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2017 (6) TMI 1316 - Commission - Indian LawsAnti-competitive agreements - Price collusion amongst competitors through a series of hub - and - spoke arrangements - Refusal to Deal - Discount Control Mechanism - resale price maintenance in contravention of Section 3(4)(e) of the Act - Tie-in arrangements - contravention of the provisions of Section 3 of the Act - HELD THAT - To analyze the alleged abusive conduct, the Commission is of the opinion that any assessment of competition has to be made in the context of markets and therefore, the Commission would use the terms upstream and downstream markets while analysing the alleged anti-competitive vertical restraints in the present cases. Upstream Market - HELD THAT - passenger cars can be purchased across the country, though different state-level road taxes and registrations may be applicable. Further, dealerships and distributions of all passenger cars are prevalent across the territory of India. Accordingly, the upstream geographic market consists of the entire territory of India. Downstream Market - HELD THAT - The downstream geographic market may be taken as the territory of India, as the conditions of competition for the distribution and dealership of Hyundai cars are uniform across the country. Though there may be price differences in terms of road tax and registration, Hyundai has distributorships and dealerships across the country and its cars are sold across the territory of India. Accordingly, the relevant (downstream) geographic market may be defined as territory of India. Refusal to Deal Section 3(4)(d) - HELD THAT - The Commission is of considered opinion that Clause 5(iii) of the Dealership Agreement has not restricted, in form or in practice, any dealer in any manner from operating other OEM dealerships. The avowed objective of the clause appears to ensure that HMIL dealers do not free ride on facilities and services provided by HMIL. Further, such stipulation ensures that HMIL is kept posted with the financial and investment activities of its dealers to ensure that funds meant for functioning of the dealership business are not diverted elsewhere. No evidence has been adduced by the parties to demonstrate that HMIL restricted its dealers from acquiring dealerships of competing manufacturers - the Commission is of the opinion that Clause 5(iii) does not impose an exclusive supply obligation in contravention of Section 3(4)(b) or a refusal to deal in contravention of Section 3(4)(d) read with Section 3(1) of the Act. Resale Price Maintenance - HELD THAT - The Commission is of the view that the OP has sought to impose an arrangement that results in RPM, which includes monitoring of the maximum permissible discount level through a Discount Control Mechanism and a penalty punishment mechanism upon non-compliance of the discount scheme. The level of discount was determined by the OP for each model and variant of the passenger cars and the OP had also appointed a Mystery Shopping Agency to collect data from dealers for such monitoring and reporting to the OP. Based on the above, the Commission is of the opinion that the OP has contravened the provisions of Section 3(4)(e), read with Section 3(1) of the Act. Tie-in arrangement Section 3(4)(a) - CNG Kits - HELD THAT - The Commission is of the considered opinion that in cases where warranty is cancelled for use of non-CEV CNG kits, the same may be objectively justified. The OP may also have a legitimate interest in ensuring that alternative brands of CNG Kits are not used, as the OP would be bearing the costs of warranty. Accordingly, cancellation of warranty upon use of non-CEV CNG kits does not, as a general rule, amount to a contravention of Section 3(4)(a), read with Section 3(1) of the Act. Tie-in arrangement Section 3(4)(a) - Lubricants Oils - HELD THAT - In so far as the OP mandates its dealers to use particular oil/lubricants and penalises its dealers where non recommended oils are used, it would amount to tie-in arrangement in contravention of Section 3(4)(a), read with Section 3(1) of the Act. However, for the reasons given in the context of CNG kits (objective justification and legitimate business interest), cancellation of warranty upon use of non- recommended oils/lubricants does not amount to contravention of Section 3(4)(a), read with Section 3(1) of the Act. Tie-in arrangement Section 3(4)(a) - Car Insurance Services - HELD THAT - Mere recommendation that the dealers consider/suggest the insurance companies partnered with the OP will not amount to tie-in arrangement. It is opined that the OP has not violated Section 3(4)(a) of the Act with respect to the allegation that the OP has tied the sale of its cars with selected insurance vendors only. Tie-in arrangement Section 3(4)(a) - Tying the sale of premium vehicles to non-premium - HELD THAT - The DG, did not find contravention of the provisions of Section 3(4)(a) of the Act by HMIL having any arrangement of selling both segment (premium and non-premium) cars. The Commission is in agreement with the conclusion of the DG on this count as the Informants could not adduce any credible evidence to support this allegation. To conclude, The Commission is of the considered view that HMIL has contravened the provisions of Section 3(4)(e) read with Section 3(1) of the Act through arrangements which resulted into Resale Price Maintenance. Such arrangements also included monitoring of the maximum permissible discount levels through a Discount Control Mechanism - HMIL is directed to cease and desist from indulging in conduct that has been found to be in contravention of the provisions of the Act Imposition of monetary penalty - HELD THAT - The starting point of determination of appropriate penalty should be to determine relevant turnover and thereafter, to calculate appropriate percentage of penalty based on facts and circumstances of the case - the Commission notes that the infringing anti-competitive conduct of HMIL in the instant case included putting in place arrangements, which resulted into Resale Price Maintenance by way of monitoring of maximum permissible discount level through a Discount Control Mechanism and a penalty mechanism for non-compliance of the discount scheme. Such conduct pertains to and emanates out of sale of motor vehicles. Hence, for the purposes of determining the relevant turnover for this infringement, revenue from sale of motor vehicles alone has to be taken into account. The Commission decides to impose penalty on HMIL at the rate of 0.3 % of its average relevant turnover of the last three financial years - Tthe Commission imposes a penalty of ₹ 87 crore on HMIL for the impugned conduct in contravention of the provisions of Section 3(1) read with Section 3(4) of the Act - The Commission directs HMIL to deposit the penalty amount within 60 days of receipt of this order.
Issues Involved:
1. Refusal to Deal 2. Resale Price Maintenance (RPM) 3. Tie-in Arrangements (CNG Kits, Lubricants, Car Insurance) 4. Abuse of Dominance (Section 4 of the Act) Detailed Analysis: Refusal to Deal [Section 3(4)(d)]: The DG found that Hyundai Motor India Limited (HMIL) imposed an exclusive supply obligation and refusal to deal through Clause 5(iii) of the Dealership Agreement, which required dealers to seek prior permission before investing in any other business. However, the Commission observed that this clause did not result in de facto exclusivity as many dealers operated competing dealerships without seeking permission. The Commission concluded that Clause 5(iii) did not impose an exclusive supply obligation or refusal to deal, and thus, was not in contravention of Section 3(4)(b) or Section 3(4)(d) read with Section 3(1) of the Act. Resale Price Maintenance [Section 3(4)(e)]: The DG found that HMIL maintained a "Discount Control Mechanism" that fixed the maximum permissible discount levels, effectively creating a minimum resale price. This mechanism restricted intra-brand competition among Hyundai dealers. The Commission noted that such RPM practices can prevent effective competition and result in higher prices for consumers. The Commission concluded that HMIL's Discount Control Mechanism contravened Section 3(4)(e) read with Section 3(1) of the Act. Tie-in Arrangements [Section 3(4)(a)]: 1. CNG Kits: The DG found that HMIL tied the sale of its cars to the purchase of CNG kits from CEV Engineering Private Limited. However, the Commission concluded that cancellation of warranty upon use of non-CEV CNG kits could be objectively justified and did not amount to a contravention of Section 3(4)(a) read with Section 3(1) of the Act. 2. Lubricants: The DG found that HMIL mandated its dealers to purchase lubricants only from designated vendors (IOCL and Shell), foreclosing competition. The Commission concluded that such mandates amounted to a tie-in arrangement in contravention of Section 3(4)(a) read with Section 3(1) of the Act. 3. Car Insurance: The DG found that HMIL mandated the purchase of car insurance through Aditya Birla Insurance Brokers Limited (ABIBL). However, the Commission observed that customers were not mandated to purchase insurance from ABIBL and could choose other insurers. Thus, the Commission concluded that HMIL did not violate Section 3(4)(a) of the Act regarding car insurance. Abuse of Dominance (Section 4 of the Act): The Commission noted that the DG's investigation into HMIL's abuse of dominance under Section 4 was beyond the scope of the Commission's directive, which only pertained to Section 3 violations. As such, the Commission disregarded the DG's findings related to Section 4 of the Act. Conclusion: The Commission concluded that HMIL contravened the provisions of Section 3(4)(e) read with Section 3(1) of the Act through Resale Price Maintenance and Section 3(4)(a) read with Section 3(1) of the Act by mandating the use of specific lubricants. HMIL was directed to cease and desist from these practices. A penalty of ?87 crore was imposed on HMIL, calculated at 0.3% of its average relevant turnover for the last three financial years. The penalty was to be deposited within 60 days of the order.
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