Competition Commission of India imposes a fine of Rs. 2544 crore on 14 car manufacturers

By Vijay Kumar

THE Competition Commission of India (CCI) has imposed a fine of Rs. 2544 crore on 14 car manufacturers. One man's complaint to the Commission that car manufactures were following anti-competitive practices by restricting the sale of spare parts, resulted in this huge fine.

He alleged, that even the technological information, diagnostic tools and software programs required to maintain, service and repair the technologically advanced automobiles were not freely available to the independent repair workshops. The repair, maintenance and servicing of such automobiles could only be carried out at the workshops or service stations of the authorized dealers.

He further alleged that:

The restriction on the availability of genuine spare parts and the technical information/know-how required to effectively repair, maintain or service the automobiles is not a localized phenomenon.

The car manufacturers and their respective dealers, as a matter of policy, refuse to supply genuine spare parts and technological equipment for providing maintenance and repair services in the open market and in the hands of the independent repairers.

The car manufacturers by restricting the sale and supply of the genuine spare parts, diagnostic tools/equipment, technical information required to maintain, service and repair the automobiles manufactured, have effectively created a monopoly over the supply of such genuine spare parts and repair/maintenance services and, consequently, have indirectly determined the prices of the spare parts and the repair and maintenance services.

The cost of getting a car repaired in an independent workshop is cheaper by 35-50% as compared to the authorized service centers.

The prices charged for the genuine spare parts and for repair and maintenance services by the authorized dealers of the Car manufacturers are even higher than what they charge in other markets in Europe. The Informant has alleged that such practices which allow the Car manufacturers to charge arbitrary and high prices result in significant increase in the maintenance cost to car owners.

The components and parts used in the manufacture of their respective brand of automobiles are often sourced from independent original equipment suppliers ("OESs”) and other suppliers who are restrained by the manufacturers from selling the parts/components in the open market. Such restriction on the ability of the OESs to sell the spare parts/components further limits the access of such spare parts/components in the open market, thereby, allowing the manufacturers to create a monopoly-like situation wherein they become the sole supplier of the spare parts/components of their respective brand of automobiles. Such restrictions allow the manufacturers to influence and determine the price of the spare parts/components used to repair and maintain the respective brands of automobiles.

The Commission ordered:

i) The parties are hereby directed to immediately cease and desist from indulging in conduct which has been found to be in contravention of the provisions of the Act.

ii) Car manufacturers are directed to put in place an effective system to make the spare parts and diagnostic tools easily available through an efficient network.

iii) Car manufacturers are directed to allow OESs to sell spare parts in the open market without any restriction, including on prices. OESs will be allowed to sell the spare parts under their own brand name, if they so wish. Where the Car manufacturers hold intellectual property rights on some parts, they may charge royalty/fees through contracts carefully drafted to ensure that they are not in violation of the Competition Act, 2002.

iv) Car manufacturers will place no restrictions or impediments on the operation of independent repairers/garages.

v) The Car manufacturers may develop and operate appropriate systems for training of independent repairer/garages, and also facilitate easy availability of diagnostic tools. Appropriate arrangements may also be considered for providing technical support and training certificates on payment basis.

vi) The Car manufacturers may also work for standardization of an increasing number of parts in such a manner that they can be used across different brands, like tyres, batteries etc. at present, which would result in reduction of prices and also give more choice to consumers as well as repairers/service providers.

vii) Car manufacturers are directed not to impose a blanket condition that warranties would be cancelled if the consumer avails of services of any independent repairer. While necessary safeguards may be put in place from safety and liability point of view, Car manufacturers may cancel the warranty only to the extent that damage has been caused because of faulty repair work outside their authorized network and circumstances clearly justify such action.

viii) Car manufacturers are directed to make available in public domain, and also host on their websites, information regarding the spare parts, their MRPs, arrangements for availability over the counter, and details of matching quality alternatives, maintenance costs, provisions regarding warranty including those mentioned above, and any such other information which may be relevant for full exercise of consumer choice and facilitate fair competition in the market.

The Commission imposed the following penalties: (Rs. In Crores)

Now where will the battery of lawyers go? An appeal against this order lies to the Competition Appellate Tribunal. This appellate tribunal has the unique distinction of having no chairman and no members.

Incidentally, yesterday the Supreme Court rejected the real estate developer DLF's plea to stay the Competition Appellate Tribunal's order upholding the penalty imposed by the Competition Commission of India for unfair trade practices. The Supreme Court has asked the company to deposit the penalty amount of Rs.630 crore within three months. Out of this Rs.50 crores has to be paid within three weeks.

It seems that in the days to come the Competition Commission would have more clout than all Revenue departments put together.