- (1.) THE present matter relates to information filed on 08.04.2011 under Section 19 (1) (a) of the Competition Act, 2012 thereinafter referred to as "the Act") by Mr. R.V. Ramgopal alleging that M/s Shri Ram Transport Finance Company (hereinafter referred to as 'Opposite Party') has abused its dominant position by adopting unfair practices in the business of financing commercial vehicles. The facts of the case as per the information, in brief, are as under: 1.1 The informant is engaged in the business of transportation of goods throughout the country. For his business, the informant requires lorries/trucks which he purchases from the open market, partly out of his own funds and partly by taking loans from different financers. 1.2 The Opposite Party (OP), M/s Shri Ram Transport Finance Company is a registered Non -Banking Finance Company (NBFC) under the Reserve Bank of India Act, 1934 and is operating through its regional and branch offices located at different places in India. The OP is engaged in the business of providing finance for commercial vehicles, new as well as pre -owned and also provides finances for working capital, ancillary equipments and vehicle parts for small road transport operators. 1.3 It has been stated in the information that the informant took loan from the OP in 2004 for the purchase of three lorries through its branch office located at Vijayawada, Andhra Pradesh. Two loan amounts of Rs. 9,23,000/ - (Rupees Nine lakh twenty three thousand only) each were sanctioned by OP to the informant vide loan agreement No. VTA/24127 and VTA/24128 on 22.11.2004 for two vehicles and another loan amount of Rs. 10,72,674/ - (Rupees Ten lakh seventy two thousand six hundred seventy four only) was sanctioned vide loan agreement No. VII/201029 on 30.04.2004 for the third vehicle. The informant was advised that the rate of interest would be either 5.13% or 5.70% per annum. The loan agreement was for a period of five years. 1.4 It has been alleged by the informant that since he could not repay the outstanding loan within the stipulated period as calculated and demanded by the OP, he was compelled to opt for re -scheduling of the outstanding loan amount. 1.5 The informant has also alleged that at the time of re -scheduling, the OP converted the outstanding loans as fresh loan transactions by way of fresh agreements. Accordingly, the terms and conditions of the existing loan agreements have also changed. After re -scheduling, two loan agreements No. BHVPM/0903170004 and BHVPM/3170005 dated 16.03.2009 were executed for Rs. 6, 00, 000/ - (Rupees Six lakh only) each for two vehicles and another loan agreement No. BHVPM/0000750 dated 30.04.2008 was executed for Rs. 7, 25, 000/ - (Rupees Seven lakh twenty five thousand only) for the third vehicle. 1.6 The informant has submitted that the OP has imposed an enhanced rate of interest of 9% per annum on the re -scheduled loan amounts, much higher than the initial agreed rate of interest of 5.13% or 5.70% per annum. According to the informant, he was also compelled to avail a personal loan of Rs. 3.00 Lakh at the rate of interest of 24% per annum for repayment of some of the overdue outstanding Equated Monthly installments (EMIs). 1.7 It has also been submitted by the informant that the OP is not only charging higher rate of interest on the re -scheduled loan amount but is also arbitrarily imposing other charges. As a result, the actual interest rate being charged by the OP comes to around 3% to 4% per month and 36% to 40% on an annual basis which is exceptionally high and unfair. As per the informant, high rate of interest charged by the OP is grossly usurious and excessive in violation of the Usurious Loans Act, 1918. 1.8 It has also been alleged by the informant that instead of calculating interest rate as per diminishing balance method as projected in its brochures and advertisements, the OP is following flat method of calculation of interest rate. Further, the OP is recovering the interest component of the loan amount first and thereafter the principal component which constitutes a misleading and disruptive trade practice. 1.9 As per the informant, he has been regularly paying EMIs of Rs. 21,350/ - per month (Rupees Twenty one thousand three hundred fifty only) since 2004 and has already paid 72 installments totalling to around Rs. 45,00,000 (Rupees Forty five lakh only) towards repayment of the aforesaid loan transactions. In spite of the said payments, the OP is still claiming an amount of Rs. 14,62,926/ - (Rupees Fourteen lakh sixty two thousand nine hundred twenty six only) as outstanding which is not fair. 1.10 The informant also alleged that the OP has been charging compound rate of interest instead of simple rate of interest and is also debiting money towards various charges such as hiring, documentation and processing, account statement, cheque bouncing, foreclosure and swap charges. Further, as per clauses 6 & 7 of the loan agreement, the OP has reserved the right to seize and sell the vehicle in case a customer fails to pay the outstanding loan amount as calculated and demanded unilaterally by it during the agreed time period. The informant has submitted that the OP lures customers including the informant into the vortex of a debt trap by offering attractive terms and conditions in the brochures and advertisements and thereafter compels them to pay huge interest rate and other charges. 1.11 The informant has alleged that at the time of sanction of loans, the OP compelled him to sign the loan agreement and other documents on its preprinted stationery on the dotted lines. The customers of vehicle loans including the informant do not have any say regarding the terms and conditions contained in the loan agreement as they are in a 'take it' or leave it' situation. The customers are compelled to sign on the dotted lines of the loan agreement form as dictated by the OP because of their financial needs to purchase the vehicle. As per the informant, the terms and conditions of the loan agreements are unfair, one sided and illegal and are not in accordance with the provisions of the Competition Act. 1.12 The informant has brought out that the OP is in dominant position in the commercial vehicle finance market in South India having a market share of around 32 -35 % which is substantial compared to its competitors operating in that area. As per the informant, being a dominant enterprise in the vehicle finance market in South India, the OP has abused its dominant position, imposed unrealistic and unfair terms and conditions in the loan agreement, forced the informant to enter into re -scheduling of fresh new loan agreements for the outstanding amounts of earlier loans at higher rate of interest and deprived him to take loans from other NBFCs/Banks for repayment of earlier loans. According to the informant, the above activities of the OP constitute abuse of its dominant position under the provisions of Section 4(2)(a) of the Act. 1.13 The informant also made additional submissions dated 21.04.2011, 10.05.2011 and 18.05.2011 in order to support its contention.
(2.) THE Commission considered the information and all other contentions of the informant submitted on different dates and having formed an opinion that there exists a prima facie case in the matter, referred the matter to the Director General (hereinafter referred to as "DG") for conducting investigation under the provisions of Section 26 (1) of the Act. The DG after conducting investigation in the matter submitted his report of investigation as per the provisions of Section 26(3) of the Act on 14.11.2011. Investigation by DG 3.1 In course of proceedings, DG gathered information from the informant, the Opposite Party and also from other primary and secondary sources on various aspects of commercial vehicle finance in India as on date. 3.2 For the purposes of determination of dominance, DG has delineated the relevant market as 'provision of services for financing pre owned heavy commercial vehicles by Non -Banking Finance Corporations (NBFCs) in India'. It has been reported by the DG that the OP is the largest asset financing NBFC in India having market share of 25% and 8% in the market of provision of services for financing of pre -owned commercial vehicles and new trucks in the year 2010 -2011. 3.3 It has also been reported that the OP with 17,000 employees is having 488 branches and tie -up with over 500 private financers. In terms of growth rate, the OP was found to be ahead of many of its competitors with compound annual growth rate of 40.68% during the year 2006 -2011. 3.4 DG has also brought out that the OP enjoys commercial advantage over its competitors in South India because of its huge presence. Further, the OP provides unique commercial vehicle finance schemes to drivers and lower income groups whereas its competitor do not have such schemes. The OP also provides loans to pre -owned truck owners for replacement of tyres, engine and other accessories which is unique in the relevant market. 3.5 Based upon the market share and factors as above, DG has concluded that the OP is in dominant position in the relevant market of provision of services for financing pre -owned heavy commercial vehicles by NBFCs in India. 3.6 As regards facts of the case, DG has reported that on its own, the OP did not finance any loan to the informant during the year 2004 for acquiring any commercial vehicles. The OP was a franchisee of UTI Bank and Citicorp Finance India Ltd. at that time, from whom the Informant had taken a loan and it used to collect EMIs on the behalf of these entities from the informant. On being not able to repay the loan amounts, the informant requested the OP to pay back the outstanding balance amount to the two institutions and for that purpose fresh loan was given to him after executing a new agreement. 3.7 DG has also found that there has been no evidence of any coercion or undue influence exerted by the OP upon the Informant to enter into a rescheduled loan agreement. Further, copies of the loan account statements and clauses of loan agreement show that the interest was charged in accordance with the guidelines of Reserve Bank of India (RBI) and fair practice code. The rate of interest has also been found to be charged on monthly basis upon the diminishing balance of outstanding amount at the end of each month. Thus, according to DG, the OP has not been found in any kind of conduct or practice in charging interest without adopting diminishing balance method. 3.8 It has also been reported by the DG that collection of different charges by the OP is as per prevalent commercial practice in the market and are also followed by its competitors. Therefore, it cannot be said that this practice of OP had any adverse impact on competition in markets in India. 3.9 As regards the rate of interest and penal interest charged by the OP in form of overdue charges on account of defaults in payment of EMIs on due dates, DG has concluded that it is as per various guidelines and circulars issued by RBI. Further, the loan agreement between the informant and OP also contained terms and conditions which stipulated that in the event of any default in the payment of interest or EMI, additional interest would be charged. The charge of penal interest in the form of overdue charge is a normal business practice prevalent in the case of all NBFCs and therefore, such levy of overdue charges by the OP cannot be considered as imposition of discriminatory or unfair conditions in terms of Section 4 (2) (a) of the Act. 3.10 On the issue of seizure and possession of vehicles by the OP in case of non -repayment of loans by the customers, DG has observed that the aforesaid condition was specifically mentioned in the loan agreement and the OP acted as per the provisions of "Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) and the Security Interest (Enforcement Rules, 2002) which provides for such powers of seizure and possession for recovery of outstanding dues as per laid down procedure. 3.11 DG has also brought out that the OP had issued several notices before taking possession of the vehicle and had also given opportunity to the IP for settlement of loan dues to get the release of the vehicle back to the owner. Considering these facts, DG has concluded that the act of seizure of vehicle by the OP was not unfair and anti -competitive in nature. 3.12 On the basis of the above findings, DG has concluded that even though OP is dominant in the relevant market, it has not infringed the provisions Section 4(2)(a) of the Act as alleged by the informant.
(3.) AFTER considering the investigation report submitted by DG, as per provisions of the Act the Commission decided to send a copy of the same to the informant for filing his objections.;