Appeal No. 81/2014. Case: Coal India Limited Vs Competition Commission of India and Ors.. COMPAT (Competition Appellate Tribunal)
| Case Number | Appeal No. 81/2014 |
| Counsel | For Appellant: Rajshekhar Rao, Yaman Verma, Prateek Bhattacharya and Gauri Puri, Advocates and For Respondents: Pallav Shishodia, Senior Advocate assisted by Rishad A. Chowdhury, Asiya Khan, Advocates and Ananda Ojha, Joint Director (Law) |
| Judges | Rajeev Kher and Anita Kapur Members |
| Issue | Competition Act, 2002 - Sections 19(4), 19(6), 19(7), 2(f), 2(h), 2(r), 2(s), 2(t), 26(1), 26(2), 27, 35, 4, 4(2), 4(2)(a)(i), 5, 53A, 53B(3), 53B, 53T |
| Judgement Date | March 20, 2017 |
| Court | COMPAT (Competition Appellate Tribunal) |
Order:
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This appeal is directed against the order dated 27th October, 2014 passed by the Competition Commission of India (hereinafter referred to as, 'the Commission') under Section 27 of the Competition Act, 2002 (for short, 'the Act'). The Commission held that the Appellant, Coal India Limited (CIL), through its subsidiaries, operating independently of market forces and enjoying undisputed dominance in the relevant market of sale of non-coking coal under the Spot e-Auction Scheme (for short, 'the Scheme') in India, imposed unfair conditions upon the bidders under the Scheme. The Commission, accordingly held the Appellant and its subsidiaries to be in contravention of the provisions of Section 4(2)(a)(i) of the Act. Further, the Commission directed the Appellant to cease and desist from indulging in the conduct found to be in contravention of the provisions of the Act and also directed that the terms and conditions of the Scheme be modified in the light of the findings recorded in the impugned order.
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The Appellant, CIL, is a public limited company incorporated under the Companies Act, 1956. It is a holding company with seven wholly owned coal producing subsidiary companies and one mine planning & consultancy company. It is a Maharatna Company with 89.65% shareholding with the Government of India. Its shares were listed on BSE and NSE in 2010.
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The facts of the case are that, Mr. Bijay Poddar of Kolkata filed an information vide his letter dated 18th July, 2013 seeking investigation under the Act in regard to the Scheme of the Appellant. The allegation was that, the Appellant and its subsidiaries in terms of clause 9.2 of the Scheme, forfeit Rs. 500 per tonne if bidders/buyers of coal did not lift the coal, while they did not pay any penalty, if they failed to supply coal. Further, it was alleged that earnest money was refunded after 30 to 60 days due to cumbersome procedure. It was, therefore, contended that the forfeiture clause was arbitrary and illegal and misuse of monopolistic power and the Scheme, being one sided, was illegal. Besides, it was claimed that when CIL and its subsidiaries failed to supply coal, buyers/bidders incurred losses.
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The Commission vide its order dated 18th November, 2013 under Section 26(1) of the Act directed the Director General (DG) to cause an investigation to be made into the matter and submit a report. The DG after investigation submitted the report dated 31st July, 2014 to the Commission. The DG determined the relevant product market as "sale of non-coking coal to the bidders under Spot e-Auction" and the relevant geographic market was taken as whole of India. Accordingly, the relevant market was defined by the DG as "sale of non-coking coal to the bidders under Spot e-Auction Scheme in India". The DG held CIL and its subsidiaries to be dominant in the said relevant market and concluded that the provisions of Section 4(2)(a)(i) of the Act had been contravened by them by imposing unfair and/or discriminatory provisions in the sale of non-coking coal under the Spot e-Auction Scheme.
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The Commission forwarded the investigation report to the parties and afforded them oral hearing. The parties filed their written submissions to the report of the DG besides making oral submissions. The Appellant claimed before the Commission that, the DG had mechanically relied on the conclusions reached in the previous cases decided against it, and had failed to provide any analysis of the definition of the relevant market and without considering the conditions of the market in relation to supply of coal through e-Auctions, arrived at a completely erroneous market definition. It was also pointed out that, no reason or explanation was given as to why the relevant product market constituted only sale of coal from the Spot e-Auction Scheme and not the Forward e-Auction Scheme. Another argument was that, the DG had not conducted any independent investigation in to the issue as to whether there was a feasible substitute for the non-coking coal consumed by the small users of coal in India and that DG had failed to consider the consistent increase of import of non-coking coal into India, which clearly indicated that the relevant geographic market was global in nature and there was an interchangeability between e-Auctioned coal and imported coal. The Appellant, accordingly, sought modification of the relevant market definition as "the market for the sale of non-coking coal except under Fuel Supply Agreement and under Memorandum of Understanding with power companies".
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The Informant also filed objections/suggestions to the Report of the DG, which have been summarized in paragraphs 26 and 27 of the impugned order. However, since the Informant has not filed an appeal, these are not relevant for the purposes of this appeal.
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The Commission did not agree with the Appellant and noted that, the coal distribution through e-Auction was introduced with a view to provide access to coal for such buyers who were not able to source coal through the available institutional mechanism. It rejected the argument of substitutability of imported coal for the small buyers, on the ground that the opposite parties had-
(i) not indicated the difference in price between the imported coal and the coal available under the e-Auction Scheme;
(ii) failed to address the issue raised by the informant that the coal offered under the Scheme was different from that of the imported non-coking coal with respect to size, quality, quantity and specifications; and
(iii) not dealt with the claim of the Informant that the imported coal was available in crushed form only, which was not suitable for Indian industries operating in diverse sectors (Glass, Ceramics, Textiles Processing, Jute, Sugar Mills, Lime Ginning, Carpet, Tea Gardens, Brick Industry, Re Rolling, Rolling, Paper, Aluminum, Cement, Sponge Iron etc.) due to the design specifications of boilers, furnace and burning equipment.
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Further, the Commission took note of the findings of the DG that if the bidders attempt to purchase coal from the open market or through imports, the same was costly as these entailed spot purchases, shipping in smaller vessels and inland transportation in India and other attendant multiple handlings. It was also recorded by the DG that, alternate fuels were not easily available. Therefore, the Commission held that, the relevant product market was sale of non-coking coal to the bidders under Spot e-Auction, as it was of the opinion that, there was no substitute for non-coking coal as available under the Scheme. The Commission also confirmed that, the relevant geographical market was the whole of India and rejected the argument of the Appellant that, the market for supply of coal was global. The Commission was of the view that, the definition of the phrase 'dominant position' under Section 4 of the Act, specifically mentioned position of strength in the relevant market "in India" and the contention of the Appellant to hold the relevant market to be global, was ex facie contrary to the provisions of the Act. Hence, the Commission determined the relevant market as "sale of non-coking coal to the bidders under Spot e-Auction Scheme in India."
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The Commission on consideration of the market share (94.27%) of the Appellant and its subsidiaries in the entire e-Auction and in light of the market structure, held that their dominance in the relevant market was beyond any doubt. The Commission rejected the argument of the Appellant that it was not a dominant enterprise in the wider global market and even in India, as it was a creation of statute and lacked autonomy and had social obligations. In the Commission's assessment, the Appellant had, even within the overarching policy and regulatory environment, sufficient flexibility and functional independence in carrying out its commercial and contractual affairs.
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The Commission after holding the Appellant to be dominant in the relevant market, held it guilty of abusing its dominant position, because the Scheme had disturbed the normal contractual equilibrium inasmuch as uneven obligations were created thereunder whereby a buyer was saddled with penalty by way of forfeiture of EMD for non-lifting of coal after successful participation in the e-Auction, while no corresponding penalty was provided if despite acceptance of the bid, the Appellant failed to deliver coal. The Commission held that, such a stipulation in the Scheme was a result of market power exercised by the Appellant and fell afoul of the provisions of Section 4(2)(a)(i) of the Act, being ex-facie unfair. The Commission held that, any default of contractual obligations has commercial ramifications for the parties involved and needed to have corresponding liability on the defaulter and noted the finding of the DG that, the Appellant and its subsidiaries had defaulted on 701 occasions during the last three financial years.
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Another issue addressed by the Commission in the impugned order was the request of the Appellant seeking annulment of deposition of Shri M.S. Mukherjee GM (S & M - Commercial) of CIL before the DG. The Appellant had sought expungement of the said statement alleging violation of principles of natural justice, as it was recorded in the absence of the counsel of the Appellant. The Commission took note of the admission of the Appellant that its counsel was allowed to remain present in the premises and that DG had given permission to the deponent to consult the counsel, in the event of him having any query on any point of law. The Commission further noted that, Section 35 of the Act, which conferred right of appearance through specified professionals upon a party before the Commission, had no application to the investigations before the DG and that there was complete failure to plead and demonstrate any prejudice, much less any miscarriage of justice, resulting from the absence of counsel of the Appellant.
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The DG had...
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