Section 4 Competition Act Doesn’t Per Se Prohibit Dominance; Effects-Based Analysis Is Obligatory Component Of Every Inquiry: Supreme Court

The Supreme Court held that Section 4 of the Competition Act, 2002, does not per se prohibit dominance and effects-based analysis is an obligatory component of every inquiry under the said provision.

The Court held thus in Civil Appeals preferred by the Competition Commission of India (CCI) and another under Section 53T of the Act, challenging a Common Order of the Competition Appellate Tribunal (COMPAT).

The two-Judge Bench of Justice Vikram Nath and Justice Prasanna B. Varale observed, “Section 4 of the Act does not per se prohibit dominance; it prohibits the abuse of dominance. Abuse, by definition, is conduct that distorts the competitive process or harms consumers. … An effects-based inquiry is integral to Section 4 of the Act and, when properly undertaken, discloses no appreciable adverse effect on competition in the present case.”

The Bench remarked that 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.

Senior Advocates Amit Sibal and A.N. Haksar appeared on behalf of the Appellants while Senior Advocate Percival Billimoria appeared on behalf of the Respondents.

Brief Facts

The proceedings have their genesis in an information lodged in 2010 by Kapoor Glass India Pvt. Ltd. (Appellant) under Section 19 of the Competition Act. Kapoor Glass alleged that Schott Glass India Pvt. Ltd. (Respondent), then the principal domestic manufacturer of neutral USP-I borosilicate glass tubing, had abused its dominant position by offering exclusionary volume-based discounts, imposing discriminatory contractual terms, and, on occasions, refusing supply. Forming a prima-facie opinion under Section 26(1) of the Act, CCI directed the Director General (Investigation) to inquire into the matter. The DG’s report concluded that Schott India had violated Section 4 of the Act. After hearing the parties, CCI by majority order levied a penalty equal at a rate of 4 per cent of Schott India’s average of 3 years’ turnover equivalent to about Rs 5.66 crores and also issued a cease-and-desist order against Schott India from doing any discriminatory practices to any of the converters.

Schott India challenged that Order before COMPAT and Kapoor Glass also preferred a separate Appeal, seeking a broader relief and reiterating its refusal-to-supply grievance. The COMPAT allowed Schott India’s Appeal, annulled the penalty, and held that the evidentiary material did not establish any abuse of dominant position; and dismissed Kapoor Glass’s Appeal with costs of ₹ 1,00,000/-. Therefore, CCI sought revival of its original Order and Kapoor Glass supported CCI on the liability of Schott India but contended that COMPAT erred in refusing effective relief and in discounting the alleged “mixing risk”. Hence, the case was before the Apex Court.

Reasoning

The Supreme Court in view of the above facts, noted, “… unless the context expressly indicates otherwise, every factual recital or numerical datum herein is drawn from, or corresponds verbatim with, the findings of fact recorded in the DG’s Investigation Report and thereafter relied on, adopted, or reiterated in substance by the CCI and/or by the COMPAT.”

The Court said that Schott India holds a dominant position in each of the two identified upstream markets during the period relevant to the Appeals.

Issue I - Whether the target-discount scheme of Schott India amounts to discriminatory or exclusionary pricing in contravention of Section 4(2)(a) and Section 4(2)(b) of the Act?

The Court held that the slabbed target-rebate scheme:

(i) employs a neutral, volume-based criterion applicable to all purchasers alike;

(ii) is objectively justified by demonstrable efficiency considerations; and

(iii) has not been shown to restrict rival output, limit imports or distort downstream prices.

Issue II - Whether the functional-discount / “no-Chinese” scheme (including the later TMLA arrangement) imposes unfair or discriminatory conditions under Sections 4(2)(a) and 4(2)(b) of the Act?

The Court observed, “… every converter prepared to assume the same traceability and quality-promotion obligations received exactly the same economic consideration; the ancillary conditions are objectively justified; and the evidence shows no foreclosure of rivals or suppression of output. The functional rebate and its successor agreements therefore do not offend either Section 4(2)(a) or Section 4(2)(b)(i) of the Act.”

Issue III - Whether the LTTSA with Schott Kaisha produced a margin-squeeze proscribed by Section 4(2)(e) of the Act?

The Court held that the LTTSA (Long-Term Tubing Supply Agreement) does not contravene Section 4(2)(e) of the Act, and the finding of CCI on this head cannot be sustained.

Issue IV - Whether Schott India tied or bundled NGA and NGC tubes, thereby breaching Section 4(2)(d) of the Act?

“… the essential elements of Section 4(2)(d) of the Act are not proved as NGA and NGC are not independent products; converters were never compelled to buy both; no foreclosure was demonstrated; and, in any event, the rebate design is objectively justified. The finding of tying cannot therefore stand, and Issue IV is answered in the negative”, said the Court.

Issue V - Whether an effects-based (harm) analysis is an essential component of an inquiry under Section 4 of the Act, and, if so, whether it was omitted in this case?

The Court elucidated that Section 4 of the Act contemplates two logically separate findings:

(i) that the impugned practice falls within one of the descriptive clauses (a)–(e) of sub-Section (2), and

(ii) that it results in, or is likely to result in, an appreciable adverse effect on competition (“AAEC”).

“To collate the second enquiry into the first would equate description with proscription and convert the provision into a strict-liability offence”, it added.

The Court, therefore, held as follows –

(i) an effects-based analysis is an obligatory component of every inquiry under Section 4 of the Act;

(ii) the CCI, having relied on untested statements and pre-2009 correspondence, undertook no credible assessment of harm; and

(iii) on the evidence marshalled by the COMPAT, converter growth, stable downstream prices, absence of foreclosure – no appreciable adverse effect on competition is shown.

“The omission of a proper harm analysis vitiates the CCI’s order in limine. Because each of the alleged abuses has already been negatived on the facts, the appeals must fail on this additional ground as well. The COMPAT’s decision to set aside the CCI’s directions and penalty therefore warrants affirmation. Issue V is answered in the affirmative with respect to both the questions”, it held.

Issue VI - Whether the investigation and the Commission’s order are vitiated by denial of cross-examination and allied breaches of natural justice?

The Court said that the proceedings before the DG and the CCI were procedurally defective in a manner that, by itself, could have warranted dismissal of the complaint at the threshold.

“By electing to proceed on untested assertions, the CCI deprived itself of the material needed for a legally sustainable finding and placed the respondent under an evidentiary handicap contrary to natural justice. Issue VI is answered in the affirmative”, it added.

Conclusion

The Court concluded and held as follows –

(i) The slabbed target-rebate scheme does not impose unfair or discriminatory conditions;

(ii) The 8 per cent functional rebate, whether in its original or TMLA form, is objectively justified and uniformly available;

(iii) The LTTSA with Schott Kaisha neither effects a margin squeeze nor forecloses downstream rivals;

(iv) No coercion or tying between NGA and NGC tubes is proved;

(v) An effects-based inquiry is integral to Section 4 of the Act and, when properly undertaken, discloses no appreciable adverse effect on competition in the present case; and

(vi) The investigation by the DG is vitiated by the denial of cross-examination and by reliance upon pre-statute material, a procedural lapse that would, of itself, have sufficed to invalidate the impugned findings.

Accordingly, the Apex Court dismissed the Appeals, affirmed the Order of the COMPAT, and directed Kapoor Glass to pay Rs. 5 lakh cost to Schott Indian within eight weeks.

Cause Title- Competition Commission of India v. Schott Glass India Pvt. Ltd. & Anr. (Neutral Citation: 2025 INSC 668)

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