2018 (3) TMI 1996 - Commission - Indian Laws

Abuse of dominant position in the market for manufacture and sale of scooters in India - Contravention of the provisions of Sections 3 and 4 of Competition Act, 2002 - Restriction on the purchase of oils and consumables - Restriction on the purchase of accessories - Refusal to deal with any competing product - Restriction on Annual Maintenance Contract (AMC), Extended Warranty (EW) and Road Side Assistance (RSA) - Deliberate deduction from dealer s account to fund advertising expenses - Compulsory off-loading of stock and slow moving models - Compulsory billing of merchandise - Restriction regarding the sale of batteries - Exclusive arrangements with financers and insurance partners - Re-sale price maintenance and discount control mechanism - Fixation of limits of geographic operation - Enforcing hub and spokes arrangement by negatively evaluating dealers - Termination of dealership and refusal to take back stock? Whether the OP enjoys a dominant position in any relevant market. HELD THAT - The Commission is prima-facie satisfied that the restrictions imposed by the OP for sale of oil, lubricants and batteries are unfair and in contravention of Section 4(2) (a)(i) of the Act. Similarly, the condition for mandatory purchase of accessories, merchandise items, forceful billing of slow moving vehicles, compulsory deduction of advertising expenses, restrictions on insurance and finance options, making purchase of AMC, EW and RSA contingent upon purchase of booklets from Corporate India Warranties (I) Private Limited, termination of dealership without prior notice and refusal for stock buyback appear to be unfair and suggest prima-facie contravention of Section 4(2) (a)(i) of the Act. The Commission is also prima-facie satisfied that the Dealership Agreement has been concluded with the said supplementary obligations which, by their nature or commercial usage, have no connection with the subject of the contract. Thus, the Commission is of the prima-facie view that the conduct of the OP merits examination under Section 4(2) (d) of the Act - The Commission also notes that the mandatory requirement imposed by the OP on its dealers for purchase of oil and consumables, genuine accessories, AMC, EW and RSA, advertising services, merchandise items, batteries, insurance and finance options, from designated sources; resale price maintenance and discount control mechanism; allocation of any area or market for the disposal or sale of the goods; and exclusive supply agreement/refusal to deal; also appear to be in the nature of anti-competitive restraints covered under section 3(4) of the Act. Prima-facie, a case of contravention of the provisions of Section 4 and 3(4) of the Act is made out against the OP. The Director General (DG) is directed to cause an investigation to be made into the matter and to complete the investigation within a period of 60 days from receipt of this order - Nothing stated in this order shall tantamount to expression of final opinion on the merits of the case and the DG shall conduct the investigation without being swayed in any manner whatsoever by the observations made herein. The Secretary is directed to send a copy of this order along with the information and the documents filed therewith to the Office of the DG forthwith.

Summary

Issues Involved:
1. Alleged contravention of Sections 3 and 4 of the Competition Act, 2002.
2. Dominant position of Honda Motorcycle and Scooter India Private Limited (OP) in the relevant market.
3. Imposition of unfair conditions and tie-in arrangements by the OP.
4. Exclusive supply agreements and refusal to deal.
5. Resale price maintenance and discount control mechanism.
6. Territorial restrictions and geographic operation limits.
7. Termination of dealership and refusal to repurchase stock.

Detailed Analysis:

1. Alleged Contravention of Sections 3 and 4 of the Competition Act, 2002:
The Informant alleged that the OP contravened Sections 3 and 4 of the Act by imposing several anti-competitive conditions through the Dealership Agreement. These include tie-in arrangements, resale price maintenance, and unfair conditions, thereby abusing its dominant position in the market.

2. Dominant Position of Honda Motorcycle and Scooter India Private Limited (OP) in the Relevant Market:
The Commission analyzed the relevant product and geographic markets. It concluded that motorcycles and scooters constitute two different relevant product markets due to differences in characteristics and consumer preferences. The relevant geographic market was identified as India. The OP was found to have a dominant position in the 'market for manufacture and sale of scooters in India' with a market share ranging between 43.30% and 56.82%.

3. Imposition of Unfair Conditions and Tie-in Arrangements by the OP:
The OP allegedly imposed several unfair conditions on the Informant, such as mandatory purchase of oil and lubricants from designated vendors at higher prices, mandatory purchase of accessories, and compulsory use of specific batteries. These conditions were enforced through threats of penalties and termination of the dealership, which prima facie contravenes Section 4(2)(a)(i) of the Act.

4. Exclusive Supply Agreements and Refusal to Deal:
The OP required the Informant to source oil, lubricants, accessories, and other items only from designated sources, limiting the Informant's ability to procure similar items from other sources at cheaper prices. This restriction is in the nature of an exclusive supply agreement and refusal to deal, contravening Sections 3(4)(b) and 3(4)(d) read with Section 3(1) of the Act.

5. Resale Price Maintenance and Discount Control Mechanism:
The OP implemented a resale price maintenance mechanism, restricting the discounts that dealers could offer to customers. This practice, including monitoring and penalizing dealers for non-compliance, was found to contravene Section 3(4)(e) read with Section 3(1) of the Act.

6. Territorial Restrictions and Geographic Operation Limits:
The OP allocated specific areas for its dealers and restricted them from selling vehicles outside these designated areas. This territorial restriction affects intra-brand competition and creates barriers to entry, contravening Section 3(4)(c) read with Section 3(1) of the Act.

7. Termination of Dealership and Refusal to Repurchase Stock:
The OP terminated the Informant's dealership without prior notice and refused to repurchase the stock held by the Informant. This action, along with other unfair conditions imposed by the OP, suggests a prima facie contravention of Section 4(2)(a)(i) of the Act.

Conclusion:
The Commission found prima facie evidence of contravention of Sections 3 and 4 of the Act by the OP and directed the Director General to conduct an investigation within 60 days. The findings are not a final opinion on the merits of the case, and the investigation should proceed independently of the observations made in the order.