CCI Penalises Grasim Industries Limited for Abuse of Dominance

On March 16, 2020, the CCI imposed a penalty on Grasim Industries Limited (‘Grasim’) for abusing its dominance in relation to the supply of viscose staple fibres (‘VSF’), by charging discriminatory prices from its customers and imposing supplementary obligations on them, in contravention of the Act[1].

Grasim is the largest producer and seller of VSF in India. It was alleged by Mr. XYZ (‘Informant’) that Grasim sells VSF at lower rates to its international customers while charging much higher rates from its domestic customers. It was also alleged that Grasim segments its domestic customers into two groups, namely: (i) domestic customers who are manufacturing and supplying yarn for the domestic market; and (ii) domestic customers who are manufacturing and supplying yarn for export, in order to effectuate its discriminatory pricing policy. In addition to differential pricing and unfair conditions, the Informant alleged that Grasim forces its domestic customers to submit their monthly yarn production data to it before deciding on the discount rate applicable to them.

For determination of the relevant market, the CCI noted that textile fibres can be classified into two broad categories based on the source from which they are obtained: natural fibres and man-made fibres. Owing to the difference in characteristics such as composition, resilience, moisture absorption power, and resistance to moth, the CCI opined that natural and man-made fibres ought to be considered as two distinct categories of products which are used as raw materials by spinners to manufacture yarn. Further, the CCI noted that within man-made fibres, VSF possessed characteristics which made it distinct from natural and other man-made fibres. The CCI also relied on an order of the Director General of Anti-Dumping and Allied Duties which specifically distinguished VSF from other fibres based on its characteristics[2]. Further, the CCI relied on the testimony of retailers such as BIBA, Shoppers Stop, and Fab India which stated that fibres could not be substituted with each other based on cost or any other parameter. Additionally, the CCI observed that statistical tools such as correlation and regression, which were relied upon by Grasim to ascertain substitutability and define the relevant market have to be used in conjunction with other relevant facts of the case. The CCI also observed that the demand for VSF is homogenous across the country and there exist no geographical advantages or disadvantages in relation to VSF. Based on the above, the CCI defined the relevant market as the market for supply of VSF to spinners in India (‘Relevant Market’).

The CCI observed that Grasim is the sole producer of VSF in India, and had a market share consistently above 87% for the period of alleged violation, with the remaining market share being attributed to imports. The CCI also noted that the group companies of Grasim were present at various stages of the value chain of VSF and possessed significant size, strength, and economic power. Lastly, the CCI also observed that the manufacturing of VSF involved high barriers to entry, owing to such activity being capital intensive and subject to stiff environmental restrictions and regulations. Accordingly, based on high market share, size and resources of Grasim, lack of competitors in the Relevant Market, and entry barriers, the CCI opined that Grasim held a dominant position in the Relevant Market.

On abuse, the CCI observed that Grasim charges different rates per kilogram to customers even in similar transactions involving the same month, manufacturing plant, and grade of VSF. The CCI opined that such discriminatory pricing at an upstream level had the ability to not only distort downstream markets but also have an adverse effect on production efficiency of downstream firms. The CCI noted that Grasim has absolute discretion in relation to prices. The CCI also noted that the domestic buyers of VSF were unclear about the prices and discounts applicable to them and their similarly placed competitors, as these figures were communicated by Grasim confidentially to each customer. Such actions, according to the CCI created information asymmetry which adversely affected the ability of the spinners to supply yarn at competitive prices. Accordingly, the CCI opined that such conduct of Grasim amounted to imposition of unfair and discriminatory prices, in violation of Section 4(2)(a)(ii) of the Act.

Further, the CCI opined that Grasim’s practice of seeking details of VSF bought and used for production from its customers as a condition for sale of VSF, under the garb of offering discounts could be interpreted as preventing the resale of VSF in India as well as the export of VSF by its customers. The CCI was of the view that such practice amounted to imposition of supplementary unconnected obligations, in violation of Section 4(2)(d) of the Act.

For the above contraventions, the CCI imposed a penalty of Rs. 301.61 crore on Grasim.

[1] XYZ v. Association of Man Made Fibre Industry of India & Ors., Case No. 62 of 2016, order delivered on 16 March 2020.
[2] Order No. 1416/2009-DGAD.

Published In:Inter Alia Special Edition - Competition Law - June 2020 [ English
Date: June 10, 2020