Ola Has Not Abused Its Dominant Position, Not Used Predatory Pricing: NCLAT

The Appellants were informants before the CCI and contended before the Commission that Ola has abused its dominant position by predatory pricing and by entering into anti-competitive agreements with its drivers. Since the Commission prima facie found the allegation of abuse of dominant position to be true, it ordered the Director General (DG) to investigate the matter as per the terms of Section 26(1). Based on the investigation report, it was concluded that Ola did not in fact abuse its dominant position and was not in violation of Section 3 and 4 of the Act.

The Appellants are Fast Track Call Cab Pvt. Ltd. and Meru Travel Solutions Pvt. Ltd., who provided radio taxi services to customers from point-to-point movement in the geographical market of Bengaluru.

The main contention of the Appellants is that Ola Cabs entered the Bengaluru market in 2011. Its market growth towards the end of 2014 was modest, but soon after that, they started predatory pricing by way of offering discounts to customers and incentives to drivers, with the intention to monopolize the radio taxi market in Bengaluru. This caused losses to the Appellants, thus it was contended Ola violated Section 3 and 4 of the Competition Act. The allegation was that this reduction of price by way of offers to customers was predatory pricing under the Competition Act.

Proceedings before NCLAT

Factors To Determine Dominant Position

The Tribunal first examined what constitutes predatory pricing and abuse of dominant position, which are defined in the Explanation to Section 4. On analysing the factors to determine whether any taxi service provider is in a dominant position, as mentioned in Section 4(4), it was held that Ola itself was facing competition from a number of companies such as Meru, Fast Track and later Uber, while it was trying to establish its brand. The presence of Uber around the same time forced it to change its market strategy including pricing to respond to the competition of Uber. Thus, it cannot be said that Ola enjoyed a dominant position in the radio taxi market in Bengaluru and was trying to push out its competitors by abusing its dominant position. The Tribunal relied on Astra Zenca Plc. V. European Union in this regard.

The Tribunal held that the present matter is akin to the situation that arose in CCI v. Fast WayTransmission Private Limited & Ors., wherein the Apex Court held-

"…when an enterprise enjoys dominant position in the relevant market, it is enabled to operate independently of competitive forces or affect its competitors or consumers or the relevant market in its favour."

Thus, since Ola could not operate independently of market forces, it could not be said to have a dominant position.

The Tribunal also observed that annual fleet size, i.e., the number of vehicles that have at least one booking from the relevant taxi service supplier in a day, is not the correct factor to determine the dominant position of a radio taxi service provider, as has been alleged by the Appellant. This is the reason why the DG used the number of rides by a taxi service operator in a given time period as a factor in his report.

Below-Cost Pricing Of Ola

The DG in its report noted that Ola started providing small discounts to customers from September 2012, but it started offering incentives to drivers only in April 2014.

There was no below-cost pricing used by Ola for any sustained period of time, which could be labelled as predatory pricing. It started offering incentives to drivers after its market expanded. The pricing strategy of Ola was in response to market conditions, helped by heavy infusion of foreign funding.

The Tribunal accepted the contention of Ola that the low cost pricing could be treated as a variable cost, which was the expenditure that Ola undertook to establish/ consolidate its brand in the market and increase its market share. Thus, Ola was reacting to the pricing actions of the new competitor in the market, i.e., Uber.

The Tribunal observed-

"Therefore, we are of the opinion that the below cost pricing by Ola was not predatory pricing with a view to dislodging any competitor from the market but towards establishing itself as an effective and reliable brand in the market and also opening up a latent market to its advantage through awareness generation about its brand and network/platform through promotional initiatives like discounts and incentives and attracting new customers and gaining riders confidence."

Regarding what is a true indicator of dominant position, the Tribunal noted that "…mere market share of the enterprise will not truly exhibit its dominant position, but size of the enterprise, its economic power, dependence on consumes, market structure in size and vertical integration of the market and service or service of such enterprises also have an important role in deciding whether an enterprise enjoys a dominant position in the market"

Anti-Competitive Agreement With Drivers

The Tribunal held that the agreements that Ola has with its drivers are not anti-competitive and in violation of Section 3 of the Act.

It was alleged by the Appellants that since the agreements contain provisions that penalize the drivers for not conforming to certain norms of behaviour, they are forced to remain connected to Ola in fear of imposition of penalties. The terms provide that the drivers will not enter into any similar agreements with the competitors of Olacabs and impose penalty on the driver for refusing to reject the booking.

The Tribunal held that agreements with the drivers cover various aspects- which concern welfare measures for them and help them to source credit for buying vehicles. The agreements are completely optional and do not bind the drivers to Ola's network in any way. The drivers have the option to move away from Ola's network in case they want.

Proceedings Before The CCI Are In Rem

The Tribunal dismissed the objection of Fast Track that the period of investigation of the DG was unnecessarily extended up to September 2015 and it held that the proceedings before the Commission are in rem and not in personam. Thus, there is no infirmity in extending it to September, 2015, as the Commission had directed allegations of both informants (Meru and Fast Track) to be investigated together.

Ola As A Technology Company

The NCLAT dismissed the objection of the Appellant that Ola was not a technology company and hence the growth of Ola is not due to its technological edge, but because of its predatory pricing. The Tribunal held that Ola's claim that it is basically a technology company has a big element of truth in it, because it provides end to end provision of service from booking till alighting from the taxi with GPS-based tracking system. Though other companies have also used technology to ease booking, Ola's model is different as it uses an App, which can be used with remarkable ease and provides taxi services within minutes. Thus, it has employed a technology in a much more effective manner, which previous radio taxi operators were not able to do.

Case Title:Meru Travels Solutions Pvt. Ltd. v. CCI

Counsel for the Appellant: Ms. Sonal Jain, Mr. Udayan Jain, Mr. Abir Roy, Mr. Ishkaran Singh, Ms. Kajal Sharma and Ms. Riya Dhingra, Mr. Vivek Pandey, Mr. Raj Surana, Mr. Ishaan Chakrabarti, Advocates.

Counsel for the Respondent: Ms. ShamaNargis, Deputy Director, CCI. Mr. Ajay Kumar Tandon for R-1, CCI. Ms. Purnima Singh, Ms. Neha Bhardwaj, Ms. Shivani Malik, Ms. Astha Baderiya, Advocate for R-1. Mr. Rajshekhar Rao, Sr. Advocate with Ms. Nisha Kaur Uberoi, Mr. Gautam Chawla, Mr. Raghav Kacker, Ms. Sonal Sarda and Mr. Samriddha Gooptu, Ms. Sakshi Agarwal, Mr. Ishan Arora, Mr. Madhav Kapoor, Advocates for R-2.

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