2015 (11) TMI 1818 - AT - Law of Competition

Refusal of order of investigation - Whether the Competition Commission of India (for short the Commission) is legally correct and justified in refusing to order an investigation into the alleged abuse of dominant position by Respondent Nos.3 to7? HELD THAT - While examining information received under Section 19 the Commission has only to satisfy itself whether or not there exists a prima facie case requiring an investigation. If the Commission finds that the averments contained in the information do not disclose any prima facie case then only it can order closure of the matter. However for that purpose the Commission cannot delve deep into the merits of the allegations rely upon undisclosed material and record a finding on the tenability or otherwise of the allegations.What we wish to emphasise is that while scrutinising the allegations contained in the information the Commission should not confuse the formation of prima facie opinion with the final determination of the issues raised by the informant. In view of the judgement of the Supreme Court in COMPETITION COMMISSION OF INDIA VERSUS STEEL AUTHORITY OF INDIA LTD. 2010 (9) TMI 215 - SUPREME COURT an order passed by the Commission under Section 26(1) cannot be made subject- matter of appeal under Section 53-B but legality and propriety of an order passed under Section 26(2) can certainly be subjected to judicial scrutiny by the Tribunal. In other words if in exercise of the appellate power vested in it under Section 53-B the Tribunal is satisfied that the negative opinion formed by the Commission on the issue of existence of a prima facie case is vitiated by an error of law then it can set aside the impugned order and direct an investigation under Section 26(1) of the Act. Unfortunately in the present case the Commission has not undertaken an exercise to find out whether the information and written submissions filed by the appellant along with documents disclose a prima facie case. Instead it went on to examine the merits of the allegations relied on the information available on the website of the Ministry of Petroleum and Natural Gas took into consideration the installed refining capacity of the industry as a whole and held that none of the players in the relevant market is in dominant position. The Commission then referred to the Market Guidelines and made a categorical observation that the guidelines relate to quantity and quality control aspects and the same do not appear to fall foul of any of the provisions of the Actand the impugned agreement is not likely to create any barrier to the new entrants in the market nor it drives the existing competitors out of the market - This approach of the Commission is not consistent with the philosophy underlying in Section 26(1). Thus there are no hesitation to hold that a prima facie case is disclosed from the allegations made by the informant and the Commission committed an error by refusing to order an investigation under Section 26(1) - impugned order is set aside and the matter is remanded to the Commission for issue of a direction to the Director General under Section 26(1) for conducting an investigation - appeal allowed.

Summary

Issues Involved:
1. Whether the Competition Commission of India (CCI) was justified in refusing to order an investigation into the alleged abuse of dominant position by the respondents.
2. Determination of the relevant market.
3. Assessment of dominance in the relevant market.
4. Examination of contravention of Section 3(4) read with Section 3(1) of the Competition Act, 2002.
5. Judicial scrutiny of the CCI's order under Section 26(2) of the Competition Act, 2002.

Detailed Analysis:

1. Justification of CCI's Refusal to Order Investigation:
The primary issue was whether the CCI was legally correct in refusing to order an investigation into the alleged abuse of dominant position by the respondents. The appellant, an association of petroleum dealers, alleged that the respondents, public sector undertakings, were forcing them into one-sided agreements and issuing Marketing Discipline Guidelines without consultation. The CCI refused to order an investigation under Section 26(2) of the Competition Act, 2002, stating that there was no prima facie case of abuse of dominant position.

2. Determination of the Relevant Market:
The appellant argued that the relevant market should be defined as the market for oil marketing and distribution within the state of Assam, distinct from oil exploration and refining. The CCI, however, considered the relevant market as the market for refining and sale of petroleum products in India. The appellant provided detailed arguments and documents to support their definition, emphasizing local specifications, regional distribution facilities, and consumer preferences within Assam.

3. Assessment of Dominance in the Relevant Market:
The appellant contended that the respondents held a dominant position in the market for oil distribution and marketing in Assam, with IOCL being in a "super dominant" position. They argued that the three public sector undertakings operated in coordination, maintaining uniform prices and not competing with each other. The CCI, however, analyzed the market based on installed refining capacity and concluded that none of the players held a dominant position, with IOCL's share being only 28.92% in 2011 and 25.44% in 2012.

4. Examination of Contravention of Section 3(4) Read with Section 3(1):
The CCI examined the dealer agreements under Section 3(4) of the Act and found no contravention. The clauses in question, such as Clause 62(a) regarding arbitration and Clause 42 concerning Marketing Discipline Guidelines, were not found to be anti-competitive. The CCI concluded that the agreements did not create barriers to new entrants, drive existing competitors out of the market, or foreclose competition.

5. Judicial Scrutiny of CCI's Order under Section 26(2):
The Tribunal held that the CCI erred by delving into the merits of the allegations instead of merely determining whether a prima facie case existed. The Tribunal emphasized that the CCI should not confuse the formation of a prima facie opinion with the final determination of the issues. The Tribunal found that a prima facie case was disclosed from the allegations and set aside the CCI's order, directing an investigation under Section 26(1) of the Act.

Conclusion:
The appeal was allowed, and the matter was remanded to the CCI for directing an investigation under Section 26(1). The Tribunal clarified that the investigation should be conducted without being influenced by its order, and the CCI should pass an appropriate order based on the Director General's report. The Tribunal's decision highlighted the importance of not delving into the merits of allegations while forming a prima facie opinion under Section 26(1).