Analysis of a Competition Commission Order on Abuse of Dominant Position

[Apurva Singh is a third year student at the National Law School of India University, Bangalore]

In this post, I claim that the Competition Commission of India’s (“CCI’s)order in Bijay Poddar v. Coal India Ltd. (2017) is (1) violative of the Competition Act, 2002 (the “Act”) and (2) inefficient as per principles of law and economics. I shall first detail the facts and order of the CCI and then present my analyses.

In this case, an information was filed against Coal India Limited (“CIL”) stating that the terms and conditions of its ‘Spot e-Auction’ scheme through which bidders could buy non-coking coal were arbitrary as they imposed a penalty on bidders who failed to offer full or part of the successful bid, but not on CIL if they failed to supply the coal. The CCI passed an order against CIL stating that they have abused their dominant position. (For the purposes of this post, it is assumedthat CIL indeed abused its dominant position and the same is not contested.)

The CCI ordered CIL to modify its terms and conditions, but it however imposed no monetary penalty since a previous penalty had already been imposed on CIL regarding the same product, i.e. non-coking coal (among other reasons). I submit that this order is violative of the Competition Act and inefficient. I shall prove this through a two-pronged analysis: (1) positive, (2) normative.   

(1) Positive Analysis: CIL’s non-imposition of a penalty could be interpreted as an order under section 27(b) of the Act since the provision allows for an imposition of penalty of “not more than ten percent of the average of the turnover …”. Since the imposition of zero penalty is less than this amount no matter how much the turnover is, section 27(b) has been complied with. However, the order also states that CCI is not doing so because “they have already imposed a penalty on CIL in a previous case.” This discretion could be read into the “as it may deem fit” part of section 27(b).   

The question here is whether the CCI can pass an order “as it may deem fit” to waive a monetary penalty on the ground of what seems to be sympathy. I submit that it cannot. Firstly, it is not contested that the CCI can choose notto impose a monetary penalty. It is further not contested that the CCI can passanyorder as it deems fit, considering section 27(g) confers sweeping residuary powers to the CCI. However, passing any order, even on abuse of dominant position, must still be within the larger framework of theCompetition Actand not merely section 27.

I specifically refer to section 36(1) of the Act that states that CCI ‘shall’ be guided by the principles of natural justice (PNJ). Even if the CCI order were under section 27, it must be guided by PNJ as the section uses the word ‘shall’. PNJ includes delivering of a speaking or reasoned order. The CCI has also supported the application of PNJ on matters regarding abuse of dominant position in their decisions on the BCCI cases (although it was a different rule of PNJ).

Now that I have established that the CCI is bound by PNJ in abuse of dominant position cases, we must examine whether notimposing any monetary penalty on an enterprise because of a previous penalty for a different case constitutes a “speaking order”. I submit that it does not because the ground here seems sympathetic, and not based on the merits of the case. In Babubhaiv. State of Gujarat (1985), the Supreme Court held that taking into account an irrelevant consideration was not a speaking order. Since a previous penalty is an irrelevant consideration for a present infringement, it is violative of PNJ, and thereby the Competition Act.

(2) Normative Analysis:Based on principles of law and economics, I shall normatively prove why the CCI’s order is inefficient.

In this case, the CCIcould haveimposed a monetary penalty ‘x’ to CIL. CIL would thus incur a costof ‘x’. However, CIL was benefiting from this unfair scheme as they incurred no cost in the event of a failure of supply of coal. If bidders failed to pay the amount, however, they would incur a cost of ‘y’. Any other enterprise aware of the CCI’s order would assume that they could continue with an unfair scheme like CIL’s until the CCI order themspecificallyto amend the same (considering they are benefited from an unfair scheme, plus there is no monetary penalty whatsoever). Thus, other enterprises would only amend an unfair scheme until they are specifically ordered to do so. And ‘n’ number of bidders of these thousands of enterprises would thereby bear ‘n’ x ‘y’ = ‘ny’ cost.

Imposing ‘x’ cost on one entity for making such an unfair scheme would create an incentive to make fairer schemes to other enterprises and thereby avoid a possible cost of ‘ny’. But due to the CCI’s order, there is now a cost of ‘ny’ which is far greater than ‘x’. Further, monetary penalty was waived due to a previous penalty. This creates a disincentive for bidders to enter into contracts for non-coking coal, which is inefficient.

The CCI in the previous case (where it in fact imposed the penalty) assumed that a monetary penalty was warranted. However, it seems that for violating the Act twice only onepenalty was imposed. This further means that an enterprise could violate the Act twice only to incur a penalty once. This reduces the incentive for enterprises to comply with the Act by 50%., i.e. enterprises would continue to violate the Act till they reap unfair benefits like CIL only until they are made to pay compensation for the same. Therefore, a continuous violation would only amount to halfthe actual penalty (assuming transaction costs, such as time and resources involved in litigation are negligible).

Therefore, I conclude that positively the CCI’s order fails to comply with the Competition Act, and normatively—from a law and economics perspective—the order is inefficient.

Apurva Singh

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