Kerala liquor procurement case: NCLAT rejects appeals

The National Company Law Appellate Tribunal (NCLAT) has upheld an order passed by the Competition Commission of India (CCI) closing a complaint that alleged abuse of dominant position by Kerala’s state-owned liquor procurement agency.

A two-member bench of NCLAT dismissed appeals filed by the Confederation of Indian Alcoholic Beverage Companies (CIABC) and the Association of Distillers, Brewers and Vintners of India (ADBVI) against Kerala State Beverages (Manufacturing and Marketing) Corporation (KSBC).

The CCI had, on October 21, 2021, declined to order an investigation into allegations made against KSBC Ltd and Travancore Sugar and Chemicals Ltd (TSCL). The order was later challenged before the appellate tribunal.

The industry bodies had alleged that KSBC, which has exclusive control over wholesale liquor procurement and distribution in Kerala, abused its dominant position through unilateral fixation of purchase prices, arbitrary tender conditions, delayed payments, discriminatory treatment between government and private manufacturers, and the imposition of additional charges without justification.

They had also alleged that KSBC favoured state-owned brands over private manufacturers.

However, NCLAT said the appellants failed to provide “concrete evidence” of anti-competitive conduct.

“We find that the CCI evaluated the limited evidence and the documents furnished by the Informants before concluding that a prima facie case did not exist. The informants did not make out any case as to the harm or loss occasioned on account of the alleged conduct, which is an essential ingredient, even at the prima facie stage,” the tribunal said.

NCLAT also agreed with the CCI’s findings regarding Clause 11(c) of the rate contract related to liquor pricing control in Kerala.

According to the tribunal, the clause did not prima facie amount to abuse of dominant position and it was not the role of the competition authority to determine what the appropriate liquor price should be.

The appellate tribunal also rejected allegations of discriminatory treatment towards the state-owned ‘Jawan’ rum brand supplied by TSCL.

NCLAT said the appellants failed to establish any distortion in consumer choice or market competition or show that the brand had received preferential treatment.

“It is observed that Respondent No 3 (TSCL), being a wholly state-owned entity, manufactures only a single brand of rum, namely ‘Jawan’, and has been operating under significant constraints, including past closures and labour disputes,” the tribunal said in its 43-page order.

The tribunal further observed that the benefit extended to the brand was minimal and amounted to a discount of around Rs 20, which did not materially distort competition in the market.

“Further, large IMFL (India-made foreign liquor), beer, and wine manufacturers cannot reasonably claim an inability to compete with such a small-scale entity,” the NCLAT bench comprising justices Mohammad Faiz Alam Khan and Naresh Salecha said.

The order also referred to the CCI’s observations on the discount structure followed by KSBC.

According to the tribunal, KSBC provides cash discounts to manufacturers ranging from around 7 per cent to 22 per cent, with lower discounts considered more favourable to manufacturers. These discounts are applied to wholesale prices determined by KSBC based on cost sheets submitted by manufacturers.

NCLAT noted that the CCI had justified the differential discount structure by distinguishing between fast-moving and slow-moving brands, with lower discounts for fast-moving brands and higher discounts for slow-moving ones.

The structure, the tribunal said, was commercially justified as it partly offsets distribution costs incurred by KSBC.

“In the view of above detailed discussions, we do not find any error in the Impugned Order. The Appeal fails and stands rejected,” NCLAT said.