' 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.
2. 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.
3. 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 underutilize 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(I)(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).
4. 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.
5. 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 hau 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.
6. 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.
7. 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.
8. 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.
9. 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/June, 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.
10. 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.
11. 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.
12.
12.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.
13. 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 beep 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.
14. 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 vises 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 filed 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.
15. 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.
16. 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.
17. 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. Third by, there was the circumstance of the fall in capacity utilization. It was submitted that the increase in prices was an 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.
18. 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.
19. 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;
3. Undue concentration of economic power, etc, prohibited.---There shall be no undue concentration of economic power, unreasonable monopoly power or unreasonably restrictive trade practices.
6. 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.
11. 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 I I, 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.
12. Orders of the Authority.---(1) An order of the Authority under section 11 may:-
(c) in the case of unreasonably restrictive trade practices:- (0 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.
14. 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.
20. 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.
20. 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, he adopted and applied for purposes of section 20 of the Ordinance as well.
21. 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, 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.
22. 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.
23. 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 n 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.
24. Since section 6 is central to the present a peals, it is necessary to examine its provisions in sonic detail. Subsection (1) contains three clauses, the first two of which also contain certain sub- clauses. Although, the prese. It. 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.
25. 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 be 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).
26. As to the second question noted above i,e, an tong 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 I n 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.
27. 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).
28. 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 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.
29. 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 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. 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 assessm ent 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).
30. 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.
31. It appears that the provisions similar to subsection (2) of section 6 are well established in this branch 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.
32. 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 e0mpowered 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."
33. 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).
34. 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 assessm ent 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.
35. 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.
36. 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."
37.
37. 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.
38. 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.
39. 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.
40. 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, tl I (but only then) the agreement was unlawful.
41. 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 pg 213, the Supreme Court observed:-- "We reaffirm what we said in United States. v. SoconyVacuum 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."
42.
42. 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.
43. 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 price 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."
44. 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.
45. 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."
46. 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.
47.
47. 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 precompetitive conduct." The Court held that the evidence produced was insufficient to make out any case for collusion.
48. 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.
49. 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."
50.
50. 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."
51. 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.
52. 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.
53. 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 K clauses of the latter provision and it is only then that they would be entitled to rely on the 'gateway'.
54. 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).
55. 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.
56. 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 self-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.
57. 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 what the record establishes.
The conclusions to the contrary drawn by the Authority are clearly unsustainable.
58. 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 M 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.
59. 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.
60. 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.
61. 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, 0 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.
62. 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.