CCI Finds no Abuse of Dominance and Cartelization by Flora and Fauna Housing and Land Developments Pvt. Ltd. and Others.

On April 15, 2021, CCI dismissed allegations of imposition of unfair conditions, denial of market access and cartelization against Flora and Fauna Housing & Land Developments Private Limited (‘OP-1’), Patiala Kings Liquor Pvt. Ltd. (‘OP-2’), Royal Beverages Pvt. Ltd. Ltd. (‘OP-3’), Kiwi Wines And Beverages Pvt. Ltd. (‘OP-4’), Chadha Holdings Pvt. Ltd. (‘OP-5’) and the Government of Uttar Pradesh (‘OP-6’). [1]

The Informant, a public limited company whose founders are engaged in the business of manufacturing and trading liquor in North India, contended that OP-5 is the holding company for the entire ‘Group’ that owns or controls the exclusive licensees for wholesale trade in country liquor within the State of Uttar Pradesh i.e., OP-1 to OP-4. It was alleged that since manufacturers/ distilleries of liquor cannot sell liquor directly to retailers or end consumers, the exclusive procurement of liquor by OP-1 to OP-4 from OP-5 led to denial of market access to the other distilleries. It was further alleged that OP-1 to OP-4 were operating under a mutual agreement to source their purchases of country liquor only from certain manufacturers to the exclusion of others, thereby limiting or controlling the market of country liquor in violation of the provisions of Section 3(1) read with Section 3(3)(b) of the Act.

CCI rejected a jurisdictional plea raised by OP-1, OP-4 and OP-5 that since the present case deals with country liquor it is outside the purview of CCI as the Supreme Court has held that there is no right to trade with respect to potable liquor. CCI rejected this plea on the ground that the appointment of wholesalers/ distributors is indisputably a ‘service’ within the meaning of the Act and hence within the purview of CCI. This conclusion was fortified by the wide amplitude of the terms ‘trade’ and ‘goods’ under the Competition Act, as identified by CCI.

CCI delineated the relevant product market as the ‘market for procurement of country liquor from licensed manufacturers’, on the basis of various factors such as the ingredients, alcoholic content, manufacturing process and the regulatory framework. The relevant geographic market was held to be the State of Uttar Pradesh in light of the DG’s conclusion that the conditions of competition were homogeneous in the State of Uttar Pradesh for purchase of a license for country liquor.

The DG in its investigation divided the relevant period into two different parts i.e., from  May 20, 2009 to March 31, 2011 (first relevant period) and from  April 1, 2011 to March 31, .2018 (second relevant period). This is because during the first relevant period only, OP-1 operated in the relevant market as being the sole wholesaler for the country liquor in the entire State of Uttar Pradesh. Subsequently, from April 1, 2011 to  March 31, 2018 (second relevant period), there were at least four different licence holders in the State of Uttar Pradesh, who were assigned different excise zones.

CCI found that OP-1 was dominant during the first relevant period since they were the sole wholesaler of country liquor, and hence, had a market share of 100%. CCI found that there were no unfair conditions imposed and no denial of market access by OP-1 or OP-5 as the Informant was unable to provide any evidence that they requested OP-1/OP-5 to purchase its liquor, and that OP-1/OP-5’s unfair and discriminatory conditions led to the closure of 11 distilleries. In fact, it was shown that OP-1/OP-5 had been purchasing liquor from nearly all possible entities that were regularly operating in the market.

CCI also rejected the argument that OP-1/OP-5 leveraged their position to enter the ‘market for manufacture and supply of country liquor in the State of Uttar Pradesh’ for the same reasons.

With respect to the second relevant period, OP-1 to OP-4 were each, license holders. CCI noted that there was no evidence of preferential treatment being given by OP-1 to OP-4 to their own distilleries. The informant had not shown any evidence to indicate that they had made efforts towards securing orders or supplying their liquor to the OPs.

Finally, CCI observed that they could not examine the claim against OP-6 since policy formulation is in the realm of sovereign activities and is not subject to the purview of CCI under the Act. Lastly, in the absence of any evidence, CCI rejected the allegations pertaining to collusion and bid rigging by the OPs.

Thus, CCI found no contravention under the Act and dismissed the case.

 

[1] Case No. 53 of 2017

Published In:Inter Alia Special Edition - Competition Law - May 2021 [ English
Date: May 31, 2021