On June 15, 2017, the Competition Commission of India (hereinafter referred as 'CCI') consisting of its chairperson Devendra Kumar Sikri and 5 others, after taking Director General's (hereinafter referred as 'DG') report in consideration, imposed a penalty of Rs. 87 cr. on Hyundai Motors India Limited (hereinafter referred as 'HMIL').
The above ruling arises out of a proceeding involving an alleged contravention of Section 3(4)(e) read with Section 3(1) of the Competition Act, 2002 (hereinafter referred as 'Act') through arrangements which resulted into Resale Price Maintenance and arrangements which includes monitoring of the maximum permissible discount levels through a Discount Control Mechanism and further held for the contravention of Section 3(4)(a) read with Section 3(1) of the Act in mandating its dealers to use recommended lubricants/ oils and penalizing them for use of non-recommended lubricants and oils.
In the present cases68 the final order was passed based on the information filed by the dealers of HMIL viz. Fx Enterprise Solutions India Pvt. Ltd. and St. Antony's Cars Pvt. Ltd.69 (hereinafter referred as 'INF') made the following submissions before DG:
- HMIL enters into exclusive dealership
arrangements with its dealers, and dealers are required to obtain
prior consent of the HMIL before taking up dealerships of
Brand which amounts to "refusal to deal" in contravention of the provisions Section 3(4)(d) of the Act; whereas HMIL contended that there is no exclusive supply arrangement as they have allowed various dealers to take dealership of other competing manufacturers.
- INF are bound to purchase their accessories & lubricant , CNG kit and insurance policy either directly from the HMIL or the vendors approved from HMIL. The DG found that these actions also amount to abuse of dominance which are in contravention of Section 4 of the Act whereas HMIL contended that there was no obligation to purchase lubricant from other vendors but then HMIL does not guarantee originality; further there was no mandate to purchase CNG kit from Hyundai and insurance from Aditya Birla Insurance Brokers Limited (hereinafter referred as 'ABIBL'), further HMIL provided data that 50% cars sold pan India do not have insurance from 'ABIBL'.
- INF alleged that HMIL operates a discount policy on its dealers, whereby no dealer is allowed to give more than a specific percentage of discount which amounts to resale price maintenance in contravention of section 3(4) (e) of the Act whereas Hyundai submitted that maintaining the financial health of the dealers is an extremely important factor to ensure a robust and healthy dealership network for HMIL, so that the dealers have the ability to invest in sales, services, and promotion of new and existing products and also to avoid providing discounts of a predatory nature which are detrimental to their finances.
- INF further contended that HMIL has control over the sources of supply for the dealer's products and ties the purchase of desired cars to the sale of high-priced and unwanted cars to its dealers and HMIL designates sources of supply for complementary goods for dealers as well as, which result in a "tie-in" arrangement in violation of section 3(4)(a) of the act whereas HMIL said that there is no such mechanism followed by them.
The DG thereby conducted investigation on all the above mentioned charges and submitted their report on April 21, 2016, thereby the CCI held HMIL liable for monitoring of the maximum permissible discount levels through a Discount Control Mechanism and mandating its dealers to use recommended lubricants/ oils and penalizing them for use of non recommended lubricants and oil.
This is the highest penalty ever imposed individually on an automobile company. This order may lead to change in discounting scheme and will further give autonomy to dealers pertaining to the pricing scheme and will further develop the market for auto industries though competition appellate tribunal views are still awaited as HMIL has filed an appeal.
68 FX Enterprise Solution India Pvt. Ltd. v. Hyundai Motors India Ltd. & In Re. St. Antony's Cars Pvt. Ltd. v. Hyundai Motors India Ltd.
69 Case Nos. 36 & 82 of 2014, order dated 14.06.2017.
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