CCI imposes ₹200 crore penalty on Maruti Suzuki for entering into anti-competitive agreements with dealers to restrict discounts

The Competition Commission of India (CCI) has imposed a fine of ₹200 crore on Maruti Suzuki India Limited (MSIL) for entering into anti-competitive agreements with its dealers thereby capping the discounts that can be offered by such dealers [In Re: Alleged anti-competitive conduct by Maruti Suzuki India Limited in implementing discount control policy vis-à-vis dealers].

The competition watchdog found that Maruti Suzuki not only entered into agreements with its dealers across India for imposition of Discount Control Policy amounting to Resale Price Maintenance (RPM), but also monitored the same by appointing Mystery Shopping Agencies (MSAs) and enforced the same through the imposition of penalties.

Such a practice of RPM by MSIL caused an appreciable adverse effect on competition (AAEC) within India amounting to contravention of the provisions of Section 3(4)(e) read with Section 3(1) of the Competition Act, the CCI ruled.

"The Commission, in terms of Section 27(a) of the Act, directs MSIL to cease and desist from indulging in RPM directly and/or indirectly, which has been found by the Commission in the present order to be in contravention of the provisions of Section 3(4)(e) of the Act. Further, the Commission, under the provisions of Section 27(b) of the Act, directs MSIL to deposit the penalty of ₹200 crores (Rupees Two Hundred Crores Only) imposed upon it within a period of 60 days of receipt of the present order," the order directed.

The present case was taken up suo motu by the CCI pursuant to an anonymous email received from a purported MSIL dealer. There were several allegations made against MSIL’s sales policy being against the interest of customers and also against the provisions of the Competition Act, 2002.

The Commission therefore, directed the Director General (DG) to investigate the matter and submit a report.

On investigating, it was found that MSIL did in fact instruct its dealers to not offer discounts to customers beyond what has been mandated by MSIL. Mystery Shopping Agents (MSA) were also appointed by MSIL to effectuate the Discount Control Policy.

The Investigation report stated,

"MSIL framed guidelines and gave instructions to its dealers to not offer discounts without its permission over certain pre-restricted levels. Further, MSIL appointed Mystery Shopping Agencies (‘MSA’) to keep a track of the discounts offered by the dealers and threatened to impose/imposed penalties on them and/or even threatened to suspend supply of premium models to them for violation of such Discount Control Policy."

It was contended by MSIL that the MSAs were appointed by the dealers themselves and that MSIL was only an independent third-party. MSIL also contended that the only agreement they had with the dealers was a ‘Dealership Agreement’ which had no provision to restrict discounts.

However, the CCI on examining the emails exchanged between MSIL and the dealers found that it was clear that MSIL was an integral part of the planning and implementation of the Discount Control Policy.

"DG found multiple e-mails that prove that MSIL did, in fact, have a ‘Discount Control Policy’ in place, for its dealers and the dealers were discouraged from giving extra discounts, freebies, etc. to consumers beyond what was permitted by MSIL. If found to be violating the Discount Control Policy, the dealers were threatened with imposition of penalty, not only upon the dealership, but also upon its individual persons, including Direct Sales Executive, Regional Manager, Showroom Manager, Team Leader, etc., and stopping of supplies," the order said.

Further, on tracking the penalties collected, it was seen that the amounts collected in the account of Swati Kale (wife of Vinod Kale - President of an MSIL dealership in Pune) was done on the instructions of MSIL and was used by MSIL to pay the bills of advertisements.

"When Ms. Swati Kale was questioned by the DG, she submitted that her role was to receive cheques as per the instructions of the Regional Manager of MSIL and deposit the same in her account and issue cheques as per his instructions as and when required. Ms. Swati Kale also submitted her statement of accounts showing credit entries for penalty amounts and debit entries for cheques issued," the order stated.

The Court said that various e-mails exchanged between MSIL and dealers showed that MSIL not only imposed the Discount Control Policy on dealers, but also enforced the same by monitoring dealers through MSAs, imposing penalties on them and threatening strict action like stoppage of supply, collection and recovery of penalty and utilisation of the same.

The CCI then addressed the issue of whether it would amount to violation of Competition Act provisions.

In this regard, it adverted to Section 3(4) of the Act.

"‘Resale Price Maintenance’ (RPM) as defined under Explanation (e) to Section 3(4) of the Act includes any agreement to sell goods on condition that the prices to be charged on the resale by the purchaser shall be the prices stipulated by the seller unless it is clearly stated that prices lower than those prices may be charged,” the order said.

The imposition of maximum discount limits by MSIL upon its dealers amounts to RPM within the meaning of the above extracted provision, the CCI ruled proceeding to impose penalty on MSIL.

"RPM can prevent effective competition both at the intrabrand level as well as at the inter-brand level. When a minimum RPM is imposed by the manufacturer upon the distributors, the distributors are prevented from decreasing the sale prices beyond the imposed limit. In other words, the mechanism does not allow the distributors to compete effectively on price. As such, stifling intra-brand competition results in higher prices for consumers," the order said.

Imposition and enforcement of RPM by a player like MSIL, having a significant market share, not only thwarts intra-brand competition but also leads to the lowering of inter-brand competition in the passenger vehicles market, the CCI held.

Maruti Suzuki was represented by Senior Advocates Dr. Abhishek Manu Singhvi and Rajshekhar Rao with Shardul Amarchand Mangaldas lawyers Shweta Shroff Chopra, Rohan Arora and Supritha Prodaturi, and Manjaree Chowdhary, Executive Director and General Counsel of MSIL.

[Read Order]