Supreme Court Upholds CCI Decision on Ola and Uber Pricing: Samir Agrawal vs. Competition Commission of India (2020)

Introduction

Date of the Judgment: 15 December 2020

Citation: (2020) INSC 973

Judges: R.F. Nariman, J., K.M. Joseph, J., and Krishna Murari, J. (authored by R.F. Nariman, J.)

Can algorithms used by ride-hailing apps like Ola and Uber be considered a form of price-fixing that violates competition laws? The Supreme Court of India recently tackled this complex question, examining whether the dynamic pricing models of these platforms unfairly manipulate the market. The Court considered whether the pricing mechanisms of Ola and Uber constitute anti-competitive agreements or cartels, and if they unfairly impact drivers and riders. The judgment was delivered by a three-judge bench comprising Justices R.F. Nariman, K.M. Joseph, and Krishna Murari, with the opinion authored by Justice R.F. Nariman.

Case Background

On 13 August 2018, an independent legal practitioner, Samir Agrawal, filed an information with the Competition Commission of India (CCI). The informant alleged that ANI Technologies Pvt. Ltd. (Ola) and Uber India Systems Pvt. Ltd., Uber B.V., and Uber Technologies Inc. (collectively, Uber) were engaging in anti-competitive practices. Specifically, the informant claimed that Ola and Uber were involved in price-fixing agreements, violating Section 3(1) read with Section 3(3)(a) of the Competition Act, 2002. Additionally, the informant alleged that they were engaged in resale price maintenance, contravening Section 3(1) read with Section 3(4)(e) of the same Act.

The informant argued that the algorithmic pricing used by Ola and Uber prevents riders from negotiating fares with drivers and drivers from offering discounts. This, the informant contended, removes the freedom for both riders and drivers to choose the best price based on competition. According to the informant, drivers are bound to accept the trip fare displayed on the app, with their share of the fare being paid after the deduction of a commission by Ola and Uber. The informant also argued that Ola and Uber use their algorithms to manipulate supply and demand, guaranteeing higher fares for drivers, and that this cooperation between drivers through the apps resulted in concerted action, which functions like a trade association facilitating a cartel. Further, the informant alleged that Ola and Uber implement price discrimination, charging riders based on their willingness to pay, resulting in artificially inflated fares.

Timeline:

Course of Proceedings

The Competition Commission of India (CCI), on 6 November 2018, examined the information provided by the informant. The CCI noted that while it had dealt with similar cases in the past, the allegations in this case were different. The CCI observed that the informant had not alleged collusion between the cab aggregators (Ola and Uber) but rather collusion among the drivers through the platforms of these aggregators. The CCI found that the pricing algorithm used by Ola and Uber is based on large datasets, taking into account various factors such as time of day, traffic, and special events. The CCI concluded that this pricing mechanism did not constitute a “hub and spoke” arrangement as understood in traditional competition parlance. The CCI also noted that the dynamic pricing of app-based taxi services often resulted in prices lower than those charged by independent taxi drivers. The CCI, therefore, concluded that no contravention of Section 3 of the Competition Act, 2002, was made out and closed the matter under Section 26(2) of the Act.

Aggrieved by the CCI’s order, the informant filed an appeal before the National Company Law Appellate Tribunal (NCLAT). The NCLAT, in its judgment dated 29 May 2020, initially addressed the issue of the informant’s locus standi, concluding that the informant, as an independent law practitioner, had not suffered any legal injury as a consumer or member of a consumer/trade association and therefore, lacked the standing to maintain the action. However, the NCLAT also examined the merits of the case, agreeing with the CCI that the business model of Ola and Uber did not support the allegation of price discrimination. The NCLAT observed that there was no allegation of collusion between the cab aggregators, and that drivers were free to accept or reject rides, and even negotiate fares. The NCLAT also rejected the applicability of the “hub and spoke” cartel concept based on a foreign antitrust jurisdiction. The NCLAT upheld the CCI’s finding that Ola and Uber do not hold a dominant position in the relevant market. Based on these findings, the NCLAT dismissed the appeal.

Legal Framework

The case primarily revolves around the interpretation and application of the following sections of the Competition Act, 2002:

• Section 2(c): Defines “cartel” as an association of producers, sellers, distributors, traders, or service providers who, by agreement, limit, control, or attempt to control production, distribution, sale, price, or trade in goods or services.
• Section 2(f): Defines “consumer” as any person who buys goods or hires services for a consideration, including any user or beneficiary of such goods or services with the approval of the first-mentioned person.
• Section 2(l): Defines “person” inclusively, encompassing individuals, Hindu undivided families, companies, firms, associations of persons, and various other entities.
• Section 3(1): Prohibits any agreement that causes or is likely to cause an appreciable adverse effect on competition within India.
• Section 3(3)(a): Specifies that agreements between enterprises or persons engaged in similar trades, which directly or indirectly determine purchase or sale prices, are anti-competitive.
• Section 3(4)(e): Addresses resale price maintenance as an anti-competitive practice.
• Section 18: Outlines the duties of the Competition Commission of India (CCI), including eliminating practices having adverse effects on competition, promoting and sustaining competition, protecting consumer interests, and ensuring freedom of trade.
• Section 19(1): Empowers the CCI to inquire into alleged contraventions of Sections 3(1) and 4(1) either on its own motion or upon receiving information from any person, consumer, or their association.
• Section 26(1): States that if the Commission is of the opinion that there exists a prima facie case, it shall direct the Director General to cause an investigation to be made into the matter.
• Section 26(2): States that if the Commission is of the opinion that there exists no prima facie case, it shall close the matter forthwith.
• Section 35: Allows a person or an enterprise to appear in person or authorize representatives to present their case before the CCI.
• Section 45: Prescribes penalties for furnishing false information to the CCI.
• Section 53B: Provides for appeals to the National Company Law Appellate Tribunal (NCLAT) by any person aggrieved by an order of the CCI.
• Section 53T: Provides for appeals to the Supreme Court by any person aggrieved by an order of the NCLAT.

Arguments

Appellant’s Submissions:
✓ The informant, Samir Agrawal, argued that the pricing algorithms used by Ola and Uber constitute price-fixing, violating Section 3(1) read with Section 3(3)(a) of the Competition Act, 2002.
✓ He contended that the algorithms prevent riders from negotiating fares and drivers from offering discounts, thereby restricting competition.
✓ The informant asserted that drivers are bound to accept the fares displayed on the app, with their share being paid after the deduction of a commission, thus creating a cartel-like situation.
✓ He argued that the apps function like a trade association, facilitating cartel-like behavior among drivers.
✓ The informant also alleged that Ola and Uber implement price discrimination, charging riders based on their willingness to pay, resulting in artificially inflated fares.
✓ He referred to a “hub and spoke” arrangement, where Ola and Uber act as the “hub” and drivers as “spokes,” indicating a violation of Section 3 of the Act.
✓ The informant argued that the 2007 amendment to Section 19 of the Act changed the position of law so that any person can be an informant and not only a “consumer” or a “complainant”.
✓ The informant submitted that he is a “person aggrieved” for the purposes of filing an appeal under Section 53B of the Act, as he is an informant.

Respondents’ Submissions (Uber):
✓ Uber contended that the concurrent findings of fact by the CCI and the NCLAT should be upheld, as they were not perverse.
✓ Uber argued that drivers have complete discretion to use multiple apps, including those of competitors, and can also take private rides outside of these apps.
✓ Uber submitted that drivers are free to negotiate fares with riders, and there is nothing in the agreements or practice that prevents them from doing so.
✓ Uber argued that there is no anti-competitive practice as there are thousands of drivers who act independently, with no common meeting of minds.
✓ Uber stated that the apps allow drivers to negotiate fares below what is quoted in the app, thus increasing competition.

Respondents’ Submissions (Ola):
✓ Ola supported Uber’s submissions on the merits of the case.
✓ Ola argued that even if the informant is considered an informant under Section 19 of the Act, he cannot be considered a “person aggrieved” for the purposes of filing an appeal under Section 53B of the Act.
✓ Ola contended that information can be provided by persons at the behest of competitors, which could harm companies like Ola and Uber.
✓ Ola urged the court to impose heavy costs to deter frivolous and mala fide information filed at the behest of competitors.

Competition Commission of India’s (CCI) Submissions:
✓ The CCI supported its order closing the case.
✓ The CCI also supported the right of the informant to approach the CCI with information.

Issues Framed by the Supreme Court

The Supreme Court addressed the following key issues:

1. Whether the informant has the locus standi to file information before the CCI and to file an appeal before the NCLAT.
2. Whether the pricing algorithms used by Ola and Uber constitute price-fixing and anti-competitive practices under Section 3 of the Competition Act, 2002.
3. Whether a person like the informant can be said to be a “person aggrieved” for the purpose of Sections 53B and 53T of the Competition Act, 2002.

Treatment of the Issue by the Court

The following table demonstrates as to how the Court decided the issues:

Authorities

The Court considered the following authorities:

Judgment

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

• Adi Pherozshah Gandhi v. H.M. Seervai, Advocate General of Maharashtra, (1970) 2 SCC 484: The Court distinguished this case, stating that the narrow interpretation of “person aggrieved” in that case, which pertained to an action in personam under the Advocates Act, 1961, did not apply to the present case, which is an action in rem.
• A. Subash Babu v. State of A.P., (2011) 7 SCC 616: The Court relied on this case to interpret the term “person aggrieved” broadly, stating that it should be understood in the context of the Competition Act, 2002.
• Competition Commission of India v. Steel Authority of India, (2010) 10 SCC 744: The Court referred to this case to explain the functions of the CCI and the scope of its powers, emphasizing that the CCI acts in rem and in the public interest.

The Court’s reasoning was as follows:

The Supreme Court first addressed the issue of locus standi. It noted that Section 19(1) of the Competition Act, 2002, allows the Competition Commission of India (CCI) to inquire into alleged contraventions based on information received from “any person.” The Court emphasized that the 2007 amendment to the Act replaced “complaint” with “information,” indicating that the informant does not need to be personally affected by the alleged contravention. The Court also referred to Section 35 of the Act, which allows any “person or an enterprise” to appear before the CCI, further supporting the view that the informant does not need to be a consumer or complainant. The Court noted that Section 45 of the Act provides a deterrent against mala fide information, and the judicious use of costs can prevent abuse of the process. The Court also highlighted Regulation 10 of the 2009 Regulations, which does not require the informant to state how they are personally aggrieved. Thus, the Court set aside the NCLAT’s narrow construction of Section 19 and held that the informant had the locus standi to file information before the CCI.

Regarding whether the informant is a “person aggrieved” for the purposes of sections 53B and 53T of the Act, the Court distinguished the case of Adi Pherozshah Gandhi (supra) which had narrowly interpreted the term “person aggrieved” in the context of the Advocates Act, 1961. The Court noted that the present case is an action in rem, and not in personam, and that the Act vests powers in the CCI to act in public interest. The Court also referred to A. Subash Babu v. State of A.P. (supra) to support its view that the term “person aggrieved” must be understood widely, and not narrowly. The Court noted that the expressions used in Sections 53B and 53T of the Act are “any person”, signifying that all persons who bring to the CCI information of practices that are contrary to the provisions of the Act, could be said to be aggrieved by an adverse order of the CCI. The Court thus rejected the preliminary objections against the informant filing information before the CCI and filing an appeal before the NCLAT.

On the merits of the case, the Court upheld the concurrent findings of fact by the CCI and the NCLAT, which held that Ola and Uber do not facilitate cartelization or anti-competitive practices between drivers. The Court noted that the drivers are independent individuals who act independently of each other. The Court therefore, saw no reason to interfere with these findings.

The Court quoted from the judgment as follows:

• “…the order passed by the Commission under Section 26(2) is a final order as it puts an end to the proceedings initiated upon receiving the information in one of the specified modes.”
• “…the expression “any person” appearing in Section 53-B has to be construed liberally as the provision first mentions specific government bodies then local authorities and enterprises, which term, in any case, is of generic nature and then lastly mentions “any person”.”
• “…the Act vests powers in the CCI and enables it to act in rem, in public interest. This would make it clear that a “person aggrieved” must, in the context of the Act, be understood widely and not be constructed narrowly…”

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the concurrent findings of fact by the CCI and NCLAT, which indicated that Ola and Uber do not facilitate cartelization or anti-competitive practices among drivers. The Court emphasized the importance of maintaining a wide scope for persons to approach the CCI and appellate authorities in order to subserve the public purpose of the Act. The Court also highlighted the need for a broad interpretation of “person aggrieved” to ensure that the Act’s objectives are met. The Court also considered the deterrent effect of Section 45 of the Act and the judicious use of costs to prevent mala fide filings. The Court also considered the fact that the drivers were independent individuals, who acted independently of each other.

Fact:Law Ratio

Key Takeaways

• The Supreme Court has clarified that any person can provide information to the CCI, regardless of whether they are directly affected by the alleged contravention.
• The Court has emphasized a broad interpretation of “person aggrieved” for appeals under the Competition Act, 2002, ensuring wider access to justice.
• The Court upheld the CCI’s findings that the dynamic pricing algorithms of Ola and Uber do not constitute price-fixing or anti-competitive practices among drivers.
• The judgment indicates that the CCI’s orders under Section 26(2) are final orders that put an end to the proceedings.
• The Court has highlighted the importance of the Competition Act, 2002, being an action in rem and in the public interest.