IN RE: VIJAY GOPAL V. INOX LEISURE LTD. AND HINDUSTAN COCA-COLA BEVERAGES PRIVATE LIMITED

-Prachi Agrawal[1]

INTRODUCTION

Earlier in 2019, the Competition Commission of India [“CCI”] passed an order under Section 26(2) of the Competition Act, 2002 [“the Act”].[1] Under this provision, the CCI conducts a preliminary investigation of a matter and if a prima facie case does not exist, it closes the case without conducting any further investigation.

On 28th February 2019, the CCI passed an order with respect to an anti-competitive agreement alleged by Mr Vijay Gopal [“Informant”]. This anti-competitive agreement, as purported by the Informant, was in the nature of a vertical restraint caused by the agreement between Inox Leisure Ltd. [OP1] and Hindustan Coca-Cola Beverages Private Ltd. [OP2]. However, in consonance with the earlier decisions of CCI in similar cases, it closed the case as it lacked merits.

ABOUT THE CASE

Parties

The Informant, who was a social activist, contended that many “Multiplex Malls” and “Beverage Companies” collude together to sell water bottles and beverages at higher prices. Such commodities are prepared under a special packaging with prices contrary to that which is sold in the market. However, the quantity in both the packages (special and general) remain almost similar.

Finding such a practice to be anti-competitive, the Informant filed a complaint against OP1 and OP2 claiming that they have entered into a similar practice. As per the allegations, OP1 exclusively sold the product of OP2 and not its competitors. Because of this, OP1 charged exorbitant prices from the customers. Moreover, the prices were different than the market price of the same product. Thus, the Informant filed a complaint under Section 19(1)(a) alleging violation of the provisions of Section 3(4)(a) – tie-in arrangement, 3(4)(b) – exclusive supply agreement and 3(4)(c) – exclusive distribution agreement.

Background

The Informant alleged that while he went to watch a movie at one of the multiplexes operated by OP1, he purchased certain beverages and water bottles which were priced exorbitantly. However, the packaging bore very minute differences as compared to that sold in the market. Moreover, the non-alcoholic beverages available for sale were only that of OP2 and none of its other competitors.  Because of this, the Informant was left with no other option but to buy only the product of OP2 at the rates provided by him. Besides this, he was also not allowed to carry his own water bottles inside the premises of OP2. Water being an essential commodity, he had to buy it at the available price. Thus, he contended that OP1 and OP2 were guilty of engaging in anti-competitive activities in the market.

Issues

While no clear demarcation was made by the CCI while deciding upon the case, two major issues were dealt with:

  1. Whether OP2 violated the Packaged Commodity Rules, 2011 which prohibits any seller from selling the same product at different rates through different channels?
  2. Whether OP1 and OP2 were involved in anti-competitive agreements under Sections 3(4)(a), 3(4)(b) and 3(4)(c)?

ANALYSIS

Arguments by the parties

Informant:

  • The Informant contended that OP2 used to sell his products in two different channels at two different prices which was specifically prohibited by the Packaged Commodity Rules, 2011. As a retail product in the general market, the prices charged were significantly less when compared to that charged in the premises of OP1. However, the packaging was only slightly different and was clearly intended to avoid any liability under the abovementioned rules.
  • Besides this, the Informant also contended that OP1 and OP2, operating in two different markets at two different levels, caused vertical restraints under Section 3(4) of the Act. Such agreement was extremely harmful to the consumers as the OPs were in a position to impose terms and conditions upon the customers.
Provision Contention of the Informant
Sec. 3(4)(a) Tie-in arrangement, though not in the literal sense of the term, was alleged to be created by OP1 and OP2. Although buying water bottles and beverages is not an essential function while utilising the services of OP1, the customers were not allowed to carry in their own water bottles. Water is an essential commodity, the customers were left with no option but to buy water bottles at exorbitant prices from the premises of OP1.
Sec. 3(4)(b) OP1 and OP2 have entered into exclusive supply agreements wherein OP2 was the sole supplier of OP1 in the beverages market. OP1 did not sell the products of the competitors of OP2.
Sec. 3(4)(c) OP1 and OP2 have entered into exclusive distribution agreement wherein select channels were used by OP2 to sell its goods.

 

Opposite Parties:

  • In response to the contention raised by the Informant, the OPs contended that exclusive supply and distribution agreements are not per se anti-competitive. It must necessarily cause an Appreciable Adverse Effect on the Competition [“AAEC”] in the market, to incur liability. In the present case, there was no AAEC as the alleged agreement constituted only 0.3% of the market supply and thus, it could not hamper competition in the market.
  • Besides this, the contract drawn between OP1 and OP2 was made on a short term basis which was to be renewed after every three years. The ‘exclusivity clause’ given in the first three-year contract was also removed for all the subsequent contracts. This clearly shows that OP1 and OP2 continued to contract because of their commercial interest and requirement. The contract could also be terminated as and when a hardship might arise, after giving a 60 days’ notice.
  • Further, tie-in arrangements (neither in literary nor in hypothetical terms) was not created between OP1 and OP2. Purchasing water bottles and beverages was not an essential function while availing the services of OP1. Water being a necessity, it was provided by OP1 within its premises, free of cost.

Reasoning by CCI

The CCI, after considering all the documents, agreements and other evidence provided by the parties, decided the case in favour of the OPs to conclude that there was no anti-competitive agreement between them. It relied on the cases of In Re M/s Cine Prekshakula Viniyoga Darula Singh v. Hindustan Coca-Cola Beverages Pvt. Ltd.[2] and In Re: Consumers Guidance Society v. Hindustan Coca-Cola Pvt. Ltd. and Inox Leisure Pvt. Ltd.[3] which had facts, similar to that of the current case. In these cases, the DG had carried out investigation to hold such agreements anti-competitive. However, the CCI did not rely upon the DG’s report and held the contrary.

In the present case, the CCI observed that the agreement between the OPs was made on a short term basis and could be terminated. Moreover, there were other players who had a wider coverage of markets than that of OP2, under similar exclusive agreements. The current agreement in question constituted a negligible part (0.3%) of the actual relevant market of beverage sales in India. Most importantly, none of the criteria laid down under Section 19(3), to determine AAEC, was fulfilled by the agreement between the OPs. Thus, there was no potential threat to competition in the market as merely entering into exclusive agreements is not anti-competitive.

Conclusion

Keeping in view the findings of the CCI in the previous judgements and similar facts and circumstances emerging in the current case, the CCI dismissed the complaint filed by the Informant and held that no prima facie case exists. The OPs were declared to be innocent and not violating competition in the market.

IMPACT OF THE CASE

With respect to the issue concerning violation of competition, the CCI was correct in finding that the OPs were not guilty of indulging into anti-competitive practices. Through this judgement, the CCI clearly laid down the distinction between what is anti-competitive according to the Act and what the public perceives to be anti-competitive. Big institutions or corporations must not be bullied for carrying out their business in a certain way. They have the choice to select the traders to deal with unless they raise competition concerns.

However with respect to the issue concerning the violation of the Packaged Commodity Rules, 2011 by OP2, the relevant institution must take note. It must investigate the encroachment of the abovementioned rules and take necessary actions accordingly. Such violation must not be neglected as it causes economic disparity and inconvenience to the customers.

 

[1] 3rd year, BBA LLB (Hons), National Law University Jodhpur.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s