TMI Blog2018 (9) TMI 2121X X X X Extracts X X X X X X X X Extracts X X X X ..... the market or foreclosure of competition by hindering entry into the market. It has also failed to consider whether the said agreement accrual of benefits to consumers and improvements in production or distribution of goods or provision of services. The relevant geographic market and the relevant product market having not been taken into consideration, the inquiry is incomplete being violation of sub-section (6) of Section 19. Section 26 of the Act, 2002 prescribes procedure for inquiry under Section 19 but in the present case no such inquiry has been made in terms of Section 19 - the Commission though directed the DG to cause an investigation but thereafter, the matter having not closed by the Commission, the Commission was required to make inquiry in terms of Section 27 to find out whether any agreement referred to in Section 3 or action of an enterprise, is in contravention of the provision. The procedure for inquiry under Section 19 is not a mere formality rather the inquiry by the Commission into an agreement under Section 27 cannot be completed without appreciation of relevant evidence - The DG report is merely an investigation report, in terms of subsection (3) of Sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ai Motor has contravened the provisions of Section 3(4)(a) read with Section 3(1) of the Act, 2002 in mandating its dealers to use recommended lubricants and oils. 4. The Commission has issued direction of cease and desist on the Hyundai Motor from indulging in conduct that has been found to be in contravention of the provisions of the Act, 2002 and imposed penalty at the rate of 0.3% of its average relevant turnover of the last three financial years which has been rounded off at Rs. 87 Crores with direction to deposit the same within the stipulated period. 5. The Information in Case No. 36 of 2014 was filed by Fx Enterprise Solutions India Pvt. Ltd. ( 1st Informant ) against Hyundai Motor alleging contravention of the provisions of Section 3 of the Act, 2002. 6. Another Information in Case No. 82 of 2014 was filed by St. Antony s Cars Pvt. Ltd. ( 2nd Informant ) against Hyundai Motor alleging inter alia contravention of the provisions of Section 3 of the Act, 2002. 7. The brief facts of the case are as follows: 8. Hyundai Motor was incorporated under the provisions of the Companies Act, 1956, on 6th May, 1996, for manufacturing and distribution of motor v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upply for complementary goods for dealers, which results in a tie-in arrangement in violation of Section 3(4)(a) of the Act, 2002. 14. 2nd Informant - St. Antony s Cars Pvt. Ltd. is a private limited company involved in, inter alia, distribution of passenger cars, having its registered address at XII/268, Mundakkal, S. N. College Junction, Kollam Main Post Office, Kollam, Kerala -69100. Under the terms of the said agreement, 2nd Informant - St. Antony s Cars Pvt. Ltd. was appointed as a non-exclusive dealer of Hyundai Motor in the territory of Kollam, Trivandrum. The term of the Dealership Agreement (Dealership Agreement) was initially for a period of three years from the date of execution. It is alleged that Clause 5(iii) of the agreement prohibited the dealer from investing in any other business, particularly in dealerships with competitors of the Hyundai Motor . 15. It was further alleged that, pursuant to the said clause, the dealers of the Hyundai Motor could not take dealerships of competitors of the Hyundai , even if the dealership was a completely separate entity from the dealership of the Hyundai Motor . Therefore, according to 2nd Informant - St. An ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i Brand of Cars in India ; and (c) 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 . (iv) 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: a) For CNG Kit: Geographic market is defined as Delhi NCR , as such Kits are primarily used in Delhi NCR; and b) For lubricant and insurance policy: Geo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eto and after taking into consideration of the aforesaid facts passed the impugned judgment. 23. Learned Senior Counsel appearing on behalf of the Appellant submitted that the Commission though disagreed with the report of the DG with regard to relevant market but failed to provide a notice of disagreement to the Appellant. 24. The DG in its report noticed different (five sets) of relevant market , for contravention of different clauses of Section 3(4) of the Act, 2002, as follows: (i) Exclusive Supply Agreement/ Refusal to Deal: Market for Inter- Brand Sale of Passenger cars in India ; (ii) Resale Price Maintenance (RPM): Market for Intra Brand Sale of Hyundai Brand of Cars in Delhi and NCR ; (iii) Tie-in arrangement for CNG kits: Market for Sale of CNG Kits for Hyundai Brand of Cars in Delhi and NCR ; (iv) Tie-in arrangement for lubricants: Market for Sale of Lubricants for Hyundai Brand of Cars in India ; and (v) Tie-in arrangement for car insurance: Market for Insurance for Hyundai Brand of Cars in India . 25. The Commission rejected the aforesaid relevant markets with the following observations: 51. Thus, the DG has not considered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would be the market for the dealership and distribution of Hyundai cars. 27. We are not going into the question of violation of principles of natural justice on the ground that the Commission while differed with the findings in the DG report with regard to relevant market has not given any notice to the Appellant, for the reasons as discussed in the subsequent paragraphs. 28. With regard to the anti-competitive vertical agreements , the Commission noticed that the DG has identified the three types of anticompetitive agreements, as quoted below: (i) Exclusive Supply Agreement Refusal to Deal; (ii) Resale Price Maintenance; (iii) Tie-in arrangements for the sale of : (a) CNG kits; (b) Lubricants; and (c) Car Insurance. 29. The Commission while dealt with Section 3 (4)(d) as discussed in the DG s report with regard to the Appellant, it noticed Clause 5(iii) of the Dealership Agreement , which reads as follows: 65. Clause 5(iii) of the Dealership Agreement provides that except with prior written permission, the dealer shall not invest in any new or existing business not relating to Hyundai dealership . . 30. Thereafter, the Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e permitted to grant discounts to consumers also. Thus, while the maximum price at which a car can be sold is fixed by the OP from time to time, the dealer is permitted to charge a price lesser than the maximum selling price so fixed. 79. The DG has found that the OP has established an admitted Discount Control Mechanism , by which the maximum discount which a dealer can offer to its end consumers is maintained. Accordingly, by fixing the maximum resale price as well as the maximum amount of discount that can be granted to customers, the OP has been effectively found to have fixed the minimum resale price. The DG has found that the OP itself maintains certain schemes through which various discounts are offered to the customers (such as on Diwali or schemes for teachers). It has been found that the maximum discount which can be offered by a dealer to the end-customer during the operation of the schemes launched by the OP from time to time is also fixed by the OP. 35. While observing what DG has held or observed, the Commission held that, the Appellant has admitted to have engaged in various mystery shopping agencies for policing its dealers and monitoring the abovementio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rket; (b) driving existing competitors out of the market; (c) foreclosure of competition by hindering entry into the market; (d) accrual of benefits to consumers; (e) improvements in production or distribution of goods or provision of services; or (f) promotion of technical, scientific and economic development by means of production or distribution of goods or provision of services. 33. The word market used therein has reference to relevant market . As per sub-section (5) of Section 19, such relevant market can be relevant geographic market or relevant product market. The factors which are to be kept in mind while determining the relevant geographic market are stipulated in sub-section (6) of Section 19 and the factors which need to be considered while determining the relevant product market are prescribed in sub-section (7) of Section 19. These two sub-sections read as under: 19. (6) The Commission shall, while determining the relevant geographic market , have due regard to all or any of the following factors, namely (a) regulatory trade barriers; (b) local specification requirements; (c) national procurement policies; (d) adequate distribut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt geographic market comprises all those regions or areas where buyers would be able or willing to find substitutes for the products in question. The relevant product and geographic market for a particular product may vary depending on the nature of the buyers and suppliers concerned by the conduct under examination and their position in the supply chain. For example, if the questionable conduct is concerned at the wholesale level, the relevant market has to be defined from the perspective of the wholesale buyers. On the other hand, if the concern is to examine the conduct at the retail level, the relevant market needs to be defined from the perspective of buyers of retail products. 38. It is to be borne in mind that the process of defining the relevant market starts by looking into a relatively narrow potential product market definition. The potential product market is then expanded to include those substituted products to which buyers would turn in the face of a price increase above the competitive price. Likewise, the relevant geographic market can be defined using the same general process as that used to define the relevant product market. 39. Bearing in mind the aforesai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ission into an agreement under Section 27 cannot be completed without appreciation of relevant evidence. 44. The DG report is merely an investigation report, in terms of subsection (3) of Section 26 but DG s report alone cannot be relied upon or cited for finding and the Commission which is required to make independent analysis based on evidence brought on record. 45. In the impugned judgment, it will be evident that no specific evidence has been discussed including the evidence relied on by the Appellant. The impugned order is only based on findings of the DG s which is not permissible. 46. The impugned order is also contradictory will be evident from the fact that in Paragraph No. 108 the Commission held that cancellation of warranty upon use of non-recommended oils/ lubricants does not amount to contravention of Section 3(4) (a) read with Section 3(1) of the Act, 2002, as quoted below: 108. Accordingly, in so far as the OP 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. Howeve ..... X X X X Extracts X X X X X X X X Extracts X X X X
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