CCI pours beer companies hefty penalty

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India’s antitrust watchdog has nailed United Breweries, Carlsberg India and Anheuser Busch InBev (AB InBev) for indulging in cartelisation, and the All India Brewers Association has not been spared either for the role it played in facilitating the beer cartel.

The Competition Commission of India (CCI) imposed a fine of INR8.7 billion (USD116 million) against United Breweries, Carlsberg and the All India Brewers Association on 24 September.

The cartel came to light when Belgian brewer AB InBev took over Crown Beers and SABMiller. In 2017, AB InBev blew the whistle on United Breweries, Carlsberg, Crown Beers India and SABMiller India colluding in the sale and supply of beer across 10 states and territories, from 2009 to 2018.

The beer manufacturers engaged in price co-ordination in Andhra Pradesh, Karnataka, Maharashtra, Odisha, Rajasthan, West Bengal, the National Capital Territory of Delhi and the Union Territory of Puducherry. Collectively, they restricted the supply of beer in Maharashtra, Odisha and West Bengal.

The four players had a combined market share of nearly 90% in the country. The CCI initiated an investigation into the beer cartel that went on for four years, following which it imposed the fines. It concluded that the parties indulged in exchanges of vital information among themselves regarding pricing and other confidential and business-sensitive information.

They mutually agreed on price revisions to be sought from respective state governments. A host of email communications, WhatsApp and SMS messages, and even conference calls were exchanged between top management personnel of these companies to decide prices, follow up with state authorities, and even co-ordinate a common response to show cause notices issued by state excise commissioners.

As the parties co-operated in the investigation, United Breweries and Carlsberg, received fine reductions of 40% and 20%, respectively, and were asked to pay a fine of INR7.5 billion and INR1.2 billion, respectively. AB InBev, the leniency applicant, received a 100% fine reduction.

Industry sources anticipate that United Breweries will appeal the CCI decision, given the arguments it had put forward during the cartel probe, that the “draconian laws and practices adopted by the states make it impossible for beer companies to compete in the ordinary course of business”.

During the investigation, lawyers argued before the CCI that the alleged cartel was in response to state action. Some told the antitrust watchdog that state government departments should also be a party to the investigation, given that they had asked the brewers to share information on a WhatsApp group.

The CCI order does not give any indication of the authority having approached state governments.

Anyone caught would find some reason to excuse their conduct, says Kaushal Kumar Sharma, previously the CCI’s first director-general and head of its merger control and antitrust divisions. Now heading his own private practice, KK Sharma Law Offices, Sharma recalls how in the initial few cases the CCI found documentary evidence – the records of the wrongdoers – where it was written that “there was too much competition”.

The “tight laws of state governments are for everyone,” Sharma told India Business Law Journal, adding that the parties had the opportunity to convince the commission that the excise policy was harmful.

United Breweries said during the investigation that, “the unreasonable increase in price for consumers was a result of the frequent and significant increase in taxes, levies and excise duties imposed by the state governments”, while beer manufacturers continued to function for long periods at the same landed price/ex-brewery price.

According to the brewers, the wholesale and retail prices of their products are approved by the state excise departments, and the brewers are required to submit cost cards that include the ex-brewery price, and the implication of relevant taxes and duties in the corresponding states.

A senior lawyer associated with the cartel investigation told India Business Law Journal that the beer cartel could well have been an extended crisis cartel in response to how state governments have been regulating the sector, imposing “extremely high excise duty” and ensuring “almost centralised distribution” of alcohol in most of the states. He added that parties were unable to profit from cartelisation given the industry practice was aimed at survival, since the prices were decided by the excise department.

Excise duties are high because of the obligation imposed on state governments to restrict the consumption of alcohol in India, in accordance with the constitution. While state governments want to raise revenue through excise duty, because that is their main source of income, they do not want to be seen promoting liquor. Ultimately, it is a tightrope walk for both state governments and brewers.

The Briefing is prepared by Freny Patel.