This case is relevant for distribution arrangements between manufacturers and their distributors concerning the price of products and discounts that can be offered by sellers to consumers.
In the instant case, the CCI acted based on an anonymous email alleging that Maruti prohibited its dealers/ distributors from offering discounts beyond what was prescribed by it. The complaint alleged that Maruti imposed penalties against dealers that offered additional discounts. This practice by Maruti was called as ‘Discount Control Policy’.
As per the Competition Act, 2002 (“CA”), agreements for resale price maintenance between enterprises at different stages or levels of the production chain are prohibited where such agreements cause appreciable adverse effect on competition.
The term ‘agreement’, for the purposes of CA, is not the same as under contract law. Under the CA, an ‘agreement’ need not be a formal written agreement, even tacit and informal arrangements between parties could be considered as an agreement.
In the instant case, the CCI relied on several emails exchanged between Maruti and its dealers/distributors from August 2012 to July 2019, which established that Maruti (i) framed guidelines akuand instructed its dealers to not offer discounts over certain pre-restricted levels without permission; (ii) threatened to impose or levied penalties on dealers who offered additional discounts; and (iii) threatened to suspend supply of premium models to dealers for violation of the Discount Control Policy.
Although the formal contract between Maruti and its dealers did not stipulate any restriction on dealers about discounts that could be offered, CCI found that outside the contractual framework, Maruti was actively involved in
a. the planning and implementation of Discount Control Policy through an independent agency, which conducted mystery shopping audits by posing as a customer to determine if a dealer offered extra discounts;
b. tracking of the penalty imposed;
c. recovery of penalty through a third party in the third party’s name; and
d. utilisation of the penalty amounts.
Based on the above, the CCI concluded that Maruti indulged in the practice of ‘resale price maintenance’ through the implementation of its Discount Control Policy on its dealers. As per CCI, the practice of ‘resale price maintenance’ by Maruti caused an appreciable adverse effect on competition by lowering inter-brand and intra-brand competition and prevented products being offered to the consumers at best prices.
Srijoy Das, IDI Country Expert for agency & distribution in India