Collective Dominance, Commercial Viability and Policy Decision under Competition Act 2002

The Competition Commission of India in a recent ruling (Royal Energy Ltd v IOCL and others, MRTP Case No. 1/28, decided on May 9, 2012) has held that the decision by the Oil Marketing Companies (OMC) viz. Indian Oil Corporation Ltd, Bharat Petroleum Limited and Hindustran Petroleum Limited, to purchase bio-disel at prices determined by themselves at prices less than the manufacturing cost was not in contravention of Section 3 (anti-competitive agreements) or Section 4 (Abuse of dominant position). Despite being a short order, this case has conceptually observed on certain aspects that will be explained below in this post. 

First a little background on this case. With a view to using alternative sources of energy, the Ministry of Petroluem and Natural Gas came out with the Bio-Diesel Purchase Policy. Under this policy, the Bio-Diesel suppliers could supply bio-disel to the OMCs. The OMCs could blend the bio-diesel with the High Speed Diesel which was to be ultimately used as fuels for the vehicles. Under this policy, the OMCs were to purchase the bio-diesel that met the BIS specifications at a uniform price determined by the OMCs. As the price of High Speed Diesel was fixed & regulated, the OMCs determined the purchase price of bio-diesel by backward integration. This price was considered less than adequate and below the manufacturing cost by the suppliers of bio-diesel. This was alleged to be an anti-competitive agreement by the OMCs. The CCI ultimately held that the OMCs could not be mandated to purchase the Bio-diesel at a price higher than the price of the end product and make it commercially unviable for the OMCs to operate.

This brings to the fore the issue of whether a commercial viability test can be introduced as a defence in an investigation pertaining to Section 3 violation. For e.g. if three non-dominant enterprises wish to compete against a dominant enterprise by agreeing to act in one of the ways determined under Section 3 (3) (a) (say for instance by indirectly facilitating collusive bidding by joining forces to get the contract to the disadvantage of the dominant enterprise) resulting in better competition and for commercial viability of the enterprises then will such a conduct still be viewed to be having an appreciable adverse effect on competition for the purposes of Section 3 (1). Such an action need not necessarily result in any of the benefits identified under Section 19 (3) or may not have the effect of driving the dominant enteprise, and may be merely directed at meeting the competition posed by the dominant enterprise. Unlike the proviso to Section 4 (2) (a), Section 3 does not statutorily have the explicit 'meeting competition defence'. The action may merely result in promoting competition in the market in which the enterprises are operating - an action promoting the object of the Competition Act, 2002 and one of the duties of the CCI under Section 18. At least as held in the Royal Energy Case, there seems to be a possibility for using the commercial viability test because the subject investigation pertained to fixation of prices by direct competitors under Section 3 (3) (a).

Another issue is can commercial viability / protecction of commercial interests be used as a defence in a Section 4 contravention (apart from Section 4 (2) (a) cases). In the past in Europe it has been held that even dominant undertakings can take counter action to protect their commercial interests, however, such counter action should be proportionate to the threat taking into account the economic strength of the parties. (Case 27/76, United Brands v Commission, judgment delivered by European Court of Justice Para 189-190)

The next important observation of the CCI was that “even if an anti-competitive conduct flows from any policy of the Government, the Commission will still have jurisdiction to examine the conduct and in case of any violation suitable orders can be passed”. The Activity of policy determination by the Government may be viewed as sovereign in nature (being inalienable function of the government) and therefore, in light of Section 2 (h) of the Competition Act, 2002 and such activities may be considered outside the purview of the CCI. Even if the policy decisions are not viewed as sovereign, it will be interesting to see if the CCI would like to intervene into policy decisions of the Government. As normally a policy of deference would be adopted in matters relating to law and policy making as it is expected that it is best left to the Parliamentarians and the Government. However, in the light of the dicta in the Royal Energy case, it appears that even actions undertaken directly pursuant to a mandate under the policy of the Government would result in indirectly reviewing the policy decision.

This may lead to the CCI scrutinizing the actions of several PSUs that function under the operative directions of a particular Ministry and pursuant to policy decisions. In addition, actions taken pursuant to policy decisions of other sectoral regulators may also fall within the purview of the CCI. This only heightens the existing tension and debate whether the CCI should intervene in cases where other sectoral regulators operate. With the proposal to oust the jurisdiction of CCI in matters pertaining to acquisition and mergers of banks gaining strength[1], other sectors are also not too far behind in seeking for an exemption from the rigours competition law.[2] It will also be pertinent to note that power to exempt any enterprise from the purview of the Act under Section 54 of the Competition Act 2002 is available with the Central Government only if it is necessary in public interest or in the security of the state or to comply with any of India’s obligations under an international treaty or for enterprises performing activities that are relatable to the sovereign functions of the state. Any exemption granted pursuant to the Competition Act would have to pass any of the aforementioned tests to be clearly outside the purview of the Competition Act.

Furthermore, at a jurisprudential level, the CCI has also held in the case under discussion that the concept of collective dominance is not envisaged under Section 4 of the Competition. Collective Dominance as accepted in Europe is a case where a group of unrelated entities that are united by economic links collectively hold a dominant position in a market.[3] Although the decision does not provide any reasons for the same, the reason may be because presently Section 4 provides that no ‘enterprise or group’ should abuse its dominant position. Initially the un-amended section 4 only provided that no enterprise shall abuse its dominant position and post the 2007 amendment the term ‘group’ was specifically introduced. The definition of group is restricted to entities under the same management or control. Therefore, it may seem that collection of enterprises that do not form part of group was not considered by legislature to come within the purview of Section 4. Also, whether a concept that has its genesis outside the frontiers of India should cross the judicial borders to enter into India is a question that will have to be decided. On the other hand ordinarily it is a statutory rule that a singular word would also include a plural.[4] Therefore, by that logic enterprise would also include enterprises and a group of enterprises can abuse their dominant position. However, these issues have not been effectively raised or decided by the CCI in the said case and therefore it will still remain to be seen whether the collective dominance concept is envisaged under Section 4.

Furthermore, this decision (and the principles enshrined therein) is still to be tested by the higher judicial echelons. It will be interesting to see, if and when, this decision (or the issues) reaches the Competition Appellate Tribunal or the Supreme Court, which way would the tide of competition sway.

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[1] Please see in this regard a news report in The Economic Times report on June 11, 2012 available at: http://articles.economictimes.indiatimes.com/2012-06-11/news/32175083_1_practices-and-abuse-cci-competition-act

[2] Please see in this regard a news report in the Hindu Business line reported on May 29, 2012, available at:

[3] Case T-68, 77 and 78/89, Societa Italiana Vetra SpA v Commission [1992] 5 CMLR 302, Para 358

[4] Section 13 of the General Clauses Act, 1897