The Competition Commission found the Opposite Party dominant in India's scooter market. It directed the DG to investigate alleged anti-competitive agreements regarding spare parts, advertising, and pricing under Sections 3 and 4.
Director General directed to cause an investigation within 60 days into the alleged contravention.
This page shows the compact analysis of this judgement. The full analysis — procedural history, issue-by-issue holdings with ratio and obiter, advocates, and paragraph-level evidence for every claim — is being added to the record in batches and will appear here when this judgement has been through it.
COMPETITION COMMISSION OF INDIA
Case No. 17 of 2017
In Re:
Vishal Pande R/o Near Akashwani Signal Jalna Road Aurangabad, Maharashtra-431001
Informant
And
Honda Motorcycle and Scooter India Private Ltd. Commercial Complex-II, Sector 49-50, Golf Course Extension Road, Gurugram, Haryana - 122002
Opposite Party
CORAM
Mr. Devender Kumar Sikri Chairperson
Mr. Sudhir Mital Member
Mr. Augustine Peter Member
Mr. U.C. Nahta Member
Justice G.P. Mittal Member
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Appearances during the preliminary conference held on 10th January, 2018:
Order under Section 26(1) of the Competition Act, 2002
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OP imposed a tie-in arrangement and denied market access to other oil companies dealing with the recommended grade of engine oil.
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contravention of Section 3(4) read with Section 3(1) in addition to Section 4(2) of the Act.
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negative assessment score, which would be a ground for termination of dealership. Such restriction on the purchase of batteries, in favour of the said two companies amounts to a tie-in arrangement.
(i) Exclusive arrangements with financers and insurance partners : The OP had also put a condition that a financier authorised by the OP would be present in the showroom of the Informant. During inspection by the OP, if financier of any other company was found in the showroom, negative marks would be awarded during evaluation resulting in termination of dealership. As a result of such practice, the Informant was unable to offer its customers better financing options. Similarly, the OP had arrangements with four insurance companies, which were nominated as preferred insurance partners. Preference and restriction on the dealers to deal with other service providers are in the nature of tie-in arrangement in contravention of the provisions of the Act.
(j) Re-sale price maintenance and discount control mechanism : The OP fixed the exshowroom price of various models at different levels for different towns within the same state. The Informant was compelled to follow the directions of the OP in the matters of fixation of resale price, in addition to the amount of discount to be offered to the consumers. The Informant was also restrained from offering any scheme to the consumers which was not in line with the scheme of the OP. The OP has a team of mystery shoppers which pose as ordinary customers to see whether the dealers are offering any discounts. Even though the dealers were willing to provide discounts, the same could not be offered to the customers as the OP imposed penalty upon dealers offering discount beyond the specified limit. Imposition of resale price maintenance/ discount control mechanism affects consumers as prices charged are higher than the competitive price for such product. Maintenance of resale price of two-wheelers adversely affects the endconsumers and distorts the market forces.
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(k) Fixation of limits of geographic operation : The OP had prohibited the Informant from selling vehicles outside its area of operation specified in the Dealership Agreement. The Informant being the largest dealer of the OP in Aurangabad, many persons from far off places wanted to purchase vehicles from the Informant, owing to better price and customer experience. However, due to restriction by the OP, the dealers were restricted from dealing with customers from a different locality. Such practice besides denying the market access to the Informant also denied benefits to customers that would have accrued otherwise.
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vice- versa . Therefore, based on the limited information available at this stage, it appears that motorcycles and scooters may not be regarded as substitutable in terms of characteristics and consumer preference and may constitute two different relevant product markets. As regards the relevant geographic market, the Commission notes that the conditions of competition for sale of motorcycles and scooters appear to be homogenous across India. Thus, the relevant geographic market, prima-facie , is India. Accordingly, relevant markets in the instant case could be defined as (i) ‘market for manufacture and sale of motorcycles in India’; and (ii) ‘market for manufacture and sale of scooters in India’ .
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market appears to exhibit entry barriers due to huge capital cost involved in setting up a manufacturing facility. At prima-facie stage, these considerations suggest that the OP enjoys a dominant position in the ‘market for manufacture and sale of scooters in India’.
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be a ground for termination of the dealership. As per the Informant, all these restrictions are enforced through threats of penalty.
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also billed the Informant for merchandise items like caps, bags, t-shirts, raincoats, pen drives, etc ., which have no connection with the sale of two-wheelers.
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batteries, accessories, merchandise items, and insurance and finance services only from designated sources are in the nature of exclusive supply agreement and refusal to deal. As pointed out by the Informant, such restrictions limit the dealers from procuring same/similar items from other sources at a cheaper price. This restriction on the choice of dealers can limit the benefits to the consumers that would have resulted otherwise. Further, it appears that the merchandise and accessories have nothing to do with the operation of the two-wheelers. The Informant has further alleged that the OP forces its dealers to adhere to the said stipulations by giving the threat of termination of dealership or imposition of penalty. The Commission notes that the alleged prohibition on dealers to source the same products specified by the OP from open market can create barriers for suppliers of oil and lubricants, batteries, etc ., who compete with these suppliers besides better prices to the consumers. A stipulation that appears to create entry barriers, scuttle choice of consumers, result in higher prices, thereby denying benefits to the ultimate consumers is likely to result in appreciable adverse effect on competition. Thus, the Commission is prima-facie satisfied that the said mandatory requirements amount to contravention of Section 3(4) (b) and 3(4) (d) read with Section 3(1) of the Act.
(b) Advertising services, AMC, EW and RSA: The Commission notes that an arrangement whereby advertising cost is debited from the dealers accounts on the basis of number of vehicles dispatched to them appears to be in the nature of a tie-in arrangement. Further, the requirement that the dealers shall avail advertising services only from M/s. Goldmine Advertising is in the nature of exclusive supply arrangement and refusal to deal, as per Section 3(4) (b) and (d) of the Act. The Commission is of the prima-facie view that the said practices have the potential to create entry barriers for other advertising agencies, which could have offered similar advertising services to the Informant. Similarly, the condition that customers of AMC,
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EW and RSA should necessarily buy booklets issued by Corporate India Warranties (I) Pvt. Ltd. at this stage appears to be a tie-in arrangement and likely to cause appreciable adverse effect on competition. The Commission is prima-facie satisfied that the said restrictions amount to contravention of Section 3(4) (a), 3(4) (b) and 3(4) (d) read with Section 3(1) of the Act.
(c)
Resale Price Maintenance : The Commission notes that the OP appears to implement a resale price maintenance, in addition to the restrictions on the discount being offered by the dealers. This is evident from the e-mail dated 30th August, 2016 written by the OP to the Informant stating that “ With reference to recent market updates, mystery calls, HMSI team visits and analysing of some quotations, it is found that few dealers are offering heavy discounts to customers……which leads to unhealthy price practice…….It is a very serious matter and can attract financial penalty or also impact on dispatches .” The Commission notes that maintenance of resale price of two-wheelers is not likely to accrue any benefit to the consumers rather it could forfeit the benefits to consumers in terms of lesser price. Further, resale price maintenance is also not likely to result in any improvement in production or distribution of goods or provision of services. Further, such practice is likely to foreclose intra-brand competition amongst the dealers thereby denying consumers better prices. Thus, the Commission is of the prima-facie view that resale price maintenance imposed by the OP, which includes monitoring of maximum permissible discount level through discount control mechanism and levy of penalty for non-compliance and appointment of mystery shoppers to collect data from dealers, amounts to contravention of Section 3(4)(e) read with Section 3(1) of the Act.
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(d) Fixation of limits of geographical operation : In the present case, the OP has allocated areas to its dealers for sales. The emails dated 28th November, 2013 and 20th September, 2016 of the OP to the Informant support the allegation of territorial allocation to the dealers. In terms of Section 3(4) (c) of the Act, an exclusive distribution agreement includes any agreement to limit, restrict or withhold the output or supply of any goods or allocate any area or market for the disposal or sale of the goods. The OP extends vertical relationship with its dealers and has mandated them to restrict their sales within their designated area. The Commission is of the view that such territorial restriction affects intra-brand competition as it restricts distribution into other areas and creates barriers to entry. As the OP enjoys a dominant position in the market for manufacture and sale of scooters in India, the territorial restriction can lead to appreciable adverse effect on competition. Thus, prima-facie, the territorial restriction is in contravention of Section 3(4) read with Section 3(1) of the Act.
(e) Refusal to deal with competing products : The Informant has alleged that it has to adhere to an exclusive supply arrangement as an obligation under the Dealership Agreement. This also includes a condition of refusal to deal as envisaged in Clause 10.13 (b) of the Dealership Agreement which prohibits the Informant from dealing with any competing product. Although Clause 10.14 of the Dealership Agreement provides that a dealer can deal with competing products with prior written consent of the OP, it has been alleged that this permission is an illusory device in light of abovementioned clause. The Commission observes that Clause 10.13(b) of the Dealership Agreement states that “ The Dealer shall render service on any product, which may have been sold by the Dealer, or directly by the Company or by any other Dealer of the Company, irrespective of whether the Product comes for free or paid service, repairs, maintenance or any other service related problem. However, the Dealer shall not service and/
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or deal in vehicles which are competing in open market with the products of the Company”. Further, Clause 10.14 of the Dealership Agreement states that “ During the tenure of this Agreement, the dealer shall not directly or indirectly, or through its subsidiaries, affiliates or any other party, carry on or participate in India in the business of competing products or any other business similar to or competitive with the business of the Company which may harm Company’s interest without the prior written consent of the Company. Dealers, stockiest, ASC or any other business operation/ arrangement may co-exist at a given location and shall not indulge in activities like price undercutting, which may harm brand equity of the Company”. The Commission observes that ‘exclusive supply agreement’ has been explained under Section 3(4) of the Act in an inclusive manner to include “ any agreement restricting in any manner the purchaser in the course of his trade from acquiring or otherwise dealing in any goods other than those of the seller or any other person ”. Further, ‘refusal to deal’ has been explained under Section 3(4) of the Act to include “ any agreement which restricts, or is likely to restrict, by any method the persons or classes of persons to whom goods are sold or from whom goods are bought ”. The Commission notes that Clause 10.14 of the Dealership Agreement does not strictly set out an exclusivity clause creating an obligation on a dealer or preventing a dealer from dealing with competing dealerships or other businesses as dealer can do such activities with the prior written permission from the OP. The Commission is of the prima-facie view that standard clauses requiring dealers to take prior permission of the manufacturer, before undertaking other dealerships, are usually meant to keep resources of dealers dedicated to the business of the manufacturer. Such clauses cannot be faulted unless there is material to suggest de facto exclusivity. As no material on record suggest measures prohibiting dealers from dealing in other products, a mere stipulation for prior permission does not
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appear to be a restriction in the nature of exclusive supply obligation or refusal to deal.
Sd/(Devender Kumar Sikri) Chairperson Sd/(Sudhir Mital) Member Sd/(Augustine Peter) Member Sd/(U. C. Nahta) Member Sd/(Justice G. P. Mittal) Member
New Delhi, Date: 14/03/2018
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3 issues framed by the court
Whether the OP enjoys a dominant position in the market for manufacture and sale of scooters in India.
Whether the Dealership Agreement terms, including tie-in arrangements and resale price maintenance, violate Section 4 and Section 3(4).
Whether the Commission is prima-facie satisfied to direct an investigation under Section 26(1) of the Act.
4 provisions across 1 enactments
Vishal Pande
Devender Kumar Sikri
Sudhir Mital
Augustine Peter
U.C. Nahta
G.P. Mittal
As recorded by the court registry
Judgements on the same questions, provisions and authorities, from every court
