Competition
Law Alert
ORDERS By COMPETITION COMMISSION OF INDIA
A.
Anti-Competitive Agreements
Synopsis of the legal provisions
Section 3 of the Competition Act, 2002 (“Act”) prohibits an enterprise or association of enterprises or
persons to enter into agreements in respect of production, supply,
distribution, storage, acquisition or control of goods or provision of
services, which causes or is likely to cause appreciable adverse effect on competition in
India.
Following kinds of agreements between enterprises, persons or association
of persons or enterprises, or practices or decisions taken by association of
persons or enterprises, including cartels, engaged in similar or
identical trade of goods or provision of services is presumed to have
appreciable adverse effect on competition:
a) Agreements or decisions that directly or indirectly
determine purchase or sale price.
b) Agreements that limit or control production, supply,
market, technical development, investment or provision of services.
c) Agreements to share market or source of production
or provision of services by way of allocation of geographical area of market or
type of goods or services, or number of customers in the market or any other
similar way.
d) Agreements that, directly or indirectly, result in
bid-rigging or collusive bidding.
However, agreements entered into by way of joint ventures are excluded
from above restriction if such agreements increase the efficiency in
production, supply, distribution, acquisition, or control of goods or provision
of services.
Under the Act, ‘cartel includes an
association of producers, sellers, distributors, traders, or service providers
who, by agreement amongst themselves, limit control or attempt to control the
production, distribution, sale or price of, or trade in goods, or provision of
services’.
Further, under section 19(3) of the Act, following factors are to be
considered by Competition Commission of India (“CCI”) in determining whether an agreement has appreciable
adverse effect on competition:
a) Creation of barriers to new entrants in the market.
b) Driving existing competitors out of the market.
c) Foreclosure of competition by hindering entry into
the market.
d) Accrual of benefits to consumers.
e) Improvement in production or distribution of goods
or provision of services.
f) Promotion of technical, scientific and economic
development by means of production or distribution of goods or provision of
services.
B.
Abuse of Dominant Position
Synopsis
of legal provisions
Section 4 of the Act prohibits any enterprise or
group to abuse its dominant position. ‘Dominant position’ has been defined to
mean ‘a position of strength enjoyed by
an enterprise, in the relevant market, in India, which enables it to –
(i)
operate independently of competitive forces
prevailing in the relevant market; or
(ii) affect its
competitors or consumers or the relevant market in its favor’.
In light of the above provisions, we produce the summary of CCI’s orders
passed in the month of September, 2013:
1.
Casa Paradiso Owners’ Welfare
Association v. M/s Sanathnagar Enterprises Limited, decided on September 2,
2013
The case was filed by Casa
Paradiso Owners’ Welfare Association (“Owners’
Association”) against M/s Santhnagar Enterprises Limited (“Defendant Developer”) alleging abuse of
dominance.
Owners’ Association inter alia alleged that the Sale
Agreement (“Agreement”) executed
between an individual buyer and Defendant Developers contains unilateral terms,
which highly favours Defendant Developer.
It was also alleged that the Agreement was inconsistent with the oral assurances
of the Defendant Developers. Further, Owners’ Association stated that there was
a huge difference between the penalties applicable for purchaser and Defendant
Association, in case of respective default.
Based on the information given in
the red herring prospectus of parent company of the Defendant Developer,
Owners’ Association stated, that Defendant Developer is dominant player in the
market of “provision of services towards
development of residential apartments in Hyderabad”. As per the red hearing prospectus, the parent
company of Defendant Developer has 38 projects in Mumbai and 1 project each in
Hyderabad, Pune and Lonavala etc. Further, the red herring prospectus and news
paper reports also state that the parent company of the Defendant Developer is
a major real estate developer in Mumbai.
CCI stated that the relevant
market for the case is “provision of
services towards development of residential apartments in Hyderabad”. Based
on the information of the projects of the parent company, CCI noted that
Defendant Developer has a miniscule presence in the relevant market, as it has
only one project in the relevant geographic market i.e. Hyderabad. CCI held
that the claims of an enterprise in its red herring prospectus cannot be a
decisive evidence of dominance per se. Further, the presence other players in
the relevant market indicates that Defendant Developer is not a dominant player
in the market.
Based on the above observations
and analysis, CCI held that Defendant Developer is not a dominant player in the
market and hence no prima facie case of abuse of dominance could be established
against it. Therefore, CCI ordered for closure of the case.
2.
In Re: Om Prakash, and Central Bureau of
Narcotics and Narcotics Control Bureau, September 16, 2013
The case was filed by Mr. Om
Prakash (“Informant”) against
Central Bureau of Narcotics (“CBN”)
and Narcotics Control Bureau (“NCB”)
alleging abuse of dominance.
Informant stated that CBN and NCB
have not properly implemented the EXIM Policy 2009-2014 (“EXIM Policy”), which requires every importer to register its import
contract of Opium. Informant alleged that CBN is the sole body which regulates
import and export of poppy seeds in India and that it is not following the
mandatory requirement of registration of opium import contract. Informant
further alleged that CBN has permitted import of a huge amount of illegal poppy
seeds.
Aggrieved with the above conduct
of CBN, Informant has approached the CCI.
CCI noted that prior to year
2000, import of poppy seeds into India was not permitted. Later, the
prohibition was revoked and import of 500 metric tonnes was allowed.
Subsequently, the Exim Policy removed the ceiling allowing unlimited import of
poppy seeds into India. However, importers are required to register their
import contract with CBN.
On the basis of Narcotic Drugs
and Psychotropic Substances Policy (the ‘NDPS
Policy’), which was framed for import of poppy seeds by way of import
contract, CCI observed that import contracts require prior registration, as
well as, a certificate of lawful production of poppy. Further, CCI observed
that demand of poppy seeds is more than total production of poppy seeds in
India, and it was also noted that NDPS Policy specifically provides that poppy
seeds will be imported, until India acquires self sufficiency.
CCI stated that for establishing
case against CBN and NCB, it is necessary to know whether both entities can be
covered under the definition of enterprises or group as provided in the Act. On
the basis of the analysis of the CBN and NCB and their respective functions,
CCI observed that CBN and NCB are government agencies only regulating and
controlling the import of poppy seeds in India. CCI further observed that CBN
and NCB do not perform any commercial activity, hence they cannot be considered
as enterprises under section 2 (h) of the Act.
CCI noted that import of poppy
seeds is governed by Exim Policy of Ministry of Commerce, whereas NCB and CBN
are agencies of Ministry of Home Affairs and Ministry of Finance respectively.
Based on the above analysis and observations, CCI held that no prima facie case
could be established against CBN and NCB. Therefore, CCI ordered for closure of
the case.
3.
All Odisha Steel Federation v. Odisha
Mining Corporation Limited, decided on September 19, 2013
The case was filed by All Odisha
Steel Federation (“Steel Federation”)
against Odisha Mining Corporation Limited (“OMC”) alleging abuse of dominance.
Steel Federation is an
association of steel manufacturers and related industries whereas, OMC is a PSU
engaged in the in the activities of raising, assembling and transportation of
ore and other minerals in the state of Odisha.
Steel Federation stated that
chrome ore is used in the metallurgical industries, such as steel industry, and
Odisha is the only state in India, where such ore is available. Steel
Federation further stated that OMC is the sole body, which has control over the
extraction of ore from all non-captive mines.
Steel Federation mentioned that
its members are registered with OMC and therefore they get a regular quota of
chrome ore based on their manufacturing capacity. However, the unregistered
manufacturer has to take part in Price Setting Tenders (“PST”) for getting supply of chrome ore.
Steel Federation alleged that
earlier the price of chrome ore was decided on the basis of sale price of IFCAL
(state owned entity) or purchase price of chrome ore by Steel Authority of
India Limited. However, after 2007 the prices are fixed on the basis of the
highest bid in PST.
Steel Federation alleged that
under PST method, a very small quantity of chrome ore is tendered for sale and
therefore companies, which cover less than 2% of the total quantum of sale by
OMC quote abnormally higher price. Subsequently, the highest bid price becomes
the benchmark price for member of Steel Federation and other industries, which
cover 70% of the quantum of sale by OMC.
Steel Federation further alleged
that if the highest price of a particular PST bid is lower than the price of
preceding PST bid, then the highest price of preceding PST bid becomes the
benchmark price.
Steel Federation contended that
in year 2012, OMC issued notice for an e-auction and the base price for the
same was substantially higher and had no correlation with cost of production.
It was also contended that OMC has restricted the supply of the ore by not
making all mines operational.
Aggrieved with the conduct of
OMC, Steel Federation approached CCI. Subsequently, CCI ordered for DG
investigation.
Based on the findings from DG’s
report, CCI pronounced its order.
Relevant
Market
As per the DG report, CCI
observed that the chrome ore can be categorized into three classes and
metallurgical industries use a particular class of chrome ore i.e. friable
chrome. CCI also observed that friable chrome cannot be substituted with other
classes of chrome ores, as chrome ores of different size require different
furnaces.
CCI noted that 99.5% of the
friable chrome is available in Odisha. Therefore, even consumers located
outside Odisha are also dependent on Odisha for supply of chrome. Therefore,
CCI ascertained the relevant market as the market of friable chrome ore in the state of Odisha.
Dominance
Based on the DG report, CCI noted
that OMC is the only source for friable chrome in domestic market. Tata Steel
Limited (which used to supply substantial amount of ore) has also stopped sale
of chrome ore since 2007. CCI noted that in the year 2010-11, OMC covered
85.81% of the total sale of chrome ore in the domestic market.
CCI observed that government has
leased 11 mines to OMC. As per the government policy, new entry is hardly
possible. Therefore, the consumers have no countervailing power. Based on the
above findings, CCI stated that OMC is a dominant player in the relevant market.
Abuse
of Dominance
Based upon the allegations of
Steel Federation, CCI stated that abuse of dominance needs to be considered on
three levels i.e. excessive prices at PST, price of e-auction and restriction
on supply of ore.
PST
Prices
CCI observed that there are
certain clauses in PST document, which protects the commercial interest of OMC.
Accordingly, if OMC believes that the highest quoted price under PST is not the
true indicator of prevailing market price, then in such cases OMC can invoke such
clause and fix the price. Therefore fixing of price by OMC, instead of going
with highest bid price is not unfair.
Price of
e-auction
Based on the DG report, CCI noted
that in cases where OMC believes that the quoted price are not the prevailing
price of market, it chooses other mechanism for pricing for providing chrome at
lower prices. Accordingly, OMC opted for e-auction in year 2012 instead of PST.
CCI further noted that the prices of e-auction were not unreasonable and were
based on the international standards.
CCI also pointed out that if OMC
was selling chrome at excessive prices than Tata Steel would not have left the
market. CCI also mentioned that chrome is a mineral and has limited supply for
a limited period of time therefore, unlike other consumer products, its correct
price could not be ascertained. Hence, CCI stated that price charged under
e-auction were not excessive and unfair as per section 4 of the Act.
Restriction
of supply
Steel Federation lastly alleged
that OMC has restricted the supply of chrome by not making all mines
operational. However, CCI referred to DG Report, where it was noted that all
mines could not get operational on account of pending statutory clearances,
such as clearance from the National Board of Wildlife and consent of the
Ministry of Environment and Forest.
Therefore, on the basis of above
findings, observations and analysis, CCI held that OMC is a dominant player in
the relevant market, however the alleged conduct of OMC is not abusive in terms
of the provisions of Section 4(2)(a)(i) and 4(2)(a)(ii) of the Act.
C.
Combination
Registrations
1.
Combination Registration No.
C-2013/09/130, decided
on September 19, 2013
The notice for the combination
was filed by HT Global IT Solutions Holdings Limited (“Acquirer”), a company belonging to the Baring Private Equity Asia
Group.
As per the proposed combination,
the Acquirer will acquire 41.48 per cent of equity share capital of Hexaware
Technologies Limited (“Hexaware”).
Acquirer will further acquire 26 per cent of the equity share capital of
Hexaware by way of open offers pursuant to the provisions of SEBI (Substantial
Acquisition of Shares and Takeovers), Regulations 2011.
The proposed combination was
filed in furtherance of two separate share purchase agreements. First agreement
was executed between Acquirer, Elder Infosystems Private Limited and Elder
Venture LLP and the second between the Acquirer and GA Global Investments
Limited.
Hexaware is a public listed
company incorporated under the Companies Act, 1956 and is engaged in the
business of providing information technology (“IT”) and Business Processing Outsourcing (“BPO”) services.
Acquirer is a private limited
company incorporated under the laws of Mauritius and is a part of the Baring
Private Equity Asia Group. It was stated
that neither Acquirer nor any company/private equity fund of Baring Private
Equity is engaged in the business of providing IT and ITES services in India.
CCI noted that the present
combination does not contemplate combination of two existing companies engaged
in the IT and ITES services in India. Therefore, CCI approved the combination.
2.
Combination Registration No.
C-2013/08/129, decided
on September 10, 2013
The notice for combination was
filed by Ratnakar Bank Limited (“Ratnakar
Bank” or “Acquirer”). As per the
proposed combination, the Acquirer will acquire credit card business, mortgage
portfolio business and banking business of the Royal Bank of Scotland N.V. (“RBS”). The combination was pursuant to
Master Sale and Purchase Agreement entered between the Acquire and RBS .
As per the information, Acquirer
is a banking company registered under the Banking Regulation Act, 1949.
Acquirer is engaged in the business providing retail banking, treasury and
financial services, corporate and institutional banking, agri-banking services
etc.
RBS is a wholly owned subsidiary
of RBS Holdings N.V., which is incorporated under the Dutch law. RBS is stated
to be engaged inter alia in the
business of providing retail and corporate banking, financial services,
insurance and wealth management services, transaction banking, fixed income and
foreign exchange products and services etc.
Based on the RBI’s report on Trend and Progress of Banking in India
2011-12, CCI noted that Acquirer and RBS have small number of branches in
India.
CCI noted that Acquirer has no
presence in the business of credit cards. Further, post combination RBS would
exit from credit card business, mortgage portfolio and business banking
segment. CCI further observed that post combination, the presence of Acquirer
in the mortgage and banking business would be insignificant.
Therefore, based on the above
observations and analysis, CCI approved the combination.
D.
News
1.
CREDAI considers moving CCI on sudden
cement price hikes
Confederation of Real
Estate Developer's Associations of India (“CREDAI”),
the apex body of real estate developers may
move to CCI against cement manufacturers alleging cartelisation. Last month,
the price of cement has increased from Rs 210 to Rs 275. CREDAI believes that
the price hike could be a result of cartelisation. Chairperson of CREDAI stated
that the rise of Rs. 50 per cement bag has increased the cost of construction
by Rs. 20-25 per square feet.
In the year 2012, CCI
had imposed a penalty of around Rs 6,200 crore on 11 leading cement companies
for price cartelisation.
2.
CCI decision soon on probe into
telecom players' cartelisation
Recently, CCI has
started investigation against mobile operators for a possible cartelisation
during the re auction of the cancelled spectrum. Mobile operators have informed
that they did not participated in the bid as the floor price was higher and
their revenue model could not support such higher price. CCI chairperson
informed PTI that CCI will take into account TRAI's proposal to slash spectrum
floor price.
CCI believes that the
recent proposal of TRAI to slash spectrum price acknowledges that the base
prices were in reality higher and because of higher base price mobile operators
abandoned bid. Therefore, as per CCI chairperson, it is important to analyse
the TRAI’s proposal to know the actual reason of non-bidding.
3.
Competition Commission probe against
Google gets extension
CCI has given
additional time to DG to complete probe against Google for alleged abuse of
dominance in the market of Internet search engine.
As per the allegations, Google was
discriminating in the order in which search result comes. Therefore, DG office
wants to investigate as to what is the software, which Google uses and what is
the algorithmic search.
As per the allegations, Google was
discriminating in the order in which search result comes. Therefore, DG office
wants to investigate as to what is the software, which Google uses and what is
the algorithmic search.
4.
CCI to probe market abuse charges
against JP Associates
CCI has ordered DG to
start investigation against Jaiprakash Associates (“JP”) for alleged abuse of dominant market position in sale of flat
in its housing projects. The DG has been asked to submit the report within two
months.
The order for investigation was given on the basis of a complaint filed
by an individual buyer, who had booked a residential unit in one of JP’s
project.
The complainant alleged that even after two years from the date of
booking, the possession has not been given to buyer and JP has been raising
illegal and unreasonable demand for money. Further, it was also alleged that
buyers are being threatened with cancellation of allotment in case they fail to
pay demand on time.
5.
Competition Commission to probe abuse
of dominance by ITPO
CCI has ordered DG to
start investigation against India Trade Promotion
Organisation (“ITPO”) in alleged case of abuse of dominance.
ITPO is
the nodal agency of government to promote external trade and approve holding of
international trade fairs at Pragati Maidan. ITPO also organises trade fairs
and shows in India and abroad. The order for investigation was given on the
basis of a complaint filed by Indian Exhibition Industry Association against
ITPO and Ministry of Commerce and Industry.
It was
alleged that ITPO has abused its dominant position by of imposing unreasonable
conditions for approving trade fairs and shows in Pragati Maidan. ITPO has
denied access to other exhibitors by altering guidelines and by delaying their
confirmation. It is further alleged that ITPO makes it mandatory for exhibitors
to take foyer area and engage its empanelled housekeeping agency.
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DISCLAIMER
This
competition law alert has been prepared by Sarthak Advocates and Solicitors. It
is meant to be merely an informative summary and should not be treated as a
substitute for considered legal advice. We welcome your comments and
suggestions. For any comments, suggestions or further clarifications, please
contact us at:
Sarthak Advocates & Solicitors
A-35, Sector - 2, Noida- 201 301,
Uttar Pradesh
Boardline: +91- 120-4309050
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