BACKGROUND:

The Commission took Suo moto notice of the items appearing in newspapers and electronic media’s websites on 20.3.2008 referring to a purported agreement between the various cement manufacturers at a meeting of the APCMA. Acting in line with its mandate the Commission, in order to collect evidence against alleged conclusion, authorized a team of its officers to conduct a search of the premises of APCMA on 24.4.2008. During the search of the premises the officers successfully recovered, inter alia, an agreement dated 8.5.2003 between APCMA and its members (‘the Agreement’). The Agreement contained clauses aimed at controlling quotas and supply to achieve a targeted price amongst parties to the Agreement. This was clearly a prima facie violation of section 4 (1) and section 4 (2) (a) and (c) of the Ordinance. Show Cause Notices to the concerned undertakings were duly issued.

The undertakings took various legal objections, which the Commission addressed, inter alia, as follows:

I) The undertakings argued that the Commission and not a duly authorized person/body should issue the show-cause notice. The Commission responded power to issue SCNs could be delegated under Section 28(2).

II) On the objection that the Commission could not take suo moto action, the Commission responded by rejecting the argument on the ground that there is no such restriction under the Competition statute.

III) On the question of relevant market, the Commission held all of Pakistan to the be the relevant geographical market and cement to be the product market. The Commission’s reasoning was, inter alia, that member undertakings constituted most of the cement manufacturers across Pakistan and were operating in the same market; there were overlaps in the operating markets of each cement manufacturer with at least another; transport costs do not divide the geographical market as other benefits such as cheap labor and raw material offset this purported disadvantage; all products are available to the same users as opposed to the same locality which will determine the relevant market.

IV) The Commission dispelled the presumption that an enquiry under Section 37 was a necessary prerequisite to initiating proceedings under Section 30.

V) The Commission held that it has the power to enter and search under Section 34 and there is no requirement of showing prima facie evidence to do so. As a consequence, it held that the Fruit of a Poisonous Tree’ doctrine would not apply to the evidence recovered.

VI) That an agreement, which by its very nature restricts competition (i.e. having naked restraints) is treated as having the object and purpose – it is the objective meaning and not the subjective intention of the parties that will govern. Such an agreement will by its very nature be a prohibited agreement.

ORDER:

After conducting thorough hearing the Commission vide its Order 27-08-09, imposed a penalty of 7.5% of turnover in the case of each member undertaking based on last annual accounting statements. APCMA itself was fined a maximum of Rs. 50 million.

CURRENT STATUS:

The writ petitions challenging inter alia the jurisdiction of the Commission and vires of the Competition Ordinance is pending adjudication before the Honourable Lahore High Court, Lahore.

The Cement Manufacturers also preferred appeals to the Supreme Court of Pakistan, against the Order of the Commission. Few of the Cement Manufacturers have withdrawn their appeals from the Supreme Court after the corrigendum in the Ordinance regarding appeal to Supreme Court.