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TMI Blog2018 (3) TMI 1996X X X X Extracts X X X X X X X X Extracts X X X X ..... e summarised as under: (a) The Informant is the proprietor of M/s Atul Cars located in Aurangabad and was an authorised dealer of two wheelers of the OP for a period of 15 years. The Informant acquired dealership and service centre of the OP in Aurangabad through a non-exclusive standard form of agreement between the parties ("Dealership Agreement"). (b) The OP is a wholly owned subsidiary of Honda Motor Company Ltd, Japan and is engaged in the business of manufacturing of two-wheelers in India. It is claimed that the OP is the second largest and fastest growing two-wheelers company in India. (c) In 2015-16, the OP missed out being the top two-wheeler seller by 20,000 units to Hero Splendor and recorded a year on year increase, thereby demonstrating that it commands a large market share. Between February and July, 2016, Honda Activa outsold Hero Splendor and its sales grew at the rate of 16-19 percent in contrast to tepid growth of Hero Splendor. The OP consistently outsold Hero Motorcorp Ltd. even in the motorcycle segment which is evident from its sales figures for the period November, 2015 to June, 2016. The rate of the OP's growth in August, 2015 was 27 percent, with Hond ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per the Dealership Agreement, every dealer was required to sell the AMC, EW and RSA authorised only by the OP. The rates of each of these products/services were also prescribed by the OP. The OP set a target for each dealer to sell such services to the customers. The rates prescribed by the OP for the said products/services were on the higher side and the dealers were prohibited from offering the same products to the customers at a cheaper rate. The OP tracked the usage of AMC, EW and RSA by issuance of booklets published by Corporate India Warranties (I) Pvt. Ltd. The purchase of AMC, EW and RSA was contingent upon the purchase of the said booklets, which on an average costed Rs. 350 per booklet. Further, the OP derived huge amount of royalties from the sale of AMC, EW, RSA booklets. Such conduct amounts to contravention of Section 3(4) read with Section 3(1) in addition to Section 4(2) of the Act. (e) Deliberate deduction from dealer's account to fund advertising expenses: The OP had made the dealers bear the advertising cost even though the OP itself releases the advertisement. The advertisement fund is dependent upon the number of dispatches in the relevant period in the are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce partners. Preference and restriction on the dealers to deal with other service providers are in the nature of tie-in arrangement in contravention of the provisions of the Act. (j) Re-sale price maintenance and discount control mechanism: The OP fixed the ex-showroom price of various models at different levels for different towns within the same state. The Informant was compelled to follow the directions of the OP in the matters of fixation of resale price, in addition to the amount of discount to be offered to the consumers. The Informant was also restrained from offering any scheme to the consumers which was not in line with the scheme of the OP. The OP has a team of mystery shoppers which pose as ordinary customers to see whether the dealers are offering any discounts. Even though the dealers were willing to provide discounts, the same could not be offered to the customers as the OP imposed penalty upon dealers offering discount beyond the specified limit. Imposition of resale price maintenance/ discount control mechanism affects consumers as prices charged are higher than the competitive price for such product. Maintenance of resale price of two-wheelers adversely affects t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bmissions made during the preliminary conference and other material available on record. The prima-facie determination of the Commission is as under: 5.1. The Commission notes that the Informant has alleged contravention of the provisions of Sections 3 and 4 of the Act. 5.2. For the purpose of examining the case under Section 4 of the Act, it would be relevant to take into account whether the OP enjoys a dominant position in any relevant market. 5.3. The Informant has submitted that the relevant product market in the present case can be defined as "the market for two-wheelers" as consumers view scooters and motorcycles to be substitutable and both the category of vehicles are sold through a common dealership. As regards the relevant geographic market, the Informant has submitted that two-wheelers can be purchased across India at the same ex-showroom price with the introduction of GST. Further, the conditions of competition for sale of two-wheelers are uniform across India and thus, the relevant geographic market may be the territory of India. 5.4. The Commission observes that although the intended use of motorcycles and scooters is same to a large extent, yet they are different ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nging between 21.44 percent and 14.76 percent. In 2013-14, the market share of the OP was around 4 times the market share of TVS Motor Co. Ltd and similar trend has been observed in other years as well. Further, the relevant market appears to exhibit entry barriers due to huge capital cost involved in setting up a manufacturing facility. At prima-facie stage, these considerations suggest that the OP enjoys a dominant position in the 'market for manufacture and sale of scooters in India'. 5.7. The Commission has given a careful examination to the alleged imposition of several unfair conditions on the Informant through the Dealership Agreement which merit examination as abuse of dominant position in the 'market for manufacture and sale of scooters in India'. 5.8. It appears that the OP has made it mandatory for the Informant and other dealers to purchase oil and lubricants only from two vendors namely: M/s. Idemitsu Lube India and Tide Water Oil Company (India) Ltd and that too at a price higher than the prevalent market price. Further, the Commission observes that vide circular dated 25th February, 2014, the OP has made it mandatory for the dealers to purchase Honda genuine engine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er notes that through Clause 11.2 of the Dealership Agreement, the OP made the Informant compulsorily bear the advertising cost. The contribution of the dealers towards the advertising cost is computed on the basis of number of dispatches made to the dealer in the relevant period. Further, the OP has an agreement with M/s Goldmine Advertising and the dealers cannot deal with any other advertising agency. The Informant also has to accept all dispatched vehicles by the OP as the OP debits the Informant's account and the Informant is left with no choice. The OP also allegedly gave threats of cancellation of dealership and confiscation of the security deposit by the Informant. The OP also billed the Informant for merchandise items like caps, bags, t-shirts, raincoats, pen drives, etc., which have no connection with the sale of two-wheelers. 5.11. Based on above, the Commission is prima-facie satisfied that the restrictions imposed by the OP for sale of oil, lubricants and batteries are unfair and in contravention of Section 4(2) (a)(i) of the Act. Similarly, the condition for mandatory purchase of accessories, merchandise items, forceful billing of slow moving vehicles, compulsory ded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... liers of oil and lubricants, batteries, etc., who compete with these suppliers besides better prices to the consumers. A stipulation that appears to create entry barriers, scuttle choice of consumers, result in higher prices, thereby denying benefits to the ultimate consumers is likely to result in appreciable adverse effect on competition. Thus, the Commission is prima-facie satisfied that the said mandatory requirements amount to contravention of Section 3(4) (b) and 3(4) (d) read with Section 3(1) of the Act. (b) Advertising services, AMC, EW and RSA: The Commission notes that an arrangement whereby advertising cost is debited from the dealers accounts on the basis of number of vehicles dispatched to them appears to be in the nature of a tie-in arrangement. Further, the requirement that the dealers shall avail advertising services only from M/s. Goldmine Advertising is in the nature of exclusive supply arrangement and refusal to deal, as per Section 3(4) (b) and (d) of the Act. The Commission is of the prima-facie view that the said practices have the potential to create entry barriers for other advertising agencies, which could have offered similar advertising services to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sal or sale of the goods. The OP extends vertical relationship with its dealers and has mandated them to restrict their sales within their designated area. The Commission is of the view that such territorial restriction affects intra-brand competition as it restricts distribution into other areas and creates barriers to entry. As the OP enjoys a dominant position in the market for manufacture and sale of scooters in India, the territorial restriction can lead to appreciable adverse effect on competition. Thus, prima-facie, the territorial restriction is in contravention of Section 3(4) read with Section 3(1) of the Act. (e) Refusal to deal with competing products: The Informant has alleged that it has to adhere to an exclusive supply arrangement as an obligation under the Dealership Agreement. This also includes a condition of refusal to deal as envisaged in Clause 10.13 (b) of the Dealership Agreement which prohibits the Informant from dealing with any competing product. Although Clause 10.14 of the Dealership Agreement provides that a dealer can deal with competing products with prior written consent of the OP, it has been alleged that this permission is an illusory device in l ..... X X X X Extracts X X X X X X X X Extracts X X X X
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