As India hosts a large number of domestic and foreign corporate giants, it is necessary to ensure that dominant players do not abuse their position. It is with this in mind that the Competition Act, 2002, has provided for the regulation of dominance. The act prohibits enterprises and groups from abusing their dominant position.
As defined under the act, an enterprise enjoys a dominant position if it operates independently of competitive forces in the relevant market or if it can affect its competitors or consumers or the relevant market in its favour. It abuses its dominant position if it directly or indirectly imposes unfair or discriminatory prices or conditions in the purchase or sale of goods and services.
The act prohibits practices that result in the denial of market access to prospective competitors or the use of dominant position in one relevant market to either enter into or protect another relevant market.
While enquiring whether an enterprise has a dominant position, the Competition Commission of India (CCI), is required to consider its market share and its size, the importance of its competitors, how much consumers depend on it, size and structure of the relevant market and entry barriers. The CCI is to determine the relevant market with reference to the relevant product market and also the relevant geographic market.
The act empowers the CCI to issue orders for discontinuing the abuse of dominant position and impose penalties of up to 10% of the average turnover of the enterprise over the last three financial years. The CCI may also issue orders against members of the group involved in cases of abuse of dominant position.
The CCI is also empowered to issue interim orders to temporarily restrain any party from abusing its dominant position until the conclusion of its inquiry or until further orders. Interim orders may be issued without notice to the party concerned.
Flexing its muscles
Recently, in the case of MCX Stock Exchange Ltd v National Stock Exchange of India Ltd, the CCI passed a cease and desist order against National Stock Exchange of India (NSE). The CCI directed NSE not to abuse its dominant position in other markets to protect the currency derivatives market and to discontinue its predatory and unfair pricing. The order followed the investigation of a complaint filed by MCX Stock Exchange, alleging that NSE had substantially reduced admission and trade-related fees to eliminate competition and to discourage other entities from entering the currency derivatives market.
The CCI also imposed a penalty of ₹555 million (US$12 million) on NSE for abusing its dominant market position. This was done after the CCI concluded that the main intention of NSE was to acquire a dominant position in the currency derivatives segment by cross-subsidizing this segment of business from the other segments where it enjoyed a virtual monopoly. The CCI also directed NSE to modify its zero price policy in the relevant market within 60 days of the order.
In another case before the CCI, Hindustan Coca Cola Beverages (Coke) was alleged to be abusing its position as the “preferred beverage provider” for Innox Leisure (ILPL), which owns multiplexes in India, by charging higher prices. In addition, the investigating arm of the CCI concluded that Coke had used its status as the preferred beverage provider to successfully create barriers to entry and eliminate competition in the relevant market.
But after hearings, the CCI concluded that the multiplexes of ILPL cannot be treated as the relevant market as the competitors of Coke had similar agreements with larger multiplexes. Therefore the CCI held that there was no abuse of dominant position by Coke.
No interim relief
Recently, the CCI declined to grant interim relief in a complaint filed by Arshiya Rail Infrastructure alleging abuse of dominant position against the Ministry of Railways and the Container Corporation of India. While doing so the CCI held that the prima facie opinion to be formed for grant of interim relief must carry a higher degree of satisfaction as compared to the prima facie opinion formed for referring the matter for investigation.
In checking the abuse of dominance, the CCI has to maintain a fine balance between allowing corporate giants to flourish and protecting the rights of smaller players and new entrants to the industry.
Suchitra Chitale, the managing partner of Chitale & Chitale Partners, heads the competition team of the firm, which advises and acts on behalf of clients in Indian competition law matters. She has been in practice for more than 24 years. Sayan Chakraborty is an associate at Chitale & Chitale Partners.
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