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 November, 2013:
1.
Mr. Larry Lee Mccallister v. M/s Pangea3
Legal Database Systems Private Limited, Mr. Christopher Wheeler and Mr. Umair Muhajir
decided on November 6, 2013
The
case was filed by Mr. Larry Lee Mccallister (“Informant”) against M/s Pangea3 Legal Database Systems Private
Limited (“Pangea”), Mr. Christopher
Wheeler and Mr. Umair Muhajir (senior officers of Pangea), alleging
contravention of Section 3 and Section 4 of the Act.
Informant
submitted that Pangea is the market leader in the Indian Legal Process
Outsourcing industry, whereas, Informant is an American citizen and was working
temporarily with Pangea as Assistant Vice President of Pangea’s Litigation
Solution (name of the litigation segment of Pangea).
Informant
stated that in July 2013, he resigned from the aforesaid position. However, he
was informed that as per the non-compete clause of his employment agreement
with Pangea, he is restricted to join any competitor firm for a period of one
year. Aggrieved with the above conduct of Pangea, Informant approached CCI.
The Informant
alleged abuse of dominance on the ground of non-compete clause of his
employment agreement with Pangea. However, CCI opined that the market dominance
of an enterprise or firm has no bearing on the employment agreements of its
employees. CCI further stated that every service provider buys equipments and
hire experts and personnel but the same does not have any effect on the
dominance of enterprise or firm in a relevant market.
CCI
stated that issue of dominance in relevant market arises only when a service
provider provides services and receives service fee in return. However, when a
person enters into an employment agreement then the nature of such transaction
is not in the nature of providing services and receiving service fee in return.
CCI accordingly
concluded that a clause restricting an employee from working for competitor
does not involve any competition issue and ordered for closure of the
case.
2.
Mr. Pankaj Bhardwaj v. M/s. Media Video
Limited decided on November 7, 2013
The
case was filed by Mr. Pankaj Bhardwaj (“Informant”)
against M/s Media Video Limited (“Defendant
Developer”) alleging abuse of dominance by the Defendant Developer.
Informant
submitted that he had booked a residential unit in a project launched by
Defendant Developer in Bhiwadi and paid the booking amount. Later, the
Informant discovered that the said project was not approved by the competent
authority and as a result, the Informant’s loan application was rejected by LIC
Housing Finance Limited.
Informant
further alleged that the terms and conditions of Advance Registration Agreement
(“Agreement”) were unilateral and
heavily favored Defendant Developer.
CCI
noted that the relevant market in the present case shall be the market of “provision of residential apartments in
Bhiwadi”. CCI state that Informant has not provided any data to prove
dominance of Defendant Developer in the relevant market. However, based on the
information available in public domain, CCI observed that there are other
players in the market developing similar projects. Therefore, on the ground of
existence of other players in the relevant market, CCI held that Defendant
Developer is not a dominant player of the relevant market. Hence, CCI ordered
for closure of the case.
3.
In re:
Mr. Hardeep Singh Anand v. Dainik Bhaskar, Ranker’s Point and Genius Institute decided
on November 12, 2013
The
case was filed by Mr. Hardeep Singh Anand (“Informant”) against Dainik Bhaskar and Ranker’s Point and Genius
Institute, alleging unfair trade practices.
Informant
was stated to be the managing director of a coaching institute in Jabalpur,
whereas, Dainik Bhaskar is a newspaper. Informant alleged that various coaching
institutes were publishing false success results, without disclosing the names
of candidates. Informant contended that Dainik Bhaskar has colluded with
coaching institutes to publish their misleading advertisements. Informant
further submitted that Dainik Bhaskar has monopoly in newspaper industry in Jabalpur
and surrounding areas. In support of his contention, Informant provided news
published in other newspapers which stated that Dainik Bhaskar has colluded
with a coaching institute of Indore namely Brain Master.
Based
upon the submissions of Informant and documents submitted, CCI stated that main
contention of the Informant seems to be publication of misleading advertisement
in Dainik Bhaskar.
CCI
stated that publishing misleading advertisement to gain market share prima facie does not give rise to any
competition concern. Therefore, CCI ordered for closure of the case.
4.
In re: JHS Svendgaard Laboratories
Limited and Procter and Gamble Home Products Limited, Gillette India Limited
and Gillette Diversified Operations Private Limited decided on November 19,
2013
The
case was filed by JHS Svendgaard Laboratories Limited (“JHS”) against Procter and Gamble Home Products Limited (“P&G”) alleging
anti-competitive activities under section 3(4) of the Act.
JHS was
stated to be engaged in the business of manufacturing various fast moving
consumer goods (“FMCG”) for national
and international brands on contractual basis. P&G was stated to be a
subsidiary of Proctor and Gamble Company, USA. Proctor and Gamble has its
subsidiaries in around 80 countries and serves various FMCGs to 650 million
customers. JHS further informed that P&G Group has acquired Gillette India
Limited (“Gillette India”) and
Gillette Diversified Operations Private Limited (“Gillette Diversified”).
JHS
submitted that is has entered into three separate agreements with P&G,
Gillette India and Gillette Diversified for manufacturing detergent powder
Tide, Oral B toothbrushes and toothpastes respectively.
JHS
informed that at the time of executing abovementioned agreements, it was given
an assurance that the term of the said agreements will be for duration of 7 -10
years. However, P&G did not renew the agreements and few clauses of the
agreements were one sided, restrictive and arbitrary.
Considering
the facts of the case, CCI stated that dominance of P&G in the market of
toothbrush and toothpaste and detergent power does not have any effect on the
manufacturing agreements. CCI further stated that JHS is a manufacturer and is
free to enter into manufacturing contract with other companies.
CCI
observed that JHS and P&G are at different stages of production, however no
agreement of P&G and JHS falls in the category of agreements mentioned in
section 3(4)(a) to (e) of the Act. Based on the above analysis, CCI held that
contractual conditions cannot be considered as violation of section 3 (4) of
the Act. Therefore, CCI ordered for closure of the case.
5.
In Re: M/s Reliance Big Entertainment
Private Limited and Tamil Nadu Film Exhibitors Association decided on November 5, 2013
The case was filed by M/s Reliance Big Entertainment Private
Limited (“Big Entertainment”)
against Tamil Nadu Film Exhibitors Association (“Defendant Association”) alleging contravention of section 3 and
Section 4 of the Act.
Big Entertainment is a company engaged in the business of
production and distribution of cinematographic films, whereas Defendant
Association is an association of exhibitors and theatre owners of the state of
Tamil Nadu. As per the Big Entertainment the Defendant Association controls the
exhibition of films in Tamil Nadu.
Big Entertainment contended that it entered into an agreement
with M/s Balaji Real Media Private Limited to distribute a film called Osthi, which is a remake of hindi film Dabbang in Tamil language. The film was
scheduled to be released on December 8, 2011.
Big Entertainment transferred the above mentioned
distribution right to M/s Kural TV Creations Private Limited (“Kural TV”). Big Entertainment further
assigned the satellite rights of the film to M/s Sun TV Network Limited (“Sun TV”).
Big Entertainment stated that on November 29, 2011, Kural TV
informed that Defendant Association has denied screening of the movie because
the satellite rights of the movie were assigned to Sun TV. Similarly, PVR
Cinemas informed Big Entertainment about the ban on the screening.
On the basis of the news reports published in the newspapers,
Big Entertainment came to know that Sun TV owe some money to few members of
Defendant Association. Accordingly, in order to recover this money Defendant
Association decided to ban exhibition of any film, which is either produced or
distributed by Sun TV.
Aggrieved with the conduct of Defendant Association, Big
Entertainment reached before CCI. After the preliminary discussions, CCI
referred the case to DG for detailed investigation.
On the basis of transcripts of a conference of General
Secretary of the Defendant Association, CCI observed that Defendant Association
took a conscious decision to ban screening of films produced or distributed by
Sun TV. CCI also noted that Defendant Association did not dispute the above
fact, while deposing before DG. However, it requested for some time to give an
explanation, which was never given.
CCI
observed that government of Tamil Nadu has initiated a policy of exempting
entertainment tax to films on certain terms and condition. However, the benefit
was not extended to the remake films of other languages such as Osthi.
CCI stated that if an agreement falls in any category
agreements mentioned in section 3(3) of the Act, then a presumption is formed
that such an agreement has appreciable adverse effect on the competition.
However, the defendant party can always rebut the said presumption. In the present
case, the Defendant Association did not rebut any of the fact of the case
before DG and CCI. Therefore, CCI held that the conduct of Defendant
Association are in contravention of the provisions of sections 3(3) (b) read
with section 3(1) of the Act.
Based on the above analysis and observations, CCI imposed a
penalty of 10% of the average profit of preceding three financial years, on
Defendant Association and issued following directions to Defendant Association
and similar associations:
(a) The associations
should not compel any producer, distributor or exhibitor to become its member
as a pre-condition for exhibition of their films in the territories under their
control and modify their rules accordingly;
(b) The associations should not keep any clause in rules and
regulations, which makes any discrimination between regional and non-regional
films and impose conditions, which are discriminatory against non-regional
films;
(c) The rules of restrictions on the number of screens on the
basis of language or the manner in which a particular film is to be exhibited
should be done away with;
(d) Associations should not put any condition regarding hold
back period for release of films through other media like, CD, Satellite etc.
These decisions should be left to the concerned parties; and
(e) The condition of compulsory registration of films as a
pre-condition for release of any film and existing rules of association should
be dispensed with.
6.
In Re: Citizen Grievances Redressal
Foundation and Mumbai International Airport Private Limited Delhi International Airport Private Limited
The
case was filed by Citizen Grievances Redressal Foundation, Mumbai (“Informant Foundation”) against Mumbai
International Airport Private Limited Mumbai (“Mumbai Airport Authority”) and Delhi International Airport Private
Limited Delhi (“Delhi Airport Authority”)
alleging abuse of dominance.
Informant
Foundation alleged that the Mumbai Airport
Authority and Delhi Airport
Authority are charging excessively high parking charges for vehicles at
their respective airports. Whereas, the parking charges at Chennai and Kolkata
airport are relatively low.
CCI
stated that the relevant product market in the present case shall be the market
of “provisions of services for vehicle
parking at Mumbai and Delhi Airport”.
On the
basis of information available in public domain, CCI observed that Mumbai
Airport and Delhi Airport are owned and managed by a consortium of private
companies, which have successfully won the bidding organized by Airport
Authority of India (“AAI”). As per
terms of the agreement between consortium and AAI, CCI noted that consortium
had right to manage both aeronautical and non-aeronautical services (which
includes vehicle parking). CCI further noted that, consortium was free to fix
charges for non-aeronautical services. However, on the other hand, the airport
of Chennai and Kolkata are operated by AAI and non-aeronautical charges are
fixed by AAI.
CCI
stated that post bidding dominance of consortium cannot be an issue, therefore,
no case of dominance would arise against the Mumbai Airport Authority and Delhi Airport Authority. CCI further stated that non-aeronautical
charges form substantial part of income of consortium and it is free to charge
such charges as required to recover its cost. CCI observed that income from a
single non-aeronautical service cannot be looked into separately as the
collective income from such services.
On the
basis of data available in public domain, CCI observed that the passenger
traffic at Mumbai and Delhi airport is three times more than at the Chennai and
Kolkata airports. Owing to the limited parking available at the airports, CCI
held that the parking charges shall be fixed in such a way that discourages
passengers from using airport space and promoting use of public vehicles.
7.
M/s SRMB Srijan Limited v. CRISIL
Limited decided on November 12, 2013
The case was filed by SRBM (“SRBM) against CRISIL Limited (“CRISIL”)
alleging abuse of dominance. CRISIL is a credit rating agency and provides
rating services to all types of bank facilities, such as term loans and project
loans.
SRBM submitted that in the year 2008, it had entered into an
agreement with CRISIL for availing its services for rating SRBM’s bank loans of
Rs. 125 crores. Accordingly, SRBM was assigned a rating (BBB/Stable/P3+). As
per CRISIL’s rating rationale, SRBM lacks backward integration infrastructure.
SRBM stated that in year 2010, it acquired shares of M/s
Bhaskar Steel and Ferro Alloys Limited (“Bhaskar Steel”), which provided
it backward integration infrastructure. SRBM further stated that it also
cleared off all the bank dues of Bhaskar Steel, which were not paid by its
erstwhile management.
SRBM submitted that in March, 2011, CRISIL downgraded its
rating citing the reason that after acquisition of Bhaskar Steel, SRBM’s
profile has deteriorated. However, SRBM declined to accept the downgraded rating
and requested CRISIL to terminate the agreement and to remove the rating from
public domain. Subsequently, SRBM approached M/s CARE to get its loan facility
rated.
SRBM alleged that even after requesting for terminating
agreement, CRISIL continued to disseminate SRBM’s rating and raised it an
invoice for annual surveillance fee. CRISIL further informed SRBM that
non-payment of aforesaid annual surveillance fee will have adverse effect on
its rating.
SRBM also submitted that as a result of CRISIL’s conduct, it
has suffered losses.
CCI noted that the relevant product market in the present
case shall be “the market of credit rating services for availing the banking
facilities/loans in India”.
CCI observed that
before granting loan, a bank may ask companies to get their credit worthiness
rated through credit rating agencies. CCI stated that credit rating agencies
are required to get registered under SEBI (Credit Rating Agencies) Regulations,
1999 (“SEBI Regulations”). CCI further observed that credit rating
agencies are required to take prior approval from RBI, if they wish to provide
credit rating for bank loan. On the basis of information of SEBI, CCI noted
that there are 5 more credit rating agencies apart from CRISIL. CCI also noted
that companies are free to decline to accept their credit rating in case they
are dissatisfied with it.
Based on the submissions of SRBM and information available on
the website of CRISIL in respect of the quantum of its business, CCI held that prima
facie CRISIL seems to be a dominant player of the relevant market.
On the issue of abuse of dominance, CCI referred to the
various regulations of Chapter III (General Obligations of Credit Rating
Agencies) of SEBI Regulations. As per the aforesaid regulations, companies are
required to cooperate with credit rating agencies in order to arrive at an
accurate rating and credit rating agency are required not to withdraw any
rating till the securities rated by it are outstanding. CCI further noted that
as per the agreement between SRMB and CRISIL, SRMB was required to provide a
three months notice along with a written consent from a bank for withdrawing
its rating. However, SRMB did not provide any notice and consent letter of
bank.
Therefore, based on the above observations, CCI noted that
CRISIL have performed its actions in consonance with the SEBI Regulations and
terms of its agreement with SRMB. Hence, CCI held that CRISIL has not
contravened section 4 of the Act and ordered for closure of case.
COMPETITION APPELLATE TRIBUNAL
M/s.
Excel Crop Care Limited M/s. United Phosphorous Limited M/s. Sandhya Organic
Chemicals (P) Limited v. Competition Commission of India and others, decided on
October 29, 2013
The present appeal was filed by M/s Excel Crop Care Limited
(“Excel”), M/s. United Phosphorous Limited (“United”) M/s.
Sandhya Organic Chemicals Private Limited (“Sandhya”) against the order
passed by CCI on April 23, 2013 (“Order”). In the said order CCI held
that Excel, United and Sandhya (collectively referred as “Bidders”) were
involved in collusive bidding in a tender of Food Corporation of India (“FCI”)
for obtaining Aluminium Phosphide Tablets (“ALP”) in the year 2009 (“Bid”).
In its Order, CCI found that Bidders have quoted identical
prices and even at the stage of negotiating price with FCI, Bidders have quoted
identical prices. Therefore, based on the detailed report of DG and other
documents put on record, CCI held that Bidders have colluded and rigged the Bid
and therefore imposed a penalty of amount equivalent to 9% of the average
turnover of Bidders in the preceding three years from the date of the Order.
COMPAT reviewed the whole of Order and held that the Order
was CCI was correct in all aspects. However, COMPAT was not in agreement with
the heavy amount of penalty imposed on the Bidders.
COMPAT stated that CCI is a fair trade regulator and an
adjudicatory body, and it should provide basis for imposing penalty. In the
past also, COMPAT had asked CCI to provide a rational for awarding a particular
sum of penalty.
United contended that it is a multi product manufacturing
company and while imposing penalty, CCI has imposed penalty on the overall turnover
of the United. United argued that CCI should have taken into consideration only
the relevant turnover i.e. the turnover from ALP manufacturing business.
United further submitted that turnover of its ALP manufacturing business is
insignificant (0.3% of total turnover).
Excel also contended the same as it is also a multi-product
company. Excel and United also contended that the relevant turn over should be
the turnover from supply of ALP to FCI.
Based on the contentions of United and Excel on the quantum
of penalty, COMPAT ordered that penalty shall be imposed only on the ALP
business of the Excel and United. However, it stated that relevant turn over
will consist of turnover from total ALP business of the companies and it should
not be limited only to the turn over from supply of ALP to FCI.
COMPAT further stated that Sandhya is a small enterprise and
it would not be feasible for such a small enterprise to pay a fine of Rs. 1.57
crore. Therefore, COMPAT ordered that penalty imposed on Sandhya shall be
reduced to 1/10th of the total penalty imposed by CCI.
C.
Combination
Registrations
1.
Combination Registration No. C-2013/07/126
decided on November 6, 2013
The notice for the combination was filed by Mitsubishi Heavy
Industries Limited (“MHI”) and Hitachi Limited (“HL”) (MHI and HL
collectively be referred as “Parties”).
The proposed combination was filed pursuant to a Joint
Venture Agreement and a Business Integration Agreement entered between MHI and
HL. As per the said agreements, MHI and HL will integrate their business of
thermal power generation system, geothermal power system, environmental
equipment and fuel cells, in a newly formed entity (“JV Company”). As
per the notice, MHI and HL will hold 65% and 35%, respectively in the equity
share capital of the JV Company.
Parties stated that only thermal power generation system and
environmental equipment businesses of the Parties will be integrated in India,
as Parties are engaged in geothermal power system and fuel cells businesses in
India.
MHI is a listed company of Japan. In India, MHI operates
through Mitsubishi Heavy Industries India Private Limited (“MHI India”)
and other entities. MHI India is engaged in the business of steel structure,
power plants, environmental equipment, industrial and general machinery etc.
HL is a listed company, incorporated in Japan. In India, HL
operates through a number of subsidiaries, and sells a wide range of products
ranging from power and industrial systems, industrial components and equipment
etc.
CCI observed that Boilers, Turbines, and Generators (“BTG
equipments”) constitute the core of the thermal power generation system. On
the basis of the information provided in notice, CCI noted that MHI is engaged
in the thermal power generation system business through its two joint ventures
and both the joint venture companies have manufacturing facility. Similarly, HL
also operates in thermal power generation system business through its joint
ventures. However, none of the joint ventures have manufacturing facility.
CCI considered the information provided in Indian Electrical
Equipment Industry Mission Plan 2012-2022” of the Ministry of Heavy Industries
& Public Enterprises, the 12th Five Year Plan Documents of the Government
of India and research reports published by independent agencies. On the basis
of the information provided in above-mentioned sources, CCI observed that there
is a significant overcapacity in the domestic BTG equipment market.
CCI further observed that private power companies are also
free to import BTG equipment for their power plants from other countries,
except for Ultra Mega Power Projects. Accordingly, CCI noted that domestic
market faces significant competition from imports of BTG equipments.
On the basis of information provided by Parties about their
collective share in the BTG equipment market in India, CCI noted that Parties
only have only 7% market share, which is insignificant. Moreover, the presence
of Bharat Heavy Electricals Limited in the BTG equipment market poses a
significant competition in the market.
Lastly, CCI stated that post combination, the combined share
of Parties in the market of manufacturing of BTG equipment will be 20%.
However, the presence of overcapacity in the domestic market and imports will keep
on significant competition in the market. Therefore, CCI held that the proposed
combination will not have appreciable adverse effect on the market.
2.
Combination
Registration No. C-2013/05/122 decided on November 12, 2013
The notice for combination was filed by Etihad Airways PJSC
(“Etihad”) and Jet Airways (India) Limited (“Jet”). The notice
was field pursuant to an Investment Agreement (“IA”), a Shareholder’s
Agreement (“SHA”) and a Commercial Co-operation Agreement (“CCA”).
As per the proposed combination, Etihad will acquire 24% of the equity stake of
Jet.
Etihad is a company incorporated in UAE and is stated to be
wholly owned by the Government of Abu-Dhabi. Etihad is engaged in the business
of international air passenger transportation services. Etihad is also stated
to hold 29.21 percent equity stake in Air Berlin; 40 percent equity stake in
Air Seychelles; 10 percent equity stake in Virgin Australia and 2.9 percent
equity stake in Aer Lingus.
Jet is a listed company incorporate in India and is primarily
engaged in the business of providing low cost and full service scheduled air
passenger transport services to/from India. Jet also provides air
transportation services for cargo, maintenance, repair and overhaul services
and ground handling services. Jet Lite is a wholly owned subsidiary of Jet and
operates the low cost air transportation service.
As per the terms IA, post combination Etihad will have a
right to appoint 2 shareholder directors out of the 6 directors and
vice-chairman on the board of directors of Jet. Similarly, as per the CCA,
Etihad will have joint control over the assets and operations of Jet.
Relevant Market
For determining the relevant market CCI took into
consideration the Point of Origin and Point of Destination approach (“O&D”),
substitutability of nearby airports such as airport of Dubai, Sharjah and Abu
Dhabi, quantum and kinds of passengers (price sensitive and time sensitive
passengers) travelling to international destinations from major cities of India
such as Delhi, Mumbai, Bangalore, Kochi and Hyderabad. On the basis of the above-mentioned
criteria, CCI ascertained that the relevant market in the present transaction
shall be the “market of international air passengers”.
CCI also stated that the basis of O&D approach, a pair of
two destinations can be considered as a different relevant market such as Abu
Dhabi-Bangalore and Abu Dhabi-Mumbai.
Competition Assessment
On the market share of the both the enterprises, CCI observed
that Jet serves 20% of the India-UAE air passengers, whereas Etihad carries
only 5%. Both airlines have overlapping services on the 9 routes between India
and UAE. CCI further observed that their combined share is below 36% and they
face a significant competition from other airlines as well.
CCI noted that major number of passengers travelling between
India and UAE are fare sensitive, therefore increasing fare on India-UAE route
will not be feasible for any airline.
Assessment of 9 pairs of destination between
India and Abu Dhabi
Abu Dhabi and Bangalore: CCI noted that it is a small market size and other
airlines provide enough competition such as Qatar, Air India.
Abu Dhabi-Hyderabad: CCI noted that it is a small market size and other airlines
provide enough competition such as Emirates and Air India. It has airport
substitutability between Abu Dhabi and Dubai.
Abu Dhabi-Mumbai: CCI noted that the combined share of Jet and Etihad will
increase upto 55% on this route. However, the presence of Air India with 32% of
market share addresses the competition concerns.
Abu Dhabi-Delhi: The combined share of Jet and Etihad will increase upto 50%
on this route. However, presence of Air India with 24% of market share addresses
the competition concerns.
Abu Dhabi-Chennai: CCI noted that it has cheaper airlines and airport
substitutability between Dubai and Abu Dhabi.
Abu Dhabi-Ahmadabad: CCI noted that it is a very small market with only 10
passengers a day.
Abu Dhabi-Trivandrum: Air India provides cheaper airline services and many other
direct and indirect flights.
Abu Dhabi-Cochin: Air India provides cheaper airline services and many other
direct and indirect flights.
Abu Dhabi-Kozhikode: Air India provides cheaper airline services and many other
direct and indirect flights.
CCI also observed that Etihad and Jet provide services on 38
routes and they face competition on every route with minimum of one airline. Further,
based on the market share of Jet and Etihad, CCI noted that change in their
combined share will be marginal and will not alter dynamics of competition.
Assessment of competition of onward
bound traffic and network
On the basis of information provided by Jet and Etihad, CCI
observed that Jet and Etihad together have only 10.42% share in India and USA
route. Further, the Parties face significant competition on this route from
various other airlines. CCI further noted that India and USA have open skies
policy and the same does not pose any potential risk on competition.
Code sharing between Jet and
Etihad
As per the terms of the CCA, Jet will share code with Etihad
at Abu Dhabi for its scheduled services to and from Africa, North and South
America and the UAE. The term of CCA further provides that Jet will not share
code with any other airline for few O&D pairs such as Mumbai-Chicago,
Delhi-Chicago and Mumbai-Johannesburg. CCI, upon the analysis of the
aforementioned arrangement stated that as a result of this code sharing with
Etihad, Jet has to cancel its previous code sharing agreements. However,
aforementioned routes have significant number of competitors, such as American
Airlines, Air India and Emirates.
Efficiency
CCI stated that proposed combination may benefit passengers
by way of integrating networks and providing lower fares, which encourages
passengers from small cities to get direct international flights. Airline
alliance has an increased incentive to harmonize and improve customer service
standards.
Apart from efficiencies of the proposed combination, CCI also
took note of the significant infusion of foreign capital in aviation sector.
CCI also pointed out that the proposed transaction will support Jet to
strengthen its operational viability.
Impact of Bilateral Air Services
Agreement
CCI stated that proposed combination has to be analyzed from
the perspective of Bilateral Air Services Agreement between India and UAE. CCI
noted that as per BASA, by the end of year 2015, 50,000 seats per week will be
allotted to Jet and Etihad from Abu Dhabi to various other destinations in
India such as Mumbai, Delhi, Thiruvananthpuram, Kochi and Chennai. CCI observed
that the seat allotment under BASA will increase the combined market share of
Jet and Etihad to 22%. However, the same will not pose a potent threat to
competition in the market.
CCI further stated that increase in seat capacity under BASA
will be increased in phases and moreover other airline companies which come
under open skies policy or similar Air Service Agreements with India have
liberty to increase the fleet capacity.
Based on the above analysis and observations, CCI held that
the proposed combination will not have appreciable adverse effect on
competition. However, CCI stated that it is incumbent upon the Parties to
ensure that the ex ante approval does not lead to ex-post violation of
the provisions of the Act.
Minority
View
Mr.
Anurag Goel, Hon’ble member of CCI has given his minority order on the proposed
combination of Jet and Etihad relating to acquisition of 24% share capital of
Jet by Etihad. In his minority order, Mr. Goel has categorically pointed out
the drawbacks of per week seat allotment under BASA, Code sharing and
qualitative efficiencies.
Mr. Goel opined that the relevant market in the
present transaction would be the market of international air passenger transportation
from and to India. He pointed out that the current marker share details
furnished by the Parties do not reflect the future state of competition. Mr.
Goel noted that the present per week seat entitlement between Abu Dhabi and
India is 13,330. However, as per the MoU signed by India and UAE, the same will
increase upto 50,000 over the period of three years. He observed that pre
combination, both Jet and Etihad, who are the major players of India-UAE route,
would have otherwise given a significant competition to each other with the
increased seat entitlement. However, post combination such competition will be
lost. He further observed that the projected combined market share of Jet and
Etihad will be 25% highest among the top 5 airline companies.
Based on the information provided on the website of
DGCA on the quantum of passengers traffic between India and North America and
as per the data provided by Jet and Etihad regarding their air services on this
route, Mr. Goel observed that post combination Parties will have combined share
of 42% on India and USA route.
Mr. Goel noted that Jet provides direct or non-stop
flights from India to Brussels and it uses Brussels as a transit hub for
services between India-Toronto and Newark. Further, Jet and Etihad has
overlapping of services on the above mentioned route. However, post combination
this competition will be lost and Jet may be discouraged from providing direct
flights to such destinations for which Etihad provides connecting flights from
Abu Dhabi.
Code
Sharing or Transit Hub
On the issue of sharing code with Etihad or using
Abu Dhabi as transit hub, Mr. Goel observed that as per the terms of CCA, Jet
will use Abu Dhabi as the exclusive transit hub for its flights to Europe and
North America. Mr. Goel pointed out that currently, Jet uses Brussels as
transit hub for its flights to Birmingham, Madrid, Lyon, Barcelona, Berlin,
Paris, Manchester, Hamburg, Marseille, Toulouse, Geneva, Vienna and Bristol.
However, post combination, Jet will not be able to use Brussels as transit hub,
which will weaken the competition on this route.
CCA
and Efficiencies
On the basis
of the information provided by Parties on efficiencies, Mr. Goel state that the
Parties have given only qualitative claims with regards to lower fares and
network efficiencies. Parties have not provided any quantitative data regarding
lowering down of air-fares etc. He further stated that the claims of the
Parties are only based on the economic theories and it cannot be verified.
London
Heathrow Airport Slots
On the
basis of the information available in public domain, Mr. Goel observed that
London Heathrow Airport (“LHR”) is
one among the most congested airport in the world. It was observed that Jet had
three slots at LHR which were sold to Etihad, however, Etihad has leased back
those slots to Jet. Currently, Jet runs direct flight to between Delhi and
London and Mumbai and London. Mr. Goel
opined that if in future Etihad wishes to offer flights from Abu Dhabi to
London then Jet may have to either reduce or terminate its air services to
London. Therefore, the competition on LHR will also get prejudiced due to the
proposed combination.
Based
on the above analysis, Mr. Goel decided that the proposed combination will have
appreciable adverse effect on the competition.
D.
News
1.
Competition
Commission to probe Ericsson on Micromax complaint
CCI’s investigation wing, DG, will investigate into
the alleged unfair trade practices of LM Ericsson. The orders for DG
investigation were given pursuant to a complaint filed by Micromax. Micromax
alleged that Ericcsion is abusing its dominant position by charging
unreasonable royalty for its GSM patents granted to Micromax.
Micromax further informed that the rate of royalty
has no linkage to patented product but it is linked with the cost of the
product in which such patented technology is being used.
On the preliminary examinations of the facts of the
complaint, CCI observed that Ericssion is violating the FRAND (Fair,
Reasonable and Non-Discriminatory) terms. CCI
further observed that Ericssion holds maximum number of Standard Essential Patents for mobile communications
technology and there is no alternative technology. Therefore, CCI opined that
Ericssion is a dominant player and hence, it ordered DG investigation.
CCI also
rejected the contention that the pendency of a civil suit in Delhi High Court
filed by Ericsson against Micromax for
alleged violation of patent rights does not take away the jurisdiction of CCI
to proceed under the Act.
2.
Delhi
HC stays CCI proceedings against IOCL, HPCL & BPCL
On a plea filled by oil companies, the Delhi High
Court stayed the proceedings initiated by CCI into the alleged anti-competitive
practices of IOCL, HPCL and BPCL in
relation to pricing of petrol. The fair trade regulator as well as the
Petroleum and Natural Gas Regulatory Board (“PNGRB”) have been asked to file their responses on the plea of the
oil companies, which have contended that CCI does not have the jurisdiction to
investigate the issue. The oil companies contended that PNGRB has the
jurisdiction to look into fixing of petrol prices.
CCI
informed court that it will not pass any order till further orders of the
court. However, court rejected the plea and ordered for staying the
proceedings.
3.
CCI
signs MoU with EC counterpart
In the
Third BRICS International Competition Conference held in Delhi during November
20-22, CCI signed MoU with Director General for
Competition, European Commission (EU)
to strengthen international cooperation and share information related to fair
trade practices. The two sides have agreed to
exchange non-confidential information, experiences and views with regard to (a)
competition policy and enforcement (b) operational issues (c) multilateral
competition initiatives (d) competition advocacy and (e) technical cooperation
initiatives in the area of competition law and its enforcement.
4.
CCI to
move Supreme Court on COMPAT order against high penalties on companies
The CCI has planned to challenge in Supreme
Court an observation made by the Competition
Appellate Tribunal that seeks to disallow
huge penalties levied on companies for unfair trade practices. The
tribunal had asked the regulator to look at the "relevant turnover"
of a company while calculating the penalty for abuse of dominant position
instead of the overall turnover. This observation suggests that if a business
conglomerate has abused its dominant position relating to a certain unit of its
business, then the revenues of that unit in the balance sheet should be used to
levy the penalty. However, the commission was of an opinion that as per Section
27 (b) of the Act, the commission has the discretion to impose a penalty of up
to 10% of the three-year average turnover of an entity found guilty of unfair
trade practices and so penalties have to be levied on overall turnover and not
specifics. The decision of the Supreme Court will be highly awaited by various
stakeholders, since in the past CCI has in many orders used the basic principle
of annual turnover to calculate the penalties.
****************************************************************
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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