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Case Brief: Express Industry Council Of India v/s Jet Airways (India) Ltd

Basic Details:
Informant: Express Industry Council of India
Opposite Party No. 1: Jet Airways (India) Ltd. Opposite Party No. 1
Opposite Party No. 2: IndiGo Airlines Opposite Party No. 2
Opposite Party No. 3 : SpiceJet Ltd. Opposite Party No. 3
Opposite Party No. 4 :Air India Ltd. wh
Opposite Party No. 5: Go Airlines (India) Ltd.
Adjudicating Authority: Competition Commission Of India.

The informant had filed the following case against five airlines which are the opposite parties in this case. The Informant is an apex body of leading express companies and has approximately 29 members, including several international express companies like Blue Dart, FedEx, DHL, First Flight, UPS etc. Its members are majorly courier service providers who usually use the Cargo facilities for the smooth functioning of their business.

The informant had alleged that the opposite parties in conjunction had increased the fright charges through the way of increasing FSC. This surcharge was fixed at a uniform rate of Rs. 5/ Kg and came into force on May 15, 2008. The Fuel Prices were declining despite this factor the Parties in consonance with each other had increased the FSC at different instances from 2008 to 2012.

FSC is fuel Surcharge, the concept was started in 2008, it was done to absorb the turbulent pricing of fuel.

Procedural History
The Director General ("DG") investigated the allegations made and concluded that the actions done by the airlines were not sufficient to constitute a cartel.

The CCI, then after considering the DG report differed with its findings and held that the acts were collusive in nature and amounted to a cartel. The Commission through its order dated 17.11.2015 noted that the three of the named airlines (Jet Airways, IndiGo and SpiceJet) had functioned in parallel and colluded in placing of FSC rates.

The initial order of the CCI was subsequently set aside by the competition Appellate Tribunal ("COMPAT") on the grounds that the order had not been passed in harmony to rules of natural justice. The CCI was instructed to reconsider the report of the Joint DG and pass an order after consideration to the replies of the airlines and giving proper reasoning for their conclusions.

Hence the present application reached back to CCI for reconsideration. CCI further asked the opposite parties to submit their replies. All the opposite parties then filed their replies.

Issue/ Sub-Issues
  • Whether OPs have operated in concerted manner while fixing FSC and thereby violated the provisions of Section 3(1) read with Section 3(3) of the Act?
The Commission while inferring the main issue, also looked into the preliminary objections and dealt with it as the following issue:The Commission while inferring the main issue, also looked into the preliminary objections and dealt with it as the following issue:

Whether the Commission has the jurisdictional mandate to analyse conduct which started before but continued beyond May 20, 2009 i.e. when the Act came into effect.

Rule Of Law
Section 3(1) along with section 3(3) of the competition act.
Section3 (1) No enterprise or association of enterprises or person or association of persons shall enter into any agreement in respect of production, supply, distribution, storage, acquisition or control of goods or provision of services, which causes or is likely to cause an appreciable adverse effect on competition within India.

Section 3(3)Any agreement entered into between enterprises or associations of enterprises or persons or associations of persons or between any person and enterprise or practice carried on, or decision taken by, any association of enterprises or association of persons, including cartels, engaged in identical or similar trade of goods or provision of services, which� (a) directly or indirectly determines purchase or sale prices;

These section embargoes any kind of agreement in respect to production, supply, Distribution. Storage etc. Section 3(3) talks about horizontal arrangement between enterprises. In cases when elements of section 3(3) are complete, it is considered that there is an appreciable effect on competition.

Based on facts:
The very fact of levying FSC at a uniform rate from the same date itself constitutes an act of cartelization covered under Section 3 of the Act. The three airlines i.e., Jet airways, Indigo and SpiceJet had increased the FSC at the same time. A simple perusal of the FSC imposed points towards the collusive behaviour by OP1, 2 ,3. The facts were analysed keeping this section in mind.

Section 35 of the Competition Act:
Appearance before Commission Section 35. A person or an enterprise or the Director General may either appear in person or authorise one or more chartered accountants or company secretaries or cost accountants or legal Case No. 30 of 2013 23 practitioners or any of his or its officers to present his or its case before the Commission.

The section was bought through the reply of SpiceJet. The Commission considered it as an enabling provision, which is given to the concerned parties to avail this opportunity. In this case, the parties made a request at a later stage under this provision, considering no merit in the plea, the application was not considered.

Ratio Decidendi/ Reasoning
The reasoning put by Commission while deciding on the issue was to first determine whether the increase in price done before the commencement of the act be constituted as the violative of section 3 of the act and secondly the act done by the was done in a collusive manner. To decipher the same, the Commission had the following reasoning:

Firstly, while giving the replies to the Investigation done by DG, the opposite party raised the preliminary objection that increase in FSC was done in 2008 and hence the Commission has no jurisdiction, the Commission in reply clearly stated that if the parties went to perform certain things in pursuance of the agreement, which are now forbidden by law, would surely be an illegality and such an agreement by its nature, therefore, would, from that time, be opposed to the public policy.

Thus, even though the Act is not retrospective, it would cover within its ambit all agreements which might have been entered into prior to the commencement of the Act but continue post - 20.05.2009. The Commission's view made the present agreement fall under the ambit of the act.

The act will not preclude the Commission to look into agreements which could have been entered into prior to the commencement of the Act but continued to function beyond May, 2009. It is rather very clearly evident that the act of increasing the FSC charge in a concerted behaviour was present in 2012 as well. The commission referred the Kingfisher Airlines Ltd v. Competition Commission of India.

Secondly, the Commission is of the opinion that the domestic air cargo market has an oligopolistic structure, due to which the market is favourable for a coordinated and concerted behaviour. The market has low cross elasticity of demand of air cargo services coupled with high entry barriers, common intermediaries (cargo agents) resulting in a channel for sharing of information amongst the players and presence of trade associations, makes the coordination amongst the players easier in domestic air cargo market.

The Levy of FSC was done at a flat rate basis. The commission tabulated the details of FSC imposed and observed that in the year 2008, OP-1, OP-2 and OP-3 had applied FSC on the same date and all of them had levied a rate of Rs. 5 per kg at the same time. It was observed that the ATF prices were actually falling, thus indicating that the increase was artificially created through collusive action and was completely unconnected to the decline in ATF prices.

The commission while deciphering the main issue reaffirmed that:

"the OPs have acted in parallel and the only plausible reason for increment of FSC rates by the airlines was collusion amongst them. Such a conduct has, in turn, resulted into indirectly determining the rates of air cargo transport in terms of the provisions contained in Section 3 (3)(a) of the Act".

The Commission also emphasized that it is not required that cartels must work in a symmetric, syncretic and aesthetic way all the time. Often, every attempt would be made by the participants to conceal the organized behaviour and it would be only on a rare occasions when the authorities may be able to gather evidence of the entire concerted behaviour.

The commission applied the legal test i.e:

"the existence of an anti-competitive practice or agreement must be inferred from several coincidences and indicia, which, taken together, may in the absence of another plausible explanation, constitute evidence of an infringement of the competition rules. Hence the evidence are enough to constitute the presence of an agreement between the parties to constitute the Anti-competitive agreement"

The above-mentioned points helped the Commission in deciding that the act being done by can be considered as anti-competitive.

Thirdly, the commission reasoning while deciphering the penalty imposed is as follows:

The commission disagreed with the fact that only revenue generated from imposition of FSC alone would comprise relevant turnover. It may be pointed out that FSC is only a element of freight revenue received from cargo handling operations and the airlines by fixing FSC in agreement have directly or indirectly fixed the freight rates. During the appeal the Airlines had also raised their concern about the quantum of penalties and it being proportional to the total turnover. To subside the issue, the commission spoke about the relevant turnover. Which simply, in this case is turnover relative to the cargo services being provided as opposed to total turnover.

Holding/ Decision
The Commission held that OP-1, OP-2 and OP-3 have acted in a concerted manner in fixing and revising the FSC rates and thereby contravened the provisions of Section 3(1) read with Section 3(3)(a) of the Act, as in the year 2008, OP1, 2, & 3 implemented FSC at a charge of rs. 5 per kg, in 2009 and 2010, the FSC was either withdrawn or charged by just one airline.

Later in April June 2011 the parties increased the charge at different time interval, but the FSC was increased by the same amount Rs. 9 per kg. Again, in June 2012 and September 2012 the time difference between the dates of implementation of revised FSC was very few. In November OP-1 and OP 2 increased FSC rate on the very same date. Jet Airways, Indigo and SpiceJet were held liable.

The Commission, however, does not deem it appropriate to proceed against OP-4 and OP-5. In respect to OP-4, the Commission reports that when there was a significant decline in the fuel costs, the fuel surcharge was withdrawn by OP-4.

Further OP-5 had no control and was never part of any commercial/ economic aspects of cargo operations done by its vendors including imposition of FSC. No findings of contravention were found out by DG. Considering this OP-4 and OP-5 were not found in contravention of the provisions of sections of the act by both DG and CCI. By using this reasoning Air India ltd. and Go Airlines Ltd. were held not liable.

While Imposing Fine, the commission also dealt with the matter of Relevant turnover, As the infringing product involved in this case is provision of air cargo transport services, revenue generated from that service only is required to be taken for the purpose of computation of relevant turnover.

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