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COMPETITION COMMISSION OF INDIA
/ttAuqust, 2012
Case No.64 of 2010
In re:
Arshiya Rail Infrastructure Limited V.
1. Ministry of Railways
2. Container Corporation of India
with
Case No.12 of 2011
In re:
Arshiya Rail Infrastructure Limited
Informant
Opposite Party No.1
Opposite Party No.2
Informant
V.
1. Ministry of Railways
2. Container Corporation of India
with
Case No.02 of 2011
In re:
KRIBHCO Infrastructure Limited V.
Ministry of Railways
1
Opposite Party No.1
Opposite Party No.2
Informant
Opposite Party
A Gommis
1*
BACKGROUND
The above matters relate to alleged anti-competitive conduct of Ministry
of Railways (MOR), Indian Railways (IR) as well as Container Corporation of
India (CONCOR). The Indian Railways is having approximately 63000 KM. of
Rail lines over which passenger and freight trains are run. It is the one of the
biggest Railways in the world. It employs approximately 14,06,000
employees. The rail lines run throughout the length and breadth of the
country. There are no separate and dedicated corridors for freight and
passenger traffic and the same Rail corridors are used for passenger traffic as
well as for freight traffic. Passenger traffic is given precedence over freight
traffic. With the result, the average speed of the freight trains during 2008-09
was only 25.7 Km. per hour (Source - White Paper on Indian Railway by
Government of India, December 2009).
2. In 1955, the share of Indian Railway in freight traffic was 89%. With the
development of better highways and heavy vehicle industries in India, the
preference of the consumers shifted from rail to road and the share of Indian
Railways in freight traffic fell down to 30%, whereas the growth in freight had
been tremendous. A study conducted by RITES at the instance of Planning
Commission shows that the total freight traffic in India was 2386.98 million
tons in the year 2007-08. Out of that, the share of Railway was 768.72 million
tons, whereas the share of freight through road was 1558.8 million tons. In
this, the major share of Railways was in nine commodities namely, coal, food
grains, iron and steel, iron ore, POL products (liquid), lime stone and dolomite,
cement and fertilizers. Even in these commodities, it was found that short lead
traffic preferred road transport while long lead traffic with high volume
preferred Rail. The share of Road Transport' even in these nine commodities
was 51.5% and share of Rail was 48.5%. Commodities like POL and iron and
steel which were carried traditionally by Rail had shifted to road and road
share of POL was 67.6% and iron and steel was 79.69%. Even in case of
cement, the share of road transport was 48%. An analysis by RITES shows
that transport through Road was cheaper than the transport through Rail. This
study also shows that there was a gradual shift from rail to road.
3. Most of the freight traffic being carried by Rail was in the wagons.
Containers of imported cargo were first moved inland by Railways in 1981. The
shipping companies were shifting to containers and the containers first started
landings at Indian ports some time in 1973. Looking at the fact that 'container'
was being considered as a more efficient and convenient mode of freight
carriage by shipping companies, CONCOR was set up in 1988 as 100%
subsidiary of Ministry of Railways to take care of container traffic and run
container trains on the Railway network. There were only 7 inland container
depots in existence in 1988 which were taken over by CONCOR. Despite
constitution of CONCOR in 1988 for exclusively running container trains, it was
found that out of total 8,10,089 tons of container traffic handled at major and
minor ports in India in 2006-07, the Rail share was only 19.85% (16099 tons)
and remaining container traffic movement was through highways. A survey of 3
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major and minor ports was done by RITES in the year 2008-09 and it showed
that the CONCOR share of the containers handled at ports was only 28%.
4. Railways have been in red since long. As per the recent CAG Report,
their accumulated funds have been eroded by 93%. There is a heavy cross
subsidization from freight service to passenger service. The Railway is suffering
heavy losses on passenger traffic and has been trying to over set these losses
by freight services.
5. In order to utilize its infrastructure i.e. Rail line and incidental services in a
more fruitful manner and to attract freight from road to rail, Ministry of Railways
and Planning Commission under Govt. of India had got conducted studies
through experts and in the Railway Budget Speech of year 2006, it was
indicated by the Govt. of allowing private operators to move Container Trains on
the Railway lines on license basis. Accordingly, Ministry of Railways issued a
policy statement vide its circular No.2002/IT-III/15/39 dated 9.2.2006 (PPP
Policy). The following clause of this policy is relevant:-
"Policy to permit rail linking of Inland Container Depots (ICD5) by private
parties other than M/s. Container Corporation of India Limited (CONCOR)
and allowing them to move container trains on the same line as
CONCOR for both international and domestic traffic has been under
consideration of Ministry of Railways for quite some time".
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6. In response to the initiative of MOR, initially 14 private parties deposited
Registration Fee to obtain license to run container trains. Shortly Indian Railway
notified rules regarding container trains operations as CTO Rules Dated 26th
September, 2006. Under the Policy, CONCOR (the existing Govt. company
already in the field of running container trains) and the private players were to
be treated equally i.e to be governed by the same rules and terms and
conditions for running container trains. Uniform haulage charges were
applicable for all container train operators and all were to have equal access to
entire rail network of lR including such other network where Railway
administration had a right to operate and to carry goods. Pursuant to the PPP
Policy, NCTA Rules a Model Concession Agreement (MCA) was drafted for
execution between MOR and CTOs. As per this concession agreement, the
haulage charges could be revised only twice a year and all concessionaires
were to be provided level playing field as far as Railways infrastructure was
concerned.
7. After announcement of this policy and registration, 15 Private Container
Train Operators (PCTOs) were granted licence and concessionaire agreement
was entered with these 15 PCTOS. The same concessionaire agreement was
entered with CONCOR. Informant Arshiya Rail Infrastructure Limited (ARIL)
entered into concessionaire agreement on 9th May, 2008 whereas Informant
KRIBHCO Infrastructure entered into such agreement on 14th May, 2007 and
CONCOR and 12 others had entered into such agreement in January, 2007 and
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one PCTO viz. ETA Engineering entered into an agreement on 12th March,
2007.
8. The two informants Arshiya and KRIBHCO filed informations before
Competition Commission regarding breach of provision of Competition Act.
Arshiya filed two applications under section 19 of Competition Act. One case
was registered as Case 64 of 2010 and other as 12 of 2011 and KRIBHCO's
case was registered as No.2 of 2011. While Arishia made Ministry of Railways
and Container Corporation of India as parties, KRIBHCO made only Ministry of
Railways as opposite parties but in the text of information it treated Ministry of
Railways, Indian Railways and CONCOR as one entity and described them as
Railway entities.
INFORMATION
9. It was alleged in the information by Arshiya that soon after PCTOs had
paid licence fee and initiated investments, Ministry of Railways issued a letter
No.2006/IT-III/73/12 dated 11.10.2006 restricting ores, minerals, coal and coke
from transport in containers. It averred that by restricting the transport of these
5 commodities by containers, MOR foreclosed 65% of the market of to PCTOs.
10. It further averred that concessionaire agreement entered into between
Railway Administration and informants did not incorporate any clause which
even hinted that such restrictions could be imposed and referred to clause 12
(8) of CTO rules. It submitted that by prohibiting these commodities, the
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Railway breached the conditions of indiscriminatory access to entire Rail
network, as the said commodities constituted 65% of the goods freight traffic on
Rail network. The second allegation made by Arshiya is regarding clauses 5.8.1
& 5.8.2 of the concessionaire agreement. It is alleged that by clause 5.8 of the
agreement MOR has monopolized "after market" of maintenance of the
container trains and MOR insisted that such maintenance can only be sourced
from it. It is pleaded that in terms of these clauses (5.8.1 and 5.8.2) PCTOs
were obliged to get their hardware maintained by MOR although the work of
maintenance could easily be carried by PCTOs themselves or through a third
party of their choice. This action of MOR infringed section 4(2) (d) of the
Competition Act, as it forced supplementary obligation on the informant which
had no connection with the subject of concessionaire agreement. Thus MOR
used its dominance to protect derivative market and committed violation of
section 4(1) read with section 4(2) (e) of the Competition Act. It is submitted
that the clauses also violated section 3(4)(a) of the Act as these clauses of the
agreement eliminated possibility of competition in the aftermarket.
11. Arshiya pleaded that Ministry of Railway was an 'enterprise' in view of
the definition of 'enterprise' given in section 2(h) and the relevant product market
was transport of goods over Rail network. It contented that Ministry of Railways
was in a dominant position in this market as in terms of volume of traffic, Ministry
of Railways carried 852.84 million tons of freight during financial year 2009-10
out of total of 887.79 million tons of freight carried over Rail network. No other
enterprise can have access to Rail network without permission of Ministry of 7
Railways. The abuse of dominance was alleged on the ground that Ministry of
Railways prevented PCTOs from carrying coal, coke, ores and minerals which
accounted for 65% of freight traffic on rails. It is further alleged that although
PCTOs were restricted from carrying 4 commodities but CONCOR, in the past,
was permitted to carry OP coke in containers. Reference was made to a letter
dated 12th March, 2007.
12. KRIBHCO in its information stated that it wanted to diversify in the area of
operation of container trains and entered into a concessionaire agreement with
Railway Administration. KRIBHCO also alleged that MOR by issuing letter
dated 11 th October, 2006 restricting coal, ores, minerals, coke from container
operations foreclosed the market and MOR reserved a market share of 55-60%
to itself and acted contrary to the provisions of the Competition Act. It also
abused its dominance by making an increase in haulage charges and increase
in stabling charges. It is submitted that MOR vide its circular dated 1st June,
2009 withdrew the rebate of 10% on domestic traffic for freight categories of
about 20 metric tons. It further stated that MOR issued a policy relating to
construction of Private Freight Terminals (PFT) for rapid development of freight
handling terminals. Clause 4.4 of PFT policy required a requisite number of Rail
lines for PFT handling 60 racks, namely, one handling line, one engine escape
line and one brake van line which costed approximately Rs. 15 crore. On the
other hand, terminals which were operated by PCTOs for handling 50 racks per
month, the requirement was one handling line, two stabling lines one receipt
!dispatch line, one engine escape line and one brake line which costed S
approximately Rs.25 crore. Thus the policy of Indian Railway did not provide a
level playing field. It also put stringent time schedule on PCTOs for construction
of PFTs.
13. A grievance was also made by KRIBHCO regarding circular No. 25/2010
dated 14th September, 2010 issued by Railway Board describing haulage
charges for movement of 5 commodities namely, cement, stone other than lime
stone, iron & steel, alloys, metal, POL products in containers. It is alleged that
through RC 25, Railway Board created a separate class of goods which were to
be subjected to increased commodity specific rate of haulage charges for
operation of CTOs on Indian Rail network. The rates announced for such
specified commodities were raised by more than 100% of the previous level.
MOR came out with another circular number 30 /2010 containing terms of
recovery of haulage charges for movement of 9 commodities, namely, cement
other than white cement, food grains, chemicals manufacturing, iron & steel,
stones other than marbles and ceramic tiles, sugar, coil, aluminum and POL
products in containers. It is stated that haulage charges for specified
commodities were levied as per applicable class rates. It is alleged that RC 30
sought to further exclude certain commodities from scope of operation of CTOs
by making their haulage commercially unviable. It is also stated MOR did permit
PCTOs to operate from Indian Railway Goods Sheds as per section 3.1.3.1 of
concessionaire agreement. Thereafter, MOR through their circular announced
the policy of operating their Container Rail Terminals (CRTs) and MOR notified
several goods shed to operate as CRTs However MOR denied access to the 9
Comm,.
sidings owned by CONCOR either on blanket basis or provided unviable
financial terms for use of these sidings. It is submitted that this policy of Railway
entities resulted in denial of effective market.
14. KRIBHCO contended that MOR, Indian Railway and CONCOR were
enterprises within the meaning of section 2(h) of the Act and together
constituted a group or a single economic entity in the market for transport of
freight via railways. It is submitted that the relevant product market in this case
would be Rail service and the other relevant product market would be rail freight
service. Since the geographical market was entire Rail network, the relevant
market for the purpose of case would Rail-service in India and Rail freight
service in India. It stated that the Railway entities have monopoly over rail-
services with a market share of approximately 99% in rail-freight service market.
Thus, the Railway entities were in a dominant position. Due to this monopoly as
well as due to size of Railways and the economic power of the enterprises,
MOR through Indian Railway and CONCOR operated the entire Indian Rail
network for freight services in India. In 63 years, Indian Railway have added
10500 Rail Kms. CONCOR was having a network of more than 59 Terminals
mostly alongside Railway-lines offering scheduled and on demand rapid freight
Rail-service in India. Because of these factors Railway entities were in a
dominant position and there was total dependence of consumers on Railway
entities. Since Indian Railway and CONCOR have been in container train
business much before the entry of PCTOs, not only customers but PCTOs were
dependent on Railway entities, which showed their dominant position. 10
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15. It is also submitted that there were entry barriers as well since the
enterprises who wanted to enter into the market were supposed to make large
capital investment.
16. It is alleged that Railway entities by imposing discriminatory prices and
conditions in purchases and sale of services, by arbitrary increase in haulage
charges and restricting commodities that could be carried through containers
and by denying market access to PCTOs of those commodities which it
prohibited without any justification, abused their dominant position. It is
asserted that such discriminatory conduct of Railway entities was to ensure that
such commodities were transported only by Indian Railway-freight service. This
was highly abusive of the dominant position by Railway entities. Similarly it is
alleged that increase in haulage charges without a co-relating increase in cost,
makes it commercially unviable for a new entrant to operate and would therefore
result in elimination of competition. It is further alleged that imposition of
different haulage charges for certain notified commodities in an arbitrary and
irrational manner was discriminatory in service of Rail-freight and adversely
affected the profit of PCTOs thereby squeezing the margins of PCTOs. It is
contended that arbitrary increase in stabling charges amounted to unfair and
discriminatory conditions of service and therefore was in violation of section 4(2)
(a) (i) and was an abuse of dominance. Similarly denial of access to railway
sidings and terminals of CONCOR and lack of access to land and other
infrastructure operated by railway entities resulted in denial of market access to
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PCTOs and therefore was an abuse of dominance within the terms of section
4(2) (c).
17. Both the informants wanted Commission to hold that Indian Railway,
CONCOR and MOR had abused their dominance and violated section 4 of the
Act and to impose penalties under section 7 for abuse of dominance position
and to order MOR to immediately withdraw all discriminatory circulars including
RC 30 and 32 and to create an independent regulatory body to issue policy and
govern the freight market in India.
D.G's Investigation
18. Director General conducted investigation in respect of all the three
informations on directions given by the Commission and came to conclusion that
the commodities like coal, coke, ore and minerals being carried in the wagons
could also be carried in special type of containers which could be manufactured
on order of PCTOs. The relevant market, in the opinion of DG, was 'freight on
the rail network'. He also found that MOR group, consisting of Ministry of
Railway, Indian Railway and CONCOR. was in a clear dominant position in
terms of its share in the relevant market which was approx. 99% and MOR and
CONCOR respectively were in a dominant position in each of the two segments
of the relevant market i.e. freight on rails comprising of movement in wagons
and movement in containers. DG concluded that the restrictions and conditions
imposed on CTOs had adversely affected their operations in the relevant
market. Prohibition of movement of coal, coke, ores and minerals in containers
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by MOR denied access to 60% of the relevant markets to CTOs and it amounted
to violation of section 4(2)(c) of the Act. He rejected the argument that these
articles constituted bulk commodities and were not meant to be moved in
containers, on the ground that CONCOR was moving these commodities to
some extent, prior to PCTOs coming into the picture and there was no blanket
ban on CONCOR in this regard. He also observed that prohibition of movement
of these bulk goods into containers resulted into limiting technological and
scientific development as CTOs could not go for technologically advanced
containers for carrying these kind of commodities. Further since wagons do not
carry less than a train load of single commodity, the customers, who had to
move lesser commodity, were completely denied of choice of moving them on
rail network and would be constrained to shift to road network which amounted
to imposition of restrictions and violated section 4(2)(b) of the Competition Act.
As per DG, MOR discriminated PCTOs from CONCOR as CONCOR had moved
CF Coke boulders in containers. He also observed that at the time of entry
CTOs were charged uniform haulage charges i.e. Freight All Kinds (FAK)
irrespective of commodity being moved. However, in 2010, variable haulage
charges were prescribed for certain specified commodities. The data showed
that there was steep increase in haulage charges pursuant to RC 30 for the
specified commodities ranging between 35 to 150%. However, during the same
period there was no change in the tariff rates for movement of goods by wagons.
Thus CTOs were subjected to a major cost disadvantage and affected the
competition of CTOs for movement of these specified commodities. These
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specified commodities constituted approx. 25 to 30% of the relevant market.
Increase in haulage charges of these specified commodities amounted to denial
of market access to a substantial part of relevant market in violation of section
4(2)(c) of the Act and the choice with customers was also restricted. He
observed that MOR admitted that the increase in haulage rates was done to
prevent revenue loss to MOR on account of diversion of business with respect to
these commodities at FAK rates but observed that though MOR was within its
rights to address any anomalies and abrasions, this should have been done
without putting PCTOs to a disadvantageous position and without scuttling their
ability to compete. He found that RC 30 was replaced by RC 05 but he
observed that still some of the restrictive conditions continued even in RC 05.
He concluded that increase in haulage charges for certain commodities
stipulated under RC 30IRC 05 amounted to infringement of section 4(2)(a)(i),
section 4(2)(a)(ii) and section 4(2)(c) of the act. He also observed that clause
3(3)(2) of the concession agreement confers vast powers on MOR and does not
provide for safeguarding interests of PCTOs.
19. DG observed that prior to entry of PCTOs, CONCOR had developed
railway sidings and was undertaking business from these sidings. The
restrictions imposed by CONCOR in March, 2009 were unfair as it would have
been reasonable for PCTOs to expect similar access to all sidings of CONCOR.
While CONCOR continued to assess large number of sidings, CTOs who had
entered the business recently could not do business from these sidings. The
restrictions imposed by MOR (CONCOR) with respect of access to private 14
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sidings was unfair and discriminatory and amounted to limiting of service and
resulting in denial of market access in violation of provisions of section 4(2)(a)(i),
4(2)(a)(ii) and 4(2)(c) of the Act.
20. DG observed that public private participation also did not specify that
PCTOs would not be permitted to carry bulk commodities nor did it stipulate that
their business would be confined to movement of aggregation of piecemeal non
bulk goods. Even presently, PCTOs were moving several bulk commodities.
Due to complete ban with respect to certain bulk commodities to be carried by
containers, the OP violated section 4(2)(b)(i). Increase in haulage charges in
respect of certain commodities pursuant to RC 30 by 45 to 150% and there
being no change in the case of tariff for freight to be carried by wagons, CTOs
were subjected to major cost disadvantage and it also affected their ability to
compete. DG observed that unfair conditions were imposed by MOR on CTOs
violating section 4(2)(a)(i), 4(2)(a)(ii), section 4(2)(b)(i), section 4(2)(c).
21. DG further observed that prior to entry of PCTOs, CONCOR had been
given large number of pieces of land on lease by MOR. There was no
applicable policy for allocation of land to private CTOs for setting up terminals till
17.3.2008. The policy of MOR of allocation of land after March, 2008 was not
the same as prior to 2007 when PCTOs were not in field. Since CONCOR had
availed the provision of allocation of railway land in terms of earlier policy, this
amounted to discrimination and unfair treatment to PCTOs. There was also
disparity in the manner of charging rentals in respect of land allotted to
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CONCOR prior to 17.3.2008 and this amounted to unfair and discriminatory
conditions violating provisions of the Act. DG examined lease agreements
entered between Indian Railway and CONCOR prior to PPP Policy and found
that most of the terminals of CONCOR were built on railway land leased to
CONCOR while some were on private land procured by CONCOR. He stated
that availability of these terminals of CONCOR should have been there to
PCTOs to ensure a level playing field in the relevant market. Building of
terminals by PCTOs involved huge cost and would have been a wastage of
resources. These terminals which were with CONCOR should therefore, be
considered infrastructure essential to compete in terms of essential facility
doctrine. He found that CONCOR had 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 & conditions. MOR has not placed any obligation
on CONCOR to allow access to PCTOs of the terminals built by it on land leased
to it by Indian Railway. As a result, only few terminals of CONCOR were being
accessed by PCTOs since CONCOR had imposed unfair charges for providing
the services of these terminals to PCTOs. DG however, found that goods sheds
of Indian Railways designated as Container Rail Terminals (CT Rs) were
available to PCTOs for use as an interim measure to facilitate their business and
no major competition issue arose out of use of CTRs.
22. Increase in haulage charges levied on PCTOs for movement of racks for
maintenance was found by DG a violation of provision of concession agreement
and in view of adverse cost implications, the same was found to be a 16
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contravention of section 4(2)(a)(i), 4(2)(a)(ii) and section 4(2)(c) of the Act. DG
also concluded that the supplementary condition on PCTOs to necessarily get
the maintenance of their containers from railways was a violation of section
4(2)(d) and amounted to a tie-in arrangement in terms of section 3(4)(a) of the
Act. He observed that no private party was designated to undertake
maintenance facility despite their being a provision in the concession agreement.
He also found that increase in stabling charges by Indian Railway vide circular
dated 1st July, 2008 was in violation of concession agreement and amounted to
imposition of unfair and discriminatory conditions and thus was violative of
section 4(2)(a)(i), 4(2)(a)(ii), section 4(20(c) of the Act.
Findings
23. A lot of arguments were advanced before the Commission whether MOR
was an enterprise or not. Section 2(h) of the Competition Act makes it
abundantly clear that a department of government engaged in commercial
activity was covered under it. However, section provides that it does not include
an activity of the government related to sovereign functions of the government.
The Commission was called upon to decide this issue at initial stage and the
Commission vide its order dated 3rd May, 2011 rejected the challenge of
opposite parties to the jurisdiction of commission on the basis of information and
held that Indian Railway was covered within the definition of section 2(h) of the
act. This decision of the Commission was assailed by UOl by way of writ
petition before Delhi High Court and the Delhi High Court vide its judgment
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dated 23c February, 2012 in WP (C) 993/2012 upheld the decision of the
Commission holding that Indian Railways was an enterprise. However, the
Court observed that all defences regarding merits of the complaint would be
available to the opposite party to be argued before the Commission. The High
Court relied upon Shri Laddoo Lal Jain case (AIR 1963 SC 1681) and observed
that government run railways cannot be held to be performing a sovereign
function. It is a nature of activity which defines its character and running of
railways was an activity which comes within the expression business.
24. I consider that a functional approach is to be adopted while determining
whether an entity in respect of a particular activity was an enterprise for the
purpose of Competition Act or not. Various activities of the enterprise are to be
considered individually and if some of the activities of the enterprise are in the
nature of sovereign functions that does not mean that all other activities of the
enterprise have to be considered non-economic. For example, an authority may
have powers to regulate as well as power to do the economic activity. Its
function of regulating the public activity may fall within the exercise of sovereign
powers but its other functions of conducting business or indulging into economic
activity may make it fall within the definition of enterprise. Thus the right
approach would be that for the performance of such activities which are in the
nature of providing services, goods etc. as defined under section 2(h), it would
be an enterprise under section 2(h) and in the field of performing sovereign
functions, it would not be an enterprise. It is important because only the
agreements between the enterprises can be subject matter of investigation by 18
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the Commission. An agreement between a sovereign entity and an enterprise
cannot be the subject matter of probe by the Commission. The provisions of the
Act would not be applicable to the sphere of activity which is sovereign in nature
but it would be applicable to the sphere of activities which is economic in nature
whether or not the enterprise is earning profits from it.
25. Such functional approach has been approved by Supreme Court in 2010
(4) SCC 603 as under
"53. Applying the abovementioned tests to the scheme of the 2003 Act, we find that under the Act, the Central Commission is a decision making as well as regulation-making authority, simultaneously, Section 79 delineates the functions of the Central Commission broadly into two categories - (including inter-State trading licensing), adjudication upon disputes involving generating companies or transmission licensees fall under the head 'mandatory functions" whereas advising the Central Government on formulation of National Electricity Policy and tariff policy would fall under the head "advisory functions". In this sense, the Central Commission is the decision making authority. Such decision-making under section 79(1) is not dependent upon making of regulations under Section 178 by the Central Commission. Therefore, functions of the Central Commission enumerated in section 79 are separate and distinct from functions of the Central Commission under section 178. The former are administrative/adjudicatory functions whereas the latter are legislative."
26. There is no doubt that Indian Railway is an enterprise. However, this
Commission in its order dated 20th December, 2011 in case No. 11/2009
between Jindal Steel & Power Limited vs. Steel Authority of India Ltd. had
observed that while Indian Railways (Railway Administration) was an enterprise,
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MOR had distinct functions and was not an enterprise. The reasons given by
the Commission were as under:-
"98. The preliminary issue for the Commission's discussion is whether both SAIL and IR are enterprises in terms of provisions of the Competition Act.
99. It is observed that the SAIL is a Central Public sector Undertaking (CPSU) wherein the Govt. of India holds about 85% stake. It is engaged in the production and supply of a wide range of steel products including rails. This fact is undisputed and therefore, SAIL is an "enterprise" within the definition of section 2(h) of the Act.
100. As regards the status of Indian Railways (IR) which has been treated as necessary party' in the investigation report of the DG, there is need to also determine whether Ministry of Railways (MOR) is one and the same as IR or are they two distinct though related entities.
101. For this, reference is made to THE GOVERNMENT OF INDIA ALLOCATION OF BUSINESS) RULES 1961. Relevant portion of the said Rules is reproduced below:
a) Allocation of Business - The business of the Government of India shall be transacted in the Ministries. Departments, Secretyariats and Offices specified in the First Schedule to these rules (all which are hereinafter referred to as "departments")
b) Distribution of subjects - The distribution of subjects among the departments shall be as specified in the Second Schedule to these rules and shall include all attached and subordinate offices or other organizations including Public Sector Undertakings concerned with its subjects and sub-rules (2), (3) and (4) of this rule."
102 The First Schedule gives a list of Ministries, Departments, Secretariats and Offices which lists ministry of Railways (Rai! Mantralaya) at s.No.28. Distribution of work amongst various departments is given in Second Schedule of the Rules. The
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allocation of the business of Govt. of India to MOR is mentioned therein as
"Ministry of Railways (Rail Mantralaya)
RAILWAY BOARD (RAIL BOARD)
1.' Government Railways - All matters, including those relating to Railway revenues and expenditure, but excluding Railway Inspectorate and Railway Audit.
2. Non-Government Railways - Matters in so far as provision for control by the Ministry of Railways, Railway Board as provided in the railways Act, 1989 (24 of 1989) or in the contracts between the Government and Railways, or in any other statutory enactments, namely, regulations in respect of safety, maximum and minimum rates and fares, etc. excluding the item of work allocated to the Department of Urban Development.
3. Parliament questions regarding offences relating to pilferage of railway property other than offences relating to crime on government Railways and Non-Government Railways.
4. Administration of pension rules applicable to Railway employees."
103. Indian Railways (lR) is a departmental undertaking of Govt. of India, controlled through Ministry of Railway (MOR) and administered by Railway Board that reports to the Ministry of Railways. IR was created by consolidation of about 42 railways in 1951 as a single Government railway and placed under overall administrative control of the Railway Board. "Railway" is defined under section 2(31) of The Railways act, 1989 as "railway" means a railway, or any portion of a railway, for the public carriage of passengers or goods and includes -
(a) all lands within the fences or other boundary marks indicating the limits of the land appurtenant to a railway;
(b) all lines of rails, sidings, or yards or branches used for the purposes of, or in connection with, a railway;
(c) all electric traction equipments, power supply and distribution installations used for the purposes of, or in connection with, a railway;
(d) all rolling stock, stations, offices, warehouses, whar4ves, workshops, manufactories, fixed plant and machinery, roads and streets, running rooms, rest houses, institutes, hospitals, water works and water supply installations, staff dwellings and any other works constructed for the purpose of, or in connection with, railway.
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(e) All vehicles which are used on any road for the purpose of traffic of a railway and owned, hired or worked by a railway; and
(f) All ferries, ships, boats and rafts which are used on any canal, river, lake or other navigable inland waters for the purposes of the traffic of a railway and owned, hired or worked by a railway administration, but does not include—
I) a tramway wholly within a municipal area; and ii) lines of rails built in any exhibition ground, fair, park, or any
other place solely for the purpose of recreation;"
104. The Railways, 1989 further defines and differentiates railways into "Government railway" and "non-Government railway:. Section 2(20) says "Government railway" means a railway owned by the Central Government. Section 2(25) says "non-Government railways" means a railway other than a Government railway.
105. As seen above, Ministry of Railways has greater control over IR, which is "Government railway" and lesser degree of supervision and control over non-Government railways. Thus, very clearly, IR is a "Government railway" as distinct from MOR, which performs a supervisory role in relation to all railways in India on behalf of Govt. of India. While IR performs the economic role of an enterprise, MOR is vested with the role of policy formulation or discharging the sovereign functions aspect related to the railway industry in India.
106. IR as a departmental undertaking of MOR is engaged in the activity of public carriage of passengers or goods and all other activities mentioned in section 2(31) of The railways act, 1989 quoted above. Thus IR is engaged in provision of railway service as defined above. "Transport" is included in the definition of "service" given in section 2(u) of the Act and public carriage of passengers or goods is transport. Therefore, IR is an "enterprise" within the definition of section 2(h) of the Competition act, 2002."
27. In the present case, both the informants have clubbed CONCOR
alongwith MOR and Indian Railway on the ground that CONCOR was a part of
the MOR and Indian Railway. There is no doubt that CONCOR is an enterprise
engaged in running Container Freighi Tiains like other PCTOs. However, most
of the allegations made by both the informants are against Indian Railways and
22
Ministry of Railway. The only allegation against CONCOR is about having
discretion in providing its own sidings which it had constructed prior to PPP
policy and putting unfair conditions on PCTOs for their use. Whether or not for
this purpose CONCOR can be clubbed with Indian Railway, would be
considered at appropriate stage.
Relevant Market
28. The cases have been brought by these two informants before the
Commission after the informants entered into concession agreement with the
Railway administration. The first recital of this concession agreement signed by
Arshiya Rail Infrastructure Limited and other CTOs shows that the agreement
was for the purpose of giving it and other CTOs a right to haul their containers
trains on 'Indian Railway network' for movement of both export and import traffic
as well as domestic traffic. This shows that Indian Railway (railway
administration) being owner of the entire railway network was permitting or
giving licence to PCTOs for use of the 'railway network' for running container
trains subject to certain terms & conditions. The Railway administration was to
charge haulage charges for this use of its rail network within India as per the
agreement. There were 4 categories of networks open to different PCTOs for
running trains and each PCTO was to identify the network on which it would like
to run the trains and get itself registered for the same. One network was Pan
India and other three were restricted networks.
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29. While defining the relevant market, the Commission has to keep in view
the service or the product or the goods with which the agreement between the
parties dealt. An enterprise may be active in 20 diverse markets as Indian
Railway actually is. Indian Railways is active in the market of transporting
passengers, in the field of laying new railway lines, in maintaining railway lines,
running workshops for maintenance of electric engines, diesel engines, bogies
etc. in the market of manufacturing rail wagons, traction devices. It is also in the
field of 'catering service', maintaining and managing its properties, running
hospitals etc. etc. The agreement between the Railway administration and the
informants was in respect of providing the facility of running container trains on
a category of rail network owned and possessed by Indian Railways. It was also
agreed that Indian railways shall provide access to rail facilities. 'Rail network'
has been defined in the agreement as the entire broad gauge network of
government railways including such railway network where railway
administration has right to operate. Private sidings is not the part of railway
network since it has been separately defined in the agreement itself. Rail head
i.e. a railway station is also a different market under the agreement.
30. Article 3 of the agreement gives the scope of concession i.e. scope of
licence. Articles 3.1, 3.2 and 3.3 read asunder:-
3.1 Concession
3.1.1 Subject to the terms and conditions contained in the agreement the Railway Administration hereby grant to the Concessionaire, throughout the duration of this agreement, a non-exclusive right to require the Railway Administration to haul the Concessionaire's
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Trains carrying Exim Traffic and/or Domestic Traffic on Category (insert) routes (hereinafter, the Concession") and the Concessionaire hereby understands and accepts the Concession and further undertakes to perform services and functions in relation thereto in accordance with the terms and conditions of this Agreement.
3.1.2 For the avoidance of doubt, it is hereby expressly clarified that the Concessionaire shall not have the right to require Railway Administration to haul any of the Concessionaire's Trains whatsoever pursuant to this agreement till such time as the Concessionaire establishes/ensures access to Rail Terminals and maintains the same in accordance with the provisions of article 4.1 and acquires prescribed/laid down minimum number of wagons including brake vans to form a Block Rake for the commencement of operations and for transportation of containers in accordance with this Agreement.
3.1.3 In addition to the right to require Railway Administration to haul Concessionaire's trains as described in Article 3.1.1 above subject to applicable laws, the rights of the Concessionaire shall include the following:
3.1.3.1 The right to undertake the business of collecting, storing and loading onto Wagons, consignments of goods from any third party;
3.1.3.2 The right to determine, charge, collect, retain and appropriate all the fees that it charges from the consigners;
3.1.3.3 The right to obtain access to Rail Terminals and develop, own, operate and maintain Rail Terminals, including inland container depots;
3.1.3.4 The right to procure and own/lease Wagons and containers.
3.2A Extending Operations to New Routes/Categories.
The Concessionaire may, with prior written consent of Railway Administration, add any or all other categories of routes for operation of its container trains by paying the prescribed Registration Fee or the differential thereof.
3.2 Non Exclusive Concession
3.2.1 The Parties hereby expressly acknowledge and agree that the aforesaid Concession is on a non-exclusive basis and that Railway Administration expressly reserves the right to give to any third party, on terms and conditions no more favourable than those
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offered to the Concessionaire, a right similar to the Concession to require Railway Administration to haul such third party Container Trains on Category (insert) routes.
3.3 Conditions for haulage of Notified Commodities
3.3.1The Railway Administration shall haul the Concessionaire Trains on the payment of prevalent haulage charges and conditions laid down in Article 10 of this Agreement.
3.3.2 Notwithstanding anything contained in Article 3.3.1 or elsewhere in this Agreement, the Central Government shall have the right to specify certain commodities, which ordinarily move in railway wagons in trainload as notified commodities, which may be subjected to different tariff and conditions for haulage. Provided further that the tariff so specified for notified commodities shall not exceed the freight rate as per the prevalent freight tariff schedule with chargeable weight, as for the trainload of railway wagons, generally used for their carriage."
31. From the scope of concession, it is apparent that the agreement was in
respect of use of those railway lines by informants for which licence was
obtained by PCTO for the purpose of running their container trains and article
3.3.2 made it exclusively clear that Indian railways had reserved the right to
inform the commodities which may be subject to different tariff and conditions of
haulage as well as the commodities which could be reserved for movement in
railway wagons in train loads.
32. An assurance was given of level playing field by this agreement between
all CTOs including CONCOR. It is not the case of the informants that CONCOR
was given a different treatment than the other PCTOs by railway administration.
Same concession agreement that was signed between the railway
administration and PCTOs was also signed between rail administration and
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CONCOR. The haulage charges, sidling charges etc. notified by Ministry of
Railway were applicable not only to PCTOs but also to CONCOR in the same
manner. Thus Indian Railways was not a competitor with PCTOs in 010
market. It was only a service provider and was not to discriminate between
CTOs. It had not discriminated between CONCOR and PCTOs
33. The Indian Railway was active not in one market but in several diverse
markets. It was an enterprise active in the field of creating new infrastructure i.e
laying new rail lines junctions, railway stations, railway sidings, railway yards,
etc. It was running workshops for maintenance of railway engines and for
service of infrastructure within its control. It was maintaining all electric tractions
equipment, power supply, distribution, installation used for the purpose of
tractions in all connection with Railways. It was maintaining warehouses,
running railway wagons manufacturing units, railway engines manufacturing
units, running restaurants, rest houses, hospitals, water works, water supply,
installation, construction of dwellings houses for the staff, maintaining ferrying
ships, boats, rafts houses, canals, rivers, lakes, inland water for purpose of
traffic of railway. It was active in the field of carrying passengers and serving
freight customers, carrying goods, parcels etc. While the two informants were
only running container rail operations, Indian Railway was not involved in the
Container rail operations at all.
34. Since IR had divested itself of the business of Containers it was not active
in the market of transportation of goods by containers but confined itself to
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carrying passengers and carrying specified goods in bogies like food grains,
cement, steel, coal, ores etc. The economic activity of India Railways continued
to be diverse, in nature. Carrying bulk goods like food grains steel, cement,
coal, ore etc. constituted only a small part of its overall economic activity, major
activity of Indian Railway is to carry passengers. As already noted, Indian
Railways had been giving precedence to passenger trains over goods trains.
The economic areas in which Indian Railway was active is altogether different
from the activity of CONCOR. Although, Indian Railway is an enterprise like any
other enterprise but the relevant market of Indian Railway and the market of
CONCOR are altogether different markets and the DG could not have clubbed
the total capital investment, revenue etc. of Indian Railway with CONCOR in
order to determine the dominance of CONCOR. Only oranges can be compared
with oranges and oranges cannot be compared with apples. DG was supposed
to identify the relevant market in which the CONCOR was active and the market
in which Indian Railways was active. Although, CONCOR is a subsidiary of
Indian Railway and is a Govt. company in which President has majority share,
but even if we consider that Indian Railway and CONCOR are owned by the
same group that would not mean that entire revenue, capital investment and
economic strength of Indian Railway was to be considered as a part of
CONCOR in order to determine the dominance of CONCOR.
35. The word "group" has been defined in section 5 - explanation as under:-
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(b) "group" means two or more enterprise, which directly or
indirectly are in a position to
(i) exercise twenty-six per cent or more of the voting rights in
the other enterprise; or
(ii) appoint more than fifty per cent of the members of the
board of directors in the other enterprise; or
(iii) control the management or affairs of the other enterprise;
The purpose of this definition is suitable to determine as to who has the control
over the enterprise. However, word "group" is not relevant for considering
dominance in a situation where the different companies of the group are active
in different economic fields and relevant markets. The economic strength of a
group active in 20 economic activities cannot be considered as a parameter for
determining economic strength of a subsidiary in one distinct relevant market.
The conclusion of DG of considering Indian Railway and CONCOR as a part of
same group and then considering dominance of CONCOR or IR because of
size, infrastructure and economic strength of Indian Railway is a fallacy. IR and
CONCOR did not share the same relevant market. IR was active in altogether
different market than CONCOR. CONCOR has to be considered as an
independent enterprise in order to see if it was a dominant enterprise or not and
it cannot he clubbed with Indian Railways.
ABUSE (11rc 29 * E EL o
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36. In order to consider whether opposite parties had abused the dominance
position, we have to look upon the provisions of section 4 and identify the
relevant market in which abuses has been alleged and to see if there is a
dominance of the opposite parties in that relevant market and if there was an
abuse.
37. The allegations made by KRIBHCO and Arshiya, are more or less on
same lines and based on same facts. They are being dealt with together. The
first allegation made by the informants is that the restrictions imposed on
transportation of commodities viz. Ores, Minerals, Coal & Coke that constituted
approximately 65% of the containerized freight market by railway entities for
operation by CTOs was without any objective justification and was a
discriminatory action.
38. The relevant market in this case would be the use of 'railway lines
network' by PCTOs on payment of haulage charges for moving container trains.
A restriction could be imposed in respect of non diverting the existing business
of Railways to containers.
39. The purpose of permitting running of container trains on Railways network
by railways was not to divest itself of the existing business but to divert container
road traffic to container rail traffic. As already noted that PCTOs were to
compete among themselves as well as with container road traffic so as to attract
container road traffic to container rail traffic and they were not to compete with
railways itself so as to divert the railway wagon traffic to container traffic. In a
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report on Competitive Rail Access, filed by Arshiya on record, it is observed that
in cases of operating trains on a host railway tracks, rights are limited to
permission to move traffic from one place to other and guest railway may not be
permitted to compete directly with the host. The situation can be compared with
a hospitality sector enterprise having many hotels throughout India but facing a
situation where it its occupancy rate had declined due to mismanagement or for
any other reason. If such an enterprise asks entrepreneurs that they were at
liberty to book their rooms and the enterprise specified its charges to such
agents giving opportunity to the agents to charge suitably to the customers, the
enterprise is at liberty to put conditions that the agent would not be in a position
to book customers from certain identified corporate houses with whom the hotel
already has contracts or would not be able to book customers from any
particular country wherefrom the traffic inflow of tourists was quite high. Such a
condition cannot be said to be an anti competitive. The competition has to be in
respect of procuring business from the areas and sources wherefrom the
enterprise was not getting business. Competition cannot be in snatching away
the business of enterprise and rerouting it through agents.
40. Railway administration in this case had vast network which it considered
was underutilized so far as container trains were considered. It found scope of
attracting road container traffic to rail container. Therefore, it opened up a
market of use of its network for running container trains for the purpose of
diverting road container traffic to rail container traffic. It was already transporting
train loads of bulk items in wagons 31
It had not opened up the market of
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transporting bulk items through wagons but has opened up the use of its railway
lines and network only for container traffic. This was made clear in article 3.3.2
wherein it was specifically provided that Central Government shall have right to
specify such commodities which ordinarily move in railway wagons in train loads
as notified commodities which may be subject to different tariff and conditions for
haulage. It also reserved to itself the right of specifying such commodities.
Article 4 again makes it clear that the agreement was in respect of running
container trains.
41. It is undisputed fact that the share of Indian Railways in containerized
freight traffic after 1988 has been zero and entire containerized freight traffic on
railways has been handled by CONCOR. CONCOR is Govt. company and its
63% shares are held by President of India through Indian Railways. CONCOR
and other PCTOs are governed by same concessionaire agreement in respect
of containerized freight traffic on rails. Except one instance of 2007, no other
instance has been brought to the notice of DG or Commission where any favour
was shown to CONCOR in respect of carrying prohibited commodity. Even this
once instance was considered by Railways, a violation of Rules and an enquiry
was ordered. In February, 2007 when this one instance happened none of the
other PCTOs had started operations. They had recently signed concessionaire
agreement and informants had not even created infrastructure or procured
hardware to start CTOs. It cannot be said that they were discriminated. It
cannot be concluded from this one instance that CONCOR was generally being
permitted to carry bulk commodities in containers while PCTOs were not being 32
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allowed to do so. This argument of informants and DG's conclusion is contrary
to facts and must fail. Indian Railways thus provided level playing field to all
CTOs and practiced no discrimination and did not abuse its position.
42. The argument that all those restricted goods which were being carried by
Railways in wagons could also be carried by containers and constituted a part of
the container freight market is fallacious. Since Indian Railways was not at all in
the market of containerized freight, the question of Indian Railways being
dominant in the relevant containerized freight market does not arise. The
question arises whether CONCOR, a Govt. subsidiary company in which
Railway administration through President of India holds 63% share has to be
considered as a part of Indian Railways for the purpose of considering
dominance of CONCOR, in the relevant market of container-freight.
43. For considering dominance of an enterprise only that part of the activity of
the enterprise is to be taken into consideration which is related to the relevant
market. Since Indian Railways was not at all in the operations of container
trains and container freight market, the economic strength of Indian Railway in
the markets other than Container Freight Market cannot be considered as a part
of the CONCOR strength in the relevant market of container freight traffic
neither CONCOR, which was exclusively dealing with container freight traffic
could be considered as part of Indian Railways in the relevant market of
Container Freight Traffic. This principle has been adopted by DG as well as by
the informants in respect of their own economic strength in the relevant market.
33 /* Gommis
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KRIBHCO is itself involved in diverse markets and has created a subsidiary for
the purpose of running freight container trains. Similarly Arshiya is a
multinational company active in various markets and constituted a subsidiary in
India for the purpose of container trains. Neither Arshiya nor KRIBHCO nor DG
included the entire economic strength of their group companies in various
markets for the purpose of comparison with either CONCOR or with Railway
Administration. It is natural that economic strength of other group companies
active in diverse markets, but having no share in the relevant market cannot be
considered as part of economic strength of subsidiary company for the purpose
of determining dominance in a particular relevant market. If subsidiary of a
company is active in a particular relevant market, the strength of holding
company active in different markets cannot be clubbed with the subsidiary
company to determine dominance in the relevant market. If we apply the criteria
applied by DG and informants to a situation where Indian Railways constitutes
a subsidiary for the purpose of carrying containers by road also, so as to provide
door to door services, having only a negligible share in the road container traffic,
still the road container traffic subsidiary would be treated as a dominant
enterprise though its market share would be negligible. Therefore, for the
purpose of relevant market of container freight traffic, CONCOR is to be
considered as an independent enterprise and the economic strength of Indian
Railways and Railway administration cannot be added to the CONCOR
strength. Indian Railway, therefore, would not be in d dominance position in the
containerized freight market and only CONCOR and other PCTOs who were in
34 7 c,ommi
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the market were comparable. Since Indian Railway is not in a dominance
position of the container market, the question of abuse of its dominance would
not arise.
44. Next issue arises whether CONCOR, a subsidiary of Indian Railway
abused its dominant position. CONCOR was governed by the same
concessionaire agreement as other PCTOs. All restrictions which were there on
other PCTOs were also there on CONCOR. CONCOR had no authority to carry
restricted articles bulk commodities which were reserved by Indian Railways for
itself in the goods freight market. Therefore, CONCOR had not abused of its
position.
45. In the container freight market by rails at the time of inception of PPP
policy, CONCOR was already operating as the lone player and other players
were new players and it was having 100% market share of the container rail
traffic. This was but natural as this market was under PSU and was being
opened to Private Players. Dominance per se is neither unlawful nor
punishable. CONCOR cannot be punished for being dominant player. From
2006 onward any enterprise can enter this field and carve out its space by its
efficiency and competence as 2006 onward, there were no entry barriers. The
plea taken by informants of entry barrier and abuse of dominance by MOR or
CONCOR therefore must fail.
46. The other allegation made against the opposite parties is about abuse of
dominance due to increase in haulage charges and other charges. It is
35 comm,s
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submitted that haulage charges have been arbitrarily increased from the date of
launch from 60 to 150% without a correlated increase in the costs making it
commercially unviable for the new entrants to operate and would therefore result
in elimination of competition and amounted to abuse of dominance.
47. Haulage charges are charged by Indian Railways for the use of Railway
network by PCTOs and CONCOR for running freight container trains. Thus the
relevant service market in this case would by use of Railways network i.e. rail
lines, traction, signal service, brake van guard, maintenance etc. It is stated by
Arshiya that rise in haulage charges have squeezed the profit margins and
increase in haulage charges was without any justification. Section 4(2) (a) (ii)
provides that if a dominant enterprise imposes unfair or discriminatory price in
purchase or sale of goods or services, it would amount to abuse of dominance.
There is no doubt that in providing service of use of railway lines, Indian Railway
is in a dominant position. The haulage charges have been uniformally
increased for all CTOs. Thus there has been no discrimination in this respect.
The next thing to be seen is whether the haulage charges resulted in squeezing
of profits and were unfair.
48. As per the concession agreement entered into between the parties, the
Railway administration could not increase haulage charges more than twice a
year. Haulage charges are directly linked with the service being provided by the
Filways. As per the recent GAG report, Railwoy had spent 64% of its revenue
on administration, operational and maintenance activities and only 36% was
36 5~~x
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being spent on creation and augmentation of infrastructure facilities. It is
already noted that Railways had a huge work force to maintain the network. In
2006-07, when the policy of PPP was announced and concessionaire
agreements were signed, the Pay Commission report had not been tabled and
had not been made public. The 6th Pay Commission Report came to light later
on and it was made effective from 1st January, 2006. It has been noted by CAG
that burden imposed by 6th Pay Commission on Railway and Railways Finance
was significant. It is no gain saying that CAG has also observed that Railways
management was not sound and efficient and Railways was depending on
funds from Govt. Increase in haulage charges is linked with the expenses for
maintenance of Rail network i.e. rail lines, rail engines, rail signals workshops
for repair of engines and a huge work force. After 6th Pay Commission, the
salaries of the railway staff had almost doubled. This would naturally result into
an increase in expenses of the railway on maintenance of rail engines, railway
lines, replacement of damaged rails, maintenance of signal systems and all
other paraphernalia which is necessary for running trains including container
trains. There has been considerable increase in fuel prices and software &
hardware since 2007. The Commission can take judicial notice of all these
factors, which naturally result in increase in cost of service being provided by
Indian Railways to CTOs. The concession agreement itself provided for
increase in haulage charges and the only restriction put on Indian Railways was
thai. it would not increase haulage charges more than twice a year. No data or
evidence is given how the increase was irrational or unjust. The argument
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made is that increase would deter new entrants from entering into market.
However, this is not substantiated. The argument of squeeze in profits also
does not stand. A perusal of DG report would show that profitability of Arshiya
had increased from 2008-09 to 2010-2011 significantly. The chart below gives
the profitability of ARIL and this shows that despite increase in haulage charges
and other charges, there was no squeeze in profits and the profits had gone
considerably up for Arshiya.
Income and Profitability of ARIL from CTO operations.
2010-11 2009-10 2008-09 (Rs. In crore)
Revenue from CTO 7,463.00 3,195.34 207.29 operations - Domestic Revenue from CTO - - - operations - EXIM Revenue from CTO 7463.00 3,195.34 207.29 operations Profit from CTO 5,057 1,206.02 28.80 operations - Domestic Profit from CTO - - - operation - EXIM Profit from CTO 5,057.24 1,206.02 28.80 operation
(Volume-1 /Table-3 of DG report)
49. A grievance has been made about increase in empty haulage charges as
well. The haulage charges are for use of rail tracks for running container trains.
A container train when it runs on track uses entire paraphernalia provided by the
Railways. The CTOs have full liberty to take loaded container trains from one
place to another place and to bring back loaded container again to the same
place. Whether a loaded container train is brought on the rail tracks or empty
38 cT]f ? commis 04
container trains, the usage of rail network is there and with increasing cost of
maintaining network, increase in inflation day by day, increase in fuel prices,
Railways has to meet the increasing expenses of its administration, dearness
Allowance of its employees, more amounts for the spare parts, for maintenance
of railway tracks, etc. In view of all this, the haulage charges are bound to
increase even for empty containers.
50. Railways has not put any restrictions on CTOs from charging freight rates
on the goods being transported through containers on Rails. All CTOs and
CONCOR have to compete in the market not only with each other but also with
Container Road Traffic. It is not that only railway freight charges have increased
with the increase in fuel cost and other costs, the container freight has
considerably increased even by roads. The customers who prefer rail over
road have different reasons. It is not alleged that with increase in haulage
charges freight has shifted to road containers, nor there is evidence supplied in
respect of squeeze in profits and to what extent. Mere stating that there has
been significant margin squeeze is of no help. There is no obligation on
Railways to keep the haulage charges at all times same and to bleed itself so as
to provide good profit margins to the CTOs.
51. Informants have alleged that imposition of haulage charges for notified
commodities was a discriminatory action in the market of rail freight and will
hpvpi destabilizing effect on the relevant market. It is not alleged that the hike in
haulage charges in relation to specific commodities was different for CONCOR
39 Gomm, t
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and different for PCTOs. CONCOR and PCTOs were equally governed by the
circulars issued by Railways in respect of haulage charges. Thus, the issue of
discrimination does not arise. As far as fairness and justification is concerned;
rationalization of haulage charges can always be done by Indian Railways. The
argument made is that Railway administration cannot prescribe different
haulage charges for different commodities. A box is a box is a box and the
haulage charges should be based on weight of the container and not on what
was contained in the container. It is not the case of the PCTOs that they were
also following the principle of a box was a box was a box for the end customers
and they were not charging different freight charges from their customers on
commodity base and they were only charging on the basis of weight for all kinds
of commodities irrespective of the nature of the commodities or the volume
occupied.
52. There are two types of rates prescribed for container train, one is FAK
(Freight All Kind) other the CCR (Container
Class Rate). FAK rates were prescribed for export-import goods by Railway
administration so that PCTOs could capture containerized EXIM freight traffic
and the railway network be used extensively by the container trains. FAK is
weight based rate uniformally applicable in respect of all commodities carried in
containers. FAK is substantially below the haulage charges prescribed by
Railways for wagons and even below the tariff charges by Railway for moving
commodities in rail wagons. This concession was given by Railways so that the
container traffic shifts from road to rail and CTOs could have advantage of 40
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attracting road container traffic to rail container traffic. FAK rates were lower
than the wagons rates not for the purpose of diverting Railways wagon freight to
containers and to make the huge infrastructure of wagon trains useless for
Indian Railways and to transfer its own business to CTOs or that CTOs instead
of attracting road freight containers to rail, start diverting Rail wagon freight to
containers. The concession agreement would show that it was a kind of non
compete agreement where CTOs were not to compete for rail wagon traffic and
parcel traffic. Otherwise, instead of giving permission for container trains, the
agreement would have provided for all kinds of freight trains i.e. container trains,
parcel trains and wagon trains.
53. The Indian Railways was forced to rationalize the haulage charges and
so came up with container class rates. In fact PCTOs were responsible for this.
Seeing that FAK rates were lower than the Rail wagon rates, PCTOs started
diverting the business of rail wagon freight to containers. Railways realized that
the sole purpose of PPP policy was being defeated. The haulage charges for
container class were thus prescribed and the haulage charges were linked to
commodity base freight being transported. The table below would give the
difference between FAK rates in container trains and public railway rates for
train wagon and would show how the FAK rates were substantially low and
container PCTOs were taking benefit of this to divert Railways wagon freight to
containers instead of attracting Road Container Traffic to Rail Container traffic. It
is under these situations that the haulage charges for different commodities of
OCR were prescribed 41
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1*
Comparison of per tonne freight in Rs. for various commodities
Commodity Public FAK rate Container %age of I %age of No. Rly. in Class FAK OCR to
Freight Container Rate in rate to Public (for trains Container Public freight general trains Freight wagons
1.
Iron &Steel 2141 854 1520 40% 71.0% 2. Cement 1798 854 1277 47% 71.0% 3. POL 1 2370 1 854 1 1682 36% 71.0%
(Page -36 - additional information by Railways)
54. It is to be noted that the sole purpose of PPP policy was to divert road
container traffic to rail and not to divert rail wagon traffic to rail container traffic.
Wagon freight market was not opened to PCTOs. FAK rates were kept low to
give leverage to CTOs for attracting container road-traffic.
55. Carrying certain bulk commodities by wagons on rail amounted to more
efficient use of the railway lines. Railway network is the property of Railway
Administration and Railway Administration has a right to use its property in a
more efficient manner and also to ensure a certain amount of profitability to
itself.
56. It is apparent from section 19 (7) (f) of the Act that for purpose of relevant
market, a classification of the industrial products was a relevant factor. Thus for
the purpose of haulage charges, Railway could take into account the goods
which were to be exported and the goods which were to be transported but were
not meant for export. The Indian Railways had thus reserved the market of bulk
commodities to itself and had not given licence to PCTOs for carrying bulk
42 0ommis'\,
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commodities in containers. Similarly, the concession given in rates of haulage
charges for EXIM commodities was not meant for other commodities. The
Commission can also take into the account the factors enumerated under
section 19(4) to determine the dominance and one of the factors is social
obligation and social cause and relative advantage by way of contribution to
economic development by enterprise enjoying the dominant position. No doubt
Railway administration is dominant in the market of providing usage of railway
tracks. However, creation of these railway tracks and the entire infrastructure of
Railway is done at the cost of public exchequer. Railways also perform an
important function of integration of the nation by providing cheap and affordable
transport to the common man. Since Railway was subsidizing transport for the
common man in the country, Railways had a right to earn a reasonable profit
from freight services or from use of Railway tracks by permitting licensed use.
The social cost of increasing train fairs so as to give gains to PCTOs in haulage
charges would be too high. No doubt that all economic operations must be
performed with efficiency, however, there are certain areas where state has to
intervene and give subsidies so that the poor can also have reach to certain
essential facilities of life and that is the reason of providing food subsidy by
State and same is the reason for keeping railway fares for commuters of
ordinary class low so that they can travel on Railway from one corner of the
country to the other corner of the country, either for livelihood or for other
reasons.
Go
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57, The other abuse alleged against Railway Administration is denial of
access to sidings owned by CONCOR on same terms & conditions as given to
CONCOR resulting into denial of market access to CTOs. Private sidings are
rail tracks which do not form part of Indian Railways infrastructure but are linked
with tracks of Indian Railway to serve the industry, who owned it, till end point.
In February, 2009, Ministry of Railway issued instructions that CONCOR or
PCTOs would continue handling container trains from their respective private
sidings and no access to new sidings was to be allowed. However, soon after
filing of information before the Competition Commission, Ministry of Railway on
10th December, 2010 issued a letter granting permission to PCTOs to access
private sidings. PCTOs alleged that though the permission was granted but it
was subject to a number of restrictive conditions which make the private sidings
in accessible and these restrictions benefited CONCOR. The circular issued by
Railway in December 2010 wanted PCTOs to obtain NOC from the private
sidings owner and then make application to Zonal Railways in whose jurisdiction
the private sidings fell for the use. It is submitted that the owner of private
sidings may or more not give a no objection certificate to CTOs. It is further
submitted that CONCOR was having access to many private sidings (owned by
it) whereas other PCTOs were not being given access to private sidings by the
owners and the Railway had also put restrictions that permission at one point of
time would be given for a period six months and it is to be renewed after every
six months. This permission was only for the Cargo of the private sidings owner
and not for the third party cargo.
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58. The use of private party sidings is all together a different market and it is
not a market over which Railway has control, nor private sidings were part of
Rail network. Railway administration cannot be said to be in a dominant
position in the market of usage of private sidings. Only owners of private sidings
can permit or not permit PCTOs to operate from their sidings. The rules or
regulations made by Railway administration in respect of private sidings are
equally applicable to CONCOR and other PCTOs. The relevant market in the
use of private sidings is not the same as relevant market of use of infrastructure
of Railway network agreed in Concession Agreement. Indian Railway cannot be
considered as dominant in this market. Therefore issue of abuse of dominance
by Indian Railway or Railway administration in the market of use of private
sidings does not arise at all.
59. Indian Railways is at liberty to make rules regarding the kind of freight
that can be loaded from a private sidings after considering private sidings
suitability. DG has not investigated as to the conditions under which private
sidings are allowed to come up. However, it is undisputed that loading,
unloading in the private sidings is governed by agreements between Railways
and sidings owner. Thus, the market of use of private sidings in a different
market and the contracts signed between owner of the siding and Railways
govern that market. The market for use of railway tracks for which haulage
charges are charged by Railway administration is different and no abuse can be
there either against CONCOR or against Railway in respect of use of private
sidings. Every PCTOs is at liberty to talk to the private siding owners within the 45
omm,,
lilt , ca.
ambit of the contract which private siding owner has with MOR. These are
commercial decisions which can be taken by PCTOs and neither CONCOR nor
MOR are holding dominant position nor they can be held liable for abuse. As
per submission only 3% of the total traffic of CONCOR was being booked
through private sidings rest of the traffic was being booked through its own
sidings.
60. A forceful argument has been made that CONCOR was having
advantage of allotment of Railway line at concessional rates prior to 2007 i.e.
prior to signing of concessionaire agreement and CONCOR was having various
sidings and loading points, whereas the conditions of allotment of Railway land
were made more stringent after PPP policy, thereby putting CONCOR into an
advantage. This also is alleged to be an abuse of dominant position.
61. It must be kept in mind that the Competition Act is not an equalizer Act
neither it is meant to bring different competitors to equal level in respect of their
assets, liabilities or performance. It is but natural that a new entrant in the
market would have to face an existing entrant who is already established in the
market. A new entrant cannot claim that all advantages which existing entrant
has in the business must be given to him under Competition Act. Neither
Section 3 nor Section 4 envisages a situation where Competition Commission
can direct the existing entity to divest itself of its properties or of the advantages
it was having so that the new entrant can compete with it. The Competition Law
is not of law of equalisation of the competitors, it s a law to ensure that different
VWT€it ' 46 Gomm,s
e9'
entities who were supposed to compete in the market, instead of competing do
not collude with each other so as to deprive the ultimate consumer of the
benefits of a healthy competition. It is also to ensure that a dominant player, in
order to prevent entry of new player into the markets, does not resort to
predatory pricing or looking at the fact that it was not going to be affected by
other competitors raise the price of service or product to exploit the consumers.
The Competition Law is to protect competition and not the competitors in the
market. Say in the area of Connaught Place, a company hired a premises in
early 1950s for business and was paying a rent of few hundred rupees per
month and a new company who intends to do business in Connaught Place,
hires similar premises for a few lakh rupees per month, the new entrant cannot
come to Competition Commission and pray that the existing competitors should
be asked to part with a part of its premises so that new entrant can do business
at the same rate of rent, nor can it ask that the Competition Commission to tell
the landlord of a new entrant to charge the same rent as the landlord of old
enterprise was charging. Similarly, where a steel plant is having captive mine
and having various advantages due to captive mines, a new enterprise who
wants to establish a steel plant or has established a steel plant cannot come to
Competition Commission with a prayer that the Govt. should be asked to allot a
captive mine to it also or existing entity be divested of the captive mine so that it
was on an equal footing for competition with the existing enterprise. The
Competition Act does not envisage the role of Competition Commicsion as an
47
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equalizer of competing entities. It is not to curb the competitors but to curb anti
competitive practices.
62. Allotment of Railway land to any person is all together a different market.
It is not the case of PCTOs that after PPP policy CONCOR was allotted Railway
land for construction of facilities at terms and conditions which were
discriminatory from other PCTOs. The allotment done prior to 2007 cannot be
compared with the allotment done by Railway after 2007. Moreover, PCTOs are
at liberty to acquire private land from any private owner and construct the
facilities. Railway cannot be said to be in a dominant position in the market of
providing land for putting railway tracks for construction of sidings. In the market
of provision of land, neither CONCOR nor Railway has been shown to be in a
dominant position. However, DG seems to have mixed up different markets into
one and has drawn wrong conclusions.
63. It must be kept in mind that each relevant service or product market has
to be considered separately to examine dominance and abuse of dominance. In
Halfman —La-Roche Versus Commission (1979) 3 CMLR 211. Roche was held
to have a dominant position in respect of certain groups of vitamins on the basis
of market share. That shows that while considering dominance, the position of
enterprise is to be considered separately in respect of each relevant market. In
another EC commission decision in case of Georg Verkeh Organisation
COM/37.685 GVGIFS, it was held by European Commission that access to
railway infrastructure includes number of different services and actions that take
48 ,,.- c)TT/t
comm
CaL
o *
place at different points in time and the element involved are train paths and
related prices; the handling of requests for capacity, permission to use track
capacity, train control, regulation and provision of information on train
movement, access to re-fuelling, access to passenger stations, access to
marshalling yards, access to storage sidings and access to maintenance and
other technical facilities. It was further observed that in order to be able to
provide rail transport service, railway undertaking needs to have operations with
locomotive and a driver to move trains on the network. In the same case while
considering the relevant market, European Commission observed that access to
Railway infrastructure is a different market. Tractions i.e provision of locomotive
and driver was another market. It was different from the market for running or
purchasing of locomotive and tractions was even provided on commercial basis
within Europe on the basis of bilateral agreement and the Commission observed
that dominance has to be considered of the entity for each market separately.
64. The Indian law of abuse of dominance position is more or less based on
the European Commission Law and definition of relevant market is also akin to
European Law. Even otherwise each service and each product has to be
considered separately. I consider that MOR or CONCOR were not dominant in
the market of private railway sidings.
65. It is contended on behalf of the informants that under the concession
agreement, it vas iade compulsory for the informants that maintenance of
racks, containers was to be undertaken by MOR for which informants and other
49
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PCTOs had to pay a charge to MOR is stated that the concession agreement
did not contemplate any surcharge and imposition of charges for maintenance
as well as haulage charge for 'movement of racks for maintenance' was in
violation of concession agreement and has adverse implication on overall
operational costs of CTOs and their ability to compete effectively in the market.
The other limb of argument is that tying up of service of maintenance of racks
and containers with the concession agreement of use of railway network was
violative of section 3 of the Competition Act and in view of section 3(4) it was
presumed to have an appreciable adverse effect on competition.
66. A perusal of concession agreement would show that there is an entire
article on standards to be maintained in respect of racks, brake-vans, wagons
and containers. The containers were to conform to the moving dimensions to be
notified by MOR for universal application and they were to be subjected to
inspection by RDSO or authorized inspection for safety related measures and
the concessionaire was to pay due charges for such inspection. It is specifically
provided that these charges shall be levied on all concessionaires including
CONCOR on a non-discriminatory basis. The concessionaires were free to
procure new design of containers, wagons provided that they had approval of
RDSO. For the approval of new design, RDSO was to be paid necessary
charges. Article 5.7 provided that concessionaire's hardware shall, at all times
conform to the maintenance standards specified by Railway administration.
Article 5.8 is in respect of maintenance. Under this article, Railway
administration had taken the responsibility of maintenance which included an 50
00mmj.
intensive examination, routine overhaul and periodic overhaul of the hardware of
concessionaires. The container racks, brake vans etc. were to be provided to
Railway administration as per the schedule for examination. Concessionaire
was to bear one time actual cost for tools and plants as specified by Railway
administration and approved by RDSO. Maintenance schedule was to be
notified by Railways from time to time and maintenance charges were to be paid
by the concessionaires to the Railway administration and these charges were to
be included in haulage charges. The intensive train examination was to be
completed by railway administration within a period of 6 hours from the time the
concessionaire wages/containers in empty rack formation were handed over to
railway administration. Railway administration even had offered to examine
concessionaire wagons at suitable point and route destination where the
facilities for such examination existed. Article 5.8 was incorporated in
concessionaire agreement since at the time when concessionaire agreement
was signed between the parties, Railway administration was the only entity
which could have done the maintenance. It was the only enterprise having
expertise in maintenance of hardware i.e. racks, brake vans and containers.
Since maintenance of containers, racks, brake vans etc. was very essential for
the purpose of running them on rails, Railways had offered its services to the
PCTOs for charges. There was no other enterprise at that time in India
undertaking maintenance. There can be no doubt that maintenance of hardware
(wagons, brake vans, containers, racks etc.) is altogether a different market, in
this market also, Railways had monopoly. Since maintenance of hardware of
51 com (4c
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/
PCTOs was necessary for running 010 and there was no other enterprise
undertaking maintenance, article 5.8 was entered into between the parties as a
matter of Essential Facility Doctrine. However, article 5.9 provides for entry of
other enterprises and reads as under:-
Article 5.9 - Wagon maintenance by other entities:
Subject to Article 5.8.1, the Concessionaire may undertake maintenance
of the Concessionaire's Wagons through any other entity including the
Concessionaire on such terms and conditions as specified by the Railway
Administration from time to time provided, however, that the maintenance
is carried out as per maintenance schedules and various stages of
inspection as may be notified by Railway Administration and pre-
departure certificate of such Wagons shall be issued by the Railway
Administration for which the prescribed charges as notified by Railway
Administration from time to time shall be paid to the Concessionaire."
67. Article 5.9 makes is abundantly clear that Railway Administration kept
open this market for other enterprises and concessionaires were at liberty to get
maintenance done through any other enterprise including the concessionaires
itself. Since maintenance of hardware was very essential for safety of railway
tracks and for proper running of container trains, this article provided about
inspection by Railway administration and pre departure certification by Railway
administration. It cannot be said that this was anti competitive. Railways had to
ensure that a container train running on its tracks was in a fit health so that it
52
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does not breakdown on the way and blocks the whole track. Railway tracks are
not like roads where if break down takes place, you can park the vehicle on the
side of the road. A broken down container rail would occupy the track and would
totally hamper the movement of all other trains on that track. It is for this reason
that it was obligatory on the railway administration to keep with it the power of
pre departure certification of all wagons and containers. It is noteworthy that
Railways had not set out any compulsory time limit for which it would continue to
maintain the hardwares of the PCTOs. As per Article 5.9.1, concessionaires or
any other undertaking chosen by concessionaires could start maintenance on
concessionaire's wagons soon after entering into concessionaire agreement.
Thus the maintenance agreement was neither a tie up arrangement (as there
was no compulsion on concessionaire to get their trains maintained through
Railway administration) nor this violated section 3 of the concessionaire
agreement. The only compulsion was to obtain a certification of fitness of the
I rain to run on the railway network and that cannot be said to be a tie up
agreement.
68. In view of my above discussion, I find that no case of violation of either
section 3 or section 4 of the Competition Act was made out against the opposite
parties and the matter is hereby closed. The Secretary is directed to inform the
parties accordingly.
Sd!- Member (D)
7c'flif .
53
Cetifid True Ccjp 1W P.P.GA~HLAUT Assistant Director trtion Commission of India
New Delhi
