The Dominance and Monopolies Review: India
The conduct of dominant enterprises is regulated by Section 4 of the Indian Competition Act 2002, as amended (the Act). Section 4 prohibits the abuse of a dominant position by an enterprise or group. Notably, an abuse of a dominant position is prohibited, not dominance itself or the creation of dominance. The Act regulates the conduct of both private and public sector (state-owned) enterprises as well as departments of the government that engage in non-sovereign functions, across all sectors of the Indian economy.
From 20 May 2009, the date Section 4 entered into effect, the Competition Commission of India (the Commission) has enjoyed exclusive jurisdiction for the enforcement of Section 4. Section 60 of the Act provides that the Act will have effect notwithstanding any inconsistent provision of any other law currently in force. In addition, Section 62 clarifies that the Act will operate in addition to other laws currently in force.
Under the Act, the Commission has wide powers of investigation and enforcement. For conducting investigations into alleged anticompetitive conduct, the Commission is assisted by the office of the Director General (DG). Appeals from the Commission's orders are filed with the National Company Law Appellate Tribunal (the Tribunal). The Supreme Court of India is the final appellate authority for all matters under the Act. Recently, the total strength of the Commission was reduced from seven members (comprising one chairperson and six members) to four members (comprising one chairperson and three members). In September 2018, the central government set up a committee to review the Act in view of the changing business environment and to suggest any amendments, if necessary. In July 2019, this committee submitted its report suggesting certain amendments to the Act. Based on this report, the central government published the draft Competition (Amendment) Bill, 2020 (the Draft Amendment Bill) inviting public comments. Notably, no major changes are envisaged to the abuse of dominance provisions of the Act except an exemption for the reasonable exercise of intellectual property rights, which currently is available only for anticompetitive agreements under Section 3.
Since no formal policy statements in respect of the application of Section 4 have been made by the Commission to date, the Commission's decisions continue to provide the only guidance. The period 2019–20 has witnessed the Commission adopting a highly interventionist regulatory posture. Investigations have been launched into technology markets such as e-commerce and online travel agencies (OTAs), marking a significant departure from recent trends in competition law enforcement.
Year in review
From the beginning of 2019 to April 2020, the Commission has issued only two decisions under Section 27 of the Act penalising enterprises for abuse of dominant position: Association of Man-Made Fibre Industry of India (AMMFI) and Jaiprakash Associates Limited (Jaypee).
In AMMFI, Grasim Industries Limited (Grasim) was held liable for abusing its dominant position in the market for the supply of viscose staple fibre (VSF) to spinners in the Indian textile industry by engaging in discriminatory pricing and imposing supplementary obligations not connected with the sale of VSF. In Jaypee, a fine was imposed on Jaiprakash Associates Private Limited (Jaypee) for the imposition of unfair/discriminatory conditions on home buyers of independent residential units (villas and estate homes), which was found to be an abuse of dominance.
During the same period, the Commission issued eight prima facie orders under Section 26(1) of the Act, directing investigations into allegations of infringement of Section 4. Some of the prominent cases in which investigations were ordered include: Asian Paints2 (against Asian Paints in the market for the manufacture and sale of decorative paints by the organised sector in India), MakeMyTrip3 (against MakeMyTrip in the market of online intermediation services for booking of hotels in India and franchising services for budget hotels in India), Intel4 (against Intel in the markets for boxed microprocessors for desktop PCs and laptop PCs in the territory of India) and Google5 (against Google in the markets for licensable smart mobile device operating systems in India, app stores for android mobile operating systems and online general web search service).
On the other hand, the Commission dismissed complaints alleging abuse of dominant position at the prima facie stage in nine cases. The Commission decided against launching an investigation in respect of the allegations raised against the National Stock Exchange (NSE)6 because the dispute was already pending before the securities regulator, the Securities and Exchange Board of India (SEBI). The grievance of the informant in this case was that NSE was giving preferential treatment to some of its trading members in respect of co-location services with the result that the other customers had been denied market access by NSE. The Commission noted that the issues raised by the informant in the 'NSE Co-location' case were similar to those being investigated by SEBI. While the Commission reiterated in this case that it had the jurisdiction to investigate abusive conduct, it observed that the allegations made against NSE were yet to be established in appropriate proceedings and sufficient information about the role of NSE in the matter was not available. Therefore, the Commission could not form a prima facie view about an abuse of dominant position by NSE. In passing this order, the Commission followed the Supreme Court ruling in CCI v. Bharti Airtel,7 in which the Supreme Court held that when jurisdictional issues are pending determination before a sector specific regulator, the Commission should await the outcome of such determination before commencing its own investigation.
The Commission passed orders, under Section 26(6) of the Act, directing the closure of investigation after the submission of the DG's investigation report in three cases: Meet Shah,8 InPhase9 and INSA.10
In Meet Shah, the informants were aggrieved by the pricing practices adopted in the sale of e-tickets on the website of the Indian Railway Catering and Tourism Corporation (IRCTC), the state-run e-ticketing agent of the Indian Railways. The total fare for a ticket booked on the website comprises, amongst others, a base fare, which in turn has two components, namely actual base fare and total base fare. The informants alleged exploitative abuse based, inter alia, on the actual base fare being rounded off to the next higher multiple of five in order to arrive at the total base fare. The Commission noted that this pricing practice had been implemented pursuant to a policy decision of the Union of India. Importantly, such pricing was implemented uniformly in respect of all passengers without any discrimination. The Commission found that the practice of rounding-off had efficiency parameters and improved the quality of the Railways' services for its passengers, in addition to saving a substantial amount of time and effort in terms of logistics and infrastructure. The IRCTC's contention that the rounding off policy was, in part, aimed at recouping the losses accruing from operating in the passenger segment was accepted as valid justification by the Commission. In the Commission's view, no case for abuse of dominant position had been made out on the facts and circumstances of the case.
The decisions in InPhase and INSA are discussed in later sections of this chapter.
In AIOVA, the Tribunal set aside an order of the Commission under Section 26(2) of the Act. The Commission's order had dismissed allegations of abuse of dominance against Flipkart India Private Limited and Flipkart Internet Private Limited. The Tribunal ordered the Commission to direct the DG to initiate an investigation into the matter. The informant alleged that Flipkart India Private Limited, being a B2B wholesaler, sold goods to companies like WS Retail Services Private Limited (owned by founders of Flipkart Internet Services Private Limited till 2012) at discounted prices and, in turn, these were sold by sellers like WS Retail on the online marketplace operated by Flipkart Internet Private Limited at heavily discounted prices. The Tribunal relied on observations made by the tax authority (i.e., the Income Tax Appellate Tribunal (ITAT)) in a tax proceeding against Flipkart that the Flipkart entities were according preferential treatment to certain entities operating on its platform at the expense of other entities and were engaging in predatory pricing. The Tribunal observed that the Commission could not ignore findings by another judicial authority (i.e., the ITAT) and that the findings would be sufficient to constitute a prima facie case under the Act.
In Piyush Joshi, the informant sought to challenge, as an abuse of dominance, the acquisition of 'BG Group Plc' by 'Royal Dutch Shell Plc' after the Commission had already assessed and approved the transaction under the merger control provisions. The Commission declined to entertain the Information filed by the informant on the ground that the transaction had already been assessed and approved under the merger control rules of the Act. While upholding the Commission's decision, the Tribunal observed that the abuse of dominance provision (section 4) was distinct from the merger control provisions (Sections 5 and 6) and merger control proceedings would not be the appropriate stage for assessing abuse of dominance.
In Verifone and Adani, the Tribunal upheld final orders of the Commission imposing penalties on Verifone and Adani for abuse of dominance in their respective relevant markets by imposing unfair and discriminatory terms and conditions on their customers. In Adani, the penalty was reduced as Adani had removed the offending terms from its agreements during the investigation.
Market definition and market power
Market definition and market power remain the starting point of every competition law assessment for determining dominance and the abuse of dominance by an enterprise.
i Relevant market
The Act defines 'relevant product market' as a market comprising all those products or services that are regarded as interchangeable or substitutable by the consumer, by reason of characteristics of the products or services, their prices and intended use. The notion of 'relevant geographic market' is defined in the Act as a market comprising an area in which the conditions of competition for the supply of goods or provision of services or the demand for goods or services are distinctly homogeneous and can be distinguished from the conditions prevailing in the neighbouring areas. Notably, the Draft Amendment Bill seeks to introduce the concept of supply side substitutability into the definition in the Act19 of the relevant product market by regarding as part of the relevant market, all products and services that are regarded as interchangeable or substitutable by the supplier, by reason of the ease of switching production between these products and services and marketing them in the short term without incurring significant additional costs or risks in response to small and permanent changes in relative prices. The notion of 'relevant market' is defined by the Act as a market that may be determined by the Commission with reference to the relevant product market or the relevant geographic market or with reference to both markets. In Section 19, the Act also identifies factors that the Commission must take into account in defining the relevant market.
In AMMFI, the Commission defined the relevant product market as 'the market for supply of VSF to spinners'. The Commission noted that natural fibres and man-made fibres differ in terms of characteristics, such as composition, resiliency and capability to absorb moisture, and are, therefore, considered as two separate product categories by manufacturers of yarn. The Commission further found that within man-made fibres, VSF, a cellulosic based fibre, has different characteristics to other kinds of man-made fibres. For instance, VSF can be readily dyed and blends easily with other fibres. The Commission took note of the observations made by the Directorate General of Anti-Dumping & Allied Duties in Order: No. 1416/2009-DGAD distinguishing VSF from other fibres. The Commission also observed that during the investigation period, the price of VSF had been 40 to 60 per cent more than cotton and polyester stable fibre (PSF). PSF/cotton could be blended with VSF and vice versa on account of the differences in their characteristics. The Commission found that the correlation and regression analyses submitted by the opposite party (i.e., Grasim) did not conclusively establish substitutability between VSF and PSF and cotton and VSF. The Commission concluded that from the perspective of the spinners, VSF was not substitutable with other fibres. The relevant geographic market was defined as the 'whole of the geographical area of India' since the demand for VSF emanates from spinning mills located across the country.
In Jaypee, the Commission defined the relevant product market as the 'market for the provision of services for development and sale of independent residential units such as villas, estate homes, town homes and row-houses in integrated townships'. The Commission found that residential units in an integrated township are not substitutable with residential units in a cooperative society, or a group housing scheme or any other residential unit in a standalone building/housing project on account of the enhanced facilities that a residential unit in an integrated township offers to its occupants. The Commission also found that multi-storey apartments, villas, estate homes, town homes and residential plots situated in an integrated township are substitutable and interchangeable with each other because, in contrast to multi-storey buildings, residential plots offer more space, freedom and opportunity to make modifications to the property. In addition, residential plots have their own space and provide privacy and exclusivity to their occupants. Residential plots are considered more premium than multi-storey apartments and are generally more expensive. The relevant geographic market was defined by the Commission as 'Noida and Greater Noida regions'. It was observed that the Delhi region could not be included in the relevant geographic market on account of significant differences in the price of the properties located in these regions. According to the Commission, Noida and Greater Noida had acquired a brand image of their own and have become an important hub for the real estate sector.
In InPhase, the relevant product market was defined as the 'market for manufacture and sale of IGBT based PQS for less than 1kV usage'. Based on the material available on record, the Commission found that the purpose of power quality products is to resolve issues relating to power quality. Both the informant and ABB (the opposite party) had admitted to customising their power quality products, to suit the on-site requirements of customers. A 'one size fits all' approach to power quality solutions (PQS) was found to be inappropriate. In this backdrop, the Commission noted that there was no need to delineate distinct heterogeneous product markets in respect of different types of insulated-gate bipolar transistor (IGBT)-based PQS. The Commission stated that it is not bound by the determination of the relevant market in a prima facie order as such a finding is only tentative in nature. The Commission is well within its powers to reach a different finding on the issue of relevant market based on the facts and evidence that surfaces during the investigation and inquiry. For purposes of defining the relevant geographic market, the Commission noted that, since the conditions of competition were homogeneous throughout India, the relevant geographic market was the territory of India
In Adani, the Tribunal considered whether there was a 'gaseous substitute' for natural gas from the perspective of industrial consumers who were procuring natural gas from Adani. Based on the material on record, it was concluded that natural gas competes with most of the fuels available in the market, such as furnace oils, electricity, diesel and coal, and customers possess the ability to switch to alternate fuels without incurring high costs. Industrial customers can switch to solid fuels (coal and lignite) and liquid fuels (furnace oil) as well as grid electricity. The Tribunal held that Liquified Petroleum Gas (LPG) is not substitutable with natural gas as far as industrial consumers are concerned even though the two products may be substitutable from the standpoint of other kinds of customers. The Tribunal observed that members of the informant were dependent solely on Adani for the supply of natural gas and, during the relevant period, no gaseous substitute for natural gas was available to members of the informant in the district of Faridabad. The Tribunal upheld the Commission's definition of the relevant market (i.e., market of supply and distribution of natural gas to industrial consumers in the district of Faridabad).
These 2019–20 decisions demonstrate that the Commission has continued to define product markets based on the facts and circumstances of each case, but more narrowly in certain abuse cases to facilitate a finding of dominance.
In assessing dominance and market power in the relevant market, the Commission is required by Section 19 of the Act to assess dominance in the context of a broad range of non-exhaustive factors, including market share, size and resources of the enterprise, size and importance of the competitors, vertical integration, entry barriers and dependence of consumers on the allegedly dominant enterprise. The role and importance of each of these factors varies depending upon the facts of each case and the alleged theory of harm, but in its decisions, the Commission will assess dominance of the allegedly dominant enterprise under each of the Section 19 factors. Generally, market share and the size and resources of the enterprise will be the most important criteria in the Commission's assessment of dominance.
In AMMFI, the Commission found that Grasim was dominant in the relevant market. Grasim was the sole producer of VSF in the country and from 2011-2016, it enjoyed a market share of 87 per cent. Spinners did not find the prospect of importing VSF to be commercially viable on account of the anti-dumping duty imposed on imported VSF during the period of the investigation. Grasim was a flagship company of the Aditya Birla Group and had a controlling stake in many large and small companies. The group companies of Grasim had witnessed significant growth in recent years in terms of revenue and assets, and the revenues earned by Grasim from the sale of VSF had also seen a substantial increase. The Commission also found that the manufacturing process of VSF was highly capital intensive and involved a complex technological process that required the incurring of huge investments. Moreover, the industry was subject to stringent environmental regulation and the production process required a large amount of water, which operated as significant entry barriers for potential entrants.
In Jaypee, the Commission held that Jaypee was dominant in the relevant market. It had the largest market share in terms of number of units launched/sold of independent residential units, such as villas, estate homes, town homes and row-house in integrated townships in Noida and Greater Noida, in the period spanning financial years 2009–10 to 2011–12. The Commission noted that while Jaypee had launched 255 independent residential units during this period, its competitors had launched no such residential units in the same period, And, unlike its competitors, the Jaypee group had large land reserves in Noida and Greater Noida, which could be used for further residential development.
In InPhase, the Commission observed that approximately 54 per cent of the relevant market of IGBT based PQS for less than 1 KV was enjoyed by reputed manufacturers, while the unorganised sector accounted for the remaining 46 per cent. During financial year 2013–14 and financial year 2014–15, ABB was not even in the top three positions in terms of turnover generated from the sale of IGBT based PQS. The Commission noted that the market was competitive as it was marked by the presence of a large number of competitors. No enterprise could function independently of market forces on account of the presence of significant competitive constraints. The Commission took note of the DG's finding that the entry of the informant and P2Power into the market evidenced the absence of entry barriers. IGBT was easily available in the market and PQS based IGBT could be developed by any technical person. The Commission also observed that the process of manufacturing IGBT based power quality solutions was not capital-intensive in nature. In addition, several credible market research reports had concluded that the market for IGBT based PQS was still emerging and the entry of new market players could result in significant benefits to the consumers. Based on these findings, ABB was found not to be dominant in this relevant market.
In INSA, ONGC was held to be dominant in the market for charter hire of offshore support vessels (OSVs) in the Indian Exclusive Economic Zone (EEZ). The Commission observed that ONGC operated 45 out of 48 contractually committed/operational offshore drilling rigs in the Indian EEZ and enjoyed a market share of 82 per cent in the market for charter hire of OSVs. ONGC was the largest buyer of OSV services and OSV service providers were highly dependent on ONGC. As a result, ONGC had significant bargaining power. Being a public sector undertaking, ONGC had the first mover advantage in the industry and was able to win 121 out of 235 blocks in the eight rounds of bidding under the National Exploration Licensing Policy of the Government of India. ONGC also enjoyed a considerable market share in the upstream market. The Commission found that OSV providers had insufficient countervailing power to be able to counteract the ability of ONGC to operate independently of market forces. The Commission also found that the market was highly regulated, demanded high capital investment and was characterised by significant entry barriers.
In Adani, the Tribunal held that since Adani was the only enterprise providing natural gas to industrial consumers in the district of Faridabad and there was no substitute available to natural gas in Faridabad at the relevant time, Adani was dominant in the relevant market. The Tribunal observed that the fact that the pipeline structure installed by Adani could be used by its competitors to distribute CNG did not have any impact on the finding that Adani was dominant.
Under Section 4(2) of the Act, an enterprise (or a group) abuses its dominant position if it:
- directly or indirectly imposes unfair or discriminatory conditions in the purchase or sale of goods or services or price in purchase or sale (including predatory price) of goods or services (exclusion: discriminatory conditions or prices that may be adopted to meet competition);
- limits or restricts:
- production of goods or provision of services or markets therefor; or
- technical or scientific development relating to goods or services to the prejudice of consumers;
- indulges in conduct resulting in denial of market access in any manner;
- makes the conclusion of contracts subject to acceptance by other parties of supplementary obligations that, by their nature or according to commercial usage, have no connection with the subject of such contracts; or
- uses its dominant position in one relevant market to enter into or protect another relevant market.
Section 4(2) of the Act appears to contain an exhaustive list of conduct that may constitute abuse of dominance, unlike Article 102 of the Treaty on the Functioning of the European Union (TFEU). The list of 'abuses' in Section 4(2) is sufficiently broad and could cover most exploitative and exclusionary conduct that could be characterised as an abuse of dominance. Section 4(2)(c), in particular, which prohibits any conduct by a dominant enterprise resulting in 'denial of market access in any manner', is frequently used by complainants or informants to cover exclusive dealing, refusal to supply and other theories of anticompetitive harm that do not explicitly fall within any of the other categories in Section 4(2).
It is notable that, unlike Article 102 of the TFEU as interpreted by the EU courts, the Act does not provide for objective justifications as defences to the anticompetitive conduct of dominant enterprises. Under the Act, the only defence recognised for abusive conduct of a dominant enterprise is the 'meeting competition' defence. To date, the Commission has not provided any published guidance, including in its decisions, on the scope of this defence. As previously noted, the Draft Amendment Bill seeks to exempt the reasonable exercise of intellectual property rights from Section 4.
ii Exploitative abuses
In AMMFI, the Commission held that Grasim had abused its dominance by charging different prices to similarly placed domestic consumers. In addition, Grasim had adopted a non-transparent and discriminatory discounting policy in the market. The Commission observed that a dominant firm bore the responsibility to not engage in discrimination against similarly placed customers as well as to adopt a transparent pricing policy towards its customers.
In Jaypee, the informant had booked a villa in a residential project being developed by Jaypee. The Commission found that the Provisional Allotment Letter (PAL) issued to the informant contained various unfair and one-sided terms and conditions, which were designed to unilaterally favour the developer at the expense of the buyers. The Commission observed that Jaypee had been collecting money from the buyers without delivering the residential units on time. Jaypee had also amended the initial layout plans and imposed various kinds of charges on the buyers. The PAL empowered the developer to charge the allottee an interest on delayed payments that was disproportionately higher than what the developer was required to pay in the event of a delay in handing over the residential property to an allottee. Another provision conferred the right and sole discretion on the developer to create an equitable mortgage, charge or hypothecation on leased land and construction in favour of financial institutions notwithstanding the payment of a substantial sum by the allottee, without engaging in any consultation with the allottee. The Commission found that these contractual stipulations were tantamount to imposition of unfair terms and conditions and a manifestation of the misuse of the developer's market power.
In Verifone, the opposite party (Verifone) was engaged in the business of supplying point-of-sale (POS) terminals along with core POS terminal applications and software development kits (SDK). These products were sold to customers like the informant, who acted on behalf of the acquiring banks and provided value added services to develop and integrate applications into POS terminals. The informant alleged that in January 2012, Verifone asked it to sign a draft SDK agreement containing several onerous and one-sided clauses without any scope for negotiation. On its part, the informant made several attempts to engage in a constructive discussion with Verifone regarding the unfair nature of the provisions of the SDK agreement, which were largely ignored. The Tribunal observed that the terms of the SDK agreement deviated from standard industry practice and were non-negotiable, in violation of Section 4(2)(a)(i) of the Act.
The Tribunal found Adani Gas Limited (Adani) to have abused its dominant position in the market for supply and distribution of natural gas in Faridabad, in contravention of Section 4(2)(a)(i) of the Act. The informants were supplied natural gas by Adani to meet their fuel requirements under a Gas Supply Agreement (GSA). It was alleged that the terms of the GSA were biased in favour of Adani: for example, clause 16.3 of the GSA vested in Adani the sole discretion of accepting or rejecting requests of the consumers in respect of force majeure, while clauses 17.2 and 17.4 vested in Adani the right to terminate the agreement in the event of a buyer's failure to take 50 per cent or more of the cumulative daily contracted quantity (DCQ) during a period of 45 consecutive days. The Tribunal upheld the finding of the Commission that several terms of the GSA were in violation of Section 4(2)(a)(i) of the Act.
INSA involved allegations of abuse of dominant position against ONGC in the market for charter hire of Offshore Support Vehicles (OSVs) in the Indian Exclusive Economic Zone (EEZ). In order to procure the services of the OSVs, ONGC would float international competitive bidding tenders (IBC), which contained, among other documents, a model contract comprising of General Conditions of Contract (GCC) and Special Conditions of Contract (SCC) (collectively Charter Hire Agreement (CHA)). The informant alleged that Clause 14.2 of the SCC, which gave a unilateral right to ONGC to terminate the agreement, was unfair, onerous and abusive in nature. ONGC had invoked this clause to issue de-hiring notices to twenty-seven vessels in 2016. The Commission observed that the two primary issues in the case were as follows: (1) whether the mere existence of clause 14.2 of the SCC amounted to an abuse of dominant position; and (2) whether the use of this clause by ONGC violated Section 4 of the Act. The Commission observed that determining whether a dominant enterprise has engaged in exploitative conduct involving the imposition of unfair terms and conditions in a B2B transaction, in violation of Section 4(2)(a)(i) of the Act, entails undertaking a fairness or reasonability test, which requires assessing how the condition in question affects the trading partners of the dominant enterprise and whether there is an objective or legitimate necessity behind the imposition of such a condition. After analysing the legal positions in the US, UK and India, the Commission concluded that a clause concerning termination for convenience is fairly common and, in general, must not be construed as unfair or abusive unless it is used in an unfair manner without meeting the legal tests of 'good faith' and 'change in circumstances'. Although this clause granted a unilateral right in favour of ONGC without creating any reciprocal right in favour of OSVs, the desirability and feasibility of a reciprocal right was contingent on the balance of convenience between the parties, in the backdrop of the risks assumed by them. In the Commission's view, the risks borne by ONGC in its operations, such as geological and commercial risks, meant that the mere existence of a right of termination did not amount to a violation of Section 4(2)(a)(i) of the Act. Insofar as the use of the termination clause is concerned, the Commission found that the clause was invoked for the first time in 2016 in response to the changing dynamics in global oil markets, which had a huge impact on the market for OSVs. The intent behind the invocation of the clause had been to take advantage of the prevailing market situation and hire vessels at current market rates, which were substantially lower than the contracted rates. The Commission also took note of the fact that ONGC did not issue termination notices at the first instance of a reduction in oil prices (in 2014), but rather waited for a reasonable time till the expiry of the period stipulated in clause 14.2, and ONGC's conduct was not motivated by malice or an intent to injure any OSV. Given that ONGC is required to adhere to government regulations, continuing with agreements at higher rates than the prevailing market rates could have had negative consequences. Based on these findings, the Commission concluded that ONGC had not abused a dominant position.
The Commission's enthusiasm to review the content of contracts and to second-guess commercial decisions, beyond pricing, to support a finding of an exploitative abuse of dominance is disturbing. While the Commission has stepped back from its earlier approach in DLF to rewrite contracts on behalf of independent, commercially savvy parties (including the arbitration clause in the dispute resolution provisions of the contract), the approach of the Commission and the Tribunal in Adani demonstrates the extent to which competition law is being used to intrude into freely negotiated contracts between commercially independent parties and to opportunistically change a negotiated agreement. In contrast, INSA reflects the reluctance of the Commission to engage in a similar intrusive exercise for government-owned entities and their contracting position. The past year also saw a continuation of the unfortunate trend of the Commission focusing more on exploitative abuse cases rather than exclusionary abuse cases, highlighting the fact that complainants (informants) prefer the faster proceedings and decision process of the Commission over the protracted civil proceedings for contractual breach in a court of law, and the Commission's willingness to entertain these allegations with alacrity.
iii Exclusionary abuses
In AMMFI, Grasim's practice of requiring customers to furnish documentation of their production and export details to avail of its discounts was regarded by the Commission as ex facie unfair and a manifestation of its market power as it enabled Grasim to prevent resale and trading of its products, thereby restricting an alternative source of supply. In its defence, Grasim contended that the terms of the discounts offered to various customers were drawn up by mutual consent of the parties and were necessary to calculate the discounts. The Commission found that Grasim was unable to establish why seeking production and export details from the customers was necessary to calculate discounts. The Commission acknowledged that although the quantum of discounts to be offered to a customer could have a nexus with its volume production, there was no reason for Grasim to demand granular details of production and exports from its customers. Being a dominant enterprise, Grasim could not take the defence that a contractual term that otherwise violated the provisions of the Act was agreed upon by mutual consent of the parties. In addition, such a practice also amounted to an imposition of supplementary conditions in violation of Section 4(2)(d) of the Act.
In InPhase, the parties were involved in the manufacture of power quality and power conversion products. The informant alleged that since it had developed a product that was superior to the products of ABB India Limited (ABB), which was gaining traction among the consumers, the latter was devising ways to 'suppress technological innovation/development and competition posed by the product of the Informant'. To this end, ABB had instituted civil and criminal suits against the informant with mala fide intent. The Commission found that ABB had leveraged the significant customer dependence created in its favour as a result of its large product portfolio to compel them to stop dealing with the informant. Based on an analysis of the evidence on record, however, the Commission concluded that ABB was not dominant in the relevant market, and therefore, directed the closure of the case, without going into the merits of the allegations of abuse of dominance.
In HPCL, an appeal was filed with the Tribunal against the decision of the Commission under Section 27 of the Act finding South Asia LPG Company Private Limited (SALPG) to have abused its dominant position in not allowing bypassing of its cavern facility. The informant alleged that SALPG's insistence that the informant receive its supply of gas through SALPG's cavern made the informant's business economically unviable, thereby forcing its customers to switch to SALPG for securing 'terminalling services'. According to SALPG, its actions were motivated by a need to enhance safety measures at its facilities. The Tribunal held that SALPG only wanted to secure its commercial interests through these measures, and the justifications offered for such conduct were merely an afterthought. SALPG was found to have unreasonably restricted the business of the informant and, thereby, to have infringed Section 4(2)(c) of the Act.
Remedies and sanctions
Pending final determination of a case by the Commission, the Commission may issue interim orders restraining the parties from engaging in anticompetitive activities during the course of investigation.
If an enterprise or group is found to have abused its dominant position, in terms of Section 27 of the Act, the Commission may impose fines of up to 10 per cent of the enterprise's or group's average turnover for the preceding three financial years. Keeping in view the principles of proportionality, while deciding the amount of penalty, the Commission takes into account the aggravating or mitigating factors based on the facts and circumstances of each case. In addition, the Commission may pass a cease-and-desist order together with any other orders or directions as the Commission may deem fit. The Commission has not yet issued any guidelines on penalties.
The Supreme Court has clarified that, for determining the amount of penalty, the Commission must take into account the relevant turnover generated from products and services affected by the infringing conduct, as opposed to total turnover. The Supreme Court noted that any penal law imposing punishment is made for the general good of society and emphasised the principle of proportionality, which requires that the penalties imposed must not exceed what is appropriate and necessary for attaining the objective pursued.
In the 2019–20 period, the Commission passed two orders under Section 27 of the Act in respect of abuse of dominant position: AMMFI and Jaypee. In AMMFI, the Commission observed that Grasim had not pleaded any mitigating factors in respect of the imposition of penalty. The Commission imposed a penalty of 3.016 billion rupees on Grasim (5 per cent of the average relevant turnover generated by Grasim in the market for sale of VSF to spinners in India during financial years 2014–15 to 2016–17).
In Jaypee, the Commission decided to levy a penalty of 130.82 million rupees (5 per cent of the average relevant turnover of Jaiprakash Associates Private Limited from the sale of independent units in integrated township located in Noida and Greater Noida during the financial years from 2009–10 to 2011–12) after considering all the aggravating and mitigating factors.
In Adani, the Tribunal reduced the penalty levied on Adani from 4 per cent of the turnover for the relevant three years to 1 per cent after considering the mitigating factors in favour of Adani. The Tribunal observed that during the investigation, Adani had voluntarily revised the terms of the GSA to make them more consumer friendly. These revisions made to the terms of the GSA eliminated the discrimination against industrial customers, including members of the informant.
The Commission is empowered to proceed against company officials under the provisions of Section 48 of the Act. The High Court of Delhi,20 in exercise of concurrent writ jurisdiction, has clarified that the Commission can simultaneously proceed against the company for infringing the Act, and company officials under Section 48 of the Act.
i Proceedings before the Commission
The Act provides the procedure for filing of the information (i.e., the complaint), the investigation process, inquiry by the Commission and the procedure for appeal.
Any person may file a complaint with the Commission, in the prescribed format together with requisite fees, alleging contravention of the provisions of the Act. The informant (i.e., the complainant) may also file an application with the Commission for interim measures by describing the harm that would be caused if no interim protection is granted. Once the information is filed, the Commission, as far as possible, is required to record its opinion on the existence of a prima facie case within 60 days of the filing of the information. If the Commission is of the opinion that there exists a prima facie case, the Commission may direct the DG to conduct an investigation into the alleged anticompetitive conduct and submit its report within the time specified by the Commission.
Upon completion of the investigation, a non-confidential version of the DG's report is provided to the informant and a confidential version of the report is provided to the enterprises under investigation. The parties are then directed to file their respective comments or objections to the report within the time limit specified by the Commission.
Thereafter, the Commission schedules the case for hearing the parties – both the informant and the enterprises that allegedly infringed Section 4. The hearing is sometimes attended by a representative of the DG, but the DG is not present to defend the investigation report in all cases. Rather, in a case where the report finds an infringement of Section 4, the Commission relies on the informant to provide its submissions and, where the DG's report is favourable to the informant, to defend the DG's report. Where the report finds no infringement of Section 4, the Commission invites only the informant for a hearing before rejecting the information or complaint. The Commission is not obligated to accept the DG's report, and there have been cases where the Commission has disagreed with the findings of the DG and rejected the report.
ii Appellate procedure
An appeal against the final order of the Commission may be made to the Tribunal within 60 days of the date of receipt of the final order by the party. An appeal against the order of the Tribunal may be made to the Supreme Court of India within 60 days of the date of receipt of the Tribunal's order.
Interim measures are available to parties before the Commission, the Tribunal and the Supreme Court of India. Frequently, parties also file writ petitions before the high courts if they believe that principles of natural justice are being violated or their legitimate legal rights are being ignored by the Commission.
Although the Act does not provide for private enforcement, it does allow a successful informant or any other person affected by the findings of the Commission, to make an application before the Tribunal for compensation from the dominant enterprise based on the findings of the Commission or the orders of the Tribunal.
i Principles of natural justice
The Competition Appellate Tribunal and the High Court of Delhi (in exercise of concurrent writ jurisdiction) have been very critical of the Commission for procedural irregularities and have clarified some of the important rules of procedure. For example, an order of the Commission must be signed by those members of the Commission who have heard the parties. As a result, any order of the Commission signed by a member who has not attended the hearing will be set aside. Also, a party (being investigated) must be provided with all the materials and evidence that are being used against it. The affected parties must also be given notice if the Commission decides to differ from the findings recorded by the DG in the investigation report. In addition, the right to conduct cross-examinations has been recognised.
On the question of the DG's investigative powers, the Supreme Court has clarified that it is well within the DG's powers to expand the scope of investigation and has noted that the Commission's order directing the investigation, in terms of Section 26(1) of the Act, is merely the starting point for the DG.
ii Dawn raid powers
For conducting investigations into anticompetitive practices, the DG's office has been conferred with wide-ranging investigative powers for collecting evidence, including the powers of a civil court under the Indian Code of Civil Procedure 1908. The DG is also vested with the power to use dawn raids or unannounced search and seizures to inquire into allegations of anticompetitive conduct (including abuse of dominance), and the parties being raided have an obligation to cooperate during the search. Dawn raids may also be carried out by any person appointed by the DG in this regard. While conducting the raid, the DG or any person authorised by him or her for this purpose has been granted the power to enter any premises, conduct a search at the premises and seize books, papers and electronic media that he or she considers necessary for the purpose of the investigation. These raids generally occur without any warning and are usually conducted at times when least expected, often in the early hours of the morning, and may even occur over a weekend. The search and seizure operations are conducted in a covert manner leaving no scope for the party under investigation to scuttle the search in any manner or to 'sanitise' the records. If a company has several offices, it is possible that simultaneous raids will be conducted at more than one office. Dawn raids are regarded as an effective tool for inquiry into anticompetitive practices and are authorised by the Chief Metropolitan Magistrate, New Delhi, through a warrant.
These dawn raid powers are now being used more frequently and, as of November 2019, there have been six instances of dawn raids in India, one of which relates to an abuse of dominance enquiry and the remaining relate to cartel investigations. In the raid relating to the abuse of dominance matter, the Supreme Court has recently clarified that an authorisation for search alone would not be sufficient for purposes of the investigation; the authorisation must extend to both search and seizure.
iii Overlapping jurisdiction
In the Ericsson writ petition, the High Court of Delhi upheld the Commission's jurisdiction to examine issues covered by the Act, and held that areas covered under the Act do not fall within the domain of the patent enforcement authorities under the Indian Patents Act 1971. This decision is presently under appeal before a division bench of two judges in the High Court of Delhi.
In the Jio writ petition, the High Court of Bombay held that, in matters relating to the telecoms sector, regulated, controlled and developed by the authorities under the Telegraph Act and the Telecom Regulatory Authority of India Act (the TRAI Act), the Commission must await the decision of the telecoms sector authorities because the telecoms sector authorities were best placed to decide the jurisdictional facts before them. This decision of the High Court of Bombay was challenged by the Commission before the Supreme Court. The Supreme Court observed that, while the Commission was entrusted with the duty to enforce the Act against several types of anticompetitive practices that may have an adverse effect on competition, the Telecom Regulatory Authority of India (TRAI) was assigned the role of overseeing the growth of the telecommunications infrastructure by ensuring technical compatibility and effective interrelationship between different service providers. The Supreme Court then upheld the judgment of the Bombay High Court and held that, since the matter related to the telecoms sector, which is regulated by the TRAI Act, it would be appropriate for TRAI (the market regulator) in the first instance to decide on the jurisdictional aspects. Subsequently, if the findings of TRAI prima facie indicate that the provisions of the Act have been contravened, the Commission's jurisdiction may be invoked to investigate the matter. On the facts of the Jio case, the outcome was non-controversial, and it remains to be seen whether this approach will apply in all cases of overlapping jurisdiction where the sector is regulated by a sectoral regulator. This approach raises several practical difficulties, such as the possibility of the matter before the sector regulator pending for several years with further appeals to the courts. Essentially, this means that the Commission would have to wait until the matter before the sector regulator is finally decided by the Supreme Court, which could take several years.
Following this case, the Commission arrived at a similar conclusion in NSE, where the Commission, while dealing with the issue of co-location, stated that the case was under adjudication by the Securities Exchange Board of India (SEBI) as a result of a whistle-blower letter to SEBI alleging that NSE gave preferential access to a few high-frequency traders and brokers in respect of the exchange's trading platform. The Commission closed the file after concluding that SEBI was investigating issues similar to those alleged by the informant. The Commission noted that while
discriminatory and abusive conduct which falls foul of the provisions of the Act falls within the jurisdiction of the Commission and can be independently examined by the Commission based on cogent facts and evidence . . ., the allegations against the [NSE] are yet to be established in an appropriate proceeding and also there is not sufficient information and data before the Commission about the role attributable to [NSE], in the provision of discriminatory co-location services qua certain trading members, as alleged in the Information to arrive at a prima facie view. Thus, it may not be apposite for the Commission to delve into the allegations contained in the Information at present.
iv Constitutionality of certain provisions of the Act
Recently, the High Court of Delhi struck down the provisions of Section 22(3) of the Act but not the proviso that provides for a quorum of three members for meetings of the Commission. Section 22(3) of the Act provides that a decision must be taken by a majority of the members of the Commission, present and voting, and in the event of equality of votes, the chairperson would have a second or casting vote. The Court observed that the second or casting vote in an adjudicatory process is anathema to the rule of law and principle of collegiality. The Court upheld the remaining provisions of the Act, while directing the Commission to issue guidelines in respect of several matters to ensure procedural fairness and respect for the rules of natural justice, including the principle that 'one who hears must decide'.
1 Anand S Pathak is the managing partner at P&A Law Offices.
2 Case No. 36 of 2019, In Re: JSW Paints Private Limited (JSW) v. Asian Paints Limited.
3 Case No. 14 of 2019, In Re: Federation of Hotel & Restaurant Associations of India v. MakeMyTrip Private Limited and others; and case No. 01 of 2020, In Re: Rubtub Solutions Private Limited v. MakeMyTrip Private Limited and others.
4 Case No. 05 of 2019, In Re: Matrix Info Systems Private Limited v. Intel Corporation and others.
5 Case No. 39 of 2018, In Re: Umar Javeed and others v. Google LLC and others.
6 Case No. 47 of 2018, In Re: Advocate Jitesh Maheshwari v. National Stock Exchange of India Limited.
7 (2019)2 SCC 521
8 Case No. 30 of 2018, In Re: Mr. Meet Shah and Mr. Anand Ranpara v. Union of India, Ministry of Railways and Indian Railway Catering and Tourism Corporation Ltd. (IRCTC).
9 Case No. 12 of 2016, In Re InPhase Power Technologies Private Limited and ABB Limited.
10 Case No. 01 of 2018, In Re: Indian National Shipowners Association (INSA) v. Oil and Natural Gas Corporation Limited (ONGC).
11 TA(AT) (COMPETITION) No. 16 of 2019, All India Online Vendors Association v. Competition Commission of India and others.
12 TA(AT) (COMPETITION) No. 69 of 2018, Hindustan Petroleum Corporation Limited v. Competition Commission of India and others.
13 TA(AT) (COMPETITION) No. 52 of 2018, Parsoli Motor Works Private Limited v. BMW India Private Limited and others.
14 TA(AT) (COMPETITION) No. 32 of 2017, Mr. Piyush Joshi v. Competition Commission of India.
15 TA(AT) (COMPETITION) No. 01 of 2017, Verifone India Sales Private Limited v. Competition Commission of India and Atos Worldline India Private Limited.
16 TA(AT) (COMPETITION) No. 27 of 2018, Asmi Metal Products Private Limited v. SKF India Limited and another.
17 TA(AT) (COMPETITION) No. 33 of 2017, Adani Gas Limited v. Competition Commission of India and others.
18 TA(AT) (COMPETITION) No. 84 of 2018, Uttarakhand Agricultural Produce Marketing Board v. Competition Commission of India and others.
19 The Commission had already introduced and adopted supply-side substitutability in its practice 10 years earlier while defining relevant markets in case No. 13/2009, MCX/NSE, the first predatory pricing case before the Commission. The Draft Amendment Bill seeks to formalise the concept of supply-side substitutability by including it in the statute.
20 Letters Patent Appeal No. 637 of 2018 before the Delhi High Court, Mahyco Monsanto Biotech (India) Pvt Ltd & Anr v. Competition Commission of India & Ors.
21 Case No. 47/2018, In Re: Jitesh Maheshwari v. National Stock Exchange of India Ltd.
22 WP (C) 11467/2018, CM Appl 44376-44378/2018, Mahindra Electric Mobility Limited and Another v. Competition Commission of India and Others.