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LexCognito

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: 28 November 2019
NCLAT on Competition Law - Non-Renewal of Dealership after its Expiry may lead to Civil Liability but is not an Abuse of Dominant Position
In the matter of Parsoli Motors Works Pvt. Ltd. Vs. BMW India Pvt Ltd and others, the National Company Law Appellate Tribunal has held that non-renewal of dealership after its expiry would not amount to an abuse of dominant position.

Facts:

BMW India Pvt. Ltd. ("BMW India") is the manufacturer and seller of BMW cars in India and sells the product in India through dealers. Parsoli Motors Works Pvt. Ltd. ("Informant") was a dealer of BMW India for selling BMW cars in the state of Gujarat since 2007 and the dealership subsisted till 31st December, 2017. However, on 7 December 2017, BMW India wrote a letter to the Informant that the existing dealership would not be renewed and would expire on 31st December, 2017.

Feeling aggrieved by non-renewal, the Informant filed an information with Competition Commission of India (“CCI”) under Section 19(1)(a) of the Competition Act alleging that while it was not given sufficient time to exit from the business and the effect of termination of its dealership allowed dealers outside Gujarat to sell BMW cars to customers in Gujarat resulting in loss to the Gujarat Exchequer besides causing financial loss to the Informant and such act would amount to abuse of dominant position.

CCI closed the case by passing an order on 30 May 2018 while stating that existing Dealership Agreement stood expired by efflux of time on 31 December 2017 due to non-renewal thereof.

This appeal was filed by the Informant with NCLAT challenging the CCI’s order.

Discussion & decision:

Before dealing with the allegation of abuse of dominant position, NCLAT dealt with the issue whether BMW India is a dominant enterprise or not. It noted that CCI had found that BMW India has negligible share in passenger car segment in India which is dominated by its formidable competitors like ‘Maruti’, ‘Hyundai’, ‘TATA’, etc. who hold a significant market share. Thus, it concluded that BMW India cannot be said to be a dominant player, therefore, question of abuse of dominant position did not at all arise.

On the issue whether non-renewal of dealership by BMW India after its expiry amounts to abuse of dominant position or not, NCLAT held that even if it is assumed for the sake of argument that the termination of the dealership of the Informant or refusal on the part of BMW India to further renew dealership in favour of the Informant is in derogation of the policy framed in this regard and the Informant had altered its position by raising infrastructure and making investment for running such dealership, breach thereof may give rise to civil liability but not have the consequence of abuse of dominant position. It also stated that merely because, the act of refusal on the part of BMW India to renew dealership of Informant beyond 31 December 2017 may have caused pecuniary loss to the Informant does not raise any competition concern. In view thereof, NCLAT dismissed the appeal.

Conclusion:

It is not the Dominant Position but its abuse is prohibited. Dominant position means a position of strength enjoyed by an enterprise in the relevant market which enables it to operate independently of the competitive forces prevailing or to affect its consumers or competitors or relevant market in its favour. A dominant enterprise has special responsibility under competition law and is prohibited from abusing its dominant position and disrupting fair competition in the market.

In cases of contravention, CCI is empowered to issue cease and desist order, impose penalties, order division of dominant enterprise or issue such other orders or directions as it may deem necessary. In order to avoid contravention and its repercussions, it is imperative for bigger enterprises to periodically review their market position to ascertain whether it is dominant enterprise or not and accordingly monitor their business practices including dealership arrangements. Further, it is advisable to have a robust and comprehensive competition law policy and ensure effective implementation for building systems in identifying risks of violation and taking timely corrective measures.
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