2024 (11) TMI 1007 - CCI - Companies Law

Contravention of the provisions of Section 4 of the Competition Act, 2002 - abuse of dominant position - IREL is an enterprise in terms of provisions of the Act or not - relevant market in the present case - IREL holds a dominant position in the relevant market. Whether OP is an enterprise as defined in Section 2(h) of the Act? - HELD THAT - The Commission observes that IREL, the erstwhile Indian Rare Earths Limited is a Public Sector Undertaking and an unlisted Public Company, was incorporated on August 18,1950. It became a full-fledged Government of India Undertaking under the administrative control of Department of Atomic Energy in year 1963. It has its own Board of Directors for managing its overall affairs. Accordingly, the Commission is of the considered view that IREL is not a department of the Government. The Commission notes that Sillimanite is sold by the OP in the open market for monetary consideration. Thus, IREL does not qualify for an exemption from the provisions of Section 2(h) of the Act with respect to the activity of mining and sale of Sillimanite in India. Based on the above and nature of activities carried on by OP, the Commission finds no reason to deviate from its prima facie order dated 03.01.2022 where it held OP to be an enterprise under the Act. Accordingly, the Commission finds OP to be an enterprise under extant provision of Section 2(h) of the Act. What is the relevant market in the present case as defined in Section 2 (r) of the Act? - HELD THAT - With regard to delineation of relevant geographic market, the Commission notes the submission of DG that there are no geographical barriers for production as well as sale of Sillimanite in India. OP has stated that the relevant geographic market in the matter is India including import. The Commission, while agreeing with this contention of the OP, notes that the import of Sillimanite, if any, in Indian market may be appropriately considered under the relevant product market. However, there would be no change in geographic market as competition concerns (even accounting for imported relevant product) would still be evaluated within the boundary of India. Accordingly, the Commission finds no reason to disagree with the finding of DG and accepts the relevant geographic market in the instant case as India - the Commission holds that the relevant market in the present case as mining and supply of Beach Sand Sillimanite in India . Whether OP holds a dominant position within the scope of Section 4 of the Act? - HELD THAT - The contention of the OP that the market share of an entity cannot be a definitive and exclusive indicator of its dominance and therefore, the findings of DG with respect to dominance of the OP cannot be relied upon. However, the Commission observes that the DG has analysed dominance based on various factors, as provided under Section 19(4) of the Act, and not alone on the basis of market share. Further, market share of an entity can be a strong indicator of its presence in the market and simply cannot be brushed aside in toto in absence of other negating factors - the Commission is in agreement with the conclusion drawn by the DG that the OP enjoyed a dominant position in the defined relevant market. Whether OP has violated the provisions of section 4(2)(a)(ii) by charging unfair/ excessive prices from the consumers? - HELD THAT - The price charged by KMML was much higher than IREL despite KMML being a much small player. The Commission also notes that allegation have been levelled in respect of higher quantities being offloaded to a particular company and its associates and also that the price charged is substantially lower vis- -vis what is being charged from other customers. There seems to be no economic incentives for the OP, being in a dominant position, to indulge in such activities where it sold higher quantities at lower prices. Further, the Commission is of the view that market price is best left to the dynamic interaction between forces of the market and intervention would normally be required only in appropriate cases based on facts and circumstances of such a case - there is no reason for the Commission to hold that OP has indulged in excessive pricing. Resultantly, no case of contravention of Section 4(2)(a)(ii) of the Act is made out against the OP. Whether the OP violated the provisions of section 4(2)(a)(ii) by charging discriminatory prices? - Whether the OP violated the provisions of section 4 (2)(a)(i) by imposing discriminatory supply conditions? - HELD THAT - The Commission is of the view that quantity supplied by OP to different categories of consumers of Sillimanite may be different for the reasons such as long-standing business relations, assured off-take quantity, past off-take etc. and therefore, may not be discriminatory. Here, it is trite to say that every commercial enterprise enjoys freedom to carry out trade and take appropriate business decisions. As a normal business prudence, the Commission has reasons to believe that, a party buying in bulk would get better terms (including purchase price) than a small buyer. Unless and until there are manifest contravention of the provisions of the Act, the freedom of enterprise remains sacrosanct and the Commission would not like to dictate the terms of the trade. Based on the facts of the case and analysis, the Commission is of the view that no case of contravention of Section 4(2)(a)(i) of the Act for adopting discriminatory practices in supply of Sillimanite favouring MNCs/foreign customers as against domestic customers is made out against the OP. Considering the facts and circumstances of the case, material on records, Investigation Report of the DG, submission made by the parties and analysis carried out in preceding paragraphs, the Commission is of the view that the OP is covered under the ambit of enterprise prescribed under extant provision of Section 2(h) of the Act and is dominant in mining and sale of Beach Sand Sillimanite in India. However, no case of contravention of provisions of section 4(2)(a)(i) and 4(2)(a)(ii) of the Act is made out against the OP. Accordingly, the matter is directed to be closed. The Commission deems it appropriate to deal with the request of the parties seeking confidentiality over certain documents/information filed by them under Regulation 35 of the Competition Commission of India (General) Regulations, 2009. The Commission notes that during the course of the proceedings, parties had filed their respective submissions in confidential as well as non-confidential version. Certain excerpts from such submissions, over which confidentiality has been sought, have been relied upon by the Commission.

Summary

Issues Involved:

1. Whether IREL is an 'enterprise' in terms of the Act.
2. What is the 'relevant market' in this case.
3. Whether IREL holds a dominant position in the relevant market.
4. Whether IREL has abused its dominant position under Section 4 of the Act.

Issue-wise Detailed Analysis:

Issue (i): Whether IREL is an 'enterprise' as defined in Section 2(h) of the Act?

The Commission analyzed whether IREL qualifies as an 'enterprise' under the Act. It noted that IREL is a Public Sector Undertaking engaged in commercial activities, specifically the mining and sale of Beach Sand Sillimanite. The Commission referenced the Supreme Court's interpretation that government companies are not exempt from being considered enterprises unless they are departments directly involved in sovereign functions like atomic energy, defense, currency, and space. Since IREL operates commercially and is not a government department, it does not qualify for exemption under Section 2(h). Hence, IREL is considered an 'enterprise' under the Act.

Issue (ii): What is the 'relevant market' in the present case?

The Commission examined the delineation of the relevant market, considering substitutability of Sillimanite with other minerals. The DG concluded that Beach Sand Sillimanite is a standalone product due to its unique properties and lack of effective substitutes. The Commission agreed with this assessment, rejecting OP's broader market definition that included polymorphs and substitutes. The relevant market was defined as "mining and supply of Beach Sand Sillimanite in India."

Issue (iii): Whether IREL holds a dominant position in the relevant market?

The Commission assessed IREL's dominance by considering its market share, the impact of government policies, and consumer dependence. The DG's investigation revealed IREL's significant market share, bolstered by regulatory restrictions that limited competition. Despite OP's arguments regarding market dynamics and competition from KMML, the Commission found that IREL maintained a dominant position due to its substantial market share and consumer dependence, even when accounting for imports.

Issue (iv): Whether IREL has abused its dominant position in terms of Section 4 of the Act?

a. Unfair/Excessive Pricing:

The Commission examined allegations of excessive pricing by IREL. The DG found price increases disproportionate to production costs, suggesting unfair pricing. However, the Commission noted that pricing decisions are complex and influenced by market dynamics. It found no evidence of complaints from consumers about excessive pricing and acknowledged IREL's justification that pricing was influenced by demand-supply dynamics and market absorption capacity. Consequently, no contravention of Section 4(2)(a)(ii) was found.

b. Discriminatory Pricing and Supply Conditions:

The Commission addressed allegations of discriminatory pricing and supply conditions. The DG reported differential pricing favoring certain customers. However, the Commission accepted IREL's justification for offering discounts based on long-standing commercial relationships and volume offtake. It found that such practices were commercially justified and did not constitute discrimination. The Commission also noted that supply conditions varied due to contractual terms and historical relationships, not discriminatory practices. Therefore, no contravention of Sections 4(2)(a)(i) and 4(2)(a)(ii) was established.

Conclusion:

The Commission concluded that IREL is an 'enterprise' under the Act and holds a dominant position in the relevant market. However, it did not find evidence of abuse of dominance through excessive pricing or discriminatory practices. Consequently, the case was closed with no contravention of the Act. Confidentiality over certain documents was granted for five years, subject to the Act's provisions.