NCLAT: The Business Model of Ola and Uber Do Not Make Them ‘Hub and Spoke’ Cartel

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Background

A public-spirited individual made an application before the Competition Commission of India (CCI). The application concerned the contravention of Section 3 of the Competition Act by the cab aggregators Ola and Uber. The informant alleged collusion on the part of drivers through the cab aggregators. It stated that the cab aggregators are using certain algorithms to facilitate price-fixing. Consequently, it bounds all the drivers to accept the same. The informant claimed that the cab aggregators and the drivers functioned through a ‘hub and spoke’ business model. This made them act as a cartel, which decided prices of their services using their own arbitrary algorithm.

The commission, however, rejected the application. The CCI informed that there is no evidence of an agreement between drivers to delegate pricing powers to the cab aggregators. Then, the CCI’s order was challenged before the National Competition Law Appellate Tribunal (NCLAT).

Hub and Spoke Model

The concept of hub and spoke cartel evolved from the United States Action Suit titled “Spencer Meyer v. Travis Kalanick”. This arrangement refers to the exchange of sensitive information between competitors through a third party. Through this, it facilitates the cartelistic behaviour of such competitors.

Issues Before the NCLAT

Post filing of the appeal, the NCLAT framed the following issues:

Issue 1: Whether the arrangement between the drivers and cab aggregators a hub and spoke arrangement?

The informant claimed that the cab aggregators unilaterally restrict the prices. Due to this, it leaves the transportation services providers and ultimate riders with no choice on pricing. According to the appellant, this behaviour of the respondents depicted the hub and spoke cartel as the hub (cab aggregators) restrict prices. Similarly, the spokes (cab drivers) merely accede to that fixed and restricted pricing. It claimed that such an agreement can exist even when there is no explicit agreement between the parties. 

Issue 2: Whether the CCI while delivering its opinion on the case acted within the powers under the Competition Act?

Regarding the CCI’s ability to pass such an order, the informant alleged that the CCI erroneously concluded the genuineness and legality of the pricing model of the cab aggregators and drivers. The informant also contended that the same is done without conducting an adequate investigation. It further alleged that the CCI’s order implied that the pricing algorithm used by the cab aggregators were immune from scrutiny. This is on the mere assumption that the price determined by these apps is lower than what an independent driver would have charged. 

Issue 3: Whether the informant had a locus standi to file such a complaint under the Competition Act?

On the issue pertaining to the locus standi, the informant submitted that his application comes under the definition of “any person” under Section 19(1)(a) of the act. The scope provides that any individual can file the information before the CCI. The informant compared this provision under the Competition Act with the Criminal Procedure Code. The CrPC provision provides that every individual with the ability to file a First Information Report before the Police authorities can file an application.

Judgment and Reasoning 

While rejecting the appeal filed by the informant, the NCLAT declared the following:

The business model of cab aggregators, not a ‘Hub and ‘Spoke’ model

The NCLAT declared that the hub and spoke cartel does not seem to apply in case of the cab aggregators model. Under this model, the estimation of fare through the app is done by the algorithm on the basis of large data sets. Such sets include personalized information of riders along with other factors. For instance, time of the day, traffic situation, special conditions/events, festival, weekday/weekend, demand-supply etc. It stated that OLA and Uber being Cab Aggregators operating through their respective applications was not an association of drivers and they acted as separate entities from their respective drivers.

The NCLAT stated that the cab aggregators and taxi drivers were not at the same level of the supply chain. Hence, there is no establishment of a horizontal arrangement amongst the spokes. Subsequently, it reiterated that riders have the choice to go for alternative modes of transportation. Similarly, the driver-partners have the choice to undertake offline, private, or corporate transport duties. Consequently, it proves that the fact that the alleged ‘spokes’ in the arrangement are not a result of coercion to accept any price determined by the cab aggregators.

The order passed by the CCI within the scope of powers provided under the Competition Act

The NCLAT held that the judgment rendered by the CCI is correct. Moreover, keeping in mind the contemporary decisions, the judgment is well within the provisions of the Competition Act. In this regard, the informant cited the judgment of the Hon’ble Supreme Court in CCI v. SAIL (2010). The Supreme Court, in the cited case, observed that it is not essential for the CCI to record detailed reasons. And only its opinion on the basis of the record, which includes the furnished information, suffices. This is in consonance with Section 26(1) of the Competition Act.

Further, the decisions which determine rights of the parties should analytically discuss the rival contentions. The NCLAT held that the decision propounded by the CCI gives due consideration to all the information presented before it. Moreover, it is within the provisions of the Competition Act.

The informant has no locus standi to file such an application

The NCLAT held that the informant has no locus standi to file such an application before the CCI. This is for the reason that the informant has not suffered directly. It, in this regard, made a detailed reading of Section 3 of the Competition Act. The NCLAT held that on a plain reading, the provision provides for a right to any person, consumer or their association, or trade association to file an application of such sort. However, on a harmonious reading, a person cannot have locus standi if the person is not directly affected by the practices of the alleged parties.

In this regard, the NCLAT made reference to Section 19(1)(a). It concerns the application made for anti-competitive agreements or abuse of dominant position under the Competition Act. Precisely, it states that an application should only be filed by the person who has suffered directly. Hence, there should be an invasion of his legal rights as a consumer or a beneficiary of healthy competitive practices. 


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