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 July, 2013:
- M/s Dipak Nath,
Sivasagra, Assam v. M/s Oil and Natural Gas Corporation Limited and others decided on 5th
July, 2013
The case was filed by M/s Dipak
Nath (“Informant”) against M/s Oil
and Natural Gas Corporation (“ONGC”)
alleging abuse of dominance. Informant was stated to be a registered
partnership firm engaged in the business of civil and transport contracts.
Informant is a registered vendor of ONGC for supplying various kinds of cranes
to ONGC on hire.
Informant stated that in December
2012 ONGC issued a bid for hiring 174 hydraulic cranes to be used for onshore
deployment work at various work centers of ONGC in India. Out of 174 cranes, 71
cranes were to be hired for north eastern sector i.e. Assam, Tripura and West
Bengal.
ONGC prescribed the eligibility
criteria for bidders submitting bid for Agartala and Kolkata/Bokaro work
centers. As per the said criteria, a bidder has to own minimum of 4 cranes and
submit a bid of minimum of 7 hydraulic cranes. Aggrieved with the conduct of ONGC,
Informant approached CCI alleging abuse of dominance by ONGC.
CCI noted that the relevant
product market in the present case would be of hydraulic cranes only as
hydraulic cranes cannot be substituted with light cranes. CCI further noted
that the relevant geographical market shall be limited to north eastern region,
including West Bengal, because of the distance and peculiar feature of the north
eastern region. As compared to other region, it is difficult to transport
hydraulic cranes in north eastern region. Therefore, the relevant market was
ascertained to be the “the market for hiring
of hydraulic crane in the north eastern region of India, including the State of
West Bengal”
On the basis of the information
available in public domain, CCI noted that apart from oil and gas exploration
companies there were many other public and private companies, which hire the
hydraulic cranes in the north eastern region. Therefore, ONGC cannot be held as
a dominant player in the present case.
CCI also relied on its earlier
order in the case of CSR Nanjing Puzhen
Company Limited v. Kolkata Metro Rail Corporation Limited where it held that
change in the terms and conditions of bid cannot be held discriminatory on the
ground that a bidder is unable to fulfill such conditions.
CCI therefore held that as ONGC
is not a dominant player in the relevant market, there cannot be abuse of
dominance by ONGC.
- Kanwal Jit Singh v. India Yamaha Motors Private
Limited, decided on 1st July, 2013
The case was filed by Kanwal Jit Singh
(“Informant”) against India Yamaha
Motors Private Limited (“Yamaha”),
alleging abuse of dominance for contravention of the provisions of Section 4 of
the Act.
Informant stated that in year
2007 Yamaha appointed him as an exclusive authorized dealer for selling
Yamaha’s motorcycles, spare parts and accessories in Ambala. Informant also
stated that he was authorized to appoint sub-dealers in other areas of Ambala
Cantonment area. Informant further submitted that the dealership was given in
respect of economy, deluxe and premium category motorcycles of Yamaha, ranging
between Rs. 35,000/- to Rs. 1,00,000/- per motorcycle.
Informant alleged that he
incurred heavy expenditure for renovating and equipping his showroom for
displaying Yamaha’s motorcycles. Informant further contended that due to his
efforts the market share of Yamaha reached to 12% in year 2012, which was only
0.5% in year 2007.
Informant alleged that he was
being pressurized to appoint more sub-dealers, which was not commercially
viable for Informant as he has already opened two more outlets. Further, as per
the Informant the demand for economy category motorcycles was less. However,
during the pendency of this case, Yamaha appointed another dealer.
CCI noted that the relevant
product market in the present case would be the market of purchase of
motorcycle of different range. CCI further noted that the relevant geographical
market would be Ambala and surrounding areas of Haryana because a motorcycle
purchaser is free to purchase motorcycle outside Ambala as well.
CCI stated that, as per the
information provided by Informant itself, the market share of Yamaha was 12% in
year 2012, which suggests that Yamaha was not a dominant player in the market.
Further on the basis of information provided in the Economic Times report, CCI
observed that Hero Motor Corporation had the highest market share of 42.7% in
year 2012.
On the basis of the information
available in public domain, CCI stated that there are many other motorcycle
manufacturers, which sell motorcycles in different segments and price range.
Further, the Informant was not stopped from dealing in Yamaha’s motorcycles
even after appointment of other dealer.
On the basis of the above
analysis and observations, CCI held that Yamaha is not a dominant player in the
relevant market. Therefore, CCI ordered for closure of the case.
- Advertising Agencies Guild. v. Indian
Broadcasting Foundation and others, decided on 1st July, 2013
The case was filed by Advertising
Agencies Guild (“AAG”) against
Indian Broadcasting Foundation (“IBF”)
and its members alleging cartelization.
AAG is an association of small
and medium size advertising agencies, whereas IBF is a section 25 company and
it claimed to be an apex organization of television broadcasters. As per the
Informant, IBF consist of major broadcasters with more than 250 TV channels.
AAG alleged that IBF’s members
have changed the billing method for advertising agencies, from gross billing to
net billing. AAG alleged that the gross billing method was time tested and
widely accepted process in the industry for billing. AAG further alleged that
IBF’s members forced all the advertising agencies to accept the new mode
billing. AAG submitted that IBF’s members boycotted the advertising agencies
and did not broadcast their advertisement for consecutively two days. Aggrieved
with the conduct of IBF and its members AAG approached CCI.
CCI stated that the collective
actions of trade associations per se cannot
be held in violation of competition law. The collective actions of such
association carry out many valuable and lawful functions. However, if the
collective actions have been taken with an intention of affecting the
production, distribution, sale or price of or trade in goods or provision of
services then it can be held to be in violation of competition law.
On the basis of submissions of
IBF, CCI observed that the action to shift billing mode from gross to net was
in pursuance of Income Tax department’s mandate. As per the said mandate of
Income Tax department, members of IBF were required to deduct the TDS of 15% on
the discount given to advertising agencies. Therefore, members of IBF shifted
billing mode to net 85% instead of showing gross 100%.
CCI stated that change of billing
method cannot be held to be in violation of the Act merely on the ground that
the net bill does not reflect the amount of discount, which earlier used to get
reflected in gross bill. CCI further stated that, the reasoning of AAG that the
gross billing method is time tested and widely used in industry is also
illogical.
CCI observed that section 3(3) of
the Act makes such agreements violative of competition laws, which are in the
nature of price fixation, market sharing, collusive bidding etc. Based on the
above analysis, CCI held that the agreement among the members of IBF cannot be
held in violation of section 3(1) read with section 3(3) of the Act, as it does
not fall in any of the categories as mentioned in section 3(3) of the Act.
- M/s Oracle Drugs and Others v Secretary,
Department of Health & Family Welfare, Government of Odisha and
another, decided on 1st July, 2013
The case was filed by M/s Oracle
Drugs and Others (“Informants”)
against Department of Health and Family Welfare, Government of Odisha and
Another (“Health Department”)
alleging abuse of dominance.
Informants were stated to be
medicine shop owners operating in the different premises of public health
facilities in the State of Odisha and their shops are governed by the
guidelines formulated by Health Department.
Informants alleged that Health
Department vide its resolution dated November 17, 2012 (“Resolution”) issued revised guidelines
for medical shop owners operating in public health facility premises. As per
the Resolution, the Informants and such other medicine shop owners were
required to provide medicines at discounted rates. The abovementioned Resolution
provides for a detailed slab of discount based on the location of medicine
shops such as shops in premises of district headquartered hospitals, shops
inside the premises of medical colleges etc. Informants submitted that the same
conditions were not applicable on other day and night medicines shops, which
are operating under Public Private Partnership (“PPP”) model.
Informants further alleged that
the said Resolution also provides for appointing at least 3 pharmacists to
supervise the sale of drugs, whereas the shop owners are themselves pharmacists
and the same was commercially not viable for Informants. Aggrieved with the
above conduct of Health Department, Informants approached CCI.
On the basis of the information
available on the website of the Health Department, CCI observed that one among
the many functions of the Health Department is to guarantee free treatment and
free medicines to the people of Odisha.
CCI stated that the said actions
of Health Department are not economic in nature but are policy decision for
benefit of general public. CCI also stated that the shops which are operating
in the premises of public health facilities can be bound by such reasonable
policy decisions. CCI further stated that the Resolution provides for the lower
limit of discount and Informants can compete with each other by providing
higher rate of discounts. CCI therefore held that the decision of Health
Department cannot be held to anti-competitive.
On the issue non-applicability of
Resolution on the day and night medicines shops operating under PPP model, CCI
stated that Health Department must have provided some conditions in the PPP
agreement for such consumer benefits. However, Informants did not provide terms
and conditions of PPP model shops.
Lastly, CCI noted that
requirement of pharmacists is a must for a medicine shop and the same cannot be
held as abusive in nature. CCI also pointed out the decision of Health
Department would not be disadvantageous for Informants as the large number of
consumers would be encouraged to buy medicines from Informants rather than
buying from such medicines shops, which do not provide discounts.
Based on the above analysis and
observations, CCI held that no prima facie case could be established against
Health Department. Therefore, CCI ordered for closure of the case.
- Dinesh Trehan v M/s DLF Limited, decided on 1
July, 2013
The case was filed by Dinesh
Trehan (“Informant”) against M/s DLF
Ltd. (“DLF”) alleging contravention
of the provisions of section 4 of the Act.
Informant stated that he booked
an apartment in one of the DLF’s residential apartment project, the Belaire in
Gurgaon. Informant alleged that DLF cancelled its allotment and forfeited an
amount of Rs. 87 lakhs of Informant. Informant also challenged the various
clauses of apartment buyer’s agreement to be anti-competitive.
CCI opined that the facts of this
case are same as it were there in the recent order of CCI in the case of Belaire Owners' Association v. DLF Limited,
HUDA & Ors., Case No. 19 of 2010 (“Belaire’s
Order”). The apartment in question in this case is also situated in Belaire
project of DLF.
Therefore, CCI ordered for DG
investigation to ascertain if the facts of this case are same as Belaire’s
Order. In its detailed report, DG concluded that the facts of the Informant’s
case are same as Belaire’s Order. Even DLF admitted that the facts are same.
In the Belaire’s Order, CCI held
that DLF was a dominant player in the market of high-end residential apartments
and was abusing its dominance. Therefore, CCI passed a cease and desist order,
modified the clauses of apartment buyer agreement and imposed a penalty on DLF[1].
Based on the above observations
and DG’s report, CCI held that the cease and desist order of Belaire’s Order
would apply in the present case as well. However, no penalty was imposed on DLF
in the present case.
- Mr. V. Senthilnathan,
Chartered Accountant v M/s. United India Insurance Company Limited and
other,
decided on 1st July, 2013
The case was filed by V.
Senthilnathan (“Informant”) against United India Insurance (“UII”) and E-Meditak Services Limited (“Meditak”) alleging violation of section
3 and 4 of the Act.
UII is stated to be a public
sector general insurance company incorporated in 1938, engaged in the business
of Mediclaim Insurance for CanCard holders under group insurance from year
2005-2006. Meditak is a Third Party Administrator (“TPA”) of UII.
TPAs are registered under IRDA
and are governed by IRDA (Third Party Administrators-health services)
Regulation 2001. TPAs work as an intermediary between the insurer and the
insured and facilitate cashless service at the time of hospitalization as well
as processing of claims. TPAs are appointed by insurance companies and the
terms and conditions of the appointment are also fixed by insurance companies
only.
Informant alleged that Meditak
did not fulfill certain obligations under the agreement with UII. As per the
Informant those obligations were for benefit of the policy holders. The said
obligations pertain to renewal/termination of the policy, denial of preauthorization,
claim intimation, repudiation of claim etc. Therefore, Informant approached
CCI.
CCI stated that the relevant
product market in the present case is of medical insurance, as it cannot be
substituted with any other insurance. CCI further noted that the relevant
geographical market is whole of India as a medical insurance policy can be sold
to any person residing anywhere in the country. Therefore, the relevant market
in the present case shall be market for
services of medical insurance in India.
On the basis of the IRDA report
of 2011-12, CCI observed that UII holds only 15.09% of the market share in the
relevant market and it was not sufficient to enable UII to operate
independently of the competitive forces. Hence, CCI concluded that UII is not a
dominant player in the market. On the basis of information available on the
website of IRDA, CCI observed that there are only 31 TPAs working in India. CCI
held that none of the TPAs are dominant player in the relevant market.
On the issue of violation of
section 3 of the Act, CCI stated that an agreement can be said to have
appreciable adverse effect on competition, if it creates barriers to new
entrants in the market or forecloses competition by hindering entry into the
market or curtails accrual of benefits to the customers. CCI observed that the latest regulations of the
IRDA provides for portability of mediclaim policies, where a policy holder can
deal with other insurance companies as well. Based on the factors mentioned in
section 19 of the Act and on the availability of mediclaim portability to
policy holders, CCI stated that Informant could have gone to any other
insurance policy, if he believes that Meditak is not performing its duties
under TPA agreement.
CCI further stated that the terms
and conditions of TPA agreement are fixed by insurance companies and in case of
violation of conditions by TPA, insurance company has a right to terminate
agreement and complaint to IRDA for cancellation of registration of TPA. CCI
noted that a policy holder can also make complaint to IRDA against a TPA as the
conduct of the TPA and insurance companies are governed by IRDA.
On the basis of the above
analysis and observations, CCI ordered for closure of the close.
- DLF City Club Members Welfare Association v.
DLF Recreational Foundation Limited and others, decided on 1st
July, 2013
The case was filed by DLF City
Club Members Welfare Association (“Informant
Association”) against DLF Recreational Foundation Limited (“DLF Foundation”), M/s DLF Limited (“DLF”) and Town and Country Planning
Department, Haryana alleging abuse of dominance.
Informant Association alleged
that at the time of booking of apartments in the colonies developed by DLF, the
members of the Informant Association were informed that the facility of a club
as a community service would be provided in the colonies. Accordingly, a heavy
amount of sum was added to the cost of land and apartment in the name of
development of club. However, instead of developing a club for community
services, DLF was running the club like hotel.
Informant Association alleged
that the city club is being run solely for profit making by DLF and residents
are made to pay an exorbitant fee for membership. Welfare Association stated
that the charges of club were being continuously increasing with no rational
and alleged that the membership fee was increased from Rs. 6000/- to Rs.
18000/- within 3 years. Informant Association further stated that members of
Informant Association has no say in the management of the club, which is
developed in the name of community services under the provisions of the Haryana
Development and Regulation of Urban Areas Act, 1975 and the Rules of 1976
framed thereunder.
Informant Association alleged
that the management and control of the club was solely in the hands of DLF
Foundation and DLF, as the clauses of apartment buyer agreement provides for
one sided conditions. Informant Association referred to few one sided clauses,
such as the sole and absolute right of the club, to establish, add, remove and
modify different membership types and to modify the rules and regulations
governing access and guest privileges with respect to the club facilities,
arbitration clause, interest free security deposit clause etc.
CCI noted that the relevant market
in the present case would be the market
of the provision of recreational facilities through a club in Gurgaon.
CCI stated that there are many
other club operating in the city established by other developers and clubs on
stand-alone basis. Therefore, CCI held that DLF is not a dominant player in the
relevant market. However, CCI stated that non-implementation of provisions of Haryana
Development & regulations of Urban Areas Act by the Town and Country
Planning Department is a different matter altogether and Informant Association
can approach appropriate authority for the same.
C. News
1.
Jute mills face
cartelization charges, get CCI notice
On the basis
of the complaint filed by Indian Sugar Mills Association (“ISMA”), All India Flat Tape Manufacturers Association
and National Federation of Co-operative Sugar Factories (collectively referred
as “Informants”), CCI has issued
show cause notices to all the members and office bearers of Indian Jute Miils Association (“IJMA”)
and Gunny Trade Association (“GTA”). Informants have alleged that IJMA has violated section 3
and 4 of the Act by cartelizing, manipulating
and rigging prices to exploit consumers of
jute bags. IJMA represents 34 of the 83 operating mills.
Informants
further alleged that IJMA was hand-glove with GTA. GTA is a merchant body
engaged in offering daily quotes of jute goods, especially gunny bags.
As per the news reports, the show cause notice will also assess the
involvement of IJMA and its office bearer under section 41 (2), 36 (2) and 48 (1) of the Act.
News reports
also states that sugar industry in the year 2012-13 was allowed to use plastic bags for packing 60% of its material, however the Jute Standing
Advisory Committee has raised it to 80% for the year 2013-14.
2. Ministry to regulate airfares through CCI
The Civil Aviation Minister
Ajit Singh told
Business Standard that soon an airfare monitoring cell will be established. The said cell would analyses the dates on which the tickets are sold by airlines under different price
segments. Upon analysis, if any discrepancy would occur then the
same shall be referred to CCI.
Mr. Singh informed that
Aviation Ministry will not regulate the fares and the fares will be decided by
airline companies based on the market forces. The monitoring cell will keep
check on the random increase in the airfare and predatory pricing.
Further, he also informed that the
airlines would be forced to disclose the disclose data on fuel charge and taxes
being levied on tickets for a given date. By releasing the date in pubic, consumers will get to know as
to how airlines arrived at a final pricing of an air ticket.
3.
UK competition
regulator examines Diageo-United Spirits deal
The Office of Fair Trading (“OFT”) has launched a consultation
process into the merger of United Spirits and Diageo to ensure that the deal does not violate any
competition rules. Recently, Diageo, the world's largest producer of spirits
and a major producer of beer and wine, acquired a 25 per cent stake in United
Spirits. OFT stated that it is investigating if the agreement between United
Sprits and Diageo has created relevant merger situation under the provisions of
the Enterprises Act 2002 and whether such merger situation will result in
lessening of competitions within markets in UK and outside UK. OFT further
stated that in case of an adverse outcome of the consultation process, the
matter will be referred to Competition Commission to look into the possible
remedies.
4.
Competition
Commission studies pharma sector practices
A senior official of the CCI
state that CCI has started a study on the domestic pharmaceutical industry. As per the said official, CCI would
be looking into patent regime, the process of manufacturing, pricing,
reasonable terms and conditions and the sale of drugs through chemists and
druggists.
As per the news reports, even Government has appointed National Pharmaceutical Pricing Authority (NPPA) for fixing the ceiling prices for more than
300 drugs.
5.
Competition
Commission orders probe against Coal India
Based on the complaint filed by
West Bengal Power Development Corporation and its prima facie views, CCI has started another probe against
Coal India and three subsidiaries for abuse of dominance in supplying fuel to
power plants.
CCI noted that 82% of the total coal is supplied by Coal India and
therefore it is dominant position, CCI also noted that the terms and conditions
of the fuel supply agreement are heavily loaded in favour of Coal India. CCI
also observed that Coal India is not adhering to the obligations under fuel
supply agreement, as it is a dominant player. CCI has directed DG to probe the
matter.
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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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