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 April, 2013:
1. Kuldeep Singh v. PAL Infrastructure and
Developers Private Limited, decided on
April 30, 2013
The case was filed by Kuldeep Singh (“Informant”) against PAL Infrastructure
and Developers Private Limited (“Developer”)
alleging abuse of dominance by Developer.
Informant booked a residential unit in the Developer’s project in Gurgaon in
the year 2007.
Informant alleged that Developer has imposed unfair
and unilateral conditions on the Informant. It was also alleged that in the
year 2011, Developer has changed the flat which was earlier allotted to
Informant in the year 2007.
Subsequently, Informant was asked to pay an extra sum, as the new flat has
bigger super area as compared to the earlier allotted flat. Further, it was
alleged that Informant was asked to pay an interest on the increased due amount
since year 2007.
CCI noted that the relevant market in the present
case is ‘provision of services of development and sale of residential flats
in Gurgaon’. CCI stated that Informant has not provided any information on the
dominant position of Developer in the relevant market. CCI further stated that
on the basis of the information in public domain, the Developer is not a
dominant player as there are other major players like DLF and Parasvnath are present
in the market. CCI held that as the dominance of Developer could not be established,
there is no question of abuse of dominance. Therefore, CCI ordered for closure
of the case.
2. Keerthy Krishnan & Others v. Bharat Petroleum Corporation Limited, Mumbai
and Others decided on April 10, 2013
The case was filed by
Keerthy Krishnan and few other LPG cylinder transporters (“Transporters”) against Bharat Petroleum Corporation Limited (“BPCL”) alleging the abuse of dominance.
It was stated that as per
general practice BPCL used to float tenders for transportation of
packaged LPG Cylinders from its bottling plant to distributors. In the year
2012, BPCL introduced the policy of reservation routes for the truck
transportation service to its distributors and fixed lower ceiling rates
without issuing a tender. Transporters alleged that BPCL has scaled down the
number of trucks, which were plying from its Kochi bottling plant.
Transporters informed
that BPCL reserved 50% of the routes for its distributors. The Transporters contended
that since the distribution of LPG cylinders was a distinct and separate
service from the transportation business of LPG cylinders, there was no logic
or rationale in reserving the contract for transportation to the distributors.
Transporters alleged that this exclusive distribution agreement between BPCL and its distributors
was in contravention of section 3(4)(c) of the Act.
CCI observed that the
relevant market for the present case would be the market of “the services of
transportation of goods by trucks in the territory of India”. CCI
noted that BPCL is not the only service procurer in the relevant market,
as there are many other sectors, which procure the services of road transport
like cement, cereals etc. CCI accordingly concluded that BPCL is not a dominant
service procurer in the relevant market.
CCI stated that
the decision of BPCL to introduce a new model for transportation of cylinder by
way of an agreement with distributors cannot be interfered, as BPCL has the
liberty to change the manner of operations for its interest, which is a
legitimate business decision.
CCI further noted that the presence of other buyers of
the services of the informant indicates that there is no appreciable adverse
effect on the competition. Based on the above observations, CCI stated that no prima
facie case exists to direct DG for investigation in this case. Therefore,
CCI ordered for closure of the case.
3. Shailesh
Kumar v. M/s Tata Chemicals Limited and others, decided on April 16, 2013
The case was filed by Shailesh Kumar (“Informant”) against Tata Chemicals
Limited and few other manufactures
of soda ash (“Manufacturers”)
alleging cartelization. Informant alleged that Manufacturers have shared the information
regarding data of production, demand and supply, capacity etc. on the website
of Alkali Manufacturers Association of India (“AMAI”). Informant stated that the content of the website of AMAI
can only be accessed by its members. The Informant alleged that there existed
an understanding among the Manufacturers to reduce competition among them,
which emanated from exchange of information under the aegis of AMAI.
Informant alleged that the Manufactures quote similar prices, whenever a consumer
asks for their quotations. Informant further alleged that the Manufacturers
manipulated their data before Director
General of Safeguards (“DGS”) and
the Director General of Anti-Dumping (“DGAD”).
Informant
alleged that due
to such manipulation, the claim of the Manufacturers was accepted by the DGS resulting
into imposition of safeguards duty at the rate of 20% ad valorem on import of
soda ash from China from 05.11.2009 till 19.04.2010, which was reduced to 16%
from 20.04.2010 to 19.04.2011 and 14% from 20.04.2011 till 19.04.2012. Informant
alleged that AMAI was manipulating the data before DGAD, with the aim of
ensuring that imports of soda ash in Indian market did not threaten its ability
to control soda ash prices in India.
CCI stated that
existence of an agreement is a must
for invoking the provisions of the section 3 of the Act. An agreement as per section 2(b) of the Act
can be an arrangement or understanding or action in concert whether or not
formally written and its existence can be proved by circumstantial evidences as
well.
CCI noted that the
decisions of the quasi-judicial authority like DGS and DGAD cannot be examined
in collateral proceedings before CCI, unless it could be shown that prices were
fixed and output got limited to the detriment of the consumers and the competition. Moreover,
even after the imposition of anti-dumping duties, imports cater 20% of the
market. Therefore, as per CCI, the customers have a substitute in the market. CCI
also observed that in the year 2009, huge quantity of soda ash was imported to
India and following which Manufacturers had reduced the prices of their
product, which clearly shows that Manufacturers face competition from
importers.
CCI noted that as per DG
report, the information shared by Manufacturers on the website of AMAI was in
public domain and was being asked by government from time to time. Further,
such information was also provided to industry bodies like CII etc. Similar
information was also available in the annual report of the Manufacturers. CCI
stated that AMAI being the association had disseminated the
aggregated data, which cannot be called as collusion in the absence of any evidence.
On the issue of quoting
similar prices by Manufacturers, CCI observed that the quoted prices are not
the net value which a Manufacturer charges. Rather the quoted prices are
subjected to negotiations, where Manufacturers provide discounts. CCI noted the
difference of Rs.100-200 per metric tonne in the discounts granted by different
Manufacturers, which indicates that the Manufacturers compete on the discounts.
Based on the above observations, CCI held that no sufficient evidence could be found
against the Manufacturers and ordered for the closure of the case.
C. Combination
Registrations
1. Combination
registration No. C-2013/03/114, decided on April 4, 2013
The
notice for combination was filed by Berkshire Hathaway Inc. (“Berkshire”) and 3G Special
Situations Fund III L.P. (“3G Fund”).
As per the combination, Berkshire and 3G Fund (collectively referred as “Acquirers”) propose to acquire indirect
joint control of H.J. Heinz Company (“Heinz”).
The combination is pursuant to an agreement and a plan of merger.
As
per the notice, Berkshire is USA based listed company and it indirectly holds
shares in 13 companies in India, which are engaged in the variety of business such
as insurance, gear drives, lubricants, electric wires and cables, garments and
publishing.
3G
Fund is an investment fund organized under the laws of Cayman Islands, in which
3G Capital Partners Limited (“3G Capital”)
has a partnership interest. 3G Capital is stated to be a USA based global
investment firm.
Heinz
is a USA based listed company engaged in the business of producing and
marketing packaged goods and specializes in ketchup, condiments, sauces, meals,
frozen food, soups, snacks, nutrition. Heinz has its presence in India through
its subsidiary Heinz India Private Limited (“Heinz India”).
On
the basis of the information provided, CCI observed that the Acquirers do not
have a presence in food sector in India. Accordingly, CCI observed that
products of Acquirers and Heinz do not have horizontal overlapping and further there
is no vertical relationship between them. Therefore, CCI held that the proposed
combination will not have adverse effect on the competition in India.
2. Combination
registration No. C-2013/03/115, decided on April 4, 2013
The notice for combination was filed by Herba Foods, S.L.U. (“Herba” or “Acquirer”). The combination was in pursuance of a Share Purchase
Agreement (“SPA”) between Herba,
Olam Agro India Limited (“Olam”) and
Taraori Rice Mills Private Limited (“Taraori”).
As
per the notice, Herba is a company incorporated under the laws of Spain and is
a wholly-owned subsidiary of Ebro Food S.A., Spain (“Ebro”). Ebro through its various subsidiaries (“Ebro Group”) is engaged in different
business segments, including the rice business. Herba, through its wholly-owned
subsidiary in India purchases rice from Indian suppliers/exporters for Ebro
Group companies.
Taraori
Mills is a company incorporated under the Companies Act, 1956 (“Companies
Act”). Olam and its wholly owned subsidiary hold 50% shares each, in
Taraori. Olam is engaged in the business of processing and trading agricultural
products, including rice.
Pursuant
to an Asset Purchase Agreement, Olam will transfer its rice processing plant
situated in Haryana along with certain assets and certain trademarks (“Rice Plant”) to Taraori. Subsequently, pursuant
to the terms of the SPA, Herba will acquire 100% equity shares of Taraori. Currently,
Rice Plant is not under operation and is proposed to be operational after the
consummation of the combination.
CCI
observed that Acquirer imports milled rice from India and it is not engaged in
the business of milled rice in India. CCO also observed that market share of
Olam in the market of milled rice is insignificant. CCI noted that post
combination, when Rice Plant will get operational, it will give rise to a
vertical relationship between Herba and Taraori. However, considering the small
capacity of the Rice Plant and insignificant market share of Herba in the
market of export of milled rice, CCI held that such vertical relationship would
not have the appreciable adverse effect on the competition.
3. Combination
Registration No. C-2013/04/117, decided on April 23, 2013
The notice for combination was filed by H.M.
Luxembourg S.a.r.l (“HMLS”), pursuant to a Master Agreement among
ConAgra Foods, Inc. (“ConAgra”), Cargill Incorporated (“Cargill”)
and CHS Inc. (“CHS”). As per the proposed combination, ConAgra, Cargill
and CHS (collectively referred as “Parties”) will establish HMLS as
their joint venture to merge their flour milling operations in North America.
As
per the notice, ConAgra, a Delaware corporation is engaged in the business of
offering commercial foods, frozen foods and sweet potato products. It operates
in India through Agro Tech Foods Limited (“ATFL”)
in which it holds 51% equity shares.
Cargill
is also stated to be a Delaware corporation and stated to be an international
marketer and producer of food, agricultural, financial and industrial products.
It operates in India through its group companies, which are engaged in the
business of food products, asset management, energy and structure finance.
CHS
a cooperative of farmers and their member co-operatives across USA, is a
corporation of Minnesota. It is engaged inter alia in the business of
grain marketing, grain processing and food. As per the notice, CHS does not have
presence in India.
Cargill
and CHS has a joint venture in USA and a partnership in Canada and both the
entities are engaged in the business of supplying flour and other bakery
products. As per the proposed combination, the flouring operations of these
entities will also get transferred to HMLS.
CCI
observed that the proposed combination pertains to combination of the flouring
business of Parties in North America and it does not involve the operations and
assets of Parties in India. Based on the above observation, CCI held that the
proposed combination would not have appreciable adverse effect on the
competition in India.
4. Combination
registration No. C-2013/03/112, decided on April 16, 2013
The notice for combination
was filed by Mr. Michael S. Dell and Silver Lake Group LLC (“Silver Lake”).
As per the proposed combination, Mr. Michael and Silver Lake (collectively be
referred as “Acquirers”) would acquire indirect control of Dell Inc (“Dell”).
Mr. Michael is stated to
be the Chairman and CEO of Dell, whereas Silver Lake is a private equity firm,
which makes investments in technology and technology-enabled industries. Dell is a
multinational computer technology company. Its principal place of business is
USA and is stated to be listed on NASDAQ. Dell is engaged in the business of designing,
developing, manufacturing, marketing, selling a wide range of IT products and
IT related services. In India, Dell operates through its subsidiary.
CCI observed that the combination only requires the
change of ownership of Dell. Further, it was noted that business of portfolio
companies controlled by Silver Lake may have horizontal overlap and vertical
relationship with business of Dell in India. However, CCI noted that the
revenue generated from such portfolio companies in India is insignificant. CCI
also noted that the market of IT hardware, peripheral equipment and IT services
in India is competitive in nature, with a large number of entrants. Based on
the above observations, CCI held that the proposed combination would not have
appreciable adverse effect on competition in India.
5. Combination
Registration No. C-2013/03/113 dated April 9, 2013
The notice for combination
was filed by Larsen
and Toubro Limited (“L&T”). The notice was filed pursuant to the
execution of a Share Purchase Agreement between L&T and Komatsu Asia
Pacific Pte. Limited (“KAP”). As per the proposed combination, L&T
will acquire 100% shareholdings of L&T Komatsu Limited (“LTK”), which is currently a 50:50 joint
venture between L&T and KAP.
L&T
is an Indian company with global operations in the business of technology,
engineering, construction and manufacturing. In the year 1998, L&T entered
in a joint venture agreement with KAP. Pursuant to said joint venture agreement,
the hydraulic excavators manufacturing unit of L&T was transferred to LTK
and L&T continued to provide marketing and after sale services. L&T
manufactures hydraulic excavators only through LTK.
KAP
is a wholly owned subsidiary of Komatsu, established under the laws of Japan.
KAP is stated to be engaged in the business of construction & mining
equipment and forklift trucks. Post combination, Komatsu will establish its
manufacturing base in India.
On
the basis of the information provided in the notice, CCI observed that out of
the total hydraulic excavators sold in India during 2011-12, 23% of it was sold
by LTK. It was also observed that other major players also exist in the market.
Further, it was stated that 99% of the hydraulic excavators were manufactured
using Komatsu’s technology. It was also noted that post combination the
licensed technology will be returned to Komatsu.
As
per the notice, post combination L&T may provide manufacturing services to
Komatsu for a period of 3 to 4 years. Further, it was stated that L&T will
be appointed to market and sell the products of Komatsu (or its Indian arm) in
the Indian market.
CCI
observed that L&T was itself not manufacturing hydraulic excavator and 99%
of the excavators were manufactured by using Komatsu’s technology. Hence, exit
of Komatsu from the JV company would not have any adverse effect on the
competition in market. Therefore, the combination was approved.
6. Combination
Registration No-C-2013/02/109, dated on April 2, 2013
The notice for combination was filed by Titan International Inc. (“Titan
International”) and Titan Europe PLC (“Titan Europe”) (Titan
International and Titan Europe are collectively referred to as the “parties
to the combination”). As per the combination, Titan International has acquires
100% shareholdings of Titan Europe. As a result of such acquisition, Titan
International now indirectly holds 35.91% shareholdings of Wheels India Limited
(“Wheel India”), which was otherwise
held by Titan Europe.
CCI
observed that Parties to the combination have not filed the notice of
combination within the time period as prescribed under section 6(2) of the Act.
CCI noted that the combination has already taken place. Therefore, Parties have
filed an application for condonation of delay. A separate proceeding regarding
imposition of fine for the delay was initiated against the parties, whereby a
fine of Rs. 1,00,00,000 has been imposed on the Parties.
Titan
International is a company based in the USA. It is stated to be engaged in the
designing, testing and manufacturing of wheels and tyres. As per the notice, Titan
International does not generate revenue from India. Titan Europe, a U.K. based
company is engaged in designing, developing, manufacturing and supplying
tracked and wheeled movement systems for mining, construction and agricultural
vehicles. Wheel India, a listed Indian company is promoted by the TVS Group and
Titan Europe. Wheel India is engaged in the manufacturing of steel wheels for
passenger cars, utility vehicles, trucks, buses, agricultural tractors and
construction equipment.
CCI
observed that post combination Indian promoter still holds 49.71% of the
shareholding in Wheel India. Moreover, Titan International does not have
significance business presence in India, except holding 39.91% stake in Wheel India.
CCI observed that there is no horizontal overlap in the operations of Wheel
India and Titan International.
Based
on the above observations, CCI held that the combination would not have adverse
effect on the competition in India.
D. News
1. CCI considering cartelization issue in guar gum
trade: Sachin Pilot
In a written reply to Rajya Sabha, Corporate Affairs minister Mr.
Sachin Pilot has stated that CCI is considering the issue of cartelization in the trade of guar gum. Over
the last few years there has been a rise in the price of the guar gum.
It was also stated that to curb the price volatility, Forward
Market Commission has also imposed a ban on the future trading in the guar seed and guar gum.
However, even after the ban, the prices of guar gum have seen an increase of
Rs.6000 per quintal.
Further, Sachin Pilot stated that recently CCI has probed the onion
market but it did not find substantial evidence of cartel.
2. COMPAT dismisses plea against CCI order in tyre cartel
case
Competition Appellate Tribunal (COMPAT) has rejected an appeal
filed against the order of CCI in the matter of alleged cartelization by major
tyre manufacturers of India. In its order, CCI has cleared the charges of
cartel on the tyre manufactures. Aggrieved with the order of CCI, All India
Tyre Dealer Federation filed an appeal in COMPAT.
The tribunal has rejected the appeal stating that the order of the
CCI was passed under such a section, which does not allow any appeal of such
order. COMPAT can take cognizance of only such appeals of order, which are
mentioned in section 53A(a) and (b) of the Act[1].
Earlier the above mentioned order was passed under section 27,
which got subsequently rectified in January.
3. CCI probe backs HT Media plaint against T-Series
CCI has upheld a
complaint against Super Cassettes Industries Limited (SCIL). In year 2011, HT
Media Limited filed a complaint against SCIL for charging unreasonable royalty
from radio stations for playing Bollywood music on their radio channels. HT
media runs Fever 104 FM radio station. DG has upheld that SCIL is a dominant
player in the relevant market of sale of
“rights of Bollywood music to private FM radio channels” and it has been
abusing its dominance by imposing excessive, discriminatory conditions in the
supply of music in the relevant market. DG also stated the minimum commitment charges
and mandatory payment were not in proportionate to the actual quantity of
SCIL’s music broadcast by the FM channels.
As per the complaint,
SCIL holds 80% of the market share in the rights of Bollywood music. It was stated that SCIL has not been following the 2% royalty
ruling of Copyright Boards and was charging royalties at the rates, which were
four times higher than the said rates.
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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
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