The Competition Commission of India (“CCI”) has imposed a penalty on Hyundai Motors India Limited (“HMIL”) for Resale Price Maintenance (“RPM”). This has been the Country’s first ever penalty for RPM. CCI concluded its first successful prosecution in relation to RPM , which is precluded in terms of Section 3(4) (e) and Section 3(4)(a) read with Section 3(1) of the Competition Act, 2002( “the Act”) through arrangements which resulted in to RPM. CCI held that HMIL was engaged in prohibited vertical practices by imposing a maximum resale price on its downstream dealers by way of monitoring of maximum permissible discount level through a Discount Control Mechanism and a penalty mechanism for non-compliance of the discount scheme for the sale of motor vehicles.
Further, CCI held that, HMIL has contravened the provisions of Section 3(4)(a) read with Section 3(1) of the Act in mandating its dealers to use recommended lubricants/ oils and penalizing them for use of non-recommended lubricants and oils. The total amount of penalty of INR 87 crore was imposed on HMIL for the impugned conduct as mentioned aforesaid at the rate of 0.3 % of its average relevant turnover of the last three financial years. The order has been passed pursuant to the two information’s filed by the dealers of HMIL viz. Fx Enterprise Solutions India Pvt. Ltd. and St. Antony’s Cars Pvt. Ltd.
Following anti-competitive vertical agreements violations were held by CCI:
- Resale Price Maintenance: The level of discount was determined by the HMIL for each model and variant of the passenger cars and HMIL had also appointed a Mystery Shopping Agency to collect data from dealers for such monitoring and reporting to the OP. Based on the above, CCI observed that HMIL has contravened the provisions of Section 3(4)(e), read with Section 3(1) of the Act. Further, the impugned agreements/ arrangements did not result into accrual of any consumer benefits; rather, the same resulted into denial of due benefits to the consumers as they were made to pay high prices. The arrangements perpetuated by the HMIL caused hindrance in the distribution of goods and provision of services in relation to new cars and also resulted in creation of barriers to the new entrants in the market as they also took into consideration the restrictions on their ability to compete in price competition in the intra-brand competition of Hyundai brand of cars. CCI observed that HMIL has sought to impose an arrangement that results in RPM, which includes monitoring of the maximum permissible discount level through a “Discount Control Mechanism” and a penalty punishment mechanism upon non-compliance of the discount scheme.
- Tie-in arrangements for the sale of Lubricants: Since HMIL mandates its dealers to use particular oil/ lubricants and penalises its dealers where non recommended oils are used, it would amount to “tie-in arrangement” in contravention of Section 3(4)(a), read with Section 3(1) of the Act.
Remark: The judgment is important as it lays down the threshold on firms in relation to what constitutes Resale price maintenance in terms of Indian Competition Law. The legal precedent created by the present ruling provides much needed clarity as to how CCI will evaluate resale price maintenance cases and firms need to be particularly cautious in relation to the terms of engagement with dealers/ customers who on-sell their products.
 RPM is a prohibited vertical practice, in which suppliers restrict or prescribe the manner in which customers resell the relevant products or services.
Case no. 36 and 82 of 2014 : In Re: Fx Enterprise Solutions India Pvt Ltd. and St Antony Car Pvt. Ltd Vs Competition Commission of India
Article by Ms. Deepika Rajpal, Senior Associate - Competition Law and Policy,