Giving partial relief to some car makers from a penalty order by CCI, the Competition Appellate Tribunal today ruled they need to pay a 2 per cent fine on three-year average annual turnover of spare parts in the aftermarket, and not on the basis of their overall turnover.
The Competition Commission of India (CCI) had imposed a penalty of 2 per cent on overall average annual turnover of the concernd companies, including Toyota (Rs 93.38 crore), Nissan (Rs 1.63 crore) and Ford (Rs 39.78 crore).
The three foreign automakers had approached the Tribunal against the order by CCI, which had passed its directive after investigating complaints of alleged abuse of dominant position and anti-competitive agreement/practices adopted by the firms.
The automakers subsequently filed their appeals before Compat, which today passed an order after looking into whether the CCI "erred in holding appellants' distributions/sales agreements and practices violative of" relevant section of the Competition Act.
In a detailed 190-page order, the Tribunal said the CCI had ordered an expanded probe against as many as 17 car makers in 2011.
Passing its order after looking into various aspects of the case and into submissions made by all the concerned parties, the Compat said, "... It is our opinion that this investigation has covered certain practices as they exist in the automobile after market and the repair and service sector.
"All companies have been found violating the relevant provisions of the act albeit in varying degrees, therefore even if specific company wise conclusions are not drawn violations need to be stated and checked."
The Tribunal ruled that the "appellants Toyota, Ford and Nissan are in dominant position in respect to their respective spare parts including diagnostic tools, technical information, fault codes, repair manuals etc, in the aftermarket."
"The appellants are abusing their dominant position by imposing unfair conditions in the nature of restrictions on purchase or sale of goods or services on their authorised dealers and original equipment suppliers thereby violating Section 4 (2)(a)(1) of the Act."
At the same time, the Compat felt some of the directions given by CCI required "reconsideration or review".
"We have clearly seen that while anti-competitive conduct on the part of the three appellants has been established, we also need to take into account the structure, the potential and the role that auto industry plays in the larger framework of India's economic development.
"Therefore, any direction given by a regulator should be pragmatic and capable of being implemented. Further, we clearly recognise that reformatory directions given herein cannot be implemented overnight as they require a frame of time and ancillary action."
It said eliminating anti-competitive practices would require the support of appropriate regulatory development but that should not be implied to mean that the companies do not have the responsibility of taking immediate steps to remove anti-competitive constraints rather simply putting all blame on the government's door.
"There is no doubt that government has to work towards
creating a regulatory framework but it is not our view that until a regulatory framework is constructed, anti-competitive restrictions cannot be removed," Compat said.
"We squarely hold OEMs (Original Equipment Manufacturers) accountable for creating and maintaining a competitive environment conducive to the consumer's interest recognising the importance of safety on roads and development of skills and investments in automobile repair sector," it said, while modifying the CCI order.
Accordingly, the three auto companies will have to follow certain directions within one year, including removal of all restrictions imposed through agreements and practices on original equipment suppliers (OESs) and also open additional distribution channels to the open market for spare parts on a country wide basis.
Besides, they will have to remove all restrictions on supply of spare parts by OESs to authorised dealers and no 'No restrictions' can be imposed on Original Equipment Suppliers, authorised dealers and distribution channels from selling spare parts/diagnostic tools etc to independent repairers.
Compat also directed the Transport Ministry to develop voluntary standards under Motor Vehicles Act, with support from Quality Council of India, BIS, IARI and other agencies, for certification of garages and independent repairers.
Besides, Compat asked carmarkers not to impose a blanket condition that warranties would be cancelled if the consumer avails of services of any independent repairer.
They will need to develop extensive information system for details of automobiles and their spare parts manufactured by appellants so as to facilitate the potential customers make rational choices at the time of buying automobiles.
The central government has been asked to notify the minimum standards of information which should be made available through websites and other means of communications.
The car makers were also 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, etc.
The Transport Ministry will also take up a programme for standardisation of automobile spare parts.
The companies will have to furnish individual undertakings before CCI within 60 days about schedule of compliance with this order, within mandated frame of time, Compat said, while ordering that the modified penalty would need to be assessed and paid within 90 days of today's order.
On amount, Compat said CCI had imposed a penalty of 2 per cent on average annual turnover of the appellant companies.
Stating that the interpretation of turnover has been a subject of several previous decisions given by this Tribunal, Compat said on earlier occasions it had found "that the relevant turnover to be used as the basis for the fine is the turnover of the product subject to bid rigging; not the turnover of the entire multi-product enterprise".
"We are not in favour of imposing heavy fines in these cases as we have essentially come across omnibus sectoral practices which have anti-competitive character. This is a transitionary reform process and we would like to pursue the issue of imposition of penalty in the above perspective.
"However, since we are following the yardstick of relevant turnover, our concerns about mitigating circumstances are automatically getting addressed as penalty amount will now be calculated on the basis of relevant turn over of spare parts in the after market," it said.
Accordingly, the Compat asked the companies "to pay a 2 per cent penalty on average annual turnover of spare parts in the aftermarket of immediately preceding three years before the year of enquiry."
It directed CCI to get relevant statistics and determine the amount of penalty on the basis of this direction.
"The implementation of this order shall be completed within one year therefore, CCI is directed to review the progress and action taken by each party to the order including the government departments/ministry, every three months and send a report to the Tribunal for further directions.
"The first meeting of the Commission to monitor compliance of this order shall be held in February, 2017 and compliance/follow up report shall be made available to the Tribunal by February, 15, 2017," Compat said, while ordering that a copy of the order to be sent to the Secretary of the Ministry of Road Transport and Highways for taking follow up action.
