Competition LawRulings

CCI favours budget hotel aggregator OYO Rooms, holds that agreement with valid business justification cannot be against Section 4

RKG Hospitalities Pvt. Ltd. vs. Oravel Stays Pvt. Ltd.

CCI dismisses information against OYO Rooms alleging abuse of dominant position by OYO; says that in a franchise business model certain reciprocal obligations with valid business justification can be necessitated.

RKG Hospitalities Pvt. Ltd. (‘Informant’) filed an information under section 19(1)(a) of the Competition Act, 2002 against Oravel Stays Pvt. Ltd. (‘OYO’).  The Informant has proposed the relevant market as the market for “service providing budget hotels to customers through online booking in India”, in which OYO is alleged to be dominant. Informant submits that it entered into a Marketing and Operational Consulting Agreement (‘Agreement’) with OYO and alleges that the Agreement imposed unfair, one-sided and discriminatory terms and conditions on the Informant. Informant also submits that OYO unilaterally changed the said terms to the disadvantage of the Informant in sheer abuse of its dominant position. Informant further alleges that OYO has indulged in offering predatory discounts and cashbacks to the customers which strategy would render the market players in the hospitality industry unviable to compete in the long run. 

CCI examines the facts and submissions and first proceeds to address the objection raised by OYO that the quorum at the preliminary hearing did not satisfy the standard set by the Hon’ble High Court of Delhi in Mahindra Electric Mobility Limited and Anr. and Competition Commission of India and Anr. [W.P. (C) 11467/2018 decided on 10.04.2019] regarding the presence and participation of a judicial member when adjudicatory orders are passed by the Commission. CCI states places reliance on the order of the Hon’ble High Court of Delhi in W.P.(C) No. 6661/2019 (Cadd Systems and Services Pvt. Ltd. case) wherein it has been held that the import of judgment in Mahindra case is not that the working of Commission be brought to standstill until the judicial member is appointed in the Commission. Further, the Hon’ble Supreme Court, vide its order dated 10.09.2018, passed in K.R.Tamizhmani and Others v. The State of Tamil Nadu and Others [M.A No.2217 of 2018 in T.C.(C) No.137/2015], clarified that ‘till such time a reconstitution of the tribunal does not take place arising from a retirement of a member from the legal field, the existing Tribunal will decide all the cases’. CCI thus, rejects the objection of OYO. 

With regards the allegation of the Informant regarding abuse of dominant position by OYO, CCI proceeds to examine the relevant market in the present case and defines the relevant product market in the present case appears to be  ‘Market for franchising services for budget hotels in India’. CCI observes that the Informant has failed to substantiate the parameters on which OYO is alleged to be dominant. CCI does not find the market share figures provided by the Informant reliable as the relevant market proposed by the Informant is different from the one delineated by CCI. 

CCI further observes that with regards the reliance placed by Informant on the blog of OYO, wherein OYO has boastfully proclaimed to have been dominant in the budget hotel segment, CCI observes that such qualitative claims are not unusual for any business in a normal commercial parlance to boast about its success and the same cannot be relied upon for concluding dominance. 

CCI further observes that the competition dynamics in the relevant market are still unfolding and as such, a deterministic assessment of the relevant market and OYO’s position in it is hindered. CCI thus states that though OYO may be a significant player in the relevant market, presently it cannot be unambiguously concluded that it holds a dominant position. 

CCI observes that, “the nature of arrangement of OYO with its partners is that of a franchise model and the commercial arrangements requires certain reciprocal obligations between the parties which might have valid business justifications.”  

With regards Informant’s allegation regarding Clause 2.1 of the Agreement by which OYO has sought a revenue share on the gross revenue, including the revenue earned from bookings done directly with the partner hotel, CCI agrees with the contention of OYO that the commission payable on gross revenue share is a return for the branding which facilitates direct bookings with the hotel, apart from attracting direct consumers through OYO’s platform. Further, with regards the restrictive covenant in the Agreement by which Informant was restricted from entering ‘into any agreement directly or indirectly to engage with online aggregators like MMT, Goibibo, Fab hotels etc. in any manner for or in relation to selling/marketing/promoting rooms at its premises for one year’, CCI observes that, 

the provisions designed to protect know-how and a particular brand value are likely to involve exclusivity in order to prevent the franchisee from unduly appropriating the benefits of this know-how by using it to distribute competing goods or by engaging, directly or indirectly, in activities similar to those of the franchisor. Thus, CCI finds merit in the business justification given by OYO for these restrictions.” 

CCI also finds merit in the business justifications provided by OYO for the other clauses as alleged to be restrictive by the Informant as such clauses allow aligning of the partner hotels to OYO’s brand image, to ensure that the services offered are of a standard benchmark quality and to ensure consumer satisfaction.

With regards the allegations of the Informant concerning GST and platform fee, CCI sides with the contention of OYO that GST was charged over and above the commission as it was realised by OYO that the hotels were receiving input credit for the GST while not paying the same to the tax authorities. Furthermore, CCI agrees with OYO’s submission that the increase in platform fee was required to cover the increased expense of supply of toiletries and other consumables, by OYO to the respective partner hotels. CCI says that it will not interfere with the 3C (‘constant’ availability of rooms, ‘compatible’ rooms and ‘customer’ review) scoring policy adopted by OYO as it serves as a quality evaluation tool aimed towards enhancing consumer welfare in terms of providing better quality services. CCI thus concludes that the terms of the Agreement cannot be said to be unfair as alleged by the Informant.  CCI does not find alleged contravention of the provisions of Section 4 of the Act against OYO being made out and dismisses the information. 

CCI favours budget hotel aggregator OYO Rooms, holds that agreement with valid business justification cannot be against Section 4 

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