ABUSE OF DOMINANCE IN THE INDIAN SCENARIO

Submitted to: Ramakrishna Udayakumara B.N. Asst. Professor of Law

Aditi Jain1
1

aditij09@gnlu.ac.in, 09A006

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Soumya Priyadarshinee2

The shepherd drives the wolf for which sheep thanks the shepherd as his liberator while wolf denounces him for same act as destroyer of liberty. In plain words, the sheep and wolf are not agreed upon the definition of Liberty - ABRAHAM LINCOLN

soumyap09@gnlu.ac.in, 09B125

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ABSTRACT:The enactment of the Competition Act, 2002 made a very significant departure from the earlier position of law which had a blanket prohibition against the existence of any kind of dominance in the relevant market. However, the present Act is the result of a more evolved analysis from the law makers of the nation. Presently, only instances of dominance which have a tendency to distort effective competition in the relevant market come under the sieve. Thus, the following project first elaborates on the genesis of the section of the 2002 Act that deals with abuse of dominance. But before elaborating on what are the circumstance that lead to dominance the authors have also deliberated on the meaning of dominance as decided in Indian and foreign jurisdictions and the definition of a relevant market. Finally, the discussion goes on to the analysis of various recent cases decided in India that have brought about an increased clarity in the law pertaining to abuse of dominance in India.

1. INTRODUCTION
Dominance means acquisition of significant market power, which enables the enterprise to increase the price or limit production independently of competitors as well as customers. Dominant position has to be determined in the relevant market and the factors for such determination are provided in the Act. Dominance is not treated bad per se; it is the abuse of dominant position which is prohibited. 3 The rationale behind this legal position is that fairness and level playing fields in a market for its players is a prerequisite for its sustainability and development. In a situation of perfect competition the welfare of a consumer becomes paramount and his welfare tops the priorities. But actually this doesnt happen. The invisible hands of Adam Smiths theory in imperfect markets do not always favour consumers interests. Thus, we require a external regime to restrain monopolies, price-fixing, and price discrimination and protect trade and commerce. It is important to note that competition is essential because it creates a situation in which the enterprises strive for the patronage of the consumers of their goods and services. It is required because it forces the enterprises to become more efficient and provide better quality and wider range of products and services at the lowest price. It ensures consumer welfare and induces economic growth. The common mans understanding of perfect competition is possible only in market with numerous buyers and sellers. Additionally, there should be a homogenous product with perfect information for all parties, and
3

Prohibition of Abuse of Dominance, Enforcement Activities, Competition Commission of India, available at: http://www.cci.gov.in/index.php?option=com_content&task=view&id=98, as seen on 16th March 2013.

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complete freedom to move in and out of the market. But when a party enjoys a dominant position it tends to operate independently of competitive forces prevailing in the relevant market; or sometimes even affect competitors or consumers or that market in its own favour. So in order to avoid such circumstances, all modern competition laws outlaw anti-competitive and monopolistic behaviour. To begin with the Sherman Act, 1890, which induced the genesis of the modern day Competition Law had clear provisions against monopolisation. Similarly, article 82 of the EU treaty prohibits abuse of dominance. The first anticompetitive regime in India i.e.. Monopolies and Restrictive Trade Practices Act (MRTP Act), 1960 was enacted in order to ensure that the operation of economic system doesnt result in the concentration of economic power to the common detriment and to prohibit such monopolistic and restrictive trade practices prejudicial to public interest. 4 Today, one of most important objective of The Competition Act, 2002 (hereinafter referred as the Act) like other competition regimes in the world is to detect and prevent abusive conducts by dominant enterprises by to prevent practices having adverse effect on competition, to promote and sustain competition in markets, to protect the interests of consumers and to ensure freedom of trade carried on by other participants in markets, in India, and for matters connected therewith or incidental thereto. 5 Additionally, Section 4(1) of the Act prohibits abuse of a dominant position by an enterprise or group. 2. DOMINANCE

In United Brands Co. v. Commission6, the ECJ defined dominance as referred in article 82 as a position of economic strength enjoyed by an undertaking which puts it in a position to hinder effective competition in the relevant market by giving behaving independently of its competitors, customers and ultimately of its consumers. The High Level Committee on Competition Policy and Law7 in para 4.4.5 of its report made a very interesting observation. A firm which has a low market share of just 20 per cent with the remaining 80 per cent diffusedly held by a large number of competitors may be in a position to abuse its dominance. At the same time a firm with say 60 per cent market share with the remaining 40 per cent held by another rival competitor may not be in a position to abuse its dominance because of the key rivalry in the market. Thus, a threshold or an arithmetical figure may not adequately define dominance and may either allow real offenders to escape or result in
4 5

The statement of objects clause of the MRTP Act proclaims to this effect. Preamble, The Competition act, 2002, available at: http://www.cci.gov.in/images/media/competition_act/act2002.pdf as seen on 16th March 2013. 6 (Case 27/76) at para 65. 7 Report of High Level Committee on Competition Policy Law SVS Raghavan Committee; available at: http://lp.ncdownloader.com/eb3/?q=Report%20of%20High%20Level%20Committee%20on%20Competition %20Policy%20Law%20SVS%20Raghavan%20Committee29102007%20pdf

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unnecessary litigation. In a dynamically changing economic environment, a static such a definition of "dominance" will be an "aberration." Thus, the legislators of the 2002 Act have dropped the sole arithmetical criteria which exist under the extant competition law namely the MRTP Act, 1969. The new definition has 2 components, one being the ability to not let effective competition flourish in markets and the other being an ability to behave independently of 3 sets of market players, that is competitors, customers and consumers. Additionally, section 4 (2) of the Competition Act, 2002 lays the instances of abuse of dominance. Accordingly, the section declares that the Competition Commission of India shall regard following activity of enterprise as abuse of dominance when it directly or indirectly, imposes unfair or discriminatory: (i) Condition in purchase or sale of goods or service; or (ii) Price in purchase or sale (including predatory price) of goods or service. However, it is extremely essential to understand what a relevant market is before assessing whether an undertaking is dominant or not. There are to aspect to this understanding: Product market and Geographical market. From the demand side the relevant product market stands for the substitutes that the consumer may resort to in case the price of the relevant product shoots up. On the other hand, from the supply side, this concept deals with all substitutes that the producers with existing facilities may switch for the production of such goods. Similarly, the geographical boundaries of the relevant market can be explained. It involves the demarcation of the geographical area within which competition takes place. It can be local, national, international or occasionally even global, depending upon the facts and circumstance of each case. Factors like consumption and shipment patterns, cost of transportation, longevity of goods and existence of barriers to the shipment of products between adjoining geographic areas are relevant here. For instance, in view of the high transportation costs in cement, the relevant geographical market may be the region close to the manufacturing facility.8A 1997 decision of the European Commission in Case No IV/M.877 - Boeing/McDonnell Douglas9 is relevant in this context. It was a case of merger where Boeing was to acquire its jet aircraft competitor McDonnell Douglas. In pursuance to this objective, Boeing entered into contracts with 3 American airlines so as to make them their exclusive supplier of commercial jet airplanes for a period of 20 years. Ironically, even though, the merger was on the US, the
8

Dr. S Chakravarthy, Dominance And Its Abuse, Available at: http://www.circ.in/pdf/CPS-06-AbuseDominance-Ethiopia-Workshop_May08.pdf 9 Official Journal L 336 , 08/12/1997 P. 0016 0047, available at: Official Journal L 336 , 08/12/1997 P. 0016 - 0047

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European Commission exercised its jurisdiction in the matter as the relevant market consisted of many countries of Europe. It was asserted by the Commission that after the merger, there were only 2 suppliers, namely, the merged entity and Airbus Industries, an European Consortium. Thus, the number of players in the market was reduced from three to two. It was concluded by the Commission that the exclusive contracts will result in emanation of Boeings increased dominance as its share of the commercial jet aircraft market would rise to 70%. It also apprehended that that the contracts would unfairly foreclose the European Consortium from access to a substantial part of the market. Thus, merger was finally allowed to proceed on the condition that Boeing forego the exclusivity of the contracts and share technology of McDonnell Douglas.

2. THE TEST OF ABUSE OF DOMINANCE

In lines with section 4(2) (a) while assessing whether a condition of dominance exists or not one has to focus on the effect it casts on the competition. Only a distortion of competition will result in abuse which will happen only if there is reduction in output because of less numbers of players in market or fluctuation in price. Additionally, Section.4 (2)(b) enlists some other conditions which lead to abuse inter alia being Limitation or restriction in production of goods or provision of services or market therefore; or technical or scientific development relating to goods or services to the prejudice of consumers; or indulges in practice or practices resulting in denial of market access in any manner etc. An interesting similarity in the prohibition of "Anti-competitive Agreements under Section 3 of Act as well as the prevention of abuse of dominant position under section 4 lies in the fact that both seek to maintain/sustain competition in the markets and are to be enforced "ex post". Liability under section 3 arises when an enterprise or association of enterprises enters into an agreement relating to production/ supply of goods or rendering of services that adversely adverse affects competition in India. Whereas, abuse of dominance depends upon the unilateral behaviour of the dominant enterprise or group thereof. Therefore, unlike an anticompetitive agreement where the concurrence of wills of two or more independent entities is a condition precedent abuse of dominance does not emanate from an agreement, which requires the consent of more than one party. Identifying dominance of either an independent enterprise or a group of enterprises may occur in three stages: It begins with the determination of the relevant market which is to be assessed as per the relevant product/geographical market. This is followed by determination of "dominance" in that relevant market and

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Finally conclusion of abuse of the existing dominance is sought. Thus, what follows here is that although existence of mere dominance is not illegal per se, its existence is a pre-requisite under the law. In other words, existence of dominance acts a filter for further investigation. It is indeed very much possible that it is not possible for a non-dominant enterprise to indulge in such conduct or if at all a non-dominant enterprise does it then it will not harm the existing competition in the market. Hence, section 19(4) of the 2002 Act sets out comprehensive criteria which the Competition Commission of India is to go through look at while determining dominance. These criteria inter alia are as follows:(a) Market share of the enterprise; (b) Size and resources of the enterprise; (c) Size and importance of the competitors; (d) Economic power of the enterprise including commercial advantages over competitors etc. In a survey undertaken by the International Competition Network (ICN), it was found out that 28 out of 33 jurisdictions said that their definition of dominance came in the category of combined structural behavioural approach.10 The most important leverage that this approach yield is it carves a picture of dominance with greater clarity by delving beyond market shares. In jurisdiction loaded with statutory presumptions of dominance linked with market share alone and multiple issues and challenges arise. A reasoned and objective recommendation to divide a dominant firm is to be made by CCI under section 28 of the 2002 act. However, mere apprehension without any reasonable ground is invalid and is contrary to article 14 of the Constitution of India, 1950. It may be said that this section applied in case of likelihood that the dominant firm will abuse of dominance at present or in future. However this is to be backed by evidence else such recommendation may be challenged and declared void.

3. CASES IN INDIA 4.1 SURINDER SINGH BARMI v. BOARD FOR CONTROL OF CRICKET IN INDIA (BCCI)
This is one of the most recent cases that has been decided by the Commission in February 2013. The complaint rested on the triple grounds
10

Report on the Objectives of Unilateral Conduct Laws, Assessment of Dominance/ Substantial Market Power, and State Created Monopolies prepared by Unilateral Conduct Working Group and presented at the 6th Annual Conference of the ICN at Moscow in May, 2007.

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of irregularities in the grant of franchise rights for team ownership, in the grant of media rights for coverage of the league and in the award of sponsorship rights and other local contracts related to organization of IPL. The DG in the given case concluded that BCCI was earning huge revenues from the above mentioned activities and was not a non profit organisation in its truest sense. It further observed that the activity of organising IPL rested solely with BCCI as under the authority granted by ICC, and thus in that relevant market of IPL it was in a dominant position as well. The commission stated that the competition is for the benefit of the society, and thus must be respected in that capacity. It stated that BCCI was guilty of abuse of dominance under Section 4(2)(c) of the Competition Act as it failed to distinguish between its roles as the promoter and custodian of the sport and the organiser of the event and it resulted in the concentration of the benefits of competition in a few hands or few franchisees. Thus the dominance and its abuse, both were established and the CCI fined BCCI Rs. 52 Crore for the same.11 Thus, the commission has not hesitated to venture in the field of sports as well in order to emphasize on the basic nature of allowing competition in a market i.e. for the benefit of the consumers and the promotion of free and fair market practises. The commercialization of sport is a necessary evil, but its concentration in the hands of a few rich and powerful is a clear cut example of abuse which the Act seeks to stop.

4.2 BELAIRE OWNERS ASSOCIATION v. DLF LIMITED & ORS

In the given case, the complaint was filed by the informant Belaire Owners Association against the respondents DLF, Haryana Urban Development Authority (HUDA) and Department of Town and Country Planning, Haryana. The informants contended that DLF had abused its dominant position in the given case by making arbitrary and unfair allotments for the apartments The Belaire, wherein they had built 29 storeys instead of the agreed upon 19 storeys, thereby compressing the area and facilities earmarked for the informant. They also delayed the project without any justifiable reason, which led to losses incurred by the informant. The primary contention regarding the applicability of the present statute to the case at hand was judiciously resolved by the CI, stating that the act had retrospective effects and was applicable to all agreements which were in existence at that point of time, irrespective of whether the Act
11

http://taxguru.in/corporate-law/bcci-guilty-abusing-dominant-position-sport-cricket.html

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existed at the time when the agreement was entered into or not. Thus, even though the Act did not exist at the time when the informant and DLF entered into the contract, yet it would be applicable in the present under abuse of dominance as per Section 4. The court also stated that sale of flats amounts to a service as has been numerated in various Supreme Court judgements and thus would fall within the ambit of applicability of Section 4 of the Competition Act. The CCI further held that in the given relevant market regarding the building of high-end residential complexes in the area of Gurgaon, DLF definitely had a dominant position as it had been in the market for many years, had market share of 44% and the new entrants posed minimal threat to its business and existence. The Commission further delved into as to what constitutes abuse of dominance in teh given case, and some shocking facts were revealed which were incorporated in the agreement between the informant and DLF. The agreement contained various clauses which gave rights to DLF to change the layout of the building, change the positions of what recreational and commercial complexes would be in what position without informing the allottees, reimbursement of only the last instalment paid without interest to the allottees, unilateral discretion without informing the allottees about change in the area and forcing them to pay extra or accept the reduced area, right to abandon project without any penalty, and in case the allottee wishes to withdraw then DLF fails to deliver in the agreed time slot then they would be paid only the sum without any interest and when the finished product has been sold by DLF to some other person, and apart from these no exit options also existed. The Commission observed that such abuse was not a one time thing, and the helplessness of the consumer forcing them to accept such terms only aggravates the usage by dominant players like DLF which further and further impose such arbitrary and unjust conditions. Thus, in light of the above stated facts and circumstances, the commission imposed a penalty at the rate of 7% per annum of the average turnover for the preceding three years, thus nearly a total of Rs. 636 Crore on DLF.12 The case was then appealed in Competition Appellate Tribunal wherein it stayed the payment of the magnanimous penalty for the time being. Recently in the beginning of 2013, after consultation with the fair trade regulator, CCI had also modified the buyer-builder agreement deleting nearly 16 clauses from the agreements which were found to be unfair on the lines given above and mandated all information regarding changes to be given to the buyers. DLF has refused to implement these changes presently as the Appellate Tribunal is yet to adjudicate on the same. This is one of the most fundamental case that has been paramount in shaping the structure of the abuse of dominance scenario in the country.
12

http://www.cci.gov.in/May2011/OrderOfCommission/DLFMainOrder110811.pdf

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The judgement comes in the light that being dominant is not what matters, but what is punishable is the abuse of such a power. It is a sheer example of the abuse that was assumed to exist and aimed to be regulated and exterminated from the markets, wherein innocent new entrants and users of the service are forced to cave in to the unnecessary and harsh terms and conditions imposed on them by the dominant position holder to gain more and more. It can be seen as an example of the change on the country to eradicate the economic differences as a result of the greedy nature of dominant players and establish just and fair market conditions.

4.3 MCX-SX v. NSE

In the present case of June 2011, the Competition Commission of India reacted upon a complained made by the MCX Stock Exchange and ordered an investigation into the alleged misuse of dominant position by the National Stock Exchange, the countrys largest stock exchange. The investigation, carried out by a director general of CCI revealed that NSE violated Section 4(2)(a)(ii), and Section 4(2)(e) read with 4(1) of the Competition Act, 2002. The MCX-SX contended that NSE was involved in unfair practices when they waived the transaction fee on currency derivatives and thus abused their dominant position. They further contended that NSE, after waiving its transaction fee on currency derivatives, charges a fee of Rs2/Lakh on the turnover in its derivatives segment. As a consequence of such behaviour, MCX-SX was unable to levy such a fee leading to significant losses and attracting new investors in the market of currency derivatives. NSE, replying to the above allegations before the commission, contended that the objective to eradicate competition is a vital ingredient of predatory pricing, and further said that the fee waiver in the new currency derivative segment is in the nature of introductory pricing and the intent or objective of eliminating competition is not the driving force behind such a practise. The Commission, after a detailed review and scrutiny of the matter at hand, ruled on 26th July 2011 that NSE had abused its dominant position in the given case by lowering its prices to such an extent and imposed a heavy penalty of Rs. 555 Million on NSE.13 In response to the same, NSE had filed an appeal in the Competition Appellate Tribunal against the heavy penalty imposed and the tribunal stayed the imposed penalty in September 2011 on the condition that if NSE lost the case then they would have to pay the penalty with interest rate of 9% per annum. It also upheld the judgement of the CCI to maintain separate records for equity, currency derivatives etc, holding
13

http://www.cci.gov.in/May2011/OrderOfCommission/MCXMainOrder240611.pdf

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that such a judgement was in accordance with the competition law in the country, when NSE had pleaded on the grounds that such an act would entail additional costs and would be time consuming. In a further development in the given case, the Supreme Court recently refused to admit Financial Technologies India Ltd. (FTIL), co-owners of MCX-SX, as a party in the case against NSE. The court ruled in favour of NSE stating that since FTIL was not a party in the initial case thus the same cannot be incorporated as a party in the appellate stage. The judgement of CCI comes into picture in another case involving NSE as well. Filed by UPSE Securities Private Limited, a regional stock exchange, who had acquired the membership of the biggest bourse in the country NSE in 2009 after a payment of Rs. 2.71 Crore, had alleged that NSE adopted unfair and discriminatory deposit structure for RSE and other corporate members with regards to gaining its membership. Upon perusal, CCI refused to register a complaint stating that no prima facie case was made in the present matter as both the scenarios involving RSE and corporate members were not comparable. Both these cases are fundamental in establishing the role and judgement powers of CCI, especially in relation to the applicability of abuse of dominance scenarios in the Indian Stock Exchange markets and clarify the positions immensely as regards to what constitutes dominance in case of such matters. It is indeed commendable that CCI is not driven by the urges to impose penalties on a company because they have been held to have been involved in the abuse of dominance previously as well.

4.4 AJAY DEVGN FILMS v. YASH RAJ FILMS PVT LTD

Another recent case that was filed before CCI was the case of abuse of dominance alleged by Ajay Devgn films who contended that Yash Raj films has used their dominant position in the market to keep their movie Jab Tak Hai Jaan in the theatres in majority so that the appellants movie Son of Sardar could not be showcased n those theatres as both released on the same day. The CCI in the given scenario rejected the plea taken by Ajay Devgn, stating that no competition norms had been violated in this case and in a case when the theatre owners are given a choice to choose between two or more options then such a case does not amount to restraint of trade.14 An appeal was filed in the Competition Appellate Tribunal who ordered an inquiry into the matter but refused to stay the screening of the films in question.
14

http://www.cci.gov.in/May2011/OrderOfCommission/662012.pdf

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4. CONCLUSION The difference between dominance and abuse of dominance has been made as the backbone of the applicability of Section 4 of the Competition Act 2000, which makes only the abuse of the dominant position as a punishable act. This is crucial in the light that competition in the fair and healthy manner has to be appreciated and encouraged and only when such a thing becomes detrimental to the society by way of abuse and misuse, does it needs to be kept in check. Section 4(2) further highlights the various scenarios in which abuse is constituted so that corruption by way of ever changing members of the commission and tribunal is also reduced and only in the given cases would an act constitute abuse of dominance. These factors have been crucial in shaping the backbone of the competition law in the country and the coming up of new and more vibrant cases in the field help in eliminating doubts and filling loopholes in the applicability of the same. It has given a platform for the common man to come and challenge an unfair and unjust act that he is forced to undertake due to lack of options in the market, and thus paves the way for a free and better societal existence on a day to day basis.

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4. REFERENCES
6.1 Websites
1. http://www.cci.gov.in/May2011/OrderOfCommission/662012.pdf 2. http://www.linkedin.com/groups/Entertainment-CCI-rejects-AjayDevgans-1903800.S.182664710 3. http://taxguru.in/corporate-law/bcci-guilty-abusing-dominantposition-sport-cricket.html 4. http://barandbench.com/brief/2/3266/cci-rules-out-abuse-ofdominant-position-by-nse-amarchand-represents-nse 5. http://www.business-standard.com/article/markets/cci-closes-casealleging-nse-of-abusing-its-dominant-position113030400444_1.html 6. http://www.business-standard.com/article/markets/tribunalreserves-order-on-ftil-plea-in-nse-appeal-case112090700069_1.html 7. http://dsklegal.com/pdf/2011/DSK%20Legal%20Knowledge %20Center%20Update%20-DLF.pdf 8. http://www.firstpost.com/business/dlf-in-no-rush-to-implement-cciorder-on-builder-buyer-pact-578166.html

6.2 Reports
1. Report of High Level Committee on Competition Policy Law SVS Raghavan Committee; available at: http://lp.ncdownloader.com/eb3/?q=Report%20of%20High%20Level %20Committee%20on%20Competition%20Policy%20Law%20SVS %20Raghavan%20Committee29102007%20pdf 2. Official Journal L 336 , 08/12/1997 P. 0016 0047, available at: Official Journal L 336 , 08/12/1997 P. 0016 0047 3. Dr. S Chakravarthy, Dominance And Its Abuse, http://www.circ.in/pdf/CPS-06-Abuse-Dominance-EthiopiaWorkshop_May08.pdf Available at:

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