Revisiting the MMT-Goibibo Case – Is CCI Geared Up?

[By Aditya Kashyap & Arnika Dwivedi]

The authors are students of Symbiosis Law School, Pune.

 

Introduction

The Delhi HC recently pronounced a judgement in the contentious case of MakeMyTrip-GoIbibo. The 10% deposit imposed on the appellants by the NCLAT for the admission of the appeal, was upheld by the High Court with the caveat that no further request is made in respect of the remaining 90% of the penalty amount.

The story starts in 2018 with a commercial agreement between MakeMyTrip-GoIbibo and OYO, which acted as a vertical agreement, which caused the delisting of two major competitors of the latter i.e., Treebo and Fab Hotels from the former’s website. This resulted in FHRAI filing an information report with the CCI, alleging anti-competitive trade practices along with the contravention of Section 3 and Section 4 of the competition Act . Along with the aforementioned commercial agreement, they also complained against the Price Parity Clause in MMT-Go agreement with hotels, listed on its website. The price parity clause prohibited hotels from offering better terms or prices on other Online Travel Agent (OTA) website or even the hotel’s own website, than what was being offered at MMT-Go’s platform.

There are certain questions which need to be addressed before the merits of allegations could be determined, Firstly, whether the Opposing parties held a dominant position in the market. Secondly, whether there was an abuse of the dominant position. Thirdly, whether the agreement between the opposing parties was in nature of refusal to deal.

Dominant Position in the Relevant Market 

MMT-Go are mainly involved in providing Search, Compare and Booking (SCB) services for end users, the CCI observed that MMT-Go also offered services to hotels that included inventory listing, tracking potential customers, and sales. The submissions made by MMT-Go to define markets based on hotels’ accessibility to end consumers were turned down by the CCI due to the fact that different services are provided to different types of customers i.e. the hotels and the end customers.

The CCI found that end users most valued the seamless integration of SCB functions on Online Travel Agents (OTA) platforms. The CCI also found that OTAs helped hotels increase demand by improving visibility and discoverability, even when rooms were booked through other channels. This was true even without OTAs. This difference led the CCI to distinguish online and offline distribution.

The CCI said OTAs had their own relevant market within online distribution, further sub-segmenting it. The CCI accepted the DG’s definition for MMT-Go as “-market for online intermediation services for booking of hotels in India”. The CCI agreed with the DG that MMT-Go had a market monopoly. The CCI considered that MMT-Go had no real competition and that hotels relied on it to stay afloat and expand. CCI also considered the fact that MMT-Go was not subject to any real competitive restraints.

Abuse of Dominant Position 

The CCI found that exclusivity requirements, and the price and room parity requirements hampered OTA competition by limiting the competitive tools available to other OTAs. Additionally, the CCI found that these requirements had a negative impact on the sale of rooms through other platforms/channels, highlighted the reliance of hotels on MMT-Go, and may have allowed MMT-Go to negatively impact prices. As a direct consequence of this, the CCI arrived at the conclusion that MMT-Go engaged in abusive practices due to its dominant position. The Competition Commission of India (CCI) did not accept MMT-Go’s defense that enforcing parity terms was a common practice in the industry.

The findings of the DG regarding predatory pricing by MMT-Go were disregarded by the CCI as a result of the DG’s failure to correctly apply the costs that were pertinent to determining the average variable cost. The CCI concurred with the DG’s conclusions regarding the misleading information that was presented on the MMT-Go platform, which prevented hotels from accessing the market.

Refusal to Deal 

The CCI found that MMT-Go and OYO’s agreement to remove Treebo and Fab Hotels amounted to refusal to deal. The CCI also noted that the arrangement was a win-win between two vertically related entities to eliminate competitors in their respective markets. The CCI considered how the delisting singly benefited OYO. The CCI said the agreement limited consumer choices and made entering new markets harder. The CCI ultimately arrived at the conclusion that the exclusionary and mutually beneficial agreement between MMT-Go and OYO constituted a refusal to deal in violation of Section 3(4)(d) of the Act.

CCI found that the agreement was anti-competitive and had an appreciable adverse effect on competition within India. The Competition Commission of India found that the opposite parties violated Section 4(2)(a)(i) as the price parity clause prevented hotels from offering better prices or terms on other platforms or their own websites. The commercial agreement between the parties denied market access and constituted refusal to deal, violating Section 3(4)(d), 4(2)(c), and 3(1). Following this, a penalty of 5% of total average turnover was imposed on MMT-Go and OYO.

Relevant Turnover

The penalty imposed was another contentious issue in the case, the penalty was imposed on the total turnover of MMT-Go and, not merely the hotel segment. This can be seen as being inconsistent with the concept of “relevant turnover” as developed by the Apex Court in Excel Crop Care Limited v. Competition Commission of India, the court stated that the penalty is to be imposed on the turnover which is the “turnover in respect of the quantum of supplies made qua the product for which cartel was formed and supplies made.” So this would support the position that the penalty should only be imposed on the hotel segment of the business and not the total turnover, this is based on the doctrines of proportionality and the doctrine of purposive interpretation.

The doctrine of proportionality developed by the Indian Judiciary in Arvind Mohan Sinha v. Amulya Kumar Biswas states that the penalty imposed on the person should not be unequal to the significance of the violating act committed. In Bhagat Ram v. State of Himachal Pradesh the court clarified that “the penalty imposed must be commensurate with the gravity of the misconduct, and that any penalty disproportionate to the gravity of the misconduct would be violative of Article 14 of the Constitution”. So, if any penalty which is found to be in excess of the gravity of the contravening act performed would be in violation of Article 14 and Article 21 of the Indian Constitution and against the very concept of Indian democracy.

The doctrine of purposive interpretation as adopted in Indian Jurisprudence from Southern Pipeline Contractors Conrite Walls Case from South Africa, states that, there ought to be a legislative link between the damage done and the profits that accrue from the cartel activity. the damage instigated and the revenue accumulated as a result of the cartel activity should thus be taken into account while determining the amount of penalty imposed.

In this case, the implementation of these doctrines can be justified in two ways. First, given the gravity of the violation and, given that MMT-Go acts as an intermediary for booking service, only considering the hotel segment to impose the fine, would be contrary to the purpose of the act, which is to prevent such egregious violations.  Second, only the hotel segment was involved in the violating activity, so imposing a fine on MMT-Go’s total turnover would be violative of the fundamental rights. The CCI chose the former reasoning, so the Appellants appealed to the NCLAT.

Deposit for Admission of Appeal 

The tribunal gave an interlocutory order which set a 10% deposit of the penalty amount as a prerequisite for admission of the appeal. The appellants argued that the imposition of such a deposit was arbitrary, ambiguous and unreasonable, also they argued that such deposit could lead to further demands for the recovery of the remaining 90% corpus, as no stay was granted in its regard. Such a demand, they argued, was violative of Article 14 and Article 19. Along with the stay on the deposit, the appellants also prayed for the stay of the complete CCI order, which would include the non-monetary measures directed by CCI (removal of parity obligations, exclusivity obligations and, free and fair access of platform to all hotel chains)

However, during the course of the trial the appellants accepted to pay the 10% deposit given that no further demands were made against the recovery of the remaining amount.

The Hon’ble HC finally held that the 10% deposit is to be made by the appellant, and stayed any further recover from being made, furthermore the court did not grant any relief regarding the non-monetary measures and, left to the NCLAT to decide upon any further relief.

Conclusion

While some proponents of MMT-Go might argue that the precedent set in Excel Corp. Case would imply that the penalty should merely be imposed on the hotel segment, the argument falls apart as soon as we see the role played by them in the market place. Given that they act as an aggregator of services, and the dominant position they hold in the marketplace, the acts committed by them, the judgement by CCI is unlikely to be reversed.

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