Sarthak Advocates & Solicitors: 2014

Thursday, February 20, 2014

Competition Law Alert - January, 2014

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 January, 2014:

1. Awadh Bihari Singh v. Petroleum and Natural Gas Regulatory Board, decided on January 2, 2014

The case filed by Awadh Bihar Singh (“Informant”) against Petroleum and Natural Gas Regulatory Board (“PNGRB”) alleging that the amendments in PNGRB Act, 2006 (“PNGRB Act”) will encourage anti-competitiveness and abuse of dominance in the market.

PNGRB regulates downstream segments of oil and gas distribution, including City Gas Distribution (“CGD”). PNGRB issue bids for authorizing natural gas distribution networks. Informant alleged that some companies of CGD segment have dominance in the said segment.

Informant further submitted that by way of PNGRB (Authorizing Entities to Lay, Build, Operate or Expand City or Local Natural Gas Distribution Networks) Amendment Regulations, 2013, PNGRB has proposed fresh norms for aforementioned bidding process.

Informant alleged that the said amendment regulations are in conflict with the provisions of the PNGRB Act and would lead to abuse of dominant position held by the established CGD companies, restrict competition, induce formation of cartel, escalate cost of bid bonds to unacceptable levels and unnecessary increase in CGD project cost.

CCI observed that under the PNGRB Act, PNGRB is authorized to formulate regulations to regulate the sector. However, these regulations are required to be put before both the houses of Parliament for its approval. Therefore, the regulations framed by PNGRB are merely subordinate legislation. Informant alleged that such subordinate legislation was contrary to the substantive provisions of the PNGRB Act. CCI held that the Informant should approach the appropriate forum if his grievance in respect of the scope of powers of PNGRB. CCI does not have jurisdiction to take cognizance of the case involving legislative powers of PNGRB.

Based on the above observations, CCI ordered for closure of the case.

2. Tunuguntla Chandra Shekar and Tunuguntla Sudha Rani v. M/s S.G. Estates Limited and Others decided on January 2, 2014

Mr. Tunuguntla Chandra Shekar and Ms. Tunuguntla Sudha Rani (“Informants”) filed a case against, M/s S.G. Estates Limited and M/s SKI View Hotel Private Limited (“Defendant Developers”) alleging violation of section 4 of the Act.

Informants submitted that in the year 2006 they had booked a space in the commercial real estate project of Defendant Developers at Ghaziabad. As per the Informants, the scheduled date of possession was March 31, 2008.

Informants contended that the said project was not completed within the stipulated time and construction deficiencies were also not removed. Informant further alleged sale deed was heavily one sided and in favor of Defendant Developers.

Informants alleged that the Defendant Developers have made unreasonable demands for maintenance charges, which was not based on the actual expenditure. They further submitted that Defendant Developers have not provided completion certificate of municipality.

Informant stated that at the time of booking of space in the year 2006, the Defendant Developers were the sole player in the market of commercial real estate segment.

CCI noted that the relevant market in the present case shall be the market of development and sale of commercial space in Ghaziabad.

On the basis of information available in the public domain, CCI observed that there are many other players in the relevant market. Therefore, on the basis of presence of other significant player in the market, CCI held that Defendant Developers are not a dominant player in the market. Therefore no prima facie case of violation of Section 4 of the Act could be established. Hence, CCI ordered for closure of the case.

Shyam Lal Gupta v. Cravatex Limited, decided on January2, 2014

The case was filed by Mr. Shyam Lal Gupta (“Informant”) against Cravetex Limited (“Cravatex”) alleging abuse of dominance.

Informant submitted that in the year 2009, he had purchased a Treadmill from Cravatex for Rs. 27,000. Later in the year 2012, his treadmill went out of order and he approached Cravatex for repair. He was informed by Cravatex that electric motor and MCB board of the tread mill were damaged and needed to be replaced. The replacement cost of the aforesaid parts was stated to be Rs. 28,838, which is more than the purchase price of the treadmill.

Informant alleged that Cravatex is the only pan India Fitness Company with 50 stores in major cities.

In its reply, Cravatex informed CCI that Informant purchased tread mill for Rs. 27,000 at the time of stock clearance sale, whereas the actual purchase price of that treadmill was Rs. 40,900. Cravatex also informed that Informant has not extended warranty of the treadmill and has also not taken any annual maintenance services. Therefore, Cravatex concluded that Informant has used the treadmill, without any periodic maintenance.

Cravatex submitted that it does not manufacture fitness machines, as it only imports such machines from its original manufacturers. Therefore the price quoted for replacement was based on the cost to its manufacturer.

On the basis of the primary functioning of the motorized treadmills, CCI observed that different versions of motorized treadmills are substitutable. Therefore, CCI decided that relevant market in the present case shall be the market for sale of motorized treadmills in India.

On the basis of information available in public domain, CCI observed that there are other players in the market, which manufactures and imports motorized treadmills such as Cosco, Reebok and JERAI. As per CCI, all aforementioned players claim to be the biggest. CCI noted that Informant has not provided any information to prove dominance of Cravatex, except the number of stores across India. However, CCI noted that there are other players, which have stores more than that of Cravatex.

Therefore based on the above mentioned observations, CCI held that Cravatex is not a dominant player in the market. Hence, CCI ordered for closure of the case.

Surinder Saini v. Delhi Metro Rail Corporation Ltd. & Ors.

The case was filed by Shri Surinder Saini (‘Informant”) against Delhi Metro Corporation Limited and 5 other institutions (“Defendant Institutions”) alleging abuse of dominance. Informant runs a firm called M/s Medical Product Services.

Informant stated that in past his firm and two other firms were found in violation of Section 3(3)(d) of the Act by CCI and the same was also upheld by Competition Appellate Tribunal (COMPAT).

Informant submitted that Defendant Institutions issue tenders for supply of Medical Operation Theatre (MOT) and Medical Gas Pipeline System (MGPS). However, the terms of the tenders restrict such firms, which have been found guilty of bid rigging or cartelization.

Informant informed that there are only 5-6 major players supplying MOT and MGPS, whereas the other players play a very small role. Informant alleged that Defendant Institutions have taken collusive action to restrict its entry in the market. Informant further alleged that Defendant Institutions are government procurement agencies and therefore they are abusing their dominant position by inserting such an anti-competitive condition in their tenders.

CCI stated that the practice of debarring those firms, which were found guilty of contravention of provisions of the Act is completely in the interest of public at large and can never be considered as unfair and arbitrary. CCI further stated that Defendant Institutions are consumers and they can put such conditions to safeguard their interest as a consumer.

CCI further observed that Defendant Institutions have imposed conditions in their tenders based on the order of CCI and COMPAT, which is in public domain, therefore actions of Defendant Institutions cannot be called to collusive.

Based on the above observations, CCI held that the said case cannot be examined under Sections 3 and 4 of the Act. Therefore, CCI ordered for closure of the case.

Sreeram Mushty, Chartered Accountant v. Shriram Chits Limited

The case was filed by CA Sreeram Mushty (“Informant”) against Sriram Chits Limited (“SCL”) alleging abuse of dominance.

Informant submitted that in the year 1996, he participated with his associates in the chit group of SCL namely BLX-01 with ticket numbers 26, 30 and 35.

Informant alleged that SCL has wrongfully invoked clause 17 of the standard chit fund agreement and has exercised a right of lien over the prize money of aforesaid tickets. Informant further submitted that there was no outstanding amount to be paid on such tickets by him.

Informant alleged that SCL has deposited the prize money of the ticket number 35 as fixed deposit in one of the group company of SCL, when informant failed to pay an instalment. Informant further alleged that SCL has declared Informant as defaulter subscriber and has denied dividends on the chits.

Aggrieved with the above conduct of SCL, Informant has approached CCI.

CCI noted that in the present case the relevant product market is the ‘market of chit fund services’. CCI opined that the ‘market of chit fund services’ is different from conventional banking system, as it entails credit without any collateral security and rate of interest on deposits are relatively higher than any other saving instruments. Therefore, chit fund is a unique product and pertains to a different market.

CCI further noted that chit funds companies need to be registered with the state government and operate under the regulations of their respective states. SCL is registered in Andhra Pradesh, therefore the relevant geographical market shall be Andhra Pradesh.

CCI stated that Informant has not provided any data to establish dominance of the SCL. CCI noted that the 65.55% of the market share of the total chit fund business in India (excluding Kerala) is covered by Margadarsi Chit Funds and SCL. Whereas, Margdarsi accounts of 41.67% and SCL holds 23.88%. However, CCI noted that there is no information on state wise share of chit fund business. Therefore it cannot be ascertained whether SCL is dominant player in the state of Andhra Pradesh. CCI further stated that Informant has not provided any data in the aforesaid respect and there is also no information available even in the public domain.

Based on the above observations, CCI held that SCL does not appear to be dominant player in the relevant market. Therefore it ordered for closure of the case.

In re: Pan India Infra Projects Private Limited and Board of Cricket Control in India decided on January 16, 2014

The case was filed by Pan India Infra Projects Private Limited (“Pan India”) against Board of Cricket Control in India (“BCCI”) alleging abuse of dominance in the organization of private cricket leagues.

CCI noted that in February, 2013 it has already decided in its order that BCCI is a dominant player and abused its dominant position. The issue of hostile behaviour towards private cricket league was also dealt in detail in the said order. CCI further noted that in its earlier order, CCI found that BCCI’s approval for initiating any cricketing league was crucial. CCI in its earlier order also held that BCCI has entered into an agreement, whereby it was restricted to give permission for any other private league. Therefore, it was decided that by not allowing ICL, BCCI has abused its dominance.

CCI noted that the said order was challenged by BCCI before COMPAT and appeal is pending. However, COMPAT has put a stay on the impugned order of CCI. CCI further noted that Pan India has also filed Special Leave Petition before Supreme Court against BCCI citing same grievances. The said SLP is also pending.

Therefore, based on the above observations CCI stated that there is no need to start a fresh investigation against BCCI as all the grievance of the Pan India have already been addressed in its earlier order.

CCI held that if COMPAT upheld order of CCI and even after that BCCI continue to abuse its dominance, than in such case Pan India will have a right to approach CCI.

C. Combination Registrations

1. Combination Registration No. C-2013/12/143 decided on January 7, 2014

The notice for the combination was filed by Mahindra Engineering Services Limited (“MES”) and Tech Mahindra Limited (“Tech Mahindra”). As per the proposed combination, the entire business comprised in all undertakings of MES will get amalgamated into Tech Mahindra.

MES is an unlisted company incorporated in India. It provides engineering services comprising of designing and developing parts etc. for automotive and off-highways sector.

Tech Mahindra is a listed company incorporated in India. It provides engineering services largely in the aerospace, automotive, industrial hi-tech and consumer electronics sectors.

As per the notice, Mahindra & Mahindra Limited directly and indirectly holds 80.69% of the share capital of MES. Mahindra & Mahindra Limited together with its promoters also holds 36.46% of share capital of Tech Mahindra.

Based on the above facts, CCI held that the proposed combination will not have adverse effect on the competition in market. Therefore, CCI approved the combination.

2. Combination Registration No. C-2013/12/146 decided on January 30, 2014

The notice for combination was filed by Inox Air Products Limited (“Inox”). The proposed combination was in respect of Business Transfer Agreement between Inox and Essar Steel Limited (“Essar”). As per the proposed combination, Esaar’s gas plant situated at Gujarat will be transferred to Inox on slump sale basis.

Inox is incorporated in India and is engaged in business of manufacturing and supplying industrial gases, including oxygen, nitrogen, helium, argon.

Essar is also incorporated in India and is an integrated steel manufacturer. The gas plant at Gujarat produces oxygen, nitrogen, and argon gases. However, the said gases are primarily used for captive purposes at its steel plants.

On the basis of information provided by Inox and Essar, CCI noted that Inox and Essar will enter into a Job Work Agreement. As per the said Job Work Agreement, Inox will provide industrial gases to Essar for its steel plants. CCI also noted that post combination the total production capacity of Inox will not increase significantly.

Therefore, based on the above observations, CCI held that proposed combination will not have appreciable adverse effect on the competition. Hence, CCI approve the combination.

3. Combination Registration No. C-2013/10/136 decided on January 30, 2014

The notice for the combination was filed by Synnex Corporation (“Synnex”). The proposed combination is in respect of a Master Asset Purchase Agreement between Synnex and International Business Machines Corporation (“IBM”). As per the proposed combination, Synnex will acquire customer relationship management business process outsourcing (“CRM BPO”) of IBM.

IBM has two wholly owned subsidiaries in India, namely, IBM India Private Limited (“IBM India”) and IBM Daksh Business Process Service Private Limited (“IBM Daksh”). As per the proposed combination, BPO business of IBM Daksh will get transferred to Synnex.

Synnex is NYSE listed company and is engaged in the business of providing BPO services to resellers, retailers and original equipment manufacturers of various industries. Apart from BPO business, it is also engaged inter alia in the business providing IT distribution, supply chain management. In India, Synnex operates through its wholly owned subsidiary Concentrix Technologies (India) Private Limited (“Concentrix”).

IBM is also a NYSE listed company engaged in the business of manufacturing and marketing computer hardware and software. It also provides infrastructure hosting and consulting services in the areas from mainframe computers to nanotechnology. As stated above, IBM has two subsidiaries in India i.e. IBM Daksh and IBM India. Both the subsidiaries are engaged in providing BPO services in customer care and back office works.

As per the combination, the Indian operations of IBM will also get transferred together with CRM BPO business of IBM.

CCI noted that the major portion of the revenue of IBM Daksh are generated from exports. Similarly, Concentrix revenue from domestic market is also insignificant. CCI further stated that IT BPO industry of India has several large players. Therefore, based on the above observations and analysis, CCI held that the proposed combination will not have appreciable adverse effect on the competition in India. Hence, CCI approved the combination.

4. Combination Registration No. C-2014/01/149 decided on January 30, 2014

The notice for the combination was field by HDFC Trustee Company Limited (“HDFC Trustee”) and HDFC Asset Management Company Limited (“HDFC AMC”) (HDFC Trustee and HDFC AMC collectively be referred as “Acquirers”). The proposed combination was filed pursuant to a Scheme Transfer Agreement between Acquirers and Morgan Stanley Mutual Fund (“MS Trustees”) and Morgan Stanley Investment Management Private Limited (“MS AMC”) (MS Trustees and MS AMC be collectively referred to as “MS Entities”).

As per the proposed combination, Acquirers will acquire eight Morgan Stanley Mutual Fund (“MS Mutual Fund”) schemes from MS Entities.

As per the notice, HDFC Mutual Fund is a trust established under Indian Trusts Act, 1882, which is co-sponsored by HDFC Corporation Limited and Standard Life Investments Limited. HDFC AMC is the asset management company and HDFC Trustee is trustee of HDFC Mutual Fund. HDFC Mutual Fund is registered under the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 (“SEBI Mutual Fund Regulations”).

MS Mutual Fund is a trust established under Indian Trusts Act, 1882 sponsored by Morgan Stanley. MS AMC is the asset management company of MS Mutual Fund.

CCI observed that mutual fund business in India is regulated by SEBI Mutual Fund Regulations. As per the official website of SEBI, there are 52 registered mutual funds operating in India. Therefore, there is an ample choice to customers to shift from one mutual fund to other. Moreover, as per the report of Association of Mutual Funds of India, the average asset under management of MS Mutual Fund for the last quarter was insignificant.

Therefore based on the above observations, CCI held that the proposed combination will note have appreciable adverse effect on competition. Hence, CCI approved the combination.

5. Combination Registration No. C-2013/12/145 decided on January 28, 2014

The notice for the combination was filed by KKR Floorline Investments Pte Ltd (“KKR Floorline”) and Gland Celsus Bio Chemicals Private Limited (“Gland Celus”). The proposed combination was pursuant to the following agreements:

1. Shares Subscription Agreement between Gland Pharma Limited ( “Gland Pharma”), the promoters of Gland Pharma and KKR Floorline.

2. Shareholders Agreement amongst Gland Pharma, the promoters of Gland Pharma and KKR Floorline.

3. Share Purchase Agreement amongst KKR Floorline, Gland Pharma and EILSF Co-Invest I LLC (private equity investor of Gland Pharma).

4. Share Subscription Agreement amongst Gland Celsus, the promoters of Gland Celsus and KKR Floorline.

As per the proposed combination, in terms of the above mentioned agreements, KKR Floorline will acquire 37.98% of equity shares of Gland Pharma and 24.9% of equity shares of Gland Celus. Further, Gland Celus will subscribe to additional securities of Gland Pharma, which will increase its shareholding in Gland Pharma to 30.24%.

KKR Floorline is an investment holding company incorporated in Singapore. KKR Floorline is controlled by KKR & Co. LP (“KKR”) incorporated in Delaware, USA. KKR is a global asset funds and investment company, which holds investments in various companies in India.

Gland Pharma is a company incorporated in India, engaged in producing generic versions of medicines and specialized injectables. Further, Gland Pharma also produces active pharmaceutical ingredients (“API”) for in-house consumption.

Gland Celus is an investment holding company and is promoter of Gland Pharma. It currently holds 17.70 % of equity share capital of Gland Pharma, 12.98 per cent of equity share capital of Gland Chemicals Private Limited (“Gland Chemicals”) and 40 % equity share capital of Nicomac Clean Rooms Far East Private Limited (“Nicomac”).

As per the notice filed, Gland Celus does not carry on any business whereas, Gland Chemicals produces API and Nicomac manufactures and supplies modular clean room systems, lab services, equipment etc.

CCI noted that KKR holds investment in three health care companies in India. Out of the said three companies, one is engaged in business of providing solutions to medical devise market, the second company is engaged in business of dosage delivery product and the third company is engaged in the business of contract research and clinical development services to the biotechnology and pharmaceutical industries globally.

On the basis of the information provided by the parties, CCI observed that Gland Pharma does not have any vertical relationship with the aforesaid three companies in which KKR holds investments.

CCI further observed that there is a horizontal overlapping of products of said three companies and Gland Pharma and other companies in which Gland Celus has investment. However, the supply of APIs from Gland Chemicals to Gland Pharma or the clean room products from Nicomac to Gland Pharma is not significant enough to result in any competition concern in India.

Therefore based on the above observations, CCI held that proposed combination will not have appreciable adverse effect on the competition in India. Hence, CCI approved the combination.

D. News

1. Competition Commission cautions against unfair ways in pharma business

CCI vide a public notice has listed out various possible anti-competitive practices in the pharma sector. The said notice is addressed to general public, chemists, druggists, stockists of medicines, whole-sellers and pharmaceutical manufacturers.

The CCI in its several orders had already found several practices with regard to cases concerning all India, state-level, district-level associations of chemists, druggists, stockists, whole-sellers and manufacturers to be anti-competitive.

Few of such anti-competitive practices include (i) issuance of instructions to chemists/druggists/shops/ stockists/whole-sellers/manufacturers restricting discounts on sale of drugs in retail or wholesale; (ii) issuance of boycott calls by the associations to their members against any enterprise for not following their instructions; and (iii) fixation of trade margins at different levels of sale of drugs or medicines.

According to the notice, CCI has already issued cease & desist order against the associations directing them not to indulge in anti-competitive practices. Therefore, non-compliance of the order of will entail severe penalties and can even lead to prosecution.

2. Coal India appeals against CCI's Rs 1,773 crore penalty order

Coal India has moved to the Competition Appellate Tribunal against a CCI order slapping Rs 1,773 crore penalty on it for unfair trade practices.

CCI in its order observed that Coal India is operating independently of market forces and enjoys an undisputed dominance in the country for production and supply of non-coking coal.

According to the said order, Coal India abused its dominance and did not try to evolve/draft/finalise terms and conditions of Fuel Supply Agreements through a mutual bilateral process with procurers. CCI has also directed Coal India to cease and desist from certain anti-competitive practices.

3. Government exempts shipping vessel sharing pacts from CCI purview

As per the gazette notification issued by the Ministry of Corporate Affairs, the Central Government has exempted Vessel Sharing Agreements among shipping companies from the ambit of CCI for a period of one year.

Vessel Sharing Agreement allows entities to share space in each other’s vessels is a common practice in the shipping industry. The shipping industry has been seeking exemption for these pacts from the purview of section 3 of the Act (anti-competitive agreements).

Therefore now throughout the exemption period, Vessel Sharing Agreement would only be monitored by the Director General of Shipping.

4. Competition Commission of India may probe price-fixing in RCF tender

As per the news reports, CCI is looking into an alleged formation of cartel between two railway brake manufacturers, namely Knorr Bremse and Faiveley Transport, when they quoted identical prices for the tenders floated for rail brakes by the Railway Coach Factory at Kapurthala in Punjab.

According to a complaint filed by Railway Coach Factory, Kapurthala, the Indian subsidiaries of German braking system maker Knorr Bremse and French railway equipment maker Faiveley Transport have formed a cartel to supply ‘Axle Mounted Disk-Break System’ for coaches at Railway Coach Factory. In its complaint to CCI, the complainant has claimed that the two bids were totally identical on three occasions in 2011, when the department had floated emergency tenders.

5. Competition Commission of India orders another probe against Coal India

CCI has ordered an investigation against Coal India and its subsidiary Western Coalfields on a complaint alleging that the company has abused its dominant position. The investigation is ordered on basis of a complaint from Wardha Power that alleged that the state-run entity forced it to enter into a one-sided Fuel Supply Agreement (FSA) under which the latter did not have bargaining power or power to negotiate. Wardha Power has further alleged that Coal India has increased the price of the coal that was supplied to it from Rs. 1613/- per metric tonne to Rs. 2177/- per metric tonne, without justifying the hike in prices.

CCI in its latest order held that a prima facie case was made out against Western Coalfields and Coal India for investigation for contravention of Section 4 of the Competition Act. Accordingly, investigation was ordered.

CCI had already penalised Coal India and its subsidiaries heavily for abuse of dominance by imposing a penalty of Rs 1773 crore in the month of December, 2013. Coal India has challenged the said December order before COMPAT.

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DISCLAIMER

This competition law alert has been prepared by Sarthak Advocates and Solicitors. It is meant to be merely an informative summary and should not be treated as a substitute for considered legal advice. We welcome your comments and suggestions. For any comments, suggestions or further clarifications, please contact us at:

Sarthak Advocates & Solicitors

A-35, Sector - 2, Noida- 201 301,

Uttar Pradesh

Boardline: +91- 120-4309050

Fax: +91- 120-4249060

Email: knowledge@sarthaklaw.com

Tuesday, February 18, 2014

Real Estate - January - 2014

Real Estate - January - 2014

Supreme Court's Judgements

A. A. SH Medical Centre Hospital vs. State of Kerala &Ors.,decided onJanuary 16, 2014.

Facts:

The Appellant, SH Medical Centre Hospital, a registered charitable institution is managed by nuns of the Christian faith.As per the Memorandum of the SH Medical Center, the object of the institution is purely philanthropic and not for profit.The Appellant had constructed several buildings with the aim of building hospital and providing free medical aid to poor. The Respondents, vide an order exempted the Appellant from assessment of building tax. The exemption was in connection with the main building of the hospital. The Appellant’s hospital was visited by an officer from the office of Tehsildar and subsequently the Appellant received a demand notice. Under the said notice, the Appellant was subjectedto building tax under the relevant provisions of the KerelaBuilding Tax Act, 1975 (“Act”).

Aggrieved by notice, the Appellant filed a writ petition before the High Court of Kerala. The High Court, by an order, disposed of the writ petition with a direction to the Tehsildar to reconsider the assessment. The High Court also rejected the request of the Appellant and referred the issue of exemption to the Government.

The Kerala Government, by its order rejected the contention of Appellant and held that as the medical service were given only in the plinth area of the third floor of the main building, only the said portion is exempted from paying building tax.

Aggrieved by the order of the Kerala Government, the Appellant filed a writ petition before the High Court praying to quash the order and to declare the appellant as charitable institution under the Act. The writ petition was dismissed by the single judge on the ground that the building was not primarily used for charitable purposes and thus the present appeal.

Held:

While examining the provisions of the Act and the question of what ‘charitable purpose’ means, the Supreme Court opined that the High Court has correctly interpreted the ‘Explanation’ clause to Section 3(1) of the Act to hold that ‘charitable purpose’ means ‘relief of the poor and free medical relief’. The Supreme Court, while dismissing the appeal,observed that the Appellant already has income tax exemption for the area in which free medical aid is provided. Only the portion of the building utilized for providing free medical aid can be said to be used principally for charitable purpose and thus the High Court was correct in its observation.

Circular

New Sub-Sector CRE-Residential Housing (CRE-RH) Segment within CRE Sector & Rationalisation of Provisioning and Risk Weight.

In September 2009, the Reserve Bank of India (“RBI”) had issued guidelines on classification of certain exposures as Commercial Real Estate (“CRE”) exposures. The CRE exposures are sensitive in view of their inherent price volatilities. Therefore, these exposures generally attract higher risk weights and higher provisioning requirements. Accordingly, it was proposed to carve out a sub-sector of ‘CRE-Residential Housing’ within the CRE sector with appropriate prudential regulatory norms on risk weights and provisioning.

As loans to the residential housing projects under the CRE Sector exhibit lesser risk and volatility than the CRE Sector taken as a whole, it has been decided to carve out a separate sub-sector called ‘Commercial Real Estate–Residential Housing’ (“CRE-RH”) from the CRE Sector. CRE-RH would consist of loans to builders/developers for residential housing projects (except for captive consumption) under CRE segment. Such projects will ordinarily not include non-residential commercial real estate. However, integrated housing projects comprising some commercial space (e.g. shopping complex, school, etc.) can also be classified under CRE-RH, provided that the commercial area in the residential housing project does not exceed 10% of the total Floor Space Index (“FSI”) of the project. In case the FSI of the commercial area in residential housing complex exceeds the ceiling of 10%, the project loans will be classified as CRE and not CRE-RH.

Further, the CRE-RH segment will attract a lower risk weight of 75% and lower standard asset provisioning of 0.75% as against 100% and 1.00%, respectively for the CRE segment.

News

Housing projects allowed in Gurgaon’s commercial zones

The Haryana government has decided to allow mixed land use in commercial zones notified in the master plan. So far, licences in designated commercial zones in development plans have been granted exclusively for integrated commercial complexes but under the new Mixed Land Use (Commercial/Residential) Licensing Policy, these complexes can now house residential properties. As per the policy, the projects will only be allowed on sector roads or 30-metre wide roads. The minimum area required for the project should be 10 acres. Further, the project site should also have an existing approach road, while it should be approachable from the proposed sector roads in future.The maximum permitted Floor Area Ratio (“FAR”) of a project has to be in accordance with the present licensing policy. While the maximum FAR for the residential component cannot exceed one third (33.3%) of the maximum permissible FAR of the project and the remaining two-third (66.7%) must be used for commercial purpose.The policy doesn’t allow independent residential plots to be carved out in commercial zones.

Industrial township in Greater Noida

The central government has approved an investment of over Rs 1,700 crore in creating trunk infrastructure such as roads, bus rapid transit system and telecom and IT infrastructure for an industrial township.The proposed industrial township is part of an “early bird project” with a multi-modal hub also planned in Dadri, which part of the Delhi-Mumbai Industrial Corridor. The township is proposed under the 2021 Master Plan and will be spread over close to 750 acre.

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Newsletter - Real Estate

This newsletter is being provided to the recipient solely for the purpose of his/her/its information. It is meant to be merely an informative summary and should not be treated as a substitute for considered legal advice. This update covers significant legal developments in the field of real estate for the month of January, 2014. If you wish to receive more information about any item in this newsletter, please feel free to contact:

Sarthak Advocates & Solicitors

A – 35, Sector – 2, NOIDA 201 301

T: +91 120 430 9050

E: knowledge@sarthaklaw.com

Friday, January 17, 2014

Competition Law Alert - December, 2013

Competition Law Alert

ORDERS By COMPETITION COMMISSION OF INDIA

A. Anti-Competitive Agreements

Synopsis of the legal provisions

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.

d) Agreements that, directly or indirectly, result in bid-rigging or collusive bidding.

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

(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 December, 2013:

1. In Re: M/s Maharashtra State Power Generation Company Limited v. M/s Mahanadi Coalfields Limited and M/s Coal India Limited;

M/s Maharashtra State Power Generation Company Limited v. M/s Western Coalfields Limited and M/s Coal India Limited;

and

M/s Gujarat State Electricity Corporation Limited v. M/s South Eastern Coalfields Limited and M/s Coal India Limited, decided on December 9, 2013

In the present order, CCI has clubbed three different cases filed by Maharashtra’s and Gujarat’s State Power Generation Companies against M/s Coal India Limited (“CIL”) and its subsidiaries M/s Mahanadi Coalfields Limited (“Mahanandi Limited”), M/s Western Coalfields Limited (“Western Coalfields”) and M/s South Eastern Coalfields Limited (“South Eastern Coalfields”) alleging abuse of dominance.

Case of Maharashtra State Power Generation Company Limited against Mahanandi

Maharashtra State Power Generation Company Limited (“MH Power Corporation”) has alleged that as per the New Coal Distribution Policy, 2007 (“NCDP”), Mahanandi Limited was required to sign a fuel supply agreement. However, it signed an MOU, which did not cover all aspects of supply, such as quality control, grade, failure or short supply and joint sampling. Further, the MH Power Corporation was provided with a model Coal Supply Agreement to be executed with Mahanandi, which had certain clauses, which requires MH Power Corporation to incur additional cost. MH Power Corporation further contended that the MOU was an attempt to dilute the responsibility of Mahanandi Limited to supply coal.

Case of MH Power Corporation against Western Coalfields

MH Power Corporation alleged that the Fuel Supply Agreement (“FSA”) executed between MH Power Corporation and Western Coalfield did not provide for joint sampling and only required sampling by Western Coalfields.

Case of Gujarat State Electricity Corporation Limited against South Eastern Coalfields

Gujarat State Electricity Corporation Limited (“GJ Corporation”) submitted that it has entered into an FSA with South Eastern Coalfields. GJ Corporation alleged that South Eastern Coalfields used to raise bills for a higher grade of coal, even when GJ Corporation was supplied with a degraded coal. Further, the difference of grade of coal on bill and in reality was huge. GJ Corporation also raised the issue of joint sampling, as was raised by MH Power Corporation. GJ Corporation alleged that as per the FSA, South Eastern Coalfields was required to install Augur Sampling Machines (ASM), which was never installed by it.

During DG investigation, CIL and its subsidiaries submitted that DG cannot ascertain relevant market in the present case, as it can only be done in the case when a party is dominant. CIL contended that in the instant case, it is not a dominant player, as it has got the monopoly over the coal in India by operation of law i.e. by Coal Mines (Nationalization) Act, 1973. CIL further contended that it is not free to take its business decisions and as its decisions are based on the directions of Ministry of Coal, Ministry of Power, Planning Commission, Central Electricity Authority and National Thermal Power Corporation Limited (“NTPC”).

CIL without prejudicing its above contention also submitted that the relevant market shall be the market of production and supply of non-cooking coal globally, as CIL faces competition from the increase in coal import.

Relevant Market

CCI stated that as per the Act, it is necessary to determine the relevant market for establishing dominance of a player in such relevant market. Therefore, the contention of CIL that DG cannot ascertain relevant market in the present case was rejected by CCI.

CCI observed that the non-cooking coal is one of the basic raw material used in thermal power plants and it cannot be substituted from any other fuel. CCI also took into consideration the issue of imported coal and noted that imported coal is not a viable substitute for non-cooking coal. As per the DG report, the boilers used in thermal power plants in India are made in such a way that only the domestic coal can be used in it and moreover the imported coal is not coat effective, as coal covers 60%-70% of the total cost of a thermal power plant.

Based on the above observations, CCI ascertained the relevant market as the market of production and sale of non-coking coal to the thermal power generators in India.

Dominant Position of CIL and its Subsidiaries

On the issue of dominant position, CIL contended that in the year 2011, CIL’s share in the global production of non-cooking coal was only 6.5%. However, the same was contrasted by CCI by quoting CIL’s Annual report 2011-12, where it was mentioned that CIL is the largest coal producing company in the world.

CIL further argued that it does not have commercial freedom in terms of quantum of supply of coal and pricing of the coal, as CIL is depended upon the decision of Ministry of Power, CEA, SLC and NTPC for such issues. CIL further stated that M/s Singareni Collieries Company Limited (“SCCL”), a joint venture of Government of Andhra Pradesh and Government of India also produces coal for commercial sale and CIL faces competition from SCCL. Moreover, CIL’s monopoly is by way of operation of law.

Rejecting above contentions of CIL, CCI stated that in the year 2011-12, SCCL only had 8% of the market share whereas, CIL held 69% of the market share, Therefore, presence of SCCL does not affect the dominant position of CIL and its subsidiaries. CCI also referred to a decision of Supreme Court of India, where it was held that coal companies are monopolies within the meaning of the Coal Mines Nationalisation Act, 1973and they shall be deemed to be monopolies for the purpose of Article 19(6) of the Constitution of India.

CCI further opined that NCDP formulates policy for supply and pricing for regulated industries, such as power and railways. However, it does not envisage terms and conditions for supply of coal. Therefore, CIL and its subsidiaries have enough commercial freedom.

DG report also provided that while gross calorific value mechanism, fixing prices of different grades of coal, the board of CIL acts without any interference of Government of India. DG report further mentioned that profit of CIL has increased, even after the implementation of NCDP. However, the quantum of production was not changed much. On the basis of the aforesaid, CCI held that the government’s policies do not affect the interest of CIL. Hence, CCI held that CIL is a dominant player in the market.

Abuse of dominance

DG in its report provided a detailed chain of events from formulation of NCDP to the requirement of FSA. The DG report, in this regard, had concluded that FSA’s for CIL and its subsidiaries were drafted by CIL, without the participation of power generation utilities.

CIL on the other hand had argued that FSA were made in consultation with CEA and Ministry of Power. However, CCI stated that the aforementioned bodies have no mandate, perspective or authorization to enter into bilateral engagement with CIL on behalf of power generation companies.

Therefore, CCI held that CIL had abused its dominance by not involving power generation companies, while formulating terms and conditions of bilateral arrangements.

CCI took into consideration various clauses of FSA for both existing buyers and new buyers and analysed them based on the submission of the parties, as well as findings of DG report. CCI eventually concluded that following clauses of FSA’s were in contravention of section 4(2)(a)(i) of the Act:

1. Clauses relating to sampling only at the time of loading from CIL’s end and not at the time of unloading.

2. Clauses relating to charging of transportation and other expenses on the standard rates only, even for the supply of ungraded coal.

3. Clauses pertaining to capping the compensation for supply of stones or other material with uncrushed and unwashed coal supplied to new power producers.

4. Clauses related to termination and review of FSA.

5. Clauses related to force majeure for new power companies.

6. Clauses discriminating between new and old power companies in terms of review of grade of coal.

Based on the above findings and analysis, CCI held that CIL has abused its dominance in the relevant market. Hence, CCI passed the following directions and imposed penalty on CIL.

Directions

1. CIL and its subsidiaries were directed to cease and desist from indulging in the conduct, which has been found to be in contravention of the provisions of the Act.

2. Modify the FSA in the light of the above findings of CCI and to ensure parity between new and old power companies, and private and PSU power companies, as far as practically possible.

3. Provide for joint sampling and adopt international best practices for sampling.

4. Install Augur Sampling Machines.

Penalty

While imposing penalty, CCI considered the fact CIL has enough flexibility in its commercial operations. However, its conduct is still influenced to certain degree by Ministry of Power and other bodies. CCI also took note of modifications which were made during the pendency of the matter. Considering the facts and circumstances, CCI imposed penalty on the consolidated accounts of CIL. CIL was directed to pay a sum equivalent to 3% of its average turnover for preceding three years.

2. In Re: Federation of Indian Publishers and M/s A.H. Wheeler and Company Private Limited Ministry of Railways, Government of India decided on December 12, 2013

The case was filed by Federation of Indian Publishers (“Federation”) against M/s A.H. Wheeler and Company Private Limited (“Respondent Wheeler”) alleging abuse of dominance. Ministry of Railways was made a formal party, as Respondent Wheeler operates book stalls on the railway platform in India.

Federation stated that it is a registered society of publishers of India. Its members publish books and journals of various subjects, including literature, history, children books, fiction, national integration and religion, in all languages including English, Hindi and regional languages. Respondent Wheeler is engaged in the business of retail sale of books, newspapers, magazines, periodicals etc. in all Indian languages and some European languages, at different railway stations in India.

Federation alleged that Respondent Wheeler has been putting unfair conditions of purchase on publishers, who wish to sell their books on railway stations. Federation’s allegation can be summarised as follows:

1. Payment of consideration to publishers only within 90 days from sale of books or journal gets sold. Hence, no payment is made at the time of delivery of books.

2. Returning unsold and damaged books to publishers.

3. Affixing its holograms on books and renting books to customers and thereafter returning the same to publishers.

4. Closing accounts of publishers for not following Respondent Wheeler’s unfair conditions.

CCI noted that the market in the present case shall be the market of the market of sale /purchase of books, newspapers, magazines, periodicals, etc in different languages in India. As sale of books or periodicals is not restricted to railway platforms and publishers are free to sell their books and printed materials all over India.

On the basis of information available in the public domain, CCI noted that Respondent Wheeler procures books and journal from Federation members only for 258 book stalls. CCI observed that only 258 book stalls are insignificant if compared will all other book stalls selling books on railways stations. CCI further observed that there is a huge segment of market outside railway station, which have various big players of the market such as India Book House (IBH), Books & Magazines Distributors Private Limited, India Book Distributors (Bombay) Limited.

Considering the fact that there are significantly big players in the market, CCI held that Respondent Wheeler is not a dominant player in the relevant market. Hence, no prima facie case of abuse of dominance could be established against Respondent Wheeler. Therefore, CCI order for closure of the case.

3. In re: Mr. R. Rajaraman and the Commissioner, Trichirapalli City Municipal Corporation and Others decided on November 11, 2013.

The case was filed by Mr. R. Rajaraman (“Informant”) against the Commissioner of Trichirapalli City Municipal Corporation and 8 other municipal corporation of other cities in the state of Tamil Nadu (“Municipal Corporations”) alleging contravention of Section 3(3) of the Act.

Informant submitted that Municipal Corporation of Trichirapalli invited Request for Quotation (“RFQ”) for converting all street tube lights into power saving LEDs by way of Public Private Partnership (“PPP”). As per the RFQ, the said tender required an expense of Rs. 140 crores for next 3 years and Rs. 300 crores for next 10 years.

Informant alleged that the stringent conditions were included in RFQ to oust the Energy Service Companies (ESCOs) and leading light manufacturing companies. Informant further alleged that engaging the bid allottee for 10 year was restricting the competition in the market.

Informant submitted that bidders with alternate technologies, like induction lamps and automatic switches were also discouraged.

Similarly, other municipal corporations also issued same tenders. Therefore, Informant filed the case against all the municipal corporations.

Municipal Corporations contented that Informant has not applied for tenders and therefore he was not affected by the terms of RFQ and hence, he cannot complaint against the RFQ. However, CCI held that Informant can register complaint, even if he did not apply for getting tender.

Municipal Corporations further contended that tenders were invited for replacing 40W tube lights with 20 W LEDs. The tender did not provide for any specific technology in the bid documents and it was open for all kind of energy efficient lamps. Municipal Corporations further submitted that RFQ specifically provided for automatic switching.

Municipal Corporations clarified that object of the tender was to provide efficiency to the street lights and not just equipment. Therefore, tender was open for all ESCOs accredited by credit rating agencies such as CRISIL. Municipal Corporation also clarified that as per the guidelines of central government on PPP Projects, a bidder is required to have prior experience to qualify for PPP projects. As per Municipal Corporations, one of the eligibility criteria was to have experience of 4MW for bidders. However, it was not expected from a single bidder and could be met by consortium of two or three bidders.

Municipal Corporations stated that payback period of projects, which involves operation and maintenance is generally of seven to ten years. Bidders are usually paid at the intervals of four years. Therefore, the requirement of 10 years engagement of bidders was reasonable. Further, the bid document also provided for consortium of maximum three bidders. As per the Municipal Corporations, eleven tenders were won by four consortiums.

Based on the submissions of Municipal Corporations, CCI noted that the object of the tender was to bring efficiency and not just supply. CCI further observed that the bid was open for all ESCOs based on their credit ratings. The ESCO with poor rating must have been eliminated from bidding during the evaluation of bids. After the completion of the bidding, lamps of different brands, such as Phillips, Bajaj also got approved. Therefore, there was no manipulation to oust the ESCOs or to favour a particular ESCO.

Based on the above observations and analysis, CCI noted that tenders were invited from entities with requisite experience of similar projects. CCI held that no prima facie case could be established against the Municipal Corporations. Therefore, CCI ordered for closure of the case.

4. In Re: M/s Peeveear Medical Agencies, Kerala and All India Organization of Chemists and Others decided December 9, 2013.

The case was filed by M/s Peeveear Medical Agencies Kerala (“Peeveear”) against the All India Organization of Chemist and Druggists (“AIOCD”), Janssen Cilag Pharmaceuticals (“Janssen”), All Kerala Chemists and Druggist Association (“AKCDA”), Organization of Pharmaceutical Producers (“OPPI”) of India and Indian Drug Manufacturers Association (“IDMA”) alleging violation of section 3 and 4 of the Act.

Peeveear is a partnership firm and is engaged in the business of exhibiting, selling and distribution of wholesale drugs. AIOCD is an all India body registered under the Societies Registration Act, 1860 and it has full control over the stockists of drugs and medicines all over the country. State level druggist associations become member of AIOCD and district level druggist associations take membership of state level associations.

Peeveear alleged that AIOCD has been abusing its dominant position and is involved in various anti-competitive agreements. Peeveear made following specific allegations:

· No stockist can be appointed without the approval from AIOCD.

· AIOCD makes it mandatory for every stockist to obtain a NOC before he could become stockist.

· No new product can be launched in the market without paying Product Information Service (“PIS Approval’) charges.

· AIOCD has been controlling profit margins.

Peeveear submitted that in the year 2010, Peeveear took distributorship of medicines for Jansen. However, the same was cancelled by Jansen on the ground that Peeveear has not taken NOC from AKCDA. Aggrieved with the above mentioned conducts of AIOCD, Peeveear approached CCI.

CCI took into consideration the report of DG while deciding the case.

CCI observed that AIOCD is an association of enterprises and its taking decisions relating to distribution and supply of pharma products. Therefore, AOICD’s acts can be scrutinized under section 3 of the Act.

NOC

On the issue of issuing NOC to stockist, CCI took note of the replies of AIOCD, AKCDA and other pharmaceutical firms filed with DG, along-with the MOU executed between OPPI, IDMA and AIOCD.CCI found that without obtaining the NOC from AIOCD, no stockist could be appointed. CCI held that by way of NOC, AIOCD has been limiting and controlling supplies in the market.

PIS Approval

CCI on the basis of evidences recorded in DG’s report found that no new product could be launched without paying for PIS approval from AIOCD. PIS approval fee was charged in the name advertisement of new product in a magazine of AIOCD. However, CCI opined that in the name of advertisement, AIOCD is denying market access to new entrants and products and depriving consumers of the benefits of the new drugs. As in the absence of aforesaid payment, a product cannot be launched in the market.CCI held that AIOCD is violating section 3(3)(b) read with section 3(1) of the Act.

Trade Margins

CCI noted that margins were fixed in pursuance with the MOUs entered between AIOCD, OPPI and IDMA. Such margins were not determined on the competitive basis but were fixed by AIOCD. On the basis of the information provided by pharmaceutical firms, CCI observed that the trade margins for scheduled drugs are regulated by DPCO, however the non-scheduled drugs are not regulated by DPCO. AIOCD has fixed margins for non-scheduled drugs, as well. CCI further observed that by fixing the trade margins for whole-sellers and retailers, AIOCD is actually determining the sale price of the drugs in the market.

Boycott

CCI observed that AIOCD and its affiliates used to boycott the pharmaceutical firms, if such firms do not fulfil the requirements of PIS Approval or NOC. CCI stated that by boycotting AIOCD has been restricting the products and pharmaceutical firms in market, and depriving customers from the benefits of drugs, hence, violating provisions of section 3(3) (b) read with section 3 (1) of the Act.

Violation of section 3 by OPPI and IDMA

It was stated that AIOCD has been fixing trade margins and putting up other restrictions in pursuance of the MOU entered with OPPI and IDMA. Therefore, CCI took into consideration the conduct of OPPI and IDMA, as well.

On the basis of information available on the website of IDMA and OPPI, CCI observed that OPPI and IDMA are associations of drug manufacturers, whereas AIOCD is an association of chemist and druggist.

CCI stated that as AIOCD, IDMA and OPPI are not performing any economic activity on their own. Therefore, they cannot be the part of vertical chain. Hence, the MOU entered by them does not come under the purview of section 3(4) of the Act.

CCI further stated that OPPI and IDMA are association of drug manufacturers, so putting restrictive conditions will hamper their interest. CCI observed that in reality OPPI and IDMA are also victims of the restrictive practices of AIOCD.

Violation of section 3 by members/office bearers of AIOCD, OPPI and IDMA

To determine the liability of members/office bearers of AIOCD, CCI relied on its earlier order in the case of Varca Druggist & Chemist and Ors. v. Chemists & Druggists Association, Goa. While relying on the aforesaid order, CCI stated that “the anti-competitive decision or practice of the association can be attributed to the members, who were responsible for running the affairs of the association”. CCI directed AIOCD to provide the information of members and office bearers but no information was provided to CCI. Therefore, CCI held that it will pass a separate order under section 27 of the Act, after the information is received.

Based on the above analysis and observations, CCI held that AIOCD has been indulging in the anti-competitive trade practices. Accordingly, CCI gave following directions:

· AIOCD and its member should cease and desist from the anticompetitive activities.

· AIOCD shall file an undertaking to discontinue with the practices of NOC, PIS Approval and margin fixation.

· AIOCD shall write a letter to OPPI, IDMA and Jansen, informing them that there NOC is not required for appointing stockist.

· AIOCD shall by way of letter/circular inform all chemist and druggist and all its members that they are free to grant discounts to customers.

· AIOCD shall issue circulars to inform that PIS charges are not mandatory. Manufacturers can avail PIS facility on their sole discretion.

CCI did not impose any monetary penalty on the AIOCD, as AIOCD has already paid the penalty for such violation in the similar case of Santuka Associates Pvt. Ltd. v All India Organization of Chemists and Druggists & USV Limited, Mumbai. The violation under this case was of a date prior to the said order under Santuka Associates case.

C. Combination Registrations

1. Combination Registration No. C-2013/11/139 decided on December 10, 2013

The notice for the combination was filed by Alstom Bharat Forge Power Limited (“ABFPL”) and Kalyani Alstom Power Limited (“KAPL”). As per the proposed combination, KAPL will get merged into ABFPL, where ABFPL will be the surviving entity.

As per the notice, ABFPL is an unlisted joint venture company established by Alstom Power Holdings S.A. (“Alstom”) and Bharat Forge Limited (“Bharat Forge”). Alstom holds 51% of the equity share capital of ABFPL and the rest 49% is held by Bharat Forge. ABFPL was incorporated for manufacturing steam turbines and generators for thermal power projects in the sub-critical and super-critical range. As per the notice, ABFPL will commence its manufacturing facility by the year 2015.

Similarly, KAPL is also a joint venture of Bharat Forge and Alstom. Bharat Forge holds 51% of equity share capital of KAPL and the rest 49% is held by Alstom. KAPL was incorporated for manufacturing heat exchangers and other auxiliary equipments for steam turbine generator islands for sub-critical and super-critical thermal power applications.

On the basis of the information provided by ABFPL and KAPL, CCI observed that post combination, Alstom and Bharat Forge will still have joint control over the surviving entity i.e. ABFPL. CCI further stated that activities of ABFPL and KAPL do not have horizontal overlapping, as ABFPL manufactures and sells steam turbines and generators, whereas KAPL manufactures heat exchanger and other auxiliary equipments for steam turbine generators. CCI opined that the activities of ABFPL and KAPL will rather be complementary to each other.

CCI further noted that KAPL has not started any business and has also stopped the construction of its manufacturing facility. ABFPL has does not supply any of its products to KAPL.

Based on the above observations and analysis, CCI stated that the proposed combination will not have appreciable effect on the competition. Therefore, CCI approved the combination.

2. Combination Registration No. C-2013/12/142decided on December 26, 2013

The notice for the combination was filed by United Spirits Limited (“USL”) and Enrica Enterprises Private Limited (“EEPL”). As per the proposed combination, USL will transfer business activities and operations of its distillery at Poonamalle, Chennai (“Unit”) to EEPL. The proposed combination was in pursuance of a Master Sale Agreement (“MSA”) and a Franchise Agreement between USL and EEPL. As per the terms of MSA, EEPL will manufacture certain Indian Made Foreign Spirits (“IMFS”) brand of USL in the said Unit. Further, as per the Franchise Agreement, EEPL will use technology and know-how of USL.

USL is engaged in the business of manufacturing IMFS. Whereas EEPL, which is an unlisted company does not carry any business activities. Promoters of EEPL were stated to be engaged in diversified business activities and were interested to enter into the business of manufacturing IMFS.

CCI noted that manufacturing and selling of IMFL in the state of Tamil Nadu is highly regulated by Tamil Nadu State Marketing Corporation. CCI further noted that there are other players as well in the market of manufacture of IMFS in Tamil Nadu.

Based on the above analysis, CCI stated that the proposed combination would not have appreciable adverse effect on competition. Therefore, CCI approved the combination.

3. Combination Registration No. C-2013/11/140 decided on December 31, 2013

The notice for combination was filed by Uttam Galva Steels Limited (“UGSL”) and Shree Uttam Steel and Power Limited (“SUSPL”). As per the notice, UGSL and SUSPL (“Parties to Combination”) will get amalgamated. Parties to Combination have also filed an application for condonation of delay in filling notice for the proposed combination. CCI has decided to take the application of condonation in a separate proceeding under section 43A of the Act.

UGSL is a listed company, engaged in the business of manufacturing intermediate steel products such as cold rolled steel and galvanised steel. Members of the Miglani family and Arcelor Mittal Netherland B.V. are two co-promoters of the UGSL, where Arcelor Mittal holds 29.05% of the equity capital of UGSL and Miglani family holds 31.82%.

SUSPL is engaged in trading of steel and is going to set up an Integrated Steel Plant. Members of Miglani family together with two associate companies of UGSL holds 96.98% of the equity share capital of SUSPL. However, Parties to Combination have stated that SUSPL has not started any manufacturing activities. As per the notice, SUSPL had a turnover of Rs. 4 crore in the year 2011-12 and NIL in the year 2012-13.

On the basis of information provided by Parties to Combination and information available in public domain, CCI noted that there is no horizontal overlapping between the activities of the Parties. CCI further noted that there are other players in the market, which manufacture similar products. CCI also noted that UGSL’s market share in the market of cold rolled steel and galvanised steel is insignificant.

On the vertical relationship between the Parties, CCI stated that SUSPL has not commenced its manufacturing operations and has not traded in the year 2012-13. CCI further observed that if SUSPL starts its manufacturing operation, it would become a backward integration for UGSL. However, the same will not affect dynamics of competition in the relevant market, as UGSL has insignificant market share.

Based on the above analysis, CCI held that the proposed combination will not have appreciable adverse effect on competition. Therefore, it approved the combination.

In a separate proceeding, CCI observed that notice was delayed for a period less than a week and the delay was inadvertent, therefore, no penalty was imposed on the Parties to Combination for delay.

4. Combination Registration No. C-2013/10/135 decided on December 20, 2013

The notice for the combination was filed by Ultratech Cement Limited (“Ultratech” or “Acquirer”). The proposed combination was filed pursuant to an Implementation Agreement entered between Ultratech and Jaypee Cement Corporation Limited (“Jaypee Cement”). As per the proposed combination, Ultratech will acquire the assets, liabilities and operations of Jaypee Cement in Gujarat. The assets include a cement plant (including mining leases, limestone reserves etc.), manufacturing unit for production of laminated polypropylene bags etc., offices and a grinding unit (“Target Assets”).

Ultratech and Jaypee Cement (together referred as “Parties”) have stated that as a consideration to the proposed combination, less than 1% equity shares of Ultratech will be issued to the shareholders of Jaypee Cement.

Ultratech is a public listed company and a subsidiary of Grasim Industries Limited. Ultratech manufactures grey and white cements, RMC and clinkers. Jaypee Cement is also a public limited company and a subsidiary of Jaiprakash Associates Limited (“JAL”). JAL through its various subsidiaries is engage in manufacturing of verities of cement.

CCI observed that the proposed combination contemplates acquisition of Target Assests of Jaypee Cement, which covers only grey cements, as Jaypee Cement does not manufacture white cement. Therefore, there is no overlapping with white cement business of Ultratech. However, Ultatech’s grey cement business will overlap with the proposed combination.

CCI observed that cement is homogenous product with a low shell life, as it absorbs moisture. Therefore, cement cannot be transported over long distances. On the basis of such observation, CCI noted that market for assessment for the proposed combination shall be Gujarat and adjoining states, such as Rajasthan and Madhya Pradesh.

CCI noted that in the year 2011-12, Rajasthan has supplied 1/5^th of the cement consumed in Gujarat. Therefore, CCI took into consideration Gujarat and Rajasthan as a market for assessment.

CCI observed that Ultratech and Target Assets of Jaypee Cement cover approximately 25% and 11% respectively of the total installed capacity of cement plants in Gujarat and parts of Rajasthan (that supply cement to Gujarat). Ultratech and Target Assets of Jaypee Cement cover 23% and 8% respectively, of the total production of cement in Gujarat and Rajasthan.

CCI noted that mergers of two players will give opportunity to new entrants to enter into market. Parties also stated that ABG Cement and Lafarge are setting up cement plants in Gujarat and Rajasthan, respectively. On the basis of information received from ABG Cement and Lafarge, CCI observed that the proposed plants will increase the competition in the market.

On the basis of information provided in notice, CCI noted that in the year 2012-13, Target Asset’s capacity utilization was approximately 65%, whereas, Ultratech’s capacity utilization was 95%. Ultratech submitted that post combination it will increase the capacity utilization of Target Assets, which will increase production of cement making cement will be available to customers in less time.

Based on the above analysis, CCI held that proposed combination will not have appreciable adverse effect on the competition. Therefore, it approved the combination.

5. Combination Registration No. C-2013/10/137 decided on November 27, 2013

The notice for the combination was filed by Anant Investments (“Acquirer”). As per the proposed combination, Acquirer will acquire shares of Global Health Private Limited (“GHPL”). The proposed combination was in pursuance of following three different agreements:

1. Share Purchase Agreement entered between Acquirer and GL Asia Mauritius II Limited, which is an indirect subsidiary of Avenue Asia Special Situations Fund IV L.P. Avenue Asia Special Situation Fund is a fund created by Avenue Asia Capital Management L.P. for the purpose of acquiring 26.8% of equity share capital of the GHPL.

2. Subscription Agreement between Acquirer, Dr. Naresh Trehan, Associates Health Services Private Limited and GHPL for acquiring convertible preference shares representing 0.95% of share capital of GHPL.

3. Shareholders Agreement between Acquirer, Dr. Naresh Trehan, Associates Health Services Private Limited and GHPL for regulating relationship of Acquirer with promoters.

Acquirer is a special purpose vehicle incorporated by Carlyle Group incorporated in Mauritius. Carlye Group is global alternative asset manager and has investments in various sectors.

GHPL is a company incorporated in India is engaged in the business of establishing, owning and managing hospitals to provide healthcare, pathology and other medical services. Further, GHPL through its subsidiary is also engaged in R&D of drugs, surgery, medical devises and equipments.

On the basis of information provided in notice, CCI observed that Carlyle Group do not have any investment in hospital sector in India. However, it has investments in two companies of Indian Health care sectors namely, Claris LifeSciences Limited (“Claris”) and Pharmaceutical Product Development Inc. (“PPD”). Claris is pharmaceutical company and PPD is contract research organisation (“CRO”).

CCI observed that GHPL has purchased products of Claris, however, its quantum was negligible. CCI stated that Carlyle seems to have business relationship with GHPL at different level of production chain but such relationship is insignificant. CCI further noted that there are other players in the market engaged in similar activities.

On the basis of above analysis and observations, CCI held that the proposed combination will not have appreciable adverse effect on competition. Therefore, it approved the combination.

6. Combination Registration No. C-2013/11/138 decided on December 12, 2013

The notice for the combination was filed by JSW Steel Limited (“Acquirer” or “JSW”). As per the proposed combination, JSW will acquire cement manufacturing undertaking of Heidelberg Cement India Limited (“HCIL”) situated in Raigad, Maharastra (“Raigad Undertaking”).

Acquirer is listed company incorporated in India and is a part of JSW group. JSW group is engaged in the business operations in steel, energy, infrastructure, cement, aluminium and information technology sectors. Acquirer also owns a cement grinding unit in Karnataka with a capacity of 0.3 MTPA. However, the entire production from the unit is utilized for captive purposes. JSW Cement is also a group company of JSW group and is engaged in manufacturing of cement. JSW Cement has cement plants in Karnataka and Andhra Pradesh with installed capacity of 0.7 MTPA and 4.5 MTPA respectively. As per the information, JSW Cement has also acquired a cement grinding unit with 0.1 MTPA at Raigad.

HCIL is engaged in manufacturing of various types of cements. It has total of capacity of 6 MTPA. HCIL also produces Blast Furnace Slabs (“BF Slabs”) and clinker. The Raigad Undertaking of HCIL has a total capacity of 0.6 MTPA.

CCI observed that JSW Steel is primarily engaged in steel sector. The cement it manufactures is consumed for captive purposes. However, JSW Cement produces variety of cements similar to HCIL’s cement. JSW has annual cumulative capacity of 5.2.MTPA at its plants in Karnataka and Andhra Pradesh. CCI further noted that JSW Cement is a new player in the industry and its plant at Andhra Pradesh is on trial run since 2011-12. Therefore, CCI observed that acquisition of Raigad Undertaking which has only capacity of 0.6 MTPA will not increase the production capacity of JSW group substantially.

CCI noted that at present, JSW sells BF Slabs to Raigad Undertaking. However, as per the notice, such arrangement will end post the proposed combination. Therefore, JSW can effectively produce BF Slabs after the combination.

Based on the above analysis and observations, CCI held that proposed combination will not have appreciable adverse effect on the competition. Therefore, it approved the combination.

7. Combination Registration No. C-2013/11/141 decided on December 12, 2013

The notice for combination was filed by Wal-Mart Mauritius Holdings Company Limited 1 (“WMM 1”) and Bharti Ventures Limited (“BVL”). The proposed combination was filed pursuant to a Purchase Agreement and a Compulsorily Convertible Debentures (“CCDs”) Transfer Agreement.

As per the proposed transaction Wal-Mart Group and Bharti Group seeks to split their arrangement. The said combination will be materialised by following two inter–connected transactions:

1. WMM 1 will acquire 50% equity shares (excluding 515 shares) of Bharti-Walmart Private Limited (“BWM”) from Cedar Support Services Limited (“Cedar”) and BVL (“Transaction 1”). As per the notice, WMM 1 and Wal-Mart Mauritius Holdings Company Limited 2 (“WMM 2”) already hold 50% equity share capital and 515 shares of BWM. Therefore, post consummation of Transaction 1, WMM 1 and WMM 2 will hold 100% equity share capital of BWM.

2. BVL will acquire 45.58 crore CCDs of Cedar from Wal-Mart Mauritius Holdings Company Limited 4 (“WMM 4”) (“Transaction 2”). As per the notice, BVL holds 100% equity shares of Cedar and post Transaction 2, BVL will continue to hold 100% share capital of Cedar without any holding of CCDs, upon conversion of aforesaid CCDs into equity share capital of Cedar.

WMM 1 was stated to be a wholly owned subsidiary of Wal-Mat Inc. (“WMT”), incorporated in Mauritius. WMM 1 is a holding company of Wal-Mart Group and does not have any business operations in India.

BVL, the investment company of Bharti Group is incorporated in India. Cedar is a wholly owned subsidiary of BVL and is engaged in the business of providing real estate consultancy services.

Bharti Retail Limited (“BRL”) is a wholly owned subsidiary of Cedar and owns and operates Easyday Market (name of the retail store).

On the basis of information provided in notice, CCI observed that Wal-Mart Group operates retail and wholesale stores globally including India through its flagship company WMT (USA). BWM is a joint venture of WMT and Bharti Group. In addition to said joint venture, WMT also have various subsidiaries in India.

WMM1, WMM 2, Wal-Mart Mauritius Holdings Company Limited 3 (“WMM 3”) and WMM 4 are wholly owned subsidiaries of WMT, incorporated in Mauritius and do not have any business operations in India.

CCI further observed that Bharti Enterprises (Holding) Private Limited (“BEHPL”) is an investment company under Bharti Group and BVL is the wholly owned subsidiary of BEHPL. As per the notice, Bharti Group also has a joint venture with Del Monte Pacific Limited namely Fieldfresh. Fielfresh produces and sells food and beverage products.

Transaction 1

CCI stated that BWM operates a 19 wholesale stores namely Best Price Modern Wholesale across India. BWM does not sell any goods to retail customers in India.

Transaction 2

CCI noted that BVL is an investment company and Cedar provides real estate consultancy. BRL owns and operates 190 Easy Day Stores and 21 Easyday Markets in India. CCI further noted that BWM is the sole supplier to BRL as per a supply agreement. The said supply agreement will get terminated post combination and BWM will not supply anything to BRL for its Easyday Store, however BWM will continue to supply to its other customers. As BRL has alternative sources of procurement in market such as Fieldfresh, therefore the retail market will not get adversely affected.

CCI opined that proposed combination will not eliminate competition from market of wholesale, retail and real estate, as parties to combination are not in competition with each other. CCI also noted that the wholesale, retail and real estate sector have various other players therefore, share of parties to combination is negligible.

Based on the above mentioned analysis and observations, CCI held that the proposed combination will not have appreciable adverse effect on competition.

8. Combination Registration No. C-2013/05/122 decided on December 19, 2013

This order relates to the combination approved by CCI in the month of November, 2013. Pursuant to the said combination, Etihad Airways PJSC (“Etihad”) was allowed to acquire 24% of the equity shares of Jet Airways (India) Limited (“Jet”). The combination was filed pursuant to an Investment Agreement (“IA”), a Shareholder’s Agreement (“SHA”) and a Commercial Co-operation Agreement (“CCA”). Parties also informed CCI that they have entered into an agreement to sell three take-off/landing slots of Jet at London Heathrow Airport (“LHR”) to Etihad; and lease of the same slots back to Jet (“LHR Transaction”).

CCI issued a show cause notice to Etihad, stating that Parties have implemented CCA and have also consummated LHR Transaction, without informing CCI. Therefore, Parties were required to show as to why a penalty under Section 43A of the Act should not be imposed on them.

LHR Transaction

As per the Parties, the LHR transaction was an independent transaction and in no way formed a part of the combination. Etihad further contended that the documentation in respect of the combination and the LHR Transaction made a reference to each other only for the sake of clarity. Etihad submitted that IA was the trigger document for filing the notification to CCI.

Considering the terms of IA and LHR slots sale agreement, CCI noted that LHR Transaction cannot be considered as an independent transaction. As per the terms of LHR slots, sale agreement mentions that non-execution of IA within 30 days will lead to termination of LHR sale, therefore both the transactions are connected.

Etihad further argued that the LHR Transaction was exempted transaction under Item (3) of Schedule I to the Competition Commission of India (Procedure in regard to the transaction of business relating to combinations) Regulations, 2011 (“Combination Regulations”). Furthermore, the three slots were merely representative of the landing rights enjoyed by Jet at LHR Airport. Etihad further contended that the LHR Transaction was exempted under Item (10) of Schedule I to the Combination Regulations. LHR transaction was, in nature, purely an offshore transaction and had no effect on Indian markets.

CCI observed that even if the LHR Transaction is independent transaction, Parties had an obligation to notify CCI, as LHR Transaction is not exempted under Item 3 and Item 10 of Schedule I to the Combination Regulations. As per Item 3, assets which do not directly relates to the business of a party or does not represent the substantial business operations are exempted from filing notice to CCI. However, in the present case, the LHR slots are the only slots from where Jet runs its India-London air-traffic and it does not have any alternative slot at LHR airport. Therefore, LHR slots forms the basis of Jet’s business operations between India and London.

On the issue of Item 10 of the Combination Regulations, CCI noted that the words in Item 10 such as insignificant local nexus and effect on market in India does not mean greater or reasonable probability of the proposed combination raising any competition concern. It means sufficient relevance of the proposed combination to the markets in India. As LHR slots are the only medium through which Jet operates its India-London operations, therefore it does have sufficient relevance. Therefore, CCI held that LHR Transaction is not exempted from Item 10 of the Combination Regulations.

D. News

1. CCI to probe Nilpeter, Sai Com for unfair trade practices

CCI has directed it investigation wing to investigate alleged unfair business practices of Nilpeter India (“Neliptor”) and Sai Com Codes Flexo (“Sai Com”) with respect to providing services for printing label machines.

The directions were given pursuant to a complaint filed by Magnus Graphics, a firm engaged in label printing. It was alleged that Neliptor and Sai Com have entered into an anti-competitive agreement. As per the said agreement, Nelipto cannot provide maintenance services for its printing machine to Magnus Graphics, if Magnus Graphics deals with the customers of Sai Com. CCI observed that a prima facie case of violation of competition laws can be established and therefore directed DG to investigation the matter.

2. CCI suggests coal sector restructuring by introducing more players

After finding Coal India Limited (“CIL”) guilty of abusing its monopoly, CCI has suggested that coal sector requires a restructuring. It suggested that more players shall be introduced to reduce dominance of CIL and a coal regulator shall also be appointed to keep an eye on the sector. Even the government is planning to break CIL into several smaller companies, as its subsidiaries. Presently, CIL has 9 subsidiaries.

3. COMPAT issues notices to CCI, Jet Airways

Competition Appellate Tribunal (“COMPAT”) has issued notice to CCI and Jet Airways on an appeal challenging the clearance given to Rs 2,060 crore Jet-Etihad deal. The appeal was filed by former Air India executive director Mr. Jitendra Bhargawa. It is argued in the appeal that if the deal gets effective then air passengers will have less choice of airlines and they will have to pay higher prices. Mr. Bhargawa further contended that CCI failed to effectively carry out the competition assessment.

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Dislaimer

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