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Top Five Legal Challenges Faced by Online Hotel Aggregators in India: Lawyers Advice

 > Business Laws  > Top Five Legal Challenges Faced by Online Hotel Aggregators in India: Lawyers Advice

Top Five Legal Challenges Faced by Online Hotel Aggregators in India: Lawyers Advice

Over the years, the ease of accessibility to the internet has allowed various industries to make their businesses available to an increasingly larger pool of people. The online Hotel Aggregator industry is one such industry and has grown leaps and bounds in the last decade. Major players in the industry saw this opportunity and launched in India as well. However, this large growth in the industry has also brought to light various issues focusing on the on-going practices and trends in the industry.

Some of the major legal challenges that are being faced by the online hotel aggregator industry are as follows-

  1. Approval: The Government of India, in 2018 released “Guidelines for Approval of Online Travel Aggregators (OTA)” which lays down the procedures to be followed by said aggregators in order to be able to operate. “Online Travel Aggregators” is defined as “an intermediary/agent selling travel products and services such as the airlines, car rental, cruise lines, Hotels/Accommodation, railways and vacation packages on behalf of suppliers using internet as a medium”. Therefore, Online Hotel Aggregators are directly affected by the said guidelines. As per the guidelines, the Ministry of Tourism shall grant recognition as an approved online travel aggregator only if they are in continuous operation for a minimum period of three years prior to the date of application for approval and also must have a minimum paid up capital employed of Rs.1 crore and have office premises with a space of minimum 1000 sq. ft. These requirements have made it incredibly tough for any online hotel aggregators that may not have the same financial backing as the market giants to fulfil these conditions. A major part of the potential competition is therefore eliminated at the very ground level. These rules are extremely stringent thereby disallowing the opportunity to several start-ups and also concentrate the market.
  2. Data Privacy: The Section 72A of the Information Technology Act, 2000 does provide for disclosure of such information without consent, it still has a restricted view of the same. Moreover, in the case of Kharak Singh v. State of UP [AIR 1963 SC 1295] and People’s Union of Civil Liberties v. the Union of India [AIR 1997 SC 568], the court recognized the right to privacy as a part of Article 21 of the Constitution of India, which provides for the right to life and personal liberty, however, this is only enforceable against government action. Online hotel aggregators, like most online aggregators require details of their customers whenever a booking is being made including basic information like their name, age, sex, address, etc. They need to process and analyse this data in order to be able to curate and develop their brand as well as services according to the specifics of their demographic and their likes and dislikes. However, due to the lack of an exhaustive legislation or judgement on the same, there is an ambiguity as to what the aggregators can do. If they are found violating or misusing their customers data, they can face several legal issues which will essentially end their business in most cases. Clarity on matters of data privacy and fair use of their consumers data is therefore required through laws or guidelines.
  3. Competition: Online travel aggregators face competition not only from other online travel/hotel aggregators but also the hoteliers or the hotel industry which operate direct to consumer. With so much competition in the market it is very often that suits are filed by companies against their market competitor due to either some form of violation or business strategy, and it is really tough to avoid the same. The Competition Council of India (CCI) in Federation of Hotel & Restaurant Associations of India (FHRAI) v. MakeMyTrip India Pvt. Ltd. (MMT) & Others. [Case No. 14 of 2019] and consequently in Rubtub Solutions Pvt. Ltd. v. MakeMyTrip India Pvt. Ltd. (MMT) & Others. [Case No. 01 of 2020], passed an order under Section 26 (1) of the Competition Act, 2002, directing an investigation by the Director-General as the petitioner prima facie convinced them that appreciable adverse effect on competition is caused by the vertical effect in force between MakeMyTrip India Pvt. Ltd and Oravel Stays Pvt. Ltd and that MakeMyTrip India Pvt. Ltd abuses its market position. Both these cases were filed within a period of four months and this is an example of the amount of litigation that online hotel aggregators have to face. The industry as a whole is still in its developmental phase and with the increase in consumers of the industry and their services, it is likely that such companies will have to face litigation. Additionally, various hotel groups, despite entering into a contract that provides for exclusive rights with the aggregator, do not adhere to it. Hence, while the aggregator may give the hotel preference due to their agreement, the hotel will simultaneously enter into contracts with other aggregators as well as it is a win-win situation for the hotel, however, the aggregators are the ones who stand to lose a lot in the agreement.
  4. Accountability: Another major challenge faced by online hotel aggregators is that of accountability. The aggregator may advertise or promote certain hotels on their website, which may be independent, affiliated or their own subsidiaries. The “Guidelines for Approval of Online Travel Aggregators (OTA)” require the aggregators to adhere to the tenets of the Code of Conduct for “Safe & Honourable Tourism”. Despite this, it is extremely common that a consumer books a hotel through an online hotel aggregator and experiences bad service or faces an unsafe situation that violates the abovementioned code of conduct. The major question in such cases is who is to be held accountable for the same. Is it the aggregator for falsely advertising the hotel or is it the hotel for not maintaining the promised or required standards? In cases where the hotels are independent, the aggregators may not have to face any legal action, however, in case the accused hotel is affiliated to or is a subsidiary of the aggregator, it is likely for the aggregator to be sued, despite any fault of theirs. On the other hand, if a hotel faces an issue with a rowdy customer that has booked a room through a hotel aggregator, they may take legal action against the aggregator. Hence, the aggregator’s goodwill and reputation heavily rely upon the hotels and rooms that are shown on their websites as well as their consumers. Accountability therefore, becomes blurry.
  5. Allegations of Predatory Pricing: Various hoteliers and the Federation of Hotel & Restaurant Associations of India raise their voice against the online hotel aggregators for their pricing strategy. They accuse online hotel aggregators of dropping the prices for hotels to unsustainable levels, which cannot be matched by hotels, thereby giving them full market control. They argue that such pricing classifies as predatory pricing which is anti-competition and therefore illegal under Section 4 of the Competition Act, 2002. The federation argues that due to their deep financial backing, online hotel aggregators give massive discounts that cannot be matched by anyone else and want said aggregators to increase their prices. However, it is not possible for the aggregators to do so because, despite their large financial backing, their unique selling point is being able to provide discounts in order to benefit the consumers. Additionally, the allegation of their pricing being anti-competitive in nature is false as the online hotel aggregators are still a growing industry and therefore allegations of them being in a dominating market position would be tough to prove. If said aggregators are ordered to increase their prices by the law, their business models will turn unsustainable. The allegation of predatory pricing is hence very serious and can be extremely harmful for the online hotel aggregators.

Therefore, while certain online hotel aggregators are doing well in the business, there are some visible issues that they face on a daily basis. From their very approval under the new guidelines to their day to day accountability, there are various challenges that need to be addressed. While, the Guidelines for Approval of Online Travel Aggregators were a good first step in the right direction, in order to ensure a market where all, the service providers, intermediaries, and consumers are happy, a more exhaustive legislation needs to be brought into place as soon as possible.
Authored By: Adv. Anant Sharma & Suvigya Buch

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