Competition Commission Dismisses Abuse Of Dominance Complaint Against Indian Rare Earths India Limited

Submissions of Informant

The Informant mentioned that Sillimanite which is produced from beach sand, comes in two forms: Beach Sand Sillimanite and underground mined Sillimanite. Beach Sand Sillimanite is mainly used in furnaces and ceramics, while underground mined Sillimanite in India has too many impurities to be cost-effective.

According to the Informant, imported Andalusite is the closest replacement for Sillimanite in terms of quality, but it is more expensive, making it an ineffective substitute for Beach Sand Sillimanite.

Previously, both public and private enterprises could mine and supply Beach Sand Sillimanite. However, in 2016, Sillimanite was categorized as an atomic mineral by a Central Government Notification.

Subsequently, a 2019 notification from the Department of Atomic Energy (DAE) prohibited granting operating rights for atomic minerals in offshore areas to anyone except the Government or Government-controlled entities, making the Opposite Party (OP) the sole producer of Beach Sand Sillimanite in India.

The Informant alleged that OP has abused its dominant position in the market, by increasing the price of Sillimanite from Rs. 9000 per Metric Ton in 2016-17 to Rs. 14000 per Metric Ton in 2020-2021, practicing discriminatory pricing against Micro, Small & Medium Enterprises (MSMEs) in the domestic market while favouring multinationals and foreign parties, and arbitrarily fixing the supply quantities of Beach Sand Sillimanite and forcing customers to accept these quantities.

Therefore, being aggrieved, the Informant filed a complaint before the Commission, alleging that OP has violated its dominant position.

Contentions of Opposite Party

OP contended that it does not qualify as an "enterprise" under Section 2(h) of the Competition Act. It argued that its extraction of Sillimanite is secondary to its main role of extracting minerals crucial to the Government of India's (GOI) atomic energy program. OP emphasized that it sells non-strategic minerals like Sillimanite to maintain the necessary stockpile of strategic minerals for the GOI.

OP referred the Supreme Court judgment in Mansukhlal Dhanraj Jain vs. Eknath Vithal Ogale (1995), contending that the term “any activity relating to” in Section 2(h) should be interpreted broadly. It also cited the Commission's order in Case No. 19 of 2019, the Supreme Court judgment in Physical Research Laboratories vs. K.G. Sharma (1997), and the Delhi High Court's decision in UOI vs. CCI & Ors. (2016), to argue that its activities are sovereign functions, not commercial enterprises.

Analysis by Commission

The Commission observed that IREL is a PSU and an unlisted Public Company, incorporated on August 18, 1950. It became a GOI Undertaking under the DAE control in 1963 and has its own Board of Directors to manage its affairs. Thus, the Commission concluded that IREL is not a government department.

The Commission noted that IREL sells Sillimanite in the open market for monetary consideration. Based on that IREL does not qualify for an exemption from the provisions of Section 2(h) regarding the mining and sale of Sillimanite in India. Therefore, Commission concluded that IREL is an enterprise under Section 2(h).

Further, in order to determine whether OP has dominant position in relevant market “mining and sale of Beach Sand Sillimanite in India”, the commission referred the Director General investigation report. The Commission after prima facie finding the violation of section 4 had passed an order on 03.01.2022 and had directed Director General to investigate into the matter and submit a report.

As per the report submitted by Director General on 22.07.2022, it was found that that OP holds dominant position in the relevant market. The commission upheld the Director General's finding and held that OP holds dominant position.

Further, Commission found that the pricing of Sillimanite was influenced by market dynamics such as demand and supply rather than unfair practices. The price increases were justified by factors like bans on private players affecting supply. No customers complained about excessive prices, and the pricing decisions were complex, involving many factors.

Additionally, Commission found that any differences in prices were justified by commercial factors like long-standing relationships and volume offtake. The OP offered similar discounts and schemes to all customers based on volume, and any alleged discrimination did not result in a competitive disadvantage.

Further, The Commission found that the differences in supply conditions were based on valid commercial and historical reasons. The OP used different methodologies for disposal and sale of Sillimanite based on contracts, availability, and past relationships, which did not constitute discrimination under Competition Act.

Therefore, the Commission concluded that although the OP was dominant in the mining and sale of Beach Sand Sillimanite, there is no evidence of violation of dominant position. Therefore, Commission dismissed the complaint against OP.

Case – Kalpit Sultania Versus IREL (India) Ltd

Citation – Case No. 22 of 2021

Date of order – 08.10.2024