Air Works India (Engineering) Pvt. Ltd. Vs. GMR Hyderabad International Airport Ltd and Anr.

COMPETITION COMMISSION OF INDIA
Case No. 30 of 2019

In Re:
Air Works India (Engineering) Private Limited
1st Floor, Kalyani House, Plot No.40, Sector-18,
Gurugram, Haryana- 122001, India
Informant

And

GMR Hyderabad International Airport Limited
(GMR)
DLF Building No.5, Tower B,
DLF Cyber City, DLF Phase-2,
Sector-25, Gurugram,
Haryana-122002, India
Opposite Party No.1

GMR Aero Technic Limited (GAT)
5th Floor, Good Earth City Centre,
Sector-50, Gurugram,
Haryana-122002, India
Opposite Party No.2

CORAM:
Ravneet Kaur
Chairperson

Anil Agrawal
Member

Sweta Kakkad
Member

Deepak Anurag
Member

Present:

For Air Works India (Engineering) Private Limited: None
For GMR Hyderabad International Airport Ltd. (GMR/OP-1) & GMR Aero Technic Limited (GAT/OP-2): Rajshekhar Rao, Sr. Advocate; Abdullah Hussain, Advocate; Kanika Ch. Nayar, Advocate; Shambhavy Singh, Advocate; Ishan Handa, Advocate; Sayan Kumar Panda, Advocate; Harshil Wason, Advocate; Bhaskar Chandran, Executive Director-Legal & Group General Counsel; Sheetal Sharma, Jr. Manager, Legal; BSS Kakaraparty, CLO; Partha Sarthi, CLO, Legal Head; Sridhar Babu, Vice President GMR

ORDER
Brief Facts as per Information

1. The Information in the instant matter has been filed under Section 19(1)(a) of the Competition Act, 2002 (‘Act’) by Air Works India (Engineering) Private Limited (‘Air Works’/‘Informant’) against GMR Hyderabad International Airport Limited (‘GHIAL’/‘GMR’/‘OP-1’) and GMR Aero Technic Limited (‘GATL’/‘GAT’/‘OP-2’) alleging contravention of the provisions of Section 4 of the Act. OP-1 and OP-2 are collectively referred to as the ‘Opposite Parties’/‘OPs’.

2. The Informant is stated to be a company incorporated under the Companies Act, 1956 having its registered office in Mumbai and is, inter alia, engaged in the business of providing Maintenance, Repair and Overhaul (‘MRO’) services which includes Line Maintenance Services (‘LMS’) and Base Maintenance Services (‘BMS’) of aircraft to airlines and general aviation. OP-1 is a company which owns and operates Rajiv Gandhi International Airport (‘RGIA’) in Hyderabad, India. OP-2 is a wholly owned subsidiary of GMR Aerospace Engineering Limited., which in turn is a wholly owned subsidiary of OP-1. OP-2 is also engaged in the business of providing third party MRO services at RGIA. Both Informant and OP-2 provide MRO services.

3. As stated, OP-1 had entered into a Joint Sector Agreement (‘JSA’) with the Ministry of Civil Aviation (‘MoCA’), Government of India, for Development, Construction, Operation and Maintenance of RGIA vide Concessionaire Agreement dated 20.12.2004 for a period of 30 years (extendable to another 30 years at the option of GMR). Pursuant to the JSA, OP-1 became the sole concessionaire of RGIA and had the exclusive right to maintain, manage and operate the airport including to use its discretion in respect of provision of services by third parties at the airport.

4. Following the execution of the Concessionaire Agreement for RGIA, OP-1 entered into agreements to give space(s) to business entities desirous of operating from the airport premises. The Informant has stated that it is one of the third-party service providers of MRO services at RGIA, covering both LMS and BMS, and the nature of services offered requires it to be located within the airport premises.

5. It has been submitted that LMS may include activities like trouble shooting, defect rectification, component replacement, schedule maintenance and/or checks, minor repairs, modifications and visual inspections. These services are required to be provided during the time between the landing and take-off of any aircraft to declare it airworthy and make it fit for departure. On the other hand, BMS includes heavy periodic maintenance of the aircraft of airline operators. The Informant is stated to be authorized to undertake aircraft maintenance and repair services at RGIA by the aviation departments of Kingdom of Saudi Arabia, Republic of Sri Lanka, Republic of Singapore, United Arab Emirates, Republic of Turkey and State of Kuwait. The Informant undertakes aircraft maintenance and repair works for many foreign airlines such as Air Arabia, Etihad Airways etc. At the time of filing of the Information, the Informant was providing LMS at 19 airports in India and was servicing 220 international flights per month at the RGIA.

6. Since the LMS provided by the Informant necessarily required it to be present within the airport premises, the Informant executed a License Agreement dated 20.12.2011 with OP-1 for a period of 3 years through which it was given an area of 96.04 sqm for setting up, operating and maintaining the Airline Engineering Maintenance Office and Warehouse. OP-1, in turn was charging license fee, common area maintenance fee and utility charges for the same from the Informant.

7. On expiry of the term of the License Agreement dated 20.12.2011, an agreement dated 28.11.2014 was executed between the Informant and OP-1 entitling it to continue providing LMS to aircraft until 22.03.2019. The Informant averred that since OP-1 manages and operates the RGIA, the Informant was dependent upon OP-1 for grant of the necessary license to operate from the airport for provision of LMS to various airlines.

8. The Informant had paid OP-1 an interest free security deposit of Rs. 5,88,342/- (Rupees Five Lakhs Eighty-Eight Thousand Three Hundred and Forty-Two Only) and a Royalty Deposit of Rs. 6,24,828/- (Rupees Six Lakhs Twenty-Four Thousand Eight Hundred and Twenty-Eight Only), on account of the license to operate from RGIA.

9. The Informant was also paying a monthly permission/license fee for the said premises, which as of March, 2019, was Rs. 1,26,184/- (Rupees One Lakh Twenty-Six Thousand One Hundred and Eighty-Four Only) plus GST at the rate of 18%. In addition to the monthly permission/license fee, the Informant had also been sharing its revenue with OP-1 since March, 2014. Since 01.01.2019 uptill 30.06.2019, the Informant had paid an amount of Rs. 32,10,269/- (Rupees Thirty-Two Lakhs Ten Thousand Two Hundred and Sixty-Nine Only) towards revenue sharing which was 13% of Gross Revenue of the Informant.

10. The Informant stated that for providing continuous operations at the airport, a license was required to be obtained and hence, it was the understanding amongst all licensees who were operating at the airport for technical support services that as long as they were carrying on their operations, the license would continue to be granted.

11. Since the License Agreement dated 28.11.2014 was valid till 22.03.2019, the Informant requested OP-1 vide email dated 25.02.2019 to renew the agreement for 5 years. In response, OP-1 informed that a letter addressing the said issue had already been sent by it to the Informant.

12. Subsequently, the Informant received a letter dated 22.02.2019 from OP-1 wherein it was informed that the License Agreement between OP-1 and the Informant could not be renewed, stating the following: “As we will be needing the said space for our on-going expansion works at RGIA, we regret to inform you that we will not be extending the Agreement any further beyond 22nd March 2019”.

13. In response to OP-1’s letter dated 22.02.2019, the Informant again vide email dated 11.03.2019 requested OP-1 to renew the License Agreement dated 28.11.2014. As no reply was received from OP-1, the Informant wrote a letter dated 22.03.2019 to the Secretary, MoCA requesting to intervene in the matter. The Informant again requested OP-1 to renew the License Agreement as there was no option but to close down its business at RGIA.

14. OP-1, vide its letter dated 27.06.2019, asked the Informant to vacate the premises by 30.06.2019. The Informant, vide its letter of even date, once again requested MoCA to intervene in the matter. It further requested OP-1, vide letter dated 28.06.2019, to withdraw its letters dated 22.02.2019 and 27.06.2019 and renew the License Agreement dated 28.11.2014.

15. The Informant also filed a writ petition bearing WP(C) No.13298/2019 before the Hon’ble High Court of Judicature for the State of Telangana at Hyderabad (‘High Court of Telangana’) inter alia, seeking a writ or order or direction in the nature of mandamus declaring the notice issued by OP-1 to vacate/eviction letter as arbitrary, unconstitutional and against the principles of natural justice. However, vide order dated 02.07.2019, the Hon’ble High Court rejected the request of interim relief, inter alia, on the ground of existence of licensor and licensee relationship and the arbitration clause in the License Agreement. The Informant challenged the said order in appeal which also eventually got dismissed.

16. The Informant alleged that OP-1 is dominant in the ‘market for Line Maintenance Services at RGIA’ and has abused its dominant position. It further stated that OP-1 resorted to sending emails to the Informant’s customers to avail the LMS of an alternate vendor. The Informant’s customers however, expressed their willingness to continue with the services provided by the Informant. Further, OP-1 vide email dated 30.07.2019, asked the Informant to surrender the vehicle licenses to its airside office. The Informant further alleged that OP-1 and OP-2 started poaching the Informant’s technically skilled employees.

17. As per the Information, OP-2 is a provider of MRO services from 2017. The Informant, on the basis of recently audited balance sheets, alleged that OP-2 was under tremendous financial hardship and required support from the parent company. The Informant alleged that the motive behind termination of its license by OP-1 was to protect/promote its own group entity, i.e., OP-2.

18. The Informant levelled the following allegations of abuse of dominance by OP-1:

• a) Creation of a monopolistic environment which would enable OP-2 to operate on its own terms and conditions without being affected by any competition and charging of exorbitant rates from the customers (Airlines) thereby increasing the cost to end customers which may potentially lead to contravention of Section 4(2)(a)(i) of the Act;
• b) Ousting of the Informant from providing LMS at RGIA, thereby, limiting and restricting provision of services by the Informant and adversely affecting competition in the market for such services in contravention of Section 4(2)(b)(i) of the Act;
• c) Denial of market access to the Informant by refusing to renew the license so as to prevent the Informant from providing LMS to the airlines at RGIA and by withholding access to the premises in the said airport thereby, causing impediments to the Informant in continuing LMS, in contravention of Section 4(2)(c) of the Act;
• d) Leveraging of its dominant position in the upstream market and indulging in exclusionary practices/restricting provision of services in the downstream market, thereby eliminating competition in contravention of Section 4(2)(e) of the Act.

19. Based on the aforesaid facts and allegations, the Informant inter alia prayed to the Commission to order an investigation to be made in the matter, besides seeking a direction for OP-1 to renew the License Agreement dated 28.11.2014 with the Informant, which has allegedly been discontinued without any objective justification.

20. The Informant also filed an application dated 21.08.2019, under Section 33 of the Act, seeking interim relief for restraining OP-1 and OP-2 from taking any coercive action against the Informant and for allowing the Informant to continue providing LMS at RGIA. Subsequent to the filing of the Information, the Informant filed 2 more applications, dated 29.08.2019 and 20.09.2019, seeking early listing of the matter alleging that OP-1 had disabled the electricity connection and also locked the premises of the Informant.

Prima facie consideration by the Commission
21. The Commission considered the Information in its ordinary meeting held on 01.10.2019 and decided to pass an appropriate order in due course. The Commission while passing the prima facie order noted that since the allegations in the present case pertained to denial of market access as well as of leveraging of dominant position, 2 markets needed to be identified: first relevant market (upstream market), in which the erring entity is alleged to be dominant and the second (downstream) market, in which the said entity is protecting its position, directly or indirectly, by exercising abuse in the upstream market.

22. The Commission was of the view that ‘provisioning of Line Maintenance Services’ is the downstream market where the alleged abuse has been occasioned. However, for analyzing OP-1’s position, the upstream market i.e. ‘market for provision of access to airport facilities/premises’ attained relevance.

23. With respect to the relevant geographic market, the Commission noted that the same appeared to be the RGIA, as for providing any other third party services at the airport, the service provider needs to have access to the facilities/premises at RGIA. In such a scenario, the airport itself becomes the relevant geographic market, being the place where the competition dynamics are homogenous and distinct from those prevailing outside such airport.

24. Accordingly, for carrying out analysis under the provisions of the Act, the upstream market was delineated to be ‘market for provision of access to airport facilities/premises at the RGIA’, while the downstream market was delineated to be ‘market for provision of Line Maintenance Services at the RGIA’.

25. With regard to the assessment of dominance, the Commission noted that by virtue of the Concessionaire Agreement, the Government of India granted OP-1 the exclusive right and privilege to carry out the Development, Design, Financing, Construction, Commissioning, Maintenance, Operation and Management of the airport for a period of 30 years. The Commission was of the view that this agreement implied dominance in terms of providing access to the facilities/premises at RGIA to various third party service providers who wish to provide their services at the airport. Thus, OP-1 was considered to be dominant in the relevant/upstream market.

26. The Commission noted the facts of the present case and observed that all the allegations were stemming from a single conduct i.e., not extending the License Agreement of the Informant by OP-1 (and disallowing its presence at the RGIA). The said conduct suggested violation of Section 4 of the Act in terms of: (i) limiting and restricting the provision of services of the Informant, thereby adversely affecting competition in the market of such services [Section 4(2)(b)], (ii) denial of market access (i.e., denying access to the space at the airport premises) [Section 4(2)(c)] and (iii) leveraging of dominant position in the upstream market by OP-1 to protect the downstream market [Section 4(2)(e)].

27. The Commission noted that OP-1, leveraging its dominant position in the upstream market with exclusionary motive to favour its own group entity (i.e., GAT/OP-2) and denying market access to the Informant, warranted investigation. Furthermore, it was observed that the alleged conduct by OP-1 had the potential to limit and restrict the provision of LMS and the technical development relating to provisioning of such services to the prejudice of consumers. RGIA as a dominant entity controls access to the airport and denies access to the competitors; there is no alternative means available to the LMS providers of entering the airport at a reasonable cost without having access to the facility. Further, the Commission also looked into market shares of third party LMS providers and found that OP-2’s market share was 27% and the Informant’s market share was 53%. The Commission, prima facie, held that denial of access to the Informant would benefit OP-2 which is a subsidiary of OP-1 and a competitor of the Informant in the relevant market.

28. In view of the foregoing the Commission was of the considered view that prima facie, a contravention with regard to Sections 4(2)(b), 4(2)(c) and 4(2)(e) of the Act was made out against OP-1. The Director General (‘DG’) was directed to carry out detailed investigation into the matter, in terms of Section 26(1) of the Act, and submit an Investigation Report within 60 days. The Commission decided to deal with the application for interim relief separately.

Subsequent Developments
29. After passing the prima facie order dated 03.10.2019 under Section 26(1) of the Act, the Commission vide order dated 04.10.2019, decided to hear the parties on interim relief on 17.10.2019. OPs had challenged the aforesaid orders before the Hon’ble High Court of Telangana in WP (C) No. 22467/2019. On 17.10.2019, the Informant as well as OPs appeared before the Commission through their respective legal counsels. OPs brought to the notice of the Commission the stay order dated 16.10.2019 of the Hon’ble High Court of Telangana passed in the aforementioned writ petition whereby, the Hon’ble High Court stayed all further proceedings in the matter. Accordingly, the Commission decided to defer the hearing, till further orders.

30. On 30.05.2020, OP-1 sent a letter to the Commission intimating about the selection of a third party service provider for LMS through competitive and transparent bidding process and sought closure of the case. The Commission, vide its order dated 10.06.2020 observed that, in view of the directions contained in order dated 16.10.2019 passed by the Hon’ble High Court of Telangana in WP(C) No. 22467/2019, the Commission is precluded from considering the request. The stay granted by the Hon’ble High Court was vacated pursuant to the dismissal of WP (C)No. 22467/2019, on 12.10.2022.

31. The Informant filed an application dated 30.10.2023 for withdrawal of the Information, stating that “it has now approached the OPs to consider their request for continuing their operations at RGIA since it has already been carrying on its business at the RGIA and it is no longer interested in pursuing complaint filed before the CCI. Therefore, there is no cause of action to continue further in this matter”. The Commission, vide its order dated 06.12.2023, considered the aforementioned application of the Informant and observed that the proceedings before the Commission are not in nature of a ‘lis’ between the parties but are proceedings ‘in rem’, having implications on the market and its various constituents/stakeholders. The Commission also noted that the Hon’ble Supreme Court in case of Samir Agrawal vs. CCI (2021) 3 SCC 136 held that the