India imposes fines in airfreight sector

India’s Competition Commission (CCI) has issued its first penalties for competition law infringements in the air cargo market.  It has fined three Indian airlines – Jet Airways, IndiGo and Spice Jet - a total of 2.6 billion Indian rupees (approximately EUR 36.5 million) for collusion over fuel surcharges.

The airfreight sector has been the subject of competition law investigations globally which have been followed by a succession of private damages claims.  In 2010 the European Commission fined eleven carriers a total EUR 799 million for fixing the price of air cargo surcharges on international flights.  Antitrust authorities in the USA, Canada, Brazil and Australia (amongst others) have also launched antitrust investigations into the sector and imposed penalties.

The fines imposed by the CCI amounted to approximately 1 per cent of the companies’ turnover.  An enterprise found to have engaged in cartel activities may be fined the greater of three times the profit or ten per cent of turnover for each year of the cartel.  The CCI explained that it took into account the precarious financial situation of the airlines in setting the level of the fine.  This approach is in marked contrast to the approach of the European Commission in the air cargo cartel case where it rejected claims from a number of airlines that the fine should be reduced on account of their inability to pay.

A noteworthy feature of the Indian case is that the CCI based its findings on circumstantial (indirect) evidence.  The CCI concluded that the ‘only plausible reason’ for the close to simultaneous increase in the fuel surcharge prices of the three airlines was collusion amongst them.  The CCI remarked that it was ‘strange’ that the airlines admitted to their participation in discussions over rates yet produced no minutes or notes of the meetings.

The CCI’s conclusion is troubling since it appears to reverse the burden of proof requiring the airlines to displace the inference of a cartel in the face of price parallelism.  Competition authorities around the world may need to rely on indirect evidence to prove the existence or effect of a cartel but such evidence must be evaluated carefully because it can be ambiguous. Of the two types of circumstantial evidence (communication evidence and economic evidence) communication evidence (e.g. records of meetings, telephone exchanges, travel to a common destination) is the more persuasive but it must be viewed holistically and consistently with other evidence.

There was no leniency applicant in this case.  It is a remarkable fact that despite six years of implementation of the behavioural rules of the Indian Competition Act 2002 there is no reported case of leniency granted.

It will be interesting to see how the case is viewed by the Indian Competition Appellate Tribunal which it is hoped will clarify the burden and standard of proof in cartel cases based on indirect evidence.