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TMI Blog2018 (3) TMI 1996X X X X Extracts X X X X X X X X Extracts X X X X ..... rictions 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, mer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (b) The OP is a wholly owned subsidiary of Honda Motor Company Ltd, Japan and is engaged in the business of manufacturing of two-wheelers in India. It is claimed that the OP is the second largest and fastest growing two-wheelers company in India. (c) In 2015-16, the OP missed out being the top two-wheeler seller by 20,000 units to Hero Splendor and recorded a year on year increase, thereby demonstrating that it commands a large market share. Between February and July, 2016, Honda Activa outsold Hero Splendor and its sales grew at the rate of 16-19 percent in contrast to tepid growth of Hero Splendor. The OP consistently outsold Hero Motorcorp Ltd. even in the motorcycle segment which is evident from its sales figures for the period November, 2015 to June, 2016. The rate of the OP s growth in August, 2015 was 27 percent, with Honda Activa outselling Hero Splendor. Thus, the OP stood as the second largest market share holder in the market of two-wheelers and the market leader in the market for scooters with a market share of 59.1 percent. (d) The OP is alleged to have perpetuated tie-in arrangements, imposed resale price maintenance and maintained a discount control m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the higher side and the dealers were prohibited from offering the same products to the customers at a cheaper rate. The OP tracked the usage of AMC, EW and RSA by issuance of booklets published by Corporate India Warranties (I) Pvt. Ltd. The purchase of AMC, EW and RSA was contingent upon the purchase of the said booklets, which on an average costed Rs. 350 per booklet. Further, the OP derived huge amount of royalties from the sale of AMC, EW, RSA booklets. Such conduct amounts to contravention of Section 3(4) read with Section 3(1) in addition to Section 4(2) of the Act. (e) Deliberate deduction from dealer s account to fund advertising expenses: The OP had made the dealers bear the advertising cost even though the OP itself releases the advertisement. The advertisement fund is dependent upon the number of dispatches in the relevant period in the area. The OP has an exclusive arrangement with M/s Goldmine Advertising and the dealers are prohibited from dealing with any other advertising agency at a cheaper rate. Forcing dealers to enter into a tie-in arrangement of exclusively availing advertising services from M/s Goldmine Advertising is in contravention of Section 3(4) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ls 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 end-consumers and distorts the market forces. (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 fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f examining the case under Section 4 of the Act, it would be relevant to take into account whether the OP enjoys a dominant position in any relevant market. 5.3. The Informant has submitted that the relevant product market in the present case can be defined as the market for two-wheelers as consumers view scooters and motorcycles to be substitutable and both the category of vehicles are sold through a common dealership. As regards the relevant geographic market, the Informant has submitted that two-wheelers can be purchased across India at the same ex-showroom price with the introduction of GST. Further, the conditions of competition for sale of two-wheelers are uniform across India and thus, the relevant geographic market may be the territory of India. 5.4. The Commission observes that although the intended use of motorcycles and scooters is same to a large extent, yet they are different from each other in terms of their characteristics such as speed, mileage, appearance, etc. Further, the taste and preferences of consumers play an important role in delineation of the relevant product market. For example, younger generation may prefer motorcycles over scooters, whereas the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ost 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 . 5.7. The Commission has given a careful examination to the alleged imposition of several unfair conditions on the Informant through the Dealership Agreement which merit examination as abuse of dominant position in the market for manufacture and sale of scooters in India . 5.8. It appears that the OP has made it mandatory for the Informant and other dealers to purchase oil and lubricants only from two vendors namely: M/s. Idemitsu Lube India and Tide Water Oil Company (India) Ltd and that too at a price higher than the prevalent market price. Further, the Commission observes that vide circular dated 25th February, 2014, the OP has made it mandatory for the dealers to purchase Honda genuine engine oil through the OP s authorised vendors only. The Commission further notes that through Clause 10.13(c) of the Dealership Agreement, the OP has made it mandatory for the dealers to adhere to the instructions and guidelines on purchase of spare parts, accessories, various consumable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urther, the OP has an agreement with M/s Goldmine Advertising and the dealers cannot deal with any other advertising agency. The Informant also has to accept all dispatched vehicles by the OP as the OP debits the Informant s account and the Informant is left with no choice. The OP also allegedly gave threats of cancellation of dealership and confiscation of the security deposit by the Informant. The OP 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. 5.11. Based on above, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, 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 Comm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 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, ir ..... 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