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TMI Blog2020 (3) TMI 1484X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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. 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 ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... For the Appellant: 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. Mr. Pallav Sishodiya, Senior Advocate with Mr. Vikram Sobti and Mr. Mehul Parti, Advocates for Respondent No. 1. Mr. Sharad Gupta and Mr. Vinayak Gupta, Advocates for Respondent No. 2. JUDGMENT BANSI LAL BHAT, J. '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 Vs. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... minant 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 att ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssion 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 m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Commi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trate 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, 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... layers 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 allege ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s '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;" 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;" 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;" 25. The core issue for determination in these appeals is:- (a) Whether AGL did enjoy a dominant position? (b) Whether AGL's dominant position prevailed in the relevant market? (c) Whether AGL abused its dominant position? Thus, in the first place it is to be determined whether the Appellant - AG ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndustrial 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 differ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ke of Gas. Provided that in all such cases, the provisions relating to payment of Minimum Guaranteed Off-take by the Buyer under Section 8.5 (Section 8 Quality of Gas) shall continue to be applicable. Stated at paragraph 98 of the Impugned Order) Clause 11.2 - Shutdown, Unplanned Interruptions and Disruption 11.2.1 Each Party shall provide a notice, as early as is reasonably possible in the circumstances, in respect of an unplanned interruption or emergency shutdown of facilities calling for complete or partial stoppage of supply off take of Gas. The notice shall also provide the reasons for and the likely duration of such unplanned interruption or emergency shutdown. The need for unplanned interruption and emergency shutdown shall be determined and executed by either Party acting as a Reasonable and Prudent Operator Clause 11.2.1- Shutdown, Unplanned Interruptions and Disruption Each Party shall provide a notice, as early as is reasonably possible in the circumstances. in respect of an unplanned interruption or emergency shutdown of facilities calling for complete or partial stoppage of supply off take of Gas. The notice shall also provide the reasons for and the likely dur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hall be refunded to the Buyer in the event it is decided that such amounts are not payable, or that a reduced sum is payable by the Buyer 13.9-Invoicing and Payment The Buyer shall not have recourse to the Arbitration mechanism under Clause 26 (Clause 20: Arbitration) for any dispute relating to payments and/or invoices, unless the invoiced amounts have been paid in full with interest and penalty. The amounts so paid or the relevant portion thereof shall be refunded to the Buyer (including the interest payable on such amount at the intereste rate of 18% (calculated in the same manner as Late Payments Charges in Clause 13.5)) in the event it is decided that such amounts are not payable, or- that a reduced sum is payable. by the Buyer. Clause 16.3- Party to Notify Occurrence of Force Majeure Events Where a Party is claiming suspension of its obligations om account of Force Majeure, in shall promptly, but in no case- later than three (3) days after becoming aware of the- occurrence of the event of Forces Majeure, notify the other party- in writing giving full particulars: of the Force Majeure event, the estimated duration of the Force Majeure, the obligations affected and the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rroneous 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 enterpri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 33. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said 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. Vs. 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. 36. 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. 2567.2 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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