Abir Roy Kluwer Commentary

KluwerCompetitionLaw
Document information Chapter 1: Introduction to Competition Law

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§1.01 MARCH TOWARDS COMPETITION LAW
Competition law is intended to protect competition in the market in order to maximize
Competition Law in India: A consumer welfare. A robust competition law and policy is quintessential for enhancing
Practical Guide efficiency and consumer welfare. It seeks to protect and promote competition since
effective competition helps the consumer to get the best quality product at the most
competitive price. An effective competition law regime helps to attain efficiencies which
Jurisdiction ensure the application of laws, rules and regulations to ensure businesses and companies
compete fairly with each other. This encourages enterprises attain efficiency, creates a
India wider choice for consumers and helps reduce prices and improve quality of
products/services. While the idea of perfect competition may be a far fetched concept in
most industries, effective competition is the goal of any competition law dispensation.
Topics Effective competition is to be assessed in terms of rivalry among firms, low barriers and
Antitrust where no single firm can influence the market conduct.
Mergers In India, prior to the enactment of the Competition Act, 2002 (Competition Act) there was
Cartels the Monopolies and Restrictive Trade Practice Act, 1969. The Monopolies and Restrictive
Trade Practices Act dealt with concepts of monopolistic, restrictive and unfair trade
practices. It owed its inspiration to Articles 38 and 39 of the Constitution of India 1950
Bibliographic reference which enshrines that the state should strive to promote public welfare by securing and
protecting a social order and ensure that the ownership and control of material resources
'Chapter 1: Introduction to are so distributed as to serve the common good and that the operation of the economic
Competition Law', in Abir system is based in a manner which does not result in concentration of wealth in a few
Roy , Competition Law in hands. It was designed to avoid concentration of economic power in the Indian economy.
India: A Practical Guide, However, in spite of the avowed objective, it was observed that the previous regime was
(© Kluwer Law inadequate since it lacked enforcement powers as they did not have the power to levy
International; Kluwer Law penalties. Even the legal regime was outdated and not in times with the global economy.
International 2016) pp. 1 -
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The Government of India decided to liberalize the economy intending to remove control
and move from a regime of command and control economy to a free-market economy.
Such a free-market economy persuaded the Indian Parliament to enact laws providing for
checks and balances in such a free economy. The erstwhile Monopolies and Restrictive
Trade Practices Act, 1969 was found to be inadequate because of its limited enforcement
powers. It was primarily because of its limited enforcement powers, it was dubbed by
commentators as toothless tiger. Further, the earlier law was also obsolete in certain
respects, particularly in the light of international economic developments relating to
competition law. There was an urgent need to enact a competition law with the primary
objective of taking measures to avoid any market distortions, whether by way of anti-
competitive agreements, abuse or dominance or mergers and acquisitions.
Most countries in the world have enacted competition laws to protect their free-market
economies. The intention of competition law and policy is to limit the role of market
power that might result from substantial concentration in a particular industry. The major
concern with monopoly and similar kinds of concentration is not that being big is
necessarily undesirable. Even, under the Competition Act, being big is not bad, which is a
marked difference between the outlook of the Competition Commission of India (CCI)
from that of the erstwhile Monopolies and Restrictive Trade Practice Commission.
However, because of the control exerted by a dominant undertaking over price, there are
economic efficiency losses to society and product quality and diversity may also be
affected. Thus, there is a need of an effective competition law dispensation to protect
markets from the behaviour of big enterprises. Similarly, the competition law regime
must have effective merger control provisions to ensure that any transaction does not
lead to creation of a dominant undertaking. The previous regime did not have merger
control provisions, which was one of the major drawbacks. The present outlook of the CCI
is to look at the effects of the enterprises to see whether the behaviour of enterprises
cause any anti competitive effect on the markets in India.
The primary objective of competition law is to promote economic efficiency using
competition as one of the means of assisting the creation of a market responsive to
consumer preferences.
The advantages of having an effective competition regime are threefold:
(A) Allocative efficiency which ensures the effective allocation of resources. Allocative
efficiency can be achieved only if all firms are of sufficient size to realize significant
economies of scale, and markets are either competitively structured (i.e., they
comprise a significant number of producers) or entry barriers are low. In such cases,
all companies are price takers and the demand and supply forces in the market
determine the price. Allocative efficiency is attained when prices are equated to
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marginal cost, which is a condition for perfect competition.
(B) Productive efficiency, which ensures that costs of production are kept at a
minimum.
(C) Dynamic efficiency which promotes innovative practices. Dynamic efficiency refers
P3 to development of new products. This can be done by ensuring proper reward to
the inventor in lieu of developing and disclosing the invention to public.
In India, a High Level Committee on Competition Policy and Law was constituted to
examine its various aspects and make suggestions keeping in view the competition policy
of India. This Committee made recommendations and submitted its report on 22 May
2002. After completion of the consultation process, the Competition Act was enacted. As
per the statement of objects and reasons of the Competition Act, this enactment is India’s
response to the opening up of its economy, removing controls and resorting to
liberalization. The natural corollary of this is that the Indian market should be geared to
face competition from within the country and outside.
With the avowed objective of free-market economy, it was felt essential to have a quasi-
judicial body to ensure that the practices which have an adverse effect on competition in
India are prevented. In this regard, the Long Title (preamble) of the Competition Act lays
down the purpose of the Competition Act which reads:
An Act to provide, keeping in view of the economic development of the
country, for the establishment of a Commission to prevent practices having
adverse effect on competition, to promote and sustain competition in
markets, to protect the interests of consumers and to ensure freedom of trade
carried on by other participants in markets, in India, and for matters
connected therewith or incidental thereto.
Further, the duty of the CCI is also provided under section 18 of the Competition Act.
Section 18 of the Competition Act reads:
Subject to the provisions of this Act, it shall be the duty of the Commission to
eliminate practices having adverse effect on competition, promote and
sustain competition, protect the interests of consumers and ensure freedom of
trade carried on by other participants, in markets in India:
Provided that the Commission may, for the purpose of discharging its duties or
performing its functions under this Act, enter into any memorandum or
arrangement with the prior approval of the Central Government, with any
agency of any foreign country.
Apart from the CCI, the Competition Act provides for the appointment of a Director
General under section 16(1) of the Competition Act. The Director General is a specialized
investigating wing of the CCI. The various provisions of the Competition Act deal with the
establishment, powers and functions as well as discharge of adjudicatory functions by the
CCI. Under the scheme of the Competition Act, the CCI is vested with inquisitorial,
investigative, regulatory, adjudicatory and advocacy functions. The substantive
provisions of the Competition Act were notified in a phased manner, previsions relating
to anti-competitive agreements (section 3) and abuse of dominance (section 4) were
notified in May 2009 and provisions with respect to merger control (sections 5 and 6) were
notified in June 2011.
The Competition Act in totality has a significant departure from the letter and spirit of
the erstwhile Monopolies and Restrictive Trade Practices Act. The Competition Act is
premised on the effect theory. The primary purpose of the Competition Act is to prevent
P 4 practices which cause market distortions. It does not condemn monopoly per se, rather
focuses on the enterprise’s use of the monopoly status. Further, the earlier Monopolies
and Restrictive Trade Practices Commission had very limited enforcement powers since
they could not fine any enterprise. Their power was limited to passing cease and desist
orders. Conversely, the Competition Act has empowered the CCI to penalize a delinquent
enterprise, apart from passing ceasing and desist orders and also ordering for
modification of the business practices. The fines which are imposed by the CCI are one of
the highest economic penalties in India. In such a short time frame, the CCI has made an
indelible impact on the industry and has imposed fines on enterprises to the tune of
nearly INR 140 billions. Apart from levying huge fines, the CCI can pass orders which
modify the business practices of the enterprises. Further, the CCI, unlike its predecessor
regime, has extraterritorial jurisdiction i.e., the Commission can investigate practices of
companies based outside India, if their conduct is causing any anti-competitive effects in
India. In this regard, it is apposite to note the observations of the Report of the High
Level Committee on Competition law and Policy, 2000 which stated that:
The question that is very often asked is that whether we need a new
Competition Law at all. The present Monopolies and Restrictive Trade
Practices Act, 1969 (MRTP Act) and Consumer Protection Act, 1986 (CPA) should
be sufficient to deal with anti-competitive practices. So the argument goes.
The present MRTP Act is limited in its sweep and hence fails to fulfil the need
of a competition law in an age of growing liberalisation and globalisation. It
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should not be forgotten that by April 2001, all quantitative restrictions (QRs)
would have been completely phased out and with low level tariffs already
negotiated during WTO rounds, India will be facing severe competition from
abroad. Practically, the entire range of consumer goods will bear the brunt of
open imports, combined with a lowering of tariff walls in the coming years.
Lots of other sectors too will have to be shaped up to face competition. From
toymakers, plastic processors and urea manufacturers to giants of industry
like automobile makers, steel producers and textile mills, all will have to face
competition from the world over.
One more valid argument for the introduction of a domestic competition law
is that it will prevent international cartels from indulging in anti-competitive
practices in our country.
Further, the Competition Act seeks to maintain a level playing field between the private
and the public sector and seek competitive neutrality i.e., government or state-owned
enterprises should not use their legislative or fiscal powers to advantage their own
businesses over the private sector. The provisions of the Competition Act are applicable
to any enterprise, and in some cases, to every person. We will see from the definition of
enterprise, discussed in details below, that all the commercial activities of the
government, excluding the sovereign functions (energy, currency, defence and space)
come under the provisions of Competition Act and that no antitrust exemptions are
applicable to such state-owned enterprise. In fact, the Competition Commission have
penalized state-owned enterprises, like Coal India, since they have indulged in activities
which constitute abuse of dominance. The Competition Act has been enacted with an
avowed objective to ensure that a level playing field is created to all market players
irrespective of their size, resources, market position, economic strength, etc.
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§1.02 PROCEDURE FOR INVESTIGATION

There is a detailed procedure which has been established under the Competition Act and
the attendant regulations of the Competition Commission with respect to investigation
process for a violation under section 3 (provision relating to anti-competitive
agreements) and section 4 (provision relating to abuse of dominance). For merger filings
and procedures, it has been dealt in Chapter IV. The procedure is as follows:
[A] Filing of Information

The informant, i.e., the person who wishes to complain about a conduct to the CCI would
make such information available in writing to the CCI by paying the requisite filing fee
outlining in detail the facts, evidence in support and the alleged contravention of the
provisions of the Competition Act. The information could also be made by way of
reference by the Central Government, State Government, statutory authority or on its own
knowledge as provided under section 19(1)(a) of the Act.
Section 19(1)(a) of the Competition Act reads as:
The Commission may inquire into any alleged contravention of the provisions
contained in subsection (1) of section 3 or sub-section (1) of section 4 either on
its own motion or on—
(a) receipt of any information, in such manner and accompanied by such fee
as may be determined by regulations, from any person, consumer or
their association or trade association; or
(b) a reference made to it by the Central Government or a State Government
or a statutory authority.
It must be noted that under the Competition Act there is no locus standi requirement i.e.,
it is not necessary that the affected party only can file information. As a part of the
information, it is not required for the informant to show how it has been harmed by the
conduct of the alleged infringer. This is a precise reason why the term ‘information’ is
used in the Competition Act and not ‘complaint’. Before the Competition Act was notified
in 2009, the term used in the Competition Act was filing of a ‘complaint’ which was
changed to filing of ‘information’ in 2007. One of the major reasons for this change was
that the legislature did not want to have a locus standi requirement. Further, use of the
word ‘complaint’ would mean an adversarial proceeding which is not the case with
‘information’ being used. There have been instances where the informant has filed the
information and the CCI has proceeded with the investigation and final orders, even when
the informant is not present during the course of proceedings.
While there is no locus standi requirement under the Competition Act, the Competition
Appellate Tribunal in the case of Dr. L.H. Hiranandani Hospital v. Competition Commission
of India (1) pointed out that CCI should look critically at the identity of Informants and
P 6 should regard their submissions with suspicion when motivated by an ulterior motive.
The relevant observations of the Competition Appellate Tribunal are as under:
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Before dealing with the afore-mentioned questions and at the cost of
repetition, I consider it necessary to observe that even though the Act does
not prescribe any qualification to identify the locus of an informant, the
Commission is expected to act with caution where the informant is a third
party or a busy body, who may be espousing the cause of someone-else with
ulterior motive. A careful reading of the allegations contained in the
information filed by Respondent No. 2 leaves no manner of doubt that in the
garb of espousing public cause to highlight the alleged anti-competitive
practice adopted by the appellant by insisting that the expectant mothers
must avail stem cell banking services from Cryobanks, Respondent No. 2 had,
in fact, espoused the cause of ‘LifeCell’, with whom the appellant had similar
agreements in 2009-10 and 2010-11.
Information is essentially made by a person or by way of reference from another
authority. The purpose of information is informing the Competition Commission of an
anti-competitive practice and it is up to the CCI to determine whether the information
has any merit and whether the factual situation mentioned in the information warrants
any further investigation by the Director General. The CCI is not bound by the issues and
pleadings taken in the information and can go beyond the scope of the information and
ask the Director General to investigate additional grounds. Further, unlike in a complaint
scenario, there is no mechanism under the Competition Act to withdraw an information.
Once information is made, it is up to the CCI to decide whether there exists a fit case for
further investigation or close the matter. The informant need not be present throughout
the proceedings and the CCI can pass appropriate orders based on the facts and
circumstances of the case.
[B] Prima Facie Case

When such information mentioned above is received, the CCI is expected to satisfy itself
and express its opinion whether a prima facie case exists, from the record produced
before it and then to pass a direction to the Director General to cause an investigation to
be made into the matter under section 26(1) of the Competition Act. However, if the CCI is
of the opinion that there exists no prima facie case based on the information placed
before it, it may close the matter under section 26(2) of the Competition Act.
Section 26(1) of the Competition Act reads as:
On receipt of a reference from the Central Government or a State Government
or a statutory authority or on its own knowledge or information received under
section 19, if the Commission is of the opinion that there exists a prima facie
case, it shall direct the Director General to cause an investigation to be made
into the matter.
Where on receipt of a reference from the Central Government or a State
Government or a statutory authority or information received under section 19,
P7 the Commission is of the opinion that there exists no prima facie case, it
shall close the matter forthwith and pass such orders as it deems fit and send
a copy of its order to the Central Government or the State Government or the
statutory authority or the parties concerned, as the case may be.
The Supreme Court of India has succinctly described the ambit of the direction passed
under Section 26(1) of the Competition Act in the case of Competition Commission of India
v. Steel Authority of India Ltd. and Anr (2) (hereinafter referred as to as the SAIL case). The
Supreme Court noted that the direction of the CCI under section 26(1) of the Competition
Act, for formation of a prima facie opinion requesting the offices of the Director General
to investigate the matter, is a direction simpliciter to cause an investigation into the
matter. The Supreme Court noted that issuance of such a direction is an administrative
direction to one of its own wings departmentally and is made without entering upon any
adjudicatory process. It does not effectively determine any right or obligation of the
parties to the lis. The Supreme Court further noted that a direction under section 26(1) of
the Competition Act does not entail civil consequences for any person. In fact, in all the
prima facie orders made by the CCI, it is clearly stated that the Commission makes it
clear that nothing stated in the prima facie order shall tantamount to a final expression
of opinion on the merit of the case and the Director General shall conduct the
investigation without being swayed in any manner whatsoever by the observations made
herein. It must be noted herein that although the Supreme Court in the SAIL case has held
that order under section 26(1) of the Competition Act is direction simpliciter akin to a an
administrative direction to one of its wings internally, the CCI in recent decisional
practice of deciding whether a prima facie case exists has gone into merits of the
relevant market investigation and veracity of market figures provided by the informant,
which should be the subject matter of investigation (3) . Based on the SAIL case, the
approach of the CCI is to see prima facie whether based on the records mentioned in the
information, a case of violation of the provisions of the Competition Act is made out and
not undertake an in depth investigation.
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It must be noted, however, the Delhi High Court has observed that there exists a power of
recall of the prima facie order, as discussed in § 1.09 below.
Another issue that was deliberated in detail by the Supreme Court in the SAIL case was
whether a notice of hearing has to be given to the informant or the alleged infringer, prior
to passing an order under section 26(1) of the Competition Act. It was noted by the
Supreme Court, based on the statutory scheme of the Competition Act that the direction
under section 26(1) of the Competition Act could be issued by the CCI with or without
hearing the party against whom the information has been filed. Section 19 of the
Competition Act does not mandate a requirement of notice to be given to the informant,
affected party or any other person at the stage of deciding whether a prima facie case
exists or not. Such parties cannot claim the right to notice or hearing as a matter of right,
P 8 but it is always open to the CCI to call any ‘such person’, for rendering assistance or
produce such records, as the CCI may consider appropriate. The relevant observations
made by the Supreme Court in the SAIL case, in this regard, are below:
The jurisdiction of the Commission, to act under this provision, does not
contemplate any adjudicatory function. The Commission is not expected to
give notice to the parties, i.e. the informant or the affected parties and hear
them at length, before forming its opinion [emphasis supplied]. The function is
of a very preliminary nature and in fact, in common parlance, it is a
departmental function. At that stage, it does not condemn any person and
therefore, application of audi alteram partem is not called for. Formation of a
prima facie opinion departmentally (Director General, being appointed by the
Central Government to assist the Commission, is one of the wings of the
Commission itself) does not amount to an adjudicatory function but is merely
of administrative nature. At best, it can direct the investigation to be
conducted and report to be submitted to the Commission itself or close the
case in terms of Section 26(2) of the Act, which order itself is appealable
before the Tribunal and only after this stage, there is a specific right of notice
and hearing available to the aggrieved/affected party. Thus, keeping in mind
the nature of the functions required to be performed by the Commission in
terms of Section 26(1), we are of the considered view that the right of notice of
hearing is not contemplated under the provisions of Section 26(1) of the Act.
Neither any statutory duty is cast on the Commission to issue notice or grant
hearing, nor any party can claim, as a matter of right, notice and/or hearing at
the stage of formation of opinion by the Commission, in terms of section 26(1)
of the Act that a prima facie case exists for issuance of a direction to the
Director General to cause an investigation to be made into the matter.
Section 26(1), as already noticed, requires the Commission to form an opinion
whether or not there exists a prima facie case for issuance of direction to the
Director General to conduct an investigation. This section does not mention
about issuance of any notice to any party before or at the time of formation of
an opinion by the Commission on the basis of a reference or information
received by it. Language of sections 3(4) and 19 and for that matter, any other
provision of the Act does not suggest that notice to the informant or any other
person is required to be issued at this stage. In contra-distinction to this, when
the Commission receives the report from the Director General and if it has not
already taken a decision to close the case under section 26(2), the Commission
is not only expected to forward the copy of the report, issue notice, invite
objections or suggestions from the informant, Central Government, State
Government, Statutory Authorities or the parties concerned, but also to
provide an opportunity of hearing to the parties before arriving at any final
conclusion under section 26(7) or 26(8) of the Act, as the case may be. This
obviously means that wherever the legislature has intended that notice is to
be served upon the other party, it has specifically so stated and we see no
compelling reason to read into the provisions of section 26(1) the requirement
of notice, when it is conspicuous by its very absence.
However, the Commission, being a statutory body exercising, inter alia,
regulatory jurisdiction, even at that stage, in its discretion and in appropriate
cases may call upon the concerned party(s) to render required assistance or
produce requisite information, as per its directive. The Commission is
expected to form such prima facie view without entering upon any
adjudicatory or determinative process. The Commission is entitled to form its
opinion without any assistance from any quarter or even with assistance of
experts or others.
P9
[C] Investigation by Director and Subsequent Order by the CCI

Once the CCI has found that there exists a prima facie case for violation of the provisions
of section 3 and/or section 4 of the Competition Act, it will direct the offices of the
Director General to conduct a detailed investigation under section 26(1) of the
Competition Act. It must be noted herein that under the provisions of the Competition
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Act, the Director General has no suo moto powers of investigation and they can act and
investigate on a matter only if it directed by the CCI. This is a marked difference from the
earlier Monopolies and Restrictive Trade Practices regime where the Director General
had suo moto powers of investigation.
In terms of Regulation 18 of the Competition Commission of India (General) Regulations,
2009 once the CCI has directed the CCI to investigate into the matter it is deemed that an
inquiry has commenced. Further, under Regulation 20(1) of the General Regulations, the
Secretary shall, while conveying the directions of the CCI to the DG to cause an
investigation, send a copy of the information of reference, as the case may be, with all
other documents, or materials or affidavits or statements which have been filed either
along with the said information or reference or at the time of the preliminary conference,
to the DG. Further, under Regulation 20(4) of the General Regulations, the DG report
should contain his findings of each of allegations made in the information or reference,
together will all evidences collected during the investigation.
The Director General has been conferred with vast powers under the Competition Act to
conduct investigations. On a concomitant reading of section 36(2) read with section 41(2)
of the Competition Act, the Director General has all the powers of a Civil Court under the
Code of Civil Procedure, 1908 including the power of summoning and enforcing the
attendance of any person and examining him on oath, requiring the discovery and
production of documents, receiving evidence on affidavit and issuing commissions for the
examination of witnesses or documents. The detailed procedure for conducting
investigation is contained in section 41 read with section 36 and Regulations 20, 21, 35, 41,
42 and 45 of the Competition Commission of India (General) Regulations. In terms of
Regulation 41, the Director General can determine the manner in which the evidence may
be adduced. In the proceedings before the Director General in terms of Regulation 41(2),
the Director General can admit evidence taken in the form of verifiable transcripts of
tape recordings, unedited versions of video recording, electronic mail, telephone records
including authenticated mobile telephone records, written signed unsworn statements of
individuals or signed responses to written questionnaires or interviews or comments or
opinions or analyses of experts based upon market surveys or economic studies or other
authoritative texts or otherwise, as material evidence; admit on record every document
purporting to be a certificate, certified copy or other document, which is by law declared
to be admissible as evidence; admit the opinion of any person acquainted with the
handwriting of the person by whom a document is supposed to have been written or
signed, as relevant fact to prove the handwriting of the person by whom the document
was written or signed; admit the opinion of the handwriting experts or the experts in
identifying finger impressions or the persons specially skilled in interpretation of foreign
P 10 law or of science or art; take notice of the facts of which notice can be taken by a court
of law under section 57 of the Indian Evidence Act, 1872; accept the facts, which parties to
the proceedings admit or agree in writing as proved; presume that any document
purporting to be a certified copy of any record of any authority, court or government of
any country not forming part of India as genuine and accurate, if the document purports
to be certified in any manner which is certified by any representative of the National
Government of such country including certification by the Embassy or the High
Commission of that country in India and admit such documents including electronic
records in evidence as may be considered relevant and material for the proceedings.
Clause (3) of Regulation 41 makes sections 22A, 47A, 65B, 67A, 73A, 81A, 85A 85B, 85C, 88A,
89 and 90A of the Evidence Act applicable for the purpose of investigation by the Director
General, subject, of course, to clause (2) of Regulation 45. In terms of clause (4), the
Director General can call for the parties to lead evidence by way of affidavit or lead oral
evidence in the matter. In terms of clause (5), the Director General can give an
opportunity to the other party or parties to cross-examine the person giving the
evidence. Clause (6) empowers the Director General to entrust the task of recording
evidence to any officer or person designated for the said purpose. Regulation 42 provides
that the Director General can, for sufficient reasons, order that any particular fact or facts
may be supported by an affidavit. Various clauses of this Regulation prescribe the mode
and manner in which the affidavit required to be filed under clause (1) is to be prepared.
Further, since the standard of proof required for proving a case of contravention under
the Competition Act is that of balance of probability akin to civil law, the Director
General brings forth evidences which include a mix of direct and circumstantial
evidence. It would be seen in Chapter II, the various techniques used by Director General
to investigate a case of cartels. As a matter of practice, the Director General has been
collecting evidence in form of personal/official e-mails, e-mail dumps, telephonic
records, entry register, travel details, ledger accounts, credit card details etc.
Further, the Director General has not only relied on the traditional modes of collecting
evidence i.e., issuance of information requests, depositions followed by written
submissions but also has conducted raids on the premises of the companies. In
September 2014, the Director General conducted the first unannounced search and
seizure operation on JCB Limited, a leading player in the earth-moving and construction
equipment industry. This was thereafter challenged before the High Court of Delhi as
being unlawful for a variety of reasons. The investigation was subsequently stayed and
the fate of the seizure is still undecided.
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Once the Director General submits his report to the CCI, a copy of the said report is
required to be forwarded to the parties concerned including the Central
Government/concerned State Government/concerned Statutory Authority in case the
investigation was directed on a reference received from such Government/Authority. This
exercise is required to be undertaken irrespective of whether the Director General
reports a contravention of the provisions of the Competition Act or otherwise. In case the
Director General recommends that no contravention of the provisions of the Competition
Act is made, the CCI is required to invite objections or suggestions on the said report from
P 11 the Central Government, or the State Government, or the Statutory Authority of the
parties concerned, as the case may be. Such report then is required to be considered by
the CCI in the light of the objections or suggestions received by it. If the CCI, on
consideration of the matter in the light of the objections or suggestions, if any, received
by it, agrees with the Director General, the matter is closed forthwith. However, the
recommendation made by the Director General in this regard is not binding on the CCI
and after considering the said report in the light of the objections or suggestions received
by it if the CCI is of the opinion that further investigation is required, it may direct such
further investigation in the matter by the Director General. The CCI, instead of directing
further investigation by Director General, may also cause further inquiry to be made in
the matter or it may itself hold further inquiry into the matter.
If the Director General recommends that there is contravention of the provisions of the
Competition Act, the said recommendation also is not binding on the CCI and it may,
inquire into the matter if in its opinion a further inquiry is called for or it may if it does
not agree with the Director General, close the matter forthwith. If the CCI agrees with the
Director General, it can proceed to pass appropriate orders in terms of sections 27, 28
and 31 of the Competition Act.
Based on the above, it can be seen from the scheme of the Competition Act that the
recommendations of the Director General are not binding on the CCI. Further, the scheme
of the Competition Act does not permit investigation by Director General into any
information which was not considered by the CCI, while forming a prima facie opinion
under section 26(1) of the Competition Act. This aspect was discussed in detail by Delhi
High Court in the case of Grasim Industries v. Competition Commission of India. (4) The
Delhi High Court noted the following, with respect to the powers of the Director General
under the Competition Act:
(A) The formation of opinion by the CCI and direction to cause an investigation to be
made by the Director General is a prerequisite condition for initiation of
investigation. The Director General has no power to undertake investigation in
respect of the complaint which the CCI did not consider while forming the prima
facie opinion to direct investigation by the Director General.
(B) If the Director General investigates any conduct which the CCI did not consider in
the first instance, while forming opinion with respect to existence of a prima facie
case, such an act on his part shall be ultra vires his power under the Competition
Act and, therefore, clearly illegal. It is settled legal proposition that when the
provisions of a statute requires an act to be done in a particular manner, such an
act can be done only in the prescribed manner and not otherwise. Since the
Competition Act requires the Director General to investigate only such information
which was considered by the CCI, while forming its opinion with respect to existence
of a prima facie case, it cannot, on its own carry out investigation based upon an
information which was not initially available to the Commission.
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(C) The Delhi High Court noted a difference in the powers of the Director General which
was conferred to it under the erstwhile Monopolies and Restrictive Trade Practices
Act, 1969 and Competition Act. Under the earlier regime, Director General was
empowered to exercise suo motu power of investigation which has been expressly
denied to it under the Competition Act. The High Court noted that under clause (5)
of the statement of objects and reasons for enacting the Competition Act, it is
clearly stated that the Director General would be able to act only if so directed by
the Commission, but will not have any suo motu power for initiating investigation.
Therefore, if the Director General, is directed by the CCI to cause an investigation to
be made into information, X, and he, besides investigating information X also
investigates information Y which was not considered by the CCI, while forming the
prima facie order under section 26(1) of the Competition Act, it would amount to
conferring suo motu, power of investigation upon the Director General which would
clearly contravene the scheme of the Competition Act, as far as investigation into
information Y is concerned.
§1.03 ENFORCEMENT POWERS OF THE CCI

[A] Fines on Companies/Group
The Competition Act regulates the manner in which the businesses should operate in the
market place. It has emerged as the most important piece of economic legislation
governing both behavioural and structural aspects of a business. Every company should
take into consideration the legal issues of competition relating to both inorganic growth
7
and behavioural models adopted by companies. The CCI is emerging as a market
regulator in India which is as assertive as the market regulators in developed
jurisdictions. Unlike the predecessor regime which lacked teeth, the Competition Act
provides for extensive enforcement powers. The CCI can impose fines of up to 10% of
average turnover of the last three preceding financial years on every enterprise for abuse
of dominance or for entering into anti-competitive agreements. A still higher penalty is
reserved for cartel activities where the penalty can extend up to three times the amount
of profits or 10% of the turnover during the period of the existence of the cartel,
whichever is higher. Further, the CCI has the powers to modify terms of agreements,
modify business practices, declare agreements to be void, direct division of an
enterprise, etc. In essence, apart from fines, the Competition Commission can also direct
enterprises to change the manner of conducting their business operations. Therefore, we
see that the law enables the CCI with vast powers to prevent practices which have an
anti-competitive effect. The Competition Commission has also used its powers under the
Competition Act to fine a large number of companies.
The CCI is using its vast powers provided to them under the Competition Act in levying
fines. However, the manner in which the penalties are being imposed are not very
structured and clear. It is apposite to note that India has moved from a regime from no
fines for anti-competitive activities (under the Monopolies and Restrictive Trade
P 13 Practices Act, 1969) to a regime of heavy fines and liabilities. As mentioned above, the
Competition Commission can fine up to 10% of the average turnover of the parties, and
further, a higher fine reserved for cartel activities. While, a headroom of fines has been
provided under the Competition Act (from 0.1% to 10%), the CCI, in their orders, do not
spell out any reason for granting, say, fines of 5% of average turnover or 9% of the average
turnover. It is a well established principle laid down by the Supreme Court that the CCI
and Competition Appellate Tribunal is a quasi judicial authority and hence their orders
must be speaking orders i.e., the orders must clearly spell out reasons which shows
application of mind. Having said that, the orders of the CCI do not spell out the reason of
quantum of penalty. This is the same reason why when the matter goes up in appeal
before the Competition Appellate Tribunal, one of the hotly contested topics in the
appellate forum is the quantum of penalty. Since, the CCI effectively determines rights
and liabilities of the parties, and its fines that are imposed by them are highest
economic penalties in India, it is essential that due reasons are provided in the order on
the quantum of penalty. Such reasons for penalties are required to determine
proportionality by a higher forum and indeed, it is a part of due process. In this regard, it
is apposite to note the observations of the Competition Appellate Tribunal, in the case of
M/s Excel Crop Care Limited v. Competition Commission of India and ors (5) (hereinafter
referred to as the Excel Corp case):
The first criticism against the order regarding the penalty was that there was
no discussion whatsoever nor any justification as to why the Commission was
imposing the penalty @ 9% on average of three years’ turn over of the three
appellants. We have seen the order and indeed there does not appear to be
any reason justifying the penalty @ 9% of the three years average turn over
[emphasis supplied]. We have time and again insisted for the reasons. The CCI
is not only Regulatory Authority that is only one limb. It has been reiterated in
Brahm Dutt’s case (reported in AIR [2005] SC 730) as well as SAIL India’s case
(reported in {2010} SCC 744) that the CCI has an adjudicatory role also … There
can be no dispute that where harsh financial penalties are inflicted the reasons
become all the more necessary [emphasis supplied].
One of the hotly contested topics, which is presently being decided by the Supreme Court
of India, is the issue of quantum of fines. The Competition Act states that the CCI has the
power to levy fines up to 10% of the average turnover of the parties. Since the word used
is turnover, the CCI has been levying fines on the entire turnover of the enterprise even
for a multi-product enterprise and not limiting the penalty to the relevant turnover i.e.,
turnover of the product in which the concerned company has committed the
contravention of the provisions of the Competition Act. Conversely, the Competition
Appellate Tribunal, in the Excel Corp case has held, based on international jurisprudence
on penalty guidelines, that the penalties must be limited to the relevant turnover. This
discussion on turnover versus relevant turnover emerged out of the Excel Corp case where
the Competition Appellate Tribunal agreed with the decision of the CCI that the market
participants had indulged in cartel behaviour, but reduced the quantum of penalty from
a percentage of the turnover to a percentage of the relevant turnover. The Competition
P 14 Appellate Tribunal concluded and said that: ‘We, however, accept the contention that in
the circumstances of this case the relevant turn over should be considered in case of the
two appellants who are multi product companies.’
Having said that, the Competition Appellate Tribunal made two key observations on the
aspect of relevant turnover:
(1) While making the determination of relevant turnover, the entire turnover of the
concerned product will be taken into account, irrespective of the location of sale of
the concerned product (thus including export revenue of the concerned product).
(2) While making the determination of relevant turnover, the entire turnover of the
concerned product will be taken into account, irrespective of the customer profile
8
(government or private) of the concerned product.
The CCI has filed an appeal before the Supreme Court of India on the power of the
Commission to levy fines i.e., fines should be levied on turnover or relevant turnover.
While the outcome of the Supreme Court is still awaited, there is an urgent need for the
CCI to issue penalty guidelines. Having a penalty guideline sets out clear principles and
predictable fines and the aggravating and mitigating factors which will taken into
account by the CCI, while levying fines. The aspect of penalty guidelines was referred to,
by the Competition Appellate Tribunal, in the Excel Corp case. The relevant portions of
the decision are as follows:
While arriving at a conclusion about the relevant turn over it would be open to
the authorities like CCI to rely on the general principles expressed in those
guidelines regarding the method of calculation etc. However, it should be an
endeavour of the authorities to apply those principles not mechanically or
blindly but after carefully considering the factual aspects. Such factual
aspects could include the financial health of the company, the necessity of the
product, the likelihood of the company being closed down on account of
unreasonable harsh penalty etc. At the same time the authorities would be
well advised in considering the general reputation and the other mitigating
factors like the first time breaches as also the attitude of the company
[emphasis supplied]. This list is certainly not exhaustive and the authority can
and should consider all the relevant factors while considering the relevant
turn over as also considering the extent of penalty on that basis. It should also
be reiterated at this stage that there should be proportionality in the award of
penalty, which principle has been enshrined in several judgments of the Apex
Court. It cannot be forgotten that Supreme Court has time and again relied on
the doctrine of proportionality while at the same time emphasizing on the
aspect of deterrence. Generally the award of penalty should be in proportion
to the wrong done. While considering the wrong done, of course the authority
would be justified in taking into consideration all the aspects including
mitigating and aggravating circumstances.
Apart from the fines, the decisional practice of the CCI would show that the Competition
Commission has also ordered the enterprise to change their business practice, example
being Automobile spare parts case and DLF case, both discussed in the chapter on abuse
P 15 of dominance. Further, in case of merger, the CCI has the power to issue commitments
to the parties. These cases and concepts have been discussed at the appropriate
portions of the book.
Thus, based on the wording of section 27 of the Competition Act, we can see the vast
sweeping powers provided to the CCI. Further, for conducts that amount to anti-
competitive agreement or abuse of dominance, CCI has the powers to pass orders against
the entire group that holds control over the entity and not limit the penalty only on the
concerned entity, which committed the contravention. The group may be penalized if it
holds responsibility (direct attribution) or even contributes (acts in common) towards
such anti-competitive/abusive conduct. The penalty clause (proviso of section 27(g), Act)
which is rather loosely worded may be interpreted to impose liability on the group
companies akin to the concept of joint and several liability, often found in tortious
claims. Similarly, the penalty if in the nature of fines may be imposed on the global
turnover of the group. Further, in case of abuse of dominance, the CCI has been given the
power to order division of the enterprise.
Considering the vast enforcement powers under the Competition Act, every enterprise
must ensure that their practices are in compliance with the provisions of the Competition
Act as non-compliance will result in huge fines, apart from consequential cascading
effects such as reputational loss and change in business practices. Further, the
Competition Act is applicable to all companies, irrespective of the size of the company
and the sector. Even a loss-making company has no safety net prescribed under the
Competition Act and fines can be imposed on such loss-making companies as a
percentage of their turnover. Further, it must be noted that there is no limitation period
provided under the Competition Act i.e., the CCI can investigate all actions post 2009
when the Competition Act was notified. In this climate of inflow of investments into India,
it is critical that the enterprises undertake a thorough due diligence of the target
enterprise for competition law violations prior to acquisition since the liabilities of the
target enterprise may flow to the acquirer.
[B] Fines on Directors/Officers-in-Charge

Apart from fining the companies or trade association as the case may be, the CCI can also
fine directors and officers-in-charge of companies. Directors owe a fiduciary duty towards
the stakeholders of the company, and further in a general manner to the government and
the public at large. Having said that, directors do not operate in ideal environment and
must therefore identify the risks of competition law violations since failure to take note
of competition law provisions can result in heavy fines, which affect bottom line of the
company. The directors face a real risk of non-compliance considering the rigorous
regulatory regime brought in by the CCI. Under section 48 of the Competition Act, the CCI
9
can proceed against directors and officers-in-charge of and responsible to the company
(e.g., Managing Director, Director, Chief Executive Officer, Chief Operating Officer, etc.) for
conducting the business of a company at that relevant point of time when the violation of
the Competition Act was committed by the concerned company. The Competition
P 16 Appellate Tribunal, too, has stressed that the directors and officers-in-charge responsible
to the company be aware of the provisions of the Competition Act and ensure that their
activities (like pricing policy etc.) are in compliance with the provisions of the
Competition Act. In fact, the Competition Appellate Tribunal in the National Stock
Exchange (NSE) case (discussed in Chapter III) has referred to the fiduciary duty of the
director to undertake the activities of the company in compliance with the provisions of
the Competition Act.
The CCI has already started fixing personal liabilities and imposing penalties on the
directors and officers-in-charge. If one sees the pattern of the CCI in recent history, the
CCI directs the offices of the Director General in their prima facie order under section
26(1) of the Competition Act to investigate the role of persons who were in charge of the
company when the violation of the Competition Act were committed. This is done by the
CCI to ensure that directors and officers-in-charge are made vicariously liable for the
violations of the company and lift the corporate veil and penalize the persons who were
responsible for the conduct of the company. As a practical step, once the CCI has
identified that the company is in contravention of the provisions of the Competition Act,
it asks for last three years’ income tax statements of the directors so that they can fine a
percentage of the income of the directors, as shown in the income tax statement. While
this approach is under scrutiny by the Competition Appellate Tribunal, it nevertheless
points out to the duty of the directors to ensure that the company is competition law
compliant. Further, in a recent order of the CCI, the CCI has not only levied fines on
officers-in-charge, but also has barred the President and General Secretary of Kerala Film
Exhibitors Federation (KFEF), an association representing 315 film theatres in Kerala, from
participating in the association’s affairs, including its administration, management and
governance, for a period of two years. Therefore, apart from fines, they can ask a person
to leave the management of the company. Further, such fines on directors can have an
impact of other corporate laws in India which relates to directors disqualification etc. It
is apposite to note that under Part I of Schedule V of the Companies Act 2013, it is
expressly mentioned that a person shall not be eligible for appointment as a managing
or whole time director or manager (meaning a person who fulfils the role of managing
director or a whole time director in a company that does not appoint either of the
aforesaid positions) if the said person has been sentenced to imprisonment for any
period or to a fine exceeding Indian Rupees (INR) 1000 for a conviction of an offence
under some of the legislations mentioned in Part I of Schedule V. One of the legislations
mentioned therein is the Competition Act. Based on the same, if a person has been fined
for more than INR 1,000 under section 48 of the Competition Act, he will be disbarred
from acting as managing director or whole time director in the company. Therefore, such
an action of the CCI on levying fines on directors and officers-in-charge has serious
consequences, apart from payment of hefty fines.
[C] Advocacy Remedy

Apart from fines to companies and directors, for the very first time, CCI also awarded an
advocacy-based remedy as it mandated the trade association to organize, in letter and
P 17 in spirit, at least five competition awareness and compliance programmes over next
six months in the State of Kerala for its members and the same was directed to get
commenced before the expiry of sixty days from the receipt of the order by trade
association. This is path breaking considering that the CCI has now mandated a trade
association to follow competition compliance session, which earlier was generally
recommended. The other trade associations and companies must take note of the latest
order to put in place, an efficient competition compliance programme. Having in place
an effective competition compliance program may act as a mitigating factor in a
competition law proceedings.
[D] Fines for Non-cooperation/Furnishing False Information

The Competition Act also provides the power to the CCI to levy fines on any person who
fails to comply with the direction of the Commission or the Director General in furnishing
information or deposing on oath or other directions issued by the Commission or Director
General to collect information. Failure to comply with such directions is punishable with
fine which may extend up to INR 1 lakh for each day during which such failure continues
subject to a maximum of INR 1 crore, as may be determined by the Commission. Recently,
the CCI had fined Google Inc. of INR 1 crore for failure to comply with the directions given
by the Director General seeking information and documents.
Further, in the event any person makes a false statement to, or omits to state any
material facts, knowing it to be material, before the CCI or the Director General, such
person shall be liable to a penalty which shall not be less than INR 50 lakhs, but which
may extend to INR 1 crore, as may be determined by the Competition Commission.
[E] Interim Relief
10
The Competition Act also provides the power to the CCI to provide interim relief. Section
33 of the Competition Act states:
33. Power to issue interim orders. - Where during an inquiry, the Commission is
satisfied that an act in contravention of sub-section (1) of section 3 or sub-
section (1) of section 4 or section 6 has been committed and continues to be
committed or that such act is about to be committed, the Commission may, by
order, temporarily restrain any party from carrying on such act until the
conclusion of such inquiry or until further orders, without giving notice to such
party, where it deems it necessary.
The Supreme Court of India, in the SAIL case, made detailed observations on the power of
the CCI to provide interim relief. It is to be noted that the CCI can provide interim relief
only during inquiry. ‘During inquiry’, if the CCI is satisfied that an act in contravention of
the section 3 (anti-competitive agreements); section 4 (abuse of dominance) or section 6
(merger control provisions) has been committed, continues to be committed or is about
to be committed, it may temporarily restrain any party ‘without giving notice to such
party’, where it deems necessary.
P 18
The word inquiry has not been defined in the Competition Act. As such, Regulation 18(2) of
the Competition Commission of India (General) Regulations explains the term ‘inquiry’.
‘Inquiry’ shall be deemed to have commenced when direction to the Director General is
issued to conduct investigation in terms of Regulation 18(2). In other words, the law shall
presume that an ‘inquiry’ has commenced when the CCI has passed a prima facie order
under section 26(1) of the Competition Act directing the Director General to investigate
the matter. The Director General is expected to conduct an investigation only in terms of
the directive of the CCI and thereafter, inquiry shall be deemed to have commenced,
which continues with the submission of the report by the Director General. Thereafter, the
CCI has to consider such report as well as consider the objections and submissions made
by other party. Till the time final order is passed by the CCI in accordance with law, the
inquiry under the Competition Act continues. Once the inquiry has begun, then alone the
CCI can exercise its powers vested under section 33 of the Competition Act.
The Supreme Court, in the SAIL case, has observed that at the stage of a section 33
proceedings, the CCI is required to record a satisfaction that there has been
contravention of the provisions of sections 3, 4 or section 5 of the Competition Act and
such contravention has been committed, continues to be committed or is about to be
committed. This satisfaction has to be understood differently from what is required while
expressing a prima facie view in terms of section 26(1) of the Act. The former is a definite
expression of the satisfaction recorded by the CCI upon due application of mind while
the latter is a direction simpliciter to the Director General to investigate, akin to a
department proceeding. In a case of interim relief, the Supreme Court noted that
Competition Commission should pass a reasoned order, which inter alia, should: (a)
record its satisfaction (which has to be of much higher degree than formation of a prima
facie view under section 26(1) of the Act) in clear terms that an act in contravention of the
stated provisions has been committed and continues to be committed or is about to be
committed; (b) it is necessary to issue order of restraint, and (c) from the record before
the Commission, there is every likelihood that the party to the lis would suffer irreparable
and irretrievable damage, or there is definite apprehension that it would have adverse
effect on competition in the market.
While the SAIL case did opine of the power of the CCI to issue interim relief only post the
order passed by CCI under section 26(1) of the Act in terms of definition of inquiry
provided under the General Regulations, in practicality, the purpose of interim relief has
been withered away due to the time lag between the informant filing the information and
its prayer for interim relief being heard since the CCI first has to make a determination
under section 26(1) or section 26(2) of the Competition Act as to whether a prima facie
case is being made out. In practice, the time lag between these two events would be
around three to five months.
§1.04 COMPETITION LAW COMPLIANCE

The Competition Act is in seventh year of existence. Although relatively young in terms of
P 19 its life span as a regulator, the CCI has been extremely assertive in its enforcement
outlook. The CCI has received more than 600 information alleging violations of the
Competition Act so far. As mentioned above, based on figures available on public
domain, the CCI in its first half a decade of enforcement has imposed a penalty of nearly
INR 140 billion. In addition, as outlined above, the CCI has imposed fines on directors and
officers-in-charge and also asked officers of trade association not to sit in the
management of the trade association for a period of two years. Therefore, we see that the
ramifications of not following the Competition Act are very severe. In spite of such
repercussions, a recent survey conducted by Ernst and Young named ‘Calibrating the
pulse of Competition law in India’ states that 80% of Indian companies are not even
aware about the existence of competition laws in India. Therefore, there is an urgent
need for advocacy of competition law principles to Indian companies.
11
Every business model, operation or process shall be evaluated from the perspective of
whether there is a risk of anti-competitive conduct therein. Steps must be taken to
eliminate or minimize such risks. Companies should actively engage in such risk
management activities, also known as Active Risk Management (‘ARM’) initiatives. ARM is
a function of the boards of companies. As any anti-competitive conduct would have
disastrous consequences to the operations of the companies, the boards must be
sensitive to ‘red flags’ and ‘yellow flags’ in the operations of the company and monitor
them. Non-compliance would bring in, besides fines, damages to reputation or brand
value. Further, a positive determination of anti-competitive behaviour by a company
would, in turn, lead to ripple regulatory effects, i.e., more governmental agencies may
start investigations and start more intense scrutiny on the various business aspects of the
company. The board should send across an unequivocal message from top to bottom that
business must be done in a compliant manner. Further, not only the companies but also
each of the channel partners must act in a manner compliant with the competition law
and non-compliance by channel partner may lead to termination of the agreement
between the company and the channel partners. The CCI, in its advocacy booklets, has
been advocating that every company must: (a) engage in ARM, (b) keep a record of all
practices of the company and have it assessed for competition compatibility, and (c)
provide periodic training to employees so that they are aware of the best antitrust
practices. The CCI in its advocacy booklet sets out the following reasons in support of
introducing a compliance programme:
(A) Inculcates a culture of compliance throughout the organization which in turn can be
a business enhancer offering positive benefits to business.
(B) Provides enterprises with a competitive advantage by enabling them to detect any
violation at an early stage and take corrective measures to their advantage.
(C) Assists enterprises to enhance reputation and build goodwill.
(D) Enterprises that contravene the provisions of the Competition Act may suffer
damage to their reputation, damaging years of careful marketing and brand
development.
(E) Obviates or reduces the costs and negative effects of litigation and regulatory
intervention.
P 20
(F) Establishes enterprises as having social conscience, economic ethics and national
interest at heart.
(G) The existence of a strong Compliance Programme reflecting the eagerness of the
management to comply may temper the severity of the punishment that may be
meted out for violation.
§1.05 MEMORANDUM OF UNDERSTANDING WITH OTHER ANTI-TRUST

AUTHORITIES
The CCI has entered into Memorandum of Understanding (MOU) with international
competition regulators with the objective of cooperation and coordination of
enforcement activities while investigating competition law matters. Based on the
information obtained from other investigating authorities, pursuant to such MOUs, CCI has
also started investigations in India. Following an inquiry into the practices of Google by
US, Europe and other matured anti-trust jurisdictions, the CCI has also initiated an
inquiry into Google for its practices in the search engine market.
Further, the matters pertaining to abuse of dominance issues like Standard Essential
Patent Holders and Pay for delay are also being investigated by the CCI. The details of the
investigation are discussed at the appropriate portions of the book.
The MOUs enable for better sharing of information between the competition authorities
on global cases. For instance, in the MOU between CCI and the Directorate General for
Competition of the European Commission the two sides acknowledge that it would be in
their best interest to share non-confidential information in enforcement matters and
coordinate enforcement of same cases. Further, under the said MOU when an anti-
competitive action in one territory adversely affects competition in the other territory,
the competition authority may request the other authority to initiate appropriate
enforcement activity under their respective law also. Further, the MOU permits the two
authorities to discuss current issues, experiences and developments with respect to
enforcement and exchange non-confidential information on competition environment in
economic sectors of common benefit.
These MOUs attain significance because a number of Indian subsidiaries operate in
accordance with the directions of the Parent MNCs. A multi-jurisdictional enforcement
action may not only involve the Indian subsidiary but also, as a result of the
extraterritorial powers conferred on the CCI, on the parent company too. The MOUs
entered into by the CCI although are non-binding in nature, they nevertheless provide a
good source for the competition authorities to interact and coordinate on global antitrust
enforcement matters. Therefore, the authorities may be able to still obtain a lot of non-
confidential evidence and information including the manner of operations of enterprises
across different jurisdictions and undertake enforcement activities.
12
P 21
§1.06 APPEAL PROVISIONS

Right to appeal is a creation of statute and the legislature has to decide, for each statute,
whether the right to appeal should be unconditional or conditional. Further, the statute
can also expressly lay down what kinds of orders can be appealed to, in higher forums.
The aspect of the right of appeal was discussed by the Supreme Court in the SAIL case.
Under section 53 A of the Competition Act, only certain orders passed by the Competition
Commission can be appealed to Competition Appellate Tribunal. Section 53 A of the
Competition Act provides only following kinds of orders passed by the CCI can be
appealed to Competition Appellate Tribunal
[A] Section 26(2) of the Competition Act

Where on receipt of a reference from the Central Government or a State Government or a
statutory authority or information received under section 19, the Commission is of the
opinion that there exists no prima facie case, the Commission passes an order for closure
of the matter.
[B] Section 26(6) of the Competition Act

In the event the Director General finds no contravention, and post the
objections/comments received from the parties, the CCI agrees with the Director General
and finds no contravention, the Commission passes an order to close the matter.
[C] Sections 27, 28 and 31 of the Competition Act

The orders passed by the Competition Commission where they have imposed penalty on
the companies for violating the provisions of the Competition Act, or orders a division of
the dominant enterprise or passes an order with respect to combination.
[D] Section 33 of the Competition Act

Any interim relief order passed by the CCI
[E] Section 38 of the Competition Act

With a view to rectifying any mistake apparent from the record, the Commission can
amend any order passed by it under the provisions of this Act.
P 22
[F] Section 39 of the Competition Act

In the event any person fails to pay a monetary penalty imposed on it under the
provisions of the Competition Act, the Competition Commission can take steps to recover
the said penalty.
[G] Sections 43, 43 A, 44 and 45 of the Competition Act

The provisions of the Competition Act deal with any orders passed by the CCI on any
person who does not cooperate with the investigation or furnishes false information to
the Commission or the Director General, as the case may be.
[H] Section 46 of the Competition Act

Orders passed by the CCI under the leniency regime (discussed in Chapter II)
While the Competition Act provides that only certain orders of the CCI (detailed above)
can be appealed to Competition Appellate Tribunal, all orders or decisions passed by
the Competition Appellate Tribunal can be appealed to the Supreme Court.
The aspect of the right of appeal was discussed in detail by the Supreme Court in the SAIL
case. The SAIL case started in October 2009 when Jindal Steel & Power Ltd. (‘JSPL’) filed
an information before the CCI alleging that Steel Authority of India Ltd. (‘SAIL’) had, inter
alia, entered into an exclusive supply agreement with Indian Railways for the supply of
rails. SAIL was alleged to have abused its dominant position in the market (section 4),
deprived others of fair competition by entering into an anti-competitive agreement
(section 3) and therefore, acted in violation of the Competition Act. SAIL sought time to
file the relevant information but the CCI (without considering any information from SAIL)
opined that there, in fact exists a prima facie case which requires investigation by the
Director General and thereby, passed an order under section 26(1) of the Competition Act.
It is apposite to note that prima facie orders under section 26(1) of the Competition Act
are not appealable orders mentioned under section 53 A of the Competition Act.
SAIL questioned the legality of the prima facie order passed by the CCI under section
26(1) of the Competition Act before the Competition Appellate Tribunal. The Appellate
Tribunal held that appeal of SAIL from the order passed under section 26(1) of the
Competition Act was maintainable. When the matter went up in appeal before the
13
Supreme Court, the Supreme Court held that right to appeal is a creation of statute. The
scheme of the Competition Act only provided for certain orders of the CCI can be
appealed to the Competition Appellate Tribunal and an order passed under section 26(1)
of the Competition Act is not one of them. The relevant observations of the Supreme
Court are as under:
legislative intent that the framers never desired that all orders, directions and
decisions should be appealable to the Tribunal. Once the legislature has
opted to specifically state the order, direction and decision, which would be
appealable by using clear and unambiguous language, then the normal result
P 23 would be that all other directions, orders etc. are not only intended to be
excluded but, in fact, have been excluded from the operation of that
provision. The presumption is in favour of the legislation. The legislature is
deemed to be aware of all the laws in existence and the consequences of the
laws enacted by it. When other orders have been excluded from the scope of
appellate jurisdiction, it will not be permissible to include such directions or
orders by implication or with reference to other provisions which hardly have
any bearing on the matter in issue and thus make non-appealable orders
appealable.
§1.07 PRIVATE ACTION

The Competition Act also allows for private action/damages claim. Section 53 N of the
Competition Act provides that any person can file an application before the Competition
Appellate Tribunal for compensation that arises from the findings of the CCI and
Competition Appellate Tribunal. The Appellate Tribunal can pass an order for the
recovery of compensation from any enterprise for any loss or damage shown to have been
suffered by the Central Government or a State Government or a local authority or any
enterprise or any person as a result of any contravention of the substantive provisions of
the Act (sections 3, 4, 5 and 6), having been committed by an enterprise. To date, there
has not been one decided private action claim by the Competition Appellate Tribunal,
however, based on cause lists of Competition Appellate Tribunal, there have been a case
where compensation application has been filed by Multi Commodity Stock Exchange for
violation of section 4 committed by NSE. Since the approach is unclear, it remains to be
seen whether Competition Appellate Tribunal will give compensation taking into account
only actual loss; or will the compensation also cover loss in profits. It must be apposite to
note in this regard that while section 46 of the Competition Act provides for lesser
penalty for leniency applicant in case of cartels, the risk of follow on actions and
compensation has to be borne by every cartel participants, even the leniency applicant.
§1.08 DUE PROCESS

Due Process, and in particular, conformity with the principles of natural justice has been
a key issue in matters that have been contested before the CCI. The right to cross-
examine witnesses and the right to have access to information and documents relied
upon by the CCI has been highly contested when the matters are taken up in higher
forums like High Court and Competition Appellate Tribunal. While the scheme of the
Competition Act does not provide for appeals to High Court, however, the parties have
approached High Court on issues of due process and not substantive findings.
One of the earliest challenges on the nature of the CCI (whether it is a regulator or a
tribunal) was made in the case of Braham Dutt v. Union of India. (6) In that case, the
constitutional validity of Rule 3 of the Competition Commission of India (Selection of
P 24 Chairperson and other Members of the Commission) Rules, 2003 was challenged. The
principle point of contention was that the appointment of non-judicial person as
Chairperson of the CCI violated the doctrine of separation of power, as enshrined in the
Constitution of India. It was argued that the CCI, which was essentially a judicial body
having adjudicatory powers on the questions of importance should be headed by a
retired Judge of the Supreme Court or a High Court. The Union of India contested the writ
petition and pleaded that the CCI is a Regulatory Body which requires expertise in the
field and such expertise cannot be supplied by the members of judiciary alone and in
any case, the power of judicial review is available with the High Courts and the Supreme
Court. During the pendency of the writ petition, two additional counter-affidavits were
filed on behalf of the Union of India, in which it was submitted that the Government was
proposing to make certain amendments so as to enable the Chairman and the Members
to be selected by a Committee presided over by the Chief Justice of India or his nominee.
The Supreme Court noticed the background in which the Act was enacted, referred to the
statements contained in the additional affidavits filed on behalf of Union of India and
observed :
We find that the amendments which the Union of India proposes to introduce
in Parliament would have a clear bearing on the question raised for decision
in the writ petition essentially based on the separation of powers recognised
by the Constitution. The challenge that there is usurpation of judicial power
and conferment of the same on a non-judicial body is sought to be met by
taking the stand that an Appellate Authority would be constituted and that
14
body would essentially be a judicial body conforming to the concept of
separation of judicial powers as recognised by this Court…… We may observe
that if an expert body is to be created as submitted on behalf of the Union of
India consistent with what is said to be the international practice, it might be
appropriate for the respondents to consider the creation of two separate
bodies, one with expertise that is advisory and regulatory and the other
adjudicatory. This followed up by an appellate body as contemplated by the
proposed amendment, can go a long way in meeting the challenge sought to
be raised in this writ petition based on the doctrine of separation of powers
recognised by the Constitution.
While an affidavit was given in the Supreme Court by the Union of India to constitute the
CCI with two bodies, one dealing with regulatory and advisory functions and the other
dealing with adjudicatory functions, a half-hearted attempt was made in 2006 to denude
the CCI of its adjudicatory functions by proposing addition of paragraphs 3(b) in the
Competition (Amendment) Bill, 2006 to omit the provisions relating to adjudication of
disputes between two or more parties. This is evident from the following extracts of the
Bill presented before the Parliament:
3. The Competition (Amendment) Bill, 2006, inter alia, seeks to make the
following amendments to the Competition Act so as to address various legal
issues and to make the CCI fully operational on a sustainable basis, namely :-
(a) to provide the CCI would be an expert body which will function as a market
regulator for preventing anticompetitive practices in the country and it would
also have advisory and advocacy functions in its role as a regulator; (b) to omit
the provisions relating to adjudication of disputes between two or more
parties by the CCI and to provide for investigation through the Director
General in case there exist a prima facie case relating to anti competitive
agreements or abuse of dominant position under the Competition Act, 2002
P 25 and conferring power upon the CCI to pass orders on completion of an
inquiry and impose monetary penalties and in doing so the CCI would work as
a collegium and its decisions would be based on simple majority.
However, when the amendments were finally made in the Competition Act, the
Competition (Amendment) Act, 2007, most of the provisions relating to adjudicatory
functions of the CCI were retained with minor modifications.
In line with the earlier discussion by the Supreme Court in the case of Braham Dutt, a key
issue which may be decided later this year or next year is on the nature of CCI – whether
it is a regulatory body or a judicial tribunal. (7) One of the principal points of contention
in the writ petition before the Delhi High Court that the CCI is not a mere regulator but a
judicial tribunal. It has been argued that CCI is principally an authority that exercises
judicial functions which has been conferred by the statute and has the trappings of a
Court and is a Tribunal for the purposes of sections 3 and 4. Even for the purposes of
sections 5 & 6 (merger control provisions), the CCI cannot be considered as a regulatory
body but is involved in determining the rights and liabilities of the parties in terms of the
parameters under the Act and is a quasi judicial authority. The petitioners have argued
that it is a settled law laid down by the Supreme Court that a body is a tribunal if the
functions it performs are judicial in nature as opposed to a body which predominantly
performs advisory/regulatory/executive functions with incidental adjudication functions
which has to be exercised in a judicial manner. A Tribunal is invested with the judicial
powers of the State and discharges judicial functions and the principal incident to
determine whether an authority is a tribunal is the investiture of the trappings of a court
such as the authority to determine matters in cases initiated by parties, sitting in public,
power to compel attendance of witnesses, imposition of fine, etc. in this regard, the CCI in
exercise of its powers under sections 3 and 4 has been invested with the judicial power of
the State and discharges judicial function. The same can be demonstrated by the powers
and functions of the CCI under the Act and the CCI (General) Regulations. Regard may be
had to sections 27, 28, 33, 36 and 61 and Regulations 10, 12 (2), 15, 24, 25, 26, 27, 28, 31, 32,
39, 41, 42, 43 and 45. The functions performed by the CCI are essentially functions
performed by a Court. Based on the above, the CCI has the powers of a Court, determines
the rights and liabilities of parties on the basis of evidence led by the parties and makes
a conclusive determination in addition to also imposing penalty. Therefore, the CCI is a
‘Tribunal’. The matter is under appeal and the Delhi High Court has reserved the order
and the final order in this matter should be out soon.
It is argued that the CCI is a judicial tribunal and in consonance with the principle of
independence of judiciary and separation of powers (both of which are integral part of
the basic structures of the Constitution of India i.e., even an amendment to the
Constitution cannot be contrary to the said principles), the CCI should have a majority of
judicial members in its composition. Further, it has been argued that the provision which
enables only the members present and voting in an internal meeting of the CCI to decide
a matter (as opposed to all the members who heard the matter) is also in violation of
P 26 Article 14 of the Constitution and the principle of rule of law. In these cases, the matter
was heard by a quorum of seven members of the CCI while the final order was passed by a
quorum of three members and where there was no judicial member. Therefore, parties
15
have challenged this before the High Court. This will have a seminal impact in other past
as well as pending cases before the CCI. It will not only have an impact on the manner of
adjudication before the Commission but also impact the manner in which quasi-judicial
authorities and regulators in other areas operate.
The Supreme Court has also emphasized on the due process and the need of the CCI and
Competition Appellate Tribunal to pass speaking orders. In the case of Rangi
International Limited v. Nova Scotia Bank and others (8) , a two-Judge Bench of the
Supreme Court considered the question whether the CCI and the Appellate Tribunal
should record reasons in support of their orders. The Supreme Court observed that:
The Competition Commission as well as the Competition Appellate Tribunal
are exercising very important quasi judicial functions. The orders passed by
the Commission and the Appellate Tribunal can have far-reaching
consequences. Therefore, the minimum that is required of the Commission as
well as the Appellate Tribunal is that the orders are supported by reasons,
even briefly.
The Competition Appellate Tribunal has also emphasized that due process and the
principles of natural justice are sacrosanct in proceedings before the CCI. The
Competition Appellate Tribunal has held that the CCI is obliged to comply with the
various facets of the principles of natural justice, and is required to comply with the rule
of audi alteram partem and grant an effective opportunity of hearing to a person against
whom a finding of contravention is likely to be recorded. (9) The Competition Appellate
Tribunal further observed that an opportunity is to be granted not only to controvert the
allegations made against him but also provide the evidence or material proposed to be
used in support of such allegation and also produce evidence to show that he was not
violation the provisions of the Competition Act. In this background, the Competition
Appellate Tribunal held that while the CCI did not finally agree with the findings recorded
by its investigating arm i.e., Director General on the issue of relevant market, it did not
indicate anywhere that it did not agree with such findings and did not afford an
opportunity to the party concerned an opportunity to contest the determination of the
relevant market. Therefore, it was held that finding of the CCI was in violation of the rule
of audi alteram partem. Further, even the information relied upon by the CCI in its
conclusion that the enterprise concerned (viz. Board of Control for Cricket in India) had
abused its dominant position was not made available to Board of Control of Cricket in
India to refute and, therefore, the finding of the CCI was vitiated.
In another recent case, (10) the Competition Appellate Tribunal has also deprecated the
findings of the CCI where it mechanically approved the findings of the Director General
without examining the material on record. In doing so, the Competition Appellate
P 27 Tribunal emphasized that being an adjudicatory body, the CCI it bound to act in
accordance with the Statute, the principles of natural justice and record reasons for its
orders. Further, it held that such reasons should reflect and demonstrate the application
of mind. Similarly, the Competition Appellate Tribunal in the case of Dr. L.H. Hiranandani
Hospital v. Competition Commission of India (11) noted that CCI committed a failure
because it ‘did not independently examine the various factors enumerated in Section
19(3), (5), (6) and (7) for deciding what constituted relevant market for the purpose of the
present case.’ The Competition Appellate Tribunal suggested that the CCI cannot merely
rubber-stamp the analysis of Director General and must, in appropriate circumstances,
conduct its own examination / independent testing of allegations. Further, the
Competition Appellate Tribunal noted that the Director General and CCI cannot act on
pure conjectures and must act on proper evidences.
In another instance (12) , the Competition Appellate Tribunal came down heavily on the
CCI on failure to observe due process. In one of the cases, the appellants had argued
before the CCI on due process violations by DG wherein DG had relied upon unverified
documents and also did not provide an opportunity to cross-examine the witness and the
documents. Further the DG relied on his personal knowledge to find out a case of
violation against the appellants. When the appellants had argued that the DG had not
followed fair procedures and due process, the CCI only briefly mentioned the objections
raised by the appellants and did not opine in detail on the fairness of the procedure and
continued to opine on the merits of the case. When the matter went in appeal, the
Competition Appellate Tribunal deprecated the approach taken by the CCI and ordered a
fresh investigation to be done by the DG. It is apposite to note the observations made by
the Competition Appellate Tribunal in this regard:
A careful reading of the objections/submissions filed by the appellants before
the Commission shows that they had taken specific plea of violation of the
principles of natural justice by pointing out that the DG relied upon the
statement made by Respondent No. 1 and the unverified documents produced
by him without giving an opportunity to cross examine him. They pointed out
that the DG had relied upon the statement made by Respondent No. 1 and the
documents produced by it without making any attempt to verify the
correctness and authenticity thereof. The appellants also laid considerable
emphasis on the conduct of Respondent No. 1, who had filed similar
information on an earlier occasion and then applied for withdrawal thereof.
16
Another plea taken by the appellants was that the DG had relied upon his
personal knowledge for recording a finding against them and this was contrary
to the basic principle that ‘no one should be a judge in his own cause’. On
merits the appellants made detailed submissions to show that the findings
recorded by the D.G. on the ĞĚĊ issue of violation of Section 3(1) read with
Section 3(3)(b) of the 2002 Act was perverse because he relied upon the
unsubstantiated statement made by Respondent No. 1 and fabricated
documents etc. produced by him. 16. The Commission did very briefly noticed
some of the objections raised by the appellants but did not at all deal with
the specific pleas raised by the appellants that the investigation conducted
by the DG was vitiated due to violation of the principles of natural justice and
P 28 the findings recorded by him were perverse. 17. In our view, the objections
raised by the appellants regarding violation of principles of natural justice by
the DG were quite serious and the Commission was duty bound to consider
and decided the same before delving into the merits of the findings recorded
in the report of the DG. The Commission should have examined and decided
whether the investigation conducted by the DG was consistent with the rules of
fairness and whether the appellants should have been afforded opportunity to
cross examine Respondent No. 1. We have no doubt if the Commission had
adverted to this aspect of the matter, it could have passed an order under
Section 26(7) of the 2002 Act and asked the DG to conduct further investigation
into the matter or itself made inquiry into the matter in accordance with the
provisions of the Act. Its failure to adopt either course has resulted in grave
miscarriage of justice. 18. Apart from the above noted fatal defect in the
impugned order, we find that the Commission has not at all considered the
detailed submissions made by the appellants on the merits of the findings
recorded by the DG. The appellants had pointed out that the findings
recorded by the D.G. were perverse in as much as he had relied upon
inadmissible and flimsy evidence produced by Respondent No. 1 and omitted
to give due weightage to the testimony of 18 representatives of
Pharmaceutical Companies and others, who unanimously gave out that the
appellants had not issued any directive on the issue of obtaining NOC as a
condition for appointment of stockists or supply of medicines and the
Commission has not assigned any reason for not considering the appellants’
challenge to the findings recorded by the D.G.
We may have ourselves examined and decided the appellants’ challenge to
the findings recorded by the DG and the Commission on the merits of the
allegations made by Respondent No. 1 but refrain from doing so because we
feel that the ends of justice will be served by asking the DG to conduct fresh
investigation into the matter with a further direction that the Commission
shall pass fresh order after giving opportunity to the parties to file their
objections/submissions in respect of the findings which may be recorded by
the DG and hearing their advocates/representatives
In the most recent decision in the cement cartel matter, Competition Appellate Tribunal
remanded the matter to CCI for fresh adjudication and further emphasized on the role of
natural justice. (13) Competition Appellate Tribunal opined that rule of law remains an
important corner stone of India’s democratic setup and principles of natural justice were
required to be followed in each and every case where an order adversely affecting a
person is passed. Similarly, reliance was placed on a plethora of authorities across
various courts in India and abroad which reiterated the view that denial of a right to
hearing constitutes a serious breach of statutory procedure and violation of rules of
natural justice. In light of these principle, Competition Appellate Tribunal held that the
proceedings in the cement cartel case before the CCI were vitiated as one of the facets of
natural justice were not followed in this case, owing to the absence of the Chairperson
during the hearings that took place on 21st, 22nd and 23rd February, 2012. In the opinion
of Competition Appellate Tribunal, natural justice was violated as the Chairperson did
not attend the decision-making process on the days when crucial hearing regarding the
subject matter of the dispute were made by the cement companies, but the Chairperson
P 29 went on to initial each page of the final order, thereby authoring the award.
Furthermore, given the absence of Chairperson during the hearing but presence at the
time of signing the award, it remained inconclusive whether the remaining six members
of the CCI would have reached a positive conclusion that the cement companies were not
guilty of violating sections 3(3)(a) and 3(3)(b) read with section 3(1) of the Act and/or
whether the subsequent penalty under section 27 of the Act would have/not have been
imposed on the companies. In fact, the Competition Appellate Tribunal stated that:
We also feel that the time has come for the Commission to evolve a
comprehensive protocol and lay down guidelines for conducting
investigation/inquiry in consonance with the rules of natural justice.
Therefore, by setting aside a CCI’s order, which had imposed a cumulative penalty of INR
6,316.59 crores on cement companies and remanding the matter back to CCI for fresh
disposal on grounds of their anti-competitive conduct, the Competition Appellate
Tribunal has created a new jurisprudence emphasizing that respect towards procedural
17
justice takes equal predominance as substantive justice in the field of competition law.
§1.09 POWER OF RECALL

As discussed above, under the Competition Act, an investigation into an anti-competitive
agreement or an abuse of dominant position can be undertaken by the Director General
only if the CCI first finds a ‘prima facie case’ under section 26(1). Therefore, upon the
receipt of information under section 19 of the Act, the CCI in a preliminary hearing
determines whether a prima facie case has been made out by the informant. However,
the enterprise against whom the information has been filed does not have a right of
opportunity/hearing before the CCI when the prima facie order is passed. (14) It is up to
the volition of the Competition Commission to call the other party or not. Therefore, the
prima facie order can be passed ex parte without the presence of the opposite party.
Also, a prima facie order passed by the CCI is not appealable to the Competition
Appellate Tribunal (15) and the parties are, therefore, required to participate in the
investigation before the Director General. This investigation depending upon the case
and the volume of information may last anywhere between a year and a few years.
Therefore, during this period the parties can either participate in the investigation
proceedings before the Director General for a few years or challenge the prima facie
order under limited grounds before the High Courts in a writ petition under Article 226 of
the Constitution of India.
Another option that is now available to parties is to seek a recall of the prima facie order
P 30 passed by the CCI. The Delhi High Court in the case of Google Inc. and others v.
Competition Commission of India and another, (16) has now held that the CCI has the power
to recall its prima facie order. Although vide the Competition (Amendment) Act, 2007, the
power relating to review of the orders was stripped of the CCI, the High Court has held
that the CCI has the power to recall its prima facie order and further held that there
exists no specific bar in the Competition Act or any of the attendant regulations passed
by the CCI to preclude the invocation of the inherent power to recall/review. The High
Court has, however, held that the right of recall will be sparingly exercised and should be
apparent on the face of the material before the CCI and without lengthy arguments and
only if without entering into any factual controversy, the CCI finds no merit in the
information on which investigation has been ordered. This way it is possible for the
parties to avoid the rigmarole of the complete investigation process before the Director
General by seeking a recall of the order. Further, even if the CCI were to reject the
application seeking recall of the order, the right of the parties to approach the High
Courts will still be available.
§1.10 SETTLEMENT OR COMPROMISE UNDER THE COMPETITION ACT

The Competition Act has a leniency mechanism to allow members in a cartel
arrangement to come clean by filing a leniency application under section 46 of the
Competition Act (discussed in Chapter II). However, the Competition Act does not have a
separate provision allowing for settlements or commitments to be accepted by the
enterprises. The Madras High Court in the case of The Tamil Nadu Film Exhibitors
Association v. Competition Commission of India and others (17) has, however, identified
that even without the existence of a specific provision enabling settlements or
compromise, the scheme of the Competition Act allows for settlements and compromises
to be reached between parties. The Madras High Court has held that CCI has residuary
powers to pass orders which are wide in amplitude and which empower the CCI to accept
a settlement or a compromise between parties. Further, it was observed that once a
party agrees not to abuse its dominant position or continue with an agreement, the only
question left for the CCI would be to deal with the question of imposition of penalty.
However, the Madras High Court also struck a note of caution and held that CCI will be
obliged to look into the settlement or compromise and check whether it is a cover up to
prevent an investigation being made into anti-competitive practices or abuse of
dominant position. In doing so the CCI will have to ensure that such settlements and
compromises: (a) would not lead to continuance of anti-competitive practices, (b) would
not allow the abuse of dominant position to continue, and (c) would not be prejudicial to
the interest of consumers or to the freedom of trade. Further, competition law deals with
prevention of practices which causes or is likely to cause market distortion. A private
settlement may settle a dispute between parties which may not remedy the entire
market situation, which the CCI seeks to address.
P 31
It would be interesting to see how the CCI would view this in the future considering that
the CCI has always taken a view in the past that even if the parties want to withdraw a
claim it will continue with the matter to evaluate the impact and effects on the market.
Also, how the CCI would effectively monitor these arrangements would be an interesting
issue to watch out for in the future.
§1.11 COMPETITION ASSESSMENT GUIDELINES

Section 49 of the Competition Act provides for competition advocacy. It provides that the
Central Government may, in formulating a policy on competition (including review of laws
18
related to competition) or any other matter, and a State Government may, in formulating
a policy on competition or on any other matter, as the case may be, make a reference to
the CCI for its opinion on possible effect of such policy on competition and on the receipt
of such a reference, the CCI shall, within sixty days of making such reference, give its
opinion to the Central Government, or the State Government, as the case may be, which
may thereafter take further action as it deems fit. In this regard, it must be noted that the
Draft Competition Policy of 2011 (18) had noted the concept of conducting a Competitive
Impact Assessment which to see if any anti-competitive effect is exerted by a provision in
the existing or proposed laws, regulations and policies, enforced by Government. (19)
In this backdrop, the CCI has recently introduced Competition Commission of India
(Competition Assessment of Legislations and Bills) Guidelines, 2015 to come into effect
from 1 January 2016, which aims to facilitate objective and transparent assessment of
select economic legislations enacted recently by Parliament or State Legislatures as well
as the economic bills pending or coming up before them in near future from competition
perspective. Based on the assessment, the CCI would suggest, if necessary, appropriate
modifications in the legislation or the bill, as the case may be, along with the reasons for
the same from the competition perspective, to the relevant stakeholders, including
Parliament/State Legislature, the Administrative Ministry or the Department of the
Government which has piloted the legislation/bill, and the Standing/Select Committee of
the Parliament/State Legislature that examines the bill. Although the opinion of the
Competition Commission is not binding on the Central/State government under section
49(2) of the Competition Act, such an advice would complement the proactive role of the
CCI in preventing any provision inadvertently sneaking into law that may have potential
appreciable adverse effect on competition. The Government of India must take the
advice of the CCI while drafting legislations to ensure that such laws are competition
coherent.
P 32
§1.12 SECTOR INQUIRY

The CCI issued its notification regarding its first inquiry, targeting the pharmaceutical
sector was received in public domain on 17 September 2015. The CCI opined that it has
come across various issues in the pharmaceutical sector and healthcare delivery
systems/services including non-availability of essential medicines, increasing price of
drugs, nexus between pharmaceutical companies and pharmacists, nexus between
doctors and pathological laboratories, nexus between doctors and pharmaceutical
companies, and nexus between hospitals and insurance companies etc. In order to look
into such issues from the perspective of the competition law, the CCI proposed to
undertake a baseline study/survey in the Pharmaceutical Sector and Healthcare Delivery
Systems/Services in Delhi & NCR Region. In the opinion of the CCI, the primary objective
of the survey would be to collect information and credible evidences on competition
issues in the concerned sector and present the same in an analytical manner. The
study/survey would cover various stakeholders including public and private hospitals,
insurance companies, pharmaceutical companies and their associations, doctors and
their associations, pharmacists and their associations, C&F agents, stockists and
patients/consumers to carry out a comprehensive competitive analysis & assessment of
the Pharmaceutical Sector and Healthcare Delivery Systems/Services in Delhi & NCR
Region.
§1.13 ENTERPRISE
The word enterprise has been defined in a broad manner in the Competition Act. It is
imperative to discuss the contours of the term enterprise because of the scheme of the
Competition Act. Under the statutory scheme, the provisions relating to section 3 of the
Competition Act (which deals with anti-competitive agreements) are applicable to any
person or enterprise or association of persons or enterprise; section 6 of the Competition
Act (which deals with combinations) are applicable to any person or enterprise while
section 4 of the Competition Act (which deals with abuse of dominance) are only
applicable to an enterprise or group and not every person. While person has been
defined in a broad manner to include any company, firm, juridical person, enterprise has
been defined under the Competition Act to mean:
‘enterprise’ means a person or a department of the Government, who or which
is, or has been, engaged in any activity, relating to the production, storage,
supply, distribution, acquisition or control of articles or goods, or the
provision of services, of any kind, or in investment, or in the business of
acquiring, holding, underwriting or dealing with shares, debentures or other
securities of any other body corporate, either directly or through one or more
of its units or divisions or subsidiaries, whether such unit or division or
subsidiary is located at the same place where the enterprise is located or at a
different place or at different places, but does not include any activity of the
Government relatable to the sovereign functions of the Government [emphasis
supplied] including all activities carried on by the departments of the Central
Government dealing with atomic energy, currency, defence and space.
19
P 33
From the definition of the enterprise, the following key points emerge:
(A) The statutory scheme of the Competition Act, the definition of enterprise and the
decisional practice of the CCI with respect to enterprise have ensured that
competitive neutrality is achieved in the present competition law dispensation.
This means that state-owned and private businesses compete on a level playing
field. Competitive neutrality requires that governments or state-owned enterprise
should not use their powers to advantage their own businesses over the private
sector. Upon a bare perusal of the definition it becomes clear that all the
commercial activities of the government, excluding the sovereign one, come under
the provisions of Competition Act and that no anti-trust exemptions are applicable
to state-owned enterprises. (20) State-owned enterprises or public sector
undertakings/enterprises (PSUs) are government majority held companies,
statutory corporations set up by an act of Parliament and fully owned by
government. Reading this with section 19(4)(g) of the Competition Act, the CCI can
look into the activities of a dominant enterprises, even if the dominant enterprise
has acquired its dominance by way of statutory monopoly. In this regard, it is
apposite to note that the CCI has looked into activities of state-owned enterprises,
details of which are provided in Chapter III.
(B) The definition explicitly excludes any function of the government that is relatable
to sovereign functions that includes activity relating to energy, currency, defence
and space. It has been observed by the Supreme Court that in a welfare state,
functions of the state are not only the defence of the country or administration of
justice or maintaining law and order but extends to regulating and controlling the
activities of people in almost every sphere, inter alia educational, commercial,
social, economic, political and even martial. In 2011, the Delhi High Court (21)
explained the distinction between sovereign and non-sovereign functions with
respect to definition of enterprise under the Competition Act. The Delhi High Court
noted that:
Any welfare, commercial and economic functions are not sovereign
functions and state while discharging such functions is as much
amenable to the jurisdiction of CCI as any other private entity
discharging such functions.
(C) It must be kept in mind that the objective of the Competition Act is very wide and it
seeks to prevent practices, having adverse effect in competition, to promote and
sustain competition in the market, to protect the interests of consumers and to
ensure freedom of trade carried out by market participants. The Competition Act
applies to all enterprises and persons based on the activity performed. Although
the definition of the term ‘enterprise’ does exclude sovereign functions, it is to be
P 34 noted that the Competition Act does not provide for exemption for enterprises
from the purview of the Competition Act. Section 54 of the Act provides that the
Central Government may, by notification, exempt from the application of the Act
any enterprise which performs a sovereign function on behalf of the Central
Government or the State Government. Thus, the scheme of the Act provides that
there must be an exemption which has to be granted by the Central Government
under section 54 to state that the Competition Act is not applicable to such
enterprises/class of enterprises.
(D) It must be noted that the Competition Commission has forayed its jurisdiction into
sovereign functions before. The CCI has, in the case of Royal Energy v. IOCL, (22)
stated that ‘even if an anti-competitive conduct flows from any policy of the
Government [emphasis added], the Commission will still have jurisdiction to examine
the conduct and in case of any violation suitable orders can be passed under S. 27 and
28 of the Act. The Competition Act, 2002 has not made any exemption in this regard.’
The activity of policy determination by the Government is a sovereign function
(being inalienable function of the government as has been held by the Supreme
Court of India in many cases) and therefore, in light of definition of enterprise
provided under section 2(h) of the Competition Act, such actions should have been
considered outside the jurisdiction of the CCI. However, the CCI exercised
jurisdiction since there was no exemption provided under section 54 of the
Competition Act.
(E) While the definition of enterprise is wide, it must be noted that for a person to be
called an enterprise, it must perform a commercial activity. It must be noted that
the CCI in some of the cases has held that trade association is not an enterprise
since they do not perform any commercial function and earn revenue, although
some anti-competitive decisions may be taken under the aegis of the trade
association. Having said that, it is not a blanket exemption that trade association
will not considered enterprise because in some cases, the CCI has held that trade
associations are enterprises since they earn revenues from their decisions. (23)
Therefore, the test is whether the person in question performs any commercial
activity and earns a revenue stream. It is because of this reason the CCI has not
exercised jurisdiction over policy formulation functions of the government because
they cannot be considered to be ‘commercial activities’ and hence not en
20
enterprise under section 2(h) of the Competition Act. (24) Therefore, a government
body while formulating policy guidelines cannot be said to be indulging in policy
decisions and hence cannot be termed as an enterprise and therefore section 4 will
not be applicable to such entities.
P 35
§1.14 RELEVANT MARKET

Under the statutory scheme of the Competition Act, the definition of relevant market is of
paramount importance. Under an abuse of dominance analysis, an enterprise will be
considered dominant only when the said enterprise holds a position of strength in the
relevant market. Similarly, in a combination analysis, the CCI has to analyse whether the
said combination will cause or is likely to cause an appreciable adverse effect in the
relevant market in India. Also, in an agreement analysis under section 3 of the
Competition Act, although the Competition Act does not lay down expressly that the CCI
has to define a relevant market, the decisional practice of the CCI (as elucidated in
Chapter II) would show that they have adopted the de minimis doctrine i.e., parties with
minimal market share entering into an agreement will not cause any appreciable adverse
effect on competition in India. Therefore, a broad understanding of the market contours
has to be undertaken, even in section 3 analysis.
Relevant market is essentially a tool to identify and define the boundaries of
competition between firms. The primary purpose of market definition is to identify the
competitive constraints faced by enterprise. In an abuse of dominance investigation, the
main purpose behind identification of relevant market is to understand whether an
enterprise has the position of strength in comparison to its other competitors/consumers.
In a combination analysis, the CCI identifies the relevant market to see whether the
combination would cause an appreciable adverse effect on competition in the relevant
market. The mode of analysis in a combination analysis is whether the combination
would create or strengthen dominant position in the relevant market. Generally, the
Competition Commission has approved combinations in the first phase itself because
post-combination, the combined market share of the combining parties of the relevant
market is minimal. Therefore, the objective of defining a relevant market is to identify
those competitors of the enterprises involved that are capable of constraining their
behaviour of the concerned enterprise and of preventing them from behaving
independently of any effective competitive pressure.
Relevant market has been defined in section 2(r) of the Competition Act as:
‘relevant market’ means the market which may be determined by the
Commission with reference to the relevant product market or the relevant
geographic market or with reference to both the markets.
Thus, we see that relevant market has to be defined both in product terms as well as
geographic terms. Relevant product market has been defined in section 2(t) of the
Competition Act to mean a market comprising all those products or services which are
regarded as interchangeable or substitutable by the consumer, by reason of characteristics
of the products or services, their prices and intended use [emphasis supplied]. Therefore,
the primary thrust of defining relevant product market is the interchangeability or
substitutability of a given product by the consumer in terms of price, characteristics and
end use.
P 36
[A] Relevant Product Market

Section 19(7) of the Competition Act provides for the indices which have to be taken into
account by the CCI, while determining relevant product market. Section 19(7) of the
Competition Act reads as:
The Commission shall, while determining the ‘relevant product market’, have
due regard to all or any of the following factors, namely:
(a) physical characteristics or end-use of goods;
(b) price of goods or service
(c) consumer preferences;
(d) exclusion of in-house production;
(e) existence of specialised producers;
(f) classification of industrial products.
Thus, we see that demand side substitutability or interchangeability is the primary factor
to be taken into account while determining relevant product market. Demand side
substitutability assesses the extent to which customers could and would switch among
substitute products in response to a change in relative prices or quality or availability or
other features. It is to be noted that the relevant product market has to be defined by
taking into account all those products or services which are regarded as interchangeable
21
or substitutable by the consumer. So, two products which are not perfectly substitutable
but functionally interchangeable would form part of the same relevant product market.
Apart from demand side substitutability, competition law authorities also look at supply
side substitutability. Having said that, the CCI has alluded in some of its discussions that,
unlike the other matured antitrust jurisdictions, in India, to determine the relevant
product market, supply side substitutability is not a factor to determine relevant product
market because of the definition of relevant product market contained in section 2(t) of
the Competition Act. The wording of section 2(t) of the Competition Act states that
relevant product market is that basket of products which are considered substitutable by
the consumer. Therefore, the only criterion for defining relevant product market under
the Competition Act is demand side substitutability. However, there are certain
criterions given under section 19(7) of the Competition Act, which allude to supply side
substitutability. Therefore, harmonious construction must be adopted and supply side
substitutability must be given weightage, while determining relevant product market. In
this regard, it is apposite to note the observations contained in the report of the High
Level Committee on Competition Policy and Law which noted:
Before assessing whether an undertaking is dominant, it is important … to
determine what the relevant market is …. On the demand side, the relevant
product market includes all such substitutes that the consumer would switch
to, if the price of the product relevant to the investigation were to increase.
From the supply side, this would include all producers who could, with their
existing facilities, switch to the production of such substitute goods.
P 37
[B] Relevant Geographic Market

Section 2(s) of the Act defines relevant geographic market as:
relevant geographic market means a market comprising the area in which the
conditions of competition for supply of goods or provision of services or
demand of goods or services are distinctly homogenous and can be
distinguished from the conditions prevailing in the neighbouring areas.
Section 19(6) of the Competition Act further provides some factors which need to be taken
into account by the CCI while determining relevant geographic market. Section 19(6) of
the Competition Act reads as follows:
The Commission shall, while determining the ‘relevant geographic market’,
have due regard to all or any of the following factors, namely:—
(a) regulatory trade barriers;
(b) local specification requirements;
(c) national procurement policies;
(d) adequate distribution facilities;
(e) transport costs;
(f) language;
(g) consumer preferences;
(h) need for secure or regular supplies or rapid after-sales services.
[C] Trends of the CCI

While the definitions and the approach of defining relevant market under the
Competition Act is similar to other anti-trust jurisdictions, the important factor to note is
the manner in which the CCI adopts the same in its analysis under dominance
investigation and merger control proceedings. Some of the key trends which can be seen
are as follows:
[1] Starting Point of Analysis
As discussed, earlier the first step would be to determine the relevant market. It is only
by defining the relevant market that a firm’s market power can be assessed. The purpose
of defining the relevant market is to identify which products and services operate as a
competitive constraint on the behaviour of the suppliers of those respective products
and services. The CCI, in the Super Cassettes case (discussed in Chapter IV) has noted that
‘since the allegation of the informant pertains to certain conduct of the opposite party in
licensing its repertoire of songs to the informant, the market for licensing of music content
(protect as intellectual property) is a good starting point for determination of the relevant
market in this case’. Therefore, the approach of the Competition Commission in
identifying relevant market starts from the relevant product or service of the alleged
dominant enterprise and then the substitutes of the said product are identified to
P 38 determine the contours of the relevant market. Similarly, in a combination case, the
CCI first identifies the overlaps between the parties in India as the starting point for
relevant market determination.
22
[2] Relevant Geographic Market Can Only Be India
As explained in detail in Chapter III, dominant position has been defined under the
Competition Act as position of strength enjoyed by an enterprise in the relevant market
in India [emphasis supplied]. Based on this technical reading, the CCI has taken a view in
the Coal India case, that the Competition Act only allows that relevant geographic market
can only be India. While it was argued by Coal India that they face competition from
global sources of coal and energy, the CCI held that the scheme of the Competition Act
does not allow for a worldwide definition of the relevant geographic market. The relevant
observations of the CCI are as under:
At the outset, it may be pointed out that the contention of the opposite
parties to argue that the relevant market for the present purposes has to be
global and cannot be confined to India as was done by the DG, is legally
untenable besides being contrary to the stand taken by the opposite parties
themselves. From a plain reading of the Explanation to section 4 of the Act,
‘dominant position’ means a position of strength, enjoyed by an enterprise, in
the relevant market, in India, [emphasis supplied] which enables it to operate
independently of competitive forces prevailing in the relevant market or
affect its competitors or consumers or the relevant market in its favour. Thus,
the plea advanced by the opposite parties contending the relevant market to
be global is ex facie contrary to the express provisions of the Act and has to be
rejected.
Similarly, in combination proceedings, the CCI will only look at overlaps between the
parties in India and not global overlaps. While in the Coal India case, the CCI, apart from
the technical reading as stated above, noted that coal from outside India is not
substitutable with coal produced by Coal India, the observations in this case will have
ramification in industries such as global process outsourcing, information technology
sector, etc. where Indian companies face stiff competition from global companies since
the situs of the client is not a relevant factor in such industries.
[3] Online versus Offline Distribution Model
It will be discussed in detail in Chapter II that issues with respect to online versus offline
modes of distribution are one of the hotly contested topics in competition law in India.
One of the issues which has come up for determination is whether two modes of
distribution, i.e., online on one hand and brick and mortar on the other, can be
considered as two relevant market or are they a part of the same relevant market. It is
relevant to take note that CCI has noted that the online e-commerce platform cannot be
considered as a separate market. The online e-commerce platform would be considered
as a ‘distribution network’ through which the ‘products’ can be sold and would not be the
P 39 ‘relevant product market’ in itself. In the case of Ashish Ahuja v. Snapdeal.com and
SanDisk Corporation, (25) it was alleged that the informant was unable to sell SanDisk
products over snapdeal.com and an NOC was required from SanDisk before the products
could be sold on snapdeal.com. In this context, the CCI determined that the relevant
market would be portable small-sized consumer storage devices that include USB pen
drives, SD Memory Cards and Micro SD Cards based on the intended use and price. The
CCI further held that the offline and online markets are different channels of distribution
of the same product and are not two different relevant markets. The relevant
observations of the CCI are as under:
The Commission also notes that both offline and online markets differ in terms
of discounts and shopping experience and buyers weigh the options available
in both markets and decides accordingly. If the price in the online market
increase significantly, then the consumer is likely to shift towards the offline
market and vice versa. Therefore, the Commission is of the view that these two
markets are different channels of distribution of the same product and are not
two different relevant markets.
Therefore, the relevant product market would be the market for sale of the respective
products in question. As far as the relevant geographic market is concerned, the CCI has
held that if the condition of supply of the product in question is uniform and homogenous
throughout the country, then the relevant geographic market will be the market of India.
(26) Generally, all the companies whose products are listed on the online site have a huge
distribution network to be able to cater to customers all across the country. Therefore,
there are adequate distribution facilities available in terms of section 19(6) of the Act.
Consumers all across the country also prefer the products with different characteristics
and features. Furthermore, all the companies operating in this segment are not only
looking at urban customers but also are looking at the customers in the tier 2 and tier 3
cities to improve their turnover and reach. With the advent of the online e-commerce
platforms and the e-stores of companies it is easier for the consumers to be able to have
access to the products from across different regions.
Another issue which has come up before the CCI is whether a product of a single brand in
online market can be regarded as a separate market in itself. The CCI has held that it
would be incorrect to determine the products of a single brand on the online e-
23
commerce platform as the relevant product market. (27) The CCI has also held in the case
of Sonam Sharma v. Apple Inc. and others (28) that it finds it difficult to define the
relevant market as just consisting of iPhones and held that such single brand markets are
rarely tenable. As already mentioned, the purpose of defining the relevant market is to
P 40 identify which products and services operate as a competitive constraint on the
behaviour of the suppliers of those respective products and services. Therefore, it may
not be correct to determine the relevant market as only the product of a company on the
online e-commerce platform.
[4] Aftermarket versus Unified Systems Market
In the Automobile spare parts case (discussed in Chapter III), the Director General
concluded that the relevant market would be the aftermarket for spares of automobiles.
The reason adopted by the Director General was that once a customer purchases a car, he
is locked in and he is forced to buy the spare parts of the same brand since spare parts
on one brand are not substitutable with spare parts of other brand. In such an
aftermarket, each automobile manufacturer was dominant in respect of its respective
spares since a customer who purchases a car, cannot substitute spares of a different
manufacturer and is locked into the aftermarket suppliers of OEMs. This case best
illustrates a concept of the relevant market being an aftermarket of a primary product.
Consider the said example: a consumer wishes to buy a car. When he is exploring the
options to buy a car, he has several options at each price segment, but once he has
purchased the car, the consumer is ‘locked in’ and has to use the spare parts of that
particular OEM (for instance, a consumer who has bought a Maruti car cannot use spare
parts of Volkswagen and or avail of the services of an authorized dealer of Ford). In such
cases, there is a presence of two different markets: one a primary market and another,
the aftermarket. While determining whether the relevant market can be an aftermarket of
a primary product, it has to be seen whether a consumer can shift the primary product
when the prices of the spare parts of the said primary product goes up, without incurring
substantial shifting cost. The CCI observed that consumers cannot change the car (i.e.,
shift from say, Volkswagen to Ford) if the prices of spare parts of Volkswagen go up
exponentially. Further, due to the technical specifications and the complex engineering
used to manufacture each brand of cars by the OEMs, the spare parts of one brand is not
compatible with that of another brand and therefore the products in the secondary
market for spare parts are not interchangeable with those of the primary market and
therefore they constitute distinct relevant product markets. Based on the above and
based on actual economic evidence, the CCI came to conclusion that the relevant market
is the aftermarket for supply of spare parts, technical designs for each OEM separately.
The reasoning of the Director General was agreed in toto by the CCI. It was argued by the
car manufacturers that a consumer purchases a car and accepts that he may incur
maintenance costs towards spares for these cars. It was also contended that consumers
would adopt life cycle costing. However, the unified systems market proposed by the car
manufacturers was rejected and CCI held that to undertake a life-cost analysis, it was
crucial that data for life-cost analysis is available with the producer, and, at the time of
purchase product in the primary market, consumers can compute cost likely to be
incurred during the life span of the product. Based on these two parameters, the CCI
concluded that manufacturers were unable to demonstrate that they could, or consumers
could, compute life-span costs and hence, rejected the systems market contention.
P 41
While in the Automobile spare parts case, the Competition Commission did not agree with
the unified systems market, in a later case, they agreed that a unified systems market
may exist. In the case of Trend Electronics v. Hewlett Packard Sales Pvt. Ltd. (29)
(hereinafter referred to as the HP case), it was argued by the informant that there was
deficiencies in the after-sales services provided by Hewlett Packard (HP). The Informant
has submitted that laptop is the primary product in the instant case and the market for
repair, maintenance and after-sales services is the secondary market. While the order
passed in HP case is silent, it seems like the informant must have relied on the reasoning
laid down by the CCI in the Automobile spare parts case. Having said that, the CCI, in the
HP case, did not agree that there is a separate market for aftermarket in case of laptops.
It noted that although the informant had submitted that the relevant market as the
secondary market for repair, maintenance and after-sales services, no justification had
been provided for considering the secondary market as a separate and distinct relevant
market. Further, the CCI noted, based on information available/accessible in public
domain, that a consumer purchasing laptop could reasonably ascertain the total cost
that he is likely to incur during the life cycle of the laptop. Further, factors such as high
rate of obsoletion and low-life span of laptops suggested that any unfair business
strategy by the laptop manufacturers, in the after-sales services, is likely to affect the
sales of primary product. Further, the CCI noted that there are many options available to
resell used laptops and the customers can switch to substitutable products without
incurring substantial switching costs. Based on the same, we see that the orders of the CCI
in the Automobile spare parts case and HP case may seem contradictory. What is the
differentiator is perhaps the cost of the spares for each primary product to identify
whether such aftermarket exists.
24
[5] Lack of Scientific Sampling
The entire exercise of determination of relevant market is to identify the
products/services which are considered substitutable and also identify the competitive
constraints that the parties face. While the exercise is extremely pertinent in an abuse of
dominance or a merger control investigation, the orders of the CCI are silent as to
whether they conduct or appoint a third party to conduct a proper market survey of the
sector in question. Further, application of certain concepts like the SSNIP test is not
uniform by the CCI. While in some cases, the CCI relies on SSNIP test to determine market,
in others, they do not adopt the said test. The CCI must place more reliance on scientific
sampling in its analysis. While the CCI and Director General is hamstrung by resource
crunch in its economic and legal division, they can take assistance from independent
third parties to conduct its analysis in its investigations.
P 41
References
1) Appeal No. 19/2014.
2) Supreme Court Civil Appeal No. 7779 of 2010.
3) Meru Travel Solutions Private Limited (MTSPL) v. Uber India Systems Pvt. Ltd, Case No.
81/2015.
4) W.P.(C) No. 4159 of 2013.
5) Appeal No. 79/2012.
6) (2005) 2 SCC 431.
7) General Motor India Pvt Ltd v. CCI WP (c) No. 7087/2014 along with Honda Cars India Ltd
v. CCI and others, WP (c) No. 7321/2014 (and other matters).
8) (2013) 7 SCC 160.
9) BCCI v. CCI and another, Appeal No. 17/2013.
10) Chemists and Druggist Association v. CCI and another, Appeal No. 21/2014 (along with
other connected appeals).
11) Appeal No. 19/2014.
12) Himachal Pradesh Society of Chemist & Druggist Alliance & ors. v. Competition
Commission of India, APPEAL No. 58 OF2015.
13) Lafarge India v. CCI & Ors., APPEAL No. 105 of 2012 & I.A. No. 36/2013 (and 21 other
related appeals in this matter), paras 96-98.
14) Competition Commission of India v. SAIL and another (2010) 10 SCC 744.
15) Under s. 53A (1) (a) of the Act only certain orders mentioned therein are appealable in
the light of the dicta of the Hon’ble Supreme Court in the case of CCI v. SAIL and
another (2010) 10 SCC 744.
16) 2015 CompLR Vol. 2 391 (Delhi).
17) 2015 Vol 2 CompLR 420 (Madras):: MANU/TN/0689/2015.
18) National Competition Policy 2011, available at
http://www.mca.gov.in/Ministry/pdf/Revised_Draft_National_Competition_Policy_20
11_17nov2011.pdf.
19) Hitakshi Mittal, ‘Applicability of Competition Law: Principles on Public Sector
Undertakings: An Analysis of CCI Orders and Other Jurisdictions’ (CCI, January 2013)
http://cci.gov.in/images/media/ResearchReports/Applicability%20of%20Competiti
on%20Law%20Principles%2... (accessed 14 Feb. 2015).
20) Geeta Gouri, The Application of Antitrust Law to State Run Enterprises (SOEs) in India,
(Competition Commission of India)
http://cci.gov.in/images/media/presentations/CLandSOE_20100401142732.pdf.
21) Union of India v. Competition Commission of India, W. P. (C) No. 5770 of 2011.
22) MRTP Case No. 1/28 (C-97/2009/DGIR).
23) M/s Shivam Enterprises v. Kiratpur Sahib Truck Operators Co-operative Transport
Society Limited & Ors, Case No. 43/2013.
24) Vineet Kumar v. Ministry of Civil Aviation, Case No. 18/2013.
25) Case No. 17/2014.
26) Coal India Case, HT Media case Para 157; Shamsher Kataria v. Honda Cars, Case No.
3/2011.
27) Regard may be had to the decision in the case of Mohit Maglani v. Flipkart and others,
Case No. 80/2014 – the informant had argued that the relevant market would be the
specific product in question on the platform for e.g., ‘half girl friend’ book by Chetan
Bhagat on ‘Flipkart’. The CCI, however, held that each product cannot be considered
as the relevant product market.
28) Case No. 24/2011.
29) Case No. 92/2015.
25
Document information Chapter 3: Abuse of Dominance and Competition Law
Publication
§3.01 LEGISLATIVE FRAMEWORK
Section 4 of the Competition Act provides that no enterprise or group will abuse its
Competition Law in India: A dominant position. The said section regulates unilateral conduct. Dominant position has
Practical Guide been defined under the Competition Act as ‘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
Jurisdiction relevant market, in its favour’. (1)
India In India, the determination of ‘dominance’ is based on a qualitative assessment of the
prevalent market dynamics and the relative position of strength enjoyed by the market
participants. Section 4 of the Competition Act stipulates that practices such as
Topics imposition of unfair or discriminatory conditions on price in purchase or sale (including
predatory pricing), limiting or restricting the production of goods, denial of market
Antitrust access, and leveraging market position in one relevant market to enter into another
relevant market, shall amount to abuse of dominance.
The decisional practice suggests that the key analysis that is done by the CCI and
Bibliographic reference Competition Appellate Tribunal, to date, in analysing dominance cases is whether the
'Chapter 3: Abuse of enterprise under investigation has a position of strength. Such position of strength so
Dominance and enjoyed by the enterprise enables it to affect the competitors or consumer and the
Competition Law', in Abir market dynamics, in its favour.
Roy , Competition Law in There have been various indices which have been given under the Competition Act for
India: A Practical Guide, determining whether an entity is dominant. In light of the factors mentioned, the CCI
(© Kluwer Law looks at the market dynamics and behaviour of the enterprise under investigation to
International; Kluwer Law analyse whether the entity is dominant or not. Like the position in matured antitrust
International 2016) pp. 157 - jurisdictions, it must be noted that mere dominance is not bad under the provisions of
224 P 158 the Competition Act but it has to be proved that the dominant enterprise under
investigation has also abused its dominance. This is a marked departure from the earlier
legislative framework under the earlier competition law regime under the aegis of the
Monopolies and Restrictive Trade Practices Act, 1969, wherein emphasis was placed on
the size of the concerned player, rather than the actual abusive practice or conduct of
such a player.
Based on the definition of dominance and the scheme of the Competition Act, it is to be
noted that in every dominance investigation, there are three key elements which are
analysed by the CCI:
(A) Determination of relevant market.
(B) To analyse whether the entity under investigation is dominant in the relevant
market.
(C) If the entity is found to be dominant, whether the dominant entity has engaged in
any actions which can be considered as an abuse of dominant position under
section 4 of the Competition Act.
We have dealt in detail, the concept of enterprise and relevant market in Chapter 1 and
same is not repeated here for the sake of brevity. As such, it must be noted that the most
of the decisions are turned on the definition of relevant market and it is for this reason, a
substantial amount of analysis is done in every dominance investigation on the definition
of relevant market to be adopted.
As mentioned above, the first key ingredient in a dominance investigation is to analyse
whether the enterprise enjoys a dominant position. Section 19(4) of the Competition Act
provides for the list of factors which the CCI can take into account while determining
whether entity in question is dominant. We will deal with those factors, in detail, later in
this chapter.
§3.02 POSITION OF STRENGTH

The decisional practice of the CCI and Competition Appellate Tribunal would show that
they undertake a holistic analysis to understand whether the entity under investigation
enjoys a position of strength to influence the competitive forces prevelant in the market,
to its advantage. It is apposite to note the observations of the CCI in the case of MCX
Stock Exchange Ltd. v. NSE India Ltd (2) (hereinafter referred to as the NSE case):
‘The position of strength’ is not some objective attribute that can be measured
along a prescribed mathematical index or equation. Rather, it has to be a
rational consideration of relevant facts, holistic interpretation of (at times)
seemingly unconnected statistics or information and application of several
aspects of the Indian economy. What has to be seen is whether a particular
player in a relevant market has clear comparative advantages in terms of
financial resources, technical capabilities, brand value, historical legacy etc.
to be able to do things which would affect its competitors who, in turn, would
be unable to do or would find it extremely difficult to do so on a sustained basis
[emphasis supplied]. The reason is that such an enterprise can force its
26
P 159 competitors into taking a certain position in the market which would make
the market and consumers respond or react in a certain manner which is
beneficial to the dominant enterprise but detrimental to the competitors.
Thus, the approach of the CCI is that they analyse the comparative advantages enjoyed
by the enterprise vis-à-vis its competitors to check whether the enterprise, or its group, is
dominant. In addition to the comparative advantages, the analysis is whether such
advantages allows the enterprise to undertake certain activities (like low pricing) which
the competitors would find it difficult to follow the action on a sustained basis. By virtue
of the said observation and the approach taken by the CCI in the NSE Case, it seems to
have adopted the efficient competitor test for dominance investigations.
It is to be noted that the aspect of position of strength is not to be viewed in a snapshot
manner at a point of time but the assessment of position of strength has to be made over
a period of time. The CCI has noted that enterprise takes years to acquire a position of
strength and therefore, its conduct has to be examined over a period of time while
undertaking dominance investigations. The CCI has opined in the case of Belaire Owner’s
Association v. DLF Limited (3) (hereinafter referred to as the DLF Case) that an examination
of the dominant enterprise needs to be done over a period of time to examine whether a
case of abuse under section 4(2) of the Competition Act is made out. The relevant portion
of the order passed by the CCI in this regard is as follows:
It should be noted that dominance is neither acquired nor asserted in a
transient moment in time. It takes years for an enterprise to acquire a position
of strength and its conduct has to be examined over a period of time in most
cases to ascertain whether it constituted abuse. Use of snapshot data of
market shares or market presence based on current active stock figures would
give a false picture that, if applied in the context of the Act, may even cause
avoidable harm to the market [emphasis supplied]. Therefore, our assessment
of dominant position is by looking at the profile, presence and achievements
of DLF Ltd. over the years as well as its conduct, particularly in relation to
consumers, over a period of time.
To determine posiiton of strength, the defintion of dominance under the Competition Act
provides for two broad parameters which the CCI needs to look into, to identify whether
the enterprise in question enjoys a position of strength:
(a) Operate independently of competitive forces prevailing in the relevant market: A
market operates where there is an interplay of market forces of demand and
supply. Further, a market participant is constrained in its behaviour because of
various competitive forces prevelant in the market like other efficient competitors,
strong buyers, market structure, market entry, or any other relevant factors in the
concerened market. Further, a market participant may also constrained by other
factors like strict government regulations with respect to pricing etc. Therefore, for
the purpose of ascertaining dominance, it is important to examine the ability of an
P 160 enterprise to operate independently of such competitive forces prevalent in the
market, especially competitive forces generated by its rivals.
Further, an enterprise cannot behave in a manner which is totally lopsided in its
favour without keeping in to account the concerns of the other market participants,
unless the entity in question has an appreciable position of strength. As elaborated
earlier, the CCI and Competition Appellate Tribunal, in its decisional practice, has
always given emphasis on whether the enterprise has a position of strength, which
can be derived from its market share, financial muscle, regulatory barriers,
structural barriers emanating from the operations of dominant enterprise and other
operational barriers which have become entry barriers for new players in the
market. In this regard, it is apposite to note the approach of the CCI in the DLF case.
The CCI reviewed the agreements entered into between DLF and the buyers, in great
details. While analysing the competition law concerns emanating from such
agreement, DLF argued that such one-sided agreements entered into with buyers
are standard industry practices and all the players in the market follow such
practices. The CCI, however, did not give importance to the defence because it
noted that DLF is a market leader and a trendsetter and it is not bound by practices
of minor players. As such, after observing the market practice of DLF have the other
players aped the practice of executing one-sided agreements because they do not
have the competitive might of the dominant enterprise. As such, the CCI noted that
DLF has acted in a manner which has affected the competitor and consumer
behaviour, to its advantage.
Further, the CCI also noted that, under normal competitive market conditions,
having such one-sided agreements in place should result in loss of customers since
the consumers will shift to some other real estate builder, but such events are not
happening. This clearly amplifies the point that DLF is operating independently of
the competitive forces. The relevant observations of the CCI in this regard are as
follows:
DLF Ltd. has at one stage argued that the clauses in its agreement with
buyers are normal industry practices. We have already observed that
27
industry practices emanate from market leaders and are followed by the
rest. Such a market leader is not constrained to adopt practices initiated
by minor players. Under the facts and circumstances of the case, if DLF
Ltd. were to modify the format of its agreement and make it more buyer
friendly, it would be able to assert sufficient pressure on its competitors
to follow suit.
The moot point in this case and indeed the competition concern is that a
dominant builder / developer is in a position to impose such blatantly
unfair conditions in its ‘agreement’ with its customers and bind them in
such one-sided contractual obligation. In a competitive scenario, where
the enterprise indulges in such anti-consumer conduct, there is sufficient
competition in the market to provide easy alternatives for the consumer.
The competitive forces would ensure that the builder / developer would
soon face loss of customers, which would force it to become more
consumer-friendly. [emphasis supplied] However, only when a dominant
enterprise indulges in such conduct is there little hope for the consumers
P 161 because not only that enterprise indulges in such behaviour with
impunity but smaller competitors would want to enjoy as much
advantage by following the leader. Since a weaker competitor is not in a
position to take on the competitive might of the dominant enterprise, it
would rather emulate the dominant enterprise and take similar
advantage of the consumers.
It is evident that a company of this size, which has been operating at a
big scale much before any competitor came on the scene, would
automatically be a trendsetter in the sector in which it operates. All the
material and evidence on record confirms that DLF has been, and
continues to be, a market leader as a real estate service provider. As
such, it is DLF which would have initiated and developed the practices
which would have been followed by the later entrants, and over a period
of time could be considered as ‘industry practices’. Therefore, even
without taking into account the fact that being an industry practice
cannot be a defence for anti-competitive practices / conduct, DLF for
one certainly cannot claim the defence of having adopted an industry
practice for practices which are found to be anti-competitive and / or
abusive.
If an enterprise has the ability to influence its competitors or the
consumers in a relevant market, as demonstrated above, there could be
little doubt in its ability to influence the market itself in its favour. An
announcement of several large projects by DLF Ltd. at one go could make
its competitors react by holding some of their own projects to avoid
market saturation. Similarly, prospective consumers may defer their
demand in expectation of availability of projects to be offered by the
market leader. Thus, DLF Ltd. would be able to influence both the supply
and demand of projects in the relevant market. These possibilities
indicate that DLF Ltd. has a position of strength as envisaged in
Explanation (a)(ii) to section 4 of the Act.
(b) Affect its competitors or consumers or the relevant market, in its favour: This second
aspect is interlinked with the first condition. It is critical to find out whether the
entity can operate independently of other competitive forces emanating from
competitors and consumers. This limb of the definition deals with the between the
position of strength held by the enterprise concerned and the competitive process,
i.e., the way in which the concerned enterprise and other relevant stakeholders
interact on the market. Dominance is the ability to prevent effective competition
being maintained on the market and to act to an appreciable extent independently
of other players. Generally, in a competitive market, any behaviour of a market
participant will have a corresponding response from a counter party. For example,
if a market participant increased the price of its good or imposed unreasonable
conditions to the detriment of the counter party, the counterparty would chose the
product of the competitor of such market participant. Further, an increase in price
will also result in lowering of sales if there is a substitute good available in the
relevant market. However, when such behaviour is been imposed by the dominant
enterprise, the counter parties have no option but to abide by the conditions
imposed by such dominant undertaking. They are faced with a take it or leave it
proposition by such an enterprise. Similarly, in the event the dominant undertaking
P 162 starts undercutting the price of its product, the other players in the market have
no option but to follow suit, just to remain competitive in the market. An enterprise
which is capable of substantially increasing prices above the competitive level for a
significant period of time is generally in a position of strength and possesses the
requisite ability to act to an appreciable extent independently of competitors,
customers and consumers. Further, unlike enterprises in a market characterized by
effective competitive constraints, a dominant enterprise is able to price above the
competitive level and earn supra normal profits in the process. Further, dominant
enterprise can also maintain supra normal profits by reducing output and hence
28
escalating demand of the product. The key point is whether the enterprise can
conduct its business operations irrespective of the behaviour of the competitors, its
customers and consumers. If the answer is yes, then the enterprise/group will be
considered to be in a position of strength.
As was the case in the NSE Case, the competitors of NSE had no option but to follow
the practice of transaction waivers given by NSE just to remain competitive in the
market. In the process, apart from NSE, all the other competitors were incurring
heavy losses, to the extent of going out of the market. Therefore, the key analysis to
be done is whether the enterprise under investigation can affect the behaviour of
consumers or competitors to its advantage. On this aspect, the CCI made the
following observation in DLF case:
Another aspect of dominance given in Explanation (a) (ii) to section 4
relates to the ability of an enterprise to ‘affect its competitors or
consumers or the relevant market in its favour’. For example, an
enterprise may have the capability to not only operate independently of
competitive forces but may actually be in a position to influence its
competitors or consumers in the relevant market or the relevant market
in its favour. In a sense, this is a higher degree of strength where an
enterprise may be freely able to adopt price or non-price strategy to
overcome downward pressures on its profit from its competitors, or to
capture or bind consumers or to create a market environment that would
deter newer competition, both in terms of competing enterprises or rival
products [emphasis supplied].
This aspect of acting independently was also discussed in the case of Shamsher
Kataria v. Honda Siel Cars India Limited & Ors (4) (hereinafter referred to as the
Automobile Spare Parts case). The CCI, in this case, observed that the underlying
principle in the definition of a dominant position is linked to the concept of market
power which allows an enterprise to act independently of competitive constraints
prevalent in the market. Such independence affords such an enterprise with the
capacity to affect the conditions in the relevant market, in its favour, and to the
economic detriment of its competitors and consumers. The notion of independence,
which is the special feature of dominance, is related to the level of competitive
P 163 constraint facing the enterprise/group under investigation. For dominance to
exist, the enterprise or the group concerned must not be subject to effective
competitive constraints. In other words, it thus must have substantial market power.
Market power is generally noted in the matured antitrust jurisdictions as the power
to influence market prices, output, innovation, the variety or quality of goods and
services, or other parameters of competition on the market for a significant period
of time. In the Automobile Spare Parts case, the CCI relied on jurisprudence of
European Union to analyse the aspect of independence from the competitive forces
and noted the following:
Further, to understand the meaning of what amounts to the ‘capacity of
an enterprise to operate independently of competitive forces’, reliance
may be placed upon the EU Guidance on the Commission’s Enforcement
Priorities in Applying Article 82 EC Treaty to Abusive Exclusionary
Conduct by Dominant Undertakings (the ‘Guidance’) [(2009/C 45/02)]
provides that:
This notion of independence is related to the degree of competitive
constraint exerted on the undertaking in question. Dominance entails
that these competitive constraints are not sufficiently effective and
hence that the undertaking in question enjoys substantial market power
over a period of time. This means that the undertaking’s decisions are
largely insensitive to the actions and reactions of competitors,
customers and, ultimately, consumers. [emphasis supplied]
It is pertinent to note that the term independence does not mean that there is an
absence of any other competitor in the relevant market. It implies that the
enterprise in question does not face substantial competitive constraints from the
other competitors in the market and thereby the enterprise has the market power
to change the market dynamics in its favour.
The CCI as well as the Competition Appellate Tribunal has made their observations on
this point in the NSE case.
In this case, the NSE started giving repeated transaction fee waivers for transaction done
in the currency derivative segment. It must be noted that a stock exchange cannot
determine the price at which particular scrip will be sold in the market. A stock exchange
just provides a platform on which scrip can be traded. The stock exchange gets a
transaction fee for each transaction done on its exchange. Based on the same, it is
apposite to note that for a stock exchange, transaction fee is single most important
source of revenue. However, since NSE was providing transaction fee waivers for
transactions done in the Currency Derivative Segment, MCX-SX and other players which
offered a segment for Currency Derivatives had no other option but to follow suit and
29
provide waivers in the Currency Derivative Segment. In the process, the other players,
including MCX-SX incurred huge financial losses and depletion in their financial
resources. However, NSE continued to make supra normal profits because it had the
licence to operate in other segments (equity, futures/options and wholesale debt
market) from the securities regulator which MCX-SX did not have. In this factual
background, the Competition Appellate Tribunal noted the following with respect to
P 164 behavioural conduct of NSE, while establishing dominance:
The most relevant question was as to whether the NSE could continue with its
no transaction fee policy, as compared to its competitor MCX-SX. It is
absolutely clear that while NSE could continue because of its relative strength
in other segments, MCX-SX could not have continued with that policy and per
force it had to adopt the same policy of no transaction fees, as otherwise it
could not have even entered the market, forget about its sustenance in that
market.
Now that we have analysed the two limbs of the definition of a dominant position, it is
pertinent to take note that the CCI has observed in the case of Unitech (5) that there can
only be one enterprise that is dominant in a relevant market. In the said case, the CCI
held that because DLF was already dominant in the relevant market, no other entity
could be held to be in a dominant position. Further the language of section 4 of the
Competition Act is very different from Article 102 of the Treaty on the Functioning of the
European Union (in the light of which the Courts in Europe have held that there is a
collective dominant position that can be exercised by undertakings in Europe). In fact,
the CCI has also observed that section 4 also does not permit collective dominant
position. (6) Therefore, as the law stands today, the CCI will hold that neither can there be
more than one enterprise that is dominant in a relevant market nor can there be a
collective dominant position. Having said that, in a real world market place, there are a
number of examples where one will notice that in an oligopolistic market place there are
two big competitors in the market place and other players are small players in the
market. Some common examples that one can notice are Pepsi & Coca-Cola, Boeing &
Airbus, Visa & Master Card, Nestle & Hindustan Unilever, P&G & Hindustan Unilever, etc.
The Competition Act does not deal in the vacuum but deals in the manner in which the
enterprises operate in the market and the real impact faced in the market will also have
to be considered. Therefore, the practical realities of market should also be considered
under the Competition Act. (7) Therefore, in these markets it is possible that each of the
entities face competition from one another and to say that neither would be dominant in
a relevant market would not take into account the market dynamics. It is very likely that
the two enterprises are above the rest of the competitors and the rest of the competitors
are unable to compete with the two competitors and are forced to behave in the market,
based on the behaviour of the bigger players in the market.
§3.03 EXAMINING POSITION OF STRENGTH BY CONDUCT OF THE ENTERPRISE

The CCI and Competition Appellate Tribunal have examined the conduct of the enterprise
under investigation to analyse whether the enterprise enjoys a position of strength. In the
P 165 process, the authorities conclude whether the enterprise can operate independently of
the market forces. The Competition Commission has further observed that the market
leader enjoys a unique position in the market and it has the ability to influence the
market and it often lays down the rules of the game. Generally, such market power
naturally tends to be exercised by such enterprise to the detriment of the interest of its
competitors and consumers.
Both the CCI and Competition Appellate Tribunal have examined the aspect of position of
strength in detail, in the NSE case. The NSE case emanated from information filed by
MCX-SX relating to an allegation of predatory pricing by NSE by using its overwhelmingly
dominant position in the market for stock exchange services in India. NSE was providing
complete transaction waiver (zero pricing) in the Currency Derivative segment. It was also
alleged that NSE engaged in exclusionary behaviour by providing substantial reduction
in admission and trade related fees structure in Currency Derivative segment which was
aimed at: (i) eliminating competition from the Currency Derivative segment, (ii) to
discourage potential entrants from entering the relevant market for stock exchange
services, and (iii) to achieve the foreclosure of all competition in the market for stock
exchange services.
As mentioned above, NSE was given the regulatory licence by the Indian securities
regulator to operate in all segments of the stock exchange i.e., equity segment, futures
and options segment, wholesale debt segment and currency derivative segment.
However, the Informant, MCX-SX had licence to operate only in the currency derivative
segment. It was also alleged that strategy of NSE to providing transaction fee waivers,
admission fee and data-feed fee waivers and the low level of deposit requirements are
only in its currency derivative segment and are completely at variance with its conduct in
other segments. Such conduct of zero pricing followed by the NSE was aimed at
eliminating competition from the currency derivative segment. The other competitors in
the currency derivative segment, including MCX-SX had no option but to follow the
pricing policy of the NSE and provide transaction waivers and other benefits like low
30
deposit requirements, to sustain in the market, let alone remain competitive. In
providing such repeated waivers, MCX-SX and the other competitors incurred huge
financial losses to the extent of leaving the market. We will deal with the findings on
dominance and abuse of dominance by the CCI and Competition Appellate Tribunal later
in the chapter.
For examining position of strength, both the CCI and Competition Appellate Tribunal
raised the following questions to deliberate on the position of strength enjoyed by NSE
[A] Can NSE Sustain Zero Pricing Policy in the Relevant Market Long Enough to
Outlive Effective Competition?
The CCI looked at the financial statements of NSE and observed, on the basis of the
reserves, surplus and profits after tax on the balance sheet, that NSE has the capacity to
defer profits from the currency derivate segment, since they were earning supra normal
P 166 profits from the other segments. Further, based on the financial statements of NSE and
MCX-SX, the CCI also observed that, that the long-term risk of possible market failure in
the currency derivative segment of NSE is lesser compared to MCX-SX.
[B] Does the Policy of NSE to Provide Complete Transaction Waivers Make Any
Commercial Sense?
Based on the financial strength of NSE and its market conduct in the entire stock
exchange market, it was observed by the CCI and Competition Appellate Tribunal that the
policy of NSE to provide such waivers, only in Currency Derivative segment, does not
make any commercial sense. The only logic for deliberately incurring losses in the
currency derivative segment and providing such continuous and repeated waivers for
more than two years of operation was to eliminate competition in the currency derivative
segment. The CCI noted that the NSE was fully aware of its financial powers and noted
that in spite of providing transaction waivers only in the currency derivative segment, it
was recording a profit in excess of INR 300 crores. However, MCX-SX which was operating
only in the currency derivative segment was incurring huge losses and financial
depletion. The CCI observed that it is:
unthinkable that a professionally managed modern enterprise can afford such
financial complacency in the face of competition unless it is part of a bigger
strategy of waiting for the competition to die out. This complacence can only
point to awareness of its own strength and the realization that sooner or later,
it would be possible to start generating profits from the business, once the
competition is sufficiently reduced.
[C] Would the NSE Been in a Position to Provide Complete Transaction Waivers
Endlessly Had It Not Have Such Financial Muscle?
The CCI examined the market conduct and analysed the financial muscle that NSE
possesses. The CCI opined that NSE had undeniable advantages over its competitors and
they are in a position to continue with their conduct because of such strengths vis-à-vis
competitors. It is because of such financial strength which allows the NSE to continue
with its conduct and affect the competitors in its favour.
Based on the above parameters, the CCI noted that NSE is in a position of strength. Thus,
one can see that CCI looks at the conduct of the enterprise under investigation to
determine whether they are in a position of strength. It is worthwhile to note that while
the Competition Act does provide for indices of dominance, the CCI makes a holistic
assessment to find out whether the entity in question is operating independently of the
competitive forces. As such, the Commission, in the DLF case has also made an
observation that it can look at the factors outside the relevant market to analyse whether
the entity in question is operating independently and thus, enjoys a position of strength.
Thus, there may be situations that the relevant market is defined as Market X, but the CCI
can look into their past behaviour in Market Y and also their financial muscle of the
enterprise or its group to conclude that the concerned enterprise enjoys a dominant
position.
P 167
§3.04 INDICES OF DOMINANCE

As mentioned above, dominance is a position of strength enjoyed by an enterprise/group
which enables it to prevent effective competition being maintained in the relevant
market by behaving to an appreciable extent independently of its competitors, its
customers and ultimately of the consumers. Section 19(4) of the Competition Act provides
for certain indices which the CCI can take into account whole determining whether the
entity, under investigation, enjoys a dominant position or not. The CCI, in its advocacy
booklet on abuse of dominance, has noted that dominant position is the ability of the
enterprise to behave/act independently of the market forces that determines its dominant
position. In a perfectly competitive market no enterprise has control over the market,
especially in the determination of price of the product. However, perfect market conditions
31
are more of an economic ‘ideal’ than reality. Keeping this in view, the Act specifies a number
of factors that should be taken into account while determining whether an enterprise is
dominant or not. It is to be noted that in conducting a dominance analysis, it is relevant
to consider the market position of the alleged dominant enterprise, market position of
the competitors, barriers to entry and expansion, regulatory norms and buyer power. The
existence of dominance position may be derived from several factors which, taken
separately, may not necessarily be determinative.
Section 19(4) of the Competition Act reads as follows:
The Commission shall, while inquiring whether an enterprise enjoys a
dominant position or not under section 4, have due regard to all or any of the
following factors, namely:–
(a) market share of the enterprise;
(b) size and resources of the enterprise;
(c) size and importance of the competitors;
(d) economic power of the enterprise including commercial advantages over
competitors;
(e) vertical integration of the enterprises or sale or service network of such
enterprises;
(f) dependence of consumers on the enterprise;
(g) monopoly or dominant position whether acquired as a result of any
statute or by virtue of being a Government company or a public sector
undertaking or otherwise;
(h) entry barriers including barriers such as regulatory barriers, financial
risk, high capital cost of entry, marketing entry barriers, technical entry
barriers, economies of scale, high cost of substitutable goods or service
for consumers;
(i) countervailing buying power;
(j) market structure and size of market;
(k) social obligations and social costs;
(l) relative advantage, by way of the contribution to the economic
development, by the enterprise enjoying a dominant position having or
likely to have an appreciable adverse effect on competition;
(m) any other factor which the Commission may consider relevant for the
inquiry.
P 168
While the Competition Act provides for the indices for determining dominant position,
the CCI makes a holistic assessment to understand whether the entity under investigation
enjoys position of strength. As mentioned above, it can look at market situations in
different relevant markets too, for determining whether the entity under investigation
enjoys dominant position. (8) Even the Competition Appellate Tribunal has also observed
that there is no tick-the-box approach while determining whether an entity enjoys a
dominant position. There is no priority which is given to any factor enlisted under section
19(4) of the Competition Act while determining dominance. Now, we look at each factor
mentioned in the said section for determining dominance.
[A] Market Share

The analysis of the market position of the allegedly dominant enterprise vis-à-vis its
competitors provide insight into the degree of actual competition prevalent in the
relevant market. As a rule of thumb, as a first step, the CCI analyses the market share of
the enterprise under investigation to determine whether it has a dominant position or
not. Market shares provide useful first indications of the market structure and of the
competitive importance of various undertakings active on the market. In this regard, the
CCI has relied on jurisprudence of European Union in the Automobile Spare Parts case and
have opined that market share provide a useful first indication of the market structure
and of the relevant importance of the other competitors active in the market. (9)
In the event the enterprise under investigation has a high market share compared to
other competitors present in the relevant market, it will be noted by the CCI as an
indication of dominance, provided that such market share has been held for some length
of time. While there is no arithmetic guidance provided as to the minimum level of
market share which an enterprise must command to determine whether an entity is in a
dominant position or not, it has been generally seen that market share of more than 50%
gives a guidance that the entity is dominant. The CCI and the Director General have
generally relied on industry reports, consumer surveys, internal records of the companies
and other reports to determine the market share of the players in the relevant market.
For calculating market share, the CCI looks into both volume and value sales.
The primary reason for calculating market share is to determine the real market position
of the entity under investigation. While the Commission has always analysed the market
32
share in a dominance investigation, it has observed in numerous decisions (like the NSE
case and the DLF case) that the CCI looks into other factors under section 19(4) of the
Competition Act and does not limit only to market share to determine whether the entity
enjoys a position of strength. Even the CCI in the case of Ramakant Kini v. Dr L H
Hiranandani Hospital, Powai (10) held, while assessing the dominance of the Hiranandani
P 169 hospital in the relevant market for provision of maternity services by super speciality
and high-end hospitals within a distance of 12 km from the Hiranandani Hospital, held
that the market shares of an entity is ‘only one of the factors that decides whether an
enterprise is dominant or not, but that factor alone cannot be decisive proof of
dominance’.
While the CCI has noted that market share provide a first indicator about the market
success of the concerned enterprise in comparison to its competitors, it is not the sole
criteria for determining dominance. In the Automobile Spare Parts case, the CCI has noted
that market shares are the initial indications which are to be put in perspective in light of
the other factors mentioned under section 19(4) to make an overall assessment of the
market power of the firm under investigation. Even the CCI, in the DLF case, has noted
that:
The Commission has considered the issues relating to market share, which is
one of the important parameters for determining dominance. However, as is
evident from the provisions of Section 19(4), it need not necessarily be the
single predominant factor and often a host of other factors have to be
considered.
Further, if sufficient and undisputed data is not available to determine market
share in a credible manner, it becomes even more important to draw on other
corroborating data and analyse the other factors in even greater depth to off-
set the difficulties in working out sharply specified market shares on account
of data constraints, and / or to complement the market share when margins
between competitors are not wide enough in determining the strength of the
enterprise in terms of affecting market forces as set out in the explanation (a)
to Sec 4.
Further, it is to be noted that high market share (of say more than 50%) assume greater
dominance in a market which has a low level of concentration that in a relatively
concentrated but equally divided market. In this regard, it is apt to point out the
observation of the Report of the High Level Committee on Competition Law which noted
that:
But then, this ambiguity has a justification having regard to the fact that even
a firm with a low market share of just 20% with the remaining 80% diffusedly
held by a large number of competitors may be in a position to abuse its
dominance, while a firm with say 60% market share with the remaining 40%
held by a competitor may not be in a position to abuse its dominance
because of the key rivalry in the market [emphasis supplied].
[B] Strength of the Enterprise vis-à-vis the Competitors

As elaborated earlier, to determine dominance, it is essential for the CCI to analyse
whether the enterprise can operate independently and affect the competitors in its
favour. To analyse the same, the CCI analyses the competitive strengths of the enterprise
under investigation vis-à-vis the other competitors. The CCI, in the DLF order, has clearly
mentioned that it is critical to evaluate the relative position of strength in terms of the
size and resources of the enterprise vis-à-vis the competitors in a dominance
investigation. CCI also takes into account financial parameters like profit after tax, net
income, sales, capital employed, etc. The CCI made a very interesting observation in the
P 170 DLF case that the strength of the dominant enterprise vis-à-vis other competitors need
not be confined only to the relevant market but overall size and resources of the
enterprise and competitors in question. In this regard, it may be apt to note while the
market was defined in the DLF case to be limited to Gurgaon, the CCI actually looked into
the financial reserves of the entire DLF group as a whole. The relevant observation of the
CCI, in this regard, are as follows:
It is important to note that to evaluate the relative position of strength in
terms of the parameters of size and resources of the enterprise and size and
importance of the competitors given under section 19 (4) (b) and (c) of the Act,
it is not necessary to confine the evaluation only to the relevant market.
Indeed, to do that would defeat the very purpose of these parameters. It is the
overall size and resources of an enterprise or the overall importance of a
competitor that has to be compared to see comparative position of strength
and not the limited manifestation of that strength in a particular product or
geographic market.
The CCI also discussed in the detail the issue of competitive strengths of the enterprise
vis-à-vis its competitors in the case of HT Media Ltd v. Super Cassettes Ltd (11) (hereinafter
referred to as the Super Cassettes case). The Super Cassettes case was initiated due to
33
information filed by HT Media Ltd which runs a FM radio channel. The information filed by
the HT Media Ltd. alleged that Super Cassettes had abused their dominant position by:
(a) charging excessive amount as licence fees/royalty in licensing its copyright of
‘Bollywood’ movie songs; (b) imposing a minimum commitment charge irrespective of
actual needle hour; and (c) making conclusion of licensing arrangement subject to
acceptance of excessive licence fees and minimum commitment charge.
While determining the issue whether Super Cassettes were dominant in the relevant
market, the CCI took note on the industry in question and made the following
comparisons between Super Cassettes and other competitors to determine the
competitive strength of Super Cassettes:
(1) Income of Super Cassettes vis-à-vis its competitors.
(2) Purchase of rights by Super Cassettes (forty-eight Bollywood films in 2010 and 2011)
compared to its closest competitors (like Sony) which could not even purchase
more than ten to eleven films per year.
(3) Purchase of rights by Super Cassettes of all movies which had bankable stars i.e.,
top Bollywood stars. In this regard, the CCI observed that:
Furthermore, the opposite party has purchased a number of films of
bankable stars (as per the DG, investigation has found that the opposite
party has procured almost all the films of Sharukh Khan, Salman Khan
and Aamir Khan), and while the Commission notes that the purchase of
music rights of films which have ‘bankable’ stars does not guarantee that
the music is a hit, it has to be recognized that because of the presence of
‘bankable’ stars, the interest in such movies is a much more than a
normal film without superstars and therefore, the likelihood of its
success is more than a film which has lesser known actors. The
P 171 Commission, therefore, notes that the superior financial strength in
the market coupled with superior resources as in this case is an
important indicator of dominance of an enterprise.
Keeping these factors in mind, the CCI noted that Super Cassettes had a superior market
position vis-à-vis its competitors.
[C] Entry Barriers

The Competition Commisson of India, in its decisional practice of abuse of dominance,
has always looked into entry barriers while determining whether an entity is dominant or
not. The CCI has noted that low barriers to entry or expansion by actual or potential
competitors can deter a company from raising prices if expansion or entry would be
likely, timely and sufficient. Having said that, expansion or entry must be immediate and
of sufficient scope and magnitude to constitute an efficient competitive constraint on the
enterprise concerned
Barriers to entry can include not only legal barriers, but also advantages peculiar to the
dominant company. Barriers to entry will include all those behaviour patterns, which a
new entrant will have to follow, in order to be sustainable in the market. Such patterns
may be, because of the result of the dominant incumbent. The CCI also looks into account
the behaviour of the dominant undertaking, which may have become a market barrier.
For example, in the NSE case, NSE started providing transaction waivers only in the
currency derivative market. In such a situation where the rules of the game are set by the
dominant incumbent, a new player to arrive in the said market also has to provide
transaction waiver to start with to enter the market, leave alone being competiitve.
Entry analysis provides information on the significance of potential competitors for
competition in the market concerned and thus about market power and its durability – to
the extent such power is found. The relevant question to be asked here is whether entry
or expansion will pose a credible competitive constraint on the incumbent. The CCI
analyses whether the potential entrant, if any, will dilute the strength of the dominant
incumbent. If the potential entry will not dilute the strength, then entry barriers are too
high in the market. To determine whether a firm’s market power is durable, the CCI takes
into account whether the potential entrant is sufficient to preclude the exercise of
market power. Expansion or entry must also be sufficient to defeat the exercise of market
power, i.e., it must be large enough, and of a character, to constrain the behaviour of firm
alleged to be dominant or in possession of substantial market power, to a sufficient
extent. Further, the entry must be swift and within a short time frame to pose an effective
competitive constraint on the dominant incumbent.
As mentioned above, barriers to entry does not only include legal barriers to entry (like
applicable governmental rules and regulations on the number of players in the market or
any entry fees). For example laws/governmental regulations which limit the number of
P 172 market participants (like for example, the Adani case, discussed below), for example
by granting special or exclusive rights in the shape of concessions, licences or IPR.
Legislative measures that grant a single enterprise the exclusive right to perform a
certain activity excludes rivals and may lead to such an enterprise having a statutory
monopoly in a relevant market.
34
Barriers to entry will also include strategic barriers to entry which the potental entrant
has to overcome to provide a competitive constraint on the behaviour of the dominant
incumbent. Such strategic barriers will include barriers like high sunk costs, resources,
advertising and promotional expenses, distribution and supply network, vertical
integrration, innovation, research and development, inflow of huge capital which confers
a competiitve advantage on the dominant incumbent, which makes it difficult for the
other enterprises to enter the market and compete effectively with the alleged dominant
enterprise.
The CCI analysed the issue of such barriers in the Automobile Spare Parts case and the
Super Cassettes case. The Automobile Spare Parts case revolved around the issue of non-
availability of spare parts in the aftermarket. The CCI analysed the market and noted that
technical compatibility of a consummable secondary product (aftermarket i.e., spare
parts) is linked to the durable primary product (the car). The owner of the primary
product is locked in and has to necessarily use the spare parts/diagnostic tools
compatible with the car. Such technical compatibilty requirement is itself an entry
barrier of other competitors to enter the relevant market for aftermarket since they
would need to procure the relevant parts which are technically compatible with the
primary product to service the consumer. Further, the CCI also noted that by way of
agreements entered into with suppliers, the OEMs (i.e., manufactuers of the primary
products) have put in place restrictions to ensure that independent repairers do not have
access to such spare parts. The independent repairers require the spare parts and
diagnostic tools to effectively compete with the authorized dealers in the aftermarket of
repairs and maintenance for each brand of cars manufactured by the OEMs. By virtue of
network of agreements, it was observed in the market that suppliers of spare parts were
prohibhited by OEMs to supply the spare parts in the open market which can then be
readily procured by indepednent repairers or players who want to enter into the market
of repair and maintainance. However, in the given market situation, independent
repairers and new entrants will have to rely on the authorized dealers for the spare parts
and diagnostic tools. Based on the above facts, the CCI noted the following in the
Automobile Spare Parts case that:
During the course of investigation, the DG has discovered that many multi
brand service providers have stated that in the absence of the availability of
the spare parts of the OEM they have to either refuse the customers or get the
spare parts from the authorized dealers of the OEM after opening a job card
without actually getting the car service, in order to retain the customer.
Hence, the DG has concluded that the practice of the OEM acts as an entry
barrier for independent repairers to undertake repairs of the cars of the OEM.
Based on the submissions of the independent repairers and the investigation
of the DG, the Commission is of the opinion, that in the absence of the
availability of genuine spare parts and diagnostic tools that are compatible to
carry out effective repair work on the various models of automobiles
manufactured by the OEMs, the independent repairers are foreclosed to
P 173 compete effectively with the authorized dealers of the OEMs. Therefore,
such practices of the OEMs amounts to creation of entry barriers for the
independent service providers in the Indian automobile aftermarket.
Even in the Super Cassettes case, the CCI had noted there are significant strategic barriers
to entry in the market. It was noted that to be successful in the business of licensing of
music, music rights have to be purchased (the purchase price can go upto INR 10 crores)
and massive investments, in form of sunk costs and acquisition costs, are required for
promotion of the music. Significant costs are also incurred by each player in the market
to establish an efficient distribution network. Further, a new player, to be an efficient
competitor on the dominant incumbent, has to build a repertoire of music which takes
considerable amount of time and requires massive investments. The CCI further analysed
that, for a new entrant to act as a effective competitive constraint on the behaviour of the
dominant enterprise, such entry must be done within a quick time span. Based on the
above, the CCI, in the Super Cassettes case, noted that there are high barriers to entry.
[D] Buyer Power

One of the factors mentioned under section 19(4) of the Competition Act is the
dependence of consumers on the enterprise. Buyer power is an essential factor to
consider in case of dominance investigations. A firm with a high market share may not be
able to raise price or wield market power if the counterparty is a large and effective
buyer. Buyer power has been identified as the ability of the buyer to influence the terms
and conditions on which its purchases goods. The key factors to be taken into account
while determining buyer power is the size and resources of the buyer, switching costs and
presence of an effective substitute. The CCI analysed the issue of buyer power in detail in
the Automobile Spare Parts case, DLF case and Super Cassettes case.
As elaborated earlier (while deliberating on entry barriers), the CCI had noted, in the
Automobile Spare Parts case, that there is limited interchangeability of spare parts
between the automobiles manufactured by various OEMs. The limited interchangeability
was because of difference in technical features between car manufactured by each OEMs.
35
In the light of the fact that there is no tehcnical compatibility between spare parts
manufactured for each OEMs, each consumer of an OEM is completely dependent upon
the concerned OEMs. Further, the OEMs, through a network of contracts with their
suppliers, have ensured that they are the sole supplier of the spare parts and diagnostic
tools used to repair their brand of automobiles in the aftermarket. Therefore, the
independent repairers, who are consumers of the OEMs, in the aftermarket for spare parts
and diagnostic tools are also solely dependent upon such enterprises.
Similarly, in the DLF case, the CCI noted that the consumers have very little or no
countervailing buying power. The CCI further noted that there are very few
developers/builders of luxury, high-end apartments and thousands of prospective
buyers. Such market conditions would ensure that consumers will be the price takers and
P 174 would have no option but to accept any conditions that are imposed upon them by the
developer. In such a market, any seller in a position of strength would have no need to
sacrifice its producer’s surplus to meet competition. In fact, the market followers would
find it advantageous to adopt similar price and non-price strategies as the market leader
since in such a market, the consumer does not possess much market power.
Also, in the Super Cassettes case, the CCI noted that there is no effective buyer in the said
market, keeping in mind the following factors:
(1) Based on the available statistics of Top 100 and Top 20 songs/music broadcast on
radio, Super Cassettes owned a majority of the music labels and that it has 58%
share of the top 100 songs played on private FM channels. Apart from the market
share, the CCI noted the vast repertoire of Super Cassettes, which comprised of
Bollywood music which is extremely popular with the listener and resultantly
popular with the advertisers. Due to such popular content, Super Cassettes
commanded a position of strength. Given such market dynamics, the CCI noted that
the customers of Super Cassettes are heavily dependent on the music content of
Super Cassettes.
(2) Further, as discussed above, the CCI noted that Super Cassettes imposed a
minimum commitment charge ranging from 30%–50% of play out which radio
stations are required to pay irrespective of whether they play that amount of music
on the FM stations or not. Apart from Super Cassettes, there was no other music
provider which imposed a charge like the minimum commitment charge. Further,
the CCI also analysed the evidence on record which suggested that the radio
stations had showed a strong resistance initially to the imposition of minimum
commitment charge by Super Cassettes. In spite of such resistance, minimum
commitment charge continued to be imposed by the Super Cassettes on the radio
operators. As such, one of the radio stations, Radio City terminated its contract with
Super Cassettes due to imposition of such unfair conditions like the minimum
commitment charge. After a lapse of some time post the termination, it entered
into a fresh contract with Super Cassettes having the same earlier clause of
imposition of minimum commitment charge, which incidentally was the reason why
the earlier contract was terminated. The CCI noted the statements made by Radio
City to the Director General, during the investigation process, and observed that the
business of Radio City was hampered post the termination of their agreement with
Super Cassettes. Radio City was not able to broadcast a huge repertoire of music
owned by Super Cassettes. Further, during that relevant period when Radio City was
not broadcasting the music of Super Cassettes, the other radio stations were
performing considerably better than Radio City in terms of revenues as Radio City
did not have the licence to play the music of Super Cassettes. Radio City’s response
is also an evidence of the fact that the radio station could not effectively compete
without playing the music of Super Cassettes.
P 175
[E] Statutory Monopoly

The Competition Act provides that the CCI can analyse the behaviour of enterprise who
have acquired their dominant position because of a statute or a governmental
policy/regulation. These are enterprises where dominance is acquired as a result of the
policy of the government. In fact, the CCI has analysed the behaviour of Coal India in a
vast number of cases. Coal India is a public sector undertaking which has a monopoly due
to a policy of the government. In the Coal India case, it was noted by the CCI that the
dominant position of Coal India is acquired as a result of the policy of Government of
India by creating a public sector undertaking in the name of Coal India Limited and
vesting the ownership of the private mines in it. It is to be kept in mind that the matter is
presently being analysed by the Competition Appellate Tribunal and one of the major
issues which are being looked into by the Tribunal are due process issues. In any event,
the substantive analysis of the CCI gives an insight into the regulatory outlook in case of
abuse by stateowned enterprises.
Further, the CCI also noted the conduct of Coal India and held that they are a dominant
entity, not only because of its status of the statutory monopoly, but also because of its
conduct towards their customers. While analysing the market dynamics in the case, the
Commission noted that the National Coal Distribution Policy had laid down that the
power sector are to be supplied 100% of their normative requirement. Inspite of the
36
mandate laid down in the National Coal Distribution Policy, Coal India had been able to
decide the quantity of coal to be supplied based on it commercial feasibility and
entering into one-sided Fuel Supply Agreement and MOU with its buyers. Further, Coal
India had also entered into one-sided fuel supply agreements with its customers where
Coal India was eligible for incentives even if their supplies were below 100% requirement
(as mandated under the National Coal Distribution Policy). Such factors showed that Coal
India was dominant. We will deal with the abuse, as mentioned by CCI in the Coal India
case, in the later parts of the chapter.
Similarly, the issue of a monopoly created because of a government regulation was
discussed in the case of Faridabad Industries Assocaition v. Adani Gas Limited (12)
(hereinafter referred to as the Adani Gas case). The Adani Gas case was initiated due to an
information filed by Faridabad Industries Assocation. It was alleged that Adani Gas
Limited, being the dominant player in the market of supply and distribution of natural
gas in the region of Faridabad, had put unconscionable terms and conditions in Gas Sales
Agreement. Such terms made the Gas Sales Agreement totally unilateral and lopsided
and heavily tilted in favour of Adani Gas Limited. It was further alleged that Adani Gas
Limited, in the garb of executing the said Gas Sales Agreement, had imposed its diktat
upon the buyers of natural gas, who are members of Faridabad Industries Association.
Based on the industry in question, the CCI noted that Adani Gas Limited has a 100%
market share since it is the only entity which is authorized under the relevant law and
P 176 government regulations to set up and operate a city gas distribution system in the city
of Faridabad. We will deal with the abuse part as discussed by the CCI in the Adani Gas
case in the later portions of the chapter.
[F] Using the Regulatory Power to Enter Commercial Activities

The CCI, has grappled with the issue of a regulator entering into commercial space. Such
overlap has been found by the CCI in the sports sector. There have been two dominance
investigations against Board for Control of Cricket in India and Hockey India. In both the
cases, the the cricket board and the hockey board were using their dominance, being a
regulator, to enter into commercial activities like grant of franchisee rights, media rights.
It is to be noted that CCI has found that Board for Control of Cricket in India had abused
its dominant position. When the matter went up in appeal, as discussed in Chapter I,
Competiiton Appellate Tribunal remanded the matter back, on issue of due process and
legal value of the evidences relied on by the Commission, while deciding the case. The
aspect of due process and natural justice were highlighted in Chapter 1.
Having said that, one must take note of the observations of the CCI and Competition
Appellate Tribunal in the case of Board for Control of Cricket in India and Hockey India
when they deal with the issue of a regulator also intruding into commercial activities. The
relevant observations are as follows:
Board for Control of Cricket in India
Undoubtedly the most significant source of dominance is the regulatory
powers of BCCI [emphasis supplied]. BCCI is a monopoly in organization of
cricket is axiomatic as BCCI is the de-facto regulator of the game. But the
assessment of dominance of BCCI in the market for Organisation of Private
Professional Leagues needs examination. The Commission takes cognizance of
the pyramid structure and notes that monopoly of sports federations is a
natural outcome of the structure. The merits of pyramid structure in sports
permits uniformity in application of rules of the sport, orderly development of
the sport, keeping the sport free from the taints of doping and corruption etc.
as has been discussed. It is equally important to note that a number of
matters that are dealt with under the pyramid structure may not necessarily
be inherent and proportionate to the achievements of purely sporting
objectives; rather they contain a strong commercial dimension, especially
related to club rules or the statutes.
Hockey India case
Undoubtedly in the defined market, the most significant source of dominance
is the regulatory powers of HI [emphasis supplied]. HI is a national association
for hockey in India within the pyramid and in this capacity is vested with
certain rights by FIH, prime among them is the right of HI to sanction/approve
hockey events in India. This right to approve leagues has significant impact on
any private professional league which might be proposed to be organized. The
HI’s [Hockey India] regulatory role empowers it, along with FIH to create entry
barriers for other leagues in the form of requiring rival leagues to obtain
sanctions for their tournament and requiring players to obtain NOCs from HI to
participate in rival tournaments [emphasis supplied]. The aspects of granting
sanctions for a league and giving NOCs for participation are regulatory in
P 177 nature, but are in a clear position to impact the market for organising
events and are a vital source of dominance.
Dominance also stems from the role of HI as an organizer of International
hockey events. With this role, HI controls a pool of players that sign the CoC
37
agreement for playing in such events. Players are a vital input to the
organization of any sport and ability to control top players lead to dominance
of HI. 10.10.4. The Commission also considered the cases settled in other
jurisdictions inthis aspect. In the ELPA Case, the Court on the issue of
dominance of sports association insisted that, ‘… a system of undistorted
competition, such as that provided for by the treaty, can be guaranteed only if
equality of opportunity is secured between the various economic operators.
To entrust a legal person such as ELPA, the National Association for
Motorcycling in Greece, which itself organizes and commercially exploits
motorcycling events, the task of giving the competent administration its
consent to applications for authorization to organize such events, is
tantamount de facto to conferring upon it the power to designate the persons
authorized to organize those events and to set the conditions in which those
events are organized, thereby placing that entity at an obvious advantage
over its competitors. Such a right may therefore lead the undertaking which
possesses it to deny other operators access to the relevant market.’
The above factors clearly demonstrate the factors which the CCI takes into account while
determining dominance. While the factors laid down under section 19(4) of the
Competition Act is indicative, the Commission looks into all factors, including the
behaviour of the dominant undertaking to determine whether the entity derives a
position of strength.
§3.05 ABUSE OF DOMINANCE

It must be noted that the Competition Act provides that only abuse of dominance is in
violation of the provisions of the Competition Act. An enterprise merely holding a
dominant position is not a violation of the Competition Act. Section 4 of the Competition
Act provides for the following:
Abuse of dominant position
4.
(1) No enterprise or group shall abuse its dominant position.
(2) There shall be an abuse of dominant position under sub-section (1),
if an enterprise or a group].—-
(a) directly or indirectly, imposes unfair or discriminatory—
(i) condition in purchase or sale of goods or service; or
(ii) price in purchase or sale (including predatory price) of
goods or service.
Explanation.— For the purposes of this clause, the unfair
or discriminatory condition in purchase or sale of goods
or service referred to in sub-clause (i) and unfair or
discriminatory price in purchase or sale of goods
(including predatory price) or service referred to in sub-
clause (ii) shall not include such discriminatory
condition or price which may be adopted to meet the
competition; or
(b) limits or restricts—
(i) production of goods or provision of services or market
there for or
P 178
(ii) technical or scientific development relating to goods or
services to the prejudice of consumers; or
(c) indulges in practice or practices resulting in denial of market
access in any manner; or
(d) makes conclusion of contracts subject to acceptance by other
parties of supplementary obligations which, by their nature or
according to commercial usage, have no connection with the
subject of such contracts; or
(e) uses its dominant position in one relevant market to enter
into, or protect, other relevant market.
The CCI has held that types of abuses identified under section 4(2) of the Competition Act
is exhaustive and not illustrative. However, considering the language, structure and the
overall purpose of the Competition Act, it is felt that the kinds of abusive conduct
mentioned in section 4(2) are only specific instances of abuses and not exhaustive of all
the abusive conducts covered under section 4.
The substantive contravention of abuse of a dominant position is covered under section
4(1) which reads – ‘No enterprise or group shall abuse its dominant position’. It would be
interesting to note that the statutory scheme under sections 3(1), 4(1) and 6(1) are the
38
same:
Section 3 (1) – ‘No enterprise … shall enter into any agreement … which
causes or is likely to cause an appreciable adverse effect on competition
in India’
Section 4 (1) – ‘No enterprise or group shallabuseits dominant position’
Section 6 (1) – ‘No person or enterprise shall enter into a combination
which causes or is likely to cause an appreciable adverse effect on
competition in India.’
The language of the three provisions is uniform and similar and a perusal of these
provisions would demonstrate that the substantive obligations are covered under
sections 3(1), 4(1) and 6(1). The provision stipulate that the enterprises should not enter
into any agreement causing or likely to cause an appreciable adverse effect on
competition in India or abuse its dominant position or enter into a combination causing
or likely to cause and appreciable adverse effect on competition in India. This is also
further demonstrated by section 19(1) of the Competition Act which states ‘The
Commission may inquire into any alleged contravention of the provisions contained in
sub-section (1) of section 3 or sub-section (1) of Section 4 …’ Therefore, the Competition Act
supports the view that the contravention that the CCI will inquire into is a contravention
under section 4(1). Therefore, the scheme of the statute clearly provides that the
substantive obligation is enshrined in section 4(1).
Also, sections 3 and 6 where the agreements or combinations having or likely to have an
appreciable adverse effect on competition in India are declared void under sections 3(2)
and 6(1) respectively, section 4 does not have any such similar provision. Sections 3 and 6
are concerned with the ‘effects’ of an agreement or a combination. However, under
section 4 because of the dominant position enjoyed by an enterprise, the legislature in
its wisdom has decided that an ‘enterprise’ shall not ‘abuse’ such a position. The
P 179 emphasis under section 4(1) is on ‘abuse’ and although the word ‘abuse’ has not been
defined under the Act, the legislature has wisely left it open to be decided on a case-to-
case basis because the ‘nature and type of abuse’ may differ with time and depending
upon the market in question. Therefore, under section 4(1) a substantive obligation has
been imposed upon the dominant enterprises not to abuse ‘its’ dominant position.
The CCI has also correctly held in the Hiranandani case (discussed in Chapter II above)
that section 3(1) is the genus and agreements covered under sections 3(3) and 3(4) are but
particular species of agreements that will otherwise be covered under section 3(1) and
that agreements not falling within section 3(3) and 3(4) will still fall under section 3(1).
This logic equally applies in the case of section 4.
Section 4 provides the substantive obligation that an enterprise cannot abuse its
dominant position. Section 4(2) identifies certain conduct as abusive in nature for the
purposes of section 4(1). It reads – ‘There shall be an abuse of dominant position under
sub-section (1), if an enterprise or group’ undertakes any of the actions mentioned
therein. Section 4(2) independently does not exhaustively identify all the abusive
conduct under section 4(1), it only states that the specific conduct identified in section
4(2) are considered to be an abuse of dominant position. Therefore, conduct that is
abusive in nature will still be covered under section 4(1) as the emphasis is on ‘abuse’.
The natural meaning of the term ‘abuse’ would be applicable. If it were to be held that
section 4(2) is exhaustive then it would result in holding section 4(1) nugatory and otiose.
It has been held by the Hon’ble Supreme Court in a large number of cases that
interpretation will be adopted which would give meaning to a provision rather than to
hold it nugatory (from the legal maxim ut res magis valeat quam pereat). Therefore, the
statutory scheme of section 4 and the legislative scheme of the Competition Act would
demonstrate that the abusive conduct mentioned in section 4(2) is not exhaustive but is
merely illustrative of certain kinds of abusive conducts.
The Competition Act provides for a list of conduct, which are enlisted as an abuse of
dominant position. A bare reading of section 4 of the Competition Act would imply that
such actions are per se an abuse of dominant position, and there is no scope of defence
(like objective justification) in an abuse of dominance investigation. The limited defence
mentioned under the Competition Act would be the meeting competition defence for
abuse of unfair pricing. Having said that, the CCI has taken into account defences raised
by dominant players in their behaviour and analysed whether on the facts and
circumstances of the case, such defences can be accepted as valid business defences.
While the wording of the Competition Act may show that principle of strict liability is laid
down and no effects have to be seen, The CCI has incorporated the effects doctrine in its
analysis of dominance investigations. In this regard, it is apposite to note the
observations of the CCI in the case of Dhanraj Pillai v. Hockey India: (13)
Commission opines that proportionality of the regulations can only be
decided by considering the manner in which regulations are applied [emphasis
P 180 supplied]. It is the manner of applying regulations that raise competition
concerns as it may be used as a tool for foreclosing new entrants.
It is to be noted that even the Report of the High Level Committee on Competition Law,
39
which preceded the Competition Act noted that the dominance investigation should be
undertaken based on the effects doctrine. The key issue that needs to be analysed is
whether the conduct of dominant enterprise is harming the competitive process
prevalent in the relevant market. The relevant observations of the report are as under:
Discriminatory behaviour and any other exercise of market power leading to
the prevention, restriction or distortion of competition would obviously be
included. We probably need to clarify that there is a fine distinction between
defending one’s market position or market share which is perfectly legal and
legitimate and may involve certain level of aggressive competitive behaviour
and exclusionary and anti competitive behaviour.
Key questions for adjudication on abuse of dominance could include:
– How will the practice harm competition?
– Will it deter or prevent entry?
– Will it reduce incentives of the firm and its rivals to compete aggressively?
– Will it provide the dominant firm with an additional capacity to raise
prices?
– Will it prevent investments in research and innovation?
– Do consumers benefit from lower prices and/or greater product and service
availability?
[emphasis supplied]
This approach taken by the report suggests that conduct in question must in the first
place have the capability, by its nature, to foreclose competitors from the market. To
establish such capability it is in general sufficient to investigate the form and nature of
the conduct in question. It secondly implies that, in the specific market context, a likely
market distorting foreclosure effect must be established. The competition law concern is
to prevent exclusionary conduct of the dominant firm which is likely to limit the
remaining competitive constraints on the dominant company, including entry of
newcomers, so as to avoid that consumers are harmed. This means that it is competition,
and not competitors as such, that is to be protected. By foreclosure is meant that actual
or potential competitors are completely or partially denied profitable access to a
market. Foreclosure may discourage entry or expansion of rivals or encourage their exit.
Foreclosure thus can be found even if the foreclosed rivals are not forced to exit the
market: it is sufficient that the rivals are disadvantaged and consequently led to
compete less aggressively.
We will deal with the abuses mentioned under each of the section and the manner in
which the CCI and the Competition Appellate Tribunal have analysed the various
headings of abuse mentioned in this section. It is important to note that the section is
applicable to both enterprise and group.
P 181
[A] Unfair and Discriminatory Pricing

Section 4(2)(a)(ii) of the Competition Act provides that there shall be an abuse of
dominant position if an enterprise or a group imposes unfair or discriminatory pricing in
the purchase or sale (including predatory pricing) of goods or service. It is to be noted
that there are two sets of pricing abuses: unfair and discriminatory. Unfair pricing is one
where the pricing conduct of the dominant player in unfair qua the other stakeholders in
the market, be it the consumers or other competitors. What is unfair or fair would depend
on the facts and circumstances of each case. Having said that, based on the decisional
practice of the CCI and Competition Appellate Tribunal, they would look at the harm the
pricing behaviour of the dominant enterprise causes to the ultimate consumer. Even
while undertaking a dominance investigation in the case of intermediate good which are
not consumed by the final consumer, the CCI undertakes a value chain analysis and sees
whether the unfair price, so charged, will have any impact on the final consumer. This
kind of value chain analysis was done by the CCI in the Coal India case.
Having said that, it must be noted that the CCI looks into the aspect of unfair pricing only
to see whether there is an abuse of dominant position, and not to see whether any
individual players are getting excluded from the market on grounds of their own
inefficiency. In this regard, it is apposite to note the observations of the CCI in the prima
facie order passed in the case of Fast Track Call Cab Private Limited v. M/s ANI
Technologies Pvt. Ltd (14) (hereinafter referred to as the Ola Prima Facie Order):
Though the Commission is not concerned with individual players getting
excluded from the market on grounds of inefficiency, but the exclusion
created because of abusive practices of a dominant entity in a relevant
market is covered under section 4 of the Act.
The wording of the section is unfair pricing and it would cover all instances of pricing
abuses like fidelity discounts, margin squeeze etc. The CCI, in the NSE case has alluded to
the efficient competitor test. The efficient competitor is the test where the Commission
40
will analyse, for price-based alleged abuses, whether a competitor, which is as efficient
as the dominant company, can compete against the pricing behaviour of the dominant
company. The question is asked whether the dominant company itself would be able to
survive the exclusionary conduct in the event that it would be the target.
The CCI, noted in the Super Cassettes case, that price abuses may be ‘exclusionary’ i.e.,
pricing strategies adopted by dominant firms to foreclose competitors. Such strategies
include a wide variety of measures, such as predatory pricing, price squeezes, loyalty
rebates etc. Pricing abuses may also be ‘exploitative’ i.e., which cover instances where a
dominant firm is accused of exploiting its customers by setting excessive prices.
Evidently, a dominant firm, under the Competition Act, abuses its dominance if it charges
‘unfair prices’ to its customers, which includes both unfairly high or excessive price and
unfairly low or predatory price.
P 182
Further, the clause also provides that discriminatory pricing is also an abuse. As the
name suggests, discriminatory prices are instances wherein the dominant enterprises
imposes different pricing parameters for a similar situated class of consumers, without
any intelligible differentia or rational business justification.
Further, section 4 provides that no enterprise or group will engage into any unfair pricing.
Therefore, there may be situations of margin squeeze where two enterprises belonging to
the same group and engaging in unfair tactic to remove their competitors in the
downstream market, which have no upstream presence. It is to be noted that the key part
to be analysed is whether the pricing strategy adopted by the dominant enterprise, or its
group, is unfair qua the competitors and consumers. The decisional practice of the CCI
and Competition Appellate Tribunal would show that it undertakes an analysis whether
the dominant enterprise, due to its position of strength, is engaged in practice where the
counterparties/competitors have no option but to follow the diktat of the dominant
enterprise. In the process, the market operates in the favour of the dominant enterprise.
We will discuss now the practices which have been identified by CCI and Competition
Appellate Tribunal as instances of unfair pricing. The aspect of excessive pricing was
deliberated by the CCI in the Automobile Spare Parts case and the Super Cassettes case.
Predatory pricing was deliberated by the CCI and Competition Appellate Tribunal in the
NSE case. Further, CCI is also presently investigating a case of differential pricing against
Ericsson. We will deal with the pricing abuses, as deliberated in these cases, in this
chapter.
[1] Excessive Pricing
The CCI, in the Automobile Spare Parts case and the Super Cassettes case, discussed the
issue of excessive pricing in great detail. While deliberating on the issue of excessive
pricing, the CCI relied on the jurisprudence of excessive pricing as laid down by European
Commission while analysing the test of excessive pricing under Article 102 (earlier 82) of
the EC treaty. The CCI, in the Super Cassettes case and the Automobile spare parts market
case, relied on the United Brand case decided by the European Court of Justice (15) which
held that a price charged is excessive if it has no reasonable relation to the economic
value of the product supplied. It was noted by the CCI that the European Court of Justice,
in United Brands proposed a cost-based test to assess the relationship between the
economic value of the product/service and the price charged for it by a dominant
undertaking. Based on international jurisprudence, CCI observed that the key issue to be
determined in an investigation of excessive pricing is whether the difference between the
costs actually incurred and the price actually charged is excessive, and, if the answer to this
question is in the affirmative, whether a price has been imposed which is either unfair in
itself or when compared to competing products. The CCI, relying on the United Brands case,
noted that the test for a claim under excessive pricing is two fold: the first stage of aims
P 183 to identify the profit margin of the dominant enterprise and second stage is to identify
whether the said profit margin is ‘excessive’. If it is, the second stage is to consider
whether the excessive price is unfairly high and consequently abusive. The first stage of
the test for exploitative pricing involves calculating the difference between the
production cost and the price of the product/service in order to identify the profit
earned by the dominant enterprise.
Although the legal test adopted by the European Court of Justice in the United Brands
case was adopted by the CCI, it noted in the Automobile Spare Parts case, the practical
difficulties while analysing the cost benchmarks and allocating costs. CCI noted that
analysis of costs is difficult considering an enterprise may have diverse production
techniques and market operations which incurs various categories of costs and working out
production costs may raise great difficulties, especially determining what costs should be
taken into account cost price ratio to show that price charged exceeds the costs incurred.
Further, practical difficulty in ascertaining costs would include an apportionment of the
indirect costs and general expenditure which may vary significantly according to the size
of the enterprise under investigation, its object, the group structure including its
relationship with its subsidiaries, its territorial area of operations and whether it is a
single product or a multi-product firm. A multi product enterprise will have common and
joint costs and how to allocate such costs to each area of operations is an area of
concern. The problem gets further compounded if multiple businesses are housed under
41
a single enterprise, instead of multiple enterprises in the same group.
As elaborated earlier, the Automobile Spare Parts case dealt with the aspect of non-
availability of spare parts in the open market by OEMs and substantial prices mark up on
spare parts by OEMs. The CCI undertook a detailed cost price comparison in this case. The
methodology adopted by the CCI, to determine whether there exists an abuse of
excessive pricing in this case, was as follows:
(a) Cost incurred by the OEMs to manufacture/source the spare parts: Based on the
investigation by the Director General, the CCI noted that the OEMs source their
components/spare parts to be used for the assembly line requirements as well as
aftermarket requirements primarily from the local OESs. Several components
assembled in the car are also imported from overseas suppliers. Therefore, the cost
of production of a spare part for an OEM is the price at which the spare part is
sourced from the OESs or the overseas suppliers. Since the OEMs source a majority
of their spare parts, both for assembly line and aftermarket requirements from
OESs’ or other overseas suppliers, a starting point for the cost price analysis used by
the CCI was the price at which the spare parts are sourced by OEMs from the OESs’
and other suppliers.
(b) Price charged by OEMs to analyse mark up: In order to analyse the mark up from the
point of the OEM to the final customer, the CCI undertook an analysis of the price
difference between the price at which the spare parts are sourced by the OEMs to
the price charged by OEMs to final customer. The said analysis was done on a
sample basis. It was noticed by the CCI, based on the investigation report of the
P 184 Director General, that the OEMs were charging an average mark up of 100% and in
some cases, the mark up was as high as 5000%.
The entire objective of the price cost analysis is to establish the profit margin of the
enterprise under investigation. As such, an enterprise merely having profit margin does
not itself indicate that the price is excessive. Every enterprise will charge a mark up to
ensure that their business is profitable. At which point of time, such profits margin
becomes a case of excessive pricing and thereby unfair will be dependent on facts and
circumstances of each case. It is very difficult to put down an arithmetic test as to what
percentage will the mark up be considered as excessive.
Section 4(2)(a)(ii) does not prohibit profit margins but prohibits unfair pricing. Having
said that, where it has been established that a price substantially exceeds the cost of
production, it is necessary to assess whether the difference is so great as to be
‘excessive’, triggering a review of the fairness of the ultimate price so charged. In the
Automobile Spare Parts case, the CCI noted that the concept of unfairness of a price is
related to the notion that such price is unrelated to the ‘economic value’ of the product and
that such price are being charged by the enterprise because of its capacity to use its market
power or position of strength in that relevant market to affect its competitors or consumers
in its favour [emphais supplied]. The CCI noted that mark ups of an average of 100% and
in some cases, mark ups are high as 5000% are disproportionate to the economic value of
the products supplied by OEMs. Further, the CCI noted that a case of unfair pricing has
been made out, considering the following characteristics of the industry:
(a) Procurement of spare parts is necessary, irrespective of the price: The CCI noted
that the actual cost of procuring the spare part is much lower than the price at
which they are being sold to the ultimate consumer. In spite of the same, the value
of such spare parts to the consumer is great, because without such spare parts, the
owner will not be able to effectively repair his automobile. The locked-in consumer
is forced to purchase spare parts in order to effectively render the much expensive
primary market equipment, i.e., the automobile itself, in a workable condition. In a
way, it can be said that when the demand of the goods in inelastic and therefore the
manufacture of that goods charges a high price and earns supra normal profits in
the process, such manufacturer can be said to be engaged in unfair pricing.
(b) Lack of effective competition in the aftermarket: The CCI noted that all the OEMs
have entered into agreements with their overseas suppliers and most of the local
OESs contractually prohibiting the suppliers from selling spare parts directly in the
open market. Therefore, the OEMs are the only source of availability of genuine
spare parts in the aftermarket. The OEMs require their authorized dealers to source
the spare parts only from the authorized dealers of the OEMs and further restrict the
over the counter sale of spare parts and diagnostic tools to independent repairers.
Such kind of restrictions had a twin fold effect: (i) it created entry barriers for the
OES who could produce matching quality spare parts by eliminating direct access
P 185 by OES from supplying genuine spare parts of an OEM in the aftermarket. In the
process, OEMs were foreclosing competition in the supply of genuine spare parts
and diagnostic tools for the various models of automobiles manufactured by the
OEMs; and (ii) the independent repairers were foreclosed from having genuine spare
parts from the market to effectively repair the automobile. By having such a
restriction, the independent repairers failed to pose an effective competitive
restraint on the OEMs and its dealers in the market for repair and maintenance.
Based on these industry dynamics, the CCI opined that:
‘in analyzing the unfairness of the prices charged by the OEMs, it is necessary to
42
ascertain whether the dominant enterprise has made use of the opportunities arising
out of its dominant position in such a way as to reap trading benefits which it would
not have reaped if there had been normal and sufficiently effective competition
[emphasis supplied]’. Further, as mentioned above, the CCI noted the fact that the
OEMs are the only source of supplying spare parts for its brand of automobiles in
the aftermarkets. This factor was key in analysing the enterprise’s degree and intent
of exploitative pricing. In this regard, the CCI relied on the observations of the
European Court of Justice in the case of General Motors Continental NV v. Commission
(16) where it was observed that holder of the exclusive position ….may abuse the
market by fixing a price—for a service which it is alone in a position to provide. Even in
this industry dynamic, OEMs were the sole provider of the service of repair and
maintenance due to such restrictive clauses in the agreement between OEM and the
suppliers. Based on the facts, the CCI noted that the OEMs are the only source of
genuine spare parts compatible to its brand of automobiles in the aftermarket
which allows such OEMs to use the opportunities arising out of its dominant position
to reap trading benefits which it would not have reaped if there had effective
competition in the relevant market.
(c) No consumer benefits: As elaborated earlier, the consumers of the OEMS are
completely dependent on the OEMs for their spare parts requirements. Apart from
lack of alternate suppliers of spare parts, the CCI noted that there are efficiencies
enjoyed by the OEMs, in form of cost savings, in having its distribution channel are
not passed on to the customer in the form of low prices of spare parts. On the
contrary, the spare parts are being sold at a very high mark up.
The aspect of excessive pricing was also discussed in the Super Cassettes case. The
CCI again noted the practical difficulty in excessive pricing. In that case, CCI did not
find a case of excessive pricing made out because of the practical difficulty in
apportioning the cost. The CCI noticed that the price charged by Super Cassettes
was higher than its competitors. Having said that, CCI said that a claim of excessive
pricing cannot be made out solely because of the reason that the price charged by
P 186 Super Cassettes is more than its competitors. This observation of the Competition
Commission is very pertinent because it shows that even after a thorough
investigation by the Director General and a review process by the CCI, they could
not apportion the actual cost required for an excessive pricing investigation.
[2] Predatory Pricing
As mentioned earlier, predatory pricing is a subset of unfair pricing. Explanation (b) to
section 4 of the Competition Act defines predatory pricing as:
‘predatory price’ means the sale of goods or provision of services, at a price
which is below the cost, as may be determined by regulations, of production of
the goods or provision of services, with a view to reduce competition or
eliminate the competitors.
Given the definition of predatory pricing, the major elements involved in determination
of predatory behaviour are:
(a) Pricing below cost for the relevant product in the relevant market by the dominant
enterprise.
(b) Such low pricing is done with the intention to reduce competition or eliminate
competitors This is traditionally known as the predatory intent test.
For determination of ‘Cost’, the CCI passed the CCI (Determination of Cost of Production)
Regulations, 2009, (hereinafter referred to as ‘Cost Regulations’). Regulation 3(1) of the
Cost Regulations reads as under:
3. Determination of Cost
(1) ‘Cost’ in the Explanation to section 4 of the Act shall, generally, be taken
as average variable cost, as a proxy for marginal cost:
Provided that in specific cases, for reasons to be recorded in writing, the
Commission may, depending on the nature of the industry, market and
technology used, consider any other relevant cost concept such as
avoidable cost, long run average incremental cost, market value.
Based on Regulation 3(1) of Cost Regulations, ‘Cost’ in the Explanation to
section 4 of the Act shall, generally, be taken as average variable cost, as
a proxy for marginal cost. Having said that, the Cost Regulations gives the
Competition Commission of India the flexibility to adopt any other cost
methods like average avoidable cost, long run average incremental cost
or market value, depending on the concerned industry. Regulation 2(c) of
the Cost Regulations provides a definition of the various cost
benchmarks which may be followed in a predatory pricing investigation:
a. ‘total cost’ means the actual cost of production including items,
such as cost of material consumed, direct wages and salaries,
direct expenses, work overheads, quality control cost, research and
development cost, packaging cost, finance and administrative
43
overheads attributable to the product during the referred period;
b. ‘total variable cost’ means the total cost referred to in clause (i)
minus the fixed cost and share of fixed overheads, if any, during the
referred period;
P 187
c. ‘total avoidable cost’ means the cost that could have been avoided
if the enterprise had not produced the quantity of extra output
during the referred period;
d. ‘average avoidable cost’ is the total avoidable cost divided by the
total output considered for estimating ‘total avoidable cost’;
e. ‘long run average incremental cost’ is the increment to longrun
average cost on account of an additional unit of product, where
long run cost includes both capital and operating costs;
f. ‘market value’ means the consideration which the customer pays or
agrees to pay for a product which is sold or provided or can be sold
or provided, as the case may be.
Further, the Cost Regulations provide for a proxy cost benchmark which will be
used as a benchmark for predatory price investigations, which shall generally
be average variable cost. Regulation 3 of the Cost Regulations provide that
Determination of cost –
(1) ‘Cost’ in the Explanation to section 4 of the Act shall, generally, be taken
as average variable cost, as a proxy for marginal cost:
Provided that in specific cases, for reasons to be recorded in writing, the
Commission may, depending on the nature of the industry, market and
technology used, consider any other relevant cost concept such as
avoidable cost, long run average incremental cost, market value.
(2) In arriving at the figures of costs, the Commission/Director General may
take the help of suitable experts.
However, the Cost Regulations provide that CCI, depending on the industry in question,
may adopt and alternate definition of costing. Based on the definition, the CCI has to
appropriately define the cost benchmark while determining a case of predatory pricing.
There has only been one decided case by the CCI and Competition Appellate Tribunal on
predatory pricing, which was the NSE case. The CCI and Competition Appellate Tribunal
did not delve into actual cost benchmark in that case, because NSE was providing
complete transaction waivers for transactions in the currency derivative segment.
Therefore, this was a case of zero pricing being charged by the NSE. Therefore, the
approach adopted by both the CCI and Competition Appellate Tribunal was that zero
pricing is a case of unfair pricing, without identifying any cost benchmark. Such an
approach was taken because zero pricing would be lesser than any cost benchmark, be it
average variable cost, average avoidable cost or long run incremental cost. We will
discuss the NSE case and pricing abuse in this part.
The relevant facts on the pricing abuse was that NSE, being the super dominant
enterprise, was providing complete transaction waivers i.e., zero pricing on trading done
in the currency derivative segment. It is to be noted that NSE has been given the licence
by the Indian stock market regulator to operate on all segments on the stock exchange
i.e., equity segment, futures and option segment, wholesale debt market segment and the
currency derivative segment. The MCX-SX, the informant in the case, only had the licence
to operate in the currency derivative segment. It is to be noted that the key revenue
stream of the stock exchange is the transaction fee. Having said that, since NSE was giving
complete waivers on any transaction done in the currency derivative segment, MCX-SX
and other competitors, who had the licence to operate in the currency derivative
segment, had no option but to follow suit and provide complete waivers to remain
P 188 competitive in the market. Further, such waivers was also coupled with other
exclusionary tactics like low deposit fees etc. In the process, MCX-SX was facing huge
losses to the point of great financial depletion which would have caused MCX-SX to exit
the market. During the deliberations of the same before the CCI and Competition
Appellate Tribunal, the NSE took the argument that it does not incur any variable cost in
operating in the CD segment and hence zero pricing is not below cost. The Competition
Appellate Tribunal did not agree with the fact that NSE did incur any variable cost,
looking into the investigation report prepared by the Director General. Based on the
same, the Competition Appellate Tribunal noted that the action of providing complete
transaction waivers by the NSE was below cost. Both the Commission and Appellate
Tribunal observed that it is not required (in the light of the facts of the NSE case) to delve
into the appropriate cost benchmark since zero pricing will be below any cost benchmark
adopted. It is apposite to note that the approach of both the CCI and Competition
Appellate Tribunal was to show how the behaviour of NSE was a case of broader abuse of
unfair pricing, without going into too much technical details of cost benchmark to be
adopted, as required for a predatory pricing claim.
The CCI opined on when a price charged by a dominant enterprise will can be regarded
44
as unfair. By way of their approach, the CCI seems to have relied on the efficient
competitor test. The Commission noted that the behaviour by NSE of providing complete
transaction waivers was a case unfair pricing, an abuse under section 4(2)(a)(ii) of the
Competition Act because the act was unfair qua its competitors. The CCI noted that the
term ‘unfair’ mentioned in section 4(2) of the Competition Act is to be examined either in
the context of unfairness in relation to customer or in relation to a competitor. The test
that was adopted was whether the dominant company itself would be able to survive the
exclusionary conduct in the event that it would be the target. Relying on the report
prepared by the Director General, the CCI noted that NSE has deep pockets which
allowed it to carry on giving transaction fee waivers over a prolonged period of time in
the currency derivative segment. In fact, the CCI noted that, even after providing
transaction waivers, NSE was earning supra normal profits because of its operations in
other segments, whereas MCX-SX are incurring huge losses by giving such waiver. Based
on the same, it was observed that zero pricing by NSE was a clear case of unfair pricing.
The relevant observations of the CCI are as follows:
As discussed above, NSE has a position of strength which has enabled it to
resort to zero pricing since August, 2008. MCX-SX does not have such strength
or deep pockets. There is practically no justifiable reason for NSE to continue
offering its services free of charge for such a long duration when it is paying for
manpower and other resources for running the business. It is also a fact that no
enterprise would have the intention to engage in a profit-less venture for
eternity. MCS-SX, which operates only in the CD segment, has no other source
of income. This is a major constraint. In these circumstances, the zero price
policy of NSE cannot be termed as anything but unfair. If this Commission were
to treat it as fair, it would go against the grain of the Competition Act and
betray the economic philosophy behind it. If even zero pricing by dominant
player cannot be interpreted as unfair, while its competitor is slowly bleeding
to death, then this Commission would ever be able to prevent any form of
unfair pricing including predatory pricing in future. Had NSE and MCX-SX been
P 189
on equal footing in terms of resources directly available, spectrum and
scale of operation, nationwide presence, length of existence etc. perhaps
perception of unfairness would not have been so blatant and impossible to
ignore, but in this case, the sense of the two being equal or even almost equal
does not exist. Therefore, this Commission concludes that the zero price policy
of NSE in the relevant market is unfair. In this case, the conduct of zero pricing
by the NSE is beyond the parameters of promotional or penetrative pricing. It
can, in fact, be termed as annihilating or destructive pricing.
When the matter went up in appeal, the Competition Appellate Tribunal also ruled that
NSE engaged in unfair pricing, keeping the position of strength that NSE derived in the
relevant market
As such, the CCI is presently investigating a predatory pricing complaint against ANI
Technologies Pvt. Ltd and passed the Ola Prima Facie Order. The case was initiated
because of information filed by Fast Track Call Cab Private Limited which alleged that
Ola cabs, being the dominant player in the city of Bangalore was engaging in predatory
pricing. Materials were placed on record to show how Ola Cabs was giving unrealistic
invectives to drivers and very low fares to consumers. Based on the available material,
Competition Commission noted the following and referred the matter for investigation by
the Director General:
It is observed from the material placed on record that the Opposite Party is
spending more money on discounts and incentives (apart from the variable
costs it may be incurring) on customers and drivers compared to the revenue
it earning. It is also observed that, per trip, the Opposite Party is spending
around Rs. 574 while earning an average revenue of Rs. 344 leading to a direct
loss of Rs. INR 230 per trip. While the propriety of these figures is a subject
matter of investigation, prima facie, the Commission is of the view that, they
indicate predatory pricing aimed to oust other players from the relevant
market.
This would be an interesting case where the CCI will have to determine the appropriate
cost benchmark in this case for a predatory price compliant.
It is to be noted that there are two limbs of the definition of predatory pricing under the
Competition Act: (a) pricing below cost, as determined under the Cost Regulations; and
(b) the pricing below cost was undertaken with a view to reduce competition or eliminate
the competitors. There are two distinct expressions which are used in the second limb of
the definition i.e., reduce competition or eliminate the competitors. While the former
refers to reduction in the degree of competitive pressure exerted by competitors latter
refers to exit of competitors. This difference is more clearly articulated in paragraph 69
of European Commission Guidance Paper in applying Article 82, (17) it reads as follows:
C. Predation
69. The Commission does not consider that it is necessary to show that
45
competitors have exited the market in order to show that there has been anti-
P 190 competitive foreclosure. The possibility cannot be excluded that the
dominant undertaking may prefer to prevent the competitor from
competing vigorously and have it follow the dominant undertaking’s pricing,
rather than eliminate it from the market altogether. Such disciplining avoids
the risk inherent in eliminating competitors, in particular the risk that the
assets of the competitor are sold at a low price and stay in the market,
creating a new low cost entrant.
The terms ‘with a view’ used in the definition of predatory pricing contemplates an
objective standard that any rational business undertaking would view, given the
circumstances. The Indian Parliament while selecting the words of law is well aware of its
consequences and the terms ‘with a view’ does not contemplate the degree of proof of
intent followed in criminal law. Therefore, the CCI has to undertake an intention analysis
to see whether the action of the dominant enterprise to price their goods below cost was
with a view to eliminate competition.
The key questions that need to be asked while deriving intention would be:
(a) whether the pricing behaviour only makes commercial sense or is it a part of a
predatory strategy or;
(b) are there also other reasonable explanations, is there an actual or likely
exclusionary effect, the scale, duration and continuity of such low pricing.
The aspect of intention was also deliberated in detail in the NSE case, both by the CCI
and Competition Appellate Tribunal. It was observed by both the authorities that the
strategy of NSE in adopting transaction fee waivers only in the currency derivative
segment was specifically targeting in reducing the competitive pressures exerted by
MCX-SX and other competitors. Based on the same, NSE was found to be engaging in
unfair pricing. The relevant observations made by both the authorities, while analysing
the conduct of NSE are as follows:
(a) It was argued by NSE that their action of providing transaction fee waivers was for
promoting the new currency derivative segment and penetrating the new market.
However, the CCI and Competition Appellate Tribunal did not agree with the
contention of the NSE that their policy was to promote the currency derivative
segment. It was noted by the CCI that by zeal or foresight for development of a new
product market can definitely lead to initiatives such as promotional or penetrative
pricing. However, such practice of promotional pricing can be understandable for a
period of a few months or even a year and not for a continued prolonged period of
more than three years. The CCI noted that continuance of such pricing practice well
into the third year of existence of a market can only be seen as an instance of astute
strategy for market capture or extreme commercial self-interest. Further, the
Competition Appellate Tribunal also relied on the investigation report of the
Director General, which noted that for the other segments, NSE did not follow such
policy of promotional pricing when those segments were first introduced. Therefore,
it was observed that NSE does not have a policy of providing transaction fees to
P 191 develop the market, but they were selectively giving repeated waivers in the
currency derivative segment for a prolonged period of time with the intention of
eliminating competition.
(b) The Competition Appellate Tribunal also noticed that the NSE was giving opaque
and repeated waivers of transaction fees. It is to be noted that transaction fees is
the major source of revenue stream for any stock exchange. NSE was giving repeated
waivers and MCX-SX had no option, but to follow suit and in the process incur huge
losses. Competition Appellate Tribunal observed that as on 20 May 2009 (date when
section 4 of the Competition Act came into effect) there were only two players in the
market, one was NSE itself and the second was MCX-SX. The NSE was well aware of the
fact that MCX-SX did not have licence for any other segment and were dealing
exclusively in the CD segment. They were actually the competitors of NSE, even if it is
considered that the relevant market was only currency derivatives. It was, therefore,
clear that if the zero transaction fees was continued by the NSE, MCX-SX would have
no other alternative but to also follow the suit, and that is precisely what happened.
The MCX-SX had to continue with the zero transaction fees policy, if not anything else
at least to meet the competition and in the process the MCX-SX in the very first year
suffered the losses of Rs. 29.81 crores, in comparison to NSE, which registered profit of
Rs. 515.54 crores. It was known all over the world that MCX-SX do not have any other
licence for running the stock exchange in any other segments excepting CD segment
and therefore, if they persisted with their zero transaction fees policy, which was a
direct outcome of NSE’s zero transaction fees policy, they would certainly bleed to
death. That it did not happen, cannot be a justification for NSE to, firstly, totally
ignore section 4 and to remain complacent with their own policy by firstly introducing
the same and secondly continuing the same in spite of the advent of section 4. In our
view, this was the best example of abuse. In this, one can analyse that MCX-SX could
not have effectively competed with NSE on the basis of this zero pricing conduct. The
data clearly suggests that the prices charged by NSE had the potential to foreclose
MCX-SX, which was the only competitor in the field then, or for that matter any other
competitor, who did not have the strengths of NSE. In our opinion, there is enough
46
evidence to support this in as much as the losses suffered by MCX-SX kept on
increasing. This shows that NSE had the intent of predation and hence, were found
to be in violation of section 4(2)1(a)(ii) of the Competition Act.
[3] Differential Pricing
As mentioned above, section 4(2)(a)(ii) provides for two limbs: unfair and discriminatory
pricing. As mentioned above, unfair pricing would cover all kinds of pricing abuses like
predatory pricing, excessive pricing etc. Differential, as the name suggests, would mean
differentiating among similar kinds of customers on pricing, without any intelligible
differentia. The Competition Commission is presently investigating a claim for
P 192 differential pricing in the case of Ericsson, details of which are mentioned in the chapter
on Intellectual Property and Competition Law (Chapter V).
Meeting competition defence
It must be noted that the statutory scheme of the Competition Act provides for meeting
competition defence on the part of the dominant enterprise. The meeting competition
law defence can be availed by the dominant enterprise, in both unfair pricing
investigation and unfair terms investigation, discussed in detail below. Explanation to
section 4(2)(a) reads as:
For the purposes of this clause, the unfair or discriminatory condition in
purchase or sale of goods or service referred to in sub-clause (i) and unfair or
discriminatory price in purchase or sale of goods (including predatory price)
or service referred to in sub-clause (ii) shall not include such discriminatory
condition or price which may be adopted to meet the competition.
Meeting competition has not yet been argued in any of the cases before the CCI to date.
There is an inherent right which is given to dominant undertakings to take any action to
protect their own commercial interest. However, the defence of meeting competition
ought to be given a very strict interpretation and action by dominant enterprise must be
strictly proportionate to the legitimate commercial objective being pursued. It must be
noted that even the dominant enterprise must have the right to defend its own
commercial and economic interest in face of action taken by certain competitors. In
other words, to minimize the short-run losses resulting directly from competitors’ actions
can be a legitimate aim. This automatically implies that an objective justification is not
possible if the dominant company is not able to show that its conduct is only a response
to differential pricing by others or if the CCI demonstrates that the objective aim of the
conduct is to directly foreclose competitors. In order to fulfil the proportionality test the
dominant company must in the first place show that the chosen conduct is a suitable way
to achieve the legitimate aim of meeting competition.
It is interesting to point out that, although the aspect of meeting competition is well
founded in matured anti-trust jurisdictions, the manner in which meeting competition
defence has been used in the explanation to section 4(2)(a) is limited. The defence
suggests that dominant enterprises are free to use discriminatory condition or price to
meet competition. It does not use allow the dominant enterprise to adopt unfair pricing
as a part of the meeting competition defence. So, in the event the dominant enterprise is
pricing its product at a cost, it cannot engage in below cost production just because a
competitor is pricing its product below costs. Although the manner in which the CCI will
interpret this defence will have to seen in future cases.
[B] Unfair Terms and Conditions

Section 4(2)(a)(i) of the Competition Act that there shall be an abuse of dominant position
P 193 if an enterprise or a group imposes unfair or discriminatory condition in purchase or
sale of goods or service. It must be noted that the approach of the CCI is to see whether
the dominant undertaking, being in a position of strength, is using its muscle power to
force the counterparties into agreements which are one sided and at commercially
beneficial only for the dominant undertaking, and without any business justification. The
CCI has taken an approach to see whether condition, so imposed by the dominant
undertaking because of its power, is unfair qua the counterparty. What is unfair and fair
would depend on facts and circumstances of each case. As such, the essence of any
contract is consensus ad idem. Conversely, there can be situation wherein a counterparty
executes a contract with a dominant undertaking, they have no option but to follow and
sign the contract which is heavily in favour of the dominant undertaking. Such a contract
would be considered by the CCI as unfair since there is no consensus ad idem. In this
regard, it is apposite to note the observations made in the dissent order passed by the
CCI, in the case of Sunil Bansal v. M/s Jaiprakash Associates Ltd. & Others: (18)
It is to be noted that the dictionary meaning of the word ‘impose’ is force on
someone, or take advantage of someone by demanding their attention or
commitment. The meaning of unfair is ‘not based on, or behaving according to
the principles of equality and justice’. Thus imposing unfair conditions would
mean that one of the party who enjoys a higher bargaining power is in a position
to dictate terms to the weak party who is not in a position to negotiate
[emphasis supplied].
47
Based on the above, the CCI analyses the conduct of the dominant undertaking to analyse
whether they have imposed any unfair terms and conditions. The factors that are
generally kept in mind are whether the rights and obligation of the parties to the
agreements are one sided or mutual. For example, if an agreement is entered into by
parties for sale and purchase of any good, any delay on the part of the supplier to supply
goods and the purchaser to provide timely instalment must give arise to penalty
including interest. However, if penalty is only levied on one party (as was the case in the
DLF case, Coal India case and the Adani Gas) and not on other dominant enterprise, CCI
would view such clauses to be unfair and hence a case of abuse of dominant position
would be made out. Among other factors in the agreements entered into by the dominant
undertaking, the CCI looks into whether there is an effective dispute resolution
mechanism (like arbitration etc.) under the contract.
Apart from unfair conditions, discriminatory conditions are also held to be an abuse of
dominant position. Similar to the aspect of discriminatory pricing, if the dominant
undertaking makes any conditions which are discriminatory in nature among similar set
of consumers without any rational business justification, such discriminatory clauses
would be covered under the heading of abuse.
The issue of unfair terms and conditions has been discussed in many cases, notably being
the Adani case, Super Cassettes, Coal India and the DLF case. In this part, we will analyse
each case and the conditions which were imposed by the dominant enterprise, which
were held by the CCI to be unfair.
P 194
The DLF case was the first major case on the point of the issue of a dominant enterprise
imposing unfair terms and conditions on the counterparty. The DLF case was one where
DLF, a real estate player was imposing one-sided terms on the buyers. The CCI went into
great depth and analysed the clause of the Apartment Buyers Agreement. It is to be
noted that when the matter was heard at Competition Appellate Tribunal, it did not
analyse the issue of the agreement because of the fact that these agreements were
entered into prior to 20 May 2009 (the date when section 4 of the Competition Act was
notified). However, Competition Appellate Tribunal did hold DLF guilty of abuse of
dominant position because of their conduct towards the buyers. Conversely, when the
matter was initially heard at CCI, it took great pains in identifying the clauses in the
Apartment Buyers Agreement and conduct of DLF towards its buyers, based on which it
ultimately held that DLF was guilty of abuse of dominant position. While Competition
Appellate Tribunal did not analyse the specific clauses of the buyer agreement like the
Commission did, it is noteworthy to see the approach of the CCI. The relevant clauses
under the Apartment Buyers Agreement which were held to be abuse of dominant
positition by the CCI were as under:
(a) Unilateral changes in agreement and supersession of terms by DLF without any
discussion with the allottees:
the Company has acquired some lands … such lands as and when
licensed and approved by the competent authority (IES), shall be
deemed to be a part of the approved layout plan of Phase V … this
Agreement shall automatically stand superseded and be substituted by
such subsequently approved layout plan(s) of Phase-V and shall be
deemed to form a part of this Agreement.
(b) DLF’s right to change the layout plan without consent of allottees:
the apartment Allottee hereby agrees that it shall not be necessary on
the part of the Company to seek consent of the Apartment Allottee for
the purpose of making any changes in order to comply with such
directions/conditions/changes and that the layout plan of Phase-V as
may be amended and approved form time to time.
(c) Discretion of DLF to change inter se areas for different uses like residential,
commercial etc. without even informing allottees:
with each zone as may be earmarked for residential, commercial or
other uses, provided however, the total number of zones and their
earmarked uses may be changed as per the directions of the competent
authority(ies) or at the sole discretion of the Company.
(d) Preferential location charges paid upfront, but when the allottee does not get the
location, he only gets the refund/adjustment of amount at the time of last
instalment, that too without any interest:
The Apartment Allottee hereby agrees to pay additionally as preferential
location charges … the apartment Allottee has specifically agreed that
P 195 due to any change in layout/building plan, the said apartment ceases
to be in preferential location, the Company shall be liable to refund only
the amount of preferential location charges without any interest … in the
last installment as stated in schedule of payment.
48
(e) DLF enjoys unilateral right to increase/decrease super area at its sole discretion
without consulting allottees who nevertheless are bound to pay additional amount
or accept reduction in area:
the Apartment Allottee agrees and undertakes to pay for the increase in
super area immediately on demand by the Company as and when such
demand is intimated to the Apartment Allottee by the Company
irrespective of receipt of the Occupation Certificate and if there shall be
a reduction in the super area, then the refundable amount due to the
Apartment Allottee shall be adjusted by the Company from the final
installment as set forth in the Schedule of Payments in Annexure III.
(f) Proportion of land on which apartment is situated on which allottees would have
ownership rights shall be decided by DLF at its sole discretion:
It is made clear by the Company and specifically understood by the
Apartment Allottee that the Company may at its sole discretion and for
the purpose of complying with the provisions of Haryana Apartment
Ownership Act, 1983 or any other applicable laws substitute the method
of calculating the proportionate share in the ownership of the land
beneath the building and / or common areas and facilities as may be
described by the Company in its sole discretion in any declaration by
calculating the same in the ratio of his / her apartment’s value to the
total value of the said building (s) / project / scheme, as the case may
be, and that the Apartment Allottee agrees not to raise any objections in
this regard.
(g) DLF continues to enjoy full rights on the community buildings/sites/recreational
and sporting activities including maintenance, with the allottees having no rights in
this regard:
the Company has made it specifically clear to the apartment allottee …
that the Company is free to deal with community buildings / sites /
recreational and sporting activities … in any manner as the Company
may deem fit.
(h) Allottees liable to pay external development charges even if these are enhanced:
It is made clear by the Company and agreed by Apartment Allottee that
the payment of External Development Charges shall always be solely to
the account of Apartment Allottee to be borne and paid by all the
Apartment allottees … In the event of such charges remaining unpaid,
the Apartment Allottee shall have no right, title and interest left in the
apartment thereafter. The Apartment Allottee further agrees that he /
she would not be competent to challenge such action of resumption of
the said apartment by the Company due to default of non-payment of
such enhanced external development charges on the part of the
Apartment Allottee.
P 196
(i) Total discretion of DLF regarding arrangement for power supply and rates levied for
the same:
the Company or its agents may at their sole discretion … enter into the
arrangement of generating and / or supplying power … Allottee … gives
complete consent to such an arrangement including it being an exclusive
source of power supply … and has noted the possibility of its being to the
exclusion of power supply from DHBVN / State Electricity Boards … It is
further agreed and confirmed by the Apartment Allottee that the
Company or its agents shall have the right to charge tariff for
providing/supplying the power at the rate as may be fixed from time to
time by the Company which may or may not be limited to the rate then
charged by the DHBVN/State Electricity Boards.
(j) Arbitrary forfeiture of amounts paid by the allottees in many situations:
The Apartment Allottee hereby authorizes the Company to forfeit out of
the amounts paid / payable by him/her, the earnest money as
aforementioned together with any interest paid, due or payable along
with and any other amount of a non-refundable nature including
brokerage paid by the Company to the brokers in case of booking is done
through a broker … in the event of the failure of the Apartment Allottee
to perform his/her obligations or fulfill all the terms and conditions set
out in the application and/or this Agreement executed by the Apartment
or in the event or failure of the Apartment Allottee to sign and return this
Agreement in its original form to the Company within thirty (30) days of
its dispatch by the Company.
49
(k) Allottees have no exit option except when DLF fails to deliver possession within
agreed time, but even in that event he gets his money refunded without interest
only after sale of said apartment by DLF to someone else:
the Company shall be unable to or fails to deliver possession of the said
Apartment to the Apartment Allottee within three years … the Apartment
Allottee shall be entitled to give notice to the Company … in that event
the Company shall be at liberty to sell and / or dispose of the said
Apartment and the allotted parking space to any other party … without
accounting for the sale proceeds thereof to the Apartment Allottee … the
Company shall within 90 days from the date of full realization of the sale
price after sale of said apartment and the parking space refund to the
Apartment Allottee, without any interest, the amount paid by him/her in
respect of the said Apartment and the parking space.
(l) DLF’s exit clause gives them full discretion, including abandoning the project,
without any penalty:
The Apartment Allottee agrees that in consequence of the Company
abandoning the Scheme or becoming unable to give possession within
three (03) years from the date of execution of this Agreement … the
Company shall be entitled to terminate this Agreement whereupon the
Company’s liability shall be limited to refund of the amounts paid by the
Apartment Allottee with a simple interest @9% per annum for the period
such amounts were lying with the Company and to pay no other
compensation whatsoever … the Company may, at its sole option and
P 197 discretion … agrees to pay … compensation @Rs. 5/- per sq. ft. of the
super area of the said Apartment per month for the period of such delay
beyond three (03) years or such extended periods.
(m) DLF has sole authority to make additions / alterations in the buildings, with all the
benefits flowing to DLF, with the allottees having no say in this regard:
The Company shall have right, without any approval from any Apartment
Allottee in the said Building to make any alterations, additions,
improvements or repairs whether structural or nonstructural, interior or
exterior, ordinary or extra ordinary in relation to any unsold
apartment(s) within the said Building and the Apartment Allottee agrees
not to raise objections or make any claims on this account … . The
Apartment Allottee agrees and authorizes the Company to make
additions to or put up additional structures in / upon the said Building
or Additional Apartment Building(s) and / or structures anywhere in the
said Complex / Said Portion of Land as may be permitted by competent
authorities and such additional Apartment Building(s) structures shall be
the sole property of the Company which the Company will be entitled to
dispose of in any way it choose without any interference on the part of
the Apartment Allottee(s).
(n) Third-party rights created without allottees consent, to the detriment of allottees’
interests:
The Apartment Allottee hereby authorizes and permits the Company to
raise finance/ loan from any Financial Institution/ Bank by way of
mortgage/ Charge/ securitization of receivables or in any other mode or
manner by charge/ mortgage of the said Apartment/ said Building/ said
Complex/ said Portion of Land subject to the condition that the said
Apartment shall be free from all encumbrances at the time of execution
of conveyance deed. The Company/ Financial Institution/ Bank shall
always have the first lien/ charge on the said Apartment r all their dues
and other sums payable by the Apartment Allottee or in respect of any
loan granted to the Company for the purpose of the construction of the
said Building/ said Complex.
(o) Punitive penalty for default by allottees, insignificant penalty for DLF’s default:
The Company may, at its sole option and discretion … waive the breach
by the Apartment Allottee in not making payments as per the Schedule
of Payments given in Annexure III but on the condition that the
Apartment Allottee shall pay the Company interest which shall be
charged for the first ninety (90) days after the due date @ 15% per
annum and for all periods of delay exceeding the first ninety (90) days
after the due date an additional penal interest @3% per annum (total
interest 18% per annum only).
The CCI further notices the conditions of the Apartment Buyers Agreement are imposed
on the buyers/allottee through ‘important instructions to intending allotees’ printed on
P 198 the Agreement. The said instructions read:
50
If the intending Allotee(s) … to execute and deliver to the Company the
Apartment Buyer’s Agreement in its original form duly signed within thirty (30)
days from the date of dispatch ….The Company shall reject and refuse to
execute any Apartment Buyer’s Agreement wherein the Intending Allottee has
made any corrections/ cancellations/alterations/modifications. The Company
reserves the righ t to reject to reject any Apartment Buyer’s Agreement
executed by any Intending Allottee without any cause or explanation or
without assigning any reasons therefor and to refuse to execute the Apartment
Buyer’s Agreement … the decision of the company shall be final and binding.
Further, based on the investigation report of the Director General, the CCI observed that
even before the signing of the Apartment Buyers Agreement, the allottes had to pay a
large portion of the payment in form of earnest money. Further, the buyer/allottee had to
pay almost 95% of the consideration amount within twenty-seven months of booking, and
a bulk of this is often paid to DLF even before entering into the said agreement. It was
also noted that though DLF provides a stringent timeline for payment of agreed amount,
there is no timeline specified for delivery of possession by DLF. Further, the apartment
buyers agreement is often sent by DLF for signing much after initial payment by the
buyer. In such cases, the buyer who could have made a choice to go to other real estate
service providers, gets locked in with DLF having paid a substantial amount with no free
exit option. Further, only after paying such a heavy amount, the allottes become aware of
the sweeping terms and conditions being imposed by DLF through the the agreement. The
CCI noted that the high switching cost not only destroys the choice, it also reduces mobility
in the market. Based on these practices, the allottees become captured consumers who
are subject to abuse by DLF through imposition of unfair conditions contained in the
agreement. The CCI further noted, based on the conduct of the DLF, that such abuse is not
a one-time abuse by DLF, rather it continues throughout the span of the period of
construction, and allottees are subjected, or there is a scope to subject them time and
again, to newer conditions aggravating the existing abusive conduct of DLF. Based on the
above, the Commisson held that that by conduct and by the provisions of the the
agreement, DLF was guilty of abuse of dominant position. The relevant observations of
the CCI, in this regard are as follows:
There are clauses that give DLF Ltd. sole discretion in respect of change of
zoning plans, usage patterns, carpet area, alteration of structure etc. In case of
change in location of the apartment, PLC is determined at the discretion of the
builder and if a refund is due, no interest is paid. No rights have been given to
the buyers for raising any objections. Further, even if the buyer has paid the
full amount, the builder can raise subordinate mortgage on the property for
finances raised for its own purpose and the consumers are subjected to this
mortgage. Despite knowing that necessary approvals were pending at the time
of collection of deposits, DLF Ltd. inserted clauses that made exit next to
impossible for the buyers. Similarly, in event of delay, the builder would pay
compensation at Rs 5 per square foot per month for delays beyond 3 years. In
sharp contrast, if there is a delay on part of the buyer, the interest charged is
15 % per annum for the first 90 days, increasing by another 3% after that.
These are some of the clauses that show how heavily loaded the buyers’
agreement is in favour of DLF Ltd. and against the buyer. Under normal market
P 199 scenario, a seller would be wary of including such one-sided and biased
clauses in its agreements with consumers. The impunity with which these
clauses have been imposed, the brutal disregard to consumer right that has
been displayed in its action of cancelling allotments and forfeiting deposits
and the deliberate strategy of obfuscating the terms and keeping buyers in
the dark about the eventual shape, size, location etc. of the apartment cannot
be termed as fair. The course the progress of the project has taken again
indicate that DLF Ltd. beguiled and entrapped buyers through false
solicitations and promises. As regards legality of actions like violations of FAR
or increasing density per acre are concerned, per se, these are not
competition issues and have to be looked into by the competent authorities.
However, this Commission is of the view that both these factors have gone
against the interests of the consumers. The person who chooses a particular
apartment does so after considering factors such as FAR, availability of bigger
common areas, common facilities etc. If the number of apartments in a project
is substantially increased, as in this case, there is considerable reduction of
consumer welfare. For example, if a hundred residents are supposed to share
one swimming pool, their satisfaction from that common pool would be far
less if suddenly the builder tells them they have to share the pool with 200
residents. In economics, ‘value’ is based on the perceived utility of any
product or service. Consumers pay according to this perception. If something
is done that drastically or substantially reduces that perceived value, it can
only be termed as an unfair conduct by the seller. Under Competition Act,
such unfair conduct by a dominant enterprise is contravention of the
provisions of the Act.
Based on the DLF case, it was noted that the approach of the Competition Commisson of
51
India is to see whther the consumer has any bargaining choice vis-à-vis DLF or they are
subject to continous abusive tactics of the DLF. Similarly, Competition Commisson of
India dealt with the similar issue of unfair terms and conditions imposed by Coal India on
the thermal and non-thermal power producers. The leading cases on the point of
imposing unfair terms and conditions were decided by the Competition Commisson of
India, in cases of Coal India. There have been series of informations that have been filed
against Coal India (namely 03/2012, 11/2012, 59/2012, 05/2013, 07/2013, 05/2013 & 37/2013,
44/2013, 08/2014) and CCI has opined on each of the cases. Collectively the cases are
referred here as the Coal India case. The Coal India case revolved around imposition of
unfair and discrininatory terms in the Fuel Supply Agreement entered into between Coal
India and the buyers (who may be power producers or non-power producers). Further,
there were certain existing Fuel Supply Agreements which were already in place with
some power plants and some new Fuel Supply Agreements were signed with new power
plants/buyers. Before delving deep into the issue of unfair and discriminatory terms and
conditions contained in the Fuel Supply Agreement and identifying the unfair clauses as
such, the CCI analysed the repurcussions of having unfair terms under the Fuel Supply
agreement.
It was noted by the CCI that Fuel Supply Agreement is a long term agreement between a
buyer and Coal India which has to be differentiated from other ordinary long term
agreements due to the cascading and systemic effects which may flow from its terms,
conditions and their execution. The consumer in a Fuel Supply Agreement is a power
generating company, however, the effect has consequences further down the value chain
P 200 given that the cost of electricity constitutes between 60–70% of the tariff paid by the
end-consumer. Further, CCI noted that while the obligations and responsibility of supply
of coal by Coal India stops at the level of the Fuel Supply Agreements, the obligations
and responsibilities of the power generating companies extend beyond the power sector
in as much as any inefficiency and anti-competitive conduct in one segment of the value
chain would have the effect of creating and causing a systemic risk in the entire economy.
Based on the same, CCI noted that it is imperative that a Fuel Supply Agreement must
address the issue of mutual obligations and responsibilities holistically, than merely
from a perspective of ordinary contractual obligations. Accordingly, the CCI was of the
view that the obligations and responsibilities enshrined within the Fuel Supply
Agreement for assessment of unfair and anti-competitive calls for an integrated and
holistic approach that considers not only the anti-competitive effects on power
generating companies but also on the entire power sector as a whole. From the approach
of the CCI in this case, they not only looked into the aspect of abuse enshined under
section 4(2) of the Competition Act, but also in light the avoeed onjective enshrined
under section 18 of the Competition Act to prevent practices which causes adverse effect
on competition in India. Based on the above rationale of having a an efficient Fuel
Supply Agreement in the interest of the power sector and the end consumer, the CCI
noted that:
In view of this, an FSA must adhere to certain principles that guarantee
commercial as well as operational viability to both sellers and buyers of coal.
From seller’s perspective, it includes timeliness in supply of contracted
amount and quality of coal at prices that are agreed upon well in advance.
The buyer’s responsibility includes timely payment for amount of coal
purchased and advanced intimation of their requirement. Any supply/price
shock is undesirable and if it actualises, the same has to be mutually resolved
in the best interests of both parties. In addition, FSAs should have deterrent
penalties for non-fulfilment of contractual obligations. As far as incentives are
concerned, the same may be worked out by the parties in light of the
prevailing coal eco-system. In sum, FSAs should consist of three essential
characteristics - quality, quantity and delivery schedule/timeliness, for any
deviation from any of these parameters puts power generating companies in
adverse operating/financial situation. Since outcome of an FSA is directly
related to the Power Purchase Agreement (PPA) signed between power
generators and distributors, any mis-match between FSA and PPA results in a
cascading effect affecting the tariffs to consumers.
The CCI, looked into in great details, each of the clauses of the Fuel Supply Agreements,
and found the following terms and conditions unfair and discriminatory:
(a) The unilateral drafting of the Fuel Supply Agreement: A feature of any agreement
should be that the buyer and seller have commercially negotiated the contract
outlining the terms and conditions. However, the it was noticed that the Fuel Supply
Agreement was unilaterally drafted by Coal India, without even consulting the
buyers of the coal. The CCI noticed that a process of discussion on the drafting of the
fuel supply agreements did happen. However, the commercial discussions
happened with the Ministry of Power, who were not even the key stakeholder as far
as the Fuel Supply Agreement was concerned. Based on the investigation and
P 201 evidence on record, the CCI noted that the inputs of the power utilities, who were
the buyers, were not even considered. Based on the approach of Coal India in
drafting Fuel Supply Agreement unilaterally, the CCI highlighted that under certain
market conditions, some contracts become unconscionable especially when the
52
markets are not functioning in a competitive manner. In such a scenario, the party
with superior bargaining power is able to dictate terms that are overwhelmingly one-
sided. Then the other party is confronted with ‘take it or leave it’ proposition [emphais
supplied].
(b) Issue of supply of coal through Memoranum of Understanding, in addition to the
Fuel Supply Agreement: Based on the investigation, the CCI noted that Coal India
have been insisting on the buyers, to execute additional MOU in addiiton to the
Fuel Supply Agreements. These MOU inter alia, provided for the following:
(i) They will form an integral part of the Fuel Supply Agreement executed by the
consumer.
(ii) The quantum of supply of indigenous coal under the respective Fuel Supply
Agreement shall be at the sole discretion of the coal company from time to
time, but shall not exceed 50% of the annual contracted quantity in any case.
(iii) The MOU provided that for calculation of compensation for short-supply or
short-lifting, the annual contracted quantity under the Fuel Supply Agreement
shall be reckoned as being reduced by 50%.
The CCI noted that the Memoranum of Understanding were framed in such a manner
which not only reduces the obligation of Coal India to supply the necessary quantity
of supply under the Fuel Supply agreements but also reduced the compensation to
be payable in case of a short-supply. Further, the CCI noted, based on the
investigation report of the Director General that purchasers had no option but to
accept the terms and conditions of such one-sided MOU as there was no scope for
negotiation giving upper hand to Coal India. Further, by incorporating the clauses
relating to reduction in supply of indigenous coal by 50% and also linking such MOU
with penalty on short-supply, it has diluted the obligation of Coal India on its
commitment of supply of coal. Based on the above facts, the CCI observed that the
MOU were unfair terms imposed by Coal India on its buyers.
(c) Procedure for sample collection for assessment of quality of coal: The CCI examined
the relevant clauses of the Fuel Supply Agreemengts which were applicable to the
new power producers as well as existing power producers. The CCI also examined
the relevant clause for sample collection which are applicable for public sector
undertakings. On a plain reading of the clauses of the fuel supply agreements
executed among Coal India and the new power producers, existing power producers
and public sector undertakings, the CCI noted that there are different methods
adopted for sample collection. For existing public sector undertaking power
producers, there is provision for automatic mechanical sampling for coal supplied
through silos, whereas for existing private producer and new private power
P 202 producers, it was manual till 2012 when the words ‘or any suitable mechanical
arrangement’ were inserted in the agreements. Based on the same, the Competiiton
Commission of India was of the opinion that that the provisions for sampling of coal
are ex facie discriminatory between public sector undertakings and private
producers. Further, it was also noted by the CCI that changes effected in 2012 to
insert the words ‘or any suitable mechanical arrangement’ are abstract and
ambiguous besides having the potential to cause conflict of interest. The CCI noted
that in an appropriate case, the distinction based on two consumers may have
some rational justification, yet for the present purposes, it is not readily inferred as
to how a distinction in the matter between the various buyers (be it existing power
prodcuers, new power producers or public sector undertakings) relating to sample
collection may have any justification, leave alone a justification which may satisfy
the requirements of law. Thus, the order of the CCI showed that an artifical
distinction among consumers will not be accepted as a defence for discriminatory
pricing. To differentiate among various kinds of consumers, the undertaking must
have a rational business jusitification. What is rational would depends on market
situations, the obligation of the dominant undertaking and the facts and
circumsatnces of each case.
(d) Sampling of coal at loading and unloading points: On a perusal of the Fuel Supply
Agreements executed with existing power porducers, the CCI observed the sampling
was done at both ends i.e., loading and unloading points by an independent party.
However, Coal India, while drafting the model Fuel Supply Agreement made
changes in the sampling procedure without even consulting the power producers. It
was asserted by Coal India that the power producers were not happy with the
sampling being done by an independent party, and hence they made the change in
the clause. However, the CCI, relying on the report by the Director General, did not
find any evidence which substantiates the claim of Coal India that the power
producers were not happy with third-party sampling. Further, by way of
comparision, the CCI noticed the sampling procedure adopted by the other players
in the market apart from Coal India and noticed that their Fuel Supply Agreements
provide for sampling at the loading end only. However, there is a provision for
analysis by both the parties at their respective labs and for this purpose, three sets
of sample (one each for seller, buyer and referee) were taken. Thus, the buyers have
been given opportunity for testing of sample to their satisfaction. Thus, compared
with another player in the relevant market, the procedure of sample collection and
analysis adopted by Coal India was heavily tilted in favour of Coal India in their
53
Fuel Supply Agreement. Based on the above facts, the CCI held that the terms and
conditions of the Fuel Supply Agreement regarding the commitment of Coal India to
ensure the quality of coal cannot be taken as fair and held to be to the prejudice of
the consumers.
On this aspect, the CCI further noted that it would not be out of place to mention
that when the price of coal is based on the grade/quality, the buyer has right to get
the grade for which he is paying the price. The Commission further analysed, based
P 203 on clause 4.7. (i) of the Fuel Supply Agreement, that samples of coal are to be
collected jointly. Further, as per clause 4.7.5 of the Fuel Supply Agreement, all tools
required for collection of joint samples, its preparation and all laboratory facilities
for the purpose of joint analysis of samples are to be provided by the seller. The
Schedule further provides that samples drawn at loading ends shall be analysed in
designated laboratories at loading ends in the presence of seller and purchaser.
From the above, it becomes abundantly clear that the purchaser has practically no
say in the sampling process and it becomes a spectator as all facilities and
infrastructure for the joint sampling are under the effective control of Coal India.
(e) Supply of ungraded coal: As mentioned earlier, the CCI had noted that proper coal
needs to be supplied to the power producers. There should be strict clauses in the
Fuel Supply Agreement to that effect. Conversely, on a careful perusal of the Fuel
Supply Agreement, the Commission noted that the agreement does not impose a
strict liability upon Coal India and its subsidiaries to supply only the agreed grades
but only mentions about making adequate arrangements to assess the quality and
for providing monitoring mechanism to prevent loading of ungraded coal. The Fuel
Supply Agreement merely provides that the Coal India need only try that the
ungraded coal is not loaded, however if the ungraded coal is loaded and
transported, there is no provision for compensation. Further, even in case of supply
of ungraded coal, the buyer has to bear all the expenses on transportation, royalty
and taxes etc.
The CCI noted that Coal India has not provided any shred of evidence to justify or
explain as to why the buyer should be saddled with the expenses of transportation
for the ungraded coal, which is supplied in breach of the agreed quality of coal in
the Fuel Supply Agreement. The CCI did note that the ungraded coal may have some
value and Coal India may be able to sell such ungraded coal in the open market to
the willing buyer. However, imposing a condition that if such goods are transported
by default to a buyer with whom there is a Fuel Supply Agreement containing a
specific provision for supply of graded coal, such cost of transportation of ungraded
coal has to be borne by the buyer does not seem to be fair in any circumstances.
The CCI noted that Coal India cannot absolve itself of the responsibility of supplying
only graded coal. In this regard, it is apposite to note the observations of the CCI:
the consumers cannot be forced to pay the cost of ungraded coal. Such
condition not only gives an upper hand to the seller but also reduces its
commitment to supply right quality of coal. The conduct of the seller is
guided by the FSA and if there is no obligation on the seller to assure the
supply of only graded coal, the coal companies are not bound to do the
same. [emphasis supplied] It is not out of place to mention that such
provisions also results in misappropriation or mishandling of the limited
resources of railways in supply of rake to the coal industry as well as of
the buyer. The ultimate sufferer is the end user of power on whom the
increased cost is passed on. Thus, the terms and conditions in FSA
regarding supply of quality coal should be guided by the strict
adherence to the desired quality and the measures relating to grading,
sampling and testing of the coal needs to be incorporated in the
agreement to the satisfaction of both the parties.
P 204
Further, the CCI also took into account the relevant clause of the Fuel Supply
Agreement of the other player apart from Coal India in the relevant market. It was
noted by the CCI that the other players reimburses the freight to the buyer in case
of supply of ungraded coal whereas Coal India does not allow the reimbursement of
transportation cost of ungraded coal.
(f) Compensation for supply of oversized, wet and sticky coal: The CCI noted that in the
process of supply of coal, there are chances of dispatch of oversized, wet and sticky
coal along with stones. Having said that, for any Fuel Supply Agreement to have a
semblance of fairness, it must necessarily provide for payment of compensation in
such event. Further, such clause of compensation for supply of oversized coal must
operate on a non-discriminatory manner among all classes of buyers. However, the
CCI noted that that a cap on compensation for new power producers was capped at
0.75% whereas there was no cap on compensation for existing power producers.
Based on the same, the CCI held that capping of compensation to 0.75% of the total
quantity of coal supplied for oversized coal/stones for new power producers is ex
facie unfair since it was not based on actual quantity or any other reasonable basis
besides being discriminatory between new and existing power producers.
(g) Unilateral termination of agreement: The CCI noted that the Fuel Supply
54
Agreements provided for unilateral termination of the FSA. The CCI noted that Coal
India enjoys a situation of statutory monopoly and the buyers are heavily
dependent upon Coal India. In light of the same, insertion of a clause reserving the
right to unilaterally terminate the agreement, without having scope for review by
any independent agency, is not fair under the extant regulatory framework
operating in the coal sector. In this regard, the CCI noted that:
In the face of near monopoly enjoyed by CIL through its subsidiaries in
the relevant market, such unilateral termination by CIL or its
subsidiaries is patently unfair. Besides, the formal equality in the clause
giving the aggrieved party a right to terminate the agreement is also
effectively of no consequence in view of the overwhelming dependence
of the buyer upon the dominant supplier of coal.
Similarly to the Coal India case where Coal India had an absolute monopoly and thereby
they had the power to impose such unfair and discriminatory conditions, the CCI also
reviewed the Adani Gas case. The Adani Gas case was initiated due to an information filed
by Faridabad Industries Assocation. It was alleged that Adani Gas Limited is the
dominant player in the market of supply and distribution of natural gas in the region of
Faridabad. Based on the industry in question, the CCI noted that Adani Gas Limited has a
100% market share since it is the only entity which is authorized under the relevant law
and government regulations to set up and operate a city gas distribution system in the
city of Faridabad. It was further alleged that Adani Gas Limited, being the dominant
P 205 player, had put unconscionable terms and conditions in Gas Sales Agreement, which
are unilateral and lopsided, besides being heavily tilted in favour of Adani Gas Limited.
It was further alleged that Adani Gas Limited, in the garb of executing Gas Sales
Agreement, has imposed its diktat upon the buyers of natural gas, who are members of
Faridabad Industries Association. Further, it was also poinited out that Gas Sales
Agreement had been drafted unilaterally by Adani Gas Limited, without leaving any
scope for the members of the association, who are hapless buyers of gas and are solely
dependent for supplies from Adani Gas Limited.
The CCI and the Director General undertook a detailed exercise of analysing the various
provisions of the Gas Sales Agreement and also the industry in question. One of the
industry dynamics involved in the present case was that Adani Gas Limited was not the
producer of natural gas but it was a supplier of natural gas. The natural gas was sourced
by Adani Gas Limited from GAIL (India) Limited by entering into multiple upstream
contracts with GAIL (India) Limited. This fact was taken into account by CCI, while
reviewing the clauses of the Gas Sales Agreement to see whether Adani Gas Limited was
acting unilaterally and unfairly. The clauses which were found to be an unfair condition
by the CCI are as under:
(a) Billing and settlement clause: The clause in the Gas Sales Agreement reads as
follows:
The Buyer agrees that, notwithstanding any dispute in relation to any
amount invoiced, it shall not withhold any payment in accordance with
the provisions of this Section of any amounts. Only after making full
payment of such invoice, the Buyer shall lodge the claims in writing with
the Seller giving full particulars within a period of fourteen (14) days
from the date of generation of disputed invoice, and if such claims are
found correct, the Seller shall adjust the same against the next invoice. It
is further agreed that no interest will be payable by the Seller on any
such amounts adjusted in the subsequent invoices.
The Buyer shall pay interest on all payments delayed beyond Due Date
of invoices at the uniform rates equivalent to PLR of SBI + 2.0% p.a. or
any such rates as may be decided by the Seller in future.
If full payment of the invoice is not made by the Buyer as stipulated in
Section 13 (Section 13 Billing & Payment) by due date, the Seller may, in
its sole discretion and without prejudice to any other rights under this
Agreement, discontinue the supply of Gas to the Buyer and shall be
entitled to invoke the Security Instrument for any unpaid amounts which
shall be replenished in accordance with this Agreement. The Seller shall
be under no obligation to resume supply of Gas to the Buyer till such
time that the Buyer has paid all amounts due to Seller as per the
Invoices, interest and any penalty applicable thereon and security
instrument replenished in accordance with the terms of this Agreement
and to the satisfaction of the Seller.
The Buyer shall not have recourse to the Arbitration mechanism under
Section 20 (Section 20 Arbitration) for any dispute relating to payments
and/or invoices, unless the invoiced amounts have been paid in full with
interest and penalty. The amounts so paid or the relevant portion
thereof shall be refunded to the Buyer in the event it is decided that
such amounts are not payable, or that a reduced sum is payable by the
Buyer.
55
P 206
Based on the clause, it was noted by the CCI that the Gas Sales Agreement provides
that excess payment by the buyer to Adani Gas Limited due to erroneous
billing/invoicing on the part of Adani gives rise to no liability on the part of Adani
Gas Limited including interest. However, a delayed payment by the buyer renders
him liable to pay interest on ‘such rates as may be decided by the seller in future’.
Further, the clause also provided that in the event of any dispute regarding amount
payable, if any amount eventually becomes payable or reimbursable by Adani Gas
Limited to consumers, there is no obligation on the part of Adani Gas Limited to pay
interest on the said amount. Further, the clause on delayed payments on the buyer
provides for a definite rate or any other date as may be communicated by Adani
Gas Limited in the future. Based on the reading of the clause, the CCI noted that,
that the said provision imposes unfair conditions upon the buyers since the
agreement on delayed payment and settlement is totally one sided and is unfair on
the buyer, since they have to rely on Adani Gas Limited for their supply of gas. Being
the sole supplier and distributor of natural gas in the region, the CCI noted that the
buyer has imposed such unfair one-sided terms of billing and settlement.
(b) Off-take requirements: The clause in the Gas Sales Agreement reads as follows:
Seller’s Failure to Deliver Gas
If the seller fails (other than as a consequence of the Buyer’s default or
failure due to Force majeure or due to planned Maintenance Period) to
tender for delivery fifty percent (50%) or more of the cumulative DCQ for
a period of one hundred and eighty (180) consecutive Days, then without
prejudice to any other rights or remedies that the Buyer may have under
this Agreement or by law, the Buyer may, at its sole option, terminate the
Agreement upon not less than thirty (30) days prior written notice to
Seller.
Buyer’s Failure to Take Gas
If the Buyer fails (other than as a consequence of Force Majeure or
Planned Maintenance) to take fifty percent (50%) or more of the
cumulative DCQ during a period of forty-five (45) consecutive days, then
without prejudice to any other rights or remedies that the Seller may
have under this Agreement or law, the Seller may, at its sole option,
terminate this Agreement upon not less than thirty (30) days prior written
notice to Buyer.
It was argued by Adani Gas Limited that all clauses in the Gas Sales Agreement have
to be read in the context of the risks that Adani Gas Limited and industrial buyers
are exposed to. It was contended that although their contract with its upstream
supplier, GAIL (India) Limited provides them with a longer duration to off-take gas,
it is important to note that retail buyers (i.e., the customers) are different from the
customers of GAIL (India) Limited, like Adani Gas Limited. Furthermore, Adani Gas
Limited faces more stringent repercussions in the event it fails to comply with its
contractual obligations with GAIL (India) Limited. Any failure on the part of Adani
Gas Limited will tend to have a cascading effect and affect the business of all of
downstream customers of Adani Gas Limited, whereas when a customer defaults in
P 207 its contractual obligations, the effect of the same is restricted to the business of
such customer and not the other industrial units, domestic and commercial
customers of Adani Gas Limited in Faridabad. It was also pointed out that given the
peculiar characteristics of natural gas industry, which is based on
projections/estimates of demand/consumption by the consumers leading to back-
to-back contracts at every level of the value chain, the fact that natural gas cannot
be stored by the gas distribution company (i.e., there is no physical hedging
mechanism available to companies engaged in city gas distribution), the level of
financial risk undertaken by Adani Gas Limited is much higher than any retail
customer.
However, the CCI did not agree with the contention of Adani. The CCI, relying on the
investigation report of the Director General, examined the various clauses of the
agreement executed by Adani with GAIL (India) Limited which revealed that a
corresponding clause of off-take in the said agreement stipulated that in the event
Adani Gas Limited fails to off-take 50% or more of the cumulative DCQ during the
specified period (exact time-period not mentioned in the order of the CCI), the
supplier can terminate the agreement by giving thirty days prior notice. Thus, it is
evident from the two corresponding agreements viz. Gas Sales Agreement and the
upstream supply agreement between Adani Gas Limited and GAIL (India) Limited
that while Adani enjoys a longer period from GAIL for meeting the cumulative DCQ
obligation, it provides only forty-five days to do so for its industrial consumers. The
wide disparity between the two periods i.e., as available to Adani from GAIL as
against Adani providing to its consumers, is not warranted by the risk to which Adani
is exposed to. Based on the difference in time-period, the CCI noted that the clause
regarding likely termination of contract by Adani Gas Limited on account of failure
to off-take 50% or more of the cumulative DCQ by the buyer during a period of forty-
56
five consecutive days as against the longer period available to Adani Gas Limited
from GAIL (India) Limited is an unfair condition.
(c) Other conditions: There were other conditions which the CCI found to be unfair and
totally one sided. The clause which the CCI found to be unfair was the Force Majeure
clause. Clause 16 of the Gas Sales Agreement provided for force majeure events like
breakage of or of accident to or failure or breakdown of any part of the opposite
party’s facilities, including but not limited to, machinery, production facilities,
processing facilities, gas pipelines ancillary and any other facilities upon which the
opposite party is relying to satisfy the requirements of the agreement. Further,
Clause 16.3 of the Gas Sales Agreement stipulated that besides the obligation of the
parties to notify within three days the occurrence of any force majeure event to the
other party, it shall be the sole discretion of Adani Gas Limited to accept or reject
the customers’ request for force majeure. Furthermore, the Gas Sales Agreement
provided that even in event of an unplanned interruption and emergency shutdown
of facilities calling for complete and partial off-take of gas by the buyer, the
P 208 provisions relating to payment of Minimum Guaranteed Off-take (MGO) by the
buyer will continue to be applicable. The CCI observed that these clauses were
unfair conditions imposed on the buyer.
The aspect of unfair conditions was also discussed in the Super Cassettes case. The
Super Cassettes was mentioned, in brief, while discussing the issue of dominance.
On the issue of unfair terms and conditions, it was alleged that Super Cassettes was
imposing minimum commitment charges per month irrespective of actual needle
hour (each aggregate of sixty minutes of actual broadcast of sound recordings by FM
radio station excluding commercials, advertisements, voice over, anchor time etc.)
of broadcast of the music content of Super Cassettes by the radio station. The CCI,
relying on the investigation report of the Director General, found that no other
competitor of Super Cassettes was levying a minimum commitment charge. Further,
minimum commitment charge was required to be paid by the radio operators
irrespective of the actual number of needle hours of the music of Super Cassettes
that is broadcast on the radio channel. On a review of the agreements for granting
licenses to the radio operators containing the provision for minimum commitment
charge, it was observed that the minimum committed needle hours for playoff of
the songs of Super Cassettes imposed by it are as high as 50%. This was done to
ensure that the business share of Super Cassettes in the relevant market and that if
half of the total songs played by the FM stations have been fixed by Super
Cassettes, the other music companies will be left with only 50% of the total market
share of the relevant market. Further, the investigation had revealed that the
condition of minimum commitment charge is distorting the competition in the
relevant market. On one hand, it increases the cost of music for FM radio stations as
they are forced to pay extra money even if they are not playing songs of Super
Cassettes, on the other hand it also forces FM stations to play at least the minimum
guaranteed needle hour even though there is no demand of such songs from the
listeners.
The CCI, agreed with the report of the Director General, and noted that minimum
commitment charge is exploitative and exclusionary in nature. It is exploitative as
it forces the customers to pay for music that it may not play. Exclusionary conduct is
characterized by improper strengthening of market power by the dominant
enterprise. The CCI thereby observed that the imposition of minimum commitment
charge by Super Cassettes has an anti-competitive effect on the market as it
forecloses other competitors from a substantial share of the market. Since the
private radio station is contractually bound to pay Super Cassettes a minimum
guarantee, they are likely to broadcast the amount of music that they have already
paid for. Therefore, a certain amount of music play out on private FM radio stations
is already fixed for Super Cassettes. This results in the competitors of Super
Cassettes not being able to compete for and being foreclosed from broadcasting
their music on this prefixed play out of 50% reserved for Super Cassettes.
Based on the above, we see that the approach of the CCI, while deciding whether a
P 209 clause is unfair or not, is to see whether the counterparty has any choice but to
accept the onerous and one-sided terms imposed by the dominant undertaking.
[C] Limiting or Restricting Production and Technical Development

The Competition Act provides that there shall be an abuse of dominant position if the
dominant players limits or restricts production of goods or provision of services. Although
this provision was not specifically discussed in the Automobile Spare Parts case, it could
have been argued that OEMs, by entering into restrictive agreements with the suppliers
and prohibiting the supply of spare parts to the independent repairers is limited the
provision of repair services. This clause is worded in a very broad manner and it would
include all practices, whether by way of entering into restrictive covenants with channel
partners or other commercial partners, which limits the production of goods or provision
of services.
The aspect of limiting provision of services was discussed by the CCI in the case of Altos
Woldline India Pvt. Ltd. v. VeriFone India Sales Private Limited (19) (hereinafter referred to
as the VeriFone case). The Verifone case was initiated, based on an information filed by
57
Altos. Altos is engaged in the provision of software development services including value
added services (VAS) maintenance, implementation, upgradation, applications
management and infrastructure management. It delivers end-to-end service in industries
of public sector, healthcare, transport and financial services and also operates as a third-
party processor (TPP). As a TPP, it tracks the flow of intervening events between a
cardholder swiping his card and finally receiving a printed charge slip at the Point of Sale
(POS) Terminals on the premises of a merchant from whom the card holder buys
products/services. As a provider of VAS, Altos develops applications such as loyalty, gift
card, bill payment, top-up, money transfer, dynamic currency conversion, etc. for
integration into POS Terminals. The customers of Altos such as banks and financial
institutions use its services for customizing, commissioning, installing and maintaining
POS Terminals at merchant locations.
Verifone supplies POS Terminals along with core POS Terminal applications (i.e.,
Operating System and Kernels) and Software Development Kits (SDKs) to enable the basic
functionality of the POS Terminals. It was submitted that POS Terminals along with its
core applications are either sold directly to the customers like banks and retail outlets or
to the TPPs such as Altos who act on behalf of acquiring banks and also render VAS to
develop and integrate applications into POS Terminals.
It was argued by Altos, that for the provision of VAS, it is extremely important for it to
have access to the core POS Terminal applications and their crucial
enhancements/updates along with SDKs. Withholding of such enhancements/updates
and SDKs by the POS Terminal manufacturers will negatively impact the growth of the TPP
and market of VAS. It was stated that, as per standard industry practice, core POS
Terminal applications and SDKs are provided along with the POS Terminals and the costs
of the same are built into the price paid for the POS Terminals.
P 210
It was submitted by Altos that between September 2010 and December 2011, VeriFone
continued to provide SDKs to Altos along with the POS Terminals and core terminal
applications without any restrictions on the use of SDKs. VeriFone also used to provide
training to the engineers of Altos to enable them to render VAS to its customers. Further,
Altos had submitted that cost of core applications and SDKs were always included in the
purchase orders for the purchase of the POS Terminals. In relation to enhancements and
updates to core terminal applications, the purchase orders contained clauses stipulating
the terms and conditions. It is stated that in practice such enhancements and updates
were provided at no extra cost, other than the price paid at the time of procurement of
POS Terminals.
It was submitted that after acquisition of Venture Infotek by Altos in August 2010,
VeriFone issued a termination letter to Altos in September 2010 alleging breach of Source
Code Licence Agreement which was signed between them in July 2009 for a particular
model of a POS Terminal. Altos also mentioned that, despite issue of the said termination
letter, VeriFone continued to supply POS Terminals along with its core applications, SDKs
and training to its engineers for the use of SDKs. However, in January 2012, VeriFone sent a
proposed draft SDK agreement to Altos stating that the same is not open to any
negotiations, amendments or changes. It was mentioned by Altos that through the said
draft SDK agreement VeriFone sought to impose certain restrictive conditions on it.
Altos stated that the terms of the said draft SDK agreement and the restrictions
contained therein were a complete departure from the business practice that had
existed in the industry for several years. Moreover, no legitimate business reasons were
provided by VeriFone to carry out such drastic changes in the said draft SDK agreement.
It is alleged that the restrictions contained in the draft SDK agreement foreclose the
market for VAS.
It was averred that since early January 2012, VeriFone had adopted a very unreasonable
position and there was an unprecedented delay in the supply of kernels which caused
heavy revenue loss to it. It is alleged that between January 2012 and July 2012, the
VeriFone made repeated attempts to force Altos to agree to the terms and conditions as
set out in the draft SDK agreement. Further, VeriFone had issued several reminders to the
Informant to complete the formality of signing the draft SDK agreement, failing which it
threatened to withdraw the SDK support for the business of Altos. It is averred that the
Altos was constrained to issue several letters to VeriFone highlighting the unreasonable
nature of the restrictions set out in the draft SDK agreement. It is the case of Altos that
despite repeated attempts to engage in constructive discussion with the VeriFone on the
restrictive conditions of the draft SDK agreement, it issued a termination letter dated 1
August 2012. It was also alleged that VeriFone over the past few years also made in-roads
into the VAS market and operates as a direct competitor to Altos and other entities
operating in the VAS market. It is alleged that on account of the dominant position of
VeriFone in the POS Terminals market and its presence in the VAS market, it resorted to
the conduct and practices which directly impair the ability of VAS providers from
operating in the market. It was further is stated that at a global level Altos and Verifone
are competitors in the provision of hardware and software solutions to the payment
P 211 industry. But, in India, Altos is operating in the TPP and VAS spheres only whereas the
VeriFone is not only dominant in the POS Terminals market but also active in the VAS
58
market where it primarily operates in the non-financial applications and is now
leveraging its strength to compete in the financial services market.
When the matter was being investigated by the Director General, it examined the conduct
of VeriFone. The Director General noted that, through the unfair and restrictive clauses in
the 2012 draft SDK agreement, VeriFone imposed unfair and discriminatory conditions on
Altos in contravention of section 4(2)(a)(i) of the Act, has limited the provisions of
professional services thereby amounting to violation of section 4(2)(b)(i) of the
Competition Act. Further, the Director General has found that due to the abusive conduct
of the VeriFone, the technical and scientific development in the downstream market is
likely to be adversely affected leading to infringement of section 4(2)(b)(ii) of the
Competition Act. The Director General also found that VeriFone used its dominance in the
upstream market of POS Terminals to enhance its presence in the downstream relevant
market amounting to violation of section 4(2)(e) of the Competition Act.
The Competition Commission noted the investigation report prepared by the Director
General and observed that the core issue in this case relates to supply of SDK to VAS
providers for development of software on the POS Terminals. The CCI noted that no other
POS Terminal vendor in India or outside India, apart from VeriFone, has been found to be
imposing any restrictions on development of applications or other restrictive clauses
similar to SDK agreement. The Competition Commission noted the following:
The intent of the Opposite Party No. 1 seems to be to exploit the VAS players
by either restricting them or sharing the revenue with them because VAS
market is highly profitable and has recurring benefits. Being in a dominant
position in the relevant market, the Opposite Party No. 1 is strengthening its
position in the downstream market by imposing restrictive clause in the SDK
agreement and by refusing the VAS providers to allow access to development
tools like SDK on reasonable terms and conditions
The Commission also perused the clauses of SDK license agreement vis-a-vis
the provisions of section 4(2) of the Act. It is observed that through the
‘Purpose Clause’ which provides that there is a restriction on the licensee to
use any third party for development of application, the Opposite Party No. 1
imposes restrictions that development of VAS to be used only on the POS
Terminals that licensee has purchased directly from the Opposite Party No. 1.
Even though the Opposite Party No. 1 contended that it does not restrict the
VAS providers but the clauses of SDK agreement do not reflect this version. The
Commission observes that the purpose clause relating to allowing licensee to
develop the value added software and using the same on only those of the
licensor’s products that licensee has purchased directly from the licensor
mentioned in Exhibit A of the SDK agreement is clearly restrictive and anti-
competitive.
Further, the license restriction clause i.e., ‘not use the licensed software to
develop any payment software that directly or indirectly interacts with any
acquiring bank’ seems to be unfair and restrictive. The SDK license agreement
of the Opposite Party No. 1 does not allow the third party to write a payment
application in India which is contrary to the practice followed by the Opposite
Party No. 1 elsewhere across the globe as is evidenced from the statement
P 212 made in its website i.e., ‘Verifone offers a selection of developer tools and
drivers to help programmers design and develop efficient, professional
payment applications that complement our payment systems’.
Further, by restricting the development of payment softwares for any payment
association and non-disclosing the said clause to the large buyers (Banks) in
India who would require customized payment softwares to run on the POS
Terminals bought by them, the Opposite Party No. 1 has restricted the
availability of substitutable payment solutions thereby restricting the choice
for the buyers. Thus, the restrictions imposed by the Opposite Party No. 1 on
development of payment software by the third parties are anticompetitive
The Commission observes that the restriction placed on the Informant not to
use the licensed software to develop any payment software that directly or
indirectly interacts with any acquiring bank appears to be unfair as it
limits/controls the provision of VAS services and limits/restricts the technical
and scientific development of VAS services used in POS Terminals in India. It is
pertinent to note that the Informant being the lawful owner of the proprietary
rights in the VAS is neither allowed to exploit it for its own purpose nor for its
customers. Further, the above-mentioned restrictive clause acts as a
disincentive for the Informant to continue investing in development and
innovation of VAS services as its business would be adversely affected by such
restrictive clauses.
It is further observed that the license restriction clause relating to disclosure
mentioned in the SDK license agreement imposes three different disclosure
requirements namely; a) disclose to licensor from time to time the activities
relating to licensed software; b) what value added software it has created; and
(c) what it intends to create using the licensed software. It may be noted that
59
the Opposite Party No. 1 is a POS Terminal manufacturer and is also engaged
in the development of VAS applications. By way of this restriction, the
Opposite Party No. 1 was trying to get access to confidential commercial
information from the VAS providers and to exploit the lucrative VAS market.
The requirement of prior disclosure to the Opposite Party No. 1 about the VAS
developed by the Informant amounts to imposition of unfair condition on the
Informant and it limits the provision of VAS services.
Further, by seeking information such as business secrets/commercially
sensitive information on the VAS services which the Informant intends to
develop is likely to prejudice the business activities of the Informant as the
Opposite Party No. 1 is developing into a major competitor for the Informant in
the VAS/TPP market in India. Such restriction restricts technical/scientific
development relating to VAS services for POS Terminals in India. Since the
Opposite Party No. 1 has a larger presence in terms of POS Terminals managed
by banks in India and is itself a manufacturer of POS Terminals, its conduct
with respect to seeking disclosure of sensitive business information from its
customers in the downstream market is unfair as it enables the Opposite Party
No. 1 to protect the downstream market of VAS services.
Based on the above analysis, the Commission comes to the conclusion that the
conduct of the Opposite Party No. 1 is abusive in terms of section 4 of the Act.
The Commission is of the considered opinion that through the SDK agreement
the Opposite Party No. 1 has imposed unfair conditions on VAS/TPP service
providers which is in contravention of section 4(2)(a)(i) of the Act (part of unfair
terms and conditions discussed above); restricted the provision of VAS
services as well as limited/restricted the technical and scientific
development of VAS services used in POS Terminals market in India which is in
contravention of 4(2)(b)(i) and (ii) of the Act. Also, the conduct of the Opposite
Party No. 1 with respect to seeking disclosure of sensitive business information
P 213 from its customers in the downstream market in order to enable to enter
into the downstream market of VAS services is in contravention of the
provisions of section 4(2)(e) of the Act (aspect of leveraging discussed later in
this chapter).
[D] Denial of Market Access

Section 4(2)(c) of the Competition Act provides that there shall be an abuse of dominant
position if the dominant undertaking indulges in practice or practices resulting in denial
of market access in any manner. By way of this section, the legislature wanted to
introduce the aspect of essential facilities into the Indian context. The CCI came out with
an advisory booklet on the issue of denial of market access and essential facilities
doctrine. The CCI, in the booklet observed the following:
Barrier to entry of new enterprises into the relevant market is a major restraint
on the working of competition. When an enterprise with dominance in the
relevant market controls an infrastructure or a facility that is necessary for
accessing the market and which is neither easily reproducible at a reasonable
cost in the short term nor interchangeable with other products/services, the
enterprise may not without sound justification refuse to share it with its
competitors at reasonable cost. This has come to be known as the essential
facility doctrine (EFD). It has been recognized that any application of the
essential facilities doctrine should satisfy the following:
a. The facility must be controlled by a dominant firm in the relevant
market;
b. Competing enterprises/persons should lack a realistic ability to
reproduce the facility;
c. Access to the facility is necessary in order to compete in the relevant
market; and
d. It must be feasible to provide access to the facility.
Subject to such conditions being satisfied, the Commission may under the
provisions of Section 4 (2) (c) of the Act (related to denial of market access by
a dominant enterprise) pass a remedial order under which the dominant
enterprise must share an essential facility with its competitors in the
downstream markets.
The CCI, by way of its booklets and decisional practice wanted to interpret this provision
in an extremely broad manner to cover all practices wherein the dominant enterprise
refuses to share the essential facility, not only with its competitors, but also indulges in
practice which results in denial in market access for any the downstream markets. Having
said that, the Competition Appellate Tribunal has reduced the ambit of the
interpretation adopted by the CCI for this section. The Competition Appellate Tribunal
has held that section 4(2)(c) would only apply in case of denial of access to a competitor.
The Competition Appellate Tribunal, in the case of M/s Fast was transmission Pvt. Ltd. v.
Competition Commission of India (20) observed the following with respect to section 4(2)
60
(c) of the Competition Act:
From an examination of the relevant provisions, it is apparent that the
fundamental premise is that a denial of market access is occasioned only to a
competitor. Further, that such a denial is occasioned by one competitor
indulging in a practice or practices which result in such a denial. This is so
P 214 because in a free market environment all players are expected to operate in
an open and level playing field platform where one player (competitor)
engages in a practice which results in denial of such an opportunity to another
similarly placed player (competitor) then certainly anti-competitive
behaviour is encountered. However, where two players are operating in
different levels in the market or operating in different transactions or services,
can it be said that they are in competition with each other in the market?
Further, if they are not competing with each other in equivalent products,
transactions or services, how can one engage in denial of market access to the
other?
Based on the above, a case of denial of market access can only be made out when the
dominant enterprise, by its conduct, creates strategic barriers for a competitor or
potential competitor. It must be noted that the words in any manner in this clause was
added by way of an amendment in 2007. The intent of this amendment, although in the
nature of a clarification, was to include all strategies which may be carried out by the
dominant enterprise to deter entry or to defer potential competition. The said clause
seeks to cover all instances wherein dominant undertaking by its actions is creating
insurmountable barriers to entry for new entrants to come into the market.
The seminal case in India on this point is the Automobile Spare Parts case. As deliberated
above, the CCI had noticed that there have been restrictions which have been imposed
by the OEMs on the spare parts suppliers not to sell the spare parts in the open market.
In the process, the independent repairers were not able to procure the spare parts over
the counter. The independent repairers had no other option but to procure the spare
parts from the authorized dealers. Through a network of agreements entered into
between OEMs and suppliers, it was ensured that the OEMs were the only source of supply
of spare parts in the after market. Based on the facts, the CCI concluded that the OEMs
are engaging in practices which amounts to denial of market access, and hence an abuse
under section 4(2)(c) of the Competition Act.
The CCI noted that a dominant enterprise is engaging in an abuse when the concerned
dominant enterprise, which competes in both the upstream and downstream markets
and is in effective control of a product/service in the upstream market which is required
by the enterprises in the downstream market to effectively carry out their economic
activity, are engaging in practices which may exclude a competitor from such
downstream market. Such exclusion may be occasioned by refusing to supply such
product/services to enterprises in the downstream market. The CCI, relied on the
investigation report of the Director General, wherein the OEMs had submitted that the
spare parts and diagnostic tools, workshop manuals are their proprietary materials and
therefore accessible only to the authorized dealers network of each OEM. Further, the CCI
observed that the make of each brand of car is unique and the independent service
providers require the spare parts and diagnostic tools compatible to the various models
of automobiles manufactured by the various OEMs to carry out their economic activity of
providing repair and maintenance services in the Indian automobile aftermarket.
However, it was noted that each OEM, through their own or related network of authorized
distributors also operate in the aftermarket for after sale repair and maintenance
services of their own brand of cars. Each OEM have two type of customers; one in the
P 215 primary market and the other in the secondary market. These customers are: (a) car
owners who purchase the automobiles manufactured by the OEMs in the primary market,
and (b) independent service providers in the aftermarket. An owner of a car cannot fit the
spare parts into the machine by himself and requires the services of a specialized
technician. Therefore, the owner of automobiles does not only operate in the aftermarket
as purchasers of spare parts but requires the service of firms engaged in maintenance
and repair work. The independent repairers, who are not part of the official dealer
network of the OEMs, do purchase the spare parts of the automobiles manufactured by
the OEMs from the OEMs. Therefore, the independent service providers are customers of
the OEMs in the aftermarket and further compete with the OEMs in the repairs and
maintenance service aftermarket. The CCI observed that OEMs have effectively denied
access to spare parts to these independent repairers by entering into agreements with
the suppliers forbidding the suppliers to sell the spare parts in the open market. Also, it
was also noticed by the CCI that even the authorized dealers of the OEMs are forbidden to
supply spare parts to independent repairers over the counter.
The CCI noted that the principle of competition law is to promote free and fair
competition. Contrary to the principle of competition law, the CCI noted that the intent of
OEMs was to distort competition and reserve the market for after-sales and service for
itself. The CCI observed the following in this regard:
Based upon the practices of the OEMs, the Commission is of the conclusion
that:
61
(a) in none of the instances are the overseas suppliers or the OESs supplying
spare parts manufactured by them directly into the Indian automobile
aftermarket. Therefore, on account of non-sale of spare parts by the
overseas suppliers and the OESs to entities other than the respective
OEMs, each OEM becomes the only source of supply of these spare parts
for the aftermarket requirements.
(b) apart from Maruti; most of the other OEMs have some restrictions on the
ability of their authorized dealers to sell spare parts to independent
service providers.
(c) all the OEMs restrict the availability of the diagnostic tools/repair
manuals etc., required to effectively repair various models of their
respective brand of automobiles to the independent service providers
and the multi brand retailers. It is pertinent to note that even though
Maruti allows its spare parts to be sold over the counter to independent
repairers; it restricts the access of such independent repairers to
diagnostic tools required to repair various models of automobiles
manufactured by Maruti. Therefore, even in case of automobiles
manufactured by Maruti, the independent service providers are
restricted to effectively compete with the authorized dealers of the OEM.
The principle of free competition lies at the heart of the Commission’s
mandate under the Preamble and section 18 of the Act. Under section 18 and
the Preamble of the Act, the Commission still has the overall responsibility, ‘it
shall be the duty of the Commission to eliminate practices having adverse
effect on competition, promote and sustain competition, protect the interests
of consumers and ensure freedom of trade carried on by other participants, in
markets in India’. Therefore, the aim of the Commission is the institution of a
system of undistorted competition which is commensurate to the promotion of
the interests of the consumer. A dominant enterprise can impede free
competition in the relevant market over which it enjoys a position of strength.
P 216
One such way of distorting free competition is the refusal by a dominant
enterprise to meet, in full or in part, orders placed with it by its customers
who are dependent upon the products or services of the dominant enterprise.
The ECJ in Commercial Solvents v. Commission [1974] ECR 223, (para. 25) held
that ‘an undertaking which has a dominant position in the market of raw
materials and which, with the object of reserving such raw material for
manufacturing its own derivatives, refuses to supply a customer, which is itself
a manufacturer of these derivatives, and therefore risks eliminating all
competition on the part of this customer, is abusing its dominant position’.
The basic objection of the Court was that a dominant enterprise, which
competes in both the upstream and downstream markets and is in effective
control of a product/service in the upstream market which is required by the
enterprises in the downstream market to effectively carry out their economic
activity, may exclude a competitor from such downstream market, by refusing
to supply such product/services to enterprises in the downstream market.
In the present case, the independent service providers require the spare parts
and diagnostic tools compatible to the various models of automobiles
manufactured by the various OEMs to carry out their economic activity of
providing repair and maintenance services in the Indian automobile
aftermarket. As discussed earlier, each OEM is a dominant player in the
aftermarket for the supply of spare parts and diagnostic tools and through a
network of contracts effectively controls the supply of such spare parts and
diagnostic tools in the aftermarket.
The OEMs through their own or related network of authorized distributors also
operate in the aftermarket for aftersale repair and maintenance services of
their own brand of cars. Each OEM have two type of customers; one in the
primary market and the other in the secondary market. These customers are:
(a) car owners who purchase the automobiles manufactured by the OEMs in
the primary market and (b) independent service providers in the aftermarket.
An owner of a car cannot fit the spare parts into the machine by himself and
requires the services of a specialized technician. Therefore, the owner of
automobiles does not operate in the aftermarket as purchasers of spare parts
but require the service of firms engaged in maintenance and repair work. The
independent repairers, who are not part of the official dealer network of the
OEMs, do operate in the market for as purchasers of spare parts of the
automobiles manufactured by the OEMs. Therefore, the independent service
providers are customers of the OEMs in the aftermarket and further compete
with the OEMs in the repairs and maintenance service aftermarket. Section
4(2) provides a list of abusive conducts, which when undertaken by a dominant
enterprise, would fall within the mischief of section 4(1) of the Act. Section 4(2)
(c); provides that a dominant enterprise shall abuse its dominance, if it
62
indulges in practice or practices resulting in denial of market access. As
discussed earlier, we are of the opinion that each OEM is a monopolistic
player in the aftermarket for its own brand of spare parts and diagnostic tools
and is in effect the sole supplier of such spare parts and diagnostic tools to
the aftermarket. We have also discussed the practices of the OEMs to conclude
that in effect each OEM severely limits the access of independent repairers
and other multi-brand service providers to genuine spare parts and diagnostic
tools required to effectively compete with the authorized dealers of the OEMs
in the aftermarket. Such practices amounts to denial of market access by the
OEMs under section 4(2)(c) of the Act.
Further, such denial of market access is specifically aimed at adopting a
course of conduct with a view to exclude a competitor from the market by
means other than legitimate competition and such exclusionary abusive
conduct allows the OEMs to further strengthen their dominant position and
P 217 abuse it. As has been noted by the European Court of Justice, that ‘such
behaviour cannot be countenanced if its actual purpose is to strengthen this
dominant position and abuse it’ (United Brands v. Commission Case 27/76
[1978] ECR 207, (para. 189). It is the opinion of the Commission that in such
cases a violation of section 4(2)(c) of the Act is clearly established.
The OEMs have submitted that the spare parts and diagnostic tools, workshop
manuals are their proprietary materials and therefore accessible only to the
authorized dealers network of each OEM. The Commission notes that unlike
section 3(5) of the Act, there is no exception to section 4(2) of the Act.
Therefore, if an enterprise is found to be dominant pursuant to explanation (a)
to section 4(2) and indulges in practices that amount to denial of market
access to customers in the relevant market; it is no defense to suggest that
such exclusionary conduct is within the scope of intellectual property rights of
the OEMs. On the basis of aforesaid, the Commission is of the opinion that the
OEMs have denied market access to independent repairers and other multi-
brand service providers in the aftermarket without any commercial
justification.
The CCI also touched upon briefly, on the issue of denial of market access in the NSE case.
It was alleged that NSE had taken a stake of about 26% in Omnesys, which is a technology
vendor providing software for financial and securities market. The product of Omnesys,
known as ‘NOW’ was made, which was a substitute to software called ‘ODIN’. ODIN was
developed by FTIL, the promoter of MCX-SX and the market leader in brokerage solutions
sector. It was alleged that after taking an equity stake in Omnesys, DotEx intentionally
wrote individually to the members/brokers of NSE offering them NOW free of cost for the
next three years. NSE also, simultaneously, refused to share its currency derivative
segment Application Programme Interface Code (APIC) with FTIL, thus disabling the ODIN
users (who constituted about 85% of the stock brokers/traders) from connecting to the
currency derivative segment of the NSE from trading platform through their preferred
mode, ODIN. The product thus thrust upon everyone (consumers) desirous of accessing
the currency derivative segment of NSE was the product ‘NOW’ developed by Omnesys, in
place of ODIN. Further, it was alleged that NSE had put ‘ODIN’, on watch list across all its
segments thereby deterring its members and their constituents from using ‘ODIN’ as their
front-end solution. Based on the investigation, the CCI noted that ODIN and NOW are
competing software and such software is an essential facility, without which trading
cannot be done. Relying on jurisprudence from matured anti-trust jurisdictions, it was
noted by the CCI that the: (i) action of NSE of placing FTIL, the developer of ODIN (and one
of the promoters of MCX-SX) on its watch list; and (ii) denying APIC for interface between
its own software NOW and ODIN for the currency derivative segment, prevents the clients
of the NSE, most of who use ODIN for all other segments, from choosing ODIN for the CD
segment trade on NSE. The CCI noted that the said action is anti-competitive in the
aftermarket of trading software for currency derivative segment of the NSE. The CCI noted
the following, with respect to action of NSE:
Had the APIC been provided to ODIN, the two software, viz., ODIN and NOW
would have competed for clients. This in fact, would lead to improvements in
the technical development of all such softwares due to competitive forces in
the aftermarket.
P 218
This situation is similar to the US v. Microsoft case where the allegation was
that Microsoft had manipulated its application interface code to put third-
party browsers at a disadvantage for users who were working on Microsoft’s
Windows operating system. There are also similarities with the European
Commission’s case against Microsoft where there was allegation that Windows
Media Player was bundled with the operating system and third-party players
had difficulties in running on it.
In view of the discussion above, this Commission concludes that the conduct of
NSE/DotEx in denying APIC to ODIN and putting FTIL on watch list is an
63
exclusionary conduct both, in the aftermarket for software for trading on NSE
as well as in the relevant market delineated in this case.
The aspect of denial of market access in any manner is very wide and it includes all
strategies adopted by the dominant enterprise to deter or defer competition. There is an
investigation which is pending right now at the offices of the Director General, where it is
alleged that the dominant enterprise has engaged in denial of market access by engaging
in bad faith litigation and abusing judicial process. The prima facie case made in this
regard is against JCB India in the case of M/s Bull Machines Pvt Ltd. v. JCB India and others
(21) (hereinafter referred to as the JCB case). The JCB case was initiated based on
information filed by Bull Machines. Bull Machines was engaged in the manufacturing of
low cost backhoe loaders, called ‘Bull Smart’, a light construction equipment. It was
alleged that during the formal launch of ‘Bull Smart’ at the ‘Excon 2011 Exhibition’, Bull
Machines was served with an ex parte interim injunction order granted by the High Court
of Delhi by JCB wherein it was alleged that Bull Machines had infringed the design
registrations/copyright of JCB in developing the backhoe loader ‘Bull Smart’. The said
order of the Delhi High Court restrained Bull Machines and its dealers ‘from making,
selling, offering for sale, dispatch, advertising, directly or indirectly dealing in/launching
backhoe loaders in any manner’. It is the case of the Bull Machines that JCB obtained the
ex parte ad interim injunction order based on misrepresentation of images/design
registration number/documents and bogus numbers, suppression of its pre-existing UK
patent, misrepresentation by comparing the wrong angle of the images in the application
and reliance upon fraudulent design registrations which were pre-existing in the public
domain. It is further alleged that JCB, armed with the ex parte order of the Hon’ble Delhi
High Court, forced Bull Machines to remove the backhoe loader ‘Bull Smart’ from ‘Excon
2011 Exhibition’ in front of a huge crowd of dealers, existing and potential customers, end
customers, financing company officials, bankers, suppliers, foreign delegates and peers
in the industry and media.
Post the order by the Delhi High Court, Bull Machines filed an application for vacation of
the ex parte interim stay order and submitted all the evidence required to show that
there is no similarity in the design of backhoe loader ‘Bull Smart’ developed by it and the
designs registered by JCB. Bull Machines also submitted evidences to the High Court show
that JCB misrepresented the images and the design registration numbers/documents and
misled the Delhi High Court to secure an ad interim ex parte injunction order in its favour.
P 219
It is averred by Bull Machines that after nearly ten months from the filing of the said suit,
JCB voluntarily withdrew its application for ex parte interim injunction without
submitting any inspection report or reply. In view of the above, the Delhi High Court
dismissed the petition and the ex parte interim order procured by JCB by
misrepresenting facts before the Hon’ble Delhi High Court was vacated. However, the
case of Bull Machines was that huge irreparable damages had been already caused to
Bull Machines and in the process, JCB’s objectives of deferring the entry of Bull Machines
as achieved. The entire case of abuse made by Bull Machines is based upon the alleged
bad faith litigation by JCB before the Hon’ble High Court of Delhi. It is alleged that the
bad faith litigation initiated by JCB against it alleging infringement of its design rights
was totally false and that the said legal proceedings before the Delhi High Court were
only initiated to harass it and prevent the launch of ‘Bull Smart’, which in effect would
have competed with backhoe loaders of JCB in the relevant market. Based on the
evidence on record, the CCI passed a prima facie view and have asked the Director
General to investigate the matter as to whether JCB has denied market access by
engaging itself in bad faith litigation. The CCI noted the following in the prima facie order:
Furthermore, it is the case of the Informant that the injunction was obtained
on the basis that the Informant had allegedly infringed the registered designs
and copyrights of JCB while manufacturing ‘Bull Smart’, which
designs/copyrights themselves were obtained fraudulently.
The Commission observes that the predation through abuse of judicial
processes presents an increasingly threat to competition, particularly due to
its relatively low anti-trust visibility.
In view of the allegations projected in the information and as detailed
hereinabove, the Commission is of prima facie opinion that JCB by abusing
their dominant position in the relevant market sought to stifle competition in
the relevant market by denying market access and foreclosing entry of ‘Bull
Smart’ in contravention of the provisions of Section 4 of the Act.
[E] Imposing Supplementary Obligations

Section 4(2)(d) of the Competition Act provides that there shall be an abuse of dominant
position if the dominant enterprise or group makes conclusion of contracts subject to
acceptance by other parties of supplementary obligations which, by their nature or
according to commercial usage, have no connection with the subject of such contracts.
This clause would include instances of tying and bundling. Tying instances would include
cases of technical tying, contractual tying, tying of products with services etc. It is to be
64
noted that practice of adopting tying practices, in itself, will not, in itself constitute a
breach of the provisions of the Competition Act. As such, tying in a legitimate business
practice and an enterprise can make considerable savings in production, distribution
and transaction costs. Based on international jurisprudence, for an abuse of dominance
P 220 for tying to be made out, the following needs to be addressed:
(i) The enterprise has a dominant position regarding the tying product.
(ii) The tied product is a distinct product from the tying product.
(iii) Element of coercion.
(iv) Anti-competitive foreclosure.
Tying cases can also be covered under both section 4(2)(d) and section 4(2)(e), which
deals with leveraging. It can also include practices where an intellectual property right
holder licences its IPR only on some additional condition. Such IP abuses are covered in
the chapter on IPR and competition law.
[F] Leveraging of Dominant Position

Section 4(2)(e) of the Competition Act provides that there shall be an abuse of dominant
position, when the dominant undertaking uses its dominant position in one relevant
market to enter into, or protect, other relevant market. The Competition Act has expressly
included the aspect of leveraging as an abuse of dominant position. The key point of
consideration is that there must be an exploitation of market power by the dominant
player in the market in which the enterprise is dominant to enter into or protect their
position in the market in which such player is not dominant. There are situations,
especially in a multi-product companies or group, where there are lot of joint costs and
cross subsidization. When does cross subsidization become an issue of leveraging
depends on facts and circumstances of each case.
The CCI has examined the provision relating to leveraging in the NSE case and the
Automobile Spare Parts case and following are the key interpretations which have
emerged from the decisional practice of the CCI:
(a) The dominant enterprise in the first market need not possess dominant market
position in the second market where it makes attempts to leverage its market
power. The aspect of leveraging deals with a situation where an enterprise in
dominant position in any delineable relevant market uses its strength therein to
enter or protect any other delineable relevant market. The Competition Act does
not provide that there has to be a high degree of associational link between the two
markets (market in which the enterprise is dominant and the second market which
it intends to enter or protect) being considered for the abuse of leveraging. The CCI,
in the NSE case observed that:
The Indian Competition Act recognizes leveraging as an act by an
enterprise or group that ‘uses by its dominant position in one relevant
market to enter into, or protect, other relevant market.’ Nowhere does
the Act indicate that there has to be a high degree of associational link
between the two markets being considered for this sub section. This is so
because competition concerns are much higher in India than in more
mature jurisdictions because of the historical lack of competition laws.
In India, if an enterprise dominant in the market of audio-visual (AV)
equipment enters into the market of say, computers, it is possible for it
P 221 to use its strength in terms of finances, technological expertise, sales
network etc. in the AV market to muscle its way into and protect its
position in the computer market, even though the two markets are not at
all connected. That is why the Act does not indicate any requirement of
associational link.
(b) The section uses the term ‘relevant market’ and other relevant market. The
Competition Act recognizes the fact that an enterprise may be multi-product and
may be operating in two (or more) markets. In case of multi-product enterprises,
such enterprise can use its position of strength derived in one market to leverage its
position and gain unfair advantage over its competitors in the other market. While
its conduct in the second market has to be separately examined for abuse if and
after it acquires a dominant position in the second market, the fact that it has used
the strengths from the first market to wrongfully enter into or to protect the second
market is itself an abuse under the Competition Act. It is to be further noted that in
the event such enterprise, after entering the other relevant market through such
leveraging and thereafter acquires dominant position in the other market, commits
further acts of abuse in that relevant market, then there would be a separate
violation of section 4(2)(a)–(d) of the Competition Act. The CCI, observed in the NSE
case as follows:
At this stage, the Commission would like to clarify the intent as well as
the import of section 4(2)(e) of the Competition Act, 2002. It is incorrect
to argue that the whole of section 4 pivots around determination of only
one ‘relevant market’ or that determination of a second ‘relevant
65
market’ is not possible or that having treated a particular market as the
‘relevant market’ for the purpose of explanation (a) to section 4, that
market cannot be treated as the ‘other market’ for the purpose of section
4(2)(e) as per the wordings of the provision.
Explanation (a) is for defining what dominant position means for any
market being examined under section 4 while section 4(2)(e) deals with a
situation where an enterprise in dominant position in (any) delineable
relevant market uses its strength therein to enter or protect any other
(delineable) relevant market. Section 4(2)(e) uses the terms, ‘one
relevant market’ and ‘other relevant market’. The section recognizes the
fact that an enterprise may be multi-product and may be operating in
two (or more) markets. It may be possible for such enterprise to use its
position of strength derived in one market to leverage its position and
gain unfair advantage in the other market. While its conduct in the
second market has to be separately examined for abuse if and after it
acquires a dominant position there, the fact that it has used the
strengths from the first market to wrongfully enter into or to protect the
second market is independently considered harmful to competition
under the Act. The ‘relevant market’ of the explanation (a) applies
equally in intent for sections 4(1) and (2) but the relevant market in
respect of clauses (a) to (d) of section 4(2) can be different than the
relevant market for the purpose of clause (e).
To further clarify, if an enterprise merely uses its dominant position in
any ‘relevant market’ to enter or protect some other ‘relevant market’
wrongfully, it can only be held guilty of contravening section 4(2)(e). But
if the enterprise, after entering the other relevant market through such
leveraging and acquiring dominant position there, commits further acts
P 222 of abuse (such as unfair pricing) in that relevant market, then there
would be a separate violation of section 4(2)(a).
It is worthwhile to observe here that the language of section 4(2)(e) does
not exclude the possibility that the enterprise is dominant in both, the
‘relevant market’ as well as the ‘other relevant market’. An enterprise
can be dominant in one market and can enter another market, acquire
position of strength there and then commit acts to protect its position.
Based on the above approach, the CCI noted that NSE, a super dominant entity in the
non-currency derivative market leveraged its dominant position by using their strength in
the non-currency derivative segment to enter into and protect their position in the
currency derivative segment. The CCI observed that they could issue periodical waivers in
the transaction fees in the currency derivative segment and yet earn profits in the
process, while the other earned huge losses, was because of their strength in the non-
currency derivative segment. It is noteworthy to point out that when the matter went up
in appeal before the Competition Appellate Tribunal, the Tribunal disagreed with the
definition of the relevant market adopted by the CCI. The CCI had identified two market:
market for currency derivative and a market for non-currency derivative segment. After
defining the market, the Commission observed that the NSE is using their dominant in
non-currency derivate segment market to protect their position in the currency derivate
segment market. However, the Competition Appellate Tribunal held that there is only one
definition of relevant market, that is, market for stock exchange services market where
NSE is committing the abuse of unfair pricing (discussed above). Since, there was only
one definition of relevant market adopted by Competition Appellate Tribunal, there was
no discussion made by them on the point of leveraging.
The issue of leveraging was also discussed, in detail, in the Automobile Spare Parts case.
As has been discussed at length above, it was noted by the CCI that the OEM’s have a
dominant position in the market for spare parts and diagnostic tools because of limited
inter-brand interchangeability of spare parts. Further, the OEMs, pursuant to a network of
restrictive contracts and commercial practices have become the sole supplier of genuine
spare parts of various models of their automobiles and diagnostic tools in the
aftermarket. Further, the OEM’s are also active in the market for repair and maintenance
through their network of authorized dealers. The CCI noted that there are inter-linkages
between the repair/service markets and the spare parts/diagnostic tools market and the
OEMs have a commercial incentive to leverage their dominance from the relevant market
of spare parts/diagnostic tools to that of repairs and maintenance services. The CCI
noted that OEMs (acting through their authorized dealer network) deny 94.99% of the total
service providers active in the Indian automobile aftermarket (consisting of multi-brand
retailers, semi-organized service stations and unorganized garage workshops), effective
access to the Indian aftermarket on competitive terms.).
It was noted that the OEMs typically provide after sale services and repair of their brand
of automobiles through a network of authorized dealers. These authorized distributors
P 223 are also the source of supply of genuine spare parts of various models of automobile
manufactured by an OEM. As discussed above, the OEMs restrict the ability of the
independent repairers to obtain spare parts from the authorized dealers. Further, the
OEMs restrict the suppliers from supplying spare parts in the open market. In addition,
66
the OEMs had also imposed a warranty condition on the consumers that their warranty
will be denied if the cars are serviced by an independent repairer or other multi-brand
service repairers. The CCI, also noted that in the limited instances where spare parts are
available to the actual owners, the owners have to buy such spare parts at the MRP and
then avail the services of the independent repairers at additional costs; whereas the
authorized dealers are able to provide such services at cheaper rates since the
applicable spare parts are available to the authorized dealers at a discount over the
MRP. Therefore, in practice, in most cases the owners of various brands of automobiles
are completely dependent on the authorized dealer network of the OEMs and are not in a
position to exercise option of availing services of independent repairers. Therefore, the
users of car wanting to purchase the spare parts have to necessarily avail the services of
the authorized dealers of the OEM. Based on these facts, the CCI held that the OEMs are
leveraging their dominant position in the market for supply of spare parts to protect their
market of maintenance of cars.
§3.06 OBJECTIVE JUSTIFICATION

As mentioned above, the CCI, in their decisional practice, has adopted the effects test.
The effect test implies that unilateral conduct may escape the prohibition of section 4 of
the Competition Act in case the dominant enterprise can provide an objective
justification for its behaviour or it can demonstrate that its conduct produces efficiencies
which outweigh the negative effect on competition. The burden of proof for such an
objective justification or efficiency defence will be on the dominant enterprise. The
possible types of objective justification would be in cases where it can be shown that
dominant enterprise can show that the otherwise abusive conduct is actually necessary
conduct on the basis of objective business rationale. The NSE also raised multiple
business rationale for engaging in fee waivers in the currency derivative segment for
promoting the currency derivative. NSE raised the point of promotional/penetrative
pricing. It is to be noted that although these defences were not held to be valid by the
CCI and Competition Appellate Tribunal, yet they heard the matter on objective
justification at great length. Their approach implies that the CCI will take into account
objective justification, as a defence. In this background, it becomes all the more
necessary for companies, who have a high market share, to adopt proper documentation
of their business processes and decisions which can be used in a defence in an abuse of
dominance investigation.
P 223
References
1) Section 4 (2) a – Explanation, Competition Act, 2002.
2) Case No. 13/2009.
3) Case No. 19 of 2010.
4) Case No. 03/2011.
5) Jagmohan Chhabra v. Unitech Ltd, Case No. 21/2011.
6) Indian Sugar Mills Association v. Indian Jute Mills Association, Case No. 38/2011; also
take note that in the Competition (Amendment) Bill, 2012 wanted to amend s. 4 to
include abuse either jointly or singly but this bill was not passed.
7) It would also be relevant to note that under s. 19 (4) (j) the market structure is also a
factor that has to be considered while determining dominant position.
8) 12.61 DLF decision.
9) Reliance was placed on Hilti v. Commission [1991] ECR II-1439, paras 90, 91 and 92;
Case T-340/03 France Télécom v. Commission [2007] ECR II-107, para. 100.
10) Case No. 39 of 2012.
11) Case No. 40/2011.
12) Case No. 71 of 2012.
13) Case No. 73 of 2011.
14) Case No. 06 of 2015.
15) [1978] ECR 207.
16) [1975] ECR 1376.
17) European Commission Communication from the Commission – Guidance on the
Community’s Enforcement Priorities in Applying Art. 82 to Abusive Exclusionary
Conduct by Dominant Undertakings (2009/C 45/02).
18) Case No. 72/2011.
19) Case No. 56 of 2012.
20) Appeal No. 116 of 2012.
21) Case No. 105 of 2013.
67
Document information Chapter 2: Anti-competitive Agreements and Competition
Law
Publication
Competition Law in India: A
§2.01 LEGAL FRAMEWORK
Practical Guide Any agreement between persons or enterprises or association of enterprises or persons or
association of persons, in respect of production, supply, distribution, storage, acquisition
or control of goods or provisions of services, which causes an appreciable adverse effect
Jurisdiction on competition in India, is void under section 3(2) of the Competition Act. The CCI has
noted, in the case of Shri Neeraj Malhotra and Deutsche Bank and others (include a
India footnote Case No. 5/2009) stating that under the provisions of section 3, in an analysis of
agreement under section 3 of the Competition Act, an agreement with a consumer is not
included. It is apposite to note the observations made by the CCI in the said case:
Topics
The basic requirement of any market is the existence of the forces of supply
Cartels and demand. A good or service is supplied or demanded only because it has
Antitrust some utility. Elements or activities that go into creation of utility combine to
form forces of supply while those that ultimately consume that utility
represent forces of demand. The end consumer of any good or service is one
Bibliographic reference who eventually consumes the utility of that product. Entities that produce,
distribute, store or control goods or services are entities that constitute
'Chapter 2: Anti- suppliers. Entities who consume are consumers. The words ‘production’,
competitive Agreements ‘supply’, ‘distribution’, ‘storage’, ‘acquisition’ or ‘control of goods or provision
and Competition Law', in of services’ all describe activities relatable to the supply side of any market.
Abir Roy , Competition Law ‘Agreement’ mentioned in Section 3 refers to any agreement entered into by
in India: A Practical Guide, parties in respect of activities as mentioned above. These activities being
(© Kluwer Law quintessentially on the supply side of a market, do not include “agreement”
International; Kluwer Law between a producer/service provider on the one hand and the end consumer
International 2016) pp. 43 - on the other because no consumer can be said to be involved in activities
156 such as production, distribution or control of any goods or services.
P 44
For the purposes of section 3, first the existence of an ‘agreement’ has to be determined.
Although, the term ‘agreement’ normally refers to joint action or understanding by two or
more parties and not unilateral action of one party, the term ‘agreement’ is construed in
a very wide manner and includes any agreement or understanding or action in concert. (1)
The CCI has observed that an agreement can also be inferred from a coercive conduct,
when the level of coercion exerted to impose an apparent unilateral policy, in
combination with the number of distributors that are actually implementing the
unilateral policy would amount to a tacit acquiescence. (2)
After the determination of an agreement, the effect of the agreement will have to be
determined. The effects of any agreement on the market place have to be determined
based on the parameters under section 19(3) of the Competition Act. It is the onus of the
CCI to prove that an agreement causes or is likely to cause an appreciable adverse effect
on competition in India. However, there are certain kinds of agreements which are
mentioned under section 3(3) of the Competition Act which are presumed to have an
appreciable adverse effect on competition in India. In such cases, the onus shifts on the
parties to such an agreement to prove that the agreement will not cause or likely to
cause an appreciable adverse effect on competition in India, based on parameters laid
down in section 19(3) of the Competition Act. We have discussed those kinds of
agreements, in detail, in the later portions of the chapter. If after the evaluation of the
effect, it is found that the ‘agreement’ has an anti-competitive effect, then the agreement
will be declared void under section 3(2).
§2.02 LEGAL FRAMEWORK OF CARTELS IN INDIA

Section 2(c) of the Competition Act defines a ‘cartel’ to include:
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.
It is apposite to note that the enforcement regime of competition law in India is fairly
new (from 2009) and most of the cases decided by the CCI and are pending before the
offices of Director General are on cartels. Further, even among those decided cases on
cartels, most of the cases deal with bid rigging in the government procurement sector.
Any agreement entered into between enterprises or associations of
enterprises or persons or associations of persons or between any person and
enterprise or practice carried on, or decision taken by, any association of
enterprises or association of persons, including cartels, engaged in identical
68
or similar trade of goods or provision of services, which –
(a) directly or indirectly determines purchase or sale prices;
P 45
(b) limits or controls production, supply, markets, technical development,
investment or provision of services;
(c) shares the 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) directly or indirectly results in bid rigging or collusive bidding, shall be
presumed to have an appreciable adverse effect on competition.
Provided that nothing contained in this sub-section shall apply to any
agreement entered into by way of joint ventures if such agreement increases
efficiency in production, supply, distribution, storage, acquisition or control of
goods or provision of services.
The statutory scheme provided under the Competition Act provides for a presumption
wherein any agreement entered into between enterprises or associations of enterprises
or persons or associations of persons or between any person and enterprise or practice
carried on, or decision taken by, any association of enterprises or association of persons,
including cartels, engaged in identical or similar trade of goods or provision of services,
which: (a) directly or indirectly determines purchase or sale prices; (b) limits or controls
production, supply, markets, technical development, investment or provision of services;
(c) shares the 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) directly or indirectly results in bid rigging or
collusive bidding, shall be presumed to have an appreciable adverse effect on
competition in India. Unlike in case of dominance investigation, the provisions with
respect to anti-competitive agreement are applicable to even a person or an association
of person (like a trade association) and not only limited to an enterprise. Further, the
ambit of section 3(3) also applies to a decision taken by an association of persons. The
CCI has used the expanded ambit of section 3(3) of the Competition Act to include even
decisions taken in a trade association meeting, since a trade association is nothing but
an association of enterprises or association of persons.
§2.03 EXISTENCE OF AN AGREEMENT

It must be noted that, to invoke the provisions of section 3 of the Competition Act, the
existence of an ‘agreement’ is sine qua non. The term ‘agreement’ has been defined in
section 2(b) of the Competition Act. Section 2(b) of the Competition Act reads as:
‘agreement’ includes any arrangement or understanding or action in concert,–
(i) whether or not, such arrangement, understanding or action is formal or in
writing; or
(ii) whether or not such arrangement, understanding or action is intended to
be enforceable by legal proceedings.
Based on the definition, we see that agreement has been defined in an extremely broad
manner under the Competition Act to include any agreement, whether oral or written. The
P 46 ambit of agreement also includes concerted action. The CCI, has, in fact, noted that the
understanding between the competitors may be tacit and the definition of agreement
includes situations where the parties act on the basis of a nod or a wink. It has been
observed from the decisional practice of the CCI that there is rarely direct evidence of
action in concert between the market participants. In absence of such direct evidence,
the CCI has to determine, based on circumstantial evidence, as to whether the market
participants are involved in any dealings and have some form of understanding which
points to the fact as to whether they are acting in coordination with each other. As
mentioned in our preceding chapter, section 36(2) read with section 41(2) of the
Competition Act confers on the CCI and Director General all the powers of a Civil Court
under the Code of Civil Procedure, 1908 which include summoning of a person and
examining him on oath, requiring the discovery and production of documents, receiving
evidence on affidavit, issuing commissions for the examination of witnesses or
documents. In spite of being provided with vast sweeping powers of investigation, it is
very difficult to obtain direct evidence with respect to the existence of a cartel, since
cartels traditionally are always hatched in secrecy. In such a situation, the Director
General and CCI relies on circumstantial evidence. Circumstantial evidence includes
evidence of communications among suspected cartel operators and economic evidence
concerning the market and the conduct of those participating in it which suggests the
existence of consensus ad idem among market participants as opposed to independent
decision making. The examples of circumstantial evidence can be restaurant receipts,
visitor entry registers, credit card bills, travel details, email dumps, telephone/mobile
bills etc which shows that the market participants had interacted with each other on a
regular basis, to show some concerted action. The standard of proof required for the
existence of a cartel is dealt with, in the subsequent portions of the chapter. Further, the
69
kind of evidence that has been relied by the Director General and CCI are mentioned
under the heading of case studies below.
In this regard, it is apposite to note the observations made in the Report of High Level
Committee on Competition Policy and Law in 2000 (based on which the Competition Act
was passed), wherein it was observed that:
It is not necessary that the agreement in question should be a formal or
written agreement to be considered illegal. In principle, any kind of
agreement (including oral and informal agreements and arrangements) could
be illegal, if it violates the law. In the case of written or formal agreements,
there can be no legal controversy. On the other hand, in the case of oral or
informal agreements, it is necessary to prove the existence of an agreement.
Proof will generally be based on circumstantial evidence, and parallelism of
action between firms can indicate this. It follows that any prohibitions should
also apply to what in the U.K law are known as ‘concerted practices’. Although
the distinction between these and agreements are often imprecise, a
concerted practice exists when there is informal cooperation without a formal
agreement.
It would be seen that most of the analysis done by the Director General and the CCI, while
deciding cartel cases, is to analyse from direct, communication and economic evidence,
whether there is an agreement between the market participants or the whether the
market participants were acting independently. The task of the Director General and CCI
P 47 becomes all the more onerous because most of the cartel investigation happen in an
oligopolistic industry where parallel behaviour is very common. The CCI has to, therefore,
differentiate between a case of an anti-competitive agreement among market
participants and conscious parallelism among market participants. In this regard, the CCI
has noted that the evidence of agreement has to be tested on the benchmark of
‘preponderance of probabilities’. In this regard, it is apposite to note the observations of
the CCI:
Since the prohibition on participating in anti-competitive agreements and the
penalties which offenders may incur are well known, it is normal for the
activities which those practices and those agreements entail to take place in a
clandestine fashion, for meetings to be held in secret and for the associated
documentation to be reduced to a minimum. Considering the remote
possibility of getting direct evidence in the case of a cartel in many cases, the
existence of an anti-competitive practice or agreement can also be inferred
from the conduct of the colluding parties which may include a number of
coincidences and indicia which, taken together, may, in the absence of any other
plausible explanation, constitute evidence of the existence of an agreement.
[emphasis supplied] Thus, in case of agreements as listed in section 3(3) of the
Act, once it is established that such an agreement exists, it will be presumed
that the agreement has an appreciable adverse effect on competition; the
onus to rebut this presumption would lie upon the opposite party.
We will discuss the approach taken by the Competition Commission in deciding cartel
cases below, in the section of case studies. Further, as mentioned above, it is apposite to
note that under the statutory scheme of Competition Act, cartels are presumed to have
an appreciable adverse effect on competition in India. With respect to the presumption
stated, it has been mentioned by the Supreme Court of India that ‘shall be presumed’ is a
presumption and not evidence in itself. Section 3(3) of the Competition Act shifts the onus
on the parties entering into an agreement for one of the categories mentioned in section
3(3)(a)–section 3(3)(d) above to show, based on the indices mentioned under section 19(3)
of the Competition Act, that such agreement does not cause an appreciable adverse
effect on competition in India. We will deal with this, in detail, in the later portions of the
chapter.
Further, the Competition Act provides for an exception to the per se rule provided under
section 3(3) of the Competition Act. The stated exception provides that the provision of
section 3(3) shall not be applicable to an agreement entered into by way of joint venture
arrangements which increase efficiency in terms of production, supply, distribution,
storage, acquisition or control of goods or services. The precise legal standards, to avail
of this exception, have been discussed in detail, in the later part of the chapter.
§2.04 SINGLE ECONOMIC ENTITY

It must be kept in mind that the provision, with respect to agreement, is only applicable
in cases when there is an agreement between parties who are completely independent of
each other and operate autonomously. The CCI has noted and accepted the international
P 48 accepted doctrine of single economic entity in its decisional practice. (3) It has been
noted by the CCI and Competition Appellate Tribunal that agreement between
enterprises which form part of the same group, owing to the fact that the sole control is
exercised by one company, cannot be assessed under section 3 of the Competition Act.
The rationale adopted by the CCI is that the agreement referred to under section 3 refers
to agreement between two enterprises that are independent of each other, and not
70
between two enterprises which are part of the same group. The rationale is that
enterprises within the same group are not autonomous in their operations since the
decisive influence over such enterprises can be held by a single enterprise. In the
Exclusive Motors Private Limited v. Automobili Lamborghini case, even when ‘Volkswagen
India’ had a separate legal existence, the CCI and Competition Appellate Tribunal noted
since it belonged to the same group as Automobili Lamborghini, (4) they were considered
a single economic entity and internal agreements between them were considered to be
outside the scope of section 3. Further, in the said case, the Competition Appellate
Tribunal looked in detail, the manner in which operations are carried by Volkswagen
India and Automobili Lamborghini. It was seen that the operations were totally
controlled by a common parent entity, and hence they formed a single economic entity. A
note of caution must be struck herein is that although in the Lamborghini case, it was
clear that the control was exercised by one entity. There can be situations, while
interpreting Competition Act (which can be seen in the discussion on control in Chapter
IV), where one enterprise can form a part of two or more different groups. So, in such a
case, agreements between enterprises may or not may form a part of the single economic
entity. The concept of single economic entity has to be seen on a de facto basis to see
whether the parties to the agreement are acting in a manner which shows that they are in
fact, a single unit.
The aspect of single economic entity was again discussed in the case of cartelization by
public sector insurance companies in rigging the bids submitted in response to the
tenders floated by the Government of Kerala for selecting insurance service provider for
Rashtriya Swasthya Bima Yojna (5) ((RSBY) herein after referred to as the insurance cartel
case). The CCI was analysing whether the public sector insurance companies had engaged
in bid rigging under the provisions of section 3(3)(d) of the Competition Act. A defence was
raised by the insurance companies stating that they constitute a single economic entity
since till 2002, all the insurance companies were owned by General Insurance Company.
It was also submitted by the insurance companies that, pursuant to the enactment of the
General Insurance Business (Nationalization) Amendment Act, 2002, Government of India
holds 100% shares of each of the insurance companies and controls the management and
affairs of the insurance companies through Department of Financial Services (Insurance
Division), Ministry of Finance. However, the CCI did not accept the defence of single
economic entity raised by the insurance companies. The CCI noted that although the
P 49 public sector insurance companies are presently under the overall supervision of the
Central Government, each of the insurance companies had placed a separate bid in
response to the tenders issued by the Government of Kerala for implementation of
RSBY/CHIS schemes. Further, all decisions relating to submission of bids, determination
of bid amounts, business sharing arrangements, etc. was taken internally at company
level without any ex ante approval/directions from Ministry of Finance. Even the
decisions taken by the companies were not even notified ex post to the Ministry. Based
on the same, it was noted by the CCI that the insurance companies participated in the
tenders independently and the Ministry of Finance had no role to play. On this basis, the
CCI held that the Ministry of Finance did not exercise any de facto or de jure control over
business decisions of insurance companies in submitting bids for impugned tenders and
therefore, it was decided that insurance companies cannot be said to constitute a single
economic unit.
The above approach adopted by the CCI in the two cases discussed above shows that the
CCI will look into the manner in which the business decisions are carried out by
enterprises and not limit itself to the shareholding pattern and board composition, to
check whether the actions of enterprises are independent of each other or not, to decide
whether the enterprises form a single economic unit. To form a single economic entity,
the CCI will look into both de jure control (control by way of shareholding, board of
directors etc.) and de facto control (the manner in which operations of a company are
carried out).
§2.05 DETERMINATION OF RELEVANT MARKET

Under the statutory scheme provided under the Competition Act, it is not necessary to
construct a relevant market, like in an abuse of dominance investigation or a merger
analysis. The CCI has noted that in a section 3 analysis, it has to be seen whether the
agreement, under investigation, causes or is likely to cause an appreciable adverse effect
on competition in India. They key is to determine the overall intent of the agreement and
its likely effect on competition, within the parameters laid down under section 19(3) of
the Competition Act, discussed subsequently in this chapter. However, in an abuse of
dominance or investigation under section 4 or merger analysis under section 6, the
position of strength of an enterprise within the contours of a well-defined ‘relevant
market’ has to be seen. Having said that, in case of vertical agreements the CCI has
observed that an agreement entered into by a non-dominant undertaking will rarely
cause an appreciable adverse effect on competition in India. Therefore, although the
legislative framework does not mandate the CCI to define a relevant market for a section
3 analysis, the final outcome of such analysis may still require a broad understanding of
the market in question.
§2.06 TYPES OF CARTEL
71
Section 3(3) of the Competition Act is applicable for an agreement entered into between
enterprises engaged in the identical or similar trade of goods or provision of services.
P 50 Therefore, the provision with respect to cartels is only applicable for horizontal
agreements. While it is true that the cartel provision is applicable only for horizontal
agreements, the CCI has looked at information exchange among competitors though
common agents / staff / third parties appointed by them. Therefore, it is imperative that
confidentiality obligations are in place when a company deals with its channel partners
like dealers, distributors, agents to ensure that there is no information dissemination to
competitors.
It has been seen that there are situations where competitors come together, either under
the aegis of a trade association or otherwise, to carry out legitimate business activities,
like industry lobbying etc. The degree of cooperation among competitors can also be for
the purposes of carrying out research and development activities. Thus, such agreements
can be a means to share risk, save costs, increase investments, pool know-how, enhance
product quality and facilitate invention. These agreements therefore, can have pro-
competitive benefits which are highly beneficial to the competitive structure of the
market. Having said that, there can be situations wherein competitors enter into an
agreement for maximizing their own profits, to the detriment of the consumers.
It must be observed that the operation of agreements can be varied from cartels to
conscious parallelism. It has been seen, from the decisional practice of the CCI, that the
operation of cartels has a tendency to be very complex and it varies according to the
number of participants involved and the nature of the market in question. The case
studies (discussed below) would show the manner in which the CCI has relied on
communication and economic evidence to identify whether the market participants have
indulged in a cartel or not. Such analysis helps the CCI to come to a conclusion as to
whether the parties have acted, in furtherance to an anti-competitive agreement, or
unilaterally. It is the precise reason why concerted practice is caught under the
provisions of the Competition Act. It is so because, by its very nature, concerted practice
does not have all the elements of a binding agreement but arise out of the behaviour of
the parties concerned. The necessity to include any such arrangement or understanding
within the ambit of an agreement has been aptly described by Lord Denning in the case
of PRTA v. W.H.Smith and Sons Ltd., as quoted by the CCI in the case of Suo-Motu case
against LPG cylinder manufacturers (6) (hereinafter referred to as the LPG case), namely:
People who combine together to keep up prices do not shout it from the
housetops. They keep it quiet. They make their own arrangements in the cellar
where no one can see. They will not put anything into writing nor even into
words. A nod or wink will do. Parliament as well is aware of this. So it included
not only an ‘agreement’ properly so called, but any ‘arrangement’, however
informal.
In analysing whether there was a concerted action among the market participants, the
CCI undertakes detailed econometric analysis. We will discuss the methods adopted by
the CCI, in the later portions of the chapter under the heading of case studies. In the
backdrop of legal position as delineated above, it becomes quite clear that in order to
P 51 find contravention of section 3 of the Competition Act, it is not the requirement of law
to demand direct evidence of agreement in all cases. In the absence of direct evidence,
existence of circumstantial evidence that tends to exclude the possibility of
independent action would be sufficient to give rise to an inference of existence of an
agreement.
Section 3(3) of the Competition Act enlists specific types of agreements/arrangements
among persons or enterprises or association of persons which are engaged in identical or
similar trade of goods or provision of services which are considered per se anti-
competitive. According to section 3(3) of the Competition Act, agreements, including
cartels, which: (a) directly or indirectly determine purchase or sales prices, (b) limit or
control production, supply, markets, technical development, investment or the provision
of services, (c) share the market or source of production or provision of services by way of
allocation of the geographical area of the market, type of goods or services, or number of
customers in the market or any other similar way, (d) directly or indirectly result in bid
rigging or collusive bidding, are presumed to cause an appreciable adverse effect on
competition in India.
The four kinds of horizontal agreements, recognized as cartels under section 3(3) of the
Competition Act, are discussed herein below
[A] Price Fixing

Section 3(3)(a) of the Competition Act provides that an agreement among enterprises at
the same level of trade, which directly or indirectly determines purchase or sale prices
will be presumed to have an appreciable adverse effect on competition. The wording of
the section is broad enough to cover not only the final price but also include other
instances of terms of trade, like discounts etc., which has an impact on the final price.
Recently, the CCI, penalized three airlines in the case of Express Industry Council of India
v. Jet Airways, Indigo Airways and Spice Jet airways (hereinafter referred to as the Airline
surcharge cartel case) for fixing a fuel surcharge, which is a component of the air cargo
72
price. The decisional practice adopted by the CCI, on the aspect of price fixing, has been
discussed under the heading of case studies below.
[B] Output Controls/Limiting Production

Section 3(3)(b) of the Competition Act provides that any agreement among enterprises at
the same level of trade, which limits or controls production, supply, markets, technical
development, investment or provision of services will be presumed to have an
appreciable adverse effect on competition. The decisional practice of the CCI would show
that among other factors, the CCI looks at demand analysis of the concerned product,
production capacity and capacity utilization of the market participants to understand
whether there is any trend/pattern wherein they limit the production. Generally, these
details are analysed over a period of three years and above. In addition, a demand
analysis is also done for a period of time to see whether the market participants indulged
in limiting production even when there was a high demand of the product under the
P 52 investigation, which will, in turn, have a resultant impact on rise in prices. Economic
analysis would show that prices cannot be kept at elevated levels if market participants
do not keep supply levels sufficiently low in relation to demand. Therefore, in order to
ensure that production and supply are low, there is very little capacity addition over
time by the market participants and in some cases, even a reduction of capacity. There
may also be cases where the market participants are not operating at optimal capacity.
Such an action will lead to demand supply mismatch and thereby, increase in price. The
CCI has made detailed observations of this clause in cases relating to cement industry,
entertainment industry, pharmaceutical industry among others. The CCI has noted in the
case of Builders Association of India v. Cement Manufactures Association and Ors (7)
(hereinafter referred to as the Cement cartel case), described in details below under the
section on case studies, that the act of limiting and controlling supplies on the part of the
cement companies over the years has been aimed at first creating shortages leading to
built-up demand which, in turn, caused upward rise in prices in wake of high demand of
the product in the market. Since in some seasons, the demand is more, the cement
companies restricted the supplies just before the peak demand which allowed the
cement companies to sell cement at a higher price. Therefore, the act of limiting and
controlling of production and supplies in the market causes upward movement in the
price of that product/service. Similarly, the deliberate act of shortage in production and
supplies as a result of cartelization in a product/service which has inelastic demand,
inevitably results in high prices. While the Cement cartel case was remanded back by the
Competition Appellate Tribunal on due process issues (discussed in Chapter I), it
nonetheless shows the approach of the CCI on substantive analysis of cartels.
In the pharmaceutical industry too, the CCI has taken note of the following conduct of
Chemist and Druggist association as being anti-competitive since it limits and controls
supply (8) and restricts the ability of the enterprises to supply and sell drugs in the
market:
(1) Non-appointment of a stockist or a wholesaler from amongst the non-members of
the respective trade association.
(2) Requirement of a No Objection Certificate (NOC) from the association for
appointment of a stockist or wholesaler.
(3) Associations fixed trade margins below which the stockists were not allowed to sell.
(4) The distributors/retailers were not allowed to give discounts to customers (this was
held to be an instance of price fixing too under section 3(3)(a) of the Competition
Act).
P 53
(5) Compulsory approval from the trade association for introduction of drugs in the
market.
(6) Requirement for routing bids for supply of drugs to the government and the
hospitals through authorized stockist only.
Similarly, in the entertainment industry, the CCI has taken note of the practices carried
out by regional film association as being anti-competitive since such film associations
frame rules and regulations to impose restrictions on the free and unrestricted
distribution and exhibition of serials/films.
[C] Market Sharing

Section 3(3)(c) of the Competition Act provides that any agreement among enterprises at
the same level of trade, which shares the 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 will be presumed to have
an appreciable adverse effect on competition. Market sharing refers to agreements
between competitors that divide up the market so that the market participants do not
compete among themselves. Such market sharing can happen by way of geographical
allocation or customer allocation.
[D] Bid Rigging
73
Section 3(3)(d) of the Competition Act provides that any agreement among enterprises at
the same level of trade, which directly or indirectly results in bid rigging or collusive
bidding, will be presumed to have an appreciable adverse effect on competition. Bid
rigging, defined in the explanation to section 3(3) of the Competition Act, means any
agreement, between enterprises or persons engaged in identical or similar production or
trading of goods or provision of services, which has the effect of eliminating or reducing
competition for bids or adversely affecting or manipulating the process for bidding. The
Competition Act treats agreement between bidders which result into bid rigging on
presumptive rule approach, meaning thereby that once the essential ingredients
constituting bid rigging are established, there is no further need to launch into an
elaborate enquiry to find out impact of such conduct on the market and adverse effect on
competition is presumed. In that situation the burden shifts on the contravening parties
to rebut the presumption by showing that their conduct does not result into appreciable
adverse effect on competition in India. The decisional practice of the CCI has shown that
most of the bid rigging case (if not all) happens in case of government procurement. The
CCI and Competition Appellate Tribunal, in the case of Re: Aluminium Phosphide Tablets
Manufacturers (hereinafter referred to as the Aluminium Phosphide cartel case), has
indicated that collusive tendering or bid rigging is the practice whereby firms agree
amongst themselves to collaborate the response of a tender. (9) Bid rigging occurs when
P 54 two or more enterprises (competing bidders or potential bidders) agree among
themselves not to compete genuinely with each other for particular tenders which affects
the prices they bid for, or they attempt to secretly influence the outcome of a contract or
series of contracts. This process allows one of the participants in the agreement to win
the tender. Participants may take turns to win the bid on different occasions.
The CCI has noted that collusive bidding or bid rigging may be of different kinds, namely,
agreements to submit identical bids, agreements as to who shall submit the lowest bid,
agreements for the submission of cover bids (voluntarily submit inflated bids),
agreements not to bid against each other, agreements on common norms to calculate
prices or terms of bids, agreements to squeeze out outside bidders, agreements
designating bid winners in advance on a rotational basis, or on a geographical or
customer allocation basis.
The CCI has observed that in the event the tenders submitted are not a result of one’s
individual economic calculation, but a result of consultation amongst several players
submitting the tender, competition is said to be distorted in such a case. A case in this
regard is the LPG case and Aluminium Phosphide cartel case where all the firms set
identical prices in their bids in spite of the firms having very distinct cost structures and
sale prices. In all bid rigging cases, the Director General and CCI make a detailed
assessment of the cost structure of the company, a comparison of the input cost and final
cost, production capacity and capacity utilization, etc., of each of the market
participants to see whether there is any agreement among the market participants. We
have also highlighted various instances of bid rigging in case studies, detailed below and
the manner in which the CCI has come to conclusion whether there has been case of bid
rigging or not, based on these economic parameters.
It is to be noted that the definition of bid rigging also includes any agreement among
enterprise to manipulate the process of bidding. The entire process of bidding would
entail submission of technical and financial bids, negotiations with the counterparty,
winning the bid followed by performance of the contract. In this regard, the Competition
Appellate Tribunal has held, in the Aluminium Phosphide case, that bid rigging cases
would encompass rigging in any or all of the processes involved in bidding, and not only
limiting to first submission of technical and pricing bids.
As noted above, the decisional practice of the CCI shows that instances of bid rigging are
very common in cases of government procurement. One of the common defences which
are raised by cartel participants is that they are dealing with government, which is a
strong counterparty, and hence their practice of bid rigging does not cause any
appreciable adverse effect. However, this defence has not been accepted by the CCI.
§2.07 STRUCTURAL FACTORS AIDING CARTELIZATION

While cartelization can happen in any sector, the CCI has noted that there are certain
industries which are more prone to cartelization than other industries due to certain
inherent structural factors prevalent in those industries. Although the CCI has observed
P 55 that just because such industry characteristics are present, it does not ipso facto mean
that market participants have indulged in a cartel. In fact, there have been instances
where the CCI has noted that although the industry has the structural characteristics that
aid cartelization, the market participants have not indulged in cartelization (e.g., in re:
All India Tyre Dealers Federation v. Tyre Manufactures Association (10) (hereinafter referred
as the Tyre case)). However, as a part of economic analysis, the CCI does look at the
industry characteristics in all cartel cases.
The CCI has, in the Tyre case, LPG case and Cement cartel case (discussed below) referred
to the following structural factors in an industry which are prone to cartelization.
[A] Highly Concentrated/Oligopolistic Market
74
The CCI has noted that in an oligopolistic market, it is more likely that each market
participant is aware of the other participants’ behaviour. In an oligopolistic market,
interdependence between firms is an important characteristic which would imply that
each firm in such a market takes into account the likely reactions of other firms while
making independent decisions particularly as regards prices and output. Though
oligopolistic markets can lead to competitive outcomes, the outcomes may not always be
market driven but rather be a result of concerted effort or collusion. In this regard, it is
apposite to point out the observations of the CCI in the Tyre case:
In a market which is oligopolistic in nature, it is more likely that each market
player is aware of the actions of the other and influences each others’
decisions. No doubt, interdependence between firms is an important
characteristic of such a market which would mean that each firm in such a
market takes into account the likely reactions of other firms while making
independent decisions particularly as regards prices and output. Though
oligopolistic markets can lead to competitive outcomes, the outcomes may
not always be market driven but rather the result of concerted effort or
collusion. The interdependence between firms can lead to collusion – both
implicit as well as explicit. Thus, high concentration may provide a structural
reasoning for collusive action resulting in parallelism (price or output), yet it is
very important to differentiate between ‘rational’ conscious parallelism
arising out of the interdependence of the firms’ strategic choices and
parallelism stemming from purely concerted action. Thus, inferring of cartels
would require further evidences. Economic theory has demonstrated
convincingly that ‘conscious parallelism’, is not uncommon in homogeneous
oligopolistic markets. Competing firms are bound to be conscious of one
another’s activities in all phases, including marketing and pricing. Aware of
such outcomes especially where there is little real difference in product the
Commission is of the opinion that it is quite probable that in many such
instances, conscious parallelism may be dictated solely by economic
necessity. Avoidance of price wars is a common instance where this takes
place.
The CCI has observed, in the LPG case, that empirical studies have shown that bid rigging
is more likely to occur in a concentrated market where only a small number of companies
P 56 supply the goods or service. Being limited in number, it becomes easier for them to
coordinate and reach an agreement. Therefore, in a highly concentrated market, the
market participants may engage in parallel behaviour but the key area of analysis is to
differentiate between rational conscious parallelism arising out of the interdependence
of the firms’ strategic choices and parallelism from purely concerted action. In this
regard, it is apposite to note the observations of the High Level Committee on
Competition Policy and Law in 2000 where it was noted that:
However, a distinction needs to be made between what could be called an
illegal practice of price cartelization and must, therefore, be curbed and
punished and a perfectly legitimate economic and business behaviour in
responding to a situation in which a given competitor is placed in what could
be described as a price leadership position. When a price leader alters price
of his goods or services due to factors such as increase in the cost of inputs,
raw materials or other related costs, most other competitors will have no
choice, but to follow him though the extent could vary. This cannot be said to
be illegal because its behaviour is not based on any prior discussion or
understanding, but on the sheer economic premise that any price increase
taken by a small player ahead of the price leader would imply significant
penalties in terms of loss of custom. These price followers, therefore, have no
choice but to wait until the price leader takes a price increase. To assume in
each such case, an informal co-operation (or informal agreement), would be
too harsh and would ignore a market place reality.
Therefore, the approach of the CCI is to identify the plus factors to analyse whether the
enterprises have engaged in a cartel behaviour. In this regard, the CCI had noted in the
Cement Cartel case (11) that:
It has been a recognized standard of law that oligopolistic markets can lead to
competitive outcomes. However, there is also a possibility that these
outcomes may not always be market driven but rather the result of concerted
effort or collusion. The interdependence between firms can lead to collusion -
both implicit as well as explicit. In oligopolistic markets, knowing that overt
collusion is easily detected, firms often collude in a manner which leads to
non-competitive outcomes resulting in higher prices than warranted by pure
market outcomes. (12)
[B] Demand & Supply Conditions

The CCI, in the LPG case, noted that significant changes in demand or supply conditions
tend to destabilize cartel arrangement (in that case, it was big rigging agreements) but a
75
constant, predictable flow of demand, by way of frequent orders from the consumer,
tends to increase the risk of collusion. Similarly, in the Tyre case, the CCI noted that if the
demand of a product is seasonal and predictable, producers may take strategic
decisions and tend to cartelize. However, if the demand of a product itself varies,
because of strong substitutes in the market, or unpredictable sale conditions,
P 57 unpredictable bids being floated, strategic decisions cannot be taken and cartelization
may become difficult owing to the uncertain demand-supply conditions of the product
itself. (13) The reason for that is because in an industry which has a stable and a
predictable flow of demand, the market participants can have an understanding among
themselves as to who will ‘win’ the contract for a particular time and thereafter, if
necessary, share the spoils with the other market participants. In a market which has a
predictable demand (like in a case of frequent government procurement), the market
participants can indulge in bid rigging as well as market sharing so that everyone can win
a contract at an inflated rate, and not a competitive rate.
[C] Homogeneous Product

The CCI, in various decisions, has noted that when the products or services offered by
companies are identical or very similar, it is easier for them to reach an agreement on a
common price structure. In the event the demand of the good is inelastic (like cement,
LPG etc.), firms intending to rig bids or engage in other cartel behaviour feel more secure,
knowing that the purchaser has few, if any, good alternatives and thus their efforts to
raise prices are more likely to be successful.
[D] Active Trade Association

A famous quote by Adam Smith, which has even been mentioned in some of the decisions
of the CCI, is that: ‘People of the same trade seldom meet together, even for merriment and
diversion, but the conversion ends in a conspiracy against the public, or some contrivance
to raise prices.’
Trade associations can be used as legitimate forum for members of a business to
promote standards, innovation and competition. In fact, trade associations are present in
all industries with the primary objective to take up and discuss industry issues, industry
lobbying, etc. However, internationally as well as in India, trade associations remain
vulnerable to stepping beyond the limits placed by competition law because, by
definition, they involve meetings, discussions and cooperation amongst various, often
virtually all competitors, in a particular line of business. As such, the decisional practice
of the CCI would show that the CCI makes a detailed analysis of whether there is an active
trade association in the industry concerned, and if yes, what are the roles and
responsibilities of such a trade association. Trade association has been seen as a plus
factor in most, if not, all cartel cases decided by the CCI. It is apposite to note that even
the CCI has realized the anti-competitive risks that may emerge from a trade association
meeting and has passed a decision recently in an entertainment industry matter (14)
mandating the concerned trade association to have, in place, a competition compliance
manual and undertake effective competition law compliance training for all the office
bearers of the trade association. This is an interesting advocacy based initiative taken by
the CCI, especially in the light that the competition law enforcement regime itself in
P 58 India is very nascent. Also, as mentioned in Chapter I, the CCI has also directed the
President and General Secretary of KFEF, a trade association, from participating in the
association’s affairs, including its administration, management and governance, for a
period of two years.
§2.08 APPRECIABLE ADVERSE EFFECT ON COMPETITION IN INDIA

As mentioned above, section 3(3) of the Competition Act envisages that once ingredients
of section 3(3) are established i.e., the market participants have entered into an
agreement for price fixing, market allocation, limiting production/supply or bid rigging,
there is no further need for the CCI to determine whether the factors mentioned in
section 19(3) of the Competition Act (described in details below) are met as there is a
presumption in the Competition Act that such agreements cause appreciable adverse
effects on competition. Thereafter, the statutory scheme of the Competition Act is that
the onus shifts on entities facing charges of a cartel to prove that there are pro-
competitive effects of such agreements which outweigh the anti-competitive effects. In a
case of an investigation of an anti-competitive agreement, a balancing test has to be
conducted of the pro-competitive effects of the agreement and the anti-competitive
effects thereof. It must be said, however, in a case of cartel investigation, once it has
been proved that the market participants have engaged in a cartel, it is very difficult to
show that such arrangement has a pro-competitive element. While the orders passed by
the CCI in cartel cases does not provide in detail if any defences are raised by market
participants that any agreement amongst them does not appreciable adverse effect on
competition in India. The primary analysis done is whether there is any agreement among
the market participants for fixing price, bid rigging or market allocation and if there is
any agreement among them, the CCI has imposed orders under section 27 of the
Competition Act.
While one of the defences that has been raised before the CCI that the cartel participants
76
were small and had minimal market share and hence an agreement among them should
not cause any appreciable adverse effect on competition in India, the CCI has noted that
companies involved in a cartel may be having miniscule market shares individually; the
CCI, however, is concerned about their ability to collectively affect the competition in the
market. The CCI is concerned about the effect their action will have when seen in
aggregation to the actions of their co-players in the market.
As such, the CCI, in the LPG case, Jute mills case and the Cement cartel case (discussed
below under the heading of case studies) undertook a brief analysis as to whether the
agreement entered into between market participants have caused any appreciable
adverse effect on competition in India. Based on the factors mentioned under section
19(3) of the Competition Act, the CCI noted the following:
[A] Creation of Barriers to New Entrants in the Market

In the LPG case, the CCI noted that the conduct of LPG Cylinder manufacturers by coming
together on a common platform and fixing bid prices ensure that no new player can enter
P 59 the relevant market and quote prices independently. The CCI noted that because of
such an arrangement, a new player would find the entry difficult because such new player
will have to first negotiate with the existing players to get business profitably.
[B] Foreclosure of Competition by Hindering Entry into the Market

Similarly, in the LPG case, the act of manufacturers certainly make entry difficult, since
without joining hands, the new players would find it difficult to get entry into the relevant
market as the combined market power of existing players would make the survival of the
new players difficult until they also join hands with existing players.
[C] Accrual of Benefits to Consumers

In the LPG case, the CCI noted that pursuant to the agreement among the LPG gas
manufactures of quoting high prices in the tender, the cost of procurement has gone up
and no benefit has been caused either to Indian Oil Corporation Limited or domestic
consumers due to the conduct of the bidders. Similarly, in the Cement cartel case, the CCI
noted that the cement manufactures had intentionally acted to reduce production so
that the prices can go up. Also, in the Jute mill case, the CCI noted that had there been
effective competition, the market participants would have quoted competitive rates.
Therefore, we see that the CCI has noted that in absence of a cartel, the market
participants would have given the same good at a lower price, thus benefitting the
ultimate consumers.
Although section 19(3) of the Competition Act provides for certain pro-competitive effects
of any agreement which needs to be seen, the CCI, in their decisional practice, has never
appreciated any such defences in a cartel case. Having said that, the statutory scheme
does provide that the market participants can show that the cartel arrangement will not
cause an appreciable adverse effect on competition in India. One of the factors
mentioned under section 19(3) of the Competition Act is to see whether the agreement
results in accrual of benefits to consumers. Since the approach of the CCI and
Competition Appellate Tribunal has mostly been consumer driven, a cartel would, in
most situations, results in price increase for consumers and hence would be seen as anti
competitive. It remains to be seen, however, in what cases the CCI will agree that a cartel
arrangement has pro-competitive effects.
§2.09 STANDARD OF PROOF

In order to establish an existence of a cartel, it is important to prove the existence of an
agreement between market participants. As has been mentioned above, it has been
observed from the decisional practice of the CCI that there is rarely direct evidence of
action in concert between the market participants. In absence of such direct evidence,
the CCI has to determine, based on circumstantial evidence, as to whether the market
participants are involved in any dealings and have some form of understanding which
P 60 points to the fact as to whether they are acting in coordination with each other instead
of acting unilaterally. It would be seen that most of the analysis done by the Director
General and the CCI, while deciding cartel cases, is to analyse from communication and
economic evidence, whether there is an agreement between the market participants or
not. The CCI has noted that the evidence of agreement has to be tested on the benchmark
of ‘preponderance of probabilities’.
It is imperative to note that conscious parallelism has to be differentiated from cartel
behaviour. As was mentioned earlier, the CCI has, in the Tyre case, noted that in an
oligopolistic market, it is more likely that each market participant is aware of the other
participant’s behaviour. In an oligopolistic market, interdependence between firms is an
important characteristic of such a market which would mean that each firm in such a
market takes into account the likely reactions of other firms while making independent
decisions particularly as regards prices and output. Though oligopolistic markets can
lead to competitive outcomes, the outcomes may not always be market driven but rather
be a result of concerted effort or collusion. Therefore, parallel behaviour of competitors
can be a result of intelligent market adaptation in an oligopolistic market or a case of
77
anti-competitive agreement. So, the key factor of analysis to be done is whether there is
an agreement between market participants or not. It is apposite to point out the
observations of High Level Committee on Competition Law and Policy, 2000 on the point
of parallel behaviour and cartel:
However distinction needs to be made between what could be called an
illegal practice of price cartelisation and must, therefore, be curbed and
punished and a perfectly legitimate economic and business behaviour in
responding to a situation in which a given competitor is placed in what could
be described as price leadership position. When a price leader alters the
price of his goods or services due to factors such as increase in the cost of
inputs, raw materials or other related costs, most other competitors will have
no choice, but to follow him though the extent could vary. This cannot be said
to be illegal because its behaviour is not based on any prior discussion or
understanding, but on the sheer economic premise that any price increase
taken by a small player ahead of the price leader would imply significant
penalties in terms of loss of custom. These price followers, therefore, have no
choice but to wait unit price leader takes a price increase. To assume in each
case, an informal cooperation (or informal agreement), would be too harsh
and would ignore a market place reality.
Even the decisional practice of the CCI has recognized the aspect of parallel behaviour
among enterprises, especially in an oligopolistic market. What the Director General and
CCI looks for, in a cartel investigation, is whether there are any plus factors which prove
that there is an agreement among the market participants.
As mentioned above, agreement has been very widely defined in section 2(b) of the
Competition Act. From the definition of agreement provided in the Competition Act, it
can be seen that an agreement need not be in writing, nor necessarily has to be legally
enforceable. An arrangement or understanding is as good as a formal written agreement.
The legislative intent is quite clear and the definition encompasses both overt and tacit
form of agreements and it is not required that it has to be an agreement as is understood
in common legal parlance under the principles of contract law. Based on the wide
definition provided under the Competition Act, the CCI has, in various decisions, noted
P 61 that it is not the requirement under law to demand direct evidence of agreement in all
cases and in absence of direct evidence, existence of circumstantial evidence that tends
to exclude the possibility of independent action would be sufficient to give rise to an
inference of an agreement. In this regard, it is apposite to point out the observations of
the CCI in the Cement cartel case:
The Commission is not oblivious of the fact that the anticompetitive
conspiracies are often hatched in secrecy. The firms engaged in anti-
competitive activities are not likely to leave any trace evidencing the same.
Therefore, in absence of any direct evidence of agreement among the
conspirators, circumstantial evidence is required to be looked into.
It also remains a fact that parties to an anti-competitive agreement will not
come out in open and reveal their identity to be punished by the competition
agencies. This is also the reason that the legislature in its wisdom has made the
definition of ‘agreement’ inclusive and wide enough and not restricted it only to
documented and written agreement among the parties [emphasis supplied].
Thus, the Commission is not impeded from using circumstantial evidences for
making inquiries into act, conduct and behavior of market participants.
As mentioned in Chapter I, the penalties on the cartel participants are huge under the
Competition Act. Owing to such onerous fines, it will be very rare that one will find direct
evidence like minutes of meetings etc., to come to a conclusion of a cartel. It has to be
seen whether cartel exists or not, from the totality of the circumstances. In this regard,
the CCI observed in the Airline surcharge cartel case that:
and further considering the fact that since the prohibition on participating in
anti-competitive agreements and the penalties the offenders may incur being
well known, it is normal that such activities are conducted in a clandestine
manner, where the meetings are held in secret and the associated
documentation reduced to a minimum [emphasis supplied]. Even if the
Commission discovers evidence explicitly showing unlawful conduct between
enterprises such as the minutes of a meeting, it will normally be only
fragmentary and sparse, so that it is often necessary to reconstruct certain
details by deduction. In most cases, the existence of an anti-competitive
practice or agreement must be inferred from a number of coincidences and
indicia which, taken together, may, in the absence of any other plausible
explanation, constitute evidence of the existence of an agreement.
Further, the statutory scheme provided under the Competition Act provides that the CCI
has been conferred power to impose only civil fines and it does not have criminal
jurisdiction. Further, as described in the preceding chapter, under section 36 of the
Competition Act, the CCI is vested with some powers of a Civil Court in conduct of its
78
enquiries. Therefore, based on the statutory scheme, the offences provided to in the
Competition Act, including cartelization, not being a criminal offence, the test of proof
will be only ‘balance’ of probability’ and ‘liaison of intention’ which can be established
with the support of indirect or circumstantial evidence. This is in contradiction to a
criminal offence where the offence has to be proved beyond reasonable doubt. In this
regard, the Competition Appellate Tribunal noted, in the case of MDD v. common cause
P 62 (15) that:
We must point out here that we are not in the realm of criminal jurisprudence
where a proof beyond the reasonable doubt is required, though there is a
provision for penalty for the acts committed by the competing parties. In our
view the test of probability would be a good test. A conspiracy in criminal law
does not normally have a support of direct evidence. The finding there is more
or less inferential. In this case, the facts held proved by us do reach us to a
clinching inference that there was meeting of minds of a nature as would be in
contravention of Section 3(3)(d).
Based on the above, it can be seen that the CCI and Director General can rely on both
direct and circumstantial evidence. The key test in a cartel investigation, as had been
laid down by the CCI is analysis of the evidence which establishes that a particular set of
acts and conduct of the market participants cannot be explained ‘but for’ some sort of
anti-competitive agreement and action in concert among them. Consequently, the
existence of an anti-competitive agreement can be inferred from the intention or
conduct of the parties and may be established by circumstantial evidence alone in the
absence of any alternate explanation.
§2.10 DIRECT EVIDENCE

In a cartel case, it is very difficult to find direct evidence wherein there is a clearly
formulated written agreement wherein the competitors have decided to engage in cartel
behaviour. As mentioned above, most of the cartel activities are hatched in secrecy,
hence direct evidence is very difficult to find. Although direct evidence is very hard to
find, since the competition law enforcement in India in its early days, there have been
instances of direct evidence which have been unearthed by the Director General and CCI.
For example, in cases relating to entertainment industry, there have been instances
wherein there have been minutes of the meeting of the trade association to show that the
members decided to collectively boycott a non-member. Even in the insurance cartel
case, the CCI, relying on the investigation by the Director General, noted that the
insurance companies had held a meeting under the aegis of the trade association with
the sole agenda to discuss sharing of business and submission of quotation of a bid.
Having said that, since the fines on cartels are huge, it will be very difficult in future cases
once the companies are aware of principles of competition law to find direct evidence of
cartels.
§2.11 INDIRECT EVIDENCE – ROLE OF CIRCUMSTANTIAL EVIDENCE

In the absence of any direct evidence, the Director General and Competition Commission
looks at the chain of circumstantial evidence to analyse whether the market participants
entered into an anti-competitive agreement or not. As mentioned above, the key area of
analysing circumstantial evidence is to find out whether the particular set of acts and
conduct of the market participants cannot be explained ‘but for’ some sort of anti-
competitive agreement and action in concert among them. The decisional practice of the
CCI shows that most of the cartel investigations have happened in an oligopolistic
P 63 industry. As has been explained above, in an oligopolistic market, parallel behaviour is
extremely common due to the interdependence of firms conduct. The key chain of
evidence has to be seen whether such parallel behaviour is an action of conscious
parallelism or an agreement to collude. The key thing that needs to be kept in mind is
that the CCI looks at the totality of the evidences to come to a conclusion as to whether
there is a case of cartelization. In this regard, it is to be noted that in most of the cartel
cases, the market participants take a plea that their conduct is a case of parallel
behaviour and not cartel behaviour. However, the CCI has noted that parallel behaviour,
although common in an oligopolistic industry, will not carry on for a lengthy period of
time, unless there is a cartel arrangement between the market players. In this regard, it is
apposite to note the observations of the Competition Appellate Tribunal, in the
Aluminium Phosphide case where it was observed that:
We do not think that this is a case of mere price parallelism. We have already
made observation that price parallelism on one or two occasions though might
raise strong suspicion, it may not be enough for drawing the inference of
cartelization. We reiterate that observation. However, in this case it was not a
sweet coincidence and in fact it is shown that this was not only a common
pattern or practice, but this continued in case of tenders floated by other
corporations. This consistent practice and common pattern when continues for
a long time [emphasis supplied], there could be no other inference excepting
that of cartelization.
79
There are two recognized forms of circumstantial evidence which are taken into account
by the Director General and the CCI in a cartel investigation-communication evidence
and economic evidence. Communication evidence indicates that cartel operators met or
otherwise communicated, but does not describe the substance of their communications.
It includes, for example, meeting at a trade association, records of telephone
conversations among suspected cartel participants, of their travel to a common
destination, common hotel receipts, common entry in registers, and notes or records of
meetings in which they participated. Economic evidence, however, can be categorized as
either conduct or structural evidence. The former includes, most importantly, evidence of
parallel conduct by suspected cartel members, e.g., simultaneous and identical price
increases or suspicious bidding patterns in public tenders, lower capacity utilization,
high correlation on prices. The CCI has observed that among the set of circumstantial
evidences, evidences of communication among the participants to an anti-competitive
agreement may give an important clue for establishing any contravention.
Communication evidences might prove that contravening parties met and communicated
with each other to determine their future or present behaviour. Therefore, in terms of
weight of evidence, communication evidence is given more importance than economic
evidence.
Further, it is to be noted that it is not necessary that cartel participants have to raise
prices at the same time, to be caught under the ambit of section 3(3) of the Competition
Act. In fact, the CCI, in the Airline surcharge cartel case, has noted that it is necessary to
analyse the behaviour of the cartel participants, in entirety, to see whether they have
engaged in a cartel. There may be situations wherein the market participants,
intentionally create artificial time gaps among themselves to increase price, to show that
it is a case of intelligent market adoption to the other competitors action, but not a
P 64 cartel. In this regard, it is apposite to note the observations of the Commission in the
Airline surcharge cartel case:
The so-called time gap is just a matter of few days. It would be travesty of
competition norms if such lag theory is countenanced by the Competition
Agency. It is neither the requirement of law nor any other jurisprudence that
cartels must originate symmetrically, progress symmetrically and culminate in
a similar fashion. More often than not, the colluding parties would like to
break the patterns through artificial gaps and arrangements so as to create a
façade of competitive behaviour. In such a projected ‘competitive landscape’,
it is the bounden duty of the Authority to pierce this artificial veil and to
examine the real behaviour of the colluding parties. The present case
perfectly fits such stratagem where artificial lags and gaps were sought to be
passed off and projected to envision a competitive scenario when none
existed. In fact, such justifications and explanations only complete the chain
of the arrangement and understanding reached amongst the parties.
Now, we will discuss the manner in which the Director General and CCI have looked at
both communication and economic evidence in deciding cartel matters.
[A] Communication Evidence

The Director General and the CCI, in any cartel investigation, have investigated whether
the market participants regularly meet, either under the aegis of a trade association, or
otherwise. Frequent meeting between competitors followed by a similar market conduct
has always been seen as a plus factor in a cartel investigation. The following
communication evidences have been taken by the CCI, while deciding cartel cases.
[1] Frequent Meetings among Competitors
In the LPG case, the Competition Commission took note of the Organisation for Economic
Co-operation and Development (OECD) Document on detecting bid rigging in public
procurement. The CCI noted that:
The fact of agreement can be either communicated by words or conduct.
Bidders need to know and communicate with each other to reach an
agreement. Once bidders know each other well enough to discuss bid rigging,
they need a convenient location where they can talk. Of course,
communications can occur by telephone, email, fax or letter, and they often
do; however, many bid-riggers believe that they are less likely to leave
evidence of their communications if they have face-to-face meetings. These
meetings occur most often at, or in association with trade association
meetings, or other professional or social events. They are also likely to occur
prior to the opening of the tender process.
Keeping the above backdrop in mind, the CCI noted that barring a few gas cylinder
manufacturers, all the bidders are part of an active trade association and they meet on
regular intervals. In fact, the investigation done by the Director General had also
P 65 revealed that there were meetings among the LPG manufactures before every bid of
Indian Oil Corporation Limited, Bharat Petroleum and Hindustan Petroleum Corporation
Limited in order to discuss pre-bid issues. Even for the bid which was under investigation,
80
the bidders met one day in Mumbai before placing the bid. This, coupled with economic
evidence (discussed below under the heading of case studies), was taken by CCI and
Competition Appellate Tribunal, as evidence of cartelization.
Similar to the LPG case, in the Cement cartel case, the CCI noted that the cement
companies participated in the meetings of the Cement Manufacturers Association.
Further, under the aegis of Cement Manufacturers Association, the companies interacted
on regular basis on sensitive information like pricing, production details, dispatch
details, etc. It was observed by the CCI that Cement Manufacturers Association, based on
a governmental directive, collected retail prices and wholesale prices of the cement
from different centres and transmit it onwards to the government. It was observed by the
CCI that the prices of cement for all the cement companies went up after two meetings of
the Cement Manufacturers Association. One of the defences that was raised by the
cement companies that the prices of cement went up after two meetings of the Cement
Manufactures Association and not all the meetings of the said trade association. However,
the CCI noted that it is not required that prices of goods need to go up after each
meetings, especially when the price of cement is already artificially inflated. This
approach of the CCI to penalize cement companies when the prices went up after two
meetings and not all meetings shows the assertive approach of the CCI. In this
background, it is very important for companies to have proper document management
systems and pricing policies to show, by way of contemporaneous document, changes in
prices of companies. Even in the insurance cartel case, (16) the CCI observed that the
insurance companies held meetings under the aegis of the trade association to discuss
the sharing of business and quotation for each bid. Such kind of communication evidence
is taken by the CCI, while deciding cartel cases, as an evidence of cartel behaviour.
Having said that, the CCI has also noted that just because the market participants have
met in a trade association does not mean that they indulged in an anti-competitive
behaviour. For illustration, in the Tyre case, the CCI noted that the tyre industry had a
trade association. However, on investigation, it was revealed that the trade association
was used as a forum for lobbying for the welfare of the trade industry and make
representations to governmental organizations, which cannot be viewed as anti-
competitive. What the Director General and CCI looks is whether the communication
evidence so collected can be seen as plus factor i.e., whether such communication aims
at formulating a cartel strategy.
In fact, the Competition Appellate Tribunal, in the LPG cartel case, has noted that
existence of a trade association gives an opportunity to the competitors to interact with
each other and discuss the trade problems. Further, it is not required to prove that any
party actually discussed the prices by actively taking part in the meeting. If there is
direct evidence to that effect that is certainly a pointer towards the fact that such party
P 66 had a tacit agreement with its competitors. However, the existence of an association
and further holding of the meetings just one or two days prior to the submitting bids gives
a strong indication to a collusive conduct.
[2] Publication of Price Bulletin
In two landmark cases decided by the Competition Commission (Cement cartel case and
the Jute mills case), the CCI has noted that the practice of publishing price bulletin by a
trade association is also a plus factor while deciding a case for cartelization. In the
Cement cartel case, it was noted by the CCI that Cement Manufacturers Association
collected wholesale prices and retail prices of cement. The retails prices collected from
different centres are transmitted to Department of Industrial Policy and Promotion
(DIPP), while the wholesale prices are transmitted to the office of Economic Advisor. The
retail and the wholesale prices are collected from all over the country. Although the
mandate to collect the cement prices was given to the Cement Manufactures Association,
it was also observed that Cement Manufacturers Association was nominating some
representatives from each company to collect the prices for each region for all the
companies operating in that region. Based on the same, it was noted by the CCI that the
prices of all competing cement companies are being collected. In such a situation, when the
cement companies nominated by CMA are collecting prices of other competing cement
companies over telephones and e-mails, coordination on prices is easily facilitated. Based
on the above, it was concluded by the CCI that when competitors are interacting using the
platform of Cement Manufacturers Association and they are in touch with each other over
phone and e-mails as regards prices – both retail and wholesale, it cannot be denied that
there is always an opportunity of discussing the determination and fixation of prices for
future, which is prohibited under the provisions of the Competition Act. The fact that it is
being done under the instruction of DIPP (a wing of the government of India) does not
absolve Cement Manufacturers Association or the cement companies engaged in this
exercise from running afoul of the provisions of the Competition Act. Further, the
investigation showed that Cement Manufacturers Association has several publications
like ‘Executive Summary-Cement Industry, “Cement Statistics”-Interregional movement of
cement’ which give details of the details of production, dispatch of each company and
are circulated only among the members. Therefore, the cement companies not only get
information of the prices of other cement companies, but also receive details about the
production and dispatch details of the other companies. The CCI noted that sharing of
such sensitive information makes the coordination easier among the cement companies
and plan their future conduct. In light of the above communication evidence, the CCI
81
identified that there was information sharing among the competitors on prices, quantity
and dispatch details, which in light of the economic evidence (discussed below) shows an
agreement among the cement companies to cartelize.
Similar to the Cement cartel case, even in the Jute mills case, it was noted by the CCI that
the trade association used to publish price bulletin and the prices charged by the
manufactures were very close to the price quoted in the price bulletin. It was also noted
P 67 by the CCI that the process of mentioning the price in the price bulletin was not a
scientific process and nor it was last trading price. It was, in fact, a price manually
decided by the executive committee of the trade association. Such price was thereafter
followed by the others members of the association in their trading activity. The CCI had,
in fact, observed that had the trade association not published a price bulletin, the
manufactures would have priced their product competitively.
[3] Commonality of Key Business Personnel
In a bid rigging case, the investigation done by the Director General and CCI had revealed
that there was cross ownership and common directors among the various bidders in the
market. It was revealed that the companies, involved in the bidding process, are closely
related having common directors or have different members of the same family at the
helm of affairs. Having such relationship indicated that out of the thirteen companies
under investigation, the modus operandi of at least ten of these firms were governed by
the principles of mutual understanding and benefit. This was seen as an evidence for
proving cartelization, since there is a chance of sharing of commercial sensitive
information among various companies, which will help in agreeing on future conduct.
Similarly, in the LPG case and the Airline surcharge cartel case, it was noted by the CCI
that there were common agents that were appointed by market participants, which were
seen to share commercial sensitive and future information of one company with another.
Based on the same, it was noted that there was exchange of information between
companies, which eventually led to collusion. Therefore, it is key that while appointing
agents or other trading partner, a very strong non-disclosure agreement be signed with
such entities that is scrupulously followed to ensure that there is no transmission of
commercially sensitive information of one company to its competitors. Having said that,
in the Airline surcharge cartel case, the airline companies said that there was presence of
common agents among airlines who could share commercial sensitive information among
themselves. Although the agents are not allowed by the airline not to disclose
commercial information to other airlines, it cannot be ruled out that agents do share
commercial sensitive information among airlines. Thus, while appointing agents,
distributors or other trading partners, who are also the trading partners of their
competitors, the companies must be extra cautious.
[4] Other Evidences
The investigation pattern of the Director General shows that they rely on other kind of
evidences to show that the market participants met before submitting a bid like common
visitor entries, hotel bills to show that the officers of companies met for a meal one day
before the submission of a bid.
[B] Economic Evidences

Economic evidence is also analysed by the CCI also on the touchstone of but for test
P 68 explained above. To analyse economic evidence in a cartel case, the investigation
pattern of the Director General and the decisional practice of the CCI reveals that they
undertake elaborate analysis of data relating to demand trends of the product,
production, production capacity, capacity utilization, cost analysis, price analysis, cost of
sales/sales realization/margin; cost of production and final price movement for each
market participant to see whether there is any agreement among the companies. The
investigation pattern of the Director General suggests that the Director General asks for
data on price, costs, demand, capacity, etc. for a minimum of preceding three years. Such
an exercise is done for each of the market participants which are being investigated to
see whether there is a pattern undertaken by such market participants to indicate an
existence of an agreement. For example, in the Cement cartel case, the Director General
analysed the capacity utilization figures of 2010–2011 in comparison to the previous year
to come to the conclusion that the cement companies had intentionally engaged in
limiting production of cement, in order to raise the price of cement. This conclusion was
reached because the CCI noted that the demand of cement is inelastic and the demand
of cement would more or less remain the same for a particular period of time every year.
In the light of the demand scenario, it was seen that the cement companies reduced their
capacity utilization from 82% in 2009–2010 to 73% in 2010–2011 for the month of
November, when there is a high demand of cement. Similarly, in the LPG case, the
Director General investigated the supply price quoted by the LPG gas manufactures in
2011 and compared the same with the previous years. The investigation revealed that
supply in the tender under inquiry in 2011 was made at substantially higher cost in
comparison to year 2009–2010. The CCI noted that, that the higher rates approved in the
year 2010–2011 as compared to 2009–2010, without any increase in input costs, only
suggest that the enterprises have coordinated their acts together to get higher prices.
Similar exercise was also done by Competition Appellate Tribunal, in the Aluminium
82
Phosphide case, where the Tribunal observed that the price of ALP tablets had increased
exponentially, in comparison to the previous years.
As mentioned above, parallel behaviour is extremely common in an oligopolistic market
where each market participant in such a market takes into account the likely reactions of
other firms while making independent decisions particularly as regards prices and
output. What has to be analysed, from economic evidence, is whether the said action is a
result of independent action or as a result of agreement. We will discuss some of the
approaches undertaken by the Director General and CCI, while analysing economic
evidence below. The economic evidence analysed by the Director General and CCI are
discussed under the heading of case studies below. It is to be noted that economic
evidence has to be seen in totality of the industry circumstances to see whether a case of
cartel can be made out. There is no one-size-fits-all approach which can be taken in a
cartel investigation. For example, in the Cement cartel case, the Director General and the
Competition Commission found that cement companies indulged in limiting production
by reducing their capacity utilization. Conversely, in the Tyre case, it was found that some
of the tyre companies reduced their capacity utilization, although it was not seen as an
evidence of cartelization since the overall production capacity had increased.
P 69
While economic evidence are seen and analysed by the company, it must be ensured
that proper data on pricing and other sensitive information are properly maintained by
the company. It was seen in the Airline surcharge cartel case that all the airlines were
giving the reason that the primary reason of charging a fuel surcharge was the rise in the
aviation turbine fuel price (ATF) price. However, on investigation, it was found that none
of the airlines could not provide any contemporaneous documents to show how rise in
ATF prices had led to fixing and subsequent rises in fuel surcharge rates. In fact, on
conducting a correlation analysis, it was found that at times, FSC rates were increased
when ATF prices were falling down. Due to lack of maintaining any pricing data by
airlines, the CCI raised an adverse inference against them in a cartel investigation. This
raised an important aspect of document retention policies wherein CCI hinted that
companies should maintain proper contemporaneous documents to show that pricing
decisions were taken unilaterally. The CCI took an adverse inference of not maintaining
pricing data by airlines.
It must be noted (and as described under the heading of case studies below) that
economic evidences are seen as an addition to communication evidence in a cartel
investigation. There has hardly been any cartel decision where the CCI has found an
infringement of section 3(3) of the Competition Act only on the basis of economic
evidence. Some of the key economic tests identified by the decisional practice of the CCI
are detailed below.
[1] Analysis of Final Price in Comparison to the Input Price
Business prudence requires that the final price must take into account the input price of
the raw material and other overheads plus a mark up to ensure that the business is
profitable one. Having said that, in a market where there are choices of market
participants, each company undertakes to give the best possible price to have better
revenue and more customers in the market. However, in a cartel case, the companies
collude so that the prices of all companies are kept artificially high so that each one can
earn supra normal profits. In light of the above, in most of the cartel cases, the Director
General analyses the final price increase of the product for each of the market
participants during the period of investigation and compare such price increase with the
price of input costs, during the same time, for producing the concerned product. During
the same time, if it is seen that even the input price i.e., price of raw material has gone
up during the same point of time, an economic justification can be made out for the price
increase of the final product. In the absence of price increase of the raw material, it can
be concluded (based on various other additional factors) that the market participants
had colluded to keep the price levels high. In fact, in the Cement cartel case, the CCI had
noted that there was an increase in the cement price by all market participants without
any increase in the price of raw materials for producing cement. Even in the Jute mills
cartel case, it was noted that there was a price increase of more than 20% by all the
market participants during a period of less than one year, with no increase in the prices
of the input costs/raw materials for manufacturing a jute bag. Such factors point out to
P 70 the fact of an existence of an agreement among the market players to keep the price
high. Conversely, the CCI, noted in the case of Shubham Sanitarywares v. Hindustan
Sanitaryware & Industries, (17) that the price of the product under question has not
increased for the past three years. Such stagnant prices were taken by the CCI to indicate
there was no cartel. The CCI observed in this case that:
Further, an examination of year-to-year changes in wholesale price index for
this category indicates that the index has hardly increased between these
three years with the year-to-year changes slowing down from 1.53% to 0.5%.
The behavior of wholesale price index indicates that prices have not
increased over time and rather they have been stable. A higher rate of
increase might have indicated something suspicious.
83
[2] Price Correlation Exercise for All Market Participants
In order to find out whether there is an agreement and concerted action among the
market participants to raise prices in a consistent manner, the Director General
undertakes a price correlation exercise for each of the players i.e., a correlation exercise
is seen whether the prices of products for all market participants are similar and moving
in the same direction. In the cement cartel case, it was seen by the Director General,
based on the data on market prices, that the coefficient of correlation of change in prices
or the movement of prices of all the companies is positive and are very close to each
other (more than 0.5%). Such a strong correlation for prices of cement for all cement
companies across regions in India gave a strong indication of price parallelism. Since the
cost of production, transportation charge etc., varies from company to company,
economic prudence suggests that price of individual companies must also vary.
Therefore, the Director General noted that the movement of price of all the companies in
the same range and in the same direction is not possible unless there is prior
consultation and discussion about the prices among them. Based on analysis of
correlations of absolute price, price change and percentage price change, it was
concluded by the Director General that the prices of the cement manufactures show a
positive correlation in every state of operation, and hence an evidence for cartelization.
The observations of the Director General were also agreed by the CCI in their final
decision. Conversely, in the Tyre decision, the range between prices of tyres of different
manufacturers was more than INR 1,000 for the period 2005–2009 and the range had come
down to INR 600 in 2010. The CCI noted that the product under investigation, i.e., tyre, is
homogeneous. For a homogenous product, a 6–12% range of difference in prices implies
that the prices are dissimilar and there is no parallelism in absolute prices. Further, with
respect to price movement in percentage terms is concerned, it was noted that there was
wide variations amongst various tyre manufactures. Such wide variations showed that
there was no agreement among tyre companies.
P 71
[3] Production Capacity and Capacity Utilization

In all cartel investigations, the Director General makes an analysis of the production
capacity of the market participants during the period of investigation and also the
capacity utilization during the same time frame. Further, the trend of the demand of said
product under investigation is also seen during the same time frame. The reason for such
an analysis is required to see whether the market participants have indulged in
deliberately curtailing production, in face of rising demand, which will have an effect of
increase in the final price. For illustration, in the Cement cartel case, the Director General
had noted that the production capacity of cement has increased from 157 MMT in 200506
to 287 MMT by the end of March 2011. However, the capacity utilization was on a
continuous downward trend from 2008–2009. During the financial year 2010–2011, the
capacity utilization had come down to 73% from 82% in the previous years, in spite of a
very high demand in cement. A lower capacity utilization by all cement manufacturers, in
absence of any justifiable reason, was taken by the CCI as a plus factor to prove the
existence of an anti-competitive agreement among cement manufacturers to limit the
production of cement. As such, the Director General undertook a comparison of price
index with capacity utilization index of each of the cement companies. It was noted that
ever since 2006–2007, the capacity utilization and cement price index of the cement
companies were moving in opposite direction. While the capacity utilization has been
declining, the price index has been increasing. It was also noted that the production
capacity in total was increasing, and yet the capacity utilization of all cement companies
was decreasing. The Director General noted that the cement companies could not come
up with any business rationale for the decrease in capacity utilization in spite of a surge
in demand. Based on the same, the Director General noted that this is result of a
deliberate attempt to reduce supply by not utilizing full capacity and thereby increasing
price of cement in the market. The Director General also concluded that the cement
companies are charging unreasonable and higher than competitive prices. The last
quarter of financial year 2010–2011 witnessed a price increase of 20–50% throughout the
country in comparison to prices in third quarter of 2010–2011 which was a result of
reduction in capacity utilization and controlling the supply in the market. The
observations of the Director General were also endorsed by the CCI in the final decision.
Similarly, in the Jute mills cartel case, the Director General analysed the figures relating
to demand and supply position in the market and did a comparison with relation to the
total installed capacity of the various jute bag manufactures. From the analysis, it was
noted that the installed capacity increased between 2007–2008 and 2011–2012 from 13.71
lakh MT to 17.07 lakh MT. However, capacity utilization did not match the said increase.
The production of jute bags declined from 1.94 lakh MT to 0.99 lakh MT at the same time.
The Director General then analysed the capacity utilization by individual registered jute
mills. It was noted by the Director General that only three or four mills were found to be
operating at full capacity. No other mill was found to be operating at full capacity. These
factors were taken by the CCI to show that the market participants, in the absence of any
other justifiable business explanation, entered into an agreement among themselves to
P 72 limit production. Further, in the Jute mills case, the Director General conducted a
demand-supply analysis and concluded that though there is a high demand, the
84
production of jute bags have reduced. The production reduced because of the fact that
full capacity utilization was not done by the jute bag manufactures. Based on the
evidence, the Director General found this to be an attempt to restrict the supply of the
jute bags in the market. Further, the Director General noted that the prices have
increased constantly in the case of jute bags at one hand and the production has
decreased on the other hand, though sufficient production capacity was available.
Conversely, in the Tyre decision, the CCI noted the production capacity and capacity
utilization of each of the tyre manufacturers and noted that the trends of the various tyre
manufactures are mixed and the capacity utilization for some companies increased and
while some decrease on a year-on-year basis. An absence of any clear trend among
various tyre manufactures suggested that variations in capacity utilization were each
company specific and not necessarily due to any concerted action among the players.
[4] Profit Margin of the Market Participants
As a part of a cartel investigation, the Director General analyses the profit margin of each
of the market participants to see whether there is a trend which shows an existence of an
agreement. The CCI has noted that the bigger the range between margins of
manufacturers, the lower is the chances of sustaining a cartel. It is so because the
companies with lower margins have no incentive to collude and will deviate from any
such agreement to collude.
[5] Bid Price v. Input Price
In all the bid rigging cases, the Director General makes an analysis of the final bid prices
and the price of the inputs and other key indices of costs like freight, transportation, etc.
This analysis is required to be done to see whether the price being quoted in a bid is an
independent price of the market participants or there is a case of bid rigging where the
companies have colluded with each other during the process of bidding. In one of the bid
rigging case, it was noted that the bids quoted for the product by the manufacturers was
same and not based on costing and expected profit margins. It was noted, during the
investigation, that though the source of procurement of raw material was the same for all
the manufacturers, the cost incurred by each of manufactures for such procurement of
raw material was not the same. The cost of input cost was different for each company, yet
all the companies submitted bids with the same price. Similarly, the CCI undertook a
detailed analysis of the bidding pattern in the LPG case and Aluminium Phosphide case
(discussed below) where it was seen that there was an identity in the rates quoted by the
bidders even when the factories and the offices of these parties are not located in one
and same state and they had to make supplies to locations far off from their factories
located at different places. Therefore, in cases where in spite of a varying cost structure
for companies, price bids submitted by companies have identical (to the last decimal) or
P 73 similar bids have been held by the CCI, as a case of bid rigging. In the LPG case, it was
vehemently argued by the LPG gas manufactures before the Competition Appellate
Tribunal that in an oligopolistic industry, price parallelism is very common especially
when the manufacturing cost, in light of a standardized product, is the same. The
Competition Appellate Tribunal did not agree with the contention that manufacturing
cost will be the same for all LPG gas manufactures and even assuming the other costs are
the same, the companies had their manufacturing factories at different places in India,
where the costs of the components would differ from state to state, even the taxing
structure, the labour conditions and other factors like cost of electricity etc. were bound
to be different. Therefore, to conduct a final price v. input analysis, the Director General
and CCI undertakes detailed costing analysis of each of the market participants and
analysed the same, in light of the final prices quoted by the concerned company.
Further, it is apposite to note the observations of the Competition Appellate tribunal in
the Aluminium Phosphide case. One of defences which are raised in every cartel matter is
that it is a case of parallel pricing by the market participants and such actions is not
borne out due to any preconceived agreement. In this regard, the Competition Appellate
Tribunal, in the context of bid rigging, had noted that identical pricing on one or two
occasions though raises strong suspicion, may not be enough to draw the inference of the
concerted agreement, but when is repeated constantly with odd figures (same to the last
decimal) and without any reasonable explanation for the same, would only draw an
inference of a pre-concerted agreement.
[6] Third-Party Analysis
As a part of the investigation process, the Director General also has the powers to ask for
information from third parties. As a part of the process, there have been situations
wherein the Director General has received information from third parties, which has
helped them in analysing that third parties, who are not a part of the cartel, are
supplying goods or services at a cheaper price. For illustration, in the insurance cartel
case, the Director General obtained information from Reliance which helped them
ascertain that tender for the year 2013–2014 was obtained by them at a much lower
premium, in comparison to the other insurance companies, who were under investigation.
§2.12 CASE STUDIES
85
[A] Builders Association of India v. Cement Manufactures Association and Ors (18)
(Cement Cartel Case)
The Cement case is one of the leading cases decided by the Competition Commission in
its six years of existence. As mentioned earlier, the case has been remanded back by the
Competition Appellate Tribunal to the CCI for fresh consideration on due process issues.
P 74 However, it will be worthwhile to note the substantive analysis of the CCI and the
evidences taken into account by the CCI, since the Competition Appellate Tribunal has
not observed on substantive issues. The Director General and the CCI made a detailed
analysis on the both communication and economic evidence. The Director General, based
on the submissions from the various cement manufactures and the Cement Manufacturers
Association, the trade association for all the cement manufacturers noted the following
[1] Market Is Oligopolistic
The Director General submitted that the cement industry in India is oligopolistic in
nature. Cement, as a product, has only two or three categories; viz. Ordinary Portland
Cement (OPC), Portland Pozzolana Cement (PPC) and Portland Blast Furnace Slag Cement
(PBFSC). The nature of product being almost homogeneous in nature facilitates
oligopolistic pricing. Further, it was observed by the Director General that the cement
industry has witnessed a lot of consolidation and concentration of market in the last
decade.
[2] Price Increase
The Director General submitted that the price of cement charged by all the companies is
not at competitive levels and the cement manufacturers have been operating at a profit
margin of more than 25%. The investigation of the price data of the cement
manufacturers done by the Director General revealed that there had been a continuous
positive growth in cement prices over last five to six years. Further, there was a
continuous divergence between the cement price index and the index price of various
inputs like coal, electricity and crude petroleum and the gap has widened since 2000–
2001. Based on the data, the Director General noted that the price of cement was rising
faster than input prices. It was also noted by the Director General that the price of
cement had been on the rise since 2004–2005 from about INR 150 per bag to close to INR
300 in March 2011, whereas during the same period, the cost of sales had only increased
about 30%. As such, the price of cement has been independent of the cost of sales. The
price of cement is changed frequently by all the companies. Sometimes, the price
changes are made twice a week.
[3] Reason for Price Change
For making an analysis of the reasons behind continuous rise in prices of cement, the
Director General conducted inquiries from the various cement manufactures. The cement
companies stated that the prices of cement depend on its demand in the market and the
decisions relating to change in price were taken on the basis of the market feedback. The
Director General found out that the change in price was mainly effected by external
factors and not by internal factors like cost, production etc. The investigation by Director
General revealed that although it has been claimed by almost all the cement companies
that the price was decided on the market feedback, no formal or systematic mechanism
P 75 or documentation system was found to be maintained by any of the cement
manufactures to substantiate their argument of reliance on market feedback for affecting
price changes.
[4] Price Has No Nexus with Cost
Further, the frequency of price changes of cement by all the companies also indicated
that the decisions relating to price was not based on the change in the cost of production.
The investigation showed that the price was affected by the price changes made by
market leaders and the prices of other players were also regularly observed. It was also
found that the prices of the companies move within a particular band due to which
similar trends are observed in the price movement of the cement manufactures in a
particular geographical area.
[5] Price Not Based on Demand
The Director General took into account the submissions made by the cement
manufactures where the companies had claimed that the prices of cement moved
primarily on basis of demand. On an examination, however, it was noted by the Director
General that there was no formal system or mechanism of collection of data in place in
case of any of the cement companies to ascertain demand of cement in a particular
market to make decision relating to change in price. The companies were unable to
explain as to how the demand of cement was measured at a particular point of time. The
companies had only stated that whatever quantity they produce is sold in the market
and their dispatches reflect both demand and supplies. In such circumstances, when
there is no evidence of companies having reliable or authentic source of data with
respect to demand of the cement in market and when the changes in price are made in
short intervals, the Director General concluded that the contention of companies that the
86
price was solely dependent upon the assessment of market feedback is not tenable.
[6] Huge Margins for the Cement Companies
Since it was found that the price was not determined by the market forces, Director
General made further investigations to examine whether there were other factors which
may be responsible for rise in the price of cement. Director General submitted that the
analysis of the margin of the cement companies showed that they were operating with
unreasonably higher profit margin. After conducting analysis of cost audit report of the
companies, Director General submitted that cost of sales, which also included the cost of
production, varies from unit to unit within a group and also between companies.
However, the data showed that cement industry has been able to post consistently good
performance and had been able to realize good margins during the preceding three to
four years. On analysis of data, the Director General found that on an average the profit
margin per bag of cement was INR 38 to INR 45 which showed that the cement companies
were able to charge prices which were quite high and above the competitive level.
Further, on a trend analysis, it was observed that the margin for companies had always
been on rise since 2006.
P 76
[7] Price Correlation

In order to find out whether there is an agreement and concerted action among the
cement manufacturers to raise prices in a consistent manner, in the absence of no direct
evidence, circumstantial evidences including behavioural indicators were analysed by
the Director General. In this regard, it was found by Director General that the data on
prices gathered during investigation showed that the prices of all the cement companies
move in the same manner, and towards similar direction. The economic analysis of the
data confirms that the coefficient of correlation of change in prices or the movement of
prices of all the companies was positive and were very close to each other (more than
0.5%) giving a strong indication of price parallelism. The Director General noted that no
specific reason for price parallelism has been given by the companies. Since the cost of
production, transportation charge etc. varied from company to company, economic
prudence suggests that price of individual companies must also vary. Therefore, the
Director General noted that the movement of price of all the companies in the same
range and in the same direction is not possible unless there is prior consultation and
discussion about the prices among them. Based on analysis of correlations of absolute
price, price change and percentage price change, it was concluded by the Director
General that the prices of the cement manufactures show a positive correlation in every
state of operation.
[8] Production and Capacity Utilization Analysis
The Director General noted that the production capacity of cement has increased from
157 MMT in 2005–2006 to 287 MMT by the end of March 2011. However, the capacity
utilization is on a continuous downward trend from 2008–2009. During the F.Y, 2010–2011,
the capacity utilization had come down to 73% from 82% in the previous year. According
to the Director General, reduction in capacity utilization is not in line with overall growth
of Indian Economy. An argument was made by the cement companies that the capacity
utilization was less because the demand was less. The Director General noted the
consumption pattern of the industry and noted that all the cement produced by cement
manufacturers is consumed in the market. Therefore, the argument of cement
manufacturers that the capacity utilization has been lower in recent years on account of
low demand was not tenable. According to Director General, the aforesaid facts
established that there was a conscious decision to maintain low level of capacity
utilization by the cement manufacturers so that higher prices can be charged and
abnormal profits may be earned.
[9] Dispatch Parallelism
The data furnished by the cement manufacturers in respect of the plant-wise monthly
production was analysed by the Director General to examine as to whether there is any
correlation in change in production output among the cement manufacturers. The
P 77 analysis carried out by the Director General revealed that there was a positive
correlation in production output among all the leading players operating in a particular
region/state. The analysis of dispatch data for the period of two years from January 2009
to December 2010 showed that the changes in dispatches of cement by the top
companies were identical. According to Director General, the correlation coefficient of
the dispatch data showed a very strong correlation among the top companies. The
decisions relating to increase or decrease in dispatches were so close that it was
indicative of some kind of meeting of mind.
[10] Comparison of Price Index with Capacity Utilization Index
The Director General has further stated that ever since 2006–2007, the capacity utilization
and cement price index were moving in opposite direction. While the capacity utilization
has been declining, the price index has been increasing. Based on the same, the Director
General noted that this is result of a deliberate attempt to reduce supply by not utilizing
87
full capacity and thereby increasing price of cement in the market. The Director General
has also concluded that the cement companies are charging unreasonable and higher
than competitive prices. The last quarter of financial year 2010–2011 witnessed a price
increase of 20–50% throughout the country in comparison to prices in third quarter of
2010–2011, which was a result of reduction in capacity utilization in wake of high demand
and controlling the supply in the market.
[11] Price Leadership and Signalling
The Director General has submitted that the demand of cement is inelastic. In such
conditions any one firm can increase its share of the total by cutting its price but this is
likely to cause a counter response by other firms also. Such competition will cut profits of
all the firms. Under these conditions, all the firms can increase their profits by reaching a
tacit agreement as to the optimal, or near optimal price level. Price leadership is one
way of signalling the appropriate price level. The Director General found from the
statements recorded during the course of investigation that the prices were changed by
cement manufacturers on the basis of prices of market leaders. The big players holding
the maximum share normally triggered the price increase which is followed by the other
manufacturers. The Director General also found that the cement companies are using the
press and media for signalling the price increase. The big players announced in press or
TV channels that there is a probability of cement price hike in coming days which serves
the purpose of price signals to the competitors. It must be noted herein that price
signalling was one of the factors which was seen in the totality of the circumstances.
Under the Indian law, there has to be an agreement among market enterprises for it to be
a cartel. A mere announcement and signalling by a company and subsequent adoption by
another company of the same price may be a case of intelligent market adoption and not
an agreement. It is because when a company announces a price in the public platform, it
is not sure whether the other companies will agree, so there is no case of consensus ad
idem. The Indian law is silent on mere price leadership and signalling.
P 78
[12] Communication Evidence via the CementManufacturers’Association

The Director General noticed that under the aegis of Cement Manufacturers’ Association,
there is an exchange of price information among the members of Cement Manufacturers’
Association on weekly basis across the country. The Cement Manufacturers’ Association
had nominated different companies in thirty-four different centres to collect and
disseminate the retail as well as wholesale price to the Cement Manufacturers’
Association. This information was either collected on phone or through emails. It was
stated by Cement Manufacturers’ Association that they were exchanging and assimilating
information under the instructions of DIPP, an executive wing of the Government of India.
The Director General found the practice of collecting the weekly information on prices by
the member companies was raising serious competition law concerns. According to
Director General, the common platform of Cement Manufacturers’ Association was used
for collection and dissemination of the information among cement companies on prices
of different companies. Based on this information the different companies come to know
about the prices of all the companies prevalent in the different zones of the country. This
price information helped them to take collective decisions about the future price
changes. During investigation, it was also gathered by Director General that the Cement
Manufacturers’ Association had formed a High Power Committee of its members. The
prices of cement were discussed in the meetings of this High level Committee. For
instance, meetings of High Power Committee of Cement Management Association were
held on 3 January 2011, 24 February 2011 and 4 March 2011, after which prices of cement of
all the top companies who were present in these meetings had increased. The meetings
dated 24 February 2011 and 4 March 2011 held in Hotel Orchid, Mumbai were also
attended by all the cement companies. The Director General noted that information
exchanged via Cement Manufacturers’ Association was done to achieve the ulterior
motive of profiteering by way of fixing price and controlling the production of cement in
the market. The Director General concluded that in the guise of the meetings of High
power committee, the cement manufacturers were entering into some arrangements and
understanding to manipulate the price of cement. Further the publications of Cement
Manufactures’ Association, which are internal circulation meant only for members,
contain the details of production in respect of each plant of the member companies. The
publications in the form of ‘Executive Summary - Cement industry’ and ‘Cement Statistics
Inter-Regional Movement of Cement’ released every month for circulation among the
members only provided the minute details of production, dispatch of each company
which facilitates the member companies to exchange the production related information
and decide production strategy in line with other member companies. Based on the
above, the Director General noted that Cement Manufactures’ Association was providing a
platform for the member cement manufacturers to act in a coordinated manner to
decide the pricing and production strategies. The Director General also noted that post
two meetings on Cement Manufactures’ Association, the prices of cement bags for
P 79 companies went up.
88
SL. Name of December 2010 (Prior January 2011 (After February 2011 (After
No. Company to Meeting) the Meeting on 3 the Meeting on 24
January 2011) February 2011)
1 ACC
Delhi 225 227 257
Maharashtra 238 245 260
Tamil Nadu 243 244 245
West Bengal 246 255 281
2 ACL
Ahmedabad 221 225 254
Delhi 226 227 258
Mumbai 254 257 267
Howrah 246 255 283
3 Ultra Tech
Delhi 230 235 265
Mumbai 253 256 265
Cossipore (W.B.) 242 252 279
Chennai 254 255 257
4 Jaypee Group
Delhi 216 228 275
Lucknow 207 222 270
5 Lafarge
West Bengal 247 260 281
Bihar 276 289 298
6 Century Textiles
Allahabad 202 235 270
Bihar 220 260 285
7 India Cement
Pune 240 242 265
Hyderabad 237 235 250
8 J.K. Group
Ambala 237 250 290
Udaipur 197 215 272
9 Madras
Cements
Tamil Nadu 240 242 252
Kerala 290 295 300
Andhra Pradesh 215 225 240
10 Binani Cement
Delhi 221 249 282
Mumbai 249 254 271
P 80
Based on the above factors, it was concluded by the Director General that the cement
manufactures were fixing prices and limiting production/supply, in contravention of
section 3(3)(a) and section 3(3)(b) of the Competition Act.
The CCI, after reviewing the report prepared by the Director General and the contention
of the cement manufactures noted that:
1. Communication evidence via the medium of discussions in the meetings of Cement
Manufactures’ Association
The CCI first looked at the communication evidence to analyse whether the cement
companies communicated with each other to discuss and deliberate their future or
present behaviour. Relying on the investigation report prepared by the Director General,
89
the Competition Commission noted that the cement companies participated and
interacted regularly in the meetings of the Cement Manufactures’ Association. It was
observed by the CCI that Cement Manufactures Association, based on a governmental
directive, collected retail prices and wholesale prices of the cement from different
centre and transmit it onwards to the government. The retails prices collected from
different centre were transmitted to DIPP, while the wholesale prices were transmitted to
the office of Economic Advisor. The retail and the wholesale price were collected from all
over the country. It was also observed that Cement Manufactures’ Association was
nominating some representatives from each company to collect the prices for each
region, instead of doing the exercise themselves. Based on the same, it was noted by the
CCI that: ‘The prices of all competing cement companies are being collected. In such a
situation, when the cement companies nominated by CMA are collecting prices of other
competing cement companies over telephones and e-mails, coordination on prices is easily
facilitated.’ The CCI was of opinion that when competitors are interacting, using the
platform of Cement Manufactures Association, and are in regular touch with each other
over phone and e-mails as regards prices – both retail and wholesale, it cannot be
denied that there is always an opportunity of discussing the determination and fixation
of prices for future, which was prohibited under the provisions of the Competition Act.
The fact that it is being done under the instruction of DIPP, an executive wing of the
Government of India, does not absolve the liability of the cement companies and the
Cement Manufacturers’ Association from any contravention of the provisions of the
Competition Act. Moreover, the CCI noted that it was the responsibility of Cement
Manufacturers’ Association to take a proper legal advice on their manner of operations of
collecting data post 20 May 2009, when the provisions of section 3 relating to anti-
competitive agreement were notified.
It was argued by the cement manufactures that information was being given to Cement
Manufacturers’ Association under the directives of the government. Further, the said
information was being collected for onward transmission to the government. In this
regard, the CCI observed that the cement companies which are collecting prices of all
others are the companies holding a major portion of the market. The CCI noted that: ‘If
the prices of all competing cement companies are collected on a regular and repeated
basis, the dissemination of information and consequently coordination gets facilitated.’
P 81
Further, based on the investigation report prepared by the Director General, it was noted
that Cement Manufacturers’ Association had also constituted a High Power Committee
which held forty-seven regular meetings. It was gathered that price of the cement
companies increased immediately after meetings in January and February 2011. An
argument was raised by the cement companies that the prices had not increased after
every meeting, and hence it cannot be said that the cement companies discussed on
prices in the meetings of Cement Manufacturers’ Association. In this regard, the CCI
observed that: ‘The Commission observes that in on-going cartel activity where prices are
being kept high over a long period of time, it is not necessary that prices would increase
after every meeting, and that prices had increased after the two meetings as brought out by
DG in his investigation raising suspicion of coordinated action and discussion among the
Opposite Parties as regards prices.’
Further, the investigation showed that Cement Manufacturers’ Association has several
publications like ‘Executive Summary-Cement Industry, “Cement Statistics” -Interregional
movement of cement’ which give details of the details of production, dispatch of each
company and are circulated only among the members. Therefore, the cement companies
not only get information of the prices of the other cement companies, but also receive
details about the production and dispatch details of the other companies. The CCI noted
that sharing of such sensitive information makes the coordination easier among the
cement companies. In light of the above communication evidence, the CCI identified that
there was information sharing among the competitors on prices, quantity and dispatch
details.
In light of the above, the CCI noted that these evidences are indicative of the fact that the
cement companies met frequently in various meetings organized by CMA and collect retail
and wholesale prices using the platform of CMA. It is also evident that the details of actual
production, available capacities of competing cement companies are also circulated by
CMA. In view of these facts, price parallelism does not remain a mere reflection of non-
collusive oligopolistic market as has been argued by certain Opposite Parties but mirrors a
condition of coordinated behaviour and existence of an anti-competitive/agreement in
violation of provisions of section 3(3)(a) of the Act which prohibits any agreement or
arrangement among the Opposite Parties which directly or indirectly determine the prices in
the market.
2. Economic evidence
As has been the approach of the CCI in cartel cases, they analysed the economic
evidence, in addition to communication evidence to evaluate whether the cement
manufacturers were acting unilaterally in accordance with the normal market forces or
whether they were acting in furtherance of an anti-competitive agreement. Before
assessing the economic evidence, the CCI analysed the structural factors that concerned
90
the cement industry to see whether the industry can be prone to cartelization.
Relying on the report prepared by the Director General, the CCI noted that the cement
market is oligopolistic in nature. In such a market, it is more than likely that each market
player is aware of the actions of the other and influences each other’s decisions. In this
P 82 regard, the CCI noted that:
No doubt, interdependence between firms is an important characteristic of

such a market which would mean that each firm in such a market takes into
account the likely reactions of other firms while making decisions particularly
as regards prices. It has been argued and the Commission accepts that
oligopolistic markets can lead to competitive outcomes. The point of
departure is that the outcomes may not always be market driven but rather
the result of concerted effort or collusion. The Commission observes that the
interdependence between firms can lead to collusion - both implicit as well
as explicit. Knowing that overt collusion is easily detected, firms often collude
in a manner which leads to non-competitive outcomes resulting in higher
prices than warranted by pure market outcomes.
Keeping the structural factors in mind, the CCI noted the following, with respect to the
conduct of the cement manufacturers:
(1) Relying on the report prepared by the Director General, the CCI noted that the
following:
(i) Existence of price parallelism among the cement manufactures.
(ii) Price increase after the meetings of Cement Manufactures Association.
(iii) Low levels of capacity utilization and reduced production.
(iv) Existence of dispatch parallelism.
(v) Super-normal profits earned by the cement manufacturers.
(2) Further, the CCI relied on correlation exercise done by the Director General, which
showed that even when the cost structure of each company is different from each
other, their prices have moved in identical fashion. Further, the CCI also noted that
there is no documented system in place for the cement companies for effecting
change in price for dealers.
(3) Apart from clear evidence of exchange of information under the aegis of Cement
Manufactures Association, the CCI observed that there were other ‘plus’ or
‘facilitating’ factors over and above the existence of price parallelism which
indicate collusive behaviour among the cement manufacturers. One of the ‘plus’
factors identified by the CCI that suggest a concerted action among the cement
companies was that there was lower capacity utilization and lower supply of
cement, even though the demand was very high. Relying on the report of the
Director General, it was noted that overall capacity utilization of the cement
companies came down to 73% during 2010–2011 from 83% in 2009–2010. The cement
companies were not able to substantiate their low capacity utilization even during
the period the demand of cement was high. The Director General undertook a trend
analysis which suggested that the capacity utilization was always on the increase
over the last four years and then there was a sudden dip, which could not be
P 83 substantiated based on any business rationale.
Year Installed Capacity Capacity Utilization in %
2005–2006 157.35 90
2006–2007 165.64 94
2007–2008 179.1 94
2008–2009 205.96 88
2009–2010 246.75 83
2010–2011 286.38 73
(4) Further, the CCI also considered the month wise data on actual available capacity
and production along with details of consumption in respect of cement companies
for the year 2009–2010 and 2010–2011. From the data, the CCI observed that, during
2010–2011, there has been lower capacity utilization and production as compared to
2009–2010.
Months Capacity in MMT Production in MMT % of Capacity
Utilization
2009– 2010– 2009– 2010– 2009– 2010–
2010 2011 2010 2011 2010 2011
April 15.65 18.55 13.40 14.70 88 81
May 15.66 18.55 13.28 14.47 87 80
June 15.86 18.55 13.19 13.77 85 76
91
Months Capacity in MMT Production in MMT % of Capacity
Utilization
2009– 2010– 2009– 2010– 2009– 2010–
2010 2011 2010 2011 2010 2011
July 15.92 18.55 13.01 13.23 84 73
August 16.12 18.55 12.51 12.85 79 71
September 16.60 18.37 11.83 12.67 73 70
October 16.69 18.52 12.39 14.87 76 81
November 16.69 18.52 12.52 11.84 77 65
December 16.75 18.52 14.07 13.59 86 74
January 17.31 19.04 14.65 14.70 87 78
February 17.40 19.16 13.93 14.78 82 78
March 18.55 19.53 15.97 16.82 88 87
Total 199.21 224.41 160.75 168.29 83 76
Based on the above data, the CCI observed that the figures of production vis-à-vis
actual available capacity show that the utilization of capacity in 2010–2011 had
been lower in all months except for October. Even in the months of November-
February, in which the utilization and production was quite high in 2009–2010, the
utilization of capacity was low in 2010–2011. Further, it was observed that
production during November and December 2010 witnessed a negative trend as
compared to the corresponding months in the year 2009. The CCI also noted that
dispatch in 2010–2011 was not on the lines of pattern of consumption of cement
during 2009–2010 which normally should be the case since the dispatch by the
P 84 cement companies during a year would like to follow the pattern of consumption
observed in previous year, especially considering that cement is a inelastic good.
(5) Further, based on the industry characteristics, the CCI observed that, as per forces
of demand and supply, dispatch in different months of 2010–2011 should have been
more than or equal to consumption of cement in the corresponding months of the
year previous year (2009–2010). It is so because the demand of cement being
inelastic, there was no reason for decline of its demand or its consumption in 2010–
2011 compared to the previous year. Accordingly, in all the months of 2010–2011,
dispatch exceeded the actual consumption observed in 2009–2010. However, in the
two months of November and December 2010, the dispatch was lower than the
actual consumption of cement in November to December 2009. It was noted by the
CCI that lower dispatch in the month of November-December 2010–2011 than the
actual consumption in the corresponding months of 2009–2010, coupled with lower
capacity utilization in these months (as discussed above) established that the
cement companies indulged in controlling and limiting the supply of cement in the
market.
(6) Production and dispatch Parallelism.
Further, relying on the data of Director General prepared on the basis of data
furnished by the companies in respect of plant wise monthly production, the CCI
observed that there is positive correlation in change in production output among
the cement manufacturers operating in a particular region/state. The data
collected by the Director General showed that during November 2010, all the
cement companies had reduced the production drastically as compared to October
2010, although this was not the case for the corresponding months in 2009. Based on
the data on production, the CCI observed that during November–December 2010,
the cement companies had reduced the production together. Comparatively, in
2009, some companies showed that there was increase in production for some
companies. Based on the same, the CCI concluded that there was a coordinated
effort on part of the cement companies to reduce supplies by curtailing production.
Further, basis of the analysis of dispatch data for the two years from January 2009 to
December 2010, it was observed that the changes in dispatch of cement by the top
companies were almost identical.
Based on the above communication evidence and economic evidence, the CCI
observed that limiting control of production and supplies in the market had caused
an upward movement in the price of the cement. The CCI observed the following:
The deliberate act of shortage in production and supplies by the cement
companies and almost inelastic nature of demand of cement in the
market resulted into higher prices in the cement. As per the trend of the
price of cement per bag charged by some cement companies including
the Opposite Parties during 201011 submitted by the Director General in
his report, the price witnessed an increase in the month of November
2010 as compared to September 2010 and there was a distinct upward
P 85 movement in the price during January 2011 and February 2011. The
92
Commission observes from the data above that the price of cement had
gone up in case of cement manufacturing companies during November,
2010 and January and February 2011. The Commission also observes that
the increase in price corresponds to reduced dispatch and production
during November December 2010 vis-à-vis pattern of consumption
observed in the corresponding months of the previous year which shows
coordinated action on the part of the cement companies to limit
supplies and raise prices subsequently which is reflected in the fact that
the prices of all the companies have moved together in January–
February 2011.
Based on the above, the CCI noted that the cement companies have engaged in
cartel behaviour for fixing prices and limiting production, in contravention of
section 3(3)(a) and section 3(3)(b) of the Competition Act.
[B] Indian Sugar Mills Association, National Federation of Co-operative Sugar

Factories Ltd., All India Flat Tape Manufacturers’ Association v. Indian Jute Mills
Association, Gunny Trade Association and Ministry of Textiles (19) (Jute Mills Case)
The case was initiated based on information filed by Indian Sugar Mills Association
alleging price fixing by the members of Indian Jute Mills Association (IJMA) and Gunny
Trade Association (GTA). Owing to the statutory provisions for compulsory use of jute bags
in packaging of sugar and food grains, it was alleged that the members of IJMA and GTA
were raising the prices of jute bags in tandem. It was submitted that the price of a jute
bag (for 50 kg sugar packaging) was INR 53.50 in April 2010 which was increased to INR
64.50 in February 2011. There was, thus, a price increase of more than 20% during a period
of less than one year, with no increase in the prices of the input costs/raw materials for
manufacturing a jute bag.
It was further alleged by the sugar association that members of IJMA and GTA were in
agreement and the members of IJMA and GTA were fixing the prices of various types of
jute bags manufactured by them. It was further pointed out in the information that the
executive members of both IJMA and GTA were deciding the prices of various jute bags
after formal discussion in meeting among themselves, and such decision was thereafter
approved by a committee consisting of some members and office bearers of IJMA.
Thereafter, the decision of the price is conveyed to the members of both IJMA and GTA
through a daily price bulletin and circulars issued by IJMA. The price, so fixed, was
thereafter followed by the members of both IJMA and GTA in their trading activity.
Post the investigation report prepared by the Director General, the CCI noted that the
Director General had tabulated the information/data of sales and purchases provided by
informants and members of IJMA and GTA regarding actual transactions. It was noted that
the price of actual transactions were taking at the price mentioned in the bulletin or very
P 86 close to the price mentioned in the price bulletin. It was also noted that various jute
mills have categorically stated in their correspondence with GTA that they follow the
prices provided in the daily price bulletin. The Director General had noted, which was
agreed to by the CCI, that had there been no such price indications in the form of daily
price bulletin, the competition would have been fair, market driven, where the consumer
would have had more space to negotiate with the individual jute bag manufacturers.
The members of the IJMA took the contention that the price bulletin was revised
everyday, which reflected the last trading price of jute bag on the previous day. In this
regard, it was observed by the Director General that the price mentioned in some of the
actual transactions were either higher or lower than the price provided in the daily price
bulletin but the price mentioned in the next days bulletin was not revised on the basis of
that revised price. Based on the same, the Director General concluded that price of GTA
daily price bulletin could not be stated to be the last transacted price or near to the
price of transaction in the market as claimed by the members of GTA. Hence, the
movement of price mentioned in the daily price bulletin was found not to be governed by
the market price, but controlled manually by the GTA and its members in a concerted
manner, by meeting and applying their minds and publishing and disseminating the
same to the interested parties.
Based upon the investigation report of the Director General, the CCI noted that the
members of GTA under the aegis of GTA, publish daily price bulletin, which is being
followed by the members of IJMA also. It was further noted that, that there were exchange
of correspondence between GTA and IJMA which showed that IJMA as an association had
interacted with GTA with respect to the daily price bulletin and also accepted the fact
that jute mills sell their products on the basis of GTA quotations and they have requested
to increase the price in GTA bulletin for the benefit of their members, thereby instigating
them to increase the price further more. This showed that the forum of IJMA was used for
expressing the collective concern of the members of IJMA to put pressure to increase the
price.
The Director General observed in this regard that:
members who were determining and deciding the price by meeting jointly
actively indulged in the jute business and their business interest were clearly
93
involved in this process. Further, the whole exercise of fixing and publishing
the prices of jute bags was done arbitrarily, according to the information of
members, having no scientific method. No documents were kept or provided
as an evidence to show that the actual price information from the market was
collected by the panel members and it was further moderated by the sub-
committee of DPB members. Therefore, no transparency was found in the
publication of GTA DPB. This fact clearly established that neither the price
mentioned in DPB was based on neither last day’s transaction nor the market
trend, but maneuverer to set benchmark price for trading of jute bags. This
also restricted the competition in the market for future business transactions,
as the prices were already mentioned.
Apart from the communication evidence mentioned above, the Director General also
relied on economic evidence. The Director General analysed the figures relating to
demand and supply position in the market and did a comparison with relation to the
P 87 total installed capacity of the various jute bag manufactures. From the analysis, it was
noted that the installed capacity increased between 2007–2008 to 2011–2012 from 13.71
lakh MT to 17.07 lakh MT. However, capacity utilization did not match the said increase.
The production of jute bags declined from 1.94 lakh MT to 0.99 lakh MT at the same time.
During this period, demand for A-Twill bags from sugar industry fell marginally from 2.70
lakh MT to 2.56 lakh MT. The Director General then analysed the capacity utilization by
individual registered jute mills. It was noted by the Director General that only three or
four mills were found to be operating at full capacity. No other mill was found to be
operating at full capacity.
Based on such analysis, it was concluded by the Director General that though there is a
high demand, the production of jute bags have reduced. The production reduced because
of the fact that full capacity utilization was not done by the jute bag manufactures. Based
on the evidence, the Director General found this to be an attempt to restrict the supply of
the jute bags in the market. Further, the Director General noted that the prices have
increased constantly in the case of jute bags at one hand and the production has
decreased on the other hand, though sufficient production capacity was available. Based
on the same, the Director General concluded that the jute manufactures have
intentionally indulged in low production, thereby increasing the prices of the jute bags in
the process.
Apart from the production and demand position, the Director General also conducted a
comparative analysis of price movement of A-Twill jute bags (the product under
investigation) with B-Twill jute bags. The B-Twill jute bags are used by the Government for
packaging of food grains. The price of B-Twill bags are determined by the Jute
Commissioner in consultation with the Tariff Commission on periodical basis and revised
based on a standard formula, which takes into account the movement in the price of raw
material, manufacturing and labour cost and other cost and also a fair profit margin. It is
further noted that no such prices are fixed by any Government agency for A-Twill bags.
The raw jute (TD-5) is used as a raw material for production for both types of bags. The
Director General then examined the movements in price of raw jute (price per 100 kg)
with price of A-Twill bags (price per 100 bags) and the Director General found no
relationship between the two. In fact, it was observed that even during period of
reduction in jute prices, an increase in price of A-Twill bags was noticed. Similar trend
was observed when price of raw jute and A-Twill bags were compared on ton basis.
It was noted by the Director General that the other process remains the same and there is
no specific differentiation with respect to the machinery type, labour and other or head
cost for manufacture of both kinds of jute bags. Based on the comparative analysis, it was
noticed that the per gram price of A-Twill bags were higher ranging from 40% to 50% over
B-Twill bags especially in the circumstance when B-Twill bags were priced by the Jute
Commissioner taking into account the costs and fair profit margin. Thus, the profit
margins for per gram sacking of A-Twills commanded was much higher than B-Twill bags.
The Director General pointed that the prices of B-Twill are scientifically determined,
based on a formulae, and the fact that A-Twill prices are not in tandem with B-Twills
reflected that the prices of A-Twill bags were not moving in relation to the raw material,
other costs and a fair margin, but were determined by the GTA based on arbitrary price
P 88 fixation in consultation with all its members. The analysis showed that no correlation
was established between the raw material and the final quoted price of A-Twill bags,
which was stated to be the transacted price and was not reflective of the correct market
price. The Director General also examined the degree of relationship between the month-
wise price of A-Twill bags with B-Twill bags for the period July 2008 to June 2011. A
negative correlation value of -0.27 was obtained and it was inferred that not only are two
prices moving independent of each other but A-Twill are moving higher even when B-Twill
prices are falling. Based on the above analysis, the CCI observed that the members of
IJMA and GTA were involved in price fixing, which is in violation of section 3(3)(a) of the
Competition Act.
[C] Express Industry Council of India v. Jet Airways, Indigo, SpiceJet

The case was initiated based on information filed in May 2008 alleging that certain
domestic airlines introduced a Fuel Surcharge (FSC) for transporting cargo. This surcharge
94
was fixed at a uniform rate of INR 5/kg and came into force on 15 May 2008. It was the
case of the informant that, although the levy of FSC was ostensibly introduced as being an
extra charge linked to fuel prices, it is an admitted fact that when such prices were
reduced (as in the past), there had been no corresponding decrease in FSC. It was further
stated that FSC has actually been increased by the airlines again acting in concert and
that too, by almost the same rate and from almost the same date. Likewise, FSC has been
uniformly increased in the past even without a corresponding increase in the fuel prices.
Further, it was also averred that when fuel prices declined substantially, the airlines had,
in concert, uniformly increased FSC.
The Director General conducted an investigation and found no evidence of collusion
among the airlines. However, it noted that the conduct of airlines in respect of imposition
of FSC was not in conformity to market conditions of fair competition as FSC was only a
revenue smoothening levy that bore little correlation with changes in the ATF price
Subsequent to the investigation conducted by the Director General, the CCI observed the
following:
(1) FSC constitutes a substantial portion of the cargo revenue: The investigation
conducted by the Director General had shown that airlines had earned substantial
portion of their revenue, by way of FSC.
(2) The CCI noted that all the airline companies indicated that turbulence in ATF price
was the main reason for introduction of FSC in domestic cargo market. Apart from
ATF price, certain other factors which were stated to be taken into account while
determining FSC included financial health of the company, dollar exchange rate,
cost environment and market feedback etc. Although these factors were stated by
all the airlines in their submission, it was noted that none of the airlines was able to
furnish any data or costing studies of any kind in support of the determination of
FSC and their assertions in their submissions. No Airline was able to give any
systematic break-up of weight attached to any parameter claimed to be important
P 89 in determination of FSC. None of these airlines could provide any valid
explanation nor furnish any methodology/market study on the basis of which the
FSC rate was imposed and enhanced, from time to time. Failure to provide any
internal notings/meeting among the airlines, based on which, FSC was levied and
imposed by the airline was seen adversely by the CCI.
(3) It was noted by the CCI that most of the airlines have given the reason of ATF price
volatility as the most important factor for fixing FSC. However, investigation
revealed that this correlation has broken on several occasions and there have been
instances where FSC rates have been increased despite the fall in ATF price. In fact,
there have been instances where two airlines have increased FSC by the same
amount on the same date or nearby dates even though the ATF price was falling and
neither of the airlines were in a position to furnish any methodology/market study
justifying the quantum to raise the FSC. Further, the CCI observed that whilst Spice
Jet increased the FSC rate not on the same day as Jet and Indigo but after a time
gap, the same amounted to a collusion through artificial gaps and arrangements to
create a façade of competitive behaviour. The CCI emphasized on its duty to pierce
this artificial veil of competitive behaviour and examine the real anti-competitive
behaviour of the colluding airlines. While the approach of the CCI in examining real
behavior is noted, it remains unclear as to how the CCI differentiated the said
behavior between a case of intelligent market adaptation i.e., making an unilateral
decision of following a competitor, which is not anti competitive, as opposed to
entering into an agreement for levying and fixing FSC, which is a proscribed
conduct. CCI was of the view that that a parallel conduct is legal only when the
adaptation to the market conditions is done independently and not on the basis of
information exchanged between the competitors; the object of which is to influence
the market. However, in this case, CCI concluded that the airlines were well aware of
the changes in the FSC rates, if any, by their competitors in advance. The increments
of the rates on same dates or nearby dates are reflective of some sort of
understanding amongst the airlines. Also, the unreasonable explanation of increase
of FSC rates clubbed with no data on cost analysis, evasive replies and no
documents despite admitting to the fact that meeting/discussions took place with
regard to FSC rate only further confirmed the fact that airlines were acting in
concerted manner.
(4) The CCI thereafter relied on statements made by certain officials of the airline
companies and noted that information on revision of FSC though communicated
between their own staff, there is likelihood of transmission of such information to
other competitors by common agents though it is understood and implied that
confidentiality should be maintained by such agents. It was also noted by
statements that information on rate of FSC of other airlines to be charged by
airlines in the future were exchanged to other airlines through the medium of
common agents. The CCI noted that such point of contacts eliminates or
substantially reduces in advance any uncertainty that might otherwise have existed
P 90 regarding commercial conduct of other competitors in the market and also in
such scenario the concerned company takes into account such information before
determining its own conduct. It was clearly evident that the airlines were well aware
of the changes in FSC rates, if any, by their competitors in advance. The CCI noted
95
that increments of the rates on same dates or nearby dates, even when the ATF
prices were falling, are reflective of some sort of understanding amongst the
airlines.
(5) A plea was taken by the airlines that their behaviour is a case of parallel behaviour
and not a case of cartel. The CCI noted that a conduct is legal only when the market
participants adapt to the market conditions independently and not on the basis of
information exchanged between the competitors; the object of which is to influence
the market. However, in this case, CCI noted that the airlines were well aware of the
changes in the FSC rates, if any, by their competitors in advance. The increments of
the rates on same dates or nearby dates are reflective of some sort of
understanding amongst the airlines. Also, the unreasonable explanation of increase
of FSC rates clubbed with no data on cost analysis, evasive replies and no
documents despite admitting to the fact that meeting/discussions took place with
regard to FSC rate only further confirmed the fact that airlines were acting in
concerted manner. Based on the above, CCI noted that such conduct has, in turn,
resulted into indirectly determining the rates of air cargo transport in terms of the
provisions contained in section 3(3)(a) of the Competition Act. The CCI concluded
that even though no evidence of direct meetings existed, the airlines had
participated in a passive manner as they had the requisite means to access and
exchange information though their common agents and circulars.
The CCI however exempted Go Airlines and Air India from the charges as Go Airlines was
not found to be a part of any arrangement pertaining to commercial/economic aspects of
cargo operation including imposition of FSC. (20) Similarly, Air India was exempted as the
FSC rates determined by it were in tandem with the ATF rates and it had kept its rate
lower that the rate fixed by other airlines. (21)
[D] In Re: Manufacturers of Asbestos Cement Products (22)

This case was initiated by way of a reference made by Enforcement Directorate, SFIO
(Serious Fraud Investigation Office) on the basis of a complaint received by them. The CCI
conducted a preliminary inquiry into the major players in the manufacturing of Asbestos
Cement Sheets (hereinafter referred to as ACS), the product under investigation.
P 91
The Director General undertook a price correlation exercise based on the average sale
price per MT for ACS products. The investigation conducted by the Director General
revealed the following aspects (which were subsequently relied to by the CCI):
(1) The Director General analysed whether there was any similar trend in the movement
of sale price of ACS products sold by different players. The investigation revealed
that there was month-to-month variation in the average sale price across the major
players. The Director General further analysed as to whether the prices of ACS
products had been consistently increasing over the years. To conduct the said
analysis, the Director General compared the movements in quarter-wise average
sale price of the major players from one quarter to another. The results showed that
average sale prices had not consistently increased for each major player on a year-
to-year basis.
(2) The analysis of the monthly average sale price movement of the top players
revealed a high correlation amongst top players though the degree of correlation
varied in the range of 0.6-0.98 between the players, in a given month. There were
variations in the absolute prices of players on account of the brand values, cost of
transportation, excise duties.
(3) The investigation also showed that the ASP (Average Sale Price) has not been
increasing consistently on year-on-year basis and there were quarters, when the ASP
fell substantially as compared to corresponding quarters in previous years.
(4) On a mapping of the cost of production with average sale prices of each player, it
has shown that the same has not always moved in the same direction in case of
every player.
(5) The ACS industry is seasonal in nature which in turn plays an important role in the
ability of the players to increase price. There are quarters of high demand, where
the prices have increased despite falling trend in cost, at the same time in quarters
of falling demand the players are not always able to pass on the increase in the
cost. On account of the seasonal nature of industry, any increase in prices by all
players during high demand, can be a logical response to the market conditions and
not necessarily be due to concerted action. The correlation coefficient between cost
and prices has varied across top players in the range of 0.6–0.9. The extent of
increase and decrease in the prices of top players in a given quarter also differed
significantly. It has also emerged that during 2008–2012 for all the top players in
most of the quarters, the indexed cost of production (and that of key raw materials)
is more than the indexed average sale price. These trends showed the increased
competition in the market. In this regard, the CCI also noted that the ACS industry
has a period of lean demand from July to October of each year and the remaining
months of the year are characterized with high demand and that every year the
production usually falls during the lean period. Moreover, while production of ACS
96
products generally increased from 2008–2009 to 2011–2012, there was a variation in
production of ACS products among the major six players where some showed high
P 92
production, whereas for some companies there was decline in production. The
Director General, after the examination of the evidence, opined that there exists
valid economic operational reasons for steeper reduction in production at
occasions.
(6) There was an alleged concerted shutdown by top players during September to
December 2010 to curtail production and limit supply. The investigation revealed
that every year shutdown of various durations take place particularly during the
lean period. The analysis of the data on shut downs during alleged period showed
that the dates and period of shutdowns during alleged period differed across top
players. It has emerged from the examination of reasons that in case of one
company, there was prolonged shut down due to flooding in one plant and labour
dispute in another plant. The reasons differed from shortage of raw material supply
in case of one company to presence of high inventory in case of other. The CCI also
observed that apart from shut down there have also been halts in production due to
reasons such as want of raw material, cleaning, etc.
(7) The production and capacity data of various players were also noted. The
investigation brought out that during this period several top players added
installed capacity. The annual production of three top companies did fall
marginally during 2010–2011, however, that of other three top companies increased.
Further, an increase in annual production of several other small players and an
overall increase in production of ACS during 2010–2011 were also observed. The
production of the industry as a whole has been consistently increasing on a year-on-
year basis. The Director General also noted that overall capacity utilization figures
do not indicate under utilization. Hence, as per the Director General, the analysis of
available information relating to production, shut downs, capacity and inventory
position had not revealed any evidence regarding concerted shut down by top
players to limit production and supply.
(8) The Director General analysed that the Return on Capital Employed (ROCE) of top
companies has varied during the years and also amongst themselves. After
considering the factors like multiple businesses pursued, impact of book value of
capital, presence of large and efficient manufacturing distribution network in case
of some players as compared to others, it was observed by that high ROCE of some
players does not imply cartelized conduct. Further, the profit margins have also
differed across players and have not indicated a cartelized conduct.
The CCI also considered and perused the record of telephonic and electronic
communications between the major ACS manufacturers. It was observed that the
senior executives of the ACS manufacturers were regularly communicating. However,
the communication of ACS manufactures inter se and via the medium of the trade
association was on industry issues and not on any aspect of cartelization. Based on
the above reasons, the CCI noted that there was no case of price fixing by the ACS
players.
P 93
[E] In Re: All India Tyre Dealers Federation v. Tyre Manufactures Association (23)
(The Tyre Case)
The case was initiated based on a complaint made by All India Tyre Dealers Association.
Based on the complaint, the CCI undertook a detailed price cost comparison of the tyre
manufactures to analyse whether the tyre companies have engaged in a cartel. Before
analysing the communication and the economic evidence, the CCI noted that the industry
is oligopolistic. Having said that, the Competition Commission wanted to analyse
economic evidence to see whether there is an agreement between tyre manufactures. In
this regard, the CCI noted as follows:
In a market which is oligopolistic in nature, it is more likely that each market
player is aware of the actions of the other and influences each others’
decisions. No doubt, interdependence between firms is an important
characteristic of such a market which would mean that each firm in such a
market takes into account the likely reactions of other firms while making
independent decisions particularly as regards prices and output. Though
oligopolistic markets can lead to competitive outcomes, the outcomes may
not always be market driven but rather the result of concerted effort or
collusion. The interdependence between firms can lead to collusion-both
implicit as well as explicit. Thus, high concentration may provide a structural
reasoning for collusive action resulting in parallelism (price or output), yet it is
very important to differentiate between ‘rational’ conscious parallelism
arising out of the interdependence of the firms’ strategic choices and
parallelism stemming from purely concerted action. Thus, inferring of cartels
would require further evidences. Economic theory has demonstrated
convincingly that ‘conscious parallelism’, is not uncommon in homogeneous
oligopolistic markets. Competing firms are bound to be conscious of one
another’s activities in all phases, including marketing and pricing. Aware of
97
such outcomes especially where there is little real difference in product the
Commission is of the opinion that it is quite probable that in many such
instances, conscious parallelism may be dictated solely by economic
necessity. Avoidance of price wars is a common instance where this takes
place.
To analyse the economic evidence, the CCI took into account the following details:
(1) The range of prices of tyres of different manufacturers has been more than INR 1,000
for the period 2005–2009 and the range has come down to INR 600 in 2010. The CCI
noted that the product under investigation, i.e., tyre, is homogeneous. For a
homogenous product, a 6–12% range of difference in prices implies that the prices
are dissimilar and there is no parallelism in absolute prices. Further, with respect
parallelism of price movement in percentage terms is concerned, it was noted that
there were wide variations amongst various manufacturers.
(2) The CCI noted that the direction in which prices were moving (upward or downward)
was parallel. The tyre manufacturers sought to justify the said directional price
P 94 parallelism in the tyre industry by pointing out the peculiar features of the tyre
industry. It was highlighted that price parallelism in the tyre industry arises on
account of the fact that the products sold are homogenous which makes it difficult
for businesses to charge different prices to customers. Further, it was pointed out
that the products in the tyre industry share similar sources of inputs, which means
that competitors are subject to similar cost fluctuations in setting their product
prices. Further, it was contended that prices of products in the tyre industry are
highly visible, which allows businesses to collect real time market intelligence and
monitor each other’s prices closely and match competitors’ price movements.
Based on the above, the CCI undertook elaborate analysis of data relating to
production; capacity utilization; cost analysis; cost of sales/sales
realization/margin; cost of production and natural price movement; net dealer
price and margin to analyse whether there was any evidence of a collusion between
the tyre manufacturers.
(3) The CCI analysed the capacity utilization of each of the tyre manufactures. The
investigation revealed the following details on capacity utilization:
Company 2005–2006 2006–2007 2007–2008 2008–2009 2009–2010
Utilization Utilization Utilization Utilization Utilization
Apollo 89% 89% 92% 87% 80%
Birla 90.74% 89.83% 97.67% 81.59% 104.57%
MRF 74.7% 79.27% 82.13% 80.85% 89.04%
CEAT 90% 91% 83% 75% 81%
JK Tyre 101% 92.6% 86.5% 85.1% 86.7%
Based on the above investigation, the CCI noted the trends of the various tyre
manufactures were mixed and the capacity utilization for some companies
increased and while for some, the capacity utilization decreased on a year-on-year
basis. An absence of any clear trend among various tyre manufactures suggested
that variations in capacity utilization were each company specific and not
necessarily due to any concerted action among the players.
(4) The analysis of capacity utilization for companies has to done along with the overall
production capacity of the tyre manufactures. In this regard, the CCI stated that the
decrease in capacity utilization needs to be read along with the increase in
capacities. In this regard, the CCI took into account an order made by Customs
Excise Service Tax Appellate Tribunal where observations on production capacity
was made by the concerned tribunal. It was observed that:
The capacity has increased from 26270 MTs to 37636 MTs and the
production has increased from 18622 MTs to 27364 MTs and therefore the
capacity utilization has also increased from 70.89% to 72.71%.
Based on the above, the CCI observed that increase in capacity utilization had been
P 95 muted because of increase in capacity and not due to reduction of output
leading to supply suppression and limiting production. Further, based on an
industry market report, the CCI noticed that the installed capacity of the industry
was likely to go up by 47% from 2009–2010 to 2012–2013. In light of the same, the CCI
noted that the investments committed by the companies negate the cartel theory
as it does not seem practical for companies to maintain a high return on capital
employed when capital is continuously increased.
(5) The CCI also analysed the cost of production, selling and distribution cost,
administrative overheads, advertisement etc. of each of the companies. Sales
realization is the amount received on sale of each unit. Margin indicates the profit
or loss realized on sale of the product. The analysis was done to have an idea about
the profitability of sale of each product. The investigation revealed the following
details on margins:
98
(i) Apollo Tyres, the margin per tyre increased from INR 747 in 2008–2009 to INR
1,127 in 2009–2010.
(ii) JK Tyre where the margin increased from INR 76.56 in 2008–2009 to INR 607.92
per tyre in 2009–2010.
(iii) CEAT was selling its tyre at a loss in the year 2008–2009 and in the year 2009–
2010, it had a margin of INR 111 per tyre.
(iv) MRF margin in the year 2008–2009 was INR 310 in 2009–2010, it was INR 371.
(v) Birla Tyre had a margin of INR 292 in 2008–2009 and only INR 14 in the year
2009–2010.
On an analysis, the CCI noted that the margins have gone up for some players
while for others, it had gone down. Due to such variance in margins, the CCI
held that there was no agreement among the tyre manufactures. In this regard,
the CCI observed as follows:
it may be noticed that the cost of sales and sales realization have
shown increasing trend year after year. Different manufacturers are
differently placed as far as net Margins are concerned. The bigger
the range between the margins of manufacturers, lower are the
chances of sustaining a cartel [emphasis added]. The companies
with lower margins have no incentive to collude and will deviate.
The CCI noted that prices are a function of number of factors
including but not limited to cost conditions, thus the CCI found no
merit in evaluating whether the changes in Sales Realization are
proportionate to cost of sales or not. CCI could not concluded on
the basis of the above data relating to cost of sales, sales
realization and margins that there is any indication of concerted
action.
(6) The CCI noted that the tyre industry had a trade association. However, on
investigation, it was revealed that the trade association was used as a forum for
lobbying for the welfare of the trade industry and make various industry
representations to the Government of India, which cannot be viewed as anti-
competitive.
P 96
Based on the above factors, the CCI held that there was no evidence of cartelization
against the tyre manufacturers.
[F] Crown Theatre v. Kerala Film Exhibitors (24)

The information was by a single screen theatre alleging that the Kerala Film Exhibitors,
representing film theatres in Kerala, are engaged in cartel behaviour by limiting
production/supply. The Kerala Film Exhibitors is an association has nearly 315 film
theatres in the State of Kerala as its members. It was alleged by the informant that the
membership of the KFEF is subject to recommendation from one of its executive
committee member and two other members as well as approval by its executive
committee and working committee. The allegations of the informant were largely
directed towards anti-competitive practices by KFEF that they were preventing the
screening of Malayalam and Tamil films in theatres in Kerala. The informant alleged that
the KFEF were controlling and restricting the exhibition of new movies across Kerala. In
September 2012, the federation directed its members to strike/stop screening films in
their theatres as a mark of protest against an increase in service charge and certain
policies of the State Government of Kerala towards film industry. In October 2012, it was
decided to indefinitely close down the cinema halls with effect from November 2012.
The informant apprehended that the move to closing down halls will lead to huge losses
since an upcoming Hollywood movie was due to be released shortly. The informant
mentioned that the producers of vernacular movies could postpone the release of their
movies till the duration of the strike, in case of English/Hindi movies which are released
all over India simultaneously, the strike would cause huge loss to the informant. Due to
subsequent differences with the federation on this aspect, the informant resigned from
its membership in November 2012. For a few months after resignation of its membership,
the informant continued getting new Tamil and Malayalam films for release and
exhibition at its theatre. However, sometime around May 2013, the federation started
directing the distributors in the State of Kerala to abstain from giving films to the
informant. Based on the said details in the information, the CCI asked the Director
General to conduct a detailed investigation into the matter.
Based on the detailed investigation report prepared by the Director General, the CCI
noted that because of the intervention of the federation, the regional language films were
denied to the informant theatre and the same has adversely affected the competition in
the said market. Based on the statement of the members of the federation, informant
and other letters from the distributors, the CCI noted that the distributors were been
directed by the federation not to supply movie prints of Malayalam and Tamil language
movies to the informant. Further, the investigation also revealed that in the event a
distributor does not agree to the instructions of the federation, that distributor was also
99
boycotted and the federation will not allow that distributors movies to be screened in
P 97 the State of Kerala. The CCI noted that the federation could not give any justification
for their conduct of not allowing the distributors to provide their movies to the informant.
In the light of the above, the CCI noted that the Federation and its members have
violated section 3(3)(b) of the Competition Act.
It is very interesting to note that the CCI has analysed, in many cases, the activities of the
trade association in the entertainment industry in great detail and have expressly noted
the activities of a regional/state trade association not to allow the release of the dubbed
content (of other regional language) within that state as being in violation of section 3(3)
(b) of the Competition Act. The CCI has opined that the act and conduct of the film
associations is anti-competitive in nature if it imposes restrictions on the free and
unrestricted distribution and exhibition of non-regional serials dubbed in the regional
language. Such act and conduct was held to be limiting and controlling the supply of
serials is in violation of provisions of section 3(3)(b) of the Competition Act. The CCI
further observed that prohibition on the exhibition of dubbed serial on the TV prevented
the competing parties in pursuing their commercial activities.
It is to be noted that all the regional trade associations, in most of these cases, have
taken the plea that such restriction on banning of dubbed content was done to protect
the interest of local artists and hence such action is not anti-competitive. Such a plea,
however, was rejected by the CCI, in its entirety. In this regard, the CCI noted the
following:
the Commission observes that there could be other ways to promote non-
regional and non-language films. In any case, the preference to a particular
film must be left to the consumers in the market. The restrictions on number of
screens imposed in certain pockets by KFCC in the name of promotion and
protection of Kannada language films causes restriction and impedes
competition in the market, which are prohibited under the Indian Competition
Act. The Commission holds that the above action arises out of agreement
among the members of the association which gets reflected in decision or
practice carried on by KFCC and results into limit on supply of films in the
market which is violative of section 3(3)(b) of the Act.
[G] Practices in the Pharmaceutical Industry

There have been cases which have been decided by the CCI in the pharmaceutical
industry, which are very similar to the issues in the entertainment industry. The CCI has
come down heavily on the actions of the various Chemist and Druggist Association as
being anti-competitive under section 3 of the Competition Act. The CCI has broadly held
the following kinds of activities by Chemist and Druggist Association (25) to be anti-
P 98 competitive:
(1) Non-appointment of a stockist or a wholesaler from amongst the non-members of
the respective trade association.
(2) Requirement of an NOC from the association for appointment of a stockist or
wholesaler.
(3) Associations fixing trade margins below which the stockists were not allowed to sell.
(4) The distributors/retailers not allowed to give discounts to customers.
(5) Compulsory approval from the trade association for introduction of drugs in the
market.
(6) Requirement for routing bids for supply of drugs to the government and the
hospitals through authorized stockist only.
The CCI has held that the above terms and conditions amounted to restricting the ability
of enterprises to supply and sell drugs in the market. Just to delve deep into the various
activities of the chemist and druggist association, the CCI observed that members of the
various chemist and druggists Associations of the districts/states have been seeking and
enforcing fixed trade margins of 20% to retailer and 10% to distributor/stockist, in terms
of the various MOU signed between three notable trade associations in the
pharmaceutical industry: All India Organization of Chemists and Druggists (AIOCD) and the
Organization of Pharmaceuticals Producers of India (OPPI) and the Indian Drugs
Manufacturers’ Association (IDMA). The above fixed margins were possible only if drugs
are sold at their respective maximum retail price (MRP) and the sellers do not indulge in
undercutting by way of offering discount to their customers. Even though the written MOU
was rescinded, the practice of sale of drugs only at MRP, so as to ensure fixed trade
margins to the retailers and the wholesalers, were still being practiced. Upon a detailed
investigation by the Director General, the following were noticed:
[1] Boycott
The minutes of the executive committee meetings of trade association showed that
organizational movement were proposed to be launched against chain stores who
indulge in under cutting and home delivery service. It was also proposed that those who
are not the members of the trade association should not be serviced and the wholesalers
should stop the medicine supply to such a chain store. The minutes of the trade
100
association also revealed that the areas where undercutting was rampant were identified
and action was taken against such stores.
[2] No Objection Certificate
It was noticed that the trade association mandated that a drug manufacturing company
can appoint a stockist only in consultation with the concerned State/District Chemists &
Druggists Association. A NOC has to be obtained for appointment of a stockist.
Furthermore, where there is only one stockist of the company in the district, the second
P 99 stockist can be appointed only in consultation with the concerned State/District
Association and even the second stockist should be a bona fide member of the
associations affiliated with the AIOCD. Upon investigation by the Director General, it was
observed that production of NOC or ‘Letter of Consent/Cooperation’ (LOC) from the
respective District/State Chemists and Druggists Associations, affiliated to AIOCD, to the
pharmaceutical companies by the prospective stockists are sine qua non for being
appointed as a stockist/wholesaler/distributor of pharmaceutical companies. The CCI
took note of the practice and noted that the conduct of trade association in the matter of
grant of NOC attracts the provisions of section 3(3)(b) read with section 3(1) of the Act as
such actions create restraint on freedom of trade on account of NOC which has the effect
of limiting or controlling the market or supply.
[3] PIS Approval
Upon an investigation by the Director General, it was noted that PIS approval entails
payment of prescribed charges for the purpose of publication of the product information
in the PIS bulletin, which is published state wise. The PIS bulletin is a part of the
magazine published at periodic intervals by the respective state chemists and druggists
associations affiliated to AIOCD. The Director General observed that the pharmaceutical
companies have to obtain PIS approval from the respective state chemists and druggists
associations affiliated to AIOCD before they can introduce new products in the market.
Further, the evidence collected by the Director General revealed that practice of PIS
approval from the state chemists & druggist association on payment of the prescribed
charges in the name of advertisement in the association bulletin is again a sine qua non
in absence of which new products are not allowed to be introduced in the distribution
channel. The Director General noted that launch of new product in the market being
made contingent on PIS approval by the concerned association of Chemists & Druggists
sometimes results in restraint of trade and leads to denial of market access/controlling
of supply/market for any product of a company which can also deprive consumers of the
benefits of such drugs. The evidence also revealed many instances where the association
of chemists and druggist association refusing to grant PIS approval on a variety of factors,
including asking for charges in excess of the prescribed charges. Based on the further
investigation, the CCI noted that the action of the trade association in delaying or
withholding of PIS approval on any ground is in violation of the provisions of section 3(3)
(b) of the Competition Act.
[4] Fixing of Trade Margins
The investigation by the Director General revealed the fact that the trade margins have
been decided for the wholesalers and retailers operating in the pharmaceutical market
by way of an agreement between the trade and the industry. By way of this agreement,
the Director General noted that prices of drugs are directly or indirectly getting fixed and
are not getting determined by the interplay of market forces. Therefore, it was observed
P 100 that it implies that the manufacturer while deciding the MRP of the drugs cannot fix
the prices without providing for the agreed minimum trade margins for the wholesalers
and retailers of the entire industry. The investigation further revealed that as the
minimum trade margins are a part of an agreement amongst the members of the trade
and industry, there is hardly any occasion for price competition between one retailer and
the other, resulting in drugs being generally sold on the MRP. The Director General noted
that, since the consumers have no choice, the retailers exploit the situation by not selling
the drugs below the MRP, wherein the trade margins of 20% on MRP is already built in as
per the terms of their agreement. Based on the above, the CCI also observed that the
practice of fixing trade margins is in violation of section 3(3)(a) of the Competition Act.
[H] In Re: Suo-Motu Case against LPG Cylinder Manufacturers (26) (LPG Case)
There was an investigation which was conducted by the CCI to analyse whether the
manufactures of LPG cylinders had colluded and manipulated their bids for supply of LPG
cylinders to the Indian Oil Corporation Ltd. While conducting the said investigation, the
CCI analysed the market in great detail and noted that the industry has the structural
characteristics which support cartelization. The Director General noted that, that even
though the bid rigging can occur in any economic sector, there are some sectors in which
it is more likely to occur due to particular features of the industry or of the product
involved. The observations made by the CCI on the industry are as follows:
(1) Significant changes in demand or supply conditions tend to destabilize ongoing bid
rigging agreements. However, a constant, predictable flow of demand from the
public sector tends to increase the risk of collusion. For the LPG industry, the LPG
gas cylinder manufacturers are aware of the fact that there would be a steady flow
101
of tenders from Indian Oil Corporation Limited and other public sector undertaking
oil marketing companies for procurement of LPG cylinders in order to supply LPG to
the consumers, leading to a predictability of demand. This is a facilitating factor for
collusion as the suppliers have time and opportunity to work out an arrangement
and share the market accordingly.
(2) The LPG industry is characterized by a small number of manufacturers. Being
limited in number, it becomes easier for LPG manufacturers to coordinate and
reach an agreement. The LPG industry showed the number of concerns who
submitted price bids for the Indian Oil Corporation Limited tender is fifty. Out of
the fifty participating companies, only thirty-seven companies can be said to be
independent bidding companies as there were seven group companies among the
bidders consisting of twenty participating companies. These figures highlighted the
P 101 fact that the number of companies who are supplying LPG Cylinders, as per
specifications laid down by Indian Oil Corporation Limited and other public sector
oil marketing companies, is small in number which made the market conducive for
cartelization.
(3) The examination of report of the Director General showed that the LPG gas cylinder
manufacturers had organized themselves under a trade association Indian LPG Gas
Cylinder Manufacturers. The trade association had the stated object to protect the
common interest and welfare of LPG Cylinder Manufacturers India and to serve as a
forum of the LPG Cylinder Manufacturers for expressing their grievances and
commercial concerns to the public through media and to assist the LPG Cylinder
Manufacturers in obtaining necessary approvals and relevant orders from
appropriate authorities etc. It has also listed one of its purposes to create, run and
manage a common fund for the common economic betterment of the LPG Cylinder
Manufacturers and also to encourage and recognize competitive spirit, achievement
motive and efficiency among members. Only those persons or companies who are
involved in the manufacture of LPG Cylinders can be admitted as an ordinary
member after paying an entrance fee of INR 5,000 and if any such company pays
INR 25,000 it can be admitted as life member. The Association had its executive
committee in place to run the management of the Association. The member list of
the trade association revealed that out of fifty old participating bidders in the
tender under enquiry except seven companies namely Asian Fab Tech Ltd.,
Faridabad Metal Udyog Pvt. Ltd., Gopal Cylinders, Krishna Cylinders, JBM Industries
& Shri Ram Cylinders, all the bidders or their group companies were members of
said association. Even Asian Fab Tech Ltd. can be said to be a member of the
association as its former avatar, Asian Cylinder has been shown as a member.
Among fifty participating companies against whom charge of bid rigging has been
found to have been established by the Director General, only thirty-seven
companies can be said to be independent bidders as seven groups of companies
consist of twenty participating companies.
(4) Procurement of similar products on recurring basis increases the chances of
collusion. The bidding, if takes place at frequent intervals, surely helps members of
a bid rigging agreement to allocate contracts among themselves or agree on prices.
Further, LPG does not have any substitutes in the market and the demand of LPG in
inelastic. For the LPG industry, the bidding is taking place on repetitive basis due to
ever increasing demand of supply of LPG by the consumers.
(5) In the event that the products or services offered by companies are identical or
very similar, it is easier for them to reach an agreement on a common price
structure. The report of the Director General showed the LPG Cylinder Manufacturers
are engaged in manufacturing and supply of identical products. This situation had
been created by the PSU Oil Marketing Companies as unique designs and
specifications for the supply of LPG Gas Cylinders have been prescribed by oil
companies themselves. Further, in the event that there are no or substitutable
products or services available for the product or service that is being purchased,
P 102 firms intending to rig bids feel more secure, knowing that the purchaser has few,
if any, good alternatives and thus their efforts to raise prices are more likely to be
successful. In this case, the manufacturers know that there is no substitute to the
cylinders manufactured and supplied by them, giving them opportunity to collude.
Further, the product being supplied was standardized in year 2000 and there has
been no change or alteration in the product design in the instant case over a long
period of time acts as an additive factor for facilitating firms reach an agreement
and maintain that agreement over a period of time.
Based on the above, the CCI noted that the industry has structural characteristics, which
are prone to cartelization. After identifying the same, the Competition Commission
analysed whether there is any communication and economic evidence to suggest that
there was cartelization.
On communication evidence, the CCI noted that barring a few gas cylinder manufacturers,
all the bidders are part of an active trade association and they met at regular intervals.
As such, one of the directors of a company, which was a member of the trade association,
admitted that meetings between cylinder manufacturers took place before every bid of
Indian Oil Corporation Limited, Bharat Petroleum and Hindustan Petroleum Corporation
Limited in order to discuss pre-bid issues. These facts clearly showed that bidders knew
102
each other and also communicated before submitting any bid. With respect to the tender
to Indian Oil Corporation Limited (the tender under investigation) was floated for
procurement of approximately 10,516,500 numbers of 14.2 kg LPG Gas Cylinders which was
due on 3 March 2010 for submission of price bids in Mumbai. The investigation done by
the Director General revealed that the bidders decided to meet in Mumbai prior to that
date. By way of evidence, the Director General identified the hotel where the meeting
took place and mentioned, as part of the investigation report, the directors and officers
of the various companies who were present for the pre-bid meeting in the hotel in
Mumbai. Based on the evidence on record, the CCI noted that:
it also becomes evident that the LPG cylinder manufacturers also discussed
pre-bid issues in the conference and also that such meetings usually take
place before the submissions of bids against tenders invited by other PSU oil
companies. Further, Mr. P.K. Gupta, the President of Indian LPG Cylinder
manufacturing Association, has been stated to have led the discussion during
the conference. All these factors when taken together unmistakably suggest
meeting of mind among the LPG cylinder manufacturers who were supposed to
submit competitive bids the next day i.e. 03.03.2010.
Apart from the evidence that the members met before the submissions of the bid for the
tender under investigation, it was also noted that the LPG gas manufacturers nominated
six agents for depositing bids on their behalf. The agents were common and were further
directed by the bidders to keep close watch on the rates offered by their competitors.
There was no confidentiality obligation which was placed on such agents to keep the
bidding details of each company confidential and not share with the other company. This
action led to the possibility of copying and matching of the rates quoted in the price bids
by many suppliers in a particular state.
P 103
After analysing the communication evidence, the CCI analysed the bids submitted by
various parties to identify whether the manufactures submitted identical bids despite
varying cost. It was noted that Indian Oil Corporation Limited followed a process in this
tender to ensure the adequate supplies of LPG cylinders so that supplies to domestic
consumers are not interrupted. One of the features of the process was that the rates for
supplies were fixed after negotiations with L-1 bidders and in case L-1 were not in a
position to supply required number of cylinders in a particular state, the orders for
supplies were to go to L-2 and also to L-3 bidders or likewise depending upon the
requirements in that state as per fixed formula announced in the bid documents. Further,
the new bidders were required to submit only technical bids and they were required to
supply as per L-1 rates determined after negotiations. It was also noted that out of sixty-
three entities who submitted the bids for 2010–2011, fifty were old and existing bidders
who were required to submit the price bids.
On the analysis of bids submitted by the bidders for the current year, it was noted by
Director General that there was a similarity of patters in the price bids submitted by all
the old fifty bidders for making supplies to Indian Oil Corporation Limited in various
states. The Director General found that the bids of a large number of parties were exactly
identical or near to identical in different states. The Director General also found that not
only rates of group concerns were common, but rates of other concerns belonging to the
other and unrelated groups were also identical. It has to be borne in mind that out of the
fifty successful bidding parties twenty entities that belong to seven group concerns and
therefore, in effect, there are only thirty-seven entities that can be said to be
independent concerns. Therefore, the market prudence would suggest that they are
supposed to be competing with each other. However, an analysis of evidence revealed
that despite being located in different places and having varied manufacturing cost, all
the thirty-seven entities have quoted identical/similar rates across the length and
breadth of the country. The tender had been awarded and orders were placed on the sets
of bidders who had quoted identical rates or near to identical rates in a particular
pattern in almost all states.
An analysis of the bids submitted for various states are below:
(1) Analysis of Bids for the State of Punjab: The Indian Oil Corporation Limited awarded
contract to five bidders, namely, Gopal Cylinders, Krishna Cylinders, Omid
Engineering, SM Cylinders and Shri Ram Cylinders at a negotiated rate of INR 1,070.
Four of these successful bidders had quoted identical rates of INR 1,080.5 and one
had quoted rate of INR 1,080.
(2) Analysis of Bids for the State of Rajasthan: Indian Oil Corporation Limited awarded
the contract at a negotiated rate of INR 1,123 to ten parties namely, SKN Industries
Limited, sunrays Engineering Private Limited, Tirupati Industries Limited, Tirupati
Cylinder Limited, Universal Cylinders, Bhiwadi Cylinders P. Ltd., Him Cylinders Ltd.,
International Cylinders P. Ltd., SKN Industries Limited and Rajasthan Cylinders. Nine
of the successful bidders had quoted identical rates of INR 1,130.
(3) Analysis of Bids for the State of Haryana: Indian Oil Corporation Limited awarded
P 104 the contract at a negotiated rate of INR 1,069.12 to three parties namely,
Mahaveer Cylinders Limited, Shriram Cylinders Limited and Gopal Cylinders, Two of
103
the successful bidders had quoted identical rates of INR 1,085.5 and one had
quoted rate of INR 1,085.
(4) Analysis of Bids for the State of Chhattisgarh: Indian Oil Corporation Limited
awarded the contract to International Cylinders private Limited, Mahaveer
Cylinders Limited, Tirupati cylinders Limited, Universal Cylinders Limited, Surya
Shakti Vessels Private Limited at a rate of INR 1,073. Four of these successful parties
had quoted identical rates of INR 1,081 and one had quoted rate of INR 1,080.
(5) Analysis of Bids for the State of Delhi: Indian Oil Corporation Limited awarded the
contract at a rate of INR 1,074 to eight parties, namely, Faridabad Metal Udyog P.
Ltd., Omid Engg. Private Limited, Rajasthan Cylinders, Sunrays Engineers P. Ltd.,
Tirupati Industries Limited, Mahaveer Cylinders Limited, Tirupati Cylinders Limited,
Bhiwadi Cylinders Private Limited, the parties which had quoted the rate of INR
1,088.5 or INR 1,088 together. Seven successful bidders had quoted identical rate of
INR 1,088.5 and one bidder i.e., Tirupati LPG Industries Limited, which is group
concern of Tirupati Cylinders, had quoted rate of INR 1,088).
(6) Analysis of Bids for the State of Himachal Pradesh: Out of two bidders in case of
Himachal Pradesh, Krishna Cylinders quoted INR 1,090 and Punjab Gas Cyls. Ltd.
Quoted INR 1,090.50. The contract was awarded at a rate of INR 1,083 to both the
parties.
(7) Analysis of Bids for the State of Gujarat: Indian Oil Corporation Limited awarded the
contract at a rate of INR 1,089 to five parties, Sarthak Industries Ltd., Hans Gas
Appliances P. Ltd., Confidence Petroleum, Om Containers, Supreme Technofabs P.
Ltd. Three of the successful bidders had quoted identical rate of INR 1,096 and two
had quoted INR 1,095.
(8) Analysis of Bids for the State of Madhya Pradesh: Indian Oil Corporation Limited
awarded the contract at a rate of INR 1,088.1 to the three parties who had quoted
identical rates of INR 1,097. The winning parties were Sarthak Industries Ltd., Super
Industries and Vindhya Cylinders Pvt. Ltd.
(9) Analysis of Bids for the State of Orissa: Indian Oil Corporation Limited awarded the
contract at a rate of INR 1,226 to ECP Industries Ltd. and Konark Cylinders, which had
quoted INR 1,240.73 and INR 1,245.34 respectively.
(10) Analysis of Bids for the State of Uttar Pradesh: For the State of Uttar Pradesh out of
thirteen parties, nine parties quoted rate of INR 1,106.5, two quoted INR 1,106, one
quoted INR 1,140 and the other quoted INR 1,160. The contract was awarded by
Indian Oil Corporation Limited at a rate of INR 1,097 to eleven parties, namely,
Faridabad Metal Udyog P. Ltd., JBM Industries Limited, Krishna Cylinders, Mauria
Udyg Limited, Rajasthan Cylinders, Surya Shakti Vessels Private Limited, SM
Cylinders, Tirupati LPG Industries Ltd., Bhiwadi Cylinders P. Ltd., Him Cylinders
Limited, International Cylinders Private Limited (nine of them had quoted a rate of
INR 1,106.5 and two had quoted a rate of INR 1,106.).
P 105
(11) Analysis of Bids for the State of Andhra Pradesh: For the State of Andhra Pradesh out
of ten parties, four parties quoted identical rate of INR 1,100, three quoted INR
1,101.49, two quoted INR 1,103.15 and remaining one quoted INR 1,103. The contract
was awarded by Indian Oil Corporation Limited at a negotiated rate of INR 1,091.89
nine to all ten parties, namely, Andhra Cylinders, Balaji Pressure Vessels, GDR
Cylinders P. Ltd., Hyderabad Cylinders P. Ltd., Kurnool Cylinders P. Ltd., MM
Cylinders P. Ltd., RM Cylinders P. Ltd., Sanghvi cylinders P. Ltd., Shri Shakti Cylinders
P. Ltd. and Sahuwala Cylinders P. Ltd.
(12) Analysis of Bids for the State of Karnataka: For the State of Karnataka, out of nine
parties, three parties quoted identical rate of INR 1,103.6, one quoted 1103, four
quoted INR 1,105 and one quoted INR 1,110. The contract was awarded by Indian Oil
Corporation at a negotiated rate of INR 1,095.71 to Asian Fab Tech Ltd., BTP
Structural India P. Ltd., Jesmajo Industrial Fab and Sanghvi Cylinders P. Ltd. (three
of them had quoted identical rate of INR 1,103.6 and one had quoted INR 1,103).
(13) Analysis of Bids for the State of West Bengal: For the State of West Bengal out of six
parties, four parties quoted rate of INR 1,105.99, one each quoted INR 1,105 and INR
1,150 respectively. The contract was awarded by Indian Oil Corporation Limited at a
negotiated rate of INR 1,095.82 to four parties, namely, ECP Industries Ltd., Konark
Cylinders, North India Wires Ltd. Haldia which had quoted identical rate of INR
1,105.99 and Carbac Holdings Limited who had quoted rate of INR 1,105.
(14) Analysis of Bids for the State of Jammu and Kashmir: For the State of Jammu and
Kashmir out of two parties, one quoted rate of INR 1,115 and other for INR 1,116. The
contract was awarded by Indian Oil Corporation at a negotiated rate of INR 1,106 to
both the bidders.
(15) Analysis of Bids for the State of Jharkhand: For the State of Jharkhand out of four
parties, two parties quoted rate of INR 1,125, one for INR 1,120 and another for INR
1,117. The contract was awarded by Indian Oil Corporation at a negotiated rate of
INR 1,110 to ECP Industries Ltd., Konark Cylinders.
(16) Analysis of Bids for the State of Bihar: For the State of Bihar out of ten parties, four
parties quoted rate of INR 1,117.5, 2 quoted INR 1,130, two quoted INR 1,125, one
104
quoted INR 1,117 and remaining one quoted INR 1,180. The contract was awarded by
Indian Oil Corporation at a negotiated rate of INR 1,110 to Omid Engg P. Ltd., SM
Cylinders, Tirupati LPT Industries Ltd., Tirupati Cylinders Limited who had quoted
identical rates of INR 1,117.5 and International Cylinders Ltd. which had quoted INR
1,117.
(17) Analysis of Bids for the State of Tamil Nadu: For the State of Tamil Nadu, out of
twenty three parties, fifteen parties quoted rate of INR 1,127, three quoted rate of
INR 1,126 and other five quoted rate of INR 1,250, INR 1,130, INR 1,128, INR 1,125 and
INR 1,175 each. The contract was awarded by Indian Oil Corporation at a negotiated
rate of INR 1,115.91 to AKMN Cylinders P Ltd., Andhra Cylinders, Balaji Pressure
P 106 Vessels, Confidence Petroleum, Hans Gas Appliances P. Ltd., International
Cylinders P Ltd., Jesmajo Industrial Fab, Kurnool Cylinders P. Ltd., MM Cylinders P
Ltd., Om Containers, RM Cylinders P. Ltd., Sanghvi Cylinders Ltd., SM Cylinders, Shri
Shakti Cylinders P Ltd., Sahuwala Cylinders P Ltd., Super Industries, Teekay Metals P
Limited, Lite Containers P Ltd. And GDR Cylinders P. Limited. Out of these, fifteen
had quoted identical rates of INR 1,127, three had quoted INR 1,126 and one had
quoted rate of INR 1,125.
(18) Analysis of Bids for the State of Pondicherry: For the State of Pondicherry out of ten
parties, four parties quoted rate of INR 1,130, three quoted INR 1,125, two quoted
INR 1,131 and remaining one quoted INR 1,135. The contract was awarded by Indian
Oil Corporation at a negotiated rate of INR 1,116 to Super Industries, Confidence
Petroleum and Om Containers who had quoted identical rates of INR 1,125.
(19) Analysis of Bids for the State of Maharashtra: For the State of Maharashtra out of
eight parties, five quoted identical rate of INR 1,100, two quoted INR 1,150 and one
quoted INR 1,110. The contract was awarded by Indian Oil Corporation at a
negotiated rate of INR 1,100 to Confidential Petroleum, Khara Gas Eqpts P. Ltd., Om
Containers, Super Industries and Teekay Metal P Ltd., who had quoted identical rate
of INR 1,100 and to Hans Gas Appliances Limited, a concern of Khara group, which
had quoted INR 1,110.
(20) Analysis of Bids for the State of Sikkim: For the State of Sikkim two parties quoted
rate of INR 1,150. The contract was awarded to both of them at a negotiated rate of
INR 1,102.
(21) Analysis of Bids for the State of Kerala: For the State of Kerala out of eighteen
bidders, ten parties quoted rate of INR 1,151, two parties quoted rate of INR 1,160,
two quoted rate of INR 1,170 and four others quoted for INR 1,152, INR 1,153, INR
1,154, INR 1,150.5 each. The contract was awarded by Indian Oil Corporation at a
negotiated rate of INR 1,141.53 to Allampally Brothers Ltd., Confidence Petroleum,
International Cylinders Pvt. Ltd., Kurnool Cylinders P. Ltd., Om Containers, RM
Cylinders P Ltd., Sahuwala Cylinders P Ltd. Super Industries, Teekay Metals P Ltd.,
Tirupati LPG Industries Ltd. & Tirupati Cylinders P Ltd.,. Out of the successful
bidders, ten had quoted identical rate of INR 1,151 and one had quoted rate of INR
1,150.5.
Based on the bidding patterns of the manufactures and the results thereof, the CCI
observed the following:
(1) All the fifty participating bidders secured orders from Indian Oil Corporation
Limited.
(2) The tender was awarded and orders were placed on the sets of bidders who had
quoted identical rates or near to identical rates in a particular pattern in almost all
states.
P 107
(3) The successful bid rates were quoted by different bidders in a group collectively.
For example, rate of INR 1,240 was quoted for North East and rates of INR 1,151, INR
1,127 and INR 1,100 were quoted collectively in group for Kerala, Tamil Nadu and
Maharashtra respectively. In other states also, identical bids were quoted
collectively.
(4) Except for Andaman Islands, where there was a single party which had quoted the
rates and got the final contract, in almost all the states, the parties have quoted
identical rates or near to identical rates collectively in a group and have also
bagged the contract together.
(5) There was identity in the rates quoted by the bidders even when the factories and
the offices of these parties are not located in one and same state and they had to
make supplies to locations far off from their factories located at different places. In
ordinary course, a supplier located in northern region would supply at a different
rate to North East than the supplier located at Andhra Pradesh and Maharashtra.
However, it as noted that eight bidders quoted for supplies to be made in North
East. Out of them four succeeded in getting orders by quoting the same rates even
when their locations of the factories of the bidders were in far different locations.
Similarly, in case of bidding in Delhi, the factory locations of successful bidders
were not the same and thus, assuming other cost parameters remain the same, the
freight component in the bids for each bidders should have been different.
However, in spite of being located at far off places form each other, the successful
105
bidders had quoted identical rates. It is also borne out that this trend is uniformly
applicable across the states. Similarly in case of Tamil Nadu it was seen that out of
twenty concerns which submitted bids, fourteen have quoted identical rates of INR
1,127. In the list of fourteen concerns there are two group concerns as well which
have quoted identical rates. However, even if the group concerns are taken as a
single entity, it was noted that, quoted rates of thirteen different companies were
identical even though the factories were located in different parts of the country
like Himachal Pradesh, Maharashtra, Andhra Pradesh, Karnataka, Uttar Pradesh. It
was also noted that the cost of manufacturing of different concerns varied from
bidder to bidder. Taking into account the cost and freight component involved in
making supplies in different states, quoted rates should have been different.
However, it is noted that quoted rates by twelve different group concerns are
identical. Similarly in Rajasthan, the investigation revealed that out of sixteen
concerns, nine quoted identical bids of INR 1,130.5 even though their factories are
located in different states. Out of these nine, factories of three concerns are located
in Rajasthan while factories of six others are located in other states ranging from
different places of Himachal Pradesh to different places of Uttar Pradesh and
Haryana. However, they still had quoted identical rates of INR 1,130.5. It is also seen
that the cost of production varies from entity to entity. Coupled with the difference
in the cost of freight, therefore, the bid rates of these concerns should have been
different, which was not the case.
P 108
The Director General had carried out a detailed analysis of bids for all twenty-five states
vis-à-vis location, quoted rates and manufacturing cost of different entities. The analysis
of data revealed that the bid rates, for making supplies in a particular state, quoted by
companies were identical, even when their factories are located at different places and
their manufacturing cost also varied from each other. This conclusively established that
there was tacit understanding among the bidders to quote identical rates for making
supplies of LPG cylinders in different states, even though when their factories were
located at places different from each other and their cost of production also varied from
each other.
The Director General also investigated the supply price for 2011 compared to the previous
years. It was noted that the supply in the tender under inquiry was made at substantially
higher cost in comparison to year 2009–2010. The Competition Commission noted that,
that the higher rates approved in the year 2010–2011 as compared to 2009–2010 only
suggested that the enterprises had coordinated their acts together to get higher prices.
Owing to collusive tendering Indian Oil Corporations and other oil marketing entities
could not get LPG at lower prices, which it could otherwise have, in case of actual
competition among the bidders.
Post the decision of the CCI, the manufactures preferred to go on appeal to the
Competition Appellate Tribunal. (27) On the basis of the facts mentioned above, the
Competition Appellate Tribunal agreed in toto with the observations made by the CCI and
noted the following:
firstly, there was an association of the cylinder manufacturers. As per list
provided by the association of their members almost all the appellants were
the members; secondly, this association was an active association and the
activities included holding of the meetings on the eve of any tender obviously
for discussing the tenders, its conditions etc. and, in fact, for this tender two
meetings were held in Hotel Sahara Star in Mumbai on the two immediately
preceding days of the last date, when the offers were to be made and that
these meetings were attended by the representatives of at least 19 appellants;
and that these appellants had six common agents at Mumbai who were
instructed to watch the prices offered by the others.
It has come on record that the dinner and lunch held in the Sahara hotel was
attended by about 50 persons in all. Thus, we have no reason to disbelieve that
the parties had an access to each other through their association and the
association was an active association, holding the meeting two days prior to the
opening of the bids. It is also clear that the parties admitted by their common
reply and independent affidavits that they had the common agents, who were
instructed to mark the prices of the competitors. [emphasis supplied]
What is important is not whether a particular appellant was a member of the
association or not. The existence of an association is by itself sufficient, as it
gives opportunity to the competitors to interact with each other and discuss
the trade problems. There will be no necessity to prove that any party actually
discussed the prices by actively taking part in the meeting. If there is a direct
evidence to that effect that is certainly a pointer towards the fact that such
party had a tacit agreement with its competitors. However, the existence of an
P 109 association and further holding of the meetings just one or two days prior to
the last date of making offers and further admission that the parties had
appointed common agents with the instructions to keep watch on the prices
quoted by the competitors would go a long way in providing plus factors in
106
favour of the agreement between the parties. All these factors would form a
back drop, in the light of which, the further evidence about agreement would
have to be appreciated. We have seen the comments of Director General as
also the findings of the CCI. We are convinced that CCI has not committed any
error in considering all these factors as plus factors to come to the conclusion
that there was a concerted agreement between the parties on the basis of
which the identical or near identical prices came to be quoted in tenders for
the supply of cylinders to the 25 States.
… on that basis came to the correct conclusion that not only was the meetings
held on 1st and 2nd March, but thorough discussions went on in those meeting
on the pre-bid issue of the concerned tender. The CCI has also correctly noted
about the agenda of the meeting and has also referred to an admission made
by one of the witnesses that the matching of the quotation was a matter of co-
incidence and telephonic discussions do take place amongst the parties
regarding the trends. We are thus thoroughly convinced about holding of the
meeting, the discussion held therein and also the discussion regarding the
pre-bid issue having been taken place in that meeting.
While considering the question of collusive agreement, the CCI took into
consideration various factors, firstly, it considered the prevailing market
conditions and deduced that there was a constant demand for cylinders, not
only by IOCL, but also by the other oil manufacturing companies. It was,
therefore, deduced by the CCI that this aspect of constant need for the
cylinders by the companies, was a facilitating factor for collusion.
The CCI also considered as a relevant factor the small number of suppliers. It
found that amongst the 50 participating companies, only 37 companies could
be said to be independent bidding companies as there were 7 groups
consisting of 20 participating companies. Thus, it held that the small number
of suppliers could be a facilitating factor. The CCI also considered the factor of
very few new entrants. Fourthly, it took into consideration the existence of
active trade association.
It was urged that in fact, the manufacturing cost of all the appellants could be
same or nearly same, because of the standardization of the manufacturing
process as well as the standardization of the components of the cylinder. We
do not think that there could be such possibility of the identical
manufacturing cost. After all these manufacturing companies had their factories
at different places in India, where the costs of the components would differ from
State to State, even the taxing structure, the labour conditions and other factors
like cost of electricity etc. were bound to be different [emphasis supplied].
Therefore, this defence would be of no consequence and we reject the same.
We, however, endorse the factors considered by the CCI.
The CCI also took into consideration the lunch and dinner meetings held on 1st
and 2nd March 2010. In fact the CCI has considered it in great details, referring
to the evidence of various persons, who attended the lunch and the dinner
meeting and we have already endorsed the finding of the CCI in this behalf.
The CCI also considered some other factors like the agenda of the meeting and
the appointment of common agents, as the other factors in support of
collusive nature of bids. We have already given our comments on the factors
like appointment of common agents and have endorsed the finding that as
many as 44 parties by separate affidavits admitted the appointment of
common agents, who were instructed to watch the prices quoted by the
competitors.
P 110
Last but not the least, the CCI has in great details considered the identical or
nearly identical prices offered in the bids by various companies. It was noted
that this was a huge order, as IOC required 105 lakhs LPG cylinders for 25
States. The CCI also noted the tender conditions that the rates were to be
fixed after negotiation only with L-1 bidders and in case the L-1 bidders were
not in a position to supply, then the orders for supply were to go to L-2 or also
to L-3 bidders or likewise, depending upon the requirements in that State as
per fixed formula announced in the bid documents. The CCI painstakingly
considered the report of the Director General of the Investigation and noted
that bids of large number of parties were exactly identical or mere to
identical in different States. It also fond that not only rates of group concerns
were common, but the rates of other concerns belonging to other and
unrelated groups were also identical. The CCI has noted that despite being
located in different places and having varied manufacturing cost, the
appellants had quoted identical rates across the length and breadth of the
country.
The CCI deduced that this trend was uniformly applicable across the States
and therefore, it came to the conclusion that bidders were not competing at
all and were acting against the normal course of business.
107
We are thoroughly convinced by this analysis that all this could not have been
possible unless there were internal agreements between the concerns. What
shocks us is that the quotations of the price did match to the last decimal and
the quotations in some cases were in odd figures like Rs. 1127 in the State of
Tamil Nadu There can be no explanation for this kind of identical or near
identical pricing. The CCI has rightly considered that the manufacturing cost of
per cylinder varies in a wide spectrum ranging from Rs. 870 to Rs. 1095.89. If
this was the case, the prices had to be different, if they had been offered in a
competitive spirit. Either before the CCI or before us no material was
produced, which would be able to rebut the presumption arising from the
identity of rates. The CCI, therefore, rightly concluded that this identity of
prices was sinister and anti-competitive in nature.
The CCI had also noted the factor of supply at higher cost. It pointed out from
the DG’s report that owing to collusion, the IOCL could not get lower or as the
case may be competitive prices. It also found that the rates quoted in 2010-11
were higher as compared to the rates quoted in 2009-10. It was also found by
the DG and the CCI that from the year 2006-07 the prices had collectively been
raised on an average of 36% for making supplies in different States. It was
argued before us by few counsel that the price index had increased and
therefore such increase in the prices was natural. It will not be possible to
accept this argument, for the simple reason that there is no standard price
fixed by anyone.
It was very seriously argued before us that mere price parallelism will be of no
consequence, because, it is a common phenomenon in a oligopolistic markets.
It was contended by the learned counsel that where the market is dominated
by small number of players, there is strong likelihood that each player would
be aware of the actions of the others, and that the price parallelism by itself
cannot be considered sufficient to establish cartelization, and some plus
factors would be required in addition to the price parallelism. This was not a
case of mere price parallelism or quoting identical prices. The pattern of price
bids in itself shocking that the prices were matched to the last decimal and
not only this but the prices matched at some odd figure of which we have
already spoken earlier. All this took place in all the 25 States and all the
parties are guilty of identical pricing or mere identical pricing.
There is absolutely no plausible economical rationale offered by the
appellants explaining such strange phenomenon. We have also pointed out
that there were plus factors like the existence of an active association of
P 111 manufacturers and the further evidence that they did conduct the meetings
on 1st and 2nd March, that is only two days prior to the day when the bids were
to be offered. There can be also no dispute that all the bidders got something
or the other. Therefore, this was not only a case of identical pricing, but was
supported with plus factors also. This is apart from the fact as already stated,
the establishment for such agreements. The standard of proof is not beyond
the reasonable doubt, but a strong probability.
[I] Cartelization by Public Sector Insurance Companies in Rigging the Bids Submitted
in Response to the Tenders Floated by the Government of Kerala for Selecting
Insurance Service Provider for RSBY (28) (Insurance Cartel Case)
The case was initiated based on an anonymous information which complained that four
public sector insurance companies, namely National Insurance Co. Ltd., New India
Assurance Co. Ltd., Oriental Insurance Co. Ltd. and United India Insurance Co. Ltd., had
rigged the tender floated by the Government of Kerala for selecting insurance service
provider for implementation of the ‘RSBY’ for the year 2010–2011. The information alleged
that the insurance companies had formed a cartel and quoted higher premium rates in
response to the tender. Further by way of the ‘Inter Company Coordination Committee’
(‘ICCC’) meeting attended by the officials of insurance companies, they had decided on
anti-competitive business sharing model to share the business.
The CCI, relying on the investigation by the Director General, noted that the insurance
companies had held a meeting under the aegis of ICCC with the sole agenda to discuss
the ‘Tender Notice on RSBY dated 18 November 2009 of Government of Kerala’. The
meeting was held ‘to discuss about sharing of business and submission of quotation for
the above business’. The CCI observed the meeting of the ICCC meeting, which was
attended by the officials of all the insurance companies. The minutes revealed that a
decision was taken ‘to share the business among the four PSUs with United India as
Leader with 70% and other Companies with 10% each … United India will be L-1 and other
three PSUs will be L-2 to L-4 in the quotation being submitted on 8th December, 2009’. It
was a direct evidence of a cartel where the public sector insurance companies had
agreed to quote in a certain way.
Further, the CCI observed the bidding pattern and noted the following:
(1) United India Insurance was the L-1 bidder. In view of the same, the CCI concluded
that the public sector insurance companies had colluded and rigged bids. For
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coming to the conclusion, the Commission relied on the minutes of the ICCC
meeting, the financial bids submitted by the insurance companies prior to
finalization of the tender and the business sharing arrangement concluded
subsequently after the finalization of the tender.
(2) The CCI also noted the bidding pattern of the insurance companies relating to the
P 112 tenders issued by the Government of Kerala in the years 2011–2012 and 2012–2013.
In relation to the said tenders, it was observed that: (a) the insurance companies
had quoted substantially higher premium bids; (b) United India repeatedly secured
the L-1 position and became the insurer under the RSBY and CHIS schemes; (c) a
business sharing arrangement was entered into between the insurance companies;
and (d) while the contracts were awarded for a period of three years, United India
repeatedly invoked the exit clause of the concluded contracts, thereby, forcing the
Government of Kerala to initiate re-tendering after completion of the first year of
the contract. The Director General noted that the price rise effected by the
insurance companies could not have been based on any rational business
justification as the tender for the year 2013–2014 was won by Reliance General
Insurance Company Limited at a much lower premium. The awarded contract was
even extended with the same premium for the year 2014–2015. The Director General
noted that the insurance companies formed a cartel and not only quoted higher
insurance premium bids in response to the tenders issued for the years 2010–2011,
2011–2012 and 2012–2013; but they also forced the Government of Kerala to issue
fresh tenders every year despite the fact that the said tenders were issued for a
period of three years. This is the modus operandi which was adopted by the
insurance companies to quote high premium bids over a period of time.
(3) After noting these trends, the CCI relied on internal documents of public sector
companies to conclude that these trends were a result of an agreement between
the companies, and not because of an independent decision-making.
[J] In Re: M/s Sheth & Co & Others (29)

The case was initiated because of a suo moto cognizance taken by the CCI against the
allegations of suspected cartelization by thirteen manufacturers/suppliers of CN
container i.e., ‘containers with disc required for 81 mm bomb to the three ordinance
factories namely, Ammunition Factory, Khadki, Pune; Ordinance Factory Dehu Road, Pune
and Ordinance Factory, Chanda, Chandrapur, Maharashtra’.
The Director General analysed the market conditions and noted that there were only few
sellers who controlled the entire product market. Further, there were no significant
fluctuations in demand for the product which was attributable to the fact that out of the
forty-one ordinance factories, only three factories were engaged in the production of 81
mm bomb.
The Director General noted that the high installed capacities of the existing players
discouraged the entry of new players into the market. The Director General noted that
during the previous five to six years prior to the investigation, only one player (which was
a group company of an existing player) entered the market. Further, the products
manufactured by each of the players was homogeneous in nature since the product,
P 113 which was an essential input for military hardware. Such product could only be sold to
the ordinance factories if it meets the stipulated stringent specifications, which ensured
air and safe performance of the end product.
Based on figures of supply orders, the Director General also highlighted that demand of
the product was not only limited but has also been stagnant since the last three years
leading to the investigation period. During the financial years 2010–2011, 2011–2012 and
2012–2013, the demand for the product fluctuated in the narrow range of 6,00,000–
7,80,000 units which clearly indicated the presence of a stable demand. On the basis of
tender-wise information for years 2006–2013 supplied by the three ordinance factories,
the Director General observed that price parallelism was evident from the bid prices
quoted by the each of the players. The bid prices showed that the price quoted were
either identical or with a very minor price variation.
On the issue of pricing, the Director General noted that bids quoted for the product by
the manufacturers was not based on costing and expected profit margins. It was noted,
during the investigation, that though the source of procurement of raw material was the
same for all the manufacturers, the cost incurred by each of manufactures for such
procurement of raw material was not the same. The cost of CN sheet, a major raw material
for manufacturing the product, was found to vary in the price range of INR 4.00 to INR 7.60
for different manufacturers, even though the CN sheet was procured by almost all the
manufacturers from a common supplier, M/s Asha Celluloid. Based on the information
collected from M/s Asha Celluloid with respect to the sale prices of the CN sheet qua the
manufactures during 2006–2007 to 2012–2013, it was found that CN sheet was sold to
different manufactures at different prices, ranging from INR 400 kg to INR 1,000 kg.
Based on the investigation report prepared by the Director General, the CCI observed
that the manufacturers had submitted identical/similar price bids in response to tenders
floated by the three ordinance factories from 2008 onwards. The bids submitted by the
manufacturers demonstrated that majority of the bidders quoted the same prices in their
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price bids. The CCI thereafter analysed the cost structure of the manufacturers to identify
whether the submission of identical bids was as result of a collusive agreement or a case
of parallel independent decision-making. The CCI analysed the following economic data
of the manufacturers: profit and loss statements showing the value of raw material
purchased and other cost heads; and price data obtained from Asha Celluloid (the sole
supplier of CN sheets to the manufacturers). The data received from the manufacturers
showed variations in sale prices of this input/raw material by Asha Celluloid to each of
the manufacturers. Further, the data revealed significant differences in the cost
structures of the manufacturers, attributable to variations in the input procurement costs
and other labour costs.
In spite of the different cost structure, the price bids submitted by the manufacturers to
the tenders issued by the ordinance factories were either identical or similar with minor
variations in a very narrow price band. The manufacturers admitted to their bid quotes
being identical though they tried to justify their near same prices under the guise of
similar production costs, taxes etc. As mentioned above, the CCI noted that, that there
was a noticeable difference in price at which the main raw material i.e., CN sheet is being
supplied by Asha Celluloid to different manufactures over the years. Further, the CN sheet
constituted a substantial portion of the overall cost of production for all the
P 114 manufactures varying between 50%–80% of the total cost. In spite of such variance in the
production cost, the bids submitted by different manufacturers were identical. Such
identical bids, in spite of different input costs, were taken to be an evidence of
cartelization. For illustration, the CCI noted that two manufacturers, Sai Trading and
Miltech Industrial Private Limited quoted the same rate of INR 14.47 in various tenders in
spite of the fact that the procurement cost of CN sheet for Sai Trading from Asha Celluloid
was INR 400 per unit, whereas the procurement cost for Miltech Industrial Private Limited
from Asha Celluloid was INR 850 per unit.
Apart from the economic evidence, the CCI also noted that there was cross ownership and
common directors among the various players in the market. It was revealed that the
companies, involved in the bidding process, were closely related with common directors
or have different members of the same family at the helm of affairs. Having such
relationship indicated that out of the thirteen companies under investigation, the modus
operandi of at least ten of these firms was governed by the principles of mutual
understanding and benefit since the ownership/control of such entities lied with the
same persons/entity. To conclude, the CCI noted that:
The Commission is convinced that common ownership of a large number of
Opposite Parties coupled with the fact that a number of Opposite Parties
quoted same rates indicates to a conclusion that the Opposite Parties acted
pursuant to an anti-competitive agreement/understanding to manipulate the
bidding process in the present case.
[K] Suo-Moto Case No. 02/2011 In Re: Aluminium Phosphide Tablets Manufacturers
(Aluminium Phosphide Case)
There was an investigation conducted by the CCI against four manufacturers of Aluminium
Phosphide Tablets (hereinafter ‘ALP’) on the basis of a letter written by the Chairman and
Managing Director of Food Corporation of India (FCI) dated 4 February 2011. In this letter,
a request was made to the CCI alleging a rise in the cost of procurement of ALP tablets,
due to anti-competitive agreement amongst the manufacturers of ALP.
The letter to the CCI alleged that for the last eight years, all the ALP manufacturers had
quoted identical rates in the tenders invited by the FCI for the purchase of ALP tablets. It
was, therefore, complained that by quoting identical prices in pursuance of the tender
floated by the FCI, these companies have formed a cartel. It was also pointed out that the
price of ALP tablet nearly doubled during the period 2007–2009 and was also likely to rise
further as the manufacturers were aware that the tablets were required in large quantity
by FCI, Central Warehousing Corporation and State Agencies for preservation of food
grains, which they were storing in their godowns.
A detailed investigation was conducted by the offices of the Director General. The
Director General received information from FCI and other bodies like Central Insecticides
Board & Registration Committee, Faridabad and also the other government agencies
dealing in warehousing and storage of food grains. On the basis of the investigation, the
P 115 Director General observed the following:
(1) The main market of ALP in India was of the institutional sales and majority of buyers
were government agencies.
(2) There are only four manufacturers of ALP.
(3) From 2002 up to 2009, all the four manufacturers used to quote identical rates,
excepting for the year 2007. The rates quoted by the manufactures for each tender
were as under:
110
Sl. NO. Tendering
Agency
Excel United Sandhya Agro

1 UP State Warehousing Corp 225 225 -- --
2 Punjab State Civil Supplies Corp 260 260 -- --
3 Central Warehousing 450 --- 450 --
Corp.
4 UP State Warehousing 449 449 --- --

Corp
5 Punjab State Co-op SS & Mktg. 419 419 -- --

Fed.
6 Central Warehousing 414 414 --- --
Corp
7 Punjab State Civil Supplies 409 409 -- --

Corp.
8 Food Corporation of India 388 388 388 --
9 Punjab State Civil Supplies 399 -- -- 399
Corp.
10 UP State Warehousing 399 399 -- --
11 Director, SS & Disposal, Haryana -- -- 399 399
12 Punjab State Civil Supplies 419 -- -- 410
Corp.
13 Central Warehousing 421 421 421 --
Corp.
14 MP State Warehousing 436 -- 436 --

Corp.
15 Punjab State Co-op SS & Mktg. 415 415 -- --

Fed.
16 Punjab State Civil Supplies -- 415 -- 415
Corp.
(4) Further, in November 2005, though the tenders were invited, all the parties
abstained from quoting. In 2007, the United Phosphorus Limited had quoted a price,
which was much below the price of other competitors. In 2008, all the parties
P 116 abstained from quoting, while in 2009 only three parties quoted identical rates of
INR 388, which was ultimately brought down to INR 386 after the negotiations.
(5) In 2009, the tender was floated for procurement of a fixed quantity of 600 Metric
Tones. The investigation showed that the tender documents were to be submitted
by 02:00 P.M. on 08 May 2009 and the bid was to be open at 03:00 P.M. on the same
day. The Director General found that on 08 May 2009 on the last day common entries
were made in the visitors’ register by the representative of the three ALP
manufacturers. The Director General held that this could not be a mere coincidence.
The Director General further noted that the price quoted by those three
manufacturers was identical at INR 388 per kg.
(6) The Director General examined and found that it was a consistent practice of these
parties to quote identical rates (based on the table mentioned above). The Director
General analysed the bids carefully by taking into consideration the total number of
sixteen tenders including the tender dated 8 May 2009. The last eight tenders
considered by the Director General and the pricing pattern definitely showed the
practice of quoting identical pricing at times by all the four manufacturers.
(7) The Director General also examined the costs structure of each company and found
that there was nothing common in the cost structure of the ALP manufactures.
Further, the Director General noted during the course of enquiry, that the
manufacturers had boycotted the e-tender issued by the FCI, which was invited in
the March 2011 and was to be closed on 27 May 2011.
Based on the above detailed investigation report prepared by the Director General, the
CCI noted that in spite of varying costs, the manufactures were quoting identical bids
continuously. Further, the investigation revealed that there were common entries being
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made in the visitors register. In light of the totality of the circumstances, the CCI noted
that the parties had engaged in bid rigging, which is in violation of section 3(3)(d) of the
Competition Act. In addition, one of the members of the CCI also opined that by
collusive/collective boycott of e-tender in 2011, the parties had entered into an
agreement for limiting supply, which is in violation of section 3(3)(b) of the Competition
Act. The manufactures went up in appeal before the Competition Appellate Tribunal. (30)
The Competition Appellate Tribunal upheld the decision of the CCI, and observed as
follows:
We have already held that the boycotting of the tender was a proved affair. It
could not be a mere coincidence that a tender was boycotted by all the
manufacturers. In so far as, the previous tender of 2009 is concerned, all the
three appellants offered identical price bids of Rs. 388/-, which was an odd
figure. It was seen that right from 2007, this was the practice up to 2009 and
after Sections 3 and 4 were notified, there was no change in the attitude. In
number of other tenders, the identical pricing went on. There could be a
P 117 coincidence, if the identical price bids were offered in one or two tenders, but it
is obvious that the identical prices of odd figures were offered consistently right
up to 2011. This cannot be a coincidence and has to be viewed as an action done
with pre-concerted mind [emphasis supplied]. As if that was not sufficient, it
was followed by a boycott on 2011 tender, for which there was no explanation
or at the most lame explanation.
Considering that the number of manufacturers of ALP tablets in India is only 3
or 4, as the situation was then, such identical pricing and such boycott viewed
on the backdrop of consistent practice of offering identical price bids, only
confirms that all this was made with a common design, which amounts to an
agreement The identical pricing on one or two occasions though raises strong
suspicion, may not be enough to draw the inference of the concerted agreement,
but when is repeated constantly with odd figures and without any reasonable
explanation for the same, would only draw an inference of a pre-concerted
agreement. [emphasis supplied]
We do not think that this is a case of mere price parallelism. We have already
made observation that price parallelism on one or two occasions though might
raise strong suspicion, it may not be enough for drawing the inference of
cartelization. We reiterate that observation. However, in this case it was not a
sweet coincidence and in fact it is shown that this was not only a common
pattern or practice, but this continued in case of tenders floated by other
corporations. This consistent practice and common pattern when continues for
a long time, there could be no other inference excepting that of cartelization.
In short, we are of the clear opinion that the CCI was correct in holding the
appellants guilty of contravention of Section 3(3)(d).
[L] M/s Bio-Med Private Limited v. M/s GlaxoSmithKline Pharmaceutical Limited,

M/s Sanofi, Mumbai (31)
The case was initiated, based on information filed by Bio-Med Private Limited alleging
anti-competitive conduct of GlaxoSmithKline Pharmaceuticals Limited and Sanofi. It was
alleged that Glaxo and Sanofi had engaged in bid rigging and quoted higher rates for
bids, for supply of vaccine, floated by Union of India. Before an analysis of the order of
the CCI is done, it must be borne in mind is that Bio-Med Private Limited was disqualified
from participating in the tender for a brief period of time. Second, Glaxo was lone
supplier of the vaccines to the Union of India for the period between 2002 and 2007.
Upon investigation, the Director General had concluded that the conduct of Glaxo and
Sanofi had demonstrated that they were acting pursuant to an anti-competitive
agreement. The Director General noted that, upon the disqualification of Bio-Med in 2011,
Glaxo and Sanofi colluded to divide the entire tendered quantities and to earn super-
normal profits by quoting significantly higher prices. The Director General noted that
Glaxo and Sanofi could not present any evidence to suggest that their action of quoting
higher rates and offering lower quantity was based on an individual independent
decision.
Upon the receipt of the investigation report, Glaxo argued before the CCI that the tender
P 118 documents of 2011 stipulated certain onerous conditions like scheduled delivery
timelines, shelf life criterion, labelling requirements, etc., which it found difficult to
comply with in the given span of time. Accordingly, it submitted that it had only quoted
for 100,000 doses which it considered to be a calculated risk in order to protect its brand
image and credibility in the market. The CCI noted that in the period between 2002 and
2007, Glaxo was the lone supplier to Union of India. Being the lone supplier, Glaxo had
always quoted for and supplied the entire tendered quantity. Further, it was noted that
the procurement was on an annual basis, where the tender was usually issued in
May/June with scheduled delivery in August/September of each year. Since the pattern of
the tender was uniform since 2002, the CCI noted that the tender conditions are known
well in advance and Glaxo, being one of the past suppliers, knew about the delivery
schedules even before the tender was issued in June 2011. Therefore, considering their
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past conduct of supplying the entire quantity and the delivery schedule being known well
in advance, the claim of Glaxo that tender conditions stipulated short-supply timelines
was not accepted by the CCI.
Further, Glaxo took the contention that they quoted lesser quantity due to non-
availability of stock. However, on an examination of the internal communication of the
company, the CCI did not agree with the contention of Glaxo. Further, the CCI noted that
Glaxo was the largest producer and supplier of the said vaccine on a worldwide basis.
Further, the data on production of Glaxo does not substantiate the claim of Glaxo of
supply constraints during the period of investigation. Further, the Commission noted that
Glaxo had managed over the years to supply a greater quantity of vaccines that what was
asked for by the Union of India, by way of tender in 2011. Since tender conditions and
timelines were uniform over the years, the Commission did not accept the justification
put forth by Glaxo for quoting lesser quantity.
Sanofi also raised the same defences which were rejected. In addition, the CCI observed
that Glaxo and Sanofi have habitually bid for the entire tendered quantity in response to
all the tenders to the exception of only the 2011 tenders where Bio-Med was excluded.
Further, the CCI also noted that in addition to offering lower quantity, Glaxo and Sanofi
had colluded and quoted higher rates. The tender issued by in 2010 was awarded to the
Bio-Med at INR 1,999 plus the applicable taxes (i.e., at a price of INR 2,078.96). However,
in response to the tenders issued in June 2011, Glaxo had quoted INR 3,000.90 (inclusive
of taxes) and Sanofi had quoted INR 2,899 (inclusive of taxes). Accordingly, the price bids
of Glaxo and Sanofi were significantly higher than the previous tenders L-1 price. Further,
during the second round of tendering, Glaxo did not place any bid while Sanofi had
quoted INR 2,754 (inclusive of taxes). The Commission observed that even this bid was
substantially higher than the previous tenders L-1 price (INR 2,078.96 inclusive of taxes).
Post the second tender, under the third tender, where Bio-Med had also participated,
Glaxo refrained from bidding and Sanofi supplied at INR 2,373 (inclusive of taxes). The CCI
noted that fact that Sanofi supplied 90,000 doses of the vaccine at INR 2,373 against its
initial price bid of INR 2,899 clearly demonstrates that the prices quoted in response to
the tender issued in June 2011 were artificially inflated by Sanofi. Based on the above
reasons, the Commission concluded that Glaxo and Sanofi had colluded for the bidding in
2011.
P 119
§2.13 TRADE ASSOCIATION

The establishment of a trade association can be for varied objectives such as industry
lobbying and standard setting. However, in some cases, as seen in the heading of case
studies above, trade association can be seen as a conduit for conducting anti-
competitive activities. The ambit of section 3(3) of the Competition Act is very wide and it
covers any agreement entered into between enterprises or associations of enterprises or
persons or associations of persons or between any person and enterprise or practice
carried on, or decision taken by, any association of enterprises or association of persons,
including cartels. Since the ambit of section 3(3) of the Competition Act is so wide to
include even an agreement entered into between association of persons/enterprise or a
decision taken by an association of persons, the same covers anti-competitive decisions
taken by companies under the aegis of a trade association. Therefore, the CCI, in their
decisional practice, imposes a twofold liability when companies engage in cartel
behaviour under the aegis of a trade association: one, a liability on the
company/constituent member of the trade association and second, on the trade
association itself. For illustration, in the Cement cartel case, the CCI imposed a liability
on the cement companies as well as the Cement Manufacturers’ Association. In this
regard, it is apposite to note the observations of the CCI, in one of its earlier decisions, in
the case of Unliglobe Mod Travels Pvt. Ltd. v. Travel Agents Federation of India, (32) wherein
it was observed that:
Trade association and their activities often tend to go beyond the terms of
facilitation required by their members and thus attract scrutiny by
competition authorities. Experiences in Canada, EC etc. has lead competition
authorities to examine their activities from the lens of competition policy
while dealing with trade association. A decision taken by a trade association
which has the purpose of fixing prices, or limiting the output of members, or
allocating the market among its members, will be prohibited under section 3 of
the Act as a form of anti-competitive co-ordination [emphasis supplied].
Similarly, the Act prohibits the individual members of a trade association
from entering into an agreement or engaging in a concerted practice which
limits output or allocates the markets. This will be the case regardless of
whether the intention is to restrict competition or not.
Similarly, in case of entertainment and pharmaceutical industry (as elucidated above
under the heading of case studies), it has been noticed that there are anti-competitive
decisions taken by the trade association, which have to be mandatorily followed by the
members. Since section 3(3) of the Competition Act also covers anti-competitive
decisions taken by the association of persons, such decisions of the trade associations
113
are also covered under this clause. There have been multiple decisions, where the CCI
has imposed a penalty on the trade association. For example, in the Cement cartel case,
the CCI noted that cement companies were interacting using the platform of the Cement
Manufacturer’s Association and such interaction gave them an opportunity to determine
and fix prices and limiting production. The fact that it was being under the instruction of
P 120 a governmental direction, did not absolve them of any liability. The fact that Cement
Manufacturer’s Association published statistics on production and dispatch of each
company (factory wise) and circulated information amongst its members, it facilitated
the sharing of price, production and dispatch data which in turn made coordination
amongst companies easier. Therefore, it is imperative that the companies who are a part
of the trade association are cautious in their dealings with other companies while dealing
under the aegis of the trade association. It must be noted however, that trade association
membership alone is not sufficient evidence of collusion or a conspiracy of anti-
competitive practices. For considering whether any anti-competitive decisions were
taken at the meeting of the trade association, sufficient evidence needs to be adduced to
suggest that the trade association’s members reached an actual explicit or tacit
agreement which has an appreciable adverse effect on competition in India. Similarly, in
a recent case of Shri Ghanshyam Das Vij v. M/s Bajaj Corp Limited (33) (hereinafter referred
to as the Bajaj case) decided by the CCI, it was noted that section 3(3) of the Act not only
covers agreements entered into between enterprises or associations of enterprises but
also the practices carried on or decision taken by any association of enterprises engaged
in identical or similar trade of goods or provision of services. Thus, all actions and
practices of a trade association including laying down provisions like imposing
geographical restriction on the dealers by the trade association or laying down criterion
for carrying out business activities by the association squarely fall within the ambit of the
expression decision taken by an association of enterprises under section 3(3) of the Act.
The Competition Commission has indeed noted in several cases that trade association
are acting as a conduit for anti-competitive actions. The CCI has noted that competition
law is not an impediment to appropriate trade association activities and members of
such associations should be fully aware of the types of conduct the law proscribes when
carrying out an association’s programmes and activities. In fact, the CCI has recently
awarded an advocacy based remedy to a trade association as it mandated the trade
association to organize, in letter and in spirit, at least five competition awareness and
compliance programmes over next six months for all its members so that the members
are aware of the competition law, in letter and in spirit.
§2.14 PERSONAL LIABILITY

The CCI has become very assertive in its enforcement outlook. The CCI has been armed
with extensive powers of levying fines, details of which have been provided in Chapter I.
Further, the CCI has been given powers under the Competition Act to levy fines on
directors and officersin-charge of the company at the time of the contravention. Section
48 of the Competition Act is akin to the concept of piercing the corporate veil, where
fines are also levied on directors and officers of the company who were in charge of the
operations of the company, at the time of the contravention of the provisions of the
Competition Act. While section 48 of the Competition Act is generic and applies to all
contraventions under the Competition Act, the decisional practice of the CCI, to date,
P 121 shows that section 48 of the Competition Act has been applied only in cases of cartel.
Section 48 of the Competition Act reads as follows:
Contravention by companies
(1) Where a person committing contravention of any of the provisions of this
Act or of any rule, regulation, order made or direction issued thereunder
is a company, every person who, at the time the contravention was
committed, was in charge of, and was responsible to the company for the
conduct of the business of the company, as well as the company, shall be
deemed to be guilty of the contravention and shall be liable to be
proceeded against and punished accordingly:
Provided that nothing contained in this sub-section shall render any such
person liable to any punishment if he proves that the contravention was
committed without his knowledge or that he had exercised all due
diligence to prevent the commission of such contravention.
(2) Notwithstanding anything contained in sub-section (1), where a
contravention of any of the provisions of this Act or of any rule,
regulation, order made or direction issued thereunder has been
committed by a company and it is proved that the contravention has
taken place with the consent or connivance of, or is attributable to any
neglect on the part of, any director, manager, secretary or other officer of
the company, such director, manager, secretary or other officer shall also
be deemed to be guilty of that contravention and shall be liable to be
proceeded against and punished accordingly.
Section 48(1) of the Act provides that where a person committing contravention of any of
the provisions of the Competition Act is a company (including a firm or an association),
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every person who, at the time the contravention was committed, was in charge of, and
was responsible for the conduct of the business of the company/association, shall be
deemed to be guilty of the contravention and shall be liable to be proceeded against
and punished accordingly. The investigation pattern of Director General shows that once
the Director General has found out that there is a case for violation of the Competition
Act been established, the CCI asks for the last three income tax returns of the company
and the officer bearers so that they can fine such directors or office bearers a percentage
of their income, as shown in the income tax returns. In fact, in the last two years, in the
prima facie orders passed by the CCI under section 26(1) of the Competition Act directing
the offices of the Director General to investigate, the CCI has specifically asked the
Director General to investigate the role of any person who was in charge of the operations
of the company, under section 48 of the Competition Act. The decisional practice of the
CCI shows that the Commission has used section 48 of the Competition Act to impose
fines on office bearers of a trade association in the entertainment and pharmaceutical
industry.
The key area to be analysed is that the person who will be fined will be the
person/director who was in charge of or responsible to the company during the time of
the violation. This is a separate point of investigation which needs to be carried out by
the Director General and CCI. Although, in some of the cases, the CCI has levied fines on
all office bearers of a trade association, the order passed by the CCI is unclear as to
whether all office bearers were in charge of or responsible for the actions of the
concerned trade association. In fact, in one of the cases decided by the Competition
P 122 Appellate Tribunal, the Tribunal has set aside the aspect of personal penalty. The
matters are pending before the Competition Appellate Tribunal and we should get more
clarity once the Tribunal passes the order. Having said that, for companies, the provision
of section 48 of the Competition Act must be limited to directors and officers-in-charge
who are actually in charge of the operations like the chief executive officer or chief
operating officer and not independent directors, who are not in charge of the operations
of the company. The person in charge of will have to be tested on a case to case basis and
such person may also include nominee directors which are appointed on the board of a
company to represent the interests of the investor, financial investor or otherwise. There
have been instances in other jurisdictions where a private equity fund has been
penalized because of the anti-competitive actions of their investee company, since it
was shown that the fund concerned had control over the operations of the investee
company. Considering the threshold of control are very low under the Competition Act
(discussed in detail in Chapter IV), the investors must be extra cautious to ensure that
their investee company are competition law compliant.
A defence can be raised by the director, in terms of proviso to section 48 of the
Competition Act, that the contravention committed by the company was committed
without his knowledge or that he had exercised all due diligence to prevent the
commission of such contravention. The manner in which the CCI will address this defence
has yet to be seen, however, the threshold is quote high for a director to avail the due
diligence exemption. A chain of evidence has to be clearly shown and demonstrated by
the director to show that he undertook all actions to prevent the commission of the
contravention. Such evidence may be in terms of proper training being imparted to
employees or business partners of the company, undertaking periodical competition
compliance training and manual etc. In fact, the Competition Appellate Tribunal, in their
decision in the NSE case (discussed in Chapter III) had opined that directors must be
aware of the provisions of the Competition Act and ensure that the activities of the
company are fully compliant. In this backdrop, the duty of the director is very onerous in
ensuring that the business of the company is run in a competition law compliant manner.
§2.15 JOINT VENTURE DEFENCE

The proviso to section 3(3) of the Competition Act provides for a joint venture defence.
The said proviso reads as:
Provided that nothing contained in this sub-section shall apply to any
agreement entered into by way of joint ventures if such agreement increases
efficiency in production, supply, distribution, storage, acquisition or control of
goods or provision of services.
A reference can be made to the statutory scheme provided under section 3 of the
Competition Act. Section 3(1) of the Competition Act states that no enterprise or
association of enterprises or person or association of persons shall enter into any
agreement in respect of production, supply, distribution, storage, acquisition or control
of goods or provision of services, which causes or is likely to cause an appreciable
P 123 adverse effect on competition within India. Further, sub-section (3) of section 3 of the
Act contains a rule of presumption of appreciable adverse effect on competition with
respect to certain activities by way of agreements contained therein. Section 3(3)
provides that any agreement entered into between enterprises or associations of
enterprises or persons or association or persons or between any person and enterprise or
practice carried on, or decision taken by, any association of enterprises or association of
persons including cartels engaged in identical or similar trade of goods or provision of
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services which directly or indirectly determines purchases or sale prices, limits or
controls production, supply, markets, technical development, investment or provision of
services, shares the 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 or directly or indirectly results in bid
rigging or collusive bidding, shall be presumed to have an appreciable adverse effect on
competition. It may be observed that with reference to the horizontal agreements
specified in section 3(3) of the Act, the rule of presumption of appreciable adverse effect
on competition shall apply. In fact, this rule of presumption shifts the onus on the cartel
participants to rebut the said presumption by adducing evidence that the cartel
arrangement does not cause appreciable adverse effect on competition in India in terms
of the factors mentioned under section 19(3) of the Competition Act. Further, the proviso
to section 3(3) provides for an efficiency analysis, which will also form a part of section
19(3) analysis, since accrual of benefits to consumers and efficiency in distribution are
some of the primary factors contained in section 19(3) of the Competition Act. We will
discuss the analysis of factors mentioned under section 19(3) in the later portions of the
chapter.
The proviso to section 3(3) states that the agreement must be in nature of joint venture to
avail of the exemption. The Competition Act does not contain any definition of the term
‘joint venture’. The Supreme Court of India (34) has interpreted ‘joint venture’ to connote
an association of persons or companies jointly undertaking some commercial enterprise
wherein all contribute to assets and share risks. Joint venture arrangement requires a
‘community of interest’ in the performance of the subject matter, a right to direct and
govern the policy in connection, and duty, which may be altered by agreement, to share
both in profit and losses. Having said that, the onus is on the parties to such agreement,
claiming JV defence to show such agreement will result in increasing efficiency in the
manufacture or provision of goods or services which will outweigh the anti-competitive
effects of such agreement. Specifically, for the purposes of rebutting the presumption of
appreciable adverse effect on competition in India or for claiming the joint venture
defence, it has to be shown that such agreement results in consumer efficiency or
administrative efficiency, in terms of cost savings, economies of scale or availability of
more competitive prices through the reduction or removal of double marginalization and
creation of other efficiencies which benefit the consumer. It must be noted that the
efficiencies resulting from the agreement must be demonstrated and not mere
assertions. Further, such efficiencies must be due to the agreement.
P 124
Cartels can seek efficiency defence if as a result of their coordinated practices, certain
improvements in production or distribution of goods or services are caused. Further it
can be claimed when coordination results in promotion of technical, scientific or
economic development or certain benefits to the consumers. The legislative framework
does exist for claiming the joint venture defence, however, in decisional practice, it has
never been successfully availed of.
The scope and operation of this limited exemption provided to joint venture agreements
was clarified by the CCI in its order in FICCI Multiplex Association of India, New Delhi v.
United Producers/Distributors Forum, Mumbai and Ors. (35) The case was initiated based
on an information filed by Multiplex Association of India alleging that the actions of the
film distributors associations, namely United Producers/Distributors Forum (UPDF), the
Association of Motion Pictures and TV Programme Producers (AMPTPP) and the Film and
Television Producers Gild of India Ltd. (FTPGI) were behaving like a cartel. It was alleged
that UPDF is an association of film producers and distributors which includes both
corporate houses and individuals independent film producers and distributors. The
AMPTPP and FTPGI were the members of UPDF. It was further alleged that UPDF, AMPTPP
and FTPGI produced and distributed almost 100% of the Hindi Films
produced/supplied/distributed in India and thereby exercise almost complete control
over the Indian Film Industry. It was alleged that UPDF vide their notice dated 27 March
2009 had instructed all producers and distributors including those who are not the
members of UPDF, not to release any new film to the members of the informant for the
purposes of exhibition at the multiplexes operated by the members of the informant. It
had been alleged that the above notice was sent to the members by UPDF because of the
conflict between the producers/distributors and the members of the informant on
revenue sharing ratio. It was informed that the revenue sharing ratio is usually negotiated
between individual producer and individual multiplex operator film by film. The above
ratio varies from week to week and it is usually around 48% in the first week, 38% in the
second week, 30% in the third week and 25% in the fourth and the subsequent weeks in
Maharashtra. This ratio varies from state to state but follows similar pattern.
It had been alleged that several negotiations were attempted by the multiplex operators
with the producers/distributors to persuade them to call off their strike and to arrive at
an amicable resolution of the differences but to no avail. It had been alleged that during
the continuance of the differences between the multiplex
operators/producers/distributors several other producers/distributors organized
themselves under the umbrella of UPDF. It was further alleged that the AMPTPP and FTPGI
had issued notice dated 9 May 2009 to their respective members to comply with the
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notice dated 27 March 2009 issued by UPDF and not to release any film in multiplexes. In
the above notice dated 9 May 2009 a warning was given to the respective members that
in case of failure to comply with the instruction given in the notice will lead to lifetime
suspension/strict disciplinary action etc. against the concerned member
P 125
Based on the above information, the CCI passed a prima facie order under section 26(1)
and asked the Director General to investigate the matter. The Director General submitted
its report to the CCI. During this time, a plea was raised by UPDF that the
agreement/decision taken by them not to release movies to the multiplex was efficiency
enhancing joint ventures and the same is exempted from the applicability of section 3.
The Competition Commission, however, did not agree with the plea taken because there
was no efficiency reasons which was provided by UPDF. Further, the CCI clarified the
ambit of the joint venture defence provided under section 3(5) and held that exemption
granted to such efficiency increasing agreement is limited in as much as it exempts such
agreements from the purview of the presumption inbuilt in section 3(3) of the
Competition Act with respect to appreciable adverse effect on competition. It is not a
blanket exemption from the entire provisions of section 3 of the Competition Act. Further,
another efficiency plea was taken by UPDF that the producers formed UPDF to
collectively bargain with the multiplex association of India, in order to get a better
revenue share. It was contended that collective bargaining is a recognized industry
practice and it was needed to negotiate with a dominant association like the multiplex
association of India to obtain a better revenue share. Dismissing the plea of collective
bargaining, the CCI held that: ‘collective bargaining may not be per se bad in law and
may be resorted to for legitimate purposes in accordance with law. However, when the
trade associations enter into agreements, as in the present case, in the garb of collective
bargaining which are anti – competitive in nature, then no competition watchdog can
countenance such act/agreement. Resultantly, the plea of collective bargaining, in the
facts of the present case, is without any merit and the same is directed to be dismissed.’
There have been very less guidance given by the Competition Commission on JV defence
to date. Further, based on the decisional practice, it will be a very rare case where a
price fixing arrangement, market sharing arrangement or a bid rigging arrangement will
be considered to cause efficiency in the market.
§2.16 LENIENCY REGIME

Section 46 of the Competition Act provides that the CCI can impose a lesser penalty to
any person, which gives vital disclosure to the Competition Commission with respect to
its participation in a cartel. Section 46 of the Competition Act reads as follows:
Power to impose lesser penalty
The Commission may, if it is satisfied that any producer, seller, distributor,
trader or service provider included in any cartel, which is alleged to have
violated section 3, has made a full and true disclosure in respect of the
alleged violations and such disclosure is vital, impose upon such producer,
seller, distributor, trader or service provider a lesser penalty as it may deem
fit, than leviable under this Act or the rules or the regulations:
Provided that lesser penalty shall not be imposed by the Commission in cases
where the report of investigation directed under section 26 has been received
before making of such disclosure.
Provided further that lesser penalty shall be imposed by the Commission only
in respect of a producer, seller, distributor, trader or service provider
included in the cartel, who has made the full, true and vital disclosures under
this section.
P 126
The leniency regime was introduced under the Competition Act to act as an incentive for
the companies to come clean to the Competition Commission for any cartel behaviour
that they may have been involved in the past. The statutory framework provided under
the Competition Act provides that a leniency application can be made even after a prima
facie case is made out and the Director General is investigating the matter. However,
section 46 of the Competition Act states that leniency application cannot be made once
the Director General has issued its investigation report under section 26 of the
Competition Act. In addition to section 46 of the Competition Act, the CCI has issued the
CCI (Lesser Penalty) Regulations, 2009 (the ‘Lesser Penalty Regulations’). (36) The Lesser
Penalty Regulations govern the procedure and extent to which leniency by way of
reduced penalties could be granted by the CCI to applicants who make vital disclosures
relating to cartel activity. Vital disclosure has been defined under Regulation 2(i) of the
Leniency Regulation to mean: ‘full and true disclosure of information or evidence by the
applicant to the Commission, which is sufficient to enable the Commission to form a
prima facie opinion about the existence of a cartel or which helps establish the
contravention of the provisions of Section 3 of the Act.’ The ambit of vital disclosure is
extremely specific and it should assist the CCI in forming a prima facie view that there
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exists a cartel and based on such disclosure provided in the leniency application, the CCI
will direct the offices of the Director General to investigate the matter. Therefore, the
application to the CCI has to be extremely specific and granular seeking leniency under
the Lesser Penalty Regulations, and such application must contain all material
information and evidence relating to the establishment or existence of a cartel.
The Lesser Penalty Regulations stipulate the following essential conditions that the CCI
must take into account before granting reduced penalties:
(1) The applicant should not have any further participation in the cartel, from the time
of making disclosures, unless the CCI directs otherwise.
(2) The information provided should be a ‘vital disclosure’, as mentioned under
Regulation 2(i) of the Leniency Regulations.
(3) The applicant should cooperate to the best of its ability with the CCI, inter alia by
providing all relevant information, documents and evidence as required.
(4) The applicant should cooperate genuinely, fully, continuously and expeditiously
throughout the investigation and other proceedings before the CCI.
(5) Relevant evidence should not be concealed, destroyed, manipulated or removed
by the applicant.
The Leniency Regulations also provides for a priority status in grant of lesser penalty.
P 127 Regulation 4 of the Leniency Regulations provides for the following:
Grant of lesser penalty

Subject to the conditions laid down in regulation 3, the applicant may be
granted benefit of lesser penalty than leviable under clause (b) of section 27 of
the Act, as the commission may decide, in the following manner, namely;-
(a) The applicant may be granted benefit of reduction in penalty up to or
equal to one hundred percent, if the applicant is the first to make a vital
disclosure by submitting evidence of a cartel, enabling the Commission
to form a prima-facie opinion regarding the existence of a cartel which is
alleged to have violated section 3 of the Act and the Commission did not,
at the time of application, have sufficient evidence to form such an
opinion:
Provided that the Commission may also grant benefit of reduction in
penalty upto or equal to one hundred percent, if the applicant is the first
to make a vital disclosure by submitting such evidence which establishes
the contravention of section 3 of the Act in a matter under investigation
and the Commission, or the Director General did not, at the time of
application, have sufficient evidence to establish such a contravention:
Provided further that the application for the benefit of reduction in
penalty upto or equal to one hundred percent will only be considered, if
at the time of the application, no other applicant has been granted such
benefit by the Commission.
(b) The applicants who are subsequent to the first applicant may also be
granted benefit of reduction in penalty on making a disclosure by
submitting evidence, which in the opinion of the Commission, may
provide significant added value to the evidence already in possession of
the Commission or the Director General, as the case may be, to establish
the existence of the cartel, which is alleged to have violated section 3 of
the Act.
Explanation. – For the purposes of these regulations, ‘added value’
means the extent to which the evidence provided enhances the ability of
the Commission or the Director General, as the case may be, to establish
the existence of a cartel, which is alleged to have violated section 3 of
the Act.
(c) The reduction in monetary penalty referred to in clause (b) shall be in
the following order-
(i) the applicant marked as second in the priority status may be
granted reduction of monetary penalty upto or equal to fifty
percent of the full penalty leviable; and
(ii) the applicant(s) marked as third in the priority status may be
granted reduction of penalty upto or equal to thirty percent of the
full penalty leviable.
While the definition of vital disclosure has been limited to mean only those information
which assist the CCI to form a prima facie view, Regulation 4 of the Leniency Regulations
read with section 46 of the Competition Act has enlarged the ambit to state that lesser
penalty can be given even if an information is provided to the offices of Director General
is investigating the matter, provided that such information was not with the possession of
the Director General at that point of time and significantly adds value. Further, such
information should help the Director General in coming to a conclusion of an existence of
a cartel. Added value has been defined to mean the extent to which the evidence
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provided enhances the ability of the Commission or the Director General, as the case may
be, to establish the existence of a cartel, which is alleged to have violated section 3 of
the Act.
P 128
It is to be noted that imposition of penalty is discretionary under the provisions of the
Competition Act and the Lesser Penalty Regulations. The discretion of the CCI in regard to
reduction in monetary penalty will be exercised with due to regard to the stage at which
the applicant comes forward with the disclosure, the evidence already in possession of
the CCI, the quality of the information provided by the applicant and the entire facts and
circumstances of the case. It remains to be seen how the CCI will exercise its powers
under the Lesser Penalty Regulations because it has not yet issued any final decision
when the case has been initiated because of a leniency application or a company has
given information during the investigation process by filing a leniency application.
The reduction in penalties that may be awarded by the CCI under the Lesser Penalty
Regulations varies depending on when the disclosure is made by the applicant i.e.,
priority status. The CCI can grant up to 100% reduction of penalty to the first applicant.
The second applicant can also benefit from a reduction in penalty of up to or equal to
50%, upon making a disclosure of evidence that provides significant added value to the
evidence already in possession of the CCI or the Director General. After the second
applicant, there can be more than one applicant which can be marked as third applicant
since the word used in the regulations are applicant(s) marked as third in the priority list.
The third applicant(s) may be granted a reduction of penalty up to 30% of the full penalty
leviable. However, leniency may be granted only if the information is a vital disclosure
which the CCI or the Director General did not have such information in its possession at
the time of making the application. It becomes all the more critical to ensure that the
timing of making leniency application is correct since leniency will only be granted for a
vital disclosure or if the disclosure adds value. Leniency will not be granted if
information is submitted by the applicant, which was already in the possession of the CCI
or Director General, as the case may be. Further, the application made under the
Leniency Regulations are kept confidential, so there is no chance for the future applicant
to know that the contents of the information which are already available with the
authorities. Hence, the application made to the authorities must be extremely granular
to ensure that the protection of the leniency regime can be availed of. It can be a tricky
situation if a leniency application is made without any vital or added disclosure, since
the applicant has already confessed to being involved in a cartel and may not still get
any immunity. Therefore, the key thing in any leniency application is that such
application must be extremely granular with all relevant details so that the CCI can take
help from such evidence to establish a contravention under section 3 of the Competition
Act. Further, since the Leniency Regulations accords a priority status, a second
application will get immunity only in cases whether the information so supplied by it
adds value. Explanation to Regulation 4 of the Leniency Regulations provided that adds
value means: ‘the extent to which the evidence provided enhances the ability of the
Commission or the Director General, as the case may be, to establish the existence of a
cartel, which is alleged to have violated section 3 of the Act'. Therefore, the second
applicant, to obtain a lesser penalty, must give evidence which the first applicant did not
give or which was not obtained by the offices of Director General or CCI in their
investigation process. Importantly, any information submitted under the Leniency
P 129 Penalty Regulations are treated as confidential (including in respect of the identity of
the applicant) unless such information is already in the public domain, or is required to
be disclosed by law.
In line with international authorities, the Leniency Regulations provides for a marker
system. Regulation 5 provides that a leniency applicant may make an application
containing all the material information, or may contact, orally or through e-mail or fax,
the designated authority of the CCI for furnishing the information and evidence relating
to the existence of a cartel. On the receipt of the communication, the CCI shall thereupon
mark the priority status of the applicant and the designated authority shall convey the
same to the applicant either on telephone, or through e-mail or fax. In the event the
information is received by the CCI from the applicant orally or via email/fax, the CCI will
direct the applicant to submit a written application containing all the material
information within a period not exceeding fifteen days, which can be extended at the
sole discretion of the CCI. In the event the applicant fails to provide the material
information within that the specified time, the applicant forfeit its claim for priority
status and consequently for the benefit of grant of lesser penalty.
It is to be noted that under the statutory scheme of the Competition Act, the CCI, in its
discretion, can levy lesser penalty. However, the risk of such cartel participant being
sued for compensation under section 53 of the Competition Act is not taken away. The
power of the Competition Appellate Tribunal to grant compensation has been discussed
in Chapter 1.
§2.17 FACTORS TO DETERMINE APPRECIABLE ADVERSE EFFECT ON

COMPETITION IN INDIA
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As mentioned above, an agreement will be void under section 3(2) of the Competition Act
if it causes or is likely to cause an appreciable adverse effect on competition in India. It
would be pertinent to note that for all agreements (other than those agreements
mentioned under section 3(3)), whether at the horizontal level, vertical level or pure
commercial agreements, the burden of proof would be on the CCI to demonstrate that the
agreement causes or is likely to cause an appreciable adverse effect on competition in
the market in India. The factors to determine appreciable adverse effect on competition
are provided under section 19(3) of the Competition Act. Section 19(3) of the Competition
Act reads as follows:
The Commission shall, while determining whether an agreement has an
appreciable adverse effect on competition under section 3, have due regard
to all or any of the following factors, namely:—
(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) improvements 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.
P 130
While analysing any agreement under section 3, the CCI, in the case of Ramakant Kiri v. Dr.
LH Hiranandani Hospital, Powai, Mumbai (37) (hereinafter referred to as the Hiranandani
case) noted:
The main advantages of a competitive market considered by the competition
authorities world over is that there is a continuous pressure on producers to
use raw material and human capital in a manner that keeps costs down
without compromising with quality i.e. to maintain productive efficiency to
favour customers. The other benefit is dynamic efficiency i.e. to invest in
research and development and to innovate, leading to survival and growth of
such companies which keep consumer preference at the top of agenda. While
considering impact of an agreement on competition, the potential of
damaging competition is also to be seen from the angle of consumer welfare.
Before we discuss the factors mentioned under section 19(3) of the Competition Act, it is
apposite to note the stance adopted by the CCI, while analysing agreements under
section 3(1) read with section 19(3) of the Competition Act. The CCI in the case of Sonam
Sharma v. Apple (38) (hereinafter referred to as the Apple case) has observed that a
vertical agreement to be anti-competitive under section 3, the enterprises who are a part
of the impugned agreement must have a significant market share, absence of which is
unlikely to create any appreciable adverse effect on competition in the market. During
an analysis of a vertical agreement, the CCI has noted that an agreement between two
parties in a vertical chain to be anti-competitive essentially requires that the intention
of such an agreement was foreclosure in both the relevant markets resulting in
considerable consumer harm. The CCI observed that the parties to the agreement
concerned must have the position of strength to affect market outcome in terms of
foreclosure or creating market barriers. The CCI in the said case observed:
as pointed out that for a vertical agreement to be anti competitive requires
the monopolization claim to hold, and given the minuscule market share of
the tying party the monopolization claim will be contrived.
Relying on the market share statistics of smartphones in India as provided by
the DG, the Commission observes that Apple had a share of less than 6% in the
market of smart phones during the period 2008-11. Furthermore, share of GSM
subscribers using Apple iPhone to total GSM subscribers in India is miniscule
(less than 0.1%). Similarly, relying on the data provided by the DG on mobile
service provider, the Commission observes that no operator has more than
35% market share in an otherwise competitive mobile network service market.
As none of the impugned operators (OP3 / OP4) have market-share exceeding
30%, that smartphone market in India is less than a tenth of the entire handset
market and that Apple iPhone has less than 3% share in the smartphone
market in India, it is highly improbable that there would be an AAEC in the
Indian market
On the basis of facts submitted by the DG, none of the OPs have a position of
strength to affect the market outcome in terms of market foreclosure or
deterring entry, creating entry barriers or driving any existing competitor out
of the market and within the theoretical framework of tying arrangement, the
anti-competitive concerns in terms of section 3(4) violations does not hold.
P 131
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Further, in a recent order passed by the CCI in the Bajaj case, the CCI invoked the doctrine
of de minimis (i.e., where the agreements of the enterprises will have insignificant effect
on the market) will militate against an agreement to have an appreciable adverse effect
on competition in India, and observed that this is possible in cases where the position of
the enterprise is weak. The relevant observations of the CCI are as under
In view of the above noted market structure of FMCG products and particularly the hair
oil segment in India, it appears that OP-1 does not have position of strength in this sector
in comparison with other brands. Such arrangement, in the presence of several
companies and considering the dynamic nature of the sector, is unlikely to affect the
inter-brand competition in the market [emphasis supplied]. As such, the impact of
restrictions imposed by OP-1 would be negligible
Since the test is that agreement must cause appreciable adverse effect, the decisional
practice would show that the CCI mostly analyses section 3 and section 4 together since a
dominant player entering into an agreement is likely to have foreclosure effects and
create barriers, which is also separate violation under section 3. This principle was also
followed in the case of Shri Dhanraj Pillay v. M/s Hockey India, where the CCI approving its
earlier Apple decision held that for an agreement to have an appreciable adverse effect
on competition in India, the person imposing the vertical restriction should be in a
dominant position and the intent behind the restriction should be foreclosure without
any obvious efficiency justifications. (39)
Conversely, if an agreement has been entered into by a dominant enterprise, it is more
likely that such agreement will cause or likely to cause an appreciable adverse effect on
competition in India. The CCI has noted that when the dominant undertaking enters into
an agreement, the Commission will place greater reliance on the anti-competitive factors
mentioned in section 19(3) of the Competition Act which are entry barriers and
foreclosure effects. In this regard, it is apposite to note the observations of the CCI in the
Automobile spare parts case (details provided in the chapter on abuse of dominance)
where it relied on EU jurisprudence and noted the following:
The ECJ in Nederlandsche Banden-Industrie Michelin (Michelin) v. Commission
[(1983) ECR 3461, at para. 57] explaining the concept of the prohibition of
Article 102 stated that, an undertaking in a dominant position: ‘has a special
responsibility not to allow its conduct to impair genuine undistorted
competition on the common market.’ Therefore, a non-dominant enterprise
may enter into a vertical agreement which forecloses the market but enhance
certain distribution efficiencies, and in such conditions the Commission on
balancing the factors provided in section 3(4), may conclude that such
agreement does not cause an AAEC in the market. However, where such
agreements are entered into by a dominant entity, and where the restrictive
clauses in such agreements are being used to create, maintain and reinforce
the exclusionary abusive behavior on part of the dominant entity, then the
Commission should give more priority to factors laid down under section 3(4)
(a) to (c) than the pro-competitive factors stated under section 3(4)(d) to (f) of
the Act, given the special responsibility of such firms not to impair genuine
competition in the applicable market [emphasis supplied].
P 132
Although there is no block exemption in India, like the European Union, the CCI, in the
Apple case, noted that the counterparties of Apple in that case, Vodafone and Airtel did
not either have a market share of 30% and Apple only had a market share of only 6% at
the relevant point of time. Based on the same, the Commission said no case of a violation
under section 3 can be made out since an agreement among non-dominant enterprises
will not cause an appreciable adverse effect. While, in a later decision, the CCI modified
its stance slightly in the Hiranandani case (details provided under the section on case
studies on agreements below) where the Commission found an independent violation
under section 3(1) and not a violation of section 4 (provision relating to abuse of
dominance) (40) . Nevertheless, the stance of the CCI is that one of the parties in the
agreement must have a sizeable market presence, may not enjoy a dominant position as
mentioned under section 4 of the Competition Act, to have any anti-competitive
concerns. The key area of analysis that has to be seen under an agreement analysis under
section 3 is that the agreement must cause or likely to cause an appreciable adverse
effect on competition in India. Therefore, for an agreement to be void, it must distort the
competitive structure of the market appreciably. It must be noted that the CCI has noted
that an agreement having some anti-competitive effects will not be a void agreement
under section 3 of the Competition Act. To be void, such anti-competitive effects in the
agreement must cause an appreciable adverse effect. Merely having some anti-
competitive effects will not make the agreement void under section 3. It is in this context,
it is critical to analyse the market presence of the parties and its position of strength. The
rationale for such a stance is an agreement among parties having minimal market share
will generally never has foreclosure effect or would create entry barriers.
As mentioned above, agreement are considered to be void if they cause are likely to
cause an appreciable adverse effect on competition in India. The Competition
Commission undertakes a rule of reason analysis, based on the factors mentioned under
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section 19(3) of the Competition Act. It is worthwhile to note that section 19(3) contains a
checklist of both pro-competitive and anti-competitive effects. Therefore, the CCI, based
on the factors mentioned under section 19(3) has to prove that the agreement causes or is
likely to cause an appreciable adverse effect on competition in India. In cases of
agreements mentioned under section 3(3) of the Competition Act, the onus shifts to the
parties to such agreement. The key thing to note is that as part of section 3 analysis, the
focus is on the effect of such agreement in market place. As a part of the investigation
process, the business purpose of the agreement should also be looked into and examined
whether the agreement has caused any anti-competitive harm. In fact, the CCI in the Bajaj
case has noted that business purpose of agreements must be looked into and even
acknowledged that vertical arrangements can be justified on certain grounds like
protection from free riding, efficient management of sales of products, economic
efficiency, etc.
As mentioned above, section 19(3) provides the factors which the CCI can look into, to
P 133 determine whether an agreement causes or is likely to cause an appreciable adverse
effect on competition in India. The parameters mentioned under section 19(3) of the
Competition Act can be divided into two broad buckets of anti-competitive effects
flowing from an agreement viz., creation of entry barriers, driving existing competitors
and foreclosure of competition, and pro-competitive effects viz. consumer benefits and
administrative efficiencies. We have outlined, in case studies on agreements below, that
the approach of the CCI is to see whether the impugned agreement causes any entry
barriers and foreclosure effects. Further, the Commission also looks at the business
rationale of the agreement to see whether such agreements generate any pro-
competitive effects like business efficiency.
The factors mentioned in section 19(3) of the Competition Act have to be looked into
totality of all the factors and network of all arrangements which are entered into between
parties. In this regard, it is noteworthy to look at the observations of the CCI in the
Automobile spare parts case. The agreements which were analysed by the CCI (details of
which are provided under the heading of case studies of agreements below) were the
agreements entered into between OEMs with their dealers and OEMs with their suppliers.
The OEMs had entered into selective distribution system and they had prohibited their
dealers not to source any spare parts from any third party apart from OEMs or their
authorized vendors. Further, the dealers were also prohibited to sell the spare parts to
the independent repairers over the counter. The CCI looked into the totality of the
agreements to see whether there was a case of anti-competitive behaviour that could be
made out:
Before parting with the assessment of AAEC of various agreements entered into
by the OEMs with their OESs and authorized dealers, the Commission would
like to emphasize that the efficiencies of the selective distribution system
claimed by the OEMs need to be analyzed in perspective of the ability of the
restrictive clauses to create foreclosure effects and barriers to entry in the
market. Article 101(3) (analogous to section 3(4) of the Act) provides that an
agreement, containing restrictive clauses which ‘contributes to improving the
production or distribution of goods or to promoting technical or economic
progress, while allowing consumers a fair share of the resulting benefit’, will
cause AAEC if such restrictive clauses ‘afford such undertakings the possibility
of eliminating competition in respect of a substantial part of the products in
question.’ Therefore, the agreement as a whole must not lead to the
elimination of competition. The criterion of attempting to balance the
efficiency gains and the foreclosure effects of vertical agreements is to reflect
the view that short term efficiency gains must not be outweighed by longer-
term losses stemming from the elimination of competition [emphasis
supplied].
This criterion thus requires an analysis of the competitive restraints imposed
upon the parties, the degree of competition existing prior to the agreements
and the impact of the agreement on competition. It is therefore essential to
note the nature of the competitive constraints in while analyszing the AAEC
caused by the restrictive clauses of an agreement pursuant to the factors
provided in section 3(4) of the Act. In situations where an agreement providing
apparent efficiencies allow the enterprise to create structural entry barriers
and consequently eliminate the competitive process, the Commission must
look beyond the immediate short term efficiency goals of such alleged anti-
competitive agreements. It is pertinent to appreciate the long- lasting anti-
competitive effects, if any, of such agreements in the market in which they
operate.
P 134
The General Court of the European Union, while considering the exercise that
the European Commission is required to undertake in conducting an analysis
under Article 101(3) of the Treaty for the Functioning of the European Union
(TFEU) [which is pari materia to section 3(4) of the Act] in its judgment in
GlaxoSmithKline Services Unlimited v. Commission [(Case T-168/01) [2006] CMLR
1623, at para. 244] held the task to be:
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‘weighing up the advantages expected from the implementation of the
agreement and the disadvantages which the agreement entails for the final
consumer owing to its impact on competition, which takes form of a balancing
exercise carried out in the light of the general interest appraised at
Community level’.
Further, the ECJ has held in Metro v. Commission (No. 2) [1986] ECR 3021, that
even where vertical selective distribution agreements comply with the
conditions set forth in the E.U. Guidelines on Vertical Restraints, they may still
infringe Article 101(1) of the TFEU if the market is tied up with a network of
similar agreements. Thus, where the competitive process is being eliminated
by a network of similar agreements, even if some of such agreements are
compatible with the exemptions provided in the Guidelines the same may not
be extended to the set of such vertical agreements [emphasis supplied]. In the
present case, the OEMs through a network of agreements (overseas supplier
agreements, OESs agreements and authorized dealer agreements) ensure that
they are the sole supplier of genuine spare parts in the aftermarkets and by
restricting the supply of diagnostic tools and imperious warranty conditions
ensure that they become the only viable supplier of effective repair and
maintenance services in the aftermarket. Therefore, even if the OEMs submit
that one or more of such vertical agreements, by themselves, do not cause an
AAEC in the automobile aftermarkets in India because of certain efficiency
enhancing conditions or that such agreements would be eligible for exemption
under mature competition law jurisdictions, the same is not acceptable to the
Commission. The Commission is of the opinion that the network of such
agreements allows the OEMs to become monopolistic players in the
aftermarkets for their model of cars, create entry barriers and foreclose
competition from the independent service providers. Such a distribution
structure allows the OEMs to seek exploitative prices from their locked-in
consumers, enhance revenue margin form the sale of auto component parts as
compared to the automobiles themselves besides having potential long- term
anti-competitive structural effects on the automobile market in India.
§2.18 VERTICAL AGREEMENTS

The High Level Committee Report on Competition Law and Policy, 2000 had noted that
generally, vertical agreements are treated more leniently than horizontal agreements as,
prima facie, a horizontal agreement is more likely to reduce competition than an
agreement between firms in a buyer-seller relationship. In the past, the U.S. anti-trust laws
had treated vertical restraints, like tie-in arrangements quite harshly. This thinking has
changed in recent times, and, under the rule of reason, vertical agreements are generally
treated more leniently than horizontal agreements. This is because vertical agreements can
often perform pro-competitive functions. Such agreements are generally considered anti-
competitive if one or more of the firms that are party to the agreement have market power.
In such a situation, the agreement is, in any case, likely to attract the provisions of the law
relating to abuse of dominance.
P 135
Section 3(4) of the Competition Act provides for certain kinds of vertical agreements. It is
reiterated again that vertical agreements, like all other agreements which are not in the
nature of agreements mentioned under section 3(3) of the Competition Act, will be void
only if it causes or is likely to cause an appreciable adverse effect on competition in
India. It is because of the test of having an appreciable effect that vertical agreements
are often analysed by the CCI on a joint investigation of section 3(4) read with section 4 of
the Competition Act, since a vertical agreement entered into by a non-dominant
undertaking will generally not cause any appreciable effect on competition in India. The
CCI has noted that an agreement between two parties in a vertical chain to be anti-
competitive essentially requires that the intention of such an agreement was foreclosure
in both the relevant markets resulting in considerable consumer harm. We will now
discuss the various kinds of vertical agreements mentioned under section 3(4) below.
[A] Tie-in Arrangement

Explanation (a) of section 3(4) provides a definition of tie-in arrangement. Tie-in
arrangement has been defined to include any agreement requiring a purchaser of goods,
as a condition of such purchase, to purchase some other goods. The CCI made detailed
observation on the difference between tie-in and bundling in the Apple case. The
Commission explained the difference between tie-in and bundling, since the terms are
used interchangeably in common market parlance. A tie-in arrangement occurs when,
through a contractual or technological requirement, a seller conditions the sale or lease
of one product or service on the customer’s agreement to take a second product or
service. In other words, a firm selling products X and Y makes the purchase of product X
conditional to the purchase of product Y. Product Y can be purchased freely on the
market, but product X can only be purchased together with product Y. The product that
the buyer wants to purchase is called the tying product (Product X). Examples of tying
include the tied sales of machines and complementary products, the tied sales of
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machines and maintenance services, as well as technological ties that force consumers to
buy two or more products from the same supplier due to compatibility reasons, like
printer and cartridge. More often, tying is a sales strategy usually adopted by companies
to promote/introduce a slow-selling or unknown brand when it has in its portfolio a fast-
selling or well known product, over which it has certain market power (in this example,
Product X). It is seen that the aspect of tie in are also seen, while deciding abuse of
dominance investigation, under the abuse of leveraging (discussed in the chapter on
abuse of dominance).
However, price bundling is a strategy whereby a seller bundles together many different
goods/items for sale and offers the entire bundle at a single price. There are two forms of
price bundling – pure bundling, where the seller does not offer buyers the option of
buying the items separately, and mixed bundling, where the seller offers the items
separately at higher individual prices. From producer’s perspective, mixed bundling is
usually preferable to pure bundling because the reference price effect makes it appear
even more attractive to buyers.
P 136
The CCI has noted that there can be pro-competitive rationale for product tying like
assembly benefits (economies of scale and scope), quality improvement and addressing
pricing inefficiencies. The following conditions are required to be analysed to see
whether a tie-in arrangement is anti-competitive for a section 3(1) analysis:
(i) Presence of two separate products or services capable of being tied.
In order to have a tie-in arrangement, there must be two products that the seller
can tie together. Further, there must be a sale or an agreement to sell one product
or service on the condition that the buyer purchases another product or service.
(ii) The seller must have sufficient economic power with respect to the tying product to
appreciably restrain free competition in the market for the tied product.
An important and crucial consideration for analysing tying violation is the
requirement of market power. The seller must have sufficient economic power in
the tying market to leverage into the market for the tied product. That is, the seller
has to have such power in the market for the tying product that it can force the
buyer to purchase the tied product.
(iii) The tying arrangement must affect a ‘not insubstantial’ amount of commerce.
Considering the area of analysis is whether an agreement causes or is likely to cause
an appreciable adverse effect on competition, tie-in arrangements are generally
not perceived as being anti-competitive when substantial portion of market is not
affected.
[B] Exclusive Distribution Agreement

Explanation (c) to section 3(4) of the Competition Act defines exclusive distribution
agreement. It has been defined to include any agreement to limit, restrict or withhold the
output or supply of any goods or allocate any area or market for the disposal or sale of
the goods. The aspect of exclusive distribution agreement was discussed in Bajaj case.
The CCI discussed the anti-competitive effects which can flow from an exclusive
distribution agreement. The Commission observed that exclusive distribution agreement
means an arrangement between the supplier and distributor wherein the distributor sells
the product/s within a defined area or to a particular group/category of customers. Such
arrangements particularly affect intra-brand competition as they restrict entry of another
player into the market. It may also affect the inter-brand competition since the outlets of
distribution are limited thereby impeding competition amongst players engaged in
several similar services. However, it may be noted that such arrangement can be
objectively justified on certain grounds like protection from free riding, efficient
management of sales of products, economic efficiency, etc. Therefore, the CCI looks at
business rationale of the parties to enter into such exclusive distribution agreement. In
the automobile sector, the CCI is presently investigating the exclusive distribution
agreement entered into between the car manufactures and their dealers in the Hyundai
case.
P 137
[C] Exclusive Supply Agreement

Explanation (b) to section 3(4) of the Competition Act defines exclusive supply
agreement. It has been defined to include any agreement restricting in any manner the
purchaser in the course of his trade from acquiring or otherwise dealing in any goods
other than those of the seller or any other person. The issue of exclusive supply
agreement was discussed in the Automobile spare parts case, where the dealers were
prohibited to source spare parts from any other person, apart from the OEMs.
[D] Refusal to Deal

Explanation (d) of section 3(4) of the Competition Act defines refusal to deal. It has been
defined to include any agreement which restricts, or is likely to restrict, by any method
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the persons or classes of persons to whom goods are sold or from whom goods are bought.
It must be noted that refusal to deal has mostly been dealt under an abuse of dominance
investigation. The CCI, in the Bajaj case, noted that competition law issues with respect to
refusal to deal/supply will arise when an enterprise, generally with stronger market
power refuses to deal with its customers or suppliers. The effect in such scenario is that
the downstream market gets affected due to such refusal.
[E] Resale Price Maintenance

Explanation (e) to section 3(4) defines resale price maintenance. Resale price
maintenance had been defined to include any agreement to sell goods on condition that
the prices to be charged on the resale by the purchaser shall be the prices stipulated by
the seller unless it is clearly stated that prices lower than those prices may be charged.
Like in other jurisdictions across the globe, resale price maintenance remains to be one
of the most vexed areas of antitrust enforcement. Contrary to some international
authorities, in India, an arrangement for resale price maintenance is only void if it causes
an appreciable adverse effect on competition in India. In fact, the High Level Committee
on Competition Law and Policy, 2000 noted that in a number of countries, RPM is presumed
to be per se anti-competitive. The majority of the Members of the Committee also felt that
RPM should be treated as presumed to be illegal. However, after considerable discussions, in
order to arrive at a consensus, it was decided not to treat it as presumed to be illegal. It will
be judged under the ‘rule of reason’.
It has been alleged in many cases, whether presently at the investigation stage or final
decided cases, that object of vertical price restraints is primarily restriction on price
competition between enterprises operating in the market. Resale price maintenance
implies a direct or indirect object to fix or enforce a minimum resale price to be
observed by the distributors or any downstream resellers of the manufacturer’s products.
The last quarter of 2014 and 2015 has witnessed various developments with regards to the
treatment of vertical agreements having conditions of resale price maintenance,
especially in the online distribution sector. Disputes on the competition law have been
P 138 brewing in India between e-tailers and brick and mortar businesses for some time now
with the emergence of strong e-tailers in the market. The strategy of the e-tailers in tying
up exclusive launches and offering significant discounts for various products being sold
on their respective platforms has left an impact on the businesses of the conventional
brick and mortar retailers. The brick and mortal outlets have stated that they are going
out of business due to the actions of the strong e-tailers, and the companies are also
facing a difficult time in managing their distribution chain in the process. An emerging
issue in the area of vertical agreements is the maintenance of resale price maintenance
both in the context of online and offline markets. Issues of resale price maintenance
pertain to the effort on part of companies to ensure a price of their product to ensure
parity between online and offline seller, thereby preventing free riding by offline agents
so as to protect the interest of dealers who maintain bricks and mortar stores. This issue
was first decided by the CCI in the case of Mr. Mohit Manglani v. M/s Flipkart India Private
Limited & Ors (41) in the context of the sale of a book of a famous Indian author, (Chetan
Bhagat’s book, ‘Half Girlfriend’) which was exclusively available on Flipkart’s website.
Allegations were raised that such arrangements slowly destroy players in the brick and
mortar space and tend to create product specific monopoly leading to manipulation of
price, control of production and supply, imposition of terms and conditions detrimental
to interests of consumers and distortion of fair competition in the marketplace. However,
CCI did not agree with these allegations and held that such exclusive arrangements do
not create any entry barriers for new entrants as the products (such as mobile phones,
tablets, books, camera etc.) sold through the exclusive platforms face competitive
constraints and are neither dominant or hold a monopoly status. Further, the
introduction of the e-platforms was found to increase competition and provide a
mechanism for price comparison and facilitate door delivery. Hence, it was found that
the exclusive agreement did not result in an appreciable adverse effect on competition
in the Indian market. In fact, the Commission pointed that online distribution system has,
in fact, shown considerable consumer efficiencies.
However, the online retailers have also instituted an information against companies who
imposed restrictions on the manner in which online distribution are to be done by the e-
tailers. Jasper (the company which owns and operates snapdeal.com) instituted an
information against a manufacturer which had placed restrictions on its dealers in
dealing with e-tailers. (42) In the said case, the CCI has directed the Director General to
investigate the allegation pertaining to minimum resale price maintenance imposed by
KAFF Appliances (India) Pvt Ltd (KAFF). Snapdeal is an online market place which
provides a medium for buyers and sellers to meet and transact. It was alleged that KAFF,
being aggrieved by the sale of its products at discounted prices on Snapdeal, started
imposing resale price maintenance and adduced an email exchange between KAFF and
Snapdeal to the effect that KAFF will not allow the sales of its products on Snapdeal if the
Market Operating Price (MOP) is not maintained. Based on the email exchange, the CCI
inferred, prima facie, that such an agreement/arrangement entered into KAFF with its
P 139 dealers under which the dealers were given a MOP hindered the ability of
dealers/distributors to compete on the price of the product. Further, prescribing MOP
and an insistence to follow an MOP amounts to resale price maintenance and such
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practice prima facie is in contravention of section 3(4) of the Competition Act. On the
issue of appreciable adverse effect on competition in India, the Commission noticed that
in the market for supply and distribution of kitchen appliances in India, KAFF had a 28%
market share and the restrictions imposed on dealers through the RPM, prima facie, may
not only harm the consumers but is also likely to have an adverse effect on competition
in India.
In another case (M/s Fx Enterprise Solutions India Pvt. Ltd v. M/s Hyundai Motor India
Limited) (43) in a claim pertaining to resale price maintenance, CCI found that Hyundai
placed restrictions on its dealers on the maximum permissible discount that may be
given by a dealer to the end-consumer, coupled with the practice of price monitoring put
in place by Hyundai wherein the dealers were penalized on account of any deviation. The
CCI found prima facie that the restrictions imposed by Hyundai on the maximum
permissible discount that may be given by a dealer to the end-consumer amounted to
resale price maintenance which prima facie in violation of section 3(4). On this basis, the
CCI has asked the offices of Director General to conduct an investigation into the matter.
It is apposite to note that resale price maintenance, like other vertical restraints under
section 3(4) of the Competition Act are not per se anti-competitive but the onus would lie
upon the parties and Commission to demonstrate that the resale price maintenance
arrangement has an appreciable adverse effect on competition in India. In fact, in the
Bajaj case, it was held by the CCI that the statutory scheme provides that the vertical
restraints, including resale price maintenance, will be void only if it can be shown that
such agreement causes or is likely to cause an appreciable adverse effect on competition
in India on the basis of factors mentioned under section 19(3) of the Competition Act. The
factors mentioned under section 19(3) of the Competition Act include creation of barriers,
foreclosure of competition, driving existing competitors out of the market, accrual of
benefits to consumers, improvement in production or distribution of goods or services
and promotion of technical, scientific and economic development. In fact, the CCI has
even acknowledged in this decision that vertical arrangements can be justified on certain
grounds like protection from free riding, efficient management of sales of products,
economic efficiency, etc. In the case of Shubham Sanitarywares v. Hindustan
Sanitarywares & Industries Ltd and others, (44) the CCI held that the practice of offering
differential discounts to different consumers i.e., less discount for retail buyers and a
higher discount for bulk buyers (such as institutions, builders, colonizers and persons of
importance) may not be construed as a violation of section 3(4) of the Competition Act
but maintaining the specific rate of discounts to different consumers as the policy of
differential discounts which are forcibly implemented by the manufacturer on their
dealers may be construed as an anti-competitive agreement, subject to the practice
P 140 causing an appreciable adverse effect on competition in markets in India. Further, the
CCI held that the discount policy in that case did not seem to have any appreciable
adverse effect on competition in India and dismissed the case.
Based on the same, it would be very interesting to observe the stance of the Director
General and the CCI in the Snapdeal and the Hyundai investigation. The Snapdeal and
Hyundai decisions are awaited in 2016–2017 and the stance adopted by the CCI will
impact all industries, especially impact new-age industries such as e-commerce.
§2.19 CASE STUDIES FOR AGREEMENTS

[A] Shamsher Kataria v. Honda Siel Cars India Limited & Ors (45)
The case has been discussed in detail, in the chapters on abuse of dominance (Chapter
IV) and intellectual property rights (IPR) (Chapter V) below. In this part, we will limit our
discussions to the aspect of anti-competitive agreements. The original equipment
manufactures (car companies/OEMs) and their authorized dealers entered into
agreements/arrangements pursuant to which the authorized dealers of the OEMs sell cars
and provide after-sales services to the consumers of the OEMs. Further, there are
agreements entered into between OEMs and the suppliers (OESs). The Director reviewed
such agreements and has made the following observations:
(1) In certain cases, the agreements between the OEMs and their dealers specifically
restricted the sale of spare parts over the counter which were in the nature of
exclusive distribution agreements in terms of section 3(4)(c) of the Competition Act.
Further, such practices also amounted to refusal to deal under the terms of section
3(4)(d) of the Competition Act.
(2) Certain agreements between the OEMs and the authorized dealers did not contain
specific terms restricting the sale of spare parts in the open market, however, the
Director General gathered that there existed some kind of unwritten understanding
or arrangement between such dealers and the respective OEMs pursuant to which
the dealers in fact did not sell spare parts in the open market to prevent consumers
from shifting to the independent repairers. Based on the factual situation, the
Director General also concluded that such practices are in contravention of section
3(4)(c) and 3(4)(d) of the Act.
(3) Most of the OEMs and the authorized dealers have clauses in their agreements
requiring the authorized dealers to source spare parts only from the OEMs and their
authorized vendors. The Director General concluded that such agreements were in
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the nature of exclusive supply agreements in terms of section 3(4)(b) of the Act.
(4) The dealer agreements between the OEMs and their authorized dealers contain
P 141 restrictions on dealing in competing brands of cars without seeking their consent
in writing. Further, the investigation revealed that most of the OEMs could not
confirm a single instance where such permission was granted to the authorized
vendors. Further, the Director General discovered that certain dealerships were
cancelled on the basis that such dealers were attempting or proposing to seek
dealerships of competing brands. The Director General, therefore, found that the
agreements entered by OEMs with their dealers are in nature of exclusive
distribution agreement in terms of section 3(4)(c) of the Act.
Further, apart from the agreement between OEM with their dealers, there were
agreements between OEMs with the original equipment suppliers (OES) prohibiting them
to sell the spare parts manufactured by them for OEMs in the open market. After
identifying the various kinds of agreements, the Director General analysed whether the
said network of agreements caused any appreciable adverse effect on competition in
India in terms of the factors mentioned under section 19(3) of the Competition Act. Based
on the same, the Director General identified appreciable adverse effect on competition
in the following markets
[1] Secondary Market of Supply for Spare Parts
The Director General had found during the course of its investigation that the OEMs are
the only source of supply of genuine spare parts in the Indian automobile aftermarkets.
The requirement on the authorized dealers to source spare parts only from the OEM or its
authorized suppliers restricts the ability of the OESs to sell directly in the aftermarket.
These restrictions therefore created entry barriers for the OES who could produce
matching quality spare parts, eliminates direct access by OES to an OEM’s aftermarket
and in the process foreclose competition in the supply of genuine spare parts. Presently,
OEMs are the only source of genuine spare parts and such market of supply of spare parts
could have been more competition, had such agreements not contain such restrictive
covenants. Further the Director General also noted that there is a substantial mark up in
most of the top fifty spare parts of each of the OEM from the price at which it has been
sourced from the OESs and the price at which it is made available to the consumers. The
ability of the OEMs to price the spare parts without being subject to any constraints does
not safeguard the interests of the automobile consumer in the Indian automobile
aftermarket. Based upon the above facts and circumstances, the Director General opined
that the agreements/arrangements of an OEM foreclose competition in the market for
supply of spare parts of that OEM, create entry barriers for OES to explore aftermarket
opportunities directly, driving existing competitors out of the market and have other
implications such as ability of OEMs to price spare parts without being subject to
competitive forces. Based on the above rationale, the Director General concluded that
such agreements causes an appreciable adverse effect on competition in India in the
market of spare parts of each OEM on account of the restrictions pursuant to agreements
P 142 which are in the nature of exclusive supply agreements, refusal to deal and exclusive
distribution agreements and such agreements causes appreciable adverse effect on
competition in India.
[2] Secondary Market of Repair and Maintenance Services
The investigation revealed that during the warranty period the consumers of all OEMs are
required to get their car repaired using only the OEMs authorized dealer network. In the
event consumers get their car repaired from an independent repairer during the warranty
period, the consumers lose their warranty over the car. Such restriction amounts to a
blanket exclusion of independent repairers and denial of options to the consumers,
especially for consumers who are not staying in cities where the authorized dealers are
typically located. In the post warranty period too, the investigation by Director General
noted that the independent repairers continued to be foreclosed from the service and
maintenance aftermarket since the OEMs ensured, by way of network of agreements with
the dealers and the OESs, that the genuine spare parts and other diagnostic tools
necessary for carrying out repair work are available only to authorized dealers. Thus,
even in the post warranty period consumer choice remains limited and independent
repairers remain excluded from the automobile aftermarket. There are some limited
exceptions where independent repairers can purchase spare parts from the authorized
dealers. However, even in such cases the independent repairers lack the adequate
training and do not have access to diagnostic tools, technical manuals and necessary
software required to carry out repair work on sophisticated automobiles.
[3] Restrictions of Dealers in Dealing in Other Brands of Cars
The Director General noted that the agreements/arrangements between the OEMs and
their dealers revealed that the requirement of seeking permission from the OEMs before
a dealer can deal in the cars of other OEMs create a major entry barrier for the dealers to
enter into business of other brands of cars. It was also noted that there are other unfair
conditions in the dealership agreements and such restrictions/conditions prevent the
dealers from exploring other business opportunities that are not detrimental to the
business interests of the OEMs. During the course of the investigation, it was revealed that
127
there were many dealers who aspired to acquire additional dealerships of other brands
for expansion of business but were unable to pursue such opportunities due to restrictive
covenants in the agreements. The dealers have contended that there are huge sunk costs
involved in exiting a dealership, e.g., the dealers would be left with a huge inventory
which is not bought back, have guarantees deposited with the OEM which may not be
refunded. Hence, the Director General has concluded that the vertical agreements
entered into between the OEMs and their authorized dealers have caused appreciable
adverse effect on competition in the market.
The CCI agreed with observations made by the Director General in toto because of the
aspect that every make of automobile is different from other make and the spare parts of
one make of car is not substitutable with other make of car. Therefore, while at the
P 143 primary market of cars, there is competition among car manufactures in all price
variants, but in the aftermarket, each car manufacturer has a 100% market share because
of non-substitutability of spare parts. In addition, the Commission made the following
additional observations:
(1) The Competition Commission reviewed the agreements, in light of the facts
analysed by the Director General and subsequent responses by the OEMS. The
rationale given by the OEMs for placing such restrictions in their agreements with
dealers and OES was that: (i) the independent operators may not possess the skills
required to replace the parts and undertake repairs thereby causing safety issues,
(ii) widespread availability of counterfeit parts; (iii) parallel resale network, if
established, would conflict with the distribution network, etc. who have invested
huge money, time and effort to set up the network. The OEMs have submitted that
the rationale behind their policies in restricting access to spare parts and
diagnostic tools to independent repairers is to protect the automobile owners from
the counterfeit and spurious spare parts market. The policy is to ensure that the
automobile owner does not end up purchasing spurious/counterfeit spare parts
with the mistaken assumption that he is purchasing a genuine spare part. It has
been further submitted that the reasons provided by the OEMs to restrict
availability of the spare parts and diagnostic tools are due to the fact that
technologically advanced vehicles require specialized skills, infrastructure, regular
training which are available only at the authorized dealers. Further, the OEMs have
submitted that even if genuine spare parts are purchased by customers over the
counter, but they are fitted in the vehicle by an untrained or unskilled person, the
fitment of the part may not be done properly and the car may develop even more
serious safety defects. The OEMs have submitted that it would be practically
impossible for the OEM to ensure that once the customer buys the genuine parts
‘over-the-counter’, it would be fitted correctly using the approved procedures in the
open aftermarket that comprises of thousands of unskilled and untrained
mechanics. This is more relevant in respect of safety critical parts e.g., engines,
brakes, etc. It is also practically impossible for the OEMs to try and cover these
thousands and lakhs of roadside mechanics and garages in their training and
skilling activities.
However, the CCI did not agree with the view that access to spare parts and
diagnostic tools cannot be restricted due to greater public good. The CCI noted that
car owner (consumer) should have a choice to make a rational decision after taking
into account the costs and benefits into account. Commission noted that a
Mercedes owner may be less concerned with money he is spending in repairs and
more averse to risk of spurious parts as compared to an owner of Maruti/Honda
Brio. The Commission noted that the choice of whether to go to an independent
repairer or an authorized dealer should not be taken away in the guise of consumer
protectionism. Further, based on industry research, the Commission noted that
there were multiple independent multiple brand repair workshops that were
equally adept at the servicing and repairing cars, provided that proper tools were
made available to them.
P 144
(2) Further, the CCI observed that a large number of the customers of each of the OEMs
avail the services of independent repairers, due to high mark up of the genuine
spare parts and the requirement to avail repair services from the authorized
dealers of the OEMs. The OEMs: (a) by restricting access to genuine spare parts and
diagnostic tools leads to the rise in the usage of spurious spare parts, and (b) by
denying the independent repairers access to repair manuals force them to work
inefficiently and using not so genuine parts, jeopardizing consumer safety. Further,
the Commission was of the opinion that the clauses in agreements requiring
authorized dealers to source spare parts only from OEMs or their approved vendors
is anti-competitive in nature. Based on the foregoing, the CCI noted that by
restricting access of independent repairers to spare parts and diagnostic tools and
by denying the independent repairers access to repair manuals, the agreements
entered into between OEMs and authorized dealers have caused appreciable
adverse effect on competition in India.
(3) Further, OEMs are the sole supplier of genuine spare parts and diagnostic tools in
the aftermarket. Therefore, for each make of an automobile, the Competition
Commission noted that the OEM is in a monopolistic position with respect to the
128
supply of spare parts and repair and maintenance services. It is pertinent to note
that the OEMs follow a policy where the warranty clauses on their brand of
automobiles get absolutely cancelled if the automobile owner approaches an
independent repairer or other repairers outside the official distribution network.
The Commission noted that authorized dealer agreements of the OEMs have to be
analysed from the perspective that the effect of such agreements result in a total
deprivation of consumer choice in the aftermarket for spare parts and maintenance
services. Such practices allowed the OEMs to adopt a rent-seeking behaviour where
they substantially mark up the price of their spare parts from the price at which
such spare parts are procured from the OES’ and other suppliers. Therefore, the
Commission was of the opinion that in instances where an agreement, irrespective
of the fact that it may contain certain efficiency enhancing provisions, allows an
enterprise to completely eliminate competition in the market is void under the
anti-trust laws.
[B] Ramakant Kiri v. Dr. LH Hiranandani Hospital, Powai, Mumbai (46)

Mrs Jain entered into an agreement with M/s Life Cell India Pvt. Ltd. (‘Life Cell’) to avail its
services for banking of stem cells. Mrs Jain was registered with Hiranandani Hospital (HH)
for maternity-related services and for delivery of her child. As the time of delivery of the
child drew near, Mrs Jain requested HH to allow Life Cell to collect the stem cells blood
soon after her delivery i.e., within ten minutes. The collection of umbilical cord blood can
P 145 either be done by the hospital staff or by ‘stem cell bank’ staff, who is to collect the
same from maternity ward of the hospital. HH refused to accede to the request of Mrs Jain
on the ground that she could avail the services of Cryobanks International India
(‘Cryobank’) – another stem cell banking service provider in India. HH had an exclusive
agreement with Cryobank and only Cryobank would be permitted to collect the umbilical
cord blood of the child of expecting mothers admitted in HH for preserving stem cells of
the child. Life Cell was told not to book any client of OP hospital for stem cell banking as
it would not allow entry of Life Cell into the hospital. Further, at the time of admission,
Mrs Jain was not informed by HH that it had an arrangement with Cryobank and it does
not allow other stem cell banks to enter the hospital. Because of this refusal by HH to
permit Life Cell to collect stem cells, Mrs Jain had to shift from HH and get her delivery
done at Seven Hills Multi Super Speciality Hospital. Thereafter, information was filed
against HH stating that their agreement with Cryobank was anti-competitive in terms of
section 3(1) of the Competition Act.
Subsequent to the information and the investigation report prepared by Director
General, the CCI noted that the stem cell banking services sector is at nascent stage in
India. It is a small market with very few players providing this service. The main players
involved in this market are Life Cell and Cryobanks, which collectively held around 67% of
the market share in stem cell collection in Mumbai. The CCI observed that the exclusive
contracts between a hospital and stem cell bank (like the one between HH and
Cryobanks) have a tendency of distorting market mechanism altogether and cause
appreciable adverse effect on competition in India because of the following reasons:
(1) Development and competition in stem cell service industry is bound to be hindered
because of such exclusive arrangement between HH and Cryobank since each
player, instead of competing with other players for efficiency and competitive
price, would endeavour to pay commission to different hospitals and lock in clients.
The adverse effect on competition is much more for this sector because of the total
dependence of the expecting mothers on the maternity service providers to get
access to the stem cell/cord blood from newly born children born in the hospital.
(2) Given the peculiar nature of the service like long-term association resulting in tying
in of the consumer for twenty-one years and the nascent stage of the market, such
agreements foreclose the competition in the stem cell banking market and create
entry barriers for competitors depriving the final consumers of not only the quality
or price of services offered but also the choice of which service provider they would
like to contract with.
(3) Such exclusive arrangements do not accrue any benefit to the consumer,
conversely, such agreements are at the cost of consumer. HH was also not been able
to show any justification with regard to its agreement with Cryobank leading to any
consumer benefits, improvements in production or distribution of goods or
provision of services or resulting in the promotion of technical, scientific and
economic development by means of production or distribution of goods or
provision of services.
P 146
(4) Such agreement pre-closes market for new entrants. A new entrant instead of
meeting productive and dynamic efficiency has to meet efficiency in giving
commissions to trick the customers. This actually kills all competition replacing
competition culture by commission culture.
Based on the above rationale, it was noted by the CCI that this agreement causes
appreciable adverse effect on competition in India. Having said that, the CCI did not find
HH to be dominant in the relevant market, in terms of section 4 analysis.
129
However, when the matter went up in appeal before the Competition Appellate Tribunal,
the Tribunal set aside the findings of the CCI on the ground that the agreement between
hospital and Cryobanks did not result in foreclosure. The Competition Appellate Tribunal
noted that the agreement entered into between the hospital and Cryobanks did not, in
any manner, restrict the choice of the service provider in the relevant market i.e. market
for stem cell banking. By virtue of the agreement, the appellant could provide stem cell
banking services to the patients who wanted to avail such services only through
Cryobanks but the latter was free to enrol any patient(s) for such services to be availed in
any other hospitals, maternity homes etc. Further, there were 13 other players in the
market of stem cell banking and the patients were free to avail services of any of these
service providers according to their convenience and financial capacity. Further, the
contention that the agreement had the effect of foreclosing competition is belied by the
fact that the at least two new entities namely, Novacord and Unistem Biosciences have
entered the market in 2011 and 2012 respectively i.e. after execution of the agreement
between the hospital and Cryobanks.
[C] Sonam Sharma v. Apple Inc, Apple India, Vodafone Essar and Bharti Airtel (47)
(Apple Case)
The case was initiated based on information was filed against Apple Inc, its Indian
subsidiary, Vodafone and Bharti, two leading mobile service providers in India. It was
alleged in the information filed by Sonam Sharma that Apple US and Apple India had
entered into exclusive contracts/agreements with Vodafone and Airtel for sale of iPhone
in India, even prior to its launch. As a result of the said agreement, Vodafone and Airtel
got exclusive selling rights of sale of Apple Iphones in India for a substantial period of
time. The iPhones sold in India were compulsorily locked, thereby meaning that the
handset purchased from either of Vodafone or Airtel shall work only on their respective
networks. It was further averred that Vodafone had tweaked its Internet services in such a
manner that they were no longer usable on iPhones and introduced iPhone-specific
plans. Furthermore, the iPhone-specific Internet plans were costlier than their normal
Internet plans, thus compelling the customers to pay extra for using Internet on their
iPhone.
P 147
Based on the above, it was argued by the informant that Vodafone and Airtel had
engaged in anti-competitive conduct by imposing unfair conditions on the purchasers of
Apple iPhones by offering expensive subscription services and compulsorily locking the
handsets to their respective networks. It was further averred that Apple had engaged in
anti-competitive conduct by imposing discriminatory conditions on such person who
have purchased their Apple Iphones from a source other than Vodafone and Airtel.
Based on the above information, the CCI analysed the market. The Commission noted that
in the context of mobile telephony, there are two distinct entities – the mobile network
operators and handset manufacturers create the communication channel. The network
operators, like Vodafone and Airtel provide the service and handset manufactures, like
Apple sells the hardware to harness the benefits of the service provider. A mobile
handset is a complementary product to mobile network service, thereby meaning that
unless a mobile handset user has the access to a mobile network services, he would not
be in a position to exploit the full utility of the handset. The Commission observed, based
on the marketing strategy of companies, that it is common market place that as a part of
complementary marketing strategy, handset makers and mobile service providers,
although, distinct entities, offer bundled products/services.
After analysing the market, the CCI analysed the lock-in arrangement between Apple with
Vodafone and Airtel. The Commission noted that a tie-in arrangement must be assessed
with respect to foreclosure in the handset market and foreclosure in the service market;
and whether the agreement results in consumer harm. It was noted by the CCI that
Apple’s exclusive agreement with the two service providers was announced and widely
known, and that consumers were informed at the time they purchased their iPhones of
the necessity of these tied cellular services, which in themselves were not exclusive as
iPhone could be purchased both with an Airtel and a Vodafone service. The Commission
found that at the time of launch of iPhone in India, Apple did not have an outlet to sell its
iPhone, a high-end smartphone. Instead of investing money in creating sales and service
outlet and incurring advertisement expenditure, Apple’s strategy was to have tactical
agreement with network operators, possibly the best partners for selling mobile
handsets. This arrangement also helped Apple in gauging the public perception for
iPhone before actually selling iPhone through its own retail stores. The mobile network
companies who spent money on creating distribution channel and incurring
advertisement expenditure wanted the iPhone to be locked-in for some period so that
they would be able to recoup their investment over a period of time.
The Commission noted that an agreement between two parties in a vertical chain to be
anti-competitive essentially requires that the intention of such an agreement was
foreclosure in both the relevant markets resulting in considerable consumer harm. The
CCI noted, based on available market report, that the market share of Apple in the
P 148 smartphones market in India was a miniscule 6%. The Commission noted that, for a
vertical agreement to be anti-competitive requires the monopolization claim to hold,
130
and considering the miniscule market share of Apple, there will not be any consumer
harm caused because of the tie in arrangement. Further, the Commission found that
neither of Vodafone and Airtel was dominant in their market.
The CCI, then, analysed the following questions, in light of factors mentioned under
section 19(3) of the Competition Act:
(i) Does this agreement prevent Airtel and Vodafone customers to use other smart
phones?
(ii) Does the agreement prevent unlocked iPhone users to use services of other mobile
service provider?
(iii) Consequently, is there a foreclosure effect of the agreement on any of the two
markets – smartphone and mobile services?
To assess the alleged anti-competitive effect of the tie in arrangement between Apple
and Airtel/Vodafone in line with section 19(3), the CCI examined the following:
(i) Share of markets: Market share of Apple iPhone in the smartphone segment;
subscribers using Apple iPhone as a percentage of total GSM subscriber.
(ii) Sanctity of exclusivity under multiple arrangements of Apple with other service
providers as well as premium resellers, apart from Vodafone and Airtel.
(iii) Effect of the tie in arrangement between a handset manufacturer and a service
provider vis-à-vis consumer choice.
Relying on the investigation report of the Director General, the Commission observed that
Apple had a share of less than 6% in the market of smart phones during the period 2008–
2011. Furthermore, share of GSM subscribers using Apple iPhone to total GSM subscribers
in India was miniscule (less than 0.1%). Similarly, no operator had more than 35% market
share in the mobile network service market. Neither of Vodafone and Airtel had a market-
share exceeding 30% (at that relevant point of time). Further, the smartphone market in
India was less than a tenth of the entire handset market and that Apple iPhone had less
than 3% share in the smartphone market in India. The Commission also noted that
handsets were also sold through the Apple Premium Resellers (APRs), apart from
Vodafone and Airtel outlets. Further, the Commission observed that consumer having a
mobile handset (smartphone or otherwise) is free to exercise his choice for availing
network services without any restrictions. It was also noted that the network operators do
not require any particular handset to be purchased by the customer in order to avail its
network services. Moreover, the lock-in arrangement of iPhone to a particular network
was for only for a specific period and not perpetual, a fact known to prospective
customer. Also, a consumer who had purchased a locked iPhone in India and paid the
unlocking fees is free to choose the network operator of his choice. On the basis of the
above facts, the CCI noted that such tie-in arrangement will not cause any appreciable
adverse effect on competition in the Indian market.
P 149
[D] Shri GhanshyamDas Vij v. M/s Bajaj Corp Limited

In this section, we are only analysing the analysis of the CCI, with respect to dealership
agreement entered into between Bajaj with its dealers. It was averred by the informant
that the conduct of Bajaj in having exclusive distribution agreement allocating area is in
violation of the provisions of the Competition Act. Bajaj is engaged in manufacture and
sale of FMCG products while distributors/dealers/bulk purchasers distribute the products
of various companies including those of Bajaj.
The investigation done by the Director General had revealed that Bajaj had allocated
area of business to every dealer and did not want them to infiltrate into the territory of
the other dealer. It was noted that there was a vertical restraint imposed on the
distributors to supply the products in the area limited by the company and the
arrangement was monitored and enforced by the sales staff of Bajaj. There were instances
to show that Bajaj used to terminate the dealership agreements where dealers did not
adhere to the territory restraints enforced by Bajaj. Thus, Bajaj did not want intra-brand
competition of its products which would result in into price-cutting among its
distributors. It was further stated that Bajaj had been indulging in resale price
maintenance by prescribing rate at which its products were to be resold by the dealers to
the retailers. It was further stated that in order to ensure that there was no intra-brand
competition or price competition of its products, Bajaj imposed such vertical restrictions
upon its dealers.
It is reiterated that such vertical restraints are only void when such arrangement causes
or is likely to cause an appreciable adverse effect on competition in India. The CCI, thus,
analysed the market construct of fast moving consumer goods segment market. It was
noted that the Indian FMCG market offers a level playing ground for both domestic and
international brands. Some of the major FMCG companies operating in India are ITC
Limited, Hindustan Unilever Limited, Nestle India, Parle Agro, Britannia Industries
Limited, Marico Limited, Godrej Consumer Products Limited (GCPL), Colgate-Palmolive
(India) Pvt. Ltd, Procter & Gamble Co. (P&G), Anand Milk Union Limited (AMUL), etc. In
terms of hair oil categories, Marico is a leading FMCG Indian manufacturer providing
131
consumer products and services in the areas of Health and Beauty. Its products include
Parachute, Oil of Malaba, Hair & Care, Nihar, Shanti, etc. Other brands, apart from Bajaj’s,
include Dabur India Limited, Emami Ltd., Figaro, etc. This indicates that the market of
hair oil is wide and consumers have various brands as options to choose from. Based on
the market construct, it was noted by the CCI that Bajaj does not have the position of
strength in comparison with other brands. Such arrangement, in the presence of several
companies and considering the dynamic nature of the sector, is unlikely to affect the
inter-brand competition in the market. The CCI noted that vertical restraints, like
exclusivity and resale price maintenance imposed by Bajaj, will not create entry barriers
or foreclose existing competitors out of the market. As such, the impact of restrictions
imposed by Bajaj on its dealers would be negligible and thus, the agreements among
Bajaj with its dealers do not cause any appreciable adverse effect on competition in the
Indian market.
P 150
[E] M/s Shubham Sanitarywares v. Hindustan Sanitarywares & Industries (48)

The present information was filed by a dealer against a manufacturer alleging violation of
section 3 and section 4 of the Competition Act. It was alleged that Hindustan
Sanitaryware had abused its dominant position in the relevant market by blocking
supply of material to the informant. Further, it was alleged that Hindustan Sanitaryware
had imposed one-sided conditions in the Dealership Agreement. Further, it was alleged
that Hindustan Sanitaryware decides the rate of discount on MRP to various classes of
customers to their subjective satisfaction without applying any uniform parameters to
achieve vertical price control for its dealers. According to the informant, this amounted
to resale price maintenance which is a violation of the provisions of the Competition Act.
The CCI analysed clause 10 of the dealership agreement which stated that ‘We shall
advise you maximum retail prices from time to time for selling HINDWARE products to
your customers. Under no circumstances, you will charge prices higher than our
recommended MRP.’ The Competition Commission, based on the said clause, noted that
there is no illegality with this clause, as it only prescribes for the MRP and the dealer is
free to give discount, i.e., the minimum sale price is not prescribed or monitored.
It was also alleged that Hindustan Sanitaryware was giving differential discounts, which is
in violation of the Competition Act. The Competition Commission disagreed with the said
assertion and noted that the rationale for differentiating the discount offered between
the various category of buyers such as retail consumers, dealers and bulk buyers is based
on pure business rationale. Such differential discounts are owing to the difference in
quantity of demand made by each of the category of buyers. A retail buyer might place
an order for one or two pieces at a time, a dealer might place order for a large number of
pieces while a bulk buyer such as a builder might place an order for still larger quantity
at a time. In case of bulk purchase, a seller can offer more discount because of
occurrence of economies of scale to it. When a seller sells large quantity, it is able to
reduce its administrative and logistic expenses substantially which it pass to the
purchaser. Thus, differentiating the discount offered between various categories of
buyers such as retail consumers, dealers and bulk buyers cannot be per se construed as
anti-competitive. Offering differential discounts to different group of buyers seems to be
the practice followed within the industry and it could be the avenue for competition
enabling the players to compete with each other by offering higher discounts to
consumers as large numbers of items are brought.
Thus, the practice of offering differential discounts to different consumers i.e., less
discount for retail buyers and a higher discount for bulk buyers (such as institutions,
builders, colonizers and persons of importance) is not anti-competitive. However,
P 151 maintaining the specific rate of discounts to different consumers as the policy of
differential discounts which are forcibly implemented by Hindustan Sanitaryware on
their dealers may be construed as a violation of section 3(4)(e) of the Competition Act
subject to this practice causing an appreciable adverse effect on competition in markets
in India. The CCI noted that the practice of offering different discounts was based on
economic rationale and as such, there is no demonstrated reason to show that the
practice leads to an appreciable adverse effect on competition. Based on the same, the
CCI held that no case of violation of the provisions of the Competition Act was made out.
[F] Mohit Manglani v. Flipkart India Private Limited, Jasper Infotech Private
Limited, Xerion Retail Private Limited, Amazon Seller Services Private Limited,
Vector E-commerce Private Limited
The Informant alleged that the e-portals/e-commerce websites and product sellers enter
into exclusive agreements to sell the selected product exclusively on the selected portal
to the exclusion of other e-portals or physical channels or through any other physical
channel. Accordingly, the portal operator decides terms of resale, sale price, terms of
payments, delivery period, quality and service standards etc. All of these conditions are
non-negotiable for a consumer who intends to buy those products. It was claimed by the
informant that such exclusive agreements were causing appreciable adverse effect on
competition in India, because there were certain notable books which were proposed to
132
be launched on only some specific e-portals. Due to such agreements, it was urged that
brick and mortar shops were losing business and on the verge of exit.
The Competition Commission, however, did not agree that such exclusive agreements
caused any appreciable adverse effect on competition in the market. The Commission
noted that is very unlikely that an exclusive arrangement between a manufacturer and an
e-portal will create any entry barrier as most of the products, like mobile phones,
tablets, books, cameras etc. which are sold through exclusive e-partners face competitive
constraints. Further, the CCI noted that it does not appear that because of these exclusive
agreements, any of the existing players in the retail market are getting adversely
affected, rather with new e-portals entering into the market, competition seems to be
growing.
Further, the Commission observed that, that online distribution channel by e-portals
provides an opportunity to the consumers to compare the prices as well as the pros and
cons of the product. Furthermore, through the option of delivery right at their door steps,
consumers have the opportunity to accept the purchase at their convenience and at their
door step unlike a brick and mortar retail outlet. Therefore, such arrangement leads to
consumer welfare and does not cause any appreciable adverse effect on competition in
the market.
P 152
[G] M/s Jasper lnfotech Private Limited (Snapdeal) v. M/s KAFF Appliances (India)
Pvt. Ltd. (61 of 2014)
The Informant is a company that owns and operates the online marketplace website
www.snapdeal.com (hereinafter, ‘Snapdeal’) which provides a medium for buyers and
sellers/third party sellers to sell various products in India. KAFF Appliances is engaged in
manufacturing and selling of a wide variety of kitchen appliances such as electric
chimneys, kitchen hobs, induction cookers, air purifiers, dishwashers, refrigerators,
microwave, ovens and other apparatus for lighting, heating, etc. in the brand name ‘KAFF’.
The Informant alleged that KAFF was aggrieved by the fact that Snapdeal was displaying
the products of KAFF at a discounted price. Aggrieved by the same, KAFF displayed a
‘Caution Notice’ on its website stating that the products sold by Snapdeal in ‘KAFF’ brand
name are counterfeit and not authorized by it. However, it was contended by Snapdeal
that it does not directly or indirectly sell any products on its website as it is merely an
online market place. The sellers directly raise invoices to the final customers for the
ordered products and bear all commercial risks. Further, the warranty on the products
sold through its website is provided either by the manufacturing companies or by the
sellers and its role is limited to a facilitator between the actual seller and the buyer.
It has been alleged that the main grievance of KAFF stemmed from the discounted price
at which Informant was selling its products. In this regard, the Informant enclosed an
email dated 4 February 2014 received from one Mr Mohit Seth, an official of KAFF wherein
Mr Seth warned Snapdeal if MOP (Market Operating Price) of the KAFF’s products is not
maintained, KAFF will not allow Snapdeal to sell its products either by authorized or
unauthorized dealers or distributors. The transcript of the mail is as follows:
Dear Naren,
It has been observed that the KAFF prices on your website are below MOP list.
Product like base 60 and NF604SS are below dealer landing. This is to remind
you that if the MOP is not maintained properly company will not allow you to
sell our products either by authorised or unauthorised dealers or distributors.
Kindly update your pricing within 24 hrs.
Regards
Mohit Seth.
Further, it was stated by Snapdeal that the goods manufactured by KAFF are sold at their
exclusive chain of authorized retail outlets and at the listed prices only and any
discounted schemes introduced and launched in the market is with the prior approval of
KAFF. Based on the same, it was stated by Snapdeal that KAFF has networks of
agreements with its dealers for enforcing minimum price. It is alleged that if dealers want
to continue to sell the products of the KAFF on Snapdeal, they have to undertake the sale
the products at the prices specified by KAFF.
Based on the email exchange, the CCI inferred, prima facie, that KAFF such an
agreement/arrangement with the dealers under which the dealers were given a MOP
P 153 hindered the ability of dealers/distributors to compete on the price of the product.
Further, the CCI noted that prescribing MOP and an insistence to follow a MOP amounts to
resale price maintenance in terms of section 3(4) of the Competition Act. Further, the CCI
observed that KAFF has a market share of 28% market share in the market. Based on the
market share, the Commission observed that such restrictions imposed by KAFF on its
dealers by way of resale price maintenance, prima facie may not only harm the
consumers but is also likely to have an adverse effect on competition in India. Thus,
based on the above, the CCI asked the offices of the Director General to investigate the
133
matter. While the prima facie opinion is not binding, it is worthwhile, as pointed out
above, that this case will have serious implications in the manner e-commerce industry
will shape in India.
[H] M/s Fx Enterprise Solutions India Pvt. Ltd v. M/s Hyundai Motor India Limited
(49)
An information was filed by an authorized dealer of Hyundai, engaged in the business of
reselling and servicing of ‘Hyundai’ products. The business activities of an authorized
dealer comprised of sales of vehicles, spare parts and accessories. They are also engaged
in after sales service and repair of vehicles including related activities like finance,
insurance and sale/purchase of pre-owned vehicles. Hyundai is engaged in the business
of manufacturing, sale and servicing of ‘Hyundai’ automobile range, accessories, spare
parts, etc.
The dealer alleged the following practice as being anti-competitive:
(1) Multiple layers of incentives were provided by Hyundai, coupled with unrealistic
targets for the dealers to achieve, has given rise to certain malpractices.
(2) The dealership arrangement with Hyundai is exclusive from the dealer perspective;
which requires dealers to seek prior consent of Hyundai before taking dealership of
another brand. Therefore, the dealers are required to sell and service Hyundai
products exclusively.
(3) Dealers were also bound to procure all the spare parts, accessories and all other
requirements either directly from Hyundai or vendors that are specifically
approved by Hyundai.
(4) Hyundai monitors that the maximum permissible discount level is being adhered to
by its dealers through a Discount Control Mechanism. The dealers are not authorized
to give a discount which is above the recommended range. The level of discount is
determined by Hyundai which varies for different models of vehicles. Further,
Hyundai also encourages dealers to report instances of price/discount undercutting
by other dealers in the region to ensure full transparency in the market. At the end
of every month a penalty sheet is circulated where penalty is levied on all those
P 154 dealers who were found to have offered discounts to customers over and above
the recommended range.
Based on the information, the CCI asked the Director General to investigate the matter on
the following grounds:
(1) The existing dealership agreements of Hyundai prohibit the dealers to source spare
parts requirements from any source other than its approved vendors, resulting in
such dealers being forced to source Hyundai line Products only through the official
vendors. The Commission was of prima facie opinion that such agreements between
Hyundai and its dealers are in the nature of exclusive supply agreement in violation
of the provisions of section 3(4)(b) of the Competition Act. Further, the Commission
also prima facie observed that Hyundai by not allowing the authorized dealers to
deal in competing brands of automobile is restricting competition in the markets.
(2) Further, placing restrictions on the discounts that may be given by dealer amounts
to resale price maintenance.
While the prima facie opinion is not binding, it is worthwhile, as pointed out above, that
this case will have serious implications in the manner distribution channel will develop
in India. The outcome of this case will have ramifications across industries.
§2.20 EXEMPTION UNDER SECTION 3 OF THE COMPETITION ACT

Section 3(5) of the Competition Act provides for two exemptions, which are intellectual
property exemption and the export exemption.
Section 3(5)(i) of the Competition Act provides for the intellectual property exemption.
Section 3(5)(i) of the Competition Act reads as follows:
Nothing contained in this section shall restrict—
(i) the right of any person to restrain any infringement of, or to impose
reasonable conditions, as may be necessary for protecting any of his
rights which have been or may be conferred upon him under—
(a) the Copyright Act, 1957 (14 of 1957);
(b) the Patents Act, 1970 (39 of 1970);
(c) the Trade and Merchandise Marks Act, 1958 (43 of 1958) or the Trade
Marks Act, 1999 (47 of 1999);
(d) the Geographical Indications of Goods (Registration and Protection)
Act, 1999 (48 of 1999);
(e) the Designs Act, 2000 (16 of 2000);
(f) the Semi-conductor Integrated Circuits Layout-Design Act, 2000 (37
of 2000).
134
The Competition Act provides a limited defence to agreements under section 3, relating
P 155 to IPR, wherein a person has the right to restrain any infringement of, or impose
reasonable conditions, as may be necessary, for protecting any rights conferred under IPR
legislations. The CCI has observed, in certain decisions, the ambit of the exemption
provided under this section. The ambit of the said clause has been discussed in details in
Chapter V on IPR and competition law.
Section 3(5)(ii) provides for an exemption in cases of an agreement, for the purposes of
section 3, relates primarily for exports. Under section 3 of the Competition Act provides
that any agreement which causes or is likely to cause any appreciable adverse effect on
competition in India is void. Therefore, section 3 only covers agreement which has an
effect in India. In this backdrop, section 3(5)(ii) provides for an export exemption. Section
3(5)(ii) of the Competition Act reads as:
the right of any person to export goods from India to the extent to which the
agreement relates exclusively to the production, supply, distribution or
control of goods or provision of services for such export.
Therefore, the Competition Act exempts export cartels, i.e., a cartel between enterprises
located in India which intend to cartelize in markets outside India as opposed to import
cartels, i.e., a cartel between enterprises located outside India with the aim of cartelizing
in a relevant market within India. Similarly, any vertical agreement which has the sole
purpose of exporting goods outside India will not be covered under section 3 of the
Competition Act.
P 155
References
1) Section 2 (b) of the Act.
2) Fx Enterprise Solutions India Pvt Ltd v. Hyundai Motor India Ltd, Case No. 36/2014.
3) Exclsuive motors pvt. Ltd. v. Automobili Lamborghini S.P.A, CCI order, case 52 of 2012
dated, 6 Nov. 2012.
4) Luxury cars such as Audi, SEAT, Lamborghini, Volkswagen, Skoda, Bentley, Bugatti and
Porsche – were all considered within the same group of Volkswagen.
5) Suo-Moto Case No. 02 of 2014.
6) Suo-Moto Case No. 03/2011.
7) Case No. 29 of 2010.
8) Varca Chemists and Druggists v. Chemists and Druggists Association, Goa MRTPC
127/2009/ DGIR4/28; Vedant Bio Sciences v. Chemists &Druggists Association of Baroda
C-87/2009/DGIR; M/s Santuka Associates Pvt. Ltd. v. All India Organisation of Chemist
and Druggist (AIOCD), Organisation of Pharmaceutical Producers of India (OPPI) and
Indian Drug Manufactures Association (IDMA) Case No. 20/2011; M/s Sandhya Drug
Agency v. ADDA, BDDA, AIOCD, IDMA, OPPI, Case No. 41/2011; Peeveear Medical Agencies
v. AIOCD and Janssen Case No. 30/2011; and Arora Medical Hall v. Chemists and
Druggists Association, Ferozepur Case No. 60/2012.
9) Suo Motu Case No. 02/2011.
10) MRTP Case: RTPE No. 20 of 2008.
11) As mentioned above, the Cement cartel case has been remanded back by
Competition Appellate Tribunal to Competition Commission of India for fresh
arguments on due process issues.
12) Paragraph 6.5.50, Cement case.
13) Paragraph 280, Tyres case.
14) M/s Crown Theatre v. Kerala Film Exhibitors Federation, Case No. 16 of 2014.
15) Appeal No. 93 Of 2012.
16) Cartelization by public sector insurance companies in rigging the bids submitted in
response to the tenders floated by the Government of Kerala for selecting insurance
service provider for Rashtriya Swasthya Bima Yojna. Suo-Moto Case No. 02 of 2014.
17) Case No. 99/2013.
18) Case No. 29 of 2010.
19) Case No. 38 of 2011.
20) Para 124, Express Industry order.
21) Para 125, Express Industry order.
23) MRTP Case: RTPE No. 20 of 2008.
24) Case No. 16 of 2014.
25) Varca Chemists and Druggists v. Chemists and Druggists Association, Goa (MRTPC
127/2009/ DGIR4/28); Vedant Bio Sciences v. Chemists &Druggists Association of
Baroda (C-87/2009/DGIR); M/s Santuka Associates Pvt. Ltd. v. All India Organisation of
Chemist and Druggist (AIOCD), Organisation of Pharmaceutical Producers of India
(OPPI) and Indian Drug Manufactures Association (IDMA) Case No. 20/2011; M/s
Sandhya Drug Agency v. ADDA, BDDA, AIOCD, IDMA, OPPI, Case No. 41/2011; Peeveear
Medical Agencies v. AIOCD and Janssen Case No. 30/2011; and Arora Medical Hall v.
Chemists and Druggists Association, Ferozepur Case No. 60/2012.
135
27) Appeals under s. 53-B of the Competition Act, 2002 against the Order dated 24 Feb.
2012 passed by the CCI in Case No. 03/2011.
30) Competition Appellate Tribunal, Appeal No. 79 of 2012.
31) Case No. 26 of 2013.
32) Case No. 3/2009.
33) Case No. 68/2013.
34) Faqir Chand Gulati v. Uppal Agencies Pvt. Ltd. and Another, (2008) 10 SCC 345.
35) Case No. 1/2009.
36) The Lesser Penalty Regulations came into effect on 13 Aug. 2009. However, the
provisions of these regulations have not been availed of to date by any alleged cartel
members.
37) Case No. 39/2012.
38) Case No. 24/2011.
39) Dhanraj Pillay and others v. Hockey India, Case No. 73/2011.
40) Although the Hiranandani case was overturned in appeal on market issues, the point
of law that there can be a separate violation of section 3(1) is stated herein.
41) Case No. 80/2014.
42) Jasper Infotech (Snapdeal) v. KAFFAppliances, Case No. 61 of 2014.
43) Case No. 36 of 2014.
44) Case No. 99/2013.
45) Case No. 03/2011.
46) Case No. 39 of 2012.
47) Case No. 24/2011.
48) Case No. 99/2013.
49) Case No. 36 of 2014.
136
Document information Chapter 4: Mergers and Competition Law
Publication
§4.01 INTRODUCTION
It is imperative to have an effective merger control regime to ensure that corporate
Competition Law in India: A reorganizations do not distort the competitive structure of the market. Considering
Practical Guide combinations create permanent and lasting changes to the market, a strict merger
control regime is necessary which will ensure timely intervention in case the combination
causes or is likely to cause any appreciable adverse effect on competition.
Jurisdiction
The Indian Merger Control Regime comprises of the Competition Act and the attendant
India CCI (Procedure in regard to the transaction of business relating to Combinations)
Regulations, 2011 (Combination Regulations). The CCI regulates combinations so as to
prevent any appreciable adverse effect on competition in the relevant market in India.
Topics The CCI gives due regard to factors such as market share of the parties to the
combination, entry barriers in the market, presence of pre-existing horizontal/vertical
Mergers overlaps of the parties, buyer’s power, presence of alternative suppliers, responsiveness
of competitors, combined entity’s ability to hinder expansion by competitors and
presence of sector specific regulators (like Telecom Regulatory Authority of India,
Bibliographic reference Petroleum and Natural Gas Regulatory Board, Insurance Regulatory and Development
Authority etc.) while analysing a combination. Further, the CCI can also issue
'Chapter 4: Mergers and commitments to the parties to a combination to modify a combination to ensure that it
Competition Law', in Abir does not result in an appreciable adverse effect on competition in the relevant market in
Roy , Competition Law in India. The remedies issued by the CCI to date, range from behavioural remedies, for
India: A Practical Guide, example, reduction in the duration of a non-compete clause, to structural remedies, for
(© Kluwer Law example, the sale of assets. The CCI has accepted remedies from parties and in the case
International; Kluwer Law of structural remedies, they have laid down the criteria for the purchaser and also
International 2016) pp. 225 appointed monitoring agencies to monitor the remedies.
- 292
P 226
§4.02 THRESHOLD LIMITS

Section 5 of the Competition Act characterizes combinations under three broad
categories:
(a) acquisition of shares, voting rights, control or assets of an enterprise;
(b) acquisition of control of an enterprise by an enterprise engaged in the similar line
of business; and
(c) mergers or amalgamation.
The Indian merger control regime provides for mandatory notification in case the
prescribed thresholds under the Competition Act of assets or turnover are met. A tabular
snapshot of the present threshold limit for assets and turnover is as below.
[A] Parties to the Combination

Situation Entity Assets Turnover
In India Acquirer and Target >INR 1,500 crores (1) Or >INR 4,500 crores
OR
Worldwide Acquirer and Target >USD 750 Million Or >USD 2,250 Million
Of which in India INR 750 crores INR 2,250 crores
[B] Group Thresholds

Scenario Entity Assets Turnover
In India Group and Target >INR 6,000 crores Or >INR 18,000 crores
OR
Worldwide Group and Target >USD 3 Billion Or >USD 9 Billion
Of which in India INR 750 crores INR 2,250 crores
Section 20(3) of the Competition Act provides that the Central Government, in
consultation with the CCI, can enhance or reduce the threshold limits of value of assets
and turnover mentioned under section 5 of the Competition Act. The enhancement will be
based on the wholesale price index on fluctuation in the exchange rate of rupee or
foreign currencies.
P 227
§4.03 TARGET LEVEL/De Minimis Exemption

The Ministry of Corporate Affairs, Government of India (MCA Circular) issued a notification
137
which provides for a de minimis exemption. The MCA Circular is discussed herein below:
(A) Asset and turnover details in the MCA Circular: The MCA Circular was issued by the
Ministry of Corporate Affairs, Government of India, on 4 March 2011 which laid down
a target level exemption for a period of five years. The said circular exempted, from
the merger control provisions of the Competition Act, any enterprise whose control,
shares, voting rights or assets are being acquired, that has either assets of not more
than INR 250 crores or turnover of not more than INR 750 crores. It was later clarified
by the MCA that the amounts mentioned in the said circular refer to amounts only in
India.
The said circular reads as:
In exercise of its powers conferred by clause (a) of Section 54 of the
Competition Act, 2002 (12 of 2003), the Central Government, in public
interest, hereby exempts an enterprise, whose control, shares, voting
rights or assets are being acquired has assets of the value of not more
than INR 250 crores or turnover of not more than INR 750 crores from the
provision of Section 5 of the said Act for a period of 5 years.
Based on the above circular and decisional practice of the CCI, a transaction
involving an acquisition of a target enterprise (whether by way of acquisition of
shares, voting rights, assets or control) which has either assets of not more than INR
250 crores (INR 2,500 million) in India or turnover of not more than INR 750 crores
(INR 7,500 million) will be exempt from merger control filing requirements. It is to
be noted that for the de minimis exemption to be applicable, either the asset or
turnover have to be met. For sake of clarity, if the target enterprise has assets of
more than INR 2,500 million but turnover of less than INR 7,500 million, the target
exemption will be applicable and no merger notification will be required to be
made. It is to be noted that the MCA Circular is only applicable in case of
acquisition and not in case of mergers or amalgamation. The MCA Circular was
issued in 4 March 2011 which was effective from June 2011 and is valid for five years.
It remains to be seen if post March 2016, the MCA Circular would be extended.
Ideally, it should be extended because a non-extension would mean filing of
transactions to CCI for approval, where the target enterprise presence in India is
very less. Such filing would be mere technical filings, which would unnecessarily
delay the transaction timelines and would impose unreasonable burden on the
combination division of the CCI.
(B) Calculation on a consolidated basis: The threshold limit of assets and turnover for
the target enterprise mentioned in the MCA Circular is calculated on a consolidated
P 228 basis. The calculation of the threshold limits will be aggregated to include the
assets and turnover of the target company along with all of the downstream
companies over which such target company has control over. For example, an
acquirer is acquiring shares or control of Company A. Company A has two
subsidiaries operating in India, Company B and Company C. Since, Company A is the
target company, for calculation of assets and turnover of Company A has to be
analysed to see if the de minimis exemption can be availed of such transaction. For
the said calculation to analyse whether the de minimis exemption would be
applicable, the calculation will be aggregated to include the assets and turnover of
Company B and Company C, along with Company A.
A diagrammatic illustration of the same is as under:
Notes to the graphic illustration:

Note 1: Investor acquires shares of the Company A.
Note 2: Company A has a 51% shareholding in Company B.
Note 3: Company A has 51% shareholding in Company C.
Thus, Company B and Company C are subsidiaries of Company A. For ascertaining
whether the target exemption will be available, the assets and turnover of Company B
and Company C will be clubbed together with Company A.
138
(C) Principle of aggregation: Post the MCA Circular, the CCI amended the Combination
Regulations, which has, in effect, diluted the de minimis exemption. Regulation 5(9)
was added to the Combination Regulations which reads as:
Where, in a series of steps or individual transactions that are related to
each other, assets are being transferred to an enterprise for the purpose
of such enterprise entering into an agreement relating to an acquisition
or merger or amalgamation with another person or enterprise, for the
purpose of section 5 of the Act, the value of assets and turnover of the
enterprise whose assets are being transferred shall also be attributed to
the value of assets and turnover of the enterprise to which the assets are
being transferred.
P 229
By way of this amendment, the CCI has clarified that in cases where assets/business
unit or division of an enterprise is transferred to an enterprise and, subsequently,
the transferee enterprise enters into an acquisition/combination with a third
enterprise, the entire value of assets and turnover of the transferor enterprise (as
opposed to only the assets and turnover of the divisions being transferred to the
transferee enterprise), will be clubbed with the assets and turnover of the
transferee enterprise for the purposes of calculating the threshold limits provided
under section 5 of the Act. The two transactions must be interrelated transaction for
the principle of aggregation to be applicable.
The CCI has used this amendment in the Combination Regulations to expand their
ambit to green field joint ventures. Under the MCA Circular, the CCI did not have
jurisdiction over green field joint ventures since a newly incorporated entity will not
have assets of more than INR 2,500 million or turnover of more than INR 7,500
million. The CCI, however, has used this amendment to expand their jurisdiction
over green field joint ventures provided that there is a transfer of assets from the
joint venture partners to the resultant entity.
A diagrammatic illustration of the principle of aggregation is as under:
Note to the illustration:

Note 1: Transferor company transfers assets to the Transferee company.
Note 2: Post the transfer, the Investor invests into the Transferee company.
The principle of aggregation laid down by insertion of Regulation 5(9) has, in effect,
diluted the de minimis exemption laid down by the MCA Circular. It is to be noted that
because of the principle of aggregation and the outlook of the CCI to look at substance
over form, structuring deals to avoid merger notification has been done away with. Thus,
CCI is extending its powers to monitor more transactions, than what was initially
envisaged in 2011, when the Combination Regulations came into force.
As explained above, by way of this Regulation 5(9), the CCI has clarified that in cases
where assets/business unit or division of an enterprise is transferred to an enterprise
and, subsequently, the transferee enterprise enters into an acquisition/combination with
a third enterprise, the entire value of assets and turnover of the transferor enterprise (as
opposed to only the assets and turnover of the divisions being transferred to the
transferee enterprise), will be clubbed with the assets and turnover of the transferee
P 230 enterprise for the purposes of calculating the threshold limits provided under section
5 of the Act. This amendment was brought into by the CCI in the Combination Regulations
and they have used this amendment to expand their ambit to green field joint ventures.
(2) Having said that, a technical interpretation can be taken that this Regulation 5(9) will
not be applicable to a green filed joint venture because of the following reasons:
(1) Regulation 5(9) is applicable only when there is a transfer of assets from one
enterprise to another enterprise. Enterprise has been defined under section 2(h) of
Competition Act to mean the following:
enterprise means a person or a department of the Government, who or
which is, or has been, engaged in any activity (emphasis supplied),
relating to the production, storage, supply, distribution, acquisition or
control of articles or goods, or the provision of services, of any kind, or in
investment, or in the business of acquiring, holding, underwriting or
dealing with shares, debentures or other securities of any other body
corporate, either directly or through one or more of its units or divisions
139
or subsidiaries, whether such unit or division or subsidiary is located at
the same place where the enterprise is located or at a different place or
at different places, but does not include any activity of the Government
relatable to the sovereign functions of the Government including all
activities carried on by the departments of the Central Government
dealing with atomic energy, currency, defence and space.
(2) Based on the above, an enterprise is a person which is or has been involved in an
economic activity. In a case of greenfield joint venture, where the enterprises are
coming together for incorporating a new company (the resultant JV) and also
transferring assets to such a resultant JV, Regulation 5(9) of the Combination
Regulations should not be applicable because the resultant JV is not an enterprise,
since it is not yet incorporated entity and hence not an enterprise. Having said that,
the CCI has used Regulation 5(9) to expand their jurisdiction and have reviewed
green field joint ventures, where there is a proposed transfer of assets in the
resultant JV entity. Having said that, this is a legal reasoning, which does not find
favour with the interpretation of the CCI, since they have already analysed pure
green field joint ventures. Moreover, in order to avoid any show cause notice and
penalty proceedings under section 43 A of the Competition Act (discussed below),
the parties are filing merger notice to the CCI for green field joint ventures.
§4.04 SHARES
Section 5 is applicable to acquisition of shares, control, voting rights or assets. Shares
P 231 have been defined under section 2(v) of the Competition Act to mean:
shares in the share capital of a company carrying voting rights and includes
any security which entitles the holder to receive shares with voting rights.
Based on the definition, non-voting instruments like preference shares, non-convertible
debentures will not be considered as ‘shares’ for the purposes of the Competition Act.
However, convertible instruments will be considered as shares because it entitles the
holder to receive shares with voting rights at a future date. It is very common in
structuring of a transaction to issue convertibles (i.e., instruments which will be
converted into equity shares at a later point of time at a given conversion price) to the
acquirer. Therefore, any convertible which are normally issued to the acquirer (like
warrants, American depository receipts, global depository receipts, convertible
debentures, convertible preference shares) will be counted as ‘shares’ for the purposes of
the Competition Act and the Combination Regulations. It must be noted that plain vanilla
preference shares, with no voting rights whatsoever, will not be counted as shares since
they are non-voting shares. It is apposite in this regard to note the merger approval
decision of the CCI in the notice for acquisition of Independent Media Trust (3) where
Independent Media Trust was acquiring zero coupon optionally convertible debentures of
the target company. It is to be noted that optionally convertible debentures are
debentures which can be converted into equity shares carrying voting rights, at the open
of the debenture holder. The CCI noted that the optionally convertible debentures were
shares for the purposes of the Competition Act. The relevant observations of the CCI are
as follows:
14. In terms of the Investment Agreement, holder of each ZOCD has the option
to covert the ZOCDs into equity shares of the target companies with voting
rights at any point of time during a period of ten years from the date of
subscription. Since the conversion option contained in each ZOCDs entitles the
holder to receive equity shares of the target companies, [emphasis supplied]
the ZOCDs are shares within the meaning of sub-clause (i) of clause (v) of Section
2 of the Act and the subscription of ZOCDs amounts to acquisition of shares of
the target companies
§4.05 GROUP
As mentioned in the threshold table, the threshold limits of assets and turnover are
applicable on both, enterprise level as well as group level. Section 5 explanation (b) of
the Competition Act defines group as follows:
(b) ‘group’ means two or more enterprises which, directly or indirectly, are
in position to —
(i) exercise twenty-six per cent or more of the voting rights in the
other enterprise; or
(ii) appoint more than fifty per cent of the members of the board of
directors in the other enterprise; or
(iii) control the management or affairs of the other enterprise.
P 232
Thereafter, the MCA, by a notification, exempted the ‘Group’ exercising less than 50% of
voting rights in another enterprise from section 5 of the Competition Act for a period of
140
five years. (4) Thus, from the definition, in the event: (i) an enterprise holds more than
50% of voting rights in another enterprise, directly or indirectly, or (ii) the enterprise has
the right to appoint more than 50% of the directors in another enterprise, both the
enterprises would be considered to be part of the same group. Further, in the event an
enterprise controls the management or affairs of another enterprise, both the enterprises
are considered to be part of the same group. The definition and decisional practice of
the CCI on control is discussed below.
A diagrammatic representation of group is as follows
Note to the diagrammatic representation:

Note 1: Company A holds 51% equity shareholding in Company B.
Note 2: Company A can appoint three out of five directors on the board of Company C.
Note 3: Company A exercises control over Company D.
Based on the above diagrammatic representation, Company A, Company B, Company C
and Company D all form part of the group of Company A.
Further, it is also to be noted that for the purposes of the Competition Act and the
attendant Combination Regulations, one company can be a part of two different groups.
For the sake of clarity, let us analyse the following diagrammatic representation.
Note to the diagrammatic representation:

Note 1: Company A holds 51% shareholding in Company C.
Note 2: Company B exercises control over the operations of Company C, by way of having
some affirmative vote items (as discussed under the heading of control discussed below).
In such a situation, Company C forms part of the group of both Company A and Company B.
P 233
§4.06 CONTROL
Section 5, Explanation (a) of the Competition Act defines control as follows:
(a) ‘control’ includes controlling the affairs or management by—
(i) one or more enterprises, either jointly or singly, over another
enterprise or group;
(ii) one or more groups, either jointly or singly, over another group or
enterprise.
The definition of control has far reaching implications under the merger control regime in
India. The definition of control is not only required to ascertain the threshold on a group
level, but also whether some of the exemptions mentioned in Schedule I of the
Combination Regulations (discussed below in this chapter) can be a availed by the
parties to the combination or its group.
The definition of control, as provided under the Competition Act, provides for both sole
and joint control. Sole control exists when only one entity controls the target enterprise,
i.e., only it can determine the strategic commercial decisions of the target enterprise.
Such control can be exercised in cases where there is a majority shareholding held by
one enterprise over the target enterprise or by a voting arrangement among the
shareholders to evidence that only enterprise has control over the target enterprise.
Joint control is deemed to exist in a situation when two enterprises exercise decisive
141
influence over the target enterprise. For a situation of joint control to exit, two or more
enterprises should have the power to take/block strategic commercial decisions of the
target enterprise. Unlike sole control which confers a single entity to determine the
strategic decisions in the target enterprise, joint control is characterized by the
possibility of a deadlock situation resulting from the power of two or more enterprises to
reject proposed strategic decisions. The CCI has held in MSM India/SPE Holdings/SPE
Mauritius (5) that:
joint control over an enterprise implies control over the strategic commercial
operations of the enterprise by two or more persons. In such a case, each of
the persons in joint control would have the right to veto/block the strategic
commercial decision(s) of the enterprise which could result in a dead lock
situation [emphasis supplied]. Joint control over an enterprise may arise as a
result of shareholding or through contractual arrangements between the
shareholders. However, careful scrutiny is required to differentiate mere
investor protection rights from those rights which result in a situation of joint
control. The assessment of joint control over an enterprise would depend on
the facts and circumstances of each case with due consideration of relevant
factors such as statutory and contractual rights of the shareholders.
Generally, in various investment structures, control is normally exercised by the majority
shareholder in the target enterprise. However, there may be situations where the de facto
P 234 control is exercised by another person along with the majority shareholder (like grant
of quorum rights, contractual minority affirmative rights under a shareholders
agreement). The CCI, in its decisional practice, has reviewed the investment structure and
the management structure to analyse the issue of control. As mentioned above, there can
be situations under the Competition Act that the same target enterprise is controlled by
two separate enterprises.
The CCI has clarified negative control amounts to control for the purposes of the
Competition Act. In MSM India/SPE Holdings/SPE Mauritius, the CCI has effectively
concluded that the right to block special resolutions (by way of a more than 26% equity
stake) amounts to ‘negative control’, which is ‘control’ for the purposes of the
Competition Act. On the aspect of control, the CCI observed the following, based on the
investment structure in that case:
(c) The Acquirers collectively hold 62 per cent of the equity shares in MSM
India and have the right to nominate three directors on the Board.
Grandway and Atlas, collectively, hold 32.39 per cent of equity shares
and have the right to nominate two directors on the Board.
(d) The Shareholders Agreement provides for certain actions of MSM India
that could be undertaken only with the approval of shareholders
representing at least seventy five per cent of the total shareholders’
interest, where such approval is required under applicable law; or three-
fourths of the Directors, in all other cases. Such actions include, (a) MSM
India engaging in any new business or opening locations in cites other
than Mumbai, Delhi, Bangalore and Chennai; and (d) the hiring or
termination of the chief executive officer, chief financial officer, head of
marketing, head of programming and general counsel or other counsel of
MSM India or any other employee whose salary is or is proposed to be
greater than US$ 30,000 per year and the material terms of the
employment of such officers and material terms of employee benefit
plans applicable to employees of MSM India.
(e) Under the existing shareholding pattern and composition of the Board of
Directors, MSM India cannot undertake certain actions without consent of
both the Acquirers and Sellers i.e., Grandway and Atlas. In other words,
the Acquirers and Sellers have to agree with each other to make MSM
India undertake certain actions in the Shareholders Agreement.
(f) It is observed that the collective shareholding of Sellers to the extent of
32.39 per cent is sufficient to block/veto any action that requires special
resolution under the provisions of the Companies Act, 1956. Further, the
actions for which consent/approval of Grandway and Atlas is required
pursuant to the Shareholders’ Agreement include certain strategic
commercial decision of MSM India and the same cannot be mere investor
protection rights [emphasis supplied]. This is more particular with
respect to the issue of opening of new offices and hiring or termination of
key managerial personnel and other employee whose salary is greater
than US$30,000 and who could be responsible to manage the day to day
operations of MSM India. Considering the collective shareholding and the
rights of Grandway and Atlas pursuant to such shareholding (including
those pursuant to the Shareholders Agreement), it is observed that the
facts and circumstances of the case envisage joint control by the
Acquirers and Sellers over MSM India.
P 235
142
Further, in Century Tokyo Leasing Corporation/Tata Capital Financial Services Limited,
the CCI held that affirmative rights relating to the following items would be considered
‘control’ for the purposes of the Competition Act: (6)
(A) annual budget;
(B) annual business plan;
(C) exit and entry into lines of business;
(D) appointment of management;
(E) determination of their remuneration; or
(F) strategic business decisions (no materiality threshold specified).
Even recently, in one of the merger approval orders passed by the CCI in Notice given by
Caladium Investment Pte Ltd., the following affirmative rights were held to be control for
the purposes of notification:
(A) creation of or entering into or termination of joint ventures or partnerships and/or
creation or sale/liquidation of its significant strategic investments, direct/ indirect
joint ventures or its subsidiaries; and
(B) reorganization or change in the nature of its current business or activities or launch
of any new line of business(es).
The issue of control was also discussed in the merger approval order of Etihad Airways
and Jet Airways. (7) In the merger approval order, the CCI opined the following, based on
the equity shareholding, presence of director of investors on board and the manner of
future functioning of the target company, after consummation of the transaction
proposed by the parties to the combination:
14. In the instant case, both the Parties are engaged in the business of
providing international air transportation services. The background of
the IA pursuant to which 24 percent equity interest in Jet is proposed to
be acquired categorically states that the Parties wish to enhance their
airline business through a number of joint initiatives. In such a case,
Etihad’s acquisition of twenty-four (24) percent equity stake and the
right to nominate two (2) directors, out of the six (6) shareholder
directors, including the Vice Chairman, in the Board of Directors of Jet, is
considered as significant in terms of Etihad’s ability to participate in the
managerial affairs of Jet.
15. With a view to achieve the purported objective of enhancing their airline
business through joint initiatives, the Parties have also entered into the
CCA. Under the CCA, the Parties have inter alia agreed that: (A) they would
frame co-operative procedure in relation to (i) joint route and schedule
coordination; (ii) joint pricing; (iii) joint marketing, distribution, sales
representation and cooperation; (iv) joint/reciprocal airport
representation and handling; (v) joint/reciprocal technical handling and
belly-hold cargo and dedicated freight capacity on services (into and out
of Abu Dhabi and India and beyond); (B) the Parties intend to establish
centres of excellence either in India or Abu Dhabi; (C) Etihad would
recommend candidates for the senior management of Jet; (D) Jet would
P 236 use Abu Dhabi as its exclusive hub for scheduled services to and from
Africa, North and South America and UAE; and (E) Jet would refrain from
entering into any code sharing agreement with any other airline that has
the effect of: (i) bypassing Abu Dhabi as the hub for traffic to and from
the above said locations, or (ii) is detrimental to the co-operation
contemplated by the CCA.
16. It is observed that the Parties have entered into a composite
combination comprising inter alia the IA, SHA and the CCA, with the
common/ultimate objective of enhancing their airline business through
joint initiatives. The effect of these agreements including the governance
structure envisaged in the CCA establishes Etihad’s joint control over Jet,
more particularly over the assets and operations of Jet.
The key aspect to note herein is that CCI did not limit itself not only look at the board or
the shareholder composition to determine control. They analysed all the transaction
agreements to understand whether the acquirer will have any strategic influence over the
operations of the target company, post the acquisition. It was noted that apart from
acquiring shares in Jet, Etihad will have its nominee directors on the board of Jet and also
both Etihad and Jet will conduct their operations jointly, as elucidated in the commercial
cooperation agreement entered into between Jet and Etihad. The key ingredient of
control is that that the enterprise must show that it has the possibility to ‘exercise
decisive influence’ on the target enterprise with respect to its ‘strategic business decisions’.
Therefore, exercise of control depends on a number of elements. Control may be
exercised in the following ways: (i) through acquisition of majority shareholding or (ii)
through contractually holding rights including those rights mentioned in the vote sharing
agreement, commercial cooperation and technology collaboration agreements,
affirmative vote items contained in the investment agreements, shareholder’s
143
agreements etc.
As discussed above, the CCI has clarified that control includes positive and negative
control, such as quorum rights, veto rights with respect to decision-making relating to
appointment of management personnel, annual business plan, annual budget plan,
commencement or ceasing of a business activity, operating in new location etc. Based on
the decisional practice, in its various merger approval orders, of the CCI, the following
have been held to be instances of control:
(1) Negative control – Right to block special resolutions (by way of a more than 26%
equity stake). (8)
(2) Positive control – Acquisition of positive control i.e., an acquisition of an affirmative
vote items such as the veto right of decision making relating to
changes/amendments to the memorandum and/or articles of association, changes
in the capital structure, including through new issues of equity or equity linked
P 237 securities, buy back, rights issue, bonus issue, stock/share split, sweat equity
shares, redemption of securities, capital reductions etc. significant changes to the
incentive structure of the senior management and appointment or removal of any
member of the senior management, reorganization or change in the nature of
current business or launch of any new business, appointment or removal of any
nominee director, changes to dividend policy, (9) annual business plan, annual
budget plan, commencement or ceasing of a business activity, operating in new
location (10) & other strategic business decisions. (11) Further, the CCI has opined
that an investment management company is said to be in ‘control’ of the mutual
fund wherein an investment management agreement has been entered for the
management of the corpus of the fund.
Based on the above approach, the key aspect to be noticed is that the CCI analyses the
fact and circumstances of each case, choses substances over form approach and sees
whether control has been acquired by an acquirer. However, purely investor protection
rights awarded to financial investors may not be regarded as control. (12) A case to case
analysis has to be seen even for investor protection rights to see whether such bucket of
rights provided to the investor would amount to control or not.
In this regard, it is appropriate to note that the word control has been used in various
statutes in India. With respect to any transaction, there can be multiple regulatory
overlaps between the securities market regulator in India, the Securities and Exchange
Board of India and the provisions of the Competition Act and the attendant Combination
Regulations. In case of an acquisition of control over a listed company by an acquirer
(along with persons acting in concert), a requirement of a mandatory open order is
required to be made under the provisions of the Securities and Exchange Board of India
Act, 1992 and the Securities and Exchange Board of India (Substantial Acquisition of
Shares and Takeovers) Regulations, 2011. Similarly, as discussed above, in case of
acquisition of control of a target enterprise which meets the thresholds under the
Competition Act, it will require a filing to be made before the CCI for approval. Having
said that, the definition of control under the Securities and Exchange Board of India
(Substantial Acquisition of Shares and Takeovers) Regulations, 2011 and the Competition
Act and regulatory outlook on control by Securities and Exchange Board of India and CCI
are very different. The threshold of control under the Competition Act is much lower than
other prevalent regimes in India.
As mentioned above, under the provisions of the Competition Act, ‘control’ has been
defined in a circular manner to include ‘controlling the affairs or management of one or
more enterprises or group, either jointly or singly’. However, the definition of control
under the Securities and Exchange Board of India (Substantial Acquisition of Shares and
P 238 Takeovers) Regulations, 2011 provides that:
Control includes the right to appoint a majority of directors, or to control the

management or policy decisions exercisable by a person or persons acting
individually or in concert, directly or indirectly, including by virtue of their
shareholding or management rights or shareholders agreements or voting
agreements or in any other manner.
A case in point is the merger approval decision of the Competition Commission in the
case of Jet/Etihad and the treatment given to it by under regulators in India, namely the
Foreign Investment Promotion Board and the Securities and Exchange Board of India. As
mentioned above, the CCI noted, in its approval, that Etihad had acquired control over
the assets of Jet Airways. Based on the same set of agreements, investment structure and
board structure, the Foreign Investment Promotion Board held that Etihad had not
acquired control over Jet Airways. Post the observation of the CCI on control, Securities
and Exchange Board of India investigated the Etihad/Jet case in order to determine if the
requirement to make an open offer had been triggered by the transaction under the
provisions of the Securities and Exchange Board of India (Substantial Acquisition of
Shares and Takeovers) Regulations, 2011. In this regard, Securities and Exchange Board of
India passed an order holding that Etihad has not acquired control over Jet Airways and
hence there was no requirement to make an open offer by Etihad Airways. While passing
the order, the Securities and Exchange Board of India compared the definition of control
144
under the Foreign Direct Investment Policy, the Competition Act and the Substantial
Acquisition of Shares and Takeovers Regulations. Comparing the definitions of ‘control’
under the Foreign Direct Investment Policy and the Securities and Exchange Board of
India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011, the order
passed by the Securities and Exchange Board of India mentioned that the definitions are
pari materia. While comparing the takeover code definition of control with that under the
Competition Act, the order held that the definition under Competition Act, which deals
with ‘controlling the affairs and management’ is of much wider import than that under
the Takeover Code, which includes the right ‘to appoint majority of the directors’ or
controlling ‘the management or policy decisions’. Accordingly, the decision of CCI would
not be the guiding factor for Securities and Exchange Board of India in determining if
control has been acquired under the Substantial Acquisition of Shares and Takeovers
Regulations, 2011.
§4.07 CALCULATION OF ASSET VALUE

Asset value has been defined under Explanation (c) of section 5 of the Competition Act.
The said definition reads as:
the value of assets shall be determined by taking the book value of the assets
as shown, in the audited books of account of the enterprise, in the financial
year immediately preceding the financial year in which the date of proposed
merger falls, as reduced by any depreciation, and the value of assets shall
include the brand value, value of goodwill, or value of copyright, patent,
permitted use, collective mark, registered proprietor, registered trade mark,
P 239 registered user, homonymous geographical indication, geographical
indications, design or layout- design or similar other commercial rights, if any,
referred to in sub-section (5) of section 3.
Based on the definition, for calculating the asset value, one has to look at the book value
of the asset as shown in the audited financial statements of the companies in the
preceding year. The financial statements of a company will have a column on asset value,
which includes both fixed and current assets. (13) Under the definition of asset value
under the Competition Act, only depreciation can be reduced from the asset value as
shown in the balance sheet. There is no netting off of current liabilities or encumbrances
or provisions or the like permitted under the Competition Act, for calculation of the asset
value.
A sample of a balance sheet of a company is taken for illustration and described in the
form of table below:
Particulars Value
Assets
Non-current assets
– Fixed assets A
– Goodwill B
– Non-current investments
C
– Deferred tax assets
– Long-Term loans and advances D
E
Gross non-current assets (GNCA)
– Depreciation A+B+C+D+E
F
Current assets
– Current investments G
– Inventories H
– Trade receivables
I
– Cash and bank balances
– Short-term loans and advances J
– Other current assets K
L
Gross current assets (GCA) G+H+I+J+K+L

Asset value for calculation under section 5 of the [GNCA +GCA] – F
Competition Act
145
The Competition Act does not provide for adjustments made in the calculation of an asset
value, post the date of the annual audited books, to represent permanent changes in the
economic reality of the concerned company.
P 240
For calculating asset value for a group, the consolidated financial statements of the
preceding years are taken (as opposed to standalone financial statements). Use of such
consolidated financial statements eliminates double counting which may arise when
combining asset value from various standalone financial statements of enterprises falling
with the same group.
§4.08 CALCULATION OF TURNOVER

The definition of turnover provided under the Competition Act is very ambiguous.
‘Turnover’ has been defined under the Competition Act under section 2(y) of the
Competition Act as follows:
‘turnover’ includes value of sale of goods or services.
The definition of ‘turnover’ is thus inclusive and not exhaustive. Secondly, there is no
indicator with respect to the manner of determination of the ‘value of goods or services’.
The Competition Act and Combination Regulations are silent whether, for the purposes of
calculation of the turnover, gross turnover or net turnover would be taken into account.
Also unlike the definition of asset, there is no balance sheet reference date for
calculation of turnover. The prevailing view is that for calculation of turnover, gross
turnover (or revenues from operations) as mentioned in the last audited balance sheet of
the enterprise concerned will be taken into account minus indirect taxes. (14)
Particulars Value
Income
Income from operations
– Sales A
– Other operating income B
Turnover for calculation under section 5 of the Competition Act A+B
§4.09 KEY ISSUES IN ACCOUNTING

The parties have to undertake an accounting assessment on their own to analyse whether
the transaction crosses the threshold limits provided under the Competition Act. If yes,
the parties will have to notify the CCI for approval, unless the transaction qualifies for the
de minimis exemption (explained above while discussing the MCA Circular) or falls within
one of the exemptions/exclusions mentioned under the Competition Act or Schedule I of
the Combination Regulations (discussed below). There are certain key decisional
accounting practices which have been followed by the CCI, in its merger approval
P 241 decisions, which have to be borne in mind:
(1) Revenues from exports.
The CCI has clarified that even if an Indian enterprise derives turnover largely from
exports, revenue figures provided in the consolidated financial statements of the
Indian enterprise will be treated as ‘Indian turnover’ making the jurisdictional
threshold applicable on it. (15) As long as an enterprise is located or registered in
India, and notes its global turnover in its Indian books of account, such turnover
shall have to be taken into account for the purposes of calculating turnover
threshold for the purpose of merger notification even if they are derived from
exported goods/services or those generated by other group companies which have
a market presence outside India. This approach adopted by the CCI is likely to have
an impact for industries especially in the Information Technology, business process
outsourcing and pharmaceutical sectors. In such industries, the revenues will
primarily be export revenue. In this regard, the Indian approach differs
substantially from the models prevailing in other jurisdictions. For illustration, in
the European Union, where turnover for merger jurisdiction is computed based on
the allocated turnover which in turn depends on the geography where the service is
provided and where the consumers are located. The Indian approach of calculating
turnover, though simplistic in terms of accounts’ maintenance, inevitably broadens
the scope of coverage of the merger jurisdiction and may include notification of
several transactions even when they have a negligible impact on competition in
India. Further, there was an erstwhile exemption which was there in Schedule I
which gave the parties the option not to notify a combination which has
insignificant local nexus in India, which has hitherto been deleted. This implies that
the jurisdiction of the CCI has been enlarged to cover purely offshore combinations.
Although a pure offshore combination will be cleared by the CCI since such
transaction will not have an appreciable adverse effect on competition in India,
146
nevertheless, a notification to the CCI for approval has to be made. Failure to file
notification will attract penalties from the Competition Commission, details of
which are discussed in the chapter below.
(2) Notification analysis based on entire assets and turnover of the parties and not on
the assets divested.
The CCI has opined that even if only certain assets of an enterprise are being
acquired, the entire assets and turnover of the enterprise, on a consolidated basis
are to be taken into account for determining notifiability. (16) Therefore, such assets
though seemingly not relevant to the transaction in terms of impacting any
competitive structure, may still have to be notified.
P 242
§4.10 OBLIGATION TO NOTIFY A COMBINATION

The Competition Act and the Combination Regulation provides for a mandatory
suspensory regime. Section 6(2) of the Competition Act provides that a merger
notification will have to be filed with the CCI for approval for an acquisition, merger or
amalgamation which meets the threshold limits mentioned above. Further, section 6(2A)
of the Competition Act provides that the combination will not come into effect until the
earlier of: (i) 210 days have been passed from the date the merger control notification
was filed with the CCI or (ii) the CCI approves the combination under section 31 of the
Competition Act.
Subject to the provisions contained in sub-section (1), any person or
enterprise, who or which proposes to enter into a combination, shall give
notice to the Commission, in the form as may be specified, and the fee which
may be determined, by regulations, disclosing the details of the proposed
combination, within thirty days of—
(a) approval of the proposal relating to merger or amalgamation, referred to
in clause (c) of section 5, by the board of directors of the enterprises
concerned with such merger or amalgamation, as the case may be;
(b) execution of any agreement or other document for acquisition referred
to in clause (a) of section 5 or acquiring of control referred to in clause
(b) of that section.
(2A)No combination shall come into effect until two hundred and ten
days have passed from the day on which the notice has been given to the
Commission under sub-section (2) or the Commission has passed orders
under section 31, whichever is earlier.
In this backdrop, we will now discuss certain key procedural issues, which needs to be
kept in mind:
(A) Whose responsibility is to file the merger notification?
Regulation 9 of the Combination Regulations provides that the obligation to file the
merger notification with the Competition Commission of India falls on the acquirer
in case of acquisition of shares, control and assets. In cases of merger or an
amalgamation, the obligation to notify is on both the parties to the combination.
The relevant portions of Regulation 9 of the Combination Regulations read as
follows:
In case of an acquisition or acquiring of control of enterprise(s), the
acquirer shall file the notice in Form I or Form II, as the case may be,
which shall be duly signed by the person(s) as specified under regulation
11 of the Competition Commission of India (General) Regulations, 2009.
In case of a merger or an amalgamation, parties to the combination shall
jointly file the notice in Form I or Form II, as the case may be, duly signed
by the person(s) as specified under regulation 11 of the Competition
Commission of India (General) Regulations, 2009.
147
P 243
(B) Timeline for filing the merger notification: The Competition Act provides for a strict
timeline, within which the merger notification has to be filed with the CCI for
approval. In case of a merger or an amalgamation, the merger notification has to be
filed within thirty days of approval of the proposal relating to combination by the
board of directors of the enterprises concerned.
Regulation 5(7) of the Combination Regulations provides that board of directors of
the enterprise concerned refer to:
(i) the individual himself or herself including a sole proprietor of a
proprietorship firm;
(ii) the karta in case of a Hindu Undivided Family (HUF);
(iii) the board of directors in case of a company registered under the Companies
Act, 1956;
(iv) in case of a corporation established by or under any Central, State or
Provincial Act or a Government company as defined in section 617 of the
Companies Act, 1956 (1 of 1956) or an association of persons or a body of
individuals, whether incorporated or not, in India or outside India or anybody
corporate incorporated by or under the laws of a country outside India or a
cooperative society registered under any law relating to cooperative societies
or a local authority, the person or the body so empowered by the legal
instrument that created the said bodies;
(v) in the case of a firm, the partner(s) so authorized;
(vi) in case of any other artificial juridical person, by that person or by some other
person competent to act on his behalf.
In case of an acquisition, the merger notification has to be filed within thirty days of
execution of any agreement or other document for acquisition. Regulation 5(8) of
the Combination Regulations provides that the reference to the ‘other document’
refers to any binding document, conveying an agreement or decision to acquire
control, shares, voting rights or assets.
P 244
The aspect of ‘binding document’ was first deliberated by the CCI, in one of its
decisions in 2012. (17) The proposed combination related to the acquisition of the
Pantaloons Format Business of Pantaloon Retail (India) Limited by Aditya Birla Nuvo
Limited (‘ABNL’), through its wholly owned subsidiary Peter England Fashions and
Retail Limited by way of a demerger and merger of Future Value Fashion Retail
Limited into Peter England Fashions and Retail Limited, pursuant to a scheme of
demerger and merger under sections 391–394 of the Companies Act, 1956 (‘Scheme
of Arrangement’). The parties had entered into a binding MOU. The MOU
contemplated a series of other transactions to be consummated alongside the
Scheme of Arrangement including making a voluntary open offer in accordance with
the Securities and Exchange Board of India (Substantial Acquisition of Shares and
Takeovers) Regulations 2011. Further, a wholly owned subsidiary of ABNL would
invest an amount of INR 800 crores in Pantaloon Retails India Limited by
subscribing to optionally fully convertible debentures. The parties filed the merger
notification with the CCI based on the binding MOU being signed between the
parties. They were of the opinion that a binding MOU would constitute a binding
document for the purposes of Regulation 5(8) of the Combination Regulations, and
hence will trigger the notification norms under the Competition Act and the
Combination Regulations. At the time of the filing of the notice with the CCI, the
terms of Scheme of Arrangement was still under finalization and was yet to be
approved by the Board of Directors of the parties. Further, at the stage of the
execution of the binding MOU, certain key commercials like the share entitlement
ratio were still under negotiation.
The CCI rejected the merger approval notice filed by the parties as premature and
held that signing of the MOU (even though binding) cannot be the trigger for
notification. The reason adopted by the CCI was that signing of the MOU was only the
first step towards negotiations between the parties in relation to the finalization of
148
the scheme, valuation, exact scope of the assets to be acquired, share entitlement
ratio and also approval of the same by the Board of Directors of the respective
parties. It was noted by the CCI that the binding MOU is only an ‘interim’
arrangement and cannot be considered as ‘binding agreement’ for the purposes of
the trigger as the MOU will be terminated upon execution of the definitive
agreement and the Scheme of Arrangement.
Further, Regulation 5(8) also provides that: (1) in cases where the acquisition is
without the consent of the target enterprise, any document executed by the
acquirer conveying a decision to acquire control, shares or voting rights shall be the
‘other document’ and (2) where such a document has not been executed but the
intention to acquire is communicated to a Statutory Authority, the date of such
P 245 communication shall be deemed to be the date of execution of the other
document for acquisition. It must be pointed out that Regulation 5(8) as mentioned
above has undergone two sets of amendments: one on 3 July 2015 and second
amendment on 7 January 2016. Earlier, the Regulation 5(8) of the Combination read
as:
Provided further that where such a document has not been executed but
the intention to acquire is communicated to the Central Government or
State Government or a Statutory Authority, the date of such
communication shall be deemed to be the date of execution of the other
document for acquisition
Post the amendment on 3 July 2015, the relevant part of Regulation 5(8)
reads as:
Provided further that where such a document has not been executed but
the intention to acquire is communicated to the Central Government or
State Government or a Statutory Authority, the date of such
communication shall be deemed to be the date of execution of the other
document for acquisition.
Prior to the amendment on 3 July 2015 in the Combination Regulations, the CCI also
discussed the issue of binding document in 2014. (18) The proposed combination
related to acquisition of 50% of the issued and paid up equity share capital of Trent
Hypermarket Limited (hereinafter referred to as ‘THL’) by Tesco Overseas
Investments Limited (hereinafter after referred to as ‘TOIL’). The notice was given by
TOIL, pursuant to the execution of Joint Venture Agreement and Share Purchase
Agreement (SPA) between TOIL, THL and Trent Limited (hereinafter referred to as
‘Trent’), on 21 March 2014.
TOIL had filed an application dated 17 December 2013 (hereinafter after referred to
as ‘Application’) had sought the approval of the Department of Industrial Policy and
Promotion, Ministry of Commerce & Industry (‘DIPP’) and Foreign Investment and
Promotion Board, Ministry of Finance (‘FIPB’) for the acquisition of 50% of the issued
and paid-up equity share capital of THL.
It was argued by TOIL that had they filed the merger notification for its approval
within thirty days of the Application, at such a preliminary stage, full details of the
proposed combination would not have been available and the notice would have
been incomplete and without relevant and detailed information, necessary for a
review by the CCI. Reference was made by TOIL to the ABNL case, discussed above.
It was noted by TOIL that CCI had held in the ABNL case that merger notification was
premature as the discussions with respect to terms of the combination were still
underway being subject to definitive agreements. Hence, the preliminary document
executed by the parties was an interim arrangement and had not triggered the
requirement to file merger control notification. The CCI, however, disagreed with the
P 246 contention of TOIL. CCI made a difference between ABNL case and this case and
noted that the ABNL case involved a scheme of merger/demerger and did not
involve intimation of such proposal to the Central Government or State Government
or any Statutory Authority. Thus, CCI noted that TOIL was required to give notice to
the Commission within thirty days of its application to the DIPP and the FIPB i.e., by
16 January 2014. However, the notice was given by TOIL on 31 March 2014, with a
delay of around seventy-three days.
Having said that and as stated above, there has been a subsequent amendment in
Regulation 5(8) of the Combination Regulations. Post the amendment, the trigger for
filing has been made from a communication to a Central Government, State
Government and Statutory Authority to only Statutory Authority. Therefore,
intimation to government bodies like Foreign Investment Promotion Board, Ministry
of Technology who are arms of Central or State Government will not trigger any
requirement of filing. Only communication to Statutory Authorities (authorities
created under a federal, state or municipal legislation) like Securities and
Exchange Board of India will be considered as trigger for filing purposes.
The second set of amendment came on 7 January 2016 which added a proviso to
Regulation 5(8) of the Combination Regulations which states that:
a public announcement has been made in terms of Securities and
149
Exchange Board of India (Substantial Acquisition of Shares and
Takeovers) Regulations, 2011, for acquisition of shares, voting rights or
control, such public announcement shall be deemed to be the ‘other
document’.
Regulation 5(8) of Combination Regulations, post the amendment on 3 July 2015
provided that where a binding document had not been executed between the
parties but the intention to acquire has been communicated to a Statutory
Authority, the date of such communication would be deemed to be the date of
execution of the ‘other document’ and the combination notice has to be filed within
thirty days of the said communication. The amendment on 7 January 2016 has now
further provided that the communication with a Statutory Authority is no longer a
trigger to filing a combination notice with the CCI. The second proviso to Regulation
5(8) of the Combination Regulations states that where a public announcement has
been made in terms of the Securities and Exchange Board of India (Substantial
Acquisition of Shares and Takeovers) Regulations, 2011, for the acquisition of shares,
voting rights or control, such public announcement would be considered as the
trigger to filing the notice with the CCI. Therefore, the Combination Regulation has
further clarified that other document would only mean public announcements
made to Securities and Exchange Board of India in terms of the Securities and
Exchange Board of India (Substantial Acquisition of Shares and Takeovers)
Regulations, 2011.
(C) Single notice in case of an interconnected transaction: Regulation 9(4) of the
P 247 Combination Regulations provides that the parties can file a single notice in case
of multiple business transactions which are interrelated and interconnected to
each other. The said regulation reads as follows:
Where the ultimate intended effect of a business transaction is achieved
by way of a series of steps or smaller individual transactions which are
interconnected on each other, one or more of which may amount to a
combination, a single notice, covering all these transactions, may be
filed by the parties to the combination.
The parties to the combination have to analyse whether the transactions are
interdependent or interconnected to each other. They have to analyse the
‘economic realities’ of the transaction to conclude whether the transactions are
inter related or inter connected. In the event that the multiple transactions have a
condition that none of the transactions would take place without other, such
multiple transactions can be said to inter connected or inter dependent.
In this regard, it is apt to note the merger approval order of the CCI with respect to
the merger approval notice given by Relay B.V., an indirect wholly owned subsidiary
of Diageo Plc. (hereinafter Diageo Plc. is referred to as ‘Diageo’ and both Relay B.V.
and Diageo are jointly referred to as the ‘Acquirer’), and United Spirits Limited
(hereinafter referred to as ‘USL’), (19) for the proposed acquisition of shares and
control of USL.
The transaction postulated the following situations:
(1) Relay B.V. agreed to subscribe to the new equity shares of USL (hereinafter
referred to as the ‘preferential shares’), representing 10% of USL’s post-issue
enlarged share capital, by way of preferential allotment, on terms and subject
to the conditions as provided in the Preferential Allotment Agreement (PAA).
(2) Further, Relay B agreed to purchase equity shares of USL from the certain
existing shareholders of USL (including United Breweries (Holdings) Limited
(‘UBHL’) and Kingfisher Finvest India Limited (‘KFinvest’),) by entering into a
SPA, amounting to around 17.4% of USL’s enlarged share capital (hereinafter
referred to as the ‘sale shares’). Further, the merger notice provided that as
per the terms of the SPA, in certain circumstances, where: (i) the preferential
allotment is not completed, and (ii) Relay B.V. holds less than 25.1% of the
equity shares in USL after taking into account the sale shares acquired under
the SPA, the shares acquired pursuant to the mandatory open offer under the
Securities and Exchange Board of India (Substantial Acquisition of Shares and
Takeovers) Regulations, 2011 or the shares acquired in any other manner, then
UBHL and KFinvest will sell and Relay B.V. will acquire, such number of
additional equity shares in USL which will take Relay B.V.’s shareholding in
USL to 25.1%. Such number of shares of USL which UBHL and KFinvest would
P 248 require to sell to Relay B.V., under the aforesaid conditions, was termed as
‘additional shares’. In this regard, it has also been stated that if the
preferential shares representing 10% of USL’s post-issue enlarged capital are
subscribed to by Relay B.V., then no additional shares would be required to be
sold to Relay B. V.
(3) The execution of the SPA and the PAA triggered an obligation on the part of
Relay B.V. to make a mandatory tender offer to the public shareholders of USL
under the Securities and Exchange Board of India (Substantial Acquisition of
Shares and Takeovers) Regulations, 2011. Accordingly, on 9 November 2012,
Relay B.V. announced its intention to launch a mandatory tender offer under
150
the Securities and Exchange Board of India (Substantial Acquisition of Shares
and Takeovers) Regulations, 2011 (hereinafter referred to as the ‘MTO’) to
acquire the equity shares from the public shareholders of USL which represent
up to a maximum of 26% of USL’s enlarged share capital (hereinafter referred
to as the ‘offer shares’). It has been stated in the notice that on acquisition of
the sale shares, preferential shares and the offer shares (if the MTO is fully
subscribed), Relay B.V. would hold 53.4% of the USL’s enlarged equity share
capital.
(4) Further, the agreements provided that Relay B.V., or an affiliate of Relay B.V.,
may also, at any time and from time to time, acquire other shares in USL in
order to obtain an aggregate shareholding of at least 50.1% of USL’s equity
share capital (hereinafter referred to as the ‘other shares’). It was provided
under the SHA that if either of UBHL or KFinvest, or any of their controlled
affiliates, transfer all or part of their shares in USL to any third party, it shall
first offer such shares exclusively to Relay B.V. On receipt of such offer, Relay
B.V. would have the right to elect to acquire all or, in some cases, part of such
offered shares (hereinafter referred to as the ‘ROFO shares’), by giving a notice
to UBHL or KFinvest, or as the case may be, within a specified period, in terms
of the SHA.
The CCI, based on the market structure, gave a blanket approval for a period of five
years to the Acquirer to acquiring shares of up to 53.4% USL. From a competition law
analysis, the CCI viewed the entire transaction as interrelated and undertook the
competition law analysis, based on the entire transaction.
The scope of this Regulation 9(4) of the Combination Regulations where he parties
have the liberty to file a single notice in relation to interconnected or
interdependent transactions was discussed in a decision by the Competition
Appellate Tribunal in the case of Thomas Cook (India) Ltd. & Ors. V. Competition
Commission of IndiaCCI. (20) In the recent order, Competition Appellate Tribunal
P 249 overturned the penalty imposed by the CCI on parties (Thomas Cook India (TCIL),
its subsidiary (TCISIL) and Sterling Holiday Resort (SHRIL)) operating in the travel
and hotel related services in and from India. The parties had entered into a
composite two step scheme of demerger of SHRIL wherein its shares would be
transferred to TCISIL followed by the amalgamation of its remaining business into
TCIL and issuing of certain equity shares of TCIL to SHRIL’s shareholders. The penalty
was imposed on account of failure to furnish information and consummation of
certain market purchases wherein transfer of equity shares of SHRIL by TCSIL were
made. While the parties maintained the plea that market purchases had nothing to
do with the demerger/amalgamation scheme, and more so because it was
exempted transaction because of the MCA Circular. The CCI, on the other hand,
concluded that market purchases were intrinsically connected with the two-stage
scheme and was thus required to be notified under section 6(2) of the Competition
Act.
It must be borne in mind that the two-stage scheme and market purchases were
authorized in the same meeting followed by a joint press release and related to the
similar transactions. It also remains an agreed fact that the market purchases were
entitled for an exemption under the MCA Circular, as agreed by the CCI as well.
However, the CCI declined to give benefit of this exemption to the parties mainly on
the ground that the market purchases were intrinsically connected with other
transactions. The Competition Appellate Tribunal criticized this approach of the CCI
and stated that the latter failed to take cognizance of the fact that the
implementation of two-stage scheme for demerger/amalgamation was not
dependent on the market purchase of equity shares of SHRIL. Therefore, the mere
fact that various transactions were executed in close proximity of the market
purchases of the equity shares of SHRIL by TCISIL would not be sufficient to deny
the benefit of the MCA exemption notification to the parties. Further, the
Competition Appellate Tribunal went on to interpret the scope of the exemption in
the context of Regulation 9(4) of the Combination Regulations and concluded that
the notification is not riddled with any condition. Therefore, if the transaction
involving market purchases of equity shares of SHRIL was covered under the
exemption notification, the same was not required to be notified under section 6(2)
of the Competition Act. Further, the Competition Appellate Tribunal also went on to
observe the good faith of the parties who disclosed each and every transaction
including the market purchase of equity shares at the time of notification, even
though separate or composite notice was not filed in relation to the market
purchases.
Therefore, the implication of the decision is that parties may avail of the exemption
notification even in case of an interconnected transaction where composite notice
is filed. Furthermore, the test of interconnected transaction is the dependence of
one transaction on the other.
However, as a word of caution, though not discussed in the decision of the
Competition Appellate Tribunal, it must be borne in mind that post the order of the
P 250 CCI in Thomas Cook case, Regulation 9(5) was inserted in the Combinations
Regulation (discussed below). By virtue of Regulation 9(5), substance will take
151
precedence over form and transaction structures, or transactions comprising of a
combination which has the effect of avoiding notice in respect of whole or part of
the combination would be disregarded and still considered notifiable. As a result, a
take away for companies from the twin Thomas Cook decisions and Regulation 9(5)
of the Combination Regulations would be to avail maximum benefits of various
exemptions under the framework of the statute and notifications even in case of
inter-connected transactions where a composite notice is being filed. However, if
the sole purpose of such structuring especially by way of performing an inter-
connected transaction is to evade notice, the same may be penalized for non-
notification.
(D) Substance over form: Regulation 9(5) was inserted by the CCI in the Combination
Regulations. The said amendment provided the following:
The requirement of filing notice under regulation 5 of these regulations
shall be determined with respect to the substance of the transaction and
any structure of the transaction(s), comprising a combination, that has
the effect of avoiding notice in respect of the whole or a part of the
combination shall be disregarded
By way of this amendment, the CCI has clarified that the requirement for the filing
of a merger notification will be determined by the substance/intent of transaction.
The form of the transaction is rendered moot with respect of filing the merger
notification. The amendment seeks to ensure that the parties to a combination do
not avoid the mandatory CCI filing by adopting innovative structuring to their
transactions. It is akin to piercing the veil and analyse the actual substance of the
transaction and see whether the transaction in itself would require the approval of
the CCI.
By way of this amendment read with the aspect of filing a single notice for
interrelated transaction, the CCI has clarified that as long as the proposed
combination exceeds the applicable thresholds and does not qualify for any of the
exemptions mentioned under the Competition Act and the Combination
Regulations, the parties will need to take prior approval from the CCI, before
consummating the transaction. So, there may be situations where there are a
number of intermediate transactions which are consummated by the parties which
may not be notifiable but if the entire set of transactions is viewed as one
composite transaction, such transaction will be notifiable. In such case, the
Competition Commission will disregard multiple transactions and mandate the
parties to the file the merger control notification. While such an interpretation is
adopted by the Competition Commission to regard substance over form, the trigger
date becomes an issue. To exercise abundant caution, it is better to file for
notification before the CCI prior to consummating the first series of transaction.
P 251
(E) Form of filing.
Regulation 5(2) provides that generally the parties to the combination will file Form
I (a short form) as specified in the Combination Regulations. However, the
Regulation 5(3) of the Combination Regulations provide that parties may, at the
discretion, file Form II (a detailed lengthy form) in cases preferably in cases where:
(i) the parties to the combination are engaged in production, supply, distribution,
storage, sale or trade of similar or identical or substitutable goods or provision of
similar or identical or substitutable services and the combined market share of the
parties to the combination after such combination is more than 15% (15%) in the
relevant market or (ii) the parties to the combination are engaged at different
stages or levels of the production chain in different markets, in respect of
production, supply, distribution, storage, sale or trade in goods or provision of
services, and their individual or combined market share is more than 25% in the
relevant market. Further, it is to be pointed out that if the Competition Commission
requires additional information to make its competition law assessment, it can
direct the parties to file Form II (the lengthy form).
§4.11 PENALTY FOR NON-FILING/BELATED FILING

The Competition Act read with the attendant Combination Regulations provide for a
mandatory notification of the transaction to the CCI. The Competition Act provides for a
suspensory regime i.e., the parties cannot consummate a combination (for which
approval of the CCI is required) without obtaining the approval of CCI. Further, a strict
time frame is also given (thirty days from the trigger date) for notification, failing which
penalties can be levied under section 43 A of the Competition Act. The penalty exposure
for non-notification of a combination or consummation of the combination without
obtaining the approval of the CCI is huge and exposes the parties to a penalty which may
be up to 1% of the assets and turnover of the combination.
Section 43 A of the Competition Act reads as:
If any person or enterprise who fails to give notice to the Commission under
sub-section(2) of section 6, the Commission shall impose on such person or
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enterprise a penalty which may extend to one percent, of the total turnover or
the assets, whichever is higher, of such a combination.
‘Jumping the gun’ (or ‘gun jumping’) refers to the practice of consummating a transaction
before receiving the statutory clearance from the relevant competition regulator, or
illegal coordination between the merging parties prior to closing. To date, the CCI has
penalized parties for gun jumping on principally two grounds:
(1) Procedural gun jumping: Procedural gun jumping occurs when the parties to the
combination fail to comply with the requirement of filing the merger notification
with the CCI within the time frame of thirty days from the trigger date.
P 252
The CCI has levied penalties on companies, who have filed a notification after thirty
days of the trigger document. Therefore, it is imperative that the companies are
aware of the trigger document and the requirement to file the merger notification
within stipulated time to avoid any penalty.
(2) Substantive gun jumping: Substantive gun jumping entails an improper pre-closing
integration of the parties to a transaction, for example, sharing of commercially
sensitive information, allocating customers, undertaking joint marketing efforts
during the waiting period.
The first seminal case of substantive gun jumping was found by the CCI in the Jet-
Etihad case. (21) Etihad, the acquirer, on 1 May 2013, had notified CCI of its proposed
acquisition of 24% equity stake in Jet Airways. The transaction was approved by CCI
on 12 November 2013.
However, by a separate order under section 43 A of the Competition Act, the CCI observed
that: (i) certain provisions of the commercial cooperation agreement (CCA) entered into
between Etihad and Jet had already been implemented prior to obtaining the approval
of the CCI; and (ii) sale of certain landing/take off slots of Jet at the London Heathrow
Airport (LHR Transaction), had not been notified to the CCI for approval and the
transaction of sale and lease back of airport slots had been completed. Based on the
same, CCI levied a penalty of INR 10 million on Etihad for gun jumping.
In another case, the CCI received a merger notification from Zuari Fertilisers and
Chemicals Limited (‘ZFCL’) and Zuari Agro Chemicals Limited (‘ZACL’) (collectively referred
to as the Acquirers) pursuant to a shareholders agreement dated 12 May 2014, entered
into between the Acquirers, and the UB group comprising United Breweries (Holdings)
Limited, Kingfisher Finvest India Limited and McDowell Holdings Limited for an
acquisition of up to 3,08,13,939 equity shares of Mangalore Chemicals and Fertilizers
Limited (MCFL) (representing additional 26% stake in MCFL). The CCI held that during the
continuation of the tranche agreements, transactions amounting to approximately 16.43%
in the equity share capital of MCFL were consummated prior to giving merger approval
notice to the CCI. The CCI noted that, that the parties had not provided adequate
evidence to show that said acquisition qualifies for an exemption under Entry 1, Schedule
1 of the Combinations Regulations (discussed in detail below). Furthermore, the CCI relied
on a television interview of the head of the Acquirer’s company in which the then-
Chairman of MCFL and promoter of UB group, i.e., Mr Mallya wanted to operate MCFL as
joint venture between Zuari and UB group that affirmed the intent of the parties to
consummate the transaction to some extent. Based on the above facts, the CCI imposed a
penalty of INR 3 crores.
Furthermore, in relation to the same transaction, the CCI did not provide an exemption to
a part of the acquisition despite the plea that the acquired shares were in an escrow
P 253 account maintained with the escrow agent and the parties were not exercising any
beneficial interest on those shares. The CCI clarified that the Competition Act and the
Combination Regulations do not exempt a situation wherein a buyer acquires shares but
decides not to exercise legal/beneficial rights in them, from the purview of section 43A of
the Competition Act. Therefore, the Acquirers’ contention that the part of the acquisition
was not consummated, as the shares were kept in an escrow account and they were not
entitled to exercise any legal or beneficial rights over them till approvals of regulatory
bodies are obtained, was held to be untenable. Based on the above decisional practice
of the CCI, it is imperative that enterprises do not fall foul of the merger control norms
and indulge in gun jumping.
§4.12 EXCLUSIONS AND EXEMPTION

The Competition Act and the Combination Regulations provide for certain exclusions and
exemptions from filing merger control notification. The exemptions and exclusions are
discussed herein below.
[A] Acquisition by Public Financial Institution, Foreign Institutional Investor, Bank or

Venture Capital Fund
Section 6(4) of the Competition Act provides that the obligation to notify a combination
to the CCI for approval is not applicable to a share subscription or financing facility or
any acquisition by a public financial institution, foreign institutional investor, bank or
153
venture capital fund, pursuant to a covenant in a loan agreement or an investment
agreement. Further, section 6(5) of the Competition Act only provides for a post-
acquisition filing obligation, where Form III has to be filed by the public financial
institution, foreign institutional investor, bank or venture capital fund, as the case may
be, along with a certified copy of the loan agreement or investment agreement, providing
details of acquisition including details of control, the circumstances of such control and
the consequences of default arising out of such loan agreement or investment agreement.
The CCI, in its analysis of section 6(4) of the Competition Act have held that public
financial institution, foreign institutional investor, bank or venture capital fund acquiring
shares directly on the floor of stock exchange (by way of execution of contract note) which
is not pursuant to a loan agreement or investment agreement are not entitled to
exemption under section 6(4) of the Competition Act. Thus, such transactions are
required to file a notice and seek approval of the CCI for approval. The CCI held that a
contract note cannot be considered an investment agreement for the purposes of section
6(4) of the Competition Act because the contract note issued by the stockbroker is in the
nature of a receipt and the contract note is issued subsequent to the execution of the
trade on the stock exchange.
In light of the stance adopted by the CCI that contract note will not amount to an
P 254 investment agreement, there have been instances in the past where a foreign
institutional investor has approached the CCI for pre-clearance of its trades (by asking for
approval for an acquisition in a target entity in tranches within a definite time-period)
and not file a post facto intimation under the provisions of section 6(4) of the
Competition Act. (22)
[B] Exempt Transactions

Regulation 4 of the Combination Regulations read with Schedule 1 of the Combination
Regulations provide for certain exempted transaction i.e., transactions which will not
require a merger control filing before the CCI. The wording of the exemption has to be
given due importance by the practitioners. There can be situations where a pure
technical filing has to be made, which would be expeditiously cleared by the CCI. The
exemptions and the manner in which the CCI have analysed the exemptions are
discussed herein below:
(1) Schedule I Item 1: An acquisition of shares or voting rights, referred to in sub-clause (i)
or sub-clause (ii) of clause (a) of section 5 of the Act, solely as an investment or in the
ordinary course of business in so far as the total shares or voting rights held by the
acquirer directly or indirectly, does not entitle the acquirer to hold twenty five per cent
(25%) or more of the total shares or voting rights of the company, of which shares or
voting rights are being acquired, directly or indirectly or in accordance with the
execution of any document including a shareholders agreement or articles of
association, not leading to acquisition of control of the enterprise whose shares or
voting rights are being acquired.
Earlier the threshold provided in Schedule I Item I was 15% which was increased by
way of an amendment to 25%. The amendment aligned the Combination
Regulations with the SEBI (Substantial Acquisition of Shares and Takeovers)
Regulations, 2011 by increasing the limit of exempted shareholding from 15% to 25%
so long as such shareholding was acquired as an investment or in the ordinary
course of business and did not result in an acquisition of control of the target
enterprise. A case-by-case analysis will have to be undertaken to analyse whether
the acquirer is acquiring control over the target enterprise, in which case, a merger
notification will have to be made even if the acquisition is less than 25%.
P 255 A diagrammatic illustration of the exemption is as under:
Notes to the diagrammatic representation:

Note 1: Acquirer holds 100% shareholding in each of Company A, Company B and
Company C.
Note 2: Company A, Company B and Company C plans to invest in shares representing
10% shares of the Target.
154
It must be noted that the exemption is worded to include cases where acquirer,
acquires the shares directly or indirectly. In this case, the acquirer plans to invest
30% shares of the Target, indirectly through its subsidiaries, Company A, Company B
and Company C. Therefore, this series of transactions will not be able to avail of the
exemption. Further, as mentioned above, even if the investment is less than 25% in
the target company, it has to be seen whether the acquirer, directly or indirectly
will exercise control over the operations of the target enterprise.
As delineated above, the manner in which control has been interpreted by the CCI is
different from other Indian regulators. Therefore, while structuring any private
equity transactions, a private equity investor will have certain affirmative vote
items. Such vote items can be construed to mean control, for the purposes of
Competition Act, in which case, a notification will be required to be made. There
have been many cases where private equity funds have made merger filing because
of the affirmative vote items which are proposed to be held by them, post the
consummation of the transaction.
Further, the exemption is only available to acquisition solely as an investment or in
the ordinary course of business. Based on the same, strategic investment will not be
covered by this exemption because strategic investments are not in the ‘ordinary
course of business’ or ‘solely as an investment’. In the early years of the merger
control regime, the CCI had made an observation in the combination decision of
SAAB and Pipavav (23) that strategic investments are not entitled to an exemption.
P 256 The CCI observed as follows:
It is observed that the proposed combination relates to an acquisition of
3.329 per cent of the total paid up capital of Pipavav. However, as per
the information provided in the notice, the proposed acquisition is in
the nature of a strategic technology partnership between SAAB and
Pipavav whereby SAAB and Pipavav would jointly bid for projects within
the scope of co-operation prescribed under the Strategic Technical
Partnership Agreement dated 23rd August, 2012 entered into between
SAAB, Pipavav& other(s). Further, under the SSSA, certain affirmative
rights including the right to nominate one director on the Board of
Pipavav have been granted to SAAB to enable it to preserve the value of
its investment in the company and prevent misuse of intellectual
property rights with respect to the projects. The proposed combination
is, therefore, not an acquisition in the ordinary course of business or
solely for the purpose of investment.
In a subsequent merger approval order, the CCI has also observed that an
acquisition of shares or voting rights, even if it is of less than 25%, may raise
competition concerns if the acquirer and the target are either engaged in business
of substitutable products/services or are engaged in activities at different stages or
levels of the production chain. Based on the observations of the CCI, the following
key points emerge:

In the above diagram, the Acquirer is engaged in manaufacture of electronic goods.
Target 1 is also involved in manufacture of electronic goods and Target 2 is inolved
in the distribution of electronic goods. In such a case, an investment by the Acquirer
in either Target 1 of Target 2, even if non-controlling and less than 25%, would
necessitate an approval of the CCI. Such acquisitions will not be considered by the
CCI as an acquisition made solely as aninvestment or in the ordinary course of
business, and thus would require a merger filing. (24)
In a recent amdnement on 7 January 2016, the CCI amended this regulation to add a
proviso to explain what is considered as an acqusition solely as an investment. The
CCI has clarified that acquisition of less than ten per cent of the total shares or
voting rights of an enterprise shall be treated as solely as an investment provided
(i) the investor has ability to exercise only such rights that are exercisable by the
ordinary shareholders of the investee company; and (ii) the investor (through its
nominees) is not a member of the board of directors of the investee company and
P 257 (iii) the investor does not intend to participate in the affairs or management of
the enterprise whose shares or voting rights are being acquired. It is necessary to
note that private equity investors investing in companies in India will have their
nominee on the board and will participate in the affairs of the investee company,
even if their shareholding is less than 10%. Therefore, such investments will not be
regarded as acquisition made solely as an investment and thus, will require
notification.
155
(2) Schedule I Item 1A: An acquisition of additional shares or voting rights of an
enterprise by the acquirer or its group where the acquirer or its group, prior to
acquisition, already holds twenty five per cent (25%) or more shares or voting rights of
the enterprise, but does not hold fifty per cent (50%) or more of the shares or voting
rights of the enterprise, either prior to or after such acquisition:
Provided that such acquisition does not result in acquisition of sole or joint control of
such enterprise by the acquirer or its group.
The CCI amended this exemption in January 2016. Prior to the exemption, the
exemption allowed for a creeping acquisition of 5% every financial year by the
acquirer or its group in an enterprise wherein the acquirer or its group already
holds 25% or more share or voting rights in the target enterprise, but less than 50%.
This exemption was linked to the concept ‘creeping acquisition’ provisions of the
Securities and Exchange Board of India (Substantial Acquisition of Shares and
Takeovers) Regulations, 2011. However, there were many technical filings which were
made where investors were increasing their shareholding from 26% to 49% post the
relaxation of the foreign direct investment regime in India. Such transactions
required the approval of the CCI even though there was no change in control. Post
this amendment, an investor who holds between 25% and 50% of the equity share
capital or voting rights of the target enterprise would be allowed to increase the
shareholding below 50% without an approval of the CCI provided such acquisition
does not result in acquisition of sole or joint control.
(3) Schedule I Item 2: An acquisition of shares or voting rights, referred to in sub-clause
(i) or sub-clause (ii) of clause (a) of section 5 of the Act, where the acquirer, prior to
acquisition, has fifty percent(50%) or more shares or voting rights in the enterprise
whose shares or voting rights are being acquired, except in the cases where the
transaction results in transfer from joint control to sole control.
The exemption is applicable to further acquisitions in the target enterprise where
the acquirer already has more than 50% in the said target enterprise. It is to be
noted that on a technical reading of the exemption, the acquirer has to hold more
than 50% in the target enterprise for the exemption to be applicable and not
acquirer with its group. Further, the exemption will not be applicable when such
further acquisition results in transfer from joint control to sole control. We have
discussed on the concept of joint and sole control in the earlier parts of the chapter.
P 258
A diagrammatic representation of the exemption is as follows:
Shareholder A holds 60% of equity shareholding in the Target company and

Shareholder B holds 40% equity shareholding in the Target company. By way of SPA,
Shareholder B will transfer its 40% shareholding in Target company to Shareholder
A. Such SPA will not avail of the exemption because the transaction will result in
transfer from joint control of Shareholder A and B in the Target company to sole
control of Shareholder A. The CCI dealt with this exemption in the MSM case
(discussed above while discussing on control), discussed above, where the largest
shareholder (holding approximately 67% of the shareholding) purchased the shares
from the other existing shareholders. The existing shareholders held approximately
33% of the target enterprise which was purchased by the largest shareholders. The
CCI held that the transaction resulted from joint control to sole control, and hence
the exemption was not available.
(4) Schedule I Item 3: An acquisition of assets, referred to in sub- clause (i) or sub-clause
(ii) of clause (a) of section 5 of the Act, not directly related to the business activity of
the party acquiring the asset or made solely as an investment or in the ordinary
course of business, not leading to control of the enterprise whose assets are being
acquired except where the assets being acquired represent substantial business
operations in a particular location or for a particular product or service of the
enterprise, of which assets are being acquired, irrespective of whether such assets are
organized as a separate legal entity or not.
The exemption is only available in cases of acquisition of assets solely as an
investment or in the ordinary course of business. Based on the interpretation
adopted by the CCI for exemption outline in point (1) above, the exemption will not
be applicable for strategic investments and where such acquisition leads to
acquisition of control.
156
The scope of this exemption was discussed by the CCI in the Jet Etihad order. (25)
Etihad and Jet Airways had entered into an agreement regarding sale of three
landing/take-off slots of Jet Airways at London Heathrow Airport to Etihad; and
P 259 lease of the same slots back to Jet Airways (‘LHR Transaction’). Etihad did not file
a merger notification for the LHR transaction contending that the LHR Transaction
was an exempted transaction under Item 3 of Schedule I to the Combination
Regulations. It was contended by Etihad that LHR Transaction was pursued in the
ordinary course of business. Further, it was also contended by Etihad that the three
slots acquired did not represent Jet’s substantial business operations in/from
London on account of the fact that slots merely represent the landing rights enjoyed
by Jet at LHR Airport whereas, Jet’s actual revenue and business operations
comprised of ticket sales from its flight to / from London. It was argued that the
book value (depreciated) of the three pairs of slots was only a fraction of Jet’s
worldwide assets.
However, the CCI did not agree with the contention of Etihad. CCI noted the
following with respect to applicability of the asset exemption:
As regards the applicability of Item 3 of Schedule I to the Combination
Regulations, it is observed that the sale/purchase of landing/take-off
slots may generally be treated as a transaction in the ordinary course of
business. However, in the instant case, the slots sale were coupled with
another agreement to lease back the same slots to the seller; and
followed by acquisition of equity stake in Jet by Etihad and a wide-
ranging commercial co-operation agreement between the Parties.
It is further observed that exception to Item 3 to Schedule I categorically
provides that acquisition of assets that represent the substantial
business operations of the target enterprise, in a particular location or
for a particular product or service, are not covered within the scope of
Item 3. In the instant case, Jet has been offering its service between India
and London through the use of the three (3) landing/take-off slots at LHR
Airport. Further, Jet neither owned any other slots nor offered services
to/from any other airport in London.
Therefore, the three (3) landing/take-off slots at LHR Airport formed the
basis of Jet’s entire business operation between India and London.
Etihad’s contention that the value of the slots sold was a fraction of Jet’s
worldwide asset is also not tenable as the relevant yardstick for
comparison is Jet’s business operations between India and London.
Considering that Jet had no other take-off/landing slots at London, the 3
slots formed the basis for Jet’s entire services between India and London;
and absent these slots, Jet would have no business operation nor would
have earned any revenue in the said sector. Therefore, it is considered
that the subject matter of acquisition effectively represented the entire
operations of Jet between India and London.
For the same reason, the submission of Etihad regarding exemption
under Item 3 of Schedule I to the Combination Regulations is not
tenable.
(5) Schedule I Item 4: An amended or renewed tender offer where a notice to the
Commission has been filed by the party making the offer, prior to such amendment
or renewal of the offer: Provided that the compliance with Regulation 16 relating to
intimation of any change is duly made.
(6) Schedule I Item 5: An acquisition of stock-in-trade, raw materials, stores and spares,
trade receivables and other similar current assets in the ordinary course of business.
P 260
(7) Schedule I Item 6: An acquisition of shares or voting rights pursuant to a bonus issue
or stock splits or consolidation of face value of shares or buy back of shares or
subscription to rights issue of shares, not leading to acquisition of control.
(8) Schedule I Item 7: Any acquisition of shares or voting rights by a person acting as a
securities underwriter or a registered stock broker of a stock exchange on behalf of its
clients, in the ordinary course of its business and in the process of underwriting or
stock broking, as the case may be.
(9) Schedule I Item 8: An acquisition of shares or voting rights or assets, by one person or
enterprise, of another person or enterprise within the same group, except in cases
where the acquired enterprise is jointly controlled by enterprises that are not part of
the same group.
The exemption provides for intra-group acquisition. As such, the intra-group
acquisition exemption is not an absolute exemption under the Combination
Regulations. The diagrammatic representation of the exemption is as follows:
157
The Acquirer holds 75% shareholding in Shareholder A. Further Shareholder A holds
70% in the Acquired Enterprise. Therefore, the Acquirer, Shareholder A and the
Acquired enterprise are a part of the same group.
Shareholder B holds 30% in the Acquired enterprise and hence exercise control
over the Acquired enterprise. Therefore, the Acquired Enterprise falls in two groups:
the group to which Shareholder A belongs and group of Shareholder B. As a part of
the transaction, Shareholder A wants to transfer its 70% shareholding to the
Acquirer. While such a transaction would be an intra-group transaction, it will not
be able to claim an intra-group exemption since the acquired enterprise is jointly
held by companies falling in two different groups. Based on the same, such a
transaction would require an approval of the CCI. As mentioned above, it will be a
mere technical filing since such transactions generally will not cause any
appreciable adverse effect on competition.
P 261
(10) Schedule I Item 9: A merger or amalgamation of two enterprises where one of the
enterprises has more than fifty per cent (50%) shares or voting rights of the other
enterprise, and/or merger or amalgamation of enterprises in which more than fifty per
cent (50%) shares or voting rights in each of such enterprises are held by enterprise(s)
within the same group.
Provided that the transaction does not result in transfer from joint control to sole
control.
The exemption provides for intra-group merger exemption. As such, like the intra-
group acquisition exemption, the intra-group merger exemption is not an absolute
exemption under the Combination Regulations. The diagrammatic representation of
the exemption is as follows:
In the above diagrammatic representation, Hold Co holds 60% in Company A and

Company B. Based on the same, Hold Co, Company A and Company B fall within the
same group. Shareholder A also holds 40% in Company B, thus Company B is a part
of two groups. Company A and Company B enters into a scheme of arrangement
under the Companies Act for merger. This merger, although within the same group,
will not avail of the exemption because it is a case of transfer of joint to sole
control.
(11) Schedule 1, Item 10: Acquisition of shares, control, voting rights or assets by a
purchaser approved by the Commission pursuant to and in accordance with its
order under section 31 of the Act
This is a recent exception which has been added. This exemption covers situations
wherein the CCI has imposed a structural commitment on the parties to the
combination to divest some assets. Upon some divesture, a third party acquires
such assets. Earlier, even acquisition of assets by a third party, pursuant to an order
of divesture by the CCI, would have required fresh application for approval to be
filed before the CCI. Since this exemption was not available, the third-party buyer,
as an abundant caution, used to file a merger notification. Now, the CCI has plugged
158
this loophole and added this exemption.
P 262
§4.13 TREATMENT OF OFFSHORE COMBINATION

There was an erstwhile exemption (which has hitherto been deleted) on offshore
combination. Earlier the un-amended Combinations Regulation envisaged that
Combinations taking place outside India with insignificant local nexus and effect on
markets in India would be exempted from the merger control application regime
(Offshore exemption). However, the 2014 amendment has done away with this category of
exemption. Hence, offshore combinations are directly amenable to jurisdiction of the CCI
as long as the threshold limit is met.
The CCI has the power to review global transactions by virtue of section 32 of the
Competition Act, which states that the CCI ‘shall, notwithstanding that a combination has
taken place outside India or any party to combination is outside India have power to inquire
into such combination if such combination has, or is likely to have, an appreciable adverse
effect on competition in the relevant market in India’.
While section 32 gives the power to review global transaction due to the well-conceived
theory of effects doctrine under the public international law, the decisional practice of
the CCI shows that it is assuming jurisdiction over purely global transactions which do not
have any adverse effect on competition in India.
The scope of the Offshore Exemption was tested in the case of Tata Chemicals
Limited/Wyoming I, (26) where the CCI was notified of the proposed merger of Wyoming I,
which was an offshore wholly owned subsidiary (incorporated in Mauritius) of Tata
Chemicals Limited, into its holding company, located in India. The parties claimed, inter
alia, that the Offshore Exemption was applicable in this instance, given that the
transaction was an ‘entirely outbound stream of acquisition’ by the holding company.
However, the CCI did not agree and observed that since the parties exceeded the
jurisdictional thresholds in India and one of the parties to the merger was located in
India, the Offshore Exemption was unavailable. This interpretation was further widened
with the CCI holding in Tetra Laval/Alfa Laval, (27) that if the target enterprise has any
direct or indirect presence in India through its subsidiaries, in excess of the jurisdictional
thresholds, there is significant local nexus in India and the transaction is notifiable.
It is by virtue of this expanded interpretation that combinations get captured under the
radar of CCI by involving Indian subsidiaries even if they remain in unrelated businesses,
not forming the subject matter of the acquisition. (28) An illustration of the same of this is
the acquisition by Nestle of Pfizer’s global nutrition business, which did not have any
presence or business operations in India, but was notified to the CCI on account of the
fact that Pfizer has other subsidiaries in India, which are engaged in completely
unrelated business activities, i.e., the pharmaceutical and animal healthcare sector.
P 263 For sake of illustration, let us take an example of a purely overseas transaction.
In the structure above, the Acquirer wishes to acquire 25% in the Target, which has a
subsidiary in India. Further, the subsidiary of Target is in different business operations
that that of Target and the Acquirer has no business operations in India. In such a
situation, the transaction is purely offshore with no effect on market in India. Even in such
a case, the transaction will be a notifiable transaction if the subsidiary exceeds the
jurisdictional thresholds mentioned under the MCA Circular and the transaction crosses
the threshold limits mentioned under section 5 of the Competition Act.
The enforcement regime of CCI with respect to offshore combinations has also
159
strengthened by virtue of imposition of penalties in case of belated filings. For instance,
in Titan International/Titan Europe, (29) Titan International, Inc. based in the USA, was
acquiring the entire share capital of Titan Europe PLC, based in the United Kingdom. In
its process, Titan International indirectly had to acquire Titan Europe’s shareholding of
35.91% equity interest in Wheels India Limited (not a subsidiary of Titan Europe but an
associate company of Titan Europe). Though the transaction took place entirely offshore,
it only indirectly affected the Indian entity (i.e., on the strength of shares held by the
target in an Indian entity) and this shareholding did not even provide the target, control
over the Indian entity (Wheels India). Yet, CCI considered this shareholding to give the
target a local presence in India and since Wheels India exceeded the prescribed assets
and turnover thresholds, the CCI held that a merger notification ought to have been filed
to obtain the regulatory clearance from it within the prescribed time-limit under section
6(2) of the Competition Act. Since the application (voluntarily made by parties) was made
after the thirty-day time-limit, a penalty was imposed by the CCI.
P 264
Similarly, Temasek/DBS Group Holdings (30) related to the acquisition of shares by a
wholly owned subsidiary of Temasek, the Singapore Government’s investment arm, in DBS
Group Holdings Limited (located in Singapore), in consideration for the sale by Temasek’s
subsidiary in Bank Danamon, an Indonesian bank. Given that the definitive document for
the sale of the shares in the Indonesian bank was executed on 2 April 2012, CCI was
required to be notified by May 2012. Pending the review, the parties decided to
ultimately abandon the transaction and withdrew the merger notification. Yet, CCI
imposed a penalty on Temasek for having violated the requirement to notify the CCI in
the first place, regardless of the ultimate result of the transaction.
These cases imply that parties prior to an execution of a purely offshore transaction must
check whether any of the group companies of the parties have a presence in India, either
by way of subsidiary or joint venture and whether such transaction meets the economic
thresholds mentioned. If yes, an offshore combination has to adhere to the thirty-day
timeline for notification even in cases where such combination only indirectly involves an
Indian entity. It would be a case of mere technical filing, which will be cleared by the CCI.
Failure to do such a technical filing would attract penalty under section 43 A of the
Competition Act. Although, the said stance of the CCI may be challenged in higher forums
for legislative clarity on this matter, it is still preferable from a timeline perspective to
be cautious. The CCI, in its decisional practice, has held that thirty-day period is a
regulatory requirement and the parties will have to abide by the same. Non-compliance
exposes parties to fine under section 43 A of the Competition Act, even if the combination
in question has been cleared by the CCI.
Now, that the Offshore Exemption has been deleted from the Combination Regulations
(which in any event was not given accord to by the CCI in its decisional practice),
numerous offshore transactions are notified to the CCI which are purely technical filing.
§4.14 PROCEDURE FOR INVESTIGATION OF A COMBINATION

[A] Phase I
Prima facie opinion – The scheme of the Competition Act and the Combination
Regulations provides that the will form a prima facie view on whether the proposed
combination is likely to cause any appreciable adverse effect on competition in India.
Regulation 19 of the Combination Regulations provides the prima facie opinion will be
formed by the CCI within thirty days of the receipt of the merger notification. In the event
that the CCI forms a prima facie view that the combination would not cause an
appreciable adverse effect on competition in the relevant market in India, CCI approves
the combination, under section 31 of the Competition Act, in Phase I itself. The said
period of thirty days of forming a prima facie opinion does not include clock stops. It
P 265 must be noted that even in Phase 1, Regulation 19 empowers the CCI to call for
information from any third party to inquire the combination has caused or likely to cause
any appreciable adverse effect on competition in India. As such, the CCI has used
Regulation 19(3) of the Combination Regulations to call for information from Air India,
while approving the Jet Etihad deal.
Regulation 19(2) of the Combination Regulations provides that the CCI may ask the parties
to the combination to accept modifications for forming its prima facie order. The CCI has
previously sought for behavioural commitments in form of commitments in its
combination decisions in Phase I itself where it asked the parties to review its existing
contracts to ensure that they are in compliance with the provisions of the Competition
Act and the parties continue to abide by the provisions of the sectoral regulator.
In this regard, it is apposite to note that the CCI has recently added a procedural
formality on the parties to the combination, during the course of filing which has far
reaching implications. In July 2015, the CCI amended the filing requirements prescribed
under the Combinations Regulations with the aim to make the filing simpler and readily
acceptable to various stakeholders, thereby aligning its practice with other matured
anti-trust jurisdictions. A noteworthy aspect of the amendment is the insertion of a
160
transparency element in case of merger filing procedure. The amendment provides that
the parties to the combination will submit a 500-page summary of the combination
(which will contain the details of the combination, parties and the relevant market) to
the CCI and the said summary will be hosted on the website of the CCI. This disclosure
would help any stakeholder in the market to provide their comments on the combination
to the CCI. The amendment is, thus, a step forward to the existing regime for inviting
third-party intervention in case of combination. Prior to this amendment, and as
discussed above, Regulation 19(3) of the Combination Regulation provided for
discretionary powers to the CCI (as it deemed necessary) to call for information from
third parties in its inquiry whether the combination has caused or is likely to cause an
appreciable effect on competition in India. Similarly, CCI could seek opinion of any other
agency or statutory authority in relation to combination pursuant to Regulation 34 of the
Combination Regulation. Under its own statutory power to regulate its procedure (section
36 of the Competition Act), the CCI holds the power to invite experts or direct persons in
respect to the trade in question and gather information. In fact these provisions had
been applied in merger cases. Illustratively, in the recent merger between Denki Kagaku
Kogyo Kabushiki Kaisha and Mitsui & Co. Ltd. (2015), CCI sought the opinion of Rubber
Board, Ministry of Commerce and Industry as well as certain users of chloroprene rubber
in India.
In this light, the recent amendment has twin implications. It goes a step beyond the
existing regime as it now provides an opportunity to any stakeholder or interested party
to intervene in merger application under the investigation of CCI. The focus of
intervention shifts from the CCI using its discretion to parties now intervening on their
own accord. Similarly, earlier the competitors on their own could only make submissions
during Phase II of the investigation or when they were asked by the CCI to provide their
comments on a combination under Regulation 19(3) of the Combination Regulations. Now,
P 266 any stakeholder can provide comments in order to assist the CCI in making its
determination of merger and the same can be exercised at any stage, i.e., a prima facie
stage or a later stage of merger investigation.
A timeline for a Phase I investigation, with the relevant provisions under the Competition
Act and the Combination Regulations, is as follows
Days Procedure
0-30 (thirty days) Parties to notify before the Competition
Commission of India from the date of
trigger of merger/acquisition
Section 6(2) of the Competition Act provides:
Subject to the provisions contained in sub-section (1), any person or enterprise, who or
which proposes to enter into a combination, 13 [shall] give notice to the Commission, in
the form as may be specified, and the fee which may be determined, by regulations,
disclosing the details of the proposed combination, within 14 [thirty days] of—
(a) approval of the proposal relating to merger or amalgamation, referred to in clause (c)
of section 5, by the board of directors of the enterprises concerned with such merger or
amalgamation, as the case may be;
(b) execution of any agreement or other document for acquisition referred to in clause (a)
of section 5 or acquiring of control referred to in clause (b) of that section
X-30 (thirty working days) From the date of receipt of notice,

Competition Commission of India has to
form a prima facie opinion, whether the
combination causes or is likely to cause an
appreciable adverse effect on competition
in India.
Section 29(1) of the Competition Act reads as:-
Where the Commission is of the prima facie opinion that a combination is likely to cause,
or has caused an appreciable adverse effect on competition within the relevant market in
India, it shall issue a notice to show cause to the parties to combination calling upon
them to respond within thirty days of the receipt of the notice, as to why investigation in
respect of such combination should not be conducted.
161
Days Procedure
X-30 (thirty days) During the continuation of X-30 days’
period, the Competition Commission, at
any stage may require parties to file
additional information or accept
modification, if offered by the parties.
The time taken by parties to furnish
information is considered as ‘the clock
stops period’ as this period is excluded
from the X-30 days’ (thirty days) period.
P 267
Regulation 19 of the Combination Regulations
Prima facie opinion on the combination
(1) The Commission shall form its prima facie opinion under sub-section (1) of section 29 of
the Act, on the notice filed in Form I or Form II, as the case may be, as to whether the
combination is likely to cause or has caused an appreciable adverse effect on competition
within the relevant market in India, within thirty days of receipt of the said notice.
(2) For the purpose of forming its prima facie opinion under sub-section (1) of section 29 of
the Act, the Commission may, if considered necessary, require the parties to the
combination to file additional information or accept modification, if offered by the parties
to the combination before the Commission has formed prima facie opinion under sub
regulation (1), as deemed fit by it:
Provided that the time taken by the parties to the combination, in furnishing the
additional information or for offering modification shall be excluded from the period
provided in sub-regulation (1) of this regulation and sub-section (11) of section 31 of the
Act.
***
(3) Where the Commission deems it necessary, it may call for information from any other
enterprise while inquiring as to whether a combination has caused or is likely to cause an
appreciable adverse effect on competition in India.
Fifteen days In case modification is offered by the

parties to the combination, fifteen days
are given to the parties to accept them or
not. Again, this period is considered as ‘the
clock stops period’ as this period is
excluded from the X-30 days (thirty days)
period
Second proviso to Regulation 19
Provided further that in such a case where the modification is offered by the parties to the
combination before the Commission has formed the prima facie opinion under sub-
regulation (1), the additional time, not exceeding fifteen days, needed for evaluation of the
offered modification, shall be excluded from the period provided in sub-regulation (1) of
this regulation and sub-section (11) of section 31 of the Act.
[B] Phase 2
In the event that the CCI forms a prima facie opinion that the combination will cause an
appreciable adverse effect on competition in the relevant market in India, it can issue a
show cause notice to the parties to the combination to respond, within thirty days, as to
why a detailed investigation (Phase II investigation) should not be commenced against
them with respect to the combination. On a response from the parties to the
combination, the CCI may call for a report from the Director General to investigate the
proposed combination. Thereafter, if the CCI is of the opinion that the proposed
combination causes or is likely to cause an appreciable adverse effect on competition in
P 268 India, it will direct the parties to the combination to publish details of the proposed
combination (Schedule II – Form IV of the Combination Regulations). This aims at bringing
to the knowledge of or information to the public and persons affected or likely to be
affected by such combination and may invite such public or person to file objections, if
any. Thereafter, written objection to the combination, if invited by the CCI, will have to be
provided within fifteen days from the date of publication of details of the combination
by the parties to the combination.
A timeline for a Phase II investigation, with the relevant provisions under the Competition
Act and the Combination Regulations, is as follows:
Days Procedure
Y Issuance of show cause notice
162
Days Procedure
Section 29(1) of the Competition Act
Where the Commission is of the prima facie opinion that a combination is likely to cause,
or has caused an appreciable adverse effect on competition within the relevant market in
India, it shall issue a notice to show cause to the parties to combination calling upon
them to respond within thirty days of the receipt of the notice, as to why investigation in
respect of such combination should not be conducted.
No timeline specified From the date of receipt of response from

the parties, Competition Commission of
India may direct the Director General to
investigate and formulate a report
Section 29(1A) of the Competition Act
After receipt of the response of the parties to the combination under sub-section (1), the
Commission may call for a report from the Director General and such report shall be
submitted by the Director General within such time as the Commission may direct
Y+ 7 days From date of receipt of response from the

parties or the report prepared by the
Director General, whichever is later,
Competition Commission of India directs
parties to publish details of combination
Y+17 Parties to furnish such details and the
same is brought to public knowledge
The Commission, if it is prima facie of the opinion that the combination has, or is likely to
have, an appreciable adverse effect on competition, it shall, within seven working days
from the date of receipt of the response of the parties to the combination, [or the receipt
of the report from Director General called under sub-section (1A), whichever is later direct
the parties to the said combination to publish details of the combination within ten
working days of such direction, in such manner, as it thinks appropriate, for bringing the
combination to the knowledge or information of the public and persons affected or likely
to be affected by such combination
P 269
Y + 32 From the date on which the details of
combination are published, the
Competition Commission of India invites
third parties to file objections to
combination if any
The Commission may invite any person or member of the public, affected or likely to be
affected by the said combination, to file his written objections, if any, before the
Commission within fifteen working days from the date on which the details of the
combination were published under sub-section (2)
Y+47 From the expiry of the period in Section

29(3), the Competition Commission of India
may ask the parties to furnish additional
documents regarding combination.
The Commission may, within fifteen working days from the expiry of the period specified in
sub-section (3), call for such additional or other information as it may deem fit from the
parties to the said combination.
Y+ 62 Parties to submit the additional

documents as required by the Competition
Commission of India
The additional or other information called for by the Commission shall be furnished by
the parties referred to in sub-section (4) within fifteen days from the expiry of the
period specified in sub-section (4)
Y + 107 From the date of receipt of all information

by the Competition Commission of India, it
will assess all documents on record and
proceed to deal with the case.
163
Days Procedure
After receipt of all information and within a period of forty-five working days from the
expiry of the period specified in sub-section (5), the Commission shall proceed to deal with
the case in accordance with the provisions contained in section 31.
§4.15 SUBSTANTIVE ANALYSIS OF COMBINATIONS

Section 6(1) of the Competition Act provides that ‘No person or enterprise shall enter into a
combination which causes or is likely to cause an appreciable adverse effect on competition
within the relevant market in India and such a combination shall be void.’
Section 20(4) of the Competition Act provides for the factors which the CCI will take into
account while analysing whether the combination would have the effect or is likely to
cause an appreciable adverse effect on competition in the relevant market. We have
discussed the concept of relevant market in the first chapter.
P 270
For the purposes of determining whether a combination would have the effect
of or is likely to have an appreciable adverse effect on competition in the
relevant market, the Commission shall have due regard to all or any of the
following factors, namely:—
(a) actual and potential level of competition through imports in the market
(b) extent of barriers to entry into the market;
(c) level of combination in the market;
(d) degree of countervailing power in the market;
(e) likelihood that the combination would result in the parties to the
combination being able to significantly and sustainably increase prices
or profit margins;
(f) extent of effective competition likely to sustain in a market;
(g) extent to which substitutes are available or arc likely to be available in
the market;
(h) market share, in the relevant market, of the persons or enterprise in a
combination, individually and as a combination;
(i) likelihood that the combination would result in the removal of a vigorous
and effective competitor or competitors in the market;
(j) nature and extent of vertical integration in the market;
(k) possibility of a failing business;
(l) nature and extent of innovation;
(m) relative advantage, by way of the contribution to the economic
development, by any combination having or likely to have
(n) whether the benefits of the combination outweigh the adverse impact of
the combination, if any.
The aspect of merger control analysis was done in great detail in the High Level
Committee on Competition Law in 2000 which stated that horizontal merger will have to
be scrutinized more than a vertical or a conglomerate merger. The relevant portions of
the High Level Committee Report on the approach to be adopted for merger control
analysis and the key issues to be considered as follows:
As in the case of agreements, mergers are typically classified into horizontal
and vertical mergers. In addition, merger between enterprises operating in
different markets are called conglomerate mergers. Mergers are a legitimate
means by which firms can grow and are generally as much part of the natural
process of industrial evolution and restructuring as new entry, growth and exit.
From the point of view of Competition Policy it is horizontal mergers that are
generally the focus of attention. As in the case of horizontal agreements, such
mergers have a potential for reducing competition. In rare cases, where an
enterprise in a dominant position makes a vertical merger with another firm in
a (vertically) adjacent market to further entrench its position of dominance,
the merger may provide cause for concern. Conglomerate mergers should
generally be beyond the purview of any law on mergers.
A merger leads to a ‘bad’ outcome only if it creates a dominant enterprise that
subsequently abuses its dominance. To some extent the issue is analogous to
that of agreements among enterprises and also overlaps with the issue of
dominance and its abuse discussed in the previous sections. Viewed in this
way, there is probably no need to have a separate law on mergers. The reason
164
P 271 that such a provision exists in most laws is to pre-empt the potential abuse of
dominance where it is probable, as subsequent unbundling can be both
difficult and socially costly.
Thus, the general principle, in keeping with the overall goal, is that merger
should be challenged only if they reduce or harm competition and adversely
affect welfare.
Horizontal Mergers
The following issues need to be considered, while assessing the permissibility
of horizontal merger.
First, as in the case of horizontal agreements, it must first be established as to
what the relevant market is. This requires a focus on the demand side to
establish whether the products are close enough substitutes or not. On the
supply side, it is important to identify the market shares of the firms. Clearly,
it is not enough to go on current market shares. It is important to assess how
the relevant market is likely to evolve in the near future. This would depend
on whether entry is easy and whether there are potential entrants that could
easily enter, if profitability in the sector increases, how foreign competition is
likely to evolve and the growth (or decline) of other incumbent firms.
The second important step is to establish whether the higher concentration in
the market resulting from the merger will increase the possibility of collusive
or unilaterally harmful behaviour. Collusion is more likely in industries
producing relatively homogeneous products and characterised by small and
frequent transactions, the terms of which cannot be kept secret. The merger is
likely to be unilaterally harmful when the two merging firms produce similar
products in a concentrated differentiated product market.
The third issue is regarding potential contestability. Even if no potential
entrants are immediately visible, a large enough price increase (or high
enough profitability) could encourage entry. So, it needs to be established,
how high the expected price increase is likely to be. Following this, it is
important to consider, whether entry is really likely, how quick it will be and
whether it will be sufficient enough to make up for the reduced competition
resulting from the merger.
Fourth, the case can be made that even mergers that lead to an uncompetitive
outcome could result in certain ‘efficiencies’ that more than make up for the
welfare loss resulting from this. The Russian law has such a provision. The US
law has generally been balanced in favour of competition. However, the
‘failing firm’ defence has, at times, been accepted by courts. If a firm is,
indeed failing and likely to go out of business, it is not clear what social
welfare loss would occur, if this firm’s assets were taken over by another firm.
Vertical Mergers
Competition Law must not normally have any objections to vertical. Vertical
mergers are measures for improving production and, distribution efficiencies.
The process internalises the benefits of supply chain management and, as
such cannot be perceived as injuries to competition. Vertical mergers can be
treated, as a process by which there is a transmission of a good or a service
across departments such that the commodity can be sold in the market
without much adaptation. This implies that firms choose to bypass market
transaction in favour of internal control.
For the purposes of competition law, integration ought to imply only that
administrative direction rather than a market transaction forms the basis of
the cooperation between two or more individuals engaged in productive or
distributive activity. The firm chooses, on the basis of relative costs, whether
to perform the activity by itself, subcontract it to others, or to sell a finished or
semi-finished product to other firms who in turn sell it to the market with or
without further processing, as the case may be. The law should understand
P 272 that the definition of a firm should imply that the entity constitutes the
area of operations within which administration rather than market process
coordinates work.
The prevailing wisdom has obfuscated the distinction between a market
transaction with administrative direction, and replaced the latter with the
former. It would be naive for the law to suppose that vertical mergers create
less efficiency rather than internal growth. The only difference is a question of
historicity. Vertical growth is usually the result of efficiencies that have been
present within the firm in the past. Vertical mergers on the other hand, are the
result of as yet unrealised efficiencies, which the firm attempts to attain
through structural change.
There could, however, be some specific objections to vertical integration, for
example.
165
Fear of Foreclosure
It is supposed that, through vertical integration, a firm can create captive
distribution channels. This will foreclose the rival firms from the market,
represented by the captive distribution network. This may be a problem, if it
threatens competition in general.
Entry Blocking
Monopolies can have the ability to prevent the entry of firms into the market.
Sometime it is claimed that even competitors can come together to prevent a
potential entrant. This is sometimes referred to as collective foreclosure. If
through integration, firms are able to internalise different levels of
production, artificial barriers to entry could be created. This implies that
because of the size of the incumbent, a potential entrant’s capital
requirements will be high.
Price Squeezes
Vertical mergers and integration internalise the process of production and
enable a firm to perhaps reduce costs. This will result in reduction in output
prices, which is usually interpreted as a price squeeze. The law should
question only those monopolies resulting from vertical mergers (integration)
that lead to output restriction rather than preventing vertical integration.
Conglomerate Mergers
A conglomerate merger is a merger that is neither horizontal nor vertical. For
example, a merger between a car manufacturer and a textile firm is a
conglomerate merger. The theories for ‘restraining’ vertical and horizontal
mergers are well formulated. There however is no clear mechanism for similar
restraints on conglomerate mergers except those that are based on folklore.
There is sufficient evidence to suggest that conglomerate mergers do not pose
any threat to competition. Conglomerate mergers are objected to on several
grounds.
Some of the objections to conglomerate mergers are,
a. They create deep pockets which enables that firm to devastate the
rivals.
b. Lower costs below the marginal cost of the industry.
c. Raise barriers to entry.
d. Engage in reciprocal dealing to the disadvantage of the rivals.
e. Eliminate potential competition.
We examine some of these objections.
The theory of deep pockets
It is believed that firms operating in many markets can devastate their
rivals through their potentially infinite capital resources. This suggests
that conglomerates can engage in predatory pricing. However, law
cannot presume that possession of capital can lead to harmful pricing
practices even though predatory pricing is a discredited theory. An
objection based on the fact of possession of capital cannot be construed
as a serious objection.
Raising barriers to entry
P 273
Conglomerate mergers help in pooling the capital resources. It is
believed that conglomerate mergers can lead to the erection of entry
barriers. If a firm that had for example, a limited promotional budget
might now make use of the other firm’s promotional expertise. However,
if competition is equated with consumer welfare then, one should really
ask why is it not a valuable efficiency to bring capital to a firm that can
use it? Why is it not good for the consumers, if the single product firm
shared on the cost savings in advertising and promotion that normally
accrue to a multi-product firm?
Loss of potential competition
Two arguments are proposed to support this position. First, it is believed
that because of the merger, there is less ‘space’ for new firms. Second, if
instead of the merger the larger firm had tried to enter a market on its
own, the threat of entry would have forced the existing firms to become
more competitive and efficient.
Similar to the matured antitrust jurisprudence, the Competition Act provides for the
entire list of factors which the CCI can take into account while analysing combination. In
this section, we will deal with only those factors which have been used by the CCI to
analyse a combination till now.
166
[A] Combined Market Share
Market share typically is the most important factor to assess whether the combination
will cause or is likely to cause an appreciable adverse effect on competition in the
relevant market. Market share can be calculated both in terms of value sales and volume
sales. The CCI looks at the combined market share of the parties post the combination
and in the event the market share post the combination are insignificant, the CCI has
cleared the transaction in Phase I itself. (31)
Further, the CCI also looks at the presence of competitors which will exist in the market
which will pose a competitive constraint on the combining parties, post the combination.
The CCI takes into account whether the market is fragmented and whether there are many
players in the relevant market which will continue to pose effective competitive
constraint on the parties to the combination. (32) It must be noted that the CCI looks at
the increment/change in the market share as a result of the combination, while analysing
a combination. The CCI does not intervene in cases where the increment in market share
is negligible/marginal, even if the combined market share of the parties is more than
P 274 50%. (33) The rationale for the same is that competition law concerns, if any, was pre-
existing the combination and it is not created as a result of the combination.
[B] Presence of Overlaps

While analysing a combination, the CCI also looks at pre-existing horizontal and vertical
overlaps of the parties to the combination while analysing a combination. For analysing
overlaps, the CCI has analysed whether the parties to the combination operate in
different geographic areas in the relevant geographic market. (34)
The CCI has also engaged in price point analysis to see the manner in which the parties to
the combination have priced their products in the relevant market to see whether parties
operate at different price points to analyse overlaps. (35) It is apposite in this regard to
observe the price point analysis adopted by the CCI in the merger approval order of
acquisition of shares of United Spirits Limited by Relay, a subsidiary of Diageo. The
Competition Commission undertook various price point analysis of various segments of
beverages in the whisky segment, vodka segment, rum and gin segment. The relevant
observations of the Competition Commission is herein below:
Whisky Segment:
It is observed that in the Indian branded spirits, Whisky, which alone accounts
for 60 per cent of the total sales volume, constitutes the largest segment.
Whisky can further be segmented into IMFL Whisky, Scotch Whisky and
Imported Whisky. As per the data provided in the notice and in the IWSR
Report, the total whisky sales in India, in the year 2011, were around 149
million 9-litre cases, of which IMFL Whisky sales were around 147 million 9-litre
cases, constituting a large chunk of around 98.54 per cent of the total Whisky
segment. It is also observed that all the IMFL Whisky brands are priced below
INR 800 and that none of Diageo’s Whisky brands are significantly present
below this price point, thereby indicating no significant market concentration
in the IMFL Whisky segment, post-combination. The Scotch Whisky and the
Imported Whisky segments, which together constitute less than 2 per cent of
the overall Whisky segment and around 1 per cent of the branded spirits
segment in India, are characterized by the presence of a large number of
brands positioned across various premium and luxury price points starting
from INR 800 and going up to INR 10000 and even further. It is observed that
the consumers of these brands (in the Scotch Whisky and Imported Whisky
segments) may generally have a higher degree of brand affinity, which can be
witnessed from the relatively high sales volume of brands like Pernod Ricard’s
Royal Salute, Chivas Regal 18/12Year Old, Ballantine’s Finest, 100 Pipers, Beam
Global’s Teacher’s 50, Teacher’s Original; WM Grant’s Glenfiddich, Grant’s
Family Reserve, Diageo’s Johnnie Walker Blue/Red/Black, USL’s Black Dog, etc.
This segment of Scotch and Imported Whisky has the presence of many other
brands of Scotch and Imported Whisky including some brands of BII Scotch
Whisky also.
In the INR 800 to INR 1600 price segment, which constitutes around one per
cent in volume terms of the overall Whisky segment, although it is observed
that both USL and Diageo are present with their strong brands like Black Dog
P 275 12 Years Old, Black Dog (BII) and Whyte & Mackay in the USL portfolio and
brands such as Johnnie Walker Red Label, Black & White and VAT 69 in the
Diageo portfolio, however, it is also seen that in this price segment, there is
also a significant presence of other brands like Pernod Ricard’s 100 Pipers, 100
Pipers (BII), Ballantine’s Finest and Passport (BII), Beam Global’s Teacher’s and
its variants, WM Grant’s Grant’s Family Reserve etc. Within this price segment,
it is also observed that if USL’s Black Dog 12 Years Old has a strong presence at
the price point of around INR 1600, there are equally strong competitive
brands of Teacher’s 50 and Teacher’s Original at around the same price point.
Further, at a price point of INR 1200, if Diageo’s Johnnie Walker Red Label and
USL’s Black Dog (BII) have strong presence, it is observed that other
167
competitors like Beam Global with Teacher’s, Pernod Ricard with Ballantine’s
Finest, WM Grants with Grant’s Family Reserve are also present at the same
price point. Accordingly, at a price point of around INR 900, if Diageo and USL
are present with their brands like Vat 69 (BII) and Whyte & Mackay (BII)
respectively, other competitors like Beam Global with Teacher’s (BII) and
Pernod Ricard with 100 Pipers (BII) are also present at around the same price
point. It is, therefore, seen that the consumers have reasonable choice
available at various price points in this segment, even though the overall
volume in this segment of Whisky is miniscule, thus minimising any concern of
elimination of competitive constraint. It is also observed that the Compound
Annual Growth Rate (‘CAGR’) of most of the competitors’ brands in this price
segment is greater than the total CAGR of this entire segment as well as that of
the aggregated Scotch and Imported Whisky segment, showing that the
competitors’ brands in the above segment have high growth rates and these
brands are therefore, considered to be effective competitors to the brands of
the parties to the combination in the above segment. Further, as regards the
above price segment, it is also noted that it is one of the fastest growing
segments of the entire branded spirits segment with a CAGR of around 25 per
cent, which can be attributed to the recent trend of premiumisation, which as
discussed above, is currently being witnessed in the branded spirits segment
due to the changing demographics of the alcohol beverage market in India.
Considering the current trend of premiumisation, it is anticipated that the
players at various price points in this segment and as well as in other
segments may introduce new and innovative premium brands and products,
thereby providing more choice to the consumers.
Vodka Segment:
The Vodka segment constitutes around 4 per cent of the overall branded
spirits segment in India and has shown a high growth CAGR of around 22 per
cent in the period 2007-2011. In the year 2011, nearly 88 per cent of the Vodka
that was sold in India was priced at INR 500 or below. It is observed that
Diageo, with its brand Smirnoff and its variants, is present in the INR 500+
price segment and USL, with its flagship brand Romanov and its variants, is
present in the price range of below INR 500. However, it is observed that in the
below INR 500 segment, Radico Khaitan is also present with its brand ‘Magic
Moments’ which has demonstrated a strong CAGR of around 33 per cent in the
period 2007 – 2011. Magic Moments and its variants are observed to be
positioned at price points around the brands of USL and Diageo, thus
providing them stiff competition. It is also observed that the Vodka brands of
both USL and Diageo would also continue to face stiff competition at different
price segments from many other brands and their variants, such as Pernod
Ricard’s Absolut and its variants, Brown Forman’s Finlandia and its variants,
etc. It is also observed that in the Vodka segment, in the past two years, 27 new
brands have entered the local as well as the flavoured Vodka segments,
indicating that this market is rapidly growing and evolving in India.
P 276
Rum, Gin and Wine:
The Rum segment constituted around 17 per cent of the overall branded spirits
segment in India and has shown a CAGR of around 15 per cent in the period
2007- 2011. It is observed that Diageo had an insignificant share of around 0.05
per cent in volume terms of the total Rum segment in India. Further, in the Gin
segment, which constituted less than one per cent of the overall branded
spirits segment in India, Diageo had an insignificant share of around 0.34 per
cent in volume terms. In the year 2011, a total of 1.3 million nine litre cases of
Wine were sold in India. Diageo India has a marginal presence in the wine
market in India with sales of only 250 nine litre wine cases in the year 2011,
amounting to less than 0.1 per cent of the total wine segment in India.
In regard to the narrow price sub-segments in the overall Whisky segment, in
which even if the brands of USL and Diageo were considered to be positioned
as close competitors, it is observed that there are multiple brands of other
players who are present and effectively competing with the brands of USL and
Diageo in those segments, and as already observed, the volume in these price
segments is also miniscule in comparison to the overall volume of the Whisky
segment. Further USL and Diageo are mostly present in different price
spectrums in the branded spirits market with negligible overlap between their
products in each of the branded spirits segment. As already observed, the
proposed combination may bring new products and more variants of the
existing brands at different price points which would ultimately enable the
consumer to expand his choice set.
For global parties to the combination, the CCI analyses only at horizontal and vertical
overlaps in India to analyse the competitive effects. There may be cases where there is
global overlap between parties to the combination, but CCI will only look at overlap in
168
India to determine whether the combination will cause an appreciable adverse effect on
competition in India. (36) On the aspect of vertical overlap, the CCI will intervene only in
situations where there is a likelihood of foreclosure in the upstream or downstream
market(s) in which the parties are present in India. (37)
While analysing a combination involving an acquisition by a fund, the CCI looks at the
horizontal or vertical overlap between the target and other portfolio companies
operating in India, where the acquirer has made an investment. (38) The decisional
practice of the CCI suggests that it gives more credence to portfolio companies, over
which acquirer has direct control to determine overlaps rather than mere passive
investments. (39)
P 277
[C] Barriers to Entry

A combination that materially increases market concentration would not give rise to
sustained anti-competitive effects, if new firms can enter the market (or existing firms
expand) and deter the combining parties (and others) from exploiting their position in
the market, post the combination. The CCI, has till date approved most cases of
combinations (in Phase I itself) because the CCI has found that barriers to entry in the
concerned relevant market to be very less and/or negligible. (40)
Barriers to entry are specific features of the market, which give incumbent firms
advantages over potential competitors. When entry barriers are low, the combining
parties are more likely to be constrained by entry of new firms, disciplining the existing
firms upon entry. Conversely, when entry barriers are high, price increases by the
combining firms would not be significantly constrained by entry.
[D] Buyer Power

The competitive pressure on a supplier is not only exercised by competitors but can also
come from its customers. Even firms with very high market shares may not be in a
position, post-combination, to exercise market power if customers possess countervailing
buyer power. In this context countervailing buyer power means the bargaining strength
that the buyer has vis-à-vis the seller in commercial negotiations due to its size, its
commercial significance of the buyer vis-à-vis the seller and its ability to switch to
alternative suppliers. (41)
[E] Presence of a Sectoral Regulator

The CCI takes into account, while analysing the competitive effects of a combination,
whether there is a sectoral regulator which prevents the anti-competitive behaviour and
promotes competition in a particular sector/ industry. The CCI has noted the presence
and role of regulators like Telecom Regulatory Authority of India (42) and Petroleum and
Natural Gas Regulatory Board (43) to prevent anti-competitive practices in a sector while
approving transactions.
As such, the CCI, in the USL Diageo transaction, looked into the aspects the
manufacturing, distribution and pricing of alcoholic beverages in India are under the
regulatory purview of individual state governments. The relevant observations of the
P 278 merger approval order of the CCI are as follows:
As per the distribution of legislative powers prescribed by the Constitution of

India, the power to make laws regarding the production, manufacture,
possession, transport, purchase and sale of alcoholic beverages in India falls
within the purview of the State Governments. The production of alcoholic
beverages requires licenses from the respective State Governments which
determine the production capacity of each manufacturing facility and control
the production and movement of both the raw materials and finished
products. Any entity intending to commence manufacture of liquor requires an
excise license from the respective State Government. Licenses are also
required from the State Government for possession of raw material and
bottling, as well as for possession and sale of liquor. The introduction of new
product(s) or brands by a manufacturer or a brand owner also requires the
approval of the respective State Government.
The distribution of the alcoholic beverages takes place through three
distribution channels i.e., (i) Government channel where the Government’s
participation is through the Government corporations/bodies, at the
wholesale or the retail level or both. In this channel, the Government either
distributes directly to the end consumers or sells to the private retailers for
onward sale to the end consumers. Apart from the Government
corporations/bodies operating in the Government channel, the Canteen Stores
Department (hereinafter referred to as ‘CSD’) is also a pan-India Government
body, which being the nodal buying and distribution agency for the Armed
Forces, caters to the requirement of all materials and stock including the
alcoholic spirits for the defence personnel; (ii) Auction / licensing through the
lottery channel in which the distributors participate in an auction / lottery
169
system, usually on an annual / bi-annual basis, and (iii) Free channel in which
the State Governments, while controlling the number of wholesalers and
retailers permitted to operate in the market, exercise the least control over
pricing which is largely determined by the market forces. However, in the free
channel also, the approval of some of the State Governments is required for
various aspects of the business including pricing. In the overall scenario, the
manufacturers sell spirits to the wholesalers / distributors, who in turn sell it
to the retail outlets. It has been stated in the notice that out of Diageo India’s
overall sales in India, 70 percent of its sales pertain to the Government or
auction/lottery channels (including the sales to the CSD which is also stated to
be one of the single largest buyers of USL’s products), whereas only 30 per cent
of its sales is through the free channel. Further, out of USL’s overall sales in
India, 82 per cent of its sales are in the Government or auction/lottery
channels, including sales to the CSD, whereas only 18 percent of its sales are in
the free channel. The alcoholic beverage products are also subject to various
taxes and duties such as excise duty, export fee tax, import tax, etc. The
transportation of alcoholic beverages between the states within India is also
subject to the imposition of various charges, including export fee taxes, import
fees and transportation charges. It is, therefore, observed that the sale or
distribution of alcoholic beverages in both the wholesale and retail sectors in
India is, in some form or manner, regulated by the State Governments.
Moreover, as already stated, the manufacture, production, distribution and
sale of alcoholic beverages in India falls within the regulatory purview of the
State Governments. Under the prevailing regulatory control of the State
Governments, the introduction of new brands in the market as well the pricing
of existing or newly introduced brands of the alcoholic beverages in India is
not, therefore, entirely at the choice of the enterprises and even if free from
state control, it is determined by the market within the overall regulatory
framework provided by the respective states.
P 279
[F] Role of Efficiencies as a Defence

The CCI gives a lot of emphasis on efficiencies in the market, which can result from the
combination. As such, the CCI has analysed economic efficiencies resulting from a
combination which may be consumer and/or administrative efficiencies. (44)
One of the reasons adopted by the CCI while approving the Jet-Etihad deal was the
potential efficiencies, that would have resulted due to the combination. The CCI
undertook a holistic analysis of the sector and identified the cost and administrative
efficiencies, while approving the combination. The relevant portions of the order of the
CCI are as follows:
Airline alliances create substantial opportunities for generating economic
benefits, many of which are dependent at least in part on the closer
integration achievable. These benefits can be viewed as demand-side –
relating to the creation of new or improved services through expanded
networks or seamless service, or supply-side – essentially the ability to
produce the same services at lower cost taking advantage of traffic densities,
improved utilization of capacity and lower transaction costs.
In the aviation industry two carriers and passengers might benefit by
integrating complementary networks. One of the benefits of the proposed
transaction would be lower fares for passengers travelling to smaller cities in
India through one of 9 major destinations served by Etihad. Jet and Etihad
already have a code share agreement on such one stop routes. Post
transaction, Jet and Etihad will cooperate on pricing decision on such routes
through the proposed CCA. The possibilities to coordinate pricing, fares and
inventory/yield management will eliminate inherent inefficiencies to pricing
and enable the members to offer more attractive fares to customers.
Passengers from smaller cities can seamlessly travel to international
destinations without interlining to Delhi or Mumbai and thus saving on
interline fares.
Perhaps one of the most fundamental potential benefits from closer
cooperation and integration arises from economies of traffic density. This type
of economy of scale is a key feature of airline network models. Airline
alliances extend the Hub and Spoke (H&S) network with a large presence at
both ends of the market. Feeder routes and services delivering connecting
traffic can increase the traffic density on a city-pair, allowing airlines to
operate larger, more efficient aircraft and to spread end point fixed costs over
a larger number of passengers.
On the issue of likely impact on fares on routes from India to destinations in
exclusive territories, the proposed transaction will generate significant
synergies for both airlines in terms of network efficiencies and cost savings.
170
Additionally, the parties to the transaction plan to introduce substantial
capacity into the Indian market. Both of these factors could and generally do
create downwards pressure on fares.
Airline alliance has an increased incentive to harmonize and improve
customer service standards. They have an incentive to integrate their
operations to provide a true ‘online’ quality experience throughout the
processes of ticketing, seat selection, airport lounges, gate location for
connecting services, on board amenities and service quality, baggage policies
and problem resolution, frequent flyer plans and refunds and exchanges. As
these aspects are integrated and jointly managed, the customer receives a
P 280 correspondingly simplified and consistent service. This aspect of
cooperation is likely to provide consumer benefit without anti-competitive
results, due to the intense, global competition between alliances for customer
loyalty.
In addition to the potential efficiencies of the proposed combination on
account of the synergies expected to be generated, the Commission also
considered the importance of the proposed equity infusion and its
implication for the Indian aviation sector. Jet, which has been beleaguered
with debt, in addition to infusion of cash, hopes to access a large global
network. Jet’s debt of INR 89,994 million on March 31, 2013 is nearly 50% of its
2013 revenues and the business reported substantial negative equity at the
end of March 2013 of minus INR 18,272 million. This equity infusion will be
beneficial to Jet as it will strengthen its operational viability. The Commission
is of the view that this partnership will allow Jet to continue to compete
effectively in the relevant markets in India and internationally.
§4.16 COMMITMENTS
Merger analysis is essentially a forward looking exercise, whereby the competition
regulators can either unconditionally clear the transaction, (2) prohibit the transaction,
or approve the transaction with commitments. It requires considerable analytical skill on
the part of the competition authorities to impose commitments. Remedies are employed
by competition agencies to resolve and prevent any consequential harm to the
competitive process that may result from combinations. As such, the remedies play an
essential role in the merger review process, and their careful crafting is of utmost
importance to competition agencies conducting the review.
While imposing remedies/commitments, competition regulators must keep in mind the
following:
(A) Remedies should only be applied if there is a threat to competition.
(B) It should be the least restrictive means to effectively eliminate the competition
concerns posed by the combination.
Merger remedies are generally classified as either structural, if they require the
divestiture of an asset, or behavioural, if they impose an obligation on the merged entity
to engage in, or refrain from, a certain conduct. Structural remedies may include both the
sale of a physical part of a business, or the transfer or licensing of IPRs. They can be
imposed either as a condition precedent to a combination, or their completion may be
required within a certain period of time, after the combination has been approved.
Behavioural remedies, on the other hand, are always forward looking in that they consist
of limits on future business behaviour or an obligation to perform a specific prescribed
conduct for a given, sometimes considerable, period of time following the consummation
of the merger.
The CCI has the power under the Competition Act and the Combination Regulations to
issue commitments/modification to the parties to the combination to ensure that
combinations, once consummated, will not cause any appreciable adverse effect on
competition in the relevant market in India. In the event the CCI is of the opinion that the
proposed combination has or is likely to have an appreciable adverse effect on
P 281 competition in the relevant market in India, but such competition law concerns,
emanating from the combination may be eliminated by suitable modification to the
proposed combination, then the CCI may propose appropriate modifications to the
combination. The parties can accept the modifications proposed by the CCI. If the parties
to the combination accept the modifications suggested by the CCI, the parties to the
combination will then have to carry out such modifications within the time-period
specified, failing which such combination will be deemed to have an appreciable
adverse effect in the relevant market in India and hence will be rejected by the CCI.
[A] Non-compete
As mentioned above, the CCI can ask for commitments/modification even in Phase I
review. Regulation 19(2) of the Combination Regulations provides that the CCI may ask the
parties to the combination to accept modifications for forming its prima facie order. The
decisional practice shows that the CCI has sought for behavioural commitments in form of
commitments in its merger approval orders (45) where it asked the parties to review its
171
existing contracts to ensure that they are in compliance with the provisions of the Act and
the parties will continue to abide by the provisions of the sectoral regulator. Further, the
CCI has also sought commitments, during a Phase I review, from the parties to reduce
their non-compete period mentioned in the transaction documents. (46)
As a part of a composite transaction, there may be numerous contractual arrangements
(like provisions relating to non-compete, licensing et al.)which restricts the freedom of
the parties to the combination to compete in the relevant market, post the
consummation of the combination. Such restrictions are required to ensure that the
acquirer receives the full value of the acquired business and the seller is restricted from
entering/venturing into any competing business with the target entity after the
consummation of the combination.
However, such non-compete clauses must be limited in scope, both in time and
geographically, and cannot extend to restrictions which are not ‘directly related’ to the
implementation of the combination. The non-compete restrictions must be extremely
precise in its product scope and ought to cover only those products in which the target
entity and/or its promoters are presently active and not future products. Further, the
non-compete restrictions should be only limited to geographic operations of the target
entity. It must be noted that the Competition Commission has amended their merger
control form (Form 1) to specifically address the point of non-compete, where the parties
to the transactions have to provide responses to the following questions:
The justification for the length/scope of the non-compete agreement may be
provided by taking into account, inter alia, the following factors:
a. Time taken by a new entrant to gain at least 5 per cent share in the
relevant market.
P 282
b. Nature of industry.
c. Time required for obtaining regulatory approvals in the industry and the
gestation period specific to the sector.
d. Any other transaction with specific details.
Further, the time-period of non-compete restrictions cannot be of an indefinite duration.
As a general rule, CCI will not allow a non-compete period that extend for a period of
three years where goodwill and know-how is transferred and two years when only goodwill
is transferred. Such non-compete restrictions can be for a longer duration if the
transaction so permits. (47)
[B] Structural Commitments

There have been only two instances till date where the analysis has gone to Phase II
review where the CCI has sought for structural and behavioural commitment. We will
discuss the approach of the CCI in designing an effective commitment package in each of
the two merger approval orders: the merger between Sun-Pharmaceutical Industries
(‘Sun Pharma’) and Ranbaxy Laboratories Limited (‘Ranbaxy’) (two registered Indian
companies involved in the manufacture and R&D of pharmaceutical products) and
merger of Holcim and Lafarge. The key points identified in each of the merger decisions
are as follows:
[1] Sun Ranbaxy Merger
The proposed combination relates to the merger of Ranbaxy into Sun Pharma pursuant to
the scheme of arrangement approved by their respective board of directors. Post-
combination, the existing shareholders of Ranbaxy will hold approximately 14% of the
equity share capital of the Merged Entity. Post-combination, the promoter group of Sun
Pharma is expected to own approximately 54.7% equity share capital of the Merged
Entity. Further, as Ranbaxy holds 46.79% equity share capital of Zenotech, the proposed
combination would result in acquisition of this 46.79% equity share capital of Zenotech
by Sun Pharma from Ranbaxy.
The CCI bore the apprehension that the proposed combination is likely to have an
appreciable adverse effect on competition in the relevant market. The CCI also looked
into the question of whether the merged entities would foreclose inputs, i.e., active
pharmaceutical ingredients (APIs) thereby raising costs for their rivals by restricting
access to these inputs. However, since the percentage of revenue sales from APIs was
relatively less (5%–6% of total revenue shares), the Commission did not view this as an
anti-competitive concern. In addition to this, the CCI identified two relevant markets for
formulations wherein Sun Pharma was already present and Ranbaxy was planning to
P 283 launch its product. On the basis of combined market share of Sun and Ranbaxy,
incremental market share as a result of the proposed combination, market share of the
competitors, number of significant players in the relevant market., the CCI focused its
investigation on forty-nine relevant markets where the proposed combination was likely
to have appreciable adverse effect on competition in the relevant market in India.
The CCI identified the following markets which has the potential to have an appreciable
adverse effect on competition in India
172
Market Market Market Competitors Comments by the
Share of Share of and Their Competition Commission of
Ranbaxy Sun Market India
Pharma Share
TAMSULOSIN + 60–65 30–35 Intas [5–10] The combined market
TOLTERODINE | share comes to 90–95%
G4C13 that will result in almost a
monopoly and can
eliminate Intas from
business.
The Commission noted
that the remaining players
have negligible market
share and thus may not be
in a position to exert
significant competitive
constraint on the
combined entity.
Therefore, it was noted
that effectively there are
only three players in this
market and as a result of
the proposed
combination, the number
of significant players will
be reduced from three to
two. The proposed
combination will
eliminate a significant
competitor and is likely to
have an appreciable
adverse effect on
competition in this
relevant market.
ROSUVASTATIN + 55–60 30–35 Lupin [5–10] The combined market

EZETIMIBE | C10G6 Share comes to 85–90%,
that will result in almost a
monopoly and can
eliminate Lupin from
business. The remaining
players have negligible
market share and thus
may not be in a position to
exert significant
competitive constraint on
the combined entity.
Therefore, it is noted that
effectively there are only
three players in this
the proposed
two. The proposed
combination will
have an appreciable
adverse effect on
competition in this
P 284 relevant market.
173
Pharma Share
LEUPRORELIN | H1C6 45–50 35–40 Bharat The combined market
Serums [5– Share comes to 85–90%
10] that will result in almost a
monopoly.
that merger is between the
two largest players in the
market and there is only
one significant competitor,
i.e., Bharat Serums with a
market share of [5–10]%
only. The other players in
the relevant market have
negligible market share
and thus may not be in a
position to exert
constraint on the
combined entity.
Moreover, the Commission
noted that the market
share of other players has
been decreasing over the
period of last four years.
the proposed
two. The proposed
combination will
have an appreciable
adverse effect on
competition in this
relevant market.
P 285
174
Pharma Share
TERLIPRESSIN | H4D7 55–60 5–10 Alembic The combined market
[20–25] Share comes to 65–70%.
that the proposed
combination is likely to
strengthen the market
position of the combined
entity, which is likely to
face competition from
only one significant
competitor, i.e., Alembic
with a market share of 20–
25%. The other players in
position to exert
constraint on the
combined entity.
Therefore, it was noted
that effectively there are
only three players in this
the proposed
two. Further, it was
pointed out that Ranbaxy
had recently entered this
market and therefore, the
proposed combination will
have an appreciable
adverse effect on
competition in this
relevant market.
175
Pharma Share
OLANZAPINE + 40–45 20–25 Intas [30– The combined market
FLUOXETINE | N5A6 35] Share comes to 65–70%.
that proposed
competitor, i.e., Intas with
a market share of [30–
35]%. The other players in
position to exert
constraint on the
combined entity.
the proposed
two. The proposed
combination will
have an appreciable
adverse effect on
competition in this
relevant market.
P 286
176
Pharma Share
LEVOSULPIRIDE + 50–55 5–10 Torrent [35– The combined market
ESOMEPRAZOLE | 40] Share comes to 60–65%.
A3F49
that proposed
competitor, i.e., Torrent
with a market share of [35–
40]%. The other players in
position to exert
constraint on the
combined entity.
the proposed
of significant players
will be reduced from three
to two. The proposed
combination will
have an appreciable
adverse effect on
competition in this
relevant market.
P 287
177
Pharma Share
OLMESARTAN + 30–35 5–10 Macleods The combined market
AMLODIPINE + [15–20] Share comes to 40–45%
HYDROCLORTHIAZIDE
| C9E22 Micro Labs The Commission noted
[10-15] that there are only two
other significant
competitors in the market,
i.e., Macleods which has a
market share of [15–20]%
and Micro Labs which has
a market share of [10–15]%.
The market
share of Merged Entity
would be almost double
the market share of next
competitor. Moreover,
market share of Micro Labs
has been continuously
decreasing over the last
four years. Ranbaxy has
recently entered the
market and its market
share has been increasing.
Accordingly, the proposed
combination will
competitor from the
market and number of
significant competitors
would reduce from four to
three. Therefore, the
proposed combination is
likely to have an
appreciable adverse
effect on competition in
this relevant market.
Keeping these broad concerns in mind, the authorities suggested a two-phased

divestment scheme structuring the divestiture of specific brands of pharmaceutical
products developed by the two merging entities. The proposed modification suggested
by the CCI bore the objectives of creating a viable, effective, independent and long-term
competitor in the relevant markets which could effectively compete with the merged
entity in the relevant markets of India.
The CCI suggested an execution of a sale-purchase agreement to execute divestiture to
an approved purchaser. Further, the CCI also drew a timeline for closing the transaction.
Divestiture was proposed by way of an asset sale transaction and the parties were given
the right to sell additional assets/products on mutual consultation with the approved
purchaser. The design of the divestiture package required parties to maintain the
marketability of the divestment products, prevent any asset destruction and maintain
P 288 existing relationship with third parties including suppliers, vendors and customers.
Furthermore, the divestiture design prevented the parties from acquiring direct or
indirect influence over the whole or part of the divestment product(s) for a period of five
years from the closing date of the transaction.
The CCI held the power to approve a purchaser in accordance with certain set criteria.
The Commission laid down the following criterion for an approved purchaser: (i) the
acquirer must be independent; (ii) it should hold adequate financial and technical
expertise and (iii) be an active player in the sale and marketing of pharmaceutical
industry. The setting of these criteria would ensure that the acquirer holds the ability to
effectively compete with the merged entity, thereby eliminating any adverse anti-
competitive effects of the merger. Furthermore, it is incumbent on the acquirer to obtain
the necessary approvals from the relevant authorities in a time-bound manner so as to
give effect to the regulator’s order in an effective and efficacious manner.
To further provide an impetus to the role of the purchaser, the CCI directed the merging
entities to provide sufficient information regarding divestment product(s) to the
potential purchaser so that such purchasers are able to undertake reasonable due
diligence of the respective divestment product(s).
The divestiture package was designed by the CCI in a way that amalgamated both
divestment of products and access remedies. While the divestment included sale of
178
tangible assets including raw materials and semi-finished/finished goods, the access
remedies included transfer of licenses, market authorizations and customer records. The
CCI recognized certain exclusions from the divestment process. These exclusions were in
the nature of manufacturing facilities of the parties, IP rights which did not contribute to
current operations, domain name rights, name/logo of the parties, books of accounts
containing tax records and outstanding monies owed with respect to the divestment
product. Further, the CCI provided for the appointment of a supervising body in the name
of monitoring agency to ensure that the merging entities comply with their obligations
and perform all of their responsibilities as set out in the orders.
The key highlights of the divesture package is as under
Particular Details
Condition Precedent The Divestiture shall not be given effect to unless and until
the Competition Commission of India has approved: (i) the
terms of final and binding sale and purchase agreement(s);
and (ii) the purchaser(s) proposed by the Parties.
Modus The Parties shall Divest, or procure the Divestiture of the
Divestment Product(s) within the First Divestiture Period,
absolutely and in good faith, to Approved Purchaser(s),
pursuant to and in accordance with Approved Sale and
Purchase Agreement(s).
The Divestiture will proceed by way of an asset sale
transaction.
Subject of Divestiture Tangible Assets, Non-tangible Assets, All licenses, permits

and authorizations, All customer details, and transitional
P 289 support.
What will not be Any manufacturing facilities, intellectual property rights
Divested? (Non-indispensible ones), Domain names, Books and records
required to be retained by law, Tax records, Monies, Names
or Logos.
Duty of each party to Each party has to appoint a supervisor who would ensure
appoint a supervisor smooth divestiture and shall report to the monitoring agency
in case of failure.
No acquisition of The Parties shall, for a period of five years from the Closing
influence Date, not acquire direct or indirect influence over the whole
or part of the Divestment Product.
Purchaser’s Requirement The purchasers proposed by the Parties have to have to be
independent, competent to exploit the avenues, should be a
company in the sales and marketing of Pharmaceutical
products, should not cause in ordinate delay in
implementation of the remedy.
Monitoring Agency & The Competition Commission of India will appoint a
Functions Monitoring Agency to supervise the entire transaction. This
Monitoring Agency will apart from overseeing the divestiture
process, will review, assess, submit monthly report.
Duties of the Parties Provide cooperation, assistance, information, technical
information, grant access, indemnification to Monitoring
Agency and its employee.
[2] Holcim Lafarge Merger

The merger between Holcim and Lafarge which was structured in the form of acquisition
of shares (48) involved global players in the business of manufacture and sale of cement
and other construction materials operating through their subsidiaries in India. While
Lafarge is a global producer of cement and other construction material such as RMC,
aggregates, asphalt, pre-cast concrete products, etc., Holcim operates through two
indirect subsidiaries in India – ACC Limited (ACC) and Ambuja Cements Limited (ACL). The
latter was also involved in the product segments of cement, RMC and aggregates.
The CCI undertook a competition law analysis and in order to design the commitment
package, Commission assessed the appreciable adverse effects on competition in the
markets for grey cement as well as the grades of ready mix concrete (RMC). The CCI
opined the merger would adversely effect competition for grey cement market especially
in the eastern region of India in states including Chhattisgarh, Odisha, West Bengal, Bihar
and Jharkhand.
In order to eliminate the competitive effects of the proposed merger, the CCI designed a
P 290 divestiture package and identified the specific assets to be divested. The divestment
business included production, distribution and sale of cement products as well as the
limestone materials. The divestiture pertained to Lafarge’s Jojobera plant located in
179
Jharkhand and its integrated unit located at Sonadih in Chhattisgarh.
Similar to the observation in the Sun Ranbaxy order, the CCI noted that purchaser must
be independent and be financially viable to maintain the divestment business, thereby
act as an active competitor in the relevant market. The purchaser should not have any
structural or financial links (whether directly or indirectly) with any existing cement
producer in the relevant market and shall not have (directly or indirectly) operational
capacity exceeding 5% of the total installed capacity in the relevant geographic market.
The divestment package included both tangible and intangible business (including IP
rights), necessary licenses, permits and authorizations issued by any governmental or
statutory authority, contracts, leases, understandings, customer records, credit records
and other records related to the business and personnel (49) including key personnel.
Further, the CCI directed that Holcim and Lafarge will not, for a period of ten years from
the Closing date, acquire direct or indirect influence over the whole or part of the
Divestment Business. Further, CCI directed the parties to maintain the economic viability,
marketability and competitiveness of the divestment business, minimize the loss of
competitive potential of the divestment business and shall prevent the destruction,
removal, wasting, deterioration, sale, disposition, transfer (including creation of
encumbrance) or impairment of the assets related to the divestment business, except as
would occur in the ordinary course of business. During the divestiture period, parties are
required to put their best efforts to preserve the existing relationships with suppliers,
vendors, customers, agencies, and other third parties having business related to the
divestment business. The CCI also added the requirement for an appointment of a
specialized personnel (Hold Separate Manager) who would ensure the viability of the
divestment business and assure that no confidential information is exchanged between
the Parties and the Divestment Business. Apart from the appointment of a Hold Separate
Manager, the order of the Commission envisages the creation of a monitoring agency
which would act as a supervisor and monitor the overall management of the divestiture
business. It would monitor parties’ functioning towards maintaining confidentiality and
overall viability of the divestiture business in the interim period.
Further, the CCI also provided a detailed framework towards treatment of key personnel
in order to incentivize them to continue their position consistent with the past practices
of the company. In case of a key personnel terminates his/her employment before the
Closing date, a reasoned proposal must be provided to the Monitoring agency for
replacement of such personnel. Furthermore, parties must remove any impediment that
may deter key personnel from accepting employment with the Approved Purchaser. To
P 291 further strengthen this obligation, CCI ordered that the employees of Holcim and
Lafarge who provide support to the Divestment Business must retain and maintain
Confidential Information. Such employees are also required to execute agreement(s)
prohibiting disclosure of Confidential Information. Similarly, Parties and their affiliates
must ensure that they do not employ, or make offers of employment to, any member of
Key Personnel transferred with the Divestment Business for a period of one year after
Closing, unless the employment of such member of Key Personnel has been terminated
by the Approved Purchaser.
§4.17 MISMATCH OF TIMELINE AND REMEDIES: THE CLASH BETWEEN TWIN

REGULATORS
Investments made in a listed company have to adhere to the timelines mentioned under
the Securities and Exchange Board of India (Substantial Acquisition of Shares and
Takeovers) Regulations, 2011 and Combination Regulations. The listed companies may
face certain concerns while adhering to these procedural compliance requirements
under the Securities and Exchange Board of India (Substantial Acquisition of Shares and
Takeovers) Regulations, 2011 coupled with that of the Combination Regulations. For
illustration, the merging companies may face a potential mismatch between the
timelines for an open offer prescribed under the Takeover Regulations and the review of
a merger notification by the CCI since both the regulatory procedures need to be
undertaken simultaneously. As discussed in the earlier portions of the chapter, the
Competition Act and the Combination Regulations provide for a merger review by the CCI
in two phases: (i) CCI to form a prima facie view in thirty days (excluding the clock stops)
from the receipt of merger notification & (ii) in case the CCI on a prima facie view is of the
opinion that there may be certain anti-competitive effects that can arise because of the
combination, it directs an in-depth investigation of the combination, commonly known as
Phase II review. Phase II review can be for a time frame of up to 180 days (excluding the
clock stops). As mentioned above, the Competition Act and the Combination Regulations
provides for a suspensory regime and the combination cannot be effectuated until the
CCI approves the merger notification. However, under the Securities and Exchange Board
of India (Substantial Acquisition of Shares and Takeovers) Regulations, the acquirer is
required to pay the shareholders who have tendered shares within fifteen days from the
closure of the open offer process. Post the fifteen days, the acquirer is imposed with the
penalty of paying interest until such payment is made. Since the Takeover Code
procedure is not suspended while review of the CCI is ongoing, parties cannot claim
exemption from paying interest under Securities and Exchange Board of India
(Substantial Acquisition of Shares and Takeovers) Regulations, on account of a parallel
180
pending regulatory approval.
Similar to the timeline mismatch, the CCI and Securities and Exchange Board of India
may collide on account of mismatch of remedies. As discussed above, the CCI may
impose certain commitments (behavioural or structural) to eliminate the anti-
competitive effects of the merger. However, under the Securities and Exchange Board of
P 292 India (Substantial Acquisition of Shares and Takeovers) Regulations, (which precedes
the scrutiny of the CCI) an acquirer must declare its intention to alienate any material
assets of the company in the open offer documents. Therefore, in the event that CCI later
imposes structural commitments on the parties which includes divestments, an acquirer
may have to obtain a special resolution of its shareholders in order to comply with the
requirements imposed by the CCI.
P 292
References
1) 1 crore= 10 million.
2) Combination Case No. C-2014/09/206.
3) Please see Merger approval decision by Competition Commission of India in the
Acquisition by Independent Media Trust, C-2012-03-47.
4) The said notification came into effect on 4 Mar. 2011.
5) C-2012/06/63.
6) Combination Registration Number C-2012/09/78.
7) Combination Registration No. C-2013/05/122.
8) C-2012/06/63 - This form of ‘negative control’ is considered to be ‘control’ within the
meaning of the Competition Act. However, Securities Appellate Tribunal (SAT) in SEBI v.
Subhkam Ventures (I) Pvt Ltd. (2011) has opined that such ‘negative control’ would not
amount to control under SEBI’s regime.
9) Caladium Investment Pte. Ltd. Combination Registration No. C-2015/01/243.
10) C-2012/09/78.
11) C-2012/06/63.
12) AalokDilipShanghvi & Others.(Combination Registration No. C-2015/03/254).
13) For illustration, even if a company has hived off substantial assets during the course
of the year and then entered into a transaction, the hived off assets will also become
a part of the asset value for the purposes of s. 5 of the Competition Act.
14) Based on notes mentioned in Form II of Combination Regulations.
15) C-2013/04/116.
16) Cases Nos C-2011/08/03; C-2011/09/04; C-2011/10/05.
17) ADITYA BIRLA/ PANTALOONS C 2012/07/69.
18) Trent Hypermarket Limited/Tesco Overseas Investments Limited, Combination
Registration No. C-2014/03/162.
20) Appeal Number 48 of 2014.
21) C-2013/05/122.
22) ACQUISITION BY KKR C-2011/11/10.
23) C-2012/11/95.
24) New Moon B.V. Combination Registration No. C-2014/08/202.
25) C-2013/05/122.
26) C 2011/12/12.
27) C-2012/02/40.
28) C-2012/05/57; C-2012/08/76; C-2013/02/109.
29) C-2013/02/109.
30) C-2013/06/124.
31) Notice given by Indus Ind Combination Registration No. C-2015/04/268; ATC Telecom
Tower Corporation Private Limited Combination Registration No. C-2015/04/269.
32) See Inox/Fame India/ Fame Motion/Big Pictures/Headstrong Films C – 2012 /10/84,
CTLC/TCFSL C-2012/09/78.
33) Notice given by Sutlej Textiles and Industries Limited Combination Registration No.
C-2015/04/266, Notice u/s 6 (2) of the Competition Act, 2002 given by Pfizer, Inc
Combination Registration No. C-2015/03/255, Johnson Controls, Inc Combination
Registration No. C-2015/02/247, Torrent Pharmaceuticals Limited and Elder
Pharmaceuticals Limited, Combination Registration No. C-2014/01/148, UNITED
SPIRITS LIMITED/ RELAY B.V. (DIAGEO), C-2012/12/97.
34) See Mahindra and Mahindra Limited, C-2013-01-105 and GSPC Distribution Networks
Limited/Gujarat Gas Company Limited C-2012-11-88.
35) United Spirits Limited/ Relay B.V. (Diageo) C-2012-12-97.
36) Fujitsu Limited, Panasonic Corporation and Development Bank of Japan Inc.
Combination Registration No. C-2014/09/206.
37) Hyundai Hysco Co. Ltd. And Hyundai Steel Company, Combination Registration No. C-
2015/05/272.
181
38) Sion Investment Holdings Pte. Limited, Combination Registration No. C-2015/03/253,
TPG Asia VI SF Private Limited and Manipal Health Enterprises Private Limited
Combination Registration No. C-2014/12/234, KKR Floorline Investments Pte Ltd and
Gland Celsus Bio Chemicals Private Limited, Combination Registration No. C-
2013/12/145, Vault Bermuda Holding Company Limited Combination Registration No.
C-2014/03/157.
39) Caladium Investment Pte. Ltd Combination Registration No. C-2015/01/243.
40) Sg Investors/PDPPL/EPDL (C-2012/08/75) where the Competition Commission of India
observed that there were no significant entry barriers in the relevant market for
development and management of commercial and office space in India and
therefore approved the combination.
41) Denki Kagaku Kogyo Kabushiki Kaisha and Mitsui & Co. Ltd, Combination Registration
No. C-2015/01/239.
42) UTV Global Broadcasting Limited C-2013/01/107.
43) GSPC Distribution Networks Limited/Gujarat Gas Company Limited C-2012-11-88.
44) Etihad and Jet, C-2013/05/122.
45) GSPC Distribution Networks Limited/Gujarat Gas Company Limited, C-2012-11-88.
46) Orchid Chemicals and Pharmaceuticals Limited/Hospira Healthcare India Private
Limited, C-2012/09/79.
47) The Competition Commission of India has allowed non-compete period upto four
years in Orchids Chemicals and Pharmaceutical Limited/ Hospira Healthcare India
Private Limited, C-2012/09/79.
49) Personnel was been defined in the order of the Competition Commission of India as:
‘Employees who worked at least one hundred (100) work days for the Divestment
Business during the twelve-month period prior to the Closing Date, including but not
limited to shared employees and seconded employees’.
182
Document information Chapter 5: Intellectual Property and Competition Law
§5.01 FRIENDS IN DISAGREEMENT
Publication
The anti-trust authorities across the globe, including a nascent regulator like the CCI, are
Competition Law in India: A grappling with issues relating to the interface between IPR and competition law. There is
Practical Guide an apparent antagonism between the IPR law regime and the competition law regime
considering that the essential attribute of IPR is the grant of exclusion, where the state
grants a monopoly to the IPR holder; whereas as mentioned in Chapter I, competition law
Jurisdiction aims at attaining maximum production and allocation of resources, thereby achieving
allocative efficiency. However, it has been noticed that IPR and competition law regime
India work in tandem and perform complementary roles. Together they contribute towards
consumer welfare and spurring innovation. Therefore, the legal regimes of competition
law and IPR are often termed as ‘friends in disagreement’. Given that the regime performs
Topics a complementary role, the competition authorities must be cautious that the regulatory
Antitrust interventions by them are timely and take place only in cases of abuse of rights
guaranteed by the state to the IPR holder, which potentially distorts the competitive
structure of the market.
Bibliographic reference §5.02 JURISDICTION OF THE CCI OVER IPR ISSUES
'Chapter 5: Intellectual
Property and Competition The jurisdiction of the CCI in adjudicating market distortions from abuse of IPRs, has been
Law', in Abir Roy , challenged before various High Courts in India. The challenge has been on the ground
Competition Law in India: A that the CCI does not have the requisite jurisdiction to decide on competition issues
Practical Guide, (© Kluwer which have an interface with IPR. One of the first challenges to the jurisdiction of the CCI
Law International; Kluwer was before the Bombay High Court in the case of Aamir Khan Production Private Limited v.
Law International 2016) pp. Competition Commission of India. (1)
293 - 314 P 294
The case involved certain film production companies who organized themselves under
the umbrella of a trade association and took a collective decision not to release films to
multiplex from 4 April 2009 with the objective of extracting higher revenue sharing ratio
from the multiplex. On receipt of information from the multiplex association, CCI took
cognizance of the matter and referred the matter for detailed investigation to the
Director General.
Post the detailed investigation by the Director General, the CCI issued a show cause
notice to the film production companies. Thereafter, Aamir Khan Production Private
Limited approached the Bombay High Court challenging the jurisdiction of the CCI. The
principal point of contention was that the exhibition of a feature film, which is a subject
matter of copyright exploitation alone, is specifically excluded under section 3(5) of the
Competition Act. Further, it was argued by Aamir Khan Production Private Limited that
the Indian copyright law enjoins upon the copyright holder, the exclusive right to do or
authorize the doing or to authorize to sell or give on hire or offer for sale or hire any copy
of the film. Further, the producer of the film has the exclusive right to decide as to whom
it shall sell or give on hire any copy of the film for communicating the film to the public.
Section 18 of the Copyright Act confers upon the owner of the copyright the right to assign
to any person a copyright either wholly or partially. Further, section 30 of the Copyright
Act recognizes the right of the owner of the copyright to grant any interest in the right by
licence in writing. Based on the said legal provision, it was argued that when a producer
makes a cinematograph film, he has an exclusive right to sell or give on hire any copy of
the film and the show cause notice by the CCI must be quashed on these grounds.
However, based on the reading of the provision of the Competition Act, the Bombay High
Court rejected the petition made by Aamir Khan Productions Private Limited. The
Bombay High Court held that the CCI has the power to determine whether it has the
jurisdiction to entertain a matter and analyse whether the conduct of the parties can
avail of the exemption made under section 3(5) of the Competition Act. The contour of the
IPR exemption made under section 3(5) of the Competition Act is dealt in detail later in
this chapter.
The issue on the jurisdiction of CCI into IPR related matters was further discussed before
the CCI in the recent case of Ms HT Media v. M/s Super Cassettes Industries Limited. (2) The
case concerned Super Cassettes, the largest private publisher of Indian music and
allegations that it was abusing its dominant position in contravention of the provisions of
section 4 of the Competition Act. The allegations against Super Cassettes involved the
following:
(i) charging excessive amount as licence fees/royalty from the radio operators for
grant of rights for the broadcast of its music content; and
(ii) imposing minimum commitment charges to be paid by the radio operators per
month irrespective of actual needle hour (each aggregate of sixty minutes of actual
P 295 broadcast of sound recordings by FM radio station excluding commercials,
advertisements, voice over, anchor time etc.) of broadcast of its music content by
the radio operators; and
(iii) making conclusion of licensing arrangements with radio operators subject to the
183
acceptance of license fees and minimum commitment charge imposed by Super
Cassettes.
It was further alleged that such imposition of exorbitant licence fees and minimum
commitment charge by Super Cassettes is an unfair condition imposed by it for granting
licence to broadcast its music content on radio under the Competition Act. The licence
agreement permits the licensee to broadcast music subject to acceptance of onerous
conditions such as minimum commitment charge obligations, which has the effect of
restricting around 30%–40% of the radio stations’ broadcast to the music content of
Super Cassettes. The said action of Super Cassettes limits the choice of music for the end
consumers to only the music content of Super Cassettes. Further, such an action of Super
Cassettes has resulted in denial of market access for other music companies (publishers,
copyright societies, etc.) with less market share and bargaining power.
Based on the above facts, the CCI initiated the investigation into the conduct of Super
Cassettes. Super Cassettes challenged the jurisdiction of the CCI on the ground that the
matter under dispute between Super Cassettes and radio operators vests with the
Copyright Board. It was contended by Super Cassettes that the Copyright Board is the
only authority to decide whether the terms (not just rates) of a licence between copyright
owner and a radio broadcaster are reasonable, and set new terms if existing terms are
unreasonable. Further, it was argued by Super Cassettes that in the event the market is
heavily regulated by the Copyright Board and where the market mechanism is
substituted by a regulatory body, the role of competition law is greatly diminished and in
this case completely ousted.
The CCI did not find merit in the arguments of Super Cassettes and stated that the
regulatory domain of the Copyright Board and the CCI are different. It was observed by
CCI that it is a market regulator which has the mandate of eliminating practices which
have an adverse effect on competition in India. The CCI also observed that the ambit of
the powers of the Copyright Board and the CCI is different and they continued with the
investigation of the conduct of Super Cassettes under the provisions of the Competition
Act. Super Cassettes thereafter preferred to challenge the jurisdiction of the CCI before
the High Court of Delhi. The High Court did not grant a stay on the proceedings and CCI
continued the investigation on Super Cassettes and found them guilty of abuse of
dominant position. The pricing abuse of Super Cassettes relating to IPRs will be discussed
subsequently in this chapter.
The observation of the CCI on the aspect of jurisdiction is provided as below:
A reading of the above section would show that none of the areas covered by
section 3 of the Competition Act is covered by the Copyright Act. No doubt
under the Copyright Act, the Copyright Board has a right and obligation to
determine licence fee and the reasonableness of the licence fee but apart
from that none of the other issues as envisaged by section 3 of the
Competition Act can be decided by the Copyright Board. Similarly, Section 4
P 296 of the Competition Act casts an obligation on the Commission to adjudicate
the issue of dominance of an enterprise and to give a finding on the alleged
abuses due to dominance. Abuse may be there due to one sided,
discriminatory or unfair terms of the agreement or otherwise. The Copyright
Board has no such jurisdiction.
The rights of a person protected under the Copyright Act have also been taken
care of by section 3(5) as is evident. It is true that the applicant has also made
a prayer in the information about unreasonableness of the licence fee, but
that was not the sole criteria for referring the matter. The Commission had
referred the matter for observing as under:-
The Commission finds merits in the submission of the informant that the radio
stations have no choice but to accede to the arbitrary and unfair conditions
imposed by T-Series because of it being a dominant enterprise. Considering
the fact that T-series is the only music company which charges MCC from the
radio stations unlike any other licensers including PPL, IPRS, SIMCA etc., prima
facie it appears that T-series is in position to dictate such terms only because
of its position of dominance. Considering the facts and allegations in the
information and position discussed as above, the Commission feels that an
investigation in the matter by the Director General, CCI is required.
From the above initial order of the Commission, it is apparent that the
Commission had intended to exercise its jurisdiction only within the four walls
of the Competition Act and had no intention to encroach upon the area where
the Copyright Board has sole and exclusive jurisdiction. The Competition
Commission is well within its domain of jurisdiction while considering the
issues raised before it and rightly exercised its jurisdiction of referring the
matter to Director General for investigation.
It must be noted that in relation to the broadcasting sound recordings, section 31 of the
Copyright Act enables a person to seek compulsory licence. The remedy of compulsory
licence applies only when the copyright holder ‘refuses’ to licence that work. As such,
entering into licence agreement subject to acceptance of certain anti-competitive
184
conditions by the licensee may be a subject matter of the Competition Act and at the
same time, could potentially be considered a case of constructive ‘refusal’ for the
purposes of enabling a section 31 proceeding under the Copyright Act. Further, the CCI
can also pass any order as it may deem fit, including compulsory licensing if required, to
remedy an anti-competitive situation. It would be interesting to see the stance of the
courts and the CCI on such a regulatory overlap in times to come.
This issue will equally spill over even to the patent domain since the Patents Act, 1970
contains provisions relating to compulsory licence. Under the Patents Act, a compulsory
licence could be sought by a competitor only after ‘refusal’ by the patentee to provide a
voluntary licence and when other circumstances are established. Current jurisprudence
indicates that before seeking a compulsory licence to a patent, the parties must engage
in licence negotiations in ‘good faith’ and therefore, perhaps, refusal to licence the
patent but for accepting certain anti-competitive conditions may also justify seeking a
compulsory licence. It is quite possible that in certain cases, this remedy under the
Patents Act and the remedy under the Competition Act may overlap.
P 297
§5.03 SCOPE OF THE IPR EXEMPTION

As mentioned in the preceding chapter, section 3 of the Competition Act deals with
provision relating to anti-competitive agreement and cartels. There is an exemption
provided in section 3(5) which states that the provisions with respect to anti-competitive
agreements will not be applicable to agreement entered into by any person for
restraining any infringement or imposing reasonable conditions for protecting its rights
guaranteed under the IPR statutes in India.
Nothing contained in this section shall restrict-
(i) the right of any person to restrain any infringement of, or to impose
reasonable conditions, as may be necessary for protecting any of his
rights which have been or may be conferred upon him under –
(a) the Copyright Act, 1957 (14 of 1957);
(b) the Patents Act, 1970 (39 of 1970);
(c) the Trade and Merchandise Marks Act, 1958 (43 of 1958) or the Trade
Marks Act, 1999 (47 of 1999);
(d) the Geographical Indications of Goods (Registration and Protection)
Act, 1999 (48 of 1999);
(e) the Designs Act, 2000 (16 of 2000);
(f) the Semi-conductor Integrated Circuits Layout-Design Act, 2000 (37
of 2000)
It has been deliberated earlier that section 3(5) of the Competition Act does not simply
remove the jurisdiction of the CCI over IPR related cases. The exemption provided under
section 3(5) of the Competition Act provides for two different situations: (i) the right of the
party to restrain a third party from infringing the relevant IPRs; and (ii) right to impose
reasonable conditions to protect the rights conferred under the relevant IPR legislation.
The ambit of the exemption has been deliberated by the CCI in various cases:
(A) Reasonable restrictions: The term ‘reasonable restriction’ mentioned in section 3(5)
of the Competition Act was discussed in detail by the CCI, in the case of FICCI –
Multiplex Association of India v. United Producers/ Distributors Forum. (3) The facts of
the case are similar to the one discussed before the Bombay High Court in the case
of Aamir Khan Production Private Limited. It was argued by the United Producers
Forum that the copyright owner has the right to exploit the copyright in a manner as
it deems fit and that no multiplex owner can demand that the film be released in
their theatre and dictate the commercial terms on which such film is to be
released. Furthermore, it was also argued by the distributors forum that based on
section 3(5) of the Competition Act, the producers have the right to impose
reasonable restrictions for protecting rights conferred upon them under the
Copyright Act.
P 298
The CCI disregarded the contention of the producers’ forum and noted the following:
(1) Intellectual property laws do not have any absolute overriding effect on the
competition law. The IPR exemption mentioned under section 3(5) only
enables the right holder to impose reasonable conditions, as may be necessary
for protecting the rights [emphasis supplied] conferred upon the IPR holders
by the IPR statutes mentioned under section 3(5) of the Competition Act.
(2) The producers/distributors had failed to produce any evidence to show the
act of not releasing their movies to the multiplexes is a reasonable condition
to protect their rights conferred to them under the Copyright Act. The key word
is protection, as opposed to commercial exploitation. Further, based on the
185
investigation conducted by the Director General, it has been noted that due to
the action of the producers/distributors, the price of tickets of multiplex
theatres increased which were borne by the ‘common man’. In such a
situation, CCI rejected the plea that the collective decision of not releasing
the movie to the multiplex is a reasonable condition to protect their rights.
Based on the above decision of the CCI, it is clear that what is reasonable or
unreasonable would depend on facts and circumstances of each case. The CCI
has to do a balancing analysis to ensure that the exercise of exclusivities
guaranteed under the various IPR statutes in India to an IPR holder do not
cause a disruptive influence on the market. Also, CCI has to be cautious to
ensure that the rights guaranteed to the IPR holder under the IPR legislations
are not rendered infructuous. In this regard, it must be noted that the
balancing test has to be done in light of the factors mentioned in section 19(3)
of the Competition Act.
(B) Coverage of the exemption: The CCI had dealt, in great detail, with the coverage of
the IPR exemption mentioned under section 3(5) of the Competition Act in the
Automobile Spare Parts case. (4) The facts of the case are discussed in detail in the
chapter on abuse of dominance. With respect to the exemption under section 3(5) of
the Competition Act, the case pertained to an agreement entered into between OEM
(i.e., car manufacturers) and OES for procurement of spare parts by OEMs for both
assembly line and aftermarket requirements. The spare parts to be supplied by the
OES were of the following categories:
(i) where the design, drawing, technical specification, technology, know-how,
toolings (which are large machines to manufacture the parts), quality
parameters, etc., are provided by the OEMs. The OES are required to
manufacture and supply such spare parts only to the OEMs according to the
specified parameters;
P 299
(ii) where the patents, know-how, technology belongs to the OES, however, the
parts are manufactured based on the specifications, drawings, designs
supplied by the OEM. The tooling/tooling cost may also be borne by the OEM
in some of these cases; and
(iii) where the spare parts are developed and sold by the OES are made to their
own specification or designs and commonly used in the automobile industry.
It was observed by the Director General that under the agreement entered
into between OEM and OES, the OES were prohibited to supply the spare parts
in the aftermarket, unless they receive the prior consent of the OEM. As such,
in practice, it was found out that most of the OESs were not selling directly in
the aftermarket.
Among other defences raised by the OEMs (which have been discussed in the
chapter on abuse of dominance), it was argued by several OEMs that the
restrictions of sales on OESs, of their proprietary parts to third parties without
prior consent, would fall within the ambit of reasonable condition to prevent
infringements of their IPRs. It was further contended that significant
investments are made into research and development facilities by them
based on which these products are manufactured.
The CCI did not agree with the contention of the OEMs and analysed the scope of the
exemption and made the following key remarks:
(1) Scope of the exemption and when can be availed: The CCI clarified that section 3(5) of
the Competition Act allows an IPR holder to impose reasonable conditions to
protect his rights which have been conferred or may be conferred upon him under
the relevant IPR statues in India. Therefore, the ambit of the exemption is clear that
the IPR must have been conferred prior to availing of the exemption under section
3(5)of the Competition Act. Based on the documents submitted by the OEMs, the CCI
concluded that the OEMs have not been able to provide documents to substantiate
their claim over a particular type of IPR under the applicable Indian IPR laws.
Further, some of the OEMS had contended that the overseas parent corporation of
the OEMs had validly held IPRs, which were thereafter transferred to the OEMs by
means of a validly executed technology transfer agreement. The CCI, however, noted
that the IPR claimed by the parent of the OEMs are territorial in nature and is
vested upon the IPR holder only in a particular jurisdiction. Thus, in the event that
the parent corporation of the OEMs held such IPR rights in the territories where the
IPR rights were originally granted, the said rights cannot be said to be granted to
the OEMs operating in India by entering into a technology transfer agreement,
unless the rights have been granted upon the OEMs which is recognized under the
relevant IPR statutes (mentioned in section 3(5) of the Competition Act) in India.
Based on the observations of the CCI, for exemption of section 3(5) of the
P 300 Competition Act to be availed of, protection ought to have been granted to the
IPR holder or a process ought to have been initiated for grant of such protection
under the relevant IPR statutes in India.
(2) Necessary to protect IPRs – The CCI has adopted an extremely strict interpretation
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and has held that section 3(5) of the Competition Act only allows the IPR holder to
impose reasonable conditions necessary for the protection of the IPRs. Although
what is necessary and reasonable would necessarily depend on the facts and
circumstances of each case, the CCI in this case held that the restriction imposed on
the OES by OEMs not to supply the spare parts in the aftermarket is not necessary to
protect their rights guaranteed under the IPR statutes since merely selling spare
parts which are manufactured end products, does not necessarily compromise the
IPR held by car manufacturers in such products. Further, the CCI observed that the
car manufacturers could contractually protect their IPR as against these dealers
and could still permit them to sell their products.
Certain key observations made by the CCI in the Automobile Spare Parts case on the
IPR exemption under section 3(5) of the Competition Act are as follows:
In determining whether the agreements entered between the OEMs and
the OESs would fall within the ambit of the provisions of section 3(5)(i) of
the Act; it is necessary to consider, inter alia, the following:
a) whether the right which is put forward is correctly characterized as
protecting an intellectual property; and
b) whether the requirements of the law granting the IPRs are in fact
being satisfied.
The DG during the course of the investigation has provided an
opportunity to the OEMs to confirm the status of the IPRs held by them in
India along with the necessary details justifying the claim of exemption
pursuant to section 3(5)(i) of the Act. The Commission has noted that
none of the OEMs have submitted the relevant documentary evidence to
successfully establish the grant of the applicable IPRs, in India, with
respect to the various spare parts pursuant to which such OEMs have
claimed the exemption under section 3(5)(i) of the Act. The Commission
is of the opinion under section 3(5)(i) allows an IPR holder to impose
reasonable restrictions to protect his rights ‘which have been or may be
conferred upon him under’ the specified IPR statutes mentioned therein
[emphasis supplied]. The statute is clear in its requirement that an IPR
must have been conferred (or may be conferred) upon the IPR holder
prior to the exception under section 3(5)(i) being available.
Therefore, before the OEMs are permitted to seek the exemption under
section 3(5)(i) they must establish that their IPRs have been granted
protection (or that the OEMs have initiated the process of being granted
protection) under the specified IPR statutes in India. The Commission,
after reviewing the submissions of the findings of the DG and the
submissions of the OEMs is not satisfied regarding both the
characterization of certain rights, claimed by the OEMs, as IPRs as well as
regarding the fact that the OEMs could not provide sufficient evidence to
establish their claim over a particular type of IPR. Even in those cases
P 301 where the OEMs have registered/applied for registration of certain
designs, patents, however, the details of specific spare parts to which
these correspond, have not been furnished. Hence, it has not been
possible to relate these claimed rights under the applicable IPR laws to
individual spare parts that are protected. In our view in the absence of
the OEMs ability to first establish their claim of IPRs in the spare parts
and the diagnostic tools they cannot avail of the exemption provided in
section 3(5)(i) of the Act.
The OEMs have submitted that some of the IPRs claimed by the OEMs are
validly held by their overseas parent corporation and such proprietary
technology has been transferred to the OEMs through technology transfer
agreements (‘TTA’). The Commission notes that a particular IPR claimed
by the OEMs are territorial in nature and the particular right is vested
upon the holder of such IPR only in a given jurisdiction. Thus, even if the
parent corporation of the OEMs held such rights in the territories where
such rights were originally granted, the same cannot be granted upon the
OEMs operating in India by entering into a TTA, unless such rights have
been granted upon the OEMs pursuant to the provisions of the statutes
specified under section 3(5)(i) of the Act. Thus, the OEMs pursuant to a
TTA were holding a right to exploit a particular IPR held by its parent
corporation and not the IPR right itself. Consequently, such OEMs could
not avail of the exemption provided in section 3(5)(i) of the Act. It is
pertinent to add here, that the Commission is not the competent
authority to decide, for example if a patent/trademark that is validly
registered under the applicable laws of another country fulfills the legal
and technical requirement or is capable of being registered under the
Indian IPR statutes, specified under section 3(5) of the Competition Act.
Such a mandate would lies with the IPR enforcement agencies of India.
For the Commission to appreciate a party’s validly foreign registered IPR,
in the context of section 3(5) of the Act, satisfactory documentary
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evidence needs to be adduced to establish that, the appropriate Indian
agency administering the IPR statutes, mentioned under section 3(5)(i)
have: (a) validly recognized such foreign registered IPRs under the
applicable Indian statues, especially where such IPR statutes prescribe a
registration process, or (b) where such process has been commended
under the provisions of the applicable Indian IPR statutes and the
grant/recognition from the Indian IPR agency is imminent.
Based on the analysis mentioned above and other factors (elaborated in the Chapter III
on abuse of dominance), the CCI directed (apart from levying hefty fines) that the OEMs
have to put in place, an effective system to make the spare parts and diagnostic tools are
easily available through an efficient network. Further OEMS must allow the OES to sell the
spare parts in the open market without any restrictions.
Based on the decisional practice of the CCI, it is therefore imperative that the IPR holders
are aware that when they enter into any agreement with respect to licensing or otherwise,
they cannot enter into a practice which may amount to refusal to deal or other kind of
anti-competitive practices. The IPR exemption is only for the limited purpose of entering
into an agreement which may be necessary for protecting any of the rights guaranteed
under the IPR statues in India, mentioned therein. As such, the CCI is the body to
determine what is necessary and what is reasonable will be based on the facts and
circumstances of each case. It seems like the CCI will allow only those agreements which
are least restrictive and totally necessary to protect the rights conferred upon them by
P 302 the relevant IPR statutes. The key point to be mentioned here is that section 3(5) speaks
about protection of the rights and restrains infringement of the rights under the IPR
statutes as opposed to exploitation of the rights guaranteed under the IPR statutes.
Further, as deliberated in the Automobile Spare Parts case, unless the IPRs are registered
under the Indian laws, there is no protection which is available under section 3(5) of the
Competition Act. So, there may be circumstances (like it happened in the Automobile
Spare Parts Market case) where a company possesses a valid patent under a foreign
jurisdiction, which is licensed to its group company based in India. The group company in
India cannot avail of the IPR exemption unless it can be shown by way of clear and
unambiguous documentary evidence that the rights to the group company in India are
conferred under or will be conferred under the relevant IPR statutes in India.
Further, CCI has taken a very strict stand on what constitutes ‘necessary’ to protect IPR
rights. Given that the idea of the IPR rights to incentivize innovation, the finding of the CCI
that one can allow the licensee to sell spare parts in the open market without affecting
the IP rights of the IP holder seems to be an interesting. The CCI opined that merely
allowing the open market sale of spare parts, which are manufactured end products,
would not necessarily compromise the IPR held by car manufacturers in the spare parts.
The CCI was of the view that it was very much possible for the car manufacturers to
contractually protect their IPR and also permit the OES’ to sell their products directly in
the open market. In circumstances where the products in question (whether spare parts
or otherwise) are being manufactured through sub-contracting arrangements, where the
R&D costs and the IP remains with the principal, allowing the sub-contractor to sell the
products directly in the open market would undermine the principal’s incentive to
innovate. The principal would not be able to recover the costs involved. To that extent,
the order of the CCI of allowing OES to sell the spare parts in the open market may create
a troubling situation. Given that this decision is under challenge and given the market
situation, it is likely that the CCI, Competition Appellate Tribunal and other judicial
bodies in India will have opportunities in the future to go into this question once again.
It must also be noted that the CCI order does not address the issue of trade secret and
whether trade secret can avail of the exemption mentioned under section 3(5) of the
Competition Act. The report prepared by the Director General in the Automobile Spare
Parts case proceeded on the point that since trade secret does not get expressly
mentioned in section 3(5), it will be able to avail the exemption mentioned under section
3(5) of the Competition Act. Given the interpretation adopted by the CCI for interpreting
section 3(5) of providing protection to the rights which are specifically conferred upon
under the specific statues mentioned therein, it is likely that the CCI will not provide a
safe harbour to trade secrets.
Further, the statute provides for IPR exemption only for section 3 and not practices
covered under section 4 (provision relating to abuse of dominance), since section 4 does
not have a parallel exemption of IPR (on the lines of section 3(5), Competition Act). The
various legal provisions and the decisional practice of CCI with respect to section 4 are
covered in the chapter of abuse of dominance. It has also been confirmed by the CCI, in
P 303 the Automobile Spare Parts Market case, that the safe harbour of IPR exemption is not
applicable for abuse of dominance actions mentioned under section 4(2) of the
Competition Act. Therefore, if an enterprise is found to be dominant pursuant to
Explanation (a) to section 4(2) and is indulging in practices amounting to denial of market
access or refusal to deal; it is no defence to suggest that such exclusionary conduct is
within the scope of their IPR. The decision of CCI in the Automobile Spare Parts Market
case, which is currently under appeal before the Competition Appellate Tribunal,
suggests that the existence of IPR is completely irrelevant to the analysis under section 4.
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§5.04 ANTI-COMPETITIVE PRACTICES EMANATING OUT OF IPRS
Considering the competition law in India is in its seventh year of existence, there have
been very limited cases decided by the CCI on the interface between IPR and
competition law. As such, the Commission, in its advocacy measures, has highlighted
certain practices of abusing the IPR rights which may fall foul of the provisions of the
Competition Act. This part of the chapter is divided into two categories based on the
decisional practice of the CCI and advocacy initiatives: pricing and non-pricing abuse.
As has been discussed above, the scope of section 3(5) of the Competition Act is very
limited and decisional practice of the CCI suggests that it will rarely be applicable.
Therefore, the licensor must be aware of the nuances of competition law, prior to entering
into agreement with licensors to monetize their operations by way of earning royalty. The
CCI has to take into account the fact that the creation of IPRs enhances economic
efficiency and that it entails substantial investment. As a result, it is felt that the
innovator must not be unduly restricted in the exploitation of valuable IPRs and that
licensing as such is pro-competitive. Competition law seeks to strike a balance between
rewarding the holder of IPRs by allowing many forms of legitimate exploitation of those
rights, while at the same time safeguarding competition. Yet since the licence
agreements may contain provisions which may potentially cause market distortions, the
same ought to be investigated under section 3 or section 4 of the Competition Act.
[A] Pricing Abuse

We have outlined the procedure of investigation under the Competition Act in Chapter I.
There are certain pending investigations which are being carried out by the Director
General where the CCI has found a prima facie case of violation under section 26(1) of the
Competition Act relating to abuse of dominance. The prima facie case was for abuse with
respect to imposing excessive and discriminatory pricing, among other non-pricing
abuses. There are two pending investigations which are being conducted by the Director
General investigating the conduct of Ericsson on the licensing terms of Standard Essential
Patents (SEPs), based on information filed by Micromax Informatics Limited (5) and Intex
Technologies (India) Limited. (6)
P 304
The case deals with the competition law concerns emanating from licensing of standard
essential patent (SEP). As mentioned earlier, patent by nature is a statutory monopoly
but an SEP is above a normal patent (to an extent) because the licensee or implementer
has no choice but to take a licence of the SEP. It in this situation a competition law
regulator must be vigilant that the SEP holder is not abusing its power and dictating
terms to the licensees. Therefore, SEPs are monitored and ensured that the licences are
given by the SEP holders on terms that are really Fair, Reasonable, and Non-
Discriminatory (FRAND). It must be noted that licence agreement (especially licence
agreements pertaining to SEP) have a lot of benefits and cause efficiencies since licensee
already has access to the necessary production assets and the licence agreement allows
the licensee to gain access to a technology that can be combined with these assets,
allows the licensee to exploit new or improved technologies and helps them to launch
new products which will, in turn, add consumer benefits. However, licence agreement
may also foreclose competitors by raising their costs or by denying access to essential
inputs (also known as essential facilities doctrine). The present investigation by Director
General against Ericsson and the final outlook of the CCI on the issue of pricing and non-
pricing abuses will pave way for the manner licence agreement are structured in India in
the coming years.
[1] Excessive Pricing
One of the points of investigation in the Ericsson matter pertains to excessive pricing.
Based on the information received, the CCI determined, prima facie, that the relevant
product market would be GSM technologies like 3G, EDGE etc. for 2G, 3G and 4G devices.
The CCI observed that Ericsson holds a large number of GSM and CDMA patents. It was
observed that Ericsson has 33,000 patents to its credit, with 400 of these patents granted
in India. It is the largest holder of SEPs for mobile communications like 2G, 3G and 4G
patents used for smart phones, tablets etc. Further, since Ericsson holds SEPs and there is
no other alternate technology in the market, it enjoys ‘complete dominance’ over its
present and prospective licensees in the relevant product market. On this basis Ericsson
was found prima facie to be a dominant enterprise in the relevant market.
The validity of the terms under a licence agreement on SEPs and fixing of royalty rates for
such SEPs is under investigation. It must be pointed out here that while SEP has immense
benefits, it is vulnerable to abuse of market power that it confers upon the SEP holder.
In these two cases, CCI has determined that prima facie, the proposed licence terms were
both unfair and discriminatory. The information filed by Micromax and Intex stated that
Ericsson was demanding unfair, discriminatory and exorbitant royalty for its SEPs. On an
examination of the evidence produced by the Informant, the CCI noted that that the
royalty rates charged by Ericsson had no linkage to patented product since the
P 305 technology resided only within the chipset but Ericsson calculated its royalty on the
retail price of the entire phone. Therefore, while the technology remained the same, the
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royalty may vary for two manufacturers based on the pricing of their phones. Thus
increase in the royalty for patent holder was without any contribution to the product of
the licensee. Charging of two different license fees per unit phone for use of the same
technology prima facie was held to be discriminatory and also reflected excessive
pricing vis-à-vis high cost phones.
On the issue of excessive pricing, the CCI, in its prima facie order noted:
The allegations made in the information concerning royalty rates make it clear
that the practices adopted by the OP were discriminatory as well as contrary
to FRAND terms. The royalty rates being charged by the OP had no linkage to
patented product, contrary to what is expected from a patent owner holding
licences on FRAND terms. The OP seemed to be acting contrary to the FRAND
terms by imposing royalties linked with cost of product of user for its patents.
Refusal of OP to share commercial terms of FRAND licences with licensees
similarly placed to the informant, fortifies the accusations of the Informant,
regarding alleged discriminatory commercial terms imposed by the OP. For
the use of GSM chip in a phone costing Rs. 100, royalty would be Rs. 1.25 but if
this GSM chip is used in a phone of Rs. 1000, royalty would be Rs. 12.5. Thus
increase in the royalty for patent holder is without any contribution to the
product of the licensee.
As mentioned before, the matter is pending investigation by the Director General under
section 4 of the Competition Act, which does not have any IPR exemption. The pricing
related abuse under investigation in this case is excessive pricing and differential
pricing. Considering that the CCI has become a very assertive regulator, an IPR holder
must be cautious in entering into licence agreements and exercising its statutory right of
charging royalty. Since the matter is pending investigation, it will be interesting to gather
the regulatory outlook on such an issue.
The CCI has also analysed pricing abuse with respect to excessive pricing relating to
exploitation of right conferred upon the IPR statutes in the case of HT Media v. Super
Cassettes. The facts of the case have been deliberated in detail under the heading of
jurisdiction and in Chapter III above. The abuse in question related to whether licence
fee imposed by Super Cassettes to the radio operator amounts to excessive pricing and
whether the minimum commitment charge being imposed by Super Cassettes amounts to
abuse of dominant position. On the issue of excessive pricing, the CCI elaborated that the
case of excessive pricing can be made out once the cost incurred by the dominant player
is obtained and a comparison is made to the economic value of the product vis-à-vis the
cost. It was contended by Super Cassettes that cost analysis for setting a license fee is not
possible since the cost of a sound recording is reflected in the acquisition price paid as
royalty to the owners, and in the event the sound recording is developed in house, the
cost is recognized as recording expense. Further, with respect to direct costs, Super
Cassettes has various avenues for commercially exploiting the same and it is very
difficult to apportion the cost of acquisition of sound recording to different revenue
streams. Based on the same, the CCI noted that in the absence of cost date, it is not
possible to ascertain whether fee charged at INR 661 per needle hour would amount to an
abuse of excessive pricing or not. Further, CCI stated that the price charged by a
P 306 dominant player cannot be said to be excessive on the sole ground that the price so
charged is higher that its competitors. On the issue of economic value of the product, the
CCI observed that in this case, the value of a particular sound recording would depend
upon its popularity and not its cost. Based on these factors, the CCI held that no case of
excessive pricing is being made out.
It must be noted that even internationally, for a case of excessive pricing to be made out
since it is very difficult for authorities to determine the economic value of the product.
The approach of the CCI on excessive pricing also suggests that it is not a straightforward
exercise to determine whether a fee so charged is excessive. While the CCI did not rule
out the possibility of reviewing whether licensing fees charged amounts to an abuse of
dominant position as being unfair and excessive, the finding that one must assess factors
beyond just the actual cost in this market segment to analyse the economic value of the
product is apt. Such a finding will have very interesting implications when applied in the
context of other IP rights, in particular patents and know-how. Further, in the present
investigation of Ericsson, the CCI is making a foray into the determination of FRAND
royalties for determining whether the practice of Ericsson amounts to excessive pricing. It
will be interesting to view the final decision of the Commission in the Ericsson matter,
discussed above.
Further, it is crucial to note that compulsory licence proceedings under Copyright Act
involve the relevant authority to determine the ‘reasonable royalties’ to be paid to the
copyright holder. In the future, an issue that may arise is whether the ‘reasonable
royalties’ determined in a given case under the Copyright Act would become the
benchmark to determine unfair pricing issues under the Competition Act to decide the
cost of the product. Similar provisions under the other IPR statutes in India, like the
Patents Act, 1970 contain provisions relating to compulsory licence and this proceeding
will also involve an assessment of the royalties to a patentee.
Further, another area of overlap may occur in the case of IP infringement proceedings. IP
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infringement proceedings could result in monetary damages being awarded to the IPR
owner and one of the methods of determining the quantum of damages is ‘reasonable
royalties’ that the IPR owner may have otherwise obtained. In fact, such a dichotomy has
already occurred in India wherein Ericsson was recently successful in an infringement
litigation that entitled Ericsson to receive royalty payments calculated as a percentage
of the price of the product as a whole, whereas as discussed above, the CCI has ruled that
seeking royalties calculated as a percentage of the price of the product as a whole rather
than just the chip within that product embodying Ericsson’s patent, was prima facie an
abuse of dominance and ordered an investigation. It will be therefore, interesting to view
the outlook of the CCI in such a case. It is further important to monitor the regulatory
outlook because the IPR holders have the right to monetize their rights and enter into
licence agreement and obtain a stream of revenue by way of royalties. However, the IPR
holders must be careful that they do not enter into arrangements which will seem foul of
section 4 of the Competition Act.
P 307
[2] Differential Pricing

Apart from the issue pertaining to excessive pricing, the CCI is also investigating the issue
of differential pricing against Ericsson. Apart from the issue of excessive pricing, it was
also alleged that the royalty demanded by Ericsson was excessive when compared to
royalties charged by other patentees for patents similar or comparable to the patents
held by Ericsson.
The CCI noted that Ericsson had subjected all its present and prospective licensees to
Non-Disclosure Agreements which prohibits the licensees to disclose commercial terms
between similarly placed patent seekers. CCI noted that entering into such a Non-
Disclosure Agreement which prohibits such disclosure of commercial terms implies that
royalty being charged from a licensee (Micromax and Intex in this case) may be more
than the royalty being charged from similarly placed licensees. The CCI, in its prima facie
order has noted that refusal to share commercial terms with the Informant fortifies the
accusation of alleged discriminatory commercial terms imposed by Ericsson on the
informant vis-à-vis other licensees.
On the issue of differential pricing, the CCI in it prima facie order observed:
Charging of two different license fees per unit phone for use of the same
technology prima facie is discriminatory and also reflects excessive pricing
vis-a-vis high cost phones. NDA thrust upon the consumers by OP strengthens
this doubt as after NDA, each of the user of SEPs is unable to know the terms of
royalty of other users. This is contrary to the spirit of applying FRAND terms
fairly and uniformly to similarly placed players. Transparency is hallmark of
fairness. Both forcing a party to execute NDA and imposing excessive and
unfair royalty rates prima facie was abuse of dominance and violation of
section 4 of the Act.
The approach taken by the CCI gives a very valuable insight for IPR holders to treat their
licensees on an equal footing and ensure uniformity in application to similarly placed
players. CCI has noted that FRAND licenses are primarily intended to prevent situations
of patent hold-up. This means that when standard technologies are protected by patent
rights, there is a possibility for ‘hold-up’ by the patent owner to demand higher royalties
or burdensome licensing terms before the standard was chosen. Ultimately, the high
costs of such patents get transferred to the final consumers, thus impeding consumer
welfare. By standardization, which is a voluntary process, a number of companies reach a
consensus for setting common technology standards under the support of a standard
setting organization, which in the present case is the European Telecommunications
Standards Institute. The CCI analysed the policy of the European Telecommunications
Standards Institute with respect to licensing of SEPs and noted, based on the IPR policy
of European Telecommunications Standards Institute, that a SEP owner is required to
give irrevocable written undertaking, that it is prepared to grant irrevocable licences on
FRAND Terms. The same has to be applied fairly and uniformly to similarly placed player.
P 308
[3] Minimum Commitment Charge

In the Super Cassettes case, CCI also discussed the issue of minimum commitment charge.
As discussed above, the radio operators had complained to the CCI that Super Cassettes
were imposing a minimum commitment charges to be paid per month by the radio
operators to Super Cassettes irrespective of actual needle hour (each aggregate of sixty
minutes of actual broadcast of sound recordings by FM radio station excluding
commercials, advertisements, voice over, anchor time etc.) of broadcast of the music
content of Super Cassettes by the radio operators. On investigation by the Director
General, it was noticed that Super Cassettes requires minimum commitment charge to be
paid by the radio operators irrespective of the actual number of needle hours of the
music of Super Cassettes that is broadcasts. It was further noticed by the Director General
that, except Super Cassettes, no other music company is imposing minimum commitment
charge. Considering the strength of Super Cassettes, the radio operators have no choice
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but to accept the onerous conditions. On perusal of some of the agreements, the Director
General found that the minimum committed needle hours for playoff of the songs of the
opposite party imposed by it are as high as 50%. The CCI agreed with the opinion of the
Director General that held that imposition of minimum commitment charge is
exploitative and exclusionary in nature. The CCI noted that the imposition of minimum
commitment charge by Super Cassettes has an anti-competitive effect on the market as
it forecloses other competitors from a substantial share of the market. Since the private
radio station is contractually bound to pay Super Cassettes a minimum guaranteed
amount, CCI noted that they are likely to broadcast the amount of music that they have
already paid for. Therefore, a certain amount of music play out on private FM radio
stations is already fixed for Super Cassettes. Based on the above, CCI noted that
imposition of MCC by Super Cassettes is an abuse of dominance.
The ruling of the CCI on the issue of minimum commitment charge in this case is certainly
an indication to all IP holders (patentees and copyright holders included) that care must
be taken in requiring mandatory minimum royalties. Going by the outlook of the CCI in
case of Super Cassettes and prima facie order of Ericsson, it appears that CCI is more in
favour of licence fee/royalty that has a nexus to the use or value of the licensed
product/work. Once the threshold of dominant position is crossed, minimum
commitment charge type clauses are likely to undergo strict scrutiny.
[4] The Advocacy Initiatives of the CCI
As mentioned above, since the CCI has been in existence only for six years, there has
been very limited decisional guidance by the CCI on the issue of interface between IPR
and competition law. As such, the CCI has issued an advocacy booklet on the interface
between IPR and competition law, (7) highlighting certain enumerative (not exhaustive)
P 309 pricing practices which may be viewed as anti-competitive and hence void under
section 3 and section 4 of the Competition Act:
(i) An agreement which provides that royalty will continue to be paid even after the
patent has expired or that royalties shall be payable in respect of unpatented
know-how as well as the subject matter of the patent.
(ii) Fixing of price by the licensor at which the licensee would sell.
[B] Non-pricing Abuse

From the advocacy initiatives of the CCI, it can be noticed that it gives paramount
importance to the rights of the IPR holders while also ensuring that the IPR holders,
because of their statutory monopoly do not distort the market in its favour. Some of the
non-pricing abuses elaborated by the CCI are discussed below:
[1] Onerous Terms in the Licencse Agreement
Apart from the abuse of excessive and discriminatory pricing, CCI is also looking at
certain non-pricing abuse by Ericsson. As deliberated above, the prima facie order of the
CCI noted that Ericsson is forcing its licensees to enter into a non-disclosure agreement.
The non-disclosure agreement provided jurisdiction of Singapore courts. Based on the
same, CCI has held that apart from imposing excessive and unfair royalties, imposing of
jurisdiction clause which debars the licensees from getting disputes adjudicated in the
country where both parties were in business and vesting jurisdiction in a foreign land
prima facie was also an abuse of dominance. This finding of CCI assumes importance
because CCI is looking at the overall conduct of the IPR holder, which can be evidenced in
the manner that they are dealing with the licensees and prospective licensees to analyse
whether there is a prima facie case of abuse of dominance. It will be interesting to look at
the CCI judgment on this issue, in the times to come.
[2] The Advocacy Initiatives of CCI
As mentioned above, the CCI in their advocacy booklet has highlighted the following
practices (which are enumerative and not exhaustive) of practices of IPR holders as anti-
competitive:
(i) The practice of patent pooling where the firms in a manufacturing industry decide
to pool their patents and agree not to grant licences to third parties, at the same
time fixing quotas and prices. Such a practice will have anti-competitive effect
since the firms will earn supra-normal profits and keep new entrants out of the
market. In particular, if all the technology is locked in a few hands by a pooling
agreement, it will be difficult for outsiders to compete.
P 310
(ii) Tie-in arrangement where a licensee may be required to acquire particular goods
(unpatented materials e.g., raw materials) solely from the patentee, thus foreclosing
the opportunities of other producers. There could be an arrangement forbidding a
licensee to compete, or to handle goods which compete with those of the patentee.
(iii) A clause in the license agreement which restricts competition in R&D or prohibits a
licensee to use rival technology.
(iv) Clause in the licence agreement subjecting the licensee to a condition not to
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challenge the validity of IPR in question.
(v) The licensee may be restricted territorially or according to categories of customers.
(vi) A licensee may be coerced by the licensor to take several licences in intellectual
property even though the licensee may not need all of them.
(vii) A condition imposing quality control on the licensed patented product beyond
those necessary for guaranteeing the effectiveness of the licensed patent may be an
anti-competitive practice.
(viii) Restricting the right of the licensee to sell the product of the licensed know-how to
persons other than those designated by the licensor may be in violation of
competition.
(ix) Indemnification of the licensor to meet expenses and action in infringement
proceedings is likely to be regarded as anti-competitive.
(x) Limiting the maximum amount of use the licensee may make of the patented
invention may affect competition.
(xi) A condition imposed on the licensee to employ or use staff designated by the
licensor is likely to be regarded as anti-competitive.
From the above-mentioned enumerations provided by the CCI, one may decipher that
while CCI gives due importance to an IPR holders, CCI would view all practices as anti-
competitive wherein an IPR holder would misuse the rights conferred upon it by the IPR
statutes in India. Given the fact that CCI has interpreted section 3(5) to be applicable in
limited circumstances and no parallel protection to IPR in an abuse of dominance
investigation, it will be interesting to see the jurisprudence in this arena going forward.
§5.05 REFUSAL TO DEAL AND COMPULSORY LICENSING

Section 4 of the Competition Act deals with abuse of dominant position by an enterprise
or a group and one of the abuses of one’s dominant position is to indulge in any practice
or practices that result in denial of market access in any manner. We have dealt with
aspects of abuse of dominance in the previous chapter. A refusal to licence IP exclusively
held by a dominant enterprise may also be considered as a constructive refusal to supply
under the provisions of the Competition Act and such a refusal may be construed to be an
abuse under section 4 of the Act.
Section 27(g) of the Competition Act empowers the CCI to pass ‘any other order’ as it
P 311 deems fit besides imposing a penalty, if it finds that a dominant enterprise has acted
in contravention of section 4 of the Competition Act. The term ‘any other order’ is like an
omnibus clause which will include an order by the CCI issuing compulsory licence, if CCI
feels that such order will remedy the market situation distorted by the dominant
enterprise. Competition authorities in matured antitrust jurisdictions have granted
compulsory licences under the competition provisions of their respective statutes,
notwithstanding similar provisions in IP laws. One must note that, mere refusal to licence
IPR will not be considered as abuse. Internationally also, mere refusal to licence IPRs is
not in itself objectionable under the competition laws. However, in exceptional
circumstances the refusal by a dominant company to grant a licence under its IPRs can
be considered to be an abuse under Article 102 Treaty on the Functioning of the European
Union (TFEU). In Magill, the European Court of Justice (ECJ) held that the refusal by
copyright holders in the United Kingdom and Ireland to grant licences to third parties to
provide a new comprehensive television listings magazine was abusive under Article 102
TFEU. In the Microsoft decision, Microsoft abused its dominant position by refusing to
licence the specifications required to ensure interoperability between its operating
system and work group server operating systems of competitors. Further, the ECJ
confirmed that a refusal by a dominant company to license its IPR is an abuse under
Article 102 TFEU where three conditions are satisfied, namely: (i) that the refusal is
preventing the emergence of a new product for which there is a potential consumer
demand, (ii) that it is unjustified, and (iii) that it is such as to exclude any competition on
a secondary market.
We have dealt with the concepts of refusal to deal, essential facilities and denial of
market access in the chapter on abuse of dominance. There have been some discussions
on this doctrine in the CCI so far. In a few of its decisions, the CCI appears to have
endorsed the applicability of the ‘essential facilities doctrine’ under section 4 of the Act.
However, these decisions do not seem to have discussed in detail, the scope of
application of this doctrine. One cannot state with legal certainty that the ‘essential
facilities’ doctrine is the only basis on which an entity’s refusal to licence its intellectual
property would amount to an abuse of dominance.
While the cases dealt by CCI till now have been on excessive pricing and discriminatory
pricing during licensing, it is possible that in the foreseeable future, CCI will grapple with
the issue where market players refuse to license their technology, thereby causing
appreciable adverse impact on competition in India. There is an appropriate relief under
the relevant IPR statutes in India in this case would be to force the holder of the
technology to license the same, which would be something akin to compulsory license.
Such refusals under the Competition Act, when limited to decisions of a single entity will
be examined under section 4, though where the refusals involve multiple entities, i.e.,
193
‘group boycott’, the examination may proceed under section 3 of the Competition Act. As
mentioned above, some of the IPR statutes in India provide for provisions relating to
compulsory licensing. For instance, under section 84 of the Indian Patents Act, 1970, the
Controller of Patents has the power to grant compulsory licence, after expiry of three
years from grant of patent, in case the patented invention does not meet the ‘reasonable
requirements of the public’, or is ‘not available to the public at a reasonably affordable
P 312 price’ or ‘is not worked in the territory of India’. In 2012, in an order that was upheld on
appeal, the Controller of Patents granted a compulsory licence to Bayer’s patent
covering a cancer drug to a generic Indian drug manufacturer on all three grounds. (8)
There can be similar situations under the Competition Act because the CCI has the power
to pass ‘any other order’ under section 27 of the Competition Act which may include
provision for compulsory licensing. However, there is no guidance presently as to under
what conditions will CCI pass an order for compulsory licence.
Furthermore, it is more advantageous to file information against abuse of dominance
with respect to the use of IPR due to two main reasons. First, anyone can lodge an
information for abuse of dominance under the Competition Act without fulfilling the
requirement of an ‘interested person’ as is required under the Patent Act. Second, a
person does not have to wait for the expiry of three years from the date of grant of patent
to file information before the CCI under the Competition Act unlike the Patent Act. Unlike
competition authorities, the IP authorities lack expertise to deal with cases involving
anti-competitive behaviour, even though the subject matter of such cases is a protected
IPR. So, if a competition case involving the abuse of IPR arises, the CCI can intervene and
can grant a compulsory licence by virtue of exercising its ancillary power under the
Competition Act.
The Copyright Act, 1957 contains similar provisions, though of a narrower scope.
Compulsory licence may be issued pursuant to section 31(1)(b) of the Copyrights Act, 1957.
It may be issued when the Copyright Board is satisfied that the copyright owners have
refused to allow communication to the public and such refusal is not reasonable. This
provision extends only to certain type of copyrighted works and not all. Recently, in Music
Broadcast Pvt Ltd v. Phonographic Performance Limited (2010 decision), (9) the Copyright
Board issued compulsory licence to musical works in favour of the FM radio industry on a
revenue sharing model, i.e., 2% of the net advertisement earnings of each FM radio
station would be set aside to pay the music providers.
Though the jurisprudence in this regard is still evolving, in the coming days, the CCI will
have to deal with these questions as and when the jurisprudence in India gets more
matured. It will be interesting to see whether the CCI would attempt to adopt the factors
considered by the relevant IP authorities and fit them within the scope of the Act, or
whether the CCI would distance itself from such factors and instead assess the issue
under other factors.
The CCI therefore has to maintain a critical balance between the rights of the IPR holders
and imposing a relief such as compulsory licensing in an abuse of dominance
investigation. CCI can take reference to decisional practice under the EU law where the IP
holders do not have a general obligation to licence their IPR to competitors, and the ECJ
in such context has opined that in ‘exceptional circumstances’, such refusal could result
in an abuse of dominance.
P 313
§5.06 IP REMEDIES IN MERGERS

The CCI has grappled with the issue of IP remedies in a merger situation. As mentioned in
detail in the chapter on merger control, merger analysis is a forward-looking exercise and
the CCI has the powers under the Competition Act to issue commitments/remedies to the
parties of combination to ensure that the behavioural conduct of the parties to the
combination, post the consummation of the combination, do not create any competition
law concerns. Commitments in merger situation may be structural or behavioural in
nature.
The CCI has dealt with the issuance of structural commitments which involved IP
remedies. Structural commitments consists of a divestment package and the competition
regulator must ensure that the divestment so designed consists of a viable business,
which in the hands of the purchaser, is capable of competing with the merged entity. In
order to determine the scope of the business to be divested, all tangible and intangible
elements – including IPR, know-how and goodwill, must be specified. Also, the manner in
which intellectual property will be transferred must also form part of the divestment
package. Generally, the intellectual property are transferred by way of licences and such
licences should generally be exclusive licences, and free from field, or geographical
restrictions, and grant the licensee the ability to compete effectively with the parties to
the merger.
In one of the recent merger control orders of Sun Pharmaceuticals Industries Limited and
Ranbaxy Laboratories Limited, (10) the CCI discussed on the issue of IP
remedies/commitments to alleviate the competition law concerns emanating from the
merger of Sun and Ranbaxy. Apart from the brands and assets which formed a part of the
divestment package, the CCI noted that Intangible assets (including IPR) which contribute
194
to the current operation or are necessary to ensure the economic viability, marketability
and competitiveness of products in the divestment package (retained by the
Sun/Ranbaxy for use in their other business), the parties will grant a non-exclusive,
irrevocable, royalty free and perpetual license to the purchaser. Further, CCI also noted
that customer and credit records with respect to divestment products must also be given
to the purchaser.
As mentioned above, it is critical to spell out in detail the nuances of the divestment
package and the manner in which IP remedies will be carried out. The IP remedies were
designed in the following manner for this merger:
Either a full assignment or an exclusive, irrevocable, assignable, royalty-free,
perpetual licence (with the right to sub-license) to use intellectual property
rights (‘IPRs’) owned by the respective Parties or an Affiliated Undertaking
which exist at the time of the Divestiture and contribute to the current
operations and/or are necessary to ensure the economic viability,
marketability and competitiveness of the Divestment Brands in India and are
P 314 used exclusively in relation to those brands, including, without limitation:
a. The IP addresses for the registered domain names owned by the
respective Parties or Affiliated Undertakings relating to the current range
of Divestment Brands.
b. Packaging and design rights therein currently used exclusively on
products pertaining to Divestment Brands.
c. Product formulations, and recipes and manufacturing know-how for
production.
d. Technical Information and Know-how: Either a full assignment or an
exclusive, irrevocable, assignable, royalty-free, perpetual licence with
the right to sub-license to use in the Divestment Product(s), all
information and know how (in whatever form held) to the extent that
such information is related to the Divestment Brands in India including,
without limitation, all:
i. formulae, specifications, drawings, manuals and instructions;
ii. customer lists, sales, marketing and promotional information (in
particular the customer base for products pertaining to Divestment
Brands in India, i.e., details of all customers in India that have
purchased products pertaining to Divestment Brands from the
respective Parties during the period of three years prior to the
Effective Date);
iii. business plans and forecast;
iv. technical or other expertise;
v. customer records, credit records and other records existing at the
time of Closing, provided that the Parties may redact from such
documents any information that does not relate to the Divestment
Brands
Therefore, it can be seen that in a merger situation, CCI gives a lot of emphasis on IPR
remedies. It will be interesting to note that the stand of the CCI in future where they grant
remedies in nature of access remedies, rebranding etc.
P 314
References
1) 2011 (1) BomCR 802.
2) Case No. 40/2011.
3) Case No. 01/2009.
4) Case No. 3/2011.
5) Case No. 50/2013.
6) Case No. 76/2013.
7) Advocacy booklet on Competition law, available at
http://competitioncommission.gov.in/advocacy/PP-CCI_IPR_7_12.pdf.
8) Natco Pharma v. Bayer Corporation, Controller of Patents Mumbai, March, 2012
available at: http://www.ipindia.nic.in/iponew/compulsory_license_12032012.pdf;
Bayer Corporation v. Union of India & Ors., IPAB, Chennai, available at:
http://www.ipab.tn.nic.in/045-2013.htm.
9) Music Choice India Pvt Ltd v. Phonographic Performance Limited, Copyright Board
(Second Order), 2010.
10) Combination Registration No: C-2014/05/170.
195
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Document information Chapter 1: Introduction to Competition Law

§1.02 PROCEDURE FOR INVESTIGATION

[A] Filing of Information

[B] Prima Facie Case

[C] Investigation by Director and Subsequent Order by the CCI

§1.03 ENFORCEMENT POWERS OF THE CCI

[B] Fines on Directors/Officers-in-Charge

[C] Advocacy Remedy

[D] Fines for Non-cooperation/Furnishing False Information

[E] Interim Relief

§1.04 COMPETITION LAW COMPLIANCE

§1.05 MEMORANDUM OF UNDERSTANDING WITH OTHER ANTI-TRUST

§1.06 APPEAL PROVISIONS

[A] Section 26(2) of the Competition Act

[B] Section 26(6) of the Competition Act

[C] Sections 27, 28 and 31 of the Competition Act

[D] Section 33 of the Competition Act

[E] Section 38 of the Competition Act

[F] Section 39 of the Competition Act

[G] Sections 43, 43 A, 44 and 45 of the Competition Act

[H] Section 46 of the Competition Act

§1.07 PRIVATE ACTION

§1.08 DUE PROCESS

§1.09 POWER OF RECALL

§1.10 SETTLEMENT OR COMPROMISE UNDER THE COMPETITION ACT

§1.11 COMPETITION ASSESSMENT GUIDELINES

§1.12 SECTOR INQUIRY

§1.14 RELEVANT MARKET

[A] Relevant Product Market

[B] Relevant Geographic Market

[C] Trends of the CCI

§3.02 POSITION OF STRENGTH

§3.03 EXAMINING POSITION OF STRENGTH BY CONDUCT OF THE ENTERPRISE

§3.04 INDICES OF DOMINANCE

[A] Market Share

[B] Strength of the Enterprise vis-à-vis the Competitors

[C] Entry Barriers

[D] Buyer Power

[E] Statutory Monopoly

[F] Using the Regulatory Power to Enter Commercial Activities

§3.05 ABUSE OF DOMINANCE

[A] Unfair and Discriminatory Pricing

[B] Unfair Terms and Conditions

[C] Limiting or Restricting Production and Technical Development

[D] Denial of Market Access

[E] Imposing Supplementary Obligations

[F] Leveraging of Dominant Position

§3.06 OBJECTIVE JUSTIFICATION

§2.02 LEGAL FRAMEWORK OF CARTELS IN INDIA

§2.03 EXISTENCE OF AN AGREEMENT

§2.04 SINGLE ECONOMIC ENTITY

§2.05 DETERMINATION OF RELEVANT MARKET

§2.06 TYPES OF CARTEL

[A] Price Fixing

[B] Output Controls/Limiting Production

[C] Market Sharing

[D] Bid Rigging

§2.07 STRUCTURAL FACTORS AIDING CARTELIZATION

[A] Highly Concentrated/Oligopolistic Market

[B] Demand & Supply Conditions

[C] Homogeneous Product

[D] Active Trade Association

§2.08 APPRECIABLE ADVERSE EFFECT ON COMPETITION IN INDIA