Consumers Guidance Society v. Coca Cola and INOX
The Competition Act, 2002 officially replaced the erstwhile Monopolies and Restrictive Trade Practices Act, 1969 (‘the MRTP Act’) via a Government notification dated 28th August 2009. Thus, even though the Competition Act was passed way back in the year 2002, it was notified in 2003 and further amended in 2007 to be officially brought into operation only as late as September 1, 2009. All this while, all cases relating to monopolistic / restrictive trade practices were being heard by the MRTP Commission under the repealed MRTP Act. With section 66 of the Competition Act being duly notified with effect from 1 September 2009 onwards, all pending investigations and proceedings by the Director General under the MRTP Act relating to monopolistic / restrictive trade practices have been transferred {as is the case at hand under section 66(6)} to the Competition Commission of India (CCI).
This pre September 2009 issue relates to a complaint filed by the Consumers Guidance Society, Vijayawada before the erstwhile Monopolies and Restrictive Trade Practices Commission (MRTPC) against Inox Leisure Private Limited (ILL), a company which operates multiplexes across various locations in India. The Commission delivered its final order on 23rd May 2011.
What are Exclusive Supply Agreements?
These prevent a purchaser from acquiring products from any other person apart from the manufacturer solely. These are usually held to be anti-competitive because they preclude a competitor’s products from being available widely and hence limit supply and competition. This post covers the CCI’s never-before-seen attitude towards such agreements and the unprecedented circumstances under which such agreements were held to be non-anti-competitive.
ISSUE
Whether the Exclusive Supply Agreement between Inox and its supplier Hindustan Coca Cola Beverages Pvt. Ltd. (HCCBPL) was a Restrictive Trade Practice and an Abuse of Their Dominant Positions
ALLEGATIONS : On First Look, Parties Seem to be at Fault
HCCBPL and ILL were supplying inter alia packaged drinking water and soft drinks at an ‘inflated and exorbitant price’ in sharp variance with the ordinary price prevailing in the market. A difference of more than 100% in the MRPs was noted between products being sold over the multiplex counter and those available in retail stores i.e. higher prices to buyers at Inox and lower prices in the open market. This resulted in Discriminatory Pricing with products of the same quality, quantity and standards being sold at different prices to different buyers.
There was FORECLOSURE creating barriers to entry as Inox was selling only Coke products providing the consumer with no alternative choice inside the multiplex as a result. It thus enjoyed complete economic power and commercial advantages over its competitors
Faulty Delineation of Relevant Market : Major Lapse in Investigation
The Director General upon preliminary investigation identified the respective relevant markets for ILL as ‘retail sale of bottled water and cold drinks inside IIL multiplexes’ and that for HCCBPL; ‘supply of bottled water and cold drinks to owners of closed market of multiplexes’ Striking down such an illogical inference, the Commission emphatically stated that such an inference would go on to mean that every retail outlet, restaurant or store having exclusive supply agreement with a supplier will be deemed dominant within the boundaries of its premises. The delineation had to be carried out on a pan-India level, taking into account multiplexes located throughout the country.
CCI’s Holding and Reasoning: Logic + Appreciable Business Interest = Effective Competition
Out of total 900 multi-screen theatres all over the country, HCCBPL had exclusive access to only 214 such screens whereas its closest rival PEPSICO had similar ESAs with 600 such multiplexes. Thus, this resulted in dominant player being created as there existed healthy competition between two parties in the market.
Furthermore, the impugned agreement was for a short period of four months and terminable by either party by giving 30 days’ notice. Thus, the option of switching suppliers on periodical basis cannot be said to have resulted in denial of market access / foreclosure.
Supply of products by HCCBPL made to multiplexes constituted less than 0.3% of its total supply of such products in India. Taking into account the business volume of the beverages market in India, there can be hardly be any appreciable adverse effect on competition because of ESA between HCCBPL and ILPL.
Hence, the ESA agreement was held neither to be anti – competitive nor abusing any dominant positions.
Notings and Observations
The Competition Act, 2002 officially replaced the erstwhile Monopolies and Restrictive Trade Practices Act, 1969 (‘the MRTP Act’) via a Government notification dated 28th August 2009. Thus, even though the Competition Act was passed way back in the year 2002, it was notified in 2003 and further amended in 2007 to be officially brought into operation only as late as September 1, 2009. All this while, all cases relating to monopolistic / restrictive trade practices were being heard by the MRTP Commission under the repealed MRTP Act. With section 66 of the Competition Act being duly notified with effect from 1 September 2009 onwards, all pending investigations and proceedings by the Director General under the MRTP Act relating to monopolistic / restrictive trade practices have been transferred {as is the case at hand under section 66(6)} to the Competition Commission of India (CCI).
This pre September 2009 issue relates to a complaint filed by the Consumers Guidance Society, Vijayawada before the erstwhile Monopolies and Restrictive Trade Practices Commission (MRTPC) against Inox Leisure Private Limited (ILL), a company which operates multiplexes across various locations in India. The Commission delivered its final order on 23rd May 2011.
What are Exclusive Supply Agreements?
These prevent a purchaser from acquiring products from any other person apart from the manufacturer solely. These are usually held to be anti-competitive because they preclude a competitor’s products from being available widely and hence limit supply and competition. This post covers the CCI’s never-before-seen attitude towards such agreements and the unprecedented circumstances under which such agreements were held to be non-anti-competitive.
ISSUE
Whether the Exclusive Supply Agreement between Inox and its supplier Hindustan Coca Cola Beverages Pvt. Ltd. (HCCBPL) was a Restrictive Trade Practice and an Abuse of Their Dominant Positions
ALLEGATIONS : On First Look, Parties Seem to be at Fault
HCCBPL and ILL were supplying inter alia packaged drinking water and soft drinks at an ‘inflated and exorbitant price’ in sharp variance with the ordinary price prevailing in the market. A difference of more than 100% in the MRPs was noted between products being sold over the multiplex counter and those available in retail stores i.e. higher prices to buyers at Inox and lower prices in the open market. This resulted in Discriminatory Pricing with products of the same quality, quantity and standards being sold at different prices to different buyers.
There was FORECLOSURE creating barriers to entry as Inox was selling only Coke products providing the consumer with no alternative choice inside the multiplex as a result. It thus enjoyed complete economic power and commercial advantages over its competitors
Faulty Delineation of Relevant Market : Major Lapse in Investigation
The Director General upon preliminary investigation identified the respective relevant markets for ILL as ‘retail sale of bottled water and cold drinks inside IIL multiplexes’ and that for HCCBPL; ‘supply of bottled water and cold drinks to owners of closed market of multiplexes’ Striking down such an illogical inference, the Commission emphatically stated that such an inference would go on to mean that every retail outlet, restaurant or store having exclusive supply agreement with a supplier will be deemed dominant within the boundaries of its premises. The delineation had to be carried out on a pan-India level, taking into account multiplexes located throughout the country.
CCI’s Holding and Reasoning: Logic + Appreciable Business Interest = Effective Competition
Out of total 900 multi-screen theatres all over the country, HCCBPL had exclusive access to only 214 such screens whereas its closest rival PEPSICO had similar ESAs with 600 such multiplexes. Thus, this resulted in dominant player being created as there existed healthy competition between two parties in the market.
Furthermore, the impugned agreement was for a short period of four months and terminable by either party by giving 30 days’ notice. Thus, the option of switching suppliers on periodical basis cannot be said to have resulted in denial of market access / foreclosure.
Supply of products by HCCBPL made to multiplexes constituted less than 0.3% of its total supply of such products in India. Taking into account the business volume of the beverages market in India, there can be hardly be any appreciable adverse effect on competition because of ESA between HCCBPL and ILPL.
Hence, the ESA agreement was held neither to be anti – competitive nor abusing any dominant positions.
Notings and Observations
The Commission has stayed true to the spirit of Competition Policy in India. Before declaring any agreement to be anti-competitive, first and foremost, it has to be concluded whether its operation would amount to Appreciable Adverse Effect on Competition. Thus, the Commission in the instant case has poignantly delved deep into facts and the prevalent market situation. Even though the Commission is receiving bulk load of cases every day, it has avoided blindly following the Director General’s findings which were proved erroneous. This speaks a lot about the character and capacity of the members and shows that the industry watchdog is not just an eyewash.
[This post has been authored by Shoumendu Mukherji, B.A./B.Sc. LL.B., 3rd Year, The W.B. National University of Juridical Sciences, Kolkata]
[This post has been authored by Shoumendu Mukherji, B.A./B.Sc. LL.B., 3rd Year, The W.B. National University of Juridical Sciences, Kolkata]
The dissenting opinion of R. Prasad in this matter is an interesting read and takes into account one of the aims of the Act i.e. to protect the interests of consumers. Dismissing the report of the DG would be erroneous specially in view of the fact that in most multiplexes the conditions of supply of goods can be distinguished from a neighboring market in as much as there is no freedom of choice nor are the consumers allowed to access any other supplier than the ones available in the multiplex. The actions of HCCBPL clearly amount to abuse of dominant position as per s.4(2)(a). The dissent is available at http://www.cci.gov.in/May2011/OrderOfCommission/HCCBPLDessOrder150611.pdf
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