India: CCI Imposes Penalty On South Asia LPG Company Ltd For Abuse Of Dominant Position- A Classic Case Of Denial Of Essential Facility

Last Updated: 26 September 2018

Article by MM Sharma, Head Competition Law & Policy Practice, Vaish Associates, Advocates, New Delhi, India

The Competition Commission of India (CCI) by an order dated 11 July 2018, has  imposed penalty of INR 19.2 Crore on South Asia LPG Company Ltd ('SALPG') , a joint venture between TOTAL , the French oil major and  the Public Sector Oil Marketing Company ("OMC") , Hindustan Petroleum Corporation Ltd. ("HPCL") for denial of market access to a private terminal operator , East India Petroleum Pvt. Ltd ('EIPL') at Visakhapatnam port ('Port'). It was held by the CCI that this denial of market access to EIPL amounted to SALPG abusing its dominant position in the 'market for upstream terminalling services at Vishakhapatnam Port'.

Brief background

Both SALPG and EIPL are engaged in the business of providing terminalling services to oil marketing companies ('OMCs') for import of propane/butane/and pre-mixed LPG to OMCs at the Port.  However, the infrastructure viz. unloading arms at the jetty, blender, heat exchanger and cavern was owned and operated by SALPG.

EIPL in its information filed before the CCI under Section 19(1)(a) of the Competition Act, 2002 ('Act') had alleged that SALPG does not permit use of its blender on a standalone basis and insists on the mandatory use of its cavern facility as well. This mandatory stipulation entailed payment of significant additional charges. As a result, OMCs were not finding the services offered by EIPL economically viable and were constrained to avail the terminalling services offered by SALPG only.

To address this, EIPL first proposed to use the blender of SALPG and thereafter, take the output directly to HPCL cross-country pipeline, bypassing the cavern. This was not agreeable to SALPG which allowed bypass of cavern for use by EIPL customers to the extent of 25 percent only.

As an alternate, EIPL proposed to install its own blender, for which it wanted a "tap-out and tap-in" from the propane and butane lines to discharge blended LPG, bypassing the cavern. Under this arrangement, EIPL proposed tap-out from propane and butane lines to take gases for mixing in its blender and thereafter, discharge the blended output back into the SALPG pipelines through a tap- in . This was also not acceptable to SALPG. Upon this, EIPL offered yet another proposal seeking tap-out from the propane and butane lines at jetty to its own blender and construction of its own infrastructure between its blender and storage facility. However, this was also not acceded to by SALPG. By imposing restrictions on bypass as well as by not accepting provision of tap out and/or tap in, SALPG is alleged to have denied market access to EIPL, thereby contravening Section 4 of the Act.

DG Investigation

This case saw perhaps one of the longest drawn investigation by the Director General (DG) , the investigating arm of CCI beginning from 2011 to 2016 . The DG in its main report of 2012 defined two relevant markets , upstream terminalling services  market and downstream terminalling services markets and found that though SALPG was a monopoly in the upstream market yet it was not "dominant "in the relevant markets mainly due to the counter- vailing buying power of the  customers, that is , the Public Sector OMCs. The DG also found that the Port had supply-side substitutability with the adjoining ports of Haldia and Ennore.

DG was of the view that SALPG has valid efficiency and business justification for denying the use of its blender facility, without using cavern, and not permitting hook up of EIPL's blender to the propane and butane from the jetty owned by SALPG. The investigation noted that, it is not known whether the cavern functions only as a storage unit or also plays a necessary role in mixing and providing additional safety level. Further, the restriction that only 25% of the total volumes of VLGC can bypass the cavern was also found to be based on a valid business justification as SALPG has made significant investment in the cavern. Thus, as per the main report, no contravention of the provisions of Section 4 is established.

In the supplemental investigation report submitted by DG in 2015, after allowing cross -examination of witnesses etc.  to both parties (after a short litigation round in the Delhi High Court), the DG reiterated its earlier findings.

EIPL accordingly raised serious objections before the CCI against the findings in the DG reports referring to the noted cases on 'essential facility doctrine' from International jurisprudence.

CCI's findings

The CCI , agreeing with EIPL's contentions , held that access to infrastructure operated by SALPG is indispensable to offer terminalling services at Vishakhapatnam Port for servicing the hinterland and therefore constitutes as an essential facility . The bypass restrictions and stipulation for mandatory use of cavern, imposed by SALPG have priced out EIPL and reduced its business volumes substantially. To overcome these, EIPL proposed provision of tap-out and/or tap-in to the butane and propane lines from the jetty. The proposals of EIPL were rejected by SALPG on unsubstantiated and unreasonable grounds.

The conduct of SALPG, being without reasonable grounds, was, therefore,  held to be in the nature of exclusionary abuse of dominant position by SALPG, in contravention of Section 4 of the Act.

Order

It was further directed that:

  • SALPG shall not insist mandatory use of its cavern and shall allow bypass of cavern for both pre-mixed and blended LPG, without any restrictions; and/or
  • SALPG shall allow access to its competitors, potential as well as existing, to the terminalling infrastructure at Visakhapatnam Port, subject to compliance with all safety integrity and other requirements under applicable laws and regulations framed thereunder. Such an access should avoid additional cost burden on SALPG, and the entity seeking access shall bear the cost, if any, towards necessary changes to the existing infrastructure. Under this option also, SALPG shall not insist on mandatory use of cavern and it shall allow bypass of cavern, without any restriction. SALPG shall extend full cooperation for the study/audit undertaken by VPT in relation to the remedies ordered herein. Needless to say, SALPG shall not do anything raising rival's cost.

On the question of penalty to be imposed, the CCI noted that denial of market access is one of the severe forms of abuse of dominant position. It was also observed that the abusive conduct of SALPG is primarily with a view to protect its commercial interest at the cost of competition.

Accordingly, the CCI imposed the maximum statutorily prescribed penalty on SALPG at the rate of 10 percent of their average annual turnover generated from the relevant market for upstream terminalling services at Visakhapatnam Port amounting to INR 19,20,70,000/-.

Comment:

This is a landmark case which illustrates the denial of an essential facility to a sole competitor by a super dominant enterprise without any objective justification. The SALPG was not able to prove that the restriction imposed by it on EIPL though efficiency enhancing was indispensable. Mr. MM Sharma and his team represented EIPL before the DG and CCI till just before the final date of hearing.  SALPG was burdened with the highest penalty of ten percent of the average annual turnover of preceding three years.

Note : The above article first appeared on the Antitrust & Competition Law Blog

© 2018, Vaish Associates Advocates,
All rights reserved
Advocates, 1st & 11th Floors, Mohan Dev Building 13, Tolstoy Marg New Delhi-110001 (India).

The content of this article is intended to provide a general guide to the subject matter. Specialist professional advice should be sought about your specific circumstances. The views expressed in this article are solely of the authors of this article.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

 
In association with
Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions