MEDIA REPORT ANALYSIS on CCI imposes ₹200 crore penalty on Maruti Suzuki for entering into anti-competitive agreements with dealers to restrict discounts
Summary: The article by Jelysna Chacko on Bar and Bench examines the Competition Commission of India’s (CCI) ₹200 crore penalty against Maruti Suzuki India Limited (MSIL) for engaging in anti-competitive practices. MSIL allegedly entered into agreements with dealers to enforce a “Discount Control Policy,” limiting discounts and controlling resale prices, a practice known as Resale Price Maintenance (RPM). To enforce this policy, MSIL reportedly appointed Mystery Shopping Agencies (MSAs) to monitor dealer discounts and threatened penalties or restricted supplies for non-compliance. The CCI invoked Section 19(1) of the Competition Act, 2002, acting on complaints and conducted a probe via its Director General, who presented evidence of MSIL’s directives to dealers regarding discount restrictions. MSIL’s legal defense argued these agreements did not explicitly restrict discounts and claimed MSAs were dealer-appointed, not MSIL-mandated. However, CCI’s investigation uncovered email exchanges proving MSIL’s control over discount policies and penalties for violations. CCI concluded that MSIL’s practices impacted competition by restricting dealers from independently setting resale prices, thereby reducing competitive pricing for consumers. Under Section 27 of the Competition Act, CCI ordered MSIL to cease such practices and imposed the penalty, reinforcing RPM as an anti-competitive practice that limits market competition and impacts consumer choice.
The Bar and Bench published an article with the heading “CCI imposes ₹200 crore penalty on Maruti Suzuki for entering into anti-competitive agreements with dealers to restrict discounts”[1] on 24th August, 2021. This article is based on the case Re: Alleged anti-competitive conduct by Maruti Suzuki India Limited in implementing discount control policy vis-à-vis dealers[2] and discusses the Order passed under Section 27[3] of the Competition Act, 2002 by the Competition Commission of India. It focuses on the anti-competitive agreements entered into by Maruti Suzuki India Limited (MSIL) with its dealers across India in order to impose a Discount Control Policy leading to Resale Price Maintenance (RPM) and further monitoring it through the appointment of Mystery Shopping Agencies (MSAs) and imposing penalties. In order to determine whether MSIL’s actions caused a noticeably negative impact on competition and violated any particular Sections of the Competition Act of 2002, this article highlights the order that the CCI passed following its review of the investigation report that the Director General had submitted as well as additional evidence, such as emails that were exchanged between MSIL and the dealers. It also tracks the penalties that were collected.
In response to an unnamed email from an MSIL dealer and other claims that MSIL’s sales policy was in conflict with the interests of its customers and in violation of the Competition Act of 2002, CCI under Section 19(1)[4] of the Competition Act, 2002, invoked suo moto power in the case highlighted in the current article. The DG was then directed by CCI to investigate the matter as per Section 26(1)[5] of the Competition Act, 2002, and submit a report on the same. The report submitted by the DG, as per Section 26(3)[6] of the Competition Act, 2002, ascertained that MSIL specifically instructed the dealers to restrict giving discounts to customers to the limit mandated by MSIL and also appointed MSA to induce the Discount Control Policy by keeping a track of the discounts offered by the dealers. The inquiry report also mentioned that MSIL would penalize them or stop supplying them with premium models if they were found to have violated the Discount Control Policy.
MSIL, represented by Senior Advocates namely, Dr. Abhishek Manu Singhvi, Rajshekhar Rao, and Shardul Amarchand Mangaldas, contended that MSIL was only an independent third party and “Dealership Agreements” with no provision to restrict discounts were the only agreements MSIL entered with the dealers. Further, MSAs being appointed by MSIL was denied, stating that the dealers themselves appointed the MSAs. But CCI in the Order states clearly that the DG has recovered multiple e-mails between MSIL and the dealers which shows beyond doubt that MSIL had a Discount Control Policy in operation and dealers were thus discouraged from offering any extra discounts or freebies, beyond the permitted discounts by MSIL. Any violation of the same was threatened with ceasing the supplies and imposition of penalties on the dealership and upon the individual persons, including the Direct Sales Executive, Showroom Manager, etc.
The author of the article also highlights the penalties collected being tracked by CCI in its Order through the questioning of Swati Kale by DG. Swati Kale who is the wife of Vinod Kale (President of an MSIL dealership in Pune) conformed her role of receiving cheques, depositing the same in her account and issuing cheques as and when required in order to comply with the instructions of the Regional Manager of MSIL. Further her statement of accounts was submitted showing the credit entries for penalty amounts and debit entries for cheques issued.
CCI then addressed the issue as to whether these practices by MSIL were in violation of the provisions of the Competition Act, 2002. Explanation (e) of Section 3(4)[7] talks about Resale Price Maintenance (RPM) as any agreement to sell goods on the condition that the prices to be charged on the resale by the purchaser should be the prices stipulated by the seller unless stated otherwise. In view of this, the CCI concluded that the discount limits imposed by MSIL on its dealers amount to RPM under Section 3(4)(e)[8] of the Act. The Order states that RPM hinders the effective competitive practices in both the intra-brand and inter-brand levels by preventing the distributors to compete effectively on the prices as then the distributors are prohibited to reduce the sale prices beyond limits which in turn leads to the consumers paying higher prices.
As a result, after determining the pertinent issues, CCI noted that the imposition of RPM by MSIL, which has a sizable market share, affects both intra and inter-brand competition. Further, under Section 27(a)[9], the CCI prohibits MSIL from entering into RPM policies directly and indirectly as in contravention to Section 3(4)(e)[10] of the Act and as per Section 27(b)[11], imposes a penalty of Rs. 200 crores on MSIL to be deposited within 60 days of receipt of the concerned order.
The topic of discussion in this current article is related to anti-competitive agreements, the creation of appreciable adverse effects on competition, and resale price maintenance, covered under Section 3[12] of the Act which deals with anti-competitive agreements. Section 3(1)[13] prohibits enterprises from entering into agreements that can lead to appreciable adverse effect on competition. Section 3(4)(e)[14] of the Act states about RPM and treats such practices as anti-competitive and the creation of appreciable adverse effects on market competition. A manufacturer or supplier that tries to regulate or control the resale price at which its products are sold by retailers or distributors is known as a Resale Price Maintenance (RPM) business practice and is regarded as an anti-competitive activity that can hurt competition, restrict consumer choice and result in unfair pricing. The penalties imposed by the CCI showcase the relevance and reliance on Section 27[15] of the Act which states about “Orders by Commission after inquiry into agreements or abuse of dominant position”. The current article and the points discussed in this relates to the above-mentioned topics under Unit 1 and specifically Unit 3 which deals with the discussion and understanding of anti-competitive agreements as per the Course Plan.
[1] Jelysna Chacko, CCI imposes ₹200 crore penalty on Maruti Suzuki for entering into anti-competitive agreements with dealers to restrict discounts, Bar and Bench, 2021
[2] Suo Motu Case No. 01 of 2019
[3] The Competition Act, 2002, S27, No. 12, Acts of Parliament, 2003 (India)
[4] The Competition Act, 2002, S19(1), No. 12, Acts of Parliament, 2003 (India)
[5] The Competition Act, 2002, S26(1), No. 12, Acts of Parliament, 2003 (India)
[6] The Competition Act, 2002, S26(3), No. 12, Acts of Parliament, 2003 (India)
[7] The Competition Act, 2002, S3(4), No. 12, Acts of Parliament, 2003 (India)
[8] The Competition Act, 2002, S3(4)(e), No. 12, Acts of Parliament, 2003 (India)
[9] The Competition Act, 2002, S27(a), No. 12, Acts of Parliament, 2003 (India)
[10] The Competition Act, 2002, S3(4)(e), No. 12, Acts of Parliament, 2003 (India)
[11] The Competition Act, 2002, S27(b), No. 12, Acts of Parliament, 2003 (India)
[12] The Competition Act, 2002, S3, No. 12, Acts of Parliament, 2003 (India)
[13] The Competition Act, 2002, S3(1), No. 12, Acts of Parliament, 2003 (India)
[14] The Competition Act, 2002, S3(4)(e), No. 12, Acts of Parliament, 2003 (India)
[15] The Competition Act, 2002, S27, No. 12, Acts of Parliament, 2003 (India)
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Author: Himika Sarkar- 5th year Law Student of Christ (Deemed to be University)
Source: Title of the Article – CCI imposes ₹200 crore penalty on Maruti Suzuki for entering into anti-competitive agreements with dealers to restrict discounts| Author/Organization- Jelysna Chacko, Bar and Bench | Date of Publication – 24th August, 2021
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