COMPETITION APPELLATE TRIBUNAL
Appeal No. 91/2012 with
IA Nos.253, 254, 255, 256, 257 and 269 of 2012
(Under Section 53B of the Competition Act, 2002 against the order dated 29.03.2012
passed by the Competition Commission of India in Case No. 22/2010)
CORAM
Hon’ble Mr. Justice V.S. Sirpurkar
Chairman
Hon’ble Shri Rahul Sarin
Member
Hon’ble Mrs. Pravin Tripathi
Member
In the matter of :
Schott Glass India Pvt. Ltd.,
(Schott Glass India)
Dynasty “A” Wing, 303/304, 3rd Floor,
Andheri Kurla Road, Andheri (E),
Mumbai – 400 059.
…Appellant
Versus
1.
Competition Commission of India
Through its Secretary,
Hindustan Times House,
18-20 Kasturba Gandhi Marg, New Delhi.
2.
M/s. Kapoor Glass Private Limited,
Kapoor House, A-37, Street No. 2,
MIDC (E), Mumbai – 400 093
… Respondents
Appeal No. 92/2012 with
I.A.No. 183 of 2012 & I.A. No. 220 of 2012
(Under Section 53B of the Competition Act, 2002 against the order dated 29.03.2012
passed by the Competition Commission of India in Case No. 22/2010)
In the matter of :
Kapoor Glass Private Limited, (Kapoor Glass),
Kapoor House, A-37, Street No. 2,
MIDC (E), Mumbai – 400 093
….Appellant
Versus
1.
Competition Commission of India
Through its Secretary,
Hindustan Times House,
18-20, kasturba Gandhi Marg,
New Delhi – 110001.
2.
Schott Glass India Pvt. Ltd.,
(Schott Glass India)
Dynasty “A” Wing, 303/304, 3rd Floor,
Andheri Kurla Road, Andheri (E),
Mumbai – 400 059.
Appearances :
….Respondents
Shri Percival Billimoria, Shri Sharan Thakur, Shri Daksh
Trivedi, Shri Sidharth Barua, Shri Saiyam Chaturvedi and
Ms. Roopali Singh, Shri Utpal Kant, Shri Akshat Razdan,
Advocates for the Appellant - Schott Glass India
Shri A.N. Haksar, Sr. Advocate with Mr. Ravisekhar Nair,
Mr. Saurabh Sinha and Mr. Arjun Khera, Advocates for
Kapoor Glass.
Shri Abhishek Yadav, Advocate with Ms. Shabistan Aquil,
DD (Law) for CCI.
ORDER
PER MR. JUSTICE V.S. SIRPURKAR, CHAIRMAN
This judgment shall govern two appeals, they being Appeal No. 91 of
2012 by M/s. Schott Glass India Pvt. Ltd. vs. CCI & Ors. and Appeal No. 92
of 2012 by M/s. Kapoor Glass (India) Pvt. Ltd. vs. M/s. Schott Glass India
Pvt. Ltd.
2.
This Appeal No. 91 of 2012 is filed on behalf of M/s. Schott Glass
India Pvt. Ltd. (Appellant) against the order of Competition Commission of
India (for short the ‘CCI’) whereby CCI has held the Appellant guilty of
contravention of section 4 of the Competition Act (for short the “Act”) and
has inflicted a penalty of Rs.5.66 crore.
It has also passed the cease and
desist order to the following effect:a)
That Schott Glass India should desist from applying dissimilar
conditions while giving discounts to Schott Kaisha vis-à-vis
other Converters.
b)
The terms of transactions for supply of tubes to Schott Kaisha,
the JV should be similar and non-discriminatory vis-à-vis the
other Converters.
c)
The discount on both amber and clear tubes should not be
contingent upon sale of each other.
Schott Glass India Pvt. Ltd. (“Schott India”) is a manufacturer of Neutral
USP-1 borosilicate glass tubes which are made of borosilicate glass, a
special type of glass having unique properties. Such glass tubes have low
thermal expansion co-efficient and are highly resistant to chemical
reaction, therefore are used to make glass ampoules, vials, cartridges,
syringes, which are primary packaging material for liquid injectables and
drugs by the pharmaceutical industry.
The pharmaceutical companies
generally specify the standards or quality/source for borosilicate glass
tubes, which may be used to make glass tubes ampoules, since the
molecules in liquid injectables tends to leach with the surface of the glass
container in which they are stored over a period of time, which may result
in a change in their chemical composition, in turn resulting in reduced
potency.
This may also result in discharge of alkali from the glass
container into the medical solution which might pose significant safety
related concerns for the patients being administered with the liquid drugs
packed with such glass containers.
Only such borosilicate glass tubes
which conform to United States Pharmacopoeia-I standard, and, are
neutral with alkali release of less than 1.0 ml. are recommended.
The
borosilicate glass can be amber or clear depending upon the drug which is
to be stored in them. Some drugs require very low exposure to light and
as such are packaged in amber borosilicate glass. In this appeal we are
concerned with the glass tubes which are manufactured by the Appellant,
which are then sold to the manufacturers of glass ampoules, vials,
cartridges, syringes etc., which are in turn sold to pharmaceutical
companies for storing drugs. The market of borosilicate glass tubes, thus
is the upstream market whereas the market of ampoules, vials, cartridges,
syringes etc. are in the downstream market. The Appellant, in Appeal No.
91 of 2012 is a wholly owned subsidiary of Schott Glaswerke Beteiligungs –
GmbH, Germany (“Schott GmbH”).
Schott GmbH is a wholly owned
subsidiary of Schott AG, Mainz, Germany and thus Schott AG is the ultimate
parent company of the Schott group.
3.
As has been stated earlier the Appellant is engaged in the production
of ‘neutral USP-1 borosilicate glass tubes’.
It is registered as a private
limited company in the State of Maharashtra since December 1997.
January 1998 it acquired the assets of M/s. Bharat Glass Tubes.
In
The
Appellant manufactures two qualities of borosilicate glass tubes i.e. (i)
Fiolax (in clear version) with alkali release of 0.38 ml of H2SO40.02 N per
10g powered glass and (ii) basic Neutral Glass Clear (NGC) and Neutral
Glass Amber (NGA) with certain specifications.
We are more or less
concerned in these appeals with NGC and NGA tubes which are produced
exclusively for Indian market. Fiolax clear is produced for Indian market as
well as for export.
4.
In May 2008, Schott group through Schott Pharmaceutical Packaging
GmbH (‘Schott Packaging’) a subsidiary of Schott Germany entered into
a
Joint
Venture
Agreement
(“JV”)
with
a
downstream
ampoule
manufacturer Kaisha Manufacturers Pvt. Ltd. (“Kaisha”) to integrate the
operations of Schott in India vertically and with downstream glass
containers manufacturing business.
It is now known as Schott Kaisha
Private Limited (“Schott Kaisha”). Thus ever since then Schott India is
connected with Schott Kaisha by way of a joint venture.
5.
It will be better at this stage to give the profile of M/s. Kapoor Glass
Pvt. Limited (“M/s. Kapoor Glass”) the respondent no. 2 in Appeal No.
91 of 2012 and the appellant in Appeal No. 92 of 2012. M/s. Kapoor Glass
is a private limited company engaged in the business of producing glass
ampoules, vials and dental cartridges (collectively referred as containers)
which are used by the pharmaceutical industry as primary packaging
material for filling and dispensing of liquid injectables. The key component
used in the manufacture of containers is neutral borosilicate glass tubes
NGA and NGC. Till the year 2008, M/s. Kapoor Glass also had a presence
in the upstream business of manufacturing NGA and NGC. However, now
it is engaged only in the business of downstream product of ampoules,
vials and other containers.
6.
An information was led before the CCI wherein three distinct time
periods were referred:-
7.
a)
prior to the entry of the Appellant in the year 1998;
b)
period between 1998 and 2008; and
c)
period from 2008 till date.
According to the information filed by M/s. Kapoor Glass (the
“Informant”) it states that prior to the entry of the Appellant i.e. before
1998 there were five producers of ‘neutral USP-I borosilicate glass tubes’ in
India, namely - Seraikella Glass Works Ltd., Bharat Glass Tubes Ltd.,
Twincity Glass India Pvt. Ltd., Triveni Glass Ltd. and M/s. Kapoor Glass
(India) Pvt. Ltd. It was urged that Seraikella Glass Works Ltd. exited the
market around 1996, while Bharat Glass was acquired by the Appellant in
1998 and Twincity exited the market in 2007 followed by M/s. Kapoor
Glass, which also exited the upstream market in 2008. Triveni Glass Ltd.
was taken over by Nipro Glass India in March 2010.
Thus, when the
information was led the Appellant and Nipro Glass India remained the only
producers of ‘neutral USP-I borosilicate glass tubes’ in India. It was stated
that there is considerable difference in the quality of the product of the
Appellant compared to the tubes by Triveni/Nipro India. It was also stated
that these were the only two domestic producers in India and most of the
domestic demand was met by them and only a portion of demand was met
by way of imports from China and other countries like Germany, Italy and
Japan.
However, these imports remained low because of high cost of
importing from other countries. The imports from China, however, were
less costly by at least 30 to 35%. It was also less costly than the domestic
variance. It was stated that most of the pharmaceutical companies did not
prefer to use glass ampoules made from Chinese glass tubes.
8.
The
information also
considerations in respect of
stated that
since
there
were
‘quality’
glass tubes produced by Triveni/Nipro, the
glass ampoules manufacturer in India, including the Informant were forced
to rely on the Appellant to meet their demand, as the Appellant was the
only player producing high quality ‘Neutral USP Type I Borosilicate Glass
Tubes’.
It was made out in the information that the Informant was
dependent
entirely
on
the
Appellant
since
most
of
the
Indian
pharmaceutical companies insisted on the use of glass ampoules made out
of the tubes manufactured by the Appellant.
9.
According
to
the
information,
from
14.5.2008
after
Kaisha
Manufacturers Pvt. Ltd. entered into a JV with Appellant’s sister concern
Schott Packaging which was itself subsidiary of Schott Germany, the
Appellant had become vertically integrated with large downstream ampoule
manufacturing company. It was, therefore, urged that the Appellant was
holding a dominant position inasmuch the Appellant had a dominant
presence in the Indian market having a market share of about 67% in
2009.
10.
The Informant complained of anti-competitive practices against the
Appellant by two types – (a) practices affecting the state of competition in
the market for ‘Neutral USP Type I Borosilicate Glass Tubes in India and
(b) practices affecting the state of competition in market for downstream
product of glass ampoules and other containers.
11.
According to the information, the Appellant engaged in unfair and
discriminatory pricing inasmuch as it sold its product at predatory prices
which were lesser than its cost of production as well as prevailing prices in
the international market in order to drive out the existing competitors in
the upstream market including the Informant and two other concerns
Twincity and Triveni.
This resulted in significant financial losses to the
Informant and resulted their ouster, identically like the other two
manufacturers referred to above.
According to the information the
Informant in this manner established the dominance and its abuse by the
Appellant. The information also stated that the Appellant started hiring key
managers of the Informant.
12.
It was then alleged that the Appellant was charging unfair prices and
was also granting loyalty rebates and discounts in order to prevent the
shift of ampoules manufacturers to imports and to ensure that ampoules
use glass tubes of the Appellant alone.
It was complained that the
Appellant offered loyalty discounts and initially such discount was given
only if an ampoule manufacturer purchased at least 80% of its total
requirement from Appellant. In addition, it was also complained that the
Appellant insisted on promoting the sale of Appellant’s brand and was also
required to sell the ampoules at prices suggested by the Appellant. It was
also complained that the Appellant refused to deal with such ampoule
manufacturers who made ampoules using tubes from other sources.
It
was further urged that the Appellant required (in order to avail tubes at
discounted rates) the ampoules manufacturers to agree to furnish bank
guarantee of Rs. 70 lac which was alleged to be an anti-competitive
practice. Lastly, it was stated that the Appellant was discriminating in the
discount policy also, as it was granting a special discount to its favoured
ampoule manufactures like its own JV, Kaisha, Klasspack Pvt. Ltd. and
Tubeglass Containers Pvt. Ltd. This according to the Informant was also a
discriminatory practice. According to the information, the Appellant was
thus driving out competitors from the market of clear variant by making
the supply of amber tubes to ampoule manufacturers contingent on the
procurement of the clear tubes from no other source but the Appellant
alone. It was for this reason that the information was with regard to the
contravention of provisions of section 4(2)(a) as also section 4(2)(e) of the
Act.
It was also alleged that the Appellant was guilty of contravention of
section 3(4) of the Act.
Various kinds of reliefs were sought by the
Informant, which are as follows:i)
To issue interim orders under Section 33 to restrain Schott from
abusing its position of dominance, including by offering its
discount scheme by engaging in unfair or discriminatory
pricing; or
ii)
To issue interim orders under Section 33 asking Schott to
extend the same terms of discounts and rebates to all ampoule
manufacturers without any discrimination on the basis of loyalty
or any other criteria;
iii)
To issue interim orders under Section 33 to restrain Schott from
continuing with its anti-competitive agreements for refusal to
deal;
iv)
To issue orders for fines and penalties for abuse of dominance
and entering into anti-competitive agreements; and
v)
To issue orders under section 27 of the Act for breaking up the
joint venture company between Schott and Kaisha.
13.
The CCI formulated a prima facie opinion under Section 26(1) and
directed the Director General to investigate into the matter.
14.
The Director General (“DG”) on investigation concluded that because
of the unique characteristics of the product of the Appellant, as also its
intended purpose, it was a non-substitutable product. The DG concluded
that there was no alternative to Neutral Borosilicate USP-I Borosilicate
Glass Tubes for the purpose of manufacturing glass ampoules and other
containers.
According to the DG, NGC and NGA tubes were most widely
used ‘neutral USP-I borosilicate glass tubes’ in India. The DG, therefore,
concluded that relevant product market for the downstream market was
that of ampoules, vials, cartridges and other containers.
15.
The DG held the whole of India as the relevant geographic market.
16.
The DG also came to the conclusion that the Appellant was a
dominant player and having major market share of 61.49% in 2008-09 and
81.17% in 2009-10.
The DG, therefore, held that the Appellant was a
market leader in the products like NGA, Fiolax Amber and Fiolax Clear and
thus had virtual monopoly. As regards amber tubes also, the DG held the
Appellant to be a dominant player.
The DG held that Schott group
together with Appellant is present both in manufacturing of glass tubes and
conversion of glass tubes into containers and therefore was vertically
integrated enterprise within the meaning of section 2(h) of the Act read
with explanations (a) and (b) to section 5 of the Act.
The DG also
commented on the strength of Appellant being a leading manufacturer of
glass tubes worldwide.
The DG also commented on other aspects like
relative position of strength of the Appellant vis-à-vis its competitors and
held that they could not match the Appellant.
It was held that Schott
group was also a dominant player in the global market and had enormous
economic power qua its competitors. The DG also took into consideration
the aspect of dependence of the consumer on the product of the Appellant.
The DG also held that the acts on the part of the Appellant created a
barrier for the new entrants and that there was no substitutability neither
was
there
any
countervailing
manufacturers in India.
buying
power
of
glass
ampoule
Thus, the DG came to the conclusion that the
Appellant was a dominant player. Insofar as the abusive acts and conduct
of the Appellant the DG found, firstly, that there was no merit in the
allegation of predatory practices engaged by the Appellant. Secondly, that
the allegation of prices being charged to oust competitor out of the market
was also not justified. The DG, therefore, cleared the Appellant from the
allegation of contravention of Section 4(2)(a)(ii).
The DG did not find
favour with the allegation of poaching of managers. As regards unfair and
discriminatory conditions of price in the sale of glass tubes, the DG, noted
two major issues – (i) discriminatory discount policy; and (ii) bundling of
amber tubes.
The DG found that insofar as the discriminatory discount
policy was concerned, two types of discounts were being granted, namely
target discount and functional discounts in various slabs ranging from 2%
to 12% depending upon quantities purchased by the Converters from the
Appellant which was only given on NGC and NGA tubes. The DG found
that Schott Kaisha, the JV of the Appellant was given a target discount on
the purchase of NGC and NGA as well as on Fiolax tubes which no other
Converter was granted.
The DG found a difference in respect of JV
inasmuch to other discounts was given on quarterly basis while to Schott
Kiasha it was given on monthly basis.
The DG also considered the
functional discount policy and bonus which were subject to certain
conditions, viz; that the Converters will promote Schott tubing by
purchasing an agreed quantity and the Converters will not use or convert
Chinese tubing and will provide all information and proof in this regard.
The DG also considered the Trade Mark License Agreement (TMLA) which
was brought into existence in the year 2010.
The DG analyzed the
discounts given on NGC and NGA and Fiolax, and based on the analysis he
concluded that the discount policy has not been uniformly applied by the
Appellant in terms of its declared policy, which has led to persistent price
discrimination of the same commodity being sold at different prices to
different customers.
He, therefore, held the Appellant guilty of
contravention of Section 4(2)(a) of the Act. The DG also found fault on the
application of discount on the sale of Fiolax tubes, which was given only to
Schott Kaisha. The DG held that the discount policy of the Appellant also
contravened the provisions of section 4(2)(c) as its practices have led to
denial of market access. The DG also held that the Appellant was guilty of
contravention of Section 4(2)(e) of the Act. On the question of TMLA, the
DG held that the terms were grossly unfair one sided and heavily loaded in
favour of the Schott group. The DG held that the TMLA when read with
Sale Purchase Agreement (“SPA”) and Marketing Support Agreement
(“MSA”) clearly showed that the Appellant had severely restrained the use
of tubes other than that of Schott. The DG found fault with the condition
of the bank guarantee of Rs.70 lacs also and therefore, came to the
conclusion that reading the three agreements together, the Appellant was
guilty of Section 4(2)(a) (i) and (ii) of the Act. The DG also held that under
the TMLA the Appellant had created a bogey of mixing risk, which was
non-existent.
The DG also held the Appellant guilty of discriminatory
practice inasmuch as giving favoured treatment to its JV Schott Kaisha.
The DG held that the long term tubing supply agreement which was
executed, resulted in different prices for supply of tubes to Schott Kaisha,
as under the agreement, the prices remained static between 2008 and
2011 whereas in case of others it did not happen. Therefore, the other
Converters suffered as compared to Schott Kaisha inasmuch as in the
percentage price increase applied to JV only on the prices prevalent on
1.4.2008 whereas to others it was on the prices prevalent on 31.3.2011.
The DG found fault with clause 3 of the agreement also and further came
to the conclusion that the Appellant had forced the other Converters to
supply tubes not below the prices charged by Schott Kaisha. Thus, the DG
came to the conclusion that the Appellant had grossly abused its dominant
position in the upstream relevant market.
The DG also held that the
Appellant was guilty of contravention of Section 4(2)(e) of the Act. The DG
also held that the practice of Appellant in favour of JV Schott Kaisha
resulted in limiting and restricting the market for conversion and which led
to denial of market access. The DG also held that the Appellant had the
power to leverage on account of its market share in the NGA (93%) and in
Fiolax Amber (87%).
17.
The DG also found that the Informant had previously attempted to
intentionally infringe Schott’s trademarks and fraudulently pass borosilicate
glass tubes manufactured by Schott India. DG took note of the fact that
because of this the Appellant had black listed M/s. Kapoor Glass and had
decided not to enter into any supply arrangement with it.
The DG,
therefore, observed that the Informant had indulged in unauthorized usage
of trademark of the Appellant. The DG, therefore, noted the contention
that the Appellant could not be forced to supply its products to the
Informant.
However, the DG held that reason to be not sustainable and
thus found the Appellant fully guilty of the various provisions of Section 4.
18.
The report of the DG was supplied to the parties and the Appellant
made detailed submissions opposing the findings of the DG. The Informant
also gave its comments. The DG's report was criticized as hasty and
contradictory. It was pointed out, that DG had committed an error
on relying on the statements by certain Converters, who clearly
had conflicting interests against the Appellant. In its submission
the Appellant had urged that such statements could not have
been accepted as gospel truth, as firstly they were by the
interested parties and secondly, there was no cross-examination.
The observation by the DG that the geographic market was India, was also
criticized, as according to the Appellant, the market could not be limited to
India alone as the borosilicate glass tubes were procured by the Converters
in India from other Asian countries and more particularly from China. It
was urged that the relevant market was competitive as the imports of the
borosilicate glass tubes were increasing and the market share of the
Appellant was declining. It was also urged that the market of Triveni Glass
had increased from 12% in 2008 to 14% in 2009. It was also urged that
the entry of Nipro had also caused a dent to the market share of the
Appellant, both in upstream as well as the downstream market. It was
urged that the Appellant could not be blamed for the ouster of some
players from the market, as there could be many other reasons for their
ouster like mismanagement, inferior quality of products and inability to
manage their finances. It was urged that the discounts were necessary as
there was competition in the relevant market. It was explained that
discrimination in prices was a myth and in fact the discounts dependent
upon the purchase of a particular Converters. It was suggested that mere
giving different discounts did not amount to discrimination in pricing. It
was pointed out that Schott Kaisha was the largest purchaser of the glass
tubes and deserved the discounts given to it. The theory of canvassing was
also attacked. The intricacies of the manufacturing process were also
explained. It was asserted by the Appellant that there was no
discrimination in pricing. According to the Appellant, there was no
annihilation of the competition. As regards the TMLA, it was pointed out
that it was designed to protect their brand and to avoid mixing risk by the
Converters of its product with Chinese tubes. It was explained that TMLA
helped to mitigate the risk of Converters of mixing ampoules made from
borosilicate glass tubes supplied by the Appellant with those made from
inferior quality borosilicate glass tubes imported from China.
It was
pointed out that by signing the TMLA, the Converters acquired the right to
display Schott logo and brand, as part of the material they use, to market
and supply ampoules to pharma companies. It was pointed out that under
the TMLA, Schott - the Appellant acquired the right to inspect the premises
of Converters to ensure that its Trademark was not being abused. It was
also pointed out that along with TMLA there is a Marketing Support
Agreement also whereby the Converters agree to promote the Appellant
and its products and services. It was, therefore, pointed out that the
discount which the Converters get on executing the TMLA is a functional
discount and that there was absolutely no discrimination between any two
parties in offering such functional discounts to all the Converters, who
agreed to execute the TMLA. In the same way, the practice of putting a
dotted line on the glass tubes was explained as an effort to eliminate the
passing off/ mixing risk. It was, however, pointed out that for some
technical reason that practice was discontinued. Similarly, the allegation of
leveraging the amber segment to sell of NGA contingent upon purchase of
NGC was denied as false. It was pointed out that this allegation and the
resultant finding by the DG depended upon the statement of three
Converters, who were not even cross-examined. It was pointed out that
there was no written evidence whatsoever. As regards the denial of
supplies to the Informant, it was submitted that the Informant had
attempted to intentionally infringe Schott's trademarks and to fraudulently
pass off borosilicate glass tubes manufactured by the Informant as
borosilicate glass tubes manufactured by Schott India and it was for this
reason that the supplies were stopped. It was pointed out that the
Informant was actually guilty of fraudulently getting the logo of the
Appellant. It was pointed out that the DG had not seriously taken note of
this very serious issue. It was pointed out that the Informant's conduct was
not looked into by the DG with the seriousness that it deserved. It was also
urged that nothing was brought on record to show that the Appellant was
undercutting the other Converters in favour of Schott Kaisha. Three issues
came to be framed, which were:a)
On the basis of facts involved in the case, what was the
relevant market in this case?
b)
If the Appellant had a position of dominance in the relevant
market in terms of provisions of section 4 of the Act?
c)
If answer to b) was in affirmative, was there any case of abuse
on the part of the Appellant in terms of the following acts and
conduct, which, if established, may be said to be violative of
various provisions of section 4(2) of the Act;
In addition to this, seven sub-issues were also framed:i)
Whether the Appellant has indulged in the act of predatory
pricing in violation of provisions of section 4(2)(a)(ii) of the Act?
ii)
Whether the Appellant had imposed unfair and discriminatory
conditions or price in the sale of neutral USP-I borosilicate glass
tubes through its discount policies, TMLA, MSA and SPA in
contravention of the provisions of section 4(2)(a)(i) and (ii), of
the Act?
iii)
Whether the aforesaid policies of the Appellant are exclusionary
and limit and restrict the market in violation of provisions of
section 4(2)(b)(i) and are also causing denial of market access
in terms of section 4(2)(c) of the Act?
iv)
Whether the Appellant had leveraged its position of dominance
in relevant upstream market of neutral USP-1 glass tubes to
enter into or protect the relevant downstream market of
'Containers, i.e., ampoules, vials, dental cartridges and syringes
made out of 'neutral USP-I borosilicate glass tubes'?
v)
Whether the Appellant had engaged in the practice of making
the sale of amber tubes contingent upon the Converters buying
clear tubes from it in contravention of provisions of section
4(2)(d) and any other provisions of section 4 of the Act?
vi)
Whether the Appellant had refused to deal with the Informant
as has been alleged, denying market access to it and if yes,
had the Appellant contravened the provisions of section 4(2)(c)
of the Act?
vii)
Whether the Appellant had indulged in the practice of predatory
hiring of employees of the Informant and if yes, could the
practice be called inconsistent with the requirements under
section 4(2)(e) of the Act? Further, could this act be said to be
violative of provisions of section 4(2)(b)(i) since it is limiting
and restricting the ability of the Informant to produce goods as
alleged by the Informant?
19.
The CCI first noted the DG’s observation about the relevant product
market. It also noted the five categories made by the DG and came to the
conclusion that since the Appellant did not question the DG’s findings on
this issue, the CCI concluded that the relevant product market must be
categorised broadly into two upstream relevant product markets, namely
(a) Market for 'Neutral Clear USP-I borosilicate Glass Tubes' (NGC) and (b)
Market for 'Neutral Amber USP-I Borosilicate Glass Tubes' (NGA). It must
be stated at this juncture that the learned counsel for the Appellant did not
dispute this finding of the CCI. We, therefore, accept the finding. As far as
geographic market is concerned, the CCI noted that the DG had held that
the territory of India was held to be a geographical market. The CCI
approved of this finding by the DG. Though Shri Billimoria disputed this, we
do not think that CCI was in any way wrong in accepting the finding of the
DG. We are convinced with the reasons given by the CCI to hold that the
relevant geographical market would be India. The CCI observed that in
accordance with the provisions of explanation (a) of Section 4, the
'dominance of the enterprise' is required to be tested in relevant market in
India. The reasoning is undoubtedly correct and we, therefore, accept the
finding of the CCI on the relevant market to be the market for NGC and
NGA in India. We also accept the downstream market to be the market for
– (a) containers that is ampoules, vials, dental cartridges and syringes
made out of NGC in India, and (b) market for containers that is ampoules,
vials, dental cartridges and syringes made out of NGA.
20.
This brings us to the second issue about the Appellant being a
dominant player in the market. We must at this juncture point out that the
CCI has taken into consideration the definition of the term 'dominant
position'. It has considered all the factors enumerated in Section 19(4) of
the Act and has come to the conclusion that in so far as the 'market share'
was concerned, the Appellant's market share both in 'sale quantity' and
'sale value' was the highest in comparison to its competitors Nipro/Triveni,
as also the material imported. We agree with the observation of the CCI
that the Appellant is the market leader. The CCI has relied on some
judgments of the European Court of Justice (ECJ) like Hoffmann-La
Roche & Co. AG Vs. Commission [Case 85/76] as also United
Brands and Co. and Continental Vs. Commission [Case 27/76]. The
CCI has also quoted the AKZO V. Commission, Case C-62/86. It has
also found that the market share of the Appellant in the upstream relevant
market exceeded its nearest competitors and has remained significantly
high for a period of three years and this was indicative of the position and
strength of the Appellant. The CCI also noted that the Appellant has a
downstream market in Schott Kaisha. It was observed that Schott
Packaging, which was a subsidiary of Schott group entered into a Joint
Venture Agreement with a downstream ampoule manufacturer Kaisha
Manufacturers
Pvt.
Ltd.,
which was
the
biggest
Indian
ampoule
manufacturer in 2008. Thus Schott Kaisha was virtually a subsidiary of the
Appellant. The CCI also noted that Schott Kaisha was the leading player in
the market of ampoules and therefore, it was held that the Appellant
together with JV Schott Kaisha, a related group concern, enjoys a position
of strength in the upstream as well in the downstream relevant market.
The CCI also noted the size and the resources of the Appellant and came
to the conclusion that the Appellant's Schott Group enjoyed the global sales
of 2.85 billion Euros and that group employed 17,500 employees
worldwide. Number of other details were also considered and the CCI
ultimately commented that the Appellant and its group companies provided
tremendous market power in the upstream relevant market due to which it
has been able to deploy huge resources in terms of investment.
21.
While considering the size and importance of the competitors, the
CCI considered the sale and size of Nipro, the only competitor in the Indian
market. It also noted the imports from other major tube manufacturers in
the global market and came to the conclusion that in both the aspect, the
Appellant enjoyed the strong position.
22.
Similarly in so far as economic power of enterprise of the Appellant
and its commercial advantage over the competitors was concerned, the
CCI took the view that the size and economic power of the Appellant gave
it a huge commercial advantage over any of the competitors and
contributed to its position of dominance in the relevant market.
23.
So far as advantage of the Appellant being vertically integrated was
concerned, the CCI took the view that its arrangement with Schott Kaisha
gave it a specific advantage.
24.
Similar is the situation about the other factors, like dependence of
consumer, about which the CCI held that consumers were heavily
dependent on the Appellant in view of Appellant's product range,
preference of the pharmaceutical companies for its products and lack of
viable alternative options.
25.
The CCI has also commented on the entry barriers, particularly in
view of heavy capital requirement, huge running cost, high gestation
period and economies of scale in the production of the upstream relevant
products. It was also held that these entry barriers made the position of
the Appellant and its JV a formidable one in both upstream and
downstream relevant market.
26.
Lastly, while considering the question of countervailing buying power,
the CCI found that in downstream relevant market, leaving aside the JV
Schott Kaisha, the other Converters lack the requisite size or financial
strength to exercise countervailing buying power of the Appellant. It was
observed that in fact all these Converters were dependent upon the
Appellant for their supplies and could not exert disciplinary force on
Appellant. On this basis, the CCI held the Appellant to be a dominant
player in the upstream relevant market, while it held JV Schott Kaisha to be
dominant in the downstream relevant market. This finding of dominance
was not seriously disputed by Shri Billimoria, the learned counsel appearing
for the Appellant.
27.
According to Shri Billimoria, there was no point in giving a finding on
Schott Kaisha. The learned counsel pointed out that the Schott Kaisha was
not a party, nor did the DG proceed against Schott Kaisha and the
allegations, more or the less related only to the upstream relevant market.
Shri Billimoria also pointed out that regarding the allegation of leveraging
strength in one market to promote or to maintain the other market, there
was no real allegation. It was pointed out by Shri Billimoria that the
Appellant had no presence in the downstream market whatsoever except
that it was doing its business along with Schott Kaisha like any other
Converter. It was also urged by Shri Billimoria that there was no favoured
treatment given to Schott Kaisha, nor any discrimination practiced against
any other Converter. According to Shri Billimoria, therefore, the comments
against Schott Kaisha, were not only unnecessary, but the CCI committed a
legal error in commenting against Schott Kaisha.
28.
Before we take up the contested issues for consideration, we must
note few further aspects of the impugned order of the CCI. The CCI did
not accept the contention of the Informant as also the finding of the DG
insofar as the predatory pricing was concerned.
In that the CCI gave the
finding that after 2007 the prices of the Appellant remained significantly
higher than the cost of production.
According to the CCI, the earlier
pricing and the cost of production being prior to the commencement of the
Competition Act, 2002 could not have been considered. The CCI also held
that the issue of predatory pricing could not have been considered unless
there was a finding of dominance on the Appellant and in fact the
dominance of the Appellant only began after 2008. The CCI, therefore,
exonerated the Appellant from the allegation of predatory pricing.
29.
Similarly, it also refused to accept the allegation that the Appellant
drastically increased the prices to recover losses incurred on account of its
earlier predatory pricing.
In fact the CCI held that, considering the
admitted high quality of the product of the Appellant, the higher prices
were justified. It also held that there was no substance in the allegation of
competitors exiting from the relevant market due to predatory pricing of
the Appellant. It, therefore, exonerated the Appellant from the allegation
of contravention of section 4(2)(a)(ii) of the Act.
30.
While deciding sub-issue (vi), whether the Appellant has refused to
deal with the Informant and thereby denied market access to it and as
such breached the provisions of section 4(2)(c) of the Act, the CCI clearly
exonerated the Appellant. It upheld the contention of the Appellant that
there were attempts on the part of the Informant to intentionally infringe
the Appellant’s trademark and fraudulently market borosilicate glass tubes
manufactured by the Informant as borosilicate glass tubes manufactured
by the Appellant and therefore, the Appellant was reluctant to supply
borosilicate glass tubes to the Informant. The CCI also took note of the
reprehensible behaviour on the part of the Informant in printing fake labels
of the Appellant and passing them. It also took note of the fact that the
earlier refusal to supply had taken place well before 20th May, 2009 when
Sections 3 and 4 were activated and therefore such refusal could not be
taken into consideration. It also took note of the fact that the Informant
admittedly indulged in affixing labels of the Appellant without its
authorization.
31.
The CCI also recorded a finding that the actions of the Appellant did
not result in the denial of access to the upstream relevant market to the
other players. In this regard, the CCI noted that the imports were taking
place in some measures of NGC and NGA, and even Nipro Triveni had
made entry in the market. In that view, the CCI exonerated the Appellant
from the allegation covered by section 4(2)(c). It was however held that
discount policies of the Appellant coupled with TMLA, SPA and MSA had
exclusionary effect.
32.
The CCI also found that there was no substance in the allegation that
the Appellant committed the mischief of predatory hiring of the key
personnel of the Informant. It was alleged that about 49 to 50 employees
of the Informant were hired.
It did not accept the contention of the
Informant that there was breach of Section 4(2) (b)(i) on that count.
However, the fact remains that the finding of the CCI on that allegation
has become final. This is apart from the fact that no provision was brought
to notice before this Hon’ble Tribunal which prohibited any such thing was
predatory hiring.
33.
Some of these findings have been appealed against by the Informant
in Appeal No. 92 of 2012. We shall deal with those contentions when we
take up that appeal for consideration.
34.
Presently, however, we must note the other contested issues. Those
are :(i)
Discriminatory pricing [contravention of section4(2)(a)(i) and
(ii)];
(ii)
Exclusionary policies and restriction of market [section
4(2)(b)(i)];
(iii)
Tying in [section 4(2)(d)]; and
(iv)
Leveraging dominant position of glass tubing to enter into
and protect downstream market [section 4(2)(e)].
We shall now take up these issues for consideration.
35.
We must, at this stage, take notice of the minority order by Smt.
Geeta Gouri. In the minority order, the learned Member exonerated the
Appellant of the contravention of section 4(2)(a)((i) and (ii) of the Act i.e.
the imposition of unfair and discriminatory condition on Converters through
the TMLA. She has also exonerated the Appellant of the contravention of
section 4(2)(e) of the Act i.e. the Appellant’s leveraging its dominant
position in the upstream market to protect the downstream market.
Further, she has exonerated the Appellant for contravention of section
4(2)(d) of the Act i.e. tying in amber tubes with clear tubes. She has also
exonerated the Appellant of the allegation covered by section 4(2)(b)(i) i.e.
the refusal to deal with the Informant leading denial of market access to
the Informant.
The learned Member has, however, found against the
Appellant on the limited issue of functional discount which was prevalent
till April, 2010.
36.
We shall therefore take up the first contested issue of contravention
of section 4(2)(a)(i) and 4(2)(a)(ii) for consideration. The CCI has devoted
a good deal of space for consideration of this issue. It has come to the
conclusion against the Appellant and has discussed the quantity discount
and its percentage, firstly from 01.10.2001 and secondly, after 2007. This
discount was offered both for NGC and NGA glass tubes. It has noted that
the discount scheme was made available to the Converters at the
beginning of the transaction period and the Appellant used to issue credit
notes for discounted amount on a quarterly basis on receipt of certificate
for sales and full payment of invoices raised in the relevant quarter. It was
also noted that target discounts were applicable only on basic value of
NGC, NGA and the sale of Fiolax.
Besides the target discount, the CCI
noted that another kind of discount, which was known as functional
discount, was also being given by the Appellant. This was dependent on
the Sale-Purchase Agreement for the year 2007-2008, in which it was
generally provided that :-
(i)
That Converters will promote Schott tubing by purchasing the
agreed quantity in the particular year of agreement.
(ii)
That the Converter will not use or convert Chinese tubing and
will provide all information and proof in this regard.
(iii)
That the Converters will maintain 'Fair Pricing' of ampolues and
vials for Schott tubing.
37.
This functional discount was granted from 2007-2008 till 2010 on the
basic value of purchase of NGC, NGA and Fiolax clear tubing supplied by
the Appellant at the end of the financial year.
From the year 2010, the
Appellant had required the Converters to sign its TMLA and MSA in order to
continue to get functional discount. The TMLA gave the right to the
Appellant to inspect the premises of the Converters to ensure that its brand
was not being abused.
There is also a provision of the payment of
damages of Rs.70,00,000/- (rupees seventy lakhs) in case of infringement
of Appellant's Trademark was found. The Converters who signed the TMLA
were given royalty free right to display the Schott logo and brand as a part
of the materials they use to market and supply ampoules to pharma
companies.
38.
Market Support Agreement (MSA) provides that the Converters would
agree to promote the Appellant and its products for which the Converters
were to be paid certain sum on a quarterly basis. The CCI also noted that
target based discount was based on cost efficiency consideration, since the
process of melting glass and manufacturing borosilicate glass tubes from
various raw materials was a continuous process, requiring the production
tank to be continuously at high temperatures and functioning at all times
requiring substantial energy costs. The Appellant explained to the CCI that
any instability in load or demand may lead to heavy damage to the
production tank and would result in losses to the manufacturer-appellant.
A plea was also raised that the discounts were necessary to meet
competition from imports and new players like Nipro-Triveni. The stand of
the Appellant as regards the royalty/ functional discount was that it was
offered to mitigate the risk of Converters mixing ampoules made from
borosilicate glass tubes supplied by the Appellant with those made from
inferior quality borosilicate glass tubes imported from China. The CCI then
went on to compare the target discount given to Schott Kaisha, the Joint
Venture (JV) of the Appellant for three years in respect of NGA, NGC as
also the Fiolax tubes.
The CCI then went on to observe that the other
ampoule manufacturers were not evenly placed as far as quantum of target
discount was concerned and also recorded that this fact was not disputed
by the Appellant. In order to support this, the CCI relied on statements of
Dr. Anil Aggarwal, MD, M/s. Mak Ampoules Pvt. Ltd.; Shri Krishan Mehra,
Partner, M/s. Kishore Industries; Shri Sandeep Khemka, Partner, M/s.
Indian Scientific Glass Industries and Director of khemka Glass Products
Pvt. Ltd.; Shri Anil Kumar Gupta, Managing Director of Adit Containers Pvt.
Ltd.; Shri Rakesh Srivastava, General Manager, Solar Marketing Gujarat
Borosil Ltd. and Ex-GM of the Appellant and Ex-GM of Schott Kaisha. On
the basis of these statements, the CCI came to the conclusion that at least
in the matter of target discount, Schott Kaisha was given more favourable
terms in as much as the discount given to JV-Schott Kaisha was more than
the one given to the other Converters percentage wise.
It was also
observed from this, that while target discount was given only on the
purchase of NGC and NGA and the purchase of Fiolax is reckoned only for
the purpose of determining the slab for other Converters, the JV-Schott
Kaisha was given target discount on purchase of NGC, NGA as well as
Fiolax.
It was also observed that the target discount was given to the
other Converters on a quarterly basis on the receipt of certificate of sales,
as specified by the Appellant and upon full payment of invoices raised in
that quarter. However, the same was being paid to the JV-Schott Kaisha
on monthly basis. It was also noted that percentage target discount was
determined on the basis of quantity agreed for procurement in a year by
the Converters and in case the quantity is less than the slab, the lower slab
discount was given.
It was also seen that the discounts are bundled
together both for NGC and NGA. As regards the functional discount also, it
was seen that while the same was given on yearly basis to the Converters,
it was given on monthly basis to the JV-Schott Kaisha and that too was
subject to the fulfillment of the conditions in TMLA.
The JV-Schott Kaisha
also got bonus from Schott Rohrglass GmbH Germany for materials
supplied from outside India for the year 2008-09 and 2009-10 and the
others did not get it.
According to the CCI, this was nothing but a
dissimilar and discriminatory discount policy towards the other Converters
vis-a-vis the JV-Schott Kaisha. It was also observed that the Appellant was
discriminating not only on quantum, but also on conditions of discounts.
39.
The Appellant had admitted that a more favourable quantity and
functional discounts were given to Schott Kaisha, than the others.
It
however, justified it on the ground that no other Converter could match
the volume of orders that Schott Kaisha was placing on Schott Glass India.
It was explained in so far as Fiolex tubes were concerned, the discount was
given to Schott Kaisha since Schott Kaisha was a strong downstream player
and further the idea was not to lose its valued customer, in view of the
quantity that it purchased and no other Converter matched the same. It
was pointed out that inspite of this the ampoules supplied by Schott Kaisha
in the downstream market were never sold at prices less than the other
Converters. On the other hand, at times they were costlier as compared to
the other Converters. It was argued that the discount schemes are not
unusual in the glass tubing industry and that even the Informant was
offering such discounts to its customers, when it was in the business of
manufacture of the glass tubes.
40.
The CCI took the view that there was nothing wrong in giving target
discount, however, if the conditions for giving such discounts was dissimilar
then it would result in anti-competitive effects in the market. According to
the CCI, further this was particularly applicable in this case wherein
different sets of conditions have been made applicable for grant of discount
between vertically integrated downstream JV and other Converters in the
downstream market due to which, competing downstream players were
not in a position to compete effectively.
The CCI then rushed to the
conclusion that the structure and the policy of discount was evidently
dissimilar for JV, as compared to other Converters and the discount policy
had not been uniformly applied by the Appellant and therefore price
discrimination had occurred. Precisely this was strongly objected to by Shri
Billimoria.
According to him firstly, in so far as target discount was
concerned, Schott Kaisha was the Joint Venture of the Appellant.
41.
The learned counsel explained that the mother company Schott
GmbH held 100% shareholding of the Appellant Schott Glass India Pvt.
Ltd., while the same Schott GmbH held 50% of the shareholding of Schott
Kaisha. The learned counsel explained that while Schott Glass India Pvt.
Ltd. is only operative in the upstream market of glass tubes NGA and NGC,
its the Converters around 20 in number and Schott Kaisha, who were
operating in the so called downstream market of manufacturing of
ampoules. It was explained by Shri Billimoria that the Appellant did not
have the activity of converting glass tubes into ampoules. Besides this, the
learned counsel was at pains to point out that Schott Kaisha apart from
being a Joint Venture was purchasing 30% of the glass tubes
manufactured by the Appellant and thus was the largest purchaser of the
Appellant's product. The learned counsel was prepared to go on record to
suggest that if any Converter matched the purchase percentage of Schott
Kaisha, it would get the same kind of discount that Schott Kaisha enjoys.
The learned counsel also urged that the CCI had completely missed a very
important aspect, that, in order to be 'discriminatory', it must be
different for equivalent transactions.
In short, according to the learned
counsel, if a different price was charged for the same quantity of the same
product, then and only then the pricing would have amounted to be
discriminatory. The learned counsel went on further to argue that even if
the pricing was discriminatory in the first place, it would have been
justifiable in terms of consumer welfare or allocative efficiencies.
The
learned counsel relied on the treatise of Prof. Richard Whish and suggested
that there were several examples of discriminatory prices being desirable
for example where the same product was sold at lower prices in rural/ low
income markets.
42.
We have carefully seen the order of the CCI, particularly in this
behalf.
It appears to be a fact that the quantity purchased by Schott
Kaisha, far exceeded the purchases of any other Converter. This appears
to be an admitted position, as the Informant itself had admitted that
Kaisha was the largest Converter even before it became a joint venture
company in 2008.
It was argued by the learned counsel that no other
Converter even had installed capacity to off-take such large quantities.
The learned counsel, therefore, argued and in our opinion rightly so that
the price and conditions could be said to be discriminatory, if and only if,
they were different for the same quantities of the same product.
The
learned counsel further argued that no other Converter had the capacity to
require the same quantity. In fact, the learned counsel rightly contended
that it would not have been possible for the Appellant to make such large
investment in such a capital intensive and high gestation industry, had it
not been for Schott Kaisha guaranteeing to purchase 30% of its capacity.
The learned counsel again reiterated that the manufacture of glass tubes
involved melting of glass at very high temperatures of upto 1600 degrees
celsius.
He further reiterated that in case of inadequate or uncertain
demand patterns, the tanks could not be kept going continuously.
He
further argued that apart from the cost of firing tanks to such high
temperatures, the frequent cooling and heating damages the tanks also
and in order to ensure at all times sufficient order volumes to keep the
process continuous, favourable prices and terms to customers who buy
very large quantities is a global industry practice. The learned counsel,
therefore, argued that it could not be said that the prices were
discriminatory at least in so far as target discount was concerned.
As
regards the so called admission on the part of the Appellant that it had
given more discounts to Schott Kaisha, the learned counsel said that such
discount could have been available to all the other concerns who assured
the 30% off-take of the production of the Appellant as Schott Kaisha had
assured.
The learned counsel rightly argued that the Informant's
proposition that all the Converters should be treated equally irrespective of
quantities off-take would create a chaos in the market place, as that would
be unjustifiable.
43.
The learned counsel therefore, urged that the CCI had completely
misunderstood the concept of ‘discriminatory pricing’ and ignored the basic
principle that the prices could be called ‘discriminatory’ only if they were for
equivalent transactions, meaning thereby that if a different price was
charged for the same quantity of the same product, then and only then
would the pricing would have been discriminatory. To buttress his
contentions, the learned counsel pointed out that the CCI had relied on five
statements and in fact those statements merely showed that Schott Kaisha
was given more target discount. The learned counsel very earnestly urged
that all these statements came from the Converters, who were adversely
interested against the Appellant.
It was further urged that these
Converters were enemically disposed against the Appellant, as these very
firms had tried to join the appeal along with the Informant M/s. Kapoor
Glass (India) Pvt. Ltd., which application was rejected by this Hon’ble
Tribunal. It was further stated that thus, they had a common cause with
the Informant, who was clearly enemically disposed against the Appellant.
The learned counsel further argued that all the statements amounted to
evidence of interested witnesses and therefore should not have been
accepted at their face value, at least without an opportunity being given to
the Appellant to cross-examine these witnesses. We find that such plea
was clearly raised in the defence of the Appellant in reply to DG’s notice.
Indeed the Appellant had raised this issue regarding the interested nature
of the witnesses and the necessity of cross-examining them. We are quite
convinced that a total reliance on the statements of these interested
witnesses even without their cross-examination was risky and uncalled for.
It is a trite principle of the Evidence Act that any ‘untested statement by
the cross-examination cannot be blindly accepted’.
According to the
counsel of the Appellant, CCI had done the same error of acting upon
untested statements of interested witnesses.
It was suggested by the
counsel of CCI that such opportunity should have been asked for
specifically before the CCI. We are not impressed by this statement. Once
an objection was raised, it would have been appropriate for the CCI to
offer such an opportunity to cross-examine at least during the hearing
before the CCI. The CCI should not have insisted on a separate application
for cross-examining these witnesses, once the question was raised before it
through the pleadings. After all, reply of the CCI to DG's report amounted
to pleadings, wherein this question was actually raised. Therefore, we are
not impressed by the argument on the part of the learned counsel of the
CCI that this opportunity was not specifically asked for and therefore, the
Appellant could not have made much out of cross-examination of these
witnesses.
44.
The learned counsel of the Appellant also rightly pointed out that in
no statement, it was claimed that purchases by any other Converters
matched the purchase by Schott Kaisha, the JV of Appellant. If that was
so, there would have been no question of comparison of discount granted
to other Converters with the discount granted to Schott Kaisha, whose
purchases were huge and according to Shri Billimoria amounted to 30% of
the production of the Appellant. In that view, the contention raised by Shri
Billimoria appears to be justified. In any circumstances, we find that the
statements are of no consequence, because in none of the statements has
the claim being made, that the purchases of these Converters matched the
purchases by Schott Kaisha.
45.
This brings us to observe the EU and American jurisprudence in this
regard. Smt. Geeta Gouri has very specifically referred to the RobinsonPatman Act of US, where the provisions provide that discrimination in
prices between different purchasers of the same products is condemned,
where the effect of such discrimination may be to substantially lessen
competition. She has also referred to EU Article 82 (c) of the EC Treaty
(now Article 102 TFEU), which provides, if a dominant player applies
dissimilar conditions to equivalent transactions with other trading parties,
thereby placing them at competitive disadvantage, is considered to be an
abuse of dominant position. Thereby the learned Member deduced that
interpretation of unlawful discrimination that entails establishment of - (i)
dissimilar treatment to
equivalent
transactions;
and (ii)
harm
to
competition or is likely harm to competition in the sense that the buyers
suffer a competitive disadvantage
against
each other
leading to
competitive injury in the downstream market. The learned Member then
proceeded to analyze target discounts and observed that the discount in
this case were given on slab basis and same rate of discount was
applicable to transactions falling in the same quantity slab. She therefore,
deduced that transactions of different volumes of tubes could not be
inferred as equivalent transactions warranting equivalent treatment from
the seller and therefore, the design of the discount, per-se, could not be
deemed to be discriminatory in the sense of applying different price
conditions to identical transactions with different buyers. After taking stock
of the statements by the Converters and after evaluating the discount
policy, the learned Member took into consideration the discounts given
between 2001-2007 and 2007 afterwards. The learned Member then took
into account the details of quantities sold to Converters from Schott India
and the discounts allowed to each Converter on the basis of table prepared
for the years starting from 2002-2003 upto 2010-2011. The information
used was on the basis of the data submitted by Appellant Schott India. On
analyzing of the off-take data of various Converters in association with
declared discount schedule, the learned Member found that on some
occasions, the discount allowed by Schott India was not as per the
discount schedule and sometimes the Appellant was more lenient towards
some companies. However, the learned Member proceeded to observe that
the discounting policy of the companies may seem arbitrary and appeared
to be based on a host of other undeterministic factors. We also are of the
opinion that there would have to be some reasonable discretion in the
manufacturer for conducting business. She then proceeded to consider the
effect of different treatment on the competitive ability of the so called
disfavoured buyers and any injury that may have been caused or was likely
to be caused to the competitive conditions in the downstream containers'
market. She proceeded to observe that the facts and materials brought on
record showed that Schott Kaisha was the largest tube Converter in India
followed by two other companies and the rest of the market was
fragmented across several small players constituting insignificant shares of
the market. The Converters manufacture and supply containers namely –
ampoules, vials, dental cartridges, syringes converted out of the
borosilicate
glass
pharmaceutical
tubes
companies
(clear
and
based
amber),
on
their
which
are
requisitions.
sold
to
These
pharmaceutical companies usually dealt with two-three vendor Converters
and as per the statements of the Converters, migration to new Converters
was not used. The prices of the containers are negotiated between the
Converters and pharmaceutical companies on a one-to-one basis. The
learned Member analyzed the invoices submitted by the Converters and
observed that the prices charged by different Converters were similar and
exactly same in some instances for a given pharmaceutical company. She
therefore, deduced that the cost differential in inputs caused by the volume
based discount scheme of the Appellant, did not get translated into price
differential in final products, namely 'Containers' for the pharmaceutical
companies. Consequently, any change in structure of the market and
market share composition could not be logically linked to the discounts
received by the Converters. The learned Member also found that the total
sales of all Converters had grown consistently over the years and for this
purpose the learned Member relied on the information gathered during the
investigation. The learned Member then proceeded to consider the
operating ratios of Converters and deduced that the volume of target
discounts were not the only or most significant factor influencing the
financials of downstream Converters. The learned Member also considered
EBIDTA and found that most of the Converters had experienced growth in
absolute numbers and therefore deduced that the second necessary
element of harm to competitive ability of the customer and competition in
the downstream relevant markets, could not be established.
45.1 Lastly, the learned Member considered the allegation of price
discrimination on account of target discount on the Fiolax category of
tubes, which was being granted only to the downstream JV Schott Kaisha.
The learned Member observed that the demand by Schott Kaisha of 3000
tones covered more than 20% of the total annual capacity of 13,000 tones
of the two production tanks, in which Fiolax was produced by Schott India
and that there was no other Fiolax customer in India, whose requirements
of Fiolax were substantially comparable to the requirement of Schott
Kaisha. The learned Member therefore, deduced that the transaction of
Fiolax category tubes with Schott Kaisha in no manner could be construed
as equivalent with the transaction of Fiolax category tubes with other
players in India. The learned Member further observed that more
importantly, favourable terms offered to Schott Kaisha for Fiolax category
tube did not affect the market structure or competition downstream, since
prices of final products charged by Schott Kaisha to the pharmaceutical
companies were same or in some instances higher as compared to the
prices charged by the other players. On this basis, the learned Member
finally came to the conclusion, as regards the target discount that in the
absence of any perceivable harm to competition in the downstream
containers market and that too consumer interest, the target discount
policy could not be inferred to be discriminatory, as it retained the
characteristics of anonymity. She therefore, deduced that violation of
section 4(2) (a) and (b) remained unsubstantiated. We have purposefully
relied on the observations in the minority judgment of Smt. Geeta Gouri, as
comparably, we do not find any such consideration in the impugned
majority order. In this view and for the reasons stated earlier, we are of
the clear opinion that in so far as the target discount is concerned, no
contravention can be found against the Appellant. The counsel for the
Appellant also supported this finding of the learned Member in the minority
order. We accept the arguments by the learned counsel. It was fervently
argued by Shri Abhishek Yadav that this analysis was incorrect. However,
we do not find any reason, not to accept the above analysis, and other
factual contentions raised by the learned counsel Shri Billimoria. This takes
us to the other discount namely 'functional discount', which is complained
of.
FUNCTIONAL DISCOUNT
46.
The CCI in paragraph 9.42 came to the flawed conclusion that target
discount or as the case may be, that quantum discount was evidently
dissimilar for JV Schott Kaisha from other Converter companies. It was
also given as a finding in that paragraph, that the discount policy was not
been uniformly applied by the Appellant, which led to a sort of price
discrimination where the same commodity was sold at different prices to
different customers despite identical cost for the Appellant. We have in
earlier portion of the judgment shown and held that this finding, at least
insofar as the target discount is concerned, is erroneous and incorrect for
the reason stated above.
Having done so, the CCI commenced its
discussion on functional discount and referred to the SPA with the
converter companies for availing discount. It referred to a clause in that
agreement where it was mentioned “Schott Glass India appreciates
commitment ……. For not using or converting Chinese tubing and providing
all information and proof in this regard” . The CCI then referred to the
Supply Agreement with the Converters annually under which the
Converters were required to purchase the agreed quantity of glass tubes
from the Appellant. It noted that the Supply Agreement was so designed
as to ensure maximum quantity of sale of glass tubes of the Appellant and
to reduce the ability of the Converters to meet their requirement of the
glass tubes from any other source. The CCI noted the following terms of
the Supply Agreement:i)
Right in the beginning of the F.Y., the Converters have to agree
to purchase a minimum quantity of tubes from the Appellant.
ii)
Discount is to be applicable only for NGC and NGA quantity.
iii)
Group discount as certain percentage on total purchase of NGC
and NGA is given.
iv)
If quantity purchase is more, higher slab discount will be given,
and if less, the lower slab is applicable.
v)
The Appellant will provide assistance to the Converter signing
supply agreement to achieve this volume.
Having come up to this, it was expected that the CCI would continue to
comment on the Sale Purchase Agreement and the Supply Agreement for
considering the implications of functional discount.
However, the CCI
straightway proceeded to consider the TMLA and started appreciating the
implications thereof.
Further discussion thereon is a heterogeneous
admixture of the facts regarding the target discount and the TMLA. It is to
be seen that in fact the TMLA came into existence only in the year 2010
and more particularly from the month of April. Before that the TMLA was
not in existence. It would have been better if the question of the target
discount was not mixed up with the question of the TMLA and its effects
which followed. Infact what appears from the facts is that after April 2010
the whole mechanism of the discount was changed by the Appellant.
The
earlier regime of target discount continued up to April 2010 which
essentially depended upon the purchases made by the Schott Kaisha as
well as other converter companies. We have already found and given a
finding that there was nothing wrong if more discount was given to Schott
Kaisha, the JV of Appellant as the purchases by Schott Kaisha, amounted
to 30% of the total production of the Appellant. We have also taken into
consideration the fact and the statement made at the Bar by Shri Billimoria
that if any other Converter company matched such purchases with Schott
Kaisha then the same kind of discount would have been given. In fact the
whole reasoning on this count on the part of the CCI has gone wrong and
therefore we have preferred to rely on the minority order passed by the
learned Member Smt. Geeta Gouri.
47.
In paragraph 9.45 the CCI had observed that the continuation of
functional discount of Schott Glass India was contingent upon the
Converters signing the Trade Mark Licence Agreement (TMLA) which
according to the Appellant was to deal with the problem of ‘mixing risk’ or
of its products with the inferior quality Chinese imports. This observation is
only partly correct because this situation started only after April, 2010 and
was not in prevalence before that date. It must be realized here that the
concerned provisions of sections 3 and 4 of the Competition Act came into
anvil on 20.5.2009. The CCI, therefore, would have done better if it had
considered the discount pattern which continued between 20.5.2009 to
April 2010 i.e. for nearly a period of 11 months. We have no hesitation in
confirming the finding of the minority judgment to the effect that at least
until April 2010 there was no dis-similar or favourable treatment given to
Schott Kaisha in comparison to the other converter companies in so far as
target discount was concerned. We, therefore, endorse the observation in
the minority order in Paragraph 7.4.1.19 to the effect that, offer of target
discount continued upto 31.03.2010 and thereafter by April 2010 began the
regime of TMLA. This functional discount was on the following conditions
as per the Sale Purchase Agreement:i)
That Converters will promote Schott tubing by purchasing the
agreed quantity in the particular year of agreement.
ii)
That the Converters will not use or convert inferior quality
Chinese tubing and will provide all information and proof in this
regard.
iii)
That the Converters will maintain “Fair Pricing” of ampoules
and vials for Schott tubing.
48.
It is to be seen that from April 2010 the Converters companies were
required to sign TMLA and MSA in order to be eligible for availing
functional discount. The learned Member Smt. Geeta Gouri in the minority
order has observed that this functional discount policy has been applied
uniformly to all the Converters at the same flat rate since its inception and
was non-discriminatory. We endorse the finding. It is also relevant to take
note of the fact that at the time of the hearing on 22 nd August, 2012 of the
interim application for stay, it was very fairly contended by the learned
senior counsel for the Appellant that he will have no difficulty in complying
with the condition of not making the discount on both Amber and Clear
tubes contingent upon sale of each other. In this view of the matter, we
find no merit in the allegation of functional discount policy upto April, 2010
being discriminatory.
It was only the computation of discount that was
based on the total quantum of sales of both Amber and Clear tubes and
not the sale of one kind of tube contingent upon sale of the other.
49.
The main attack on the TMLA appeared to be on the basis of its
unfairness. We have carefully seen the discussion further in the Minority
order.
The learned Member in the paragraphs from para 7.4.1.21 upto
para 7.4.1.29 has painstakingly analyzed the implications of TMLA. It is
not as if the functional discount was not available prior to April, 2010. It
was indeed there but was subject to the earlier three conditions mentioned
above. It is only after April 2010 that the Converters were required to sign
the TMLA. The situation prior to April 2010 included both target discount
as well as functional discount. While the target discount depended upon
the purchases made by the Converters from the Appellant, functional
discount on the other hand depended on the three conditions mentioned
above. That is the only difference. This functional discount was only 8%
in comparison to the target discount which essentially depended upon the
stocks purchased by the Converters from the manufacturer and the slabs
were between 2% to 12% in various degrees which have earlier come in
the judgment. That is the only difference between the target discount and
the functional discount.
The situation changed after the TMLA was
assailed for its alleged unfairness to the Converter companies.
50.
In our opinion, the clauses of TMLA should not have been confused
and mixed with the functional discount and the target discount which error
appears to have been committed in the impugned majority order.
51.
The learned Member Smt. Geeta Gouri while analyzing the TMLA has
correctly observed that it was assailed on the ground of its unilateral
language and which spelt out unfair and restrictive clauses in that
agreement. According to the Informant (or that at least appears to be in
this case) the clauses spelling out the right of the Appellant to enter any
part of the factory or the premises where the manufacture of the relevant
products is carried on, unilateral determination of breach by the Appellant,
and penalty amount of Rupees Seventy lakhs in case a sample was found
to be sub-standard, were the example of such unfair and restrictive
clauses. In fact the oral statements which remained untested by crossexamination and which came from essentially interested witnesses also
spelt out these complaints. We have already deprecated that practice of
accepting the statements of the interested witnesses without any
opportunity of cross-examination as the gospel truth. Be that as it may,
the learned Member in the minority order has then painstakingly analyzed
these clauses and has also considered the contentions raised by the
Appellant that the TMLA was brought to mitigate the mixing risk of the
products with inferior tubes such as Chinese tubes. The defence of the
Appellant was that there was increasing pressure from the low price
manufacturers from China and therefore it was felt that it was necessary to
promote its brand and as such it introduced TMLA and also the MSA which
was basically an agreement to co-promote its brand and products with the
Converters to the pharmaceutical companies.
The TMLA was also to
authorise Converters to use the logo of the Appellant for its own benefit as
admittedly the product of the Appellant was far too better as compared to
the imported Chinese tubes. That aspect has already been covered in the
earlier part of the judgment that there was a preference to the tubes
manufactured by the Appellant and in fact the pharma companies were
also complaining about the use of the Chinese tubes.
We have in the
earlier part of the judgment also referred to the fraud played by the
Informant of getting fake logos printed in order to pass of its product
under that logo to the pharma companies who insisted on the tubes
manufactured by the Appellant company alone.
52.
However, it was argued before us that there could be no such
mixing risk considering that there were some special features of the tubes
manufactured by the Appellant.
We are not prepared to accept the
argument that there was no mixing risk particularly once the Appellant had
learnt its lesson by unearthing the fraud played by the Informant company
– M/s. Kapoor Glass.
Fortunately or otherwise that appears to be an
admitted position, the Informant tried to print fake logos of the Appellant.
If that was so, there was no point on the part of the Appellant to play with
fire and they would have been quite justified in saving their brand from this
mixing risk. In the subsequent paragraphs of the order, learned Member
Smt. Geeta Gouri has stressed upon the importance of TMLA and its
various implications. The learned Member goes on to observe that among
the many functions of trademark and trademark licensing are to inform the
purchaser about the actual origin of the good to assure the consumer
predictable quality with respect to the goods bearing the trademark and to
enhance the visibility of the brand of the trademark owner. The learned
Member has correctly observed that without the requirement of quality
control the products bearing the trademark might no longer signify the
requisite standard and it is therefore that a trademark license typically
includes provisions dealing with quality control, whereby the licensor has
rights to inspection and monitoring. It is on this ground that the learned
Member has chosen to hold that there would be no question of finding any
unfairness in the condition of TMLA whereby the Appellant would have a
right to inspect the factory of the converter company.
53.
A deeper consideration of the term of TMLA does not suggest any
clause of exclusive dealing with the Appellant nor does it spell out any
loyalty clause. Therefore, the inference reached in paragraph 7.4.1.27 by
the learned Member appears to be correct. According to the Appellant the
crux of TMLA requirement is to attach the logo of Schott to the package of
container made out of Schott tubes which the converter delivers to the
pharmaceutical companies.
For these reason, the learned Member who
has passed the minority order exonerated the Appellant from the
infringement of section 4(2)(a)(i) and (ii).
54.
Now coming back to the majority order of the CCI, there is bald
observation in paragraph 9.51 that the discount policy of the Appellant was
intended to maintain its dominance in upstream relevant market and was
evident, since its discount policy coupled with its 'Sale Purchase
Agreement', 'Supply Agreement' and 'Marketing Support Agreement' with
the Converters, forced the Converters to procure nearly all their
requirements of glass tubes from the Appellant in order to get favourable
terms. In the same paragraph the CCI observed that the target discount,
functional discount read with TMLA and MSA amounted to insistence on
loyalty. Such cannot be the reading of the agreement. In paragraph 9.53
again a casual statement has been made that after signing TMLA the
Converter would have been virtually forced to procure all tubes from the
Appellant only because of inherent fear of inspection of its premises by the
Appellant and payment of damages in case a breach was found.
This
observation has to be ignored, since it is incorrect and not borne out from
the evidence.
Further observation in paragraph 9.54, that the discount
policy could put severe restraints on competitive market structure in the
relevant upstream market, also appears to be an incorrect statement. The
other deductions in paragraph 9.56 and 9.58 are also of no consequence.
It has been noted by CCI that the offered prices of the ampoules by Schott
Kaisha were sometimes higher or similar (not below) the prices offered by
the other Converters. This fact has been noted on the basis of the letter
dated 21.02.2011 of Adit Containers Pvt. Ltd and the letter dated
22.02.2011 of Indian Scientific Glass Industries, the CCI has chosen to
quote from letter dated 21.02.2011.
In further paragraphs also it has
been noted that pharma companies did not grant differential prices to the
suppliers of glass ampoules and vials.
In paragraph 9.65 the CCI has
recorded that the prices of ampoules charged by both these companies
were similar and at times the prices of ampoules of Schott Kaisha were
slightly on the higher side.
55.
These facts should have been enough to hold that there was no
effect on the downstream market and ultimate consumer did not suffer on
the account of the prices of Schott Kaisha and others being similar or the
same. Though different or more discount was made to Schott Kaisha by
the Appellant, it did not ultimately effect the downstream market at all and
in this behalf the principles involved in Article 82 of EU Treaty as also the
provisions of the US Robinson Patman Act should have been adhered to.
56.
The CCI has then gone to explain in paragraph 9.68 that the cost of
procurement of tubes was much lower for JV and the prices of the end
products remained identical and the same. It therefore, concluded that the
profit margins of the downstream Converters were bound to be affected.
We cannot see any relevance of these deductions with the concerned
subject. All that the CCI concluded was that the profit margin of Schott
Kaisha registered a considerable increase from 2007 to 2009-10, while
profit margins of other Converters had declined. In our opinion this cannot
be a competition issue. There may be many other reasons for this, nonconnected with the controversy.
57.
We are therefore unable to agree with the deduction in paragraph
9.70 that the profitability of JV Schott Kaisha appears to be emanating due
to the difference in discounts giving rise to adverse cost structure to other
Converters as compared to the JV and that in turn caused harm to the
competitive ability of the other Converters and consequently harm to
competition in the downstream relevant market. This appears to be a very
wide statement of law and cannot be accepted particularly when the prices
of Schott Kaisha have remained same with those of the other Converters.
We also cannot accept the deductions on the part of the CCI in this behalf.
That a particular company is making more profits than the others can
never be a competition consideration unless the company taking advantage
of its dominant position starts abusing its dominance.
58.
Being big is not bad. Being big and abusive is bad insofar as the
competition culture is concerned. In our opinion, the comparison of Schott
Kaisha along with other Converters was also unnecessary.
We have
definite evidence that the sales and business of almost all the Converter
companies was on increase right from 2007 onwards.
Similarly, the
deductions reached in paragraph 9.74 and the comparison of profits
earned by JV with other Converters was also unnecessary unless it could
be shown that the downstream market was affected because of the profits
earned by JV Schott Kaisha. After having quoted from Robinson Patman
Act, Article 82 (c) of the EC Treaty and after correctly mentioning that for
attracting the vice of discrimination in pricing, the two principles - (i)
dissimilar treatment to equivalent transaction and (ii) fulfillment of the
conditions that the competition is harmed or likely to be harmed, the CCI
has unfortunately ignored the second principle.
In short, we find the
approach of the CCI to be erroneous and we prefer to rely on the minority
judgment of the learned Member Smt. Geeta Gouri.
In view of our
findings, it will not be necessary for us to refer to the case law. However,
insofar as the judgment of EU Commission in Portuguese Republic vs.
Commission of the European Communities Case C-163/99 and also
the judgment in Hoffman-La Roche & Co. AG Vs. Commission (Case
85/76) are concerned, it will not be necessary for us to consider those
judgments in view of the clear facts which have been brought out in our
earlier discussion. We therefore set aside the finding of the CCI that the
Appellant was guilty of section 4(2)(a)(i) and (ii) of the Act.
59.
We have to now consider the second contentious issue pertaining to
the breach of section 4(2)(b)(i) on account of the exclusionary policies of
the Appellant resulting in restriction of market. The CCI has also viewed
this as breach of section 4(2)(c) while considering the issue. What appears
to have been noted by the CCI is that the discount policies of the Appellant
coupled with TMLA, Supply Agreement and MSA, attempted to bind the
Converters to procure the glass tubes only from it. In this behalf, the CCI
again relied on the statements of the Converters recorded before DG, in
which it was claimed that they were vary of signing the TMLA, since it put
restrictions on them to purchase tubes from any other sources, even if the
TMLA did not have any express provision of exclusivity to deal with
Appellant. In fact the observation itself is self-contradictory. If the TMLA
did not insist on any exclusivity, or did not bind the party to purchase glass
tubes only from the Appellant, there was no question of the Converters
being vary to put their signatures on the TMLA. In our earlier discussion,
we have already referred to the analysis in the minority judgment of the
various clauses of TMLA and the real implications thereof. The clauses of
the TMLA have been so drafted as to save the trademark rights of the
Appellant in respect of the tubes manufactured by them, which admittedly
were of better quality and therefore had larger market share as compared
to others. We have accepted the analysis about the necessity of securing
the trade secrets of the Appellant through that agreement.
We have
already explained that the real crux of the agreement was that any party
signing such agreement would get the right to use the logo of the
Appellant, which would have been an assurance to the consumers in the
downstream market that they were purchasing genuine glass tubes,
manufactured only by the Appellant and not any fake or inferior quality of
tubes. This is apart from the fact that Shri Billimoria rightly argued that its
only one converter, who signed the TMLA agreement. In that view, we
cannot accept the inference drawn by the CCI that TMLA spelled-out
exclusionary practice or that it resulted in denial of market access. The CCI
also made reference to the statement of M/s. Kishore Industries, which
claimed that its supplies were stopped since it had agreed to take up the
job work for Strides Arcolabs Limited, a pharma company, which was
importing tubes from sources other than the Appellant. For relying on such
a complaint, it was necessary for the CCI to offer an opportunity of crossexamining of the representative of M/s. Kishore Industries. Even if that
was not possible, such individual example does not in any manner spell-out
any exclusionary practice on the part of the Appellant or denial of market
access. If M/s. Kishore Industries could get the job work from M/s. Strides
Arcolabs Limited that by itself was an example of the available market
access. In para 9.91, the CCI has rightly observed that the aforesaid acts
and practices of Appellant did not deny access to some essential facilities,
which limited or restricted the entry of manufacturers into the market. We
endorse the finding in that paragraph.
60.
This takes us to the next issue pertaining to tying-in, resulting in
breach of section 4(2)(d). The CCI has considered this issue as Sub-Issue
No.5, more particularly from paragraphs 9.104 to 9.115. The defence of
the Appellant to this allegation was that out of all the Converters, only
three Converters namely M/s. Kishore Industries, M/s. Adit Containers and
M/s. Mak Ampoules raised the allegation and that there was no
documentary evidence produced to bring out that it made the sale of
amber borosilicate glass tubes contingent upon the Converters purchasing
clear borosilicate glass tubes.
The allegation appears to be that the
Appellant in order to supply the clear borosilicate glass tubes, also insisted
upon the Converters to purchase the amber borosilicate glass tubes
compulsorily and thus engaged into tying-in exercise. The Appellant had
submitted before the DG that its glass tubes were far more superior in
quality and much in demand in the market. The CCI while appreciating the
statement of Shri Krishan Mehra of M/s. Kishore Industries seem to have
relied on a straight sentence to the effect as stated “They would also insist
on purchasing NGC tubes from them (Schott Glass) even when we required
only NGA tubes from them”. Similarly, the CCI also relied on a letter dated
18.08.1999 by one Adarsh Industries, which mentioned “ we have
announced some quantity based discount scheme for neutral glass tubes,
but you can't avail quantity base discount. As per our policy decision that
scheme is applicable only on mix purchases of clear and amber tubings
only”. The CCI also relied on the reply dated 04.11.2011 to the questioner
wherein the Appellant had specifically mentioned that “NGA and NGC tubes
were from the same production tanks and the functioning of the production
tanks on continued and stable basis requires a stable demand for both NGC
and NGA glass tubes. For ensuring stable demand for both these varieties,
the NGC and NGA are marked jointly with common incentives for its
customers”. The CCI has deduced from this that the products are tied and
marketed together and a bundled discount was given to the customer and
considering the large market share of the Appellant, the Appellant
leveraged its position for sale of amber tubes contingent upon sale of clear
tubes. The CCI then relied on the so called leveraging power of the
Appellant along with the TMLA and the overall discount policy of the
Appellant to hold that the discount offered was a bundled discount.
In
paragraph 9.110, the CCI referred to statements of some of the
Converters, more particularly Indian Scientific Glass Industries that it was
difficult for them to import amber tubes NGAs, as they were costly
compared to the price of amber tubes produced by the Appellant. In para
9.112, the CCI observed that the policy of the Appellant to market both the
product jointly with common incentives, appeared to be designed with a
view to protect its dominance in the upstream market. It also observed :“It is the pressure from the potential manufacturers which
forces it to bundle its products for discounts as a measure of quantity
forcing which in a way reduces the demand for products of rival
competitors by giving incentives to the Converters to get their entire
requirements from Appellant only.”
61.
On this basis, the CCI found the Appellant guilty of breach of section
4(2)(d). The CCI also quoted section 4(2)(d), which is as under :“4(2) There shall be an abuse of dominant position by an enterprise
or a group, if an enterprise or a group,
(d) makes conclusion of contracts subject to acceptance by other
parties of supplementary obligations which by their nature or
according to commercial usage, have no connection with the subject
of such contracts.”
62.
(emphasis supplied)
The emphasis portion itself shows that NGA, which is also the
product of the same tanks as NGC, could not have been said to be an
entirely different material. The only differences in the two tubes is that
some drugs, requires protection from sun rays and therefore are required
to be kept and stored in dark colored vials, while others are kept in clear
vials. If that is so, the two products cannot be said to be entirely different
from each other. This is apart from the fact that the Appellant has 90%
market in the amber tubes as they are comparably cheaper to the imported
amber tubes.
There would be therefore, no necessity of pushing the
amber tubes along with the clear tubes.
The very language of section
4(2)(d) and more particularly the emphasised portion renders the
interpretation on the part of the CCI to be incorrect.
63.
The second reason is, that in rushing to the conclusion by the CCI,
(that there was such insistence on the part of the Appellant for tying-in)
has no basis of any documentary evidence whatsoever. If there was any
such insistence on the part of the Appellant, surely there would have been
some evidence somewhere apart from the stray, untested oral statements
of some parties, who were clearly enemically disposed towards the
Appellant.
The minority judgment highlights this fact that there was
absolutely no evidence of any kind.
For this reason too, we reject the
claims of M/s. Kishore Industries, M/s. Adit Containers and M/s. Mak
Ampoules.
64.
There is still another reason, why this theory of tying-in has to be
rejected. The CCI has chosen to rely on a letter dated 18.08.1999 which
pre-dates the enforcement of section 3, which came into effect on
20.05.2009. Such letters could not have been taken into consideration for
that simple reason.
65.
Again according to us, merely because the NGC and NGA were the
product from common tank and because the same were being marketed by
the same Appellant, does not mean that the Appellant was insisting on any
tying-in arrangement in respect of NGC and NGA tubes.
66.
We are also not impressed by the observations of CCI in paragraph
9.114 to the effect that the Appellant was imposing unfair conditions of
sales of tubes, which compelled Converters to procure both kinds of tubes
from the Appellant to avail common discount. What is to be remembered is
that even in the aforementioned letter of 18.08.1999, it was only in respect
of the discount policy and it stated that the discount was available only on
mix purchases of clear and amber tubing. If the discount policy has not
been found in error of any provisions, there is no question of linking it with
the aforementioned question of tying-in. In short, if the parties wanted,
they could purchase the amber tubes or ignore to purchase it. It was only
a discount which was being mentioned in the aforementioned letter. The
minority judgment has exonerated the Appellant of section 4(2)(d).
67.
We now turn to the last contentious issue of section 4(2)(e), Sub-
Issue 4. While considering this issue in paragraph 9.92 to 9.103, the CCI
has found the Appellant guilty of the breach of provisions of section
4(2)(e). The CCI has referred to the profits earned by JV, Schott Kaisha
and then has proceeded on the basis that it got favourable treatment on
account of discounts. In paragraph 9.94, it has been mentioned that the
Appellant was having position of dominance in the upstream market with
its Long Term Tubing Supply Agreement with Schott Kaisha, its vertically
integrated firm. Again after referring to the preferential treatment given to
Schott Kaisha, the CCI referred to clause (5) of Long Term Tubing Supply
Agreement between the Appellant and Schott Kaisha. The CCI has also
referred to the statement of Shri Mohan Joshi, president of the Appellant,
and thereby deduced, that in making supplies, the JV of the Appellant was
given preference over other Converters. Thereafter, some statements and
replies have been referred to, which are from Shri Anil Kumar Gupta of
M/s. Adit Containers, reply of M/s. Kishore Industries, another statement of
Shri Anil Kumar Gupta, Dr. Anil Aggarwal of M/s. Mak Ampoules and Shri
Krishan Mehra. One look at all this material suggests that the so-called
meeting of which the complaint was made by Dr. Anil Aggarwal, as also by
Shri Anil Kumar Gupta, Kishore Industries and some others was held on
01.08.2008. that is prior to the enforcement of Section 3 and 4. All that
which took place in the meeting would be irrelevant for the purposes of
this present controversy. The observation in para 9.102 would therefore,
have to be ignored.
It is on this basis that the CCI has rushed to the
conclusion that the Appellant was in a dominant position in the upstream
relevant market of tubes, which contributed to lessening of level of
competition in the downstream market in favour of JV, Schott Kaisha. On
that count, the Appellant has been held guilty of contravention of Section
4(2)(e).
In our opinion, the very language of Section 4(2)(e) is clear
enough to show that in order to be guilty of Section 4(2)(e), there have to
be two markets, wherein the guilty party would have the participation. It
is nobody's case that the Appellant is in any way dealing with or has any
presence in the downstream market of ampoules, vials, dental cartridges
and syringes etc. In fact the biggest contradiction to be found is that
Schott Kaisha is not even a party to the present proceedings, nor has it
been dealt with by the CCI. If it was through Schott Kaisha and to favour
the interest of Schott Kaisha that the Appellant was vociferously working,
then it would have been in the fitness of the case that Schott Kaisha was
joined as a party and dealt with by the CCI. That was simply not done.
Once it was established that the Appellant has no presence in the
downstream market in any manner, there would have been no question of
applying Section 4(2)(e). Even if it was held that Schott Kaisha was being
favoured, so as to make it strong in the downstream market, it will have to
be established, the lack of which would not be sufficient for breach of
Section 4(2)(e). Breach would be possible only, if a finding is given, that
the Appellant was itself trying to enter into the downstream market or was
trying to secure its presence in the downstream market. Both these factors
are absent and therefore, there is no question of any such breach of
Section 4(2)(e).
In that view, we do not find the Appellant guilty of
Section 4(2)(e) and exonerate the same. We set aside the finding of the
CCI in that behalf.
68.
This now takes us to the consideration of the Appeal No.92 of 2012
filed by the Informant before us, challenging the judgment.
Appeal No. 92 of 2012
69.
This Appeal is filed by M/s. Kapoor Glass, more or less concentrates
on Sub-Issue No.3 (covered in paragraphs 9.88 to 9.81 of the majority
order) and Sub-Issue No.6 (covered in para 9.116 to 9.127 of the majority
order). Sub-issue No.3 deals with “Whether the aforesaid policies of Schott
India are exclusionary and limit and restrict the market in violation of
provisions of section 4(2)(b)(i) and are also causing denial of market
access in terms of section 4(2)(c) of the Act?” While Sub-Issue No.6 deals
with “Whether the Schott India refused to deal with M/s. Kapoor Glass as
has been alleged, denying market access to it and if yes, has Schott India
contravened the provisions of section 4 (2) (c) of the Act?”
70.
The main objective in this Appeal is to assail the findings on the
above issues. In this behalf the prayer clause of the Appeal must be seen,
which is as under:“1.
Declare that Schott India has, due to its actions denied access
to M/s. Kapoor Glass and other manufacturers in the relevant
market and declare that Schott India has unjustifiably refused
to deal with the M/s. Kapoor Glass for supply of its products;
2.
Direct Schott India to resume supplies of its products to M/s.
Kapoor Glass;
3.
Include Schott AG as also being culpable for contravening
Section 4 of the Competition Act in light of Section 27(g) of the
Competition Act
and increase
the
quantum
of penalty
accordingly;
4.
To proceed against individual persons or directors within the
company who are responsible for the conduct of Schott India
and Schott AG in accordance with Section 48 (1) and (2) of the
Competition Act;
5.
To impose maximum penalty on Schott India and collectively on
Schott group @ 10% of overall turnover under the provisions of
the Competition Act, given the magnitude of infringement as
also found by the CCI.
6.
Pass any other or further order(s) or direction(s) as this
Hon’’ble Tribunal may deem fit and proper in the light of facts
and circumstances of the case and in the interest of justice.”
71.
What predominantly striking is the prayer at clause No.2, whereby
M/s. Kapoor Glass has sought direction to resume supplies of its products
from Schott India to itself.
72.
It is clear that Schott India is not keen to do business with M/s.
Kapoor Glass. In this behalf, the CCI has already held that a manufacturer
or a supplier is not obliged and cannot be forced to supply its products to
an entity, which has used its name and labels without its permission in
past. Shri Khera appearing for M/s. Kapoor Glass has assailed this finding
and the resultant exoneration of Schott Glass from the provision of Section
4(2)(c) of the Act. In our opinion, the deduction by the CCI referred to
earlier is legally correct. It was argued by Shri Khera that Schott India had
no objective justification, not to deal with M/s. Kapoor Glass. According to
him, the allegation of infringement of trademark was raised as a defence
plea by Schott India, eight years after the alleged act took place and that
too at the stage of filing response to the application filed by M/s. Kapoor
Glass under Section 33 of the Act before the CCI. Very significantly, by
that application M/s. Kapoor Glass had sought a mandatory injunction
directing Schott India to resume the supplies of its product to M/s. Kapoor
Glass. The CCI had rejected that application and in our opinion rightly so.
Before we take up the discussion, we must say that Shri Khera very
categorically admitted that it was a fact that M/s. Kapoor Glass had tried to
manufacture forged/ fake labels of Schott India. According to Shri Khera,
however that was an old incident and on that basis alone Schott India
could not be held to be justified not to deal with M/s. Kapoor Glass. Our
attention was invited to an invoice dated 12.10.2000, which was the last
invoice for supply of tubes made to the M/s. Kapoor Glass. Shri Khera also
relied on a letter dated 05.04.2001, where Schott India had expressed their
inability to supply on account of the fact that their capacities were booked.
Further reference was made by Shri Khera on a letter dated 21.03.2008, as
also to a letter dated 31.03.2008, whereby Schott India had expressed its
inability to supply desired stock of glass tubes. Shri Khera still relied on a
letter dated 10.04.2008 and letter dated 11.09.2008, as also letter dated
02.06.2009 and 30.09.2009. Lastly, two more letter dated were relied on
by Shri Khera, they being letters dated 23.01.2010 and letter dated
03.05.2010. Shri Khera pointed out that none of these letters were denied
by Schott India and further in none of these letter Schott India had
referred to an earlier incident and put forth that as a reason of non-supply.
On the other hand, according to Shri Khera, Schott India kept on giving
evasive replies and insisted on not supplying the material. Therefore, his
argument was that the incident of fake labeling on the part of M/s. Kapoor
Glass was only an afterthought and a mere excuse to conceal the strong
arm tactics by Schott India. Shri Khera on this aspect also invited our
attention to the provisions of Section 154 of Criminal Procedure Code Court
and compared investigation by the DG to that of a criminal offense.
As
regards the contention relating to the provisions of Criminal Procedure
Code, we are not impressed at all, as the two jurisdictions namely
competition jurisdiction and criminal jurisdiction are entirely different from
each other. There would, therefore, be no point in comparing the two. He
has also relied on a decision in Kingfisher Airlines vs. Competition
Commission of India (WP No.1785 of 2009), wherein certain
observations were relied upon by him. Very strangely a plea was also
raised in the submissions to the effect that the bonafides of the M/s.
Kapoor Glass should not ipso facto render the entire proceedings void ab
initio. In short, the learned counsel suggested that even if M/s. Kapoor
Glass lacked the bonafide, the proceedings could still have gone. There can
be no dispute about this proposition, because in fact the proceedings have
gone on a full fledged investigation and not only that, the CCI has
considered the matter. We do not propose to hold that merely because
there was a lack of bonafide on the part of the M/s. Kapoor Glass, the
whole proceedings be void ab initio. Therefore, raising of this plea was
unnecessary.
However, it was further contended that merely because an
information was filed by a person, who has allegedly infringed a property
trademark, that would not be ipso facto entail denial of any rights that may
accrue to him in accordance with the due process of law.
73.
We fail to follow the logic behind this contention. It appears to be the
contention that M/s. Kapoor Glass had some rights. We fail to see what
kind of rights could M/s. Kapoor Glass enjoys vis-a-vis Schott India. There
is always corresponding duty to the concept of rights. We fail to see any
such duty on the part of Schott India to keep on supplying the materials,
where admittedly its labels were forged by M/s. Kapoor Glass by getting
them printed. There was thus clear and unabashed breach of trademark on
the part of M/s. Kapoor Glass. We fail to follow any logic under which the
Schott India had a duty in law to deal with such entity. We have already
discussed this issue in the earlier part of the judgment that, where the
products had a direct relation with human lives and serious consequences
could ensue on account of usage of inferior quality of glass tubes for the
preparation of ampoules, vials etc. Now, if M/s. Kapoor Glass could pass
off any inferior kind of glass tubes with the aid of those fake labels, which
it had tried to introduce, we cannot imagine the seriousness of the
consequences that could have ensued. It is clear from the facts that the
vials and ampoules produced from the inferior material could cause
chemical reactions in the drugs contained therein. We really fail to follow
the whole logic of this right and corresponding duty. In our opinion, the
CCI was absolutely correct in rejecting the plea that the Schott India had to
and was bound to continue to deal with M/s. Kapoor Glass.
74.
The counsel for Schott India very seriously urged as regards the
letters referred by us, that Schott India did not deny the said letters, but
had no intention whatsoever to deal with M/s. Kapoor Glass, particularly in
view of an admitted serious allegation against it. According to him, M/s.
Kapoor Glass, in getting fake labels printed had not only breached the
common decency, but had also attempted to play with human lives and
therefore, it was only by way of decency that Schott India was not
forthrightly expressing its intention to deal with M/s. Kapoor Glass at all.
The explanation is satisfactory and we accept the same. Once that aspect
is covered, then there would be no question of considering the aspect
covered by Section 4(2)(c), as the majority as well as minority order are
unanimous on this aspect. They both have held that there would be no
question of breach of Section 4(2)(c), particularly on account of refusal on
the part of Schott India to deal with or to supply its materials to M/s.
Kapoor Glass.
75.
In fact, the whole objective in initiating these proceedings appears to
be, to obtain the supplies of admittedly superior glass tubes manufactured
by Schott India. It is again an admitted position that these tubes were
much in demand by the Converters as the pharmaceuticals companies
insisted on such tubes owing to their superior quality. There is enough
evidence on record that the pharmaceutical companies had expressed
quality concerns and were keen that the Converters use only the glass
tubes manufactured by Schott India.
76.
It was made out by Shri Khera that because of the preferential
discount policies on the part of Schott India, the market was affected and
that Schott India was itself interested in restricting the supply of these
glass tubes to the Converters.
77.
Shri Billimoria, however, argued that it would be illogical on the part
of Schott India to squeeze the market for the simple reason that Schott
Kaisha was using only 30% of its production, whereas for the sale of rest
of 70%, Schott India had to depend upon other Converters and that was
undoubtedly a larger market as compared to the portion enjoyed by Schott
Kaisha. It was also argued that Schott India employed sales force incentive
wise by commission payments to ensure sales and, therefore, it was quite
illogical to suggest that Schott India had restricted supply to the
Converters. In this behalf, Shri Billimoria urged that certain Converters had
come together and planed to involve Schott in vexatious litigation. The
learned counsel said that after the application by other Converters to join
the appeal was rejected by this Hon’ble Tribunal, the said Converters never
bothered to approach the CCI in the period of 9 months for laying any
information before it. We find good force in this argument; however, all
that we would conclude is that the statement of the other Converters
should not have been simply relied upon as gospel truth by the CCI.
78.
We have already commented on the contentions raised that because
of the preferential and discriminatory discount policy on the part of Schott
India, the markets were affected and more particularly downstream was
affected. However, it has come in the evidence that the price structure
was not affected and the Schott Kaisha as well as other Converters were
selling their products on same or similar prices.
We, therefore, do not
accept the contention that there was any denial of market access on
account of policies adopted by Schott India. As regards the question of
using the statements and as also the issue of cross-examination, Shri
Khera has tried to rely on Regulation 43 of the Competition Commission of
India General Regulations 2009.
He has also referred to a Notification
dated 20.10.2010, whereby it was not incumbent on the DG to provide an
opportunity for cross-examination. We have already considered this issue
and in our opinion such opportunity was bound to have been provided by
the CCI itself at least during the hearing when it found that this plea was
specifically raised in the objections to the DG's report, which amounted to
basic pleadings on the part of Schott India. We have already commented
that it was not necessary to make any specific application in that behalf.
We are sure that this question was addressed specifically during the oral
arguments before the CCI as it was argued before us also. In that view,
we are of the clear opinion that when no such opportunity was given, it
was improper on the part of CCI to straight way accept the statements on
oath by the other Converters who appeared to be enemically disposed
towards Schott India.
79.
In this behalf, Shri Billimoria also brought to our notice the war of
words which was raged by M/s. Kapoor Glass against Schott India. Seeing
these documents, more particularly the blogs by M/s. Kapoor Glass, one is
thoroughly convinced of the strained relationship between M/s. Kapoor
Glass and Schott India. At some instances derogative names have been
given. All these convince us that this was a corporate fight and to say the
least, the M/s. Kapoor Glass had no bonafide to approach this Hon'ble
Tribunal. It was also suggested by Shri Khera that on account of the
preferential treatment on price, the margins of the Converters had
squeezed which had resulted in limiting, denial of market access to the
Converter in the relevant downstream market.
We have already
considered this issue and have rejected the contention. Lastly, Shri Khera
has referred to a meeting and the statement of Shri Rakesh Shrivastava
about that meeting.
All this happenings are essentially prior to the
enforcement of Sections 3 and 4. This is apart from the fact that it does
not take the case of M/s. Kapoor Glass any further on merits.
These
meetings and the so called discussions are of no consequence.
80.
We have already commented upon the aspect of mixing risk as Shri
Khera has tried to raise an argument that it was not scientifically possible
to mix tubes made from Schott glass with any other glass tubes, since the
melting point of different tube glass are different.
We have already
considered this aspect of mixing and are quite convinced that there was
undoubtedly mixing risk, as even during the inspection, the fake tubes
could have passed.
It is in common knowledge that it is only sample
testing, wherein there are chances of some tubes not being genuine being
passed off along with others.
81.
This takes us to the cases in foreign jurisdiction, which we shall now
deal with.
82.
Following cases were relied upon by Shri Khera to support his
contentions.
Out of which one pertains to Union of India vs. Suraj
Bhan, [1970] ILR Delhi 275.
That is in the realm of service
jurisprudence. It is on the question of the opportunity to cross-examine
the witnesses, a case where the alleged documents were not relied upon
by the prosecution and in that view, the High Court did not find favour with
the contentions of the delinquent.
That is not a situation here.
The
statements of the witnesses have not only been referred to, but even
extensively relied upon by the CCI.
83.
The second case cited in the Appeal of M/s. Kapoor Glass is of
BBI/Boosey & Hawkes (87/500/EEC) which relates to a proceeding
under Article 86 of the EEC Treaty. An abuse of dominant position in that
case was defined as a course of conduct adopted by a dominant
undertaking with a view to exclude a competitor from the market by means
other than legitimate competition on the merits. In that case the
documentary evidence indicated that Boosey & Hawkes embarked on a
course of conduct intended to remove the competitive threat from BBI, and
that its withdrawal of supplies from GHH and RCN was part of that plan.
The judgment further mentions well established cases [United Brands v.
Commission (Case 27/76) and Commercial Solvents (Cases 6/73
and 7/73)] of refusal of supplies by a dominant producer to an
established customer without objective justification which constitute
an abuse under Article 86. We have already held that Schott India had
every objective justification to refuse to supply to M/s. Kapoor Glass. This
is apart from the fact that refusal has not affected the market.
84.
The third case that has been cited is of Kingfisher Airlines Limited
vs. Competition Commission of India (WP No. 1785 of 2009). This
is cited in support of the contention that the lack of bonafides on the part
of M/s. Kapoor Glass should not ipso-facto render investigation invalid. We
need not comment on this aspect, in view of our earlier discussion.
85.
The fourth case that has been cited is Telemarketing (CBEM) v.
SA Compagine Luxembourgeoise del Telediffusion. This is also on
the same lines as BBBI/ Bossey. It is clearly held in this case that if the
refusal to supply is not justified by technical or commercial requirements,
but is intended to eliminating all competition from another undertaking,
such conduct amounts to an abuse prohibited by Article 86 of the EC
Treaty.
We agree with this judgment, however, we have already held
otherwise on facts.
86.
The last judgment that has been cited is Konkurrensverket v.
TeliSonera Sverige AB. It is also more or less on the same lines as the
two earlier judgments. We do not find anything new in this judgment, so
that we should take any contrary view from the one which we have already
taken.
87.
It is a trite law that every judgment is an authority for the question it
actually decides on the basis of the prevalent facts and circumstances. The
factual scenario in all these judgments is entirely different. Be that as it
may, the case law cited by the learned counsel does not impress us.
Again, we see no reason to take any contrary view.
88.
In view of all this, we do not find any merits in this appeal.
We
therefore, dismiss the same.
89.
Inspite of the total lack of bonafidies, M/s. Kapoor Glass have chosen
not only to approach the CCI, but also to pursue the appeal, in which one
of the prayer is to enhance the penalty awarded by CCI against Schott
India. Under the circumstances, we deem it fit to inflict costs of
Rs.1,00,000/- (rupees one lakh) against M/s. Kapoor Glass.
90.
Appeal No. 91 of 2012 is allowed.
The judgment and penalty
awarded by CCI is set aside.
91.
Appeal No. 92 of 2012 is dismissed with costs of Rs.1,00,000/-
(rupees one lakh) against M/s. Kapoor Glass. The costs to be paid within
three months of the passing of the order. All the I.A.’s are disposed off in
terms of the above order.
Pronounced in the open Court on 2nd day of April, 2014.
(V.S. Sirpurkar)
Chairman
(Rahul Sarin)
Member
(Pravin Tripathi)
Member
COMPETITION APPELLATE TRIBUNAL
NEW DELHI
APPEAL No.30/2013
IA 53/2013
(for delay)
CORAM
Hon’ble Mr. Justice V.S. Sirpurkar
Chairman
Hon’ble Shri Rahul Sarin
Member
Hon’ble Mrs. Pravin Tripathi
Member
In the matter of :
M/s. MINERAL ENTERPRISES LTD.
….Appellant
VS.
UNION OF INDIA & ORS.
Appearance:
….Respondent
Mr. P.S. Narasimha, Sr. Advocate for UOI
Mr. K. Murthy Rao, Advocate
ORDER
2nd April, 2014
After considerable arguments, the learned senior cousel Mr.Narasimha does not
press the appeal but seeks the liberty to approach the CCI with the fresh material so as
to show how the matter comes within the purview of the Competition Act. The
appeal is disposed of with the liberty. In that view, we need not pass the order on the
condonation of the delay application.
It need not be said that the matter shall be disposed of by the CCI without being
influenced with the earlier order.
(Justice V.S. Sirpurkar)
Chairman
(Rahul Sarin)
Member
(Pravin Tripathi)
Member