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COMPETITON LAW ASSIGNMENT FOR

INTERNAL EVALUATION

CASE ANALYSIS
OF
Adani Gas Limited (Agl) vs Competition
Commission Of India (2020)

SUBMITTED BY - NIHIT MISHRA

ENROLL. NO. – 20190401064

SEMESTER- 8

SECTION –B

SUBMITTED TO- ASST. PROF. RAFIQUE KHAN

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INTRODUCTION
Fair trade watchdog, CCI (Competition Commission of India) had imposed a penalty of more
than Rs. 25 crores on AGL (Adani Gas Limited) holding that the AGL has contravened the
provisions of Section 4(2)(a)(i) of the Act by imposing unfair conditions upon the buyers under
the Gas Supply Agreement (GSA). Faridabad Industries Association (FIA) was the Informant in
this case.

AGL has preferred an appeal against the order of the CCI u/s 27 of the Competition Act, 2002.
The FIA had presented information against the Appellant before the Commission, alleging abuse
of dominant position while supplying piped natural gas to industrial customers in Faridabad.

As per the information furnished by the Informant, about 90 members under FIA were
consuming natural gas as supplied by the Appellant to meet their fuel requirements. The
Informant alleged that AGL has abused its dominant position in the relevant market of supply
and distribution of natural gas in Faridabad, to its wide customers by enforcing unconscionable
terms and conditions under the Gas Supply Agreement, which is presumed to be arbitrary,
unreasonable, unilateral and lopsided and being titled in favor of AGL, thus, leaving no scope to
the members of FIA, who are solely dependent on AGL for the supplies.

Thus, AGL is presumed to have imposed its dominance upon the buyers of natural gas under the
garb of executing GSA (Gas Service Agreement). Further, on referring to various clauses under
GSA, it was alleged that the Appellant clearly demonstrated abuse of dominant position by
imposing unfair and discriminatory conditions in GSA, so executed by the members of FIA.

Thus, the Informant complained before the CCI, for the alleged violations of Section 4 of the Act
and thereby, seeking various reliefs including direction to AGL to discontinue such abuse of
domain position, direct modification/alteration to the offending clauses under GSA by providing
fair and non-discriminatory terms and lastly, by imposition of exemplary penalty within the
ambit of Section 27(b) of the Act.\

FACTS

The Faridabad Industries Association (hereinafter referred as FLA) being the informant of this
case is an association of industries situated in Faridabad with about 500 members which is
registered under Societies Registration Act, 1860. The industries consist of auto components,
medical devices, steel, alloys, textiles, etc.

While the opposite party being M/s Adani Gas Ltd. (hereinafter referred as AGL) is a company
incorporated and registered under the Companies Act, 1956 and is engrossed in setting up
distribution networks in different cities in order to supply natural gas to commercial, domestic,
industrial and CNG Customer's usage FIA alleges AGL for contravention of the prosion of
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Section 4 1of Competition Act 2002(hereinafter referred as the Act) which talks about Abuse of
Dominant Position. The commission in accordance with Section 26(1) of the Act being sansfied
with an existence of prima facie case, directed the Director General to investigate the matter It is
asserted that around 90 members of the FIA commume natural gas supplied by the ACL to meet
their fuel requirements FIA alleges AGL of abusing its dominant power in the relevant market.2

ISSUES
(a) Whether AGL did enjoy a dominant position?

(b) Whether AGL's dominant position prevailed in the relevant market?

(c) Whether AGL abused its dominant position?

ISSUE 1:

whether the AGL did enjoy a dominant position in the relevant market ?
AGL did enjoy a dominant position in the relevant market enabling it to operate independently of
competitive forces prevailing in the relevant market or affect its competitors or consumers or the
relevant market in its favour and if so, whether AGL imposed any unfair or discriminatory
conditions in purchase or sale of goods or services or in price or imposed unfair or
discriminatory price in purchase or sale of goods or services or limited or restricted production of
goods or provision of services or indulged in practices resulting in denial of market access.

FACTORS FOR DETERMINATION OF ABUSE OF DOMINANT POSITION AS

PERCIEVED IN THE CASE

It is worth noting that in the instant case, AGL being the sole supplier of natural gas in Faridabad
and so has been, duly authorized by the Government of Haryana to supply the piped natural gas
across all the consumers, preferably the members of FIA, and thus, there being no gaseous
substitutes for the same, AGL abused its dominant position qua industrial consumers (Members
of FIA) by imposing unfair conditions upon the buyers under GSA.
1
Section 4(2)(a)(i) in the Competition Act, 2002
2
Case No. 71 of 2013CC
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In order to have better understanding of how similar cases operate and what factors are kept into
consideration for determining abuse of dominant position in the market, clarity with respect to
three concepts are to be delineated.

ISSUE 2:

Whether AGL abused its dominant position in Relevant market?

The Director General observed the GSA between the members of the informant and the opposite
party which were alleged to be abusive and in contravention of the provision of the Act Clause 9
and Clause 10 which state provision of Quality of Gas and Measurement and Calibration
respectively are not found to be in contravention of the Act as alleged by the informant. The
commission observes that certification of quality of gas needs to be provided by the seller. Since
the opposite party is not the producer of the gas but sources the gas from GAIL The opposite
party relies upon a certificate of gas quality issued by the supplier which is according to the
equipment installed by the supplier. This certificate is accessible to the counters which in tum,
allow them to verify the quality of gas Clause 11 (Shutdown and Stoppage of Gas) where no
compensation shall be given to the buyer in case of any loss due to production or renement for
alternative fuels during disruption of gas supply, due to a reason. Informant alleges this clause to
be abuse of dominant position an which the opposite party clarities that gas supply disruption can
happen due to different reasons one of which is damage of pipeline be third pames and
untherised digging of sonde wuch the opposite pain has no control of The commisce ben reading
this clause with clause 21.5 sts that is part would be liable for any lond of red, incidental or
butiequential loss

LIST OF CASES REFERRED:

Dhanraj Pillay & Ors. v. Hockey India 3, here the Commission held that restrictive conditions
are inherent and proportionate to the objectives of the enterprise and cannot be termed unfair
unless it is shown, where they were applied in a disproportionate manner, for which there is no
evidence

The commission in the matter of Neeraj Malhotra v. North Delhi Power Limited beld that
relevant evidence required to establish that any transaction followed by an enterprise would
amount to abuse of dominant por

RELEVANT MARKET AND RELEVANT PRODUCT MARKET

The relevant market is the area of effective competition where supply and demand
interact. Factors relevant for determining a relevant product market include both demand side

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Case No. 73:2011, CC
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factors (physical characteristics, end-use, price and consumer preferences) and supply side
factors (classification of industrial products, specialized producers, exclusion of in-house
production). The term ‘relevant market’ is defined u/s 2(r) of the Act, as the market which may
be determined by the Commission with reference to ‘relevant product market’ and ‘relevant
geographic market’ or with reference to both the markets.

To determine whether a firm or a collection of them exercise market power, market has to be
defined and identified with reference to a product and geographical area. This is called ‘relevant
market’, as being relevant to the product which the sellers deal with and geographical area where
they operate.

Thus, defining relevant market is important in analyzing competitive constraints imposed by one
product over the other.

In the case of M/s Saint Gobain Glass India Ltd. v. M/s Gujrat Gas Company Limited the CCI
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in order to determine the ‘relevant market’ took note of factors to be considered while
determining relevant product market and relevant geographic market. The CCI stated that to
determine the “relevant product market”, the Commission is to have due regard to all or any of
the following factors viz., physical characteristics or end-use of goods, price of goods or service,
consumer preferences, exclusion of in-house production, existence of specialized producers and
classification of industrial products, in terms of the provisions contained in Section 19(7) of the
Act.

Relevant Product Market is defined u/s 2(t) of the Act, as a market comprising all those products
or services which are regarded as interchangeable or substitutable by the consumer, by reason of
characteristics of the products or services, their prices and intended use. Section 19(7) of the Act
enlists the factors to be considered by the CCI while determining ‘relevant product market’:

1. Physical characteristics or end-use of goods;

2. Price of goods or services;

3. Consumer preferences;

4. Exclusion of in-house production;

5. Existence of specialized producers;

6. Classification of industrial products;

Relevant Geographic Market is defined u/s 2(s) of the Act, as a market comprising the area in
which the conditions of competition for supply of goods or provision of services or demand of

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APPEAL No. 174 OF 2016,CC
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goods or services are distinctly homogenous and can be distinguished from the conditions
prevailing in the neighbouring areas. Section 19(6) enlists the factors to be considered by CCI
while determining ‘relevant geographic market’:

1. Regulatory trade barriers;

2. Local specification requirements;

3. National procedure policies;

4. Adequate distribution facilities;

5. Transport costs;

6. Language;

7. Consumer preferences;

8. Need for secure or regular supplies

JUDGEMENT
The National Company Law Appellate Tribunal (NCLAT), vide judgment dated 05.03.2020, has
upheld the order dated 03.07.2014 passed by the Competition Commission of India (CCI) for
abuse of dominant position by M/s Adani Gas Limited ("Adani') in the relevant market of supply
and distribution of natural gas in Faridabad in contravention of Section 4(2) (a) (i) of the
Competition Act, 2002. However, the National Company Law Appellate Tribunal (NCLAT) has
lessened the quantum of penalty from the originally imposed four percent to one percent of the
average of the turnover for the preceding three years considering the mitigating factors.

National Company Law Appellate Tribunal (NCLAT) observed that a vital question for
consideration of the appeal was whether there was any 'gaseous' substitute for industrial
consumers. It was observed that natural gas competes with most of the fuels available in the
market like furnace oils, electricity, diesel, coal, and naptha, and the customers have the
capability to switch over to the alternate fuels without incurring substantial costs. National
Company Law Appellate Tribunal (NCLAT) noted that industrial consumers can switch over to
solid fuel (coal and lignite), liquid fuels (furnace oil), and grid electricity.

It was held that LPG is not a substitute for Industrial consumers though the same constitutes a
substitute for natural gas with respect to other categories of consumers i.e. domestic,
commercial, and transport sectors. National Company Law Appellate Tribunal (NCLAT)
observed that Faridabad Industries Association (FIA) members were solely dependent on the
supplies for Adani, being the only supplier of natural gas while IOCL, BPCL, HPCL competed
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for the supply of alternate fuels. Moreover, during the relevant period, there was no gaseous
substitute of natural gas available to Industrial Units in Faridabad. Accordingly, NCLAT agreed
with the finding of CCI qua the relevant market definition and the dominance of Adani.

The National Company Law Appellate Tribunal (NCLAT), agreeing with the findings of the
Commission, held that Clauses 11.2.1, 13.5, 13.7, 16.3, and 17.2 and 17.4 were abusive in nature
on the same lines as observed by the commission in its order. The National Company Law
Appellate Tribunal (NCLAT) acknowledged that even Adani was conscious of such conditions
in the Gas Supply Agreement (GSA) to be unfair which was inferable from its conduct in
substituting the original Gas Supply Agreement (GSA) with revised one modifying the
contravening terms and conditions. Moreover, Clause 17.4 was completely removed and not
incorporated into the new Gas Supply Agreement (GSA). Consequently, the National Company
Law Appellate Tribunal (NCLAT) confirmed the finding of the Competition Of India (CCI) with
respect to abuse of dominant position by Adani.

As regards FIA’s appeal, the National Company Law Appellate Tribunal (NCLAT) observed
that Adani, as a distributor entered into the back to back agreements for the supply of natural gas
and the concerns raised by Faridabad Industries Association (FIA), were purely contractual in
nature and merited no inference from competition law angle.

A question of law was considered by the National Company Law Appellate Tribunal (NCLAT)
while addressing this appeal. The question was whether the Commission can pass orders
singularly or with any other directions or pass all orders under Section 27 of the Act as in this
case the Competition Of India (CCI) had imposed a fine and also a direction to amend the Gas
Supply Agreement (GSA). The National Company Law Appellate Tribunal (NCLAT) observed
that a plain reading of the provision provides that the Commission is empowered to pass all or
any of the orders envisaged under Clauses (a) to (g). The National Company Law Appellate
Tribunal (NCLAT) emphasized that the term 'any' is all-encompassing and empowers the
Competition Of India (CCI) to pass orders either singularly or coupled with any other discretion
or pass all orders under Section 27 of the Act.

The National Company Law Appellate Tribunal (NCLAT) noted that the Gas Supply Agreement
(GSA) was revised by Adani during the course of investigation and inquiry before the
Commission and the Gas Supply Agreement (GSA) was made more consumer-friendly and
protected the interests of the industrial consumers by removing disparities as regards the revision
of gas prices, payment obligation in case of shutdown of supply and for partial or complete off-
take of gas, etc. The National Company Law Appellate Tribunal (NCLAT) acknowledged that
such modifications eliminated the discrimination qua the industrial consumers and the fact that
Adani came up with a voluntary revision of Gas Supply Agreement (GSA) even before the
conclusion of inquiry by Competition Of India (CCI) and was responsive to the advice of the
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erstwhile COMPAT were all mitigating factors in favor of Adani outweighing the only
aggregator factor i.e. abuse of dominant position

Accordingly, the National Company Law Appellate Tribunal (NCLAT) lessens the quantum of
penalty imposed on Adani from four percent of the average annual turnover of the relevant three
years to one percent.

CONCLUSION AND RATIONALE

The commission was of the view that the opposite party has contravened the provision of Section
4(2)(a)(1) of the Act by imposing unfair and discriminatory conditions in the purchase or sale of
goods.

The order passed by the Competition Commission of India is as under. 1. The opposite party has
to cease and desist itself from indulging in activities which are in contravention of the provisions
of this act under this order 2 GSA has to be modified in accordance with the findings and
observations recorded under this order A wide discretion is conferred upon the commision while
imposing penalty upon the contravening parties, which shall not be more than 10% ten percent)
of the average turnover for the last three

preceding financial years The commission was of the opinion that only few provisions of the
agreement were found to be in contravention of the Act, the opposte party AGL) during the
course of investigation and pendency of proceeding made certain necessary changes in the
agreement The commission according to the facts and curcumstances decided to impose a
penalty at the rate 4% of the average tumover of the last three years The apporte party was
required to modify the terms of the agreement within 60 days of the orderof receipt.