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TMI Blog2021 (1) TMI 1211X X X X Extracts X X X X X X X X Extracts X X X X ..... omotional initiatives like discounts and incentives and attracting new customers and gaining riders confidence. As Ola started from a low market share of about 20%, we cannot agree that it was at that initial time in a dominant position in the market and was trying to push out competitors from the market by employing below-cost, predatory pricing. Increase in its market share over a period of time, we feel, was due to a combination of factors, of which below cost pricing was one. Since this pricing strategy was combined with other actions like ease of booking using a smooth and functional technology platform accessible on mobile phones, visible branding, riders security, benefits to drivers, all of which were quite effective in earning the riders and drivers confidence, Ola could become their radio taxi service of preference. The agreements that Ola has with drivers covers many aspects, which concern welfare measures for drivers and helping them source credit for buying vehicles. It does stand guarantee for the loans thus there is no binding for the drivers to remain loyal to Ola because of financial lock-in. The incentives provided to drivers are dynamic and not constant in time. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Act, 2002 (hereafter called the 'Act') in Case No. 06 of 2015 and Case No. 74 of 2015. 2. The Commission has decided by the impugned order that,on the basis of information submitted by Fast Track Call Cab Pvt. Ltd. (which is Informant 1 called 'Fast Track' hereafter) and Meru Travel Solutions Pvt. Ltd. (which is Informant 2,called 'Meru' hereafter) and analysis of DG's investigation report, the dominant position of Ola (which are radio taxi services operated by ANI Technologies Pvt. Ltd.) in the relevant market and abuse of its dominant position is not established and Ola has not been found to have anti-competitive agreements with drivers which are in violation of the provisions of the Act. 3. We are disposing off both the appeals, viz. Competition Appeals No. 19/2017 and 20/2017 through this common judgment. The averments included in both the appeals relate to the allegations regarding abuse of dominant position and anti-competitive agreements concerning Ola. As the Impugned Order of the Competition Commission of India and the pleadings, including subject matter is the same in both the appeals, they are being disposed off by this common judgment. For the purpose of this ju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plete it within a period of 60 days from the date of receipt of the order. It also directed the DG to investigate the conduct of officials of Ola in order to fix liability with respect to contravention of the Act's provisions in case Ola was found to have violated them. Later in another case where Meru was Informant (on which Competition Appeal No. 19 of 2017 is under consideration in this judgment), the Commission passed a preliminary order and directed DG to investigate both cases together and submit report. 6. Thereafter, the DG completed investigation as directed by the Commission and submitted report to the Commission. The Commission after considering the report of the DG and hearing the parties passed an order dated 19.7.2017 under section 26(6) of the Act holding the view that evidence on record does not establish the dominance of Ola in the relevant market of radio taxi services in Bengaluru and its consequent abuse within the provisions of section 4 of the Act, and thus closed the two cases against Ola. 7. The grounds urged by Appellants Fast Track and Meru in Competition Appeal No. 20/2017 and Competition Appeal No. 19/2017 are as follows: - (i) The Commission has bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... minant party in the relevant market, then it may hold Ola to have abused its position of dominance and remand the matter back for investigation against Uber. (iv) To set aside the confidentiality order passed by the DG and Commission. 9. Detailed arguments were heard from the Learned Senior Counsel/Counsel for Appellants (including Ola and Meru) and Respondents No. 1 and 2. We have also considered the DG's report, Impugned Order, pleadings and written submissions submitted by the parties in both the appeals. 10. Arguments of Ld. Counsel for Appellant Fast Track: (i) The information filed by Informant 1 Fast Track against Ola highlighted violations under sections 3 and 4 of the Act. (ii) Ola's market share as on January 2015 was a staggering 75-76% and before it started adopting predatory pricing from June 2014, the market share of Ola was just 20% and their brand was already well known. The Commission, therefore, ought to have kept in mind two separate time frames and given separate findings for the two timeframes viz. one timeframe upto January 2015 when Fast Track filed the information and the other timeframe from January 2015 to September 2015 when Meru filed its inform ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... offending party in the relevant market determine to a large extent whether is in dominant position. (ix) Ola had market share of more than 60% for two years, which is sufficient indication of its dominant position till January 2015 while the presence of Uber in the same market was only from February, 2015 onwards. Moreover, it managed to log over 73% in number of trips from 13.6 lakhs trips in February, 2015 to 23.18 lakhs trips in September, 2015 despite competition from Uber in this period. (x) The comparison of the financial strength of Uber Group globally to Ola's in India is a fallacious argument of the Commission, especially when the Commission was considering their operation only in the Bengaluru market. (xi) Ola has operated at loss from 2012-13 onwards, when it suffered a loss of ₹ 6.59 crores and in 2013-14 its loss was 7.54 crores. The DG's report has not considered overheads in cost calculation and if that had been factored in, Ola would have been found to operate at a much higher figure of below average comparable cost which would clearly show predatory pricing. (xii) Offer and acceptance of incentives by drivers constituted an anti-competitive agreement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the Act under sections 3 and 4 insofar as they have been contravened by Ola, are to be covered under the investigation. 12. We rely on the decision of Hon'ble COMPAT in the matter of The Air Cargo Agents Association of India v. CCI and Ors. in Company Appeal No. 98 of 2015 in COMPAT [2016 CompLR 1223 (COMPAT)] wherein it was held that on receipt of the order passed by the Commission under Section 26(1), the DG is required to conduct investigation in accordance with the provisions of Section 41 read with the relevant provisions of the Regulations and submit report under Section 26(3) read with Regulation 20(4), which postulates that the report of the DG shall contain findings on each of the allegations made in the information or reference, as the case may be. On this issue the North California District Court has also ruled in a case involving Uber titled Douglas O'Connor v. Uber Technologies Inc [Case 3: 13-cv-034260 EMC, dated 11 March 2015] Uber was in the business of providing transportation and not a technology company. 13. Arguments of Ld. Counsel for Appellant Meru The Ld. Counsel for Meru adopts the arguments put forth on behalf of Fast Track. In addition, he has sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant period and therefore, the entry barriers are not insurmountable. It was correctly held by the Commission in the Impugned Order that Ola and Uber both cannot be considered dominant under the scheme of the Act. (iv) No evidence was led to show that access to funding was inequitable and the market for financing is not competitive. In fact, the mere fact that some business models are found to be attractive by investors does not imply that the market for financing is inequitable, more so in the context of judging dominance of an enterprise. (v) Ola leveraged technology very effectively and sufficiently and the emergence of platform based model, which connected riders with drivers owned taxis, thus obviating the need for capital investment in acquiring and maintenance of exclusive fleet, as was done by Asset owned taxi service providers. (vi) Ola utilized technology to develop a nascent market through internet and smart phone technology, which facilitate match making drivers and consumers in real time through a software application designed by Ola and accessed by consumers on one side and drivers on the other. This platform based model of Ola competed with the labour-intensive sys ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... witnessed a growth of about 555%. Thus, though the operators under the platform-based model provided the same product/service (taxi services), the technology enabled them to expand the market at both ends (i.e., the consumer and driver base) immensely. It is against this backdrop that the market position of OP need to be evaluated.' (xii) The Learned Senior Counsel for Respondent No. 2 has cited the judgment of Competition Commission of India in MCX Stock Exchange Limited v. National Stock Exchange of India (Case No. 13 of 2009, pg. 18 of the Convenience Compilation of Respondent No. 2), wherein the Commission concluded the dominance of National Stock Exchange based on multiple factors under section 19 (4) of the Act. In the Raghavan Committee Report (pp. 2-3 of the Convenience Compilation of Respondent No. 2, Dy. No. 31902 dated 6/12/2021) and the matter of Ramakant Kini vs. Dr. L.H. Hiranandani (Case No. 139 of 2012, attached at pp. 21-23 of the Convenience Compilation of Respondent No. 2, Dy. No. 31902 dated 6/12/2021), it is held that dominance requires market power to be substantial and durable. In the present case, the market share of Ola reduced considerably upon the entry ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... services, which - (a) directly or indirectly determines purchase or sale prices; (b) limits or controls production, supply, markets, technical development, investment or provision of services; (c) shares the market or source of production or provision of services by way of allocation of geographical area of market, or type of goods or services, or number of customers in the market or any other similar way; (d) directly or indirectly results in bid rigging or collusive bidding, shall be presumed to have an appreciable adverse effect on competition: Provided that nothing contained in the sub section shall apply to any agreement entered into by way of joint ventures if such agreement increases efficiency in production, supply, distribution, storage, acquisition or control of goods or provision of services. Explanation. - For the purposes of this sub-section, 'bid rigging' means any agreement, between enterprises or persons referred to in sub-section (3) engaged in identical or similar production or trading of goods or provision of services, which has the effect of eliminating or reducing competition for bids or adversely affecting or manipulating the process for biddi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation of the relevant proceedings of the Act. 19. In examining the allegation of Informants Fast Track and Meru that Ola indulged in abuse of its dominant position by adopting predatory pricing in the market, we shall first look at what constitutes "dominant position' and 'predatory price' in a market. They are defined in Explanation provided in Section 4 of the Act which is as follows: 'Abuse of dominant position. - (a) xxxxx xxxxxxx (b) xxxx xxxxxx (c ) xxxx xxxxx (d) xxxx xxxxx (e ) xxxx xxxx Explanation.-For the purposes of this section, the expression- (a) 'dominant position' means 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; (b) 'predatory price' means the sale of goods or provision of services, at a price which is below the cost, as may be determined by regulations, of production of the goods or provision of services, with a view to reduce competition or eliminate the competitors.' 20. Section 19 of the Act gives the fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant decline. Ola, that started services in the year 2011, uses a platform-based aggregator model in which it uses technology in an effective manner to provide ease of booking to riders, security during rides through tracking of taxis and easy post-ride payment of fares. The claim of Ola that it is basically a technology company has a big element of truth in that it leverages smart phone/internet-based technology to provide the riders not just ease of booking and payment for the ride, but also facilitate booking taxi at a very short notice and almost anywhere in its area of operation. This "end to end' provision of service from booking till alighting from the taxi with GPS-based tracking system of the taxi - all provide a high degree of reliability and assurance of availability of taxis anywhere including security to riders and enough demand to drivers. This is a new way of doing business and Ola could translate this concept into reality. It must also be recognized that before the advent of technology-leveraged, network-based aggregator models, taxi services such as Meru, Fast Track, Easy Cab, Taxi For Sure etc. also leveraged technology to pride ease of booking and taxi ride, yet O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de ease of taxi bookings, rider security, payments, drivers welfare made many riders comfortable with the network of Ola. The customer incentives worked in conjunction with these facilities and conveniences to attract riders to Ola and a certain brand image was created and reinforced over a period of time. The market also expanded in size and Ola was able to grab a big chunk of this new addition to market size. Apart from the leveraging of technology by Ola, it went full throttle in attracting riders and drivers to its network and combined it with customer discounts and drivers' incentives to increase its market share. Most of these factors are subjective and there is no quantitative description available in DG's report, yet the impact of these subjective factors can be inferred by the more than normal increase in market size which Ola was able to generate and then grab much of it in a short period of time. The presence of Uber in the market around the same time provided competition to Ola and it had to calibrate and change its market strategy including pricing to respond to competition of Uber. Thus we see that Ola was itself facing competition in the relevant market from establis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g which certainly helped Ola to provide customer discounts and drivers' incentives. The details of funding received by Ola is as follows (included in Para 6.20.26 of the DG's report, pg. 692 of Appeal Paperbook Vol.-3 in CA no. 19 of 2017): Period Investment (Rs. In Crore) March-Nov 2013 76.23 July-2014 209.77 Sep-2014 145.99 Nov-2014 150.94 March-2015 2034.97 Apr-2015 580.72 Sep-2015 1478.29 Total 4676.91 27, Hence while Ola received regular funding from March 2013 onwards, it received two major chunks of funding in March 2015 and September 2015. DG's report also notes (Para 6.20.29) that while no drivers' incentives were offered to drivers during FY 2012-13 and 2013-14, Ola did offer customer discounts totaling ₹ 49.78 Lakhs and ₹ 34.90 Lakhs respectively during the same period. It is also stated in DG's report that Ola incurred negative operating margin of ₹ 158.11. Lakhs in 2012-13 it was able to register positive margin of ₹ 181.64 Lakhs in 2013-14. In FY 2014-15 and first six months of 2015-16 Ola's operating losses again went negative - ₹ 12412.85 Lakhs and 6118.46 Lakhs respectively which were mainly due to extra spending on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) shows that Meru operated at positive indexed margin adopting aggregator model from February 2014 onwards and hence it was present in the market. It is of course true that it could not get enough market share in total number of trips because of funding constraint. 30. The Ld. Counsel of Appellant has cited the following judgments in support of his contentions: (i) Uber India Systems Pvt. Ltd. v. CCI & Ors [2019 8 SCC 697] wherein it is held that if there is a loss for trips made, Explanation (a)(ii) of Section 4 would be attracted inasmuch as this would certainly affect the dominant party's competitors in its favour or the relevant market in its favour. (ii) Meru Travel Solutions Pvt. Ltd. v. CCI & Ors [2017 CompLR 43 (COMPAT)] wherein it is held that it could not be said definitively that there is an abuse inherent in the business practices adopted by the operator, but the size od discounts and incentives show that there are either phenomenal efficiency improvement which are replacing existing business models or there could be an anti-competitive stance it, and only investigation would be able to show whichever is true. In both the above cases it is noted that they pertain to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ma facie view, and full investigation was later carried out to see if the prima facie view was correct. We tend to agree with Ld. Sr. Counsel's understanding. He has also referred to the Report of Competition Law Review Committee, 2019 (pp. 13-15 of the Convenience Compilation of Respondent No. 2) in support of his contention that Section 4 of the Act does recognize the concept of 'Collective Dominance' by enterprises. 33. The finding in case of Wanadoo Interactive (pg. 24-26 of the Convenience Compilation of Respondent No. 2) is that the dominance analysis must be carried out considering the 'market dynamics' and not just 'market shares' which is applicable in the present case. 34. Therefore, we are of the opinion that the below cost pricing by Ola was not predatory pricing with a view to dislodging any competitor from the market but towards establishing itself as an effective and reliable brand in the market and also opening up a latent market to its advantage through awareness generation about its brand and network/platform through promotional initiatives like discounts and incentives and attracting new customers and gaining riders' confidence. As Ola started from a low market ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ACABS, directly or indirectly. xx xx xx xx 31. Refusal of Duty: Driver shall not refuse a duty assigned to him by Olacabs or by avoiding communication with Olacabs by switching off the GPS firmware, switching of his mobile phone or by any other means whatsoever. Any refusal of duty will attract a fine of ₹ 2500/- per instance, whatsoever. Any refusal of duty will attract a fine of ₹ 2500/- per instance. Zero Tolerance Policy. Leave 2 Sr. # Breach Cases Breach Consequences Fine 7 Driver shall not reject the booking on his own at the time of allotment under any circumstances (unless permitted by Olacabs). Warning shall be given and fine shall be imposed. INR 1000/- 8 Driver shall not reject or report for the duty once he accepted to duty and logged in and shall not switch off his mobile under any circumstances. Warning shall be given once along with the fine, for any subsequent even if found guilty the agreement shall be terminated with immediate effect. INR 1500/- 37. In reply, Ola has stated that the norms and standards that the drivers are expected to follow are because they represent the brand's name and as customers recognize the brand which is a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tors) saw good potential in the enterprise and good return on investment. We are also of the clear opinion that Ola used the funds so obtained to carry out multifarious tasks such as upgradation of its network and technology, promoting riders and drivers awareness, broadening its rider and driver base and creating awareness regarding its brand amongst its consumers (who would create a demand) and the drivers (who are suppliers) about the ease of using App and also using a end to end solution to their benefit and advantage. Pricing including discounts and incentives were part of an integral part of overall strategy and not a standalone action to target its competitors through predatory pricing. Moreover, while Ola was rolling out its strategy it was not in a dominant position in the market for any long period of time but it was itself a relatively new entrant in the relevant market. 40. We tend to agree with the contention of the Ld. Senior Counsel of Ola that Ola offers discounts to customers for spreading awareness about its brand and presence in the market and increasing demand for its services. In the same way incentives that are provided to drivers are either in monetary form ..... X X X X Extracts X X X X X X X X Extracts X X X X
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