SBI acting as per remedies available under SARFAESI cannot be termed as dominant entity

RH Agro Private Limited vs. State Bank of India and Ors
Competition Commission of India
Dated 14.05.2020

CCI OBSERVES THAT

A bank acting as per the remedies available to it under the SARFAESI Act for recovery cannot be termed as a dominant entity when it acts in accordance with provision thereof as it is acting in recovery of its funds/money in order to mitigate losses in such transaction (where account has been declared NPA).

Regulatory Provisions relating to the Case

SECTION 3 IN THE COMPETITION ACT, 2002

Anti-competitive agreements

(1) No enterprise or association of enterprises or person or association of persons shall enter into any agreement in respect of production, supply, distribution, storage, acquisition or control of goods or provision of services, which causes or is likely to cause an appreciable adverse effect on competition within India.

(2) Any agreement entered into in contravention of the provisions contained in sub-section (1) shall be void.

(3) Any agreement entered into between enterprises or associations of enterprises or persons or associations of persons or between any person and enterprise or practice carried on, or decision taken by, any association of enterprises or association of persons, including cartels, engaged in identical or similar trade of goods or provision of services, which—

(a) directly or indirectly determines purchase or sale prices;

(b) limits or controls production, supply, markets, technical development, investment or provision of services;

(c) shares the market or source of production or provision of services by way of allocation of geographical area of market, or type of goods or services, or number of customers in the market or any other similar way;

(d) directly or indirectly results in bid rigging or collusive bidding, shall be presumed to have an appreciable adverse effect on competition: Provided that nothing contained in this sub-section shall apply to any agreement entered into by way of joint ventures if such agreement increases efficiency in production, supply, distribution, storage, acquisition or control of goods or provision of services.

Explanation.—For the purposes of this sub-section, "bid rigging" means any agreement, between enterprises or persons referred to in sub-section (3) engaged in identical or similar production or trading of goods or provision of services, which has the effect of eliminating or reducing competition for bids or adversely affecting or manipulating the process for bidding.

(4) Any agreement amongst enterprises or persons at different stages or levels of the production chain in different markets, in respect of production, supply, distribution, storage, sale or price of, or trade in goods or provision of services, including—

(a) tie-in arrangement;

(b) exclusive supply agreement;

(c) exclusive distribution agreement;

(d) refusal to deal;

(e) resale price maintenance, shall be an agreement in contravention of sub-section (1) if such agreement causes or is likely to cause an appreciable adverse effect on competition in India.

Explanation.—For the purposes of this sub-section,—

(a) "tie-in arrangements" includes any agreement requiring a purchaser of goods, as a condition of such purchase, to purchase some other goods;

(b) "exclusive supply agreement" includes any agreement restricting in any manner the purchaser in the course of his trade from acquiring or otherwise dealing in any goods other than those of the seller or any other person;

(c) "exclusive distribution agreement" includes any agreement to limit, restrict or withhold the output or supply of any goods or allocate any area or market for the disposal or sale of the goods;

(d) "refusal to deal" includes any agreement which restricts, or is likely to restrict, by any method the persons or classes of persons to whom goods are sold or from whom goods are bought;

(e) "resale price maintenance" includes any agreement to sell goods on condition that the prices to be charged on the resale by the purchaser shall be the prices stipulated by the seller unless it is clearly stated that prices lower than those prices may be charged.

(5) Nothing contained in this section shall restrict—

(i) the right of any person to restrain any infringement of, or to impose reasonable conditions, as may be necessary for protecting any of his rights which have been or may be conferred upon him under:

(a) the Copyright Act, 1957 (14 of 1957);

(b) the Patents Act, 1970 (39 of 1970);

(c) the Trade and Merchandise Marks Act, 1958 (43 of 1958) or the Trade Marks Act, 1999 (47 of 1999);

(d) the Geographical Indications of Goods (Registration and Protection) Act, 1999 (48 of 1999);

(e) the Designs Act, 2000 (16 of 2000);

(f) the Semi-conductor Integrated Circuits Layout-Design Act, 2000 (37 of 2000);

(ii) the right of any person to export goods from India to the extent to which the agreement relates exclusively to the production, supply, distribution or control of goods or provision of services for such export.

SECTION 4 OF THE COMPETITION ACT, 2002

Abuse of dominant position

(1) No enterprise shall abuse its dominant position.

(2) There shall be an abuse of dominant position under sub-section (1), if an enterprise,—

(a) directly or indirectly, imposes unfair or discriminatory—

(i) condition in purchase or sale of goods or services; or

(ii) price in purchase or sale (including predatory price) of goods or service; or

 Explanation.—For the purposes of this clause, the unfair or discriminatory condition in purchase or sale of goods or services referred to in sub-clause (i) and unfair or discriminatory price in purchase or sale of goods (including predatory price) or service referred to in sub-clause (ii) shall not include such discriminatory conditions or prices which may be adopted to meet the competition; or

(b) limits or restricts—

(i) production of goods or provision of services or market therefor; or

(ii) technical or scientific development relating to goods or services to the prejudice of consumers; or

(c) indulges in practice or practices resulting in denial of market access; or

(d) makes conclusion of contracts subject to acceptance by other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts; or

(e) uses its dominant position in one relevant market to enter into, or protect, other relevant market.

Explanation .For the purposes of this section, the expression

(a) "dominant position" means a position of strength, enjoyed by an enterprise, in the relevant market, in India, which enables it to—

(i) operate independently of competitive forces prevailing in the relevant market; or

(ii) affect its competitors or consumers or the relevant market in its favour;

(b) "predatory price" means the sale of goods or provision of services, at a price which is below the cost, as may be determined by regulations, of production of the goods or provision of services, with a view to reduce competition or eliminate the competitors.

SECTION 19(1) OF THE ACT,2002

(1) The Commission may inquire into any alleged contravention of the provisions contained in sub-section (1) of section 3 or sub-section (1) of section 4 either on its own motion or on—

(a) receipt of a complaint, accompanied by such fee as may be determined by regulations, from any person, consumer or their association or trade association; or

(b) a reference made to it by the Central Government or a State Government or a statutory authority.

BRIEF FACTS

The present information has been filed by M/s. R.H. Agro Overseas Pvt. Ltd. ('Informant') through its authorized director under Section 19(1)(a) of the Competition Act, 2002 ('Act') against State Bank of India ('SBI' 'OP- 1'),M/s. Patanjali Ayurveda ('Patanjali'/'OP-2'), M/s. International Trader ('International Trader'/'OP-3') alleging contravention of the provisions of Section 3 and 4 of the Act.

Collusive Arrangement

An Information was filed alleging that the State Bank of India ('SBI'), M/s Patanjali Ayurveda Group and international Traders had entered into a collusive arrangement under Section 3 of the Act, in respect of thee-auction conducted by SBI, to recover the outstanding dues from the Informant.

Abuse of dominance

An allegation was also made that SBI and its officials were abusing their dominant position under Section 4 ofthe Act. As regards allegations under Section 3 of the Act, any agreement/ understanding/practice betweenbusinesses is scrutinized in respect of entities 'engaged in identical or similar trade of goods or provision ofservices'.

DECISION OF CCI

In this case, SBI, together with Patanjali Ayurveda (bidder) & M/s International Traders (bidder) could not besaid to be similarly placed or involved in the same line of business or horizontally placed so as to fall withinSection 3(3) of the Act.

Even otherwise, the conduct of a secured creditor in effecting sale of an asset secured to it, through an auctionprocess could not be examined under the provision of Section 3(3)(d) of the Act.

Regarding the allegation ofviolation of Section 4 of the Competition Act, 2002, the CCI observed that a bank acting under the provisions ofthe SARFAESI Act ('Securitisation and Reconstruction of Financial Assets and Enforcement of Securities InterestAct, 2002') attempting to recover the outstanding amount in the event of default by the borrower/ guarantorcould not be termed as a dominant entity. It is also noted that auction of primary security by a secureddebtor for realization of funds cannot be said to be a transaction done in ordinary course of business.

The sale of security of an account declared NPA is a remedy available to a secured creditor under theprovisions of SARFAESI Act.

The Commission observed further that a bank acting as per the remedies available under the SARFAESI Act forrecovery could not be termed as a dominant entity when it acts in accordance with provision thereof as it isacting in recovery of its funds/money in order to mitigate losses in such transaction (where account has beendeclared NPA).

Accordingly, on 14.05.2020, the Commission found no prima facie case as an auction/transaction initiated bya bank/ financial institutions as a secured creditor for the purpose of recovery in terms of provisions of theSARFAESI Act would not amount to violation of the provisions of the Competition Act, 2002.

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