Competition LawRulings

CCI holds Section 2(b) includes tacit or informal understanding between entities, rejects Maruti Suzuki’s argument

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This matter arose from an e-mail dated 17th November 2017 sent anonymously by Maruti Dealer against Maruti Suzuki India Limited (Maruti Suzuki) alleging Resale Price Maintenance in West-2 Region. It was alleged that dealers are not allowed to give extra discount to their customers and if a dealer is found giving discounts more than the permitted level then penalty is levied on the basis of number of violations found in a financial year. 

Dealer claims that prior to imposing penalty on errant dealers for discount policy violation, Maruti Suzuki management sends an email with a “Mystery Shopping Audit Report” to such dealers and asks for clarification. These audits are performed by Maruti Suzuki’s independent agency wherein a fake customer visits every dealer to check whether extra discount is offered or not. These agencies send audio proof to Maruti Suzuki which in turn is sent to the dealer seeking explanation. If the concerned dealer is not able to justify the additional discount, then penalty is levied.  

It is alleged that dealers are asked to deposit a cheque of the penalty amount in the name of Ms. Swati Kale wife of Mr. Vinod Kale (Vice-President Wonder Cars Pvt. Ltd, one of the Maruti Suzuki dealers in Pune city) which is utilized by Maruti Suzuki for various expenses as decided by its management. 

CCI held preliminary conference with Maruti Suzuki on 22nd May 2019 where they were directed to file an affidavit stating it does not impose or receive any alleged penalty which is levied on dealers for giving extra discounts to end consumers. In their affidavit, it was stated that it does not exercise or control over the dealers except to maintain a balance between satisfaction of consumers and uniformity in schemes. It was stated that Dealership Agreement sets out the relationship between Maruti Suzuki and its dealers which inter alia provides for discounts. It was also added that they encourage dealers to give discounts to the consumers. It was claimed that Maruti Suzuki enters into the Dealership Agreement with the dealers which allows dealers to provide discounts they deem fit. No other agreement/document is signed with the dealers. 

Maruti Suzuki also submitted that the ‘penalties’ referred to in the emails relate to the schemes and guidelines launched by the dealers to ensure consumer satisfaction. Maruti Suzuki claims that it supports various schemes launched by the dealers by making a contribution to the offers so that entire cost is not borne by the dealers out of their margins. 

Maruti Suzuki filed another affidavit on 30th May 2019 where it stated 

“…MSIL does not levy any penalty for any alleged discount control policy (referred to in the information dated 17 November 2017). MSIL communicates the understanding by and amongst the Dealers. Any alleged penalty amounts are not received by MSIL and payments are made to the account of Ms. Swati Kale (wife of Mr. Vinod Kale, Vice-president of Wonder Cars Pvt. Ltd.- a dealership in Pune)”. 

After analyzing the affidavits of Maruti Suzuki and the email, CCI observes that this issue pertains to alleged vertical agreement entered into by Maruti Suzuki with its dealers/distributors for Resale Price Maintenance. 

In the current scenario, there is a vertical agreement between Maruti Suzuki and its dealers in the form of Dealership Agreement. There is no other agreement to impose discount control policy. CCI on analysis of Section 2(b) of the Competition Act observed that the definition of the Agreement as per Section 2(b) of the Act includes any tacit or informal understanding between entities. CCI further held that Agreements restraining competition are generally made in smoke filled rooms and therefore it is difficult to find formal/ written agreements. It is with this objective that the Act has stipulated a wider definition of agreement to catch hold of such anti-competitive conduct. Therefore, MSIL’s submission that there exists no agreement to control discounts, is devoid of substance and merits rejection. Hence, Maruti Suzuki’s argument claiming that there is no formal agreement to control discount lacks any substance. 

CCI further analyzed Section 3(4)(e) of the Act where it is mentioned that ‘resale price maintenance’ 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. 

CCI, after analyzing Clause in the Dealership Agreement, observed that reply of Maruti Suzuki is not satisfactory as it is not clear why there is no mention of the reason of imposition of penalty for violation of guidelines. Moreover, Commission refused to accept the argument of Maruti Suzuki claiming that mystery shopping agencies are appointed by the dealers to ensure maintenance of quality standards and customer satisfaction and they have no role in it. 

In view of the foregoing, CCI directed the Director General to cause an investigation under Section 26(1) of the Act and submit the report within 150 days from the receipt of this order.  

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