TaxTMI 
TaxTMI 
2020 (3) TMI 1484
X X X X Extracts X X X X
X X X X Extracts X X X X
....Old Appeal No. 50 of 2014 against order dated 3rd July, 2014 passed by the Competition Commission of India (Commission) in Case No. 71 of 2012 (Faridabad Industries Association Vs. Adani Gas Limited) under Section 27 of 'the Competition Act, 2002' (Act) holding that the Appellant has contravened the provisions of Section 4(2)(a)(i) of the Act by imposing unfair conditions upon the buyers under 'Gas Supply Agreement' (GSA). The Commission, apart from directing the Appellant to cease and desist from indulging in conduct found to be in contravention of the provisions of the Act in terms of the impugned order, directed the Appellant to modify the GSA's in the light of observations and findings recorded in the impugned order and imposed a penalty @ 4% of average turnover of the last three years quantified at Rs. 2567.2764 Lakh. 2. The Informant - 'Faridabad Industries Association' (FIA) also has filed cross appeal being TA (AT) (Competition) No. 34 of 2017, Old Appeal No. 57/2014. 3. For better appreciation of the issues raised in these appeals reference to the allegations in the information filed by FIA against AGL and the action taken by the Commission culminating in passing of impu....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the relevant market is the market of supply and distribution of natural gas to industrial consumers in Faridabad District and AGL is in a dominant position in the said relevant market. DG concluded that Sub-clause 9.4 of Clause 9 (Quality), Sub- clauses 10.2, 10.5 and 10.6 of Clause 10 (Measurement and Calibration), Sub-clause 11.2.4 of Clause 11 (Shutdown and Stoppage of Gas), Sub- clause 12.6 of Clause 12 (Contract Price), Sub-clauses 13.4, 13.6 and 13.7 (partially) of Clause 13 (Billing and Payment) and Sub-clause 14.1 of Clause 14 (Payment Security) of GSA of AGL with its industrial consumers did not reflect abusive conduct attributable to dominant position of AGL. However, Sub-clause 13.5 of Clause 13 (Billing and Payment) of GSA to the extent of stipulating any such rates as may be decided by the seller in future and Sub-clause 13.7 of Clause 13 (Billing and Payment) to the extent of absolving AGL from paying interest on excess amount in dispute paid by the consumers amounted to imposition of unfair conditions by AGL upon consumers. It also concluded that sub-clause 16.3 under Clause 16 of GSA to the extent of reservation of right at its sole discretion by AGL to accept or r....
X X X X Extracts X X X X
X X X X Extracts X X X X
....upply and distribution of gas to the different segments being different necessitated a distinction to be made between consumers under such categories. The Commission found itself in agreement with DG as regards natural gas being distinct and distinguishable from other sources of energy as it was a flammable gaseous mixture composed mainly of Methane made available to consumers through a network of pipelines. Unlike other Liquid Hydrocarbons, it did not require any storage facilities at the end of consumers. It also noted that the natural gas was a clean, smoke free and soot free fuel as compared to Liquid Hydrocarbons and its supply was uninterrupted as it did not require storage by consumers at their premises. Based on such considerations, the Commission was of the view that the Relevant Product Market in the present case would be the market of supply and distribution of natural gas to industrial consumers. 8. Adverting to the aspect of 'Relevant Geographic Market', the Commission found that the DG had rightly noticed that the Government of Haryana having authorized only AGL to build and operate a CGD network in district Faridabad and there being no other authorized entity in Far....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f GSA declining any compensation to the buyer on account of disruption of gas supply due to any reason whatsoever, the Commission was of the view that the said clause being reflective of the upstream agreement of AGL with GAIL did not reflect abuse of dominant position by AGL. 12. As regards Clause 12 of GSA providing for unrestricted right to seller to change/ modify/ revise the contract price and excess gas price, the Commission agreed with conclusions of the DG that by virtue of peculiarities of Gas Industry coupled with the fact that the gas prices are market driven and the nature of relationship between AGL and its consumers makes price negotiation an impracticable proposition, it was impractical to have a fixed formula based pricing mechanism for fixation of gas prices. It noticed the fact that the revision in prices of gas depended upon revision in prices by GAIL to AGL in terms of the agreement, consequently, affecting the consumer as the end user. 13. As regards Clause 13 providing for billing and payment, the Commission agreed with the DG that this Clause imposed unfair conditions upon consumers in as-much-as under Clause 13.7, if any amount becomes payable or reimbursa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....egards the allegation of FIA qua revision of gas prices by AGL from time to time arbitrarily and irrationally, the Commission observed that the conduct of AGL in revising gas prices could not be construed to be reflection of abuse of its dominant position as found by DG. In arriving at its finding the Commission was influenced by the observation of DG that the cost of gas was prone to frequent fluctuations due to the peculiarities of the gas industry and a fixed formula based pricing mechanism for gas sector being impractical. It also noted that the gas prices for consumers were not solely linked to crude oil prices. Thus, the Commission brushed aside the allegations emanating from FIA on this score. 18. The Commission was of the opinion that AGL had contravened provisions of Section 4(2)(a)(i) of the Act by imposing unfair conditions upon buyers under GSA. It accordingly proceeded to pass the impugned order directing AGL to cease and desist from indulging in the conduct found to be violative of law, modify GSAs in light of its findings and imposed penalty @ 4% of average turnover of the last three years on AGL quantified at Rs. 2567.2764 Lakhs. Aggrieved thereof AGL has filed TA ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Power and Coal is not prohibited or prevented by law. It is submitted that the only relevant question for determining the 'relevant market' is whether at some particular point a consumer may switch from one product to another and whether a product is superior or not is not relevant. The relevant factors are the characteristics, prices and intended use in relation to interchangeability and not characteristics which may be considered to be superior. It is submitted that PNG is interchangeable with other fuels and the said facts have been sufficiently established during investigation before DG and during enquiry before the Commission. 20. It is further submitted that the pipeline infrastructure setup by the Appellant - AGL can be used by any other competitor to distribute CNG as provided by the regulations/ license. Therefore, a distributor like Indraprastha Gas can use the Appellant's infrastructure in the same way as telecom structure can be shared. Thus, there is no monopoly or dominance. It is further submitted that the Respondent's (FIA's) case as setup in the cross appeal is misconstrued, as a distributor enters into a back-to-back agreement for supply of gas from GAIL. The iss....
X X X X Extracts X X X X
X X X X Extracts X X X X
....posing of this appeal. It is submitted that the only supplier of natural gas in Faridabad during 2009 to 2012 being AGL, the industrial consumers were constrained to procure natural gas for their requirements only from AGL. 22. On behalf of Commission, a detailed note has been submitted which is in sync with the findings recorded in the impugned order. It is submitted on behalf of Commission that on account of different intended use and price of natural gas for the different categories duly classified and identified as consumers by AGL, the industrial consumers form a different class as concluded by DG and found by the Commission. The Commission found that while for domestic, commercial and transport categories of consumers LPG is considered as a substitute for natural gas, same is not a substitute for industrial consumers as also admitted by the Appellant. The Commission did not dispute the Appellant's contention that at the relevant time for industrial consumers there was no available gaseous substitute for natural gas. It is submitted that the Appellant has admitted that it does not have any competitor in relation to supply of natural gas in the relevant geographic market of Fa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d to conditions in GSA found unfair by the Commission and having conspectus of the respective contentions of the parties, it is apt to notice the relevant provisions of law bearing on the case so as to narrow down the controversy to definite issues and focus thereon to determine whether there was abuse of dominant position on the part of AGL qua supply of gas to its consumers viz. members of FIA and if so, whether the proposed revised agreement takes care of such alleged unfair conditions in GSA and whether the step taken would suffice to redress the grievance of FIA without insisting upon imposition of penalty on AGL for the alleged contravention of provisions of Section 4 of the Act with reference to allegations of abuse of dominant position. The relevant provisions are reproduced herein below:- "4. Abuse of dominant position.- [(1) No enterprise or group shall abuse its dominant position.] (2) There shall be an abuse of dominant position 1[under sub-section (1), if an enterprise or a group].- (a) directly or indirectly, imposes unfair or discriminatory- (i) condition in purchase or sale of goods or service; or (ii) price in purchase or sale (including predatory pri....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ighbouring areas;" Section 2(t) defines 'relevant product market' as under:- ""relevant product market" means a market comprising all those products or services which are regarded as interchangeable or substitutable by the consumer, by reason of characteristics of the products or services, their prices and intended use;" 25. The core issue for determination in these appeals is:- (a) Whether AGL did enjoy a dominant position? (b) Whether AGL's dominant position prevailed in the relevant market? (c) Whether AGL abused its dominant position? Thus, in the first place it is to be determined whether the Appellant - AGL did enjoy a dominant position in the relevant market enabling it to operate independently of competitive forces prevailing in the relevant market or affect its competitors or consumers or the relevant market in its favour and if so, whether AGL imposed any unfair or discriminatory conditions in purchase or sale of goods or services or in price or imposed unfair or discriminatory price in purchase or sale of goods or services or limited or restricted production of goods or provision of services or indulged in practices resulting in denial of market access. 26.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ging from the GSA being executed only with Industrial Consumers while it enters into business relationship with Domestic and Commercial Consumers for supply of gas merely through an application form but no such agreement or application form is entered with the category of Transport Sector Consumers. A glance at the Investigation Report of Director General, paragraphs 4.5 and 4.6 (at page 484-485 of the appeal paper book) lays it bare that based on the aforesaid admission of AGL and the relevant considerations including different intended use and price of natural gas for each category, the DG arrived at conclusion that differentiation amongst consumers was based on aforesaid considerations inspite of all of them consuming the same product i.e. natural gas as source of energy. The Commission has based its finding on the Investigation Report of the DG coupled with the classification made by AGL and the intended use and price of natural gas for each category being different, thus, treating the Industrial Consumers as a different category. 27. A vital question for consideration which cannot be glossed over and is of primary importance in regard to status of Industrial Consumers as a di....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ppellant - AGL being the only supplier of natural gas while IOCL, BPCL and HPCL competed with the supply of other alternative fuels. Thus, the only conclusion deducible on the basis of material available on record is that during the relevant period there was no gaseous substitute of natural gas available to Industrial Units in Faridabad. It is emphatically clear that PNG was not interchangeable with other fuels as contended on behalf of AGL. Furthermore, it cannot be ignored that during the relevant period LPG was not available to Industrial Units as an alternate fuel as revealed from the submissions made before the DG. It is therefore futile on the part of AGL to contend that it had successfully demonstrated that PNG was interchangeable with other fuels at the relevant time. Having regard to all relevant considerations and the material available on record, we find no hesitation in supporting the finding recorded by the Commission on the aspect of 'relevant market' and 'AGL's dominant position in the relevant market'. The fact that the pipeline infrastructure setup by AGL subsequently can be used now by any other competitor to distribute CNG does not create any dent in the aforesai....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ide the reasons for and the likely duration of such unplanned interruption or emergency shutdown. The need for unplanned interruption and emergency shutdown shall be determined and executed by either Party acting as a Reasonable and Prudent Operator Clause 11.2.1- Shutdown, Unplanned Interruptions and Disruption Each Party shall provide a notice, as early as is reasonably possible in the circumstances. in respect of an unplanned interruption or emergency shutdown of facilities calling for complete or partial stoppage of supply off take of Gas. The notice shall also provide the reasons for and the likely duration of such unplanned interruption OF emergency shutdown. The need for unplanned interruption and emergency shutdown shall be determined and executed by either Party acting as a Reasonable and Prudent Operator. 11.2.3-Provided that in all such cases, the provisions relating to payment under the in force Gas Pricing Plan-shall continue to be applicable. 11.2.3-Provided that in all such cases, the provisions relating to payment under the in force Gas Pricing Plan-shall continue to be applicable. Clause 13.5- Billing and Payment 13.5 The Buyer shall pay int....
X X X X Extracts X X X X
X X X X Extracts X X X X
....manner as Late Payments Charges in Clause 13.5)) in the event it is decided that such amounts are not payable, or- that a reduced sum is payable. by the Buyer. Clause 16.3- Party to Notify Occurrence of Force Majeure Events Where a Party is claiming suspension of its obligations om account of Force Majeure, in shall promptly, but in no case- later than three (3) days after becoming aware of the- occurrence of the event of Forces Majeure, notify the other party- in writing giving full particulars: of the Force Majeure event, the estimated duration of the Force Majeure, the obligations affected and the reasons of its suspension. The seller shall at its sole discretion accept or reject customers request for force Majeure. (Stated at paragraphs 98 of the Impugned Order) Clause 16.3 Party to Notify Occurrence of Force Majeure Events. Where a Party is claiming suspension of its obligations on account of Force Majeure, it shall promptly, but in no case later than three (3) days after becoming aware of the occurrence of the event of Force Majeure, notify the other party in writing giving full particulars of the Force Majeure event, the estimated duration of the Force Majeure. the ob....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ions providing for short duration of only 45 days for the Industrial Consumers as against longer duration available to AGL from GAIL for meeting the cumulative DCQ Obligation on account of failure to take off with termination clause which amounts to imposition of unfair conditions. Clause 16.3 of GSA, dealing with force majeure, vesting discretion in AGL to accept or reject request of customers for force majeure, on the face of it, amounts to imposition of unfair conditions. Sub-clause 11.2.1 of GSA imposes unfair conditions to the extent the consumer is obliged to meet its MGO payment obligation even in the event of emergency shutdown calling for complete or partial off take of gas. Such conditions stare in the face of AGL eloquently speaking of same being unfair, lopsided, unilateral, harsh and detrimental to the interests of the consumers and even a bare look at such clauses does not warrant a contrary opinion. Even AGL must have been conscious of such conditions being unfair to consumers and abusive of its dominant position which is clearly inferable from its conduct in substituting the original GSA with revised one modifying the contravening terms and conditions. We have there....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... higher.] (c) [Omitted by Competition (Amendment) Act, 2007] (d) direct that the agreements shall stand modified to the extent and in the manner as may be specified in the order by the Commission; (e) direct the enterprises concerned to abide by such other orders as the Commission may pass and comply with the directions, including payment of costs, if any; (f) [Omitted by Competition (Amendment) Act, 2007] (g) pass such other [order or issue such directions] as it may deem fit. [Provided that while passing orders under this section, if the Commission comes to a finding, that an enterprise in contravention to section 3 or section 4 of the Act is a member of a group as defined in clause (b) of the Explanation to section 5 of the Act, and other members of such a group are also responsible for, or have contributed to, such a contravention, then it may pass orders, under this section, against such members of the group.] 31. On a plain reading of the provision engrafted in Section 27 of the Act, it emerges that contravention of Section 3 or Section 4 of the Act being established, the Commission is empowered to pass all or any of the orders envisaged under Clauses (a) ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....neous billing/ invoicing on the part of Seller gives rise to no liability whatsoever on the part of the Seller including interest whereas a delayed payment by the Buyer renders him liable to pay interest. The Commission was of the opinion that there being no obligation on the part of AGL to pay interest in terms of Clause 13.7, such clause imposed unfair conditions upon the Buyers. Further, Sub-clause 13.5 also imposed unfair condition upon the Buyers in as much as the interest rate was left to be determined by the Seller and communicated in future. As regards Clause 17.2 and 17.4, the Commission was of the view that the conditions providing for short duration of only 45 days for the Industrial Consumers as against longer duration available to AGL from GAIL for meeting the cumulative DCQ Obligation on account of failure to take off with termination clause amounts to imposition of unfair conditions. As regards Clause 16.3 of GSA, dealing with force majeure, Commission found that the clause vesting discretion in AGL to accept or reject request of customers for force majeure amounts to imposition of unfair conditions. As regards Sub-clause 11.2.1 of GSA, the Commission found it imposi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....CC 307]. However, it is entitled to show that there are mitigating factors/ extenuating circumstances warranting imposition of lesser/ reduced penalty. 36. The Commission while imposing penalty noticed that only few clauses out of the GSA have been found to be in contravention of the provisions of the Act. It also noticed the changes effected by AGL during investigation and pendency of proceedings before the Commission in the agreements (GSAs). Having regard to the same, it decided to impose penalty @ 4% of average turnover of AGL for financial years 2009-10, 2010-11 and 2011-12 worked out at Rs. 2567.2764 Lakhs. Some more development took place during the pendency of appeals before this Appellate Tribunal to which we have alluded to earlier. The Gas Supply Agreements (GSAs) that had been revised by AGL during course of investigation and enquiry before the Commission came up for further revision of the contravening clauses to make them more consumer friendly and to protect the interests of Industrial Consumers by removing the disparity as regards revision of gas prices, payment obligation in case of shutdown of supply and for complete or partial off take of gas, etc. which came ab....