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TMI Blog2025 (5) TMI 1028X X X X Extracts X X X X X X X X Extracts X X X X ..... l testing of testimony and, above all, an effects-based appraisal that balances commercial justification against proven harm. Preserving this symmetry between discipline and encouragement is essential if the statute is to nurture robust rivalry while sustaining the confidence of domestic and global investors who increasingly view India as a premier destination for enterprise and innovation. I. Background of the Case 2. These statutory appeals, preferred under Section 53T of the Act, challenge a common order dated 2 April 2014 passed by the Competition Appellate Tribunal In short, "COMPAT" in Appeal Nos. 91 and 92 of 2012. Civil Appeal No. 5843 of 2014 has been filed by the Competition Commission of India In short, "CCI". Civil Appeal No. 9998 of 2014 has been filed by Kapoor Glass India Pvt. Ltd. In short, "Kapoor Glass", the original informant. In both the matters, Schott Glass India Pvt. Ltd. In short, "Schott India" is the contesting respondent. 3. The proceedings have their genesis in an information lodged on 25 May 2010 by Kapoor Glass under Section 19 of the Act. Kapoor Glass alleged that Schott India, then the principal domestic manufacturer of neutral USP-I borosilicate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r restricts - (i) production of goods or provision of services or market therefor; or (ii) technical or scientific development relating to goods or services, to the prejudice of consumers; (c) indulges in practice or practices resulting in denial of market access in any manner; (d) makes conclusion of contracts subject to acceptance by other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts; (e) uses its dominant position in one relevant market to enter into, or protect, another relevant market. Explanation.-For the purposes of this section, (a) "dominant position" means a position of strength enjoyed by an enterprise in the relevant market in India which enables it to (i) operate independently of competitive forces prevailing in the relevant market, or (ii) affect its competitors or consumers or the relevant market in its favour; (b) "predatory price" means the sale of goods or provision of services at a price below cost, as may be determined by regulations, with a view to reduce competition or eliminate competitors; (c) "group" shall have the same meaning as assig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (iii). Volume or "Target" Discounts: These are price reductions that grow purely with the quantity a buyer takes over an agreed period. For example, a supermarket chain that orders ten thousand sacks of rice may pay less per sack than a corner shop that orders ten. Such scale rebates are benign when offered to every purchaser on identical volume thresholds. (iv). Functional discounts: Sometimes the buyer performs an extra function-say, warehousing, local advertising, or after-sales service. A seller may repay a buyer for performing that extra task like storing stock, advertising the brand, or providing repairs. Airlines, for example, pay travel agents a commission for marketing flights. If the rebate merely covers the cost of that task and is open to any buyer willing to do the same, competition law is usually satisfied. (v). Margin squeeze: A vertically integrated supplier sells an essential input to rivals and also competes with them downstream. If it keeps the input price high and its own downstream price low, equally efficient rivals may be left with an unsustainable margin. Telecom operators that control not only broadband network but also sell retail internet access prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ha is neither a subsidiary nor a division of Schott India, but it purchases a substantial share of the latter's annual melt. 15. Discount architecture and agreements: To secure economies of scale and steady furnace utilisation, Schott India offered two rebate schemes: a. Target (volume) rebates: slabbed discounts, credited quarterly, rising with aggregate annual purchases of NGC and NGA; and b. Functional rebates: an eight-per-cent allowance extended to converters that (i) met annual purchase plans, (ii) refrained from using Chinese tubing, and (iii) adhered to "fair-pricing" commitments in their container sales. 16. Long-Term Tubing Supply Agreement In short, "LTTSA": In 2008 Schott India and Schott Kaisha executed a three-year agreement under which the converter agreed to source at least eighty per cent of its requirements, approximately thirty per cent of Schott India's capacity, in consideration of a price concession over the slab rate, a three-year price freeze and priority dispatch in periods of tight supply. 17. On 20 May 2009, the principal abuse-of-dominance provisions of the Act were brought into force. On 25 May 2010, Kapoor Glass, a Mumbai converter, lodged an in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 91 and 92 of 2012. The COMPAT gave the following finding in the impugned order: (i). Appeal of Schott India allowed: The evidence against the company rested "for the most part on statements never subjected to cross-examination"; on that footing COMPAT found no proof of discriminatory rebates, margin squeeze or tying. It pointed out that, barring one exception, every converter had grown its output after 2009, a fact at odds with the charge of foreclosure. (ii). All sanctions annulled: The penalty of one per cent of turnover and the attendant cease-and-desist directives were quashed in toto. (iii). Appeal of Kapoor Glass dismissed with costs: Kapoor Glass's prayer for wider relief was rejected and costs of Rs. 1,00,000 were imposed. (iv). Serious procedural lapse recorded: COMPAT remarked that the CCI's refusal to let Schott India cross-examine the converter-witnesses was a material infraction that gravely weakened the probative worth of their allegations. 21. In the present appeals against the COMPAT's order, the parties seek the following reliefs: (i). CCI seeks reinstatement of its original order and penalty, contending that COMPAT misread the evidence and overstated th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers or to harvest abnormal margins, squeezing rivals out of the downstream market in violation of clauses (a) and (e). F. Selective refusals to supply: Instances were cited where converters who sourced even modest volumes elsewhere found their subsequent Schott allocations curtailed or delayed. It is argued that such conduct amounts to denial of market access under clause (c). G. "Mixing" rationale a façade: It is submitted that the assertion that Chinese tubes might be secretly mixed with Schott tubes is speculative; no concrete incident was proven. The quality argument therefore serves only to cloak an exclusivity obligation. H. Procedural lapse not fatal: Finally, it is contended that Regulation 41(5) vests discretion in the CCI to refuse cross- examination. The converters' statements, although not tested orally, were corroborated by documentary evidence, rebate circulars, purchase data and the LTTSA. The absence of cross- examination, it is argued, cannot outweigh this substantive proof of abuse. I. The learned Senior Counsel has relied upon the following case laws in support of their arguments: (i). Excel Crop Care Ltd. v. Competition Commission of India and a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... risk, ignored contemporaneous complaints from Ranbaxy, Cadila and other buyers. E. Quantum of penalty. Finally, Kapoor Glass submits that the four-per-cent turnover penalty originally imposed by the CCI was conservative, given both the duration of the abuse (2008- 2012) and the deterrence objective set out in Section 27(b). It prays for reinstatement of the penalty and for broader behavioural remedies. F. The learned Senior Counsel has placed reliance on the following precedents apart from those relied on by the Counsel for CCI: (i). Voltas Ltd. v. Union of India (1995) Supp (2) SCC 498, (ii). Coal India Ltd. v. Competition Commission of India (2023) 10 SCC 345, (iii). Samir Agarwal v. Competition Commission of India (2021) 3 SCC 136, 24. Mr. Percival Billimoria, learned Senior Counsel, for the respondent-Schott India, has advanced the following main arguments: A. Reliance on un-tested statements vitiates the case: It is submitted that the Director-General's report, and consequently the majority order of the CCI, rest almost entirely on questionnaires and witness statements procured from a handful of converters openly adverse to Schott India. None of those deponents wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ixing risk" furnished a bona-fide rationale for the no- Chinese clause later withdrawn: Documentary evidence from Ranbaxy and other pharma demonstrated that some suppliers were passing off low-quality imports as premium containers. The temporary restriction on Chinese tubing, in force only until March 2010, protected patient safety and Schott's reputation; converters were always free to source from Nipro-Triveni or any approved foreign manufacturer. H. Absence of competitive harm: No converter exited the business; imports held a double-digit share; Nipro-Triveni expanded capacity; and pharmaceutical buyers enjoyed stable or declining container prices. The respondent submits that Section 4 of the Act targets only conduct that harms the competitive process, not vigorous rivalry that benefits downstream customers. I. The learned Senior Counsel for Schott India has placed the following case laws on record in their submissions: (i). CCI v. Steel Authority of India Ltd. (supra), (ii). Voltas Ltd. (supra), (iii). Coal India Ltd. (supra), (iv). Excel Crop Care Ltd. v. CCI (supra), (v). Rajasthan Cylinder & Containers Ltd. v. Union of India (2020) 16 SCC 615, (vi). Cadila He ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated across the country source tubes from the same limited set of manufacturers. The transport cost is marginal compared with the value of the product, import barriers are uniform nationally, and pharmaceutical end-buyers impose identical quality specifications regardless of State. Those considerations, noted both by the DG and by the CCI, warrant treating India as a single geographic market for present purposes. 28. Having decided on the relevant market, we next examine Schott India's position in the same. Market-share data culled from statutory filings and sales declarations show that Schott India supplied approximately 61 per cent of NGC+NGA in 2008-09, rising to over 80 per cent in 2009-10. These findings have been endorsed by the DG, CCI and the COMPAT. The only domestic rival of any consequence, Nipro-Triveni, hovered in low double digits, while imports, mainly from China, were constrained both by price sensitivity at the high end and by quality reservations among major pharmaceutical companies. 29. Market share of the respondent is reinforced by economic strength. Schott India draws upon the financial and technological resources of the global Schott group, whose consolidat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on in Case C-95/04 P, dated 15 March 2007), it was observed that dominant firm must not "favour or disfavour" trading partners. However, the court further held that applying different prices only becomes abusive when it lacks an objective commercial justification or when equivalent customers cannot obtain the same terms. In other words, if the differentiation "rests on an objective commercial justification, or if it is open on identical terms to every purchaser similarly placed," the conduct is not condemned under Article 102 (c) TFEU. The relevant paras where these observations have been made are as follows: "68. It follows that in determining whether, on the part of an undertaking in a dominant position, a system of discounts or bonuses which constitute neither quantity discounts or bonuses nor fidelity discounts or bonuses within the meaning of the judgment in Hoffmann-La Roche constitutes an abuse, it first has to be determined whether those discounts or bonuses can produce an exclusionary effect, that is to say whether they are capable, first, of making market entry very difficult or impossible for competitors of the undertaking in a dominant position and, secondly, of makin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... share of those scale economies downstream, to the ultimate benefit of pharmaceutical customers. Such an objectively grounded incentive cannot be condemned as "unfair". 36. It must also be noted that there is no evidence that the slab mechanism foreclosed alternative suppliers or throttled output in order to attract Section 4(2)(b)(i) of the Act. On the contrary, uncontested data placed by the Economic Member of the Commission and reproduced by the COMPAT record that, between 2007-08 and 2011-12, every major converter other than the informant increased both the tonnage purchased from Schott India and the tonnage sourced from imports or Nipro- Triveni. Container prices to pharma companies remained broadly stable. These market facts are inconsistent with the argument of exclusion or limitation. 37. The appellants nevertheless submit that the quarterly crediting of rebates created a "retroactive claw-back" risk which deterred dual sourcing. This argument is not persuasive. Quarterly settlement was adopted to ease cash-flow: it neither penalised nor rewarded purchases from rival mills; it simply reconciled the running total with the pre-declared annual ladder. No contractual term pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t respect are nevertheless subject to dissimilar conditions. The purchase ledgers for FY 2008-09 to FY 2011-12, collated in the COMPAT's own table, disclose no instance in which two converters performing the same function received different net prices. The rate (8 per cent) was invariant; the only divergence lay in the timing of credit, monthly for the joint-venture converter and annual for the others. That scheduling preference is rationally tied to the joint-venture's rolling audit cycle and to its undisputed order volume, which averaged 30 per cent of the Jambusar melt. It must be emphasized that differential timing, unaccompanied by differential rates, does not amount to price discrimination. 42. The appellants contend that the three qualifying conditions themselves are exclusionary. Therefore, it is necessary to address each in turn. First, the purchase-plan requirement secures furnace utilisation in a continuous-fire technology whose tanks cannot be cyclically idled without grave damage; the DG in fact accepted the objective necessity of load stability. Secondly, the temporary "no-Chinese" stipulation rested upon contemporaneous chemical-analysis certificates showing alkali- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he impugned LTTSA and the allegation that it enabled Schott India to foreclose independent converters by compressing the margin between their input cost and the downstream selling price of Schott Kaisha. 47. The facts are not in dispute that under the LTTSA which Schott Kaisha undertook, for three financial years commencing 1 April 2008, it would source at least eighty per cent of its aggregate requirement of neutral tubing, clear, amber and Fiolax, from Schott India. In consideration, it received (i) a two-percentage- point rebate over the public slab, (ii) a freeze of base prices till 31 March 2011, and (iii) priority despatch in periods of constrained furnace capacity. It must be emphasized that no purchaser other than Schott Kaisha sought or was denied comparable terms. 48. Section 4(2)(e) of the Act proscribes the use of a dominant position in one relevant market "to enter into, or protect, another relevant market." The classical manifestation of this is the alleged margin-squeeze: a vertically integrated firm fixes the wholesale input price so high, and its own downstream price so low, that downstream rivals, though equally efficient, cannot earn a viable margin. Three cumu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng with the Kaisha promoters. The record discloses no board overlap, no common management, and separate audited accounts. Section 4 of the Act may of course reach a group; but leverage still demands proof that the upstream entity used its dominance to enter or protect the downstream market. Mere supply to a related undertaking is insufficient. 50. No demonstrable squeeze of rivals' margin- The allegation rests on a price differential: for FY 2009-10 the net LTTSA price was approximately 5 per cent below the slab price paid by other converters. A gap is not a squeeze unless the downstream price of the integrated converter leaves an equally efficient rival in deficit. The only downstream data before the authorities are the audited financials of nine converters reproduced in COMPAT Annex III. Those figures show that, during the entire period of the LTTSA, every independent converter recorded positive EBITDA, and seven of the nine improved both tonnage and margin year-on-year. The price lists of Ranbaxy and Cadila, produced by Kapoor Glass, further show that Schott Kaisha's ampoules and vials were quoted at or above the prices of its rivals. On that evidence the COMPAT was right in ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ollowing factors: first, the tying and tied products are two separate products; second, the undertaking concerned is dominant in the market for the tying product; third, the undertaking concerned does not give customers a choice to obtain the tying product without the tied product; and fourth, the practice in question forecloses competition. The Commission also takes into account the fact that the tying is not objectively justified. Such justification may not be inferred from the advantages arising from the fact that tying ensures a uniform presence of the product on the market. Such a result cannot be allowed to be imposed unilaterally by an undertaking in a dominant position by means of tying Since the list of abusive practices set out in the second paragraph of Article 82 EC is not exhaustive, bundling by an undertaking in a dominant position may also infringe Article 82 EC where it does not correspond to the example given in Article 82(d) EC. Accordingly, in order to establish the existence of abusive bundling, the Commission is entitled to rely on Article 82 EC in its entirety and not exclusively on Article 82(d) EC." 55. Therefore, in the instant case, the threshold question ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evident. NGA and NGC draw from a common furnace operating at 1600°C. Sharp month-to-month swings in the ratio jeopardise furnace integrity. Aggregating the two grades when calculating rebates, as Schott India explained and the CCI recorded, smooths demand and secures continuous load. Manufacturing efficiency is a legitimate business consideration and has not been shown to harm consumers. 58. In these circumstances, the essential elements of Section 4(2)(d) of the Act are not proved as NGA and NGC are not independent products; converters were never compelled to buy both; no foreclosure was demonstrated; and, in any event, the rebate design is objectively justified. The finding of tying cannot therefore stand, and Issue IV is answered in the negative. Issue V - Whether an effects-based (harm) analysis is an essential component of an inquiry under Section 4 of the Act, and, if so, whether it was omitted in the present case. 59. Section 4 of the Act does not per se prohibit dominance; it prohibits the abuse of dominance. Abuse, by definition, is conduct that distorts the competitive process or harms consumers. The statute therefore contemplates two logically separate findings: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are not covered by clauses (a) to (d) of sub-section (3) of Section 3. Reason is simple. As already pointed out above, the agreements of nature mentioned in sub- section (3) are presumed to have an appreciable effect and, therefore, no further exercise is needed by CCI once a finding is arrived at that a particular agreement fell in any of the aforesaid four categories. We may hasten to add, however, that agreements mentioned in Section 3(3) raise a presumption that such agreements shall have an appreciable adverse effect on competition. It follows, as a fortiorari, that the presumption is rebuttable as these agreements are not treated as conclusive proof of the fact that it would result in appreciable adverse effect on competition. What follows is that once CCI finds that case is covered by one or more of the clauses mentioned in sub-section (3) of Section 3, it need not undertake any further enquiry and burden would shift upon such enterprises or persons, etc. to rebut the said presumption by leading adequate evidence. In case such an evidence is led, which dispels the presumption, then CCI shall take into consideration the factors mentioned in Section 19 of the Act and to see as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... liged either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligation. Penalty will not also be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances. Even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of the provisions of the Act or where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the statute." (emphasis supplied) 111. It should be noted that any penal law imposing punishment is made for general good of the society. As a part of equitable consideration, we should strive to only punish those who deserve it and to the extent of their guilt. Further, it is well-established by this Court that the principle of proportionality requires the fine imposed must not exceed what is appropriate and necessary for attaining t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and. The very case on which Counsel relied, Fast Way Transmission (supra), did not consider, still less decide, the present question. The Court was there concerned with a licensee that had already infringed statutory broadcast conditions. Moreover, Section 32 of the Act empowers the CCI to investigate conduct outside India only where such conduct "has, or is likely to have, AAEC in India". It would be absurd to demand an effects analysis for foreign conduct yet dispense with it for domestic conduct; the legislature cannot be taken to have intended such inconsistency. 66. We therefore hold: (i). that an effects-based analysis is an obligatory component of every inquiry under Section 4 of the Act; (ii). that the CCI, having relied on untested statements and pre-2009 correspondence, Undertook no credible assessment of harm; and (iii). that, on the evidence marshalled by the COMPAT, converter growth, stable downstream prices, absence of foreclosure - no appreciable adverse effect on competition is shown. 67. The omission of a proper harm analysis vitiates the CCI's order in limine. Because each of the alleged abuses has already been negatived on the facts, the appeals must fail ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egards various precedents upheld in a catena of judgement of this Court like Raymond Woollen Mills Limited and Another vs. Director General (Investigation and Registration) and Another (2008) 12 SCC 73 and State of Kerala v. K.T. Shaduli Grocery Dealer Etc. (1977) 2 SCC 777. In Andaman Timber Industries v. Commissioner of Central Excise, Kolkata-II (2016) 15 SCC 785, this Court made the following observations regarding the right to cross examination: "6. According to us, not allowing the assessee to cross- examine the witnesses by the adjudicating authority though the statements of those witnesses were made the basis of the impugned order is a serious flaw which makes the order nullity inasmuch as it amounted to violation of principles of natural justice because of which the assessee was adversely affected. It is to be borne in mind that the order of the Commissioner was based upon the statements given by the aforesaid two witnesses. Even when the assessee disputed the correctness of the statements and wanted to cross- examine, the adjudicating authority did not grant this opportunity to the assessee. It would be pertinent to note that in the impugned order passed by the adjudica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... easons are not germane; mere "dissatisfaction" does not imply judicious exercise of discretion. As regards the reliance by the DG in his report is concerned, the grounds of cross examination are necessarily wider; it is avowedly to establish whether the witnesses were credible and whether any part of their statements could be relied on; furthermore they can be cross examined on relevant facts, which are not necessarily confined to what they depose about. Therefore, it is held that CCI erred in refusing to grant cross examination (to Cadila) of the three witnesses who had deposed before the DG." 72. The COMPAT captured the essence of this violation as follows: "total reliance on the statements of these interested witnesses even without cross-examination was risky and uncalled for" . The COMPAT added that the CCI "should not have insisted on a separate application once the plea was raised in pleadings". Having so ruled, the COMPAT proceeded, perhaps over- cautiously, to examine the merits; but it acknowledged that the evidentiary framework of this matter had been gravely compromised. 73. The practical consequences of this violation are obvious. Cross- examination would have reveale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scrutinised each precedent relied upon by the appellants and the respondents. In our considered opinion, the factual matrices and statutory settings of these case laws except those referred to in the body of the judgment differ in material respects from the controversy before us. Setting out individual distinctions in this judgement would tax both the length and the clarity of this judgment. However, we are placing on record that none of the cited authorities unsettles the reasoning or the conclusions we have reached. 77. For the reasons set out in the foregoing analysis we hold that: (i). The slabbed target-rebate scheme does not impose unfair or discriminatory conditions; (ii). The 8 per cent functional rebate, whether in its original or TMLA form, is objectively justified and uniformly available; (iii). The LTTSA with Schott Kaisha neither effects a margin- squeeze nor forecloses downstream rivals; (iv). No coercion or tying between NGA and NGC tubes is proved; (v). An effects-based inquiry is integral to Section 4 of the Act and, when properly undertaken, discloses no appreciable adverse effect on competition in the present case; and (vi). The investigation by the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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