CCI slaps Hyundai with fine of Rs 420.26 cr for restricting open sale of spare parts
Wednesday 29 July 2015|
Hardik Bhawsar
New Delhi: Coming down hard on carmakers found to be restricting sale of spare parts in open market, fair trade regulator CCI on Tuesday imposed a penalty of Rs 420.26 crore on Hyundai Motor India and asked two others -- Reva and Premier -- to 'cease and desist' from anti-competitive practices.
This follows penalties totaling Rs 2,544.64 crore imposed on 14 other car makers in August last year in the same case. Those companies included Honda Siel, Fiat, Volkswagen, BMW, Ford, General Motors, Hindustan Motors, M&M, Maruti Suzuki, Mercedes-Benz, Nissan Motors, Skoda, Tata Motors and Toyota Kirloskar Motors.
Passing the latest order, which completes the action in the case of a long-running probe against 17 carmakers, CCI said that there are certain "mitigating factors" which work in favour of Premier and Reva (a subsidiary of auto giant Mahindra and Mahindra) and therefore, the Commission has decided not to impose any monetary penalty against the two.
However, other directions for all the 17 companies would be applicable to these two also.
CCI said that all these companies "had stringent warranty conditions which required their customers to only get their automobile repaired through their authorised service network of dealers, otherwise their warranty would be invalidated".
Besides, these companies, either specifically through their agreements or otherwise through understanding with their dealers, have restricted or prohibited the sale of spare parts over the counter, thereby resulting in prescribing exclusive distribution agreements and refusal to deal as per the fair competition norms.
While Hyundai submitted before CCI that its case was different from the other companies and it deserved "a reduced penalty", CCI ruled that "most of the factors cited by Hyundai are general in nature which do not qualify for a reduced penalty".
Accordingly, CCI decided to impose a penalty of 2 per cent of the average annual turnover for three financial years in India, resulting in a fine of Rs 420.26 crore, as per the 58-page order issued on Tuesday.
CCI ordered all the three companies (Hyundai, Reva and Premier) to "immediately cease and desist from indulging in conduct which has been found to be in contravention of the provisions of the Competition Act".
They have also been directed to put in place an effective system to make the spare parts and diagnostic tools easily available through an efficient network.
Besides, they have been asked to allow sale of spare parts in the open market without any restriction, including on prices. In the case of intellectual property rights on some parts, they can charge royalty or a fee while ensuring that they are not in violation of the competition law.
The carmakers have also been asked to ensure they do not place any restrictions or impediment on the operation of independent repairers/garages.
About Premier, CCI said it was found to be dominant in the aftermarket for its genuine spare parts and diagnostic tools and correspondingly in the aftermarket for the repair services of its brand of automobiles.
However, "its conduct remained untested during the DG (Director General) investigation", CCI said.
"It is to be noted that at the relevant time period of the investigation, all Premier cars were under warranty and as such, the conduct of Premier with respect to abuse of dominance remained untested. Furthermore, Premier did not impose any restrictions on its authorised dealers to deal with vehicles of competing brands," the order said.
In the case of Reva, CCI said that with respect to the agreements entered with the authorised dealers, the DG during the investigation has found that its spare parts were, to some extent, available over the counter.
On Hyundai, CCI said the company urged that its case was entirely different from others.
"It has been contended that the excessive pricing by the other OEMs (Original Equipment Manufacturer) was extremely high as compared to Hyundai. It was further urged that it's the very first competition law infringement case against Hyundai and it has effectively cooperated with the DG and also with the Commission.
"Hyundai also submitted that it allowed over-the-counter sales partially. It was also contended that the automobile sector is being investigated for the first time and, therefore, no fine should be levied. It may be noted that most of the factors cited by Hyundai are general in nature which do not qualify for a reduced penalty," CCI said.
CCI said that its directions "will have to be complied with" by the present Opposite Parties -- Hyundai, Premier and Reva -- in letter and spirit.
"Each OP is directed to file an individual undertaking, within 60 days of the receipt of their order, about compliance to cease and desist from the present anti-competitive conduct, and initiation of action in compliance of the other directions.
"This will be followed by a detailed compliance report on all directions within 180 days of the receipt of the order. The amount of penalty will have to be paid by Hyundai within 60 days of the receipt of this order," it added.
Later, Hyundai said the matter is already sub-judice.
"The matter is sub-judice since the issue is pending before the Madras High Court. We shall await the final order from the high court," the company said in a statement.
Comments could not be obtained from Reva and Premier.
CCI's orders can be challenged before the Competition Appellate Tribunal.
This follows penalties totaling Rs 2,544.64 crore imposed on 14 other car makers in August last year in the same case. Those companies included Honda Siel, Fiat, Volkswagen, BMW, Ford, General Motors, Hindustan Motors, M&M, Maruti Suzuki, Mercedes-Benz, Nissan Motors, Skoda, Tata Motors and Toyota Kirloskar Motors.
Passing the latest order, which completes the action in the case of a long-running probe against 17 carmakers, CCI said that there are certain "mitigating factors" which work in favour of Premier and Reva (a subsidiary of auto giant Mahindra and Mahindra) and therefore, the Commission has decided not to impose any monetary penalty against the two.
However, other directions for all the 17 companies would be applicable to these two also.
CCI said that all these companies "had stringent warranty conditions which required their customers to only get their automobile repaired through their authorised service network of dealers, otherwise their warranty would be invalidated".
Besides, these companies, either specifically through their agreements or otherwise through understanding with their dealers, have restricted or prohibited the sale of spare parts over the counter, thereby resulting in prescribing exclusive distribution agreements and refusal to deal as per the fair competition norms.
While Hyundai submitted before CCI that its case was different from the other companies and it deserved "a reduced penalty", CCI ruled that "most of the factors cited by Hyundai are general in nature which do not qualify for a reduced penalty".
Accordingly, CCI decided to impose a penalty of 2 per cent of the average annual turnover for three financial years in India, resulting in a fine of Rs 420.26 crore, as per the 58-page order issued on Tuesday.
CCI ordered all the three companies (Hyundai, Reva and Premier) to "immediately cease and desist from indulging in conduct which has been found to be in contravention of the provisions of the Competition Act".
They have also been directed to put in place an effective system to make the spare parts and diagnostic tools easily available through an efficient network.
Besides, they have been asked to allow sale of spare parts in the open market without any restriction, including on prices. In the case of intellectual property rights on some parts, they can charge royalty or a fee while ensuring that they are not in violation of the competition law.
The carmakers have also been asked to ensure they do not place any restrictions or impediment on the operation of independent repairers/garages.
About Premier, CCI said it was found to be dominant in the aftermarket for its genuine spare parts and diagnostic tools and correspondingly in the aftermarket for the repair services of its brand of automobiles.
However, "its conduct remained untested during the DG (Director General) investigation", CCI said.
"It is to be noted that at the relevant time period of the investigation, all Premier cars were under warranty and as such, the conduct of Premier with respect to abuse of dominance remained untested. Furthermore, Premier did not impose any restrictions on its authorised dealers to deal with vehicles of competing brands," the order said.
In the case of Reva, CCI said that with respect to the agreements entered with the authorised dealers, the DG during the investigation has found that its spare parts were, to some extent, available over the counter.
On Hyundai, CCI said the company urged that its case was entirely different from others.
"It has been contended that the excessive pricing by the other OEMs (Original Equipment Manufacturer) was extremely high as compared to Hyundai. It was further urged that it's the very first competition law infringement case against Hyundai and it has effectively cooperated with the DG and also with the Commission.
"Hyundai also submitted that it allowed over-the-counter sales partially. It was also contended that the automobile sector is being investigated for the first time and, therefore, no fine should be levied. It may be noted that most of the factors cited by Hyundai are general in nature which do not qualify for a reduced penalty," CCI said.
CCI said that its directions "will have to be complied with" by the present Opposite Parties -- Hyundai, Premier and Reva -- in letter and spirit.
"Each OP is directed to file an individual undertaking, within 60 days of the receipt of their order, about compliance to cease and desist from the present anti-competitive conduct, and initiation of action in compliance of the other directions.
"This will be followed by a detailed compliance report on all directions within 180 days of the receipt of the order. The amount of penalty will have to be paid by Hyundai within 60 days of the receipt of this order," it added.
Later, Hyundai said the matter is already sub-judice.
"The matter is sub-judice since the issue is pending before the Madras High Court. We shall await the final order from the high court," the company said in a statement.
Comments could not be obtained from Reva and Premier.
CCI's orders can be challenged before the Competition Appellate Tribunal.
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