NCLAT Partially Affirms CCI’s Order Penalizing Adani Gas Limited for Abusing its Dominant Position

On March 5, 2020, in cross-appeals filed by Adani Gas Limited (‘Adani’) and Faridabad Industries Association (‘FIA’), NCLAT affirmed CCI’s order penalizing Adani for abusing its dominant position in the market for supply and distribution of natural gas to industrial consumers in Faridabad. However, NCLAT revised the monetary penalty imposed by CCI[1].

To contest the relevant market defined by CCI, Adani argued before NCLAT that the piped natural gas (‘PNG’) which it supplies to industrial consumers competes with several other fuels. In the cross-appeal, FIA submitted that until November 2012, no other fuel could be used as a substitute of natural gas due to its unique characteristics, intended use and price. Moreover, members of FIA who manufacture high precision alloys are required to use PNG only.

In its assessment, NCLAT observed that during the relevant period of investigation, there was no gaseous substitute of natural gas available to industrial units in Faridabad. Further, it was not disputed by Adani that the natural gas supplied to members of FIA is primarily PNG and therefore, distinct. Given the differences between the Gas Supply Agreements (‘GSA’) which Adani executed with industrial consumers from those executed with domestic, commercial and transport consumers for supply of gas, NCLAT observed that Adani itself treated industrial customers as distinct from other groups of customers. Additionally, members of FIA were solely dependent on Adani for the supply of natural gas. Accordingly, NCLAT found Adani to be dominant in the relevant market, thus affirming CCI’s conclusion.

NCLAT further noted that the GSA entered into between Adani and members of the FIA had the following terms which, when imposed by a dominant enterprise such as Adani, would amount to unfair contractual conditions under Section 4 of the Act:

i.      Billing & Payment: this clause removed the liability on Adani for excess payment by the buyers to Adani due to erroneous billing/ invoicing on the part of Adani including interest, whereas a delayed payment by the buyer rendered him liable to pay interest with there being no corresponding obligation on Adani to pay interest;

ii.     Termination: this clause provided Adani with the right of termination if a buyer failed to buy 50% of the gas manufactured for such buyer. This clause only provides a short period of 45 days to the buyers to buy the gas, whereas, Adani had a longer duration available to meet a similar requirement under its agreement with Gas Authority of India Limited;

iii.    Force Majeure: this clause vested in Adani the discretion to accept or reject request of customers for force majeure; and

iv.     Emergency shutdown: this clause required the buyer to meet its payment obligation even in the event of emergency shutdown.

In light of the above, NCLAT affirmed CCI’s conclusion that Adani had abused its dominant position. However, the fact that Adani had revised the impugned clauses in the GSA during the period of the investigation and thus made them more consumer friendly was seen as a mitigating factor. Accordingly, NCLAT decided to reduce the total penalty on Adani from 4% of its average annual turnover of the relevant period of investigation, to 1%.

[1] Competition Appeal (AT) No. 33 of 2017

Published In:Inter Alia Special Edition - Competition Law - May 2020 [ English
Date: May 11, 2020