Competition Commission of India
Arshiya Rail Infrastructure Ltd. ... vs Ministry Of Railway (Mor) & Ors. Main ... on 14 August, 2012
Before the
Competition Commission of India
[Case Number: 64/2010,02/2011 & 12/2011]
Date: / 9 August, 2012
Case Number: 64/2010 & 12/2011
Informant:
Arshiya Rail Infrastructure Limited (ARIL)
Represented by: Sh. C. S. Vaidyanathan Sr. Advocate
alongwith associates
Opposite Parties:
1. Ministry of Railways (MoR) through the Chairman, Railway Board
(RB)
Represented by: Sh. Mohan Parasaran, Addl. Solicitor General
alongwith associates
2. Container Corporation of India Limited (CONCOR)
Represented by: Sh. Jayant Bhushan, Sr. Adv. alongwith
associates
Case Number: 02/2011
Informant:
KRIBHCO Infrastructure Limited
Represented by: Sh. Ramji Srinivsan, Sr. Advocate alongwith
associates
Opposite Party:
nistry of Railways (MoR)
Represented by: Sh. Mohan Parasaran, Addl. Solicitor General
ommj
alongwith associates
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ORDER
Three separate information (two by ARIL and one by KRIL) were filed on different dates by the Informants under section 19(i)(a) of the Competition Act, 2002 (Act) for alleged abuse of dominant position by the opposite parties functioning as a group entity. As the core issues of all these cases are similar and related, all three information will be disposed of in the present single Order.
Parties 2.1 Kribhco Rail Infrastructure Limited (KRIL) is a 100% subsidiary of Krishak Bharti Co-operative Limited (KRIBHCO), a co-operative undertaking in which Government of India is stated to hold approximately 48.36% of the total equity. While KRIBHCO is engaged in the business of manufacturing, marketing and distribution of fertilizers and other agricultural products, the objectives of KRIL include operating container trains and undertaking infrastructure projects. KRIBHCO procured Category I licence in the year 2007 for running container trains which was later transferred to KRIL.
2.2. Arshiya Rail Infrastructure Limited (ARIL) was incorporated in 2008 as a wholly-owned subsidiary of Arshiya International Ltd. and is an integrated supply chain and logistics infrastructure solutions provider. It holds category I licence to run container trains.
2.3. Container Corporation of India (CONCOR) is a public sector company incorporated in March 1988 under the Companies Act, 1956, set up with an intention of developing multi-modal transport and logistic support for domestic and international containerized cargo. Post-commencement of its operations, container freight service of JR is being handled by CONCOR through yearly MoU. Post 2007, CONCOR is in the league of Container Train Operators (CTOs), as envisaged under the 'Policy to permit various operators to move container trains on Indian Railways' (Policy).
A omm Page 2 of 54 0 *) rr 2.4. Ministry of Railways (MoR) is a Central ministry under the Government of India (Gol) in-charge of railway operations in India - both government and non-government railway and is assisted by the Railway Board. Under the provisions of the Railway Board Act, 1905, Railway Board has been vested with the powers and functions of the Government of India. Indian Railways (IR) is a departmental enterprise in the government sector (under the administrative control of MoR) that owns and operates India's rail network. Among its major functions, IR offers passenger as well as freight services across the country through various types of wagons and other rolling stocks. It also offers certain ancillary services like catering, hospitality etc. Information 3.1. As submitted by the Informants, until the year 2006, rail freight service in India was provided by IR (through general purpose wagons) and CONCOR (through container trains) only. With increase in trade volumes and resultant growth of container traffic in India, need was felt to augment transportation over rail network. In February 2005, the Union Minister for Railways announced that MoR and Government of India would permit private operators to run container trains on the IR network. It was, therefore, decided to open rail container freight segment to private parties through Public Private Partnership (PPP).
3.2. Accordingly, MoR appointed RITES Limited (RITES), a multi- disciplinary consultancy organization to study 'Operation of Container Trains on Indian Railways'. The Report submitted by RITES highlighted the need for allowing private container train operators other than CON COR, which would bring financial as well as operational benefits to the Railways.
3.3. Thereafter, on 09.01 .2006, MoR issued a policy document under which Private Container Train Operators (PCTOs) were assured of non- discriminatory access to move container trains on the rail network on the A Comm1 Page 3 of 54 CL same line as CONCOR for both international as well as domestic traffic. On 26.09.2006, MoR notified the 'Indian Railways (Permission for operators to move container trains on Indian Railways) Rules, 2006' granting, inter alia, permission to carry all goods and access to rail network where Indian Railways (IR) has right to operate, on payment of uniform haulage and other charges.
3.4. Pursuant to the PPP Policy and the CTO Rules, a Model Concession Agreement was drafted for execution between MoR and PCTOs, which guaranteed, among other things, (a) Non-discriminatory access to the rail network including rail terminals, (b) Non-discriminatory access to PCTOs trains on networks not owned by MoR (i.e. private sidings), (c) Uniform Haulage charges on non-discriminatory basis not to be revised more than twice a year and (d) Level playing field for all concessionaires.
3.5. Subsequently, licences were issued to eligible parties in different categories to operate container trains on JR network, ARIL and KRIL being two of them.
3.6. On 11.10.2006, MoR issued a letter by virtue of which, among other things, four commodities namely ores, minerals, coal and coke were brought under the category of restricted commodities, resulting in foreclosure and denial of market access to PCTOs to the extent of 60-65% of the relevant market identified as market for rail freight transportation. Later on, through various rate circulars (RC), JR has, without any justification, increased haulage and other charges payable by the CTOs. Additionally, JR has distorted the level playing field between CONCOR and other CTOs by offering different rent-structure for the land leased to the CTOs. Further, by not allowing private parties to undertake maintenance of wagons owned by the PCTOs, JR has resorted to tie-in arrangement thus restricting competition in the wagon maintenance market.
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3.7. The informants have submitted that the PPP Policy clearly mentioned that private parties will be allowed to move container trains on the same line as CONCOR, for both EXIM as well as Domestic traffic. It has also been brought out that there was no restriction on CONCOR in relation to commodities or customers it was permitted to handle as on the date of announcement of the PPP Policy.
3.8. It has also been submitted that while MoR is competing with the PCTOs in the business of transportation of goods on rail, at the same time it also regulates the PCTOs to its own advantage. As such there is a serious conflict of interest between the MoRs' role as regulator and as a competitor.
Allegations 4.1. It has been averred by the informants that CONCOR and MoR are 'enterprise' and together constitute a 'group' under the provisions of the Act. Further, the latter does not perform sovereign functions with regard to railway services.
4.2. Abuse of dominant position The informants have submitted that the relevant market in the present case is the market for rail services in India over which IR has a monopoly. In the alternative, it could be market for freight transportation over rail network in India; in this case also, railway entities have a dominant status as they hold nearly 90% market share in terms of tonnage. The Informants have alleged that the railway entities have abused their dominant position in the relevant market, by indulging in the following abusive behaviour:
4.2.1. Exclusionary non-price conduct / discrimination (in violation of sections 4(2)(a)(i), 4(2)(b)(i) and 4(2)(c) of the Act.
By prohibiting transportation of commodities by container train operators (CTOs) such as Ores, Minerals, Coal and Coke that constitute approximately 65% of the freight traffic on rail, the railway entities have foreclosed this 12 f <\• <ç rrnSS/o,, Page 5of54 \\.0 $ market - an abuse of their dominant position and sought to ensure that such commodities are transported only by IRs' own freight services i.e. on conventional wagons and not by container trains operated by the CTOs.
4.2.2. Exclusionary price discrimination I exploitative pricing (unfairly high prices) and exclusionary pricing (margin squeezing) in violation of sections 4(2)(a)(ii) and 4(2)(c) of the Act.
By arbitrarily increasing haulage charges, imposing increased haulage charges on nine notified commodities on the basis of a container class rate, withdrawing the allowed rebate and arbitrarily increasing stabling charges, the CTOs have been put to a position of competitive disadvantage when compared with the Indian Railways' own freight services as their services are not subject to similar terms and conditions and price increases. By doing so, the railway entities have systematically and intentionally reduced the margin available to CTOs, thus making their operations commercially unviable.
4.2.3. Unfair trade conditions in violation of sections 4(2)(a)(i) and 4(2)(c) of the Act.
The above allegation has been cited as resulting from several actions of the JR, which are:
i. JR has unsettled the level playing field between CONCOR and other CTOs by giving land to CONCOR at favourable terms and conditions, thus giving unfair advantage to the latter and hence to the railway entities.
ii. JR has delayed examination work pending at terminals which has resulted in wastage of resources, return of empty containers and higher stabling charges payable by the CTOs. iii. By introducing stringent timelines and efficient infrastructure requirements for private freight terminal (PFT), level playing field has been unsettled since CTOs are subjected to onerous
- infrastructure requirements with no fixed timelines.
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iv. JR has failed to carry out timely maintenance activities and
providing spares as prescribed in the Concession Agreement, despite maintenance charges paid by the CTOs 4.2.4. Refusal to deal in violation of section 4(2)(c) of the Act.
By denying access to CTOs other than CONCOR, to terminals and sidings owned and exclusively used by CONCOR, JR have made the cost of operations of CTOs to increase as also perpetrating operational inefficiencies. This has been done to benefit their services.
4.2.5. Leveraging dominance in one market (rail services) to protect another market (rail freight services) in violation of section 4(2)(e) of the Act. By leveraging their dominance in rail services including tracks, terminals etc, railway entities are able to leverage their dominance to protect their rail freight services to the detriment of the CTOs, as evident from the following:
• Prohibition on specific commodities from operation by CTOs. • Provision of land owned by MoR on favourable terms and conditions to CONCOR, giving them unfair advantage over other private CTOs in setting up terminals.
• Denying access to terminals and sidings owned by CONCOR, resulting in denial of effective market access to CTOs. • Restricting competition in the derivative aftermarket of maintenance services.
4.2.6. Imposition of supplementary obligation in violation of sec 4(2)(d) of the Act.
As submitted, there exists an aftermarket for maintenance of the concessionaire's container trains. MoR has monopolized this market by insisting that such maintenance of private railway rakes can only be sourced from MoR on payment basis, although it could have been done from other sources, thus restricting competition in the derivative aftermarket. Thus, PCTOs are obliged to get their hardware maintained by M0R, which could / ' Gom,i,I Li/, Page 7 of 54 CL o \* * / TT ie have been carried out by the PCTOs themselves or by any third party of their choice. This has resulted in supplementary obligation for PCTOs.
Contravention of sec 3(4) of the Act.
4.3 The informants have also alleged that by forcing the PCTOs to agree to the maintenance clause 5.8 of the Concession Agreement, MoR has resorted to tie-in arrangement in which MoR requires PCTOs to agree to get the maintenance of their wagons done by MoR in order to get permission to transport goods in containers over the rail network.
5. Relief Sought by the Informants In view of the facts presented in the Information, the Informants have prayed for the following reliefs:
i. Direct and order that railway entities have abused their dominant position in the relevant market and are, therefore, in violation of Section 4 of the Competition Act;
ii. Grant ad-interim ex-parte order staying the operation of RC 30 of 2010, or direct MoR to keep RC-30 of 2010 in abeyance till the final disposal of the present Case.
iii. Order the MOR to immediately withdraw all discriminatory circulars, notification, letters of the MOR/Railway Board (including, but not limited to, letter bearing letter No. 2006/IT- 111(173/12 dated 11.10.2006, RC 30 and RC 32) that has created an uneven playing field for freight operators;
iv. Declare clause 5.8 of the Concession Agreement (on wagon maintenance) anticompetitive and void.
V. Impose fines on the Railway Entities as per section 27 of the Act for abuse of their dominant position;
vi. Order creation of an independent regulatory body to: (i) issue policies and govern the freight market in India; (ii) ensure transparency in devising Haulage Charges, Stabling Charges / Page 8of54 \Q Cx 1* \e ' and other charges applicable to freight operators for operation of container trains;
vii. Pass appropriate orders for separation of infrastructure and operations segment of the rail freight services in India, to facilitate equal access rights to essential facilities and infrastructure;
viii. Pass an order to pay the costs of the complainant! Informant;
and, ix. Pass any other order that the Hon'ble Commission may deem fit.
Prima facie Order of the Commission
6. After going through the submissions of the Informants and materials on record in support of the allegations, the Commission was of the prima facie opinion that there exists merit in the Information and accordingly, in its Orders dated 24.01.2011, 27.01.2011 and 13.04.2011, directed the Director General to investigate the matter.
DG Investigation Report 7.1. Having received the Order to investigate, the DG analysed the following key issues connected with the case:
i. Jurisdiction on MoR and application of competition laws on the execution of concession agreement entered into with the CTOs; ii. Relationship between MoR and CONCOR in respect of group entity;
iii. Delineation of relevant product and geographical market. iv. Analysis of dominant position in the relevant market; V. Scope and intent of PPP policy and deviation, if any, at implementation stage;
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vi. Distortion of level playing field between CONCOR on one side and
other CTOs on the other vis-à-vis land issues and grant of permission for railway sidings;
vii. Enquiry into the terms and conditions of the concession agreement and conduct of MoR group to determine various abuses in the form of unfair or discriminatory conditions, unfair or discriminatory prices of various kinds of charges, restriction on production of goods and services;
viii. Indulgence in certain practices resulting in denial of market access and use of dominant position in one relevant market to protect other relevant market.
7.2. Further, DG has clubbed the allegations and related issues under following broad heads as outlined below:
i. Prohibitions imposed on movement by CTOs of commodities under category coal, coke, minerals and ores Circular no. 2006/TT-III/73/12 dated 11.10.2006.
ii. Changes introduced through various circulars in the applicable Haulage Charges.
iii. Restrictions imposed on CTOs in accessing Private Sidings. iv. Policy for allocation of land by MOR to CTOs vis-à-vis CONCOR.
V. Issues related to access to CTOs to Container Rail Terminals of MOR.
vi. Issues pertaining to maintenance of wagons.
vii. Increase in the stabling charges by MOR.
viii. Issues related to long time taken in granting permission by MOR to CTOs for setting up terminals in comparison to quicker disposal under the Private Freight Terminal policy ix. Imposition of unfair conditions in concession agreement entered by MOR with CTOs.
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7.3 On the basis of investigation carried on, the views of DG are as follows:
7.3.1 Analysis of jurisdiction issues raised by MOR with respect to Private Public Partnership (PPP) The nature of business of MOR through Indian Railways and CONCOR involving freight transportation on rail network is commercial in nature and hence the MoR and CONCOR fall within the purview of the Act as an Enterprise and as such cannot be considered to be sovereign function of the Government. Hence, the activities and conduct of MOR and MOR Group are covered within the scope of the competition Act. Having permitted entry of private players in the relevant market any attempt to restrict, inhibit, foreclose competition thereon cannot be justified on account of pleas such as social obligations, likely loss of revenue, diversion of traffic etc. Further, MOR Group is performing multiple responsibilities of the policy maker, regulator, infrastructure and service provider, operator in the relevant market. As a result MOR is in a clear position to determine and change the entire dynamics of the movements of the goods on rail network. There is also an inherent conflict of interest emerging out of the multiple roles.
7.3.2 MoR and CONCOR as 'Group' entity Having concluded that MoR and CONCOR are an 'enterprise' as per the relevant provisions of the Act, DG has stated that CONCOR is a government company within the meaning of Companies Act, 1956 in which the President of India holds more than 50% share through the MoR. Further, the part-time non-executive Chairman is a government nominee and so is one of the 5 part-time directors. Also, Member Traffic, Railway Board, MOR who deals with the policy on container train operations is also the Chairman of CONCOR. Accordingly, it has been held by DC that CONCOR and MoR constitute a 'Group' (railway entity) in the relevant market, in terms of explanation (b) to section 5 of the Act.
Page llofS4 0 ir /e' 7.3.3 Relevant market 7.3.3.1 In order to delineate the relevant market, DC has stated that there are three modes of freight transportation viz; air, water and land, among which there exists limited functional substitutability. Since each of these modes offers distinct advantages over other on the basis of volume, nature of commodity, lead, cost of transportation and customer preference, hence, these constitute distinct product markets in terms of the provisions of Competition Act.
7.3.3.2 In the next step, substitutability between rail and road freight movement was considered. While transportation through road is generally considered more suitable for shorter distance, movement on railway network is generally more appropriate for long distance. Further, on account of infrastructure and logistic requirement, it has been inferred that rail and road as medium of transport are not substitutable. In this context, judgment of the European Commission in the case of Deutsche BahnIPCC Logistics has been cited wherein it was held that there is a separate market for rail freight transport.
7.3.3.3 On the basis of technical substitution between the general wagons of the JR and the container trains of the CTOs, the DC is of the view that a commodity is being capable of being carried in either of the two. Further, prior to setting up of CONCOR, all commodities on rail were being moved in the wagons of IR. Also, before the opening up of the container segment to CTOs, there was no blanket prohibition on CONCOR from carrying any commodity. All commodities at least to some extent were being carried by CONCOR. DC has further submitted that there are containers and wagons of various designs and specifications available to cater to different kinds of goods.
7.3.3.4 As regards relevant geographic market, it has been submitted that area of operation of the CTOs and the movement of wagons is confined to the rail network where the railway administration has a right to operate.
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7.3.3.5 Thus, DC has concluded that the relevant market in the present
case is 'transportation of goods/freight (either through wagons or containers) on the Rail Network (as defined in the concession agreement)'.
7.3.4 Dominance of 'railway entity' in the relevant market Having defined the relevant market as freight movement (wagons and containers) over rail network, DC has, then, proceeded to assess the dominance of the railway entities, as per guidelines given under section 19(4) of the Act.
7.3.4.1 Market Share:
DC has worked that market share of JR i.e. traffic carried in wagons is about 96% in the year 2009-10. During the same period, CONCOR accounted for a little fewer than 4% of market share i.e. proportion of container traffic to total rail freight movement. On the basis of these figures, DG has concluded that the railway entities i.e. JR and CONCOR put together have a combined market share in excess of 99% in the relevant market.
7.3.4.2 Size and resources / economic power of enterprise:
DC has stated that IR is worlds' 5th largest rail network, with route length in excess of 63,500 Km. It has 39,000 passenger coaches, 3,50,000 freight wagons, 300 storage and maintenance yard, 8,300 locomotives, 700 repair shops and more than 2300 warehouses. Further, JR has a capital base of Rs 2,03,314 Cr. comprising of loans of Rs 93,779 Cr and investment from institutions of Rs 1,09,535 Cr as per the balance sheet in the Annual Report and Accounts for the year 2009-10. The Gross Traffic receipts were Rs 83,963 Cr and the net revenue was Rs 5544.09 Cr according to the Profit and Loss account statement in the report. It has also been reported that CONCOR holds 10,194 wagons and 15754 containers (owned as well as on lease), as on 31.03.2010. It also owns 61 container terminals vis-à-vis 10 terminals owned by all private CTOs put together. Further, during 2009-10, CONCOR / Page 13 of 54 E CL T I$e?;-
handled 2421247 TEUs and its revenue and profit were of the order of Rs 3705.68 Cr and Rs 871.17 Cr, respectively.
7.3.4.3 Size and Importance of competitors:
DC has submitted that private CTOs have miniscule presence in the relevant market. Both MOR and CONCOR have substantial experience of moving goods on the rail network. MOR, through the Indian Railways, was in the transportation of goods since 1889. CONCOR has also been in the container train business since 1988, much before the entry of the new operators who commenced business only after 2007. Hence, the size and importance of the competitors are insignificant in comparison to MOR Group and consequently MOR group hold economic power including commercial advantages over competitors.
7.3.4.4 Vertical integration of enterprise:
DC has submitted that JR is in wagon rail transport while CONCOR is in container freight business. Apart from these, JR is also into the business of providing a gamut of related essential infrastructure support and services such as the locomotives, goods sheds, signalling, wiring, maintenance of tracks, wagons etc. Further, MOR also has supervisory role through Railway Board, looking after all train operations including container trains operated by private CTOs on JR Network. Thus, there is a vertical integration of the various activities being performed by the MOR Group in the relevant market.
7.3.4.5 Legal I statutory monopoly status of IR:
DC is of the view that even though the dominant position of MOR Group is by virtue of being a govt. company or a public sector undertaking, none of its activities are sovereign functions and are in fact in the nature of economic and commercial activities. Hence no exemptions from the applicability of the provisions of ,the Competition Act are observed to be available to MOR Group on account of their being a Government department.
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7.3.4.6 Entry barriers:
DC is of the view that there are regulatory as well as financial entry barriers in the relevant market in the form of licence requirement, high capital cost and requirement for establishing expensive infrastructure like rakes, setting up of terminals etc. 7.3.4.7 Countervailing buyer power:
Considering the magnitude of operations of MOR group and insignificant presence of other CTOs in the relevant market, DC is of the view that customers who avail their services on the rail network, are unlikely to have any countervailing buying power. DC has submitted that MoR controls the fixation of various charges including haulage charges that constitutes major component of the cost of CTOs and, hence, to a great extent is in a position to materially influence the price payable by the end-customers. Further, there are inherent limitations on the customers in exercising their option of shifting the business to road especially for long distance, bulky or heavy weight goods. On account of these, there is little countervailing buyer power in the relevant market.
7.3.4.8 Social cost and obligation and contribution to economic development:
DC has found that although there are certain railway operations being undertaken by MoR on social considerations, these would not mitigate the obligations vested upon it under the Competition Act, in discharge of its functions as a dominant player in the relevant market.
7.4 On the basis of above-cited factors, DC has concluded that in terms of the various aspect laid under Section 19(4) of the Act, MoR and MoR group enjoy dominant position in the relevant market.
Comm/s CL Page 15 of 54 \ 0 Major findings of DG Report on the allegations
8. Summary of the investigation report on the alleged infringement of the provisions of the Act by the opposite parties, as submitted by the DG, is given below:
8.1. Prohibition to carry coal, coke, ores and minerals: Pursuant to opening of the rail container services, several restrictions and conditions have been imposed on the CTOs which are found to have adversely affected their operations in the relevant market. Vide circular dated 11.10.2006 CTOs have been prohibited from movement of coal, coke, ores and minerals in containers on rail network. On account of this prohibition CTOs have been denied access to the relevant market by MOR to the extent of 60% amounting to violation of Sec 4(2)(c) of the Act. The arguments of MOR that these are bulk commodities which are not meant to be moved in containers has not been found to be tenable considering that prior to opening of CTOs, CONCOR was moving these commodities at least to some extent and there was no blanket ban on CONCOR in this regard. Further, the PPP neither contains that CTOs would not be permitted to carry bulk commodities nor stipulates that their business would be confined to movement of aggregation of piecemeal non bulk goods. In fact, even presently CTOs are moving several bulk commodities.
8.1.2 The investigation has also revealed that there are specialized containers available to cater to bulk commodities of different kind hence the argument of MOR on technological grounds are not acceptable. In any case it is felt that the choice should be left to the customers for selecting the more efficient mode rather than imposing prohibitions. Due to complete ban with respect to these commodities there is no incentive on CTOs to either procure or invest in such technologically advanced containers. It is therefore observed that prohibition has limited the technical and scientific development relating to c,omr1 (.I Page 16 of 54 \O -,,, .
the services in the relevant market amounting to violation of Section 4 (2)(b)(ii) of the Act by MOR.
8.1.3 Due to the prohibition, the customers wanting to transport these prohibited commodities using rail network do not have option other than MOR run wagons. Further, since wagons do not carry less than train load of a single commodity, for such requirements customers are completely deprived of the choice of moving them on rail network and would be constrained to shift to road amounting to imposition of restrictions in violation of Section 4(2)(b)(i) by MOR through Railway Board.
8.1.4 It has been gathered during the investigation that even pursuant to prohibition, CONCOR has moved certain prohibited commodities namely CP coke and blue dust. This amounts to imposition of discriminatory condition by MOR through Railway Board on provision of service by private CTOs in violation of Section 4(2)(a)(i) of the Act. By imposing prohibition in the Concession Agreement it is observed that unfair condition has been imposed on account of the dominance which MOR through Indian Railways as well as MOR Group enjoys in the relevant market in violation of Section 4 (2) (a) (i) of the Act.
8.1.5 Increase in Haulage Charges: Investigation has shown that at the time of entry, the CTOs were charged uniform Haulage Charges (FAK) irrespective of the commodity being moved. However, in 2010 different Haulage Charges have been prescribed for certain notified commodity classes. The analysis under taken in this regard has revealed that there has been a steep increase in the Haulage Charges pursuant to RC 30 for the notified commodities ranging between 35% to 150%. During the period there was no change in the goods tariff rates (GTR) which are the price paid by customers for movement of goods in wagons. The increase in GTR on 27.12.2010 was also only 4% approx. As a result the CTOs have been subjected to a major cost disadvantage vis-à-vis movement of notified commodities in wagons. After considering the other applicable charges and costs of operation such as Page 17 of 54 (1)Imm/:Y\\ \* \ /y/ empty haulage charges, overhead expenses, return on investment etc. being incurred by CTOs, they would not be in a position to effectively compete with wagons for movement of these notified goods. These notified commodities constitute approximately 25%-30% of the relevant market. Hence, the increase in the Haulage Charges for notified commodities effectively amounts to denial of market access to a substantial part of the relevant market in violation of the Section 4(2)(c) of the Act by MOR through Railway Board.
8.1.6 The CTOs have brought out various instances to substantiate the adverse impact of the increase in the Haulage Charges for notified commodities in their business and margins. Further, it is an admitted fact by MOR through Railway Board that the increased haulage rates were prescribed to prevent loss of revenue to MOR on account of diversion of business with respect to these commodities at FAK rates. In this respect it is felt that while MOR is well within its rights to address any anomalies or aberrations, any attempt or act to use the authority to put CTOs in a disadvantageous position and scuttle their ability to compete would amount to imposition of unfair condition in violation of the provision of the Act. It has been gathered that after the filing of information, RC 30 has been replaced by RC 05. The examination of the same has shown that several unfair conditions continue even in RC 05, amounting to discrimination of CTOs. Further unfair conditions have been imposed on account of imposition of haulage charges for break vans owned by CTOs, non-grant of rebate in haulage charges for delay in supply of locomotives. It is thus found that steep increase in Haulage Charges for notified commodities stipulated under RC 30/RC 5 and charging of haulage charges for break vans owned by CTOs, non-grant of entitled rebate in haulage charges etc. amounted to infringement of section 4(2)(a)(i), 4(2)(a)(ii), 4(2)(b)(i), 4(2)(c) of the Act by MOR through Railway Board. It is understood that the changes in haulage charges for notified commodities have been implemented by MOR by invoking clause 3.3.2 of the Concession Agreement. The analysis of the various elements of the clause has shown that it confers vast powers on MOR Gon, is Page 18 of 54 OL f' * t*E I, r I9 and does not adequately provide for safeguarding of interest of CTOs. It is thus observed that unfair conditions have been imposed on this account by MOR through Railway Board on the CTOs in the concession agreement, in exercise of its dominant position in the relevant market amounting to violation of Section 4(2)(a)(i) of the Act.
8.1.7 Issue of private sidings: Analysis of relevant facts and data pertaining to private sidings has revealed that prior to entry of CTOs, CONCOR was undertaking business from these sidings. Hence the restrictions imposed in March 2009 are found to be unfair as it would have been reasonable for CTOs to expect similar access. It has also emerged that the instructions issued in this regard in March 2009 stipulated maintenance of status quo, thereby implying that CONCOR continued to access large number of sidings, whereas CTOs who had entered the business recently could not do business from these sidings. Hence, it is observed that the restrictions imposed by MOR through Railway Board with respect to access to private sidings was unfair and discriminatory vis-à-vis private CTOs amounting to limiting of service and resulting in denial of market access in violation of provisions of section 4(2)(a)(i), 4(2)(b)(i), 4(2)(b)(i) and 4(2)(c) of the Act. During the investigation it has been gathered that limited access to private sidings has been permitted to CTOs vide circular dated 10.12.2010, subject to meeting of criterion laid in this regard. An analysis under taken during the investigation has shown that the conditions are stringent and discretionary. Further, CONCOR is continuing to access the earlier private sidings without fulfilling these conditions. Hence, it is observed that the unfair and discriminatory conditions on private CTOs in accessing Private Sidings thereby limiting of provision of service and denying access to the relevant market have continued even pursuant to changes introduced in 10.12.2010 in violation of provisions of section 4 (2)(a)(i), 4(2)(b)(i), 4 (2)(c) of the Act by MOR through Railway Board.
8.1.8 Goods shed and Land Issue: The investigation has shown that prior to entry of private CTOs, CONCOR has been given large number of pieces of Page 19 of 54 ' CL I$ land on lease by MOR. It has been revealed that there was no applicable policy for allocation of land to private CTOs for setting up terminals till 17.3.2008, whereas for CONCOR the provision of allocation of railway land in terms of earlier policies continued amounting to discrimination and unfair treatment. After issuance of Policy Circular on 17.03.2008, a uniform policy is applicable for any new land leased to CONCOR and the CTOs. However the disparity in the manner of charging the rentals continues with respect to the land leased to CONCOR prior to 17.03.2008 in a way amounting to continuation of unfair and discriminatory conditions in violation of provisions of the Act. An examination of some of the lease agreements available on record has shown that certain terms of lease are liberal and favourable to CONCOR which further amounts to imposition of unfair and discriminatory conditions. It has also been revealed that most of the terminals of CONCOR are built on land owned by MOR thereby giving it a huge competitive advantage. Availability of these terminals to CTOs is critical to ensure a level playing field in the relevant market. Building of terminals on these locations by CTOs would involve huge cost and amount to waste of resources. These terminals can therefore be considered infrastructure essential to compete in terms of the "Essential Facility Doctrine." On the basis of the available information and facts it has emerged that CONCOR has complete discretion in deciding whether or not to grant access to its terminals built on MOR land and also in stipulating the charges and other terms and conditions for such access. MOR has not placed any obligation on CONCOR to allow access to Private CTOs to these terminals built on MOR land whereas any facility constructed by CTOs on MOR land are mandated to be available to others. As a result in practice very few terminals of CONCOR built on MOR land (three) are being accessed by CTOs. Hence it is found that by not facilitating access to the terminals built on MOR land to other CTOs, CONCOR has imposed unfair and discriminatory conditions, in provision and price of service limited provision of service and denied market access to the CTOs in the relevant market in violation of the provisions of section 4(2)(a)(i), 4(2)(a)(ii), 4(2)(b)(i), 4(2)(c) of the Act. The stand taken by MOR in this regard is also found to be unfair Page 20 of 54 0 \rW *) and discriminatory resulting in limiting provision of service, denial of market access to Private CTOs in violation of the provisions of section 4 (2)(a)(i) , 4 (2)(a)(ii), 4(2)(b)(i), 4(2)(c) of the Act.
8.1.9 The allegations related to the access to the good sheds of Indian railways designated as container rail terminals were analysed and based on available facts it has emerged that CTOs have been permitted by MOR to use them as an interim measure to facilitate their business. Hence, as such no major competition issue has been found. However, for optimum utilization of resources it is desirable that to the extent possible, existing infrastructure is accessible to all on reasonable terms.
8.1.10 Maintenance of rakes: Investigation has revealed that Haulage Charges are being levied on CTOs for movement of rakes for maintenance in violation of the provision of the Concession Agreement. In view of the adverse cost implication on CTOs, the same is found to be infringement by MOR through Railway Board of provisions of Section 4(2)(a)(i) , 4 (2)(a)(ii), 4(2)(c) of the Act. Further it is found that MOR through Railway Board has imposed a supplementary condition on CTOs to necessarily get the maintenance of its wagon done from Railways in violation of Section 4(2)(d) of the Act. The condition also amounts to tie-in-arrangement in terms of Section 3(4)(a) of the Act. It is observed that no private parties have been designated to undertake maintenance facility despite there being a provision in the Concession Agreement and availability of entities who could be competent and willing to do so. As a result, there has been appreciable adverse effect on competition in the area of maintenance of wagons amounting to violation by MOR through Railway Board of Section 3(4) read with Section 3(1) of the Act. Indian Railways has maintained exclusively in the aftermarket of maintenance of wagon thereby amounting to violation of Section 4(2)(e) of the Act.
8.1.11 Increase in stabling charge: Increasing stabling charge by 50% vide circular number TC/1/98/201/4 dt. 1.07.2008 is in violation of the Concession 9J Page 21 of 54 1 0 0 U r is/ Agreement and tantamount to imposition of unfair and discriminatory conditions in cost of operations of CTOs by MOR. This aspect assumes significance considering the cumulative adverse impact on cost of operations of CTOs on account of various other charges. It has resulted in limiting provision of service in the relevant market and denied market access in violation by MOR through Railway Board of the provisions of section 4(2)(a)(i), 4(2)(a)(ii), 4(2)(b)(i), 4(2)(c) of the Act.
8.1.12 Delay in granting approvals: No competition issue has emerged from the examination of the facts related to allegations regarding delay in grants of approvals to CTOs by MOR for setting up terminals. However, expeditious process would facilitate business of CTOs.
8.1.13 Preferential treatment to CONCOR on number of wagons: The investigation has not revealed any substance in the allegation that there is differential treatment of Private CTOS vis-à-vis CONCUR in requirement of minimum numbers of wagons.
8.1.14 Concession Agreement in favour of Railways: On the basis of the aforesaid analysis of the provisions of the concession agreement it has emerged that certain terms and conditions of the agreement are loaded in favour of MOR and unfair to CTOs on many counts. There are several features in the agreement which are anti-competitive. The agreement also lacks clarity on the scope of the operations of the CTOs. There is not adequate provision to safeguard the interest of the CTOs. On account of these inherent weaknesses several disputes have emerged between MOR and CTOs related to their operations. The Concession Agreement has been used by MOR to implement policy changes to safeguard their business in wagons and in the process have resulted imposition of unfair conditions and adverse effect on the Competition in the relevant market. Hence, it is found that MOR through Railway Board has exercised its dominance in imposing conditions in the Concession Agreement entered with the CTOs which are unfair, in violation of the provision of Section 4 (2) (a) (i) of the Act.
/ Page 22 of 54 CL \/ i$>' 8.1.15 Conflict of Interest: The investigation has also brought out the impediments and constraints being faced by the private CTOs in effectively competing in the relevant market which need to be addressed for the PPP initiative to succeed. The conflict of interest on account of various roles being played by MOR as the policy maker, regulator, licencor, operator etc has also emerged. In the given scenario setting up an independent regulator may help in resolving some of the concerns.
8.2 Conclusion of DG Investigation Report On the basis of the aforesaid analysis and findings of the investigation it is concluded that the conduct of MOR through Railway Board in the relevant market has been in violation of section 4 (2)(a)(i) , 4 (2)(a)(ii), 4 (2) (b) (i), 4 (2)
(b) (ii) ,4 (2)(c), 4 (2) (d) and 4(2) (e) of the Act. MOR through Railway Board is also found to engage in anti-competitive practice in violation of Section 3(1) read with 3 (4) of the Act. Further CONCOR is found to have violated provisions of section 4 (2)(a)(i), 4 (2)(a)(ii), 4 (2)(b)(i), 4(2)(b)(i) and 4 (2)(c) of the Act in the relevant market.
8.3 Response of the Informants to the DG Report Consequent to the Commission's Order dated 08/12/2011 wherein the parties were directed to file their response I objections to the DG Report, submissions of the informants is summarized below in following paragraphs:
8.3.1 KRIBHCO In its response to the DC Report, KRIBHCO has submitted that it agrees with DG's definition of the relevant market but at the same time has reiterated the importance of identifying the market for rail services as alternative relevant market. KRIBHCO has also submitted that it concurs with the findings in the DC Report that the conduct of MOR through the Railway Board is in violation of Section ,3 and Section 4 of the Competition Act.
comm' Page 23 of 54 k 7I Further, KRIBHCO is of the view that the aspect of leveraging, not considered in the DC Report must be considered for violation of the relevant provisions of the Competition Act.
8.3.2 ARIL In the oral submissions, ARIL has submitted that it is in agreement with the DC investigation report that JR and CONCOR have abused their dominant position as a group entity to the detriment of other CTOS, thus violating provision of the Act.
Response of the opposite parties during DG investigation 9.1 All through the case, MoR has taken a stand that announcement of PPP Policy, Concession Agreement, rate circulars and other incidental instructions are within the sovereign powers of the Government of India, delegated to the Railway Board. On this basis, it has questioned the jurisdiction of the Competition Commission of India and has submitted that the latter lacks authority to adjudicate the present case.
9.2 While MoR has submitted that it is not an enterprise within the definition of 'enterprise' as envisaged in the Act, CONCOR has objected to its inclusion in the 'group' definition as done by the DG.
9.3 Further, on the issue of delineation of relevant market, both the opposite parties have opposed the relevant market definition of the DG and have suggested that it ought to be container traffic in India, which happens over road as well as railways. To this effect, they have cited the intent of the PPP policy and referred to certain documents and experience on the basis of which, substitutability between the two modes of transportation has been revealed.
Specifically, the response of the opposite parties is summarized as follows:
Submission of MoR:
10.1 Initially container business of Railways was being undertaken by the
1) Page 24 of 54 CL EO cpu Railways itself. In early 1980s, IR focused on rake load transportation of bulk commodities like coal, ores, cement, iron and steel etc. While this provided significant operational and commercial gains to IR, it lost a major share of non-bulk piecemeal traffic to road.
10.2 In order to provide focused attention to container business, MoR decided to set up a public sector undertaking to concentrate on fast emerging multi-modal business opportunity. CONCOR was thus established in 1988 to facilitate containerized movement of international traffic and to capture non bulk piecemeal traffic like white goods, consumer goods and high rated general goods by providing facilities for aggregation and other value added services. Like any other PSU, functioning of CONCOR is governed by Article of Association of the company, yearly MOU signed with MoR and different instructions/circulars issued by the Railway Board from time to time. Though CONCOR is a public sector undertaking of MOR, it is not operated by the Ministry of Railways. It has its own board of directors for management of the company. Relation between CONCOR and MOR is at arm's length. Chairman (Non-Executive) and Government Directors are the two representatives from MOR in the Board of 9 Directors. There is no representation of MOR in day to day management of CONCOR. There is no vertical or horizontal integration between MOR and CONCOR except that MOR holds 63.09% shares of company on behalf of President of India.
10.3 MOR announced the policy to permit various operators to move container trains on Indian Railways and later issued the Indian Railways (Permission for operators to move container trains on Indian Railways) Rules, 2006 (Rules). The terms of the rules were identical to the terms of the policy. Thereafter, CTOs entered in to concession agreement with IR. It was envisaged that greater public private partnership will help in creation of railway assets by way of setting up of new terminal in the hinterland and accelerated addition in wagons.
10.4 All policies made by MOR are non-discriminatory among various w1 l71 Gorn 0, Page 25 of 54 r o \ *s I / CTOs and this provides a level playing field among the operators including CONCOR.
10.5 To maintain level playing field among different operators CONCOR was also made to sign the same concession agreement as a CTO with the prescribed licence fees. All Operating Circulars and Rates Circulars stipulating guidelines regarding permission to operate container trains by container train operators at railway owned terminals and also for the levy of haulage charges for movement of containers are uniformly applicable to all container trains operators including CONCOR.
10.6 The role of MoR has been that of a facilitator providing rail network and train operation to trains of container train operator with sole aim to increase rail share in containerized EXIM traffic and also in commodities which are conventionally not being carried by railways. Railways have always actively encouraged the participation of container train operators to attract more traffic to railways, a fuel efficient non-polluting mode of transport. Further, certain proactive steps by MOR including permission to use railway container during recession period helped in growth of business.
10.7 Following steps have been taken by Railways to encourage container traffic through private participation:
• Though rail goods shed are not developed for handling of container traffic, as an interim arrangement, they have been permitted for handling traffic moved by CTOs • Railway yards have been earmarked for C&W Examination of container trains belonging to CTOs.
• For access to private sidings, instructions have been issued to zonal railways.
10.8 For conventional railway traffic moving in general purpose wagons, railway has its own business plan that was not within the scope of PPP proposed in budget. Indian Railways have a large fleet of open, covered and Page 26 of 54 / Comm/s L1/\ CL ) I tank wagons to facilitate movement of bulk commodities like ore, coal steel etc. in open wagons and bagged commodities in covered wagons and liquid traffic in tank wagons.
10.9 The container traffic moving on Indian Railway provides additional
-- -- traffic and earns revenue to Railway system and therefore, it is in the interest of railways to encourage container business bringing additional business to railways.
10.11 Provided that container train operator operates within the frame work of concession agreement, there is no conflict of interest between the business carried out by the operators and Railway.
Response of CONCOR 11.1 Carriage of goods on Indian Railways network is governed by the Railways Act, 1989 (as amended from time to time). Railways administration entered into concession agreement with various parties (CTOsI Concessionaires') who intended to run container trains on Indian Railways subject to fulfilling the conditions brought out by Ministry of Railways in its letter no 2002/TT-III/15/39 dated 9.1.2006.
11.2 The basic objective of setting up CONCOR was to undertake the multimodal transportation of International and Domestic containers between gateway ports and the inland destinations so as to provide an efficient and reliable service. CONCOR commenced its operations in November 1989 and over the years has established vast network of container terminals all over the country at prime locations which are the centres for cargo generation. At present CONCOR has a total of 61 terminals of which 18 are pure Exim terminal, 31 combined terminals and 12 pure domestic terminals. The company operates as a carrier, port operator and terminal service provider.
11.3 The key value CONCOR offers is the provision of the single window facility coordinating with all the different agencies and services involved in c1€if Page 27of54 Commiss .
the containerized cargo trade, from customers, gateway port and railways to road haulers, consolidators, forwarders, custom house agents and shipping lines. To achieve a high degree of customization, CONCOR offers packages designed to provide the most cost effective combination of road and rail. This enables CONCOR to offer services which can be individually tailored to every customers specifications, minimizing custorners own efforts.
11.4 MOR, on behalf of the President, holds 63.09% of the total paid up capital of Rs 129.98 Cr. Member Traffic/Railway Board is the part time Chairman on the Board of CONCOR. Further Executive Director Traffic Transport (F)/Railway Board is the nominee director from the MOR, GOT on the Board of CONCOR. There is no further representation of MOR in management of CONCOR.
11.5 The position of CONCOR vis-à-vis railway administration is exactly the same as the position of other CTO vis-à-vis the railway administration in relation to the policy framework. CONOR is treated strictly at par with other concessionaires. All circulars / policies issued by Railways from time to time for container traffic are without exception, applicable to CONCOR as well. There is, thus, a level playing field between CONCOR and other CTOs with respect to the application of relevant policies. The changes brought about by the referred circulars / letters have same implications on business, income & profits of CONCOR as any other CTOs.
11.6 Prior to PPP, CONCOR had been signing yearly memorandum of understanding (MOU) with MOR like any other PSU, to form basis for working relationship between Indian Railways and CONCOR. Consequent upon implementation of PPP, CONCOR signed Concession Agreement with MOR like any other Private Container Train Operator (PCTO). As there was no agreement prior to signing of the CA, no comparison can be made.
commis,L1 ( CL Page 28 of 54 ° * \* Analysis of the Commission Issues for determination
12. The Commission, having examined the DC Report and submissions of the parties, notes that there are several jurisdictional issues, which need to be examined before the determination of anti-competitive behaviour arising from abuse of dominance and anti-competitive agreement. In the following analysis of the Case, the issues have been broadly classified as jurisdictional and competition issues. The jurisdictional issues will be examined first.
Jurisdictional Issues
13. Subsequent to the filing of the information by the informant, MoR questioned the jurisdiction of the Commission to proceed further and filed a petition with the Delhi High Court challenging the notice of the DC. The petition was filed on the grounds that the matter before the Commission involves the issue of sovereign functions of the railways and Section 8 of the Arbitration and Conciliation Act 1996, is the appropriate legal recourse to the dispute before the Commission.
13.1 The Commission vide order dated 03/05/2011 disposed of the preliminary objections raised by the MoR both as regards jurisdiction of the Commission to inquire into the matter and also on the application of section 8 of the Arbitration and Conciliation Act 1996, praying to the Commission to refer the dispute between the parties for arbitration. In the Order, the Commission opined that the allegations brought out in the information, related to abuse of dominant position by the railways which were allegedly in contravention of the provisions of the Act. In the Order it was also argued the arbitration agreement only covered the contractual obligations incurred and assumed by the parties and hence will not address the allegations brought before the Commission. Given that the scope of the present proceedings are different from the contractual obligations of the parties assumed under the arbitration agreement, Section 8 of the Arbitration and Conciliation Act, 1996
- was not applicable to the proceedings before the Commission. In reaching the Mrn Page 29 of 54 0 ! * '.) çjai' above conclusion, the Commission also relied on section 60 and 62 of the Competition Act, the former dealing with the exclusion of the jurisdiction of the civil courts and latter providing that the provisions of the Act are in addition to and not in derogation of the provisions of any other law for the time being in force.
13.2 The issue of sovereign function raised by the opposite party has also been dealt with by the Commission in its order dated 03/05/2011 and ruled that the carriage of goods on Indian Railways Network cannot be treated as a sovereign function.
13.3 Several other jurisdictional issues were also raised during the submissions and are being examined as follows:
Issue- 1 Whether rate circulars issued by the MoR fall under sovereign function and whether, on account of this, the Commission has jurisdiction to decide the instant case? 13.3.1 MoR has taken the plea that rate circulars were issued under the rule making power and therefore they are sovereign function and hence Commission does not have the jurisdiction. Commission does not agree with the argument of MoR. Rate circulars issued by MoR are in the nature of commercial activity and therefore they cannot be called sovereign function.
Hence the argument of MoR is rejected.
Issue-2 Whether MoR and CONCOR constitute a 'group' within the framework of the Act?
13.4 The next issue to be dealt with, is whether MoR-CONCOR can be treated as a 'group entity' under the common ownership of MoR? Before discussing the issue, let us analyse the profile of MoR and the history of the two enterprises.
13.4.1 The MoR is the ministry of the Gol responsible for all aspects of rail transport in India. The Minister of Railway, w mber of the D, Gomrlllji~ Page 30 of 54 * 0 1k 0 * 1 " (r Cabinet of Ministers of the Government of India, heads the MoR. The MoR, through the Railway Board administers the Indian Railways, which owns and operates India's rail network I transport. The Railway Board exercises all the powers of Gol in relation to railways.
13.4.2 CONCOR is a public sector company set up under the Companies Act, 1956. The functions performed by the CONCOR include inland transport by rail for containers, management of ports, air cargo complexes and establishing cold-chain. The company has developed multimodal logistics support for India's international and domestic containerization and trade.
13.4.3 The informant insists that the MoR and CONCOR fall within the definition of the 'group' as provided under the Act, for the following reasons :-
(i) The GoT owns 63.09% of the equity of CONCOR as on 30.09.2010.
(ii) CONCOR is a government company within the meaning of Section 617 of the Companies Act, 1956.
(iii) All 5 whole time directors including the Managing Directors of CONCOR are appointed by the GoT, being the majority shareholders.
(iv) The part time non- executive Chairman is a government nominee and so is one of the 5 part time directors.
(v) Member Traffic, Railway Board, who dictates the policy on container train operations, is also the Chairman of CONCOR.
13.4.4 The term 'group', in the Act, has been defined to mean two enterprises which, directly or indirectly are in position to
(i) exercise 26 per cent or more voting rights in other enterprise; or
(ii) appoint more than 50 per cent of the members of the Board of Directors in other enterprise; or 11 x Comm,s Page 3lofS4
(iii) control the management or affairs or other enterprise.
13.4.5 The DC, in its investigation report, has concluded that the MoR and CONCOR constitute a group namely the "MoR Group" in the relevant market in terms of explanation (b) to Section 5 of the Act. However, both MoR and CONCOR maintain that the DG's conclusions are based on the erroneous premise that MoR is an enterprise for the purpose of the Act. CONCOR, additionally, maintains that the reasons given by the informant, do not, ipso facto stand to mean that the MoR controls the management and affairs of CONCOR and that the two constitute a 'group' for the purpose of abuse of dominant position under Section 4 of the Act. CONCOR, also submits that under the provisions of the Act, it is a necessary condition for establishing abuse of dominant position, that there is a 'Joint and coordinated action between CONCOR and MoR for their mutual benefits and advantage.' CONCOR relies on the ECJ case, France v. Commission, Societe Commerciale (1998) ECR I- 1375, to further the point that a joint dominant position would exist in a group, if they are able to, because of factors giving rise to a connection between them, adopt a common policy on the market and act to a considerable extent, independently of their competitors, their customers, and ultimately the consumers. Additionally, it also relies on ECJ case, Corn pagine Maritime Beige Transports SA v. Commission (2000) ECR I- 1365, so as to further submit that the DC should have also considered whether the MoR and CONCOR, constituted a collective entity vis-à-vis their competitors, their trading partners and consumers in a particular market. According to CONCOR, if the said analysis had been undertaken, the DC would have found that the MoR and CONCOR do not constitute a collective entity. It has been further contended by CONCOR that the DC should have examined the factors, if any, which give rise to a connection between the members of the group. Also, the DC ought to have considered and analysed, in detail, as to whether CONCOR's operations are kept at an arm's length by the MoR and whether CONCOR, carries its day to day affairs and management, relating to its businesses, independently of the MoR.
\ J 1t C,omm' Page 32 of 54 13.4.6 The term 'group' generally implies a degree of connection, cooperation, or common interest among its members. In terms of the provisions of the Act, if an enterprise is in a position to participate, directly or indirectly, in the management or affairs of the enterprise or exercises 26 per cent or more voting rights in other enterprise, both the enterprises would constitute a group.
13.4.7 The expression 'controlled directly or indirectly' is to be read as envisaging both de jure and de facto control. The former being a legal control which means the right of control attached to ownership of such number of shares as entities the holder to elect a majority of the board of directors. De jure control may be achieved directly, by ownership of shares or indirectly, through ownership of shares of one or more corporations, which themselves hold shares of the enterprise in question.
13.4.8 From the facts of the case, it is clear that there is neither de jure nor defacto control of the MoR over CONCOR or vice versa. They both cannot be considered to constitute a 'group' for the following reasons:
(1) The shares in CONCOR are owned by the Government of India and no decisional control is exercised by the Government in day to day affairs of the CONCOR since it is managed by its board of directors.
(ii) The appointment of the board of directors of CONCOR is done by the Government only on the basis of recommendations of the PESB, a body which works independently. Therefore, the ultimate decision in this regard rests with the Cabinet Committee on Appointment and not with the MoR.
(iii) The independence of the Board of Directors of CONCOR has been preserved since the directives to the Board can only be issued by the Government albeit on the specific approval of the Page 33 of 54 .,;
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minister in-charge and in practice, it is an extremely rare occurance.
(iv) The number of Board of Directors of CONCOR connected with MOR is only 2 which is less than 50 per cent. The Board has total 10 directors, as on date. 5 are full time directors appointed on the recommendations of the PESB and 3 are part time independent directors and only 2 are connected with the MOR.
13.4.9 The reason given by the informant cannot, therefore, be taken to construe the true interpretation of the definition of 'group'. It is true that 63.09% of the equity of CONCOR is with GoT. However, in view of the factors enumerated in the earlier paras, MoR / IR and CONCOR cannot be said to be part of the group. Further, for the purpose of section 4, two enterprises would normally be considered part of a group if they are operating in the same relevant market.
13.4.10 From the aforesaid, it is clear that CONCOR, a company registered under the Companies Act, 1956 and MoR do not constitute a group.
Issue-3 What are the legal implications of actions committed prior to the notification of Sec 3 and 4 of the Competition Act, 2002 for cases pertaining to abuse of dominant position? Whether the action committed prior to the notification of Sec 3 and 4 of the Competition Act, 2002 constitutes an alleged abuse of dominant position for the purpose of the Act?
13.5 The Competition Act does not envisage penalizing an enterprise for the acts committed prior to the date of notification of section 3 and 4 for the simple reason that the Act has no retrospective effect. However, if the contravention continues even after the enforcement of the mandatory provisions of the Act, the Commission can take cognizance of the violation of Page 34 0154 421 ! GOMMis 'N the said provisions with effect from the date of enforcement of the provisions, in this case, from 20/05/2009. The Commission agrees that even in the case of 'anti-competitive' agreement, the parties are not liable for infringement prior to 20.05.2009, but they become liable if the anti-competitive agreements continue after the enforcement of the mandatory provisions, thus causing appreciable adverse effect on competition in India.
13.5.1 This issue has been settled by the Hon'ble High Court of Bombay in the case of Kingfisher Airlines Limited v. CCI WP No 1785/2009. In that case the Court observed:
"The Act nowhere declares the agreement already entered into as void. If the Section is read, it says that after coming into force of the Act, no person shall enter into an agreement in contravention of the provisions of the Act and if entered into, same shall be void. This, to our mind, at the most, would mean that the Act does not render the agreement entered into, prior to coming into force of the Act, void ab initio. Had the Act been retrospective in operation, it would render the agreement void ab initio. The agreement prior to coming into force of the new Act was, therefore, certainly valid, for it was not in breach of any law or affected any law then existing. The question here is whether this agreement, which was valid until coming into force of the Act, would continue to be so valid even after the operation of the law. The parties as on today certainly propose to act upon that agreement. All acts done in pursuance of the agreement before the Act came into force would be valid and cannot be questioned. But if the parties want to perform certain things in pursuance of the agreement, which are now prohibited by law, would certainly be an illegality and such an agreement by its nature, therefore, would, from that time, be opposed to the public policy. We would say that the Act could have been treated as operating retrospectively, had the act rendered the agreement void ab initio and would render anything done pursuant to it as invalid. The Act does not say so. It is because the parties still want to act upon the agreement even after coming into force of the Act that difficulty arises. If the parties treat the agreement as still continuing and subsisting even after Page 35 of 54 cl / coming into force of the Act, which prohibits an agreement of such nature, such an agreement cannot be said to be valid from the date of the coming into force of the Act. If the law cannot be applied to the existing agreement, the very purpose of the implementation of the public policy would be defeated. Any and every person may set up an agreement said to be entered into prior to the coming into force of the Act and then claim immunity from the application of the Act. Such thing would be absurd, illogical and illegal. The moment the Act comes into force, it brings into its sweep all existing agreements.
13.5.2 Having disposed of the jurisdictional issues, let us now examine the competition issues arising from the case to determine whether or not the conduct of the opposite parties has been in violation of the Act.
Competition Issues
14. There are three broad competition issues emerging from the case:
i. Given the complexities of freight movement, what are the critical parameters for defining the relevant market? TA/hat, therefore, is the relevant market in the present case?
ii. In the market so defined, is there any dominant enterprise that enjoys a position of strength to enable it to 'operate independently of competitive forces'.
iii. Whether the dominant enterprise as established above has abused its position to the detriment of competition?
14.1 Prior to examining the three issues, a brief historical background of the railways will help to appreciate the place and role of rail network in container freight transportation.
Background 14.2 Railways, as a mode of transportation, were first introduced in India in the year 1853 by different private railway companies. In 1947, there were forty-two rail systems. In 1951, the private rail systems were nationalized as / COMMis Page 36 of 54 OL 73 (_) EO *,ul one unit - Indian Railways, one of the largest networks in the world. IR, now, operates both long distance and suburban rail systems on a multi-gauge network consisting of broad, meter and narrow gauges. Among its core activities, it offers passenger as well as freight services. It also owns locomotive and coach production facilities. Further, it also undertakes the maintenance-related activities of the rolling stock as. well as of the locomotives.
14.3 Of late, IR has invited private participation in its non-core activities like catering and other passenger amenities etc. While IR retains monopoly in passenger services, the freight service has been partially opened via PPP instrument. As submitted, IR had announced PPP policy relating to container trains on two previous occasions in the year 1994 and 2004, but it could not take-off. Additionally, IR has announced various schemes like rail connectivity scheme, development of freight terminal, special freight train operator scheme etc. in order to augment capacity through participation of private players.
Need for Rail Container Operators 14.4 Sometime in 2005, Ministry of Railways commissioned RITES to undertake a study and lay down guidelines and other requirements for selection of prospective rail operators (other than CON COR) for movement of containers on the IR network, who were of the opinion that, Keeping in view the rapid growth of the container trade and that the Railways undoubtedly is eminently suitable for inter-modal traffic, particularly over long land distances, there is an opportunity for IR to expand its base and capture additional traffic.
It is felt that the future rail container market is sufficiently large and is estimated to reach to the level of 4 million TELls by 2015. Keeping in view the multifaceted marketing and operations involved in the container business it is felt that a single agency may not be able to realize full growth potential of the Page 37 of 54 'A " Corn iw 9.
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emerging market. There is thus, a strong case for the IR to introduce more operators, in addition to CONCOR. In fact, the entry of more rail operators in the container transit market will bring competition and lead to service improvements, reduced tariffs and further increase in inter-modal traffic. At the same time, this will not only give the shipper a choice of rail operator but would also result in greater inland penetration of-containers.
In a nutshell, the benefits from permitting agencies other than CONCOR in container train operations would be as under:
. Increase in market share of container traffic leading to additional freight volumes for the Indian Railways.
• With multi-rail operators, the possibility of an accelerated growth in the rail share of the container traffic.
• Generation of additional revenues through haulage charges (container transport provides revenue to both directions) and other recoverable from prospective rail operators.
• New rail operators to become long-term committed customers for IR. • Bring competition in inter-modal operations, resulting in improved services and reduction in freight charges.
• Development of new container carrying rail routes. • Greater public-private sector participation in creation of railway assets by way of setting up new terminals in the hinterland and adding to the wagon fleet of the Indian Railways.
14.5 In line with the suggestions of RITES, MoR announced a 'Policy to permit various operators to move container trains on Indian Railways' on 09.01.2006, and subsequently notified the same on 26.09.2006. The objective of the policy was to permit rail linking of Inland Container Depots (ICDs) by private parties other than CONCOR and allow them to move container trains on the same lines as CONCOR for both international and domestic traffic.
Four categories of licence, depending on the port and the hinterland to be served, were offered. Further, the Concessionaires were required to own their rolling stocks and to have suitable access to rail linked lCD(s) with adequate Page 38 of 54 handling capacity in the hinterland/inland location for handling of container trains. The interested parties were required to pay one-time registration fees and to enter into a Concession Agreement valid initially for 20 years, with detailed terms and conditions, including dispute settlement mechanism, with JR.
14.6 Highlights of the PPP Policy / Model Concession Agreement are as follows:
• The container trains of various operators will normally be dispatched on a non-discriminating manner on 'first come first served' basis, subject to any operational exigencies and/or restrictions from time to time.
• ICDs will be treated like private sidings with the extant rules and procedures laid down for private sidings applying mutatis-mutandis to them.
• Land and other related facilities required for railway operation and the track connecting the lCD to the nearest rail head will have to be provided by the operator at his own cost. However, if railway land is available he can apply for the same on the normal terms and conditions laid down by MOR.
• Maintenance of track (within the CTO-owned infrastructure) will be done by the operator at his own cost, with JR being paid for inspection/supervision according to the prescribed prevailing rates. Maintenance of rolling stock will be done by JR, for which the prescribed charges will be recovered from the operator. • The operator can carry all goods subject to conditions specified in the goods tariff, red tariff and under provision of Indian Railway Act and any other instructions issued on the subject by MOR from time to time. • Haulage charges: The operator will pay to the railways haulage charges applicable uniformly to all operators, as notified/fixed by the Railways from time to time.
7-) Page 39 of 54 CL • Operator Tariff: the operator will charge his customers for rail haulage, terminal handling, ground rent etc. on a market determined basis and railways will not exercise any control over such pricing.
14.7 Subsequently 16 parties, including CONCOR, were given Concession rights to run their container trains in different licence categories.
Against this background each of the stated three issues will be examined.
Issue I:
Having regard to the complexities of freight movement, what are the critical parameters for defining the relevant market? What, therefore, is the relevant market in the present case?
Relevant market has been defined in sub-sections (r), (s) and (t) of Section 2 of the Act in the following manner:
Section 2
(r) "relevant market" means the market which may be determined by the Commission with reference to the relevant product market or the relevant geographic market or with reference to both the markets;
(s) "relevant geographic market" means a market comprising the area in which the conditions of competition for supply of goods or provision of services or demand of goods or services are distinctly homogenous and can be distinguished from the conditions prevailing in the neighbouring areas;
(t) "relevant product market" means a market comprising all those products or services which are regarded as interchangeable or substitutable by the consumer, by reason of characteristics of the products or services, their prices and intended use;
7 Gommi '\ Page 4Oof54 I I CL \ c) * N The conditions to determine relevant market have been elaborately dealt in sub-sections (5), (6) and (7) of section 19 of the Act, are reproduced below:
Section 19 19(5) For determining whether a market constitutes a "relevant market" for the purposes of this Act, the Commission shall have due regard to the "relevant geographic market" and "relevant product market".
19(6) The Commission shall, while determining the "relevant geographic market", have due regard to all or any of the following factors, namely:
• regulatory trade barriers;
• local specification requirements;
• national procurement policies;
• adequate distribution facilities;
• transport costs;
• language;
• consumer preferences;
• need for secure or regular supplies or rapid after-sales services.
19(7) The Commission shall, while determining the "relevant product market", have due regard to all or any of the following factors, namely:
physical characteristics or end-use of goods;
• price of goods or service;
• consumer preferences;
• exclusion of in-house production;
• existence of specialised producers;
• classification of industrial products.
14.8 Relevant product market as defined in the Act mandates demand substitutability as revealed by consumer preferences. The informant and DC have defined the relevant product market as 'transportation of goods/freight either through containers or wagons over the railway network'. Their definition Page 41 of 54 \* _ /"f lays emphasis on the substitutability of wagons and containers for carrying freight of all types over the rail network. The DC observes that freight is carried in both containers and wagons and avers that on the basis of technical substitution a commodity is capable of being carried in either of them and therefore no distinction has been drawn between wagon freight and container freight. Therefore, the market is defined by DC to be the transportation of freight over the rail network thereby ruling out substitutability, in the present case, between road, rail, air and water as alternative medium of transportation for carrying container freight. The Deutsche Bahn I PCC logistics judgement of the European Commission is referred to in the report to justify rail network as the appropriate market 14.9 The DG's report draws attention to the possibility of two options for defining the market in this case. Substitution can be between container and wagon for carrying freight as argued in the report or between the different modes of transportation over which containers can be carried as this case refers specifically to container freight. Let us first look at substitution between wagons and containers for movement of goods over rail network. No doubt it is possible to load goods either in a wagon or in a container and at a broad level this could be acceptable. However, logistics management point to a clear cut distinction between the two. In the parlance of logistics, container-freight refers specifically to high value non-bulk goods. Containers allow easy and flexible handling of non-bulk goods from point of production to point of consumption and, are therefore, preferred by transporters (also referred to as shippers) and consignors. Also, chances of damage and pilferage are considerably reduced when freight is transported in containers. Furthermore, where transhipment of freight is required, container is the only option.
Wagons do not meet these conditions as they cannot be taken off rails. To classify wagon and container in the same category is, therefore, inappropriate.
14.10 A transporter (shipper) in the case of container has several options in the choice of transport medium. Often they combine different modes of transport to benefit from the right mix of cost effectiveness, speed and Page 42of54 /' comm CL 0 \* * 1 cJ, r / locational flexibility. Within the inter-modal transportation options for container freight, the choice of transport depends on a plethora of factors like distance to be moved, physical characteristic and value of the commodity to be moved, total time required for the consignment and total price of transportation. Transport logistics indicate that for short hauls, road transport is preferred while for longer hauls rail transport and where available, water transports are the preferred options. Since, the informants have not specified the nature of freight and the distance to be covered, it is only appropriate that the relevant market covers both road and rail transportation. To restrict the relevant market to only the rail network tantamount to a constrained analysis, arising solely from the allegations of the informants, and overlooking the broader issue of availability of alternative choices to users in the transport of container freight.
14.11 The very fact that railway freight transport has been partially opened for running containers trains only and not the entire rail freight clearly implies that the regulator i.e. MOR distinguishes container and wagon freight as two separate segments within the overall ambit of rail transportation. In fact CONCOR was set up only to take care of container freight. As an aggregator of container freight CONCOR operates both on rail and road. As submitted, the purpose of the PPP would get defeated if a distinction is not made between the type and characteristic of goods that a container train would carry and those carried by general wagons. The intent of the PPP policy was to invite application from private parties to run only the container trains (and not all types of trains) on JR network. As submitted by IR, the objective behind the Policy was to increase the rail share in respect of container traffic. It was also envisaged that the PCTOs would do so by aggregating the piecemeal traffic, as hitherto being done by CONCOR.
14.12 To establish whether rails and roads are substitutable for movement of containers let us look at the available evidences:
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• In their submission, JR have forwarded the views of Adviser (Transport), Planning Commission who has opined:
"On the basis of cross price elasticity (i.e. percentage change in quantity of freight offered to the Railways when the price of the road freight is changed by 1%), substitutability between road and rail products is an accepted fact. The level and scope of substitution depends on factors such as commodity to be carried, distance over which it has to be carried and other factors such as rel ative freight rates etc."
• The Task Force on Dedicated Freight Corridor 1 Planning Commission gives an indication of potential competition to railways from road with the operationalization of the Dedicated Freight Corridor. Specifically, some of the observations of Task Force on Freight Corridor, Planning Commission are as follows:
o The competitive pressure on Indian Railways will increase with the further up-gradation of the National Highways on the Golden Quadrilateral.
o In order to compete with the roadways it would be necessary not only to lower price but also to improve performance generally in accordance with the requirement of the clientele. o On the Mumbai-Delhi segment, trucks moving on the National Highways would offer enough competition to the dedicated freight corridor.
• Indian Institute of Management (Ahmedabad)2 in their case study on 'Introducing Competition in Container Movement by Rail' notes that CONCOR priced its services possibly keeping in mind competition from the road sector.
J 1 http://infrafin.in/pdf/Freight_Corridor.pdf 2 http://www.iimahdernet.in/assets/snippets/workingpaperpdf/2o10-02-o2Raghuram.pdf Page 44 of 54 \* 14.13 The Commission has also noted the fact that several CTOs operate not only container trains, but also own fleet of trucks of various capacities to offer road freight services, thus complementing the rail container services. In other words, there is an intermodal choice between road and rail with respect to container freight. Thus, the Commission opines that the two major modes of container transport in India i.e. road and rail offer competitive constraint to each other.
14.14 Two judgments quoted in the submissions are useful to understand the principle involved and differences in approach in defining the relevant market. The GHV case which has been quoted by the informant to justify rail network as the relevant market is a case regarding opening of the Hungarian railway network to other private players for freight. In this case the Competition Commission of Hungary observed:
Rail freight transport services are acquired mainly by shippers of bulk goods. Bulk goods are generally transported in bulk, in a regular manner, in huge quantity, without any packaging.
14.15 The market in the GHV case was the bulk freight market and the need to distinguish between container freight and wagon freight never arose.
14.16 The other case referred to by the respondent is the judgment of the Commission of European Communities on the Deutsche Balm I PCC Logistics. " This was a merger case between DB Mobility Logistics, the transportation and logistics division of Deutsche Bahn (a state owned German Company) and PCC Logistics wherein the market definition remained undefined.
GVH v MAV, Competition Commission of Hungary (2006), English Summary by Competition Authority as submitted by the informant Case No. COMP/M.5480- Deutsche Bahn/ PCC Logistics Notification of 5 May 2009 pursuant to Article 4 of Council Regulation No 139/2004 Page 45 of 54 77 0ommiss,!'\ CL
c) • ç ) I fr 14.17 On the basis of the above discussion and view of independent agencies, the 'relevant market in the present case is the transportation of containers within the boundaries of the country' and consequently the Commission concludes that road and rail are substitutable for container freight operations.
Issue II:
In the market so defined, is there any dominant enterprise that enjoys a position of strength to enable it to 'operate independently of competitive forces'.
15. Having defined the relevant market as being market for transportation of containers within the country the next step is to assess the dominance of JR. As stated earlier, in this market the two relevant modes are road and rail. It is axiomatic to state that rail network is the monopoly of Indian Railways while in the case of major highways it is the state that owns the roads. On rail network the new policy of private container operators there are 16 eligible players who have obtained licence to run container trains. The road network has a large number of operators including some of the rail CTOs. Many of the operators on roads are small operators (77%) owning less than five trucks.
15.1 The RITES Report (2005) notes that in 2004-05, while the major ports handled a combined volume of over 4 million TEUs, less than 1 million of this volume was carried over the rail network. It also notes that the average annual growth rate of container traffic was between 12 and 24 per cent during 1995 to 2005. Despite substantial growth in container traffic rail share remain low. The RITES Report also mentions that for export market the dominance is of freight forwarders operating on roads.
15.2 The CAG Report no. 8 of 2010-11 (Railways) covering its performance for the period 2004-05 to 2008-09 mentions "over the years the railways share of the total transport sector has come down from 53% in 1972-1977 to 37% in 1997-2002 due to inadequate investment in iiifrastructure and competitive weakness vis-à-vis other modes of transport".
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15.3 The Commission notes that railways are not a competitor in the relevant market, after the incorporation of CONCOR. Further CONCOR is not a dominant player in this market as there has been no indication that it enjoys a position of strength to influence either the competitors or the customers in its favour.
15.4 The above data, clearly establishes that container freight is largely carried on roads and railways are not dominant in container freight.
Issue III.
Whether the dominant enterprise as established above has abused its position to the detriment of competition?
16 Since none of the opposite parties JR or CONCOR are found to be dominant in the relevant market as determined in previous paragraphs, any allegation of abuse of dominant position shall not sustain.
16.1 It may be appropriate, nonetheless, to examine whether the market is constrained by any of the actions of IR as infrastructure provider. This issue is posed in the larger context of reducing logistics cost which according to an author is as high as 14% of total value of goods (GDP) compared to 6-8% of goods (GDP) in developing countries.
16.2 Among other things, the Concession Agreement gives the right to container train operators to require the railway administration to haul their container trains on the JR network for movement of EXIM traffic as well as domestic traffic, subject to various terms and conditions and on payment of haulage charges. Further, the railway administration is under an obligation to provide non-discriminatory infrastructure access to container trains on first come basis, subject to technical and running requirements.
http://www.pianc.org/downioads/oncourse/buIletin126b.pdf Page 47 of 54 16.3 The informant has argued that CONCOR as a unit of JR has been specially favoured to their disadvantage. Essentially, the arguments on allegations pertain to the level playing field in the concession agreement and the changes in the rates.
16.4 In the backdrop of the critical nature of transport logistics and its impact on the overall economic activity, it is important to deliberate on each of the allegations:
i. Exclusionary non-price conduct in violation of sections 4(2)(a)(i), 4(2)(b)(i) and 4(2)(c) of the Act - Prohibition from movement of coal, coke, ores and minerals by CTOs..
16.5 By prohibiting transportation of commodities such as Coal, Coke, Ores and Minerals, the DC is in agreement with the informant that MoR / JR have foreclosed about 60% of the market to the CTOs. The prohibition also has the effect of depriving choice of rail network to the customers who wish to transport less than train load of any of these commodities. Further, because of the restrictions, MOR / JR have prohibited the technical and scientific development relating to containers.
16.6 The Commission observes that DC's conclusions arise from the lack of distinction between container freight and wagon freight. As stated, rail infrastructure has been opened only to container trains, it is imperative to understand what is a container train and what type of goods are usually carried in containers. Bulk freight is normally transported in wagons while non-bulk and high value goods are transported in containers. This distinction is maintained even in maritime logistics where ships that are dedicated to bulk items like coal, grains, liquid and gaseous items are separated from ships that are designed to carry containerized items in containers, which are transmodal in nature. Furthermore, no discrimination has occurred between CONCOR and the CTOs after signing of the Concession Agreement.Page 48 of 54
ii. Exclusionary price discrimination / exploitative pricing and exclusionary pricing in violation of sections 4(2)(a)(ii) and 4(2)(c) of the Act - unfairly high prices and margin squeezing
17. By increasing haulage charges, imposing increased haulage charges on nine notified commodities on the basis of a container class rate and increasing stabling charges, the CTOs have been put to major cost disadvantage vis-à-vis movement of notified commodities in wagons as also making their operations commercially unviable. This allegation is accepted by DC.
17.1 The comparison of rates between wagons and containers on rail is inappropriate. Wagons have also carried non-bulk freight prior to the introduction of containers but the major freight traffic on rails has always been in bulk category. Comparison of rates must be between haulage charges of containers on rail network vis-à-vis roads. Despite increase in haulage charges, transportation by road is at least 1.3 times costly between Delhi-Mumbai and people have preference for road as a transport-medium. The allegation of discrimination of rates between wagons and container is not valid and accordingly, the Commission is of the view that it is not substantiated. Moreover, setting access charges is a tariff matter and is outside the purview of CCI.
iii. Unfair trade conditions in violation of sections 4(2)(a)(i) and 40(c) of the Act.
18. The informant has alleged that JR has unsettled the level playing field between CONCOR and other CTOs by giving land to CONCOR at favourable terms and conditions, thus giving unfair advantage to the latter. Further, by denying access to its rail terminals, CONCOR (group entity of IR) has denied an essential infrastructural facility to the CTOs. The DC concurs
- with the informant on this allegation.
117GOfs Page 49 of 54 0/ ct R\e:jv 18.1 The Commission observes that CONCOR was established in 1988 as a public sector enterprise with the objective of facilitating primarily EXIM container movement and providing other logistics like one-window custom clearing, ICD/CFS etc. In order to let it function properly, railways provided it with surplus land on terms which are now being termed as unsettling the level playing field. It may be relevant to note that in case of scarce natural resource, any company that is a pioneer will enjoy substantial cost benefits with passage of time.
18.2 An issue that has been raised by one of the informants is that of applicability of essential facility doctrine to certain infrastructural facilities owned by CONCOR. On this issue the DC has observed:
"Considering the facts of the present case, it is felt that the CONCOR's terminals particularly those built on MoR land fulfils the aforesaid conditions to be considered as infrastructure essential to compete. Based on the above principles, it would be in the fitness of things to grant access to such infrastructure to other players at a reasonable fee. Investigation has revealed that since under the present prevailing circumstances, CTO's are not able to access most of the terminals of CONCOR, the doctrine of essential facility is found to be violated by CONCOR and MoR."
18.3 The Commission opines that the essential facility doctrine is invoked only in certain circumstances, such as existence of technical feasibility to provide access, possibility of replicating the facility in a reasonable period of time, distinct possibility of lack of effective competition if such access is denied and possibility of providing access on reasonable terms. In the present case, we are of the view that there are no technical, legal or even economic reasons as to why other CTOs should not be creating their own terminals or similar facilities. As set out in the Indian Railways (Permission for operators to move container trains on Indian Railways) Rules, the Model Page 50 of 54 CL CL Concession Agreement (MCA) and Gazette Notification No 458 dated 26/09/2006, CTOs are obligated to build their own terminals at their cost.
iv. Leveraging dominance in one market to protect another market in violation of section 4(2) (e) of the Act
19. By leveraging their dominance in rail services including tracks, terminals etc, railway entities are able to leverage their dominance to protect their rail freight services to the detriment of the CTOs, as evident from the following:
a. Prohibition on specific commodities from operation by CTOs. b. Provision of land owned by MoR on favourable terms and conditions to CONCOR, giving them unfair advantage over other private CTOs in setting up terminals.
C. Denying access to terminals and sidings owned by CONCOR, resulting in denial of effective market access to CTOs. d. Restricting competition in the derivative market of maintenance services.
19.1 The conclusion of DC on this issue is based on his definition of relevant market. Rail freight service is an altogether different market and the Commission opines that leveraging does not arise in the market of transportation services for container freight. The issue of leveraging can be examined if and when a competitor tries to protect a market that is being threatened, which is not a case here.
V. Imposition of supplementary obligation in violation of sec 4(2)(d) of the Act.
20. In the aftermarket for maintenance of the concessionaire's container trains, MoR has monopolized the same by insisting that such maintenance of private railway rakes can only be sourced from MoR on payment basis, which the informant alleges that this monopolization by IR restricts Page 51 of 54 S. \* *1
-7T competition in the derivative aftermarket. PCTOs are obliged to get their hardware maintained by MoR and has resulted in supplementary obligation for PCTOs.
20.1 The Commission observes that even if maintenance is a different market the maintenance of rakes by railways is dictated by considerations of safety and security which is entirely the responsibility of the railways. On grounds of safety, it is not a competition issue. Nonetheless, the approach of IR as evident in the Concession Agreement is more open as the approach is to wait till such time as any other player gets approval for maintenance and thereafter the service will be priced.
This allegation has also been treated as violation of Sec. 3(4) of the Act.
vi. Contravention of sec 3(4) of the Act.
21. By forcing the PCTOs to agree to the maintenance clause, MOR has resorted to tie-in arrangement in which MOR requires the PCTOs to agree to get the maintenance of their wagons done by MOR in order to get permission to transport goods in containers over the rail network.
21.1 On this particular issue, Commission reiterates that safety considerations are prime and as submitted by the Indian railways any sub- standard maintenance would jeopardize overall railway operations that includes passenger services as well. As submitted by the IR, the modalities for appointment of private service providers are being worked out and till such time IR takes upon itself the responsibility of undertaking maintenance of rolling stocks of the CTOs to the RDSO specifications. Further, it is noted that there has been no mention of any entity that is into the business of providing maintenance services.
21.2 On purely theoretical grounds, tie-in arrangement could be a strategic action on part of a business entity if it has a dominant position in one Page 52 of 54 Njr product and wishes to promote a product in which it is a laggard. Resorting to tie-in, it would be able to promote one product on the basis of reputation of the other. In the present case this is not true, hence no violation of sec 3(4) of the Act.
21.3 It is thus observed that the allegations which have their genesis in the Concession Agreement signed between Indian Railways and the CTC)s remain unsubstantiated. Among other things, the Concession Agreement gives the right to container train operators to require the railway administration to haul their container trains on the JR network for movement of EXIM traffic as well as domestic traffic, subject to various terms and conditions and on payment of haulage charges. The railway administration is under an obligation to provide non-discriminatory infrastructure access to container trains on first come basis, subject to technical and running requirements.
Conclusions
22. The case under consideration is of immense national importance in the light of increasing containerized trade to meet the demands of EXIM and domestic trade. Logistics management clearly demarcate container freight and wagon freight and having taken note of these differences the relevant market is defined to focus on the competitive constraints of alternative transportation mediums that prevail. Further, the Commission has also held that in the relevant market, neither IR nor CONCOR are dominant. It is also legally not valid to treat JR and CONCOR as group entity. The Commission notes that in this commercial activity, the allegation pertaining to Sec 4 do not hold. There is, therefore, no abuse of dominant position.
22.1 The allegation however raises some concerns on the larger issue of policy design for incentivizing private participation. Section 18 of the Act and the preamble mandates the Commission to 'promote and sustain competition in markets'. From this dimension, the Commission is of the opinion that if the Page 53 of 54 N1 allegations regarding changes in haulage charges frequently act as disincentives it may be appropriate for the MoR to look into the matter. Private players look for consistency and continuity in policy. If the informants in this case perceive changes in haulage rates as inconsistent, the MoR may examine this to be in line with the avowed intent of the policy to encourage private players. Further, the Commission notes that there is a conflict of interest in as much as Railway Board I JR exercise multiple roles as a licencor and operator, apart from owning the railway network. In view of this, it is desirable that these functions be delegated to independent entities.
ORDER The Commission does not find MoR I JR as dominant in the relevant market and accordingly finds no abuse of dominance with regard to the allegation pertaining to any violation of Sec 4(2)(a)(i), 4(2)(a)(ii), 4(2)(b)(i), 4(2)(c), 4(2)(d), 4(2)(e). Further no evidence of violation of Sec 3(4) is established.
CONCOR is also not dominant in this market and the allegation cannot be upheld. The case is closed. The MoR may be requested to examine the issue of frequency of tariff changes and initiate appropriate action, if required.
The Secretary is directed to inform the parties accordingly.
Sd!- Sd!-
Member (GG) Member (0)
Sd!-
Chairperson
0omm,
Cerfied True
1712
* -\"
./PGAHLAUT
/Assistart Director
Page 54 of 54 petlUon Commission of India
cr 1e New Delhi