Volume-based discounts not against antitrust law, heavy-handed enforcement won't help India amid rising protectionism: Supreme Court
'Competition law is not designed to humble the successful' and 'heavy-handed enforcement' of regulatory policies 'divorced from market effects' will not help India's bid to emerge as a manufacturing hub for the world, the Supreme Court has cautioned.
A bench of Justices Vikram Nath and Justice P B Varale said this in its judgment on Tuesday while affirming an April 2, 2014, order of the Competition Appellate Tribunal (COMPAT) which set aside a Competition Commission of India (CCI) finding that volume-based discounts offered by borosilicate glass tubing maker Schott India amounted to discriminatory pricing and abuse of the company's dominant position in the market.
Justice Vikram Nath, writing for the bench, said, 'Competition law is not designed to humble the successful or to clip the wings of enterprises that have, through industry and innovation, secured a commanding share of the market. The true purpose of antitrust laws is to preserve the process of competition, i.e., to ensure that rivals may challenge the incumbent on the merits, that consumers enjoy the fruits of efficiency, and that technological progress is not stifled by artificial barriers. If mere size or success were treated as an offence, and every dominant firm exposed to sanction without tangible proof of competitive harm, the law would defeat itself: it would freeze capital formation, penalise productivity, and ultimately impoverish the very public it is meant to protect.'
The judgement added, 'In today's global economic climate, prudence is vital. As the United States and Europe retreat behind their newly minted trade walls of protectionist policies to shield their homegrown markets, India's bid to emerge as a global centre for manufacturing, life sciences and technology will succeed only if regulation rewards scale and intervenes solely when genuine competitive harm is shown. Heavy-handed enforcement, divorced from market effects, would discourage the long-term capital and expertise the economy urgently needs. An effects-based standard is therefore not a mere procedural nicety. It is both a constitutional bulwark against arbitrary restraint of lawful enterprise and a strategic necessity if India is to capture the opportunities that more protectionist economies are in danger of forsaking.'
Explaining the significance of the Competition Act 2002, the Supreme Court said, 'India's economic ascent rests on a delicate but decisive equilibrium. On the one hand, markets must remain contestable: no undertaking may extinguish rivalry by stratagems foreign to fair, merit-based competition. On the other hand, genuine achievement whether expressed in scale, efficiency or technological advance, must be rewarded and not punished, for it is the impetus for investment, innovation and consumer welfare.'
The court further said, 'The Competition Act 2002 is the charter that secures both pledges. It equips the Competition Commission of India with wide-ranging powers of inquiry and remedy, yet it permits intervention only where hard evidence shows that the impugned conduct has caused, or is likely to cause, a demand rigorous fact-finding, adversarial 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.'
The case dates back to 2010 when Kapoor Glass complained to the CCI against Schott India, which was then the principal domestic manufacturer of neutral USP-I borosilicate glass tubing, accusing it of abusing its dominant position by offering exclusionary volume-based discounts, imposing discriminatory contractual terms, and refusing supply on occasions.
After forming a prima facie opinion, the CCI directed the director-general (investigation) to inquire into the matter. The D-G's report concluded that Schott India had violated section 4 of the 2002 Act, dealing with the abuse of a dominant position by a company.
After hearing the parties, the CCI levied a penalty of 4 per cent of Schott India's average of three years' turnover, equivalent to about Rs 5.66 crore, and also issued a cease-and-desist order against the company, from doing any discriminatory practices to any of the converters, on March 29, 2012.
On appeal by Schott India, COMPAT annulled the penalty and held that the evidentiary material did not establish any abuse of the dominant position.
The CCI and Kapoor Glass then approached the Supreme Court challenging the COMPAT order.
Ananthakrishnan G. is a Senior Assistant Editor with The Indian Express. He has been in the field for over 23 years, kicking off his journalism career as a freelancer in the late nineties with bylines in The Hindu. A graduate in law, he practised in the District judiciary in Kerala for about two years before switching to journalism. His first permanent assignment was with The Press Trust of India in Delhi where he was assigned to cover the lower courts and various commissions of inquiry.
He reported from the Delhi High Court and the Supreme Court of India during his first stint with The Indian Express in 2005-2006. Currently, in his second stint with The Indian Express, he reports from the Supreme Court and writes on topics related to law and the administration of justice. Legal reporting is his forte though he has extensive experience in political and community reporting too, having spent a decade as Kerala state correspondent, The Times of India and The Telegraph. He is a stickler for facts and has several impactful stories to his credit. ... Read More
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