Fx Enterprise Solutions India Pvt. Ltd. v. Hyundai Motor India Ltd.

The leading Indian case on resale price maintenance, and a cautionary tale about the standard of reasoning required of the Commission. Two Hyundai dealers complained that the manufacturer operated a discount control mechanism preventing them from offering discounts beyond a permitted level, enforced by mystery shopping agencies and by penalties, and that it required them to buy lubricants and other products from nominated suppliers. The Commission found contraventions of Section 3(4) and imposed a penalty of about eighty-seven crore rupees. The National Company Law Appellate Tribunal set the order aside in September 2018, not on the substantive law but because the Commission had not conducted its own analysis.

1. The Conduct Complained Of

1. The discount control mechanism. Dealers were permitted to offer discounts only up to a level set by the manufacturer. Compliance was monitored through mystery shopping agencies engaged for the purpose, and a dealer found exceeding the permitted discount was penalised, including by stopping supplies.
2. Tie-in arrangements. Dealers were required to purchase lubricants and oils from suppliers nominated by the manufacturer, and similar requirements were alleged in respect of other products and services.
3. Exclusive supply and dealership conditions, restricting the dealers' freedom to deal in competing products and to source from other suppliers.

2. The Commission's Order

The Commission, by order of 14 June 2017, held that the discount control mechanism was resale price maintenance within Section 3(4)(e), because it fixed the price below which the dealer could not sell and was enforced by sanction, and that the requirement to buy lubricants from nominated suppliers was a tie-in arrangement within Section 3(4)(a). It defined an upstream market for the sale of passenger cars in India and a downstream market for the dealership and distribution of that manufacturer's cars, found an appreciable adverse effect, imposed a penalty of about eighty-seven crore rupees computed on relevant turnover, and directed the practices to cease.

3. The Appellate Decision

The National Company Law Appellate Tribunal set aside the order on 19 September 2018. Its principal grounds were procedural and methodological rather than substantive.

• No independent analysis. The Commission had relied on the Director General's report without itself appreciating the evidence and reaching its own conclusions, which the Tribunal held was not the inquiry Section 27 contemplates.
• Market definition. The Commission had not applied the factors in Sections 19(6) and 19(7) in defining the relevant geographic and product markets, the Tribunal relying on Competition Commission of India v. Coordination Committee of Artists and Technicians of W.B. Film and Television, (2017) 5 SCC 17 for the requirement of a proper market analysis.
• Evidence. Material relied on had not been adequately put to the enterprise or examined in the order.

The Tribunal set the order aside without remitting the matter for fresh consideration, which has itself been criticised, since the effect was to end the proceeding without any decision on whether the conduct was lawful. The Commission carried the matter further, and the position before the Supreme Court should be checked before the case is cited for a final outcome.

4. What the Case Is Used For

1. Resale price maintenance. The clearest Indian description of a discount control mechanism and of the elements that turn a recommended price into an enforced one.
2. Tie-in arrangements in dealership networks, particularly requirements to source lubricants, insurance or accessories from nominated suppliers.
3. The standard of reasoning required of the Commission. The order is cited by enterprises for the proposition that the Commission must apply its own mind to the evidence rather than adopt the Director General's findings, and that market definition must be worked through the statutory factors rather than asserted.
4. The limits of appellate intervention. The decision is criticised for setting aside a finding on procedural grounds without remitting, and for leaving the substantive law on vertical restraints undeveloped.

5. Related Topics and Provisions