Jurisdiction - India
News
India – CCI Fines Coal India To Once Again Have Abused Its Dominant Position.

28 December, 2014

 

 

On October 27, 2014, CCI issued a cease and desist order against Coal India Limited (‘CIL’) and
its subsidiaries including Western Coalfields Limited (‘WCL’). CCI passed 2 separate orders dealing with the same issue in the cases of Bijay Poddar v. Coal India Limited and Sai Wardha Power Company Ltd v. CIL & Western Coalfields Ltd. CCI had initiated an investigation against CIL following a complaint that CIL was abusing its dominant position by imposing unfair and/or discriminatory provisions in the sale of non-coking coal under spot e-auction.

 

It was alleged in both cases that the spot e-auction scheme, announced by CIL in 2007, required
the bidders to a non-interest bearing Earnest Money Deposit at the rate of Rs.200/- per tonne, which was forfeited on a proportionate basis if the buyer failed to lift the booked quantity.

 

The requirement was alleged as discriminatory as CIL and its subsidiaries were not required to
pay any penalty if they failed to supply coal.

 

Following its investigation, DG found that (i) the relevant market was the market for the sale
of non-coking coal to the bidders under the spot e-auction Scheme in India, (ii) CIL and its subsidiaries were dominant in the relevant market and (iii) by imposing unfair and /or discriminatory provisions in the sale of non-coking coal under spot e-auction CIL and its subsidiaries had abused their position of dominance in contravention of Section 4(2)(a)(i) of the Competition Act. 

 

CCI agreed with the findings of DG on the relevant market under consideration. CCI found

that in light of the provisions of the Coal Mines (Nationalization) Act, 1973, production and dis-tribution of coal is in the hands of the Central Government. Accordingly, CIL and its subsidiary
companies have been vested with monopolistic power for production and distribution of coal in
India. The dominant position of CIL is acquired as a result of the policy of Government of India
by creating a public sector undertaking in the name of CIL and vesting the ownership of the private
mines in it. CCI concluded that CIL and its subsidiaries face no competitive pressure in the
market and there is no challenge at the horizontal level against the market power of the opposite
parties, and accordingly it is dominant in the market for the sale of non-coking coal to the bidders
under the spot e-auction scheme in India.

 

CCI observed that under the scheme of the e-auction, the buyer was saddled with a huge
penalty if they failed to lift the specified amount of coal after participating in the auction. However,
there was no corresponding penalty if, despite acceptance of the bid, CIL or its subsidiaries
failed to deliver the coal to the buyer. CCI also observed that CIL and its subsidiaries, while formulating the terms and conditions of spot e- auction scheme, have disturbed the normal contractual equilibrium in as much as uneven obligations are created thereunder. Such a stipulation in the scheme, CCI concluded, was evidently a result of market power exercised by CIL and its subsidiaries and fell foul of the provisions of section 4(2)(a)(i) of the Competition Act being ex facie unfair.

 

Accordingly, CCI issued a cease and desist order against CIL and its subsidiaries. However,
no penalty was imposed on CIL since a penalty of INR 17.73 billion had already been imposed on
CIL by way of a previous order. 

 

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

Comments are closed.