The Tug of War between the Effects Test and Special Responsibility: Supreme Court’s Verdict in Schott Glass

I. Introduction

The Supreme Court as of 13 May 2025 delivered a landmark judgement that comes more than a decade after the matter was first taken up by the Competition Commission of India (“CCI”). The apex court, while largely affirming the decision of the Competition Appellate Tribunal (“COMPAT”), emphasized the commercial justifications behind the impugned practices of Schott Glass India Pvt. Ltd. (“Schott India”) and set aside the CCI’s previous order. The judgment addresses broader policy implications in encouraging a balanced approach in evaluating anti-competitive conduct under Section 4 of the Competition Act, 2002. The authors are analysing this judgment given that the Supreme Court has once again been silent on the applicability of the rule of special responsibility on dominant enterprises, despite the CCI’s prior observations endorsing the applicability of the rule. Indian competition policy is still evolving, this ruling is poised to influence future decisions of the CCI, guiding regulators and enterprises alike in interpreting the fine line between pro-competitive and anti-competitive practices.

II. Background of the Case

Schott Glass India Pvt. Ltd., a wholly-owned subsidiary of the German multinational Schott AG, operates a plant in Gujarat manufacturing neutral USP-I borosilicate glass tubing, an essential upstream input used by converters to produce pharmaceutical containers like ampoules and vials.

In May 2008, Schott AG entered a downstream joint venture, Schott Kaisha Pvt. Ltd., with Kaisha Manufacturers. Schott Kaisha became India’s largest converter and a major customer of Schott India’s tubes, taking approximately 30% of Schott India’s annual capacity. In order to achieve stable furnace utilisation and economies of scale, Schott India introduced two primary rebate schemes:

(i) Target (volume) rebates – slabbed discounts increasing with annual purchases' tonnage, paid quarterly;

(ii) Functional rebates – an 8% rebate given to converters who conformed to yearly purchase plans, avoided utilizing Chinese tubing (because of quality issues), and abided by traceability and fair pricing requirements.

Apart from this, in 2008, Schott Kaisha and Schott India also signed a Long-Term Tubing Supply Agreement (“LTTSA”), wherein Schott Kaisha committed to obtain at least 80% of its needs from Schott India in return for further price relaxations, a three-year price freeze, and preferred supply.

On 25 May 2010, Mumbai-based converter Kapoor Glass made an information under Section 19 of the Competition Act, 2002, stating that Schott India had abused its dominant position by: granting exclusionary volume-based rebates; charging unfair contractual conditions (such as the no-Chinese stipulation); foreclosing competition by means of the LTTSA; tying clear and amber tubes; and refusing supply discriminatorily.

III. CCI Investigation and Findings

Based on a prima facie opinion, the CCI ordered its Director General (“DG”) to inquire. In a report dated 16 March 2011, the DG found that Schott India had abused its dominant position under several clauses of Section 4(2) of the Act. The DG held Schott India to be dominant, with a market share of more than 60% (eventually increasing to above 80%) and underpinned by strong entry barriers and dependence on buyers. It found that the combined impact of the target rebates, functional rebates, and the LTTSA with Schott Kaisha excluded competing suppliers and converters. The DG further held that bundling purchases of clear and amber tubes together for rebate constituted tying, and selective refusals of supply deprived market access.

By majority order of 29 March 2012, the CCI approved the findings of the DG and held that Schott India’s conduct violated Section 4(2) sub-clauses (a) to (e). The CCI levied a fine of approximately ₹5.66 crore (based on 4% of Schott India’s three-year average turnover) and directed a cease-and-desist order against future discriminatory practices. The Economic Member of the CCI dissented on some points, however, observing a failure to establish foreclosure and acceptance of objective business reasons.

Schott India and Kapoor Glass both filed appeals with the COMPAT. In its order of 2 April 2014, COMPAT granted Schott India’s appeal, set aside the penalty and cease-and-desist order, and rejected Kapoor Glass’s appeal with costs. COMPAT held that evidence was mostly based on un-cross-examined statements of witnesses, which made them unreliable. It held that there was no evidence of discriminatory rebates, tying, margin squeeze, or foreclosure; in fact, the majority of converters expanded production and profitability during the period in question. COMPAT also recorded that the CCI’s denial of cross-examination was a serious procedural lapse which weakened the evidentiary basis for its findings.

IV. Legal Analysis

A. Supreme Court’s findings

Clearly displeased with the COMPAT’s decision, both CCI and Kapoor Glass approached the Supreme Court, hoping to reinstate the original CCI order and overturn COMPAT’s findings.

The Court didn’t pronounce its judgement on any of the questions discussed based solely on the practices of Schott India impugned by the informants to the CCI, rather it considered the justifications forwarded by Schott India, founded on commercial efficacy and long-term viability, along with the effects (if any) contemplated under Section 4.

The Court initially addressed whether Schott India's target-discount program constituted discriminatory pricing under Section 4(2)(a), and it ruled that uniform rebate scales based on total aggregate tonnage, announced in advance, such that variations occurred only due to order size and were commercially justified considering furnace capacities. On the allegation of charging discriminatory conditions under Sections 4(2)(a) and 4(2)(b) through the functional-discount or "no-Chinese" package deal, the Court found nothing to indicate price discrimination in that purchase plans were objectively justified, the exclusion of Chinese tubes on a temporary basis was safety-motivated, inspection rights were trademark-related, and converter development indicated no market foreclosure. On the margin squeeze allegation under Section 4(2)(e), the TeliaSonera test was not fulfilled, as Schott did not engage in downstream activities, Schott Kaisha was independent, and no foreclosure was established. On tying under Section 4(2)(d), NGA and NGC were either substitute specifications or not tied, with no evidence of condition supply, and statements from witnesses were unreliable as cross-examination was denied. Lastly, the Court reiterated that effects-based analysis is an integral part of Section 4, and rejection of cross-examination vitiated the proceedings, and the order of the CCI was set aside.

B. Special responsibility under Competition Law

Another thing that needs to be addressed is whether the Supreme Court missed the opportunity to answer the question, ‘whether a dominant enterprise has a special responsibility to comply with the provisions of the Indian Competition Law?’ Special responsibility has been defined in the EU as a ‘dominant enterprise’s special responsibility to not allow its conduct to distort genuine competition’, in the cases of Michelin v. Commission, Irish Sugar and the guidance note to Article 82 of the Treaty on the Functioning of the European Union (“TFEU”). Both the cases are landmark rulings in EU competition law, specifically concerning the abuse of a dominant position. In the Michelin case, the European Commission successfully argued that Michelin, a dominant player in the heavy vehicle tire market, abused its position by implementing a complex system of loyalty rebates in the Netherlands. The court found that this system was designed not for cost efficiency but to tie dealers to Michelin and foreclose the market to other competitors. Similarly, in the Irish Sugar. case, the Commission proved that Irish Sugar plc, a near-monopoly in the Irish sugar market, engaged in a range of abusive practices, including predatory pricing and exclusionary discounts. The court found that these tactics were part of a deliberate strategy to eliminate competition from imports and maintain the company's dominant position. In both cases, the central fact was the dominant company's conduct, which was found to be inherently anti-competitive and intended to harm the market.

In contrast, the Schott Glass case was adjudicated under Indian competition law, which does not have an equivalent legal doctrine of “special responsibility.”. The scope of this doctrine has been clarified by the CCI to impose “more onerous responsibility on the dominant entity with respect to practices which, if adopted by non-dominant entities, wouldn’t fall afoul of Section 4 of the Competition Act”. Indian Supreme Court followed an “effects-based” analysis whereby the complainant has to prove that the dominant firm’s actions had a demonstrable anti-competitive effect on the market. Schott Glass’s volume-based discounts were objectively justified as a standard business practice and were not proven to have caused any actual harm to competition, making the concept of “special responsibility” irrelevant to the final judgment. However, the application of this document has also been counterbalanced by assessing the objective justification of the dominant enterprise in respect of the alleged anti-competitive conduct in respect of an inquiry under Section 4.

V. Conclusion

In its judgement in Schott Glass, the Supreme Court, although was silent on the question of special responsibility, in our considered opinion, it still settled the question of the doctrine’s application in terms of an inquiry under Section 4 of the Competition Act, by ruling that an effects-based approach to ascertain competitive harm is essential to such inquiries. In the authors’ considered opinion, this has the effect of subordinating the application of special responsibility to the effects test, which is submitted to be in line with the legislative intent of the Competition Act. An enterprise shouldn’t be penalised merely on the failure to fulfil a special responsibility per se without actually assessing whether competitive harm has occurred or not. In other words, the effects test is a sufficient touchstone for the application of Section 4 without the need for compliance with the rule of special responsibility.

It is submitted by the authors that per se application of the doctrine of special responsibility risks overlooking genuine commercial justifications for the conduct of a dominant enterprise, particularly where acts by dominant entities to achieve economies of scale in production may carry lower costs down the chain for end consumers.