The situation where most of the people used to prefer taking an Auto to reach a nearby bus-stop and then board a bus to reach the desired destination is barely experienced now. The Cabs are now playing a prominent role in our everyday life. It has now become a way easier to travel within the stipulated time, through Cabs.
With the introduction of Ola and Uber cabs in India, people are, able to hail a cab at the least possible time as soon as they book it online. In the Indian ride-hailing business market, Ola and Uber have majority market share. These two companies serve over 200 million people in India.
This article mainly focusses on the ongoing challenges against the service providers through the e-Platforms, with special reference to Ola and Uber cab-aggregators. These cab-service providers operate under an App-based system wherein the drivers and the riders can find their potential ride through an online App. These application-based cab-aggregators follow a different mechanism in determining the prices of the rides, unlike the other taxi-service providers.
The “Hub and Spoke” rule is a model that is not so well known in India. This is a model under which one or more competitors engaged under the provision of similar products or services, assign the responsibility of determining the price to one single contractor, who is common to all. The contractor may not be necessarily a competitor but a player in the same market. The competitors here are known as “Spokes” and the contractor is known as the “Hub”. The Hub is usually a big enterprise that holds a significant market power in a region.
The following example gives an even simpler understanding of this rule.
“A” is a great retailer in a particular State who sells toys to the people. There are various toy manufacturers in the State, say B1, B2, B3, and so on. Here, “A” determines the price of the toys and sends independent agreements to all the manufacturers manufacturing the toys in that State. No manufacturer is deciding the price here, and every manufacturer is, aware of the fact that each of them is agreeing on the identical terms set by “A” and as far as the Price determination is concerned it is only “A” who decides it. So, here “A” and all the manufacturers are participants of the “Hub and Spoke,” rule, where “A” is the hub and “B1, B2, B3”, so on are the spokes.
Competition Act, 2002
The Hub and Spoke rule is considered an anti-competitive practice in foreign countries. Whereas, in India, these kinds of issues relating to anti-competitive market practices are supervised by the “Competition Commission of India”.The Competition Commission of India is established under the “Competition Act, 2001”, which governs the competition law in India.
Act foresees and halts the activities that adversely affect the competition in the Indian market. It acts as an instrument to enforce and execute the competition policies and punishes the anti-competitive business practices by the companies.
The Competition Commission of India established under the Act, is obligated to preserve the interests of free and fair competition in India, thus making sure that both the consumers and the operators in the market are not carried away by any untraditional and unethical market practices.
Samir Agrawal v. ANI Technologies (P.) Ltd. &Ors.
Information Filed Before CCI (Competition Commission of India)
In the recent past, a case was brought against ANI Technologies, which provides the App-based cab services under Ola and Uber systems in India, alleging that they were using the Hub and Spoke model for the fixation of ride fares. The information was first filed by the informant before the Competition Commission of India. He also alleged that there was collusion between both the cab aggregators and among the respective drivers.
He contended that both the companies are going against the established provision i.e., Section-3 of the Competition Act, 2002.
Section-3 of the Competition Act, 2002 provides that, if an enterprise enters into an agreement including cartels, by which such entering would lead to an adverse effect on the competitive market in India, then such agreement will be declared as void. These agreements to be declared void under this Section should directly or indirectly determine the prices on purchase or sale of goods or services and should limit the technical development in the market.
The informant argued that the cab-aggregators are using their own price algorithms to set out the price and the drivers are bound to accept the same. He contended that this kind of policy by the cab-aggregators falls under the ambit of the Hub and Spoke rule which adversely affects competition in the market.
No Prima-Facie Contravention
The Commission observed that there is no prima-facie case of collusion between the cab-aggregators and their respective drivers inter se. It said that under a Hub and Spoke cartel, there require individual agreements with all the drivers to set the price under one platform, but in this case, there is no such agreement per se, nor any meeting of minds between the cab-aggregators or the drivers inter-se which is required under Hub and Spoke model.
There is a difference between accepting price algorithms set by the cab-aggregators, by the drivers and the concept where the drivers under collusion are bound to accept the prices by the hub. The latter one is a contravention of Section-3 of the Competition Act, 2002 and forms no place in the present case.
The Commission further noticed that there is no fixed price set by the aggregator for all the drivers, and the prices are estimated by the algorithms based on various factors that constantly change day today. These factors include the traffic situation in a particular area, time, etc along with the personalized information they possess. These factors are taken into consideration to estimate the fares.
This apparently shows that the price determined by the aggregators is different by the reason of reciprocity in large data sets that they hold, which is differing from the concept of Hub and Spoke.
The Commission rejected all the allegations against Ola and Uber and closed the case under Section-26(2) of the Competition Act, 2002 and held that there is no contravention of Section-3 under the Act, pertaining to the Anti-competitive agreements as the drivers rather opted for acceding to the fare which is an outcome of the price algorithms set by the aggregators, than competing on price in the market.
According to Section-26(2) of the Act, the Competition Commission of India can close the matter of a case if it finds that there is no Prima-facie violation of the Competition Act, 2002.
Appeal to NCLAT
The informant being unsatisfied with the decision of the Commission filed for an appeal in the NCLAT (National Company Law Appellate Tribunal) expanding his allegations on price determination by both the cab-aggregators, under Section-3 and Section-4 of the Act.
Section-4 of the Act says that the enterprises should not abuse their dominant position which might lead to price discrimination in the market.
Contentions by the Parties
The Ola is a respondent argued that the appellant is not an offended person and he is neither an aggrieved party nor has any prejudice been caused to him. On the contrary, the appellant contended that he falls under the ambit of Section-19(1)(a) which provides that ‘any person’ can file the information before the commission if he finds that a company is going against the provisions of the Act or going in contravention of the Section-3(1) & Section-4(1) of the Act.
On hearing the contentions of both the parties, the NCLAT noted that “any person” under Section-19(1)(a) of the Competition Act, refers to a person whose legal rights have been invaded either as a consumer or being a beneficiary of healthy competitive practices.
If the phrase “any person” is interpreted otherwise, then unscrupulous people would take an advantage of it targeting a few enterprises, driven by their own motives. Thus, the informant does not have any locus standi to maintain an action in the capacity of the allegations made against Ola and Uber.
The Tribunal observed that Ola and Uber are two different cab-aggregators operating independently of each other, and there is no collusion between them. It said that the Hub and Spoke model does not apply to the business models of Ola and Uber.
With regards to Ola, the Tribunal observed that there is no inter se connectivity as this platform does not have a possibility of sharing information with respect to the earnings that it makes through the rides provided. In other words, the Ola platform excludes the chance of collusion amongst the drivers.
In the case of Uber, it was observed that Uber App provides a technology service wherein it assists the drivers and the riders in finding the best possible ride while recommending the fare for the same. Also, with regards to fares under Uber App, the drivers are under liberty to negotiate a lower fare.
In both cases, it is free for both the driving partners as well as for the riders to either choose the respective App or opt for another alternative transport mode of their choice. The NCLAT also stated that there is no contravention of Section-4, Competitive Act, by Ola and Uber. They do not hold a dominant position to inflict price-discrimination in the market, as there are various other cab service providers operating under the transport sector.
Therefore, the appeal was dismissed by the NCLAT accordingly.
It is so surprising to see that both the CCI and the NCLAT opted to suppose the arguments made by Ola and Uber at its face even without calling on for an investigation. The contentions made by the respondents might be true but considering the possibility of harm to the market competition, it is significant to make a necessary investigation to confirm whether there is any such discriminatory procedure followed by the companies. The person irrespective of whether he is a consumer or a beneficiary in the market has got the information filed thinking that the companies are following a so-called practice Hub and Spoke model, which may go against the present competitive practices. Every citizen has the right to report it to the Commission when he foresees that there is illegal conduct by the companies. The Commission is bound to inquire into the matter if that is a prima-facia case to be investigated.
Q.1. What is a Cartel?
A Cartel as defined under Section-2(C) of the Competition Act, 2002, implies a group of manufacturers, suppliers, retailers or service providers who come together to enter into an agreement among themselves, under which they decide to control the production, sale or price determination. These are mainly formed to earn supra-normal profits leading to price discrimination in the market.
Q.2. What is the “Hub and Spoke” model?
The Hub and Spoke is a model under which one or more competitors engaged under the provision of similar products or services, assign the responsibility of determining the price to one single contractor. The contractor may not be necessarily a competitor but a player in the same market. The competitors here are known as “Spokes” and the contractor is known as the “Hub”. The Hub is usually a big enterprise that holds a significant market power in a region.
Q.3. What does the Competition Commission of India do?
The Competition Commission governs the competition law in India. It is duty-bound to preserve the interests of free and fair competition in India, thus making sure that both the consumers and the operators in the market are not carried away by any unethical market practices.
Q.4. Why is the case filed against Ola and Uber?
The case was filed by the informant against Ola and Uber alleging that these two companies are practicing anti-competitive business operations in India namely the Hub and Spoke model. He argued that they are going against the established provisions under the Competition Act, 2002.
Q.5. What is the difference between a Cartel and a Hub and Spoke model?
Under a Cartel, the competitors of the market enter into an agreement amongst themselves and attempt to control the production, supply, and price factors so to reduce the market competition. Whereas under Hub and Spoke model the competitors enter into an agreement with one single common contractor called the Hub. In this case, the Hub is the one who determines the price for all the competitors or as called the Spokes.