Information before the Competition Commission Of India (CCI) was filed by Faridabad Industries Association (FIA) whose members were consuming natural gas supplied by Adani to meet their fuel requirements. It was alleged that the Gas Supply Agreement (GSA) entered into with Adani was one-sided, lopsided, and heavily in favor of Adani.

The Competition Commission Of India (CCI) identified several categories of consumers i.e. industrial, commercial, and domestic, and transportation consumers, and found that industrial consumers formed a category different and distinct from commercial, domestic, and transportation consumers. The Commission noted that the amount and intended usage of natural gas by the various categories of consumers were different and the technical considerations in supply and distribution of gas were also different. In addition, the Commission observed that natural gas was distinct from other sources of energy as it was a flammable gaseous mixture that is clean, smoke-free, and soot free fuel as compared to liquid hydrocarbons.

As respects, the relevant geographic market, the Competition Commission Of India (CCI) noted that the Haryana Government had permitted only Adani to build and operate the City Gas Distribution (CGD) network in district Faridabad. The Commission found that Adani held a hundred percent market share in the relevant market being the only entity authorized by the Haryana Government to set up and operate City Gas Distribution (CGD) Network in Faridabad.

The Commission found that certain clauses of the GSA were abusive in nature. These clauses were: (i) Clause 11.2.1(Shutdown, Unplanned interruption and Disruption): even in the event of unplanned interruption and emergency shutdown of facilities calling for complete and partial off-take of gas by the buyer, the provisions relating to payment of Minimum Guaranteed Off-take (MGO) was made applicable to the buyer, (ii) Clause 13.5(Billing & Payment): despite specifying rate of interest to be levied in the event of delayed payment, the interest rate may also be 'any such rates as may be communicated by the Seller in future; (iii) Clause 13.7 (Billing & Payment): absolved Adani from paying any interest on excess amount paid by the consumers due to erroneous billing/invoicing by Adani; (iv)Clause 16.3 (force majeure): Adani reserved the right at its sole discretion to accept or reject request of customers for force majeure; (v) Clause 17.2 and 17.4 (Expiry and Termination): Adani was empowered terminate the agreement in the event of Buyer's failure to take fifty percent or more of the cumulative Daily Contracted Quantity (DCQ) during a duration of forty five consecutive days.

The Commission after arriving at a finding of a violation of Section 4(2)(a)(i) by Adani imposed a fine of INR 2567.27 Lakhs and ordered Adani to modify the GSA suitably. However, some of the clauses alleged to be abusive in nature in the information were not found to be unfair or discriminatory by the Competition Commission Of India (CCI). Adani filed an appeal against the finding of abuse of dominant position and the penalty imposed by the Competition Commission Of India (CCI). On the other hand, Faridabad Industries Association (FIA) preferred a cross-appeal against the finding of the Competition Commission Of India (CCI) that some of the clauses of the Gas Supply Agreement (GSA) were not discriminatory or abusive in nature.

Issue

The primary issue in the present case was whether there was any 'gaseous' substitute for industrial consumers?

Judgment

The National Company Law Appellate Tribunal (NCLAT), vide judgment dated 05.03.2020, has upheld the order dated 03.07.2014 passed by the Competition Commission of India (CCI) for abuse of dominant position by M/s Adani Gas Limited ("Adani') in the relevant market of supply and distribution of natural gas in Faridabad in contravention of Section 4(2) (a) (i) of the Competition Act, 2002. However, the National Company Law Appellate Tribunal (NCLAT) has lessened the quantum of penalty from the originally imposed four percent to one percent of the average of the turnover for the preceding three years considering the mitigating factors.

National Company Law Appellate Tribunal (NCLAT) observed that a vital question for consideration of the appeal was whether there was any 'gaseous' substitute for industrial consumers. It was observed that natural gas competes with most of the fuels available in the market like furnace oils, electricity, diesel, coal, and naptha, and the customers have the capability to switch over to the alternate fuels without incurring substantial costs. National Company Law Appellate Tribunal (NCLAT) noted that industrial consumers can switch over to solid fuel (coal and lignite), liquid fuels (furnace oil), and grid electricity.

It was held that LPG is not a substitute for Industrial consumers though the same constitutes a substitute for natural gas with respect to other categories of consumers i.e. domestic, commercial, and transport sectors. National Company Law Appellate Tribunal (NCLAT) observed that Faridabad Industries Association (FIA) members were solely dependent on the supplies for Adani, being the only supplier of natural gas while IOCL, BPCL, HPCL competed for the supply of alternate fuels. Moreover, during the relevant period, there was no gaseous substitute of natural gas available to Industrial Units in Faridabad. Accordingly, NCLAT agreed with the finding of CCI qua the relevant market definition and the dominance of Adani.

The National Company Law Appellate Tribunal (NCLAT), agreeing with the findings of the Commission, held that Clauses 11.2.1, 13.5, 13.7, 16.3, and 17.2 and 17.4 were abusive in nature on the same lines as observed by the commission in its order. The National Company Law Appellate Tribunal (NCLAT) acknowledged that even Adani was conscious of such conditions in the Gas Supply Agreement (GSA) to be unfair which was inferable from its conduct in substituting the original Gas Supply Agreement (GSA) with revised one modifying the contravening terms and conditions. Moreover, Clause 17.4 was completely removed and not incorporated into the new Gas Supply Agreement (GSA). Consequently, the National Company Law Appellate Tribunal (NCLAT) confirmed the finding of the Competition Of India (CCI) with respect to abuse of dominant position by Adani.

As regards FIA’s appeal, the National Company Law Appellate Tribunal (NCLAT) observed that Adani, as a distributor entered into the back to back agreements for the supply of natural gas and the concerns raised by Faridabad Industries Association (FIA), were purely contractual in nature and merited no inference from competition law angle.

A question of law was considered by the National Company Law Appellate Tribunal (NCLAT) while addressing this appeal. The question was whether the Commission can pass orders singularly or with any other directions or pass all orders under Section 27 of the Act as in this case the Competition Of India (CCI) had imposed a fine and also a direction to amend the Gas Supply Agreement (GSA). The National Company Law Appellate Tribunal (NCLAT) observed that a plain reading of the provision provides that the Commission is empowered to pass all or any of the orders envisaged under Clauses (a) to (g). The National Company Law Appellate Tribunal (NCLAT) emphasized that the term 'any' is all-encompassing and empowers the Competition Of India (CCI) to pass orders either singularly or coupled with any other discretion or pass all orders under Section 27 of the Act.

The National Company Law Appellate Tribunal (NCLAT) noted that the Gas Supply Agreement (GSA) was revised by Adani during the course of investigation and inquiry before the Commission and the Gas Supply Agreement (GSA) was made more consumer-friendly and protected the interests of the industrial consumers by removing disparities as regards the revision of gas prices, payment obligation in case of shutdown of supply and for partial or complete off-take of gas, etc. The National Company Law Appellate Tribunal (NCLAT) acknowledged that such modifications eliminated the discrimination qua the industrial consumers and the fact that Adani came up with a voluntary revision of Gas Supply Agreement (GSA) even before the conclusion of inquiry by Competition Of India (CCI) and was responsive to the advice of the erstwhile COMPAT were all mitigating factors in favor of Adani outweighing the only aggregator factor i.e. abuse of dominant position

Accordingly, the National Company Law Appellate Tribunal (NCLAT) lessens the quantum of penalty imposed on Adani from four percent of the average annual turnover of the relevant three years to one percent.