NCLAT Rules on Algorithmic Collusion by Cab Aggregators

[Basu Chandola is a Research Assistant at the Jindal Initiative on Research in IP and Competition (JIRICO)]

In a Samir Agrawal v Competition Commission of India (29 May 2020), the National Company Law Appellate Tribunal (‘NCLAT’) has ruled on the possibility of hub-and-spoke cartels between the cab aggregators and the drivers. The appeal arose against the decision of the Competition Commission of India (‘CCI’) in Samir Agrawal v ANI Technologies Pvt. Ltd (2018), wherein the CCI had previously held that there existed no prima facie case against drivers of cab aggregator for involvement of cartel activity or conduct through the platforms of Ola or Uber, being the cab aggregators.

CCI’s Impugned Order 

In the proceedings before the CCI, the informant Samir Agrawal had alleged that the cab aggregators and drivers were acting as a hub-and-spoke cartel, where the prices were being determined by the cab aggregators (hub) and accepted by the drivers (spokes). He based his arguments on the fact that the drivers, who were attached to the cab aggregators’ networks, did not function as their employees, but as independent third party service providers. He had also submitted that the cab aggregators and the drivers were not a single economic entity, since the drivers were independent contractors, and did not share any agency or employee relationship with the cab aggregators. It was contested that the cooperation between drivers orchestrated by cab aggregators resulted in ‘concerted action’ under section 3(3)(a) read with section 3(1) of the Competition Act, 2002.

After discussing the concept of hub-and-spoke arrangement, the CCI observed that to qualify as a hub-and-spoke arrangement, it was necessary that the spokes used a third party platform (hub) for exchange of sensitive information, including information on prices, which can facilitate price fixing. The CCI held that the use of algorithmically determined prices by the aggregators could not be said to be collusion between the drivers. It found that an agreement between all drivers to set price through a common aggregator or an agreement for the aggregator to coordinate prices was required to constitute a hub-and-spoke cartel. In absence of such an agreement to delegate this pricing power to the cab aggregators, the CCI held that there was no violation of section 3(3)(a) of the Act. The CCI observed that fixing of prices by the algorithm was not similar to the traditionally understood concept of hub-and-spoke cartels, but was carried out by the algorithm on the basis of large data sets on the basis of several factors. Thus, the CCI closed the matter under section 26(2) of the Act.

Grounds of Appeal

Samir Agrawal, the appellant, challenged the order of the CCI on various grounds and submitted before the NCLAT that CCI had erroneously concluded on the genuineness and legality of the pricing model of cab aggregators in the absence of their defence. He further submitted that the CCI had not refuted the allegation that the cab aggregators fixed prices which the drivers are bound to follow and has, therefore, acquiesced to the fact of price fixing and that the CCI had erroneously implied that price fixing carried out by way of an app is immune from scrutiny.

He also submitted that the CCI’s observations that the ‘app determined pricing on many occasions goes lower than what an independent driver would have charged’ does not legitimise the price fixing. He further argued that the price determined by a private enterprise cannot be considered as competitive price for all of the drivers for taking that price. Agrawal also submitted that the CCI had erred in treating drivers and the app providers as a single economic enterprise and in holding that there is no agreement amongst the drivers to fix prices where the app provider is acting as a hub. Lastly, it was submitted that the CCI was not justified in ignoring the fact that Uber’s business model was challenged in the United States with identical allegations, which was considered fit for investigation.

NCLAT’s Decision

The NCLAT observed that cab aggregators provided radio taxi services on demand. The consumers are required to download the app to avail the services of the cab aggregators. A cab is booked by a rider using the respective app of the cab aggregators, which connects the rider with the driver and provides an estimate of fare using an algorithm.

The NCLAT rejected Agrawal’s claim that price determination by cab aggregators amounted to price fixing on behalf of drivers, since the drivers attached to the cab aggregators were independent third party service provider and not employees. The NCLAT rejected the claim, as no collusion among the cab aggregators had been forthcoming from Agrawal.

The NCLAT observed that the allegations regarding hub-and-spoke arrangement rested upon the US class action suit titled Spencer Meyer v. Travis Kalanick (2018). The NCLAT held that the case had no application in India, as the business model of cab aggregators in the county did not manifest in restricting price competition among drivers to the detriment of its riders. The NCLAT held that the matter related to foreign antitrust jurisdiction with different connotations, and could not be imported to operate within the ambit and scope of the mechanism dealing with redressal of competition concerns under the Act.

The NCLAT observed that Agrawal had alleged collusion on the part of drivers through the platform of the cab aggregators who are stated to be using their algorithms to fix prices that are imposed on the drivers. The NCLAT held that in view of allegation, it was not open to Agrawal argue hub-and-spoke on the basis of law operating in a foreign jurisdiction which cannot be countenanced.

The NCLAT then proceeded to discuss each cab aggregator individually. The NCLAT observed that there is no exchange of information amongst the drivers and Ola under its business model. The taxi drivers connected with Ola platform have no inter se connectivity and lack the possibility of sharing information with regard to the commuters and the earnings they make out of the rides provided. This excludes the probability of collusion inter se the drivers through the platform of Ola.

The NCLAT then observed that Uber provided a technology service to its driver partners and riders through the Uber App and assisted them in finding a potential ride, and recommends a fare for the same. However, the driver partners and the riders were free to accept such ride or choose the app of a competing service, including choosing alternative modes of transport. Even with regard to fare, though the Uber app would recommend a fare, the driver partners was at a liberty to negotiate a lower fare. The NCLAT observed that it was evident that the cab aggregators did not function as an association of its driver partners. The NCLAT held that the allegation of cartel facilitation defied logic and had to be repelled.

The NCLAT also observed that the case for abuse of dominance was not made out in this case, as no cab aggregator held a dominant position in the relevant market. The NCLAT held that there was no substance in the allegations emanating from Agrawal, and that the opinion of the CCI about the non-existence of a prima facie case warranting closure of the information could not be faulted on any ground. The NCLAT dismissed the appeal, as it did not find any legal infirmity in the impugned order.

A Critique of the Decision

The NCLAT has failed to consider and properly understand the submissions made by the parties, in particular Agrawal. The NCLAT has rejected contentions without properly explaining in detail the reasoning behind the same. The NCLAT has brushed aside important issues including the relationship between the drivers and cab aggregators, the possibility of the defence of single economic entity, and the business model adopted by the aggregators.

As for the analysis on collusion, the NCLAT has failed to appropriately analyze section 3 of the Act. The observations on hub-and-spoke are vague and not in line with the existing jurisprudence and the Competition Law Review Committee Report. The NCLAT ought to have discussed the concept as accepted in Indian competition jurisprudence, and then accepted or rejected it on the basis of the facts of the case. In addition, there is an outright refusal to accept foreign cases without adequate reasoning and a lack of consideration of existing literature on this topic. Even the discussion on the models of different aggregators fails to carry the requisite details, and the NCLAT has made no observations on the data used for determining fares, which are offered by each driver in the process. In absence of in-depth analysis of the applicable provisions, the economic principles and the business models employed by the cab aggregators, the author argues that this judgment set an inapt precedent.

Basu Chandola

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