Anita Kapur ORDER
G.S. Singhvi, J. (Chairman)
1. Appellant-Gujarat Industries Power Company Limited has filed this appeal under Section 53B(2) read with Section 53B(1) of the Competition Act, 2002 (for short, 'the Act') for setting aside order dated 08.09.2015 passed by the Competition Commission of India (for short, 'the Commission') under Section 26(2), whereby Cases No. 55 and 56 of 2015 registered on the basis of an information's filed by the appellant and M/s. Gujarat State Fertilizers and Chemicals Limited under Section 19(1)(a) of the Act alleging contravention of Section 4 by Respondent No. 2 - GAIL (India) Ltd. were closed.
2. The appellant was incorporated in 1985 under the Companies Act, 1956 as a Public Limited Company. It is engaged in the business of power generation and is the first Independent Power Producer in India to have installed GE Frame VI and Frame IX Gas Turbine manufactured by BHEL. The appellant is operating on 310 (145+165) MW gas based Power Plant at Vadodara.
3. Respondent No. 2 is a Government of India Undertaking. It was also incorporated under the Companies Act, 1956. Respondent No. 2 is engaged in the distribution and marketing of gas in India and also other activities relating to gas including exploration, production, transmission, extraction, processing of natural gas and its related process, products and services. Respondent No. 2 has the longest pipelines for supply of gas in India and it has contributed to the growth and development of natural gas pipelines infrastructure and natural gas market in India. Its area of operation covers 16 States and two Union Territories. Respondent No. 2 buys Re-Liquefied Natural Gas (RLNG) from Petronet NLG Limited (PLL), which in turn purchases RLNG from Ras Laffan Liquefied Natural Gas Company Limited (II), Qatar (RasGas).
4. For running its plants, the appellant requires a continuous supply of gas of 1065 MMSCMD. It executed Gas Sales Agreement (GSA) with Respondent No. 2 on 12.02.2004. Duration of that agreement was five years with a provision for extension at the instance of either party. Articles 3, 7.4 to 7.7 and Articles 9.3 of GSA dated 12.02.2004, which have some bearing on the decision of this appeal, read as under :
"ARTICLE 3 DURATION OF AGREEMENT :
3.1 Subject to Article 17, this Agreement shall come into force on the date it is signed and shall remain in force till 0600 Hours of 01/01/2009 (Basic Period).
3.2 Either party may propose to extend the Agreement beyond the Basic Period by giving notice to the other party one year prior to expiry of this Agreement and shall be mutually discussed and amended accordingly. (Extension Period).
3.3 The term of this Agreement shall be extended beyond the Basic Period or the Extension Period, as the case may be, by a further period of 6 months (Recovery Period) in the event there is any Recovery Period Gas as per clause 7.2.2(vi) that may remain outstanding. Recovery Period will commence on the day immediately following eh last day of Basic Period or Extension Period as the case may be.
3.4 Following execution of this Agreement, the parties shall in accordance with article 17 use all reasonable endeavour to obtain satisfaction of any remaining conditions precedent to the effectiveness of the rights and obligations set out in this Agreement.
7.4 Delivery Rates
The Seller shall deliver and Buyer shall take during each Day at the Delivery Point the quantity of Gas at uniform hourly rates spread over a period of 24 Hours.
7.5 Annual Take or Pay Quantity (ATOPQ)
For each Contract Year, there shall be an Annual Take or Pay Quantity (ATOPQ), which shall be taken and paid for or paid for if not taken by the Buyer. The Annual Take or Pay Quantity shall be calculated as follows : The ATOPQ shall be 80% of the AACQ in accordance with 7.11.1 (iii) for the Contract Year or part thereof less:
"Aggregated DCQ for all days or part thereof on which the Buyer was prevented from taking Gas by Force Majeure of Buyer or Seller;
"Aggregated 75% of lower of DCQ or PNDCQ or their part thereof which Seller were unable to supply as per this Agreement for any reason;
All about deductions shall be converted into MMBTU by the weighted average of GCV at the Delivery Point during the Contract Years.
7.6 Annual Payment Obligation
The Buyer shall during each Contract Year, pay for the Actual Quantity of Gas taken or for ATOPQ referred to in Article 7.5. If the actual quantity is less than the ATOPQ, the Buyer shall pay for between the ATOPQ for the relevant Contract Year and the quantity of Gas actually taken by the Buyer during the Contract Year ("Take or Pay Deficiency Quantity") at a price equal to the weighted average of the applicable price of all the Gas supplied during the Contract Year calculated in accordance with Article 9. For the purpose of such calculation GCV of the Take or Pay Deficiency Quantity shall be deemed to be the volume weighted average of the Gross Calorific Values of Gas delivered during such Contract Year. Foreign Exchange Component shall be converted to Rupees at the prevalent TT selling rate as per State Bank of India (SBI) Card rate applicable on a business day of SBI New Delhi immediately preceding the date of Invoice.
7.7 Make-up Gas
The Buyer may elect to draw Make Up Gas during the succeeding years subject to the conditions that Buyer first takes delivery of the Annual Take or Pay Quantity for the Contract Year in which the Buyer wishes to draw Make Up Gas.
ARTICLE 9 PRICE : ..............
9.3 Buyer and Seller shall mutually discuss for the Price of
Gas to be effective from 1st January, 2009. The Seller shall inform not later than 30.06.2008, the revised Price and parties agree to discuss in good faith and finalize the new prices effective from 1.1.2009 not later than 30.09.2008."
5. About one year and two months prior to the expiry of the term of GSA dated 12.02.2004, the appellant wrote letters dated 21.11.2007 to Respondent No. 2 for extension/renewal of GSA. This request was reiterated vide letter dated 31.05.2008. Respondent No. 2 sent reply dated 30.06.2008 stating that on receipt of intimation from PLL, it will inform the appellant about the pooled price of RLNG to be effective from the month of January, 2009.
6. After five months, Respondent No. 2 forwarded draft GSA to the appellant, who then sought clarifications vide letter dated 05.12.2008 in regard to some of the Articles of the draft agreement. The parties also held discussion on 10.12.2008. Finally, they executed fresh GSA on 26.12.2008, whereby Respondent No. 2 agreed to supply RLNG to the appellant for 20 years subject to the terms and conditions contained in various Articles of the agreement. Article 14 of GSA dated 26.12.2008 contains Take or Pay Clause which is substantially similar to the one contained in GSA dated 12.02.2004.
7. After seven years of the execution of GSA dated 26.12.2008, Respondent No. 2 sent letter dated 27.02.2015 to the appellant requiring it to pay Rs. 49.81 Crores towards 'Annual Take or Pay Deficiency'. That letter reads as under :
"GAIL/MKTG/RLNG/ToP/2015
Without Prejudice
Dated : 27/02/2015
To,
Shri Y J Bhatt,
M/s. Gujrat Industries Power Company Limited
P.O. Petrochemical
District : Baroda - 391 346
Gujarat
Subject : Annual Take or Pay claim for the Contract Year 2014 under the Long Term RLNG GSA.
Dear Sir
This has reference to the Gas Sales Agreement dated 26.12.2008 between GAIL (India) Limited as "Seller" and Gujarat Industries Power Company Limited as "Buyer" for supply of 3917000 MMBTU (approx. 0.3 MMSCMD) of RLNG by the Seller to the Buyer at Delivery Point, hereinafter referred to as "Agreement". The Agreement provides for the terms and conditions upon which the Buyer shall purchase and the Seller shall sell Gas.
As per clause No. 14.1 of the Agreement, in respect of each Contract Year, the Buyer shall be liable to pay to the Seller pursuant to the Annual Statement of Settlement, an amount (in addition to the amounts for the quantity of gas taken) for the quantity of gas, if any, equal to the difference of the Eighty Five (85%) of the AACO, minus the adjusted quantity taken for such Contract Year,
In line with the above, for the Contract Year 2014, the total Annual Take or Pay Deficiency in respect of the Buyer works out to 2547442 MMTBU and the Pay For If Not Taken liability of Rs. 237.93 Cr.
Further, in line with the Clause 14.1(c), the Seller demands from the Buyer a sum of Rs. 49.81 Cr. Against the aforesaid Pay for If Not Taken liability. Notwithstanding the above demand, the Seller reserves the right and claim over the total Pay For If Not Taken for the Contract Year 2014 which may be exercised by the Seller at its discretion.
It is clarified that the option exercised by the Seller for Contract 2014 shall not be construed as setting a precedent or an implied consent by the Seller to exercise such option in subsequent contract Year in relation to any Take or Pay Deficiency. Further, rights exercised by the Seller under Article 14.1(c) shall not act as a waiver of other rights of the Seller against the Buyer for any failure to off take Gas under this Agreement.
Thanking you
Yours truly
(Shamasundara)
Zonal General Manager"
8. In its reply dated 07.03.2015, the appellant requested Respondent No. 2 to waive-off the claim against 'Take or Pay' clause. The appellant also sent letter dated 06.04.2015 proposing to surrender the contracted quantity of long term RLNG for a period of 12 months. That letter reads thus :
"GUJARAT INDUSTRIES POWER COMPANY LTD.
P.O. Petrochemical, Dist. -Vadodara 391 346, Gujarat - INDIA
Ref. : GIPCL/AGM(TS)/GAIL-RLNG/2015/43
6th April, 2015
Mr. Shama Sundara
Zonal General Manager (Gas Mktg.)
M/s. GAIL (India) Limited,
Ahmedabad Zonal Office,
809, Sakar - II, Opp. Town Hall,
Near Ellisbridge,
Ahmedabad 380 006.
Sub : GIPCL - Proposal for Surrendering Contracted Quantity of long term R-LNG.
Dear Sir,
GIPCL and GAIL have signed Gas Sales Agreement (GSA) dated 26.12.2008 for Supply and Transportation of Re-gasified Liquefied Natural Gas (Ft-LNG) to GIPCL's Vadodara Power Stations. The GSA for contracted quantity of 3917 Billion BTU per Annum is valid till 31st December, 2028.
As you are aware, GIPCL, Baroda is in the business of affordable power generation for the state grid using Natural Gas/R-LNG. With depleting gas supply from domestic fields, GSA for supply of R-LNG was first signed in the year 2003 for a period of 5 years to meet the shortfall in required gas quantity for sustained, efficient and affordable generation from its power plant. It may please be noted that at the time of renewal of GSA in the year 2008, GIPCL had requested GAIL to continue with the contract a further period of five years only. The main reasons for the request were...
1. The useful and designed life of any power plant is considered as 25 years from the date of commissioning. At the time of renewal of GSA, GIPCL plants had already completed more than 12 years of operating life.
2. Amendments and Realigning plant operation Philosophy & Methodology with newly introduced Availability Based Tariff (ABT), were under active consideration for implementation. These changes were to have considerable impact on business environment and plant operations.
3. Even if the contract is to be signed for a very long term i.e. 20 years as in case of GSA under reference, there should always be a provision for proper review of the contract at a regular interval of 3-5 years for its continuation or amendments as per the contemporary rules, acts and business scenario to ensure its effectiveness and commercial implications. However, the same was not accepted by GAIL citing their contractual constraints.
GIPCL as a prudent consumer has been consuming R-LNG as per contractual obligation till the year 2012-13 for generation of power. However, with increasing cost of R-LNG and availability of additional affordable and cheaper power in the state grid, the generation on R-LNG has become unviable for the State Grid and Public at large. Hence GIPCL is compelled to reduce/stop generation on R-LNG from its Vadodara Station as per the directives of State Authorities and guidelines of the Regulator. Due to this, GIPCL has not been able to consume R-LNG since the beginning of calendar year 2015 for its Vadodara Stations. Thus in this prevailing situation with prohibitive cost of power generation, consumption of contracted R-LNG is not found feasible.
You will appreciate that this dynamic business environment, requires review of the agreed norms of long term contract for its effective and viable implementation in the prevailing situation. You are also aware that all round efforts are being made by the government and all the stakeholders in the Energy sector, to ensure availability of cheaper Gas/R-LNG for the underutilized/stranded generating capacities.
In light of the above, we would request GAIL to allow GIPCL to surrender the total contracted quantity of 3917 Billion BTU of R-LNG for a period of at least 12 months i.e. for the calendar year 2015 considering this as a special situation during the contract period. We would also request you to suggest a mutually agreeable amendment for review and re-negotiation of the contract terms and also for introduction of a proper e 3 clause in the contract.
We solicit your positive response on the proposal at your earliest, please.
Thanking you,
Yours faithfully,
For Gujarat industries Power Company Ltd.,
(Y.J. Bhatt)
Addl. Gen. Mgr. (BO)
Cc to :
Shri A.K. Manchanda
Executive Direct (Gas Mktg.)
GAIL (India) Ltd.,
GAIL Bhavan,
16, Bhikaji Cama Place,
R.K. Puram, New Delhi-110 066."
[Underlining is ours]
9. Between 01.05.2015 and 02.06.2015, the parties exchanged several letters. While Respondent No. 2 persisted with its demand under 'Take or Pay' clause, the appellant prayed for waiver of the same. By letter dated 02.06.2015, which is reproduced below, Respondent No. 2 again called upon the appellant to pay Rs. 49.81 Crores under 'Take or Pay' clause and declined to waive-off its claim under 'Annual Take or Pay' clause :
"GAIL (INDIA) LIMITED
GAIL/MKTG/RLNG/ToP/2015
Dated : 02/06/2015
Shri Y.J. Bhatt,
M/s. Gujarat Industries Power Company Limited,
P.O. Petrochemical
District : Baroda - 391 346.
Gujarat.
Subject : Annual Take or Pay claim for the Contract year 2014 under the Long Term RLNG GSA.
Ref. : 1. Your letter dated 07.03.2015 & 08.05.2015
2. Our communication No. GAIL/MKTG/RING/ToP/2015 dated 27.02.2015 & reminder later dated 01.05.2015.
Dear Sir,
We appreciate your concern regarding the increased cost of RLNG. However, such financial parameters should be governed as per price mechanism defined in the contract dated 26.12.2008.
You will appreciate the fact that even though your Total ToP claim for the calendar year 2014 was totalling to Rs. 237.93 crores, GAIL had rationalized the same to Rs. 49.81 crores only which was done after considering the overall scenario and the expenditure marred by GAIL. In view of the same it is not possible for GAIL to waive off the claim against Annual Take or Pay for contract year 2014.
Hence, you are requested to make payment of the dues within next 7 days as the amount is overdue for a long time. You may avail the make-up gas as per the stipulations in the contract. Otherwise GAIL may be constrained to take actions as per contractual provisions including encashment of LC & even discontinuation of gas supply.
Thanking you,
Yours truly,
S. Basu CM
(Gas Marketing)"
10. Since the appellant did not comply with the demand created by Respondent No. 2, the latter sent communication dated 22.06.2015 to the Branch Manager, ICICI Bank Ltd., Baroda seeking to invoke the Letter of Credit submitted by the appellant.
11. The appellant challenged the demand of Rs. 49.81 Crores raised by Respondent No. 2 as also its action of invoking the Letter of Credit by filing Special Civil Application No. 10259 of 2015 before the High Court of Gujarat. However, when the matter was listed for admission hearing, the learned Senior Counsel appearing for the appellant sought permission of the High Court to withdraw the same with liberty to approach the Commission or other appropriate forum. The Division Bench of the High Court accepted the request of the learned counsel and disposed of the Special Civil Application as withdrawn. Order dated 15.07.2015 passed by the Gujarat High Court reads thus :
"Mr. Nanavati, learned senior counsel for the petitions seeks permission to withdraw both the petitions at this stage with a view to approach before the Competition Commission or before the appropriate forum with a liberty to approach again, if such contingency so arises, in accordance with law.
Without expressing any opinion on merits, permission granted. Disposed of as withdrawn."
12. Immediately after filing the Special Civil Application in the High Court of Gujarat, the appellant filed an information, which was described as a complaint, under Section 19(1)(a) of the Act read with Regulation 10 of the Competition Commission of India (General) Regulation, 2009 (for short, 'the Regulations') alleging that various clauses of GSA dated 26.12.2008 were anti-competitive and Respondent No. 2 was guilty of abuse of dominant position. The same was registered as Case No. 55 of 2015.
13. In its ordinary meeting held on 15.07.2015, the Commission considered the information filed by the appellant and decided to invite the parties for preliminary conference. Similar decision was taken on the information filed by M/s. Gujarat State Fertilizers & Chemicals Limited with substantially similar allegations, which was registered as Case No. 56 of 2015.
14. After hearing the counsel for the parties and examining the record, the Commission held that the relevant product market would be the market of 'supply and distribution of natural gas (RLNG) to industrial consumers in Vadodara'. It further held that Respondent No. 2 prima facie appears to be in a dominant position in the relevant market. However, the allegation of abuse of dominant position by Respondent No. 2 was rejected by the Commission and both the cases were closed under Section 26(2) of the Act. Paragraph 18 to 22 of the impugned order, which contain reference to the grievance made by the appellant and M/s. Gujarat State Fertilizers & Chemicals Limited and the reasons assigned by the Commission for closing the case, are reproduced below :
"18. The Informants have highlighted various terms and conditions in the GSA to allege that OP has abused its dominant position in the relevant market. It was alleged that the clauses e.g., take or pay liability for annual contract quantity, unconditional letter of credit to be furnished by buyers, exorbitant prices charged by OP, refusal to furnish details regarding computation of price of RLNG, no provision of modification or termination, payment of full amount before resolution of disputes, continuous performance of obligations, OP exempted from its obligations during Force Majeure, etc. are unfair, one-sided and discriminatory in nature.
19. In case No. 55 of 2015, the Commission notes that by its letter dated 27.02.2015, OP invoked clause 14.1 of the GSA and made a demand of Rs. 49.81 crores out of a total liability of Rs. 237.93 crores which was due under the 'Pay For If Not Taken' liability. GIPCL by its letter dated 07.03.2015 requested OP to waive off the claim against the said liability. GIPCL also proposed to surrender the entire contracted quantity of long term RLNG for 2015 by its letter dated 06.04.2015. By another letter dated 08.05.2015, GIPCL informed OP that GIPCL has been unable to sell power generated by it to Grid Authorities and it is not possible to consume the contracted quantity of RLNG. Though OP expressed its inability, vide its letter dated 02.06.2015, to waive off the entire 237.93 cores but reduced the same to Rs. 49.81 crores and waived of the remaining though it was due.
20. In case No. 56 of 2015, the Commission notes that OP vide its letter dated 11.11.2013 proposed to revise the contracted quantity of RLNG due to the irregular consumption pattern of GSFCL. However, this proposal of OP was rejected by GSFCL by its letter dated 31.12.2013, wherein GSFCL categorically stated that its plants are running to full capacity and there is no need for revision of existing RLNG contract. Further, vide its letter dated 03.03.2015, GSFCL requested OP to waive off the claim against 'Annual Take or Pay' liability for year 2014 and also not invoke the same in future. Vide its communication dated 02.06.2015, though OP expressed its inability to waive off the entire 275.74 cores but reduced it to Rs. 105.45 crores. It was further clarified to the Informant by OP that the Informant can exercise the make-up gas facility for the shortfall in off take.
21. From the above material and letters/emails exchanged between the Informants and OP, the Commission is unable to construe abusive conduct on the part of OP. Safeguarding commercial interest or invoking contractual clauses which were not unfair per se cannot be termed as unfair just because they are invoked by one of the parties to the contract. The GSAs, when they were entered into appears to have been entered into after thorough negotiations and discussions. Further, it is apparent from the records that OP had proposed to reduce the quantity of natural gas to be supplied to GSFCL by its letter dated 31.12.2013. However, this proposal was rejected by GSFCL by its letter dated 31.12.2013, stating that its plants are running to full capacity and there is no need for revision of existing RLNG contract. In such a scenario, if OP has invoked 'Pay for if not taken' liability under the GSA, it does not appear to be abusive. Further, in view of the fact that such liability was substantially reduced by OP shows that the behaviour of OP was rational and not arbitrary. The Commission also notes that there was a make-up facility available with the Informants.
22. Based on the aforesaid, the Commission is of the view that no case of contravention is made out against OP under section 4 of the Act. Accordingly, both the cases are hereby directed to be closed under section 26(2) of the Act. Further, it may be noted that in view of the prima facie order by the Commission under section 26(2)of the Act in the present cases, the prayer of the Informants regarding interim relief has become infructuous."
15. It is borne out from the record that after ten days of withdrawing the Special Civil Application, the appellant filed a petition under Section 9 of the Arbitration and Conciliation Act, 1996 (for short, 'the 1996 Act') in the Delhi High Court, which was registered as O.M.P. No. 374 of 2015. It also filed an application for temporary injunction. The learned Single Judge of the Delhi High Court passed interim order dated 03.08.2015 and directed Respondent No. 2 to withhold further action with respect to Letter of Credit dated 25.03.2015. The O.M.P. was finally disposed of by the learned Single Judge of the Delhi High Court vide order dated 20.08.2015, which reads as under :
"1. Learned counsel for the parties submit that arbitrator has been appointed in this matter and this petition be treated as an application under Section 17 of the Arbitrator and Conciliation Act to be considered by the learned arbitrator.
2. With the consent of both the parties this petition shall be treated as application under Section 17 of the Arbitration and Conciliation Act to be considered by the learned arbitrator. The parties shall submit the copy of this petition before the learned arbitrator within one week. Reply to the petition be filed within one week and rejoinder within one week thereafter whereupon the learned arbitrator shall fix a date for hearing of the petition.
3. Interim order dated 03rd August, 2015 shall continue till the disposal of the application under Section 17 of the Arbitration and Conciliation Act subject to the petitioner keeping the letter of credit alive.
4. The petition is disposed of.
5. A copy of this order be given dasti to counsels for the parties under signature of Court Master for being submitted before the learned arbitrator."
16. After four months of the disposal of O.M.P., the appellant filed application dated 14.12.2015 under Section 17 of the 1996 Act of which the cognizance has been taken by the Leaned Arbitrator.
17. Shri Vikas Singh, learned senior counsel for the appellant argued that the impugned order is vitiated by an error of law apparent on the face of the record and is liable to be set aside because instead of ordering an investigation in terms of Section 26(1), the Commission has taken upon itself the task of conducting investigation and decide whether or not the allegation of abuse of dominant position leveled against Respondent No. 2 has been established. Learned senior counsel emphasised that at the stage of formation of an opinion about the existence of a prima facie case requiring investigation, the Commission cannot delve deep into the merits of the allegations contained in the information and finally decide whether or not the case of abuse of dominant position and consequential violation of Section 4 of the Act is made out. He further argued that after adverting to the allegations contained in Case Nos. 55 and 56 of 2015, the Commission entirely relied upon the facts relating to the information filed by M/s. Gujarat State Fertilizers and Chemicals Limited and closed the case on the premise that although Respondent No. 2 had proposed to reduce the quantity of natural gas to be supplied to the appellant but the latter rejected the same. Shri Vikas Singh pointed out that vide letter dated 06.04.2015, the appellant had made specific request to Respondent No. 2 to permit surrender of the total contracted quantity of 3917 Billion BTU of R-LNG for a period of 12 months but the Commission did not even advert to this fact and documents filed along with the information and summarily closed the case. Learned senior counsel submitted that non-consideration of the documents filed by the appellant has resulted in failure of justice.
18. Shri Ramji Srinivasan, learned senior counsel for Respondent No. 2 supported the impugned order and argued that the Commission did not commit any error by passing the impugned order under Section 26(2) of the Act because the appellant failed to prima facie show that Respondent No. 2 had abused its alleged dominant position in the relevant market. Shri Srinivasan further argued that the Tribunal should not entertain the appeal because the appellant had not approached the Commission with clean hands, in as much as it concealed the facts relating to the Special Civil Application filed before the High Court of Gujarat and the Petition filed before the Delhi High Court under Section 9 of the 1996 Act. Learned counsel pointed out that immediately after issue of letter dated 22.06.2015 by Respondent No. 2 to ICICI Bank, the appellant filed Special Civil Application No. 10259 of 2015 before the Gujarat High Court but the same was withdrawn on 15.07.2015 but this fact was not disclosed to the Commission. Learned senior counsel also pointed out that the appellant had also filed O.M.P. No. 374 of 2015 under Section 9 of the 1996 Act before the Delhi High Court and succeeded in persuading the learned Single Judge of that Court to pass an interim injunction, but this fact was also not brought to the notice of the Commission. Shri Srinivasan submitted that the petition filed under Section 9 of the Arbitration and Conciliation Act, 1996 was subsequently treated by the Delhi High Court as a petition under Section 17 of that Act and an Arbitral Tribunal comprising of Justice Arijit Pasayat, former Judge of Supreme Court has been constituted to decide the dispute raised by the appellant including the one relating to unconscionable nature of various Articles of GSA dated 26.12.2008 and in that view of the matter, the Tribunal cannot go into the validity of the terms of the GSA or the action taken by Respondent No. 2 to invoke the Letter of Credit. Learned Senior Counsel emphasised that after having invoked the jurisdiction of the two High Courts in relation to the alleged illegality committed by Respondent No. 2 by invoking the Letter of Credit, the appellant cannot seek any relief under the Act. Shri Srinivasan also referred to paragraphs 9 and 10 of the impugned order and argued that the Commission did not commit any illegality by observing that the legality of GSA dated 26.12.2008 cannot be examined by it because the provisions of Sections 3 and 4 of the Act were brought into force only on 20.05.2009 and the same are not retrospective. He finally argued that the appellant's challenge to validity of various clauses of GSA dated 26.12.2008 falls in the realm of contractual dispute and the same cannot give rise to any competition law issue qua which a direction for investigation could have been given under Section 26(1) of the Act.
19. We have considered the respective arguments and scrutinized the record. The Competition Act, 2002 was enacted by Parliament for the establishment of a Commission to prevent practices having adverse effect on competition, to promote and sustain competition in the markets, to protect the interest of consumers and to ensure freedom of trade carried on by other participants in markets, in India, and for matters connected therewith or incidental thereto. Chapter II of the Act which is titled as "Prohibition of Certain Agreements, Abuse of Dominant Position and Regulations of Combinations' contains four sections. Section 3 deals with anticompetitive agreements. Section 4 deals with abuse of dominant position. Chapter IV of the Act contains provisions relating to duties, power and functions of the Commission. Section 18 declares that subject to the provisions of this Act, it shall be the duty of the Commission to eliminate practices having adverse effect on competition, promote and sustain competition, protect the interests of consumers, and ensure freedom of trade carried on by other participants, in markets in India. Section 19(1) empowers the Commission to inquire into any alleged contravention of the provision of Section 3(1) or Section 4(1) either on its own motion or on receipt of any information from any person, consumer or their association or trade association or a reference made to it by the Central Government or State Government or a statutory authority. Sub-section (3) of Section 19 lays down that the Commission shall, while determining whether an agreement has an appreciable adverse effect on competition under Section 3, have due regard to all or any of the factors enumerated in Clauses (a) to (f) thereof. Sub-section (4) lays down that the Commission shall, while inquiring whether an enterprise enjoys a dominant position or not under Section 4, have due regard to all or any of the factors enumerated in Clauses (a) to (m) thereof. Sub-section (5) lays down that for determining whether a market constitutes a "relevant market", the Commission shall have due regard to the "relevant geographic market" and "relevant product market". Section 19(6) and 19(7) lay down that the Commission shall, while determining the "relevant geographic market" and "relevant product market" have due regard to the factors enumerated in various clauses of those sub-sections. Section 26 carries the title 'procedure for inquiry under Section 19'. Sub-section (1) of Section 26 lays down that on receipt of a reference from the Central Government or State Government or a statutory authority or on its own knowledge or information received under Section 19, the Commission shall direct the General to cause an to be made into the matter, if it is of the opinion that there exists a prima facie case. If the Commission forms an opinion that there exists no prima facie case, then the case is required to be closed under Section 26(2). Section 26(3) lays down that the Director General shall, on receipt of direction under sub-section (1), submit a report on his findings within such period as may be specified by the Commission. Section 41, which is the only section under Chapter V of the Act contains provisions relating to investigation by the DG. Section 41(1) lays down that the DG shall, when so directed by the Commission, assist the Commission in investigating into any contravention of the provisions of this Act or any rules or regulations made thereunder. Sub-section (2) of Section 41 declares that the DG shall have all the powers as are conferred upon the Commission under Section 36(2) of the Act.
20. Section 26 of the Act and Regulations 16 to 19 of the Regulations, which have bearing on the decision of the issue raised by the appellant, read as under:
Section 26 :
"26. Procedure for inquiry under section 19. - (1) On receipt of a reference from the Central Government or a State Government or a statutory authority or its own knowledge or information received under section 19, if the Commission is of the opinion that there exists a prima facie case, it shall direct the Director-General to cause an investigation to be made in to the matter:
Provided that if the subject-matter of an information received is, in the opinion of the Commission, substantially the same as or has been covered by any previous information received, then the new information may be clubbed with the previous information.
(2) Where on receipt of a reference from the Central Government or a State Government or a statutory authority or information received under section 19, the Commission is of the opinion that there exists no prima facie case, it shall close the matter forthwith and pass such orders as it deems fit and send a copy of its order to the Central Government or the State Government or the statutory authority or the parties concerned, as the case may be.
(3) The Director-General shall, on receipt of direction under sub-section (1), submit a report on his findings within such period as may be specified by the Commission.
(4) The Commission may forward a copy of the report referred to in Sub-section (3) to the parties concerned:
Provided that in case the investigation is caused to be made based on a reference received from the Central Government or the State Government or the statutory authority, the Commission shall forward a copy of the report referred to in sub- section (3) to the Central Government or the State Government or the statutory authority, as the case may be.
(5) If the report of the Director General referred to in Sub-section (3) recommends that there is no contravention of the provisions of this Act, the Commission shall invite objections or suggestions from the Central Government or the State Government or the statutory authority or the parties concerned, as the case may be, on such report of the Director-General.
(6) If, after consideration of the objections and suggestions referred to in sub section (5), if any, the Commission agrees with the recommendation of the Director-General, it shall close the matter forthwith and pass such orders as it deems fit and communicate its order to the Central Government or the State Government or the statutory authority or the parties concerned, as the case may be.
(7) If, after consideration of the objections or suggestions referred to in sub-section (5), if any, the Commission is of the opinion that further investigations is called for, it may direct further investigation in the matter by the Director-General or cause further inquiry to be made by in the matter or itself proceed with further inquiry in the matter in accordance with the provisions of this Act.
(8) If the report of the Director General referred to in Sub-section (3) recommends that there is contravention of any of the provisions of this Act, and the Commission is of the opinion that further inquiry is called for, it shall inquire into such contravention in accordance with the provisions of this Act."
Regulations 16 to 19 :
"16. Opinion on existence of prima facie case. - (1) The Secretary, after scrutiny and removal of defects, if any, in an information or reference, as the case may be, shall place the same before the Commission to form its opinion on existence of a prima facie case.
(2) In cases of alleged anti-competitive agreements and/or abuse of dominant position, the Commission shall, as far as possible, record its opinion on existence of a prima facie case within sixty days.
(3) The Commission shall, as far as possible, hold its first ordinary meeting to consider whether prima facie case exists, within fifteen days of the date of placement of the matter by the Secretary under sub -regulation (1).
17. Preliminary conference. - (1) The Commission may, if it deems necessary, call for a preliminary conference to form an opinion whether a prima facie case exists.
(2) The Commission may invite the information provider and such other person as is necessary for the preliminary conference.
(3) A preliminary conference need not follow formal rules of procedure.
18. Issue of direction to cause investigation on prima facie case - (1) Where the Commission is of the opinion that a prima facie case exists, the Secretary shall convey the directions of the Commission [within seven days,] to the Director-General to investigate the matter.
(2) A direction of investigation to the Director-General shall be deemed to be the commencement of an inquiry under section 26 of the Act."
"19. Communication of order when no prima facie case found.- If the Commission is of the opinion that there exists no prima facie case, the Secretary shall send a copy of the order of the Commission regarding closure of the matter forthwith to the Central Government or the State Government or the Statutory Authority of the parties concerned, as the case may be, as provided in sub-section (2) of section 26 of the Act."
21. A reading of Section 26(1) makes it clear that at the stage of forming an opinion that there exists a prima facie case which requires investigation, the Commission is required to consider the contents of the reference made by the Central Government or the State Government or the statutory authority or an information filed under Section 19(1)(a) and the documents, if any, received with the reference or information. This exercise constitutes a condition precedent for issue of a direction to the Director General to cause an investigation to be made into the matter necessarily implies that while exercising power under Section 26(1), the Commission cannot adjudicate upon the merits and de-merits of the reference made by the Central Government or the State Government or the statutory authority or the averments/allegations contained in the information. If after examining the contents of the reference or information, the Commission finds that the material produced along with it is not sufficient for forming an opinion about the existence or otherwise of a prima facie case or it wants some clarification on any particular aspect of the matter/issue, then it can call for a preliminary conference and invite the information provider and such other person as is considered necessary for the preliminary conference (Regulation 17). After considering the contents of reference or information and holding preliminary conference, if any, the Commission can pass an order under Section 26(1) briefly incorporating the reasons for forming an opinion that there exists a prima facie case which warrants investigation by the DG - Competition Commission of India v. Steel Authority of India Limited and Another MANU/SC/0690/2010 : (2010) 10 SCC 744. The direction given by the Commission under Section 26(1) is required to be communicated by the Secretary to the DG along with a copy of the information or reference, as the case may be, with all other documents or materials or affidavits or statements, which may have been filed either along with the information or reference or at the time of preliminary conference [Regulation 20(1)]. If after considering a reference or an information and holding a preliminary conference under Regulation 17, the Commission forms an opinion that there does not exist any prima facie case, then it is required to close the matter under Section 26(2). The order passed under Section 26(2) is also required to be communicated to the Central Government or the State Government or the statutory authority or the informant, as the case may be. (Regulation 19).
22. To put it differently, the exercise required to be undertaken by the Commission for forming an opinion whether or not there exists a prima facie case which requires investigation, the Commission is required to take cognizance of the averments contained in the reference or an information and the documents supplied with the reference or information. In an appropriate case, the Commission may also hold preliminary conference and ask the informant or the person against whom allegation of anti-competitive conduct has been levelled to produce the relevant documents. In a given case, the Commission may, after examining the contents of the reference or information and/or holding preliminary conference, opine that there exists a prima facie case for investigation. In that event, the Commission is required to pass an order under Section 26(1) of the Act. In another case, the Commission may, after undertaking the exercise of examining the contents of the reference or the information and holding preliminary conference, if any, opine that no prima facie case has been made out warranting an investigation. In that event, the Commission may pass an order under Section 26(2) and close the case. However, in either case the Commission cannot make detailed examination of the allegations contained in the information or reference, evaluate/analyse the evidence produced with the reference or information in the form of documents and record its findings on the merits of the issue relating to violation of Section 3 and/or 4 of the Act because that exercise can be done only after receiving the investigation report. If the reference or the information contains an allegation relating to violation of the provisions of Section 3 and the Commission does not feel satisfied that the material placed before it gives a prima facie indication of violation of that provision then it may close the case under Section 26(2). Likewise, if the reference or information contains an allegation of abuse of dominant position within the meaning of Section 4(2) and its various clauses and the Commission finds that the material produced with the reference or information does not prima facie show the dominance of the person against whom allegation of abuse of dominance has been levelled, then too it may close the case under Section 26(2) of the Act. However, as mentioned above, the Commission cannot make an adjudication on violation of Section 3 and/or 4 of the Act.
23. In the present case the Commission, after considering the averments contained in the information filed by the appellant, invoked Regulation 17 of the Regulations and invited the parties for preliminary conference. In the preliminary conference, the appellant and M/s. Gujarat State Fertilizers and Chemicals Limited as also Respondent No. 2 were represented by team of advocates and their officers. After hearing the parties, the Commission examined the allegations contained in the information's and opined that the provisions of the Act would not be applicable to the GSAs dated 26.12.2008 executed between the appellant and M/s. Gujarat State Fertilizers and Chemicals Limited and Respondent No. 2 because Section 4 of the Act was brought into force with effect from 20.05.2009. The Commission then considered the allegations of anti-competitive conduct of Respondent No. 2 and made contradictory observations. In the first place, the Commission observed that the informants have failed to provide any cogent evidence to highlight any anti-competitive conduct on part of Respondent No. 2 which occurred post 20.05.2009 i.e. after the provisions of Section 4 of the Act coming into force. The Commission then went on to analyse the terms and conditions of GSAs to gauge whether they go against the principles of competition law as enshrined in the Act by observing that the GSAs were entered into for a period of 20 years and are in existence at present. In paragraphs 12 of the impugned order, the Commission determined the relevant market and concluded that the relevant market in the present case would be market for 'supply and distribution of natural gas (RLNG) to industrial consumers in Vadodara'. In paragraphs 15 to 17, the Commission considered the issue relating to position of strength enjoyed by Respondent No. 2 in the relevant market and held that it (Respondent No. 2) appears to be dominant in the relevant market. In paragraph 18, the Commission took cognizance of the allegations contained in the information. In paragraph 19, the Commission noted that the appellant had sent letter dated 06.04.2015 to Respondent No. 2 for surrender the entire contracted quantity of long term RLNG for 2015. In paragraph 20, the Commission noted that vide letter dated 11.11.2013, Respondent No. 2 had proposed to revise the contracted quantity of RLNG meant for M/s. Gujarat State Fertilizers and Chemicals Limited and finally concluded in paragraph 21 that the decision of Respondent No. 2 to invoke 'Take or Pay' clause contained in the GSA cannot be termed as arbitrary or abusive. In paragraph 22, the Commission recorded its decision to close the case by observing that no case of contravention of Section 4 is made out against Respondent No. 2.
24. A careful reading of various paragraphs of the impugned order to which reference has been made hereinabove makes it clear that instead of examining the allegations contained in the information and the documents filed by the appellant from the point of view of forming an opinion about existence or otherwise of a prima facie case, the Commission assumed the role of an investigator and an adjudicator and unequivocally pronounced that the decision taken by Respondent No. 2 to invoke 'Take or Pay' clause contained in GSA dated 26.12.2008 cannot be termed as arbitrary or abuse of dominant position as envisaged in Section 4(2) of the Act. The exercise undertaken by the Commission to determine the issues like relevant market, dominant position enjoyed by Respondent No. 2 in the relevant market and its conclusion that Respondent No. 2 cannot be held to have abused its dominant position was clearly beyond the scope of the power required to be exercised under Section 26(1) of the Act.
25. It is also apposite to note that even though in paragraph 19 of the impugned order, the Commission referred to letter dated 06.04.2015 sent by the appellant proposing to surrender the entire contracted quantity of RLNG for 2015 but did not deal with the same and recorded its conclusion in paragraph 21 on the issue of abuse of dominant position by adverting only to letter dated 31.12.2013 sent by Respondent No. 2 to M/s. Gujarat State Fertilizers and Chemicals Limited proposing to reduce the quantity of natural gas and negative response given by the latter. We do not wish to make any guess as to what would have been the opinion of the Commission if it had taken into consideration the offer made by the appellant vide letter dated 06.04.2015 to surrender the entire quantity for RLNG for 12 months, but are constrained to observe that non-consideration of this important aspect has caused serious prejudice to the appellant. The discriminatory approach adopted by Respondent No. 2 in dealing with the two similarly situated parties prima facie amounts to abuse of dominant position and consequential violation of Section 4(2)(a) of the Act.
26. The argument of Shri Ramji Srinivasan that the appellant should not be heard to make a grievance against invoking of 'Take or Pay' clause contained in GSA dated 26.12.2008 because it has already availed other remedies by filing Special Civil Application No. 10259 of 2015 in the High Court of Gujarat and O.M.P. No. 374 of 2015 in the Delhi High Court does not deserve to be entertained because the questions whether Respondent No. 2 is in a dominant position in the relevant market and whether it has abused that position and acted in contravention of Section 4 of the Act could not have been decided by the High Courts of Gujarat or Delhi in the two proceedings filed by the appellant. Likewise, pendency of the arbitral proceedings cannot be used as a tool to prevent the appellant from invoking the provisions of the Act.
27. In the result, the appeal is allowed. The impugned order is set aside and it is held that the appellant has succeeded in making out a prima facie case of violation of Section 4 of the Act which needs to be investigated. Therefore, the DG is directed to conduct an investigation into the allegations contained in the information filed by the appellant and submit a report to the Commission under Section 26(3) of the Act read with Regulation 20(4) of the Regulations within a period of sixty days from the date of receipt of this order. If the DG is unable to complete the investigation within sixty days, then he may approach the Commission for extension of time. After receiving the investigation report, the Commission shall give opportunity to the parties to file their reply/objections, if any, against the findings recorded by the DG, hear them and pass appropriate order in accordance with law.
28. It is made clear that the DG shall conduct investigation and the Commission shall pass final order without being influenced by any of the observations made in this order.
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