Energy & Natural Resources
Amendments to FEMA 20
RBI has, by way of a series of notifications, amended the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2000 (‘FEMA 20’). The key amendments pursuant to these notifications have been summarized below.
i. Issuance of Convertible Notes by Startups: RBI notification dated January 10, 2017 (‘January Notification’) provides for the issuance of convertible notes by Indian startup companies (‘startups’). A ‘convertible note’ has been defined to mean “an instrument issued by a startup company evidencing receipt of money initially as debt, which is repayable at the option of the holder, or which is convertible into such number of equity shares of such startup company, within a period not exceeding five years from the date of issue of the convertible note, upon occurrence of specified events as per the other terms and conditions agreed to and indicated in the instrument”.
The newly introduced Regulation 6D of FEMA 20 sets out the relevant provisions, which provide that:
a. A person resident outside India (other than an individual who is a citizen of, or an entity registered / incorporated in, Pakistan or Bangladesh), may purchase convertible notes issued by startups for an amount of Rs. 2,500,000 (approximately US$ 39,000) or more in a single tranche;
b. Startups engaged in a sector where foreign investment requires Government approval may issue convertible notes to a non-resident only with Government approval;
c. Issue of shares against convertible notes will be as per Schedule 1 of FEMA 20;
d. Startups issuing convertible notes to a non-resident must receive the consideration by inward remittance through banking channels or by debit to the NRE / FCNR (B) / escrow account maintained as per the Foreign Exchange Management (Deposit) Regulations, 2016 and closed upon the earlier of the requirements having been completed or within a period of six months;
e. Non-resident Indians may acquire convertible notes on non-repatriation basis as per Schedule 4 of FEMA 20;
f. A person resident outside India may acquire or transfer, by way of sale, convertible notes, from or to, a person resident in or outside India, provided the transfer takes place in accordance with the pricing guidelines as prescribed by RBI; and
g. Startup issuing convertible notes are required to furnish reports as prescribed by RBI.
ii. Foreign Investment in Infrastructure Companies: The January Notification also amends conditions relating to foreign direct investment (‘FDI’) under Schedule 1 of FEMA 20 in commodity exchanges, which have been combined with those relating to infrastructure companies in the securities market (namely stock exchanges, commodity derivative exchanges, depositories and clearing corporations). The key revisions introduced by the January Notification are:
a. FDI, including by foreign portfolio investors (‘FPI’), in commodity exchanges will now be subject to guidelines prescribed by RBI in addition to those issued by the Central Government (‘GoI’) and SEBI;
b. FDI in other infrastructure companies in securities market will now be subject to guidelines by GoI and RBI, in addition to those issued by SEBI;
c. the earlier condition permitting FIIs / FPIs to invest in commodity exchanges or infrastructure companies only through the secondary market has been removed; and
d. the restriction on investment by a non-resident in commodity exchanges to a maximum of 5% of its equity shares has been removed.
The Consolidated Foreign Direct Investment Policy dated June 7, 2016 (‘FDI Policy’) has also been amended, by way Press Note 1 of 2017 dated February 20, 2017, to align it with the January Notification.
iii. FDI in LLPs: Pursuant to notification dated March 3, 2017, RBI has amended Regulation 5(9) and Schedule 9 of FEMA 20 to further liberalize FDI in Limited Liability Partnerships (‘LLPs’). Companies having FDI can now be converted into LLPs under the automatic route provided that the concerned company is engaged in a sector where: (a) 100% FDI is permitted under the automatic route; and (b) no FDI linked performance conditions exist. Previously, conversion of companies with foreign investment was only permitted under the approval route. The erstwhile ‘Other Conditions’ stipulated under Schedule 9 of FEMA 20 have been completely omitted resulting in the following key changes:
a. Previously, the designated partner of a LLP having FDI had to satisfy the condition of being “a person resident in India”. Also, a body corporate other than a company registered in India under CA 2013 was not permitted to be a designated partner of a LLP with FDI. These conditions have been removed. Consequently, a LLP having FDI will have to comply only with the provisions of the LLP Act, 2008 for appointment of designated partners;
b. Earlier, designated partners were responsible for compliance with FDI conditions for LLPs and liable for all penalties imposed on a LLP for any contraventions. This condition has now been deleted from Schedule 9 but no corresponding provision has been included in the revised Schedule 9; and
c. Express prohibition on LLPs availing External Commercial Borrowings (‘ECB’) has been removed. However, the extant ECB guidelines have not yet been amended to permit LLPs to avail ECBs. Therefore, LLPs will not be able to avail ECBs until the extant ECB guidelines are amended.
iv. FDI in E-commerce: The Department of Industrial Policy and Promotion had, by way of Press Note 3 of 2016 dated March 29, 2016 (‘Press Note 3’), prescribed that no FDI is permitted in an inventory based model of e-commerce and 100% FDI under the automatic route is permitted in the marketplace model of e-commerce subject to compliance with the guidelines prescribed thereunder. A summary of the key changes introduced through Press Note 3 have been captured in the April 2016 edition of Inter Alia. RBI has, by way of a notification dated March 9, 2017, amended FEMA 20 in line with the changes introduced through Press Note 3. However, RBI has introduced a minor change to Press Note 3 by clarifying that the threshold of 25% of sales emanating from one vendor or their group companies will be computed based on the sale value during the relevant financial year.
 Being a private company incorporated under CA 2013 and recognized as such as per Notification G.S.R. 180(E) dated February 17, 2016 issued by the Department of Industrial Policy and Promotion.
Amendment to SEBI (Real Estate Investment Trusts) Regulations, 2014 and SEBI (Infrastructure Investment Trusts) Regulations, 2014
Pursuant to the meeting of the SEBI board held on September 23, 2016, SEBI has amended the SEBI (Real Estate Investment Trusts) Regulations, 2014 and the SEBI (Infrastructure Investment Trusts) Regulations, 2014. Some of the key amendments include:
i. The minimum holding of the mandatory sponsor in the infrastructure investment trust (‘InvIT’) has been reduced from 25% to 15%;
ii. The existing limit of three sponsors has been removed from both regulations;
iii. The permissible investment limit for investment by real estate investment trusts (‘REIT’) in ‘under construction’ assets has been increased from 10% to 20%; and
iv. InvITs and REITs are allowed to invest in a two-level SPV holding structure, through a holding company.
Meeting of the SEBI Board
The SEBI Board met on September 23, 2016 and took the following decisions:
i. Currently, FPIs are required to transact in securities through stock brokers registered with SEBI, while domestic institutions such as banks, insurance companies, pension funds etc. are permitted to access the bond market directly (i.e. without brokers). SEBI has decided to extend this privilege to Category I and Category II FPIs.
ii. In order to facilitate the growth of Investment Trusts (“InvIT”) and Real Estate Investment Trusts (“REIT”), SEBI has decided to amend the SEBI (Infrastructure Investment Trusts) Regulations, 2014 and the SEBI (Real Estate Investment Trusts) Regulations, 2014 (“REIT Regulations”). The key amendments will include:
a. InvITs and REITs will be allowed to invest in the two level SPV structure through the holding company subject to sufficient shareholding in the holding company and other prescribed safeguards. The holding company would have to distribute 100% cash flows realised from the underlying SPVs and at least 90% of the remaining cash flows.
b. The minimum holding of the mandatory sponsor in the InvIT has been reduced to 15%.
c. REITs have been permitted to invest upto 20% in under construction assets.
d. The limit on the number of sponsors has been removed under the REIT Regulations.
iii. The SEBI Board has approved amendments to the SEBI (Portfolio Managers) Regulations, 1993, to provide a framework for the registration of fund managers for overseas funds, pursuant to the introduction of section 9A in the Income Tax, 1961.
iv. The SEBI Board has decided to grant permanent registration to the following categories of intermediaries: merchant bankers, bankers to an issue, registrar to an issue & share transfer, underwriters, credit rating agency, debenture trustee, depository participant, KYC registration agency, portfolio managers, investment advisers and research analysts.
v. The Securities Contracts (Regulation) (Stock Exchanges and Cleaning Corporations) Regulations, 2012 have been amended to increase the upper limit of shareholding of foreign institutional investors mentioned in the Indian stock exchanges from 5% to 15% and to allow an FPI to acquire shares of an unlisted stock exchange through transactions outside of recognised stock exchange including allotment.
Foreign Investment in Units Issued by REITs, InvITs and AIFs
Salient features of foreign investment permitted by RBI, pursuant to its circular dated April 21, 2016, in the units of investment vehicles for real estate and infrastructure registered with the SEBI or any other competent authority are as under:
i. A person resident outside India (including a Registered Foreign Portfolio Investor (‘RFPI’) and NRIs may invest in units of real estate investment trusts (‘REITs’);
ii. A person resident outside India who has acquired or purchased units in accordance with the regulations may sell or transfer in any manner or redeem the units as per regulations framed by SEBI or directions issued by RBI;
iii. An Alternative Investment Fund Category III with foreign investment can make portfolio investment in only those securities or instruments in which a RFPI is allowed to invest; and
iv. Foreign investment in units of REITs registered with SEBI will not be included in ‘real estate business’.
Guidelines for Public Issue of Units of Infrastructure Investment Trusts
SEBI has, on May 11, 2016, issued Guidelines for Public Issue of Units of Infrastructure Investment Trusts (‘Guidelines’), which amend the provisions of the SEBI (Infrastructure Investment Trusts) Regulation, 2014 (‘SEBI InvIT Regulations’).
The Guidelines set out the procedure to be followed by an infrastructure investment trust (‘InvIT’) in relation to a public issue of its units, which includes the appointment of a lead merchant banker and other intermediaries, procedure for filing of offer documents with SEBI and the stock exchanges, the process of bidding and allotment. Further, the allocation in a public issue is required to be in the following proportion: (i) not more than 75% to institutional investors; and (ii) not less than 25% to other investors; provided that the investment manager has the option to allocate 60% of the portion available for allocation to institutional investors and anchor investors (which includes strategic investors), subject to certain conditions. Further, the investment manager, on behalf of the InvIT is required to deposit and keep deposited with the stock exchange(s), an amount equal to 0.5% of the amount of the units offered for subscription to the public or Rs 5 crores (approximately US$ 7,45,000), whichever is lower. The price of units can be determined either: (i) by the investment manager in consultation with the lead merchant banker; or (ii) through the book building process. However, differential prices are not permitted.
Government Notifies the MMDR (Amendment) Act, 2016
The Central Government has notified the Mines and Minerals (Development and Regulation) Amendment Act, 2016 (‘2016 Amendment’) on May 9, 2016. By virtue of amendments to the Mines and Minerals (Development and Regulation) Act, 1957 (‘MMDR Act’) in 2015, transfer of only those mineral concessions granted by auction was allowed. By virtue of the 2016 Amendment, where a mining lease: (i) has been granted otherwise than through auction; and (ii) the mineral from such mining lease is being used for captive purpose, such mining lease can be transferred subject to compliance with such terms and conditions and payment of transfer charges as may be prescribed. The term ‘used for captive purpose’ has been defined under the 2016 Amendment to mean use of the entire quantity of mineral extracted from the mining lease in a manufacturing unit owned by the lessee.
Government Notifies the Minerals (Transfer of Mining Lease Granted Otherwise than Through Auction for Captive Purpose) Rules, 2016
Pursuant to the 2016 Amendment, the Central Government has notified the Minerals (Transfer of Mining Lease Granted Otherwise than through Auction for Captive Purpose) Rules, 2016 (‘ML Transfer Rules’) on May 30, 2016, which set out the procedure for transfer of mining leases granted otherwise than through auction and for captive purpose (‘ML’). The salient features of ML Transfer Rules are as below:
i. Deemed approval for transfer of ML, if the State Government does not reject the application within 90 days from the application;
ii. Transferee to make an upfront lumpsum payment of 0.5% of the value of estimated resources of the ML upon receipt of approval and execute the mine development and production agreement with the State Government;
iii. Transferee to provide performance security to the State Government for an amount equivalent to 0.5% of the value of estimated resources, to be adjusted every five years to correspond to 0.5% of the reassessed value of estimated resources;
iv. Transferor and transferee to jointly submit a duly registered transfer deed for ML to the State Government within the specified period; and
v. State Government to execute a mining lease deed with the transferee upon registration of the deed of transfer of ML.
The ML Transfer Rules also stipulate that whenever royalty is payable in terms of the second schedule to the MMDR Act, the transferee is to pay to the State Government an amount equal to 80% of the royalty, in addition to the royalty payable, simultaneously with payments of royalty, which will be adjusted against the upfront payment mentioned under (ii) above.
New Construction and Hazardous Waste Management Rules
The Ministry of Environment and Forests has: (i) on March 29, 2016, notified the Construction and Demolition Waste Management Rules, 2016, replacing the Municipal Solid Waste (Management and Handling) Rules, 2000; and (ii) on April 4, 2016, notified the Hazardous and Other Wastes (Management and Transboundary Movement) Rules, 2016 replacing the erstwhile rules of 2008.
Participation by Strategic Investor(s) in InvITs and REITs
Pursuant to SEBI’s circular dated January 18, 2018 (‘SEBI Circular’), a Real Estate Investment Trust (‘REIT’) / Infrastructure Investment Trust (‘InvIT’) may invite subscriptions from strategic investors subject to inter alia the following:
i. The strategic investors can, either jointly or severally, invest not less than 5% and not more than 25% of the total offer size.
ii. The investment manager or manager is required to enter into a binding unit subscription agreement with the strategic investors proposing to invest in the public issue, which agreement cannot be terminated except if the issue fails to collect minimum subscription.
iii. The entire subscription price has to be deposited in a special escrow account prior to opening of the public issue.
iv. The price at which the strategic investors have agreed to buy units of the InvIT/ REIT should not be less than the public issue price. In case of a lower price, the strategic investors should bring in the additional amounts within two working days of the determination of the public issue price, and in case of a higher price, the excess amount will not be refunded and the strategic investors will be bound by the price agreed in the unit subscription agreement.
v. The draft offer document or offer document, as applicable, will disclose details of the unit subscription agreement, including the name of each strategic investor, the number of units proposed to be subscribed etc.
vi. Units subscribed by strategic investors, pursuant to the unit subscription agreement, will be locked-in for a period of 180 days from the date of listing in the public issue.
Standardisation of Environment Clearance Conditions by MOEF
The Ministry of Environment, Forest and Climate Change (‘MOEF’) had notified the Environmental Impact Assessment Notification, 2006 (‘EIA Notification’) imposing certain restrictions on proposed projects or on the expansion / modernization of existing projects based on their potential environmental impacts. Projects seeking environmental clearance are appraised by the relevant authorities pursuant to a screening, scoping, public consultation and appraisal process by relevant authorities, which then make categorical recommendations to the applicable regulatory authority for grant or rejection of the application for environmental clearance.
By way of an office memorandum dated August 9, 2018 (‘Office Memo’), the MoEF has now prescribed certain standard conditions for consideration by the Expert Appraisal Committee (’EAC’) in relation to 25 specified industrial sectors including, inter alia, integrated iron and steel plants, sponge iron plants, integrated cement plants, coal mines (both open cast and underground), pharmaceutical and chemical industries, off-shore and on-shore oil and gas exploration, development and production and industrial estates, at the time of appraisal of proposals seeking environment clearance. The EAC, after due diligence, can modify, delete and add conditions based on the project specific requirements. The Office Memo has been issued by the MOEF to bring uniformity across various projects and sectors and as a general guidance to the EAC as well as project proponents.
Supreme Court Recognizes Principles of ‘Oligopsony’ under Competition Law and Exonerates 44 Liquefied Petroleum Gas Cylinder Manufacturers
CCI and the Competition Appellate Tribunal (‘COMPAT’) found collusive behavior among the 45 LPG Cylinder manufacturers (‘LPG manufacturers’) holding them in violation of Section 3(1) read with Section 3(3)(a) and Section 3(3)(d) of the Act. CCI imposed a penalty of Rs 165.58 crores on the LPG manufacturers. However, in appeal, the COMPAT directed reduction of penalty.
In appeal, the Supreme Court rejected the two arguments raised by the LPG manufacturers i.e., (i) there is no possibility of competition in this market, therefore the CCI has no jurisdiction to deal with the case; and (ii) the LPG manufacturers have not engaged in ‘collusive bidding’. While rejecting the above two arguments, the Supreme Court observed that the real question in the present case is whether there was a possibility of a collusive agreement having regard to market conditions in the industry, even assuming that the meeting between competitors did take place.
In sum, the Supreme Court agreed that the presence of an active trade association, a meeting of the bidders held in Mumbai just before the submission of the tenders, submission of identical bids despite varying cost, products being identical and the presence of a small number of suppliers with few new entrants are supporting factors which may be suggestive of collusive bidding. However, these factors are to be analyzed keeping in mind the ground realities, namely:
i. There were only three buyers in the market for cylinders, namely Indian Oil Corporation Limited (‘IOCL’), Bharat Petroleum Corporation Limited (‘BPCL’) and Hindustan Petroleum Corporation Limited (‘HPCL’);
ii. All the LPG manufacturers manufacture 14.2 kg gas cylinders to the three buyers. If a LPG manufacturer fails to sell its product to any of the three buyers, it won’t able to survive in the market;
iii. The market is not attractive for new entrants to manufacture the cylinders in the market on account of presence of a very limited number of buyers;
iv. The manner in which the tenders are floated by IOCL and the rates at which these are awarded, are an indicator that it is IOCL which calls the shots insofar as price control is concerned. Negotiations are held with a L-1 bidder generally leads to further reduction of price than the one quoted by L-1. Thereafter, the other bidders who may be L-2 or L-3 etc. are awarded the contract at the rate at which it is awarded to L-1;
v. Entry of 12 new entrants in the relevant market shows low entry barriers in the market;
vi. Since there are few manufacturers and supplies are needed by the three buyers on regular basis, IOCL ensures that all the LPG manufacturers whose bids are technically viable, are given some order for the supply of specific cylinders;
vii. The price at which the LPG cylinder is to be supplied to the consumer is controlled by the Government vide LPG (Regulation and Distribution) Order, 2000;
viii. Just a few days before the tender in question, another tender was floated by BPCL and on opening of the said tender the rates of L-1, L-2 etc. came to be known. This obviously becomes a guiding factor for the other bidders to submit their bids;
ix. The meetings prior to submission of the bids were attended by only 19 LPG manufacturers. The LPG manufacturers who were not a member of the association or who did not attend the meetings also submitted identical bid quotes.
Therefore, the Supreme Court held that the reason for identical bids is the prevalent market conditions and not the meetings of the association. Market conditions led to the situation of an oligopsony because of limited buyers and the influence of these buyers in fixing prices. In an oligopsony, a manufacturer with no buyers will have to exit from the trade. Therefore, the first condition of oligopsony stands fulfilled in this case.
The other condition for the existence of oligopsony is also fulfilled in this case, i.e., whether the buyers have some influence over the price of their inputs. It is also to be seen as to whether the seller has any ability to raise prices or it stood reduced/eliminated by the aforesaid buyers. Since both the conditions were fulfilled, the Supreme Court concluded that the LPG manufacturers were able to demonstrate that the parallel behaviour was not the result of any concerted practice.
For the abovementioned reasons, the Supreme Court concluded that there is no sufficient evidence to hold that there was any agreement between the LPG manufacturers for bid rigging.
Allegations against PSU OMCs
CCI in its assessment of the investigation report, at the outset, confirmed DG’s conclusion on the lack of culpability of PSU OMCs. In its opinion, CCI observed that the Government was a majority shareholder in each of the PSU OMCs. CCI primarily relied on the various efficiencies that resulted from the issuance of a joint tender. As per CCI’s observation, the issuance of joint tender by the PSU OMCs prevented wastage of money, time and resources that otherwise would have been spent, in the event that separate tenders would have been issued. More specifically, CCI observed that a joint tender ensured that the limited quantity of available Ethanol was equitably distributed among the OMCs. This was essential considering that in the event of inequitable distribution, certain OMCs would have been forced to procure Ethanol at higher prices (given the excessive demand and decreased availability of Ethanol). An inequitable distribution of Ethanol would also have resulted in potential anti-competitive effects, whereby OMCs with Ethanol may have sold Ethanol-blended petrol to the exclusion of the OMCs without Ethanol. Lastly, CCI re-affirmed the scheme of Section 3(3) of the Act, to the extent that it only raised a rebuttable presumption of AAEC that may be sufficiently offset by demonstrable efficiencies etc.
CCI Imposes Penalty on Members of the ‘Ethanol’ Cartel
On September 18, 2018, CCI imposed a penalty on various sugar mills and sugar mills trade associations (namely Indian Sugar Mills Association (‘INSA’), National Federation of Cooperative Sugar Factories Ltd. (‘NFCSF’) and Ethanol Manufacturers Association of India (‘EMAI’)),  operating in Uttar Pradesh, Gujarat and Andhra Pradesh, for rigging bids in relation to tenders floated by Public Sector Oil Marketing Companies (‘PSU OMCs’/ ‘OMCs’), for procurement of anhydrous alcohol (‘Ethanol’) pertaining to 110 depots of the OMCs, spread across the country. The tenders were floated pursuant to the Ethanol Blended Petrol Programme (‘EBP Programme’) that was initiated by the Government of India.
The violations came to light pursuant to two separate complaints filed by India Glycol Ltd. and Ester India Chemicals Ltd., respectively (‘Informants’). Notably, the Informants had also alleged that even the act of issuing a joint tender for the purposes of procuring Ethanol, by the PSU OMCs was in violation of Section 3(1) and 3(3)(a) of the Act, in light of it being an agreement amongst horizontal players. CCI, based on its prima facie view of violations having taken place, clubbed the complaints together and directed the DG to investigate the allegations raised in the complained, through an order dated May 27, 2013 (‘DG Order’). Pursuant to its investigation, DG submitted an investigation report to CCI, upholding the allegations raised in the complaints, however, NFCSF, PSU OMCs and Kisan Sahkari Chini Mills Ltd. were exonerated of the allegations.
 Sahakari Khand Udyog Mandal Ltd., Shree Ganesh Khand Udyong Mandali Ltd., Shri Kamrej Vibhag Sahaari khand Udyong Mandali Ltd., Shree Mahuva Pradesh Sahakari Khand Udyog Mandali Ltd., The Andhra Sugars Ltd., The Sarvarya Sugars Ltd., Bajaj Hindusthan Ltd, Triveni Engineering Industries Ltd., Simbhaoli Sugars Ltd., Avadh Sugar & Energy Ltd., Dhampur Sugar Mills Ltd., Balrampur Chini Mills Ltd., Mawana Sugars Ltd., KM Sugar Mills Ltd., Uttam Sugar Mills Ltd., Dalmia Bharat Sugar & Industries Ltd.., Seksaria Biswan Sugar Factory Ltd., Sir Shadi Lal Enterprises Ltd.
 India Glycols Limited v. Indian Sugar Mills Association & Ors., Case No. 21 of 2013; Ester India Chemicals Limited v. Bajaj Hindusthan Limited & Ors., Case No. 29 of 2013; Jubilant Life Sciences Limited v. Bharat Petroleum Corporation Limited & Ors., Case No. 36 of 2013; A B Sugars Limited v. Indian Sugar Mills Association & Ors., Case No. 47 of 2013; Wave Distilleries and Breweries Limited v. Indian Sugar Mills Association & Ors., Case No. 48 of 2013; and Lords Distillery Limited v. Indian Sugar Mills Association & Ors., Case No. 49 of 2013 (through common Order dated September 18, 2018)
 Indian Oil Corporation Ltd., Bharat Petroleum Corporation Ltd. and Hindustan Petroleum Corporation Ltd.
 Subsequently, Case Nos. 36 of 2013, 47 of 2013, 48 of 2013 and 49 of 2013 were also clubbed with the ongoing DG investigation.
CCI Dismisses Swarna Properties’ Complaint Against Vestas Wind Technology India Private Limited
On August 7, 2018, CCI dismissed information filed by Swarna Properties (‘SP’) – owner of a wind energy generator system in Karnataka against Vestas Wind Technology India Private Limited (‘Vestas’). Vestas is engaged in the business of manufacture, sales, marketing and maintenance of wind power systems in India.
SP contended that Vestas made the supply of wind turbines equipment conditional upon executing an annual maintenance contract (‘AMC’) with Vestas. This exclusivity condition, SP alleged, resulted in a contravention of Section 3 and resulted in a denial of market access under Section 4 of the Act. It was also alleged that Vestas was using its dominant position in one market to enter into or protect other market in contravention of Section 4(2)(e) of the Act.
CCI noted that the generation of electricity using wind turbines, owing to their distinct way of functioning, cannot be substituted with any other form of power generating equipment. Accordingly, CCI defined the relevant market as the “market for supply of wind turbines in India”. As there existed several players in the market, many of which had a greater or similar market share as Vestas, CCI concluded that Vestas was not in a dominant position. Absent dominance, CCI found no case of abuse of dominance may be said to exist.
CCI also noted that there existed no prima facie case for an anti-competitive tie-in arrangement or exclusive supply agreement. CCI noted that even if Vestas made the sale of wind turbines contingent on entering into an AMC with it, there existed several other suppliers of wind turbines. SP therefore had the choice to procure wind turbines from vendors that didn’t require similar conditions to be satisfied. Noting that SP was restrained for a period of five years from procuring services or spare parts from other vendors, CCI held that SP had the additional option of terminating the agreement for non-performance of duties. As there existed several other vendors in the market, CCI held that SP was not precluded from switching to another vendor. Observing that vertical restrictions were not a per se contravention and having found no evidence of the agreement resulting in AAEC. CCI dismissed the information against Vestas.
CCI Reiterates its Findings against Coal India Limited
On December 3, 2018, CCI disposed information filed by Hindustan Zinc Limited (‘HZL’) against Western Coalfields Limited (‘WCL’) and Coal India Limited (‘CIL’) alleging inter alia contravention of the provisions of Section 4 of the Act.
HZL is in the business of producing zinc, lead and silver, and WCL is a subsidiary of CIL. On August 1, 2017, HZL had entered into three Fuel Supply Agreements (‘FSAs’) with WCL. However, within a year of the FSAs, WCL failed to supply the agreed quantity and quality of coal, as laid down under the FSA. It was alleged that due to this, HZL had borne losses worth approximately INR 264 crores. HZL drew CCI’s attention to the following conduct of WCL:
(i) supply of coal below 30% of the contracted quantity, and diversion of coal supply to Independent Power Producers as also non-payment of compensation therefor;
(ii) unilateral revision of contracted grade of coal from G-9 to G-10;
(iii) lock-in period of 2 years to terminate the contract;
(iv) unilateral appointment of a third party agency by WCL for sampling at the time of delivery of coal; and
(v) failure of WCL to adjust the excess royalty and contributions to District Mineral Foundation and National Mineral Exploration Trust paid by HZL.
Based on the above, HZL alleged that by imposing such unilateral and unfair conduct, WCL was abusing its dominant position, in contravention of Section 4(2)(a) of the Act.
CCI determined the relevant market as the market for ‘production and sale of non-coking coal to thermal power producers including captive power plants in India’. In its analysis of the alleged conduct, CCI noted that it had previously found CIL and its subsidiaries to be in a dominant position in the relevant market, therefore there was no need for a separate assessment of dominance in the present case.
CCI noted that in the previous coal cases, similar issues as those raised by HZL had been substantially addressed by issuing appropriate directions to CIL and its subsidiaries. On the issue concerning the lock-in period, CCI found that the FSAs entitled HZL to terminate the agreement without being bound by the lock-in period if such termination was occasioned due to the default at the seller’s end. On issues regarding excessive royalty, CCI held that they were not competition-related issues, therefore outside the purview of CCI. CCI relied on its previous orders dealing with the conduct of CIL and its subsidiaries to state that CCI’s orders are passed in rem, therefore, once an order is issued by CCI to address market failure, it need not order investigations based on successive information brought in by different parties agitating the same issues. An action to the contrary is likely to strain CCI’s and the DG’s limited resources, without achieving any tangible public good. CCI directed CIL and its subsidiaries to abide by the orders of the higher judicial forums in the appeals preferred there. Accordingly, the information was dismissed by CCI.
 Case No. 46 of 2018.
 Case Nos. 03, 11 & 59 of 2012; Case Nos. 05, 07, 37 & 44 of 2013 and Case No. 08 of 2014.
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. 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;
(ii) denial of dispute resolution mechanism envisaged under the GSA to the Informants;
(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.
 Case Nos. 16-20 & 45 of 2016, 02, 59, 62 & 63 of 2017.
 Case no. 17 of 2016 and Case no. 18 of 2016.
 Case no. 17 of 2016 and Case no. 18 of 2016.