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India – CCI Imposes A Penalty Of INR 1773 Crores On Coal India Limited For Abuse Of Dominant Position.

24 January, 2014

Pursuant to a complaint from two public sector thermal power producing companies, Maharashtra State Power Generation Company Limited and the Gujarat State Electricity Corporation Limited (collectively referred to as the ‘Power Companies’), CCI passed its decision on December 9, 2013, in a case against Coal India Limited (‘CIL’) and its subsidiaries (collectively referred to as ‘CIL & Subsidiaries’), on account of unfair and discriminatory practices in the Fuel Sharing Agreement (‘FSA’). The State Governments of Maharashtra and Gujarat had entered into FSA’s with CIL & Subsidiaries through their designated agencies, since it was not possible for CIL to deal with such a large number of consumers.


The Power Companies alleged that CIL & Subsidiaries had not acted in good faith, and that there were vast differences in the quality of coal supplied to them and that shown in the bills issued by them. Further, it was alleged that CIL & Subsidiaries had contravened various provisions of the Act by imposing one sided and unfair clauses in the FSA. A particular provision, the Deemed Delivery Quantity (‘DDQ’) was shown as an example, whereby coal had to be accepted and paid for by the supplier regardless of the quality of coal supplied. It was alleged that onesided and unfair clauses, like the DDQ, had caused huge losses to the Power Companies.


CCI, on the basis of the above information, directed DG to conduct a detailed investigation. DG observed that CIL & Subsidiaries were statutorily vested with monopolistic power for production and distribution of coal in India and, hence, could be considered to be dominant in the relevant market for ‘production and sale of non-coking coal to the thermal power generators in India’. Further, on an analysis of the terms and conditions of the FSA, DG concluded that CIL & Subsidiaries had violated Sections 4(2)(a)(i) of the Act by imposing unfair and discriminatory conditions on the Power Companies.


Upon consideration of the facts and circumstances of the case, CCI concurred with the delineation of the relevant product market by DG. CCI considered several issues, including the statutory monopoly conferred upon CIL & Subsidiaries in the production and distribution of coal, the exponential rise in their net profits, their operational independence, lack of any countervailing power on the side of the buyers and the inability of imports to compete with indigenous coal, to conclude that CIL & Subsidiaries operate independently of market forces and enjoy undisputed dominance in the relevant market.


Post a perusal of the chronology of events culminating into the impugned FSAs, CCI arrived at the conclusion that the same was drafted by CIL on its own without any meaningful consultations with other stakeholders. CCI opined that under these FSAs, CIL & Subsidiaries sought to impose binding commitments on the Power Companies which were overwhelmingly one-sided and, were an abuse of their dominant position within the meaning of Section 4(1)(a) of the Act. In this context, CCI also assessed specific clauses of the FSAs relating to, inter alia, sampling and testing procedure, transportation and other expenses, review and termination, discrimination between new and existing power producers etc., and found that they were in contravention of the provisions of Section 4(1)(a) of the Act.


In light of the above, CCI ordered CIL & Subsidiaries to cease and desist from indulging in such conduct, which has been found to be in contravention of the provisions of the Act. It also ordered CIL & Subsidiaries to modify the FSAs to exclude such contravening provisions. In view of the facts and circumstances of the case, CCI also imposed a penalty of 3% of average turnover of the last three years, on CIL, which amounts to approximately INR1773.05 crores.

 

AZB

 

For further information, please contact:

 

Zia Mody, AZB & Partners
zia.mody@azbpartners.com

 

Abhijit Joshi, AZB & Partners 
abhijit.joshi@azbpartners.com


Shuva Mandal, AZB & Partners 
shuva.mandal@azbpartners.com

 

Samir Gandhi, AZB & Partners
samir.gandhi@azbpartners.com


Percy Billimoria, AZB & Partners 
percy.billimoria@azbpartners.com

 

Aditya Bhat, AZB & Partners 
aditya.bhat@azbpartners.com

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