2019 (12) TMI 1689 - AT - Law of Competition

Anti-competitive practices - abuse of dominant position in the market for upstream terminalling services at Visakhapatnam Port - contravention of the provisions of Sections 3 and 4 of Competition Act 2002 - bypass restriction imposed by SALPG is primarily for commercial interest and the restrictions - denial of market access. HELD THAT - The Commission rightly held that protection of commercial interest by a dominant enterprise at the cost of competition is contrary to its responsibility cast under the Act. SALPG has pointed out that allowing bypass would reduce the discharge rate i.e. from 1000 MT/hour to 250-300 MT/hour thereby increasing the demurrage charges to OMCs. Seen from the perspective of competition the Commission is of the view that if option of bypass is allowed the users i.e. OMCs could in that case decide on the choice to make for after weighing the cost and other relevant factors. In other words it is for the customers to decide whether they would like to pay for use of the cavern or opt for higher vessel retention. It rightly observed that effective competition does not necessarily mean prevalence of the most efficient to the exclusion of relatively less efficient choices to consumers. Therefore in the absence of capacity constraints to accommodate the services offered by EIPL restraint on competition exerted by SALPG on the pretext of the former being less efficient would not be justified. The bypass restriction imposed by SALPG is primary with a view to protect its commercial interest at a cost competition and the plea taken before the Commission was an after-thought. The Commission rightly held that SALPG requiring users to necessarily use the cavern and pay higher charges is an unfair imposition in provision of terminalling services; and is likely to discourage imports and restrict the services otherwise offered by the Informant. The impugned restriction on bypass of the cavern facility are in contravention of Section 4(1) read with Section 4(2)(a)(i) Section 4(2)(a)(ii) and Section 4(2)(b)(i) of the Act. The bypass restrictions restricted the business of EIPL was unreasonable which denied the Informant market access in contravention of Section 4(2)(c) of the Act. Conclusion - i) Dominant entities must not impose unfair conditions or deny market access and must comply with contractual obligations to share infrastructure. ii) The restriction imposed by SALPG on bypass of the cavern facility are in contravention of Section 4(1) read with Section 4(2)(a)(i) Section 4(2)(ii) and Section 4(2)(b)(i) of the Act. In absence of any merit the appeals are dismissed. The interim order passed on 19th September 2018 is vacated.

1. ISSUES PRESENTED and CONSIDERED

The core legal issues presented and considered in this judgment are:

Whether South Asia LPG Company Pvt. Ltd. (SALPG) holds a dominant position in the market for upstream terminalling services at Visakhapatnam Port.
Whether SALPG's imposition of bypass restrictions and mandatory use of its cavern constitutes an abuse of its dominant position under Section 4 of the Competition Act, 2002.
The legality of SALPG's refusal to allow East India Petroleum Pvt. Ltd. (EIPL) to access terminalling infrastructure on reasonable terms, and whether this amounts to a denial of market access.
The implications of the lease agreement between Visakhapatnam Port Trust (VPT) and Hindustan Petroleum Corporation Ltd. (HPCL) on the sharing of terminalling infrastructure.
Whether the Competition Commission of India (CCI) exceeded its jurisdiction by directing SALPG to provide bypass access.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Dominance of SALPG

Legal Framework and Precedents: Section 4 of the Competition Act, 2002 deals with the abuse of dominant position. Dominance is assessed based on market share, economic power, and ability to operate independently of competitive forces.
Court's Interpretation and Reasoning: SALPG was found to be the only player offering upstream terminalling services at Visakhapatnam Port, with 100% market share. However, the Director General (DG) initially concluded that SALPG did not enjoy a dominant position due to countervailing power from customers and potential competitors.
Key Evidence and Findings: The DG's investigation noted SALPG's limited ability to dictate prices and prevent market entry. However, the CCI disagreed, finding SALPG's control over vital infrastructure indicative of dominance.
Application of Law to Facts: The CCI found that SALPG's control over terminalling infrastructure and its ability to impose conditions on access demonstrated a dominant position.
Conclusions: SALPG was held to be in a dominant position in the relevant market.

Issue 2: Abuse of Dominant Position

Legal Framework and Precedents: Section 4 of the Act prohibits abuse of dominant position, including imposing unfair conditions or denying market access.
Court's Interpretation and Reasoning: The CCI found that SALPG's bypass restrictions and mandatory use of its cavern were unfair impositions, restricting EIPL's business and denying market access.
Key Evidence and Findings: The investigation revealed SALPG's insistence on using its cavern, which increased costs for EIPL and reduced its competitiveness.
Application of Law to Facts: The CCI concluded that SALPG's conduct amounted to an abuse of its dominant position, as it restricted competition and denied market access to EIPL.
Conclusions: SALPG's actions were found to contravene Section 4(1) and 4(2) of the Act.

Issue 3: Denial of Market Access

Legal Framework and Precedents: Section 4(2)(c) of the Act addresses denial of market access by a dominant enterprise.
Court's Interpretation and Reasoning: The CCI held that SALPG's refusal to allow bypass access and mandatory cavern use denied EIPL market access.
Key Evidence and Findings: EIPL's proposals for alternative access were rejected by SALPG, impacting EIPL's business volumes.
Application of Law to Facts: The CCI determined that SALPG's conduct effectively denied EIPL market access, violating Section 4(2)(c).
Conclusions: SALPG's actions constituted a denial of market access, contravening the Act.

Issue 4: Lease Agreement Implications

Legal Framework and Precedents: The lease agreement between VPT and HPCL included a clause requiring sharing of infrastructure with other users on reasonable terms.
Court's Interpretation and Reasoning: The CCI found that SALPG's refusal to share infrastructure was contrary to the lease agreement's terms.
Key Evidence and Findings: VPT's lease required HPCL (and by extension, SALPG) to share infrastructure, which SALPG failed to do.
Application of Law to Facts: The CCI held that SALPG's conduct violated the lease agreement, supporting the finding of abuse of dominance.
Conclusions: SALPG's actions were inconsistent with the lease obligations, reinforcing the abuse of dominance finding.

Issue 5: Jurisdiction of the CCI

Legal Framework and Precedents: The CCI has the authority to prevent practices having an adverse effect on competition.
Court's Interpretation and Reasoning: The CCI's directions for bypass access were within its jurisdiction to ensure competitive access to essential facilities.
Key Evidence and Findings: The CCI's decision was based on detailed investigation and analysis of safety and technical concerns.
Application of Law to Facts: The Tribunal upheld the CCI's jurisdiction, finding the directions necessary to address anti-competitive practices.
Conclusions: The CCI acted within its jurisdiction, and its directions were upheld.

3. SIGNIFICANT HOLDINGS

Verbatim Quotes of Crucial Legal Reasoning: "The restriction imposed by SALPG on bypass of the cavern facility are in contravention of Section 4(1) read with Section 4(2)(a)(i), Section 4(2)(ii) and Section 4(2)(b)(i) of the Act."
Core Principles Established: Dominant entities must not impose unfair conditions or deny market access, and must comply with contractual obligations to share infrastructure.
Final Determinations on Each Issue: The Tribunal upheld the CCI's findings of dominance and abuse by SALPG, dismissed the appeals, and directed compliance with the CCI's orders.

The judgment concludes with the dismissal of the appeals, lifting of the interim order, and instructions for SALPG to comply with the CCI's directions immediately, emphasizing the importance of competition and fair market access.

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