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India – Competition & Merger Cases.

4 August, 2014

 


CCI Imposes Penalty On Adani Gas Limited For Section 4 Contravention

 
On July 3, 2014, CCI imposed a penalty of INR 256.7m on Adani Gas Limited (‘AGL’), equivalent to 4% of its average turnover over the previous three years. The penalty was imposed for abuse of dominant position by AGL through the imposition of unconscionable terms and conditions in the Gas Sales Agreement (‘GSA’) with the Faridabad Industries Association (‘Informant’) and its members.

 
CCI, defining the relevant market as “the market of supply and distribution of natural gas to industrial consumers”, rejected AGL’s contention that, from an end-use perspective, natural gas was substitutable with alternate fuels. It was submitted by AGL that natural gas formed merely 5-6% of the fuel consumption by industrial consumers in Faridabad. AGL also argued that increase in the prices of natural gas have been demonstrated to cause a shift to other fuels by industrial consumers. CCI, observing the different logistical requirements for the supply and storage of natural gas, and other associated properties such as lower levels of emissions, held the supply of natural gas to industrial customers to be a distinct and separate product market. Since AGL was the only entity authorized by the Government of Haryana to operate and build compressed gas distribution networks in the Faridabad district, and considering the infrastructure exclusivity granted to it under the Petroleum and Natural Gas Regulatory Board Act, 2006 and the regulations notified thereunder, the relevant market was restricted to Faridabad, and AGL was found to be dominant in the relevant market.

 
While most of the clauses of the GSA were held to be a reflection of the arrangements between AGL and the upstream manufacturer, viz. Gas Authority of India Limited (‘GAIL’), and not in contravention of the Act, CCI objected to three clauses in particular.

 
The first related to interest and penalties for belated payments by the buyers, and allowed buyers to resort to arbitration only subsequent to the settlement of all pending amounts, including the aforementioned interest and penalties. AGL, however, bore no obligation to pay interest upon excess amounts collected under the clause.

 
The second clause that CCI took exception to gave AGL the discretion to determine a buyer’s request to treat an event as force majeure. Lastly, CCI objected to the GSA affording buyers a period of 45 days to satisfy the minimum off-take requirements under the GSA, in spite of AGL itself being given a much longer period to complete its off-take obligations vis-à-vis GAIL. Accordingly, these clauses were considered one-sided and held to be unfair in contravention of Section 4(2)(a)(i).

 
Apart from imposing penalty, and directing AGL to cease and desist from such anti-competitive conduct, CCI also directed the modification of the terms of the GSA.

 
Madras High Court Dismisses Writ Petition Filed By Automobile Manufacturers

 
On June 30, 2014, the Madras High Court (‘Madras HC’) dismissed the writ petition filed by Nissan and Hyundai (collectively the ‘Petitioners’), against the investigation pending before CCI in relation to the automobile manufacturers and the supply of spare parts.

 
The petition inter alia raised several objections in relation to the proceedings before CCI. These included violation of the principles of natural justice, unjustified expansion of the scope of the investigation undertaken by the Director General (‘DG’), the number of extensions granted to the DG towards filing the final report, and other objections on the merits of the case, such as Nissan’s relatively new entrant in the market during the period of contravention, and the negligible market share enjoyed by it.

 
Madras HC observed that a writ petition under Article 226 of the Constitution of India could be maintained in one of three cases: (a) a violation of fundamental rights; (b) a violation of principles of natural justice; and (c) where proceedings are ultra vires the provisions of the statute. Madras HC held that neither the fundamental rights of the Petitioners, nor the principles of natural justice had been violated in the present case, as sufficient opportunity for personal hearings were granted by CCI to the Petitioners. Madras HC also noted that every aspect of the proceeding before CCI were in accordance with the provisions of the Act, and was therefore not ultra vires. Madras HC accordingly concluded that the parties had not exhausted statutorily available remedies under the Act before invoking the writ jurisdiction of the Madras HC under Article 226 of the Constitution of India.

 
In view of the same, Madras HC passed an order, ruling that the parties may approach the Competition Appellate Tribunal (‘COMPAT’) within a period of six weeks from the date of receipt of the order. In the interim, the parties are to maintain status quo.

 
CCI Passes Prima Facie Order Against DLF

 
In the immediate aftermath of the order of COMPAT upholding CCI’s findings that DLF Limited (‘DLF’) had abused its dominant position in the relevant market for high-end residential accommodation in Gurgaon, and the consequent imposition of penalty upon DLF, CCI in its order dated June 23, 2014, has passed another order under Section 26(1) of the Act, finding another prima facie contravention by DLF.

 
The information has been filed by Mr. Shyam Vir Singh in relation to the Commercial Office Space Buyers Agreements entered into between DLF and the buyers of commercial office space in the DLF Corporate Green Projects. In this regard, CCI begins by suggesting that the relevant market may be defined as the market for the services of development and sale of commercial space in Gurgaon. CCI, after taking into account the large proportion of DLF’s total commercial space that was attributable to Gurgaon, and the existent commercial projects of DLF in Gurgaon, concluded that DLF was prima facie in a position of dominance in the relevant market.

 
Noting that there were certain allegedly unilateral, one-sided and unfair conditions in theCommercial Office Space Buyers Agreement, CCI has found a prima facie case of contravention of the provisions of Section 4(2)(a)(i) of the Act, and accordingly referred the matter to DG for investigation.


CCI Approves COFCO’s Acquisition Of Stake In Noble Agri Limited

 
On June 19, 2014, CCI approved the proposed acquisition by COFCO Hong Kong (‘COFCO (HK)’) of 51% of the equity share capital of Noble Agri Limited (‘NAL’), pursuant to a share sale agreement entered into between COFCO (HK), Noble Group Limited and Noble Agri International Limited.

 
Both COFCO (HK) and Noble Agri Limited are involved in the agricultural trading business. CCI observed that COFCO (HK)’s activities in India were limited to trading of non-agricultural commodities. In the absence of any horizontal overlaps in India, CCI was of the opinion that the proposed combination was unlikely to give rise to any appreciable adverse effect on competition (‘Adverse Effect’) in India.

 
CCI Clears Way For Joint Venture Between Tata Consultancy Services Asia Pacific And Mitsubishi Corporation

 
On June 26, 2014, CCI approved the formation of a proposed joint venture between Tata Consultancy Services Asia Pacific (‘TCS-APAC’) and Mitsubishi Corporation (‘MC’). The transaction was structured in four steps, which ultimately resulted in IT Frontier Corporation (‘ITF’) (presently a wholly owned subsidiary of MC) becoming a 51:49 joint venture between TCS-APAC and MC. By way of the transaction, Nippon Tata Consultancy Service Center (‘NTCSC’), which is the current 60:40 joint venture between Tata Consultancy Services Japan (‘TCSJ’) and MC, will be converted into a wholly owned subsidiary of TCSJ, and then merged into TCSJ. TCSJ will subsequently be merged into ITF, and TCS-APAC will thereafter acquire shares in ITF, which will be the surviving entity.

 
Though all parties to the transaction engage in IT and IT enabled services, given that none of the parties to the combination have any presence in India, CCI was of the opinion that the combination was not likely to give rise to any Adverse Effect in India.

 
CCI Approves UD Industrial Pte. Limited’s Acquisition

 
On June 25, 2014, CCI granted its approval to the acquisition by UD Industrial Pte. Limited (‘UDIndustrial’) of shares in Uttam Galva Metallics Limited (‘UGML’) by way of a share purchase agreement (‘SPA’) executed between UD Industrial, Liberty Steel Holdings Pte. Ltd. (‘Liberty Singapore’), Liberty Fe Trade DMCC (‘Liberty Dubai’) and Liberty Commodities Limited (‘Liberty UK’), all of whom are existing shareholders in UGML, and presently hold 19.10%, 11.02%, 12.10% and 2.67% respectively, of the equity share capital of UGML. It is envisaged that, subsequent to the consummation of the transaction, UD Industrial will hold a 44.35% stake in UGML.

 
UGML, a part of the Uttam group, manufactures pig iron and other products, though its market share is insignificant. UD Industrial holds 23.62% in India Steel Works Limited, and 9.62% in Uttam Value Steel Limited (‘UVSL’), both of which are engaged in the production of steel. CCInoted the insignificant vertical overlaps between UGML and UVSL, and the negligible market shares of UGML and other Uttam group companies. On this basis, CCI concluded that the combination was not likely to give rise to any Adverse Effect in India.

 
CCI Grants Approval To PMB’s Acquisition Of Shares In Mahindra Investments (International) Private Limited

 
On June 26, 2014, CCI approved the proposed acquisition by Participatie Maatschappij Buitenland B.V. (‘PMB’) of 40% of the share capital of Mahindra Investments (International) Private Limited (‘MIIPL’), pursuant to a share sale agreement between Mahindra and Mahindra (‘M&M’), the parent company of MIIPL, PMB, MIIPL and HZPC Holland B.V. (‘HZPC’), the parent entity of PMB. The transaction will eventually lead to MIIPL being a 60:40 joint venture between M&M and PMB.

 
CCI observed that, while both PMB and MIIPL are engaged in the production, distribution and sale of seed potato, MIIPL was engaged in the seed potato business in India. HZPC was engaged in the seed potato business worldwide, apart from India. Accordingly, CCI noted that there were no horizontal overlaps between the businesses of the parties in India, and found no likelihood of Adverse Effect on competition in the relevant market in India.

 

CCI Clears Bluewater Investment Limited’s Acquisition Of A Stake In Laurus Labs Private Limited

 
On July 3, 2014, CCI approved the proposed acquisition by Bluewater Investment Ltd. (‘BIL’) of up to 32.29% of the share capital of Laurus Labs Private Limited (‘Laurus’), on a fully diluted basis.

 
While BIL is an investment holding company, Laurus is primarily engaged in the business of research, development and manufacture of active pharmaceutical ingredients (‘APIs’), as well as in research, development and manufacture of specialty chemicals, intermediate products, nutraceuticals and contract research. CCI noted that there are no horizontal or vertical overlaps between the business activities of the parties in India. Also, most of Laurus’s turnover was attributable to exports outside India, and therefore, CCI was of the opinion that the combination was not likely to give rise to any Adverse Effect in India.

 
CCI Gives Go Ahead To Birla Sun Life’s Acquisition Of Trusteeship And Management Rights In ING Mutual Fund And ING Investment Management (India) Private Limited

 
On July 3, 2014, CCI approved the acquisition of trusteeship rights, the rights to manage and administer the schemes of ING Mutual Fund (‘ING Schemes’), and the rights to manage the accounts of portfolio management services clients of ING Investment Management (India) Private Limited (‘ING AMC’) by Birla Sun life Trustee Company Private Limited (‘Birla Sun life Trustee’) and Birla Sun life Asset Management Company Limited (‘Birla Sun Life AMC’).

 
The acquisition was pursuant to the execution of a transfer agreement entered into between Birla Sun life Trustee, Birla Sun Life AMC, ING AMC, ING Investment Management Holdings N.V. and the Board of Trustees of the ING Mutual Fund (‘ING Trustees’). By way of the proposed transaction, Birla Sun Life Mutual Fund (‘Birla Sun Life MF’) and the portfolio management clients of ING AMC would continue as the clients of Birla Sun Life AMC.

 
CCI noted that the share of the ING Schemes was insignificant in comparison to the total average assets under management in the Indian mutual fund industry. It also noted that switching costs involved in the mutual fund sector were negligible. Similarly, CCI observed that the market share of the ING Portfolio Management Services was a fraction of the total assets under management for portfolio management services in India, and that the switching costs involved in the portfolio management sector were insignificant. On this basis, CCI concluded that the combination was not likely to give rise to any Adverse Effect in India.

 

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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