Case Number 64/2010 & 12/2011. Case: Arshiya Rail Infrastructure Limited (ARIL) Vs Ministry of Railways (MoR) through the Chairman, Railway Board (KB) and Container Corporation of India Limited (CONCOR), [Alongwith Case Number 02/2011]. Competition Commision of India

Case Number:Case Number 64/2010 & 12/2011
Party Name:Arshiya Rail Infrastructure Limited (ARIL) Vs Ministry of Railways (MoR) through the Chairman, Railway Board (KB) and Container Corporation of India Limited (CONCOR), [Alongwith Case Number 02/2011]
Judges:Ashok Chawla, Chairperson, H.C. Gupta, Member (G), R. Prasad, Member (R), P.N. Parashar, Member (P), Geeta Gouri, Member (GG), Anurag Goel, Member (AG), M.L. Tayal, Member (T) and Shiv Narayan Dhingra, Member (D)
Issue:Arbitration And Conciliation Act, 1996 - Section 8; Companies Act, 1956 - Section 617; Competition Act, 2002 - Sections 18, 19, 19 (7) (f), 19(4), 19(5), 19(6), 19(7), 19(i)(a), 2, 2(h), 2(r), 2(s), 2(t), 27, 3, 3 (4), 3(1), 3(4), 3(4)(a), 4, 4 (2) (a) (i), 4 (2) (b) (i), 4 (2) (b) (ii), 4 (2)(a)(i), 4 (2)(a)(ii), 4 (2)(b)(i), 4 (2)(b)(ii), 4 (...
Judgement Date:August 14, 2012
Court:Competition Commision of India
 
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Order:

  1. 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

    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.

    2.1. 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.

    2.2. 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 IR 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).

    2.3. Ministry of Railways (MoR) is a Central ministry under the Government of India (GoI) 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

    2.1. 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).

    2.2. 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 CONCOR, which would bring financial as well as operational benefits to the Railways.

    2.3. Thereafter, on 09.01.2006, MoR issued a policy document under which Private Container Train Operators (PCTOs) were assured of nondiscriminatory access to move container trains on the rail network on the 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.

    2.4. 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.

    2.5. Subsequently, licences were issued to eligible parties in different categories to operate container trains on IR network, ARIL and KRIL being two of them.

    2.6. 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), IR has, without any justification, increased haulage and other charges payable by the CTOs. Additionally, IR 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, IR has resorted to tie-in arrangement thus restricting competition in the wagon maintenance market.

    2.7. 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.

    2.8. 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

    3.1. 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.

    3.2. 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:

    3.2.1. 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 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.

    3.2.2. Exclusionary price discrimination/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.

    3.2.3. 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 IR, which are:

    i IR 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. IR 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.

    iv. IR has failed to carry out timely maintenance activities and providing spares as prescribed in the Concession Agreement, despite maintenance charges paid by the CTOs

    3.2.4. 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, IR have made the cost of operations of CTOs to increase as also perpetrating operational inefficiencies. This has been done to benefit their services.

    3.2.5. 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...

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