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TMI Blog2024 (11) TMI 1007X X X X Extracts X X X X X X X X Extracts X X X X ..... emption 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 carr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Beach Sand Sillimanite is used primarily by refractory manufacturers for lining furnaces and it is also used in the ceramic industry. It is also stated that underground mined Sillimanite available in India has excessive impurities that diminishes the quality of the refractory and is therefore, neither cost effective nor can it replace Beach Sand Sillimanite. 4. The Informant has averred that imported Andalusite is the closest replacement of Sillimanite in terms of quality; however, the former is expensive vis- -vis the latter, which makes Andalusite not an effective substitute of Beach Sand Sillimanite. 5. It is stated that earlier, mining and supply of Beach Sand Sillimanite was permitted to be undertaken by both public and private enterprises. In 2016, Sillimanite was included in the category of atomic minerals by Central Government Notification No. S. 0. 2356 (E) dated 11.07.2016. Subsequently, the DAE, vide Notification S.O. 2685 (E) dated 27.07.2019, prohibited grant of operating rights in respect of atomic minerals in any offshore areas in the country to any person, except the Government or a Government Company or a Corporation owned or controlled by the Government. This pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exclusive right to undertake mining and supply of BSM (including Sillimanite) in India. Based on facts and circumstances of the case, the Commission noted that OP enjoys economic power and commercial advantage which allows it to operate independently of the market forces. Accordingly, the Commission was prima facie satisfied that there existed a case of contravention of Section 4 of the Act, as alleged by the Informant and vide an order dated 03.01.2022 passed under Section 26(1) of the Act, directed the Director General ( DG ) to cause an investigation into the matter and submit a report. DG Investigation Report 11. The DG submitted its Investigation Report on 22.07.2022, in confidential and non- confidential version, after seeking extensions of time. The findings of the Investigation Report are summarised below. 12. As per the Atomic Energy Act, 1962, Beach Sand Minerals is a suite of seven minerals which includes Monazite (a prescribed substance) besides Zircon, Ilmenite, Rutile, Leucoxene, Garnet Sillimanite. In the process of extraction, through sequential concentration of Monazite Zircon, Sillimanite is produced as a by-product. Since all these minerals occur together, in or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty of economically viable substitute in the market. Therefore, the DG defined relevant product market as mining and supply of Beach Sand Sillimanite . Further, the DG noted that there are no geographical barriers for production and sale of relevant product and conditions of competition for supply of Beach Sand Sillimanite are distinctly homogenous all over India. Thus, the DG delineated the relevant market in the instant matter as mining and supply of Beach Sand Sillimanite in India . 16. The DG noted that by virtue of Central Government Notification dated 27.07.2019, only two entities namely; OP and KMML remained in the business of mining and production of Beach Sand Sillimanite in India. The DG noted that market share of OP is above for the period of alleged abuse and it also enjoys considerable financial power, resources and infrastructure in the relevant market, especially from 2019-20 onwards. In addition, based on the OP s commercial advantage over its competitors, its significant control over supply, dependence of the consumers on OP, dominant position acquired by OP as a result of Government Policy, high entry barriers (regulatory barriers) in the relevant market and no cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of OP regarding pro rata reductions being applied to all whenever demand was greater than supply was not applied in the case of .. Further, it was also observed that export quantity had . which substantiates the allegation that OP adopted discriminatory practices in favour of . Accordingly, the DG concluded that OP indulged in discriminatory supply of Sillimanite against domestic customers vis- -vis foreign customers in contravention of Section 4(2)(a)(i) of the Act. Consideration of the DG Report and hearing 21. The Commission, in its ordinary meeting held on 26.07.2022, considered the Investigation Report and vide an order of the same date, directed the parties to file their objections/suggestions and responses/rejoinder thereto. In addition, OP was directed to file its financial statements for financial years 2019-20, 2020-21 and 2021-22. Vide submission dated 29.10.2022, OP filed its objections/suggestions in confidential and non-confidential version, along with a copy of its financial details, after seeking due extension of time. The Informant filed his objections/suggestions on 15.11.2022. 22. Thereafter, on 29.11.2023, the Commission heard the parties on the Investigation R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sued by the Central Government under Section 54 of the Act. It was averred that Section 54 of the Act provides that the Government may exempt entities from the application of the Act and it would be erroneous to exclude only those entities from the scope of enterprise under Section 2(h) that have been specifically exempted under Section 54 of the Act. Exemption under Section 54 is applicable on the enterprise. OP s contention is that it is not an enterprise under Section 2(h) of the Act. 28. OP stated that the Informant s stand before the Commission is replete with contradictions, where on one hand, he has urged to view IREL s disposal of Sillimanite on a standalone basis, and on the other hand, has submitted that IREL is akin to State and is required to extend equal treatment under Article 14 of the Indian Constitution. 29. OP submitted that DG has defined the relevant market narrowly and thus failed to consider viable substitutes of Sillimanite as being part of the same market. As per OP, in order to delineate relevant market, the DG is bound to take into consideration those products which form sufficient degree of interchangeability between all the products in so far as specific ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lay, super duty fire clay, other clays, Hydroxyl-Aluminosilicate refractory materials (Kaolinite, Pyrophyllite and Sericite), Bauxite and synthetic alumina aggregates, recycled refractory materials (Grog) and other high alumina materials used in refractory industry, foundry industry and ceramics industry, amongst others. It stated that substitutability of Sillimanite has to be considered from the perspective of Indian consumers across all the industries that use Sillimanite and not just refractory industry. OP provided details of specifications of the relevant substitutes and its substitutability with Beach Sand Sillimanite in its submissions. Based on specifications, data, usage and responses of the certain buyers of Sillimanite, the OP submitted that Sillimanite extracted from beach sand and rock are perfectly substitutable. Further Kyanite, Andalusite and Sillimanite have same end usage and are chemical polymorphs and hence substitutable. Refractory grade bauxite and other low-cost materials (grogs and aggregates etc.) are also viable substitutes of Sillimanite. 34. For assessment of relevant geographic market, OP submitted that since the import of Kyanite, Andalusite, Sillimani ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ales Contract ( QSC ) to ensure continuous evacuation of the mineral which is the rationale behind contract with .. In 2016, since IREL s Sillimanite inventory had become significant, IREL agreed to renew the Sales and Purchase Agreement ( SPA ) with .. at a lower price. It has been further been stated by the OP that its prices are determined based on market dynamics and is lower than the prices charged by KMML, imported Sillimanite and other substitutes. Further, IREL is not in a position of strength as it also cannot affect its competitors in its favour as its prices have always been lower than KMML s even though KMML is a smaller supplier of Sillimanite than IREL. 40. OP has stated that KMML, despite being smaller, has gained market share which completely refutes the finding of dominance of IREL based on market share. OP submitted that the DG failed to consider that IREL s market shares have been consistently reducing, while KMML s market share increased significantly .. OP further stated thatconsistent reduction in the market share indicates that OP does not have control akin to that of a dominant enterprise, which can influence the market in its own favour. Furthermore, the ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y IREL that it is a Central Public Sector Enterprise owned by the GOI and is designated as a Miniratna Category-I. It is under the administrative control of DAE. Private players occupied a larger market share compared to IREL before the policy changes drove them out from the market due to illegal mining. It is only due to changes in GOI policy that such players are no longer operating in the market. Therefore, to attribute dominance to IREL is completely erroneous. It is also submitted that given its operations which are carried out in a fully regulated and controlled environment, in accordance with the mandate of GOI, the Commission must appreciate that OP s position is unique and it cannot be compared to any other supplier of Sillimanite or its substitutes in the market. In view of the control and supervision by the GOI over every aspect of IREL s operations, the question of IREL having the ability to operate independently of the competitive forces in the market or to affect competitors in its favour cannot even arise. 45. In response to the contentions of the Informant, IREL submitted that there is no cogent evidence and material on record to establish that it has violated the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are excessive or not, the DG was required to compare this price margin with other relevant factors. OP submitted that for determination of the final cost of production, it is required to apportion the costs till the point of separation of Sillimanite also as an indirect cost of production of Sillimanite. The costs/expenses incurred by IREL in obtaining necessary statutory clearances for mining of the BSM ore and the processes undertaken till the separation of Sillimanite from the strategic mineral Monazite and from the BSM ore are also indirect costs incurred in the production of Sillimanite. The cost of extraction of Monazite amongst other material has to be suitably apportioned in the cost of production of the non-strategic minerals such as Sillimanite. 48. IREL stated that it has been increasing prices post a sudden surge in demand of Sillimanite after the private players were driven out of the market following suspension of licences for mining of BSM by the GOI. Changes in prices has also been as per the market demand and supply conditions and in line with testing market absorption of the prices. OP averred that increase in prices by KMML of Sillimanite were far greater than th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the test under the Deutsche Post decision would clearly show that IREL s prices is not excessive considering the significantly higher prices charged by its competitors. 51. Further, OP has stated that the DG has not analyzed supply relationship of any other foreign customer or MNC other than for arriving at discriminatory supply conclusion. OP has refuted that .. is a foreign company and stated that it is a domestic company incorporated in India and the prices charged to them are not substantially different from what is being charged to other domestic companies. Any difference in price and quantity offered to .. are justified on the grounds of long-standing relationship between both the parties and bulk lifting of quantity. 52. OP has submitted that it is evident from the findings of the DG that price of Sillimanite increased prior to the policy change in the market and it did not increase the prices post policy change. Thus, as per OP, assuming it gained a dominant position in the market after the policy change of 2019, the fact that the price increases were affected prior to attaining alleged dominance proves that alleged anti-competitive price increases could not have been a co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with .. were not similar to the transactions with other parties. An analysis of the downstream market of IREL would show that there has been no negative effect of the alleged conduct of IREL on the competition in the downstream industry. Had there been a negative impact on the MSME customers, IREL would not have been able to grow and sustain an MSME customer base of more than 90%. Further, MSMEs are free to obtain supply from KMML and / or other suppliers of Sillimanite and its substitutes if IREL was engaging in discriminatory practices. 57. OP submitted that for sale of Sillimanite through the method of Expression of Interest ( EOI ) invitation, it required prospective customers to be actual end consumers of Sillimanite and be able to provide monthly breakup of the entire quantity that they would require over the course of next year. OP further claimed it supplied Sillimanite to customers who are end users of the product and it does not deal with customers who are dealers, as has been wrongly alleged by the Informant and also erroneously recorded by the DG. 58. OP has stated that the DG failed to appreciate its following methodology for disposal and sale of Sillimanite across dif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SM ore. IREL s core function is to support GOI s atomic programs. Therefore, IREL has nothing to gain from engaging in any of the alleged abusive practices. 61. OP has submitted that when demand of Sillimanite increased from 2019, it needed a formal supply procedure and thus introduced the system of quantity contracts under which it floats EOI for attracting potential buyers. OP claims this policy has also been approved by the competent authority and is in line with DAE s pre-2007 licensing policy. In cases when demand is higher than the production, IREL calculates the quantity to be offered on the basis of past offtake of the buyers. For the parties that do not enter in such annual contracts, IREL earmarks certain quantity for sale at list price. This usually caters to such buyers that do not have a fixed demand pattern for the whole year. 62. OP submitted that it has exported limited quantity in order to meet domestic demand. For speedy and continuous disposal of Sillimanite, in 2014, IREL launched discount cum rebate schemes and 4 parties availed discounts under the scheme. In 2018, IREL floated EOI from user industry to enter into MoU for 1 year and entered into MoU with 5 cust ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y it. The mining and extraction of BSM is highly regulated and the quantity of Sillimanite extracted also depends on the natural mineral content of the mined product and therefore, there is no certainty with respect to the quantity of Sillimanite that would be available at the end of the extraction process. The customers remained free to purchase Sillimanite from any source and are not bound to source Sillimanite from only OP. OP did not impose any terms that might reduce the consumer choice or even restrict customers from purchasing Sillimanite or its substitutes. The increase in import of Sillimanite and its substitutes is evidence that the customers of Sillimanite are increasingly relying upon imports and can meet their demands through other alternatives. Further, OP has submitted that the DG should have undertaken an effects-based analysis under the Act and appreciated that there was no harm caused to competition or to consumers due to its conduct. The OP has relied on decisions of the Commission in JSW Paints Ltd. vs. Asian Paints Ltd. (Case No. 36 of 2019 and Case No. 17 of 2021), Schott Glass India Pvt. Ltd. Ors. vs. CCI Ors. (Case No. 22 of 2010), Pandrol Rahee Technologies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nable bona fide of the informants in cases filed against IREL. Informant s commercial relationship with IREL has not been established and allegations pertaining to excessive pricing or discriminatory pricing could have legitimately been raised by the end-customers of IREL before the Hon ble Commission. It also appears that the Informant in this case is a proxy for Beach Mineral Producers Association ( BMPA ) (informant in the Case No. 26 of 2022) and the on-going cases against IREL before the Hon ble Commission have been filed at the behest of members of BMPA who seem to have interests in mining of non-strategic minerals. IREL submitted that the Hon ble Commission is not bound by the findings in the DG report and must independently apply its mind to the DG report under Section 26 of the Act. Reply/Objections/Suggestions of the Informant 71. The Informant, in its submission dated 14.12.2023, stated that the allegation in the present matter is with regards to IREL s abuse of dominant position in connection with the sale of Sillimanite which is sold independently of other minerals and thus the scope of inquiry in the present case does not concern any other activities of OP. It is also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion, OP would fall under the purview of the Act. 75. The Informant has agreed with the findings of the DG on the issue of delineation of relevant market, market dominance of OP and abuse and the same are not repeated herein. Commission s Analysis 76. The Commission has carefully perused the information, the DG Report, the replies/suggestions/objections to the DG Report and the written submissions made by the learned counsel(s) of the parties, post hearing. 77. The Commission, on the basis of the material available on record, notes that the following issues arise for consideration and determination in the present case: i. Whether IREL is an enterprise in terms of provisions of the Act? ii. What is the relevant market in the present case? iii. Whether IREL holds a dominant position in the relevant market? iv. Whether IREL has abused its dominant position in terms of Section 4 of the Act? Issue (i): Whether OP is an enterprise as defined in Section 2(h) of the Act? 78. The first test in an analysis pertaining to the abuse of dominant position under the provision of Section 4 of the Act requires the Commission to establish that the entity against whom allegations have been levelled fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e under the Act. Accordingly, the Commission finds OP to be an enterprise under extant provision of Section 2(h) of the Act. Issue (ii): What is the relevant market in the present case as defined in Section 2 (r) of the Act? 81. The Commission notes that in order to delineate relevant market, the DG sought information from OP, Informant as well as third parties such as competitors, consumers and relevant Government Authorities. The Commission further notes that the DG has analysed the substitutability between Beach Sand Sillimanite, Sillimanite mined from underground/Rock, Andalusite, Kyanite, Bauxite and other low-cost raw materials, as discussed earlier and concluded that Beach Sand Sillimanite is a standalone relevant product from user perspective. Further, the DG has stated that the condition of demand and supply of Sillimanite is homogenous throughout the India. Accordingly, the DG has defined relevant market as mining and sale of Beach Sand Sillimanite in India . 82. OP has stated that the DG has defined the relevant market narrowly and thus failed to consider viable substitutes of Sillimanite as being part of the same market. OP has averred that the DG did not consider the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te. In view of the foregoing, the Commission agrees with the relevant product market as delineated by the DG. 86. 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 . 87. Based on the above analysis, the Commission holds that the relevant market in the present case as mining and supply of Beach Sand Sillimanite in India . Issue (iii): Whether OP holds a dominant position within the scope of Section 4 of the Act? 88. In terms of the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aced. However, the Commission is willing to accept the suggestion of the OP that imports should be part of the relevant market. From the data submitted by OP, the Commission observes that import of Sillimanite constitutes a miniscule proportion (i.e., less than . of the total domestic production). Thus, even after accounting for imports, market share of OP would be in excess of . a clear position of market leader and an indicator of dominant position. 92. The Commission also notes from the DG report that IREL has sizeable assets and turnover vis- -vis its competitors. Further, from its own submission, it is clear that the consumers of IREL have absorbed high price of Sillimanite, which indicates not only dependence of consumers on it but lack of countervailing buying power. 93. The Commission also notes that OP has submitted that KMML has been able to garner a market share of .. in ., which indicates that OP is not dominant. The Commission, in this regard, is of the view that despite the aforesaid growth in market share of KMML, the fact remains that OP enjoyed the status of being the market leader during the period of alleged contravention by having more than after accounting for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r was . PMT. From to ., the price was . PMT and it increased to .. PMT in the year . OP has ascribed the price increase to the ban imposed on private players in July due to which the market was constrained on the supply-side and therefore, as normal market dynamics, price had to increase . 99. It is also pertinent to note that OP has stated that none of the customers who purchase Sillimanite from IREL have ever complained or raised grievances with respect to charging of excessive prices by IREL and the DG has shown no evidence of any such complaints by customers. On the contrary, IREL s vigilance department received a complaint that it was charging lower prices, causing losses to IREL. 100. The Commission notes the submission of the OP that pricing decision is taken on account of several relevant factors such as demand and supply dynamics, inventory, prices of the competitors, imports of substitutes, market absorption capacity etc. and that the DG wrongly applied legal tests to determine excessiveness of prices. 101. After considering the arguments and counter arguments regarding excessive price, the Commission is of the considered view that pricing decision is a complex mechanism ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tic customers/MSMEs. The DG further concluded that OP has given dissimilar treatment to similarly placed players i.e., domestic MSMEs vis- -vis foreign companies/multinationals, resulting in distortion of the competitive market conditions in the downstream market, thereby violating Section 4(2)(a)(ii) of the Act. OP has submitted that it has not engaged in the practice of discriminatory pricing as it has offered similar discounts and schemes to all its customers based on the volume offtake by them. It has uniformly offered discounts and schemes to all its customers. Terms offered to . are completely justifiable and reasonable when assessed in light of the various relevant factors, including but not limited to longstanding relation, long term commitments and higher volume offtake. While denying charges of discriminatory pricing, OP has stated that . and other customers are not similarly placed. The Commission further observes that OP granted discounts to other categories of customers depending on their level of offtake. 106. At the outset, the Commission notes that ... entity incorporated in India and governed by the laws of India. The Commission has perused the DG Report and submis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and sale of Sillimanite across different categories of customers based on availability of quantity, past relationship and duration of contract etc. The Commission notes that the quantities were supplied to the parties in a categorised manner wherein, OP enters into long term contracts, annual contracts based on EOI and through retail category as stated supra. The Commission observes that terms of contract including the supplies are largely guided by the nature of agreement which parties entered into with OP. The Commission notes that, for commercial and historical reasons, stood on a different footing than other customers with whom OP entered into supply agreement as brought out in preceding paragraphs. As adduced earlier, the long-term contract has given way to contract through EOI. Therefore, 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 de ..... X X X X Extracts X X X X X X X X Extracts X X X X
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