Capping Discounts Lands Hyundai Motor In Firing Line
87 crore fine on Hyundai Motors by the regulator
The Competition Commission of India has imposed a penalty on Hyundai Motor India Ltd. for controlling car prices by capping discounts in an order that may have implications on how such price cuts are offered.
The regulator fined the maker of the Verna and i20 cars Rs 87 crore and asked it to “cease and desist” from such anti-competitive conduct in future.
In the first such case, the competition regulator found HMIL guilty of resale price maintenance – when a manufacturer and distributors collude to sell the products at a particular price, usually decided by the manufacturer.
The order should lay the foundation and contours for what is permissible and what isn't in such kind of market practices, said competition lawyer and partner at Gaggar & Partners, Vaibhav Gaggar. “The judgment is a very important step forward in establishing the jurisprudence of what constitutes resale price maintenance and how it raises serious competition concerns both from an intra-brand (same product sold by different distributors) and inter-brand (similar products of different companies) perspective,” he said.
Section 3(4)(e) of the Competition Act, 2002 puts resale price maintenance in the category of anti-competitive agreements if it has an adverse impact on the competition.
The infringing anti-competitive conduct of HMIL in the instant case included putting in place arrangements, which resulted into resale price maintenance by way of monitoring of maximum permissible discount level through a discount control mechanism and a penalty mechanism for non-compliance of the discount scheme. Such conduct pertains to and emanates out of sale of motor vehicles.CCI Order
The 44-page order said the resale price mechanism can prevent effective competition both at the intra-brand level as well as at the inter-brand level. “When a minimum resale price maintenance is imposed by the manufacturer of a particular brand, distributors are prevented from decreasing the sale prices. In other words, the mechanism does not allow the dealers to compete effectively on price. The stifling of intra-brand competition results in higher prices for consumers,’’ the order said.
“This observation has far-reaching consequences for the discounts that online retailers are prone to offer,” Avantika Kakkar, partner at Khaitan & Co., said in an emailed statement.
Hyundai Motor India could not be reached immediately for a comment.
For calculating the penalty, the commission has relied on the “relevant turnover” – in this case, revenue from the sale of motor vehicles alone. On this basis, the penalty imposed by the commission on HMIL is at the rate of 0.3 percent of its average relevant turnover of the last three financial years.
The company has been directed to deposit the amount within 60 days of receiving the order.