India: CCI Launches Investigation Against Maruti Suzuki Over Dealer Discounting Practices

Last Updated: 27 August 2019
Article by AZB & Partners
Most Read Contributor in India, September 2019

Background

On July 4, 2019, CCI passed an order under Section 26(1) of the Act, ordering investigation against Maruti Suziki India Limited ('MSIL'). CCI had taken suo moto cognizance in this matter, on receiving an anonymous e-mail sent by certain dealers of MSIL in the west region in India (State of Maharashtra – except Mumbai and Goa) alleging RPM against MSIL. As per the anonymous e-mail, MSIL was restricting its dealers from giving discounts over and above a specified quantum. If a dealer was found exceeding this quantum, the dealership was penalised.

Allegations

It was alleged that: (i) MSIL appointed an agency for the purpose of mystery shopping to check whether any dealer was giving discounts in excess of the specified quantum and the 'Mystery Shopping Audit Report' was sent to dealers asking them to justify why an additional discount may have been given in a particular case; (ii) in case a dealer was not able to justify this to the satisfaction of MSIL, a penalty  was levied; (iii) the penalised dealer(s) was asked to deposit a cheque in the name of a MSIL dealer in Pune, Maharashtra; (iv) the money collected was utilised by MSIL for various expenses, as decided by the management; and (v) a similar discount control policy was implemented by MSIL across India – especially in cities where there were more than four to five dealers.

CCI's preliminary inquiry and MSIL's submissions

CCI sought certain information from MSIL and held a preliminary conference with MSIL. MSIL stated that it exercises no control over the dealers and has no agreement with or directive to the dealers in relation to discounts. MSIL placed on record the dealership agreements with its dealers to demonstrate that there were no clauses in these agreements, which involve discount control policy and MSIL encourages its dealers to offer discounts, as they deem fit. MSIL also demonstrated that in certain cases, dealers offered discounts more than the 'consumer offers' (run by MSIL from time to time). In relation to the allegation on penalties, MSIL stated that the penalties relate to schemes and guidelines that ensure customer satisfaction and compliance of such guidelines is monitored by MSIL since MSIL, too, contributes to these schemes (and they were not entirely borne out by dealer margins). MSIL also filed an affidavit stating that MSIL does not levy any penalty or discount control policy and simply communicates the understanding by and among the dealers.

Findings of CCI on existence of an RPM

CCI found MSIL to be a market leader in the 'passenger cars segment in India', with a market share of more than 50%. Notably, this observation of CCI was based on a newspaper report of April, 2018. CCI noted that: (i) while the dealership agreements do not contain any clause(s) in relation to the discount control policy, there appears to be an informal directive from MSIL to its dealers to not offer discounts over and above a specified quantum decided by MSIL; (ii) while MSIL gave instances where cars were sold by certain dealers below the 'consumer offer' price, these instances pertained to only nine dealers in the western regions, while MSIL has 2627 dealers across India Thus, the instances were too small to rule out RPM; and (iii) CCI was not satisfied with MSIL's argument that mystery shopping agencies were appointed by dealers to ensure maintenance of quality standards and consumer satisfaction and that MSIL had no role in their employment, given that MSIL itself has stated that it is discharging the role of an independent third party in ensuring compliance of Sales Operating Procedure ('SOP') among dealers.

Basis the above, CCI came to the conclusion that the matter did merit a detailed investigation by the DG and passed an order under Section 26(1) of the Act.

Published In: Inter Alia Special Edition - Competition Law - August 2019 English

Originally published on August 7, 2019

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