At Josh and Mak International, we provide comprehensive legal advice on the Pakistani competition/antitrust legal-regulatory framework. Our expertise in this field assists clients in achieving their strategic objectives while ensuring compliance with relevant laws and regulations. With a practical approach, we offer guidance on various aspects, including mergers, acquisitions, joint ventures, commercial agreements, abuse of dominant position, cartelization, and pre-merger notifications. Our team excels in addressing complex economic and technical issues related to pricing, intellectual property, technology collaboration agreements, marketing, distribution, outsourcing, financing, and dispute settlement arrangements.
Competition Laws and Prohibited Acts: Under the Competition Ordinance 2007 and the Competition Act 2010, certain acts that prevent, restrict, or reduce competition in the relevant market are prohibited. We frequently advise companies on the legal aspects of abuse of dominant position, deceptive marketing practices, and mergers that substantially lessen competition. Prohibited practices include limiting production, engaging in unfair trading conditions, price discrimination without objective justifications, tie-ins, imposing supplementary obligations unrelated to the contract, applying dissimilar conditions to equivalent transactions, predatory pricing, boycotting, excluding other undertakings, and refusing to deal.
Deceptive Marketing Practices: Our legal advice encompasses deceptive marketing practices, which can harm business interests and mislead consumers. Such practices include the distribution of false or misleading information that harms another undertaking, distribution of information lacking reasonable basis to consumers, false or misleading comparisons of goods in advertising, and fraudulent use of another’s trademark, firm name, or product labeling/packaging.
Competition Commission of Pakistan: The Competition Act 2010 and the Competition Ordinance 2007 establish the Competition Commission of Pakistan as the regulatory body responsible for enforcing competition laws. This commission conducts inquiries, issues orders, and grants individual and block exemptions. Noncompliance with the provisions of the ordinance can result in fines not exceeding Rs. 50 million or 15% of the defaulting undertaking’s annual turnover. Appeals against the commission’s orders can be made to the Appellate Bench of the Commission and further to the Supreme Court of Pakistan.
Additional Legislation: We also provide advice on relevant legislation, including the Essential Commodities Distribution Order 1953, Essential Supplies Act 1957, Essential Commodities Control Order 1965, and the Price Control and Prevention of Profiteering and Hoarding Act 1977. These laws enable the federal government to control the distribution and price of specified commodities. However, the government’s policy is gradually shifting towards allowing free market forces to operate, reducing the number of commodities subject to price control.
At Josh and Mak International, we provide expert legal advice on monopolies, anti-trust regulations, restraint of trade, government control, and competition laws in Pakistan. Our practical approach, in-depth knowledge, and comprehensive services enable us to assist clients in navigating the complex legal landscape while achieving their strategic goals. For more information and to discuss your specific requirements, please contact us at [email protected].
Cases : These cases serve as references for our clients and demonstrate that our services cover various situations and relevant aspects. We are fully equipped to address any competition-related challenges you or your business may currently face.
2007 PLD 1 D.G. KHAN CEMENT COMPANIES LIMITED through Company Secretary/through Chairperson v.s . MONOPOLY CONTROL AUTHORITY
-Ss.2, 3 & 6—“Trade” and “trade practice”—Concepts—Power of Authority—Scope. An unreasonably restrictive trade practice is defined in section 2(m), of the Monopolies and Restrictive Trade Practices (Control and Prevention) Ordinance, 1970 but in order to properly appreciate this definition, it is necessary also to examine the concepts of trade and trade practice, both of which are also defined terms. Trade is defined in broad terms, and it is not in dispute that the cement industry is a trade within the meaning of section 2(k). Section 2 (1) defines a trade practice. Though exhaustive, the definition brings within its ambit both an act (i.e. a single or isolated instance or event), and also a practice (i.e. a trade custom or usage or acts or events or series of acts or events undertaken with some degree of regularity, continuity or repetition) in relation to the carrying on of a trade or business. If the definition (section 2(n) of an unreasonably restrictive trade practice is now examined, it will be found to comprise of two main components: (a) there must be a trade practice, and (b) such trade practice must or must have the effect of unreasonably preventing, restraining or otherwise lessening competition in any manner. Obviously, both components must exist for a finding of an unreasonably restrictive trade practice to be recorded. Looking at the second component of the definition, it is clear that this itself has two requirements: (i) the trade practice must prevent, restrain or lessen competition, and (ii) it must have this effect in any unreasonable manner or to an unreasonable degree. The term competition is not as such defined in the Ordinance and it is not necessary to exhaustively examine this concept in the context of monopoly law (or anti-trust law as it is known in American jurisprudence). It is sufficient to note that competition means and requires the free interplay between the suppliers and consumers of goods in a market environment. The actions and decisions of the buyers and sellers (such as the price demanded for the commodity by the suppliers or accepted by the consumers, the quantity to be supplied or consumed, etc.) must be set purely by market forces and conditions. The market itself may, of course, be subject to regulation by the State. For example, a retail market where foodstuff and other perishable items are sold may be subject to local regulations as to timings, hygiene requirements, specifications as to weights and measures to be used, etc. The requirement of competition under the Ordinance focuses on the actions and decisions of those who act in, or in relation to, the market as the suppliers and consumers of goods. These actions and decisions must be solely controlled by the market forces and conditions as prevailing from time to time”. It is also important to keep in mind in this context that the requirement as to competition is not limited to the immediate or actual market participants. To revert to the example just given, the suppliers would include not just the shopkeepers in the retail trade, but also their wholesale suppliers and the persons from whom the wholesellers acquire the goods, etc.
2015 CLD 795 SECURITIES-AND-EXCHANGE-COMMISSION-OF-PAKISTAN vs INDUS MOTOR COMPANY LIMITED
Ss. 2(1)(2), 3(3)(a), 30 & 37—Dominant position, abuse of—Enquiry Committee, duly constituted, submitted its enquiry report, wherein it was stated that company held a substantial market share, and enjoyed economic power in the 1300cc segment of car market; which enabled it to behave independent of its competitors and customers; thereby making it a dominant player in the relevant market of cars—Under the circumstances buyer of the company’s product, was in a weaker bargaining position—“Provisional Booking order” issued by the company to its potential buyers, had given the company the sole right to (i) change the price; (ii) design/specification; (iii) delivery schedule without any notice to the buyer; (iv) a conclusive right to interpret the terms of the contract ; and (iv) to decide the dispute between a buyer and the company—Such terms created a significant imbalance to the disadvantage of buyer’s rights and obligations arising under the contract —Such terms of “Provisional Booking order” being unfair to the buyers, were in contravention of S.3(3)(a) of competition act , 2010 —Subsequently, the company revised and rectified the draft of “Provisional Booking order”; and such rectification, had put the consumer at equal footing—Initially company had sole and absolute discretion to accept or reject the request of cancellation by the employer; and company had sole right to alter some or all terms and conditions of “Provisional Booking order”, and also the right to interpret them conclusively—Such clause in the contract could be used to force the buyer to accept increased cost, or reduced benefits, which was unfair—Such clause had been completely removed from the revised draft of Provisional Booking order—Other condition, whereby any dispute between the customer and the company was to be conclusively decided by the Managing Director of the company, had been amended to refer such dispute to an arbitrator to solve and settle the matter under the Arbitration act , 1940, giving fair and equal right to both parties i.e. the buyer and the company—Initially the company held sole right to change the design, construction and specification without notice to buyers—Such claim gave power to the company to substitute something different for what it had act ually agreed to apply—After rectification, “Provisional Booking order” was revised, which specifically mentioned that company could make minor alteration to the design and construction specification of the vehicle, and make such alteration in the vehicle as required by any Federal or Provincial Legislation— Initially the company had the sole right to change price of the vehicle without notice to the buyer at the time of delivery—Said lacuna had been removed by explicity mentioning in the revised draft of “Provisional Booking order” that the revision of price would only be subject to a change, if any in Government Levies/taxes or currency fluctuation—“Provisional Booking order” had been amended and rectified to address the competition concerns raised in terms of S.3(3)(a) of competition act , 2010 —Subject to incorporation of revised terms and conditions, proceedings stood disposed of.
2014 SCMR Syed MUBASHIR RAZA JAFFRI vs EMPLOYEES OLD-AGE BENEFITS INSTITUTIONS (EOBI) Regln. 10— Employees’ Old-Age Benefits Institution Operating Manual Ch. 2, Cls. Nos. 02.4.3 & 02.05.2— Constitution of Pakistan, Arts. 25 & 184(3)—Constitutional petition under Art. 184(3) of the Constitution against illegal appointments in Employees Old Age Benefits Institutions (EOBI) based on political influence, nepotism and cronyism—Report of Fact Finding Committee constituted by management of EOBI disclosed the mismanagement, corruption, nepotism and politicising of the disputed appointments, which were made in a mala fide manner, thereby crushing the merit criteria in a public owned establishment of the Government—Many persons like the then Chairman of EOBI, did not realize or adhere to the reality of merit criteria and were adamant to play with the future of the younger generation for their own good and to achieve their nefarious designs—Record showed as to how persons belonging from one political group and from certain constituencies/areas from where, brother and nephew of Chairman, EOBI, were elected as Parliamentarians were obliged and accommodated in the matter of their appointments in bulk, in an illegal manner—Applicants (23648 in number), who had applied for the vacancies in EOBI, had equal right of opportunity as citizens of the country, in terms of Art. 25 of the Constitution, but were thrown out of the competition despite the fact that they also met the requisite qualifications and might have been more meritorious, but could not exert either political pressure or avail the fruits of nepotism and corruption, forming basis for the selection and appointment of appointees in question, many of whom had not even applied for the job in terms of the advertisement for the vacancies—Appointees in the present case succeeded in getting entry from the backdoor at the cost of many other bona fide candidates, whose applications were literally thrown in the dust-bin in an un-ceremonial manner just for the sake of accommodating the blue eyed ones—Gains availed by the illegal appointees were at the cost of other deserving candidates who had applied for these posts, being citizens of the country, with a legitimate expectation that they would be able to seek appointment on the basis of their eligibility-cum-merit criteria to be observed as per the applicable rules and regulations of the EOBI—Ill-gotten gains could not be defended/protected under any canon of law or even on humanitarian considerations—Record also showed that 238 employees/ officials in the EOBI were appointed on contract /daily and contingency basis during the period between September, 2011 to May, 2012 in flagrant violation of the prescribed rules and regulations and subsequently such employees were also purportedly regularized—For regularization of such employees some summaries were floated and illegal approval was obtained from the Cabinet Sub-Committee, which otherwise neither figured anywhere in the hierarchy of EOBI nor had any legal authority to rectify such illegal and wrong appointments—Said contract appointments were made at a time when there were no available posts for these persons and the whole exercise was, on the face of it, undertaken on the basis of nepotism and political pressure in vogue during that period—All this exercise was undertaken by the officials of EOBI despite a specific stay order issued by the Supreme Court—Supreme Court observed that it was a sad fact of our bureaucracy that it could be so susceptible to the whims and wishes of the ruling elite class etc, which resulted in an obvious weakening of State institutions such as the EOBI, whereby the general public, whose interest such establishments had been charged with protecting, were adversely and heavily affected in different ways—Supreme Court directed that all the illegal appointments, deputations and absorptions made in the EOBI, as detailed in the report of Fact Finding Committee, were without lawful authority and of no legal effect and accordingly services of such employees stood terminated forthwith; that all such vacancies and other available vacancies in EOBI should be advertised and filled afresh strictly in accordance with applicable rules and regulations, subject to prescribed quota, requisite qualifications and merit criteria, for which the Chairman, EOBI shall be personally responsible; that the matter regarding all the illegal appointments should be investigated by the National Accountability Bureau authorities; that all officials directly or indirectly involved in the process of such illegal appointments on the basis of corruption, nepotism and political exigencies should be proceeded against in accordance with law within two months; that contempt proceedings should be initiated against all those who were, prima facie, found guilty of violation of a stay order of the Supreme Court dated 21-1-2011 in H.R.C. No.48012 of 2010 , particularly in the process of appointment of 238 employees/officials during the period between September 2011 to May 2012—Constitutional petition was disposed of accordingly.
2014 PLC 428 Syed MUBASHIR RAZA JAFFRI EMPLOYEES OLD-AGE BENEFITS INSTITUTIONS (EOBI)
Regln. 10— Employees’ Old-Age Benefits Institution Operating Manual Ch. 2, Cls. Nos. 02.4.3 & 02.05.2— Constitution of Pakistan, Arts. 25 & 184(3)—Constitutional petition under Art. 184(3) of the Constitution against illegal appointments in Employees Old Age Benefits Institutions (EOBI) based on political influence, nepotism and cronyism—Report of Fact Finding Committee constituted by management of EOBI disclosed the mismanagement, corruption, nepotism and politicising of the disputed appointments, which were made in a mala fide manner, thereby crushing the merit criteria in a public owned establishment of the Government—Many persons like the then Chairman of EOBI, did not realize or adhere to the reality of merit criteria and were adamant to play with the future of the younger generation for their own good and to achieve their nefarious designs—Record showed as to how persons belonging from one political group and from certain constituencies/areas from where, brother and nephew of Chairman, EOBI, were elected as Parliamentarians were obliged and accommodated in the matter of their appointments in bulk, in an illegal manner—Applicants (23648 in number), who had applied for the vacancies in EOBI, had equal right of opportunity as citizens of the country, in terms of Art. 25 of the Constitution, but were thrown out of the competition despite the fact that they also met the requisite qualifications and might have been more meritorious, but could not exert either political pressure or avail the fruits of nepotism and corruption, forming basis for the selection and appointment of appointees in question, many of whom had not even applied for the job in terms of the advertisement for the vacancies—Appointees in the present case succeeded in getting entry from the backdoor at the cost of many other bona fide candidates, whose applications were literally thrown in the dust-bin in an un-ceremonial manner just for the sake of accommodating the blue eyed ones—Gains availed by the illegal appointees were at the cost of other deserving candidates who had applied for these posts, being citizens of the country, with a legitimate expectation that they would be able to seek appointment on the basis of their eligibility-cum-merit criteria to be observed as per the applicable rules and regulations of the EOBI—Ill-gotten gains could not be defended/protected under any canon of law or even on humanitarian considerations—Record also showed that 238 employees/officials in the EOBI were appointed on contract /daily and contingency basis during the period between September, 2011 to May, 2012 in flagrant violation of the prescribed rules and regulations and subsequently such employees were also purportedly regularized—For regularization of such employees some summaries were floated and illegal approval was obtained from the Cabinet Sub-Committee, which otherwise neither figured anywhere in the hierarchy of EOBI nor had any legal authority to rectify such illegal and wrong appointments—Said contract appointments were made at a time when there were no available posts for these persons and the whole exercise was, on the face of it, undertaken on the basis of nepotism and political pressure in vogue during that period—All this exercise was undertaken by the officials of EOBI despite a specific stay order issued by the Supreme Court—Supreme Court observed that it was a sad fact of our bureaucracy that it could be so susceptible to the whims and wishes of the ruling elite class etc, which resulted in an obvious weakening of State institutions such as the EOBI, whereby the general public, whose interest such establishments had been charged with protecting, were adversely and heavily affected in different ways—Supreme Court directed that all the illegal appointments, deputations and absorptions made in the EOBI, as detailed in the report of Fact Finding Committee, were without lawful authority and of no legal effect and accordingly services of such employees stood terminated forthwith; that all such vacancies and other available vacancies in EOBI should be advertised and filled afresh strictly in accordance with applicable rules and regulations, subject to prescribed quota, requisite qualifications and merit criteria, for which the Chairman, EOBI shall be personally responsible; that the matter regarding all the illegal appointments should be investigated by the National Accountability Bureau authorities; that all officials directly or indirectly involved in the process of such illegal appointments on the basis of corruption, nepotism and political exigencies should be proceeded against in accordance with law within two months; that contempt proceedings should be initiated against all those who were, prima facie, found guilty of violation of a stay order of the Supreme Court dated 21-1-2011 in H.R.C. No.48012 of 2010 , particularly in the process of appointment of 238 employees/officials during the period between September 2011 to May 2012—Constitutional petition was disposed of accordingly.
2014 PLD 79 PAKISTAN TELECOMMUNICATION COMPANY LIMITED vs PAKISTAN TELECOMMUNICATION AUTHORITY
- 4(m)—competition act (XIX of 2010 ), S. 28—Anti-competitive practices in providing broadband services—Concurrent jurisdiction of Pakistan Telecommunication Authority (PTA) and competition Commission—Complainant-companies filed complaints before PTA alleging that Pakistan Telecommunication Company Limited (PTCL) provided broadband services to them for onward sale to the public, but at the same time provided same services to the general public as well; that PTCL provided broadband services to the public at a much lower rate and put the complainant-companies in a position where they could not provide the same services on the same rate—Maintainability—Concurrent jurisdiction was available to the competition Commission as well as PTA to adjudicate upon the present complaints—Different companies were involved in the same business, so in order to maintain a healthy competition among companies, the jurisdiction of PTA could not be considered as ousted—Appeal was disposed of accordingly.
2013 CLD 330 TILLOTTS PHARMA AG vs GETZ PHARMA (PRIVATE) LIMITED
Ss. 67, 86 & 90(2)— Specific Relief act (I of 1877), S.54—Civil Procedure Code (V of 1908), O.XXXIX, Rr.1 & 2—Suit for injunction—Interim injunction, grant of—Unfair competition and infringement of trade mark—Plaintiff sought injunction against defendant from restraining him to use trade mark MASACOL registered in its name of the plea of deception and similarity—Validity—Trade mark MASACOL was a registered trade mark of defendant and plaintiff without seeking declaration or its cancellation was simply seeking injunction—Plaintiff could not place any material on record to deny claim of defendant that after import of last consignment in year, 2009, Government had declined permission to grant license for import of product of plaintiff which had not been available in Pakistan for the last two years—Product MASACOL was being sold in market since middle of year, 2010 and there was no justification on record as to why plaintiff had brought act ion against defendant after a delay of almost 18 months, especially when plaintiff claimed that defendant was his agent in Pakistan for sale of his product which was not imported after expiry of its license in year, 2009—Claim of plaintiff as to infringement of their trade mark by defendant through its registered trade mark MASACOL, on the plea of similarity could not be determined unless plaintiff would succeed in rectifying register of trade marks in respect of its product and till then plaintiff was not entitled to injunction—Balance of inconvenience tilted in favour of defendant on account of admitted position that plaintiff’s product was out of market and defendant’s claim to have captured sizable market was in record—High Court declined to issue interim injunction in favour of plaintiff and against defendant from selling product under the name of MASACOL—Application was dismissed in circumstances.
2013 CLD 1184 COMPETITION COMMISSION OF PAKISTAN vs
INSTITUTE OF CHARTERED ACCOUNTANTS OF PAKISTAN (ICAP)
Ss. 4 & 38(3)—Abuse of dominant position—Institution of Chartered Accountants of Pakistan (ICAP), issued ‘July Directive’ whereby it had prohibited its members and chartered accountant firms from training non-ICAP accountancy students—‘ICAP’, maintained that pursuant to subsequent directive (October Circular), said prohibition was narrowed down to such members and accountancy firms who were approved training organization of ‘ICAP’—Said ‘July Directive’, had a wider scope and had placed an absolute bar on all members of ‘ICAP’ engaging trainees of other accounting bodies—Contention of ‘ICAP’ that subsequent to the ‘October circular’, show-cause notice issued to it had lost its basis had no merit—Such prohibition on accountancy firm foreclosed, shut out and precluded not only a large segment of the relevant market for non-ICAP students, but the most valuable segment—Accountancy firms were restricted in their choice and freedom to engage a trainee; while it deprived the non-ICAP students, both quantitatively and qualitatively, from gaining such experience, pract ically from the most prestigious segment of the training market which adversely impact s the accountancy firms as well as the value of the qualification offered by direct competitors of ‘ICAP’, thereby restricting, preventing and reducing competition in the relevant market—Normally, each accountancy body had a best of public practice firms and/or commercial organizations, which were recognized for imparting training, necessary to complete the requirements for getting membership of the institute—Those recognized trainers, then accept accountancy students and certify that experience gained by the students—Training through a public practice accounting firms, was a valuable form of training for accountancy students—Said ‘July Directive’, had also created a barrier for those students seeking entry in the market for provision of accountancy services in Pakistan—‘ICAP’ need not ban its members from training students of other accountancy bodies to purportedly improve the quality of training for their own students—‘ICAP’ ought not discourage, discriminate or otherwise unequally treat growing number of a human resource, essential for a vibrant economy—As a natural corollary of competition in the market, the increase in the number of such professionals in the past had provided and should continue to provide, the businesses and other consumers, not only with a greater choice, but also improved quality and reduced costs for accountancy services—‘July Directive’ and ‘October Circular’, were declared to be in violation of S.4 of competition act , 2010 , and to be without any legal force—Penalty of Rs.25 millions, was imposed on ‘ICAP’, and it was restrained, from issuing similar Directives and Circulars, in future.
2013 CLD 1129 COMPETITION COMMISSION OF PAKISTAN vs ACQUISITION OF PFIZER NUTRITION (A BUSINESS UNIT OF PFIZER INC.) BY NESTLE S.A
Ss. 2(e), 11 & 31(1)(d)(i)—competition (Merger Control) Regulations, 2007, Regln.6—Pre-merger application—Applicant/acquirer, had submitted a pre-merger application regarding the clearance from the competition Commission of Pakistan the acquisition of corporation—Applicant was a dominant player in the relevant product market and would further strengthen its dominant position in the relevant market—Transact ion involved the proposed acquisition of the merger corporation by way of contract s, assets and liabilities of the business segments by corporation—Apart from lessening of competition , elimination of a competitor also would reduce the choices available to consumer—Availability of choice was an important determinant of a competitive market—Reduction in choices available to consumers was the concern of the competition Commission—Bench and the merger parties, however, agreed that a written undertaking by the applicant/acquirer to the effect that, merged corporation’s products would continue to be available for a period of three years from the date of closing of transact ion in Pakistan—Since the applicant had given a written undertaking to the competition Commission the Bench authorized the acquisition under S.31(1)(d)(i) of the competition act , 2010 .
2013 CLD 1014 COMPETITION COMMISSION OF PAKISTAN vs. DHL PAKISTAN (PVT.) LTD.
Ss. 10, 37(2) & 38—Deceptive marketing practice—Complainant establishment had alleged that the respondents were fraudulently using, complainant’s stylized and artistically created logo/trade mark, without its permission or authorization or consent, which was false, deceptive and misleading, and was also capable of harming the business interest of the complainant; and the respondents were violating the provision of S. 10 of the competition act , 2010 —Validity—Persons who were violating the provisions of S.10 of the competition act , 2010 could be divided in four categories; first category was of those who were allegedly using complainant’s trade mark, but discontinued its use subsequent to the receipt of notice of the commission; second category was of those who allegedly used complainant’s trade mark and had not stopped from using the same, but courier packages were being sent through the complainant; third category was of those who had allegedly used trade mark of the complainant; and had not provided any proof of its discontinuation or provided any evidence that the couriers were passed on to the complainant and fourth category was of those who allegedly continued using the marks which were deceptively similar to the trademark of the complainant and had been carrying out business in their own names—Comparison of the trademark of the complainant and the marks used by respondents of first category, led to the conclusion that they had used the identical trademark for marketing purpose, but subsequent to the receipt of Commission’s notice, promptly discontinued the use of trademark of the complainant; and also reported compliance by removing said trademark from their billboards, nearby hoardings and also brought major changes to the website, thus demonstrating their good faith in the case—In view of said conduct of said respondents, taking a lenient view, no penalty was imposed on them and they were reprimanded not to commit such contravention in future while other respondents were imposed penalty by the competition Commission.
2013 CLD 1014 COMPETITION COMMISSION OF PAKISTAN
DHL PAKISTAN (PVT.) LTD.
Ss. 10, 37(2) & 38—Deceptive marketing practice—Complainant had alleged that respondents were fraudulently using complainant’s stylized and artistically created logo/trade mark, without its permission or authorization or consent, which was false, deceptive and misleading and also capable of harming the business interest of the complainant; and by so doing the respondents had violated the provision of S.10 of competition act , 2010 —Respondents had alleged that the complaint had not been filed by the competent person, as the resolution of Board of Directors of complainant company did not contain the names and designation of Directors of the company—Validity—Complainant was a legal person being a company limited by shares and it was registered as a company with the Securities and Exchange Commission of Pakistan under the provisions of the Companies Ordinance, 1984—Pleadings in legal proceedings, initiated on behalf of juristic person could be signed by any person; (i) authorized to do so under the Articles of Association of company; or (ii) authorized by its Board of Directors; or (iii) authorized to do so through a general power of attorney—Complaint had been filed by company Secretary; and complaint not only was bearing the signature, but also was bearing the seal of the complainant undertaking—Certified true copy of the Board’s resolution had also been annexed with the complaint—Complaint did contain the signature of authorized person of the complainant company by virtue of Board’s resolution; and seal of the complainant was also affixed on the complaint—Power of attorney of the counsel was also duly signed by company’s Secretary, who was duly authorized in that regard—Objection of respondents had no merits.
2013 CLD 1014 COMPETITION COMMISSION OF PAKISTAN
DHL PAKISTAN (PVT.) LTD.
Ss. 10, 37(2) & 38—Deceptive marketing practice—Ignorance of law—Common objections taken by the respondents was that ‘They had no knowledge about special law i.e. competition act , 2010 ‘; that they had no intention to deceive any person in any manner; that the complaint had been filed for extraneous purposes and with mala fide intention which tantamounted to victimization and harassment to the respondent—Validity—Trade mark of the company ‘DHL’ and its logo were known worldwide—Complainant company had incurred considerable expenses in advertising and promoting its trade mark through various media, both print and electronic, having circulation/viewership throughout the world; and in Pakistan and through its quality service had earned a certain stature in rendering courier services—Ignorance of law could not be accepted as a valid justification or defences—Respondents’ contention that they had no knowledge about the competition act , 2010 or any such type of special law, was not a valid justification—Complainant, in circumstances, was within right to seek and pursue protection of its rights conferred under the law.
2013 CLD 1014 COMPETITION COMMISSION OF PAKISTAN v.s. DHL PAKISTAN (PVT.) LTD.
Ss. 10, 37(2) & 38—Deceptive marketing practice—Respondents allegedly continued using the marks which were deceptively similar to trademark of the complainant and had been carrying out the business in their own names—One of said respondents, even used the complainant’s trademark and displayed it in the glass wall of his outlet—By displaying the trademark of the complainant on billboards, nearby hoardings and visiting cards, the respondents had, in fact , made the consumers believe that they were authorized dealers/representatives or service centres of the complainant—Complainant or its principal had not authorized any of the respondents to use its trademarks or logo—Such conduct of said respondents was aimed at capitalizing on the good-will attached to complainant’s trademarks by misleading the consumer through the deceptive logo, capable of harming the business interest of the complainant in terms of clauses (a) & (b) of subsection (2) of S.10 of the competition act , 2010 —Penalty of Rs.1,000,000 was imposed on the respondents.
2013 CLD 1014 COMPETITION COMMISSION OF PAKISTAN vs.
DHL PAKISTAN (PVT.) LTD.
Ss. 10, 37(2) & 38—Deceptive marketing practice—Respondents had allegedly used trademarks of the complainant, and not provided any proof of its discontinuation or provided any evidence that the couriers were passed on to the complainant—Said respondents were using the complainant’s trademarks in contravention of subsection (1) of S.10 of competition act , 2010 —Respondents had not placed on record that they had any authorization by the complainant in regarding with the use of trademarks of the complainant—Sole purpose of respondents was to represent themselves as the complainant’s ‘service center’, or ‘Authorized Dealers’, to reap the benefit from the good-will attached to the complainant’s trademark by misleading the consumers—Said respondents had failed in substantiating their stance and had not even demonstrated their good faith through their conduct—Contravention of S.10(1) of the competition act , 2010 having stood established, necessary deterrent effect would be achieved, and the interest of justice served, even if a penalty in the sum of Rs.1,000,000 was imposed, in circumstances.
2013 CLD 1014 COMPETITION COMMISSION OF PAKISTAN vs.
DHL PAKISTAN (PVT.) LTD.
Ss. 10, 37(2) & 38—Deceptive marketing practice—Respondents had used trademark of the complainant and had not stopped from using the same, but courier packages were ultimately being sent through the complainant—Complainant in case of said respondents had not taken any step in discouraging the practice except for filing the complaint—Complainant needed to devise an appropriate modality to deal with such ‘unauthorized’ representatives—Said respondents though had assured the competition Commission of future compliance, but penalty was imposed on them keeping in view that the practices were misleading and deceptive in terms of S.10 of the competition act , 2010 —Penalty of Rs.500,000 was imposed on the said respondents, in circumstances.
2013 CLD 748 COMPETITION COMMISSION OF PAKISTAN vs. PAKISTAN OVERSEAS EMPLOYMENT PROMOTERS ASSOCIATION (POEPA) ( G.C.C. APPROVED MEDICAL CENTERS ADMINISTRATIVE OFFICE (GAMCA) AND GCC APPROVED MEDICAL CENTERS)
Ss. 2(1)(q), 4, 30, 37 & 38—Pre-departure medical check-up by intending emigrants—Entering into prohibited agreements by Medical Centres—Complainant, an Association filed complaint against respondents/ approved Medical Centres alleging that respondents had cartelized to allocate the intended emigrants to approved Medical Centres among themselves on equal basis, which allocation fell, prima facie under the arrangement/agreement prohibited under S.4(2)(b) of the competition act , 2010 ; that Medical Centres had divided the territory of Pakistan for provision of services of pre-departure medical tests into five regions in violation of S.4(2)(b); and that anti-competitive behaviour of respondents had affected the intended emigrants who were forced to pay exorbitant charges in violation of S.4(2)(a) of competition act , 2010 —competition Commission initiated enquiry in pursuant to S.37(2) of competition act , 2010 and Enquiry Officers submitted their report in which it was recommended that proceedings be initiated against respondents under S.30 of competition act , 2010 —Issue which emerged from the divergent pleadings of the parties was that whether or not the respondents were conducting an economic activity and fell within the purview of “undertaking” in terms of clause (q) of subsection (1) of S.2 of competition act , 2010 —Held, services provided by respondents were not free and they were not rendering social services as ‘no profit organization’; they were charging the fee for services they render, and were making profit for carrying out such act ivities—Respondents were in fact , engaged in economic activity; and were not concerned with the ‘test’, and were more keenly interested in implementation of the division of markets and equal allocation of consumers—Argument that services rendered by the respondents, did not involve an economic activity had no merit—Respondents, in circumstances, were in fact , ‘undertakings’ in terms of clause (q) of subsection (1) of S.2 of competition act , 2010 .
2013 CLD 748 COMPETITION COMMISSION OF PAKISTAN v.s PAKISTAN OVERSEAS EMPLOYMENT PROMOTERS ASSOCIATION (POEPA)
(G.C.C. APPROVED MEDICAL CENTERS ADMINISTRATIVE OFFICE (GAMCA) AND GCC APPROVED MEDICAL CENTERS)
Ss. 4, 30, 37 & 38—Pre-departure medical check-up by intending emigrants— Entering into prohibited agreements by approved Medical Centres by cartelizing to allocate the intended emigrants among themselves—Question for determination was whether fixing of fee for pre-departure medical check up by the respondents (Medical Centres) constituted violation of clause (a) of subsection (2) of S.4 of competition act , 2010 —Under the Enquiry Report and the subsequent show-cause notices issued to the respondents, it had been alleged that “it appeared that the fee charged from the consumers/ intended emigrants/expatriates, by the respondents across Pakistan, was uniform and apparently was fixed under the auspices of respondents, and subsequently proposed to the Executive Board of Health Minister’s Council for its approval—Chart showing history of fee charged for the pre-departure medical tests as provided by the respondents, it appeared that same fee was charged by the respondents, upon review of the rules and regulations—No regulations, addressing the aspect of prescribed/fixed fee had been found—Subsequent prescribed/fixed fee was not catered for by the Rules and Regulations, but an acknowledgment by the Executive Board was on the record to the effect that fee was charged and it was not specified whether, it was to operate as an upper ceiling or a ‘fixed’ fee—Prescribed fee in Pakistan was lesser than the fee charged in other countries—Such prescribed fee, in the fact s and circumstances, if allowed to operate as an upper ceiling, would outweigh the adverse effect of absence or lessening of competition which would also result in a more streamlined regulatory process—Medical tests were in the nature of mandatory/necessary services, and were only conducted by the accredited medical centres i.e. respondents, if a prescribed fee in the form of ceiling was not provided, the respondents could start charging fee at exploitative rates—Purpose of allowing upper ceiling for such prescribed fee would also allow certain level of competition among the respondents vis-a-vis the fee.
2013 CLD 748 COMPETITION COMMISSION OF PAKISTAN v.s PAKISTAN OVERSEAS EMPLOYMENT PROMOTERS ASSOCIATION (POEPA)
(G.C.C. APPROVED MEDICAL CENTERS ADMINISTRATIVE OFFICE (GAMCA) AND GCC APPROVED MEDICAL CENTERS)
Ss. 4, 30, 37 & 38—Pre-departure medical check up by intending emigrants— Entering into prohibited agreements by Medical Centres cartelizing to allocate the intending emigrants among themselves—Question for determination was whether the division of market and equal allocation of the customers for pre-departure medical check-ups by the respondents, constituted a violation under clauses (b) & (c) of subsection (2) of S.4 of the competition act , 2010 —System of pre-departure medical tests was in practice since 1995; it was only in 1999 that Pakistan was segregated into different regions by establishing G.C.C. Approved Medical Centres Administrative Office (GAMCAs) in every region/city where two and more GAMCs were operating and also the equal allocation G.C.C. customers among the GAMSs within a region was fallen— In order to achieve the real objective of the Executive Board of Health Ministers’ Council the modus operandi of division of market by creating five regions, and equal allocation of G.C.C. customers within each of the regions, could not be considered as indispensable—Proposing and implementing each system seemed to have only ensured of the respondents’ profitability at the cost of violation of competition act , 2010 —Such contravention was restrictive of competition in the relevant market and could not be termed as done for public cause—Mere pretext to curb malpractices could not be a ground to allow the contraventions of law—Division of market and equal allocation of G.C.C. customers (quota system) had allowed the respondents to operate in their Comfort Zones by ensuring of guaranteed revenues—By implementing the division of market and equal allocation of G.C.C Customer (quota system), the competition was prevented and restricted, leaving no incentive to bring any innovation or efficiency— competition Commission had the responsibility of endeavouring behaviour on the part of economic agents that adversely impact ed upon the right of the general public—Such practice and conduct of the respondents were violative of clauses (b) and (c) of subsection (2) of S.4 of the competition act , 2010 and warranted imposition of penalty—Regarding the quantum of penalty to be imposed, the Commission took into account the aspect of seriousness and duration of the violation and the conduct of the respondents—Market division and customer allocation was in a sense inherently anti-competitive—Agreements were designed to create an area of monopoly in which competition and efficiency were totally absent—In such markets no benefit was advanced to the general public, and not only the customer choices/preferences were restricted and foreclosed, but innovation and efficiency was also lost—Respondents had engaged themselves into an arrangement which was per se illegal—Fixed penalty was imposed in view of all given fact s and circumstances—Respondents were further directed to discontinue the practice/arrangement of territorial division and equal allocation of G.C.C. Customers among the respondents, and file the compliance report thereof with the Registrar of the Commission.
2013 CLD 748 COMPETITION COMMISSION OF PAKISTAN vs. PAKISTAN OVERSEAS EMPLOYMENT PROMOTERS ASSOCIATION (POEPA)
(G.C.C. APPROVED MEDICAL CENTERS ADMINISTRATIVE OFFICE (GAMCA) AND GCC APPROVED MEDICAL CENTERS)
Ss. 4, 30, 37 & 38—Pre-departure medical check-up by intending emigrants—Complaint against entering into prohibited agreement by approved Medical Centres by cartelizing to allocate the intended emigrants among themselves—Question for determination was whether the Executive Board of Health Ministers’ Council and the respondents (Medical Centres) constituted ‘single economic entity’ as they were act ing as an auxiliary arm/agent of the Executive Board, therefore, the provisions of competition laws were not applicable to them—Claim of respondents was that in all respects, the legal relationship between the Executive Board and the respondents (Medical Centres) was that of a ‘principal and agent’ to the extent that respondents conducted pre-departure medical check-up—Submission of the complainant was that respondents were running profit earning units based on commercial and economic activity; and that Executive Board was a ‘Regulator’ and not the ‘Principal’—No exemption to ‘single economic entity’ had been provided under competition act , 2010 from the application of its S.4—Respondents were not act ing on behalf of the Executive Board in dealing with intended emigrants but were conducting their own business after obtaining the licence from the Executive Board; it was not the Executive Board, but the respondents who incurred the costs and market investment for purchase of relevant equipment and training of personnel; respondents were not responsible for making the loss good towards the Executive Board; respondents were not obliged to render the accounts to the Executive Board on their demand and did not receive any payment on behalf of the Executive Board—Fee charged by the respondents for the conduct of pre-departure medical tests, was retained by the respondents and only annual licence fee was paid to the Executive Board for the permission to conduct the economic activity for another year; respondents were also engaged in the provision of other health related act ivities, for which no reimbursement had been made by the Executive Board—Relationship of ‘principal’ and ‘agent’ therefore, did not exist between the Executive Board and respondents, in circumstances.
2012 PTD 1503 HAFEEZ IQBAL OIL AND GHEE INDUSTRIES (PVT.) LIMITED GOVERNMENT OF PAKISTAN through Secretary, M/O Commerce, Islamabad
Ss. 37, 219 & Third Sched. Item-VI—Customs Rules, 2001, R.297(2)(a) [as substituted by S.R.O. 1130(I)/2010 , dated 13-12-2010 ]–Constitution of Pakistan, Arts. 18, 18(b), 25 & 199—Constitutional petition—Prime Minister’s Rehabilitation Plan and Fiscal Relief Package for industries in Khyber Pakhtunkhwa in areas most affected by terrorist act ivities—Issuance of S.R.O. 1130(I)/2010 by Federal Board of Revenue (FBR) in pursuance of such Plan and Package exempting ghee industries located in Province of Khyber Pakhtunkhwa except in area of Hattar allowing such industries while exporting ghee/cooking oil to receive back 100% excise duty and taxes paid on import of raw material—Petitioners’ plea was that their ghee industries located in Hattar were exporting 80% of total ghee to Afghanistan, while remaining 20% of ghee was being exported by fact ories of private respondent located in area mentioned in impugned S.R.O.; that under S.219 of Customs act , 1969, FBR could exempt goods from levy of tax, but could not exempt area; and that exclusion of area of Hattar from benefits provided under impugned S.R.O. was not only violative of petitioners’ fundamental rights guaranteed under the Constitution, but had created monopoly of private respondent and made impossible for petitioners to compete with private respondent—Validity—FBR regarding Duty and Tax Remission for Exporters (DTRE) had power under S. 37 of Customs act , 1969 and under S. 219 thereof could amend rules regarding DTRE—Section 219 of Customs act , 1969 would be read with S. 37 thereof, which was only about goods and whereunder area could not be excluded—Federal Government could exclude a particular area, but exemption of goods or exclusion of area, if found to be voilative of any of the fundamental rights enshrined in the Constitution, could be struck down—Government would be bound to promulgate regulations in interest of free competition —Law disturbing free competition in market and providing an edge to one person over other would be violative of Art. 18 of the Constitution—Fiscal benefits provided to private respondents through impugned S.R.O., if allowed to continue, would create its monopoly and petitioners would not be in a position to compete with private respondent, which would be violative of Art. 18(b) of the Constitution—FBR had bifurcated areas in impugned S.R.O. without showing any reason therefore—Petitioners and private respondent were similarly placed and engaged in same business, thus, edge provided to private respondent by virtue of impugned S.R.O. would definitely disturb fair competition —Both petitioners and respondents for being engaged in same business were entitled to equal protection of law—Impugned S.R.O. in absence of reasonable classification was violative of Art. 25 of the Constitution, whereunder one could not be given an edge over the other—Impugned fiscal facility could be given by FBR, but not High Court—High Court accepted constitutional petition by observing that FBR, if deemed proper, might extend impugned fiscal benefit to area of Hattar or in alternative such facility should not be provided to any one.
2012 CLD 1861 COMPETITION COMMISSION OF PAKISTAN v.s. AL-HILAL INDUSTRIES (PVT.) LIMITED
- 10—Deceptive marketing practice—Distribution of false or misleading information to consumers—competition Commission took notice of advertisements of a “Fresh Juice” undertaking, both in print and electronic media claiming to be “100% pure juice”—Undertaking did not supply any supporting document to substantiate their said claim—Packaging and advertisements, prima facie, were in violation of S.10 of competition act , 2010 —Question that needed to be addressed was, whether, the claim of undertaking with respect to “Fresh Juice” being 100% pure along with contents and ingredients disclosed a fine print at the back of the product, made such marketing of the product deceptive—Images of the front and back of the packaging, made apparent that the claim on the front was “Peach Juice 100% pure”, while the back of the bottle bore the claim “Peach Nector”—Clear distinction existed between the two, while the claim “Peace Juice 100% Pure” gave the impression that said juice was directly obtained from the fruit without any additives; the claim “Peach Nector” on the back in contrast gave the impression that the product contained fruit juice/Pure/Pulp, water, sweetners and other additives—Undertaking had admitted that purified water and other natural ingredients were required to be added to the pulp to bring it to liquid form; and that said juice was reconstituted with water—Inference could be that the description provided more closely conformed to the internationally accepted definition of “Nector”—Alternately, the labelling on the packaging did not provide that the said juice was reconstituted with water when the undertaking had submitted such information—Fine print disclosures were inadequate in correcting the deceptive impression—Claim of “100% of Pure Juice” could not be justified as it lacked reasonable basis and mislead consumers into thinking that Fresh Juice was “100% Pure” when it was like any other packaged juice Nector with additives—Undertaking’s justification that it had never its intention to lead customers into believing that the juice was without any additives whatsoever, was not relevant—Undertaking had admitted that “due to the hot filling process sucrose (sugar) had to be added to maintain its taste”—Undertaking’s marketing in relation to its product “Fresh Juice”, in circumstances, was deceptive and found to be lacking a reasonable basis in terms of S.10(1) and S.10(2)(b) of competition act , 2010 , but undertaking had given the assurance to rectify such practice; and remove from all labels as well as print and electric advertisement of its product the claim of “100% Pure”—No penalty was imposed on the undertaking, in circumstances, for the committed violation—Undertaking, however, was reprimanded to ensure more responsible behaviour in the future with respect to the marketing of their products.
2012 CLD 1762 COMPETITION COMMISSION OF PAKISTAN 1-LINK GUARANTEE LTD. AND MEMBER BANKS
Ss. 4, 5 & 9— Individual exemption, claim for—Association of Banks—Exemption provision for a horizontal price fixing agreement, could not be invoked except in the case of a joint venture; that too where fee was not fixed vis-à-vis customers and exemption was granted on distinct grounds of efficiency—Price fixing in horizontal agreements, was viewed as having the object of preventing, restricting and reducing the competition and treated as per se anti-competition —Undertaking (Banks) in the present case, had been behind the imposition of uniform charge on the customers/account holders by banks—Undertaking (Banks) in the guise of seeking clarification in fact had requested the State Bank of Pakistan to allow banks to continue to have a fixed and uniform fee in the garb of request for standardized fee—Undertaking had gone beyond its mandate—Board of the undertaking had deliberated, discussed and resolved on commercial aspect such as customer/cardholder’s charges—Undertaking, in terms of its activitiesand decision, had act ed more as an association of its Member Banks and provided a forum, particularly to those who were represented on the Board to discuss, review/revise on matters of common interest; and then the member banks acceding to agreement; who implemented the deliberation undertaken by the Board—Such conduct of the undertaking and collective behaviour of banks of charging uniform fee ‘off US” ATM cash withdrawal transact ion fell in prohibited category in terms of S.4(1) & (2)(a) of competition act , 2010 —Violation had been committed on part of parties concerned, in circumstances— Horizontal fixing of uniform charges amongst the competitors had the object of preventing, restricting and reducing the competition —In banking regulations, competition issues seemed to have been neglected or overlooked; and such behavioral trends, prevented more efficient systems to emerge in the banking industry—If such bad behavioral trends were not condemned or deterred, same would have far reaching impact on over vulnerable economy—Member Banks were directed to cease and desist from conduct of collective decision making or behaviour with respect to charging a uniform fee from customers for “off US” ATM cash withdrawal transact ions; and to hold their Board meetings for deliberations and independent decision making with respect to such imposition of fee/charge from their customers.
2012 CLD 1762 COMPETITION COMMISSION OF PAKISTAN vs. 1-LINK GUARANTEE LTD. AND MEMBER BANKS
Ss. 4, 5 & 9—Prohibited agreement—Association of Banks—ATM Service—Individual exemption—Criteria for individual and block exemption— Term ‘prohibited agreement’, was applied to a wide range of practices, whereby competition s co-ordinate among themselves to prevent, restrict or reduce competition in the market—Most glaring example of prohibited agreement was co-ordination among the competitors to fix the price—Such anti-competitive agreement aimed to reduce price competition , raise price or effect price in a favourable way for the undertaking (Association of Banks in the present case) involved and certainly had the object and effect of reducing competition in the market under S.4 of competition act , 2010 , prohibited agreement could also be exempted under S.5 of the act —To seek such exemption, an agreement had to fulfil the criteria/ conditions laid down in S.9 of the act —Section 9 of the competition act , 2010 , essentially raised the question that whether there were efficiency gains of a competition restrictive agreement; and benefits were passed on to the consumers; or whether its pro-competitive benefits outweigh its anti-competitive harms—In absence of a collective agreement to standardize interchange fee, some of the members (Banks) could find incentives to increase their fee, while also expecting others to keep their fee low; in such situation of free riding, while their customers continued to enjoy ATM cash withdrawal service at cheap rates, the customers of other banks would generate greater revenue for them in lieu of a higher fee—If that trend would continue, every bank which owed large ATM networks, would find it in its interest to raise its fee at par with others in order to avoid the situation, wherefrom riding was taking place at its expenses—Free riding would threaten the very existence of the network by reducing, demand for such services and could result in fees much higher than that which was collectively set by the members (Banks)—Individually negotiated inter-change fee could have the effect of hampering production and distribution while also apparently threating the failure of a system that would contribute to economy.
2012 CLD 1486 COMPETITION COMMISSION OF PAKISTAN v.s SIEMENS (PAKISTAN) ENGINEERING COMPANY LTD.
Regulations 3, 4 & 5—competition act (XIX of 2010 ), S.4—Leniency application— Benefits of leniency policy—Scope—Applicant claimed leniency under Regulations 3 & 4(1) of competition (Leniency) Regulations, 2007—Regulation 3 of the Regulations empowered the competition Commission to grant total immunity from financial penalties, whereas under Regulation 4, the Commission would grant reduction in the amount of penalty up to 100%— Total immunity under Regulation 3(1)(i) of competition (Leniency) Regulations, 2007, was available, if the undertaking was the first to provide the Commission with “evidence of prohibited activity”—Stipulation laid down in Regulation 3(1)(i), was that the undertaking was the first to uncover the prohibited activity— Regulation 4 of competition (Leniency) Regulations, 2007, manifested that reduction in penalty was available to an undertaking which would come forward before or after the issuance of show-cause notice and submitted corroborative evidence to strengthen the enquiry or proceedings undertaken by the Commission—Level of reduction in penalty would be determined based on stage at which the undertaking would come forward and the quality of evidence—While the objective of both Regulations (3 & 4) was to give incentive to a cartel participant for busting the cartel, their application was different in terms of enforcement of competition Law—Regulation 3 would operate as an effective tool to investigate by offering incentives to uncover the conspiracy and come forward to admit and implicate conspirators and collect evidence more quickly and at a lower cost—Regulation 4 would operate as an encouragement for parties to break ranks with the cartel members even after the relation was found out or established—Leniency Policy had four basic benefits; (i) deterrence-making cartel membership less attract ive; (ii) detection-prompting the discovery of cartels; (iii) desistence-causing cartels to cease operation and (iv) sanctioning-making punishment of conspirators more likely—Said objectives were achieved through the incentives of grant of immunity or reduction in financial penalty—Leniency, seemed to be the single most important tool to be used by competition agencies to improve cartel detection and to strengthen their proceedings against the cartel members—Whether the applicant was entitled to total immunity from penalty under Regln. 3 or qualified for reduction in penalty up to 100% had to be assessed based on the stage of the proceedings, nature and quality of evidence that the Commission already had in possession; and further provided by the applicant, and the peculiar fact s and circumstances of the case—Applicant in the present case, had admitted unconditionally the infringement as alleged against it in the show-cause notice issued to it; and had given the undertaking and commitment that it had abandoned its participation in prohibited activity—Applicant had assured to have made full and true disclosure—Applicant had not been coerced for any undertaking not to take part in any activity prohibited under competition act , 2007—All the conditions required to entertain the claim under Regulations had been satisfied—Applicant was entitled for immunity from future proceedings that would be initiated in respect of new prohibited activity—Immunity was granted to the applicant from penalty with respect to price fixing, subject to compliance with the Regulation 3(a) to (d) of competition (Leniency) Regulations, 2007—Applicant having made full and true disclosure, continuous co-operation and undertaking to refrain from participation in any prohibited activity, his application was granted and he was given 100% reduction in penalty.
2012 CLD 963 COMPETITION COMMISSION OF PAKISTAN vs. APPLICATION FOR EXEMPTION OF JOINT VENTURE AGREEMENT BETWEEN MESSRS METRO CASH AND CARRY INTERNATIONAL HOLDING B.V. AND THAL LIMITED
Ss. 4, 5, 9 & 11—competition Commission (General Enforcement) Regulations, 2007, Regln.4—Application for exemption of “Joint Venture Agreement” from the application of S.4 of competition act , 2010 —Scope—Earlier, the undertakings had also filed a pre-merger application under S.11 of competition act , 2010 seeking No Objection Certificate for the Joint Venture so created—Undertakings had agreed to restructure their respective subsidiaries in Pakistan—Parties agreed to impose restriction upon themselves and their affiliates not to directly or indirectly own, manage, operate, join, control, or participate in the ownership, management, operation or control of any company, firm or person, carrying on competitive business in or from Pakistan; or provide technical or other information to any third party, concerning the setting up of any competitive business—For application of competitive business, the Commission defined the relevant market as that of hyper-market, retail food stores and super market selling food and non-food items, with a shop floor area in excess of 1,500 square-meter, within the territory limits of Pakistan—Counsel for the parties submitted that the retail segment would always be a competitive, even though their main focus, was on the wholesale segment—For an agreement to qualify for exemption under S.5 of competition act , 2010 , it must meet the criteria as laid down in S.9 of said act —Application of the undertakings had mentioned that the proposed joint venture would facilitate the growth of the wholesale business as the entities would be able to combine their resources and take advantage of the resulting economics of sale, thereby becoming more competitive and benefiting the consumers—Submission had merit to the effect that the parties would bring in not only their expertise in the wholesale business, but would also confine their assets in order to form the Joint Venture, which ultimately could result in reduced prices on account of economics of sale, providing increasing opportunities for local suppliers etc.—Restrictions imposed by undertakings upon each other, would ensure efficiency; and were essential for the smooth operation of the Joint Venture so created—Parties having addressed the concerns, exemption was granted in terms of S.5 of the competition act , 2010 , with direction to the Registrar of the Commission to issue the exemption certificate, with a condition that the non-compete obligation, would only continue to have effect during the life of Joint Venture under the agreement.
2012 CLD 808 COMPETITION COMMISSION OF PAKISTAN vs. SHOW CAUSE NOTICES NOS.8 TO 23 OF 2011 ISSUED TO PAINT MANUFACTURERS
- 10— Deceptive marketing practices— Scope—competition Commission of Pakistan, upon reference and concern expressed by the Consumer Association of Pakistan, took notice of the marketing practice in the Paint industry of inserting redeemable tokens in Paint packs used for household purpose, falling in the decorative paints category—Practice of placing a ‘token’ within the Paint pack without making any disclosure with regard to its amount or its presence in the pack was an industry wide phenomenon—Undertakings in the case had admitted to the use of that marketing tool and had further admitted that no disclosure was being made in that regard—Undertakings were bound to disclose information about ‘tokens’ and take necessary measures to ensure that the benefit was accrued to the consumer, rather than the undertakings which would be contrary to the intent of law—Advertisement was deceptive, if it had the elements of being misleading, capable of giving the wrong impression or idea and would tend to misinform or misguide owing to vagueness or any omission—Non-disclosure of tokens in Paint pack was established to be deceptive in that it created ambiguity and was found lacking having a reasonable basis as to the price borne by the consumer—Practice of omission of material information with respect to the tokens in paint packs amounted to misleading the consumers—Such was deceptive and in violation of S.10 of competition act , 2010 — While the competition Commission was empowered to prohibit deceptive marketing practice, it was not mandate of the Commission to require abandoning of any particular practice, if due disclosures were in place—Undertaking had prerogative to adopt or not to adopt any marketing practices—Commission had to only ensure that such practices were compliant with S.10 of competition act , 2010 —All undertakings had agreed, in principle, to start disclosing the presence of token in Paint packs to the consumer; and had shown their willingness to comply with the direction of the Commission—Keeping in view the co-operation extended; and the assurances given to rectify practice by the undertakings, the competition Commission, owing to its compliance oriented approach, did not impose any penalty for committed violation—Undertakings were reprimanded to ensure responsible behaviour in future with regard to the marketing of their products and were directed to comply with directions in that respect.
2012 CLD 783 COMPETITION COMMISSION OF PAKISTAN v.s COMPLAINT FILED BY RECKITT BENCKISER PAKISTAN LTD.
Ss. 10 & 37—Deceptive marketing practice—Pursuant to a complaint, show-cause notice was issued against the respondent company alleging that the company was making a claim in Marketing Campaign and advertisements to be “No.1 in Pakistan” with respect to all of its products under the brand ‘Baygon’—Contentions were that on the basis of the Audit Retail Survey; the market share of the respondent’s said products was 5%; that the claim in respondent’s Marketing Campaign lacked a reasonable basis, related to charact er, suitability for use; or quality of goods in violation of S.10(2)(b) of the competition act , 2010 ; and that said Marketing Campaign was capable of harming the business interest of the complainant—Claim ‘No.1 in Pakistan’, was not a general assertion, but was a quantifiable and specific statement, which described specific charact er and it could not be accepted that either claim ‘No.1’ or ‘Pakistan in any manner conveyed a general impression towards the consumers—When the logo of ‘brand of the year’ was placed with the claim ‘No.1 in Pakistan’, every ordinary consumer would prima facie believe on the statement and was likely to be misled by such marketing, particularly when Dengue fever was becoming an epidemic and the consumers were looking for the best protection against mosquitos—Counsel for the respondent submitted that even before the Enquiry Committee, they had submitted that they were willing to modify/amend their claim and advertisement in the light of the direction of the competition Commission—Counsel also undertook that marketing campaign in question, would be withdrawn—In view of the prima facie findings of the enquiry report, which had not been rebutted either orally or by production of any documents/evidence, claim ‘No.1 in Pakistan’ lacked ‘reasonable basis’ and was in violation of S.10 of competition act , 2010 —In the light of the prevailing situation when fight against ‘Dengue’ fever was going on vigorously, there was merit in the claim that such campaign was capable of harming the business interest in the competing undertakings, including the complainant—Respondent was reprimanded not to indulge in deceptive marketing practices in future as it would entail penal consequences; and it would continue to refrain from making the subject claims in the present form in their advertisements or marketing campaign.
2012 CLD 767 COMPETITION COMMISSION OF PAKISTAN INTERNATIONAL CLEARING HOUSE AGREEMENT AMONG LDI OPERATORS
Ss. 4, 5 & 9—Exem ption from prohibited agreement—Application for withdrawal of exemption— Pakistan Telecommunication Company Limited (PTCL) and Long Distance and International Licensees (LDI Operators), filed application under S.5 of competition act , 2010 to seek exemption for their proposed International Clearing House Agreement (ICH), entered between PTCL and LDI Operators—ICH agreement, in essence was (i) giving PTCL the monopoly to receive all incoming international traffic; (ii) having a single rate for incoming international traffic; and (iii) dividing the market share of incoming international traffic—Another company being a competitor of PTCL, strongly objected to the proceedings and gave a detailed presentation in that regard—Said company had contended that ICH agreement could not be in the long term interests of industry and country—PTCL firstly submitted its response to concerns raised by said company, subsequently, through a letter requested the competition Commission to allow PTCL to withdraw their application for exemption as the industry had not reached consensus on the modalities of ICH Operators—While allowing the withdrawal of the exemption application Commission observed that it could be noted that if in future the applicants enter into such agreement/ arrangement, notwithstanding, any authorization obtained from any other authority, such agreement/ arrangement prior to its execution would require clearance from the competition Commission; as prima facie, it had serious competition concerns; and would attract the provisions of the competition act , 2010 .
2012 CLD 200 COMPETITION COMMISSION OF PAKISTAN FAUJI FERTILIZER COMPANY LTD
- 11(11)(b) & (13)—competition (Merger Control) Regulations, 2007, Reglns. 11(5)(b) & 17— Approval of merger of undertaking— Imposition of conditions—Company which intended to acquire 79% shares of another company, applied for issuance of “NOC” to competition Commission in that respect—Commission issued “NOC” by imposing certain conditions, which conditions were impugned by the acquiring company before High Court, through constitutional petition—High Court dismissed constitutional petition observing that under provisions of Regln. 11(5)(b) of competition (Merger Control) Regulations, 2007, Commission was empowered to impose the conditions and that under provisions of S.11(3) of competition act , 2010 and Regln. 17 of competition (Merger Control) Regulations, 2007, petitioner had the right to file the review within one year of the order of the Commission—Acquiring Company assailed the order passed by High Court before the Supreme Court—Supreme Court set aside the order of competition Commission to the extent of imposing of the conditions and remanded the case to the Commission to dispose of the matter relating to the imposition of the conditions after hearing the parties and thereafter Commission would issue a certificate holding as to whether the conditions were to be imposed or not—Acquiring company was required to propose conditions which were amenable to it; the company accordingly submitted its written submissions along with the proposed amendments in the conditions—competition Commission revised the conditions and issued NOC for the proposed merger subject to revised conditions accordingly.
2012 CLD 150 COMPETITION COMMISSION OF PAKISTAN v.s. AMIN BROTHERS ENGINEERING (PVT.) LIMITED
- 4—Entering into prohibited agreement—Bid rigging in the tender—Fact s in the present case had made out an allegation of bid rigging in the tender—Object of bid rigging was to inter alia, raise prices above the competitive levels i.e. collusion to fix prices—Given the restriction by object nature of bid rigging, there was no need to determine the effects in the relevant market; in the light of fact s of the case, determination of the relevant market was not needed—Bid rigging schemes were designed to fix prices and divide markets—Both said act ions constituted restriction by object as per the jurisdiction evolved in Pakistan—Anti-competitive effects of said act ions had consistently been established over a hundred years competition jurisprudence and no economic evidence had been established that had shown pro-competitive benefits of those act ions—Collusive bidding, in circumstances, would remain on the restriction by object category before the competition Commission—Case dealt with supply for certain goods to public sector entities through tenders and bidding—Not all tenders carried the same terms and conditions but terms and conditions of different tenders varied which could not be placed in the same relevant product market—Inquiry report provided prima facie evidence of collusive bidding by the companies, concluding that a joint venture agreement was a mere quota agreement, while the bid of one company was a cover bid designed to give the impression of competitive bidding—Figures had made it clear that the joint venture was formed to share qualities between the members of the joint venture at a non-competitive price—Exchange of information about pricing took place between two companies and pricing difference, could not have been a mere coincidence, in circumstances; in fact , on a balance of probabilities, that pricing strategy was a result of a co-ordinated move between the two companies to ensure that the joint venture would win while giving the impression of a competitive bidding process—Respondents/companies, in circumstances, had violated S.4 of competition act , 2010 by engaging in collusive bidding which was a serious infringement of competition Law—Penalty of rupees two million, was imposed on each of the company, which penalty should be deposited within thirty days of the present order, in circumstances.
2012 CLD 150 COMPETITION COMMISSION OF PAKISTAN v.s. AMIN BROTHERS ENGINEERING (PVT.) LIMITED
Ss. 2(1)(K), 3 & 4— Abuse of dominant position and entering into prohibited agreements—Distinction to be made between unilateral anti-competitive conduct (abuse of dominance in S.3 of competition act , 2010 cases) and multilateral anti-competitive conduct (collusion in S.4 of competition act , 2010 cases); in the first instance, the issue was to determine, whether a dominant undertaking had abused its market power in a particular market; before an abuse of dominance could be established, dominance in a particular market had to be established which, in turn, warranted a definition of relevant market— Essential requirement in cases regarding abuse of dominance was that a relevant market was identified in order to establish dominance and its abuse, if any which was not true in cases of collusive behaviour prohibited under S.4 of the competition act , 2010 —Underlying presumption was that all the undertakings involved were operating in the same market—If such was not, then the need or question of collusion would not have arisen in the first place—In cases of collusion, market power was irrelevant, but the agreement to collude was relevant.
2012 CLD 150 COMPETITION COMMISSION OF PAKISTAN v.s AMIN BROTHERS ENGINEERING (PVT.) LIMITED
Ss. 4, 28(2) & 37(4)—Bid rigging in the tender—Issuance of show-cause notice—Department having found indicators of potential bid rigging in the tender by the companies in violation of S.4 of competition act , 2010 , proceedings were initiated by issuing show-cause notices to the companies—Counsel for the companies presented two pronged challenges to the issuances of the show-cause notices firstly, that said notices were issued by the Registrar of the competition Commission, who did not have the power to do so and secondly, that even if the Registrar of the Commission had the authority to issue show-cause notices, same were issued illegally, since the Registrar of the Commission did not have the power to determine; whether or not it was in the ‘public interest’ to do so as mandated by S.37(4) of the competition act , 2010 —Validity—Section 28(2) of the competition act , 2010 , empowered competition Commission to delegate its functions and powers to any Member or Officer of the Commission—In the present case, the Registrar of the Commission was delegated the power to issue the show-cause notices in question—Section 37(4) of the competition act , 2010 provided that Commission was to determine that proceedings under S.30 of competition act , 2010 was in the public interest.
2012 CLD 150 COMPETITION COMMISSION OF PAKISTAN v.s AMIN BROTHERS ENGINEERING (PVT.) LIMITED
Ss. 4, 30, 37, 38 & 62—Bid rigging in the tender—Department having found indications of potential bid rigging in the tender, inquiry was conducted in the matter—Enquiry Officer after completing inquiry submitted report which concluded that respondents/ companies had prima facie, collusive bid for the tender in violation of S.4 of competition act , 2010 and it was recommended that proceedings under S.30 of the competition act , 2010 could be initiated—Proceedings were initiated accordingly after issuing show-cause notices to the companies—Counsel for the companies raised preliminary objection with regard to retrospective operation of competition act , 2010 —Contention of counsel for the companies was that competition Ordinance, 2010 was promulgated on 18-4-2010 and was given effect only from 26-3-2010 , whereas bid for the tender had taken place on 3-8-2009, much prior to promulgation of said Ordinance, which was not applicable in the case— Validity— Section 60 of competition Ordinance, 2010 /S.62 of competition act , 2010 , had provided that provisions of Ordinance, 2010 , would have and would be deemed always to have had, effect accordingly; it had clearly indicated that the drafters of competition Ordinance, 2010 intended that its provisions had retrospective effect from 2-10-2007 regardless of the day of commencement of said Ordinance—Section 60 of competition Ordinance, 2010 , had provided continuation of the competition regime started by competition Ordinance, 2007 on 2-10-2007, thereby filling the vacuum created by the lapse of successive Ordinances—If the contention of the counsel for the companies was accepted then the purpose and ethos of introducing a reformed competition law in Pakistan would be negated—Contention was repelled, in circumstances.
2012 CLD 102 COMPETITION COMMISSION OF PAKISTAN v.s. PAKISTAN VANASPATI MANUFACTURERS ASSOCIATION (PVMA)
Ss. 3, 4, 28, 30 & 37—Abuse of dominant position and entering into prohibited agreement—competition Commission carried out a study in the sector of ghee and cooking oil—“Sector Study Report” had stated some of the vulnerabilities which could have object or effect to prevent, restrict or distort competition in said sector—Commission constituted enquiry committee, which after completing inquiry, submitted enquiry report, which concluded that there was prima facie evidence of violation of Ss.3 & 4 of the competition act , 2010 —Enquiry report recommended that proceedings under S.30 of competition act , 2010 be initiated against Pakistan Vanaspati Manufact urers Association/PVMA—Allegations in the enquiry report and show-cause notice were; firstly that PVMA appeared to have taken collective decision on behalf of its member mills and facilitated the collusion among its members to set price; Association appeared to have played a leading role to negotiate the price with the Government, costing was done by the Association on behalf of its member mills to fix the price, prima facie in violation of S.4(1)(2)(a) of competition act , 2010 ; secondly, the Association appeared to have entered into negotiation with edible oil transporters association, and decided the transport rates for its members, such arrangements/agreements, prima facie prevented and restricted competition between the members of transporters Association inter se and also distorted competition between members of different transporters Association and National Logestic Cell in violation of S.4(1)(2)(a) of competition act , 2010 and thirdly that the Association was charging different rates from its members and commercial importers for the same service of invoice verification, prima facie; in violation of S.3(3)(f) of competition act , 2010 which prohibited price discrimination by charging different prices for the same services from different customers in absence of objective justification that could justify different prices—Association played act ive role in costing and then negotiated for pricing based on costing prepared by itself—No involvement of Government was on record in “Price fixation”—Demand on behalf of Government for reduction in price, particularly in the wake of decline in price of edible palm oil used as raw material in manufact uring of ghee/cooking oil, seemed legitimate—Role of Government as portrayed by the Association could not entitle them to what was generally known as the “State act ion Defence”, doctrine in competition law—Association had failed to establish that its recommendations were only advisory in nature and were never act ed upon by its members—In order to deter the undertaking from engaging in anti competitive practices and to reflect the seriousness of the infringement i.e. price fixing in contravention of S.4 of competition act , 2010 , a penalty of Rs.50 million, was imposed, which the Association was liable to deposit within 30 days—Association, for violation of S.3(3)(b) of competition act , 2010 was directed to cease the practice of charging discriminatory rates and to implement similar rates/charges/fee for invoice verification from manufact urers/members and commercial importers/non-members.
2011 CLD 317 SECURITIES-AND-EXCHANGE-COMMISSION-OF-PAKISTAN
SHOW-CAUSE NOTICE ISSUED TO IRFAN ASLAM
- 15-A—Sale and purchase transact ion through Stock Exchange by insider—Imposition of penalty—Both Textile Mills and Cotton Mills, in the present case, were Public Limited Companies listed on the Stock Exchange—During period under revision Cotton Mills sold its entire holding of shares—Trading date of the Stock Exchange for period under revision had shown that out of total sale to Textile Mills by Cotton Mills shares were purchased by insider and he also purchased shares of Textile Mills through Karachi Automated Trading System (KATS) of the Stock Exchange—Said insider was brother of Chief Executive Officer of the Textile Mills and Director of Cotton Mills—Both mills were merged and as a result of said merger, Cotton Mills was supposed to be merged into Textile Mills and Textile Mills remained as the surviving entity—Counsel for the insider had admitted that transact ion in the shares of Textile Mills were conducted between the insider and Cotton Mills through a coordinated and prearranged manner and his brother who was Chief Executive Officer of Textile Mills and Director of Cotton Mills, was privy to said transact ion; it was also admitted that brother of insider was operating the brokerage account of Cotton Mills—Both brothers were insiders and through their dominant, position in Textile Mills had information regarding financial performance of said mills and it was established that the trading in the shares of Textile Mills by insider in the period under revision was substantially different from the trading history of the scrip—Insider neither was an officer of both Mills nor was on Board of Directors of said companies; as a simple shareholder, he would not have had access to confidential information regarding the financial performance of the either mills directly which had clearly indicated that insider had inside information prior to the transact ions based on which he placed orders to purchase shares of Textile Mills—Insider had purchased shares of mills at a significantly low price on the basis of said information regarding financial results of Mills—Total loss caused by the insider to the Mills amounted to Rs.11,541,140—Penalty of rupees one million was imposed on insider for contravention of provisions of S.15-A of competition Ordinance, 2010 ; he would also pay amount of Rs.11,541,140 to Cotton Mills as compensation of loss caused by him by purchasing share of Textile Mills.
2011 CLD 1802 COMPETITION COMMISSION OF PAKISTAN v.s. ELTEK VALARE A.S.
Reglns. 4 & 21—competition act (XIX of 2010 ), S.37—Exemption Certificate—Complainant, in collaboration with the respondents formed a company (joint venture) and complainant was a major shareholder, having 51% shares while the respondents collectively were shareholders of 49%—Respondents, without informing the complainant filed application to the competition Commission for exemption certificate—Complainant had alleged that respondents had acquired the exemption by filing application which was not in conformity with the provisions of Regln.4(1) of competition Commission (General Enforcement) Regulations, 2007 and the Schedule thereof and sought cancellation of the exemption—Parties were provided opportunity of hearing by the Commission—Chief Executive Officer of complainant company informed the Commission that they did not wish to pursue the complaint; and that same could be treated as withdrawn— Counsel for the complainant had also informed the Commission that his client no longer wished to pursue the complaint—Requirement laid down in para. 1.5 of the exemption application having been complied with by the respondents, in pursuance of the provisions of Regln. 21 of the competition Commission (General Enforcement) Regulations, 2007, request of withdrawal of complaint made by the complainant, was accepted and complaint was dismissed as withdrawn.
2011 CLD 1575 COMPETITION COMMISSION OF PAKISTAN v.s PAKISTAN SHIP’S AGENTS ASSOCIATION
Ss. 4(1)(2)(a), 30, 33, 34 & 38—Prohibited agreement—Fixing selling price of provision of service by Ship’s Agents—Imposition of penalty—competition Commission, received information that Pakistan Ship’s Agents Association, which was the sole licensed trade association for shipping, could be involved in collusive practices regarding determination of ancillary charges pertaining to shipping services by various ship agents—competition Commission appointed Enquiry Officer, which searched the premises of the Association and reported to the Commission that prima facie, there was evidence of violation of S.4 of competition act , 2010 —Enquiry Report recommended that Commission should proceed against the Association under S.30 of competition act , 2010 — Enquiry Report and other communications and evidence on record had established, Association’s role in developing and negotiating the range of charges for ancillary services offered by its members, which amounted to fixing the selling price of provision of a service as described in clause (a) of subsection (2) of S.4 of competition act , 2010 —act ions and business practice of Association and its members had allegedly violated S.4(1)(2)(a) of competition act , 2010 —-Keeping in view the mitigating fact ors and Association’s co-operative conduct and professed commitment to support the competition regime in Pakistan, the competition commission required that Association, would pay a nominal penalty of Rs. One million under S. 38 of the competition act , 2010 and pass a resolution as mentioned in Para 9(a) of the present order of the commission.
2011 CLD 1471 COMPETITION COMMISSION OF PAKISTAN ACQUISITION OF WIND TELECOM S.P.A. (FORMERLY WEATHER INVESTMENTS Sarl) BY VIMPELCOM LTD
Ss. 2(e) & 11— competition (Merger Control) Regulations, 2007, Regln.6—Approval for merger of companies—Application for—Company ‘V’ through its Legal Advisor, submitted a pre-merger application regarding the proposed acquisition of other company ‘W’—Such transact ion would involve an amalgamation of two leading international telecommunication groups, ‘V’ and ‘W’, which would create the world’s sixth largest telecommunication carrier measured by the number of subscribers—Acquisition of ‘W’ by ‘V’ would result in indirect change of control of ‘O’ company and its subscribers in Pakistan—Such transact ion would involve proposed acquisition of the entire capital of ‘W’ by ‘V’—Once transact ion was consummated, ‘V’ would have sole control of ‘W’—Such transact ion had a potential to impact competition in the relevant product market comprising the provision of mobile telecommunication service in Pakistan—competition Commission of Pakistan, in circumstances, initiated inquiry, wherein the Bench raised concerns regarding potential impact on competition in the relevant market through coordinated effects and/or strengthening or creating of a (joint) dominant position—Counsel of parties, having understood the concern of the Commission, proposed and committed to implement and the Bench agreed to grant its ‘No Objection’ based on commitments given by the parties to alleviate competition concerns—Commission would reserve the right to assess the effects of the transact ion on the relevant market after one year from the date of the closing of the transact ion under subsection (13) of S.11 of competition Ordinance, 2010 —Applicant would file a compliance report within three months from the date of closing of the transact ion.
2011 CLD 1450 COMPETITION COMMISSION OF PAKISTANv.s. RITS INCORPORATION
Ss. 10 & 37—Deceptive marketing practice—Distribution of fake or misleading information to consumers—Undertaking was in the business of hair fall solution product called “Remaine”—competition Commission of Pakistan received information regarding couple of advertisements of said product in which the undertaking had claimed that use of “Remaine” for 15 or even 10 days would stop hair from falling by 100 per cent, regardless of the cause of hair fall—Advertisements, prima facie, being in violation of S.10 of competition Ordinance, 2010 , Office of Fair Trade took cognizance on its own and recommended the Commission to initiate an enquiry under S.37(1) of competition Ordinance, 2010 —Enquiry revealed that supporting documents produced by the undertaking did not suffice in forming reasonable basis of the absolute claims made in the advertisements—Material submitted, clearly did not support claims made in the advertisements that “100 % stop in hair fall in 8-15 days” and lacked reasonable basis—Representatives of the undertaking, in response to show-cause notice, expressed their inclination to amend the said advertisement and sought guidance from the Commission so that the advertisement would be in consonance with S.10 of competition Ordinance, 2010 —Undertaking was directed to remove absolute claims lacking reasonable basis, entirely from their packages as well as their advertisements which was rectified to the effect that “depending on the severity of the problem by applying twice a day, the user will experience a decrease in hair fall, the result would be experienced by the user in 8-15 days”—Commission appreciated the co-operation extended in ensuring compliance with the competition Ordinance, 2010 —Taking lenient view, no penalty was imposed and undertaking was reprimanded to ensure more responsible behaviour in future with respect to marketing of the products and making any claim in respect thereof.
2011 CLD 1417 COMPETITION COMMISSION OF PAKISTA v.s. CINEPAX LIMITED
- 3—Abuse of dominant position—Company was in the business of operating Pakistan’s only multiplex cinema—competition Commission of Pakistan received a complaint alleging a tying of movie tickets with food coupons—Commission wrote, letter to the company to provide information about the sale of cinema tickets contingent on the mandatory purchase of food coupons—Company submitted required information stating that it had started selling the coupon with the cinema ticket as a marketing strategy to make an inevitable price increase of the cinema ticket more acceptable to customers—By selling the movie tickets with food coupon as a tied product, company did in fact tie-in two separate products; the cinema tickets and food coupons—Customers who merely wanted to watch a movie, were also obliged to buy food coupons, even if they did not want to have any food at the cinema, which were two products, distinct from each other—Such was, in circumstances a violation of S.3(1)(2)(3)(c) of competition Ordinance, 2010 —Company offered to hold five free movie shows during the year for the under-privileged, in their biggest screen, comprising of 300 seats, in lieu of its inadvertent violation and such violation did not continue for long and was stopped prior to taking of cognizance by the Commission—Commission deemed it appropriate, under circumstances, to take a lenient view and accepted the company’s offer of holding a minimum of five free shows for the under-privileged during the year 2011.
2011 CLD 1376 COMPETITION COMMISSION OF PAKISTAN v.s. WATEEN TELECOM (PVT.) LIMITED
- 4— Entering into prohibited agreement—Retrospective application of competition Ordinance, 2010 —Company had submitted that Strategic Services Agreement arrived at between the company and Housing Authority, was executed before the enactment of competition Ordinance, 2010 ; and that S.4 of said Ordinance was prospective in nature and same could not have retrospective application—Validity—Even if an agreement had been executed before the enactment of the Ordinance, but continued after Ordinance came into effect, same would fall under the purview of S.4 of competition Ordinance, 2010 —Section 4 of competition Ordinance, 2010 would apply to prohibited agreements that were of a continuing nature and not to past and closed transact ions—Strategic Services Agreement arrived at between the parties having continued after the enactment of competition Ordinance, 2010 , same was of a continuing nature— Ordinance, in circumstances, was applied prospectively and not retrospectively—Application of the competition Ordinance, 2010 or any penalty that could be imposed for violation of S.4 of said Ordinance would not be retrospective i.e. from the date the Strategic Services Agreement was executed between the parties, but from the date the Ordinance came into effect.
2011 CLD 101 COMPETITION COMMISSION OF PAKISTAN v.s. SHOW-CAUSE NOTICES Nos.70 to 73 OF 2009 issued to Messrs CHINA HARBOUR ENGINEERING COMPANY LTD. (CHEC)
- 2(1)(k)—Relevant market—Scope—Concept of ‘relevant market’ in competition Ordinance, 2010 , was similar to what existed under the European law; it was used to identify the products and undertakings that were directly competing with each other in a business—Relevant market was the market where the competition would take place—‘Relevant market’ consisted of a product market and a geographic market—Product market could be said to mean the market with respect to the different groups of goods available, while geographic market, was the market in terms of geographic area in which those products were either produced and/or traded under/or the services were provided-Relevant product market consisted of all those products that were considered to be substitutable by consumers in terms of their prices, characteristics and end uses-In identifying the relevant product market, several different fact ors needed to be considered, for instance substitutability, competition , prices and product demand elasticity; it was not necessary for the products/services to be identical in their functional and physical aspects, price or quality but it was sufficient that the products merely present themselves as real economic alternatives to the other i.e. they had the ability to influence consumer buying.
2011 CLD 101 COMPETITION COMMISSION OF PAKISTAN v.s SHOW-CAUSE NOTICES Nos.70 to 73 OF 2009 issued to Messrs CHINA HARBOUR ENGINEERING COMPANY LTD. (CHEC)
Ss. 4(1)(2)(a)(b)(e), 30, 37 & 38—Entering into prohibited agreement—Imposition of penalties—Issue involved was “whether three undertakings through “consortium Agreement” had entered into a prohibited agreement which had its object or effect of preventing, restricting, reducing or distorting competition within the relevant market, in violation of S.4(1)(2)(e) of competition Ordinance, 2010 —Generally speaking, a bidding consortium between two or more significant competitors could violate the provisions of S.4 of competition Ordinance, 2010 , if parties to the consortium qualified as competitors i.e. they were independently capable of performing the project and would have submitted a bid in absence of agreement to bid jointly—Bidding consortia or consortium agreements for bidding were permissible inter se the small and medium enterprises, which in view of magnitude of work or their economic, financial or technical inabilities were not independently capable of performing the whole project–Such agreement was generally formed among undertakings which were not competitors and where formulating a bid itself was not costly and where there was no risk of investment fact ors—Bidding consortia were to be treated as case to case basis applying the rule of reason and should not be treated as per se illegal–All three undertakings, in the present case, appeared to be expert in the performing dredging activities and could clearly be termed as each other’s competitors and had become dominant—Undertakings not only independently carried out maintenance dredging project, but had been rivals in the first round of bidding—All undertakings were involved in the provision of similar/same service and had previously completed many dredging projects independently—Justification afforded by the undertakings on the pretext of non-availability of equipment for entering into the ‘pre-bid agreement’ was unjustified and being not sustainable was rejected—Financial ability of undertakings was much better—“Consortium agreement” between the undertakings fell within the purview of ‘prohibited agreement’ and such collaboration had prevented, restricted, reduced or disturbed competition within the relevant market in terms of S.4(1)(2)(e) of competition Ordinance, 2010 —Such agreements were declared void in terms of S.4(3) of competition Ordinance, 2010 –Maximum fixed penalty under S.48 of competition Ordinance, 2010 being fully justified each undertaking would- pay penalty of Rs.50 million.
2011 CLD 101 COMPETITION COMMISSION OF PAKISTAN v.s SHOW-CAUSE NOTICES Nos.70 to 73 OF 2009 issued to Messrs CHINA HARBOUR ENGINEERING COMPANY LTD. (CHEC)
Ss. 4(1), (2)(a)(b)(e), (3), 30, 37 & 38—competition Commission of Pakistan (Conduct of Business) Regulations, 2007, Regln.4(1)(e)–Entering into prohibited agreement–Imposition of penalty—competition Commission took notice of the news item, wherein it was reported that some international dredging companies had formed a cartel in order to qualify for the bids—Commission pursuant to the powers contained in clause (e) of Sub-Regln. (1) of Regln.4 of the competition Commission of Pakistan (Conduct of Business) Regulations, 2007, appointed Enquiry Officers to conduct enquiry into the allegation of collusive bidding—Enquiry Officers after conducting inquiry concluded that two undertakings were not competing with each other in their allocated territories in violation of S.4(1),(2)(b) & (e) of competition Ordinance, 2010 and that three undertakings had entered into an agreement for submission of a single joint bid, the aim and object of which was to prevent, restrict or reduce competition within the relevant market in violation of S.4(1)(2)(a) & (e) of competition Ordinance, 2010 —Issue in the case was, whether two undertakings had divided territories among themselves and had colluded with each other and filed cover bids to realize each division in violation of S.4(1)(2)(e) of competition Ordinance, 2010 —Said two undertakings could not rebut allegation of ‘cover bid’—Significant cost difference quoted by said undertakings was evident—One undertaking quoted cost for overall work Rs.33,229,281,430 and average rate Rs.1006 per cubic meter whereas other undertaking quoted cost for overall work Rs.19,325,886,984 and average rate Rs.585 per cubic meter—Undertaking which quoted less cost and average rate, claimed being inexperience and lack of expertise in the relevant field—Said undertaking had failed to produce supporting evidence in proof of its claim—Undertaking in question was one of the largest general contract ors in China, competing more than 600 international contract s in more than 60 countries and was one of the top 225 international contract ors; it could easily be concluded that there was collusive arrangement inter se the two undertakings to file cover bid in their respective territories, which had object of restricting, reducing and distorting competition and was in violation of S.4(1)(2)(b)(e) of competition Ordinance, 2010 —Issue was decided against the said two undertakings accordingly.
2011 CLD 42 COMPETITION COMMISSION OF PAKISTAN vs SHOW-CAUSE NOTICES ISSUED TO MESSRS PAKISTAN POULTRY ASSOCIATION
Ss. 3, 4, 30, 37 & 38—Abuse of dominant position—Entering into prohibited agreements—Imposition of penalty—competition Commission taking notice of media reports regarding an unprecedent hike in prices of poultry products and possible cartetization, initiated a suo motu enquiry under S.37(1) of the competition Ordinance, 2010 —Commission appointed Enquiry Officers to conduct an enquiry into possible violation of Ss.3 & 4 of competition Ordinance, 2010 —Enquiry Officers in their report reported that there were prima fade violation of S.4 of the competition Ordinance, 2010 and recommended that proceedings under S.30 of the Ordinance could be initiated against the Poultry Association—Association was provided a copy of enquiry report containing complete summary of allegations coupled with the evidence relied thereon—Contention of Association that it was not included during process of enquiry and had not given a chance of providing its point of view before the show-cause notice was issued, was repelled because Association was completely aware that an inquiry was underway into its act ivities—Enquiry report alleged collusive conduct in terms of price fixing and production of various poultry goods–Ethos behind trade association was to provide representation to industry people in dealing with the Government and to improve general industry progress; it was not a platform to discuss and make decisions related to business—Anti-competitive practices including collusion, had taken place in the market for perishable items—Decision of Association to reduce bird population by culling it early, as a collective measure, was anti-competitive in object and was in violation of S.4(1)(2)(a)(c) of competition Ordinance, 2010 and it was not necessary to prove a series of individual decisions regarding price or rates when the mechanism of determining those prices or rates was abundantly clear—Existence of a mechanism a formula or target price, was enough to prove the existence of a price fixing decision—Distinct violation of S.4 of competition Ordinance, 2010 was found by a single Association in five different relevant markets, which was an unprecedented situation in terms of scope of anti-competitive by a single entity—In view of such violation a penalty of rupees 10 million was imposed for each instances of collusive activitiesin the different relevant markets amounting to a total of Rupees 50 million.
2010 CLD 1648 A.R. KHAN & SONS (PVT.) LTD. through Authorized Officer vs. FEDERATION OF PAKISTAN through Secretary, Ministry of Commerce, Islamabad
Ss.2(j), 13(2)(j) & 21—Public Procurement Regulatory Authority Ordinance (XXII of 2002), S.5—Public Procurement Rules, 2004, Rr.3, 4, 20 & 42 (c)–competition Commission Ordinance (XVI of 2010 ), Ss.2(1)(e)(k), 3 & 4—Constitution of Pakistan (1973), Arts.18 & 199—Constitutional petition—Diverting cargo imports by Trading Corporation of Pakistan to Gwadar Port—Concession agreement between Port of Singapore Authority and Gwadar Port Authority to build and develop various port facilities in concession area of Gwadar Port on BOT (Built, Operate and Transfer) basis—Trading Corporation obtained stevedoring services and impol`t handling facilities of Port of Singapore Authority without open bidding—Constitutional petition challenging such act of Trading Corporation excluding petitioner from participating in providing such services at Gwadar Port—Plea of Trading Corporation that Port of Singapore Authority was only provider of such services at Gwadar, thus, Trading Corporation had no option except to enter into a direct contract with Port of Singapore Authority in terms of R.42 of Public Procurement Rules, 2004—Validity—Concession area did not extend to whole of Gwadar Port, but was limited to a specified portion thereof, wherein Port of Singapore Authority had exclusive right to make investments, while Gwadar Port Authority’ had complete liberty to develop remaining part of Gwadar Port—Facilities presently available at Gwadar Port being operated within concession area under such agreement could be provided by Port of Singapore Authority exclusively—Such agreement did not require Trading Corporation to import cargo at Gwadar, but if imported, then Trading Corporation would utilize services of Port of Singapore Authority for stevedoring purposes—Port of Singapore Authority having exclusivity rights under such agreement would not mean that all options for Trading Corporation were closed and its hands were tied—Trading Corporation of Pakistan being a public procuring agency was obliged to procure such services by means of open competitive bidding in a fair and transparent manner—Procuring agency might, but not bound to take recourse to direct contract ing method of procurement in existence of any one of seven situations envisaged by R.42(c) of Public Procurement Rules, 2004 for such Rules being discretionary and not mandatory—Proviso to R.42 of Rules, 2004 was not applicable to fact s of the present case—Gawadar Port Authority had power to enter into contract and grant exclusive rights to Port of Singapore Authority in respect of facilities developed or to be developed in concession area—Speaking about dominant position of Port of Singapore Authority without first determining relevant market would be meaningless, which determination could be made by Competitive Commission requiring fact ual investigation—Nothing on record for determining as what was relevant market in which Port of Singapore Authority could be said to have a dominant position—Fact ual investigation to determine “relevant market” would be beyond scope of proceedings under Art.199 of the Constitution—High Court directed Trading Corporation of Pakistan to review its options and obligations under Public Procurement Regulatory Authority Ordinance, 2002 and Rr.4 & 42 of Public Procurement Rules, 2004 before entering into agreement, and its decision must be supported by reasons.
2010 CLC 1810 A.R. KHAN & SONS (PVT.) LTD through Authorized Officer v.s FEDERATION OF PAKISTAN through Secretary, Ministry of Commerce, Islamabad
Ss. 2(j), 13(2)(j) & 21—Public Procurement Regulatory Authority Ordinance (XXII of 2002), S. 5—Public Procurement Rules, 2004, Rr. 3, 4, 20, & 42(c)—competition Commission Ordinance (XVI of 2010 ), Ss.l (1)(e)(k), 3 & 4—Constitution of Pakistan (1973), Arts. 18 & 199—Constitutional petition—Diverting cargo imports by Trading Corporation of Pakistan to Gwadar Port—Concession agreement between Port of Singapore Authority and Gwadar Port Authority to build and develop various port facilities in concession area of Gwadar Port on BOT (Built, Operate and Transfer) basis—Trading Corporation obtained stevedoring services and import handling facilities of Port of Singapore Authority without open bidding—Constitutional petition challenging such act of Trading Corporation excluding petitioner from participating in providing such services at Gwadar Port—Plea of Trading Corporation that Port of Singapore Authority was only provider of such services at Gwadar, thus, Trading Corporation had no option except to enter into a direct contract with Port of Singapore Authority in terms of R.42 of Public Procurement Rules, 2004—Validity—Concession area did not extend to whole of Gwadar Port, but was limited to a specified portion thereof, wherein Port of Singapore Authority had exclusive right to make investments, while Gwadar Port Authority had complete liberty to develop remaining part of Gwadar Port—Facilities presently available at Gwadar Port being operated within concession area under such agreement could be provided by Port of Singapore Authority exclusively—Such Agreement did not require Trading Corporation to import cargo at Gwadar, but if imported then Trading Corporation would utilize services of Port of Singapore Authority for stevedoring purposes—Port of Singapore Authority having exclusivity rights under such agreement would not mean that all options for Trading Corporation were closed and its hands were tied—Trading Corporation of Pakistan being a public procuring agency was obliged to procure such services by means of open competitive bidding in a fair and transparent manner—Procuring agency might, but not bound to take recourse to direct contract ing method of procurement in existence of any one of seven situations envisaged by R.42(c) of Public Procurement Rules, 2004 for such Rule being discretionary and not mandatory—Proviso to R.42 of Rules 2004 was not applicable to fact s of the present case—Gwadar Port Authority had powers to enter into contract and grant exclusive rights to Port of Singapore Authority in respect of facilities developed or to be developed in concession area—Speaking about dominant position of Port of Singapore Authority without first determining relevant market would be meaningless, which determination could be made by Competitive Commission requiring fact ual investigation—Nothing on record for determining as what was relevant market in which Port of Singapore Authority could be said to have a dominant position—Fact ual investigation to determine “relevant market” would be beyond scope of proceedings under Art. 199 of the Constitution—High Court directed Trading Corporation of Pakistan to review its options and obligations under Public Procurement Regulatory Authority Ordinance, 2002 and Rr. 4 & 42 of Public Procurement Rules, 2004 before entering into agreement, and its decision must be supported by reasons.
2010 CLD 1878 COMPETITION COMMISSION OF PAKISTAN vs. SHOW-CAUSE NOTICE NO.20 OF 2010 issues to Messrs TETRA PAK PAKISTAN LTD.
Ss. 3, 28, 30 & 34—competition Commission (General Enforcement) Regulations, 2007, Reglns.30, 33 & 37—Abuse of dominant position—Complaint–“Consumer Awareness and Welfare Association” in its letter addressed to competition Commission alleged that company was unjustifiably raising prices of its packaging products and was abusing its dominant position in Pakistan—Commission took notice and initiated a preliminary probe in the matter and appointed Enquiry Officers and initiated an enquiry under provisions of S.37 of competition Ordinance, 2010 —Enquiry Officers, after analyzing all material/documents completed the enquiry and produced Enquiry Report stating that the company held a dominant position in the market of beverages products packing industry in Pakistan and that company virtually had no competition in Pakistan and it faced a lesser threat of substitution of Packaging material by its customers, which gave it the ability to influence the market—Report had also shown that company held more than 40% of the relevant market’s share and had the ability to behave to an appreciable extent independently of its competitors, customers, consumers and suppliers—Commission taking into consideration findings of the Enquiry Report initiated proceedings under S.30 of competition Ordinance, 2010 against the company and issued show-cause notice to the company—Counsel for the company did not challenge the findings of the Enquiry Report—Findings in the Enquiry Report with reference to the Trade Compliance clause in the agreement between the company and the milk processors and the fruit juice manufact urers, however, were not premised on sound reasoning—Counsel for the company had repeated assurance for the company’s commitment to ensure compliance with competition Ordinance, 2010 and company’s determination to resolve the issues—Commission accepted the application of the company made under Regulations Nos.30, 33 & 37 of the competition Commission (General Enforcement) Regulations, 2007, subject to conditions, that mandatory maintenance clause would be re-warded and same would be intimated to all the parties concerned; that agreement for installation and commissioning of the equipment would be amended to the satisfact ion of the Registrar of the competition Commission so as to remove the condition of using only company’s packing material during the commissioning period under agreement; and that said amendments and consequential changes in the agreement would be intimated to the customers of the company—Said conditions were agreed to and accepted by the representatives of the company—Commission directed that the compliance report in terms of said conditions would be filed with the Registrar of the Commission within a period of six weeks.
2010 CLD 1840 COMPETITION COMMISSION OF PAKISTAN v.s SHOW-CAUSE NOTICES Nos.18 AND 19 OF 2010 issues to Messrs ACE GROUP OF INDUSTRIES
Ss. 10, 30, 37 & 38—competition Commission (General Enforcement) Regulations, 2007, Regin.17—Complainant against deceptive marketing practices-Complainants had alleged that a group of Industries was manufact uring offering for sale, selling, exporting leather jackets and was fraudulently and without authorization using complainants’ registered trade mark on its products and that such use of complainants’ trade mark was fraudulent, mala fide and constituted the act s of “deceptive marketing practices”, which was prohibited in terms of S.10 of competition Ordinance, 2010 –Pursuant to said complaints, the competition Commission appointed Enquiry Officers and initiated the enquiry under S.37 of competition Commission, 2010 regarding the allegation-Enquiry Officers after analyzing and examining the complaints, concluded the inquiry and in their report and found that though the conduct and attitude of accused company appeared to be innocent and ignorant of special law/competition Ordinance, 2010 , but ignorance of law could not be an excuse Enquiry Officers, in circumstances found that company had violated provisions of S.10(1)(a)(d) of competition Ordinance, 2010 -competition Commission taking into account recommendations of Inquiry Officers decided to initiate proceedings under S.30 of competition Ordinance, 2010 and issued show-cause notice to the company-Representative of the company apologized and asserted that being ignorant of existence of such law and unawareness, it had violated the Ordinance by advertising the items bearing the trademark of the complainants-Admission of company, firstly at the inquiry stage and subsequently its undertaking assuring future compliance of the Ordinance, left no doubt that it was using the trade-marks of the other company on the images, available on their website-Plea of ignorance of law taken by the accused company could not be accepted as ignorance of law was no excuse—Deceptive marketing and fraudulent use of trademark by the accused company, was very much capable of harming the business interest of the complainants-Accused company had cooperated throughout the proceedings and even amended their website and having admitted violation of Ordinance, only a token penalty of Rs.2,50,000 (Two Hundred and Fifty Thousand Rupees), was imposed and accused company was reprimanded that in future, the Commission would take a very strict view of non-compliance or contraventions under competition Ordinance, 2010 .
2010 CLD 549 COMPETITION COMMISSION OF PAKISTAN v.s TRADING CORPORATION OF PAKISTAN (PVT,) LIMITED
Ss. 3, 4, 28(2), 30, 31 & 32—Irregularities and lack of transparency in the tendering process-competition Commission of Pakistan took notice of the news items that Trading Corporation of Pakistan through its tender terms for the import of white sugar had failed to provide level playing field and equal opportunity to suppliers/partners of all origins for the import of 5,00,000 MT of sugar, thereby preventing, reducing and restraining competition in the relevant market in violation of Ss. 3 & 4 of competition Ordinance, 2007–commission appointed Enquiry Officer pursuant to the provisions of subsection (2) of S.28 of the Ordinance-Subsequent to the initiation of Enquiry, Commission received letters from different quarters wherein irregularities and lack of transparency in the tendering process of Trading Corporation of Pakistan was complained about–Enquiry Officers in their preliminary enquiry report had pointed out that certain clauses of the terms and conditions of tenders were found to be potentially of concern—Owing to the fact that the tender terms, prima facie seemed to exclude competitors from the tendering process and was likely to result in import of sugar at a higher price which could adversely impact the consumer and the public at large, Commission issued a notice of hearing under Ss. 30, 31 & 32 of competition Ordinance, 2007-After hearing all the concerned expressed by the Commission and the objections raised by the parties with regard to the terms and conditions of tot. gender, Trading Corporation of Pakistan had agreed that tender to be opened on 13-2-2010 had been merged with the tender schedule for 15-2-2010 , accordingly, the quantity of sugar for tender schedule for 15-2-2010 would be enhanced to 2,00,000 MT and would be opened on 17-2-2010 ; that conditions of clause 15(a) of the terms and conditions for the tenders relating to shipment, would be amended accordingly; that the terms’ and conditions of the tenders would be amended to allow containerized shipment as an option on established international terms and conditions and that transshipment in the case of containerized shipment would be allowed in the terms and conditions of the tenders—Trading Corporation of Pakistan, at circumstances, was directed to issue ‘a corrigendum and to take all necessary act ions in that regard—Concerns raised by the enquiry officers in the preliminary enquiry report and the objections taken by the parties, having stood substantially addressed, further enquiry in that matter was not warranted.
2010 CLD 462 COMPETITION COMMISSION OF PAKISTAN v.s PAKISTAN INTERNATIONAL AIRLINES
Ss. 3, 30, 37 & 41—Abuse of dominant position—Complaint against—Government of Pakistan was the largest shareholder of Pakistan International Airlines having 89.93% of the total shares, whereas the remaining shares were held by the public–competition Commission of Pakistan, received various complaints to the effect that PIA was charging a percentage of the ticket fare whenever passengers rescheduled or cancelled flights, which was not only contrary to the practice followed by other domestic and international carriers and was also discriminatory–Said Policy of PIA was verified from its Customer Services Department and was found to support the complaints received by the Commission—Commission took suo motu notice and constituted an Inquiry Committee under S.37(1) of competition Ordinance, 2007, which conducted a formal inquiry in the matter, completed its report and recommended that proceedings under S.30 of the Ordinance could be initiated against PIA—Section 3 of competition Ordinance, 2007, which had prohibited abuse of dominant position, would apply only when one undertaking had a dominant position or where two or more undertakings were collectively dominant–Finding of dominance whether individual or collective would involve a ,two-stage procedure First was the determination of relevant market and the second was the determination, whether the undertaking concerned enjoyed dominant position—PIA having understood the concern of the Commission, had volunteered to remove the discriminatory fee structure and offered a proposal—Appellate Bench appreciated the understanding and co-operation of PIA and ordered; that proposed non-discriminatory re-scheduling fee structure be implemented in letter and spirit as of January 1, 2010 ; and that a passenger who wished to reschedule his/her flight to an immediate preceding flight, be allowed to do that without any charge—In the light of PIA co-operation and understanding, Bench had taken a lenient view and exonerated the undertaking from any penalty.
Below is a full judgement on Anti-Trust Law in Pakistan
P L D 2007 Lahore 1
Before Mian Saqib Nisar, J
D.G. KHAN CEMENT COMPANIES LIMITED through Company Secretary/through Chairperson—Appellant
Versus
MONOPOLY CONTROL AUTHORITY—Respondent
Monopoly Appeal No.2 of 2005, decided on 26th July, 2006.
(a) Monopolies and Restrictive Trade Practices (Control and Prevention) Ordinance (V of 1970)–
—-S.20—Civil Procedure Code (V of 1908), S.100—Appeal to High Court—Scope.
An examination of section 20 of the Monopolies and Restrictive Trade Practices (Control and Prevention) Ordinance, 1970, indicates that it is based on, and indeed is identical to section 100 C.P.C., which provides for second appeals, against decrees of Civil Courts. As is well known, the second appeal under section 100, C.P.C. lies only on questions of law. The scope and extent of scope of section 100, C.P.C. and the sort of questions and issues which are regarded as questions of law for purposes of that section are well settled by numerous decisions of the Supreme Court and the High Courts. It is clear from the close identity between section 20 of the Ordinance and section 100, C.P.C. that an appeal against an order of the Authority also lies only on questions of law. Furthermore, the sort of questions and issues which should be regarded as questions of law under section 20 of the Ordinance are essentially the same on which a second appeal can be taken under section 100 C.P.C.. The principles established for the proper application and interpretation of section 100, C.P.C. can, therefore, be adopted and applied for purposes of section 20 of the Ordinance as well.
(b) Monopolies and Restrictive Trade Practices (Control and Prevention) Ordinance (V of 1970)—
—-S.3—Prohibition on undue concentration of economic power—Scope.
Section 3 of the Monopolies and Restrictive Trade Practices (Control and Prevention) Ordinance, 1970 is one of the most important provisions of the Ordinance. It prohibits and renders unlawful, any undue concentration of economic power, or unreasonable monopoly power, or unreasonably restrictive trade practices. Each of these is a distinct category of undesirable situation and proscribed circumstances and each is separately defined and dealt with in the Ordinance.
(c) Monopolies and Restrictive Trade Practices (Control and Prevention) Ordinance (V of 1970)—
—S.10—Function of the Authority—Scope.
Section 10 of the Monopolies and Restrictive Trade Practices (Control and Prevention) Ordinance, 1970, lays down the functions of the Authority, and clause (t) of this section empowers the Authority “to make such orders and to do all such things as are necessary for carrying out the purposes of this Ordinance”. Thus the Authority has a general statutory duty to ensure that there is no violation of section 3 of the Ordinance by any person or persons, and it has been empowered accordingly.
(d) Monopolies and Restrictive Trade Practices (Control and Prevention) Ordinance (V of 1970)–
—-Ss.2, 3 & 6—“Trade” and “trade practice”—Concepts—Power of Authority—Scope.
An unreasonably restrictive trade practice is defined in section 2(m), of the Monopolies and Restrictive Trade Practices (Control and Prevention) Ordinance, 1970 but in order to properly appreciate this definition, it is necessary also to examine the concepts of trade and trade practice, both of which are also defined terms. Trade is defined in broad terms, and it is not in dispute that the cement industry is a trade within the meaning of section 2(k). Section 2 (1) defines a trade practice. Though exhaustive, the definition brings within its ambit both an act (i.e. a single or isolated instance or event), and also a practice (i.e. a trade custom or usage or acts or events or series of acts or events undertaken with some degree of regularity, continuity or repetition) in relation to the carrying on of a trade or business. If the definition (section 2(n) of an unreasonably restrictive trade practice is now examined, it will be found to comprise of two main components: (a) there must be a trade practice, and (b) such trade practice must or must have the effect of unreasonably preventing, restraining or otherwise lessening competition in any manner. Obviously, both components must exist for a finding of an unreasonably restrictive trade practice to be recorded. Looking at the second component of the definition, it is clear that this itself has two requirements: (i) the trade practice must prevent, restrain or lessen competition, and (ii) it must have this effect in any unreasonable manner or to an unreasonable degree. The term competition is not as such defined in the Ordinance and it is not necessary to exhaustively examine this concept in the context of monopoly law (or anti-trust law as it is known in American jurisprudence). It is sufficient to note that competition means and requires the free interplay between the suppliers and consumers of goods in a market environment. The actions and decisions of the buyers and sellers (such as the price demanded for the commodity by the suppliers or accepted by the consumers, the quantity to be supplied or consumed, etc.) must be set purely by market forces and conditions. The market itself may, of course, be subject to regulation by the State. For example, a retail market where foodstuff and other perishable items are sold may be subject to local regulations as to timings, hygiene requirements, specifications as to weights and measures to be used, etc. The requirement of competition under the Ordinance focuses on the actions and decisions of those who act in, or in relation to, the market as the suppliers and consumers of goods. These actions and decisions must be solely controlled by the market forces and conditions as prevailing from time to time”. It is also important to keep in mind in this context that the requirement as to competition is not limited to the immediate or actual market participants. To revert to the example just given, the suppliers would include not just the shopkeepers in the retail trade, but also their wholesale suppliers and the persons from whom the wholesellers acquire the goods, etc.
Ordinarily, if the Authority is of the view that there has been or is likely to be a breach of section 3, it must establish that there exists, or will exist, an unreasonably restrictive trade practice. Put differently, the Authority must establish that all of the various ingredients of an unreasonably restrictive trade practice as discussed above have been made out. Section 6 (1) however, contains a deeming provision with regard to unreasonably restrictive trade practice. Once it is shown that a situation as contemplated by that subsection has arisen, the law deems that an unreasonably restrictive trade practice exists, i.e. has been resorted to or is being continued. The existence of a subsection (1) situation is in and of itself a contravention and violation of section 3 by virtue of the deeming provision.
(e) Interpretation of statutes—
—-Deeming provision in a statute—Principles of interpretation.
Once a deeming provision is attracted, the court must not let its mind boggle at the consequences that may flow from or be ancillary to such deeming and is required to recognize and give effect to the same. However, the court is entitled to ascertain the purpose and scope of the deeming provision, i.e. as to how and between whom is the deeming provisions attractive or made applicable. Finally for the deeming provisions to be applicable, all the conditions laid down in the relevant provisions must be fulfilled before it can be regarded as having taken effect.
Mehreen Zaib-un-Nisa v. Land Commissioner, Multan and others PLD 1975 SC 397 ref.
(f) Monopolies and Restrictive Trade Practices (Control and Prevention) Ordinance (V of 1970)—
—-Ss.6 & 2(a)—Unreasonably restrictive trade practices—Interpretation, application and scope of S.6, Monopolies and Restrictive Trade Practices (Control and Prevention) Ordinance, 1970—Agreement or cartel—Agreement of the nature covered by S.6(1), Monopolies and Restrictive Trade Practices (Control and Prevention) Ordinance, 1970—Existence—Onus of proof—Section 6, Monopolies and Restrictive Trade Practices (Control and Prevention) Ordinance, 1970 contains a two stages process; in the first instance, an agreement must establish in terms of S.6(1); such an agreement may be admitted or found (objectively) to exist in the facts and circumstances of the particular situation being examined, if an agreement is so found to exist, the deeming provision of S.6(1) becomes applicable, if however, this stage is crossed, only then would the matter move to the second stage, namely that of determining whether the conditions of S.6(2) are found to be attractive (i.e. all of its clauses held to apply) then the deeming provisions of S.6(1) would be negated—Principles elaborated—Making of gateway—Ingredients.
Subsection (1) of section 6, Monopolies and Restrictive Trade Practices (Control and Prevention) Ordinance, 1970 contains three clauses, the first two of which also contain certain sub-clauses. The first requirement for the deeming provision to become applicable is that there must be an agreement. This is the most basic requirement, and without there being an agreement, section 6(1) can have no application at all. In the first instance, therefore, the agreement must be established. Indeed, if it is asserted that subsection (I) applies to any situation, what is being asserted is nothing more than that there exists an agreement of the sort referred to in that subsection. The requirement as to the existence of any agreement, is therefore, central to a proper appreciation and correct application of section 6.
Three primary questions arise in relation to an agreement under section 6(I): (a) what is the nature of the agreement; (b) among whom must the agreement subsist or exist and (c) how is the agreement to be established?. As to the first question, the answer is contained in the definition given in section 2(a) of the Ordinance. As is immediately apparent, the law has defined the expression in very broad terms. The definition is inclusive and not exhaustive. It includes any arrangement or understanding. It does not need to be in writing and it does not even have to be or intended to be legally enforceable. Thus the meaning of agreement in the Ordinance goes far beyond (although it certainly includes) that which is contained in the Contract Act, 1872. While there must necessarily be a meeting of minds for there to be an agreement at all, it can be of the most informal or casual nature for purposes of section 2(a).
As to the second question i.e. among whom must the agreement subsist or exist, the answer is contained in subsection (1) itself. Clause (a) relates to a certain group of persons, namely “actual or potential competitors”. Clauses (b) and (c) apply to certain types of groups or persons in specified situations or relationship. Clause (b) applies to “a supplier and a dealer of goods” where the agreement is being entered into for purposes of fixing minimum resale prices. Clause (c) applies to agreements between “suppliers or buyers” where the agreement is being subjected to the additional conditions of the sort specified in that clause.
The third question is as to how is the agreement to be established. Obviously, such an agreement can be established by direct evidence. However, it is in the very nature of things that agreements of the sort covered by section 6(1) are born in darkness and remain shrouded in secrecy. Direct evidence of such agreements would invariably be rare. Given the definition of agreement in section 2(a) and the purpose and scope of the Ordinance, especially the prohibition of unreasonable restrictive trade practice, an agreement in terms of section 6(1) can be established indirectly, i.e. through circumstantial evidence. More particularly, it can be inferred from the facts and circumstances of the particular situation that it is being examined. In the present case this point was not seriously disputed by the counsel for the appellants. There is, needless to say no direct evidence of any agreement in the present case,, and it was common ground between the parties that if at all any such agreement existed (which was of course, asserted by the Authority and denied by the appellants), it could only be inferred from circumstantial evidence. The crucial question therefore, is as to what were, in the facts and circumstances of the present case, the permissible inferences that could be drawn from the record, and did those inferences establish, in law and in fact an agreement of the nature covered by subsection (1). This is the exercise that would invariably have to be carried out, whenever there is an assertion that there exists an agreement of the nature covered by section 6(1).
The policy reasons behind deeming agreements of the nature covered by subsection (1) of section 6 to be unreasonably restrictive trade practices are clear. These agreements invariably have such a deleterious and harmful effect on competition that the mere existence of such an agreement is sufficient to condemn it. The most obvious example, which in fact is the very situation with which the present appeals are concerned, is a price fixing agreement between actual or potential competitors. Such an agreement, if found to exist, is the very anti-thesis of competition, and indeed its very purpose is to negate competition. By deeming such agreements to be unreasonably restrictive trade practices, the law obviates the need for an enquiry or finding into whether the particular agreement in question “has or may have the effect of unreasonably preventing, restraining or otherwise lessening competition in any manner.” Those who enter into such agreements do so at their own peril: the law will deem that they have acted in an unlawful manner. The law, however, also recognizes that while this broad approach of condemning such agreements out of hand is generally desirable, there may yet exist some agreements, which require a different response. It is in this connection that, according to the appellants, the provisions of subsection (2) of section 6 have been enacted, and it is this point, which now needs consideration.
On a bare reading, subsection (2) appears to be essentially in the nature of an exception to subsection (1). It provides that if the clauses specified therein are fulfilled in relation to an agreement to which subsection (1) applies, then that agreement shall not be deemed to be an unreasonably restrictive trade practice. It is important to note that the three clauses of subsection (2) are cumulative, i.e. all must be shown to exist before this subsection can take effect. Contention on behalf of the Authority was that the proper interpretation of the two subsections was that all that was required was for the Authority to be satisfied that there was a prima facie case made out in terms of subsection (1). Such satisfaction raised a rebuttable presumption that the deeming provisions of subsection (1) had become applicable. It was then for the other side to rebut the presumption by establishing that the provisions of subsection (2) were applicable. This is not a correct interpretation of the two subsections. It is clear from the opening words of subsection (2) that it applies only to an “agreement as is referred to in subsection (1)”. If no such agreement exists, then subsection (2) can obviously have no application at all. Subsection (1) itself does not state that an agreement must exist to the Authority’s satisfaction or use some such subjective language. It simply deems an unreasonably restrictive trade practice to have been resorted to or continued, if an agreement of the nature covered by the subsection (1) is found to exist. The test must, therefore, be objective, i.e. the agreement must be found to exist on an objective assessment of all the facts and circumstances. If no agreement can be found, either as a matter of law or on the facts on the basis of such an objective assessment, the matter ends and there is no need to take recourse to subsection (2).
The proper interpretation of section 6, therefore, is that it contains a two stages process. In the first instance, an agreement must be established in terms of subsection (1). Such an agreement may be admitted or found (objectively) to exist in the facts and circumstances of the particular situation being examined. If an agreement is so found to exist, the deeming provisions of subsection (1) become applicable. If this stage is crossed, only then would the matter move to the second stage, namely that of determining whether the conditions of subsection (2) are made out. If the conditions of the latter subsection (2) are found to be attractive (i.e. all of its clauses held to apply,) then the deeming provisions of subsection (1) would be negated.
It appears that the provisions similar to subsection (2) of section 6 are well established in this branch of the law, and are known as `gateways’. These provisions reflect the policy of the law noted above, namely that while agreements of the sort hit by the deeming provisions of subsection (1) were generally to be condemned as being unreasonably restrictive trade practices, in certain situations, such agreements had to be allowed to stand. In effect, the disadvantages or harmful effects of such an agreement are outweighed by the benefits obtained by letting it stand. One example will suffice to illustrate the point. Suppose the Pakistani exporters of a particular commodity enter into a price fixing agreement e.g. agree not to sell their product abroad at less than the price agreed upon. Obviously, such an agreement is precisely that sort of arrangement to which subsection (1)(a)(i) applies, namely an agreement between actual or potential competitors to fix the selling price of goods. Such an agreement would, therefore, ordinarily be deemed to be an unreasonably restrictive trade practice and would stand condemned accordingly. However, recourse may be possible in such a situation to subsection (2). In the example, being considered, the clauses would apply if following conditions are found to exist: (a) the agreement promotes the export of goods from Pakistan; (b) such promotion could not have been achieved by means less restrictive of competition i.e. without the agreement; and (c) the benefits of such an agreement (i.e. the promotion of exports) clearly outweigh the adverse impact on competition (i.e. that the selling prices being charged by the exporters are not being set by market conditions). If these conditions are fulfilled, then the agreement will not be deemed to be an unreasonably restrictive trade practice i.e. will be allowed to stand and continue.
The onus lies on the Authority to establish that an agreement of the nature specified in section 6(1) exists in order to attract the deeming provisions thereof. This assessment must be made on an objective basis since the Ordinance, does not use subjective language that the Authority must be so satisfied (or any such similar words). This position is also clear from general principles, since it is the Authority that is asserting the positive (i.e. that an agreement exists), whereas the persons alleged to have entered into such an agreement are asserting the negative (that such an agreement does not exist). Clearly the burden of establishing that an agreement exists, must lie on the party making the positive assertion. Furthermore, the agreement, if it exists, would be an unlawful act, being violative of section 3, and the offending persons would be liable to penalties under section 19 of the Ordinance. The burden of discharging the onus of subsection (1) of section 6 must therefore lie squarely on the Authority. Once this burden is discharged, and an agreement is found to exist, then if at all a subsection (2) defence or justification is pleaded, the onus lies on those who entered into the agreement to establish that the ingredients of the `gateway’ have been made out. The onus shifts from one side to the other, starting in the first instance (i.e. subsection (1)) by being on the Authority and then moving on to the opposite parties, if a `gateway’ (i.e. subsection (2)) defence is pleaded.
In the present case, the appellants have not pleaded any subsection (2) defence. It is therefore., not their case that the provisions of the “gateway” are attracted. Rather, the appellants contend, as noted above, that no agreement at all, as specified in subsection (1), is made out and hence there is nothing that can be deemed to be an unreasonably restrictive trade practice. The matter must therefore, be examined and determined with reference to section 6(1) and the onus of establishing an agreement in terms thereof lies on the Authority.
(g) Monopolies and Restrictive Trade Practices (Control and Prevention) Ordinance (V of 1970)—
—-Ss. 6, 3, 11, 12, 2 & 20—Appeal to High Court—Allegation of unreasonably restrictive trade practices—Powers, jurisdiction and functions of the Authority—Scope—Monopoly Control Authority’s contention which the appellants denied, was that a parallel increase in prices over a given period was in itself sufficient material from which an agreement or cartel could legitimately by indirectly inferred—Impugned order of the Authority showed that the Authority did not find that the prices rose by the same amount or to the same level—Prices of the various cement manufacturers were at different levels and remained so, rising by different amounts and on different dates—Parallel increase in price was noticed i.e. there was a general upward movement over the same period of time—Question therefore, was as to whether it was permissible, both as a matter of law as well as in fact for the Authority to infer from the parallel price increase that there existed an agreement or cartel to which S.6(1), Monopolies and Restrictive Trade Practices (Control and Prevention) Ordinance, 1970 applied—Held, any price fixing was unlawful under the Ordinance, it was entirely irrelevant whether the prices were rising, falling, remaining steady, high or low or at any level in between, if they were being fixed (and the amount by which the fixation took place was likewise irrelevant) in any manner by agreement between actual or potential competitors, they were unlawful—Agreement under the Ordinance and for the purposes of S.6(1) of the Ordinance could be indirectly inferred from the situation—Parallel business behaviour or conscious parallelism was not in itself sufficient to lead to or permit an inference that a price fixing agreement or cartel existed—Factors in addition to, and over and above the conscious parallelism for the existence of a cartel in violation of S.3 read with S.6 must be established—Authority must identify and particularize the “plus” factors on which it sought to rely in addition to the parallel business behaviour—If such “plus” factors did exist in addition to parallel business behaviour, it would be open to the alleged conspirators to present material to show that it could not be reasonably inferred by the Authority that they had entered into a price fixing conspiracy and they would be entitled to rebut the inferences being drawn from the parallel business behaviour and the plus “factors” as the matter was being determined not on the basis of direct evidence, but on deductions being indirectly made and inferred from the facts and circumstances of the case and it was possible in such a situation that Authority might misread or draw the wrong conclusions from the circumstantial material and it was only right for the alleged conspirators to be entitled to present material to rebut the inferences—If the alleged conspirators fail to present any such material or the material presented was found to be deficient or unconvincing, then it could legitimately be inferred from the parallel business behaviour and the “plus” factors being relied upon that an agreement existed which was violative of S.6(1) of the Ordinance, and that there had been a violation of S.3 thereof—Entire such exercise, however, was to be carried out exclusively with reference to and within the ambit of S.6(1) of the Ordinance—Once such agreement had been legitimately inferred, and was therefore, deemed to exist, it might still be open to the conspirators to rely on the “gateway” contained in S.6(2) of the Ordinance—Onus, however would lie on the alleged conspirators to establish that their situation came within all three clauses of the latter provision and it was only then that they would be entitled to rely on the `gateway’—Price fixing agreement which could be condemned under the deeming provision of S.6(1) of the Ordinance was not limited to price increase only—Section 6(1) of the Ordinance applies to any price fixation, regardless of whether the prices were being increased, reduced or had remained steady, and whether the level was high or low—Authority was the regulator and restorer of competition and not of prices and prices level as such—By fundamentally confusing two entirely separate and distinct functions and powers, the Authority would assert a power that did not vest in it under law—At any time that the prices moved in parallel, the Authority would be able to claim that a cartel existed and that the Authority was entitled to take action in the matter—Regulation of prices by the Authority was clearly beyond the limits of its powers and jurisdiction under the Ordinance—Authority was not concerned with the level of prices as such nor did it have any statutory power to determine whether prices were reasonable or too high or low, its jurisdiction was confined only to ensuring that there was proper competition, i.e. that prices were being determined by market conditions and not fixed collusively and unless there was additional material or evidence, the parallel change in prices could not by itself establish that there had been collusion or cartelization—Mere fact that the prices during one specific month rose parallel would not establish that there existed cartel among the manufacturer in violation of S.6(1) of the Ordinance, there was no basis whatsoever on which the Authority could contend that there had been a “planned or systematic” increase in the prices and it was insufficient to simply rely upon the price increase itself as establishing the existence of a cartel—Authority had also failed to specify or identify the alleged conspirators which was. an infirmity and fatal to the case of the Authority—While referring to the price increases, the impugned order merely stated that “a good number” of the cement manufacturers were involved in the cartel, but the actual conspirators were never identified—No agreement, in circumstances could be spelt out—Authority was bound to particularize the parties to the agreement and identify the participants in the conspiracy and to show when or how they functioned and if the Authority failed to do so, then no agreement could be found to exist—Factors relied upon by the Authority to justify the impugned order included great public outcry at the increase in prices of cement during the particular month—Such was a fundamental misconception of the powers and jurisdiction of the Authority and resulted in a complete transformation of its role from a regulator of competition to a regulator of prices without any warrant in law—Principles on the subject recorded exhaustively—High Court accepted the appeals, set aside the impugned orders of the Authority, declaring the orders as not sustainable either in law or on the basis of the record and material as available before the Authority.
In essence, the point in issue between the parties, in the present case, can be stated as follows: the Authority contends, and the appellants deny, that a parallel increase in prices over a given period is in itself sufficient material from which an agreement or cartel can legitimately be indirectly inferred. It is pertinent to note that, as is clear from the passage from the impugned order, the Authority does not contend that the prices rose by the same amount or to the same level. The prices of the various cement manufacturers were at different levels and remained so, rising by different amounts and on different dates. Thus, there was a parallel increase in prices, i.e. there was a general upward movement over the same period of time. The question is whether it was permissible, both as a matter of law as well as in fact for the Authority to infer from the parallel price increase that there existed an agreement or cartel to which section 6(1) applied.
The deeming provisions of section 6(1) of the Monopolies and Restrictive Trade Practices (Control and Prevention) Ordinance, 1970 provides that there are certain categories of agreements the very existence of which is violative of law, being section 3 of the Ordinance. The price fixing agreements condemned out of hand under section 6(1)(a)(i) under the deeming provisions of the Ordinance. It is important to keep in mind that any price fixing is unlawful under the Ordinance. It is entirely irrelevant whether the prices are rising, falling, remaining steady, high, low or at any level in between. If they are being fixed (and the amount by which the fixation takes place is likewise irrelevant) in any manner by agreement between actual or potential competitors, they are unlawful in American jurisprudence, price fixing agreements are divided into different types, such as horizontal price fixing, vertical price fixing, predatory pricing etc. Horizontal price fixing-is a price fixing agreement or cartel between actual or potential competitors. Vertical price fixing is a price fixing agreement between producers and wholesalers or distributors, or between producers and retailers, or between wholesalers or distributors and retailers. Predatory pricing is a price fixing agreement between competitors designed to eliminate other competitors from the market. The sort of agreement or cartel with which the present appeals are concerned would be regarded as horizontal price fixing.
The following principles are deducible from the decisions of the US Supreme Court and various Courts of Appeals.
(1) An agreement violative of the Ordinance can be established either by direct evidence or can be inferred indirectly from the facts and circumstances of the case before the Court. Business behaviour is admissible circumstantial evidence from which a cartel can be inferred.
(2) While an agreement can be indirectly inferred, the alleged conspirators must at least be properly identified and there must be some indication of when or how they functioned.
(3) Parallel business behaviour, or conscious parallelism is not in itself sufficient to indirectly establish an agreement in violation of the Ordinance. Parallel business behaviour can be of various sorts, and a parallel movement in prices is one example of conscious parallelism. Parallel business behaviour is all the more possible in the case of standardized products where it is expected that prices will ordinarily tend to move in parallel. Furthermore, in a concentrated market, where there are relatively few sellers, conscious parallelism is also to be expected.
(4) If there are certain factors, referred to as “plus” factors, in addition to, and over and above, parallel business behaviour, then a presumption arises that there has been unlawful price fixing and in such a situation, a violation of the Ordinance can be indirectly inferred. The “plus” factors may include evidence demonstrating that the conspirators acted contrary to their economic interests and were motivated to enter into a price fixing conspiracy. The nature of a “plus” factor must be such as it tends to exclude the possibility that the alleged conspirators acted independently.
(5) If parallel business behaviour and “plus” factors are found to exist, the alleged conspirators can nonetheless rebut the inference of collusion by presenting evidence establishing that it could not reasonably be concluded that they entered into a price fixing conspiracy.
An agreement under the Ordinance and for the purposes of section 6(1) can be indirectly inferred from the facts and circumstances of the situation. Parallel business behaviour or conscious parallelism is not in itself sufficient to lead to or permit an inference that a price fixing agreement or cartel exists. There must be shown to exist factors in addition to, and over and above the conscious parallelism for the existence of a cartel in violation of section 3 read with section 6 to be established. The Authority must identify and particularize the “plus” factors on which it seeks to rely in addition to the parallel business behaviour. If such “plus” factors do exist in addition to parallel business behaviour, it would be open to the alleged conspirators to present material to show that it cannot be reasonably inferred by the Authority that they have entered into a price fixing conspiracy. They would be entitled to rebut the inferences being drawn from the parallel business behaviour and the “plus” factors. The reason is that the matter is being determined not on the basis of direct evidence, but on deductions being indirectly made and inferred from the facts and circumstances of the case. It is possible in such a situation that Authority may misread or draw the wrong conclusions from the circumstantial material and it is only right for the alleged conspirators to be entitled to present material to rebut the inferences. If the alleged conspirators fail to present any suet material or the material presented is found to be deficient of unconvincing, then it can legitimately be inferred from the parallel. business behaviour and the “plus” factors being relied upon that are agreement exists which is violative of section 6(1) of the Ordinance, and that there has thus been a violation of section 3 thereof. Entire exercise as aforesaid is to be carried out exclusively with reference to, and within the ambit of section 6(1). Once such an agreement has been legitimately inferred, and is therefore, deemed to exist, it may still be open to the conspirators to rely on the `gateway’ contained in section 6(2). However, as explained above, the onus (and it is a heavy burden to discharge) would lie on them to establish that their situation comes within all three of the clauses of the latter provision and it is only then that they would be entitled to rely on the `gateway’.
It is important to keep in mind that the price fixing agreement which can be condemned under the deeming provision of section 6(1) is not limited to price increases only. Section 6(1) applies to any price fixation, regardless of whether the prices are being increased, reduced or have remained steady, and whether the level is high or low. At any time that the prices moved in parallel, the Authority would be able to claim that a cartel existed and that the Authority was entitled to take action in the matter. It is a matter of common experience that the prices of most commodities tend to fluctuate and such changes usually occur in parallel, and this is certainly true for standardized products, which arc (if at all) differentiated only by the public perception of their brand names or trademarks, Prices, especially of essential items (e.g. food supplies such as tomatoes and onions during the season), can change suddenly and for no apparent reason, rising and `falling frequently and sometimes on a daily basis. If it is held that price change is itself sufficient to establish a cartel, then the Authority would virtually at any time be able to declare a violation of section 3 read with section 6. All it would need to do is to point to the parallel price movement (regardless of whether the prices were rising or falling) and claim that a cartel existed. This would confer an unfettered discretion and power on the Authority to take action at its own sweet-will and at a time of its own choosing. Such a view cannot be countenanced by the law and is, flatly contrary to the provision of the Ordinance. This would convert the Authority into a price regulator, which is clearly beyond the limits of its powers and jurisdiction under the Ordinance. The Authority is not concerned with the level of prices as such nor does it have any statutory power to determine whether prices are reasonable or too high or too low. Its jurisdiction is confined only to ensuring that there is proper competition, i.e. that prices are being determined by market conditions and not fixed collusively. Unless, therefore, there is additional material or evidence, the parallel change in prices cannot by itself establish that there has been collusion or cartelization.
The principles established by the American courts, and followed and adopted by the Indian Commission, establish the necessary framework and lay down the correct approach to be taken for a proper interpretation and application of the deeming provisions of section 6(1) of the Ordinance. The Authority in the present case, has acted on the basis of a complete misunderstanding of the Ordinance and has misapplied the relevant provisions.
The mere fact that the prices in May, 2003 rose in parallel does not therefore, establish that there existed a cartel among the appellants in violation of section 6(1). There was no basis whatsoever on which the Authority could contend that there had been a “planned” or “systematic” increase in the prices, and it was insufficient to simply rely upon the price increase itself as establishing the existence of a cartel. In this context, there is an additional infirmity, which is fatal to the case put forward by the Authority. The Authority has not specified or identified the alleged conspirators. When referring to the price increases, the Impugned Order merely states that “a good number” of the cement manufacturers were involved in the cartel, but the actual conspirators are never identified. No agreement can legitimately be spelt out in such circumstances. While an agreement can certainly be inferred circumstantially as held above, it is at the very least necessary for the Authority to particularize the parties thereto and identify the participants in the conspiracy and to show when or how they functioned. If the Authority fails to do so, then no agreement can be found to exist. In the present case, there is no specific allegation at all against any particular cement manufacturer that it was a participant in the alleged cartel. Furthermore, the Authority fatally undermines its own case by subsequently referring in the Impugned Order to “some” cement manufacturers having acted together with respect to capacity underutilization. Thus, although orders were passed against nearly all the cement manufacturers, the finding actually recorded by the Authority is only that “a good number” of (unspecified) cement manufacturers increased prices in parallel and that only “some” (again unidentified) cement manufacturers underutilized their plant capacities. There is, to say the least, a great difference between “all”, “a good number” and “some” and the failure on the part of the Authority to keep this basic distinction in mind clearly indicates that in fact the Authority did not have any knowledge of the identity of the alleged conspirators, nor did it even bother to carry out such an exercise, which was required under the Ordinance. The Impugned Order, is self-contradictory on the face of it, since the cartel is at one and the same time supposed to be between “a good number” of cement manufacturers and/or “some” of the manufactures. No agreement within the meaning of section 2(a) can be spelt out in such circumstances.
The conclusion purported to be drawn by the Authority in the impugned orders are also not supported by the record of the case. In the impugned order the Authority has purported to “adjust” the central excise duty relief given in the 2003 Budget because, it is stated, the relief “was not passed on to consumers”. Yet, this assertion is contradicted by the table of prices given by the Authority itself in its parawise comments. There, the price of cement charged by the appellant is shown as Rs.215 per bag for the first 6 days of June, and then with effect from June 7th, the price is shown as dropping to Rs.205 per bag, a level which is maintained up to June 22nd, whereafter the price is shown as dropping further to Rs.199 per bag. The situation is similar in the case of other cement manufacturers. Thus, it is clear from the Authority’s own statements that the budgetary relief in central excise duty was in fact passed on to the consumers. The conclusions drawn in this regard in the Impugned Orders are thus directly contradicted by the record. In any case, even if the relief in central excise duty had not been passed on to the consumers by some or all of the cement manufacturers, it is not clear why that would show the existence of a cartel in violation of section 6(1). It is surely a business decision to be taken by the cement manufacturers in the light of market conditions whether, and if so, to what extent, the relief is to be passed on to the consumers. It would normally be expected that there would be some fall in prices in such a situation and that is in fact what the record establishes. The conclusions to the contrary drawn by the Authority are clearly unsustainable.
The table of prices set out in the Authority’s parawise comments clearly shows that there was a lot of price variation and fluctuation in the months leading up to May, 2003. In March, prices did rise and there was a general upward movement. There was thus, throughout the period, prior to the Authority’s impugned action, a parallel price movement of the same nature as took place in May, 2003. Furthermore, in June, the prices began to fall, a fact which appears to have been ignored or misunderstood by the Authority. Yet, it is only the May, 2003 price increase that is condemned by the Authority as cartelization. Those that occurred prior thereto are accepted, and attributed to market conditions. It is also pertinent to note that even as per the impugned orders, the price levels in October, 2002 were at about same level as the prices after the May, 2003, increase (and in some cases, were even higher). Yet, no action was earlier taken by the Authority. This contradiction clearly establishes the point that if a mere change in prices is sufficient to spell out a cartel, then the matter is at the unfettered discretion and sweet-will of the Authority. It can at any time condemn a price movement as violative of the Ordinance, or leave it undisturbed as a mere market fluctuation, and justify its fiction or inaction accordingly. In the present case, price movements, including increases, prior to May, 2003, were accepted by the Authority as responses to market conditions and “independent strategies” of the cement manufacturers, and yet, the price increase of May, 2003, was held to establish a cartel. Price changes of the same nature and magnitude as took place in May, 2003, were earlier accepted and passed unnoticed and without action, whereas the situation that prevailed in that month was condemned as proof of cartelization. It seems that in fact, the Authority was only reacting to the public outcry in May, 2003. The Authority simply acted as a price regulator to bring down the prices to what it regarded as a “reasonable” level acceptable to the public. This was clearly beyond its jurisdiction and powers and outside the scope and ambit of the Ordinance. The Authority is the regulator and restorer of competition and not of prices and price levels as such. By fundamentally confusing two entirely separate and distinct functions and powers, the Authority has asserted a power that does not vest in it under law.
The Authority also appears to have ignored altogether, the various factors stated in detail by the cement manufacturers as explaining the price increases and capacity utilization. These factors included the concept of price leadership, seasonal factors and changes in the demand and supply conditions. The Authority was bound to consider the same and if it was not convinced by the submissions that had been made before it in this regard, to give its reasons for rejecting the case put forward by the cement manufacturers. It is also to be noted that while the Authority concluded that the cost of production had been falling over the relevant period, it did not take into consideration the contrary submissions made by the appellants in this regard. In any case the fact that there is no ready explanation forthcoming for the increase in prices is not in itself sufficient to conclude that a cartel or conspiracy existed in violation of the law.
The factors relied upon by the Authority to justify the Impugned Order included the great public outcry, especially in the national press, at the increase in prices in May, 2003, and complaints received by the Authority with regard thereto from various persons and concerned quarters such as builders, etc. These factors appear to have impelled the Authority to take action to bring down cement prices from what was obviously regarded by it as too high a level to a range believed to be more “reasonable” and acceptable. This was a fundamental misconception of the powers and jurisdiction of the Authority and resulted in a complete transformation of its role from a regulator of competition to a regulator of prices without any warrant in law.
Section 3(1) of Price Control and Prevention of Profiteering and Hoarding Act, 1977 empowers the Federal Government, for purposes of ensuring equitable distribution of an essential commodity and its availability at fair prices, to issue an order (to be published in the official Gazette) regulating the price, production, movement, supply, distribution, sale, etc. of the essential commodity. Cement is, or at any rate was, one of the commodities specified in the schedule to the 1977 Act, as an essential commodity. The important point is that if the Authority was allowed to take action at any time there is a price change unacceptable to it (on the basis that such a price change can in and of itself establish a cartel), then there would essentially be no difference between the power exercised by the Authority under the Monopolies and Restrictive Trade Practices (Control and Prevention) Ordinance, 1970 and the power exercisable by the Federal Government under the Price Control and Prevention of Profiteering and Hoarding Act, 1977 to regulate prices. Indeed, in the operative part of each impugned order, the Authority has purported to fix the price of cement for each manufacturer by requiring it to reduce its price, as prevailing on the date of the order by the amount specified in the order which amount, according to the Authority, represents the “unjustified increase” in the cement price in May, 2003. This is nothing other than price fixation or regulation which is beyond the scope and limits of the Ordinance and indeed, is the very anti-thesis of that law, since the price is being fixed by the administrative fiat and not market conditions. Section 12(1)(c) in terms of which the Authority has purported to take this action, does not and cannot confer any such power on the Authority. The purported action taken by the Authority is therefore, unlawful and contrary to the provisions of the Ordinance. The Authority has also held with reference to the “unjustified increase” that “it remains incorporated in undertaking’s selling price till now notwithstanding some fluctuations during the intervening period.” To take the example of appellant, the Rs.60 per bag “unjustified increase” is regarded by the Authority as somehow remaining part of the manufacturer’s cement price from May, 2003, till October, 2005 (i.e. up to the issuance of the Impugned Order), although the Authority concedes that the cement price did undergo “some fluctuations” during this period. One can find no warrant for this extraordinary conclusion either in law or the record. There is no conceivable basis on which the Authority’s conclusion can be supported. Furthermore, the order to reduce the price by the amount specified by the Authority is itself unenforceable. Suppose that a manufacturer does comply with the Authority’s order. For how long is a manufacturer required to keep its price artificially depressed by the amount directed by the Authority? There is nothing in the impugned order that would prevent a manufacturer from reducing its price in purported compliance of the order and then raising it the next day. There is an even more fundamental defect in the order. in this regard. A direction to reduce the price by an amount fixed by the Authority is itself a negation of competition since the prices would not then be set by market conditions, but would be at a level mandated by the Authority. The Authority’s direction is therefore, on the face of it inconsistent with the concept of market competition and with the Authority’s fundamental statutory duty to protect the same. The Impugned Order is therefore, unsustainable in law on this point as well.
The capacity underutilization was also referred to as a factor which justified the Authority in concluding that a cartel existed to increase the prices in May, 2003. One aspect of this part of the Impugned Order, namely the Authority’s failure to identify and particularize who, among the cement manufacturers, were “some” of the alleged conspirators in this regard has already been dealt with. It was submitted by the companies in this regard that the Authority had characterized the capacity utilization of each cement manufacturer as “low” or “very low” in a random and haphazard manner and without any basis or proper application of mind. For example, the capacity utilization of one Company Cement was stated to be 68%, which was regarded as “low”. The capacity utilization of another company on the other hand, was 71% and this was regarded as “very low”. There is force in this submission on behalf of the appellants. There does not appear to have been any proper application of mind in the present case by the Authority. No basis is shown as to how or why some capacity utilization is characterized as low and other as very low. In addition, it is also the case that the record relied upon by the Authority in this regard itself shows great variations in capacity utilization. Annexure to the report to the special enquiry is a table showing the industry wise capacity utilization from July, 2002 to June, 2003. An examination of this Annexure indicates that the capacity utilization changed considerably from month to month and rose and fell regularly, sometimes by substantial amounts. Therefore, it cannot be concluded from the fact that capacity utilization fell in May, 2003, as compared to the previous month that there was a cartel to increase the prices as held by the Authority.
The impugned orders are not sustainable either in law or on the basis of the record and material as available before the Authority. The appeals were therefore, allowed and the impugned orders were set aside and quashed.
Mehram Ali and others v. Federation of Pakistan PLD 1998 SC 1445; Islamization of Laws PLD 1985 FSC 193; Mehreen Zaib-un-Nisa v. Land Commissioner, Multan and others PLD 1975 SC 397; Mahindra and Mahindra Ltd. v. Union of India AIR 1979 SC 798; Kiefer-Stewart Co. v. Joseph E. Seagram & Sons Inc. and others (1951) 340 US 211; United States v. New York Coffee and Sugar Exchange and others (1924) 263 US 611; Theatre Enterprises, Inc. v. Paramount Film Distributing Corporation and others (1954) 346 US 537; Matsushita Electric Industrial Co. Ltd. and others v. Zenith Radio Corporation and others 475 US 574; Brooke Group Ltd. v. Brown and Williamson Tobacco Corporation (1993) 509 US 209; Bendix Corporation and another v. Balax, Inc. and another (1972) 471 F.2d 149; Cayman Exploration Corporation v. Untied Gas Pipe Line Company (1989) 873 F.2d 1357 and Alkali and Chemical Corporation of India Ltd. v. Bayar (India) Ltd. (1984) 3 Comp. LJ 268 ref.
Munib Akhtar and Salman Akram Raja for Appellant.
Dr. Danishwar Malik, D.A.-G. and Ms. Seema Munawar, A.A.-G. for Respondent.
Date of hearing: 3rd July, 2006.
JUDGMENT
MIAN SAQIB NIASR, J.—By means of this common judgment, I intend to dispose of the connected appeals which are mentioned in the appendage attached herewith, all of which arise under section 20 of the Monopolies and Restrictive Trade Practices (Control and Prevention) Ordinance, 1970 (herein after referred to as the Ordinance). The appellants are all cement manufacturers and each is aggrieved by an order dated 27-10-2005, made against it by the Monopoly Control Authority (herein after referred to as the, Respondent or the Authority) under section 12 of the Ordinance. The orders are identical in all material respects and hence the appeals have been heard and are being disposed of together.
- Briefly stated, the Authority’s case is that in May, 2003, there was a public outcry appearing in the national press against cement price increases from the second week of May onwards. Responding to the public outcry, the respondent decided to take suo motu notice of the same under section 14 of the Ordinance, which enables the Authority to conduct, on its own motion, special enquiries into any matter relevant to the purposes of the Ordinance; information was, among others, called for from the cement manufacturers and on the basis of the facts and figures collected, the Authority concluded that there was every reason to believe that there had been a violation of section 3 read with section 6 of the Ordinance, and that it would be in the public interest to initiate appropriate action. (I will examine the various provisions of the Ordinance being referred to in detail later in this judgment). Accordingly, show-cause notices were issued to the cement manufacturers, being about 18 manufactures in all. The show-cause notices were identical in all material respects and it will be convenient to refer to only one such notice, being Show-Cause Notice No.49 of 2003-2004 issued to one of the appellants, Messrs D.G Khan Cement Company Ltd. (hereinafter referred to as D. G. Khan Cement). The notice recited the fact that a special enquiry had been conducted by the Authority in the circumstances mentioned above, and a copy of the investigation report was attached thereto. The notice stated that the Authority was prima facie of the view that there had been an agreement for the purposes of fixing the selling price of cement and limiting the quantity and means of production thereof, which constituted an unreasonably restrictive trade practice under section 6(1) of the Ordinance, and which was prohibited under section 3 thereof. The cement manufacturer was asked to show cause as to why action under section 11 read with section 12(1) of the Ordinance, should not be taken against it.
- A joint reply was submitted on behalf of 14 of the cement manufacturers, including all of the present appellants and hearings in the matter were held on 25-10-2003 and 1-11-2003. Thereafter, there was a long gap and further hearings were held on 8-8-2005 and 1-9-2005. Finally, the orders dated 27-10-2005, were issued by the Authority. For convenience, reference shall be made to the order issued against D.G. Khan Cement (hereinafter referred as the impugned order). While the impugned order, will need to be examined in detail, its findings may be briefly noted at this stage. The Authority found that the prices of cement had fallen from October, 2002 to April, 2003 and concluded that while there had been no cartel up to April, 2003, with effect from May, 2003, there was indeed a cartel, which unjustifiably increased the cement prices in a planned and systematic manner. The Authority took exception to the fact that although the Government had given substantial relief in central excise duty in the Federal Budget of 2003, the benefit thereof had not been passed on to the consumers. The Authority also concluded that the capacity utilization in May, 2003 remained low. It is therefore, concluded that there had been a cartel, i.e. an agreement among cement manufacturers, to fix the prices and under utilize the capacity, which amounted to an unreasonably restrictive trade practice in terms of section 6(1) of the Ordinance. The Authority therefore, in exercise of its powers under section 12(1)(c) ordered the manufacturer to break the cartel, desist from indulging in restrictive trade practices and cartel like behaviour in the future and to immediately reduce the price of cement being sold by it by an amount as calculated by the Authority (which, in the case of D.G. Khan Cement, was Rs.60 per bag).
- As noted above, the cement manufacturers, being aggrieved by the orders of the Authority, filed the instant appeals, under section 20 of the Ordinance. Being appeals as of right, and also matters of first impression, which are of importance and interest in the field of anti-monopoly law, the appeals were admitted to regular hearing. The respondent Authority put in appearance and filed the parawise comments in each case (which are the same in all material respects), along with supporting documents and material. Again, for convenience, reference will be made to the record of Appeal No.2 of 2006 i.e. the appeal filed by D.G. Khan Cement. I am informed that since the cement manufacturers have offices in different parts of the country, similar appeals are also pending before the Rawalpindi Bench of this Court, as well as the Sindh and Peshawar High Courts.
- The appellants were represented by Mr. Munib Akhtar and Mr. Salman Akram Raja, Advocates. Opening the appellants’ case, Mr. Munib Akhtar, submitted that the impugned order was without jurisdiction and that the Authority had acted in fundamental misconception of the relevant provisions of the Ordinance and its statutory powers thereunder; he further contended that the impugned order was based on conjecturers and surmises and was speculative in nature. According to him, there had been a complete mis and non-reading of the record. Learned counsel submitted that it was clear from the record that the concern and focus of the Authority was the increase in prices in May, 2003, and nothing else as a result of public outcry. In this connection, he made reference to the opening para. of the investigation report of the special enquiry, the opening para. and para.2 of the show-cause notice and paras.4 and 5, of the impugned order. According to the learned counsel, the jurisdiction of the Authority was concerned only with price fixation and to ensure that prices were fixed competitively. Its powers did not extend to price control or regulation, which was the domain of an altogether different law i.e. the Price Control and Prevention of Profiteering and Hoarding Act, 1977. The learned counsel contended that the Authority had acted in a manner to control or bring down the prices from what was regarded as too high a level. Thus the Authority clearly acted beyond its jurisdiction and powers.
- Elaborating his submissions, Mr. Munib Akhtar submitted that the jurisdiction of the Authority was only with reference to preventing an unreasonably restrictive trade practice, which is defined in section 2(n). As per definition, the jurisdiction of the Authority, to ensure that there was no prevention or lessening of or harm or danger to competition. Mr. Munib Akhtar further contended that section 6(1) provided that an unreasonably restrictive trade practice shall be deemed to have been resorted to or continued (as presently relevant) only if there was an agreement to fix the price. Thus the jurisdiction of the Authority was confined only to preventing price fixing agreements. As long as prices were being competitively determined, it was irrelevant for the purposes of the Ordinance and outside the scope of the Authority’s powers, whether prices were rising or falling or were high or low. Thus according to the learned counsel, inasmuch as it was obviously concerned only with reducing the cement prices, it regarded as having become too high, the Authority had fundamentally misconceived its powers and stepped beyond the scope of its jurisdiction.
- Mr. Munib Akhtar, contended that it was important to note that the Authority accepted that prior to April, 2003, there was no cartel and prices were being determined competitively. With regard to May and June, 2003, the Authority had held that there was a “planned” and “systematic” increase in cement prices, which proved the existence of a “cartel”. It was however, according to the learned counsel, accepted by the Authority that the prices did not rise to a single level or by the same amount; all that was alleged was that there had been a parallel price increase, which did establish or prove the cartel. In the context of the cartel, Mr. Munib Akhtar pointed out that the impugned order simply stated that a “good number” of cement manufacturers had formed the cartel to increase the prices without establishing the number or identity of the alleged cartel members. According to him, this was sufficient in itself to vitiate the impugned order since no agreement, as required in terms of section 6(1), could at all be spelled out in such circumstances. Mr. Munib Akhtar further contended that the Authority’s case was based on mere conjecture and surmises. Elaborating this point, the learned counsel contended that the Authority had merely looked at the rising prices and held that the prices were “planned” and “systematic” and concluded that the cartel or agreement, stood established. However, the “planned” or “systematic” increase was the very thing that the Authority has to establish, since to simply assert that there was a “plan” to increase prices in a “systematic” manner, was simply to assume the very thing that had to be proved, namely the existence of the cartel or agreement. Mr. Munib Akhtar contended that the onus lay squarely on the Authority to establish that there had been a violation of the Ordinance, and it had to establish that all the ingredients of a violation of section 6(1) existed and had been made out.
- Mr. Munib Akhtar, submitted that the only factor that the Authority had invoked and which it claimed, established the cartel, was the parallel increase in prices in May, 2003. According to the learned counsel, as a matter of law, a parallel increase in the prices in and of itself was not, and could not be regarded as being, sufficient to establish a cartel. Reliance in this regard was placed on the case law developed in the American jurisdiction in the context of the US Sherman Act of 1890, and a number of decisions were cited. Reference was also made to certain decisions from the Indian jurisdiction. It was contended that section 6(1) of the Ordinance was similar in nature and therefore, ought to be interpreted and applied in a similar manner. I will examine the submissions made in this regard, the case law referred to and the principles sought to be derived from the same, by the learned counsel in detail later on in the judgment.
- On the factual side relating to the price increase, learned counsel contended that the Authority’s allegation that the reduction in excise duty of Rs.12 per bag was not passed on to the consumers, was factually incorrect on the face, of the record. According to the learned counsel, prices did fall in the post budget period. In the case of D.G. Khan Cement, learned counsel referred to the table of prices from February, 2003 to June, 2003, as reproduced in the Authority’s own parawise comments. According to the learned counsel, the table clearly showed that in June, the price fell from Rs.215 to Rs.205 in the immediate post budget period. Mr. Munib Akhtar also contended that the Authority had relied on average monthly prices in the impugned order. It was submitted that averages are not reliable and there could be a lot of variation in the actual statistics and figures. Again referring to the price table in the Authority’s own parawise comments, it was contended that throughout the period (February-June, 2003), there was lot of fluctuation in the prices. In March, the prices rose quite sharply and yet, for this period, there is no allegation of a cartel. Even in June, the prices rose in the first few days, but then fell continuously. Thus, according to Mr. Munib Akhtar, an examination of the actual data, as opposed to the average numbers relied on by the Authority, contradicted the Authority’s contention that there had been a “planned” or “systematic” “increase” in prices. In this connection, Mr. Munib Akhtar submitted that the price levels reached in May/Juice, 2003 were in fact no different from the price levels that had previously been reached in October, 2002. Thus, in the case of D.G Khan Cement, as per the impugned order, the October, 2002 price was Rs.196 per bag, whereas, the June, 2003 price was only Rs.199. The situation was similar in the case of other cement manufacturers as well. Thus according to the learned counsel, all that happened was that prices went into a dip in the post-October, 2002 period, fell to very low figures and then rose to the previous levels. In respect of the October price levels, there was no allegation of any cartel/conspiracy, i.e. it was accepted that these prices were reached competitively through market conditions. It could not therefore, according to the learned counsel, be accepted that the May/June, 2003 price movements were a result of a cartel.
- With regard to the increase in prices in May, 2003, Mr. Munib Akhtar also submitted that a number of factors were cited by the cement manufacturers to explain the increases, which were listed in para.(ix) of the investigation report. A detailed explanation was also given in the reply to the show-cause notices as to how and why the prices had moved in the post October, 2002 period, and how, as a result of price leadership, prices rose in May, 2003. Reference was also made in this context to the huge and mounting losses of the cement industry. Yet according to the learned counsel for the appellants, all of these factors/explanations were simply ignored by the Authority. Thus on the basis of all the foregoing contentions, it was submitted that the case against the appellants is one of the complete mis and non-reading of the evidence and material.
- As regards the allegation of under utilization of capacity, Mr. Munib Akhtar contended that the allegation was only against “some” manufacturers, who allegedly did so but who were never identified or established. It was contended that the Authority was only trying to lend support to a non-existent case by referring to capacity utilization and hence no reliance could be placed on its vague and unsupported surmises and conjectures. It was also submitted that the allegations of capacity utilization being “low” or “very low” in the various impugned orders were completely self contradictory and the allegations were being leveled in a haphazard and random manner, clearly establishing that the allegations were being made mechanically and without proper application of mind.
- Coming finally to the operative part of the impugned order, Mr. Munib Akhtar submitted that the Authority’s direction to the cement manufacturers to reduce the price of cement being sold by a specified amount was in the nature of price fixation. It was contended that price fixation was beyond the jurisdiction and remit of the Authority. Learned counsel also submitted that the conclusion of the Authority that the amount of unjustified price increase as determined by it, remained incorporated in the appellant’s respective prices from May/June, 2003 to October, 2005 could not be sustained in law. It was therefore, prayed that the appeals be allowed.
- Mr. Salam Akram Raja, supported the contentions advanced by Mr. Munib Akhtar, and also cited certain American and Indian decisions to further explain and elaborate the contention that simply because prices increased in parallel could not in itself establish the existence of a cartel. Learned counsel also submitted that during the course of proceedings, before the Authority, at least one application had been made by the cement manufacturers to produce witnesses and although there was ample powers vested in this regard in the respondent under section 15 of the Ordinance, it failed to do the needful. It was contended that there had therefore been a material denial of the right of a full and fair hearing before the Authority. Learned counsel also submitted that a great deal of material and evidence had been produced along with the written reply to the show-cause notices which, it was submitted, satisfactorily explained both the increase in prices and the position with regard to the capacity utilization by the cement manufacturers over the relevant period. He referred in detail to the Annexures to the written reply. In addition, Mr. Salman Raja also urged a constitutional point that had been strongly contended before the Authority, but had been rejected by the latter in the impugned order. It was submitted by learned counsel that the constitution of the Authority and the proceedings before it were ultra vires, because it was the exercise of judicial powers by an administrative authority contrary to the principles established by the Supreme Court in the case reported as Mehram Ali and others v. Federation of Pakistan (PLD 1998 SC 1445). It was contended that judicial power could only be exercised by and before a judicial forum duly appointed in the manner envisaged by the Supreme Court. It was submitted that the proceedings before the Authority were not in the nature of determining or implementing policy, but rather of a judicial nature, since the Authority was required to gather evidence in respect of the matters being examined by it and then decide the same by applying the relevant applicable legal provisions. The Authority in other words, had to adjudicate upon whether there had been a violation of the relevant provisions of the Ordinance and if it found that the law had been flouted, it also had the power to impose a penalty. It was submitted that the proceedings both as to form as well as substance were judicial in nature and hence such a power could not be exercised by an administrative authority.
- Before proceeding further, it will be convenient to dispose of the constitutional point raised by Mr. Salman Raja. During the course of his submissions, it was queried whether such a point, i.e. a challenge to the vires of the Ordinance, could at all be raised in an appeal under the same or whether separate proceedings in the nature of a writ petition ought to be filed. Mr. Salman Raja, was prepared to make submission on the query. It was however, pointed out on behalf of the Authority, and accepted by Mr. Raja that one of the appellants (DG Khan Cement) had earlier filed a writ petition (being W.P. No. 2521 of 2005), in this court, in which essentially the same points had been canvassed. This petition was dismissed in limine by an order dated 13-9-2005. Mr. Salman Raja submitted that an appeal had been tiled in the Honourable Supreme Court of Pakistan, against the dismissal of the writ petition. Since this court, has already dealt with the issue and the matter is now pending before the apex Court, it is in the fitness of things that nothing further be said on the issue in these appeals. Mr. Salman Raja however, wished to reserve his right to take up the issue should there be further proceedings emanating from the present appeals, and his right to do so is reserved accordingly.
- The respondent/Authority was represented by Dr. Daneshwar Malik, the learned Deputy Attorney General. He submitted that while the American and Indian decisions cited on behalf of the appellants were perhaps of some academic interest and value, the matter had to be decided within the four corners of the Ordinance itself and the provisions therein contained. The learned D.A.-G. referred to the preamble of the Ordinance to show the scope and purpose of enacting the Ordinance. He also referred in this connection to In re: Islamization of Laws PLD 1985 FSC 193 where, at page 219, the Federal Shariat Court considered the provisions of the Ordinance on the touchstone of the Injunctions of Islam. The Federal Shariat Court concluded that the Ordinance advanced the purposes and objectives of Shariah. The learned D.A.-G. referred to the various provisions of the Ordinance, including in particular sections 3 and 6. He emphasized that the Ordinance required an elaborate procedure to be followed before an order under section 12 could be made and in the present case, all the requirements and formalities had been duly complied with. There had thus been no denial of a proper opportunity of hearing or any other defect in the proceedings. Reference was made to section 2 and the various definitions therein contained, in particular the definition of the term agreement. It was submitted that this term was defined in broad terms and thus any understanding or arrangement would be regarded as an agreement under the Ordinance. In this context, the learned D.A.-G. also referred to certain law dictionaries with regard to the definitions of the various terms used in the Ordinance. It was next submitted that section 3 laid down the general rule that an unreasonably restrictive trade practice was prohibited. With reference to section 6, it was submitted that the appellants had only referred to subsection (1) thereof, whereas the section had to be read in totality. In particular, reference had to be made also to subsection (2) thereof.
- Elaborating his submissions, the learned D.A.-G. contended that in terms of subsection (1) of section 6, it was not only merely a price increase, but other factors also which could result in an unreasonably restrictive trade practice being deemed to exist. He submitted that subsection (1) raised a rebuttal presumption with regard to the various situations provided for in its different clauses and once such a presumption was raised, the onus lay on the other side to show whether their case came within the ambit of subsection (2). It was only if this onus was discharged that the agreement could be regarded as not being deemed to be an unreasonably restrictive trade practice. It was contended that all that the Authority had to do was to make out a prima facie case, and if it did so, then the matter came within the scope of, subsection (1) raising the rebuttal presumption referred to earlier. The learned D.A.-G. submitted that the Authority had been able to make out a case in terms of subsection (1) and there were a number of factors on the basis of which an agreement under subsection (1) could be and had been, properly inferred. It was therefore, for the appellants to satisfy the authority and the Court in the present appeals, that their case came within the provisions of subsection (2). Thus it was contended that they had failed to do, and hence the Authority had rightly concluded that there was a cartel, which had raised the prices in violation of the law.
- As regards the factual aspect of the matter, it was submitted by the learned D.A.-G. that there were different factors, which entitled the Authority to infer that there was a violation of subsection (1) and on the basis of which, it was entitled to infer that an agreement or cartel existed. Firstly, there had been a great public outcry at the increase in prices in May, 2003 especially in the national press. Secondly, the Authority had received a number of complaints from different persons with regard to the increase in the price and also from other concerned quarters such as builders, etc. Thirdly, there was the circumstance of the fall in capacity utilization. It was submitted that the increase in prices was all admitted position. The learned D.A.-G. submitted that any or all of these factors were such as were sufficient to establish the existence of the cartel. These matters could not be ignored by the Authority and it had to act to rectify the situation and alleviate the plight of the people. It did so, and the onus then shifted on the cement manufacturers to justify their actions under subsection (2) of section 6. They failed to do so, and the Authority was justified in making the orders against them. It was accordingly prayed that the appeals be dismissed.
- In reply to the submissions made by the learned D.A.-G., the learned counsel for the appellants submitted that the interpretation being given to section 6 was, incorrect. In particular, it was submitted that subsection (2) was a concept well known to this branch of the law, namely that of “gateways”. I will examine this aspect of the submissions in detail later on in this judgment. In addition, learned counsel also took issue with the other submissions made by the learned D.A.-G.
- It will be convenient at this stage to gather at one place the various provisions of Ordinance, which were referred to by learned counsel for the parties and which are necessary to consider in order to properly understand and determine the issues that have been raised. The following provisions of the Ordinance, insofar as is presently relevant, need to be examined:–
- Definitions.—(1) In this Ordinance, unless there is anything repugnant in the subject or context:-
(a) “agreement” includes any arrangement or understanding whether or not in writing and whether or not it is or is intended to be legally enforceable;
(k) “trade” means any business, industry, profession or occupation relating to the production, supply or distribution of goods, or the control of production, supply or distribution of goods, or to the provision or control of any service;
(1) “trade practice” means any act or practice relating to the carrying on of any trade or business;
(n) “unreasonably restrictive trade practice” means a trade practice which has or may have the effect of unreasonably preventing, restraining or otherwise lessening competition in any manner;
- Undue concentration of economic power, etc, prohibited.—There shall be no undue concentration of economic power, unreasonable monopoly power or unreasonably restrictive trade practices. ‘
- Unreasonably restrictive trade practices:-
(1) Unreasonably restrictive trade practices shall be deemed to have been resorted to or continued if there is any agreement:-
(a) between actual or potential competitors for the purpose or having the effect of:-
(i) fixing the purchase or selling prices or imposing any other restrictive trading conditions with regard to the sale or distribution of any goods or the provision of any service;
(ii) dividing or sharing of markets for any goods or services;
(iii) limiting the quantity or the means of production, distribution or sale with regard to any goods or the manner or means of providing any service;….
(2) No such agreement as is referred to in subsection (1) shall be deemed to constitute an unreasonably restrictive trade practice if it is shown:-
(a) that it contributes substantially to the efficiency of the production or distribution of goods or of the provision of services or to the promotion of technical progress or export of goods;
(b) that such efficiency or promotion could not reasonably have been achieved by means less restrictive of competition; and
(c) that the benefits from such efficiency or promotion clearly outweigh the adverse effect of the absence or lessening of competition.
- Proceedings in case of contravention of section 3.—(1) Where the Authority is satisfied that there has been or is likely to be a contravention of the provisions of section 3 and that action is necessary in the public interest, it may make one or more of such orders specified in section 12 as it may deem appropriate.
(2) Before making an order under subsection (1), the Authority shall:-
(a) give notice of its intention to make such order stating the reasons therefor, to such persons or undertakings as may appear to it to be concerned in the contravention to show cause on or before a date specified therein as to why such order shall not be made; and
(b) give the persons or undertakings an opportunity of being heard and of placing before it facts and material in support of their contention.
(3) An order under subsection (1) shall have effect notwithstanding anything contained in any other law for the time being in force or in any contract or memorandum or articles of association.
- Orders of the Authority.—(1) An order of the Authority under section 11 may:-
(c) in the case of unreasonably restrictive trade practices:
(i) require the person or undertaking concerned to discontinue or not to repeat any restrictive trade practice and to terminate or modify any agreement relating-thereto in such manner as may be specified in the order;
(ii) require the person or undertaking concerned to take such action specified in the order, as may be necessary to restore competition in the production, distribution or sale of any goods or provision of any service.
Explanation.—In the case of unreasonably restrictive trade practices, where any party to any such practices does not carry on business in Pakistan, the order of the Authority shall be with respect to that part of such practices as it carries on in Pakistan.
- Special enquiry.—(I) The Authority may, on its own, and shall upon reference made to it by the Federal Government, conduct special enquires into any matter relevant to the purposes of this Ordinance.
(2) Where the Authority receives from not less than twenty five persons a complaint in writing of such facts as constitute a contravention of the provisions of section 3, it shall, unless it is of opinion that the application is frivolous or vexatious or based on insufficient facts, conduct a special enquiry into the matter to which the complaint relates.
(3) If upon the conclusion of a special inquiry under subsection (1) or subsection (2), the Authority is of opinion that the findings are such that it is necessary in the public interest so to do, it shall initiate proceedings under section 11.
- Appeal to the High Court.—Any person aggrieved by an order of the Authority under section 11 or section 19 may within sixty days of the receipt of such order, appeal against it to the High Court, on any of the following grounds, namely:-
(a) that the order is contrary to law or to some usage having the force of law;
(b) that the order has failed to determine some material issue of law or usage having the force of law;
(c) that there has been a substantial error or defect in following the procedure provided in this Ordinance, which may possibly have produced error or defect in the order upon the merits.
- The present appeals have been filed under section 20 of the Ordinance. An examination of this section, indicates that it is based on and indeed is identical to section 100, C.P.C., which provides for second appeals, against decrees of Civil Courts. As is well known, the second appeal under section 100 lies only on questions of law. The scope and extent of scope of section 100 and the sort of questions and issues which are regarded as questions of law for purposes of that section are well settled by numerous decisions of the Supreme Court ‘and the High Courts. In my view, it is clear from the close identity between section 20 of the Ordinance and section 100, C.P.C. that an appeal against an order of the Authority also lies only on questions of law. Furthermore, the sort of questions and issues which should be regarded as questions of law under section 20 of the Ordinance are essentially the same on which a second appeal can be taken under section 100, C.P.C. The principles established for the proper application and interpretation of section 100 can therefore, be adopted and applied for purposes of section 20 of the Ordinance as well.
- As noted by the learned D.A.-G., section 3 is one of the most important provisions of the Ordinance. It prohibits and renders unlawful, 13 any undue concentration of economic power, or unreasonable monopoly power, or unreasonably restrictive trade practices. Each of these is a distinct category of undesirable situation and proscribed circumstances’ and each is separately defined and dealt with in the Ordinance. Since the present appeals are confined to unreasonably restrictive trade practices, nothing more need be said in this judgment with regard to the other two categories prohibited by section 3. Section 10 of the Ordinance, lays down the functions of the Authority, and clause (f) of this section empowers the Authority “to make such orders and to do all such things as are necessary for carrying out the purposes of this Ordinance”. Thus the Authority has a general statutory duty to ensure that there is no violation of section 3 by any person or persons, and it has been empowered accordingly.
- An unreasonably restrictive trade practice is defined in section 2(m), but in order to properly appreciate this definition, it is necessary also to examine the concepts of trade and trade practice, both of which are also defined terms. Trade is defined in broad terms, and it is not in dispute that the cement industry is a trade within the meaning of section 2(k). Section 2 (1) defines a trade practice. Though exhaustive, the definition brings within its ambit both an act (i.e. a single or isolated instance or event), and also a practice (i.e. a trade custom or usage or acts or events or series of acts or events undertaken with some degree of regularity, continuity or repetition) in relation to the carrying on of a trade or business. If the definition (section 2(n) of an’ unreasonably restrictive trade practice is now examined, it will be found to comprise of two main components: (a) there must be a trade practice, and (b) such trade practice must or must have the effect of unreasonably preventing, restraining or otherwise lessening competition in any manner. Obviously, both components must exist for a finding of an unreasonably restrictive trade practice to be recorded. Looking at the second component of the definition, it is clear that this itself has two requirements: (i) the trade practice must prevent, restrain or lessen competition, and (ii) it must have this effect in any unreasonable manner or to an unreasonable degree. The term competition is not as such defined in the Ordinance and it is not necessary for me to exhaustively examine this concept in the context of monopoly law (or anti-trust law as it is known as in American jurisprudence). It is sufficient to note for present purposes that competition means and requires the free interplay between the suppliers and consumers of goods in a market environment. The actions and decisions of the buyers and sellers (such as the price demanded for the commodity by the suppliers or accepted by the consumers, the quantity to be supplied or consumed, etc.) must be set purely by market forces and conditions. The market itself may of course, be subject to regulation by the State. For example, a retail market where foodstuff and other perishable items are sold may be subject to local regulations as to timings, hygiene requirements, specifications as to weights and measures to be used, etc. The requirement of competition under the Ordinance focuses on the actions and decisions of those who act in, or in relation to, the market as the suppliers and consumers of goods. These actions and decisions must be solely controlled by the market forces and conditions as prevailing from time to time. It is also important to keep in mind in this context that the requirement as to competition is not limited to the immediate or actual market participants. To revert to the example just given, the suppliers would include not just the shopkeepers in the retail trade, but also their wholesale suppliers and the persons from whom the wholesellers acquire the goods, etc.
- Ordinarily, if the Authority is of the view that there has been or is likely to be a breach of section 3, it must establish that there exists, or will exist, an unreasonably restrictive trade practice. Put differently, the Authority must establish that all of the various ingredients of an unreasonably restrictive trade practice as discussed above have been made out. Section 6(1) however, contains a deeming provision with regard to unreasonably restrictive trade practice. Once it is shown that a situation as contemplated by that subsection has arisen, the law deems that an unreasonably restrictive trade practice exists, i.e. has been resorted to or is being continued. The existence of a subsection (1) situation is in and of itself a contravention and violation of section 3 by virtue of the deeming provision. The principles applicable to the interpretation of deeming provisions are well known and reference may be made to Mehreen Zaib-un-Nisa v. Land Commissioner, Multan and others (PLD 1975 SC 397 at 433-34). Once a deeming provision is attracted, the Court must not let its mind boggle at the consequences that may flow from or be ancillary to such deeming and is required to recognize and give effect to the same. However, the Court is entitled to ascertain the purpose and scope of the deeming provision, i.e. as to how and between whom is the deeming provisions attractive or made applicable. Finally for the deeming provisions to be applicable, all the conditions laid down in the relevant provisions must be fulfilled before it can be regarded as having taken effect.
- Since section 6 is central to the present appeals, it is necessary to examine its provisions in some detail. Subsection (1) contains three clauses, the first two of which also contain certain sub-clauses. Although, the present appeals are concerned solely with sub-clauses (i) and (ii) of clause (a), the principles that I am about to discuss apply generally to all the clauses of subsection (1). The first requirement for the deeming provision to become applicable is that there must be an agreement. This is the most basic requirement, and without there being an agreement, section 6(1) can have no application at all. In the first instance, therefore, the agreement must be established. Indeed, if it is asserted that subsection (1) applies to any situation, what is being asserted is nothing more than that there exists an agreement of the sort referred to in that subsection. The requirement as to the existence of any agreement, is therefore, central to a proper appreciation and correct application of section 6.
- In my view, three primary questions arise in relation to an agreement under section 6(1): (a) what is the nature of the agreement; (b) among whom must the agreement subsist or exist and (c) how is the agreement to be established?. As to the first question, the answer is contained in the definition given in section 2(a) of the Ordinance. As is immediately apparent, the law has defined the expression in very broad terms. The definition is inclusive and not exhaustive. It includes any arrangement or understanding. It does not need to he in writing and it does not even have to, or be intended to, be legally enforceable. Thus the meaning of agreement in the Ordinance goes far beyond (although it certainly includes) that which is contained in the Contract Act, 1872. While there must necessarily be a meeting of minds for there to be an agreement at all, it can be of the most informal or casual nature for purposes of section 2(a).
- As to the second question noted above i.e. among whom must the agreement subsist or exist, the answer is contained in subsection (1) itself. Clause (a) relates to a certain group of persons, namely “actual or potential competitors”. Clauses (b) and (c) apply to certain types of groups or persons in specified situations or relationship. Clause (b) applies to “a supplier and a dealer of goods” where the agreement is being entered into for purposes of fixing minimum resale prices. Clause (c) applied to agreements between ‘”suppliers or buyers” where the agreement is being subjected to the additional conditions of the sort specified in that clause.
- The third question is as to how is the agreement to be established, and as will become clear shortly, it is the most contentious issue for purposes of the present appeals. Obviously, such an agreement can be established by direct evidence. However, it is in the very nature of things that agreements of the sort covered by section 6(1) are born in darkness and remain shrouded in secrecy. Direct evidence of such agreements would invariably be rare. In my view, given the definition of agreement in section 2(a) and the purpose and scope of the Ordinance, especially the prohibition of unreasonable restrictive trade practice, an agreement in terms of section 6(1) can be established indirectly, i.e. through circumstantial evidence. More particularly, it can be inferred from the facts and circumstances of the particular situation that it is being examined. I may note that this point was not seriously disputed by the learned counsel for the appellants. There is, needless to say, no direct evidence of any agreement in the present case, and it was common ground between the parties that if at all any such agreement existed (which was of course, asserted by the Authority and denied by the appellants), it could only be inferred from circumstantial evidence. The crucial question therefore, is as to what were, in the facts and circumstances of the present case, the permissible inferences that could be drawn from the record, and did those inferences establish, in law and in fact an agreement of the nature covered by subsection (1). This is the exercise that would invariably have to be carried out, whenever there is an assertion that there exists an agreement of the nature covered by section 6(1).
- The policy reasons behind deeming agreements of the nature covered by subsection (1) of section 6 to be unreasonably restrictive trade practices are clear. These agreements invariably have such a deleterious and harmful effect on competition that the mere existence of such an agreement is sufficient to condemn it. The most obvious example, which in fact is the very situation with which the present appeals are concerned, is a price fixing agreement between actual or potential competitors. Such an agreement, if found to exist, is the very anti-thesis of competition, and indeed its very purpose is to negate competition. By deeming such agreements to be unreasonably restrictive trade practices, the law obviates the need for an enquiry or finding into whether the particular agreement in question “has or may have the effect of unreasonably preventing, restraining or otherwise lessening competition in any manner.” Those who enter into such agreements do so at their own peril: the law will deem that they have acted in an unlawful manlier. The law however, also recognizes that while this broad approach of condemning such agreements out of hand is generally desirable, there may yet exist some agreements, which require a different response. It is in this connection that, according to learned counsel for the appellants, the provisions of subsection (2) of section 6 have been enacted, and it is this point, which now needs consideration.
- On a bare reading, subsection (2) appears to be essentially in the nature of an exception to subsection (1). It provides that if the clauses specified therein are fulfilled in relation to an agreement to which subsection (1) applies, then that agreement shall not be deemed to be an unreasonably restrictive trade practice. It is important to note that the three clauses of subsection (2) are cumulative, i.e. all must be shown to exist before this subsection can take effect. The learned D.A.-G. submitted that the proper interpretation of the two subsections was that all that was required was for the Authority to be satisfied that there was a prima facie case made out in terms of subsection (1). Such satisfaction raised a rebuttable presumption that the deeming provisions of sub-section (1) had become applicable. It was then for the other side to rebut the presumption by establishing that the provisions of subsection (2) were applicable. In my view, this is not a correct interpretation of the two subsections. It is clear from the opening words of subsection (2) that it applies only to an “agreement as is referred to in subsection (1)”. If no such agreement exists, then subsection (2) can obviously have no application at all. Subsection (1) itself does not state that an agreement must exist to the Authority’s satisfaction or use some such subjective language. It simply deems an unreasonably restrictive trade practice to have been resorted to or continued, if an agreement of the nature covered by the subsection (1) is found to exist. The test must therefore be objective, i.e. the agreement must be found to exist on an objective assessment of all the facts and circumstances. If no agreement can be found, either as a matter of law or on the facts on the basis of such an objective assessment, the matter ends and there is no need to take recourse to subsection (2).
- The proper interpretation of section 6, therefore, is that it contains a two stages process. In the first instance, an agreement must be established in terms of subsection (1). Such an agreement may be admitted or found (objectively) to exist in the facts and circumstances of the particular situation being examined. If an agreement is so found to exist, the deeming provisions of subsection (1) become applicable. If this stage is crossed, only then would the matter move to the second stage, namely that of determining whether the conditions of subsection (2) are made out. If the conditions of the latter subsection (2) are found to be attractive (i.e. all of its clauses held to apply,) then the deeming provisions of subsection (1) would be negated.
- It appears that the provisions similar to subsection (2) of section 6 are well established in this stanch of the law, and were known as ` gateways’. These provisions reflect the policy of the law noted above, namely that while agreements of the sort hit by the deeming provisions of subsection (1) were generally to be condemned as being unreasonably restrictive trade practices, in certain situations, such agreements had to be allowed to stand. In effect, the disadvantages or harmful effects of such an agreement are outweighed by the benefits obtained by letting it stand. One example will suffice to illustrate the point. Suppose the Pakistani exporters of a particular commodity enter into a price fixing agreement e.g. agree not to sell their product abroad at less than the price agreed upon. Obviously, such an agreement is precisely that sort of arrangement to which subsection (1)(a)(i) applies, namely an agreement between actual or potential competitors to fix the selling price of goods. Such an agreement would therefore, ordinarily be deemed to be an unreasonably restrictive trade practice and stand condemned accordingly. However, recourse may be possible in such a situation to subsection (2). In the example, being considered, the clauses would apply if following conditions are found to exist: (a) the agreement promotes the export of goods from Pakistan; (b) such promotion could not have been achieved by means less restrictive of competition i.e. without the agreement; and (c) the benefits of such an agreement (i.e. the promotion of exports) clearly outweigh the adverse impact on competition (i.e. that the selling prices being charged by the exporters are not being set by market conditions). If these conditions are fulfilled, then the agreement will not be deemed to be an unreasonably restrictive trade practice i.e. will be allowed to stand and continue.
- With reference to the concept of “gateway”, learned counsel for the appellants relied on a decision of the Supreme Court of India reported as Mahindra and Mahindra Ltd. v. Union of India (AIR 1979 SC 798). The Supreme Court there examined the various provisions of the Indian Monopolies and Restrictive Trade Practices Act, 1969 (hereinafter referred to as the Indian Act). The Authority under the Indian Act is known as the Monopolies and Restrictive Trade Practices Commission (hereinafter after referred to as the Indian Commission). Section 37 of the Indian Act enables the Indian Commission to inquire into any restrictive trade practice and if the Indian Commission is of the opinion that such practice is prejudicial to the public interest, then the Indian Commission is empowered to pass orders similar in nature to those that can be made by the Authority under section 12 of the Ordinance. With regard to section 38 of the Indian Act, the Supreme Court of India observed at pg. 807:–
“Section 38, subsection (1) enacts that for the purposes of any proceedings before the Indian Commission under section 37, a restrictive trade practice shall be deemed to be prejudicial to the public interest unless the Indian Commission is satisfied of any one or more of the circumstances set out in that subsection and is further satisfied after balancing. the competing considerations, that the restriction is not unreasonable. These circumstances specified in subsection (1) of section 38 render a trade practice permissible even though it is restrictive and provide what have been picturesquely described in English law as “gateways” out of the prohibition of restrictive trade practices.”
- The matter before the Indian Supreme Court was an appeal against an order made by the Indian Commission that a restrictive trade practice existed. With regard to the impugned order, the Supreme Court held (at para.24, pp.822-823):–
“There is also another infirmity in validating the Order dated 14th May, 1976. We have already pointed out and that is clear from the decision of the Court in the Telco case that in an inquiry under section 37 the Indian Commission has first to be satisfied that the trade practice complained of in the application is a restrictive trade practice within the meaning of the expression as defined in section 2(o) and it is only after the Indian Commission is so satisfied, that it can proceed to consider whether any of the gateways provided in section 38(I) exists so that the trade practice, though found restrictive, is deemed not to be prejudicial to the public interest and if no such “gateways’ are established, then only it can proceed to make an order directing that the trade practice complained of shall be discontinued or shall not be repeated. There are thus two conditions precedent, which must be satisfied before a cease and desist order can be made by the Commission in regard to any trade practice complained of before it, One is that the Commission must find that the trade practice complained of is a restrictive trade practice and the other is that where such finding is reached, the Indian Commission must further be satisfied that, none of the gateways pleaded in answer to the complaint exists. Here in the present case the appellant did not appear at the hearing of the inquiry and no `gateways’ were pleaded by it in the manner provided in the Regulations and hence the question of the Commission arriving at a satisfaction in regard to the `gateways’ did not arise. But the Indian Commission was certainly required to be satisfied that the trade practices complained of by the Registrar were restrictive trade practice before it could validly make a cease and desist order.”
(emphasis added).
- In my view, under the Ordinance, as in the Indian Act, the onus lies on the Authority to establish that an agreement of the nature specified in section 6(1) exists in order to attract the deeming provisions thereof. This assessment must be made on an objective basis since the Ordinance, unlike the Indian Act, does not use subjective language that the Authority must be so satisfied (or any such similar words). This position is also clear from general principles, since it is the Authority that is asserting the positive (i.e. that an agreement exists), whereas the persons alleged to have entered into such an agreement are asserting the negative (that such an agreement does not exist). Clearly the burden of establishing that an agreement exists, must lie on the party making the positive assertion. Furthermore, the agreement, if it exists, would be an unlawful act, being violative of section 3, and the offending persons would be liable to penalties under section 19 of the Ordinance. The burden of discharging the onus of subsection (1) of section 6 must therefore lie squarely on the Authority. Once this burden is discharged, and an agreement is found to exist, then if at all a subsection (2) defence or justification is pleaded, the onus lies on those who entered into the agreement to establish that the ingredients of the `gateway’ have been made out. The position under the Ordinance is therefore unlike that in the Indian Act, where the onus lies on the Indian Commission in both instances. Under our law, the onus shifts from one side to the other, starting in the first instance (i.e. subsection (1) by being on the Authority and then moving on to the opposite parties, if a `gateway’ (i.e. subsection (2)) defence is pleaded.
- In the present case, the appellants have not pleaded any subsection (2) defence. It is therefore, not their case that the provisions of the “gateway” are attracted. Rather, the appellants contend, as noted above, that no agreement at all as specified in subsection (1) is made out and hence there is nothing that can be deemed to be an unreasonably restrictive trade practice. The matter must therefore, be examined and determined with reference to section 6(1) and the onus of establishing an agreement in terms thereof lies on the Authority.
- According to learned counsel for the appellants, the key finding in the impugned order is contained in the following passage which appears in para.6 thereof:
“There was ostensibly no cartel till April, 2003, but thereafter w.e.f. May, 2003 by mutual understanding between good numbers of cement manufacturers to unjustifiably increase the prices, the planned increase took place. It is not essential that price should rise by exactly same amount on same day to prove existence of a cartel. A substantial price increase in systematic manner in a given period of time by a good number of units in a particular field does prove cartel or unity for the purpose. If reverse is held to the case, the purpose of anti cartels laws can very conveniently be defeated by cartel participants by deliberately keeping some margins/differences in the increase or prices and periods thereof. This can’t be permitted. All laws are to be interpreted in a manner so as to help furtherance of their objectives.”
- Learned counsel for the appellants submitted that the only material on which the alleged cartel was based was the increase in prices and nothing more. There was nothing to show that the price increase was systematic or planned. Learned counsel submitted that this was in fact the very thing, which had to be established, since a systematic or planned increase could come about only if there was an agreement, which was denied. Furthermore, neither the number nor the identity of the alleged conspirators was established. All that the Authority alleged was that a “good number” (and not all) of cement manufacturers had colluded. There was no specific allegation against any cement manufacturers that it had colluded with any other. It was submitted that no agreement could at all be made on such a basis.
- The learned D.A.-G. on the other hand, contended that the Authority was justified and entitled in coming to the conclusion that there existed a cartel or agreement on the basis of the price increases. The position of the Authority, therefore, was that the agreement (or cartel as it is referred to in the impugned order) could be established indirectly and inferred from the facts and circumstances of the case, the most important of which was that in May, 2003, there was admittedly a parallel increase in prices charged by the cement manufacturers.
- In essence, the point in issue between the parties can be stated as follows: the Authority contends, and the appellants deny, that a parallel increase in prices over a given period is in and of itself sufficient material from which an agreement or cartel can legitimately be indirectly inferred. It is pertinent to note that, as is clear from the passage from the impugned order reproduced above, the Authority does not contend that the prices rose by the same amount or to the same level. The prices of the various cement manufacturers were at different levels and remained so, rising by different amounts and on different dates. Thus, there was a parallel increase in prices, i.e. there was a general upward movement over the same period of time. The question is whether ‘it was permissible, both as a matter of law as well as in fact for the Authority to infer from the parallel price increase that there existed an agreement or cartel to which section 6(1) applied.
- In order to support their case that as a matter of law no agreement could at all be inferred, learned counsel for the appellants rely heavily on American case law as developed in the context of the US Sherman Act of 1890. Section 1 of this Act, in material part, states as follows: “Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several states, or with foreign nations, is declared to be illegal.” According to the learned counsel, the US Supreme Court developed two rules to test agreements on the touchstone of the Sherman Act, one known as the per se rule and the other as the rule of reason. Agreements that came within the ambit of the per se rule were ipso facto illegal, i.e. the mere existence of such an agreement condemned it as being violative of the Sherman Act. Agreements that fell within the rule of reason were examined to determine whether, in the facts and circumstances of the particular case, it could be reasonably inferred that the agreement in question was in restraint of trade. If so, then (but only then) the agreement was unlawful.
- Under American case law, price fixing agreements fall squarely within the ambit of the per se rule. Reference in this contest was made to a decision of the US Supreme Court reported as Kiefer-Stewart Co. v Joseph E. Seagram & Sons. Inc. and others (1951) 340 US 211), where at p. 213, the Supreme Court observed:–
“We reaffirm what we said in United States. v. Socony-Vacuum Oil Co. 310 US 150, 223: “Under the Sherman Act, a combination formed for the purpose and with the effect of raising, depressing, fixing, pegging or stabilizing the price of a commodity in interstate or foreign commerce is illegal per se.”
- In my judgment, the deeming provisions of section 6(1) of the Ordinance correspond to the per se rule developed by the American Courts, i.e. there are certain categories of agreements the very existence of which is violative of law, being section 3 in the case of the Ordinance, and section 1 in the case of the Sherman Act. The price fixing agreements condemned out of hand under section 6(1)(a)(i) under the deeming provisions of the Ordinance correspond closely to the price fixing agreements declared to be per se illegal under the Sherman Act. It is important to keep in mind that any price fixing is unlawful both under the Ordinance and in terms of the per se rule. It is entirely irrelevant whether the prices are rising, falling, remaining steady, high, low or at any level in between. If they are being fixed (and the amount by which the fixation takes place is likewise irrelevant) in any manner by agreement between actual or potential competitors, they are unlawful. It follows that in my view, and notwithstanding the submissions in this regard made by the learned D.A.-G. American case law can be usefully examined to determine the crucial question at hand, namely whether a parallel increase in prices is in and of itself sufficient to establish an agreement that is violative of law. Before proceeding further, it may be noted that in American jurisprudence, price fixing agreements are divided into different types, such as horizontal price fixing, vertical price fixing, predatory pricing etc. Horizontal price fixing is a price fixing agreement or cartel between actual or potential competitors. Vertical price fixing in a price fixing agreement between producers and wholesalers or distributors, or between producers and retailers, or between wholesalers or distributors and retailers. Predatory pricing is a price fixing agreement between competitors designed to eliminate other competitors from the market. As is obvious, the sort of agreement or cartel with which the present appeals are concerned would be regarded as horizontal price fixing.
- The first case that needs to be considered is United States v. New York Coffee and Sugar Exchange and others (1924) 263 US 611. In that case, sugar futures were traded on the defendant exchange and the prices so established determined the prices of sugar in the open market.
It was alleged that there was, over the relevant period, a violent rise in the prices on the exchange without any economic justification or explanation whatsoever. As a result, the prices of sugar in the open market also rose sharply. The US Government contended that the exchange and its members had colluded (i.e. entered into a price fixing arrangement) to drive up prices on the exchange (and thus in the open market) in violation of the Sherman Act. This contention was repelled by the US Supreme Court, and it was held as follows at page 620:–
“There is not the slightest evidence adduced to show that the two corporate defendants, or any of their officers or members, entered into a combination or conspiracy to raise the prices of sugar. The circumstances upon which the government placed its case were a violent rise in the price of sugar without any economic justification or explanation, lasting two months or more… The defendants suggest that this was due to a popular misconstruction of the regular monthly report of the Department of Commerce….Whether these circumstances were sufficient to explain in full the violent rise in the price of sugar, we need not discuss. The government case fails because there is no evidence to establish that the defendants produced, or attempted to produce, the disturbance of the market.”
- Part of the Authority’s case, as made out in the impugned order is that there was no valid justification for the price increases of May, 2003, and that in fact the overall cost of production prior to that date had been falling. Learned counsel for the appellants contend on the basis of the foregoing decision that even if no justification is forthcoming, a price increase in itself cannot establish a cartel or conspiracy in terms of section 6 of the Ordinance.
- The next case to be considered, Theatre Enterprises, Inc. v. Paramount Film Distributing Corporation and others (1954) 346 US 537 is one of the leading decisions of the US Supreme Court in this area of anti-trust law. Learned counsel for the appellants contend that the Supreme Court established the basic principle as follows (at pp.540-541):–
“The crucial question is whether respondents’ conduct towards petitioner stemmed from independent decision or from an agreement, tacit or express. To be sure, business behaviour is admissible circumstantial evidence from which the fact finder may infer agreement…. But this Court has never held that proof of parallel business behaviour conclusively establishes agreement or, phrased differently, that such behaviour itself constitutes a Sherman Act offense. Circumstantial evidence of consciously parallel behaviour may have made heavy inroads into the traditional judicial attitude towards conspiracy; but “conscious parallelism” has not yet read conspiracy out of the Sherman Act entirely.”
- The US Supreme Court thus established a broad principle of “conscious parallelism” i.e., of any business behaviour of actual or potential competitors that occurs in parallel. A parallel increase in prices is but one example of such “conscious parallelism”. It appears that the US Supreme Court was of the view that although an agreement violative of the Sherman Act could certainly be indirectly inferred from circumstantial evidence, parallel behaviour in and of itself was insufficient to conclude that a violation of the law had occurred. It is interesting to note that respondents before the Supreme Court had apparently be found guilty of illegal conduct violative of the Sherman Act in any earlier case and the previous conduct of the respondent was sought to be relied on by the appellant. However, the Supreme Court held that such previous conduct could not be adduced in evidence to establish a violation of the law in the case before the Court.
- The next case is a 1986 decision of the US Supreme Court reported as Matsushita Electric Industrial Co. Ltd. and others v. Zenith Radio Corporation and others 475 US 574. This was a case of predatory pricing. The grievance was that Japanese television manufacturers had entered into a price fixing agreement to ensure that prices in the US market were so low that American producers of televisions were driven out of the market. This was, therefore, a case of price parallelism, but one where prices were being driven down, rather .than up. The Court observed at pg 588:–
“…antitrust law limits the range of permissible inferences from ambiguous evidence in a & 1 case. Thus in Monsanto Co. v. Spray-Rite Service Corp.465 US 752….we held that conduct as consistent with permissible competition as with illegal conspiracy does not, standing alone, support an inference of antitrust conspiracy….To survive a motion for summary judgment or for a directed verdict, a plaintiff seeking damages for a violation of a & 1 must present evidence “that tends to exclude the possibility” that the alleged conspirators acted independently. 465 US at 764…Respondents in this case, in other words, must show that the inference of conspiracy is reasonable in light of the competing inferences of independent action or collusive action that could not have harmed respondents.”
The Court also observed at pg.593 that “In Mosanto, we emphasized that Courts should not permit fact finders to infer conspiracies when such inferences are implausible, because the effect of such practices is often to deter pro-competitive conduct.” The Court held that the evidence produced was insufficient to make out any case for collusion.
- The last decision of the US Supreme Court relied upon by the learned counsel for the appellants was Brooke Group Ltd. v. Brown & Williamson Tobacco Corporation (1993) 509 US 209. The Court explained the concept of conscious parallelism in the following terms (at pg. 227):–
“Tacit collusion, sometimes called oligopolistic price coordination or conscious parallelism, describes the process, not in itself unlawful, by which firms in a concentrated market might in effect share monopoly power, setting their prices at a profit maximizing, supra competitive level by recognizing their shared economic interests and their interdependence with respect to price and output decisions.”
The Supreme Court held that evidence presented was insufficient, as a matter of law, to sustain a claim of collusion. Learned counsel for the appellants also relied on certain decisions of the US Courts of appeals. One case cited was a 2003 decision of the 11th Circuit Court of Appeals reported as Williamson Oil Company Inc. and other v. Philip Morris USA and others. This was a case of horizontal price fixing in which cigarette manufacturers were accused of having colluded to fix cigarette prices at unnaturally high levels. The Court of appeals observed that there was basic distinction between “collusive price fixing, i.e. a “meeting of the minds” to collusively control prices, which is prohibited under the Sherman and Clayton Acts; and “conscious parallelism” which is not”. After a detailed analysis, the Court held that as a matter of law, three conditions had to be fulfilled to indirectly or inferentially establish a price fixing agreement. Firstly, a pattern of parallel behaviour had to be established. Secondly, in addition to the parallel behaviour, one or more “plus factors” had to be shown to exist, which factors must tend to exclude the possibility that the alleged conspirators acted independently. The existence of such a plus factor i.e. factor in addition to the parallel business behaviour, generated an inference of illegal price fixing. Thirdly, if the first two conditions were fulfilled, the alleged conspirators could “rebut the inference of collusion by presenting evidence establishing that no reasonable fact finder could conclude that they entitled into a price fixing conspiracy.” The Court of appeal concluded that the evidence presented in the case before it was insufficient to establish a price fixing agreement.
- To similar effect was a 1999 decision of the US Court of Appeals for the 3rd Circuit, which it appears is cited as In Re: Baby Food Antitrust Litigation. This was also a case of horizontal price fixing. The Court of appeals observed:–
“Because the evidence of conscious parallelism is circumstantial in nature, courts are concerned that they do not punish unilateral, independent conduct of competitors…they therefore, require that evidence of a defendant’s parallel pricing be supplemented with “plus factors”…The simple term “plus factors’ refers to “additional facts or factors require to be proved as a prerequisite to finding that parallel action amounts to a conspiracy…They are necessary conditions for the conspiracy inference….They show that the allegedly wrongful conduct of the defense was conscious and not the result of independent business decisions of the competitors. The plus factors may include, and often do, evidence demonstrating that the defendants: (1) acted contrary to their economic interests, and (2) were motivated to enter into a price fixing conspiracy.”
- Learned counsel also cited the case of Bendix Corporation and another v. Balax, Inc. and another (1972) 471 F.2d 149, a decision of the US Court of appeals for the 7th Circuit, in which it was held at pg 160 as follows:
“…similarity in the sale of standardized products does not alone make out a case of collusive price fixing, the reason being that competition will ordinarily cause one producer to charge about the same price charged by any other.”
- Learned counsel submitted that the product in question in the present appeals, i.e. cement, was also a standardized product and therefore, the parallel price movement of cement could not in and of itself sustain a charge of collusion or the formation of an unlawful cartel.
- The reliance was also placed on a decision of the US Court of Appeals, for the 10th Circuit reported as Cayman Exploration Corporation v. United Gas Pipe Line Company (1989) 873 F.2d 1357. In this case also, there was an allegation of horizontal price fixing. With regard to this allegation, the Court of appeals observed at pg.1361:–
“Cayman did not identify the alleged conspirators, when or how they functioned, or the nature and extent of United’s participation in the alleged conspiracy. Moreover, Cayman failed to allege any facts which would support an inference that the alleged actions by gas transmission companies would be contrary to their economic interest absent an agreement. We hold that the District Court properly concluded that Cayman’s amended complaint did not state a claim of horizontal price-fixing.”
In my view, the following principles are deducible from the foregoing decisions of the US Supreme Court and various courts of Appeals.
(1) An agreement violative of the Sherman Act can be established either by direct evidence or can be inferred indirectly from the facts and circumstances of the case before the Court. Business behaviour is admissible circumstantial evidence from which a cartel can be inferred.
(2) While an agreement can be indirectly inferred, the alleged conspirators must at least be properly identified and there must be some indication of when or how they functioned.
(3) Parallel business behaviour, or conscious parallelism is not in itself sufficient to indirectly establish an agreement in violation of the Sherman Act. Parallel business behaviour can be of various sorts, and a parallel movement in prices is one example of conscious parallelism. Parallel business behaviour is all the more possible in the case of standardized is all the more possible in the case of standardized products where it is expected that prices will ordinarily tend to move in parallel. Furthermore, in a concentrated market, where there are relatively few sellers, conscious parallelism is also to be expected.
(4) If there are certain factors, referred to as “plus” factors, in addition to, and over-and above, parallel business behaviour, then a presumption arises that there has been unlawful price fixing and in such a situation, a violation of the Sherman Act can be indirectly inferred. The “plus” factors may include evidence demonstrating that the conspirators acted contrary to their economic interests and were motivated to enter into a price fixing conspiracy. The nature of a “plus” factor must be such as it tends to exclude the possibility that the alleged conspirators acted independently.
(5) If parallel business behaviour and “plus” factors are found to exist, the alleged conspirators can nonetheless rebut the inference of collusion by presenting evidence establishing that it could not reasonably be concluded that they entered into a price fixing conspiracy.
- I have already held that an agreement under the Ordinance and for the purposes of section 6(1) can be indirectly inferred from the facts and circumstances of the situation. In my view, parallel business behaviour or conscious parallelism is not in itself sufficient to lead to or permit an inference that a price fixing agreement or cartel exists. There must be shown to exist factors in addition to, and over and above the conscious parallelism for the existence of a cartel in violation of section 3 read with section 6 to be established. Obviously, the Authority must identify and particularize the “plus” factors on which it seeks to rely in addition to the parallel business behaviour. If such “plus” factors do exist in addition to parallel business behaviour, it would be open to the alleged conspirators to present material to show that it cannot be reasonably inferred by the Authority that they have entered into a price fixing conspiracy. They would be entitled to rebut the inferences being drawn from the parallel business behaviour and the “plus” factors. The reason is that the matter is being determined not on the basis of direct evidence, but on deductions being indirectly made and inferred from the facts and circumstances of the case. It is possible in such a situation that Authority may misread or draw the wrong conclusions from the circumstantial material and it is only right for the alleged conspirators to be entitled to present material to rebut the inferences. If the alleged conspirators fail to present any such material or the material presented is found to be deficient or unconvincing, then it can legitimately be inferred from the parallel business behaviour and the “plus” factors being relied upon that an agreement exists which is violative of section 6(1) of the Ordinance, and that there has thus been a violation of section 3 thereof. I may clarify that the entire exercise as aforesaid is to be carried out exclusively with reference to, and within the ambit of section 6(1). Once such an agreement has been legitimately inferred, and is therefore, deemed to exist, it may still be open to the conspirators to rely on the `gateway’ contained in section 6(2). However, as explained above, the onus (and it is a heavy burden to discharge) would lie on them to establish that their situation comes within all three of the clauses of the latter provision and it is only then that they would be entitled to rely on the `gateway’.
- It is in my view important to keep in mind that the price fixing agreement which can be condemned under the deeming provision of section 6(1) is not limited to price increases only. Section 6(1) applies to any price fixation, regardless of whether the prices are being increased, reduced or have remained steady, and whether the level is high or low. If the submissions made by the learned D.A.-G. are accepted, then any price change or movement could be held to constitute a price fixing cartel. At any time that the prices moved in parallel, the Authority would be able to claim that a cartel existed and that the Authority was entitled to take action in the matter. It is a matter of common experience that the prices of most commodities tend to fluctuate and such changes usually occur in parallel, and this is certainly true for standardized products, which are (if at all) differentiated only by the public perception of their brand names or trademarks. Prices, especially of essential items (e.g. food supplies such as tomatoes and onions during the season), can change suddenly and for no apparent reason, rising and falling frequently and sometimes on a daily basis. If it is held that price change is itself sufficient to establish a cartel, then the Authority would virtually at any time be able to declare a violation of section 3 read with section 6. All it would need to do is point to the parallel price movement (regardless of whether the prices were be rising or falling) and claim that a cartel existed. This would confer an unfettered discretion and power on the Authority to take action at its own sweet will and at a time of its own choosing. Such a view cannot be countenanced by the law and is, in my judgment, flatly contrary to the provision of the Ordinance. This would convert the Authority into a price regulator, which is clearly beyond the remit of its powers and jurisdiction under the Ordinance. The Authority is not concerned with the level of prices as such nor does it have any statutory power to determine whether prices are reasonable or too high or too low. Its jurisdiction is confined only to ensuring that there is proper competition, i.e. that prices are being determined by market conditions and not fixed collusively. Unless therefore, there is additional material or evidence, the parallel change in prices cannot by itself establish that there has been collusion or cartelization. In this connection, I was referred to a decision of the Indian Commission in Alkali and Chemical Corporation .of India Ltd. v. Bayar (India) Ltd. (1984) 3 Comp LJ 268. The Indian Commission also accepted that price parallelism does not by itself establish a cartel violative of the Indian Act, and relied upon the decision of the US Supreme Court in the Theatre Enterprise case (supra). With reference to the specific case before it, the Indian Commission held at pg.277:–
“We must admit that the price parallelism practised extensively coupled with only a feeble attempt on the part of respondent as justification of parallel price increase, does appear highly suspicious and we find it hard to believe that the frequent and equal increases in prices could have been carried out without some prior understanding. Suspicion, however, strong is no substitute for proof. While dealing with circumstantial evidence, the Courts have first to see as to which of the various circumstances alleged, are established to be true and then to see whether such of the circumstances as have been established to be true inevitably lead to the sold and certain inference of culpability. While assessing the inferential effect of the proved circumstances, the Courts have to extremely chary and guard themselves against the tendency to jump to conclusion on insufficient or inadequate circumstances by supply missing links.” (emphasis is mine).
- In my view, the principles established by the American courts, and followed and adopted by the Indian Commission, establish the necessary framework and lay down the correct approach to be taken for a proper interpretation and application of the deeming provisions of section 6(1) of the Ordinance. The Authority has acted on the basis of a complete misunderstanding of the Ordinance and has misapplied the relevant provisions.
- The mere fact that the prices in May, 2003 rose in parallel does not therefore, in my judgment, establish that there existed a cartel among the appellants in violation of section 6(1). There was no basis whatsoever on which the Authority could contend that there had been a “planned” or “systematic” increase in the prices, and it was insufficient to simply rely upon the price increase itself as establishing the existence of a cartel. In this context, there is an additional infirmity, which in my view, is fatal to the case put forward by the Authority. As pointed out by the learned counsel for the appellants, the Authority has no specified or identified the alleged conspirators. When referring to the price increases, the impugned order merely states that “a good number” of the cement manufacturers were involved in the cartel, but the actual conspirators are never identified. In my view, no agreement can legitimately be spelt out in such circumstances. While an agreement can certainly be inferred circumstantially as held above, it is at the very least necessary for the Authority to particularize the parties thereto and identify the participants in the conspiracy and to show when or how they functioned. If the Authority fails to do so, then no agreement can be found to exist. In the present case, there is no specific allegation at all against any particular cement manufacturer that it was a participant in the alleged cartel. Furthermore, the Authority fatally undermines its own case by subsequently referring in the impugned order to “some” cement manufacturers having acted together with respect to capacity underutilization. Thus, although orders were passed against nearly all the cement manufacturers, the finding actually recorded by the Authority is only that “a good number” of (unspecified) cement manufacturers increased prices in parallel and that only “some” (again unidentified) cement manufacturers underutilized their plant capacities. There is, to say the least, a great difference between “all”, “a good number” and “some” and the failure on the part of the Authority to keep this basic distinction in mind clearly indicates that in fact the Authority did not have any knowledge of the identity of the alleged conspirators, nor did it even bother to carry out such an exercise, which was required under the Ordinance. The impugned order, is sell-contradictory on the face of it, since the cartel is at once and the same time supposed to between “a good number” of cement manufacturers and/or “some” of the manufactures. No agreement within the meaning of section 2(a) can be spelt out in such circumstances.
- The conclusion purported to be drawn by the Authority in the impugned orders are also not supported by the record of the case. In the impugned order issued against D.G. Khan Cement, the Authority has in para.6 purported to “adjust” the central excise duty relief given in the 2003 Budget because, it is stated, the relief ” was not passed on to consumers”. Yet, this assertion is contradicted by the table of prices given by the Authority itself in its parawise comments. There, the price of cement charged by D.G. Khan Cement is shown as Rs.215 per bag for the first 6 days of June, and then with effect from June 7th, the price is shown as dropping to Rs.205 per bag, a level which is maintained up to June 22nd, whereafter the price is shown as dropping further to Rs.199 per bag. The situation is similar in the case of other cement manufacturers. Thus, it is clear from the Authority’s own statements that the budgetary relief in central excise duty was in fact passed on to the consumers. The conclusions drawn in this regard in the impugned order are thus directly contradicted by the record. In any case, even if the relief is central excise duty had not been passed on to the consumers by some or all of the cement manufacturers, it is not clear to me why that would show the existence of a cartel in violation of section 6(1). It is surely a business decision to be taken by the cement manufacturers in the light of market conditions whether, and if so, to what extent, the relief is to be passed on to the consumers. It would normally be expected that there would be some fall in prices in such a situation and that is in fact w at the record establishes. The conclusions to the contrary drawn by the Authority are clearly unsustainable.
- There is also another very important aspect of the matter, which is the acceptance by the Authority that prior to April, 2003, there was no cartel or collusion in violation of the Ordinance. This is expressly stated in each impugned order, and is a point, which is confirmed by the Authority in its parawise comments. In the case of D.G. Khan Cement, in para.3(s) of the parawise comments, the Authority clearly states as follows: “The fact is that there was no cartel before May, 2003 and the manufacturers followed their independent strategies”. As pointed out by the learned counsel for the appellants, the table of prices set out in the Authority’s parawise comments clearly shows that there was a lot of price variation and fluctuation in the months leading up to May, 2003. In March, prices did rise and there was a general upward movement. There was thus, throughout the period, prior to the Authority’s impugned action, a parallel price movement of the same nature as took place in
May, 2003. Furthermore, in June, the prices began to fall, a fact which appears to have been ignored or misunderstood by the Authority. Yet, it is only the May, 2003 price increase that is condemned by the Authority as cartelization. Those that occurred prior thereto are accepted, and attributed to market conditions. It is also pertinent to note that even as per the impugned orders, the price levels in October, 2002 were at about same level as the prices after the May, 2003, increase (and in some cases, were even higher). Yet, no action was earlier taken by the Authority. In my opinion, this contradiction clearly establishes the point made earlier in the judgment, i.e. that if a mere change in prices is sufficient to spell out a cartel, then the matter is at the unfettered discretion and sweet-will of the Authority. It can at any time condemn a price movement as violative of the Ordinance, or leave it undisturbed as a mere market fluctuation, and justify its action or inaction accordingly. In the present case, price movements, including increases, prior to May, 2003, were accepted by the Authority as responses to market conditions and “independent strategies” of the cement manufacturers, and yet, the price increase of May, 2003, was held to establish a cartel. Price changes of the same nature and magnitude as took place in May, 2003, were earlier accepted and passed unnoticed and without action, whereas the situation that prevailed in that month was condemned as proof of cartelization. It seems that in fact, the Authority was only reacting to the public outcry in May, 2003. The Authority simply acted as a price regulator to bring down the prices to what it regarded as a “reasonable” level acceptable to the public. As already held, this was clearly beyond its jurisdiction and powers and outside the scope and ambit of the Ordinance. The Authority is the regulator and restorer of competition and not of prices and price levels as such. By fundamentally confusing two entirely separate and distinct functions and powers, the Authority has asserted a power that does not vest in it under law.
- The Authority also appears to have ignored altogether, the various factors stated in detail by the cement manufacturers as explaining the price increases and capacity utilization. These factors included the concept of price leadership, seasonal factors and changes in the demand and supply conditions. The Authority was bound to consider the same and if it was not convinced by the submissions that had been made before it in this regard, to give its reasons for rejecting the case put forward by the cement manufacturers. It is also to be noted that while the Authority concluded that the cost of production had been falling over the relevant period, it did not take into consideration the contrary submissions made by the appellants in this regard. In any case, as held by the US Supreme Court in the New York Coffee and Sugar Exchange case (supra), the fact that there is no ready explanation forthcoming for the increase in prices is not in itself sufficient to conclude that a cartel or conspiracy existed in violation of the law.
- The factors relied upon by the learned D.A.-G., to justify the impugned order included the great public outcry, especially in the national press, at the increase in prices in May, 2003, and complaints received by the Authority with regard thereto from various persons and concerned quarters such as builders, etc. These factors appear to have impelled the Authority to take action to bring down cement prices from what was obviously regarded by it as too high a level to a range believed to be more “reasonable” and acceptable. As I have said, this was a fundamental misconception of the powers and jurisdiction of the Authority and resulted in a complete transformation of its role from a regulator of competition to a regulator of prices without any warrant in law.
- Learned counsel for the appellants in this regard, referred to the Price Control and Prevention of Profiteering and Hoarding Act, 1977 (hereinafter referred to as the 1977 Act). Section 3(1) of this Act, empowers the Federal Government, for purposes of ensuring equitable distribution of an essential commodity and its availability at fair prices, to issue an order (to be published in the official Gazette) regulating the price, production, movement, supply, distribution, sale, etc. of the essential commodity. Cement is, or at any rate was, one of the commodities specified in the schedule to the 1977 Act, as an essential commodity. The important point is, that if the Authority was allowed to take action at any time there is a price change unacceptable to it (on the basis that such a price change can in and of itself establish a cartel), then there would essentially be no difference between the power exercised by the Authority under the Ordinance, and the power exercisable by the Federal Government under the 1977 Act to regulate prices. Indeed, in the operative part of each impugned order, the Authority has purported to fix the price of cement for each manufacturer by requiring it to reduce its price, as prevailing on the date of the order by the amount specified in the order which amount, according to the Authority, represents the “unjustified increase” in the cement price in May, 2003. (As noted above, D.G. Khan Cement is required to reduce its price by Rs.60 per bag). This, in my judgment, is nothing other than price fixation or regulation which is beyond the scope and remit of the Ordinance and indeed, is the very anti-thesis of that law, since the price is being fixed by the administrative fiat and not market conditions. Section 12(1)(c) in terms of which the Authority has purported to take this action, does not and cannot confer any such power on the Authority. The purported action taken by the Authority is therefore, unlawful and contrary to the provisions of the Ordinance. The Authority has also held with reference to the “unjustified increase” that “it remains incorporated in undertaking’s selling price till now notwithstanding some fluctuations during the intervening period.” To take the example of D.G. Khan Cement, the Rs.60 per bag “unjustified increase” is regarded by the Authority as somehow remaining part of the manufacturer’s cement price from May, 2003, till October, 2005 (i.e. up to the issuance of the impugned order), although the Authority concedes that the cement price did undergo “some fluctuations” during this period, I can find no warrant for this extraordinary conclusion either in law or the record. There is no conceivable basis on which the Authority’s conclusion can be supported. Furthermore, the order to reduce the price by the amount specified by the Authority is itself unenforceable. Suppose that a manufacturer does comply with the Authority’s order. For how long is a manufacturer required to keep its price artificially depressed by the amount directed by the Authority? There is nothing in the impugned order that would prevent a manufacturer from reducing its price in purported compliance of the order and then raising it the next day. In my view, there is an even more fundamental defect in the order in this regard. A direction to reduce the price by an amount fixed by the Authority is itself a negation of competition since the prices would not then be set by market conditions, but would be at a level mandated by the Authority. The Authority’s direction is therefore, on the face of it inconsistent with the concept of market competition and with the Authority’s fundamental statutory duty to protect the same. The impugned order is therefore, unsustainable in law on this point as well.
- The learned D.A.-G. had also referred to the capacity underutilization as a factor which justified the Authority in concluding that a cartel existed to increase the prices in May, 2003, I have already dealt with one aspect of this part of the impugned order, namely the Authority’s failure to identify and particularize who among the cement manufacturers were “some” of the alleged conspirators in this regard. Learned counsel for the appellants submitted in this regard the Authority had characterized the capacity utilization of each cement manufacturer as “low” or “very low” in a random and haphazard manner and without any basis or proper application of mind. For example, the capacity utilization of D.G. Khan Cement was stated to be 68 %, which was regarded as “low”. The capacity utilization of Pioneer Cement Ltd., on the other hand, was 71 % and this was regarded as “very low”. To my mind, there is force in this submission on behalf of the appellants. There does not appear to have been any proper application of mind in the present case by the Authority. No basis is shown as to how or why some capacity utilization is characterized as low and other as very low. In addition, it is also the case that the record relied upon by the Authority in this regard itself shows great variations in capacity utilization. Annexure II to the report to the special enquiry is a table showing the industry wise capacity utilization from July, 2002 to June, 2003. An examination of this Annexure indicates that the capacity utilization changed considerably from month to month and rose and fell regularly, sometimes by substantial amounts. In my view, therefore, it cannot be concluded from the fact that capacity utilization fell in May, 2003, as compared to the previous month that there was a cartel to increase the prices as held by the Authority.
The upshot of the foregoing discussion is that in my view, the impugned orders are not sustainable either in law or on the basis of the record and material as available before the Authority. The appeals are therefore, allowed and the impugned orders are set aside and quashed. There will however, be no order as to costs.
M.B.A./D-8/L Appeals allowed
