CCI Dismisses Abuse of Dominance Allegations against GAIL (India) Limited

On November 8, 2018, CCI dismissed a batch of information filed against GAIL (India) Ltd. (‘GAIL’) alleging contravention of Section 4 of the Act.[1] It was alleged that GAIL had imposed unfair and one-sided conditions in gas supply agreements (‘GSA’) entered into with seven companies (‘Informants’) in relation to the supply of Re-gasified Liquified Natural Gas (‘RLNG’).

The following actions of GAIL were alleged to amount to abuse of dominance under the Act:

(i)      suspension of gas supply, without notice, to the Informants[2];

(ii)     denial of dispute resolution mechanism envisaged under the GSA to the Informants[3];

(iii)  arbitrarily and unilaterally doing away with the requirement of seven banking days envisaged under the GSA, after buyer’s due date, for issuance of notice for suspension of gas. Further, the invoices issued by the GAIL stated that gas supplies would be disconnected, if the amount due was not paid within three days of receipt;

(iv)   GAIL arbitrarily and unilaterally substituted the term ‘disconnection’ for ‘suspension’ of gas supplies in its invoices raised on Informants thereby avoiding the compliance requirements for suspension of gas;

(v)   Informants were forced to make payments against incomprehensible invoices, drawn up arbitrarily by GAIL, without indicating the requisite details stipulated in the GSA;

(vi)    invocation of Letter of Credit by GAIL in respect of amounts beyond time limits prescribed under the GSA;

(vii)   imposition of a new arbitrary obligation on the Informants of ‘pay for if not taken’, computed on a basis not contemplated in the GSA; and

(viii)  advancing buyers due date in the invoices.

Based on the above, CCI directed the DG to conduct an investigation against GAIL. In the investigation report (‘Report’) submitted to CCI, the relevant market was delineated as: (i) the ‘market for supply and distribution of natural gas to industrial consumers in the district of Gurgaon’; (ii) the ‘market for supply and distribution of natural gas to industrial consumers in the district of Alwar’; (iii) the ‘market for supply and distribution of natural gas to industrial consumers in the district of Ghaziabad’; and (iv) the ‘market for supply and distribution of natural gas to industrial consumers in the district of Rewari’.

In its assessment of GAIL’s dominance, the DG noted that GAIL was the only supplier of natural gas in the relevant geographic markets, and was therefore found to be dominant. Based on this, the DG concluded that GAIL had abused its dominant position by imposing unfair terms on the Informants, in contravention of Section 4(2)(a)(i) of the Act.

CCI, in its analysis of GAIL’s alleged conduct, differed with the DG’s findings.

First, CCI found that the between GAIL and the Informants did not foreclose competition in the relevant market. It noted that clauses, including the ‘take or pay’ liability (‘ToP’) are common in energy sector including the natural gas markets, therefore, such contracts cannot be held to be inherently anti-competitive. CCI relied on its decision in the case of Tata Power Distribution Ltd v. NTPC Ltd, where it was held that a violation of Section 4(2)(a)(i) of the Act was not made out since: (i) the Informant entered into the agreement with the OP being fully aware of the terms of the agreement, including the long term obligation stipulated thereunder; (ii) there was a rational basis for binding the Informant and other procurers in the long term agreements as the generating companies invest in establishing the generating stations based on allocation and the agreements entered into with the parties (which are to be served through period agreed upon); and (iii) the Informant and other procurers had the option to approach the central government for reallocation of power allocated to them.

Second, there was no evidence to support that GAIL had limited or restricted production of goods/markets by abusing its dominant position. The Informants had not challenged the ToP clause itself, but the calculation of liability by GAIL. GAIL’s conduct to mitigate its losses was found to not raise any competition concerns. Moreover, CCI observed that the Informants had not raised a concern with the ToP till the time GAIL was operating in their favor. The issue was raised only when a ToP was imposed on the Informants. For this finding, CCI relied on its previous decision in on the case of Paharpur Cooling Towers Ltd. v. GAIL (India) Ltd, where it was held that “safeguarding commercial interest or invoking contractual cases which are not unfair per se cannot be termed as unfair just because they are invoked by one of the parties to the contract”.

Third, in relation to the Informants’ allegation that GAIL had forced them to maintain a letter of credit (‘LC’) to cover the amount of Minimum Guarantee Offtake (‘MGO’) and ToP, CCI stated that it was incorrect to use MGO and ToP synonymously in the LC. CCI held that GAIL had erroneously used the term ‘MGO’ in the LC, and therefore such a mistake could not be deduced to be a contravention of provisions of Section 4(2)(i)(a) of the Act.

Fourth, CCI differed from DG’s finding against GAIL in relation to the invocation of LCs beyond the contractual terms of the GSA as akin to unilateral conduct. CCI held that while such an invocation of LC was against the terms of the GSA, the Informants had failed to establish the loss caused (if any) by such multiple invocations.

Fifth, CCI held that GAIL had not contravened the GSA in relation to the timelines given to the Informants in making payments, post raising of an invoice. CCI noted that as per the GSA, the payment is to be made within 4 banking days from the receipt of invoice, and GAIL’s invoices had only reduced this time to three days.

Sixth, CCI found no evidence in support of the allegation that GAIL had arbitrarily and unilaterally substituted the term “disconnection” in place of “suspension” of gas supplies in its invoices raised on the Informants, thereby avoiding the compliance requirements for suspension of gas.

Accordingly, the information was dismissed by CCI.

[1] Case Nos. 16-20 & 45 of 2016, 02, 59, 62 & 63 of 2017.
[2] Case no. 17 of 2016 and Case no. 18 of 2016.
[3] Case no. 17 of 2016 and Case no. 18 of 2016.

Published In:Inter Alia Special Edition Competition Law December 2018 [ English
Date: December 31, 2018