The Competition Commission of India (CCI) has found Hyundai Motor India Limited (HMIL) to be in contravention of the provisions of Section 3(4)(e) read with Section 3(1) of the Competition Act, 2002 for imposing arrangements upon its dealers which resulted into Resale Price Maintenance in sale of passenger cars manufactured by it. Such arrangements also included monitoring of the maximum permissible discount levels through a Discount Control Mechanism. Further, HMIL was found to have contravened the provisions of Section 3(4)(a) read with Section 3(1) of the Act for mandating its dealers to use recommended lubricants/ oils and penalising them for use of non-recommended lubricants and oils.
The DG has observed that passenger cars manufactured and sold by different players are interchangeable and substitutable by consumers in view of their utility and therefore, defined a broad relevant market as “Sale of Passenger Cars in India”. The DG further sub-divided this relevant market and defined separate relevant market(s) for each of the contraventions identified:
Refusal to Deal: For analysing Clause 5(iii) of the Dealership Agreement concerning refusal to deal contravention, the DG defined the relevant market as “Inter-Brand Sale of Passenger cars in India”;
Resale Price Maintenance (RPM): For the purposes of analysing whether the OP imposes a (maximum) resale price, the DG defined the relevant market as “Intra Brand Sale of Hyundai Brand of Cars in Delhi and NCR”;
In determining whether the OP imposes a tie-in arrangement with respect to the sale of CNG kits, the DG defined the relevant market as “Sale of CNG Kits for Hyundai Brand of Cars in Delhi and NCR”;
For determining whether the OP imposes a tie- in arrangement for lubricants, the DG defined the relevant market as “Sale of Lubricants for Hyundai Brand of Cars in India”; and
To analyse whether the OP imposes a tie-in arrangement in relation to obtaining car insurance, the DG defined the relevant market as “Insurance for Hyundai Brand of Cars in India”.
Finally, relying upon the Commission’s decision in Shri Shamsher Kataria v. Honda Siel Cars India Limited & Ors. (Case No. 03 of 2011), the DG stated that the Commission has defined 3 segments of the automobile market, viz.: (a) the primary market consisting of manufacturing and sale of passenger vehicles; (b) the secondary market or aftermarket for each brand of spare parts; and (c) an aftermarket for each brand of repair services. As the issue of tie-in arrangement of the OP with regard to the sale of CNG Kits, lubricants and insurance policies and services also falls within the scope of aftermarket services, the DG defined the product aftermarket as “after sales services of Hyundai Brand of Cars”. However, for this relevant product market, the DG defined two different relevant geographic markets:
For CNG Kit: Geographic market is defined as “Delhi & NCR”, as such Kits are primarily used in Delhi & NCR; and
For lubricant and insurance policy: Geographic market is defined as “entire territory of India”, as the arrangement has pan-India ramifications. 14.
The DG then found that the Hyundai is 100% dominant in the aftermarket for after sale services of Hyundai brand of cars.
The final order has been passed on information filed by the dealers of HMIL viz. Fx Enterprise Solutions India Pvt. Ltd. and St. Antony’s Cars Pvt. Ltd.
The commission noted that the twin objectives behind imposition of penalties are: (a) to reflect the seriousness of the infringement; and (b) to ensure that the threat of penalties will deter the infringing undertakings. Therefore, the quantum of penalties imposed must correspond with the gravity of the offence and the same must be determined after having due regard to the mitigating and aggravating circumstances of the case. The Commission is also guided by the judgment of the Hon’ble Supreme Court of India in Excel Crop case (supra) which enunciates the principle of proportionality. Proportionality achieves balancing between two competing interests: harm caused to the society by the infringer which gives justification for penalising the infringer on the one hand and the right of the infringer in not suffering the punishment which may be disproportionate to the seriousness of the Act on the other.
Apart from issuing a cease and desist order against HMIL, CCI has imposed a penalty of Rs. 87 crore upon HMIL for the anti-competitive conduct. The penalty has been levied @ 0.3% of the average relevant turnover of HMIL of preceding three years. CCI noted in its order that for the purposes of determining the relevant turnover for the impugned infringement, revenue from sale of motor vehicles alone have been taken into account.