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 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 1/5th 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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This competition law alert has been prepared by Sarthak
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