Case No. 04 of 2010. Case: Explosive Manufacturers Welfare Association Vs Coal India Limited and its Officers. Competition Commision of India

Case Number:Case No. 04 of 2010
Party Name:Explosive Manufacturers Welfare Association Vs Coal India Limited and its Officers
Judges:Ashok Chawla (Chairman), R. Prasad, Geeta Gouri, Anurag Goel and M.L. Tayal, Members
Issue:Competition Act, 2002 - Sections 3, 4
Judgement Date:July 26, 2011
Court:Competition Commision of India
 
FREE EXCERPT

Order:

  1. Background

    The case under consideration relates to allegations of certain anti-competitive acts on the part of Coal India Limited. It has been alleged that in violation of provisions of Section 3 and 4 of the Competition Act, 2002 (Act), Coal India Limited has engaged itself in unfair and discriminatory practices, has denied market access and has entered into anti-competitive agreement with supplier(s).

    Profile of Parties in the Case

    1.1 Before going into the details of allegations, proceedings before the office of the DG and Commission and response of different parties, a brief profile of different parties involved in the case is discussed first.

    A) The Informant

    1.1.1 The informant in this case is Explosive Manufacturers Welfare Association. It is a society registered under the West Bengal Societies Registration Act 1961 comprising of various manufacturers who are engaged in the business of manufacture and sale of industrial explosives. The association is having registered office at Kolkata, West Bengal.

    B) Respondent

    Coal India Limited

    1.1.2 Coal India Limited, the Opposite Party (OP) is a Schedule 'A' Maharatna Public Sector Undertaking under Ministry of Coal, Government of India. It has its headquarters in Kolkata, West Bengal. CIL produces coking and non-coking coal of various grades for a number of applications. As of March 31, 2010, it operated 471 mines in 21 major coalfields across eight states in India, including 163 open cast mines, 273 underground mines and 35 mixed mines (which include both open cast and underground mines). It also operated 17 coal beneficiation facilities with an aggregate designed feedstock capacity of 39.40 million tons per annum. CIL has nine direct Subsidiaries and two indirect Subsidiaries, namely, Bharat Coking Coal Limited, Central Coalfields Limited, Central Mine Planning and Design Institute Limited, Eastern Coalfields Limited, Mahanadi Coalfields Limited, Northern Coalfields Limited, South Eastern Coalfields Limited, Western Coalfields Limited, Coal India Africana Limitada, MJSJ Coal Limited and MNH Shakti Limited.

  2. Information

    2.1. The facts and allegations in the matter, in brief, are as under;

    2.1.1 The Information provider (IP) has alleged that the OP has acted in violation of the provisions of the Act regarding anti-competitive agreements (Section 3 of the Act) and abuse of dominant position (Section 4 of the Act) in the procurement of industrial explosives.

    2.1.2 The Informant has submitted that OP, a dominant consumer of explosives consuming more than 60% of total explosives, as part of its requirement for the purpose of its mining activities invites open tenders for procurement of Industrial explosives on regular basis. The existence of members of IP, being small scale undertakings is largely dependent upon OP, as they have no other prospective consumers other than the OP. However, for the past few years, OP has been arbitrarily pressurizing the members of the Informant association into entering agreements and contracts for procurement of the explosives, by incorporating unrealistic and unfair conditions in the tender documents, making it mandatory and unconditional for acceptance by the participants.

    2.1.3 According to the informant association, against NIT dated 04.07.2008 for the supply of Bulk Loading and Cartridge explosives, its members participated in the tender for a period of three years, viz; 2008-09, 2009-10, 2010-2011 and on the basis of vendor qualification (evaluated by OP), the qualified and eligible bidders entered into Running Contracts with the OP for a period of three years. The agreements executed by OP in connection with these contracts were unfair and discriminatory. As per the agreement, the first term of the Running Contract started from Dec. 2008 to Nov. 2009. The second term was to initiate from Dec. 2009 to Nov. 2010 and third and the final term from Dec 2010 to Nov 2011.

    However, OP vide letter dated 28.11.2008, (sic) changed the duration of contract from three years to one year and vide letter dated 28.10.2009, terminated all Running Contracts including Reserve Running Contracts pertaining to Cartridge Explosives and Accessories and also Bulk Loading explosives with effect from 01.12.2009. OP further directed members of IP to continue supplies beyond 01.12.2009 as per the provisions of the Running Contract till 30.4.2010 or till the finalization of new contracts, even when on termination of any contract, the terms and conditions of the contract cease and are treated as null and void.

    2.1.4 The IP has further submitted that OP vide letters dated 11.12.2009 intimated it to review the price payable for extended contract (w.e.f. 01.12.2009) pertaining to Bulk Explosives and also for Cartridges Explosives and Accessories. OP also pressurized its members to lower their pre-fixed prices for the extended contract. Since after the execution of the contracts, various members of the IP had invested large capital on manufacturing and supply of the explosives to the OP, abrupt and arbitrary termination of the contract resulted in huge debts which were leading to closure of their numerous facilities and units.

    2.1.5 It has further been alleged in the Information that OP has included clauses 23, 25 and 26, amongst others, in the NIT conferring absolute powers on itself to alter or to terminate the contracts in full of part thereof without assigning any reason(s).

    2.1.6 The IP has also submitted that OP has also entered into a long term 05 (five) year private agreement with IOCL-IBP (a large scale PSU functioning under Ministry of Petroleum) for supply of explosives, without inviting any tender. IOCL-IBP combine has been given a quantity preference of 20% of the total yearly requirement and 10% price preference over the members of IP. In addition to the above, the IOCL-IBP has also been assured of increased order quantities at the rate of 20% of the total tendered quantity for every subsequent year. IP has alleged that the above action of OP eliminates the spirit of competition by enhancing the purchasing power of the preferred contractor and virtually kills the competition.

    2.1.7 It has further been alleged that the quantity variation clause in the NIT, mandates allocation of a minimum of 80% and maximum of 120% of the order at the same terms, conditions and price. However, the acceptance level by the subsidiary companies of the OP from the members of the IP did not exceed 60% of the awarded quantity. The said deviation in procurement by the subsidiaries of OP was not due to the fall in actual requirement, but because the remaining quantity was procured by giving undue preference to IOCL-IBP.

    2.1.8 IP has also stated that OP wrongly treated the Powder Factor as a yardstick to evaluate the performance of explosives since 2005-2006, discriminatorily amended the Rate Contract after issuance of the tender and its final negotiations and in one case, the OP even amended the Rate Contract even after issue of the Rate Contract Further, OP also delays refund of security deposits and security deposits running into crore of rupees are retained by it even after the expiry of the contracts.

    2.1.9 The informant has further submitted that OP has also introduced the price bid reverse auction process as per which the eligible bidders are made to contest the offered prices to the lowest extent in order to retain the market position. These phenomena directly and substantially lead to the introduction of forced predatory prices. OP, in its recent NIT dated 09.10.2009, has incorporated a clause on price ceiling, which unfairly makes the price ruling on the day of reverse auction as a bench mark price.

    2.1.10 The IP has alleged that due to its actions and conduct, OP has grossly misused its position as a dominant buyer by adopting unfair practices which can be classified as an abuse of dominant position as per Section 4 of the Act. IP has also alleged that the OP has entered into anticompetitive agreements and therefore violated Sections 3(1), 3(3)(a) & 3(3)(b) of the Act.

  3. After examining the allegations raised by the informant and the available material on record, the Commission having formed an opinion that there exists a prima facie case in the matter, vide order dated 11.03.2010 referred the matter to the Director General (DG) under Section 26(1) for investigation into the alleged violations of the Act.

  4. Pursuant to the order passed by the Commission, the DG conducted the investigations and submitted his investigation report dated 07.03.2011 to the Commission.

  5. Findings of the DG investigation report

    5.1 Keeping in view the allegations in the information, the DG identified following broad issues for investigation:

    i. Whether the Opposite Party is a dominant player in the relevant market and whether this position of dominance is being abused by it in any manner in violation of provisions of Section 4 of the Act;

    ii. Whether the terms and conditions prescribed by OP in its NIT (Notice Inviting Tender) and the changes in the procurement policy are unfair and discriminatory and;

    iii. Whether the agreement with IOCL-IBP is anti-competitive causing any appreciable adverse effect on competition within India;

    5.2 In order to analyse the issues involved in the matter, the DG, called for information from the OP and Information provider, recorded statements of certain persons and considered other relevant material in course of proceedings.

    5.3 DG in the context of examination of allegations of dominance and abuse thereof on part of OP, after analysing various types of explosives and their usages and after taking into consideration the relevant provisions of the Act has defined the relevant product and relevant geographic market as the market for 'consumption of bulk and cartridge explosives within the national boundaries of India'.

    5.4 The DG has noted that in this case OP is a buyer and therefore it should be looked into whether it has...

To continue reading

REQUEST YOUR TRIAL