Maritime Transport Service Providers Penalized For Cartelization In India

The case was initiated by the CCI based on a leniency application dated 01.10.2014 by NYK Line, which had provided evidence of collusion amongst the impugned enterprises in bids quoted to the OEMs in global tenders for certain trade routes. It is interesting to note that in the present case, although the CCI had formed its prima-facie opinion in 2014 and directed the DG to investigate u/s 26(1) of the Act, the final order was announced by the CCI only in 2022, taking over eight (8) years for the CCI to conclude its findings. The CCI, noting from the DG report, observed that the ocean shipping industry comprises multiple sectors, where various maritime motor vehicles are used for transportation, including bulk carriers, tankers, and vehicle carriers. For the present case, the CCI took Pure Car Carriers vessels (PCCs) as the relevant market for investigation, which has slightly different configurations from other modes of maritime transportation.

In its final order, the CCI noted various evidence in form of depositions/admissions, intercompany email, and regular meetings amongst the impugned enterprises for exchanging commercially sensitive price-related information on freight rates for various trade routes, offering joint services, approaching competitors on fixing rates, proximity and close matching of quoted rates in various bids on freight rates/positions/schedules, and enforcement of 'Respect rule' to avoid competition and protect their businesses through multi-lateral/bi-lateral agreements.

In the present case, two of the impugned parties had earlier filed joint leniency applications in 2016 which was rejected by the CCI noting that no provision of the Competition Act provides for two/more parties to jointly apply for leniency. Later, the CCI accepted separate leniency applications from the two parties. Among the four impugned enterprises, three enterprises and their participant members - NYK Line, K-Line, MOL and NMCC benefited from the lesser penalties regulations where the penalty was reduced by 100%, 50%, and 30% for each enterprise respectively, who fully disclosed, cooperated and made no attempts to distort evidence during the DG investigation.

The CCI directed impugned enterprises to cease and desist, imposing total penalties of approx. INR 63 crores on the three (3) enterprises and thirty-three (33) responsible employees for contravention of Section 3(3)(a), 3(3)(c) and 3(3)(d) the Competition Act, 2002 dealing with agreements directly/ indirectly determining purchase/sale prices, market allocation, and bid-rigging/collusive bidding, respectively. Such horizontal agreements are presumed to have an Appreciable Adverse Effect on Competition (AAEC) within India. Interestingly, the CCI dropped the proceedings against three employees individually liable in this case as they were no longer employed, could not be contacted at their registered addresses and the DG Investigation Report cannot be therefore served.

In respect of the contentions by the impugned parties of being an 'exporter' and therefore exempted u/s 3(5)(ii) of the Competition Act, the CCI rejected the argument and noted that for fulfilling the conditions of an 'exporter' and claiming the exemption, the end-product manufactured in India should be exported abroad. The Competition Act, 2002 exempts from its preview 'the right of any person to export goods from India to the extent to which the agreement relates exclusively to the production, supply, distribution or control of goods/services for such export'. The CCI further noted that the main activity of the impugned parties in the present case was to provide maritime transport services to the OEMs (which are exporters actually). The CCI further noted that limited exemption has been provided to the 'exporters' of goods/ services under the Competition Act, and any cartels entered for the supply of any input goods/services may be protected and exempted u/s 3(5) (ii) of the Competition Act when the ultimate good is being exported abroad. Such an exemption has been granted to develop India's exports and develop as a manufacturing hub.

Furthermore, concerning the contention that as the ultimate consumer is located abroad and the activities among the impugned enterprises had not caused any AAEC in the Indian market, and therefore the CCI would not have the jurisdiction over the case, the CCI again rejected the contentions and noted that the Competition Act provides no differentiation u/s 2(f) between 'ultimate consumer' and 'immediate consumer' based on where the goods/services are used as an input in the value chain. The CCI noted that OEMs located in India would constitute as the 'consumer' and therefore the activities of the impugned parties tended to cause an AAEC over the Indian markets.

Separately, on Vessel Sharing Agreements (VSAs) being earlier exempted from the preview of the Competition Act, the CCI noted that such VSA exemption itself created a carveout for agreements resulting in concerted practices such as price-fixing, limiting capacity/sales, market/customer allocation, and bid-rigging/ collusive bidding. In addition, the CCI noted the Press Release by the Ministry of Shipping giving clarifications to the industry dated 23.04.2015 which also mentioned that "Vessel Sharing Agreements are meant to promote ease of doing business in the liner shipping industry. Best practices consist of not indulging in anti-competition practices which include price-fixing, imitating capacity/sale, and market/customer allocation."

It is interesting to note that Vessel Sharing Agreements in the liner shipping industry were earlier exempted by the Ministry of Corporate Affairs (MCA) from the scrutiny of the CCI and such exemption (VSA Exemption) ended only on 04 July 2021. The exemption was granted in the maintenance of international best practices and looking at the peculiar characteristics of the liner shipping industry, being highly capital intensive, and better realized by developing greater efficiencies and synergies for better connectivity and frequency of ships between ports. The exemption had allowed for greater participation of SMEs in the shipping industry leading to increased competition in the liner shipping industry.

Moreover, all Vessel Sharing Agreements formed by ship operators in India, being majorly monitored by the Directorate General of Shipping (DG Shipping), have been required to file existing/proposed VSAs with DG Shipping. As similar anti-trust penalties have been imposed against maritime service providers in the US, EU, and Japan, it is unlikely that the VSA exemption will be further extended in India. With the halting of the VSA exemption, shipping carriers of all nationalities operating from Indian ports are also subject to comprehensive competition laws scrutiny from the CCI prohibiting any anti-competitive agreements in form of price-fixing, limitation of capacity/sales, market allocation, and bid-rigging and cartels.