Competition Appellate Tribunal (COMPAT) orders investigation against Gas Authority of India Limited (GAIL) for abuse of dominance-

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COMPAT by order dated November 28, 2016 has set aside the order of CCI refusing investigation against GAIL for allegedly incorporating unfair terms and conditions in its gas supply agreements with power producers.

The Information was filed by Gujarat Industries Power Company Limited which is engaged in the business of power generation and is operating on 310 MW power plant based on power plant in Vadodara. GAIL 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. For running its plants, the GIPCL 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. After the termination of the GSA, the parties executed a fresh GSA on 26.12.2008 whereby GAIL agreed to supply RLNG to the GIPCL for 20 years subject to the terms and conditions contained in various Articles of the GSA. Article 14 of GSA dated 26.12.2008 contained “Take or Pay” Clause which provided for certain quantity of gas which shall be taken and paid for or paid for if not taken by GIPCL.

After seven years of the execution of GSA dated 26.12.2008, GAIL sent letter dated 27.02.2015 to GIPCL requiring it to pay INR 49.81 Crores towards ‘Annual Take or Pay Deficiency’. The GIPCL replied requesting GAIL to waive the take or pay penalty imposed on GIPCL. When GIPCL did not comply with the demand of GAIL, the GAIL sent communication dated 22.06.2015 to the Branch Manager, ICICI Bank Ltd., Baroda seeking to invoke the Letter of Credit submitted by the GIPCL.

While adjudicating the matter, the CCI considered 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 GAIL prima facie was in a dominant position in the relevant market. However, the CCI was of the opinion that the conduct of GAIL did not amount to abuse of dominance as 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 COMPAT noted 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 CCI assumed the role of an investigator and an adjudicator and unequivocally pronounced that the decision taken by GAIL 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 COMPAT held that within the scheme of the Act, 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 CCI is required to take cognizance of the averments contained in the reference or an information and the documents supplied with the reference or information.

The COMPAT concluded that the exercise undertaken by the CCI to determine the issues like relevant market, dominant position enjoyed by GAIL in the relevant market and its conclusion that GAIL 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. Consequently, the CCI order has been set aside and the Director General has been directed to conduct an investigation into the allegations contained in the information filed by the GIPCL. (Source: COMPAT Order dated November 28, 2016. For full text see COMPAT website)

Comment: This is the second order by COMPAT laying down the limits of scrutiny by CCI while forming an opinion of existence of a prima facie case or otherwise under Section 26(1) of the Act . The first Order was dated 26.11.2015 in the appeal no. 51 of 2014