In Re: Federation of Hotel & Restaurant Associations of India (FHRAI) (Order), the Competition Commission of India (CCI) passed an interim order to grant relief to the informants, Treebo and FabHotels and directed MakeMyTrip India Pvt. Ltd. (MMT) to list the informants on its online portal. The Order is relevant to understand, especially in light of the peculiarities arising out of digital markets which competition authorities have been attempting to regulate and considering powers under Section 33 of the Competition Act, 2002 (Act) has not been commonly enforced by the CCI.
Facts of the case
The applicants approached CCI under Section 33 of the Act, which empowers the CCI to grant interim relief.
MMT had entered into a commercial agreement with Oravel Stays Private Limited (OYO) to not display OYO’s competitors, Treebo and FabHotels on its portal. It was alleged by the applicants that MMT’s action of preferential treatment to OYO amounted to denying of market access under the Act and would be in contravention of Section 3(4) (vertical agreements which may amount to anti competitive behaviour) and Section 4(2)(a)(i) and Section 4(2)(c) (abuse of dominance) provisions of the Act.
In the instant case, the relevant markets had been demarcated by CCI. CCI found OYO to be a significant player (not a dominant player) in the market for franchising services for budget hotels in India and MMT was found to be prima facie dominant in the market for online intermediation services for booking of hotels in India. Post investigation of the business practices followed by MMT, the CCI found that the agreement between MMT and OYO to be prima facie anti-competitive. This further prompted the applicants to seek relief under Section 33 of Act.
As put forth by FabHotels, in Competition Commission of India vs. Steel Authority of India Ltd, (SAIL judgment), the Apex Court outlines the parameters for a successful application of interim relief under Section 33 under the Act:
- existence of a prima facie case
- balance of convenience in favour of the party against which interim relief is sought
- irreparable damage to an entity if interim relief is not granted
Since MMT was a dominant player in the market, it assumes the position of a ‘gatekeeper’, a portal which is responsible for providing significant market access to business users and acts as a gateway to consumers. FabHotels contented that not listing on such an intermediary coupled with the COVID-19 pandemic aggravated the applicants’ ability of compete. This would compel the applicants to exit the market, thus leaving the market for franchising budget hotels with only one significant competitor, i.e. OYO, thereby reducing competition in the market.
Treebo put forth similar arguments, highlighting the parameters set by the SAIL judgment and that the conditions in the judgment had been satisfied.
MMT put forth various arguments, inter alia, placed importance on the commercial freedom that an entity enjoys in determining the agreements entered in the course of business. Further MMT contended that the delisting did not disrupt the market by creating entry barriers in the market since it was only applicable for two entities.
CCI upheld the importance of contractual freedom of entities and the argument put forth by MMT. However this was with the caveat that such contracts between entities should not have anti competitive effects. In the instant case, the exclusionary conduct of the contract between MMT and OYO, leading to alleged denial of market access would prompt for CCI’s scrutiny.
The CCI placed reliance on the SAIL judgment which laid down the parameters for granting interim relied in cases. CCI noted that for granting interim relief a higher threshold was needed as compared to when an order for investigation is passed. In the present case an agreement was entered into between a dominant player and a substantial market player which had exclusionary impact in the market. CCI noted that such a conduct would be sufficient to satisfy the test laid down in the SAIL judgment.
CCI also put forth that not only the harm caused but also the harm that would likely to be caused should be considered while granting interim relief.
The action of MMT delisting Treebo and FabHotels may deny them an access to channel of distribution while it would not substantially disrupt MMT’s business considerations. Thus the balance of convenience was in favour of MMT.
The CCI also noted that there has been a shift of consumers’ preferences to online services and thus digital distribution is becoming an essential means for businesses to reach consumers. There are certain aspects such as data accumulation and network effects by entities in the digital sphere which empower firms to significantly impact competitive forces between business users. Thus denial of market access by these entities which act as digital gateways could hamper business interests of companies which rely on such intermediaries for their profits and growth.
Thus CCI noted that at this stage of the case, denial of market by a dominant online intermediary would have adverse implications on the informants’ business considerations, thereby the market.
For determining denial of market, the CCI held that the actual exit of the players from the market does not need to be imminent, since that would be a very strict standard. Rather denial of market access in any manner, by not allowing substitutes to compete effectively would amount to denial of market access under the Act.
Thus based on these considerations, CCI passed the interim relief in favour of FabHotels and Treebo.
In the instant matter, the CCI found it relevant for such a timely intervention in digital markets. The interim relief was necessary considering high dependence of business users on a platform such as MMT. CCI’s early intervention and also acknowledgment that not doing so in dynamic markets call for as irrevocable damage is in line with the growing recognition that digital markets have to be approached differently from traditional markets by competition regulators. This judgment also reaffirms CCI’s stance in line with its European counterparts which have been shifting towards greater regulation in digital markets.
Although this is not the final order, the reasoning of the interim order is a welcome jurisprudence in competition regulation of dynamic markets.