T10D
T10D
T10D
TOBACCO ASSOCIATION
T-10D
Vs.
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MEMORIAL ON BEHALF OF THE OPPOSITE PARTIES AND VOLTAN
TOBACCO ASSOCIATION
TABLE OF CONTENTS
3. Statement of jurisdiction 10
5. Issues raised 14
2. That the exchange of information does not violate Section 3(3)(a) 22-32
of the Competition Act.
3. That Imperial and BAT cannot be considered as a part of the single 32-36
economic entity
8. Prayer 40
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MEMORIAL ON BEHALF OF THE OPPOSITE PARTIES AND VOLTAN
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TABLE OF ABBREVIATIONS
LIMITED
LIMITED
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MEMORIAL ON BEHALF OF THE OPPOSITE PARTIES AND VOLTAN
TOBACCO ASSOCIATION
LIMITED
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MEMORIAL ON BEHALF OF THE OPPOSITE PARTIES AND VOLTAN
TOBACCO ASSOCIATION
VOLTA
COMPETITION
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MEMORIAL ON BEHALF OF THE OPPOSITE PARTIES AND VOLTAN
TOBACCO ASSOCIATION
INDEX OF AUTHORITIES
Books:
Indian Cases:
• Manak Lal V/s Dr. Prem Chand Singhvi: 1957 AIR 425
• Competition Commission of India V/s Steel Authority of India: (2010) 10 SCC 744
• Balchandra. L Jharkhihoili V/s B.S Yeddurappa: 2011 7 SCC 1
• Fedco (P) Ltd V/s Bilgrami: AIR 1960 SC 415
• Board of Control for Cricket in India V/s Competition Commission of India: (2015)
128 CLA 186
• Krishna Swami V/s Union of India: (1992) 4 SCC 605
• Saurabh Tripathi V/s Competition Commission of India: AIR 2020 Del 62
• Dr. L.H Hiranandani Hospital V/s Competition Commission of India: (2015) Comp AT
610
• In Re: Cartelization in the supply of Bearings (Automotive and Industrial): Suo Motu
Case No. 07 (02) of 2014
• Delhi Jal Board V/s Grasim Industries Ltd, Ref. Case Nos. 03 & 04 of 2013
• K.L. Tripathi V/s State Bank of India and Ors, 1984 (1) SCC 43
• Bareilly Electric Supply Co. Ltd. V/S The Workmen, 1972 (1) SCR 241
• Union of India V/s T.R Varma, 1958 SCR 499
• In Re: Alleged Cartelisation by Cement Manufacturers: Case No. RTPE 52 of 2006
• Re: Anticompetitive conduct in the dry-cell batteries market in India, Case No. 02 of
2017
• Re: Cartelization by broadcasting service providers by rigging the bids, Case No. 02 of
2013
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TOBACCO ASSOCIATION
• All India Tyre Dealers’ Federation V/s Tyre manufacturers: MRTP Case: RTPE No. 20
of 2008
• In Re: Sugar mills, Case No. 01 of 2010
• Indian Sugar Mills Association V/s Indian Jute Mills Association: Case No. 38 of 2011
• Jyoti Swaroop Arora V/s Tulip Infratech ltd: Case No. 59 of 2011
• All India Tyre Dealers’ Federation V/s Tyre manufacturers: MRTP Case: RTPE No. 20
of 2008;
• Alkali and Chemical Corporation Of India ltd. V/S Bayer (India) ltd: 1986 161 ITR 820
Cal
• Express Industry Council of India V/s Jet airways (India) ltd. and Ors: Case No. 30 of
2013;
• In re: Alleged Cartelisation by Steel Producers: Case No. RTPE No. 09 of 2008
• International Cylinder (p) Ltd. V/S Competition Commission of India: Suo Motu Case
No. 01/2014
• Delhi Jal Board V/s Grasim Industries Ltd: Ref Case No. 03 & 04 of 2013
• In re: Sheth & Co: Suo Motu Case No. 04 of 2013
• International Cylinder (p) Ltd. V/S Competition Commission of India: Suo Motu Case
No. 01/2014
• Hanumant V/s State of Madhya Pradesh: AIR 1952 SC 343
• In re: Alleged Cartelisation in Flashlights Market in India: Case No. 01 of 2017
• Shri Nirmal Kumar V/s Ruchi Soya and Ors: Case No. 76 of 2012
• In re: Anti-competitive Practices Prevailing in Banking Sector: Suo Motu Case No. 01
of 2015
• XYZ V/s Penna Cements: Ref Case No. 07 of 2014
• Mcx Stock Exchange Ltd. V/s National Stock Exchange of India Ltd. And Ors: Case
No. 13/2009
• Jyoti Swaroop Arora V/s Tulip Infratech Ltd. And Ors: Case No. 59 of 2011
• Rishabraj Logistics Limited V/s Orix Auto Infrastructure Services Limited and Ors:
Case No. 65 of 2016
• Excel Crop Care Limited V/s Competition Commission of India and Ors: (2017) 8 SCC
47
• Sodhi Transport Co. V/s State of U.P. and Ors: AIR 1986 SC 1099
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MEMORIAL ON BEHALF OF THE OPPOSITE PARTIES AND VOLTAN
TOBACCO ASSOCIATION
• Shri Nirmal Kumar V/s Ruchi Soya and Ors: Case No. 76 of 2012
• Technology Products V/s Bangalore Electricity Supply Co. Ltd. And Ors: (2012)
COMPAT 182
• Ramakant Kini V/s Dr. L.H Hiranandani hospital: Case No 39 of 2012
• FX Enterprise Solutions India Pvt. Ltd. And Ors. V/S Hyundai Motor India Limited:
Case No. 36 of 2014
• Express Industry Council of India V/s Jet airways (India) Ltd. And Ors: Case No. 30 of
2013
• Explosive Manufacturers Welfare Association V/s Coal India Limited and its Officers:
Case No. 04 of 2010
• M.P. Mehrotra V/s Jet airways (India) Limited and Ors: Case No. 04/2009
• Reliance Big Entertainment Limited and Ors. V/S Karnataka Film Chamber of
Commerce and Ors: Case No. 25 of 2010
• In re: Suo Motu case against LPG cylinder manufacturers: Suo Motu Case No. 03 of
2011
• Sunil Bansal V/s Jaiprakash Associates Ltd: Case No. 72 of 2011
• Delhi Jal Board V/s Grasim Industries Ltd, Ref. Case Nos. 03 & 04 of 2013
• Viho Europe BV V/s Commission, [1996] ECR I-5457
• K.L. Tripathi V/s State Bank of India and ors, 1984 (1) SCC 43
• Bareilly Electric Supply Co. Ltd. V/S The Workmen, 1972 (1) SCR 241
• Union of India V/s T.R Varma, 1958 SCR 499
• In re: Alleged cartelisation by Cement Manufacturers, RTPE No. 52 of 2006
• In Re: Anticompetitive conduct in the dry-cell batteries market in India, Case No. 02
of 2017
• In Re: Cartelization by broadcasting service providers by rigging the bids, Case No. 02
of 2013
Foreign Cases:
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MEMORIAL ON BEHALF OF THE OPPOSITE PARTIES AND VOLTAN
TOBACCO ASSOCIATION
• Allianz Hungária Biztosító Zrt V/s Gazdasági Versenyhivatal, judgement of the court
(first chamber) of 14 march 2013, c-32/11.
• Glaxosmithkline Services V/s Commission of the European Communities, C-501/06
• Neeraj Malhotra V/s Deutsche Post Bank Home Finance Ltd: Case No. 05 of 2009;
Bayer Ag V/s Commission of European Communities: T-41/96.
• A. Ahlstrom Osakeyhtio V/s Commission, C-89/85 DEP
• United States V/s United States Gypsum Co: 438 U.S 422 (1978)
• Hoffmann-La Roche V/s Commission: Case No. 85/76 (1979) ECR 461
• United States V/s Philadelphia National Bank: 374 U.S 321 (1963)
• Brooke Group Ltd. V/s Brown & Williamson Tobacco Corp: 509 U.S 209 (1993)
• United States V/s Airline Tariff Publishing Co: 836 F. Supp. 9 (D.D.C. 1993)
• In re: Flat Glass Antitrust Litigation: 385 f.3d 350 (3d cir. 2004)
• Interstate Circuit Inc. V/S United States: 306 U.S 208 (1939)
• EI DuPont De Nemours & Co. V/S FTC: 488 F. Supp. 747 (D. Del. 1980)
• Matsushita Electronics Industries Co. V/s Zenith Radio Corp: 475 U.S 574 (1986)
• American Tobacco Co. V/s United States, 328 U.S 781 (1946)
• Pevely Dairy Co. V/s United States st. Louis Dairy: 178 F.2d 363 (8th Cir. 1949)
• City of Tuscaloosa V/s Harcros Chems. Inc: 158 F.3d 548 (11th Cir. 1998)
• Microsoft Corporation V/s Commission: T-201/04
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MEMORIAL ON BEHALF OF THE OPPOSITE PARTIES AND VOLTAN
TOBACCO ASSOCIATION
STATEMENT OF JURISDICTION
The present case has been initiated by the Hon’ble Competition Commission of Volta suo motu
under the provisions of section 19 (1) of the Competition Act, 2002, pursuant to the information
received through the leniency application filed under section 46 of the Competition Act, 2002.
The Opposite parties humbly submit to the jurisdiction of this hon’ble commission.
Section 19 (1): The Commission may inquire into any alleged contravention of the provisions
contained in sub-section (1) of section 3 or sub-section (1) of section 4 either on its own motion
or on—
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MEMORIAL ON BEHALF OF THE OPPOSITE PARTIES AND VOLTAN
TOBACCO ASSOCIATION
STATEMENT OF FACTS
1. The Republic of Volta, has always been a conservative society. Owing to this fact, the country
has always imposed curbs such as prohibition and increased incidence of taxation on sin goods
such as tobacco products. Under the guise of development and increased revenue, the Liberal
Volta Party, government of Volta, implemented immense regulatory checks on these goods
which negatively impacted the market players in the tobacco industry as regulations increasing
taxation, affect the profit margins of such players. Due to this, eminent members of the industry
such as Stella Tobacco Limited; Arboris Tobacco Products Limited; Venus Cigars Limited ;
Blue Andean Tobacco Volta Limited Pollock & Morset International Volta and Voltan
Imperial Limited faced a hard time running their businesses. The industry also had smaller
players such as Supersniffs Private Limited; Tigris Industries limited; Klaus Tobacco Limited,
offering a limited range of products, who faced the brunt of such taxation as these enterprises
could not survive under these straining phases.
2. In FY 2006-07, the LVP increased the tax rate on tobacco products to 15%. Further regulation
was brought in the form of the Tobacco Production, Distribution and Sales Regulation Policy,
2006. As per the existing regulatory framework of Volta, tobacco corporations could not
increase the price of products without seeking prior approval from the Federal Trade Authority.
However, these regulations allow the corporations to increase the price without seeking
approval from the FTA if such increase is corroborated with a corresponding increase in excise
duty applicable on tobacco products.
3. As a consequence of the increased tax rate, the corporations operating in the industry united
themselves to form the Voltan Tobacco Association. This association consisted of Arboris,
Stella, BAT and Venus as the founding members. VTA was further joined by PMI, Imperial
and Supersniffs, out of which the latter two left the association in 2014. The association was
used a platform to discuss generic industry issues and to present a united front to the
governmental authorities of Volta. During financial year 2010-11, LVP raised the taxing slab
for tobacco products to 22% which further damaged the business operations of these
enterprises. Using VTA as a uniting platform, the enterprises made representations to
government which were rejected. Imperial gave into the financial pressure by selling 40% of
its stake to BAT in 2012. Post the consolidation between BAT and Imperial, the industry
players suffered a blow in their market shares and earned lesser profits. In 2019, BAT filed a
leniency application u/s 46 of Competition Act, 2002 indicating towards cartelization in the
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MEMORIAL ON BEHALF OF THE OPPOSITE PARTIES AND VOLTAN
TOBACCO ASSOCIATION
the regional commissioner for consolidation purposes in abidance with the Tobacco Policy. It
concluded by stating that no Appreciable Adverse Effect on Competition has been caused to
the market. VTA denied all contentions under the DG report by stating that the platform was
used for consensus and pressure building purposes. It denied the allegation of being used as a
platform to coordinate price hikes and share price sensitive information for colluding purposes.
7. This matter is now pending before the CCV for final arguments.
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MEMORIAL ON BEHALF OF THE OPPOSITE PARTIES AND VOLTAN
TOBACCO ASSOCIATION
ISSUES RAISED
B. Whether the exchange of price sensitive information in the context of the present
case amounts to a violation of section 3 (3) (a0 of the act?
___________________________________________________________________________
C. Whether Imperial and BAT can be considered as a part of the Single Economic
Entity for the purpose of the present cartel?
___________________________________________________________________________
D. If yes, should the CCV also extend a similar percentage of reduction in penalty to
Imperial pursuant to BAT’s leniency application, if BAT’s leniency application is
successful?
___________________________________________________________________________
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MEMORIAL ON BEHALF OF THE OPPOSITE PARTIES AND VOLTAN
TOBACCO ASSOCIATION
SUMMARY OF ARGUMENTS
1. That by imposing a restriction on raising objections against allegations framed under section 3
(3) (a) of Competition Act, 2002, the commission would be in breach of the principles of natural
justice granted to the OP’s. It is the duty of tribunals and courts to inculcate these principles in
adjudicating upon disputes which do not affect the public interest in general. Furthermore, such
an imposition would be wrong as the commission is bound to conduct an independent analysis
which would indeed be supported by the objections that an OP might raise. The same is
contended on the grounds that since the DG report is not conclusive or primary evidence, such
objections would only support the commission in its inquisitive adjudication and cannot be
held as an impediment to justice. In addition to this, it is submitted that every party has a right
to be heard before an order has been passed or is likely to be passed against it, then why should
a leniency applicant be treated differently. Since a leniency application cannot be considered
as an admission of guilt on the part of the applicant, such applicant shall not be separated from
his right to be heard enshrined under the principles of natural justice.
2. That the conduct of OPs does not amount to contravention of Section 3(3)(a) of the Competition
Act, 2002 as the information exchanged between the OPs through the platform of VTA was
limited to presenting genuine industry issues which threatened the viability of cigarette
manufacturers. Further, the alleged acts of collusive behavior are baseless and cannot be proven
with any direct evidence. There is no price fixing or output restriction, as under prescribed
section 3(3) of the Act. Price parallelism alone is not an indicator of collusive acts for violation
under Section 3(3). The identical prices are only a natural response by the OPs as they are a
part of an oligopolistic industry and are restricted to make any changes without the approval of
FTA. The platform of VTA was used only to save the businesses from going bankrupt and find
solutions to industry problems. Therefore, there is no agreement, meeting of minds, nor
collusive behavior or exchange of any price sensitive information between the OP’s.
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MEMORIAL ON BEHALF OF THE OPPOSITE PARTIES AND VOLTAN
TOBACCO ASSOCIATION
3. That BAT and Imperial cannot be held as a single economic entity under the provisions of this
act as for the purpose of establishing them as a common entity, it is necessary that they form
part of same “group” as defined under section 5 (b) of the Competition Act, 2002. The same
cannot be established as the definition of group only applies to consolidations or combinations
under section 5 and 6, whereby, the same cannot be applied to disputes arising under section
3. Furthermore, it cannot be contended that BAT controlled Imperial. The presence of a
common director cannot be held as decisive and conclusive factor to determine whether both
companies had the similar economic nexus. The DG has not presented any evidence proving
that Imperial was restricted in deciding over its operations. A stake holding of 40% in Imperial
shall not be deemed enough to impose a presumption about entities being single economic
entities. Lastly, it is submitted that the investigative procedure adopted by the DG violates the
principles of natural justice provided to the OP’s as they were not given an opportunity to cross
examine Stella’s representative, who gave a deposition directing towards the single entity
nature of BAT and Imperial. Thereby, it is prayed that BAT and Imperial shall not be held as
a single economic entity.
4. That the leniency application present by BAT shall be held successful under section 46 of the
Competition Act, 2002 given the full and vital disclosure made by the applicant. This
contention is supported by the fact that since BAT took the initiative of filing a leniency
application, it helped the commission in forming a prima facie order under section 26 (1) of
the Competition Act, 2002. Furthermore, assuming but not accepting, given the common
control between BAT and Imperial, it is contended that if BAT is being allowed a lesser
penalty, then the same leniency shall be extended to Imperial as well.
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MEMORIAL ON BEHALF OF THE OPPOSITE PARTIES AND VOLTAN
TOBACCO ASSOCIATION
ARGUMENTS ADVANCED
1. It is humbly submitted before this hon’ble Commission that Section 46 of the Competition Act,
2002 1(“the Act” hereinafter) allows any enterprise which is a member of any cartel, to
provide full and vital disclosure about the operations of the cartel in exchange for a leniency in
the proceedings initiated against it. This Section operates in conjunction with regulation 5 of
the Competition Commission of India (Lesser Penalty) regulations, 2009 2 (“LPR”
hereinafter), which records the procedure to be followed by the Competition Commission of
Volta (“CCV” hereinafter) while deciding upon the grant/refusal of a leniency application.
Both, Section 46 of the Act and provision 5 of LPR do not include any provision that prohibits
or denies a leniency applicant from raising objections against the report finding violations
under Section 3 (3)(a) of the Act3.
2. That Arboris Tobacco Products Limited (“Arboris” hereinafter) cannot be held in
contravention of any law for its Act of questioning the DG report after filing for leniency.
Imposing such a restriction on any enterprise would go against the principles of natural justice
as it would breach the right to fair hearing of Arboris. Furthermore, it is submitted that
restraining a leniency applicant from questioning the DG report would lead to injustice, as in
the present matter, the DG report cannot be held as a conclusive authority for the proving
contravention of the Act. The Commission has an obligation to undertake an independent
analysis and adjudication of the subject matter. In addition to this, as per the abovementioned
provisions of the Act and LPR, the applicant is required to provide full and vital disclosure
which shall help the Commission in framing a prima facie case against the cartel. The leniency
application given by Arboris would amount to full and vital disclosure as it was granted the
third priority status by the Commission. Hence, such questioning by Arboris cannot be held as
an Act of non-cooperation.
1
Competition Act, 2002, Section 46
2
Competition Commission of India (Lesser Penalty) regulations, 2009, Provision 5
3
Competition Act, 2002, Section 3 (3) (a)
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MEMORIAL ON BEHALF OF THE OPPOSITE PARTIES AND VOLTAN
TOBACCO ASSOCIATION
3. It is submitted that prohibiting a leniency applicant from raising objections against allegations
framed by the DG, would be in breach of the principles of natural justice. When allegations are
framed against any enterprise, it is the duty of the adjudicatory authority to ensure that both
sides are heard. By imposing such prohibitions, the adjudication would be solely based on
allegations framed by the DG which might lead to a bias.
4. That in Manak Lal V/s Dr. Prem Chand Singhvi 4, it was held that tribunals and bodies vested
with jurisdiction to deal upon the rights of the parties have a legal boundation to adjudicate in
accordance with the principles of natural justice. This legal obligation of using principles of
natural justice has been affirmed by the Court in Competition Commission of India V/s Steel
Authority of India5, where the Court held that these principles form an integral part of the
judicial system and it shall be the duties of not only Courts but tribunals and other quasi-judicial
bodies to inculcate the same in their adjudication process. Using the adjudged principles, it
can be deciphered that all Courts, tribunals and quasi-judicial bodies shall be bound to include
the principles of natural justice in interest of disbursing justice in the correct manner.
5. That in Cooper V/s Wands Worth Board of Works6 and Errington V/s Minister of Health 7, the
Courts of England enunciated the right to be heard under the principles of natural justices. It
opined that even though the statute does not explicitly record a requirement to provide a right
to be heard to the parties, it shall be the duty of the concerned common law authority to draw
from these principles and ensure an equal opportunity to be heard is provided to both parties.
For the purposes of investigations ordered by the CCV under Section 26 (1) of the Act 8, it
cannot be accepted that since the statute does not explicitly impose a mandate on the
Commission to enforce its inquisitorial wing in abidance with the principles of natural justice,
the same can be ignored or considered inapplicable. In the present matter, the dispute pertains
to the alleged cartelization and price fixing by the members of the Voltan Trade Association
(“VTA” hereinafter). While forming a prima facie opinion, the Commission would consider
the rights of parties which reflects on how the CCV would be bound to provide both parties a
right to be heard to ensure equity and justice.
4
Manak Lal V/s Dr. Prem Chand Singhvi: 1957 AIR 425
5
Competition Commission of India V/s Steel Authority of India: (2010) 10 SCC 744
6
Cooper V/s Wands Worth Board of Works: (1863) 143 ER 414
7
Errington V/s Minister of Health: (1935) 1 KB 249
8
Competition Act, 2002, Section 26 (1)
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TOBACCO ASSOCIATION
6. That in Balchandra. L Jharkhihoili V/s B.S Yeddurappa9, the Court held that while deciding
upon the legal fate of an entity, if reliance is placed upon third party information, it shall be the
duty of the deciding authority to ensure that the other party is given a right to be heard.
Considering the DG office as a separate office, it can be deemed as a third party which
formulated a report against the OP’s based upon its finding. Since such report presents an
unfavorable situation for the OP’s it shall be the duty of Commission to ensure that the other
party is heard before it passes an order.
7. That in Fedco (P) Ltd. V/s Bilgrami10, the Court opined that there can be no invariable standard
of “reasonableness” which can be applied by the Courts while deciding whether a party has
been provided the right to be heard. To counter the absence of reasonableness, the Court shall
believe that it has taken all measures to ensure that the party against whom the hearing is being
proceeded has been given a fair opportunity to present all evidences and records proving before
the authority that allegations frames against is are either nonexistent or unjustifiable. Applying
this to the present factual matrix, it is contended that in absence of a textbook formula
describing the application the Audi Alteram Partem or right to be heard, the Commission in
this case shall allow the party to raise objections against the DG report to ensure that it has
received an equal opportunity to present all evidences before the Commission, to ensure fair
delivery of justice.
8. It is submitted that in Board of Control for Cricket in India V/s Competition Commission of
India11, the Court overturned an order given by the CCI on the grounds of not providing the
OP an opportunity to be heard before imposing the charges. Furthermore, in Competition
Commission of India V/s Steel Authority of India 12, the court opined upon the concept of
excluding principles of natural justice from being inculcated in disputes involving the interest
of the general public or public at larger. Since, the present matter does not affect the interest of
the general public, it is contended that restricting the OP’s from raising objection against the
allegations framed section 3 (3) (a) of the act would set an improper precedent for the future.
Considering the judicial precedents set in the abovementioned judgments, it can be derived that
if the Commission does not grant permission to the OP for raising objections against the
9
Balchandra. L Jharkhihoili V/s B.S Yeddurappa: 2011 7 SCC 1
10
Fedco (P) Ltd V/s Bilgrami: AIR 1960 SC 415
11
Board of Control for Cricket in India V/s Competition Commission of India: (2015) 128 CLA 186
12
Competition Commission of India V/s Steel Authority of India: (2010) 10 SCC 744
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MEMORIAL ON BEHALF OF THE OPPOSITE PARTIES AND VOLTAN
TOBACCO ASSOCIATION
allegations framed under the DG report for violation of Section 3 (3) (a), it would lead to grave
injustice13.
9. That as per Section 36 (1) of the Act, the Commission is bound to discharge its duties in
accordance with the principles of natural justice 14. However, due to absence of a statutory
boundary describing the application of these principles, the Commission has complete
discretion in implementing the same. Furthermore, the application of Section 36 is
interdependent upon Section 26 (1) of the Act which permits the Commission to undertake an
investigation to form a prima facie opinion on the dispute evident from the information
provided by the informant15. This reflects upon how the Commission has been granted
inquisitorial authority as the Commission has investigative powers under the Act.
10. That in Krishan Swami V/s Union of India 16, the Supreme Court defined “Inquisitorial” as the
investigative power that is granted to an administrative authority. These investigative powers
vested with the CCV reflect on how the quasi-judicial authority is bound to frame its own
opinion through an independent understanding based upon an analysis of the report and
evidences presented by the DG in conjunction with statements given by the OP’s. In Saurabh
Tripathi V/s Competition Commission of India 17, it was held that the report formulated by the
DG is not conclusive and that it shall not be held as binding of the Commission. The Court
went on to reiterate that due to the recommendatory nature of the DG report, the Commission
is required to examine such report and form an opinion after hearing the OP’s.
11. That there is no provision in the Act that statutorily obligates the CCV to accept the DG report
which shows how such report cannot be held conclusive without hearing the OP’s and
considering all statements on record. However, Section 26 (5) of the Act mandates the
Commission to invite objections from the OP’s in situations where the DG suggests that there
has been no contravention of the provisions of the Act18. This provision in conjunction with
the principles of natural justice reflects on how the Commission shall be held under obligation
to hear the statement of concerned parties even in cases where the DG report alleges
contravention of provisions under the Act.
13
Competition Ac, 2002, Section 3 (3) (a)
14
Competition Act, 2002, Section 36 (1)
15
Competition Act, 2002, Section 26 (1)
16
Krishna Swami V/s Union of India: (1992) 4 SCC 605
17
Saurabh Tripathi V/s Competition Commission of India: AIR 2020 Del 62
18
Competition Act, 2002, Section 26 (5)
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12. It is submitted that in Board of Control for Cricket in India and Ors. V/s Competition
Commission of India, an order given by the CCI was reversed by the appellate tribunal on the
grounds that the Commission had not presented all the evidence on record which was held to
be against the principles of natural justice19. Furthermore, in Dr. L.H Hiranandani Hospital V/s
Competition Commission of India 20, it was held that Commission cannot just rubber stamp the
DG report and is bound to conduct its independent analysis on factors mentioned under Section
19 while adjudicating disputes pertaining to violations under Section 3. The office of the DG
is separate from the Commission which reflects the need for the Commission to undertake an
independent analysis on the subject matter as being a separate office21, the report of the DG
shall not be given the status of a primary record on the dispute as it cannot be held as a true and
correct statement directly without corroboration with an independent adjudication undertaken
by the CCV/s Hence, it is submitted that the report of the DG shall not be considered as the
primary evidence without taking the written statements and other evidences on record into
account.
13. It is submitted that in accordance with the principles of natural justice, every party who is
alleged of having committed any offence, has the right to be heard and present a case proving
its innocence. It is contended that prohibiting such a right for a leniency applicant does not hold
ground as neither is a leniency applicant different from any other alleged offender under any
act nor is a leniency application considered an admission of guilt which shows how every
dispute is required to be adjudicate in light of the principles of natural justice.
14. That as per Section 46 of the Act, a lesser penalty applicant is required to ensure that it provides
continual, genuine and full cooperation towards the investigation being undertaken by the
Commission22. However, the Act does not delve upon defining what would amount as genuine
cooperation. In absence of the definitive structure limiting the boundaries of the concept
“Cooperation”, the Commission has full discretion in deciding what Acts of an OP would be
held as Cooperation. It would be against the principles of justice if a leniency applicant is
restricted from objecting against the allegations framed against it merely because it has acted
19
Board of Control For Cricket In India V/s Competition Commission of India: (2015) 128 CLA 186
20
Dr. L.H Hiranandani Hospital V/s Competition Commission of India: (2015) Comp AT 610
21
Moot Proposition, Citation 16
22
Competition Act, 2002, Section, 46
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MEMORIAL ON BEHALF OF THE OPPOSITE PARTIES AND VOLTAN
TOBACCO ASSOCIATION
as a whistle blower and supported the Commission is framing a case against any alleged cartel
formed in any industry.
15. That the same is being contended through a precedent 23 wherein the Commission has concluded
that there was no cartelization or creation of anti-competitive agreements under Section 3 (3)
(a) of the Act24 even after the OP/OP’s had filed for leniency u/s 46 of the Act 25. In In Re:
Cartelization in the supply of bearings (Automotive and Industrial)26, the Commission decided
in favor of leniency applicants by holding that there was no cartelization between the OP’s as
no anti-competitive agreement can be deciphered from the evidences presented before the
Commission. Interestingly, the OP’s in this case had filed for leniency under Section 46 which
shows how the leniency application does not necessarily attract the imposition of pecuniary
penalties. Rather, it is dependent upon Commission to conduct an independent analysis by
calling for replies and statements from OP’s to formulate a complete understanding on the
dispute. Therefore, it can be seen from the abovementioned precedents that filing a leniency
application cannot be treated as an admission of guilt or a ground for denying access to the
right to be heard enshrined under the principles of natural justice. Since every case does not
lead to fixing charges of cartelization or anti-competitive practice, it would be in the best
interest of justice to call for objections from the OP’S, as a supporting arm to the Commission
while it conducts its independent analysis on the matters.
16. It is humbly submitted before this hon’ble Commission that the conduct of the OPs does not
amount to contravention of Section 3(3)(a) of the Act as the information exchanged between
the OPs through the platform of VTA was limited to presenting genuine industry issues which
threatened the viability of cigarette manufacturers which did not result in price fixing. 27
17. That the DG has wrongly concluded that the exchange of price sensitive information was
undertaken for the purpose of standardising prices, it is to be noted that the exchange of
monthly dispatch quantity information between the cigarette manufacturers was undertaken
not for the purposes of inter se production monitoring. The regional commissioner’s office had
23
In Re: Cartelization in the supply of Bearings (Automotive and Industrial): Suo Motu Case No. 07 (02) of 2014
24
Competition Act, 2002, Section 3 (3) (a).
25
Competition Act, 2002, Section 46
26
In Re: Cartelization in the supply of Bearings (Automotive and Industrial): Suo Motu Case No. 07 (02) of 2014
27
Para 17
22
MEMORIAL ON BEHALF OF THE OPPOSITE PARTIES AND VOLTAN
TOBACCO ASSOCIATION
made an informal request to the VTA to gather such information (in order to discharge its duties
under the Tobacco Production, Distribution and Sales Regulation Policy 2006) by liaising with
the cigarette manufacturers. Since the information gathering process was a massive
administrative responsibility with significant manpower and financial costs, the cigarette
manufacturers internally decided to discharge this responsibility inter se on rotation. 28
18. That the allegations put forward by the DG are without evidentiary backing and the report
ought to be rejected by this Commission. This is also illustrated by the allegations made by the
DG against Imperial as the DG has not produced any evidence (even circumstantial) which
showcases that Imperial shared prise sensitive information with other OPs.
19. That the exchange of price sensitive information does not fall under the provisions of Section
3(1) read with Section 3(3) of the Competition Act, the aforesaid provisions prohibits
enterprises engaged in similar trade of goods or services from entering into agreements that
have, or are likely to have an appreciable adverse effect on competition (hereinafter, referred
to as “AAEC”). 29 There is no contravention of Section 3(3) of the competition Act as there is
no price fixing,30 restriction on production,31 no sharing of market,32 or bid rigging33. The DG
has failed to substantiate the claim with any circumstantial evidence other than the
communication between OPs which was done in response to increase of the incidence of
taxation on tobacco products which is economically justified. That in order to increase
efficiency, firms may engage in acts that are purely commercial in nature wherein no effect on
competition is intended.34 Mere exchange of views and sharing information regarding issues
that are common to the industry cannot be held to be anti- competitive unless concerted action
in that regard is proven.35
20. Under the EU regime, if the findings do not reveal sufficient harm to competition, it has to be
proven that the elements of the agreement do in fact prevent competition to an appreciable
extent.36Even though intention of the parties might be irrelevant to establish a cartel, doing so
28
Moot proposition, paragraph 17
29
Competition Act, 2002, Section 3
30
Competition Act, 2002, Section 3 (3)(a)
31
Competition Act, 2002, Section 3 (3)(b)
32
Competition Act, 2002, Section 3 (3)(c)
33
Competition Act, 2002, Section 3 (3)(d),
th
34
S.M Dugar, Guide to competition law, 439 (LexisNexis 7 ed. 2017).
35
All India Tyre Dealers’ Federation V/s Tyre manufacturers: MRTP Case: RTPE No. 20 of 2008
36
Allianz Hungária Biztosító Zrt V/s Gazdasági Versenyhivatal, judgement of the court (first chamber) of 14
march 2013, c-32/11.
23
MEMORIAL ON BEHALF OF THE OPPOSITE PARTIES AND VOLTAN
TOBACCO ASSOCIATION
is generally recommended to identify the true effect on competition37. The hon’ble Commission
should be inclined to take a similar approach since the OPs had no intention to prevent
competition in any manner as all the communications undertaken were only in response to the
existing conditions and not to restrict competition.
21. It is humbly submitted that the OPs have not contravened Section 3 of the Act, as [A.] there is
no agreement between the parties, [B.] arguendo, this agreement does not violate Section
3(3)(a) of the Act, and [C.] arguendo, the OPs conduct has not caused and is not likely to cause
AAEC.
22. It is submitted that there is no agreement between the OPs, section 2(b) of the Act dictates that
an ‘agreement’ includes any arrangement, understanding, or action in concert. 38 The existence
of an agreement is the sine qua non of an anti-competitive agreement. 39 Further it is pertinent
to note that [i.] there is no conclusive evidence for an agreement, and [ii.] mere price parallelism
does not amount to collusion.
23. That conclusive evidence of meeting of minds is indispensable for establishing the existence
of an agreement40. Merely two or more people engaging in similar acts does not constitute an
agreement41. Furthermore, mere exchange of information cannot be treated as conclusive
evidence of collusion, 42 the Commission must distinguish between the grey zone of socially
acceptable and economically justifiable business conduct 43. It is pertinent to note that
information exchange renders the market more, rather than less, competitive 44.
37
Glaxosmithkline Services V/s Commission of the European Communities, C-501/06
38
Competition Act, 2002, Section2 (b)
39
Neeraj Malhotra V/s Deutsche Post Bank Home Finance Ltd: Case No. 05 of 2009; Bayer Ag V/s Commission
of European Communities: T-41/96.
40
In Re: Sugar mills, Case No. 01 of 2010 ; Indian Sugar Mills Association V/s Indian Jute Mills Association:
Case No. 38 of 2011; Neeraj Malhotra V/s Deutsche Post Bank Home Finance: Case No. 05 of 2009
41
Jyoti Swaroop Arora V/s Tulip Infratech ltd: Case No. 59 of 2011
42
A. Ahlstrom Osakeyhtio V/s Commission, C-89/85 DEP
43
United States V/s United States Gypsum Co: 438 U.S 422 (1978)
44
United States V/s United States Gypsum Co: 438 U.S 422 (1978); Richard Whish & David Bailey, Competition
Law (7th ed. 2009); European Commission, Guidelines on the Applicability of Article 101 of the Treaty on the
functioning of the European Union to Horizontal Cooperation Agreements (2011).
24
MEMORIAL ON BEHALF OF THE OPPOSITE PARTIES AND VOLTAN
TOBACCO ASSOCIATION
24. In the present case, the correspondence between the OPs is limited to their discussion on how
to mitigate the impact of the taxation policy in the Country. The exchange of information was
done for presenting a proposal to FTA in order to sustain the businesses of the OPs, thus
rendering the market more competitive than before. There is no evidence on record that
suggests that the OPs had a price fixing agreement. Therefore, mere discussions that would
have helped the OPs sustain in an intensely competitive market cannot constitute conclusive
proof of an agreement.
25. It is submitted before this hon’ble commission that the DG’s report is purely based on
speculation and the conclusions about parallel behaviour are wholly unsustainable, particularly
given the complete lack of any specific or direct evidence relating to OPs. Price parallelism
does not amount to collusion. Exchange of price sensitive information as conscious price
parallelism is typical of an oligopolistic market. There is also an absence of plus factors.
26. That Conscious price parallelism is typical of an oligopolistic market where few members
dominate the market, and the products and services are undifferentiated. 45It is pertinent to note
that the tobacco industry is an oligopolistic market as there are only a few players in the
industry. As prices cannot be increased unilaterally, market rivals are interdependent, and are
bound to match each other’s marketing and pricing strategy 46. Therefore, enterprises cannot be
deprived of the right to adapt themselves intelligently to the existing or anticipated conduct of
their competitors 47. The tobacco industry in Volta is an oligopolistic market as few members
such as the OPs dominate the market, and the services provided by them are similar 48. The
increase in prices of the cigarettes sold by the OPs is a result of eextensive state regulation as
well as high incidence of taxation. Therefore, each of the OPs individual conduct was only an
adaptation to the regulation in the industry. Furthermore, it is pertinent to note that the tobacco
corporations could only increase the prices of their tobacco products after a price hike request
45
All India Tyre Dealers’ Federation V/s Tyre manufacturers: MRTP Case: RTPE No. 20 of 2008; Alkali and
Chemical Corporation Of India ltd. V/S Bayer (India) ltd: 1986 161 ITR 820 Cal; Organisation for Economic
Cooperation and Development, Information Exchanges Between Competitors under Competition law (2010).
46
All India Tyre Dealers’ Federation V/s Tyre Manufacturers: MRTP Case: RTPE No. 20 of 2008; Hoffmann-La
Roche V/s Commission: Case No. 85/76 (1979) ECR 461; United States V/s Philadelphia National Bank: 374 U.S
321 (1963); Richard Whish & David Bailey, Competition Law (7th ed. 2009).
47
Express Industry Council of India V/s Jet airways (India) ltd. and Ors: Case No. 30 of 2013; Brooke Group Ltd.
V/s Brown & Williamson Tobacco Corp: 509 U.S 209 (1993)
48
Moot Proposition, Paragraph 4
25
MEMORIAL ON BEHALF OF THE OPPOSITE PARTIES AND VOLTAN
TOBACCO ASSOCIATION
made to the FTA was accepted. The only exception to this rule is a corresponding price hike
caused by a hike in the excise duty levied on tobacco products 49. Therefore, the industry
members could not make any changes with respect to pricing which would be illegal in nature.
27. It is contended that there is an absence of plus factors, as [i.] the OPs’ actions were consistent
with their unilateral self-interest, [ii.] they were economically justified, and [iii.] there is an
absence of profits.
(i) The OPs’ actions were consistent with their unilateral self-interest.
28. Plus factors, in an oligopolistic market, are economic actions and outcomes that are inconsistent
with unilateral conduct but consistent with coordinated action. 50 When, in the absence of an
agreement, each of the enterprises’ alleged collusive conduct would not have been in their
unilateral self-interest, it is a plus factor. 51
29. It is submitted that alleged exchange of price sensitive information was done in order to offset
the OPs’ costs due to the ever-increasing excise duty imposed on tobacco products. This was
in consonance with their unilateral self-interest. The OPs were barely able to keep their heads
afloat. Therefore, the OPs sought to save their companies in their own individual right by acting
in accordance to their needs.
30. The absence of an economic rationale for price parallelism is considered a plus factor, 52 i.e., it
strengthens the probability of concerted behaviour. 53 Therefore, if the parties are engaged in
parallel behaviour that is economically rational 54 and justified, it would be indicative of
individual action.55 It is submitted that in the instant case, the OPs’ actions are economically
49
Moot Proposition, Paragraph 6
50
In re: Alleged Cartelisation by Steel Producers: Case No. RTPE No. 09 of 2008, United States V/s Airline Tariff
Publishing Co: 836 F. Supp. 9 (D.D.C. 1993); In re: Flat Glass Antitrust Litigation: 385 f.3d 350 (3d cir. 2004);
51
Interstate Circuit Inc. V/S United States: 306 U.S 208 (1939); EI DuPont De Nemours & Co. V/S FTC: 488 F.
Supp. 747 (D. Del. 1980)
52
International Cylinder (p) Ltd. V/S Competition Commission of India: Suo Motu Case No. 01/2014
53
Delhi Jal Board V/s Grasim Industries Ltd: Ref Case No. 03 & 04 of 2013
54
Matsushita Electronics Industries Co. V/s Zenith Radio Corp: 475 U.S 574 (1986).
55
In re: Sheth & Co: Suo Motu Case No. 04 of 2013 ; American Tobacco Co. V/s United States, 328 U.S 781
(1946)
26
MEMORIAL ON BEHALF OF THE OPPOSITE PARTIES AND VOLTAN
TOBACCO ASSOCIATION
justified as the increase in prices (if any) of the products sold by the OPs were increased due
to the increased rate of taxes in Volta. However, the DG has not produced any data that suggests
that there was an increase in price of the products sold by the OPs. Therefore, the hypothesis
of exchanging price sensitive information is improbable and the OPs were only acting in
accordance to the taxation policy.
31. Furthermore, once the OPs are able to offer economic justification or any other explanation to
the alleged act, the burden shifts back to the other party which then has to rule out every other
possibility except collusive behaviour. In in the Tyre Cartel case56 the CCI observed that
parallel behaviour may become a basis for finding an anti- competitive agreement. However,
the CCI held that there was no such agreement in spite of indications of price parallelism
because, the explanation of extraneous factors affecting the act could not be excluded.
32. Moreover, the standard of proof where the evidence in hand is entirely circumstantial, the chain
of evidence has to be so conclusive in such a way that there is no possibility of a conclusion
that is consistent with the innocence of the accused 57. Unless every hypothesis other than the
one proposed by the informant can be disproved, a claim of existence of a cartel merely based
on price parallelism cannot be sustained. Thus, where the possibility of similar price changes
driven by economic factors exists, the same cannot be held to be collusive behaviour since it is
an anticipated outcome. 58
33. It is submitted before the Commission that evidence of gains from cartelisation is a plus
factor.59 This evidence includes industry performance data, such as extraordinary profits that
suggest successful collusion. Through collusion, the market players achieve an increase in
profit that would not be possible otherwise. 60 The only exception to this rule is a corresponding
price hike caused by a hike in the excise duty levied on tobacco products. Despite several
representations made to the government, the OPs through VTA were unsuccessful in reducing
the incidence of taxation. Further, the DG has not submitted any evidence on record to represent
that OPs earned extraordinary profits as even after exchanging alleged price sensitive
56
All India Tyre Dealers’ Federation V/s Tyre manufacturers: MRTP Case: RTPE No. 20 of 2008
57
Hanumant V/s State of Madhya Pradesh: AIR 1952 SC 343
58
Pevely Dairy Co. V/s United States st. Louis Dairy: 178 F.2d 363 (8th Cir. 1949)
59
International Cylinder (p) Ltd. V/S Competition Commission of India: Suo Motu Case No. 01/2014
60
City of Tuscaloosa V/s Harcros Chems. Inc: 158 F.3d 548 (11th Cir. 1998)
27
MEMORIAL ON BEHALF OF THE OPPOSITE PARTIES AND VOLTAN
TOBACCO ASSOCIATION
information. Therefore, in the absence of any profits, let alone supernormal profits, evidence
of an agreement between the OPs cannot be established.
34. That the exchange of information regarding prices etc. does not violate any provision of the
Act. The intention of the enterprises was not to increase or fix the prices of products in the
market. The exchange of information was solely for the purpose of proposing a price hike
before the FTA in order to save the industry from high imposition of tax. This exchange of
information did not form a basis for the formation of an agreement between the OPs nor did it
lead to any AAEC.
35. That this exchange of information cannot be treated as a per se offence as the exchange of
information was not ancillary to the alleged cartel. The exchange of information between the
OPs did not reduce the strategic uncertainty in the market as the OPs could not have increased
prices without prior permission from the FTA. They could have only increased prices which
corresponded to the increase in excise duty levied on tobacco products. The information
exchange between competitors did not reduce competition between the OPs, rather, it led to an
increase in competition between the players as the OPs could not have increased their price,
thus, increasing non-price competition.
36. That this hon’ble Commission in the case of Re: Alleged Cartelisation in Flashlights Market in
India61 held that exchange of commercially sensitive information between the OPs did not
violate Section 3 of the Act as the OPs never acted upon the information that was shared
amongst them. Furthermore, the Commission in Ruchi Soya62 case held that the exchange of
information did not result in determination of prices of the commodity. Similarly, in the present
case, the OPs had only exchanged their price information for the purpose of making a proposal
before the FTA to increase the prices of their product. However, since the FTA rejected the
proposal of the OPs they information exchanged between them became void. Exchange of such
information shall not have an impact on Competition. There is no evidence provided by the
DG which suggests that the exchange of information was used by the OPs to determine prices.
Furthermore, the OPs cannot unilaterally increase prices. The Commission cannot assume that
there has been an implementation of the information that was exchanged between the OPs.
61
In re: Alleged Cartelisation in Flashlights Market in India: Case No. 01 of 2017
62
Shri Nirmal Kumar V/s Ruchi Soya and Ors: Case No. 76 of 2012
28
MEMORIAL ON BEHALF OF THE OPPOSITE PARTIES AND VOLTAN
TOBACCO ASSOCIATION
37. That under the EU regime, exchange of information is viewed as anti-competitive if it leads to
concentration; subsequent conduct of the competitors and a cause-and-effect relationship
between the two. Concentration refers to a form of coordination between the competitors
without reaching the stage of an agreement. Such concentration thus determines the subsequent
conduct of the parties, hence, developing a cause-and-effect relationship. However, it is evident
that subsequent to the exchange of information between the OPs, there was not a deviation in
the conduct of the OPs, nor did it lead to an increase in price.
39. Direct or indirect fixing of prices attracts liability65 under Section 3(3)(a) of the Act. 66
However, mere allegations of increasing prices does not make a transaction anti- competitive.67
In XYZ V/s Penna Cements, when cement manufacturers had to increase prices because of the
circumstances, they were allowed to do so, as anything to the contrary would cause severe
detriment to their financial health. 68 Therefore, a uniform simultaneous price change would be
the result of independent business responses to the same market conditions. 69
40. It is submitted that in the present case, the exchange of information between the OPs were
limited to counter the long-term economic devastation caused by the excessive taxation which
continues to threaten the survival of the tobacco industry. Further, the DG has not provided this
Commission with any evidence representing the price hikes. Lastly, it is imperative to note that
63
Competition Act, 2002, Section3 (3)
64
Competition Act, 2002, Section3 (3) (a)
65
United Nations Conference on Trade and Development, Model Law on Competition (2007).
66
Competition Act, 2002, Section3 (3) (a)
67
In re: Anti-competitive Practices Prevailing in Banking Sector: Suo Motu Case No. 01 of 2015, XYZ V/s Penna
Cements: Ref Case No. 07 of 2014
68
XYZ V/s Penna Cements: Ref Case No. 07 of 2014
69
XYZ V/s Penna Cements: Ref Case No. 07 of 2014
29
MEMORIAL ON BEHALF OF THE OPPOSITE PARTIES AND VOLTAN
TOBACCO ASSOCIATION
the industry members could not change the pricing of the products manufactured by them
without the approval of FTA.
41. When various market players indulge in a similar practice, 70 for instance, a commercial practice
that is part of the daily transactions in the industry, it is considered a standard business
practice,71 and cannot be brought under the ambit of an anti-competitive practice. 72
ARGUENDO, THE OPS’ CONDUCT DOES NOT CAUSE AND IS NOT LIKELY TO
CAUSE AAEC
42. Assuming but not admitting the existence of an agreement under Section 3(3) of the Act, the
onus to rebut the presumption regarding AAEC lies on the OPs. 73 It is pertinent to note that
presumption of AAEC is solely indicative of the burden of proof. 74Furthermore, in order to
determine whether the conduct by the OPs amounts to an AAEC, it is prudent to contended
that the said presumption is rebutted, as there is an absence of anti- competitive factors.
43. The presence of anti-competitive factors enumerated from Section 19(3)(a) to Section 19(3)(c)
of the Act can result in AAEC.75 However, it is contended that these factors are absent in the
present case, as [a.] no barriers to entry have been created, [b.] existing competitors have not
been driven out of the market, and [c.] there is no foreclosure of competition in the market.
44. Restrictions on a new entrant’s ability to indulge in price competition, absence of fair
competition,76 restriction of consumer choice, 77and economies of scale create barriers to entry
70
Mcx Stock Exchange Ltd. V/s National Stock Exchange of India Ltd. And Ors: Case No. 13/2009
71
Jyoti Swaroop Arora V/s Tulip Infratech Ltd. And Ors: Case No. 59 of 2011
72
Rishabraj Logistics Limited V/s Orix Auto Infrastructure Services Limited and Ors: Case No. 65 of 2016
73
Excel Crop Care Limited V/s Competition Commission of India and Ors: (2017) 8 SCC 47
74
Sodhi Transport Co. V/s State of U.P. and Ors: AIR 1986 SC 1099
75
Shri Nirmal Kumar V/s Ruchi Soya and Ors: Case No. 76 of 2012
76
Technology Products V/s Bangalore Electricity Supply Co. Ltd. And Ors: (2012) COMPAT 182
77
Ramakant Kini V/s Dr. L.H Hiranandani hospital: Case No 39 of 2012
30
MEMORIAL ON BEHALF OF THE OPPOSITE PARTIES AND VOLTAN
TOBACCO ASSOCIATION
in the market.78 Moreover, it is essential to note that a high entry barrier is a primary feature of
any oligopolistic market,79 including the tobacco industry. In the instant case, no restriction
has been placed on fair price competition as, firstly, the prices have been proportionately
determined and no changes in prices can be done without the approval of the FTA.
45. The Tobacco industry as an oligopolistic market, by its very nature, has a high entry barrier.
Additionally, du due extensive state regulation as well as high incidence of taxation new
companies did not join the market this further led to little innovation in the tobacco market.
(b) Existing competitors have not been driven out of the market.
46. That active restriction of consumer choice through collusive behaviour has the potential to
drive competitors out of the market. 80As per Section 19(3)(b) of the Act, if the OPs’ conduct
resulted in driving existing competitors out of the market, it causes AAEC. 81 It is submitted
that in the present case, the alleged exchange of information did not drive out existing
competition, it was due extensive state regulation as well as high incidence of taxation that led
to shutting down of smaller companies in the industry In the budget for the FY 2010-2011, the
LVP increased the incidence of taxation on tobacco products to 22%, the companies could not
sustain themselves due to such high rates of taxes imposed by the State. The DG has not
presented evidence which suggests that Supersniffs, Tigris and Klaus exited the market solely
because of the conduct of the DG.
47. That foreclosure of competition is against the objective of free and fair competition in the
country,82 foreclosure happens when entry into the market is hindered by certain conduct of
the market players. 83 Furthermore, it is pertinent to note that any conduct required to ensure
supply of certain goods or services cannot amount to foreclosure of competition. An activity
which stifles growth of the industry, leads to foreclosure of competition, and reduces consumer
78
FX Enterprise Solutions India Pvt. Ltd. And Ors. V/S Hyundai Motor India Limited: Case No. 36 of 2014
79
Express Industry Council of India V/s Jet airways (India) Ltd. And Ors: Case No. 30 of 2013
80
Explosive Manufacturers Welfare Association V/s Coal India Limited and its Officers: Case No. 04 of 2010
81
Competition Act, 2002, Section 19 (3) (b) ; M.P. Mehrotra V/s Jet airways (India) Limited and Ors: Case No.
04/2009
82
Reliance Big Entertainment Limited and Ors. V/S Karnataka Film Chamber of Commerce and Ors: Case No.
25 of 2010
83
In re: Suo Motu case against LPG cylinder manufacturers: Suo Motu Case No. 03 of 2011.
31
MEMORIAL ON BEHALF OF THE OPPOSITE PARTIES AND VOLTAN
TOBACCO ASSOCIATION
49. It is humbly submitted before this hon’ble Commission that BAT and Imperial cannot be
considered as a single economic entity as factors laid down to determine whether any entities
form a single economic entity are not fulfilled. The Act only defines under Section 5 of the Act
and the same cannot be extended to Section 3 of the Act as the same would lead to legislating
and going against the intention of the legislature.
50. That the existence of a common director cannot lead to the conclusion that the entities are a
single economic entity. The veto rights granted to the directors do not imply that Imperial’s
autonomy was compromised and its decision were taken by BAT. The DG has not submitted
any evidence that proves that BAT had control over Imperial. Furthermore, the DG has solely
relied upon the deposition by Stella’s representative without granting the OPs an opportunity
to cross-examination Stella’s representative which amounts to violation of principles of natural
justice.
51. That for considering Imperial and BAT as a part of a single economic entity for the purposes
of the alleged cartel, it is essential that they are a part of the same ‘group’ of entities. The DG
has not submitted any evidence that suggests that BAT and Imperial are a part of a single
economic entity nor any evidence regarding the influence of BAT on any managerial decision
taken by Imperial. The DG has only made bald assertions without any evidence to support their
observation. This observation is at the prejudice of the entities as there is no evidence on record
that proves that BAT and Imperial are a part of a single economic entity.
84
Microsoft Corporation V/s Commission: T-201/04
85
Sunil Bansal V/s Jaiprakash Associates Ltd: Case No. 72 of 2011
32
MEMORIAL ON BEHALF OF THE OPPOSITE PARTIES AND VOLTAN
TOBACCO ASSOCIATION
52. Furthermore, ‘group’ has been described under Section 5, sub-section (b)86 of the Act. This
definition under the Act, refers to the concept of a group under the merger regime. The
extension of the applicability of this definition to Section 3 shall lead to legislating and
interpreting the statute in way that was not intended by the legislature. The hon’ble
Commission in the case of Delhi Jal Board V/s Grasim Industries Ltd.87 Has held that the
definition of group applies only to combinations under Section 5 and Section 6 88 of the Act and
does not have any bearing on proceedings related to anti-competitive agreements under Section
3 of the Act. Therefore, the definition of ‘group’ cannot be extended to Section 3 and the
assessment of control, in any form, shall go against the intention of the legislative and any
conclusion arrived at by the virtue of assessment of BAT’s control in Imperial shall be flawed.
53. That the hon’ble Commission in the case of Delhi Jal Board V/s Grasim Industries Ltd 89 while
holding that the concept of control and group under Section 5 of the Act cannot be applied in
order to determine whether entities form a single economic entity, held that the rule of reason
analysis should be adopted in order to determine whether entities form a single economic entity.
The Commission held that the following factors should be established to conclude that the
entities in question form a single economic entity:
“(i) the extent of shareholding of the parent in each of the combining parties;
(ii) whether the parent has control over the board of directors,
(iii) whether the parent and the subsidiaries have been consistently representing themselves
as part of the ‘single economic entity’ for other regulatory compliances;
(iv) the extent to which the parent had a share in the profits of the subsidiary;
(v) whether the combining parties have been presenting themselves as one entity to the
customers and competitors,
(vi) whether they had a unity of control as regards marketing and procurement,
86
The Competition Act, 2002, Section 5(b)
87
Delhi Jal Board V/s Grasim Industries Ltd, Ref. Case Nos. 03 & 04 of 2013
88
The Competition Act, 2002, Section 6
89
Delhi Jal Board V/s Grasim Industries Ltd, Ref. Case Nos. 03 & 04 of 2013
33
MEMORIAL ON BEHALF OF THE OPPOSITE PARTIES AND VOLTAN
TOBACCO ASSOCIATION
(vii) how long has such unity of purpose been in existence and has it been consistent.” 90
That for the case at hand, the analysis of the abovementioned factors are as follows:
(a) That BAT holds only 40% of shareholding in Imperial. A presumption cannot be imposed
that they are a single economic entity as such presumption is only applicable when there
exists a 100% shareholding.
(b) That BAT does not have a control over the board of directors of Imperial. BAT has only
two shareholders out of five in Imperial. The veto rights given to the minority shareholders
are with regard to only a few issues, the concept of control cannot be enforced herein.
(c) The DG has not presented any data that indicates that BAT and Imperial have represented
themselves as part of the single economic entity for other regulatory compliances. The onus
is on the DG to enlighten the Commission with corresponding evidence as the presumption
cannot be imposed on the entities.
(d) The extent to which BAT shares the profits of Imperial has not been brought on record.
(e) The DG has not submitted any evidence that showcases that the entities have presented
themselves as one entity to its customers and competitors. The e-mail and text evidence
which has been submitted to the hon’ble Commission by BAT, does not include any
communication by Imperial, nor has any evidence been submitted against Imperial by the
DG.
(f) That the DG has not showcased that there was a unity of control regarding marketing and
procurement. Control, if any, needs to demonstrated as to how it was imposed on Imperial.
(g) That there exists no evidence which discloses the time since there as been a unity of
purpose, if any.
The mere existence of a common director does not lead to unity of economic interest
54. That the hon’ble Commission in the in the case of Delhi Jal Board V/s Grasim Industries Ltd
91
held that the mere presence of a common director in two entities cannot lead to the conclusion
that the entities form a part of single economic entity. Furthermore, the Commission also held
that the power of minority blocking rights given to a director cannot lead to the conclusion that
the entities are a part of a single economic entity.
90
Ibid Para 49
91
Delhi Jal Board V/s Grasim Industries Ltd, Ref. Case Nos. 03 & 04 of 2013
34
MEMORIAL ON BEHALF OF THE OPPOSITE PARTIES AND VOLTAN
TOBACCO ASSOCIATION
55. The mere appointment of Mr. Ross as a common board of director in both the entities cannot
lead to the conclusion that there was a unity of economic interest which subsequently led to the
entities being a part of a single economic entity. Furthermore, the veto rights granted to the
minority directors in only a limited number of matters cannot assume the entities to be a part
of a single economic entity.
56. That there exists no evidence that suggests that Imperial’s autonomy was compromised. The
evidence on record only showcases the involvement of BAT in the cartel. Imperial had exited
VTA before the entities alleged violated Section 3(3)(a) of the Act. The DG has not submitted
any evidence which justifies that the representations made by Imperial to the FTA in relation
to grievances as well as price hikes were not made independently.
57. That the EC in the case of AEG Telefunken V/s Commission92 held that in order to prove
dependency of an entity over another, for determining that they form a part of a single economic
entity, it is required to be established that at the time of infringement firstly, the parent was in
a position to exert a decisive influence over the conduct of the subsidiary and secondly, the
parent actually made use of this power. The existence of a common board of director who
possess veto rights for limited matters cannot be inferred as an instance wherein BAT could
have exercised influence over Imperial. There also does not exist any evidence which indicates
that BAT had indeed exercised its influence (if any) over Imperial with regard to its
representation before the FTA. For entities to be a part of a single economic entity it is essential
that the subsidiary does not enjoy real autonomy in determining their course of action and they
carry out the instruction issued to them 93, however, no such evidence has been submitted by
the DG in the present case.
58. That the DG has solely relied upon the deposition given by a representative of Stella, to
conclude that BAT and Imperial are a part of a single economic entity. No opportunity was
granted by the DG to cross-examine the representative of Stella nor was any other evidence
92
AEG Telefunken V/s Commission, [1983] ECR 3151
93
Viho Europe BV V/s Commission, [1996] ECR I-5457
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MEMORIAL ON BEHALF OF THE OPPOSITE PARTIES AND VOLTAN
TOBACCO ASSOCIATION
submitted by the DG in this regard. The DG’s entire allegation if based on one deposition given
by a competitor.
59. That the non-examination (cross-examination) of Stella’s representative by BAT and Imperial
has led to a violation of the principles of natural justice as the DG has formed his opinion solely
on the basis of the deposition given by Stella’s representative. That the hon’ble Supreme Court
in K.L. Tripathi V/s State Bank of India and Ors.94 observed that the right to cross-examine a
witness is a part of the principles of natural justice and is an indefeasible right. This implies
that no material can be relied upon in order to establish a contested fact and are subjected to
cross-examination by the party against whom such deposition is sought to be used 95. That the
Apex Court in the case of Union of India V/s T.R Varma96 held that the rules of natural justice
require that the party should be given the opportunity to cross-examine the witness who is
deposing against such party. This hon’ble Commission has also made a similar observation in
the In re: Alleged cartelisation by Cement Manufacturers97 wherein the Commission observed
denial of cross-examination of witness is a violation of the principles of natural justice.
60. That the right to cross-examine is a witness is a principle of natural away and cannot be
abandoned. The dependence on the deposition of Stella’s representative can only be carried out
once they have been cross-examined, their deposition does not have any corroborations and is
of sterling quality. The DG has not determined how BAT and Imperial form a part of a single
economic entity. Therefore, the DG cannot solely rely on the deposition given by the
representative of a rival to conclude that BAT and Imperial are a part of a single economic
entity as the OPs were not given an opportunity to cross-examine the representative.
61. It is humbly submitted before this hon’ble Commission that the leniency application filed by
BAT is in accordance with the LPR provisions and is in consonance with the objective of
leniency. The application filed by BAT equipped this hon’ble Commission to form a prima
facie view regarding the allegation under Section 3 of the Act. The application also made a full
disclosure as BAT submitted all the evidence regarding the cartel. Furthermore, if the
Commission grants a reduction in penalty to BAT, the same should be extended to Imperial as
94
K.L. Tripathi V/s State Bank of India and Ors, 1984 (1) SCC 43
95
Bareilly Electric Supply Co. Ltd. V/S The Workmen, 1972 (1) SCR 241
96
Union of India V/s T.R Varma, 1958 SCR 499
97
In re: Alleged cartelisation by Cement Manufacturers, RTPE No. 52 of 2006
36
MEMORIAL ON BEHALF OF THE OPPOSITE PARTIES AND VOLTAN
TOBACCO ASSOCIATION
the relevant turnover of Imperial shall also be considered while imposing the penalty. The
Commission cannot pick and choose when to include Imperial’s existence. If the Commission
includes the turnover of Imperial for the purposes of calculating the relevant turnover, the
Commission should therefore, also extend the reduction granted to BAT to imperial as not
doing so shall be against the principle of equity.
62. That the leniency application submitted by BAT under section 46 of the Act does not suffer
from latches and makes a full and vital disclosure. The leniency application submitted by BAT
does not contain any information regarding the role of Imperial as Imperial was not a part of
VTA when the entities shared their price books. Imperial exited from VTA in September 2014.
The DG has only made a bald assertion that Imperial was involved in a cartel to allegedly fix
the prices of cigarettes. There has been no evidence submitted by the DG with regard to this
allegation. Rather there is nothing on record that demonstrates that the OPs had an agreement
to fix prices.
63. Furthermore, BAT was the first entity to submit a leniency application to this hon’ble
Commission along with making a full and vital disclosure. BAT’s leniency application enabled
the Commission to form a prima facie view and pass an Order under Section 26(1) of the Act 98.
It was only because of BAT’s leniency application that equipped the Commission to initiate
proceedings, if such leniency was not filed, the Commission would not have been able to form
a prima facie determination.
64. That there is nothing on record that suggests that BAT did not co-operate with the investigation
or did not make a full and vital disclosure or knowingly hid information from the Commission.
The allegation that BAT should have provided the Commission with information regarding
Imperial and such omission leads to latches in BAT’s leniency application, shall only be
successful if there is any evidence that demonstrates Imperial’s role in the alleged cartel.
65. That it is imperative to note that the hon’ble Commission in Re: Anticompetitive conduct in the
dry-cell batteries market in India 99, the Commission granted a 100% reduction in penalty to
Panasonic as the information and evidence provided by Panasonic amounted as full and true
disclosure and also enabled the Commission to order an investigation. Similarly, in Re:
98
The Competition Act, 2002, Section 26(1)
99
Re: Anticompetitive conduct in the dry-cell batteries market in India, Case No. 02 of 2017
37
MEMORIAL ON BEHALF OF THE OPPOSITE PARTIES AND VOLTAN
TOBACCO ASSOCIATION
67. That if this hon’ble Commission, in its wisdom, identifies BAT and Imperial to be a part of a
single economic entity, then any reduction in penalty given to BAT shall be extended to
Imperial as well. Assuming but not accepting that BAT and Imperial are a single economic
entity, by virtue of the joint control, BAT is equipped to have an influence on the managerial
affairs of Imperial which would have subsequently impacted Imperial’s independent decision-
making capacity. The presence of a common director with veto rights has the authority to
influence the decision-making capacity of Imperial.
68. That by assuming that BAT and Imperial are a single economic entity, the relevant turnover
shall also the turnover of Imperial for the imposition of penalty. However, if for the purposes
of penalty, the turnover of Imperial is being considered, similarly, the reduction in penalty
granted to BAT shall also be extended to Imperial. Inclusion of Imperial’s turnover solely for
the purposes of imposing penalty but not extending the same for the purposes of granting
leniency shall go against the principle of equity.
69. That therefore, by the virtue of recognizing BAT and Imperial as a single economic entity by
the virtue of a common director having veto rights, the reduction in penalty to BAT shall be
extended to Imperial as Imperial’s independent decision-making capacity was hampered and
100
Re: Cartelization by broadcasting service providers by rigging the bids, Case No. 02 of 2013
101
The Competition Commission of India (Lesser Penalty) Regulations, 2009, Regulation 5 (a), (b)
38
MEMORIAL ON BEHALF OF THE OPPOSITE PARTIES AND VOLTAN
TOBACCO ASSOCIATION
BAT controlled the functioning of Imperial in the cartel. Therefore, if any reduction in penalty
is granted to BAT, the same shall be extended to Imperial.
39
MEMORIAL ON BEHALF OF THE OPPOSITE PARTIES AND VOLTAN
TOBACCO ASSOCIATION
PRAYER
Wherefore in the light of the issues raised, arguments advanced and authorities cited, it is most
humbly prayed that this Hon’ble Commission may be pleased to adjudge and declare:
1. That the OP’s and VTA are not in violation of Section 3 (3) (a) of the Competition Act,
2002.
2. That OP’s have not caused any kind of AAEC as prescribed under Section 19 (3) of the
Competition Act, 2002.
3. No statutory penalty shall be imposed on the OP’s and VTA for its conduct as under
section 27 (b) of the Competition Act, 2002.
4. That BAT and Imperial are not a Single Economic Entity
5. That if any immunity is granted to BAT, the same shall be extended to Imperial.
And pass any other order in favor of the opposite party that this Hon’ble Commission may
deem fit in the interests of justice, equity and good conscience.
ON BEHALF OF THE
OPPOSITE PARTIES
PLACE: VOLTA
DATE: 20/03/2022
40