be considered as anti-competitive.

68. Regarding export realisation it was stated that under Section 3(5) of
the Competition Act the provisions of the Competition Act are not
applicable to exports. It was therefore argued that any discussion
relating to export realisation in respect of tyres would be exempted from
the provisions of the Competition Act. It was therefore stated that the DG
has erred in considering this issue.

69. The next issue raised in the arguments was against the findings of
the DG in respect of exchange of information among the tyre
manufacturers in the premises of ATMA. On behalf of Apollo Tyres, it was
stated that the company had not indulged in any exchange of information
which can be considered as anti-competition. Reliance was placed on the
decision of US Supreme Court in the case of Maple Flooring Manufacturers
Association vs. United States 268 U.S. 563 an extract of which is
reproduced as under:

“It is not, we think, open to question that the dissemination of

pertinent information concerning any trade or business tends to
stabilize that trade or business and to produce uniformity of price
and trade practice. Exchange of price quotations of market
commodities tends to produce uniformity of prices in the markets of
the world. Knowledge of the supplies of available merchandise
tends to prevent over-production and to avoid the economic
disturbances produced by business crises resulting from

49
 overproduction. But the natural effect of the acquisition of wider
and more scientific knowledge of business conditions, on the minds
of the individual engaged in commerce, and its consequent effect in
stabilizing production and price, can hardly be deemed a
restraint of commerce or if so it cannot, we think, be said to
be an unreasonable restraint, or in any respect unlawful...”.

It is the consequences of opinion of economists and of many of the

most important agencies of Government that the public interest is
served by the gathering and dissemination, in the widest possible
manner, of information with respect to the production and
distribution, cost and prices in actual sales, of market commodities,
because the making available of such information tends to stabilize
trade and industry, to produce fairer price levels and to avoid the
waste which inevitably attends the unintelligent conduct of
economic enterprise. Free competition means a free and open
market among both buyers and sellers for the sale and distribution
of commodities. Competition does not become less free
merely because the conduct of commercial operations
becomes more intelligent through the free distribution of
knowledge of all the essential factors entering into the
commercial transaction.”

It was therefore argued that in view of this judgement of the US Supreme

Court the sharing of information helps the customers and helps them
make better and informed choices and also promotes the interests of the
domestic industry. It was argued that this cannot be treated as a
contravention of the Competition Act

70. It was argued that the reliance of the DG on old historical data
some of them 25 year old would not have been considered by the DG as it
leads to an incorrect picture and divorced from the reality of the present
day. They also could not have circumstantial evidence as some cases
were more than 35 years old. It was stated that even the JNU report is a
generic report and was prepared when the Competition Act had not been
50
brought into force. It was argued that the JNU report was a mere
academic report without any proper data and was out of date and
therefore the reliance of the DG of the said report was not correct. As far
as the Tariff Commission reports were concerned they were 26 years and
23 years old and were prepared in a different economic scenario and had
no relevance to the issue at hand. Therefore the reliance of the DG on
such material was not correct. Apollo Tyres Ltd then relied on the findings
of the Designated Authority of the Anti-Dumping Directorate who had held
that profitability of the domestic industry had deteriorated because of
dumped imports. In fact great reliance was placed on the findings of the
Designated Authority who also held that the domestic tyre manufacturers
did not withhold production. It was further argued that anti-dumping duty
was a part of policy and policy does not fall within the ambit of the
Competition Act. For this proposition reliance was placed on European
Commission cases commission in France versus Ladbroke Racing [1997]
ECR 1-6265 [1998] 4 CMLR 27. It was stated that imports of tyres in
India especially of truck and bus radial tyres had increased substantially.
But later on the Government because of lobbying by companies like
Bridgestone Tyre India Ltd., Tata Motors Ltd. and the Chinese tyre
companies removed anti-dumping duty on truck and bus radial tyres
imported from China and Thailand with effect from August 2011. It was
argued that sharp increase in the imports of tyres which reduced the
margin of the domestic tyre industry. It was also argued that the tyre
manufacturers cannot dictate prices to OEM buyers as the OEM buyers are
bulk buyers who also imported tyres from abroad. Regarding the findings
of the MRTP commission in 1974 of the existence of a cartel in the tyre
industry it was argued that the issue is 35 years old and should not have
taken up by the DG.

71. It was argued that no agreement existed between Apollo Tyres Ltd
and any other tyre manufacturer in accordance with the Sections 3(1),
3(3)(a) and 3(3)(b) of the Act. It was argued that whenever
circumstantial evidence is relied upon there are clear limitations on the
inference which can be drawn. It was stated that the economic evidences
51
drawn by the DG also suffer from limitations. It was argued that the
prevalent market conditions do not establish the existence of an
agreement or a cartel and therefore the findings of the DG were
erroneous. It was argued that the tyre market is a very competitive
market and each competitor had an independent response to the market
conditions as well as economic pressures. It was stated that as the
existence of an agreement was not established the findings of the DG are
totally incorrect. Regarding the proceedings against Apollo Tyres, South
Africa initiated by the Competition Commission of South Africa, it was
stated that the price fixing being looked into by the said Commission had
no relationship with the behaviour of the company in India. Further if any
contravention took place in South Africa it does not mean that a similar
contravention took place in India. It was further stated that the reports as
well as comments by a Minister in the govt. regarding cartelisation in the
tyre industry could not influence of the findings of the DG. In respect of
miscellaneous expenses it was argued that there was no material with the
DG to come to a finding that the tyre companies had inflated their
miscellaneous expenses charged to their accounts. It was therefore
stated that the findings of the DG should be rejected and the case should
be closed.

72. JK Tyres Ltd submitted oral arguments and also written arguments.
The arguments raised were similar to those raised by Apollo Tyres Ltd. JK
Tyres had challenged the continuation of proceedings started under the
MRTP Act and continued under the Competition Act. It was stated on
behalf of J. K. Tyres that the Commission should have taken the issues
under the MRTP Act and that enquiry under the Competition Act could not
be authorised. It also challenged the extension of period of investigation
from 2007 to 2010. These two issues have been dealt with the earlier in
this order and there is therefore no need to consider them again. It was
argued that the there is no information with the Commission on which it
could order an investigation. It was also stated that it can be treated as a
suo-moto case because the Commission itself had stated in this order
under Section 26(1) of the Act that it had received the case of transfer
52
from the MRTP Commission. It was also argued that the DG had erred in
adding new parties like Modi Rubber, Goodyear and ATMA and in treating
AITDF as an informant. It was also argued that the letters of AITDF could
not be treated as information either by the DG or by the Commission. It
was further stated that as the minutes of the meetings of ATMA had not
made available to JK Tyres Ltd then it amounted to a denial of natural
justice. J K Tyres Ltd also denied that any cartel existed which determined
the sale prices and limited the production. It was also stated that there
was no material to hold that an agreement existed between the tyre
manufacturers and as an agreement is necessary for finding of violation of
Section 3 of the Act the entire investigation is without any basis and
needs to be dropped. The other arguments regarding anti-dumping
proceedings, low-priced tyres, OEM pricing and blacklisting of importers
were argued upon but the issues raised were similar to those raised by
Apollo tyres Ltd. It was further argued that price parallelism does not
establish the existence of a cartel. It was further stated that the finding of
all the manufacturers were charging the same prices is contrary to the
facts that each manufacturer had its own price for the tyres manufactured
by it. Arguments were advanced that the Office of Fair Trading of the
United Kingdom had held that three basic characteristics/ factors that
must exist for a cartel to be possible are (i) Product homogeneity
(ii) stable turnover over a sustained period of time (iii) stable market
shares. It was argued that if a cartel was to exist two of the three
characteristics should exist. It was stated that there is no product
homogeneity in the case of tyre manufacturers because radial tyres and
bias tyres though being a part of the same relevant product market are
not substitutable because radial tyres are 25% - 35% costlier than bias
tyres. It was also stated that the market shares of other tyre
manufacturers were not stable because the market share in the case of
bias tyres of JK tyres declined from 24.1% in 2005 – 2006 to 19.3% in
2010 – 2011. On the other hand the market share of the Birla’s had
increased from 9.6% in 2005 – 2006 to 18% in 2010 – 2011. In the
same period the shares of Apollo Tyres decreased from 28.9% to 23.6%

53
and 16.1% to 15.7%. In the case of MRF the market share increased from
21.2% to 23.5%. It was also stated that the market was not stable as the
market was shifting from bias tyres to radial tyres. It was further argued
that the DG had erred in relying only on bias tyres when bias tyres was
an obsolete technology and were being replaced by a superior technology
of radial tyres in respect of the domestic tyre market. It was stated that
big world majors like Bridgestone and Michelin were entering the market
and the market was suffering from extreme volatility. It was argued that
in view of this increase in competition a cartel in the tyre industry could
not exist. It was further argued that there were no barriers to entry in the
market and that anybody would enter the market. It was therefore
stated that in view of the provisions of Section 19(3) no cartel existed in
the tyre market. It was also argued that the price charged by the tyre
manufacturers were reflected in their costs and was not above the normal
market prices. It was also argued that the tyre industry had one of the
lowest margins in the entire automobile manufacturing sector. It was
stated that there was no material with the DG to come to a conclusion
that the alleged members of the cartel were earning supra-normal profits.
Reliance was placed on the order of Central Excise & Service Tax
Appellate Tribunal where it was held that the return on capital tyre
manufacturers were low and varied from 10% to 16%. It was stated that
JK Tyres had a return of less than 8% on the capital employed. It was
therefore stated that the Commission should close the enquiry as there
was no agreement of cartel formation or restriction of production or
earning of any supra-natural profit. It was argued that the market is very
competitive and as there was in existence no cartel, the DG report should
be ignored and the case should be closed.

73. Similar oral and written arguments as in the case of Apollo Tyres
Ltd. & J K Tyres Ltd. (prop. Of Birla Tyres) were advanced in the cases
MRF Ltd. & Ceat Tyres Ltd. In the case of Birla Tyres it was argued that it
was producing tyres at nearly 100% of its installed capacity and that
there was no reason to cut down production. The cases relied upon by
the tyre companies in support of their arguments were the same. To sum
54
up, the arguments of the five parties revolved around issues which are as
follows:-

(i) There was no agreement between the tyre companies in order

to control, limit or attempt to limit the production, distribution, sale
of price of, or trade in goods or provision of services. It has been
argued that as there was no agreement the tyre companies did not
enter into a cartel. Even there was no material to hold that an
attempt to cartelise existed in this case.

(ii) There was no price parallelism in this case and the findings of
the D.G. were incorrect. Even if there was price parallelism, there
was nothing illegal unless the D.G. established that price parallelism
was due to concerted action. Further to establish that price
parallelism was anticompetitive, there was a need to establish plus
factors. These factors did not exist in this case. Therefore
anticompetitive behaviour was not established.

(iii) The price rise in the sale of tyres was mainly due to the price
increase of raw materials such as rubber, carbon black etc. and
that the D.G. had not brought on record any material to establish
that the price of tyres increased due to cartelisation.

(iv) Levy of anti dumping duty is a policy decision of the

government and that the levy of such duty is pro-competition.
Further the Commission cannot sit on judgement over the
functioning of a statutory authority like the Directorate of Anti
Dumping Authority.

(v) The reduction in excise duty had been passed on to the

consumers and that there was no competition issue which arises out
of reduction of excise duty.

74. Arguments were also advanced in the case of Automotive Tyre

Manufacturers Association (ATMA). It was argued that in the original
complaint, ATMA did not figure. It was D.G. who made ATMA a party. It

55
 was therefore pleaded that ATMA should be removed from being a party
to the proceedings. It was argued that ATMA was a law abiding
association which was incorporated as a Section 25 company and that it
had not contravened any provision of the Competition Act. On behalf of
ATMA it was denied that it had functioned as a platform for any
anticompetitive behaviour by its members. It was stated that the D.G.
had failed to establish the credibility of the informant and that AITDF had
resorted to filing baseless and unsubstantiated complaints against the
tyre manufacturers. Reliance was placed on the findings of the Designated
Authority in the Directorate of Anti Dumping Authority wherein the
Designated Authority had thrown out the complaints of AITDF and
recommended the levy of antidumping duty. It was further argued that
the D.G. had erred in not considering the arguments of ATMA and making
ATMA a party to these proceedings. It was argued on behalf of ATMA that
due to the unprecedented demand for tyres in India, the prices of the raw
materials for the manufacture of tyres increased leading to a rise in the
price of tyres. It was argued that the D.G. had erred in treating ‘Cross
Ply’ and ‘Radial Tyres’ as part of the same relevant market when in fact
they are separate products. It was argued that the production facility for
radial tyres is a different from cross ply tyres and that the investment
required for radial tyres was substantially higher. In the consequence the
price of radial tyres was much higher than that of a cross ply (bias) tyres.
It was stated that the D.G. has erred in working out the percentage cost
of raw materials. A chart was submitted which is reproduced as under:-

RAW MATERIAL % Share in Total % of total raw materials

Cost as per ATMA as per DG Report
Natural Rubber 30 42
Nylon Tyre Cord Fabric 14 20
Excise duty 10
Synthetic Rubber 8 12
Carbon Black 8 11
Rubber Chemicals 7

56
It was also argued that the D.G. erred in holding that ATMA functioned as
a place/forum for exchange of information and price fixing. It was stated
that pricing of tyres was done by the individual manufacturers and that
ATMA functioned as a forum for legitimate activities of the industry. It
was also stated that the OEM market was a smaller market as compared
to the replacement market but the expenses on account of OEM market
were lower than the replacement market. As far as prices are concerned
the prices of tyres in the OEM market were lower than the prices in the
replacement market. Regarding price parallelism, it was argued that the
product prices in the tyre industry tend to be similar or move in tandem
because of market forces. It was stated that price movement in the tyre
industry is a consequence of price parallelism as opposed to collusive
behaviour.

75. It was stated that price parallelism arises because of product

homogeneity and similar source of inputs. It was argued that prices of
products in the tyre industry are highly visible which allows businesses to
collect real time market intelligence and monitor each other’s prices
closely and match price competitor movements. It was argued if the DG
erred holding that ATMA was a platform for the exchange and sharing of
information relating to price, export, import, OEM producers. It was
argued that the association discussed issues which were negatively
effecting and are common to all the domestic tyre manufacturers. It was
also stated that the DG’s report suffers incompleteness and the report has
not considered the backdrop on which the tyre market operates. It was
also stated that the DG overlooked important practical facts. It was
considered that to arrive at his conclusion the DG had focused on five
different issues which were discussed in the ATMA meeting:

(i) Anti Dumping Petition

(ii) Low Cost Tyres

(iii) Blacklisting importers

(iv) Export Realization

57
 (v) Supply of tyres to OEM’s

It was argued that antidumping actions were taken by ATMA for the
benefit of the tyre industry. It was stated that dumping of tyres in India
was creating harm to the domestic tyre industry. As far as low cost tyres
are concerned it was argued that as the Chinese tyre manufacturers had
introduced low cost tyres, in order to meet competition, the tyre
companies thought of introducing low cost tyres in the Indian market.
This had no competition concern. In respect of blacklisting of importers,
it was stated that the importers were under invoicing their imports thus
evading taxation and as a good citizen the tyre companies helped the
custom authorities in the tackling evasion of tax. As far as export
realization is concerned the tyre companies wanted to realise extra
money for the exports and this cannot be regarded as anti-competitive.
As far as supply to OEM companies are concerned, there was a concern
for the tyre industry because the margins which were available to the tyre
companies were very low and sometime un-remunerative. This also
according to ATMA had no competition concern. It was therefore argued
that the report of DG is on assumption and without proper reasoning and
therefore the proceedings against ATMA need to be dropped.

76. During the course of hearings, though Michelin India Tyres Pvt. Ltd.
was not made a party, the Commission allowed Michelin to submit
arguments in the case in order to understand the issues. The D.G. had
also taken submissions from Michelin as a third party information
provider. The submission of Michelin placed reliance on the findings of
the D.G. who had found that though the rubber prices had fallen by 10%
in 2009-10, the companies showed a higher cost of production. The D.G.
had recorded that no satisfactory explanation for this abnormality was
provided by the tyre companies. The D.G. had found that the production
costs of Birla Tyres and MRF Tyres had increased by 22.8% and 41%
respectively in the period 2009-10 though the rubber prices had declined
by 10%. On the other hand, Apollo Tyres and Ceat Tyres had shown a
decline in production costs of 3% and 3.8%. For this reason, the D.G.

58
came to the conclusion that the tyre companies were inflating expenses
so as to reduce the profits. The D.G. also recorded a finding that the
decrease in the cost of rubber in 2009-10 cannot be said to have an
impact on the cost of production because the tyre companies raised the
price of the tyres.

77. Michelin has alleged that the five tyres companies were fixing their
output in order to retain their market share. It was stated that this was
evident from the analysis of the D.G. for the period 2005-10. It was
stated by Michelin that the analysis by the D.G. for the period 2005-10
showed the following trends:-

(i) The five tyre companies had increased their installed capacity.
(ii) In the case of the two of the companies the capacity utilisation
had decreased inspite of additions of large capacity.
(iii) The market share of these five companies in the total production
of tyres had remained constant during the period.

It was stated that no manufacturer would install capacity and not produce
goods. It was stated that it goes against the self interest of the domestic
manufacturers. It was therefore argued that it was mainly done to fix
output and this showed cartelisation in the industry. To support these
submissions, a chart was submitted in respect of installed capacity which
is reduced as under:-

Installed Capacity (In Lakhs)

2005-06 2006-07 2007-08 2008-09 2009-10
Apollo 79 88 97 99 132
JK Tyre 63 76 87 88 91
MRF 32 34 33 34 36
Birla 12 13 15 14 14
Ceat 43 43 45 45 47

The production of Truck and Bus Tyres by these five companies were
submitted and these are as under:-

59
 Production (In Lakhs)
2005-06 2006-07 2007-08 2008-09 2009-10
Apollo 71 79 89 86 105
JK Tyre 64 70 75 75 79
MRF 24 27 27 27 32
Birla 11 12 14 11 14
Ceat 39 39 38 34 38
Total 208 226 243 233 269
Production

It was stated after placing reliance on the data gathered by D.G. that
these five companies had captured 96%-97% of the market. Another
chart was submitted in respect of the five OPs (ignoring the smaller
producers) which showed their share in the total production of truck and
bus tyres. The chart is reproduced below:

Production in Percentage
2005-06 2006-07 2007-08 2008-09 2009-10
Apollo 34 35 37 37 39
JK Tyre 31 31 31 32 29
MRF 12 12 11 12 12
Birla 5 5 6 5 5
Ceat 19 17 16 15 14

It was argued that though there was an increase in production by a

massive amount in the case of Apollo Tyres its market share remained
more or less constant.

78. Michelin then submitted a copy of an order dated 29.04.2011 issued

by CESTAT against the order of the Designated Authority (DA) of the Anti
Dumping Authority dated 19.02.2010 imposing antidumping duty on bus
and truck radial tyres imported from China and Thailand. Michelin then
relied on the extracts from CESTAT’s orders. In the order CESTAT has
recorded that though installed capacity increased from 26270MTs to
37636MTs, the production increased from 18622 MTs to 27364MTs. The
Tribunal found that the capacity utilisation increased from 70.89% to
72.71%. This was for the period 2004 to 2008. The D.A. had also
recorded that though the demand had increased, production had come

60
down. Michelin has termed it as output parallelism as the percentage
share of each player in the total production has been nearly constant. It
was argued that the relative position in terms of production, where the
installed capacity was different, can be explained only with reference to
an agreement between the manufacturers. It has been argued that
production parallelism can only arise out of agreements especially when
each producer had increased installed capacity substantially.

79. The counsel of Michelin then went through the theories regarding
cartels such as raising prices, restricting output, sharing market, theory of
games, market concentration, oligopolistic market, barriers to entry,
homogeneous goods, market transparency, output restrictions, limiting
production, role of trade association, punishment for deviation from cartel
directives etc. In this connection reliance was placed on the following
decisions: - (i) Williamson Tobacco Corp, 637 F.2d 205, 208 (3rd ct.) U.S.
(ii) Venzie Corporation 521 F.2d 1309, 1314 (3rd Gr.) (iii) Petruzz’s IGA
Supermarkets 998F.2d 1224C.A.3 (Pa)1993 (iv) Poller vs. Columbia
Broadcasting System 368 US 464 (1962) (v) Bogosian vs. Gulf Oil
Corpn. 561 F.2d 434, 446 (3rd Gr1977) 434 US 1086 (vi) I.C.I Case no.
48-69(1975) ECR 1663 (vii) Commission vs. Anic Partecipazioni SPA
(1999) ECR 1-4125. It was argued that the tyre manufacturers have not
only tried to limit the quantity by fixing outputs but also by creating
hurdles in the path of tyre importers through concerted action, one of
which is the levy of anti dumping proceedings.

80. The opposite parties in this case i.e. the five tyre companies have
relied heavily on the findings of the D.A. in the Directorate of Anti
Dumping but they have conveniently not submitted or talked about the
order of CESTAT dated 29.04.2011. Against the order of the D.A. appeal
was submitted by Bridgestone, Michelin, Tata Motors Ltd. and two
Chinese companies. The Anti dumping proceedings had been initiated by
ATMA on 21.10.2008. The Tribunal observed that the data on which the
D.A. had relied was not made available to the Tribunal. The Tribunal
found that during the period 2004-2008, the sales by domestic industry

61
increased 2.5 times. During the same period imports increased from
1361 MTs to 28386MTs. Thus, the demand was very high during the said
period. The turnover, profits and return of capital of the domestic
industry increased but the capacity utilisation was 72%. In fact during
the proceedings Tata Motors Ltd. the largest OEM buyer in India stated
that the domestic players failed to give supply of tyres which was
contracted by them. As a result, Tata Motors imported tyres at a higher
price from China. It was also stated the radial tyres produced by the
domestic industry was of poor quality. The Tribunal has recorded that the
supplies to OEMs were at the cost price of the tyres plus a reasonable
profits but even then the domestic industry was not supplying the goods
to OEMs which led to imports. This invariably leads to the conclusion that
the goods were being diverted to the replacement market and not to
OEMs. The profits in the replacement market are higher. The D.A.
observed that the profits of the domestic tyre companies increased from
Rs.260.17lakhs to Rs.1101.45lakhs during the period under consideration.
During the same period capital employed increased from Rs.12,923lakhs
to Rs. 27,159lakhs and the return on investments changed from negative
of 0-62 to a positive figure of 0.40. The Tribunal on the basis of the facts
came to the conclusion that the DA had not established injury to the
domestic industry and therefore the Tribunal setaside the orders of D.A.
The Tribunal also observed that if antidumping duties remain, there would
be an incentive to the tyre companies to increase the prices of tyres. This
would not be in public interest.

81. The opposite parties objected to the submission of Michelin Tyres

Pvt. Ltd. It was argued that the oral arguments made by Michelin are
beyond the jurisdiction of the present proceedings, as Michelin has added
new allegations against domestic tyres manufacturers. It was also stated
that Michelin was not a party to the complaint that therefore there was no
legal jurisdiction for Michelin to be party in present proceedings. It was
also stated that Michelin was not an informant in this case. It was also
argued that Michelin was not importing any bias tyres into India and
therefore there was no case for grievance. It was stated that Michelin was
62
not a manufacturer of tyres in India. It was also argued that even the DG
had stated that Michelin was importing bus and truck radial tyres from its
affiliates and selling them in India through its distributor. It was stated
on behalf of the tyre manufacturers that the DA had held that there was
cutthroat competition between the domestic tyre producers. It was
argued that there was no legal basis on which the investigation could be
expanded to include Michelin. It was also stated that Michelin had made
an abuse of the process of the Commission. It was brought to the notice
of the Commission that the Michelin had been penalised by the European
Competition Authority for anti competitive practices and therefore any
submissions made by Michelin would be suspect. It was conceded that
entry barriers in tyre industry were high due to the heavy investment
required in the tyre industry but this did not debar the foreign players like
Michelin, Bridgestone and Continental etc. to enter in tyre manufacture in
India as they had deep pockets. It was also stated that Michelin is not
independent expert body which can stand on judgement. It was argued
that there was a deliberate attempt on the part of the tyre companies to
control of production by under utilization of capacity. Reliance was placed
on the findings of DA who in the case of the import of bias tyres had held
recommended the levy of antidumping duty. It was also stated that the
said order of the DA was confirmed by CESTAT. It was also argued that
the DG as well as Michelin had adopted a theoretical approach while
dealing with the whole issue. It was also stated that the prices of the tyre
companies were as a result of independent pricing decisions. It was also
argued that there were no barriers in the market to enter and that there
was total transparency in the market. It was also stated that the
allegations of cartel cannot be concluded on the basis of price parallelism.
It was therefore stated that the findings of DG and Michelin are incorrect
and should be rejected.

82. During the course of the hearing Shri S. P. Singh convener of AITDF
submitted arguments. In his arguments Shri Singh stated that the
findings of the DG in his investigation report are correct. He repeated the
allegations which he had made earlier. He also stated that price
63
parallelism by the five opposite parties had been established by the DG
and that these five companies controlled 95% of the production. In his
view the DG had limited his investigation to the truck and bus tyres for
establishing parallelism with reference to a particular tyre size. In the
opinion of Shri Singh if the DG had picked up the other sizes of tyres for
bus and trucks the result would have been the same. He stated that the
behaviour of the five tyre companies was a concerted action. As far as the
radial tyres were concerned Shri Singh stated that hardly any radial tyres
were being manufactured in India prior to 2006 and therefore in
manufacture of radial tyres price parallelism could not be looked into. It
was argued by Shri Singh that the tyre size taken by the DG was
absolutely identical for all the manufacturers. It was therefore argued
that the argument of the opposite parties that the DG has erred in
comparing one type of tyre with the other tyres is not correct. It was
stated that there was no question of comparing apples with oranges.
Shri Singh then referred to increase in the rubber prices in the year 2006
and he also referred to circulars issued by the tyre companies advising
the dealers that as the rubber prices had increased the prices of tyres
would have increased. The price of rubber increased up to June 2006 but
the manufacturers did not roll back the price of the tyres when the price
of rubber fell. In his view this was a clear-cut case of price parallelism.
Shri Singh then referred to similar situation which arose in 2008 where
the rubber based raw materials had a price increase and this led to a rise
in prices of tyres. But when the prices of raw materials came down the
tyre companies did not reduce the price of tyres. In November 2010 the
rubber price had gone up from Rs.180 per kg. to Rs.240 per kg and the
tyre prices as a consequence increased , but in May 2011 when the price
of rubber fell, tyre prices were not reduced. As far as excise duty was
concerned, in 2004, the excise duty on tyres was 32% which was
subsequently reduced to 16% and later to 8% but the benefits of the
reduction in excise duty was not passed on by the tyre companies to the
consumers. It was also stated that the submissions made by Michelin
Tyres India Pvt. Ltd. were correct. The tyre companies had resorted to

64
 price parallelism and under utilisation of capacity. Shri Singh also
referred to the order of CESAT by which it setaside the order of the
Designated Authority levying antidumping duty on radial tyres. It was
argued that the tyre companies had cartelised and restricted the import of
tyres into the Indian market by getting anti-dumping duty imposed. It
was also alleged by Shri Singh that the balance sheet and the other
financial data submitted by the tyre companies were doctored accounts.
It was therefore argued that penalty should be levied on all the five
opposite parties.

83. An analysis of the return on capital of the five companies involved

was carried out. The figures are based on as was available on stock
broking websites as well as on financials made available by the companies
is as follow:

S.No. Name of Company Return of Capital Employed

Mar-
11 Mar-10 Mar-09 Mar-08 Mar-07 Average
1 MRF Ltd ( As on 30th Sep) 15 23.5 21.2 13.3 18.4 18.28
2 CEAT 9.6 25.8 4.5 20 15.1 15
3 Apollo 12.7 28 13.4 24 17.5 19.12
4 J K Tyres 11.2 22.6 9.6 14.7 7.5 13.12
Kesoram Industries
5 Ltd.(Birla Tyres) 1.7 14 18.7 32.7 29.4 19.3

Another analysis with the net cash of the operating activities, investing
activities, financing activities in the net cash flow of the five companies
for different years is reproduced as under:

CASH FLOW STATEMENT FOR MAJOR TYRE MANUFACTURERS

S.No. Company Name Net cash from Operating Activities

2007 2008 2009 2010 2011
1 MRF Ltd ( As on 30th Sep) - - 846.76 157.00 277.00

2 CEAT 104.90 20.47 131.21 232.67 138.64

3 Apollo 357.47 427.77 324.58 702.65 152.36

4 J K Tyres 266.35 544.22 -21.26

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 5 Kesoram Industries Ltd -370.26 448.86 370.26 256.55 173.11
S.No. Company Name Net cash from Investing Activities
2007 2008 2009 2010 2011
1 MRF Ltd ( As on 30th Sep) - - 614.53 -627.9 -833.75

2 CEAT -14.15 61.80 -52.68 -238.41 -483.68

3 Apollo -399.87 -168.70 482.59 1053.11 854.46

4 J K Tyres 349.73 -169.3 -283.82

5 Kesoram Industries Ltd 0.00 703.95 1034.71 -1252.34 -564.42

S.No. Company Name Net cash from Financing Activities
2007 2008 2009 2010 2011
1 MRF Ltd ( As on 30th Sep) 657.03 -614.22 845.75

2 CEAT -89.81 -81.24 81.40 -55.58 252.80

3 Apollo -169.58 -165.218 180.456 326.45 587.43

4 J K Tyres 96.15 -353.64 327.09

5 Kesoram Industries Ltd 0.00 268.39 680.76 1019.38 384.50

S.No. Company Name Net increase/Decresh in cash and cash equivalent
2007 2008 2009 2010 2011
1 MRF Ltd ( As on 30th Sep) - - -42.46 -14.7 12.06

2 CEAT 93.87 103.57 159.93 -61.48 -92.34

3 Apollo -59.36 93.85 2.24 -2.40 -114.84

4 J K Tyres 12.77 21.28 22.01

5 Kesoram Industries Ltd 13.30 16.31 23.59 -6.8

Note: 1) Apollo purchased assets of Rs. 893.9 Cr, Rs.858.54 Cr, Rs. 466.29 Cr, Rs.158.57Cr and Rs. 148.71 Cr for F.Y. 2011 - 2007
2) Ceat purchased assets of Rs. 52 Cr, Rs. 20 Cr., Rs. 41 Cr, Rs. 238 and Rs.483 Cr. 2007-2011
3) MRF purchased assets of Rs. 1126 Cr, Rs. 870 Cr. And Rs. 162.28 Cr. For F.Y. 2009-11
4) JK Purchased assets of Rs. 323 Cr., Rs. 173 Cr and Rs. 290 Cr. For 2007-2011
5) Birla Tyres purchased assets of Rs. 989 Cr, Rs. 688 Cr, Rs. 562 Cr and Rs.1252 Cr for F.Y. 2008-11 (combined for all segments)
(Cement, Tyre etc.)
(-) indicates figures not available

66
84. These figures show that all the tyre companies within the period
2007 and 2010 were having positive cash flow from operating activities.
Further, the data on the return on capital shows that the tyre companies
were doing quite well during the period under review. Normally
worldwide return on capital in tyre companies is 10% to 16% and
anything in excess of it would be an excessive return on capital. This is a
finding of CESTAT in the case decided against the tyre manufacturers. In
fact in March 2010 all the tyre companies had return on capital more than
22%. The only exception is Birla Tyres. Even in March 2011 return on
capital was more or less above 9.6%. In March 2009 Ceat Tyres suffered
a lockout but the other companies had a return on capital of over 18%.
This clearly shows that the tyre companies were doing exceedingly well.
Even CESTAT has recorded a finding that the tyre companies were
performing well and that they had not been able to meet the local
demand which led to an increase in import of tyres. This has also been
confirmed by Tata Motors Ltd the largest OEM manufacturer before
CESTAT. The issue to be looked into is whether there was a concerted
action on the part of the tyre companies or some practices carried out
which led to an appreciable adverse effect on competition in India.

Findings -

85. We have to examine the arguments raised on behalf of the OPs.

The first argument was that there was no agreement and therefore the
tyre companies did not form a cartel. There was no material on record to
show that the tyre companies had entered into a written agreement to
introduce anticompetitive features in the tyre market. But whether any
agreement existed in accordance with the definition of agreement in the
Act has to be examined with reference to the behaviour of the tyre
companies. But in the arguments the tyre companies have not submitted
any material/evidence to show that no agreement between the tyre
companies existed. On the other hand various factors which lead to the
existence of agreement have been discussed in subsequent para.

67
86. The second argument raised is that parallel pricing of tyres does not
exist and even if it exists it does not raise any competition concerns. But
no material or evidence has been brought on record to establish that the
findings of the D.G. are incorrect. There is no doubt that parallel pricing
by itself is not sufficient to establish anticompetitive behaviour. Some
plus factors are needed to establish parallel pricing behaviour as
anticompetitive. The tyre companies mentioned that the D.G. had not
found any plus factors to establish that the tyre companies had
anticompetitive behaviour during the period under consideration.

87. The third argument raised is against the findings of the D.G. that
the tyre companies had curtailed production to reduce the supplies in the
market and thus increase the price of the tyre in the market. DG’s case is
also that though there was large capacity addition, in order to keep the
market share of each of the participant in the market constant, the
companies curtailed their production. The OPs have denied the findings
of the D.G. but they had not furnished reasons as to why they did not
fully utilise their full capacity for the production of tyres especially when
the demand for tyres in the market was quite high. They have also not
brought on material any record to establish that the findings of the DG
were incorrect.

88. The fourth argument raised mainly by M/s Apollo Tyres Ltd. was the
concept of the “capacity available for production”. It was argued that
sometimes capacity is added in the last month of the accounting year and
though the capacity increased towards the end of the accounting period,
the capacity available for major part of the year was lower as the new
capacity was not available for the major part of the year. Sometimes due
to breakdown, fires etc. or because of strikes and lockouts the capacity
available for production gets lowered. Capacity available for production
would be available for production would be over a period of time. But
such capacity would be variable from day to day whereas the installed
capacity is not a variable figure but a fixed figure. The capacity available
for production would be dependent on the whims of the management as

68
the capacity can be reduced due to breakdown or lockouts. In fact,
capacity gets reduced by strikes and lockouts. But strikes arise due to
the action of the workers which leads to the stoppage of production
whereas lockouts are imposed by the management and this also leads to
the curtailment of production. Normally in many industries lockouts are
resorted to on some pretext or the other to reduce production, create
shortage and increase prices due to shortage. The concept of “capacity
available for production” is a variable concept and cannot be the basis of
any analysis. On the other hand, installed capacity is an absolute and
fixed item which forms part of the accounting standards and is reflected in
the accounts. After relying on these arguments, the representative of M/s
Apollo Tyres Ltd. stated that the capacity utilisation of Apollo Tyres was
90%. The working to arrive at this figure at 90% was not submitted. On
the other hand the company before the D.G. had stated that the capacity
utilisation for the Financial Year 2009-10 was 80%. Therefore the
arguments raised on this issue are without any basis and have to be
rejected. It was to be accepted that the capacity utilisation of Apollo Tyres
was only 80%.

89. Another issue raised during the arguments was the issue of
selection of one type of tyre by the DG for the purpose of his analysis.
The facts are that in the tyre industry the main segment which gives the
maximum revenue is the truck and bus segment. In fact this segment
gives revenue of 65% to the tyre industry (ICRA report). The track and
bus segment gets revenue from two sources namely OEM market and the
replacement market. The profits in the OEM market is low because the
sale price in the OEM market is cost of production plus a fixed percentage
of profits based on the cost of production. But the OEM market in India
consumes 44% of the T&B tyres produced in India. On the other hand in
the replacement market the prices are higher but it consumes 51% of the
total T&B tyres produced in India. Various types of tyres are
manufactured by the tyre companies in India but the type selected by the
D.G. for his analysis is the one which is mainly used in the OEM and the
replacement market. Thus the selection of one type of tyre by the DG as
69
representative of the industry is correct. Further this tyre gives the
maximum revenue to the industry. It was not necessary to take any
other tyre for the analysis.

90. The next issue raised by all the OPs is against the jurisdiction of the
Commission in this case and extension of investigation of the D.G. from
2007-2010. These issues have been dealt at the preliminary stage in this
report and there is no necessity to deal with them now. It has already
been held that the Commission and the D.G. had jurisdiction and the
powers to extend the scope of inquiry. The only aspect to be considered
is that as Sections 3 and 4 of the Competition Act were notified w.e.f.
20.05.2009 the Commission can take cognisance of the case only w.e.f.
20.05.2009 and for the behaviour after that date, if found fit, the
companies could be penalised. The behaviour of the companies prior to
20.05.2009 can be studied in order to understand the behaviour after
20.05.2009 but the companies could not be penalised by the Commission
for any anti-competitive behaviour prior to 20.05.2009. But any anti-
competitive behaviour started prior to 20.05.2009 and continued after
that date has got to be inquired by the Commission.

91. Another argument raised by the OPs is that the Designated

Authority (D.A.) of the Anti Dumping Directorate is a statutory authority
and the orders of the D.A. cannot be questioned as he is working under a
statute. In fact the orders of the D.A. are quasi judicial orders which can
be appealed against. There is no doubt that many orders of the D.A. may
be anticompetitive as they reduce the competition in the market by
making the imports costlier and thus reducing the consumer choice. But
the main objective of the D.A. is to protect the domestic industry mainly
when the domestic industry is threatened by dumping of imports from
certain foreign countries. There is no doubt that the D.A. can be treated
as an enterprise as it falls within the definition of Section 2(h) of the
Competition Act. But then the question arises whether the Competition
Commission, a statutory authority, can question the decision of another
statutory authority which is the D.A. in this case. This cannot be done

70
but the Competition Act gives a mandate to the Commission to term the
orders of D.A. as anticompetitive because the orders of the D.A. would
reduce the supply of goods in the market and could also lead to increase
in the price of goods in the market. Many times, a group of producers of
a commodity, in order to protect their market share, can raise the bogey
of dumping before the Designated Authority, Anti Dumping Directorate
and if the D.A. is satisfied it can start the investigation of antidumping of
the said commodities in India. The producers can lobby before the D.A.
and if the D.A. is satisfied it can pass an order declaring certain imports of
the commodity from certain countries as dumping in India. Aware of this
fact, the main five tyre companies moved the D.A. twice for imposing
antidumping duties on tyres imported from Thailand and China. In the
first instance in 2005 these five tyre companies moved a petition before
the D.A. for the levy of antidumping duty on the import of lug tyres from
Thailand and China. The D.A. after examining the facts of the case held
that there was dumping in respect of imports of tyres from these two
countries. The matter was taken in appeal before CESTAT. CESTAT
confirmed the orders of the D.A. Thus, till today the imports of lug tyres
from Thailand China are subject to antidumping duty. In turn, the Indian
consumer is deprived of choosing a cheap tyre which used to be imported
earlier. This also gave a license to the tyre companies to increase the
price of their tyres to the price of the tyres which were imported into
India after the levy of antidumping duty. This increased the bottomlines
of the five tyre companies. In fact after the levy of the antidumping duty
in 2007, the return on capital employed as on 31.03.2008 of Ceat, Apollo,
J.K.Tyres and Birla Tyres increased to 20%, 24%, 14% and 32.7% from
15.1%, 17.5%, 7.5% and 29.5% as on 31.03.2007 respectively. As the
accounting period of MRF closes on 30th September, its profit appear in
the subsequent year. In fact in the accounting year ending on 30th
September, 2008, MRF’s return on capital was 21.2% against 13.3% in
the immediately preceding year. Thus the levy of antidumping duty led to
price increases and lowering of choice of the consumers and higher prices.

71
92. In the second instance, the five tyre companies through ATMA
moved the D.A. again for the levy of redial T&B tyres from China and
Thailand. Incidentally, prior to 2006 hardly any radial tyres were being
manufactured in India. These tyres were being imported into India by
Bridgestone, Michelin, OEM players like Tata Motors and others. In order
to protect their turf, the five tyre companies felt it necessary to put an
impediment on these imports. Accepting their plea, the D.A. vide his
order in 2010 held that radial T&B tyres from Thailand and China were
being dumped in India and for this reason the D.A. recommended to the
Customs Authorities to levy antidumping duties on the import of T&B
radial tyres. This order of the D.A. was challenged by Bridgestone and
Tata Motors before CESTAT. CESTAT held that before coming to a
conclusion it was the duty of the D.A. to establish that harm had been
caused to the domestic industry. In the opinion of CESTAT as this was
not established, no antidumping duty could be levied on the imports of
T&B radial tyres. Therefore the orders of the D.A. passed in January 2010
was setaside in 2011 and T&B radial tyres could now be imported into
India without the payment of antidumping duty. But for a few months in
2010, the tyre companies had the benefit of having no competition from
imported radial T and B tyres.

93. The next issue to be examined is the fixing of BIS standards for
tyres. In fact in all the meetings of ATMA since 2005 the tyre companies
were of the view that BIS standards be fixed for tyres. ATMA moved the
concerned authorities for fixing the standard for tyres to be sold in the
Indian market. In May 2011 the Bureau of Indian Standards issued an
order and on the basis of this order no tyre having no BIS standards mark
could be sold in India. Tyres have been imported in India since 1947 and
no defects were found in those tyres. But it is always better to have a
standardised product and after the fixing of the standards only quality
products would be available to the consumers. But the main aim of the
tyre companies was not the fixing of standards but to create an
impediment for the importers. In this manner they wanted to protect their
turf and ensure that the imported goods do not curtail the market for
72
their goods. Therefore the main reason for the tyre companies was the
curtailment of competition in the market making imports difficult. They
found a convenient way of getting BIS standards approved for the Indian
tyre market.

94. An argument has been raised that the tyre companies do not decide
the issue of anti-dumping as well as fixing standards for the tyres sold in
the market. One of the arguments advanced in the course of hearing was
that lobbying to achieve an objective does not all foul of the Competition
Act. It was stated in support of this argument that the US Supreme Court
had held that lobbying had no competitive concern. The facts are that
anti-dumping duty and standards are set up by statutory authorities
under different laws. But under these laws someone has to move the two
authorities so that the authorities could come to a decision after following
a process. But the fact is that the authorities on their own do not fix
standards or impose anti-dumping duty. Someone has to move the
authorities either for the levy of anti-dumping duty or fixing standards.
Tyres were being imported into India for a large number of years and
there was no material to hold that these tyres did not have the quality or
were substandard. It was only in May 2011 that due to the action taken
by ATMA on behalf of the five tyre companies that standards were set in
India for the sale of tyres. Now no tyre can be sold in India which does
not have BIS standard. Similarly as far as anti-dumping duty is concerned
these tyre companies through the agency of ATMA again move the
Designated Authority of the Anti Dumping Directorate and the DA after
examining the facts recommended the levy of anti-dumping duty. The
orders of the authorities like the DA cannot be the subject matter of
examination by the competition authorities except that it can be
mentioned by them that such action has anti-competitive effects in the
market. But the prime movers for the levy of anti-dumping duty and
standards were the five tyre companies and this shows a concerted effort
on the part of the tyre companies to protect their turf and impede
competition in the market.

73
95. It has already been mentioned in the report of ICRA that radial
tyres have a life which 80% more than that of cross ply tyres and that
radial tyres also increase fuel efficiency of the vehicles. First time radial
tyres were manufactured in 1940 but the tyre companies in India in order
to ensure that their investments in the manufacture of cross ply tyres do
not become bad did not invest any amount in the production of radial
truck and bus tyres. Thus the Indian consumers were denied the benefit
of a more efficient tyre. Further the sale of cross ply tyre resulted in
higher consumption of petroleum because the fuel efficiency of cross ply
tyre much lower than that of radial tyres. Thus the decision not to
manufacture radial truck and bus tyres was not correct in public interest.
In Europe in the Truck and Bus segment, radial tyres constitute 100% of
the tyres used but in India it is only 10% approximately. Thus there was
denial of good products to the Indian consumer because very low
investment in T&B radial tyres by the tyre companies.

96. Another interesting issue in this case is the fact that these five tyre
companies have tried to fix the importers of tyres. First of all they moved
the custom authorities to fix the price of imported cross ply and radial
tyres. Many times the custom authorities accepted the arguments of the
tyre companies in respect of fixing the price. This led to a larger outgo
for the importer of tyres as on a higher price the custom duty would be
high. The second fact to be considered is that these five tyre companies
also constituted groups at Delhi, Indore and other places to find out
underinvoicing of tyre imports by the importers. This was mainly done to
harass the importers. If due to the difficulties created the importers
exited the market then these five tyre companies were in a position to
reduce competition from imported tyres in the market. This is also an
anti-competitive behaviour, though the plea of the tyre companies was
that this was done mainly in public interest. It was stated that such
activities were resorted to by the tyre companies to ensure that the
government got goods revenue. This argument is not acceptable for the
simple reason that the only motive of the tyre companies was self gain.
The idea of gain led them to fix the importers by ensuring that they paid
74
higher custom duty. Their action also ensured that the price of the
imported goods would go up which is anti consumer. Further the
imported tyres would not be able to compete with the tyres manufactured
by these five tyre companies.

97. Another interesting aspect in the case of tyre companies is that the
they had curtailed production on various occasions. Normally in industrial
unit whenever a strike takes place, it leads to curtailment of supply. But
in the case of tyre companies the curtailment of supply arose out of the
lockout brought in force by the management. It is a fact that in many
Indian industries the management resorts to lockouts on because of
labour trouble but the fact is that sometimes the lockouts are on account
of some other ulterior. In the case of tyre companies whether it is Apollo
or Ceat, lockouts were resorted by the management to reduce the supply
in the market.

98. On a perusal of the order of CESTAT in 2011, it is seen that these

tyre companies did not supply the entire contracted tyres to the OEMs.
This is evident from the statement of Tata Motors before CESTAT. Tata
Motors stated that though the tyre companies had contracted to supply
tyres they failed to supply even though there was a contract. As a result
the OEMs had to import tyres from abroad and this led to added costs for
the OEMs. On the other hand the tyre companies exported large
quantities of tyres to foreign countries. The tyre companies have stated
that the exports resulted in losses for the tyre companies. It is not clear
as to why the tyre companies exported tyres but failed to supply
contracted amount of tyres to the OEMs. CESTAT has held that the
demand for tyres in the Indian market was very huge and the tyre
companies were not in a position to meet the demand and that demand
was met out of import from abroad. A perusal of the minutes of the
meetings of ATMA show that the tyre companies were not willing to
supply tyres to the OEMs because the profit margin was low. The orders
of CESTAT show that though the demand was high the tyre companies
were exporting tyres at loss to foreign countries. In fact in the case of

75
exports to Egypt anti dumping duty was levied by the Egyptian authorities
on the tyre companies. In any case the behaviour shows that though the
demand in the Indian market was quite high, the tyre companies were not
willing to supply to the Indian OEM manufacturers and this was done by
exporting the goods.

99. The minutes of the meeting of ATMA show that the five tyre
companies agreed to divide the export market among themselves. The
division of a market among manufacturers is a clear sign of cartelised
industry. But under the Competition Act 2002 in Section 3(5)(ii) it is
stated that nothing in section 3 would restrict the right of a cartel to
export goods from India. This means that an export cartel is exempted
from the operation of the Competition Act by an express provision in the
Act. But this does not mean that there was no cartel in existence in India.
It is an exemption provided under law to a cartel which is engaged in
exports but the existence of a cartel cannot be doubted. The behaviour of
the tyre companies shows that if they were a cartel or had anti-
competitive behaviour on various issues then this arrangement of
distributing exports among themselves would be a basis to arrive at a
conclusion of the existence of a cartel in tyres in India.

100. It has already been discussed above that many of these tyre
companies were resorting to tie in arrangement. Tie-in arrangement
existed in the business as in addition to the tyres the dealer had to sell
tubes and flaps along with tyres to the retail buyers. If this is not tie in
arrangement it is not clear as to what would be a tie in arrangement. It
has already been discussed that many of the tyre companies had
exclusive supply agreement with their dealers. This means that these
dealers cannot sell the goods of any other person other than that of the
principal with whom he had entered into a contract. There is also a case
of resale price maintenance. In many cases the tyre companies had
directed the dealers that the sale price of the goods sold by them would
be a price fixed by the tyre companies. This is clearly an anti-competitive
behaviour. The tie in arrangement, exclusive supply agreement and resale

76
price maintenance are practices followed by the tyre companies which can
be classified as anticompetitive practices.

101. Before taking this discussion further it is necessary to analyse the

history of the tyre industry in India. In the Tariff Commission reports of
1985 and 1988 it was found that the intercompany price variation was a
matter of concern especially when the prices moved in tandem. The
Bureau of Industrial Cost and Prices in 1983 had held that the tyre
industry was a big cartel and that it was the duty of the government to
ensure competition. The bureau also held that the industry had excess
capacity which it was not utilising and that the prices of tyres moved in
unified and coordinated manner. This according to the Tariff Commission
and BICP clearly showed that cartelisation in the tyre industry existed in
India in the 1980s. In this analysis though the reports of 1980s are not
very relevant in the present time frame, it certainly throws light on the
behaviour pattern of the tyre companies. In this analysis we have to find
out whether these practices were followed by the tyre companies in the
current scenario.

102. The next issue to be decided is the issue as to whether any parallel
pricing existed in the tyre market and whether the price of the tyres
moved in tandem so as to have an anti-competitive effect. In the 1980s
the Bureau of Industrial Costs and Prices and the Tariff Commission had
held that the price variation among the five companies was a matter of
concern and that the prices increased in tandem. It has to be examined
whether the same situation exists after 2009 or not. The Director General
in his report which is reproduced in para 20 of this order had established
that the prices of the lug tyres selected by him moved in tandem from
2005-2006 to 2009-2010. The price in 2005 of the lug tyres of Apollo
was higher than that of the other manufacturers. Similar was the situation
in the years 2006-07 to 2008-09. But in 2010 the prices of all the
manufacturers of the lug tyre selected was more or less the same. The
DG in his report has stated that the Apollo tyres was the market leader
and the others were the followers. There is no doubt that the prices of the

77
lug tyres of Apollo Tyres were 1000 rupees higher that the lowest costing
tyres in the years 2005, 2006 and 2007. The gap decreased to Rs.400 in
2008 and in 2009 the prices of lug tyres of Apollo Tyres were again
Rs.1000/- more than the lowest priced tyres. In 2010, the prices of the
tyres of all the companies were more or less the same. Normally when a
person enters the market he examines the prices of similar products of
other manufacturers and the new entrant then fixes his prices in
accordance with the prices of the products of other manufacturers who
produce the same goods. This is natural and this does not raise any
competition concerns. But if there are some other factors which exist that
leads to an increase in prices in coordinated manner i.e. an action in
concert, then it certainly raises competition concerns. In the five years
under consideration for the first four years a similar gap existed in prices
between the lug tyres of Apollo and the prices of the other manufactures.
The pricing in such a coordinated manner could not have existed if there
was no prior consultation. In the year 2010 the prices of the lug tyres
under consideration of all the five manufacturers became more or less
same. Thus a coordinated behaviour on the basis of prices is seen in all
the five years under consideration. There is therefore a case for parallel
pricing. But parallel pricing by itself is no evidence of cartelisation. For
cartelisation to be established other plus factors have to be seen. The DG
in his report has held that there was parallel pricing. On the other hand it
was the duty of the tyre companies to produce material on record to
establish that the findings of the DG were erroneous. The OPs in this case
have disputed the findings of the DG but have not established as to how
the working of the DG on account of parallel pricing was incorrect. They
have stated that the prices of the tyres were changed at many times
during an accounting period and that the DG by taking a price which is an
average price and not adjusted price has erred in taking the prices
adopted by him. But then it was the duty of the OPs to give the correct
price and to establish that the working of the DG was not correct. This
onus has not been discharged by the OPs. Therefore parallel pricing is
held to be established in this case.

78
103. The next issue to be considered is the capacity utilisation by each of
the tyre companies. The DG in his report in para 22 of this order has
considered capacity utilisation by the five OPs inflation from 2005-2006 to
2009-2010. In the case of Apollo Tyres the capacity utilisation as
furnished by Apollo Tyres itself reduced to 80% in Financial Year 2009-10
from the earlier capacity utilisation ranging from 89-92%. In the case of
Birla Tyres the capacity utilisation has varied from 81.59% in 2008-2009
to 104.57% in 2009-2010. In the case of MRF the capacity utilisation has
increased from 74.7% in the earlier years to 89.04% in 2009-2010. In
the case of Ceat Tyres which the capacity utilisation was 75% in the
financial year 2008- 2009, 81% in 2009-10, 91% in 2006-07. In the case
of JK tyres the capacity utilisation has been going down. It was 101% in
2005-06 and has now come down to the 86.7% in 2009-10. Large
capacities have been added in the case of Apollo Tyres but the capacity
has not been utilised. On the other hand Birla Tyres has increased its
capacity utilisation. In the case of MRF capacity utilisation was much
lower in the earlier years but has been increasing in the subsequent
years. In the case of Ceat Tyres and J.K.Tyres the capacity utilisation has
been going down between the years 2005-2006 and 2009-10. CESTAT in
its order had held that the local industry was not able to cater to the
demand in the market and for this reason large imports have taken place.
In view of this finding of CESTAT there is no reason as to why the
capacity utilisation of Apollo Tyres, Ceat Tyres and JK tyres had been
falling. On the other hand Birla Tyres and MRF Tyres have increased their
capacity utilisation because there is more demand for the products in the
market. Normally one of the ways in which a cartel operates is to cut
capacity utilisation so as to ensure shortage of the material and therefore
an increase in prices. In fact in India in the year 2009-10 the demand was
much more than what the local industry could cater. There is no reason
for three of the largest companies to reduce their capacity utilisation.
Therefore the DG is correct in holding that the capacity utilisation in most
of the companies have gone down in the period under review.

79
104. Another issue to be discussed is the sharing of information by the
five tyre companies. According to the DG, ATMA provided the platform for
the sharing of information. Various meetings were held in the premises of
ATMA which is a registered company and is an association of the tyre
manufacturers in India. These five tyre companies are very active in the
activities of ATMA. ATMA is also functioning as the body for all the tyre
manufacturers. The production data, the cost of production and other
details of each tyre companies are submitted to ATMA. ATMA maintains all
the data and provides the details to government and other bodies. The
information furnished by the Companies are also shared among
themselves. In fact the petitions for introducing anti-dumping duties on
imports from China and Thailand as well as setting standards for tyres in
India was moved by ATMA at the behest of the five tyre companies. In
fact in one of the meetings held in August 2006, it was decided that the
monthly import level of natural rubber for all the companies should be
ascertained by the ATMA Secretariat and the details so obtained should be
submitted to the managing directors of the companies. In the premises of
ATMA, it was also discussed that awareness should be created among the
tyre companies that there was a necessity of imports in the country to
meet the increasing demand and that there was no intention to fix the
amount of quantity of import. Thus there is material is to be hold that not
only the export quota was fixed among the members of the association
which are the five tyre companies. Discussion among the members
showed an intention to fix an import quota. The sharing of information
among the tyre companies has led to fixing similar prices for the tyres
and also probably to the underutilisation of the capacity by the tyre
companies. The opposite parties have relied on the ratio laid down in the
case of Maple Flooring Manufacturers Association (Supra) a U.S. Supreme
Court decision. In that case the US Supreme Court has held that sharing
of information regarding trade which leads to a uniformity of price and
trade practice as well as supplies of merchandise can hardly be deemed to
be a restraint of commerce. According to the US Supreme Court such
sharing leads to more scientific knowledge or business conditions and

80
leads to stability of production and price. In the opinion of the Supreme
Court competition means a free and open market and that free
distribution of knowledge does not lead to anti-competitive behaviour.
These observations of the US Supreme Court has been delivered in some
context. Without seeing the context of the decision it has no meaning. If
the sharing of information leads to anti-competitive behaviour such as
price fixing sharing of markets, foreclosure of competition in the markets
and curtailment of production then such sharing information has to be
regarded as anti competitive. There is no doubt that the observations of
the US Supreme Court would have been proper in the relevant context
but if the sharing of information was for the purpose of anti-competitive
behaviour then such sharing information also has to be regarded as the
anti competitive.

105. Another issue raised by the informant is that the cut in the Central
excise duty had not been passed on by the tyre companies to the
consumers. Though during the course of hearing the OP's have tried to
explain that the entire relief granted in the form of excise duty to them
have been passed order to the consumers, in fact this is not correct. The
excise duty used to form a big chunk in the price of tyres and was nearly
60% of the cost of tyres around 10 years ago. But in 2009 the excise
duty was reduced to 8% of the cost of tyres and at present it is 10% of
the cost of tyres. The cut in excise duty has a direct co-relation in the
price of tyres and if there was a reduction in the excise duty then this
should have been passed on to the consumers. This has not been done.
Some relief has been granted to the consumers but the major part of
excise duty had been cornered by the tyre companies themselves

106. Entry in the tyre industry requires large amount of capital and
therefore entering the market of the tyre production is difficult. In fact the
entry barriers arise due to the high costs involved in setting up a tyre
manufacturing units. Therefore India is not having many new
manufacturers of tyres in India. The tyre manufacturing companies in
India which are OPs in this case have hardly made any investment in

81
research and development. Tyre companies all over the world spend 3%
to 4% of their turnover in research and development but in India the tyre
companies spend only 0.3% to 10% of their turnover for research and
development. Thus the companies want to maintain the status, protect
their turfs and not spend any amount in giving greater benefits to the
consumers. Thus, the companies do not offer any innovation their area of
business.

107. Another issue raised by the Director General is a comparative study

of the market share of each of the five OPs. The information of market
share was compiled by ATMA and the details of the compiled by ATMA
were used by the DG and have been reproduced in para 24 of this order.
The market share of Apollo Tyres, Birla Tyres, Ceat Tyres, Goodyear Tyres
and J.K. Tyres for the financial year 2009-10 are 25.83%, 19.74%
13.59% 1.45%, 19.07% and 19.55% respectively. A perusal of the
chart would show that the market share of Apollo Tyres has remained in
the vicinity of 26% but has varied within a range of 10% in different
years. In the case of Birla Tyres the market share has been increasing
since 2005-06. In the case of Ceat tyres the market share has remained
in the vicinity of 15% with variation of 10%. In the case of J.K. Tyres the
market share has remained in the vicinity of 22% with aviation of 10%
both ways. In the case of MRF market share has remained within the
vicinity of 20% with again small variation. Thus market share of this five
OPs have to be regarded as constant over all the years with the exception
of Birla tyres. In the case of Birla tyres and there has been an increase in
the market share whereas in the other four cases the market shares have
remained more or less constant. A constant market share does not mean
that in each financial year the market share would be arithmetically the
same. There can be a variation of 10% which is accepted norm.
Therefore it can be stated out of the five OPs, four of them had a constant
market share over different years in the production of tyres. In the
arguments though the OPs have argued that the market shares are not
constant but no material has been submitted or any arguments advanced
to establish that the working of the DG was incorrect.
82
108. The Office of the Fair Trading (OFT) of the United Kingdom has
circulated a paper that the three basic factors which must exist for a
cartel to be possible are (i) product homogeneity (ii) stable turnover
sustained over a period of time and (iii) stable market share. In the
opinion of the OFT if two out of the three factors exist in a given situation
then there is a possibility of the existence of a cartel. In this particular
case out of the five tyre companies four of them had a stable market
share. In the case of Birla Tyres there is an increase in market share as
the demand for T&B tyres in the market was very high. The market share
may have increased also due to added capacity or better utilisation of
capacity. But as there was a shortage of tyres in the market, Birla Tyres
produced more tyres and therefore its market share had gone up. On the
whole therefore it can be assumed that the Cos. had a stable market
share. The products of all the five tyre companies for a particular
segment such as the truck and bus segment were homogenous i.e. the
goods of one company could be substituted by the goods of another
company. Therefore it can be said that product homogeneity existed in
the market of tyres. As far as stable turnover is concerned it is not
established because the prices of tyres had gone up for the reason that
the rubber and other raw materials prices had gone up. But the fact is
that in financial year 2009-10, though the cost of rubber declined the
prices of tyres were increased considerable. This is evident on the basis
of the returns on the capital employed in each company which has
already been discussed above. Thus, it is clear that out of three factors
mentioned by OFT, two of the factors exist in the market for tyres.
Therefore there was a reason for the cartel to exist.

109. In Competition Act, 2002, a cartel has been defined in Section 2(c)
as follows –

Section 2(c) “Cartel” includes an association of producers, sellers,

distributors, traders or service providers who, by agreement amongst
themselves, limit, control or attempt to control the production,
distribution, sale or price of, or, trade in goods or provision of services.

83
Thus the basic ingredient for a cartel to exist is an agreement between
the cartel members. The effect of the agreement in the cartel is seen
through a limit or control or an attempt to control the production or
distribution prices or trade in goods or provision of services. In pursuance
of this definition one will have to examine whether there was any
arrangement or understanding or action in concert among the tyre
companies.

110. Section 2(b) of the Competition Act defines agreement as follows

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 arrangement, understanding or action is
intended to be enforceable by legal proceedings.
For an agreement to exist it has to be examined whether there was any
arrangement or understanding or action in concert among the tyre
companies. It is not necessary that the agreements would be in writing
or formal or enforceable by legal proceedings. This means that it is not
necessary to establish that there was a written agreement in existence.
An agreement can be presumed on the basis of circumstances of a case.
In any of the elements of an arrangement or an understanding or action
in concert exists it can be said there was an agreement. Therefore for a
cartel investigation on the basis of the Competition Act the first issue to
be established is as to whether there was an agreement and then the
behaviour of the members of the cartels had to be seen with reference to
the said agreement. On the basis of the behaviour of the members of the
alleged cartels, an agreement can be presumed. It is necessary to
examine as to whether any agreement existed between the tyre
companies and for this purpose the various factors discussed in these
orders have to be looked into. The various factors are reproduced as
under

84
(i) There was a price parallelism in this case and this fact has not
been controverted by any of the tyre companies.
(ii) The tyre companies have not utilised the full capacity to
produce tyres and they also failed to supply the contracted
amount of tyres to the OEMs though they have been
exporting tyres abroad.
(iii) The tyre companies have divided the export market among
themselves in certain proportion and they have claimed that
formation of cartels for exports is exempted under the
Competition Act. But the fact is that that there was a cartel
for dividing the market and the exemption from the
contravention of Section 3 is provided within the Act. But it
cannot be denied that there was no cartel.
(iv) The Tyre companies together through the agency of ATMA
moved the anti-dumping authority for the levy of anti-
dumping duty on imports from China and Thailand both for
cross ply tyres and radial tyres. This was done with the
intention of reducing competition by making imports unviable.
It also amount to foreclosure of competition.
(v) The tyre companies through the agency of ATMA also moved
petition for having BIS standard on all the tyres sold in India.
The main aim of having BIS standards showed an intention
protection of turf and the market and was therefore anti-
competitive in nature. There was a foreclosure of competition
by hindering the entry of imported goods.
(vi) There was exchange of information through the agency of
ATMA which allowed the companies to have a fixed market
share and identical prices. The details gathered during
investigation also show that the companies had shared
information in respect of the raw material purchased.
(vii) The tyre companies did not pass-on excise duty relief granted
by the government to them to the consumers. This amounts

85
 to unfair pricing and is anti competitive because it leads to
lowering benefits to the consumers.
(viii) In the year 2009-10 which is the period of this analysis. The
return on capital of all the tyre companies was excessively
high because the tyre companies had increased the price of
tyres though the prices of rubber had gone down. This
behaviour of the tyre companies was found to be similar in
the cases of each of the five companies.
(ix) It is observed that some of the tyre companies resorting to
lock-out in order to curtail production on the plea of labour
unrest. If there was a strike then it should have been done by
the labourers but lock-out is something which is imposed by
the management.
(x) The tyre companies have not invested in research and
development and also have not brought improvement by
installing plants which would lead to better products, better
consumers satisfaction and production of more efficient tyres.
(xi) The tyre companies in one of the ATMA meetings decided that
due to high demand in India, imports were necessary and
there was an intention to fix the quantity of import.
(xii) Another factor which shows a concerted action by the tyre
companies was the attempt to influence the custom
authorities to levy high customs duty on the tyres imported
and also supply of information in respect of tyres by the
importers.
(xiii) The practices followed by the tyre companies were similar to
the practices which were followed in the 1980s. The practices
are available through the reports of the Tariff Commission as
well as the Bureau of Industrial Costs and Prices .

The above issues show that there was an action in concert by the five tyre
companies. There was also an understanding between the tyre companies
and these factors lead to the conclusion that there existed an agreement
between this five tyre companies.
86
111. As an agreement has been established it is necessary to examine as
to which of the clauses in Section 3(3) of the Act are attracted in this
case. The tyre companies have similarly priced their products and
therefore together they have determined the sale price of tyres. Thus
Section 3(3)(a) is clearly attracted. As the tyre companies have limited
the supply and control the production, Section 3(3)(b) is also attracted.
Under the provisions of the law the presumption in Section 3(3)(b) is
rebuttable but the five tyre companies have not discharged their onus by
producing any material to establish that they did not indulge in the above
activities. Therefore, it has to be presumed in this case that there was an
appreciable adverse effect on competition due to the implicit agreement
between the five tyre companies.

112. The next issue to be examined is whether the practices carried out
by the tyre companies were anti-competitive or not. We have to examine
the legal provisions of the Act. Under Section 3(3) of the Act,
agreements, decisions taken by an association and practices are all
deemed to be an agreement. This is also clear from a reading of Section
27 wherein all the three items have been treated as anticompetitive
agreements. Therefore, by the virtue of the Act all the three items
though having a different meaning are deemed to be anticompetitive
agreements.

113. We have to examine whether these five OPs were following the
same practice. The Supreme Court in the case of Hindustan Lever Ltd. vs.
MRTP AIR 1977 SC 1285 had dealt with the word trade practice as defined
under the MRTP Act. The Supreme Court was dealing with restrictive
trade practices. Under the MRTP Act trade practice has been defined as
under:-

(u) ‘trade practice’ means any practice relating to the carrying on of

any trade, and includes (i) anything done by any person which
controls or affects the price charged by or the method of trading of,
any trader or any class of traders. (ii) a single or isolated action of
any person in relation to any trade.
87
Practice has been defined under Section 2(m) of the Competition Act as
follows:-

“practice” includes any practice relating to the carrying on of any

trade by a person or an enterprise.

The definition under the MRTP Act is an exhaustive definition whereas the
definition under the Competition Act is an inclusive definition. Thus for
the purpose of the Competition Act one can adopt the definition of trade
practices under the MRTP Act. Further, in the case of Hindustan Lever
Ltd. (Supra), the Supreme Court has held that even a clause in an
agreement is a practice for the purpose of the examination of
anticompetitive practice. The Supreme Court has also held that an
agreement is a restraint on trade and it is through a rule of reason and
the provision of law that anticompetitive behaviour has to be determined.
Therefore, according to the Supreme Court one has to look at the
provisions of the Indian laws and rule of reason and come to a conclusion.

114. In this particular case, it was found that in the 1980s on the basis of
the reports of Tariff Commission and the Bureau of Industrial Costs and
Prices that there used to be a difference in the prices of the tyres of the
different tyre companies but the prices of the tyre companies used to
increase together. In the period of analysis, for the period 2005-06 to
2008-09, there used to a difference in the prices of tyres of each
manufacturer and this used to be maintained. But in 2009-10, the
difference in the tyre prices were done away with and the prices became
similar. Thus, the practices followed earlier had been confirmed in the
year 2009-10, which is the period for consideration of the Commission.

115. In the 1980s again, the Tariff Commission and the BICP had
observed that though the tyre companies had capacity to produce larger
amounts of tyres, they did not use their capacity. In the year under
consideration i.e. 2009-10, the tyre companies with the exception of Birla
Tyres did not utilise their capacity. Thus the practice followed in 1980s in
respect of capacity was being followed in 2009-10.

88
116. Further under the Competition Act, in Section 3 and 4, certain
situations are mentioned which are treated as anticompetitive. There are
five such situations mentioned in Section 3(4) of the Competition Act.
Under Section 4, any practice which imposes unfair or discriminatory
conditions in purchase or sale of goods or similar conditions in respect of
prices can be taken as an anticompetitive practice for the purpose of
Section 3(3) of the Act. Even any limitation or restriction placed on the
production of goods or technical and scientific development can be
regarded as an anticompetitive practice for the purpose of Section 3(3) of
the Act. Even the provisions mentioned in Section 4(2)(c), 4(2)(d) and
4(2)(e) can be considered as an anticompetitive practice for the purpose
of Section 3(3) of the Act. Some of the anticompetitive elements
mentioned in Section 20(4) of the Act can also be considered for the
purpose of practices for the purpose of Section 3(3) of the Act. But
before applying the practices mentioned in the different provisions of the
Act, it is necessary to examine whether the clauses (a), (b), (c) and (d)
mentioned are applicable in this case.

117. Now, two of the practices mentioned above are hit by the provisions
of Section 3(3)(a) i.e. fixing of prices and Section 3(3)(b) i.e. limiting
supplies. Further if a clause in an agreement can be held to be an
anticompetitive practice, as held by the Supreme Court in the case of
Hindustan Lever Ltd. (Supra), the other practices followed by the tyre
companies such as tie in arrangement, exclusive supply agreement, and
resale price maintenance can be regarded as an anticompetitive practices
followed by the tyre companies. Resale price maintenance leads to fixing
of prices as mentioned in Section 3(3)(a) of the Act. Any agreement
which is a tie in arrangement or exclusive supply agreement is hit by the
provisions of Section 3(3)(b) of the Act as it limits and controls the
market.

118. The five OPs have been following anticompetitive practices even in
respect of not passing on the excise duty cut benefits to the consumers.
The five OPs have been increasing prices of tyres when the raw material

89
prices increased. But when the raw material prices fell in 2009-10,
especially of rubber, the five OPs instead of reducing the price of tyres
increased the prices of tyres. This can also be regarded as an
anticompetitive practice. There was an economic slowdown world over in
2008. In order to give a boost to the economy, government reduced the
excise duty from 10% to 8%. But this benefit was not passed on by the
OPs to the consumers. Similarly, when the cost of raw materials fell, the
prices of tyres were increased in 2009-10. Thus, the pricing of tyres by
the five OPs was unfair. Thus, by this unfair practices as well as the
unjust practice not passing on the excise duty cut to the consumers, the
OPs have fixed the prices within the meaning of Section 3(3)(a) of the
Act.

119. For all the above noted anticompetitive practices, the OPs have not
given any explanation. They have just stated that the excise duty cut has
been passed on to the consumers but this has not been established on
the basis any material. Thus, the OPs were indulging into anticompetitive
practices.

120. For the purpose of Section 3(3) of the Act, if onus cast on the
parties is not discharged then appreciable adverse effect on competition is
presumed. In such a case, it is not necessary to consider the factors
mentioned in Section 19(3) of the Act. But there is no harm in considering
those factors in this case. In the case of tyre manufacture as the
investment required is high, it acts as a barrier to new entrants. The tyre
companies by getting antidumping duties on imported tyres and standard
setting have foreclosed competition by hindering entry for imported goods
in the market. By not passing on the benefit of cut in excise duty to the
consumers and also by not reducing prices when the rubber prices fell,
there has been no accrual of benefit to consumers. In fact, the
consumers have been losers. Even technical development was not carried
out by producing longer lasting and more efficient tyres for the
consumers. Thus, the factors given under clauses (c), (d) and (f) of
Section 19(3) of the Act are very much present in this case.

90
121. To sum up, in the financial year 2009-10, the five OPs have
operated as a cartel and have followed anticompetitive practices. ATMA
which is an association of tyre manufacturers is also involved in the
anticompetitive practices and is an extension of the cartel i.e. it is also a
part of the cartel.

122. Thus, according to me the Opposite Parties have been indulged into
contravention of section 3(3) (a) and 3(3) (b) read with section 3(1) of
the Act.

Determination of Penalty

Since the Tyre companies in the present case have been found to be in
cartel, determination of amount of penalty is to be done in terms of
proviso to section 27(b) of the Act, which reads as under;

"27. Where after inquiry the Commission finds that any agreement
referred to in section 3 or action of an enterprise in a dominant position,
is in contravention of section 3 or section 4, as the case may be, it may
pass all or any of the following orders, namely:-

(a) .........

(b) impose such penalty, as it may deem fit which shall be not more than
ten Per cent of the average of the turnover for the last three preceding
financial years, upon each of such person or enterprises which are parties
to such agreements or abuse.'

Provided that in case any agreement referred to in section 3 has

been entered into by a cartel, the Commission may impose upon each
producer, seller, distributor, trader or service provider included in that
cartel, a penalty of up to three times of its profit for each year of the
continuance of such agreement or ten per cent of its turnover for each
year of the continuance of such agreement, whichever is higher."

91
The calculation of penalty limit based on turnover in terms of section
27(b) is as under:

Name Gross Turnover for 2009-10 (Rs. In 10% of turnover as calculated in

Million) taking into account period of column 2 (Rs. In Million)
contravention post notification i.e.
20.05.2009 on pro-rata basis (Rs. In
Million)
Apollo 46,963.86 4696.39
J K Tyres 34,245.31 3424.53
CEAT 25,880.94 2588.09
MRF 53,164.10 5316.41
Birla Tyres 43,458.17 4345.82

Name Net profit for 2009-10 (Rs. In Million) 3 times of Net Profit as
taking into account period of calculated in column 2 (Rs. In
contravention Post notifications i.e. Million)
20.05.2009 on pro-rata basis (Rs. In
Million)
Apollo 3,592.10 10776.30
J K Tyres 1,414.98 4244.94
CEAT 1,393.96 4181.87
MRF 3,064.02 9192.06
Birla Tyres 2,054.37 6163.10

It would be seen from the above that the amount of three times of net
profit calculated as above is higher than 10% of the turnover. Since as
per the provisions of Proviso to Section 27(b) the penalty has to be
determined on the basis of net profit or turnover whichever is higher, in
this case the net profit has been taken into account by the Commission.
Therefore, considering the totality of the facts and circumstances of the
instant case, I am of the view of imposing a penalty of 0.5 times of net
profit for 2009-10 (From 20.05.2009) in case of each Tyre manufacturer
mentioned in the Table. Accordingly, the penalty amount is determined as
under:-

Name Net profit for 2009-10 (Rs. In Million) 0.5 times of Net Profit as
taking into account period of calculated in column 2 (Rs. In
contravention Post notifications i.e. Million)
20.05.2009 on pro-rata basis (Rs. In
Million)
Apollo 3,592.10 1796.05
J K Tyres 1,414.98 707.49
CEAT 1,393.96 696.97
MRF 3,064.02 1532.01
Birla Tyres 2,054.37 1027.18
92
 As regards ATMA since it has provided platform to the tyre
manufacturers and facilitated cartelization, for the purposes of this case, I
decide to impose a penalty of 10% of its total receipts for the year 2009-
10 in terms of section 27(b) as under;

i) The Opposite Parties should 'cease and desist' from indulging in

any activity relating to agreement, understanding or
arrangement on prices, production arid supply of tyre in the
market.
ii) The Opposite Parties should disengage and disassociate itself
from collecting wholesale and retail prices through the member
tyre companies and also from circulating the details on
production and dispatches of tyre companies to its members.

The above directions above must be complied within 90 days of receipt of

this order. The amount of penalty determined in case of different entities
must also be deposited within a period of 90 days from the date of receipt
of this order.

Secretary is directed to communicate this order as per regulations

to all the parties.

sd/-
(R. Prasad)
Member (R)

93