Competition Law Alert - December, 2013

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 1/5^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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 DISCLAIMER

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