In Re: Cartelisation by Shipping Lines in the matter of provision of Maritime Motor Vehicle Transport Services to the Original Equipment Manufacturers (Competition Commission of India)
The evaluation of available evidence indicates that there was an agreement between NYK Line, K-Line, MOL and NMCC with the objective of enforcement of “Respect Rule”, which implies avoiding competition with each other and protecting the business of incumbent PCC with the respective OEM. The PCCs would respect the business of the incumbent carrier by either providing a quote above the incumbent’s rates or refraining from quoting. To achieve the said objective, the OPs resorted to multi-lateral as well as bilateral contacts/ meetings/ e-mails with each other to share commercially sensitive information which, inter alia, includes freight rate. The OPs engaged in such practices with the aim of restricting competition and maintaining the status quo, i.e., ensuring that the car carriers would keep their respective businesses for certain customers and/or certain routes. They also aimed to preserve their position in the market and maintain or increase prices, including by resisting requests for price reduction from certain OEMs.
It is also noted that the contacts between the OPs were route or customer-specific and not all parties were involved in every exchange. Further, the conduct was an ongoing process and did not consist of isolated or intermittent occurrences.
The said conduct on the part of the OPs can be classified as an agreement which is presumed to have AAEC within India under the provisions of Section 3(3) of the Act. It is noted that NYK Line, MOL and NMCC have not objected to such AAEC and K-Line has not been able to rebut the same. Accordingly, based on a cumulative assessment of the evidence discussed above, the Commission holds all the four OPs, e., NYK Line, K-Line, MOL and NMCC, guilty of contravention of the provisions of Section 3(3)(a), 3(3)(c) and 3(3)(d) read with Section 3(1) of the Act from 2009 to 2012.
FULL TEXT OF THE ORDER OF COMPETITION COMMISSION OF INDIA
1. The present case pertains to alleged anti-competitive conduct by Nippon Yusen Kabushiki Kaisha (‘NYK Line’/‘OP-1’), Kawasaki Kisen Kaisha Ltd. (‘K-Line’/‘OP-2’), Mitsui O.S.K. Lines Ltd. (‘MOL’/‘OP-3’) and Nissan Motor Car Carrier Company (‘NMCC’/‘OP-4’), in the provision of maritime motor vehicle transport services to automobile Original Equipment Manufacturers (‘OEMs’) for various trade routes, as noted hereinafter.
I. Facts
2. The case was initiated by the Commission suo motu, on the basis of an application dated 01.10.2014 filed under the provisions of Section 46 of the Competition Act, 2002 (the ‘Act’) read with Regulation 5(1) of the Competition Commission of India (Lesser Penalty) Regulations, 2009 (‘Lesser Penalty Regulations’), by NYK Line. It was mentioned in the application that NYK Line, K-Line, MOL and NMCC (hereinafter the ‘OPs’) colluded in respect of providing maritime motor vehicle transport services to automobile OEMs viz. for certain specific trade routes, as mentioned below:
i. Collusion for contract
In requested a quote for the trade route from from NYK Line, K-Line and MOL. Consultations and discussions took place between NYK Line and K-Line with respect to the freight rates that they would quote to. Further, in, issued a new tender for maritime motor vehicle transport services for its trade route from. In this tender also, NYK Line and K-Line exchanged information with respect to quoted freight rates/positions/schedules, etc. In the bid-rigging process, MOL was also complicit.
ii. Collusion for contract
NYK Line and K-Line, inter alia, co-ordinated the sailing schedule to control the frequency of shipments per month, in response to the requests made by for . Further, in , discussions took place between these shipping lines regarding the request made by to decrease the Bunker Adjustment Factor (‘BAF’) for the route.
iii. Collusion for contract
In , for the trade routes from issued a request for quotes. Meetings took place between NYK Line and NMCC in this regard, wherein NMCC requested NYK Line to submit a bid at a price higher than NMCC’s indicated rates. Further, for the trade route for, NMCC requested NYK Line to provide a provisional freight rate. Additionally, meetings took place between NYK Line and MOL also regarding bid prices in this regard.
3. Upon perusal of the above stated information and in light of the documents/ evidence filed by NYK Line in support thereof, the Commission noted that the OPs were exchanging commercially sensitive information to co-ordinate, inter alia, the price to be quoted in the matter of provision of maritime motor vehicle transport services on Pure Car Carrier (‘PCC’) vessels to automobile OEMs namely. Based on the same, the Commission, forming an opinion that a prima facie case of contravention of the provisions of Section 3(3)(a) and Section 3(3)(d) read with Section 3(1) of the Act is made out, passed an order dated 20.11.2014 under Section 26(1) of the Act directing the Director General (‘DG’) to cause an investigation to be made into the matter and submit a report.
4. The DG was also directed to investigate the role of the persons/officers of the OPs in terms of Section 48 of the Act, after giving them due opportunity of being heard. The Commission also observed that, though it is mentioned in the information that the collusion took place during the period 2009 to September 2012, the DG is directed to conduct a detailed investigation into the contravention disclosed in the information up-to-date without restricting and confining itself to the duration mentioned in the information.
5. During the pendency of investigation before the DG, MOL and NMCC also approached the Commission on 29.07.2016 as lesser penalty applicants, by filing a joint application under the provisions of Section 46 of the Act read with Regulation 5(1) of the Lesser Penalty Regulations. The Commission, however, vide order dated 03.08.2016, rejected the said application dated 29.07.2016 on the ground that two competing companies have filed a joint application. It was observed by the Commission that under Lesser Penalty Regulations read with Sections 46 of the Act, there is no provision whereby two or more parties can jointly file an application under Section 46 of the Act. It was also noted that such joint application runs counter to the spirit of the lesser penalty provisions. Thus, thereafter, MOL, followed by NMCC, filed separate applications before the Commission on 04.08.2016, under Section 46 of the Act read with Regulation 5(1) of the Lesser Penalty Regulations.
II. Investigation by the DG
6. First of all, the DG noted that the ocean shipping industry comprises of multiple sectors and types of vessels, including bulk carriers, tankers and vehicle carriers. It was noted by the DG that in vehicle carriers, in addition to shipping vehicles, vehicle carriers also ship high and heavy cargo (cargo bigger and heavier than a vehicle and requiring special arrangements) and small, ancillary, non-moveable cargo, etc. The DG observed that car carriers consist of RoRo (Roll on and Roll off) ships. A RoRo ship is a special type of ocean vessel that allows cars to be driven and parked on its decks for long voyages. These ships, also known as Car Carriers, have special ramps to permit easy access, high sides to protect the cargo during transport, and numerous decks to allow storage of a large number and variety of cars.
7. The DG further observed that there are different types of RoRo ships. A Pure Car and Truck Carrier (‘PCTC’) transports cars, trucks and other four-wheeled vehicles and has a slightly different configuration while a PCC can be thought of as a parking garage and transports only cars. Its layout is designed to carry only cars and is fixed.
8. Noting the aforesaid industry overview, the DG delineated the following two issues for investigation and gave its findings on the same as under:
A. Whether the OPs have indulged in cartelisation, either with one or the other(s), in the matter of provision of Maritime Motor Vehicle Transport Services by PCC Vessels to OEMs –, and if so, the provisions of the Act so contravened?
contracts
9. The DG found anti-competitive conduct in relation to contracts of and by NYK Line, K-Line and MOL, on the basis of several key evidence.
Based on the same, the DG observed that for the route of, NYK Line, K-Line and MOL colluded with each other. The modus operandi for this collusion was found to be centred on initial negotiations between these three OPs. It was found that NYK Line and K-Line agreed to offer joint services to and that NYK Line and K-Line also agreed to follow ‘Respect Rule’ with MOL. MOL was agreeable to retaining its hold on the OEM and in exchange for NYK Line and K-Line not interfering with business, MOL allowed them to retain their stronghold on This enabled NYK Line and K-Line to secure the contract from. Further, freight rates were also discussed between these three OPs. The investigation, therefore, concluded that NYK Line, K-Line and MOL contravened the provisions of Section 3(3)(a), 3(3)(c) as well as 3(3)(d) read with Section 3(1) of the Act, for 2010 and 2012 contracts.
contracts
10. The DG found anti-competitive conduct in relation to contracts of to by NYK Line and K-Line, on the basis of several key evidence. Based on the same, the DG has concluded that NYK and K-Line colluded by having meetings and exchanging calls for the route of from 2008 to 2012. There was also close matching of freight prices for the contracts from to and to. The investigation, therefore, concluded that NYK Line and K-Line contravened the provisions of Section 3(3)(a) and 3(3)(d) read with Section 3(1) of the Act during the period 2008 to 2012 with respect to contracts.
contracts
11. The DG found anti-competitive conduct in relation to contract from to by NYK Line, K-Line, MOL and NMCC, on the basis of several key evidence. Based on the same, the DG has observed that the entire set of evidence which are in the form of memos, e-mails, Affidavits and depositions, establish that all the four OPs were in regular interaction with each other and formulated strategies with respect to contract, which is in contravention of the provisions of Section 3(3)(a), 3(3)(c) and 3(3)(d) read with Section 3(1) of the Act.
12. Based on the afore-mentioned discussions, the DG found that the four OPs had agreements/arrangements/tacit understanding with each other from 2008 onwards till at least 2012, utilizing various modus operandi and thereby forming respective cartels which had the effect of limiting competition in India. Accordingly, the DG concluded that the provisions of Section 3(3) read with Section 3(1) of the Act have been contravened by these OPs.
b. In case the answer to Issue No. 1 is in the affirmative, who are the persons of the OPs liable in terms of Section 48 of the Act for the anti-competitive conduct of the OPs and what were their roles at the time of the said contravention?
13. The DG identified various officials of the OPs under Section 48(1) and/or Section 48(2) of the Act, who had been part of the cartelisation amongst the OPs. The role of these individuals in the entire collusion has been discussed subsequently in this order.
III. Proceedings before the Commission:
14. The Commission considered the Investigation Report submitted by the DG in its ordinary meeting held on 23.01.2020 and directed to forward an electronic copy of the non-confidential version qua OPs of the same to the OPs and their individuals concerned, for filing their respective objections/suggestions thereto, if any. Further, the OPs were also directed to file their financial details including duly audited financial statements for the Financial Years (‘FYs’) covering the period 2008 to 2013, as specified therein. The individuals of the OPs were also directed to file their income details, including Income Tax Returns (‘ITRs’) for the FYs covering the period 2008 to 2013.
15. Thereafter, the Commission, vide order dated 10.11.2020, created a ‘Confidentiality Ring’ in the matter for the purposes of providing access to the unredacted versions of the documents/records to the parties on mutual basis.
16. The parties filed their suggestions/objections to the investigation report of the DG and relevant financial details in June and July, 2021. Thereafter, the Commission heard the respective learned counsel(s) appearing on behalf of the OPs and their individuals concerned, on 24.08.2021 and 25.08.2021 and decided to pass an appropriate order in the matter. As prayed, the OPs were allowed to file synopsis of their oral arguments within 2 (two) weeks, if desired and further, as prayed, K-Line was allowed to file an Affidavit in support of its relevant turnover data within 4 (four) weeks. The same were received and taken on record.
IV. Submissions of the OPs
17. In their suggestions/objections to the DG report, during the oral hearings and in the synopsis of oral arguments, the OPs made, inter alia, the following submissions:
Reply of NYK Line/ OP-1 and its 14 individuals:
18. NYK Line has provided full, true and vital disclosures, information, documents and evidence and co-operated genuinely, fully, continuously and expeditiously throughout the investigation and not concealed any information. It agrees with all the findings reached by the DG with respect to collusion in and contracts.
19. It also agrees with the finding of the DG that the actions of the OPs have caused an appreciable adverse effect on competition (‘AAEC’) in the market. The actions of NYK Line in collusion with the other OPs disrupted the competition landscape in the market for the provision of services for transportation of vehicles across countries.
20. In relation to imposition of penalty, the conduct in question between the OPs was discontinued much before the investigation was ordered; as such, no penalty ought to be imposed upon NYK Line. NYK Line also listed various factors which ought to be considered by the Commission before any penalty is imposed upon it. Further, as the investigation was mounted by the Commission only because of the lesser penalty filing made by NYK Line, it prayed that in the event the Commission deems it appropriate to levy a penalty on NYK Line, it should be granted 100% reduction in penalty in terms of Section 46 of the Act read with Regulation 4 of the Lesser Penalty Regulations.
Reply of K-Line/OP-2 and its 10 individuals:
21. K-Line has contested the jurisdiction of the Commission over the matter as well as the findings of the DG given in the Investigation Report. It prayed the Commission to set aside the DG’s findings and direct closure of the captioned matter forthwith. Cartel conduct has been found by the DG on (i) route; (ii) route; and (iii) : – route, and – , and route. All these routes considered by the DG in relation to K-Line for alleged coordination are outbound, and therefore, if at all any effect on competition would have taken place, it would be within the territorial jurisdiction of other countries and not India.
22. The DG has not even referred to or brought on record, the critical exculpatory evidence submitted by K-Line during the investigation, which is indicative of the fact that K-Line acted on the request of the OEMs themselves. The DG has also failed to take cognizance of the submissions made by the purportedly affected third parties i.e., , and , which are also exculpatory in nature.
23. The submissions of K-Line have been examined by the Commission at appropriate places in this order.
Reply of MOL/OP-3 and its 6 individuals:
24. MOL agrees with the findings of the DG on all counts. Through its submissions, MOL has extensively explained the cartel and has made immense value addition. It has extensively assisted the DG in arriving at its conclusions. It would have been difficult for the DG to understand the exact nature of collusion without extensive cooperation from MOL. MOL has also submitted a lot of evidence which has not been relied upon by the DG in the DG Report. MOL has met the standard under Regulation 3(1) of the Lesser Penalty Regulations read with Section 46 of the Act and should be granted maximum reduction in penalty. MOL provided all relevant information in a timely manner, as soon as it became aware of the conduct, in order to assist the DG in its investigation. Unless absolutely required to correct a factual position, MOL has not even objected to any finding of the DG in the Investigation Report.
25. MOL has only relied upon the certified copies of the case records received from the Commission and it is not in receipt of several key case records. Given this, MOL reserves its right to make additional submissions to supplement the response to the Investigation Report, if necessary.
26. The ‘Respect Rule’ was at the heart of the cartel activities that took place between the car carrier shipping companies and is also a key focus of MOL’s lesser penalty application and additional submissions. The Respect Rule worked in a way that each carrier was able to maintain its established position within its main customer accounts. The carriers could also maintain or increase prices by acting in concert with the other carriers to jointly resist requests for price reductions by the OEMs.
27. NMCC was a company incorporated on the initiative of , in which MOL had 40% shareholding as of April 2008 (which was increased to 90% by MOL in September 2009). Both MOL and NMCC hence, should be considered as one entity, and MOL’s response to the Investigation Report should be taken to have been filed on behalf of both MOL and NMCC. MOL’s response should also entitle NMCC, its subsidiary, to all benefits that MOL may get in terms of immunity or reduction in fines in consonance with MOL’s priority status.
28. The Investigation Report has identified various employees of MOL liable for the conduct of business by MOL during the period of contravention of the provisions of the Act, under Section 48 of the Act. Amongst these individuals, , and are no longer employed with MOL and could not be contacted at the addresses registered with MOL. Further, given that it has been a long time since these officials left the organization, despite trying, they are no longer contactable at the addresses available with MOL. Hence, MOL does not have alternate means to contact such individuals.
29. In line with its decisional practice, the Commission should grant maximum penalty reduction as may be applicable to MOL as well as its individuals, taking into consideration the detailed submissions made by MOL in its response to the DG Report.
30. Submissions of MOL in respect of penalty assessment are elaborated subsequently in this order.
Reply of NMCC/OP-4 and its 3 individuals:
31. NMCC has submitted that the response to Investigation Report filed by MOL should be taken to have been filed on behalf of both MOL and NMCC. It has also separately filed its response to the Investigation Report and largely reiterated the submissions made by MOL. NMCC, through its submissions, has extensively explained the cartel by providing details of communication with competitors and entering into agreements with them on allocation of customers and on setting freight rates for transportation of vehicles to and from various overseas ports, thereby operating a cartel. NMCC made immense value addition by way of its submissions and extensively assisted the DG in arriving at its conclusions. Unless absolutely required to correct a factual position, NMCC has not objected to the findings of the DG given in the Investigation Report. The common submissions of MOL and NMCC are not being reproduced for brevity.
32. The DG has not found anti-competitive conduct by NMCC in respect of contracts and contracts. Therefore, NMCC has only addressed the DG’s findings with respect to contracts, where the DG has found NMCC to be in contravention of the provisions of the Act.
33. In its lesser penalty application and other response(s), NMCC has admitted to and provided evidence with respect to: (i) communication with NYK Line, K-Line and MOL for entering into informal arrangements in relation to the car carrier business between the years 2009 and 2011, for certain routes originating in India; and (ii) agreement on setting freight rates for transportation of vehicles to and from certain ports in India for tenders floated by , thereby operating a cartel.
V. Analysis and findings of the Commission
34. The Commission has perused the applications seeking lesser penalty filed by NYK Line, MOL and NMCC under Section 46 of the Act, the Investigation Report submitted by the DG including the evidence collected by the DG, the suggestions/objections to the Investigation Report filed by the parties and heard the oral arguments addressed by the respective learned counsel(s)/senior counsel(s) representing the parties. The Commission has also considered the written submissions made by the parties after the oral hearing.
Preliminary Issues
35. At the outset, the Commission notes that some of the OPs have raised certain preliminary issues in their written submissions as well as during oral hearing. Before proceeding to analyse the allegations on merits, the Commission would firstly deal with such preliminary issues.
36. K-Line has averred that all the routes investigated by the DG in relation to K-Line for the alleged co-ordination are outbound, and therefore, if at all any AAEC would have taken place, it would be within the territorial jurisdiction of other countries and not in India. It has been asserted that the jurisdiction of the Commission only extends to markets within the territorial jurisdiction of India and in relation to acts which may have an AAEC in any relevant market in India. In this regard, the arguments put forth by K-Line are as follows:
36.1. Section 32 of the Act empowers the Commission to exercise extra-territorial jurisdiction in cases where any alleged anti-competitive activity is effected or causes an AAEC in a relevant market in India. While determining the AAEC caused by any alleged conduct in India, the Act also expressly exempts from its purview such alleged conduct or alleged cartelisation, which is in relation to the export of goods/services under Section 3(5) of the Act.
36.2. In terms of the very scheme of the Act itself, there cannot be any AAEC in India due to the alleged cartelisation, as all the cargo of the OPs is outbound and being catered to consumers outside India. The DG Report has failed to recognise that the OPs were often facilitating transport of vehicles manufactured by an Indian subsidiary of a global OEM, such as or to a subsidiary of in , or subsidiary of or in or . As such, these were very much intra-company transfers of completely built-up units (‘CBU’) of cars (i.e., effectively outbound intra company sales) within global OEMs, wherein the OEMs themselves have repeatedly informed the DG during the course of the investigation that price wasn’t the primary driver in the process of selection of the OPs for routes originating in India.
36.3. The present case (i.e., the provision of PCC services for outbound routes mentioned above) can at best be considered to be pertaining to the ‘export market’, which is exempted from the application of Section 3 of the Act, under Section 3(5) of the Act.
36.4. In the interest of comity between competition authorities worldwide, it would be expedient and correct for the Commission to conclude the present investigation, given that appropriate orders have already been passed in other affected jurisdictions pertaining to the routes under investigation. The scheme of the Act, in effect, acknowledges that they are subject to the jurisdiction of competition or regulatory authorities in such countries where the said goods are being imported (Section 3(5) of the Act). Decisions have been reached in other competition jurisdictions in relation to the very same conduct and allegations against K-Line, in and , the only routes which concern K-Line in the DG Report.
36.5. Given that India was neither the origin nor the destination for K-Line’s PCCs in any of the routes that have been investigated by the DG, and since the CBU of cars only ‘passed through’ India as part of global supply chains, there was, at no point, any effect, let alone an AAEC, caused in the Indian territory. India, as a part of global supply chains for OEMs, was simply a de facto origin, whereas was the de jure origin in such supply chains. Accordingly, for all intents and purposes, the activities of the OPs were affecting global OEMs situated in . These global OEMs did not suffer any competitive harm within India and such pass-through effects have already resulted in appropriate orders in other jurisdictions.
36.6. No AAEC has been caused on (a) the ultimate consumers in India as the ultimate consumer was situated outside India; or (b) the global OEMs and their subsidiaries in India, as the pass-through effect of even the alleged cartel in India was effectively borne by the subsidiaries of the global OEMs in the concerned destination country situated in or .
36.7. The DG has committed a blatant error in assessing the geographic impact of the alleged cartel ‘across countries’. Therefore, it is evident that, by loosely and summarily assessing the effect in “the market for the provision of services for transportation of vehicles across countries,” the DG has acted beyond the mandate of the Act in a prejudicial manner.
36.8. The Commission, in its decision in Case No. 76 of 2012 titled Shri Nirmal Kumar Manshani vs. M/s Ruchi Soya Industries Ltd. and Others (‘Ruchi Soya Case’), took into account the ‘effect’ in a wholesome manner. In this instance, where the majority of a commodity, which was the subject of the alleged anti-competitive agreement, was exported out of India, the Commission concluded that lack of AAEC in India alone resulted in the parties not being in contravention of the provisions of the Act.
36.9. In the present case, the OPs are ultimately servicing the global OEMs for outbound CBU of cars once they have been manufactured in India and transported for sale by a foreign subsidiary of a global OEM to a foreign customer. Based on the above, no valid theory of harm in India exists nor has it been established in Investigation Report.
36.10. Any impact of the alleged anti-competitive behaviour was faced by the parent entities of the global OEMs or, in the very least, the importing subsidiaries of the global OEMs, which are demonstrably located outside India, and hence, the allegedly impacted markets were territorially situated outside of India.
36.11. K-Line’s submissions in other jurisdictions should not prejudice proceedings before the Commission. K-Line has not caused AAEC in India, while it may have contravened competition laws outside of India. The decisions of other jurisdictions in relation to this cartel make it clear that the violations are case and country specific.
37. In regard to the above stated contentions of K-Line, the opinion of the Commission is as follows:
37.1. K-Line has sought protection under Section 3(5) of the Act. For the ease of reference, the relevant portion of Section 3(5) is reproduced below:
“Nothing contained in this section shall restrict—
(i) …..
(ii) the right of any person to export goods from India to the extent to which the agreement relates exclusively to the production, supply, distribution or control of goods or provision of services for such export.”
(Emphasis supplied)
37.2. In this regard, at the outset, it is observed that the aforesaid provision does not oust the applicability of the provisions of Section 3 of the Act as it merely declares that nothing contained in Section 3 shall restrict the right of any person to export goods from India to the extent to which the agreement relates exclusively to the production, supply, distribution or control of goods or provision of services for such export. Furthermore, it is self-evident that the limited protection granted thereunder, is available only to a specified category of service providers i.e., “exporters” of goods, which is clearly reflected in the phrase “right of any person to export goods from India”. In the present matter, the Opposite Parties are not the exporters in terms of Section 3(5)(ii) of the Act; instead, they are providing maritime transport services to OEMs who are actually the exporters. Merely because the end product i.e., the vehicles manufactured by these OEMs, in India, were being exported out of India, it would not accord any protection to the anti-competitive agreement entered into by the Opposite Parties. Acceding to the plea raised by K-Line would render the entire scheme of the Act redundant in respect of cartels entered into by the parties for supply of any input goods/ services, where the ultimate product is being exported out of the country. This would not only be an absurd proposition but agreeing to such interpretation would also make the country’s exports as well as India as a manufacturing hub, uncompetitive. This would also have a negative impact on the “economic development” of the country, which is one of the criteria laid down in under Section 19(3)(f) of the Act for determining whether an agreement has an appreciable adverse effect on competition under Section 3 of the Act has an AAEC in India. Therefore, the plea of K-Line to invoke the purported exemption provided to the export cartels under Section 3(5)(ii) of the Act, in the present matter, is thoroughly misconceived, and thus, rejected.
37.3. It has also been averred that K-Line has not caused AAEC in India, as the ‘ultimate consumer’ was located outside India. In this regard, it is important to note the definition of ‘consumer’ as laid down under the Act. The relevant extract of Section 2(f) is as follows:
“consumer ” means any person who—
(i) …
(ii) hires or avails of any services for a consideration which has been paid or promised or partly paid and partly promised, or under any system of deferred payment and includes any beneficiary of such services other than the person who hires or avails of the services for consideration paid or promised, or partly paid and partly promised, or under any system of deferred payment, when such services are availed of with the approval of the first-mentioned person whether such hiring or availing of services is for any commercial purpose or for personal use;
(Emphasis supplied)
It is clear from the above provision that the Act makes no distinction between an ‘ultimate consumer’ and an ‘intermediate consumer’ i.e., where the goods/services are used as an input in the value chain. In the present matter, the OEMs with manufacturing bases in India availed the services of the OPs for maritime transport of vehicles manufactured by them in India to their overseas markets. Therefore, the OEMs located in India would constitute ‘consumer’ in terms of Section 2(f) of the Act and collusion between the OPs to fix the price, allocate markets, limit supply, collusive bidding, etc. is bound to have an impact on the said OEMs in India. Accordingly, the said plea of K-Line also stands rejected.
37.4. K-Line has also averred that appropriate orders have already been passed in other affected jurisdictions pertaining to the routes which are under investigation in the present matter. Therefore, in the interest of comity between competition authorities worldwide, it would be expedient and correct for the Commission to conclude the present investigation. In this regard, the Commission notes that the mere fact that other competition authorities have already examined and passed appropriate orders on the alleged conduct, may not be of much consequence in the present matter. If the conduct of the parties is found to be violative of the provisions of the Competition Act in India, the same needs to be examined as per the extant statutory framework. Accordingly, the said plea of K-Line is also misplaced, and accordingly, rejected.
38. MOL and NMCC, in their written suggestions/objections to the Investigation Report, have submitted that they have only relied on the certified copies of the case records received from the Commission and they are not in receipt of several key case records. Given this, they reserve their right to make additional submissions to supplement the response filed on the Investigation Report, as necessary.
39. In this regard, it is noted that similar plea was made by MOL and NMCC earlier also and the same was duly considered and disposed of by the Commission vide its orders dated 04.05.2021 and 22.06.2021. Relevant extracts from the order of the Commission dated 22.06.2021 are as under:
“6. It is also noted that counsel of OP-3 and OP-4 in separate letters dated 07.06.2021 have reiterated their earlier submissions that they are yet to receive the entire set of un-redacted versions of the case record. It has also been inter alia submitted that Japan is currently grappling with the fourth wave of COVID-19 and emergencies have been announced in nine prefectures of the country, including Tokyo. These OPs have further claimed that it has made it impossible for them to exhaustively review the contents of the Case Records or provide additional supporting documents to support their stance. Accordingly, it has been submitted that OP-3 and OP-4 reserve right to make supplementary submissions based on any additional documents or discoveries (as applicable), once the situation of COVID-19 abates in India and Japan.
7. The Commission has already considered the requests made by these OPs related to allowing access to case records through email/DVD/post to the members of the confidentiality ring and vide its order dated 04.05.2021 decided that the same cannot be acceded to as the records can be inspected in the manner available and parties are advised to inspect and obtain certified copies, if so required, accordingly. Now, the restriction imposed by the local authorities due to surge in COVID-19 cases, have also been eased and therefore, the parties are once again advised to depute any member of the Confidentiality Ring to collect the requisite documents, if so desired, and the Commission shall proceed with the final hearing in the matter as proposed in this order. No further requests in this regard shall be entertained by the Commission.”
40. Thus, in the view of the Commission, MOL and NMCC have been given sufficient opportunity to inspect the case records of the matter and obtain certified copies of all documents which form part of the case records. However, MOL and NMCC have chosen to skip the opportunity for reasons best known to them. The statutory proceedings cannot be held up for non-action of the party under investigation. In any event, while examining the conduct of the parties under inquiry, the Commission has confined itself to the Investigation Report, the documents enclosed therewith (copies thereof were duly supplied to OPs) and the submissions of the OPs made thereon. Accordingly, the Commission finds no merit in the contentions raised by MOL and NMCC and the same are thus, rejected.
41. K-Line has also submitted that it reserves its rights to file additional and supplemental submissions post receipt of complete confidential case records of the matter and any other submissions made by the OPs in the matter.
42. In this regard also, for the reasons already adumbrated supra, the Commission fails to understand the basis of such submission as the Commission has granted full access to even the confidential case records to all parties and the parties were at full liberty to obtain copies of the case records, if so desired. In this backdrop, reserving such a liberty by any party is completely unwarranted and baseless.
43. MOL and NMCC have also made detailed submissions in relation to the parent-subsidiary relationship between MOL and NMCC. It has been, inter alia, averred that the evidence adduced, and arguments put forth by MOL should be considered as being made by both MOL and NMCC jointly. It has also been prayed that the response filed by MOL to the investigation report should also entitle NMCC, being its subsidiary, to all the benefits that MOL may receive in terms of immunity or reduction in fine in consonance with MOL’s priority status. NMCC has also reiterated similar arguments in its separate written submissions. These averments of MOL and NMCC have been considered and examined by the Commission subsequently in the present order.
Analysis of the allegations on merit
44. Having dealt with the above preliminary issues, the Commission now proceeds to examine whether the OPs have violated the provisions of Section 3 of the Act in respect of provision of maritime transport services to any OEM, and/or .
Contract of
45. In requested a quote on the trade from to route from NYK Line, MOL and K-Line. The DG has noted that does not undertake tendering process for finalisation of the PCC for transportation of cars. For this purpose, multiple factors which include freight price, services of existing OPs, etc., help decide on a PCC or a combination thereof. For the selection of PCC on a particular route, (‘ ’), a subsidiary of , studies the quotations given and sends the same to to take a final decision. The DG has found that, in the process, NYK Line colluded with the competing international shipping lines in the PCC vessels namely K-Line and MOL. The Commission has carefully perused the evidence gathered by the DG in this regard along with the submissions of the OPs, and the same is discussed in the following paragraphs.
46. It has been found by the DG that NYK Line was in discussion with of K-Line for joint service offering as well as freight rates for contract of . The DG has found that by offering joint services to for the contract of and by discussing prices with each other, NYK Line and K-Line have contravened the provisions of Section 3(3)(a) and 3(3)(d) read with Section 3(1) of the Act.
47. In this regard, it is, at the outset, noted that NYK Line is in agreement with such finding of the DG. As far as K-Line is concerned, the following relevant excerpts from the deposition of are noted:
“Q8. Did you have any discussions with your competing PCCs with reference to India and ?
Ans: Yes, I did.
Q9. Name the person whom you interacted with and also elaborate the exact discussions that you recall you had with this person?
Ans. Regarding NYK as previously mentioned, I was in contact with and . Regarding historically K-Line and NYK have been providing joint roster services on the route. The contact was to figure out the possibility of potentially providing similar service to cover India. As part of the service offering from , even previously there had been contact between K-Line and NYK regarding scheduling of liner timings before.
Q19. So K-Line has no evidence that asked it for joint servicing?
Ans. While there is no explicit request from for us to provide joint roster servicing, given the scale and frequency of shipping required, we made the offer based on the existing services being offered to at that time. has no opinion conveyed to us regarding whether one company or more is required. The offer was based on our
understanding of the frequency required by .
Q25. Were approximate freight rates discussed, directly or indirectly?
Ans. Yes. Some part of the discussion covered the topic of freight. The background being that the two companies already contracted by on the route so in the context of India some part of the discussion touched upon the freight level that would be feasible.
Q26. Why were freight rates discussed between competitors?
Ans. Both parties were of the opinion that the level of service that was required by should be maintained even on this route. As part of that, we discussed to the extent what should be the level of conditions to be maintained in order to meet customer requirement. This was to the level of a guideline.”
(Emphasis supplied)
48. From on above, the Commission notes that of K-Line has also admitted to being in contact with and of NYK Line in relation to business for exploring the possibility of joint services on the route in , on lines similar as route. It is further noted that NYK Line and K-Line, on their own initiative, decided to offer joint servicing to , and there seems to be no explicit request from for the same. Even if assuming that joint services were required considering the frequency of vessel shipments required, in view of the Commission, there was no occasion for the two competitors to discuss the freight rate with each other, as admitted by in his deposition. Further, if the OPs were of the view that they cannot handle the business volume of individually, they could have communicated the same to and let decide on how to avail the services from the OPs. However, to avoid competing with each other, these two OPs decided to divide the business amongst themselves. By this modus operandi, they secured sufficient business for each of them at prices they wanted. Competition amongst these OPs would have resulted in competitive prices for .
49. During the course of the investigation, NYK Line also submitted a set of internal emails, which included an email dated 09.03.2010 from its employee to , another employee of NYK Line. Relevant excerpts from the said e-mail are noted hereunder:
“If greedily eats, … The basic stance should be: “If you touch , we will touch “
Regarding this tender, we’ll pretend to meddle with , and make say: “Please stop. We’ll keep our word to behave on front.”
From the above email, the arrangements of ‘mutual respect’ between NYK Line and MOL is noted. It is discussed how NYK Line would keep the contract for and in return, refrain from undercutting or competing against MOL’s bids for the contracts. It was discussed that in case MOL tried to capture contracts, NYK Line would retaliate by interfering with MOL’s bid for contracts. The DG has stated that traditionally, is serviced by NYK Line and K-Line jointly, whereas is serviced by MOL. Thus, the tenor of the email suggests that market shall continue to be shared in accordance with the existing arrangements. In other words, the e-mail speaks about ‘respecting’ the business of each other.
50. In this regard, the deposition of of NYK Line is also noted. The relevant extracts from the deposition are as follows:
“Q21. In an email dated , 18.11 on page 230 of your submission dated 5.1.15, has written to of NYK Line amongst others. Please explain this mail.
Ans. This email is from of NYK Line (also NYK). As NYK had been approached by , NYK would show that it is interested in servicing them. NYK believed that MOL would ask NYK not to take on the business. NYK would then agree to their request after MOL has agreed that they would respect NYK’s business. …
…
Further, there was a meeting between (NYK) and of MOL, (MOL) to confirm the discussions that of NYK Line had with his counterpart at MOL.
Additionally, the last part of the email (point no. 4 on Page 231) indicates that NYK had instructed MOL to stick to discussing only general business details and not try to expand its business during their one on one information exchange meetings with which were held with all shipping lines. NYK asked MOL not to propose any new service to at that meeting. In exchange, NYK agreed to ‘behave’ on the business and that if MOL did not behave then NYK would go after MOL agreed and confirmed that they will only discuss general information at information exchange meetings with .”
(Emphasis supplied)
From the above, it is evident that of NYK Line also accepted that there existed collusion between NYK Line and MOL during in the form of ‘Respect Rule’ i.e., NYK Line and MOL had reached an understanding that each would respect the other’s trade route and incumbent status. also mentioned a meeting between of NYK Line and of MOL, which was held in relation to this collusion between NYK Line and MOL.
51. Similar collusion in the form of ‘Respect Rule’ is also evident between K-Line and MOL from the deposition of of K-Line, who happens to be the predecessor and reporting authority of till. The relevant excerpts from his deposition are as follows:
“Q.20 It is learnt that you had discussions on vessel allocation and freight prices from India to for contract. Please elaborate on the same.
Ans. As far as I remember the exports of from to started after I had left my position as incharge. There was no discussion to decide upon anything. However, there were talks. My answer may be very detailed but I would like to add that before Cargo for I remember there was a tender for Cargo from to . At that time MOL said to K-Line that Cargo belongs to MOL so we must respect that. Cargo was mainly being handled by MOL as the carrier globally. I think that is the reason why they requested it. On the other hand, K-Line was the main supplier for so we requested MOL to respect that.
Q.21 This route splitting and freight price discussion with competitors in your business is called collusion. Are you aware of this?
Ans. I know it is wrong.
Q.22 Why in that case did you indulge in the same?
Ans. In order to protect our business.”
(Emphasis Supplied)
52. MOL has accepted the findings of the DG in respect of its collusion with K-Line. K-Line, on the other hand, in its submissions, attempted to downplay its role in implementing/ accepting the ‘Respect Rule’ with respect to MOL and submitted that it was competing with legacy carriers of the OEMs. It has been emphasized by K-Line that NYK Line was the primary carrier for , and K-Line was not independent in its operations to India as it was operating a joint service with NYK Line. K-Line has pointed out to certain statements made by various individuals before the DG in support of its assertions of being a passive player. The Commission, however, is of the view that even though NYK Line was the primary carrier for , K-Line also decided to accept the primacy of NYK Line in relation to business instead of competing independently with NYK Line. Secondly, even if the argument of K-Line is accepted that K-Line would have to follow NYK Line’s lead in terms of their existing service offerings due to operational reasons, it is noted that K-Line was still always privy to the collusion between the other OPs, which is also proscribed under the Act. Despite knowledge, it still decided to continue to be a part of such illegal activities. By aligning its commercial activities with those of colluding parties like NYK Line and MOL, K-Line also became part of the collusion agreement, in violation of the provisions of Section 3(3) of the Act. Such complicity of K-Line in customer and market allocation is bolstered by the fact that K-Line also discussed freight level with its counterparts in NYK Line (as elaborated supra) as well as by the deposition of of K-Line.
53. It has also been contended by K-Line that price fixing on longer route does not imply price-fixing on the smaller Indian route. The route which concerned for the investigation was the route from to and that the DG Report at various points has attempted to paint to route as part of a larger route between and and attempts to conclude that since the OPs were engaging in price-fixing on the larger route in various jurisdictions, the same holds true for the specific route which is the subject of the present investigation as well. It has been further averred by K-Line that freight rates were discussed in a larger context for which K-Line has already admitted in relevant jurisdictions and K-Line did not engage in price fixing in relation to to route.
54. In this regard, the Commission is of the view that, in light of the deposition of of K-Line (extracted supra), the said contention of K-Line is thoroughly misconceived. , in response to Q. 25 and Q. 26, has admitted that freight discussion was in fact specifically in relation to the – route.
55. K-Line has also contended that the DG Report wrongly infers Guideline Rates fixed for – route as evidence of price fixing. It has been averred that the so-called Guideline Rates were derived from existing rates and existing customers on the longer route between and and served only as a reference.
56. The Commission, however, is of the view that even assuming that the discussion between the OPs with respect to freight served as a reference, it is beyond comprehension as to what was the need to discuss even reference levels between competitors. Such discussions could have been between the procurer i.e., and the concerned OP and not between the OPs themselves. Therefore, such contention of K-Line is also dismissed. There is no occasion for competitors to discuss and share commercially sensitive information with each other. Such arrangements are clearly proscribed under the extant provisions of Section 3(3) read with Section 3(1) of the Act.
57. Further, it is also of no consequence that subsequently negotiated rates and brought down the freight rates for the route, even below the supposed Guideline Rates. In the view of the Commission, once the OPs have distorted the price discovery process by colluding with each other, any effort by the procurer to further negotiate the price is not likely to achieve the same competitive freight rates that would have been discovered under competitive conditions.
58. Therefore, from the above, it is evident that there was an agreement/meeting of minds between the OPs NYK Line, K-Line and MOL with regard to retaining/securing the business from the respective OEMs and not to compete with each other. Such conduct of sharing of business by these three OPs who are engaged in similar trade of providing maritime transport services is presumed to have an AAEC within India unless rebutted. It is noted that NYK Line and MOL have not objected to such AAEC, and K-Line has been unable to rebut the same. Thus, such conduct of NYK Line, K-Line and MOL is found by the Commission to be in contravention of the provisions of Section 3(3)(c) read with Section 3(1) of the Act. In addition, NYK Line and K-Line, by discussing freight rate as well as suo motu deciding to allocate customer/routes, are also found to have directly/indirectly determined price, which agreement is also presumed to have an AAEC in India unless rebutted. It is noted that NYK Line has not objected to such AAEC, and K-Line has been unable to rebut the same. Thus, such conduct of NYK Line and K-Line is also held by the Commission to be in contravention of the provisions of Section 3(3)(a) and 3(3)(d) read with Section 3(1) of the Act.
59. The common arguments made by K-Line in relation to AAEC have been examined and addressed by the Commission subsequently in this order.
Contract of 2012
60. During the course of the investigation, the DG also found that in , there were extensive meetings and discussions between NYK Line, K-Line and MOL for the tender of for route in relation to business. The DG concluded that collusion between these three OPs in regard to contract, is in contravention of the provisions of Section 3(3)(a), 3(3)(c) and Section 3(3)(d) of the Act read with Section 3(1) of the Act.
61. In this regard, the Commission has carefully perused the evidence gathered by the DG along with submissions of the OPs, and the same is discussed in the following paragraphs.
62. MOL submitted a memo dated prepared by its employee which is with reference to tender under consideration. Relevant excerpts of this memo are reproduced hereunder:
“new model, in light of MOL’s activities at , complete respect is not possible. If the proposed share among the three (NYK + Kline + MOL) companies is not acceptable, MOL should do independently.”
3) Other companies situations
Managers at NYK have already asked us to respect them because their shipments are bound for (they have contracts with for cargo from ), but we just told them that we cannot give a prompt reply and we will sort things internally.
4) Response to other companies/aims of compromise
As shown by the enquiries … based on the above perception that shipments for from new cargo from and they are transplants.
