CCI rejects abuse of dominance plea against IREL India

The Competition Commission of India (CCI) recently dismissed a plea alleging abuse of dominant position against IREL (India) Limited (formerly Indian Rare Earths Limited) [Kalpit Sultania v. IREL (India) Limited].

The four-member quorum of CCI, led by its Chairperson Ravneet Kaur, found that though IREL was in a dominant position in the business of mining and supply of Beach Sand Sillimanite in India, it did not abuse the same.

The order puts an end to CCI’s three year investigation into allegations against the Central government-owned IREL for violating the Competition Act, 2002. 

IREL, which is under the administrative control of the Department of Atomic Energy (DAE), is engaged in production and sale of minerals such as Ilmenite, Rutile, Zircon, Monazite, Sillimanite and Garnet as well as various value-added products through four operational units located in Odisha, Kerala and Tamil Nadu. 

The information filed before the CCI by one Kalpit Sultania pertained to a mineral called Beach Sand Sillimanite. It was contended that since 2016, Sillimanite was included in the category of atomic minerals by the Central government and hence private players were prohibited from mining it. As a consequence of this, IREL became the only corporation engaged in the production of Beach Sand Sillimanite in India.

Sultania contended that IREL abused its dominant position by:

1. Indulging in prohibitive increase in the prices of Sillimanite from ₹ 9,000 per metric ton in 2016-17 to ₹14,000 per metric ton in 2020-2021; 

2. Following discriminatory pricing against the interests of the Micro, Small & Medium Enterprises (MSMEs) in the domestic market, while favouring multi-nationals and/or foreign parties; and

3. Fixing the supply of Beach Sand Sillimanite as per its whims and fancies and forcing its customer to accept arbitrary quantity.

DG investigation

Based on the information filed and the responses received, the CCI came to a prima facie view that IREL enjoys economic power and commercial advantage which allows it to operate independently of market forces. Thus, in January 2022, it directed the Director General (DG) to cause an investigation into the matter and submit a report as per the law.

The DG found that only IREL and Kerala Minerals and Metals Limited (KMML) remained in the business of mining and production of Beach Sand Sillimanite in India after the Central government notification. The DG noted that the market share of IREL is high for the period of the alleged abuse and it also enjoys considerable financial power, resources and infrastructure in the relevant market, especially from 2019-20 onwards.

In addition, IREL has a commercial advantage and significant control over supply when compared to its competitors. Furthermore, the consumers of this metal are dependent on the company owing to its hold on the supply as a result of which it acquired a dominant position. 

The DG analysed the company’s behaviour from 2016 onwards and found that it had indulged in anti-competitive practices  such as discriminatory pricing and discriminatory supply of Sillimanite against domestic customers vis-à-vis foreign customers in contravention of the Competition Act, 2002. 

Why IREL ended up winning

In its arguments, IREL had contended that it was not an ‘enterprise’ under Section 2 (h) of the Competition Act, 2002, owing to it being affiliated with the DAE.

However, the CCI found that IREL is  Public Sector Undertaking designated as Miniratna Category-I. According to the order,

“The Commission observes that IREL, the erstwhile Indian Rare Earths Limited is a Public Sector Undertaking and an unlisted Public Company, was incorporated on August 18, 1950. It became a full-fledged Government of India Undertaking under the administrative control of Department of Atomic Energy in year 1963. It has its own Board of Directors for managing its overall affairs. Accordingly, the Commission is of the considered view that IREL is not a department of the Government.”

Rendering its conclusion on whether IREL holds a dominant position in the market, the CCI observed,

“The Commission notes from the DG report that IREL has sizeable assets and turnover vis-à-vis its competitors. Further, from its own submission, it is clear that the consumers of IREL have absorbed high price of Sillimanite, which indicates not only dependence of consumers on it but lack of countervailing buying power.”

It thus accepted DG’s conclusion  that IREL was indeed a dominant player in the market. 

To evaluate whether IREL abused this dominant position, the CCI looked at its behaviour from the perspective of Section 4(2)(a)(ii) of the Act, which  states that there would be an abuse of dominant position by an enterprise if it directly or indirectly imposes unfair or discriminatory price in purchase or sale of goods or services. 

The CCI noted that the price charged by KMML was much higher than IREL despite KMML being a much small player. The order said,

“The Commission also notes that allegation have been levelled in respect of higher quantities being offloaded to a particular company and its associates and also that the price charged is substantially lower vis-à-vis what is being charged from other customers. There seems to be no economic incentives for the OP, being in a dominant position, to indulge in such activities where it sold higher quantities at lower prices.”

The CCI noted that none of the customers who purchase Sillimanite from IREL have complained or raised grievances with respect to charging of excessive prices by IREL, and the DG has shown no evidence of any such complaints by customers.

"On the contrary, IREL’s vigilance department received a complaint that it was charging lower prices, causing losses to IREL," the order said.

Thus, it found that IREL had not abused its dominant position in the market. 

CCI rejected the allegations of discriminatory prices and discriminatory conditions imposed by IREL. It found that IREL had devised different methodology for sale of Sillimanite across different categories of customers based on availability of quantity, past relationship and duration of contract etc. Thus, the quantities were supplied to the parties in a categorised manner wherein, the company enters into long-term contracts and annual contracts based on its commercial wisdom.

Sultania was represented by Advocates Ankur Sood, Roshan Santhalia and Puja Jhankar.

IREL was represented by Senior Advocate Tarun Gulati along with Advocates Abhay Joshi, Ayushi Sharma, Kumar Sambhav and Bhaavi Agarwal.

[Read order]