This issue of LexCognito, which in Latin means 'awareness about law', seeks to provide you an insight into significant legal and regulatory developments that have taken place very recently in India.
Date: 27 August 2021
India’s Competition Regulator imposed $27 Million penalty on Maruti Suzuki over Dealer Discount Policy
The Competition Commission of India (“CCI”) has passed an order dated 23 August 2021 against Maruti Suzuki India Limited (“MSIL”) for indulging in the anti-competitive practice of Resale Price Maintenance (RPM) by implementing Discount Control Policy vis-à-vis dealers to restrict them and control discounts they can offer to the consumers, which resulted in an appreciable adverse effect on competition within India. By way of the said order, CCI imposed a penalty of $27 Million which has been directed to be deposited within 60 days from the receipt of the order. CCI further directed MSIL to cease-and-desist from indulging in such practices.
CCI took suo moto cognizance of the matter over a complaint filed by a putative dealer of MSIL who alleged that MSIL forces its dealers to limit discounts they offer to the consumers. If any dealer was found giving an extra discount, he was penalized. Such practices adversely affect competition amongst dealers and harm consumers as it results in denial of benefits of competitive prices to them.
During an investigation launched by the Director-General on the direction of CCI, it was found that MSIL had a ‘Discount Control Policy’ in place for its dealers whereby the dealers were discouraged from giving extra discounts, freebies, etc. to the consumers beyond what was permitted by MSIL. If found to be violating the policy, the dealers were threatened with the imposition of penalty, not only upon the dealership, but also upon its individual persons, including Direct Sales Executive, Regional Manager, Showroom Manager, Team Leader, etc., and stopping of supplies.
It was further found that to enforce its Discount Control Policy, MSIL used to appoint Mystery Shopping Agencies (MSAs) who used to pose as customers to MSIL dealerships to find out if any additional discounts were being offered by such dealerships to customers or not. If found offered, the MSA would report to MSIL management with proof (audio/video recording) who, in turn, would send an e-mail to the errant dealership with a ‘Mystery Shopping Audit Report’, confronting them with the additional discount offered and asking for clarification. If clarification was not offered by the dealership to the satisfaction of MSIL, the penalty would be imposed on the dealership and its employees, accompanied in some cases, by the threat of stopping supplies.
CCI concluded that MSIL not only entered into an agreement with its dealers across India for the imposition of Discount Control Policy amounting to RPM but also monitored the same by appointing MSAs and enforced the same through the imposition of penalties, which resulted in an appreciable adverse effect on competition within India, thereby committing contravention of the provisions of Section 3(4)(e) read with Section 3(1) of the Competition Act.
Chrilegal Comment:
The practice of setting a maximum discount which the dealers can offer to the consumers effectively mean setting a minimum price for the products i.e. resale price maintenance which is prohibited under competition law if it has an appreciable adverse effect on competition in India. Having said that, in order to rule out any risk of violation under the competition law, it is imperative for corporates to continuously review their practices and arrangements with persons at different stages of the production chain while at the same time considering the market share they enjoy. Imbibing a culture of compliance within an organization and sensitizing employees is a humongous task that needs to be implemented by taking several meaningful steps in that direction.
Chambers of Rajan & Indraneel
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Chambers of Rajan & Indraneel is a premier full service law firm headquartered at New Delhi, India. The Firm represents amalgamation of vast experiences and practices of two eminent lawyers. Indranil Ghosh is highly reputed as a disputes lawyer. He was a senior partner and head of litigation practice in one of the oldest Indian law firm Fox Mandal for several decades before setting up his own practice. Rajan D Gupta is a rank holder Chartered Accountant turned Corporate Lawyer. He is also a licensed Insolvency Resolution Professional. He has been associated with internationally renowned big law firms in past and has held senior level positions in firms like PwC, Fox Mandal, Khaitan & Co. and SRGR Law, etc. before starting the Firm.
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