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Competition Commission Of India Dismisses ‘Refusal To Deal’ Allegations Against Britannia And Parle – Antitrust, EU Competition



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1. BACKGROUND

1.1. On June 16, 2022, and July 06, 2022, respectively, the
Competition Commission of India (“CCI“)
dismissed separate allegations of refusal to deal against Britannia
Industries Limited (“Britannia“) and
Parle Products Private Limited (“Parle“)
(Britannia and Parle are collectively referred to hereinafter as
Companies“), in the market for biscuits
in India.1 The allegations against the Companies were
made by Hiveloop Technology Private Limited
(“Complainant“), who operates a
business-to-business (“B2B“) trade
platform/marketplace under the brand name ‘Udaan’, for sale
and purchase of fast moving consumer goods
(“FMCG“), electronics, pharmaceuticals,
lifestyle, home, and kitchen appliances, fruits and vegetables,
etc., between manufacturers, wholesalers, retailers and
distributors under a single platform.

2. ALLEGATIONS BY THE COMPLAINANT

2.1. The Complainant submitted that one of the core functions of
Udaan, as a B2B intermediary, is listing
manufacturers/wholesalers/distributors on its platform to meet the
demand of the retailers on the other side of the platform.
Accordingly, in order to establish itself, it must list the
majority of the brands in all categories, especially the brands of
leading manufacturers. As such, the Companies are the leading
biscuit manufacturers in India and certain products of the
Companies drive significant demand for biscuits in India.

2.2. Given the brand loyalty commanded by Britannia’s brands
such as, ‘Good Day’ and ‘Marie Gold’ and
Parle’s brand ‘Parle-G’ (Good Day, Marie Gold, and
Parle G are collectively referred to hereinafter as
Relevant Products“), the Complainant
submitted that they are a ‘must-stock’ product for the
retailers and distributors and thus, warrant delineation of a
narrower product market. Accordingly, the Complainant delineated
the relevant markets as: (i) ‘market for mid-premium
segment biscuits in India’
and (ii) ‘market for
glucose biscuits in India’
in relation to Britannia and
Parle, respectively. As such, the Complainant submitted that in
their respective markets, the Companies possess market power owing
to their high market share (i.e., more than 25%)2 and
high demand for the Relevant Products.

2.3. The Complainant alleged that even after making numerous
attempts to procure the Relevant Products, the Companies refused to
deal with the Complainant at all or on discriminatory terms
vis-à-vis the Companies’ existing distributors. As such,
the Complainant was forced to procure these Relevant Products from
the open market, which increased its input costs and the final
costs to the retailers, thus placing the Complainant at a
significant competitive disadvantage vis-à-vis the other
distributors of the Companies. Thus, the Companies’ conduct
impacted the Complainant’s trade margins leading to
significantly low profit margins for retailers.

2.4. While the allegations against the Companies were broadly
similar, the key difference between the two allegations were: (i)
the nature of the Complainant’s relationship with the
Companies; and (ii) the Companies’ conduct with the
Complainant. While Britannia had a short-term business relationship
with the Complainant, 3 Parle did not have any business
relationship/ agreement with it. Further, the Complainant alleged
that Britannia refused to supply a sufficient quantity of its
‘must-stock’ products to the Complainant, thereby,
indulging in constructive refusal to deal, whereas Parle outrightly
refused to supply its ‘must-stock’ product to the
Complainant and also prevented its distributors from dealing with
the Complainant. 4

3. SUBMISSIONS BY THE COMPANIES

3.1. At the outset, (i) Britannia submitted that the Complainant
had no locus standi to file the information as Britannia only dealt
with Granary Wholesale Private Limited
(“Granary“) (a group company of the
Complainant who was the exclusive seller of Britannia’s
products on Udaan); and (ii) Parle submitted that it had no
pre-existing relationship/ agreement with the Complainant nor has
it mandated its current distributors to not deal with the
Complainant. As such, in the absence of an alleged
‘anti-competitive’ agreement, the allegations are
meritless.

3.2. In relation to the relevant market, Britannia submitted
that given the high degree of demand side substitutability of its
products with other sweet and savoury food items, such as,
biscuits, cakes, dairy products, and chips and in line with the
CCI’s decisional practice, 5 the relevant market
should be: (i) ‘market for manufacturing of packaged snack
items in India’ at the broad level; and (ii) ‘market
for biscuits in India’
at the narrow level. Parle
submitted that given the substitutability of biscuits based on
physical characteristics and taste, the relevant market should be:
(i) ‘market for biscuits in India’ at the broad
level; and (ii) ‘market for sweet biscuits in
India’
or ‘market for non-sweet/savoury biscuits
in India’
at the narrow level. The Companies submitted
that they did not possess market power in the relevant markets as
they faced competitive constraints from other significant players.
Further, Parle submitted that ‘Parle-G’ held low market
shares (i.e., less than 20%) in different categorisations of the
biscuits market. 6

3.3. Additionally, the Companies submitted that: (i) they have
the freedom to choose their business partners in conformity to
their requirements; and (ii) there was no refusal to deal as they
have objective justifications for their conduct. As such, Britannia
submitted that: (a) supply of its ‘must-stock’ products to
the Complainants was based on objective criteria and Granary’s
past performance; (b) it is not obligated to adhere to the onerous
demands7 of the Complainant for the supply of its
‘must-stock’ products; and (c) any supply of its
‘must-stock’ products to the Complainant in excess of its
ability would have prejudiced Britannia’s objective of making
its products readily available to its final consumers. Further,
Parle submitted that the Complainant did not meet Parle’s
requirements, owing to its unviable and incompatible business
model8 and there has been no foreclosure of the market
for the Complainant.

4. FINDINGS OF THE CCI

4.1. Based on the Supreme Court of India’s judgment in
Samir Agarwal v. CCI and others,9 the
CCI observed that the locus standi of the Complainant is
immaterial to the proceedings before the CCI, given that any
person, whether such person is personally affected or not, can
approach the CCI. However, the CCI in both cases highlighted that
the Complainant while approaching the CCI must disclose all the
relevant and material facts affecting the outcome of the
investigation at the time of filing the information itself.
10

4.2. While rejecting the relevant market delineated by the
Complainant, the CCI observed that delineating a narrow product
market merely on the factor of the popularity of a few brands may
not be appropriate. Accordingly, based on its decisional
practice,11 the CCI delineated the relevant market as
the ‘market for biscuits in India’. In relation to
the Companies’ market power, the CCI observed that although the
Companies hold some degree of market power12 in the
relevant market, they faced significant competitive constraints as:
(i) the Companies compete fiercely inter se; and (ii) the Companies
face competition from: (a) presence of other biscuit manufacturers,
such as, ITC, Patanjali, Cremica, etc.; and (b) entry of new
players, such as, ‘Unibic’ and ‘McVitie’s.

4.3. At the outset, the CCI highlighted that an enterprise has
the autonomy to choose its business partners and the CCI cannot
substitute the commercial wisdom of the enterprise with its
regulatory wisdom unless such commercial wisdom falls foul of the
provisions of the Competition Act, 2002
(“Act“) (i.e., the criteria laid down is
unfair and/or discriminatory and designed to eliminate competition
on merits). Thus, an enterprise which is yet to be accepted as a
business partner cannot claim equality with an existing business
partner. Even for existing business partners, the obligation to
treat them equally arises only when they are equally placed, and
different terms of trade may be offered based on sound commercial
logic.

4.4. On merits, the CCI observed that the Complainant did not
provide substantial evidence to support its allegations against the
Companies. Further, it observed that there was no imposition of a
vertical restraint and in turn, no actual or likely appreciable
adverse effect on competition, given that: (i) the Relevant
Products were not indispensable and their absence from the
Complainant’s platform would not pose any existential threat to
the Complainant in the biscuits market; (ii) the Complainant was
not foreclosed, as it is an online B2B platform catering to
multiple product segments and is not significantly dependent on the
Companies’ products; (iii) there are no entry barriers, since a
large number of biscuit manufacturers and distributors are present
in the market for biscuits such as ITC, McVitie’s, Patanjali,
Cremica, etc.; and (iv) there is no evidence that the
Companies’ conduct impeded competition in their distribution
chains. Hence, the CCI refrained from ordering an investigation
against the Companies as it was of the prima facie view that the
Companies’ conduct did not amount to refusal to deal.

5. INDUSLAW VIEW

5.1. By way of the instant orders, the CCI has rightly held that
mere popularity of a particular brand in a product category neither
warrants: (i) a narrow delineation of the relevant market; nor (ii)
an inherent right to demand supply of such a brand. As such,
delineation of a relevant product market must be based on its
characteristics, price, and, intended use in terms of the
provisions of the Act.

5.2. While in the past, the CCI had implicitly recognized
selective distribution arrangements as it has upheld the freedom of
enterprises to: (i) choose their business partners;13
and (ii) terminate an agreement with its business partner based on
an objective justification; 14 these orders also gain
prominence as the CCI has now explicitly recognized selective
distribution as an industry practice and a valid business strategy.
However, the CCI refrained from providing much-needed guidance in
relation to the qualifying conditions for a selective distribution
arrangement to be competition law compliant. As such, the explicit
recognition of selective distribution arrangement will provide
much-needed assurance to the enterprises and will allow them
greater control over the distribution model for their products.

Footnotes

1 Case No. 18 of 2021, Hiveloop Technology Private
Limited v. Britannia Private Limited, order dated June 16, 2022,
available at:
https://www.cci.gov.in/antitrust/orders/details/1039/0 and Case No.
28 of 2021, Hiveloop Technology Private Limited v. Parle Products
Private Limited, order dated July 06, 2022, available at:
https://www.cci.gov.in/antitrust/orders/details/1047/0.

2 The Complainant submitted that in the financial year
2019-20: (i) Britannia held a market share of approximately 32.1%
in the biscuits market and ‘Good Day’ and ‘Marie
Gold’ contribute up to 80% of its revenues; and (ii) Parle held
a market share of approximately 83% in the glucose biscuits
market.

3 The Complainant alleged that it had a business
arrangement with Britannia since 2019, which was followed by a
pilot project and further discussions on developing their business
arrangements.

4 Parle terminated the distributorship of one of its
agencies in Uttar Pradesh, which was found to be dealing with the
Complainant (which was revealed by the Complainant during the
course of the proceedings).

5 Case No. 106 of 2015, Tamil Nadu Consumer Products
Distributors Association v. Britannia Industries Limited, order
dated March 29, 2016, available at:
https://www.cci.gov.in/antitrust/orders/details/434/0.

6 Parle submitted that ‘Parle-G’ had a low market
share in: (i) the relevant markets; (ii) category of affordable
biscuit packs; (iii) mass and premium biscuit segments; and (iv)
category of consumers belonging to children age group.

7 Without any credible demand projection and with the
intent of disrupting existing distributorship channel.

8 Parle highlighted that it is particular about
appointment of distributors and they are expected to have certain
attributes such as: (i) management of inventory, dispatching goods
in small quantities to local shops, collection of cash, etc.; (ii)
providing value added services to the company; (iii) compliance
with rules and regulations on behalf of the company; (iv)
assistance in buying decisions; and (v) anticipating needs of the
retailers and the customers. Parle submitted that as the
Complainant did not satisfy these requirements, it could not be
appointed as a distributor as it could disrupt Parle’s
distribution chain

9 Civil Appeal No. 3100 of 2020, Sameer Agarwal v. CCI
and others.

10 The CCI observed that the Complainant should have
disclosed: (i) Granary, a group company of the Complainant, was
directly dealing with Britannia to procure their brands of biscuits
and listed itself on the Complainant’s platform, as an
exclusive seller; and (ii) alleged termination of distributorship
of one of Parle’s agencies in Uttar Pradesh owing to supply of
Parle-G biscuits to the Complainant, in the information itself and
not during the proceedings before the CCI.

11 Case No. 106 of 2015, Tamil Nadu Consumer Products
Distributors Association v. Britannia Industries Limited, order
dated March 29, 2016, available at:
https://www.cci.gov.in/antitrust/orders/details/434/0.

12 The CCI observed that Britannia and Parle: (i) held a
market share of approximately 32% and 27%, respectively; (ii) had
the discretion to choose their business partners; and (iii) had a
wide reach throughout India and a robust distribution and sales
network.

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