Relevant Cases PDF

SCC Online Web Edition, Copyright © 2020

Page 1 Tuesday, September 22, 2020

Printed For: Yatharth Khurana
SCC Online Web Edition: http://www.scconline.com
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2020 SCC OnLine Blog OpEd 41

Analysing the Competition Law Issues in the Ambitious Jio-Facebook Deal
ANALYSING THE COMPETITION LAW ISSUES IN THE AMBITIOUS JIO-FACEBOOK DEAL

by
Samanvi Narang and Prateek Gupta*
Facebook is investing $5.7 billion or INR 43,574 crore to get close to 10% equity in
Jio Platforms Limited. In its press release1 , the social media giant expressed its
intention to connect Jio's e-commerce platform, JioMart, to small businesses and
shops via “the power of WhatsApp” in order to make online shopping a seamless
mobile experience. The Jio-Facebook deal announced last week promises to push
India's digital transformation to new heights. However, out of a number of regulatory
approvals, Competition Commission of India's (CCI) approval is the most crucial one.
To consummate a deal that crosses the thresholds mentioned under Section 5 of the
Competition Act, 2002, CCI's approval is mandatory. Section 6 sub-section (2) read
with Regulation 5 of the Combination Regulations2 evidences a suspensory regime i.e.
the approval must be obtained prior to closing of the deal in the country.
The deal, as ambitious as it sounds, can run into anti-trust issues. Firstly, the multi
-billion-dollar investment into Jio will have to be notified to and approved by India's
competition regulator. For that to happen, CCI will have to take a forward-looking
approach and check that the proposed combination does not have potential to cause
appreciable adverse effect on the competition in the market. To safeguard the
investment from the protectionist approaches of Indian regulators is a crucial factor in
consummating the deal and, subsequently, carrying it forward smoothly. Despite the
criticism to protectionist regulatory regime, CCI tends to adopt a liberal approach3 . In
the approved RIL-Brookfield tower infrastructure deal, the two were found to be
vertical participants and CCI went ahead to analyse if there were any vertical overlap.
With RIL's acquisition of stake in Saudi AramCo at hold, it needs to be more careful
with the investment and regulatory concerns with the activities of its digital arm, Jio.
The strategic investment for acquiring the minority stake is not simply a passive
investment. The filing of notice as per Regulation 4 of the Combination Regulations in
itself is indicative of the fact that the transaction is not in the ordinary course of
business and is backed with an intent of strategic investment to bring in change in
control. Thus, the responsibility of CCI is to peruse not only the potential adverse
effects on competition but also the potential concerns it may give rise to. It would be
interesting to see whether the acquisition of minority stake in India's leading telecom
arm would grant any control to Facebook. Let us look at the possible anti-trust issues
that the deal poses:
Dominance: Boon or a bane?
Both Jio and Facebook seem to be dominant players in their respective markets.
The Telecom Regulatory Authority of India's data points to the fact that Jio has the
highest market share in terms of user base and revenue sharing in the telecom market
as it holds 32% share in the 1.15-billion-user Indian mobile services market, taking its
total user base to 369.93 million, surpassing its competitors Bharti Airtel and
Vodafone-Idea. It must also be noted that, unlike others, all Jio connections are 4G
based, thus, having a strong base of smartphone users.
Now, Facebook primarily operates via three platforms: facebook.com, Instagram
and WhatsApp. All of them seem to be dominant players in the market they operate
in. We are only concerned with WhatsApp. Its relevant market seems to be
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smartphone-based social media messaging platform. WhatsApp has more than 400
million4 confirmed users in India, while around 600 million5 people have accesss to
internet6 in the country. Other competitors to WhatsApp in India are hike, WeChat,
Telegram, which only have a fraction of the users as WhatsApp.
Jio plans to revolutionise JioMart by combining it with WhatsApp to integrate small
and medium scale ‘kirana’ businesses to cater to the demand. This would firstly
strengthen the position of mom-pop shops in the local market by sewing them into the
digital framework and secondly would attempt to penetrate into another market by
using the dominance of WhatsApp.
More so, WhatsApp could possibly allow JioMart to operate on its messaging
platform. If done so, and in the manner that WhatsApp comes with pre-embedded
JioMart platform, it could lead to abuse of dominance under Section 4(2)(d) as
installing WhatsApp would be the main contract and pre-embedded JioMart would be
the unconnected supplementary obligation. This would also mean that the users would
not be allowed to embed any other e-commerce portal on WhatsApp messenger, which
would again seem to be causing disruption in the competition in the market and unfair
to consumers as it would leave no choice to them but accept the imposed deal.
Another advantage post the deal would be of control over consumer data. As of
now, RIL Chief has said that there is no agreement for transferring of consumer data
between the parties; however, this does not erode the possibility of entering into such
agreements in the near future. While control over data has been used by Competition
Regulators in examining the e-commerce and digital platforms’ anti-competitive
conduct (viz. Amazon-Flipkart case7 , Sonam Sharma v. Apple Inc. USA8 ), this factor in
the present case must be dealt with utmost seriousness and conviction to ensure
survival of healthy competition in the e-commerce market, especially at a time when
Facebook has been imposed with $5 billion fine over data privacy violation.9
Appreciable Adverse Effect on Competition: Is it too soon?
Where the strategic investment is with the intent to enter into a different segment
using the control in respective markets to enter into an entirely different product
market, the parameters to check the potential adverse effect on the competition must
be comprehensive. In re, Google LLC10 , CCI observed that there is a need to not only
delineate primary relevant market but also associated markets to relevant markets
that have been affected by the conduct of the parties involved. Section 20 sub-section
(4) lists the factors that CCI must consider to conclude if there is any appreciable
adverse effect on the competition because of the proposed combination.
The essence of this checklist is to look for horizontal or vertical overlap in the
activities post acquisition. While there seems to be no horizontal overlap, there
definitely could be a case of vertical integration. Jio provides internet to smartphone,
smartphones use internet to operate WhatsApp and now WhatsApp would integrate
JioMart. It is not only vertical integration but use of dominant position in one market
to enter into a new market, and thus would be likely to effect adversely the natural
competition in the ‘phygital’ commerce market (as has been recently termed).
The analysis must be based not only on the market share of the deal participants
both pre and post-acquisition but must also mindfully address the data sharing aspect
of the deal, considering these data mammoths’ conduct in the recent past. The US
Court imposing record $5 billion fine on Facebook for privacy violations is in itself a
warning for the Indian regulators to intervene in this far reaching deal especially, to
protect the Indian start-up movement that is also an important wing of the Digital
India flight. The deal no doubt has potential of creating business and commercial
barriers for local tech start-ups. The primary purpose of the merger control regime is
to foresee adverse effects and to live up to this objective, CCI must take cognizance of
the interrelatedness of this deal.
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One can at the same not ignore the importance of balance between the commercial
interest and the consumer welfare interests. Though the weighing scale can never be
equal for both, what is important for CCI as a regulator of omnipotent economic
concerns is that it shouldn’t step on the commercial prospects deal participants like
such to ensure distributive justice.
The deal will undoubtedly push the CCI's merger control jurisprudence into a
comprehensive one and shall be significant in laying down a vigilant yet compendious
framework for future deals. While we are still speculating about the nature of the deal,
JioMart has started testing WhatsApp for grocery orders in pursuance of the proposed
deal. “The customer initiates the interaction on WhatsApp, checks out the grocery
order on JioMart webpage, gets connected with a retail store on WhatsApp and then
customer picks up the order from Kirana and pays in cash,” said the news report11 .
———
* Prateek and Samanvi are pursuing Master of Laws (LL.M.) in Corporate and Commercial Law from Nalsar
University of Law, Hyderabad
1
Press release by Facebook (21.02.2020), https://about.fb.com/news/2020/04/facebook-invests-in-jio/
2Competition Commission of India (Procedure in regard to the transactions of business relating to combinations)
Regulations, 2011 http://www.scconline.com/DocumentLink/WQBl5ZD9
3 CCI has cleared over 600 combinations, and has not blocked even a single one. Only eight were subject to
detailed Phase II enquiry, India: Merger Control (4th Edn.), AZB Partners,
https://www.azbpartners.com/bank/india-merger-control-4th-edition/,
4 Manish Singh, WhatsApp reaches 400 million users in India, Tech Crunch, (26.07.2020),
https://techcrunch.com/2019/07/26/whatsapp-india-users-400-million/
5 Sanika Diwanji, Number of internet users in India from 2015 to 2018 with a forecast until 2023, Statista,
(31.03.2020), https://www.statista.com/statistics/255146/number-of-internet-users-in-india/
6 PTI, Internet users in India to reach 627 million in 2019, Economic Times, (06.03.2019)
https://economictimes.indiatimes.com/tech/internet/internet-users-in-india-to-reach-627-million-in-2019-
report/articleshow/68288868.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst
7 Delhi Vyapar Mahasangh v. Flipkart Internet Private Limited,
http://www.scconline.com/DocumentLink/eJmu4nUf
8 2013 SCC OnLine CCI 25, http://www.scconline.com/DocumentLink/sUAcqx9O

9 AFP, Cambridge Analytica: US Court Approves Record $5 Billion Fine of Facebook Over Privacy, NDTV
(25.04.2020), https://gadgets.ndtv.com/social-networking/news/cambridge-analytica-us-court-approves-record
-5-billion-fine-of-facebook-over-privacy-2218223
10 Umar Javeed v. Google LLC, Case No. 39 of 2018, dated 16-4-2019
11 Reliance Begins Using Whatsapp for Grocery Deliveries Through JioMart, Business Standard, (27.04.2020)
https://www.business-standard.com/article/companies/reliance-begins-using-whatsapp-for-grocery-deliveries-
through-jiomart-120042700691_1.html
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2020 SCC OnLine NCLAT 393
In the National Company Law Appellate Tribunal*

(BEFORE S.J. MUKHOPADHAYA, CHAIRPERSON AND BANSI LAL BHAT, MEMBER (JUDICIAL))
Adani Gas Limited … Appellant;

Versus
Competition Commission of India. through its Secretary and
Another … Respondents.
TA (AT) (Competition) No. 33 of 2017 (Old Appeal No. 50 of 2014)†
Adani Gas Limited … Appellant;
Versus
Competition Commission of India. Through its Secretary and
With
TA (AT) (Competition) No. 34 of 2017 (Old Appeal No. 57 of 2014)‡
Faridabad Industries Association FIA House, BATA Chowk,
Faridabad - 121001. Haryana … Appellant;
Versus
Competition Commission of India. through its Secretary and
TA (AT) (Competition) No. 33 of 2017 (Old Appeal No. 50 of 2014) and TA (AT)
(Competition) No. 34 of 2017 (Old Appeal No. 57 of 2014)
Decided on March 5, 2020
Advocates who appeared in this case :
Mr. Parcival Billimoria, Ms. Avaantika Kakkar, Ms. Neelambera Sandeepan, Mr.
Satvik Mohnaty, Mr. Shubhankar Jain, Mr. Aamir Khan, Ms. Marcellina Kalikotey, Mr.
Dhruv Rajan and Mr. Shaurya Vardhan, Advocates, for the Appellant;
Mr. Pallav Sishodiya, Senior Advocate with Mr. Vikram Sobti and Mr. Mehul Parti,
Advocates, for the Respondent No. 1;
Mr. Sharad Gupta and Mr. Vinayak Gupta, Advocates, for the Respondent No. 2.
The Judgment of the Court was delivered by
BANSI LAL BHAT, MEMBER (JUDICIAL):— ‘Adani Gas Limited’ (AGL) has preferred
the instant appeal being appeal No. TA (AT) (Competition) No. 33 of 2017, Old Appeal
No. 50 of 2014 against order dated 3rd July, 2014 passed by the Competition
Commission of India (Commission) in Case No. 71 of 2012 (Faridabad Industries
Association v. Adani Gas Limited) under Section 27 of ‘the Competition Act,
2002’ (Act) holding that the Appellant has contravened the provisions of Section 4(2)
(a)(i) of the Act by imposing unfair conditions upon the buyers under ‘Gas Supply
Agreement’ (GSA). The Commission, apart from directing the Appellant to cease and
desist from indulging in conduct found to be in contravention of the provisions of the
Act in terms of the impugned order, directed the Appellant to modify the GSA's in the
light of observations and findings recorded in the impugned order and imposed a
penalty @ 4% of average turnover of the last three years quantified at Rs. 2567.2764
Lakh.
2. The Informant - ‘Faridabad Industries Association’ (FIA) also has filed cross
appeal being TA (AT) (Competition) No. 34 of 2017, Old Appeal No. 57/2014.
3. For better appreciation of the issues raised in these appeals reference to the
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allegations in the information filed by FIA against AGL and the action taken by the
Commission culminating in passing of impugned order is inevitable. Briefly adverting
to the factual matrix, it comes to fore that FIA is an Association of Industries
registered under the Societies Registration Act, 1860, situated in Faridabad,
comprising of about 500 Members operating industries in auto components, medical
devices, steel, alloys, textile, chemical, etc. AGL is a Company incorporated and
registered engaged inter-alia in the business of setting up distribution network in
various cities to supply natural gas to industrial, commercial, domestic and CNG
customers. It was averred in the information that about 90 Members of FIA were
consuming natural gas supplied by AGL to meet their fuel requirements. The
Informant alleged that AGL, by grossly abusing its dominant position in the relevant
market of supply and distribution of natural gas in Faridabad, has put unconscionable
terms and conditions in GSA which are unilateral and lopsided besides being heavily
tilted in favour of AGL. Thus, AGL was alleged to have imposed its diktat upon the
buyers of natural gas (Members of FIA) under the garb of executing GSA. It was
further alleged that the terms of GSA have been drafted unilaterally by AGL leaving no
scope for Members of FIA, who are solely dependent for supplies upon AGL. Referring
to various clauses of GSA, the Informant alleged that the said clauses and conduct of
AGL clearly demonstrated abuse of dominant position by AGL in imposing unfair and
discriminatory conditions in GSA's executed by it with the Members of FIA. While we
propose to refer to allegedly offending clauses at the appropriate stage as we proceed
further, be it noticed that on the strength of aforesaid allegations Informant
complained of contravention of provisions of Section 4 of the Act seeking various
reliefs including direction to AGL to discontinue such abuse of dominant position,
direct modification of offending clauses in GSA by providing fair and non-
discriminatory terms and imposition of exemplary penalty within the ambit of Section
27(b) of the Act.
4. It emerges from impugned order that the Commission, upon consideration of the
material available on record, directed the Director General (DG) to cause an
investigation to be made in the matter and submit report within 60 days of its order
dated 27th December, 2012. DG filed the investigation report on 7th February, 2014.
5. As per Investigation Report of DG, the relevant market is the market of supply
and distribution of natural gas to industrial consumers in Faridabad District and AGL is
in a dominant position in the said relevant market. DG concluded that Sub-clause 9.4
of Clause 9 (Quality), Sub-clauses 10.2, 10.5 and 10.6 of Clause 10 (Measurement
and Calibration), Sub-clause 11.2.4 of Clause 11 (Shutdown and Stoppage of Gas),
Sub-clause 12.6 of Clause 12 (Contract Price), Sub-clauses 13.4, 13.6 and 13.7
(partially) of Clause 13 (Billing and Payment) and Sub-clause 14.1 of Clause 14
(Payment Security) of GSA of AGL with its industrial consumers did not reflect abusive
conduct attributable to dominant position of AGL. However, Sub-clause 13.5 of Clause
13 (Billing and Payment) of GSA to the extent of stipulating any such rates as may be
decided by the seller in future and Sub-clause 13.7 of Clause 13 (Billing and Payment)
to the extent of absolving AGL from paying interest on excess amount in dispute paid
by the consumers amounted to imposition of unfair conditions by AGL upon
consumers. It also concluded that sub-clause 16.3 under Clause 16 of GSA to the
extent of reservation of right at its sole discretion by AGL to accept or reject request of
customers for force majeure and Sub-clause 11.2.1 under Clause 11 of GSA to the
extent of buyer being obliged to meet its Minimum Guaranteed Off-take (MGO)
payment obligation even in the event of emergency shutdown calling for complete or
partial off-take of gas amounted to imposition of unfair conditions. DG further
concluded that Sub-clause 17.4 of Clause 17 (Expiry and Termination) of GSA which
empowered AGL to terminate the Agreement in the event of consumer's failure to take
50% or more of the Cumulative Daily Contracted Quantity (DCQ) during a period of 45
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consecutive days amounted to imposition of unfair condition by AGL upon consumers.

However, DG did not find AGL having indulged in abuse of its dominant position qua
the allegations of irrational and arbitrary increase in gas prices. The allegations in
regard to non-adherence to the PNGRB Regulations by AGL were found factually
incorrect.
6. Upon consideration of the Investigation Report submitted by the DG, the
Commission decided to proceed with the enquiry and provided opportunity to the
parties to file their replies/objections to the Investigation Report and provided them
oral hearing. On analysis of the Information, the Investigation Report and the
Replies/Objections of the parties, the Commission formulated following issues for
determination:—
(i) What is the relevant market in the present case?
(ii) Whether the Opposite Party is dominant in the said relevant market?
(iii) If finding on the issue no. (ii) is in affirmative, whether AGL has abused its
dominant position in the relevant market?
Relevant Market
7. The Commission agreed with classification of consumers made by the DG who
identified various categories of consumers viz. industrial consumers, domestic
consumers, commercial consumers and transportation consumers further observing
that since interchangeability or substitutability of a product in terms has to be seen
from the perspective of consumers while determining the relevant market, industrial
consumers formed a category different and distinct from domestic, commercial and
transportation consumers. The Commission noted that the intended use and price of
natural gas for each of these categories of consumers was different. The price charged
for supply of natural gas to these different consumer segments being different and
technical considerations involved in supply and distribution of gas to the different
segments being different necessitated a distinction to be made between consumers
under such categories. The Commission found itself in agreement with DG as regards
natural gas being distinct and distinguishable from other sources of energy as it was a
flammable gaseous mixture composed mainly of Methane made available to
consumers through a network of pipelines. Unlike other Liquid Hydrocarbons, it did not
require any storage facilities at the end of consumers. It also noted that the natural
gas was a clean, smoke free and soot free fuel as compared to Liquid Hydrocarbons
and its supply was uninterrupted as it did not require storage by consumers at their
premises. Based on such considerations, the Commission was of the view that the
Relevant Product Market in the present case would be the market of supply and
distribution of natural gas to industrial consumers.
8. Adverting to the aspect of ‘Relevant Geographic Market’, the Commission found
that the DG had rightly noticed that the Government of Haryana having authorized
only AGL to build and operate a CGD network in district Faridabad and there being no
other authorized entity in Faridabad to lay such network makes district Faridabad the
Relevant Geographic Market in the instant case. The Commission also agreed with the
Investigation Report of DG to the effect that AGL faced no competition from any other
entity in the said geographical area.
Whether AGL is dominant in the said Relevant Market?
9. The Commission noticed that AGL held 100% market share in the Relevant
Market being the only entity authorized by Government of Haryana to setup and
operate CGD Network in Faridabad. The Commission noticed that the regulations
framed under the Petroleum and Natural Gas Regulatory Board Act, 2006 (PNGRB Act)
contain provisions to grant 25 years infrastructure exclusivity to lay, expand or operate
CGD Network with further provision for three years marketing exclusivity to an existing
CGD Network and five years exclusivity to a new CGD Network from the purview of
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common or contract carrier after which it provides for open access allowing
competition and choice to the consumer. Based on the relevant factors including
absence of any countervailing buying power, market structure, size thereof and the
entry barriers, the Commission found that the AGL was holding a dominant position in
the defined relevant field.
Whether AGL has abused its dominant position in the relevant market?
10. Dwelling upon various clauses of Gas Sales Agreement (GSA) executed inter-se
the members of FIA and AGL, the Commission was of the view that with reference to
Clauses 9 and 10 of GSA, the allegations of FIA as regards unilateral self-declaration of
the quality/measurement of gas by the seller were misconceived. It noticed that AGL
was not producer but only supplier of gas sourced by it from GAIL and certified by
GAIL as regards its quality/measurement which was supplied by AGL through a closed
pipe network. The Commission noticed that FIA itself had relied on the certificate of
gas quality/measurement issued by GAIL. It also noticed that for resolution of any
dispute arising out of the interpretation/implementation or breach of any of the
provisions of GSA there was a Dispute Resolution Mechanism provided with further
provision that in the event of such dispute not being resolved, Clause 20 providing for
Arbitration shall be invoked. Thus, the Commission found, the buyer could take
recourse to the remedies provided under such mechanism.
11. As regards Clause 11 of GSA declining any compensation to the buyer on
account of disruption of gas supply due to any reason whatsoever, the Commission
was of the view that the said clause being reflective of the upstream agreement of AGL
with GAIL did not reflect abuse of dominant position by AGL.
12. As regards Clause 12 of GSA providing for unrestricted right to seller to
change/modify/revise the contract price and excess gas price, the Commission agreed
with conclusions of the DG that by virtue of peculiarities of Gas Industry coupled with
the fact that the gas prices are market driven and the nature of relationship between
AGL and its consumers makes price negotiation an impracticable proposition, it was
impractical to have a fixed formula based pricing mechanism for fixation of gas prices.
It noticed the fact that the revision in prices of gas depended upon revision in prices
by GAIL to AGL in terms of the agreement, consequently, affecting the consumer as
the end user.
13. As regards Clause 13 providing for billing and payment, the Commission agreed
with the DG that this Clause imposed unfair conditions upon consumers in as-much-as
under Clause 13.7, if any amount becomes payable or reimbursable by AGL to
consumers on account of erroneous billing/invoicing on the part of AGL, there was no
obligation on the part of AGL to pay interest on the said amount. It also found that the
Clause specified rate of interest to be levied for delayed payment by the buyer with
further stipulation that any such rates may be communicated by the seller in future
which clearly amounted to imposing of unfair conditions. However, the Commission
agreed with the conclusion drawn by DG on interpretation of Clause 13.7 providing for
the buyer to pay the invoice amount alongwith interest and penalty before invoking
the arbitration clause as being not abusive on the ground that AGL too in terms of its
Agreement with GAIL was bound by similar stipulation.
14. As regards Clause 14 (Payment Security), the DG did not find this clause to be
abusive. The Commission, while agreeing with such conclusion observed that such
arrangements are necessitated by the extremely interdependent and interlinked
nature of the business. Default in payment by AGL to GAIL and by GAIL to its
suppliers would disrupt the entire supply chain. Thus, the Clause was not abusive.
15. As regards Clause 17 (Expiry and Termination), dealing with failure on the part
of seller to deliver and buyer to take delivery of gas, the DG found Clauses 17.2 and
17.4 to be abusive. The Commission, having conspectus of the relevant Clauses,
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observed that while the AGL enjoyed longer period from GAIL for meeting the DCQ
obligation, it provided only 45 days to do so for its industrial consumers. The wide
disparity between the two periods was not warranted. However, it did not find any
merit in the allegation of discriminatory conduct of AGL as such condition had
uniformly been stipulated in GSAs executed with all industrial customers by AGL.
16. As regards Clause 16 (Force Majeure) and Clause 17 (Shutdown etc.), the
Commission while agreeing with the analysis of the DG observed that Sub-clause 16.3
of GSA to the extent AGL has reserved the right at its sole discretion to accept or
reject request of customers for Force Majeure which amounts to imposition of unfair
conditions upon consumers. The Commission held that Clause 11.2.1 of GSA to the
extent of rendering the buyer liable to meet its MGO Payment obligation even in the
event of emergency shutdown amounted to unfair conditions and abuse of dominant
position.
17. As regards the allegation of FIA qua revision of gas prices by AGL from time to
time arbitrarily and irrationally, the Commission observed that the conduct of AGL in
revising gas prices could not be construed to be reflection of abuse of its dominant
position as found by DG. In arriving at its finding the Commission was influenced by
the observation of DG that the cost of gas was prone to frequent fluctuations due to
the peculiarities of the gas industry and a fixed formula based pricing mechanism for
gas sector being impractical. It also noted that the gas prices for consumers were not
solely linked to crude oil prices. Thus, the Commission brushed aside the allegations
emanating from FIA on this score.
18. The Commission was of the opinion that AGL had contravened provisions of
Section 4(2)(a)(i) of the Act by imposing unfair conditions upon buyers under GSA. It
accordingly proceeded to pass the impugned order directing AGL to cease and desist
from indulging in the conduct found to be violative of law, modify GSAs in light of its
findings and imposed penalty @ 4% of average turnover of the last three years on AGL
quantified at Rs. 2567.2764 Lakhs. Aggrieved thereof AGL has filed TA (AT)
(Competition) No. 33 of 2017, Old Appeal No. 50/2014 assailing the findings recorded
by the Commission and the penalty imposed on it. Cross Appeal being TA (AT)
(Competition) No. 34 of 2017, Old Appeal No. 57/2014 has been filed by FIA in regard
to some findings by the Commission dismissing its allegations in regard to abuse of
dominant position.
19. Learned counsel for the Appellant - AGL submits that the finding of dominance
was erroneous as the definition of ‘relevant market’ by the Commission was fallacious.
Denying abuse of alleged dominance on the part of AGL, learned counsel further
submitted that though the principles of natural justice were violated, AGL, in order to
cut short the controversy filed affidavit dated 16th May, 2018 in response to the
suggestion of this Appellate Tribunal for effecting changes in the Clauses held
anticompetitive by the Commission. It is further submitted that it is not important
that the products are similar or not but whether one product competes with the other.
The definition of relevant market given in Section 2(t) makes it clear that products
may be interchangeable or substitutable by the consumer. It is submitted that Piped
Natural Gas (PNG) supplied by AGL competes with several other products and FIA has
admitted that out of its 500 Members only 90 consume Natural Gas supplied by the
AGL to meet their fuel requirements. It is pointed out that there are around 5000
industrial units located at Faridabad while AGL had only about 120 customers. Learned
counsel further submits that several customers have been using other sources of fuel
prior to AGL's entry in the market and some customers of AGL too opted out and
switched back to such other sources. Reference in this regard is made to some
correspondence in response to objections of FIA to the DG Report to demonstrate that
customers had expressed their intent to switch to other industrial fuels on account of
increase in the price of Natural Gas supplied by AGL. It is submitted that SSNIP Test,
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so essential for determination of relevant market was not commissioned and the
Report submitted by an expert was not considered. Learned counsel for AGL further
submits that Liquid Petroleum Gas (LPG) is a superior product as compared to PNG.
Heat transfer efficiency of LPG is 85% compared to 65% for PNG. Use of other sources
of energy like Furnace Oil, HSD, Propane, LPG, Power and Coal is not prohibited or
prevented by law. It is submitted that the only relevant question for determining the
‘relevant market’ is whether at some particular point a consumer may switch from one
product to another and whether a product is superior or not is not relevant. The
relevant factors are the characteristics, prices and intended use in relation to
interchangeability and not characteristics which may be considered to be superior. It is
submitted that PNG is interchangeable with other fuels and the said facts have been
sufficiently established during investigation before DG and during enquiry before the
Commission.
20. It is further submitted that the pipeline infrastructure setup by the Appellant -
AGL can be used by any other competitor to distribute CNG as provided by the
regulations/license. Therefore, a distributor like Indraprastha Gas can use the
Appellant's infrastructure in the same way as telecom structure can be shared. Thus,
there is no monopoly or dominance. It is further submitted that the Respondent's
(FIA's) case as setup in the cross appeal is misconstrued, as a distributor enters into a
back-to-back agreement for supply of gas from GAIL. The issue is contractual in nature
and does not involve infraction of Competition Law. In this regard reference is made to
paragraph 71, 99 - 102 and 85 - 87 of the impugned order and the Appellant's
response to Report of DG. Reference is also made to paragraph 15, 16 & 17 of the
affidavit of Appellant filed on 16th May, 2018.
21. Per contra it is contended on behalf of FIA that the industrial purposes for
which natural gas was being used as fuel by the industries in Faridabad till November,
2012 were such that no other fuel could be used as its substitute by reason of the
unique characteristics of natural gas, intended use and price. It is further contended
that natural gas is Methane (CH4 ). On burning any hydrocarbon molecule, the heat
comes mostly from the combustion of hydrogen and very little from the combustion of
carbon, the ratio of carbon to hydrogen being 1:4. However, LPG comprising of
Propane (C3 H8 ) or Butane (C4 H10 ) has ratio of carbon to hydrogen at less than 1:3. In
liquid hydrocarbon fuels like furnace oil, the ratio is hardly 1:2. Thus, in the event of
equal weights of all hydrocarbon fuels being burned the maximum heat would be
yielded by the natural gas. Moreover, the liquid hydrocarbons contain numerous
impurities including Sulfur restricting their use as fuel due to its corrosive effect.
Therefore, it is contended, natural gas having superior qualities is unique and stands
apart from all other hydrocarbon fuels. It is contended that the natural gas cannot be
replaced with any other hydrocarbon fuel. It is contended that the ‘relevant product
market’ has to be decided taking into account the intended use of the fuel and not the
number of industrial customers. It is further submitted that natural gas is the
preferred fuel for certain applications such as manufacturing of certain high purity
alloys involving direct heating. It is submitted that there are members of FIA who
manufacture high precision alloys which mandate use of natural gas only. Responding
to AGL's contention that some of the industrial units shifted away from natural gas, it
is submitted that such shift may be due to unfair conditions imposed by AGL in
supplying natural gas. Moreover, same is not relevant for ascertaining AGL's dominant
position or the ‘relevant product market’. Moreover, data referred to in this regard is
for the period post November, 2012 and irrelevant for disposing of this appeal. It is
submitted that the only supplier of natural gas in Faridabad during 2009 to 2012
being AGL, the industrial consumers were constrained to procure natural gas for their
requirements only from AGL.
22. On behalf of Commission, a detailed note has been submitted which is in sync
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with the findings recorded in the impugned order. It is submitted on behalf of

Commission that on account of different intended use and price of natural gas for the
different categories duly classified and identified as consumers by AGL, the industrial
consumers form a different class as concluded by DG and found by the Commission.
The Commission found that while for domestic, commercial and transport categories of
consumers LPG is considered as a substitute for natural gas, same is not a substitute
for industrial consumers as also admitted by the Appellant. The Commission did not
dispute the Appellant's contention that at the relevant time for industrial consumers
there was no available gaseous substitute for natural gas. It is submitted that the
Appellant has admitted that it does not have any competitor in relation to supply of
natural gas in the relevant geographic market of Faridabad, which implies that AGL
was the only supplier of natural gas while other competitors in the field like IOCL,
BPCL and HPCL competed with the supply of other alternative fuels.
23. Having heard learned counsel for the parties and after wading through the
record, we find that this appeal alongwith the cross appeal was earlier heard by the
Competition Appellate Tribunal (COMPAT) which had reserved the judgment but before
pronouncement of judgment COMPAT came to be merged with this Appellate Tribunal,
thereby rendering it imperative to rehear the parties. Fathoming through the minutes
of proceedings recorded in appeal proceedings, it emerges that this Appellate Tribunal
initially directed the parties to address it on limited issues whether the Appellate
Tribunal on the basis of certain suggestions made by learned counsel for the Appellant
can give quietus to the dispute or remit the case or decide the case on merit. This
comes to fore from order recorded on 11.09.2017. However, subsequently on
09.10.2017 parties were directed to address their respective case on merits. It was
during the course of hearing that on 07.02.2018, Appellant - AGL was permitted to
seek suitable amendment of the Terms of the Agreement and asked to produce same
in sealed cover. On 28.02.2018, learned counsel for AGL handed over a copy of
proposal for amendment proposed to be made in the Terms of Agreement. Copies
thereof were provided to the Commission and to the FIA. AGL was allowed to file an
additional affidavit giving the background of proposed amendment together with the
proposed amendment. Same was complied as reflected in order dated 26.03.2018.
AGL was further permitted to file a fresh affidavit. As the hearing progressed, AGL
brought to the notice of this Appellate Tribunal certain evidence as regards existence
of other players in the gas supply field in the relevant area. AGL was accordingly
permitted to file additional affidavit with right of rebuttal given to Respondents. This is
reflected in order dated 20.09.2019. Same having been complied, hearing was
concluded.
24. Having noticed the factual matrix of the respective cases of the parties, report
of Director General, findings recorded by the Commission and the developments that
have taken place during the hearing manifesting in proposed revised agreement
suggested by AGL to allay the apprehensions of FIA with regard to conditions in GSA
found unfair by the Commission and having conspectus of the respective contentions
of the parties, it is apt to notice the relevant provisions of law bearing on the case so
as to narrow down the controversy to definite issues and focus thereon to determine
whether there was abuse of dominant position on the part of AGL qua supply of gas to
its consumers viz. members of FIA and if so, whether the proposed revised agreement
takes care of such alleged unfair conditions in GSA and whether the step taken would
suffice to redress the grievance of FIA without insisting upon imposition of penalty on
AGL for the alleged contravention of provisions of Section 4 of the Act with reference to
allegations of abuse of dominant position. The relevant provisions are reproduced
herein below:—
“4. Abuse of dominant position.— [(1) No enterprise or group shall abuse its
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dominant position.]
(2) There shall be an abuse of dominant position 1[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 therefor; or
(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.
Explanation.—For the purposes of this section, the expression—
(a) “dominant position” means a position of strength, enjoyed by an enterprise,
in the relevant market, in India, which enables it to—
(i) operate independently of competitive forces prevailing in the relevant
market; or
(ii) affect its competitors or consumers or the relevant market in its favour.
(b) “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.
[(c) “group” shall have the same meaning as assigned to it in clause (b) of the
Explanation to section 5.]”
25. Section 2(r) defines ‘relevant market’ as under:—
““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;”
26. Section 2(s) defines ‘relevant geographic market’ as under:—
““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;”
27. Section 2(t) defines ‘relevant product market’ as under:—
““relevant product market” means 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;”
28. The core issue for determination in these appeals is:—
(a) Whether AGL did enjoy a dominant position?
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(b) Whether AGL's dominant position prevailed in the relevant market?

(c) Whether AGL abused its dominant position?
29. Thus, in the first place it is to be determined whether the Appellant - AGL did
enjoy a dominant position in the relevant market enabling 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 and if so, whether AGL imposed any
unfair or discriminatory conditions in purchase or sale of goods or services or in price
or imposed unfair or discriminatory price in purchase or sale of goods or services or
limited or restricted production of goods or provision of services or indulged in
practices resulting in denial of market access.
30. In order to understand the controversy involved at the bottom of instant cause,
it is necessary to grasp the nature of industries functioning in the ‘relevant geographic
market’ of Faridabad and the energy requirements of the industrial consumers. Details
of the list of association members of FIA not using Natural Gas forms pages 1144 to
1153 of the appeal paper book, while list of members using Natural Gas forms pages
1154 to 1157 of the appeal paper book. Perusal thereof reveals that the members of
FIA are operating industries of dyes, ceramics, automotive components, forging and
casting etc., who previously depended upon other sources of energy like diesel,
electricity and furnace oil out of whom the industries incorporated in list running
through page nos. 1154 to 1157 subsequently switched over to natural gas through
CGD Network for their energy requirements. This factual position remains
uncontroverted. The Commission has delineated the different types of industries in
para 2 of the impugned order at page 173 of the appeal paper book which reveals that
FIA has about 500 members and the industries comprise auto component, medical
devices, steel, alloys, textile, chemical etc. Annexure-1 to DG Report and page no. 540
-541 of the appeal paper book classifies natural gas in three categories viz. Liquefied
Natural Gas (LNG), Compressed Natural Gas (CNG) and Piped Natural Gas (PNG). Such
classification is not disputed by AGL. According to Appellant - AGL, the end consumers
are to be classified in four different categories viz. Domestic Consumers, who use gas
for cooking purposes; Commercial Consumers like Restaurants, Malls, Hospitals, etc.
who use gas for cooking, power generation, cooling or heating; Transport Sector
Consumers, who use gas as source of energy for running their vehicles and finally
Industrial Consumers like pharmaceutical, textile, chemical and glass industries etc.
who use gas as means to generate electricity and heating etc. From the submission of
AGL as reflected at page 563 of the appeal paper book, it is gatherable that the
Appellant - AGL does not dispute the factum of each of the aforesaid categories of
consumers being different and distinct on the basis of intended use and price of
natural gas being different to each category. The fact that AGL has been treating each
category of consumers at a different footing is writ large as emerging from the GSA
being executed only with Industrial Consumers while it enters into business
relationship with Domestic and Commercial Consumers for supply of gas merely
through an application form but no such agreement or application form is entered with
the category of Transport Sector Consumers. A glance at the Investigation Report of
Director General, paragraphs 4.5 and 4.6 (at page 484-485 of the appeal paper book)
lays it bare that based on the aforesaid admission of AGL and the relevant
considerations including different intended use and price of natural gas for each
category, the DG arrived at conclusion that differentiation amongst consumers was
based on aforesaid considerations inspite of all of them consuming the same product
i.e. natural gas as source of energy. The Commission has based its finding on the
Investigation Report of the DG coupled with the classification made by AGL and the
intended use and price of natural gas for each category being different, thus, treating
the Industrial Consumers as a different category.
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31. A vital question for consideration which cannot be glossed over and is of
primary importance in regard to status of Industrial Consumers as a distinct category
is whether there is any gaseous substitute for natural gas for the Industrial
Consumers. It emerges from the record that two types of agreements were offered by
AGL to Industrial Consumers viz. (a) MGO Contract, whereby the off taker agrees to
purchase a minimum amount of natural gas ensuring a minimum level of supply to the
buyer and stable revenue to the supplier and (b) Non-MGO Contracts, where the buyer
is not under any obligation to purchase a minimum level of gas and has the liberty to
purchase gas based on its requirement. It further emerges from record that the
natural gas competes with most of the fuels available in the market like furnace oil,
electricity, diesel, coal and naptha. The customers have the ability to switch over to
the alternate fuels without incurring substantial costs. The Industrial Customers can
switch over to solid fuel (coal and lignite), liquid fuels (mainly furnace oil), grid
electricity. This factual position is not disputed by AGL in its reply to the DG. Reference
in this regard can be made to page 568 and 771 of the appeal paper book
(submissions of AGL qua the DG Report). It is not in controversy that the natural gas
supplied to members of FIA is primarily re-gasified LNG (i.e. PNG), which is sourced
from GAIL and the Appellant - AGL has admitted this factual position in its response to
the DG Report comprising page 566 of the appeal paper book. There is no escape from
the conclusion that LPG is not a substitute for Industrial Consumers though the same
constitutes a substitute for natural gas qua Domestic, Commercial and Transport
Sector categories. Appellant has not disputed this proposition of fact. Even FIA in its
reply to the DG (page 1154 to 1157) clarified that its members used other sources of
energy like furnace oil, diesel, high speed diesel and electricity as sources of energy
prior to their switch over to natural gas. AGL and FIA do not appear to be on a course
of collision as regards the factum of Industrial Consumers being faced with the
prospect of having no available gaseous substitute for natural gas. The Investigation
Report of DG further reveal that natural gas was different from liquid hydrocarbons
and electricity and with no gaseous substitute available for natural gas, the Industrial
Consumers of Faridabad i.e. FIA members were solely dependent upon supplies of
natural gas by AGL, the Appellant - AGL being the only supplier of natural gas
while IOCL, BPCL and HPCL competed with the supply of other alternative fuels. Thus,
the only conclusion deducible on the basis of material available on record is that
during the relevant period there was no gaseous substitute of natural gas available to
Industrial Units in Faridabad. It is emphatically clear that PNG was not
interchangeable with other fuels as contended on behalf of AGL. Furthermore, it cannot
be ignored that during the relevant period LPG was not available to Industrial Units as
an alternate fuel as revealed from the submissions made before the DG. It is therefore
futile on the part of AGL to contend that it had successfully demonstrated that PNG
was interchangeable with other fuels at the relevant time. Having regard to all relevant
considerations and the material available on record, we find no hesitation in
supporting the finding recorded by the Commission on the aspect of ‘relevant market’
and ‘AGL's dominant position in the relevant market’. The fact that the pipeline
infrastructure setup by AGL subsequently can be used now by any other competitor to
distribute CNG does not create any dent in the aforesaid finding. As a sequel thereto,
we affirm the finding that the Appellant - AGL occupied a position of strength making
it the dominant player and enjoying dominant position in the relevant market.
32. The case setup by FIA in cross appeal qua some alleged contraventions does
not raise competition concern in as-much-as AGL as a distributor enters into a back-to
-back agreement for supply of gas from GAIL. The concern raised being purely
contractual in nature does not fall within the embrace of Competition Law.
33. Now coming to the issue of alleged abuse of dominant position be it seen that
the Commission in its impugned order held against AGL contravention only as regards
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clauses 11.2.1, 13.5, 13.7, 16.3 and 17.4 of the GSA. The agreement pertains to
period 2009 to 2012. The agreement appears to have been revised w.e.f. 1st April,
2013. Offending Clause 17.4 stands deleted and has not been incorporated in the
revised agreement. Admittedly, the benefit of such deletion would enure to all
consumers. AGL has furnished the tabulation set out in the Annexure to its affidavit
filed vide diary no. 4965 dated 17.05.2018 in compliance to order of this Appellate
Tribunal dated 28th February, 2018. Same is reproduced hereinbelow:—
Tabulation of Changes to the Agreement and the Revised Agreement
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34. Having found that AGL, being the only supplier of natural gas and there being
no gaseous substitute for the same, we find that AGL abused it dominant position qua
the Industrial Customers by imposing unfair conditions upon the Buyers under GSA as
it existed in original form. As regards Clause 13 (Billing and Payment), the terms and
conditions under this Clause providing that an excess payment by the Buyer to the
Seller due to erroneous billing/invoicing on the part of Seller would give rise to no
liability whatsoever on the part of the Seller including interest whereas a delayed
payment by the Buyer renders him liable to pay interest and there being no
corresponding obligation on the part of AGL to pay interest in terms of Clause 13.7,
such clause imposes unfair conditions upon the Buyers. Sub-clause 13.5 also imposes
unfair condition upon the Buyers in as-much-as the interest rate was left to be
determined by the Seller and communicated in future. We also find that Clause 17.2
and 17.4, imposes conditions providing for short duration of only 45 days for the
Industrial Consumers as against longer duration available to AGL from GAIL for
meeting the cumulative DCQ Obligation on account of failure to take off with
termination clause which amounts to imposition of unfair conditions. Clause 16.3 of
GSA, dealing with force majeure, vesting discretion in AGL to accept or reject request
of customers for force majeure, on the face of it, amounts to imposition of unfair
conditions. Sub-clause 11.2.1 of GSA imposes unfair conditions to the extent the
consumer is obliged to meet its MGO payment obligation even in the event of
emergency shutdown calling for complete or partial off take of gas. Such conditions
stare in the face of AGL eloquently speaking of same being unfair, lopsided, unilateral,
harsh and detrimental to the interests of the consumers and even a bare look at such
clauses does not warrant a contrary opinion. Even AGL must have been conscious of
such conditions being unfair to consumers and abusive of its dominant position which
is clearly inferable from its conduct in substituting the original GSA with revised one
modifying the contravening terms and conditions. We have therefore no hesitation in
arriving at the finding that the AGL abused its dominant position in the relevant
market.
35. During the course of hearing, Respondents did not dispute the fact that the
proposed modification in terms of the offending clauses in the GSA by AGL brings it
out of the ambit of contravening conduct. Admittedly, such modification is prospective
in operation and complies with the mandate of Section 27(d) of the Act. It is however
imperative to ascertain whether under Section 27 of the Act the Commission can pass
orders singularly (such as to discontinue and not re-enter) or with any other directions
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as stipulated therein (such as imposition of penalty and/or modification of the
impugned agreement) or pass all orders under Section 27 of the Act. This Appellate
Tribunal vide order dated 2nd September, 2019 had directed the parties to file short
written submissions on the question of law. Before we advert to the stand taken by the
parties in this regard, it is apt to reproduce the relevant provision of law engrafted in
Section 27 of the Act, which reads as under:—
“27. Orders by Commission after inquiry into agreements or abuse of
dominant position.— Where after inquiry the Commission finds that any
agreement referred to in section 3 or action of an enterprise in a dominant position,
is in contravention of section 3 or section 4, as the case may be, it may pass all or
any of the following orders, namely:—
(a) direct any enterprise or association of enterprises or person or association of
persons, as the case may be, involved in such agreement, or abuse of
dominant position, to discontinue and not to reenter such agreement or
discontinue such abuse of dominant position, as the case may be;
(b) impose such penalty, as it may deem fit which shall be not more than ten
percent of the average of the turnover for the last three preceding financial
years, upon each of such person or enterprises which are parties to such
agreements or abuse:
[Provided that in case any agreement referred to in section 3 has been entered
into by a cartel, the Commission may impose upon each producer, seller,
distributor, trader or service provider included in that cartel, a penalty of up to
three times of its profit for each year of the continuance of such agreement or ten
percent. of its turnover for each year of the continuance of such agreement,
whichever is higher.]
(c) [Omitted by Competition (Amendment) Act, 2007]
(d) direct that the agreements shall stand modified to the extent and in the
manner as may be specified in the order by the Commission;
(e) direct the enterprises concerned to abide by such other orders as the
Commission may pass and comply with the directions, including payment of
costs, if any;
(f) [Omitted by Competition (Amendment) Act, 2007]
(g) pass such other [order or issue such directions] as it may deem fit.
[Provided that while passing orders under this section, if the Commission comes
to a finding, that an enterprise in contravention to section 3 or section 4 of the Act
is a member of a group as defined in clause (b) of the Explanation to section 5 of
the Act, and other members of such a group are also responsible for, or have
contributed to, such a contravention, then it may pass orders, under this section,
against such members of the group.]
36. On a plain reading of the provision engrafted in Section 27 of the Act, it
emerges that contravention of Section 3 or Section 4 of the Act being established, the
Commission is empowered to pass all or any of the orders envisaged under Clauses (a)
to (g). The language of this provision leaves no scope for doubt that the Commission
may, befitting the circumstances of a case, pass any order falling under either one or
more of the Clauses in combination or even encompassing all the Clauses. The term
‘any’ has to be accorded a purposive and a creative interpretation which can be
explained on no hypothesis other than the one that it embraces one, more than one,
some, many and all. In ‘Shri Balaganesan Metals v. M N Shanmugham Chetty’,
reported in (1987) 2 SCC 707, the Hon'ble Apex Court interpreted the term ‘any’ to
mean ‘some’, ‘one of many’ and ‘an indiscriminate number’. Again in ‘Excel Crop Care
Ltd. v. Competition Commission of India’, reported in (2017) 8 SCC 47, the term ‘any’
was interpreted to mean ‘all’, ‘every’, ‘some’ or ‘one’ based on the context and subject
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matter of the statue. It is abundantly clear that the term ‘any’ is all-encompassing and
empowers the Commission to pass orders either singularly (such as to desist,
discontinue and not reenter) or coupled with any other discretion (such as imposition
of penalty and/or modification of the impugned agreement) or pass all orders under
Section 27 of the Act.
37. In the instant case, the Commission passed orders under Clauses (a), (b) & (d)
of Section 27. Under Section 27(a), Commission directed AGL to cease and desist from
indulging in the contravening conduct; under Section 27(b), the Commission imposed
a penalty of 4% of the average turnover of the last three years while under Section 27
(d), the Commission directed AGL to modify the Gas Supply Agreements (GSAs) in
light of observations in the impugned order. So far as direction under Section 27(a) is
concerned, no exception can be taken to it. AGL has to be restrained perpetually from
indulging in the contravening conduct. Now before coming to quantum of penalty
under Section 27, it is apt to ascertain whether AGL has modified the Gas Supply
Agreements (GSAs) to bring it out of the offending, violative and contravening
conduct.
38. The Commission held AGL guilty of contravention of provisions of Section 4(2)
(a)(i) of the Act by imposing unfair conditions upon the Buyers under GSA. As regards
Clause 13 (Billing and Payment), the Commission was of the view that the terms and
conditions under this Clause providing that an excess payment by the Buyer to the
Seller due to erroneous billing/invoicing on the part of Seller gives rise to no liability
whatsoever on the part of the Seller including interest whereas a delayed payment by
the Buyer renders him liable to pay interest. The Commission was of the opinion that
there being no obligation on the part of AGL to pay interest in terms of Clause 13.7,
such clause imposed unfair conditions upon the Buyers. Further, Sub-clause 13.5 also
imposed unfair condition upon the Buyers in as much as the interest rate was left to
be determined by the Seller and communicated in future. As regards Clause 17.2 and
17.4, the Commission was of the view that the conditions providing for short duration
of only 45 days for the Industrial Consumers as against longer duration available to
AGL from GAIL for meeting the cumulative DCQ Obligation on account of failure to take
off with termination clause amounts to imposition of unfair conditions. As regards
Clause 16.3 of GSA, dealing with force majeure, Commission found that the clause
vesting discretion in AGL to accept or reject request of customers for force majeure
amounts to imposition of unfair conditions. As regards Sub-clause 11.2.1 of GSA, the
Commission found it imposing unfair conditions to the extent the consumer is obliged
to meet its MGO payment obligation even in the event of emergency shutdown calling
for complete or partial off take of gas.
39. To take care of this contravening conduct in the context of Clauses found to be
offending, violative and abusive of the dominant position in the form of imposing
unfair conditions upon Industrial Consumers and in the light of observations of this
Appellate Tribunal adumbrated hereinabove, as also taking care of other reservations
expressed by the FIA in their cross appeal, the AGL proposed the revision in the
relevant clauses of GSA as noticed in para 29 above, which reasonably take care of all
objections and reservations as regards the contravening clauses bringing it within the
fold of acceptable conduct and safeguarding the concerns and legitimate interests of
Industrial Consumers.
40. Finally, we are left to deal with application of Section 27 Clause (b) which
provides for imposition of penalty upon the enterprise found guilty of abuse of
dominant position viz. AGL in the instant case. Imposition of penalty for abuse of
dominant position by an enterprise is left to the discretion of the Commission with the
rider that such penalty shall not exceed 10% of the average of the turnover for the last
three preceding financial years upon such person(s) or enterprises which are parties to
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the contravening agreements or abuse of dominant position. The phraseology
employed in the provision clearly brings it to fore that while there is a ceiling on the
maximum penalty sought to be imposed upon the enterprise found guilty of abuse of
dominant position in the relevant market, no restriction as regards minimum has been
prescribed. The discretion with the Commission in imposing penalty lies within the
aforesaid delineated bounds. It is well settled by now that judicial discretion connotes
exercise of judgment by a judicial or quasi-judicial authority based on what is fair
under the circumstances and guided by the principles of law. There is no hard and fast
rule and an actual exercise of judgment on consideration of the peculiar facts and
circumstances of the case is required. It is also settled by now that the affected party
is not entitled to claim exercise of discretion in its favour as a matter of right [refer
‘Aero Traders (P) Ltd. v. Ravinder Kumar Suri’, Reported in (2004) 8 SCC 307].
However, it is entitled to show that there are mitigating factors/extenuating
circumstances warranting imposition of lesser/reduced penalty.
41. The Commission while imposing penalty noticed that only few clauses out of the
GSA have been found to be in contravention of the provisions of the Act. It also
noticed the changes effected by AGL during investigation and pendency of proceedings
before the Commission in the agreements (GSAs). Having regard to the same, it
decided to impose penalty @ 4% of average turnover of AGL for financial years 2009-
10, 2010-11 and 2011-12 worked out at Rs. 2567.2764 Lakhs. Some more
development took place during the pendency of appeals before this Appellate Tribunal
to which we have alluded to earlier. The Gas Supply Agreements (GSAs) that had been
revised by AGL during course of investigation and enquiry before the Commission
came up for further revision of the contravening clauses to make them more consumer
friendly and to protect the interests of Industrial Consumers by removing the disparity
as regards revision of gas prices, payment obligation in case of shutdown of supply
and for complete or partial off take of gas, etc. which came about in compliance to the
suggestions put forth by this Appellate Tribunal. Such modifications which in effect
eliminated discrimination qua Industrial Consumers and subsequent emergence of
competitors of natural gas on the scene coupled with the fact that AGL not only came
up with voluntary revision of GSAs even before conclusion of enquiry by the
Commission and was amenable to the advice/suggestions falling from this Appellate
Tribunal resulting in incorporation of the consumer friendly clauses substituting the
contravening provisions in the GSAs, in our considered opinion carve out mitigating
factors/extenuating circumstances in favour of AGL outweighing the only aggravating
factor i.e. abuse of dominant position. Keeping that in view we are of the considered
opinion that reducing the penalty imposed on AGL from 4% of the average annual
turnover of the relevant three years to 1% would be commensurate with and
proportionate to the level of proved abusive conduct of AGL. We are of the firm opinion
that this reduction would meet the ends of justice and achieve the desired object of
the statue in the peculiar facts and circumstances of the case.
42. Both the appeals are accordingly disposed of upholding the impugned order
passed by the Commission holding AGL guilty of abuse of dominant position with the
orders and directions passed by the Commission with modification in imposition of
penalty on AGL as indicated hereinabove. Balance amount of the penalty as reduced
be deposited by AGL within thirty days of pronouncement of this judgment. All other
orders/directions given by the Commission shall remain intact. The revised agreement
(GSA) as approved by us shall be made operational with immediate effect.
43. There shall be no orders as to costs.
———
* New Delhi Bench
† Arising out of Order dated 3rd July, 2014 passed by the Competition Commission of India in Case No. 71 of 2012
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‡
Arising out of Order dated 3rd July, 2014 passed by the Competition Commission of India in Case No. 71 of 2012
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2020 SCC OnLine CCI 8
In the Competition Commission of India

(BEFORE ASHOK KUMAR GUPTA, CHAIRPERSON, SANGEETA VERMA, MEMBER AND BHAGWANT
SINGH BISHNOI, MEMBER)
Satyen Narendra Bajaj … Informant;

Versus
PayU Payments Private Limited and Another … Opposite Party.
Case No. 23 of 2019
Decided on January 29, 2020
Advocates who appeared in this case:
Mr. Santosh Muttalli, Mr. Aditya Bhardwaj and Mr. Manjunath A.S., for the
Informant;
ORDER UNDER SECTION 26(2) OF THE COMPETITION ACT, 2002
1. The present information has been filed by Mr. Satyen Narendra Bajaj
(hereinafter, ‘Informant’) under Section 19(1)(a) of the Competition Act, 2002
(hereinafter, ‘Act’) alleging contravention of provisions of Section 4 of the Act by PayU
Payments Private Limited (hereinafter, ‘OP-1/PayU’) and by Enstage Software Private
Limited (hereinafter, ‘OP-2/Wibmo’). OP-1 and OP-2 are hereinafter collectively
referred to as ‘Opposite Parties/OPs’.
Facts and Allegations as stated in the Information
2. The Informant is an individual user/consumer of the services provided by PayU
and other e-payment gateways.
3. PayU is a fintech company that provides payment technology solutions to online
merchants. It was founded in the year 2002 and has its head-quarter at Hoofddorp,
Netherlands. It allows online businesses to accept and process payments through
payment methods that can be integrated with web and mobile applications. Further,
PayU is the e-payment division of Naspers, a global internet and entertainment group
and one of the leading technology investors in the world. Naspers is a leading financial
services provider in the global growth markets and is engaged in the business of
providing payment gateway services and other digital payment enablement services to
both consumers and businesses. It also holds a Non-Banking Financial Company
(‘NBFC’) license in India to offer credit services.
4. Wibmo is a leading technology and service provider for the financial services
industry, best known for its hosted risk-based authentication, 3D secure, and payment
security services. It provides solutions ranging from mobile payments, fraud and risk
management, prepaid solutions and a host of merchant services. It works with most of
the large Indian banks to implement security protocols such as one-time password
authentication and other risk management solutions. As stated by the Informant, on
the basis of information available on its website, Wibmo is certified by Mastercard,
Visa, RuPay as well as the Payment Card Industry Data Security Standard (‘PCI DSS’)
which means that it can process/authenticate all forms of digital payments from cards
to mobile based transactions.
5. During the financial year 2017-2018, PayU has availed many services from
Wibmo such as use of 3D secure page powered by Wibmo, Risk based authentication,
QR code-based solution, integration with Tally etc. to generate invoice, prepaid card
authentication and loyalty program. As stated, it can be inferred from the above that
PayU and Wibmo share very close commercial links with each other.
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6. PayU is stated to be a ‘dominant’ player in the market of e-payment processing
gateways in India with a high market share in some sectors, for example, 55% in e-
commerce and 22% in travel agency. The Informant has delineated the relevant
market as “e-payments gateway in India”, in which it claims that PayU is dominant.
7. It is stated that PayU acquired Wibmo. The OPs as a combined entity
(‘Combination’) is directly or indirectly likely to result in unfair or discriminatory
conditions in availing e-payment processing gateway services in India.
8. The said Combination is stated to have strengthened the position of PayU in the
market of e-payment processing gateway services in India for completion of the e-
payments due to the dominant position held by Wibmo in the downstream market
“risk-based authentication and payment security services in the e-payments gateway
in India”, as defined by the Informant as a secondary market. As per the Informant,
this is likely to result in unfair and discriminatory conditions in availing payment
gateway services in India for the consumers as well as the other competitors of PayU
and Wibmo. This allegedly raises valid concerns, as a consumer is not only limited in
his options to avail services of PayU in the relevant market, but also he is ‘at the sole
expense of PayU and Wibmo’, which opens up the scope for PayU and Wibmo as a
group to exploit the consumers by abusing their dominance in the upstream as well as
the downstream market. In this regard, the Informant alleged that PayU has indulged
into the following practices of abuse:
8.1. PayU has intentionally foreclosed the market for other competitors by
denying them proper access to Wibmo in the downstream market;
8.2. PayU has substantially created entry barriers for new market players by
capturing the downstream market through Wibmo, so that no other competitor can
use a safe pathway to lead customers towards a safe e-payment transaction. In the
last five years, no major player has entered the e-payment gateway in India and
this has led to limitation of choices and preferences on behalf of the customers.
9. As per the Informant, the present case also relates to some of the emerging
problems in the digital markets where the relevant and the secondary markets exhibit
key features like (i) increasing returns (as PayU's business expands in scale, costs
keep falling, making it that much easier for the business to go much further); and (ii)
network effects - that lead to the creation of a ‘winner-takes-all’ or at least a ‘winner-
takes-most’ phenomenon.
10. Based on the aforesaid facts and allegations, the Informant has prayed to the
Commission to hold PayU liable for both exclusionary as well as exploitative abuses of
dominance in contravention to Section 4 of the Act, which has allegedly caused
Appreciable Adverse Effect on Competition in India (‘AAEC’) in the relevant and the
secondary market.
11. The Informant also filed an application for interim relief under Section 33 of the
Act praying for quashing of the combination arrangement between the Opposite
Parties as null and void.
12. The Commission considered the matter in its ordinary meeting held on
02.07.2019 and directed to relist the matter. On 08.08.2019, the Commission again
considered the matter and decided to pass an appropriate order in due course. In the
meantime, the Informant vide his letter dated 06.09.2019, requested to assist the
Commission in the matter. Based on such request, the Commission called the
Informant for a preliminary conference on 14.11.2019. During the preliminary
conference on 14.11.2019, the Informant sought liberty to file additional information.
The Informant filed certain additional information on 12.12.2019.
13. In the additional information, the Informant attempted to demonstrate the
effect of integration as a result of the acquisition of Wibmo by PayU and tried to
differentiate the transaction processes done on two online marketplaces, namely
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www.amazon.in and www.flipkart.com. According to the Informant, PayU has
integrated its risk-based authentication, 3D secure and payment security services
which were rendered by Wibmo with its customer Amazon. It is alleged that due to
integration of services of Wibmo with PayU on www. Amazon.in, it takes less than 5
seconds to generate the OneTime Password (OTP). However, on www.flipkart.com
there is no such integration and it takes more than 20 seconds for generating OTP.
This way, according to the Informant, integration of Wibmo with www.amazon.in
provides its customers the best ‘user interface and user experience’ which has led to
reduced time in completing the transaction but at the same time ensuring customers a
more secure system. This has allegedly given an advantage to PayU which cannot be
matched by any of its competitors.
14. Based on the above, the Informant, inter alia, alleged that the acquisition of
Wibmo ‘will provide PayU complete details of the accounts of buyer and seller along
with commission rates charged by other payment gateways’. This would give PayU
access to ready customer database with the help of which it can on-board any
merchant by providing lower commission rates in comparison to its competitors. In
short, this would facilitate PayU in having a clear advantage over its competitors as it
has enabled it to build a digital ecosystem which is capable of harmonising transaction
processing on both the acquiring and issuing sides amounting to an abuse of dominant
position.
15. The Commission considered the contents of the additional information on
26.12.2019 and decided to pass an appropriate order in due course.
16. At the outset, the Commission notes that the premise upon which the
information is filed is that pursuant to the impugned Combination, the Opposite
Parties have become dominant in the market. The Informant has alleged that resultant
to the combination, the parties are attempting to monopolise the e-payment gateway
market in India. As per the Informant, this attempt to monopolisation is likely to have
exploitative as well as exclusionary effects in the relevant market as defined by the
Informant. Moreover, it is alleged that on the strength of the combination, the OPs or
PayU is trying to monopolise the e-payment gateway market in India and adversely
affecting the competitors as well as the consumers by limiting their options.
17. The Commission is of the view that while the Act prohibits an abuse of
dominant position by an enterprise, mere existence of dominant position, without any
prima facie evidence of its abuse, is not recognised as an anti-competitive conduct in
the scheme of the Act. In order to establish a prima facie case for intervention, an
abuse of a dominant position cannot be based on a mere existence or potential to
achieve dominance in the market.
18. The Commission notes that the impugned combination was consummated
sometime in the month of April 2019 as per the information available in public
domain. The Informant has raised certain apprehensions that the impugned
combination may give rise to the possibility of abuse of a dominant position. However,
investigation under the Act cannot be ordered solely based on conjecture and
apprehension. The mandate of the Act is clear. The trigger to order investigation under
Section 26(1) is the prima facie case for intervention either under Section 3 or Section
4 of the Act. Further, Section 4 of the Act requires existence of an alleged abusive
conduct which can be investigated. Dominance in itself is not bad, its abuse is. The
erstwhile market legislation, namely the Monopolies and Restrictive Trade Practices
Act, 1969 (repealed w.e.f. 01.09.2009) provided for control of monopolies. However,
the Act made a paradigm shift from ‘monopoly being per se bad’ to ‘abuse of
dominant position’ being bad in law. Therefore, even if contention of the Informant is
accepted that the OPs have secured a dominant position, which the Commission is not
deliberating at this stage, the existence of dominance bereft of any abusive conduct
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under the provisions of Section 4 of the Act, cannot be held to be the basis to order
investigation. The prima facie existence of abusive conduct under the provisions of
Section 4(2) of the Act is a sine qua non to order investigation under the Act. There is
no evidence furnished which could suggest that the OPs have indulged in any such
abusive conduct. Moreover, the Commission notes that the contents of the additional
information filed by the Informant do not further the Informant's case under the Act.
The Informant has merely stated that there is reduction in transaction time and a
more secured payment ecosystem, owing to such integration as mentioned before.
Thus, in the absence of any alleged abusive conduct, it will be legally untenable to
direct an investigation under the Act. With respect to the Informant's allegation on
access to data by PayU that allegedly allows it an unfair competitive advantage, the
Commission finds it premature to deal with this issue at present, especially in the
absence of any evidence of exclusionary or exploitative abuse/conduct.
19. In view of the foregoing, the Commission is of the opinion that there exists no
prima facie case for investigation and the information filed is closed forthwith under
Section 26(2) of the Act. Consequently, no case arises for consideration of the
application of interim relief under Section 33 of the Act.
20. The Secretary is directed to communicate the order to the Informant
accordingly.
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(BEFORE ASHOK KUMAR GUPTA, CHAIRPERSON AND SANGEETA VERMA, MEMBER BHAGWANT
JSW Paints Private Limited … Informant;

Versus
Asian Paints Limited … Opposite Party.
Case No. 36 of 2019
DIRECTION UNDER SECTION 26(1) OF THE COMPETITION ACT, 2002
1. In the present case, information has been filed by JSW Paints Private Limited
(“JSW Paints”), under section 19(1)(a) of the Competition Act, 2002 (hereinafter, the
“Act”) against Asian Paints Limited (“Asian Paints”), alleging contravention of the
provisions of Sections 4 and 3(4) of the Competition Act, 2002 (“the Act”).
Brief facts and allegations
2. JSW Paints is stated to be a part of the JSW group of companies, which is
involved in several sectors, including steel, energy, cement, etc. JSW Paints was
incorporated in the year 2016 and launched its decorative paints in May 2019 in
Bengaluru and Hubli in Karnataka. JSW Paints has introduced many innovative
approaches in the paints industry for the first time in India.
3. Asian Paints is a listed company and is primarily engaged in manufacture and
sale of decorative and industrial paints. According to its Annual Report for the FY 2018
-19, it is the 3rd largest paint company in Asia and largest in India. In India, it has 8
manufacturing plants for decorative paints and 2 for industrial paints.
4. Starting from January 2019 to date, JSW Paints approached several dealers in
Bengaluru, Hubli, Kochi and Kozhikode, Hyderabad, and Chennai and explained the
unique nature of their paints, their proposed pricing, benefits to dealers in terms of
tinting and delivering the paints, etc. JSW Paints also offered dealers better margins
and incentives than those offered by competitors. JSW Paints had a positive response
from several dealers/retailers. In order to confirm their interest, JSW Paints asked for
cheque of Rs. 1 lakh as advance from the dealers to be set off against their launch
orders. Based on receipt of the cheque, such dealers were invited to Retailers Launch
Meet, where JSW Paints provided them with an overview of their strategy and how
they would work together to promote the brand, place orders, receive stocks, billing,
inventory, etc.
5. After three years of investing in building up the business and spending sums of
money on its brand, JSW Paints launched its decorative paints in May, 2019, in
Bengaluru and Hubli. The launch was covered by several mainstream media outlets.
Subsequently, JSW Paints launched its products in Kerala (Kochi and Kozhikode) in
June, 2019, Telangana (Hyderabad), and Tamil Nadu (Chennai) in August, 2019.
6. The Informant has alleged that immediately after its launch of decorative paints,
Asian Paints began pressurizing dealers who had agreed to stock and display
decorative paints manufactured by them. Asian Paints targeted
dealers/distributors/retailers partnering with JSW Paints directing them to stop dealing
with JSW Paints, stopping supplies to these dealers, dropping service levels by
delaying supplies and deliveries, asked dealers to remove display of JSW Paints
products from their retail shelves and dealer signboards, threatened dealers by not
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allowing discretionary discounts, not inviting them for trips and loyalty schemes, etc.
Asian Paints did this through its sale personnel in the relevant regions. Such conduct
has been alleged to have created fear amongst retailers/dealers, as a result of which a
number of them stopped dealing with JSW Paints, despite having provided the initial
cheque of Rs. 1 lakh.
7. JSW Paints, it has been alleged, has been denied access to dealers, which
infrastructure is essential for operating in the relevant market, due to punitive action
taken by Asian Paints against the dealers.
8. JSW Paints is stated to have faced problems in the States of Karnataka, Tamil
Nadu and Telangana, so far. JSW Paints had planned to launch its products in more
states and cities in South and West India like Andhra Pradesh, Goa, Maharashtra,
Gujarat, etc. in the ensuing months and also introduce its products to dealers in
upcountry towns, supplying from its warehouses in larger towns. It, however, believed
that it would be denied access to dealers even in these states in the absence of
intervention by the Commission and would face the same resistance in other regions
as well due to coercive action taken by Asian Paints against the dealers.
9. In the State of Karnataka, several dealers were appointed by JSW Paints.
Although JSW Paints provided necessary signage and other promotional material such
as danglers, posters, etc. the dealers were compelled to remove all signage and other
promotional material from conspicuous locations in their premises to the back side of
the premises or their godowns. For the fear of losing dealership of Asian Paints, certain
dealers decided to discontinue purchase JSW Paint's products. An instance of a dealer
has been cited where the dealer requested Asian Paints to unblock its dealership ID
and resume supplying their products. Further, a written assurance was given by this
dealer that he would never purchase and sell any of the JSW Paint's products.
10. In addition to above mentioned acts against the dealers, Asian Paints allegedly
also pressurised enterprises that provided infrastructure facilities like warehouses to
JSW Paints to not keep products of JSW Paints. In an instance cited, the enterprise
that provided warehouse facility rescinded the contract with JSW Paints on account of
Asian Paints requiring it to choose between Asian Paints and JSW Paints. It has been
alleged that the sheer volume of business given by Asian Paints and the potential loss
in revenue resulted in the enterprise succumbing to the pressure of Asian Paints. The
rescission of contract with JSW Paints led to delay in the launch of JSW's products in
Hubli, which resulted in loss of revenue, reputation and credibility.
11. In Chennai, although several dealers agreed to partner with JSW Paints before
the launch, many of them were directed by Asian Paints not to attend the JSW Paint's
Retailers Launch Meet. After the launch of products, at least 12 dealers did not place
any orders with JSW Paints fearing reprisal from Asian Paints. Dealers were allegedly
prevented from undertaking any business with JSW Paints. It has been alleged that if
the dealers did not comply with the demands of Asian paints, the dealers would face
punitive action from Asian Paints.
12. Allegedly, Asian Paints had taken punitive action against a dealer in the past on
account of its decision to stock and sell paints manufactured by Nippon Paint India
Private Limited (“Nippon”). Asian paints is stated to have resumed its supplies only
after the dealer agreed to cease business relations with Nippon. In the year 2015-16,
Nippon had attempted to enter the decorative paints market in Chennai. However,
Asian Paints took similar action against the dealers who entered into commercial
relationship with Nippon.
13. In the state of Telengana, several dealers were appointed by JSW Paints. Due to
harassment at the hand of Asian Paints, the dealers were compelled to remove
danglers, boards and products relating to JSW Paints from conspicuous locations in
their premises. Several instances of harassment faced by the dealers in Hyderabad
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have been cited. The dealers have refrained from dealing with JSW Paints due to the
pressure exerted by Asian Paints.
14. Asian Paints has been alleged to be hindering the entry of JSW Paints by virtue
of its dominance in the market for manufacture and sale of decorative paints by the
organized, in contravention of provisions of Section 4(2)(c) of the Act. The conduct of
Asian Paints is aimed at preventing JSW Paints from establishing its presence in the
said market. By taking action, Asian Paints is not only denying market access to a
competing entity but also restricting the freedom of contract to dealers. Such practices
not only lead to an effective and efficient competitor being driven out of a market or is
restricted from entering a market, but also limit consumer choice. It has been stated
that the decorative paints market is dependent upon direct distributorship model.
Without access to dealers, which is an essential feature of this business, there is no
scope for new or existing entity in this market to survive. Asian Paint's conduct has
allegedly led to denial of access to necessary distribution channels in the relevant
market which has prevented JSW Paints from entering the relevant market in
contravention of the provisions of Section 4(2)(c) of the Act. Asian Paints has
deliberately and maliciously sought to pressurise dealers who are mainly small and
medium scale enterprises from stocking and selling JSW Paint's products. Reliance has
been placed upon the decision of erstwhile Hon'ble Competition Appellate Tribunal in
the case of DLF Limited v. CCI, Appeal No. 20 of 2011. Reliance has also been placed
upon various decisions of the Commission including Matrimony.com v. Google LLC,
Case No. 7 and 30 of 2012, order dated 08.09.2018; East India Petroleum Pvt. Ltd. v.
South Asia LPG Pvt. Ltd., Case No. 76 of 2011, order dated 11.07.2018, etc. in support
of their contentions.
15. Based on instances highlighted in the states of Karnataka, Telengana and Tamil
Nadu, it has been alleged that the conduct of Asian Paints is a case of enforcing an
exclusive supply agreement in terms of Explanation (b) to Section 3(4) of the Act and
refusal to deal as provided in Explanation (d) to Section 3(4) of the Act. The said
conduct has caused appreciable adverse effect on competition by creating barriers to
entry, driving existing competitors out of market and foreclosure of competition by
hindering entry of JSW Paints into the market. All the instances of abusive conduct
tantamount to perpetuating anti-competitive agreements as Asian Paints enjoys a
dominant position in the relevant market. Such agreements cause appreciable adverse
effect on competition and are in contravention of provisions of Section 3(4) read with
Section 3(1) of the Act.
16. In light of the averments made in the instant information, JSW Paints has
prayed that the Commission may be pleased to:
a) pass an order under section 26(1) of the Act directing the DG to cause an
investigation to be made into the matter;
b) direct Asian Paints to cease and desist from carrying on any of the alleged
anticompetitive activities;
c) pass an order under Section 27 of the Act penalizing Asian Paints; and
d) pass any other orders that the Commission may deem fit and proper in the facts
and circumstances of the case
Analysis of Commission
17. The Commission considered the information in its meeting held on 24.10.2019
and decided to pass an appropriate order in due course.
18. On perusal of facts and allegations presented in the information, the
Commission notes that JSW Paints appears to be aggrieved by denial of market access
by Asian Paints to distribution channels/dealers in the market in abuse of the
dominant position held by Asian Paints in the relevant market in contravention of
provisions of Section 4 of the Act. Further, the instances of abusive conduct as
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highlighted in the information appear to perpetuating anti-competitive agreements, in
contravention of provisions of Section 3(4) of the Act.
19. The allegations of JSW Paints need to be analysed for abuse of dominant
position by Asian Paints, if any, in terms of the provisions of Section 4 of the Act and
imposition of restraints in the nature of exclusive supply agreement and refusal to deal
under the provisions of Section 3(4) of the Act.
20. For analysing the allegations brought out in the information under provisions of
Section 4 of the Act, delineation of relevant market is required, followed by
assessment of Asian Paint's position in the said relevant market and then the alleged
abusive conduct.
Delineation of relevant market
21. ‘Relevant market’ consists of ‘relevant product market’ and ‘relevant geographic
market’. The relevant product market as defined under Section 2(t) of the Act means
“a market comprising of 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.”
22. The determining factor for defining relevant product market is demand side
interchangeability/substitutability of the product, from the point of view of factors like
basic characteristics, their prices and intended end-use.
23. The relevant geographic market, on the other hand, defines the contours with
regard to territory within which the conditions of competition for supply of goods or
provision of services are distinctly homogenous and can be distinguished from the
conditions prevailing in the neighbouring areas.
24. In the present case, JSW Paints is aggrieved by alleged abusive conduct of
Asian Paints whereby it has been denied access to distribution channels in the
decorative paints segment which in turn prevented JSW Paints from entering the
market.
25. Before delineating the relevant market, the Commission notes that it is
imperative to understand the paints industry. Paints industry can be segmented into
(a) decorative paints; and (b) industrial paints. Decorative paints include high end
acrylic exterior and interior emulsions, interior and exterior paints, low end distemper,
wall putty, wood coatings, primers, thinners, etc. These are either water based or
solvent (oil) based and are generally used for painting of domestic, office and other
buildings. As per the information, decorative paints constitute 74% of the market
sales. Industrial paints comprise general industrial, automotive, protective powder
coatings, coil coatings, etc. constitute 26% of the market sales. Generally, the
chemical nature of paint and surface on which paint is used is different in case of
industrial paints. Further, decorative paints is primarily a B2C business while industrial
paints is a B2B business. As per information, the two segments are not substitutable
and are independent of each other. To support the said submission, reliance has been
placed upon Industry Reports such as SBI Capital Markets Ltd. Report on the Paints
sector dated 18.07.2019 (“SBI Caps Report”), CARE Ratings Report on Paints
industry dated 27.10.2017 (“CARE Ratings Report”), etc., as also Annual Reports of
competitors such as Asian Paints, Akzo Nobel India Ltd. (“Akzo Nobel”), Shalimar
Paints Ltd. (“Shalimar Paints”), etc. It has also been submitted that there is no need
to further segment the market as from supply side, producers are capable of
manufacturing all types of decorative paints using same machinery and installations.
As regards the pricing of decorative paints and industrial paints, decorative paints are
priced between Rs. 75-500 per litre. The price of industrial paints vary widely
depending upon the end use but on an average are much higher than decorative
paints, because they are more performance based paints with higher technical
specifications. The price of decorative paints in the organised sector players tends to
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be substantially higher when compared to decorative paints sold by unorganised
sector. From the point of view of the consumers, decorative paints and industrial
paints are not substitutable as discussed above. Further, distribution channels of
decorative and industrial paints are also different. Sales of decorative paints require
extensive dealer networks, especially in the rural and semi-urban markets, hence a
strong supply chain and pan India distribution is essential for making products
successful. Industrial paints on the other hand are sold directly. Brand also plays an
important role in the decorative paints segment. Within the decorative paints
segment, consumers prefer branded products in the organised sector rather than
unbranded products of the unorganised sector. Further, there is a vital distinction
between organized and un-organised sector. As per the CARE Ratings Report provided
along with the information, the paints industry is largely dominated by organised
players accounting for about 65% of the industry value and un-organised players
account for the rest 35%. As per the SBI Caps Report, India's paint sector is highly
organised. As per the CARE Ratings Report, around 80 percent of the organised
market is covered by four top players, namely, Asian Paints, Berger Paints India Ltd.
(“Berger Paints”), Kansai Nerolac Paints Ltd. (“Kansai Nerolac”) and Akzo Nobel. It
has been stated that there are four major players discussed above and four smaller
players namely, Nippon, Jotun, Indigo and Shalimar Paints in the organised decorative
paints sector. There are approximately 1900 small scale manufacturers. As per the
information, unorganised sector does not offer any competitive constraint on large
organised player. In view of the foregoing discussion, JSW Paints has delineated the
relevant product as the “market for manufacture and sale of decorative paints by the
organised sector”.
26. The Commission is of the view that decorative paints and industrial paints
constitute separate segments as there is a clear distinction between the two segments
based on basic characteristics, intended use and price. Further, players in unorganised
sector do not appear to pose competitive constraint upon players in the organised
sector due to various reasons such as brand image, difference in pricing, quality, etc.
Accordingly, relevant product market for the purpose of assessment in the present
case would be defined as “market for manufacture and sale of decorative paints by the
organised sector”.
27. The ‘relevant geographic market’ as defined under Section 2(s) of the Act
means the “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.”
28. JSW Paints has delineated the relevant geographic market as “India”. It has
been submitted that there are no regulatory trade barriers and paints can move freely
across India. Further, the laws governing the paint sector are same for players and do
not differ on region wise basis. The consumer preferences depend on the brand and do
not vary region wise basis. The Commission is of the view that conditions of
competition in the paint sector are homogeneous across India. Accordingly, the
relevant geographic market could be defined as “whole of India”.
29. Accordingly for carrying out prima-facie analysis under the provisions of the
Act, the relevant market could be delineated as the “market for manufacture and sale
of decorative paints by the organised sector in India”.
Assessment of dominance of Asian Paints
30. Having delineated the relevant market, the Commission notes that next issue is
to determine whether Asian Paints holds a position of dominance, as alleged, in the
said relevant market.
31. The Act defines ‘dominant position’ under explanation (a) to Section 4 as, “a
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position of strength enjoyed by an enterprise, in the relevant market, in India, which
enables it to (a) operate independently of competitive forces prevailing in the relevant
market; or (b) affect its competitors or consumers or the relevant market in its favor.”
32. The Commission notes that the underlying principle for assessing dominance of
an enterprise is linked to the market power enjoyed by the enterprise. An enterprise is
regarded as dominant if it enjoys/possesses a position of strength in the relevant
market, 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.
33. JSW Paints has stated that Asian Paints enjoys dominant position in the
relevant market. The Commission notes that Asian Paints is the largest player in the
relevant market. As per the information, Asian Paints has the highest market share
based on all parameters including revenues, EBITDA, installed capacity. Based on
revenue, it has a market share of 55.92%, with the second player, Berger Paints being
at 18.79% for the FY 2017-18. Even if unorganised sector is included, Asian Paints has
a market share of 36.64%, with next competitor, Berger Paints at 12.3%. Similarly, for
FY 2018-19, Asian Paints is a leader with 56.33% market share based on revenue,
with next competitor, Berger Paints, being at 19.19%. Even if unorganised sector is
included, Asian Paints would have a market share of 37.11% with next competitor
being at 12.64%. It has also been stated that Asian Paints has 60,000 dealers and
135 depots across the length and breadth of the country. The next competitor is
Berger Paints at second place with 25,000 dealers and 129 depots. Based on various
reports provided along with information, the Commission notes that extensive
dealership networks are required in decorative paints market to create a strong
presence in rural and urban areas. With its large number of dealers, Asian Paints
appears to have penetrated deeply in the relevant market and appears to enjoy
competitive advantage over its competitors. Given that dealers are small traders with
few resources, they are dependent upon Asian Paints. Further, these dealers do not
have countervailing buying power.
34. The Commission notes that there are top 4 operators in this industry namely,
Asian Paints, Berger Paints, Kansai Nerolac, Akzo Nobel, who have occupied around
80% of the relevant market, with Asian Paints maintaining its highest market share
consistently over the years. Based on above, the Commission notes that Asian Paints
prima-facie appears to enjoy a dominant position in the relevant market delineated
above.
Assessment of abuse of dominant position
35. Having determined dominance of Asian Paints in the relevant market, the
Commission now analyses the allegations of JSW Paints within the framework of
36. It has been alleged that Asian Paints has indulged in exclusionary abuse by
denying access to JSW Paints in contravention of provisions of Section 4(2)(c) of the
Act. It has also been alleged that when JSW Paints, launched its products in the
relevant market and started partnering with dealers and distributors, Asian Paints
started taking coercive action and violated the provisions of Section 4(2)(c) of the Act
by targeting such dealers/distributors/retailers who partnered with JSW Paints by
directing them to stop dealing with JSW Paints, stopping supplies to these dealers,
dropping service levels by delaying supplies and deliveries, and asking dealers to
remove display of JSW Paints products from their retail shelves and dealer signboards.
Dealers were also threatened by not allowing discretionary discounts, loyalty schemes,
etc.
37. The Commission has perused various instances of alleged abusive conduct of
Asian Paints brought out by JSW Paints in the State of Karnataka, Tamil Nadu and
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Telengana as contained in information including a transcript of a conversation between
a dealer and representatives of Asian Paints submitted with the information. Asian
Paints is also alleged to have pressurised enterprises that provided infrastructure
facilities like warehouses to JSW Paints. An instance in Hubli district has been cited in
support of this submission.
38. The Commission notes that denial of market access is a severe form of abuse of
dominant position. In the present case, it has been brought out that without access to
the dealers, there is no scope for a new or existing entity to survive in the market as
the dealers are interface of business with customers and help products of
manufacturers reach them. In the facts of the present case, the Commission notes
that the alleged conduct of Asian Paints of threatening and pressurising dealers as
highlighted by JSW Paints prima-facie brings out that Asian Paints has attempted to
prevent JSW Paints in establishing a presence in the relevant market. This conduct
prima-facie appears to be tantamount to abuse of dominant position by Asian Paints,
wherein Asian Paints has denied access to necessary distribution channels in the
relevant market and has limited the availability of alternate products in the relevant
market for consumers thereby reducing the competition in the market in contravention
of provisions of Section 4(2)(c) of the Act. As a result of the conduct of Asian Paints,
the final consumers may also be deprived of choice to purchase different kinds of
paints at competitive prices.
39. Based on material available on record, the Commission is of the view that
evidence provided by JSW Paints is prima-facie sufficient to indicate that Asian Paints
has denied access to the distribution channels in the relevant market to JSW Paints by
threatening and coercing such dealers through various means. In view of foregoing,
Asian Paints, prima-facie, appears to be in contravention of provisions of Section 4(2)
(c) of the Act.
Assessment of restraints under Section 3(4) of the Act
40. In regard to Section 3(4) of the Act, JSW Paints has alleged that Asian Paints
has acted in contravention of provisions of Section 3(4)(b) and 3(4)(d) of the Act by
imposing restraints in the nature of exclusive supply agreement and refusal to deal.
JSW Paints, in light of Section 19(3) of the Act, has stated that top 4 brands in the
industry namely, Asian Paints, Berger Paints, Kansai Nerolac and Akzo Nobel occupy
around 50% of the larger paint industry (decorative & industrial) and 80% of the
relevant market (decorative). Despite presence of global brands in India, they have
hardly managed to make their presence felt in the relevant market. It has been further
stated that Asian Paints has always maintained the highest market share and there
have been no new players in the relevant market in the last ten years. Asian Paint's
conduct of refusal to deal and of exclusive supply is alleged to have created significant
trade barriers for any upcoming entrant. It has also been submitted that Asian Paint's
conduct is alleged to be directly aimed at foreclosing the entry of a new entrant like
JSW Paints from competing in relevant market and also driving existing competitor
like Nippon out of the market.
41. The Commission notes that Explanation (b) to Section 3(4) of the Act provides
that an exclusive supply agreement includes any agreement that restricts the
purchaser from dealing in goods other than that of seller. Further, Explanation (d) to
Section 3(4) of the Act provides that refusal to deal includes any agreement which
restricts, or is likely to restrict by any method the persons or classes to whom goods
are sold or from whom goods are bought. As discussed above, Asian Paints is alleged
to have threatened various dealers in the States of Karnataka, Telangana and Tamil
Nadu from dealing with JSW Paints. These dealers are reported to have faced punitive
action at the hands of Asian Paints if they continued to deal with JSW Paints. It has
also been brought out that Asian Paints threatened the dealers to discontinue their
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supplies, disallowed discretionary discounts, etc. These restraints appear to be in the
nature of exclusive supply agreement and refusal to deal. As pointed out by JSW
Paints, such restrictions limit the dealers from procuring same/similar products from
other sources at a cheaper price. This restriction on the choice of dealers can limit the
benefits to the consumers that would have resulted otherwise. The Commission notes
that the alleged restrictions on dealers not to deal with JSW Paints or any other
company manufacturing paints can create barriers for suppliers of paints, who
compete with these suppliers besides not allowing the benefit of better prices to the
consumers. A stipulation that appears to create barriers to entry and restricts choice of
consumers is likely to result in appreciable adverse effect on competition resulting in
higher prices for consumers. Thus, the Commission is prima-facie satisfied that
imposition of said restraints amounts to contravention of Section 3(1) of the Act read
with Sections 3(4)(b) and 3(4)(d) of the Act by Asian Paints which is prima-facie
found to enjoy market power in the market.
42. In view of the foregoing, the Commission is of the opinion that there exists a
prima facie case which requires an investigation by the DG, to determine whether the
same has resulted in contravention of the provisions of Sections 4(1) of the Act and 3
(1) read with Section 3(4) thereof.
43. Accordingly, the Commission directs the Director General (‘DG’) to cause an
investigation to be made into the matter under the provisions of Section 26(1) of the
Act. The Commission also directs the DG to complete the investigation and submit the
investigation report within a period of 60 days from the receipt of this order.
44. It is also made clear that nothing stated in this order shall be tantamount to a
final expression of opinion on the merits of the case and the DG shall conduct the
investigation without being swayed in any manner whatsoever by the observations
made herein.
45. Since the matter is being referred to investigation, with respect to the
application seeking confidentiality dated 03.10.2019 of the Informant, the Commission
deems it appropriate that the DG may deal with such requests having regard to the
requirements of such investigation.
46. The Secretary is directed to send a copy of this order alongwith the material
available on record to the DG forthwith.
———
© EBC Publishing Pvt.Ltd., Lucknow.

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Maa Metakani Rice Industries Represented through Shri Puneet

Jhunjhunwala … Odisha Informant;
Versus
State of Odisha represented through Commissioner-cum-
Secretary, Food Supplies & Consumer Welfare Department,
Government of Odisha, Odisha State Secretariat
Odisha Opposite Party No. 1 Odisha State Civil Supplies
Corporation Ltd. C/2, Nayapalli Bhubaneshwar-751012 Odisha
Also at: Kacheri Road, Sambalpur-768001, Odisha … Opposite
Party No. 2.
Case No. 16 of 2019
Decided on November 1, 2019
Mr. Prabhu Prasanna Behera, Mr. Abhishek Choudhary, Mr. Puneet Jhunjhunwala,
Partner (Maa Metakani Rice Industries), Advocates, for the Informant;
None, for the OSCSCL.
Order under Section 26(1) of the Competition Act, 2002
1. The present information has been filed by M/s. Maa Metakani Rice Industries, a
registered partnership firm represented through its partner Mr. Puneet Jhunjhunwala
(hereinafter, ‘Informant’) under Section 19(1)(a) of the Competition Act, 2002
(hereinafter, ‘Act’) alleging contravention of the relevant provisions of Section 4 of the
Act, by the State of Odisha, represented through Commissioner-cum-Secretary, Food
Supply & Consumer Welfare Department (FS & CW Department), Government of
Odisha (hereinafter, ‘Opposite Party No. 1/OP-1’) and Odisha State Civil Supplies
Corporation Ltd. (hereinafter, ‘Opposite Party No. 2/OP-2’, collectively referred to as
‘Opposite Parties/OPs’).
2. The Informant is stated to be in the business of rice (paddy) milling, production
of rice, broken rice, bran, etc. and sale thereof, to act as Custom Milling Agent of OP-2
for the aforesaid purpose and to undertake custom milling on account of Food
Corporation of India (‘FCI’), National Collateral Management Services Limited
(‘NCMSL’), Orissa State Cooperative Marketing Federation Limited (‘MARKFED’),
Tribal Development Cooperative Corporation of Odisha Limited (‘TDCCOL’) and other
Government Agencies.
3. According to the Informant, OP-2 was established on 03.09.1980 as a company,
under the erstwhile Companies Act, 1956, fully owned by the Government of Odisha.
It has been stated that OP-2 is the largest agency involved in paddy procurement in
the State of Odisha as it purchases more than 90% of the total paddy produced in the
State. It is further stated that all the rice mills in the State including that of the
Informant, are totally dependent on OP-2 to run their rice mills.
4. The Central Government extends price support for paddy through FCI and State
agencies. The procurement is open-ended which is carried out at Minimum Support
Price (‘MSP’) i.e., whatever food grains are offered by the farmers, within the
stipulated procurement period, conforming to the quality specifications prescribed by
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Government of India, are purchased at MSP (and bonus/incentive, if any) by the
Government agencies including FCI for Central Pool. Government agencies undertake
MSP operation at mandis/temporary purchase centres/aggregation points. Custom
Milled Rice (‘CMR’) is manufactured by milling the paddy procured by State
Government/State agencies and FCI. In the State of Odisha, paddy is mainly procured
by State Government/State agencies and the resultant CMR is delivered to State
Government/State Agencies and FCI by rice millers. The State of Odisha has been
procuring paddy from farmers since the Kharif Marketing Season (‘KMS’) 2003-04. The
season starts from 1st of October and continues till 30th of September of the immediate
next year. Two crops of paddy are cultivated in a KMS, namely, Kharif and Rabi.
5. OP-1 is stated to play a significant role in supporting the activities of OP-2 by
providing subsidy to recompense for its losses.
6. The Informant claims to have entered into an agreement on 23.11.2015 with OP-
2 for custom milling of paddy for the KMS 2015-16 (hereinafter, ‘Agreement’).
Clauses 25 and 26 of the Agreement provides for Standard Fire Insurance coverage of
the stock of OP-2 kept and maintained at the custom miller's premises, vis-a-viz the
Informant.
7. As per the Informant, the salient features of the insurance coverage clauses
under the Agreement are as under:
7.1. OP-2 is responsible, on behalf of the custom miller, for taking out a
comprehensive fire floater insurance policy for its stock i.e. paddy, rice and gunny
bags lying within the premises of different rice millers of Odisha. The Informant is
required to pay proportionate Insurance premium as decided by OP-2.
7.2. The custom miller shall be responsible for any damage/deterioration in the
quality of paddy belonging to OP-2 due to unsafe and unscientific storage by the
miller. Further, OP-2 shall not be held responsible for any damage/loss of stock of OP-
2 due to fire and other calamities, if such stock is kept unscientifically and in an
unsafe manner by the miller.
8. The Informant started custom milling of paddy for the KMS 2015-16 and after
milling, commenced the delivery of rice.
9. During the said period, as per requirement, OP-2 purchased the Standard Fire
Floater Declaration Policy, effective from 01.12.2015 to 30.11.2016, for its stock lying
within the premises of 1549 rice mills of Odisha for an initial sum assured of Rs. 2,000
Crore. The Informant has alleged that neither the terms and conditions of the said
policy nor a copy of insurance policy was provided by OP-2 to the Informant, though
part of premium was being collected from the Informant by OP-2.
10. In the early hours of 04.08.2016, OP-2's stock lying at the Informant's
premises were damaged due to flood/inundation in the mill premises of the Informant.
The Informant is stated to have taken all necessary steps for safeguarding the stock
and fully cooperated with OP-2 in this regard. As per the copy of Final Survey Report
of water damage of stock of OP-2 filed with the information, there were heavy rains in
Sambalpur and the rain water entered into the Informant's premises on 04.08.2016
which damaged the stock comprising rice and paddy at the Informant's premises.
Final survey report assessed the net adjusted loss at Rs. 87,15,892.76.
11. The Informant has stated that OP-2 accepted the loss of stock which is evident
from various documents like copy of paddy stock register, rice stock register, custody
and maintenance stock register, physical verification report etc. filed with the
information.
12. The Informant has also stated that OP-2 did not enlist the Informant as a
defaulting custom miller in the list of custom millers at default for the period KMS
2003-04 to 2015-16, uploaded by it on its website.
13. The Informant has alleged that through its letters dated 25.10.2016 and
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29.11.2016, OP-2 provided information related to the insurance policy and claim
related procedures and changed the entire clauses related to insurance in the custom
milling agreement with the millers.
14. The Informant alleged that, after completion of KMS 2015-16, the custom
milling dues of the Informant were withheld by OP-2. The Informant was allowed to
participate in custom milling for KMS 2016-17, but outstanding payments for 2015-16
were not released and the total custom milling dues payable to it by OP-2 for the KMS
2015-16 and 2016-17 were approximately Rs. 1,20,00,000/-.
15. The Informant is stated to have approached OP-2 several times for releasing its
dues. However, as per the Informant, it was verbally communicated by OP-2 that the
CMR dues of the Informant could not be released as the claims had not been settled
by the insurance company i.e. New India Assurance Company Ltd.
16. Thereafter, the Informant filed a consumer complaint being CC No. 96/2017
before the learned State Consumer Disputes Redressal Commission, Cuttack
(‘SCDRC’) against the said insurance company and OP-2. In addition to this, it also
filed an application being Misc. Case No. 987/2017 against OP-2 before the SCDRC, in
CC No. 96/2017, seeking release of all pending dues of the Informant. The Informant
stated that after filing of Misc. Case No. 987/2017, OP-2 released certain amount but
withheld the balance amount which it stated, was subject to settlement of claim by
the insurance company. Further, the insurance company also filed an application being
Misc. Case No. 1529/2017 in Case No. 96/2017 before the SCDRC, challenging the
maintainability of the consumer complaint. Thereafter, vide order dated 27.12.2017,
the SCDRC held that the consumer complaint filed by the Informant was maintainable
and dismissed the application of the insurance company.
17. The Informant further filed an application Misc. Case No. 1118/2018 (arising
out of Complaint Case No. 96/2017) before the SCDRC, which vide its order dated
19.02.2019 directed OP-2 to take a decision on the representation filed by the
Informant within 10 days. Further details of the said proceedings have not been
indicated by the Informant in the Information.
18. The Informant alleged that only after it filed the aforesaid consumer complaint
that, OP-2 released an amount of Rs. 33,73,980/- on 03.11.2017, but withheld CMR
dues of approximately Rs. 85,00,000/-, as stated by the Informant. As per the
Informant, although no written confirmation was given, officials of OP-2 told the
Informant that the withheld amount would be released only after settlement of the
insurance claim which made it clear that OP-2 admitted its liability but had made only
a partial payment towards that liability.
19. The Informant has further informed that in Misc. Case No. 987/2017, the
SCDRC directed OP-2 to release the amount Rs. 83,00,000/- as claimed by the
Informant and admitted by OP-2, towards custom milling dues, pending adjudication
of consumer dispute.
20. The Informant is stated to have filed an application for execution before SCDRC,
as OP-2 did not follow the directions of the SCDRC. Thereafter, OP-2 and the insurance
company filed appeals before Hon'ble National Consumer Disputes Redressal
Commission (‘NCDRC’) against SCDRC's order dated 27.12.2017, passed in CC No.
96/2017, which is still pending. In the meantime, the insurance company repudiated
the claim of OP-2 (concerning loss at the Informant's premises) vide its letter dated
08.03.2018. The Informant averred that it was not informed about such repudiation,
by OP-2.
21. As per the Informant, OP-2 also debarred it from participation in Rabi Paddy
procurement and CMR operations for KMS 2017-18, which commenced from
14.05.2018. However, the Informant was not provided any specific document stating
the grounds of its debarment. The Informant alleged that there was no prior intimation
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of criteria for selection of Custom Millers for Rabi season for KMS 2017-18 and criteria
was only issued on 28.04.2018 with the deadline set at 30.04.2018. The Informant,
inter alia, made representation, vide letter dated 30.04.2018 to OP-2, which was
totally ignored, and no reply was given.
22. The Informant also stated that it filed grievance petition dated 14.02.2018 and
a written representation dated 30.04.2018 with OP-1 but to no avail.
23. Further, according to the Informant, All Odisha Rice Millers Association
(‘AORMA’) wrote a letter dated 06.11.2018, highlighting issues of non-payment of
arrears, lack of framing of suitable policy etc. and all the millers refused to enter into
any agreement for KMS 2018-19 with OP-2. The Informant alleged that there were
verbal threats from OPs and OP-2 issued a letter dated 22.11.2018, threatening the
millers that differential custody and maintenance charges arising out of revised
duration pertaining to KMS 2017-18 would not be paid unless they executed an
agreement for KMS 2018-19 to participate in procurement.
24. Thereafter, the Informant was forced to enter into an agreement with OP-2 for
custom milling for KMS 2018-19. According to the Informant, while the said
agreement safeguards the interests of OP-2, it is silent on rates of custom milling and
payment conditions etc. The Informant has alleged that the said action of OP-2 is an
abuse of dominant position and the letter dated 22.11.2018 created an anti-
competitive environment resulting in ousting of players from the market.
25. Based on the above facts and circumstances, the Informant alleged that OP-2
directly and/or indirectly imposed unfair and discriminatory conditions in purchase of
service from the Informant and it could be deduced that OP-2 acted in an exploitative
and exclusionary manner. The Informant also alleged that it is being subjected to high
handedness, arbitrariness and complete abuse of dominant position by the OPs, which
is not tenable in the eyes of law. It has also been asserted that OP-2 had failed to
maintain the “essential facilities” in an efficient manner.
26. In sum and substance, the Informant has alleged that it suffered huge
economic hardship owing to the high handed approach adopted by OP-2 by delaying
the settlement of the CMR dues and also not settling the claim with the insurance
company and paying off the legitimate dues of the Informant.
27. Based on the basis of the above facts and circumstances, the Informant has
prayed that an enquiry be instituted and it be held and declared that OP-2 has
indulged in anticompetitive practice and that the policy and the actions of OP-2 are
opposed to the freedom of trade; OP-1 and OP-2 be further directed to discontinue and
stop such practice and OP-2 may be directed to discontinue the abuse of dominant
position.
28. The Informant has also sought compensation under various heads, apart from
seeking interim relief under Section 33 of the Act, though no separate application has
been filed in this regard.
29. The matter was taken up by the Commission in its ordinary meeting held on
04.06.2019. On 25.07.2019, the Commission decided to have a preliminary conference
with the Informant and OP-2 on 03.09.2019.
30. On 03.09.2019, the Informant appeared along with its learned counsel and
explained the case in support of the information filed. However, despite due service,
no one appeared on behalf of OP-2.
31. The Commission has carefully perused the information, material available on
record and other information available in public domain.
32. The Commission observes that the broad objectives of the government policy
for procurement of food grains is to ensure MSP to the farmers and availability of food
grains to the weaker sections at affordable prices. It also ensures effective market
intervention, thereby keeping the prices under check and also adding to the overall
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food security of the country.

33. FCI, the nodal central agency of Government of India, along with other State
Agencies undertakes procurement of wheat and paddy under price support scheme.
The procurement under price support scheme is taken up mainly to ensure
remunerative prices to the farmers for their produce which works as an incentive for
achieving better production1 .
34. For Rabi/Kharif Crop season harvest, the Government of India announces the
MSP for procurement of various crops based on the recommendation of the
Commission of Agricultural Costs and Prices (‘CACP’)2 .
35. To facilitate procurement of food grains, FCI and various State agencies, in
consultation with the State Government, establish purchase centres at various mandis
and key points. The number of centres and their locations are decided by the State
Governments, based on various parameters, so as to maximize the MSP operations.
The stocks which are brought to the purchase centres are, as per specifications of
Government of India, purchased at the support price. If the farmers get prices better
than the support price from other buyers such as traders/millers etc., the farmers are
free to sell their produce to such traders/millers.
36. The Commission notes based on the information available in public domain that
there is a list of Procuring Agencies which are, mainly, FCI, Odisha State Civil Supplies
Corporation Limited (OP-2), National Agricultural Cooperative Marketing Federation of
India Ltd. (‘NAFED’), MARKFED, TDCCOL and National Federation of Farmers'
Procurement, Processing and Retailing Cooperatives of India Ltd. (‘NACOF’) or any
other Corporation or Co-operative Society appointed by the Government of Odisha (OP
-1) to purchase stock of paddy from the farmers directly or otherwise through their
sub-agency.
37. The Commission notes that there is a regulated procedure for purchase of
paddy and delivery of paddy for custom milling, timelines for milling of paddy into
rice, restriction on custom milling, restriction on sale and movement of paddy, delivery
of rice stocks etc. Further, the State Government and State Procuring Agencies also
prescribe special guidelines for timely purchase of paddy, its delivery to the mills,
custom milling, delivery of rice, agreement procedures, security, penalty etc. for
smooth procurement. OP-1 issues Food and Procurement Policy for every KMS wherein
it lays down modalities for procurement of paddy by procuring agency, custom milling
of rice and other allied activities and in consonance with the Food and Procurement
policy, the procuring agency issues Operational Guidelines for the KMS.
38. After considering the Food and Procurement Policy and the Operational
Guidelines for the KMS issued by the procuring agency, the Commission observes that
OP-2 is one of the identified procuring agencies for procurement of paddy and custom
milling.
39. As observed above, the activities of procurement of paddy and its custom
milling are regulated activities in the State of Odisha. In order to facilitate such
activities, OP-2 enters into agreements with the custom millers under which OP-2
delivers paddy to the custom miller at the Paddy Purchase Centre (PPC), which is
transported and kept under joint custody and maintenance of miller and OP-2 for
storing, and milling of the paddy & delivery of the CMR to OP-2/FCI at designated
places.
40. Thus, it is evident that OP-1 lays down procurement policy and passes orders
etc. and OP-2 carries out the activities related to procurement in the State. In the
present matter, OP-2 appears to be engaged in economic activities of procurement of
paddy, custom milling of rice and distribution of rice and thus, qualifies as an
enterprise within the meaning of Section 2(h) of the Act.
41. According to the partnership deed of the Informant, the object of partnership
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business is to mainly do rice milling business in milling of paddy, producing Rice,
Broken Rice, Bran, etc. and sale thereof and to act as milling agent of Civil Supply
authorities for the purpose and custom milling for FCI, NCMSL and other agencies. The
facts gathered from the information suggest that the Informant's business is
dependent on the work supplied by the state procuring agencies.
42. In light of the above discussion, the Commission observes that the allegation of
the Informant relates to the conduct of the agency responsible for engaging custom
milling services. As discussed in foregoing paragraphs, Custom Millers and their
activities are apparently defined in the policy of State of Odisha, which makes it a
specialised activity and the persons undertaking such activities provide their custom
milling services to the State/Government procuring agencies. The Commission notes
that obtaining custom milling services is a procurer's market. The State procuring
agencies are on the demand side and suppliers of custom milling services are on the
supply side. Thus, the relevant product market in the case is “Market for procurement
of custom milling services for Rice”.
43. Further, while appointing and tagging custom millers to the Purchase Price
Centres (PPCs) or Rice Receiving Centres (RRCs) as per the Food and Procurement
Policy, various factors are considered such as distance from the mill, capacity of the
RRC and requirement of rice for PDS in the area, mill capacity for minimising overall
cost of transportation from paddy receipt to rice delivery for PDS, continuous
monitoring of the receipt of paddy from PPCs and delivery of CMR by mills to RRCs/FCI
etc. Further, OP-1 may assign millers from other districts with surplus capacity.
However, one custom miller is not allowed to participate in more than two revenue
districts including the district where rice mill is located. Thus, in light of the above,
relevant geographic market is delineated as “State of Odisha”.
44. Accordingly, the relevant market in the present case is “Market for procurement
of custom milling services for Rice in State of Odisha”. The next step is assessment of
dominance of enterprise in the relevant market.
45. Under the Food and Procurement Policy for KMS 2017-18 and 2018-19, OP-2 is
identified as the primary government procuring agency by OP-1. OP-2 procures paddy
in all districts whereas other State agencies are mostly assigned surplus districts to
procure paddy. From the available documents, the Commission has relied on the table
as stated in the document filed alongwith the information “Proceedings of the Weekly
Paddy Procurement Review Meeting held on 12.04.2016 at 4.30 PM in the Conference
Hall of FS&CW Department”. The relevant information from the same is reproduced for
reference hereinbelow:
Procurement of Paddy and Delivery of Rice for KMS 2015-16
(Figures in MT)
S. Name of Paddy Equivalent Delivery of Delivery Total
No. the procured Rice Rice in of Rice in Rice
agencies RRC FCI Delivery
1 2 5 6 7 8 9
1 OSCSC Ltd. 38,72,587 26,33,359 3,17,216 4,88,924 8,06,140
(OP-2)
2 MARKFED 1,62,056 1,10,198 --- 74,092 74,092
3 TDCC 64,265 43,700 --- 25,585 25,585
4 FCI 397 270 --- 270 270
5 NACOF 70,082 47,656 --- 35,718 35,718
TOTAL 41,69,387 28,35,183 3,17,216 6,24,589 9,41,805
46. It is clear from the above that OP-2 holds a significant market share in the total
rice delivery, indicating it to be an equally significant player in the procurement of rice
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milling services. Though market share is not the sole or conclusive factor for
determination of dominance, it nevertheless is a good indicator of dominance. Though
the above details pertain to KMS 2015-16, given that OP-2 continues to be identified
as the primary government agency procuring for subsequent KMS as per the policy, it
can be safely inferred that OP-2 continues to enjoy a dominant position in the relevant
market in the later years also i.e. 2016-17, 2017-18 and 2018-19. In view of the
above, the Commission is, prima facie, of the view that OP-2 is dominant in the
relevant market.
47. The main allegations of abuse in the relevant market, inter alia, pertain to the
conduct of OP-2 in non-settlement of CMR dues of the Informant and imposition of
unfair condition by it upon millers for entering into agreement for Custom Milling for
KMS 2018-19. With regard to the former allegation, the Commission perused the order
dated 27.12.2017 (Annexure 16 to the information filed) passed by the SCDRC in
Misc. Case No. 987 of 2017. Further, the Commission notes that as per the letter
dated 18.04.2018, filed with the information, the Informant stated that the custom
milling charges for the KMS 2015-16 and 2016-17 had been withheld on account of
non-settlement of insurance claim between the insurance company and OP-2. From
the documents placed on record, it appears there is high-handedness on the part of OP
-2. The Commission, at this stage, without delving into the specifics of the abuse, as
alleged, is of the prima facie opinion that the issue requires investigation.
48. Further, the Commission notes that the Informant has also alleged that OP-2
issued a letter dated 22.11.2018, allegedly threatening the millers by dictating that
the differential custody and maintenance charges arising out of revised duration
pertaining to KMS 2017-18, would not be paid to the millers unless they executed the
agreement for KMS 2018-19, in order to participate in procurement.
49. The Commission further notes that AORMA's letter dated 06.11.2018 addressed
to all District Collectors contained issues like no timely disclosure of charges for KMS,
no proper reimbursement of the charges incurred by millers in providing various
services since last several years and rates of some services being unilaterally reduced
from what was being paid for the same services during earlier years. It was further
stated in the said letter that this was a common problem in all the districts of the
State of Odisha. Based on this, the millers demanded that they would participate
during current KMS 2018-19 subject to, (i) release of arrears due after finalization of
rates, (ii) incorporating full details about scope of work and rates payable thereof in
the agreement before execution and (iii) formulation of a suitable policy to ensure
functioning of Rice Milling Industry of both Single and Double Crop districts for 10 to
11 months during a year for economically viability.
50. The Commission notes that the aforesaid issues raised in the letter dated
06.11.2018 of AORMA pertaining to alleged non-clearance of dues/arrears,
incorporating details about scope of work and rates payable thereof in the Agreement
before execution and formulation of a suitable policy and the facts contained in the
letter dated 22.11.2018 are issues which prima facie require an investigation under
51. Apart from the above, the allegation of the arbitrary disclosure of criteria for
selection of Custom Millers for participation in Rabi Season KMS 2017-18, vide letter
dated 28.04.2018 of OP-2, also requires to be investigated by the Director General
(‘DG’).
52. Accordingly, the DG is directed to investigate into the matter and submit its
report within a period of 60 days from receipt of this order.
53. It is made clear that, if during the course of the investigation, the DG comes
across anticompetitive conduct of any other entity/person in addition to those
mentioned in the information, the DG shall be at liberty to investigate the same.
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54. It is however, made clear that nothing stated in this order shall tantamount to
final expression of opinion on the merits of the case and the DG shall conduct the
investigation without being swayed in any manner, whatsoever by the observations
made herein.
55. The Secretary is directed to send a copy of this order along with the information
and other documents received in relation to this matter to the Office of the DG.
———
1 http://fci.gov.in/procurements.php
2 supra

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Sainath Autolinks Pvt. Ltd. … Informant;

Versus
State Bank of India and Another … Opposite Party No. 1.
Case No. 15 of 2019
Decided on October 11, 2019
1. This order shall dispose of the Information filed by Sainath Autolinks Pvt. Ltd.
(the ‘Informant’) under Section 19(1)(a) of the Competition Act, 2002 (the ‘Act’),
alleging inter alia contravention of the provisions of Section 4 of the Act by State Bank
of India, Mumbai (‘Opposite Party No. 1’/‘OP-1’) and State Bank of India, Durgapur
branch (‘Opposite Party No. 2’/‘OP-2’) (collectively referred as ‘the OPs’).
2. The Informant is an authorised dealer of Maruti Suzuki India Limited (Maruti
Suzuki) located in Durgapur, West Bengal. OP-1 is a scheduled commercial bank in
public sector having its registered office at Mumbai and branches spread across the
country, one of them being OP-2. It has been submitted in the Information that OPs
are engaged in accepting deposits, grant of loans, remittance of money and rendering
other banking services.
3. The Informant has submitted that it opened a Supply Chain Finance Unit
(‘SCFU’) account with OP-2 on 14.10.2011. As per the terms and conditions of the said
SCFU account, Maruti Suzuki would dispatch cars to the Informant after receipt of
payment from OP-2; thereafter, the Informant would deposit the sales proceeds of
cars into the said account.
4. On 23.07.2018, OP-2 is said to have sent an e-mail to the Informant stating that
a reconciliation and audit exercise was undertaken with respect to the aforesaid SCFU
account for the financial year 2013-14, wherein it was found that one credit entry had
been captured twice and one debit entry had been missed. After due reconciliation of
the entries, the Informant was liable to pay a sum of Rs. 2.13 Crore to OP-2.
5. It has also been alleged that till 11.09.2018, OPs neither supplied the calculation
sheet nor provided any explanation for raising such demand to the Informant, despite
repeated communication in this regard. Moreover, the Informant was compelled to pay
the aforesaid amount after OP-2 threatened to transfer said account to Non-Performing
Asset (NPA) category.
6. The Informant has also stated that the said demand of Rs. 2.13 Crore is time
barred under the provisions of the Limitation Act, 1963 as there had been a delay of
more than five years in raising such a demand. The Informant is stated to have filed a
complaint on 17.01.2019 before the Banking Ombudsman; however, vide e-mail dated
28.01.2019, the Banking Ombudsman conveyed that complaint was not maintainable
under the provisions of Clause 9(2)(a) of Banking Ombudsman Scheme, 2006.
7. The Informant, citing the provision regarding enhanced penal interest, has
alleged that terms and conditions of the letter of arrangement dated 24.01.2018
signed between OP-2 and the Informant are unfair, discriminatory and favours the
OPs. The Informant has also averred that OPs are in a dominant position in the
banking sector and that they have abused their dominant position.
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8. Based on the above averments and allegations, the present Information has been
filed by the Informant against the OPs, alleging contravention of the provisions of
Section 4 of the Act. The Informant has made the following prayers:
i. An inquiry be ordered against the OPs on the basis of the present complaint.
ii. During the pendency of the present complaint, the OPs be directed to reimburse
the disputed amount of Rs. 2.13 Crores along with 24% interest per annum.
iii. To declare the demand of Rs. 2.13 crores vide notice dated 23.07.2018 as
illegal.
iv. To levy a penalty of Rs. 3 crores against the OPs and in favour of the Informant
for creating conditions for mental torture and harassment along with 24%
interest to be compounded every month.
9. The Commission has perused the Information filed by the Informant, documents
annexed therewith and also relevant information available in public domain.
10. The Commission notes that the Informant is primarily aggrieved with the
alleged delayed intimation of reconciliation exercise done by OPs, on account of which
he was made liable to pay an amount of Rs. 2.13 crores.
11. For examining the allegations made in the Information within the framework of
Section 4 of the Act, it is necessary to first define the relevant market and then to
determine dominance of OPs therein before analyzing the abusive conduct.
12. In this context, the Commission observes that the Informant had been granted
working capital loan under SCFU account maintained by it with OP-2. The Commission
observes that loans and advances are given in personal segment and business
segment. Depending on the size of the business entity, the latter is sub-categorised
into credit facilities to large corporate borrowing, mid-corporate borrowing etc. Further,
depending on the nature of finance, banks extend fund and non-fund based credit
facility to their customers.
13. While the Informant has not suggested any particular relevant market in which
conduct of the OPs is to be analysed, the Commission, in this regard, observes that in
terms of Priority Sector Lending requirements, RBI has allowed banks to classify loans
to Micro, Small and Medium Enterprises (MSMEs), for both manufacturing and service
sectors, as priority sector loans. Further, the Central Government accords special
treatment/incentives to MSMEs as identified under Micro, Small & Medium Enterprises
Development (MSMED) Act, 2006. Accordingly, the Commission is of the opinion that,
keeping in view the facts projected by the Informant against the OPs and in light of
the regulatory classifications adopted by the Government/RBI, the relevant product
market in the present case be delineated as ‘market for provision of loans to MSMEs’.
14. In respect of the relevant geographic market, the Commission notes that in an
earlier case pertaining to the banking sector i.e. Case No. 02 of 2015, relevant
geographic market was limited to the confines of a particular State. In the present
case, the Commission notes that the Informant is a business entity based in West
Bengal. Although, various banking/financial services are offered by banks on a national
scale, however, from the supply side, especially for loan products, consumers of
banking services like the Informant generally prefer banks/finance institutions with a
local presence. Accordingly, the Commission defines the relevant geographic market in
the present matter as ‘State of West Bengal’.
15. In view of the above discussion, the relevant market in the instant matter is
‘market for provision of loans to MSMEs in State of West Bengal’.
16. The Commission notes that the Informant has not provided any evidence to
show the dominant position of the OPs except for stating that State Bank of India,
being the bank of the Central Government and governed by State Bank of India Act,
enjoys dominant position in the commercial market. As against this, from the
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information available in public domain (i.e. State Level Bankers Committee data
pertaining to West Bengal), the Commission notes that market share of OPs in MSME
loan category in State of West Bengal for the period 2018-19 is around 11%.
Furthermore, banking sector in West Bengal seems to be characterized with presence
of several national level banks such as State Bank of India, HDFC Bank, Punjab
National Bank, ICICI Bank, Allahabad Bank, Bank of India, Canara Bank, Central Bank
of India, Syndicate Bank, UCO Bank, Axis Bank, Yes Bank etc. Thus, considering the
large number of players operating in the relevant market, the OPs do not seem to have
the ability to operate independently of the competitive forces. In the absence of
dominance, the issue of abuse of dominant position against the OPs does not arise.
17. In view of the foregoing, the Commission is of the view that no case of
contravention of the provision of Section 4 of the Act is made against OPs and the
matter is ordered to be closed forthwith in terms of the provisions contained in Section
26(2) of the Act.
18. The Secretary is directed to communicate to the Informant, accordingly.
———

TruePrint™ source: Supreme Court Cases
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(BEFORE ASHOK KUMAR GUPTA, CHAIRPERSON AND U.C. NAHTA, MEMBER AND SANGEETA
VERMA, MEMBER)
Ashokbhai M. Mehta … Informant;

Versus
Gujarat State Board of School Textbook … Opposite Party.
Case No. 04 of 2019
Decided on August 7, 2019
1. The present information has been filed by Mr. Ashokbhai M. Mehta (hereinafter,
the ‘Informant’) under Section 19(1)(a) of the Competition Act, 2002 (hereinafter,
the ‘Act’) alleging contravention of the provisions of Section 4 of the Act by Gujarat
State Board of School Textbook (hereinafter, ‘Opposite Party’).
2. As per the Informant, the Opposite Party was established on 21.10.1969, with
the objective of publishing school textbooks in various languages such as Hindi,
English, Marathi, Sindhi, Urdu, Sanskrit, Tamil and Gujarati, which are provided to all
the students studying in Std. 1st to 12th. The syllabus for textbooks, which are
published by the Opposite Party, is prescribed by the Gujarat Council of Educational
Research and Training (‘GCERT’) and is accepted by the Government of Gujarat. It is
stated by the Informant that the Opposite Party is under the administrative control of
the Education Department of Government of Gujarat. The Minister of Education,
Government of Gujarat, is the President of the Opposite Party.
3. The Informant submitted that the Opposite Party, since its inception, has been
entrusted with the responsibility of publishing various study materials in the State of
Gujarat. Further, till 2018, work of printing and binding of the textbooks was
outsourced by the Opposite Party on a contractual basis, to the printers established or
based in the State of Gujarat and registered with it, which were empanelled after
having completed legal and procedural formalities. The rates for printing and binding
work were fixed by the Department of Education, Government of Gujarat. Therefore,
the registered presses with the Opposite Party were required to perform the allotted
work at such rates. The paper was specifically provided for the printing and binding by
the Opposite Party. As per the Informant, allotted work was guided by strict timelines,
non-adherence to which involved huge penalties.
4. As per the Informant, till 2010, the work of printing and binding, by most of the
printers, was done by using the sheet-fed offset printing technology. From 2010, the
Opposite Party, without any stipulation in the terms of the contract, started
discriminating between the printers by allotting more work to printers using web offset
printing with 578 mm cut off than those who were using sheet-fed offset printing
machines. Therefore, in order to procure more work from the Opposite Party, various
printers decided to upgrade their machinery from sheet-fed offset to web offset with
578 mm cut-off. The Informant and similarly placed printers were stated to be totally
dependent upon the work given by the Opposite Party as upgradation was customised
by them for the work of the Opposite Party.
5. On 01.04.2017, a contract, for the period from 01.04.2017 to 31.12.2019, was
allegedly executed between the Opposite Party and the registered printers including
the Informant. It is alleged by the Informant that the Opposite Party, for the first
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time, asked for the specifications with respect to the machinery. On account of this, a
number of printers upgraded their machinery and incurred huge capital expenditure in
the year 2016-17, just before signing the aforesaid contract. However, after execution
of contract and placement of book allotment orders, the Opposite Party, in the month
of March 2018, unilaterally terminated the said contract but later on extended it for
three months upto 30.06.2018.
6. The Opposite Party introduced a new system vide its Tender No. 01/2018-19
dated 06.04.2018 (hereinafter, ‘Tender’). As per the Tender, the bidders provided
rates for the different types of category for the following printing & binding jobs:
a. Web Offset Printing along with Binding (Category (i))
Slab 1 - Up to 5000 Copies
Slab 2 - 5001 or more Copies
b Sheet-fed Offset Printing along with Binding (Category (ii))
Slab 1 - Up to 5000 Copies
Slab 2 - 5001 or more Copies
7. As per the Informant, the Tender was for procurement of same services i.e.
printing and binding of the textbooks, by using different techniques of web offset
printing with 578 mm cut off and sheet-fed offset printing, whereas 90% of the
allotment of work was, generally, under the web offset printing category.
8. As per the Tender, the bidders were required to quote their bids either in
percentage increase or decrease of the base rate i.e. the rate which existed prior to the
introduction of the Tender, last revised in 2004. The commercial bids were opened on
02.07.2018, by the Opposite Party. After opening of the commercial bids, it was
discovered that 21 bidders had quoted identical bids of minus 31% of the base rate.
The Informant alleged that the said price was collusively decided by the said 21
bidders, forming a cartel.
9. As stated by the Informant, all the other bidders, except the above 21 bidders,
quoted their respective bids as per their cost structure. On finding the price L1 to be
abnormally low, the bidders made various representations by writing letters to the
Opposite Party to apprise it about the non-feasibility of the rate quoted by the 21
bidders in a clandestine manner.
10. Consequently, the Informant filed an information before the Commission
alleging formation of cartel by certain bidders. The said information is presently a
subject matter of investigation.
11. Through the present information, the Informant has alleged that the Opposite
Party is a dominant enterprise for printing of textbooks in the State of Gujarat and is,
thus, solely responsible for publishing of study material. It is claimed that this
responsibility of getting the printing work done, confers a monopsonistic power on the
Opposite Party in respect of procurement of printing and binding services from the
printers and the Opposite Party has abused its dominant position by imposing unfair
and discriminatory price and conditions in purchase of such services in the following
manner:
11.1 Unilateral Termination of Contract
11.1.1. It has been alleged that the Opposite Party, arbitrarily, unilaterally and
without any basis, terminated the contract for printing work, executed in 2017
with the printing units. This contract was to remain in force for a period of
about 02 years and 09 months i.e., till 31.12.2019 but was terminated in
March 2018 only, without assigning any reason. This resulted in huge losses to
the printing units which upgraded their machinery just before entering into
the contract, in order to meet the Opposite Party's stipulation, which was a
mandatory condition, prior to entering into the contract. Thus, it has been
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alleged that the Opposite Party indulged in abuse of the dominant position by
way of denying market access to the printing units.
11.2. Arbitrary Allotment of work
11.2.1. It is alleged by the Informant that allotment of printing work by the
Opposite Party pursuant to the Tender, had not been done in a fair manner,
unlike it was done prior to introduction of the Tender, wherein, work was
allotted by the Opposite Party to the printers on an equal basis. As stated in
the Information, the allotment was now done as provided in Tender Term No.
4.16 of General Terms No. xxiv which states, “After the opening commercial
bid successful, L1 bidder will be announced. Bidder who technically qualified
and wants to work with GSBSTB must give written consent that they would
work as L1 rate along with the terms and conditions of tender. Then only
board will empanel those bidders.”. The Opposite Party, however, decided to
issue Letter of Acceptance to 68 bidders, as opposed to 100 bidders who were
technically qualified, as decided in its Executive Committee meeting held on
13.07.2018 and recorded in the respective Minutes of Meeting No. 241. In
addition to this, the Opposite Party specifically stated that “…. it has been
decided that all the printers who agree to work at the L1 rates may be
empanelled…”, as per the letter dated 30.07.2018.
11.2.2. The Informant submitted that the Opposite Party decided, on
13.07.2018, that a panel would be made comprising bidders offering L1 rates
and other bidders whose bid was in range between L1 and L1 + 10%,
provided the latter matched L1 price. It was further submitted by the
Opposite Party before the Commission (in the previous case) that the work
was allotted amongst L1 bidders and other bidders who agreed to work at L1
price in the ratio of 60:40. The Informant alleges that the minutes of the
meeting dated 13.07.2018 do not mention the above criteria of allotment of
work and further, this aspect was not highlighted by the Opposite Party. The
Informant further alleged certain discrepancies in the Minutes of the Meeting
dated 13.07.2018 and the submissions made by the Opposite Party before the
Commission in the earlier information.
11.3. Unfair Price in Purchase of Service
11.3.1. It is submitted by the Informant that the commercial bid, invited by the
Opposite Party in the Tender, is required to be quoted in terms of percentage
increase or decrease of the base rate. The commercial bids quoted were
opened and the L1 price turned out to be (−) minus 31% i.e. 31 % lower than
the base rate which was fixed in 2004. This L1 price, which was allegedly a
result of cartelization by 21 bidders, was found to be unfeasible by various
aggrieved printers who made a representation to the Opposite Party. Despite
the representations, the Opposite Party went ahead with this L1 price,
resulting in an unfair imposition of price upon the printers. The Informant, in
this regard, has compared the prices prevailing in different State boards to
show variance in prices.
11.4. Charging of Earnest Money
11.4.1. The Informant has alleged that charging of Earnest Money Deposit
(‘EMD’), from the small scale industries, specifically exempted under the
Gujarat State Procurement Policy 2016, is an avoidable financial burden on the
printing units and hence, is a direct imposition of an unfair condition in
purchasing the services. The Informant relied upon the relevant Clause 2 of
the abovementioned policy and sought for an exemption from the Opposite
Party from paying EMD. However, no response from the Opposite Party with
respect to its request was received. Thus, in order to avoid the risk of
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disqualification from participating in the Tender, the Informant submitted the
tender fee and the EMD with the Opposite Party.
11.5. Imposition of Exorbitant Penalty
11.5.1. The Informant has alleged that the imposition of penalty on the bidders
for delay in supply of quantity is calculated by the Opposite Party on the basis
of book value, whereas, in the tenders floated by the other boards, for
instance, the Maharashtra Board, it is calculated on the basis of bill payable to
the printer. The book value of a textbook constitutes the cost of raw material
i.e. paper, storage cost, loading cost, printing cost, distribution cost,
administrative cost, and a little margin of profit. As printing cost is only a part
of the book value, charging penalty on the basis of value of book and not at
the L1 rate is unfair condition in purchase of services. As per the Informant,
this unfair condition has resulted in eroding approximately entire profit margin
of the printing units.
11.6. No Reasonable Exit Clause for Bidders
11.6.1. It is submitted that as per the terms and the conditions of the Tender,
once a printing unit is empanelled with the Opposite Party, only the Opposite
Party has the right to terminate or cancel the work order. Further, if a printing
unit fails to fulfil / honour its obligations, as stipulated in the terms of the
Tender, due to unforeseeable and contingent circumstances, then, instead of
affording a reasonable opportunity to exit from the panel and refund of
security deposit, the Opposite Party imposes unfair and abusive conditions
upon the printers such as, cancellation of the work order; forfeiture of the
security deposit; imposition of exorbitant penalties; and blacklisting for a
minimum of 2 years.
11.7. Discriminatory Conditions
11.7.1. It is submitted that as per the ‘General Term 4.16 no. (xxiv)’ of the Tender,
every bidder who is technically qualified, is eligible to get the work, provided the
bidder gives a written consent to work at L1 rate. Contrary to the said term of
the Tender, the Informant has alleged that, the Opposite Party only issued
‘Acceptance of L1 Rate’ letter to selective 68 bidders out of 100 qualified bidders
and thus discriminated with the remaining 32 bidders, by not issuing the said
letter as they were also technically qualified for the allotment of work. As per the
Informant, the only source of work for all the printing units is the Opposite Party
and these printing units have incurred huge expenditure in last 5 years to
upgrade their machinery to provide good quality books in due time and to match
the specification of the machinery as prescribed by the Opposite Party.
11.7.2. The Informant has, thus, alleged that the Opposite Party, first,
terminated the contract, executed in the year 2017 for a period of about 3
years unilaterally, by disregarding the provisions of the said contract.
Thereafter, the Opposite Party created a panel of 68 bidders out of 100
qualified bidders and denied the market access to the 32 technically qualified
bidders and later also did not accept the consent letter dated 16.08.2018 and
06.09.2018 given by 7 qualified bidders, who, as per the terms of the Tender
were eligible to get the work. Hence, these 32 bidders have been a victim of
the abuse of the dominant position by the Opposite Party.
12. Based on the above, the Informant has alleged abuse of dominant position by
the Opposite Party and has prayed for an investigation under Section 26 (1) of the Act
and direct the Director General (‘DG’) to cause an investigation into the matter.
13. The Informant has also filed a separate application under Section 33 of the Act
praying for an interim relief in the nature of an interim order/direction to the Opposite
Party to immediately stop the discriminatory practice of excluding the Informant, a
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technically qualified bidder, from the parties to whom orders for printing have been
given, at the L1 rates; or pass an order staying or cancelling the Tender and maintain
status quo till the pendency of investigation.
14. The Commission considered the matter in its ordinary meeting held on
20.03.2019 and directed the Opposite Party to explain the procedure followed by it for
empanelment of qualified bidders as per its Tender and the reasons for excluding 32
qualified bidders for the allotment of work by it. In response, the Opposite Party filed
its reply on 26.04.2019.
15. In the meantime, the Informant filed an interim application dated 10.04.2019
for an urgent hearing of his application filed under Section 33 of the Act, which was
submitted alongwith the Information. The Commission directed to relist the said
application as the same could not be taken up on 18.04.2019 due to paucity of time.
16. The Opposite Party filed its reply on 26.04.2019 and the main submissions are
briefly noted hereinbelow:
16.1. The Opposite Party is not a commercial organization but is under the
administrative control of the Education Department of Gujarat Government. It
has been solely tasked with the mandate of publishing high quality textbooks for
school students which cater to all economic strata of the society. The main object
of the Opposite Party is to make basic education affordable. Since the printing
cost will directly affect the cost of text books which are made available to the
students, the Tender cannot be termed as anti-competitive considering that the
requirement of printing textbooks is for making basic education affordable.
16.2. The Informant is the owner of Gujarat Book Store who has been a service
provider to the Opposite Party for printing school textbooks and is venting his
personal grievance in guise of the present information to coerce the Opposite
Party to empanel him for the work of textbook printing.
16.3. In the prior information filed by the Informant, involvement of the Opposite
Party was not held to be in violation of the provisions of the Act and its role was
only limited to act as a facilitator for the purpose of enquiry and hence, the
present case deserves to be dismissed at the very outset.
16.4. The price for printing of web-offset is actually a more cost effective way of
printing as there is major reduction in labour cost due to advanced technology
and is more economical and is in the interest of students who are end customers.
16.5. The preferred method of printing post-2010 has been web-offset printing as it
is a more precise printing technique and the specifications laid down by the
Opposite Party are merely a catalyst to help achieve the object of printing quality
books. The Opposite Party has never specified any contractual condition with
regard to upgrading of machinery which was in fact a voluntary conduct on the
part of printers to procure majority work against their competitors. Printers get
associated with the Opposite Party at their sole discretion without there being
any pressure by the Opposite Party to do so. Web offset machine as per the
required specifications is capable of doing any other printing work throughout the
country. Moreover, there is alternative market for provisions of services of
printing as the number of government schools have reduced to 76 % in the State
of Gujarat.
16.6. The contract that has been alleged to be for the period 01.04.2017 to
31.12.2019, never even subsisted. In fact, the contract was only for the period
01.04.2017 to 31.03.2018 and there existed a renewed contract from
01.04.2018 to 30.06.2018. The Informant signed extended contract without
contesting, either at the time of signing of the renewed contract, or after the
completion of the tender process and hence, has waived his right to raise any
such contention. Moreover, grievance as regards termination of contract can be
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raised before an appropriate forum.
16.7. The Opposite Party received a total of 103 qualified bids for web offset and
sheet offset printing and it resolved to make a panel of bidders offering L1 rates
and other bidders whose bid was between L1 and L1+10%, provided they
matched the L1 prices. The estimated volume of work for 2018-19 was to be
completed in 3 to 4 months. The total production capacities as declared by
respective L1 bidders (26 bidders - deriving common L1 bidders for sheet-fed
and web offset) were not found to be sufficient by the Opposite Party to complete
the estimated requirement in the given timeline.
16.8. The basis of selection of bidders and decisions taken in that behalf were
recorded in the minutes of the Working Committee Meeting held on 13.07.2018.
As per Clause 4.16 xxiv of the Tender, it was decided (in the 241st Executive
Meeting) to allow qualified bidders willing to work at final respective L1 price and
accordingly the Opposite Party approached 42 more qualified bidders to fulfil the
estimated requirements. Out of these 42 additional bidders, 28 bidders gave
confirmation to execute respective work at the finalised L1 prices, which
constituted the panel of 54 empanelled printers. It further clarified that only 38
bidders had agreed to work on L1 rate until 20.07.2018 but the printing
requirements were not met. In order to formulate the panel, the time was
extended till 03.08.2018, wherein 16 more printers consented to work at L1
rates. Work was distributed to the qualified bidders after receiving Letter of
Acceptances (‘LoAs’) from them and fulfilment of other conditions and individual
contracts were entered into with 52 bidders.
16.9. The L1 price was determined on the basis of previous year's pricing and
industry standards and it was learnt that web offset technique cuts down labour
cost thus, reducing overall costs of printing and binding. There were 21 identical
bids received offering a price that was 31% lower than the base rate which
seemed like a fair price for printing textbooks using the web offset technique.
The purpose of issuing a tender for determining the actual and viable price for
printing work was thus achieved. It was further submitted that the EMD and the
Tender Fee requirements were as per the provisions of Gujarat State Purchase
Rules and Regulations and the Informant made incorrect averment of having
submitted any letter seeking exemption of EMD with the Opposite Party. The
Tender contained standard conditions which were within the purview of the
Gujarat State Purchase Policy, 2016.
16.10. The Opposite Party had a fixed requirement to award printing work each
year. After receiving the bids, it was decided that 68 bidders to whom LoAs were
sent would suffice to complete the printing work. Since, there was no positive
response received from all the printers to whom these letters were sent, the
Opposite Party decided to extend the deadline of Acceptance Letters and sent out
emails to 15 units amongst the 68 printers who were initially shortlisted to work
at L1 rates.
16.11. Empanelled printers were required to submit a certain bank guarantee as per
the stipulated terms. However, most printers were not able to furnish the
required bank guarantee as per the stipulated terms and hence, 60% work was
allotted to those who could furnish it and remainder were allotted 40%. The
division of allotment of work was discussed in the Minutes of the 200th Production
Committee Meeting dated 04.09.2018.
17. The Commission, after considering the information and the urgent hearing
application of the Informant and the reply received from the Opposite Party, decided
on 08.05.2019, to pass an appropriate order in due course. The Informant filed
another application dated 30.05.2019, praying for urgent passing of an interim order
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as sought in his interim application dated 10.04.2019.
18. The Commission has carefully perused the material available on record and
other information available in public domain.
19. According to the Informant, the Opposite Party, by virtue of its position, is a
dominant enterprise in the relevant market, which as per the Informant, is ‘market for
procurement of web offset printing (578 mm cut off) of school textbooks in the State
of Gujarat.
20. At the outset, the Commission deals with the preliminary objection of the
Opposite Party that since no contravention was found against it in the previous
information, therefore, the present case is liable to be dismissed. The Commission,
having gone through its direction given under Section 26(1) of the Act in respect of
the earlier information filed by the Informant, observes that the alleged contravention
of Section 4 of the Act by the Opposite Party was not covered by the scope of the
earlier information. Therefore, this objection is found to be without any merit and is
thus, rejected.
21. The Commission observes that the Opposite Party is, inter alia, engaged in the
activity of publishing textbooks, for which, it procures the services of the
printers/printing units. As per reply dated 26.04.2019, filed by the Opposite Party, it
had provided certain number of books, to the students, free of cost while others were
priced. Given its functions, the Commission notes that the Opposite Party qualifies to
be an ‘enterprise’ as defined under Section 2 (h) of the Act.
22. From the information available in public domain, the Commission observes that
web-offset is a form of offset printing in which a continuous roll of paper is fed through
the printing press. Pages are then separated and cut to size after being printed. This is
used for high volume publications such as books, magazines, newspapers, catalogues
and brochures etc.
23. For printing of books/textbooks, various state boards, state bureau of
textbooks, National Council of Educational Research and Training (‘NCERT’) etc. invite
tenders largely on pan-India basis from both web-offset and sheet-fed offset
printers/printing units. Various procurers lay down machine specifications in their
respective tenders to achieve the purpose of getting the intended work done as per
their requirement. The printing units/printers who are in the business of printing of
books/textbooks and interested in such tenders, participate by satisfying the eligibility
conditions as prescribed in the tender. Such tenders are available as business
opportunities in the market for them. Therefore, the tender issued by the Opposite
Party is one of the many available opportunities in the market for provision of offset
printing services by these printers. As correctly pointed out by the Opposite Party,
neither there is any guarantee for award of any contract by the Opposite Party nor can
there be any legitimate expectation on the part of any printer on that account.
24. Moreover, the Opposite Party, in its reply, has categorically denied the assertion
of the Informant that web-offset printing machine with cut-off 578 mm is absolutely
specialised which cannot be put to any other use except the work provided by the
Opposite Party. The Opposite Party further submitted that web-offset printing machine
comes in various sizes and is capable of printing in particular sizes of paper varying
from A1, A3, A4 and A5 and is, thus, capable of providing offset printing services for
other printing works without any limitation, as opposed to the claims made by the
Informant.
25. From the aforesaid discussion, the Commission finds it difficult to accept the
proposition given by the Informant that the Opposite Party is the only procurer
seeking services for offset printing as there are various other procurers who require
such services from time to time and it cannot be said that there is any dearth of
business opportunities. It is further noted that the tenders brought out by procurers
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are in the nature of invitation to offer and not an offer and those bidders who can
provide the goods or services are entitled to submit their offer. It is, thus, for the
Opposite Party to accept the offer based on its requirements, terms and conditions of
the tender and its assessment of the capability of the selected parties to provide the
requisitioned services within the stipulated time as textbooks for students have to be
provided in time and the Opposite Party has a social obligation to discharge without
fail, as averred by it.
26. The Commission further finds merit in the submissions made by the Opposite
Party as to the capability of the web-offset printing machine with 578 mm cut-off to
do other works, apart from the work assigned by the Opposite Party. The argument of
the Informant with respect to web-offset printing machine with 578 mm cut-off being
the relevant product does not seem to have any merit. Had web-offset printing
machines with cut-off 578 mm been used only for the work assigned by the Opposite
Party, as alleged by the Informant, then bespoke machines with such exact
specifications would have to be developed. This cannot be the case. Accordingly, the
Commission delineates the relevant product market as the ‘market for procurement of
services of offset printing’.
27. As far as the relevant geographic market is concerned, the Informant has
submitted that the market be restricted to the State of Gujarat on the grounds of local
specific requirement, transportation cost and regulatory barriers. However, the
Opposite Party in its reply, has stated that bidders from States other than Gujarat
across the country were also eligible to apply and there were no standards laid down
with regards to the previous experience of the printing books. Further, the Tender,
floated by the Opposite Party is for offset printing of textbooks and not web-offset
printing in particular. The Commission notes that as such there is no restriction on the
printers/printing units from other states to bid for the tenders floated in the State of
Gujarat and vice versa. However, given the transportation cost and other logistical
requirements, it seems implausible that printers/printing units situated in far flung
places would participate in tenders floated in the State of Gujarat. Thus, though
printers/printing units based in Gujarat are not constrained to bid only within that
State, they would generally not be incentivised to bid in tenders floated by the
tenderers situated in other states owing to cost ramifications. Therefore, the
Commission delineates the relevant geographic market as the “State of Gujarat”.
28. Accordingly, the relevant market for the purposes of assessment in the present
matter is ‘market for procurement of services of offset printing in the State of Gujarat’.
29. After having delineated the relevant market, the next step is to assess the
dominance of the Opposite Party in the relevant market. Assessment of dominance, as
stated in Explanation to Section 4, is primarily a subjective test, though Section 19(4)
of the Act lays down certain criteria/factors to guide such assessment. Based on the
previous discussion, it is apparent that the relevant product market is broader than
the one stated by the Informant. Within that market the procurer of services would
include the Opposite Party as well as the other procurers. As submitted by the
Opposite Party, the web-offset printing machine comes in various sizes and is capable
of providing offset printing services for other printing works as well. Thus, it seems
that the service sought by the Opposite Party is just one of the many business
opportunities available to the Informant and similarly placed printers. In such a
situation, it appears unlikely that the printers, including the Informant, were solely
dependent upon the Opposite Party for business. There is nothing on record to suggest
that the Opposite Party, by its conduct, has foreclosed the market for the Informant.
Though the Opposite Party could have been a large procurer of such services, it cannot
be unambiguously concluded that it holds a dominant position.
30. However, regardless of the fact as to whether the Opposite Party holds a
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dominant position or not, its conduct which is alleged to be abusive has been analysed
in the succeeding paragraphs.
31. With respect to the alleged unilateral termination of the contract purportedly for
the period from 01.04.2017 to 31.12.2019, as stated by the Informant, the Opposite
Party submitted that contract with such time period never even subsisted and that the
contract was only for the period 01.04.2017 to 31.03.2018 followed by a renewal
thereof from 01.04.2018 to 30.06.2018. This contract, along with its renewal, was
entered into by the Informant with the Opposite Party of its own volition. In these
circumstances, no competition issue can be said to have arisen which can be looked
into under the Act. The Informant may pursue other remedies, if available, in case of
any wrongful termination of contract.
32. With regard to allegation of denial of market access and allocation of work to
specific bidders, the Opposite Party has provided an explanation as to the criteria
adopted for selection of qualified bidders and award of a part of the work to them. it
has been submitted that the award of work to qualified bidders was made having due
regard to the capacity of such bidders, inter alia, to deliver the service by adhering to
the timelines, in view of the fact that the educational institutions cannot be left bereft
of timely supply of books for the academic session as it affects the career of the
students. The Commission finds merit in the explanation provided by the Opposite
Party and does not find it appropriate to question the criteria adopted by the Opposite
Party in selecting the qualified bidders, based on its requirements.
33. As regards unfair pricing, the Commission is not satisfied with the contention of
the Informant. Based on the discussion in the foregoing paragraphs, there are several
opportunities available for selling offset printing services at the rates as deemed fit by
the printers/printing units and such printers/printing units are not constrained to
provide their services only to the Opposite Party.
34. Further, with respect to allegations on EMD and other discriminatory conditions
in the Tender as stated by the Informant, the Opposite Party has submitted that the
Tender contains the standard conditions which are as per Gujarat State Purchase Policy
and the Rules and Regulations. The Commission observes that the reply submitted by
the Opposite Party, indicates that the terms and conditions of the Tender were put in
place to ensure timely availability of high quality books/textbooks at affordable rates
and in some cases, even free distribution of books/textbooks was the ultimate
objective behind calling for the Tender. To this extent, the Commission in the matter
titled as In Re: K.N. Choudhary and Delhi Metro Rail Corporation Ltd. (Case no. 42 of
2014, decided on 03.09.2014) while emphasising on the Consumer's choice
(Procurer), observed that:
“19. Further, a consumer must be allowed to exercise its consumer choice and
freely select between competing products or services. This right of consumer's
choice must be sacrosanct in a market economy because it is expected that a
consumer would decide what is best for it and free exercise of consumer choice
would maximize the utility of the product or service for the consumer. For an
individual, that consumer's choice is based on personal assessment of competing
products or services, their relative prices or personal preferences. For any other type
of consumer, this process of decision making in exercise of consumer's choice is
more structured and reflected in procurement procedures. Such a consumer may
use experts or consultants to advise, do its own technical assessment, take advice
of others it may trust or even purchase from known and reliable sources. The
process of such decision making may result in purchase by nomination or limited
tender or open tender. The consumer is the best judge. In case of public entities,
the entity is a representative consumer on behalf of the public. There are
administrative mechanisms in place for carrying on the due process of exercising
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consumer's choice on behalf of the public.”
35. Based on the aforesaid discussions, the allegations regarding abuse of
dominant position under Section 4 of the Act, on the part of the Opposite Party, are
not found to have been established.
36. In view of the foregoing, the Commission is of the opinion that there exists no
prima facie case and the information filed is closed forthwith under Section 26(2) of
the Act. Consequently, no case arises for consideration of interim relief claimed by the
Informant under Section 33 of the Act and all other pending application(s) filed by the
Informant are, therefore, dismissed.
37. Secretary is directed to communicate the order to the parties accordingly.
———

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In the National Company Law Appellate Tribunal†

(BEFORE SUDHANSU JYOTI MUKHOPADHAYA, CHAIRPERSON AND BANSI LAL BHAT, MEMBER
(JUDICIAL))
Prem Prakash … Appellant;

Versus
Bureau of India Standard and Others … Respondents.
Competition Appeal (AT) No. 16 of 2017‡
Decided on May 2, 2019
Mr. Prem Prakash in person, Advocate for the Appellant;
Ms. Tanu Priya Gupta for BIS, Mr. V.K. Shukla, Advocates for the Respondents.
SUDHANSU JYOTI MUKHOPADHAYA, CHAIRPERSON:— The Appellant- ‘Informant’ filed
application under Section 19(1)(a) of the Competition Act, 2002 (“the ‘Act’” for short)
alleging contravention of the provisions of Section 4 of the Act by the Director General,
Bureau of Indian Standards- (1st Respondent herein/‘Opposite Party No. 1’) and the
Secretary, Department of Consumer Affairs, Food and Public Distribution (2nd
Respondent herein/‘Opposite Party No. 2’).
2. The Competition Commission of India- (“Commission” for short) by impugned
order dated 29th June, 2017 opined that there is no prima facie case of contravention
of Section 4 of the Act made out and thereby, closed the matter in terms of provisions
of Section 26(2) of the Act.
3. The case of the Appellant- ‘Informant’ is that he is the proprietor of a material
testing laboratory namely, ‘Venus Testing and Research Laboratory’, which provides
testing services throughout the State of Madhya Pradesh and is accredited as per
ISO/IEC-17025. His grievance relates to a Scheme of Bureau of Indian Standard i.e.
‘Bureau of Indian Standards, Laboratory Recognition Scheme’ (“Laboratory Recognition
Scheme” for short), particularly with regard to one of the conditions which stipulates
that a laboratory seeking recognition under this Scheme should have an accreditation
to IS/ISO/IEC-17025 or ISO-IEC-17025 in the respective field of testing such as
mechanical, electrical, chemical or microbiological as applicable.
4. Further, the accreditation body (through which the accreditation is taken by the
Appellant- ‘Informant’ lab) should be a full member of ‘Asia Pacific Laboratory
Accreditation Corporation’ and/or ‘International Laboratory Accreditation Corporation’.
5. It was alleged that although lab recognition activity is mentioned in the ‘Bureau
of Indian Standards Act, 1986 (“BIS Act” for short), neither the standard ISO/IEC-
17025 nor the name ‘Asia Pacific Laboratory Accreditation Corporation’ and
‘International Laboratory Accreditation Corporation’ has been mentioned in the Act or
its Rules. In spite of this, ‘Bureau of Indian Standard’ has made the standard
IS/ISO/IEC-17025 as well as full membership of ‘Asia Pacific Laboratory Accreditation
Corporation’ and ‘International Laboratory Accreditation Corporation’ mandatory in the
‘Laboratory Recognition Scheme’ which is without justification and amounts to
contravention of provisions of Section 4 of the Act.
6. It was submitted that by imposition of such a condition in the ‘Laboratory
Recognition Scheme’, ‘Bureau of Indian Standard’ has contravened the provisions of
Section 4 of the Act as the laboratories which are accredited by an accreditation body
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that is not a member of ‘Asia Pacific Laboratory Accreditation
Corporation’/‘International Laboratory Accreditation Corporation’ cannot get recognized
under the ‘Laboratory Recognition Scheme’.
7. Learned counsel appearing on behalf of the ‘Bureau of Indian Standard’
submitted that the information against the ‘Bureau of Indian Standard’ is not
maintainable and it does not come within the definition of ‘enterprise’ as has been
defined in Section 2(h) of the Act. The said Section is not at all applicable to 1st
Respondent which is a statutory body established under the ‘BIS Act, 1986’ and hence
not maintainable.
8. It was further submitted that the ‘Commission’ has noted the aforesaid fact and
also come to the definite conclusion that no case was made out to allege violation of
9. Learned counsel for the ‘Commission’ while submitted that no case has been
made out and also submitted that the provisions as laid down by ‘Bureau of Indian
Standard’ in the ‘Laboratory Recognition Scheme’ do not come within the meaning of
Section 4.
10. The grievance of the Appellant is mainly against Clause 1.5.1.1 of the
‘Laboratory Recognition Scheme’, which reads as follows:
“1.5.1.1 Accreditation: The laboratory seeking recognition shall have
accreditation to IS/ISO/IEC 17025 or ISO/IEC 17025 in the respective field of
testing, such as Mechanical, Electrical, Chemical and Microbiological, as applicable.
The accreditation body (through which the Accreditation is taken by the applicant
lab) shall be a full member of Asia Pacific Laboratory Accreditation Co-operation
(APLAC) and/or International Laboratory Accreditation Co-operation (ILAC).”
11. For the purpose of determining the violation of Section 4, it is desirable to
notice the scope of definition of ‘enterprise’ to determine whether the ‘Bureau of
Indian Standards’ falls within the scope of ‘enterprise’, which reads as follows:
“(h) “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 including all activities carried on by the departments of the Central
Government dealing with atomic energy, currency, defence and space.”
12. The ‘Bureau of Indian Standards’ has been set up under the ‘BIS Act, 1986’
with the objective of harmonious development of the activities of standardization,
marking and quality certification of goods and matters connected therewith or
incidental thereto.
13. In the present case, we find that the ‘Bureau of Indian Standards’ has carried
out the impugned activity, in question, for which the criteria, required to be prescribed
for recognition of laboratories under ‘Laboratory Recognition Scheme’ have been laid
down with the purpose to ensure quality in laboratory testing services by outside
laboratories, which would provide product certification under its product certification
scheme. Thus, the activity, under consideration, is being carried out by the ‘Bureau of
Indian Standards’ under the mandate vested in it under the ‘BIS Act’. Thereby, we
hold that the ‘Bureau of Indian Standards’ has acted within the scope of the ‘BIS Act’
under which it has been created.
14. Admittedly, the impugned activity of the ‘Bureau of Indian Standards’ under
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consideration does not constitute an economic activity as envisaged under Section 2
(h) of the Act.
15. The said activity is carried out in terms of Section 10(1) h of the ‘BIS Act,
1986’ which relates to ‘functions of the Bureau’ and reads as follow:
“10. Functions of the Bureau.— (1) The Bureau may exercise such powers and
perform such duties as may be assigned to it by or under this Act and, in particular,
such powers include the power to— ………….(h) establish, maintain and recognise
laboratories for the purposes of standardisation and quality control and for such
other purposes as may be prescribed”
16. Section 10(2)(a) of the ‘BIS Act, 1986’ relates to ‘establishment, maintenance
and recognition of laboratories’ and Section 10(2)(b) relates to ‘register of recognized
laboratories’, which reads as follows:
“10(2)(a)- Establishment, maintenance and recognition of laboratories—
The Bureau may recognize any laboratory in India or in any other country for
carrying out testing of samples in relation to use of the Standard Mark and such
other functions as may be necessary. In case any laboratory after recognition ceases
to fulfill any conditions laid down at the time of recognition it shall be liable to be
derecognized by the Bureau. The guidelines for recognition and de-recognition of
laboratories shall be laid down by the Bureau.
2(b)- Register of recognized laboratories - the Bureau shall cause to
maintain a register of such laboratories as are recognized by it for testing samples
of articles or processes in relation to the relevant Indian Standards.”
17. Therefore, it is evident that as per the Act, the ‘Bureau of Indian Standards’ is
exercising its power to perform such duties as assigned under the Act for maintaining
and recognition of laboratories for the purposes of standardization and quality control
and for such other purposes as prescribed under the Act.
18. In view of the specific power entrusted on the ‘Bureau of Indian Standards’
under the Act, we are also of the opinion that the activity of the ‘Bureau of Indian
Standards’ does not fall within the scope of the definition of ‘enterprise’ in terms of
Section 2(h) of the Act nor it can be alleged to be an activity in contravention of
19. We find no merit in this appeal. It is, accordingly, dismissed. No costs.
———
† New Delhi Bench
‡Arising out of Order dated 29th June, 2017 passed by the Competition Commission of India in Case No. 14 of
2017

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In the National Company Law Appellate Tribunal†

(BEFORE S.J. MUKHOPADHAYA, CHAIRPERSON AND BANSI LAL BHAT, MEMBER (JUDICIAL))
Reprographic India, New Delhi … Appellants;

Versus
Competition Commission of India and Others … Respondents.
Competition Appeal (AT) No. 09 of 2019‡
Decided on February 26, 2019
Advocate who appeared in this case :
Mr. Deepak Khanna, Appellant in person and Mr. Setu Sharma, Advocate, for the
Appellant.
BANSI LAL BHAT, MEMBER (JUDICIAL):— The Appellant is aggrieved of order dated
9th November, 2018 passed by the Competition Commission of India (hereinafter
referred to as ‘CCI’) under Section 26(2) of the Competition Act, 2002 in Case No. 41
of 2018 whereby and whereunder CCI closed the information filed by the Appellant
alleging that during the entire bidding process Respondents acted in collusion and
thereby rigged the process causing huge loss to public exchequer. CCI observed that a
prima facie case under the Competition Act, 2002 was not made out against the
Respondents as the case of Appellant Informant lacked reasonable allegations based
on any concrete evidence.
2. The issue arising for determination is whether the CCI erred in undertaking an
exercise itself to determine whether or not the allegation of inter-alia collusive bid
rigging leveled against Respondent No. 2 & 3 has been established without ordering
an investigation in terms of Section 26(1) of the Competition Act, 2002.
3. Before referring to the allegations leveled in the information lodged by the
Appellant with CCI, it would be appropriate to notice the relevant provisions of the
Competition Act, 2002. Relevant portion of Section 3 reads as under:—
“3.(1) 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 adverse effect on competition within India.
(2) Any agreement entered into in contravention of the provisions contained in
sub-section (1) shall be void.
(3) 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: Provided
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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.
Explanation - For the purposes of this sub-section, “bid rigging” means any
agreement, between enterprises or persons referred to in sub-section (3) 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.”
4. On a plain reading of the aforesaid provision it is abundantly clear that Section 3
(1) prohibits agreements, inter-alia in respect of supply of goods between enterprises
and persons and their associations which causes or is likely to cause an appreciable
adverse effect on competition within India. It lays down that such agreements shall be
void. Such agreements between enterprises, persons or their associations including
cartels engaged in identical or similar trade of goods or provisions of services which
determine purchase or sale price, limit or control, production, supply, markets, shares
the market or source of production, etc. by allocating geographical areas of markets or
type of goods or services or number of customers in market in any conceivable manner
or directly or indirectly results in bid rigging or collusive bidding is presumed to have
an appreciable adverse effect on competition. Joint venture agreements designed to
increase efficiency in production, supply, distribution, storage, acquisition or control of
goods or provisions of services have been kept out of purview of Sub-section (3) which
means that the presumption relating to such agreement shall not be available qua
joint venture agreements. The explanation appended to Sub-section (3) provides that
an agreement between such enterprises or persons engaged in identical or similar
production or trading of goods or provisions of services shall fall within the definition of
‘bid rigging’, if it has the effect of eliminating or reducing competition or bids or
adversely affecting or manipulating the process for bidding. A bare look at the
provision engrafted in Section 3 brings it to fore that anti-competitive agreements in
respect of certain activities involving production, supply, distribution, etc. which
adversely affects competition, at a given time or where there is likelihood of its
affecting competition in future are presumed to have an appreciable adverse effect on
competition if such agreements or decisions taken in pursuance thereof determine
prices, control or limit production, supply, markets or results in sharing market or
source of production, etc. or entails bid rigging or collusive bidding. This includes
cartels but excludes joint venture agreements. Therefore, it would be imperative for an
Informant to demonstrate that there was an agreement between enterprises or
persons or their associations engaged in identical or similar business which inter-alia
resulted in bid rigging or collusive bidding, directly or indirectly. Agreement postulates
meeting of minds. The Informant shall have to lay evidence, direct or circumstantial,
before the CCI that an agreement was entered into between such enterprises, persons
or their associations engaged in identical or similar trade in respect of the prohibited
activity which resulted in bid rigging or collusive bidding. It is only then that such
agreement can be presumed to have an appreciable adverse effect on competition.
5. Adverting to the facts of the case in hand, be it seen that the Appellant alleged
bid rigging/collusive bidding by ‘Hitachi Systems Micro Clinic Pvt. Ltd.’ (Respondent
No. 2) and ‘IL&FS Technologies Ltd.’ (Respondent No. 3) in the tender floated by
‘Bharat Heavy Electricals Ltd.’ (BHEL) for procurement of PCs and Peripherals. The
Appellant claimed to be an ancillary to BHEL, Haridwar Unit, manufacturing folding and
finishing systems and also engaged in distribution of IT Products and provision of
services. It claimed to have supplied IT Products to BHEL either directly or through
System Integrators (SIs) of Original Equipment Manufacturers (OEMs). Respondents 2
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and 3 are said to be in business of providing IT Solutions to different businesses. Both
Respondent Nos. 2 & 3 are stated to be HP Partners and SIs. According to Informant,
BHEL started the process of floating a composite tender from year 2006 for
requirements of IT Product of all BHEL Units across India, ultimately culminating into a
Corporate Rate Contract. The computer related equipment was to be procured on Hire
and Purchase Basis. The Appellant alleged that in terms of tender notice dated 1st
April, 2017, BHEL invited tenders for supply, installation and maintenance of PCs and
other computer peripherals on more than 20 locations for a period of five years on
lease basis on Corporate Rate Contract. Total items were grouped into two categories.
Group-A comprising of 24 items pertained to PCs and Peripherals while Group-B
comprising of 47 items related to Enterprise Equipment. L-1 was to be determined in
each group respectively based on the total value of items in that group while the
bidder had the liberty to bid for one or both categories. The Appellant restricted his
allegations only in respect of Group-A items. Only OEMs and SIs were eligible to bid.
All items in the each group were required to be of the same OEM. According to the
Appellant bids were submitted by R-2 and R-3 only. Rate Contract LOI for IT
equipment of contract value of about Rs. 110 Crores + Taxes was awarded to
Respondent No. 2 by BHEL on 23rd December, 2017. The total value of Rate Contract
comprised of the elements of outright purchase price, maintenance cost and interest
component. The Appellant alleged that in the entire bidding process Respondents 2
and 3 acted in collusion and thereby rigged the process resulting in huge loss to the
State Exchequer.
6. The CCI after hearing the Appellant - Informant and the officials of BHEL found
that the tender floated by BHEL was an open tender and there was no embargo on any
SI or OEM to participate. It noted that various SIs, OEMs and other representatives
from the industry had participated in the pre-bid discussions. However, in respect of
Group-A Items only Respondents 2 and 3 submitted the bids as its requirement
comprised of providing maintenance and other services for five year lease period. The
CCI also noted that four bids were submitted for Group-B Items, which did not contain
maintenance provision. In Commission's view stringent operative requirements could
be a factor in restricting bids in respect of Group-A Items. The Commission was of the
view that low participation in bidding process of Group-A Items in the given
circumstances would not necessarily be indicative of any concerted action. The
Commission dismissed the allegation of supportive bid on the Part of Respondent No.
3 in favour of Respondent No. 2 on the ground of both being connected to HP and
having business links as there was no evidence to suggest that these Respondents
were engaged in bid rotation. It also did not attach any significance to the factum of
some officials of one Respondent earlier working with another Respondent holding that
in IT Industry this was a routine affair and meeting of minds for purposes of bid
rigging/collusive bidding could not be inferred from such proximity. The Commission
was of the view that the Respondent 2 and 3 were two different entities operating
independently. No fault could be found with the bidder's choice of quoting products of
one or the other manufacturer. The Commission agreed with the submission of BHEL
that at the time of preparation of tender proper analysis of the market was undertaken
to devise an estimate which was kept confidential. Respondent No. 2 was declared L-1
for Group-A Items based on composite value quoted therein which conformed to the
terms and conditions of tender. It was during negotiations that Respondent No. 2
reduced its price to Rs. 110 Crores which was within the budget estimate of BHEL. The
Commission was of the view that due to various factors piece meal comparison of the
tendered 24 items of Group-A for their price reasonability with respect to outright
price, GEM Price, etc. viz-a-viz lease price was not appropriate. The Commission
concluded that the Appellant Informant had failed to provide or suggest any evidence
to show that there was any meeting of minds between Respondents 2 and 3 at the
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time of submission of bids. Thus, it was of the view that no prima facie case was made
out against the Respondents justifying ordering of an investigation by DG.
7. Heard the Appellant in person and considered his submissions.
8. CCI is empowered to inquire into any alleged contravention of provisions
contained in Section 3(1) or Section 4(1) of the Competition Act, 2002 on its own
motion or on receipt of an information from any person, consumers or their
associations or trade associations or upon a reference made to it by the Central
Government, State Government or Statutory Authority. Section 26 of the Act provides
that upon receipt of a reference or upon its own knowledge or upon information
received from any person, the Commission, if of opinion that there exists a prima facie
case, shall direct the Director General (DG) to cause an investigation to be made into
the matter. On a bare reading of this provision, it is abundantly clear that causing of
investigation to be conducted by Director General is entirely dependent on existence of
a prima facie case warranting such investigation. Unless the Commission is satisfied
that a prima facie case exists, the Informant (where information has been received
from any person) has no vested right to seek investigation into alleged contravention
of provisions Section 3(1) or Section 4(1) of the Act. The Informant has to
demonstrate that there is substance in the allegations leveled in the information and
he will fairly succeed in establishing that the Respondents are engaged in anti-
competitive agreements. Raising of competition concerns on the strength of bald
allegations without any shred of evidence would not absolve the Informant of his
obligation to make out a prima facie case warranting causing of investigation by DG. It
is indisputable that direct evidence would seldom be available in cases of bid rigging
or collusive bidding. However, inference of complicity in anti-competitive activities
would be available only on the basis of proved facts. Merely because the bidders while
exercising their choice of quoting products, opt for a particular manufacturer, which
may be attributable to a variety of factors, would not necessarily justify meeting of
minds. This observation equally applies in the facts and circumstances of instant case
where Respondent No. 2 emerged as L-1 in the bidding process while he was found to
have quoted quite a few products of HP for Group-A Items. The successful bidder had
not only the choice to quote product of a particular OEM but also was required to
attend to the service and maintenance besides providing spare parts etc. during the
entire lease period. The choice for a particular product may have emanated out of this
consideration as well. The Respondent No. 2 was entitled to exercise his choice of
quoting products of a particular manufacturer so long he did not come in conflict with
the terms and conditions of the tender. There may have been business linkages inter-
se Respondents 2 and 3 but in absence of any material to suggest that these
Respondents were engaged in the practice of bid rotation, no adverse inference
suggestive of collusive bidding could be drawn against them.
9. On a careful consideration of the matter, we are of the considered opinion that
the Appellant - Informant who was neither an OEM nor an SI and was not in the fray
for bidding qua the tender in question raised competition concerns on the basis of wild
allegations without any substance. The circumstances projected by him, in absence of
any incriminating evidence, would not justify drawing inference of complicity of
Respondents 2 and 3 in bid rigging/collusive bidding. The Appellant - Informant has
miserably failed to make out a prima facie case warranting causing of an investigation
by DG. The impugned order passed by the Commission is based on application of mind
and does not suffer from any legal infirmity.
10. The appeal lacks merit and the same deserves to be dismissed. We accordingly
dismiss the appeal. There shall be no order as to costs.
———
† New Delhi Bench
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‡ [Arising out of Order dated 9th November, 2018 passed by the Competition Commission of India in Case No. 41
of 2018]

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(BEFORE ASHOK KUMAR GUPTA, CHAIRPERSON, AUGUSTINE PETER, MEMBER AND U.C. NAHTA,
MEMBER)
Advocate Jitesh Maheshwari … Informant;

Versus
National Stock Exchange of India Ltd. … Opposite Party.
Case No. 47 of 2018
1. The present Information has been filed under Section 19(1)(a) of the
Competition Act, 2002 (‘Act’) by Mr. Jitesh Maheshwari, Advocate (‘Informant’)
against the National Stock Exchange of India Ltd. (‘NSE’/‘Opposite Party’/‘OP’)
alleging contravention of the provisions of Section 4 of the Competition Act, 2002
(‘Act’).
2. At the outset, the Informant has highlighted that the ‘NSE Co-location case’,
which is currently being investigated by Securities Exchange Board of India (‘SEBI’),
Income Tax Department (‘ITD’) and Central Bureau of Investigation (‘CBI’) and upon
perusing various media reports on the same, the Informant is of the opinion that the
case must also be investigated by the Competition Commission of India
(‘Commission’) to assess if there is a possible contravention of the provisions of
3. The Informant has submitted that the OP, vide its circular bearing number
NSE/MEM/12985 dated 31.08.2009, had announced the launch of ‘co-location’ services
along with the guidelines/procedures to be followed by the members interested in
availing such facility.
4. The Informant has averred that the OP is a service provider, which provides the
services of co-location to the trading members, who availed this facility as consumers,
on payment of the prescribed fees. The services were offered in the form of full racks
as well as half racks to trading members, which could be availed by the members as
per the size of trading carried out by them and their paying capacity. The trading
members which were availing the co-location service of the OP had access to
information about traded prices of shares ahead of other traders, which made a huge
difference to the proprietary and high-frequency traders. The fees levied by the OP for
providing the co-location services was same for all the trading members availing such
services, and accordingly the trading members availing the co-location services were
supposed to be kept on equal footing and were supposed to have equal access to the
price feeds vis-à-vis each other.
5. The Informant has alleged that from year 2010 to 2014, the OP, instead of
providing equal and fair access to all the trading members availing its co-location
facility, provided preferential and unfair access to some trading members. The
Informant has stated that this benefitted the trading members to whom the
preferential access was provided in getting the price feeds and other data before the
other trading members to whom such preferential access was not provided. The
Informant has also alleged that this distorted the competition between the trading
members availing the co-location facilities from the OP, leading to undue gains to the
trading members to whom such preferential access was provided.
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6. The Informant also alleged that the OP has abused its dominant position by
providing preferential access to certain trading members of its co-location services,
resulting in contravention of the provisions of Section 4 of the Act. For substantiating
these allegations, the Informant has stated that the OP is providing services to its
trading members which are neither inter-changeable nor substitutable for a consumer
by reason of characteristics of the service, its prices and intended use. Therefore, the
Informant has defined the relevant product market as ‘providing services of trading in
securities to the trading members by the OP’. The Informant has averred that the OP
is providing such services throughout India and thus, the relevant geographic market
would be the ‘territory of India’.
7. The Informant while seeking to establish the dominance of the OP for the
purpose of Section 4 of the Act has placed reliance on the order of the Commission in
MCX Stock Exchange Ltd. v. National Stock Exchange of India Ltd., (Case No. 13/2009
dated 23.06.2011) and UPSE Securities Limited v. National Stock Exchange of India
Ltd, (Case No. 67 of 2012 dated 19.02.2013). The Informant has further stated that
the OP is providing the services of trading in securities, especially in cash (equity) and
derivative (Futures and Options). The Informant has compared the data of NSE with
that of the Bombay Stock Exchange Ltd., (‘BSE’) (a rival providing same service) in
cash (equity) segment and derivative segment and on the basis of the same, the
Informant has stated that the market share of OP is much more than that of BSE.
Further, the Informant has submitted that the OP enjoys advantage over its
competitors due to the dependence of consumers on the OP. Furthermore, the
regulatory barrier of entry of a new stock exchange also strengthens the position of the
OP in the relevant market. Therefore, based on the aforesaid decisions and material
provided on volume of trades etc., the Informant claimed that the OP holds a
dominant position in the relevant market.
8. The Informant has submitted that para 3 at page no. 21 of the Draft Red Herring
Prospectus (‘DRHP’) of the OP mentions about the co-location case. This is currently
pending with the SEBI. It has been stated that upon receiving the complaints against
the OP regarding providing of unfair access of the co-location facility to select trading
members, SEBI constituted a team headed by professors of the Indian Institute of
Technology, Bombay to look into the said complaints. The interim report of the team
observed that the OP has violated norms of fair access and compromised market
fairness and integrity, as certain select trading members who availed the co-location
facilities of OP were able to gain materially from the exploitation of OP's market feed
dissemination architecture to receive market data ahead of other trading members of
the OP.
9. The Informant has stated that SEBI vide its letter dated 28.11.2016 directed the
OP to initiate an independent examination (including forensic examination by an
external agency). The Informant has further stated that the observations of the Report
of the Independent Agency provided that:
“Different stock brokers were treated differently and there was no uniform
approach applied across stock brokers with respect to allocation of new IPs across
ports on existing servers and movement from one server to another. Ticks were
disseminated faster to members connected to less crowded servers, thereby giving
an advantage to such stock brokers.”
10. As regards the pending co-location case, the Informant has averred that SEBI
received an anonymous complaint from a whistle-blower against the OP in January
2015, alleging rigging of high-frequency trading systems at the OP's exchange
because of which certain brokers with co-location servers at the OP were getting
preferential access to market data.
11. The Informant has stated that the whistle-blower had written two more letters
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to SEBI in August, 2015, and October, 2015. The Informant has further stated that
the media report of Mydigitalfc.com titled ‘Letter from a whistle-blower to SEBI on NSE
rot’, has provided excerpts of both the letters. It had been stated in the media report
that the whistle-blower vide these letters has stated that due to favorable access,
certain brokers and their clients were benefited against whole market every day for at
least more than five years which comprised of trading volume of roughly Rs. 2-3 lakh
crores per day.
12. The Informant has averred that the whistle-blower wrote another letter dated
14.12.2017 to Ministry of Finance, which was published by Moneylife titled as ‘NSE
whistleblower's 4th letter alleges rigging of currency market; manipulation at NSE’ and
has levied allegation against the OP of rigging in the rupee-dollar trading that gives an
unfair advantage to some companies based overseas and cautioned the problem could
spread to the commodities markets. Further, the whistleblower alleged that the OP has
a ‘comfort zone’ with select firms who support their policy initiatives and new
products.
13. The Informant has submitted that as per various media reports, SEBI had
ordered the forensic audit of cash and currency derivative segments of the OP and for
this purpose Deloitte and Ernst & Young were engaged. The Informant has further
stated that a report was also submitted by the Technical Advisory Committee (‘TAC’)
of SEBI in the matter after thorough investigation. Apart from the investigation by
TAC, a probe was also conducted by SEBI's internal team and the investigation report
was tabled before the Board of SEBI.
14. The Informant has stated that the media report of The week, titled IT dept
seizes Rs. 11cr. from entities in NSE co-location case, dated 18.11.2017, on forensic
audit of the OP's equity derivatives platform by Deloitte, highlighted that co-location
facility of the OP was prone to manipulation and allowed potential preferential access
to some brokers and Deloitte had also found emails which had instructions against
movement of servers based on requests by members without proper justification and
approval. The Informant has further stated that media report on the investigation by
TAC emphasized that TAC had recommended action against the OP upon finding
evidence that some traders on the exchange had unfair access to market data and
trading systems. The Informant has also stated that media report on SEBI's probe into
the OP's algorithmic trading platform had highlighted that some traders had unfair
access to market data and trading systems. The Informant has submitted that upon
completion of the SEBI's investigation and on the basis of the above stated reports,
SEBI initiated enforcement proceedings against the OP.
15. Based on the aforesaid facts and allegations, the Informant has inter-alia
prayed for an investigation under Section 26(1) of the Act. Further, the Informant has
also prayed for an interim order to restrain the OP from carrying out anticompetitive
activities under Section 4(2)(b)(ii) as well as Section 4(2)(c) of the Act.
16. The Commission has carefully analysed the information filed by the Informant,
the documents annexed therewith, and the information available in the public domain
in this regard.
17. The basic grievance of the Informant is that by giving unfair preferential access
to some trading members of its co-location services, the OP has limited and restricted
the provision of services to other trading members availing the co-location service
which resulted in ‘denial of market access’ to others to whom such unfair access was
not given. Thus, the Informant has alleged contravention of Section 4(2)(b)(ii) and
Section 4(2)(c) of the Act.
18. At the outset, the Commission observes that as per the policy of the OP as
enshrined in its circular dated 31.08.2009, the co-location services are to be provided
by the OP for a cost on a non-discriminatory basis. Apparently, the fee levied by the
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OP for providing the co-location services was uniform to all the trading members
availing the services and the OP was required to provide equal benefits of the co-
location services to the said trading members. However, as per the Informant, because
of the alleged practices followed at OP, some trading members of the OP allegedly
received preferential and unfair access to trading information, over others thereby
enabling them to reap benefits viz. getting the price feeds and other data before other
trading members to whom such preferential access was not provided, despite having
availed co-location services.
19. As stated by the Informant in his information, the case is currently under
adjudication by SEBI. The Commission observes that the genesis of the NSE co-
location case dates back to 2015, when a whistle-blower wrote a letter to SEBI
alleging that NSE gave preferential access to a few high-frequency traders and brokers
to the exchange's trading platform. The following excerpts from the OP's DRHP,
enclosed with the information, may be relevant in this regard:
“SEBI while reiterating the observations of the CFT/IIT Interim Report through its
letter dated September 2016, or the Observation Letter, among other things,
observed; (i) that the architecture of our Company with respect to dissemination of
TBT data through transmission control protocol was prone to manipulation and
market abuse; (ii) preferential access was given to certain stock brokers; (iii) we
violated our own policies by permitting entities that are not internet service
providers to lay fiber at our co-location facility for various stock brokers and (iv) the
possibility of collusion between our officials and stock brokers.”
20. The Commission notes that it is apparent that SEBI is looking at similar issues
as alleged in the information by the Informant. However, the exact role of the OP,
either direct or indirect, with respect to the alleged contravention in provision of
preferential/discriminatory co-location services is still at the stage of investigation.
21. The Commission observes that discriminatory and abusive conduct which falls
foul of the provisions of the Act falls within the jurisdiction of the Commission and can
be independently examined by the Commission based on cogent facts and evidence.
However, the allegations against the OP are yet to be established in an appropriate
proceeding and also there is not sufficient information and data before the Commission
about the role attributable to the OP, in the provision of discriminatory co-location
services qua certain trading members, as alleged in the Information to arrive at a
prima facie view. Thus, it may not be apposite for the Commission to delve into the
allegations contained in the Information at present.
22. Accordingly, the matter is ordered to be closed forthwith in terms of the
provisions of Section 26(2) of the Act.
23. The Secretary is directed to communicate the order to the Informant,
accordingly. A copy of the order is also directed to be sent to SEBI for information.
———

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(BEFORE DEVENDER KUMAR SIKRI, CHAIRPERSON, SUDHIR MITAL, MEMBER, AUGUSTINE PETER,
MEMBER, U.C. NAHTA, MEMBER AND G.P. MITTAL, MEMBER)
In Re:
Shri Vishal Gupta … Informant;
And
1. Google LLC … Opposite Party No. 1.
2. Google Ireland Limited … Opposite Party No. 2.
3. Google India Private Limited … Opposite Party No. 3.
With
C. No. 46 of 2014
In re:
Albion Info Tel Limited … Informant;
And
1. Google LLC … Opposite Party No. 1.
2. Google Ireland Limited … Opposite Party No. 2.
3. Google India Private Limited … Opposite Party No. 3.
C. Nos. 06 & 46 of 2014
Decided on July 12, 2018
Appearances:
Shri Hrishikesh Baruah and Shri Kshitij Paliwal, Advocates for the Informant in Case
No. 06 of 2014 alongwith Shri Vishal Gupta, Informant-in-Person.
Shri Arun Kathpalia, Senior Advocate with Shri Suhail Nathani, Shri Samir Gandhi,
Shri Ravisekhar Nair, Ms. Aditi Gopalakrishnan, Shri Parthasarathi Jha, Ms. Deeksha
Manchanda, Ms. Krithika Ramesh, Ms. Tanaya Sethi, Shri Sahil Khanna, Ms. Anuja
Agrawal and Shri Aakarsh Narula, Advocates alongwith Ms. Gitanjali Duggal, Product
and Litigation Counsel, for Google.
ORDER
1. The information in Case No. 06 of 2014 was filed by Shri Vishal Gupta (‘the
Informant-1’) against Google LLC (‘the Opposite Party No. 1’/OP-1), Google Ireland
Limited (‘the Opposite Party No. 2’/OP-2) and Google India Private Limited (‘the
Opposite Party No. 3’/OP-3) [collectively, ‘Google’/OPs hereinafter] alleging inter alia
contravention of the provisions of Section 4 of the Competition Act, 2002 (‘the Act’).
2. The information in Case No. 46 of 2014 was filed by Albion Info Tel Limited (‘the
Informant-2’) against Google alleging inter alia contravention of the provisions of
Facts
Case No. 06 of 2014
3. As per the information, the Informant, his family and associates own and
manage Shyam Garment Group of Companies which includes Shyam Garment Private
Limited (SGL), Delhi Call Centre Private Limited (DCL) and Audney Inc. (Audney).
Both SGL and DCL are incorporated under the provisions of the erstwhile [Indian]
Companies Act, 1956 whereas Audney is stated to be incorporated under the
appropriate laws of Delaware, USA.
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4. The Opposite Party No. 1 is a company incorporated under the laws of USA; the
Opposite Party No. 2 is a company incorporated under the laws of Ireland; and the
Opposite Party No. 3 is a company incorporated under the provisions of the [Indian]
Companies Act, 1956.
5. The Informant states that in September 2012, the Informant's Group of
Companies had resolved to set up a ‘remote technology support’ business and for the
said purpose SGL had approached Google India (OP-3) for opening a Google Adwords
account. The Informant states that after several meetings a standard agreement was
executed between SGL and Google Ireland and the Adwords account was opened and
activated on 07.01.2013.
6. The Informant states that Audney in connection with its remote tech support
business had set-up a website based on the guidelines provided by Google and the
said website was designed by a Google certified partner. The website provides various
remote tech support services in the domain of hardware and software for computers,
operating system, anti-virus etc. Further, the Informant states that consumers
searching for support services in the internet using Google search engine would be
able to click on Audney's advertisements, as Audney has a Google Adwords account
that enables its advertisements to appear in Google search page along with organic
search results. By clicking on the advertisement of Audney, consumers would be able
to land on Audney's website and they may either leave a message or make a call on
the phone number mentioned therein. The phone calls made by the customers would
be routed to DCL and DCL's employees would either receive the same or would be
contacting the consumer later to provide support services in a remote manner either
through phone or through the internet.
7. The Informant states that the bidding process of Google Adwords is extremely
opaque and the lack of transparency is felt more particularly in the mechanism of
fixing the ‘Cost Per Click’. The Informant states that Audney has been placing its
advertisements through Google Adwords ever since its account was opened in January
2013 until the termination of the account in October, 2013. During this period, it had
paid Google US $310,000/- as advertisement expenditure while earning a revenue of
US $750,000/-.
8. The Informant further states that Google has a ‘User Safety Policy’ which is
extremely ambiguous giving rise to potential abuse of dominance by Google. The
Informant states that the requirements of Google safety policy do not specify anything
other than the following:
a) that advertisements displayed in Google's search results should not have
misleading claims;
b) advertisements should promote acceptable business practice; and c)
advertisements should promote transparency and accuracy.
9. The Informant has stated that there is a complete lack of transparency and
certainty with respect to the content that can be uploaded as advertisements. On
several occasions, Google's Adword team had suspended advertisements at first, and
thereafter, accepted the advertisements earlier disapproved, without making any
changes, following protests by the account holders.
10. The Informant has averred that Google had promised that it would review the
advertisements of Audney as to whether they comply with the various policies of
Google or not. However, before a response was received, the Informant's Google
Adwords account was withdrawn on 22.10.2013 and vide email dated 23.10.2013
Google informed that the aforesaid account was suspended due to violation of ‘User
Safety Policy’ without issuing any notice or prior intimation. The Informant avers that
through the e-mail dated 30.10.2013 it was further informed that the suspension of
account was permanent.
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11. The Informant has alleged that on 05.11.2013 Google launched its own Remote
Tech Support operation in the name of ‘Google Helpout’ which is a clear alternative to
the business setup of the Informant company. The Informant has further alleged that
several remote tech support companies have been suspended from Google Adwords
programme and the reason for suspension of the Informant's adwords account was in
lieu of promotion of Google's own activities in an unfair, discriminatory and
uncompetitive manner. The Informant also alleged that in this manner Google had
been able to restrict competition in an unfair and unreasonable manner.
12. The Informant also alleged that Google has indulged in practices resulting in
denial of market access to the Informant and to other remote tech support companies
thereby restricting the access to market through the internet. The Informant alleges
that by abusing its dominant position to limit or restrict the number of remote tech
support companies, Google has caused prejudice to the consumers. Further, the
Informant alleges that Google and its group companies have caused trade barriers to
help and assist its own programme ‘Google Helpout’ and other associate companies
such as www.iyogi.com.
13. Based on the above averments and allegations, the Informant has filed the
present information before the Commission.
Case No. 46 of 2014
14. The Informant is a company incorporated under the provisions of the [Indian]
Companies Act, 1956 having its registered office in New Delhi. It is stated to be an IT
solutions company providing complete range of comprehensive IT solutions to its
clients since over a decade including inter alia Remote Tech Support Services,
Consulting Services, Infrastructure Built Services, Facility Management Service,
Infrastructure as a Service, Software as a Service, Remote Infrastructure Management
and technical support.
15. The Opposite Parties (Google) in this case are also the same as in Case No. 06
of 2014.
16. It is averred that the Informant company initiated the business of Remote
Technology Support and for this purpose approached Google for opening an account in
Google AdWords. It is further averred that this programme enables an advertiser to
purchase individualised and affordable keyword advertising that appears instantly on
google.com search results page.
17. The Informant opened two AdWord accounts with Google on 10.06.2010 and
27.08.2013. It is stated that as a result of opening these accounts, when the
consumers search for remote tech support on the internet by way of Google Search
Engine and because of the advertisement placed through Google AdWord by the
Informant company, its advertisement would be visible and the customer can click on
the advertisement which would lead to the website of the Informant company. The
customer can either contact the Informant company by leaving a message or making a
call on the phone numbers mentioned therein. It is also stated that while opening an
account, the interested party is required to agree to the Google AdWord Policy and in
addition to that the interested party also electronically accepts Google's ‘User Safety
Policy’.
18. It is further averred that the phone calls made by the customer are routed to a
Call Centre of the Informant company where it's employees make or receive calls and
thereafter in a ‘remote manner’ provide support to the customer i.e. on the phone or
through the internet.
19. The Informant is essentially aggrieved by the suspension of its AdWords
Accounts by Google in October/November, 2013. It is the case of the Informant that
the said suspension was done without any prior intimation or notice to it and without
any cause of action.
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20. It is alleged that Google User Safety and AdWords Policy is extremely arbitrary,
vague and one-sided giving rise to abuse of dominant position by Google. The inherent
ambiguity in these policies has enabled Google to unilaterally terminate the
advertisement campaigns of the Informant company from time to time and finally
suspend its account without providing any legitimate reasons whatsoever.
21. It is further alleged that the entire bidding process of Google AdWord is
extremely opaque and the lack of transparency of the actual mechanism of fixing the
‘Cost per Click’ gives Google the ability to abuse its dominant position.
22. It has been stated that the Informant company has always diligently complied
with all the policy issues of Google. It has been further averred that the
advertisements of the competitors of the Informant company like www.iyogi.com,
which are in the same business of providing remote tech support services, have been
approved by Google Ad-Word Team and thus, the decision of suspending the AdWords
account of the Informant company is nothing but a mechanism adopted by Google in
collusion with iYogi to eliminate competition in the Remote Tech Support market.
23. It has been further alleged that iYogi has achieved great heights in business of
Remote Tech Support solely because of its strong relationship with Google and the
impugned suspension has been done merely with a view to reduce/eliminate
competition for iYogi.
24. Based on the above averments and allegations, the Informant has filed this
information before the Commission.
Directions to the DG
25. The Commission after considering the entire material available on record vide
its order dated 15.04.2014 passed under Section 26(1) of the Act in Case No. 06 of
2014 directed the Director General (DG) to cause an investigation to be made into the
matter.
26. Subsequently, the Commission vide its order dated 12.09.2014 passed under
Section 26(1) of the Act in Case No. 46 of 2014 directed the DG to cause an
investigation into the matter after observing that the allegations levelled in this case
were similar to those made in Case No. 06 of 2014 where investigation had already
been ordered by the Commission.
27. It may be noted that Google had filed an application with the Commission on
02.07.2014 for recall of its order dated 15.04.2014 in Case No. 06 of 2014. The
Commission vide its order dated 31.07.2014 rejected the application seeking recall.
Subsequently, this order was challenged by Google before the Hon'ble High Court of
Delhi whereupon the same was disposed of by an order dated 27.04.2015 remanding
the matter to the Commission to consider afresh the application of Google seeking
review/recall. Pursuant to the said order, the Commission considered the application
and dismissed the same vide its order dated 11.06.2015. The DG was directed to
resume the investigation.
28. The DG, on receiving directions from the Commission, investigated the matters
and filed a common investigation report (confidential version) in both the cases on
21.12.2015 and non-confidential version thereof on 28.11.2016.
Investigation by the DG
29. For the purpose of investigation, the DG has delineated the relevant market as
the market for ‘Online Search Advertising Services in India’. To explain the delineation,
reference was made by the DG to its earlier Report in Case Nos. 07 & 30 of 2012
against Google dealing inter alia with the abusive conduct in online search
advertisement market. It was first observed in the said DG Report that Online General
Web Search services and sponsored search services/search advertising are not part of
the same relevant product market since the mechanism of generation, display of
results and clicking behavior vary; serve distinct goals; and are perceived differently
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by the various categories of users namely, publishers (websites) and users entering
search queries. These services are rather complementary from the perspective of
website striving for ‘eyeballs’. It was further observed in the Report that due to vast
differences in the characteristics of online and offline advertising, they cannot be
regarded as being interchangeable or substitutable from the advertiser's perspective
and are therefore not part of the same relevant product market.
30. The DG in Case Nos. 07 and 30 of 2012 further analysed whether online search
advertising and non-search advertising can be regarded as being substitutable or
interchangeable from the perspective of the consumers. After a thorough examination
of various aspects in this regard, the DG concluded that the characteristics, intended
use and price of search and non-search advertising are very different from each other.
Advertisers simultaneously use many different forms of advertising. Online advertisers
may choose to allocate their budget to a combination of search and non-search
advertising based on their specific advertising objectives. But one form of advertising
cannot serve as a replacement for the other. Therefore, it was opined that search and
non-search advertising are complementary in nature. In view of the above analysis, it
was concluded in the said Report that ‘Online Search Advertising Services’ was a
distinct Relevant Product Market.
31. After having referred to the above reasoning, the DG in the present cases
considered the following facts:
a) Google has an Adwords Program wherein the persons/entities desirous of hosting
their advertisements on Google Online Search Advertising platform can do so;
b) The Informants subscribed to the said Google Adwords Program for hosting their
Advertisements for their entities providing Remote Technical Support Services
(RTS).
c) Informant-1 had hosted the Advertisement for his Company Audney registered in
USA for providing RTS to the Consumers in North America. Informant-2 had
hosted the advertisement for its company Albion Global Inc. registered in USA
and the advertisement was restricted to consumers in UK, USA, Australia and
India.
d) Any consumer after finding the entities (the Informants in this case) by using
Google Online Advertisement Search would call on the numbers given therein or
leave a message on the contact email address provided in the advertisement.
e) The said phone call or message reaches the Call Centres established by the
Informants in India (DCL in case of the Informant-1 in C. No. 06 of 2014 and
Albion in case of the Informant-2 in C. No. 46 of 2014).
f) The RTS is provided by the Informants from the remote location in India by
calling the consumer telephonically, by email or by any other technical methods.
32. Considering the contentions raised in the information memoranda filed by the
Informants, the observations made by the Commission in orders under Section 26(1)
of the Act, the facts about the manner of use of the Adword Program by its users i.e.
the Informants and the findings incorporated from the previous report from Case Nos.
07 and 30 of 2012, the DG opined that the ‘relevant product market’, as noted above,
in the matter of Online Advertising Services is equally applicable in the present cases
and accordingly, the relevant product market in the instant case was delineated as the
“Online search Advertising Services”.
33. With regard to relevant geographic market, the DG noted that both the
Informants have subscribed to Google Adwords Program from India and are thus
consumers for availing the services of Google. Admittedly, Google India Private Limited
is the agent of Google Ireland and Google Inc. Further, it is admitted by Google that
the contracting Informants are identified on the basis of their billing address and the
currency in which the consideration is paid. The DG also stated that Google's Adwords
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Program enables the advertiser to define the demography so that advertisements are
hosted only in those geographic locations as selected by the advertiser. It was
observed that Informants have admitted in their depositions that their advertisements
were restricted to be viewed in the opted jurisdictions/geographical locations only.
Google Adwords program offers such a facility wherein the advertisers have the
opportunity to opt for very refined forms of targeting, including on the basis of the
location of the internet user and his/her language. Google's Adwords help webpage to
refer to the various options available to advertisers in terms of language targeting and
targeting based on geographic locations (countries, areas within a country, a radius
around a location, or location groups). Thus, the advertiser from India can advertise in
various country specific domains of Google including Google.com and Google.co.in.
Other entities providing online search advertising services follow a similar practice.
34. The DG further stated that considering the conditions for demand for online
advertising services and those for supply of online advertising services in terms of the
legislative framework, the presence of local distribution entities and variations in
applicable terms and conditions etc., India would be the relevant geographic market
for online advertising services in terms of the provisions of Section 2(t) read with 19
(6) of the Act.
35. Accordingly, the relevant market in the instant case was delineated by the DG
as the market for ‘Online Search Advertising Services in India’.
36. With regard to the issue of dominance, the DG has also referred to its analysis
in previous cases i.e. Case No. 07 and 30 of 2012 against Google and after having
analysed all aspects, it was opined that Google was dominant in the market of online
search advertising services in India. This has been the case despite the long standing
presence of other competitors like Yahoo! and Microsoft Bing and new players in the
market such as Baidu.com, Yandex and Duckduckgo.com. Other factors like Google's
size and resources, economic power and commercial advantages, entry barriers, etc.,
further reinforced Google's position of dominance. The DG also stressed that there
exist significant entry barriers in the nature of high cost, technology, network effect,
minimum scale requirements and contractual restrictions, etc. that bestow economic
power on Google and place it at a major advantage vis-à-vis its competitors. It was
stated that due to these reasons, Google has been able to establish itself as a critical
platform for the stakeholders. The competitors have neither been able to dent its
market position despite their prolonged presence nor do they pose any significant
competitive constraint. Therefore, it was opined that Google enjoys a position of
strength in the aforesaid relevant market which enables it to operate independent of
prevailing competitive forces and also has the ability to affect its competitors as well
as consumers in its favour.
37. The DG further investigated whether the conduct of Google amounted to abuse
of its dominant position in terminating the AdWords accounts of the Informants hosted
on Search Engines Result Page (SERP) of Google for advertisements of the Informants'
RTS services. It also investigated whether the Informants were thrown out of
competition by such an action of Google by denying them market access or otherwise.
In brief, though the DG did not find the termination of the accounts of the Informants
to be unfair, it concluded that Google had abused its dominant position in the relevant
market in violation of the provisions of Section 4(2)(a)(i) of the Act with regard to the
allegation on opaqueness and lack of transparency in assigning a quality score in the
bidding process. The DG also found violation of Section 4(2)(a)(i) of the Act with
regard to one sided terms and conditions provided in clause 11 read with clause 4 of
the Adwords Advertisement Terms 2013.
Consideration of the DG report by the Commission
38. The Commission considered the Investigation Report submitted by the DG in its
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ordinary meetings and decided to forward copies thereof to the parties for filing their
respective objections/suggestions thereto. The matter was finally heard by the
Commission on May 23, 30 and 31, 2018 whereupon the Commission decided to pass
an appropriate order in due course.
Replies/Objections/Submissions of the Parties
39. The Parties filed their respective replies/objections/submissions to the Report of
the DG besides making oral submissions and filing post-hearing submissions.
Replies/objections/submissions of the Opposite Parties/Google
40. Google filed its response to the Investigation Report. Additionally, on
06.06.2018, 08.06.2018 and 15.06.2018 Google submitted post-hearing submissions,
providing, inter alia, response to the queries raised by the Commission during the
hearings.
41. In its objections and comments to the DG Report, Google contended that
AdWords is governed by a universal set of policies designed to safeguard the end-
users, and all accounts that breach these policies risk suspension/termination. Google
stated that the DG had correctly found that suspension of the accounts of the
Informants was entirely justified, and that Google followed a legitimate process to
effectuate the suspension. Specifically, Google contended that for the following
reasons (recognised by the DG as well) the termination was justified and there was no
contravention of the Act:
(i) The Informants committed thousands of undisputed violations of the AdWords
policies.
(ii) The violations were often serious and pervasive, and often reflected a concerted
effort to evade detection, despite warnings from Google and the publicly
available policies that advertisers must abide by.
(iii) The violations harmed users (the practices deceived and defrauded users).
(iv) Google thoroughly reviewed the Informants' violations and provided a fair
appeal process to AdWords violators, including the Informants.
(v) The Informants did not allege or show any anti-competitive effects and in fact,
their suspensions and terminations were pro-consumer and pro-competitive.
42. Google stated that the DG had rightly found that there was no discrimination or
unfair termination of the accounts of the Informants, and the termination policies were
fair and in accordance with the Act. Google also stated that user complaints, and
reports published by regulators, third parties, and news organizations all identified
significant issues within the RTS industry involving scammers, and these concerns
have persisted. It was in this background that the accounts of the Informants were
legitimately terminated to protect the interests of users.
43. On the issue of promoting Google Helpouts, Google stated that the DG had
rightly found that Helpouts is not a competing RTS service, and was, in fact, never
launched in India. Helpouts was a platform discontinued in 2015, which simply
connected users with third party service providers in various fields such as art, music,
cooking, computing, education, fitness, and health, etc. and was not an RTS provider.
44. Google also contended that the DG's findings that iYogi is not associated with
Google were correct and well substantiated with evidence on record. Google argued
that there is no evidence of any alignment of interests, an economic link, or any other
relationship between Google and iYogi. iYogi held an AdWords account at the same
time as the Informants, and was not suspended and/or terminated at the same or
similar time as the Informants because it had not, at that point in time, violated the
AdWords Policies in a serious or pervasive manner. iYogi was one of the many RTS
providers that hold AdWords accounts.
45. Google disagreed with the findings of the DG regarding clause 11, read with
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clause 4 of the Adwords Advertisement Terms 2013 and argued that the said clauses
are not one-sided or abusive. Specifically, Google stated that clauses 11 and 4 benefit
advertisers and are objectively justified. The clauses are transparent, accessible, and
prevent bad actors from abusing and degrading the platform to the detriment of users
and ultimately advertisers. They also allow Google to provide new services, clarify
contract language, and make changes as required by law.
46. Google stated that the terms on termination/suspension and modification are
ubiquitous in the industry as it is not practical for Google or for that matter any
company to enter into negotiations with each and every AdWords partner.
47. Google clarified that clause 11 is not an imposed, unfair or discriminatory
condition. The Advertisers voluntarily choose to accept Google's standard terms and
such practices are ubiquitous in the online industry. The rights under clause 11 are
reciprocal as both advertisers and Google can suspend their advertisements or
terminate their accounts at any time, and reject Google's modifications. Moreover, the
DG failed to show or provide evidence of any anti-competitive effects.
48. Lastly, Google also argued that the Commission has no jurisdiction to
investigate the matter, since the alleged conduct does not have any effect in India.
Google stated that the services offered by the Informants were targeted solely at users
located outside India, and at no point of time did either of the Informants target users
or consumers in India. There is, as such, no potential effect on Indian consumers or
competition resulting from any of Google's termination of the Informants' AdWords
accounts. The effect of that conduct - allegedly a reduction in the ability of the
Informants to compete - affects competition in the market for RTS services and the
consumers in that RTS service market were exclusively outside of India. There is, thus,
no harmful effect on any consumers in India, and accordingly no basis to invoke
India's competition laws.
49. On the basis of the above, Google contended that since Google does not
infringe the Act, there is no basis for imposing any penalty.
Replies/objections/submissions of the Informant in Case No. 06 of 2014
50. The Informant-1 in Case No. 06 of 2014 filed its objections and broadly
supported the infringement findings of the DG while objecting to the non-infringement
findings. The Informant-1 also filed post-hearing submissions on 04.06.2018.
51. In its objections/submissions to the DG Report, the Informant-1 contended that
Google conducted a review of RTS service providers and terminated accounts of
number of advertisers and the DG did not examine as to why accounts were
terminated on such a large scale. The DG further failed to appreciate that the
termination of the accounts was only to support Google Helpouts.
52. The Informant-1 argued that, with the exception to the findings in relation to
Quality Score and clause 11 and 4 of the Adwords Advertisement Terms 2013, which
have been held against Google, the findings in respect of the other allegations are
incorrect because the DG ignored cogent material on record and because there is no
legitimate basis for the termination of Informant-1's account. In this regard, the
Informant-1 contended the following:
(i) The DG relied on complaints against Audney made since 01.11.2013 which was
after Audney's account was terminated on 22.10.2013.
(ii) The DG did not appreciate the steps taken by Audney to comply with Google's
policies. Despite seeking an audit in its e-mail dated 16.09.2013 to Google so
that there is no violation, Google failed to provide support.
(iii) The DG's conclusion that there was a violation of User Safety Policy is perverse
because the alleged violative advertisements were either never run or became
retrospectively violative. Moreover, the violations did not affect consumer
interest/welfare.
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(iv) The DG did not consider the proximity of time between the beta launch of
Google Helpouts (on 23.08.2013) and raising of 1426 violations (on 22.08.2013)
within 48 hours of each other. The DG also did not consider the proximity of time
between the Google Helpouts final launch (on 05.11.2013) and the end of Google
tech review period (October 2013).
(v) The DG ignored evidence which states that Google will keep 20% of the revenue
generated from Google Helpouts. Google under Helpouts Additional Terms
accepts that Google will get money from these transactions.
(vi) The DG did not consider that there was a systematic and deliberate attempt to
withdraw support including withdrawal of Account Manager.
(vii) The DG has incorrectly assumed violation of the User Safety Policy, while the
evidence on records reveals that on the date of termination there was no
violation of the User Safety Policy.
53. The Informant-1 further argued that the DG violated the principles of natural
justice because the protection of confidential information under the Act is not available
with the DG, and the Report redacts information that is relied upon by the DG in
reaching its conclusions. The Informant-1 also contends that Google obstructed the
investigation by unnecessarily claiming confidentiality over non-confidential
information.
Replies/objections/submissions of the Informant in Case No. 46 of 2014
54. The Commission vide its order dated 17.01.2017 observed that the notices
issued to the Informant in Case No. 46 of 2016 (Albion Infotel Ltd.) had been returned
with the postal noting “left”. Further, the counsel who appeared on behalf of this
Informant vide his letter dated 17.10.2016 stated that he was no longer engaged as
the counsel of Albion InfoTel Ltd. In these circumstances, it is apparent that this
Informant is not interested in filing any suggestions or objections to the DG Report.
Analysis
55. Briefly stating, the Informant Group of Companies in Case No. 06 of 2014
approached Google India for opening an account in Google Adwords for its online
Remote technology support services business. A standard agreement was executed
between SGL (the Informant's company) and Google Ireland and accordingly an
Adwords account was opened and activated on 07.01.2013. Thereafter, to implement
the business objective of establishing an online tech support services, the Informant
incorporated a company in the name of Audney in USA with a call centre based in
India (DCL). The Informant-1's company, Audney, incorporated in USA, was providing
remote technology support services through a business model by placing online
advertisements through Google's Adword programme providing link to the website of
Audney apart from providing details of the telephone numbers which the consumers
could use for obtaining remote tech support services. Thereafter, DCL - an India based
call centre - would attend the call and provide the required tech support services
remotely. The Informant has been submitting advertisements in Google Adwords since
January 2013 to October 2013 when its account was withdrawn/terminated by Google.
56. In Case No. 46 of 2014, the Informant-2 is also aggrieved because of the
suspension of its Google AdWords Accounts by Google. It was alleged that Google has
imposed unfair/discriminatory conditions in granting access to its AdWords
programme. Further, Google's User Safety and AdWords policy was also alleged to be
arbitrary and one-sided giving rise to abuse of dominant position.
57. To investigate the aforesaid issues, the DG defined online search advertising in
India as the relevant market where Google was found to be a dominant enterprise.
58. After delineating the relevant market as online search advertising services in
India and finding Google to be dominant therein, the DG has identified and
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investigated the following issues:
i) What was the nature and extent of problems that have prompted Google to take
action against RTS industry and whether or not the termination was a legitimate
action?
ii) Whether Google could have taken a less damaging course of action such as
filtering out fraudulent firms and maintaining contracts with firms that have been
operating genuinely since long periods of time?
iii) Whether Google Helpouts was an RTS alternative to the business setup of the
Informants and thus whether Google was planning entering the RTS service
market?
iv) Whether Google had terminated large numbers of Adwords Accounts of RTS
service providers besides terminating the Accounts of the Informants before
launching ‘Google Helpouts’?
v) Whether iYogi is associated with Google?
vi) Whether Google has adversely discriminated against the Informants and given
preference to its alleged associates like iYogi?
vii) Whether Google's User safety Policy and Adwords policy is extremely arbitrary,
vague and one sided giving rise to abuse of dominant position by Google?
viii) Whether the entire bidding process of Google Adwords is extremely opaque and
not transparent and there is lack of transparency in the mechanism of fixing Cost
per Click (CPC)?
ix) Whether any of the terms of Google Advertising Program Terms 2013 executed
with the Informants is arbitrary and one sided providing sole discretion to Google
to suspend and Adwords account or account holder's ability to participate in any
of the programs or running of any customer campaigns etc.?
59. On the aspects relating to abuse, the DG agreed with Google that the
enforcement actions taken by it against RTS industry were prompted by legitimate
concerns arising out of warnings from anti-trust authorities, courts, independent
reviews, monitoring systems established by Google, repeated violations by the
Informants, consumer complaints and other signals from the market relating to RTS
business.
60. The DG also found the entire process of temporary suspension and ultimate
termination to be based on a process of filtration where opportunities were given to
the advertisers to set right the violated area by revising the advertisements. The DG
also noted the presence of an appeal mechanism provided by Google to the advertisers
whose accounts were being terminated. The DG further noted that the Informants
could not substantiate their claim that Google Helpouts was an alternative to RTS
services and was a trigger or a well-planned exercise to terminate the Adwords
accounts of the Informants. Neither of the Informants could substantiate the
allegation of iYogi's association with Google by way of any documentary evidence.
From the details requisitioned from the office of ROC Delhi, the DG noted that none of
the Directors or shareholders of iYogi was common with Google. No credible evidence
was found by the DG to establish that iYogi was given any preferential treatment by
Google or that the user safety policies were applied differently to it. The DG also noted
that the user safety policy is neither opaque nor arbitrary nor vague.
61. The DG, however, found the bidding process of Google's Adwords programme to
be non-transparent with respect to quality score being assigned primarily on the basis
of the findings of the DG in the previous cases against Google i.e. Case Nos. 07 & 30 of
2012. The DG found that Google does not disclose to the advertisers their quality
scores for a particular bid for a keyword in an auction. Even the indicative quality score
that Google seems to be providing on a daily basis is neither actual nor average of the
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quality score of the bids of the advertiser during the day for a particular keyword and,
thus, has very limited utility. The actual quality scores are not provided even on a
historical basis. This severely restricts the ability of advertisers to critically evaluate
their campaigns and take corrective steps. The said conduct thus amounts to
imposition of unfair condition on the advertisers in violation of Section 4(2)(a)(i) of the
Act.
62. Lastly, the DG found clauses 4 and 11 of the Google's Advertisement
Programme Terms 2013 to be one sided and in contravention of the provisions of
Section 4(2)(a)(i) of the Act.
63. On a careful perusal of the DG Report and the submissions of the appearing
parties, the Commission is of the considered opinion that the issues: (a) delineation of
relevant market; and (b) dominance of Google therein have already been settled by
the decision of the Commission issued on 08.02.2018 in the previous set of cases
against Google i.e. Case Nos. 07 & 30 of 2012.
64. In the aforesaid cases, while determining the relevant market, the Commission
observed that online and offline advertising services are not comparable. Online
advertising is undertaken using internet as a medium and, hence, its coverage is
largely dependent on the reach of the internet. Similarly, online advertising is not
substitutable with newspapers, radio or television, for advertisers who seek to target
areas or user groups with limited internet access. It was noted that advertising rates
are significantly lower for online advertising in comparison to traditional media. Not
only that, online advertising allows advertisers to accurately monitor the effectiveness
of the advertisement on the basis of the actual number of users that it reaches to
whereas for offline advertisements, advertisers rely on the estimated number of views
and not the actual views.
65. Adverting to the issue of online search and non-search advertising, the
Commission noted that search advertising helps advertisers in targeting specific users.
Typically, search advertisements are used for demand fulfilment while non-search
advertisements are used for brand awareness or recognition. For that reason, both the
advertisements are priced using different pricing mechanisms. For example, search
advertisements are generally paid on a cost-per-click basis, while non-search
advertisements are usually paid on a cost-per-thousand-impressions basis. Thus, the
characteristics, intended use and price of online search and non-search advertising are
different from one another.
66. In view of the aforesaid, the Commission in the previous cases against Google,
held online search advertising services to be a distinct relevant product market in
accordance with the provisions of Section 2(s) read with Section 19(7) of the Act.
Further, considering the conditions for demand for online search advertising services
and those for supply of online search advertising in terms of the legislative framework,
presence of local distribution entities and variations in applicable terms and conditions
etc., the Commission held India to be the relevant geographic market for online search
advertising services in accordance with the provisions of Section 2(t) read with Section
19(6) of the Act.
67. In the result, the Commission determined Market for Online Search Advertising
Services in India as the relevant market for examining the alleged abusive conduct of
Google.
68. After having delineated the relevant market, the Commission proceeded to
assess Google's dominance in the said market. While assessing dominance, the
Commission noted that Google's market share has been consistently high, which
suggests that, besides technical advantages, there exist other factors such as barriers
to entry and Google's insurmountable scale, which insulate its market position. The
structure of the market is both indicative of and conducive to Google's dominance. In
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view of the same, the Commission held that Google is dominant in the market for
online search advertising services in India.
69. As the allegations in the present case are in respect of online search advertising
services, the Commission is of the considered opinion that the market delineated in
the aforesaid cases decided by the Commission may be taken as the relevant market
in the present case as well. Further, based upon the findings of dominance against
Google in those cases, the Commission notes Google to be dominant in the market for
online search advertising services in India in these cases as well.
70. On the alleged abusive conduct of Google, from the issues examined by the DG,
it appears that essentially only the following three issues survive and arise for
consideration in the present case:
(i) Whether the Adwords accounts of the Informants were suspended by Google in
an unfair or discriminatory manner being in abuse of dominance under the Act?
(ii) Whether Google imposes unfair conditions (clauses 11 and 4 of Google
Advertising Program Terms 2013) on its advertisers and whether this amounts to
an abuse of dominance under the Act?
(iii) Whether the bidding process of Google Adwords is extremely opaque and non-
transparent?
Issue No. 1
Whether the Adwords accounts of the Informants were suspended by Google in an
unfair or discriminatory manner being in abuse of dominance under the Act?
71. The Informant-1 has alleged that Google terminated its account and the
accounts of other RTS providers without providing any notice or reason for such
termination, and that Google refused to communicate with the Informant-1 about its
account. It also argued that: (i) Google failed to provide the necessary support to
comply with AdWords policies; (ii) Audney misunderstood vague AdWords policies;
(iii) Audney's violations were “technical” in nature; (iv) Audney had corrected each
violation; and (v) suspension of Audney's account could not be related to its
violations, because such violations allegedly occurred 60 days before the suspension
and had been corrected by Audney prior to its suspension.
72. In its response to the Report and at the hearings, the Informant-1 also
contended inter alia that: (i) there was no reason to terminate his account as
advertisements infringing the AdWords Policies had already been paused at the time of
suspension; (ii) Google relied on user complaints that were dated post-termination;
(iii) the RTS sector was targeted and no appeal process was provided for RTS
providers; and (iv) Google terminated his account to favour its own associated service,
i.e. Helpouts and associate iYogi.
73. The Informant-2 made similar allegations against Google in its information with
respect to the termination of its accounts, while also contending that the policies of
Google are vague in nature.
74. Before examining the allegations, it would be appropriate to note the findings of
the DG in this regard and the same are noted below:
Google has cited the alerts, triggers and warnings from FTC, other anti-trust
regulators, also from the independent rating agencies raising an issue in general
that large number of advertisement being hosted are making false claims, hosting
misleading advertisement etc. in which particular serious concerns were raised
about RTS Service providers. These alerts coupled with internal monitoring
prompted Google to review advertisement to check compliance with the user's
safety policy and other relevant policies.
[Ref. Para 55 p. 202 Investigation Report]
These were violations of policies during the period when the accounts of the
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advertisers were active. It was confirmed by the IPs as well as OP. Attention is
drawn to Annexure-C to IP-1 submission dated 14.07.2015 and IP-2 page 67 to 113
of the information dated 16.07.2014. Google has been able to present justification
for taking enforcement action based on the legitimate concerns arising out of the
warnings from antitrust authorities, courts independent reviews, monitoring
systems established by Google, repeated violations by IPs, consumer complaints
and other signals from the market relating to RTS business.
Moreover, during the course of investigation IPs could not substantiate the
allegations by placing credible evidence that the termination of their accounts was
based on illegitimate action by Google.”
[Ref. Paras. 58-59 p. 202 Investigation Report]
The fact remains that the account of IP-1 was active only for a few months from
January 2013 to October 2013 and for IP-2 from June 2010 to October 2013. At
least IP-1 has not shown any history of genuine operation of long period as even
during this short period admittedly his advertisements were temporarily suspended
many times. The IP-2 also had few instance of temporary suspension of
advertisements.
[Ref. Para 66 p. 209 Investigation Report]
The whole process of temporary suspension and ultimate termination is a process
of filtration. Opportunities have been given by Google to set right the violated area
by the IPs by revising the advertisements. Copies of his emails attached to
information by IPs show that Google had pointed out the discrepancies in their ad
from time to time and even in those emails suggestions were also given as to how
the advertisement could be rectified.
Each of those email contained a standard warning stating “A repeated violations
of our advertising policies may result in a suspension of your adwords account, so it
is important to address any issues as soon as possible by reviewing our policies.”
The link of the site where such policies are available was also provided in the email.
For example, attention is drawn to such copies emails attached with the information
of IP-2 from page 67-113 exhibited in his deposition. Similar is the case with IP-1.
Therefore, it transpires that ample opportunities had been given by Google to the
IPs. Google could also justify the mechanism of identifying the violators and also
the opportunities for filing appeal against the termination of accounts. Google in its
submission dated 26.11.2015 in response to query number 1 has given the appeal
mechanism and also the fact that both the IPs had availed the appeal opportunity
which were rejected by passing a detailed response as per Annexure 1 B and 1 C
attached to the said submission. Therefore, during the course of investigation
Google could justify the trail of action taken before finally terminating the account,
being a matter of last resort, whereas the IPs could not substantiate the alternative
to termination of account.
[Ref. Paras. 68-70 pp. 213-214 Investigation Report]
A pointed question with regard to the details and nature of Google Helpouts
program was raised before Google in writing as well as during the deposition of the
representative of Google on 17.11.2015 vide question number 16. It was informed
that Google Helpouts was a platform that allowed a user to connect with the
services like Yoga, Cooking, Guitar Lessons, Dance etc.(even though it included the
services on computer hardware and software). Google as such was not to provide
the services rather it was a platform to connect the seekers of the services from an
expert and they interact with each other. Details have also been provided vide para
61 of Google submission 19.12.2014 and also vide para 47 to 49 read with
Annexure E to the reply of Google to the application for interim relief by IP-1 before
the Commission (provided during deposition as exhibit RY-5) Google Helpouts was
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never launched in India and has since now been discontinued.
Google Helpouts was like Adword program wherein services were provided by
third party service providers. Google was only providing a platform. Google was
neither providing any services nor earning any revenue out of Google Helpouts.
Whereas RTS services provided by IPs are different from the concept of Google
Helpout. RTS Services provided by IPs are that of providing technical support for
computer hardware & software. A few screens shots and print outs were provided by
I P-1 like Annexure E-19&20 to submission dated 14.07.2015 which indicate that
there were few entries of Help on computer hardware & Software etc. from certain
persons and a write-up on Google Helpout service launched to bring live video
tutorials from real people. Examination of these screenshots and print outs provided
by IP-1 only demonstrate the nature of Google Helpout as specified above and not
otherwise.
IPs could not provided any material in support of their allegation that Google was
competing with RTS providing business and Google Helpouts was an alternative of
their RTS business setup.
Therefore, the allegation of IPs could not be substantiated to the extent that
either Google Helpouts was alternative to RTS Services or the plans to launch
Google Helpouts was a trigger or a well-planned exercise to terminate the IPs
Adwords Accounts.
[Ref. Paras 83-86 pp. 218-219 Investigation Report]
The reasons for terminating of large number of accounts of RTS providers are
based on various legitimate reasons and also on the warning alerts and signals from
the anti trust authorities like FTC which have been dealt in detail in the above issue
Number I. Having noted that Google Helpouts was not alternative to RTS business
the allegation that the Google terminated large number of accounts planning for
launch of Google Helpout could also be not substantiated.
[Ref. Para 89 pp. 219-220 Investigation Report]
The representative of iYogi has confirmed that iYogi group has no association
with Google group companies except one Adwords account which iYogi Inc. has
subscribed. iYogi TSPL is the main company in which RTS Services is being
conducted and is a wholly owned subsidiary of iYogi Limited Mauritius whereas iYogi
PL is a company promoted by directors of iYogi TSPL with nil business activity as per
the balance sheet provided by RoC Delhi. None of the directors or shareholders of
these two iYogi Companies is common with Google. iYogi Mauritius has three other
subsidiary or step down subsidiaries companies. 1) iYogi Inc. USA 2) iYogi Pte Ltd.
Singapore and 3) iYogi Spain. OPs has also denied any association with iYogi.
Therefore, no association of iYogi with Google group could be established.
[Ref. Para 102 pp. 224-225 Investigation Report]
Both the IPs in their written submission as well as in during deposition could not
substantiate the alleged preferential treatment to iYogi except simply saying that
iYogi is also in the same business of RTS services and in the same market but iYogi
was not terminated despite of few temporary suspensions even though their
advertisement was in the same manner and iYogi is flourishing whereas the IPs
Adwords account were terminated. (Albion's reply to question number 21 and
Vishal Gupta's reply of questions number 39 during their deposition).
The reply of IPs was given during deposition was confronted before the
representative of Google during his deposition on 17.11.2015 vide question number
23. He has replied differentiating the advertisement and independent ratings of the
two whereby IPs were given Better Business Bureau rating of ‘F’ and iYogi is rating
is ‘A’. He has given another example and drawn attention to their written
submission of 23.07.2015 highlighting differences in the advertisement. There is no
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credible evidence brought on record to reach a conclusion if iYogi was given any
preferential treatment or the user's safety policies were applied differently.”
[Ref. Paras 118-119 pp. 232-233 Investigation Report]
As per the written submissions by Google as well as confirmed by the
representative of Google in his deposition, there is a policy division in the Google
Inc. Headquarter, USA. They take inputs from many teams, which include legal,
Engineering, operations and public policy, around the world and taking into the
consideration Local laws, Google brand and user protection.
The user policy is available online and is prompted to be accepted by the
advertiser at the time of application for opening of Adword account as acceptance is
a precondition to open an account. This fact was confirmed by both the IPs in their
deposition. Both of them confirmed that they had read the policies before opening
of account.
The opening of an account is a online process; availability & acceptance of Google
safety policy is part of the process.
Google in its submission dated 19.12.2014 has stated that the policies are not
unfair, unreasonable or discriminatory as they are proportionate on legitimate
principals for protecting the quality of Google's advertisement services. The policies
are applied uniformly
IP-2 in his deposition on 28.10.2015 was asked vide question number 11 that
“Do you have anything to say on Google's User Policy on its transparency and
defects, if any? “To which he replied that “No. I have nothing to say and I have not
found any defect and lack of transparency”. Further, in reply to question number 13
IP-2 had admitted that Google had intimated through email for their violation of
advertising policy copies of which were enclosed by IP-2 to his information from
Page no. 67 to 113 exhibited as A-1 during deposition.
In any case, the nature of advertisement hosted on any search engine cannot
remain unregulated in the best interest of the consumers relying upon such
advertisements.
OP has been able to substantiate the reasoning and justification has been given
for policies and the enforcement thereof.
At each point of time, IPs had been informed of the violations major or minor,
along with suggestions to rectify the defects.
In the view of above, it appears that the user safety policy neither is opaque nor
arbitrary nor vague.”
[Ref. Paras. 174-182 pp. 254-255 Investigation Report]
Google's Submissions
75. Google submitted that its AdWords Policies define minimum standards of use
for Google's advertising platform (AdWords). Advertisers review, consider, and
voluntarily agree to abide by AdWords Policies when they join the platform. The
AdWords Policies apply to all advertisers equally and allow Google to protect its
platform and users, particularly vulnerable users.
76. Google submitted that it takes action to enforce its AdWords policies inter alia
where it believes that a breach may harm users. It submits that its enforcement is
neither discriminatory nor disproportionate.
77. Google contended that it terminated the accounts of the Informants because
there were repeated serious violations by them of the pro-consumer AdWords policies
and their conduct endangered the end-users. These terminations occurred at a time of
increased enforcement action against RTS providers for breach of consumer protection
laws in the US and elsewhere, that support Google's action.
78. It was argued that in accordance with its general practice, Google took action to
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suspend and terminate AdWords accounts for clear and flagrant violations of its
policies in order to protect its users, other advertisers and the AdWords platform in
general. Specifically, Google contended that between January 15, 2013 and October
22, 2013, the Informant-1 committed 1,450 ad-level violations (violations that occur
within an advertisement, such as trademark misuse in ad text) of the AdWords Policies
and for each such violation an e-mail intimation was sent to the Informant-1. The
emails contained a standard warning stating “A repeated violations of our advertising
policies may result in a suspension of your adwords account, so it is important to
address any issues as soon as possible by reviewing our policies.” During the relevant
period, the Informant-1 also committed numerous site-level violations such as
misrepresentation of the place of business and absence of adequate disclaimer on
website, in light of which its site was suspended twice, first on 03.05.2013 and the
second time on 23.10.2013. On each such occasion, the Informant-1 was: (i) informed
that it had violated the User Safety Policy, and (ii) asked to re-submit for evaluation
after complying with the User Safety Policy.
79. Google submitted that the nature of these violations demonstrates that the
Informant-1 intentionally sought to evade the AdWords policy enforcement.
80. In response to claims of the Informant-1 that the infringing advertisements
were “paused” (i.e., not run on Google's advertising platform) and thus were not
infringing, Google stated that whether advertisements are paused or not is irrelevant
in the context of compliance with the AdWords Policies. A paused advertisement that
violates the AdWords Policies may still be disapproved but it can be revived and run at
any time at the discretion of an advertiser, without referring it again to Google for its
approval which puts the consumers at a risk of harm.
81. Google also provided evidence demonstrating that the Informant-2 committed
violations of a similar nature as the Informant-1, and that Google applied the same
process with respect to the Informant-2's accounts. In particular, the Informant-2
violated the AdWords policies 1,192 times. The Informant-2 also violated site-level
policies by misrepresenting its place of business and making misrepresentations about
its billing practices and services.
82. Google accordingly contended that the Informants' accounts were terminated
based on a collective assessment of: (i) a continued pattern of circumventing the
AdWords Policies; (ii) deliberate circumvention of the AdWords Policies; and (iii)
misleading bad business practices. As such, the termination of the Informants'
accounts could not result in any anti-competitive effects, but on the contrary, was pro-
consumer and Google should not be obliged to engage with such advertisers.
83. Google provided materials and evidence to the DG, confirming that it had no
connection with iYogi and that iYogi was in compliance with the AdWords Policies
during the relevant period in contrast to the Informants, and that Helpouts was not an
RTS alternative that in any way prompted Google to terminate the accounts of the
Informants.
84. Google also showed that several Governmental bodies across different
jurisdictions, consumer interests groups, and users warned against fraudulent, or
otherwise harmful activities such as those committed by the Informants. Google
submitted that these materials support its decision to terminate the Informants'
accounts.
85. In response to an allegation by the Informant-1 that Audney InfoTel Inc. had
been unfairly singled out, Google submitted comprehensive data showing that, in
2013, approximately 2,400 RTS accounts were suspended globally for breach of
Google's policies. Google thus argued that the Informants were not unfairly targeted
by any enforcement action.
The Commission's Findings
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86. The Commission has carefully perused the material on record besides hearing
the learned counsel for the Parties.
87. The Commission notes that Google's AdWords Policies clearly define minimum
standards of use for its advertising platform (AdWords). These policies protect the
platform and the end-users, particularly, the vulnerable end-users. The Commission
notes that an online advertising platform cannot be left without any regulatory
mechanism which is based on defined criterion that ensures not only safety of
advertisements for end-users but also to prevent unscrupulous advertisers from
making false and misleading claims and representations. A platform would as such be
within its rights to regulate itself to ensure that advertisements conform with its
quality and safety standards. More generally, platforms and users are free to agree
upon the terms and policies that will govern their relationship, including enforcement
mechanisms. Termination of the relationship between a platform and user is a
commonly used mechanism to legitimately enforce a variety of policies.
88. The Commission notes that the AdWords Policies are available online, and are
just one of a number of policies that advertisers choose to accept when opening an
account. Both the Informants, while opening their respective accounts, agreed to
comply with the AdWords Policies.
89. The Commission notes that advertisements that infringe Google's AdWords
policies may be “disapproved” or “suspended” until rectified (an action designed to
alert the advertiser to an infringement and to stop the infringing advertisements from
running). Persistent or serious infringements (such as where an advertiser's conduct or
business practices pose a significant threat to users, in violation of the User Safety
Policy) are likely to lead to an act of permanent suspension i.e. “termination” of the
advertiser's account (a permanent act).
90. The Commission notes that Google's enforcement action against the Informants
took place against the backdrop of significant scrutiny of RTS providers by various
competition and consumer protection agencies. Google enhanced its detection
mechanisms in response to this challenge in 2013 and sought to more effectively
identify what it refers to as “bad actors.”
91. The Commission notes that there is evidence on record showing that the
Informants' conduct was likely to endanger end-users of remote tech services. They
repeatedly committed multiple violations of the AdWords Policies, demonstrating a
consistent and persistent pattern of misconduct and user harm (e.g., through tactics
designed to mislead or exploit users).
92. From the information on record, the Commission specifically notes that the
Informant-1 committed numerous ad-level violations, including:
a) 1,426 violations of the AdWords Phone Number Policy by including telephone
numbers in ad titles, text, or visible URLs (often simultaneously misusing
trademarks to falsely imply affiliations with reputable IT companies) that mislead
users into thinking they will place a call by clicking on the ad, when in fact they
will be redirected to a website;
b) 21 violations of the Relevance Clarity, and Accuracy, and User Safety policies by
using unclear/inaccurate ad text such as falsely implying affiliations with
companies such as Epson, Microsoft, Dell, etc., that deceive users into believing
that the company is an affiliate of, or official service provider for, such
companies; and
c) 3 violations of the Display URL policy by using multiple URL displays that confuse
users about the websites linked to by advertisements.
93. The Commission notes that the Informant-1 was informed of each such ad-level
violation by way of email which have been placed on record by the Informant-1
himself in his information at p. A-154 to A-244, Annexure K. The Commission agrees
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with the findings of the DG that Google provided the Informants with the opportunity
to rectify their violations by revising their advertisements. This was specified in each
email notifying the Informant-1 of the specific disapprovals. Google notified the
Informants of their respective ad-level violations by e-mail, and also provided
suggestions on how to rectify each advertisement in those emails.
94. The Informant-1 also committed numerous site-level violations, including:
a) Misrepresenting the location of its business to be in the U.S. (Audney never
accessed its account from the U.S., and provided all services from India); and
b) Failing to include an appropriate disclaimer as to affiliation or endorsement on its
website in respect to the companies in relation to whose product it provides such
remote tech services.
95. The Informant-1's site was consequently suspended twice during the period
January - October 2013, and all advertisements directing users to its site were
disabled:
a) First, on 03.05.2013, for business practice violations; and
b) Second on 23.10.2013 for User Safety violations, violations of the Editorial
Standards, and inserting phone numbers in visible URLs and ad text.
96. From the email communication reproduced by the Informant-1 himself in his
information at p. A-249, Annexure N, the Commission notes that the Informant-1 was:
(i) informed that its site violated the User Safety Policy, and (ii) was asked to re-
submit its site for evaluation after complying with User Safety Policy. Google re-
evaluated the Informant-1's account on each occasion, as detailed below, as part of its
appeal process, under which Google considers the nature of an account's violation(s)
resulting in suspension, its record of compliance with the AdWords policies, and
whether the advertiser has a plan to ensure that no further violations occur. As per the
information:
a) The Informant-1 first submitted its website for re-evaluation on 10.05.2013. On
10.05.2013, Google reviewed the Informant-1's site and found that the specific
violations had been addressed. Consequently, Google enabled the Informant-1's
site.
b) The Informant-1 launched an appeal against its site suspension of 23.10.2013
on 28.10.2013. On 29.10.2013, Google reviewed the Informant-1's account
activity and, in accordance with its standard practices, informed the Informant-1
that following its review, the Informant-1's account would be terminated. This
email also noted that Google would not permit the Informant-1 to open any new
AdWords account or run advertisements.
97. The Informant-2 also committed various ad-level violations of the AdWords
policy. The 1,192 specific instances of violation include, inter alia:
a) Abuse of third party trademarks and attempts to evade detection for such
abuses. The Informant-2 committed 22 such violations, which included deceptive
implied affiliations with AOL, Lexmark, HP, Norton, Avast, Kaspersky and other
companies that were not actually affiliated with the Informant-2.
b) Improper use of telephone numbers in advertisements. The Informant-2
committed 777 violations of this policy.
c) Improper manipulation of text to avoid detection for AdWords policy violations.
The Informant-2 committed such violations 104 times. For instance, the
Informant-2 intentionally misspelled certain third party trademarks or otherwise
attempted to use these trademarks while avoiding detection.
d) Inaccurate display of URL that displays one URL but links to an entirely different
site in order to deceive users. The Informant-2 committed such violation 61
times.
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e) Using multiple confusing URL displays. Google prohibits multiple URL displays to
avoid user confusion about linked websites. The Informant-2 committed this
violation 104 times.
98. The evidence on record also shows that Google afforded the Informants a fair
process, comprising multiple warnings with clear identification of the specific violation
at issue, ample guidance, and a fair appeal process. Particularly, Google clearly warned
the Informants that “Repeated violations of our Advertising Policies may result in
suspension of your AdWords Account”. Despite these communications from Google,
the Informants' misconduct continued, leaving Google with no choice but to terminate
the Informants' accounts in the interest of user safety and protection of its platform.
99. The material on record shows that the enforcement and implementation of the
AdWords Policies are non-discriminatory and based on defined criteria to ensure
consumer safety. There is no suggestion or evidence on record to show that the
Informants' accounts were singled out for suspension.
100. The Commission does not find any merit in the Informant-1's contention that
there was no reason to terminate his account as advertisements infringing the
AdWords Policies were paused at the time of suspension. The Commission notes that
paused advertisements can be revived and run at any time at the discretion of the
advertiser at the click of a button. This has also not been denied by the Informant-1.
As such, it cannot be argued that paused advertisements should not be made subject
to Google's compliance and enforcement efforts. If paused advertisements were not
subject to review, there would be a risk of consumer harm because paused
advertisements that are in breach of the AdWords Policies could be run immediately at
the advertiser's discretion.
101. Similarly, the Informant-1's claim that Google placed reliance on customer
complaints that were dated post-termination is misplaced. The Commission notes that
the user complaints were not the primary reason for termination of the accounts but
the same appear to have been taken into consideration by Google while taking its
enforcement action against the remote tech service providers. Essentially, the
Informant-1's account was terminated because it violated Google's AdWords policies
1,450 times, and also violated Google's User Safety Policy. In any event, there were at
least two complaints dated before the suspension of the Informant-1's account.
102. The Commission also finds that there is no evidence on record to show that
Google favoured iYogi. No evidence of any structural or economic links was either
submitted by the Informant or found between iYogi and Google during the
investigation. On the contrary, Google provided evidence that iYogi did not repeatedly
breach the AdWords Policies or demonstrate harmful business practices during the
relevant period, in the same way as the Informants did.
103. This is evident, illustratively from the disclaimer on the respective websites.
While iYogi had a clear disclaimer on its website stating, “iYogi is an independent
provider of remote tech support service for software, hardware, and peripherals. We
are unique because we have expertise in products from a variety of third-party
companies. iYogi has no affiliation with any of these third-party companies unless such
relationship is specifically specified. For permitted use and specific warranties
associated with the software, hardware and peripherals, please contact the relevant
third party. iYogi is not responsible for third party Content provided on or through the
Site and you bear all risks associated with the use of such third party Content,
products and services. iYogi's support staff are iYogi Certified technicians but do not
necessarily hold any certifications from any third party unless expressly specified.”
This is in stark contrast to the disclaimer on the website of the Informant-1, which
states that, “Audney is a third party provider for software and hardware driver related
issues in desktops, laptops, and peripherals. We provide services through our pool of
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trained specialists and experts who have experience in handling products of companies
such as Microsoft, Dell, IBM, HP, HCL, etc. The brand names, trademarks, logos
company names used in the site belong to their respective owners and are for
representation purposes only.”
104. The Commission is of the view that the disclaimer of Audney is not a sufficient
disclaimer. The Informant-1 merely states that the brand names, trademarks, and
logos belong to the respective owners, but does not say that it is not affiliated with
those owners (as iYogi does). The statement represents to users that the Informant-1
is experienced in handling the products of Microsoft, Dell, IBM, HP, HCL, etc. In doing
so, it wrongly suggests and indicates affiliation to the above mentioned companies
(again, unlike iYogi). As per Google policy this is a site level violation. For these
reasons, the Commission disagrees with the argument of the Informant-1 that his site
was wrongly terminated and there was a sufficient disclaimer on the website.
105. The arguments of the Informant-1 on discriminatory treatment are
unsupported by evidence on record and are based on mere conjectures and surmises,
hence, cannot be accepted. In fact, the Informant-1 conceded to the DG that, “[a]t
this stage I cannot support [allegations about iYogi] on the basis of any document to
prove that iYogi is [an] associate of Google”. The evidence on record suggests that
there was no discriminatory treatment meted out to the Informant-1 vis-à-vis iYogi.
106. The Commission also finds that there is no evidence that the termination of
the Informants' accounts was intended to provide Helpouts with a competitive
advantage. It is evident to the Commission that Google did not, through Helpouts,
offer RTS services. Helpouts facilitated the exchange of information between experts in
various fields (e.g., teachers, personal trainers, doctors, home repair specialists, hobby
enthusiasts, and more) and users. Service providers could offer their services via
Helpout's online video conferencing facility, video posting facility, and screen-sharing
facility. Google itself did not provide services to users through the Helpouts platform
but merely acted as an intermediary facilitating a connection between the users and
service providers.
107. Moreover, Helpouts did not enable service providers to gain remote access to
user computers (i.e., the ability to access and control a computer from a remote
location), which is a basic feature for RTS providers. The video conferencing ability,
video posting, and screen sharing facility offered by Google is not equivalent to remote
access and cannot be categorised to fall within the same market.
108. The Commission is also not persuaded by the Informant-1's contention that
Hangouts has remote access functionality, limited to an add-on feature on Chrome,
which means that Google competes with RTS providers through a combination of
Hangouts and Helpouts. The Commission notes that Google Hangout is a platform
which inter alia provides services of messaging and video chat. Further, as contended
by Google, it does not provide remote access facility which is sine qua non for
providing remote technology services. Thus, even in combination with Hangouts,
Helpout did not have the ability to remotely access a user's computer - a key
functional feature of RTS. That being so, Google Helpout does not appear to be a
functional substitute to RTS.
109. There is simply no plausible link between the termination of the Informants'
accounts, and the launch of Helpouts. The arguments of the Informant-1 in this
regard, including proximity of time in launch of Helpouts and the termination of the
Informant-1's account are mere conjectures, which are bereft of any evidence. In fact,
since Helpouts is not found to be functionally substitutable with RTS services, the
theory being sought to be canvassed by the Informant-1 is merely speculative in
nature.
110. Similarly, the Informant-1's claims that Google placed reliance on customer
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complaints and the ranking of Better Business Bureau (BBB), which were dated post-
termination are misplaced. The Commission notes that the user complaints were
supportive of, but not the reason for, the termination of the Informant-1's account.
111. The Commission also takes notes of the submissions by Google which clarify
that while a service provider can become an accredited agency with BBB only after a
year of operations, BBB reviews both accredited and non-accredited businesses alike.
The Informant-1's claim that it could not have been reviewed before November 2013
is thus not tenable. In any event, as evident from the evidence on record, the BBB
ratings and consumer complaints were only supportive of and not the reason of the
termination.
112. Similarly, regarding the claim of the Informant-1 that reliance by Google and
the DG on the FTC directions/guidelines to justify the termination of the accounts, is
misplaced, the Commission notes that there were no directions issued by the FTC
pursuant to which the termination was effectuated. FTC had merely issued warnings to
consumers regarding the scams prevalent in the RTS sector and not passed any
direction to Google to terminate the account of the Informants.
113. Google's enforcement efforts were made against the background of the
advisories issued by FTC, but these advisories did not cause the terminations. As
shown earlier, the Informant-1's account was terminated because it violated AdWords
policies. The timing of Google's enforcement action appears to have been impacted by
a range of factors, including the user complaints against the Informant-1 and the
development of new and improved detection signals that enabled Google to better
identify the scammers. Accordingly, the Commission finds that Informant-1's claim
that its termination was caused by FTC directions/guidelines is based on a wrong
premise.
114. The Informant-1 further contended that it was allowed to open an account in
2012 despite the FTC warnings in 2011. The Commission takes note of Google's
submission in this regard that the Informant-1 would be permitted to open an account
(as it did in January 2013) in good faith and on the understanding that the Informant-
1 would comply with its commitments under the AdWords Terms and Conditions that
includes adherence to the AdWords Policies.
115. In respect of the allegations of the Informant-1 regarding the removal of the
account manager and it's relation to the admitted violations the Commission notes
that an Account Manager assists in commercial matters relevant to the running of an
AdWords account and has no role in the enforcement and implementation of AdWords
Policies including terminations for User Safety Policy violations.
116. The Commission also notes from the evidence on record, including the
correspondence submitted by Google and the Informant-1, that Google provided
ample guidance to the Informant-1 on how to correct its AdWords violations. In fact,
Google provides public guidance on its website. The Informant-1, as such, had
sufficient opportunity to rectify past violations and avoid any future violations.
117. The Informant-1 also claimed and urged that the violations are merely
“technical” in nature. The Commission however notes that violating the AdWords
policies which may potentially deceive consumers are not “technical” violations. As
described in paras 103-104, the Informant-1's AdWords advertisements falsely
implied affiliations with reputed third parties to the detriment of Google users, third
parties, and Google's reputation. There is no doubt that deceptive advertising on the
Google platform harms Google's reputation as a provider of search and advertising
services.
118. The Commission also rejects the contentions of the Informant-1 that all its
violations occurred more than 60 days prior to its suspension; as the Informant-1 was
the subject of unresolved user complaints about fraudulent advertising within the 60
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day period before suspension of the account. Moreover, it is entirely irrelevant whether
the violations occurred more than 60 days prior to Google's suspension as nothing in
Google's policies or contracts with the Informant-1 prevents Google from terminating
the account of Informant-1 due to AdWords policies violations outside of the 60 day
window.
119. The Informant-1's allegations that no appeal process for the RTS sector was
provided is incorrect, without any basis and misleading. The Commission notes that
there is a well-established appeal process provided by Google as part of its Adwords
Policy and the Informant-1 itself availed of that process.
120. As Google explained in its submissions, it provides an appeal process for
AdWords account suspensions. Google makes information on its appeal process freely
available online as part of the AdWords support pages. An advertiser seeking to appeal
an account suspension is required to: (1) review its advertisements and site for
compliance with the AdWords policies, including any advertisements awaiting approval
prior to the suspension; (2) fix the violations communicated to the advertiser by
Google; and (3) request an appeal review for reinstatement via a simple online form.
Once Google's AdWords policy team receives the appeal request, specialists evaluate
all of the information provided by the advertiser and the history of the advertiser's
AdWords account, having regard to, for example, the nature of the violation(s)
resulting in the suspension, the track record of compliance with AdWords policies, and
whether the advertiser has a plan to ensure that no further violations occur in the
future.
121. Informant-1 alleged that Google's enforcement of one of its policies (the call
extension policy) lacked clarity which prevented advertisers from using phone
numbers in advertisement texts. As per the policy, advertisers who wanted to use
phone numbers had to use the call extension feature, which would then enable Google
to verify the phone numbers.
122. In this regard, the Commission notes that the aforesaid policy was announced
in February 2013 to “provide adequate lead time to make ad changes” and was
divided into two parts. Google's announcement clearly states that: (1) Google would
prospectively disapprove any new advertisements with phone numbers in ad text in
the next few weeks, and (2) old advertisements with phone numbers in ad text would
be disapproved by Google starting July 2013. Separately on 02.04.2013, Google
released its consolidated policy on Editorial Standards specifying that phone numbers
would not be allowed in the text of new advertisements. Advertisers who wished to
promote phone numbers in their advertisements could use the call extension feature.
In any event, the disapprovals on 14.08.2013 were after the unambiguous deadline of
July 2013 as provided in the February 2013 announcement. Therefore, the
Commission is of the opinion that the claim of the Informant-1 that the call extension
policy of Google lacked clarity, is misplaced.
123. The Informants, thus, have no ground to claim that Google's enforcement
action was unfair and contrary to Section 4(2)(a)(i) of the Act. On the other hand,
Google has demonstrated that it followed a fair, legitimate process using clear,
accessible and pro-consumer policies.
124. The Commission accordingly agrees with the DG's conclusions that the
termination of the accounts operated by the Informant-1 and the Informant-2 for well
documented violations of the AdWords Policies, under clause 11 of the AdWords Terms
& Conditions, was fair and legitimate. It did not amount to an infringement of the Act.
Issue No. 2
Whether Google imposes unfair conditions (clauses 11 and 4 of Google Advertising
Program Terms 2013) on its advertisers and whether this amounts to an abuse of
dominance under the Act?
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125. The DG specifically analysed clauses 11 and 4 of Google Advertising Program
Terms 2013 to assess whether these terms were arbitrary and one-sided, as alleged.
For clarity, the clauses are extracted for ready reference hereinunder:
‘Clause 4: Ad Cancellation:
Unless a Policy, the Programme user interface or an agreement referencing these
Terms (an IO) provides otherwise, either party may cancel any Ad at any time
before the earlier of Ad auction or placement, but if customer cancels an ad after a
commitment date provided by Google (e.g. a reservation based campaign), then
customer is responsible for any cancellation fees communicated by Google to
customer (if any) and the Ad may still be published. Cancelled Ad will generally
cease serving within 8 business hours or as described in a Policy or IO, and
Customer remains obligated to pay all charges resulting from served
Advertisements (e.g. fees based on conversion). Customer must effect cancellation
of Advertisements (i) online through Customer's account if the functionality is
available. (ii) if this functionality is not available, with notice to Google, via email to
Customer account representative or (iii) if Customer does not have an account
representative, with notice to Google via email to adwords [email protected].
Customer will not be relieved of any payment obligations for Creative not submitted
or submitted by Customer after the due date provided by Google. Google will not be
bound by a Customer provided insertion order or other Customer provided terms
and condition.”
Clause 11: Term and termination
“Google may add to, delete from or modify these Terms at any time. The
modified Terms will be posted at www.google.com/advertisements/terms. Customer
should look at these Terms regularly. The changes to the Terms will not apply
retroactively and will become effective 7 days after posting. However, changes
specific to new functionality or changes made for legal reasons will be effective
immediately upon notice. Either party may terminate these Terms at any time with
notice to the other party, but (i) campaigns not cancelled under Clause 4 and new
campaigns may be run and reserved and (ii) continue Programme Use is, in each
case subject to Google's then standard terms and conditions for the Programme
available at www.google.com/advertisements/terms. Google may suspend
Customer's ability to participate in the Programmes at any time. In all cases, the
running of any Customer campaigns after termination is in Google's sole discretion.
From time to time Customer may have advertising credits or other unclaimed funds
within the AdWords Programme account (“AdWords Credits”). Unless used by the
applicable expiration date, Adwords Credits will expire and not be available to the
Customer, according to the following schedule: (a) Adwords Credits issued pursuant
to Clauses 3 or 6 above will expire if not used by the relevant Use By Date; (b)
AdWords Credits provided by Google for promotional purposes will expire if not used
by the relevant date in the promotion or during the time period specified in such
promotional terms and conditions, and (c) AdWords Credits not otherwise covered
by (a) or (b) will expire if not used within 3 years of the date when such AdWords
Credits became available to Customer within the AdWords Programme.”
126. The DG was of the view that clauses 4 and 11 provide a one-sided right solely
to Google to add, delete or modify the terms at any point of time. Further, such terms
are unilateral and the subscriber is left with the option to either accept or terminate
the accounts within seven days.
127. The Investigation Report, thus, concluded that clause 11, read with clause 4,
of the Advertisement Program Terms 2013 is one-sided and provides Google the sole
discretionary power in contravention of Section 4(2)(a)(i) of the Act. Specifically, the
DG found that these clauses gave Google the unilateral right to suspend
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advertisements and modify the Terms & Conditions, in contravention of the Act.
Google's Submissions
128. Google submitted that the DG misunderstood the meaning of clauses 4 and
11, and that its findings are both factually incorrect and not supported by any
evidence.
129. Google submitted that clauses 11 and 4 benefit advertisers and consumers,
and are pro-competitive and objectively justified. Google, specifically urged that
clauses 11 and 4:
a) Are transparent, accessible, and prevent bad actors from abusing and degrading
the AdWords platform to the detriment of users and advertisers (as vindicated by
the DG in relation to the terminations of the Informants' accounts);
b) Allow Google to provide new services, clarify contract language, and make
changes required by law; and
c) Enable swift, easy access to a safe, trustworthy, useful, and profitable platform.
130. Google further submitted that clauses 11 and 4 do not impose any unfair or
discriminatory conditions, and thus cannot fall within the meaning of Section 4(2)(a)
(i) of the Act. Google contended that advertisers voluntarily chose to accept Google's
standard terms, including clauses 11 and 4, as a pre-condition for using AdWords.
131. Google also submitted that the concept of standard form contracts has been
legally accepted and has existed since long across various industries. Terms equivalent
to clauses 11 and 4 are ubiquitous in the industry enabling businesses to provide safe
and competitive platforms. This further showed that such terms cannot be “unfair,”
exploitative, or “imposed” by dominance, but are standard practice across sectors
because they serve a legitimate and beneficial purpose. Google contended that even if
provided by an allegedly dominant company, clauses 11 and 4 must, at a minimum,
come within the “necessary to meet the competition” standard under Section 4(2)(a)
(i) of the Act.
132. Google also pointed out that the rights under clause 11 are in fact, reciprocal.
Both advertisers and Google can suspend their advertisements or terminate their
accounts at any time.
133. Google further submitted that the DG failed to show or provide any evidence
of any anti-competitive effect. Nor can it, because clauses 11 and 4 do not result in
any anti-competitive effect for the reasons identified above.
134. Finally, Google argued that the DG also failed to consider that it would be
practically impossible for Google or any business for that matter to effectively
negotiate its terms of use with tens of millions of users. In 2016 alone, millions of new
AdWords accounts were created. Google argued that the DG ignored these crucial facts
and legal considerations.
The Commission's Findings
135. The Commission has thoughtfully considered the above submissions.
136. At the outset, the Commission observes that without having the ability to
suspend and terminate dangerous advertisers, the platform owner would not be able
to take immediate action to protect consumers and its platform. In the online world,
where unscrupulous players can move quickly and harm consumers in several ways,
firms, irrespective of their market power, must have the ability to take prompt action
designed to protect consumers from potential harm. With respect to the termination of
the Informants accounts, the use of clause 11 in fact benefitted consumers rather than
harming them. Without such rights, platforms such as Google would be unable to deal
with advertisers that harm consumers thereby allowing them to persist on the
internet.
137. The necessity of such a clause is also evident from the applicable laws which
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may prohibit certain advertisements. Google's policies have to comply with and,
facilitate compliance with a vast number of local regulations that may affect the
legality of certain advertisements produced by its partners. Google's disablement or
suspension of such content or accounts protects partners from unwittingly breaching
certain local regulations. The Commission, thus, notes that the aforesaid clause is as
such necessary to ensure compliance with local laws.
138. In any event, the findings of the DG with respect to the one-sided nature of
the Terms & Conditions are incorrect. The Commission notes that the right to
terminate under Clause 11 and 4 extends to both parties, i.e. Google and the
advertiser. The advertiser can also at any time terminate the contract. Re-admitting an
advertiser whose account is terminated is a necessary part of Google's right to
terminate, as Google cannot effectively terminate a partner if that partner could
readmit itself. On the other hand, Google also cannot force partners to continue to deal
with Google once the partners have exercised their termination rights (i.e., Google
cannot re-admit itself into a relationship with advertisers).
139. The Commission also notes that though Clause 11 gives Google the right to
add or modify terms in the agreement, the DG has failed to note that Clause 11 is not
retroactive (i.e., does not affect existing bids), and advertisers can decline to accept
the new terms by not entering into new bids or terminating the agreement (with no
cause). Thus, the clause does not allow Google to modify existing rights. It allows
Google to propose new terms that both existing and new advertisers can either accept
(with new bids and continued participation in AdWords) or decline (by ceasing or
suspending participation in AdWords, as is their right). In other words, the
modification clause is a means by which the parties can efficiently modify (amend) the
contract, with each party having the power to decline such modification.
140. The Commission also takes note of Google's submissions that modifications to
the Terms & Conditions enhance partner experiences and ensure compliance with
applicable laws. The Commission notes that without the right to modify its Terms &
Conditions, Google would be unable to introduce new services or modify terms to
comply with applicable laws, which would have the potential to stifle Google's
incentives to innovate for the benefit of advertisers and consumers or place Google in
an impossible situation.
141. Clause 11 allows Google to modify the Terms & Conditions to incorporate new
services that enhance the experience and usability of AdWords platforms for AdWords
partners. Modifications also strive for greater clarity and accommodate any changes in
applicable laws.
142. The Commission also takes note of Google's submission that it has not
received any complaints from its customers concerning modifications to its Terms &
Conditions. The Informants have also not complained about any of the modifications to
the Terms & Conditions and Google has no reason to believe that the Informants, RTS
providers, or any other Indian advertisers were adversely affected by AdWords
modifications that, as described above, added functionality and clarified language.
143. It is for these reasons that terms analogous to clause 11 (and 4) are standard
in the industry. Google identified at least 27 different online service providers/internet
platforms such as Bing, Flipkart, Zomato, Myntra etc. with similar, if not identical
terms thus suggesting that the clauses are not imposed by dominance.
144. In fact, inviting customers to accept legitimate and standard terms and
conditions in order to use and benefit from a service is an entirely conventional and
efficient commercial practice, followed by businesses around the world. Such terms are
ubiquitous among online businesses that cannot practically negotiate bespoke
contracts with millions of their customers. This reduces the potential for discrimination
and uncertainty amongst users and businesses. Similarly, the Advertisers inherently
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have the right to suspend their advertising relationship with Google by simply pausing
or ceasing to engage in keyword bids. The agreement imposes no ongoing advertising
obligations on advertisers.
145. Clause 11, as applied across the AdWords platform, is also beneficial because
it removes advertisers who violate the applicable laws or Google's policies, using the
system to their advantage and harming consumes. Such advertisements and accounts
harm competition as business may be diverted from genuine competition to ineffective
solutions; and consumers are disincentivised from accessing a useful platform as a
result of bad experiences, which threatens the long-term operation and profitability of
the market.
146. Moreover, Clause 11 is instrumental in creating a safe ecosystem for both
users and advertisers to provide and receive products and services and improves the
value and success of advertisers' AdWords campaigns.
147. In sum, taking into consideration the practical concerns regarding
administering the AdWords program, the Commission finds a legally cognisable
justification for Clauses 11 and 4.
148. In the present cases, the Informants voluntarily agreed to Google's terms and
conditions, including a number of policies governing their conduct, such as the
AdWords Policies. These terms are simple, coherent and easy to understand.
149. The Commission also notes that the DG itself recognised that Clause 11 was
used to protect users, when exercised to terminate the accounts of the Informants.
Moreover, the Informants have nowhere been able to show that they have been
discriminated against others by way of application and implementation of Clauses 4 &
11. Thus, the elements of Section 4(2)(a)(i) of the Act are not met and no
infringement is made out on this count as well.
Issue No. 3
Whether the bidding process of Google Adwords is extremely opaque and not
transparent?
150. Adverting to the allegations that Google's bidding process was not
transparent, the DG, based on the conclusion of the investigation report in Case Nos.
07 & 30 of 2012, found that Google's bidding process is non-transparent on the
Quality Score assigned, which tantamounts to imposition of unfair conditions on
advertisers in violation of Section 4(2)(a)(i) of the Act. Specifically, the DG found that
the Quality Score is “opaque”, “of very limited utility”, and “susceptible to
manipulation”. The DG noted the failure to provide more information as, restrictive of
the ability of advertisers to critically evaluate their campaigns.
151. In this regard, Google submitted that the Commission has already considered
these issues in its order issued on 08.02.2018 in Case Nos. 07 & 30 of 2012 against
Google whereby and whereunder, the Commission concluded that “the DG's concerns
regarding disclosure of advertiser performance data by Google does not appear to be
well founded…(and)…Google provides sufficient data to advertisers on the performance
of their advertisements.” Google thus submitted that the allegations against it are
wrong for precisely the same reasons as stated in the said order.
152. Google also submitted that it provides a wealth of information that allows
advertisers to “critically evaluate” ad campaigns in extreme detail. Further, it was
pointed out that disclosing historical bid and quality score information belonging to
competitors would facilitate illegal collusion amongst advertisers and harm consumers
based in India.
153. Google also submitted that the Report's allegations are legally insufficient to
establish a competition law violation. It was argued that nowhere in the Report does
the DG attempt to define a relevant market where anti-competitive effects are felt
resulting from Google's non-disclosure of the metrics at issue.
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154. Having examined the issue, the Commission is of the considered opinion that
this aspect has already been considered extensively and carefully in its order issued in
Case Nos. 07 & 30 of 2012. In the said order, the Commission found that “the DG's
concerns regarding disclosure of advertiser performance data by Google does not
appear to be well founded…[and]…Google provides sufficient data to advertisers on the
performance of their advertisements.” The Commission is of the opinion that the same
conclusion applies in the present cases, as the DG's claims are identical to those
alleged in Case Nos. 07 & 30 of 2012 and given the short lapse of time since that
order, there is no reason to assume that Google has deviated from its policies in
providing sufficient useful information to advertisers that allow it to fairly evaluate
their campaigns. As a result, the Commission holds that Google provides sufficient
data to advertisers on the performance of their advertisements and no contravention of
the provisions of the Act can be attributed to the Google's bidding process.
155. Accordingly, no case of contravention of the provisions of Section 4 of the Act
is made out against Google in respect of the allegations of opacity of its Quality Score.
156. Before concluding, it would be appropriate to deal with a jurisdictional
objection raised by Google in its objections/submissions to the DG Report. Google
argued that the Commission has no jurisdiction to investigate the matter, since there
are no effects of the alleged conduct in India. Google stated that the services offered
by the Informants were targeted solely at users located outside India, and at no point
of time did either of the Informants target users or consumers in India. There is, as
such, no potential effect on Indian consumers or competition resulting from any of
Google's termination of the Informants' AdWords accounts.
157. In this background, it may be noted that on 02.07.2014, Google had moved
an application seeking recall of the Commission's order dated 15.04.2014 passed
under Section 26(1) of the Act. The aforesaid application was dismissed by the
Commission vide its order dated 31.07.2014 holding the same as not-maintainable.
158. The aforesaid order dismissing the recall application was put in challenge by
Google before the Ld. Single Judge of the Hon'ble High Court of Delhi by filing W.P.(C)
No. 7804 of 2014. The said appeal came to be disposed of by an order of the Division
Bench of the Hon'ble High Court of Delhi passed on 27.04.2015 in LPA No. 733 of 2014
holding that the Commission has the power to recall/review the orders passed under
Section 26(1) of the Act within the parameters and subject to the restrictions specified
therein. Accordingly, the matter was remanded back to the Commission to consider
the application of Google for review/recall afresh after fixing a date of hearing.
159. Both Google and the Informant-1 thereafter, filed submissions before the
Commission which were duly considered and the parties were called for an oral hearing
on 27.05.2015. After due consideration vide its order dated 11.06.2015 the
Commission disposed of Google's recall application holding that the application was
without merit. The Commission however clarified that Google shall remain at liberty to
agitate all jurisdictional issues, which could not be gone into in these summary
proceedings, at the final stage of hearing before the Commission after submission of
the investigation report by the DG.
160. It is noted that though Google did not present any oral arguments on the
issue but in its reply to the DG Report, Google stated that in so far as the Informants
were providing the concerned services exclusively to consumers located outside India,
there was no effect on competition in India thereby ousting the jurisdiction of the
Commission.
161. This plea is misconceived. The Commission notes that the advertisers like the
Informants were providing RTS services remotely through call centres based in India.
They availed Google's Adwords services from India. In fact, the allegations made by
the Informants inter alia pertain to the discrimination faced by them vis-à-vis the
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other RTS providers who were also providing services from India. In these
circumstances, it cannot be disputed that the conduct of Google can be appropriately
examined by the Commission when the impugned conduct is alleged to have violated
the competitive ecosystem in the RTS industry in India through its alleged unfair and
discriminatory actions.
162. In this regard, the Commission also notes the submissions made by the
learned counsel appearing for the Informant-1 to the effect that prior to the
agreement with Google Ireland, the Informant and his group companies had
approached Google India which has its offices at Gurgaon (Haryana); the discussions
took place in India; and the agreement was signed electronically by the Informant's
group company i.e. M/s Shyam Garments Private Limited from India and the same was
also recorded in the order passed by the Commission under section 26(1) of the Act.
Further, it was highlighted that the company which is the account holder i.e. M/s
Shyam Garments Private Limited is based in India with its registered office at Delhi.
The Commission also notes the submissions of the Informant that the e-mail
correspondence between the Informant and the Opposite Parties essentially took place
from India with Google India.
163. The Commission accordingly holds that the present subject matter is clearly
within the jurisdiction of the Commission.
164. The Commission also takes note of the argument of the Informant-1 regarding
violation of principles of natural justice on account of non-provision of Google's
confidential information. The Commission finds that the argument is completely
misplaced and without any merit. Accepting the arguments of the Informant-1 would
render Section 57 of the Act and Regulation 35 of the Competition Commission of
India (General) Regulations, 2009 nugatory. While in certain cases, regulated access
to confidential information may be provided to protect the rights of defence of a party,
in this case, the Commission notes that other than making bald allegations, the
Informant-1 has failed to show why he should be provided access to Google's
confidential information. In the absence of any reasons for providing access to
confidential information, the plea of the Informant-1 is without any substance. The
Commission accordingly finds no merit in the plea of denial of natural justice to the
Informant-1, as other than raising a bald allegation, the Informant-1 has failed to
substantiate the claim or show any prejudice.
165. Based on the above discussion, the Commission is of the opinion that no case
of contravention of the provisions of the Act is made out against the OPs.
166. Finally, the Commission notes that Google has filed both confidential as well
as non-confidential versions of its responses to the Investigation Report and post-
hearing submissions. The confidential versions were kept separately during the
pendency of the proceedings. It is ordered that confidentiality claim, as prayed for,
shall hold for a further period of 3 years from the date of passing of this order in
respect of confidential response to the Investigation Report and other submissions
which have been filed before the Commission from time to time and on which
confidentiality was claimed. It is, however, made clear that no such confidentiality
claim shall be available in so far as the data that might have been referred to in this
order.
167. The Secretary is directed to provide copies of this order to the concerned
parties through their respective learned counsel(s).
[Dissent Note (Public Version) dated 12.07.2018 by Chairperson at pp. 62-71]
DISSENT NOTE
PUBLIC VERSION
PER
Mr. Devender Kumar Sikri Chairperson
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168. In this opinion, I record my dissent to the order of the Commission that
disposes of Cases No. 06 and 46 of 2014 filed under Section 19(1)(a) of the
Competition Act, 2002 (hereinafter ‘the Act’) by Shri Vishal Gupta (hereinafter ‘IP-1’)
and Albion Infotel Limited (hereinafter ‘IP-2’) respectively against Google Inc. (now
Google LLC), Google Ireland Limited and Google India Private Limited (all three
Opposite Parties are hereinafter collectively referred to as ‘Google’) alleging
contravention of the provisions of Section 4 of the Act.
169. Besides perusing the material on record, I have also gone through the Majority
order of the Commission. I am in complete agreement with the Majority on the
delineation of relevant market in the present case as ‘market for Online Search
Advertising Services in India’ and the position of dominance of Google therein, as have
been settled by the Commission in its previous decision issued on 08.02.2018 in Cases
No. 07 and 30 of 2012 against Google. I am also inclined to agree with the Majority on
its findings that (i) Termination of the Informants' AdWord accounts by Google caused
by well-documented violations of AdWords Policies, was fair and legitimate; (ii)
Clauses 11 and 4 of Google Advertising Program Terms, 2013 do not result in any anti-
competitive harm in the market and are not unfair; and (iii) as held in Cases No. 07
and 30 of 2012, the allegation that Google's bidding process is opaque and non-
transparent is not correct and Google provides the advertisers sufficient data to assess
the performance of their advertisements.
170. However, with all due respect to the Majority, I am unable to persuade myself
to agree with the Majority on its certain observations that (i) there is no plausible link
between termination of such a large number of AdWord Accounts including the IPs'
accounts on 22.08.2013 by Google and the beta launch of Google Helpouts, a newly
launched Google vertical, on 23.08.2013; and (ii) Google Helpouts is not functionally
substitutable with Remote Technical Support (RTS) services.
171. In my view, the investigation done by the DG is not comprehensive enough so
as to enable me to take a decisive view on these issues. The DG ought to have made
further investigation on certain aspects, that I am detailing out in the succeeding
paragraphs, so as to present a complete picture before the Commission to facilitate it
to reach a conclusive determination on these issues.
172. For the sake of brevity, I shall not again recapitulate the background and the
facts of the matter(s) at hand which have already been dealt with in detail in the
Majority order. I shall only confine myself to the reasons for disagreeing with the
Majority view in respect of the two observations stated above.
173. In my opinion, to enable the Commission to come to a concrete finding on the
issues as to whether there is any link between termination of a large number of RTS
services providers' AdWord Accounts on 22.08.2013 and the beta launch of Google
Helpouts on 23.08.2013 and whether Google Helpouts is functionally substitutable
with RTS services, the DG ought to have investigated further on the following aspects:
6.1 Reasons for termination of AdWord accounts of other RTS services
providers
(a) Though in 2013, Google had suspended/terminated the AdWords accounts of
different RTS services providers globally including RTS services providers in
India, the DG limited its investigation by probing into the detailed reasons
behind the suspension/termination of AdWord accounts of only IP-1 and IP-2
and establishing that such reasons were in fact genuine. With regard to the
termination by Google of other RTS services providers' AdWord accounts, the
DG has simply accepted the submissions made by Google and concluded that
“The reasons for terminating of large number of accounts of RTS providers are
based on various legitimate reasons and also on the warning alerts and signals
from the anti trust authorities like FTC …”.
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(b) In my opinion, the DG ought to have analysed such submissions of Google in
detail besides putting these submissions to the RTS services providers
mentioned in these submissions. This would have helped the DG to test the
veracity of the claims made by Google with regard to the specific reasons
behind the termination of the AdWord accounts of these other RTS services
providers and obtain their take on the same, like it has done in the case of the
Informants. Also, details from Google regarding consumer complaints having
been received against such other RTS services providers also could have been
obtained by the DG, like it has done in the case of the Informants. Then only,
the DG or the Commission could have conclusively determined whether
Google's reasons for termination of all such accounts were in fact justified.
(c) It is indeed peculiar that all such termination of accounts co-incidentally took
place within just 48 hours before the beta launch of Google's new service
‘Google Helpouts’; which as per the Informants, is a substitutable service with
Informants' RTS services and is the reason behind such mass termination of
RTS services providers' accounts. Such proximity of time between the beta
launch of Google Helpouts (on 23.08.2013) and suspension of accounts (on
22.08.2013), indeed raises suspicion. Furthermore, IP-1 in its information has
also stated that on certain earlier occasions as well, Google's AdWords team
had suspended certain advertisements and thereafter, accepted the same
without any changes, following protests by the account holders, though they
were earlier disapproved.
(d) Hence, due to such peculiarity of circumstances, this aspect certainly needed
more deliberation by the DG, especially in view of the fact that though Google
claims that termination of AdWord Accounts is done by Google in pursuance to
a well established review process, such process of review is not disclosed by
Google to the advertisers. Though Google claims that operation of its
advertising platform is not opaque but rather very fair and transparent to the
advertisers (as has been noted by the Commission in its previous order in
Cases No. 07 and 30 of 2012), strangely Google does not disclose the
procedure it undertakes for review of the ads to the advertisers. Such
procedure was explained by Google before the DG, however, Google claimed
confidentiality upon the same and requested for its non-disclosure to the
Informants. Upon such request of Google, though the DG denied
confidentiality upon the review procedure, in appeal, the Commission granted
confidentiality from disclosure vide its order dated 26.07.2016. In my view,
after pursuing the entire case record, it seems that such decision of the
Commission needs revisiting and such review procedure of ads as explained
by Google need not be kept confidential. I am of the opinion that the
Commission ought to have reversed such confidentiality order after hearing
the parties at the time of passing the final order.
(e) Hence, in my view, the DG ought to have made more efforts to analyse the
specific reasons given by Google for terminating the AdWord accounts of such
large number of RTS services providers and ascertain the veracity of such
reasons, rather than limiting its analysis to only the Informants. Further
investigation by the DG is required on this aspect.
6.2 Remote access through Google Helpouts
(a) Secondly, with regard to substitutability between the services of RTS services
providers and the services offered by Google Helpouts, the DG has concluded
that “Google was only providing a platform. Google was neither providing any
services nor earning any revenue out of Google Helpouts/whereas RTS services
provided by OPs are different from the concept of Google Helpout. RTS
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Services provided by IPs are that of providing technical support for computer
hardware & software.” In my view, the DG while stating so, might not be
entirely correct.
(b) Before the Commission, Google has stated that the services provided by RTS
services providers and the services provided by Google Helpouts, are not
substitutable. Google has provided several reasons for the same, one of them
being that Google Helpouts does not afford remote access to the customer's
system as is the case with RTS services. At best, it provides video
conferencing ability, video posting and screen sharing, which cannot be
equated with sharing one's own screen to access someone else's computer in
real time. Further, before the DG, Google has stated that it has been unable to
identify any RTS services provider who migrated to Google Helpouts and
began offering its services through Google Helpouts, which again shows that
the two services are not considered to be alternatives by the service providers.
Such submission of Google has been accepted by the Majority in Paras 107
and 108 of the Majority order.
(c) On the other hand, IP-1 has stated that Google Helpouts is a substitute of
RTS services and in case of Google Helpouts also, through the platform of
Google Hangouts which has an added feature of ‘Remote Desktop’, a person
can video chat, troubleshoot and control a remote computer right in the same
window. It has stated that through the medium of Google Helpouts also, a
person can access and take control of a remote computer. Also, IP-2 in its
information has stated that it provides RTS services through phone as well as
is the case with Google Helpouts.
(d) From the DG Report, it is seen that the DG has not gone into the question as
to whether remote access of the customer's screen is available through Google
Helpouts at all. Rather, the DG has based its conclusion of non-substitutability
on completely different grounds. A step-by-step comparison of the features of
Google Helpouts and the features of RTS services is what was warranted.
Without such analysis by the DG, the Majority's observation that Google
Helpouts (with the help of Google Hangout) does not enable service providers
to gain remote access to users' computers does not seem entirely justified.
(e) In my view, considering that IP-1 has categorically stated that remote access
to a customer's computer is possible even through Google Helpouts (alongwith
Google Hangouts) as is the case with RTS services and the submission of IP-2
that it provides RTS services through phone as well, I am of the opinion that
there indeed are, certain overlaps between the services provided by RTS
services providers and the services provided by Google Helpouts. Further,
though Google has stated that it has been unable to identify any RTS services
providers who might have migrated to Google Helpouts, the DG, rather than
believing Google at face value on this count, should have conducted an
empirical investigation so as to determine if this claim of Google was true.
Also, the DG should have looked into the demand-side substitutability. The DG
ought to have asked the consumers as to whether they consider Google
Helpouts to be a substitutable service of RTS services. Hence, in my view, the
DG's investigation on this aspect is also restricted and no firm view on this
issue can be taken.
6.3 Revenue earned by Google through Google Helpouts
(a) Also, in continuation of the above, it is noted that one of the reasons given by
Google to the DG for claiming that Google Helpouts is not a substitutable
service with RTS services, is that “Google does not earn revenues from third-
party service providers on its Helpouts platform that provide their services free
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of charge. It would not make commercial sense for Google to shut down an
existing revenue-generating stream of business, i.e. advertising revenues
from RTS companies active on AdWords, for the sake of an untested product
on which users may offer free services without paying fees to Google.” With
regard to such contention raised by Google, the DG has made its
interpretation that Google was not earning any revenues from Google
Helpouts. IP-1 had stated before the DG that “Google Helpout took a straight
20% cut on the revenue of the service.” However, disregarding the same, the
DG came to the above-mentioned conclusion.
(b) Now, it has come before the Commission during the oral hearings held with
the parties that such interpretation of the DG is fallacious and Google in fact
does take a 20 % cut on the revenues earned by those service providers who
do not offer their services for free on Google Helpouts. It has been mentioned
under the Google Helpouts Additional Terms for Customers1 that Google
Helpouts may be purchased through Google Wallet which makes it evident
that not all service providers offered their services for free on Google Helpouts.
As per Google, what was stated before the DG was only that no money is
earned by Google from those service providers on Google Helpouts who
themselves offer their services on Google Helpouts free of any charge.
However, Google has admitted before the Commission during the oral
hearings that it never, before the DG, claimed that Google Helpouts does not
earn any revenues. Hence, from those service providers on Google Helpouts
who did not offer their services free of charge, it is established that Google
used to take a 20 % cut of their fee, through which evidently it made
revenues.
(c) In view of that, I am of the opinion that earning 20 % cut from Google
Helpouts service providers rather than earning miniscule revenues from RTS
services providers in the form of Cost-per-Click (CPC), does afford Google a
commercial motive to terminate the AdWord accounts of all major RTS
services providers so as to force them to migrate to the Google Helpouts
platform which would help Google earn much more revenue than what it earns
from CPC on RTS services ads. Though Google has stated that no such
migration actually took place, no experienced verification has been done. In
its absence, this could have been the objective of Google at the time of the
termination. Whether Google could or could not succeed in achieving its
objective cannot be the premise for the DG to say that no objective/motive
existed at all. Hence, further investigation by the DG on this count is required
as well.
174. In view of the above, I am of the opinion that rather than passing a final order
under Section 27 of the Act, the present cases ought to have been referred back to the
DG by the Commission under Section 26(7) of the Act for further investigation on the
facets identified above.
———
1
Annexure E to the statement dated 17.11.2015 of Mr. Reid Yoshio Yokoyama of Google recorded before the DG,
annexed at Page 5856 in Volume XII of the Annexures to the DG Report.

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In the National Company Law Appellate Tribunal at New Delhi

(BEFORE S.J. MUKHOPADHAYA, CHAIRPERSON AND BANSI LAL BHAT, JUDICIAL MEMBER)
In the Matter of:

Ms. Usha Roy … Appellant;
Versus
Competition Commission of India & Ors. … Respondents.
Competition Appeal (At) No. 34 of 2017
Present:
For Appellant:- Mr. K.K. Sharma, Mr. Bunmeet Singh, Ms. Anubha Dhulia, Mr. S.P.
Roy and Mr. Sanchit, Advocates.
ORDER
1. The Appellant - Ms. Usha Roy (‘Informant’) filed present information under
Section 19(1)(a) of the Competition Act, 2002 against ANS Developers Pvt. Ltd.
(hereinafter referred to as “OP-1”) and Shalimar Corp. Ltd. (hereinafter referred to as
“OP-2”) alleging, inter alia, contravention of the provisions of Section 4 of the
Competition Act, 2002. The Competition Commission of India (hereinafter referred to
as “Commission”) taking into consideration the fact that similar application was
preferred by the Appellant (‘Informant’) against the same opposite parties registered
as Case No. 48 of 2016, with similar allegations, which was not accepted earlier closed
the second application under Section 26(2) of the Competition Act, 2002.
2. Learned counsel appearing on behalf of the Appellant submits that though
certain additional information was brought to the notice of the Commission and
evidence in support of the same were enclosed including the market research which
gave rise to re-filing of the second information alleging contravention of the provisions
of Section 4 of the Competition Act, 2002. However, in view of the pleadings made in
the petition as noticed by the Commission and as on the record we are of the view that
the second information alleging contravention of the provisions of Section 4 of the
Competition Act, 2002 against the common opposite parties on the same state of facts
is not maintainable merely on the ground that certain other evidence have been
enclosed.
3. From the record we find that the ‘Informant’ alleged the Agreement reached
between the parties has following anti-competitive clauses:
Ø Clause 1- if the Informant is unable to pay the consideration within time, she
will be liable to pay interest @ 1.50% per month or part thereof on the amount
outstanding and in case the payment (consideration plus interest) is not made
within 90 days of its accrual, then OP-1 shall have the option to cancel the present
Agreement entered between the parties.
Ø Clause 5- If OP-1 is unable to complete the work within stipulated time, then
OP-1 shall be liable to pay the balance of Rs. 18,15,000/- at the time of completion
of the project.
4. In this regard, the Informant alleged that as per agreement though the
Informant is liable to pay interest @ 18% p.a. in case of delay in payment of
instalment, there is no such liability faced upon OP-1 to pay any interest in case of
delay on its part. It was contended that the buyer does not have any bargaining power
or countervailing buying power to negotiate the terms of the Agreement.
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5. It was also submitted that the Agreement entered into in the year 2012 was
terminated in 2015. However, on 7th October, 2015 and 16th December, 2015, OPs had
launched two healthcare companies called ‘First Core Tertiary Care Hospital Private
Limited’ and ‘First Core Healthcare Projects Limited’, respectively. Thus, OPs had used
their dominant position as the developer of the integrated township to enter into the
market of providing medical facilities. Therefore, OPs denied market access to the
Informant during the duration/subsistence of Agreement, and also took advantage of
their dominant position in one market to enter into another market which is in
contravention of Section 4(2)(e) of the Act.
6. With regard to the dominant position of the opposite parties in the relevant
market, the Informant claimed that OPs hold a minimum of 62.86% and upto almost
83% market share, depending upon the time of grant of licenses. The Informant has
also submitted data of integrated townships in Lucknow, as follows:
S. No. Name of the Builder Area Hospital Status
Project facility
1 Shalimar One Shalimar 220 acres Yes Ongoing
World Group
2 Omaxe City Omaxe 140 acres No Completed
3 Eldeco City Eldeco 133 acres No Completed
Group
4 Emaar MGF Emmar Over 100 Health Ongoing
Gomti MGF acres Centre
Greens
5 DLF Garden DLF 30 acres Medical Ongoing
City Facilities
7. Taking into consideration the aforesaid fact, the Commission held as follows:
“In view of above explanation provided in Case No. 48/2016, the Commission
opines that due to presence of several significant and major real estate developers,
such as, Ansal, Eldeco, Sahara, Omaxe, Unitech, etc. in the market for, “the
provision of services for development and sale of plots of land for providing medical
facilities in Lucknow District of Uttar Pradesh”, OPs do not appear to be dominant in
the relevant market either individually or as a group.”
8. In view of the fact that no new facts and substantial evidences against the
opposite parties were brought to the notice of the Commission that could differentiate
from the previous case, the Commission rightly held that the earlier order dated 31st
August passed in Case No. 48 of 2016 for same sets of allegation is not maintainable
against the same opposite parties and rightly closed the application under Section 26
(2) of the Act.
9. For the reasons aforesaid, we find no ground to interfere with the impugned
order. The appeal is accordingly dismissed. No cost.
———
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Competition Commission of India

(BEFORE DEVENDER KUMAR SIKRI, CHAIRPERSON, S.L. BUNKER, MEMBER, SUDHIR MITAL,
MEMBER AND U.C. NAHTA, MEMBER)
In re:
Tata Power Delhi Distribution Limited NDPL House, Grid-station
Building, Hudson Lines, Kingsway Camp, Delhi - 110009 …
Informant;
And
NTPC Limited NTPC Bhawan, Scope Complex, 7 Institutional Area,
Lodhi Road, New Delhi - 110003 … Opposite Party.
Case No. 20 of 2017
Decided on October 12, 2017
G.P. MITTAL, MEMBER
2. The present information has been filed by Tata Power Delhi Distribution Limited
(‘Informant’) under Section 19(1)(a) of the Competition Act, 2002 (the ‘Act’) against
NTPC Ltd. (‘OP’) alleging contravention of the provisions of Sections 3 and 4 of the
Act.
3. The Informant is a joint venture company having 51 % equity owned by Tata
Power Company Limited and 49% equity owned by Delhi Power Company Limited
(DPCL) - a wholly owned company of the Government of National Capital Territory of
Delhi (NCTD). It is engaged in the distribution of electricity in the North and North-
West circles of NCTD and its business i.e. tariff, expenditure, revenue, etc. as well as
performance is regulated by Delhi Electricity Regulatory Commission (DERC). Being a
distribution company (DISCOM), the Informant has been procuring electricity from the
OP - a generating company (GENCO) - vide a composite Power Purchase Agreement
(PPA) entered into between the Informant and the OP on 08.05.2008 for the purpose
of distribution in NCTD. It is stated that the OP is a Central Public Sector Undertaking
(CPSU) established in 1975 to accelerate power development in India and it is an
energy conglomerate present in the entire value chain of the power generation
business. As per the Informant, the OP is the foremost power generator in India
contributing 24 percent of the total power generation in India and it is the largest
power supplier in Delhi.
4. The Informant has alleged that the OP has been abusing its dominant position by
imposing unfair conditions through PPAs and not providing exit clause qua the
Informant in the PPAs. It is averred that the OP has been inordinately delaying the
commercial operation of its plants for which PPAs have already been signed and
forcing the Informant to procure power from its old plants resulting in increase in
power purchase cost. It is using low grade of coal (with low gross calorific value) for
generating electricity and calculating tariff based on higher grade of coal (with higher
gross calorific value) resulting in increase in retail tariff for the end consumer. It is
also imposing onerous payment security mechanism in the PPAs which requires the
Informant to open a composite Letter of Credit (LoC) in favour of the OP for all its
power stations. Further, the OP has been restricting the supply of electricity from other
GENCOs to DISCOMs by virtue of the contractual obligations under the long term PPAs
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that can be terminated only at behest of the OP as well as denying market access and
creating barriers to entry for the competitors of the OP in the market for procurement
of electricity by DISCOMs in the NCTD. The Informant has also alleged that the OP is
foreclosing market for the DISCOMs in the NCTD as they cannot enter into fresh PPAs
with competitors of the OP.
5. It is stated that the PPAs that form the basis of the above allegations were
signed by the OP with the Delhi Transco Limited (DTL) and these were re-assigned to
the Informant vide order of the DERC dated 31.03.2007 with the pre-existing onerous,
non-negotiable and one-sided terms and conditions. Subsequently, pursuant to the
order of the DERC, the Informant entered into a composite PPA with the OP in 2008,
with respect to all plants of the OP that supplied power to the Informant, subject to
the capacities allocated to the Informant by the DERC. It is stated that the validity of
the composite PPA for various existing and future power stations of the OP varied from
15 years to 30 years from the date of commercial operation. Further, the composite
PPA also pertained to plants that were yet to be commissioned.
6. As per the information, on 22.03.2012, a supplementary PPA was executed
between the OP and the Informant as the term of certain PPAs forming part of the
composite PPA relating to certain generation plants were nearing their expiry date.
However, in 2015, the said supplementary PPA was disallowed by the DERC
retrospectively. When the Informant inquired regarding the status of the future plants
and plants that were supposed to have been commissioned by the OP, the OP, in its
response, informed that commissioning of three plants would take three to four years
and for five plants, it was unable to anticipate the date of commercial operation. It is
averred that owing to such inordinate delay in the commissioning of plants and the
prevailing uncertainty, the Informant had no option but to make alternate
arrangements for procuring power to meet the consumer demand in its area of supply,
which it is obligated to meet under the Electricity Act, 2003. Further, in terms of the
directions of the DERC dated 21.10.2009 read with the Delhi Electricity Supply Code
and Performance Standard Regulations, 2007, the Informant is bound to arrange and
supply 99 percent of power to the consumers and is obligated to ensure load shedding
ceiling of not more than 1 percent of its monthly power supply.
7. Resultantly, in 2016, the Informant, vide its letter dated 25.10.2016 to the OP,
sought termination of the PPAs for NTPC plants which did not meet their date of
commercial operation or whose date of commercial operation got delayed inordinately.
However, the OP in its reply stated that the Informant is bound by the terms and
conditions of the PPAs including the obligation to pay the fixed charges and the
variable charges as provided in the PPAs for the existing plants in operation. Further,
the Informant has stated that it had conducted a competitive bidding tender to meet
its obligation of power supply and found that electricity could be procured at a much
cheaper rate than the rate at which the OP was supplying. However, when the
Informant intimated the same to the OP, it responded that the Informant was bound
by the PPAs and any discovery of low tariff was not binding on the OP. The Informant
has contended that if power had been procured from other GENCOs offering lower
prices, it would have resulted in saving of Rs. 298 crores. However, this could not be
achieved as the OP declined to terminate the existing PPAs.
8. Furthermore, the Informant has stated that the composite PPA sets out a
payment mechanism that requires it to open a composite letter of credit (‘LC’) in
favour of the OP for all plants covered under the said PPA. It is submitted that when,
in 2015, the OP asked for extension of the composite LC for plants that had outlived
their lives, including plants at Anta, Auriaya and Dadri Gas which had been disallowed
by DERC, the Informant replied that it would provide the LC on a plant-wise basis
rather than a composite LC, the reason being that since the Informant could not
procure power from the plants which were derecognised by the DERC, there was no
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plausible rationale to furnish LC for such plants. In response, the OP refused to grant
rebate on bill payment made by the Informant. The Informant has contended that this
demonstrates that extremely long term PPA grants immense de facto market power to
the OP.
9. It is also submitted that while low grade of coal with low gross calorific value is
being used by the OP for generating electricity, for calculating tariff the gross calorific
value for higher grade of coal is being claimed by the OP resulting in increase of retail
tariff to the end consumer. It is alleged that the very fact that the OP is able to extract
higher prices for electricity supplied to the Informant demonstrates abuse of its
dominant position.
10. In addition to the above allegations of abuse of dominant position, the
Informant has contended that the PPAs executed between the Informant and the OP
contravene the provisions of Section 3(4) read with 3(1) of the Act as they are
creating barriers to new entrants and foreclosing the market. With respect to barriers
to entry, it is averred that the capital expenditure of entering the electricity generation
market is extremely high and the OP by entering into such PPAs has tied up significant
portion of the NCTD market for a long term making it very difficult for new players to
enter the NCTD market. Further, due to the PPAs, the Informant is being deprived of
market opportunities to procure power from cheaper sources. In addition, the
Informant has alleged that the OP's conduct is resulting in foreclosure of market for
procurement of electricity by DISCOMs in NCTD. The PPAs which were reassigned to
DISCOMs prevented the Informant from entering into fresh PPAs with competitors of
the OP, even short term PPAs with it are unviable and inefficient as the DISCOMs
would have to pay dual procurement charges as and when the OP's plants achieve
their date of commercial operation (COD).
11. Based on the above, the Informant has, inter alia, prayed the Commission to
initiate an inquiry against the OP, direct the OP to cease and desist from the aforesaid
anti-competitive practices and to amend the restrictive and abusive clauses in the
PPA, 2008 and impose maximum penalty on the OP.
12. The Commission has perused the information and material available on record
and heard the parties on 20.07.2017. It is noted that the Informant has alleged
contravention of the provisions of Sections 3(4) and 4 of the Act by the OP.
13. For the purposes of establishing dominance of the OP, the Informant has
delineated the relevant product market as ‘supply of electricity by GENCOs’ and
relevant geographical market as ‘NCTD’. With respect to dominance, the Informant has
submitted that the market share of the OP in the aforesaid relevant market has been
significantly high since the last 10 years. It has stated the market share of the OP in
the above relevant market during the period 2009-2017 to be 50-63%. The Informant
has submitted the following data pertaining to power allocation in NCTD during the
year 2016-2017:
GENCO Quantity (MW) Share (%)
Power allocated from 3929.69 50%
NTPC
Delhi GENCOs
NHPC
Power allocated from 400 5%
DVC
THDC
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SJVNL
NPCIL
Power allocated from 100 1%
Renewable Sources
other sources i.e. CLP,
Maithin, Sasan, Tala
Total power allocated 7860.04 100%
to Delhi
14. Further, in order to show the dominance of the OP, the Informant has
elaborated on various other factors including the dependence of the consumers on the
OP, vertical integration of the OP, size and resources of the OP along with the
economic power of the OP including commercial advantages that it has over its
competitors, and high entry barriers in the market.
15. As per the Informant, by imposing unfair conditions and onerous clauses in the
PPAs, including absence of exit clause for the Informant and 15-25 years long duration
of the contract, the OP has contravened the provisions of Section 4(2)(a)(i) of the Act.
Further, delay in commercial operation of plants and charging of higher rates by the
OP for supply of electricity in NCTD is also alleged to be violative of Section 4 of the
Act. It is also alleged that because of the delay in commissioning of plants by the OP,
the Informant had to procure electricity from other sources at higher rates.
16. On the other hand, the OP has contended that the PPAs were entered into by
the OP with the procurers in Delhi including the Informant, at the instance of the
Government of NCTD with the knowledge and consent of the Informant. There was no
compulsion on any procurer including the Informant to sign the PPAs with the OP. All
the PPAs signed prior to 2008 between the OP and the State Government Utility in
Delhi were assigned to the Informant and other distribution licensees in Delhi after a
detailed deliberation with them, the Government of NCTD, DERC as well as the
GENCOs. Further, all the PPAs from 2008 onwards had been signed by the Informant
voluntarily with the OP directly, without any compulsion. If the Informant had not
desired the PPAs, there was no way the OP or any other person could have compelled
it to enter into the same. Thus, in the circumstances mentioned above, there has been
no abuse of any position by the OP in the signing of the PPAs earlier with the Delhi
State Utilities or later with the Informant. All such PPAs signed by the Informant and
other procurers were based on the requirement to arrange availability of electricity in
bulk in advance, as the establishment of generating units has a gestation period, and
for long term availability of electricity to maintain the distribution and retail supply to
the consumers in the licensed area.
17. Further, the OP has averred that non-availability of exit clause for the Informant
in the long term PPA is not an abuse of dominant position. Investment in a generating
station is substantial. The OP gets to service such investment over a period of time
after the declaration of commercial operation of the generating station. It is not that
the entire capital cost invested in a generating unit is to be paid to the OP on the date
of commercial operation. The generator invests through equity and debt, based on the
long term commitments made by the procurers. Financial closure of a project is
achieved and debt is procured, based on the long term PPAs signed by the procurers
with the OP. The tariff payable by the procurers for electricity supplied from the date of
commercial operation of the generating units is the only avenue to service the capital
cost. A provision for exit clause in the PPA whereby the procurers could terminate the
PPA, would leave the generator in lurch. Also, an exit clause in the manner suggested
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by the Informant so as to enable the Informant to avoid payment of tariff, would make
it impossible for the generator to achieve financial closure and no generator would be
able to set up a power project for such high capacity involving huge investment of
about Rs. 5 to 6 crores/megawatt. Accordingly, the plea raised by the Informant is
misconceived.
18. With respect to the allegation that the Informant was forced by the OP to sign
the PPAs in the years 2008 and 2009 without a termination or an exit clause, the OP
has submitted that the allegation was an afterthought and raised after a period of
more than 8 years of entering into the PPAs. The Informant has signed the PPAs
consciously and knowing fully well that in such PPAs, there cannot be any unilateral
exit clause. Further, the OP has emphasised that it is a settled principle of law that in
cases of agreements freely and voluntarily entered into, there can be no question of
parties being not bound by the terms and conditions of the agreement. The OP has
referred to the judgment passed by the Hon'ble Supreme Court in the case of Excise
Commissioner v. Issac Peter, (1994) 4 SCC 104, which was considered by the
Appellate Tribunal for Electricity in the case of Indian Oil Corporation Limited v.
Gujarat State Petroleum Corporation Limited, 2014 ELR (APTEL) 579, to hold that Gas
Supply Agreements entered into between the parties of their own volition for
commercial purposes cannot be said to be an abuse of dominant position.
19. With respect to the allegation of delay in commissioning of plants, the OP has
explained its position regarding various PPAs that the Informant has alleged should be
allowed to be terminated on ground of delay. As regards the projects where
investment has not been made so far, the OP has referred to the Minutes of Meeting
held on 21.04.2016, chaired by the Secretary (Power), Government of NCTD to discuss
the issues between Delhi DISCOMs and the OP, wherein it was recorded that:
“5. List of upcoming projects of NTPC
NTPC provided a list of upcoming projects where they have made significant
investments for its commissioning. Secretary (Power) requested NTPC to provide a
list of those non COD plants where no investment has been made till date. ED,
NTPC also assured that they would take prior consent of Delhi DISCOMs before
making investments in the non COD stations where till date no investment has
been made by them….”
20. The OP has stated that the above was within the knowledge of the Informant
and yet the Informant chose to make allegations against the OP. Further, as regards
the North Karanpura project referred to by the Informant, the OP has pointed out that
the Informant has no allocation and as such, cannot have any grievance. With respect
to other projects under construction, the OP has stated that it has already made
significant investments based on the PPAs entered into and even financial closure has
been achieved. Further, it has altered its position on the basis of the assured off-take
of power by the various procurers including the Informant. Moreover, there are a
number of other beneficiaries of the projects who have contracted to procure power.
Accordingly, with respect to all such cases where investment has already been made,
the OP has contended that there could not be an exit clause.
21. However, the OP has pointed out that, despite there being no legal obligation,
there have been instances where the procurer has approached the Central Government
with a proposal for surrender of the capacity allocated and in case the Central
Government finds an alternative purchaser for the capacity, the procurer can be
released of its obligation under the PPA. For instance, in the case of Tanda Stage-II
Generating Station of the OP, the Informant had approached the Central Government
for surrender of its share of power. When the alternate buyer viz. Uttar Pradesh Utility
agreed to purchase the share of power of the Informant, the Informant was allowed by
the Government of India to surrender its share of power from the Tanda Stage-II
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Generating Station and accordingly such power was allocated to the State of Uttar
Pradesh.
22. The OP has submitted that the Informant has already raised the issue of
surrender of power before the CERC by filing Petition No. 182/MP/2015 titled Tata
Power Delhi Distribution Ltd. v. NTPC Ltd. and Petition No. 223/MP/2015 titled Tata
Power Delhi Distribution Ltd. v. NTPC Ltd., whereby CERC, vide its orders dated
31.03.2017 and 18.04.2017 respectively, has granted liberty to the Informant to
approach the Ministry of Power, Government of India for exploring the possibility of the
capacity being given to any other procurer. The CERC however, did not agree to
release the Informant from its obligations assumed under the PPAs.
23. Further, with respect to the issue of higher tariffs due to delay in
commissioning of the projects, the OP has stated that the same will be considered by
the CERC at the time of determination/approval of tariff for the specific project. The OP
will be filing a tariff petition before the CERC near to the date of commercial operation
in the prescribed format as provided in the Tariff Regulations and other applicable
Regulations notified by the CERC. The information to be given by the OP in that
petition would include the details of time overrun and the consequential cost overrun.
The cost overrun will be considered by the CERC in a transparent process with the
participation of all the stakeholders including the Informant. The procurers, including
the Informant will then have the opportunity to make their submissions before the
CERC. The cost overrun will be allowed by the CERC only if it considers that time
overrun is not attributable to the OP or its contractor or sub-contractor etc. If it is
found that the delay was for reasons attributable to the OP, it will not be a pass
through in tariff. However, in case where the time overrun is not attributable to the
OP, then it will be unfair, unjust and inequitable to deny it the related cost overrun.
Thus, the OP has submitted that there is an appropriate remedy available to the
Informant as a stakeholder before the CERC to contest the time overrun and cost
overrun claims of the OP for the power projects which are delayed. The OP has stated
that in the orders dated 31.03.2017 and 18.04.2017 passed by the CERC in the
petitions made by the Informant, this aspect has been specifically covered.
24. Further, the OP has contended that the issues raised by the Informant in the
present information all relate to determination of tariff and are matters under the
regulatory control of the CERC. With respect to the issue that the Informant is being
asked to procure electricity at a higher tariff, the OP has submitted that tariff related
issues including determination of tariff as raised by the Informant in the present case
are entirely within the domain of the sectoral regulator, namely, the CERC. In this
regard, the OP has referred to the judgment dated 16.02.2017 passed by the erstwhile
Hon'ble Competition Appellate Tribunal (COMPAT) in Appeal No. 33 of 2016 in the case
of Anand Prakash Agarwal v. Dakshin Haryana Bijli Vitran Nigam Limited, wherein it
was inter alia observed that the Electricity Act, 2003 is a self-contained,
comprehensive legislation that vests the appropriate commission under that Act power
to fix tariff, which includes Fuel Supply Agreements and that there is an implied
immunity from the competition law in matters of electricity tariff approved by the
appropriate commission in terms of the Electricity Act, 2003.
25. As regards the issues relating to Letter of Credit, rebate etc., the OP has
submitted that these relate to payment security mechanism and have nothing to do
with abuse of any position. It is submitted that Letter of Credit, rebate etc., are as per
the terms agreed to which have been implemented for about the last 9 years by the
Informant without any reservation. These cannot now be alleged to be an abuse of
dominant position by the OP. In any event, the Informant has raised the same issue
before the CERC also, which is pending adjudication.
26. Having considered the submissions of the Informant as well as the OP with
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respect to the allegation of contravention of Section 4(2)(a)(i) of the Act, the
Commission is of the view that as the composite PPA was entered into between the
Informant and the OPs pursuant to the directions of the DERC in 2008, it cannot be
said that the same was imposed by the OP. The Informant had bound itself
contractually in the long term PPAs which were reassigned to it pursuant to the order
of the DERC. Moreover, not all PPAs in respect of which Informant sought termination
from the OP in 2016 were reassigned to the Informant. As per the information, the
PPAs in respect of which termination was sought by the Informant are as follows:
Sl. Name of Plant Date of Signing of Remarks/Status Part
No. PPA of
(DVB/DTL/TPDDL) 2008
PPA
1. Anta Gas Power Station 12.02.1999 (Signed by COD not achieved Yes
II DVB)
2. Auriya Gas Power 12.02.1999 (Signed by COD not achieved Yes
Station II DVB)
3. Koldam Power Station 24.02.2002 (Signed by Currently Yes
DVB) allocated to
Himachal Pradesh
4. North Karanpura Power 19.04.2006 (Signed by COD not achieved Yes
Station DTL)
5. Lata Tapovan HEP 09.09.2009 Signed by COD not achieved No
TPDDL)
6. Gibberbaha TPS 28.12.2010 (Signed by COD not achieved No
TPDDL)
7. Meja Urja Vidyut Power 05.11.2010 (Signed by COD not achieved No
Station TPDDL)
8. Bilhaur TPS 28.12.2010 (Signed by COD not achieved No
TPDDL)
9. Tanda II TPS 05.11.2010 Signed by COD not achieved No
TPDDL)
10. Tapovan Vishnugad 05.11.2010 COD not achieved No
HEP
11. Unchahar IV TPS 03.03.2011 (Signed by COD not achieved No
TPDDL)
27. It is noted that out of the 11 PPAs in respect of which termination was sought
by the Informant, only four PPAs i.e. PPAs with respect to Anta Gas Power Station II,
Auriya Gas Power Station II, Koldam Power Station and North Karanpura Power
Station, were part of the composite PPA reassigned to the Informant in 2008, the
remaining PPAs were entered into by the Informant with the OP after 2009. Thus, if
the Informant was aggrieved with the terms and conditions of the PPAs, it had an
option to negotiate the terms or refrain from entering into the new PPAs and purchase
power from other sources to meet its obligations under the Electricity Act, 2003.
28. In this regard, the Informant has argued that the OP was in a dominant
position at the time and it had limited ability to negotiate or arrange alternate sources
of supply. Accordingly, it had entered into the other PPAs but had not factored in the
inordinate delay in commission of its plants by the OP.
29. In this regard, it is noted from the submissions of the Informant and the OP
that, the Informant had approached the CERC vide Petition no. 182/MP/2015 (supra),
wherein the Informant inter alia prayed that the PPAs executed by the Informant with
the OP for latter's upcoming generating stations be declared as discharged by
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operation of law as they had been frustrated on the ground of inordinate delay in their
commissioning, and thereby sought repudiation of its obligations under the PPAs. With
respect to this issue, the CERC in its order dated 31.03.2017 inter alia observed that:
“24….The Commission is of the view that even though the tariff of NTPC is
regulated by this Commission in exercise of power under Section 79(1)(a) of the
Act, the disputes raised in the part petition relate to termination of PPA on account
of inordinate delay for execution of the project which fall outside the scope of
Section 79(1)(a) of the Act.
Therefore, the petition is not maintainable and the prayer of the petitioner for
declaration regarding discharge of PPA cannot be granted.”
30. The dispute regarding termination of PPAs having been thus decided by the
CERC, the Informant has approached the Commission alleging abuse of dominant
position by the OP by virtue of having included such onerous terms and conditions in
the PPAs that the Informant does not have an option to exit the long term PPAs. In
this regard, the Commission takes note of the submissions of the OP whereby it has
been stated that although the Informant and other procurers are bound by the terms
and conditions of the PPAs, they can approach the Ministry of Power, Government of
India, for reallocation of power to any procurer in case they do not wish to take power
at any time during the operation of the long term PPAs. The release of procurer from
the PPAs is, however, subject to the Ministry of Power, Government of India being able
to reallocate the power to any other procurer and limited to the period for which such
reallocation fructifies.
31. In addition, the Commission takes note of the decision of the CERC in another
petition filed by the Informant i.e. Petition No. 223/MP/2015 (supra), wherein it had
inter alia requested the CERC to issue directions to the Central Government to
reallocate power allocated to it to other states and the CERC vide its order dated
18.04.2017 had held that:
“24….It is entirely within the purview of the Central government to allocate or
reallocate power from the Central Generating stations to the beneficiaries and the
same being not covered under regulation of tariff under Section 79(1)(a) of the Act
cannot be subject to adjudication under Section 79(1)(f) of the Act by this
Commission. Therefore, the prayer of the Petitioner for issue of directions to the
Central Government to allocate the Petitioner's entire share of power from the
generating stations of NTPC, NHPC and THDC to power deficit States/Utilities cannot
be entertained as the same is beyond the scope of the power vested in the
Commission under Section 79(1)(a) and (f) of the Act. However, the Petitioner may
approach the Central Government with its grievance for redressal.”
32. Thus, from the submissions of the OP and the decision of the CERC, it appears
that the Informant has an option to exit its obligation under the PPAs, however, this
would require the Informant to approach the Central Government.
33. In view of the foregoing, the Commission is of the opinion that even if it is
assumed that the OP was in a dominant position in the relevant market as identified
by the Informant, a prima facie case of abuse of dominance in terms of the provisions
of Section 4(2)(a)(i) of the Act is not made out in the instant matter because, firstly,
the Informant has entered into the PPAs with the OP being fully aware of the terms of
the PPAs including the long term obligation stipulated thereunder; secondly, there is a
rational basis for binding the Informant and other procurers in the long term PPAs as
the generating companies invest in establishing the generating stations based on
allocation and the PPAs entered into with the parties (which are to be served through
period agreed upon); and lastly, the Informant and other procurers have the option to
approach the Central Government for reallocation of power allocated to them.
34. Further, in terms of competition law, in cases of abuse of dominant position,
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the seminal issue is what harm is caused to the end consumer due to the behaviour of
the dominant player. In the facts and circumstances of the case, the primary harm
that can be envisaged is increased tariffs of electricity for the consumer. Notably, in
the electricity sector, the mandate of determination and regulation of tariff is within
the domain of the sectoral regulator i.e. Central/State Electricity Regulatory
Commission; a function that the sectoral regulator performs in accordance with the
statutory power vested in it by the Electricity Act, 2003 and applicable rules and
regulations. Accordingly, there is nothing left in the matter that needs to be looked
into by the Commission.
35. In addition to the allegations under Section 4(2)(a)(i) of the Act, the Informant
has also levelled allegations of contravention of Section 4(2)(b) and 4(2)(c) of the Act
by the OP. With respect to Section 4(2)(b), it has stated that by imposing the terms of
PPA, the OP is restricting the supply of electricity from other GENCOs to DISCOMs in
the relevant market. Regarding Section 4(2)(c), it is submitted that in a capital
intensive market, it is very difficult for the new private players to get regulatory
approvals to generate and supply electricity and that the long term PPAs between
CPSUs and DISCOMs make it more difficult for the other players to compete. As a
result, the competitors of the OP are being denied market access in the relevant
market. In this regard, the Commission observes that these allegations also emanate
from the allegedly abusive PPAs executed with the OP, an aspect which has already
been dealt with above.
36. Apart from alleging contravention of Section 4 of the Act, the Informant has
also alleged violation of the provisions of Section 3(4) read with 3(1) of the Act. The
Informant has stated that the PPAs of the OP have an appreciable adverse effect on
competition as the OP is creating barriers for the new players to enter into the power
generation market. Further, the OP is foreclosing the Informant from procuring
electricity from other GENCOs. It is noted that these allegations have been made by
the Informant without substantiating the same with adequate information or data.
Further, these allegations also stem from the terms of the PPAs which have already
been dealt with. Accordingly, no case of contravention of the provisions of Section 3(4)
read with 3(1) of the Act is also found.
37. In view of the above, the Commission is of the opinion that no prima facie case
of contravention of either Section 3(4) or Section 4 of the Act arises in the facts and
circumstances of the present case and the matter is closed forthwith in terms of the
38. The Secretary is directed to communicate to the parties accordingly.
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(BEFORE DEVENDER KUMAR SIKRI, CHAIRPERSON, S.L. BUNKER, MEMBER, SUDHIR MITAL,
MEMBER, AUGUSTINE PETER, MEMBER, U.C. NAHTA, MEMBER AND G.P. MITTAL, MEMBER)
In Re:
Bharti Airtel Limited, Bharti Crescent, 1, Nelson Mandela Road,
Vasant Kunj, Phase-II, New Delhi-110070 … Informant;
And
Reliance Industries Limited, Maker Chambers-IV, Nariman Point,
Mumbai-400021 … Opposite Party No. 1.
Reliance Jio Infocomm Limited, 9th floor, Maker Chambers-IV,
Nariman Point, Mumbai-400021 … Opposite Party No. 2.
Case No. 03 of 2017
Decided on June 9, 2017
Appearance during the preliminary conference held on 20th March, 2017:
For the Informant:
Mr. Gopal Jain, Senior Advocate
Mr. Duaris J. Khambata, Senior Advocate
Mr. Vijay Kumar Aggarwal, Advocate
Mr. Sameer Chugh, Director (Legal)
Mr. Atul Dua, Advocate
Mr. Niraj Barkakati, Executive
Mr. Ankush Walia, Advocate
Mr. Param Tandon, Advocate
Ms. Kriti Awasthi, Advocate
Mr. Harsh Kaushik, Advocate
Ms. Prashanti, Advocate
For Opposite Party No. 1:
Mr. Amit Sibal, Senior Advocate
Mr. Hiten Sampat, Advocate
Mr. Sasi Prabhu, Advocate
Mr. Susmit Pushkar, Advocate
Mr. Dhruv Rajain, Advocate
Ms. Sakshi Aggarwal, Advocate
Mr. Ritin Rai, Advocate
Mr. Rajagopal Venkat Krishnan, Sr. VP (Legal)
Mr. Srijan Sinha, Advocate
For Opposite Party No. 2:
Mr. Ramji Srinivasan, Senior Advocate
Mr. Hiten Sampat, Advocate
Ms. Shelly Saluja, Advocate
Mr. Sunil Gupta, VP
Mr. Srijan Sinha, Advocate
Mr. Aabhas Kshetarpal, Advocate
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Mr. Bhavun Agarwal, Advocate
ORDER UNDER SECTION 26(2) OF THE ACT
1. The information in the present case has been filed by Bharti Airtel Limited
(hereinafter referred to as the ‘Informant’) under Section 19(1)(a) of the Competition
Act, 2002 (hereinafter referred to as the “Act”) against Reliance Industries Limited
(hereinafter referred to as ‘OP-l’/‘RIL’) and Reliance Jio Infocomm Limited (hereinafter
referred to as ‘OP-2’/‘RJIL’) alleging contravention of the provisions of Sections 3 and
4 of the Act.
2. The Informant is a global telecommunications company with operations in 18
countries across Asia and Africa. It provides 4G services in 21 telecommunication
circles across India. The Informant is stated to be amongst the top three mobile
service providers globally in terms of the number of subscribers. It offers 2nd
Generation (2G), 3rd Generation (3G) and 4th Generation (4G) wireless
telecommunication services, amongst other services. The Informant is also the first
operator to roll out 4G Long Term Evolution (LTE) wireless telecommunication services
in India.
4. OP-1 is stated to be one of the biggest private companies in India in terms of its
size, revenue, assets and value, leading it to be one of the financially strongest
companies in the country. OP-1 is engaged in several businesses such as exploration
and production of oil and gas; petroleum refining and marketing; manufacture and
sale of petrochemicals comprising polymers, polymer and fibre intermediates, textiles,
retail; etc. It has been claimed that OP-1 has the largest market share in polyester
fibre and yarn industry and petroleum products industry not only in India but also
globally. OP-1 is also stated to be India's first private sector company to feature in the
Fortune Global 500 list of'World's Largest Corporations'.
5. As per the information, one Infotel Broadband Services Private Limited
(hereinafter referred to as ‘IBSL’) won the spectrum auction in 2300 MHz band
category on pan India basis in 2010. Subsequently, OP-1 acquired majority stake i.e.
around 96 per cent in IBSL, which was later on re-named as Reliance Jio Infocomm
Limited (i.e. OP-2). At present, OP-1 is stated to hold 99.44 per cent stake in OP-2. OP
-2 was initially holding internet services provider (ISP) licence. Subsequently, it
applied for migration of its ISP license to Unified License, which was granted by the
Department of Telecommunications (hereinafter ‘DoT’) on 21st October, 2013 enabling
it to provide the complete bouquet of telecom services including voice call services in
all the 22 service areas across the country. The Informant has submitted that OP-1
has invested approximately Rs. 1,60,000 crore in OP-2 for setting up of the
infrastructure for providing telecom services on pan India basis.
Facts and Allegations presented in the information:
6. The primary concern of the Informant relates to the free services being offered
by OP-2 since the inception of its business i.e. from 5th September, 2016 under one
offer or the other. This according to the Informant amounts to predatory pricing, in
contravention of the provisions of Section 4(2)(a)(ii) of the Act. Further, OP-1 is
alleged to be in contravention of Section 4(2)(e) of the Act as it has allegedly used its
financial strength in other markets to enter into the telecom market through OP-2.
Brief details of the facts and allegations presented in the information in these regards
are as under:
6.1. Based on the characteristics of service offered, price and intended use,
“providing 4G LTE services of telecommunication”/“providing 4G-LTE services using
4G technology” is the relevant product market in the present case. OP-2 is
providing mainly 4G-LTE services of telecommunication in 20
circles/telecommunication service areas in the country and, therefore, the relevant
geographic market is “whole of India”. Accordingly, the relevant market in the
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present case is the market for “providing 4G LTE services of telecommunication in
India”.
6.2. OP-2 has deployed the largest amount of spectrum for 4G LTE services in
India. OP-2 has also entered into network and spectrum sharing arrangements with
Reliance Communications Limited (hereinafter, “RCOM”). As per media reports,
RCOM itself has announced that it has virtually merged with OP-2. OP-2 has an
overall spectrum holding of 1107.8 MHz across all 4G-LTE bands and in all the
bands, OP-2 is holding the largest spectrum i.e. 50 per cent in 2300MHz band, 56
per cent in 800MHz band (shared with RCOM) and 28 per cent in 1800MHz band.
OP-2 is offering seamless 4G services using LTE technology in 800MHz, 1800MHz
and 2300MHz bands through an integrated ecosystem. These bands are the most
efficient bands for offering LTE services in any part of the world. Further, the
telecom network of OP-2 comprises of approximately 2.43 lacs Base Transceiver
Stations (BTS), which is approximately 18 per cent of the total BTSs installed by
the entire industry and 66 per cent of the overall 4G LTE BTS in the country. OP-2
also owns and holds the largest Optical Fibre Cables (OFC) network in the country.
Based on the press release dated 16th January, 2017 of OP-2, it is evident that it
has a subscriber base of 72.4 million as on 31st December, 2016, which makes it
India's top carrier by mobile broadband user base, surpassing the Informant and all
other telecommunication service providers in the country. These facts demonstrate
the dominant position enjoyed by OP-2 in the relevant market.
6.3. Upon roll out of its services, OP-2 announced ‘Jio Welcome Offer’ under
which data, voice, video and the full bouquet of Jio applications and content was
available to the subscribers absolutely free, commencing from 5th September, 2016
and ending on 31st December, 2016. Telecom Regulatory Authority of India (TRAI)
curtailed the period of the said offer till 3rd December, 2016. However, OP-2
continued the same till 31st December, 2016 in complete disregard of the directions
of TRAI. Subsequently, OP-2 launched a new offer for its subscribers viz. ‘Happy
New Year Offer’, whereby it gave all its users unlimited data, voice calls and
messages until 31st March, 2017. OP-2 also provides an exclusive offer for iPhone
users viz. ‘Jio iPhone offer’ offering unlimited local, STD, and national roaming on
voice calls on any network in India, 20 GB of 4G data per month, unlimited 4G data
during night, 40 GB Wi-Fi data and unlimited Short Message Service (SMS) from 1st
January, 2017 to 31st December, 2017.
6.4. OP-2 is the only telecom operator in the Indian market to have announced
and committed free services in respect of voice calls (both within and outside its
network), SMS and roaming irrespective of the volume of usage. Such free services
are offered notwithstanding the regulatory requirement of “calling party pays”,
whereunder OP-2 is required to pay interconnection charge of 14 paisa per minute
for calls by its subscribers to customers of other network. ‘Jio Welcome Offer’ and
‘Happy New Year Offer’ of OP-2 amounts to zero pricing as well as ‘free voice calls
for life’. These clearly demonstrate that OP-2 is providing telecom services below its
average variable cost with the sole intention of eliminating competitors. Offers of OP
-2 cannot be regarded as measures to meet competition as no other
telecommunication operator in the Indian market is offering services free of cost or
below cost or free unlimited voice calling on the networks of other operators.
Further, none of the other operators are offering free voice calls to any of their
customers given TRAI's direction that predatory pricing is prohibited.
6.5. Such conduct of OP-2 amounts to predatory pricing in contravention of
Section 4(2)(a)(ii) of the Act. OP-2 has been able to indulge in predatory pricing
because of the funds provided to it by OP-1. Thus, OP-1 is using its financial
strength in other markets to enter into the telecom market through OP-2, in
contravention of Section 4(2)(e) of the Act.
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6.6. To support the allegation of predatory pricing, reliance has been placed on
the decisions of the Commission and the Competition Appellate Tribunal in the case
filed by MCX Stock Exchange Limited alleging predatory pricing by National Stock
Exchange of India Limited (Case No. 13/2009), judgment of the High Court of
Ontario, Canada in Regina v. Hoffmann-La Roche Limited, (30 O.R. (2d) 461),
decision of the European Court of Justice in the matter of France Telecom SA v.
Commission of the European Communities (Case C-202/07 P) and the Guidance on
the European Commission's enforcement priorities in applying Article 82 of the EC
Treaty to abusive exclusionary conduct by dominant undertakings (2009/C 45/02).
7. In addition to the above, the Informant has alleged that OP-1 and OP-2 have
entered into an agreement whereby OP-1, being in position of holding unlimited fund
and resources, has allowed unfettered access of its funds to OP-2 so as to cause and
likely to continue to cause an appreciable adverse effect on competition within the
relevant market. It has been stated that under the said agreement, it seems that OP-2
can continue to provide services below cost, and charge tariffs which are predatory in
nature with the intent of eliminating competition, such that the subscribers of OP-2
are not charged a penny until OP-2 creates a monopoly or near monopoly in the
market. According to the Informant, such agreement/arrangement between the
Opposite Parties causes appreciable adverse effect on competition and squarely falls
within the scope of mischief prohibited under Section 3(1) of the Act.
Preliminary conference with the parties:
8. The Commission considered the information in its ordinary meeting held on 23rd
February, 2017 and also had a preliminary conference with the parties. The
Commission has gone through the averments made in the information, the documents
filed by the parties and perused the record.
9. During the preliminary conference, the learned senior counsel appearing for the
Informant reiterated the facts and allegations presented in the information. On the
other hand, the learned senior counsel for OP-2 contended that: (a) OP-2 is a new
entrant in the telecom market facing competition from entrenched players like the
Informant, Vodafone and Idea; (b) It is not appropriate to confine the relevant
product market to 4G LTE services, rather the relevant market should be defined as
the bouquet of all telecommunication services offered by different telecom operators;
(c) 4G services could also be offered using the most efficient band of spectrum i.e.
1800 MHz, which is largely held by the Informant and used for offering 2G services;
(d) If the whole of 1800 MHz spectrum is taken into consideration for the purpose of
providing 4G services, the spectrum holding of the Informant will substantially
increase and OP-2 would not emerge as holding the largest 4G compatible spectrum
so as to make it a dominant enterprise; (e) It is evident from the recent annual report
of the Informant that it does not distinguish between the telecommunication services
provided through 4G technology and other technologies such as 2G and 3G; (f) The
aggregate of investments made by the Informant into the telecommunication market
is much more than that of the Opposite Parties and thus, the funds raised by OP-2
from OP-1 cannot be regarded as any market power possessed by them; and (g)
Considering the subscriber base, size, resources and economic power of other players
in the telecom market, it is not appropriate to attribute dominant position to OP-2,
who is a new entrant in the market and its offers are only in the nature of promotion
and penetration to show its existence to the customers.
10. The learned senior counsel for OP-1 submitted that the Informant has made
implausible submissions regarding leverage of dominant position and anticompetitive
agreement by OP-1. Merely making investments into a telecom start-up could neither
be construed as leverage of dominant position nor an anti-competitive agreement.
11. In response to the contentions of the Opposite Parties, the learned senior
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counsel for the Informant submitted that the unique characteristics of 4G LTE
technology such as speedy downloads, elevated voice excellence, advanced
infrastructure requirement and the need for customers to have 4G compatible mobile
instruments, make it different from 2G and 3G services. To its support, reliance was
placed on the decisions of the Commission in Shree Gajanana Motor Transport
Company Limited v. Karnataka State Road Transport Corporation (Case No. 85 of
2016), Exclusive Motors Private Limited v. Automobili Lamborghini S.P.A. (Case No. 52
of 2012), Jeetender Gupta v. BMW India Limited (Case No. 104 of 2013) and Ravi
Beriwala v. Lexus Motors Limited (Case no. 79 of 2016) to suggest that 4G LTE
services as a product market can be differentiated from 2G and 3G services. Reference
was also made to the decision of the European Commission in the matter of Wanadoo
Interactive (COMP/38.233) where high-speed and low-speed internet access were
differentiated and the market for high-speed internet access for residential customers
was taken as an independent relevant market. As regards the alleged dominance of OP
-2, it was contended that no player other than the Opposite Parties has ever made
such huge investment in telecom sector in such a short span of time and managed to
garner such huge subscriber base in such less time.
Prima facie Analysis of the facts and allegations:
12. The Commission has carefully considered the material on record and the oral
submissions made on behalf of the parties during the preliminary conference.
13. The gravamen of the allegations of the Informant concerns free services
provided by OP-2 since the inception of its business i.e. from 5th September 2016
under one offer or the other. This has been alleged as contravention of the provisions
of Section 4(2)(a)(ii) of the Act by OP-2. In order to examine the impugned free
services under the provisions of Section 4 of the Act, it needs to be ascertained
whether OP-2 enjoys a dominant position in any relevant market. Only when such a
position is established as being enjoyed by OP-2, it will be imperative to examine as to
whether its impugned conduct amounts to an abuse or not.
14. On the question of relevant market, the Commission notes that wireless
telecommunication services is the focal service in the instant case. While the
Informant claims 4G LTE telecommunication services as the relevant product market,
OP-2 has contended that there is no difference between the telecom services offered
using 4G, 3G and 2G technologies. To its support, OP-2 has referred to various
portions of the recent Annual Report of the Informant to suggest that it itself does not
differentiate between telecom services provided using different technologies.
15. Telecom service providers offer voice and data services (such as access to email
services or general internet services) together as a bundled tariff plan. With the
emergence of smartphones, a wide variety of data intensive applications have been
developed for mobile handsets. However, data consumption can also take place on a
standalone basis, separate from voice services, through various devices such as mobile
broadband dongles, 3G/4G enabled tablets or mobile 3G/4G routers. While voice and
mobile broadband services for smartphones are sold/bought together in a bundled
form and are used in the same mobile handset, mobile broadband over data-only
devices is purchased and consumed independent of any voice services. However, all
the telecommunication service providers are similarly placed to offer a variety of
services designed for data-only device users and voice-enabled device users. Thus,
distinction between the said services has not been found necessary in the facts and
circumstances of the case. Accordingly, the relevant product/service appears to be
wireless telecommunication services.
16. The Commission is cognizant of the fact that 4G technology is superior to 3G
technology in certain aspects and will be operative only in 4G compatible mobile
instruments. It will not be operative in a 3G compatible handset. However, a 3G
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network will be operative in a 4G compatible handset. This implies that the ongoing
technology evolution is backward compatible i.e. between a new generation handset
and an old generation network. Although consumers may have to incur additional cost
towards buying new mobile instrument to avail 4G telecommunication services,
considering the relatively lesser life span of mobile handsets and ongoing technological
innovation, constant migration of existing subscribers to upgraded ecosystem is
natural and inevitable over a period of time. From the supply side, any new entrant in
the telecom market is likely to adopt the technology available at that time and later
upgrade its network from time to time to migrate or additionally offer services based
on newer technologies. In this ongoing process of evolution, it is not appropriate to
differentiate wireless telecommunication services based on technologies used for
providing such services. More importantly, the cost of 3G and 4G compatible mobile
handsets and the tariff for 3G and 4G telecommunication services appear to be largely
similar. It may also be relevant to point out that DoT grants uniform and same licence
to all telecommunication service providers i.e. Unified Access Licence and it does not
differentiate between service providers based on the technology deployed by them.
The Commission notes that the decisions relied upon by the Informant regarding
relevant market are specific to the facts and circumstances of the concerned cases and
the same are of no relevance to the wireless telecommunication services impugned
herein. In any case, relevant market is an economic reality to be determined based on
facts and circumstances of each case. In view of the foregoing discussion, the
Commission is of the view that the relevant product market in the facts and
circumstances of the present case is the market for ‘provision of wireless
telecommunication services to end users’.
17. As regards the relevant geographic market, it is noted that a consumer located
in a particular place is not likely to avail telecommunication services from any other
territory. He is likely to choose amongst the different options available in his locality.
Further, a subscriber calling another subscriber located within the same
telecommunication circle, irrespective of the physical distance between the two, is
treated as a local call and any call terminating in other service areas is a long-distance
call viz. Subscriber Trunk Dialling (STD). On the supply side, spectrum is the primary
input required for offering wireless mobile communication services and the same is
allocated to service providers through an auction process. India has been divided into
22 circles for such purpose and separate auction has been conducted for each circle. It
further appears that telecommunication service providers determine circle wise tariff.
In view of these factors, each of the said circles appear to constitute distinct and
separate geographic market. Thus, the relevant geographic market in the instant case
appears to be ‘each of the 22 telecommunication circles in India’.
18. Accordingly, the relevant market in the instant case is the market for ‘provision
of wireless telecommunication services to end users in each of the 22 circles in India’.
19. Coming to the assessment of dominant position, the Commission notes that
after the opening up of telecommunication market to private players, this market has
witnessed entry of a number of players competing with each other resulting in
decrease of tariffs and constant improvements in quality and variety of services. As
per the TRAI press release dated 17th February, 2017, the wireless subscriber base of
private telecommunication players at pan-India level constitutes 91.09% as against
8.91% held by public sector undertakings. The market is led by the Informant with a
market share of 23.5% followed by Vodafone (18.1%), Idea (16.9%), BSNL (8.6%),
Aircel (8%), RCOM (7.6%), OP-2 (6.4%), Telenor (4.83%), Tata (4.70), Sistema
(0.52%), MTNL (0.32%) and Quadrant (0.27%). Further, in none of the 22
telecommunication circles, the Opposite Party has a market share higher than 7%. As
may be seen, the market is characterised by the presence of several players ranging
from established foreign telecom operators to prominent domestic business houses
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like TATA. Many of these players are comparable in terms of economic resources,
technical capabilities and access to capital. Further, the market is characterised by the
presence of several players resulting in sufficient choice to consumers who can shift
from one service provider to another and that too with ease. This implies that
dependence of consumers on any single telecom operator is not of any significant
extent. Against this background, it is difficult to construe dominant position being
possessed by OP-2 with 6.4% market share, which presupposes an ability to operate
independently of the market forces to affect its consumers or competitors.
20. The Informant has alleged that OP-2 is dominant on account of its large
spectrum holding in the most premier bands, which are compatible for offering 4G LTE
services. It has been submitted that OP-2 holds 50 per cent of the spectrum in 2300
MHz band and 28 per cent of 1800 MHz band deployed for LTE network. Further,
pursuant to the network and spectrum sharing arrangement with RCOM, OP-2 has
access to 35 per cent of 800MHz band as well. On the other hand, the learned senior
counsel for OP-2 contended that such estimation is biased as the Informant holds the
maximum spectrum in 1800 MHz band, which is the most efficient band amongst
others. In this regard, it is observed that the extant regulatory requirements of DoT
appear to cap the overall and band-wise spectrum holding by telecom operators, which
to a large extent takes care of undesirable concentration of spectrum in the hands of
few operators.
21. During the preliminary conference, the learned senior counsel for the Informant
argued that OP-2 has unfettered access to the funds of OP-1, which is the largest
private sector company in the country. The learned counsel for OP-2 referred to various
portions of the recent Annual Report of the Informant to suggest that the Informant
has also made huge investments in telecom market and is in a financially sound
position. The Commission notes that financial strength is relevant but not the sole
factor to determine dominant position of an enterprise. Considering comparable
investments and financial strengths of competitors, the success of OP-2 in managing
large scale investments does not suggest dominant position being enjoyed by OP-2.
The Commission does not find it appropriate to hold OP-2 dominant in a scenario
where its customers constitute less than 7 per cent of the total subscriber base at pan-
India level, various functions of telecom service providers are regulated and
entrenched players have been in existence for more than a decade with sound
business presence, comparable financial position, technical capabilities and reputation.
Even if one were to consider 4G LTE services as the relevant product market, OP-2 is
not likely to hold dominant position in such market on account of the presence of the
Informant, Vodafone, Idea, etc., who derive commercial and technical advantages due
to their sustained and sound business presence in other telecom services. It needs to
be appreciated that OP-2 is a new entrant, who has commenced its business recently
i.e. from 5th September, 2016.
22. In the absence of any dominant position being enjoyed by OP-2 in the relevant
market, the question of examining the alleged abuse does not arise. Notwithstanding
this, the offers of OP-2 do not appear to raise any competition concern at this stage.
All through the preliminary conference, the learned senior counsel for the Informant
alleged that the impugned offers of OP-2 amount to below-cost pricing and has
resulted in OP-2 gaining a huge subscriber base of around 72 million in a period of just
4 months. This, according to the Informant amounts to predatory pricing. However,
the Informant has not demonstrated reduction of competition or elimination of any
competitor nor has any intent to that effect is demonstrated. The Commission notes
that providing free services cannot by itself raise competition concerns unless the
same is offered by a dominant enterprise and shown to be tainted with an anti-
competitive objective of excluding competition/competitors, which does not seem to
be the case in the instant matter as the relevant market is characterised by the
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presence of entrenched players with sustained business presence and financial

strength. In a competitive market scenario, where there are already big players
operating in the market, it would not be anticompetitive for an entrant to incentivise
customers towards its own services by giving attractive offers and schemes. Such
short-term business strategy of an entrant to penetrate the market and establish its
identity cannot be considered to be anti-competitive in nature and as such cannot be a
subject matter of investigation under the Act.
23. In view of the foregoing discussion, the Commission is of the considered view
that no prima facie case of contravention of Section 4(2)(a)(ii) of the Act is made out
against OP-2.
24. The Informant has also made contradictory submissions of the impugned free
services of OP-2 as being an outcome of leverage of dominant position by OP-1 as well
as an outcome of alleged anti-competitive agreement between OP-1 and OP-2. The
Informant has not given any plausible explanation as to how the impugned free
services is an outcome of unilateral conduct of OP-1 as well as an anti-competitive
agreement between OP-1 and OP-2. The Commission notes that no agreement of the
nature prohibited under Section 3 of the Act is discernible from the facts and
allegations levelled by the Informant. As noted earlier, the impugned conduct of OP-2
has not been found as prima facie contravening the provisions of the Act prohibiting
unfair pricing including predatory pricing. In the absence of any finding of anti-
competitive conduct by OP-2, OP-1 cannot be held to be in contravention of Section 4
(2)(e) of the Act just because it has made huge investments in OP-2. Mere
investments cannot be regarded as leverage of dominant position, particularly when
OP-1 itself is not engaged in business of providing telecom services or any activities
incidental thereto. If one were to construe such investment as anti-competitive, the
same would deter entry and/or expansion and limit the growth of markets. In view of
the above, no prima facie case of contravention of Section 3(1) or Section 4(2)(e) of
the Act is made out against the Opposite Parties.
25. The Commission, therefore, is of the view that no prima facie case of
contravention of the provisions of Sections 3 or 4 of the Act is made out against the
Opposite Parties. Accordingly, the matter is ordered to be closed in terms of the
26. The Secretary is directed to inform all concerned accordingly.
———

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(2017) PL June 82
Indian Telecom Market Post-Advent of JIO: An analysis of the spate of recent

mergers within the telecom sector
INDIAN TELECOM MARKET POST-ADVENT OF JIO: AN ANALYSIS OF THE SPATE OF RECENT

MERGERS WITHIN THE TELECOM SECTOR
by
Pushkar Singh and Kashish Sinha*
Introduction
With plans resembling Bollywood film titles such as “Welcome”, “Happy New Year”
and “Dhan Dhana Dhan”, the Reliance Jio Infocomm Ltd. (Jio) has taken the telecom
sector of India by a storm. Within 7 months of its initiation of full-fledged commercial
operations, Jio has attracted close to 100 million subscribers to rise and become the
fourth largest telecom network of the country, behind Airtel, Vodafone and Idea. This
exponential growth has been fuelled by aggressive marketing in the cloak of
abovementioned offers, providing consumers with a vast array of free services, broad
enough to inculcate anything under the roof that the other competitive telecom
companies have to offer. This transformation has been surrounded with a lot of hue
and cry before institutions like the Telecom Regulatory Authority of India (TRAI) and
Competition Commission of India (CCI). While TRAI has not provided any relief to the
bleeding telecom sector by clearly stating
Page: 83
that the offers did not amount to predatory pricing, the CCI remains the last resort for
the players to stop this all consuming newly found juggernaut of Jio. In wake of
disappointments from these resorts, the competitors have now taken course to
mergers. The first in these spate of mergers involved the Reliance Communications-
Aircel deal, which was soon followed by the announcement of the acquisition of Telenor
by Bharti Airtel. But the biggest flutter was created when Vodafone India and Idea,
the second and the third largest operators in the Indian telecom industry decided to
merge to form India's biggest telecom network in terms of subscriber base.
The pre-Jio era: Rise, fall and rise of the telecom sector
The telecom sector gradually opened up in 2007, after the removal of restrictions on
the number of operators that a telecom circle could have. This, coupled with granting
of second generation (2G) and third generation (3G) wireless technology spectrum,
sparked intense competition and significant price wars between a large number of
players. However, a period of turbulence ensued for the sector when the infamous 2G
spectrum scam hit headlines, wherein allegedly the Telecom Ministry allocated the 2G
spectrum licences without due process. The Supreme Court subsequently in Centre for
Public Interest Litigation v. Union of India1 quashed the 2G licences granted by the
Telecom Ministry in 2012. The cancellation of these licences resulted in significant drop
of foreign investment, with some operators choosing to quit the market.2 These
developments ensued a hit on profit margins that telecom firms enjoyed. This trough
gradually flattened out and over the last three years the companies nursed back to
health with the effective implementation of the National Telecom Policy (NTP) of 2012
and introduction of spectrum sharing and trading norms in 2015. The rebounded
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sector also started seeing gradual rollout of fourth generation (4G) spectrum by major
market players over the course of 2015-2016.3
The advent of Jio
Post the 2005 split of Reliance Group, due to existence of a non-compete clause
with Reliance ADAG, the Mukesh Ambani led Reliance Industries Ltd. (RIL) did not
have the opportunity to re-enter the telecom sector up until 2010. Thereafter, RIL
acquired 95% stake in Infotel Broadband Services, which had 4G broadband spectrum
in all 22 circles and subsequently in January 2013 rebranded the entity as “Reliance
Jio Infocomm Limited”.
Jio did not have much 2G and 3G infrastructure at its hand, thus causing difficulties
for ensuing voice calls since 4G is a purely data based technology. However, the
amendment to Unified Access Services Licence Agreement in April 2016 allowed Jio to
employ Voice over LTE (VoLTE) services. Jio launched its services through a beta
rollout in December 2015, followed by a full-fledged rollout in September 2016. The
rollout was supplemented with the “Welcome” offer, providing users with free 4 GB
data/day till 31-12-2016 along with free voice calls and text messages. The
“Welcome” offer was succeeded by an almost identical “Happy New Year” plan till 31-3
-2017. With these offers, close to 100 million subscribers opted to join the Jio
bandwagon in a period of seven months. This gala of free services did not end here
and the company again introduced “Summer Surprise” offer for its users, which sought
to offer three months of complementary
Page: 84
data and voice services on a single recharge of Rs 303. TRAI however blocked this
offer on the count that the offer was not compliant with its regulations. Jio soon
countered with “Dhan Dhana Dhan” offer, whose mere difference was an increase of Rs
6 in the signing up charge (i.e. Rs 309).
The free-pricing model of Jio has caused substantial competitive concerns regarding
its “predatory” nature. The telecom firms, primarily Bharti Airtel, have approached
TRAI and CCI with complaints over the pricing model which has helped Jio to
accumulate almost 10% of the market share in unparalleled time. Concerns have also
been raised regarding both the extension of the free pricing offer through the “Happy
New Year” plan and free voice calling. Airtel in its complaint to CCI and TRAI
contended that Jio was attempting to bind the consumers to its free calling services,
alleging that this will make it unprofitable for competitors to battle out on such a low
price. It even contended that RIL was using its dominant position in other markets to
recoup losses that it would suffer in this initial seven-month period. Eventually, with
the competitors being eliminated from the market, Jio shall seek to either increase
prices or charge for voice calling. If the abovestated analysis of recoupment is proven
before the CCI, it would satisfy the two-pronged test for predatory pricing as laid down
in MCX Stock Exchange Ltd. v. National Stock Exchange of India Ltd.4 Vodafone, Idea
and Airtel also contended to TRAI that voice calling could not be priced below 14
paise/minute.5 TRAI held that the pricing model of Jio is non-predatory in nature,
though it chose to stay silent on reasons in public. It rejected the contentions on the
arbitrarily set threshold of 14 paise/minute, stating instances wherein the complainant
companies had themselves breached the threshold. The only means of help left with
the telecom firms exist now with CCI and the Telecom Disputes Settlement Appellate
Tribunal (TDSAT), where the firms have challenged TRAI's decision to allow Jio to
extend its free-pricing model from December 2016 to March 2017.
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Mergers — The last resort of survival
Since the advent of Jio, the Indian telecom sector has undergone a period of
significant consolidation with almost four mergers being completed or in process. The
period started with the acquisition of MTS India by Reliance Communications in
November 2015. This was soon followed by the merger of Aircel Communication with
Reliance in September 2016. Both these deals have received the approval of the CCI.6
Airtel followed suit by announcing the acquisition of Telenor India. Rumours are also
circulating on Tata Telecommunications merging into the Reliance-Aircel-MTS
conglomerate and BSNL and MTNL merging to form one government controlled entity
in the sector.
But the biggest splash on this front was created on 20-3-2017 when Vodafone India
and Idea, the second and third largest players of the sector respectively, announced
that they were merging to form the biggest telecom entity of the country with almost
400 million subscribers. This merger would result in the combined entity holding close
to 35% market share in terms of consumer and 41% market share in terms of
revenue. It has been speculated that the
Page: 85
combined entity would be required to surrender spectrum in five circles to comply with
the merger guidelines issued by the Department of Telecommunications in 2014.7 The
merger would ensure that the combined entity would be among the top two players in
21 of 22 circles across the country. While a market share of 35% may be sufficient to
ensure a smooth sailing for the merger in CCI, the dominance of the merged entity in
21 circles may call for certain modifications to be made to the deal and room for more
spectrum surrender, especially in scenarios where both the entities were already the
top two players within the circle. The most peculiar aspect though remains that both
the companies have stated that they would retain the separate brands of both the
companies.
Conclusion — Towards a five-player telecom sector

While Vodafone has officially claimed that the merger has been carried out to
combine Vodafone's strong urban presence with Idea's hold on the rural market8 , a
spate of four mergers and two rumoured to be on the cards indicate that the same is a
result of the upheaval caused by Jio. From a total of 10 players in the market at the
end of 2015, the market may now be potentially reduced to a maximum of five
players: Vodafone-Idea, Airtel, Jio, Reliance Communications-TATA-Aircel-MTS and
BSNL-MTNL. The Telecom Secretary has stated that existence of five players would
ensure sufficient competition within the sector.
While markets undergoing consolidation has not been an unknown phenomena in
both developing and developed countries, telecom consolidations in most of the
markets have often been driven by regulatory overhaul or technological
advancements.9 While regulatory overhaul and technological advancement vide NTP
and a number of liberal measures undertaken by the Union Government along with
generational upgrade of networks can be observed, the nature of competitive
consolidation in the present scenario is almost unparalleled: for the fact that it has
been driven by the mere existence of one player within the market. The rationale
behind such mergers seem to be that the newly discovered synergy would equip the
competitors with sufficient ammunition to take on the all-consuming rising giant of the
sector. The mergers are observed to have been complementary
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Page: 86
in nature, with two companies chalking out their respective strengths to ensure
existence of a stronger combined entity: be it the strong presence of Aircel in South
combining with Reliance's presence all over the country or the rural-urban combination
by Vodafone-Idea merger. The effect of such consolidation would probably result in
thinning in terms of number of players within the sector, which may be a cause of
concern — but the fact that these five players may be omnipresent across all circles
would ensure that the competitive streak to regain or retain markets is renewed and
the fact that the consumer, for all the competition between these five players, may
end up being the biggest beneficiary.
———
*
Members, Society for Excellence in Competition Law (SECL), Dr Ram Manohar Lohiya National Law University,
Lucknow. The views of the authors are personal and should not be considered as those of Ram Manohar Lohiya
National Law University.
1
(2012) 3 SCC 1.
2 Etisalat to shut shop in India; 16.7 lakh subscribers to be affected, India Today (New Delhi, 22-2-2012)
http://indiatoday.intoday.in/story/etisalat-india-operation-2g-licences/1/174854.html accessed on 23-4-2017.
3 Balwant Singh Mehta, Performance of Mobile Phone Sector in India, Economic and Political Weekly (New Delhi, 8
-4-2017) 54.
4
2011 SCC OnLine CCI 41.
5Anandita Singh Mankotia, TRAI to reject Bharti Airtel, Vodafone India and Idea Cellular claims that calls can't be
priced less than 14 p/min, The Economic Times (30-3-2017)
http://economictimes.indiatimes.com/news/economy/policy/trai-to-reject-bharti-airtel-vodafone-india-and-idea-
cellular-claims-that-calls-cant-be-priced-less-than-14-p/min/articleshow/57902750.cms?from=mdr accessed on
23-4-2017.
6 Reliance/SSTL, Combination Registration No. C-2015/12/345 dated 18-2-2016; Reliance/Aircel, Combination
Registration No. C-2016/10/445.
7
Siddharth Philip, Vodafone Idea-India Merger Seen Handing Rivals Cheap Spectrum, The Economic Times (6-2-
2017) http://economictimes.indiatimes.com/news/company/corporate-trends/vodafone-idea-india-merger-seen-
handing-rivals-cheap-spectrum/articleshow/56995316.cms accessed on 23-4-2017.
8Deborshi Chaki, Reliance Jio not main reason for merger of Idea Cellular, Vodafone, Livemint (Mumbai, 21-3-
2017) http://economictimes.indiatimes.com/news/company/corporate-trends/vodafone-idea-india-merger-seen-
handing-rivals-cheap-spectrum/articleshow/56995316.cms accessed on 23-4-2017.
9 Kevin Okoeguale, Deregulation, Competition and Merger Activity in the US Telecommunications Industry (26th
Australasian Finance and Banking Conference, Sydney, 17-12-2013 to 19-12-2013)
https://ssrn.com/abstract=2049491 accessed on 23-4-2017.
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2017 SCC OnLine Comp AT 70
In the Competition Appellate Tribunal at New Delhi

(BEFORE RAJEEV KHER, MEMBER AND ANITA KAPUR, MEMBER)
I.A. No. 24/2017 - in Appeal No. 09/2017

(Under Section 53B of the Competition Act, 2002 against order dated 04.01.2017
passed by the Competition Commission of India in Case No. 01/2014)
In the matter of:
1. DLF Home Developers Limited, 1E, Jhandewalan Extension,
Naaz Cinema Complex, New Delhi-110055
2. DLF Limited, DLF Centre, Sansad Marg, New Delhi-110001 …
Appellants;
Versus
1. The Competition Commission of India, 7th Floor, the Hindustan
Times House, 18-20, Kasturba Gandhi Marg, New Delhi-110001.
through its Secretary
2. Mr. Ashutosh Bhardwaj, 133/1, Inder Vihar, Street No. 11,
Rajender Nagar, Dehradun-248001, Uttrakhand, India …
Respondents.
I.A. No. 25/2017 - in Appeal No. 10/2017
(Under Section 53B of the Competition Act, 2002 against order dated 04.01.2017
passed by the Competition Commission of India in Case No. 93/2015)
In the matter of:
1. DLF Home Developers Limited, (Formerly DLF New Gurgaon
Homes Home Developers Pvt. Limited) 1E, Jhandewalan
Extension, Naaz Cinema Complex, New Delhi-110055 …
Appellant;
Versus
1. The Competition Commission of India, 7th Floor, the Hindustan
Times House, 18-20, Kasturba Gandhi Marg, New Delhi-110001.
Through its Secretary
2. Mr. Lalit Babu, 3817, Jaydevnagar, Bhubaneswar, District
Khurda-751002, Orissa, India … Respondents.
I.A. No. 24/2017 - in Appeal No. 09/2017 and I.A. No. 25/2017 - in Appeal No.
10/2017
Decided on April 10, 2017
Appearance:
Shri Ramji Srinivasan, Senior Advocate assisted by Ms. Kanika Chaudhary Nayar,
Ms. Nidhi Singh, Ms. Modhulika Bose and Shri Tushar Bhardwaj, Advocates for the
Appellants in both cases.
ORDER
These appeals are directed against the order of the Competition Commission of
India (‘the Commission’) passed in Case No. 01/2014, Shri Ashutosh Bhardwaj v. DLF
Limited and Case No. 93/2015, Shri Lalit Babu v. DLF New Gurgaon Homes Developers
Pvt. Ltd.
2. The Respondents Shri Ashutosh Bhardwaj and Shri Lalit Babu and others filed
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information with the Commission alleging abuse of dominance on the part of the
present Appellants under Section 4 of the Competition Act, 2002 (‘the Act’). Very
briefly, the facts relate to the sale of residential apartments by the Appellants to the
Respondents and the alleged anti-competitive provisions of the Apartment Buyers'
Agreement (ABA) executed between the parties. According to the allegations, the
Appellants enjoy a dominant position in the relevant market and have abused their
dominant position by incorporating anti-competitive conditions in the ABA. The
Commission ordered investigation by the Director General (‘the DG’) into the
allegations and on the basis of DG's report determined the relevant product and
geographical market. They also found Appellants' dominant in the relevant market and
determined that the terms of the ABA were abusive in nature. We quote from
paragraphs 10 to 24 from the appeal memo to briefly describe the facts and
chronology of events in these cases in order to explain that several matters relating to
the same Appellants have been addressed by the Commission and this Tribunal earlier
and are pending in the Supreme Court for final adjudication:—
“10. The Appellant No. 1 planned and launched construction of a multi-storeyed
residential apartments building complex known as ‘New Town Heights’ (Project) in
Sectors 86, 90 and 91 Gurgaon, (Haryana) in the year 2008. The Applications for
booking apartments in the aforesaid building complex were received from February,
2008 onwards from various allottees together with the booking amounts. The said
booking application is referred to in Annexure-A 5.
11. Upon receipt of the booking application together with the booking amounts,
receipts of payments of the booking amounts were issued to the respective allottees
from time to time. The allotment letters were sent to the respective allottees along
with the schedule of payment.
12. An Apartment Buyers Agreement (hereinafter referred to as the
‘ABA/Agreement’) was entered into with the allottees. The ABA was the agreement
to sell/purchase the apartment, and the allottees were required to make payments
of instalments under the schedule of payment. The ABA is referred to in Annexure-A
5.
13. The ABA sets out briefly the payments schedule and cost structure (Clause
3); earnest money (Clause 4); mode of payment in time (Clause 5); alterations and
modifications to the construction (Clause 10); schedule for possession (Clause 11);
delay due to reasons beyond the control of the Appellant No. 1 and remedies to the
allottee (Clause 14); events of deafults and consequences (Clause 60) and
maintenance of the buildings/complex/apartment (Clause 19).
14. By way of background, it is pertinent to submit that Respondent No. 1 has
previously considered the ABA and Appellant No. 1's conduct in the Project, in Case
Nos. 13 and 21 of 2010, and Case No. 55 of 2012. It is submitted Respondent No. 1
had clubbed the investigation in Case No. 13 of 2010 and Case No. 21 of 2010. The
Director General (DG) then submitted its investigation Report dated 18 October
2010 (the First DG Report) where DHDL was found to have contravened Section 4 of
the Competition Act, 2002. The relevant market defined by the DG in the First DG
Report is “high end residential units which are developed and sold to prospective
buyers through provision of services in Gurgaon”. A copy of the First DG Report is
attached and annexed herewith as Annexure-A 3 (without annexures).
15. However, Respondent No. 1, through its order dated 07 December 2011
expressed its dissatisfaction with the relevant market defined in the First DG Report
and directed the DG to reinvestigate the matter. Pursuant to this order, the DG
submitted its second Investigation Report dated 25 October 2012 (the Second DG
Report) redefining the relevant market being “services provided by the
developers/builders in respect of residential building apartments ranging between
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Rs. 40-60 Lakhs to consumers in Gurgaon”. A copy of the Second DG Report is
attached and annexed herewith as Annexure-A 4 (without annexures).
16. Thereafter, Respondent No. 2 filed information dated 03 January 2014 under
section 19(1)(a) of the Act against Appellant No. 1, 2 and 3 for alleged violations of
the provisions of the Act. A copy of the said Information filed by Respondent No. 2
is attached and annexed herewith as Annexure-A 5. The DG completed its
investigation in Case No. 55 of 2012 and submitted another Investigation Report
dated 28 January 2013 (the Third DG Report) in the said matter. The relevant
market defined by the DG in the Third DG Report is “provision of services for
development of residential apartment in Gurgaon”. A copy of the Third DG Report is
attached and annexed herewith as Annexure-A 6 (without annexures). It is
pertinent to note that the investigation in Case No. 55 of 2012 was not clubbed
with investigation in Case Nos. 13 and 21 of 2010, even though Respondent No. 1
heard all three matters in conjunction, on account of the fact that the Information's
filed in all three matters pertained to the Project, and raised similar allegations. It is
thus submitted that there already exist three DG Reports in relation to the Project.
17. Moreover, on 27 February 2014 Respondent No. 1 passed a Prima facie order
under Section 26(1) of the Act wherein the DG was directed to cause another
investigation into the Project. A copy of the order dated 27 February 2014 under
Section 26(1) of the Act is attached and annexed herewith as Annexure-A 7.
18. In the interim period, the Hon'ble Tribunal passed the Order dated 19 May
2014 (Belaire Order) in Appeal No. 20 of 2011 DLF Limited v. Competition
Commission of India, which relates to the projects Belaire, Park Place and Magnolia.
Through the order dated 19 May 2014, the Hon'ble Tribunal, while confirming the
order passed by Respondent No. 1, held that the agreements entered prior to the
enforcement of the Act, i.e., prior to 20 May 2009, cannot be examined by
Respondent No. 1 and that Respondent No. 1 also does not have the power to
modify agreements when the alleged contravention relates to Section 4 of the Act.
A copy of the Belaire Order is attached and annexed herewith as Annexure-A 8.
19. Subsequently, Respondent No. 1 after considering the three DG Reports
issued in Case Nos. 13 and 21 of 2010 and Case No. 55 of 2012, passed on Order
under Section 27 of the Act on 12 May 2015 (Order dated 12 May 2015), finding
Appellant No. 1 to have contravened Section 4 of the Act. A copy of the said Order
is attached and annexed herewith as Annexure-A 9.
20. Subsequently, the Appellant No. 1 preferred an appeal on 20 July 2015,
bearing title DHDL v. CCI, Appeal No. 106 of 2015 (hereinafter referred to as “the
Appeal”) against Order dated 12 May 2015 passed by Respondent No. 1 under
Section 53B of the Act before the Hon'ble Tribunal, challenging the Order dated 12
May 2015 for its flawed reasoning, inaccuracies, and failure to adequately assess
the present case.
21. Thereafter the Appeal was listed for consideration before the Hon'ble Tribunal
on 30 November 2015, during which the Hon'ble Tribunal dismissed the Appeal and
passed an Order, stating at paragraph 4 therein, that “Since the issues raised by
the appellant have already been decided by the Tribunal and the order passed by
the Tribunal is subject matter of challenge before the Supreme Court in the appeals
filed by the appellant, the Commission and the Apartment Owners' Association we
do not consider it proper to entertain the appeals and the same are dismissed. It is
needless to say that if the appellant challenges the impugned order before the
Supreme Court then it shall be free to raise all the grounds taken in the memo of
appeal”.
22. Subsequently, the Appellant No. 1 preferred appeals, bearing title DLF Home
Developers Limited v. CCI, Civil Appeal Nos. 2523 of 2016 and 2532 of 2016
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against the Order passed by the Hon'ble Tribunal in Appeal Nos. 106 of 2016 and
107 of 2016 under Section 53T of the Act before the Hon'ble Supreme Court of
India challenging the aforementioned Order dated 30 November 2015. The said
Appeals came up for hearing before the Hon'ble Supreme Court of India on 22 April
2016 wherein notice was issued to the opposite parties and matter was tagged
along with the Civil Appeal No. 6328 of 2014 and other connected appeals, which
are the Appeal pending before the Supreme Court of India pursuant to the order
passed by the Hon'ble Tribunal in the Belaire Matter.
23. Meanwhile, the DG completed its investigation in the present matter, and
submitted the Fourth DG Report to Respondent No. 1 for its consideration. A copy of
the said Fourth DG Report along with annexures is attached and annexed herewith
as Annexure-A 10.
24. In the Fourth DG Report, the relevant market was delineated as the market
for the provision of services for development/sale of residential units
(apartments/flats/independent floors/villas) under the licensed category of
Residential Group Housing (RGH) and Residential Plotted Colony (RPL) in the
Gurgaon”.
3. On the basis of the investigations carried out by the DG, the Commission
determined the relevant product market. Paragraph 43 of the impugned order
encapsulates the extremely thin difference between the present couple of cases with
those which came before the Tribunal in the earlier rounds of litigation in the context
of the same scheme though pertaining to different sectors in Gurgaon. In paragraphs
49 to 54, the Commission has examined and determined the relevant product and
geographical market and we quote from these paragraphs below:
“49. Drawing inference from the above, the Commission hereby reiterates that
when the dominance of an enterprise remains unchanged in a market even with an
alternative market definition, technicality of the product market need not be
dwelled further. Therefore, the argument put forth by the OPs that DG has given
inconsistent market definition, has no force. At the same time, the Commission
sees no reason to deviate from the product market definition taken in earlier cases
dealing with similar the issues and project i.e., Case no. 13 and 21 of 2010 and 55
of 2012 where the relevant product market was defined as the market for the
‘provision of services for development/sale of residential apartments’.
50. With regard to the relevant geographic market, the Commission agrees with
the DG's view that Gurgaon would be the geographic region for the purpose of the
present cases. Reference is made to the observation made by the Commission in
Case Nos. 13 and 21 of 2010 and Case No. 55 of 2012 where Belaire's case was yet
again referred to define the relevant geographic market. The relevant extract is
provided herein below:
‘6.23 …. The ‘geographic region of Gurgaon’ has gained relevance owing to its
unique circumstances and proximity to Delhi, Airports, golf courses, world class
malls. During the years it has evolved as a distinct brand image as a destination
for upwardly mobile families. As it has been reasoned out in the order passed by
this Commission in the Belaire case, a person working in NOIDA is unlikely to
purchase an apartment in Gurgaon, as he would never intend to settle there.
Thereafter, the Commission in that order distinguished between buyers looking
for residential property out of their hard earned money or even by taking housing
loans and those buyers who merely buy such residential apartments for
investment purposes; stating clearly that the Commission was not looking at the
concerns of speculators, but of genuine buyers. It was therefore, observed that a
small 5% increase in the price of an apartment in Gurgaon, would not make a
person shift his preference to Ghaziabad, Bahadurgarh or Faridabad or the
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peripheries of Delhi or even Delhi in a vast majority of cases. The COMPAT's
order, dated 19.05.2014 passed while disposing of the appeals filed against the
Commission's order in the Belaire case, upheld the Commission's finding on the
relevant geographic market to be ‘geographic region of Gurgaon’ ….’.
51. Based on the above, the Commission is of the view that geographic region of
‘Gurgaon’ is the appropriate relevant geographic market and not the entire NCR as
contended by the OPs.
52. In view of the foregoing, the Commission delineates the relevant market as
the market for ‘provision of services for development/sale of residential apartments
in Gurgaon’.
53. On the dominance of OP Group, there is no doubt that the strength which the
OP Group possesses in residential real estate segment in the geographic region of
Gurgaon is incomparable. In the order dated 12.05.2015 in Case Nos. 13 and 21 of
2010 and Case No. 55 of 2012, the Commission has dwelled into details on the
aspect of dominance of the OP Group and has thoroughly assessed the DG's
findings. Thereafter, it was finally concluded that the OP Group held a dominant
position in the relevant market. The assessment done by the Commission in the
previous orders will also apply in the present matters since the issues, the relevant
period and the OPs involved are the same. Therefore, it is opined that the OP Group
holds a dominant position in the market for the ‘provision of services for
development/sale of residential apartments in Gurgaon’.
54. With regard to the issue of abuse of dominance, the Commission notes that
the same has already been dealt with by the Commission in its previous orders. It
was held that those terms and conditions imposed through the Agreement were
abusive being unfair within the meaning of Section 4(2)(a)(i) of the Act. For the
sake of brevity, the analysis on the alleged abusive terms is not provided herein.
Considering the assessment done in the previous cases including Belaire's case, the
Commission is of the view that the terms and conditions imposed on the allottees in
the instant matters as analyzed by the DG in detail are abusive in nature and the
OP Group has contravened Section 4(2)(a)(i) of the Act”.
4. We have heard the learned Senior Counsel Shri Ramji Srinivasan at the
admission stage. From the facts narrated in the preceding paragraphs and
submissions made by Shri Srinivasan, it is clearly brought out that:
(i) Similar issues have been raised in earlier cases, which came before us -
specifically mentioned in the above paragraphs where the Apartment Buyers'
Agreement executed by the Appellants herein with their customers were
examined in relation to some Schemes including the present Scheme viz: ‘New
Town Heights’ developed in Sector 90 and 91 of Gurgaon. The only difference is
that the present cases relate to the Schemes developed in Sector 86 of Gurgaon.
(ii) A string of cases dwelling into the allegations of dominance and its abuse by the
Appellant companies were examined and decided by this Tribunal and are now
subject of second appeals in the Supreme Court. In our earlier order in Appeal
Nos. 106 of 2015 and 107 of 2015, we had listed out the pending litigation in the
Supreme Court in respect to the same set of Appellants. For the sake of
convenience, we quote from paragraph 3 of our earlier order:
“3. During the course of hearing, Shri Srinivasan fairly admitted that appeal
filed against order of the Commission in Belaires Owners' Association v. DLF
Limited, HUDA was challenged before Tribunal and the verdict of the Tribunal is
now subject matter of challenge before the Supreme Court in the following
appeals.
1. DLF Ltd. v. Competition Commission of India (Belaire) C.A. No. 6328 of
2014
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2. DLF Ltd. v. Competition Commission of India (Park Place) C.A. No. 6481 of
2014
3. DLF Ltd. v. Competition Commission of India (Magnolia) C.A. No. 6487 of
2014
4. Competition Commission of India v. DLF Ltd. C.A. No. 8014 of 2014
5. Belaire Owners Association v. DLF Ltd. C.A. No. 11108 of 2014
6. DLF Park Place Residents Welfare Association v. DLF Ltd. C.A. No. 11109 of
2014
7. Magnolias Flat Owners Association v. DLF Ltd. C.A. No. 9868 of 2014
8. Pushkar Dutt v. DLF Ltd. C.A. No. 10540 of 2014
9. Mili Marketing Pvt. Ltd. v. DLF Ltd. C.A. No. 49 of 2015”
5. During the course of his arguments Shri Srinivasan gave us a list of appeals
pending before the Supreme Court, which includes the above cases as well as the two
cases arising out of our orders in Appeal Nos. 106 of 2015 and 107 of 2015.
6. It can be fairly summarized that issues relating to alleged abuse of dominance in
the Apartment Buyers' Agreements executed between the Appellant companies and
their customers have been examined in details by this Tribunal in above listed cases
and are pending for final determination before the Supreme Court. No purpose will be
served by this Tribunal going into these appeals yet again, as the matters under
dispute are receiving the attention of the Supreme Court. Shri Srinivasan fairly stated
that in view of a long list of appeals on similar facts pending before the Supreme
Court, it may only be logical for this Tribunal to let these cases be considered in view
of the orders made by this Tribunal in earlier cases, by the Supreme Court. In these
circumstances, we do not consider it proper to entertain these appeals and the same
are dismissed. It is needless to say that if the appellants challenge the impugned
order before the Supreme Court then they shall be free to raise all the grounds taken
in the memo of appeal. As a consequence, appeals are dismissed and so are the
interlocutory applications in both these cases.
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Competition Appellate Tribunal

(BEFORE G.S. SINGHVI, CHAIRMAN, RAJEEV KHER, MEMBER AND ANITA KAPUR, MEMBER)
Appeal No. 60/2014

Under Section 53B of the Competition Act, 2002 against the order dated: 25.08.2014 Passed by the Competition Commission of India in Case No.
03/2011
In the matter of:
Toyota Kirloskar Motor Private Limited Building 4, Plot 20, Toyota Techno Park Bidadi Industrial Area, Ramnagara Taluk Bangalore (Rural)
District 562109 … Appellant;
Versus
1. Competition Commission of India Through its Secretary Hindustan Times House, 18-20, Kasturba Gandhi Marg New Delhi-110 001
2. Mr. Shamsher Kataria, E-219 East of Kailash, New Delhi-110065
3. Carnation Auto India Pvt. Ltd. Through its Managing Director Mr. Jagdish Khattar, 3/16, Shanti Niketan, II Floor, New Delhi-110021 …
Respondents.
Appearances:
Shri Percival Billimoria, Ms. Roopali Singh, Shri Rahul Goel, Ms. Anu Monga, Shri Rahul Satyan, Shri Samir Agrawal, Ms. Sayobani Basu, Shri Neeraj
Lalwani and Shri Rishabh Arora, Advocates for the Appellant
Shri Salman Khurshid, Senior Advocate with Shri Vaibhav Gaggar, Ms. Reena Kumari, Shri Tushar Gupta, Shri Saksham Dhingra, Ms. Smriti Jain, Ms.
Sakshi Kotiyal, Ms. Sanchita Ain, Ms. Azra Rehman, Ms. Neha Mishra, Shri Shiv Johar, Advocates and Shri Kamal Sultanpuri, DD(Law) for Competition
Commission of India-Respondent No. 1
Appeal No. 61/2014
Under Section 53B of the Competition Act, 2002 against the order dated: 25.08.2014 passed by the Competition Commission of India in Case No.
03/2011]
In the matter of:
Ford India Private Limited S.P. Koil Post, Chengalpattu-603204 … Appellant;
Versus
1. Competition Commission of India Hindustan Times House, 18-20, Kasturba Gandhi Marg New Delhi-110 001
2. Shri Shamsher Kataria E-219, East of Kailash, New Delhi-110065
3. Carnation Auto India Pvt. Ltd. A-110, Sector-5, Noida, Uttar Pradesh-201301 … Respondents.
Appearances:
Shri Amitabh Kumar, Shri Gautam Shahi and Ms. Lagna Panda, Advocates for the Appellant
Shri Vaibhav Gaggar, Shri Saksham Dhingra, Ms. Neha Mishra, Ms. Reena Kumari, Shri Shiv Johar and Ms. Smriti Jain, Advocates for Respondent No. 1 -
Appeal No. 62/2014
Under Section 53B of the Competition Act, 2002 against the order dated: 25.08.2014 passed by the Competition Commission of India in Case No.
03/2011]
In the matter of:
Nissan Motor India Private Limited Through its Manager (Legal) ASV Ramana Towers, 3rd Floor, No. 37 & 38, Venkatanarayan Raod, T.
Nagar, Chennai-600 017 … Appellant;
Versus
1. Competition Commission of India Through its Secretary Hindustan Times House, 18-20, Kasturba Gandhi Marg New Delhi-110 001
2. The Director General, Competition Commission of India, B Wing, HUDCO Vishala, 14, Bhikaji Cama Place, New Delhi-110 066
3. Mr. Shamsher Kataria, S/o Mr. Subir Kataria, R/o E-219 East of Kailash, New Delhi-110055
4. Carnation Auto India Pvt. Ltd. Studio 205, IHDP Park, Plot 7, Sector - 127, Noida-201 301 (U.P.)
5. Honda Siel Cars India Ltd. Plot No. A-1, Sector 40/41, Surajpur-Kansa Road, Greater Noida Indl. Dev. Area, Distt. Gautam Budh Nagar
(U.P.)
6. Volkswagen India Pvt. Ltd. E-1, MIDC Indl Area (Phase - III) VIII: Nigoje Mahalunge, Kharabwadi, Tel: Khed, Chakan, Pune-410 501
7. Fiat India Pvt. Ltd. B/19 Ranjangaon, MIDC, Tel: Shirur, Pune-412 210
8. BMW India Pvt. Ltd. DLF Cyber City-Phase II Building No. 8, Tower B, 7th Floor, Gurgaon-122 002
9. Ford India Pvt. Ltd. Via S.P. Koil Post, Chengalpattu-603 204
10. General Motors Ltd. Plot No.: 15, Sector - 32, Institutional Area, Gurgaon-122 001
11. Hindustan Motor Ltd. Irla Building, 10th Floor, 9/1 R.N. Mukherjee Road, Kolkata-700 001
12. Mahindra & Mahindra Ltd. Admin. Bldg, 4th Floor, Akurli Road, Kandivli (E) Mumbai-400 101
13. Maruti Suzuki India Ltd., Plot No. 1, Nelson Mandela Road, Vansant Kunj, New Delhi-110 070
14. Mercedes-Benz India Pvt. Ltd. E-3, MIDC Chakan, Phase - III, Chakan Industrial Area, Kuruli & Nighoje, Tq - Khed, Pune-410 501
15. Skoda Auto India Pvt. Ltd. Plot No. A-1/1, Shendra, Five Star Industrial Area, MIDC, Tq & Dist: Aurangabad-431 201
16. Tata Motors Ltd. Bombay House, 24, Homi Mody Street, Mumbai-400 001
17. Toyota Kirloskar Motor Pvt. Ltd. Plot No. 1, Bidadi Industrial Area, Bidadi, Ramnagar Taluk, Bangalore (Rural) Dist. - 561 109 …
Respondents.
Appearances:
Dr. Vijay Kumar Aggarwal, Shri Param Tandon and Shri Ankush Walia, Advocates for the Appellant
Shri Joy Basu, Shri Vaibhav Gaggar, Shri Saksham Dhingra, Ms. Neha Mishra, Shri Shiv Johar, Ms. Reena Kumari and Ms. Smriti Jain, Advocates for
Respondent No. 1-Competition Commission of India
Shri T. Sundar Ramanathan, Ms. Arshia Dhingra and Shri Abir Roy, Advocates for Respondent No. 5
Shri R. Sudhinder, Shri Siladitya Chatterjee, Advocates for Re-spondent Nos. 6 and 15
Ms. Ritam Arora and Shri Pradyuman Sewar, Advocate for Re-spondent No. 8
Shri Akshay Nanda and Ms. Khyati Dhupar, Advocates for Re-spondent No. 10
Ms. Nikita Agarwal, Advocate for Respondent No. 12
Appeal No. 60/2014; Appeal No. 61/2014; and Appeal No. 62/2014
Decided on December 9, 2016
ORDER
1. Whether the Competition Commission of India (the Commission) erred in holding appellants' distributions/sales agreements and practices violative of
Section 3(4) & Section 4 of the Competition Act (Act) is the subject matter of these appeals.
2. Appellants M/s Toyota Kirloskar Motor Private Limited (Toyota), M/s Ford India Private Limited (Ford) and M/s Nissan Motor India Private Limited
(Nissan) filed these appeals against the common order of the Commission dated 25.08.2014 on 17.10.2014 (Toyota) and 30.10.2014 (Nissan & Ford). Earlier
Mr. Shamsher Kataria filed information dated 18.01.2011 before the Commission requesting an investigation into alleged abuse of dominant position and anti
-competitive agreement/practices adopted by the by the respondents. The Commission considered the information and prima facie having been satisfied that
the information warranted investigation directed the Director General to conduct an investigation into the matter and to submit the report within 60 days
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from the order dated 24.02.2011.
FACTS
3. In order to briefly understand the facts in the information, we quote from paragraph 2 of the order under Section 26(1) of the Act passed by the
Commission.
“The facts in brief as stated in the information are as under:
2.1 The information has been filed on 18.01.2011 by Mr. Shamsher Kataria, who owns cars manufactured by the respondent companies.
2.2 The informant owns and uses three cars.
i) Honda City, Registration No. DL4C AN 1134
ii) Fiat Palio, Registration No. DL3C V 3478
iii) Volkswagen Palo, Registration No. DL3C BM 8312
The informant has alleged that genuine spare parts, diagnostic tools, software and technological information is not made available by these car
manufacturers to independent repair workshops (those which are not among authorized service centers of the car manufacturer). Also that these car
companies have limited number of authorized service centers located in big towns only and therefore the informant is wary of travelling out of station due
to concern of break down assistance.
2.3 The informant has stated that he earlier owned a Maruti Suzuki vehicle and could easily get it repaired at independent workshops because the
spares and tools were made available by the company in the open market.
2.4 The informant has stated that cost of getting a car repaired in an independent workshop is cheaper by 35-50% as compared to the authorized
service centers of the company. The informant has alleged that the respondent companies charge arbitrary and high price to consumers who are forced
to avail the spares and the services from their authorized dealers only. Also, the prices charged for repair/maintenance services and for spares by these
car companies are even higher than what they charge in other markets like Europe. The informant has alleged that this results in significant increase in
maintenance cost to car owners.
2.5 The informant has found that the restriction by these car companies on supplying spares and other required tools and knowhow in the open
market, is not a local problem. These companies and dealers appointed by them, as a matter of policy refuse to supply these services in the open
market and to independent repair shops. The informant has submitted letters from some independent service stations, where they have expressed
inability to service the informants vehicles because the respondents refuse to supply spares and other tools, in support of his allegation.
2.6 The informant has alleged that by not supplying the spares, tools, software etc. required to repair or service their cars, the respondent
companies in conjunction with their authorized dealers/service stations have indulged into directly determining the sale price of spare parts and
repair/maintenance services. In addition, such agreement and practice by these car manufactures has resulted into denial of market access to
independent repair workshops.
2.7 The informant has stated that as per a CII report, the size of Indian Automotive industry is estimated to be US$ 122-159 billion by the year
2016, which will be larger than the US market. Growth in the market of spare parts, replacement parts, service and maintenance etc. is expected to be
proportionate to the growth in the vehicle sales, as enumerated above.
2.8 The informant has alleged that the restrictive and monopolistic trade practices, as detailed above, of the respondents and their authorized
dealers/service stations have a negative effect not only on the consumer but the whole economy because it increases the cost of keeping a vehicle. The
informant has stated that in a country where road transport is essential for mobility of people and goods, the increased cost of vehicle maintenance
may hamper economic growth of the country.
2.9 The informant has stated that effective competition at each level of automotive aftermarket is essential for fostering innovation and keeping
mobility affordable. Consumer should have choice of getting vehicle services/repaired at a workshop of his choice. This will foster competition among
service providers which will lead to improvement in quality and drop in prices. It will also foster innovation in the market. The informant has alleged
that due to the restrictive trade practices of the respondent companies, effective competition at each level of automotive aftermarket is adversely
affected.
2.10 The informant has also alleged that the anti competitive practices by the respondent companies has resulted in denial of market access to
independent workshops who are usually micro, small and medium enterprises (MSME). The informant has stated that MSMEs give employment to 45%
of industrial workers. The government has made several policies to encourage and support the MSME sector.
2.11 The informant has stated that the European Commission has the so called “Block Exemption Rule’ in place since the year 2002 to force auto
manufacturers to provide spares and tools etc. to independent operators. These rules prohibit discrimination between authorized service dealers and
independent operators. The European Commission took commitments from auto majors to ensure supply of spares and technological knowhow to
independent operators. To ensure effective competition in the auto repair and maintenance market, the European Commission issued the new
regulation no. 461/2010 in the year 2010, which included sector specific guidelines apart from the earlier block exemption rules.
2.12 The informant has stated that there are regulations in place in the United States to ensure that emissions related diagnostic tools and
information is available to independent vehicle repair shops. Several states have introduced the ‘Right to Repair Act’ to curb restrictive practices by
auto manufactures.
2.13 The informant has alleged that all over the world consumers and governments are fighting to implement a free and fair competition regime in
the automotive sector, with various degrees of success. The informant also alleges that auto manufacturers along with their authorized dealers are
indulging in anti competitive practices and misusing their dominant position by undermining the rights of consumers.
2.14 The informant has alleged that the acts of the respondents in restricting the sale and supply of spare parts and technical information, diagnostic
equipments and tools to independent automobile service providers indirectly determines purchase or sale prices of both vehicle spare parts and
servicing, maintenance and repair jobs due to the monopoly maintained by them over the supply of genuine spare parts and the information and tools
required for the servicing and repair of vehicles. This is in direct contravention of Sections 3(3)(a) and 3(3)(b) of the Competition Act, 2002. By
refusing to sell the spare parts to independent operators the respondents attract Sec 3(4)(d) of the Act. Also the respondents have denied access to the
repair and maintenance market to independent service providers and therefore such practices attract Sec 4(2)(a), 4(2)(b) and 4(2)(c) of the Act.
2.15 The informant has alleged that the acts of the respondents are arbitrary, illegal and devastating to free and fair competition. The informant has
submitted that the balance of convenience lies in his favour and therefore the Commission may pass ex-parte ad interim order, u/s 33 of the
Competition Act, restraining the respondents and its agents from engaging in unfair practices and abuse of dominance.
2.16 The relief sought by the informant is, inter alia, to order the respondents and their authorized dealers/service centers to desist from alleged
restrictive, unfair and monopolistic trade practices.
2.17 The informant in his supplementary information to the Commission on 28.01.2011, has alleged that the respondents and other vehicle
manufacturers impose restrictions on their original equipment suppliers (OES) forcing them not to supply parts in the open market. It is alleged that
such practices amount to limiting and controlling production and supply of components/spares in the automobile aftermarket. Such restrictive practices
attract Sec 4(2)(d) of the Competition Act. In this reference the informant has submitted that the European Commission has effectively tackled this
very aspect under their block exemption rules by affording statutory right to OES to sell vehicle parts in the open market.
2.18 The informant has also alleged in the supplementary information that the restriction by respondents on their authorized dealers from taking up
dealership of other vehicle manufacturers, is contravention of the Competition Act, 2002, u/s 4(2)(a), 4(2)(b) and 4(2)(c).”
4. After beginning his investigation, the DG made a request on 19.04.2011 for directions to initiate investigation against other car manufacturers, inter-
alia stating that the scope of investigation needs to be widened in this case. The Commission considered the DG's note and approved the request to initiate
investigation against other car manufacturers. As a consequence of this order, the Commission directed investigation against following companies:
1. BMW India Pvt. Ltd.
2. Ford India Pvt. Ltd.
3. Hindustan Motors Ltd.
4. Honda Siel Cars India Ltd.
5. Hyundai Motor India Ltd.
6. Fiat India Automobiles Pvt. Ltd.
7. General Motors India Pvt. Ltd.
8. Mercedes-Benz India Pvt. Ltd.
9. Nissan Motor India Pvt. Ltd.
10. Premier Ltd.
11. Mahindra & Mahindra Ltd.
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12. Maruti Suzuki India Ltd.
13. Skoda Auto India Pvt. Ltd.
14. Tata Motors Ltd.
15. Mahindra Reva Electric Car Company P. Ltd.
16. Toyota Kirloskar Motor Pvt. Ltd.
17. Volkswagen India Pvt. Ltd.
5. After several extensions granted to the DG, the main investigation report was submitted to the Commission on 30.06.2012. However, since some sub
reports were yet to be completed, DG specifically sought time till 15.07.2012 which was granted. After completing investigations DG submitted his complete
investigation report which was considered by the Commission on 04.09.2012. A CD containing scanned copy of the report was made available to the 17 car
manufacturers mentioned in the DG's report along with the sub reports relating to each car manufacturer and the parties were asked to file their
reply/objections within four weeks of receipt of the report along with profit and loss accounts and balance sheet of their enterprise for last three financial
years and to appear for oral hearing.
6. The 17 car manufacturers were grouped into four groups and invited for oral hearing on four dates by order dated 04.09.2012. Various car
manufacturers appeared on the scheduled dates and requested additional time for filing their replies/objections which was granted by the Commission. The
parties also requested that they be allowed cross examination of witnesses who had deposed before the DG and whose evidence had been considered by the
DG in preparing his reports. While allowing the parties to move appropriate miscellaneous applications for seeking cross examination, the Commission also
directed that the parties shall clearly list the names of the witnesses they seek to examine and the specific areas on which such cross-examination was being
sought along with the reasons in support thereof. Accordingly, the appellants/parties filed applications for cross-examination along with the details directed
by the Commission. The Commission in its order dated 10.01.2013 addressed these requests and rejected them.
7. Some of the car makers before the Commission such as BMW India Private Limited, Mahindra & Mahindra Limited, Mahindra Reva Electric Car Company
Private Limited, Maruti Suzuki India Limited did not pursue applications for cross-examination. On behalf of one of the appellants herein, Nissan, the
advocate pleaded that though they filed the application dated 10.12.2012 for cross examination, they reconsidered the matter and now they did not wish to
cross examine the witnesses, therefore, they requested to treat their application as withdrawn. During the same meeting, the Commission was also
approached by M/s Carnation Auto India Limited (Carnation) which had earlier filed material before the Commission in favour of the informant that their
application dated 09.01.2013 to implead them as a party to the proceedings be accepted. The Commission considered the application of Carnation and made
following orders on their application.
“14(ii) Regulation 25 of the General Regulations under the Competition Act empowers the Commission to allow a person/enterprise to take part in the
proceedings if the Commission is satisfied that the person/enterprise has substantial interest in the outcome of the proceedings or that it was necessary in
the public interest to allow such person or enterprise to present its opinion on the matter. The applicant no doubt is having a substantial stake in the
outcome of the result of this matter since the applicant is a multi brand auto sale service and repair solution provider. There may be many other multi
brand auto sale service and repair solution providers. No one is presenting his case before the Commission. The Commission considers that it would be
fruitful to consider the submissions made by the applicant for the purpose of deciding this matter in a fast and fair manner. The application is, therefore,
allowed and the applicant is permitted to take part in the proceedings. However, the applicant shall coordinate with the informant for the purpose of
documents, reports etc. No separate documents shall be furnished to the applicant.”
8. On this issue, several parties raised an objection and submitted that Carnation's objections were received by the parties only three days before the
hearing dated 04.02.2013 therefore, they had not been able to file response to the objection of Carnation. The Commission's relevant order on the subject
dated 04.02.2013 is quoted below:
“The counsels for the parties raised an objection on allowing Carnation Auto India Ltd. to be a party in the matter and submitted that Carnation's
objections were received by the parties only 3 days before. Therefore, the parties could not file response to the objections of Carnation. It was made clear
to the counsels for the parties that Carnation has not been given liberty to file any objections to the DG report or to make any supplemental pleadings.
Carnation was given liberty only to address the Commission on the issues which arose in the matter on the material already available on record. If any
response has been filed by Carnation to the DG report, the same shall not be considered by the Commission and shall not be made part of the record of
the case. The counsels also raised objections that the OPs should have been heard before allowing Carnation to be impleaded as a party. Regulation 25 of
the CCI (General) Regulations, 2009 empowers the Commission to permit a person or enterprise to take part in the proceedings if the Commission is
satisfied that a person or enterprise had substantial interest in the outcome of proceedings and it was in public interest to allow such a person or
enterprise to present his or its opinion on such a matter. In the present case, Carnation is a multi brand car repairer and representatives of Carnation had
deposed before DG within the knowledge of the OPs. The OPs in this case are various car manufacturers. The informant before the Commission is a person
who owns 3 brands of cars and had approached the Commission with information concerning competitive issues in the after market. Since none of the
multi brand car repairer was before the Commission, the Commission thought it appropriate that the legal arguments of a multi brand car repairer should
also be heard by the Commission since the Commission was going to consider an important matter. It was not necessary for the Commission to serve a
notice to the OPs before asking Carnation to address arguments on the material already available on record before the Commission as it was not going to
prejudice either of the car manufacturers who were plenty in number and had been given adequate time to address the Commission continuously for 5
days. The Commission, therefore, did not consider it necessary to service notice of the application made by Carnation on the OPs since the Commission
was not reversing the hands of the clock and was not permitting Carnation to file any pleadings or material before the Commission. The Commission had
only permitted Carnation to give its opinion on the legal issues which were being addressed by the car manufactures. It had not permitted Carnation to
add to any pleadings. The objections made by the counsels are not tenable.
Advocates on behalf of the above OPs argued the matter in support of their respective replies filed to the DG report. Arguments on the DG report have
been concluded in respect of these parties. The Commission has directed to the parties to file written arguments, if they so desire, within ten days.”
(Emphasis supplied)
9. Since the Commission heard parties in groups, a similar order was passed on subsequent dates of hearing i.e. 05.02.2013, 06.02.2013, 07.02.2013
and 08.02.2013. Nissan was heard on 04.02.2013, Ford on 05.02.2013 and Toyota on 08.02.2013. Toyota along with two others filed applications in the
Commission to seek stay of the proceeding encouraged by an interim stay granted by the Madras High Court to Hyundai Motor India Limited, one of the 17
car manufacturers involved in this enquiry. However, the Commission fairly declined to stay the proceedings as they had reached almost the end of their
course. On 16.04.2013, the Commission considered interlocutory applications filed by Nissan and Toyota in respect to filing responses to queries made by the
Commission and written arguments on their behalf. The Commission granted time to both the applicants accordingly. In the same meeting, the Commission
also considered a request by Toyota to seek a meeting of one of its, business executive with the Commission to discuss the steps that the applicant is willing
to take to make the market more competitive as well as to explain the complexities involved therein. The Commission declined to give a date for meeting
with Toyota business executive since the applicant had already been given opportunity for oral arguments and also to file written submissions in the matter.
The Commission during the interregnum upto pronouncing its order sought answers to several queries from the car manufacturers, some of which were
answered from time to time and written re-sponses were filed. Toyota also filed an affidavit on 22.01.2013. The Commission passed its final order on
25.08.2014.
10. The DG in his main report after introducing the subject of investigation as summarized in the information and supplementary information, took note of
the fact that the alleged practices may not be confined to the three companies which had been referred by the informant in his information and considering
that the case involved larger issue related to prevailing conduct of the players in the automobile sector and its implications on the consumer at large
suggested that the investigation may not be restricted to the opposite parties mentioned in the order.
11. The Commission consequently approved DG's proposal to expand the scope of enquiry from the three car manufacturers named in the information to
all the car manufacturers operating within India.
12. DG broadly investigated the following four categories of issues:
1. Restrictions on Original Equipment Suppliers (OES) in selling spares directly in the aftermarket.
2. Constraints faced by independent repairers to undertaking repairs of various car brands on account of practices of car manufacturers/original equipment
manufacturers (OEMs).
3. Restrictions on authorized dealers from sourcing spare parts from other than OEMs and taking up dealership of other car manufacturers.
4. Difficulties encountered by users of vehicles in meeting their after sale service repairs and maintenance requirements.
13. In chapter II of his report, DG has focused on the structure of the Automobile Industry in India. He has divided the automobile sector into two parts
namely automotive primary market and automotive secondary market. According to the statistics quoted by the DG at the time of the investigation, Toyota
commanded a 3.4% market share of automobile market while Ford and Nissan had 3.91 and 0.52% share of automobiles, respectively. The automotive
aftermarket is treated as secondary market of the automotive industry which comprises distribution, retailing and installation of all vehicles parts, workshop,
service tools, equipment, accessories and chemicals after the sale of the automobile by the OEM to the consumers. As per the Automobile Components
Manufacturer Association (ACMA) report 2011, the estimated turnover of auto component industry in India is US$ 40 billion (2010-2011).
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14. According to the ACMA report quoted above passenger vehicles accounted for 24.68% of the auto components and components consumed in 2010. It
has been estimated that the total market for aftermarket component in 2010 was Rs. 24,800 crores. DG has then identified various players in automotive
aftermarket including component suppliers and service workshops. They are listed below:
15. According to the information provided by Society for Indian Automobile Manufacturers (SIAM) there are 17 car manufacturers whose names have
already been stated in above. Authorized dealers constitute a significant level in the vertical chain of automobile industry. They provide a network of dealers
for automobile manufacturer (OEMs) and at the same time they operate as vendors for OEMs and service workshops for the OEMs. Original Equipment
Suppliers (OESs) are manufacturers of auto components who provide components to OEMs as original suppliers and may also supply components to the
aftermarket. Most OESs are located within the country while some others are located abroad. The latter are very often affiliates or parent companies of the
OEMs. Some auto components are also manufactured by the OEMs in their own facilities. Independent service providers constitute another class of service
providers who are not affiliated to an OEM but run vehicle maintenance and repair services as independent standalone facilities. This category encompasses
organized networked multi brand service providers such as BOSCH car service (BOSCH), Carnation Auto India Pvt. Limited (Carnation), Vahan Motor Private
Limited (CARZ) and TVS Automobiles Solutions Pvt. Ltd. (TVS). DG has quoted from the Indian Automotive aftermarket study 2011, the following numbers
of service providers in different categories:
Type of Service Center Number of workshops
OEM authorized 19000
Multi Brand Dealers 950
Semi - Organized Service Stations 60000
Neighbourhood Garages/Un-organized service providers 300000
16. Besides the above direct players, there are representative structures for all categories of operators. The Society for Indian Automobile Manufacturers
(SIAM) is the representative body for the OEMs. It has 46 members which include all Indian companies, joint ventures as well as foreign subsidiaries. ACMA
is the association of Auto Component Industry and represents about 640 companies in the auto component manufacturing sector. Federation of Automobiles
Dealers Association (FADA) is the Apex National body of automobile dealers (dealing in two wheelers, three wheelers, cars, trucks and buses) which protects
and promotes the automobiles repair business in India.
17. In order to fully comprehend the kind of spare parts which are available in the aftermarket following table is reproduced from DG's main report:
Categorization OE spare parts Original spare parts made by OE suppliers (Tier1) and sold through OEM-owned channels or
OE suppliers (OES) through distributors and wholesalers.
Genuine Branded spare parts Spare parts, locally manufactured and sold under brand names by OES and Tier 1 or 2
suppliers
Non OE brand Spare parts manufactured by non-OE entities and sold under their own names
Imported Components manufactured outside India, mostly Chinese or Taiwanese or Korean spares
with trade mark or brand name
Unbranded and spurious Unbranded Spare parts locally manufactured by small manufacturers who do not own a brand name or a
trade mark. Also includes un-branded low cost Chinese or Taiwanese or Korean spares.
Re-Manufactured Locally reconditioned OE, branded, and non-OE branded spare parts and sold as
reconditioned spare parts.
Counterfeit Locally manufactured or reconditioned spares sold under brand names (both OE, branded
and non-OE), using third party intellectual property.
18. In order to appreciate the distribution network of spare parts which has a bearing on this case, we reproduce relevant portions of DG's report below:
“Distribution network for spare parts
The broad distribution channels for aftermarket supplies are as under:—
1. OEM channels and OE supplies.
2. Import channel
The key players in the chain are:
OEMs: Car manufacturers usually have a separate independent after-service division that buys parts from the component manufacturers and distributes
them through their own network of dealers and in some cases also through distributors/stockist. In case of some of the OEMs the procurement and supply
of spare parts for aftermarket is being undertaken by a separate company set up for the purpose.
OESs: Original Equipment Suppliers sell products through both the OEM network and in some cases also through their own network of stockist and
dealers.
Overseas suppliers: Several OEMs source parts including spare parts from overseas suppliers and supply for the aftermarket.
Wholesalers/Distributors/Dealers: These are members of the distribution chain and help in reaching the part of the end - consumers.
Sub - distributors/Semi Wholesalers: These dealers mostly buy from wholesalers/distributors and area of operation is smaller.
Retailers: The spare parts shop, the retailer could also be providing parts to other shops. The retailer is the point of contact between the manufacturer
and the end-consumer.
As per ACMA report there are more than 3,000 authorized distributor's (authorized dealers) of auto manufacturing companies. There are approx. 5,000
wholesalers. The number of semi-wholesalers, who mainly patch up for the distribution to the interiors and in some cases also reach up to the garage level
is put at about 20,000. Auto component retailers are estimated to be more than 125,000 in the country. According to the report Tier 1 OE Ss are
increasingly veering towards direct supplies through their authorized channels to ensure sustainability and profitability.”
19. In the above background it can be summarized that an automobile in India is assembled by procuring parts from overseas suppliers, domestic OESs
and from the OEMs themselves. Every OEM has a network of authorized dealers which distributes its automobiles as well as spare parts. It is needless to
emphasize that a widely spread network of authorized dealers will facilitate the availability of an OEMs automobiles and their spare parts. Therefore, most
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automobiles manufacturers, as they carve out a larger market share in a given territory, will naturally be encouraged to expand the dealership network or the
larger the market share of a player the greater is his presence in distant locations within a national territory.
20. The focus of DG's investigation has been on the following:
1. To review the supply agreements between the OEM and the overseas component suppliers and see if the overseas component suppliers are free to sell
their products in the aftermarket.
2. Examine the purchase agreements between the OEMs and the OESs and investigate whether there are any restrictive provisions in such agreements
and/or OESs are free to sell their products in the aftermarket.
3. Whether there are any restrictive arrangements within the dealership agreements executed between the OEMs and their authorized dealers particularly
whether there are restrictions on the authorized dealers who take business from other competing OEM and whether authorized dealers can sell spare
parts in the aftermarket without any restrictions.
4. Whether independent repairers can access spare parts of all brands of cars produced by OEMs from different levels of operators in the vertical supply
chain i.e. whether independent repairers can access spare parts from OEMs, OESs and authorized dealers.
21. The DG has carried out his investigation focused on the above four considerations and has produced reports specific to each company in order to focus
facts which are specific to that company.
In the course of his investigation DG examined the following:
 “Whether any restrictions have been imposed by OEM on OES (local and overseas suppliers) in making the spare parts available directly to third
parties such as customers, neighbourhood work shops, multi-brand work shops etc.
 Whether there is any restriction on dealers on sourcing of spare parts.
 Whether over the counter sales of spare parts by authorized dealers are permitted and actually taking place.
 Whether there are genuine/organized channels other than the authorized dealers/service centres of OEM through which entities can procure the
spare parts sourced by OEMs from OES.
 Whether the body parts manufactured in house by OEM, imported parts which are used in repair and maintenance are being made available to
entities other than their authorized dealers.
 Are the customers being charged prices for spare parts which are substantially higher than the price at which they are being procured by the OEM
from the OESs including overseas suppliers.
 Whether the customer can get the after sales service from entities other than the authorized service centres. Are there any adverse warranty
implications in case the customer avail services of non authorized dealers.
 Are there any constraints being faced by the customers in getting the cars serviced and repaired from workshops other than the authorized centre on
account of non availability of the required spare/body parts.
 Whether the technical manuals, diagnostic tools/equipments/softwares/codes etc. required to service and repair the vehicle are being made available
to other than authorized networks including independent workshops, multi-brand workshops having the expertise and capabilities to handle after
sales service requirements etc.
 Whether any restrictions are being imposed by OEMs on their authorized dealers from taking up the franchisee/dealership of other OEMs.
 Whether there are any clauses in the agreements entered at the various levels of aftermarket which are anti competitive/violative of provisions of the
Act.
 Are there any IPR or technological issues.
 What are the best international practices and developments.”
22. DG collected information from all stake holders, their associations and individual companies, and statements were recorded on oath of representatives
of OEMs, OESs, independent repairers etc. Relevant laws, practices and jurisprudence in other jurisdictions have also been studied and commented upon.
23. After conducting lengthy investigation, DG has found all the three appellants in violation of the provisions of Section 3(4) and Section 4 of the Act.
24. In chapter XII of his report DG has drawn conclusions of his investigation. In brief his conclusions can be summarized as follows:
DG has recognized ‘sale of cars in India’ as primary market, ‘sale of spare parts in the aftermarket in India’ as secondary market and ‘maintenance and
service of automobiles in India’ as third relevant market. However there is a lateral connect between the secondary market and the market for repairs and
maintenance of automobiles. DG examined the vertical agreements between OEM's, OESs and authorized dealers and concluded that “in terms of
agreement with the OEMs most of the OESs are restricted from selling spare parts directly to third parties without obtaining prior consent of the OEM”. He
found these agreements in the nature of exclusive distribution arrangements and refusal to deal in terms of Section 3(4)(c) and Section 3(4)(d) of the
Act. Since OEMs defended their restrictions on the grounds of imposing reasonable conditions to protect their intellectual property rights, DG examined
Section 3(5) of the Act and concluded that these were not reasonable conditions. Consequently he also found that in almost all cases the appellants were
not able to prove their intellectual property rights for various reasons mentioned in the report and therefore even if they were to be given the benefit of
Section 3(5) of the Act they could not have been granted such benefits. DG's investigation also reported that though there were no specific clauses in the
import agreements of most OEMs which restricted the overseas suppliers from selling directly in the aftermarket, they were found to be supplying spare
parts only to the OEM's and not directly in the open market to any other distribution channel. This conduct amounted to exclusive distribution agreement
in terms of Section 3(4)(c) of the Act. On the issue of agreements entered into by OEMs with the authorized dealers, DG reported that there are clauses
requiring them to source the spare parts only from the OEM or their approved vendors. Such agreements were therefore found to be in the nature of
exclusive supply agreements in terms of Section 3(4)(d) of the Act. The dealer agreements of some OEMs contained clauses which either prohibit or
restrict over the counter sales of spare parts to independent repairers; they were therefore found to be in the nature of refusal to deal in terms of Section
3(4)(d) of the Act. In some cases though there were no specific clauses in the agreements evidence brought out that spare parts are not generally
available over the counter or at best were being sold selectively. This gave rise to the conclusion that there was an understanding/arrangement between
the OEM and the authorized dealers regarding restraint or prohibition of sale of spare parts over the counter to individual customer/independent repairers
amounting to exclusive distribution and refusal to deal agreement in terms of Section 3(4)(c) and Section 3(4)(d) of the Act.
25. Since OESs were restricted from supplying spare parts in the aftermarket and the authorized dealers were required to source spare parts only from the
OEMs, these acts amounted to creation of entry barriers for the OESs who supply to the OEMs as well as to other OESs. The OEM is the only source of supply
of spare parts in the market thereby completely eliminating and foreclosing competition in the aftermarket. According to DG's conclusion OEMs also charged
unfair price on the spare parts and given the complete dependence of customers on OEMs for these spare parts, with them having to spend far more than the
normal price which could be charged on market principle thereby adversely affecting competition in the market and impacting consumer interest. DG has
also reported that OEMs agreement with authorized dealers does not allow them to undertake dealership of other brands of vehicles without OEMs prior
written consent. Some of the OEMs do not permit their dealers from taking dealership of competing brands while others prohibit undertaking business
relating to other brands of cars from the same premises. DG has categorized this conduct as exclusive distribution agreement in terms of Section 4 (c) of the
Act.
26. On the issue of dominance DG's investigation has concluded that the automobile market is divided into primary market for cars, secondary market for
spare parts and related market for service and maintenance. He has also concluded that
“Investigation has revealed that in case of few OEMs spare parts, diagnostic tools etc are not available in the open market particularly to the
independent repairers. As a result the independent repairers are not in a position to offer their services with respect to these brands of cars. Even if they
are able to source the spare parts in a limited way through alternate sources, non-availability of the specialized tools and other facility severely restrict
their ability to undertake such jobs. It is, therefore, found that the conduct of these OEMs amounts to imposition of unfair conditions and denial of market
access to independent repairers in terms of Section 4(2)(a)(i) and 4(2)(c) respectively of the Act. Further on account of the restrictions, the users of the
cars are not in a position to choose between the independent repairers and the authorized dealers for their aftermarket requirements which amounts to
imposition of unfair condition in terms of Section 4(2)(a)(i) of the Act. Also requiring users to avail services of the authorized dealers while purchasing
spare parts was found to be use by the OEMs of their dominant position in one relevant market i.e. in the supply of spare parts to enter and protect the
other relevant market i.e. the market for after sales service thereby attracting the provisions of Section 4(2)(e) of the Act.”
27. On the issue of diagnostic tools, technical manual, fault codes etc. besides concluding that they are not available to independent repairers' thereby
manifesting refusal to deal and recognizing that each OEM is in a dominant position in the relevant aftermarket, DG has concluded that they also create entry
barriers for independent repairers. DG has concluded that diagnostic tools, technical manuals etc. are in the nature of essential facilities and by depriving
independent repairers of the diagnostic tools for repairs, OEMs are depriving them of essential facilities to carry out their normal business.
28. DG has examined the conduct of appellants on the parameters listed in para 21 above in respect to each OEM. While the main report covers the entire
expanse of his investigation, for each OEM a sub report has been prepared. For our present purposes we are only concerned with the three appellants under
consideration in these appeals therefore, we reproduce the findings of DG as summarized by the Commission in its report below:
“6. Findings of the DG with respect to Ford
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6.1 Ford India Pvt. Ltd. (“FIPL”) was incorporated in 1995 and is a 100% subsidiary of Ford Motor Company, U.S.A. FIPL is engaged in manufacturing of
passenger cars and spare parts in India. FIPL has its manufacturing plant at Maraimalai Nagar, Chennai. FIPL has approximately 150 dealers through
which it sells its cars. For after sale services, there are approximately 170 authorized service centers in about 100 cities/towns.
6.2 The specific findings of the DG against the alleged anti-competitive practices of Ford are summarized below:
6.2.1 Ford does not have any formal agreement with its overseas suppliers and imports spare parts from an associate company. DG did not find any
restrictive clauses in Ford overseas supplier agreements. DG concluded that since the overseas supplier are associates of Ford and in-fact only supplies
spare parts to Ford in India, there may exists an arrangement between Ford and such overseas supplier for not supplying spare parts in Indian
aftermarket.
6.2.2 OES's are restricted from accessing the aftermarket for protecting the OEM's IPRs.
6.2.3 Based upon the submissions of multi-brand retailers and independent repairers, the DG has concluded that although the agreement between Ford
and its authorized dealers does not contain any clause dealing with the right of the authorized dealers to sell spare parts over the counter, but in practice
such sales are not permitted.
6.2.4 Diagnostic tools are only available to authorized dealers of the OEM.
6.2.5 Warranty conditions are invalidated if a Ford branded car is repaired by independent repairers.
6.2.6 Ability of dealers to deal in competing brands is restricted; however, Ford has submitted that 61 dealers have undertaken dealerships of
competing brands.
6.2.7 Price mark up for top 50 spare parts by revenue generated is: 38.37% -1171.09% (Q1, 2010-11); 35.62% - 1171.09% (Q2, 2010-11); 35.62% -
1171.09%(Q3, 2010-11); Price mark-up of top 50 spare parts on the basis of consumption is: 64.1 - 1696.36 (Q1, 2010-11); 64.1 - 1696.36 (Q2, 2010-
11); 58.68% - 1696.36% (Q3, 2010-11); 64.1% - 1696.36% (Q3, 2010-11).
6.2.8 Ford has submitted details of patents over 11 body parts which have been granted in India and applications for grant of patents over 30 body
parts in India. However, Ford does not have patent rights over all the body parts over which restrictions are currently being imposed by Ford.
6.2.9 As per DG, denial to access diagnostic tools and spare parts amounts to denial of access to an “essential facility” and amounts to abuse of
dominant position of Ford.
6.2.10. Since Ford does not allow over the counter sale of spare parts and since diagnostic tools are not available to the independent repairers, Ford
imposes unfair terms and denies market access to the independent repairers as per section 4(2)(a)(i) and 4(2)(c) of the Act, respectively. Further, Ford is
in violation of section 4(2)(a)(ii) for imposing unfair prices.
6.2.11. Ford uses its dominance in one relevant market (i.e., supply of spare parts) to protect the other relevant market (i.e. market for repair services)
which is violative of section 4(2)(e) of the Act.
6.2.12. Ford is in violation of provisions of sections 3(4)(c) and 3(4)(d) of the Act with respect to its agreements with local OESs and agreements with
authorized dealers for imposing absolute restrictive covenants and completely foreclosing the aftermarket for supply of spare parts and other diagnostic
tools.
6.2.13 Agreements with the authorized dealers have restrictive clauses requiring dealers to source the spare parts only from Ford or its approved
dealers. The DG has found these agreements in the nature of exclusive supply agreements in violation of section 3(4)(b) of the Act.
12. Findings of the DG with respect to Nissan Motor India (P) Limited (“Nissan”)
12.1 Nissan is a 100% subsidiary of Nissan Motor Ltd., Japan (“NML Japan”) through Nissan International Holdings Netherlands and Nissan Asia Pacific
Pvt. Ltd., Nissan was incorporated on February 7, 2005. Nissan is engaged in the design, manufacture, assembly and/or sale of certain motor vehicles and
motor vehicle components. Further, it caters to the after sales service of the vehicles which are sold and manufactured by Nissan. It has been informed to
the DG, that the company has recently commenced the export of vehicle components and trial parts to its group companies. Nissan has manufacturing
facility at the SIPCOT Industrial Park at the Kancheepuram district of Tamil Nadu and is in the process of setting up an automobile manufacturing plant in
Oragadam, Chennai. Nissan has a network of approximately 40 dealers throughout India in around 25 cities. The distribution network for spare parts of
Nissan branded cars is stated to be managed through such authorized dealer network.
12.2 The specific findings of the DG against the alleged anti-competitive practices of Nissan are summarized below:
12.2.1. Nissan does not have an overseas supplier arrangement in place.
12.2.2. OES's are restricted from accessing the aftermarket for protecting the OEM's IPRs.
12.2.3. The authorized dealer agreement of Nissan expressly restricts over the counter sale of spare parts of Nissan branded cars in the aftermarket.
12.2.4. Diagnostic tools are only available to authorized dealers of the OEM.
12.2.5. Warranty conditions are invalidated if a Nissan branded car is repaired by independent repairers.
12.2.6. Ability of Nissan's authorized dealers to deal in competing brands is restricted. However, Nissan has submitted that certain Nissan dealers have
been dealing in competing brands.
12.2.7. Price mark up for top 50 spare parts by revenue generated is: 84.96% - 201.98%. Price mark-up of top 50 spare parts on the basis of
consumption is: 85.81%-258.78%.
12.2.8. The Manufacturing License Agreement between NML Japan and Nissan does not grant any license to Nissan to use any of the registered IPRs of
NML Japan. Nissan has contended before the DG that it does not have any IPRs registered in India.
12.2.9. As per DG, denial to access diagnostic tools and spare parts amounts to denial of access to an “essential facility” and amounts to abuse of
dominant position of Nissan.
12.2.10. Since Nissan does not allow over the counter sale of spare parts and since diagnostic tools are not available to the independent repairers,
Nissan imposes unfair terms and denies market access to the independent repairers as per section 4(2)(a)(i) and 4(2)(c) of the Act, respectively. Further,
Nissan is in violation of section 4(2)(a)(ii) for imposing unfair prices.
12.2.11. Nissan uses its dominance in one relevant market (i.e., supply of spare parts) to protect the other relevant market (i.e. market for repair
services) which is violative of section 4(2)(e) of the Act.
12.2.12. Nissan is in violation of provisions of sections 3(4)(c) and (d) of the Act with respect to its agreements with local OESs and agreements with
tools. 12.2.13 Agreements with the authorized dealers have restrictive clauses requiring dealers to source the spare parts only from Nissan or its approved
dealers. The DG has found these agreements in the nature of exclusive supply agreements in violation of section 3(4)(b) of the Act.
16. Findings of the DG with respect to Toyota Kirloskar Motors Pri-vate Limited (“Toyota”)
16.1. Toyota is a subsidiary and an authorized distributor of Toyota Corporation, Japan (“TMC”) with 89% of Toyota's shares held by TMC and 11% held
by Kirloskar Group, India. Toyota was incorporated on 6th October, 1997. Toyota manufactures ‘Toyota’ brand of cars in India with the help of technical
assistance received from TMC. Toyota Motor Asia Pacific Pvt. Ltd in Singapore (“TMAP”) is a wholly owned subsidiary of TMC. The role of TMAP is to support
and guide the planning and implementation of distribution, sales and marketing strategies in India, where required. Toyota is involved in manufacturing,
importing, marketing and sales and service of Toyota brand automobiles in India. The company has its manufacturing plant in Bidad, Karnataka. Toyota
has three (3) categories of dealership networks. The first model is for dealers which are dealing exclusively with sales of motor vehicles (1S model),
second kind of dealership is the 2S model, where dealers cater to both sale of various models of Toyota cars as well as provide after sale services of
particular brands of Toyota cars and the third model of Toyota dealers is the 3S model, where the dealer conducts the sale of Toyota cars, provides after
sale services of TKM cars and sell spare parts of various models of Toyota branded cars. Toyota has 173 dealers in its various models of dealership
networks. The 2S and 3S models are stated to be spread over in 102 cities/towns in India. Toyota has submitted that it has plans to reach a network of
330 authorized dealerships by 2015. 16.2 The specific findings of the DG against the alleged anti-competitive practices of Toyota are summarized below:
16.2.1. Toyota sources several parts from overseas suppliers which include the Toyota Motor Corporation in Japan (“TMC”), Toyota affiliates in other
countries and other overseas companies approved by Toyota. No clause in such overseas supplier agreements could be discovered that restricted the
rights of such suppliers from accessing the Indian aftermarket. Since Toyota's overseas suppliers are its affiliates and they do not as a matter of fact
supply spare parts in the Indian aftermarket, an arrangement could be presumed.
16.2.2. OES' are restricted from accessing the aftermarket for protecting the OEM's IPRs.
16.2.3. Based upon the submissions of multi-brand retailers and independent repairers, the DG has concluded that although the agreement between
Toyota and its authorized dealers does not contain any clause dealing with the right of the authorized dealers to sell spare parts over the counter, but in
practice the sale of such spare parts are not permitted.
16.2.4. Diagnostic tools are only available to authorized dealers of the OEM.
16.2.5. Warranty conditions are invalidated if a Toyota branded car is repaired by independent repairers.
16.2.6. Ability of dealers to deal in competing brands is restricted.
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16.2.7. Price mark up for top 50 spare parts by revenue generated is: 79.61%-1305.85% Price mark-up of top 50 spare parts on the basis of
consumption is: 38.26% -510.43%.
16.2.8. It does not stand established that Toyota possesses valid IPRs in India, with respect to all spare parts for which restrictions are being imposed
upon OESs.
16.2.9. As per DG, denial to access diagnostic tools and spare parts amounts to denial of access to an “essential facility” and amounts to abuse of
dominant position of Toyota.
16.2.10. Since Toyota restricts the availability of spare parts and diagnostic tools to its authorized dealers, it imposes unfair terms and denies market
access to the independent repairers as per section 4(2)(a)(i) and 4(2)(c) of the Act, respectively. Further, Toyota is in violation of section 4(2)(a)(ii) for
imposing unfair prices.
16.2.11. Toyota uses its dominance in one relevant market (i.e., supply of spare parts) to protect the other relevant market (i.e. market for repair
services) which is violative of section 4(2)(e) of the Act.
16.2.12. Toyota is in violation of provisions of sections 3(4)(c) and (d) of the Act with respect to its agreements with local OESs and agreements with
tools.
16.2.13. Agreements with the authorized dealers have restrictive clauses requiring dealers to source the spare parts only from Toyota or its approved
dealers. The DG has found these agreements in the nature of exclusive supply agreements in violation of section 3(4)(b) of the Act.”
29. The Appellants have taken a more or less similar approach to most of the issues raised except that there are some specific nuances or facts concerning
each appellants. Therefore, the Commission has dealt with the DG report in a more generic way. However, while examining each of the issue it has
specifically distinguished between the approaches adopted by different OEMs and categorized them on the basis of the commonality of their approaches to
specific issue. The Four kinds of issues listed in Para 20 have been clubbed by the Commission into two broad issues namely:
(1) Whether the opposite parties have violated the provisions of Section 4 of the Act as has been alleged.
(2) Whether the opposite parties have violated the provisions of Section 3 of the Act as has been alleged.
30. We now move on to salient features of the three appeals and then follow it with discussion on four issues in the light of the Commission's order,
pleadings and written submissions made by the parties in these appeals.
31. Toyota has preferred the appeal inter alia, identifying following major grievances:
(1) They have been incorrectly included as a party in the scope of the investigation and the impugned order.
(2) The proceedings before the Commission/DG did not follow principles of natural justice.
(3) The impugned order did not distinguish between the appellant and other OEMs.
(4) The agreements entered into between appellants, its OESs and authorized dealers and the appellants' commercial conduct were not in violation of
Section 3(4) and Section 4(2) of the Act.
(5) The directions imposed by respondent/the Commission are vague, arbitrary and impractical.
32. Ford in its appeal have inter alia, identified following grounds, which we quote:
“9.1 That the Respondent No. 1/CCI erred in applying the standards of highly developed and regulated European automotive market to the Indian
automotive market.
9.2 That the Respondent No. 1/CCI failed to appreciate ‘objective justifications’ for the conduct of the Appellant/Ford.
9.3 That the relevant market defined by the Respondent No. 1/CCI is incorrect.
9.4 That the Appellant/Ford is not dominant in the primary market of sale of cars in India.
9.5 That assuming, but not conceding, that the relevant market as defined by the Respondent No. 1/CCI is correct, the Appellant/Ford has not abused
dominance in the relevant market.
9.6 That the Respondent No. 1/CCI erred in imposing a penalty on the Appellant/Ford on the basis of the total turnover and not the relevant turnover.
9.7 That the Respondent No. 1/CCI erred in approving the request of the Ld. DG to expand the scope of investigation to include additional OEMs,
including the Appellant/Ford, against which no information was filed u/s 19 of the Act.”
33. The grounds taken by Nissan in its appeal can be broadly categorized as follows:
1. Grounds involving the character of the prima facie order given by the Commission for investigation.
2. Respondent/the Commission did not follow the principles of natural justice and denied an opportunity of being heard to the appellant.
3. That the respondent/the Commission had failed to establish any appreciable adverse effect on competition in India and violation of Section 3(4) of the
Act. It has ignored the defence under Section 3(5) of the Act advanced by the appellant.
34. It can be seen that the grounds raised by the three appellants are more or less of similar nature and can be broadly clubbed into following categories:
a. The expansion in scope of investigation ordered by the Commission.
b. Issues involving the process adopted by the DG/the Commission and the principles of natural justice.
c. Whether vertical agreements listed earlier in this order and the conduct of OEMs is against the provisions of Section 3(4) of the Act.
d. Whether automobile and auto spare parts market constitute a unified systems market or cars constitute a separate primary market and spare parts in
the aftermarket as a separate market and the impact of such interpretation on whether appellants are in a dominant position.
e. Whether there was abuse of dominance by appellants.
f. Whether the Commission's direction could be implemented in a practical manner keeping the interest of national economy in mind.
35. We have heard the learned counsels from both sides over several days, and very carefully perused the pleadings and material put before us from both
sides. We have also taken note of information relating to automobile sector displayed on relevant websites of Department/Ministries of the Government of
India or recognized institutions in the automobile sector to make a fair assessment of the status of automobile industry in India as well as to appreciate the
prevalent commercial practices in view of the role of automobile industry in India's economic development. We first move on to take issues at a & b the
preceding paragraph.
Expansion in the scope of Investigation
36. The Commission by its order dated 29.04.2011 approved the proposal made in the DG's note dated 19.04.2011 for initiating investigation against
other car manufacturers. It may be recalled that by its order under Section 26(1) of the Act dated 24.02.2011 the Commission had ordered investigation
against three OEMs namely (1) Honda Siel Cars India Ltd. (2) Volkswagen Car India Ltd. and (3) Fiat India Automobiles India Ltd. The DG in his note dated
19.04.2011 had requested for expansion of the scope of the investigation by including all the car manufacturers in India.
37. We quote below from the note sent by the DG to the Commission:
“1. In terms of CCI Order 03/2011 dated February 24, 2011, the Hon'ble Commission has directed the office of DG to investigate the captioned case
against HSIL, VIPL and FIAL. The informant has inter-alia alleged anti-competitive practices by these entities such as:
a. genuine spare parts, diagnostic tools, technological information etc are not made available to independent repair workshops;
b. restrictions are imposed on original equipment suppliers (OESs) forcing them not to supply spare parts in the open market.
c. Dealers are prohibited from taking dealership of other car manufactures.
2. Immediately on …………………..
3. However, in view of the fact that these practices may not be confined to these entities, the case involves larger issue related to prevalent conduct of the
players in the automobile sector and its implication on the consumers at large it is suggested that the investigation may not be restricted to the
opposite parties mentioned in the order. Accordingly, it is proposed that the scope of the investigation may be expanded to examine the practices, in
the areas under consideration, of all the car manufacturers in India. A list of car manufacturers in India, as obtained from SIAM (Society of Indian
Automobile Manufacturers) is placed at Annexure I.
Submitted for consideration and approval please.”
(emphasis supplied)
The note of the investigating officer states, “the scope of investigation needs to be widened in this case, considering the fact that restrictive trade
practices on sale of spare parts, dealership etc. are also resorted by other car manufacturers. There appears a prima facie case, against the other car
manufacturer as per list obtained from Society of Indian automobile manufacturer (SIAM) & therefore requires investigation for verification in the larger
interest of the consumers.
It is therefore required that CCI may kindly issue necessary direction to initiate investigation against other car manufacturers.”
38. The Commission in its order at para 5.2 states as follows:
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“From the submissions of the Informant, initial discussions held and the preliminary enquiries made during the investigation, the DG gathered that
other automobile manufacturers (other than the Ops (1-3) may also be indulging in similar restrictive trade practices in the areas of after sales service,
procurement and sale of spare parts from the OES, setting up of dealership etc. In view of the fact that these practices may not be confined to the OPs (1-
3) and considering that the case involved the larger issue related to prevalent anti-competitive conduct of the players in the Indian automobile sector and
its implications on the consumers at large, the DG realized that the investigation should not be restricted to the Ops (1-3) mentioned above. Accordingly,
it was proposed by the DG that the investigation may be allowed to examine the alleged anti-competitive trade practices of all car manufacturers in India,
as per the list maintained by the Society of Indian Automobile Manufacturers (“SIAM”). The DG, therefore, requested the Commission for direction to
initiate investigations against all car manufacturers in India.”
39. Toyota have stated that the Commission has acted ultra vires its powers under the scheme of Section 26 of the Act by permitting the DG to expand
the scope of the investigation beyond the three OEMs mentioned in the Commission's initiation order dated 24.02.2011 by including 14 other car
manufacturers. Such order does not satisfy the statutory requirement for a prima facie order under Section 26(1) of the Act. It has been stated that the
initiation order was limited to OEMs named in the complaint and the act does not grant the DG the power to suo moto expand the scope of an investigation.
40. Paragraph 10 of the information while explaining the practices of the respondent Nos. 1 to 3 and the consequences of high technology based
automobiles and their impact on competition in the repair market for consumers states as follows:
“The regular denial of spare parts, accessories, information, diagnostic tools, and software from independent repair shops makes it impossible in many
circumstances for these shops to complete repairs without sending the vehicle to the authorized dealers/service stations to the vehicle manufacturers,
which is exactly the intent of the Re-spondents No. 1 to 3 and other vehicle manufacturers in con-junction with their authorized dealers/service stations.
Should this trend continue, car owners will experience a significant increase in repair costs along with held at ransom and forced to bear with the reduced
quality and complacency of the vehicle manufacturers and authorized dealers/service stations since they would realize that consumers have no option but
to visit them for any of their vehicle requirements. This is exactly the scenario that free and fair competition prevents.”
41. The Commission has responded to the contention made by the appellants that they were included in the scope of investigation in violation of Section
26(1) of the Act, in para 20.3 of the impugned order. The Commission while ordering the expansion of the scope kept in its consideration the nature of the
powers vested in it which are inquisitorial, investigative, regulatory, adjudicatory and advisory. The direction under Section 26(1) of the Act is an
administrative direction to the DG for investigation of contravention of the provisions of the Act without entering upon any adjudicatory or determinative
purpose. In the background of CCI v. SAIL (2010 CompLR 0061 SC), the Commission is not required to confine the scope of enquiry to the parties whose
names figured in the information. The purpose of filing information before the Commission is only to set the ball rolling as per the provisions of the
Competition Act, 2002. The scope of enquiry is much broader and the Commission is not restricted in its enquiry to consider the material placed by parties
only. The Commission also had before it the additional information filed by the informant on 27.01.2011 alleging certain restrictive practices by the opposite
parties named in the information and by other vehicle manufacturers in violation of the provisions of the Act. The directions issued by the Commission in its
order under Section 26(1) of the Act were not qua the three parties but against alleged anti competitive practices in the industry in general. In view of the
position taken by the Commission and the scheme of Section 26(1) of the Act and the jurisprudence around it, we do not see the Commission's acts in
expanding the scope of investigation beyond its jurisdiction. Further by restricting investigation to only three operators the Commission could not have
created an untenable situation where regulations are applicable to only three entities of the sector for practices prevalent in the entire sector.
(Emphasis supplied)
42. The powers assigned to the Commission in this respect are unfettered and do not require specific mention in the information. We do not see the
Commission exceeding its authority in ordering expansion in the scope of investigation by including other car manufacturers. On the contrary we believe the
Commission did the right thing by doing so.
Due Process and Natural Justice
43. In accordance with the normal practice of the Commission on receipt of the DG's report, the Commission ordered its circulation among all OEMs. The
Commission also decided “to ask the parties to file their replies/objections within four weeks of receipt of the report along with profit and loss account and
balance sheet of their enterprise for last three financial years and to appear for oral hearing either personally or their authorized representative………….”
44. Since most parties sought time to comply with the Commission's order they were granted time by the Commission. Prayers were made on behalf of
Ford, Toyota and Nissan seeking cross examination of some witnesses. The Commission disposed all applications for cross examination of witnesses and
applications for filing affidavits/documents/grant of confidentiality treatment of replies/objections etc. It passed following orders in respect to the appellants
on 10.01.2013:
“4.(i) The advocate on behalf of Ford India Pvt. Ltd. pressed for allowing his application for cross examination of witnesses. He has sought cross
examination of following witnesses:
Asahi Glass Ltd. (AIS)
Rane TRW Steering Systems
Victoria Motors
SPX India Pvt. Ltd.
Wonder Ford
(ii) He submitted that the Director General has not followed the procedure for conducting evidence and that he should have granted opportunity to
other parties to cross examine these witnesses before relying upon their evidence as against the applicant. However, DG had not given any information
nor an opportunity was afforded to cross examine their witnesses which was in violation of Regulation 41(5) of the General Regulations framed under the
Competition Act.
(iii) In the application a prayer has also been made for cross examination of multi brand repairers like CarZ, My TVS, Carnation Auto India Pvt. Ltd. A
prayer is also made for cross examination of Original Equipment Suppliers (OES) namely Lumax Industries, Sandhar Technologies, Sona Koya Steerings
and Shriram Pistons & Rings. The multi brand repairers are sought to be cross examined as DG relied on their e-mail re-sponses that their request for
genuine spare parts to the applicant was not responded.
(iv) Vide its order dated 11th December, 2012, the Commission had made it clear to the applicant that the party shall name the witnesses they seek to
cross examine or examine and the specific issue on which such examination/cross examination is sought along with the reasons in support thereof. In this
matter, the main issue raised before the Commission is that the applicant was not supplying original spare parts to anyone else except its authorized
dealers. Authorized dealers were also not further permitted to sell these spare parts except for use in the service/repair of the vehicles brought to them for
service/repair. When the counsel for the applicant did not specify the area of cross examination of the witnesses even during the arguments, the counsel
was asked to clear the stand of the applicant and to make it clear if the applicant was prepared to give an affidavit that it had been supplying spare parts
to the various enterprises dealing with aftermarket of spare parts and to the multi brand workshops. The cross examination of the aforesaid witnesses can
be allowed only if it is the stand of the applicant that the witnesses have told lies and the genuine spare parts of the applicant were readily available in the
aftermarket and were being provided by the applicant for this purpose. If the stand of the applicant is that it was not providing spare parts to the
aftermarket, there will be no use of cross examination. The applicant has failed to take the stand that its spare parts were freely available in the
aftermarket or it had in the past been supplying spare parts to the aftermarket or was ready and willing to supply in future. Thus no purpose would be
served in allowing cross examination of the witnesses except wasting the time. The counsel, however, took a stand that the information of the Multi Brand
Repairers/OES that they had approached the applicant for supply of spare parts for the after market/free market was not correct. The Commission gave
liberty to the applicant for filing an affidavit within 2 weeks to the effect that applicant was not approached by anybody for supply of spare parts in the
open market and also to file an affidavit about its stand in future whether the applicant was ready and willing to supply the spare parts in the open
market. This affidavit be filed within two weeks from today.
(v) The Counsel also made a request for furnishing redacted portion of documents relating to the applicant. DG representative stated that all
documents relating to the applicant have been supplied. However, the party shall file details of redacted portion of documents relating to it within 3 days
and the same shall be supplied within 3 days of filing of the application. The Commission also directed the party to file public version of its
reply/objections to the DG report in soft copy within two weeks. The final arguments in respect of the case of the applicant shall be heard on 5th February,
2013 at 11.30 A.M.
5. …………….
6. ……………..
7. ………………
8. ………………
9. ……………….
10. …………………
11. ………………….
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12. …………………
13. The counsel for Toyota Kirloskar Motors Pvt. Ltd. also argued for the application for cross examination of witnesses. The names of 6 witnesses are
stated in the Annexure 1 of whom cross examination is sought. The scope of examination as stated in the application is to contest the theory suggested by
DG about counterfeiting going down in case of constraints in supply, inference drawn by DG about abuse of dominant position and AAEC from the
statement of witnesses, denial of permission of Asahi Glass Limited to sell their products in the open retail market. No witness can be cross examined on
the inferences drawn by DG. DG is free to draw inference from the statement as per law. It is a matter of argument if the inference drawn by DG was
correct or not. The statement of the witnesses is about non supply/availability of the spare parts of the applicant in the free market/after sale market.
There is no denial by the applicant in the application or in the reply of this fact. No useful purpose shall be served by cross examination of witnesses only
for the sake of cross examination. The application is dismissed. However, the Commission directed the applicant to make its stand clear within two weeks
whether the applicant was willing to supply the spare parts in the open market in future. The case shall be heard on 8th February, 2013 at 10.30 A.M. for
final arguments. The counsel also made a request to supply redacted portion of documents relating to the applicant relied by DG but not received by the
applicant. The applicant shall make an application stating the list of such documents within 3 days from today and the documents shall be supplied to the
applicant within 3 days of receipt of the application.”
45. It can be seen that the appellants on the directions of the Commission indicated the names of witnesses whom they would like to cross examine.
However as the appellants/opposite parties were aggrieved by the alleged fact that DG's report was influenced by the statements made by some witnesses
who were not cross examined by the appellant as they were at that time not aware of such witnesses having being examined by the DG, the Commission
asked the appellants to file affidavits if they believed that spare parts of all models of automobiles manufactured by them were available in the aftermarket
freely to independent repairers and customers. While Toyota filed the reply no categoric statement was made by the appellants, including Toyota, on the
specific question posed by the Commission, with regard to availability of spare parts in the after market. It may also be noted that Appellants themselves
could have offered to examine witnesses in their support which they did not do. They could have specifically addressed each of the statement made by
witnesses they wished to cross examine. They did not do that either.
46. Further perusal of ordersheets of the proceeding before the Commission show that:
a. M/s Vahan Motors Pvt. Ltd. one of the independent repairers made an application dated 28.01.2013 requesting the Commission to allow it to become a
party to the present case. The Commission heard the applicant and decided not to implead them as a party in view of the fact that it was a very late
stage in the enquiry and that M/s Carnation Auto had already been permitted to address the Commission on issues involved.
b. The Commission heard final arguments on behalf of Nissan, Ford and Toyota the present appellants on 4th, 5th and 6th February, 2013. In its proceeding
dated 05.03.2013 the Commission directed the informant to file written submissions inviting their views/information on the following issues:
“i) Since it has been submitted that currently the market is not fully competitive on account of the alleged anti-competitive conduct of the opposite
parties, his views on how the markets of spare parts and servicing should operate to be fully competitive, including freedom of sale of parts,
innovation and competition in making spare parts, encouraging standardization of parts for developing more generic parts (like tyres, lights) which
can be used in many brands/models, the role of roadside garages for repairing, freedom of choice to consumers etc. may be elucidated.
ii) The linkage of the relevant markets to the second hand car market, if any, as also modalities for factoring in the safety considerations and IPR issues
may be elucidated.
iii) What is the theory of harm professed by the informant, and what kinds of remedies are proposed?
47. The Commission also directed the opposite parties, except Premier Ltd. and Hyundai Motors India Ltd., to file the following submissions/clarifications
within the next two weeks (i.e. within two weeks after filing written submission by the informant):
i) How does the systems market definition put forward by many of the opposite parties fit within the definition of relevant product market under section 2
(t) of the Act, wherein inter-changeability and substitutability are significant considerations?
ii) How is life cycle cost of a car calculated? What are the various el-ements/factors taken into account, and what is the specific mod-el-wise life cycle cost
of each model manufactured by each car manufacturer? Information about which of these elements/factors is available in the public domain, and is it
adequate to enable an aver-age customer to calculate the life cycle cost of a car at the time of buying a new car?
iii) What is the stand of each opposite party about allowing/ensuring unrestricted availability of spare parts in the open market, including through over the
counter sales, and whether they are willing to file an affidavit to the effect that there are, or will be, no restrictions on availability of spare parts and
diagnostic tools to anyone who wants them?
iv) What measures are the opposite parties willing to consider for encouraging more competition in the spare parts and servicing markets?
v) What is the growth rate of each opposite party? This may be filed preferably for last ten years but not less than three years. The growth rate to be filed
on the basis of sales for each product in each segment for the period in which its products have been sold in India.
vi) Segmentation of its products (cars) and the basis for it into commonly used category of low end, mid level and luxury segments and within these
broad categories, to distinguish the different products into SUV, Sedan etc.
vii) What is the total car market share and market share estimates segment wise?
48. The matter was again fixed for oral hearing on that day for 25.04.2013. On the same day Toyota among others filed application seeking stay of
proceedings before the Commission on the grounds of Madras High Court interim decision granting ex-parte stay to M/s Hyundai Motors in Writ Petition
(Civil) No. 31808/2012 which was rejected by the Commission as the enquiry was at a late stage and there was no rationale for staying the proceeding. On
16.04.2013 the Commission among several other applications considered two applications filed on behalf of Nissan and Toyota, appellants herein. Nissan
filed post hearing written submission after hearing on 05.03.2013 and 22.03.2013 requesting for two weeks' time till 19.04.2013 to file their response to the
written arguments and response filed by the informant and response to queries raised by the Commission in its order dated 05.03.2013. Toyota filed an
application dated 05.04.2013 to submit responses to the questions raised by the Commission in its order dated 05.03.2013, seeking two weeks additional
time to convey the steps they were willing to take to make the market more competitive, to permit for meeting after 19.04.2013 of a Toyota business
executive with the Commission to discuss the steps that applicant was willing to take to make the market more competitive as well as explain the complexity
involved therein and response to the points raised in submissions of the informant and Carnation. The Commission considered both these applications and
granted time till 18.04.2013. It also considered Toyota's request for deputing a business executive with the Commission to discuss the steps they were
willing to take to make the market more competitive which the Commission rejected in view of several opportunities for oral hearing and arguments having
been given to the applicants. In its proceeding on 05.05.2013 the Commission considered application dated 25.04.2013 filed by Ford filing submissions on
the queries raised by the Commission in its proceeding dated 05.03.2013; application dated 19.04.2013 filed by Nissan filing written submissions to the
written arguments dated 21.03.2013 filed by the informant, written submissions to the written responses filed on behalf of informant to the queries raised by
the Commission vide their order dated 05.03.2013 and submissions/clarifications to the queries raised by the Commission vide order dated 05.03.2013. The
Commission also considered Toyota's application dated 05.04.2013 filing responses to questions raised in the Commission's order dated 05.03.2013,
response to the points raised in submission of the informant and Carnation Auto and application dated 02.05.2013 enclosing a letter of Toyota regarding
encouraging more competition in the spare parts and servicing markets and seeking confidentiality on the same for a minimum period of three years post
closure of this case in entirety. In these proceedings the Commission made clear to the parties that the oral arguments/submissions by the parties have
been concluded and no further hearing shall be made. However, in case the Commission have any query the party/parties concerned may be directed to
answer the query of the Commission in writing within the granted time. The Commission also allowed the parties to file additional submissions if any by
10.07.2013 making it very clear that the submissions filed after the stipulated date will not be taken into account. In their proceedings on 28.05.2013 the
Commission raised further queries to the opposite parties including appellants. Later on 24.07.2013 the Commission disposed of applications seeking
confidentiality by some opposite parties including the present appellants; rejected application on behalf of informant seeking the written argument filed
earlier jointly by informant and Carnation Auto to be deemed to have been filed by the informant alone.
49. Nissan requested through application under Section 36(1) of the Act seeking fresh oral hearing in the matter by the Commission on the ground that
there was a change in the constitution of the Coram of the Commission. The Commission decided that “after the matter was heard one new member had
joined the Commission, however, only those members of the Commission who heard the matter and were present at the time of arguments shall decide the
matter in question. The application is therefore rejected.” In their proceedings dated 15.10.2013 the Commission inter-alia considered Nissan's application
filing an interim stay order dated 24.09.2013 in Writ Petition No. 26488/2013 and Miscellaneous Petition Nos. 1 & 2 of 2013 and decided to stay further
proceedings in this matter till further orders. The stay interim order granted in favour of Nissan continued till 30.06.2014 on which date High Court of Madras
dismissed the said Writ Petition as not maintainable as their existed an efficacious alternative remedy under Section 53 (B) of the Act. Nissan went in appeal
against the order of the Single Bench before a Division Bench. The Division Bench set aside the order of the Single Bench and remanded it back to the Single
Judge for deciding the Writ Petition on merits. The matter was listed before the Single Judge on 28.08.2014. However, the impugned order was passed on
25.08.2014.
50. Appellants have alleged that by not affording them the opportunity to cross examine certain third parties whose statements have been relied upon by
the respondents for arriving at an adverse finding against them the Commission denied them natural justice. According to Toyota “statements made by such
conflicted third parties who would normally be presumed to have vested interest in the outcome of the proceedings before the respondent ought to have
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been subject to cross examination by the appellant instead it was submitted that the respondent (the Commission) dismissed an express application dated
21.12.2012 made by the applicant seeking to cross examine such conflicted third parties and denied the appellant the opportunity to adequately defend
itself.”
51. Nissan in the proceedings of 10-01-13 did not press its application for cross examination. Section 36 of the Act read with Regulation 41 of the
Competition Commission of India (General) Regulations, 2009 govern the conduct of the Commission as far as regulation of its procedure and taking of
evidence are concerned. The Commission is free to make its own procedure as long as it is guided by the principles of natural justice. The Regulation 41
provides for the procedure/manner in which evidence has to be adduced in the proceeding before the Commission/DG. The Regulation 41(4) and (5) are
quoted below:
“Regulation 41. Taking of evidence.-
(1) ……….
(2) ………
(3) ……..
(4) The Commission or the Director General, as the case may be, may call for the parties to lead evidence by way of affidavit or lead oral evidence in
the matter.
(5) If the Commission or the Director General, as the case may be, directs evidence by a party to be led by way of oral submission, the Commission or
the Director General, as the case may be, if considered necessary or expedient, grant an opportunity to the other party or parties, as the case may
be, to cross examine the person giving the evidence.”
52. The Commission is free to call for the parties to lead evidence by way of affidavit or oral evidence in any matter. If opportunity is granted to one party
for oral submissions, the Commission or the DG if considered necessary or expedient grant an opportunity to the other party to cross examine the person
giving the evidence. In compliance with this provision the Commission asked the appellants/opposite parties to indicate the witnesses whom they wished to
cross examine and what would be the topic of cross examination. It further asked the appellants to state whether they could file affidavit stating that spare
parts of automobiles manufactured by them are available freely in the aftermarket to all categories of buyers/customers. However none of the appellants
gave any affidavit to this effect though some of them preferred to counter various oral statements made by witnesses during the DG's investigation. Toyota
by its affidavit dated 28.01.2013 averred on various elements of statements recorded by the DG during his investigation.
53. Learned Senior counsel for the Commission strongly opposed the manner in which the affidavit in question was prepared and verified. Toyota argued
that several negative statements which were made by witnesses could have been controverted if they were allowed to cross examine those witnesses. It may
however be noted that no application for cross examination was made before the DG. However, the Commission was requested for cross examination. Since
the ultimate objective of the evidence was to understand whether allegations made by the informant in the information were valid or not, the Commission
made straight queries to the appellants which were left unanswered. Therefore, while we appreciate that a cross examination might help in bringing out
information in a more comprehensive manner to facilitate decision making. The Commission's approach of asking specific information through affidavit
served the same purpose and the applications for cross examination were consciously rejected by the Commission through a speaking order, keeping in mind
the provisions of the Regulations 41(4) and (5) in mind. Further neither of the appellants presented their own witnesses nor all conflicting statements were
denied through affidavit by all the appellants. We are therefore, not inclined to entertain this objection of the appellants.
54. Nissan in their appeal have also alleged the issue of inconsistency of Coram that heard the parties and one which finally decided the case. Our
discussion in an earlier paragraph clearly brings out that when the Commission was approached with this issue on the change of the member it took a
conscious view that the member who had not heard the parties will not be the signatory to the decision. Further on Nissan's grievance that the number of
members who had heard the arguments was different from the number of members who decided the matter, it can be clearly seen that oral hearing in
respect of Nissan was carried out on 04.02.2013 when besides the Chairman, Members H.C. Gupta, R. Prasad, Geeta Gouri, Anurag Goyal, M.L. Tayal and
S.N. Dhingra were present. Finally, the decision was signed by two members namely Anurag Goyal and M.L. Tayal besides the Chairman. It can be clearly
seen that each of the participants of the latter combination was present during the oral hearing imparted to Nissan. It cannot therefore be said that any new
member was added to the coram and consequently none who had not heard decided the case. We do not find any substance in this argument made on
behalf of Nissan.
55. Nissan also argued that the Commission had considered the issue of their alleged dominance on earlier occasion in Tristar Trading Private Limited v.
Nissan Motors India Private Limited (Case No. 98/2013) and a similar issue against several other auto companies in Case No. 20/2015 came up before the
Commission. In both these cases, the Commission did not find automobile companies in a state of dominance therefore, there was no reason for the
Commission to take a contrary view so soon after the above adjudications. We have looked at the cited decisions, they are entirely on a different subject. The
cases in question on which the Commission decided to close the information related to dominance of car makers in the relevant product market of cars rather
than spare parts aftermarket. Therefore, it would be wrong on the part of Nissan to suggest that the matter of their dominance in the relevant market under
issue had been considered in view of the findings of the Commission on their dominance in the spares aftermarket.
Violation of the Substantive Provisions
56. We now move on to substantive issues. In order to fully appreciate the legal provisions relating to anti-competitive agreements, abuse of dominance
and guidance for examination of AAEC in case of vertical agreements and abuse of dominance. Section 3, 4 and 19 of the Act are quoted below:
“Section 3 Anti-competitive agreements
(1) 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 adverse effect on
competition within India.
(2) Any agreement entered into in contravention of the provisions contained in subsection (1) shall be void.
(3) 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—
(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.
(4) Any agreement amongst enterprises or persons at different stages or levels of the production chain in different markets, in respect of production,
supply, distribution, storage, sale or price of, or trade in goods or provision of services, including—
(a) tie-in arrangement;
(b) exclusive supply agreement;
(c) exclusive distribution agreement;
(d) refusal to deal;
(e) resale price maintenance, shall be an agreement in contravention of sub-section (1) if such agreement causes or is likely to cause an appreciable
adverse effect on competition in India.
(5) 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);
(ii) 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.
Section 4 - Abuse of dominant position
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[(1) No enterprise or group shall abuse its dominant position.]
(2) There shall be an abuse of dominant position 4 [under sub-section (1), if an enterprise or a group].—
(i) production of goods or provision of services or market there for or
(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 5 [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.
Section 19 - Inquiry into certain agreements and dominant position of enterprise
(1) 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.
(2) Without prejudice to the provisions contained in sub-section (1), the powers and functions of the Commission shall include the powers and
functions specified in sub-sections (3) to (7).
(3) 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.
(4) 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.
(5) For determining whether a market constitutes a “relevant market” for the purposes of this Act, the Commission shall have due regard to the
“relevant geographic market’’ and “relevant product market”.
(6) 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
(7) 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
Abuse of Dominance
57. The first question for determination is whether the opposite parties have violated the provisions of Section 4 of the Act. The Commission has
concluded that the OEMs (appellants) have abused their dominance in the aftermarket of automobile spare parts. Section 4 of the Act deals with abuse of
dominant position.
58. In order to determine whether an entity is in a dominant position, determination of relevant product market and relevant geographical market is
essential. Section 2(r)(s) and (t) define relevant market, relevant geographic market and relevant product market. The definitions are quoted below:
(r) “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;
(s) “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;
(t) “relevant product market” means 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;
59. Section 19(4) to 19(7) provide the guidelines in determining whether an enterprise enjoys a dominant position or not and points to be taken into
consideration while defining relevant product and geographic market. These sub-sections have been quoted above.
60. The DG has in his findings identified following two separate product markets for the Passenger Vehicles in India:
1) The primary market consisting of the manufacturing and the sale of passenger vehicles.
2) The secondary market which is essentially the aftermarket. Aftermarket is the expression used to describe a market comprising complementary or
secondary products and services which are purchased after any product that is the primary product which they relate to. According to the DG report,
the aftermarket in the present case comprises of the spare parts, diagnostic tools, technical manuals and after sales repairs and maintenance services
that are required to be purchased after the purchase of primary product. DG has further identified the two segments of the aftermarket for passenger
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vehicle sector in India. They are—
a. Supply of spare parts including the diagnostic tools, technical manuals, catalogues, etc. for the aftermarket usage, and
b. provision of after sale services including servicing of vehicles, maintenance and repair services.
61. The appellants have contested DGs identification of two separate markets and canvassed the concept of one individual ‘systems market’ where the
primary and the secondary market are in the nature of a continuum. According to the DG, once the primary product has been purchased, consumer's choice
is confined to those aftermarket products or services compatible with that primary product. Hence consumers are to a greater or lesser extent “locked” into
certain aftermarket supplies.
62. Going deeper in his analysis, DG has tried to examine whether there is a separate aftermarket for each brand of car. Following the international
precedents, two grounds where the two markets may not be separate relevant markets were identified-
a) If it was possible for a consumer to switch spare parts manufactured by another producer (OEM),
b) If it was possible for the consumer to switch to another primary product to avoid a price increase on the market for spare parts.
63. The DG concluded that most of the spare parts except a few generic parts are manufactured specifically for the respective models of the cars.
Moreover, even within models of the same OEMs, interchangeability of spare parts was limited. Hence substitutability of spare parts across OEMs is
drastically diminished. Further spare parts that are manufactured in house by the OEM, there is almost nil interchangeability and for those body parts that
are procured from local OESs and other overseas suppliers, there is limited substitutability.
64. With respect to the second question, DG found that switching over to new primary product was very costly, in view of the peculiarities of car market
where value was lost the moment a car was registered and brought on the road. Therefore, the DG concluded that to a great extent, the purchaser of a
product in the primary market was locked in and the feasibility of switching over to another primary product was limited.
65. The Commission has examined the DG's findings in respect to the relevant markets. The allegation of the informant is that durable goods producer
(i.e. OEM or the car manufacturer in the present case) behaves in a fashion that stops alternative producers from offering the complementary goods
(restrictions imposed on the OESs/authorized dealers) or service with the result that the original durable goods producer monopolize the market. This
monopoly behaviour and the concocted abuse of such monopoly market power allow the monopolist in the primary market to charge supra competitive prices
and impose other restraints in the aftermarket.
66. One of the main contentions of the OEMs as recorded by the Commission is that the consumers, who buy a durable product like a car, engage in a
whole life cost analysis, at a point of sale of the primary product and even if the consumers become locked in after they have purchased their equipment, the
OEMs will not charge supra competitive rates in the aftermarket as a result of “reputational effects” on the OEMs in the primary product market. The
Commission did not agree with these submissions and determined that the relevant market for cars and that of spare parts consisted of multiple markets,
i.e. a market for primary products and separate markets for the secondary products associated with each primary product. According to the Commission,
customers do not engage in whole life costing or the reputation effects do not deter the OEMs from setting supra competitive prices for the secondary
product. In cases where the switch over from one primary product to another primary product triggered by high price or failure of the secondary product
takes place, such separate markets may not exist and they may be connected to form a systems market. In the case of automobiles, such a situation does
not exist. Therefore, they do not form part of a systems market. The cost of the primary product and the cost of switch over to primary product are two very
significant criteria when a customer has to make a decision to this effect. The Commission has agreed with the DGs findings that there existed a primary
market for sale of cars in India and two aftermarkets for sale of spare parts and repair and maintenance services respectively.
67. On the issue of secondary market, the Commission has concluded that the sale of spare parts and repair and maintenance services are interlinked
because in most cases a customer would buy a spare part and get it fixed at a workshop thereby accessing both the markets at the same time. Therefore,
while broadly agreeing with the DG's narrative, in the Commission's view, the two segments of the automobile aftermarket are different yet interlinked and
interconnected. This approach is further strengthened by the fact that the spare parts by themselves are not consumed till they are used in repair and
maintenance services. It is irrespective whether the repair and maintenance service would come from a supplier of the spare part or an external agency.
Therefore, in view of the Commission, spare parts and repair services are demanded but simultaneously or concurrently and only in a few instances, car
owners may access one segment of the aftermarket where they may either themselves provide the repair services or where repair services do not involve
replacement of spare parts.
68. We have very carefully perused the analysis, the Commission has carried out on this subject. In the background of European and American case law,
the Commission has looked at the framework within which relevant market has to be determined, and applied the relevant principles to the Indian realties.
In order to better appreciate the Commission's analysis, we are tempted to quote from paragraphs 20.5.22 to 20.5.24—
“20.5.22 However, the Commission, after the perusal of such submissions, is of the opinion that such a determination of the relevant product market is
unnecessary for determining the present case on its merits. As it will be evident from the following paragraphs of the order that the Commission is of the
opinion that a ‘systems market’ does not exist in the present case and that the relevant product market consists of the primary market for the sale of
automobiles and the secondary markets for the sale of spare parts and repair and maintenance services. The Commission is of the opinion that for the
purpose of this case, in order to correctly determine the relevant product market, the delineation of the primary market into separate automobile
segments is not necessary. The primary market, consisting of sale of cars in India can be segmented based upon the price of such automobiles, as
demonstrated by the order of the Commission, dated May 28, 2013. Further, the primary market can be segmented based upon the characteristics and
intended use of the automobiles. As is evident from the submissions of some of the OEMs, (e.g. Honda and MSIL), the primary market can consist of cars
that fall under the same price range, for example, low-end (price below Rs. 5 lakhs), but may have different characteristics or intended use. For example,
MSIL has submitted that two of its models “Eeco” and “Alto” fall under the same price range, i.e., low end (below Rs. 5 lakhs), however, while the former
is intended to be a dual purpose vehicle (both for commercial and family use), the latter is mainly intended to be used as a passenger car. Therefore, the
segmentation of the primary market, without adequate considerations to the characteristics of intended use of such cars would not be appropriate.
20.5.23 However, as discussed above, the Commission is of the opinion that a segmented primary market has no bearing over the determination of the
relevant market for this case, as per the provisions of section 2(r) read with section 2(s) and (t) of the Act. The determination of the relevant market is
not an end by itself but is a means to analyze the position of strength, enjoyed by an enterprise in such a market, as per the provisions of explanation (a)
to section 4(2) of the Act, to determine if such an enterprise is in a dominant position in such a relevant market. Therefore, the task of the Commission is
to identify that relevant market where the dominance of the enterprise is being felt. As per the allegations of the Informant and the investigation of the
DG, the OEMs are restricting the sale and supply of spare parts and technical information, diagnostic equipments and tools to independent automobile
service providers and indirectly determining the purchase or sale prices of both the price of automobile spare parts as well as the price of repair and
maintenance costs due to the monopoly maintained by the OEMs in the supply of their respective brand of spare parts, diagnostic tools and technical
information. Therefore, it is in the aftermarket of spare parts, diagnostic tools and technical manuals and not in the primary market of sale of cars where
the alleged dominance of the OEMs is being felt. It is in the aftermarket for automobile spare parts and repair services, where each OEM are being alleged
to operate independently of competitive constraints allowing them to affect their competitors, i.e., independent repairers and their customers.
Consequently the aftermarket thus constituted by the market of the OEMs' spare parts, diagnostic tools and technical manuals, required by the
independent repairers must be regarded as the relevant market for the purposes of the application of section 4 of the Act. It is in fact the market on which
the alleged abuse was committed.
(Emphasis supplied)
20.5.24 According to the E.U. Notice on Market Definition:
“Market definition is a tool to identify and define the boundaries of competition between firms. It serves to establish the framework within which
competition policy is applied by the Commission. The main purpose of market definition is to identify in a systematic way the competitive constraints
that the undertakings involved face. The objective of defining a market in both its product and geographic dimension is to identify those actual
competitors of the undertakings involved that are capable of constraining those undertakings' behaviour and of preventing them from behaving
independently of effective competitive pressure.”
(Italics added)
The Commission is of the opinion that the effective competitive constraints that needs to be analyzed in the current case is not in the context of the
primary market for the sale of cars, but the aftermarket for the sale of automobile spare parts and repair and maintenance services. Therefore, even if the
primary market is subdivided into various segments the competitive constraints or effective competitive pressure in the aftermarket remains unchanged.
As has been shown in the paragraphs below, the market power that each of the OEMs enjoys over its customers and competitors is due to the lock-in
effect in the aftermarket for sale of spare parts and maintenance services. In this context it is irrelevant whether the primary market is considered to be a
single monolith relevant market for a particular brand of car or is divided in separate relevant markets depending upon characteristics of a particular
model of a brand of car, its price or its intended use.”
(Emphasis supplied)
69. One of the crucial elements canvassed by the appellant in order to prove unified systems market approach is the concept of life cycle costing. It has
been argued that whenever a consumer searches the market, he is equipped with analytical capacity and does have adequate information both technical and
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economic to guide him into taking a decision which locks him into preferring a specific make/model. Once he is locked into this model, the aftermarket is a
natural consequence of making this fundamental choice. For example, the appellants would have us believe that when a customer who wants to buy a mid-
sized car will have information about not just the initial cost of the car but also cost of all those events and situations which may arise during the course of
the usage of that car. That would include a variety of elements such as cost of fuel, spare parts, servicing, maintenance, etc. The DG in the course of his
investigation asked the OEMs to confirm the after sale services and maintenance cost of their vehicles. Several OEMs expressed inability to provide such
information and couched their response in several conditionalities such as driving expertise, generic conditions, road conditions, etc. so much so that some of
the OEMs did not even share this data. The present appellants gave following responses:
Ford - The company stated that this data is not available to them.
Nissan - The company submitted that they do not have data on annual basis.
Toyota - The company has submitted the cost of services of only Toyota (Innova Diesel vehicle 0.5 per kms.) and that the annual cost has to be derived
by multiplying the figures with average running of the car.
70. It can be clearly discerned that though the appellants canvassed a certain approach for appreciating the condition of the market they were not in a
position to show the extent of information which could be available with a buyer when he went to a showroom. The Commission in its order has quoted from
Eastman Kodak Company v. Image Technical Services incorporated (504 US 451 (1992)) where the US Supreme Court held that life cycle pricing of complex
durable equipment is difficult and costly. In order to arrive at an accurate price, a consumer must acquire a substantial amount of raw data and undertake
sophisticated analysis. Necessary information would include data on price, quality and availability of products needed to operate, upgrade or enhance the
initial equipment as well as service and repair costs including estimates of brake down frequency, nature of repairs, price of service and parts..… A life cycle
cost analysis would require the consumer to have knowledge of a large number of variables. The Commission has examined the raw data which is available to
a potential consumer in the form of information at the showrooms, information on the websites of the OEMs and several specialized websites and
magazines/journals. The Commission's analysis shows that neither the adequate data is available nor the purchaser has the capacity to carry out complex
whole life cost analysis. The Commission has also referred to some empirical studies and concluded that consumers tend to buy cheaper models with higher
operating costs than those that would be efficient in terms of life cycle costs and, therefore, end up paying higher life cycle cost. The Commission has
concluded that despite the economic information to the contrary consumers are not so rational and do not make farsighted choices. The Commission while
specifically referring to Ford and Toyota quoted from their responses as follows:
Ford-The life cycle cost depends on various factors such as standard of driving, maintenance of cars, road conditions and others. Since the
manufacturer is not in control of a particular car in question, the life cycle cost cannot be calculated.
Toyota - The actual life cycle cost of an automobile may be defined as the cost of a car throughout its life time which would include not only the initial
purchase price but also the cost involved during the life time of the automobile. Such costs included fixed costs like depreciation costs, cost of finance,
insurance, etc., and variable costs like fuel, maintenance, tyres, oil and other miscellaneous expenses. Further, Toyota submitted that in order to
accurately calculate a life cycle cost, one needs an estimate of the actual mileage a person will drive as well as having actual information relating to
maintenance and repair costs.
71. In view of the above discussion, the Commission did not find whole life costing as a feasible test for an average consumer in the Indian automobile
market. Both Toyota and Ford have argued that the Commission's reliance on Eastman Kodak case was misplaced. They have narrated the specific
circumstances of that case as it was a summary decision sought by the parties and consequently, given after no in depth examination. Further, this decision
has not been followed by the US Courts subsequently. Interestingly Toyota in its written arguments has distanced itself from the whole life costing approach
which it had taken during its oral arguments. According to Toyota, this criteria of whole life costing requires that every customer should be capable of making
sophisticated computations of the total cost of a vehicle over its life time so as to be able to compare one brand of vehicle with the other. This thumb rule is
unworkable since such sophisticated computations are not undertaken by corporations when acquiring some equipment and are employed only in situations
of mega commitments such as when an airline acquires a fleet of aircraft. Given this criteria, every complementary product will always be considered to be a
dual (primary and secondary) market, since whole life costing is not even possible in everyday situations. To estimate the cost of repair and maintenance of a
car over the life cycle depends on several variables such as road conditions, driving habits etc., which cannot be estimated accurately or with any degree of
uniformity between brands and models;
72. According to Toyota the real criteria is whether conduct in the secondary market impacts market share in the primary market. It is not necessary to
have a stringent hyper-technical thumb rule such as this to determine this issue. The fact of the matter is that the Indian consumer is known to be
extremely conscious about the cost and ease of servicing and maintenance. Several automobile companies market their brand or some model as being easy
to maintain. One major vehicle manufacturer assures zero maintenance cost for 3 years while another guarantees that the maintenance cost would not
exceed a particular pre-defined amount. It is submitted that it is a feature of the industry that rival auto companies promote sales of their vehicles in the
primary market based on the recurring cost of maintenance and ease of availability of repair services. There is, therefore, no doubt that its conduct in the
secondary market has a direct bearing on market share of vehicles.
73. Toyota has argued that it is not necessary that the customer himself or herself has to undertake this computation. It would suffice if this information
was available to him by expert agency/websites/TV shows etc. The Commission did not accept this argument as one could never be sure about the motive
behind agencies which are not in the realm of public agencies or reputed business entities.
74. Ford had tried to differentiate its case firstly by explaining the peculiar circumstances of the Kodak case and secondly the facts that Kodak was in the
service market whereas Ford is not. Ford in its arguments has also stated that an average life span of a passenger vehicle in India is five years according to
an estimate by UN Environment Programme. Ford offers certain post sale contracts and manuals to its consumers to enable them to estimate the costs
associated with repair and maintenance services. This post sale contracts and manuals are warranty, owners' manual, extended warranty, scheduled service
plan and total maintenance plan. The average life span of a car in India is five years and since Ford offers various types of post-sale contracts for repairs and
maintenance services, the consumer has a reliable basis for estimating the number of times and approximate costs that would be incurred during the
average life span of primary product. Consumers in India are extremely price sensitive when purchasing a car. Ford has further stressed that consumers do a
significant amount of pre-purchase research before making a choice.
75. None of the appellants, however, seems to have taken into account the relatively cheaper finance which is very readily available to an automobile
buyer. Quite often availability of finance and the rate of interest strongly tilts the decision making in favour of buying a car which is backed by better
financial terms. Fleet buyer would easily be influenced by this temptation. Moreover, the market is comprised of several categories of consumers who suffer
from information asymmetry in their capacities to understand fine points of difference in relation to a highly complex technological product such as the
modern passenger vehicle. Therefore, while it may be desirable to have information symmetry and whole life costing available at the outset, in practice, it is
not that simple. Both Ford and Toyota have laid a lot of emphasis on the role of reputation in the aftermarket in making a choice in the primary market by a
consumer. Their argument is that if the aftermarket is conditioned by adverse circumstances which have the potential of maligning the reputation of the
OEM, it is bound to have an adverse effect on the market for primary products and no company would like to adopt practices which create adverse reputation
for it and thereby impact its market potential, particularly, so in a market which is nowhere near saturation and has been growing at a reasonable rate. While
this argument may appear attractive, it does not show in practice. It is an acknowledged characteristic of automobile market that primary products, i.e.
passenger vehicles are sold at very low margins while secondary products such as spare parts are sold at a very high margin. We have not yet gone into the
aspect of supra normal profits but there is enough evidence to show that the prices of spare parts in the aftermarket offered by the appellants are
inexplicably higher than what they should reasonably be.
76. Appellants have cited the decision of the European Commission in the matter of European Federation of Ink and Ink Cartridge Manufacturers (EFIM) v.
Hewlett Packard (COMP/C-3/39.391 EFIM) decided on 20.5.2009 where it was inter alia observed that the printer market and the consumables market were
inter related in such a way that the competition in the printer market resulted in effective discipline in the secondary market. The General Court of European
Commission in Case No. T296/09 vide order dated 24.11.2011 confirmed the above decision of the European Commission which was subsequently confirmed
by the ECJ in Case No. 56/12P. We have looked at these cases They have also referred to the Pelikan/Kyocera and Info-Lab/Ricoh cases. These cases have
been cited to establish that there is continuity in the primary and secondary market and that dissatisfaction with the secondary market on account of post
purchase failures or expensive spare parts could be a reason for customers to switch over their royalties to another primary product. It can be seen that
printer is a relatively much simpler and cheaper product with much fewer spare parts, and an approach adopted to explain the character of the primary and
secondary market in these cases cannot necessarily be followed in the present cases. For the mere reason that the secondary market here is constituted of
hundreds of spare parts and the level of information to the buyer is not expected to be of the same level as it could have been in a less complex simpler
product like a printer, we find the circumstances different in both these cases. Moreover switching costs in case of automobiles are exorbitant therefore, the
two circumstances are different.
77. Toyota has argued that the customer always has the option of switching over to another primary product. Since switching over to a secondary product
is not possible because of typical conditions of the market/technology, switching over to primary product could have been a logical choice but we have
already noticed in earlier paragraphs where the Commission has observed that the cost of switching over from one primary product to other primary product
can be exorbitant and an average Indian customer, would resist doing so. Toyota has further argued that there is a vibrant second hand market and,
therefore, anyone who is adversely affected by an aftermarket would have option of switching over to a good second hand car, if he cannot afford a new car,
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and another brand. This argument to our mind is absurd. Firstly, this is comparing an apple with an orange. Secondly, it will be highly irrational to expect
that a consumer who has been disappointed by a new product should have to buy a second hand product.
78. The appellants have argued that if the aftermarket is taken as a relevant product market by itself, one of the major limitations is in the area of
interchangeability and substitutability. This has been acknowledged by the DG in his investigation report as well. Referring to Section 2(t) the appellants
have argued that interchangeability and substitutability are hallmarks of the definition of relevant product market. Responding to this argument, The
Commission has examined the concept of cluster markets. The Commission has argued that the aftermarket is really a situation where one exclusive part is
demanded with several other parts tantamounting to a cluster approach. The cluster markets are characterized by transmitting complementarities between
various components of a bundle of products or services. The relevant unit with respect to the market definition is the bundle of goods or services, i.e.
demanded by the consumer and supplied by the producer and not the individual units of such bundle. Although such units may not be interchangeable or
substitutable with each other. In the Commission's view, the concept of substitutability or exchangeability applies to the bundle rather than to its separate
components where a bundle of products or services serves as the first candidate market. Thus the fact that the bundles of goods or services are demanded
and supplied in a market does not affect the basic principle of market definition, i.e. interchangeability or substitutability between competing products.
Referring to several decisions of the US Courts including the Supreme Court in United Stated v. Philadelphia National Bank, 374 U.S. 321 (1963), the
Commission has concluded that the automobile aftermarket is more of a cluster market than several hundreds of relevant product markets. The Commission
has referred to the US Horizontal Merger Guidelines (2006) quoting as follows:
“when the analysis is identical across products or geographic areas that could each be defined as separate relevant markets using the smallest market
principle, the Agencies may elect to employ a broader market definition that encompasses many products or geographic areas to avoid redundancy in
presentation”.
79. Further the Commission states as follows:
“Therefore, when the Commission is analyzing the anti-competitive issues of the entire automobile industry, it should not define the relevant market
using the smallest market principle. The U.S. Horizontal Merger Guidelines provide that in the case of a merger analysis, where the anti-competitive effect
of a proposed combination has to be reviewed from the perspective of an entire wider industry, a broader relevant market definition should be employed
to better understand the anti-competitive effects of the proposed merger. In the same way, in the present case, the Commission needs to understand the
alleged anti-competitive behaviour of the OEMs at the level of the macro automobile industry of India. Employing a narrow market definition would lead to
redundancy and hamper the Commission's effective analysis of the competitive constrains faced by the Indian automobile industry.”
80. The Commission has compared the EU notice on market definition with Section 2(t) of the Act and has found them para materia. We quote the
Commission's observations in this respect:
“Therefore, the definition of the relevant product market is identical under both the E.U. and Indian competition law. Yet, in all spare parts related cases
in E.U., including Hugin Kassaregister AB v. Commission of the European Communities (C-22/78) [1979] ECR 1869, Volvo AB v. Erik Veng (UK) Ltd. (C-
238/87) [1988] ECR 6211; CEAHR v. European Commission (Case T-427/08); the Commission has treated all spare parts of a cash register; an
automobile and Swiss watches as part of the same relevant product market; even though various spare parts of a cash register or a watch are technically
not interchangeable with each other, yet a consumer and a repairer requires such spare parts together in order to effectively repair or service the primary
market product. The Commission is of the view that since the definition of relevant product market; under which the above mentioned case have been
decided is exactly the same as under section 2(t) of the Act; a similar interpretation of “cluster market” may be possible constituting of all the spare parts
for each brand of cars manufactured by the OEMs in the Indian automobile aftermarket.
20.5.54 Therefore, the Commission concludes that the automobile primary market and the aftermarket for spare parts and repair services does not
consist of a unified systems market since: (a) the consumers in the primary market (manufacture and sale of cars) do not undertake whole life cost
analysis when buying the automobile in the primary market and (b) in-spite of reputational factors each OEM has in practice substantially hiked up the
price of the spare parts (usually more than 100% and in certain cases approx 5000%); therefore rebutting the theory that reputational concerns in the
primary market usually dissuade the manufacture of the primary market product from charging exploitative prices in the aftermarket. The Commission is
of the opinion that there exist three separate relevant markets; one for manufacture and sale of cars, another for sale of spare parts and another for ‘sale
of repair services’; although the market for ‘sale of spare parts’ and ‘sale of repair services’ are inter-connected. Further the Commission is of the opinion
that a ‘clusters market’ exists for all the spare parts for each brand of cars, manufactured by the OEMs, in the Indian automobile market.”
81. Thus, the Commission has concluded that the Indian automobile aftermarket is in the nature of a cluster market. We have very carefully considered
the arguments of appellants. The main pillar of appellant's arguments in favour of the unified systems approach is that the customer of automobile carries
out a whole life cost analysis and is quite well informed before he goes to buy an automobile, which is a high status symbol in India. In earlier paragraphs,
we have specifically looked at the concept and practice of whole life costing in Indian consumer's decision making as far as automobiles are concerned. There
is not enough evidence to suggest that Indian consumer goes buying automobiles fully armed and equipped with information to pick up the brand and make
that it considers is the best for its purposes. More often this choice is driven by prima facie mileage considerations, availability of finance and a broad
understanding of availability of “good models” in the market. There are several factors which determine the choice of a consumer. They are not necessarily
data based information elements but could very often be clearly driven by advertisements, peer group selection, budget, past experience, etc. Therefore, at
this moment of the development of Indian automobile sector, it is hard to say that consumer would necessarily make his choice driven entirely by whole life
costing. Companies are increasingly making efforts to offer options which may replace consumers' own need for whole life costing such as extended warranty
but even that is a new phenomena and has not yet settled on a broad basis. It has also been clearly made out in the earlier paragraphs that OEMs
themselves have not found it possible to say convincingly that consumer has all the information required for making a rational choice. Therefore, we do not
consider it necessary to intervene with the Commission's assessment of the relevant product market. As far as relevant geographic market is concerned,
there is no dispute that the market in India is the relevant geographic market.
82. Once it is decided that a primary market and two secondary markets which are interconnected in nature exist, the determination of dominant position
becomes easier. Explanation A of Section 4(2) provides that a dominant position means a position of strength enjoyed by an enterprise in the relevant
market to operate independently of competitive forces or affect its competitors or consumers or the relevant market in its favour. The underlying principles in
this definition is that of market power which allows the enterprise to act independently of competitive constraints. The Commission has examined the factors
that allow such OEMs to act independently or alternatively afford the OEMs an opportunity to foreclose markets for its competitors or exploit its consumers.
The Commission has analysed the production and distribution system of automobile spare parts in order to understand if the OEMs are subject to any
competitive degree of constraints. Due to high degree of technical speciality even intra brand speciality of spare parts is greatly diminished. Further by virtue
of a strong network of agreements and practices, OEMs have become sole supplier of their own brand of spare parts and diagnostic tools in the aftermarket.
The super structure of aftermarket distribution has been so constructed that OEMs have found themselves secured from all sides to perpetuate their
dominance.
83. From the findings discussed hereinafter, it can be seen that there are restrictions on original equipment suppliers(OES') in most cases; there are
restrictions on the authorized dealers in releasing parts freely and without restrictions and availability of diagnostic tools to non-authorized dealers which is
completely controlled. Even the authorized dealers can source their parts only from the OEMs. Therefore, by virtue of a network of agreements and practices,
OEM becomes a sole supplier in the aftermarket for supply of spare parts and diagnostic tools for its own brand of automobiles.
84. Section 19(4) of the Act lays down the factors on which an enterprise has to be tested before it is discerned as a dominant enterprise. These are the
following:
“(4) 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
(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;
(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;
(l) relative advantage, by way of the contribution to the economic development, by the enterprise enjoying a dominant position having or likely to have
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an appreciable adverse effect on competition;
(m) any other factor which the Commission may consider relevant for the inquiry.”
(Emphasis supplied)
85. Even for the limited interchangeability of spare parts between the automobile market by various OEMs, each consumer of an OEM is completely
dependent upon such enterprise. Therefore, the independent repairers who are consumers of OEMs in the aftermarket for spare parts and diagnostic tools are
also solely dependent upon such enterprise. The appellants have argued that the DGs inference of lack of access to genuine spare parts for the independent
repairers has largely been drawn from the evidence submitted by Carnation. However, as our discussion later on evidence collected from several multi-brand
repairers and OESs clearly show that it is not Carnation alone but all of them, who have stated that their access to genuine spare parts is sufficiently
constrained and many a times they have to resort to practices such as importing parts, getting customers to register for job work at authorized dealers or
sometimes even pushed to use spare parts which may not be necessarily genuine. The Commission has found that this approach has worked as entry barrier,
as defined in Section 19(4)(h). The Commission has, therefore, concluded that in the absence of the availability of genuine spare parts and diagnostic tools
that are compatible to carry out effective repair work on various models of automobiles manufactured by the OEMs, the independent repairers are foreclosed
to compete effectively with the authorized dealers of the OEMs. The appellants have argued that their market share is so small (Toyota - 3.4%, Ford - 3.71%,
Nissan-0.52% in 2010) that they are hardly in a position to influence the market. If these statements are reviewed on the benchmark of our discussions in
the preceding paragraphs, it is clearly made out that each OEM as a matter of fact has a 100% share of the aftermarket for each of its model, therefore, is
entirely a dominant entity.
86. The next logical flow of above analysis is to see whether appellants have abused their dominant position. Firstly, whether the price charged for spare
parts in the aftermarket is unfair, secondly indulgence in certain practice or practices have resulted in denial of market access to others, and thirdly, whether
the dominant position in spares aftermarket has been leveraged to protect the relevant market in services.
DENIAL OF MARKET ACCESS
87. On the question of availability of diagnostic tools and workshop manuals to the independent repairers, the Commission has concluded as follows:
“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 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.”-The OEMs have submitted that the spare parts and diagnostic tools, workshop manuals are
their proprietary materials and therefore accessible only to the authorized dealer 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.”
88. In subsequent paragraphs we have examined the relationship between OEMs and OESs, and OEMs and authorized dealers, as far as it relates to
release of spare parts to independent repairers for their businesses. Our examination has shown that either by virtue of express agreement or by practice
OEMs do not allow a large number of OESs to sell spare parts directly in the aftermarket including to independent repairers. The same was found true in the
case of restrictive practices imposed upon authorized dealers by OEMs in so far as over the counter sale to independent repairers is concerned. At an
appropriate place we will discuss the relevant evidence collected by the DG. Since independent repairers are important potential competitors to authorized
dealers the impact of restriction is quite appreciable.
UNFAIR PRICE
89. The Commission has agreed with the DG's findings that OEMs are imposing unfair price in sale of spare parts in terms of Section 4(2)(a)(ii) of the Act
which is substantiated by the considerable mark up in prices and significant variation across spare parts as demonstrated in the DG's report. The following
table extracted from table 8 of the Commission's order is self-explanatory.
:Table 8
OEM Price Mark-up of top 50 spare parts based on Price mark-up of top 50 spare parts on the
Revenue Generated basis of consumption
Nissan 84.96%-201.98% 85.81%-258.78%
Toyota 79.61%-1305.85% 38.26%-510.43%
Ford 38.37%-1171.09% (Q1, 2010-11); 64.1-1696.36 (Q1, 2010-11);
35.62%-1171.09% (Q2, 2010-11); 64.1-1696.36 (Q2, 2010-11);
35.62%-1171.09% (Q3, 2010-11); 58.68-1696.36 (Q3, 2010-11);
35.62%-1171.09% (Q3, 2010-11) 64.1-1696.36 (Q3, 2010-11);
90. The price range of spare parts selected on the basis of top 50 revenue earners and top 50 by consumption can be seen in the above table. There is no
doubt that there is a significant variation in the prices between the stage of sourcing them from the OES and releasing them into the aftermarket. The
baseline of the price taken by the DG is the cost at which the spare parts are made available to the OEM by the OES. The appellants have argued that over
and above this price, several taxes/fixed costs have to be added.
91. Appellants in their written submissions given to the Commission from time to time have expressed that price of a spare parts is not a simple function
of cost plus calculation instead besides taxes whole lot of other costs, which could be fixed in nature, are also distributed among various spare parts. In
modern marketing, strongly infused by brand equity, cost of the brand is also assimilated within the price so charged.
92. Nissan has argued that effectively, the average profit margin is in the range of 25 to 30 percent. However, the final sale price could be less than the
maximum retail price. The Commission has responded to these arguments as follows:
“The Commission is aware that in adopting a cost-price comparison to determine the extent of profits enjoyed by a dominant enterprise entails the
calculation of the cost of production of the goods/services of the dominant enterprise. This can be a particularly difficult task given that an enterprise may
have diverse production and marketing operations which incur various categories of costs and working out the production costs may raise great difficulties,
especially determining what costs should be taken as a basis for calculating the cost-price ratio to show whether the price charged exceeds the costs
incurred. However, the Commission is of the view that such difficulties do not arise in the present case. 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 Commission's cost-price
analysis can be the price at which the spare parts are sourced from the OESs and other suppliers. The OEMs have submitted that the DG in its
investigations has failed to consider that over and above the procurement, other costs incurred by the OEMs, including, depreciation on tangible assets,
amortization of intangible assets, royalty for technical know-how, packing materials, warehouse management, octroi, government taxes, financial and
freight cost etc. are also added. The Commission has noted that such submissions of the OEMs are general in nature and the OEMs have submitted broad
cost components, however, the OEMs have not submitted particulars of the constituent elements of its production costs.”
93. It has then gone on to examine the celebrated decision in the United Brand's case delivered by the European Court of Justice and jurisprudence
following it from the European Courts. The issue of excessive pricing has also been examined by this Tribunal in Appeal No. 02/2014 Orissa Steel Federation
v. Orissa Mining Corporation. The Tribunal had examined the extant jurisprudence as it has emerged in the US and European Union. According to Section 4 of
the Act a predatory pricing is clearly defined as unfair but excessive pricing has to be interpreted as unfair on the basis of the circumstances and economic
analysis. Calculation of economic value is a difficult task and requires extensive information. DG's investigation in our view has taken a relatively simplistic
approach to assessment of the price of the spare parts charged by appellants as unfair. Unfairness need not necessarily come from the price being excessive.
It could also come from the special circumstances of a given situation when monopoly has been proved and consumers have nowhere else to go. In such
cases significantly higher prices can also operate as unfair prices. There is no denying the fact that in view of the dominance proved in the earlier paragraphs,
the OEMs have a natural temptation to charge high price for their spare parts. They may deny it on the ground of reputational effect or defend it on the
ground of R&D and other fixed costs including their brand equity, the fact remains that they were not able to explain the phenomenal difference between
sourcing cost and selling price. In our view they have not even tried to do so. There is no doubt that the mark ups are very high but to what extent they can
be justified by explaining the additions through costs incurred on a variety of other operations, has not been considered by the DG. In absence of a very
reliable analysis either by the DG or by the OEMs offered in their defence, while we may find it difficult to classify mark ups as excessive pricing, it could
definitely be recognized that the prices charged by OEMs are abnormally high. This also needs to be seen in the background of yet another fact reported by
the DG. The OEMs were asked to furnish the details of turnover and profits from sale of automobiles as well as from spare parts separately. While all
companies did not furnish this data, the analysis with respect to companies that submitted the requisite data showed that in all cases, the margins from
spares business exceeds the margin from car business substantially. In fact, several OEMs are incurring overall losses as well as that from the sale of cars.
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However, profits have been generated from spare parts business.
94. The Commission has tabulated revenue generation from sale of spare parts of some automobiles though none of the appellants is included in this
table. Quoting a CII Mckinsey Report on the aftermarket business, the Commission has stated that aftermarket contributes a modest 24% in revenues to
OEMs. However, a sizable 55% of the profit is derived from this segment. The Commission has concluded that this is possible because OEMs are able to mark
up the price of spare parts without any competitive constraints. We agree with the Commission.
LEVERAGING
95. The Commission has also found the appellants engaged in leveraging their position in one market to protect another market thereby violating Section
4(2)(e) of the Act. It has been argued on behalf of the Commission that by a network of agreements and practices the supply of spare parts to independent
repairers has been so restricted that independent repairers are not in a position to source spare parts in an economically rational manner. They are also
deprived of diagnostic tools and technical information and consequently though the appellants may not be actually present in the service market as claimed
by them they are able to push independent repairers out of the market thereby facilitating the availability of the services/repairs market to their associates-
the authorized dealers. The appellants have argued that the Commission's logic is not based on facts as relationship between the appellants and their
authorized dealers is that of a principal to principal and they are not in a position to influence the decision making of the authorised dealers. It has been
stated that over the counter sales to independent repairers could even be restricted by the authorized dealers themselves and appellants should not be
blamed for that. In the manner of speaking it may appear to be true that appellants and their authorized dealers are in a principal to principal relationship as
they are both independent entities but the fact remains that they are in a vertical relationship with exclusivity built into the relationship when the authorized
dealers are restricted from doing business for others they are entirely dependent upon the OEMs. Further there is enough evidence to show that by an array
of policy and practice, independent sale to aftermarket is restricted at all levels. Therefore, it is not difficult to argue that OEMs facilitate protection of the
services market for their authorized dealers and thereby exclude independent repairers from competition. As far as the dominance of OEMs in the supply of
aftermarket for spares is concerned it is quite clear that on different counts the market is restricted and therefore, they have a complete hold on the supply
of spares to the aftermarket. This complex network therefore, is utilized to protect the services market. It need not to be over emphasized that though OEMs
by themselves may not be in the services market they operate in the services market through their associates i.e. the authorized dealers and their sales of
spare parts depend upon the practices adopted by the authorized dealers. Therefore, the Commission's conclusion about leveraging is not off the mark and
we agree with it.
Vertical Agreements
96. We will now examine the impugned order on the issue of anti-competitive agreements under Section 3(4) of the Act. The Commission has found that
vertical agreements between OEMs and suppliers and OEMs, and authorized dealers have anti-competitive restrictions or practices adopted by the OEMs are
anti-competitive in nature, thereby leading to appreciable adverse effect on competition. There are three kinds of relationships investigated by the DG, viz.,
OEM-Overseas Suppliers, OEM-OES and OEM-Authorized Dealer hence we review the Commission's order in respect to all of them.
OEM - Overseas agreements
97. DG found appellants in violation of Section 3(4) of the Act in their relationship with overseas suppliers. In the course of his investigation he analyzed
the importer agreements entered by OEMs with their overseas suppliers to find if any restrictions existed in these agreements. The Commission noted that
examination of these agreements did not reveal any specific clause restricting overseas suppliers from undertaking supplies of spare parts in the aftermarket.
The Commission in its consideration of the DG report found that OEMs were sourcing inter-alia spare parts for the aftermarket from their parent companies
abroad or affiliates of their parent companies in different countries. Since they belonged to the same group where the decision making on behalf of the
affiliates was largely influenced by the policy of the parent, they could all be termed to be part of a single economic entity. In such situation they could not
be termed to be separate enterprises for the purposes of our present consideration and the Commission did not find them subject to the provisions of this
Act. It is an internal arrangement between the parent company and its affiliates and will be excluded from Section 3(4) of the Act. The Commission observed
that all the appellants have agreements/arrangements with their respective overseas suppliers which do not contain any specific restrictive clause regarding
the rights of the overseas suppliers to supply spare parts into the Indian aftermarket. The Commission observed that among others Nissan did not import
spare parts from overseas suppliers. However, our examination shows that it is an admitted fact that Nissan imports about 43% of its aftermarket spare
parts. Even if the argument of single economic entity was ignored for the moment, it makes little economic sense for a foreign affiliate to create a separate
distribution system for the aftermarket, as that will prove extremely costly in view of the relatively smaller size of the aftermarket. Therefore, on the one
hand there are no specifically worded clauses in the relevant agreement, on the other hand, it makes little economic sense keeping in mind the share of the
appellants both in the primary and secondary market, therefore, DG's finding that the OEM-overseas suppliers agreement has an anti-competitive character
are rightfully rejected by the Commission. We agree with the Commission.
OEM - OES Agreement
98. The second category of agreements examined by the DG and analyzed by the Commission are the OEM-OES (local suppliers') agreement. The OEM
procures spare parts for both assembly line and aftermarket requirements from the local OES. The DG had categorized the spare parts broadly into the
following three categories:
“(a) Where the design, drawing, technical specification, technology, know-how, equipment, quality parameters etc. are provided to the OESs by OEMs, the
OESs are required to make the parts and supply according to these parameters.
(b) Where the patents, know-how, technology belong to the OESs however, the parts are manufactured based on the specification, drawings, designs
supplied by the OEMs. The tooling/tooling cost may be borne by the OEMs.
(c) Where the parts developed and sold by the OESs are made to their own specifications or designs which are commonly used in the automobile industry.
Such parts are very few, for example, batteries, tyres etc.”
99. The Commission observed that category ‘a’ and ‘b’ of the above three categories of OESs cannot supply spare parts directly into the aftermarket
without seeking prior consent of the OEMs. Alluding to the submissions of OEMs and OESs, the Commission notes that most of the OESs are not selling
directly in the aftermarket. Further DG's investigation has not revealed any instance where written consent has been granted by the OEMs to OESs to supply
spare parts directly in the aftermarket.
100. DG has very extensively examined whether there are restrictions on the OESs to supplying spare parts in the aftermarket and if so then what are the
circumstances of such restrictions. We have already mentioned above, the three broad categories of OESs. In order to fully appreciate DG's conclusion, we
have very carefully gone through the responses collected by the DG from a large number of OESs and statements of the representatives of OESs recorded by
the DG. DG circulated a questionnaire with the help of ACMA to OESs and collected relevant information. While it will be impossible to quote from all of these
statements, in order to get a flavour of some of these statements, we quote below:
Wheels India Limited
“11. In case restrictions are imposed by any of the car manufacturers in India with respect to production/sale of these products by you to any other
car manufacturers, relevant details there:
As the specifications for wheels are provided by the car manufacturers, some of them impose restrictions on our ability to sell such wheels
manufactured by us for them to other customers without their prior permission. The car manufacturing companies which has imposed such restrictions are
……………….and………………
13 The distribution channels through which these products are being sold particularly for the after market:
The requirement of the after market is met through sale of spares through OEMs wherever restrictions as specified in our answer to question 11
above and in other cases through our distribution network-
18. …………..The agreement provides for sale to the after market with their prior approval. We have not sought permission for direct sale to
distributors in such cases since the quantum of after market requirement for wheels is very negligible. Apart from what has been stated above, there
are no conditions in terms of quantity, price, geographical allocations, revenue sharing imposed by car manufacturers.
19. …………The agreements with some car manufacturers mentioned in our reply to question 11 above have clauses on exclusive supply to them.
26. …………. Globally these MNCs restrict sale of wheels by manufacturers for after market requirements. There are also cases where such restriction
does not exist.”
ASAL
“4. Details of clauses in the agreements entered for supply of parts between the various OEMs and the OESs, prohibition/restricting the latter from
supply to parties other than the OEMs. Wherever the prohibition/restrictions are based on the intellectual property rights held by OEMs, relevant details
including such registrations of IPRs in India. Information to be given pertaining to each customer OEM.
Response: There are no clauses in the agreements with OEMs entered for supply of parts which prohibits/restricts the Company from supply to
parties other than the OEMs. However the OEMs in order to secure their intellectual Property Rights, may put a clause in the supply agreement
requiring the OESs not to use the Intellectual property they have provided to us for the purpose other than mentioned in the supply agreement. The
information related to registration of such Intellectual Property Rights of OEMs is not available with us.”
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Autoliv
“We have observed that while there are no general prohibitions/restrictions from supplying to other OEMs, some contracts with our customers as
below do contain prohibitions/restrictions for supplying products to other OEM's in respect to products customized on customer proprietary/intellectual
property.”
Brakes India Limited
“18. Where the car manufacturers pay for technical license agreement arising out of the follow source arrangement for design, support etc. it is
customary for the vehicle manufacturers to expect us to not offer such parts to others without their consent.
All the well known car manufacturers want to assure their customers genuine car parts through their own network. It is customary in such cases that
we sell car parts to them (known as OES). If they have paid for tooling, design etc, they require the parts sold to them. Other than these, there are no
conditions relating to prior approval, quantity, price, geographical allocations, revenue sharing etc.”
Electrica Engineers (India) Pvt. Ltd.
4. Details of clauses in the agreements entered for supply of parts between the various OEMs Excluding clause in agreement with OEMs to
and the OESs, prohibiting/restricting the latter from supplying to parties other than the sell products to OEMs or their spares division
OEMs. Wherever the prohibitions/restrictions are based on the intellectual property rights only.
held by OEMs, relevant details including such registrations of IPRs in India. Information to
be given pertaining to each customer OEM.
7 Would the OESs like to make direct sales in the aftermarket? Yes
FAG
“Query # 4. Details of clauses in the agreements entered for supply of parts between the various OEMs and the OESs, prohibiting/restricting the
latter from supplying to parties other than the OEMs. Wherever the prohibitions/restrictions are based on the intellectual property rights held by OEMs,
relevant details including such registrations of IPR in India. Information to be given pertaining to each customer OEM.
Reply: There are no direct clauses in the agreements entered into with any of the OEMs prohibiting/restricting FAG from supplying to parties other
than the OEMs.
However in case (1) manufactured parts using technology, equipment or tooling of OEMs or (2) the sale of parts using trademarks or trade names of
OEMs some OEMS (i.e………………..) have prohibited/restricted sales under these conditions to third parties. Query # 7. Would the OESs like to make
direct sales in the aftermarket. Reply: Yes. FAG has an independent aftermarket business and would like to continue making direct sale in the
aftermarket, which is an important business for FAG.”
DENSO
“It is submitted that under some product purchase arrangements between DENSO and car manufactures, it is agreed that the supply of products,
which are manufactured as per the specifications provided by the car manufacturer in the After-Sales Market will be carried out through the car
manufacturer itself.
Since the specifications are provided by the car manufactures, there are conditions included in the agreements entered into between DENSO and the
car manufacturers which allow sales of such products through the car manufacturer itself.”
Lumax Industries Limited
“11. Yes, our Customers i.e. Car manufacturers restrict us from selling these products to any other customers or in the open Market because these
car manufacturers either supply funds required for the investment in the Tools, Dies and Moulds or provide the Tools, Dies etc for manufacturing the
Lamps for such customers.
12. No. It is not possible to use the Products across cars/brands with minor modifications because these products viz Lamps are being manufactured
as per the specifications stipulated for each car/brand, as the Design of each car is different and therefore the mounting are different for each product.
13-14. For After-market these customers take the products from us for onwards distribution by them through their respective “SPARE PARTS
DIVISION” (SPD) which further supply these products to their authorized service centers only.
15. As explained above, we are not authorized to sell these components viz Lamps in the After - Market as per agreement with customers. However
in some cases, where the OEM has discontinued any model, in that case, we can supply the components for after market as per practice.”
Munjal Showa Ltd.
“18. As per agreement there are ……………..not to sell, in open market. As per …………with………Ltd. there is a prohibition of sale to third parties. As per
para ……with …………. there is a prohibition of sale to third parties. However, we have no arrangements and comforts to sell in the open market due to
low volume and costs involved in the dealer network.
RICO AUTO INDUSTRIES LIMITED
“18. We are restricted by car manufacturers through agreement for selling of these products directly in the open market, dealers, stockiest,
workshop etc. since the designs have been provided by them.”
Sandhar Technologies Limited
“These restrictions are either absolute or could be in terms of prior approval, but generally absolute restrictions in the nature of prohibition. The
rationale for this is to ensure that quality adherence is ensured and spurious materials/components do not create any potential hazard for life of the
owner of the car as well as third parties. Copy of the Purchase Order is annexed hereto and marked as Annexure-3A.”
Rane Engine Valve Limited
“4. Details of clauses in the agreements entered for supply of parts between the various OEM's and OES's, prohibiting/restricting the latter from
supplying to parties other than OEMs. Wherever the prohibitions/restrictions are based on intellectual property rights held by OEM's relevant details
Response: OEMs like ……… are restricting with their purchase agreement to supply the company products directly to the after market. Please not the
following clause in this regard: ………
1. In case there are any oral understanding of the OES with the
OEM's regarding non-supply of spares directly in aftermarket the same may be reduced in writing on an affidavit.
Response: Yes, as given in point No. 4
……….. OEMs, as part of the supply agreement explicitly insist for exlucsively apart from other clauses. However, we have been taken up with them
during our one to one discussion requesting them to allow us to sell in the aftermarket and no decision has been taken by OEM's.”
TATA Autocomp
“4. Details of clauses in the agreements entered for supply of pans between the various OEMs and the OESs, prohibiting/restricting the latter from
supply to parties other than the OEMs. Wherever the prohibition/restrictions are based on the intellectual property rights held by OEMs, relevant details
Response: There are no clauses in the agreements with OEMs entered for supply of parts which prohibits/restricts the Company from supply to
parties other than the OEMs. However the OEMs in order to secure their intellectual Property Rights, may put a clause in the supply agreement
requiring the OESs not to use the Intellectual property they have provided to us for the purpose other than mentioned in the supply agreement. The
information related to registration of such Intellectual Property Rights of OEMs is not available with us.
(Emphasis supplied)
101. In order to explain their conduct OEMs have relied upon two arguments namely:
(1) that all of these spare parts have intellectual property content manifested in patents, designs, copy rights, trademarks, trade secret, know-how etc.
and therefore they have a legitimate right to impose restriction under Section 3(5) of the Act.
(2) indiscriminate release of spare parts in the market without regulating their flow may encourage mixing of these spare parts with spurious spare parts
thereby adversely impacting consumer interest and reputation of OEMs.
102. The Commission has examined relevant parts of the agreement with local OESs and has observed that all three of the appellants have restrictions on
account of protection of IPRs. The Commission has concluded that none of the OESs actually supply genuine spare parts of the various brands of the OEMs
directly into the aftermarket. The DG has found that these agreements are in the nature of exclusive distribution agreements and refusal to deal as
contemplated under Section 3(4)(c) and 3(4)(d) of the Act, respectively. The Commission has analyzed the AAEC of such agreements/arrangements. Further
since all OEMs have taken the defence of protection of intellectual property rights the Commission has examined the scope of Section 3(5) of the Act.
103. The DG has addressed issues specific to each appellant in the sub reports prepared for each OEM. Relevant portion of Toyota's standard agreement
with OES is quoted below:
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“(CI XXIII) Supply of Third Parties:
(1) TKM's Materials and the products shall not be supplied to any third parties by the Seller without the prior written consent of TKM, if they are made
using any of the following: (i) any intellectual property right of TKM or its promoters in the forms of patents, know-how designs, copyrights or others
(whether registered or not); (ii) secret knowledge or manufacturing processes (know-how) of TKM; or (iii) Tooling or TKM's Materials.
(2) If the products are of the standard type of the seller, then the seller shall ensure that the material similar to the products/their packaging supplied
by the seller to the third parties shall not bear any mark or reference, either intellectual property rights of TKM or otherwise.
(CI XXIV) Intellectual Property: (1) the seller shall not use the intellectual property rights of TKM or of the promoters of TKM including but not limited
to Trademarks, Copyrights, designs, patents, logos, know-how, utility model, computer program, copyrights of other party supplied by TKM for the
purpose of this Agreement, etc. in relation to anything except for the production and as supply of the Products to TKM. (2) The seller shall not do anything
to affect or likely to affect the validity of any patent, design or trademark or any license held thereunder or any form of intellectual property whatsoever
vested in TKM or its promoters relating to the products.”
104. DG has extensively quoted from statements and questionnaires made by Toyota representatives. We quote from a response given on behalf of Toyota
to a specific question in this respect:
“Submissions of TKM made vide letter dated 04.01.2012
Q.8 Do you have IPR registered in India for all the spare parts for which restrictions on sale to third parties or requirements for prior permission for
selling are imposed on OES.
TKM is the subsidiary and an authorized distributor of M/s Toyota Motor Corporation - Japan (‘TMC’), in India. TMC has given license to TKM to
manufacture Toyota vehicles and the parts thereof using the technical information (including drawings) provided by TMC under various Technical
Assistance Agreements (the “Technical Information”) signed between TKM and TMC. TKM then engages the OES to manufacture certain parts based on the
Technical Information.
TMC is able to claim IPR on the Technical Information, especially copyright in the parts and components used in the manufacture of automobiles and for
their after sale servicing. TMC has brought state of the art automobile technology into India and all parts and components required to build its vehicles
involve unique IPRs which are protected.
TKM by virtue of its license from TMC, restricts the sale of service parts to third parties (or requirements for prior permission for such sale are imposed
on OES) based on IPRs found in copyright in all the automobiles and their parts.
TMC claims copyrights in all the engineering drawings provided to its vendors for manufacture of parts, which are used in manufacturing of vehicles and
for after sale servicing purposes. As per The Copyright Act, 1957, registration of copyright is not compulsory and TMC claims its IPR rights, i.e. copyright,
in all the engineering drawings in original equipment parts (“OE parts”) and service parts.
In addition to the IPR available as above, TMC has also registered and has applied for registration of hundreds of patents, designs and trademarks of
certain key mechanism, designs and brands under the applicable laws of India.
TMC has secured and applied for copyright registration in engineering drawings of several parts in many countries across world and as such claims IPR
in such copyright filing in India by virtue of India being signatory to the Berne Convention and other applicable international treatise.
Q.9 In case of parts where the IPRs are not registered in India how are such restrictions legally tenable. Please cite the relevant applicable provisions.
Kindly refer to the reply given by us to Q.8 above, as a part of our reply to this query.
Further we wish to submit that The Competition Act recognizes the respective intellectual property laws as a saving provision i.e. if restraints are
imposed due to intellectual property rights, such restrains are considered as reasonable. In large number of cases, in deciding whether a negative
covenant was acceptable under the law or not the courts have applied the test of reasonableness.
A reading of Section 3(5) if the Act clearly show the exceptions conferred based upon ‘right’ arising from the statutory provision of Law (hence the term
infringement), or other ‘reasonable condition’ necessary for protecting “any” of the rights which “have been” or “may be” conferred under the five Acts
detailed in the said Section.
Company referred to the following.
[A] Trade Marks Act of 1999: Trademark Act recognizes two rights to a proprietor namely: (1) Infringement; and (2) passing off.
Infringement applies strictly based upon registration of the trademark in India while passing of applied in the following conditions:
(i) When there is a precise Trademark right based upon priority in adoption or use or both (as the case may be);
(ii) Prior rights based upon a prior filing;
(iii) Rights emanating from prior international adoption and use subject to condition that such adoption and use have created a reputation and goodwill
in India that would be impacted through any uncontrolled activities.
In addition to this the Trademark Act of 1999 further recognizes rights namely:
i) Right of a well-known trademark which may extend even to unrelated goods;
ii) The impact on rights of a proprietor through blurring or tarnishment.
The act further recognizes that the right can be enforced by a registered proprietor or a proprietor and a Licensee independently. If the licensee is
recorded with the Trade Mark Authority as a registered User; if not, the licensee can still sue by making licensor a pro-forma party. It is implicit, that if the
licensee can sue in a court of Law it is also capable of transacting with vendors. In any case, if a question is raised as to proprietorship being in the name
of one entity and the execution of contract by TKM it would be possible to argue that this was under authority and that the two entities are group
concerns.
To this effect there is now established case law that group entities are to be considered as one “economic” entity and an action cannot be barred on this
ground against a third party. Section 27(1) of the Act, confers the right to initiate action for infringement while sub section (2) confers the rights of
passing off.
[B]Copyright Act: The scope of rights under the Copyright Act is defined in section 13 which defines Copyright to subsist in several categories of work
including literary work. The term literary work includes computer programs, tables and competitions. The definition is thus inclusive and not exhaustive.
The word original is required only with an expression of an original thought which in the case of literary work applies to expression in print or writing.
A drawing would be an original work as long as it not copied from another work. Section 17 of the Copyright Act defines ownership as with the person
who has created the work unless; it is assigned or transmitted in accordance with the Copyright Act.
The scope of use of right is defined in the Copyright Act including in respect of adaption, reproduction, abridgement, modifications etc.
Infringement of copyright is defined under section 51 and the definition has nothing to do with registration of copyright. In other words as long as work
is original, it would be entitled to protection under Section 51, if one has right of the owner or rights from assignment or transmission. TKM seeks
copyright protection in the engineering drawing that relate to the parts.
[C] Patents Act 1970: The Patents Act seeks to protect the rights of a person of the patent of an invention and not a discovery. The Patent Act protect
invention which is defined to mean new product or process involving invention step and capable of industrial application. Invention step means a feature
that makes the invention not obvious to a person skilled in the art.
The persons applying for a patent for an invention include:
i) Any person claiming to be the true first inventor of the invention;
ii) Any person being the assignee of the person claiming to be the true and first inventor in respect of the right to make such an application.
Rights conferred upon a patentee under the Patents Act include:
i) Where the subject matter of the patent is a product, the exclusive right to prevent third parties, who do not have his consent, from the act of
making, using, offering for sale, selling or importing for those purposes that product in India;
ii) Where the subject matter of the patent is a product, the exclusive right to prevent third parties, who do not have his consent, from the act of using
that process and from the act of using, offering for the sale, selling of importing for those purposes the product obtained directly by that process.
Section 109 of the Patents Act confers the right to take proceeding against infringement to an exclusive licensee of the patented work. The exclusive
license holder shall have the like right as the patentee to institute a suit in respect of any infringement of the patent committed after the date of the
license, and in awarding damages or an account of profits or granting any other relief in any such suit the court shall take into consideration any loss
suffered or likely to be suffered by the exclusive licensee as such or, as the case may be, the profits earned by means of the infringement so far as it
constitutes an infringement of the rights of the exclusive licensee as such.
[D] Designs Act 2000: The design Act seeks to protect invention of a proprietor of any new or original design wherein design under Section 2 (d) of
the Designs Act, means “the features of shape, configuration, patterns, ornament or composition of lines or colors applied to any article whether in two
dimensional or three dimensional or in both forms, by the nay industrial process or means, whether manual, mechanical or chemical, separate or
combined, which in finished article appeal to and are judged solely by the eye but does not include any mode or principle of construction or anything
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which is in substance a mere mechanical device and does not include any trademark as defined in clause (v) of sub-section (1) of Section 2 of Trade and
Merchandise Marks Act, 1958 (43 of 1860) or property mark as defined in Section 479 of the Penal Code, 1860 or any artistic work as defined in clause (c)
of Section 2 of the Copyright Act, 1957 (14 of 1957)”. Section 2(j) of the designs Act defines the proprietor of a new or original designs as:
i. Where the author of the design, for good consideration, executes the work for some other person, means the person for whom the design is so
executed.
ii. Where any person acquires the designs or the right to apply the design to any article, either exclusively of any other person or otherwise, means, in
the respect and to the extent in and to which the design or right has been so acquired, the person by whom the design or right is so acquired; and
iii. In any other case, means the author of the design; and where the property in or the right to apply, the design has devolved from the right to apply,
the design has devolved from the original proprietor upon any other person includes that other person.
This aspect was again taken up with the company's representative during the recording of statement. The relevant extract is as under:
Q18 Please furnish the registration details of relevant IPRs in India.
Ans We shall revert with details.
TKM vide their letter dt. 06.2.2012 filed a list of certain Trade Marks, Designs and Patents. The same are enclosed along with the said reply.”
105. As far as Toyota is concerned, it can be noted that they have registered certain IPRs in India. Apart from that copyright has been claimed on all
designs, drawings as well as spare parts. Reliance has also been placed on the technology transfer agreements with their parent company TMC for claiming
protection under IPR. It has been contended that in terms of the agreement they are obliged to protect IPRs of TMC. However, company was not able to
furnish the technology transfer agreement.
106. With respect to Nissan the DG quotes as follows in the sub reports:
“Q8 Does Nissan India has IPRs registered with regard to the parts covered by Sec 8.2 & 8.3? Please confirm the details of IPRs if registered for top 50
spare parts.
Ans Nissan India has not registered IPRs for spare parts. Further in response to query w.r.t. top 50 spare parts in terms of consumption and also top 50
spare parts in terms of revenue, whether they are covered by intellectual property rights in India, if yes details thereof, no information has been furnished.
A copy of the Manufacturing License Agreement entered between NML and NMIPL was obtained and examined (Annexure L4). The following clauses in
the Manufacturing License Agreement deals with the rights and privileges of NMIPL to use of Trade mark and other intellectual properties of NMIPL.
“2-1. Subject to the terms and conditions as herein provided and for the term of this Agreement, NML hereby grants to NMIPL;
(1) Exclusive rights and privileges to manufacture and/or assemble, in the TERRITORY, AUTOMOBILES using TECHNICAL INFORMATION disclosed to
NMIPL hereunder;
(2) Non-exclusive rights and privileges to manufacture and/or procure LOCAL COMPONENTS and LOCAL SPARE PARTS, in the TERRITORY; and
(3) Non-exclusive rights and privileges to apply, use or affix TRADEMARKS to or on AUTOMOBILES, LOCAL COMPONENTS and LOCAL SPARE PARTS in
connection with manufacture and assembly of the same.”
Article 14. Use of Information
14-1 NMIPL shall use TECHNICAL INFORMATION disclosed to it by NML hereunder solely for the purposes of this AGREEMENT only during the term of
this Agreement, and shall not, either during the term of this Agreement or thereafter, disclose, or permit or causes such technical information, included
but not limited to those items listed in schedule-C to be disclosed to any third party without prior written consent to NML.
Notwithstanding the above, NMIPL may disclose technical information and such other information and data as provided by NML hereunder to suppliers
of local components and/or local spare parts insofar as such disclosure is required for NMIPL to perform this agreement and unless specifically required by
NMP not to disclose to any third party.
14-3 This agreement shall not be construed to grant any license to NMIPL from NML with respect to various patents, trademarks, design patents,
copyright and other industrial property rights used or embodied in automobiles and/or component parts other than to the extent to the right granted
under Article 2 hereof.
Article 15. Warranty and disclaimer
15-1 NML's warranty with respect to technical information to be disclosed hereunder shall be limited to the extent that technical information shall be
such as is used by NML in its own manufacture and/or assembly of automobiles in Japan.
It is observed that as per the license agreement, NMIPL has been given license to conduct the activities with respect to NISSAN products. It is
specifically mentioned that the agreement does not grant any license to NMIPL with respect to various IPRs of NML.
Further it is noted that most IP rights conferred under different related Acts are territorial, i.e. they have jurisdiction only in the country where the
protection has been granted. Therefore, even if the parent company were in possession of IPR's in their respective countries, the same would not
automatically confer corresponding rights to OEM's in India. The aforesaid license agreement entered between NMIPL and NML is primarily contractual in
nature. In terms of IPR laws, for legal enforceability registration in India would be mandated for other than copyright.
It is noted that NMIPL has confirmed that they do not have any IPRs registered in India.
From the information gathered during the investigation it has emerged that the designs and drawings of spare parts are capable of registration under
the Designs Act in India. Therefore there would be limitation under the Copyrights Act on account of provisions of Section 15(2) given above. Given the
available facts and in view of the aforesaid provision, the protection of Copyright may not subsist in all Spare Parts. This aspect has been further discussed
in detail in the main report (chapter VIII) and may be referred.
It is noted that there are large number of spare parts which are being sourced from OES for which restrictions in terms of agreement are applicable.
Based on the above facts and analysis it has emerged that NMIPL does not have any registered rights in India (other than may be trademark) under
Intellectual property laws. Although there are no registration requirements for claiming copyrights, there are limitations in terms of validity as
discussed above.”
107. As far as Ford is concerned, we quote from the sub report on Ford as below:
“Q.8 Do you have IPR required in India for all the spare parts for which restrictions on sale to third parties or requirements for prior permission for
selling are imposed on OES.
Ans We do not have IPRs registered for all parts for which restrictions on sale to third parties or requirements for prior permission for selling are
imposed on the OES.
Q.9 In case of parts where the IPRs are not registered in India, how such restrictions are legally tenable. Please cite the relevant applicable provisions.
Ans We are examining this question internally.
No further response has been received.
Relevant extract of recording of statement of FIPL
Q.17 With reference to your response to query 8 of letter dt. 30.01.2012, please confirm the parts for which IPRs have been registered in India.
Ans. Refer to information submitted vide Annexure to letter dated 07.11.2011.
The company vide letter dated 7.112011 had stated that they require time to collate all information with regard to IPRs covered spare parts as this
require coordination with their counter parts in USA. The company had submitted an annexure containing a list of certain parts for which patents have
been granted (11 titles) as well as parts of which patents have been filed (26 titles).
During the investigation, the product development license agreement entered by FIPL with its parent company Ford Global Technologies, LLC was
obtained (Annexure C8).
The aforesaid product development and license agreement submitted by the company contains as follows:—
II. License Grants
A. “FGTL will make available to FIL Intellectual Property which is necessary for assembly of vehicles and the manufacture of vehicle assembles,
subassemblies and components in its facilities. In acknowledgement of the Intellectual property used by FIPL, FGTL will collect a royalty on each
Ford brand vehicle manufactured by FIL.
B. In acknowledgment of the grants of a non-exclusive license under Intellectual Property (including improvements) from FGTL to have Ford brand
vehicles manufactured, to manufacture Ford brand vehicles in its facilities, and to manufacture and have manufactured assemblies, subassemblies,
and components for vehicles, all as necessary to support its businesses. FIPL will pay a royalty to FGTL as provided herein.”
It is observed that as per the agreement FGTL has been given a non exclusive license to conduct the manufacturing activities of the Ford products
which includes vehicles, components etc. Further in terms of the agreement, FIPL is granted right to use intellectual property of FGTIL for which FIPL is
required to pay royalty to FGTL.
The aforesaid agreement does not specify the technologies, patent, know-how, copyrights, other intellectual property which are being given to the FIPL.
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Therefore, the specific technologies, patents, know how etc which are covered by the agreement are not known.
In this regard, it is pertinent to mention that the IP rights are mostly territorial, that is, they have jurisdiction only in the country where the protection
has been granted. Therefore any registration of IPRs in the country of the parent company or other jurisdictions may not automatically confer IPR rights on
FIPL in India. The aforesaid license agreement entered between FIPL and FGTL is primarily contractual in nature. In terms of IPR laws, for legal
enforceability registration in India would be mandated for other than copyright.
It is also observed that the company has furnished certain details of patents held and applied for in India. From the perusal of the list it is noted that
patent has been granted with respect to 11 body parts. Apart from these applications have been filed with respect to approximately 30 parts but are yet
to be granted.
It has also been admitted during the investigation that FIPL does not have IPRs registered in India with respect to all parts for which restrictions are
being imposed.
In this context it may be relevant to mention that several OEMs have claimed copy rights in designs, drawings etc which are being provided by them to
the OESs. Although no such claim has been made by the company it would be relevant to discuss this aspect.
There are no requirements for registration to claim copyrights however, for Copyright to subsist in a “work” it must be compliant with the provisions of
Section 13 of the Act. Further, Section 15 of the Copy Right Act, 1956 provides a special provision regarding copy rights in designs registered or capable
of being registered under the Design, Act 1911 which is found to be relevant and is reproduced hereunder:
(1) Copyright shall not subsist under this Act in any design which is registered under the Design Act, 1911 (2 of 1911)
(2) Copyright in any design, which is capable of being registered under the Design Act, 1911 (2 of 1911), but has not been so registered, shall cease as
soon as any article to which the design has not been so registered, has been reproduced more than fifty times by an industrial processes by the
owner of the copyright, or, with his license, by any other person.
From the information gathered during the investigation it has emerged that the designs and drawings of spare parts are capable of registration under
the Designs Act in India. This aspect has been discussed in detail in the main report under chapter VIII and may be referred.
Therefore there would be limitation on protection under the Copyrights Act on account of provisions of Section 15(2) given above. Given the available
facts and in view of the aforesaid provision, the protection of Copyright may not subsist in all Spare Parts of Ford brand vehicles.
It is also observed that restriction are being imposed even in cases where the tooling cost is borne by the OEMs. As discussed above the Act provides
for exemption for protection of rights which have been conferred under certain specific IPRs Acts mentioned under Section 3(5)(i). Hence, such
contractual obligations may need to fall within the ambit of these Acts to qualify for exemption in terms of the Act. For the various reasons discussed
above, the position would vary across agreements entered between OEMs and OESs depending upon the specific facts. Thus a blanket exemption may not
be available under the Act on these grounds.
There are large number of spare parts which are being sourced from OES and for which restrictions in terms of agreement are applicable. Based on the
above facts and analysis it has emerged that though FIPL has submitted details of certain IPR's in the form of patents registered in India which as per the
information given cover only 11 body parts. The extent of coverage of these registered IPRs over the entire range of spare parts on which restrictions are
applicable is very limited. It has been admitted by FIPL that they do not have IPRs registered for all parts for which restrictions on sale to third parties or
requirements for prior permission for selling are imposed on the OESs. Although there was no registration requirements for claiming copyrights, there are
limitations in terms of validity as discussed above.
For being covered for exemption under Section 3(5)(i) of the Act, the OEM needs to establish that the stated parts on which restrictions have been
imposed, have been granted IPR's as per the relevant Acts. During the course of investigation despite being given opportunity, OEM has not been able to
substantiate the same. OEM needs to be subjected to strict proof regarding their possessing valid IPR's with respect to each part for being considered for
exemption under Section 3(5)(i) of the Act.
Hence for these reasons, it does not stand established that FIPL possesses valid intellectual Property Rights in India w.r.t. all spare parts for which
restrictions are being imposed on OES, in terms of the provisions of the various Intellectual Property Acts mentioned under Section 3(5)(i) of the
Competition Act.”
108. The Commission observed that the appellants needed to prove that the right which they were trying to put forward as an intellectual property right
was rightfully characterized so and whether the requirement of the law granting the IPR was satisfied. The DG in order to examine these claims on the
touchstone of these two considerations went to great length in his report. Section 3(5) of the Act allows an owner of intellectual property to impose
restrictions which cause anti-competitive consequences to the extent that such restriction are ‘reasonable conditions’ and are ‘necessary’ for protecting such
rights. The key words in Section 3(5)(1) of the Act are “reasonable conditions” and “necessary”. These phrases while allowing the freedom to put restriction
on competitive behaviour, clearly limit the freedom to impose such restrictions. Further the exemption available to a person is limited to the six legislation
mentioned in the provision. According to the investigation report a perusal of the agreement/purchase order/letter of intent entered by the OEMs with the
local OES revealed that in most of the cases there were restrictions on the OES from supplying parts directly to third parties without prior written consent.
Such restrictions were also applicable in case of supply of spare parts directly by the OESs in the aftermarket.
109. OEMs have stated in their defence that they have their intellectual property rights embedded in the manufacturing of various spare parts in the form
of patents, trademarks, copy rights and designs. They have also claimed that there are trade secrets and know-how which are transferred from the parent
company to OEM and from OEM to OESs in the process of manufacturing spare parts, therefore, they have taken umbrage to Section 3(5) of the Act to
impose certain restrictions which are necessary and reasonable. DG noticed that several OEMs did not have any registration under the intellectual property
laws in India other than their trademarks; few OEMs have registered/applied for registration of certain designs, patents details of which have been furnished
and incorporated in sub reports; OEMs have also asserted that certain rights under intellectual property laws might be vested with their parents overseas
companies. However, no specific details were furnished except technology transfer agreement entered with the parent company by Nissan. OEMs have also
claimed IPRs in the form of copy right in the drawings, designs, specifications etc. for every spare part. Copy right is one of the main ground on the basis of
which the proprietary right on spare parts is being claimed and thereby restrictions are being imposed.
110. DG has concluded that even if their existed a copyright in the drawings prepared by the OEM and shared with the OES; since the Article to which
these drawings applied would certainly have been produced more than 50 times by an industrial process, therefore, the protection available under this
provision would not exist. As far as designs are concerned OEMs have claimed protection on all designs by virtue of their drawings having been claimed
under Copyright Act and designs which have been registered under the Indian Design Act. As we have seen Section 15(2) of the Act does not allow a
copyright to be claimed as design, if the product is reproduced 50 times through an industrial process. DG has through an elaborate examination of
jurisprudence on the subject concluded that appellants were not successful in claiming protection under the Copyright Act on the products which were
subject to reproduction through industrial process. He has cited Microfibers Inc. v. Girdhar and Co. and Mattel Inc. v. Jayant Aggarwala, and Dart Industries
Inc. v. Techno Plast decided by High Court of Delhi (RFA (OS) No. 25/2006, FAO (OS) No. 447/2008 and RFA (OS) No. 25/2006), Samsonite Corporation v.
Vijay Sales, decided by High Court of Delhi (IAS No. 1616/97 n& 2920/97 in Suit No. 379/97). The High Court of Gujarat in Devendra Somabhai Naik v.
Accurate Transheat Pvt. Ltd., 2005 (31) PTC 172 (Guj) held “When the law says that the Copyright shall cease as soon as an article to which the design has
been applied has been reproduced more than fifty times, then the logical and intelligible interpretation would be that any article has been produced for more
than fifty times applying the said design. Application of the design for manufacturing or creating an article would not mean that the design has been
reprinted and has been posted on the body of the machine. The word, ‘application’ in the present context would mean that the knowledge has been derived
from the said design and that knowledge has been applied for manufacturing a particular machine. We cannot have dogmatic approach in the present matter
when the law clearly says that the Copyright shall cease as soon as any article to which design has been applied has been reproduced more than fifty times.
In the present matter indisputably after applying the design a machine has been manufactured at last 170 times very year. The logical conclusion would he
that the copyright shall cease to have the effect. The Board was absolutely justified in directing deletion/cancellation of the said registration.”
111. Thus as far as copyrights are concerned, appellants have not been able to prove that they had the benefit of copyrights all through the period when
they were using these drawings. As far as designs are concerned appellants have not been able to show evidence for establishing their analogy of all designs
claimed by them. DG has further examined the issue of IPRs being assigned to the OEMs by their parent companies and whether there really existed such
assignment and if so what would be the protection available to OESs. Relevant portion of DG's report is reproduced below:
“There are usually large number of spare parts which are being sourced by each OEM from local OESs and for which restrictions in terms of agreement
are applicable. Based on the above facts and analysis it has emerged that most of the OEMs do not have registration under the intellectual property laws
as mentioned in Section 3(5)(i) of the Act. Although some of the OEMs have furnished details of certain rights in the form of patents, designs and
trademark registered in India, however, the specific parts to which these correspond have not been furnished. Therefore, the extent of coverage of rights
claimed under intellectual property laws over the entire range of spare parts on which restrictions are applicable is not known. Intellectual property right
under Copyright on design, drawing, spare parts etc., has been claimed by most of the OEMs with respect to all the spare parts to which restrictions apply.
The OEMs have also placed reliance on the technology transfer agreements entered by the OEMs with their parent companies for justifying restrictions on
the OESs. During the investigation these technology transfer agreements were obtained and perused. It is observed that most of these agreements
contain confidentiality clause as per which they are required to protect the technical knowhow, IPRs etc of the parent company. In this regard, it is felt
that these agreements are contractual in nature which have been entered between the OEM and their parents. From the context of the present issue under
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consideration it needs to be seen whether these agreements would enable the company to claim exemption under the provisions of Section 3(5)(i) of the
Competition Act. It is noted that these agreements do not contain any specific details of IPRs other than trademark which are being assigned to the OEMs.
Therefore, the IPRs claimed on the basis of these agreements could not be verified. Further it is noted that most IPRs conferred under different related
Acts are territorial i.e. they have jurisdiction only in the country where the protection has been granted. Therefore, even if the parent company were in
possession of IPRs in their respective countries, the same would not automatically confer corresponding rights to the OEMs in India. Since the trademarks
of the OEMs may be registered in India (some of the OEMs have furnished details) they may be justified in restricting the OES from selling spare parts
using this brand name/logo without their permission.
The provisions of Section 3(5)(i) of the Competition Act may be applicable for spare parts where the OEMs have established their claims under various
IPR legislations spelt out in mentioned Section. For the reasons stated above, OEMs have not been able to establish that they possess valid rights under
intellectual property laws in India in terms of the provisions of various intellectual property Acts mentioned under Section 3(5)(i) of the Competition Act,
with respect to all spare parts for which restrictions are being imposed on OES. In view of the above, claim of OEMs of exemption under Section 3(5)(i) of
the Act has not been found to be fully tenable.”
112. While appreciating the DG's report, the Commission has focused on two aspects of DG's investigation, namely
a. Whether the right which is put forward is correctly characterized as protecting as intellectual property.
b. Whether the requirements of the law granting the IPRs are in fact being satisfied.
113. The Commission on the basis of DG's findings 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 various spare parts pursuant to which such OEMs have claimed the exemption under
Section 3(5)(1) of the Act. The Commission has noted that even in those cases 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 IPRs laws to individual spare parts that are protected. The Commission has concluded that in order to take benefit of
Section 3(5)(1) of the Act the first test which is on the validity of the IPRs has not been passed by any of the appellants. The relevant portion of the
Commission's appreciation of the situation is quoted below:
“For the Commission to appreciate a party's validly foreign registered IPR, in the context of section 3(5) of the Act, satisfactory documentary 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.”
114. On the issue of patents, during the investigation questions were put to OEMs to describe all patents which were registered in their names or where
applications had been filed with the Controller of patents in India. While Toyota and Ford gave lists of patents including existing patents and applied patents.
Nissan did not produce any such list. DG has raised the issue of territoriality in this context. It is well known that patent rights are territorial in nature and
therefore, the protection available to them is limited to the territory where they are registered. The list provided by appellants before the DG included a
number of patents which either existed in the names of parent companies and registered in the respective countries of their operation or filed in Registries
there. Secondly there was no evidence on assignment of these patents. It was claimed that technology transfer agreements had provisions which showed
that the patents had been assigned/licensed to the OEMs. However, no such evidence was produced which would have proved either the registration of such
patents in India or their assignment/licensing to the Indian subsidiaries i.e. the OEMs. In such situations the claims of the OEMs were not tenable. There is
no doubt that important trademarks are registered in India or some of them are under application and the protection in accordance with Trademarks Acts
would be available to the OEMs. As far as the claim of trade secrets and knowhow is concerned India does not have relevant laws which allow protection to
trade secrets and knowhow specifically, however, i.e. not to deny that common law remedy is available to the claimants.
115. We confronted the learned counsel for TKM during his oral arguments to specifically address issues on territoriality and if there was any benefit which
could be drawn by the appellant on the basis of the Patent Cooperation Treaty. However, we could not find a response which could dispel the conclusion
drawn by the DG. The second group of products where the appellants claim similar protection relate to diagnostic tools, technical information, fault code,
softwares and toolings made available to OESs for producing spare parts. As far as toolings are concerned protection has been claimed on the ground that
tools are provided to the OESs to produce spare parts for exclusive use of OEMs automobiles and OEMs claimed intellectual property rights on such products.
In the preceding paragraphs we have seen that the DG and the Commission have very extensively dwelt on the issue as to what extent the claim to IPR
protection would have allowed OEMs to impose anti-competitive conditions on the OESs, therefore in case of diagnostic tools etc. also a similar inference
would be drawn.
116. The second aspect of this analysis looks at the necessity and the reasonableness of these restrictions. One of the important arguments made by
learned counsels for the appellants was that Indian aftermarket is full of counterfeit/spurious spare parts and by imposing these restrictions they were simply
trying to check the potential of mixing of original with the counterfeit. They have also contested DG's report and the Commission's conclusion on some facts.
For example it has been denied that TKM absolutely restricts all vendors from making sales in the aftermarket. However, it has been admitted that TKM does
restrict these sales in some situations to introduce safeguard so as to ensure that spurious spare parts do not enter in the market and that its IPRs' are
protected and moreover such safeguards are applicable in very limited circumstances.
117. The Appellants have argued that they cannot possibly place any restriction on those OESs who manufacture products using their own knowhow and
technology, these are category 1 vendors who make generic parts such as batteries, tyres, spark plugs, shock absorbers, exhaust systems etc. and these are
the products of the particular manufacturer (OES) and not products of OEMs. There are category 1(A) vendors who also manufacture their own products
using their in house knowhow and technology though they may require specifications from appellants such as designs and dimensions. This is because such
parts are developed by the category 1A vendor specially for each model of the vehicle and to the extent these category 1 vendors differ from those who
supply generic parts in the market. According to the appellants just like category 1 vendor the products remain that of the manufacturers and are not the
products of the appellants. TKM during its arguments have stated that if a category 1A vendor wishes to sale its products in the aftermarket, Toyota does not
and cannot possibly restrict such sales since it is not the product of Toyota but the product of category 1A vendor. However, the only condition in such case
is that such category 1A vendor should not use the Toyota mark on such products. The third category of vendor, according to Toyota is a contract
manufacturer who is given the technology, knowhow, toolings etc. by the OEM. According to Toyota these are not vendors but contract manufacturers whose
role is to manufacture a product on behalf of the main manufacturer who outsources some of its own manufacturing functions. These sub-contractors as a
matter of fact are extension of OEMs factory. The business model of contract manufacturer is very different from other OESs who are independent
manufacturer. Toyota in its written submission has stated that in contract manufacturing situation the EU vertical restrain guidelines specifically recognized
the terms of the Commission's sub-contracting notice of 18.12.1978 according to which where a sub-contractor undertakes to produce certain products
exclusively for the contractor, they generally fall outside Article 101(1) of the TFEU; if the technology or equipment is necessary to enable the sub-contractor
to produce the products. The said notice clarified those restrictions which are acceptable in such situations. In para 2 of the notice it is stated that
restrictions on providing the technology/equipment provided by the contractor to a third party or a condition to provide the goods resulting from the use of
such technology or equipment to only the contractor would not fall foul of Article 85(1) EEC Treaty.
118. The long list of OESs broadly indicates two categories of vendors, those who may be manufacturing not only for one OEM but may be for several
others and who have already established their brands and reputation in the market. There are others who could be exclusively manufacturing for one or two
OEMs and depend on the OEMs not just for knowhow, technology but even for finances, at times. Their approach to marketing independently, products
manufactured by them and the use of their brand names obviously is influenced by their status in the market. The contractual relationships between the OEM
and these companies also varies. In the first case the relationship is mostly driven by purchase orders while in the second case a vendor development and
purchase agreement may be resorted to. A glance across the responses made by these vendors shows that in all cases where
technology/equipment/toolings/IPR dependence is on the OEMs they are not allowed to market the product independently. Some of the OESs in their
responses have accepted that they voluntarily do not sell in the aftermarket independently. Some of them have alluded to the high cost of marketing
infrastructure which would be required in case they wish to sell in the aftermarket. Some of the vendors are in product area which has long life and therefore,
little aftermarket. In our assessment it will not be fair to paint all of these statements with the same brush. We have tried to capture some of the responses
above. The general tenor of these responses could be summarized as follows:
1. All cases where technology, knowhow, equipment, tools have been made available to vendors they are not allowed to sell in the aftermarket.
2. In cases where vendors supply products which are already in their stable but are made to specifications of the OEMs they are allowed only with the
consent of the OEM. However, no such consent has been ever given. Some of such vendors have even stated that they have not ventured to ask for
such consent.
3. There are vendors who are established manufacturers of auto components and their presence in the aftermarket is noticeable and they are allowed
independent sales.
119. The first category noted above in order to be considered as sub-contractor would have to be examined on the criteria of their exclusivity for the OEM
i.e. if they have to be considered as extension of the OEMs factory? Are they manufacturing exclusively for a particular OEM or are they manufacturing for
more than one OEM. If they are exclusively manufacturing for one OEM and are entirely dependent upon the OEM for knowhow, technology, designs,
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drawings, specifications, intellectual property even finances in some cases, than they could well be considered as sub-contractors and there is a rationale for
them not to sell in the aftermarket. However, we do not see a rationale for those OEMs who produce to their own technology/IPR/equipment/tooling but only
draw specifications such as designs and dimensions, to also seek appellants permission to sell independently in the aftermarket, as they can clearly market
such products as ‘matching quality products’ and would therefore, be entitled to make independent sale in the aftermarket. Undoubtedly in such cases they
may have to forgo the use of appellants' brand names.
120. We need to reflect upon the issue of sub contracting. The phrase has not been defined in any Indian law. Section 194 of the Indian Income Tax Act
explains the phrase ‘work’ which can be considered broadly similar to the notion of sub-contracting. The European law is more explicit on this phrase
particularly on its relevance in the context of the competition law. The Commission notice of 18th December 1978 concerning its assessment of certain sub-
contracting agreements in relation to Article 85(1) of the EEC Treaty, contains salient features of a legitimate but limited sub-contracting arrangement.
Article 85(1) corresponds to Article 101 of the TFEU which is akin to our Section 3 of the act. We quote from the Commission's view,
“In the Commission's view, Article 85(1) does not apply to clauses whereby:
-technology or equipment provided by the contractor (OEM in this case) may not be used except for the purposes of the subcontracting agreement,
-technology or equipment provided by the contractor may not be made available to third parties,
-the goods, services or work resulting from the use of such technology or equipment may be supplied only to the contractor or performed on his behalf,
Provided that and in so far as this technology or equipment is necessary to enable the subcontractor under reasonable conditions to manufacture the
goods, to supply the services or to carry out the work in accordance with the contractor's instruction.”
121. The notice goes on to say, “However the restrictions mentioned above are not justifiable where the subcontractor at his disposal could under
reasonable conditions obtain access to the technology and equipment needed to produce the goods, provide the services or carry out the work. Generally,
this is the case when the contractor provides no more than general information which merely describes the work to be done. In such circumstances the
restrictions could deprive the sub-contractor of the possibility of developing his own business in the fields covered by the agreement.” Further, “However any
undertaking by the sub-contractor regarding the right to dispose of the results of his own research and development work may restrain competition, where
such results are capable of being used independently. In such circumstances, the subcontracting relationship is not sufficient to displace the ordinary
competition rules on the disposal of industrial property rights or secret know how.”Though we do not have a corresponding law on the subject and resultant
jurisprudence, this notice reinforces our understanding of the three situations listed earlier on OEM-OES relationship. As far as subcontracting is concerned it
will have to be interpreted situationally though the basic contours have been identified in this section.
122. Before we move on to the next sub issue under this section we must also reflect upon to what extent IPR based restrictions discussed above could be
considered as reasonable restrictions. The restrictions apparently are being claimed for two reasons firstly to protect intellectual property from being released
into the market with the apprehension that it may be copied and secondly with the apprehension that release of products into the aftermarket made out of
intellectual property owned by the OEM may produce mixing of original and counterfeit parts and thereby mislead the gullible customers into buying
counterfeit rather than original. In our view appellants have not been able to prove their case on both these criteria. As far as the first point is concerned
protection of intellectual property by itself cannot be considered as a reasonable condition. In this context we need to consider the overriding character of the
Indian Competition Act as articulated in Section 60 of the Act as well as the contemporary jurisprudence in advanced jurisdictions such as the European
Union. As far as the second point is concerned the argument itself appears defensive and irrational. The DG report, the Commission's order and a variety of
documents presented on these files clearly show that there is a large segment of counterfeit/spurious automobile spare parts available in the aftermarket. If
we go behind the reason for the aftermarket being significantly impacted by the non genuine parts, the primary reason would be very low pricing of
counterfeit parts, huge supplies, besides, the lack of regulatory environment. One of the important ways, to regulate the supply of counterfeit product, inter
alia, would be to release in the aftermarket, genuine products at reasonable price. We can say with definitiveness that genuine parts released by the OEMs
into the aftermarket are highly priced. Thus, on the one side high price of these parts and on the other restraints on their supply in the open market
contribute to the abundance of counterfeit parts. We do not deny the lack of regulatory environment in this respect. Therefore, it is necessary that situations
where artificial constraints are being created on the release of genuine spare parts into the aftermarket, are addressed. In our opinion therefore, restrictions
imposed by the appellants are not reasonable and they are definitely not necessary as the same purpose of protecting IPR's can be achieved through
contractual means and common law remedies. The DG and the Commission both have examined the potential impact of such restraints on competition in the
market. It is clearly made out that restraint on supply of genuine spare parts in the aftermarket causes encouragement to the counterfeit industry to fill up
the deficit in the market. Further availability to independent repairers is discouraged and all this leads to the customer not receiving the genuine parts,
impacting safety and maintenance of automobiles.
OEM - Authorized Dealers
123. The third category of agreements/arrangements reported by the DG and examined by the Commission are the ones between OEM and the authorized
dealers. The marketing structure in the automobile sector has been stated in an earlier paragraph. The DG has examined the dealership agreements in
respect to the appellants, focusing on two aspects firstly whether dealers can undertake over the counter (OTC) sale of spare parts i.e. without necessarily
requiring the cars to be service/repaired at their workshop and, secondly, whether there are any restrictions on the dealers to sourcing the spare parts. The
third issue relates to treatment of warranty in case a customer exposes his vehicle to a non authorised service agency. No clause regarding the rights of the
dealers to undertake over the counter sales of spare parts were found in case of Toyota. They have submitted that spare parts of Toyota cars are sold to
customers over the counter at company authorized dealers. Further customers can get their vehicle serviced/repaired at authorized dealer or buy genuine
service parts at the counter therein. DG addressed a questionnaire to relevant dealers as well as independent repairers. We quote from the sub report on
Toyota below:
“Q5. Are your authorized dealers allowed to sell the spare parts including body parts manufactured in house over the counter without getting the car
serviced at their authorized service centre?
Ans Yes, our authorized dealers are allowed to sell the spare parts over the counter to our customer. Q6 Can any individual including independent
repairers purchase the spare parts over the counter? Ans Yes
Q7 Is the above position true for all models of TKM?
Ans Yes.
During recording of statement TKM was asked to furnish the data pertaining to the counter sales of the spare parts to substantiate their claim. The
relevant submissions of TKM are as under:
Q14 Please furnish details of sale of spare parts over the counter through your top two authorized dealers during the last financial year?
Ans We shall revert in this regard.
In response to the above query TKM vide there letter dt. 06.2.2012 has stated that:
Under the present system, TKM does not monitor information about counter sale proceeds at its authorized dealerships. For the purpose of replying to
this query, we have tried to capture this information from dealers and hence actual figure may vary as per dealer wise according.
Dealer Service parts Counter Sales volume [Period: Jan-Dec 2011]. Top Dealers:
1. Nandi Toyota Bangalore - Rs. 29 Million
2. Wasan Toyota, Mumbai - Rs. 25 Million
During the investigation the response of multibrand workshops have been obtained. CarZ in their response has alleged that as per general
understanding the spare parts of Toyota brand cars are available in a limited way only for older, phased out models like Qualis, however, they are not able
to access the parts of Qualis. Further, CarZ stated that for new models of Toyota they have no option but to reject service. My TVS has also submitted that
the spare parts of TKM are not available in the market due to restrictions. Carnation has contended that the spares of Toyota cars are not available at all in
the after market and their availability is highly restricted and limited to Authorized Dealerships. Further, during the recording of statement Carnation
informed that they have requested TKM for supply of Genuine Spare parts, but TKM not responded, as a result they are not able to undertake repairs and
service of Toyota brand vehicles. Refer chapter VII and Annexure R in this regard.
It is observed that there are no clauses in the agreement restricting over the counter sales by the authorized dealers and the data furnished by the
company, suggests some sale of spare parts over the counter by the authorized dealers. However, contentions of the independent repairers indicate to the
contrary.
In terms of the definitions under Section 2 of the Act it is not necessary that the ‘agreement’ is ‘formal or in writing’. Enquiries carried out and
submission of stakeholders bring out that the spare parts are not generally available over the counter and at best are being sold selectively. The OEMs and
the authorized dealers may not be keen to sell the spare parts over the counter to prevent the customers from shifting to independent repairers. The sale
of spare parts over the counter is in any case at the discretion of TKM and its authorized dealers.
Based on the above facts it can be stated that there exists an arrangement/understanding between the OEM and their authorized dealers regarding non
sale of spare parts over the counter to individual customers/independent repairers thereby amounting to exclusive distribution and refusal to deal
agreement in terms of Section 3(4)(c) and Section 3(4)(d) of the Act.”
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124. We also quote from appropriate Sections in respect to the Ford and Nissan sub reports:
NISSAN
a. “Assessment of over the counter sales of spare parts by authorized dealers
During the investigation, the dealer agreement was perused (Annexure L1) and the following clauses are found to be relevant in this regard.
Responsibilities for Genuine Nissan Parts and Accessories.
Article 13-(a)
Dealer shall not use Genuine Nissan Parts and Accessories for any purpose other than Dealer's provision of the Nissan Services. Article 13-1(b)
Dealer shall not, without prior written consent of Company, sells, directly or indirectly, Genuine Nissan Parts and Accessories to any Person, including
other Authorized Nissan Dealers, in or outside Territory.
Hence, it is observed that the dealers are required to use spare parts only for provision of aftersales service and are restricted to sell to others over the
counter without prior written consent.
It has been contended by NMIPL in their submissions that the counter sales can take place. During the investigation, the position of counter sales was
checked with the company. The relevant submissions of the representative of NMIPL are given below.
Q.6 Are your authorized dealers permitted to sell the spare parts over the counter to any customer without necessarily getting the vehicle service there?
Ans Yes
Q9 Can independent repairers purchase the spare parts over the counter?
Ans Independent repairers can purchase parts from Nissan Dealers.
Q5 Please furnish details of over the counter sales by your top five authorized dealers, as a % of total sale of spare parts by them.
Ans Details are not available at NMIPL as the sale is directly done by individual dealer.
Later in the response vide email dated 23.4.12 it has been stated:-Ans. One of our Dealer M/s Ichibaan Motors Pvt. Ltd., Mumbai has done counter sales
of Rs. 17445.51/-. The amount and frequency of counter sales of parts is very low as all our vehicles are still under warranty and all the customers are
visiting dealer workshop for their vehicle repair. It is observed that there are clauses in the dealer agreement restricting over the counter sales by the
authorized dealers without prior permission. The data furnished by the company, suggests some sale of spare parts over the counter by the authorized
dealers. However, multibrand service providers such as Carnation Auto India Limited, CarZ in their responses have alleged that the genuine spare parts of
Nissan brand vehicle are not available in the market. It has been contended that due to non availability of parts they have no option but to reject service
of Nissan brand cars. (refer Annexure T and chapter VII of main report)
Based on the aforesaid facts and analysis, it is observed that there are restriction in the agreement on over the counter sales by the authorized dealers
without prior consent. Though it has been contended by the company that the spare parts are available over the counter at authorized dealers.
Submissions of the independent repairers indicate that the spare parts are not being sold in the open market. In any case in the present scenario, the
availability of spare parts is at the discretion of NMIPL and its authorized dealers. Hence, based on these facts, it can be stated that there exists an
agreement between the OEM and the authorized dealers regarding use of spare parts only for purpose of undertaking service and repairs and non sale of
spare parts over the counter to individual customer/independent repairers thereby amounting to exclusive distribution in terms of Section 3(4)(c) and
refusal to deal in terms of Section 3(4)(d) of the Act.”
FORD
Q9 “Are the authorized dealers selling spare parts over the counter to customers including independent repairer? Can the customers get the spare parts
from the authorized dealers without necessarily getting the vehicle serviced/repaired?
Ans On a request from a customer, the authorized dealer would sell the spare part to the customer. However the dealership would also advise the
customer to get the required repairs done through the dealership since the dealer would be equipped with the required skilled technicians, tools and
equipments and the diagnostic procedure to do a quality service.
Q10 Please furnish detail of the over the counter sales of spare parts by authorized dealers for the last one year.
Ans Ford India does not maintain the details. However, we can try to obtain such data and furnish to this office.
The company vide reply 28.2.2012 submitted a soft copy of the data containing the countersales of its top five authorized dealers in this regard
company's statement is reproduced below:—
Ans Soft Copy provided vide email dated 28.2.2012 as the documents are voluminous. The soft copy contains the data for top 5 authorized dealers
namely Bhagat Ford, Metro Ford, Mody Ford, MPL Ford and Rajshree Ford.
Q11 Is there any communication from Ford India to the authorized dealers to sell spare parts only to customers and not to independent repairers? Ans
We shall revert.
Vide reply 28.2.2012
Ans There is no restriction imposed upon the dealers in accordance with the Dealer Sales and Service Agreement (DSSA).
As per submissions made by the company, their authorized dealers can sell spare parts over the counter without requirement of getting the car
repaired on a request from a customer. Individual billing details with respect to few dealers have been given. The company was asked to provide the
consolidated over the counter data for each of these dealers. In reply the company stated that they do not maintain such records, therefore it could not be
supplied.
In the absence of data, it has not been possible to determine the extent of countersales. Nevertheless the information submitted indicates some
instances of over the counter sales by dealers.
In this regard the multibrand service providers in their responses have alleged that the genuine spare parts of FORD brand vehicles are not available in
the market. Carnation Auto India Private Limited has also submitted copy of email sent by them to FIPL requesting for genuine spare parts. It has been
stated that there was no response from the company (refer Annexure T of main report).
As a result it has been contended that they are not able to undertake repairs and service of Ford brand vehicles. Other multibrand service providers
such as CarZ, My TVS have also confirmed non availability of spare parts of Ford brand cars (refer Annexure T of main report). Automobile Air Conditioning
Association vide letter dated 28.5.11 has inter-alia stated that they approached FIPL seeking their policy about the availability of car spare parts from the
authorized dealers to the members of associations. FIPL replied stating that they do not encourage retail sale of spare parts. In this connection the
association submitted the copies of the correspondences held with FIPL (refer Annexure IP5). One of the discontinued dealer of FIPL, Victoria Motors has
stated that as per the provisions of the DSSA, they were prohibited from selling genuine spare parts and accessories (company products) to any other
person for resale. It has further been submitted that the access to genuine spare parts and accessories over the counter and have them fitted by
independent repair workshops. Such spare parts and accessories are sold only when they are to be fitted by authorized workshops.
It is observed that there are no restriction in the agreement on over the counter sales by the authorized dealers. From the submissions of company and
other available information it has emerged that it may allow counter sales to individual customers in special cases but to not permit sales to independent
repairers. In any case in the present scenario, the availability of spare parts is at the discretion of FIPL and its authorized dealers. From the submissions of
the various entities it is observed that the spare parts of the FORD brand cars are not being sold in the open market by the dealers. In terms of definitions
under section 2 of the Act it is not necessary that the agreement is formal or in writing. Hence, based on these facts, it can be stated that there exists an
arrangement understanding between the OEM and the authorized dealers regarding use of spare parts only for purposes of undertaking service and repairs
and non sale of spare parts over the counter to others thereby amounting to “exclusive distribution agreement in terms of Section 3(4)(c) of the Act
“refusal to deal” in terms of Section 3(4)(d) of the Act.”
125. As far as sourcing of spare parts by authorized dealers is concerned, we quote from relevant parts of the three sub reports below:
TOYOTA
“Section I (V) Use of Genuine Service Parts and Accessories
To ensure high quality, genuine and reliable service parts availability to the customers and to prevent trading in and supply of spurious products to the
customers, it agreed between the parties that the Dealers shall not use, fit or supply any parts other than the Service Parts and Accessories, generally
referred to as ‘Toyota Genuine Parts and Accessories’ for the purpose of any service, for the performance of any Warranty activities, for meeting the
requirements of customers for Service Parts and Accessories, etc. Service parts shall mean such kind of products used for the after sale needs of the CBUs,
generally referred as Toyota General Parts and Accessories, possessing the same or the same general type specifications as the ones used for the
production purposes of the product.
It is thus observed that in terms of the agreement, the dealers are required to use Toyota Genuine Parts and Accessories.
During recording of statement, the company representative was asked the following:
Q17 Are your authorized dealers required to procure the spare parts only through you?
Ans Our authorized dealers are required to procure Toyota genuine parts (which are manufactured with IPR of Toyota) only through us. Other parts can
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be purchased by our dealers directly from OES.
It is noted that the authorized dealers of TKM Grace Toyota (Cosmic Motors India Pvt. Ltd., Gurgaon) and Arya Honda (Shaman Cars India Pvt. Ltd.),
Mumbai have in their response stated that procurement of spare parts is done through dedicated software run by the OEM.
From the aforesaid it has emerged that the dealers are required to use Toyota Genuine parts which can be sourced only from TKM. Hence, the
authorized dealers cannot source such parts (other than proprietary parts of OES) from sources other than TKM. This amounts to exclusive supply
agreement in terms of Section 3(4)(b) of the Act.”
FORD
“Cl.3(e) Maintenance and Repair Service: The dealer shall perform all other maintenance and repair services, including, where feasible, body repair
services, reasonably required by owners and users of company products.
Cl6. PURCHASE FROM OTHERS AND SALES TO OTHERS
(c) The Dealer undertakes to use Ford Genuine parts sourced from the Company and Ford Genuine accessories sourced from Company approved
Suppliers, for servicing the Customer vehicles. The Dealer undertakes not to use non-approved parts in the servicing of the Company Vehicles and not
to purchase or sell parts at the dealerships, other than Ford Genuine Parts, bought only form the Company. Any damage, claims or consequences safely
issue resulting due to usage of non-approved parts, will be at the sole risk of the Dealer and any claim against the Company in this regard, would be
indemnified by the Dealer, without explanation. Further, in the event of the Company becoming aware that on any particular vehicle, non-approved
parts had been used while servicing by the dealer, the said vehicle would lose its warranty. All warranty claims made and approved by the Company on
the said vehicle earlier would also be claimed back from the Dealer, with interest, along with a penalty equal to the warranty claim made. All claims
from the customer, in this regard, shall be satisfied by the Dealer at his costs and consequences.
Cl 1. Definition
(g) “Genuine Parts” shall mean parts supplied by the company or products of manufacturers or sellers approved by the company.
(h) “Genuine Accessories” shall mean accessories supplied by the company.
(i) Ford “Approved Accessories” means those accessories/products approved by the company and supplied by manufacturers or sellers approved by the
company.
The reading of the said clauses of the agreement clearly stipulates that the genuine spare parts are to be sourced and bought only from FIPL. In view of
the requirements, the authorized dealers cannot source the genuine spare parts from other sources including the OES who could be supplying these parts
to FIPL. In order to check the actual position, this aspect was also taken up with the authorized dealers of the OEM. This office has received response of
one of the authorized dealers, Harpreet Ford, who in this regard submitted that they are restricted to purchase spare parts only from Ford India. Only
some accessories and lubricants are purchased directly through OES based on advice of Ford.
From the aforesaid it has emerged that the dealers are required to use the spare parts supplied by FIPL or authorized vendor/suppliers. This amounts to
exclusive supply agreement in terms of Section 3(4)(b) of the Act.”
NISSAN
“From the perusal of the dealer agreement the following clauses are found to be relevant:—
Article 1. (h): “Genuine Nissan Parts and Accessories” means the parts and accessories for Nissan Vehicles offered for sale by Company to Dealer
under this Agreement, which are listed in the Nissan Parts Catalogue, as from time to time amended or replaced and notified in writing by Company
to Dealer.
15.4 Dealer shall not use any item other than Genuine Nissan parts and accessories in its Nissan service operations on any Nissan vehicles or
when appropriate, on other motor vehicles manufactured and/or marketed by or for Nissan. From the reading of the aforesaid clauses, it is observed
that the dealers are required to use only genuine Nissan parts and accessories which are to be sourced only from NMIPL. This aspect has also been
confirmed by one of the authorized dealer, Nath Nissan Delhi (Annexure L10). In view of the requirements, the authorized dealers cannot source the
spare parts from other sources including the OES supplying these parts to NMIPL.
From the aforesaid it has emerged that the dealers are required to use the spare parts supplied by NMIPL only. This amounts to exclusive supply
agreement in terms of Section 3(4)(b) of the Act.”
126. The OEMs have defended their action on three grounds firstly on the ground of intellectual property rights, secondly on safety concerns and thirdly
on account of lack of skills and accountability of independent repairers. As far as the issue of IPR is concerned we have discussed at great length in the
preceding paragraphs and do not consider it necessary to repeat. On the safety aspect there is no denying the fact that genuine spare parts are the best
solution to addressing the issue of safety hazards. The OEMs and representative of SIAM have highlighted the absence of any quality standard for spares to
be used in aftermarket, and minimum qualification and license requirement for independent repairers. The Commission has summarized DG's observation on
the subject as follows:
“a. In case of agreements entered by few OEMs with their dealers there are specific clauses restricting/prohibiting sale of spare parts over the counter. The
DG has found such agreements to be in the nature of exclusive distribution agreements and refusal to deal in terms of Section 3(4)(c) and 3(4)(d) of
the Act. Such OEMs include, Fiat, Skoda, Nissan and Mahindra.
b. In several cases though there are no specific clauses in the agreements entered by the OEMs restricting over the counter sales, however, the DG, based
upon the enquiries carried out and submissions of stakeholders, have concluded that the spare parts are not generally available over the counter and at
best are being sold selectively. The DG, therefore, alleged, that there exists an arrangement or understanding between the OEM and the authorized
dealers regarding non sale of spare parts over the counter to individual customer/independent repairers thereby amounting to exclusive distribution
and refusal to deal agreement in terms of Section 3(4)(c) and 3(4)(d) of the Act.
c. There are clauses in agreements entered by most of the OEMs with the Authorized dealers requiring them to source spare parts only from them or their
approved vendors. These agreements are found to be in nature of exclusive supply agreements in terms of Section 3(4)(b) of the Act.
127. According to the DG report he did not find a restrictive clause in the dealership agreements of either of the appellants. The DG's findings have been
summarized by the Commission as follows:
Table 12
Agreement between OEMs and their authorized dealers
OEMs Counter sale of Spare Availability of Diagnostic Warranty Con-ditions Ability of Deal-ers to deal
Parts Tools with competing brands
Toyota No clause* Only available to authorized Warranty invali-dated if Restricted
deal-ers. repaired by independent
repairer
Ford No clause* (DG based upon Only available to authorized Warranty invali-dated if Restricted (However, 61
submissions of multi-brand dealers. repaired by independent dealers have undertaken
re-tailers and inde-pendent repairer dealership of competing
repair-ers have con-tended brands)
no such sales occur in
practice)
Nissan Total restriction Only available to authorized Warranty invali-dated if Restricted (However, cer-tain
deal-ers. repaired by independent Nissan dealers have been
repairer dealing in competing brands)
128. The Commission has assessed AAEC of agreements between OEM and authorized dealers. The relevant paragraphs are quoted below:
“Assessment of AAEC of agreements between OEMs & Authorized Dealers
20.6.26 As already explained while assessing the AAEC of agreements between OEMs and OESs, in order to analyze the AAEC caused by agreements
between the OEMs and the authorized dealers also, we have noted the factors provided in section 19(3) of the Act.
20.6.27 The rationale given by the OEMs for such restrictions, such as, (i) the independent operators may not possess the skills required to replace the
parts and undertake repairs thereby causing health hazards, (ii) widespread availability of counterfeit parts; (iii) parallel resale network if established
would conflict with the distribution network etc. 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 in 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 is available only at the authorized dealers, and the
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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 spare parts “over-the-counter”, it would be fitted
correctly using the approved procedures in the open aftermarket that comprises 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.
20.6.28 However, the Commission is of the view that access to spare parts and diagnostic tools cannot be restricted due to greater public good. The
presence of spurious parts/health hazards should not be used as an argument to deny consumer choice. Every car owner (consumer) should have a choice
to make a rational decision after taking into account the costs and benefits into account. 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 choice of ‘whether to go to an
Independent Repairer or Authorized Dealer’ should not be taken away in the guise of consumer protectionism. Further, the Commission is of the view that
it would be wrong to presume that the entire set of aftermarket repairers is a monolithic group of service providers. As evident from the table below the
total number of after sale service providers may be divided into various categories, including, OEM authorized dealerships, multi-brand retailers and
standalone neighborhood garages.
Type of Service Centre Number of workshops

Semi-Organized Service Sta-tions 60000
Source: The Indian Automotive Aftermarkets study, 2011
As per the DG Report, the Indian automobile aftermarket is serviced by several multi-brand retailers, who have the same scale of operations, in terms
of finances, infrastructure and workforce, as many of the OEM authorized dealer workshop. These include Bosch Car Service, Carnation Auto India (Pvt)
Ltd, Vahan Motors (Pvt) Ltd and TVS Automobile Solutions (Pvt) Ltd. Therefore, the argument submitted by several OEMs that even if spare parts are
available over the counter, the cars could develop fitment defects when serviced by unskilled independent repairers cannot be accepted entirely. For
example, a Mercedes car owner may not avail the services of a local garage owner, due to lack of technologically advanced diagnostic tools required to
service a Mercedes brand car, however, the Mercedes car owner may be inclined to get his Mercedes car repaired from the repair shop of a multi-brand
repairer, since he may perceive that such repair shops are providing comparable repair jobs to that of the Mercedes authorized workshops. Alternatively, a
Honda Brio owner may avail the services of the local garage repair shop, because, in the estimation of a Honda car owner, the local garage technician has
enough skill and training to service/repair his Honda branded car. At the present state of affairs neither the garage owner nor the multi-brand repairer has
effective access to spare parts or diagnostic tools. Therefore, both the owner of a Mercedes car as well as the owner of a Honda Brio car is forced to avail
the services of the authorized dealers.
20.6.29 Based upon submissions made by the OEMs in reply to the queries raised by the Commission in its order dated May 28, 2013, the Commission
is of the opinion that since substantial segments of car owners shifts to unauthorized network for their repair and maintenance needs once their warranty
expires, absence of genuine spare parts, tools leads to rise in usage of spurious spare parts thus jeopardizing the safety of car owner and leading to high
emissions. Therefore, the fact that the OEMs restrict the access of spare parts and diagnostic tools in the Indian automobile aftermarket, coupled with the
fact that all OEMs substantially mark up the price of their spare parts, is responsible for the shift of car customers to spurious parts. During the course of
the investigation, several multi-brand service providers have submitted that one of the primary reasons for substantial segments of car owners to shift to
unauthorized network for the repair and maintenance of their cars in the post-warranty period, is the absence of genuine spare parts and diagnostic tools
leading to the rise in usage of spurious spare parts, thus, jeopardizing the safety of car owner and leading to high emissions. Further, SIAM has submitted
to the DG that there is a serious problem of spurious parts in the Indian automobile aftermarket with approximately 35 % of the spare part in the
aftermarket being counterfeit. The Commission is of the opinion 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 on inefficiently, jeopardizing consumer safety. Further, the Commission is
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, there is no doubt 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 fallen foul of the
provisions of section 3(4)(b), 3(4)(c) & (d) read with section 3(1) of the Act.
20.6.30 Besides, it may be noted that the DG has also found contravention of the provisions of the section 3(4)(b), 3(4)(c) and 3(4)(d) of the Act, with
respect to agreements entered into between OEMs and their authorized dealers, restricting the ability of such dealers to deal in competing products. The
Commission, however, is of the opinion that the root of the anti-competitive conduct complained of and as investigated by the DG, in the present case
mostly em-anates from and is localized in the aftermarket for au-tomobile spare parts and repair services, respectively. The Commission has not
considered any issues relating to the primary market for sale of cars in the present case. Since the issue of ‘single-branding’, or the restrictions as
imposed by the OEMs, restricting the ability of their respective authorized dealers to deal in competing products, is an issue related to the primary market
for automobiles, the same is not being examined by the Commission in the present order.
20.6.31 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) (of the TFEU) (analogous to section 19
(3) 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.”
129. While addressing the issue of OEM authorized dealer agreement, we need to look at the following issues:
1. Whether authorized dealers are allowed to sell spare parts to customers and independent repairers over the counter.
2. Are there any restriction on authorized dealers in sourcing spare parts?
3. Whether warranty policy is implemented to the detriment of customer interest.
4. Whether independent repairers have access to spare parts.
130. In our discussion in the earlier paragraphs we have seen that DG has concluded that authorized dealers are not allowed to sell spare parts over the
counter to anyone who approaches the authorized dealer. This is particularly so when independent repairers approached the authorized dealer. It has been
further alleged that even customers cannot access spare parts unless they get the maintenance/service done by at the authorized dealers' service station
itself. DG has drawn upon the statements and responses of authorized dealers of appellants and independent repairers.
131. Toyota alluding to its Vice President Customer Service Group Shri Mahesh N. Salkar who was examined on oath has stated that, Toyota's authorized
dealers are allowed to sell the spare parts over the counter; any individual including independent repairers can purchase the spare parts over the counter and
further that it is true to all models. Toyota also submitted tentative data on over the counter sales of some of its dealers.
132. From the statement made available by Toyota it can be seen that over the counter parts sales at some Toyota Dealership, during 2011 as a
percentage of total service parts sales ranges between 1% to 17%. It further expressed anguish that DG did not examine even a single authorized dealer or
customer of Toyota. They have argued that despite these facts the Commission accepted DG's erroneous findings to state that in practice authorized dealers
would not be allowed to sell spare parts over the counter.
133. DG has examined almost all multi brand independent repairers. Bosch car service is a multi brand car repair network which offers service as leading
car workshop to make available genuine Bosch auto parts and quality service to the consumer. Bosch makes available Bosch manufactured parts and
diagnostic tools which are specifically needed for Bosch auto parts as and when required by the service station. Since Bosch has no control over the
management and operations of these service stations it could not comment on non Bosch manufactured parts. Carnation is the other major multi brand
independent repairer. Carnation has responded to the questionnaire circulated by the DG. In their response to the questionnaire Carnation has made
following statement:
1. Carnation services almost all brands of vehicle, the list includes Ford and Toyota.
2. Primarily the models serviced by Carnation cost less than Rs. 12 lacs. They are restricted in their service of more expensive models as they do not have
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access to technical manuals, diagnostic tools, special tools and equipments. Out of the five OEMs whose brands were serviced by them in the month of
April, 2011 3.9% vehicles were from the Ford brand, other brands were Maruti (40.7%), Hyundai (21.3%), Tata (13.2%), Mahindra & Mahindra (4.9%).
3. They have stated that they have insistently pursued with manufacturers for supply of spare parts over the counter or without a job card but have failed
including with the present appellants. They have reported that spare parts, parts catalog, special tools and diagnostic tools were not available from
Toyota and Ford. They have stated that spare parts availability from Maruti, Tata, Hyundai and Mahindra is far better. They have further stated “in some
instances some dealers have agreed to supply us the parts after opening the job card on their system including the corresponding labour charges.
Besides curtailing competition, we do not have access to the parts catalog since they are only provided by manufacturer on a chargeable basis. These
are available with authorized dealership in the form of booklet or electronic catalog.
4. They have further stated that special tools are necessary for repairs which are not made available in the aftermarket. Similarly technical manual and
workshop manual are also sold by the manufacturer only to their dealers and are not available in the aftermarket. “the non availability of diagnostic
equipment allow the authorized dealers to overcharge the customers since they have no or limited alternatives outside the dealer network. In certain
cases customers are forced to replace parts instead of repairing them given to manufacturer recommendation bringing up the total cost of repairers for
the customers.
134. On asking how they procured spare parts of various cars directly from car manufacturer/OESs or from dealers/stockist/authorized workshops,
Carnation has responded as follows:
“Spare parts requirement for Carnation multi brand auto service centers is catered through procurement from two channels:
▪ OES Suppliers: Spare parts procurement from OES supplier is limited to few car manufacturers (Maruti, Tata, Hyundai and M&M) and is restricted
to a few part lines only and certain geographical regions.
OES parts availability in aftermarket is primarily for parts used in General repairs (Filters, shockers, pads etc.). Sheet metal parts, body parts, Engine
and transmission parts are not available in aftermarket through any OES suppliers.
▪ Authorized distribution channel of OEMs (Dealers/Distributor/Stockiest): Spare parts procurement is carried out from authorized channels of
OEMs for certain manufacturers only (Maruti, Hyundai, Tata and M&M). However, the availability is based solely on the discretion of the Distributor and
there is significant resistance in certain regions for distribution of spare parts of these manufacturers.
The spare parts for manufacturers like Honda, Toyota, Skoda, Volkswagen, Ford & premium car manufacturers e.g. BMW, Mercedes and Audi are not
available at all in the aftermarket due to restrictive policy of these OEMs.”
135. While explaining the current scenario on availability of spare parts Carnation has stated that Maruti, Tata and Mahindra & Mahindra sell spare parts
through their own distribution channel. Finally in their statement Carnation has reported that they have adequate trained man power and skills to carry out
repairs of all car brands. However, because of restrictions on the supply of spare parts and diagnostic tools etc. in the aftermarket they have not been able to
do so. They are also cheaper generally by 10% over the corresponding rates of OEM dealership. Carnation has also supplied several invoices which apparently
indicate job work by the authorized dealership for different car makers. It can be seen from these invoices that labour charges and service tax have been
levied indicating that these invoices were made in pursuance to the job work which was supposedly done by the authorized dealership. Shri Dheeraj
Wadhwa, General Manager (supply) of Carnation was also examined on oath by the DG. Perusal of the statement shows following:
1. There are two kinds of constraints in undertaking repair work by independent repairers which are
(1) absence of workshop manuals and catalog prepared by the manufacturer and presently made available only to their authorized network.
(2) absence of availability of recommended or approved spare parts required for general repairs and job repairs.
136. He categorically mentioned that specific parts of the requisite quality at reasonable price and timely delivery are a continuous challenge and the
success rate is marginal. However, this is confined to manufacturer Maruti, Tata, Hyundai. This is largely because these company models have a very high
percentage of local production. In case of other manufacturers even the fast moving parts are not available. In case of body parts which are largely
manufactured by OEMs inside their production facility there was no alternate source of supply in such situation customers are left with no choice but to get
the repair done only by their authorized workshops. In terms of value it was stated that general repair parts would constitute 40% and body repair parts
60% excluding labour costs. It was further stated that OEMs like Maruti, Tata and Mahindra & Mahindra have their own distribution network accessible to
aftermarket which was in addition to their own authorized workshops. Sourcing of spare parts from these distributorships is much cheaper than from the
authorized dealers. We quote a part of the statement made by Mr. Wadhwa below:
“Q9 It has been contended that technical manuals, diagnostic tools, spare parts are not being made available by most of the OEMs outside their
authorized network. The same could be on account of the patent rights that these companies, lack of skills to handle such parts and the safety concerns
emerging thereof. What do you have to say about this?
Ans Substantial segment of car owners (approx. 40%) shift to unauthorized network for their repair and maintenance needs once their warranty
expires. In absence of above mentioned tools and skills this leads to rise in usage of spurious spare parts thus jeopardizing the safety of car owner and
leading to high emissions.
OEM should allow the access for their spare part catalogue, diagnostic tools, workshop manuals and ensure the availability to organized aftermarket
workshops as per the same terms and conditions laid down as given to their authorized workshop network. Most the manufactures do not have extensive
network covering large number of this cities in the country with the result that car owners are deprived of quality service and support of their car.
It is to be noted that even today the car owners are visiting the neighborhood workshop post warranty irrespective of the level of the skills of the
technicians and the quality of the spare parts. The issue is should not that why not facilitate the unorganized sector to improve the quality of the skill and
quality of work in the interest of the car and its owners.
We may also like to mention that after a prolong debate European Commission has issued direction to all OEMs to provide manuals diagnostic tools and
spare parts to any customer or any other agency on the same terms and conditions as they are provided to their own network. We need to mention that
various research shows that of the total cost of the ownership of the life of the car one third is estimated to the price of the new car one third is the cost of
fuel for running the car and one third is towards all elements of repairs etc. during post sales and life of the car therefore, the burden on the car owner for
maintenance of car is substantial because it is on third.
As far as the question of patent R&D is concerned our understanding is the most of the R&D and the technological improvement are undertaken by
major component manufacture. They supply their components to the OEMs depending on the specifications on the particular car. By and large the quality
of the product is common to all OEMs except the design and the fitment specification is different. It is our understanding that even if the OEM were to
have some right on patent and IPR the same is forgone once he has provided to his own network. The question now is to provide, on the same terms and
conditions to users other than his network.
Q12 How are you serving the customers in case some of the spare parts are not available in the open market?
Ans There have been several cases in which authorized dealers re-fuse to sell those few spare parts over the counter. In such cases we had job card
open in their workshop and they give us those spare parts along with charges for the labour. In such cases in order to meet the customer we were
substantially out of pocket. In support of this we would like to submit few instances which are placed here. For example: Honda, Surat Bumper purchased
(Honda City) From Land Mark Automobiles Pvt. Ltd. vide Invoice no 1/TAX/SRT/11-12 dt 22.04.2011 raised on Carnation Auto India Pvt. Ltd. Dealer has
raised Invoice (Bumper Rs. 5691+Labour= approx. Rs. 600). Though no labour was availed constraint to paying for labour in order to buy the part to meet
the service need.----------
Q13 Have you approached the OEMs seeking access to their spare parts and what has been their response.
Ans We have requested the OEMs mention below for supply
Genuine Spare parts.
Maruti
Mahindra
TATA
Ford
TKM
Mobis (Hyundai)
Fiat
Volkswagen
Honda
Skoda
General Motors
Copies of letters/e-mail have been furnished vide letter dated 08.07.2011. Response was received only from Mahindra, Mobis, Fiat, Volkswagen. Out of
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these Volkswagen, Fiat informed that they do not supply genuine parts outside their authorized network. Copy has been enclosed.
Hyundai informed that they are meeting the requirements of the market though their authorized dealership currently.
Mahindra indicated that other than Scorpio and Logan parts, they could supply.
No response received from Maruti, TATA, Ford, TKM, Honda, Skoda, General Motors.”
137. The DG has also examined other multi brand independent repairers TVS automobiles Solutions Ltd. which offers multi brand repairers under the
brand name My TVS, in response to a question reported as follows:
“Parts are available from four sources, but each has their own issues and challenges.
○ The vehicle manufacturer themselves. While availability per se is not an issue, the price is so structured that the independent players are at a
disadvantage vis-à-vis the authorized network.
○ From Tier 1 suppliers (those who supply to the vehicle manufacturers and to the outside market in their brand names)
○ Other parts suppliers who make good and quality products. They generally do not have the approval to supply parts to the vehicle manufacturer and
brand power that others have.
○ Imported sources. There are good parts available. Landed cost of most of them is higher than local MRPs. They face resistance from customers as
their reputation is not known.
○ From other sources. These are not always reliable and are not consistent.
There are situations where parts are just not available outside the authorized network.
These vary with Car Brands and are indicated in the table attached.”
138. In response to a query on which vehicle manufacturers make available spare parts, tools and fault codes, My TVS responded in the form of a
statement according to which the response for present appellants Ford and Toyota is mentioned as ‘not tested’, inconsistent. Only Maruti, Tata, Hyundai were
reported to be making their parts available from different sources. We quote below from the responses received by the DG from My TVS:
“7) Where feasible, parts are procured from Car manufacturers' dealers and distributors. The margins are less. This puts the multi-brand chain to a
strain as these parts have to be fitted some time.
8) Other than purchases from Tata Motors Limited, most other parts are purchased from distributors of vehicle manufacturers or their tier 1 suppliers.
Some parts are purchased after testing and authentication. In case of overseas sources it is done through their importers. Hence it may be neither
possible nor relevant to give a list of suppliers.
9) We have not taken up at the very senior level with vehicle manufacturers. However, we have been discussing with their Service Heads and we
understand that some of them have policies which do not encourage sale of spare parts to outside market. We do not have any written correspondence.
10) Technology can be sourced through alternate means such as from component suppliers and even from overseas. But generally, once the knowledge
is available for similar type of cars, senior technicians can be trained to handle the other cars. The matter gets easy because not all cars are highly
technology oriented and not all repairs wanted by customers require specialized knowledge. Therefore we are able to repair a large makes and models of
cars. But the spare parts availability is a real issue that limits our ability to give effective service to sizeable makes and models.
11) The cost of after sales service, repair, etc in independent workshops like ours is definitely lower compared to authorized workshops. This is so even
in advanced countries such as US. Our belief is the dealership model in vogue here requires service to make high profits to enable meet the overheads of
their vantage locations in contrast to frugality of our operations and smaller size enables our workshops to give customers rate benefits from 30% to 50%
depending on the make and model of the car. In respect of body repairs and insurance repairs this is uniformly true. However, we do not have authentic
comprehensive statistics for the same.
12) TATA Motors Agreement enclosed
13) These are
&dingbats; Availability of the right parts at reasonable margin
&dingbats;Access to information on OE part numbers, comparable alternate part numbers from other suppliers, parts catalogues and authentic price
lists
&dingbats; Skilled workmen
&dingbats; Technical knowledge and possibility of continuous or periodic updation of the same
&dingbats; Availability of the right tools and equipments
&dingbats; Financial and managerial resources
14) With the growth in the no of passenger cars under various brands across the country, providing quality service to the car owners at reasonable cost
becomes necessary. The presence of the multi-brand car repairers like our company, would supplement the limited number of service Centres authorized
by the car manufacturers and thus provide the car owners opportunities to avail the services from a larger number of car repairers at competitive cost. To
make this effective, the multi-brand car repairers should have unrestricted access to various auto components from the respective manufacturers.
(Emphasis supplied)
We also believe an effective competitive environment for service and repairs is in the long term interest of the nation, consumers, manufacturers and
parts suppliers alike. For example the Automotive Aftermarket Industry Association, US have an on-going lobbying for a “Right to Repair” bill that would
require car manufacturers there to share codes, knowledge etc. The competitive law in US requires car manufacturers and car parts suppliers to supply
parts to aftermarket without restriction and hence their priorities are different.
We have some access to knowledge, happenings and movements in this direction of similar issues in even advanced markets such as UK, Europe and
US and would partner with CCI to bring about similar environment here too. We would like to participate in this exercise and would be too glad to give a
white paper to you on Support and the issues the Multi Brand Service Networks face in the Indian Context in person and contribute to healthy
development of an eco-system for effective and economical use of resources and reach of service to ever spreading automotive users in the nooks and
corners of the country.”
139. President of TVS Automobiles Solutions Ltd., R. Srivatchan was examined on oath by the DG. Relevant parts of his statement are reproduced below:
“Q2 It is understood that TVS Automobiles Solutions Ltd. (TVS ASL) is under taking after sale service of multi brand vehicles. Further another group
company TVS & Sons is undertaking service as authorized dealers of certain car manufacturers. Please explain the distinction b/w the two models.
Ans Through years of our experience we have come to an understanding that for a corporate like TVS the dealership operations involving sales of
vehicles is not remunerative as sometimes even negative return on capital is experienced. As a rule the sales operations tend to give below economic
levels of returns of the capital investors. In this regard I would like to place on record the note titled Automotive service market. We realized that it is the
service market which is the economically viable and have chosen a business which will focus exclusively on servicing of cars. Since the warranty on cars
get negated by authorized network if they are serviced outside during the warranty or extended warranty period we have chosen to attend to post
warranty cars for service running repairs and accident repairs.
Q3 Have you exchanged any correspondence with the OEMs other than Tata Motors, for being their authorized service centers as a multi brand car
service provider?
Ans In the interest of good relationship we informally sound our intensions with the OEMs. Only when we get a positive reception we will formally enter
into correspondence. Unfortunately, we have not reach the stage with any other OEMs.
Q4 As a multi brand repair/service chain what are the major constraints which are being faced by you in undertaking after sale service.
Ans The constraints are many I will list some of them. In all these cases our interest is to create collaborative space with car OEs so that we can play
effective role in avoiding spurious parts. Imperfect repairs by people who do not understand the emerging technology of cars
 though our repairs are of a good quality and with quality parts the authorized network partners discourage the customer saying that our repairs were
not good and the parts used as substandard. This puts off the customers from visiting us next.
 there is a fear that the warranties will be nullified in case their cars are repaired with us.
 spare parts are not freely available. Even if they are made available they are at very low margin, generally delayed and most often only when proper
explanation is given.
 as a rule, barring Maruti and Tata Motors parts catalogues, parts numbers etc. are not shared and are not freely available.
 the diagnostic tools are not made available and the tool distributors are allowed to sell it only to their authorized dealers and nobody else.
(Emphasis supplied)
Q7 It is understand that some of the car manufacturers have their own distribution network for spare parts in aftermarket. What is your feedback
on availability of spare parts through these networks?
Ans To the best of our knowledge such distribution network was available for Maruti, Tata Motors, General Motors, Hindustan Motors in the past.
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Recently, Hyundai Motors through Mobis have started distributing this. In all cases the margin available is much lower than for authorized network.
Because of this frequently we lose either the customers or are forced to do the job but low margins.”
 What is the position regarding availability of body parts?
 Detailed list with respect to specific OEMs has been enclosed. Non availability of majority of the parts & limited availability in certain cases, largely
restricts the insurance business (ANX-I)
 Are you in a position to undertake complex repairs of all brand of cars?
 We are not in a position to do the same for higher end models because of restricted availability of parts, diagnostic & special tools. Detailed list on
the same has been enclosed. (ANX-II)
 Please furnish detailed information regarding availability of spare parts, toolings, manual etc. with respect to all OEMs in the format given herewith.
○ Detailed list in the mentioned format is enclosed (ANX-1) • Are there any implications in warranty in case the customer wants to get his car
repaired/serviced from you during the warranty period?
 Generally we don't undertake repair/service of cars which are under warranty. This is because we fear that the customers may face difficulty in
enforcing the warranty claims. Many customers have expressed their fears in this regard, during their interaction. Even during regular service, if by
chance the cars were taken to dealership workshops, we find that dealership service personnel scare the customer saying that the parts are not of
good quality or the repair quality is not up to the mark and the entire repairs may need to be re-done. Though we don't have documentary evidence
of the same, we have come across instances where customers were made to understand that their warranty may expire because of repairs carried
outside authorized network.
 bull; How are you serving the customers if spare parts are not available in the open market?
○ Depending on the brand & make we have different approaches towards serving customers. The several alternatives that are followed include:
obtaining directly from component manufacturers or alternate OE supplies; certain parts can be imported from other countries; at times we also
have to deal with traders who sell parts at a premium in after-market. Detailed list on the same is enclosed. (ANX-I)
In case parts are not available despite trying all the above, we send the vehicle to car dealers or respective authorized workshops for undertaking
the repair. Car dealers carry out the specific repairs and change respective parts and release the car in the name of customers. We hand over the car
to customer after completing balance repairs. Bill provided by the dealer workshop is added to the customer bill for reference. However, there is no
guarantee that this can happen uniformly.
 Have you approached the OEMs seeking access to their spare parts and what has been their response?
○ Spare parts are available for Maruti, Tata Motors, Hindustan Motors and recently from Mahindra & Mahindra - mostly through their
distributors/dealers. For some of the OEs like Hyundai & Toyota, selective range of products is available. However, the response from others has
not been positive so far.
 It has been contended that the technical manuals, diagnostic tools and spare parts are not available by most of the OEMs outside their authorized
network. The same could be on account of patent right that these companies own lack skills to handle such parts, safety concern emerging thereof.
What do you have to say about it To the best of our knowledge it is not due to patent rights. Training may be relevant in case of using diagnostic
tools. However, it should not be an issue with spare parts & fitment. Safety concerns are largely reduced if repairers have access to genuine parts &
related information/tools. It is the lack of availability that is more important towards safety concerns.”
(Emphasis supplied)
140. Specifically commenting upon the availability of spare parts and diagnostic tools My TVS reported as follows:
CCI FORMAT - OE SPECIFIC INFORMATION
Sl. Brand Spare parts Catalog Special Technology/Diagnostic Manual Body parts
No. Genuine Branded Not tools tools Workshop Technical Genuine Branded Not
branded Branded
4 Ford Limited Limited Available Not Not Limited availability (only Available Not Limited Not Available
India availability availability Available Available on engine & not on Available availability Available
Ltd. new ABS/BCM) new
models models
(Thailand) (Thailand)
Sl. No. Models/Make All Segmented repairs Service

repairs
ECU ADS Airbags
Fuel Regulator Water Interior Brake/Clutch/Steering
Injection KM Service wash cleaning adjustment
system
4 Toyota Capable Not capable because of Scanner Partially Capable
capable
8 Ford Partially Not capable because of Scanner Capable Capable
Capable
12 Renault Partially Not capable because of Scanner Not Capable
Nissan Capable capable
because of
repair
manual
availability
141. DG also examined Shri Vijay Gummadi, CEO M/s CARZ which is a multi brand independent repairer. In his examination Mr. Gummadi stated that
spare parts and catalog, toolings, technology and diagnostic tools, workshop manual and technical manual for Nissan would not be available. We quote from
the relevant parts of his statement below:
“Q.4 Have you ever attempted obtaining the aforesaid from these
OEMs or the ones mentioned in your previous letter, their distributors/authorized dealers? If yes, what has been the response?
Ans We have tried numerous times to approach these entities mainly through their authorized dealers. In all cases where such requests were made,
written communication was discouraged by the dealers? Inspite of numerous requests, we have never been able to procure either spares or any assistance
on the above from these entities.
Very recently we have been able to procure parts at MRP or very low margins from some dealers.
Hyundai - 3-5% discount on MRP for some parts. All parts are not available.
Toyota - General understanding is that parts are available (only for older models such as Qualis, not available for any other model). We have never been
able to procure parts for Qualis.
Chevrolet GM-Limited parts are available at MRP.
Tata - Experiencing issues with sourcing parts for old and very new models.
Mahindra - Experiencing issues with sourcing parts for old and very new models. Parts are available at MRP on distributors' discretion.
In all these cases, we are at the discretion and mercy of the dealer/distributor in terms of parts availability, timing, price etc.
In case of Maruti, Tata and to some extent in case of Mahindra, parts availability is generally good through their independent parts distributors. On a
case by case basis and based on volume purchases, we get between 5-8% discount on MRP from the distributor.
Q.5 Please elaborate your submissions made earlier regarding availability of aftermarket spares through alternate proven manufacturers.
Ans We procure parts from respected global and Indian brands such as Bosch, AC Delco, Purolator, Gabriel, MAHLE and so on. Parts from these brands
are available only in the following instances:
1. Fast moving items for such as Oil Filters, Air Filters etc. - these parts are only available for cars available in high volumes in the market
2. Common repairs for high volume vehicles (e.g. Maruti 800, Santro)
Certain parts for few vehicles (e.g. Skoda) are also available through importers in Bengaluru, Chennai, Mumbai and Delhi. These parts constitutes
less than 5% of overall requirements required to perform car repair and maintenance. These parts from importers are not always of reputable quality or
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competitive to dealer pricing and hence the parts availability is further restricted.
Q6 Please elaborate your submissions regarding the constraints faced in using the on board diagnostic tools and scanners.
Ans On board diagnostics (OBD) is a standard that allows vehicle performance parameters to be analysed and reported for diagnostic purposes. Our
primary source of OBD scanners is from independent aftermarket suppliers who provide one or more tools to analyze vehicles supported by that scanner.
Following are the problems we encounter in using these 3rd party scanners:
1. Due to lack of standardization of error codes across OEMs, we are unable to accurately identify the problems/faults
2. Inability to diagnose all problems that can be diagnosed by an OEM scanner.
3. Non availability of timely software and hardware updates for new vehicles. This leads to excessive investments either in updates or procuring
scanners for new models. This also leads to complexity in training of personnel considering the variety of software and hardware involved for each
make/model of vehicle.
4. Lack of sufficient reporting to correctly diagnose the problem
5. Inability of reset service lights to reset systems after a service is performed
Q.7 There are related safety aspects in making parts freely available as the independent repairers may not have the expertise for proper fitment etc and
there are risks that spurious parts be used the garb of genuine parts. What do you have to say on this?
Ans Contrary to this point of view, if manufacturers make genuine parts easily available at decent margins to independent repairers, usage of spurious
parts will to a great extent be controlled. Usage of genuine parts and extending warranty support on these parts to independent repairers given them an
incentive to use genuine parts because it is much easier to convince customers than when we use alternative aftermarket parts. Logistics for spares
sourcing also becomes easier in most instances considering local availability.
To curb safety concerns, OEMs can share information on recall, service procedure updates with independent repairers. Opening of technician training to
independent technicians supported by OEMs also helps with building awareness.
OEMs can also set up qualitative criteria to determine qualification criteria for independent repairs for procurement of spares, catalogs, diagnostic tools,
repair manuals. However, the qualification criteria and pricing should be reasonable and in line with that offered to their dealer network. The objective of
setting up such criteria should not be disqualifying participants.
Q.8 How does your cost of service and repairs compare with those of authorized dealers?
Ans Our labour rates are definitely lower than dealers by 15-30%. In cases where vehicle performance or safety is not hampered, we repair instead of
replacement thus reducing the costs to the customer significantly. In such cases, we are cheaper by more than 50%. Global analysis indicates that
independent repairs are cheaper on an average by 34% compared to dealers. I shall revert with samples to substantiate this.
3. Only a few manufacturers, such as Maruti, Tata, Mahindra, Hyundai have a wide service network as of today. If car owners of other brands of vehicles
are stuck with a problem during a journey (and this happens often) in a town/city where a dealer does not exist, independent repairers can come to the
rescue of such customer. This is also true when the car owner resides in a place where an authorized dealer does not exist. The car owner has to travel
long distances even for routine maintenance services causing waste of time, money and at a huge discomfort to the car owner.”
(Emphasis supplied)
142. In the above paragraphs we have extensively quoted from statements/responses received from multi brand independent repairers. It was argued by
Toyota that these witnesses were not allowed to be cross examined by appellants, therefore their responses should not be taken into evidence. The issue of
cross examination/oral hearing has been examined at great length in earlier paragraphs therefore we do not propose to repeat at this stage. It has also been
said by Toyota that by their own admission Carnation has stated that they can repair cars upto the value of Rs. 12 lacs. However, i.e. not a satisfactory
response as it only includes a part of the overall brands which are available in the market. Even that segment is only partially catered to as can be seen in
above statements. Toyota have also stated that the statements given by them indicating over the counter sale is good enough to show that there is no
restriction over the counter sale to independent repairers and therefore, the Commission's conclusion cannot be sustained. We do not feel satisfied with this
argument, firstly, it is not clear whether the stated sales are to independent customers or to independent repairers and the list does not cover all authorized
dealers. Secondly even if authorized dealers were to make available spare parts to independent repairs there is enough evidence to show that customers
have to book their vehicles for repairers for job work with the authorized dealers then only they could access the spare parts. Thirdly this is not a proof of the
fact that all parts are available. Fourthly diagnostic tools, equipments, scanners, fault codes, technical manuals etc. are still not available to independent
repairers-this is an admitted fact. So, on the one hand it cannot be said with conviction that authorized dealers are allowed to make spare parts etc. available
to independent repairers on the other even if these parts were sporadically made available, in absence of diagnostic tools independent repairers would hardly
be able to do much, opening himself to the challenge of concerns of safety and sustainability. We have seen that both Toyota and Ford have been covered by
the above evidence. As far as Nissan is concerned by their own admission OTC sale is not allowed to others. Nissan's plea in this respect is that almost all of
their vehicles at the time of investigation were under warranty and therefore outside repair was not possible.
143. One of the big questions which arises in the background of such evidence is the geographical dispersion of repair, maintenance and service facilities,
it is apparent that in view of the limited number of authorized dealers/service stations and the peculiar characteristics of the road side services claimed by
some of the OEMs such as Nissan, it can be clearly stated that un-served areas in a large geography like India remain un-serviced thereby opening a
customer to resort to independent garages/multi brand repairers. This necessitates a liberal and pro competitive approach to the issue of availability of
spares and tools.
144. On the issue of warranty both Toyota and Ford have argued that they were misquoted by the DG on warranty implications. Both have submitted that
if customers get the under warranty vehicle repaired by a non authorised mechanic/garage, in such cases only the repaired part or the consequences of a bad
repair meet with warranty cancellation but the rest of the vehicle is still covered under the warranty. Nissan however has not denied DGs finding.
Learnings from Foreign jurisdictions
145. Since Indian law on competition is in an evolutionary state and finds similarity with laws in several other developed and developing jurisdictions, the
DG has also examined law and practice in other jurisdictions.
146. Section 3(4) of the act is similar to Article 101 of TFEU. The latter is reproduced below:
“1. The following shall be prohibited as incompatible with the common market: all agreements between undertakings, decisions by associations of
undertakings and concerted practices which may affect trade between Member States and which have as their object or effect the prevention,
restriction or distortion of competition within the common market, and in particular those which:
(a) directly or indirectly fix purchase or selling prices or any other trading conditions;
(b) limit or control production, markets, technical development, or investment;
(c) share markets or sources of supply;
(d) apply dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage;
(e) make the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to
commercial usage, have no connection with the subject of such contracts.
2. Any agreements or decisions prohibited pursuant to this Article shall be automatically void.
3. The provisions of paragraph 1 may, however, be declared inapplicable in the case of:
-any agreement or category of agreements between undertakings;
-any decision or category of decisions by associations of undertakings;
-any concerted practice or category of concerted practices, 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, and which does not:
(a) impose on the undertakings concerned restrictions which are not indispensable to the attainment of these objectives;
(b) afford such undertakings the possibility of eliminating competition in respect of a substantial part of the products in question.”
147. The article 101(3) guidelines adopted in EU were developed on an economics based methodology for application of Article 101. The application of
Article 101(3) is subject to four conditions—
a) The agreement must contribute to improving the production or distribution of goods or contribute to promote technical or economic progress.
b) Consumers must receive a fair share of the resulting benefits.
c) The restrictions must be indispensable to the attainment of these objectives, and
d) The agreement must not afford the parties the possibility of eliminating competition in respect of a substantial part of the products in question.
148. Article 101(3) of TFEU gives the eligibility framework for those cases which do not attract the prohibition of Article 101(1) and therefore are not
termed as anti-competitive. The institutional framework for such agreements is contained in the Block exemption regulations 330/2010. For some specific
sectors dedicated Block Exemption Rules have been framed. Automobile sector was covered by Regulation 1400/2002, which was then replaced in 2010 by
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Regulation 461/2010. Those agreements which do not conform to the four conditions of Art. 101(3) are termed as hard core restrictions and categorically
included in the prohibited category covered by the Art. 101(1). This Regulation specifically addresses vertical agreements practiced in the automobile
industries in the EU. While the Regulation 1400/2002 was a far more elaborate and extensive regulation its successor regulation has much less scope of
coverage. Though the European car market has matured over time, the spare parts aftermarket is still not subject to full competition. Therefore, Regulation
461/2010 provides a framework within which vertical agreements have been examined on the threshold of the four conditions laid down in Article 101(3). All
those agreements which respond to all of these four conditions are exempted from the effect of Article 101(1). However, while Regulation 1400/2002 had a
relatively longer list of hard core restrictions, their numbers in the successor regulation has been significantly reduced. Even then the following restrictions
have been recognised as hard core restriction in Article 5 which is quoted below-
“Article 5 - Restrictions that remove the benefit of the block exemption— hardcore restrictions
The exemption provided for in Article 4 shall not apply to vertical agreements which, directly or indirectly, in isolation or in combination with other
factors under the control of the parties, have as their object:
(a) the restriction of the sales of spare parts for motor vehicles by members of a selective distribution system to independent repairers which use those
parts for the repair and maintenance of a motor vehicle;
(b) the restriction, agreed between a supplier of spare parts, repair tools or diagnostic or other equipment and a manufacturer of motor vehicles, of the
supplier's ability to sell those goods to authorised or independent distributors or to authorised or independent repairers or end users;
(c) the restriction, agreed between a manufacturer of motor vehicles which uses components for the initial assembly of motor vehicles and the supplier
of such components, of the supplier's ability to place its trade mark or logo effectively and in an easily visible manner on the components supplied or
on spare parts.”
149. There exists a dual regime of hard core restrictions for motor vehicle sector under EU law. The General Vertical Block Exemption Regulation (GVBER)
No. 330/2010 of 20 April 2010 and the Motor Vehicle Block Exemption Regulation (MVBER) No. 461/2010 of 27th April 2010 are both relevant on the
application of Article 101(3) of the TEFU to categories of vertical agreements and concerted practices in the motor vehicle sector. The MVBER 2010
superseded the EU Motor Vehicle Block Exemption Regulation 2002 which expired on 31 May 2010. Article 4 of MVBER 2010 states requirements which if
fulfilled would provide for an exemption to certain vertical agreements. Article 5 of MVBER 2010 lists the hardcore restrictions which do not get the benefit of
MVBER and the same may attract provisions of Article 101(1) TEFU and may be considered anti-competitive. Further, Regulation 461/2010 also refers to the
issue of tooling arrangements to prevent the producers from selling directly to the aftermarket. The guidelines clarified the extent to which a car maker can
rely upon the 1978 sub contractor guidelines to argue that the tooling arrangements fall outside Article 101(1) of TFEU. We have discussed these guidelines
at an appropriate place earlier.
150. In the United States, right to repair campaigns in several States have been the hallmark of the modern consumer's pursuit to exercise his choice as
far as selection of a garage for its automobile is concerned. As far as States are considered legislation on Motor Vehicle Owners' Right to Repair Act,
Massachusetts, has unanimously passed the Right to Repair Legislation in 2012. Further, in the US, a national automotive task force is utilized by car
manufacturers to provide all relevant information in respect to vehicle characteristics and facilitation of selection of a vehicle. Various manuals, diagnostic
tools and equipments can be accessed through NASTF. All repair information is maintained by manufacturers on their websites. The present appellants also
offer their information on the NASTF website in the US.
151. Under South Africa's statute, a vertical agreement is prohibited if it has the effect of substantially preventing or lessening competition in a market,
unless a party can prove that any technological, efficiency, or other pro-competitive gain resulting from that agreement outweighs the anti-competitive
effect. (Sec. 5(1) South African Competition Act, 1998) Thus finding a violation usually depends on showing an actual anti-competitive effect. The only
practice that is prohibited per se is minimum, resale price maintenance. A supplier may recommend resale prices as long as they are clearly not binding. If
the resale price is indicated on the product, it must be labelled “recommended price”. (Sec. 5(2), 5(3)).
152. It can be clearly seen that in all of the above jurisdictions positions similar to the one being taken now exists. The Appellants have argued that
adopting an approach which has been used in developed countries is neither practical nor feasible. We would disagree with this assessment. Indian
automobile sector has come a long way and this is the opportunity for us to bring the much desired leapfrogging in the regulatory framework while
mandating removal of restrictions on the competitive framework.
AUTO SECTOR IN INDIA
153. The automobile sector in India is one of the bright performers of Indian economy. It is an important sector which has contributed significantly to
India's industrial development and employment. After India's economic liberalization in early 90's, the sector was encouraged by State policy which India
adopted through a Phased Manufacturing Program (PMP) notified by India's Export and Import policy of 1997-2002, whereby investments made into
automobile sector were subjected to conditionalities such as ‘localization’ and ‘export import balance’. This policy though contrary to the provisions of the
Agreement on Trade Related Investment Measures (TRIMS) of the World Trade Organization (WTO) significantly facilitated investment in India in the auto
sector and also compelled major manufacturers into investing in manufacturing within India. India faced litigation in the WTO and had to loose in the
process, it borrowed enough time for itself to ensure that investment policies brought useful results in the area of setting up automobile manufacturing in
the country. A natural consequence of setting up of modern manufacturing in the automobile sector was expansive ancilliarisation whereby car manufacturers
did not simply set up their manufacturing units but also promoted vendor development, thereby building their supply chains. The modern automobile sector
is distinctive from its predecessor in the fact that a large part of value in a car is added by ancillaries. According to SIAM the role of OEM is not to actually
manufacture the system or the components but to be mainly engaged in the following:
“a) Design and styling of the vehicle
b) Ensuring quality, reliability and durability of the component systems and parts thru quality control and system
c) Final Assembly of vehicles, testing and homologation etc.
d) Branding, Marketing and Sales of vehicles.
e) After sales support and service to the customers”
154. According to SIAM about 70% of the value of a car is created through out sourcing. The remaining 30% is created in house.
155. Following the PMP Government instituted an Automotive Mission Plan (AMP) which ran from 2006 to 2016. The plan has been further renewed for
another 10 years to last till 2026. The plan aims towards contributing more than 12% of India’ GDP and more than 40% of the manufacturing sector GDP. It
also aims at creating employment of about 65 million people. The present level of employment creation is 25 million jobs. Both automobiles and auto
components are important areas for export earnings. India has emerged as a global hub for small cars. Around 31% of the global sale of small cars are those
manufactured in India. India has also emerged as a world leader in the manufacture of diesel and petrol engines of small capacity, engine and transmission
related auto components and components that require relatively low scale and complexities in manufacture. The automotive industry as a consequence of
automotive mission plan is envisaged to grow 3.5 to 4 times in value from its current output of around 464000 crores (2015) to Rs. 1616000 crores-1888500
crores by 2026. It is apparent that auto sector is destined to receive significant attention of the Government. Among the major intervention sought during
the automotive mission plan period are working towards auto fuels and emission norms, safety regulation, inspection and certification regime, end of life
policy and trade policy and fiscal and taxation measures, scale development, specific infrastructure etc.
INDEPENDENT REPAIRS
156. According to ACMA report the status of service providers in automobile sector is reported as follows:
Type of Service Center Number of workshops
Semi - Organized Service Stations 60000
157. It can be seen that these four categories operate within varying institutional eco systems and this case significantly relates with the need for
evolution of this eco system. Traditionally when investments in technology and modern manufacturing and business practices had not been made, India
relied on very few automobile manufacturing companies which offered designs and technologies dated in time. There was a very vibrant maintenance and
repair eco system. This eco system was populated by human resource which mostly would have acquired their skills by learning on the job. Many a time this
could be passed down from one generation to another in a family. Since technology was not a pre-dominant factor, concurrent skill up-gradation in an
organized institutional format was not considered necessary. In most cities and outskirts of these cities we see mushrooming of these garages. With the
advent of new automotive industry most of these garages found themselves unprepared for the transition. Consequently, they switched over to addressing
maintenance issues in lesser technology areas in rural and semi urban sector. With the advent of new industry and restrictions in distribution of spare parts
for a variety of reasons this sector was substantially choked. As more and more maintenance and repairs were concentrated in authorized networks of
automobile manufacturers, some brands which occupied larger space of the market place gradually adopted distribution system which to some extent helped
revival of this eco system in a more organized and technologically evolved manner.
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158. Multi brand repairers are a relatively new concept which emerged only a few years ago. It is an acknowledgment of the fact that new automobile
requires higher levels of technology, skills and investment if they have to be attended to by non authorized segment of automobile service industry. It also
clearly discerned that a sound regulatory regime is required to grow side by side to ensure that emergent eco system transitions well to help average
consumer. These appeals therefore, pose questions which need to respond to this transition. While the government has focused a lot of attention on the
growth of automobile industry, relatively little attention has been paid to building a sound regulatory environment focusing on repairs, maintenance and the
required eco system. In view of our growing commitment towards regulating auto emissions, building safe environment for use of automobiles and at the
same time building the potential of the auto service industry to employ millions who enter the job market, it has also become important to look at the cases
in this perspective.
159. Appellants have argued that the regulatory system required for a completely unrestricted release of spare parts in the aftermarket does not exist in
the country. They have also argued that independent repairers do not have skills and infrastructure to be able to cater to the technical requirements of
modern day automotive service industry. These statements undoubtedly diagnose the deficiencies of the automotive repair eco system. Ford has gone to the
extent of saying that Government has not done anything in this direction. As stated earlier, Government has played a significant role in letting the auto
industry grow and build a greater potential for growth in the years to come. As economic growth takes place middle class expands and automobile sector
grows, the need for a automotive repair and maintenance industry to grow far and wide in the country is being felt. The restrictive supply of spare parts,
their expensive availability at authorized dealers only and absence of distribution network in many areas of the country must make us review the present
approach of automobile sector to repairs and maintenance. The Commission has clearly shown that the practices adopted by automobile sector in several
ways are anti competitive. It is clearly made out that independent repairers in practice are significantly impacted by restrictive policies of OEMs. The
argument of the OEMs goes as follows:
1. Abundance of counterfeit/sub standards/spurious spare parts in the market. The ACMA study quoted by the DG states that about 35% spare parts in
the market are counterfeit.
2. Deficiencies in human skills outside the authorized network.
3. Absence of a regulatory framework to ensure enforcement against counterfeit products and to build a sound eco system for independent repairers.
These concerns encourage a restrictive competition policy environment and unless the government addresses the regulatory space the car manufacturers
should not be asked to do anything howsoever anticompetitive this might be.
160. The Appellants do not seem to accept that their restrictive policies relating to distribution of automobile spare parts in the after market, in anyway
contribute to the abundant flow of non genuine/counterfeit/spurious/substandard spare parts in the aftermarket. We have seen how significant mark ups in
the price of spare parts and restrictive physical availability are affecting the consumer's choice to go to a non-authorized network repairer. There is enough
evidence in the DG's report and the Commission's decision to show that independent repairers offer much cheaper services. It is a simple principle of
economics that if supplies of spare parts are improved in the aftermarket, the prices must come down.
161. One of the arguments of appellants is that the price differential between genuine spare parts and counterfeit spare parts is so significant that a
consumer has no incentive to buy genuine spare parts when he gets his vehicle serviced outside the network. This is in a way an admission of the fact that
genuine spare parts are very expensive in the authorized network which at times are unaffordable by the common consumer who then willy nilly has to resort
to the cheaper non genuine alternative. Therefore, if genuine spare parts are made available far and wide in abundance by removing restrictions through
agreements and through practice and prices are rationalized, besides building an institutional eco system, consumer must benefit from these steps.
162. As far as the institutional eco system is concerned, the requirements of the modern auto service industry emphasize that there should be sound
investment in infrastructure, human skills in the non authorized network besides building an institutional regime which will encourage the growth of non
authorized networks. In order to do this on the one hand the restrictions have to be let loose in accordance with the discussions in earlier paragraphs and on
the other an institutional framework needs to be developed. Law making and regulatory development cannot happen overnight but that does not mean that
we should stop moving in that direction. We would have expected the Commission to go deeper into this aspect and suggest an institutional framework to
take care of the concerns on both sides. In the first place we believe that once restrictive agreements/practices are loosened, distribution networks are
widened and deepened even a contractual system of institutional compliance can be built till a regular regulatory framework is institutionalized.
163. We have seen that there are a large number of roadside garages in the country. It is not our perception that each of them can be made capable of
dealing with the modern automobile repairs but a standards based technical regulatory framework can be created which will encourage economic entities to
build organized garages which will be equipped to deal with the need of the day. As we have seen the auto repair institutions are operating at four levels.
There are no prevalent technical regulations or standards in force even on voluntary basis. Therefore, as a first step towards institution building a standards
architecture needs to be built. Under the Motor Vehicles Act, 1988 the Central Government in the Ministry of Road Transport and Highways administers the
Central Motor Vehicles Rules, 1989. The Ministry has constituted three committees to deliberate and advice the Ministry on issues relating to safety and
emission regulation. These are CMVR - Technical Standing Committee (CMVR-TSC); Standing Committee on Implementation of Emission Legislation (SCOE)
and Automotive Industry Standards Committee (AISC). These committees also have representation from Ministry of Heavy Industry, Bureau of Indian
Standards, Testing Agencies such as Automotive Research Institute of India, Vehicle Research Development Establishment, Central Institute of Road
Transport and other organizational representatives. Separately Automotive Industry Standards (AIS) are also developed, considered and finalized through a
mechanism of these committees. Quality Council of India (QCI) is another Industry-Government cooperative agency which deals with building a sound
standards coordination/conformity assessment/accreditation eco system in the country. QCI has lately helped in several sectors to develop eco system for
standards both in the voluntary area as well as mandatory technical regulation. As a first step the Ministry of Road Transport and Highways can be mandated
to develop, with the assistance of the institutions mentioned above, an array of voluntary standards and regulatory regime around them so that those
independent repairers who would like to take up automotive repair works/spare services on multi brand basis could get their business establishment
approved/certified by conformity assessment agencies. The main worry of appellants is that they apprehend mixing of spare parts with counterfeit if they are
freely released in the aftermarket. By subscribing to an independent repair eco system, technical regulation and certification of Independent repairers will
become an imperative. This will help in meeting with most of the concerns of the OEMs. To illustrate the voluntary standards to be developed could include
physical and ethical elements in the standards to address concerns on account of counterfeit parts, skilled manpower, appropriate investments in
infrastructure, process regulations etc. As a matter of fact one of the leading OEM has already adopted a certified service station concept over and above the
authorised dealer framework. This will also create a demand pool for automotive repair skills training institutions. We are aware that a National Skill
Development Mission is already under way and automotive repair and maintenance skill is an identified skill for support under that program. The moment we
create a formal institutional mechanism the demand from these skills will increase necessitating production of greater human resource in numbers. To begin
with such independent repair organization can be set up through contractual means till a regulatory framework is put in place. We estimate, this exercise of
developing standards and their conformity assessment procedures and bodies would not take more than a year. Till that is done OEMs and other interested
entities can execute contractual arrangements encompassing elements of the ecosystem we have discussed above.
164. Learned counsels for Toyota and Ford during oral arguments informed, that after these cases were taken up for enquiry by the Commission, they had
opened distribution outlets to cater to the consumers including independent repairers. This action by itself is an acknowledgment of the fact that there are
restrictions in the manner in which businesses are presently organized and secondly that there are significant parts of this country which are left unserved by
the appellants. Thirdly it is also clear that opening of an intermediate distribution channel offers the same spare parts cheaper than the rate at which an
authorized dealer would make them available.
165. During the course of oral arguments we had particularly raised questions on the preparedness of the appellants to cater to the customers' needs in
remote areas of the country as well as unserved areas. We were informed that there are roadside repairs maintenance services run by some of them. These
services are essentially in the nature of emergency break down services. They are not available in a regular manner in a remote area. Toyota filed an affidavit
in the Tribunal on 06.09.2016 referring to the Commission's enquiry on what measures inter alia would the appellants be prepared to take to make spare
parts and servicing markets more competitive. The proposal envisaged the setting up of an additional distribution channel i.e. spare parts distributors based
on certain objective and transparent eligibility criteria to provide even greater access to spare parts for car owners and independent repairers. Toyota also
informed that they have appointed spare parts Distributor in Karnataka in the meanwhile. They had emphasized that these distributors are wholesalers who,
since they were established in January 2015, are offering volume discounts, resulting in pricing of spare parts at rates cheaper than the over the counter
sales from Toyota authorized dealers. Toyota has informed that by the end of December, 2016 they would complete plans to appoint 29 such distributors.
They also informed that they have set up a web platform for the sale of spare parts online. They have set up a dedicated portal www.Toyota parts connect. in.
This portal has been activated in Bangalore since August, 2015. This affidavit clearly shows that an intermediate distribution channel even while maintaining
the so-called integrity of distribution chain can be created. Ford has also done a similar thing. The distribution network should be intended as stated earlier
to cover those areas which have been left unserved but where OEM's vehicle population exists, as well as, those areas where their vehicles in abundance are
available to bring about width and depth in their distribution network. At this moment, we do not wish to examine the potentially multi brand character of
these distributorship as that was not the subject under consideration in these cases.
Conclusions
166. It will be appropriate to summarize the conclusions that we have drawn from our discussion, in order to better appreciate the subsequent directions
given hereinafter. While doing so it may also be appropriate to recall specific arguments put forth by Toyota alleging that DG has painted all OEMs with the
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same brush whereas Toyota was not found in violation of several practices which others could have been. Nissan had argued that at the time this
investigation was conducted Nissan was only six months old on the Indian roads and almost all Nissan vehicles were still under warranty cover, therefore
Nissan could not have been held in violation of the act. On both these arguments it is our opinion that this investigation has covered certain practices as they
exist in the automobile after market and the repair and service sector. All companies have been found violating the relevant provisions of the act albeit in
varying degrees, therefore even if specific company wise conclusions are not drawn violations need to be stated and checked. On the same understanding
Nissan's argument is also untenable as we do not have a de minimis provision in our law and a violation of the prohibited provisions is nevertheless a
violation. However in our assessment of penalty and over all directions herein after we have taken these consideration into account. On a careful
consideration of these appeals, we conclude that:
1. The Appellants Toyota, Ford and Nissan are in dominant position in respect to their respective spare parts including diagnostic tools, technical
information, fault codes, repair manuals etc., in the aftermarket.
2. The Appellants are abusing their dominant position by imposing unfair conditions in the nature of restrictions on purchase or sale of goods or services
on their authorized dealers and original equipment suppliers thereby violating Section 4(2)(a)(1) of the Act.
3. The Appellants acted in violation of Section 4(2)(c), indulging in practices which result in denial of market access to independent repairers of
automobiles to the spare parts in the aftermarket.
4. The Appellants also acted in violation of Section 4(2)(e) by using their dominant position in the spare parts aftermarket to enter into or protect other
relevant market i.e. the repair and maintenance market. Appellants are found in violation of Section 4(2)(e) of the Act because due to peculiar
circumstances characterized in our discussion on account of network of agreements and practices appellants used their position in the spare parts
aftermarket to protect their authorized dealers to retain their market in the repair and service market for automobiles.
5. The Appellants acted in violation of Section 3(4)(b), (c) and (d) on account of imposing restrictions through agreements and practices on original
equipment suppliers by restricting them from selling spare parts including technical manuals, diagnostic tools etc., in the aftermarket including to the
independent repairers, and to the authorised dealers, restricting them from sourcing spare parts from OESs and from selling spare parts to independent
repairers thereby refusing to deal with the latter. The conduct of appellants has appreciable adverse effect on competition as elaborately discussed and
established by the Commission and verified in appropriate paragraphs herein above.
Directions
167. Before we examine the nature of operative part contained in paragraph 22.3 of the impugned order, we would like to quote Section 27 of the Act and
paragraph 22.2 of the impugned order which is an appropriate encapsulation of the approach which necessitates a framework of action to remove anti-
competitive constraints on the market in the automobile spare parts aftermarket,
“Section 27 - Orders by Commission after inquiry into agreements or abuse of dominant position
Where after inquiry the Commission finds that any agreement referred to in section 3 or action of an enterprise in a dominant position, is in
contravention of section 3 or section 4, as the case may be, it may pass all or any of the following orders, namely:—
(a) direct any enterprise or association of enterprises or person or association of persons, as the case may be, involved in such agreement, or abuse of
dominant position, to discontinue and not to re-enter such agreement or discontinue such abuse of dominant position, as the case may be;
(b) impose such penalty, as it may deem fit which shall be not more than ten percent. of the average of the turnover for the last three preceding
financial years, upon each of such person or enterprises which are parties to such agreements or abuse:
2 [PROVIDED that in case any agreement referred to in section 3 has been entered into by a cartel, the Commission may impose upon each
producer, seller, distributor, trader or service provider included in that cartel, a penalty of up to three times of its profit for each year of the
continuance of such agreement or ten percent. of its turnover for each year of the continuance of such agreement, whichever is higher.]
[3 (c) xxx]
(d) direct that the agreements shall stand modified to the extent and in the manner as may be specified in the order by the Commission;
(e) direct the enterprises concerned to abide by such other orders as the Commission may pass and comply with the directions, including payment of
costs, if any;
[1 (f) xxx]
(g) pass such other 2 [order or issue such directions] as it may deem fit.
3 [Provided that while passing orders under this section, if the Commission comes to a finding, that an enterprise in contravention to section 3 or
section 4 of the Act is a member of a group as defined in clause (b) of the Explanation to section 5 of the Act, and other members of such a group are
also responsible for, or have contributed to, such a contravention, then it may pass orders, under this section, against such members of the group.]”
“22.2 In deciding the remedies in this case, the Commission's primary objective is to correct the distortions in the aftermarket, to provide corrective
measures to make the market more competitive, to eradicate practices having foreclosure effects and to put an end to the present anti-competitive
conduct of the parties. The aim of the Commission is to provide more freedom to Original Equipment Suppliers (OESs) in sale of spare parts, and more
choice to consumers and independent repairers. The Commission considers it necessary to (i) enable the consumers to have access to spare parts and also
be free to choose between independent repairers and authorized dealers and (ii) enable the independent repairers participate in the aftermarket and
provide services in a competitive manner and to have access to essential inputs such as spare parts and other technical information for this purpose, as
part of a more competitive eco-system which is equally fair to the OPs and their authorized network also.” 164. The operative part of the impugned order
is quoted below,
“22.3 In view of the foregoing, the Commission, therefore, orders the following under section 27 of the Act:—
i) The parties are hereby directed to immediately cease and desist from indulging in conduct which has been found to be in contravention of the
provisions of the Act.
ii) OPs are directed to put in place an effective system to make the spare parts and diagnostic tools easily available through an efficient network.
iii) OPs are directed to allow OESs to sell spare parts in the open market without any restriction, including on prices. OESs will be allowed to sell the
spare parts under their own brand name, if they so wish. Where the OPs hold intellectual property rights on some parts, they may charge
royalty/fees through contracts carefully drafted to ensure that they are not in violation of the Competition Act, 2002.
iv) OPs will place no restrictions or impediments on the operation of independent repairers/garages.
v) The OPs may develop and operate appropriate systems for training of independent repairer/garages, and also facilitate easy availability of diagnostic
tools. Appropriate arrangements may also be considered for providing technical support and training certificates on payment basis.
vi) The OPs may also work for standardization of an increasing number of parts in such a manner that they can be used across different brands, like
tyres, batteries etc. at present, which would result in reduction of prices and also give more choice to consumers as well as repairers/service
providers.
vii) OPs are directed not to impose a blanket condition that warranties would be cancelled if the consumer avails of services of any independent
repairer. While necessary safeguards may be put in place from safety and liability point of view, OPs may cancel the warranty only to the extent that
damage has been caused because of faulty repair work outside their authorized network and circumstances clearly justify such action.
viii) OPs are directed to make available in public domain, and also host on their websites, information regarding the spare parts, their MRPs,
arrangements for availability over the counter, and details of matching quality alternatives, maintenance costs, provisions regarding warranty
including those mentioned above, and any such other information which may be relevant for full exercise of consumer choice and facilitate fair
competition in the market.”
168. In view of the discussion held in foregoing paragraphs and the objective behind examining these matters, we believe that some of the directions
given in paragraph 22.3 of the impugned order require reconsideration or review. We have clearly seen that while anti-competitive conduct on the part of the
three appellants has been established, we also need to take into account the structure, the potential and the role that auto industry plays in the larger
framework of India's economic development. Therefore, any direction given by a regulator should be pragmatic and capable of being implemented. Further
we clearly recognize that reformatory directions given herein cannot be implemented overnight as they require a frame of time and ancillary action. We have
already stated that anti-competitive practices in order to be eliminated would require the support of appropriate regulatory development but that should not
be implied to mean that the OEMs do not have the responsibility of taking immediate steps to remove anti-competitive constraints by following procedures
and practices in contractual manner rather simply putting all blame on the Government's door. There is no doubt that Government has to work towards
creating a regulatory framework but it is not our view that until a regulatory framework is constructed, anti-competitive restrictions cannot be removed. We
squarely hold OEMs accountable for creating and maintaining a competitive environment conducive to the consumer's interest recognising the importance of
safety on roads and development of skills and investments in automobile repair sector.
169. Having said this, we modify para 22.3 of the impugned order to read as follows:
170. The Appellants shall within a period of one year of this order adopt the following:
1. Remove all restrictions imposed through agreements and practices on original equipment suppliers (OESs) in accordance with the conclusions drawn in
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this order for selling spare parts including Diagnostic tools etc., in the aftermarket. In our discussion, we have considered situations where OESs may
be producing spare parts on the drawings and design of OEMs though all IPRs, knowhow and technology may belong to the OESs. In such situations
OEMs shall not restrict the OESs to sell spare parts in the aftermarket with the trademarks of the OESs. If OEMs also want to use their trademark they
are free to do so. OES' will be within their rights to certify such product as a product with ‘matching quality’ with corresponding OEM's spare parts and
market them freely in the aftermarket.
2. Open additional distribution channels to the open market for spare parts on a country wide basis. Such channel shall be opened on preference in
territories where appellants' automobiles have been sold but adequate servicing/repairs/maintenance network/infrastructure has not been provided.
Such channel shall also be operationalized in areas where the sale of appellants' models of automobiles is higher than average.
3. Remove all restrictions on supply of spare parts by OESs to Authorized Dealers in accordance with discussion held in this order. The apprehensions
expressed by the appellants can be addressed through contractual agreements between independent repairers and spare parts suppliers.
4. No restrictions shall be imposed on Original Equipment Suppliers, Authorized Dealers and Authorized Distribution Channels from selling spare
parts/diagnostic tools etc. to independent repairers.
5. The Ministry of Road Transport and Highways in the Central Government is directed to develop voluntary standards under Motor Vehicles Act,
1988/Central Motor Vehicles Rules, 1989 with support from Quality Council of India, BIS, IARI etc. for certification of garages/independent repairers.
These standards and corresponding conformity assessment and accreditation system shall be developed and notified within one year of this order.
6. The Appellants are directed not to impose a blanket condition that warranties would be cancelled if the consumer avails of services of any independent
repairer. While necessary safeguards may be put in place from safety and liability point of view, OPs may cancel the warranty only to the extent that
damage has been caused because of faulty repair work outside their authorized network and circumstances clearly justify such action.
7. The Appellants shall develop extensive information system with the objective of removing asymmetry in information on extensive details of automobiles
and their spare parts manufactured by appellants so as to facilitate the potential customers make rational choices at the time of buying automobiles.
The Central Government under the Motor Vehicle Rules, shall notify the minimum standards of information which should be made available through
websites and other means of communications.
8. The Appellants are directed to make available in public domain, and also host on their websites, information regarding the spare parts, their MRPs,
arrangements for availability over the counter, and details of matching quality alternatives, maintenance costs, provisions regarding warranty including
those mentioned above, and any such other information which may be relevant for full exercise of consumer choice and facilitate fair competition in the
market. The Central Government under the Motor Vehicle Rules, shall notify the minimum standards of information which should be made available
through websites and other means of communications.
9. The Ministry of Road Transport and Highways in consultation with other relevant Government Departments/Agencies/Industry Organizations shall take
up a program for standardization of automobile spare parts.
10. The Appellants shall furnish individual undertakings before the Commission, within 60 days of this order about schedule of compliance with this order,
within mandated frame of time. The modified Penalty as imposed in the subsequent paragraph shall be assessed and paid within 90 days of this order.
Penalty
171. The Commission has imposed a penalty of 2% on average annual turnover of the appellant companies in pursuance of Section 27(b) of the Act
amounting to Rs. 93.38 Crores (Toyota), Rs. 1.63 Crores (Nissan) and Rs. 39.78 Crores (Ford). According to Section 27(b) of the Act a penalty may be
imposed which shall not be more than 10% of the average of the turnover for the last three preceding financial years. The interpretation of turnover has been
a subject of several previous decisions given by this Tribunal. The relevant turnover test was adopted in the case of United Phosphorous Ltd. (Appeal No. 81
of 2012) and subsequently applied in several other cases including Excel Crop Care Limited (Appeal No. 79 of 2011), Escorts Ltd. (Appeal No. 13, 15 and 20
of 2014) and LPG Cylinder Cases. The issue has been further refined in EPC Industries Ltd. v. CCI (Appeal Nos. 47 and 57 of 2015, decided on 01.03.2016),
in which the Tribunal has found that the relevant turnover to be used as the basis for the fine is the turnover of the product subject to bid rigging; not the
turnover of the entire multi-product enterprise. While concluding so, the Tribunal relied on the EU and UK fining guidelines. In the EPC case in its order the
Tribunal stated as follows:
“Term ‘turnover’ used in Section 27(b) and its proviso would necessarily relate to the goods, products or services qua which finding of violation of
Section 3 and/or Section 4 was recorded and while imposing penalty, the Commission could not take average of the turnover of the last three preceding
financial years in respect of other products, goods or services of an enterprise or associations of enterprises or a person or associations of persons.
Definition of term ‘turnover’ which included value of sale of goods or services would necessarily mean value of goods or services which are made subject-
matter of investigation under Section 26 and order of punishment under Section 27. If accusation/allegation related to abuse of dominant position, then
the Commission was required to take into consideration factors enumerated in Section 19(4), (5), (6) and (7). Neither Act nor Regulations empowered the
Commission to order an investigation into product, goods or service other than those qua which allegation of anti-competitive agreement or abuse of
dominant position was levelled.”
172. We find no reason to deviate from a well evolved view of the Tribunal, in these appeals. The Commission had asked the appellants to provide their
three years annual turnover of spare parts in the aftermarket. Our perusal of the files showed that Nissan and Ford have also submitted their annual
turnovers for spare parts in the aftermarket. However, Toyota has not done so pleading it does not keep separate accounts for primary and secondary
products. Even the figures given by Ford and Nissan cannot be said to be conclusive as the Commission has not formed an opinion on the validity/finality of
those figures. Therefore, the Tribunal is constrained in deciding exact amount of penalty. We are not in favour of imposing heavy fines in these cases as we
have essentially come across omnibus sectoral practices which have anti-competitive character. This is a transitionary reform process and we would like to
pursue the issue of imposition of penalty in the above perspective. However, since we are following the yardstick of relevant turn over, our concerns about
mitigating circumstances are automatically getting addressed as penalty amount will now be calculated on the basis of relevant turn over of spare parts in
the after market. Since we do not have the relevant turnover figures with us while we mandate the appellant companies to pay a 2% penalty on average
annual turnover of spare parts in the aftermarket of immediately preceding three years before the year of enquiry. We direct the Commission to obtain
relevant statistics and after verification determine the amount of penalty on the basis of this direction.
173. The implementation of this order shall be completed within one year therefore, the Commission is directed to review the progress and action taken
by each party to the order including the Government Departments/Ministry, every three months and send a report to the Tribunal for further directions.
174. The first meeting of the Commission to monitor compliance of this order shall be held in February, 2017 and compliance/follow up report shall be
made available to the Tribunal by 15th February, 2017. A copy of this order should be sent to the Secretary of the Ministry of Road Transport and Highways
for taking follow up action.
175. In the result, these appeals are disposed of in terms of directions contained in Paragraphs 166 to 170 above.
———
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Competition Appellate Tribunal, New Delhi

(BEFORE G.S. SINGHVI, CHAIRMAN, RAJEEV KHER, MEMBER, ANITA KAPUR, MEMBER)
[Under Section 53-B of the Competition Act, 2002 against order dated 04.06.2015 passed by the Competition
Commission of India in Case No. 26/2013]
In the matter of:
GlaxoSmithKline Pharmaceuticals Limited, Dr. Annie Besant Road, Worli, Mumbai-400030 …
Appellant;
Versus
1. Competition Commission of India, (Through its Secretary), 7th Floor, Hindustan Times House, 18
-20, Kasturba Gandhi Marg, New Delhi-110001
2. Bio-Med (P) Ltd., C-96, Site-1, B.S. Road Industrial Area, Ghaziabad (U.P.)-201009
3. Sanofi Pasteur India Private Limited, 54/A, Sir Mathurdas Vasanji Road, Andheri East, Mumbai-
400093
4. Director General (Stores), Medical Store Depot, Ministry of Health and Family Welfare, C-4,
Qutub Institutional Area, New Delhi-110016 … Respondents.
Appearances:
Shri Ramji Srinivasan, Senior Advocate assisted by Shri Samir Gandhi, Shri Rahul Rai, Shri Vivek Oriel, Shri Tushar
Bhardwaj, Shri Akshat Kulshrestha and Shri Krithika Romesh, Advocates for the Appellant.
Shri A.N. Haksar, Senior Advocate with Shri Sandeep Mohapatra, Shri Ashish Mukhi and Shri Dhruv Malik, Advocates
for Respondent No. 1 - Competition Commission of India.
Shri Gaurav Duggal, Advocate for the Respondent No. 2.
Shri Rajshekhar Rao, Ms. Sonam Mathur, Ms. Gauri Puri, Ms. Mansi Tewari and Shri Sanjeev Kumar, Advocates for
Respondent No. 3.
Shri R. Mishra, Advocate for Respondent No. 4.
Appeal No. 86 of 2015
[Under Section 53-B of the Competition Act, 2002 against the order dated 04.06.2015 passed by the Competition
Commission of India in Case No. 26/2013]
In the matter of:
M/s Sanofi Pasteur India Private Limited, Sanofi House, CTS No. 117-B, L&T Business Park, Saki
Vihar Road, Powai, Mumbai-400072 … Appellant;
Versus
1. Competition Commission of India, The Hindustan Times Building, 18-20, Kasturba Gandhi Marg,
New Delhi-110001
2. M/s Bio-Med Private Limited, C-96, Bulandshahr Road Industrial Area, Ghaziabad 201009 (U.P.)
3. GlaxoSmithKline Pharmaceuticals Limited, Dr. Annie Besant Road, Worli, Mumbai-400030
4. M/s Union of India, Through Deputy Assistant Director General (Stores), Government Medical
Store Depot, C-4, Qutub Institutional Area, New Delhi-110016 … Respondents.
Appeal No. 85 of 2015 and Appeal No. 86 of 2015
Appearance:
Shri Rajshekhar Rao, Ms. Sonam Mathur, Ms. Gauri Puri, Ms. Mansi Tewari and Shri Sanjeev Kumar, Advocates for
the Appellant.
Shri A.N. Haksar, Senior Advocate assisted by Shri Sandeep Mohapatra, Shri Balish Mukhi and Shri Dhruv Malik,
Advocates for Respondent No. 1- Competition Commission of India.
Shri Gaurav Duggal, Advocate for the Respondent No. 2.
Shri Ramji Srinivasan, Senior Advocate assisted by Shri Samir Gandhi, Shri Rahul Rai, Shri Vivek Oriel, Shri Tushar
Bhardwaj, Shri Akshat Kulshrestha and Shri Krithika Romesh, Advocates for Respondent No. 3
Shri R. Mishra, Advocate for Respondent No. 4
ORDER
PER CHAIRMAN:— These appeals are directed against order dated 04.06.2015 passed by the Competition
Commission of India (for short, ‘the Commission’), whereby it held the appellants guilty of acting in contravention of
Section 3(3)(d) read with Section 3(1) of the Competition Act, 2002 (for short, ‘the Act’) and imposed penalty at the
rate of 3% of their turnover of last three financial years.
2. GlaxoSmithKline Pharmaceuticals Limited (GSK) (appellant in Appeal No. 85/2015) is an Indian subsidiary of
GlaxoSmithKline plc. It started operations in the Indian market in 1924 and has been supplying various medicines
including Quadrivalent Meningococcal Meningitis Vaccine (QMMV) manufactured by its parent company in Belgium.
Sanofi Pasteur India Private Limited (Sanofi) (Appellant in Appeal No. 86 of 2016) is a wholly-owned subsidiary of
Sanofi Pasteur S.A., France. Sanofi started its activity in India in 1996. It has been supplying the medicines including
QMMV produced in the manufacturing facility in USA by Sanofi Pasteur Inc. to the public (various Government
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Departments) and private markets in India.
3. Respondent No. 2 Bio-Med (P) Ltd. is a company incorporated under the Indian Companies Act, 1956. It was
granted license on 21.12.2002 for development of indigenous QMMV. After one year and 10 months, it was granted
licence for commercial production of the QMMV.
4. From 2002, Director General (Stores), Medical Store Depot, Ministry of Health and Family Welfare, Government of
India started inviting tenders for procurement of QMMV to be used for compulsory vaccination of Haj and Umrah
pilgrims to protect them against meningitis which is widely prevalent in Sub-Saharan Africa. The details of the bids
given by the appellants and Respondent No. 2 in various years between 2002 and 2014 are tabulated below:
Bid Price (Per 10 Dose Vial) for QMMV Tenders
Year Quantity Bio Med GSK India Sanofi
Required Price Quantity Price Quantity Price Quantity
2002 130000 Vaccine Under 5940/- 130000 Licensed for only 15000
Development doses
Development doses
Development doses
2005 150000 Technically Disqualified 4576/- 150000 4773.6/- 15000
2006 170600 Technically Disqualified 3744/- 170600 Did not participate
2007 149030 Technically Disqualified 3348.8/- 149030 Did not participate
2008 175910 2695/- + 175910 3199/- + 175910 2900/-+ Tax 175910
Tax Tax
2009 168110 2150/-+ Tax 168110 2639/-+ Tax 168110 2400/-+ Tax 168110
2010 147180 1999/-+ Tax 147180 2000/-+ Tax 147180 2400/-+Tax 147180
2011 182125 Did not give 182125 3000.9/- 100000 2899/- 90000
bid
2011 — 182125 Technically Disqualified — Did not participate 2754/- 90000
First Re- Approached High Court,
tender which passed interim order
allowing Respondent No. 2
to participate in the bid,
but the latter did not give
bid within the prescribed
time.
2011 2nd 182125 2373 182125 Did not participate 2754/- 90000
Re-tender
2012 173540 Not Eligible Did not participate 2343/- 173540
2013 218750 Not Eligible Did not participate 2753/- 218750
2014 102020 2199.93 102020 Did not participate 3023/- 102020
5. Respondent No. 2 did not participate in the tender process between 2002 and 2004 because it had not started
manufacturing QMMV. From 2005 to 2007, Respondent No. 2 could not give bid because it did not satisfy the
prescribed eligibility condition, i.e., minimum turnover of Rs. 10 crores in any of the three preceding years. In 2005,
Respondent No. 2 filed Writ Petition (C) No. 11205/2005 in the Delhi High Court for quashing the eligibility criteria.
During the pendency of the writ petition, Respondent No. 2 produced letter dated 07.07.2005 written by the Private
Secretary of the Minister of the concerned department espousing its cause. The Union of India claimed that affidavit
and other documents filed by Respondent No. 2 were fabricated. The Division Bench of the High Court took the
cognizance of the same and recorded the following observations:
“These incidents give us some insight into the lengths to which private companies and individuals go to for
purposes of “lobbying” for their private causes and gains. This is a matter of serious concern because such “behind-
the-scenes” activities case grave doubts on the conduct of the parties. However, although Mr. Rajeev Mehra
submitted that on the ground of using a forged document alone this writ petition is liable to be dismissed, giving the
benefit of doubt to the petitioner, for the time being, we intend to ignore the said letter dated 7.7.2005 and the
other purported letters of the Members of Parliament and all averments founded on these suspect documents for the
purposes of deciding this writ petition.”
6. On merits the High Court rejected the appellant's challenge to the eligibility criteria prescribed by the
Government of India and dismissed the Writ Petition by recording the following reasons:
“These decisions make it more than clear that the Government has latitude in fixing the pre-conditions or
qualifications for tenders. Where these eligibility conditions are stipulated to ensure that the tenderers have the
capacity and the resources to execute the works or carry out the supplies the same cannot be faulted. In fact, the
Supreme Court has repeatedly held that the terms of the invitation to tender are not open to judicial scrutiny. In the
light of these decisions, it becomes immediately clear that the petitioner cannot claim any fundamental right to
carry on business with the Government and that all that it can claim is that it should not be unfairly treated and
discriminated to the detriment of public interest. If it can be demonstrated by the Government that the tender
conditions vis-à-vis eligibility are not arbitrary, not unreasonable and not mala fide, then the petitioner can have no
grievance in respect thereof. In the facts of the present case we have already indicated that the records do not
display any favouritism in respect of any party. Nor do they disclose any conscious and purposive conduct on the
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part of the respondents to shut out the petitioner. The tender conditions of three years experience and a turnover of
10 crores in formulations in any of the preceding three years have been introduced as a result of detailed
deliberations and as a part of a policy consistent with the suggested tender conditions for procurement of generic
drugs. Merely because the petitioner, being the only indigenous manufacturer of the vaccine, does not qualify the
prescribed eligibility conditions it cannot be held that these conditions were means to shut out domestic
manufacturers deliberately and were tailor-made to promote foreign manufacturers. And, unless we are able to come
to such a conclusion, judicial interference is uncalled for. It cannot be said, in the facts of the present case, that the
conditions of three years experience and turnover of Rs. 10 crores are wholly unrelated to the object of ensuring that
the supply of the vaccines are made on time and that they shall conform to a standard quality.
9. Mr. Chandhiok had relied upon the decision of this Court in Dhingra Construction Company (Supra) to
challenge the eligibility conditions with regard to three years experience and turnover. In that case one of the pre-
qualification conditions was that the tenderer must have satisfactorily performed at least three similar completed
works during the last three years of not less than Rs. 480 lakhs each. It was contended that the fixation of this
eligibility criteria was unreasonable and arbitrary inasmuch as the MCD itself had never awarded contracts of such
size. Mr. Chandhiok particularly referred to paragraph 26 of the said decision to show that the court did in fact go
into the question of whether the said eligibility condition which was said to be a part of the policy was fair,
reasonable and non-arbitrary. He further submitted with reference to paragraph 35, 36 and 37 thereof that the court
had found the aforesaid eligibility condition to be unrealistic and having no reasonable correlation with the value of
the contract. He also submitted that the court held that such a condition impacted the need to have a fair and wide
participation in a public tendering process. He laid particular stress on the contents of Para 37 of the said decision
wherein this court observed as under:
“The public interest, in a fair competition, in this case, in our view, based upon a reasonable and fair
assessment of all factors that are relevant, and germane, far outweighs the interest of the State agency in being
left alone to formulate its policies, with sufficient “elbow room”. The considerations that seemed to weigh with
MCD while fixing the criteria in the impugned policy, were based on non-existing, or irrelevant factors. This led to
elimination of a large number of tenderers, even though the actual estimated work was far less than Rs. 12
crores. If the estimate for fixing similar works were based upon figures that had some semblance of relationship
with the actual estimates, this result would not have ensued. The impugned condition in our view is based upon
an assumption or conclusion so unreasonable which no reasonably authority of person could ever have come to
having regard to the facts presented in this case. Accordingly, we hold that the overwhelming public interest
requires our intervention, under Article 226 of the Constitution.”
The present case is entirely different. As noted above we cannot conclude that the eligibility conditions prescribed
were so unreasonable that no reasonable authority or person could ever have come to having regard to the facts of
this case. Moreover, it cannot be held in the present case that the criteria of experience was based on non existing or
irrelevant factors. Insofar as the question of the turnover of Rs. 10 crores in formulations for any one of the past
three years is concerned, that too cannot be said to be arbitrary or unreasonable to such an extent as would fail the
test of Wednesbury “unreasonableness” or “irrationality”. For, when the question is asked as to whether the
respondents in introducing the said eligibility conditions have acted in a manner so unreasonable that no reasonable
authority could have done, the answer is in the negative. Mr. Chandhiok had made a point that when the estimated
contract value itself was approximately Rs. 7.5 crores, the requirement of an annual turnover of Rs. 10 cores was
excessive and therefore unreasonable. We are unable to subscribe to this view. The contract value of Rs. 7.5 crores
is in respect of one particular type of vaccine whereas the turnover of Rs. 10 crores is in respect of all formulations.
If the turnover of a manufacturer/supplier in all formulations is less than Rs. 10 crores, then a legitimate question
could be asked - would such a manufacturer/supplier have the wherewithal to fulfil a contract which entails the
supply of one particular kind of vaccine alone to the extent of Rs. 7.5 crores? Looked at from this perspective also,
the eligibility condition of an annual turnover of Rs. 10 crores in formulations in any one of the proceeding three
years does not appear to be excessive or arbitrary. Therefore, the decision in Dhingra Construction Company (supra)
is of no held to the petitioner in the factual matrix of this case.
10. We now take up discussion of the decision in the case of Gharda Chemicals Ltd. (supra) which was also relied
upon by Mr. Chandhiok. In that case, the petitioner therein was aggrieved by the eligibility criteria that tenders
would be accepted only from licensed technical grade manufacturers who were actually manufacturing technical
formulations and who had experience of at least three years in manufacturing of ISI marked chemicals. In
paragraph 17 of the said decision it was observed by a Division Bench of this court that they were of the opinion that
the insertion of the pre-qualification condition of “at least three years” manufacturing experience of ISI marked
chemicals, was irrational and arbitrary and had absolutely no nexus with the stated object, namely, the quality and
consistency of supplies, which was sought to be achieved by it. Pressing this observation into service, Mr. Chandhiok
vehemently argued that the eligibility condition of three years experience in the present case would also suffer the
same fate and would have to be struck down. We are unable to agree. In Gharda Chemicals Ltd. (supra) the Division
Bench, inter alia, came to the conclusion it did because the condition of three years experience was not for the
immediately preceding three years but for any three years. In this context the Division Bench observed that there
was an office memorandum also which had been issued by the CVC on 17th December, 2002. Paragraph 3(v) thereof
is of relevance and reads as under:
“3. Some of the common irregularities/lapses observed in this regard are highlighted as under:
xxx xxx xxx
(v) An organization invited tenders for hiring of DG sets with eligibility of having three years experience in
supplying DG sets. This cutoff dates regarding work experience were not clearly indicated. The above resulted in
qualification of firms which had conducted such business for three years, some 20 years back. On account of this
vague condition, some firms that were currently not even in the business were qualified.
xxx xxx xxx
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With reference to this, the Division Bench in the said case held as under:
“…… in our view the illustrations given in Para 3 of the afore extracted memorandum, particularly sub-para
(v), which outlines the situation akin to the one in these proceedings, aptly apply in the instant case.
Mercifully, the CWC who is equally bound by these guidelines, has shown ignorance of the memorandum. At
the sake of repetition, we may note that the eligibility criteria fixed in the instant case has resulted in
disqualifying the remaining four manufacturers of the chemical. Only one manufacturers, namely, Bayer crop
fulfils the criteria. Therefore, the fixation of the impugned eligibility criteria, without application of mind, is
unreasonable, irrational and against the public interest. It has no nexus with the object sought to be achieved,
namely quality assurance and consistency in supplies.
23. We are of the considered opinion that the decision of the CWC to insert the impugned prequalification
criteria, is so unreasonable that having regard to the facts of the case, no reasonably authority could have ever
come to and thus, attracting the doctrine of “Wednesbury” unreasonableness we are therefore of the view that
it is a fit case where this court must intervene in the public interest.”
So, the eligibility condition of three years experience was held to be arbitrary and unreasonable not merely
because of the requirement of three years experience but because it did not pertain to the immediately preceding
three years. In the case before us, the requirement is of manufacturing/marketing experience in the immediately
preceding three years and therefore the decision in Gharda Chemicals Ltd. (Supra) is clearly distinguishable.
11. Lastly, we need to deal with the contention of Mr. Chandhiok that on 20.6.2005 when the invitation to bid was
advertised in the newspapers, the tender conditions were not disclosed as the tender documents were not made
available to the petitioner till 5.7.2005. Nothing much turns on this. In the counter affidavit filed on behalf of the
respondents it is specifically stated as under:
“It is further submitted that all the parties who have been supplied with the tender documents have received
them only on 5.7.2005 and this delay is due to the reason that the tender documents were under consideration
and were ready for issue only on 04.07.2005.”
Therefore, as all the parties who were interested in responding to the invitation to bid received the tender
documents on the same date i.e. on 5.7.2005, the question of the Petitioner being discriminated against does not
arise. Moreover, the reason for the delay in the supply of the tender documents is also explained. The petitioner
cannot have any grievance in this regard also.
12. Accordingly, for the reasons indicated above, we find that no interference is called for and the writ petition is
dismissed. The tender inquiry in question may be proceeded with by the respondents in terms of the conditions
specified therein and the interim order dated 13.07.2005 stands vacated. The parties are left to bear their own
costs.”
(Underlining is our)
7. In 2008, the eligibility criteria was changed and the requirement of annual turnover was increased to Rs. 20
crores in any of the three preceding years. Since, the turnover of Respondent No. 2 was Rs. 20 crores or more, it
participated in the tender enquiries issued by Respondent No. 4 for the years 2008 to 2010 and became successful
bidder by quoting the lowest price.
8. In 2011, the Government of India again changed the eligibility criteria and increased the requirement of
minimum turnover to Rs. 50 crores in any of the three preceding years. Respondent No. 4 invited bids on 29.06.2011
for supply of 182125 doses of QMMV on or before 30.08.2011 (within 35 days) with the rider that if the bidder fails to
supply the vaccine within the stipulated time, then the security deposit will be forfeited and liquidated damages will be
imposed. Before giving its bid, GSK made a query from GSK Belgium (its parent company in Belgium) to confirm the
availability of stocks. The latter responded that the stocks could be made available. On 30th June, 2011, Mr. Sumer
Dheri (Vice President, Biologicals) of GKS sent an email to Shaista Desai (Marketing Manager of GSK) to confirm the
shelf life of QMMV, which could be supplied by 30.08.2011. In reply, Ms. Shaista Desai sent an email dated 11.07.2011
that it will not be possible to supply the tendered quantity of vaccine within the prescribed time because after import,
stickers will have to be put, testing will have to be done followed by packaging. Therefore, GSK submitted bid for
supply of 100000 doses at the rate of Rs. 3000.90 per 10 doses. Sanofi, which had to destroy its stock in earlier years
due to non-award of contract for supply of QMMV by the Government gave bid for 90,000 doses @ Rs. 2899/- per
doses.
9. Respondent No. 2, who did not fulfill the prescribed eligibility conditions, filed Writ Petition No. 4862 of 2011
before the Delhi High Court along with CM No. 9853/2011 for interim relief. By an order dated 12.07.2011, the Division
Bench of the High Court directed that notice be issued to the respondents and also permitted Respondent No. 2 to
submit its tender. The relevant portions of that order are reproduced below:
“Learned counsel for the petitioner contends that the minimum annual turnover has been increased from Rs. 20
crores to Rs. 50 Crores to deprive the petitioner of the opportunity of participating in the tender as the petitioner has
been the successful tenderer in the last three years. He submits that the effect of the increase of the minimum
annual turnover is that only two multinational companies are left in the field while the petitioner is knocked out
despite the fact that the petitioner was earlier successful tendered in the last three years.
We thus consider it appropriate to call for the records of the respondents relating to the decision taken to modify
clause 1.5 increasing the minimum annual turnover from Rs. 20 crores to Rs. 50 corers for any of the last three
years.
We are informed that the last date submission of the tender is 25.07.2011 and thus we permit the petitioner to
submit his tender without creating any special equities in favour of the petitioner.”
10. Notwithstanding the favourable interim order passed by the High Court, Respondent No. 2 did not give bid
within the time specified in the tender notice and the writ petition was withdrawn on 03.08.2011.
11. The Integrated Purchase Committee (IPC) of the Directorate General of Stores cancelled the tender on the
ground that the bid of Rs. 2899/- quoted by the lowest tenderer, i.e., Sanofi was 39.44% higher than the last purchase
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price. Simultaneously, a direction was given for inviting short term limited tender from those, who fulfilled the
eligibility conditions and drug specifications.
12. In compliance of the directive given by the IPC, a limited tender notice was issued on 17.08.2011. The tender
opening date was 19.08.2011 and the last date of supply was 30.08.2011. This time GSK did not give bid. In the
investigation conducted by the DG, GSK explained that it did not give bid in response to tender notice dated
17.11.2011 because it could not have supplied the required number of doses within a short span of 11 days. The
explanation given by GSK during the course of investigation was its inability to supply the vaccine within a short time
span of 11 days. Sanofi gave bid for 90000 doses at the rate of Rs. 2754/- per ten doses. Respondent No. 2 did not
give bid because it was not qualified. However, before the bid could be considered by the IPC, Respondent No. 2 filed
W.P. No. 6051 of 2011, which was dismissed by the Division Bench of the High Court vide order dated 19.08.2011 by
recording the following reasons:
“WP(C) No. 6051/2011
An invitation for bids for supply of Freeze Dried Quadrivalent Meningococcal Meningitis Vaccine (QMMV) was
floated on 17.8.2011. The petitioner has submitted its bid. The grievance of the petitioner is that the bids were to be
opened at 4:00 p.m. today and that the bid of the petitioner will not be opened in view of condition 3.5 of the Terms
and Conditions of the tender, which reads as under:
“3.5 Pharmaceutical firms having a minimum annual turnover of 50 Crores for formulations in any one of the
last three years will be eligible for participation in Price Agreement of Medical Stores Organization.
Audited financial statement (balance sheet and profit and loss account statement) for the last three years, i.e.,
2007-08, 2008-09 and 2009-10 along with annual turnover statements for formulations for the above three years
certified by the Auditor.”
The aforesaid is so because the turnover of the petitioner is not ‘50.00 crore. It is the say of the petitioner that
the petitioner has been earlier supplying the vaccine to the respondents at competitive rates and was eligible
because the minimum turnover requirement was ‘20.00 crore, which has been unreasonably increased to ‘50.00
crore.
We may note that there was an earlier tender floated in this behalf, which was challenged by the petitioner on
identical grounds in WP (C) No. 4862/2011. In terms of an interim order dated 13.7.2011, we had permitted the
petitioner to submit the tender. The petitioner, however, did not utilize that opportunity of submitting the tender
and thus the question whether the increase of minimum annual turnover from ‘20.00 crore to ‘50.00 crore for the
last three (3) years was sustainable or not became an academic issue. Learned counsel for the petitioner, thus,
withdrew that writ petition on 3.8.2011 and the question of law was left open.
Learned counsel for the petitioner contends that there is no rationale for increase of the minimum annual turnover
for the last three (3) years from ‘20.00 crore to ‘50.00 crore. He further submits that the last tender was scrapped
and a fresh tender floated only because the respondents failed to get the required quantity from the L-1 and
thereafter the negotiation with the L-2 to get the balance quantity was not permissible. Since the respondents
realized that the negotiation with L-2 was impermissible they scrapped that tender but in the new tender, which has
been floated and is in question such negotiation with L -2 has specifically been permitted vide condition No. 9 under
the heading ‘Prices’, which reads as under:
“9. In case L-1 bidder is not able to supply the total tendered quantity then negotiation may be held by bid
evaluation committee with L-2 to supply balance quantity at L-1 rate.”
We may note that the challenge laid in the present writ petition is not to the aforesaid condition but only to
condition 3.5 and the submission being made qua inclusion of condition No. 9 is that the exercise carried out by the
respondents is malafide as it seeks to favour some parties by both increase of annual minimum turnover and
permitting negotiation with the L-2.
In the earlier writ petition filed, the respondents had filed their affidavit and we have the benefit of their stand as
the petitioner has annexed a copy of the same. In a nutshell, the stand is based on the “Procurement and
Operational Manual” of respondent No. 1/Director General of Health Services dated 18.5.2011. The respondents
stated that they are bound by this Manual and the annual minimum turnover has been increased to ‘50.00 crore as
per this Manual where clause 3.5 reads as under:
“3.5 Pharmaceutical firms having a minimum annual turnover of 50 Crores (or as prescribed by the competent
Authority) for formulations in any one of the last three years will be eligible for participation in Price Agreement of
Medical Stores Organization.
Audited financial statement (balance sheet and profit and loss account statement) for the last three years
along with annual turnover statements for formulations of the above three years certified by the Auditor.”
In the earlier Manual the minimum annual turnover was ‘20.00 crore. In the affidavit filed on behalf of the
respondents in the earlier writ petition, it has been explained that vide order dated 13.2.2008 a committee to revise
the Medical Store Depot Manual 1980 had been constituted and various meetings were held over a period of 2008-
2010, which had resulted in the making of the new Manual. The deletions or modifications of the existing Manual
were as per the recommendations of that Committee which was duly approved by the Director General of Health
Services as well as the Secretary, Ministry of Health and Family Welfare. All the Government medical stores in India
were informed to implement the revised Manual vide letter dated 17.6.2011.
Learned Additional Solicitor General also drew our attention to condition Nos. 9 and 10 under the heading of
“Prices”, which read as under:
“9. In case L-1 bidder is not able to supply the total tendered quantity then negotiation may be held by bid
evaluation committee with L-2 to supply balance quantity at L-1 rate.
10. The bidders have to submit an undertaking that they have not supplied the vaccine at a lower rate than the
quoted price to any other Government Institutions/Hospitals etc. during the year 2011. In the absence of this
undertaking the bid shall be treated as non-responsive/technically not qualified.”
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Learned ASG submits that, in fact, both conditions 9 and 10 have been added to meet the requirements of the
respondents where the L-1 bidder may not be in a position to supply the total quantity and in order to ensure a
competitive pricing an undertaking has to be given by the bidder that he has not supplied the vaccine at a lower
rate than the quoted price to any other Government Institution/Hospital during the year 2011. The bid is to be
treated as non-responsive/technically not qualified, if such an undertaking is not given.
We have heard the submissions of the learned counsels for the parties and notice that there is no challenge laid
to conditions 9 and 10. No illegality or impropriety can be said to have been made by incorporating such conditions
9 and 10 nor is there any malafide exercise of power in this behalf as the respondents are desirous of obtaining the
total supplies which, if not available with L-1, can be sourced through L-2 at the price of L-1. Further precaution has
been taken to ensure that the price at which the supplies are sought to be made are not more than what has been
quoted to any other Government Institution/Hospital during the current year.
The real challenge laid is only to condition 3.5. The rationale for inclusion of the said condition has been explained
as the new Manual which has come into being. The affidavit filed by the respondents in the earlier writ petition also
shows that there are averments that the necessity to make the upward revision in the annual minimum turnover
was dictated by a variety of factors, the first and foremost being to ensure the quality of generic drugs and to ensure
that suppliers to GMSDs have a sizeable market presence. In any event the revision was based on the revised
Manual which had been made after an elaborate exercise.
It is, thus, not as if condition 3.5 has been amended and the minimum annual turnover increased from ‘20.00
crore to ‘50.00 crore by pulling a rabbit out of a hat but is based on an exercise carried out over a period of two (2)
years in modifying the “Procurement and Operational Manual”. We are unable to accept the plea of the learned
counsel for the petitioner that even if the minimum annual turnover as set out in the Manual is ‘50.00 crore there is
a discretion with the respondents to fix a figure below it. This plea, having regard to the phraseology used, i.e.,
“Pharmaceutical firms having a minimum annual turnover of 50 Crores (or as prescribed by the competent
Authority) for formulations in any one of the last three years” in condition 3.5 seems tenuous. In any event, if we
were to accept that the respondents could provide for a limit below ‘50.00 crores can the Court exercising
jurisdiction under Article 226 of the Constitution of India fix limits of turnover? This is a matter of discretion of the
respondents who cannot be compelled to lower the requirement of the minimum annual turnover as they are well
within their rights to rely upon the minimum annual turnover as set out in condition No. 3.5 above.
This Court is not to sit as an appellate authority over the formulation of the terms and conditions of the tender
which is an exercise to be undertaken by the respondents.
We are of the considered view that the writ petition is without any merit and the same is accordingly dismissed
leaving the parties to bear their own costs.”
(Emphasis added)
13. After opening of the bid, the representative of the Sanofi was asked whether it could supply the total quantity
specified in the tender. Thereupon, Sanofi conveyed its willingness to supply the full tendered quantity if the vaccine of
shorter shelf life was accepted. However, the IPC again cancelled the tender on the ground that there was no
competitive bidding and directed that fresh limited tender be issued. Simultaneously, the eligibility criteria was
changed for the year 2011 so that parties having turnover of Rs. 20 crores in any of the three preceding years could
participate in the tender. The IPC also waived the condition of Indian Pharmacopoeia Compliance. This facilitated
participation of Respondent No. 2 in the second re-tender process.
14. Sanofi challenged the relaxation of the eligibility criteria by filing Civil Writ Petition No. 6338/2011 before the
Delhi High Court. It also applied for stay of the second re-tender process. In the meanwhile, Respondent No. 4 invited
fresh bids on 29.08.2011 with relaxed conditions of eligibility. In the second re-tender GSK did not participate because
only two days' time was available for the supply of 1,82,125 doses. Sanofi gave bid for 90,000 doses at the same rate
at which it had given bid in response to the first re-tender. Respondent No. 2 gave bid for the total quantity @ 2373
per 10 doses vial of QMMV.
15. After opening of the tender, the High Court passed an order dated 06.09.2011 and directed that supply of at
least 90,000 doses of QMMV be placed with Sanofi. Writ Petition No. 6338/2011 was finally disposed of by the High
Court on 15.09.2011 in the following terms:
“WP(C) No. 6338/2011
The supplies have been made in terms of the last order. It is stated that in the fresh bid which was opened,
respondent no. 4 was L-1 at a price of Rs. 2373/- per ten doses. It may also be noticed that the petitioner was
earlier L-1 at the same quoted price of Rs. 2754/- per ten doses.
The grievance of the petitioner in the present case arose from scrapping of the earlier tender and permitting
procurement as per norms contrary to the policy decision contained in the ‘Procurement and Operational Manual’
where the requirement not stipulated is of minimum turnover of Rs. 50 Crores for the last 3 years as a qualifying
condition for the tender.
Learned counsel for respondent nos. 1 to 3 states that it was only in view of the urgency of purchase requirement
that one time relaxation has taken place and policy conditions were to remain the same i.e., the minimum annual
turnover of Rs. 50 Crores for the last 3 years as a qualifying condition.
In view of the aforesaid, learned counsel for the petitioner states that they would not like to press the writ
petition though they were certainly aggrieved even by one time relaxation which was contrary to the policy. He thus,
submits that to put an end to the present dispute relating to the supplies in question, the petitioner would be
satisfied on payment of the price equivalent to L-1 in this tender i.e., Rs. 2373 per ten doses.
Learned counsel for respondent nos. 1 to 3 on instructions from Mr. R.K. Yadav, Assistant Depot Manager, Ministry
of Health and Family Welfare undertakes to this court that on the petitioner raising a bill, the payment will be
released within a maximum period of two weeks thereafter.
In the end, we may express our anguish about the manner in which respondent nos. 1 to 3 went about this
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matter of procuring supplies. In the first instance a decision taken to increase the minimum annual turnover from
Rs. 20 Crores to rs. 50 Crores for the last 3 years was forcefully defended in an action initiated by respondent no. 4,
wherein a grievance was made that the eligibility criteria was changed to oust it, even though it had made supplies
for the last 3 years. Upon this court rejecting the writ petition of Respondent No. 4, status quo ante was restored to
in respect of the turnover criteria albeit as a temporary measure. At this stage the writ petitioner cried foul and in
our view rightly. Since we did not have to examine the merits of the matter, a finding was not returned as to
whether the action of the official respondents emanated from a mere vacillation or was a result of something that in
the future, a consistent policy will be adopted in this behalf.
The writ petition stands disposed of in the aforesaid terms.”
16. As a sequel to the above developments, order for supply of 90,000 doses was placed on Sanofi and order for the
remaining quantity i.e., 92,125 doses of vaccine was given to Respondent No. 2.
17. For 2012 and 2013, the bids given by Sanofi were accepted because GSK and Respondent No. 2 did not
participate in the tender process. According to GSK it did not give bid because of the very small time gap between the
date of opening of tender and the date of supply. Respondent No. 2 did not participate because it did not satisfy the
condition of eligibility. For 2014, Sanofi and Respondent No. 2 gave their respective bids and the one given by
Respondent No. 2 was accepted being lower than that of Sanofi.
18. After two years of the dismissal of the second writ petition filed by it and partial acceptance of the bid given in
response to the second limited tender invited on 29.11.2011, Respondent No. 2 filed an information dated 08.04.2013
under section 19(1)(a) of the Act alleging abuse of dominant position and violation of Section 4(1) by the Union of
India. Respondent No. 2 also made allegation of cartelization against the appellants. All this is borne out from
paragraphs 6 to 17 and 19 of the information, which are extracted below:
“6. The introduction of the indigenously manufactured vaccines by the Complainant Company has resulted in fair
competition in the market leading to a marked decrease in the price of vaccines and the easy availability of the
same, whereby persons and citizens requiring the said vaccines on an urgent or an emergent basis can readily
procure the same at a convenient place and at a very reasonable price.
The Complainant is placing hereinbelow a comparative chart showing the prices of the six vaccines, during the
year of their launch in the market, giving the prices of imported vaccines and the prices offered of vaccines by the
Complainant Company. The table shows conclusively a difference of approximately 50% in the prices of indigenous
vaccines and the imported vaccines.
Year Vaccine Competitors Rate Bio-Med's Rate
1995 Oral Polio Vaccine Rs. 150/- Rs. 65/-
1998 Typhoid Vaccine Rs. 375/- (Sanofi) Respondent Rs. 100/-Current price is Rs. 48/
No. 3 -
2004 Heamophilus Type b Conjugated Rs. 350/- (GSK) Respondent No. Rs. 140/-
Vaccine 2
2004 Quadrivalent Meningococcal 4500 per ten dose vial Rs. 2500/- per ten dose vial
Meningitis Vaccine
2007 Botulinum Toxin Type A Allargen Rs. 10500/- per 100 4500 Per 100 unit vial
Unit vial
2008 Peda TyphTM No competitor. World's 1st Rs. 250 per vial
Vaccine
2009 BI Meningo Sanofi (325) Respondent No. 3 Rs. 150/-
7. One of the important vaccines introduced by the Complainant Company was:
Quadrivalent Meningococcal meningitis polysaccharide vaccine groups A, C, Y, W 135 in the year 2004.
8. Before the introduction of the said vaccine by the Complainant Company which produces it indigenously, the
same was being made available by only two companies i.e. Respondents No. 2 & 3. It is submitted that the above
stated vaccines called the Meningococcal meningitis vaccine is required on any yearly basis to meet the demand to
vaccinate approximately 2,00,000 pilgrims who go on annual pilgrimage of Hajj after the month of Ramzan is over
every year.
As per the law of Saudi Arabia, no person is allowed entry in that country without vaccination. It is pertinent to
submit here that it requires at least 15 days' time for the human body to develop immunity so that full protection is
available from attack of meningitis strains. For this purpose, the office of Respondent No. 1 invites tenders every
year from the year 2002 onwards, for the purchase of the said vaccine so that proper arrangements are made for
immunization and prevention of diseases before pilgrims leave for the pilgrimage to Saudi Arabia each year.
9. It is submitted that for the years 2002-2004, when the Respondent No. 1 floated the global tender, there was
no indigenous manufacturer available for the supply of meningitis vaccine. It is pertinent to mention that
Respondent No. 1 purchases only one vaccine every year as an exception to their obligation for the purchase of
drugs and surgical items for supply to Central Government aided hospitals. All the other vaccines for public use are
purchased by the Vaccine procurement cell in the Ministry.
10. The Respondent No. 1 floated tenders for the supply of meningitis vaccine for the years 2002-03 without any
qualifications whatsoever with respect to the annual turnover of the bidder or the manufacturing/marketing
experience. A sample copy of the tender page is annexed herewith and marked as Annexure P-3. The Complainant
Company participated in the said tender process. The Respondent No. 1 thereafter floated a tender for the years
2005-06, by introducing two new conditions i.e. minimum annual turnover of Rs. 10 Crores in any of the last three
years and a certificate in support of manufacturing and marketing for the last three years. A copy of the said tender
is annexed herewith and marked as Annexure P-4. The introduction of the new conditions are restricted the
participation of the Complaint Company and in fact disabled the latter from participating even though it was fully
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licensed under the provisions of the Drugs and Cosmetics Act, 1940 as averred hereinabove.
It is pertinent to note here that in the years 2006-07, it was only Respondent no. 2 Company which participated
in the tender and was declared as the successful bidder and Respondent No. 3 did not participate in the said two
years.
11. The Respondent No. 1 once again modified the conditions in the year 2008 with respect to the turnover clause
by introducing a clause that the bidder shall have a minimum turnover of Rs. 20 Crores in any of the last three years
and will then be entitled to participate. It is submitted that the said clause was introduced deliberately with the sole
intention to oust the Complainant Company from participating in the tender bid process, as the introduction of the
condition increasing the amount of turnover of a participating bidder from Rs. 10 Crores to Rs. 20 Crores has no
rationale, basis or explanation.
The said condition continued for the years 2008-09 and 2009-10. Copies of the tenders are annexed herewith and
marked as Annexure P-5 (Colly). The Complainant Company, however, achieved the said turnover and participated
and declared the successful bidder. It is pertinent to note that being an indigenous manufacturer; it supplied the
same vaccine at a considerably lower price than offered by Respondent No. 2 and 3. A comparison of the price
variations is reproduced as follows:
Bid Price of Meningitis Vaccine
Year Qty. in doses Bio-Med GSK Sanofi
2002-03 1,30,000 — Approx. 5,750/- to —
6,000
2003-04 1,20,000 — Rs. 4,950/-+8% LST —
2004-05 1,30,000 — Rs. 4,800/- + 8% LST —
2005-06 1,50,000 Rs. 4,000/- + tax but Rs. 4,400/- + 4% LST Rs. 4,590 + tax
rejected
2006-07 1,70,060 Rs. 3,800/-+4% not Participated Did not participate
permitted to
participate
2007-08 1,49,030 Not permitted to Participated Did not participate
participate
2008-09 1,75,910 Rs. 2,695/-+4% Rs. 3,199+ tax Rs. 2,900 + tax
2009-10 1,68,110 Rs. 2,150/-+ 4% Rs. 2,639+ tax Rs. 2,400+ tax
2010-11 1,47,180 Rs. 1,999/-+4% Rs. 2,000/-+ tax Rs. 2,400/-+ tax for
long expiry. Rs. 1,990/
-+ tax for 1 year
expiry.
2011-12 2012-13 1,82,125 Rs. 2,373/- all Rs. 3000/- and later it Rs. 2,754/- all inclusive
inclusive (92, 125) refused to supply Did (90,000 Dose) Rs.
not participate 2,343/- all inclusive
12. It is apparent from the above, due to competition, lower prices were offered by the Complainant Company
which were at least 15% lower than earlier years, and accordingly Respondent No. 1 was declared as the successful
bidder. This provided an immense relief to the ultimate consumer i.e. the public at large of India.
13. The Complainant Company continued to participate in the tender process and competed successfully to
become L1 in the years 2009-2010, 2010-2011 by offering competitive prices. Further the complainant company
arranged for supplies of vaccines duly tested in their laboratory and also tested by the National Regulatory Lab CDL
CRI Kasauli to Respondent No. 1. The quantities of the vaccines were duly supplied by the Complainant Company.
The said contracts were successfully completed by the Complainant Company.
14. Respondent No. 1, however, yet again modified the tender qualification for the year 2011, by introducing that
the bidder should have a turnover of Rs. 50 crores in any of the last three years. This condition remains for the year
2012 also. It is pertinent to note that in the year 2012 Respondent no. 1 required the turnover for the years 2007-
08, 2008-09 and 2009-10. This requirement was not there for the last preceding year to the year 2012 i.e. for 2010-
11. This unilateral action by Respondent No. 1 in modifying the turnover condition without any reasonable rationale
or explanation is a severe abuse of the dominant position enjoyed by the Complainant Company, which has a direct
disastrous consequence for the complainant company being the sole indigenous manufacturer of meningitis vaccine
as it ousted the complainant company from participating in the tender process of 2011, causing losses to the GOI
and the final consumer. Copies of the tender for the year 2010-11 and 2011-12 are annexed hereto and marked as
Annexure P-6 (Colly).
It is submitted that this change from Rs. 20 Crores to Rs. 50 Crores is completely unworkable, as was clear from
the manner, in which the supplies were procured in 2011-12. The Respondent No. 2 being the successful Tenderer
committed to supply only 90,000 doses, leaving a shortfall of 92,150 doses.
This was met by the Complainant, who supplied the said balance quantity on rates which were approximately
15% lower than the Respondent no. 2.
Thus fortifying the wisdom of creating competition and getting services and goods at a significantly lower price to
the advantage of the final consumer.
It is submitted that the complainant has written various communication (bid-protest) to the Director General
(Stores) which are annexed hereto as Annexure-7 (Colly).
15. CONSEQUENCES OF THE ABUSE OF DOMINANT POSITION BY RESPONDENT No. 1
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It is submitted that the Respondent no. 1 keeping with its past practice of Respondents No. 2 & 3 would again
introduce conditions of required turnover of Rs. 50 crores or move. It is submitted that Respondent No. 1 is the sole
repository of safeguarding the health and family welfare of the citizens of India and is thus vested and mandated
with the task of procuring supplies of necessary and lifesaving drugs, surgical goods and meningitis vaccine. It is
the government of India being Respondent No. 1 which is mandated with the task of procuring the said medicines at
competitive costs and making sure that the same are made available to the public at large.
16. Being the repository for the preservation and maintenance of health of the citizens of India. It is the special
responsibility and obligation of Respondent No. 1 being the Union of India to make sure that the vaccines which are
made available are not only superlative in quality but are also competitive in pricing, so that the common citizens of
India are able to benefit from the same.
It is for this purpose that from time to time the Government of India has come out with drug price control orders,
the latest being the Drug Price Control Order of 1987 whereby it fixes the prices of certain lifesaving drugs and
medicines. Even though the meningitis vaccine is not included in the said Drugs Price Control Order. It is incumbent
upon the Union of India i.e. Respondent no. 1 that the said vaccine which is lifesaving and which is meant for
providing immunization against a very serious and life threatening disease by way of a preventive measure is made
available to the citizens of India is procured by it at competitive prices with priority to be granted to an indigenous
manufacturer specially a SME as a general policy of the government of India.
17. The Complainant has produced on record the comparative list whereby Respondent No. 2 and 3 have been
habitually charging a much higher price for the same vaccine. The Respondent No. 1 however, instead of supporting
and providing succor to indigenously manufacturers, such as the Complainant company has over a period of time
made sure and left no stone unturned to see that the efforts of the complainant company are put to naught and it is
not in a position to compete or bid for the tender process.”
19 The action of the Respondent No. 1 in unilaterally, arbitrarily and without any explanation/rationale to increase
the bid amount from Rs. 20 crores to Rs. 50 Crores has the direct effect of ousting the Complainant Company from
participating in the bid process. As a result, the vaccines manufactured by the Complainant Company, which are
cheaper by approximately 15-20% are not made available to the public at large. This action of the Respondent No. 1
in arbitrarily changing the Bidding criteria has the consequence that Respondent Nos. 2 & 3 are the only parties left.
The Respondent No. 1's action has attracted the rigour of Clauses (a), (b) and (d) of sub-section (3) and sub-section
(1) of Section 3 and of Section 4 of the Competition act, 2002. The action of Respondent No. 1 has a direct, adverse
effect and impact on the complainant company, as it has resulted in ousting the Complainant Company from
participating in the Bid process. The Respondent No. 1 being the repository of maintenance of health and safety is
under a mandate to make available quantity vaccines which are competitive.
Moreover, Respondents No. 2 & 3 have blatantly and brazenly committed acts of cartelization by adopting a
deliberate and thought out plan whereby only one of the Companies i.e. Respondent No. 2 or Respondent No. 3
participates in the tender bid process. It is submitted that there is no coincidence that Respondent No. 2 was the
main contender in the tender process from 2003 to 2008 while Respondent No. 3 did not submit tender or quote any
higher prices than Respondent No. 2. Respondent No. 3 started to actively participate from the year 2008 and all the
bids were lower than Respondent No. 2. The sequence of participation by Respondents No. 2 & 3, by one of them not
participating when the other does so over the past 10 years raises doubts of a secret tie up arrangement based on
geographical consideration.
It is submitted that Respondent No. 2 is active in countries of Pakistan, Indonesia and Bangladesh where
Respondent no. 3 does not participate and likewise, in most of the African countries such as Ivory Coast where only
Respondent No. 3 participates, the Respondent No. 2 does not. The same policy has been followed by Respondents
No. 2 & 3 with the active connivance and collusion of Respondent No. 1 in creating a cartel to oust the indigenous
manufacturers such as the complainant.
It is submitted that in the year 2011, Respondent No. 2 quoted for only 92125 doses against a projected
requirement of 182125 doses whereas Respondent No. 3 quoted only 90000 dozes. The prices quoted by
Respondent No. 3 were lower at Rs. 2754/- whereas Respondent No. 2 quoted a price of Rs. 3000 for 10 doses. The
Respondent No. 2 later on supplied the vaccine at the rates quotes by Respondent No. 3 after Respondent No. 1
entered into unpermitted negotiations. The collusive action to offer quantities in half : half proves conclusively the
existence and establishment of cartelization which is against the spirit, scope and ambit of the Competition Act,
2002. The Complainant Company is averring herein below a list of litigations in the interest of disclosure. The above
stated factual matrix clearly shows that Respondent No. 1 has openly abused its dominant position thereby giving
an unfair advantage to Respondents No. 2 & 3 and allowing the Respondents No. 2 and 3 to openly operate and run
cartels.”
[Underlining is ours]
19. The Commission considered the information in its ordinary meeting held on 25.04.2013 and invited Respondent
No. 2 on 08.05.2013 for preliminary hearing, who then filed copies of orders passed by the Delhi High Court on
13.07.2011 and 03.08.2011 in Writ Petition No. 4862/2011, orders dated 06.09.2011 and 15.09.2011 passed in Writ
Petition (Civil) No. 6338/2011. After hearing the representative of Respondent No. 2, the Commission called upon
Respondent No. 1 - Deputy Assistant Director General (Stores) to submit written comments and appear on 22.05.2013,
to present his point of view. After hearing him, the Commission directed the representative of Deputy Director General
(Stores) to file additional written submissions. However, the request made by the latter for grant of another hearing
was turned down on 12.06.2013.
20. After about three months, the Commission passed order dated 03.09.2013 under Section 26(1) by which the
allegations of abuse of dominant position made against the Union of India through the Deputy Director General
(Stores) were specifically rejected and the DG was directed to conduct an investigation into the allegation of
cartelization levelled against the appellants in respect of supply of QMMV for 2011. The reasons assigned by the
Commission for rejecting the allegations levelled against Respondent No. 1 and directing investigation against the
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appellants are contained in paragraphs 17 to 23 or order dated 03.09.2013, which read as under:
“17. In the reply, it was pointed out by the opposite party No. 1 that the minimum turnover clause of the tender
document was modified from Rs. 20 crores to Rs. 50 crores during 2011 as per the new updated Procurement and
Operational Manual for Medical store Organisation and government Medical Store Depots which was approved by
Ministry of Health & Family Welfare. This new updated manual was stated to be made effective from 18.05.2011 and
applicable for all the tenders for procurement of all generic medicines by Medical Stores Organization and all seven
Government Medical Store Depots in India. It was also clarified that the turnover clause has not been modified
specifically for the impugned tender. In fact, it has been pointed out that this modified tender clause is universally
applicable for procurement of medicines by MSO and all GMSDs. It is also stated in the reply that this tender clause
cannot be diluted for any particular tender and the procurement policy of the Government has to be consistent for all
tenders.
18. From the reply of the opposite party No. 1, it appears that the informant earlier challenged the modification in
the turnover clause from Rs. 20 crores to Rs. 50 crores during 2011 before the Hon'ble High Court of Delhi by filing a
writ petition which was dismissed by holding inter alia that the formulation of the term and conditions of the tender
is an exercise to be undertaken by the authorities.
19. In view of the above, no case of contravention of the provisions of section 4 of the Act is made out against the
opposite party No. 1.
20. The other part of the allegations of the informant centres around the alleged cartelization by the opposite
party Nos. 2 and 3. It is the case of the informant that the opposite party Nos. 2 and 3 have cartelized the market
through bid rotations and geographical allocations (international) from the period 2002 to 2012.
21. In this regard, it may be pointed out that the provisions of section 3 of the Act relating to anti-competitive
agreements were notified w.e.f. May 20, 2009 and hence the tenders prior thereto are not as such amenable to the
jurisdiction of the Commission unless the anti-competitive effect thereof continues even post-notification of the said
provisions.
22. It may, however, be noted that the informant has very categorically averred in the information that in the
year 2011, the opposite party No. 2 quoted for only 92125 doses against a projected requirement of 182125 doses
whereas the opposite party No. 3 quoted only 90000 doses. Further, it is averred that the prices quoted by the
opposite party No. 3 were lower at Rs. 2754/- whereas the opposite party No. 2 quoted a price of Rs. 3000 for 10
doses. The opposite party No. 2 later on is stated to have supplied the vaccines at the rates quoted by the opposite
party No. 3 after the opposite party No. 1 entered into negotiations with it, which according to the informant, was
not permitted.
23. In light of the aforesaid averments made by the informant, it appears prima facie that the opposite party Nos.
2 and 3 allocated the market inter se. Such a conduct prima facie appears to be in contravention of the provisions of
Section 3(3) read with section 3(1) of the Act. In the result, the Commission is of the opinion that there exists a
prima facie case to direct the Director General (DG) to cause an investigation to be made into the matter against the
opposite party Nos. 2 and 3 for the period mentioned above (2011) in terms of the provisions contained in Section
26(1) of the Act.”
(Emphasis supplied)
21. On receipt of the order passed by the Commission, the DG issued notices to the parties under Section 36(2)
read with Section 41(2) requiring them to furnish necessary information and specified documents. Respondent No. 2
filed reply dated 11.09.2014 to support the allegations of cartelization. GSK filed reply dated 29.08.2014 and explained
the internal decision making process adopted for participation in the tender enquiries issued by Respondent No. 4. In
response to another notice issued by the DG on 04.09.2014, GKS submitted scanned copies of all relevant official
communications and emails exchanged by the officials dealing with the tender for QMMV. GSK also submitted
documents showing the calculation and working of prices and quantities for the purpose of the tender issued in 2011.
In addition, GSK filed responses dated 17.04.2014, 14.05.2014, 15.08.2014, 22.08.2014, clarification dated
29.08.2014, submissions dated 29.08.2014, 15.09.2014 (three volumes), 27.10.2014, affidavit dated 11.11.2014,
copies of orders passed by Delhi High Court in different cases. Shri Sumer Dheri and Shri D.K. Anand, two officers of
GSK also appeared before the DG and gave their statements.
22. Sanofi filed reply dated 15.05.2014 through its Advocate and claimed confidentiality of commercially sensitive
information. Paragraphs 12 to 29.11 of that reply are reproduced below:
“12 Since the allegations against Sanofi Pasteur are made in relation to its QMMV business, this submission is
limited to the information that is relevant to that business.
QMMV
13 The meningococcal disease caused by bacterium Neisseria meningitides is carried and transmitted only by
humans and has an incubation period of between 1 and 10 days. The capacity of meningococcal disease to take a
fatal course in people causes it to be greatly feared. Intensive public health follow-up is required after each single
case to trace contacts and to institute appropriate public health measures for them.
14. The most common strains of meningococcal bacteria are A, C, W135 and Y. Although it occurs in all countries,
it is much more common in certain areas such as the ‘meningitis belt’ of sub-Saharan Africa. For these reasons,
quadrivalent ACWY vaccination has been a compulsory entry requirement into Saudi Arabia for pilgrims on Hajj and
Umrah, and for other travellers since 2002.
Operations of Sanofi Pasteur France and Sanofi Pasteur
15. Sanofi Pasteur has in its portfolio two types of vaccines which can be used to protect Haj pilgrims against the
ACWY quadrivalent, namely: Menactra® and Menomune®. However, there are some key differences between the
two as described below:
15.1 Menomune® is a vaccine which is licensed for age group of over 2 years. On the other hand, Menactra® is
relatively a new vaccine, which had been developed to protect patients between age group between 9 months to
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55 years.
15.2 Further, Menomune® is a PS (polysaccharide) vaccine whereas Menactra® vaccine is a “conjugated” PS
vaccine i.e., it has a protein carrier bound to the PS. Successful conjugate vaccine protection has the potential to
provide longer protection as compared Menomune® last many years and even responds well to booster doses.
16 Sanofi Pasteur currently supplies both Menomune® and Menactra® in the Indian market. However, the
target consumer groups for both these vaccines are distinct. Menactra® was Introduced in the Indian market only
in January 2013 and is supplied in the private market; whereas Menomune® is essentially supplied in the public
market (through tender process), which represented more than 70% of the Menomune® sales in India In 2013.
17 As mentioned in the reply dated 17 April 2014, Sanofi Pasteur is not engaged in the production of
Menomune® in India. The entire requirement of Menomune® is produced in the USA by Sanofi Pasteur Inc. and sold
on an arm's length basis directly by Sanofi Pasteur Inc. to Sanofi Pasteur.
18 It is important to highlight that the allegations of the Informant pertain to the public market alone. i.e.,
supply of Menomune® to the government under a tender process. Further, GSK has not registered in India an
equivalent of Menactra® and supplies only Mencevax (the GSK registered equivalent for Menomune®) in India.
Therefore, for the purpose of this investigation, the relevant market is the sale of Menomune® to the government.
The information in relation to the supply of Menomune® by Sanofi Pasteur in the public market in India was
submitted to the DG office in a reply dated 17 April 2014.
19 As explained above. Sanofi Pasteur only supplies Menomune® (and GSK supplies only Mencevax, its
equivalent of Menomune®) in the public market in lndia. In order to ascertain the veracity of the cartel allegations,
the conditions of demand and supply in the public market in lndia are relevant.
20 However, since the DG office in its letter dated 23 April 2014 has instructed Sanofi Pasteur to submit
information about its global supplies, the information is being enclosed as Annexure I. This information relates to
some of the countries in which Sanofi Pasteur France and its affiliates are supplying large quantities of Menomune®.
21 It is submitted that Sanofi Pasteur has independent operating policies and overarching compliance principles
as a part of its standard norms and practices. Sanofi Pasteur follows a defined compliance program including written
policies and procedures, maintaining good standards and governance, independent compliance officer and
conducting and imparting regular training and education to its employees. It has a stringent Code of Ethics which
shows the group's commitment to respect the highest ethical rules and principles when conducting business. Sanofi
Pasteur strictly follows antitrust rules and has not been guilty of any antitrust violation globally. There has been no
understanding between Sanofi Pasteur and its competitors at any point of time.
22 With this background, the following additional submissions are provided with a view to substantiate and clarify
the facts in this case as far as they related to Sanofi Pasteur:
Sanofi Pasteur is not party to any illegal “agreement” with any competing enterprise
No bid rigging/market sharing agreement under Section 3 of the Act
23 It is respectfully submitted that Sanofi Pasteur has not entered into any illegal agreement with its
competitors, and has not violated any provisions of the Act. The Informant has alleged the presence of a market
sharing agreement between Sanofi Pasteur and GSK on the basis of incorrect and incomplete facts.
24 The Informant has erroneously submitted in paragraph 19 of the complaint/information dated 8 April 2013
that Sanofi Pasteur and GSK have:
“…committed acts of cartelization by adopting a deliberate and thought out plan whereby one of the
Companies i.e. Respondent No. 2 or Respondent No. 3 participates in the tender bid process. It is submitted that
it is no coincidence that Respondent No. 2 was the main contender in the tender process from 2003 to 2008 while
Respondent No. 3 did not submit tender or quote any higher prices than Respondent No. 2. Respondent No. 3
started to actively participate from the year 2008 and all the bids were lower than Respondent No. 2. The
sequence of participation by Respondents No. 2 & 3, by one of them not participating when the other does so over
the past 10 years raised doubts of a secret tie up arrangement based on geographical considerations…”.
25. In this regard, it is submitted that although registered to supply, Sanofi Pasteur was not supplying any
quantity of Menomune® at all in India in the years 2003 and 2004. However, as can be seen from the data
submitted to the DG office in the reply dated 17 April 2014, Sanofi Pasteur started supplying in the Indian market
from the year 2005. Being a new entrant, the quantity supplied by Sanofi Pasteur in 2005-2007 was relatively small.
26. The Informant has also alleged that Sanoti Pasteur and GSK cartelized by participating in the bidding process
in turns, “…one of them not participating when the other does so over the past 10 years”. Like the other allegations
of the Informant, this information too is factually incorrect. It is submitted that between 2009 and 2011, both Sanofi
Pasteur and GSK were vigorously competing and submitted close bids for supplying their respective QMMV vaccines,
with Sanofi Pasteur winning in the last few years. A ‘bidding market’ is characterized by the very fact that one party
wins and the others lose; it is therefore absurd for the Informant to allege on this basis that Sanofi Pasteur and GSK
have entered into a market sharing agreements.
27. To conclude the presence of a cartel, the Informant has also stated that Sanofi Pasteur and GSK quoted
‘similar’ quantities in their respective bids for the tender process in 2011. It is respectfully submitted that this does
not constitute proof of a cartel under the Act; the Informant has in fact distorted and hidden facts to mislead the
investigation process.
28. The definition of “agreement” under section 2(b) of the Act is wide and includes an ‘action in concert’. An
‘action in concert’ has not been defined or interpreted under the Indian law but the European competition law
distinguishes an action in concert from an agreement on the basis that it involves a lower degree of consensus than
an agreement as such. However, it is submitted that even for an ‘action in concert’ there must be some positive
contact between the parties which has the object or effect of modifying the behaviour of the parties on the market.
No evidence to this effect has been produced by the Informant in this regard.
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29 Given below is the complete and true factual scenario in relation to the 2011 tender process:
29.1 On 19 May 2011, Sanofi Pasteur received a letter from the Union of India for procurement of 182,125
doses of Menomune® for the Haj pilgrims. Being a time bound tender, the process of procurement was initiated
almost immediately.
29.2 The tender for procuring the vaccine was floated on 25 June 2011 and consisted of the following
conditions:
a) The vaccine must conform to the specifications provided in the Indian Pharmacopoeia 2010.
b) The minimum turnover requirement was increased from INR 20 crores to INR 50 crores on the basis of the
revised MSO/GMSD manual approved by the Ministry of Health and Family Welfare.
29.3 The Informant filed a writ petition before the Hon'ble High Court of Delhi against the increase in turnover
requirement; the Hon'ble High Court of Delhi permitted the Informant to submit its tender, without creating any
special equities in its favour. Inspite of this, the Informant failed to submit its bids within the time prescribed in
the tender. The Hon'ble High Court of Delhi finally held that since the Informant failed to submit its bid, the
question of turnover requirement became an academic issue: thereby resulting in the withdrawal of the petition
by the Informant
29.4 On Opening the bids on 25 July 2011, it was found that quotations were only received from Sanofi Pasteur
and GSK. Sanofi Pasteur had quoted a rate of INR 2,899 per 10 doses vial of 5ml (inclusive of taxes) for a
quantity of 90,000 doses only which could be supplied by the date prescribed in the letter inviting Sanofi Pasteur
to tender i.e., 30 August 2011. It is understood that GSK on the other hand quoted to supply the entire quantity
at the rate of INR 3,000.99 (inclusive of all taxes)
29.5 A meeting was convened by the Integrated Purchase Committee (“IPC”) to consider the delayed
quotation submitted by the Informant and the high price quoted by Sanofi Pasteur to supply the vaccine as
compared to previous year. It was decided during the meeting that:
29.5.1 Another short date limited tender enquiry would be floated amongst Sanofi Pasteur, GSK and the
Informant.
29.5.2 The revised bid invitation was to clearly indicate the last date and time for submitting the bids.
29.5.3 The revised bid invitation was to indicate that in case the L-1 bidder was not able to supply the total
tendered quantity then a negotiation may be held by bid evaluation committee with L-2 to supply the balance
quantity at L-1 rate.
29.6 Accordingly, a short dated limited tender enquiry was issued on 17 August 2011 to Sanofi Pasteur, GSK
and the Informant. The Informant again filed a writ petition in the Hon'ble High Court of Delhi for waiver of the
minimum turnover requirement of INR 50 crores. The said petition was dismissed by the court on 19 August
2011. The order passed by the Hon'ble High Court of Delhi has been enclosed as Annexure II.
29.7 On the same date i.e., 19 August 2011, the parties' bids were opened. However, GSK expressed its
inability to supply due to the limited time granted to supply the vaccine in the tender. The Informant was again
disqualified since it did not meet the turnover clause. Therefore, Sanofi Pasteur was the only qualified bidder and
had quoted a rate of INR 2,754 per 10 doses vial of 5 ml (inclusive of all taxes). Though the quotation submitted
by Sanofi Pasteur was for the supply of 90,000 doses only, it was clearly stated in the letter dated 19 August
2011 that more quantities could be supplied with a shorter expiry date. A copy of the said letter is provided as
Annexure III. The relevant extract is also provided below:
“We have quoted for 90,000 doses as you require up to 30 August 2011. However we have more quantity to
be supplied before 30/08/2011 as below (1) 10,000 doses (Expiry 8/2013) (2) 40,000 doses (Expiry
02/2013).”
29.8 Therefore, it is submitted that Sanofi Pasteur was in fact willing to provide more quantity but was
restricted in this respect due to the tender conditions which required supply by 30 August 2011 of vaccines with a
remaining shelf-life of at least ¾th of the total shelf-life.
29.9 In a further letter dated 20 August 2011, Sanofi Pasteur intimated the Union of India that they would be
able to supply the following quantities of Menomune®:
S. No. Quantity (in doses) Expiry Date Remaining shell life as Date of delivery
on 30 August 2011
1. 100,000 August 2013 24 months 30 August 2011
2. 40,000 February 2013 19 months 30 August 2011
3. 42,125 August 2013 24 months 12 days from date or
Order
Total 182,125
29.10 The shelf-life requirement for the Menomune® vaccine is as prescribed in the MSO Manual guidelines.
The guidelines state that:
“regarding acceptance of 1/6th life expired imported drugs, the matter can be considered on case to case
basis by the depot heads and give exemption with due justification. However if more than ¼ shelf life of
imported drugs has already expired, it is rejected straight away.”
29.11 Consequently, only the 90,000 doses of Menomune® which qualified under the shelf-life requirement
could be provided by Sanofi Pasteur. However, keeping in mind the urgent need to the Union of India, Sanofi
Pasteur offered to supply even the remaining quantity of the vaccine with a lower shelf-life. Further, it also
undertook to replace the portion of the supplied stock not consumed within its shelf-life free of cost. It is
submitted that Menomune® vaccine of a lower shelf life is equally effective and can be administered to immunize
people against meningococcal diseases till the date of expiry.”
23. In reply to another notice issued by the DG on 05.09.2014, Shri Ashok Kumar Sharma, designated as Head-
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Institutional (Sales) filed his affidavit. In paragraph 3 thereof, Shri Ashok Kumar Sharma gave the details of 53 emails
sent from 24th May, 2011 to 30th September, 2011. He also enclosed copies of all the emails.
24. After completing the investigation, the DG submitted report dated 20.11.2014. In chapter 1 of the report, the
DG noticed the profiles of the parties and the facts leading to filing of information and the allegations. In Chapter 2, he
referred to the orders passed by the Commission under Section 26(1) of the Act. In Chapter 3, the DG delineated the
following issues:
“3.4 In view of the allegations levelled by the IP and the order of Commission u/s 26(1) the following issues have
been identified for the purpose of investigation—
(i) Whether OP2 and OP3 have indulged in bid rigging by allocating/sharing the quantity inter se so as to share
the supply in half in the tender floated by OP1 in the year 2011.
(ii) Whether OP-1 has changed the tender conditions to facilitate the cartel/bid rigging by OP-2 and OP-3.”
25. In Chapter 4, the DG gave details of the procedure adopted by him for conducting investigation, i.e., issuance of
probe letters to Respondent No. 2 and the appellants apart from 3rd party, namely, Novartis India Limited, recording
the statements of Shri Sandip Prakash, General Manager of Respondent No. 2, Shri D. Srinivas Rao, Deputy Asst.
Director General (Stores) and the representatives of the appellants. In Chapter 5, the DG discussed the market of
QMMV, its use in India and abroad. In Chapter 6, he analysed the allegations contained in the information, the replies
filed by the appellants and discussed the participation of the appellants in different tenders issued between 2002-2003
and 2014-2015. In paragraphs 6.4.1 to 6.4.9, the DG discussed the rationale of quoting of half tender quantity by
Respondent No. 2 for 2011. In paragraphs 6.5 to 6.5.13, the DG discussed the Sanofi's rationale for quoting in 90,000
doses against tender requirement of 1,82,125 doses for the year 2011 and in paragraph 6.5.14 and made the following
observations:
“6.5.14 It may be noted that OP2 and OP3 are multinational companies operating at global level, thus possibility
of finding any direct evidence of ‘agreement’ is negligible and therefore the conclusion has to be drawn on the basis
of conduct and circumstantial evidences in this case. Both the OPs have failed to substantiate the basis of offering
only half of the quantity in the tender. The OPs have not been able to prove that there was any constraint relating to
production, supply or logistics. The OPs have not produced any internal document relating to decision of quoting the
half quantity to prove their bonafide.
The investigation has therefore revealed that the conduct of OP-2 and OP-3 was not independent or based on
internal factors like production or the logistics of supplies. It may be highlighted that except the tender of 2011 all
the parties have quoted full quantity. This deviation from past practice by both the parties of similar nature by
quoting about half quantity has not been explained during the investigation. In view of the above the conduct of OP-
2 and OP-3 regarding quantity is found to be a result of collusion to share the market.”
26. The DG then discussed the price quoted by the appellants between 2008-09 to 2014-15 and concluded that
there was no justification for substantial increase in the price. In paragraph 6.8, the DG discussed other factors for
recording a finding that the appellants had indulged in bid-rigging. In paragraph 6.11 of the report, the DG recorded
the following findings:
“Findings
6.11 The investigation has therefore revealed that the conduct of OP-2 and OP-3 was in violation of the provisions
of section 3(3) of the Act on the basis of following facts and evidences:
(i) Both the parties deviated from the practice of quoting full quantity and quoted about half quantity in tender of
2011. The identical decision of such deviations from the past practice has not been explained.
(ii) Both the parties increased the prices substantially from the approved price of last tender which is normally a
benchmark for next tenders.
(iii) The competing parties would base their decisions to win the tender by being close to benchmark price or at
least below the price of other competitor. In this case, strangely both the parties quoted abnormally high price
defying any economic and commercial rationale as there being no common extraneous factors pushing the
prices.
(iv) Both the parties were very much aware that the IP was not eligible to participate in the tender.
(v) The tentative time and quantity of tender were known to both the parties as they were participating in the
past tenders. In the normal course they would have been ready for the supply of the entire quantity.
(vi) The documents produced by OP-2 and OP-3 do not show any constraint relating to supply of vaccines.
Considering their regular global supplies, it is not explained with evidences as to how they were unable to
supply full quantity in the tender of 2011.
(vii) The reasons claimed for quoting less quantity has not been substantiated from the internal records of both
the parties. In spite of specific directions from this office the parties failed to produce any evidence to support
their contentions.
(viii) OP-3 in the retender (when OP-2 did not participate) offered the additional quantities vide letter dated
19.08.2011 to OP-1.
(ix) The economic evidences have proved that the behavior of both the parties were collusive.
(x) Non-participation by OP-2 in subsequent tenders of 2012 and 2013 further establishes the collusion between
both the players.
(xi) The analysis of prices quoted by OP2 and OP3 prove intention to earn super normal profit which can be
achieved by subverting competition.
(xii) The prices were raised by both the parties when IP was not participating in the tender during 2011. OP-3
continued to increase the prices due to non participation by GSK in 2012 and 2013.
(xiii) The economic analysis of costing data do not justify the increase in price as claimed.”
27. The DG then discussed Issue No. 2 to determine whether OP1 had facilitated the cartel arrangement between
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the appellants and recorded the following conclusion:
“Thus, investigation has found that the change in turnover requirement in the tenders OP1 was an independent
exercise carried out with regard to procurement of all drugs of OP1. The decision has been taken at the Ministry
level. The decision of the Ministry has been challenged by the IP in the High Court which did not find it to be
unreasonable or arbitrary. The allegation that OP1 revised the conditions in the tenders time and again so as to
facilitate the cartelization by OP2 and OP3 has not been substantiated from information gathered in investigation.”
28. In paragraph 6.14, the DG examined the role of the persons responsible for bid rigging and observed as under:
“Investigation has found that OP2 and OP3 indulged in bid rigging by sharing the tender quantity inter se
together along with quoting very high price in their bids in the tender of QMMV by OP1 in the year 2011. The
conduct of OP2 and OP3 is in contravention of provisions of Sec 3(e)(d) read with Sec 3(1) of the Act.
(i) Following officials of OP2 who are found to be responsible in terms of Sec 48 of the Act:
On the basis of emails and communications and also explained by OP-2 it is found that all the decisions
relating to tenders of 2011 were finalized by Sh. Sumer Dheri, VP-Biologicals, GKS Pharmaceuticals Ltd., the
executive stated to be responsible for the decision of price and quantity to be quoted in the tender in 2011, as
detailed in Para 6.4.4 of this report. Further Shri B. Thyagarajan being part of the decision making chain relating
to tender of 2011 as detailed in Para 6.4.4 of this report. Sh. DK Anand, being the local manager in Delhi involved
in the filling of the tenders and submitting it and liaising with procurer. Sh. Anand has been involved in all the
decisions regarding tenders. His involvement is detailed in Para 6.4.6 and 6.8.2 of this report.
(ii) Similarly, in case OP3 following officials are identified in terms of Sec 48 of the Act:
Sh. Ashok Sharma, Head Institutional Sales has been at the centre of all decisions regarding tenders in 2011.
He was present during the tender process and was in regular communication with his seniors. His involvement in
the matter is detailed in Para 6.5.6 and 6.8.2
Sh. Surendra Agarwall, Director, was the controller of Sh. Sharma and as detailed in Para 6.5.5 was also
involved in the decision making.
Mr. Stephan Barth, Country Head has been involved in the decisions regarding the tenders as detailed in Para
6.5.4 of this report and is responsible for the decision taken in Sanofi Pasteur India Pvt. Ltd., regarding the price
and quantity quoted in the tender in 2011.
The Commission may, if deemed fit; consider initiating action under the provisions of Section 48 against the
above individuals.”
29. In Chapter 7, the DG recorded his conclusions that the appellants had indulged in bid rigging by sharing the
tender quantity and quoted very high price in the bids given for the year 2011 and held that their conduct is in
contravention of Section 3(3)(d) read with Section 3(1) of the Act.
30. The Commission considered the investigation report in its meeting held on 09.12.2014 and directed that
electronic copy thereof be forwarded to the parties for filing their replies/objections. Thereafter, an application was filed
on behalf of Sanofi under Regulation 35(10) of the Competition Commission of India (General) Regulations, 2009 (for
short, ‘the Regulations’) with the prayer to review and set aside order dated 29.11.2014, whereby the DG had rejected
its request for according confidential treatment to the cost of manufacturing data. The Commission considered the
same in its meeting held on 09.12.2014 and granted confidential treatment to the details furnished by Sanofi and
directed the DG to submit public version of the investigation report with appropriate redaction of the cost details
mentioned in the report. The Commission then considered the investigation report and directed that public version
thereof be made available to the parties for filing their reply/objections. The appellants were also directed to furnish
their audited balance sheets and profit and loss account/turnover for the financial years 2007-08 to 2010-11. The
officers of both the appellant were also directed to file their individual income tax return for the financial years 2007-08
to 2010-11 and also appear on 20th January, 2014 (sic 2015).
31. The arguments were heard by the Commission on 19.02.2015 and it was directed that the application filed by
Sanofi for grant of confidential treatment of some documents will be decided at the time of final disposal of the matter.
However, the revised application filed on behalf of GSK on 27.02.2015 for cross-examination of Shri D. Srinivas Rao,
Assistant Director General (Stores) and Shri Ashok Sharma, Head, Institutional Sales of Sanofi was rejected vide order
dated 18.05.2015. The relevant portions of which are extracted below:
“7. In the instant application dated 27th February 2015, OP-2 has requested for cross-examination of Shri D.
Srinivas Rao, Assistant Director General (Stores) of OP-1 and Shri Ashok Sharma, Head, Institutional Sales of OP-2.
At the outset, going by the reasons and details provided in the application, it is observed that OP-2 has not
requested for cross-examination of the said persons for any statement/affidavit or other evidence provided by them;
rather, they are sought to be cross-examined in the context of the findings/conclusions of the DG. Further, pursuant
to the opportunity provided by the Commission, the counsel for OP-2 has provided oral hearing on 19th February,
2015, on the issues for which cross-examination has been sought. Notwithstanding these, the Commission would
like to consider the each of the issues for which cross-examination has been sought by OP-2.
a) Observation of the DG at paragraph 5.4.2 of the investigation report: Cross examination of Shri D. Srinivas Rao
has been requested in the context of the conclusion in the investigation report that the response time for
bidders is normally 21 days. It has been stated in the application that since the DG's conclusion is
unsupported by any evidence, cross-examining the DADG on the ordinary response time of bidders would
categorically affirm GSK India's reasons for quoting 1,00,000 doses in the first QMMV tender floated in 2011. It
is reiterated that the cross-examination is sought in the context of conclusion of the DG and not regarding any
evidence provided by Shri D. Srinivas Rao. Nothing has also been stated/shown to demonstrate that the
concerned conclusion of DG is based on any evidence given by the said person.
b) Observation of the DG at paragraph 6.3.4 of the investigation report: Cross-examination of Shri Ashok Sharma
(employee of OP-3) has been requested in the context of the conclusion of the DG that the documents and
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internal emails of OP-2 and OP-3 show that both the parties (GSK and Sanofi) were well aware of the fact that
Biomed was ineligible to participate in the tender; and it was obvious to OP-2 and OP-3 that they remained the
only two bidders in the tender of 2011. It is observed that the conclusion of the DG is not based on any oral
testimony provided before him; rather, the conclusion was based on the documents and internal emails of OP-
2, which are made part of the investigation report. Therefore, it is evident that the concerned conclusions is not
based on any oral evidence given by Shri Ashok Sharma.
c) Observation of the DG at paragraph 6.5.13 of the investigation report: Cross-examination of Shri Ashok
Sharma (employee of OP-3) has been requested in the context of the conclusion of the DG that the conduct of
OP-3 is inconsistent with rational business conduct of any enterprise. It is seen that when OP-2 (GSK)
participated (in the tender opened on 25th July, 2011), OP-3 expressed its inability to supply full quantity and
as soon as OP-2 withdrew from the retender, OP-3 agreed to supply full quantity vide its tender dated 19th
August, 2011. It is observed that the conclusions of the DG are predominantly based on the communications of
the parties and the minutes of the tender opening and technical evaluation Committee of OP-1. Therefore, it is
considered not necessary or expedient to allow OP-2 to cross-examine Shri Ashok Sharma in this context.
d) Internal emails dated 09th September 2011 of Sanofi : Cross-examination of Shri Ashok Sharma (employee of
OP-3) has been requested in the context of the email communication from Shri Ashok Sharma to Shri
Bhargava and Shri Roopesh inter alia stating that the specification came of IP from DCGI office who knows that
SP and SK also participate in the tender and it does not show that it has been designed for Biomed. It has
been stated in that application that the DG has misconstrued the email and rejected the explanation given by
OP-3 for quoting 90,000 doses. In the event of the DG relying on email of one of the parties alleged to have
entered into an anticompetitive agreement and the same is made available to the parties for providing their
respective rebuttal and submissions, the Commission does not find it necessary to allow cross-examination of
the author of the email. Moreover, the content of the email suggests that the author has merely provided his
views/comment on the tender conditions which are available in public domain. In such a case, OP-2 provide its
reply/rebuttal on the basis of the copy of the concerned e-mail provided to them as a part of the DG report and
the tender related documents available in public domain.
e) Observation of the DG at paragraph 6.5.1.2 and Annexure -11 of the investigation report : Cross-examination
of Shri D. Srinivas Rao has been requested in the context of the conclusion that in the first round of tender
opened on 25th July, 2011, when OP-2 had participated, OP-3 had showed its inability to supply additional
quantity of 92,125 doses even by September, 2011 while in the retender opened on 19th August, 2011, when it
was the sole tendered, it offered in writing to OP-1 its willingness and ability to supply additional quantity
beyond 90,000 doses, including remaining vaccines of shorter shelf life. It is observed that the
conclusion/observation in the DG report is based on the minutes of the tender opening and technical evaluation
Committee of OP-1, a copy of which is made part of the DG Report and made available to OP-2. In such a case,
the Commission does not find any merit in the request for cross-examining Shri D. Srinivas Rao who is just one
among the members of the said committee.
8. In view of the foregoing, the Commission is of the opinion that OP-2 has requested for cross-examination of
the above said persons to rebut the conclusions of the DG that are predominantly based on documentary evidences
and not on the basis of oral evidences given by the persons sought to be cross-examined. Therefore, the
Commission does not consider it necessary and expedient to allow the request of OP-2 in terms of Regulation 41(5)
of the General Regulations. The Commission also observes that OP-2 has been given sufficient opportunity to provide
their rebuttal by way of written and oral submissions before the Commission and denial of their request for cross-
examination would not lead to any miscarriage of justice. Accordingly, the application of OP-2 for cross-examination
is declined.”
32. The Commission then heard Shri Ravinder Yadav, Assistant Depot Manager, GMSD, Shri Samir Gandhi and three
other Advocates representing GSK and Shri Rajshekhar Rao and three other Advocates representing Sanofi and passed
the impugned order, whereby it approved the finding recorded by the DG that the appellants have acted in
contravention of Section 3(3)(d) read with Section 3(1) and imposed penalty of Rs. 604,890,469.998 on GSK and Rs.
30,434,200.89 on Sanofi respectively.
33. Shri Ramji Srinivasan, learned Senior Counsel appearing for GSK and Shri Rajshekhar Rao, learned counsel for
Sanofi argued that findings recorded by the DG that the appellants had indulged in bid rigging/collusive bidding and
thereby acted in violation of Section 3(3)(d) read with Section 3(1) is perverse and the Commission committed grave
error by approving the same without appreciating the objections filed by the appellants to the procedure adopted by
the DG for conducting the investigation and the findings and conclusions recorded by him. Learned counsel emphasised
that no evidence was adduced/collected during the investigation to prove that the appellants had entered into any
agreement or arrangement to control the sale and price of QMMV supplied to the Government of India for the year
2011. Shri Ramji Srinivasan pointed out that GSK did not give bid in response to two limited tender inquiries issued in
August, 2011 because the time gap between the opening of tender and supply of the vaccine was very short and it was
impossible to import the vaccine from Belgium and then undertake the exercise of putting stickers, testing and
packaging. Learned Counsel submitted that the drugs imported from out of India are required to be tested in the
Central Government facility at Kasauli, which takes substantial time to complete that exercise and therefore, it was not
feasible for GSK to supply the required doses of QMMV within a short span of 11 days, i.e. between 19.08.2011 and
30.08.2011 in response to the first re-tender and within 2-3 days between 30.08.2011 and 02.09.2011 in response to
the second re-tender. He also emphasised that GSK and Sanofi are competitors in the global market in the matter of
supply of medicines and argued that there was no plausible reason for them to have formed a cartel or indulge in
collusive bidding for one year i.e., 2011 in India for supply of vaccine costing less than Rs. 8.5 crores.
34. Shri Rajshekhar Rao pointed out that the report of the DG was full of factual inaccuracies which was brought to
the notice of the Commission in the form of a chart but the latter completely ignored the same and mechanically
approved the finding recorded by the DG on the issue of bid-rigging/collusive bidding and violation of Section 3 of the
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Act. Shri Rajshekhar Rao referred to the chart to show inaccuracies in the findings/observations made by the
Commission in paragraphs 44(f), (g), (i), 46, 47, 48, 49, 61, 62, 63, 64, 65, 66, 67(c), (d), (e), (f), (g), (h) and (i).
Learned Counsel submitted that in response to the tender invited vide notice dated 25.06.2011 for supply of 1,82,125
doses of QMMV, which was to be opened on 25.07.2011 with a stipulation that the vaccine was required to be supplied
by 30.08.2011, Sanofi had given bid for limited quantity of 90,000 doses because in the previous years, it was not
successful and had to destroy the vaccine which had limited shelf-life resulting in heavy pecuniary losses. He then
submitted that in response to the first re-tender issued on 17.08.2011 also, Sanofi gave bid for 90,000 doses and when
asked to do so by the officers of Respondent No. 4, it agreed to supply the balance vaccines with a shorter shelf-life. He
submitted that even in the second re-tender issued in 2011, Sanofi had given bid for the same quantity, i.e., 90,000
doses @ Rs. 2754/- for per 10 doses and both the DG and the Commission gravely erred in assuming that Sanofi had
given bid for the entire quantity. Shri Rajshekhar Rao pointed out that in response to tender notice dated 25.06.2011,
Respondent No. 2 did not give bid because it was not qualified and in the first re-tender, it did not give bid despite the
fact that vide order dated 13.07.2011, the Delhi High Court had allowed it to give bid and participated in the second
retender after getting the conditions of eligibility relaxed and having acquired knowledge about the rates quoted by
GSK and Sanofi in response to tender dated 25.06.2011. Learned counsel argued that if GSK did not participate in the
first and the second re-tender, the question of collusive bidding or bid rigging is altogether ruled out, more so because
no evidence was produced to show that non-participation of GKS in the first and second re-tender was a part of the
arrangement made between the two suppliers of vaccine. Learned counsel also pointed out that the observation made
by the DG on the issue of liability of Dr. Stephan Barth is ex facie incorrect because he joined Sanofi only in 2012 and
was not in picture at the time of submission of bids in 2011. Shri Rajshekhar Rao submitted that even though this fact
was specifically brought to the notice of the Commission, it did not even bother to consider the same.
35. Both, Shri Ramji Srinivasan and Shri Rajshekhar Rao pointed out that the quantities for which bids were given
by the appellants in response to tender notice dated 25.06.2011 were not similar inasmuch as GSK had given bid of
1,00,000 doses, whereas Sanofi had given bid for 90,000 doses only and the prices quoted by them were also different
and in such a situation no person of ordinary prudence could have recorded a finding that GSK and Sanofi had given
identical bids. Learned counsel also challenged the penalty imposed by the Commission on the ground of total non-
application of mind. Learned counsel argued that the power vested in the Commission to impose penalty under Section
27(b) and its proviso is discretionary and therefore, it is duty bound to take into consideration all the relevant factors
including the turnover of the product or profit earned by those accused of forming cartel and not the total turnover of
the appellants who are engaged in supplying various other medicines/drugs/vaccines or the profit earned by them by
sale of other products, but the Commission ignored the law laid down by the Supreme Court and the Tribunal and
mechanically imposed penalty @ 3% of their total turnover based on the financial statements filed by them (Total more
than Rs. 91 Crores).
36. Shri A.N. Haksar, Learned Senior Counsel for the Commission fairly stated that there are factual inaccuracies in
the orders passed by the Commission. He admitted that at the stage of passing of an order under Section 26(1), the
Commission had made it clear that no case of violation of Section 4 is made out against the Union of India, but the
name of the Union of India/the Directorate General of Stores continued to be shown as Opposite Party No. 1 in all
subsequent orders passed and the proceedings recorded by the Commission and the DG went to the extent of framing
an issue whether Respondent No. 1 had changed the conditions of eligibility to facilitate the cartelization/bid-rigging by
the appellants. He, however, argued that the findings recorded by the DG, which have been confirmed by the
Commission that the appellants had formed a cartel and indulged in collusive bidding are substantially correct and the
impugned order does not call for interference. He relied upon the judgment of the Tribunal in International Cylinder (P)
Ltd. v. Competition Commission of India (Appeal No. 21/2002 decided on 20.12.2013) and argued that the principles
laid down in the aforesaid case are squarely attracted in the present case because the appellants deliberately gave bid
for half of the tendered quantity by increasing the price and GSK did not participate in the first and second re-tender
issued in August 2011 despite the fact that it was the successful bidder from 2002 to 2005 and 2006 to 2007. Shri
Haksar extensively referred to the investigation report and in particular to paragraphs 6.3 to 6.36 and paragraphs 6.91
to 6.10.5 to show that the appellants had made an arrangement inter se to give bids in such a manner that only one of
them would get the contract. Learned senior counsel pointed out that in the years 2002 to 2007, GSK succeeded in
getting the contract because Sanofi ether did not participate in the bid process or quoted higher price for small
quantity of 15000 doses as against the requirement of more than 1,20,000 to 1,70,000 doses. He submitted that as
soon as Respondent No. 2 became eligible to participate in the tender process, the bids given by it were found to be
the lowest and were accepted by the competent authority. Shri Haksar emphasised that the conditions of eligibility
were arbitrarily revised in 2011 to ensure that Respondent No. 2 becomes ineligible and this clearly shows that the
appellants had conspired to grab the contract for supply of vaccines to the Government at a high price. Learned senior
counsel further argued that in the two re-tender inquiries issued by Respondent No. 4 in 2011, GSK deliberately did
not participate by citing the short span of time between the opening of tenders and the last date of supply as a cause
and this facilitated exclusive participation of Sanofi in the first re-tender issued on 17.08.2011.
37. We have considered the respective arguments and carefully perused the record. Before dealing with the
arguments of the learned counsel for the parties, we deem it necessary to observe that the Commission as well as the
DG have conducted their proceedings in a most casual manner. A reading of order passed under Section 26(1) shows
that after taking cognizance of the dismissal of the Writ Petition filed by Respondent No. 2 before the Delhi High Court
in 2005, the Commission had unequivocally declared that no case of contravention of Section 4 of the Act is made out
against Respondent No. 1- Union of India. However, in each and every order passed by the Commission after
03.09.2013 including the impugned order, the Union of India has been shown as OP No. 1 and the two appellants have
been shown as OP Nos. 2 and 3. In his report, the DG not only described as Union of India as OP-1 but framed a
specific issue whether it had facilitated cartelization and bid-rigging by the appellants. Of course, while deciding Issue
No. 2, he was compelled to take cognizance of the orders passed by the Delhi High Court in the two writ petitions filed
by Respondent No. 2 upholding the eligibility criteria prescribed by the Government, had to record a finding that the
allegation that OP1 revised the conditions in the tender time and again to facilitate the cartelization by OP2 and OP3
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has not been substantiated.
38. We have no doubt that if the DG and the Commission had bothered to keep in mind the contents of order dated
03.09.2013, they would not have continued to show Union of India through Deputy Assistant Director General (Stores),
Medical Stores Depot, Ministry of Health and Family Welfare as OP-1 and the DG would not have framed Issue No. 2
and that too by ignoring the fact that the two writ petitions filed by Respondent No. 2 questioning the eligibility
conditions were dismissed by the Division Bench of the Delhi High Court and the orders of the High Court were not
challenged before the Supreme Court.
39. In paragraph 6.3 of his report, the DG noted the chronology of events relating to three tenders floated by
Respondent No. 4 in 2011 for supply of 1,82,125 doses of QMMV and observed that GSK quoted for 92,125 doses and
Sanofi quoted for 90000 doses and thus splitting the total tender quantity. In paragraph 6.3.1, he prepared a table
showing the participation of various parties in the original tender, first re-tender and second re-tender. In paragraph
6.3.2, he noted that in the previous tenders, no party had ever quoted less quantity and always have bid for the full
quantity and it was only in 2011 that there was identical change in the bidding pattern of the appellants and further
that the price quoted by them was very high in comparison to the last purchase price and all this raises strong
suspicion of collusion. In paragraphs 6.3.4 to 6.3.7, the DG noted that once Respondent No. 2 became eligible, it gave
the lowest bids for 2008, 2009 and 2010 and thus defeated the bids given by the appellants but after change of
eligibility criteria, the appellants cartelized the supply of vaccine. In paragraphs 6.4.1 and 6.4.2, the DG noticed the
explanation given by GSK for offering only 1,00,000 doses in response to the tender issued in June, 2011 and observed
that there was no compelling reason relating to capacity or production of vaccine in 2011 to show the shortage of stock
and that the decision of quoting limited quantity was a managerial decision. In paragraphs 6.4.3 to 6.4.6, the DG
referred to the statements of Shri Sumer Dheri, Vice President, Biologicals of GSK and Shri D.K. Anand, Senior Area
Business Manager of GSK, who was responsible for tendering in Delhi, e-mails exchanged between the parties between
29.06.2011 and 22.07.2011 and recorded the following observations:
“6.4.7 From the submissions of OP2 and statements of its executives it is seen that the reason why OP2 quoted
for less than the tender quantity is something other than the stringent shelf life condition and the revised packaging
condition. In the retendering, it excused itself out of the bidding citing the short delivery period stipulated by the
procurer.
6.4.8 However, it may be noted that OP2 is the largest producer and supplier of the vaccine in the world
supplying nearly 7 million doses worldwide to various countries in 2011. It is nearly 5 times the size of its nearest
competitor in this market. It was the sole supplier to the Indian Government from 2002 to 2007. In light of this, it is
difficult to accept that OP2 was not in a position to supply 1,82,125 doses of the vaccine in 2011 in a delivery period
of more than a month. The production and supply data provided by OP2 does not bear testimony to a shortage of the
vaccine at the relevant time. In spite of specific directions by this office to produce the working sheets, internal
records and communications, OP2 failed to produce any communication or document from its production unit
expressing its inability to supply more than 1 lakh doses of the vaccine for India. In one of emails dated 22. 07.
2011, mentioned above, the executive is actually instructed to quote for lesser quantity but nothing about
availability of the drug is mentioned. In another email, when the head of marketing has asked if 183K doses are
available, the executive concerned has replied that he has already checked the availability.
6.4.9 It may be highlighted that OP2 has not provided the complete trail of emails communications to this office
despite specific directions. Thus the chain of e-mails from the date of issue of tender to the date of submission of
tender on 25/07/2011 is incomplete. The OP2 has not provided the copies of communications to reflect any
constraint of stock in quoting the full quantity of tender. On the basis of missing links the reason put forth by the OP
-2 cannot be accepted.
Thus, investigation has arrived at the conclusion that OP2 had no plausible rationale or supply side constraint for
quoting half the tender quantity in 2011.”
In paragraphs 6.5 to 6.5.11, the DG referred to the explanation given by Sanofi for giving bid for 90000 doses,
referred to the statements of Shri Ashok Sharma, various e-mails exchanged between the officials of Sanofi and
recorded the following observations:
“6.5.12 It is observed that in the first round of tender opened on 25.07.2011, when OP2 had participated, OP3
had showed its inability to supply additional quantity of 92,125 doses even by September 2011 while in the retender
opened on 19.08.2011, when it was sole tenderer, it offered in writing to OP1 its willingness and ability to supply
additional quantity beyond 90,000 doses including remaining vaccines of shorter shelf life. In this connection
minutes dated 19.08.2011 of the tender opening and technical evaluation committee of OP1 is placed as Annx-11.
6.5.13 Thus, the conduct of OP3 is inconsistent with rational business conduct of any enterprise. It is seen that
when OP-2 (GSK) participated (in the tender opened on 25.07.2011), OP-3 expressed its inability to supply full
quantity and as soon as OP2 withdrew from the retender, OP3 agreed to supply full quantity vide its letter dated
19.08.2011.
In view of the above analysis, investigation is of the View that there was no supply side constraint or economic
rationale for OP3 to quote for only 90000 doses of vaccine against tender requirement of 182125 in the year 2011.
6.5.14 It may be noted that OP2 and OP3 are multinational companies operating at global level, thus possibility
of finding any direct evidence of ‘agreement’ is negligible end therefore the conclusion has to be drawn on the basis
of conduct and circumstantial evidences in this case. Both the OPs have failed to substantiate the basis of offering
only half of the quantity in the tender. The OPs have not been able to prove that there was any constraint relating to
production, supply or logistics. The OPs have not produced any internal document relating to decision of quoting the
half quantity to prove their bonafide.
The investigation has therefore revealed that the conduct of OP-2 and OP-3 was not independent or based on
internal factors like production or the logistics of supplies. It may be highlighted that except the tender of 2011 all
the parties have quoted full quantity. Thus deviation from past practice by both the parties of similar nature by
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quoting about half quantity has not been explained during the investigation. In view of the above the conduct of OP-
2 and OP-3 regarding quantity is found to be a result at collusion to share the market.”
In paragraphs 6.6 to 6.7.5, the DG discussed the rationale of prices quoted by the appellants in various tenders and
observed:
“6.7.6 In view of the above, it is concluded that the prices quoted by OP2 and OP3 in the tender of 2011 were a
result of tacit understanding only. There was no reason to increase the prices from the last years benchmark price of
1999/-. The investigation has shown that the prices were brought down by the presence of IP in the market and as
soon as IP became ineligible in 2011, both the OPs instead of competing, increased the prices substantially from the
last year's prices. The OPs have not been able to establish any major increase in the cost of manufacturing of the
vaccine. The data furnished by them do not indicate increase in cost of production. Exchange rates of Euro/Dollar or
any other input to justify escalation of prices. The prices quoted by both the OPs clearly reveal absence of
competition between them. It defies the rationale of any competitive market, wherein the last approved tender price
becomes a benchmark. Such a huge deviation from the same has not been explained from any angle whatsoever. In
such circumstances the conduct of OPs is held to be in violation of the provisions of Sec. 3(3)(d) of the Act.”
In paragraph 6.8.1, the DG noted that Respondent No. 4 had started procurement of QMMV from 2002 and there
were only three suppliers i.e. the appellants and Respondent No. 2 (This is factually incorrect because Respondent
No. 2 had not even started production till 2004) and observed that the competition was triggered only when
Respondent No. 2 started participating in the bids. In paragraph 6.8.2, the DG inferred collusion between the
appellants on the ground of their representative had gone to the office of Respondent No. 4 together and signed the
register with black pen. In paragraph 6.9.1, the DG noted that in the common market GSK has 82% share as against
18% share of Sanofi and in the exclusive market, GSK had 90% share as against 10% share of Sanofi and recorded an
observation that GSK did not participate in tender floated in 2012 and 2013 and left the market for Sanofi. In
paragraph 6.1, the DG recorded the following findings:
“6.11 The investigation has therefore revealed that the conduct at OP-2 and OP-3 was in violation of the
provisions of section 3(3) of the Act on the basis of following facts and evidences:
(i) Both the parties deviated from the practice of quoting full quantity and quoted about half quantity in tender of
2011. The Identical decision of such deviations from the past practice has not been explained.
(ii) Both the parties increased the prices substantially from the approved price of last tender which is normally a
benchmark for next tenders.
(iii) The competing parties would base their decisions to win the tender by being close to benchmark price or at
least below the price of other competitor. In this case, strangely both the parties quoted abnormally high price
defying any economic and commercial rationale as there being no common extraneous factors pushing the
prices.
(iv) Both the parties were very much aware that the IP was not eligible to participate in the tender.
(v) The tentative time and quantity of tender were known to both the parties as they were participating in the
past tenders. In the normal course they would have been ready for the supply of the entire quantity.
(vi) The documents produced by OP-2 and OP-3 do not show any constraint relating to supply of vaccines.
Considering their regular global supplies, it is not explained with evidences as to how they were unable to
supply full quantity in the tender of 2011.
(vii) The reasons claimed for quoting less quantity has not been substantiated from the internal records of both
the parties. In spite of specific directions from this office the parties failed to produce any evidence to support
their contentions.
(viii) OP-3 in the retender (when OP-2 did not participate) offered the additional quantities vide letter dated
19.08.2011 to OP-1.
(ix) The economic evidences have proved that the behaviour of both the parties were collusive.
(x) Non-participation by OP-2 in subsequent tenders of 2012 and 2013 further establishes the collusion between
both the players
(xi) The analysis of prices quoted by OP-2 and OP-3 prove intention to earn super normal profit which can be
achieved by subverting competition.
(xii) The prices were raised by both the parties when IP was not participating in the tender during 2011. OP-3
continued to increase the prices due to non participation by GSK in 2012 and 2013.
(xiii) The economic analysis of costing data do not justify the increase in price as claimed.
(xiv) The investigation has indicated strong reasons to believe that both the OPs were having tacit understanding
in the tender of 2011.
6.12 Investigation therefore concludes that OP2 and OP3 indulged in bid rigging by sharing the tender quantity
inter se along with quoting very high price in their bids in the tender for QMMV by OP1 in the year 2011. On the
basis of economic analysis of data, evidences and preponderance of probabilities, it is proved that OP- 2 and OP-3
indulged in bid rigging. The conduct of OP2 and OP3 is in contravention of provisions of Sec 3(3)(d) read with Sec 3
(1) of the Act.”
40. In paragraph 6.14, the DG considered the role of persons responsible as per the provisions of Section 48 and
concluded that Shri Sumer Dheri, Vice President, Biologicals of GSK and Shri D.K. Anand, Local Manager in Delhi for
GSK as also Shri Ashok Sharma, Head Institutional Sales of Sanofi and Shri Sephen Barth, Country Head of Sanofi were
involved in the decision regarding tenders as detailed in paragraph 6.5.4 of the report.
41. In paragraph 1 to 9 of the impugned order, the Commission noticed the averments and allegations contained in
the information. In paragraph 10, it referred to the order passed under Section 26(1) and observed that the
investigation was not directed against OP1 because it was not an enterprise within the meaning of Section 2(h) of the
Act. In paragraphs 17 to 30 of the impugned order, the Commission briefly noticed the objections filed by GSK. In
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paragraphs 31 to 41, the Commission took cognizance of the objections filed by Sanofi including the one that Dr.
Stephan Barth not holding any office in India in 2011. The Commission then noticed that GSK was the lone supplier of
vaccine in India between 2002 and 2007 and with the advent of Sanofi and the Informant, the bidding process became
more competitive and that the informant emerged as a major supplier for the period between 2008 and 2010. In
paragraph 44(c) to (p), the Commission referred the events which took place after the issue of tender dated
25.06.2011 for procurement of 1,82,125 doses of QMMV; the fact that the tendered quantities were required to be
delivered on 30.08.2011; the litigation filed by the informant and the factum of opening of tender and bids submitted
by GSK for supply of 1,00,000 doses @ Rs. 3000.90 per 10 dose vial and 90,000 doses @ Rs. 2899/- per 10 dose vial
by Sanofi and further that the IPC cancelled the bids given by the appellants because L1 price quoted by Sanofi was
39.44% higher than the last purchase price and that in response to the limited tender issued on 17.08.2011, GSK
expressed its inability to supply the vaccine on account of non-availability of stocks; that Respondent No. 2 was not
eligible and Sanofi had given bid for supply of only 90,000 doses per 10 dose vial @ Rs. 2754/- that after opening of
tender, Sanofi submitted letter dated 19.08.2011 expressing its readiness to supply the entire tendered quantity with a
shorter shelf life; that the first re-tender was cancelled by the IPC on account of lack of competition with the direction
for issue of fresh limited tender; that in response to re-tender issued on 29.08.2011, only Sanofi and Respondent No. 2
gave bids and GSK did not participate; that Sanofi approached the Delhi High Court, which passed interim order dated
06.09.2011 that order for supply of 90,000 doses should be placed on Sanofi and in paragraph 47 of the impugned
order, the Commission recorded its conclusion in the following words:
“47. From the circumstances detailed above, it is clear that the conduct of OP-2 and OP-3 evidenced parallelism
and collusive/concerted action. At this stage, before delving further into the inquiry, it would be appropriate to
notice a brief synopsis of the DG's findings.”
In paragraphs 48 to 60 of the impugned order, the Commission adverted to the findings recorded by the DG and
observed:
“61. As discussed above, the Commission notes that short supply timelines cannot be accepted as a reasonable
explanation as the supply schedule being closely connected with the Hajj pilgrimage is known well in advance to all
the interested bidders. Further, the Commission notes that in response to the June 2011 tender, OP-3 only quoted
for 90,000 doses while in response to the first retender, OP-3 offered to supply the entire tendered quantity
including vaccines with shorter shelf life. The Commission notes that the conduct of OP-3 is inconsistent with the
rational business conduct of any enterprise. If vaccines with shorter shelf life were already available with it during
the June tender, it ought to have informed OP-1 about this at the time of opening of the said tender. Therefore, the
simultaneous refusals of OP-2 and OP-3 to offer the entire tendered quantity without any rational basis when viewed
together with OP-3's voluntary offer to supply the entire tendered quantity upon the withdrawal of OP-2 from the
retender lead to a singular conclusion that OP-2 and OP-3 were colluding with each other to divide the entire
tendered quantity.
62. In view of the foregoing, the Commission notes that OP-2 and OP-3 have failed to establish independent
business decision-making. They have not produced any evidence either before the DG or before the Commission to
substantiate their claims. In the absence of any evidence, the Commission notes that the assertions made by OP-2
and OP-3 are merely bald statements and also appear to be an afterthought to justify their illegal, collusive conduct.
63. In addition, the Commission notes that OP-2 and OP-3 have habitually bid for the entire tendered quantity in
response to all the tenders issued by OP-1 to the exception of only the 2011 tenders where the Informant was
excluded on account the turnover clause. Therefore, the Commission concludes that collusive conduct of the bidders
is established in the present case.”
The Commission then considered the justification offered by the appellants for increase in price and held:
“67. In view of the above discussion, the Commission notes that:
(a) Since 2002, the government has been procuring the QMMV vaccines for the Hajj pilgrims. During the period
between 2002 and 2007, OP-2 was the lone bidder for the tenders and has single-handedly supplied the entire
tendered quantity.
(b) Given that OP-2 was a past supplier for the government and had the capacity to meet the requirements
stipulated under the tender, OP-2's claim that it was unable to meet the entire tender quantities on account of
non-availability of stock, tight delivery schedules, labeling requirements, etc. do not hold water as discussed
above.
(c) With the entry of the Informant in the market in 2004, the bidding process initiated by OP-1 became more
competitive. As soon as the Informant became ineligible in 2011, both OP-2 and OP-3, instead of competing,
substantially increased the prices and divided the tendered quantity amongst them.
(d) Further, OP-2 and OP-3 have not been able to establish any major increase in the cost of manufacturing the
said vaccine. The limited pricing data furnished by them do not indicate any increase in the cost of production,
exchange rates or any other input to justify escalation of prices.
(e) Further, the claims made by the OP-2 and OP-3 that the increase in prices was commensurate with the rate of
inflation are without any basis. This is so because the bid price quoted by OP-3 (INR 2,343) in response to the
tender issued by OP-1 in 2012 was even less than the L-1 price of the third tender issued in 2011. This
demonstrates that these claims are nothing more than an afterthought to justify a collusive, anti-competitive
conduct.
(f) Further, it is clear that in all the subsequent tenders issued by OP-1, OP-3 has been the lone bidder as the
Informant has been rendered ineligible and OP-2 has chosen not to participate. This indicates that, to the
exception of the June tender of 2011, in all the subsequent tenders, where the Informant remained
disqualified, OP-2 has not placed any bid and the entire tendered quantity has been supplied by OP-3.
(g) Additionally, the peculiar market conditions, including, the presence of only 3 suppliers of the QMMV vaccines
together with the tendering process initiated by OP-1 make the market conducive to collusion especially since
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(i) the product is homogeneous; (ii) there is a fixed demand in the market (from OP-1's tender); and (iii)
suppliers are repetitive bidders.
(h) The Commission also notes that DG has examined the visitor's register of the Government Medical Store
Depot (“GMSD”) and found that OP-2 and OP-3 visited the office of the GMSD on 25.07.2011, i.e., the last date
of submission of the tender document at 10.00 A.M. and 10.10 A.M. respectively. The DG also found that the
entries in the visitor's register were made by the representatives of OP-2 and OP-3 with a black pen. The DG
also noted that the representatives of OP-2 and OP-3 visited the GMSD Office even on 19.08.11. The
Commission finds that the simultaneous visits made by the representatives of OP-2 and OP-3 to the office of
GMSD demonstrate that both the competitors were in touch with each other.
(i) Further, the DG's finding that - as a general practice OP-3 prepared two separate price bids and submitted
only one of these on the basis of participation of other bidders when viewed together with OP-3's admission
that its executives visited the office of the procurer early on the last day of the bid submission to find out if the
other bidders had participated unequivocally establish collusive behavior.
68. When viewed cumulatively the findings above establish the collusive conduct of OP-2 and OP-3 in violation of
the provisions of section 3(3)(d) read with Section 3(1) of the Act.”
Paragraphs 67 to 73 of the impugned order, which contain the conclusions and the rationale of the penalty imposed
on the appellants are reproduced below:
“67. In view of the above discussion, the Commission notes that:
(a) Since 2002, the government has been procuring the QMMV vaccines for the Hajj pilgrims. During the period
between 2002 and 2007, OP-2 was the lone bidder for the tenders and has single-handedly supplied the entire
tendered quantity.
(b) Given that OP-2 was a past supplier for the government and had the capacity to meet the requirements
stipulated under the tender, OP-2's claim that it was unable to meet the entire tender quantities on account of
non-availability of stock, tight delivery schedules, labelling requirements, etc. do not hold water as discussed
above.
(c) With the entry of the Informant in the market in 2004, the bidding process initiated by OP-1 became more
competitive. As soon as the Informant became ineligible in 2011, both OP-2 and OP-3, instead of competing,
substantially increased the prices and divided the tendered quantity amongst them.
(d) Further, OP-2 and OP-3 have not been able to establish any major increase in the cost of manufacturing the
said vaccine. The limited pricing data furnished by them do not indicate any increase in the cost of production,
exchange rates or any other input to justify escalation of prices.
(e) Further, the claims made by the OP-2 and OP-3 that the increase in prices was commensurate with the rate of
inflation are without any basis. This is so because the bid price quoted by OP-3 (INR 2,343) in response to the
tender issued by OP-1 in 2012 was even less than the L-1 price of the third tender issued in 2011. This
demonstrates that these claims are nothing more than an afterthought to justify a collusive, anti-competitive
conduct.
(f) Further, it is clear that in all the subsequent tenders issued by OP-1, OP-3 has been the lone bidder as the
Informant has been rendered ineligible and OP-2 has chosen not to participate. This indicates that, to the
exception of the June tender of 2011, in all the subsequent tenders, where the Informant remained
disqualified, OP-2 has not placed any bid and the entire tendered quantity has been supplied by OP-3.
(g) Additionally, the peculiar market conditions, including, the presence of only 3 suppliers of the QMMV vaccines
together with the tendering process initiated by OP-1 make the market conducive to collusion especially since
(i) the product is homogeneous; (ii) there is a fixed demand in the market (from OP-1?s tender); and (iii)
suppliers are repetitive bidders.
(h) The Commission also notes that DG has examined the visitor's register of the Government Medical Store
Depot (“GMSD”) and found that OP-2 and OP-3 visited the office of the GMSD on 25.07.2011, i.e., the last date
of submission of the tender document at 10.00 A.M. and 10.10 A.M. respectively. The DG also found that the
entries in the visitor's register were made by the representatives of OP-2 and OP-3 with a black pen. The DG
also noted that the representatives of OP-2 and OP-3 visited the GMSD Office even on 19.08.11. The
Commission finds that the simultaneous visits made by the representatives of OP-2 and OP-3 to the office of
GMSD demonstrate that both the competitors were in touch with each other.
(i) Further, the DG's finding that - as a general practice OP-3 prepared two separate price bids and submitted
only one of these on the basis of participation of other bidders when viewed together with OP-3's admission
that its executives visited the office of the procurer early on the last day of the bid submission to find out if the
other bidders had participated unequivocally establish collusive behavior.
68. When viewed cumulatively the findings above establish the collusive conduct of OP-2 and OP-3 in violation of
the provisions of section 3(3)(d) read with Section 3(1) of the Act.
ORDER
69. In view of the above findings, the Commission is of the considered view that the Opposite Party Nos. 2 and 3
have acted in contravention of the provisions of section 3(3)(d) read with section 3(1) of the Act. Furthermore, in
terms of the provisions contained in section 27(b) of the Act, the Commission may impose such penalty upon the
contravening parties, as it may deem fit which shall be not more than ten per cent of the average of the turnover for
the last three preceding financial years, upon each of such person or enterprises which are parties to such
agreements or abuse.
70. On the aspect of penalty under section 27 of the Act, the Commission is of the view that the said anti-
competitive conduct requires to be penalized to cause deterrence in future among the erring entities engaged in
such activities. Accordingly, it is required that the degree of punishment is scaled to the severity of the violation.
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71. On the issue of quantification of penalty, OP-2 has inter alia submitted that it has not been a party to any anti
-competitive agreement since the time of the alleged contravention. OP-3 has inter alia submitted that factors such
as first time offence, short duration of the alleged conduct and the continued support to OP-1 through regular
participation may be considered. The Commission has noted the above submissions by OP-2 and OP-3. The
Commission is also conscious of the effect of the collusive act upon public exchequer and public health in this case.
Considering the totality of facts and circumstances of the present case including the size of the tender, nature of
contravention as also the revenues generated from the product under consideration, the Commission decides to
impose a penalty on OP-2 and OP-3 at the rate of 3% of their turnover based on the financial statements filed by
them. The amount of penalty on OP-2 and OP-3 is calculated as under:
S. Name of the Turnover/receipts Turnover/receipts Turnover/receipts Average 3% of Average
No. Party during the year during the year during the year Turnover/receipts turnover (Rs.)
ended on ended on ended on (Rs.)
31.03.2008 (Rs.) 31.03.2009 (Rs.) 31.03.2010 (Rs.)
1. M/s 17,789,615,000 20,111,935,000 22,587,497,000 20,163,015,666.6 604,890,469.998
GlaxosmithKline
Pharmacutical
Limited,
Mumbai
2. M/s. Sanofi, 664,909,607 875,341,000 1,503,169,482 1,014,473,363 30,434,200.89
Mumbai
72. OP-2 and OP-3 are directed to deposit the amount of penalty within 60 days of the receipt of this order.
73. The Commission also directs OP-2 and OP-3 to cease and desist from indulging in the conduct which has
been found to be in contravention of the provisions of the Act, as detailed in this order.”
42. In our opinion, the investigation conducted by the DG lacked objectivity and the findings recorded by him are ex
facie erroneous and legally unsustainable and the Commission committed grave error by approving the conclusions of
the DG that the appellants are guilty of collusive conduct in violation of Section 3(3)(d) read with Section 3(1) of the
Act. It is more than evident from the record that in response to tender notice dated 25.06.2011, GSK had given bid for
1,00,000 doses of QMMV @ Rs. 3000.90 per 10 doses vial and Sanofi had given bid for supply of 90,000 doses @ Rs.
2899/- per 10 doses vial. Both the appellants had given cogent explanation and produced voluminous records to show
as to shy they had given bids for limited quantity. Notwithstanding this, the DG observed that the appellants had
quoted identical quantity at the same price. Not only this, he completely overlooked the detailed explanation given by
Sanofi for giving bid for only 90,000 doses of QMMV as against the tender inquiry for 1,82,125 doses as also the
explanation given by GSK for non-participation in the first and second re-tenders. Sanofi had explained that it did not
give bid for the entire quantity because in the previous years, it remained unsuccessful and had to destroy the vaccine
by incurring huge losses. GSK had explained that it was not plausible to import vaccine from Belgium, get the same
tested at Kasauli, put stickers and do packaging in a short period of 11-12 days in response to the first re-tender and 2
-3 days in response to the second re-tender. The explanations given by both the appellants were quite plausible but
the DG discarded them apparently because he had pre-judged the issue and was determined to record a finding that
the appellants had indulged in bid-rigging. The non-application of mind by the DG is compounded by the observations
made by him in paragraph 6.14 of the report that Dr. Stephen Barth, Country Head of Sanofi was involved in the
decision regarding tenders as detailed in paragraph 6.5.4 of the report and is responsible for the decision taken by
Sanofi regarding the price and quantity quoted in 2011. We are surprised to note that while preparing the report, an
officer of the rank of DG, who is supposed to objectively analyse the material produced by the parties or collected
during investigation, ignored the fact that there was not an iota of evidence to show that Dr. Stephan Barth was the
country Head of Sanofi in India in 2011 and nobody had controverted the categorical assertion made on behalf of
Sanofi that Dr. Stephan Barth had joined Sanofi in India only in 2012 and that he had no occasion to participate in the
decision taken by Sanofi to give bid for 90,000 doses of QMMV in the three tender inquiries issued, one in June, 2011
and two in August, 2011.
43. We shall now deal with the findings and conclusions recorded by the Commission which are by and large
repetition of the findings recorded by the DG. In the impugned order, the Commission has observed that as a result of
exclusion of Respondent No. 2 from the bidding process on the ground that it did not satisfy the prescribed
qualification, the appellant divided the tendered quantity among themselves and gave bids in June, 2011. While doing
so, the Commission completely ignored the fact that GSK had given bid for 1,00,000 doses of QMMV @ Rs. 3000.90 per
10 doses vial whereas Sanofi had given bid for 90,000 doses @ Rs. 2899/- per 10 doses vial. The Commission also
ignored that in response to the re-tender issued on 17.08.2011, Respondent No. 2 could have given bid on the basis of
interim order passed by the Division Bench of the Delhi High Court but it did not choose to participate in the bidding
process. The reason given by the IPC for rejecting the bid given by Sanofi that the price quoted by it was higher by
39.44% as compared to the last purchase price is ex facie erroneous because the material brought on record shows
that price of Rs. 2,899/- (inclusive of taxes) quoted by Sanofi in June 2011 was only 16.14% higher than the previous
purchase price and that too was as a result of general increase in the price. Unfortunately, the DG and the Commission
did not notice this error and proceeded to decide the matter by assuming that the tender of Sanofi was cancelled
because the price quoted by it was highly excessive. While doing so, the Commission overlooked the fact that the
higher price quoted by Respondent No. 2 in the 2nd re-tender was treated to be reasonable by Respondent No. 2
because of inflation of 9-10% in 2011. In paragraph 44(j) of the impugned order, the Commission noted that after
opening of tender in August, 2011, Sanofi had offered to supply the balance quantity with shorter shelf life. While
doing so, it ignored that this was done at the asking of Respondent No. 4. The e-mails produced by Shri Ashok Sharma
show that Sanofi had indicated its willingness to supply the balance quantity with the rider that 40000 doses would be
of a shorter shelf-life and some time would be required for supply of 42125 doses. In paragraphs 46 and 47 of the
impugned order, the Commission again referred to the bids given by the appellants in response to tender issued on
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25.06.2011, the bid given by Sanofi in response to the first re-tender and the bids given by Sanofi and Respondent No.
2 in response to the second re-tender and without any further discussion, concluded that the conduct of the appellant
evidenced parallelism and collusive/concerted action. While making these observations, the Commission totally lost
sight of the fact that both the appellants do not manufacture the QMMV in India and import the same from their
manufacturing facilities in Belgium and US respectively. The Commission has also failed to take cognizance of the fact
that the imported vaccines are required to be tested in the Government of India facility at Kasauli and it takes
considerable time (As per Shri Ramji Srinivasan, it takes 10-20 days before the imported medicines are approved for
supply in Indian market). Thereafter some time is consumed in putting stickers and packaging of the medicines for
supply. The Commission also overlooked the following e-mails exchanged between various functionaries of Sanofi:
“(a) Email dated 13 June 2011 exchanged between Mr. Ashok Sharma and Mr. Roopesh Bhargava highlighting the
risk of losing the tender to GSK on account of non-compliance with the I.P. Specification. An extract from the email
is below:
“..…now the situation is that if DCGI recommends IP specification, we may not be able to participate in the
tender. Biomed will also not be able to participate because of the new clause of Rs. 50 crore turnover. The
chances are that GSK will get the benefits since they have turnover of more than Rs. 50 crore and all there new
pack are as per IP specification…Rajasthan anti rabies tender is also with IP specification. We have made the
representation and they have verbally agreed to make necessary amendment. This problem is coming from all
places. Other companies are also importing the vaccines and have changed to IP specification.”
(emphasis added)
(b) Email dated 18 August 2011 exchanged between Ashok Sharma and Surendra Agarwal wherein it is
suggested that the rates in the second round of the 2011 tender be reduced by Sanofi Pasteur as the previous rates
are open to all. An extract from the email is below:
“…Now since our previous rates are open to all, I would like to reduce the rate by 5%. The new rate will come
to Rs. 2754 (inclusive of Tax) and Rs. 2622.90 (Without Tax).”
(c) Email dated 28 may 2012 exchanged between Mr. Ashok Sharma and Mr. Surendra Agarwal, wherein it is
seen that Sanofi Pasteur was keeping a close watch on GSK's prices in other countries as these could give an
indication of GSK's possible bid price in the GMSD tender. An extract from the email is below:
“…. I hope that we and GSK will be the contender in the tender. I suggest that we should keep a watch on
GSK's price in other countries”
(emphasis added)
(d) Email dated 14 June 2012 exchanged between Sanofi officials, suggesting that a lower price bid be quoted in
case GSK participates so as to be able to win the tender. An extract from the email is below:
“……If GSK participates : We quote Rs. 2199.89 (price given by you Rs. 2044.50 plus VAT 5% plus liaison
commission 2.5%). We will be less than Rs. 2200.00 which is lower than GSK price of tender or later as it too
less. However I want to win the tender. Who so ever is lowest will get the tender…”
Not only, the Commission failed to take into consideration the following factor so far as Sanofi is concerned:
“(a) Details of the supply of QMMV vaccine by Sanofi Pasteur to various companies since the year 2002.
(b) Details of the total turnover (globally) along with the turnover from sale of Menomune.
(c) Global supplies of Menomune vaccines since 2002.
(d) Average price per dose in USD for QMMV vaccines supplied to various countries.
(e) Sample tender documents with varying turnover clauses.
(f) Information relating to worldwide supplies of Menomune by Sanofi Pasteur divided in terms of public and private
sales.
(g) Import prices for the Menomune vaccine in 2011-13.
(h) Price quotes of Sanofi Pasteur for the years 2008 to 2012.
(i) Cost of production of the ten dose unit by Sanofi Pasteur Inc.
(j) Copies of invoices raised by Sanofi Pasteur Inc. on Sanofi Pasteur.
(k) All communications between Mr. Ashok Sharma, Head Institutional Sales, Sanofi Pasteur and Sanofi executives
regarding the bidding in the tenders for the years 2008 to 2012.
(l) Copies of all emails relating to the tender of the meningitis vaccine raised during 1 April 2011 to 30 September
2011 from the email account of Mr. Ashok Sharma.
(m) Copies of the purchase orders received in response to rate enquiries raised by Indian armed forces.
(n) Copies of all emails exchange by Mr. Ashok Sharma with Mr. Roopesh Bhargava, Mr. Surendra Agarwal and Mr.
Rajkumar Bhatia.
(o) Factual clarifications on the allegations raised by Biomed.”
44. At this stage we may notice some portions of the statements made by S/Shri Sumer Dheri, Vice President
Vaccines, GSK on 17.08.2011 and by D.K. Anand, Senior Area Business Manager of GSK based at Delhi as also the
statement of Ashok Sharma, Head Institutional Sales, Sanofi on 01.10.2014. The same are extracted below:
“Statement of Shri Sumer Dheri
Question 3. What is the process and duration of QMMV.
Ans. The complete process of manufacture to supply takes around 9 months. General Export Pack (GEP) pack
other country take this pack and do not require country specific packs. India too, initially for a few years accepted
the GEP. Later they introduced country specific pack requirement. GEP is produced in bulk and based on tenders
awarded it is made available on shorter notice than the specific packing. The specific packing requires 5 months
advance ordering because it has to be labeled and packed on the filling line in Belgium, in 2006 and 2007 after
winning the tender in India/GSK offered to supply the GEP and it was accepted by GMSD. (n 2011 the company
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found additional India specific labeling and bar coding requirements.
Question 3. What was the reason for quoting for 100000 doses out of 182125 doses in 2011 tender.
Ans. The tender was floated in the beginning of July 2011 to be finalized around 25 July 2011 and the supply was
to be made by end of august. I checked in other department of the company and it was flagged as high risk to meet
the timelines for the full quantity of 182125 doses. However, they indicated that applying stickers locally in India for
the compliance of the tender requirements, it was an acceptable business risk to quote for a maximum of 1 lakh
doses. Accordingly, GSK quoted for 1 lakh doses only. That tender was cancelled and after the retender the timelines
were even shorter, which was beyond the capacity of GSK to deliver, and accordingly, the company expressed its
inability to supply even the lower the quantity of vaccines to GMSD. GSK was not in a position to supply even GEP
because GSK Belgium requires 4-6 weeks from the date of award of tender to supply even the GEP.
Another issue which has always been a concern is the remaining shelf requirement of the vaccine in the tender
condition which is difficult to comply. GMSD requires that the vaccine should have 5/6 (20 months) of shelf life
remaining when supplied, this is very difficult to achieve. The Drug Controller has stipulated minimum of 60%
remaining shelf life for all vaccine imports. Filling and packaging of GEP or India specific packing takes 4-6 months
at GSK Belgium and therefore the best that GSK India can get is vaccine with 60-70% remaining shelf life. Local
manufacturers may find it easier to manufacture quickly and provide adequate shelf life and meet other labelling
conditions too. Thus GSK is disadvantaged by the tender conditions regarding shelf life and labelling. It may be
noted that GMSD actually imposes conditions in addition to those imposed by the drug controller under the law.
GSK can be in a position to participate in the tenders if the tenders are decided well in advance giving us the
required planning and delivery time.
Question 4. Why has supply of this vaccine fallen drastically in the Indian market.
Ans. GSK vaccines are available in the market. However, doctors prefer another improved vaccine which GSK
currently does not market in India. The improved vaccine of GSK has been launched around 2 years back in other
parts of the world.
Question 6. How is the bid quote decided.
Ans. The quote is decided in consultation with the finance marketing supply chain (local and global) team and the
guiding principles in arriving at the bid price include import price, cold transportation charges, labelling cost and a
reasonable margin. Sometimes the long term business interest may contribute to the final pricing decision and the
company may accept short term set back to its bottom line. From 2002-2007 GSK was continuously getting order
year on year and due to the fair certainty of business the company decided to pass on the benefit of increasingly
lower prices to the government in its tenders. Till 2007, in India the import price of QMMV for tender (10 dose pack)
was above 4 USD per dose and for the single dose it was above USD 6 per dose. In 2008-10 in our bid to continue
remaining competitive the company dropped the bids price to Rs. 200 per dose and even then lost the tenders. GSK
realized that this approach was unsustainable since the margins had become very thin. Then the pricing revisited
and in the next tender the company quoted appropriately.
Question 9. Are you remember of any association and what is your cooperation level with Sanofi.
Ans. Yes we are member of OPPI. GSK India has no cooperation or interaction with Sanofi.
Question 10. Has there been any communication with Sanofi officials regarding or around the time of bidding in
the tenders for QMMV.
Ans. GSK India doesn't discuss business specifics relating to tenders with competitors including Sanofi.”
“Statement of Shri D.K. Anand
Question 2. Please introduce yourself and give details of your responsibilities.
Ans. My name is D.K. Anand, I am working as a senior Area Business Manager at GSK and based at Delhi. I am
working for about 38 years in this organization in various capacities. Tender team was formed in 2009 end and I am
looking after north region like Punjab, Haryana, Himachal Pradesh, Delhi, Uttrakhand and UP. My job is to see the
tenders received from tender cells and shortlist the tender and send to tender cell, branch admin for information.
Finally the call is taken from head office which tender to Participate. Based on that EMD request is sent either by
tender cell, branch admin, self to the business unit head. Tender cell then shortlist the documents required for
submission in the tender. They arrange for the document and sent to branch admin for preparing the tender. Rates
and quantities are intimated through e-mail by unit business head Mr. Sumer Dheri to NSM, Mr. B. Thyagarajan
myself and branch admin Mr. Vivek Saini. Vivek Saini prepares the tender “document and I check the documents
whether they are in order. In case of any discrepancy the matter is referred to head office. Finally the tender
documents are closed and sealed. The tender document is picked up by me or a person deputed by me to submit in
the respective office before the due date and time.
In 2011 the tender related to meningitis was submitted by me in Govt. Medical store depot. The tender opening
was attended by me with due authorization from the company.
Question 3. Do you take the decision regarding price to be quoted in the tender or the Quantity to be quoted?
Ans. No. Decision is taken by the business unit head i.e. Sh. Sumer Dheri, and I receive the instructions mostly
through email.
Question 4. Please provide the entire email communication between you and your higher ups for the period June
2011 to September 2011.
Ans. I will revert on this by 30.09.2014. The email retention policy in the company is of 1 year. Therefore will
have to check if the old official emails are available, if available, I will submit the certified printouts of all the emails
required.
Question 5. What other tenders are you involved in?
Ans. Usually there is one tender every year by ESIC asking for rates of nearly 1000 drugs wherein GSK quotes for
around 10 drugs, In DHS Delhi tender we quote for around 4 drugs. Other binders are Rajasthan Medicals Services
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Corp., Railways Army, GMSD also come out with annual tender for around 1400 drugs in which we quote for nearly
40 products.
Question 6. Do you have any interaction with executives of Sanofi or other pharma companies with respect to
tenders.
Ans. Professionally when we meet there is interaction otherwise there is no interaction.
Question 7. How come all bidders come at the last time in the bids?
Ans. I submit the bid on the last date because the outcome of opening the bid is known within short time.
Secondly it avoids multiple visits for the purpose.
Question 8. Do you keep a watch on what other bidders are doing for the tender?
Ans. No.
Question 9. Does anybody normally accompany you when you go for submitting of bids?
Ans. Normally I go alone.
Question 10. What happens after you win a tender to supply drug?
Ans. The order copy is sent to BU head and the tender cell head at Mumbai for information and making
arrangement for supply of the stocks. I may need to follow up dispatch.
Question 11. Is any liaison agency also involved in the process of tender?
Ans. None of the meningitis vaccine to the best of my knowledge. For other drugs GSK used to have 10 or more
liaising agencies who took care of supplies after tender is won, documentation, submission of bills procurer etc. This
year onwards GSK has no liaising agency to the best of my knowledge.”
“Statement of Shri Ashok Sharma
Question 2. Please introduce yourself and give details of your responsibilities.
Ans. I am Ashok Sharma, Head Institutional Sales working with Sanofi Pasteur India Pvt. Ltd. I look after the
public market business in Sanofi in India. I have been working in this position for the last two years and with the
company for last two years and with the company for last 5 years.
Question 3. When the tentative quantity requirement of QMMV by GMSD was known to you then why did your
company quote for lesser quantity in the year 2011?
Ans. We quoted less quantity for various reasons like there was a new specification of IP was included in the
tender, availability of the required shelf life, short supply time, labeling and packaging timeline due to flu season.
We also considered our sale of 80,000 doses of said product in 2010 and sale of 60,000 doses in 2009. In the month
of March 2011 we had destroyed QMVV vaccines for Rs. 2.71 Crore. Keeping above factors we took a calculated risk
of quoting 90,000 doses so that even if we lose the tender we can sell it in the private market and army before the
expiry of the product.
Question 4. Is there any written communication with your superiors/colleagues to quote less quantity of in GMSD
tender?
Ans. Myself, Mr. Surinder Agarwal - Director Controlling and Mr. Roopesh Bhargava-Senior Director, Sales and
Marketing had teleconference in last week of June wherein we discussed the tender specification, quantity and
chances of winning. So it was decided during that tele conference about the quantity and price to be quoted.
However there is an e-mail correspondence with regard to the revised rate for quoting in the re-tender. The same
has been already submitted.
Question 5. Have you quoted for lesser quantity in earlier or subsequent years for GMSD tender for supply of
QMMV?
Ans. In 2010 we offered two different shelf life with two different pricing. In 2014 we quoted for only 70,000
doses as against tender requirement of approximate 1.05 lac doses.
Question 6. In the second round of tendering in the year 2011 (first re-tender) what was the reason for reduction
of price?
Ans. Our price was open after first round of tender which was known to our competitors. Therefore, we decided to
reduce the price by 5% to be competitive in the re-tender.”
46. Mail dated 09.11.2011 sent by Shri Ashok Sharma to Shri Roopesh Bhargava is also reproduced below:
“From : Sharma, Ashok (sanofi Pasteur)
Sent: Friday, September 09, 2011 10:35 AM
To: Bhargava, Roopesh (Sanofi Pasteur)
Subject : Menomune Order
Dear Sir,
THE DAY has come.
Please find attached supply order from GMSD Delhi for Menomune-9000 doses value will be Rs. 2,47,86,000.00.
The feeling is like snatching the food from Lion's mouth.
The journey of getting biggest single order started last year when I initiated the increase in turn over clause from
Rs. 20 crore to Rs. 50 crore. We were very confident of getting this business this year.
However the things are not so easy. When the invitation Bid was released, the specification came of IP from DCGI
office who knows that Sanofi and GSK do not comply with IP. The language was so smartly designed so that we and
GSK also participate in the tender and it doesn't show that it has been designed for Biomed. Round One : Date
25.07.2011. We and GSK participated in the tender. Biomed could not reach in time and couldn't put his tender. In
the mean time Biomed filed a writ petition for relaxation in turn over clause which was dismissed twice. The
authorities decided to do retender to accommodate Biomed.
Round Two : Date 19.08.2011. Biomed was rejected on turn over clause. We were the only Responsive Bidder. We
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were delighted that we will get order for Rs. 5.0 crore. We started organizing the stock available in US. However, it
was not that what we were thinking. Our tender was rejected by IPAC (Integrated Purchase Advisory Committee)
headed by DGHS on specification. The decision was taken by DCGI. We went to the court praying for the supply
order.
Round Three : 30.08.2011. We were surprised to see the invitation bid with relaxed turn over clause. We again
participated beside Biomed. We requested court for intervention and court passed order for the stay. Government
could manage to vacate the stay and tender was again opened yesterday. Before that court freezed that Sanofi will
get 90000 doses order and the tender will be opened for the balance quantity. Biomed came out to be L1 and took
away 92125 doses order.
This is all in brief about the entire process.”
46. If the DG and the Commission had properly analysed the statements of S/Shri Sumer Dheri, D.K. Anand and
Ashok Sharma in the light of the record produced by the appellants, then they could not have been record a finding
that the appellants had resorted to collusive bidding. The facts that the representatives of the appellants reached the
office of Respondent No. 4 at the same time or that they had signed the registrar with the same pen and that the GSK
did not give bid in response to the first and second re-tender cannot by any stretch of imagination lead to an inference
much less a conclusion that the appellants had indulged in collusive bidding or bid rigging and thereby violated Section
3 of the Act. The observation made on consideration of these factors by the DG is reflective of the height of the
absurdity. No person of an ordinary prudence could consider the simultaneous visits of the representatives of the
appellants to the office of Respondent No. 4 or signing of the register with the same pen as an evidence of collusive
bidding.
47. The term ‘cartel’ has been defined under Section 2(c) and the term ‘agreement’, which finds place in the
definition of the term ‘cartel’ has been defined in Section 2(b). These definitions and Section 3, which find place in
Chapter II of the Act with the title ‘Prohibition of Certain Agreements, Abuse of Dominant Position and Regulation of
Combinations’, reads as under:
“Section 2(b) “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;
Section-2(c) “cartel” includes an association of producers, sellers, distributors, traders or service providers who,
by agreement amongst themselves, limit, control, or attempt to control the production, distribution, sale or price of,
or, trade in goods or provision of services;
Section 3. Anti-competitive agreements.— (1) 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 adverse effect on
competition within India.
(2) Any agreement entered into in contravention of the provisions contained in sub-section (7) shall be void.
(3) 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—
(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.
Explanation.— For the purposes of this sub-section, “bid rigging” means any agreement, between enterprises or
persons referred to in sub-section (3) 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.
(4) Any agreement amongst enterprises or persons at different stages or levels of the production chain in
different markets, in respect of production, supply, distribution, storage, sale or price of, or trade in goods or
provision of services, including—
(a) tie-in arrangement;
(b) exclusive supply agreement;
(c) exclusive distribution agreement;
(d) refusal to deal;
(e) resale price maintenance,
shall be an agreement in contravention of sub-section (1) if such agreement causes or is likely to cause an
appreciable adverse effect on competition in India.
Explanation.— For the purposes of this sub-section,—
(a) “tie-in arrangement” includes any agreement requiring a purchaser of goods, as a condition of such purchase,
to purchase some other goods;
(b) “exclusive supply agreement” includes any agreement restricting in any manner the purchaser in the course
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of his trade from acquiring or otherwise dealing in any goods other than those of the seller or any other person;
(c) “exclusive distribution agreement” includes 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;
(d) “refusal to deal” includes any agreement which restricts, or is likely to restrict, by any method the persons or
classes of persons to whom goods are sold or from whom goods are bought;
(e) “resale price maintenance” includes 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.
(5) Nothing contained in this section shall restrict—
(i) the right of any person to restrain any infringement of, or to impose reason-able 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);
(ii) 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.”
48. The definition of the term ‘agreement’ is inclusive in nature. It takes within its fold any arrangement or
understanding or action in concert whether or not, such arrangement, understanding or action is formal or in writing or
is intended to be enforceable by legal proceedings. The definition of the term ‘cartel’ is also inclusive. It includes
association of producers, sellers, distributors, traders or service providers who, by agreement amongst themselves,
limit control or attempt to control the productions, distribution, sale or price of, or, trade in goods or provision of
services. Therefore, what is to be seen is whether the appellants had entered into any agreement or arrangement for
securing contract for supply of QMMV vaccine (10 doses vial) or indulged in bid-rigging or collusive bidding.
49. The ambit and scope of the term ‘cartel’ were considered by the Supreme Court in Union of India v. Hindustan
Development Corporation, which has been reported in two parts of the Supreme Court Cases. The first part which
contains the facts of that case and conclusions recorded by the Supreme Court is reported in (1993) 1 SCC 467. The
second part which contains detailed reasons in support of various conclusions is reported in (1993) 3 SCC 499.
The factual matrix of that case is substantially similar to the cases in hand. Every year, the Railway Board used to
invite bids for supply of cast steel bogies which were used for building the wagons. There were 12 suppliers, who
were regularly supplying the cast steel bogies. Two new entrants were Simplex and Beekay. Among the 12 regular
suppliers, M/s. H.D.C., Mukand and Bhartiya were having capacity to manufacture large quantities of steel bogies.
In response to a limited tender notice issued by the Railway Board on 25.10.1991 for procurement of 19,000 cast
steel bogies, M/s. H.D.C., Mukand and Bhartiya quoted identical price of Rs. 77,666/- per bogie, the other tenderers
quoted price between Rs. 83,000/- and Rs. 84,500/- per bogie. The Tender Committee considered all the tenders
and concluded that M/s. H.D.C., Mukand and Bhartiya, who had quoted identical rates without any cushion for
escalation between July 1, 1991 and September 1, 1991, had apparently formed a cartel but ultimately
recommended award of contract to them for supply of bogies @ Rs. 76,000/- per bogie. The day on which the
Tender Committee finalised the recommendations, Member (Mechanical), who was a part of the Tender Committee
received letters from M/s. H.D.C. and Mukand that they could supply bogies at a reduced rate. Advisor (Finance),
Member (Mechanical), Financial Commissioner and Minister for Railways recorded their independent views. They, by
and large, agreed with the view of the Tender Committee that the three suppliers had formed a cartel. However, all
of them, except the Minister for Railways, suggested that the recommendations of the Tender Committee may be
accepted else the public interest would suffer. The Minister accepted the recommendations subject to reduction in
the quantum of bogies for which contracts were to be awarded to three bidders. The Authorities also decided that
the price should be reduced and a counter offer be given to the three bidders to supply bogies @ Rs. 65,000/- per
bogie and to nine other manufacturers to supply bogies @ Rs. 76,000/- per bogie. M/s. H.D.C. and Mukand filed writ
petitions in the Delhi High Court to challenge the counter offer. The High Court passed the interim order and
directed the Railways to accept the allocation of bogies recommended by the Tender Committee and pay the price @
Rs. 67,000/- per bogie subject to the final decision. In the Special Leave Petition filed against the order of the High
Court, the Supreme Court modified the interlocutory order.
At the final hearing, learned counsel for Union of India reiterated the views of the Tender Committee, three senior
officers and the Minister that M/s. H.D.C., Mukand and Bhartiya had formed a cartel and argued that it was not
obligatory for Railways to place order for supply of bogies at the rate quoted by them. He also justified the allotment
of bogies to other manufacturers by contending that this was in consonance with Article 14 of the Constitution of
India. The counsel appearing for M/s. H.D.C., Mukand and Bhartiya controverted the Railways' assertions on the
issue of cartelisation by arguing that mere quoting of identical price cannot justify such an inference.
By an order dated 14.01.1993, the Supreme Court disposed of the Special Leave Petition by recording its
conclusions, paragraphs 1 and 6 of which read as under:
“1. There is not enough material to conclude that M/s H.D.C., Mukand and Bhartiya formed a cartel. Because of
mere quoting identical tender offers by the said three manufacturers for which there is some basis, the conclusion
that the said manufacturers had formed a cartel does not appear to be correct. However since the offers of the said
three tenders were identical and the price was somewhat lower, the Tender Committee entertained a suspicion that
a cartel had been formed and the same got further strengthened by the post-tender attitude of the said
manufacturers which further resulted in entertaining the same suspicion by the other authorities in the hierarchy of
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the decision making body including the Minister of Railways. Though there is not enough of material to establish
formation of a cartel as is understood in the legal parlance but at the same time it cannot be contended that such an
opinion entertained by the concerned authorities including the Minister was per se malicious or was actuated by any
extraneous considerations. After a careful examination of the entire record and facts and circumstances of the case
we are of view that all the railway authorities including the Minister acted in a bona fide manner in taking the stand
that the three manufactures formed a cartel.
6. Now coming to the allotment of quota of bogies the Tender Committee made recommendations on the basis of
the existing practice. The Minister of Railways in his ultimate decision has made some variations taking into
consideration tile recommendations of the Financial Commissioner and other authorities. He has however not
accepted these recommendations fully. In making these variations, the Minister accepting ultimately reduced the
allotment of quota to the said three tenderers substantially by way of reprisal. In view of our finding that the
formation of an opinion that cartel was formed had no firm factual foundation; such a reduction of quota by way of
reprisal cannot be justified. We are, however, not inclined to accept the contention made on behalf of M/s H.D.C.,
Mukand and Bhartiya that no departure from the recommendations of the Tender committee is permissible in the
absence of any established policy which was also known by the tenderers. From the records it appears that in the
past also there have been such variations. In our view, the Minister of Railways as the final authority, after
considering various relevant factors, may be justified in taking a particular decision in the matter of allotment of
quota but such decision must be taken on objective basis. But, in this case. It appears to us that all the smaller
manufacturers deserving a favourable treatment in the matter of allotment of quota, have not been equally treated
in the sense that one or, two of them got larger quantities. Though this does not appear to be a serious departure,
yet in these matters the Government is expected to be just and fair to one and all. We hope that in future the
authorities would make a proper consideration of the relevant factors in respect of each tenderer in an objective
manner in allotting the quantities.”
[Emphasis supplied]
The reasons in support of the aforesaid conclusions were recorded on various aspects of the case including the
powers of the State and its agencies in the matter of award of contract. In paragraph 14 of the judgment reported in
(1993) 3 SCC 499, the Supreme Court considered the submissions on the issue of formation of cartel by three big
manufacturers, referred to the dictionary meanings of the word ‘cartel’, took notice of the discussion on cartel in
American Jurisprudence 2d Vol. 54, referred to some decisions of the foreign jurisdictions and observed that the
opinion formed by the Tender Committee that the three big manufacturers had formed a cartel because they had
quoted identical price was not correct. The relevant portions of that judgement are extracted below:
“14. First we shall consider the submissions regarding the formation of cartel by these three big manufacturers.
The word “cartel” has a particular meaning with reference to monopolistic control of the market. In Collins English
Dictionary, the meaning of the word “cartel” is given as under:
“cartel — 1. Also called: trust, a collusive international association of independent enterprises formed to
monopolize production and distribution of a product or service, control prices etc. ….”
In Webster Comprehensive Dictionary, International Edition, the meaning of the word “cartel” is given thus:
“cartel … 3. An international combination of independent enterprises in the same branch of production, aiming
at a monopolistic control of the market by means of weakening or eliminating competition ….”
In Chambers' English Dictionary the word “cartel” is defined thus:
“cartel — A combination of firms for certain purposes especially to keep up prices and kill competition ….”
In Black's Law Dictionary, Fifth Edition the meaning of the word “cartel” is given thus:
“cartel— A combination of producers of any product joined together to control its production, sale, and price,
and to obtain a monopoly in any particular industry or commodity …. Also, an association by agreement of
companies or sections of companies having common interests, designed to prevent extreme or unfair competition
and allocate markets, and to promote the interchange of knowledge resulting from scientific and technical
research, exchange of patent rights, and standardization of products.”
In American Jurisprudence, 2d Vol. 54, page 677 it is mentioned thus:
“A cartel is an association by agreement of companies or sections of companies having common interests,
designed to prevent extreme or unfair competition and to allocate markets, and perhaps also to exchange
scientific or technical knowledge or patent rights and to standardize products, with competition regulated but not
eliminated by substituting competition in quality, efficiency, and service for price-cutting. An international cartel
arrangement providing for a worldwide division of a market has been held a per se violation of 15 USC S 1. An
American corporation violates the Sherman Act by entering into agreements with English and French companies
to (1) allocate world trade territories among themselves; (2) fix prices on products of one sold in the territory of
the others; (3) cooperate to protect each other's markets and eliminate outside competition; and (4) participate
in cartels to restrict imports to and exports from the United States.”
In A Dictionary of Modern Legal Usage by Bryan A. Garner, it is noted thus:
“cartelize - to organize into a cartel. See-IZE. Yet cartel has three quite different meaning: (1) ‘an agreement
between hostile nations’; (2) ‘an anticompetitive combination usu. that fixes commercial prices’; and (3) ‘a
combination of political groups that work toward common goals’. Modern usage favours sense (2).”
The cartel therefore is an association of producers who by agreement among themselves attempt to control
production, sale and prices of the product to obtain a monopoly in any particular industry or commodity. Analysing
the object of formation of a cartel in other words, it amounts to an unfair trade practice which is not in the public
interest. The intention to acquire monopoly power can be spelt out from formation of such a cartel by some of the
producers. However, the determination whether such agreement unreasonably restrains the trade depends on the
nature of the agreement and on the surrounding circumstances that give rise to an inference that the parties
intended to restrain the trade and monopolise the same. Dealing with the provisions of Sherman Anti-Trust Act, in
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National Electrical Contractors Associations, Inc. v. National Constructors Association., [678 FR 2d 492] it was
observed as under:
“We know of no better statement of the rule than that of this court in United States v. Society of Ind. Gasoline
Marketers, [624 F 2d 461 : 465 (4th Cir 1979) : cert denied 101 S Ct 859 : 449 US 1078 : 66 L Ed 2d 801]
where stated: ‘Since in a price-fixing conspiracy the conduct is illegal per se, further inquiry on the issues of
intent or the anti-competitive effect is not required. The mere existence of a price-fixing agreement establishes
the defendants’ illegal purpose since the aim and result of every price-fixing agreement, if effective, is the
elimination of one form of competition.”
It was also observed that:
“The critical analysis in determining whether a particular activity constitutes a per se violation is whether the
activity on its face seems to be such that it would always or almost always restrict competition and decrease
output instead of being designed to increase economic efficiency and make the market more rather than less
competitive.”
Matsushita Electric Industrial Co., Ltd. v. Zenith Radio Corpn., [9 L Ed 2d 538] is a case where American
manufacturers of consumer electronic products brought suit against a group of their Japanese competitors in the
United States District Court alleging that these competitors had violated Sections 1 and 2 of the Sherman Act and
other federal statutes. It was alleged that the Japanese companies had conspired since 1950 to drive domestic firms
from the American market, by maintaining artificially high prices for these products in Japan while selling them at a
loss in the United States. The District Court after excluding bulk of evidence, finally granted the Japanese
companies' motion for summary judgment dismissing the claims. The United States Court of Appeal reversed and
remanded for further proceedings. On a certiorari, the United States Supreme Court while considering the standards
supplied by the Court of Appeals in evaluating the summary judgment, observed thus:
“To survive petitioners' motion for summary judgment, respondents must establish that there is a genuine
issue of material (475 US 586) fact as to whether petitioners entered into an illegal conspiracy that caused
respondents to suffer a cognizable injury.”
It was further observed that:
“A predatory pricing conspiracy is by nature speculative. Any agreement to price below the competitive level
requires the conspirators to forgo profits that free competition would offer them. The forgone profits may be
considered an investment in the future. For the investment to be rational (475 US 589) the conspirators must
have a reasonable expectation of recovering, in the form of later monopoly profits, more than the losses suffered.
* * *
The alleged conspiracy's failure to achieve its ends in the two decades of its asserted operation is strong evidence
that the conspiracy does not in fact exist. Since the losses in such a conspiracy accrue before the gains, they must
be ‘repaid’ with interest. And because the alleged losses have accrued over the course of two decades, the
conspirators could well require a correspondingly long time to recoup. Maintaining supracompetitive prices in turn
depends on the continued cooperation of the conspirators, on the inability of other would-be competitors to enter the
market, and (not incidentally) on the conspirators' ability to escape antitrust liability for their minimum price-fixing
cartel. Each of these factors weighs more heavily as the time needed to recoup losses grows. If the losses have been
substantial — as would likely be necessary (475 US 593) in order to drive out the competition — petitioners would
most likely have to sustain their cartel for years simply to break even.”
(emphasis supplied)
In this context, one of the submissions is that the price of Rs. 67,000 offered by these manufacturers during the
post-tender stage was not predatory and that the view taken by the authorities that such an offer of lower price was
predatory one confirming the formation of a cartel, is also unwarranted. In Matsushita case [678 FR 2d 492] it was
observed that predatory pricing conspiracies are by nature speculative and that the agreement to price below the
competition level requires the conspirators to forgo profits that free competition would offer them. It was also held
therein as under:
“To survive a motion for a summary judgment, a plaintiff seeking damages for a violation of Section 1 of the
Sherman Act must present evidence ‘that tends to exclude the possibility’ that the alleged conspirators acted
independently. Thus, respondents here must show that the inference of a conspiracy is reasonable in light of the
competing inferences of independent action or collusive action that could not have harmed respondents.”
Therefore mere offering of a lower price by itself, though appears to be predatory, cannot be a factor for inferring
formation of a cartel unless an agreement amounting to conspiracy is also proved.
(emphasis supplied)
A mere offer of a lower price by itself does not manifest the requisite intent to gain monopoly and in the absence
of a specific agreement by way of a concerted action suggesting conspiracy, the formation of a cartel among the
producers who offered such lower price cannot readily be inferred….
……… In the instant case, initially the Tender Committee formed the opinion that the three big manufacturers
formed a cartel on the ground that the price initially quoted by them was identical and was only a cartel price. This,
in our view, was only a suspicion which of course got strengthened by post-tender attitude of the said manufacturers
who quoted a much lesser price. As noticed above it cannot positively be concluded on the basis of these two
circumstances alone. In the past these three big manufacturers also offered their own quotations and they were
allotted quantities on the basis of the existing practice. However a mere quotation of identical price and an offer of
further reduction by themselves would not entitle them automatically to comer the entire market by way of
monopoly since the final allotment of quantities vested in the authorities who in their discretion can distribute the
same to all the manufacturers including these three big manufacturers on certain basis. No doubt there was an
apprehension that if such predatory price has to be accepted the smaller manufacturers will not be in a position to
compete and may result in elimination of free competition. But there again the authorities reserved a right to reject
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such lower price. Under these circumstances though the attitude of these three big manufacturers gave rise to a
suspicion that they formed a cartel but there is not enough of material to conclude that in fact there was such
formation of a cartel……”
[Emphasis supplied]
50. A somewhat similar question was considered by this Tribunal in Appeals Nos. 13, 15 and 20 of 2014 Escorts
Limited v. Competition Commission of India decided on 18.12.2015. In that case, the DG and the Commission
concurrently held that the appellants had formed cartel and indulged in bid-rigging in the matter of supply of C2N feed
valves to Diesel Loco Modernization Works, Patiala. In support of this conclusion, the DG and the Commission relied
upon the following factors:
“(a) RDSO had approved only three suppliers i.e. the appellants and there was no new entrants in the field over a
period of time and that gave scope for cartel formation.
(b) Three approved suppliers have given bids from time to time in response to the tenders issued by different Zonal
Railways quoting identical price.
(c) The demand of feed-valves has remained almost static in last few years and the existing operators have
prevented new entrants from entering the market.
(d) The system of awarding contracts by the Railways is conducive to collusive bidding.
(e) The product specifications approved by RDSO makes cartelisation very probable.
(f) When the products or services sold or rendered are identical or very similar and there are few or no substitutes, it
is easier for the bidders to reach an agreement on a common price structure and probability of the appellants
reaching an agreement on a common price is very high.
(g) Respondent No. 2, who complained of cartel formation, had placed order on FTRTIL to supply 34 more feed-
valves @ Rs. 12,855.47 in addition to the purchase order dated 11.11.2011 and, at the same time, had entered
into negotiation with SIL and ultimately placed order for 67 feed-valves @ Rs. 16499.99. This was indicative of
faulty procurement system adopted by the Railways resulting in financial loss.
(h) The three bidders had quoted identical price by manipulating the figures in as much as EL, Faridabad quoted
base price of Rs. 17147.54. The other two bidders quoted Rs. 14534.52 (FTRTIL, Hosur) and Rs. 14,674.28 (SIL,
Kolkata) as base price and added the elements of Excise Duty, Cess on Excise Duty and Central Sales Tax to
make the final price as Rs. 17,147.54.
(i) The assertion of the appellants that their price was based on the price quoted in previous purchase orders was
not correct.
20. The Commission approved the findings and conclusions recorded by the DG primarily on the basis of identical
price quoted by the appellants by observing that this could not have been possible because their production units
are situated in three different states. The Commission also relied upon the factum of award of contracts to the
appellants by different Zonal Railways despite the fact that the price offered by them was identical in several cases
and held that they are guilty of cartelisation. The observation made by the Commission that the appellants had
adopted a strategy which involved supplementary/complementary bidding by EL and FTRTIL is based on pure
conjectures and is liable to be rejected because before making this observation, the Commission did not give any
opportunity to the two appellants to have their say. Similarly, the observation made by the Commission that the
Tender Committee committed an illegality in overlooking the bids of EL and FTRTIL is ex facie erroneous. Once the
competent authority had laid down particular conditions required to be fulfilled by the tenderer and the two of the
three tenderers failed to comply with the same, the Tender Committee and Respondent No. 2 cannot be said to have
committed any illegality by not acting upon their tenders. The Tender Committee could have recommended for fresh
tendering and Respondent No. 2 could have accepted that recommendation but their failure to do so cannot lead to
an inference that they have acted with ulterior motive or that the Tender Committee ought to have waived the
defects/deficiencies and allowed the two appellants i.e. EL and FTRTIL to participate in the bid or called them for
negotiations.”
This Tribunal took cognizance of the so-called plus factors relied upon by the DG and the Commission as also the
statement of the supplies made by the three appellants between January, 2009 to April, 2014 and held:
“22. A careful scrutiny of the above statement shows that between January, 2009 and February, 2012, various
Zonal Railways had issued 44 tenders. Of them exactly identical price was found only in one tender dated
15.12.2011 issued by West Central Railway, where the price quoted by the bidders was Rs. 16,833.16. Out of the
remaining bids, similar price was quoted by SIL and FTRTIL in response to tenders dated 20.07.2009 issued by
Southern Railway, 24.09.2010 issued by Southern Railway and 08.11.2011 issued by N.F. Railway. It is thus clear
that only in two to three percent of the total tenders invited by various Zonal Railways, the price quoted by the
appellants or two of them were identical. The variation in the quantum of price quoted by the appellants is also
evident from the statement furnished by the learned counsel for Respondent No. 2. Therefore, it must be held that
both the DG and the Commission committed grave error by relying upon the so-called past conduct of the appellants
in quoting identical price as a plus-factor for arriving at a conclusion that they had formed a cartel.
23. The calculation made by the DG and the Commission on the price formula indicated in the offer of SIL is also
erroneous because the DG proceeded on an erroneous assumption that the rate of Central Sales Tax was 5%
whereas, in fact, it was 4%. The DG and the Commission also committed an error in presuming that the appellants
had quoted high price to maximize the profit, ignoring that the rate of Excise Duty had been increased by the
Government.”
51. In Case No. 5/2009 Neeraj Malhotra v. Deustche Post bank Home Finance Ltd. decided on 02.12.2010, the
Commission discarded the finding recorded by the DG that the respondents had acted in violation of Section 3(3)(b) of
the Act and emphasised that in the absence of cogent evidence of an agreement, an affirmative finding cannot be
returned on the basis of mere suspicion and conjectures. Paragraph 17 of that order, which contains detailed discussion
on this aspect is reproduced below:
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“17 ISSUE No. 2: Whether there is any agreement to impose prepayment charges among the opposite parties
who are, in effect, supplying the service of home loans?
17.1 The underpinning economic philosophy of Section 3 given in the Preamble to the Act (herein referred to as
the Act) is “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”. The term competition is not defined under the Act so we must rely on accepted linguistic definition of the
word in the context of markets or business. Merriam-Webster dictionary defines competition in business as “the
effort of two or more parties acting independently to secure the business of a third party by offering the most
favorable terms.”
17.2 Section 2(b) of the Act defines “agreement” as follows:
“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;
17.3 Section 3(1) of the Act states, “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 adverse effect on competition within India.”
17.4 Section 3(2) of the Act stipulates, “Any agreement entered into in contravention of the provisions contained
in Sub-section (1) shall be void.”
17.5 To apply the provisions of Section 3 of the Act, it is imperative to understand the concept of market and
appreciate the economic principles of competition. The basic requirement of any market is the existence of the forces
of supply and demand. A good or service is supplied or demanded only because it has 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 who eventually consumes the
utility of that product. Entities that produce, distribute, store or control goods or services are entities that constitute
suppliers. Entities who consume are consumers. The words “production”, “supply”, “distribution”, “storage”,
“acquisition” or “control of goods or provision of services” all describe activities relatable to the supply side of any
market. “Agreement” mentioned in Section 3 refers to any agreement entered into by parties in respect of activities
as mentioned above. These activities being quintessentially on the supply side of a market, do not include
“agreement” between a producer/service provider on the one hand and the end consumer on the other because no
consumer can be said to be involved in activities such as production, distribution or control of any goods or services.
17.6 In the instant case, the service in question is the service of retail home loans. This service is provided by
banks and non-banking housing finance companies. It is consumed by the individual borrower. Very clearly
therefore, we have to put under our scrutiny any agreement that may have transpired between the suppliers or
providers of the service in question for the purpose of Section 3 of the Act.
17.7 For an agreement to exist there has to be an act in the nature of an arrangement, understanding or action in
concert including existence of an identifiable practice or decision taken by an association of enterprises or persons.
In this case, the allegation by the informant is that the act of charging prepayment interest/penalty is such an act.
Furthermore, for an agreement, it is essential to have more than one party. According to the informant's allegation,
4 of the Opposite Parties are such parties entering into the alleged anti competitive agreement. The DG has further
expanded the scope of allegation to include 12 more banks.
17.8 An agreement is a conscious and congruous act that has to be associated to a point in time. According to the
report of the DG, the reference point for the alleged agreement is a meeting of the Indian Banking Association held
on 28.07.2003 which resulted in a communication dt. 10.09.2003 from IBA to its members. In this context, the DG
has observed,
“The advent of prepayment penalty/charges in India on mass scale is traced to the meetings of banks on
28.07.2003 and 28.08.2003 convened by the IBA with regard to prepayment charges. However, it is noted for LIC
Housing Finance that prepayment penalty is mentioned in their loan agreement since 1995. It was deliberated in
the meeting of IBA by member banks to have a common approach in fixing prepayment charges on loan.
Accordingly, a circular dated 10.09.2003 was issued which specifically spelt out levying of 0.5%-1% prepayment
charges as reasonable and the decision in this regard was left to banks to decide. It is noted that for banks
augmenting fee based income through prepayment charges was seen as significant consideration in competitive
market with pressure on interest spreads. It is noted from the meeting of IBA that the group of banks have come
together and taken a collective decision to limit market competition and to generate fee based income.
17.9 Various banks in their replies filed before the DG and later before this Commission have contested the above
observation. For instance, HDFC Ltd. in its letter dt. 07.06.2010 stated that it is not a member of IBA at present nor
has it been a member for at least the past two decades. Moreover, it did not attend the alleged meeting of IBA and
had never received the alleged IBA circular dated 10.09.2003. LIC HOUSING FINANCE LIMITED in its letter dt.
29.01.2010 said that it had been charging prepayment charges since 1995. Similarly, more than one bank has
informed that Axis Bank does not charge any prepayment charges/penalty even today. This Commission has not
found any material on record in the report of the DG that would negate the averments made by these banks on this
issue. In our opinion, from the facts made available to us through the report of the DG it is not possible to pinpoint
any specific point in time as the reference point of the alleged agreement. It is useful to examine the content of the
aforementioned IBA circular, as reproduced below:
“With a view to bring about discipline in availment of bank finance to borrowers and to encourage better
management of funds, Reserve Bank of India had introduced in 1990 the practice of levying commitment charges
on unutilized portion of the working capital limits. Commitment charges were levied at the rate of one percent per
annum on the unavailed portion of operating limits. Following withdrawal of mandatory guidelines on credit
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monitoring by Reserve Bank of India, levy of commitment charges is no longer considered a regulatory
prescription.
Reintroduction of levy of commitment charges and adoption of a common approach by banks in this regard
came up for discussion in the Managing Committee of the Association in its last meeting. The issue had come up
in the context of the practice followed by some of the corporate borrowers who got line of working capital limit
approved from banks but met funding requirements through market instruments like CPs, bonds etc. with a
fallback option on committed line from banks without any commitment charges.
During discussions some of the members pointed out the international practice was in favour of levying
commitment charges. It was pointed out that under proposed Basel-II norms for fixing economic capital, banks
would be required to allocate capital in respect of committed lines of credit though not actually disbursed. The
need for a common approach in fixing prepayment charges on loans was also stressed by some of the members.
On the whole, members were of the view that levy of commitment charges and prepayment charges would help
not only in terms of asset - liability management, but also in augmenting fee-based income of the banks. The
later was seen as significant consideration in today's competitive market with pressures on interest spread. While
members felt that charges in the range of 0.5% to 1% would be reasonable, the view was that a decision in this
regard should be left to the banks to decide.
After detailed discussions, the Committee, while, fully appreciating the market dynamics, decided to inform
members the above views expressed by the Management Committee so that they could take a decision on levy of
commitment charges and prepayment charges.
It is apparent from a plain reading of the contents reproduced above that the meeting of the IBA was actually
to discuss the growing practices of corporate borrowers who would avail of committed lines of credit by banks for
working capital but would first look at other market options such as CPs, bonds etc. for funding and use line of
credit only as a fallback. This put adverse pressure on asset-liability management by banks. It was only in the
context of those discussions that some banks raised the issue of prepayment on housing loans also. The
discussion on the subject was consequential and not initial. Even then, it merely resulted in a clear decision that
it “should be left to the banks to decide.” The lack of imperative voice and intent is evident from the language
and content of the said circular of IBA. It would be patently unjust to use it as an evidence of either action in
concert or process of combined decision making by banks. This rules out any element of contravention of Sub-
section (1) of Section 3.
17.10 The word “agreement” for the purposes of the Act has wide connotations as defined under Section 2(b).
However, it is imperative that existence of such an “agreement” is unequivocally established. The European Court of
Justice has clearly laid down this principle with respect to infringements of Article 81(1) of the EC Treaty in Cases-
204, 205, 211, 213, 217 and 219/00 P, and cases 29 & 30/83, Compagnie Royale Asturienne des Mones SA and
Rheinzink GmbH v. Commission wherein that Commission has said that precise and coherent proof must be
produced by the party or authority alleging infringement. In this case, the existence of any “agreement” cannot be
conjectured or even circumstantially adduced. Mere fact that the IBA issued a circular dated 10.09.2003 mentioning
concern of some member banks cannot in itself be said to form a basis for or evidence of an agreement between
banks. The DG's report has not produced any precise or coherent proof of any agreement of the nature covered in
Section 3.
17.11 The report of the DG observes categorically that there is infringement of Section 3(3)(b) of the Act. It
states,
“The allegation that the banks are imposing prepayment penalty/charges is found to be true. Further, with
regard to allegation for violation of Section 3(3)(a) &(b) made by the information provider violation of Section 3
(3)(b) of the Act is found to be true.”
17.12 For the violation of Section 3(3)(b), it must be established that there exists an agreement, practice carried
on or, decision taken by an any association of enterprises or association of persons, including cartels, engaged in
identical or similar trade of goods or provisions of services, which result in effects mentioned in Clauses (a) to (d) of
Sub-section (3) of Section 3 of the Act. These include acts that limit or control production, supply, markets,
technical development, investment or provision of services. The word association has not been defined under the Act
or the Companies Act, 1956. Resorting once again to the accepted linguistic meaning of the word, as per concise
Oxford Dictionary an association means “a group of people organized for joint purpose”. In the instant case, the
Indian Banking Association (IBA) can be said to be an association of banks but there is no evidence on record which
leads us to conclude that IBA has adopted the practice or taken a decision in the matter. The practice of charging
prepayment penalty cannot be said to be a concerted decision of all the Banks/HFCs as all of them have not started
charging prepayment penalty at one point of time. HDFC and LICHF are charging prepayment penalty since 1993
and 1995 respectively. The other Banks/HFCs started charging prepayment penalty after many years. It is noted
that all HFCs are not members of IBA, which is an association of banks. Even out of the 150 plus member banks of
IBA, the investigation covered only 12. There is no evidence on record which suggests that above mentioned
Banks/HFCs have formed any internal and discrete association for the purpose of charging prepayment penalty. In
the present case as mentioned earlier the above mentioned Banks/HFCs are not charging the same rate of
prepayment penalty. Thus congruence of action, which is an integral part of any agreement does not get established
by the investigation of the DG.
17.13 In view of the foregoing discussion, the Commission has come to the conclusion that there is no agreement
among the banks and HFCs investigated by the DG, for levy of prepayment charges that can be termed as action in
concert. Whereas it has been found that some banks/HFCs are imposing prepayment charges there is no evidence to
establish that this practice is a result of some action in concert or emerges from a collusive decision. Rather, it is a
manifestation of individual, though similar business decisions. Therefore the point No. 2 is decided accordingly.”
52. We may add that existence of a scenario conducive to cartelization is not enough and cogent evidence must be
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adduced or collected to prove anticompetitive arrangement or agreement. Likewise, mere suspicion, howsoever strong
it may be cannot be made basis for recording a finding of collusive bidding or bid rigging.
53. The order dated 20.12.2013 passed by the Tribunal in Appeal No. 21/2012 International Cylinder (P) Ltd. v.
Competition Commission of India on which reliance has been placed by Shri A.N. Haksar is clearly distinguishable. The
facts of that case show that the Commission had initiated suo-moto proceedings on the basis of information received in
Case No. 10/2010 Pankaj Gas Cylinders Ltd. v. Indian Oil Corporation Ltd. In his investigation report, the DG found that
the LPG Cylinder Manufacturers had formed an association in the name of Indian LPG Cylinders Manufacturers'
Association and the members were interacting through the association and were using the same as platform; that just
two days before the submission of the bids, two meetings were held on 1st and 2nd March 2010 in in Hotel Sahara Star
in Mumbai, which was attended by 19 parties and discussed the tender. The DG observed that the bidders had agreed
for allocation of territories. He also took into consideration other plus factors and concluded that the Cylinders
Manufacturers had formed a cartel. The Commission approved the findings of the DG and imposed a penalty under
Section 27 of the Act. In paragraph 19 and 20 of its order, the Tribunal summarized the fact found by the DG and
Commission and confirmed the order passed by the Commission by making the following observations:
“25. 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
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 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. In view of this, we need
not dilate on the individual claims by some of the appellants that they were not the members of the association or
that they were only the dormant members or that they had abdicated their membership. We also need not go on the
claim that while the meeting was attended by the 19 parties as held by the D.G. and confirmed by the CCI, it was
not attended by the rest of the appellants because that would be of no consequence. Once there was a meeting,
there was every opportunity to discuss or to communicate to each other whatever transpired in the meeting.
26. We have seen the order of the CCI and while commenting about the meeting, the CCI has painstakingly
noted the details of that meeting. The CCI has referred to the evidence of Mr. Dinesh Goyal, who was an active
member of the Indian LPG Cylinder Manufacturers' Association and noted that he had attended the meeting. He has
also referred to the statement of Mr. Sandeep Bhartia of Carbac Group though initially he denied to have organized
the conference, he later on had confirmed about such a conference having been held along with Mr. Sandeep Bhartia
of Carbac Group. The CCI also noted that he admitted that in such meetings there were discussions on pre-bid
issues. He also admitted that though there are about 50 competitors, in fact about 25 persons control the whole
affairs. From this evidence, the CCI correctly deduced that pre-bid issues were discussed in that meeting. The CCI
has then referred to the evidence of Mr. Manvinder Singh of Bhiwadi Cylinders Limited, Mr. Chandi Prasad Bhartia of
Haldia Precision Engineering P. Ltd., Mr. Vijay Kumar Agarwal of SM Sugar Pvt. Ltd., Mr. S. Kulandhaiswamy, MD of
Lite Containers Pvt. Ltd. and Secretary of the Association, Mr. Ramesh Kumar Batra, Director of Surya Shakti Vessels
Pvt. Ltd. and 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.
27. xxx xxx xxx
28. Amongst the other plea raised by the parties before the Commission as well as before us, we must take note
of some submissions, which were almost common in nature. It is urged that it was an oligopolistic market where
there were only 62 qualified vendors in whole India and therefore, it was urged that there was a likelihood of each
player being aware of the actions of the others. It was then urged that price parallelism is a common phenomenon in
such an oligopolistic market and therefore, mere price parallelism cannot lead to the conclusion of price fixing or bid
rigging, as the case may be. It was urged that conscious price parallelism should not necessarily be construed as
evidence of collusion and that there would have to be a plus factor beyond mere parallel behavior.
29. The burden in this behalf cannot be equated with the burden in the criminal cases where the prosecution has
to prove the allegation beyond the reasonable doubt. A strong probability would be enough to come to the
conclusion about the breach of the provisions of the Competition Act. Some of the learned counsel argued that their
participation or the preconcerted agreement would have to be proved beyond doubt. We do not think so. It is
obvious that an agreement cannot be easily proved because it may be a wink or a nod or even a telephone call.
What is required to be proved is a strong probability in favour of a pre-concerted agreement and the factors which
we have highlighted go a long way in that direction and as plus factors.
30. 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
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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. We have already endorsed the finding of CCI on the active trade
association. It was noted that except seven companies, all the bidders were the members of the association. They
being-Asian Fab Tech Ltd., Faridabad Metal Udyog Pvt. Ltd., Gopal Cylinders, Krishna Cylinders, JBM Industries and
Shri Ram Cylinders. It was noted by the CCI that out of these, Asian Fab Tech Ltd., which was previously Avatar
Asian Cylinder, could be said to be a member, as Avatar Asian Cylinder was shown in the list of the members, which
was supplied by the association. Thus, it concluded that this was a facilitating factor. The CCI also noted few other
factors like repetitive bidding, identical products, few or no substitutes and no significant technological changes as
additional factors. In so far as, factor of identical products is concerned, in fact, it was the defence of the appellants
that the cylinder of 14.2 KG, which was the product, had the standardized norms for its production. Number of the
learned counsel argued before us that since the components required for the manufacture of cylinder were
standardized, there could be a possibility of the identical or nearly identical pricing policy. 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.
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.
31. 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
then painstakingly did the analysis of the bids for 25 States. The result of the analysis was quite shocking.”
54. In the case before us, there is no evidence direct or indirect of any meeting between the two appellants, the
bids given by them were not identical inasmuch as the quantity quoted by GSK was 1,00,000 doses and the quantity
quoted by Sanofi was only 90,000 doses. The prices quoted by the appellants were also different. Another important
distinguishing feature is after cancellation of the bids submitted pursuant to tender notice dated 25.06.2011, GSK did
not participate in the two limited tender notices issued in August 2001 on the ground that the time for supply of
medicine was extremely short and it was not possible to fulfill the commitment, which could be made to the competent
authority and there is not even a semblance of evidence what to say of a cogent evidence to show that the GSK's non-
participation in the re-tender bidding process was a part of the arrangement between the two appellants or GSK had
colluded with Sanofi to ensure that it could get the contract for supply of the tendered quantity of QMMV.
55. It is also unfortunate that both the DG and the Commission completely overlooked the highly contumacious
conduct of Respondent No. 2, who always challenged the conditions of eligibility by filing two writ petitions in the High
Court. In the first writ petition, he produced a fabricated document to persuade the High Court to grant relief. It is a
different thing that he could not mislead the High Court and the writ petition was dismissed by a detailed reasoned
order. In the second writ petition, he succeeded in persuading the High Court to pass an interim order but did not
participate in the tender issued on 17.08.2011. It participated in the second tender after knowing the prices quoted by
the appellants in response to tender notice issued on 25.06.2011. This was clearly part of the design of Respondent No.
2 to secure the contract. In our view, while adjudicating upon the allegations of anti-competitive conduct of other
party, the Commission is duty bound to take cognizance of the conduct of the informant and take appropriate view of
the matter.
56. On the basis of the above discussion, we hold that the finding recorded by the Commission that the appellants
are guilty of collusive conduct and violated Section 3(3)(d) read with Section 3(1) of the Act is legally unsustainable
and the impugned order is liable to be set-aside in toto.
57. The penalty imposed by the Commission is liable to be quashed for an additional reason. In terms of proviso to
Section 27(b), the Commission has the discretion to impose upon each purchaser, seller, distributor, trader or service
provider included in the cartel, a penalty up to three times of its profit for each year of the continuance of such
agreement or ten percent of the turnover for each years of the continuance of such agreement, whichever is higher as
per proviso to Section 27(b). Paragraph 69.71 of the impugned order does not show that the Commission had taken a
conscious decision to impose penalty on the profit earned by the appellants for each year of the continuance of the
agreement. Rather, it chose to impose penalty @ 3% of the turnover based on the financial statements furnished by
the appellants. Since the product in question was only QMMV, the Commission ought to have taken into consideration
the appellants' turnover of QMMV vaccine imported for preceding three financial years. This is so because neither
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Respondent No. 2 had alleged nor any evidence was produced/collected to show that the so called collusive agreement
between the appellants had continued in 2012-13 to 2014-15.
58. Even if we were to assume that the Commission had taken a deliberate decision to impose penalty @ 3% of the
turnover of the appellants based on the financial statements filed by them, the same is legally unsustainable because
the Commission has taken into consideration the entire turnover of the appellants of which QMMV is a miniscule
fraction. This Tribunal has repeatedly held that while imposing penalty under Section 27(b), the Commission can take
into consideration turnover of the relevant product and not the entire turnover of the industry/enterprise. Reference in
this regard may be made to the latest order dated 01.03.2016 passed by the Tribunal in ECP Industries Ltd. v.
Competition Commission of India in Appeal No. 47 of 2015 in which the penalty imposed by the Commission on the
total turnover of various types of cylinders on the appellants was quashed because the relevant product was only 14.2
Kg. LPG cylinder. In that order, the Tribunal has noted various earlier orders and reiterated its view that the word
‘turnover’ used in Section 27(b) and proviso thereto would mean the turnover of the relevant product and not the
entire turnover of the industry/enterprise.
59. In the result, the appeals are allowed and the impugned order is set aside. As a sequel to this, the penalty
imposed by the Commission is set aside. The Commission is also restrained from imposing penalty on the officials of
the appellants, who were considered responsible for contravention of Section 3(3)(d) read with Section 3(1) of the Act.
———
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Competition Appellate Tribunal, New Delhi

(BEFORE G.S. SINGHVI, CHAIRMAN AND RAJEEV KHER, MEMBER AND ANITA KAPUR, MEMBER)
(Under Section 53-B of the Competition Act, 2002 against the Order dated
24.09.2014 passed by the Competition Commission of India in Case No. 40/2014)
In the Matter of
1. Deepak Kumar Jain, Son of Shri Surendra Kumar Jain Resident
of 100 Vaishali, Pitampura, Delhi - 110034.
2. Manoj Kumar Jain Son of Shri Surendra Kumar Jain Resident of
100 Vaishali, Pitampura, Delhi - 110034 … Appellants;
Versus
1. Competition Commission of India, Through its Secretary,
Hindustan Times House, 18-20, Kasturba Gandhi Marg, New
Delhi - 110001.
2. TDI Infrastructure Limited, (Formerly Known as Intime
Promoters (P) Limited) Through its Managing Director, 9,
Kasturba Gandhi Marg, Connaught Place, New Delhi - 110001.
3. Town and Country Planning, Haryana Through its Director
General, HQ, SCO-71-75, Sector -17C, Chandigarh - 160017.
4. Haryana Urban Development Authority, Through its
Administrator (HQ), Plot No. C-3, HUDA Complex, Sector - 6,
Panchkula - 124505 … Respondents.
Appeal No. 79 of 2014 and I.A. Nos. 53/2016 and 161/2015
Appearance:
Shri Jeevan Prakash, Advocate for the Appellants.
Shri Pallav Shisodia, Senior Advocate with Shri Neeraj Yadav, Advocate for
Respondent No. 2.
Shri Mishal Vij and Shri Sandeep Yadav, Advocates for Shri Anil Grover, AAG
Haryana for Respondents Nos. 3 and 4.
ORDER
G.S. SINGHVI, CHAIRMAN:— An important question of law, which arises for
consideration in this appeal filed under Section 53A(2) of the Competition Act, (for
short, ‘the Act) against order dated 24.09.2014 passed by the Competition
Commission of India (for short, ‘the Commission’) under Section 26(2) of the Act in
Case No. 40 of 2014 is whether the appellants who concealed/suppressed facts, which
have direct bearing on the determination of the ‘relevant market’ as defined in Section
2(r) read with Section 2(s) and (t) and Section 19(4), (6) and (7) of the Act are
entitled to seek an investigation into the allegation of abuse of dominant position
levelled against Respondent No. 2-TDI Infrastructure Limited.
2. The record of the case shows that Appellant No. 1, Deepak Kumar Jain, and
Appellant No. 2, Manoj Kumar Jain, purchased more than 70 plots/flats/shops in the
project being developed by Respondent No. 2, TDI Infrastructure Limited at Kundli
(District Sonepat) between 2004 and 2006 either in their individual names or in the
joint names of themselves and their wives, H.U.F., their children, their companies etc.
and resold/transferred most of the properties between 2007 and 2011 for profit. In
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2012, the appellants filed complaints under Section 22 of the Consumer Protection
Act, 1986 (for short, ‘the Consumer Act’) before the National Consumers Disputes
Redressal Commission (for short, ‘National Commission’), which were withdrawn in
December, 2013 and then filed an information under Section 19(1)(a) of the
Competition Act, 2002 (for short, ‘the Act’) with the allegation of abuse of dominant
position against Respondent No. 2. The Competition Commission of India (for short,
‘the Commission’) examined the complaint and opined that no prima facie case is
made out for ordering an investigation under Section 26(1) of the Act. Accordingly, it
passed the impugned order dated 24.09.2014 under Section 26(2) of the Act.
3. The appellants have filed this appeal under Section 53B of the Act with the
prayer that the impugned order be set aside and an inquiry be ordered under Section
26(1) for contravention of Section 4(1) of the Act.
4. The facts borne out from the record of the appeal and reply show that in
response to an advertisement issued by Respondent No. 2 in the form of a pamphlet,
the appellants booked residential Plots Nos. K-757 and K-758 on 22.12.2004 in the
Integrated Township being developed by Respondent No. 2 at Kundli in District
Sonepat, Haryana. Appellant No. 1 booked two other residential plots Nos. K-763 and
K-764 on 04.02.2005 in the same Integrated Township. The first two plots were
booked @ Rs. 4,560/- per sq. yds. and other two plots were booked at Rs. 5,250/- per
sq. yds. Respondent No. 2 is said to have charged additional price for preferential
location on 24-meter wide road.
5. It is the case of the appellants that even though they had paid more than
73.10% of the total price, Respondent No. 2 created illegal demand under the various
heads and ultimately cancelled the allotments in 2011 on the ground of non-payment
of the outstanding dues.
6. The appellants challenged the demand raised by Respondent No. 2 and
cancellation of the allotments by filing four separate complaints under Section 22 of
the Consumer Act. Three of these complaints, which came to be registered as
Consumer Cases Nos. 78 to 80 of 2012, were filed by Appellant No. 1 and his wife,
Kavita Jain on 26.03.2012 supported by affidavits dated 21.03.2012. In the first
complaint, their grievance was in respect of Plot No. K-757 measuring 502.32 sq. yds.
They pleaded that even though they had applied for a corner plot on 24-metre wide
road and made additional payment of Rs. 92,340/-, Respondent No. 2 allotted the plot
on the backside of the colony, raised illegal demand for additional price in the name of
extended development charges etc. Along with the complaint, they also filed I.A. No.
01/2012 for ex-parte stay under Section 22 read with Section 13(3)(B) of the 1986
Act. The second and third complaints were also filed by Appellant No. 1 and his wife,
Kavita Jain on 26.03.2012 supported by affidavits dated 21.03.2012 and were
accompanied by Interlocutory Application for ex parte interim orders. The second
complaint was in respect of another plot measuring 500.98 sq. yards purchased @
5,250/- per sq. yds. Their grievance was that they had applied for preferential location
plot but the allotment was made on the backside of the colony and illegal demand
were raised by Respondent No. 2, who finally cancelled the allotments on the ground
of non-payment of the outstanding dues. The fourth complaint, which came to be
registered as Consumer Case No. 81 of 2012 was filed on 26.03.2012 by Appellant No.
2 and his wife, Nidhi Jain supported by affidavits dated 21.03.2012. Along with the
complaint, they also filed application for ex-parte interim order on 26.03.2012
supported by affidavits dated 21.03.2012.
7. Since all the complaints contained substantially similar averments and
allegations, it will be sufficient to take cognisance of the averments contained in
paragraphs 8.2 to 14.9 of Consumer Case No. 78 of 2012 (copies of all the complaints
and other related papers have been filed by learned counsel for Respondent No. 2
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during the course of hearing of the appeal) are reproduced as under:
Non disclosure on material information
8.2 The OP Promoter is guilty of non disclosure of some vital information which it
has disclosed after taking 73.10% of the payment and further in many respect the
OP Promoter has still not disclosed the various information in the agreement which
the OP promoter ought to disclose the same for fair agreement. Further the
agreement imposes the unreasonable and exploitative terms with one sided loaded
gun-all in favour at the OP promoter.
(i) The OP Promoter for the first time disclosed that OP Promoter as Seller alone
is not the owner of land. It along with associate companies and others are
stated to be owners. Their names are not disclosed and they have not made
party to the agreement deliberately. Simply the OP promoter claimed and
represents them to be authorized to develop the land into integrated Township
and carve out the plots and sell them on their behalf;
(ii) The agreement is silent about the dates and other particulars and details as
to the license so granted by the competent authority;
(iii) The agreement falsely imposes upon the complainant to have been provided
all information/clarifications without providing the same;
(iv) The agreement says that Layout plan not approved and still under
consideration for change and without disclosing the same. OP promoter simply
imposed unjustified right to change the location, size and number of the plot
(See: Clause - 3(i));
(v) The agreement imposes the condition for 21% compound interest per annum
for delayed payment but compels the complainant to accept only 12% simple
interest in case OP promoter fails to deliver the plot or is under any liability to
refund the same. The OP promoter uses the word simple interest in case they
have to pay and does not use the same when they have to charge and thereby
charge compound (See: Clause - 5);
(vi) The agreement imposes hidden charges of Electric sub-station which is to be
borne by the purchaser separately. This was not the condition at the time of
booking;
(vii) The agreement passes the risks of non compliance of the conditions of the
licenses on the purchasers (See: Clause -8). No liability of the OP promoter in
case of the cancellation of the licenses and title (See: Clause - 9);
(viii) Imposes “Periodic Maintenance and Upkeep Costs” and compels the
purchasers to enter into a separate agreement OP promoter. The OP promoter
thereby has kept the purchasers into their own clutches to exploit them
forever. It is the right of the OP promoter to appoint the maintenance agency
(See: Clause - 10 & 11);
(ix) There is hidden cost for connecting sewer and portable water lines (See:
Clause - 13). The significance of this clause is that the OP promoter demands
full payment and asks for the execution of the documents without full
development of the colony in terms of the license. Without sewer and water
facility, one cannot live there. The OP promoter may take another number of
years to develop the colony worth living;
(x) The complainant as Purchaser is debarred to have any objection for seller to
raise finance by way of equitable mortgage by deposit of the title deeds. This
is highly objections when the OP promoter has already taken time bound
payment from some much ahead of the development and from others 50%
time bound and remaining as per the progress of the development (See:
Clause-19);
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(xi) The agreement takes away the right of the complainant to even approach to
court as the OP promoter as seller has created to a right to be a harmless on
any account (See: Clause-29);
Manipulation of the account
9. As per the statement of account dated 30.08.2008 issued by OP promoter, the
complainant was to pay only Rs. 5,24,400/-. (Annexure: P-16). Out of this, Rs.
2.96.400] was payable in terms of the progress of the development of the colony
and remaining Rs. 2,28,000/- was payable as and when the possession is offered
after all required development in the colony.
9.1 There has been no intimation as to development of the colony from the OP
promoter and an inspection, the complainants did not find any progress. Therefore,
demand was premature.
Complainant seeks allotment of a plot of Preferential Location and rectification
of statement of account
9.2 The complainant vide letter dated 04.09.2008 (Annexure: P-17) sought
rectification of the statement of the account. The said letter read:
“Thank you very much for sending the statement of account by way of revised
annexure dated 30.08 2008 shorting Rs. 5,24,400/- as total amount payable till
date
I wish to draw your kind attention to the following:—
(1) The statement claims Preferential location charge of Rs. 2,28,000/- but no
preferential plot has been given. We did request for preferential location
plot for which we negotiated on 06.05.2005 and paid Rs. 92,340/-. As per
your receipt number 10712 dated 06.05.2005 states preferential location
charges (PLC) is for corner plot on 24 meter road. However, your company
has allotted a general plot number K-757 on 18 meter road.
(2) Therefore, your company is required to confirm and allot a corner plot on
24 meter wide road.
(3) Since, your company has not confirmed in writing about the development
of the colony, the said demand is premature. On having confirmation about
the completion of development of colony in terms of license and further
confirming and allotting a corner plot on 24 meter wide road, we shall make
the payment.
You are therefore requested to kindly (i) allot corner plot on 24 meter wide road
(ii) further confirm the development of the colony to enable the complainants to
make the payment.”
OP Promoter further manipulate the demand showing outstanding for Rs.
11,40,638/-.
9.3 The OP promoter did not allot a earner plot on 24 meter wide road but
prepared the final statement of the account On 05.11.2008 and thereby
manipulated the demand of Rs. 11,40,638/- as outstanding. The development was
not in progress, yet the OP promoter called the entire amount premature that too
with a controversial account. [Annexure: P-18].
9.4 In this statement, EDC charges of Rs. 6,29,909/- instead of Rs. 3,26,508/-.
Apart from the above, Infrastructure Development Charges of Rs. 30,139/- @ Rs
60/- per square yards and Service Charges Rs. 11,553/- @ Rs. 23/- per square
yards and miscellaneous expenses of Rs. 10,000/- and interest free Maintenance
Security Deposit, Rs. 20,000/- was wrongly demanded. If these wrong amounts i.e.
Rs. 3,75,093/- are deleted the total amount payable would be only Rs. 7,65,454/-.
Complainant objects to correctness of the account
9.5 The complainant again wrote a letter dated 17.11.2008 (Annexure: P-19) to
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the 0P promoter (1) demanding the allotment of corner plot on 24 meter wide road
for having paid additional amount for the same and (ii) further objected the
correctness of the statement of account and requested it to correct the same. The
complainant also objected that the demand of payment is premature for want of
development of the colony in terms of the agreement. The said letter reads:—
“Thank you very much for sending the final statement of account dated
05.11.2008 showing outstanding demand of Rs. 11,40,638/-.
I wish to draw your kind attention to the following:—
(1) The statement claims preferential location charge of Rs. 2,29,058/-. We
did request for preferential location plot for which we negotiated on
06.05.2005 and paid Rs. 92,340/-. As per your receipt number 10712
dated 06.05.2005 states preferential location charges (PLC) is for corner
plot on 24 meter road. However, your company has allotted a general plot
number K-757 on 18 meter road backside of colony. You are requested to
allot a corner plot on 24 meter wide road which is adjoining sector road.
(2) In this statement, External Development Charges of Rs. 6,29,909/-
instead of Rs. 3,26,508/- have been wrongly claimed As per agreement the
rate is Rs. 650/- per square yards whereas your account has charges @ Rs.
1,254/- per square yards. In fact, Haryana Government has charged you
even less than Rs. 650/- per square yards. Thus, there is overcharging of
minimum Rs. 3,03,401/-.
(3) Apart from the above. Infrastructure Development Charges of Rs. 30,139/.
@ Rs. 60/- per square yards and Service Charges Rs. 11,553/- @ Rs.
23/per square yards and Miscellaneous Expenses of Rs. 10.00% and
interest free Maintenance Security Deposit of Rs. 20,000/- were also
wrongly demanded.
(4) If the aforesaid total amounts i.e. Rs. 3,75,093/- are deleted, outstanding
payable would be only Rs. 7,65,545/- for the corner plot on 24 meter wide
road and not the present general plot so allotted.
(5) Your company has neither confirmed in writing about the corner plot on 24
meter wide road nor the development and on visiting the site, we did not
find any satisfactory progress in development to entertain your demand of
the entire amount. We have paid about 73.10% of the payment. 10% is
payable on possession. The rest amount being demanded is premature.
of the colony, the said demand is premature.
You are therefore requested to kindly d) allot a plot on Preferential Location. (ii)
correct the account accordingly and (iii) further confirm the development of the
colony to rule out premature demand. Thereupon, we shall immediately make the
payment.”
OP Promoter neither confirmed plot of Preferential Location nor corrected the
account
9.6 The OP promoter neither confirmed the allotment of corner plot on 24 meter
wide road nor corrected the statement of the account nor accepted that the demand
of the remaining amount is premature and possession is offered without
development of the colony. Further the OP promoter did not satisfy the completion
certificate or any document from the statutory body of Haryana under Development
& Regulation of Urban Areas Act.
9.7 The OP Promoter demanded Rs. 11,40,638/- vide letter dated 24.11.2008
(Annexure: P-20) and thereafter vide letter dated 12.01.2009, the OP promoter
threatened the complaints to pay Rs. 11,40,638/- with 21% interest within 10 days
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and also asked to accept the possession of the plot. The OP promoter further
threatened if the penalty is not paid within a month after 10 days of time allotted
then thereafter farther amount of Rs. 25,000/- with 21% interest per annum shall
be charged as penalty and Rs. 50,000/- if delayed by 2 months of times allotted.
The OP promoter also threatened to cancel the plot in case the amount is not paid.
(Annexure: P-21).
Complainant again requests confirmation of plot of preferential location and
for rectification of account
9.8 The complainant again wrote a letter 28.01.2009 (Annexure: P-22) to the OP
promoter (i) to confirm and allot a corner plot on 24 meter wide road instead of
general plot so allotted on 18 meter wide road in the backside of the colony and (ii)
further requested them to correct the statement of account. The said letter reads:
“Thank you for your letter dated 12th January 2009. The letter demands Rs.
1,40,638/- as outstanding with 21% interest and also commands us to accept
the offer of possession. The letter further threatened “the further amount of Rs.
25, 000/- shall be charged as a penalty along with the interest at 21% p.a.,
agreed penalty of making delayed payment and Rs. 50,000/- as penalty for other
two months delay from the day specified in making the payment demanded in
similar manner.”
I wish to draw your Kind attention to the following:—
(1) Further, the statement claims preferential location charge of Rs. 2,29,058/
-. We did request for preferential location plot for which we negotiated on
number K-757 on 18 meter road. You have been repeated request to allot
and confirm the allotment of a corner plot on 24 meter wide road, but you
have yet to respond the same.
(2) The offer of possession of plot is without the development of the colony.
We have been repeatedly asking your company to confirm about the
development of the infrastructure of the colony as undertaken under the
license, but your company has failed to confirm in writing. In case your
company has completed the same, please satisfy us with the completion
certificate or any document from the statutory body of Haryana under
Haryana Development & Regulation of Urban Areas Act.
(3) Your demand is wrong, statement of account is manipulated. Vide my
letters dated 04.09.2008 and further letter dated 17.11.2008, we have
pointed out as to how your statement of account is false and not correct.
However, your company neither corrected the account nor replied to justify
your statement of account.
(4) In your statement, External Development Charges of Rs. 6,29,909/-
instead of Rs. 3,26,508/- have been wrongly claimed. As per agreement
the rate is Rs. 650/- per square yards whereas your account has charges @
Rs. 1,254/- per square yards. In fact, Haryana Government has charged
you even less than Rs. 650/- per square yards. Thus, there is overcharging
of minimum Rs. 3,03,401/-.
(5) Apart from the above, Infrastructure Development Charges of Rs. 30,139/-
@ Rs. 60/- per square yards and Service Charges Rs. 11,553/- @ Rs. 23/-
per square yards and Miscellaneous Expenses of Rs. 10,000/- and interest
free Maintenance Security Deposit of Rs. 20,000/- were also wrongly
demanded.
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of the colony, the said demand is premature. The threat of cancellation is
malafide.
You are therefore requested to kindly (i) allot a plot on Preferential Location, (ii)
correct the account accordingly and (iii) further confirm the development of the
colony to rule out premature demand. Thereupon we shall immediately make the
payment.”
OP promoter did not confirmed for plot of preferential location but adamant to
realize the amount as per their manipulated statement of account and offered
possession without development
9.9 The OP promoter neither confirmed nor allotted the corner plot on 24 meter
wide road nor corrected the statement of account nor confirmed the development in
terms of licence. However informed vide letter dated 11.05.2009 to the complainant
that the plot is ready for possession and requested to clear balance outstanding
payments and proceed for registration. The OP promoter again demanded Rs.
11,40,638/- as outstanding and Rs. 1,26,000/- towards the Stamp Duty for
registration. (Annexure: P-23).
9.10 The OP promoter again vide letter dated 18.05.2009 asked the
complainants to pay Rs. 11,40,638/- on the basis of his wrong statement of account
along with interest at the rate of 21% p.a. within 10 days of receipt of this letter
and simultaneously accept the possession of the aforesaid plot. The OP promoter
further threatened if the penalty is not paid Within a month after 10 days of time
allotted then thereafter further amount of Rs. 25,000/- with 21% interest per
annum shall be charges as penalty, and Rs. 50,000/- if delayed by 2 months of
time allotted. Failing which cancellation of the plot was threatened. (Annexure: P-
24).
Complainant still requests (i) for conformation of a plot of preferential
location (ii) for rectification of account and (iii) to confirm the development of
the colony before offering possession
9.11 The complainant requested the OP promoter to confirm the allotment of a
plot of preferential location, to correct the account accordingly and further confirm
the development of the colony to rule out premature demand. Further, the
complainant also assured to pay the amount if account was corrected and demand
shown not premature. The complainant already paid more than 73% of the amount
for plot of preferential location. For this, complainant wrote letter dated 25.05.2009
(Annexure: P25), which reads:—
“Thank you for your letter dated 18th May 2009. The letter is the repetition of
the letter dated 12.01.2009 which we have replied vide letter dated 28.01.2009.
Since then we have not heard.
The present letter again demands Rs. 11,40,638/- as outstanding with 21%
interest and also commands us to accept the offer of possession. The letter
further threatened “the further amount of Rs. 25,000/- shall be charged as a
penalty along with the interest at 21% p.a., agreed penalty of making delayed
payment and Rs. 50,000/- as penalty for other two months delay from the day
specified in making the payment demanded in similar manner.”
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I wish to draw your kind attention to the following:

(1) Further, the statement claims preferential location charge of Rs. 2,29,058/
-. We did request for preferential location plot for which we negotiated on
number K-757 on 18 meter road. We have reminded your company several
times for allotment of corner plot on 24 meter wide road but in vain.
(2) The offer of possession of plot is without the development of the colony.
We have been repeatedly asking your company to confirm about the
development of the infrastructure of the colony as undertaken under the
license, but your company has failed to confirm in writing. In case your
company has completed the same, please satisfy us with the completion
certificate or any document from the statutory body of Haryana under
Haryana Development & Regulation of Urban Areas Act.
(3) Your demand is wrong, statement of account is manipulated. Vide my
letters dated 04.09.2008 and further letter dated 17.11.2008, we have
pointed out as to how your statement of account is false and not correct.
However, your company neither corrected the account nor replied to justify
your statement of account.
(4) In your statement, External Development Charges of Rs. 6,29,909/-
instead of Rs. 3,26,508/- have been wrongly claimed. As per agreement
the rate is Rs. 650/- per square yards whereas your account has charges @
Rs. 1,254/- per square yards. In fact, Haryana Government has charged
you even less than Rs. 650/- per square yards. Thus, there is overcharging
of minimum Rs. 3,03,401/-.
(5) Apart from the above, Infrastructure Development Charges of Rs. 30,139/-
@ Rs. 60/- per square yards and Service Charges Rs. 11,553/- @ Rs. 23/-
per square yards and Miscellaneous Expenses of Rs. 10,000/- and interest
free Maintenance Security Deposit of Rs. 20,000/- were also wrongly
demanded.
of the colony, the said demand is premature. The threat of cancellation is
malafide.
You are therefore requested to kindly (i) confirm and allot a corner plot on 24
meter wide road for having taken the additional amount for the same, (ii) correct
the account accordingly and further (iii) confirm the development of the colony to
rule out premature demand. Thereupon we shall immediately make the payment.
We have paid more than 73% of the amount payable and shall like to pay the
remaining and have the plot.”
OP Promoter now seeks further manipulated EDC charges
10. The OP promoter vide letter dated 26.06.2009 further demanded additional
EDC charges @ Rs. 408.50 per square yards saying that the Government of Haryana
has enhanced the EDC with retrospective date. (Annexure: P-26).
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10.1 It may be noted that OP promoter is not fair in their demand.

10.2 The complainant vide letter dated 01.08.2009 (Annexure: P-27) seeks the
working of the EDC charges. The letter reads:—
“Thank you for your letter dated 26th June 2009. The letter demands additional
EDC charges @ Rs. 408/50 per square yards saying that the Government of
Haryana has enhanced the EDC with retrospective date.
I wish to draw your kind attention for the following:—
(1) The EDC as per agreement dated 15.03.2007 is Rs. 650/- per square
yards which we paid in time. The Haryana Government has charged the
EDC even less than that. You have never disclosed the rate on which EDC
has been charged.
(2) After charging and collecting the EDC @ Rs. 650/- per square yards, you
claimed the EDC @ Rs. 1,254/- per square yards vide statement of account
dated 05.11.2008.
(3) Now, you are claiming further enhancement of EDC with additional Rs.
408/50 per square yards i.e. Rs. 1,254/- + Rs. 408/50/= Rs. 1,662/50 per
square yards.
(4) We request you to kindly let us know the working of the EDC charges and
the supporting documents from the Haryana Government. We are seeking
because as per our enquiry from Haryana Government, your company is not
even entitled to collect Rs. 650/- per square yards on plotted residential
plot even on the enhanced rate.
(5) Your company though collected and diverted the funds to different
projects instead of depositing with Government and Government is
demanding the interest thereon which you wish to pass on the buyers. This
is not justified.
(6) Earlier also, you have raised disputed statement of account demanding Rs.
11,40,638/- with 21% interest and additional penalty. It may be noted that
the OP promoter is not fair in their demand. The aforesaid amounts include
a demand of Rs. 3,75,093/- which your company is not entitled and is to be
deleted. For this we have been constantly writing to your company in past
but in vain.
You are therefore requested to kindly give us the working of the EDC charges
with supporting documents of the Haryana Government. We will pay the demand if
found correct.”
Complainant meets OP promoter personally, OP promoter partially corrects the
statement of account
11. On 02.07.2009 the Complainant met personally the OP promoter and
discussed all the issues.
11.1 The OP promoter assured the allotment of a plot of preferential location and
further also issued the revised annexure of the fresh statement account dated
02.07.2009 showing an outstanding balance of Rs. 8,82,638/- as against Rs.
11,40,638/- for 502.32 square yards and included Service Charges and IDC.
(Annexure: P-28). The statement of account charged for 502.32 square yards and
included service charges and IDC. EDC, IDC, Service Charges, Miscellaneous
Expenses and Interest Free Maintenance Security Deposit remained in dispute.
Complainant finds corrected account still manipulated and needs correction
11.2 However, the complainant was dissatisfied as the aforesaid outstanding
amount of Rs. 8,82,638/- still included an amount of Rs. 3,75,093/-, which the OP
promoter is not entitled to demand and if the same is deducted from the amount of
Rs. 8,82,638/- being demanded, the actual demand would be Rs. 5,07,545/- only
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for the plot of preferential location, which was yet to be confirmed and allotted.
11.3 Hence, the complainant requested to further deduct Rs. 3,75,093/- and
correct the demand as Rs. 5,07,545/- and allot the plot of preferential location. OP
Promoter was not ready. Hence, vide letter dated 15.07.2009 (Annexure: P-29), the
complainant wrote which reads:—
“The undersigned personally visited your office and discussed issues in
dispute as to the correctness of the demand. We thank you for assuring
allotment of a plot of preferential location i.e. a corner plot on 24 meter wide
road and also for correcting the statement of account partly.
With regret, I have to say that your company was adamant for no reason to
correct the account as such the EDC, IDC, Service Charges, Miscellaneous
Expenses and Interest Free Maintenance Security Deposit remained in dispute
except to reduce the outstanding amount from Rs. 11,40,638/- to Rs. 8,82,638/-
as per your revised annexure dated 02.07.2009.
I am still aggrieved as the position is:—
Head Excess/disputed Remarks
amount
EDC 3,03,401/- Earlier Rs. 650/- per square
yards which was more than the
amount worked out
The enhancement is on account
of default of the OP promoter as
purchasers paid the amount in
time.
Now the rate is charged Rs.
1,254/- per square yards instead
of Rs. 650/-
IDC 30,139/- No IDC is mentioned in
agreement
Service Charges 11,553/- Service charges is against the
agreement.
Miscellaneous Expenses 10,000/- Miscellaneous Expenses is
against the agreement.
Interest Free 20,000/- Interest Free Maintenance
Maintenance Security Security Deposit is against the
Deposit agreement.
Total 3,75,093/- The amount is being wrongly
claimed.
If this excess amount of Rs. 3,75,093/- is deducted from the amount of Rs.
8,82,638/- being demanded, the actual demand would be Rs. 5,07,545/- only that
too on confirmation & allotment of a plot of preferential location i.e. a corner plot on
24 meter wide road and conformation of full development of colony. I am happy
that you have agreed to allot a plot of preferential location.
You are therefore requested to confirm & allot a plot of preferential location and
also further correct the statement of account. We intend to make the payment. We
have already paid more than 73% of the amount. Once we receive the corrected
statement of account & confirmation of allotment of a plot on preferential location,
we shall make the payment without any delay.”
OP promoter further corrected the demand but still manipulated
11.4 The OP promoter appears to have considered the dispute and further
lowered the demand from Rs. 8,82,638/- to Rs. 8,35,729/- vide demand letter
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dated 31.10.2009 but dispute remained. (Annexure: P-30).
11.5 The reduced demand, a outstanding of Rs. 8,35,729/- was also based on
inflated and incorrect statement of account. The EDC charges levied which the OP
promoter was not entitled. Further, the OP promoter has raised several hidden costs
which the OP promoter is not entitled to.
11.6 The OP promoter assured attractive price including car, LCD, Digital
Camera, Mobile Phones, DVD Players etc. if payment is made before 15.11.2009
failing which 21% interest will be charged as per terms and condition of the
agreement. However, the OP promoter is yet to confirm and allot a plot of
preferential location for which it took additional amount.
Complainant reminds for further correction of demand
11.7 The complainant reminded OP promoter to correct the demand to Rs.
5,07,545/- and not Rs. 8,35,729/-. For this, the complainant again vide letter dated
16.11.2009 (Annexure: P-31) wrote to the OP Promoter, which reads:
“Thank you for your letter dated 31.10.2009 wherein your company appears to
have considered to further correct the statement of account by showing the
demand of Rs. 8,35,729/- only (Earlier demand vide your revised annexure dated
02.07.2009 was Rs. 8,82,638/- and prior to that i.e. 05.11.2008 demand was for
Rs. 11,40,638/-)
Further, your company assured attractive price including Hyundai Car i-10
LCD TVs. Digital Cameras, Mobile Phones, DVD Players etc. if payment is made
before 15.11. 2009 failing which 21% interest will be charged as per terms and
condition of the agreement.
Your company has not provided the details on account which the outstanding
has been shown for lower figure.
Your demand for Rs. 8,35,729/- is based on inflated and incorrect statement
of account.
Please refer our letter dated 15.07.2009, according to which the actual
demand would be Rs. 5,07,545/- only that too on confirmation & allotment of a
plot of preferential location.
You are therefore requested to correct the statement of account. We intend to make
the payment. We have already paid more than 73% of the amount. Once we
receive the (i) confirmation as to the allotment of plot of preferential location and
(ii) corrected statement of account, we shall make the payment without any
delay.”
OP Promoter threatens to levy Holding Charges
11.8 The OP promoter wrote vide letter dated 04.03.2010 in case the payment is
not made on or before 15.03.2010, the holding charges of Rs. 100/- square yards
shall be payable. (Annexure: P-32).
Now OP promoter demands Rs. 23,76,200/- for general plot as outstanding
against balance of Rs. 5,07,545/-
11.9 The OP Promoter finding no way out to justify the demand of Rs. 8,35,729/-
as against Rs. 5,07,545/- for a plot of preferential location and further feeling
disgusted, OP promoter manipulated the outstanding amount to Rs. 23,76,200/-
vide demand letter dated 26.03.2010. (Annexure: P-330.
Complainant requests OP promoter to withdraw frivolous demand, correct the
statement of account and take the money
11.10 The complainant accordingly vide letter dated 14.04.2010 (Annexure: P-
34) wrote to the OP promoter that instead of justifying the demand, now your
company has shown frivolous & multifold outstanding of Rs. 23,76,200/-.
Complainant requested OP promoter to withdraw the demand and confirm the
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allotment of plot of preferential location and have the money. The said letter reads:
—
“We acknowledge the receipt of your letter dated 26.03.2010.
We were shocked to note the demand for Rs. 23,76,200/-.
Vide letter dated 31.10.2009 your company's demand was for Rs. 8,35,729/-
only (Earlier demand vide letter dated 02.07.2009 was Rs. 8,82,638/- and prior
to that i.e. 05.11.2008 demand was for Rs. 11,40,638/-).
Further, your company assured attractive price including Hyundai Car i-10,
LCD TVs, Digital Cameras, Mobile Phones, DVB Players etc. if payment of Rs.
8,35,729/- is made before 15.11.2009 failing which 21% interest will be charged
as per terms and condition of the agreement.
We have objected your demand for Rs. 8,35,729/- being based on inflated and
incorrect statement of account. Please refer our letter dated 15.07.2009,
according to which the actual demand would be Rs. 5,07,545/- only for a plot of
preferential location which is yet to be confirmed.
Instead of justifying your demand in reply to your letters or correcting the
statement of account, now your company manipulated outstanding to Rs.
23,76,200/-.
You are humbly requested to withdraw such demand and correct the
statement of account. We intend to make the payment. We have already paid
more than 73% of the amount. Once we receive the corrected statement of
account and confirmation as to the allotment of a plot of preferential location, we
shall make the payment without any delay.”
Maintenance charge demanded
12. On 01.10.2010, the OP Promoter demanded the common area maintenance
charges (October-December 2010) of Rs. 1,663/- (Annexure: P-36). On 19.10.2011
the complainant paid Rs. 11,638/- the common area maintenance charges for the
period from July 2010 to March 2012 as demanded by the OP promoter. (Annexure:
P-38).
Cancellation of plot
13. On 20.10.2011, the complainant visited the site to see the development and
talk on settlement of the disputes in the statement of account. But, now OP
Promoter demanded Rs. 35,13,779/- as the complainant raised the dispute that the
amount payable is mere Rs. 7,65,545/- that too for a plot of preferential location
and further on intimation as to final development. The complainant demanded the
certificate of Haryana Government as to compliance of all terms and conditions as to
development of the colony.
13.1 Here the OP promoter got annoyed. OP Promoter told the complainant either
to pay Rs. 35,13,779/-(Annexure: P-39) and have the plot, otherwise have the
refund of the amount deposited without interest after deducting the earnest money
and statutory charges and other charges.
13.2 The complainant protested saying this is unjust. The OP promoter informed
the complainant that the plot has been cancelled. The OP promoter gave the
complainant a photocopy of the refund cheque number 286597 dated 10.12.2010
for Rs. 11,13,800/- drawn on Indian Overseas Bank showing the cancellation in
back date.
13.3 The stand is falsified because the cancellation is purported and manipulated
as statement of account dated 20.10.2011 does not show that the plot is cancelled.
Further, the demand was manipulated to Rs. 35,13,779/- as against Rs. 7,65,545/-
payable on confirmation of allotment of a plot of preferential location and
confirmation of all developments as per licence. The complainant had already paid
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more than 73% of the total amount for a plot of preferential location.
Deficiencies in Services
14. The aforesaid facts and circumstances of the case show that the services of
the OP Promoter suffers from the following deficiencies in services:.
14.1 OP Promoter takes 10% extra money as Preferential Location Charges (PLC)
and assures preferential location plot being corner on 24 meter wide road but allots
general plot (in back side of the colony).
14.2 But the OP Promoter kept on manipulating the statement of account, which
appears from the following:—
Date Outstanding demands in Rupees
30.08.2008 5,24,400/-
05.11.2008 11,40,638/-
12.01.209 11,40,638/-
11.05.2009 11,40,638/-
18.05.2009 11,40,638/-
02.07.2009 8,82,638/-
31.10.2009 8,35,729/-
26.03.2010 23,76,200/-
20.11.2010 35,13,779/-
14.3 The OP Promoter falsified the statement of account & demanded inflated
outstanding balance. It should be noted that as per the statement of account dated
30.08.2008 of the complaints, the complainant was to pay only Rs. 5,24,400/-. Out
of this, (i) Rs. 2,96,400/was payable in terms of the progress of the development of
the colony and remaining (ii) Rs. 2,28,000/- was payable as and when the
possession is offered after all required development in the colony:
14.4 The OP promoter wrongly cancelled the plot. On 20.10.2011, OP Promoter
demanded Rs. 35,13,779/- as against mere Rs. 7,65,545/- that too which could be
demanded on intimation of final development and confirmation of plot of
preferential location. The complainant demanded the certificate of Haryana
Government for compliance of all terms and conditions as to development of the
colony. The OP promoter got annoyed and intimated that the plot has been
cancelled and asked the complainant to surrender the receipts and take the refund
of the amount deposited without interest after deducting the earnest money,
statutory charges and other charges. And the OP promoter gave me a photocopy of
the refund cheque number 286597 dated 10.12.2010 for Rs. 11,13,800/- drawn on
Indian Overseas Bank showing the cancellation in back date and thereby the OP
promoter has also manipulated the records.
14.5 EDC amount also manipulated. The EDC as per agreement dated
15.03.2007 was Rs. 650/- per square yards which was paid in time. The Haryana
Government has charged the EDC even less than that. The OP promoter later asked
for manipulated amount of EDC @ Rs. 1,662.50 per square yards.
14.6 OP Promoter takes 73.10% of the total payment i.e. Rs. 20,80,600/- out of
total amount payable Rs. 28,46,145/-. The demand payment against most of the
installment was premature, the complainant paid the same.
14.7 The OP promoter offered the possession of the plot as if it was a part of
agriculture and not a residential colony. Such offer of Possession is meaningless as
the colony is not developed and one cannot use the said plot for making house.
Even the water, electricity and sewer pipelines are not there.
14.8. OP promoter asks the complainant to sign erroneous agreement after
receiving 73.10% of the amount also he is guilty of non disclosure of the material
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information also.
14.9. The OP promoter booked the plots of a project without approval of the lay
out plan from the competent authority.”
8. On the basis of the aforementioned averments and allegations, the complainants
made the following prayer:
“(i) To restore the booking and allotment of plot;
(ii) To further direct the OP Promoter to exchange the existing plot so allotted with
a similar sized corner plot on 24 meter wide road or alternatively to pay the
difference of average value of such plot @ Rs. 50,000/- per square yards for 500
square yards i.e. Rs. 2.50 crores as on the date of filling of this case;
(iii) To further direct the OP promoter to refund the excess amount whatsoever the
OP promoter has charged from the complainant on account of External
Development Charges (EDC charges) and correct the statement of account;
(iv) Further pay Rs. 5 lakhs compensation towards the mental torture and agony;
(v) Pay interest @ 18% per annum on the aforesaid amounts of compensation from
the date of filing this complaint to the date of payment;
(vi) Pay costs of the litigation;
(vii) Any other relief/direction the Hon'ble Commission may deem fit and proper in
the present facts and circumstances of the case.”
9. Although, Respondent No. 2 did not file reply to any of the aforesaid four
complaints and its defence was closed by National Commission vide order dated
09.09.2013, two applications were filed on its behalf under Order VII Rule 11 of the
Code of Civil Procedure, 1908 (for short, ‘the CPC’) for dismissal of the complaints on
the ground that the complaints do not fall within the definition of ‘consumer’ under
Section 2(d)(1) of the Consumer Act. For the sake of reference, paragraphs 1, 5 to 8 of
the application filed in Consumer Complaint No. 79 of 2012 are reproduced below:
“1. The present application is being filed under provisions akin to O VII R. 11 of
Code of Civil Procedure, 1908 for rejection of the Complaint of the Complainant,
as the Complaint does not fulfill the criteria laid under Section 2(d)(i) for an
individual to approach this Hon'ble Commission by way of a consumer complaint.
2. It is humbly submitted that the present complaint has been filed by the
Complainant on the ground that he alongwith his wife had registered for
allotment of Plots in the Project of the respondent being ‘TDI City’ at Kundli
Sonepat, Haryana.
3. After payment of the requisite installment, the Respondent in furtherance of the
performance of its obligation under terms and conditions Applicable to the
parties offered Plot No. K-757, to the complaints.
4. The allegations made in the complaint were that there were alleged deficiencies
in the location of the Plot allotted, payment plan applicable to the plot of the
complainant and amount due.
5. It is pertinent to mention that at the time of filing of the present complaint, the
complainant did not inform this Hon'ble Commission, that the complainant is a
commercial investor, who have bought several properties in the project of the
Respondent, solely with the intention of selling the same later on to earn profit
and business gain. It is further submitted that the complainant never informed
this Hon'ble Commission that they had bought the said properties for commercial
purpose and therefore could not be covered under the definition of ‘Consumer’
under Section 2(d)(i) of the Consumer Protection Act, 1996.
6. When files of the present matters were transferred to the office of the present
counsel, it came to the light that even before this Commission, the complainants
had filed complaints in respect of 3 separate Plots. On further inquiry, it came to
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light that there were other properties also which the complainants had booked
for commercial purpose for re-selling them at premium later on. The sheer
number and amounts of the properties registered by the complainants would
reveal the nefarious design of the complainants. Therefore, the complainants not
being consumer under the Consumer Protection Act, 1996, could not have filed
the present complaint before this Hon'ble Commission.
7. Following are some of the plots that have been booked by the complainants:—
S. No. Plot No. Area Booking Date Complaint No.
1. K-575, TDI City, Kundli 500 Sq. Yrds 22.12.04 78/2012
Sonepat
Sonepat
Sonepat
Sonepat
It is humbly submitted that Item No. 4 though was allotted to one Manoj
Kumar Jain and the complaint has also been filed by him, in the address of the
complainant in both the complaints is same. It is further submitted that besides
the aforesaid plot the complainants and their family members have booked
various other commodities with the respondent. The total commodities booked
by the complainants and his family members are appended herewith as sheet A,
attached with application.
8. Therefore, in the above mentioned circumstances, it is humble submission of the
Respondent that the complaints have attempted to mislead this Hon'ble
Commission by presenting themselves to be consumers where they are
commercial investors, who must approach the Civil Court for their grievance,
though it is vehemently denied by the Respondent.”
10. The National Commission heard the arguments in all the four complaints on
28.10.2013 and reserved the order. However, before the order could be typed and
signed, learned counsel for the complainants, who is also representing the appellants
in this appeal, sought permission to withdraw the complaints with liberty to approach
an appropriate forum as per law. The National Commission took cognisance of his
request and passed order dated 28.10.2013, which reads as under:
“CONSUMER COMPLAINT NO. 81 OF 2012
WITH
RA/334/2013
IA/6662/2013
IA/6683/2013
(REVIEW, C/DELAY & REJECTION OF COMPLAINT)
Majoj Kumar Jain & Anr. Son of Shri Surendra Kumar Jain, Resident of 100
Vaishali, Pitampura Delhi - 110 034. …Complainants
Versus
TDI Infrastructure Ltd. (Formerly known as Intime Promoters (P) Ltd. Through its
Managing Director, 9 Kasturba Gandhi Marg, Connaught Place, New Delhi - 110 001.
…Opposite Party
Before:
HON'BLE MR. JUSTICE J.M. MALIK, PRESIDING MEMBER
HON'BLE DR. S.M. KANTIKAR, MEMBER
For the Complainants: Mr. Jeevan Prakash, Advocate
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For the Opposite Party: Ms. Kanika Agnihotri &
Mr. Vaibhav Agnihotri,
Advocates with
Mr. Ritesh Vijnani, A.R. of OP
Dated: 28.10.2013
ORDER
Counsel for the parties present. Comprise not reached.
Arguments heard.
Reserved for orders
Sd/-
……………………….
(J.M. MALIK J.)
PRESIDING MEMBER
Sd/-
……………………….
(DR. S.M. KANTIKAR)
MEMBER
At this stage, learned counsel for the complainants wants to withdraw all these
four cases with liberty to approach the appropriate Forum, as per Law.
All the four Consumer Complaints are dismissed as withdrawn. Liberty is granted
to approach the appropriate forum, as per Law. The complainants can seek help
from the judgment of the Apex Court in the case of “Laxmi Engineering Works v.
P.S.G. Industrial Institute [(1995) 3 SCC 583]” so far as the matter of limitation is
concerned.
Copy of the order be sent to the Opposite Party. The opposite party also be
informed on telephone.
Sd/-
……………………….
(J.M. MALIK J.)
PRESIDING MEMBER
Sd/-
……………………….
(DR. S.M. KANTIKAR)
MEMBER”
11. Shri Surendra Kumar Jain, father of the appellants herein, who had booked a
Residential Villa bearing No. 93 in the township being developed by M/s Taneja
Developers and Infrastructure Limited at Mohali, Punjab (for short, ‘Taneja
Developers’) on Chandigarh-Kharar Road (NH-1) also filed a complaint under Section
17 of the Consumer Act, which came to be registered as Consumer Complaint No. 350
of 2012 and is said to be pending before the State Consumer Disputes Redressal
Commission. The allegation made in that complaint are substantially similar to the
allegations made in Consumer Cases Nos. 78 to 81 of 2012, which were disposed of by
the National Commission vide order dated 28.10.2013. Taneja Developers filed reply to
contest the complaint filed by Surendra Kumar Jain and raised a preliminary objection
to its maintainability by asserting that the complainant had purchased the plot for
commercial purpose and as such, he does not fall within the definition of ‘consumer’
and further that he was guilty of abusing the process of the State Consumer Disputes
Redressal Commission. This is evident from paragraphs 3 to 13 of the reply filed by
Taneja Developers, which are extracted below:
“3. It is humbly submitted that the present complaint has approached this
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Hon'ble Commission claiming to be a ‘consumer’ who had applied for a Villa in the
project of the Respondent being ‘TDI City’ at Mohali, Punjab the said registration of
the Complainant has been since cancelled by the Respondent vide letter dated
25.10.2010.
4. The allegations made in the complaint are that there were deficiencies
committed by the Respondent with regard to the said registration and the
cancellation done by the Respondent was unjustified and uninformed. The
complainant has claimed for restoration of registration of Villa so allotted earlier or
to compensate him by way of allotting him another villa. The complainant has also
prayed for cancellation of the license of the Respondent besides seeking the relief of
compensation and a Maruti Esteem Car.
5. It is pertinent to mention that at the time of filing of the present complaint
the complainant did not inform this Hon'ble Commission, that the complainant was
in fact bought the plot in quest for commercial purpose. This fact is further
established from the fact that the complainant is a part of a family who is in the
business of dealing in immovable properties. It is submitted that complainant did
not inform this Hon'ble Commission that he had registered for and allotted another
plot being B-B51/1 in the Respondent's project only. The details of the registration
made by the complainant are as follows:—
Sl. No Name Customer ID Commodity No.
1. Surendra Kumar Jain MRV-10013 N/A
2. Surendra Kumar Jain & 10583 B-B51/1
Manoj Kumar Jain
6. It is also pertinent to bring it to the Notice of the Hon'ble Commission that the
payments with respect to the plot subject matter of dispute herein was not even
made by the complainant himself but by one M/s Deepak and Company. It is
submitted that the said M/s Deepak and Company is an entity which has numerous
registrations and/allotment in its own name. Furthermore, the associates of the
complainant including Mr. Deepak Kumar Jain have also registered themselves for
various immovable properties. All these registration including that of the
complainant are even registered on the same address. It is submitted that the said
M/s Deepak and Company is itself involved in as many as 6 registrations of
immovable properties in the project of the Respondent only. The Respondent is
submitting a list of the Customer ID of the complainant, M/s Deepak & Company
and their associates for the consideration of this Hon'ble Commission. A list
reflecting the various registrations is being annexed herewith and marked as
Annexure R-2.
7. In the humble submission of the respondent, the complainant herein having
booked more than one commodity with the respondent itself is not a ‘consumer’
within the meaning of the Act. It is a settled position in law that a person having
booked or more than one unit, amounts to booking of such premises for
investment/commercial purpose.
8. It is further submitted that the above mentioned facts themselves lead to the
conclusion that the complainant himself has registered for or related to more than
one immovable properties and the same are meant for a commercial purpose. Thus
the complainant is not a ‘consumer’ as contemplated under the Consumer
Protection Act, 1986. Hence, the complainant is not entitled to approach the
Consumer Foras, for any alleged grievance that he may have.
9. Therefore, it is submitted that the complainant should be called upon to
declare on affidavit on the following information:—
(i) Declare his relation or position with respect to M/s. Deepak & Company
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(ii) If he is the owner or registered for or allotted any other immovable property
in addition to the two properties registration stated by the Respondent
hereinabove.
(iii) If he is a co-applicant alongwith the said M/s Deepak & Company and any
other associates.
10. The complainant has abused the process of consumer laws and this Hon'ble
Commission by filing the present complaint only with the intention of making
wrongful gain. Furthermore, the complainant has deliberately misrepresented facts
and attempted to mislead this Hon'ble Commission by concealing materials facts.
In the humble submission of the respondent, had the said facts not been
suppressed and in consideration of this Hon'ble Commission, this Hon'ble
Commission would have not issued Notice in the present complaint at all. Therefore,
the respondent prays that this Hon'ble Commission impose heavy penalty on the
complainant for the misrepresentation of facts and concealment of materials facts.
11. In the humble submission of the Respondent the complaint has attempted to
mislead this Hon'ble Commission by presenting itself to be consumers where as he
is a commercial investors, who must in case of grievance should approach the Civil
Court for grievance, though it is vehemently denied by the Respondent.
12. Thus the present respondent prays that the process of this Hon'ble
Commission be not abuse and exploited by the complainant and the complaint be
dismissed at the outset. Even on merits, the present dispute involves intricate
details and factual averments which cannot be adequately adjudicated without
taking detailed evidences, examination and cross-examination of the parties.
Furthermore, in view of the submission made, no dispute has arisen between the
parties which can be entertained by this Hon'ble Commission under consumer
jurisdiction. Therefore this Hon'ble Commission should be pleased to reject the
present complaint, impose heavy costs on the complainant and direct him to furnish
the said interrogatories.
13. In the humble submission of the Respondent, the complainant by way of
filing the instant complaint under reply, is attempting to abuse the process of this
Hon'ble Commission for his own mala fide benefits. The complaint as filed merits to
be dismissed at the outset by this Hon'ble Commission and imposition of heavy
penalties under Section 27 on the complainant for filing of such false and frivolous
complaint.”
12. Shri Surendra Kumar Jain filed a detailed rejoinder to contest the preliminary
objection and repeatedly pleaded that he was a consumer. In support of his plea, Shri
Surendra Kumar Jain also relied upon the judgements of the Supreme Court in Laxmi
Engineering Works v. P.S.G. Industrial Institute, (1995) 3 SCC 583, Regional Provident
Fund Commissioner v. Shiv Kumar Joshi, (2000) 1 SCC 98, National Corporation Ltd.
v. M. Madhusudan Reddy decided on 16.01.2012 and order dated 02.12.2014 passed
by the National Commission in the case of Hansaliya Motors v. National Insurance
Company Ltd. Paragraphs 4 to 7.1 of the rejoinder filed by Surendra Kumar Jain are as
under:
“4. The contention of the OP-1 in the reply that the complainant is not a
consumer is misconceived, wrong and denied. The understanding of OP-1 as to the
definition of the expression of the word consumer is not correct and it is a question
of fact and law to be decided on the basis of the evidence to be led by both the
parties. As such, it is not a pure question of law. The reply is liable to be dismissed.
Despite repeated opportunity to file the reply, OP-1 did not file the reply denying
the allegations. Rather, the OP-1 filed the present reply u/s 26 of the Consumer
Protection Act seeking dismissal of complaint with wrong proposition of facts as well
as wrong proposition of law.
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4.1 It is clarified that the complainant does not own on house and has booked
the present villa for my personal and domestic use. Complainant like any other
person has every right in law to book a villa in his name. If the complainant so
books a villa with OP-1, it cannot be said that he is not a consumer.
4.2 Regarding the booking of a plot shown in the name of joint name of the
complainant and his youngest son in column- 2, complainant clarifies that it is his
youngest son, who has booked the same. Complainant and his youngest son has
deposited the amount jointly. Complainant wish to gift his share of entitlement in
the plot to express his love and affection for his youngest son. Complainant is a
consumer for booking a plot in joint name with his son with the purpose to gift his
entitlement in the plot to his real youngest son out of love and affection. Thus, the
plot so booked is not for any commercial purpose. OP-1 cannot impute and infer any
finding contrary to what the complainant has stated without any evidence contrary
to it.
4.3 The present case pertains to booking of the Villa only. Hence, the fact of
booking of another plot in joint name of the complainant with youngest son with a
view of the giving gift the entitlement of the complainant to his son is not a
material fact for the adjudication of the present case. Otherwise also, the fact of
booking a villa for personal and domestic use with OP-1 in addition to a booking of
plot in joint name with his youngest son with the purpose of giving gift of his own
entitlement to his youngest son, complainant cannot be said that he has booked for
commercial motive.
4.4 It is stated that complainant is not a property dealer or real estate agent or
carries any business in the sale and purchase of the properties. Otherwise also, the
complainant has not engaged himself in selling and purchase of any plot as
believed by the OP-1. It is further stated that OP-1 in their forms/documents no
where requires to document the purpose for which the complainant has booked the
villa in present case or the plot in joint name. OP-1 cannot at its own presume that
the booking is for commercial purpose.
Payment of villa is also made by complainant
5. The contention of the OP-1 in the reply in para-5 as to payment is
misconceived and not true. OP-1 has no knowledge of the fact. It is wrong on the
part of the OP-1 to say that the payment against the booking of the villa in the
present case is not made by the complainant but by Deepak & Company.
5.1 The true and correct facts are that the initial and first installment amount of
Rs. 10,00,000/- so deposited was borrowed without interest from Deepak &
Company, which complainant repaid Deepak & Company subsequently in six
installments from 15-4-2008 to 20-4-2009 i.e. within 15 months of the borrowing
the said amount. Deepak & Company directly deposited on my behalf the said
amount with OP-1. Complainant has also obtained a certificate from Deepak &
Company for repayment showing the details of payment. The certificate reads,
Deepak & Company 100 Vaishali, Pitampura
Delhi-110 034 (India)
Tel: 2731 2176, 2731 5103
Email: [email protected]
To whom so ever it may concern
We have make a payment to Teneja Developers & Infrastructure Limited vide
Cheque No. 270453 dated 14-01-2008 for Rs. 10,00,000/- (Rupees Ten lac only)
drawn on ICICI Bank Limited on behalf of Mr. Surendra Kumar Jain.
We have received Rs. 10,00,000/- (Rupees Ten lac only) from Surendra
Kumar Jain r/o 100 Vaishali, Pitampura, Delhi-110 034 on account of repayment
of above said loan amount, details of which are as under:
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Cheque No. Date Name of

Amount Bank
803633 15-04-2008 ICICI Bank
75,000 Limited
803645 12-07-2008 ICICI Bank
50,000 Limited
805451 06-11-2008 ICICI Bank
50,000 Limited
805453 12-12-2008 ICICI Bank
1,00,000 Limited
805456 02-03-2009 ICICI Bank
2,25,000 Limited
805457 20-04-2009 ICICI Bank
5,00,000 Limited
Total 10,00,000
Sd/- for Deepak & Company
5.2 Complainant paid further payment of Rs. 5,00,000/- to OP-1 directly from
personal bank of ICICI Bank. Mere because complainant has managed the initial
and first deposit by way of loan from someone else, it cannot be said that
complainant is not a consumer and I cannot maintain my complaint.
5.3 It is submitted that the attempt of OP-1 to show that the property is actually
booked by Deepak and Company is factually wrong. Complainant is an individual
and separate legal entity and is not concerned with Deepak Kumar & Company in
any way in law. Therefore, any reference of booking by Deepak & Company has no
relevance for the purpose of adjudication of this case. The present complaint or the
complainant is not concerned in law as to various registrations as shown in
Annexure R-1 except at serial number (1) and (2) as admitted (in) aforesaid
paragraphs. The address of the complainant may coincide with the address of other
registrations in other names because Complainant does not own any house. Further,
the complainant is residing and using the same address at which the other persons
so shown in the list are also residing. The legal entity is however different.
6. As desired by the OP-1, the complainant once again declares (i) as to his
relation with Deepak & Company; (ii) details as to any immoveable property other
than the two bookings so referred by OP-1 herein; (iii) if the complainant is co-
applicant along with Deepak & Company or any other associates herein as under for
the fair adjudication and satisfaction of the hon'ble commission submit that
accordingly in reply to the aforesaid interrogatories that—
(i) Complainant being an individual is a distinct and separate legal entity and
has no relation or holds any position with respect of the firm “Deepak &
Company”.
(ii) The complainant confirm that he does not own any immoveable property.
Complainant has already said that he is without any house so far in is name.
He has not been allotted any immoveable property other than the two
properties (one for personal and domestic use and another in joint name to
give gift of his entitlement to his younger son) as detailed out by the
complainant hereinabove. The complainant has not even booked any other
immoveable property.
(iii) The complainant is not a co-applicant along with M/s Deepak & Company
and any other associates. (Note - complainant has also filed an affidavit to this
aspect while filing reply to the application u/s 26 of the CPA so filed by the OP
-1). Hence, there is no need to file any fresh affidavit for sake of convenience
and to avoid repetition.
7. The conclusion of OP-1 has booked the villa for a commercial purpose is based
on wrong facts and misconceived and denied. The fact of booking a villa for personal
and domestic use with OP-1 in addition to a booking of plot in joint name with his
youngest son with the purpose of giving gift of his own entitlement to his youngest
son, complainant cannot be said that he has booked for commercial motive.
7.1 The definitions of ‘Complainant’, ‘Complaint’, ‘Consumer’, ‘Consumer
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Dispute’ and ‘Service’, as destined in Section 2(1) of the Consumer Protection Act,
1986 (As Amended) cover the claims arising under the present dispute and that
from the aforesaid definitions, the Complainant is a ‘Consumer’ as the Act defines—
“Consumer' to be a person who buys any goods for consideration which has
been paid and promised or partly paid and partly promised or under any system
of deferred payment and includes any user of such goods other than the person
who buys such goods for consideration paid or promised or partly paid or partly
promised, or under any system of deferred payment when such use is made with
the approval of such person, but does not include a person who obtains such
goods for resale or for any commercial purpose…”
Secondly the Act further lays down that person who obtains any goods for
resale or avails of any services for any commercial purpose is held not to be a
Consumer and is barred to get remedy under the Consumer Protection Act.
Further the Explanation of Section 2(d) of Consumer Protection Act also lays
down that “commercial purpose” does not include use by a person of goods
bought and used by him and services availed by him exclusively for the purposes
of earning his livelihood by means of self employment.”
13. We shall now advert to the averments and allegations contained in the
information filed by the appellants under Section 19(1)(a) of the Act and the grounds
on which the appellants have challenged the impugned order and the objections raised
by Respondent No. 2.
14. In paragraph 1 of the information filed by them on 02.06.2014 through their
advocate, the appellants described the concept of integrated township. In paragraph
2.1, they gave their own profile in the following words:
“2.1 The informant/s in this case is individual consumers and real brothers in
relation. Informant/s hired the services of the OP-1 as developer and promoter of a
residential township project of class-I category in the name of TDI City at Delhi
metropolitan area Town Kundli in Distt. Sonepat (Haryana) for booking the plot/s.”
15. In paragraph 2.2, the complainants described the profile of Respondent No. 2
and in paragraph 2.3 they outlined the role of the Department of Town and Country
Planning, Haryana. In paragraphs 3.1 to 3.31 of the information, the appellants made
the following averments/allegations:
“3.1 The information in the instant case is being filed under Section 19(1)(a) of
the Competition Act, 2002 (herein after referred to as Act) by the informants - who
are consumers as defined under the Competition Act against the three respondents
TDI Ltd (OP-1), Department of Town and Country Planning (DTCP), Haryana (OP-2)
& HUDA (OP-3) for violation of section 4 of the Competition Act, 2002. That by
abusing its dominant position, OP-1 has imposed highly arbitrary, unfair,
unreasonable and discriminatory conditions as well as price on the plot buyers
integrated township at Kundli, which has serious adverse effects and ramifications
on the rights of the plot buyers.
3.2 Informants are real brother residing in Pitampura in North dist of Delhi. On
the representation of the OP-1, in 2004 the informants planned a decent and rich
life in future after two decades and decided to shift themselves to their upcoming
new township at Kundli and Sonepat-120 minutes drive from his present place in
Pitampura.
3.3 Informant-1 had booked three plot to fulfill his future plan for his family. Out
of these three plots, one is meant for exclusive use of himself and his wife and
other remaining two plots are meant for my two sons - one each for them.
Informant-1 had planned to gift one plot each to both the sons so that they may
feel proud of their parents and recognize their contributions in the settlement of
their lives.
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Further, Informant-1 does not wish to be dependent on his sons in his old days
and further he wishes that his two sons to earn and save adequately and construct
house for themselves and live separately in a house owned by them, in nearby
house with love and affection for each other. For this purpose, informant-1 booked
three separate plot measuring 500 sq. yards each in the upcoming township project
of the OP-1.
3.4 Similarly, the informant-2 has booked a residential plot measuring 500 sq
yards for his family. Apart, these four plots, informants had also booked some other
plots for resale purpose about which a separate discussion has been made in para-
3.34.
3.5 The informants had paid 79.80% of the total payment in respect of the
aforesaid four plots after the adjustment of the charges paid for preferential location
but plot allotted in back side of colony that too in ordinary location. Thus,
informants were to pay a meagre amount to be paid at the time of possession which
could be offered by OP-1 only after full development of the township and obtaining
completion certificate from the competent authority.
3.6 But, the OP-1 even after the commencement of the Competition Act
manipulated the demand more than six times and declared the informants
deliberately defaulter and cancelled their plots and forfeited handsome amount in
the name of earnest money and also snatched the benefit of capital gains from the
hands of the informants.
3.7 The size of all the four in was 500 sq yards and rate was Rs. 4,560/- for plot
no. K-757 and K-758 whereas the rate in Plot No. K-764 & K-763 was Rs. 5,250/-
per sq. yd. Apart the basic, the informants in all these four plots was to pay
External Development Charges (EDC) @ Rs. 650/- per square yards. Further, in all
these four cases, the plots so booked was of preferential location plot i.e. corner plot
on 24 meter wide road, for which the OP charged Rs. 2,29,058/- or so additional
amount i.e. 10% of the basic price which the complainant had agreed to pay in
addition to the basic price and EDC charges.
3.8 Thus the informants were required to pay a total of Rs. 28,46,145/- for plot
no-K-757 & Plot No. K-758 and Rs. 32,18,797/- in Plot No. K-764 and Plot No. K-
764 respectively including the EDC charges and Preferential location charges in nine
instalments based on the development of the colony.
Details of amount to be paid in & Plot No. K-757 & K-758
S. N. Particulars Amount to be Paid
in Rupees
1. Basic Rate of 502.32 square yards @ Rs. 4,560/- per 22,90,579/-
square yards.
2. External Development Charged (EDC) @ Rs. 650/- per 3,26,508/-
square yards.
3. Additional Charges for plot of Preferential Location 2,29,058/-
being corner plot on 24 Meter Wide Road @ 10% of
basic price.
Total amount to be paid linked with confirmation of 28,46,145/-
development of colony as per the terms of License.
Details of amount to be paid in Plot No. 764 & K-763
SL. Particulars Amount to be Paid
No. in Rupees
1. Basic Rate of 500.98 square yards @ Rs. 5,250/- per 26,30,145/-
square yards.
2. External Development Charged (EDC) @ Rs. 650/- per 3,25,637/-
239
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square yards.
3. Additional Charges for plot of Preferential Location 2,63,015/-
being corner plot on 24 Meter Wide Road @ 10% of
basic price.
Total amount to be paid linked with confirmation of 32,18,797/-
development of colony as per the terms of License.
Details of Payments made
3.9 The details of payments so made in each case are follows:—
Details of amount paid in plot no K-757
Sl. No. Date of Receipt No. & Date Details of Amount paid in
Payment payment Rs.
1. 22.12.2004 10712 dt 24.01.2005 801609 - ICICI 5,93,750
Bank
2. 09.02.2005 10712 dt 24.01.2005 801614 - ICICI 3,18,250
Bank
3. 06.05.2005 10712 dt 06.05.2005 801632 - ICICI 92,340
Bank
4. 18.01.2006 20791 dt 19.01.2006 802388 - ICICI 1,62,500
Bank
5. 30.06.2006 42900 dt 30.06.2006 803902 - ICICI 2,49,660
Bank
6. 05.07.2006 43391 dt 08.07.2006 803903 - ICICI 1,62,500
Bank
7. 30.11.2006 53943 dt 29.11.2006 803910 - ICICI 2,50,800
Bank
8. 31.01.2007 59188 dt 01.02.2007 803911 - ICICI 2,50,800
Bank
Total 20,80,600
Details of amount paid in plot no K-758
Payment payment Rs.
1. 22.12.2004 10713 dt 24.01.2005 801710 - ICICI 5,93,750
Bank
2. 09.02.2005 10713 dt 24.01.2005 801717 - ICICI 3,18,250
Bank
3. 06.05.2005 10713 dt 06.05.2005 801733 - ICICI 92,340
Bank
4. 18.01.2006 20793 dt 19.01.2006 802282 - ICICI 1,62,500
Bank
5. 30.06.2006 42901 dt 30.06.2006 804001 - ICICI 2,49,660
Bank
6. 05.07.2006 43392 dt 08.07.2006 804002 - ICICI 1,62,500
Bank
7. 30.11.2006 53944 dt 29.11.2006 804011 - ICICI 2,50,800
Bank
8. 31.01.2007 59189 dt 01.02.2007 804012 - ICICI 2,50,800
Bank
Total 20,80,600
Details of payment made in Plot No. - K-763
240
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-
Sl. No. Date of Receipt No. & Date

Details of Amount paid in
Payment payment Rs.
1. 04.02.2005 11095 dated 194423 - 5,25,000
15.02.2005 Syndicate Bank
2. 10.08.2005 8838 dated 12.08.2005 150828 - ICICI 5,25,000
Bank Limited
3. 29.11.2005 PLC-418 dated 150931 - ICICI 50,000
17.12.2005 Bank Limited
4. 18.01.2006 20829 dated 207628 - ICICI 1,62,500
5. 30.06.2006 42889 dated 276016 - ICICI 3,43,750
6 05.07.2006 43389 dt 08.07.2006 276059-ICICI 1,62,500
Bank Limited
7. 30.11.2006 53945 dt 29.11.2006 012728-ICICI 2,88,750
Bank Limited
8. 31.01.2007 59277 dt 01.02.2007 009957-ICICI 2,62,500
Bank Limited
9. 31.01.2007 PLC-2125 dt 009957-ICICI 26,250
Total 23,46,250
Details of payment made in Plot No. - K-764
Payment payment Rs.
1. 04.02.2005 11093 dated 194424 - 5,25,000
15.02.2005 Syndicate Bank
2. 20.08.2005 9104 dated 22.08.2005 150829 - ICICI 5,25,000
Bank Limited
3. 29.11.2005 PLC-417 dated 150932 - ICICI 50,000
4. 18.01.2006 20830 dated 207629 - ICICI 1,62,500
5. 30.06.2006 42890 dated 276017 - ICICI 3,43,750
6 05.07.2006 43390 dated 276060-ICICI 1,62,500
7. 30.11.2006 53941 dated 012729-ICICI 2,88,750
8. 31.01.2007 59278 dated 009958-ICICI 2,62,500
9. 31.01.2007 PLC-2126 dt 009958-ICICI 26,250
Total 23,46,250
3.10 Thus, the balance amount payable in respect of the following four plots as
follows—
SN Case No Balance amount payable
1. Plot No. K-757 7,65,545/-
2. Plot No. K-764 8,72,546/-
3. Plot No. K-763 8,72,546/-
241
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-
4. Plot No. K-758 7,65,545/-

3.11 Since the balance amount was towards the allotment of a preferential
location plot and on confirmation of the development of the colony and offer of the
possession. However, the OP-1 had allotted the plot of ordinary location in backside
of the colon, if the amount so charged is adjusted, the total amount payable against
the four plots would be herein as follows—
SN Plot Balance amount Amt charged and Balance amt
Number payable as per paid for preferential payable, if amt for
complaint location as against preferential location
the allotment of adjusted at time of
plot of ordinary possession after the
location completion
certificate
1. K-757 7,65,545/- 2,29,058/- 5,36,487
2. K-764 8,72,546/- 2,63,015/- 6,09,531/-
3. K-763 8,72,546/- 2,63,015/- 6,09,531/-
4. K-758 7,65,545/- 2,29,058/- 5,36,487
3.12 However, the on questioning the allotment of the general plot instead of
preferential location plot and seeking the confirmation of the development as per
license, OP manipulated the herein as follows—
SN Plot Outstanding amount payable if amt Manipulation in
Number for preferential location adjusted at Outstanding demands
time of possession after the as on 20-10-2011
completion certificate
1. K-757 5,36,487 35,13,779/-
2. K-764 6,09,531/- 36,99,747/-
3. K-763 6,09,531/- 36,99,747/-
4. K-758 5,36,487 35,13,779/-
3.13 The complainant/s have been objecting from time to time vide written
letters. OP-1 did not respond or contradict the same, rather demanded in such a
fashion which by no means could be justified. OP-1 at no stage confirmed the
development of the colony as demanded and requested by the informants to make
them payment. The complainant on visit to site did not find development and
discovered that the demand was premature. At some stage the OP did minor
correction. The OP-1 did not response the request of the informants.
3.13.1 Rather vide letter dated 4-3-2010 OP-1 threatened in case the payment is
not made on or before 15.3.2010, the holding charges of Rs. 100/- square yards
shall be payable. The letter reads, which read,
“Dear customer, if you fail to make the payment on or before 15th March, 2010,
you shall be liable to pay Holding Charges of Rs. 100/- square yards per month,
which will be calculated from the date of offer of possession….”
(Please see pages 698 of the Paper Book Vol-IV)
3.14 The payment schedule in the present case was to be paid in nine
instalments based on the development of the colony. The OP-1 had collected
79.80% of the payment by 2007 itself without developing integrated township as
per license of the township. The aforesaid letter of OP-1 dated 26-06-2009 shows
that the OP-1 has yet to obtain the statutory permissions required for developing
the project/completion certificate/s.
3.15 The consumers having paid 79.80% payment and finding no development
in the colony and rather admitted by the OP-1 in its aforesaid letter which indicates
242
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-
that requisite approvals for the development of colony is in process, find it difficult
to make the payment and have a plot in condition without development.
3.16 To exploit the consumers, OP-1 offered the possession of the aforesaid four
plot/s as if the same were part of agriculture and not a residential colony and
demanded the remaining amount. The practice of the offering possession premature
and without development is aimed at to exploit the plot buyer in view of clause-15
of the agreement and thereby OP-1 extorts all money premature and further levy
maintenance charges and Holding charges in respect of the plot for the period for
which the plot buyers fails to take the physical possession to inflate the outstanding
amount multifold and thereby declare the plot buyer as defaulter and make a
ground for cancellation and forfeiture of the amount and also deprive the plot buyer
the benefit of capital gain that too without giving any opportunity of hearing.
3.17 Those consumers not paying the amount and/or not taking the possession
of the plot, OP-1 invoked the clause 15 of its agreement to charge abnormal sky
rocketing holding charge vide which the OP-1 manipulated the meagre amount of
outstanding as skyrocketing demand illegally to declared the informants as
defaulter with a view to cancel the plot and forfeit the amount and snatch the
benefit of capital gain from the hands of the informants.
3.18 Accordingly, the informants were to pay a meagre amount to be paid at the
time of possession which could be offered by OP-1 only after full development of the
township and obtaining completion certificate from the competent authority. But,
the OP-1 manipulated the demand more than six times to declare the consumer
deliberately defaulter and cancel the plot with a view to forfeit the earnest money
and also to snatch the benefit of capital gains from the hands of the consumers. The
details of the amount payable as per informants and the demand so manipulated
have already been mentioned above.
On other hand, OP-2 not willing to give possession of plots against which
no amount is due
3.19 It is important to note that the plot No. B-R5/86 measuring 700 yards
booked in respect of which no amount is due as the informant-2 has paid all the
amounts. The OP-1 is not willing to give the possession but seeks to purchase the
same at throw away price and thereby again attempting to debar the consumer to
enjoy the capital gain over the years on the plot.
3.20 There are several other consumers known to the informants who have paid
all the amounts as required by the OP-1 but OP-1 has neither offered any
possession nor willing to offer the possession. To quote the details—
Sl. Name of Plot Plot Size Date of Amount
No. Owner No. (Sq. Booking & Due Paid Balance to
Yds.) Last date of be paid on
Payment offer on
possession
1. Transcend B- 700 27-12-2004 52,27,725 48,07,125 4,20,600
Electronics R5/86
14-01-2011
Pvt. Ltd.
2. Competent L-336 250 07-01-2005 17,77,875 16,59,125 1,18,750
Electronics
08-11-2010
Pvt. Ltd.
3. Competent L-381 250 11-01-2005 18,49,125 17,30,375 1,18,750
Electronics
08-11-2010
Pvt. Ltd.
4. Deenika L- 250 07-01-2005 16,64,125 15,45,375 1,18,750
243
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-
Gupta 818A 28-12-2010
5. Surendra B- 700 14-12-2004 52,27,725 48,07,125 4,20,600
Kumar jain B51/1
Manoj
Kumar Jain
3.21 Thus, OP-1 adopted the ways and means to manipulate the meagre amount
of outstanding as sky-rocketing demand illegally on the pretext of one or the other
clause in the agreement and declare the buyers of the plots defaulters and cancel
the plots and thereby not only forfeit the earnest money but take the undue
advantage of capital gains over the years by reselling the plots.
3.22 Not only this, it may be noted OP-1 after having taken more than 72% of
the total amount compelled the plot buyers being trapped to sign erroneous
agreement and also concealed material information and further has been enforcing
the erroneous agreement with exploitative terms even after the commencement of
the Competition Act and thereby is guilty of abuse of its dominant position.
3.23 OP-1 after taking substantial payment that too by raising demand
premature, the OP Promoter kept on manipulating the statement of account. The OP
Promoter falsified the statement of account & demanded inflated outstanding
balance.
3.24 It may be noted that in clause 15 of the agreement, it is not specified as to
what amount shall be charged as Holding Charges, but the statement of account so
issued to various buyers show that OP-1 has charged huge amount. The holding
charges in respect of these four plots varies from Rs. 17,53,430/- to Rs. 17,58,120/
-. Apart, the OP-1 is seeking a payment of more than Rs. 3,00,000/- on account of
delay in payment of the External Development Charges, which the informants have
paid in time. But, the OP-1 is seeking at a rate of enhance amount which he is not
entitled to. On this account, the OP-1 is seeking about Rs. 2,00,000/-, which OP-1
is not entitled to. On all these account, the OP-1 has manipulated the account of
each plot for Rs. 23,00,000/-. Further, OP-1 is demanding the preferential location
charges about Rs. 2,29,058/- for plot no. K-757 & K-758 & Rs. 2,63,015/- for plots
no. K-763 & K-764, which OP-1 is not entitled to charge for the reason that plots so
allotted, are of ordinary locations. Thus, more than Rs. 25 lakhs of unjustified and
by way of manipulation. Further, the consumers are entitled to benefit of the excess
amount of EDC so charged and other penal interests etc.”
Cancellation of plot
3.25 On 20.10.2011, the Informant/s visited the site to see the development.
There was little development. The Informants talked on settlement of the disputes
in the statement of account. But, now OP Promoter demanded six fold manipulated
amount as mentioned above.
3.26 The complainant demanded the certificate of Haryana Government as to
compliance of all terms and conditions as to development of the colony. OP
Promoter told the complainant either to pay the amount as per the demand letters
dated 20-10-2011 and have the plot, otherwise have the refund of the amount
deposited without interest after deducting the earnest money and statutory charges
and other charges. The complainant protested saying this is unjust. The OP
promoter informed the complainant that the plot has been cancelled. The OP
promoter gave the complainant a photocopies of the refund cheque numbers dated
10.12.2010 for Rs. 11,13,800/- or so for each plot separately drawn on Indian
Overseas Bank showing the cancellation in back date in respect of all the four plots.
3.27 The stand is falsified because the cancellation is purported and manipulated
as statement of account dated 20.10.2011 does not show that the plot is cancelled.
Further, the demand was manipulated to Rs. 35,13,779/- as on 20-11-2011 as
244
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-
against Rs. 8,35,720/- as on 31-10-2009. The statement of account was

manipulated more than six times than what was payable at the time of possession
which could be offered only competition certificate or after due requisite
development and four times in a span of less than two years.
3.28 In fact, the informants were willing to pay the remaining amount as due
and not the manipulated amount as shown and are still willing to make the
payment and have the plots but the OP-1 still intends to abuse its dominant
position. The informants have been raising objection to demand letters from time to
time. On objection of the consumer or demand of consumer for the certificate of
Haryana Government for compliance of all terms and conditions as to development
of the colony, the OP promoter cancelled the plot as abuse of their dominance and
asked the complainant/s to surrender the receipts and take the refund of the
amount deposited without interest after deducting the earnest money, statutory
charges and other charges. And the OP promoter gave the complainant/s a
photocopy of the refund cheque showing the cancellation in back date and thereby
the OP promoter has also manipulated the records.
3.29 The informant-1 has been complaining (i) that OP-1 has yet to confirm and
allot a corner plot on 24 meter wide road (ii) the offer of possession of plot is an eye
wash without development of the colony (iii) the demand is wrong. Statement of
account is manipulated (iv) EDC charges of Rs. 6,29,909/- instead of Rs. 3,26,508/
- has been wrongly claimed (v) Apart from the above, infrastructure Development
Charges of Rs. 30,139/- @ Rs. 60/- per square yards and Service Charges Rs.
11,553/- @ Rs. 23/- per square yards and Service Charges Rs. 11,553/- @ Rs. 23/-
per square yards and Miscellaneous Expenses of Rs. 10,000/- and Interest Free
Maintenance Security Deposit of Rs. 20,000/- was wrongly demanded (vi) if the
aforesaid total amounts i.e. Rs. 3,75,093/- are deleted, outstanding payable would
be only Rs. 7,65,545/- for a corner plot on 24 meter wide road and not for the
general plot so allotted to the complainant (vii) after adjustment of the charges for
preferential location for the plot so allotted being of ordinary location in the
backside of the colony, the amount payable would be five lakhs or so for each plot.
The complainant has paid about 79.80% of the payment. 10% is payable on
possession. The rest of amount being demanded is premature.
3.30 The OP-1 had no justification as to issuance of the premature possession
letter without development of the colony mere to impose unjustified and illegal
holding charges, demand more EDC charges than prescribed by the Government of
Haryana to figure such staggering amount so as to declare the bonafide consumer
as willful defaulter.
3.31 Thereby, the OP-1 manipulated the said account even after the
commencement of the Competition Act and demanded the payment which was
neither premature, or by an act of manipulating/falsification of the statement of
account and falsified to declare the plot buyers as willful defaulter.”
16. In paragraph 3.34 of the information, the appellants disclosed that they and
their family members also purchased about 24 other properties and flats from
Respondent No. 2 for re-sale to earn livelihood and arrange finances for these plots,
but resold 19 out of them. That paragraph reads as under:
“3.34 Apart these four residential plots for self use, the informant/s and family
members also purchased other about 24 other properties and flats from OP-1 for
resale to earn livelihood and arrange finance for these plots. However, feeling
unfair and discretionary conduct of OP- 1, informants resold 19 properties out of
these 24 properties at a total loss of Rs. 35,12,600/- considering 15% simple
interest per annum on the amount so deposited. Further, the remaining six
properties, informants were apprehensive about the unfair conduct of OP-1 did not
245
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deposit the further demand in respect of six properties, as a result of OP-1 forfeited
an amount of Rs. 33,75,000/- so deposited by informants in respect of these six
properties.”
17. In paragraph 4, the appellants described in detail the concept of the relevant
market. In paragraph 5, they discussed the relevant geographic market. In paragraph
6, they tried to demonstrate how Respondent No. 2 enjoyed the dominant position in
the relevant market. In paragraph 7, they made detailed allegation of abuse of
dominant position by Respondent No. 2 and finally made the following prayer:
PRAYER
“In the light of the above facts and circumstances, the informant herein prays:
(i) To institute inquiry into the contravention of provisions contained in sub
section (1) of section 4;
(ii) To hold that OPs are guilty of violation of provisions contained in sub section
(1) of section 4;
(iii) Direct OP-1 to discontinue and not to re-enter such agreement and also to
discontinue such abuse of dominant position;
(iv) Further, in compliance and consequence of the direction of prayer at Para
(ii), direct OP-1 to restore the booking in respect of plot no.'s K-757, K-758, K
-763 and K-764 of the informant and rectify the statement of accounts
removing the holding charges and other illegal charges;
(v) Impose penalty u/s 27 for contravention of sub section (1) of section 4 of the
Competition Act;
(vi) Direct that the Plot Buyer agreement shall stand modified to the extent and
in the manner as may be specified in the order of the Commission;
(vii) Further, Direct OP-1 and other OPs to abide by such orders as the
Commission may pass and comply with directions;
(viii) Award costs of litigation to informants;
(ix) Pass such other order/directions as it may deem fit.”
18. Along with the information, the appellants filed documents (3 Volumes - Pages
179 - 943), which included order dated 28.10.2013 passed by the National
Commission in Consumer Complaints Nos. 78 to 80 of 2012 and another order of the
same date passed in Consumer Complaint No. 81 of 2012. The index of the documents
filed by the appellants in three volumes are as under:
“Index of Documents
Volume-III
SN Particulars of Documents Page Nos.
9. Annexure: P-4 282-283
True copy of print out of Cities and towns from Arthapedia
www.Arthpedia.in/index.php?title=cities_and_towns to
indicate the classification/characteristics of township
based on population
10. Annexure: P-5 284-321
National Urban Housing & Habitat Policy, 2007
11. Annexure: P-6 322-36-
Haryana Development and Regulation or Urban Areas Act,
1975 Relevant Para 1.12 and 1.23
12. Annexure: P-7 361-431
Haryana Development and Regulation of Urban Areas Rule,
1976
13. Annexure: P-8 432-505
246
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-
Indian Real Estate: An Handbook of State policies and
Regulations May 2007; Issued by Government of India,
Department of Industrial Policy and Promotion written by
Ernst & Young
14. Annexure: P-9 506-512
Particulars of Organisations, its function, Town and country
planning department, Haryana
15. Annexure: P-10 513-552
Profile of TDI as claimed in the official website
Index of Documents
Volume-IV
16. Annexure: P-11 (Colley) 553-558
Information as to price band/value of plots of different
categories of townships in relevant market
17. Annexure: P-12 (Colley) 559-574
Project description of TDI City, Kundli of TDI showing the
integrated township spread over 1250 acres and further
documents showing township for a population over one
lakh and also the Project description of all the competitors
at DMA town Kundli and also in rest part of the Distt.
Sonepart showing size of their township (Colley) showing
the size of their township
18. Annexure: P-13 691
Evaluation Study of DMA Towns in National Capital Region
(NCR) report published by Town and Country Planning
Organisation, Government of India under Ministry of Urban
Development (Sept. 2007)
19. Annexure: P-14 692-695
True copy of the demand letter dated 26.06.2009 of OP
promoter seeking payment of Rs. 6,00,988/- to
manipulate the E.D.C. and thereby abuse its dominance
for unjust richness of over Rs. 800 crores
20. Annexure: P-15 692-695
(i) RTI Application dated 12-5-2010 seeking information
about the rate of EDC charges as per letter of intent and
also the enhanced EDC rate for residential plot of TDI;
(ii) Reply of RTI confirming the EDC date as per the 696
intendment letter Rs. 18.16 lakhs per acre (i.e. Rs. 375
per sq. yards) and EDC charges enhancement rate is at
Rs. 24.62 lakhs per acre (Rs. 509 per sq. yards)
“Index of Documents
Volume-V
21 Annexure: P-16 (Colley) - All documents related to plot 553-558
No. K-757
(i) True copy of the application of the Appellant dated 697-699
22.12.2004 and booking of plot for 500 square yards.
(ii) True copy of the Cheque No. 801609 dated 22.12.2004 700
for Rs. 5,93,750/-.
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(iii) True copy of the post dated Cheque No. 801614 dated 701
09.02.2005 for Rs. 3,18,250/-.
(iv) True copy of the Receipt No. 10712 dated 24.01.2005 702
for payment of Rs. 5,93,750/- and Rs. 3,18,250/-.
(v) True copy of the letter dated 06.05.2005 of Appellant 703
regarding booking for plot of Preferential Location.
(vi) True copy of the Cheque No. 801632 dated 704
06.05.2005 for Rs. 92,340/- towards the Preferential
Location Charges.
(vii) True copy of the TDI Receipt No. 10712 dated 705
06.05.2005 for payment of Rs. 92,340/-
(viii) True copy of the letter dated 23.09.2005 of Appellant 706
to OP promoter seeking demand as per agreed plan “C”
i.e. based on development instead of plan “B” (based on
time bound)
(ix) True copy of Receipt No. 20791 dated 19.01.2006 for 707
payment of Rs. 1,62,500/-
(x) Letter dated 21.03.2006 of Appellant to TDI reminding 708
them to raise the demand as per plan “C” instead of plan
“B”
(xi) True copy of the allotment letter dated 23.03.2006 709
allotting plot No. K-757.
(xii) Letter dated 10.04.2006 of Appellant to the TDI. 710
(xiii) True copy of the Receipt No. 42900 dated 711
30.06.2006 for payment of Rs. 2,49,660/-
(xiv) True copy of the Letter dated 05.07.2006 of the 712
Appellant to TDI with payment of Rs. 1,62,500/- vide
Cheque No. 803903 dated 05.07.2006 towards EDC
charges.
(xv) True copy of the receipt No. 43391 dated 08.07.2006 713
for payment of Rs. 1,62,500
(xvi) True copy of the demand letter dated 11.08.2006 714
asking for entire remaining payment.
(xvii) True copy of the Receipt No. 53943 dated 715
29.11.2006 for payment of Rs. 2,50,800/-
(xviii) True copy of the Receipt No. 59188 dated 716
01.02.2007 for payment of Rs. 2,50,800/-
(xix) Ture copy of the Plot Buyer's Agreement dated 717-728
15.03.2007 by TDI to Appellant to sign and return.
(xx) Ture copy of the statement of account by way of 729
revised annexure dated 30.08.2008 showing total Balance
due as Rs. 5,24,400/- only.
(xxi) Letter/reply dated 04.09.2008 of appellant to the TDI 730-731
(xxii) True copy of the statement of account by way of 732-733
final statement of account dated 05.11.2008 showing total
Balance due as Rs. 11,20,638/-.
(xxiii) Letter/reply dated 17.11.2008 of Appellant to the 734-736
TDI.
(xxiv) Ture copy of the demand letter dated 24.11.2008 of 737
OP promoter of Rs. 11,40,638/-
248
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(xxv) True copy demand letter dated 12.01.2008 of TDI 738
asking payment of Rs. 11,40,638/-
(xxvi) Letter/reply dated 28.01.2009 of Appellant to the 739-741
TDI.
(xxvii) True copy of the possession letter daed 11.05.2009 742
of OP promoter offering possession of the plot cum
demand letter asking payment of Rs. 11,40,638/- for
instalment and Rs. 1,26,000/0 for stamp duty of plot.
(xxviii) True copy of the demand letter dated 18.05.2009 743
of TDI asking payment of Rs. 11,40,638/-
(xxix) Letter/reply dated 01.07.2009 of Appellant to TDI. 744-746
(xxx) True copy of the demand letter dated 26.06.2009 of 747
TDI seeking payment of Rs. 6,00,988/- for increased
E.D.C.
(xxxi) Letter/reply dated 01/07/2009 of Appellant to the 748-750
TDI.
(xxxii) True copy of the statement of account dated 751-752
02.07.2009 by way of revised annexure showing total
Balance due as Rs. 8,82,638/- instead of Rs. 11,40,638/-.
(xxxiii) Letter/reply dated 15.07.2009 of Appellant to the 753-755
TDI
(xxxiv) True copy of the demand letter dated 31.10.2009 756
of TDI asking payment of Rs. 8,35,729/-
(xxxv) Letter/reply dated 16.11.2009 of Appellant to TDI 757-758
(xxxvi) True copy of the letter dated 04.03.2010 of TDI 759
intimating Appellant for holding charges of Rs. 100/-
square yards per months
(xxxvii) True copy of the demand letter dated 26.03.2010 760
of TDI asking Rs. 23,76,200/- as outstanding amount
including holding charges.
(xxxviii) Letter dated 14.04.2010 of Appellant to the TDI 761-762
(xxxix) True copy of the demand letter dated 21.04.2010 763
of TDI Facilities & Maintenance Ltd. for Rs. 10,134/-
towards maintenance.
(XL) True copy of the demand letter dated 01.10.2010 of 764-765
Colliers Property Management Services Pvt. Ltd. for Rs.
1,663/- towards the maintenance charges.
(XLI) True copy of the statement of account dated 766-767
31.05.2011 by way of final statement of account showing
total Balance due as Rs. 31,84,777/-.
(XLII) True copy of payment receipt dated 19.10.2011 for 768-769
Rs. 11,638- and no dues certificate for common Area
Maintenance Charges for the period from July 2010 to
March 2012.
(XLIII) True copy of the Statement of account dated 770-771
20.10.2011 showing total balance due as Rs. 35,13,779/-.
(XLIV) True copy of the letter dated 11.12.2010 showing 772-773
cancellation on 11.12.2010 with photocopy of the cheque
for Rs. 11,13,800/- given to the Appellant on 20.10.2011.
(XLV) True copy of the notices dated 27.02.2012 to TDI 774-777
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22. Annexure: P-17 (Colley) - All documents related to plot 778-845
No. K-758
23. Annexure: P-18 (Colley)- All documents related to plot No. 846-920
K-763
24. Annexure: P-19 (Colley) - All documents related to Plot 921-999
No. K-764
25. Annexure: P-20 992-999
True copy of the in-house magazine of TDI of April 2011
inviting consumers for investments for plots in their
township
26. Annexure: P-21 1000-1004
True copy of the order dated 28.10.2013 of the National
Consumer Redressal Forum, New Delhi giving liberty to
informants to approach appropriate forum
19. The Commission comprising four Members considered the information in its
ordinary meeting held on 18.06.2014 and decided to invite the informants to address
preliminary arguments either personally or through a duly authorized person or by
sending written submissions. On the next date i.e. 22.7.2014, counsel for the
appellants appeared before the Commission and made arguments at length on the
issue of existence of a prima facie case. He also filed written submissions. The
Commission considered the matter in next two meetings held on 21.08.2014 and
28.08.2014. In the second meeting, which was attended by the Chairperson of the
Commission, it was decided to pass appropriate order in due course. After about one
month, the Commission comprising the Chairperson and four Members, (who had
heard the arguments of the learned counsel for the appellants on 22.07.2014) passed
the impugned order. The Commission determined the relevant market as the ‘the
market of the services for the development of residential plots in Sonepat District of
Haryana’. The rationale for this conclusion can be culled out from paragraphs 6 to 11
of the impugned order, which are extracted below:
“6. However, the Commission feels that “the market for the services of
development and sale of residential plots” is the relevant product market in the
instant case. It is true that integrated townships do offer some different
characteristics than other forms of plotted residential units but it cannot be
considered as separate relevant product market in the present case as contended
by the Informants. The customers make buying decisions keeping in mind various
factors such as intended use, surrounding areas, transportation facilities,
connectivity with major areas, proximity to various amenities like schools,
universities, hospitals and vistas of entertainment and leisure like malls and
restaurants, distance from workplace, potential rate of return, etc. Many of these
attributes are not present in the integrated township project to be considered as a
separate relevant product market. Residential plots may form a separate relevant
market because the motives and factors of buying plot by the consumers may be
different from buying apartment and other residential units and for a buyer
residential plots and other forms of residential units may not be substitutable.
7. In regards to the relevant geographic market, the Informants have submitted
that since Kundli is nearer to Delhi and is a preferred option for the buyers
compared to other areas of Sonepat, the area of Kundli should be considered as the
relevant geographic market in the matter. As per Informants, relatively higher
prices in Kundli make it a separate relevant market and a 5% increase in price of
residential property will not make the buyers switch to any other areas. It is
submitted that Rule 3 of the Haryana Development and Regulation of Urban Areas
Rules, 1976 classified the urban area Kundli as High-II zone which is a distinct and
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separate geographical area. It is also submitted that the license granted in form LC-
III under rule-10 by Director of Town and Country Planning Haryana indicates that
the city complex at Kundli is distinct and separate geographical market. Further,
Kundli is an extension of northwest Delhi and it is an attraction for the people of
northwest Delhi. Also, the conveyance cost and time consumed is a relevant factor
in the minds of the consumers while taking the purchase decision. The consumers
will not prefer other parts of Sonepat district which are at distance of about 15 km
or so from Kundli.
8. However, the Commission do not agree with the Informants' contention that
area of Kundli is the relevant geographic market is the instant case. The relevant
geographic market cannot be restricted to Kundli just because Kundli is nearly 15
Kms or so away from the other areas of Sonepat where different builders have their
projects. Moreover, the conditions of competition in Kundli are not distinct from
other areas of Sonepat district. Rather, the conditions of competition for
development of residential plots are homogenous within the district of Sonepat. The
arguments of the Informants that being a part of NCR region as per Delhi Master
Plan 2021, Kundli form a separate relevant market cannot be accepted. Thus, the
area of Sonepat district of Haryana is the relevant geographic market in the instant
case. Further, the other areas of Haryana like Gurgaon, Faridabad, Bahadurgarh,
etc. cannot form the part of the relevant geographical market because of difference
in price of land, availability of quality essential services, distance and commutation
facilities from the national capital of Delhi, etc. Also, the conditions of competition
for development of residential plots in Sonepat are different from other adjacent
cities of Haryana and National Capital Region. Although other areas like Rohtak,
Rewari, Jhajjar, Panipat, Alwar, Bulandsheher, Baghpat are also a part of NCR
region as per Delhi Master Plan 2021, they also do not present an alternative
investment opportunity when compared to Sonepat as the latter offers greater
potential of return on investment and these areas are yet to see comparable
infrastructural development.
9. Accordingly, “the market of the services for the development of residential
plots in the Sonepat District of Haryana” is considered as the relevant market in the
instant case.
10. The Informants have contended that the Opposite Party No. 1 is in a
dominant position whether the relevant geographic market is considered as Kundli
or the entire Sonepat district of Haryana. In the view of the Informants it is so
because the Opposite Party No. 1 has vast land bank and the prices of its residential
property are much higher compared to other developers. In this regard it is
observed that even though these two factors establish that the Opposite Party No. 1
is a major player in the relevant market, but it cannot said to be in a dominant
position in the relevant market. Large land bank gives the Opposite Party No. 1 the
opportunity to push more supply into the market but buying behaviour in real
estate is not only influenced by the size of the project but also because of several
other factors. Also, integrated township with a higher land base may be just
another option before the consumer; it is not a guaranteed consumer-puller, who
may have other factors in mind. Higher prices of a project belonging to a developer
also do not translate into dominance.
11. Further, apart from the Opposite Party No. 1, other large developers like
Ansal API, Parshavnath Developer, Jindal Realty, etc. are competing with each other
in the relevant market with projects of varying magnitudes and having comparable
size and resources than that of the Opposite Party No. 1. The Commission notes
that the Informant has himself submitted that Ansal API is bigger player in terms of
resources and brand value in other geographical markets. Presence of such players
in the relevant market indicates that the buyers have the option to switch to other
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developers in the relevant geographic market.”

20. In paragraphs 12 and 13 of the impugned order, the Commission made the
following observations:
“12. Since there is no information available on record and on the public domain
to show the position of strength of the Opposite Party No. 1 which enables it to
operate independent of competitive forces prevailing in the relevant market, prima
facie, the Opposite Party No. 1 does not appear to be in a dominant position in the
relevant market. In the absence of dominance of the Opposite Party No. 1 in the
relevant market, its conduct cannot be examined under the provisions of section 4
of the Act.
13. In the light of the above analysis, the Commission finds that no prima facie
case of contravention of the provisions of section 4 of the Act is made out against
the Opposite Parties in the instant matter. Accordingly, the matter is closed under
the provisions of section 26(2) of the Act.”
21. In the appeal, the appellants have questioned the impugned order mainly on
the ground that the Commission committed a grave error in determining the relevant
market ignoring that Respondent No. 2 has 83% of the market share in Kundli
geographical area and 38% in the entire district Sonepat in case of all kinds and
categories of township put together. The appellants have further pleaded that the
Commission completely overlooked various acts and abuse of dominant position by
Respondent No. 2, i.e., imposition of highly arbitrary, unfair and unreasonable and
discriminatory conditions as well as price in the integrated township at Kundli and the
same has serious adverse effect on the rights of the plot buyers. Other acts and abuse
of dominant position by Respondent No. 2 quoted by the appellants are:
“(i) Abuse of dominance of Non disclosure on material to the plots buyers. The OP
Promoter got the agreement signed after taking 73.10% of the payment and
further in many respect the OP Promoter has still not disclosed the various
information in the agreement which the OP promoter ought to disclose the same
for fair agreement. Further the agreement imposes the unreasonable and
exploitive terms with one sided loaded gun-all in favour of the OP promoter.
(ii) Further, TDI has also abused his dominant position, offered the possession of
plot without completion certificate/confirmation of the development of integrated
township as per their license. The practice of offering possession pre mature is to
invoke clause 15 of the agreement and thereby levy maintenance charges and
holding charges in respect of the plot for the period for which plot buyer fails to
take the possession and there by inflate the amount payable multifold and
declare the plot buyer defaulter and make a ground for cancellation forfeiture of
amount a part depriving the plot buyers the benefit of capital gain. By abuse of
his dominant position, TDI has gained unjust richness of an estimated of Rs.
12,500 crores at the cost of the consumers as against their initial investment of
Rs. 300 crores mere over a period of decade or so.
(iii) TDI abused its dominance to manipulate the demand in respect of External
Development charges (EDC) and exploited the consumers at large for more than
800 crores and further manipulated the meagre amount payable as sky rocketing
demand illegally to declare the bonafide buyers defaulters with a view to cancel
the plot and forfeit the amount and snatch the benefit of capital gain by
enforcing erroneous agreement with exploitative terms.
(i) abuse of dominance for not offering possession to those plot buyers who have
paid full amount as demanded.”
22. In para 7.3.5 to 7.3.8 the appellants have made the following statements:
“7.3.5 The appellants/inofrmants had paid 79.80 of the total payment in respect
of the aforesaid four plots after the adjustment of the charges paid for preferential
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location but plot allotted in back side of colony that too of ordinary location. Thus,
appellants/informants were to pay a meagre amount to be paid at the time of
possession which could be offered by TDI only after full development of the
township and obtaining completion certificate from the competent authority.
7.36 But, TDI even after the commencement of the Competition Act manipulated
the demand more than six times and declared the appellants/informants
deliberately defaulter and cancelled their plots and forfeited handsome amount in
the name of earnest money and also snatched the benefit of capital gains from the
hands of the appellants/informants.
7.37 The size of all the four plots so booked in the present case was 500 sq.
yards and rate was Rs. 4,560/- for plot no K-757 and K-758 whereas the rate of Plot
No. K-764 and K-763 was Rs. 5,250/- per sq. yd. Apart the basic, the
appellants/informants in all these four plots was to pay External Development
Charges (EDC) @ Rs. 650/- per square yards. Further, in all these four cases, the
plots so booked was of preferential location plot i.e. corner plot on 24 meter wide
road, for which the OP charged Rs. 2,29,058/- or so additional amount i.e. 10% of
the basic price which the appellant/s had agreed to pay in addition to the basic
price and EDC charges.
7.3.8 Thus the appellants/informants were required to pay a total of Rs.
28,46,145/- for plot no-K757 & Plot No. K-758 and Rs. 32,18,797/- in Plot No. K-
764 and Plot No. K-764 respectively including the EDC charges and preferential
location charges in nine instalments based on the development of the colony.”
23. In paragraph 7.3.20, the appellants have quoted five other instances in which
possession has not been given to other plot buyers even after payment of full price
and averred that Respondent No. 2 has manipulated the figures and declined delivery
of possession by indicating trivial dues from the plot buyers. In paragraph 7.3.34, the
appellants have come out with a case that they and their family members purchased
24 other properties and flats from Respondent No. 2 for resale to earn livelihood and
arranged finance for these plots, but sold 19 of them because of unfair and
discretionary conduct of Respondent No. 2. They have also expressed the
apprehension about the possible cancellation of allotment on the ground of non-
payment of the alleged dues. Along with the appeal, the appellants have filed
additional information and documents marked Annexure P-22 to P-30 in Volume 6.
24. The arguments in this appeal were heard on 16.12.2014. After making
submissions for about half an hour, learned counsel for the appellants sought an
adjournment to place on record the documents which had been filed before the
Commission. Thereafter, the learned counsel filed an application dated 06.02.2015 for
grant of permission to file additional information and documents. He also filed
additional information running into 23 pages. After taking cognisance of the same, the
Tribunal issued notice on 03.07.2015 to the respondents on the main appeal and also
on the application for permission to file additional information and the additional
documents.
25. Respondent No. 2 filed reply dated 04.01.2016 in five volumes. In the first
place, Respondent No. 2 has described the appellants as defaulters and also accused
them of concealing their real status. According to Respondent No. 2, the appellants,
their family members and companies of which they are Directors hold 42 properties
with it. Respondent No. 2 has contested the assertion of the appellants that it is in a
dominant position in the relevant market and then pleaded that even if an affirmative
finding is recorded on the issue of dominant position, the appellants are not entitled to
complain against cancellation of allotment because they repeatedly failed to place the
relevant papers on record. It is the respondent's case that the appellants have failed
to fulfill their contractual obligation incorporated in the letters of allotment and
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approached the Commission only after they failed to get relief from the National
Commission. Respondent No. 2 has disputed the appellants' assertion that it is in a
dominant position in the relevant market. According to Respondent No. 2 the appellant
is not entitled to segregate the area of Kundli into distinct areas of Sonepat and
Kundli, though there is no nexus with the two areas. According to Respondent No. 2,
Sonepath-Kundli and in Kundli alone shows that the appellants have tried to mislead
the Tribunal. In paragraph 2 to 8 of the reply affidavit, Respondent No. 2 has made
the following assertions:
“2. That it is well settled principle Law that a person approaching a Court must
so come with clean hands. The Appellants even as per their own showing are
defaulters and despite receiving the Demand Letters, the Appellants failed to clear
outstanding dues leading to cancellation of the Plots in terms of the Agreement and
therefore, the Appellants have initiated the present proceedings merely with a view
to arm twist the Answering Respondent, when they did not get any fruitful result in
their complaint before Hon'ble National Consumer Disputes Redressal Commission.
3. The Respondent respectfully objects to the locus standi of the Appellant to file
a complaint or the instant appeal impugning the decision of the Competition
Commission of India as well as the Proceedings before the Competition Commission
of India. It is relevant to note that the Appellants along with their family members
and different companies of which the Appellants themselves are directors hold or
have held more than 45 properties with the Respondent No. 2 alone. The Appellants
are in the business of booking and thereafter selling the properties for profit. The
motive behind filing the instant complaint and consequent appeal is malafide and is
to brow beat the Respondent into settling Contractual Disputes with the Appellants,
having failed before other for a. The copies of relevant papers (booking and
correspondences) of the bookings made by the appellants directly or indirectly with
the respondents is appended herewith as Annexure R-1.
4. That it is well settled principle Law that a person approaching a Court must so
with clean hands. The Appellants even as per their own showing are defaulters and
despite receiving the Demand Letters, the Appellant failed to clear the outstanding
dues leading to cancellation of the commodities boked/allotted in terms of the
Agreement and therefore, the Appellants have initiated the present proceedings
merely with a view to arm twist the Answering Respondent.
5. That it is the further submission of the Answering Respondent/Respondent No.
2 that it is neither dominant position, nor has it acted in any manner in
contravention of provisions of Section 4 of the Competition Act, 2002. Without
prejudice to the aforesaid submissions of Respondent No. 2 not being in a dominant
position, it is submitted that even otherwise, the Respondent No. 2 has neither
imposed any discriminatory clause or a condition in purchase of sale of goods or
services nor any act on the part of the Respondent No. 2 in any manner restricts or
limits the production of goods or provisions of service or the market as
contemplated under Section 4 of the Act. It is further the contention of the
Answering Respondent that the case setup by the Appellant clearly does not fall
within the purview of the parameters of the law as laid down in various judgments
with regard to the application of Section 3 and 4 of the Act. The Appeal is as such
liable to be dismissed.
6. That the Respondent No. 3 without prejudice to its contention that it is not in
a dominant position, further submits that no act of Respondent No. 2 has caused or
is likely to cause any adverse effect on the competition within the relevant market
in India. The Respondent No. 2 has not acted in any manner which is against
Competition. The Appeal as such is devoid of any merits and is liable to be
dismissed.
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7. That it is further the submission of the Respondent No. 2 that it has not
committed any illegal or over Act much less which is anti-competitive in nature or
that any act or agreement entered into by the Respondent No. 2 has any
predictable and pernicious anti-competitive effect or has in any manner limited
potential for non-competitive effect. That no act or agreement of the Respondent
No. 2 has any potential of negative effect on Competition. It is submitted that no
act of practice of the Respondent No. 2 has either been committed or followed with
effect of raising, depressing, fixing, pegging or stabilizing the price of commodity.
8. That it is well principle of Law that the Hon'ble Commission or for that matter
Hon'ble Appellate Commission has no jurisdiction over the matters, which are
purely contractual in nature and have no relevance to object and reasons for which
the Competition Act, 2002 was constituted. That the Appellants failed to fulfill their
contractual obligations and their claims having been dismissed by the Hon'ble
National Commission (sic. Consumer) Disputes Redressal Commission. The
proceedings initiated by the Appellants are clearly malafide and without any
justification. The proceedings initiated by the Appellants before the Hon'ble
Competition Commission of India and this Hon'ble Tribunal are clearly without
jurisdiction.”
26. The application filed on behalf of the appellants on 06.02.2015 was finally
allowed vide order dated 17.03.2016, the relevant portions of which are extracted
below:
“Before the hearing could commence, learned counsel for the appellant made a
statement that I.A. No. 161/2015 filed by his clients for grant of permission to file
additional information/documents has not been disposed of. Therefore, the
arguments were heard on that application.
In paragraphs 2 to 7 of the application, the applicants have made the following
averments:
“2. During the pendency of this appeal, the appellants have come to know
various important additional information and documents which goes to the root of
the present matter and to prove that TDI Infrastructure Limited (Formerly known as
Intime Promoters (P) Limited and others (Resp-2 herein) is a dominant player in
the relevant market
3. The appellant has managed to have complete details of the all the projects so
licensed, under consideration, names of the companies and their land pool under
licensed project.
4. The appellant has also come to know that the management of the Respondent
-2 herein has floated different 29 companies to acquire and hold the land for future
and expansion of their business.
5. The appellant has also come to know that Kamal Taneja, the Director of
Respondent-2 herein also hold and control different 70 companies by holding the
post of director at the same time in all these 70 companies. Similarly, Ravinder
Taneja (Managing Director of Resp-2) holds and controls different 25 companies for
being their director at the same time.
6. All these information were not with the appellant earlier and the same are
essential for the proper adjudication of the present appeal.
7. Vide order dated 18.12.2014, the Hon'ble Tribunal had granted certain
documents which were filed before the CCI but not before the tribunal. Those
document have been filed as Annexure: P-23 (Colley).”
Along with the application, the applicants have filed a compilation which contains
additional information (23 pages) and documents marked Annexure P-22 to P-30.
Respondent No. 2 has filed reply dated 22.02.2016 to contest the application and
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averred that the applicant should not be allowed to place on record the additional
information and documents which were available or which could have been
accessed by them before filing information under Section 19(1) of the Competition
Act, 2002 (for short, ‘the Act’). Respondent No. 2 has also controverted the
averments contained in the document titled “additional information”.
The appellants filed rejoinder dated 14.03.2016 and reiterated their prayer for
permission to file additional information/documents.
Learned counsel for the applicants vehemently argued that even though there is
no provision in the Act for filing of additional information/documents at the
appellate stage, the Tribunal has inherent power to grant permission for filing such
information/document. Learned counsel submitted that the procedure to be
followed by the Tribunal has to be consistent with the principles of natural justice
and in exercise of power under Section 53-O(1), the Tribunal has the absolute
discretion to grant leave to a party to file additional documents which may have
bearing on the question involved in the appeal.
Learned counsel for the respondent submitted that the additional
information/documents sought to be filed by the applicants were within their
knowledge or they could have accessed the same by exercising due diligence even
before filing the information under Section 19(1) of the Act but they did not do so
and as such the application should be dismissed as highly belated.
In our opinion, even though the description of the application is quite misleading
inasmuch as there is no provision in the Act or the regulations framed thereunder
for filing additional information, the Tribunal can, in exercise of its inherent power
under Section 53-O(1), grant leave to the parties to file additional documents
provided that the same have bearing on the question/issues raised in the appeal.
Having gone through the additional documents, which the appellants secured
after passing of the order by the Competition Commission of India, we are satisfied
that the same do have some bearing on the question raised in the appeal and it will
be in the interest of justice to grant leave to the appellants to place on record the
additional documents.
Accordingly, the application is disposed of by granting leave to the appellants to
place on record additional documents marked Annexures P-22 to P-30.
Learned counsel for Respondent No. 2 requests that his client may be allowed to
file additional documents to controvert what is sought to be projected by the
appellants by using the documents marked Annexure P-22 to P30.
The request made by the learned counsel is accepted and two weeks' time is
allowed to Respondent No. 2 to file additional documents.
The main appeal be listed for final hearing on 11th May, 2016.”
27. On the next date of effective hearing i.e. 11.08.2016, learned senior counsel
appearing for Respondent No. 2 made a statement that his client will not insist on the
forfeiture of any portion of the amount already paid by the appellants in respect of the
plots/shops etc. purchased by them, their family members and associate companies
and will restore the allotment on payment of the price at which the plots/shops etc.
were booked provided that the appellants, their family members and the associate
companies pay the balance amount with interest specified in the agreement. The
Tribunal took cognizance of the same and passed order dated 11.08.2016, the relevant
portions of which are extracted below:
“At the commencement of further arguments, Shri Pallav Shisodia, learned
Senior Advocate appearing for Respondent No. 2, on instructions from the counsel
assisting him and the authorized representative of Respondent No. 2, made a
statement that his client will not insist on forfeiting any portion of the amount
already paid by the appellants in respect of the plots/shops etc. purchased by
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appellants, their family members and the associate companies and will restore the
allotments on payment of the price at which the plots/shops etc. were booked
provided that the appellants, their family members and the associate companies
pay the balance amount with interest specified in the agreement.
Respondent No. 2 is directed to file an affidavit in support of the statement made
by the learned counsel. The needful be done within five days.
If the conditions incorporated in the affidavit are acceptable to the appellants,
their family members and the associate companies who had purchased the
plots/shops etc. then they may indicate their acceptance on the next date of
hearing.
List the matter on 16th August, 2016.
On the next date, the appellants and the authorized representative of
Respondent No. 2 shall remain present in the Tribunal in person.”
28. However, the appellants declined to accept the officer made on behalf of
Respondent No. 2 and their counsel made counter offer on 16.08.2016, which was
rejected by Respondent No. 2. All this is evident from the proceedings recorded by the
Tribunal on 16.08.2016, which are reproduced below:
“Shri Siddharth Arora, Advocate for Respondent No. 2 handed over affidavit
dated 11.08.2016 of Shri Ritesh Vijhani, Authorized Signatory of Respondent No. 2
to Shri Jeevan Prakash and filed the same in the Tribunal.
After going through the contents of the affidavit, Shri Jeevan Prakash stated that
the terms and conditions on which Respondent No. 2 proposes to settle the matter
are not acceptable to his clients.
Shri Jeevan Prakash made a counter-offer to learned counsel for Respondent No.
2 that his clients are prepared to settle the matter provided that the entire amount
deposited by them in lieu of the plots/shops allotted to them, their family member
and associate companies is refunded with compound interest @ 21% and cost of all
the litigations.
Shri Siddharth Arora, Advocate for Respondent No. 2 sought instructions from
Shri Ritesh Vijhani, authorized representative and stated that the counter offer
made by Shri Jeevan Prakash is not acceptable to his clients. He then made a
request for two days adjustment by saying that Senior Counsel, who has to appear
on behalf of Respondent No. 2, is not available today.
In view of the above, hearing of the appeal is adjourned to 18th August, 2016.”
29. Since the offer and counter offer made by the parties were not acceptable to
the other side, the arguments were heard on 18.08.2016 and the following order was
passed:
“Arguments heard for about one hour and fifteen minutes.
During the course of his arguments, Shri Pallav Shisodia, Senior Advocate
appearing for Respondent No. 2 invited the Tribunal's attention to the averments
contained in the reply filed on behalf of his client to the memo of appeal to show
that the appellants, their family members and associate companies had purchased
forty plots/shops/flats from Respondent No. 2. He then referred to the chart filed on
11.08.2016 before the Tribunal to show that in all sixty-four plots/shops/flats had
been purchased by the appellants, their family members and associate companies
and many of them were resold.
We have carefully gone through the averments/allegations contained in the
information filed before the Commission under Section 19(1)(a) of the Competition
- 2 - Act, 2002 and the memo of appeal filed before the Tribunal. The same do not
disclose the total number of plots/shops/flats purchased by the appellants, their
family members and associate companies as also the various plots/shops/flats sold
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by them. The documents filed with the reply of Respondent No. 2 also shows the
majority of the plots/shops/flats were purchased by the appellants, their family
members and associate companies by taking loan from the different banks.
For the purpose of deciding whether the appellants were under obligation to
disclose the number of plots/flats/shops purchased by them, their family members
and associate companies and whether some of them were resold, we direct the
appellants to file additional affidavit incorporating the details of various
plots/shops/flats purchased by them, their family members and associate
companies from Respondent No. 2 from 2004 onwards and also indicate how much
loan had been taken from various banks for purchase of these properties. The
affidavit should also contain the details of the plots/shops/flats sold by appellants,
their family members and associate companies after purchasing the same from the
Respondent No. 2.
The required affidavit be filed within two weeks. Reply, if any, be filed by
Respondent No. 2 within next two weeks.
The case be listed on 05.10.2016 for completion of the arguments.”
30. In compliance of the direction contained in the aforesaid order, the appellants
filed two additional affidavits dated 10.09.2016 and documents marked as Annexures
P-36 to P-45, the description of which is given hereinunder:
“Annexure: P-36 - True copy of the list of properties filed before National
Commission by TDI (resp-2 herein) on/about 23-10-2013 shown to be booked by
appellants/their family members and their associate companies with TDI
(respondent-2 herein); (Information concealed by TDI).
Annexure: P-37 - True copy of the list of properties so filed by TDI (respondent-2
herein) before State Commission on 15-12-2015 shown to be booked by
appellants/their family members and their associate companies with respondent-2;
(Information concealed by TDI)
Annexure: P-38 - True copy of RTI application dated 14-5-2016 and reply thereof
9-6-2016 disclosing the fact that TDI/respondent-2 took over the township
belonging to its competitor no. - 3- API Ansal of over 76.67 acres (license nos. 42-
60) of 2005 vide office memo dated 13-08-2008 of DG, Town & Country Planning,
Haryana Chandigarh. (Information concealed by TDI).
Annexure: P-39 - True copy of the RTI application dated 16201d and its reply
dated 13-6-2016 disclosing the information that HUDA did not allot any single plot
at Kundli in Haryana since 2005 (Information concealed by TDI).
Annexure: P-40 (colley) - True copy of the RTI application dated 13-7-2016 and
reply dated 8-5-2016 in response to said RTI application disclosing that HUDA
allotted only 385 plots (total measurement 1,13,530 sq yards i.e. 23.46 acres) in
the entire geographical area of Distt Sonepat since 2005 till today. (Information
concealed by TDI).
Annexure: P-41 (colley) - RTI application dated 13-5-2016 and its reply dated
23-8-2016 disclosing the price band of HUDA plots being much below than price
band of the plots of the respondent-2 TDI. (Information concealed by TDI).
Annexure: P-42 - A true copy of General Terms and conditions of HUDA
residential plots.
Annexure: P-43 - True copy of the further documents to show TDI city having
distinct features in addition to features/profile already filed in volume-3 page 513 to
552. (Information concealed by TDI).
Annexure: P-44 - True copy of newspaper clipping dated 11-8-2016 published in
Times of India informing that DDA plans to develop integrated townships.
Annexure: P-45 - True copy of letter dated 1-7-2006 from District Town Planner
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along with typed copy of the Notification dated 10th December, 2003 vide which
Government of Haryana declared the controlled area of Kundli and nearby villages
as urban area as defined u/s 2(w) of Haryana Development & Regulation Act.”
31. In paragraphs 1.2 and 1.3 of his affidavit, Appellant No. 1 made the following
statements:
“1.2 That TDI (respondent-2) has misled not only the appellants but also various
courts/forums as to exact number of the total number of plots/shops/flats so
booked by the appellants, their family members and their associate companies as it
could been seen from the following facts—
• On 23-10-2013 i.e. about 7 months before filing information dated 2-6-2014,
TDI first furnished the list of total number of 23 properties though on the fact
of the list before the National Commission was shown as 33. The examination
of the said list will show that SN 21 to 27 are missing and thus the property
after SN 20 straight-way jumped to 28. Thus, effective number of properties
as shown before the National commission in this regard was 23 only.
(Application so filed on/about 23-10-2013 before National commission with
list of booked by appellants/their family members and their associate
companies with respondent-2 from enclosed as Annexure: P-36.
• Thereafter On 15-12-2015 i.e. even after one year and six months of filing
information dated 2-6-2014 before CCI, the TDI furnished the total number of
24 properties, though on face of it as 25 properties (properties at SN 12 and
15 duplicated & further counting the property at SN 19 & 20 as bought back)
before the state commission, Delhi in case. The list so filed before State
Commission is enclosed as Annexure: P-37;
• Thereafter, TDI in their reply dated 4-1-2014 before this Hon'ble Tribunal
mentioned 45 properties without giving any details thereof. (please see
volume-7 page-2 (para-3).
• Further, TDI enclosed documents of 11 different properties as belonging to
either appellants/their family members/their associate companies, whereas
the fact is they have been booked by someone else and not related to
appellants in any way. The details of the same are produced herein as under
with reference to volume nos. and page nos.
Documents of properties of others filed by TDI as if booked by appellants/their family
members/their associate members but sold to others
Sl. Volume Page nos. Customer Property Name of person so booked
No. Number ID ID and sold as shown in the
document/s
1. X 886-892 KR2-1597 K-134 Deepak Bhagat & finally
sold to Renu Jain & Ashok
Kumar Jain, Sector - 15,
Rohini
2. XI 1074-1078 1065 C-C14/31 Mrs. Lalita Khosla & finally
sold to Sunita Verma,
Sonepat.
3. XI 1079-1982 KR1- H-193 Vinod Kumar Chadha &
12000 finally sold to Mrs.
Surekha Choudhary A-64
Meera Bagh New Delhi.
4. X1 1083-1088 KR2-2452 J-409A Booked and currently
owned by Priyank Financial
Services pvt. Ltd. (Assam)
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PAN-AACCP9193L
5. X1 1089-1093 KR2-1129
S.K. Jain E-129 Prashant I-162
Vihar & finally sold to Mr.
Shyam Arora, Punjabi
Bagh PAN-AACPA1243K
6. X1 1094-1098 KR2-775 H-99 Narender Kumar, Panipat
& finally sold to Mrs. Jyoti
Girdhar Pashchim Vihar
PAN - AACPG8506H
7. X1 1099-1102 KR2-2385 L-746 Manoj Nagpal, Rajinder
Nagar & Finally sold to
Deepak Kumar Pushpanjali
Enclave, Delhi PAN -
AKAPK3229R
8. X1 1103-1105 KR2-3588 E-315 Amitabh Verma, R.K.
Puram & finally sold to
Ruchika Kansal
9. X1 1106-1107 KR4-0125 H-542 Booked & Retained by
Neera Jain PAN -
ADAPJ7434N
10. X1 1108-1111 KR3-0221 J-171B Kavita Manghani, Rohini &
finally sold to Sanjay
Kapoor
11. X1 1112-1114 KR3-0485 K-499 Bharat Talwar & finally
sold to Ram Bhajni & Daya
Nand Deswal
(Note - The respondent-2 has not conveniently filed the Booking forms and the
payment details and the ID proof/s of the persons so booked the aforesaid
properties. However, TDI rightly did not incorporate the same in the list of 63
properties so produced at the time of arguments so indicated in order date 18-8-
2016)
• Thereafter, during arguments on/about 11-8-2016 as referred to order date 18-
8-2016, a list was produced containing 63 properties (wrongly typed as 64
properties in the order sheet) being referred.
• However, the appellants after due verification and pains taking exercise of
going through each and every old and current file of each property, books of
account since 2004-05 not only for himself but all other family members and
their associate companies have disclosed the desired information in
subsequent paragraphs 2 & 3 of this affidavit herein. Grand summary in table
form has been provided in para 4A as to total number of plots/shops/fiats so
booked by the appellants/their relatives, their associate companies since 2004
and resold.
2nd important submission
1.3 Concealment of material facts by TDI itself
With all due respect, on the other hand TDI itself is guilty of concealing the
material facts, known to their mind and heart, so necessary to determine the
issue/s of product market, their dominance, and abuse thereof to take undue
advantage of the ignorance of the appellants and prevent the Hon'ble Tribunal for
the determination of the same. Such material facts are herein as under—
(i) TDI has concealed that that it has taken over the township belonging to its
nearest competitor Omex measuring 85.72 sq acres;
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(please see Rejoinder at page-74 - 100 volume-12)
(ii) TDI has also concealed the fact and has taken the advantage of ignorance of
the appellants that it has also taken over the part of the township of over
76.67 acres (license nos 42-60) of 2005 belonging to its competitor no-3- API
Ansal vide office memo dated 13-08-2008 of DG, Town & Country Planning,
Haryana Chandigarh. The appellants had indicated about this in its rejoinder
at page 5 (volume-12) but had no document to support the same at that
time.
(Please see the document Annexure: P-38 of this additional affidavit
obtained through RTI dated 14-5-2016 and reply thereof 9-6-2016);
(iii) TDI has also concealed the fact that the township of its competitor no-2-
Parasvnath spread over 84.155 acres in the relevant market has been
cancelled vide memo no LC-502/2015/960 dated 9-1-2015.
(Please see the document filed with the rejoinder at page 150-151 volume-
12);
(iv) TDI has also concealed that HUDA did not allot any single plot at Kundli in
Haryana since 2005 and took the advantage of the ignorance of the
appellants. This information is revealed in reply dated 13-6-2016 to RTI
application dated 16-5-2016. Copies of same is enclosed hereto as Annexure:
P-39.
(v) TDI has also concealed that HUDA the total number of plots being only 385
so allotted in the entire geographical area of Distt Sonepat and area thereof
since 2005 till today. The total measurement of these plots are 1,13, 350 sq
yards (i.e. 23.46 acres only). This information is revealed by HUDA itself vide
its reply dated 8-5-2016 in response to RTI application dated 13-7-2016,
copies of which are enclosed as Annexure: P-40 (colley).
(vi) TDI has also concealed the price band of the HUDA plots. The information
reveals that the prices of HUDA plots are significant lower, more than 20%,
The price band for HUDA residential plots even in year 2010 has been mere
Rs. 4007/- per sq yard (no EDC charge is applicable) as against (Rs. 5250/- +
1650 EDC =Rs. 6900/- per sq. yard for plot no say K-764 & K-763 booked in
February 2005). In 2008, the price of TDI plot no K-499 was stated to be Rs.
10,151/- per sq yards as per documents filed by TDI itself at page 1112 Vol-
XI. This information as to price band of HUDA plots is revealed by HUDA vide
its reply dated 23-8-2016 in response to RTI application dated 13-5-2016, a
copy of which is enclosed hereto as Annexure: P 41 (colley).
(vii) TDI has also concealed that the HUDA plots are not substitutable for the
consumers as the marketing by HUDA for its plots is by launch of schemes
and further by draw of lots. By practice, HUDA does not permit a consumer to
purchase more than one plot and also lays down the eligibility conditions. But,
for plots in respondent's township, one can purchase as many as plots on first
come first service. Consumers can also identify, negotiate for any particular
plot of his choice also. General Terms and conditions of HUDA residential plots
are quite different from the terms and conditions of respondent-2, a copy of
which is enclosed hereto as Annexure: P-42.
(viii) TDI has also concealed the material fact from this Hon'ble Commission as
to the intended use of HUDA plots is not for resale and/or for investment. It is
strictly for self-use for the person so applying. One can apply only for one plot
as against plots of integrated township as they are available to all and without
restrictions as to number of plots and further free from the conditions
restricting the resale and further can also chose the plot of their liking, if
available. The intended use of HUDA plots and that of integrated township of
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respondent-2 is different.
(ix) TDI has also concealed the distinct features of their townships which make
distinct and incomparable with HUDA plots such—
• Plot size varies from 250 sq yds to 1000 sq yds as against 50 sq yds to 500
sq yds of HUDA;
• 24 hours multi-level security;
• Pollution free lush green environment;
• International living standard;
• Open space & extensive landscaping;
• Longest and biggest mall on NH-1;
• Wild and well lit road;
• Advantage of proximity to Delhi;
• Potentiality of being cyber city soon;
• Adjacent to Rajiv Gandhi Education HUB spread over 5000 acres;
• 30 minutes drive to 161 airport;
• Next to RIA & Kundli industrial area;
• Best of conceptual innovation and cutting edge construction technologies;
• Dedicated plots for nursery, primary and high schools. Further, Reputed
schools like G.D. Goenka, DPS, Gateway International, Swarnaprastha,
Delhi International Public School, Apollo International and Sunrise
International within driving distance;
• Tertiary level (highest level of ICU & CCU) super specialty Hospitals;
• Hotels and recreation clubs within city and star hotel in vicinity of the city;
• Mandir and Gurudawara;
• Departmental stores, daily needs provisional stores and doctors clinic,
Helpline centres, call ambulance and Cab, free bus transportation from TDI
city to Metro
(x) It is respectfully submitted that the aforesaid are features that identify the
TDI city as distinct product to the company, to the market and to the
consumers. Each product is a complex of tangible and intangible
characteristics which define the product, its use and value. Variation of the
characteristics and addition of new characteristics can make the product more
appealing to the consumer and indeed give a unique product. Comparison
with characteristics of competitive products can define the positions of the
different product in the market. These characteristics can be ranked in
importance not only to the consumers but also technically and for the market.
(Profile of TDI showing many a features has already been placed in volume-
3 page 513 to 552. Further documents in this regard enclosed as Annexure: P
-43).
(xi) The Housing Boards like Delhi Development Authority have also identified
integrated townships as a separate products and have planned to come up
with projects of integrated townships instead of mere residential plots. A
newspaper clipping dated 11-8-2016 published in Times of India reveals that
DDA plans to develop integrated townships is enclosed hereto as Annexure: P-
44.
(xii) The respondent has also concealed about the Notification dated 10th
December, 2003 vide which Government of Haryana declared the controlled
area of Kundli and nearby villages as urban area as defined u/s 2(w) of
Haryana Development & Regulation Act. The notification was received vide
letter dated 1-7-2016 in response to RTI application dated 16-5-2016, a copy
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of which along with typed copy of the said notification is enclosed hereto as
Annexure: P-45.
Information concealed on abuse
(xiii) TDI has not disclosed the actual rate of EDC per square yards that TDI is
under legal obligation to pay to Haryana Government and actual rate at which
TDI charged from its allottees. TDI has concealed that actual amount that it
gained by way of unjust enriches and further by way of interest/penalty in the
name of late payment of EDC.
(xiv) TDI has disclosed that it completed only 40% of the township but not
disclosed the material facts as to-(a) the various dates on which it was
granted the license; (b) the time period within which the township was to be
completed; (c) duration of period for which the same were renewed from time
to time. This information will disclose that the TDI itself was biggest defaulter
and further will reveal that its various demands for payment was premature.
As per the information on record, most of the licenses were granted in 2005.
The validity of licenses are 4 years and renewable from time to time for a
period of 2 years. (Please see Section 3(4) of the Haryana Development &
Regulation of Urban Area Act, 1975 - at page 330 volume-III). Further, the
township was to be completed within 2 years with all developments in terms
of the Rule 12 of Haryana Development & Regulation of Urban Area Rules,
1976. For any reason beyond control, the licenses could be renewed for further
1 year under Rule 14(1). But the TDI was repeated granted renewal of the
license. (Please see the rule at page-368 & 369 volume-3 for rule-12 & 14).
(xv) TDI has not disclosed the fact/s- (a) that total number of plots/units
actually booked since 2004; (b) number of plots/units so cancelled out of total
plots/shops/flats so booked; (c) total amount forfeited on account of
cancellation of the bookings; (d) Number of plots/shops/flats/villa in respect
of which TDI was sued in different courts/forum of law since 2004 till today;
(e) Number of the persons to whom possession were handed; (f) Further out
of such person so offered possession, total number of persons who were
handed over the conditional possession without ensuring basic amenities; (g)
TDI should in all fairness should disclose the complete list of all such
cancellation with the information total basic price which the allottees was
(were) to pay; the total amount actually paid, the default amount for which
the booking was cancelled.”
32. In paragraph 1.4, the deponent raised an additional ground for challenging the
impugned order, namely, violation of the principles of natural justice as interpreted by
the Supreme Court in Gullapalli Nageswar Rao v. Andhra Pradesh State Road Transport
Corporation, AIR 1959 SC 1376 and Rasid Javed v. State of U.P., (2010) 7 SCC 781.
For the sake of reference, that paragraph is reproduced below:
“1.4 Impugned order is vitiated in law for being passed in violation of the
principle of Natural Justice.
With all due respect, the appellants take the opportunity to affirm the fact that
the impugned order has been signed by the Chairman, who did not hear the case.
As such, the question whether a person, who is a member of an adjudicatory body
and has not heard the parties, can adjudicate upon their rights and/or pass an order
adversely affecting either party is no longer res-integra and must be answered in
negative in view of the judgments of the Supreme Court and various judgments
passed by this Hon'ble Tribunal. That question was first considered in Gullapalli
Nageswar Rao v. Andhra Pradesh State Road Transport Corporation, AIR 1959 SC
1376. The same question was again considered in Rasid Javed v. State of U.P.,
(2010) 7 SCC 781. The Supreme Court relied upon the earlier judgement in
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-
Gullapalli Nageswara Rao's case and observed: “…… a person who hears must
decide and that divided responsibility is destructive of the concept of judicial
hearing is too fundamental a proposition to be doubted.” The Hon'ble Tribunal also
held so in the case of Cement Company and several other cases and thereby set
aside the orders of the CCI and remanded back for fresh hearing.”
33. In paragraph 2 of his affidavit, Appellant No. 1 for the first time disclosed that
more than 70 properties were purchased by him and his wife, Smt. Kavita Jain, his
brother, Manoj Kumar Jain, and his wife, Smt. Nidhi Jain, as also his sons, Ankit Jain
and Atin Jain, his father, Surendra Kumar Jain, Deepak Kumar Jain (H.U.F.), Deepak
and Company, Asia Capitals Ltd., Transcended Electronics Private Ltd. and Competent
Electronics Private Ltd. Since these details are of considerable importance for deciding
whether the Commission committed any legal error in determining the relevant
market, the relevant portions of paragraphs 2 to 5 of the affidavit are reproduced
below
“Disclosure in compliance of direction of COMPAT
2. To appreciate the information, appellants first intend to give the complete list
of their family members and associated companies and their relation with the
appellant/s, who have also booked plots/shops/flats and/or purchased from the
secondary market pertaining to the TDI (respondent-2). The same is summarized
herein as under—
List of family members & associate companies (for the purpose of the present case)
SN Name of the appellants/family members/associate Relation with appellants
companies
I Deepak Kumar Jain Appellant No. 1
II Manoj Kumar Jain (Appellant-2) Brother of appellant-1
III Smt Kavita Jain Wife of appellant-1
IV Smt Nidhi Jain Wife of appellant-2
V Ankit Jain (Now no more since 19-10-2015) Son of appellant-1
VI Atin Jain Son of appellant-1
VII Surendra Kumar Jain Father of appellants
VIII Deepak Kumar Jain (HUF) Hindu Undivided Family
of appellant-1
VIII-A Deepak & Company A firm of Deepak Kumar
Jain (HUF)
IX Asia Capital Limited An associate company
of appellant/s being
both its Director
X Transcend Electronics (P) Ltd An associate company
of appellant-1 being its
Director
XI Competent Electronics Pvt. Ltd. An associate company
of appellant-1 being its
Director
Desired information as directed by the Hon'ble Tribunal
2.1 Now the desired information as directed by the Hon'ble Tribunal is furnished
herein as under—
(I)
Desired Information pertaining to Deepak Kumar Jain in his individual capacity & sole
owner.
(But in joint name with his wife Mrs. Kavita Jain).
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(IA) Details of plots/shops/flats booked with TDI
Note: All are well accounted and reflected in books of accounts.
Sl. No. Date of Property ID Type of Customer ID Total Amount
Booking Property Paid till 31-
03-2012
1. 22-12-2004 K-757 Plot 10712 20,80,600
2. 27-12-2004 B-R5/86 Plot 10313 48,07,125
Total 68,87,729
Besides the above investment, maintenance charges for plot number mentioned
at Sl. No. 1 during the financial year 2012-2015 has been invested separately.
(IA-I)
Details of plots/shops/flats transferred to Deepak Kumar Jain in is his individual
capacity & sole owner (but in joint name with his wife)
By the Hindu Undivided Family of the appellant-1 for consideration
03-2012
1. 01-04-2007 C-R5/6 Plot 10029 25,45,190
2. 01-04-2007 C-R5/5 Plot 10030 25,45,119
Total 50,90,309
at Sl. No. 1 & 2 during the financial year 2012-2016 and construction of plot (25%)
for completion purpose mentioned at Sl. No. 1 & 2 during the financial year 2014-
2016 have been invested separately.
(IB)
Details of properties transferred by way of sale to his associate company
Sl. No. Date of Property ID Customer Information as to Transfer
Transfer ID
1. 18-07-2011 B-R5/86 10313 (a) Transfer Rs.
Proceeds 70,00,000/-
(b) Gross Profit Rs.
on Transfer 21,92,875/-
(without
Considering
Interest on
Loan, if
any)
(C) Buyer's Transcend
Name Electronics
Pvt. Ltd.
(d) Days of 2,394 Days
Holding
(IC)
Summary:
Thus, Deepak Kumar Jain booked only 2 plots since 2004 and got 2 plots by way
of internal transfer from his Hindu Undivided Family for consideration. Thus total
being 4. Out of which, he transferred 1 plot in the name of his associate company
and thus in hand with only 3 plots. Out of these 3 plots, conveyance deed/s for 2
plots have been executed on 16-05-2011 (for plot no. C-R5/6 & C-R5/5) and 1 plot
no K-757 cancelled and is subject matter of the case.
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Type of Property Number Of Number of Unit Number of Remarks

Unit Booked Sold/Transferred Unit in Hand
(a) Plots 2 1 1 Plot No. K-
757
(b) Shops Nil Nil Nil cancelled
and is
subject
(c) Flats Nil Nil Nil matter of the
case
Type of Property Number Of Number of Unit Number of Remarks

Unit Got by Sold/Transferred Unit in Hand
way of
transfer
(a) Plots 2 Nil 2 Conveyance
deed/s for 2
(b) Shops Nil Nil Nil plots have
been
(c) Flats Nil Nil Nil executed on
16-5-2011
II
Desired Information pertaining to Manoj Kumar Jain in his individual capacity & Sole
owner (But in joint name with his wife Mrs. Nidi Jain)
2.2 Details of plots/shops/flats books, owned and sold by Manoj Kumar Jain in
his individual capacity & sole owner (but in the joint name of with his wife Smt
Nidhi Jain) and further sold by him and his details as to loans are herein as under—
(II)
Details of plots/shops/flats booked
Note: All are well accounted and reflected in books of accounts.
03-2012
1. 22-12-2004 K-758 Plot 10713 20,80,600
2. 27-12-2004 A-23/6 Plot 10309 48,97,339
3. 27-02-2006 N.A Flat KFL-11730 3,00,000
4. 27-02-2006 N.A Flat KFL-11733 3,00,000
5. 27-02-2006 N.A Flat KFL-11735 3,00,000
6. 27-02-2006 N.A Flat KFL-11737 3,00,000
7. 27-02-2006 N.A Flat KFL-14702 3,00,000
84,77,939
(II-A)
Details of properties sold:
Sl. Date of Property Customer Information as to Sale
No. Transfer ID ID
1. 07-05- N.A. KFL-11735 (a) Sale Proceeds Rs. 3,00,000/-
2006 (b) Gross Profit on Nil
Sale (without
Considering
Interest on Loan,
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if any)
(C) Buyer's Name Balwan Singh
(d) Days of Holding 69 days
Sale (without
Considering
Interest on Loan,
if any)
(c) Buyer's Name Balwan Singh
(d) Days of Holding 69 Days
Sale (without
Considering
Interest on Loan,
if any)
(c) Buyer's Name Gurmail Almadi
2016
(b) Gross Profit on Rs. 5,000/-
Sale (without
Considering
Interest on Loan,
if any)
(c) Buyer's Name Tajit Migl
2006
(b) Gross Profit on Nil
Sale (without
Considering
Interest on Loan,
if any)
(c) Buyer's Name S.K. Mallali
(II-B)
Summary:
Thus, Manoj Kumar Jain (appellant-2) had booked 2 plots and 5 flats (7 in all)
out of which all the five flats were sold in 2006 itself - the calendar year in which
the same were booked. Thus, he is having 2 plots in hand, out of which dispute
pertains to only one plot K-758 and other plot, conveyance deed has already been
got executed.
Type of Number Number Number Remarks
Property Of Unit of Unit of Unit
Booked Sold in Hand
(a) Plots 2 Nil 2 1- Conveyance deed executed in
respect of 1 plot way back in 12-7-
2011 for plot no A-23/6
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2. Thus, appellant-2 has dispute in

respect of only one plot K-758
(b) Shops Nil Nil Nil
(c) Flats 5 Nil 5
III
Information pertaining to Kavita Jain in his individual capacity & sole owner (But in
joint name with her husband Mr. Deepak Kumar Jain)
2.3 Details of plots/shops/flats books, owned and sold by Smt. Kavita Jain in his
individual capacity & sole owner (but in joint name with her husband Deepak Kumar
Jain) and further sold by him and his details as to loans are herein as under:—
(III)
Note: All plots/flats/shops so booked by Kavita Jain as stated below was well
accounted and reflected in books of accounts.
03-2012
1. 24-12-2004 F-9 Plot 10021 37,55,328
2. 27-12-2004 F-15 Plot 10312 38,43,288
3. 27-02-2006 N.A. Flat KFL-11738 3,00,000
4. 27-02-2006 N.A. Flat KFL-11742 3,00,000
5. 27-02-2006 N.A. Flat KFL-11744 3,00,000
6. 27-02-2006 N.A. Flat KFL-11764 3,00,000
7. 27-02-2006 N.A. Flat KFL-11765 3,00,000
Total 90,98,616
for completion purpose mentioned at Sl. No. 1 & 2 during the financial year 2015-
2016 have been invested separately.
(III-A)
Details of properties sold:
No. Sale ID ID
1. 08-05- N.A. KFL- (a) Sale Proceeds Rs. 3,00,000/
2006 11764 -
Sale (without
Considering
Interest on Loan, if
any)
(c) Buyer's Name Raman Khera
2006 11765 -
Sale (without
Considering
any)
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(c) Buyer's Name Raman Khera

2006 11738 -
Sale (without
Considering
any)
(c) Buyer's Name Panchwati
Promoters
Pvt. Ltd.
2006 11742 -
Sale (without
Considering
any)
Promoters
Pvt. Ltd.
2006 11744 -
Sale (without
Considering
any)
Promoters
Pvt. Ltd.
(III-B)
Summary:
Thus, Kavita Jain in her individual capacity & sole owner but in joint name with
her husband) purchased 2 plots and 5 flats (7 in total) out of which all the 5 flats
were sold and thus is having 2 plots in her hand.
Type of Property Number of Number of Number of Remarks
Unit Booked Unit Sold Unit in
hand
(a) Plots 2 Nil 2 Conveyance deed
executed for both
plots.
(i) on 16-5-2011
for plot no. F-15;
(ii) on 12-7-2011
for plot no. F-9.
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(c) Flats 5 5 Nil
IV
Information pertaining to Nidhi Jain in his individual capacity & sole owner.
(But in joint name with her husband Manoj Kumar Jain)
2.4 Details of plots/shops/flats booked, owned and sold by Smt. Nidhi Jain in his
individual capacity & sole owner (but in joint name with her husband Manoj Kumar
Jain) and further sold by him and his details as to loans are herein as under—
(IV)
Note: All plots/flats/shops so booked by Nidhi Jain as stated below was well
Booking Property paid till 31-
03-2012
1. 25-12-2004 D-29/1 Plot 10039 40,05,209
2. 27-12-2004 F-14 Plot 10311 38,53,523
Total 78,58,732
for completion purpose mentioned at Sl. No. 2 during the financial year 2015-2016
have been invested separately.
IV-A. Details of properties sold: Nil
IVB. Summary:
Thus, only two plots were booked by Nidhi Jain in her individual capacity & sole
owner (but in joint name of her husband Manoj Kumar Jain). There was no sale and
thus both the plots are in hands.
hand
(a) Plots 2 Nil 2 Conveyance deed
executed for both
plots.
(i) on 16-5-2011 for
plot no. F-14;
(ii) on 12-7-2011 for
plot no. D-29/1.
(c) Flats Nil Nil Nil
V
Information pertaining to ANKIT Jain (now no more) in his individual capacity &
sole owner
(But in joint name with his father Deepak Kumar Jain)
2.5. Details of plots/shops/flats books, owned and sold by Ankit Jain (now no
more) in his individual capacity & sole owner (but in joint name with his father
Deepak Kumar Jain) and further sold by him and his details as to loans are herein
as under—
(V)
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Note: All plots/flats/shops so booked by Ankit Jain as stated below was well
03-2012
1. 14-12-2004 B-48/7 Plot 10582 39,27,333
Total 39,27,333
at Sl. No. 1 during the financial year 2012-2015 and construction of plot (25%) for
completion purpose mentioned at Sl. No. 1 during the financial year 2014-2016
have been invested separately.
V-A. Details of properties sold:
Sl. Date of Sale Property Customer Information as to Sale
No. ID ID
1. 01-04-2015 B-48/7 10582 (a) Sale Rs.
Proceeds 84,00,000/-
(b) Gross Profit Rs.
on Sale 41,33,550/-
(without
Considering
Interest on
Loan, if any)
(c) Buyer's M.K. Batra &
Name Sons (H.U.F.)
and S.S.
Batra & Sons
(H.U.F.)
(d) Days of 3,760 Days
Holding
V-B. Summary:
Thus, Ankit Jain (now no more since 19-10-2015) in his capacity booked only
one plot and the same has been sold.
Type of Property Number of Unit Number of Unit Number of Unit in
Booked Sold hand
(a) Plots 1 1 Nil
(c) Flats 5 5 Nil
VI
Information pertaining to Atin Jain in his individual capacity & sole owner
(But in joint name with his father Deepak Kumar Jain)
2.6 Details of plots/shops/flats books, owned and sold by Atin Jain in his
individual capacity & sole owner (but in joint name with his father Deepak Kumar
(VI)
Note: All plots/flats/shops so booked by Atin Jain as stated below was well
03-2006
271
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1. 02-03-2006 N.A. Flat KFL-14713 4,00,000

Total 4,00,000
VI-A. Details of properties sold:
No. Sale ID ID
2006
Sale (without
Considering
Interest on
Loan, if any)
(c) Buyer's Name J.K. Properties
(d) Days of 87 Days
Holding
VI-B. Summary:
Atin Jain in his individual capacity but in joint name with his father Deepak
Kumar Jain booked only one flat (no plot/shop) and sold the same within the same
calendar year.
Type of Property Number of Unit Number of Unit Number of Unit
Booked Sold in hand
(a) Plots Nil Nil Nil
(c) Flats 1 1 Nil
VII
Information pertaining to
Surendra Kumar Jain in his individual capacity & sole owner
(But in joint name with his son Manoj Kumar Jain)
2.5. Details of plots/shops/flats books, owned and sold by Surendra Kumar Jain
in his individual capacity & sole owner (but in joint name with his son Manoj Kumar
(VII)
Note: All plots/flats/shops so booked by Surendra Kumar Jain as stated below
was well accounted and reflected in books of accounts.
03-2011
1. 14-12-2004 B-51/1 Plot 10583 48,07,125
2. 14-01-2008 93 Villa MRV-1003 15,00,000
Total 63,07,125
VII-A. Details of properties sold: NIL
VII-B. Summary:
Thus, Surendra Kumar Jain in his individual capacity & sole owner in but in joint
name with his son Manoj Kumar Jain (only in case of plot) booked one plot and one
villa. None of them has been sold. However, TDI has cancelled the villa without the
agreement being signed. Case is pending before state commission. Regarding the
plot, all the payments upto date has already been made as back as on 31-3-2011,
but the TDI is not willing to offer possession and execute conveyance deed.
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hand
(a) Plots 1 Nil 1 All the payments up
to date has already
been made as back
as on 31-3-2011,
but the TDI is not
willing to offer
possession and
execute conveyance
deed.
(c) Flats Nil Nil Nil
(d) Villa 1 Nil 1 Case is pending
before the State
Commission in
Delhi.
VIII
Information pertaining to
Deepak Kumar Jain (Hindu Undivided Family)
(Partly (31 properties in the joint name/s of its karta Deepak Kumar Jain and its
Coparcener Smt. Kavita Jain and partly (11 properties including one purchased from
the secondary market) in the name of its firm Deepak & Company).
2.8 Details of plots/shops (IA) Details of plots/shops/flats books for an owned by
Deepak Kumar Jain (Hindu Undivided Family) and fully financed by it but in the
joint individual name/s of its Karta Deepak Kumar Jain and its Coparcener Smt.
Kavita Jain with particulars of their being sold and all details as to loans are herein
as under—
(VIII)
(in the joint individual name/s of its Karta Deepak Kumar Jain and its Coparcener
Smt. Kavita Jain)
Note: All plots/flats/shops so booked as stated below was well accounted and
reflected in books of accounts.
Sl. No. Date of Property Type of Customer ID Total Amount
Booking ID Property Paid till 31-03-
2011
1. 01-01-2005 C-R5/6 Plot 10029 5,20,795
2. 01-01-2005 C-R5/5 Plot 10030 5,20,795
3. 07-01-2005 L-818A Plot 12267 15,45,375
4. 07-01-2005 L-887 Plot 12268 14,84,375
5. 07-01-2005 I-273A Plot 12269 10,22,844
6. 07-01-2005 I-262A Plot 12270 9,93,750
7. 07-01-2005 I-251A Plot 12271 9,93,750
8. 07-01-2005 I-217A Plot 12272 9,93,750
9. 07-01-2005 L-336 Plot 12273 16,59,125
10. 07-01-2005 L-339 Plot 12274 10,76,875
11. 07-01-2005 L-65 Plot 12275 10,22,844
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12. 07-01-2005 L-394 12276 Plot
10,22,844
13. 07-01-2005 L-393 12277 Plot
10,43,625
14. 11-01-2005 L-381 12278 Plot
17,30,375
15. 17-01-2005 K-217 12279 Plot
15,07,625
16. 17-01-2005 K-218 12280 Plot
15,07,625
17. 17-01-2005 K-219 12281 Plot
15,07,625
18. 17-01-2005 K-220 12282 Plot
15,07,625
19. 17-01-2005 K-600 12283 Plot
15,07,625
20. 17-01-2005 K-601 12284 Plot
15,07,625
21. 17-01-2005 K-602 12285 Plot
15,07,625
22. 17-01-2005 K-603 12286 Plot
22,45,823
23. 17-01-2005 K-608 12294 Plot
24,64,723
24. 17-01-2005 K-609 12295 Plot
24,64,723
25. 17-01-2005 K-610 12296 Plot
24,64,723
26. 17-01-2005 K-611 12297 Plot
24,64,723
27. 17-01-2005 J-143 12298 Plot
15,07,625
28. 17-01-2005 J-144 12299 Plot
15,07,625
29. 17-01-2005 J-145 12300 Plot
15,07,625
30. 04-02-2005 K-764 11093 Plot
23,46,250
31. 04-02-2005 K-763 11095 Plot
23,46,250
Total 4,75,04,587
at Sl. No. 30 & 31 during the financial year 2012-2015 has been invested
separately.”
34. In pages 39 to 45, Appellant No. 1 has given details of the plots/shops/flats
(10 in number) booked in the name of firm Deepak & Company, details of 1 plot
purchased from the secondary market in the name of firm Deepak & Company, details
of 31 properties sold between 06.02.2007 and 09.06.2010, details of four properties
transferred among the family member and/or associate companies and summarised
the transactions of various properties in the following words:
“VIII-B. Summary: Thus, Deepak Kumar Jain (Hindu Undivided Family) booked
31 plots in the joint individual name/s of its Karta Deepak Kumar Jain and its
Coparcener Smt. Kavita Jain and further 10 shops in the name of its firm Deepak &
Company and purchased one plot from the secondary market thus total being 32
plots and 10 shops (42 properties). Out of the 32 plots, 26 plots have been already
sold, 4 plots transferred internally (2 plots in the name of its Karta and Coparcener)
and another-2 to the associate company of appellant-1 (Competent Electronics Pvt
Ltd). Five shops out of 10 shops were resold. Thus, the HUF had in hand total 7
properties (i.e. 5 shops which stands cancelled on 5-11-2009 and 2 plots namely K-
763 & K-764 are in hand and all stands cancelled as per TDI. The subject matter of
the both these plots are in dispute in the present case. Cancelled shops are not
subject matter of the present information for being time barred as cancelled on 5-
11-2009 i.e. prior to 3 years of filing the information on 2-6-2016.”
35. In pages 47 to 59, Appellant No. 1 has given details of the loan taken from
various banks, institutions and individuals between 31.03.2015 and 31.03.2009. He
has also given details of loans taken from A&A Capital Services Pvt. Ltd. and others in
the financial year 2009-10, financial year 2010-11 and financial year 2011-12. The
total loan taken by the appellants and his family members from various banks,
institutions and also individuals is about Rs. 29 Crores.
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36. Paragraph 4 of the affidavit of Appellant No. 1, which contains grand summary
of various purchases and sale reads as under:
“4. Grand Summary of Purchase/sale
(i) Deepak Kumar Jain (in his individual capacity & Sole owner but in joint name
with his wife Kavita Jain) booked only 2 plots since 2004 and got 2 plots by
way of internal transfer from his Hindu Undivided Family for consideration.
Thus total being 4, out of which, he transferred 1 plot in the name of his
associate company and thus in hand with only 3 plots. Out of these 3 plots,
conveyance deed/s for 2 plots have been executed on 16-5-2011 (for plot no
C-R5/6 & C-R5/5) and 1 plot no. K-757 cancelled and is subject matter of the
case.
(ii) Manoj Kumar Jain (appellant-2) (in his Individual capacity & sole owner but
in joint name with his wife Nidhi Jain) had booked 2 plots and 5 flats (7 in all)
out of which all the five flats were sold in 2006 itself - the calendar year in
which the same were booked. Thus, he is having 2 plots in hand, out of which
dispute pertains to only one plot, K-758 and other plot, conveyance deed has
already been got executed.
(iii) Kavita Jain in her individual capacity & sole owner (but in joint name with
her husband) purchased 2 plots and 5 flats (7 in total) out of which all the 5
flats were sold and thus is having 2 plots in her hand.
(iv) Nidhi Jain in her individual capacity & sole owner (but in Joint name of her
husband Manoj Kumar Jain). There was no sale and thus both the plots are in
hands.
(v) Ankit Jain (now no more since 19-10-2015) in his individual capacity but in
joint name with his father Deepak Kumar Jain booked only one plot and the
same has been sold.
(vi) Atin Jain in his individual capacity but in joint name with his father Deepak
Kumar Jain booked only one flat (no plot/shop) and sold the same within the
same calendar year.
(vii) Surendra Kumar Jain in his individual capacity & sole owner but in the joint
name with his son Manoj Kumar Jain (only in case of plot) booked one plot
and one villa. None of them has been sold. However, TDI has cancelled the
villa without the agreement being signed. Case is pending before State
commission. Regarding the plot, all the payments up to date has already been
made as back as on 31-03-2011. Offer of possession/execution of conveyance
deed is still awaited from TDI.
(viii) Deepak Kumar Jain (Hindu Undivided Family) booked 31 plots in the joint
individual name/s of its Karta Deepak Kumar Jain and its Coparcener Smt.
Kavita Jain and further 10 shops in the name of its firm Deepak & Company
and purchased one plot from the secondary market thus total being 32 plots
and 10 shops (42 properties). Out of the 32 plots, 26 plots have been already
sold, 4 plots transferred internally (2 plots in the name of its Karta and
Coparcener) and another-2 to the associate company of appellant-1
(Competent Electronics Pvt Ltd). Five shops out of 10 shops were resold. Thus,
the HUF had in hand total 7 properties (i.e. 5 shops which stands cancelled on
5-11-2009 and 2 plots namely K-763 & K-764 are in hand and all stands
cancelled as per TDI. The subject matter of the both these plots are in dispute
in the present case.
(ix) Asia Capital Limited (An associate company of Deepak Kumar Jain being its
Director) booked only one flat and no plot and no shop and that too sold the
same.
(x) Transcend Electronics Pvt. Ltd (An associate company of Deepak Kumar Jain
275
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-
being Director), did not book any plot/shop/flat directly in TDI. However, it
purchased only one plot by way of transfer from Deepak Kumar Jain for
consideration. All the payments up to date has already been made as back as
on 31-3-2011. Offer of possession/execution of conveyance deed is still
awaited from TDI.
(xi) Competent Electronics Pvt. Ltd (An associate company of Deepak Kumar Jain
being its Director) did not book any plot/shop/flat directly with TDI. However,
it purchased only two plots by way of internal transfer from the property
belonging to the Hindu Undivided Family of Deepak Kumar Jain in the joint
individual name/s of its Karta Deepak Kumar Jain and its coparcener Kavita
Jain and payment for sale proceeds was made to the business firm Deepak &
Company (a unit of Deepak Kumar Jain HUF). All the payments up to date has
already been made as back as on 31-3-2011. Offer of possession/execution of
conveyance deed is still awaited from TDI.
SN Legal Entities Booked Sold In Remarks
connected with Deepak Including Hand
Kumar Jain purchase
from mkt
and/or
internal
transfer
1. Deepak Kumar Jain (in 4 1 2 Out of these 3 plots,
his individual capacity conveyance deed/s
& sole owner but in for 2 plots have been
joint name with his executed on 16-05-
wife Kavita Jain) 2011 (for plot no C-
R5/6 & C-R5/5));
and
1 plot no K-757
cancelled and is
subject matter of the
case.
2. Manoj Kumar Jain (In 7 5 2 Out of 2 plots in
his individual capacity hand, dispute
& sole owner but in pertains to only one
joint name with his plot K-758 and;
wife Nidhi Jain) Other plot A-23/6
conveyance deed has
already been got
executed on 12-07-
2011.
3. Smt. Kavita Jain (In 7 5 2 Conveyance deed of
his individual capacity both the plots in
& sole owner but in hand have been
joint name with her executed (i) on 16-5-
husband Deepak 2011 for plot no. F-
Kumar Jain) 15; (2) on 12-7-
2015 for plot no F-9.
4. Smt. Nidhi Jain (in his 2 - 2 Conveyance deed of
individual capacity & both the plots in
sole owner but in joint hand have been
name with her executed (i) on 12-7-
276
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-
husband Manoj Kumr 2011 for plot no D-
Jain) 29/1; (2) on 16-5-
2011 for plot no F-
14.
5. Ankit Jain - Now no 1 1 - Nil
more (in his individual
capacity & sole owner
but in joint name with
his father Deepak
Kumar Jain)
6. Atin Jain (in his 1 1 - Nil
individual capacity &
sole owner but in joint
name with his father
Deepak Kumar Jain
7. Surendra Kumar Jain 2 Nil 2 Booked one plot and
(In his individual one villa.
capacity & sole owner TDI has cancelled the
and/or in joint name villa without the
with his son Manoj agreement being
Kumar Jain signed. Case is
pending before state
commission.
Regarding the plot,
all the payments up
to date has already
been made as back
as on 31-3-2011.
Offer of
possession/execution
of conveyance deed
is still awaited from
TDI.
8. Deepak Kumar Jain 31 (includes 2 Out of the 31 plots,
(HUF) (in the joint 4 plots 25 plots have been
individual/name/s of transferred already sold;
its Karta Deepak internally) 4 plots transferred
Kumar Jain & its internally (2 plots in
Coparcener Smt Kavita the name of its Karta
Jain and Coparcener) and
another-2 to the
associate company of
appellant-1
(Competent
Electronics Pvt Ltd.).
Thus 29 plots
disposed.
2 remaining plots in
hand being plot no K
-763 & K-764 stated
to be wrongly
cancelled and being
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-
subject matter of the
information.
8A. Deepak Kumar Jain 11 6 5 Out of 11 properties
(HUF) (in the name of (includes (10 shops and one
its firm Deepak & 1 plot), 5 shops and
Company) purchased plot were sold.
from This, 5 shops in hand
secondary but cancelled on 5-
marked) 11-2009 by TDI
without any provision
as no agreement was
signed as terms of
the same were
requested to be
modified to make
them reasonable. The
claim of these 5
shops got time
barred as on date of
filing the information
before CCI.
8B Deepak Kumar Jain 6 6 - Bought back/sold
(HUF) (in the through TDI at
individual name of its booking amount only
Karta Deepak Kumar (see para-3 of this
Jain) affidavit)
9. Asia Capital Limited 1 1 - Nil
10. Transcend Electronics 1 - 1 No direct booking.
(P) Ltd. However, purchased
only one plot by way
of transfer from
Deepak Kumar Jain
for consideration. All
the payments up to
date has already
been made as back
as on 31-3-2011.
Offer of
possession/execution
of conveyance deed
is still awaited from
TDI.
11. Competent Electronics 2 - 2 No direct booking.
Pvt. Ltd. However, purchased
only 2 plot/s by way
of transfer from
Hindu undivided
Family for
consideration. All the
payments up to date
has already been
made as back as on
278
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-
31-3-2011, but the
TDI is not willing to
offer possession and
execute conveyance
deed.
Total 76 55 21
4B (i) Thus, as on today, there are total 21 properties including pots/shops/villa
in hands in the name of appellants, their family members, the Hindu undivided
family members, the Hindu undivided family of appellant-1, and their associate
companies.
(i) For 7 plots out of these 21 properties, Conveyance deed has been executed.
ò 2 plots in favour of appellant-1;
ò 1 plot in favour of appellant-2;
ò 2 plots in favour of Kavita Jain but in joint name of appellant-1;
ò 2 plots in favour of Nidhi Jain but in joint name of appellant-2.
(ii) 4 plots for which up to date payments received by TDI long back till 31-3-
2011. Offer of possession/execution of conveyance deed is still awaited from
TDI. Out of these 4 plots, one plot is in the name of father of appellants and 3
plots in the name of the associate company of appellant-1.
(iii) 5 shops have been cancelled on 5-1 belonging to the Undivided Hindu
Family of the appellant-1 in the name of its business firm Deepak & Company.
The claim/s against this shop has become time barred as on the date of filing
information before CCI.
(iv) 1 villa in the name of the father of appellants cancelled for which father of
appellants has already filed case before the state Commission and the same is
pending.
(v) 4 plots - (i) one plot being K-757 belonging to appellant-1, (ii) one plot
being K-7 belonging to appellant-2; (iii) two plots namely K- 763 & K-764
belonging to Hindu Undivided Family in the joint name/s of its Karta and
Coparcener namely Deepak Kumar Jain and Smt. Kavita Jain cancelled. All
these four plots are subject matter of the information.”
37. In paragraph 5 of his affidavit, Appellant No. 1 has made a categorical assertion
that the appellants were not under any obligation to disclose the concluded
transactions prior to 20.05.2009, i.e., the day on which Sections 3 and 4 of the Act
came into force. The same reads as under:
“No Legal obligation to disclose
5. With all humility the appellants submits that they were not under any legal
obligation to disclose about the concluded transactions prior to 20-5-2009 the day
on which section 3 & 4 of the Competition Act came in force while filing the
information on 2-6-2014 before the CCI and the appeal dated 20-11-2014 for the
reasons—
(ii) The provisions of section 3 & 4 of CCI came in force on 20-5-2009 and as
such Information regarding as to the concluded transaction prior to 20-5-2009
are immaterial and irreverent for the purpose of issues to be determined by
CCI/COMPAT. The Non disclosure as to exact number of properties with all
minute details in the information since 2004 being insignificant, trivial and are
unimportant for deciding the legality and sustainability of the Impugned order
under challenge in the present case. A “material fact” is a fact that is crucial
to the determination of an issue at hand. Without these particulars, the court's
determination of the issue would not be different. Such background
information are not crucial without which the hon'ble tribunal won't be able to
279
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-
determine the issues in hand as to product market, geographical market, TDI
being enjoying the position of dominance in relevant market and is guilty of
abuse of dominance.
(iii) The answering respondent (TDI) has also miserably failed so far to pin point
as to how the outcome of the decision of the hon'ble tribunal on product
market, geographical market, dominance of the TDI and abuse thereof shall
be different, if these background details of all the relatives, and all the
associate companies and all other properties whose transactions stands
concluded and closed long ago in the year 2005, 2006 & 2007 or so much
prior to 20-05-2009 - day on which section 3 & 4 of Competition Act came
into force.
(iv) Further each family member of appellants and their associate companies are
separate and distinct legal entities in law even though they may be related
and appellants as such has no right in law to club their transactions along with
their own case and thereby to cause prejudice and impede legal hazards for
them for taking any action or not against TDI. Each entity is free to take up or
not for the matter for their own transactions. Each booking has a separate
cause of action and separate legal action could be maintained and each of
them has its own challenge in law such as issue of limitation.”
38. In paragraph 6, Appellant No. 1 made the following statement:
“6. Appellants/their family members/associate companies as on 20-5-2009 day
on which section 3 & 4 of Competition Act came into force had only 29 properties in
all including 4 plots being subject matter of information. The total number of
properties were disclosed in the information so filed before CCI on 2-6-2014 though
minute details thereof was not provided.”
39. In paragraphs 7.2 to 7.5 and paragraphs 8 to 9.4 of his affidavit, Appellant No.
1 has outlined the reason for non-disclosure of information relating to other properties
and in paragraphs 10 to 12, which are reproduced below, he has made legal
submissions that non-disclosure of information about purchases and sales made prior
to 20.05.2009 is inconsequential.
“Mere on ground of non disclosure of details of properties as stated by TDI,
illegality of the impugned order under challenge before the Hon'ble Tribunal cannot
be allowed to prevail
10. The proceedings before CCI and Hon'ble Tribunal are primarily in public
interest and to achieve the public policy to check anti-competitive agreements and
abuse of dominance. The role of appellants is mere informants to initiate the
proceedings for an order u/s 26(1) for direction to DG to investigate, verify and
submit the report on the information being so provided. Otherwise, also,
Competition Commission of India is empowered to entertain the information on its
own motion even if informant may not have its standing before it. Locus standi of
the appellants are not in question and otherwise fully covered under the provisions
of the Competition Act. As such there is no legal hurdle of locus standi of the
appellants for filling the information of abuse of dominance against the TDI.
Number of booking made by an individual either in their individual capacity would
not be bar to seek compensation from TDI for the reason that the definition of
consumer as provided under the competition Act is different than the one provided
under the Consumer Protection Act. Consumer Protection debars the
“resale/commercial purpose” whereas the Competition Act deliberately includes the
same.
10.1 without prejudice to contention of appellants and facts and circumstances
so stated above, mere on the ground of non-disclosure of details of properties as
stated by TDI, illegality of the impugned order under challenge before the Hon'ble
280
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-
Tribunal cannot be allowed to prevail. Doors of the CCI and Hon'ble Tribunal cannot
be allowed to be opened wide for the answering respondent-2 (TDI) to walk free
even though being found dominant player in the relevant market on the basis of
various undisputed materials that the Hon'ble Tribunal has got to know in the
appeal.
10.2 The proceedings are aided at for the benefit of public at large and economic
as whole. It is not only the appellants alone are going to benefit but also thousands
other who are ignorant and/or cannot afford to approach. The interest of
public/consumers at large cannot be thrown out in the same way that a baby
cannot be thrown out with bath water. The Hon'ble Tribunal is competent enough to
separate the grain of material facts from the chaff of trivial and irrelevant
background material for the information to determine the issues in its hand.
Conclusion
11. To sum up, thus all the details as required by the Hon'ble Tribunal vide order
dated 18-8-2016 stands complied with by appellants.
11.1 Appellants with all humility at their command submits that in their
understanding, they were not under legal obligation to disclose details as being so
disclosed by way of this additional affidavit for the reasons cited above. However, all
other material and relevant facts within the knowledge of the appellant disclosed.
11.2 Otherwise even in case of the information being held to be material and
relevant, it cannot be said that appellants had not approached the CCI and/or this
tribunal with clean hands keeping in view of the all the bonafide reasons, mindset
and prevailing circumstances of appellants being under distress that appellants
were undergoing while the information being prepared and filed and the filing of
memorandum of appeal and rejoinder. At the most in that circumstances,
information could be said to be lacking desired details and deficient and the
appellants could be said to be careless/improperly advised.
11.3 The appellants cannot be said to have violated their conscience of good
faith. It cannot be said that appellants made any conscious efforts to control and
conceal the said immaterial background information. It cannot be said that
appellants have taken the advantage of any ignorance of the answering respondent.
It would be unjust to blame and accuse the appellants for not coming with clean
hands. In fact, mind, heart as well as hands of the appellants are found to be clean.
On the other hand, respondent-2 is guilty of concealing vital facts and documents
for determination of the issues in hand with a view to take advantage of ignorance
of the appellants.
12. The appellants at the end as an abundant precaution shall like to submit that
despite all care at their end, they are subject to correction for any clerical, typing,
oversight, counting mistake.”
40. Shri Jeevan Prakash, learned Counsel for the appellants extensively referred to
the advertisement issued by Respondent No. 2 in the form of a pamphlet (Annexure P-
10, pages 513 to 552), National Urban Housing and Habitat Policy (Annexure P-5), the
provisions of Haryana Development and Regulation of Urban Areas Act, 1975
(Annexure P-6), Haryana Development and Regulation of Urban Areas Rules, 1976
(Annexure P-7), the printouts of cities and towns from Arthapedia (Annexure P-4), the
project description of TDI City, Kundli showing integrated township spread over 1250
acres (Annexure P-12), RTI application dated 12.05.2010 (Annexure P-15) filed by
himself and its reply dated 08.03.2011 received from SPIO-cum-District Town Planner
(HQ), the details of the licenses granted by the Department of Town & Country
Planning, Haryana till December 2004 (Annexure P-23), two printouts from the
website of Ministry of Company Affairs showing that all the four different licenced
companies of TDI group have common Directors and management (Annexure P-24),
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true copy of the site plan of TDI City (Annexure P- 24A), the list of pending projects in
Haryana (Annexure P-25), the list of 29 companies of TDI Group (Annexure P-26), the
list of 70 different companies (Annexure P-28), which are controlled by Shri Kamal
Taneja, Director of Respondent No. 2, the list of 25 companies in which Ravinder
Taneja, Managing Director of Respondent No. 2 holds control, the documents showing
payment by the appellants and others and argued that the finding recorded by the
Commission that the integrated township is not a separate relevant market is ex-facie
erroneous and on that ground alone the impugned order is liable to be set aside. Shri
Jeevan Prakash laid considerable emphasis on the fact that Respondent No. 2 had
advertised integrated township as a special project to invite public at large to purchase
plots/flats/villas etc. by highlighting that the amenities and facilities available in the
integrated township are of international standard and are different from those provided
in other projects. He pointed out that various commercial, educational, recreational
and other amenities specified in the pamphlets circulated by Respondent No. 2
attracted the appellants to purchase plots/flats/shops for residential and other
purposes by paying higher price. He submitted that Respondent No. 2 had acted with
malice from the beginning inasmuch as it changed the location of the plots/flats/shops
allotted to the appellants, their family members and associated companies etc.,
charged extra cost for the so-called amenities and ultimately cancelled the allotments
on the ground of non-payment of the outstanding dues and all this clearly amounts to
abuse of dominant position within the meaning of Section 4(2) of the Act. He pointed
out that the total land available with Respondent No. 2 at Kundli (District Sonepat) is
much more than the land available with any other developer in that area and,
therefore, the Commission ought to have declared that Respondent No. 2 is in a
dominant position in the relevant market and issued a direction under Section 26(1) to
the Director General (DG) to cause an investigation into the allegations of abuse of
dominant position by Respondent No. 2. He further argued that even though the
appellants had placed sufficient material before the Commission to show that
Respondent No. 2 was in a dominant position and had grossly abused the same, but
the latter failed to take cognizance of the same and arbitrarily closed the matter under
Section 26(2) by holding that there exists no prima facie case for ordering an
investigation.
41. Shri Jeevan Prakash then argued that the appellants cannot be accused of not
approaching the Commission and the Tribunal with clean hands or that they are guilty
of contumacious conduct because all the purchases and sales were made between
2004 and 2009, i.e., much before the enforcement of Sections 3 and 4 of the Act and
the appellants were not under any obligation to disclose those transactions in the
complaints filed under the Consumer Act or the information filed under Section 19(1)
(a) of the Act.
42. Shri Pallav Shisodia, learned Senior Counsel for Respondent No. 2 vehemently
argued that the appeal should be dismissed because the appellants are guilty of highly
contumacious conduct inasmuch as they deliberately refrained from disclosing that
they were property dealers/investors in real estate and not consumers of the services
provided by Respondent No. 2. Shri Shisodia submitted that determination of the
relevant market under Section 2(r) read with Section 2(s) and (t) of the Act is very
much dependent on the allegations made in the information and the material
produced by the informant and argued that the appellants are not entitled to seek any
relief because they intentionally misled the National Commission as well as the
Competition Commission of India and this Tribunal in believing that they had
purchased only four plots for residential purpose and majority of the 24 other
plots/flats/shops purchased by them, their family members and associate companies
were disposed of for earning livelihood and for purchasing other properties. He pointed
out that in order to invoke the jurisdiction of the National Commission, the
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complainants had projected themselves as innocent buyers of plots for construction of
their residences and made various allegations of deficiencies of service against
Respondent No. 3 but did not disclose that they had been in the business of purchase
and sale of properties. Shri Shishodia then pointed out that in response to the
applications filed by Respondent No. 2 under Order VII Rule 11 of the CPC, the
appellants had for the first time made disclosure about purchase of other properties
but claimed that they were consumer within the meaning of Section 2(d)(ii) of the
Consumer Act read with its explanation because most of the properties were re-sold
for earning their livelihood and for purchase of other properties. Shri Shishodia
submitted that if the National Commission had been apprised of the fact that the
appellants were dealers in the business of real estate and had invested crores of
rupees for purchase of plot/flats/shops either in their own name or in the joint name of
themselves and their wives and other family members as also associated companies,
the National Commission would have dismissed the complaints at the threshold.
Learned senior counsel then submitted that the appellants' assertion that they had
been victimised by Respondent No. 2 by allotting the plots at the backside of the
colony on 18-metre road despite the fact that they had applied and paid for allotment
of plots on 24-metre wide road, raising of various illegal demands by Respondent No.
2 and ultimate cancellation of the plots, must have impressed the National
Commission to issue notice to Respondent No. 2 and spent its valuable public time by
continuing proceedings for a period of one year and seven months till the withdrawal
of the complaints by the appellants herein. Shri Shishodia then argued that the
impugned order contains cogent reasons for determination of the relevant market and
the finding recorded by the Commission that Respondent No. 2 is not in a dominant
position in the relevant market does not suffer from any legal infirmity warranting
interference by the Tribunal in exercise of its power under Section 53A(1) read with
Section 53B(2) of the Act.
43. Shri Shisodia emphasised that even after withdrawal of the complaints filed
under the Consumer Act in view of the categorical assertion made on behalf of
Respondent No. 2 that they do not fall within the definition of the term ‘consumer’
under Section 2(d) of the Consumer Act, the appellants did not change their modus
operandi and filed information under Section 19(1) of the Act by not disclosing the
fact that they had purchased as many as 76 properties, majority of which were sold for
profit. Learned Senior Counsel argued that even though the Commission has wide
jurisdiction to deal with and decide the issues relating to contravention of Sections 3
and 4 of the Act, but it is not bound to entertain each and every information filed
under Section 19(1)(a) of the Act or a reference made by the Central or the State
Governments and direct an investigation under Section 27(1) by ignoring that the
informant or the person making reference is guilty of deliberate suppression of facts or
contumacious/unethical conduct or that he/she/it has sought investigation into the
allegations of contravention of the provisions of the Act with an ulterior motive or is
guilty of non-disclosure of facts, which have bearing on the issue of contravention of
the provisions of the Act. Shri Anil Grover, Additional Advocate General, Haryana
appearing for Respondent No. 3 and 4 adopted the arguments of Shri Pallav Shisodia.
44. We have carefully considered the respective arguments and perused the record
including the documents filed by the appellants with I.A. No. 161 of 2015. We have
also gone through the pleadings of the four complaints filed by the appellants and
their wives under Section 22 of the Consumer Act, as also Consumer Complaint No.
350/2012 filed by their father Shri Surendra Kumar Jain, which is said to be pending
before the State Consumer Disputes Redressal Commission, New Delhi.
45. Section 2(r), (s), (t), Sections 4 and 19(1)(4) and Section 26(1) of the Act,
Regulations 10 to 12 and 15 to 19 of the Competition Commission of India General
Regulations, 2009 (for short, ‘the Regulations’) and also Section 2(d) of the Consumer
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Act, which have bearing on the decision of this appeal read as under:
“The Act
Sec. 2. Definitions.- In this Act, unless the context otherwise requires,- ……….
(r) “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.
(s) “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.
(t) “relevant product market” means 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.”
“Sec. 4. Abuse of dominant position. — (1) No enterprise or group shall abuse its
dominant position.
(2) There shall be an abuse of dominant position under subsection (1), if an
enterprise or a group,—
Explanation.— For the purposes of this clause, the unfair or discriminatory
condition in purchase or sale of goods or services 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
conditions or prices which may be adopted to meet the competition; or
(i) production of goods or provision of services or market therefor; or
(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.
Explanation.—For the purposes of this section, the expression—
(a) “dominant position” means a position of strength, enjoyed by an enterprise,
in the relevant market, in India, which enables it to —
(i) operate independently of competitive forces prevailing in the relevant
market; or
(ii) affect its competitors or consumers or the relevant market in its favour;
(b) “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.
(c) “group” shall have the same meaning as assigned to it in clause (b) of the
Explanation to section 5.”
“Sec. 19. Inquiry into certain agreements and dominant position of enterprise.—
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(1) 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.
xxx xxx xxx
(4) 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
(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;
(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;
(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.”
“Sec. 26. Procedure for inquiry under section 19. - (1) On receipt of a
reference from the Central Government or a State Government or a statutory
authority or 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 in to the
matter:
Provided that if the subject-matter of an information received is, in the
opinion of the Commission, substantially the same as or has been covered
by any previous information received, then the new information may be
clubbed with the previous information.
……………”
“The Regulations
Reg. 10. Contents of information or the reference. - (1) The information or
reference (except a reference under sub-section (1) of section 49 of the Act) shall,
inter alia, separately and categorically state the following seriatum—
(a) legal name of the person or the enterprise giving the information or the
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reference;
(b) complete postal address in India for delivery of summons or notice by the
Commission, with Postal Index Number (PIN) code;
(c) telephone number, fax number and also electronic mail address, if available;
(d) mode of service of notice or documents preferred;
(e) legal name and address(es) of the enterprise(s) alleged to have contravened
the provisions of the Act; and
(f) legal name and address of the counsel or other authorized representative, if
any;
(2) The information or reference referred to in sub-regulation (1) shall contain—
(a) a statement of facts;
(b) details of the alleged contraventions of the Act together with a list enlisting
all documents, affidavits and evidence, as the case may be, in support of each
of the alleged contraventions;
(c) a succinct narrative in support of the alleged contraventions;
(d) relief sought, if any;
(e) such other particulars as may be required by the Commission.
(3) The contents of the information or the reference mentioned under sub-
regulations (1) and (2), alongwith the appendices and attachments thereto, shall
be complete and duly verified by the person submitting it.”
11. Signing of information or reference. - (1) An information or a reference or a
reply to a notice or direction issued by the Commission shall be signed by—
(a) the individual himself or herself, including a sole proprietor of a
proprietorship firm;
(b) the Karta in the case of a Hindu Undivided Family (HUF);
(c) the Managing Director and in his or her absence, any Director, duly
authorized by the board of directors in the case of a company,
(d) the President or the Secretary in the case of an association or society or
similar body or the person so authorized by the legal instrument that created
the association or the society or the body;
(e) a partner in the case of a partnership firm;
(f) the chief executive officer in the case of a cooperative society or local
authority;
(g) in the case of any other person, by that person or by some person duly
authorized to act on his behalf.
(2) A reference shall be signed and authenticated by an officer not below the
rank of a Joint Secretary to the Government of India or equivalent in the State
Government or the Chief Executive Officer of the Statutory Authority if the same
has been received from the Central Government or State Government or Statutory
Authority.
(3) Without prejudice to the provisions of this regulation, the counsel may also
append his or her signature to the information or reference as the case may be.”
“12. Procedure for filing of information or reference. - (1) Information or
reference or responses thereto to the Commission shall be presented to the
Secretary or to an officer authorized in this behalf by the Secretary, in person or
sent by registered post or courier service or facsimile transmission addressed to the
Secretary or to such authorized officer.
(2) Any separate or additional document(s) that a party to the proceedings
wishes to rely upon in support of it's information, or reference shall be filed in the
form of a “Paper Book”, at least seven days prior to the date of the ordinary
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meeting, after serving the copies of the said document(s) on the other parties to
the proceedings, with documentary proof of such service. Such documents shall be
serially numbered, prefaced by an index and shall be supported by a verification.
(3) An information(s) or reference sent by post or courier service or facsimile
transmission under sub-regulation (1) shall be deemed to have been presented to
the Secretary or to the officer authorized by the Secretary, on the day on which it is
received in the office of the Secretary or the authorized officer, as the case may be.”
“15. Procedure for scrutiny of information or reference. - (1) Each information or
reference received in the Commission shall be scrutinized by the Secretary to check
whether it conforms to these regulations and the defects, if any, shall be
communicated to the party within a reasonable time not exceeding,—
(a) fifteen days in case of an information or reference received under clause (b)
of sub-section (1) of section 19 of the Act; or
(b) seven days in case of a reference received under section 21 or sub-section
(1) of section 49 of the Act.
(2) The information provider referred to in clause (a) of sub-section (1) of section
19 of the Act or the Central Government or the State Government or the statutory
authority referred under clause (b) of sub-section (1) of section 19 or in sub-section
(1) of section 49 of the Act, as the case may be, shall, on receipt of the
communication about the defects under sub-regulation (1), remove the defects
within:—
(a) thirty days of receiving the intimation in case of an information or reference
under clause (b) of sub section (1) of section 19 of the Act; or
(b) fifteen days of receiving the intimation in case of a reference under section
21 or sub-section (1) of section 49 of the Act.
(3) In case the defects are not removed by the Central Government or the State
Government or the statutory authority or the concerned party, as the case may be,
as per the provision of sub-regulation (2), the information or the reference or the
application connected therewith shall be treated as invalid:
Provided that the Central Government or the State Government or the
Statutory Authority or the concerned party shall be entitled to file fresh
information, reference or application for consideration by the Commission
together with applicable fees.
(4) In the event of the information having been treated as invalid under sub-
regulation (3), the fee paid on such information shall stand forfeited.
(5) Nothing contained herein above shall preclude the Commission from using
the contents of such information or reference in any manner as may be deemed fit,
for inquiring into any possible contravention of any provision of the Act:
Provided that the time taken in removing the defects in such references shall
not count towards the period of sixty days provided for giving of opinion by the
Commission in sub-section (2) of section 21 or sub-section (1) of section 49 of
the Act, as the case may be.”
“16. Opinion on existence of prima facie case. - (1) The Secretary, after scrutiny
and removal of defects, if any, in an information or reference, as the case may be,
shall place the same before the Commission to form its opinion on existence of a
prima facie case.
(2) In cases of alleged anti-competitive agreements and/or abuse of dominant
position, the Commission shall, as far as possible, record its opinion on existence of
a prima facie case within sixty days.
(3) The Commission shall, as far as possible, hold its first ordinary meeting to
consider whether prima facie case exists, within fifteen days of the date of
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placement of the matter by the Secretary under sub-regulation (1).”
“17. Preliminary conference. - (1) The Commission may, if it deems necessary,
call for a preliminary conference to form an opinion whether a prima facie case
exists.
(2) The Commission may invite the information provider and such other person
as is necessary for the preliminary conference.
(3) A preliminary conference need not follow formal rules of procedure.”
“18. Issue of direction to cause investigation on prima facie case. - (1) Where
the Commission is of the opinion that a prima facie case exists, the Secretary shall
convey the directions of the Commission within seven days to the Director General
to investigate the matter [***]
(2) A direction of investigation to the Director General shall be deemed to be the
commencement of an inquiry under section 26 of the Act.”
“19. Communication of order when no prima facie case found.- If the
Commission is of the opinion that there exists no prima facie case, the Secretary
shall send a copy of the order of the Commission regarding closure of the matter
forthwith to the Central Government or the State Government or the Statutory
Authority or the parties concerned, as the case may be, as provided in sub-section
(2) of section 26 of the Act.”
“The Consumer Act
Sec. 2(d). “consumer” means any person who—
(i) buys any goods for a consideration which has been paid or promised or partly
paid and partly promised, or under any system of deferred payment and
includes any user of such goods other than the person who buys such goods
for consideration paid or promised or partly paid or partly promised, or under
any system of deferred payment when such use is made with the approval of
such person, but does not include a person who obtains such goods for resale
or for any commercial purpose; or
(ii) hires or avails of any services for a consideration which has been paid or
promised or partly paid and partly promised, or under any system of deferred
payment and includes any beneficiary of such services other than the person
who ‘hires or avails of the services for consideration paid or promised, or
partly paid and partly promised, or under any system of deferred payment,
when such services are availed of with the approval of the first mentioned
person but does not include a person who avails of such services for any
commercial purposes;
Explanation.— For the purposes of this clause, “commercial purpose” does not
include use by a person of goods bought and used by him and services availed by
him exclusively for the purposes of earning his livelihood by means of self-
employment.”
46. A reading of the plain language of Section 26(1) makes it clear that on receipt
of a reference from the Central Government or State Government or a statutory
authority or on its own knowledge or information received under Section 19, the
Commission shall direct the DG to cause an investigation to be made into the matter
provided it is of the opinion that there exists a prima facie case. In other words, the
Commission's satisfaction about the existence of a prima facie case is a condition
precedent/sine qua non for issue of a direction for an investigation to be made into the
matter. The Regulations framed by the Commission contain provisions for filing of
information, scrutiny thereof, preliminary conference, if any, which may be held at the
discretion of the Commission and issue of a direction for investigation. Regulation 10
(2) lays down that the information or reference referred to in sub-regulation (1) shall
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contain a statement of facts, details of the alleged contraventions of the Act together
with a list enlisting all documents, affidavits and evidence, as the case may be, in
support of each of the alleged contraventions, a succinct narrative in support of the
alleged contraventions and relief sought, if any. Regulation 12 contains the procedure
for filing an information or reference. Regulation 15 provides for scrutiny of the
information or reference. After scrutiny and removal of defects, if any, the Secretary is
required to place the information or reference before the Commission for the purpose
of forming an opinion whether or not there exists a prima facie case for ordering an
investigation. For this purpose, the Commission can call for preliminary conference and
also invite informant or such other person as it may consider necessary.
47. The requirement of filing an information containing statement of facts, details
of the alleged contraventions of the provisions of the Act together with a list of
documents, affidavits and evidence, as the case may be, in support of each of the
allegations/alleged contraventions and succinct narrative in support of the alleged
contraventions necessarily implies that the informant is under a solemn duty to
faithfully and truthfully disclose all the facts, which may have direct or indirect bearing
on the alleged contraventions of the provisions of the Act and which may help the
Commission in forming an opinion under Section 26(1). To put it differently, the
person filing an information under Section 19(1)(a) is duty bound to disclose all the
facts which have even a semblance of bearing on the alleged contravention of the
provisions of the Act. The authority which is required to scrutinise the information can
effectively discharge its duty under Regulation 15 only if the informant candidly and
truthfully discloses all the facts. The Commission can also effectively exercise power
under Section 26(1) read with Regulation 18 and form an opinion on the existence of a
prima facie case only if it is apprised of the complete facts by the informant or the
person making a reference. Thus, if an informant or a person making reference
conceals or suppresses the facts, which have some bearing on the allegation of
contravention of the provisions of the Act or makes misleading or incomplete
statements, then the scrutiny of the information/reference etc. may not be
effective/complete and the Commission may be misled in forming an opinion as to the
existence of a prima facie case.
48. On the above analysis of the relevant provisions of the Act and the Regulations,
we hold that if a person files an information under Section 19(1)(a) of the Act without
disclosing full facts or conceals the facts, which have bearing on the formation of an
opinion by the Commission about the existence of a prima facie case or is otherwise
guilty of contumacious conduct, then he cannot complain against the refusal of the
Commission to entertain his/its grievance. If an informant deliberately refrains from
incorporating full facts, which have direct or indirect bearing on the allegation of
contravention of Section 3(1) and/or Section 4(1) of the Act, then he forfeits his right
to question the discretion exercised by the Commission not to order an investigation
under Section 26(1) and to close the case under Section 26(2) of the Act.
49. The Courts across the world have repeatedly declined to give relief to a litigant
seeking intervention of the judicial and quasi-judicial forums, who does not approach
the concerned judicial or quasi-judicial forum with clean hands or is guilty of
suppression of facts or contumacious conduct. In one of the earliest decisions on the
subject i.e. R. v. Kensington Income Tax Commissioners, (1917) 1 KB 486 (DC&CA),
Viscount Reading, Chief Justice of the Divisional Court observed as under:
“Where an ex parte application has been made to this Court for a rule nisi or
other process, if the Court comes to the conclusion that the affidavit in support of
the applicant was not candid and did not fairly state the facts, the Court ought, for
its own protection and to prevent an abuse of its process, to refuse to proceed any
further with the examination of the merits. This is a power inherent in the Court,
but one which should only be used in cases which bring conviction to the mind of
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the Court that it has been deceived. Before coming to this conclusion a careful
examination will be made of the facts as they are and as they have been stated in
the applicant's affidavit, and everything will be heard that can be urged to influence
the view of the Court when it reads the affidavit and knows the true facts. But if the
result of this examination and hearing is to leave no doubt that this Court has been
deceived, then it will refuse to hear anything further from the applicant in a
proceeding which has only been set in motion by means of a misleading affidavit.”
The above extracted observations were approved by the Court of Appeal in the
following words:
“……It is the duty of a party asking for an injunction to bring under the notice of
the Court all facts material to the determination of his right to that injunction: and
it is no excuse for him to say that he was not aware of the importance of any facts
which he has omitted to bring forward. …… if an applicant does not act with
uberrima fides and put every material fact before the Court it will not grant him an
injunction, even though there might be facts upon which the injunction might be
granted.”
50. In Hari Narain v. Badri Das, AIR 1963 SC 1558, the Supreme Court revoked the
leave granted to the appellants by making the following observations:
“It is of utmost importance that in making material statements and setting forth
grounds in applications for special leave made under Article 136 of the Constitution,
care must be taken not to make any statements which are inaccurate, untrue or
misleading. In dealing with applications for special leave, the Court naturally takes
statements of fact and grounds of fact contained in the petitions at their face value
and it would be unfair to betray the confidence of the Court by making statements
which are untrue and misleading. Thus, if at the hearing of the appeal the Supreme
Court is satisfied that the material statements made by the appellant in his
application for special leave are inaccurate and misleading, and the respondent is
entitled to contend that the appellant may have obtained special leave from the
Supreme Court on the strength of what he characterises as misrepresentations of
facts contained in the petition for special leave, the Supreme Court may come to
the conclusion that in such a case special leave granted to the appellant ought to be
revoked.”
(Emphasis supplied)
51. In G. Narayanaswamy Reddy v. Govt. of Karnataka, (1991) 3 SCC 261, the
Supreme Court noted that the appellant had concealed the fact that the award could
not be made by the Land Acquisition Officer within the time prescribed under Section
11-A of the Land Acquisition Act because of the stay order passed by the High Court
and dismissed the special leave petition by assigning the following reasons:
“…… Curiously enough, there is no reference in the special leave petitions to any
of the stay orders and we came to know about these orders only when the
respondents appeared in response to the notice and filed their counter-affidavit. In
our view, the said interim orders have a direct bearing on the question raised and
the non-disclosure of the same certainly amounts to suppression of material facts.
On this ground alone, the special leave petitions are liable to be rejected. It is well
settled in law that the relief under Article 136 of the Constitution is discretionary
and a petitioner who approaches this Court for such relief must come with frank and
full disclosure of facts. If he fails to do so and suppresses material facts, his
application is liable to be dismissed. We accordingly dismiss the special leave
petitions.”
(Emphasis supplied)
52. In S.P. Chengalvaraya Naidu v. Jagannath, (1994) 1 SCC 1, the Supreme Court
held that where a preliminary decree was obtained by withholding an important
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document from the court, the party concerned deserves to be thrown out at any stage
of the litigation.
53. In Prestige Lights Ltd. v. State Bank of India, (2007) 8 SCC 449, it was held
that in exercising of powers under Article 226 of the Constitution of India, the High
Court is not just a court of law, but also a court of equity and a person who invokes
Article 226 of the Constitution is duty bound to place all the facts before the court
without any reservation. If there is suppression of material facts or twisted facts have
been placed before the High Court, then it will be fully justified in refusing to entertain
the petition. The Supreme Court then referred to the judgement in Scrutton, L.J. in R.
v. Kensington Income Tax Commissioners (supra) and observed:
“In exercising jurisdiction under Article 226 of the Constitution, the High Court
will always keep in mind the conduct of the party who is invoking such jurisdiction.
If the applicant does not disclose full facts or suppresses relevant materials or is
otherwise guilty of misleading the Court, then the Court may dismiss the action
without adjudicating the matter on merits. The rule has been evolved in larger
public interest to deter unscrupulous litigants from abusing the process of Court by
deceiving it. The very basis of the writ jurisdiction rests in disclosure of true,
complete and correct facts. If the material facts are not candidly stated or are
suppressed or are distorted, the very functioning of the writ courts would become
impossible.”
(Underlining is ours)
54. In Dalip Singh v. State of U.P., (2010) 2 SCC 114, the Supreme Court invoked
the values cherished by the Indian society for many centuries and observed:
“For many centuries, Indian society cherished two basic values of life i.e.,
‘satya’ (truth) and ‘ahimsa’ (non-violence), Mahavir, Gautam Buddha and Mahatma
Gandhi guided the people to ingrain these values in their daily life. Truth
constituted an integral part of justice-delivery system which was in vogue in pre-
Independence era and the people used to feel proud to tell truth in the courts
irrespective of the consequences. However, post-independence period has seen
drastic changes in our value system. The materialism has overshadowed the old
ethos and the quest for personal gain has become so intense that those involved in
litigation do not hesitate to take shelter of falsehood, misrepresentation and
suppression of facts in the court proceedings.
In last 40 years, a new creed of litigants has cropped up. Those who belong to
this creed do not have any respect for truth. They shamelessly resort to falsehood
and unethical means for achieving their goals. In order to meet the challenge posed
by this new creed of litigants, the courts have, from time to time, evolved new rules
and it is now well established that a litigant, who attempts to pollute the stream of
justice or who touches the pure fountain of justice with tainted hands, is not
entitled to any relief, interim or final.”
(Emphasis added)
The facts of that case show that the appellant had challenged an order passed by
the Allahabad High Court refusing to interfere with the orders passed by the
competent authorities under the U.P. Imposition of Ceiling on Land Holdings Act,
1960. While dismissing the appeal, the Supreme Court observed as under:
“21. A perusal of application dated 8-7-1976 submitted by Shri Praveen Singh
for setting aside ex parte order dated 27-12-1975 passed by the prescribed
authority makes it clear that he had pleaded his continuous illness for ten months
as the cause for his inability to file objection. In paragraph 2 of the application. Shri
Praveen Singh made a suggestive assertion that he had no knowledge of the
proceedings initiated by the Prescribed Authority and he came to know about the
case having been decided ex parte only on 7-7-1976 when he went to Lekhpal to
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procure memo. There was not even a whisper in the application that notice dated
29-11-1975 issued by the Prescribed Authority under Section 10(2) of the Act had
not been served upon him and on that account he could not file objections within
15 days.
22. The application filed by Shri Praveen Singh was not supported by any
medical certificate or other evidence which could prima facie establish that he was
really sick for ten months. This is the reason why the Prescribed Authority refused
to reconsider order dated 27-11-1975 and the Appellate Authority declined to
entertain his prayer for remand of the case to the Prescribed Authority for the
purpose of fresh determination of surplus area case. Notwithstanding this, in the
writ petition filed before the High Court a misleading statement was made that due
to serious illness, Shri Praveen Singh could not file objection and, as a matter of
fact, he did not have any knowledge of the dates of proceedings which were
conducted by the Prescribed Authority. In view of that statement, the learned
Single Judge of the High Court felt persuaded to stay the orders passed by the
Prescribed Authority and Appellate Authority which, as mentioned above, resulted
in frustration of the action to be taken by the concerned authority for distribution of
the surplus land to landless persons for a good period of more than eleven years
and enabled the heirs of Shri Praveen Singh to retain possession of the surplus land
and enjoy the same. Before the High Court also, no evidence was produced in
support of the assertion regarding serious illness of Shri Praveen Singh.
23. Insofar as this Court is concerned, Shri Sunil Kumar Singh, grandson of Shri
Praveen Singh and son of the appellant, boldly made a false statement that his
grandfather did not receive notice dated 29.11.1975 along with the statement of
surplus land prepared under Section 10(1) and he could not file any show cause
without going through the statement. We are amazed at the degree of audacity
with which Shri Sunil Kumar Singh could make a patently false statement on oath.
24. From what we have mentioned above, it is clear that in this case efforts to
mislead the authorities and the courts have transmitted through three generations
and the conduct of the appellant and his son to mislead the High Court and this
Court cannot, but be treated as reprehensible. They belong to the category of
persons who not only attempt, but succeed in polluting the course of justice.
Therefore, we do not find any justification to interfere with the order under
challenge or entertain the appellant's prayer for setting aside the orders passed by
the Prescribed Authority and the Appellate Authority.”
55. The same principle was reiterated by the Supreme Court in Oswal Fats and Oils
Limited v. Additional Commissioner (Administration), Bareilly Division, Bareilly, (2010)
4 SCC 728 where the appellant was found guilty of having suppressed the relevant
facts from the competent authority, which had decided his case under the U.P.
Zamindari Abolition and Land Reforms Act, 1950.
56. In Abhyudya Sanstha v. Union of India, (2011) 6 SCC 145, the Supreme Court
found that the appellant had succeeded in persuading it to pass interim orders for
allotment/admission of the students in D. Ed. Course by making a false statement that
it was recognised by the Regional Committee of NCTE. After taking cognizance of the
contumacious conduct of the appellant, the Supreme Court observed:
“18. We have considered the respective submissions and carefully examined the
records. In our view, the appellants deserve to be non suited because they have not
approached the Court with clean hands. The plea of inadvertent mistake put forward
by the learned senior counsel for the appellants and their submission that the Court
may take lenient view and order regularization of the admissions already made
sounds attractive but does not merit acceptance. Each of the appellants consciously
made a statement that it had been granted recognition by the NCTE, which
292
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necessarily implies that recognition was granted in terms of Section 14 of the Act
read with Regulations 7 and 8 of the 2007 Regulations. Those managing the affairs
of the appellants do not belong to the category of innocent, illiterate/uneducated
persons, who are not conversant with the relevant statutory provisions and the
court process. The very fact that each of the Appellants had submitted application
in terms of Regulation 7 and made itself available for inspection by the team
constituted by WRC, Bhopal shows that they were fully aware of the fact that they
can get recognition only after fulfilling the conditions specified in the Act and the
Regulations and that WRC, Bhopal had not granted recognition to them.
Notwithstanding this, they made bold statement that they had been granted
recognition by the competent authority and thereby succeeded in persuading this
Court to entertain the special leave petitions and pass interim orders. The
minimum, which can be said about the appellants is that they have not approached
the Court with clean hands and succeeded in polluting the stream of justice by
making patently false statement. Therefore, they are not entitled to relief under
Article 136 of the Constitution. This view finds support from plethora of
precedents.”
57. We shall now revert to the facts of this case. Though, it may appear repetitive,
we consider it necessary to observe that Appellant No. 1 and his wife Mrs. Kavita Jain
had filed three complaints under the Consumer Act by claiming that they were
consumers within the meaning that term under Section 2(d) of the Consumer Act.
They pleaded that on account of the misleading advertisement issued by Respondent
No. 2 about various amenities and facilities to be provided in the integrated township
proposed to be developed at Kundli (District Sonepat), they applied for allotment of
plots for residential purposes but Respondent No. 2 did not make the promised
allotments even after charging additional price, created illegal demands and finally
cancelled the plots. They further pleaded that Respondent No. 2 was guilty of
deficiency in service. Appellant No. 2 and his wife filed a separate complaint with
similar allegations. The National Commission issued notice to Respondent No. 2 and
passed several orders in a span of more than one year including order dated
09.09.2013 by which the defence of Respondent No. 2 was closed. Thereafter,
Respondent No. 2 filed applications under Order VII Rule 11 of the CPC and sought
dismissal of the complaints on the ground that the complainants were not consumer
within the meaning of Section 2(d) of the Consumer Act and, in fact, they were
dealers in the business of real-estate and were investors.
58. The National Commission heard the arguments on the merits of the cases on
28.10.2013 and reserved the order. At that stage, learned counsel for the appellants
must have realised the misadventure of his clients in seeking relief under the
Consumer Act and sought leave to withdraw the complaints with liberty to avail other
remedies before appropriate forum, which was granted by the National Commission.
59. After about six months of withdrawal of the complaints filed under the
Consumer Act, the appellants jointly filed an information under Section 19(1)(a) of the
Act along with several documents including copy of the National Urban Housing and
Habitat Policy and material downloaded from the websites, price band/value of plots of
different categories in townships, project description of TDI City, Kundli showing the
integrated township spread over an area of 1250 acres for a population of one lakh,
the project descriptions of various developers in Delhi Metropolitan Area, Evaluation
Study on Delhi Metropolitan Area Towns in National Capital Region, which includes
Kundli in district Sonepat, Haryana, application dated 12.05.2010 filed by the counsel
for the appellants under the Right to Information Act, 2005 about the rates of
enhanced EDC rate for residential plots sold by Respondent No. 2 and reply dated
08.03.2011 received from the District Town Planner, HQ, in the office of the DG, Town
and Country Planning, Haryana. They filed additional documents marked as Annexures
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P-22 to P-30, which were allowed to be brought on record vide order dated
17.03.2006, containing the details of licences granted by the Department of Town and
Country Planning, Haryana till December, 2014, copies of the Letters of Intent issued
in favour of Respondent No. 2, the details of four different licensed companies of TDI
Group having common Director/Management, true copy of the site plan of TDI City by
Respondent No. 2, list of pending projects in Haryana, lists of 29 companies of TDI
Group including TDI Infrastructure Limited and TDI Infra Crop, the list of 70
companies in which Director of Respondent No. 2 is said to be holding shares and a list
of 25 companies in which the Managing Director of Respondent No. 2 is said to be
holding shares.
60. In the information, the appellants did make a reference to the purchase of 24
other properties in the project of Respondent No. 2, but stated that 19 of the
properties were re-sold for earning livelihood and for purchase of other properties.
However, they deliberately refrained from disclosing large number of other
transactions involving purchase of plots/flats/shops in their own name, in the joint
names of themselves and their wives, in the names of their children and associated
companies and the fact that they had taken loan from various individuals, institutions
and banks to tune of approximately Rs. 29 Crores and had sold the properties for
profit. During the course of hearing held on 18.08.2016, learned counsel for
Respondent No. 2 pointed out that the appellants had purchased large number of
other properties. After taking cognizance of his statement, the Tribunal directed the
appellants to file an additional affidavit incorporating the details of various
plots/shops/flats purchased by them, their family members and associate companies
from Respondent No. 2 from 2004 onwards and also indicate how much loan had been
taken from various banks for purchase of these properties. The Tribunal also directed
that the affidavit should contain the details of the plots/shops/flats sold by appellants,
their family members and associate companies after purchasing the same from the
Respondent No. 2.
61. In compliance of the direction given by the Tribunal, both the appellants filed
additional affidavits dated 10.09.2016. Along with his affidavit, Appellant No. 1 filed
documents marked as Annexures P-36 to P-45. Appellant No. 1 claimed that they had
approached the Commission with clean hands and even if the information lacked
transparency or was deficient in any manner, they had not done so deliberately. In
paragraphs 10 and 10.2 of his affidavit, Appellant No. 1 sermonised the Commission
and the Tribunal by asserting that their proceedings are primarily in public interest
and to check anti-competitive agreements and abuse of dominant position and,
therefore, any laxity on the part of the informants should be ignored.
62. We have carefully scrutinised the pleadings of the parties, voluminous
documents filed by the appellant and considered the arguments of the learned counsel
for the parties. In our considered view, the appellants are guilty of abusing the process
of the National Commission under the Consumer Act as also the Commission and the
Tribunal under the Competition Act, 2002. The appellants have neither pleaded nor
their Counsel argued that due to illiteracy or ignorance they had not made complete
disclosure of various transactions of sale and purchase of plots/flats/shops in the
project of Respondent No. 2. As a matter of fact, if any such statement or assertion
had been made, the Commission and for that reason the Tribunal would have out
rightly rejected the same because the averments contained in the information filed
under Section 19(1)(a) (pages 109 - 281), additional affidavits dated 10.09.2016 filed
by the appellants and documents produced by them which had been marked as
Annexures P-1 to P-45 (pages running into more than 500 pages) unmistakably show
that the appellants are dealing in real-estate business for last more than one decade
and are well-conversant with the statutory provisions relating to such business. An
illiterate person can ill-afford to take loan of approximately 29 crores from the banks,
294
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financial institutions and individuals for purchasing more than six dozens properties
and selling majority of them for profit. Only a person of the above average intelligence
can undertake such activities. Therefore, the façade of innocence sought to be
projected in the additional affidavit filed by Appellant No. 1 on 10.09.2016 deserves
outright rejection. That apart, the averments contained in that affidavit leave no room
for doubt that between 2004 and 2006, the appellants, their wives, children and
associated companies had made huge investments and taken loan from various banks,
financial institutions and individuals for purchase of plots/flats/shops in the project
launched by Respondent No. 2 and sold most of them for profit. Their father, Shri
Surendra Kumar Jain also booked 2 properties in 2004 and 2008 by paying Rs.
63,70,125/-. The appellants and their family members sold/transferred large number
of properties for profit ranging between Rs. 25,000/- to Rs. 67 lakhs. This leads to an
inference that the projection made by the appellants in the information filed under
Section 19(1)(a) of the Act, that they had purchased plots for residential purposes in
the project launched by Respondent No. 2 in the name of ‘TDI Integrated Township’,
was ex facie false and misleading. We are also convinced that the appellants had
deliberately omitted to make a mention of various transactions of purchases and sales
of plots/flats/shops between 2004 and 2006 and made a wholly unwarranted effort to
convince the Commission that they are victims of the fraud played by Respondent No.
2, by alleging that the said respondent enjoys dominant position in the relevant
market of integrated township.
63. For determining whether the particular market constitutes a relevant market
within the meaning of Section 2(r) of the Act, the Commission is bound to take into
consideration the ‘relevant geographic market’ and the ‘relevant product market’ in
light of the provisions contained in Section 19(5) and 19(6) of the Act. For making an
inquiry as to whether an enterprise enjoys a dominant position in the relevant market,
the factors enumerated under Section 19(4) are required to be taken into
consideration and that will depend on the nature of transactions between the
informant and the person who is accused of the abuse of dominant position and
various factors including dependence of consumers on the enterprise, entry barriers
including 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. A person or group of persons continuously engaged in the
purchase and sale of plots/flats/shops over a period of time has the choice of making
transaction at more than one place. The appellants had such a choice not only at
Kundli (Sonepat) but in the projects being constructed in various parts of National
Capital Region of Delhi, which include, Delhi, Noida, Gurgaon, Faridabad and Sonepat.
Therefore, they cannot possibly contend that they had no option but to purchase
plots/flats/shops in the integrated township being developed by Respondent No. 2. In
any case, the disclosure of complete facts relating to transactions made by them from
2004 onwards would have enabled the Commission to objectively consider their plea
whether or not integrated township constitutes a separate relevant market and
Respondent No. 2 was in dominant position. However, by suppressing various
transactions made by them, their family members and associated companies between
2004 and 2011, the appellants deprived the Commission of considering the relevant
factors for determination of the relevant market and the desirability of ordering an
investigation on the premise that there exists a prima facie case.
64. The appellants' attempt to project themselves as innocent victims of the
alleged fraud played by Respondent No. 2 deserves to be discarded for the simple
reason that they had executed different agreements with Respondent No. 2 with open
eyes and continued to do business with the said respondent for more than one decade.
We may also add that if the appellants were convinced about their status as a
consumer falling within the definition in Section 2(d)(ii) of the Consumer Act, then
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there was no occasion for them to have withdrawn the complaints filed under Section
22 of that Act.
65. There is another reason for our disinclination to entertain the prayer made by
the appellants for setting aside the impugned order. The alleged breach of promise
made by Respondent No. 2 to allot the plots etc. on 24-metres wide road and
preferential location after charging extra cost, non-providing of the promised amenities
etc. gave rise to a purely contractual dispute between the parties and the only remedy
available for resolution of such contractual dispute was to file civil suit(s). However,
instead of taking recourse to the remedy available to them under the relevant law, the
appellants first invoked the provisions of the Consumer Act by claiming that they fall
within the definition of the term ‘consumer’ under Section 2(d) of that Act, withdrew
the complaints by realising that they cannot be treated as consumer for the purposes
of Consumer Act and then filed the information under Section 19(1)(a) of the Act for
securing an order of investigation into the alleged abuse of dominant position by
Respondent No. 2. While doing so they intentionally and with ulterior motive did not
disclose complete facts relating to the transactions made with Respondent No. 2 for
purchase of 76 properties (plots/flats and shops).
66. In the impugned order, the Commission has on an examination of the
averments contained in the information and the documents filed by the appellants
formed an opinion there does not exists a prima facie case for directing the Director
General to cause an investigation into the allegations of abuse of dominant position.
The Commission has assigned cogent reasons for holding that the market for services
of development and sale of residential plot is the relevant product market. The
Commission did take cognizance of the appellants' plea that integrated township offer
some different characteristics, which are not available in other plotted residential units
but observed that the same is no sufficient to treat the integrated township as a
separate relevant product. The Commission further observed that the customers make
buying decision keeping in mind various factors such as intended use, surrounding
areas, transportation facilities, connectivity with major areas, proximity to various
amenities like schools, universities, hospital and vistas of entertainment and leisure
like malls and restaurant, distance from work place, potential rate of return and held
that many of these attribute are not present in the integrated township project to be
considered as a separate relevant product market. We do not find any error
whatsoever in the determination of relevant market made by the Commission, which
may warrant taking of a different view, more so because the appellants deliberately
refrained from disclosing that they were dealers in the business of real estate and
purchased and sold several properties in a span of 6 to 10 years and made profits.
Those who are engaged in such business have the choice of purchasing properties in
similar projects being developed in different parts of the geographic area of National
Capital Region because their primary objective is to earn profit by purchasing
properties at lower rates when the market is down and dispose them of when shows
upward trend in prices. For persons like the appellants, who fall in this category,
integrated township cannot be treated as a separate relevant market and they are not
entitled to seek an investigation into the alleged abuse of dominant position by
Respondent No. 2
67. In the result, the appeal is dismissed. Since the appellants deliberately
refrained from disclosing full facts to the National Commission, the Competition
Commission of India and this Tribunal, which has resulted in wastage of valuable
public time and consequential loss to the public exchequer, each of them is saddled
with the cost of Rs. 5 Lakhs. They shall deposit amount of cost in the Registry of the
Tribunal within a period of one month from today.
68. While parting with the case, we make it clear that observations made in this
order shall not adversely affect adjudication of the consumer complaint filed by Shri
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Surendra Kumar Jain, which is pending before the State Consumer Disputes Redressal
Commission, Delhi.
———

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