While the large corporates are vying to acquire the priced assets of Ambuja Cement-ACC combine from the Swiss-headquartered Holcim Group, the deal may find it difficult to get the Competition Commission of India’s approval without getting clarity on who will be liable for the penalty in the price cartelisation case.
Adjudicating a price cartel case in 2016, the Competition Commission of India censured cartelisation in the cement industry and imposed a penalty of ₹ 6,300 crore on the top 11 cement companies.
The top companies that were penalised include Grasim Cements Ltd (now merged with UltraTech), JK Cement, India Cements, Madras Cements, Century Cement, Binani Cement and Lafarge India.
CCI imposed a penalty of ₹1,164 crore on Ambuja Cement and another ₹1,148 crore on ACC. Both the companies moved the Competition Appellate Tribunal and, subsequently, the National Company Law Appellate Tribunal, which through its order in July, 2018 dismissed the companies’ appeal and directed the companies to pay the penalty.
However, both the companies moved the Supreme Court, which, through an order in October 2018, agreed to hear the appeal provided the companies set aside 10 per cent of the penalty. The appeal has been pending with the Supreme Court ever since.
In a separate development, the Haryana government in January 2017 levied a fine of ₹30 crore on Ambuja Cement and another ₹35 crore on ACC. Both the companies have challenged the penalty in NCLAT and are waiting for the final verdict.
Based on the advice of external legal counsel, both the companies believe that they have good grounds for a successful appeal in both the aforesaid matters and have not made any provision in last so many years.
In 2016, as part of the Holcim-Lafarge merger globally, Lafarge sold its 11 mtpa cement business in India to Nirma for $1.4 billion, even with penalty overhang. The domestic business of Lafarge was sold so that the merged entity, LafargeHolcim, does not become a dominant player in India.
According to a leading lawyer, in the case of Lafarge asset sale in India, CCI had the presence of a merged LafargeHolcim presence in India to recover the penalty once it is confirmed by the Supreme Court.
Interestingly, in a recent rebranding exercise LafargeHolcim was renamed as Holcim.
It is a tricky situation for the Holcim group companies in India as they cannot settle the penalty and get the cartel case withdrawn. Once the penalty is paid, it is sort of agreeing to the CCI cartelisation verdict and they will be liable for separate proceeding on that, said a lawyer.
He added that for the new owner of the Ambuja Cement-ACC, the penalty will be like a damocles sword as they can be held responsible for the penalty if the Supreme Court confirms the penalty.
Moreover, it has to be seen whether CCI itself will give its approval for the deal without settling the penalty as they will not have any hold on the foreign company, Holcim, once they sell the asset in India, he said.
It is learnt that Holcim will meet on Monday to shortlist bidders based on value and initiate the process of holding one-on-one talks. The deal will call for an investment of $7 billion to be paid to the seller and another $3 billion for making the open offer.
Many leading cement companies, including UltraTech Cement, JSW Cement, Adani Cement, and the world’s largest steel company, ArcelorMittal have shown interest in acquiring the asset.