Sat. Sep 19th, 2020

Invocation of “Pay For If Not Taken” or “Annual Take or Pay” liability clause by GAIL is not abuse of its dominant position

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Competition Commission of India: The fair play watchdog has closed two cases against GAIL (India)
Ltd. for abuse of dominant position. The Commission received information from
the informant companies that GAIL imposed arbitrary and one-sided conditions on
its consumers through the Gas Supply Agreement (GSA).  It was alleged that by way of these conditions
GAIL is trying to force the Informants to purchase a specified quantity of
natural gas from it each year for a period of twenty years, failing which GAIL
is raising arbitrary demand for shortfall by way of off-take under the ‘Pay For
If Not Taken’ /‘take or pay’ clause introduced in the GSA.

The Commission
referring its own decisions in Faridabad Industries Association (FIA) v.
Adani Gas Limited  and Saint
Gobain Glass India Limited v.  Gujarat Gas Company Limited examined that
relevant product market of natural gas (a distinct and distinguishable source from
other sources of energy in terms of product’s characteristics) can be divided
into two relevant markets based on the nature of use by consumers i.e. domestic
consumers and industrial consumers. With respect to relevant geographical market,
the Commission opined that the Petroleum and Natural Gas Regulatory Board
(PNGRB) regulates the gas energy supply and distribution on City/State basis
and not India as whole.  Therefore, from
the point of view of plausibility of intake and supply of the natural gas a
city or region will the relevant geographical market. The Commission viewed
that the relevant market in the present case would be market for ‘supply and
distribution of natural gas (RLNG) to industrial consumers in Vadodara.’ In
this relevant market GAIL is enjoying dominant position.

The Commission considering the material on
record found that liability of the informants was substantially reduced by GAIL
when they showed inability to take supply of minimum prescribed gas, which shows
that the behaviour of GAIL was rational and not arbitrary. It observed that the
GSAs, when they were entered into appears to have been entered into after
thorough negotiations and discussions. The Commission ruled that safeguarding
commercial interest or invoking contractual clauses, which are not unfair per
se, cannot be termed as unfair just because they are invoked by one of
the parties to the contract.  [Gujarat Industries Power
Company Limited
v.  Gail
(India) Limited, decided on 08/09/2015]
Source: Legal news India

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