CCI holds Trustees’ Association of India guilty of cartelisation for fixing minimum fees

The Competition Commission of India (CCI) has held that the Trustees’ Association of India (TAI) and three debenture trustee companies indulged in cartelisation by collectively fixing the minimum fees to be charged for debenture trusteeship services.

The trustee companies found guilty were IDBI Trusteeship Services Limited, Axis Trustee Services Limited and SBI CAP Trustee Company Limited.

The CCI found that the entities had violated Sections 3(3)(a) and 3(3)(b) of the Competition Act by fixing benchmark prices and limiting the supply of debenture trusteeship services during financial years 2020-21 and 2021-22.

“Such collective fixing of minimum price/fee by OP-1, for the provision of debenture trusteeship services, and other follow-on actions prevented independent commercial decision making by the DTs and amounted to cartelisation.”

However, the Commission did not impose any monetary penalty. It took into account that the Association had no income during the period of contravention and that the three trustee companies had charged fees below the benchmark price in several cases.

The CCI warned that any repetition of the conduct would be treated as recidivism and invite aggravated consequences for both the entities and the officials concerned in their personal capacity.

The order was passed on a complaint filed by Muthoot Finance Limited. In August 2021, Muthoot proposed to privately place secured non-convertible debentures worth ₹982 crore and sought a quotation from IDBI Trusteeship. IDBI Trusteeship quoted an initial fee of ₹9.82 lakh and an annual fee of ₹14.73 lakh, apart from taxes. Muthoot alleged that this was several times higher than the fees charged earlier.

According to Muthoot, IDBI Trusteeship said that the revised fee structure had been decided by TAI and that any deviation could have adverse repercussions. The structure prescribed an initial fee and an annual fee based on the size of the debt issue.

The CCI found that TAI had decided in March 2021 that members would not price their services below a common benchmark. It also found that the Association monitored quotations and threatened action against trustees that did not adhere to the prescribed rates.

Significantly, the Commission noted that the Association’s members had previously discussed whether common pricing could amount to cartelisation.

“The fact that in the meeting dated 06.06.2019, it was discussed whether the fixing of pricing could be construed as cartelisation under the Act, in fact shows that OP-1 and its members were also aware of the provisions of the Act, and despite there being concerns of contravention of those provisions, they went ahead with the same.”

The trustee companies argued that the benchmark was introduced because regulatory changes had increased their responsibilities and costs. They also relied on a Securities and Exchange Board of India (SEBI) circular requiring trustees to disclose their minimum fees.

The CCI rejected the defence, observing that SEBI had never authorised the collective fixation of minimum fees. The regulator had only required each trustee to independently disclose its own pricing.

The Commission also held the new incorporated TAI to be the successor-in-interest of the erstwhile association since six of its seven members had migrated from the old body.

Muthoot Finance was represented by Advocates Vijay V Paul and Rhianne Reuben Stephen.

TAI was represented by Senior Advocates Vaibhav Gaggar and Samar Bansal.

IDBI Trusteeship Services Limited and Axis Trustee Services Limited were represented by Senior Advocate Vaibhav Gaggar and Advocates Vaibhav Choukse, Faiz Siddiqui, Priyanshi Jain, Ketan Sarraf and Abhishek Nair.

SBI CAP Trustee Company Limited was represented by Advocate Sana Khan.

[Read Judgment]