Cyril Amarchand MangaldasExperts Corner

Introduction

The Supreme Court of India (Supreme Court) in a landmark judgment has after a wait of almost four years allowed the Director General (DG) to investigate into the alleged dominance of Uber India Systems Pvt. Ltd. (Uber) and abuse thereof in the radio taxi services market in the Delhi-NCR area[1]. The Uber Order[2] emanates from an information filed by Meru Travel Solutions Private Limited (Meru), that was dismissed by the Competition Commission of India (CCI) stating that Uber is not prima facie dominant in the relevant market and thus, closing the case under Section 26(2) of the Competition Act, 2002 (CCI order). 

The CCI order was then challenged by Meru before the Competition Appellate Tribunal (Compat)[3] which reversed the findings of the CCI regarding the prima facie dominance of Uber and expanded the relevant geographical market from Delhi to Delhi-NCR. The Compat primarily differed from the CCI on the issue of reliance on a market research report by New Age TechSci Research Private Limited (TechSci). Whereas the CCI did not consider the TechSci report due to contrary findings in a 6Wresearch report, the Compat noted that the CCI in an earlier case has relied upon a TechSci report and that the two reports showing contrary results is a good reason to order an investigation into the matter. Consequently, the Compat judgment ordering the DG to investigate the matter was challenged and upheld by the Supreme Court in appeal.

The Uber Order[4] supplements the growing competition law jurisprudence in India and highlights “predatory pricing” as a factor for both establishing dominance and abuse of dominance. The primary reasons for the Supreme Court to interfere in the matter was that the information filed before the CCI was presented has been shown to them which prima facie depicts that Uber has been engaging in predatory pricing by offering huge discounts to consumers and high incentives to driver-partners resulting in an average loss of INR 204 to Uber on each trip. The Supreme Court based on this information alone stated that it would be very tough to say that there is no prima facie case under Section 26(1) of the Competition Act, 2002. 

CCI Jurisprudence on Predatory Pricing So Far

Thus far, the CCI has stated that predatory pricing is exclusionary and can be indulged in only by enterprises(s) which are dominant in a relevant market[5]. To this extent, the major elements in the determination of predatory behaviour include : 

(a) Establishment of the dominant position of the enterprise in the relevant market,

(b) Pricing below cost for the relevant product in the relevant market by the dominant enterprise,

(c) Intention to reduce competition or eliminate competitors, which is, traditionally known as the predatory intent test. [6]

The timeline and the evolution of CCIs jurisprudence in respect of predatory pricing has been discussed below: 

In MCX Stock Exchange Ltd. v. National Stock Exchange of India Ltd. (2011)[7], the CCI held that predatory pricing is a subset of unfair price and as the unfair price has not been defined anywhere, the unfairness has to be determined on the basis of the facts of the case. The unfairness has to be examined in relation to the customer or the competitor. The CCI stated that there is no justifiable reason for the National Stock Exchange of India (NSE) to continue offering its services free of charge for such a long duration and stated that the conduct of zero pricing, in this case, is beyond promotional or penetrative pricing. 

The CCI in its orders has laid down the factors to be taken into consideration while assessing the allegations of predatory pricing, specifically with regard to whether there is reduction or elimination of competition.

 In Transparent Energy Systems (P) Ltd. v. TECPRO Systems Ltd. (2013)[8], the CCI provided that the following findings are relevant for the identification of predation :

(a) The prices of the goods or services of the enterprise are at a very low level;

(b) the objective is to drive out competitors from the market, who due to the low pricing would be unable to compete at that price;

(c) there is significant planning to recover the losses if any, after the market rises again; or

(d) the competitors have already been forced out. 

The allegation of predatory pricing was the primary issue argued before the CCI in Bharti Airtel Ltd. v. Reliance Industries Ltd. (2017)[9]. The issue arose from an allegation that Reliance Jio Infocomm Limited (RJIL) since its inception has been providing free telecom services below its average variable cost with the intention of eliminating competitors. The CCI noted that the alleged predatory conduct should be investigated only if RJIL is prime facie dominant in the relevant market and in the absence of such dominance, there is no question of any investigation for predatory pricing. The CCI’s observation disclosed that the informant had not demonstrated reduction of competition or elimination of any competitor arising from RJIL’s actions. The CCI also noted that RJIL was a new entrant to market and its competitive pricing is a short-term business strategy to penetrate the market and establish its identity. The CCI accordingly dismissed the information filed against RJIL and closed the case under Section 26(2) of the Competition Act, 2002.

In Fast Track Call Cab (P) Ltd. v. ANI Technologies (P) Ltd. (2017)[10], similar allegations as in the Uber Order[11] were raised before the CCI i.e. pertaining to predatory pricing. The CCI, concurring with the DG’s investigation, found that ANI Technologies Pvt. Ltd. (Ola) did not exercise dominant position in the market. The informants put forth the allegation that the conduct of predatory pricing, was an evidence of dominance in itself. In this regard, the CCI noted that 97. … New entrants commonly engage in such practices to gain a toehold in the market and holding them dominant based on simple observation of conduct may have the undesirable result of chilling competition [12]. and accordingly, closed the case against Ola. 

Uber Order—Impact on Establishing Dominance and Predatory Pricing

The importance of establishing “dominance” of an enterprise before proceeding with an investigation has been clearly emphasised by the CCI in its jurisprudence. However, the Supreme Court has taken a slightly divergent view in the Uber Order [13]. It has stipulated that predatory pricing itself could tantamount to proof of dominance as it affects the competitors of a relevant enterprise in its favour as per Explanation (a) of Section 4 of the Competition Act, 2002. In this regard, the Supreme Court in the Uber Order[14] cited that 6. … if … a loss is made for the trips, Explanation (a)(ii) would prima facie be attracted inasmuch as this would certainly affect the appellant’s competitors in the appellant’s favour or the relevant market in its favour. 

The CCI in its orders has not considered predatory pricing as a factor for ascertaining dominance of an enterprise rather dominance has been taken as an after-effect of dominance. For e.g., in the NSE case[15], the CCI considered, inter alia, the ability of NSE to sustain zero pricing in the relevant market for long enough to outlive competition as a factor to ascertain the position of strength of NSE, however, did not state that engaging in predatory pricing can itself amount to proof of dominance. 

Takeaways 

The CCI has not held predatory pricing to be abusive under all circumstances. It has been held to be a legitimate strategy for a new entrant to capture market share and attracting customers to a new product or service. However, the same practice becomes abusive when it is continued indefinitely with the intent of driving out existing competitors and subsequently recouping losses incurred while carrying out the predatory pricing.

The Uber Order[16] has taken a circular approach to dominance. This approach was discussed in the Ola case[17] where it was argued that predatory pricing is evidence of dominance in itself. However, the CCI’s position in the Ola case[18] does not get compromised by the Uber Order[19] and this is because the CCI explained that the market for radio taxis was at a nascent stage and the low prices are not because of cost efficiency but because of the funding it has received from private equity funds.  

Thus, the Ola case[20] is not rendered wholly inconsistent with the approach of the Supreme Court. It will be interesting to watch whether the CCI going forward considers predatory pricing as proof of both dominance and abuse of such dominance.


Dhruv Rajain, Principle Associate, can be contacted at dhruv.rajain@cyrilshroff.com.

Shubhankar Jain, Associate can be contacted at shubhankar.jain@cyrilshroff.com, Aakriti Thakur, Associate can be contacted at aakriti.thakur@cyrilshroff.com and with the Competition Law Practice at Cyril Amarchand Mangaldas.

[1] Uber (India) Systems (P) Ltd. v. CCI, (2019) 8 SCC 697 (Uber Order).

[2] (2019) 8 SCC 697.

[3] Erstwhile Appellate Tribunal replaced by the National Company Law Appellate Tribunal by way of Notification in the Gazette
of India dated 26-5-2017 available at <http://egazette.nic.in/WriteReadData/2017/176250.pdf>.

[4] (2019) 8 SCC 697.

[5] Advocacy Booklet on Provisions Relating to Abuse of Dominance available at
<https://www.cci.gov.in/sites/default/files/advocacy_booklet_document/AOD.pdf>.

[6]  Ibid

[7] 2011 SCC OnLine CCI 52.

[8] 2013 SCC OnLine CCI 42.

[9] 2017 SCC OnLine CCI 25.

[10] 2017 SCC OnLine CCI 36.

[11] (2019) 8 SCC 697.

[12] 2017 SCC OnLine CCI 36.

[13](2019) 8 SCC 697.

[14] (2019) 8 SCC 697, 700.

[15] 2011 SCC OnLine CCI 52.

[16] (2019) 8 SCC 697.

[17] 2017 SCC OnLine CCI 36.

[18] Ibid

[19] (2019) 8 SCC 697.

[20] 2017 SCC OnLine CCI 36.

Case BriefsTribunals/Commissions/Regulatory Bodies

Competition Commission of India (CCI): The Coram of Ashok Kumar Gupta (Chairperson) and Sangeeta Verma (Member) and Bhagwant Singh Bishnoi (Member), analysed the dominance of Vatika Limited and held that it has no dominance in the relevant market.

Present information filed by “Informant” under Section 19(1)(a) of Competition Act, 2002 alleging contraventions of the provisions of Sections 3 and 4 of the Act.

Informant approached a property dealer in December, 2012, for the purchase of a residential flat in Gurugram. The property dealer arranged a meeting of the Informant with Vatika officials in the Vatika office. The informant has averred that the sales executive of Vatika informed that ‘Vatika Town Square’, would be situated at the entrance of a large number of residential and commercial complexes in new Gurugram.

Further, it has been stated that, the informant was told by Vatika that Block-D was under construction and would be completed by the end of June 2015. It was stated that by that time the entire Dwarka Express Highway Road would also be complete.

Informant was also told that possession of the property would be given after 2.5 years and in case of delay in construction or any other default by Vatika, the interest of 8% would be payable by Vatika. Along with this, the Informant was told that the stated terms and conditions would be incorporated in the Builder Buyer Agreement (BBA) to be executed by Vatika with the Informant.

Allegations of Informant

Informant alleged that in the BBA there was neither any mention of the construction /completion/ possession date nor of the payment of simple interest to the buyer, for the delay, if any, in completion of construction by Vatika.

On a later date, Informant in a meeting with Vatika was told that leasing / renting / of commercial units in ‘Vatika Town Square’ was already going on in a big way and property may be able to fetch some premium. It has been alleged that on a visit to ‘Vatika Town Square’ there was no activity of leasing/ renting at D Block and the construction was not complete. All floors had only bare columns and bare floors without any partitions for the individual units, except for some activity.

Informant on several occasions requested Vatika to inform him about the refund he would get on terminating the BBA along with deductions that would be involved, but no reply came along.

Informant alleged that Vatika was required to complete construction and offer possession by June 2015. Vatika neither informed about any delay due to force majeure event nor sought an extension of time. He further submitted that, construction activities in Block-D, ‘Vatika Town Square’ are still in progress, although Vatika issued intimation for possession and further kept demanding huge extra amount from buyers for delay in taking possession.

“…BBA was not only one-sided imposing unfair, discriminatory terms and conditions on the buyer, but also covered builder from all foreseeable or un-foreseeable events at the cost of buyers.”

“…there is selling of property through unfair means by nexus between Vatika and property dealers.”

“…Vatika is probably diverting funds collected from Block-D for other projects.”

Decision of the Commission

On perusal of the information stated above, provisions of Section 3 of the Act have no application to the present case as the Informant is a consumer and agreement with a consumer does not fall within the ambit of Section 3 of the Act.

In respect to Section 4 of the Act,

“What is of concern to the Commission in the present case is that the Informant booked a commercial space in Vatika Town Square project at Gurugram.”

Taking into account the factors such as physical characteristics or end-use of goods, price of goods or services, consumer preferences and nature of service offered, the relevant product market for the purposes of the present case is the “provision of services for development and sale of commercial space”.

Thus, the Commission keeping in view the factors held that Vatika has no dominance in the relevant market, no case to examine alleged abuse of dominance by Vatika in the matter, under the provisions of Section 4 of the Act, remains for determination by the Commission.

No prima facie case and the information filed is closed forthwith under Section 26(2) of the Act. [Suresh Chander Gupta v. Vatika Ltd., 2019 SCC OnLine CCI 34, decided on 03-10-2019]

Case BriefsTribunals/Commissions/Regulatory Bodies

Competition Commission of India: The Commission recently passed an order under Section 26(2) of the Competition Act, 2002 wherein it held that for proving alleged abusive conduct under Section 4 of the Competition Act, on part of the opposite party, a prima facie case would need to exist wherein it would need to be established that the opposite party stood at a dominant position in the relevant market.

The informants filed a matter under Section 19(1)(a) of the Competition Act against a certain company through its Chairman and the Managing director (OP 1) along with one of its employees (OP 2) alleging contravention of the provisions of the Act. The informants had purchased a flat in a certain residential housing project developed by OP 1 under the down payment scheme which upon full payment, was followed by OP 1 issuing an allotment letter to the applicant’s name and then further an MoU in which it was agreed upon by both parties that OP 1 would pay a fixed assured amount of return every month until possession of the flat was handed over to the informants. The informants alleged that despite them having made full payment, the OPs had stopped making payment as was agreed upon in the MoU without any notice resulting in contravention of Section 4 of the Competition Act. The cheque that was provided by the OPs was dishonored due to unavailability of funds in the concerned bank. The informants alleged that not only did their seem to be an absence of any intention on the part of the OPs to honor the terms of the MoU but also an absence of intention on their part to handover possession of the flat to the informants. This, the informants alleged, amounts to unfair and restrictive trade practices as well as deficiency in the provision of services. It was also alleged by the informants that this sort of behavior amounted to cheating, criminal breach of trust, fraud and willful default under the provisions of Sections  420, 406, 34 and 120-B of the Penal Code, 1860.

The Commission noted that in order to prove that the alleged abusive conduct took place, it would need to be established that the OPs held dominance in the relevant market in the first place which then would lead to a prima facie case of contravention of Section 4 of the Competition Act. The Commission noted that the informants had not provided the Commission with any information regarding the dominance of the OPs in the relevant market. The Commission held that services for development and sale of residential apartments/flats is different from the services for development and sale of residential plots/commercial spaces and for the present case concluded that the relevant market would actually be provision of services for development and sale of residential apartments/ flats. It also determined the rules and regulations for development of the particular residential housing project keeping in mind various factors such as difference in price, level of urban development, local advantage, consumer preferences, transport services etc. Upon determination of these factors, the Commission acknowledged that from the information available in the public domain, it appeared that as if there were several other real estate developers in the given area who were much more established than the one in question with much bigger housing projects which in itself acts as a competitive constraint upon the OPs to operate independently. Hence, the Commission was of the view that the OPs did not possess enough market power to act independently of the competitive forces in the relevant market or to be able to affect its competitors or consumers in its favor. This in turn meant that it was not in a dominant position in the relevant market. [Wing Commander Jai Kishan v. Nikunj Sisondia, 2017 SCC OnLine CCI 44, decided on 06.09.2017]