Case Law Details
N. Rajesh Kumar Vs Shubham Consumer Durables Pvt. Ltd. (Competition Commission of India)
The CCI evaluates the Franchise Agreement and the conduct of the opposite parties, including the alleged unilateral changes to the refundable security deposit, decision-making on premises location, failure to send profit from sales, disregarding purchase orders, and unfulfilled assurances. The analysis determines that the allegations fall within the realm of commercial disputes rather than competition concerns.
Based on the analysis, the Competition Commission of India finds no contravention of the provisions of the Competition Act. The Information filed by N. Rajesh Kumar is directed to be closed in accordance with Section 26(2) of the Act. The CCI concludes that the remedies for the informant lie elsewhere, as the allegations pertain to a failed business arrangement. Shubham Consumer Durables is cleared of any violation of the Competition Act.
FULL TEXT OF THE JUDGMENT/ORDER OF COMPETITION COMMISSION OF INDIA
Order under Section 26(2) of the Competition Act, 2002
1. The present Information has been filed by Mr. N. Rajesh Kumar (‘Informant’) under Section 19(1) (a) of the Competition Act, 2002 (‘Act’) against Shubham Consumer Durables Pvt Ltd (‘Opposite Party No.1’/ ‘OP-1’), Shri Sampat Lai Kothari (‘Opposite Party No.2’/ ‘OP-2’) and Shri Anil Kumar N (‘Opposite Party No.3’/ ‘OP-3’) [collectively, ‘Opposite Parties’/ ‘OPs’] alleging, inter alia, contravention of the provisions of Sections 3 and 4 of the Act.
2. The Informant is stated to be the proprietor of M/s Shree Padmavathi Enterprises which entered into a franchise agreement dated 29.12.2019 (“Franchise Agreement”) with OP-1 for the supply of consumer durable goods to the Informant for retail sales for a period of five years, from 01.01.2020 to 31.12.2024 with a lock-in period of three years.
3. It has been stated in the Information that OP-1 is a leading consumer durables company incorporated under the provisions of Companies Act, 1956. OP-1 is stated to be engaged in the business of supplying consumer durables, all types of electronics, electrical items, home appliances, computer products, furniture, mobile and its accessories as wholesalers and retailers to retail shops as franchisees.
4. It has been averred in the Information that the Informant had entered into the Franchise Agreement with OP-1 on being impressed at its wide range of consumable items, associated quality and highly competitive rates, especially the IVEE brand launched by OP-1 in the year 2006. OP-2 and OP-3 are stated to be the Proprietor/Managing Director and Area Sales Manager of OP-1, respectively.
5. The Informant has submitted that, at the time of execution of the Franchise Agreement, it was agreed between the parties that INR 3,00,000/- was payable by the Informant to OP-1 as refundable deposit amount to open a showroom near Railway Station, Chikkaballapura, Karnataka. However, OP-1 subsequently executed another franchise agreement on 04.01.2020, which stipulated that out of the INR 3,00,000/- to be deposited with it, INR 2,00,000/- was a non-refundable franchise fee and INR 1,00,000/- was refundable security deposit.
6. It has been further alleged by the Informant that the place of business was chosen by OP-3 as it was convenient for OP-1 and was against the wishes of the Informant. It has been submitted that OP-3 negotiated and agreed the terms of rent and advance money with Mr. Narasimha Murthy C e., the owner of the premises/ landlord and finalised the same without intimation to the Informant, and accordingly, the Informant was forced to enter into the rent agreement dated 29.06.2020 for the premises. It has also been alleged that there was a delay in procuring the trade licence necessary to start the business by a period of four months from the concerned authority, due to non-payment of property tax and failure to obtain the construction approval plan by the landlord/ owner.
7. The Informant has alleged that, in the month of June 2020, OP-1 had issued a comfort letter in favour of the Informant to Branch Manager, SBI, YPMC Yard Branch, Chikkaballapura, recommending the bank to grant a loan of INR 37,50,000/- to the Informant out of which INR 30,00,000/- was supposed to be dedicated to purchase inventory and INR 7,50,000/-for putting up the interior decoration for the showroom. Adding to this, it has been stated that the said bank sanctioned a loan amount of INR 37,40,000/- out of which INR 30,00,000/- was for purchase of inventory and INR 7,40,000/- was for interior decorations. Thereafter, OP-1 sent the interior decorating material stating its cost at INR 6,25,000/-whereas the Informant, upon inquiry, found that the actual cost of the same was not more than INR 4,00,000/-.
8. The Informant has further averred, that since starting its business in December 2020, it has been sending the amounts billed from customers inclusive of profit to the Franchisor’s/OP-1’s account on a day-to-day basis. It has been alleged that, under the Franchise Agreement, OP-1 was to return the profit over the sales to the Informant’s account, which has not been done till the date of the filing of the Information. It has been submitted that the Informant has been conducting its business by spending his personal money, and OP-2 has been harassing the Informant for repayment of loan amount interest without making any payment of profit to the Informant.
9. It has been stated that the Informant had approached OP-1 with purchase orders in the month of February and March 2021, which were both not responded to, pursuant to which, the Informant sent an e-mail in April 2021 for ‘franchisee cancelation’. Thereafter, OP-1 replied to the Informant directing it to run its business like its other franchisees and visit OP-1’s office to resolve the issue. It has been submitted that the Informant could only visit the office of OP-1 in the month of July 2021 due to lockdown restrictions imposed by the State Government and the issue could not be resolved. It has been further submitted that OP-1 thereafter blocked the system login of the Informant’s proprietorship, pursuant to which the Informant had no choice but to shut down its showroom completely as it could not make any sales or generate bills without login permission.
10. In addition to the above, the Informant has also alleged that certain assurances with respect to sales promotion, incentives on achieving sales target, fixation of card swipe charges, etc. given by OP-1 at the time of execution of the Franchise Agreement were also not fulfilled at all.
11. The Informant has alleged that the above-mentioned conducts of OPs amount to cheating, fraud and misrepresentation and that have forced the Informant to shut down its business, causing loss of reputation in business circles, loss of future earnings, affecting mental peace apart from resulting in downgrading of financial credit rating, leading to banks refusing lending. Accordingly, it is alleged that the aforesaid conducts of the OPs have contravened the provisions of Sections 3 and 4 of the Act and the Informant has sought recovery of INR 1.5 crores from OPs and the compensation.
12. Having considered the averments and allegations made in the Information, the Commission notes that the, the Informant is primarily aggrieved of the alleged cheating, misappropriation and fraud on the part of the OPs, as detailed hereinabove, arising out of the Franchise Agreement, under which OP-1 was to supply consumer durable goods to the Informant for retail sales for a period of 5 years.
13. As stated in the Information, OP-1 is a registered company incorporated under the provisions of the Companies Act engaged in the wholesale and retail supply of consumer durable goods. OP-2 and OP-3 are the Proprietor and Area Sales Manager of OP-1. As regards contravention of Section 3 of the Act is concerned, the Commission notes that provisions of Section 3(1) of the Act read with Section 3(3) thereof have no manner of application in the factual matrix of the present case as Section 3(3) of the Act requires two or more enterprises engaged in identical or similar trade of goods or provision of services. Looking at the relationship of OP-2 and OP-3 with OP-1 as detailed above, it is evident that provisions of Section 3(3) of the Act are not attracted.
14. As regards contravention of Section 3(4) of the Act, it is noted that the Informant had entered into a Franchisee Agreement with OP-1 for the retail sale of consumer durable goods to be supplied by OP-1, pursuant to which a relationship of franchisor- franchisee had been established between the parties. On perusal of the Information, it appears that the Informant is aggrieved by the conduct of the OPs in allegedly cheating, defrauding and misrepresenting the Informant in, inter alia, (i) unilaterally changing the amount of refundable security deposit; (ii) deciding the location of the premises unilaterally, which also resulted in delay in procuring trade license; (iii) not sending profit from sales to the Informant’s account till date; (iv) ignoring the purchase orders of the Informant and subsequently disabling the system login of the Informant, and (v) not fulfilling the assurances given by the OPs at the time of execution of the Franchise Agreement.
15. On plain reading of the allegations, the Commission is of the considered opinion that such allegations are purely in the realm of commercial disputes arising out of a failed business arrangement raising no competition concerns. The remedies of the Informant lie elsewhere.
16. For the aforesaid reasons, it is unnecessary to delve deeper into the allegations relating to violation of the provisions of Section 4 of the Act. Moreover, the Commission is of the opinion that, though the Informant has not delineated any relevant market, taking the relevant market as ‘market for supply of consumer durable goods in the State of Karnataka’, OP-1 does not appear to command sufficient market power in the said relevant market due to the market construct and presence of multiple players, including multinational firms offering similar services.
17. Resultantly, the Commission is of the opinion that no case of contravention of the provisions of the Act is made out and the Information filed is directed to be closed forthwith in terms of the provisions of Section 26(2) of the Act.
18. The Secretary is directed to communicate to the Informant accordingly.
