16 March, 2018
In an interesting development, the Supreme Court of India (Supreme Court) has overturned the Competition Appellate Tribunal’s (COMPAT) order and confirmed the Competition Commission of India’s (CCI) order confirming abuse of dominance by multi-system operators (MSOs).
The Supreme Court not only interpreted the provisions of section 4 of the Competition Act, 2002 (Competition Act) and differed with COMPAT’s understanding; but also delivered a judgment in a sector that is regulated by the Telecom Regulatory Authority of India (TRAI). The judgment, though not directly dealing with the issue, affirms the exclusive jurisdiction of the CCI to deal with anti-competitive conduct even in regulated sectors with special sectoral regulators. Most interestingly, in another case before the Supreme Court, the TRAI is contesting that it is the sole regulator in the telecom sector including competition law related issues and CCI has no jurisdiction.
Additionally, the judgment also advances the penalty jurisprudence in competition law cases by setting aside CCI’s imposition of penalties, due to certain mitigating factors despite upholding its conclusion of abuse of dominance.
Factual Background
The case in question concerns information filed by a broadcaster of a television channel against a group of MSOs (part of the same group) who carried the aforesaid channel to viewers of Cable TV.
Role of MSO
In the cable television market, the role of an MSO is to downlink the broadcasters’ signals, decrypt any encrypted channels and provide a bundled feed constituting of multiple channels to the last-mile cable operators (LCO). The LCO then re-transmits these signals to the subscribers in its area of operation through the cable network.
In the cable television market, MSO functions are regulated under the Telecommunication (Broadcasting and Cable Services) Interconnection Regulation 2004 (Broadcasting and Cable Interconnection Regulations) framed by the TRAI.
Proceedings Before the CCI and the COMPAT
When the MSOs unilaterally terminated the Channel Placement Agreement (CPA) with the broadcaster, the broadcaster (Kansan News Private Limited) approached the CCI alleging violation of the Competition Act.
The CCI found that the group of MSOs were inter-related and constituted a “group” in terms of the Competition Act. Additionally, the CCI found that the group occupied a dominant position in the relevant market for provision of cable TV services in Punjab and Chandigarh.
The MSOs raised various preliminary arguments. They contended that the broadcaster had suppressed the fact that it had already approached (without relief) the High Court of Punjab & Haryana and the Supreme Court alleging breach of contract by the MSOs. Additionally, it was pointed out that the broadcaster had also filed a case with the Telecom Disputes Settlement and Appellate Tribunal (TDSAT) challenging termination of the CPA.
Most importantly, the MSOs also challenged the jurisdiction of the CCI claiming that a dispute between a broadcaster and an MSO falls within the exclusive jurisdiction of the TDSAT.
On merits, the MSOs contended that their conduct was based on technical and commercial reasons and, thus, could not be considered an abuse of dominance.
Rejecting the contentions on merits, the CCI determined that the MSOs’ conduct amounted to denial of market access and a violation of section 4(2)(c) of the Competition Act. The CCI, thus, held that the MSOs were abusing their dominant position and imposed a penalty of INR 8,40,01,141 (INR 84 million) on the group of MSOs. It may be noted that the CCI, in its order, did not deal with the issue of ‘jurisdiction’.
Against the CCI order, the MSOs approached the COMPAT, whose functions have since been merged with the National Company Law Appellate Tribunal, reiterating their arguments on jurisdiction and merits.
The COMPAT set aside the CCI order on the premise that denial of market access (under section 4(2)(c) of the Competition Act) can be occasioned only by one competitor to another. The COMPAT reasoned that since the broadcaster and the MSOs were not competitors, there could not be denial of market access and, thus, set aside the CCI’s order and the penalty imposed thereby.
Subsequently, the CCI approached the Supreme Court challenging the COMPAT’s decision on the ground that abuse of dominant position as specified in the Competition Act is not dependent on the existence of, or effect on, competitors, but is based on the abuse that the enterprise may indulge in on the basis of its dominant position in the relevant market in any manner.
Arguments Before the Supreme Court
The CCI submitted that the COMPAT has construed the Competition Act in a constricted manner which is inconsistent with the positive role of the CCI under the statutory scheme.
On the other hand, the MSOs submitted that the TDSAT (in the dispute relating to termination of the CPA) has found the termination notice to be in breach of the Broadcasting and Cable Interconnection Regulations and has consequently set-aside the termination of the CPA. The MSOs also submitted that they have sufficient technical and commercial reasons to terminate the CPA, including:
- Use of an analogue platform, which limited the channel capacity to 80 channels (as against 550 now).
- The target rating point (TRP) of the broadcaster was lowest among news channels.
Based on the above, the MSOs contended that the termination of the CPA did not take place because of the dominant position and, therefore, no penalty should have been imposed.
The Supreme Court’s Decision
The Supreme Court partly agreed with both the CCI and the MSOs.
The Supreme Court took into consideration the Preamble of the Competition Act and its salient provisions to conclude that the CCI has been vested with a positive duty to eliminate all practices that have an adverse effect on competition.
Although the Supreme Court did not directly deal with the issue of jurisdiction, it specifically noted the non-obstante clause (section 60) in the Competition Act, which expressly states that the provisions of the Competition Act shall have an overriding effect notwithstanding anything inconsistent therewith contained in any other law.
In this context, the Supreme Court noted that the term denial of market access “in any manner” is of wide import and must be given its natural meaning. Accordingly, the Supreme Court noted that once the existence of a dominant position is proved, the question of whether the denial of market access is being done by a competitor or not is irrelevant. The only relevant factor, according to the Supreme Court, is the denial of market access due to unlawful termination of the CPA.
Thus, the Supreme Court agreed with the CCI and set aside the COMPAT’s decision in this regard.
However, the Supreme Court also noted that no penalty ought to have been imposed on the facts of the present case. The Supreme Court noted that the CCI had rejected the MSOs’ justification that the TRP ratings of the informant’s news channel was lowest among the news channels holding that the same was factually inaccurate. The Supreme Court found that the said justification was factually correct and, thus, the reason provided for termination of the CPA was otherwise justifiable.
Key Takeaways
The above decision affirms the Supreme Court’s intent on ensuring a balanced approach to competition law enforcement, which suitably reconciles the positive duty of the CCI to protect competition and the need of the industry for fair implementation.
Additionally, by taking note of the TDSAT proceedings regarding the termination of the CPA and the non-obstante clause (section 60) in the Competition Act, the Supreme Court seems to have implicitly recognised that the CCI’s jurisdiction to protect competition under the Competition Act can co-exist with that of sectoral regulators or other authorities (even if the underlying facts are the same). The judgment may have an impact on other cases, pending before the courts, on the issue of ‘jurisdiction’ (especially where the sectoral regulators have been contending exclusive jurisdiction on competition law related issues).
The decision to set aside the penalty based on the reasons provided by the MSOs is also in line with the decision by the Supreme Court in Excel Crop Care Ltd. v. CCI, (2017) 8 SCC 47. In the said case, the Supreme Court (in the concurring opinion of Hon’ble Mr. N.V. Ramana, J) had specifically listed various potential mitigating factors including the nature, gravity and extent of the contravention and market circumstances in which the contravention took place, which may be taken into consideration to determine the appropriate penalty.
However, one aspect which the Supreme Court may have elaborated on further is the concept of the objective justification. As per the concept of ‘objective justification’, if a conduct alleged to be abusive is objectively justified, then the same cannot be considered abusive and, thus, anti-competitive.
In the present case, given that the broadcaster’s news channel did in fact have the lowest TRP ratings, no reasons have been given to suggest why the same was considered merely as a mitigating factor not to impose penalties rather than an objective justification, which justified the conduct under examination.
However, with various other abuse of dominance cases pending before the Supreme Court, perhaps the Supreme Court will use them as an opportunity to render further nuance to its views.
* The author was assisted by Anu Monga, Director – Competition Practice
For further information, please contact:
Rahul Goel, Partner, Cyril Amarchand Mangaldas
rahul.goel@cyrilshroff.com
