The Hyundai Motor Co. badge is displayed on the front grille of a Nexo fuel cell electric vehicle at the Hyundai Motorstudio showroom in Hanam, South Korea. (Photographer: SeongJoon Cho/Bloomberg)

NCLAT’s Hyundai Order: Does The CCI Need To Step Up Its Game?

The Competition Commission of India had imposed a penalty of Rs 87 crore on Hyundai Motor India Ltd., which was set aside by the National Company Law Appellate Tribunal last week.

The tribunal’s observations may require the regulator to evaluate how it analyses evidence and articulates its views, according to experts.

What’s The Case About?

CCI’s investigation arm—the Director General of Investigation—had found the Indian arm of the South Korean carmaker guilty of anti-competitive conduct, namely:

  • Entering into exclusive supply agreements with its dealers.
  • Tie-in arrangements.
  • Refusal to let its dealers deal with competing brands
  • Resale price maintenance.

Resale price maintenance referred to Hyundai controlling and restricting the price at which its dealers could sell cars and services to consumers. The director general also found Hyundai guilty of abuse of dominance.

But last year, the CCI found the company guilty on only two counts:

Entering into a tie-in arrangement:

The regulator noted that Hyundai had designated Indian Oil Corporation Ltd. and Shell as its engine oil suppliers. Both these companies paid Hyundai royalty. Hyundai mandated its dealers to buy engine oil only from these two vendors and penalised them for violation. This practice of tying the supply of cars with engine oil, the CCI noted, is anti-competitive. But the fact that a consumer’s warranty was cancelled if any other engine oil was used isn't a violation of competition law, the regulator noted, dismissing the DG’s conclusion on this aspect.

Resale Price Maintenance:

The CCI noted that through its discount control policy, Hyundai limited the discount its dealers could offer to consumers.

Why Did NCLAT Dismiss CCI’s Order?

The appellate tribunal noted that the CCI merely relied on the DG’s report and didn't carry out an independent analysis of the evidence. It said:

  • The DG and the CCI haven't decided the relevant market.
  • The regulator has contradicted its stance on tie-in arrangement.
  • The DG’s report is merely an opinion primarily to assist the CCI for appreciation of evidence in arriving at a final conclusion during the inquiry.
  • The CCI is expected to analyse the evidence and the report and required to read it in conjunction with other evidence on record and then to form its final opinion as to whether such report is worthy of reliance or not.
  • The CCI’s order is only based on findings of the DG which is not permissible.

Impact Of NCLAT Order

To begin with, it’s a little worrying that the NCLAT has said that the DG and the CCI didn’t decide the relevant market, Avaantika Kakkar, a competition law partner at Cyril Amarchand Mangaldas, said. The regulator concluded that market for the dealership and distribution of Hyundai cars in India as the relevant market for assessing competition concerns, she said.

If you read CCI’s Hyundai order, there’s been a lot of time and text spent on the delineation of relevant market. So, I’m not sure why the NCLAT has made this finding.
Avaantika Kakkar, Partner, Cyril Amarchand Mangaldas.

Equally, when it comes to NCLAT’s observation on tie-in arrangement, it’s difficult to spot the contradiction in the CCI order, Kakkar said. The regulator stated that cancellation of consumer’s warranty is not-competitive, but it clearly stated that Hyundai’s insistence that its dealers must only use engine oil of the two vendors, was anti-competitive, she explained.

"The CCI could’ve attempted to find out if dealers were penalised for violating this arrangement. But I don’t see the contradiction that the NCLAT is referring to in the CCI order,” she said.

The proceedings before the CCI are in the nature of an original trial and the regulator’s order needs to be detailed, Gautam Shahi, an advocate practising competition law, told BloombergQuint. He said that the regulator must consider the factors laid down under the law when it's assessing an agreement for competition concerns.

The CCI has to specify if the agreement created entry barriers, foreclosed competition etc. Even if the CCI did this assessment, it’s not coming out clearly in its order.
Gautam Shahi, Advocate, Competition Law.

But Kakkar said the fact that the CCI had differed with the DG on grounds where Hyundai is guilty means that the regulator had independently applied its mind. “Though it could’ve done better.”

It has to be stated clearly which part of the DG’s report the CCI is relying upon and what is being dismissed. Every piece of evidence that the DG presents must be considered and talked about in the order.
Avaantika Kakkar, Partner, Cyril Amarchand Mangaldas.

This NCLAT order may prompt the CCI to evolve a format to discuss all the evidence on record, Kakkar said. The regulator will also need to specify in its order all the evidence that the DG had presented and not simply pick and choose elements from it to support its conclusions, she said.