2018 (9) TMI 2121 - AT - Law of Competition

Anti-Competitive Arrangements - Resale Price Maintenance - Discount Control Mechanism - Contravention of provisions of Section 3(4)(e) read with Section 3(1) of the Act 2002 through arrangements which resulted into Resale Price Maintenance - relevant geographic market - HELD THAT - In the present case the DG as well as the Commission has failed to decide the relevant geographic market as also the relevant product market - As per the decision of the Hon ble Supreme Court in Competition Commission of India v. Coordination Committee of Artistes and Technicians of West Bengal Film and Television and Ors 2017 (3) TMI 1692 - SUPREME COURT for inquiring into an alleged contravention the factors mentioned in sub-section (3) of Section 19 is required to be taken into consideration. The Commission has failed to inquire into the agreement in the light of sub-section (3) of Section 19. It has not taken into consideration whether the agreement creates any barrier to new entrants in the market; driving existing competitors out of the market or foreclosure of competition by hindering entry into the market. It has also failed to consider whether the said agreement accrual of benefits to consumers and improvements in production or distribution of goods or provision of services. The relevant geographic market and the relevant product market having not been taken into consideration the inquiry is incomplete being violation of sub-section (6) of Section 19. Section 26 of the Act 2002 prescribes procedure for inquiry under Section 19 but in the present case no such inquiry has been made in terms of Section 19 - the Commission though directed the DG to cause an investigation but thereafter the matter having not closed by the Commission the Commission was required to make inquiry in terms of Section 27 to find out whether any agreement referred to in Section 3 or action of an enterprise is in contravention of the provision. The procedure for inquiry under Section 19 is not a mere formality rather the inquiry by the Commission into an agreement under Section 27 cannot be completed without appreciation of relevant evidence - The DG report is merely an investigation report in terms of subsection (3) of Section 26 but DG s report alone cannot be relied upon or cited for finding and the Commission which is required to make independent analysis based on evidence brought on record. The finding that the Appellant has mandated its dealers to use recommended lubricants/ oils and penalised them for use of nonrecommended lubricants and oils is also not based on any evidence. Nothing brought on the record by the DG or the Commission to suggest that the Appellant penalised one or other dealer for not utilising the recommended lubricants and oils. The Commission has failed to appreciate the evidence and the impugned order not based on any specific evidence and has been passed merely on the basis of opinion of DG. The DG as well as the Commission also failed to decide relevant geographic market or a relevant product market as required under Section 19 (6) (7) of the Act 2002 - the impugned order set aside - appeal allowed.

Summary

Issues Involved:
1. Contravention of Section 3(4)(e) read with Section 3(1) of the Competition Act, 2002 (Resale Price Maintenance).
2. Contravention of Section 3(4)(a) read with Section 3(1) of the Competition Act, 2002 (Mandating use of recommended lubricants and oils).
3. Allegations of exclusive dealership arrangements and refusal to deal.
4. Allegations of price collusion and hub-and-spoke arrangements.
5. Determination of relevant market.
6. Violation of principles of natural justice.
7. Inquiry procedure under Section 19 and Section 26 of the Act.

Detailed Analysis:

1. Contravention of Section 3(4)(e) read with Section 3(1) of the Competition Act, 2002 (Resale Price Maintenance):

The Commission held that Hyundai Motor India Limited (Hyundai Motor) contravened these provisions through arrangements resulting in Resale Price Maintenance (RPM). The DG's report noted that Hyundai Motor fixed the ex-showroom price of cars and maintained a "Discount Control Mechanism" which restricted the maximum discount dealers could offer to consumers. The Commission observed that Hyundai Motor engaged in various mystery shopping agencies to police its dealers and monitor the arrangement. However, the judgment criticized the Commission for not citing specific evidence to support these conclusions, relying solely on the DG's report, which is not permissible.

2. Contravention of Section 3(4)(a) read with Section 3(1) of the Competition Act, 2002 (Mandating use of recommended lubricants and oils):

The Commission found Hyundai Motor guilty of mandating its dealers to use recommended lubricants and oils and penalizing them for using non-recommended ones. The judgment pointed out contradictions in the Commission's findings, noting that while the Commission initially stated that cancellation of warranty upon use of non-recommended oils does not amount to contravention, it later concluded that Hyundai Motor contravened Section 3(4)(a) read with Section 3(1) by mandating the use of recommended lubricants. The judgment highlighted the lack of evidence to suggest that Hyundai Motor penalized dealers for not using recommended lubricants.

3. Allegations of exclusive dealership arrangements and refusal to deal:

The 1st Informant alleged that Hyundai Motor entered into exclusive dealership arrangements, requiring dealers to obtain prior consent before taking up other brand dealerships. The 2nd Informant alleged that Clause 5(iii) of the Dealership Agreement prohibited dealers from investing in other businesses, amounting to "refusal to deal" under Section 3(4)(d). The Commission noted that Clause 5 did not strictly set out an exclusivity obligation but required prior written permission from Hyundai Motor. The judgment criticized the Commission for not discussing evidence or agreements to substantiate these allegations.

4. Allegations of price collusion and hub-and-spoke arrangements:

The 1st Informant alleged that Hyundai Motor was responsible for price collusion among competitors through hub-and-spoke arrangements. The judgment did not find substantial discussion or evidence in the Commission's findings to support this allegation.

5. Determination of relevant market:

The DG defined multiple relevant markets for different contraventions, but the Commission rejected these definitions, delineating two markets: the upstream product market (all passenger cars) and the downstream product market (dealership and distribution of Hyundai cars). The judgment criticized the Commission for failing to decide the relevant geographic and product markets as required under Section 19(6) and (7) of the Act. It highlighted the need to identify competitive constraints and actual competitors, which the Commission failed to do.

6. Violation of principles of natural justice:

The Appellant argued that the Commission failed to provide notice of disagreement with the DG's report regarding the relevant market. The judgment did not delve into this issue, focusing instead on the lack of evidence and proper inquiry.

7. Inquiry procedure under Section 19 and Section 26 of the Act:

The judgment emphasized that the Commission failed to conduct a proper inquiry under Section 19 and Section 26 of the Act. It noted that the DG's report is merely an opinion to assist the Commission, which must independently analyze evidence. The Commission's reliance solely on the DG's findings without discussing specific evidence was deemed impermissible.

Conclusion:

The judgment set aside the impugned order dated 14th June 2017, criticizing the Commission for not basing its findings on specific evidence and relying solely on the DG's report. It highlighted the failure to determine the relevant market and conduct a proper inquiry under Section 19 and Section 26 of the Act. The Appellant was entitled to a refund of any amount deposited pursuant to the interim order dated 18th July 2017, with no order as to costs.