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Vertical Restraints under the Indian Competition Act: A lookback at the CCI’s order in the Parle and Britannia cases

Neelanjana Ghosh


On 16 June 2022 and 7 July 2022, the Competition Commission of India (‘CCI’) passed two orders adjudicating allegations against two large biscuit manufacturing companies, Britannia Industries Limited and Parle Products Pvt. Ltd, respectively. Both were filed by a single informant party, i.e. Hiveloop Technology Private Limited (“UDAAN”). The Informant had alleged that the two biscuit manufacturing companies – Britannia on the 16th of June order and Parle on the 7th July order - had abused their dominant position under Section 4 of the Indian Competition Act, 2002 (‘Act’) by vertically restraining the informant party, UDAAN, particularly refusing to deal as prescribed under section 3(4)(d) of the Act. The orders, however, held that there was no vertical restraint imposed by the two manufacturers on the informant party.

This blog shall analyze the stance taken by the CCI and how it adds to the jurisprudence of cases under section 4 r/w Section 3(4) (vertical restraints) in the Indian competition regime.

Brief facts

In the Britannia case, the Informant (UDAAN) was stated to be a network-centric Business-to-Business (‘B2B’) trade platform/marketplace engaged in buying, selling, and trading in different product categories. The Informant has alleged that fast-moving Stock Keeping Units (SKUs) of Britannia were provided in a very restricted manner to the Informant putting it at a competitive disadvantage.

In the Parle case, the same Informant claimed to be the largest B2B platform leveraging the use of technology and bringing innovation and efficiencies to the digital market. The Informant provides credit through the Udaan credit system, which facilitates smooth working of the operations on its platform. The Informant has alleged that fast-moving SKUs of Parle were provided in a very restricted manner to the Informant putting it at a competitive disadvantage. Additionally, stating that it had no option but to procure products from Parle's existing distributors in the open market (secondary market) or risk the chance of losing out to its retailers. It is stated that this was in stark contrast to Parle’s arrangement with its other distributors who were competing with UDAAN. UDAAN claimed that the refusal to deal with Parle has the effect of creating and strengthening barriers in the market for distribution of its goods, thereby softening intra-brand competition.

Definition of 'relevant market'

In the Britannia order, UDAAN had suggested that the relevant market be narrowly defined as the ‘market for mid- premium segment biscuits in India’. However, the CCI, while siding with the Opposite party, defined the market in a broader sense as ‘market for biscuits in India’. The CCI noted that a narrow product market merely based on the popularity of a few sub-brands would not be appropriate in the given facts of the case. The CCI based the same by relying on its previous decision made in the case of In Re: Tamil Nadu Consumer Product Distributor Association and Britannia Industries Ltd, wherein the regulator observed that Britannia manufactured and supplied multiple other products, including biscuits - mainly dairy. However, dairy products could be largely distinguished from that of biscuits in terms of their taste, price, shelf life etc. Accordingly, in the referred case, it was held that a separate market for biscuits should be constituted, and whole conditions of competition are homogenous across India, as for relevant geographic markets. Based on the above precedent, the CCI defined the relevant market as the ‘market for biscuits in India’.

In the Parle order, UDAAN, delineated the relevant market to be the ‘market for glucose biscuits in India’, claiming Parle G to be a ‘legacy brand’. The CCI, not departing from its previous decision in the Britannia order, has reiterated that the market for biscuits cannot be narrowed down and has upheld the definition to be ‘market for biscuits in India’.

Vertical restraints and Abuse of Dominance

In Britannia order:

The CCI observed that there is not even a shred of evidence between Britannia and its other distributors to portray the discriminatory behaviour of the company as alleged by the Informant,. While noting that non-dealing of Britannia with UDAAN would not have an Appreciable Adverse Effect on Competition (‘AAEC’), the CCI held that such non-dealing would not foreclose the market, as none of the other Britannia’s 3000 distributors have raised such allegations and exited the market. The order held that Britannia’s non-dealing would fall under the purview of its right to conduct business autonomously and that there exists no positive right for Britannia to do business with UDAAN. An upstream entity like Britannia shall have the autonomy to choose its downstream players and cannot be forced into undertaking a business transaction with a person or an entity. The order noted that the B2B segment has been witnessing an entry of multiple players, including foreign players, over the years, which indicated that there had been a free flow of players with no existing entry barriers. Additionally, UDAAN has a multi-product segment that could not possibly be dependent on Britannia’s products for its business to continue, much like other B2B segments like Flipkart Wholesale and Amazon Business. Hence, it does not portray any prima facie case of market foreclosure or entry barriers leading to AAEC.

With respect to section 4 arguments, the CCI observed no abuse on part of Britannia as the informant failed to provide adequate evidence for such an allegation. Hence, collectively holding that there existed no prima facie case under Section 3(4) and Section 4.

In Parle order:

The CCI took a similar stance similar to the Britannia case holding that Parle had no obligation to deal with UDAAN as a distributor and was of the view that “free exercise of right of manufacturer may only be limited to the extent of making competition prevail in the market”. In this case, the CCI placed heavy reliance on the Britannia order and drew a similar conclusion that the presence of other B2B downstream players which ensured the market to be competitive with no entry barriers was sufficient enough to prove that there was no prima facie case of entry barrier. Similarly, the upstream market that Parle G competed in also noticed multiple players over the last few years, including foreign entrants, validating the no entry barrier argument in the upstream market. Hence, CCI held that Parle G has not prima facie contravened Sections 3(4) and Section 4 of the Act.

Authors Opinion

Vertical agreements will only be considered anti-competitive if their implementation causes or is likely to cause an AAEC in India. As long as a vertical agreement does not lead to an AAEC, it is a legitimate agreement. The object and purpose of the same can be derived from the case of Akhil R. Bhansali v. Skoda Auto India Pvt. Ltd., wherein it was noted that the Competition Act attempts to limit vertical constraints that cause or are likely to induce an AAEC in India with the wider purpose of stimulating and preserving market competition.

The CCI evaluates such agreements on a case-by-case basis, considering several elements, such as the entity's market share. In addition, the commission considers the length of the agreements as well as any economic rationale or consequences on the competition. Similarly, in the present cases, the CCI, after thoroughly perusing through all the evidence, has noted that allegations made by UDAAN on Britannia and Parle vertically restraining it by refusing to deal with it could not adequately prove the existence of AAEC. Assessing multiple facts as provided by the opposite parties, the CCI upheld their right of business which also included the right of refusal to downstream players with a stance that the CCI couldn't substitute its regulatory wisdom for commercial wisdom of the business unless it posed an AAEC.

The author is of the opinion that there exists a thin line between the autonomy of a business and refusal to deal. In the case of vertical agreements, there needs to be amplification of negative factors as mentioned in section 19(3) of the Act. These orders are enough proof for future cases that thorough disclosure of facts is imperative in the information filing, rejoinders etc, and any non-compliance shall be frowned upon by the CCI. In both the orders, the CCI has shown its displeasure at the parties' selectively disclosed facts, which in the author's opinion, builds a negative reputation for both parties. Another takeaway from the case can be the understanding of commercial autonomy of players in a market, irrespective of being in the upstream or downstream market; the same has to be analyzed whilst identifying if an act of the players amounts to be anti- competitive or not.

Other ancillary concerns in the orders are the question of locus standi that Britannia introduced in its objections and the doctrine of ‘single economic entity’. Britannia pointed out that UDAAN was creating an impression of undertaking B2B distribution of Britannia’s goods to ensure supply to its exclusive seller of Britannia’s products, GRANARY. The CCI reiterated the Supreme Court judgment of Samir Agarwal vs CCI & Ors and rejected Britannia’s objection that any person, related or not could be an informant in a competition matter and the locus standi of the same could not be doubted. In addition to this, the author took note of the fact that UDAAN/GRANARY was declared in the Britannia order to be considered as a ‘single economic entity’, upholding the long-standing Doctrine of single economic entity.

With the exponential growth of e-commerce in every market in India, the CCI has expedited its scrutiny of multiple giants in every market which is a welcome move. It also must be noted that not all information filed before the CCI shall ensure the existence of an anti-competitive effect. As discussed before in this analysis, the mere allegations in this case with no evidentiary backing caused the CCI to side with the opposite parties on declaring that there was no case of contravention with competition laws. These orders shall be significant in propagating what commercial autonomy entails and how the players have a right to business in light of which certain acts of players shall not attract provisions of competition laws.