Huge Rs 6,700 crore penalty to hit bankrupt cement companies' debt resolution

In a big blow to the cementmakers, National Company Law Appellate Tribunal has upheld the Rs 6,700 crore penalty imposed by Competition Commission of India on 11 companies for cartelisation.

ACC, UltraTech and JaiprakashAssociates will be impacted the most as the trio was asked to pay upwards of Rs 1,000 crore each.

The order would also impact resolution value for companies like Binani Cement, which is still under National Company Law Tribunal,waiting to know whether it will be sold to Kumar Mangalam Birla-led UltraTech or the Dalmia Bharat group.

While ACC said it would approach the apex court, UltraTech would take "appropriate action" as advised by its lawyers.

But chances of winning are slim as NCLAT, now the appellate body for CCI, has fully supported the findings and order of CCI, even terming the penalties as meagre.

"So far as the quantum of penalty order is concerned, as we find that thecommission has imposed mere minimum penalty, no interference is called for against the same. We find no merit in these appeals. They are accordingly dismissed," NCLAT order issued on Wednesday said, dismissing the appeal of the cement makers.

Reacting to the order, ACC said it would move the apex court. "Competition Commission of India vide its order dated August 31, 2016,imposed a penalty of Rs 1,147.59 crore on the company. On appeal by the company, NCLAT in its order passed today has reportedly upheld the said order. The company believes that, on merits, it has sufficient grounds for a successful appeal and intends to file the same with the Hon'ble Supreme Court of India," ACC said in a statement on Wednesday.

Going in details of the findings of the CCI order, NCLAT has held that the competition watchdog has done sufficient groundwork in establishingthat there was a formation of a cartel and that prices were rigged.

CCI had highlighted "unprecedented trend for the percentage increase in prices in all the five regions" —central, northern, eastern, western and southern.

"It is clear that the commission while dealing with the market dealt with the 'relevant market' i.e, all regional markets of cement, which are the relevant geographical markets. Commission not only looked into state-wise market but also region-wise market and range of percentage change in prices between 2007-2011," the order said.

The CCI case was filed by Builders Association of India under Section 19(1) (a) of the Competition Act, 2002, alleging anti-competitive agreement against Cement Manufactures' Association and 11 companies.

Despite CCI coming out with an order followed by detail investigations, none of the companies bothered to make provisions for the full amount of penalty after paying 10% of their respective shares to the Competition Appellate Tribunal (Compat).

"Your company, backed by a legal opinion, believes that it has a good case in both the matters and accordingly, no provision has been made in the accounts," UltraTech has disclosed in its annual report for FY18.

The government, meanwhile, brought all matters with Compat under NCLAT and hearing was completed in August 2016.

Among the 11 companies, Jaiprakash Associates would be hit hardest as Rs 1,323.60 crore penalty levied on it is more than one-fourth of its revenues from cement at Rs 4,329.72 crore, which is 65.44% of overall revenues.

But the case of Binani Cement would be curious as the statutory liabilitieslisted against the company for the new owner to settle don't show the penalty amount of Rs 167 crore, sources said.

However, a new unaccounted-forliability wouldn't surprise its new promoter.

"Since all assets and liabilities would be with the new owner, it would be its responsibility to settle the dues. The bidders would have accounted for the penalty while preparing their resolution plans," said Sutanu Sinha, resolution professional with BDO Restructuring said.

Beginning August 1, NCLT would start hearing the case of Binani Cement on a day-to-day basis on cross-petitionsfiled by Dalmia Bharat Group firm Rajputana Properties and UltraTech, the two prospective bidders.

IMPACT

ACC, UltraTech and Jaiprakash Associates will be impacted the most as the trio was asked to pay upwards of Rs 1,000 crore each