No Grounds for Action: Commission Wraps Up Investigation into IREL

The Competition Commission of India (CCI) received information alleging that IREL (India) Ltd, a government-owned entity under the Department of Atomic Energy, had contravened Section 4 of the Competition Act, 2002. IREL is the sole producer of Beach Sand Sillimanite in India following a government prohibition on private enterprises from mining atomic minerals, including Sillimanite in 2016.

Allegations Against IREL:

1. Price Hike: IREL increased the price of Sillimanite from ?9,000 per metric ton in 2016-17 to ?14,000 in 2020-21.
2. Discriminatory Pricing: IREL charged Micro, Small & Medium Enterprises (MSMEs) ?14,000 per metric ton, while charging multinational companies only ?11,000 per metric ton.
3. Supply Restrictions: IREL allegedly imposed arbitrary supply limits, forcing customers to accept unfair terms.

The informant claimed that these actions violated Sections 4(2)(a)(i) and 4(2)(b)(i) of the Competition Act.

CCI's Prima Facie View:

• The Commission confirmed that IREL is an 'enterprise' under Section 2(h) of the Competition Act.
• It accepted the relevant market as the “mining and supply of Beach Sand Sillimanite in India,” as defined by the informant.
• The CCI found that IREL had a dominant position due to its exclusive government-backed rights to mine and supply Sillimanite in India.

Investigation:

• On 3rd January 2022, the CCI directed the Director General (DG) to investigate the allegations. The DG submitted the report on 22nd July 2022.
• The Commission considered the investigation report, invited objections and responses from both parties, and later held hearings.
• The final hearing took place on 29th November 2023, and the parties were asked to submit written summaries of their oral arguments.

Commission's Analysis

The Commission identified four issues for determining whether IREL abused its dominant position:

1. Whether IREL qualifies as an "enterprise" under the Act.
2. Definition of the "relevant market."
3. Assessment of IREL's dominant position in that market.
4. Examination of potential abuse of that dominant position under Section 4 of the Act.

IREL as an 'Enterprise':

• The Commission clarified that under Section 2(h) of the Act, only certain government departments are exempt from being considered enterprises. IREL is a Public Sector Undertaking engaged in commercial activities (mining and selling Beach Sand Sillimanite).
• The Commission referred to a Supreme Court ruling in Coal India Limited & Anr Vs. Competition Commission of India and Anr. emphasizing that IREL, as a government company, does not qualify for exemption. Thus, IREL is deemed an enterprise under the Act.

Relevant Market Definition:

• The relevant market is delineated based on the demand for Beach Sand Sillimanite and its substitutes. The Directorate General (DG) examined the substitutability of various minerals and concluded that Beach Sand Sillimanite is a distinct product from a user perspective.
• Despite IREL's argument for a broader market definition, the Commission agrees with the DG’s conclusion that Beach Sand Sillimanite constitutes the relevant product market.
• Geographically, the market is determined to be India, as there are no barriers to the production and sale of Sillimanite within the country.

Dominance in the Market:

• Following a notification that restricted mining rights for atomic minerals to government entities, IREL became one of the few remaining players in the market, resulting in a significant market share.
• The Commission agrees with the DG's assessment that IREL enjoys a dominant position, noting that market share is an essential indicator of dominance, supported by various other factors under Section 19(4) of the Act.

Abuse of Dominant Position: The Commission examines whether IREL has abused its dominant position through:

1. Excessive Pricing: The DG concluded that IREL's price increases for Sillimanite were disproportionate to production costs, with no corresponding price decrease when costs fell. However, the Commission found that complaints about excessive pricing were absent, and the context of Sillimanite as a by-product necessitated a broader analysis of its pricing strategy. Ultimately, the Commission ruled that no excessive pricing contravention occurred.
2. Discriminatory Pricing and Supply Conditions: The Commission considered allegations that IREL charged different prices to different customers, particularly offering lower prices to some entities compared to others, which could distort competition. IREL countered these claims by asserting that pricing was based on justifiable commercial relationships and varying volumes offtake. The Commission noted that discounts were offered uniformly based on long-standing relations and reasonable grounds. Ultimately, the Commission did not find sufficient evidence to substantiate claims of discriminatory pricing or supply conditions.

Conclusion

The Commission's analysis concludes that IREL qualifies as an enterprise, holds a dominant position in the relevant market of Beach Sand Sillimanite in India, and has not violated the Act through excessive or discriminatory pricing practices.

The order of the Commission can be found here.