Competition Commission of India
Antitrust - Section 27 Disclaimer: The ... vs Honda Siel Cars India Ltd. & Others. ... on 27 July, 2015
COMPETITION COMMISSION OF INDIA
Case No. 03/2011
Date: 27/07/2015
In re:
Shri Shamsher Kataria Informant
And
Honda Siel Cars India Ltd.
Volkswagen India Pvt. Ltd.
Fiat India Automobiles Ltd.
BMW India Pvt. Ltd.
Ford India Pvt. Ltd.
General Motors India Pvt. Ltd.
Hindustan Motors Ltd.
Hyundai Motor India Ltd.
Mahindra & Mahindra Ltd.
Mahindra Reva Electric Car Company (P) Ltd.
Maruti Suzuki India Ltd.
Mercedes-Benz India Pvt. Ltd.
Nissan Motor India Pvt. Ltd.
Premier Ltd.
Skoda Auto India Pvt. Ltd.
Tata Motors Ltd.
Toyota Kirloskar Motor Pvt. Ltd.
(collectively, the 'Opposite Parties')
CORAM
Mr. Ashok Chawla
Chairperson
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Mr. S.L. Bunker
Member
Mr. Sudhir Mittal
Member
Mr. Augustine Peter
Member
Mr. U.C. Nahta
Member
Appearances:
For Hyundai Motor India Ltd:
Shri Amitabh Kumar, Advocate;
Shri Samir Agrawal, Advocate;
Shri Vaibhav Choukse, Advocate;
Shri B.C. Dutta;
Shri D. Suresh;
Shri Prasahnt; and
Shri Mehar Shrinivas.
For Mahindra Reva:
Ms. Avaantika Kakkar, Advocate;
Ms. Anisha Chand, Advocate;
Shri Dhruv Rajain, Advocate; and
Shri Devjeet Ghosh
For Premier Ltd.
Shri Ravisekhar Nair, Advocate; and
Ms. Krushika Nayan Choudhary, Advocate.
C. No. 03 of 2011 Page 2 of 58
ORDER UNDER SECTION 27 OF THE COMPETITION ACT, 2002
1. Factual Background
1.1 The information in the present case was filed by Shri Shamsher Kataria
(hereinafter, referred to as the "Informant") under Section 19 (1)(a) of the
Competition Act, 2002 (hereinafter, referred to as the "Act") on 18.01.2011
against Honda Siel Cars India Ltd., Volkswagen India Pvt. Ltd. and Fiat
India Automobiles Ltd., alleging anti-competitive practices on the part of
these three car manufacturers, whereby the genuine spare parts of
automobiles manufactured by them were not made freely available in the
open market.
1.2 The Commission considered the matter and on perusal of the material on
record, passed prima facie order dated February 24, 2011 under section
26(1) of the Act directing the Director General (hereinafter, referred to as
the "DG") to conduct an investigation into the matter and submit his
investigation report.
1.3 From the preliminary enquiries made during the investigations, the DG
opined that other automobile manufactures or Original Equipment
Manufacturers (hereinafter referred to as "OEMs") (other than the three car
manufacturers named by the Informant) might also be indulging in similar
restrictive trade practices with respect to after sales service, procurement and
sale of spare parts from the Original Equipment Suppliers (hereinafter
referred to as "OES"), setting up of dealerships etc. It appeared that the case
involved a much larger issue relating to the prevalence of anti-competitive
conduct by the automobile players in the Indian automobile sector and its
implications on the consumers at large. Consequently, the DG proposed
before the Commission that the investigation should not be restricted to the
3 car manufacturers alone and it should be expanded to examine the alleged
C. No. 03 of 2011 Page 3 of 58
anti-competitive trade practices of all car manufacturers in India, as per the
list maintained by the Society of Indian Automobile Manufacturers
("SIAM").
1.4 The Commission considered the abovementioned request of the DG and,
vide order dated 26.04.2011, approved the request to initiate investigation
against 14 other OEMs operating in India (in addition to the three car
manufacturers named in the information filed by Shri Shamsher Kataria).
These 14 OEMs were:
1) BMW India Pvt. Ltd. (hereinafter, referred to as "BMW")
2) Ford India Pvt. Ltd. (hereinafter, referred to as "Ford")
3) General Motors India Pvt. Ltd. (hereinafter, referred to as "GM")
4) Hindustan Motors Ltd. (hereinafter, referred to as "Hindustan Motors")
5) Hyundai Motor India Ltd. (hereinafter, referred to as "Hyundai" or "HMIL")
6) Mahindra & Mahindra Ltd. (hereinafter, referred to as "M&M")
7) Mahindra Reva Electric Car Company (P) Ltd. (hereinafter, referred to as
"Reva")
8) Maruti Suzuki India Ltd. (hereinafter, referred to as "Maruti")
9) Mercedes-Benz India Pvt. Ltd. (hereinafter, referred to as "Mercedes")
10) Nissan Motor India Pvt. Ltd. (hereinafter, referred to as "Nissan")
11) Premier Ltd. (hereinafter, referred to as "Premier")
12) Skoda Auto India Pvt. Ltd. (hereinafter, referred to as "Skoda")
13) Tata Motors Ltd. (hereinafter, referred to as "Tata")
14) Toyota Kirloskar Motor Pvt. Ltd. (hereinafter, referred to as "Toyota")
1.5 After considering the investigation report submitted by the DG, the
Commission decided to forward copies thereof to all the 17 Opposite Parties
for filing their replies/objections thereto vide its order dated 04.09.2012.
Pursuant to that, Reva and Premier filed applications dated 01.02.2013 and
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21.12.2012 respectively under Regulation 26 of the Competition
Commission of India (General) Regulations, 2009 (hereinafter referred to as
the „General Regulations‟) requesting for striking out of their names from
the array of parties. The Commission decided to dispose of these
applications with the final order. With regard to Hyundai, a Writ Petition
No. 31808/2012 (hereinafter referred to as the "Writ Petition") was filed by
it before the Madras High Court challenging the jurisdiction of the
Commission. Madras High Court granted an ex parte stay in the matter vide
its interim order dated 06.02.2013 and, therefore, the matter could not be
proceeded qua Hyundai also.
1.6 Therefore, the Commission vide its order dated 25.08.2014 under Section 27
of the Act (hereinafter referred to as the "Main Order") had inter alia
imposed penalties only on fourteen out of the seventeen Opposite Parties
(OPs). For the reasons recorded in the preceding paragraph, the order of the
Commission has remained pending against Hyundai, Reva and Premier
(hereinafter referred to as the "present Opposite Parties") as the Commission
decided to pass separate order against the present Opposite Parties after
affording them reasonable opportunity to make their submissions in respect
of the findings in the DG report and queries raised by the Commission. The
relevant excerpt from the Main Order in this context is reproduced below:
'The Commission makes it clear at this stage that the present order governs
the alleged anti-competitive practices and conduct of OPs (1-14) only. The
Commission shall pass separate order in respect of three car manufacturers,
viz., Hyundai, Reva and Premier after affording them reasonable
opportunity to make their submissions in respect of the findings of the DG
report and queries raised by the Commission. Keeping this in mind, the
findings of the DG report and contentions raised, if any, in respect of these
three OPs have not been dealt with in this order.' (Para 3.8)
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1.7 In accordance with that decision, subsequently, the Commission vide its
order dated 05.11.2014 directed Hyundai, Reva and Premier to appear
before the Commission for oral hearing and asked them to file their
respective written submissions/objections in response to the DG report, if
any.
1.8 Accordingly, the present Opposite Parties appeared before the Commission
and also filed their written submissions. Before dealing with the written
submissions and oral arguments made by the present Opposite Parties, the
Commission deems it appropriate to elucidate the findings of the DG with
respect to these Opposite Parties.
2. Findings of the DG
2.1 In the Main Order, the Commission has already recorded the overall findings
of the DG as enshrined in the main report and specific findings with regard
to 14 OEMs. Since the general findings of the DG, as contained in the main
DG Report is representative of the specific findings of the DG, as contained
in each of the sub-reports, the same should be read as part of this order.
Similarly, the present order of the Commission should also be read as part of
the Main Order. For the sake of brevity, the general findings of the DG, as
recorded in that order, are not reproduced here in detail. The present order
contains brief and succinct discussion of the main DG report and the
respective sub-reports, dealing with each of the present Opposite Parties i.e.
Hyundai, Reva and Premier.
Findings of the Main DG report
2.2 The DG Report identified two separate markets for the passenger vehicle
sector in India--the primary market, consisting of the manufacture and sale
of passenger vehicles and the secondary market (After-Sales Markets),
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comprising of the complementary products or secondary products which is
complementary to and derived from the primary product (i.e., spare parts for
passenger vehicles). The DG report has further identified the two sub
segments of the aftermarket for passenger vehicles in India, as follows:
(a) Supply of spare parts, including diagnostic tools, technical manuals,
catalogues etc for the aftermarket usage; and
(b) Provision of aftersale services, including servicing of vehicles,
maintenance and repair services.
2.3 The second question which the DG has dealt with was to analyze whether
the aftermarket segments described above constitute distinct relevant
product markets or whether the products in the primary market (i.e. cars) and
the products in the aftermarket (i.e., repair services and spare parts)
constitute a single market i.e. part of one indivisible „system‟ of products
consisting of a durable primary product and a complementary secondary
product.
2.4 After conducting detailed analysis and providing cogent reasons, the DG
concluded that the spare parts market for each brand of cars comprising of
vehicle body parts (manufactured by each OEM, spare parts sourced from
the local OESs or overseas suppliers), specialized tools, diagnostic tools,
technical manuals for the aftermarket service together formed a distinct
relevant product market. With regard to the question as to whether
maintenance and repair services of the products in the primary market
constitute a separate relevant market, the DG has concluded that after sale
repair and maintenance services constitute a distinct relevant product
market. The DG‟s investigation has further revealed that the spare parts for a
particular brand of vehicle were available through the authorized dealers of
the respective OEMs in any part of India and hence concluded that the
relevant geographic market would be „India‟.
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2.5 The DG has further found that each OEM is a dominant player in the
relevant market of supply of spare parts (including those manufactured in-
house, sourced from overseas or obtained from local OESs), diagnostic
tools, technical manuals, software, etc. required to repair and maintain their
respective brand of automobile.
2.6 Since the diagnostic tools were not sold directly in the aftermarket by the
manufacturer of these tools due to restrictions in the agreement or
arrangements between the OEMs and such equipment manufacturers, the
DG found each OEM to be the only viable source of supply of these
specialized tools, technical manuals, fault codes, etc., for their respective
brand of automobiles and hence dominant.
2.7 Finding the conduct of the OEMs abusive, the DG has further observed that
in the absence of availability of genuine spare parts, diagnostic tools,
technical manuals etc. in the open market, the ability of the independent
repairers to offer repair and maintenance services to the vehicle owners and
effectively compete with the authorized dealers of the OEMs for similar
services was severely hampered. Such conduct was found to be in
contravention of section 4(2)(a)(i) and 4(2)(c) of the Act, as it amounts to an
imposition of unfair condition and denial of market access to independent
repairers by OEMs. Further, as per the DG, each OEMs used their dominant
position in the market for the supply of their spare parts to protect their
dominance in the market for repair and maintenance services for their
respective brands of automobiles which amounted to a violation of section
4(2)(e) of the Act.
2.8 The DG‟s investigation also revealed that each OEM had substantially
escalated the price of spare parts, for their respective brands of automobiles
C. No. 03 of 2011 Page 8 of 58
which showed their ability of imposing unfair prices in the sale of spare
parts in terms of section 4(2)(a)(ii) of the Act.
2.9 The DG has further concluded that the essential facilities doctrine is
applicable to the restrictive practices adopted by the OEMs, as the OEMs
have put the independent repairers at a distinct disadvantageous position and
have jeopardized their ability to undertake repairs of the automobiles
manufactured by the OEMs by not making spare parts and diagnostic tools
available to them.
2.10 The DG has also examined the agreements/letters of intent entered into
between the OEMs and the OESs and found that most of such
agreements/letters of intent had clauses which restricted the ability of the
OESs to supply spare parts directly to third parties or in the aftermarket
without the prior written consent of the OEMs. The DG has found that none
of the present Opposite Parties held valid Intellectual Property Rights (IPRs)
for any of their spare parts in India to claim exemption under section 3(5)(i)
of the Act. Agreements between OEMs and the local OESs were found to
contain exclusive distribution agreements and refusal to deal clauses which
are in contravention of the provisions of section 3(4)(c) and (d) of the Act,
respectively.
2.11 The DG during the course of the investigation also found that a large number
of OEMs, particularly those having foreign affiliations, were sourcing large
number of spare parts from overseas suppliers and such overseas suppliers
were not supplying spare parts to any entities apart from the OEMs. The DG,
therefore, concluded that in such situations there may be a possibility of the
existence of an unwritten arrangement between the OEMs and the overseas
suppliers for ensuring that the spare parts are supplied to the OEMs or its
authorized vendors only, which would be in violation of section 3(4)(c) and
3(4)(d) of the Act.
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2.12 With regard to the agreements between the OEMs and their authorized
dealers, the DG has found that certain clauses of the agreements specifically
restricted the sale of spare parts over the counter to third parties, which were
in the nature of exclusive distribution agreements and amounted to refusal to
deal under section 3(4)(c) and 3(4)(d) of the Act. Further, the DG has
observed that, though certain agreements entered between the OEMs and their
authorized dealers did not contain specific terms restricting the sale of spare
parts in the open market, he concluded that there was an unwritten
understanding or arrangement between such dealers and the OEMs, contrary
to section 3(4)(b) of the Act as the dealers were found to be not selling spare
parts in the open market.
2.13 The dealer agreements entered by and between the OEMs and their authorized
dealers also contained restrictions on dealing with competing brand of cars
and the dealers had to obtain the consent of respective OEMs in writing prior
to entering into agreements with competitor brands.
2.14 The DG has analyzed the appreciable adverse effect on competition
("AAEC") owing to the practices adopted by the OEMs in each of the
secondary markets of spare parts and repair and maintenance services. The
DG has found that there was AAEC on competition in terms of section 19(3)
of the Act in the market of spare parts for each OEM on account of the
restrictions such as exclusive supply agreements, refusal to deal and exclusive
distribution agreements.
C. No. 03 of 2011 Page 10 of 58
3. Findings of the DG with respect to Hyundai/HMIL
3.1 As per the DG‟s investigation report, Hyundai is a 100% subsidiary of M/s
Hyundai Motor Company, South Korea (HMC) and was incorporated in the
year 1996. Hyundai is involved in the manufacture and sale of motor
vehicles, spare parts, after sales and related activities. The wholesale
distribution and supply chain solutions for Hyundai are currently being
provided by M/s MOBIS India Ltd. ("MIL"). As such, the after sales market
for spare parts of Hyundai brand of cars is catered to by MIL. The DG has
been informed that MIL is a subsidiary of Mobis Korea which is a part of
the Hyundai group and is engaged in the distribution of spare parts in several
countries for HMC. Mobis Korea, as part of its global spare part
management strategy, handles supply of spare parts in all the countries
where Hyundai cars are sold.
3.2 The specific findings of the DG against the alleged anti-competitive
practices of Hyundai are summarized below:
3.3 Hyundai has entered into a technology and royalty agreement with HMC for
supply of spare parts for its operations in India. On perusal of the said
agreement, though the DG could not discover the existence of any clause(s)
which prohibits the ability of the overseas supplier from selling directly to
the aftermarket in India, the DG has reported that, "the fact that the overseas
supplier is the parent company of Hyundai and only supplies spare parts to
MIL (a group company of Hyundai for dealing with aftermarket
requirements in India), indicates the existence of an arrangement between
Hyundai and the overseas supplier for not supplying spare parts directly into
the Indian aftermarket."
3.4 The DG, after reviewing Hyundai‟s basic purchase agreement (entered with
the OESs for supply of spare parts) and other purchase orders executed by
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Hyundai for procuring of spare parts from various OESs in India, found that
such agreements contained clauses which restricted the OESs from
supplying spare parts directly to the aftermarket. Such restrictions appeared
to be due to use of drawings and designs of Hyundai.
3.5 Further, based upon the submissions made by independent repairers and
multi-brand retailers, the DG found that, in most cases, the dealers refused to
sell spare parts in the open market and spare parts of only certain car models
were made available over the counter.
3.6 It was also discovered during the course of DG‟s investigation that the
authorized dealers are being permitted to source spare parts from Hyundai
directly or from its authorized vendors but not from the OESs who
themselves supplied spare parts to Hyundai.
3.7 Further, the DG has found that during the warranty period, owners of
Hyundai cars are totally dependent on its authorized network as the warranty
extended is liable to be invalidated if a Hyundai car is repaired by an
independent repairer.
3.8 Further, ability of the Hyundai dealers to deal in competing brands was also
restricted. Hyundai‟s dealers are not permitted to deal with competing
brands without seeking the prior permission of the OEM. The DG could not
come across a single instance wherein such permission has been granted.
3.9 Further, the price mark up for top 50 spare parts in terms of revenue
generated is observed to be in the range of 28.26% - 502.76% and price
mark-up of top 50 spare parts on the basis of consumption is observed to be
in the range of 50.04% - 644.68%.
C. No. 03 of 2011 Page 12 of 58
3.10 Though Hyundai has justified its restrictions on the basis of IPR and safety
issues, it has failed to establish before the DG that it possesses valid IPRs in
India, with respect to its spare parts for which restrictions are being imposed
upon OESs.
3.11 Further, the DG has opined that refusal to supply diagnostic tools and spare
parts by Hyundai to independent repairers amounts to denial of access to an
"essential facility".
3.12 The DG has concluded that the restrictions imposed upon the OESs and the
authorized dealers, coupled with the restrictions on the independent repairers
(non-availability of spare parts and diagnostic tools used for repairing of
Hyundai brand cars) amounts to not only imposition of unfair terms under
section 4(2)(a)(i) but also denial of market access under section 4(2)(c) of
the Act. Further, the DG has opined that the substantial price margin earned
on spare parts amounts to unfair pricing within the meaning of section
4(2)(a)(ii) of the Act.
3.13 The DG has also found that Hyundai has leveraged its dominance in one
relevant market (i.e., supply of spare parts) to protect the other relevant
market (i.e. market for repair services) in violation of section 4(2)(e) of the
Act.
3.14 The DG has also found that Hyundai is in violation of section 3(4)(c) and
3(4)(d) of the Act, for not allowing its authorized dealers to deal with
competing brands of cars and not allowing them to sell spare parts and
diagnostic tools to the independent repairers.
3.15 Further, the DG has found that the agreements entered with the authorized
dealers contain restrictive clauses requiring the dealers to source the spare
parts only from Hyundai or its authorized vendors. The DG has found these
C. No. 03 of 2011 Page 13 of 58
agreements in the nature of exclusive supply agreements in violation of
section 3(4)(b) of the Act.
4. Findings of the DG with respect to Reva
4.1 Reva is a subsidiary of M/s Mahindra and Mahindra which holds 55% stake
in Reva. It has been gathered from the public domain that Reva, formerly
known as the Reva Electric Car Company ("RECC"), is an Indian company
based in Bangalore, involved in designing and manufacturing of compact
electric vehicles. The company‟s flagship vehicle is the Reva electric car,
available in 24 countries with more than 4,000 vehicles sold worldwide.
Reva was acquired by the Indian conglomerate M&M in May 2010. The
company has its manufacturing facility at the Bommasandra Industrial Area,
Bangalore. The company has submitted that it has engaged dealers of M&M
to deal in Reva cars and has a dealership network of 25 dealers across the
country.
4.2 The specific findings of the DG against the alleged anti-competitive
practices of Reva are summarized below:
4.3 During the course of investigation, the DG has found that Reva has executed
purchase orders with overseas suppliers for supplying of spare parts for its
operations in India. On perusal of the purchase orders, it was found that such
overseas suppliers are restricted from supplying spare parts (which have
been manufactured based on the designs supplied by Reva) directly into the
aftermarket in India.
4.4 With regard to the agreements with the local OES, the DG has found that
OESs are restricted from selling spare parts manufactured based on design,
drawing etc. supplied by Reva to other entities and in the open market. With
C. No. 03 of 2011 Page 14 of 58
respect to agreements entered with authorized dealers, the DG has analyzed
the Letter of Intent ("LOI") but did not find any clause pertaining to the
rights of dealers to undertake over the counter sales of spare parts. In actual
practice, it was found by the DG that there was only limited availability of
spare parts in the open market and there appeared to be an understanding
between Reva and its dealers prohibiting the sale of spare parts over the
counter.
4.5 Further, the DG also discovered that, contrary to the contentions of Reva,
the dealers of Reva were not permitted to deal with competing brands of cars
in any manner without seeking the prior permission of Reva and no such
permission had been granted in any instance by Reva.
4.6 Further, the users of Reva brand cars would stand to lose their warranty if
they avail the services of independent repairers.
4.7 The Price mark up for 38 out of top 50 spare parts in terms of revenue
generated is observed to be in the range of (-) 66.74% to 797.33% and price
mark up of 42 out of top 50 spare parts on basis of consumption is observed
to be in the range of (-) 66.74% to 1180.42%.
4.8 The DG found that the non-availability of diagnostic tools and spare parts
necessary to repair the Reva cars hampered the ability of independent
repairers to effectively compete with the authorized dealers of Reva. Refusal
to supply such diagnostic tools and spare parts was found by the DG to
amount to denial of access to an "essential facility".
4.9 Further, as per the DG‟s investigation, given the restricted availability of
spare parts in the open market, non-availability of diagnostic tools and
technical manuals, the ability of independent repairers to undertake repairs
C. No. 03 of 2011 Page 15 of 58
and maintenance service of the vehicles of Reva and effectively compete
with the authorized dealers of Reva is significantly reduced, thereby
amounting to denial of market access in terms of section 4(2)(c) and
imposition of unfair condition on independent repairers in terms of section
4(2)(a)(i) of the Act. The pricing of spare parts has also been found to be
unfair in terms of section 4(2)(a)(ii) of the Act.
4.10 Reva is also found to be using its dominant position in the relevant market
for supply of spare parts to enter and protect the relevant market for after
sales services in contravention of section 4(2)(e) of the Act.
4.11 The DG has also found that the agreements/arrangements entered by Reva
with the OESs, overseas suppliers and authorized dealers are in the nature of
exclusive supply, exclusive distribution and refusal to deal as contained in
section 3(4)(b), 3(4)(c) and 3(4)(d) of the Act.
5. Findings of the DG with respect to Premier
5.1 Premier is promoted by M/s Doshi Holding Pvt. Ltd., holding 43.36% of the
voting capital in Premier. The company is, inter-alia, engaged in the
businesses of manufacturing CNC machines, heavy engineering and
automotives. The company also sells CNC machines, components for wind
mills, auto components etc. The company operates in the automotive
business segment and manufactures sports utility vehicles (SUV) and light
commercial vehicles (LCV). Premier‟s manufacturing facility is located at
Chinchwad, Pune. The company has 53 automobile dealers which are
located in 53 cities.
5.2 The specific findings of the DG against the alleged anti-competitive
practices of Premier are summarized below:
C. No. 03 of 2011 Page 16 of 58
5.3 The DG has reviewed the LOI executed by Premier with the local OESs for
supplying of spare parts for Premier‟s assembly line and aftermarket
requirements and has found that the LOI contains clauses that restrict the
OESs from supplying spare parts directly into the aftermarket. The DG has
observed that the clause of the LOI require that all the spare part
requirements shall be met through Premier and its authorized agents.
Although Premier had maintained that its spare parts were freely available
over the counter, it was not able to substantiate the said claim in any manner.
Further, Premier has claimed that its consumers were under the warranty
period at that time and therefore the need for over the counter sales has not
arisen yet.
5.4 Further, the warranty conditions of Premier were found to be such that the
owners of Premier cars stand to lose their warranty if they avail the services
of independent repairers. Premier has claimed that it is open to
technologically support the independent repairers, but as the cars sold by it
are all within the warranty period and are not being catered by independent
repairers, such contention of Premier remained untested.
5.5 The DG, during the course of the investigation, did not discover any
restrictions being imposed upon the dealers of Premier from dealing with
competing brands.
5.6 The DG could not find out as to whether Premier has marked up the price of
its spare parts since Premier was not able to provide the prices of its top 50
spare parts as it had just started the initial market seeding of its vehicles for
trial and consumer feedback and related data was not available.
5.7 Further, the DG has stated that the availability of the diagnostic tools and
spare parts in the future (when the consumers of Premier would be in the
C. No. 03 of 2011 Page 17 of 58
post warranty period) would be necessary for the independent repairers to
repair the Premier cars and also essential to effectively compete with the
authorized dealers of Premier. Consequently, in the opinion of the DG,
denial to access such diagnostic tools and spare parts amounts to denial to
access an "essential facility" and amounts to abuse of dominant position by
Premier.
5.8 The DG has also found that there are implied restrictions on Premier‟s OESs
from supplying spare parts in the aftermarket and the fact that Premier‟s
dealers are allowed to sell spare parts and diagnostic tools in the open
market is an untested claim. In the view of the DG, such restrictions enable
Premier to be the sole supplier of genuine spare parts in the aftermarket in
India and consequently a dominant entity in the aftermarket for Premier
branded cars.
5.9 Further, Premier was also found to be in a position to restrict the availability
of spare parts and diagnostic tools in the open market which would amount
to an imposition of unfair condition and denial of market access to
independent repairers in terms of sections 4(2)(a)(i) and 4(2)(c) of the Act.
The DG also opined that provisions of section 4(2)(e) of the Act would be
invoked since Premier was using its dominant position in one relevant
market i.e. market of supply of spare parts to enter and protect other relevant
market of after sales services, repair and maintenance of cars. The DG
apprehended that Premier would be able to charge unfair prices for its spare
parts in the post warranty period in the absence of competition in the market
for spare parts.
5.10 Further, the DG has also found that agreements/arrangements entered by
Premier and its OESs are in the nature of exclusive supply and exclusive
distribution, thereby violating section 3(4)(b) and 3(4)(c) of the Act.
C. No. 03 of 2011 Page 18 of 58
6. Replies of the Parties
6.1 At the outset it may be mentioned that the Commission, after considering the
investigation report submitted by the DG, decided to forward copies thereof
to all the 17 Opposite Parties for filing their replies/objections thereto vide
its order dated 04.09.2012. Pursuant to that, Reva and Premier had filed their
objections to the DG report but did not participate in the matter thereafter as
their applications dated 01.02.2013 and 21.12.2012, respectively, filed by
them under regulation 26 of the General Regulations were taken on record
but were kept pending. Further, pursuant to Madras High Court‟s order
dated 06.02.2013 granting ex parte interim stay in the Writ Petition No.
31808/2012 (hereinafter referred to as the "Writ Petition") filed by Hyundai
challenging the jurisdiction of the Commission, the matter could not be
proceeded qua Hyundai. At that time, the Commission decided to pass an
order with respect to the present Opposite Parties separately after passing the
order with respect to the remaining 14 OEMs (OP 1 to 14 in the Main
Order).
6.2 In pursuance thereof, the Commission in its ordinary meeting held on
05.11.2014 directed the present Opposite Parties to appear before the
Commission for oral hearing. Subsequently, in the ordinary meeting held on
12.02.2015, the present Opposite Parties were directed to file their
replies/objections by way of written submissions to the DG report, if any.
6.3 The replies of the present Opposite Parties have been summarized in the
following paragraphs.
C. No. 03 of 2011 Page 19 of 58
6.4 Reply of Hyundai
6.4.1 In its reply, Hyundai has submitted that the DG has drawn incorrect
conclusions and erred in the application of competition law and established
competition law principles, inter alia, in (a) assessing the relevant market;
(b) assessing the dominance of Hyundai; (c) assessing the conduct of
Hyundai to be abusive; and (d) assessing the agreements between Hyundai
on the one hand and OESs and dealers on the other to be anti-competitive. It
was submitted that Hyundai is not dominant in any of the relevant markets
as defined by the DG and has not engaged in any conduct which would be
an abuse of a dominant position under the Act. In addition, Hyundai has not
imposed any condition or engaged in any conduct that would constitute an
infringement of Section 3 of the Act.
6.4.2 On the contrary, the actions of Hyundai were claimed to be pro-competitive.
It was contended that Hyundai has a large and one of the most accessible
service and sales network as compared to other car manufacturers in India
with 412 dealers and more than 1,087 service points located across India.
6.4.3 Hyundai has also argued that the unorganized sector in India is characterized
by a lack of skills and proper training because the independent repairers are
averse to investing in training themselves for repairing of high end and
executive premium cars. Further the absence of any effective government
regulation and the problem of counterfeits are the major challenges being
faced by the OEMs like Hyundai in the Indian market.
6.4.4 Further Hyundai advanced its preliminary objection challenging the validity
of the DG‟s action to initiate an enquiry into the conduct of OEMs
(including Hyundai) other than the three OEMs named in the original
information.
C. No. 03 of 2011 Page 20 of 58
6.4.5 It was averred that the DG had incorrectly relied upon the developments in
USA and EU, with respect to after-market services without considering the
differences and dynamics of Indian Automobile Industry.
6.4.6 Apart from the preliminary objections, Hyundai has submitted that the DG
has fundamentally misconstrued the nature of Hyundai‟s relationship with
its OESs. It was claimed that Hyundai‟s agreements with its OESs are
„subcontracting arrangements‟ and as such exclusivity in such arrangements
fall outside the purview of Section 3 of the Act because such exclusivity is
required to protect Hyundai‟s significant investments in developing its OESs
and contributions to the manufacture of spare parts. Hyundai has further
stated that even if the sub-contracting agreements are found to fall within the
scope of Section 3, the designs, specifications, drawings and technologies
provided by Hyundai to its OESs are protected by unregistered copyright
and trade secret. In addition to Hyundai/ HMC drawings and specifications
which are entitled to copyright protection, Hyundai has claimed that its
drawings/know-how/specifications would also be conferred with IP-
protection by virtue of them being confidential information. To substantiate
the claim, Hyundai cited the judgment of the Delhi High Court in Cattle
Remedies and Anr. Vs. Licensing Authority/Director of Ayurvedic and Unani
Services, wherein it has been observed that apart from specific statutes
relating to trade mark, copyright, design and patent, etc., trade secrets are
also a form of IP. Further, it was argued that Hyundai‟s agreements with its
local OESs do not cause an appreciable adverse effect on competition in
India
6.4.7 With regard to the findings on the Hyundai‟s agreements with its overseas
suppliers, it was argued that the DG has failed to establish the existence of
an „agreement‟ and has wrongly relied on the mere „possibility‟ of an
agreement to conclude the existence of an agreement. Further, Hyundai has
sought exemption for such agreements citing the established principle of
C. No. 03 of 2011 Page 21 of 58
„single economic entity‟ doctrine as such agreements were between the
Hyundai Group companies.
6.4.8 It was contended that Hyundai encourages over the counter sale of spare
parts and diagnostic tools by authorized dealers, dealer‟s branch and
Hyundai authorized service centres and does not prohibit its dealers from
taking competing dealerships and that a number of its dealers have
competing dealerships.
6.4.9 Hyundai has objected to the relevant market identified by the DG based on
the concept of after markets, stating that the correct relevant market in this
case is a „systems market‟ consisting of the sale of cars in India.
6.4.10 Further, it was contended that Hyundai has not abused its dominant
position in the market for spare parts for Hyundai vehicles. DG‟s finding on
the applicability of essential facilities doctrine was also objected to by
Hyundai on the ground that such doctrine has very strict requirements. It
was urged that there is no denial of access to spare parts for Hyundai
vehicles as independent repairers have access to Hyundai branded spare
parts as well as to OESs branded and non-branded spare parts.
6.4.11 It was also argued that the DG has failed to show that the prices of
Hyundai spare parts were „unfair‟ or excessive within the meaning of
Section 4(2)(a)(ii) of the Act.
6.4.12 It was further submitted that Hyundai is not present in the second (non-
dominant) market i.e., the market for after-sale services, repair and
maintenance, and as such, cannot be deemed to be using its dominant
position in the market for sale of spare parts and diagnostic tools to enter
into and protect the other relevant market for after-sale services, repair and
maintenance.
C. No. 03 of 2011 Page 22 of 58
6.5 Reply of Reva
6.5.1 Reva has submitted that it is in the business of manufacturing and sale of
electric cars and is one of the pioneer companies to have introduced electric
cars in the Indian market. Reva has stated that it remains committed to the
cause of manufacturing and selling of a "green car" focusing on the ongoing
research and development work on the Reva NXR car that will be launched
next year.
6.5.2 Reva has submitted that the company has sold only 4500 cars over the last
11 years (less than 500 vehicles per year) since Reva was conceptualized in
2001 and it has a very negligible market share. Therefore, as per Reva, the
size and resources of the company, when compared to other car
manufacturers would reveal that the company has a miniscule share in the
market. It was claimed that it has made no profits since the time of its
inception. Reva has further submitted that the dealers of the company have
not done any significant business over the past 3 years.
6.5.3 Reva has submitted that the electronic components utilized in the Reva car
are complex and the mechanics who repair the Reva car must either be
diploma holders or automobile engineers, as per the company‟s standards.
Reva has further stated that the company especially trains engineers for this
purpose. Reva has stated that to repair an electric car, specialized skills are
required and safety being a critical parameter, the company mandates
training before attending to the electric vehicles as opposed to mechanical
cars that run on petrol or diesel.
6.5.4 It was submitted that vis-à-vis Reva‟s relationship with the OESs from
whom it sources spare parts and components for its cars, Reva is on a
receiving end because the OESs require minimum quantities to be ordered
C. No. 03 of 2011 Page 23 of 58
before they accept an order and this increases the company‟s costs manifold.
Considering the low volume of work opportunity that Reva cars offer, there
are not sufficient OESs who would be interested in manufacturing spare
parts for Reva.
6.5.5 With regard to the findings of the DG regarding agreements between Reva
and its authorized dealers, Reva has stated that it has been using the support
of the dealership network of the company‟s promoter‟s (Mahindra &
Mahindra Limited) dealer network. Reva has stated that the company
currently has 37 authorized dealers and workshops including certain multi-
brand workshops (who have been authorized by the company) in some
cities. Reva states that the company continues to be challenged by the fact
that the dealers are reluctant to maintain a stock of the spares that may be
needed because they do not consider the business as viable. Reva has
submitted that since the number of Reva cars on the road is directly
proportional to the demand for the spare parts and since the demand and the
sale of the Reva cars are low, the spare parts requirements would also be
limited.
6.5.6 Reva has submitted that it has sought to ensure the availability and
appointment of a dealer at least in those cities where there were at least 20
Reva cars registered. Additionally, for those consumers who approach the
company and want to buy Reva cars in cities where the company has no
dealerships and workshops, Reva attempts to maintain a force of service
engineers who visit the residence of such consumers to repair and/or service
the car. Reva has further stated that the consumer is made aware of the non-
availability of after sales service and signs an agreement with the company
for the availability of offbeat service of the cars.
6.5.7 Reva has submitted that the company has not revised the price of its spare
parts in the last three (3) financial years. Reva further submitted that the
C. No. 03 of 2011 Page 24 of 58
Government of NCT of Delhi had initiated a scheme for granting of subsidy
to battery operated vehicles (BOVs) sold in Delhi with a view to promote
the use of such vehicles so that in due course they emerge as competitors to
petrol driven vehicles in maintaining a cleaner environment. This, as per
Reva, indicates that the Government and its agencies appreciate that the
company needs all possible assistance to emerge as a competitor much less
to be in a position to cause AAEC in the market or abuse its dominance.
6.5.8 Reva has submitted a list of top 100 parts by quantity of the 583 odd parts
that are supplied by the company for the Reva brand of car. Reva has
submitted that out of these top 100 parts, there are no IPRs registered or
claimed in India on any of the parts except the EMS (energy management
system) Assembly on which the company claims patent rights (U.S. Patent
No. 5487002). Reva has submitted that it had not applied for a patent on
EMS in India and it has no registered patents or designs with respect to any
of these top 100 parts of the company in India.
6.5.9 Further, Reva has submitted that out of the top 100 spare parts referred
above, 74 parts have substitutes available in the open market, because (i) the
manufacturer uses generic parts for the same, (ii) the manufacturer claims no
copyright or other IPR on the same; (iii) not only the company‟s OESs but
also third party suppliers and vendors supply this product into the open
market and the same may be procured by any independent repairer for using
on the cars manufactured and sold by the company.
6.5.10 Reva has justified its high mark up in the prices by stating that due to the
low demand for its cars it is not possible for it to achieve any economies of
scale.
6.5.11 Further, Reva has submitted that it is not in a dominant position and,
therefore, incapacitated to abuse its dominant position.
C. No. 03 of 2011 Page 25 of 58
6.5.12 Thereafter, Reva has filed applications dated 01.02.2013, 20.02.2013 and
05.07.2013, under Regulation 26 of the General Regulations requesting the
Commission to strike off Reva‟s name from the proceedings in this case.
Reva has further submitted that the order of the Commission dated
05.03.2013 explicitly mentioned that the Commission is considering the
application filed on behalf of Mahindra Reva for exemption under
Regulation 26 and for this reason Reva stopped participating actively in the
proceedings in the said matter.
6.5.13 Mahindra Reva, in response to Commission‟s order dated 12.02.2015,
reiterated the submissions made on 30.11.2012, 01.02.2013, 20.02.2013 and
10.12.2014, which have already been discussed above and hence not
reproduced herein.
6.6 Reply of Premier
6.6.1 Premier has submitted that both the primary and the secondary activities of
the automotive sector constitute one distinct systems market and, therefore,
the aftermarket definition provided by the DG is misplaced. Premier has
submitted that the DG has failed to apply any of the factors stated in section
19(7) of the Act and that the relevant market identified by the DG does not
confirm to the definition stated in section 2(t) of the Act since: (a) physically
the spare parts are but a part of the end product, i.e., the vehicle and
therefore a part of the same system and that the DG has erroneously
disregarded the physical characteristics or end use of the goods whilst
arriving at a conclusion on the relevant market since the end use of the spare
part is the functionality of the vehicle and the consumer derives utility not
from the spare part itself but by applying the same to the vehicle; (b) the
consumer utility is derived only through the use of the final product, i.e., the
C. No. 03 of 2011 Page 26 of 58
vehicle and considering the availability of non-genuine products, it is the
consumer‟s choice to opt for a non-genuine product as long as the customer
can continue to derive utility by using the primary product; and (c) the
primary activities and the secondary activities are undertaken by the same
specialized producer and hence it would be erroneous to segregate the
products into two separate markets.
6.6.2 Premier has stated that the DG has identified the relevant product market in
a counter intuitive manner and that the DG fails to appreciate that in respect
of the spare parts that are manufactured in-house, subject to sharing of
know-how and technical information, there is no contractual or statutory
prohibition on OESs to manufacture or supply the same. Premier has further
submitted that with respect to the in-house manufactured auto components
there is no after market demand. Further, as per Premier, the products
sourced from local OES, diagnostic tools, technical manuals, software etc.,
are vehicle specific.
6.6.3 Premier has submitted that it has a miniscule market share in the passenger
vehicle sector and that the same has been acknowledged by the DG in the
Reports. Further, it has been contended that even assuming that the alleged
vertical restraints exists in terms of section 3(4)(b), (c) and (d) of the Act,
the same must be viewed in terms of the minuscule market share of Premier
in the passenger vehicle market.
6.6.4 Premier has submitted that there were no restrictions on its OESs to sell its
spare parts directly in the aftermarket. Premier has submitted that the DG
has erroneously disregarded the fact that the alleged restrictive clause is a
part of the standard letter of intent issued to a supplier and this stands
superseded by the purchase order once the development cycle of the
component is over. Premier has submitted that the DG has made no
C. No. 03 of 2011 Page 27 of 58
conclusive finding as to whether there is an operative restriction on
sale/supply of spare parts in the aftermarket which contravenes section 3(4)
of the Act. Premier has submitted that DG has found that Premier has
executed/entered into agreements with its OESs in the nature of exclusive
supply, exclusive distribution and refusal to deal. However, the DG did not
cite a single OESs who has been restricted/prohibited from dealing in the
aftermarket by virtue of the alleged supply/distribution agreements.
6.6.5 Premier has submitted that the DG has failed to appreciate the viability of
supplying to the aftermarket for the OESs. Premier has submitted that with
the miniscule sale figures, it would be unrealistic for an OES to develop
transportation and distribution networks, supply chains, packaging, credit
risk, promotions and business development for the purpose of aftermarket
sales catering to an odd 2000 vehicles (number of vehicles sold since 2009).
Premier has submitted that several other OESs may not engage in direct
sales/distribution on account of commercial unavailability, operational
hazards or on account of business prudence.
6.6.6 Premier has submitted that there are no restrictions upon the dealers to
source the spare parts from Premier and no restrictions have been imposed
on its authorized dealers from undertaking any over the counter sales.
Premier has submitted that the DG has not found any clause in the dealer
agreements regarding the restriction on the dealers to undertake over the
counter sales of spare parts. Premier has further stated that given the fact that
most of the cars manufactured by Premier are under warranty, there is no
competition in the sector of aftermarket sales, repair and maintenance and
that the post warranty period remains untested. Therefore, Premier has
submitted that there are no conclusive findings by the DG that the
agreements entered into by Premier would cause an AAEC.
C. No. 03 of 2011 Page 28 of 58
6.6.7 Premier has submitted that even assuming that there was a vertical restraint
in the nature of exclusive distribution, the same would be reasonable given
the extensive warranty obligations taken up by Premier. Premier has stated
that the expenses incurred by it towards warranty claims over the past three
years aggregated to approximately Rs. 64,71,355/- and the same is on
account of defects/drawbacks in the spare parts/components supplied by the
OESs.
6.6.8 Premier has submitted that at the relevant time, it was manufacturing a
single car model, i.e., an SUV by the name of Premier Rio which was
running in loss and Premier is in the process of re-entering the Indian
automotive sector. Premier has submitted that even assuming that it has
applied certain vertical restraints in its dealing with local OESs, the same
would be crucial to cement its re-entry in the Indian automotive sector and
the pro-competitive effects of the entry of a new market entrant in the
automotive sector far outweighs the anti-competitive effects, if any,
especially since Premier had a miniscule market share in the Indian
automotive sector.
6.6.9 With respect to the observations of the DG regarding the supply of spare
parts by the overseas suppliers of Premier, directly into the aftermarket,
Premier has stated that the conclusion reached by the DG is erroneous.
Premier has stated that firstly, perusal of the importer agreements have not
revealed the existence of any restriction on the ability of the overseas
supplier from directly selling the spare parts into the aftermarket; secondly,
Premier‟s overseas suppliers are not catering to the aftermarket; and thirdly,
there is no evidence to confirm that overseas suppliers are catering to the
aftermarket. Premier has submitted that in the absence of any direct evidence
from the overseas supplier, the conclusions reached by the DG should be
excluded.
C. No. 03 of 2011 Page 29 of 58
6.6.10 With respect to the availability of technical and diagnostic tools, manuals,
software, etc., Premier has stated that it would be dangerous to open up the
market to an organized sector dominated by two or three players or the
unorganized sector dominated by unskilled individual repairers and
counterfeit spare parts. Premier has stated that in India there is no
requirement of matching quality of spare parts available from non-
authorized sources and, consequently, any liability that such spare parts do
not confirm with the legal certification requirements would have to be borne
by Premier if independent repairers fail to use genuine spare parts/tools etc.
6.6.11 Premier has submitted that the conclusions reached by the DG regarding
the applicability of the "Essential Facilities Doctrine" to Premier are based
upon a comparison of the Indian automotive market with that of other
mature automobile markets which is erroneous considering the massive
counterfeit/non-genuine spare parts market in India.
6.6.12 Further, Premier has stated that the reliance by the DG on the regulations
of the European Union (EU) are erroneous since the quality control
mechanism and the market realities of the Indian automobile sector and the
EU automobile sector are very different and the EU regulations cannot be
applied mutatis mutandis to the Indian scenario.
6.6.13 Further, Premier has submitted that it had a miniscule market share of less
than 1% in the relevant market and cannot be held to be in a dominant
position under section 4 of the Act.
6.6.14 Further, Premier has also submitted that, the DG has observed that Premier
is the sole supplier of the spare parts for Premier brand automobiles and
hence is in a position to influence the ability of independent repairers to
C. No. 03 of 2011 Page 30 of 58
attend to its automobiles. However, the DG also opined that this position is
untested since most of the Premier brand automobiles are still under
warranty and thus are not being attended to outside the dealer network.
Premier has submitted that since the DG could not make any conclusive
finding as to whether Premier is abusing its alleged dominant position and in
the absence of such a finding, merely a position of dominance should not be
construed as a contravention of section 4 of the Act.
6.6.15 During the course of the oral submissions, on 13.12.2012, Premier
requested for striking out its name followed by a written application under
Regulation 26 of the General Regulations dated 21.12.2012 on the grounds
that (a) Premier has a miniscule market share (below 0.29%) in the Indian
automotive market and that approximately only 2000 vehicles of a single
model (Premier Rio) of Premier have been sold till date; (b) that the DG has
found no evidence of contravention of the Act by Premier. It was also urged
that the DG has erroneously: (i) relied upon certain statements of dealers of
Premier stating that they source spare parts for Premier cars from Premier
itself without analyzing that in the absence of any demand for spare parts in
the aftermarket (during the course of the DG‟s investigation all Premier
brand cars were within the warranty period) why would suppliers wish to
retail Premier spare parts and (ii) relied upon a particular clause of the
Premier LOI which stated that the spare parts need to be sourced from
Premier or its authorized dealers, without analyzing the responses of the
Premier‟s OESs, who have stated that they do not wish to enter the
aftermarket for Premier spare parts; and (c) that based upon the DG‟s
investigation, Premier has not abused its dominance under section 4 of the
Act and further, the only conduct that can be considered as abusive under
section 4(2) of the Act, are conducts that has already taken place and since
Premier has not yet performed any of the abusive conducts enumerated in
C. No. 03 of 2011 Page 31 of 58
section 4(2) of the Act, it is not liable for abusing its dominance under the
provisions of the Act.
6.6.16 In response to the order of the Commission dated 05.11.2014, Premier
made applications dated 12.12.2014, 09.03.2015 and 16.03.2015. Vide its
application dated 12.12.2014, Premier requested for a recall of order dated
05.11.2014, stating that the same has been passed without reference to the
previous orders dated 08.02.2013 and 28.05.2013. Premier has reiterated the
above contentions in its application dated 09.03.2015 and has requested the
Commission to recall orders dated 05.11.2014 and 12.02.2015.
7. Decision of the Commission
7.1 The Commission has carefully gone through the material placed on record
and submissions made by the present Opposite Parties. In addition to the
substantive issues involved in the matter, objection regarding the jurisdiction
of the Commission to inquire into the conduct of the OEMs who were not
named specifically in the initial information filed by the Informant has also
been raised.
7.2 At the outset it may be noted that all the issues, preliminary as well as
substantive, which need to be determined through this order have already
been dealt with by the Commission in the Main Order in great detail. This
order, therefore, may be read as a part and parcel of the Main Order, unless
mentioned specifically otherwise. For the sake of brevity, the main
observations of the Commission in the Main Order have not been
reproduced in detail in this order.
7.3 Before, dealing with the substantive issues the Commission deems it proper
to deal first with the objections raised by Hyundai regarding the jurisdiction
of the Commission in the present matter.
C. No. 03 of 2011 Page 32 of 58
7.4 Determination of Preliminary Issue regarding jurisdiction of the
Commission
7.4.1 Hyundai has raised preliminary objection on the Commission‟s jurisdiction
to investigate and proceed against any other Opposite Party other than the
three Opposite Parties, viz., Honda, Volkswagen and Fiat, named in the
original information. It has been urged that the DG had no power to
investigate the conduct and agreements of Hyundai as the Informant did not
raise any allegations against it for any violation of the provisions of the Act.
7.4.2 The issue of jurisdiction has been dealt with in length in the Main Order
wherein the Commission rejected this plea taken by the other Opposite
Parties. The Commission is a statutory body, established under the Act with
the legislative mandate inter alia to prevent practices having adverse effect
on competition, to promote and sustain competition in the markets, to
protect the interests of consumers and to ensure freedom of trade carried on
by other participants in the markets, in India. To perform the above
mentioned functions, under the scheme of the Act, the Commission is vested
with inquisitorial, investigative, regulatory, adjudicatory and advisory
jurisdiction. As such, the purpose of filing information before the
Commission is only to set the ball rolling as per the provisions of the Act.
7.4.3 The Commission further mentioned that the scope of inquiry is much
broader and the Commission during its inquiry is not restricted to consider
the material placed by the parties only. The direction under section 26(1) is
an administrative direction to the DG for investigation of the contravention
of the provisions of the Act, without entering upon any adjudicatory or
determinative process. During the investigation, the DG may come to know
that not only the parties named in the direction of the Commission but also
other players in the same industry are also involved in the alleged anti-
C. No. 03 of 2011 Page 33 of 58
competitive conduct. In such a case to hold that the Commission cannot
direct the DG to investigate the conduct of other parties would not only
render the inquiry inchoate but would further deprive the Commission from
delivering complete justice in the matter and also lead to multiplicity of
proceedings relating to the same type of conduct, which the law always
seeks to avoid. On the basis of this reasoning, the Commission in its Main
Order had held that there was no irregularity in allowing the request of the
DG for investigating the conduct of all the OEMs suspected to be indulging
in anti-competitive activities.
7.4.4 Challenging the jurisdiction of the Commission, Hyundai had filed a Writ
Petition which was admitted in the Madras High Court on 28.11.2012. The
Madras High Court, vide interim order dated 06.02.2013 allowed ex parte
interim stay of proceedings against Hyundai. The Writ Petition was finally
disposed off by the final order dated 04.02.2015, wherein the Madras High
Court confirmed the jurisdiction of the Commission. The Madras High
Court, in its order dated 04.02.2015, has observed that though DG cannot
initiate an investigation suo motu, the real question is whether in the case on
hand, what was done by the DG would tantamount to suo motu initiation of
investigation or not. The Madras High Court answered the question in
negative. While commenting on the scope of the DG‟s investigation, the
Madras High Court opined that the DG placed additional information before
the Commission. The Commission then passed an order on 26.04.2011.
Thereafter, the DG issued a notice to the writ petitioner on 04.05.2011, only
in compliance of the directions issued under Section 41(1) of the Act. Citing
the foregoing reasons, Madras High Court‟s order unequivocally held that
neither the DG nor the Commission have overstepped the jurisdiction vested
in them by law.
C. No. 03 of 2011 Page 34 of 58
7.4.5 Even otherwise, since all the Opposite Parties were given ample opportunity
to present their case and all the Opposite Parties have submitted their
detailed objections to the DG report, presented their oral arguments and filed
their written submissions before the Commission, the Commission is of the
view that there has been no procedural irregularity as such in the present
case.
7.4.6 In view of the aforesaid, the Commission is of the view that the contention
raised by Hyundai challenging the jurisdiction of the Commission is devoid
of any merit, especially in the light of the Madras High Court‟s order dated
04.02.2015.
7.4.7 Before moving to the substantive issues, the Commission feels it appropriate
to deal with the applications filed by Reva (dated 01.02.2013) and Premier
(21.12.2012) under Regulation 26 of the General Regulations. Reva and
Premier have alleged before the Commission that the order dated 05.11.2014
wherein these parties were asked to present their objections to the DG report
was bad in law as the Commission had already exonerated them in the
matter. Reva has submitted that during the course of the hearing, on
04.02.2013, the Commission had informed the representatives of Reva that it
has taken note of its prayers and has accordingly exonerated Reva from the
allegations of the DG Report and that a substantive order in this regard
would be passed in due course. It was further stated that the order of the
Commission dated 05.03.2013, had explicitly mentioned that the
Commission is considering the application filed on behalf of Mahindra Reva
for exemption under Regulation 26 of the General Regulations. Similarly,
Premier stated that in its order dated 08.02.2013, the Commission had
mentioned that it is considering the application filed on behalf of Premier for
striking off its name from the array of Parties. It was also submitted by the
aforementioned parties that in the order of the Commission dated
28.05.2013, the Commission had sought additional information from the
C. No. 03 of 2011 Page 35 of 58
Opposite Parties other than Reva and Premier. Citing these reasons, Reva
and Premier have requested, recall of Commission‟s order dated 05.11.2014
through which the Commission has re-initiated proceedings against them in
the present matter.
7.4.8 The Commission has considered the submissions and applications filed by
Reva and Premier and perused all the dated orders mentioned above. Based
on a combined reading of all the material, it appears that both Reva and
Premier have misconstrued the orders and directions of the Commission.
During the pendency of the proceedings in Case No. 03/2011, the
Commission had only taken on record the applications filed by Reva (dated
01.02.2013) and Premier (dated 21.12.2012) under Regulation 26 of the
General Regulations. Since, the final determination on the issue of relevant
market definition was pending at that moment; the Commission had put
those applications on hold as the determination of the relevant market will
have a great bearing on the decision by the Commission on those
applications. This is evident from the orders of the Commission dated
08.02.2013 and 05.03.2013 wherein the Commission had categorically
stated that the order on such applications will be passed in due course.
7.4.9 Thereafter, the Commission, at the time of passing the Main Order with
respect to 14 other Opposite parties, had made it clear that it shall pass a
separate order in respect of the present Opposite Parties, viz., Hyundai, Reva
and Premier after affording them a reasonable opportunity to make their
submissions in respect of the findings in the DG report and queries raised by
the Commission. The Commission, had only deferred its order with respect
to these three Opposite Parties and had not at any point of time, exonerated
any of them from the proceedings. The contention raised by Reva and
Premier that they should be exempted owing to their miniscule market share
in the car segment would also be dealt with later in this order. At this
C. No. 03 of 2011 Page 36 of 58
juncture, it would suffice to say that the Commission did not exonerate at
any time any of these abovesaid parties from the proceedings.
7.4.10 Besides, these preliminary issues, the following substantive issues also
require determination in the matter.
8. Determination of Substantive Issues
(1) Issue 1: Whether the present Opposite Parties have violated the provisions
of section 4 of the Act?
(2) Issue 2: Whether the present Opposite Parties have violated the provisions
of section 3 of the Act?
8.1 Issue 1: Whether the present Opposite Parties have violated the provisions
of section 4 of the Act?
8.1.1 It has already been mentioned before that the present order is in continuation
of the Main Order of the Commission. Consequently, this order should be
read in continuation with and as an extension of that Main Order. For the
sake of brevity the main observations of the Commission in the Main Order
are not reproduced here in detail.
Determination of the Relevant Market
8.1.2 The Commission has discussed in detail the principles governing the
determination of the relevant market generally and more specifically for the
case at hand in its Main Order and therefore, only the main observations and
findings are reproduced hereunder.
C. No. 03 of 2011 Page 37 of 58
8.1.3 After considering the relevant provisions of the Act, findings of the DG
report, conceptual framework relating to the issues with respect to the
"aftermarkets" and "systems market" as concepts of competition law,
submissions made by the Opposite Parties and other material placed on
record, the Commission accepted the aftermarkets definition as opposed to
the concept of unified systems‟ market definition advocated by the Opposite
Parties to argue that the sale of cars and spare parts together constitute a
single market. The Commission had held that there exist two separate
relevant markets: one for manufacture and sale of cars, and another for sale
of spare parts. The latter is further divided into two sub-segments,
consisting: (a) supply of spare parts, including diagnostic tools, technical
manuals, catalogues etc. for the aftermarket usage and (b) provision of
aftersale services, including servicing, maintenance and repair services for
vehicles. Further the Commission held that a „cluster market‟ exists for all
the spare parts for each brand of cars, manufactured by the OEMs, in the
Indian automobile market. The Commission rejected the OEM‟s systems
market definition primarily on two grounds--firstly, the consumers/buyers
in the primary market (manufacture and sale of cars) do not undertake (and
are not capable of undertaking) whole life cost analysis when buying the
automobile in the primary market and secondly, reputation effects do not
deter the OEMs from setting supra competitive price for the secondary
product. The Commission, relying on the hard reality as depicted by the
facts, concluded that in-spite of reputational factors, as argued by the
Opposite Parties, each OEM has in practice substantially hiked up the price
of the spare parts (usually more than 100% and in certain cases approx
5000%); thereby rebutting the theory that reputational concerns in the
primary market usually dissuade the OEM from charging exploitative prices
in the aftermarket.
C. No. 03 of 2011 Page 38 of 58
8.1.4 With regard to the relevant geographic market, the Commission held that the
relevant geographic market consists of the entire territory of India as a car
owner can get his car serviced or repaired from repair shops located across
the territory of India.
8.1.5 The Commission is of the view that the relevant market definition with
respect to the present Opposite parties would be the same as provided in the
Main Order. Therefore the relevant market in the present case would be as
follows:
(i) manufacture and sale of cars in India,
(ii) sale of spare parts in India.
a. supply of spare parts, including diagnostic tools, technical manuals,
catalogues etc. for the aftermarket usage in India and
b. provision of aftersale services, including servicing of vehicles,
maintenance and repair services in India
Assessment of Dominance of OEMs
8.1.6 In its Main Order, the Commission noted that the underlying principle in the
definition of a dominant position is linked to the concept of market power
which allows an enterprise to act independently of competitive constraints.
Such independence enables an enterprise to manipulate the relevant market
in its favour to the economic detriment of its competitors and consumers.
The Commission noted that due to the technical specificity of the cars
manufactured by each OEM, the spare parts of a particular brand of an
automobile cannot be used to repair and maintain cars manufactured by
another OEM, thus diminishing the inter-brand substitutability of spare parts
among cars manufactured by different OEMs.
8.1.7 It was further revealed during the investigation of the DG that each OEMs
had entered into various agreements with their overseas suppliers or OESs or
C. No. 03 of 2011 Page 39 of 58
both to ensure that they become the sole supplier of their own brand of spare
parts and diagnostic tools in the aftermarket. The OEMs pursuant to such
agreements have effectively shielded themselves from any competition. The
Commission also took into account the DG‟s finding that various multi
brand repairer/maintenance service providers were unable to cater to the
demand of the customers to service their automobile because of the non-
availability of the spare parts of the OEMs in the open market.
8.1.8 Taking into consideration the aforesaid, the Commission held that each
OEM is a 100% dominant entity in the aftermarket for its genuine spare
parts and diagnostic tools and correspondingly in the aftermarket for the
repair services of its brand of automobiles. The Commission discarded the
argument raised by various OEMs that they hold a miniscule market share in
the primary market of sale of cars and therefore, miniscule share in the
aftermarket. It was observed by the Commission, that each OEM has a clear
competitive advantage in the aftermarket for sale of spare parts/diagnostic
tools and repair services for their respective brand of automobiles,
irrespective of the market share they hold in the primary market.
8.1.9 Similarly, with respect to Hyundai, Reva and Premier also, the Commission
is of the view that considering the technical compatibility between the
products in the primary market and the secondary market, they hold 100%
market share and are dominant in the aftermarket of their respective genuine
spare parts and diagnostic tools and correspondingly in the aftermarket of
their respective repair services for their brand of automobiles. Considering
the adoption and application of after markets theory in defining the relevant
market in the present case, the argument put forward by Reva and Premier in
their respective applications filed under Regulation 26 of the General
regulations is liable to be rejected. Since each OEM is dominant in the
aftermarket irrespective of the market share it has in the primary market,
C. No. 03 of 2011 Page 40 of 58
there is no reason why Reva and Premier should be excluded from the array
of Opposite Parties. Those applications are, therefore, rejected.
8.1.10 As per the specific findings of the DG report, the present Opposite Parties
have ensured through their agreements with the local OESs and overseas
suppliers that the independent repairers are not able to effectively compete
with the authorized dealers in the secondary market for repairs and
maintenance services by denying them access to the required spare parts and
diagnostic tools to complete such repair work. Finally, the warranty
conditions which the present Opposite Parties impose on their consumers
dissuade them from availing the services of independent repairers. In
conclusion therefore, the Commission has no hesitation in holding that
Hyundai, Reva and Premier hold a position of strength which enables them
to affect their competitors in the secondary market, i.e., independent service
providers in their favour, thereby limiting consumer choice and forcing the
consumers to react in a manner which is beneficial to them, but detrimental
to the interests of the consumers.
Abuse of Dominant Position
8.1.11 A perusal of the agreements entered between OEMs (Hyundai, Reva and
Premier) and local OESs and between OEMs and their respective overseas
suppliers makes it abundantly clear that these OEMs have imposed
restrictions on the supply of genuine spare parts to the independent repairers.
In case of Premier, the DG has found that the LOI executed between Premier
and the local OESs for supplying of spare parts for Premier‟s assembly line
and aftermarket requirements contained clauses that restrict the OESs from
supplying spare parts directly into the aftermarket. The clauses require that
all requirements for spare parts shall be met through Premier and its
authorized agents. In case of Reva, the DG has found a restrictive covenant
C. No. 03 of 2011 Page 41 of 58
in the purchase order placed by Reva on its local OES. Further in case of
Hyundai, though the DG could not find a specific clause but the DG has
found implied agreement on the basis of facts revealed during the
investigation. The DG has examined the technology and royalty agreement
entered between Hyundai and its overseas supplier, HMC, for supply of
spare parts for its operations in India. Though the DG, on perusal of such
agreement, could not discover the existence of any clauses which restricts
the ability of the overseas supplier from selling directly into the aftermarket
in India, the DG has reported the fact that the overseas supplier is the parent
company of Hyundai and only supplies spare parts to MIL (a group
company of Hyundai for dealing with the aftermarket requirements in India),
indicates the existence of an arrangement between Hyundai and its overseas
supplier for not supplying spare parts directly into the Indian aftermarket.
Further, the DG has found that the basic purchase agreement (entered with
the OESs by Hyundai for the supply of spare parts) and other purchase
orders executed by Hyundai for procuring spare parts from various OESs in
India contained clauses that restrict the OESs from supplying spare parts
directly into the aftermarket which are based upon the drawings and designs
of Hyundai.
8.1.12 The following table summarizes the findings of the DG with respect of the
restrictive clauses in the OESs agreements with respect to each of the
OEMs.
OEMs Restrictive clause in OES Agreement/Purchase
Orders/LOI
Hyundai OES restricted from supplying to the aftermarket on the
pretext of protecting the IPRs of the OEM.
Reva OES restricted from supplying to the aftermarket on the
pretext of protecting the IPRs of the OEM.
Premier OES restricted from supplying to the aftermarket on the
pretext of protecting the IPRs of the OEM.
C. No. 03 of 2011 Page 42 of 58
8.1.13 On the basis of the foregoing discussion, the Commission is of the view
that the conduct of Hyundai, Reva and Premier amounts to a denial of
market access to the independent repairers to procure genuine spare parts in
the aftermarket. As discussed earlier, each OEM holds a dominant position
in the aftermarket for its own brand of spare parts and diagnostic tools and is
in effect the sole supplier of such spare parts and diagnostic tools in the
aftermarket. Therefore, the practice of the OEMs in denying the availability
of its genuine spare parts severely limits the independent repairers and other
multi brand service providers in effectively competing with the authorized
dealers of the OEMs in the aftermarket. Such practices amounts to denial of
market access by the OEMs under section 4(2)(c) of the Act.
8.1.14 Further, the investigation by the DG has revealed that Hyundai and Reva
earn a considerable mark up margin and the margin earned significantly
varies across the spare parts. The DG has found that a substantial mark up
was being earned in most of the top 50 spare parts sold by each of the
OEMs. The following table illustrates the findings of the DG:
OEM Range of Price Mark-up for Range of Price Mark-up
top 50 spare parts based on for top 50 spare parts
Revenue Generated based on Consumption
(in percent) (in percent)
Hyundai/HMIL 28.26 - 502.76 50.04 - 644.68
Reva - 66.74 - 797.33 - 66.74 - 1180.42
(38 out of top 50 spare parts) (42 out of top 50 spare parts)
Premier N.A. N.A.
C. No. 03 of 2011 Page 43 of 58
8.1.15 The above table clearly demonstrates that a substantial mark up is being
earned on the price of spare parts i.e. there exists a considerable difference
between the cost at which a spare part is sourced from the OESs and the
overseas suppliers and the price at which it is made available to the
consumers. Such high mark ups reflect the fact that the market for spare
parts suffer from structural infirmities due to lack of competitive structure.
8.1.16 On the issue of leveraging, the Commission had held that since the car
owners purchasing spare parts have to necessarily avail the services of the
authorized dealers of the OEMs, OEMs have used their dominance in the
relevant market of supply of spare parts to protect the relevant market for
after sales service and maintenance thereby violating Section 4(2)(e) of the
Act. Further, since the access to specialized diagnostic tools, fault codes,
technical manuals, training etc. is critical for undertaking maintenance and
repair services of such vehicles, the independent repairers are substantially
handicapped from effectively attending to the aftermarket requirements of
automobiles due to the lack of access to specialized diagnostic tools.
Further, it may be noted that the facts pertaining to the present Opposite
Parties are substantially similar to the other OEMs considered in the Main
Order. Applying the same reasoning, therefore, the Commission is of the
view that the conduct of the present OEMs is in contravention of section
4(2)(e) of the Act.
8.1.17 In view of the aforesaid, the Commission finds Hyundai, Reva and Premier
to be indulging in abuse of their dominant position thereby contravening the
provisions of section 4(2)(a)(i), 4(2)(c) and 4(2)(e) of the Act.
9. Issue 2: Whether the present Opposite Parties have violated the provisions of
section 3 of the Act?
9.1.1 A perusal of the DG report shows that the OEMs source spare parts for their
assembly line and aftermarket requirements from the overseas suppliers and
C. No. 03 of 2011 Page 44 of 58
other local OESs, pursuant to the agreements with such overseas suppliers
and the local OESs. The OEMs then distribute the spare parts in the
aftermarket and also provide after-sale repairs and maintenance services to
their various models of cars through their network of authorized dealers.
Therefore, as noted in the Main Order, the OEMs enter into three types of
agreements: (a) agreements with overseas suppliers; (b) agreements with
local OESs and (c) agreements with authorized dealers. The analysis of these
agreements in respect of the present Opposite Parties i.e. Hyundai, Reva and
Premier is entailed in the following paragraphs.
Analysis of agreements/arrangements entered between the OEMs and their
overseas suppliers
9.1.2 During the investigation, the DG has analyzed the importer agreements
entered by the OEMs (Hyundai and Reva) with their overseas suppliers. The
DG, in case of Hyundai, examined the technology and royalty agreement
entered between Hyundai and its overseas supplier, HMC, for supply of
spare parts for its operations in India. Though the DG, on perusal of such
agreement, could not discover the existence of any clauses which restricted
the ability of the overseas supplier from selling directly into the aftermarket
in India, the DG has reported that, the fact that the overseas supplier is the
parent company of Hyundai and only supplies spare parts to MIL (a group
company of Hyundai for dealing with aftermarket requirements in India),
indicates existence of an arrangement between Hyundai and such overseas
supplier for not supplying spare parts directly into the Indian aftermarket.
Further, in case of Reva, the DG has found that it has executed purchase
orders with the overseas suppliers for supplying of spare parts for its
operations in India. As per Reva‟s statements before the DG, the purchase
order contained terms and conditions that govern the relationship between
Reva and its overseas suppliers. On perusal of such purchase orders, it was
C. No. 03 of 2011 Page 45 of 58
found that such overseas suppliers were restricted from supplying spare parts
(which have been made with the design of Reva) into the aftermarket in
India.
9.1.3 Since Premier was found to be procuring all its spare parts from local OESs,
there was no finding of the DG against Premier under this sub-head.
9.1.4 On the basis of DG‟s findings, it is evident that Hyundai and Reva have
restricted their respective overseas suppliers from directly supplying spare
parts in the aftermarket in India. Hyundai has claimed exemption for such
agreements by citing the doctrine of „single economic entity‟. The concept
of single economic entity is generally applicable only if there exists
inseparability in the economic interest of the parties to the agreement.
Therefore, it is a mixed question of law and facts, to be decided based on the
facts and circumstances of each case. Considering the facts in this case, the
agreement between Hyundai and HML may not be held violative of section
3 of the Act.
9.1.5 The purchase orders with respect to Reva are found to be between Reva and
an independent overseas supplier. Therefore, the doctrine of single economic
entity will not be applicable to Reva.
Analysis of agreements/arrangements between the OEMs and the OESs
9.1.6 The second category of agreements that the OEMs enter into are with the
local OESs for the procurement of spare parts for both assembly line and
aftermarket requirements. As noted in the order dated 25.08.2014, the spare
parts supplied by the OESs can be broadly categorized under the following
heads:
C. No. 03 of 2011 Page 46 of 58
1) Where the design, drawing, technical specification, technology, know-
how, toolings (which are essentially large machines required for
manufacture of the spare parts), quality parameters etc., are provided by
the OEMs. The OESs are required to manufacture and supply such spare
parts according to the specified parameters.
2) Where the patents, know-how, technology belongs to the OES, however,
the parts are manufactured based on the specifications, drawings, designs
supplied by the OEM. The tooling/tooling cost may also be borne by the
OEM in some of these cases.
3) Where the spare parts are developed by the OESs as per their own
specifications or designs or designs and specifications which are
commonly used in the automobile industry. Such parts are very few for
example, batteries, tyres etc.
9.1.7 As per the DG‟s report, it has been observed that those OESs supplying
spare parts pursuant to agreements/arrangements which fall within category
(1) and (2) above; cannot supply spare parts directly into the aftermarket
without seeking prior consent of the OEMs. Although the present Opposite
Parties have alleged that they do not restrict sale of spare parts after prior
consent in the aftermarket, the DG‟s investigation has not revealed any
instance where written consent has been granted by OEMs to OESs to
supply spare parts directly into the aftermarket.
9.1.8 On the basis of the findings of the DG report and the submission made by
the parties, the Commission is of the view that none of the present three
OEMs allow their OESs to supply genuine spare parts directly into the
aftermarket. Also, all the three OEMs have justified their restrictions on the
basis of IPR protection and sought an exemption under section 3(5)(i) of the
Act. Accordingly, the Commission deems it appropriate to assess whether
C. No. 03 of 2011 Page 47 of 58
such an exemption is available to these OEMs or not before concluding that
the agreements between the OEMs and the OESs are in the nature of
„exclusive distribution agreements‟ and „refusal to deal‟ as contemplated
under section 3(4)(c) and 3(4)(d) read with section 3(1) of the Act
respectively.
IPR exemption
9.1.9 All the present Opposite Parties have claimed IPR exemptions stating that
on account of the provisions of section 3(5)(i) of the Act, the restrictions
imposed upon the OESs from undertaking sales, of their proprietary parts to
third parties without seeking prior consent would fall within the ambit of
reasonable condition to prevent infringements of their IPRs. The
Commission has already clarified in its Main Order that while determining
whether an exemption under section 3(5)(i) of the Act is available or not, it
is necessary to consider, inter alia, the following:
a) whether the right which is put forward is correctly characterized as
protecting an intellectual property; and
b) whether the requirements of the law granting the IPRs are in fact being
satisfied.
9.1.10 After analysis of the material placed on record with regard to the other 14
OEMs in the Main Order, the Commission had held that the exemption
enshrined under section 3(5)(i) of the Act was not available to those OEMs
for the following reasons:
OEMs had failed to submit the relevant documentary evidence to
successfully establish the grant of the applicable IPRs, in India, with
respect to the various spare parts.
C. No. 03 of 2011 Page 48 of 58
OEMs had failed to show that their restriction amounted to imposition of
reasonable conditions, as may be necessary for protection any of their
rights.
9.1.11 In the light of these observations, therefore, the Commission will ascertain
as to whether the exemption under section 3(5)(i) of the Act would be
available to Hyundai, Reva and Premier.
9.1.12 At the outset it may be noted that as per the observations of the DG and the
submissions made by the present Opposite Parties, none of them own any
registered IPR on any of their spare parts as such in India. It has been
admitted by Hyundai and MIL that they do not possess any valid IPRs in
India except for its trademark/logo. The DG has further reviewed the license
agreement entered into between Hyundai and HMC and opined that such
agreement does not specify the technologies, patents, knowhow, copyrights
and other IPRs which are being granted to Hyundai. Similarly, Reva and
Premier have also admitted that none of their spare parts are covered by
IPRs in India.
9.1.13 Further, it needs to be clarified here that though registration of an IPR is
necessary, the same does not automatically entitle a company to seek
exemption under section 3(5)(i) of the Act. The important criteria for
determining whether the exemption under section 3(5)(i) is available or not
is to assess whether the condition imposed by the IPR holder can be termed
as "imposition of a reasonable conditions, as may be necessary for the
protection of any of his rights". The Commission is of the view that the
concept of protection of an IPR is qualified by the word "necessary". So the
relevant question is whether in the absence of the restrictive condition,
would the IPR holder be able to protect his IPR.
C. No. 03 of 2011 Page 49 of 58
9.1.14 The Commission has dealt with this question in detail in its Main Order.
Suffice to conclude that mere selling of the spare parts, which are
manufactured end products, does not necessarily compromise upon the IPRs
held by the OEMs in such products. Therefore, the OEMs could
contractually protect their IPRs as against the OESs and still allow such
OESs to sell the finished products in the open market without imposing the
restrictive conditions. Furthermore, the Commission is of the view that none
of the present three OEMs are eligible to seek exemption under section
3(5)(i) of the Act for the agreements entered between OEMs and OESs. As
such, the contravention under section 3(4)(c) and 3(4)(d) read with section
3(1) of the Act for exclusive distribution agreement and refusal to deal
stands established.
9.1.15 Before we part with this issue, it may be relevant to point out the
contention made by Hyundai in this regard. It was averred by Hyundai that
the designs, specifications, drawings and technologies provided by Hyundai
to its OESs are protected by unregistered copyright and trade secret. In
addition to Hyundai/ HMC drawings and specifications which are entitled to
copyright protection, Hyundai claimed that its drawings/know-
how/specifications would also be conferred IP-protection by virtue of being
confidential information. To substantiate its claim, Hyundai cited the
judgment of the Delhi High Court in Cattle Remedies and Anr. Vs. Licensing
Authority/Director of Ayurvedic and Unani Services, wherein it has been
observed that apart from specific statutes relating to trade mark, copyright,
design and patent, etc., trade secrets are also a form of IP. The contention of
Hyundai is without any merit and is liable to be rejected. With regard to the
trade secrets and confidential knowledge, the Commission is of the view that
they are not among the listed categories of IPR laws and hence Hyundai
cannot claim any exemption under section 3(5)(i) of the Act.
C. No. 03 of 2011 Page 50 of 58
Analysis of agreements/arrangements between the OEMs and the authorized
dealers
9.1.16 During the course of the investigation, the DG has examined the conduct
of Hyundai, Reva and Premier with respect to their dealing with their
authorized dealers and the terms and conditions of the agreements with them
for the sale of automobiles in the primary market and the sale of spare parts
and provision of maintenance services in the secondary market. From the
perusal of the agreements, the DG has reported the following observations:
9.1.17 The DG has opined that though Hyundai has alleged that there is no
restriction on the Authorized dealers to make over the counter sale of the
spare parts, diagnostic tools etc., it could not substantiate its claims.
9.1.18 With regard to Reva, the DG has concluded that the LOI issued to the
authorized dealers did not impose any restriction on the over the counter sale
of such spare parts. The DG has also observed that the data furnished by
Reva suggested that the sale of such spare parts was taking place over the
counter. However, taking into account the submissions of independent
repairers that such spare parts were available only to a limited extent and not
freely, the DG has concluded that there is an implied understanding between
Reva and its authorized dealers regarding non-supply of spare parts over the
counter.
9.1.19 Similarly in case of Premier, the DG has reported that Premier has stated
that it allows over the counter sale to the independent repairers of its spare
parts, such claim however remains unsubstantiated.
C. No. 03 of 2011 Page 51 of 58
9.1.20 The findings of the DG with regard to Hyundai, Reva and Premier have
been summarized in the table below.
Agreement between OEMs and their authorized dealers
OEMs Over the Availability of Warranty Ability of
Counter sale Diagnostic Tools Conditions Dealers to
of Spare Parts deal with
competing
brands
Hyundai No clause * Hyundai has Warranty Restricted
contended that invalidated if
Hyundai has such diagnostic repaired by
submitted data tools are independent
to indicate that available in the repairer
counter sales as open market
percentage of through
total sales were specialized
in the range of vendors but the
45% to 74% same remained
across dealers unsubstantiated
Reva No clause* Only available to Warranty Restricted
authorized invalidated if
DG has dealers repaired by
reviewed independent
certain over the repairer
counter sale
invoices dated
November
2011
Premier No clause* Open to Warranty Not restricted
technologically invalidated if
Since all supporting the repaired by
Premier cars independent independent
are under repairers but repairer
warranty period since all Premier
the need of cars are under
counter sales warranty they are
have not arisen not being catered
by independent
repairers yet.
C. No. 03 of 2011 Page 52 of 58
9.1.21 It should be noted that as per the provisions of section 3(4) of the Act, only
agreements which cause or are likely to cause an AAEC on competition in
India, shall be subject to the prohibition contained in section 3(1) of the Act.
Therefore, in order to determine if the agreements entered between the
OEMs and the authorized dealers are in the nature of an „exclusive
distribution agreement‟ or „refusal to deal‟ under section 3(4)(c) and 3(4)(d)
of the Act, the Commission needs to determine if such agreements cause an
AAEC in the market based upon the factors listed in section 19(3) of the
Act.
9.1.22 The Commission has taken note of the justifications offered by the
Opposite Parties for imposing restrictions through agreements on the
authorized dealers with respect to over the counter sales. The justifications
provided by them were as follows:
(i) the independent operators may not possess the skills required to
replace the parts and undertake repairs thereby causing health hazards,
(ii) widespread availability of counterfeit parts;
(iii) parallel resale network if established would conflict with the
distribution network etc.
9.1.23 It may be noted that these justifications have already been rejected by the
Commission in respect of the other 14 Opposite Parties in the Main Order.
Therefore, there is no need to go into the detail of the propriety of such
justification with regard to the present three Opposite Parties.
C. No. 03 of 2011 Page 53 of 58
9.1.24 Additionally, it was found that all these OEMS had stringent warranty
conditions which required their customers to only get their automobile
repaired through their authorized service network of dealers otherwise their
warranty would be invalidated.
9.1.25 Therefore, the Commission is of the view that the present Opposite parties,
either specifically through their agreements or otherwise through
understanding with their dealers, have restricted/prohibited the sale of spare
parts over the counter, thereby resulting in prescribing exclusive distribution
agreements and refusal to deal in terms of Section 3(4)(c) and 3(4) (d) of the
Act.
9.1.26 Further the present Opposite Parties, either specifically through their
agreements or otherwise through their understanding with their dealers,
require them to source spare parts only from them or their approved vendors.
These agreements are found to be in the nature of exclusive supply
agreements in terms of Section 3(4)(b) of the Act.
ORDER
10. In view of the aforesaid discussions and for reasons recorded in this order as well as the general findings in its Main Order, the Commission is of the considered opinion that the three Opposite Parties viz. Hyundai, Reva and Premier have contravened the provisions of sections 3(4)(b), 3(4)(c), 3(4)(d), 4(2)(a)(i), 4(2)(c) and 4(2)(e) of the Act, as applicable.
11. It may be noted that the Commission in the Main Order has provided the following directions to the Opposite Parties under section 27 of the Act:-
C. No. 03 of 2011 Page 54 of 58i) The parties are hereby directed to immediately cease and desist from indulging in conduct which has been found to be in contravention of the provisions of the Act.
ii) OPs are directed to put in place an effective system to make the spare parts and diagnostic tools easily available through an efficient network.
iii) OPs are directed to allow OESs to sell spare parts in the open market without any restriction, including on prices. OESs will be allowed to sell the spare parts under their own brand name, if they so wish. Where the OPs hold intellectual property rights on some parts, they may charge royalty/fees through contracts carefully drafted to ensure that they are not in violation of the Competition Act, 2002.
iv) OPs will place no restrictions or impediments on the operation of independent repairers/garages.
v) The OPs may develop and operate appropriate systems for training of independent repairer/garages, and also facilitate easy availability of diagnostic tools. Appropriate arrangements may also be considered for providing technical support and training certificates on payment basis.
vi) The OPs may also work for standardization of an increasing number of parts in such a manner that they can be used across different brands, like tyres, batteries etc. at present, which would result in reduction of prices and also give more choice to consumers as well as repairers/service providers.
vii) OPs are directed not to impose a blanket condition that warranties would be cancelled if the consumer avails the services of any independent repairer. While necessary safeguards may be put in place from safety and liability point of view, OPs may cancel the warranty only to the extent that damage has been caused because of faulty repair work outside their authorized network and circumstances clearly justify such action.
viii) OPs are directed to make available in the public domain, and also host on their websites, information regarding the spare parts, their MRPs, C. No. 03 of 2011 Page 55 of 58 arrangements for availability over the counter, and details of matching quality alternatives, maintenance costs, provisions regarding warranty including those mentioned above, and any such other information which may be relevant for full exercise of consumer choice and facilitate fair competition in the market.
12. The above stated directions apply to the present Opposite Parties with the same force and the Commission hereby directs them to abide by the same with immediate effect. As regards the imposition of the penalty under section 27 of the Act, the Commission has already taken into account the aggravating factors and mitigating factors that apply to the automobile sector generally and the present Opposite Parties specifically. Apart from the general factors taken into account in the Main Order, the Commission notes that there are other specific mitigating factors that are applicable to Premier and Reva.
13. The Commission is of the view that though Premier was found to be dominant in the aftermarket for its genuine spare parts and diagnostic tools and correspondingly in the aftermarket for the repair services of its brand of automobiles, its conduct remained untested during the DG investigation. It is to be noted that at the relevant time period of the investigation, all Premier cars were under warranty and as such the conduct of Premier with respect to abuse of dominance remained untested. Furthermore, Premier did not impose any restrictions on its authorized dealers to deal with vehicles of competing brands. In the case of Reva, the Commission has noted that with respect to the agreements entered with the authorized dealers, the DG during the investigation has found that its spare parts were, to some extent, available over the counter.
C. No. 03 of 2011 Page 56 of 5814. The mitigating factors stated above work in favor of Premier and Reva. The Commission finds it appropriate to not to impose any monetary penalty on Premier and Reva, though other directions reproduced in para 11 above would apply to them in the same manner as other Opposite Parties in the Main Order.
15. Hyundai has, inter alia, urged before the Commission that its case is entirely different from the other OEMs and, therefore, it deserves a reduced penalty. It has been contended that the excessive pricing by the other OEMs was extremely high as compared to Hyundai. It was further urged that it is the very first competition law infringement case against Hyundai and it has effectively cooperated with the DG and also with the Commission. Hyundai also submitted that it allowed over the counters sales partially. It was also contended that the automobile sector is being investigated for the first time and, therefore, no fine should be levied. It may be noted that most of the factors cited by Hyundai are general in nature which do not qualify for a reduced penalty.
16. In view of foregoing, the Commission is of the opinion that a penalty of 2% of the total turnover in India may be imposed on Hyundai. As such, the penalty imposed on Hyundai is as follows:-
Name Turnover Turnover for Turnover Total Average Penalty @ for 2009- 2010-11 for 2011- Turnover turnover 2% of the 10 (in Rs. 12 for 3 (in Rs. average (in Rs. crores)* (in Rs. years (in crores)* Turnover (in crores)* crores)* Rs. Rs. crores)* crores)* Hyundai 20269.37 20269.71 22499.99 63039.07 21013.02 420.2605 *last decimal point in the figures has been rounded off C. No. 03 of 2011 Page 57 of 58
17. Resultantly, a penalty of Rs. 420.2605 crores (Rupees Four Hundred and Twenty Crores, Twenty Six Lakhs and Five Thousand only)-- calculated at the rate of 2% of the average income of Hyundai for three financial years is hereby imposed on it.
18. The directions of the Commission contained in paragraph 11 and 12 of this order will have to be complied with by the present Opposite Parties in letter and spirit. Each OP is directed to file an individual undertaking, within 60 days of the receipt of their order, about compliance to cease and desist from the present anti-competitive conduct, and initiation of action in compliance of the other directions. This will be followed by a detailed compliance report on all directions within 180 days of the receipt of the order. The amount of penalty will have to be paid by Hyundai within 60 days of the receipt of this order.
19. The Secretary is directed to inform the parties accordingly.
Sd/-
(Ashok Chawla) Chairperson Sd/-
(S. L. Bunker) Member Sd/-
(Sudhir Mital) Member Sd/-
(Augustine Peter) Member Sd/-
(U. C. Nahta)
New Delhi Member
Dated: 27-07-2015
C. No. 03 of 2011 Page 58 of 58