Spokes, Hubs & their Shadows: Addressing the Doctrinal Vacuum Surrounding Hub & Spoke Cartels in Competition Act

Written by Rijul Tripathy, the author is a law student currently pursuing BA.LLB from Symbiosis law school Pune.

Introduction 

Indian competition law has covered a bumpy ride, swinging from excessive regulation during the MRTP period to virtual dormancy during the decade of liberalization and eventually towards a more equilibrated regime with the passing of the Competition Act, 2002. Nevertheless, even after the Amendments of 2023, one key blind spot continues in the regulation of hub-and-spoke cartels (HSCs). These hybrid agreements, which marry vertical facilitation with horizontal collusion, lie beyond the narrow definition of Section 3, which still categorizes agreements in strict horizontal or vertical terms. The Competition Commission of India has struggled with this uncertainty in proceedings like Fx Enterprise v. Hyundai and Samir Agrawal v. ANI Technologies, where HSC allegations were rejected in a lack of explicit statutory mention or evidentiary definition. While the 2023 Amendment attempted to respond to this concern through an expansion of Section 3(3), its use of rebuttable presumptions and lack of a per se ban weaken deterrence and allow avenues for avoidance under Section 19(3). In this context, the paper critically analyses India's legislation and judicial response to HSCs, compares it with international responses, and identifies the persistent enforcement shortfall. It contends that in the absence of focused reforms, India's competition apparatus is still ill-suited to cope with the challenges of algorithmic pricing and platform-based collusion.

From Too Hot to Too Cold: The HSC Gap

Indian regulatory measures in domain of anti-trust and market competition can be likened to a swinging pendulum. In this narrative, Indian competition regulation & enforcement swings through three stages, too active from 1970s to 1980s, too passive in the 1990s to properly moderate post 2000s. To borrow an analogy from the classic tale of Goldilocks & the three bears the enforcement policy went from too hot, to too cold, to just right.

However, unlike a classic fairytale, contemporary realities don’t always end in a happily ever after. While the Competition act was noted to be “close to the state-of-the-art” by the OECD, the Indian framework still had to undergo widespread changes to make Indian competition law more aligned with global best practices and adept at handling the regulatory difficulties which arise out of an economy shedding the shackles of its colonial & later protectionist approach. While addressing these issues, a primary issue which was left unresolved was the issue of enforcement gap over Hub & Spoke Cartels (Hereinafter “HSC”) caused by narrow construction of Section 3 of the act which prohibits Anti-Competitive Agreements.  

Section 3 of the act recognizes 2 forms of agreements, horizontal & vertical, and prohibits them if “they are presumed to have an appreciable adverse effect on competition.” A Hub & Spoke Cartel, however, arises out of a unique form of agreement wherein a third party acting as a hub allows two competitors (spokes) to collude to sidestep scrutiny by CCI. Herein, the hub coordinates between the spokes by sharing information and sidesteps any liability on its part. While the Competition (Amendment) Act, 2023 brought up this issue and sought to address it by making the regulation just right, the distinctive nature of fairy tales from contemporary realities shows us that even after extensive measures, a happy ending is rarely sustained. The difficulties of HSC and the inefficiencies of the amendment act are thus elucidated hereinbelow.

Critical Analysis

Judicial Critique

The first time such a metaphor was used was in Kotteakos v United States wherein US Supreme Court noted that the pattern of the fraud was in a form of separate spokes meeting at a common centre. Herein the court noted that the proof of coordination amongst spokes need not be direct even circumstantial evidence shall do and was known as rim of the wheel test. Another leading authority internationally was the Belgian Hub & Spoke Case, wherein giants from the personal care industry, like L’Oreal, GSK, Procter & Gamble and Colgate, colluded as hubs with retail chains, who, as spokes, colluded with the suppliers to fix prices.

In India however, the journey has been a difficult one taking into consideration the narrow construction of Section 3(3) of the act with the court refusing or being reluctant while giving remedies for AAEC arising out of HSC. There are 3 major problems faced by the CCI which arise out of the legislative inaccuracies:

Fx Enterprise Solutions. V Hyundai

This case was among the first to raise the issue of HSC. Fx Enterprises Solutions raised the complaint that Hyundai was colluding with car distributors and was pressuring them to keep the prices high. Fx Enterprise Solutions also alleged that Hyundai was engaging in price collusion through Hub & Spoke Agreements by arranging terms between dealers through itself, acting as a common supplier hub. In doing this, the Fx Enterprise Solutions relied on the Jasper Infotech case wherein a similar complaint was raised. 

However, the CCI treated it to be under Section 3(4)(b), (d) & (e) for being vertically restraining, refusing to treat it to be a Hub & Spoke Cartel due to the absence of any legislative bars or regulations to the same. This case was noteworthy because it raised the issue at such a large scale for the first time; however, the court, being deprived of any jurisdiction to try such matters, was bound to follow conventional channels, which might not have been that effective. The CCI, however, in Obiter, did mention the need for such enabling provisions.

Samir Agrawal v ANI Technologies Pvt. Ltd.

The biggest development in relation to HSC in India took place in this case wherein it was alleged that due to algorithmic pricing set by the platforms like Uber & Ola, there is no freedom of choice for riders and drivers since neither can negotiate the fair. This is exceptionally anti-competitive because drivers are not classified as employees but are rather independent service providers. Thus, the informant stated that Ola & Uber acted as hubs while competing drivers acted as spokes to facilitate price coordination which should be dealt with by CCI.

While the CCI rejected this argument for not being evidentially sound, it did lay out a rudimentary test to establish HSC which was substantiated on the two prongs of (i) usage of a third party platform by the spokes to exchange pricing information (ii) Active conspiracy to fix prices and thus collusion. 

Legislative Critique

The Competition Act in Section 3, prohibits any anti-competitive agreements which cause any appreciable adverse effect on competition or are likely to cause it. Under this section, 2 types are recognised, Horizontal & Vertical; however, considering that the Hub & Spoke model is a fundamentally different model, it employs a blend of both horizontal and vertical practices to effect a combined decision pertaining to market sharing or price fixing. The hub facilitates the dealings by passing on information or collusion tactics to the spokes, who then implement it without interacting with each other. 

As per the current legal regime, Cartels are treated as per se void; however, with the emergence of HSC, this legal regime fell short as it couldn’t be classified into the 2 segments. This led to the introduction of the Competition (Amendment) Act, 2023, which sought to address these challenges; however, it failed to do so for multiple reasons discussed below.

Rebuttable presumption dilemma 

The amendment act has not made any significant and sustainable changes to the main body of section 3 or other provisions to expressly address the issue of imposing liability on HSC. It is widely accepted that cartels in India are per se void under Section 3; however, upon a closer look, it is found that this is not true, and actually, the trend in Indian competition law is completely different from what is being practised around the world. For this, we look at section 3(1) which lays emphasis on the phrase “appreciable adverse effect on competition” and outlines that a cartel shall be restricted only if it has AAEC. While it can be said that 3(3) lays a presumption for cartels to have an AAEC however this is rebuttable as seen from the phrase “shall be presumed”, which, as per reading of Section 2(l) of BSA,2023 and Sodhi Transport Co. v State of U.P. means that such a presumption shall remain true unless and until they are rebuttable and hence contain the exception of rebuttable presumption. Thus, it is clear that the cartels are only presumed to have AAEC unless the cartel can establish that the same does not exist. 

This exception of rebuttable presumption also finds safe harbour in Section 19(3) which grants the CCI discretion to consider certain factors while determining AAEC. These factors, modified after the 2023 Act, still retain 3 negative and 3 positive indicators, which grant these HSC the space to secure their position and use 19(3) to escape liability.

Cosmetic Expansion of S. 3(3)

The primary issue to be resolved by the Amendment Act was to regulate HSC to be done by amending Section 3. However, this narrative remains unchanged as the amendment act still defines cartels to be aligned with horizontal agreements which specifically excludes hubs that align with vertical agreements to function. Section 3(4) The amended act states that agreements amongst enterprises or persons (not restricted to agreements between players in different stages or levels). Further amendments in the proviso to section 3(3) also states that even if any enterprise or association are not part of similar trades, they shall be a part of the collusion if they intended to participate in the same. While these changes technically do cover a hub & spoke cartel operating at different levels they still remain cosmetic in nature as they do not impact the interpretational scheme of the act that still retains the position that HSC are not per se void and are thus afforded the protection of Section 19(3) discussed above.  

Possible Solutions

Interpretative Exercises

An important interpretive exercise which the courts can indulge in is to interpret Section 3(2) & 3(1) in light of the long title of the act. The long title states that act’s primary objective is to secure consumer interest and promote fair and free competition by restricting anti-competitive activities. Interpreting the aforementioned sections along these lines, the courts can hold that any agreement which is likely to cause AAEC is void, thereby making HSC void per se. However, the problem arises when Section 18 is considered, which also mandates considerations of freedom of trade. Thus, the onus lies on the legislative mechanisms to provide a framework wherein the courts can function to harmoniously interpret the conflicting sections. 

Global Best Practices

Foreign jurisprudence also provides us with an overview of what is being done to counter such acts abroad legally. TFEU, South African Competition Act, Sherman Act, and other jurisdictions explicitly and exhaustively outlaw cartels by holding any activity in restraint of trade and commerce, to be unlawful, that too, without a rebuttable presumption of AAEC. The UK Competition Act has been the most successful in penalising and restricting activities of both Hubs & Spokes; however, the test used is that of intent.  While these jurisdictions effectively outlaw cartel-like behaviour, the Rim test, which is done to prove the existence of HSC, is still evolving; hence, CCI needs to take the first step towards laying down effective and exhaustive tests to be used to determine HSC.

Suggestions

Noting the broad position of law, the author feels that it is necessary and expedient to undertake the following measures: 

1. Amending the Competition Act to expressly define and include HSC in S. 3 of the Act with explicit liability for hubs.

2. Deviate from the rebuttable presumption under section 19(3) and align regulatory measures with global best practices from EU, US & UK to outlaw cartels based on restraining objective and not AAEC

3. Issue legislative framework to outline clear test for identifying HSC to reduce uncertainty and ensure consistent enforcement.