Objective Justification in Abuse of Dominance Cases in India

[Basu Chandola is a BBA LLB graduate (batch of 2018) from the National Law University Odisha.

The concept of objective justification provides that a dominant enterprise will not be abusing its dominant position if it can provide a justification for its conduct. Though the concept is well-accepted in the European Union, its position in Indian competition law is ambiguous. This post seeks to clearly demonstrate the position of law on objective justification.]

In the European Union (EU), a firm accused of abuse of dominance may put forward an objective justification and, if such a justification is accepted, there is no abuse and no violation of Article 102 of the Treaty on the Functioning of the European Union (TFEU).[i] The dominant undertaking may provide a justification either by demonstrating that its conduct is objectively necessary or by demonstrating that its conduct produces substantial efficiencies the outweigh any anticompetitive effects on consumers.[ii]

In the Indian scenario, there is ambiguity whether such a defense can be accepted within the framework of the Competition Act, 2002. Some authors believe that the Act imposes a strict liability on an enterprise abusing its dominant position and it does not make any reference to an effects-based analysis for considering the conduct of an enterprise.[iii] On the other hand, some authors believe that the conduct of a dominant enterprise may escape the prohibition of section 4 of the Act in case the dominant enterprise can provide an objective justification for its behavior or it can demonstrate that its conduct produces efficiencies which outweigh the negative effect on competition.[iv]

To bring in clarity, it is essential to first consider the structure of section 4 of the Act which deals with the prohibition of abuse of dominance and provides that no enterprise or group shall abuse its dominant position. Sub-section (2) provides a list of behavior which comprise of abuse of dominance such as imposition of unfair prices and conditions, limiting or restricting production of goods and services or limiting technical or scientific development relating to goods or services to the prejudice of consumers, indulging in practices resulting in denial of market access, making conclusion of contracts subject to acceptance of supplementary obligations, and using one’s dominant position in one relevant market to enter into another relevant market.[v]

The section explicitly provides that discriminatory conditions or prices which may be adopted to meet the competition would not be considered an abuse of dominance under section 4(2)(1) of the Act.[vi] Thus, all forms of discrimination are not affected by the rigours of the Act and only such discrimination is considered abusive which is exercised by a dominant player in the relevant market without any justification or which bears no reasonable nexus with the objective sought to be achieved.[vii] The Commission has accepted the defense of protection of dominant enterprises’ own commercial interest in number of cases[viii] dealing with imposition of unfair prices or conditions.

Apart from this limited defense for unfair pricing and imposition of unfair conditions, section 4 does not provide any scope for application of the concept of objective justification. From a bare reading, it appears that the Act does not provide for any form of defense except in cases where the abusive behavior is imposition of unfair or discriminatory prices or conditions.[ix] It is interesting to note here that in East India Petroleum Pvt. Ltd. (EIPL) v South Asia LPG Company Pvt. Ltd. (SALPG),[x] the Competition Commission of India observed that the denial of market access, in any manner, by a dominant enterprise cannot be justified. However, the Commission decided to consider the justifications offered by opposite party in this case. The Commission observed that the protection of commercial interest by a dominant enterprise, at the cost of competition, is contrary to its responsibility cast under the Act. The Commission observed that the efficiency justifications advanced by opposite party were not supported by evidence and, therefore, found the opposite party to be in violation of section 4 of the Act. Though the Commission denied the possibility of justifying a denial of market access, it still considered the justifications and ruled on the merits of the same.

Furthermore, in Hemant Sharma v All India Chess Federation (AICF),[xi] the Commission observed that, unlike other abuse cases, abuses in case of sport regulations could be justified if it is demonstrated that the restraint on competition was a necessary requirement to serve the development of sport or preserve its integrity. If such restrictions impeded competition without having any plausible justification, the same would fall foul of competition law.[xii] A strong inference that can be drawn is that no defenses can be raised generally in abuse of dominance cases.

Even more complications arise after the decision of the Supreme Court in the case of Competition Commission of India v M/S Fast Way Transmission,[xiii] wherein the Court found the respondents to be indulging in practices resulting in denial of market access in violation of section 4(2)(c) of the Act, but decided that no penalty should be levied on them as their behavior was otherwise justifiable. The Supreme Court has thus treated the justifications as mitigating factor not to impose penalties rather than an objective justification or defence as traditionally understood.[xiv] It may be noted that the order does not provide the reasoning for treating the justifications as mitigating factors rather than treating them as defenses. The approach of the Supreme Court on accepting justifications is very different from the approach taken in the EU. In the EU, once a justification is accepted the dominant enterprise does not abuse its dominant position. However, the decision of the Supreme Court suggests that though the justification may be used to reduce the penalty to be imposed on the dominant enterprise, it does not absolve the dominant enterprise itself.

To conclude, the author would like to state that accepting justifications from a dominant enterprise is a welcome step while dealing with abuse of dominance cases. However, a proper framework or guidance must first be provided either by the statute or by judicial decisions which may help in developing the concept. The Act does not clearly provide for objective justifications and therefore, accepting them without providing proper reasoning does not seem very prudent. The author hopes that the Supreme Court will deal with this issue in depth and provide the much needed framework. Until then, we can be content that justifications can at least be treated as mitigating factors while imposing penalties in abuse of dominance cases.

– Basu Chandola

[i] Tjarda van der Vijver, ‘Objective Justification and Article 102 TFEU’ World Competition Law and Economics Review, Volume 35 Issue 1.

[ii] European Commission, ‘Guidance on the Commission’s enforcement priorities in applying Article 82 of the EC Treaty to abusive exclusionary conduct by dominant undertakings’ (2009/C 45/02)

[iii] Cyril Shroff and Nisha Kaur Uberoi, ‘Chapter 4: India’, in Katrina Groshinski and Caitlin Davies, Competition Law in Asia Pacific: A Practical Guide (Kluwer Law International 2015).

[iv] Abir Roy, Competition Law in India: A Practical Guide (Kluwer Law International 2016) 223.

[v] The Competition Act 2002, section 4(2).

[vi] The Competition Act 2002, explanation to section 4(2)(a).

[vii] VE Commercial Vehicles Limited v Uttar Pradesh State Road Transport Corporation, Case No. 21 of 2017 (Dissent) (7 September 2017).

[viii]  See All Odisha Steel Federation Informant v Odisha Mining Corporation Limited, Case No. 12 of 2012 (19 September 2013); Rico Auto Industries Limited v GAIL (India) Ltd., Case No. 16 of 2016 (8 November 2018); Prasar Bharati (Broadcasting Corporation of India) v TAM Media Research Private Limited, Case No. 70 of 2012 (25 February 2016);  Kapoor Glass Private Limited v Schott Glass India Private Limited, Case No. 22 of 2010 (29 March 2012).

[ix] Abir Roy, Competition Law in India: A Practical Guide (Kluwer Law International, 2016) 179.

[x] Case No. 76 of 2011 (11 July 2018).

[xi] Case No. 79 of 2011 (12July 2018).

[xii] See also Sh. Dhanraj Pillay v M/s Hockey India, Case No.73 of 2011 (31 May 2013); Surinder Singh Barmi v The Board of Control for Cricket in India, Case No. 61 of 2010 (29 November 2017).

[xiii] (2018) 4 SCC 316.

[xiv] Rahul Goel, ‘Supreme Court Confirms Abuse of Dominance by MultiSystem Operators’ (Competition Law- A Cyril Amarchand Mangaldas Blog (7 March 2018).