This update has been prepared to set out the key observations of the Competition Commission of India (“CCI”) In Re: Pramod Mahajan and ICICI Bank, Case No. 52 of 2020 dated January 27 2021.
The main allegation concerned the unilateral nature of the adjustable interest rate of the housing loan availed by the informant from ICICI Bank. According to the CCI order, the floating reference rate was 8.75% per annum and the adjustable interest rate was permitted up to the extent of +/- 0.5% per annum in the loan document. It was alleged that ICICI Bank adjusted the interest rate on a monthly basis and that too in excess of 0.5% per annum at several instances during tenure of the loan without intimation and consent.
The informant had alleged violation of Sections 3 and 4 of the Competition Act, 2002 (the “Act”) by ICICI Bank on the grounds that (i) use of similar unilateral one-sided clauses by all housing finance banks amounted to „cartelization‟, and (ii) the banks abuse their dominant position by having similar one-sided clauses in the loan agreements which have an adverse effect on competition in market and are against the interest of consumers.
ICICI Bank relied on a clause of the loan agreement which read:
“(b) Save and except as provided under (b)below, for administrative convenience the EMI amount is intended to be kept constant irrespective of variations in the Adjustable Interest Rate and therefore the number of EMI’s is likely to vary. No intimation shall be given by ICICI Bank as to further or other or reduced number of EMIs required to be paid by the borrower upon each any change in Adjustable Interest Rate.
Provided however that the Borrower shall be intimated of the information as to the applicable/applied Adjustable Interest Rate during the preceding Financial Year on an annual basis within such time at the end of the financial Year as ICICI Bank may determine.”
The Findings
ABUSE OF DOMINANCE
The CCI considered the two ingredients of abuse of dominant position which are:
- The existence of a dominant position; and
- Its abuse.
“Dominant position” has been defined in Explanation (a) of Section 4 of the Act as “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;”
Relevant market:
The CCI relied on its own judgment in Mr. Kanhaiya Singhal v. Indiabulls Housing Finance Limited & Ors. (Case No. 11 of 2019) and observed that the relevant market in this case was the market for “provision of home loans in India”.
Dominant position:
The CCI observed that due to the presence of multiple players in the relevant market, ICICI Bank cannot “operate independently of competitive forces in the market” and therefore cannot be considered to be in a dominant position. The observations of the CCI are extracted below:
“For the purposes of ascertaining whether such conduct amounts to abuse under Section 4 of the Act, first the relevant market needs to be delineated followed by an assessment of whether the OP enjoys a position of strength required to operate independently of the market forces in the relevant market. If OP is found to be in such a position, then it is to be examined whether the impugned conduct of the OP can be considered an abuse of dominant position under the Act.”
Significantly, the CCI had noted In Re: Samir Agarwal and Ors. (Case No. 37 of 2018) that there is no question of dominance in a market which has one other competitor (Ola and Uber in the taxi- aggregator space). Interestingly, this analysis also explains why, in several cases, neither Ola nor Uber has been held to be in violation of Section 4 (abuse of dominance) of the Act. This is because in relevant markets where both players are operating, neither one can be held to be dominant and the issue of dominant abuse only arises when one player is held to be dominant in a relevant market.
ANTI-COMPETITIVE AGREEMENT – CARTELIZATION
This argument was rejected at a technical level by the CCI. This is because the informant had not identified any bank which may be involved in cartelisation with ICICI Bank and not provided any material which showed that the inclusion of a similar clause by any bank other than ICICI Bank.
In conclusion, the CCI ruled in favor of ICICI Bank in view of the following: (i) ICICI Bank was not in a dominant position in the relevant market (housing loans pan-India); and (ii) the cartelization claim could not be considered in view of insufficient material presented by the informant including naming any such collusive entity.