June 20, 2016     

 India: Recent Trend of COMPAT taking Notice of CCI’s disregard to Principles of Natural Justice

 

The recent change in the relationship between the Competition Appellate Tribunal (COMPAT) and the Competition Commission of India (CCI) has been studied in light of the appeal made in the case of M/s GHCL Ltd. v. M/s Coal India Ltd. and M/s Western Coalfields Ltd. (Case No. 08 of 2014) before the CCI.

 

 Source: 1. IZ quotes, 2. Pinterest

 

Brief Background:

 

The Informant, GHCL, is a soda ash manufacturing and selling company. The Opposing Parties (OP) are the Central Government owned Coal India Ltd. (here in after referred to as ‘CIL’), and its subsidiaries- Mahanadi Coalfields Ltd, Western Coalfields Ltd and South Eastern Coalfields Ltd. CIL issued a Letter of Assurance (LoA), NGP/WCL/S&M/C-12(348-B)/798 dated June 07, 2010, to the Informant, who required coal for running its captive power plant, calling upon it to fulfil various conditions precedent to enter into a Fuel Supply Agreement (hereinafter referred to as ‘FSA’) for supply of coal. FSA was mandatory for commencing supply of coal under the New Coal Distribution Policy, 2007 (hereinafter referred to as ‘NCDP’). Informant was required to execute a Memorandum of Understanding along with the FSA. The terms and conditions of FSA were non-negotiable and any delay or failure to execute the FSA within the stipulated time period would result in the invocation of the bank guarantee issued by the Informant. The Informant was required to furnish a Commitment Guarantee (CG) in the form of a bank guarantee of INR 1, 00, 38,900, (Approx US $ 149,011)* equivalent to 10% of the base price of indigenous coal as on the date of application for issue of LoA. Pursuant to this, the Informant claimed that the opposing parties were abusing its dominant position and thus acting in contravention of the Competition Laws.

 

Issues:

  1. What is the relevant market in the present case?

  2. Whether the Opposite Parties are dominant in the said relevant market?

  3. If the Opposite Parties are in a dominant position whether they have abused their dominant position in the relevant market?

Contentions of Informant:

  • The opposing parties have abused their dominant position by dictating the terms and conditions of supply of coal through LoA, FSA and MoU, which are not in accordance to the NCDP. The Deemed Delivered Quantity (DDQ) clause gave undue power to opposing parties to avoid liability for short supply. Severe operational and maintenance problems were caused due to supply of inferior quality of coal by the opposing parties, thereby forcing the Informant to purchase quality coal from alternate sources.

  • When the Informant contested the clauses in the MoU, the opposing parties threatened to encash the commitment bank guarantee furnished by the Informant, pursuant to a clause in the LoA.

  • E-auction conducted by the opposing parties increased their revenue by 36% but made them unable to meet their contractual commitments like Annual Contracted Quantity (ACQ) to consumers under FSAs. The Informant was forced to engage alternative sources to obtain additional supply of coal.

Contentions of Opposite Party (OP):

  • CIL does not hold a dominant position because there are a number of other significant active players in the global market.

  • It cannot be said that CIL used its dominant position to make the Informant sign the MoU as despite being provided ample opportunity, of nearly 2 years, to raise objections, the Informant silently signed the MoU and only brought up this issue before the Commission.

  • Being owned and controlled by the Government it is not driven purely by a profit motive and its social responsibilities take precedence over its commercial interests.

  • Office of the Coal Controller (CCO), and the sampling and analysis process is in accordance to Bureau of Indian Standard. CCO rules also provide for a statutory complaint mechanism which can be exercised by any customer who is not happy with the grade of coal that is being supplied to it. Thus, the absence of a clause specifically providing a customer with the same remedy cannot be seen as discriminatory treatment, as the right to do so does not affect the ability of the customer to exercise his/her rights.

  • The findings of the Director General Report are nothing but a reproduction of the findings of the Commission which were used in previous cases.

  • The allegation that the coal was being diverted towards e-auction is false. As WCL could not have foreseen the short lifting on the part of the power consumers at the time of entering into FSA and MoU.

  • It was prayed on behalf of WCL that the Informant has misrepresented the facts and has not approached the Commission with clean hands.

Held:

 

The CCI found the Informant’s allegations to be prima facie true and asked its investigation wing- DG’s office, to probe into the matter. The DG report stated that-

  1. The conditions imposed by the opposing parties in LoA, FSA and MoU were unfair and discriminatory including reduction of the quantity of supply, trigger level for penalty and DDQ.

  2. WCL’s conduct of asking the Informant to extend CG or face the consequence of encashment of Bank Guarantee, was found to be abusive under section 4(2)(a)(i) of the Competition Act.

  •  It appears that the plea of CIL has no force. The Informant’s contention that the quality of coal supplied by WCL was of inferior quality is accepted.

  • The relevant geographic market was taken as the whole of India by the DG as the conditions for supply of coal in the entire country are uniform and homogeneous.

  • Pursuant to the Coal Mines (Nationalization) Act, 1973, production and distribution of coal is in the hands of the Central Government, therefore, CIL and its subsidiary companies have been vested with monopolistic power in this regard. Further, coal companies have acquired a dominant position due to the New Coal Distribution Policy (NCDP).

  • Opposing Parties have not produced any document material to substantiate the terms of the FSA, LoA and MoU. Further, the purchaser had no option but to accept the terms and conditions of MoU as there was no scope for negotiation.

  • The Commission, in agreement with the DG, is of the opinion that opposing parties have contravened the provisions of section 4(2)(a)(i) of the Act by imposing unfair and discriminatory conditions in FSA upon the Informant.

  • In view of the above points the following order was passed:

  1. Opposing Parties are directed to cease and desist from abusing its dominant position.

  2. Opposing Parties are to take remedial steps within 60 days from the receipt of this order.

  3. A penalty of Rs. 1773.05 Crores (Approx. US $ 26,31,73,519) have been imposed upon them.

Opposing Parties preferred an appeal before the Appellate Tribunal. Therefore, the directions relatable to the clauses and conduct which are also subject matter of this order would be subject to the decision of Competition Appellate Tribunal (hereinafter referred to as the ‘COMPAT’).

 

The COMPAT observed that it has repeatedly been held by the Supreme Court of India that the quasi-judicial Commission is “bound to comply with different facets of the principles of natural justice."

 

Conclusion:

 

There has been a remarkable change in the outlook of the COMPAT regarding the judgments passed by CCI. The shift in trend which seems to have begun in 2015, simply cannot go unnoticed. In the Board of Control for Cricket in India (BCCI) v. CCI case (decided on February 23, 2015) it was held by COMPAT that the order passed by CCI was a blatant violation of the settled principles of natural justice and was liable to be set aside only on that ground. The same was reiterated in the case of All India Organization of Chemists and Druggists v. CCI (decided on April 27, 2015). Further on December 11, 2015, COMPAT had revoked the Commission's order that imposed a combined penalty of INR 6,316 crore on 11 cement companies for allegedly forming a price cartel on the same grounds of ignorance of principles of natural justice. It is a matter of concern that the CCI has been nonchalant in its administration of justice and has time and again ignored the principles of natural justice. The fact that COMPAT is taking notice of such astonishing lapse in law is a positive sign that will herald a fairer and more just implementation of law.

 

[* 1 USD = 67.37 INR]

 

REFERENCES:

  1. http://smartinvestor.business-standard.com/market/story-384406-storydet-COMPAT_turns_down_Rs_1_773_crore_CCI_penalty_on_Coal_India.htm#.

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  2. http://kluwercompetitionlawblog.com/2016/02/05/lessons-from-compats-judgment-in-hiranandani/

  3. http://www.conventuslaw.com/archive/india-competition-watchdog-guilty-of-violating-principles-of-natural-justice/

 

 

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