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Competition Law at the NCLAT: A Three Year Round - Up

14 四月 2020

by Neelambera Sandeepan

 

In an effort to streamline the functioning of tribunals in India, the Finance Act, 20171 brought appeals filed against the orders of the Competition Commission of India (CCI) under the Competition Act, 2002 (Competition Act) within the purview of the National Company Law Appellate Tribunal (NCLAT). The NCLAT succeeded the erstwhile Competition Appellate Tribunal (COMPAT) which was a specialist standalone appellate body to decide appeals against CCI’s orders. The NCLAT however, has a much wider mandate as it is the appellate tribunal dealing with appeals from three different enactments, the Companie Act, 2013, the Insolvency and Bankruptcy Code (IBC), 2016 and now the Competition Act. Earlier last month, the first chairman of the NCLAT – post the merger of tribunals, retired and this article aims to encapsulate the competition law jurisprudence that was evolved by the NCLAT during his term.

One of the first competition law cases decided by the NCLAT was the seminal Cement Cartel case2 which came up in appeal for a second time. In the prior appeal, the COMPAT had remanded the case for re-hearing by the CCI on the grounds of violation of principles of natural justice by the CCI3 . The NCLAT upheld the second order of the CCI finding 11 cement companies to have entered into anti-competitive agreement and fixed cement prices, limited and controlled the production and supply in the market. The NCLAT also indorsed the highest ever, cumulative penalty in India of INR 6300 crore in this case4. The NCLAT analyzed the price, production and dispatch data of the cement companies while affirming the CCI’s decision5.

In the case of Hyundai Motors Ltd. v. Competition Commission of India & Ors6. the CCI found Hyundai in violation of Section 3 (4)7 of the Competition Act for its resale price maintenance policy and tie-in arrangement,vis a vis its dealers. The NCLAT however set aside the order and directed a refund of the penalty as the CCI had based its decision only on the opinion expressed by the Director General (DG) in his report – which is merely an investigation report and had not undertaken any analysis of the evidence to arrive at its finding of contravention. As such, the NCLAT emphasized that the CCI is required to apply its mind when arriving at a finding, however the impugned order lacked evidence as well as analysis.

In addition to the above two landmark cases, in the weeks leading to his retirement the ex-Chairman as a parting gift, has put to rest a few longstanding competition law cases.

The concept of relevant asset and turnover in an asset acquisition, for assessing the availability for the de minimis exemption8 was first contended in the case of Eli Lilly9 before the CCI. The concept being that when only a part of the target enterprise (i.e., only assets or business line or division) and not the entire enterprise is being acquired, it is illogical to consider the value of assets and turnover of the enterprise which is not the “target” for the purposes of the transaction in assessing the availability of the de minimis exemption. The CCI rejected such reasoning on the part of Eli Lilly observing that the de minimis exemption is available to an enterprise and not to a part of an enterprise and held them in violation of the Competition Act for gun-jumping and non-notification of the transaction to the CCI. The NCLAT in appeal, appreciated the contention of Eli Lilly and set aside the CCI’s order as well as the penalty. While this appeal was pending before the NCLAT, the Ministry of Corporate Affairs (MCA) itself by a notification in 201710, amended the de minimis exemption and clarified the position regarding relevant assets and turnover. As such, the strict interpretation taken by the CCI of what constitutes a target enterprise led to a large number of unnecessary notifications which could have been avoided.

In the gas sector, the CCI order finding Adani Gas Limited (Adani) to be abusing its dominant position in the Faridabad area was upheld by the NCLAT11 . While adjudicating upon the quantum of penalty to be levied, the NCLAT considered mitigating factors such as, the amendment to the gas supply agreement (GSA) which was made during the pendency of the investigation before the CCI and the subsequent modifications to the GSA proposed by Adaniupon the NCLAT’s suggestion to reduce the penalty imposed at 4% of the average turnover for three years to 1% of the average turnover for three years. This is the first instance where the CCI and the appellate tribunal have found any enterprise in the gas sector to be abusing its dominant position. This finding comes as a surprise given that the appellate tribunal disregarded the fact that Adani only served approximately 120 of the over 5000 industries operating in the Faridabad Industrial Area, a fact which was not disputed by the informant. Moreover, given that a majority of the industries continue to operate using other sources of fuel, it was interesting to note that such fuels were not taken into consideration while defining the relevant market. Such narrow delineation of the relevant market also disregards the consumer preference and the consumer behavior which ought to be the touchstone given that that dominant position of Adani is a result of the regulatory framework.

Recently, the NCLAT has overturned the CCI’s order dismissing an information against Flipkart Private Limited (Flipkart) and directed the CCI to investigate Flipkart for an alleged abuse of dominant position12. As a result, the CCI will now be investigating Flipkart for both alleged anti-competitive behavior and abuse of dominance. It is noteworthy that the CCI earlier this year in January had dismissed allegations of joint dominance by Flipkart and Amazon and only directed an investigation into allegations of anti-competitive vertical agreements for both the enterprises13. Soon after the above order of the NCLAT, the appellate tribunal dismissed the appeal challenging the CCI’s approval of the acquisition of shareholding in Flipkart by Wal-mart on the grounds that there was no prima facie evidence of such acquisition resulting in any behavioral concerns14 .

It is fascinating to see the difference in the approach adopted by the erstwhile COMPAT and the NCLAT in the last three years. While the COMPAT was very strict in its application of principles of natural justice and a large number of orders of the CCI were remanded to the CCI/DG for re-hearing/investigation for violation of such rule, the NCLAT has so far not remanded a single case for violation of principles of natural justice. Although this could be a testament to the fact that the CCI has evolved and has a better understanding of rules of procedure as a quasi-judicial body, than it its formative years, barring a few cases, a majority of the appeals decided by the NCLAT had been transferred from the COMPAT. As such, it appears that the focus of the NCLAT has been on the substantive questions of competition law and not on strict adherence to rules of procedure and principles of natural justice.

The past few years have seen a reduction in the number of competition appeals being taken up by the NCLAT. This can be attributed to various factors – insufficient bench strength because of which the tribunal has been ill-equipped to handle such a large number of cases spanning across different disciplines. In addition,the strict timelines under IBC law have meant that appeals under IBC are given priority and hence,very few appeals under the Competition Act could be taken up and disposed of by the appellate tribunal.IBC and competition law are both economic legislations and therefore require expert knowledge and expeditious disposal of cases to be effective regimes. As such, while the NCLAT may continue to be the tribunal for competition law cases, a dedicated bench to hear appeals under the Competition Act is necessary to ensure efficiency and timely disposal of cases.

  1. Section 171 of Finance Act, 2017 amended the Competition Act, 2002 and substituted all references to the Competition Appellate Tribunal with the National Company Law Appellate Tribunal.
  2. Ambuja Cements Limited v. Competition Commission of India, TA (AT) (Comp) No. 22 of 2017 and connected appeals.
  3. Lafarge India Limited v. Competition Commission of India&Anr., Appeal no. 105 of 2012 and connected appeals.
  4. While affirming the penalty the NCLAT noted that the penalty was “mere minimum” - @0.5 times the net profit for two years.
  5. The NCLAT’s order has been challenged before the Supreme Court of India.
  6. Competition Appeal (AT) No. 06 of 2017.
  7. Section 3 (4) of the Competition Act deals with agreements between enterprises or persons at different levels of the supply chain i.e., vertical agreements
  8. The MCA by a notification dated 4 March 2011 exempt from notification to the CCI under Section 5of the Competition Act, acquisition of an enterprise which has assets of value less than INR 250 crore and turnover less than INR 750 crore in India for a period of 5 years. Available at: https://www.cci.gov.in/sites/default/files/notification/SO479%28E%29%2C480%28E%29%2C481%28E%29%2C482%28E%29240611.pdf
  9. Order dated 14.07.2016 under Section 43 A of the Competition Act in relation to Combination Registration No.C-2015/07/289.
  10. Available at: https://www.cci.gov.in/sites/default/files/notification/S.O.%20988%20%28E%29%20and%20S.O.%20989%28E%29.pdf
  11. Adani Gas Limited v. Competition Commission of India &Anr.,TA (AT) Comp. 33 of 2017 and connected appeal.
  12. All India Online Vendors Association v. Competition Commission of India, Competition Appeal (AT) No. 16 of 2019.
  13. In January 2020, the CCI passes a direction to the DG to investigate Flipkart and Amazon for alleged anti-competitive vertical agreements. Delhi VyaparMahasangh v. Flipkart Internet Private Limited and its affiliated entities and Anr., Case no. 40 of 2019.
  14. Confederation of All India Traders v. Competition Commission of India &Anr., Competition Appeal (AT) No. 62 of 2018

 

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