Case No. 08 of 2014. Case: GHCL Limited Vs Coal India Limited and Ors.. Competition Commision of India
| Case Number | Case No. 08 of 2014 |
| Counsel | For Appellant: Venkatraman, Advocate and K.K. Pokhariyal, GM (Comm.) and For Respondents: Rajshekhar Rao and Gauri Puri, Advocates |
| Judges | Ashok Chawla, Chairperson, S.L. Bunker (Member), Sudhir Mital (Member), Augustine Peter (Member) and U.C. Nahta (Member) |
| Issue | Competition Act, 2002 - Sections 19(1)(a), 19(7), 2(s), 2(t), 26(1), 27, 4, 4(2)(a)(i); Indian Contract Act, 1872 - Section 56 |
| Judgement Date | February 16, 2015 |
| Court | Competition Commision of India |
Judgment:
Order under Section 27 of the Competition Act, 2002
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The present information has been filed under section 19(1)(a) of the Competition Act, 2002 ('the Act') by M/s. GHCL Limited ('the Informant') against M/s. Coal India Limited ('the Opposite Party No. 1'/CIL) and M/s. Western Coalfields Limited ('the Opposite Party No. 2'/WCL) (collectively 'Opposite Parties'/'OPs') alleging inter alia contravention of the provisions of section 4 of the Act.
Facts
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Facts, as stated in the information, may be briefly noticed.
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The Informant is a company incorporated under the Companies Act, 1956 and is inter alia engaged in the business of manufacture and sale of soda ash, which is a basic industrial raw-material used predominantly in manufacture of glass (flat/container), detergent, chemicals, silicates and host of other basic chemicals. The Informant commenced its commercial production of soda ash in 1986 at its manufacturing facility at Sutrapada, Distt. Somnath Gir (earlier in Junagadh Distt.) in the State of Gujarat.
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It is stated in the information that the Informant, which requires coal for running its captive power plant, was issued a Letter of Assurance (LoA) No. NGP/WCL/S & M/C-12(348-B)/798 dated 07/08.06.2010 by the Opposite Party No. 2 calling upon the Informant to fulfill various conditions precedent to enable the Opposite Party No. 2 to enter into a Fuel Supply Agreement (FSA) dated 08.11.2012 with the Informant for supply of coal. It is stated that LoA, apart from the usual conditions precedent requiring the Informant to obtain all requisite approvals and permissions, under Para 3.1 required the Informant to furnish a Commitment Guarantee (CG) in the form of a bank guarantee of Rs. 1,00,38,900/- equivalent to 10% of the base price of indigenous coal as on the date of application for issue of LoA. In compliance thereof, the Informant issued CG as stipulated and also complied with each of the conditions precedent stipulated under LoA. The said commitment bank guarantee issued by IDBI Bank Ltd., Ahmedabad was enhanced and renewed from time to time as required by the Opposite Party No. 2 even as there was no fault or shortcoming on the part of the Informant. The Informant, which was eager to commence purchase of coal from the Opposite Parties, wrote to the Opposite Party No. 2 on 11.09.2012 informing about compliance with the conditions precedent to LoA and calling upon it to approve FSA. Immediately upon receipt of the said letter, the Opposite Party No. 2 replied vide its letter dated 12.09.2012 stating therein that 'The signing of FSA in respect of LoA issued to GHCL Ltd., vide letter No. NGP/WCL/S & M/C-12(348-B)/798 dt. 07/08.06.2010 shall be executed after receipt of certain clarification sought from MOC/CIL. However, bank guarantee submitted towards Commitment Guarantee and additional Commitment Guarantee are expiring in Oct 2012 and requires to be extended. You are therefore requested to kindly extend the validity of the Bank Guarantee submitted towards Commitment Guarantee, failing which, WCL shall have no option but to encash the Bank Guarantee.'
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It is alleged that a plain reading of the said letter clearly demonstrates that the Opposite Parties had coerced the Informant into extending the commitment bank guarantee issued by the Informant by threatening to encash the commitment bank guarantee even though there was no default or failure on the part of the Informant. The Informant replied to the said letter on 04.10.2012 explaining its position yet complied with the unreasonable demand of the Opposite Party No. 2 with regard to extension of the commitment bank guarantee to avoid the encashment of the same.
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It is the case of the Informant that upon compliance with the conditions precedent and meeting even the unreasonable demands of the Opposite Party No. 2 as set out hereinbefore, the Informant was provided a model draft of FSA for its approval. Since, there were few clauses in the said FSA which were absolutely one sided, the Informant wanted the Opposite Party No. 2 to redraft the said clauses to make it more balanced. However, the Opposite Party No. 2 made it clear to the Informant that these are standard terms of supply of coal by the Opposite Party No. 2 and as such the terms and conditions of FSA were not negotiable and that any delay or failure to execute FSA within the stipulated time period would result in the invocation of the bank guarantee issued by the Informant. Being left with no alternative, the Informant sent its duly authorized representative to execute FSA, which was mandatory for commencing supply of coal under the New Coal Distribution Policy, 2007 (NCDP).
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Accordingly, it is averred that the Informant sent its duly authorized representative only to be given to understand that the Informant will have to execute a Memorandum of Understanding (MoU) along with FSA. Since, there was no whisper about this requirement and further as the terms and conditions of the said MoU were absolutely one-sided and loaded against the Informant, the duly authorised representative of the Informant expressed his inability to execute such a one-sided MoU without obtaining clearance from the Informant. It is alleged that a plain reading of MoU would clearly establish that the conditions relating to quantity and quality of coal to be supplied under FSA were diluted.
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It is alleged that upon hearing the response of the duly authorized representative of the Informant, the Opposite Party No. 2 referred to Para 3.4.2 of LoA and threatened to encash the commitment bank guarantee furnished by the Informant if the duly authorized representative of the Informant refused to execute MoU alongwith FSA.
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The Informant is aggrieved by the fact that the Opposite Party No. 2 instead of executing FSA as required under NCDP required the Informant to execute an MoU alongwith FSA diluting the terms and conditions of FSA on issues like quality control, grade failure, short supply, joint sampling etc., which are the material terms and conditions of supply of coal under the agreement.
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The Informant has also made various other allegations and a gist thereof is noted below:
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The Opposite Parties have abused their dominance by dictating the terms and conditions of supply of coal through LoA, FSA, MoU and the Addendum to FSA by imposing such one-sided onerous conditions upon the buyers without seeking, much less considering, the inputs of the power producers and have thus acted independent of the market forces.
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The clause relating to Deemed Delivered Quantity (DDQ) in FSA was fully loaded against the Informant and gave undue leverage to Opposite Parties to evade and avoid their liability for short supply.
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The terms and conditions of supply were not as mandated under NCDP. LoA, FSA and MoU, which the Informant was asked to execute, did not address all aspects of supply like quality control, grade failure, short supply, joint sampling etc., and these were not detailed/enumerated in clear terms and conditions.
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Diversion of coal mandated to be supplied under FSA/NCDP to online buyers at a premium at the cost of the Informant and other consumers who were allotted coal under LoA/FSA based on NCDP. The Annual Report 2011-12 of Ministry of Coal (MoC) provides the statistics which will demonstrate that sale of coal sold through e-auction i.e., spot auction or forward auction was market driven and far in excess of the notified price under LoA/FSAs; helped the Opposite Parties to increase their revenue by a phenomenal 36% in 2011-12 and there was a direct nexus between the e-auction sales and the inability of the Opposite Parties to meet their contractual commitments to consumers under FSAs.
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The Opposite Parties have not been able to honour their contractual commitments/obligations with regard to Annual Contracted Quantity (ACQ) to consumers who were issued LoAs and have executed FSAs/MoUs pursuant thereto.
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Inferior quality of the coal supplied by the Opposite Party No. 2 caused severe operational and maintenance problems apart from forcing the Informant to purchase quality coal from alternate sources.
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By taking advantage of their dominant position, the Opposite Parties have not only diverted the coal agreed to be sold through LoA/FSA route to the e-auction purchasers and thereby deprived the consumers like the Informant of ACQ of coal but, have also failed to improve their infrastructure to increase their coal production to meet the annual contracted demands of their consumers thereby forcing these consumers to import coal from alternate sources to meet their energy needs.
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Based on the above averments and allegations, the Informant has filed the instant information.
Directions to the DG
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The Commission after considering the entire material available on record vide its order dated 10.03.2014 passed 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 receiving the directions from the Commission, investigated the matter and filed the investigation report on 22.09.2014.
Investigation by the DG
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The relevant market was determined by the DG as 'production and supply of non-coking coal to thermal power producers including the captive power plants in India'. It was further found that OPs are in a dominant position in the said relevant market.
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It was held that the terms and conditions of LoA, FSA and MoU have been drafted by OPs unilaterally and there is no consultation process with the customers/other parties either at the time of drafting of FSA or at the time of modifications. The conduct of OPs in this regard was found to be independent of the market forces affecting the consumers and market in their favour.
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It was noted in the report that the dependence of consumers on OPs and their ability to act independent of market forces allowed them to decide the one sided terms and conditions of...
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