- (1.) FACTUAL Background 1.1 The information in the present case was filed by Shri Shamsher Kataria (hereinafter, referred to as the "Informant") under Section 19(1)(a) of the Competition Act, 2002 (hereinafter, referred to as the "Act") on 18.01.2011 against Honda Siel Cars India Ltd., Volkswagen India Pvt. Ltd. and Fiat India Automobiles Ltd., alleging anti -competitive practices on the part of these three car manufacturers, whereby the genuine spare parts of automobiles manufactured by them were not made freely available in the open market. 1.2 The Commission considered the matter and on perusal of the material on record, passed prima facie order dated February 24, 2011 under section 26(1) of the Act directing the Director General (hereinafter, referred to as the "DG") to conduct an investigation into the matter and submit his investigation report. 1.3 From the preliminary enquiries made during the investigations, the DG opined that other automobile manufactures or Original Equipment Manufacturers (hereinafter referred to as "OEMs") (other than the three car manufacturers named by the Informant) might also be indulging in similar restrictive trade practices with respect to after sales service, procurement and sale of spare parts from the Original Equipment Suppliers (hereinafter referred to as "OES"), setting up of dealerships etc. It appeared that the case involved a much larger issue relating to the prevalence of anti -competitive conduct by the automobile players in the Indian automobile sector and its implications on the consumers at large. Consequently, the DG proposed before the Commission that the investigation should not be restricted to the 3 car manufacturers alone and it should be expanded to examine the alleged anti -competitive trade practices of all car manufacturers in India, as per the list maintained by the Society of Indian Automobile Manufacturers ("SIAM"). 1.4 The Commission considered the abovementioned request of the DG and, vide order dated 26.04.2011, approved the request to initiate investigation against 14 other OEMs operating in India (in addition to the three car manufacturers named in the information filed by Shri Shamsher Kataria). These 14 OEMs were: 1) BMW India Pvt. Ltd. (hereinafter, referred to as "BMW") 2) Ford India Pvt. Ltd. (hereinafter, referred to as "Ford") 3) General Motors India Pvt. Ltd. (hereinafter, referred to as "GM") 4) Hindustan Motors Ltd. (hereinafter, referred to as "Hindustan Motors") 5) Hyundai Motor India Ltd. (hereinafter, referred to as "Hyundai" or "HMIL") 6) Mahindra & Mahindra Ltd. (hereinafter, referred to as "M&M") 7) Mahindra Reva Electric Car Company (P) Ltd. (hereinafter, referred to as "Reva") 8) Maruti Suzuki India Ltd. (hereinafter, referred to as "Maruti") 9) Mercedes -Benz India Pvt. Ltd. (hereinafter, referred to as "Mercedes") 10) Nissan Motor India Pvt. Ltd. (hereinafter, referred to as "Nissan") 11) Premier Ltd. (hereinafter, referred to as "Premier") 12) Skoda Auto India Pvt. Ltd. (hereinafter, referred to as "Skoda") 13) Tata Motors Ltd. (hereinafter, referred to as "Tata") 14) Toyota Kirloskar Motor Pvt. Ltd. (hereinafter, referred to as "Toyota") 1.5 After considering the investigation report submitted by the DG, the Commission decided to forward copies thereof to all the 17 Opposite Parties for filing their replies/objections thereto vide its order dated 04.09.2012. Pursuant to that, Reva and Premier filed applications dated 01.02.2013 and 21.12.2012 respectively under Regulation 26 of the Competition Commission of India (General) Regulations, 2009 (hereinafter referred to as the 'General Regulations') requesting for striking out of their names from the array of parties. The Commission decided to dispose of these applications with the final order. With regard to Hyundai, a Writ Petition No. 31808/2012 (hereinafter referred to as the "Writ Petition") was filed by it before the Madras High Court challenging the jurisdiction of the Commission. Madras High Court granted an ex -parte stay in the matter vide its interim order dated 06.02.2013 and, therefore, the matter could not be proceeded qua Hyundai also. 1.6 Therefore, the Commission vide its order dated 25.08.2014 under Section 27 of the Act (hereinafter referred to as the "Main Order") had inter alia imposed penalties only on fourteen out of the seventeen Opposite Parties (OPs). For the reasons recorded in the preceding paragraph, the order of the Commission has remained pending against Hyundai, Reva and Premier (hereinafter referred to as the "present Opposite Parties") as the Commission decided to pass separate order against the present Opposite Parties after affording them reasonable opportunity to make their submissions in respect of the findings in the DG report and queries raised by the Commission. The relevant excerpt from the Main Order in this context is reproduced below: 'The Commission makes it clear at this stage that the present order governs the alleged anti -competitive practices and conduct of OPs (1 -14) only. The Commission shall pass separate order in respect of three car manufacturers, viz., Hyundai, Reva and Premier after affording them reasonable opportunity to make their submissions in respect of the findings of the DG report and queries raised by the Commission. Keeping this in mind, the findings of the DG report and contentions raised, if any, in respect of these three OPs have not been dealt with in this order.' (Para 3.8) 1.7 In accordance with that decision, subsequently, the Commission vide its order dated 05.11.2014 directed Hyundai, Reva and Premier to appear before the Commission for oral hearing and asked them to file their respective written submissions/objections in response to the DG report, if any. 1.8 Accordingly, the present Opposite Parties appeared before the Commission and also filed their written submissions. Before dealing with the written submissions and oral arguments made by the present Opposite Parties, the Commission deems it appropriate to elucidate the findings of the DG with respect to these Opposite Parties.
(2.) FINDINGS of the DG 2.1 In the Main Order, the Commission has already recorded the overall findings of the DG as enshrined in the main report and specific findings with regard to 14 OEMs. Since the general findings of the DG, as contained in the main DG Report is representative of the specific findings of the DG, as contained in each of the sub -reports, the same should be read as part of this order. Similarly, the present order of the Commission should also be read as part of the Main Order. For the sake of brevity, the general findings of the DG, as recorded in that order, are not reproduced here in detail. The present order contains brief and succinct discussion of the main DG report and the respective sub -reports, dealing with each of the present Opposite Parties i.e. Hyundai, Reva and Premier. Findings of the Main DG report 2.2 The DG Report identified two separate markets for the passenger vehicle sector in India - -the primary market, consisting of the manufacture and sale of passenger vehicles and the secondary market (After -Sales Markets), comprising of the complementary products or secondary products which is complementary to and derived from the primary product (i.e., spare parts for passenger vehicles). The DG report has further identified the two sub segments of the aftermarket for passenger vehicles in India, as follows: (a) Supply of spare parts, including diagnostic tools, technical manuals, catalogues etc for the aftermarket usage; and (b) Provision of after sale services, including servicing of vehicles, maintenance and repair services. 2.3 The second question which the DG has dealt with was to analyze whether the aftermarket segments described above constitute distinct relevant product markets or whether the products in the primary market (i.e., cars) and the products in the aftermarket (i.e., repair services and spare parts) constitute a single market i.e., part of one indivisible 'system' of products consisting of a durable primary product and a complementary secondary product. 2.4 After conducting detailed analysis and providing cogent reasons, the DG concluded that the spare parts market for each brand of cars comprising of vehicle body parts (manufactured by each OEM, spare parts sourced from the local OESs or overseas suppliers), specialized tools, diagnostic tools, technical manuals for the aftermarket service together formed a distinct relevant product market. With regard to the question as to whether maintenance and repair services of the products in the primary market constitute a separate relevant market, the DG has concluded that after sale repair and maintenance services constitute a distinct relevant product market. The DG's investigation has further revealed that the spare parts for a particular brand of vehicle were available through the authorized dealers of the respective OEMs in any part of India and hence concluded that the relevant geographic market would be 'India'. 2.5 The DG has further found that each OEM is a dominant player in the relevant market of supply of spare parts (including those manufactured in -house, sourced from overseas or obtained from local OESs), diagnostic tools, technical manuals, software, etc. required to repair and maintain their respective brand of automobile. 2.6 Since the diagnostic tools were not sold directly in the aftermarket by the manufacturer of these tools due to restrictions in the agreement or arrangements between the OEMs and such equipment manufacturers, the DG found each OEM to be the only viable source of supply of these specialized tools, technical manuals, fault codes, etc., for their respective brand of automobiles and hence dominant. 2.7 Finding the conduct of the OEMs abusive, the DG has further observed that in the absence of availability of genuine spare parts, diagnostic tools, technical manuals etc. in the open market, the ability of the independent repairers to offer repair and maintenance services to the vehicle owners and effectively compete with the authorized dealers of the OEMs for similar services was severely hampered. Such conduct was found to be in contravention of section 4(2)(a)(i) and 4(2)(c) of the Act, as it amounts to an imposition of unfair condition and denial of market access to independent repairers by OEMs. Further, as per the DG, each OEMs used their dominant position in the market for the supply of their spare parts to protect their dominance in the market for repair and maintenance services for their respective brands of automobiles which amounted to a violation of section 4(2)(e) of the Act. 2.8 The DG's investigation also revealed that each OEM had substantially escalated the price of spare parts, for their respective brands of automobiles which showed their ability of imposing unfair prices in the sale of spare parts in terms of section 4(2)(a)(ii) of the Act. 2.9 The DG has further concluded that the essential facilities doctrine is applicable to the restrictive practices adopted by the OEMs, as the OEMs have put the independent repairers at a distinct disadvantageous position and have jeopardized their ability to undertake repairs of the automobiles manufactured by the OEMs by not making spare parts and diagnostic tools available to them. 2.10 The DG has also examined the agreements/letters of intent entered into between the OEMs and the OESs and found that most of such agreements/letters of intent had clauses which restricted the ability of the OESs to supply spare parts directly to third parties or in the aftermarket without the prior written consent of the OEMs. The DG has found that none of the present Opposite Parties held valid Intellectual Property Rights (TPRs) for any of their spare parts in India to claim exemption under section 3(5)(i) of the Act. Agreements between OEMs and the local OESs were found to contain exclusive distribution agreements and refusal to deal clauses which are in contravention of the provisions of section 3(4)(c) and (d) of the Act, respectively. 2.11 The DG during the course of the investigation also found that a large number of OEMs, particularly those having foreign affiliations, were sourcing large number of spare parts from overseas suppliers and such overseas suppliers were not supplying spare parts to any entities apart from the OEMs. The DG, therefore, concluded that in such situations there may be a possibility of the existence of an unwritten arrangement between the OEMs and the overseas suppliers for ensuring that the spare parts are supplied to the OEMs or its authorized vendors only, which would be in violation of section 3(4)(c) and 3(4)(d) of the Act. 2.12 With regard to the agreements between the OEMs and their authorized dealers, the DG has found that certain clauses of the agreements specifically restricted the sale of spare parts over the counter to third parties, which were in the nature of exclusive distribution agreements and amounted to refusal to deal under section 3(4)(c) and 3(4)(d) of the Act. Further, the DG has observed that, though certain agreements entered between the OEMs and their authorized dealers did not contain specific terms restricting the sale of spare parts in the open market, he concluded that there was an unwritten understanding or arrangement between such dealers and the OEMs, contrary to section 3(4)(b) of the Act as the dealers were found to be not selling spare parts in the open market. 2.13 The dealer agreements entered by and between the OEMs and their authorized dealers also contained restrictions on dealing with competing brand of cars and the dealers had to obtain the consent of respective OEMs in writing prior to entering into agreements with competitor brands. 2.14 The DG has analyzed the appreciable adverse effect on competition ("AAEC") owing to the practices adopted by the OEMs in each of the secondary markets of spare parts and repair and maintenance services. The DG has found that there was AAEC on competition in terms of section 19(3) of the Act in the market of spare parts for each OEM on account of the restrictions such as exclusive supply agreements, refusal to deal and exclusive distribution agreements. Findings of the DG with respect to Hyundai/HMIL 3.1 As per the DG's investigation report, Hyundai is a 100% subsidiary of M/s. Hyundai Motor Company, South Korea (HMC) and was incorporated in the year 1996. Hyundai is involved in the manufacture and sale of motor vehicles, spare parts, after sales and related activities. The wholesale distribution and supply chain solutions for Hyundai are currently being provided by M/s. MOBIS India Ltd. ("MIL"). As such, the after sales market for spare parts of Hyundai brand of cars is catered to by MIL. The DG has been informed that MIL is a subsidiary of Mobis Korea which is a part of the Hyundai group and is engaged in the distribution of spare parts in several countries for HMC. Mobis Korea, as part of its global spare part management strategy, handles supply of spare parts in all the countries where Hyundai cars are sold. 3.2 The specific findings of the DG against the alleged anti -competitive practices of Hyundai are summarized below: 3.3 Hyundai has entered into a technology and royalty agreement with HMC for supply of spare parts for its operations in India. On perusal of the said agreement, though the DG could not discover the existence of any clause(s) which prohibits the ability of the overseas supplier from selling directly to the aftermarket in India, the DG has reported that, "the fact that the overseas supplier is the parent company of Hyundai and only supplies spare parts to MIL (a group company of Hyundai for dealing with aftermarket requirements in India), indicates the existence of an arrangement between Hyundai and the overseas supplier for not supplying spare parts directly into the Indian aftermarket." 3.4 The DG, after reviewing Hyundai's basic purchase agreement (entered with the OESs for supply of spare parts) and other purchase orders executed by Hyundai for procuring of spare parts from various OESs in India, found that such agreements contained clauses which restricted the OESs from supplying spare parts directly to the aftermarket. Such restrictions appeared to be due to use of drawings and designs of Hyundai. 3.5 Further, based upon the submissions made by independent repairers and multi -brand retailers, the DG found that, in most cases, the dealers refused to sell spare parts in the open market and spare parts of only certain car models were made available over the counter. 3.6 It was also discovered during the course of DG's investigation that the authorized dealers are being permitted to source spare parts from Hyundai directly or from its authorized vendors but not from the OESs who themselves supplied spare parts to Hyundai. 3.7 Further, the DG has found that during the warranty period, owners of Hyundai cars are totally dependent on its authorized network as the warranty extended is liable to be invalidated if a Hyundai car is repaired by an independent repairer. 3.8 Further, ability of the Hyundai dealers to deal in competing brands was also restricted. Hyundai's dealers are not permitted to deal with competing brands without seeking the prior permission of the OEM. The DG could not come across a single instance wherein such permission has been granted. 3.9 Further, the price mark up for top 50 spare parts in terms of revenue generated is observed to be in the range of 28.26% - 502.76% and price mark -up of top 50 spare parts on the basis of consumption is observed to be in the range of 50.04% - 644.68%. 3.10 Though Hyundai has justified its restrictions on the basis of IPR and safety issues, it has failed to establish before the DG that it possesses valid IPRs in India, with respect to its spare parts for which restrictions are being imposed upon OESs. 3.11 Further, the DG has opined that refusal to supply diagnostic tools and spare parts by Hyundai to independent repairers amounts to denial of access to an "essential facility". 3.12 The DG has concluded that the restrictions imposed upon the OESs and the authorized dealers, coupled with the restrictions on the independent repairers (non -availability of spare parts and diagnostic tools used for repairing of Hyundai brand cars) amounts to not only imposition of unfair terms under section 4(2)(a)(i) but also denial of market access under section 4(2)(c) of the Act. Further, the DG has opined that the substantial price margin earned on spare parts amounts to unfair pricing within the meaning of section 4(2)(a)(ii) of the Act. 3.13 The DG has also found that Hyundai has leveraged its dominance in one relevant market (i.e., supply of spare parts) to protect the other relevant market (i.e. market for repair services) in violation of section 4(2)(e) of the Act. 3.14 The DG has also found that Hyundai is in violation of section 3(4)(c) and 3(4)(d) of the Act, for not allowing its authorized dealers to deal with competing brands of cars and not allowing them to sell spare parts and diagnostic tools to the independent repairers. 3.15 Further, the DG has found that the agreements entered with the authorized dealers contain restrictive clauses requiring the dealers to source the spare parts only from Hyundai or its authorized vendors. The DG has found these agreements in the nature of exclusive supply agreements in violation of section 3(4)(b) of the Act.
(3.) FINDINGS of the DG with respect to Reva 4.1 Reva is a subsidiary of M/s. Mahindra and Mahindra which holds 55% stake in Reva. It has been gathered from the public domain that Reva, formerly known as the Reva Electric Car Company ("RECC"), is an Indian company based in Bangalore, involved in designing and manufacturing of compact electric vehicles. The company's flagship vehicle is the Reva electric car, available in 24 countries with more than 4,000 vehicles sold worldwide. Reva was acquired by the Indian conglomerate M&M in May 2010. The company has its manufacturing facility at the Bommasandra Industrial Area, Bangalore. The company has submitted that it has engaged dealers of M&M to deal in Reva cars and has a dealership network of 25 dealers across the country. 4.2 The specific findings of the DG against the alleged anti -competitive practices of Reva are summarized below: 4.3 During the course of investigation, the DG has found that Reva has executed purchase orders with overseas suppliers for supplying of spare parts for its operations in India. On perusal of the purchase orders, it was found that such overseas suppliers are restricted from supplying spare parts (which have been manufactured based on the designs supplied by Reva) directly into the aftermarket in India. 4.4 With regard to the agreements with the local OES, the DG has found that OESs are restricted from selling spare parts manufactured based on design, drawing etc. supplied by Reva to other entities and in the open market. With respect to agreements entered with authorized dealers, the DG has analyzed the Letter of Intent ("LOI") but did not find any clause pertaining to the rights of dealers to undertake over the counter sales of spare parts. In actual practice, it was found by the DG that there was only limited availability of spare parts in the open market and there appeared to be an understanding between Reva and its dealers prohibiting the sale of spare parts over the counter. 4.5 Further, the DG also discovered that, contrary to the contentions of Reva, the dealers of Reva were not permitted to deal with competing brands of cars in any manner without seeking the prior permission of Reva and no such permission had been granted in any instance by Reva. 4.6 Further, the users of Reva brand cars would stand to lose their warranty if they avail the services of independent repairers. 4.7 The Price mark up for 38 out of top 50 spare parts in terms of revenue generated is observed to be in the range of ( -) 66.74% to 797.33% and price mark up of 42 out of top 50 spare parts on basis of consumption is observed to be in the range of ( -) 66.74% to 1180.42%. 4.8 The DG found that the non -availability of diagnostic tools and spare parts necessary to repair the Reva cars hampered the ability of independent repairers to effectively compete with the authorized dealers of Reva. Refusal to supply such diagnostic tools and spare parts was found by the DG to amount to denial of access to an "essential facility". 4.9 Further, as per the DG's investigation, given the restricted availability of spare parts in the open market, non -availability of diagnostic tools and technical manuals, the ability of independent repairers to undertake repairs and maintenance service of the vehicles of Reva and effectively compete with the authorized dealers of Reva is significantly reduced, thereby amounting to denial of market access in terms of section 4(2)(c) and imposition of unfair condition on independent repairers in terms of section 4(2)(a)(i) of the Act. The pricing of spare parts has also been found to be unfair in terms of section 4(2)(a)(ii) of the Act. 4.10 Reva is also found to be using its dominant position in the relevant market for supply of spare parts to enter and protect the relevant market for after sales services in contravention of section 4(2)(e) of the Act. 4.11 The DG has also found that the agreements/arrangements entered by Reva with the OESs, overseas suppliers and authorized dealers are in the nature of exclusive supply, exclusive distribution and refusal to deal as contained in section 3(4)(b), 3(4)(c) and 3(4)(d) of the Act.;