Penaltyimposedon Jet Airways, Indi Goand Spicejetforfix
Penaltyimposedon Jet Airways, Indi Goand Spicejetforfix
Penaltyimposedon Jet Airways, Indi Goand Spicejetforfix
70 taxmann-nlul.refread.com/rpa/taxmann_com 291 (Article)
Penalty imposed on Jet Airways, IndiGo and Spicejet for fixing fuel
surcharge through Cartelization
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VIPAN KUMAR
Asstt. Professor of Law, National Law University (Punjab)
This article deals with the latest case from the Competition Commission of India wherein certain
Airlines have been restrained from levying fuel surcharge on cargo which they carry. This case raises
issues regarding cartelisation by Airlines industry and need of concept relating to collective abuse
under the Competition Act, 2002 for which a Bill is pending in the Parliament.
Introduction
1. In the latest case of Express Industry Council of India v. Jet Airways (India) Ltd. [2015] 63
taxmann-nlul.refread.com/rpa/taxmann_com 147 (CCI) (hereinafter referred to as 'Airlines Fuel
Surcharge case'), decided on 17 November 2015, the Competition Commission of India (hereinafter
referred to as 'Commission') imposed heavy penalties on Jet Airways, Indigo Airlines and Spicejet
having contravened section 3 of the Competition Act, 2002. However, it absolved Air India and Go
Airlines from any liability as their conduct was not in contravention of section 3 of the Competition Act.
This case has raised some important issues regarding cartelisation by Airlines industry and brings
certain jurisprudential concepts like "Conscious Parallelism" and "Collective Abuse" to the forefront,
even if the Commission did not discuss them expressly. The present article highlights the details of this
case as decided by the Commission and tends to make a modest attempt to open debate on concepts like
conscious parallelism and collective abuse for future.
2. In the Airlines Fuel Surcharge case, the informant, Express Industry Council of India, filed an
information under section 19(1)(a) of the Competition Act, 2002 that the Airlines, Jet Airways, Indigo
Airlines, Spicejet, Air India and Go Airlines had connived to introduce a fuel surcharge on Cargo
transportation. This fuel surcharge was introduced to mitigate volatility of fuel prices, whereas, in fact,
there was no correlation of this fuel surcharge with fuel prices as there was no decrease in surcharge
corresponding to the decrease in fuel prices. It was further averred by the informant that the Airlines
had uniformly increased the fuel surcharge in concert. Moreover, the Airlines ignored the suggestion of
the informant to link fuel surcharge with an index, in accordance with the international practice, which
would have resulted in logical transparency.
The Commission after considering the entire material on record ordered an investigation by the office of
the Director General (DG). The DG's report gave a mixed finding of fact. It concluded that the
investigation did not prove allegations levelled by the informant and the conduct of Airlines was not in
violation of section 3 of the Competition Act, 2002. However, it gave a finding that the imposition of
fuel surcharge was not in conformity with market conditions and the Airlines had used fuel surcharge as
a revenue smoothening levy.
2.1 Challenge to the DG's Report by the Informant : The informant challenged the DG's report
on various grounds. Firstly, informant alleged that the DG had itself concluded that there was a
concerted action in 2012 and later on it abandoned this finding while coming to final conclusion.
Secondly, informant argued that DG had made an unnecessary distinction between 'concerted action'
and 'concerted practice'. Section 3 of the Competition Act, 2002 required that the parties should act in
concert and not that they should practice in concert. Thirdly, DG's notion that concerted action was
required during 'all times' was unwarranted. Fourthly, DG had erred in investigating the matter as
cartelisation was in fuel surcharge and not in freight tariff. Lastly, the informant made heavy criticism
of the DG's 'interesting' procedure adopted for making investigation wherein DG had asked the Airlines
if they had indulged in a cartel, and if so, to produce relevant documents.
2.2 Submissions of Jet Airways : The Jet Airways challenged the complaint and supported its own
stand through various grounds. Firstly, it alleged that the informant had proceeded with a misconceived
notion that there had to be direct correlation between fuel costs and fuel surcharge. The fuel surcharge
was also linked to and pushed by the increased costs arising out of USD-INR rate of exchange.
Secondly, informant's objections regarding fuel surcharge by referring to selective paragraphs of DG's
report could lead to an improper and incorrect depiction of the factual position. Thirdly, the Jet Airways
had alleged that mere proximity of Airlines at airport premises which could raise possibility of acting in
concert was purely speculative and created prejudice against Airlines. The business of any company,
whether in the field of aviation or any other field, depended on the comparative market study and the
existing market/competitive circumstances and the market intelligence analysis. Any deviation by one
was very likely to be followed by the rest of the companies in the same line of business. Such a pricing
pattern would not amount to cartelisation.
2.3 Submissions of Indigo Airlines : The Indigo Airlines also supported its stand that it had not
contravened section 3 of the Competition Act, 2002 through various contentions. It contended that the
air cargo market was an oligopolistic market and the cargo revenue formed less than 10 per cent of the
total revenue of all airlines. The fuel surcharge itself accounted for only 1-2 per cent of the total revenue.
Thus, there was no sufficient incentive to cartelise or indulge in 'action in concert'. Moreover, the
information regarding fuel surcharge was publicly available when circular was published in the market
and it was not uncommon to find conscious parallelism between market participants in an oligopolistic
market.
2.4 Submissions of Spicejet : Spicejet also took similar stand as was taken by Jet Airways and
Indigo Airlines. It alleged that the market shares of the players were fluctuating, which indicated
absence of collusion in the market. Moreover, fuel surcharge was only a component of the cargo tariff. A
mere movement of fuel surcharge in same direction was not indicative of any form of collusive activity.
3. The Commission, after analyzing the entire factual matrix of the case,
submissions/objections/replies filed by the different parties and evidence on record, came out with the
conclusion that Jet Airways, Indigo Airlines and Spicejet had acted in a concerted manner while fixing
and revising the fuel surcharge and thereby had contravened the provisions of section 3(1), read with
section 3(3)(a) of the Competition Act, 2002. The Commission passed following two orders:
(1) Jet Airways, Indigo and Spicejet should cease and desist from indulging in the
practices which have been found to be anti-competitive; and
(2) A penalty to the tune of Rs. 151.69 crores is imposed on Jet Airways, Rs. 63.74 crores
on Indigo Airlines and Rs. 42.48 crores on Spicejet.
However, the Commission absolved Air India and Go Airlines from any liability due to peculiar
circumstances prevailing in their case. The Commission observed that Go Airlines had given its belly
space of aircrafts to third party vendors to undertake cargo functions. Further, it was stated that Go
Airlines had no control and was never part of any commercial/economic aspects of cargo operations
done by vendors including imposition of fuel surcharge. As such, the DG did not include Go Airlines in
its analysis in the investigation report and no finding of contravention was recorded against it.
For Air India, the Commission observed that during September 2012, all the airlines had increased the
rates in an identical manner and fixed the fuel surcharge rate identically at Rs. 13 per kg., whereas Air
India had fixed rate at Rs. 11 per kg. which was lower than the rate fixed by other airlines. Similarly,
lower rate could also be observed during November 2012 when all other airlines had charged fuel
surcharge rate at Rs. 15 per kg. whereas Air India had charged the same at Rs. 13 per kg. during that
period. Moreover, it appeared that fuel surcharge rates were almost consistently moving in tandem with
the change in fuel rates. Wherever there was a substantial decline in the fuel costs, the fuel surcharge
was withdrawn by Air India. In these circumstances, the Commission found it difficult to record any
definite finding of contraventions against Air India.
4. The Commission's order was based on provisions of the Competition Act, 2002 considered in light of
facts of the given case.
Firstly, the Commission analyzed the definition of the term 'agreement' under section 2(b) of the Act.
Section 2(b) of the Act defines agreement as "any arrangement or understanding or action in concert:
(i) whether or not such arrangement, understanding or action is formal or in writing; or (ii) whether or
not such arrangement, understanding or action is intended to be enforceable by legal proceedings."
The Commission observed that the definition, being inclusive and not exhaustive, is a wide one. The
understanding may be tacit. The definition covers situations where the parties act on the basis of a nod
or wink. There is rarely a direct evidence of action in concert and in such situation the Commission has
to determine whether those involved in such dealings had some form of understanding and were acting
in co-operation with each other. In the light of the definition of the term 'agreement', the Commission
has to find sufficiency of evidence on the basis of benchmark of preponderance of probabilities. In most
of the cases the existence of an anti-competitive practice or agreement must be inferred from a number
of coincidences which, taken together, may, in the absence of any other plausible explanation,
constitute evidence of the existence of an agreement.
In backdrop of this definition the Commission noted that in the year 2008, Airlines had charged the
fuel surcharge of Rs. 5 per kg. at the time. For the time period April-June 2011, all Airlines had
increased the fuel surcharge rate to Rs. 9 per kg. In fact, two airlines had increased the same on the very
same date. Similarly, for June 2012 and September 2012, there was a time lag of just a few days. In case
of November 2012, two airlines had increased the rate on the very same date. As far as 'time lag' was
concerned, the Commission opined that the colluding parties may sometimes break the pattern through
artificial gaps so as to create a facade of competitive behaviour. In such a projected 'competitive
landscape', it becomes the bounden duty of the Authority to pierce this artificial veil and to examine the
real behaviour of the colluding parties. The Commission observed that the present case perfectly fitted
such stratagem where artificial lags and gaps were sought to be passed off and projected to envision a
competitive scenario when none existed. In fact, such justifications and explanations only completed
the chain of the arrangement and understanding reached amongst the parties.
Secondly, the Commission analyzed the provisions of section 3(3)(a) of the Competition Act, 2002. This
section prohibits any agreement between the enterprises which directly or indirectly determines prices.
In other words, it prohibits price fixation which is anti-competitive in nature. The Commission noted
that not all kinds of parallel behaviour of competitors which results in price fixation are anti-
competitive. Price fixation or price parallelism may be the result of intelligent market adaptation in an
oligopolistic market. Thus, collusion/agreement may have reasonable explanation.
However, in the factual backdrop of this case the Commission opined that the Airlines had acted in
parallel and the only plausible reason for increment of fuel surcharge rates by the airlines was collusion
amongst them. The explanations given by the airlines regarding the changes in fuel surcharge rates due
to the changes in fuel prices and USD rates were not satisfactory. Though it was stated that apart from
fuel price and USD rates there were various other components to be considered, the airlines were
unable to provide any cost studies or data to support their submissions.
The Commission noted that a parallel conduct was legal only when the adaptation to the market
conditions was done independently and not on the basis of information exchanged between the
competitors, the object of which was to influence the market. One of the elements that indicates
concerted action is the exchange of information between the enterprises directly or indirectly.
Thirdly, the Commission analyzed that the provisions of section 3(3)(a)-(d) of the Act, and laid that in
case of horizontal agreements, once it is established that such an agreement exists, it will be presumed
that the agreement has an appreciable adverse effect on competition. Thus, the onus to rebut the
presumption would lie upon the opposite parties. In the present case, the opposite parties could not
rebut the said presumption.
5. The present case opens up the debate on jurisprudential concepts of conscious parallelism and
collective abuse. The term 'collective abuse' means a concept where two or more enterprises having
collective dominance over a market can abuse their dominant position. The Indian law on Competition
does not recognize this concept under section 4 which deals with abuse of dominant position. There is a
Bill pending in the Parliament [The Competition (Amendment) Bill, 2012] which proposes to insert the
words – 'singly or jointly' in section 4(1), which shall cover the cases of collective abuse. After this Bill is
passed by the Parliament and it becomes law, such cases may also be analyzed from the perspective of
collective abuse.
Conscious parallelism is a concept under which competitors follow a pricing strategy which may or may
not result in competition law violation. In some cases one competitor takes a lead and others follow the
suit. Court/Tribunal/Commission has to see whether there exist any factors due which the competitors
are behaving in a parallel manner, e.g., their own economic interest, linkage of price with some index,
etc. The present case is based on this concept as there is absence of 'collective abuse' under Indian law
and the Commission had no opportunity to analyze it from that perspective.
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