Dismissed
Mrtp Case No. 1/28, M/s Royal Energy Ltd. v. M/s Indian Oil Corporation Ltd. & Ors.
CCIMRTP Case No. 1/28
What the court decided
AI extract
Outcome
Dismissed
This page shows the compact analysis of this judgement. The full analysis — procedural history, issue-by-issue holdings with ratio and obiter, advocates, and paragraph-level evidence for every claim — is being added to the record in batches and will appear here when this judgement has been through it.
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BEFORE THE
COMPETITION COMMISSION OF INDIA
MTP Ce N. 1/23 (C-97/2009/3IR)
Date of decision: -09.05.2012
1. M/s Royal Energy Ltd.
1. M/s Indian Oil Corporation Ltd.
2. M/s Bharat Petroleum Corporation Ltd.
3. M/s Hindustan Petroleum Corporation Ltd.
Order u/s 26(6) of the Competition Act, 2002
The present matter relates to information dated 11.05.2009 filed by M/s Royal Energy Ltd. (the informant) before the office of Directorate General of Investigation and Registration (DGI&R), Monopolies and Restrictive Trade Practices Commission (MRTPC) against M/s Indian Oil Corporation Ltd.(IOCL), M/s Bharat Petroleum Corporation Ltd. (BPCL) and M/-fIindustit-'?etroIeum Corporation Ltd.(HPCL) alleging unfair and moropoIistirdé prcices breach of the erstwhile Monopolies and Restrict.. rade Pctices Att, 1969j (MRTP Act). Yj
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2. Facts and Allegations of the Case in Brief
vide its order dated 20.05.2011 directed the to
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6.4 It is stated that bio-diesel committee constituted by Secretary, MoPNG which had representatives from the Government, bio-diesel manufacturers and the oil companies, had indicated that OMCs could offer a price of Rs. 26 per Litre based on ex-storage point of HSD on July 2, 2009, whereas the BioDiesel manufacturers desired a rate of Rs. 34 per litre. It has also been brought out that the Ministry had no intention to subsidize the bio-diesel for its blending programme and the under recoveries , flëWCs could t•c not be shared by the Government. With effect fr the procurement price was revised to Rs.33 per litre. * *
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6.6 It has also been submitted by the OMCs that it is commercially not viable to procure bio-diesel B100 for the purpose of blending above the notified rates. Since the retail diesel prices continue to remain uniform for all PSU OMCs, as directed by Govt. of India, there is no other way of arriving at the purchase price of the bio-diesel other than as per the methodology announced by MoPNG in para 4.2 (vi) of the Blo-Diesel Purchase Policy. The retail selling price of diesel and the purchase price of bio-diesel are not linked to the their actual cost of procurement and cost of its manufacturing and in case the purchase price of bio-diesel is fixed b the cost of manufacture, this would result in varying purchas nt manufacturers of bio-diesel, a situation which can sustairid. Io o t * 0 ;
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6 7 In its reply, Ministry of Petroleum & Natural Gas (MoPNG) has stated that the OMCs periodically revised the price of bio diesel B:100 in terms of the b63 purchase- policy QtQ9.10QQ, whenever the price of diesel (l-ISD) was revised The purchase price declared by'the OMCs for bio-diesel B:1-GO was linked to the ex-storage-point.-price of HSD and accordingly revised with the revision in the prices of HSD The retail price of diesel was not market determined and was dependent on periodical directives of government. In view of this, it was not possible for OMCs to offer different prices for biodiesel to the different manufacturers. It is also stated that it was not possible for the OMCs to offer price higher than the Minimum Purchase Price (MPP) for biodiesel as decided by the National Bio-fuels Coordination Committee. The reply of Ministry of New and Renewable Energy (MNRE) before the DG was on similar lines as of MoPNG and PSU OMCs.
6.8 In its reply, Bureau of Indian Standards, has stated that as per IS 1460 clause 3.1.2, bio-diesel upto 5% (v/v) might be blended with automotive diesel fuel. Ministry of Petroleum in light of Motor Spirit and High Speed Diesel (Regulation of Supply and Distribution and Prevention of Malpractices) order, 1998 had made it mandatory to comply with Indian Standards on diesel and petrol. Therefore, more tha, Lgbiodiesel cannot be blended with diesel as it would not t) 'tit'ma?tdatory standard.
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6.9 The informant in its replies before DG had submitted that it had not sold any quantity of biodiesel to the OMCs as they have offered a very low rate not: w n, enough,.tQ_:)ujrc.hasg1 the raw material for bio-diesel. It was not viable to sell bio-diesel to OMCs as the cost of production of bio-diesel' Was mote than the price at which_ thebo-diesel was sought to be procured by OMCs. The informant had also drawn attention to the fact that it had filed a writ petition W.(L) No. 1286/1671 of 2009 before the High Court of Bombay against letter/ circular dated 22;04.2009 of MoPNG addressed to all the Chief Secretaries/Administrators of all the States/Union Territories, which required them to curb illegal marketing of bio-diesel for use as transportation fuel on the basis of Motor Spirit and High Speed Diesel (Regulation of Supply, Distribution and Prevention of Malpractices) Order, 2005,under the Essential Commodities Act, 1955 to control the unauthorized trade of Motor Spirit and High Speed Diesel in the country. According to the informant, the Hon'ble High Court had restrained all concerned parties from taking further action till the final decision.
6.10 The Biodiesel Association of India in its reply had inter alia submitted that there were thirteen commercial biodiesel manufacturers in India. The association had also stated that not a single litre of bio-diesel B100 was sold to the OMCs as per their purchase policy of Rs. 25/- per litre, since 2006. It is submitted that the price of Rs. 26.50/- per I tce-BIOO..offered \ by OMCs was no all viable for production sin of 9., feedstock of vegecbie oil derivatives, the cost of p ictic.nç biiseI I I '''
comes to Rs 49/- per litre at a minimum and even at a conservative minimum gross margin of 10%, the selling price would come to Rs. 54/periitre.
611 Siod-sel MEnLf es like Emmi Biotech Ltd and Universal Diesel also submitted that they could not sell even a single litre of biodiesel so far to the OMCs since it was not viable for them to sell blo-diesel to the OMCs at the offered rate as their cost of production was much higher than the price offered by OMCs.
6.12 Based upon replies received from various parties, DG reported that almost every facet of the bio-diesel industry was governed in the country by various policy decisions of the government. On the issue of the methodology to arrive at the purchase price of bio-diesel, it has been observed that OMCs adopted fundamentally the same pricing formulation as was adopted by the M0PNG and they did not take into account the cost of production of blo-diesel to the manufacturers. According to DG, it was therefore evident that the OMCs were not free in determining the prices of bio-diesel as the prices were essentially to be fixed on the basis of guidelines and policies of the government of India.
6.13 DG further submitted that mandate for the OMCs was to purchase BIS Certified bio-diesel only for blending with HSD to the extent of 5% (IS: 1460). Therefore, the pricing of B: 100 for purchase
selling price of HSD. The price of HSD was controIlec'byth' Goveinr.flnt of India and OMCs are not allowed to increase the tethiI &elling prjc4of
HSD on their own As a result, the OMCs were adopting a practice of making a backward calculation to arrive at the price which can be paid for procuring biodies& in ew of the end sale prices being fixed. The offered purchase price by OMCs, therefore, did not even factor the cost of production of b;o dcesei
6.14 DG also submitted that the OMCs were not in a position to offer higher prices for bio-diesel as they were not permitted to sell blended diesel at market determined rates since the government determines the retail selling price of diesel, which itself is not market determined.
6.15 According to DG, mere fact of fixation of uniform prices does not amount to the formation of cartel within the meaning of sub-section (3) of section 3 of the Competition Act, 2002. DG has stated that cartelization can occur only in a context where two or more parties acting independently strive to secure business for earning profits or reducing their losses. No such conduct of anti-competitiveness has been found to exist in the uniform fixation of price of bio-diesel by the OMCs.
6.16 DG also submitted that neither the conduct nor the intent of the OMCs was market oriented. Each of the OMC being an independent legal entity has distinct shareholding pattern. There is neither a concept of collective dominance in the Act nor it can be said that coi OJLas exercising 'control' over the other OMCs as part ojroup 'whittt\e meaning of Explanations (a) & (b) to section 5 s suc,the)e
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was no evidence to - suggest that there was a violation of section 4 (1) of the Act by the OMCs acting together. The bio-diesel pricing could not also said to b onaccc' of abuse of dominant position by the oiimarketing .. companies since The decision to procure bio-diesel at uniform purchase' price was acoiIecive-decionof theoirnnarketing companes but- flowed-l from the various policy decisions of the Government.
6.17 DG concluded that there was no evidence to suggest existence of an anti-competitive agreement between PSU OMCs in violation to section 3 of the Act. Similarly, PSU OMCs were not found to be in contravention of section 4 of the Act.
6.18 A copy of report of DG received by the Commission was forwarded to the Informant for filing objections, if any. The Informant in its reply dated 29.02.2012 had not given specific comments on the findings of DG. The informant submitted that it only wished to state that the oil companies were not providing a clear and transparent picture of biodiesel industry in the country. The informant also requested that the Ministry appointed to promote green energy/fuel should do something so that blo-diesel should be sold at least at the prevailing diesel rate less the biending and logistics cost.
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informant and all other relevant materials and evidces available
cord in light of various provisions of the Act �IN i
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7.5 The Commission observed that the purchase price declared by the PSU OMCs for bio-diesel (13:100) was linked to the ex-storage point price of petro-diesel and accordingly revised as and when there was a revision in the price of the latter. This system of fixing retail price of diesel was not market based and revision of such prices was also dependent upon the periodical directives from the government. Since the price of diesel was under the control of the Government, PSU OMCs were not allowed to fix, determine and enhance the retail selling price of diesel on their own, Consequently, for procurement of blo-diesel the OMCs had to make a backward calculation to arrive at the maximum price which could be paid to bio-diesel manufacturers.
7.6 The Commission further observed that for the reasons stated in preceding paras, the procurement price of bio-diesel ofpidi3 OM does not factor the cost of its production by the bio-diesfufactrsi\ Since the price of the bio-diesel fixed by the OMCs was\i,l below.ev.en I
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the production cost, therefore the bio-diesel manufacturers did not flñdit viable to sell the same to OMCs. Due to this reason, they had not sold een ang1eJiof: biodiseLto ar fthethree P511 OiL.M.arkeng. Companies to blend i t with petrb-disel.
7.7 The Commission also noted that in exercise of powers conferred by section 3 of Essential Commodities Act, 1955, the MoPNG had issued the Motor Spirit and High Speed Diesel (Regulation of Supply, Distribution and Prevention of Malpractices) Order, 2005 (control order) dated 19th December 2005 which extended to the whole of India. Clause 3(5) and clause 4 of the Order stipulated as under;
Clause 3(5) - " No person shall sell or agree to sell any petroleum product or its mixture other than motor spirit or high speed diesel or any other fuel authorised by the Central Government in any form, under any name, brand or nomenclature which can be and is meant to be used as fuel in any type of automobile vehicles fitted with spark ignition engines or compression ignition engines."
Clause 4 - No person, other than those authorised by the Central Government, shall market and sell motor spirit or high speed diesel to consumers or dealers."
7.8 Bio-diesel (B:100) is meant to be a blend stock for diesel and is covered under Motor Spirit and High Speed Diesel (Regulation of Supply, Distribution and Prevention of Malpractices) Order,,.2005,MPNG, 7 W, I. exercising its authority under the Essential Commodit1esAct,1955 and \in accordance with delegation of business rules, isued letters da))d
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05.03.2009 and 22.04.2009 to prohibit unauthorized sale of bio-diesel. These letter wereI * sie 4Ofl t sis oaetdep '1 dustan Petroleum Corporation Limited (HPCL) as a State Level coordinator of Andhra Pradesh in respect of usage of B 100 ast asportaton fuel by. privtP parties thereby violating the provisions of Motor Spirit and High Speed Diesel (Regulation of Supply, Distribution and Prevention of Malpractices) Order, 2005.
7.9 The Commission noted that as per Motor Spirit and High Speed Diesel (Regulation of Supply, Distribution and Prevention of Malpractices) Order, 2005, all authorized OMCs including private OMCs were authorized to market HSD IS 1460 which included B5 i.e. 5% blo-diesel blended with HSD. Although there was no price restriction on the private sector OMCs for purchasing B100 to be blended with HSD and sold as B5 (HSD blended with 5% blo-diesel) as per blended with HSD and sold as B5 (HSD blended with 5% bio-diesel) as per BIS specifications but due to subsidized HSD sale no private OMC could be expected to purchase blodiesel at higher price and sell it at a subsidized price, footing the subsidy at their cost. The prohibition on sale in the open market other than to OMCs had reportedly been imposed on account of various concerns mainly of adulteration of diesel being marketed by OMCs.
7.10 In the backdrop of these facts, the Commission observes that even if an anti competitive conduct flows from any policy of the Government, the Commission will still have jurisdiction to examine the impugned conduct ny violation is found, suitable orders can be passed under Secti
Act. The Competition Act, 2002 has not been made any exe
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However, the Commission finds that in the facts and circumstances of the present matter, the OMCs cannot be fo?Céd to7 tut;V bio-dres& t d 'c which s higher
7.11 There is no case of contravention of provisions of Section 4 also as PSU OMCs cannot be said to be dominant jointly as concept of collective dominance is not envisaged under the provisions of Section 4 and since each OMCs is an independent, legal entity and no company can be said to be exercising control over other PSU OMCs, they are not part of the group within the meaning of Section 5 of the Act.
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9 Socie&V t dtrccted to nkrmpErte& 1S Der relevant reuBtiOflS
Sd!- Sd!-
Member (GG) Member (G)
Sd!- Sd!-
Member (AG) Member (T)
Member (D)
Sd!-
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Chairperson /
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2 provisions across 1 enactments
M/s Royal Energy Ltd.
M/s Indian Oil Corporation Ltd.
M/s Bharat Petroleum Corporation Ltd.
M/s Hindustan Petroleum Corporation Ltd.
V.K. Agarwal
Arun Agrawal
Shelly Chaudhry
As recorded by the court registry
2 orders share this CNR
Judgements on the same questions, provisions and authorities, from every court