Authors name: Aditya P Arora

Date: 18th December, 2017; 12:25 pm

OVER CHARGING OF CANCELLATION FEES

A contract gets formed between an airline and a passenger when the airline issues a ticket with a
PNR and such terms of contract is accepted by the passenger. These terms bind both the parties.
A party in breach has to pay damages to the other party. This principle of awarding the damages
by paying a money equivalent puts the party in a position that he would be, if the contract was to
be performed.

1) Cancellation fees when excessive:-

On the face of it, if the liquidated damages appear to be a ‘genuine pre-estimate’ of the losses,
the court would award it. That is, looking at the substance and nature of the contract, the court
would ask whether the parties genuinely expected the mentioned losses to arise in the case of a
breach. Only if the answer is ‘no’, the court would ask the parties to establish the losses and
award the actual losses, not the liquidated damages. The landmark judgment on the award of
liquidated damages is the Dunlop case, from the House of Lords, 1914. The leading case from
the Supreme Court of India is the Saw Pipes case.
The cancellation charges stipulated by the airlines are liquidated damages, to cover the losses
arising to the airlines by the passenger terminating the contract.

In the case the passenger does not show-up for the check-in, he is in breach of the contract,
ironically, in not availing the service. In other cases, the passenger exercises a right under the
contract to terminate it. However, as a charge for terminating the contract is stipulated, it is of the
nature of liquidated damages.

The question then is: Is the cancellation charge a ‘genuine pre-estimate’ of the losses to the
airlines? Most airlines provide that the entire fare will be retained in the case of no show or
cancellation one or two hours before the scheduled departure of the flight. What is the loss to an
airline if a passenger does not show up? A seat will go unoccupied. The benefit to the airline will
be slightly lower fuel consumption on account of the lower carrying weight of the aircraft. This
is a small benefit and can be ignored. Thus, the entire fare is a loss to the airline. The entire fare
qualifies to be a ‘genuine pre-estimate’ of the losses.

2) Cancellation fees as an unfair trade practice:-

According to the UCP Directive, failure to provide consumers with clear, appropriate and
complete information relating to the price and any other cost associated with the provision of a
service may constitute an unfair practice. Under the Directive, airlines must provide consumers
with the information they need in a timely and clear manner in order to make an informed
choice. This information includes prices and all unavoidable taxes, fees, charges and surcharges.
In line with Article 6 (1) (d), of the UCP Directive the following actions can be regarded as
misleading: 1) incorrect calculation of fees and taxes of flight ticket; 2) presenting costs which
Authors name: Aditya P Arora
Date: 18th December, 2017; 12:25 pm
are contributing to the air carriers general income as taxes and fees imposed by other bodies.
According to Article 7 of the Directive the following actions by airlines can be regarded as
misleading omissions, if- 1) the final price of the flight ticket does not include all the
unavoidable taxes, charges and fees which are to be paid by the consumer, 2) No clear and easily
accessible information on the refundability of charges, fees and taxes. In conclusion, according
to European law, clear information about the final price of a service should be provided from the
beginning of the reservation process. All taxes and fees should be correctly named so as not to
mislead the consumer by implying that charges imposed by the airline are infact imposed by
other bodies (e.g. airports or governments). It is a requirement that all fees should be correctly
calculated.

Section 3 (3) of Competition Commission of India- “Any agreement entered into between
enterprises or associations of enterprises or persons or associations of persons or between any
person and enterprise or practice carried on, or decision taken by, any association of enterprises
or association of persons, including cartels, engaged in identical or similar trade of goods or
provision of services, which— (a) directly or indirectly determines purchase or sale prices; (b)
limits or controls production, supply, markets, technical development, investment or provision of
services; (c) shares the market or source of production or provision of services by way of
allocation of geographical area of market, or type of goods or services, or number of customers
in the market or any other similar way; (d) directly or indirectly results in bid rigging or collusive
bidding, shall be presumed to have an appreciable adverse effect on competition:"

Provided that nothing contained in this sub-section shall apply to any agreement entered into by
way of joint ventures if such agreement increases efficiency in production, supply, distribution,
storage, acquisition or control of goods or provision of services.

Since in this case if we are able to prove that prior to such rule (overcharging of cancellation
fees) which adversely impacts to the trade, prices of goods and services of consumers; there
existed an agreement or “meeting of minds” existed between such companies or associations
regarding it, then it would result in getting into the ambit of sec 3(3) of the said act and also a
form of cartelization, Hence we only had to prove that that the said act comes within the ambit of
Cartelization as per sec 3(3) of the said act.

CARTELIZATION- AN UNFAIR TRADE PRACTICE

Cartels are agreements between enterprises (including association of enterprises) not to compete
on price, product (including goods and services) or customers. The purpose of a cartel is to raise
price above competitive levels, resulting in injury to consumers and to the economy. For the
consumers, cartelization results in higher prices, poor quality and less or no choice for goods
Authors name: Aditya P Arora
Date: 18th December, 2017; 12:25 pm
or/and services. In the European Union, Mario Monti, the former commissioner for Competition,
once described cartels as “cancers on the open market economy”, and the Supreme Court in US
has referred to cartels as “the supreme evil of antitrust”.

The Indian Competition Act, 2002 covers cartels under Section 3(3). According to the section, it
is presumed that such agreements causes appreciable adverse effect on competition. Thus the
burden of proof in any cartel case is on the defendant to prove that the presumption is not
causing appreciable adverse effect on competition. A specific goal of Competition Act is the
prevention of economic agents from distorting the competitive process either through agreements
with other companies or through unilateral actions designed to exclude actual or potential
competitors.

There are three essential factors have been identified to establish the existence of a cartel, namely

1. Agreement by way of concerted action suggesting conspiracy;

2. The fixing of prices
3. The intent to gain a monopoly or restrict/eliminate competition.1

Parity of prices coupled with a meeting of minds has to be established to prove a cartel. The test
for concerted practice is that the parties have co-operated to avoid the risks of competition, and
this has culminated in a situation which does not correspond with the normal conditions of the
market.

A cartel is a horizontal agreement to fix prices, allocate customers or territories, restrict output or
rig bids. A cartel is regarded as the most pernicious form of violation of competition law since it
unequivocally damages competition and causes loss to the economy and to consumers. Owing to
the seriousness of cartels, they are subject to the per se rule 2 in many cases. The most crucial
ingredient of cartelization behaviour is collusive manipulation of prices by the competitors. A
mere simultaneous movement of prices, especially for homogeneous products, is not by itself
sufficient to prove a cartel.

The conditions in a competition that make it conducive for cartelization are oligopolistic market,
structural factors, highly concentrated market, demand and supply conditions, dependence of
customers, homogeneous product, entry barriers, exchange of information, active trade
association.

A “hard-core” cartel as defined in the OECD Recommendation is an anticompetitive agreement,

anticompetitive concerted practice, or anticompetitive arrangement by competitors to fix prices,

1
ITC Ltd v MRTP Commission (1996) 46 Comp Case 619
2
The judicial principle that a trade practice violates the Sherman Act simply if the practice is a restraint of trade,
regardless of whether it actually harms anyone.
Authors name: Aditya P Arora
Date: 18th December, 2017; 12:25 pm
make rigged bids (collusive tenders), establish output restrictions or quotas, or share or divide
markets by allocating customers, suppliers, territories or lines of commerce. Adam Smith, often
recognized as the father of modern economics, wrote in 1776 in The Wealth of Nations, “People
of the same trade seldom meet together, even for merriment and diversion, but the conversation
ends in a conspiracy against the public, or in some contrivance to raise prices.”

Cartels are not easy to detect since the colluding parties go to great lengths to cover their tracks.
Therefore, competition agencies have been resorting to and seeking greater investigative powers
for unearthing evidence.

The Competition Commission of India had given various landmark judgments on various
allegations of cartel formation. Some of the significant judgments were:

1. All India Tyre Dealers Federation v. Tyre manufacturers

The AITDF alleged that since independence, the behaviour of domestic tyre majors has been
anti-competitive, anti-consumer and they have been indulging in various pricing and trade mal-
practices, which had direct bearing on the revenue of the state exchequer. CCI undertook detailed
investigation on various grounds after the report of DG was prepared and found that there is not
sufficient evidence to hold a violation by the tyre companies Apollo, MRF, J.K. Tyre, Birla, Ceat
and ATMA of the provisions of Section 3(3) (a) and 3(3) (b) read with Section 3(1) of the Act.

2. Builders association of India v. Cement manufacturers association and other

In a first-of-its-kind order, the CCI has imposed a penalty of over Rs 6,000 crore on 11 leading
cement producers after finding them guilty of forming cartels to control “prices, production and
supply” of cement in the market. According to the CCI order, it found cement manufacturers
violating the provisions of the Competition Act. The CCI issued the order after “investigation by
the Director General (CCI) upon information filed by the Builders’ Association of India”.

While imposing the penalty, the commission considered the “parallel and coordinated behaviour
of cement companies on price, dispatch and supplies in the market”. The commission observed
that the act of these cement companies in “limiting and controlling supplies in the market and
determining prices through an anticompetitive agreement” was detrimental to the entire
economy.

3. In re: Suo Motu Case against LPG Cylinder Manufacturers

The Commission had held the manufacturers of LPG cylinders guilty of bid-rigging for quoting
identical prices in the tender issued by Indian Oil Corporation Limited. All LPG manufacturers
were penalized at the rate of 7% of their average turnover.
Authors name: Aditya P Arora
Date: 18th December, 2017; 12:25 pm
In all these cases the CCI presumes that there is an appreciable adverse effect in the market.

CONCLUSION

A presumption is not itself evidence but only makes a prima facie case for the party in whose
favour it exists. It indicates the person on whom the burden of proof lies. But when the
presumption is conclusive, it obviates the production of any other evidence. But when it is
rebuttable, it only points it the party on which lies the duty of going forward on the evidence on
the fact presumed, and when that party has produced evidence fairly and reasonably tending to
show that the real fact is not as presumed, the purpose of presumption is over.

It is perceptible that the language used in section 3(3) imposes a limitation on the competition
authorities to apply the per se rule in its true spirit. Indian Competition law vide Section 3 does
not provide for a case-by-case application of the per se rule. If the “per se” rule has to be applied
in its true spirit then the legislature has to rephrase the language of the section. The words, “shall
be presumed” creates considerable doubt in the minds of legal practitioners. There is an absolute
need to have a ‘per se’ rule in India especially while dealing with serious offences like bid-
rigging. However policy makers must also conceive of a “per se” rule that suits Indian
conditions.

BIBLIOGRAPHY

 https://www.lawctopus.com/academike/real-meaning-per-se-rule-indian-competition-law/
 http://ec.europa.eu/consumers/enforcement/docs/airline_charges_report.pdf
 https://blog.ipleaders.in/aviation-delay-cancellation-refund-and-consumer-rights/
 http://www.livelaw.in/are-the-high-airline-cancellation-charges-legally-valid/
 https://www.legalcrystal.com/cases/search/name:competition-act-section-3