CCI introduces Leniency “Plus” regime in India- Will it suffice?
Competitive neutrality is the bedrock of modern competition law and the Indian Fair market regulator, the Competition Commission of India (“Commission/CCI”) has been following this principle in most cases and has penalized the errant public sector undertaking (PSU) in the past.
Following the said trend, vide its order dated 18.10.2022 the Commission has ordered an investigation against a public sector undertaking, the Indian Rare Earth Limited , IREL (India) Ltd. a “Mini Ratna” Category-I Central Public Sector Undertaking, (“IREL/OP”) for alleged abuse of dominant position by its conduct of unfair/discriminatory conditions as well as pricing and denial of market access in the market of mining and supply of beach sand ilmenite in India and in alleged violation of various provisions of Section 4 of the Competition Act, 2002 (“the Act”)
The information in the case was filed by Beach Mineral Producers Association (“Informant/BMPA”) which had stated that by virtue of Section 4(b) of the Offshore Area Mineral (Development and Regulation) Act, 2002 read with read with Part B of the first Schedule to the Mines and Minerals (Development and Regulation) Act, 1957 and Central Government Notification No. S. O. 2356(E) dated 11.07.2016 , ilmenite and other beach sand minerals have been included in the category of atomic minerals.
On the issue of the relevant market the informant submitted that beach sand minerals such as ilmenite have specific use and have no economical, cost effective, qualitative and locally available substitute and hence beach sand ilmenite is a separate relevant product and accordingly had suggested the relevant market as the market of mining and supply of beach sand ilmenite in India.
It was further stated that by virtue of the amendment in Schedule A of Atomic Minerals Concession Rules, 2016 vide Central Government Notification G.S.R. 134 (E) dated 20.02.2019, private companies cannot mine ilmenite. Further Central Government Notification No. S. O. 2685(E) dated 27.07.2019 had also prohibited the grant of operating rights in respect of atomic minerals in any offshore are in the country to any person except the government or government company.
Based on the above the amendments the informant had submitted that IREL is the sole entity entitled to undertake mining of beach sand ilmenite in India and hence enjoy immense market power and is dominant in the in the market of mining and supply of beach sand ilmenite in India.
Allegation
- It was alleged that IREL had been imposing unfair and discriminatory conditions in violation of Section 4(2)(a)(i), in the sale of ilmenite by often not responding to the Expression of Interest issued by domestic consumer and responds with a standard quantity sale contract which contain predetermined quantity (often lower than demanded) and the domestic consumer have no option but to accept.
- It was further alleged that IREL supplies adequate quantities the foreign companies/MNC’s which results into inadequate supply to the domestic consumers.
- Informant had also alleged that acts/policy of the IREL restricts /limit the supply of ilmenite violating 4(2)(b)(i).
- Further the discriminatory and arbitrary policy/act of the OP results in the denial of market access violating provisions of Section 4(2)(c) of the Act.
- It was also alleged that IREL charges discriminatory and differential price to its domestic and foreign consumers. That IREL exports ilmenite to its foreign consumers but does not supply to its domestic consumers at the price at which it supplies to its foreign consumer. Such discriminatory practice adopted by the OP causes distortion of competition in the downstream market, since foreign companies/multinational consumers and domestic consumers, which are MSMEs, are direct competitors and violated Section 4(2)(a)(ii) of the Act.
- Lastly it was alleged that IREL had made an arbitrary and exorbitant increase in the price of beach sand ilmenite with the intention of exploiting and abusing its dominant position and such exploitative, excessive price is in violation of the provisions of Section 4(2)(a)(ii) of the Act.
Commission’s Observations
The Commission relying on its previous order dated 03.01.2022 in Case No. 22 of 2021[1] at the outset reiterated that IREL performs commercial activities and fulfils the requirement of section 2(h) of the Act and qualifies to be an enterprise in terms of the Act.
Further on the issue of relevant market the Commission again relied on its previous order in Case No. 22 of 2021 wherein the Commission had delineated the relevant market as market for mining and supply of beach sand sillimanite in India. However the product in the present case is ilmenite which is unique physical, chemical properties, uses and its own demand and supply dynamics and hence is a separate relevant market. Accordingly the Commission had delineated the relevant market as the market of mining and supply of beach sand ilmenite in India.
Further on the issue of dominance the Commission noted that the policy change by the Central Government has made IREL the sole producer/miner of ilmenite and it is a monopoly. Hence on the basis of the above the Commission had concluded that IREL is dominant in the relevant market of ‘mining and supply of beach sand ilmenite in India’ and has the ability to operate independently of market forces.
Based on the allegations above enumerated the Commission noted that informant is aggrieved of the following three conducts:
- Inadequate supply or refusal to supply or restricted supply of beach sand ilmenite;
- Discriminatory pricing among domestic and foreign consumers; and
- Unfair/excessive prices of ilmenite.
Further on the on the above alleged abusive conducts the Commission noted the following:
- From the documents on records it reveals that IREL refused to supply material from its MK unit to VV Minerals, but it supplied the same from MK unit to DCW Limited by bearing transporting costs, whereas other customers were supplied at ex-factory/base price, and the transportation cost was to be borne by the end-user.
- Further on the allegation that the cost of production of beach sand ilmenite has more or less remained constant for last 3–4 years, but the price charged by IREL for ilmenite has increased exponentially, the Commission noted that the sale of ilmenite contributes significantly to the turnover of OP, and during the years 2017–18 to 2018–19, the profit before tax of the IREL has increased from Rs. 12,385 lakhs to Rs. 20,062 lakhs and the revenue of the OP also increased from Rs 61,549 lakhs to Rs 81,663 lakhs for the respective period.
- Local consumers are apparently forced to accept the extraneous conditions mentioned in the Standard Quantity Sales Contract.
Based on the above observation the Commission concluded that conduct of IREL seems to have resulted in unfair/discriminatory conditions as well as pricing for domestic consumers and are prima facie in violation of the provisions of Section 4(2)(a)(i) and 4(2)(a)(ii) of the Act. Further, the conduct also appears to be prima facie in contravention of the provisions of Section 4(2)(c) of the Act due to denial of input to the Informant’s members.
Accordingly the Commission was of the view there appears to be substance in the allegations levelled by the Informant and the same merit detailed investigation by the Director General (DG). The Commission accordingly directed an investigation against IREL for the alleged abuse of its dominant position on abovementioned conducts under section 26(1) of the Act.
COMMENTS: Though apparently the mineral ilmenite is included in the category of an “atomic material” and creates an impression as if it can only be used for “atomic energy” ( one of the sovereign functions exempted from the definition of enterprise ) but in reality it’s use is outside the sphere of atomic energy and mostly in paints, cosmetics and pharmaceutical products . IREL by virtue of being the sole company authorised to mine this mineral and hence a monopoly, is supposed to follow competition principles while selling and distributing it to private players in open market. The conduct of IREL of refusing to deal and discriminating in pricing and imposing unfair conditions with the members of Informant association prima facie is a case of abuse of monopoly power and calls for investigation. Noticeably, this is the second investigation ordered against IREL.
#IREL
#ilemnite #Abuseofdominace #Competitionlaw #Antitrust
[1] This was the earlier case of abuse of dominance against IREL in which CCI directed investigation for similar abusive conducts in respect of another mineral Sillimanite.
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