This case was taken up by CCI based on an anonymous e-mail dated November 17, 2017. The e-mail alleged that Maruti Suzuki India Limited (‘MSIL’) restricts its dealers from granting discounts to customers over and above those prescribed by MSIL, which violates the provisions of the Act. Specifically, the e-mail alleged that: (i) the ‘Discount Control Policy’ implemented by MSIL restricts dealers from giving discounts to their customers beyond the discounts prescribed by MSIL; and (ii) dealers providing extra discounts were punished by levying a penalty and/or the restriction of supply.

Based on the information provided, CCI was of the prima facie view that there was an imposition of resale price maintenance (‘RPM’) by MSIL. Therefore, CCI directed the office of the Director-General (‘DG’) to investigate these allegations. The key findings of the DG’s investigation were: (i) MSIL’s market share in financial year (‘FY’) 2018–19 was 51.22%, and that its closest competitor was Hyundai Motor India Limited with a market share of 16.14%; (ii) MSIL indulged in the practice of RPM through the implementation of its discount control policy on its dealers across India; and (iii) the imposition of RPM caused an AAEC in India.

 MSIL’s Submissions

MSIL made the following submissions: (i) the dealership agreement does not set out any discount control policy by MSIL and there is no clause which allows MSIL to levy a penalty on dealers for providing discounts higher than those prescribed by MSIL; (ii) MSIL dealers are free to offer any discounts to customers; (iii) even if such a discount control policy was found to exist, it was a form of policing amongst the dealers themselves, and MSIL had no role in formulating such a policy, except to enforce it on behalf of the dealers as an independent third party; (iv) Mystery Shopping Audits (‘MSA’) conducted by MSIL were to check adherence of the dealers to MSIL guidelines and to carry out dealer quality checks, however, it was not to monitor the discounts offered by MSIL dealers; and (v) the DG was unable to prove that the alleged actions of MSIL caused any AAEC.

 CCI’s Analysis

i.   A vertical relationship exists between MSIL and its dealers: CCI found that MSIL was the manufacturer of vehicles in the upstream market, while its dealers were vehicle distributors in the downstream market. Therefore, the principal-to-principal agreement between the upstream manufacturer (MSIL) and the downstream dealers can be examined under Section 3(4) of the Act, pertaining to vertical agreements.

ii.  A formal agreement does not need to exist between MSIL and its dealers: MSIL’s argument that the only agreement between MSIL and its dealers was the dealership agreement was rejected by CCI, because even tacit or informal agreements or understandings are ‘agreements’ under the Act. To determine the existence of any other agreement, CCI examined e-mail evidence and held that there exists an RPM ‘agreement’ between MSIL and its dealers.

iii.  MSIL played a key role in implementing and enforcing RPM: From e-mail evidence, it appeared that MSIL threatened: (i) to impose high penalties on dealers; and (ii) to stop the supply of certain cars to dealers, in case of a violation of the discount control policy. In addition, as MSIL’s prior approval was necessary for the grant of additional discounts by dealers to their customers, it was clear that the discount control policy was controlled by MSIL itself and not by MSIL’s dealers. MSA agencies were appointed by MSIL to identify dealerships not following the MSIL discount control policy, and monetary penalties were imposed on these dealers by MSIL. The funds received from such dealers were then utilised by MSIL for its own operations.

iv.  Discount control policy resulted in AAEC: The discount control policy imposed by MSIL denied consumers the benefit of competition between MSIL’s dealers (e., reduced intra-brand competition) resulting in higher prices to consumers. The RPM agreement also resulted in reduced inter-brand competition between competing vehicle manufacturers, because when a significant player like MSIL imposed an RPM, the pricing pressure on competing manufacturers decreases. CCI also found that the RPM agreement led to entry barriers for new entrants and hindered the distribution of goods and the provision of services concerning new cars.

v.   Penalty and cease-and-desist: CCI: (i) issued a cease-and-desist order to MSIL, restraining it from indulging in RPM directly or indirectly; and (ii) considering the nature of the infringing conduct and the post-pandemic phase of recovery of the automobile sector, imposed a penalty of Rs 200,00,00,000 on MSIL.^[1]

MSIL has appealed the decision of CCI before the NCLAT and has obtained a stay on the penalty imposed by CCI.

[1] In Re: Alleged anti-competitive conduct by Maruti Suzuki India Limited in implementing discount control policy vis-à-vis dealers, Suo Motu Case No. 1 of 2019, Order dated August 23, 2021.