Abuse of Dominant Market Position

The Competition Act, 2002 of India which regulates a healthy competition in Indian markets, ensuring freedom of trade and protection of consumers’ interests, prohibits every kind of anticompetitive activity in the market that can lead to unfair business trade practices. “Abuse of dominance” is strictly prohibited as per this act and sec 4 of the act defines the dominant position as;

Any enterprise is said to hold a dominant position when it enjoys a position of strength in a relevant Indian market in such a way that it enables the enterprise to:

  • operate independently of the competitive forces prevailing in the relevant market; or
  • affect its competitors or consumers or the relevant market in its favour

In India, the relative position of strength being enjoyed by the participant of the market and a qualitative assessment of the prevalent market dynamics are considered to be the two grounds for determining the dominance of the enterprise.

Sec 4(2) of the act[1], explains that an enterprise abuses its dominant position if it performs any of the enlisted acts;

  • imposes any discriminatory or unfair practices, either directly or indirectly;
  • restricts or limits any provision of services or production of goods or any scientific/technical developments of such goods and services, in any form;
  • indulges itself in any such practices which result in denial of market access;
  •  makes the conclusion of the contracts that are subjected to acceptance by other parties of supplementary obligations which have zero connection with the subject of such contracts;
  • Makes use of its dominant position in one relevant market in order to protect, or enter into other relevant markets.

The Act provides that when a dominant enterprise’s abusive act or conduct is to be determined, a 3 step test is required: determining the relevant market; assessment of dominance in the market, and; establishment of abusive dominant conduct.  

  • Determining the relevant market

A relevant market is determined by 2 aspects:

  1. Relevant Product Market– Where all the products or services can be substituted for or interchanged by the consumers on the basis of their characteristics like price, size, shape or colour, etc. Various supply sided factors like switching costs, cost of inputs etc. can also be the basis.
  2. Relevant Geographic Market– Where in an area, certain competitive conditions exist which are distinctively homogeneous in nature, regarding the demand and supply of the goods and services and such conditions are distinguishable from the ones prevailing in a neighbouring area.
  • Assessment of Dominance

Competition Commission of India enlists various factors for determining the under section 19(4)[2] of the act, like market share, the size and structure of the market, barriers to entry and exit in the market, financial assets and risks, social responsibilities and obligations, etc.

In case, Meru Travels Solutions Pvt Ltd v CCI[3], the former COMPAT[4] observed that the financial resources available and the existence of incentives and discounts associated with the business model are quite justified reasons to suggest that only market share of the enterprise shouldn’t be a limit to analyse the issue of dominance.

Although market share has been considered as the most important factor in determining the abusive dominance, CCI observed the importance of considering subject factors as well, like the power of countervailing buyer, barriers to entry, vertical integration, etc.

  • Assessment of abusive conduct

The practices enlisted under sec 4 of the act, essential for making the act abusive in nature, can broadly be categorised into two kinds of abuses:

  1. Exclusionary abuses: that include activities of the dominant enterprise which have the effect of excluding the rest of the firms in the relevant market;
  2. Exploitative abuses: that includes practices of the dominant enterprise which imposes discriminatory or unfair restrictions on the rest of the players as well as consumers, resulting in exploitation of their position in the market.

In case, Biocon Limited v F Hoffmann-La Roche AG[5], the CCI recognised that as an abuse of dominance, certain dominant enterprises in exceptional cases, pursue legal processes as a tactic, in order to exhaust the resources of smaller rivals and this prevents or cause a delay in their entry in the relevant market.

In case, HPCL Mittal Pipelines Limited v Gujarat Energy Transmission Corporation Limited & Ors[6], the CCI observed that every consumer had to obtain SLDC’s approval in order to obtain access for the electricity supply in Gujarat and since, State Load Dispatch Centre, GETCO Gujarat (SLDC), denied this open access to such consumers, it was found abusing its dominant position in the market.

Penalties and Sanctions

To whichever enterprise is found guilty of abusing its dominance in the market, CCI can:

  • Direct or order to discontinue such abusive practices, as per Sec 27(a).

In case, In Re Shamsher Kataria[7], it was ordered to the dominant parties that they must cease and withdraw themselves from indulging in any activity that was found contravening to S.4 of the Act.

  • Impose penalties of up to 10%t of the avg. of the turnover for the last 3 preceding financial years, as per S.27(b).

Although this provision provides the upper limit for the penalty, there are no guidelines provided for calculating such penalties. Hence, CCI, under certain conditions put up by COMPAT, enjoys the full discretion to calculate the penalties being awarded to such offenders.

In case, M/s Excel Crop Care Limited v Competition Commission of India[8], CCI was criticised by COMPAT for awarding the penalties without providing any reasons for the same. COMPAT also held that instead of overall turnover, ‘relevant turnover’, i.e. the turnover generated from the particular product(s) in contention, shall be considered as the basis for calculating penalties.

However, in case, in M/s DLF Limited v Competition Commission of India &Ors[9] , in spite of the relevant market being the market for ‘high-end residential accommodation’, COMPAT validated the penalty levied by CCI, calculated on DLF Limited’s turnover based on its entire business and failed to limit the calculation of the penalty on the basis of DLF Limited’s turnover which was arising from the residential segment only.

  • Order a division of such dominant enterprise in a way that it can no longer abuse its dominance, as per S.28.

Conclusion

An enterprise, enjoying a dominant position in the market, can effortlessly abuse such dominance, hence, making it very challenging for any competition agencies to determine the existence of such dominance. Fortunately, Indian provisions related to this, come in handy. However, it will be even more interesting to watch new suggestions by the committee bringing important changes in this Act, for maintaining healthy competition in Indian Markets.


[1] amended by the Competition (Amendment) Act, 2007.

[2] amended by the Competition (Amendment) Act, 2007.

[3] 2016 TaxPub (CL ) 0143 (CCI)

[4] Company Law Appellate Tribunal

[5] Case No. 68 of 2016

[6]  Case No. 39 of 2017

[7] Case No. 03/2011

[8]  Appeal 79 of 2012

[9] Appeal No. 20 of 2011, Appeal No. 22 of 2011, Appeal No. 19 of 2012, Appeal No. 23 of 2011, Appeal No. 12 of 2012, Appeal No. 20 of 2012, Appeal No. 29 of 2013, Appeal No. 8 of 2013, Appeal No. 9 of 2013, Appeal No. 11 of 2013.

Shreya Bhatnagar from Delhi Metropolitan Education, GGSIPU

“An Artist with a Feather in a Black Coat.”

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