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 August, 2013:
1. Re: Director General
(Supplies & Disposals) (“DGSD”), Department of Commerce and others, decided on August 06, 2013
The case was filed by Director General
(Supplies & Disposals) (“DGSD”),
Department of Commerce against 11 enterprises (“Defendant Enterprises”) alleging bid rigging, prohibited under
Section 3 of the Act.
DGSD
stated that on June 14, 2011, it issued a tender enquiry for concluding the new
Rate Contract for the period of
December 1, 2011 to November 30, 2012. The tender pertains to polyester blended
duck ankle boots rubber sole (‘Product’).
DGSD alleged that the Defendant Enterprises
have quoted identical/near identical prices in their quotations. The difference
of prices between two enterprises is as less as 1%. DGSD further alleged that
all the enterprises except one have restricted the maximum quantity to be
supplied. DGSD alleged that the Defendant Enterprises have formed cartel to rig
the bid.
On the
basis of the information provided by DGSD, CCI observed that the price
difference among the Defendant Enterprises for different categories of the
Product has been only 1% for period of 2008-2009, 2009-2010 and 2010-2011.
CCI
further observed that during investigation by Director General of Investigation
(“DG”), Defendant Enterprises submitted that as the raw material and
other manufacturing costs pertaining to Product are same, therefore the quoted
prices were identical.
CCI considered the DG’s detailed report
and observed that:
1.
Defendant Enterprises
have different size of operations in terms of turnover. The said difference of
turnover ranges from Rs. 284 lakhs to Rs. 3971 lakhs.
2.
Defendant Enterprises
have different production capacities. This difference ranges from 48,000 pairs
of Product per annum to 2,40,000 pairs per annum.
3.
Defendant Enterprises
are located at different geographical locations in the country.
4.
Profit component of
Defendant Enterprises varies from 2% to 15%.
5.
The prices of rubber
and latex are prone to significant fluctuations.
On the
basis of the above observations, CCI stated that the prices of the Defendant
Enterprises ought to have been different due to differences in production
capacity, profit margin etc. CCI further noted that the rate of CST/VAT applicable on the date of
tender enquiry for Punjab, Jharkhand was 13.5%, whereas for West Bengal it was
4%. CCI noted that Defendant Enterprises have quoted price inclusive of taxes.
However, the prices of low tax region enterprise were identical to the prices
of high tax region enterprise. Therefore, CCI rejected the submissions of the
Defendant Enterprises that factors of cost of production were same.
CCI
also noted that certain Defendant Enterprises are either presently or in past
were members of the Federation of Industries
of India and Defendant Enterprises had used it as a platform for holding
meetings. As per the DG’s report, on October 20, 2009 Defendant Enterprises had
a meeting, where they shared their views on the problems to be discussed with
DGSD.
CCI
also noted that one of the Defendant Enterprises had submitted a copy of
performance statement. The said statement contained the information related to
value of received order, pending order, cut-off date etc. of other Defendant
Enterprises as well. CCI stated that such confidential information cannot be
available to a competing enterprise, unless the competing enterprise has shared
the same. CCI held that it proved that the Defendant Enterprises have shared
their information prior to submission of bid. CCI further stated that as
Defendant Enterprises could not provide any reasonable defence therefore, it
could be concluded that Defendant Enterprises have entered into an agreement to
determine the prices besides bid rigging. Hence, Defendant Enterprises were
found to be violating section 3(3)(a) of the Act.
Based on the registration certificates provided by
DGSD, CCI observed that the consolidated production capacity of the Defendant
Enterprises was 15,72,000 pairs of Product per annum. However, the consolidated
capacity as quoted by Defendant Enterprises was only 7,00,000. CCI stated that
such an action can only result from a mutual agreement among the Defendant
Enterprises. Therefore, CCI concluded that Defendant Enterprises have
restricted the supply of the Product in the market by way of putting
quantitative restrictions to make the supply identical for Defendant
Enterprises with different production capacities.
Based
on the above analysis,
observations and no plausible defence from Defendant Enterprises, CCI held that
the actions of Defendant Enterprises were anti-competitive in nature.
CCI
directed Defendant Enterprises to cease and desist from indulging in
anti-competitive activities in future. Further, based on the seriousness of the case, CCI imposed a fine on the
Defendant Enterprises, calculated at the rate of 5% of their average turnover
for past three years.
2. Vineet Kumar v.
Ministry of Civil Aviation, decided
on August 6, 2013
The
case was filed by Vineet Kumar
(“Informant”) against the Ministry
of Civil Aviation (“MCA”), alleging
abuse of dominance by MCA. Informant stated that in the year 2012, MCA
constituted the Aircraft Acquisition Committee (“AAC”). AAC examines the applications/proposals for (i) providing
air transport services; (ii) permitting import or acquisition of aircraft for
various purposes; and (iii) considering proposals for initial NOC for flying training
institutes etc.
Informant
alleged that all the officers of AAC are members of MCA, where private air
transport service providers do
not have any representation in AAC. Informant highlighted the conflict in
interest by submitted that where on one hand MCA is the sector regulator and on
the other hand, it also provides air transport services through AAI and Air
India.
Informant
further alleged that the guidelines of AAC are in violation of section 4 of the
Act. Further, it was alleged that
AAC has taken a passive approach in allowing private airlines to import more
aircrafts. Informant also stated that as per a news report, a private airlines
company approached AAC with a proposal to import 16 aircrafts. However, AAC
only allowed import of 5 aircrafts.
CCI
noted that the relevant market in the present case will be the market of regulation and provision of air transport
services in India.
CCI
stated that MCA cannot be held as an enterprise as per the provisions of
section 2 (h) of the Act, as MCA is performing
the sovereign function of
government, which cannot be included under section 2(h) of the Act. CCI further
noted that formulation of policies by MCA cannot be held as a commercial
activity. CCI held that policies are per se not under the jurisdiction
of CCI.
CCI
also noted that while the case was pending before it, MCA abolished AAC.
Subsequent to that development, the Informant too sought more time to collect specific information from MCA.
On the
basis of the above observations and analysis, CCI held that the case is not
maintainable and accordingly ordered
for closure of the case.
C. Combination
Registrations
1. Combination Registration No. C-2013/06/124 decided, August 1, 2013
The notice for combination was filed on June 06, 2013 by Zulia Investments Pte. Limited (“Zulia”)
and Kinder Investments Pte. Limited (“Kinder”), in respect of the
proposed acquisition of 439,000,000 new ordinary shares of DBS Group Holdings
Limited (“DBSH”).
As per the notice Zulia and Kinder, the indirect wholly owned subsidiary
of Temasek Holdings (Private) Limited (“Temasek”) (collectively referred as “Acquirers”) were to be issued
219,400,000 and 219,600,000 new shares of DBSH.
As per the notice, the relevant Share Purchase Agreement was
executed on April 2, 2012 and the notice for the proposed combination was filed
on June 6, 2013. Therefore, CCI noted that the Acquirers had filed an
application for condonation of delay. CCI however did not condone the delay and
ordered for a separate proceeding under section 43A of the Act for imposing
penalty.
In the course of the proceedings pertaining to proposed
combination, Acquirers informed that SPA will be terminated on August 1, 2013
as the extended long stop date for the proposed combination will occur on
August 1, 2013. Hence, the Acquirers requested for withdrawal of the notice for
the proposed combination.
In terms of regulation 17 of the Combination Regulations, CCI
terminated the proceedings pertaining to the proposed combination, without prejudice
to the simultaneous proceedings under section 43A for imposing penalty on
account of delay in notifying CCI about the proposed combination.
Order under section 43A of the Act
The Acquirers pleaded that at the time of entering into the
relevant agreements, their legal counsels in India did not inform them about the requirement of notifying
CCI about the proposed combination. Acquirers further pleaded that as soon as
they were informed by the other Indian legal counsels about the requirement of
notifying CCI on April 30, 2013, they filed the notice on June 6, 2013.
CCI negating the above contentions of Acquirers observed that it
cannot take cognizance of a combination, after the expiry of 1 year from the date of
consummation of such combination for which notice was not given. There is
likelihood that combinations may escape the inquiry of CCI and such
combinations may have an appreciable adverse effect on competition. CCI further
noted that if the present combination would have consummated within 30 days
from execution of Share Purchase Agreement, CCI could not have taken cognizance
of the same as the notification was delayed by 399 days. Therefore, CCI held
that such delays cannot be treated as routine defaults in filing, as the delay
may frustrate the whole purpose of the Act.
CCI further held that the ignorance of Acquirers regarding the
filing of notice on the sole ground of wrong legal advice cannot hold ground.
Further, on the basis of documents on record, CCI noted that on January 17,
2013, Temasek was informed by DBSH’s Singapore counsel about the requirement of
prior notification to CCI. However, Acquirers filed the notice only after a
delay of 5 months i.e. in the month of June, 2013. CCI stated that the further
delay of 5 months proves that the Acquirers were not serious in complying with
the competition laws of India.
Therefore on the basis of the above analysis and observations, CCI
imposed a penalty of Rs. 50,00,000 (fifty lakhs) on the Acquirers.
2. Combination
Registration No. C-2013/07/127 decided on August 21, 2013
Parties to the combination
The CIE Group Companies:
1.
CIE
Automotive S.A. (“CIE”)
2.
CIE Berriz, S.L,
3.
CIE
Autometal S.A. (“Autometal”),
4.
Autometal
S.A.,
5.
Participaciones
Internacionales Autometal, S.L.U. (“PIA
1”),
6.
Participaciones
Internacionales Autometal, DOS, S.L. (“PIA
2”),
7.
Participaciones
Internacionales Autometal Tres, S.L. (“PIA
3”),
8.
CIE
Legazpi, S.A.,
9.
CIE Galfor,
S.A.
10.
UAB CIE LT
Forge
Mahindra Group Companies:
1.
Mahindra
& Mahindra Limited (“M&M”)
2.
Mahindra
Forgings Limited (“Mahindra Forgings”)
3.
Mahindra
Composites Limited (“Mahindra Composites”)
4.
Mahindra
Hinoday Industries Limited (“Mahindra
Castings”),
5.
Mahindra
Investments (India) Private Limited (“Mahindra
Investments”)
6.
Mahindra
Gears International Limited (“Mahindra
Gears”)
7.
Mahindra
Ugine Steel Company Limited (“MUSCO”)
8.
Mahindra
Overseas Investment Company (Mauritius) Limited (“MOICML”)
The notice for the combination was filed by the above-mentioned
companies from the CIE Group Companies and Mahindra Group Companies. The proposed combination
was filed pursuant to several agreements executed between the parties to the
combination. As per the notice, the European forgings business of CIE and
forgings, composites, castings, gears, stampings, and magnetics businesses of
Mahindra Forgings, Mahindra Composites, Mahindra Castings, Mahindra Investments, Mahindra Gears and MUSCO
(“collectively referred as “Mahindra
Systech Companies”) will be consolidated under a single entity.
Parties to the combination informed CCI that post combination, Mahindra Forgings will be
named as Mahindra CIE Automotive Limited (“Mahindra
CIE”).
As per the notice, CIE Group Companies are, inter-alia, engaged in the business of manufacture and sale of
auto-components used in the
auto-component sector. These companies manufacture more than 5000 products. PIA
2 and PIA 3 are the companies incorporated under the laws of Spain and are
controlled by CIE. Further, CIE Group Companies do not have business presence
in India in form of manufacturing auto components, investments in auto
manufacturing company or any other vertically related business.
Mahindra Systech Companies are
public limited companies and are involved in the business of automobiles.
On the basis of the publicly available information, CCI observed
that automobile components are manufactured using various technologies such as
forgings, composites, castings. CCI further observed that CIE has a presence in
the automotive segment in the European Union and NAFTA Countries, whereas
Mahindra Systech Companies are engaged in the automotive business in India.
CCI noted that the present combination does not contemplate
combination of exiting players in the relevant market in India. CCI further noted that post combination M&M will to
hold 20.04 per cent of the equity share capital of Mahindra CIE, the proposed
entity. Further, Mahindra Systech Companies will continue to use their present
technology for the business of Mahindra CIE and Mahindra Systech Companies.
Based on the above observations and analysis, CCI held that the present
combination would not have appreciable adverse effect on the competition in
India. Therefore, CCI approved the combination.
D. News
1. Madras High Court rejects film exhibitors’ plea against CCI
Madras
High Court has rejected a writ petition filed by Tamil Nadu Film Exhibitors
Association (“Association”) to quash proceedings before CCI against
the Association. The said proceedings related to a complaint filed by Raaj
Kamal Film International (“Raaj Kamal”)
against the Association, with respect to the release of its film Vishwaroopam.
Association
also pleaded to the Court to direct Chennai Police Commissioner to receive its
complaint against Raaj Kamal. As per the Association, Raaj Kamal has submitted
forged resolutions of Association to CCI.
The
Madras High Court rejected the writ petition stating that CCI has only started
the proceedings and is yet to start the investigation. There is no adverse
order passed by CCI against the Association. Further, the authenticity of the
resolutions of Association will be verified only by CCI, where it will get the
sufficient opportunity to put its case and challenge the validity of
resolutions.
2. CCI to
probe Agriculture sector for possible cartelisation
As per
the statements of a CCI member
published in a news report, CCI will investigate agriculture market dynamics
for ascertaining the possibility of cartelisation and unfair practices behind
the hike in prices of the vegetables.
As per
the news report CCI believes
that recent price hikes in vegetable market were not based solely on the
mechanism of demand and supply and therefore needs to be investigated.
3. CCI
to shortly issue order in Coal
India case
In the
third meeting of the Commission’s Eminent Persons Advisory Group, CCI
chairperson Mr. Ashok Chawla stated that CCI will soon issue its order in case
of Coal India. As CCI is currently investigating two cases against Coal India,
it is not clear that in which case CCI is going to issue the expected order.
4. Contract manufacturer JHS Svendgaard takes P&G to anti-monopoly
watchdog
JHS
Svendgaard (“JHS”) has filed a
complaint against Proctor & Gamble (“P&G”)
for indulging in anti-competitive practices. JHS is a third party manufacturer of P&G and it manufactures
P&G’s Tide detergent and Oral B toothpaste and toothbrush. JHS alleged that
in the year 2010, it established a manufacturing plant in Himanchal Pradesh
solely for manufacturing the Tide detergent. However, P&G did not renew its
contract this year. JHS stated that it was asked to manufacture Tide detergent
for a period of 10 years, where P&G assured it to JHS orally as well as by
way of emails.
JHS
further alleged that P&G has restricted JHS from manufacturing products of
direct competitors of P&G by way of various supplementary agreements
executed between them. Due to non-renewal of their principal contract, the
manufacturing plant of JHS is kept idle and JHS is incurring losses.
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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:
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Advocates & Solicitors
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