NCLAT Dismisses Liquor Bodies' Challenge To Kerala's Jawan Rum Preference, Finds No Competition Harm

The National Company Law Appellate Tribunal (NCLAT) at Dehi has dismissed an appeal by liquor industry bodies challenging Kerala's preferential treatment to state-owned Jawan Rum, holding that they failed to show the policy distorted competition or harmed consumer choice.

A bench of Judicial Member Justice Mohd Faiz Alam Khan and Technical Member Naresh Salecha held,

“The Appellants had not been able to demonstrate as to how competition, in general, with the existence of so many brands in the market, is adversely affected by granting such preference to Respondent No. 2. The Appellants had also not been able to demonstrate, in their submission, that any favour accruing to one product has actually resulted in distortion of demand/consumer preference or that the choice of consumer is being impaired.”

The appeal was filed by the Confederation of Indian Alcoholic Beverage Companies (CIABC) and the Association of Distillers, Brewers and Vintners of India (ADBVI) against the Competition Commission of India's 2021 decision closing their complaint against Kerala State Beverages Corporation (KSBC) and Travancore Sugar and Chemicals Ltd (TSCL).

The industry bodies had alleged that KSBC, Kerala's state-owned wholesale liquor procurer, abused its dominant position as the exclusive purchaser of branded alcoholic beverages in the state by imposing coercive and discriminatory commercial terms on private manufacturers.

They alleged that KSBC unilaterally fixed procurement prices, imposed one-sided tender clauses, delayed payments, levied arbitrary deductions, adopted discriminatory cash discount structures, and accorded preferential treatment to TSCL's Jawan Rum, which they said distorted competition in favour of a state-owned brand.

The liquor bodies argued that because private liquor manufacturers had no meaningful alternative buyer in Kerala's controlled liquor market, KSBC's procurement practices amounted to abuse of dominance.

They also argued that once the CCI itself accepted KSBC's dominant position in the relevant market, it ought to have ordered an investigation instead of closing the matter at the threshold.

The tribunal, however, found that the appellants failed to produce concrete material to substantiate allegations of competitive harm.

“The allegations levelled in the present case seems general allegations without substantiating material, documents or proof on record, which ought to have been supplied by the Informants to the CCI including to data qua actual cost sheets, margins, losses caused, prices fixed, loss due to non-revision of prices, decline in market share etc.”

The tribunal noted that despite alleging manufacturers were being forced into losses, the appellants failed to produce actual cost data, evidence of loss-making operations, or proof that manufacturers had exited the Kerala market due to KSBC's practices.

It accepted the CCI's reasoning that procurement prices were based on cost sheets submitted by manufacturers themselves, including detailed cost break-ups certified by chartered accountants, and found no basis to interfere with that assessment.

On the allegation of preferential treatment to Jawan Rum, the tribunal noted that KSBC and TSCL accepted that some preference existed, but said it flowed from a declared state policy and tender conditions that expressly permitted such preference in public interest.

The bench also noted that TSCL supplied only one brand of rum, Jawan Rum, while multiple private manufacturers supplied several brands and said the appellants failed to show that the preference had distorted competition, impaired consumer choice, or shifted demand in any material way.

The tribunal also upheld the CCI's reasoning on differential cash discounts, accepting the explanation that lower discounts for fast-moving brands and higher discounts for slow-moving brands were commercially justified and partly linked to distribution costs.

It also rejected the challenge to the tender framework, noting that the relevant terms were pre-declared and manufacturers had participated in the procurement structure despite being aware of those conditions.

KSBC and TSCL had defended the arrangement as part of Kerala's regulatory liquor framework, arguing that the state's wholesale control over liquor procurement was rooted in public policy considerations, including concerns arising from the 1982 Vypin liquor tragedy.

They also argued that no actual manufacturer had demonstrated concrete commercial harm arising from the alleged practices.

Ultimately, the tribunal upheld the CCI's closure order, holding that the material placed on record did not disclose even a prima facie case warranting an investigation.