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Case Number

Case No. 20 of 2015

Disposition

Advocates

Shri Vikram Mehta and Shri Siddharth Jain, Advocates for the Informant alongwith Informant-in-Person.

Judges

Ashok Chawla
Chairperson
S.L Bunker, Member
Sudhir Mital, Member
Augustine Peter, Member
U.C Nahta, Member
M.S Sahoo, Member

Acts

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Smart Summary

Summary of Opinion: C. No. 20 of 2015 — Competition Commission of India

Factual and Procedural Background

This opinion arises from an information filed by Shri K. Rajarajan (the "Informant") under section 19(1)(a) of the Competition Act, 2002 ("Act"). The Informant alleged, inter alia, contraventions of sections 3 and 4 of the Act by multiple automobile manufacturers and related entities (collectively the "Opposite Parties" or "OPs"), who manufacture and sell passenger cars, two wheelers, trucks, buses, three wheelers and tractors in India.

The Informant is described as an automobile dealer operating in Tamil Nadu and the Union Territory of Pondicherry for about 25 years. He had dealership agreements with Mahindra & Mahindra Ltd. (OP 1) for heavy, medium and light commercial vehicles (renewals most recently covering 2011–2014 and a separate retail/distribution agreement renewed for 2013–2015). He was also a dealer of Bajaj Auto Ltd. (OP 14) for two wheelers (dealerships for Pondicherry since 2004 and Cuddalore since 1991); both OP 14 agreements were terminated on 10.11.2014.

The Informant alleged that LOIs (Letters of Intent) and dealership agreements used by automobile manufacturers impose one-sided, restrictive conditions that have an appreciable adverse effect on competition (AAEC) — for example, creation of entry barriers, foreclosure of competition, consumer harm, and restrictions preventing dealers from dealing in other products/services. The Informant sought, among other remedies, an order restraining OPs from imposing restrictive/anti-competitive conditions contrary to sections 3(1) and 3(4)(a)–(d) of the Act.

The Commission considered the material on record and oral arguments made for the Informant on 12.05.2015. After analysis, the Commission concluded there was no prima facie case under sections 3 and 4 and closed the matter under section 26(2) of the Act. The order is dated 30.06.2015.

Legal Issues Presented

Whether the terms and conditions contained in Letters of Intent (LOIs) and dealership agreements employed by automobile manufacturers (in particular clauses such as non-compete obligations, minimum stock requirements, and obligations to incur promotional expenditure) constitute restrictive trade practices having an appreciable adverse effect on competition (AAEC) in contravention of section 3 of the Competition Act, 2002.
Whether the conduct of the Opposite Parties, as alleged by the Informant, amounts to abuse of dominant position under section 4 of the Act.
Whether the factual material placed on record by the Informant is sufficient to establish a prima facie case warranting investigation under section 26(1) of the Act, as opposed to being commercial or monetary disputes appropriate for civil or arbitration proceedings.

Arguments of the Parties

Informant's Arguments

The Informant alleged LOIs and dealership agreements between automobile manufacturers and authorized dealers are one-sided and biased in favour of manufacturers.
Specific restrictive features alleged included: non-compete clauses restricting dealers from dealing in similar vehicles; requirements to maintain minimum stock in showrooms; obligations to spend heavily on promotion; and other exit barriers which hinder new entry and foreclose competition.
The Informant contended these practices create barriers to entry, foreclose competition, reduce potential consumer benefits, and restrict dealers from dealing in other products/services necessary to make a dealership viable.
The Informant placed reliance upon prior decisions, namely Automobile Dealers Association v. Global Automobiles Limited (Case No. 33 of 2011) and Shri Shamsher Kataria v. Honda Siel Cars & Ors. (Case No. 03 of 2011), to support his case.

The opinion does not contain a detailed account of any arguments advanced on behalf of the Opposite Parties in response to the Informant's allegations.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Automobile Dealers Association v. Global Automobiles Limited (Case No. 33 of 2011)	The opinion records that the Informant placed reliance upon this decision. The opinion does not set out any specific rule or principle from this precedent.	The Commission noted that the issues and allegations in that case were distinct from the present matter and, therefore, the precedent was not treated as directly determinative of the present case.
Shri Shamsher Kataria v. Honda Siel Cars & Ors. (Case No. 03 of 2011)	The opinion records that the Informant placed reliance upon this decision. The opinion does not set out any specific rule or principle from this precedent.	The Commission observed that the issues/ allegations in that case were distinct from those in the present matter and did not find the precedent directly applicable for establishing AAEC here.

Court's Reasoning and Analysis

The Commission's analysis proceeded in a stepwise manner based on the material on record and oral submissions:

Scope of Allegations and Parties: The Commission observed that although allegations were made against all listed OPs, the Informant had formal dealership agreements only with OP 1 (Mahindra & Mahindra Ltd.) and OP 14 (Bajaj Auto Ltd.). This concentrated the factual nexus of the complaint primarily on these two relationships.
Nature of Investments and Dealership Requirements: The Commission reasoned that the substantial investments involved in setting up showrooms and meeting manufacturer-specified requirements are dependent on factors such as brand, goodwill, and product nature. It noted that prospective dealers are typically aware of such requirements (infrastructure, personnel, working capital, minimum stock, promotion etc.) before entering into agreements, and therefore the adoption of stringent technical or investment criteria by manufacturers may not be unreasonable per se.
Assessment of Alleged Restrictive Practices: The Commission evaluated the specific practices highlighted by the Informant — e.g., non-compete clauses, minimum stock requirements, mandatory promotional expenditure — and characterized them as standard business practices in the automobile industry. The Commission found that these practices, by themselves, did not prima facie appear to contravene section 3 of the Act.
Customs and Market Context: The Commission regarded maintenance of minimum stock and promotional obligations as trade customs and usages prevalent in the market, and concluded they did not appear to create AAEC based on the record. The Commission also noted competitive dynamics among OPs, stating that OPs compete with each other for customers.
Evidence of Compulsion or Coercion: The Commission found that the Informant had not produced evidence demonstrating that OP 1 and OP 14 compelled him to accept anti-competitive terms contrary to the Act. In the absence of evidence of compulsion or conduct that materially foreclosed competition, the factual foundation for alleging infringement of sections 3 or 4 was weak.
Nature of Grievances: The Commission observed that many of the Informant's grievances appeared essentially monetary or contractual disputes. It noted that the Informant had already initiated civil suits and arbitration proceedings, implying that the matters may be more appropriately resolved in those fora rather than as competition-law contraventions on the present record.
Precedents Reliance: Although the Informant relied on two prior Commission matters, the Commission explicitly recorded that the issues in those cases were distinct from the present allegations, thereby limiting their persuasive value for the instant prima facie assessment.
Prima Facie Conclusion: On the cumulative basis of the above points — lack of direct evidence of compulsion, prevalence of the challenged practices as standard trade customs, competitive market context, and the Informant's contractual remedies — the Commission determined that the Informant had not prima facie established AAEC arising from the impugned terms and conditions.

Holding and Implications

Holding:

The Commission held that no prima facie case of contravention of sections 3 and 4 of the Competition Act, 2002 was made out against the Opposite Parties in this matter, and accordingly the matter is closed under section 26(2) of the Act.

Implications:

Direct effect: The information filed by the Informant was closed; the Commission directed the Secretary to inform the parties of the closure.
On broader law: The opinion does not purport to lay down any new legal precedent. The Commission expressly noted that two prior Commission cases relied upon by the Informant involved distinct issues and were not directly applied to find a contravention here.
Practical consequence for the Informant: The Commission viewed aspects of the dispute as contractual/monetary issues for which the Informant had pursued civil suits and arbitration, indicating that those fora may remain the appropriate channels for resolving such disputes absent evidence of AAEC or coercive anti-competitive conduct.

Order issued by the Competition Commission of India; Coram included Chairperson Mr. Ashok Chawla and Members S. L. Bunker, Sudhir Mital, Augustine Peter, U. C. Nahta and M. S. Sahoo. Date of order: 30.06.2015.

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K. Rajarajan v. Mahindra & Mahindra Ltd.

C. No. 20 of 2015 Page 1 of 9

COMPETITION COMMISSION OF INDIA

Case No. 20 of 2015

In Re:

Shri K. Rajarajan

92/93, Vinayagar Street, 100 feet Road, Dr. MGR Nagar, Pondicherry Informant And

1. Mahindra & Mahindra Ltd. Mahindra Limited Gateway Building, Apollo Bunder, Mumbai Opposite Party No. 1

2. Tata Motors Ltd. Bombay House, 24, Homi Modi Street, Fort, Mumbai Opposite Party No. 2

3. Honda Siel Cars India Ltd. 2nd Floor, Kamal Theatre Complex, Safdarjung Enclave, New Delhi Opposite Party No. 3

4. Volkswagen India Pvt. Ltd. E-1, MIDC, Industrial Area, Phase-III, Village Nigoje, Mhalunge Kharabwani, Chakan tal Khed, Pune Opposite Party No. 4

5. General Motors India Pvt. Ltd. Chandrapura, Industrial Estate, Halol, Panch Mahal, Gujarat Opposite Party No. 5

6. Toyota Kirloskar Motor Pvt. Ltd. Plot No. 1, BIDADI, Industrial Area, Ramnagra Taluk, Banglore Rural District, Karnataka Opposite Party No. 6

7. Ford India Pvt. Ltd. S.P. Koil Post Chengalpattu Opposite Party No. 7

8. Renault India Pvt. Ltd. ASV Ramana Towers, #37-38, 4th Floor, Venkatanarayana Road, T. Nagar, Chennai Opposite Party No. 8

9. Hyundai Motor India Plot No. H-1, SIPCOT Industrial Area, Irrungattukottai, Sriperumpudur Taluk, Kanchipuram, Tamil Nadu Opposite Party No. 9

10. Ashok Leyland 1, Sardar Patel Road, Guindy, Chennai Opposite Party No. 10

11. VEVC

3rd Floor, Select City Walk, A-3, District Centre, Saket, New Delhi Opposite Party No. 11

12. Tractor and Farm Equipment Ltd. 77, Nungambakkam High Road, Nungambakkam, Chennai Opposite Party No. 12

13. Piaggio Vehicles Pvt. Ltd. 217/A, Okhla Industrial Estate, Corporate Office, Okhla Phase - III, Okhla Industrial Area, New Delhi Opposite Party No. 13

14. Bajaj Auto Ltd. Akrudi, Pune Opposite Party No. 14

15. Hero MotoCorp 34, Community Centre, Basant Lok, Vasant Vihar, New Delhi Opposite Party No. 15

16. Mahindra Two Wheeler D-1 Block, Plot No. 18/2, MIDC Chinchwad, Pune Opposite Party No. 16

17. Honda Motorcycle & Scooter India Pvt. Ltd. Plot No. 1, Sector - 3, IMT Manesar, Gurgaon, Haryana Opposite Party No. 17

18. TVS Motor Co. Jayalakshmi Estate, 5th Floor, 8, Haddows Road, Chennai Opposite Party No. 18

CORAM

Mr. Ashok Chawla Chairperson Mr. S. L. Bunker Member

Mr. Sudhir Mital Member

Mr. Augustine Peter Member

Mr. U. C. Nahta Member

Mr. M. S. Sahoo Member

Appearances: Shri Vikram Mehta and Shri Siddharth Jain, Advocates for the Informant alongwith Informant-in-Person.

Order under Section 26(2) of the Competition Act, 2002

1. The present information has been filed by Shri K. Rajarajan ("Informant") under section 19(1)(a) of the Competition Act, 2002, ("Act") alleging, inter- alia, contravention of the provisions of sections 3 and 4 of the Act by the Opposite Parties who are manufacturers of passenger cars, two wheelers, trucks, buses, three wheelers and tractors in India. The Opposite Parties against whom the present information has been filed are Mahindra & Mahindra Ltd.(OP 1),

Tata Motors Ltd.(OP 2), Honda Siel Cars India Ltd. (OP 3),Volkswagen India Pvt. Ltd. (OP 4), General Motors India Pvt. Ltd. (OP 5),Toyota Kirloskar Motor Pvt. Ltd. (OP 6), Ford India Pvt. Ltd. (OP 7), Renault India Pvt. Ltd. (OP 8),

Hyundai Motor India (OP 9), Ashok Leyland (OP 10), VEVC (OP 11), Tractor and Farm Equipment Ltd. (OP 12), Piaggio Vehicles Pvt. Ltd. (OP 13), Bajaj Auto Ltd. (OP 14), Hero MotoCorp. (OP 15), Mahindra Two Wheeler (OP 16),

Honda Motorcycle & Scooter India Pvt. Ltd. (OP 17)and TVS Motor Co.(OP 18), collectively referred to as Opposite Parties/ OPs.

2. The Informant claims to be a businessman, engaged in the business of automobile dealership for passenger cars, two wheelers, commercial vehicles such as trucks, buses and three wheelers and tractors in the State of Tamil Nadu and Union Territory of Pondicherry for the last 25 years. The Informant has submitted that OPs are the manufacturers and sellers of automobile products in India and their combined market share is more than 50%.

3. The Informant has submitted that he has dealership of OP 1 for heavy, medium and light commercial vehicles since 2007 for the territories of Villupuram and Cuddalore. The dealership agreement between the Informant and OP 1 has been renewed from time to time and the last renewal was made for the period 2011 to 2014. Another dealership agreement was also entered into between the Informant and OP 1 for the retail sales and distribution of the vehicles. This dealership agreement was last renewed for the period 2013 to 2015.

4. The Informant has further submitted that he is also a dealer of OP 14 for two wheelers in the Union Territory of Pondicherry since 2004 and for the territory of Cuddalore since 1991. Dealership agreements for both Pondicherry and Cuddalore were renewed for the period from 2013 to 2015. However, both the agreements were terminated by OP 14 on 10.11.2014.

5. The Informant has filed the present information alleging restrictive trade practices being followed by OPs which haveappreciable adverse effect on competition (AAEC) in India. It is alleged that the dealership agreements between the automobile manufacturers and authorized dealers are completely one-sided and in favour of the automobile manufacturers. The Informant has alleged that the dealership agreements are in violation of the provisions of the Act, especially in relation to the following:

a) Creation of barriers to new entrants in the market,

b) Foreclosure of competition by hindering entry into the market,

c) Accrual of benefits to the consumer; and

d) Restricting the dealer not to deal other Products/ Services to make the dealership viable.

6. It is submitted that the automobile manufacturers in India generally sell their vehicles to consumers through authorized dealers. The automobile manufacturers appoint their authorized dealersthrough dealership agreements which are preceded by Letter of Intent (LOI). Usually a prospective dealer seeking dealership of an automobile company has to satisfy the automobile manufacturer that he has adequate infrastructure, personnel, investments, working capital etc.

7. It is averred that setting up of a showroom involves huge investments. The Informant in the present case has referred to some LOIs in orderto highlight the requirement of huge investments for setting up of a showroom. The Informant has further pointed out that many a times, the manufacturer refuses to enter into dealership agreementafter the authorized dealer has built the infrastructure in accordance with the terms of the LOI. The Informant has also highlighted certain restrictive clauses in the dealership agreements like restriction on dealing in vehicles similar to the manufacturer's vehiclesdirectly or indirectly, maintenance of minimum stock in the showrooms, incurring huge expenditure in promotion of sales, exit barriers etc.,which are alleged to be one-sided and heavily biased in favour of OP 1 and OP 14.

8. Based on the above allegations, the Informant has prayed, inter alia, for restraining OPs from imposing restrictive/ anti-competitive conditions which are contrary to the provisions of sections 3(1), 3(4)(a) to (d) in their LOIs and dealership agreements.

9. The Commission has perused the material available on record. The arguments made by the counsel on 12.05.2015 on behalf of the Informant were also considered by the Commission.

10. At the outset, the Commission notes that though the Informant has made allegations of contravention of the provisions of the Act against all the OPs, he has entered into dealership agreements with OP 1 and OP 14 only.

11. From the facts of the case, it is revealed that the Informant is primarily aggrieved by the imposition of alleged anti-competitive terms and conditions by OPs in their LOIsand dealership agreements. The Informant has alleged that the terms of the agreements entered with OP-1 and OP-14 are one-sided and loaded in favour of these two manufacturers only.

12. So far as the huge investment incurred for setting-up ofa showroom for the sale of automobiles of a specific manufacturer is concerned, the Commission observes that the same is dependent on the brand, goodwill of the manufacturer and the nature of product. Every prospective dealer, who wishes to become an authorized dealer,is well awareof the requirements in terms of investment, infrastructure, stock of minimum vehicles, promotional activitiesetc., thus the dealer has the choice of selecting the automobile manufacturer after weighing out the cost and other conditions. Therefore, the stringent criteria adopted by the automobile manufacturers in terms of technical expertise, infrastructure, investment etc. while appointing their authorized dealers may not be considered as unreasonable.

13. As regards the practices which have been alleged by the Informant to be contrary to the provisions of the Act, the Commission is of the view that such practices which have been highlighted by the Informant like non-compete

clauses, maintenance of minimum stock in showroom, incurring expenditure in promotion of sales etc. are standard business practices being followed by the automobile manufacturers and do not by themselves appear to be contrary to the provisions of section 3 of the Act.As far as the issue of maintenance of minimum stock in dealer's showroom and promotion of sales, it is observed that such practices are trade customs and usages which are prevalent in the market and also do not appear to create anyAAEC.Further, it is observed that OPs are competing each other in order to obtain the patronage of a large number of customers.

14. The Commission notes that the Informant has not provided any evidence to establish that OP1 and OP14 have compelledthe Informant to accept any anti- competitive terms and conditions, which are contrary to the provisions of the Act. Essentially, the grievances of the Informant appear to be monetary disputes for which Informant has already initiated civil suits and arbitration proceedings before the appropriate authorities.

15. Lastly, it may be observed that in order to buttress his allegations, the Informant has placed reliance upon Automobile Dealers Association v. Global Automobiles Limited (Case No.33 of 2011) and Shri Shamsher Katariav. Honda Siel Cars &Ors.(Case No. 03 of 2011). However, it is noted that the issues/ allegations involved in both the said cases were distinct from the present case.

16. Considering the facts and circumstances of the present case, the Commission is of the view that the Informant has not been able to even prima facie establish AAEC in the market with respect to the impugned terms and conditions contained in the LOI or dealership agreements of the OPs.

17. In light of the above, the Commission finds that no prima facie case of contravention of the provisions of sections 3 and 4 of the Act is made out against OPs in the instant matter. Accordingly, the matter is closed under the provisions of section 26(2) of the Act.

18. The Secretary is directed to inform the parties accordingly.

Sd/- Ashok Chawla (Chairperson) Sd/-

S. L. Bunker (Member) Sd/-

Sudhir Mital (Member) Sd/-

Augustine Peter (Member)

Sd/-

U. C. Nahta (Member) Sd/-

M. S. Sahoo (Member) New Delhi Date: 30.06.2015

K. Rajarajan v. Mahindra & Mahindra Ltd.

Summary of Opinion: C. No. 20 of 2015 — Competition Commission of India

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Informant's Arguments

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

K. Rajarajan v. Mahindra & Mahindra Ltd.

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