TaxTMI 
TaxTMI 
2021 (3) TMI 1492
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....national Spirits and Wines Association of India ('Informant') against Uttarakhand Agricultural Produce Marketing Board ('OP-1'), Garhwal Mandal Vikas Nigam Ltd. ('OP-2') and Kumaun Mandal Vikas Nigam Ltd. ('OP-3') (collectively referred to as 'OPs'), alleging contravention of the provisions of Section 4 of the Act. 2. The Informant is a company incorporated under the provisions of the erstwhile Companies Act, 1956 and is a representative body of the International spirits and wines companies having business establishments in India. These companies include: (a) Bacardi India Private Limited; (b) Beam Global Spirits & Wine (India) Pvt. Ltd .; (c) Brown Forman Worldwide LLC; (d) Diageo India Private Limited; (e) Edrington Marketing; (f) Moet Hennessy India Private Limited; (g) Pernod Ricard India Private Limited ('Pernod'); (h) United Spirits Limited ('USL'); and (i) William Grant and Sons Limited. 3. OP-1 is stated to be a body corporate, established under Section 47 of the Uttarakhand Agriculture Produce Marketing (Development and Regulation) Act, 2011. OP-2 and OP-3 are stated to be companies incorporated under the provis....
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.... in the market. ii. The OPs were not procuring alcoholic beverages of certain brands, despite demonstrably high consumer demand for such alcoholic beverages and thereby discriminating against manufacturers of these beverages. This resulted in the replacement of IMFL brands of certain members of the Informant with the brands of other alcoholic beverage manufacturers, for which there was significantly less demand when the Informant's members were supplying in the ordinary course. For example, market share of USL in supply of IMFL in the State reduced from approximately 61% in August-October 2014 to 2% in August- October 2015. Similarly, market share of Pernod in supply of IMFL reduced from 21.8% in August-October 2014 to 1.67% in August- October 2015. iii. The OPs were not maintaining minimum stock levels and were not supplying IMFL brands in accordance with the retailers' demand, despite express stipulation in Clauses 10 and 11 of the Liquor Wholesale Order. 7. The Informant further alleged that OP-1 also entered into an agreement with IMFL manufacturers which contained unfair and onerous conditions, the details of which are summarised below: i.....
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....r demand. OPs being the only source of procurement and distribution of alcoholic beverages in the State of Uttarakhand, the discriminatory and arbitrary procurement/distribution by OPs from IMFL manufacturers distorts competition. The Commission is prima facie convinced that such conduct of OPs has limited and restricted production of IMFL and resulted in denial of market access, in contravention of the provisions of Section 4(2)(b)(i) and Section 4(2)(c) of the Act.' 10. Subsequently, the OPs moved an application, inter alia, seeking recall of the aforesaid order dated 19.07.2016, passed under Section 26(1) of the Act. The Commission considered the application in its meeting held on 31.08.2016 and declined the same. Subsequently, OP-1 filed a Writ Petition being WP(C) 10411/2016 before the Hon'ble High Court of Delhi against the said orders of the Commission dated 19.07.2016 and 31.08.2016. The OPs contended in the said petition that the impugned orders of the Commission dated 19.07.2016 and 31.08.2016 were without jurisdiction as they were administering the liquor policy of the State of Uttarakhand and, therefore, were not an 'enterprise' within the meaning of ....
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....concerned districts. Accordingly, the relevant markets were delineated as: (a) market for wholesale procurement of branded alcoholic beverages in the State of Uttarakhand; (b) market for distribution of branded alcoholic beverages in the licensed area of OP-2 in the State of Uttarakhand; and (c) market for distribution of branded alcoholic beverages in the licensed area of OP-3 in the State of Uttarakhand. b. On the issue of dominance of the OPs, in the relevant market, the DG reported that the OPs were in a position of monopoly and were enjoying 100 per cent market share of the relevant markets in their respective areas of operations as OP-1 had exclusive and sole rights of procurement of branded alcoholic beverages on wholesale basis; and OP-2 and OP-3 had exclusive and sole rights of distribution of branded alcoholic beverages to retailers in their licensed areas of operations as clearly mentioned in the Liquor Wholesale Order. This created entry barriers for any other entity to carry on activities pertaining to procurement, supply and distribution of branded alcoholic beverages in the relevant markets. It was further seen that owing to the monopolistic status ....
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....ers as sum total of all brands (in round numbers) May 2015 Alcobrew Distilleries 950 1378 India Glycols Limited 47,115 38,557 Jagatjit Industries Limited 12,300 9968 Khoday India Limited 1,300 274 Pernod Record India Pvt. Ltd. 39,700 29,400 Radico Khetan Ltd. 52,125 44,957 Allied/Sarthak Blenders & Brothers Pvt. Ltd. 6,900 7,995 United Spirits Ltd. 86,960 1,31,155 May Total 2,47,350 2,63,684 June 2015 India Glycols Limited 36,100 21,970 Jagatjit Industries Limited 900 3,250 Khoday India Limited - 1,749 Pernod Record India Pvt. Ltd. 27,100 45,388 Radico Khetan Ltd. 55,050 15,111 Allied/Sarthak Blenders & Brothers Pvt. Ltd. 800 5,993 United Spirits Ltd. 70,390 1,48,247 June Total 1,90,3....
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....07 United Spirits Ltd. 18,285.00 6,132 Oct. Total 78,375.00 2,96.820 November 2015 Alcobrew Distilleries India Pvt. Ltd. - 18,558 India Glycols Limited - 28,266 Jagat Jit Industries Limited - 30,030 Khoday India Limited - 8,017 Pernod Ricard India Pvt. Ltd. - 21,595 Radico Khaitan Ltd. - 71,009 Allied/Sarthak Blenders & Bottlers Pvt. Ltd. - 38,899 United Spirits Ltd. - 16,195 Nov. Total - 2,28,071 December 2015 A.B. Grain Spirits Pvt. Ltd. - 5,996 Alcobrew Distilleries India Pvt. Ltd. - 22,690 India Glycols Limited - 56,918 Jagat Jit Industries Limited - 31,165 Khoday India Limited - 1,299 Pernod Ricard India Pvt. Ltd. - 1,941 Radico Khaitan Ltd. - ....
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.... Khaitan Ltd. - 33,918 United Spirits Ltd. - 58,138 April Total 1,45,768 e. It was evident that OP-2 and OP-3, did not raise indents regularly on the OP- 1, which should have been based on demand as per Liquor Wholesale Order. Moreover, no indents were raised at all for several months, i.e. November 2015, December 2015, January 2016, March 2016, and April 2016. The DG observed that during the month of September 2015 despite receiving indents from OP-2 and OP-3 to supply brands of USL and Pernod, OP-1 did not supply sufficient quantity of brands of USL and Pernod, i.e. OP-1 received indents from OP-2 and OP-3 to supply a quantity of 41,060 and 37,250 cases of brands of USL and Pernod, respectively. However, OP-1 supplied to OP-2 and OP-3 only 1,300 and 2,561 cases of USL and Pernod, respectively, during this period. A similar instance also occurred during the month of October 2015, wherein OP-1 supplied lower number of cases than the indented cases of USL and Pernod. Therefore, OP-1 did not procure brands of USL and Pernod in sufficient quantity to meet requisitions made by OP-2 and OP-3 in res....
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....r major suppliers. On the other hand, during the FY 2016-17, there was a huge increase in the sales volume of USL (+92%) and Pernod (+141%) in terms of percentage as compared to the FY 2015-16. However, in case of all other suppliers, there was a huge decrease in the sales volume in percentage terms during the FY 2016-17 as compared to the FY 2015-16. The DG concluded that this is indicative of the fact that sales were not based on actual consumer demand during the relevant period. 12. Based on a detailed analysis of the said data, the investigation concluded that there was a significant shortfall in the sales volume of IMFL of both USL and Pernod during the period from May 2015 to April 2016 as compared to the corresponding period in earlier years. Further, it was also evident that the sales volume of IMFL of both USL and Pernod registered a significant growth in the immediate succeeding period from May 2016 onwards. In this connection, the DG also noted that the sales volume of IMFL of other suppliers in the State of Uttarakhand recorded a significant growth during the period from May 2015 to April 2016 as compared to the earlier periods and the period subsequent ther....
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....di Parishad is duty bond to supply all the brands as demanded by dealers at the earliest". The Investigation also observed that OP-1 did not follow orders of the Excise Authorities in respect of the mechanism to be followed with regard to maintenance of stock of different brands of alcoholic beverages. The senior officials of OP-1, in their statements before the DG, harped on primacy of 'adhibhar'(Minimum Guarantee Duty) and tried to ignore the importance of 'brands' of alcohols in issuing procurement orders. 16. As mentioned in the DG's Report, Writ Petition No. W.P.(C) 2932 and 2925 of 2015 were also filed before the Hon'ble High Court of Uttarakhand by two IMFL manufacturers/suppliers (i.e. USL and Pernod), inter alia, alleging that the Additional Excise Commissioner (Licensing), Uttarakhand had failed to provide the minimum stock of IMFL, which was to be maintained in the warehouses of FL-2 licensees. The Hon'ble High Court of Uttarakhand vide its judgement dated 23.12.2015 had directed the Additional Excise Commissioner (Licensing) and the District Collector of the different districts to ascertain and communicate the minimum stock of IMFL, on the....
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....tively, the corporation would levy inactive stock penalty at Rs. 3/- per case per day and any tax/levy chargeable on inactive stock penalty. This penalty will be charged proportionately in case of loose bottle also on the same pattern. The Board out of any payment due to manufacturer shall recover such inactive Stock Penalty." In this regard, OP-1 submitted before the DG that this clause was to ensure financial viability and to avoid significant increase in costs associated with unsold stock. The DG noted that, on the one hand, OP-1 had right of option to dispose unsold inventory and, on the other hand, OP-1 also kept the right to levy inactive stock penalty at Rs. 3/- per case per day on USL and Pernod. In this regard, the DG also noted that OP-1 was required to procure IMFL in accordance with market demand based on indents received from the Sub-FL2 licensees. In a situation where OP-1 procured IMFL without considering the market demand which may have resulted in piling of unsold stock, then the suppliers/manufacturers should not be made liable for the resulting losses. Therefore, the DG concluded that the right to levy inactive stock penalty did not seem to be fair and was fou....
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....resentatives, workers, employees indulged in forgery, falsification, fabrication of any document, bill, voucher or delivery challan or commit any offence by not adhering to the laws in respect of supply of liquor or if they indulged in any unfair trade practices. Further, such clause also granted right to OP-1 to terminate any or all the orders for supplies placed on USL and Pernod if they or their representatives indulged in any activity which was 'prejudicial to the interest of the Board (OP-1)'. In this regard, the DG found that the term 'prejudicial to the interest of the Board' had not been explained and seemed to grant wide discretion to OP-1 to terminate any or all of the orders for supplies placed on USL and Pernod if OP-1 considered that actions of USL and Pernod or their representatives were prejudicial to its interest. 23. Clause 1.1 of USL agreement and Pernod agreement had different provisions. Clause 1.1 of USL agreement is reproduced below: "1.1 Order for IMFL for each month will be given in the beginning of the month with 30 days validity and supply have to be made within these 30 days. Order will be determined as per companies growth of ....
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....i- competitive. 26. The investigation concluded that OP-1 had inserted one-sided, unfair and anti- competitive clauses in agreements dated 15.05.2015 and 22.06.2015 entered into by OP-1 with USL and Pernod, respectively, and thereby OP-1 abused its dominant position in the relevant market. Objection/Suggestion to DG Report 27. The Commission considered the Investigation Report submitted by the DG, in its ordinary meeting held on 26.04.2018, and decided to forward copies of the same to the parties for seeking their respective objections/suggestions thereto. The OPs were directed to file their written objections/suggestions by 25.05.2018 and the Informant was directed to file the same by 01.06.2018. OP-3 submitted its objections to the DG's Report on 25.05.2018 whereas OP-1, after seeking extensions, submitted its objection to the Investigation Report on 20.07.2018. 28. Both OP-1 and OP-3, inter alia, opposed the findings of the DG on the relevant geographic market by contending that each type of alcoholic beverages would constitute a distinct and separate relevant market. They stated that the Investigation has overlooked the fact that the OPs operated in a supply cha....
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.... has focused on procurement only between the months of August 2015 and January 2016. OP-1 placed orders on USL and Pernod, consistently for three months - May, June and July 2015. The DG's report has made no analysis of these months when OP-1 placed orders for supplies upon USL and Pernod but these orders were never honoured by these companies. 32. The DG has without any assessment concluded that consumer demand was demonstrated through sales of USL and Pernod in the year 2014-15 and 2016- 17. This observation was baseless and without merit as consumer demand was not predicated on a specific brand of alcoholic beverages which meant that for a consumer, the demand was typically for a category of alcohol. For instance, within category of whisky, the consumers considered all brands as interchangeable. Accordingly, OP-1 submitted that high market shares of USL and Pernod were not attributable to high consumer demand but to the capital intensive nature of the industry. As the companies like USL and Pernod had significant resources, their products have a wider outreach which did not reflect the brand specific demand by consumers. The presence or absence of a specific brand would n....
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.... evidences the fact that the Hon'ble High Court of Uttarakhand had created an alternate mechanism for procurement of alcoholic beverages. 35. Apart from above, OP-1 also stated in its submission that the Informant provided month-wise supply orders of alcoholic beverages received by its members, namely USL and Pernod, which are commercially sensitive information. Accordingly, OP-1 submitted that such exchange of commercially sensitive information, prima facie, appears to be a contravention of the provisions of Section 3(3) of the Act. 36. As regards findings of the Investigation Report that certain clauses of the agreements signed between OP-1 and IMFL manufacturers were one-sided and abusive in nature, OP-1 submitted that terms and conditions as drawn up by it were not arbitrary and unfair as they were based on established models of procurements of alcohol in different states. Further, it submitted that the agreements were finalised based on negotiations with USL and Pernod. OP-1 also submitted that alleged violation of Liquor Wholesale Order and resultantly Clause 1.1 of the Agreements regarding determination of quantity of alcohol to be procured was beyond the jurisdict....
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.....08.2018 submitted that it accepted the findings in the Investigation Report. OP-2 mentioned that it was regularly placing the orders as per the Liquor Wholesale Order dated 27.04.2015. It was not allowed to procure the alcoholic beverages on its own as the sole right of procurement was vested with OP-1. Informant 39. The Informant supported the findings and conclusions arrived by the DG in relation to delineation of the relevant market, dominant position of OP-1, OP-2 and OP-3 and abuse of dominant position by OP-1. However, the Informant disagreed with the determination of the DG, in relation to the conduct of OP-2 and OP-3, which according to the DG was not in contravention of the provisions of Section 4 of the Act. The Informant submitted that OP-2 and OP-3 were mandated under the Liquor Wholesale Order to ensure availability of all brands in accordance with demand and their complicity in relation to placement of orders to OP-1, could not be overlooked merely on account of the fact that they did not have any independent right to procure alcoholic beverages. 40. The Informant also submitted its response to the objections to the DG's report filed by OP-1 and OP-3. As....
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.... common managing Director and hence, were acting in unison, whereas OP-2 was acting independently. 43. As regards OP-1's allegation that providing information regarding sales figure of USL and Pernod, which was commercially sensitive, amounted to contravention of the provisions of Section 3(3) of the Act, the Informant submitted that such information was provided by USL and Pernod directly to external counsel only. Further, complete confidentiality was maintained at all times by redacting any competitor information or commercially sensitive data, from the copies shared with USL and Pernod, while finalising the Information and response. The Informant also submitted that OP-1 had not provided any evidence/detail establishing how sharing of disaggregated (historical) sales data had caused an appreciable adverse effect on competition. 44. On OP-1's objection that the DG had limited its assessment to only two alcoholic beverage manufacturers (USL and Pernod), the Informant noted that these two manufacturers were amongst the largest suppliers of the alcoholic beverages in the State of Uttarakhand and, therefore, were most affected enterprises by the abusive practice of the ....
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....r the following reasons: (i) OPs denied market access through discriminatory procurement practices as retailers were forced to procure only those IMFL brands that were available with OPs, and (ii) non-fixation of minimum stock levels as no supplies were made by the Informant's members for several IMFL brands for 3-6 months. Informant also rebutted the interpretational issue raised by OP-1 that it did not either 'purchase' or 'sell' alcoholic beverages and hence Section 4(2)(a) was not applicable to the activities of OP-1. In this regard, the Informant submitted that OP-1 attempted to interpret Section 4(2) (a) in a convoluted manner without taking into account that (a) manufacturers are dependent on OP-1 in order to access the market and such access is for the ultimate purpose of sale of the products, and (b) the medium to reach the point of actual sale (between the retailer and the end-consumer) is controlled by the OPs. Therefore, if OP-1's interpretation is accepted then it would mean that a dominant entity which controls the entire distribution chain could never be held guilty of abuse of dominant position. 48. The Informant further submitted that the....
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....uirement of Liquor Wholesale Order and several communications from Additional Excise Commissioner, OP-2 and OP-3 failed to maintain the minimum stock levels of different brands of alcoholic beverages, during a large part of the relevant period. The DG's report also stated that sales of USL and Pernod drastically declined during the relevant period and normalised back from April 2016 onwards, upon the Liquor Wholesale Order being replaced subsequently by a new order. 52. The Investigation Report of the DG premised that OP-2 and OP-3 were not in a position to act independently, in terms of the Liquor Wholesale Order and the said OPs had exclusive rights of distribution to retailers in their respective divisions. Further, the Investigation Report mentioned that OP-2 and OP-3 were totally dependent on OP-1 for supplies. 53. After hearing the parties and considering the Investigation Report of the DG, the Commission observed that the question that needed to be examined in the present case was whether OP-2 and OP-3, acted in contravention of their respective roles and responsibilities as dominant suppliers, in the respective relevant markets. Thus, the Commission vide its order....
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....NCLAT was applicable to the entire proceedings before the Commission, and not qua OP-1 only. The Commission after hearing the submissions of the parties directed the matter to be listed for final hearing including on the notices to OP-2 and OP-3 as contained in the order dated 30.08.2018 of the Commission and fixed the matter accordingly for final hearing on 21.12.2018. Thereafter, the Hon'ble NCLAT had vide its order dated 19.12.2018, vacated the stay against hearing and granted time to OP-1 to file its reply to the observation of the Commission contained in the order dated 30.08.2018 by 04.01.2019. Further, the Hon'ble NCLAT directed that though it will be open to the Commission to hear the matter, but no final order shall be passed by the Commission, till the next date of hearing before the Hon'ble NCLAT, i.e. 25.01.2019. 57. After hearing the parties, the Hon'ble NCLAT vide its order dated 30.01.2019, granted an ad-interim stay on the proceedings before the Commission, till the next date of hearing, i.e. 25.02.2019, in Competition Appeal (AT) No. 84 of 2018 filed by OP-1. In view of this order passed by the Hon'ble NCLAT, the Commission postponed the fina....
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.... to be expunged from the record for this matter. (c) As submitted by OP-1, the findings against OP-1 had been made in ignorance of the fact that procurement and sale of alcoholic beverages in the State of Uttarakhand was regulated solely by the Excise Department. OP-1 submitted that the overarching regulatory role of the Excise Department was never examined by the DG. Accordingly, OP-1 submitted that the findings of the DG and observation of the Commission in the order dated 30.08.2018 clearly indicated bias. (d) OP-2 submitted that the Liquor Wholesale Order conferred the duty on it to send requisitions/indents to OP-1, based on demand of the retailers. However, as submitted by OP-2, demands raised by it were never adhered to by OP-1, whereas, OP-3 submitted that as per the Excise Policy and Liquor Wholesale Order, functions of OP-3 were limited solely to the distribution of alcoholic beverages as supplied by OP-1 to the FL-5 licensees. The decisions regarding procurement of alcohol from the Alcoholic Beverage Manufacturers were taken solely by OP-1. It was thus evident that the allegations against OP-3 as made by the Informant could not stand as they di....
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....he alcoholic beverages directly from the manufacturers. (h) OP-3 submitted that it was not accepting the responsibility of raising indents as per the retailers' demand. Whereas OP-2 accepted its duty to send indents as per the retailers demand. However, the investigation found that OP-2 did not raise indents on OP-1 for several months (such as, for November 2015, December 2015, January 2016, March 2016, and April 2016). (i) OP-3 stated that the minimum stock was to be maintained by OP-1 at two FL-2 warehouses, which was to be ascertained by the Additional Excise Commissioner (Licensing), and for the districts under sub-FL2 to be ascertained by the District Collector. For the period, OP-3 operated as sub-FL2, no minimum stock was ascertained by District Collectors for any of the districts for which OP-3 was responsible. OP-3 was not involved in procurement of alcoholic beverages. Thus, the findings related to procurement could not apply to OP-3. If OP-1 did not procure alcohol as per the demand placed, then OP-3 could not be held at fault for as to how the procurement process was carried out by OP-1. (j) OP-3 has also contended that if manner of procur....
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....c. The DG had not examined the overall market scenario and had based the analysis on availability of 2-3 brands. (n) It was further contended that established liquor manufacturers/marketers had well-entrenched distribution network, which small and mid-sized manufacturers lacked, this acted as an entry barrier and placed smaller and newer players in a competitively disadvantageous position. The Liquor Wholesale Order intended that market for alcoholic beverages in the State of Uttarakhand was not dominated by a few large players and all liquor manufacturers must be given a fair chance to cater to the market. (o) The Show Cause Order was limited to the supply/sale of brands of USL and Pernod only. The proceedings arose out of the information filed by ISWAI, which has 9 members out of which 5 are present in the State of Uttarakhand. It is stated that the brand-wise sales of other liquor manufacturers had not been examined. Even though a statement of other manufacturers had been recorded, neither Show Cause Notice nor the DG's Report considered statements of manufacturers other than USL and Pernod. Consumer preference for alcoholic beverages was not brand- specifi....
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....facie order for the investigation under Section 26(1) of the Act, dated 19.07.2016. The OPs contended before the Hon'ble High Court that in the information being examined by the Commission, the OPs were only acting as agents of the State of Uttarakhand and neither of them could be considered as an 'enterprise' under Section 2(h) of the Act. The Hon'ble High Court in its judgement categorically held that the provisions of Section 2(h) of the Act also include a department of Government which is engaged in any activity relating to production, storage, supply, distribution, acquisition or control of articles or goods. The OPs were engaged in supply and distribution of IMFL. Such activity carried on by the OPs was clearly not relatable to any sovereign function of the State of Uttarakhand and, therefore, the OPs were not excluded from the ambit of Section 2(h) of the Act. Therefore, OPs were held to be enterprises within the meaning of Section 2(h) of the Act. 62. Further, OP-1 was engaged in the wholesale procurement and distribution of alcoholic beverages such as Foreign Liquor (which included IMFL) in the State of Uttarakhand. OP-2 and OP-3 were engaged as exclusiv....
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....artment of Government of NCT of Delhi, responsible for regulation of liquor and narcotics which included country liquor, IMFL, foreign liquor and collected excise tax as prescribed from time to time. For such regulation, the statutory powers emanated from the Delhi Excise Act, 2009 and the rules framed thereunder and Medicinal & Toilet Preparation Act, 1955. The allegations pertained to imposition of licensing conditions for grant of L-1 license for wholesale vendor of IMFL. 66. At the outset, in respect of the issue/dispute that has arisen in the present matter, the Commission notes that the precedent is clear and well settled that in case of trade in liquor, the State has following three options: (a) To completely prohibit the trade in liquor, or (b) To create a monopoly for itself over manufacture, sale, possession or distribution of alcohol, or (c) To allow private individuals to trade in liquor. In the matter of Khoday Distilleries Ltd v. State Of Karnataka and Others (1995 SCC (1) 574), the Hon'ble Supreme Court has held that "It (State) carries on business in products which are not declared illegal by completely prohibiting their production but in products the manufac....
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....s located in the respective areas assigned to said OPs in such Order. 72. OP-1 has placed reliance on the decision in In Re: Global Tax Free Traders and William Grant and Sons Ltd. & Ors. (Case no. 87 of 2013) to contend that market for alcohol can further be divided into categories based on its ingredients, alcoholic content and manufacturing process. It has also cited decision in United Spirits Limited/ Relay B.V. (Diageo) [Combination Registration No. C-2012/12/97] to contend that market should be based on the type of alcohol. Further, OP-1 argued that a distribution channel cannot constitute a separate relevant product market, as per the Commission's previous orders in the Mohit Manglani v. M/s Flipkart India Pvt. Ltd. & Ors. (Case 80 of 2014) ('Mohit Manglani Case') and Ashish Ahuja v. Snapdeal & Ors. (Case 17 of 2014) ('Ashish Ahuja Case'). 73. The Commission notes that the allegations of abuse have been reported in the market for procurement and supply of IMFL/Liquor. It is this service provided by OP-1 that is relevant for the purpose of delineation of relevant product market and not the types of alcoholic beverages which were supplied. Further, Li....
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....ographic market and for the distribution of liquor, the territory is further sub-divided into two separate geographic markets, viz. Garhwal and Kumaon region. 78. Accordingly, the Commission finds that distinction amongst different kinds of alcoholic beverages such as beer, rum, whisky, wine, scotch, etc., does not seem to be relevant in the facts and circumstances of the present case as the Liquor Wholesale Order has given exclusivity to the OPs in their respective areas of operations, i.e. procurement and distribution of all types of branded alcoholic beverages in the State of Uttarakhand. In other words, the OPs will remain dominant in any of the plausible relevant markets as each of the OPs had been granted exclusivity in its respective business and area of operation; and no other person could procure, supply or distribute alcoholic beverages in the State of Uttarakhand on account of the restrictions envisaged pursuant to the Liquor Wholesale Order. Accordingly, the Commission accepts the DG's findings on the relevant market and rejects the OPs' submissions. Therefore, the Commission is of the view that the relevant market for the purpose of the instant case would be....
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....ufacturers. Through this Cost Card Order, the Uttarakhand Excise Department also fixed the commission due to OP-1 at Rs. 70 per case of alcoholic beverage. Further, the functions of OP-1 as an FL-2 licensee were determined by the Liquor Wholesale Order. Clause 14 of the Liquor Wholesale Order directed OP-1 to strictly comply with all directions or instructions issued by the Uttarakhand Excise Department and the Government of Uttarakhand. 81. OP-1 contends that it was an FL-2 licensee for an extremely short period of less than one year (from 01 May 2015 to 19 April 2016). OP-1 has placed reliance on the decision of the Commission in the case of Belaire Owner's Association v. DLF Limited & Ors., (Case No. 19 of 2010) ('Belaire case') wherein it was held that a position of strength can only be obtained over years and that dominance cannot be acquired or ascertained in a transient period of time. OP-1 submitted that the time period in which it was an FL-2 licensee is merely transient and does not result in dominance in the relevant market. 82. OP-3 submitted that OP-1 was responsible for procurement of alcoholic beverages, and OP-3 as a sub-FL-2 licensee played a limi....
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....t share, barriers to entry, high degree of dependence of retailers and consumers and absence of any alternative option for them, the Commission is of the view that the OPs enjoyed a dominant position in terms of Section 19(4) of the Act in the respective relevant markets as delineated above. Abuse of Dominance: 85. As mentioned above, the DG in its report concluded that OP-1 contravened the provisions of Section 4(2)(c) read with Section 4(2)(b)(i) and Section 4(2)(a)(i) of the Act. The DG, however, stated that it did not find the acts of OP-2 and OP- 3 to be in contravention of the provisions of Section 4(2)(c) read with Section 4(2)(b)(i) of the Act, as the investigation brought out that OP-2 and OP-3 were totally dependent on OP-1 for supply and were having no independent authority to procure alcoholic beverages on their own from any other source. 86. In view of the above, as already mentioned, the Commission vide its order dated 30.08.2018, issued a Show Cause Notice to OP-2 and OP-3, to provide an explanation as to why the said OPs should not be held in contravention of the provisions of Section 4(2)(b)(i) and 4(2)(c) read with Section 4(1) of the Act, though the inve....
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....reading of Clauses 10 and 11 of the Liquor Wholesale Order suggests that OP-1 needed to maintain minimum stocks of all brands of foreign liquor/beer/wine as fixed by Additional Excise Commissioner (Licensing). It also provided that OP-2 and OP-3 shall maintain minimum stocks of all brands of foreign liquor/beer/wine as fixed by the Collector of the concerned district. The Liquor Wholesale Order also provided that where the OPs do not make available the brands in accordance with the demands of the retailer licensees, the retailers may file a complaint before the concerned district Collector who inturn was required to dispose of the complaint within three (3) days. 90. OP-1 has contended that any violation/non-compliance of the Liquor Wholesale Order by alleged arbitrary or discriminatory placing of orders or violation of a minimum stock requirement is an issue for consideration by the writ courts. The issues arising from alleged non-compliance with the Liquor Wholesale Order were adjudicated and remedies were provided by the Hon'ble High Court of Uttarakhand. A writ petition was filed in the Hon'ble High Court of Uttarakhand by the retailers (W.P. (M/S) No. 1677 of 2015) ....
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....ertained in proceedings initiated under the Act, but there is also no right to do business in alcoholic beverages that is available to the Informant. OP-3 further submitted that if liquor policies of States and Union Territories cannot be tested for arbitrariness under the Constitution of India because of the inherent nature of the business, then such policies cannot be tested for arbitrariness even under the Act. 93. OP-1 further submitted that Adhibaar/ MGD (Minimum Guaranteed Duty) is a duty paid by the FL-5 retailers to the Uttarakhand Excise Department for selling alcoholic beverages. The FL-5 retailers approach Excise Department to assess the available stock of alcoholic beverages. On the basis of the available stock, the FL-5 retailers provide an estimate of the total quantity of alcoholic beverages they can sell and pay the duty on their estimates. MGD is a key source of revenue for the Government of Uttarakhand that is fixed by the Uttarakhand Excise Department for the whole year at the time of auctioning of the FL-5 licenses. The Uttarakhand Excise Department also sets targets for MGD for different months of the year. OP-1 was allocated the function of ensuring that th....
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....e, Mandi Parishad Uttrakhand is duty bound to supply all the brands as demanded by the dealers at the earliest. Present petition, thus, stands disposed of with the observation that Excise Commissioner, Uttarakhand shall personally look in to the grievances of the petitioners. He will ensure that brands demanded by the petitioners from the FL2 licencee, i.e. Mandi Parishad Uttarakhand shall be supplied to the petitioners / dealers preferably within 72 hrs. If Excise Commissioner comes to the conclusion that despite raising demands, retail dealers / licencee are not getting supply of the brands as demanded by them, he shall be at liberty to adopt such policy and to pass such orders permitting the petitioners/dealers to lift the different brands from the distillery directly in accordance with law." (emphasis supplied) 97. The Commission also notes that the Hon'ble High Court of Uttarakhand while disposing the writ petitions filed by USL and Pernod in their individual capacities vide order dated 23.12.2015 upheld the right of the State in deciding the liquor policy of the State and mentioned that the State can also impose restrictions and limitations on the trade or ....
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.... in the market. The Commission further observes that it was imperative upon OP- 2 and OP-3 to regularly raise brand-wise indents/requisitions on OP-1 based on the demands of the retailer licensees of their concerned districts, in accordance with the requirements of the said order and no deviation was provided in the said order 99. The submission of OP-3 indicates that it is not accepting the responsibility of raising indents as per the retailers' demand. Whereas OP-2 has accepted its duty to send indents as per the retailers demand, and the investigation found that OP- 2 did raise indents on OP-1 except for months such as November 2015, December 2015, January 2016, March 2016, and April 2016. 100. The Commission notes that the Liquor Wholesale Order empowered the District Collector and the Excise Department to have the jurisdiction to deal with the complaints issued against OP-1. In this regard, OP-1 submitted that complaint letters written by certain retailers to OP-2 and OP-3 could not be treated as complaints within the framework of the Liquor Wholesale Order as they were not addressed to District Collector/ District Magistrate and the Excise Department. Accordingly, O....
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....itions dealt by the Hon'ble High Court of Uttarakhand and the present proceedings before the Commission are substantially different from each other. The contention of OP-1 that implementation of the Liquor Wholesale Order is the function of State Government is correct, but during such implementation, issues in respect of competition law may arise and can be dealt with by the Commission. 103. The decision of the Hon'ble Supreme Court in the Bharti Airtel Case cannot be canvassed by OP-1 to stall the proceedings before the Commission as the facts involved in the said case are completely unrelated to the facts in the present case. In any case the information was filed before the Commission after the decisions rendered by the Hon'ble High Court of Uttarakhand, were not adhered to, as per the Informants. The decisions of the Hon'ble High Court of Uttarakhand were rendered in respect of non-implementation of Liquor Wholesale Order, whereas the proceedings before the Commission relate to abuse of dominant position by the OPs under various provisions of Section 4 of the Act in respect of non-adherence to terms of liquor policy and distorting competition as well as enteri....
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....ompared to the corresponding period in earlier years. Upon revocation of the Liquor Wholesale Order, the sales volume of both these companies recorded significant growth in their sales. In comparison to other players, the DG found that sales volume of other companies recorded a significant growth during the period between May 2015 to April 2016. 106. The Commission has also taken into consideration the contention of OP-1 that prior to introduction of the Liquor Wholesale Order, the distribution of alcoholic beverages depended entirely on the distribution mechanism of the alcoholic beverages manufacturers. It is contended that Pernod and USL are large established multinational companies with huge resources and market strength, and were able to penetrate the market more deeply than smaller Indian companies with fewer resources. OP-1 has brought to attention that Mr. Dhiraj Singh Garbyal, then MD, OP-1 (also MD of OP-3) in his statement before the DG had stated that prior to introduction of Liquor Wholesale Order, USL and Pernod were making supplies to FL-5 retailers on credit terms. But OP-1 was supplying the products only after receipt of full payment against the supply made to F....
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....respect to the answers given in response to Question Nos. 13 and 18 of his statement given before the DG. The Commission observes that OP-1 had also sought cross-examination of Mr. B.L. Rana, General Manager of OP-2 before the DG. While rejecting the application of OP-1 for cross-examination of Mr. B.L. Rana, the DG had concluded that the statement of Mr. B.L. Rana was made with reference to the information contained in written submissions made by OP- 2. Further, OP-1 had already been confronted with the written submissions of OP-2. Considering these issues, the DG opined that it was not necessary or expedient to grant an opportunity of cross-examination of Mr. B.L. Rana to OP- 1. The Commission was of the view that as OP-1 had been confronted with the written submissions of OP-2, it had the opportunity to provide its own explanation upon the submissions made in the above deposition. Thus, the Commission noted that cross-examination of Mr. B.L. Rana, General Manager of OP-2 was neither necessary nor expedient. Accordingly, the request of OP-1 for cross-examination of Mr. B.L. Rana was declined. 111. The Commission also considered the Table 2 discussed in Para 11(f), wherein the ....
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....ion of the Wholesale Liquor Policy dated 31.03.2015 and replacement by a new policy of the State. 113. In regard to the contentions raised in respect of oversupply by USL and Pernod, the Commission observes that in the succeeding year as well as in the preceding year, there was a significant increase in the sale of USL and Pernod, which cannot be attributed to mere coincidence. If this variation had occurred on account of consumer preference, then the same sales pattern would have continued for longer period and in respect of all brands. However, data shows that in the FY 2015-16, the drastic decline in sales happened for brands of USL and Pernod and not in respect of others, and in the FY 2016-17, the opposite occurred wherein brands of USL and Pernod experienced major increase in sales and the opposite happened in respect of other brands. The Commission observes that such fluctuation cannot be merely attributed to consumer preference as such preference cannot be said to be so volatile in nature. The availability of preferred brands of IMFL for consumer as per their demand was the true intent and spirit of the Liquor Wholesale Order which is the true test of a competitive marke....
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.... of Uttarakhand stating that they were not receiving IMFL as per the demand raised. The Commission also notes that the provisions of Liquor Wholesale Order themselves recognised the vitality of brand preferences and called for procurement to be undertaken on brand-wise basis. The Commission does observe that non-availability of certain brands had impacted and distorted consumer choice which is sufficient to prove consumer harm in respect of procurement and distribution undertaken by OP-1. The demand by retailers is derived from demand of consumers. Further, the Commission notes that the provisions of Liquor Wholesale Order had not mandated the OPs to increase overall sales by procuring from few manufacturers at the cost of others rather such policy mandated the OPs to supply as per retail/consumer demands. 116. On the issue of maintenance of minimum stock, the Commission notes the submission of OP-1 which highlights various stances taken by OP-1 on different occasions, such as during the investigation, OP-1 stated that such minimum stock requirement was fixed pursuant to judgement of the Hon'ble High Court dated 23.12.2015. However, the Excise Authority vide letter dated 26.....
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....s. 117. Coming to the redressal mechanism provided under the Liquor Wholesale Order, OP-1 states that it had addressed the only complaint received as per the mechanism and it cannot be faulted for following such a mechanism. The Commission observes that the existence of a redressal mechanism did not absolve OP-1 from the responsibility of procuring brands in accordance with the demand of different brands of alcoholic beverages raised by the retailers, who were directly selling to the consumers. With regard to the submission of alternate procurement mechanism for sourcing of brands, the Commission observes that the retailers had approached the Hon'ble High Court of Uttarakhand as they were unable to access the brands of their choice/requirement. As there was no policy introduced or steps taken to ensure availability and access pursuant to judgement dated 09.07.2015, OP-1 had not taken any step to resolve this grievance raised by the retailers. The subsistence of such grievance of retailers of being unable to cater to consumer demand and experiencing drop in sales of brands whose demand was more, was taken note of by the Hon'ble Uttarakhand High Court also in its order dat....
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....er part it could not meet with bare minimum requirements. 122. Similarly, for Pernod, the two brands sales of which dropped during the year 2015, were Royal Stag Delux Whisky (Royal Stag) and Imperial Blue Super Grain Whisky (Imperial Blue). The DG during the investigation found that for Royal Stag, during the year, orders were placed for 94,566 cases while only 81,059 cases were supplied. For Imperial Blue, orders for 92,647 cases were placed but only 80,344 cases could be supplied by Pernod. It is submitted by OP-1 that orders were not placed as Pernod could not fulfill them. According to OP-1, it seems illogical and counter-intuitive for Pernod and USL to argue denial of market access when they could not even complete the orders that were placed on them. 123. OP-1 further contended that the FL-5 retailers had the option to approach the Excise Commissioner for procurement of alcoholic beverages if the demand for particular brands was not met as early as in July 2015, and the manufacturers could have supplied any particular brand. Such situation did not happen despite the allegedly arbitrary procurement by OP-1 is indicative of the fact that the loss in sales could be attrib....
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....ly sales for the same brand was 691 cases. For Pernod, order was placed for 500 cases of Glenlivet in June when average monthly sales for the same brand was 15 cases in FY-15. For Absolut Vodka of Pernod in the month of September 2015 and October 2015, orders for 560 cases and 400 cases were placed when the average monthly sales for the same brand in the previous year was 31 cases. The Informant contends that OP-1 was conducting its procurement in an arbitrary manner, whereas members of the Informant had their production and supply chains geared towards supplies based on previous year's sales. 127. The Informant has stated that there was a time lag in supplying certain orders as the products had to be transported into the warehouses in the State of Uttarakhand. The Informant also submitted that both USL and Pernod were commercial entities operating with the intention of making profit and there was no logical reason for them not to undertake sales in the State of Uttarakhand. The entities were also aware that such supplies could also result in losses by way of demurrage charges set out in the agreements entered with OP-1 if such vast orders were also supplied and subsequently....
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....te of Uttarakhand, in violation of Section 4(1) read with Section 4(2)(b)(i) and Section 4(2)(c) of the Act. 131. The DG examined various provisions of the agreements entered into by OP-1 with USL and Pernod, and found in the present context Clauses 7.1, 7.2, 7.3, 14, 4, 1.1 and 2.6 of USL Agreement and Pernod Agreement to be one-sided, unfair and abusive and accordingly in violation of Section 4(2)(a)(i) of the Act. The DG found that OP-1 had inserted such clauses in agreements entered into by it with members of the Informant, USL and Pernod, in pursuance of abusing its dominant position in the relevant market. The Commission observes that operation of most of these clauses became abusive on account of the arbitrary procurement and distribution of IMFL by OP-1, which as aforementioned was not in accordance with the Liquor Wholesale Order. 132. OP-1 states in its submission that the agreements with USL and Pernod were based on drafts obtained from the Internet based on downloaded agreements with the state agencies in Rajasthan and Maharashtra. It is also clear from the statement of Mr. Vijay Kumar, General Manager, OP-1 that Pernod and USL negotiated the terms with the OP-1 a....
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....intention not to procure in consonance with the Liquor Wholesale Order. With regard to the conduct of OP-3, the Commission observes that though the defence of OP-3, cannot be said to be at par with that of OP-2, but it has stated that indents raised were lost in fire and it was also placing indents over phone. OP-1 has not denied receiving indents from the said OPs. The Commission also notes that OP-2 and OP-3 were entirely dependent on OP-1 for obtaining supplies and they could not directly procure from the IMFL manufacturers. Thus, the Commission in the fact and circumstances does not deem it fit to hold OP-2 and OP-3 to be liable and in complicit with OP-1 in respect of the contraventions of the provisions of the Act. 136. Therefore, the Commission holds only OP-1 to have contravened the provision of Section 4(2)(c), 4(2)(b)(i), 4(2)(a)(i) of the Act. In view of the findings recorded by the Commission, OP-1 is directed to desist from indulging in such anti-competitive conducts which have been found to be in contravention of the provisions of the Act. The directions are given particularly having regard to the fact that the conduct in question as well as the impugned agreement ....