India: Abuse of Dominance
The enactment of the Competition Act 2002 (the Act), the principal legislation governing competition law in India, along with the establishment of the Competition Commission of India (CCI)1 as its chief enforcement authority, has been one of the biggest game changers in the Indian regulatory space. The Act regulates markets in India with the objective of promoting and sustaining competition and, more importantly, protecting consumer interests. Akin to competition regimes in mature jurisdictions, India’s competition law covers within its ambit the regulation of anticompetitive conduct, abuse of dominance and unilateral conduct, and combinations. This article focuses on enforcement of provisions relating to unilateral conduct of enterprises and explores the trends in this area, which are steadily evolving on a case-by-case basis.
Abuse of dominance under the Act
The regulation of abuse of dominance is an important pillar of India’s competition policy. The substantive test and benchmark for analysis under the Act is to prohibit practices that have an appreciable adverse effect on competition in India. Section 4 of the Act regulates unilateral conduct by dominant enterprises. The Act prohibits the abuse of a dominant position by any ‘enterprise’ or ‘group’, and defines dominant position as a position of strength enjoyed by an enterprise in the relevant market in India that enables it to (i) operate independently of the competitive forces prevailing in the relevant market; or (ii) affect its competitors or consumers or the relevant market in its favour. In India, the determination of ‘dominance’ is based on a qualitative assessment of the prevalent market dynamics and the relative position of strength enjoyed by the market participant. This reflects a more reasoned approach and is a welcome departure from the earlier competition law regime under the aegis of the Monopolies and Restrictive Trade Practices Act 1969, wherein emphasis was placed on the size of the concerned player, rather than the actual abusive practice or conduct of such a player.
The Act covers within its ambit both exclusionary as well as exploitative abuses and provides a list of prohibited conduct by dominant enterprises, including imposition of unfair or discriminatory conditions on price in purchase or sale (including predatory pricing), limiting or restricting the production of goods, denial of market access, and leveraging market position in one relevant market to enter into another relevant market, shall amount to abuse of dominance. Further, except for the limited defence of ‘meeting competition’ in relation to imposition of unfair and discriminatory prices or conditions, the Act does not provide for any other exemption to an abuse of dominance violation. This is in stark contrast to the European Union, where the ‘objective justification’ or ‘efficiencies’ defence has often been held to be a valid defence. However, the CCI has recently begun to consider business and commercial justifications, on a case-by-case basis, as a potential defence in such cases.
While determining the abusive conduct of a dominant enterprise or group, a three-step analysis is required to be undertaken:
- determination of the relevant market;
- assessment of dominance of such enterprise or group; and
- assessment of its abusive conduct.
Unlike other jurisdictions, there is no bright line market share test, and for the determination of dominance under the Act, the CCI may consider the following indicative factors:
- market share;
- size and resources of the enterprise;
- size and importance of competitors;
- economic power of the enterprise, including commercial advantages over competitors;
- vertical integration of the enterprises or sale or service network of such enterprises;
- dependence of consumers on the enterprise;
- legal monopoly or dominant position;
- entry barriers, including regulatory barriers, financial risk, high capital cost of entry, marketing entry barriers, technical entry barriers, economies of scale and high switching costs;
- countervailing buyer power;
- market structure and size of the market;
- social obligations and social costs;
- relative advantage, by way of the contribution to the economic development, by the dominant enterprise; or
- any other factor that the CCI may consider relevant for the inquiry.
The CCI’s jurisdiction: definition of the term ‘enterprise’
The Act prohibits abuse of dominance by an ‘enterprise or group’. The CCI in Reliance Big Industries & Ors v Karnataka Film Chamber of Commerce & Ors,2 held that only the conduct of an ‘enterprise’ can be examined under the provisions of Section 4 of the Act. For the purposes of the Act, a person or a department of the government engaged in any activity relating to the production, storage, supply, distribution, acquisition or control of articles or goods, or the provision of services, would constitute an ‘enterprise’.3 Therefore, the Act is equally applicable to both private enterprises as well as government bodies/departments while acting in their commercial capacity.
Notably, the Act provides an exemption to any activity that relates to the sovereign functions of the government, including those related to energy, currency, defence and space. For instance, an activity in relation to the collection of taxes (a purely sovereign function) would not fall within the purview of the Act and an entity discharging such functions would not constitute an enterprise (M/s Red Giant Movies v Secretary, Commercial Taxes & Registration Department, Government of Tamil Nadu and the Commissioner, Commercial Taxes Department, Government of Tamil Nadu).4 As a result, the CCI cannot scrutinise the conduct of such entities to determine any plausible contravention of section 4 of the Act.
It is only within the parameters of a correctly defined relevant market that dominance of an entity can be assessed. Therefore, delineation of the relevant market is imperative to any abuse of dominance analysis.
The relevant market is an aggregation of the relevant product market and the relevant geographic market.5 The relevant product market is defined as a market for all those products or services that are regarded as interchangeable or substitutable by the consumer, on the basis of the characteristics of the product, its price and intended use.6 The relevant geographic market is defined as a market comprising the area in which there exists distinct homogenous competitive conditions in terms of demand and supply of goods or services that can be distinguished from the conditions prevailing in the neighbouring areas.7
In the absence of specific guidelines for defining the relevant market and economic tests capable of application in the Indian market (on account of lack of market data, challenges in conducting surveys and identifying a suitable sample group, etc), determination of the relevant market by the CCI is often guided by common perception and lacks adequate economic data/analysis. In practice, the CCI’s definition of the relevant market varies from case to case, based on the differing factual matrix. As such, the CCI has restricted the relevant geographic market to particular suburbs in some cases (such as Belaire Owners’ Association v DLF Limited 8 and Mr Om Datt Sharma v M/s Adidas AG & Ors)9 and has, without any specific differentiation, defined the relevant market on an ‘all India basis’ in other cases. For instance, in Consumer Guidance Society v Hindustan Coca Cola Beverages Pvt Ltd & INOX Leisure Private Ltd,10 the CCI held that the relevant geographic market cannot be confined to the closed market inside the premises of multiplexes and defined the relevant market to be the market for multiplexes on an ‘all India basis’.
Interestingly, in Maharashtra State Power Generation Limited v Coal India Limited and Ors (Coal India),11 the CCI noted that defining a global market as the relevant market was contrary to the express provisions of the Act. The CCI reasoned that the explanation to section 4 of the Act indicated that the ‘dominant position’ is a position of strength enjoyed by an enterprise in the relevant market ‘in India’. Accordingly, the contention of the parties to define the relevant geographic market as the global market was held by the CCI as legally untenable. Though the facts of Coal India may have warranted restricting the relevant market to India, by concluding that a worldwide definition of the relevant market would not be permissible in any instance of abuse of dominance, the CCI has adopted a narrow and restrictive view. In doing so, the CCI has failed to consider products that are not affected by national barriers.
In terms of the product market definition, the CCI has primarily considered demand-side substitution as a determining factor in delineating the relevant product market. For instance, in Coal India, the CCI did not include imported coal as part of the relevant product market, since imported coal could not be used as a substitute for domestic coal. This determination was based on price, as well as physical properties that rendered the imported coal unsuitable for use by Indian thermal power plants, which have specifications suited specifically to domestically manufactured coal. However, in M/s Three D Integrated Solutions Ltd v M/s VeriFone India Sales Pvt Ltd,12 the CCI disregarded substitutability of a product and defined the market narrowly. Based on the specific requirements set out in the bid document, the CCI disregarded the substitutability of point of sale (POS) terminals and electronic ticketing machines and held the relevant market to be the ‘market for POS terminals’.
The CCI, while analysing cases relating to the Indian online retail industry, has demonstrated a varied approach. In Ashish Ahuja v Snapdeal.com and Ors (Snapdeal),13 the first case in this sector, the CCI concluded that online retail and brick-and-mortar sales of distribution were not two different relevant markets but were merely different channels of distribution of the same product. However, in a more recent case involving e-tailers, Mohit Mangalani v Flipkart India Pvt Ltd and Ors,14 the CCI left the definition of relevant product market open and opined that it was not taking a stand whether the ‘e-tail market was indeed a separate relevant product market or a sub-segment of the market for distribution’.
In Shri Shamsher Kataria v Honda Siel Cars India Ltd & Ors (Auto Parts),15 the CCI undertook a detailed analysis while delineating the relevant market. In this case, the information was filed against various automobile manufacturing companies or original equipment manufacturers (OEMs) on the basis that the OEMs were involved in activities leading to competition law concerns in India by restricting the availability of genuine spare parts of automobiles manufactured by them in the open market. It was also alleged that the car manufacturing companies controlled the operations of various authorised workshops and service stations that were in the business of selling automobile spare parts besides rendering aftersales automobile maintenance services. The technological information, diagnostic tools and software programmes required to maintain, service and repair the technologically advanced automobiles manufactured by each OEM were unavailable in the open market. Consequently, the repair, maintenance and servicing of such automobiles could only be carried out at the workshops or service stations of the authorised dealers of the OEMs.
The CCI noted that the consumers in the primary market (ie, the market for the manufacture and sale of cars) did not, or could not, undertake a whole-life cost analysis at the time of purchase of the automobile and, accordingly, the CCI did not accept the ‘unified systems market definition submitted by the OEMs and concluded that the automobile primary market for automobiles and the secondary market (or ‘aftermarket’) for spare parts, diagnostic tools and repair services did not constitute a unified systems market.16
Noting that each OEM had a 100 per cent market share in the aftermarket for its brand of cars, the CCI held each OEM to be a dominant entity in such. As such, the CCI considered each individual separate brand of automobiles as a separate relevant market, instead of considering the broader relevant market of the aftermarkets for the entire automobile industry. Based on this analysis, the CCI concluded that the OEMs had abused their dominant position in their respective aftermarkets by, inter alia, restricting the supply of spare parts, repair manuals and diagnostic tools to independent repairers. The order of the CCI was, in most parts, affirmed in appeal by the Competition Appellate Tribunal (COMPAT) in Toyota Kirloskar Motor Private Limited and Ors v Competition Commission of India and Ors and Nissan Motor India Private Limited v Competition Commission of India and Ors (COMPAT Auto Parts).17
Assessment of dominance
Under the provisions of the Act, dominance refers to the ability of an enterprise to operate independently of market forces and exploit its position of strength to affect competitors or consumers or the relevant market in its favour. While determining dominance, the CCI considers factors listed under section 19(4) of the Act. Consequently, an enterprise’s dominance is a multifaceted assessment and there is no bright line market share test. Reaffirming this view, in Mr Ramakant Kini v Dr L H Hiranandani Hospital, Powai, Mumbai, while assessing the dominance of the Hiranandani hospital in the relevant market for provision of maternity services by super speciality and high-end hospitals within a distance of 12 kilometres from the Hiranandani Hospital, the CCI clarified that the market share of an entity is ‘only one of the factors that decides whether an enterprise is dominant or not, but that factor alone cannot be decisive proof of dominance’.
Similarly, in In re M/s ESYS Information Technologies Pvt Ltd and Intel Corporation (Intel Inc) & Ors,19 in addition to the market shares of Intel, the CCI’s assessment of Intel’s dominance was based on other relevant factors, such as consumer preference owing to the brand name, the existence of strong entry barriers in the relevant market, the significant intellectual property rights of Intel and the scale and scope enjoyed by Intel.
Going a step further, the COMPAT in Meru Travels Solutions Pvt Ltd v CCI,20 while admitting an appeal from the CCI’s order that dismissed an information of alleged abuse of dominance by Uber, specifically held that the CCI should have considered the larger picture in the radio taxi service market in terms of status of funding, global developments, statements made by leaders in the business, availability of financial resources, existence of discounts and incentives, etc. Further, the COMPAT observed that the availability of financial resources and existence of discounts and incentives associated with the model of business adopted are good supporting reasons to suggest that the issue of dominance needs to be seen from a perspective that does not limit to the market share of the enterprise alone. The case is currently under appeal before the Supreme Court of India.
Assessment of abusive conduct
In relation to the assessment of abusive conduct, the CCI’s scrutiny is limited to the statutory provisions under section 4 of the Act, which lists a number of practices that are considered to be abusive (if such practices are conducted by a dominant enterprise). The practices listed under section 4 can be broadly divided into two separate kinds of abuses: exclusionary abuses, which include practices of the dominant entity having the effect of excluding other players in the relevant market; and exploitative abuses, which include practices of the dominant entity that tend to exploit their position by imposing unfair or discriminatory restrictions on other players and consumers in the market.
Statutorily, an abuse of dominance is required to be treated as a per se violation, and the CCI has followed this approach in several cases, including in the case of Board of Control for Cricket in India (BCCI) v Competition Commission of India and Anr (BCCI Case)21 wherein the CCI held that the BCCI had allegedly denied access to the market for organisation of private professional cricket in India by virtue of a clause in the media rights agreement to not organise, sanction or support any other professional domestic Indian Twenty-20 league in India, and it imposed a penalty on the BCCI. In contrast, in Dhanraj Pillai v Hockey India,22 the CCI brought in the effects test and went so far as to state that the restrictive conditions imposed on hockey players were ‘intrinsic and proportionate’ to Hockey India’s objectives and therefore did not amount to an abuse of dominance. Subsequently, disregarding its own precedent, in Faridabad Industries Association v M/s Adani Gas Limited,23 despite Adani Gas Limited’s (AGL) good conduct by benefiting consumers and the ostensible clauses not being enforced, the CCI imposed a penalty on AGL. This demonstrates the varying position that the CCI has adopted and the urgent need to develop a high degree of consistency and predictability in its assessment of abuse of dominance cases.
Penalties and sanctions
The CCI has the power to impose the highest economic penalties in India among all regulators. In the case of contravention of Section 4 of the Act, the CCI is empowered to levy a penalty of up to 10 per cent of the average turnover of the enterprise for the preceding three financial years24 or direct the division of a dominant enterprise. However, as there are no guidelines issued by the CCI in relation to the determination of penalties, the CCI currently has absolute discretion in relation to the imposition of such penalties. Additionally, in most cases, there is an absence of coherent justification for the penalties imposed. For instance, in the Auto Parts case, all the OEMs were fined the same percentage quantum, despite differences in market conduct that ought to have been considered as a mitigating factor.
The CCI has, in very few instances, taken into account factors that may be regarded as mitigating factors for the determination of the penalty. For instance, in a recent case, the CCI has considered the steps taken by the opposite parties in the interim period (between the informant filing information alleging an abuse of dominance and the CCI’s order), which may have an effect of reducing competition law concerns, while determining the penalty to be imposed.
In the case of Indian Exhibition Industry Association v Ministry of Commerce & Industry & Anr,25 the Indian Exhibition Industry Association filed an information against the Ministry of Commerce and Industry and the Indian Trade Promotion Organization (ITPO), alleging the contravention of the provisions of section 4 of the Act based on the time gap restriction imposed by ITPO between two exhibitions or fairs. In 2006, the ITPO had reformulated certain guidelines imposing a ‘time gap restriction’ of 15 days between two events having similar product profiles and coverage for events that were not conducted by ITPO. However, in case of ITPO fairs, the time gap was 90 days before the start or 45 days after the close of an ITPO event. Further, in 2007, the concerned guidelines were reassessed and the time gap of 15 days was maintained. However, in case of ITPO and third-party fairs having similar product profiles, the time gap was 90 days before the ITPO’s event and 45 days after it. The CCI held that ITPO was ‘playing a dual role as a regulator as well as the organiser of exhibitions’ and, as such, considered the acts of ITPO to be an abuse of its dominant position. The penalty imposed by the CCI on the ITPO was limited to 67.5 million rupees (around 2 per cent of the average of the turnover for the preceding three years). The removal of discriminatory features and the differences in time gap restrictions by an amendment in 2013 was considered by the CCI as a mitigating factor.
Further, the ‘turnover’26 to be taken into account while imposing penalties under the Act has also been a matter of contention. Though the Act does not stipulate that the CCI must only consider the turnover that can be attributed to the business relating to which the abusive conduct has occurred, the COMPAT has held that in the case of multi-product companies, (ie, a company engaged in various lines of business), the ‘relevant turnover’, which relates to the activity of the company contravening the provisions of the Act, should be considered (M/s Excel Crop Care Limited v Competition Commission of India).27 This view of the COMPAT is contrary to the CCI’s practice of imposing a penalty based on the entire turnover of the infringing enterprise. However, it is worth mentioning that COMPAT itself has failed to apply this concept of ‘relevant turnover’ consistently in some of its subsequent decisions. For instance, in its decision in M/s DLF Limited v Competition Commission of India & Ors (COMPAT DLF),28 COMPAT did not restrict the calculation of the penalty on the basis of DLF Limited’s turnover arising only from the residential segment, despite the relevant market in that case being the market for ‘high-end residential accommodation’ and upheld the penalty levied by the CCI, which was calculated on the basis of DLF’s turnover pertaining to its entire business (ie, the development of residential, office and commercial properties). In its recent decision in the Auto Parts case, the COMPAT reduced the penalty to 2 per cent of the relevant turnover (ie, the automobile aftermarket).
As stated above, in addition to imposing monetary penalties, under section 27(g) of the Act, the CCI has other powers, such as directing the division of a dominant enterprise. The exercise of one such power under section 27(g) (ie, the CCI’s power to direct modification of agreements) has been read down by the COMPAT in order to only apply to those cases where there is a contravention of the provisions of section 3 of the Act pertaining to anticompetitive agreements. In COMPAT DLF, the COMPAT disapproved of the approach adopted by the CCI in directing the apartment buyers’ agreements (from which the abuse of dominance behaviour of DLF stemmed) to be amended, and noted that there was ‘absolutely no justification on the part of the CCI to change the language of the agreement altogether’. The COMPAT noted that the specific power to modify agreements can be exercised by the CCI only in the limited circumstances where it finds that such agreements violate the provisions of section 3 of the Act. The COMPAT specifically observed that ‘no provision in the Act permits the re-writing of the agreements’. In doing so, the COMPAT has drawn certain bright lines around the scope of the CCI’s residuary powers under the Act,29 according to which the CCI can pass any order or issue any directions as it may deem fit. The CCI has appealed COMPAT DLF before the Supreme Court of India.
Trends in recent orders
In its first decision against a public sector undertaking, indicating that public sector enterprises engaged in economic activities are not exempt from the CCI’s scrutiny, the CCI imposed a penalty upon Coal India Limited (CIL) for having abused its dominant position in the market for the production and sale of non-coking coal to thermal power generators. Despite the dominant position of CIL being the result of a statutory monopoly, and CIL being a creature of the statute, the CCI imposed a fine of 17.7 billion rupees (at a rate of 3 per cent of the average turnover for the last three years) on CIL for imposing unfair and discriminatory conditions under fuel supply agreements executed with power generation companies and directed modification of CIL’s agreements.
As stated above, in COMPAT Auto Parts, the COMPAT upheld the CCI’s findings that 14 automobile companies were abusing their dominant position and directed the OEMs to supply spare parts and diagnostic tools in the open market without any restrictions. Further, the OEMs were required to remove restrictions on independent original equipment suppliers, and permit them to sell their spare parts in the open market. The OEMs were prohibited from placing restrictions or impediments on the operation of independent repairers and garages. They were also directed not to impose a blanket condition that warranties would be cancelled if the consumer availed of services of any independent repairer. The COMPAT, however, differed from the CCI on the penalty aspect and reduced the fine imposed by the CCI on the companies to 2 per cent of their average ‘relevant turnover’ in India for the past three years.
In June 2011, the CCI passed an order stating that the National Stock Exchange (NSE) was following unfair pricing policies and using its dominant position to attract more business. While directing the NSE to levy charges in its currency derivatives segment, the CCI imposed a penalty of 555 million rupees on the NSE. Recently, COMPAT upheld the CCI’s order, stating that the NSE, in continuing with the zero transaction fees policy, indulged in exclusionary conduct.30
It may also be noted that the CCI imposed a penalty of 10 million rupees on M/s Google Inc and Google India Private Limited (collectively, Google)31 for failing to comply with the directions of the director general seeking certain information with respect to the ongoing abuse of dominance investigation against Google. The CCI observed that no cause was shown by Google for non-compliance with the directions given by the director general, sending a strong message that the investigation process cannot be unnecessarily delayed. It was further noted that despite liberal indulgence shown by the director general in granting successive extensions, Google had engaged in delaying tactics to prolong the investigations. Accordingly, the CCI imposed the maximum penalty envisaged under section 43 of the Act (10 million rupees) and ordered Google to furnish all the information required by the director general within a period of 10 days. The CCI further clarified that in case of any non-compliance with the directions of the director general in the future, each instance of non-compliance would be taken separately as an aggravating factor for the imposition of a penalty.
In the BCCI Case, for the first time ever, COMPAT set aside the order of the CCI in entirety, which had held that the BCCI had abused its dominance in the market for ‘organisation of private professional leagues/events in India’ on account of violation of the principles of natural justice. COMPAT ordered a refund of the penalty amount and remanded the case to the CCI for fresh investigation.
Claim for damages
Notably, MCX Stock Exchange Ltd (MCX-SX) has filed an application with COMPAT claiming damages of 5.9 billion rupees, stating that due to the NSE’s exclusionary conduct it had lost transaction charges of 2.2 billion rupees, along with a treasury income loss of 3.4 billion rupees. This is the first instance where a company has filed a claim for damages. Publicly available reports mention that MCX-SX intends to increase its claim for damages to 8 billion rupees.
Looking at the way the CCI has progressed in this relatively short span of time, it can certainly be commended for being a regulator that seeks to implement sound enforcement practices. Having successfully decided 600 out of approximately 700 enforcement cases before it, the CCI has contributed significantly to the development of competition jurisprudence and the positive impact of its orders in terms of deterrence of anticompetitive conduct and setting up a culture for competition compliance cannot be undermined. While the earlier decisions of the COMPAT and high courts against CCI orders focused primarily on procedural issues and non-compliance with due process, the last year has witnessed a significant shift, with the COMPAT remanding cases to the CCI/DG for re-determination of substantive issues such as delineation of the relevant market (in the Uber case). Further, going forward, abuse of dominance in technology-enabled and innovative industries will take centre stage and are likely to pose challenging competition concerns that will necessitate the use of a flexible competition policy – particularly in light of the specificities and global nature of these sectors/industries. Any decision by the CCI in such industries will undeniably have a bearing on the way other competition regulators view such enterprises and their respective business practices in other jurisdictions. It is, therefore, imperative for the CCI to approach these sectors in a manner that is consonant with the practices of regulators in mature competition jurisdictions.
* The authors would like to acknowledge the contribution of senior associates Rahul Satyan and Aishwarya Gopalakrishnan, and associates Neelambera Sandeepan and Anu Shrivastava, in the competition law practice of Cyril Amarchand Mangaldas.
- The CCI is the principal regulatory body that regulates competition in India and has been established by the central government under section 7(1) of the Act.
- Case No. 25 of 2010.
- Enterprise has been defined in section 2(h) of the Act.
- Case No. 54 of 2014.
- Relevant market has been defined under section 2(r) of the Act.
- Relevant product market has been defined in section 2(t) of the Act.
- Relevant geographic market has been defined in section 2(s) of the Act.
- Case No. 19 of 2010.
- Case No. 10 of 2014.
- Case No. UTPE 99 of 2009.
- Case Nos. 3, 11 and 59 of 2012.
- Case No. 13 of 2013.
- Case No. 17 of 2014.
- Case No. 80 of 2014.
- Case No. 3 of 2011.
- The CCI went on to combine the two relevant markets of sale of spare parts and sale of repair services, under the bigger ‘aftersales’ services as the two markets were interconnected.
- Appeal Nos. 60, 61 and 62 of 2014.
- Case No. 39 of 2012.
- Case No. 48 of 2011.
- Appeal No. 31 of 2016.
- Case No. 73 of 2011.
- Case No. 61 of 2010. By way of full disclosure, the authors represent the BCCI before the CCI and COMPAT.
- Case No. 79 of 2012.
- Case No. 17 of 2014.
- Case No. 74 of 2012.
- Section 2(y) of the Act defines ‘turnover’ as the value of sale of goods or services.
- Appeal No. 79 of 2012, Appeal No. 80 of 2012, Appeal No. 81 of 2012.
- Appeal No. 20 of 2011, Appeal No. 22 of 2011, Appeal No. 19 of 2012, Appeal No. 23 of 2011, Appeal No. 12 of 2012, Appeal No. 20 of 2012, Appeal No. 29 of 2013, Appeal No. 8 of 2013, Appeal No. 9 of 2013 and Appeal No. 11 of 2013.
- Section 27(g) of the Act.
- Case No. 13 of 2009 (Order of the CCI) and Appeal No. 15 of 2011 (Order of the COMPAT).
- Case Nos. 7 and 30 of 2012.