CCI Dismisses Allegations of imposing vertical restraints against Inox Leisure Limited and Hindustan Coca-Cola Beverages Private Limited

On February 28, 2019, CCI dismissed allegations of violations of Section 3 of the Act by Inox Leisure Limited (‘Inox’) and Hindustan Coca-Cola Beverages Private Limited (‘Coke’), made by Mr. Vijay Gopal (‘Informant’).[1]

The allegations pertained to an arrangement between Inox and Coke whereby Inox would only sell Coke’s products in its multiplexes, to the exclusion of its competitors, amounting to an exclusive supply agreement as well as an exclusive distribution agreement between Inox and Coke (in violation of Section 3(4)(b) and (c) of the Act). Further, given that Inox did not allow its patrons to carry any eatables from outside to within its premises, the patrons were forced to purchase essential commodities such as water from within the premises of Inox, and to this extent the sale of such commodities were in essence tied to the provision of watching movies in Inox’s theatre, in violation of Section 3(4)(a) of the Act. Additionally, it was also alleged that Coke’s products that were sold within Inox’s premises were priced differently (higher) than the retail price at which they were generally available in the market, leading to a loss to consumers.

CCI in its analysis relied on its observations in In Re M/s Cine Prekshakula Viniyoga Darula Sangh v. Hindustan Coca Cola Beverages Private Limited[2] and In Re Consumers Guidance Society v. Hindustan Coca Cola Beverages Private Limited and Inox Leisure Private Limited[3] (decided collectively by a common order dated May 23, 2011) and noted that in these cases, the DG had delineated two markets for the purpose of the investigation namely; (i) “market of retail sale of bottled water and cold drinks inside the multiplexes of Inox”; and (ii) “the market of supply of bottled water and cold drinks to the owners of closed market of multiplexes and to other commercial enterprises where it is treated as the preferred beverage supplier”.

Thereafter, CCI specified the pre-requisites which were to be satisfied for a violation of Section 3(4), detailed as follows:

i.       Existence of an agreement;

ii.      Between ‘enterprise’ or ‘persons’;

iii.     Engaged at different stages or levels of the production chain in different markets;

iv.      With respect to production, supply, distribution, storage, sale or price of, or trade in goods, or provisions of services;

v.       Including tie-in-arrangement, exclusive supply agreement, exclusive distribution agreement, refusal to deal, and resale price maintenance; and

vi.      Which agreement causes or is likely to cause an appreciable adverse effect on competition (‘AAEC’) in India.

CCI observed that points (i), (ii), (iii), and (iv) were applicable to the present case. However, it clarified that the allegation of a tie-in was not made out given the facts on record. As per CCI, there was no explicit condition that the consumers had to necessarily buy Coke’s products to watch the movies. Therefore, Coke’s products were incidental to the activity of watching a movie and not the main driving force for customers to visit Inox’s multiplexes. CCI also noted that, in any case, free water was available within Inox’s multiplexes.

Regarding the allegation of an exclusive supply arrangement between Inox and Coke, CCI observed that Coke did not have significant market power, given the presence of multiple competitors. Further, after analysing the Sale and Supply Agreement between Inox and Coke (‘Agreement’), CCI noted that the Agreement was only for a period of three years initially, but Inox and Coke had continued their arrangement through fresh agreements thereafter. However, the successive agreements had been revised to the extent that Coke was no more an exclusive partner to Inox, thereby providing complete autonomy to Inox to market products from any manufacturer, including Coke’s competitors. CCI also noted that the Agreement could be terminated by either party by giving a 60 days notice and to this extent, there were no exit barriers which were implemented by Inox or Coke.

Accordingly, after considering the factors for determining AAEC as specified under Section 19(3) of the Act, CCI observed that the impugned arrangement: (i) lacked any entry/exit barriers; (ii) did not posses any ability to drive any existing competitors out of the market (or had not driven any existing competitors out of the market); and (iii) did not result any market foreclosure.

[1] Case No. 29/2018.
[2] Case No. RTPE 16/2009.
[3] Case No. UTPE 99/2009.

Published In:Inter Alia Special Edition - Competition Law - April 2019 [ English
Date: April 1, 2019