The CCI Penalizes Hyundai Motors on the Basis of Relevant Turnover for having indulged in Resale Price Maintenance

On 15th June, 2017, the Competition Commission of India (“CCI”) found Hyundai Motors Industries Limited (India) (“HMIL”) to be guilty of indulging in Resale Price Maintenance (RPM) having an appreciable adverse effect on market competition. The Final Order passed under Section 27 of the Competition Act, 2002 (the “Act”) is of significance by virtue of being the first order passed in the wake of the recent decision of the Supreme Court (“SC”) in which CCI’s penalizing power was considerably curtailed. The SC’s judgment in the case of Excel Corp. Care vs. The Competition Commission of India, by relying on the principles of equity and proportionality and on foreign competition jurisprudence vis-a-vis affected commerce, validated the concept of “relevant turnover” as introduced by the Competition Appellate Tribunal (“COMPAT”).

Background

Section 27(b) of the Act authorizes the CCI to impose penalty in case of contravention of Sections 3 and 4. A conflict arose when the CCI decided to interpret this provision to imply a penalty on the total turnover of the contravening person or enterprise. On the other hand, on appeals before the COMPAT, the Hon’ble COMPAT would significantly reduce the quantum of penalty imposed by the CCI on the basis of relevant or affected turnover. Such a determination of penalty was also in sync with foreign competition law jurisprudence of affected commerce. One such decision of the COMPAT, in the above mentioned Excel Corp. Case, was challenged by the CCI before the Hon’ble SC. The CCI contended that COMPAT was overreaching its powers by inserting the term “relevant” in the statutory provision by way of interpretation. On the other hand, COMPAT countered this by contending that it was the CCI which was inserting the term “total” turnover in the relevant statutory provision.

Summary of the SC’s Decision

Without laying down any defined guidelines for computing penalties, the SC prescribed that a two-step test shall be conducted in order to ascertain percentage of penalty to be appropriated.

The SC upheld COMPAT’s decision by relying on the judgment of the Appellate Court of South Africa in the case of Southern Pipeline Contractors Contrite Walls (Pty.) Ltd. vs. The Competition Commission. The SC agreed that the penalty imposed should be in direct proportion to the damage caused to competition or to the profits earned by the cartel. It also mandated that the penal provisions of the Act were to be given a strict interpretation and, hence, in case of ambiguity, the balance of probability shall lie in favour of the infringer. Thus, the quantum of penalty test has been stipulated as follows-

  1. Ascertainment of Relevant Turnover: While clarifying that this definition of relevant turnover is not exhaustive, the SC has defined it to refer only to that portion of turnover of the contravening party which pertains to the product or services affected by the said contravention.
  2. Ascertainment of Appropriate Percentage of Penalty: Keeping in view the aggravating and mitigating circumstances that may affect the quantum of penalty to be imposed, the SC has given an illustrative list of factors, including but not limited to the nature, gravity and extent of the contravention, role played by the infringer (ringleader or the follower), the duration of participation, the intensity of participation, loss or damage suffered as a result of such contravention, market circumstances, nature of involvement and profit derived from such contravention.

CCI’s Decision in the Present Case

Having due regard to SC’s decision as analysed above, the CCI, while rejecting allegations of tying-in arrangement and exclusivity clause, held Hyundai to have been acting in contravention of Section 3(4)(e) read with Section 3(1) of the Act.

It stated that RPM as “a practice by multiple manufacturers is conducive for effective monitoring of cartel. Higher prices under RPM can exist, even when a single manufacturer imposes minimum RPM. This is more likely in case of multi-brand dealers who have significant bargaining power because of their ability to substitute one brand with another. Further, this leads to another likely anti-competitive effect of higher prices across all brands even if there is no upstream or downstream conspiracy, because preventing price competition on a popular brand would result in higher prices of competing brands as well, including those that have not adopted RPM. Thus, minimum retail price RPM has the effect of reducing inter-brand price competition in addition to reducing intra-brand competition.” 

Hence, the CCI opined that “that the OP has sought to impose an arrangement that results in RPM, which includes monitoring of the maximum permissible discount level through a “Discount Control Mechanism” and a penalty punishment mechanism upon non-compliance of the discount scheme. The level of discount was determined by the OP for each model and variant of the passenger cars and the OP had also appointed a Mystery Shopping Agency to collect data from dealers for such monitoring and reporting to the OP. Based on the above, the Commission is of the opinion that the OP has contravened the provisions of Section 3(4)(e), read with Section 3(1) of the Act.”

While determining the amount of penalty to be imposed, the CCI analysed the SC’s judgment in detail. By applying the two-pronged test explained above, it noted that “the infringing anti-competitive conduct of HMIL in the instant case included putting in place arrangements, which resulted into Resale Price Maintenance by way of monitoring of maximum permissible discount level through a Discount Control Mechanism and a penalty mechanism for non-compliance of the discount scheme. Such conduct pertains to and emanates out of sale of motor vehicles. Hence, for the purposes of determining the relevant turnover for this infringement, revenue from sale of motor vehicles alone has to be taken into account.”

In order to calculate the appropriate percentage of penalty to be imposed, the CCI further noted that “the twin objectives behind imposition of penalties are: (a) to reflect the seriousness of the infringement; and (b) to ensure that the threat of penalties will deter the infringing undertakings. Therefore, the quantum of penalties imposed must correspond with the gravity of the offence and the same must be determined after having due regard to the mitigating and aggravating circumstances of the case. The Commission is also guided by the judgment of the Hon’ble Supreme Court of India in Excel Crop case (supra) which enunciates the principle of proportionality. Proportionality achieves balancing between two competing interests: harm caused to the society by the infringer which gives justification for penalising the infringer on the one hand and the right of the infringer in not suffering the punishment which may be disproportionate to the seriousness of the Act on the other.”

Further, the CCI took cognizance of the fact that HMIL had also been penalized previously in the famous Automobiles Case, i.e., Shamsher Kataria vs. Honda Siel Ltd. & Ors.,. The rate of penalty to be imposed was adjudged to be 0.3% of the average relevant turnover of the last three years and the total amount was worked out and rounded off to the tune of Rs. 87 crores.

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No one can compel a woman to love – Supreme Court of India

On 28 April, 2017, the Supreme Court of India dropped the mic, in a stellar performance, on all debates pertaining to the friendzone, road-side romeos and eve-teasing.  Guys, you can curl up in a corner and cry all you want over unrequited love, but the Big Bad Boss of Courts, deeply pained by the plight of young woman forced to end her life at the behest of her ex, has declared that the right to live with dignity is a woman’s fundamental right. She has the same right to her own space as a man does. Moreover, she has the right to choose who to love. It speaks much about the deplorable depravity of the men of our society that this needed to be recognized and laid down by a court of law.

The Judgment in itself is a departure from routine. Instead of beginning with a dour relaying of facts, viz.,what the applicant has pleaded for and the opposition raised by the respondent, the Judgment, very sensitively, provides the background leading up to a young woman’s death showcasing why it is wrong at so many levels and, hence, is a major cause of concern. This sensitive handling has been shown all throughout the ruling, yet, I believe the beginning deserves a special mention and, thus, has been reproduced as follows:

“The present appeal, by special leave, depicts the sorrowful story of a young girl, in the middle of her teens, falling in love with the accused-appellant and driven by the highest degree of youthful fixation, elopes with him, definitely in complete trust, and after the accused is booked for the offences punishable under Sections 363, 366 and 376 of the Indian Penal Code (IPC), she stands behind him like a colossus determined to support which consequently leads to his acquittal. In all possibility, she might have realized that the accused should not be punished, for she was also equally at fault. Be that as it may, as per the prosecution version, he was extended the benefit of acquittal.
The sad story gets into a new and different beginning. The accused feels that he has been prosecuted due to the prosecutrix and gets obsessed with idea of threatening the girl and that continues and eventually eve-teasing becomes a matter of routine. Here, as the exposition of the prosecution uncurtains, a situation is created by the accused which becomes insufferable, where the young girl feels unassured and realizes that she could no more live in peace. The feeling gets embedded and the helpless situation compels her to think that the life is not worth living. Resultantly, she pours kerosene on her body and puts herself ablaze but death does not visit instantly and that is how she was taken to a nearby hospital, where in due course of investigation, her dying declaration is recorded, but she ultimately succumbs to her injuries and the “prana” leaves the body and she becomes a “body” – a dead one.”

For all men out there who think their gender bestows upon them the birthright of not taking no for an answer and merely relegating it to the friendzone, I would like to draw your attention to the following lines of the Judgment:

“One is compelled to think and constrained to deliberate why the women in this country cannot be allowed to live in peace and lead a life that is empowered with a dignity and freedom. It has to be kept in mind that she has a right to life and entitled to love according to her choice. She has an individual choice which has been legally recognized. It has to be socially respected. No one can compel a woman to love. She has the absolute right to reject.”

Allow me to reiterate, NO ONE CAN COMPEL A WOMEN TO LOVE. SHE HAS THE RIGHT TO REJECT. No one.
For all the men who think their gender gives them the god given right to wolf-whistle, leer and comment on every female on the road, it would be my immense honour to present the following lines of the Judgment to you:

“We are at pains to state that in a civilized society eve-teasing is causing harassment to women in educational institutions, public places, parks, railways stations and other public places which only go to show that requisite sense of respect for women has not been socially cultivated. A woman has her own space as a man has. She enjoys as much equality under Article 14 of the Constitution as a man does. The right to live with dignity as guaranteed under Article 21 of the Constitution cannot be violated by indulging in obnoxious act of eve-teasing. It affects the fundamental concept of gender sensitivity and justice and the rights of a woman under Article 14 of the Constitution. That apart it creates an incurable dent in the right of a woman which she has under Article 15 of the Constitution.”

On a concluding note, the Supreme Court stated that in a civilized society, there is no room for male chauvinism. Furthermore, a man should not put his own ego or, for that matter, masculinity on a pedestal and abandon the concept of civility.
All noble sentiments which, if understood by the men of our nation, would render the establishment of things akin to the Anti-Romeo Squad in Uttar Pradesh quite redundant.
The only problem is that this judgment comes a little too late to sound the voice of reason to ears that have already been deafened by virtue of being raised in this society. I just hope not many more ladies have to die before we begin to raise our men right.

(This post was originally published on the author’s personal blog.)

A Lowdown on the Great Indian Telecommunications War

Last year in October, Reliance Industries Limited owned “Jio Infocomm” took the Indian Telecommunications market by storm. In an era where call rates were peaking and mobile data burned big, round holes in your pocket, Jio launched itself with a uniquely crafted welcome offer and most Indians jumped ship without a second thought. Much to the chagrin of the existing mobile and wireless telecommunications service providers,  Jio decided to offer its data, voice, video services and full bouquet of applications and content absolutely free from October till the end of the year. However, the Telecom Regulatory Authority of India (TRAI) snipped the period down till 3rd December, 2016. Regardless of such regulatory curtailment, Jio continued this offer till 31st December, 2016 and followed it up with a “Happy New Year” Offer which, in essence, extended the contents of the previous offer till 31st March, 2017, i.e., it gave all its users unlimited data, voice calls and messages until 31st March, 2017. It also provided an iPhone exclusive, ‘Jio iPhone offer’, offering unlimited local, STD, and national roaming on voice calls on any network in India, 20 GB of 4G data per month, unlimited 4G data during night, 40 GB Wi-Fi data and unlimited Short Message Service (SMS) from 1st January, 2017 to 31st December, 2017.

As a result of Jio’s antics, like a ripple effect, all other service providers also had to lower their rates and introduce special tariffs to retain its customer base.

Alleging the conduct of Jio to be anti-competitive by virtue of being an abuse of dominant position and being enabled by an anti-competitive agreement between it and its parent company, Reliance, which could afford to fund Jio unlimitedly, Bharti Airtel Limited (Airtel) approached the Competition Commission of India.

In its information filed before the Hon’ble Commission, Airtel alleged that Jio is indulging in zero pricing and predatory pricing. Furthermore, Jio and Reliance together were using the latter’s financial strength gained from other markets to enter into the telecom market.

Briefly stated, Airtel alleged contravention of Section 4 (2) (a) (ii) of the Competition Act, 2002, which states that any direct/indirect imposition of unfair/discriminatory price in the purchase or sale, including predatory price, of goods or service amounts to an abuse of dominant position. Additionally, it was alleged that Section 4(2)(e) of the said Act, which renders the use of dominant position in one relevant market to enter into or protect another relevant market to be an abuse of dominant position was also being contravened by Jio and Reliance. Furthermore, Airtel has also alleged a contravention of Section 3 of the Act stating that the provision of unfettered access to its resources by Reliance to Jio was resulting in an appreciable adverse effect on competition in the relevant market and was, hence, an anti-competitive agreement as per the provisions of the Act.

The Hon’ble Commission held a preliminary conference, on 23rd February, 2017, to hear both sides. Subsequently, on 9th June, 2017, the Hon’ble Competition Commission decided, on a prima facie analysis (as envisaged under Section 26 of the Act), that Jio did not occupy a dominant position in the relevant market, as delineated by the Hon’ble Commission. It further clarified that the provision of free services in itself was not anti-competitive unless offered by a dominant enterprise, backed by an objective of foreclosing competition. The reasoning of the Hon’ble Commission has been analysed as follows.

Since no competition analysis vis-a-vis dominant position is possible without first determining a relevant product market and a relevant geographic market, collectively ‘relevant market’, the Hon’ble Commission commenced its analysis by defining the relevant market to be the ‘provision of wireless telecommunication services to end users in each of the 22 circles in India’. 

It rejected Airtel’s narrow product market definition by recognizing that the distinction between data services and voice services was not pertinent to the present case as such services are provided in a bundled package by all service providers. The Hon’ble Commission also relied on the fact that the Department of Telecommunications (DoT) grants a Unified Access Licence to all telecommunications service providers without any distinction.

With regard to the relevant geographic market, the Hon’ble Commission noted that the territory of India has been divided into 22 circles for which the spectrum to service providers for offering their services is allocated by way of separate auctions. Moreover, the determination of tariffs by service providers was also seen to differ from circle to circle. Additionally, from the demand side of view, it was considered very unlikely that a resident of one locality will avail services from an other territory rather than looking at the options available to it locally.

In assessing the market position of Jio as compared to other service providers, the Hon’ble Commission relied on TRAI’s press release dated 17th February, 2017. It was found that Airtel itself had the largest market share (wireless subscriber base) of 23.5%, followed by Vodafone at 18.1%, Idea at 16.9%, BSNL at 8.6%, Aircel at 8%, RCOM at 7.6%, Jio Infocomm at 6.4%, Telenor at 4.83%, Tata at 4.7%, Sistema at 0.52%, MTNL at 0.32% and Quadrant at 0.27%. The Hon’ble Commission concluded that the existence of several market players provides consumers with free choice and they can shift from one service provider to another with ease. Furthermore, the market share of Jio was not found to exceed 7% in any of the 22 defined circles. Hence, it was not found to be a dominant enterprise, consequently, it was held that no case of abuse of dominant position could be made out against it.

Airtel’s contention of Jio enjoying a dominant position by virtue of holding the premier spectrum bands most compatible for offering 4G services and having access to RCOM’s band by way of a spectrum sharing arrangement was negated by the fact that as per extant regulatory requirements, DoT provides a cap on the overall and band wise spectrum holdings of all service providers. This regulation in itself had the objective of making the market less prone to anti-competitive conduct and ensured that spectrum did not get concentrated in a few hands.

Furthermore, since Airtel could not show any reduction in competition or elimination of competitors as a result of the free services provided by Jio, its allegation of below-cost pricing was also rejected. The Hon’ble Commission stated that, “the relevant market is characterised by the presence of entrenched players with sustained business presence and financial strength. In a competitive market scenario, where there are already big players operating in the market, it would not be anti-competitive for an entrant to incentivise customers towards its own services by giving attractive offers and schemes. Such short-term business strategy of an entrant to penetrate the market and establish its identity cannot be considered to be anti-competitive in nature and as such cannot be a subject matter of investigation under the Act.”

The Hon’ble Commission also noted that no anti-competitive agreement between and Jio and Reliance could be discerned from the facts and circumstances of the case. It stated that investments did not amount to unilateral conduct or leveraging of dominant position since Reliance itself was not a provider of telecommunication services or services ancillary to it. The Hon’ble Commission clarified that construction of such investments as anti-competitive would prevent market growth and deter new players from entering the market.

Thus, the Hon’ble Commission found no contravention of the Competition Act, 2002 and dismissed the matter under Section 26(2) of the Act by passing an order to such effect.

It is most pertinent to note that just a few days ago, on 28th May, 2017, acting on a complaint made by Jio, TRAI had blocked Airtel’s discriminatory and misleading offers to customers under the same plan. Further, Airtel was warned to register new tariff offers with TRAI within 7 days of launching. (Source)

Thus, two sectoral watchdogs have already meted out their decisions. Watch out this space for more as this war intensifies.

(this post was first published on the author’s personal blog)

 

Law and Little Things

The oft quoted ‘Rule Of Law’ doctrine checks arbitrary, excessive power by subordinating it to the laws of the land. Hence, this site talks about all things law, primarily, and a dash of every other little thing as well. (It was self explanatory, I know, but we did need a description!)