India’s anti-trust watchdog lacked teeth but two recent rulings have changed this. The '2,500-cr fine on car manufacturers raises the bar, as also consumer expectations
Deevakar Anand | September 29, 2014
Wind back three or four decades. In the 1960s, ’70s and till the middle of the ’80s four-wheeled automobiles came primarily in two models. Barring the odd Contessa, and the even fewer big, imported sedans, India’s roads were dominated by Hindustan Motors’ Ambassador and Premier Automobiles’ Padmini, popularly called Fiat.
The licence-permit raj meant Indians, bereft of options, had to choose between these two models, as many kept the ‘swadeshi’ flag flying high. If this was not duopoly, or simply put, monopoly, then the noun is meant only to indicate children’s board game.All this changed with the arrival of Maruti-Suzuki, the ‘people’s car’, and then the liberalisation policy of the 1990s.
Fast-forward the decades, and a similar lack of choice came back to haunt Indian automobile-users. This time the clause that you had to sign while buying a car – that the after-sales repairs and servicing can be done only at centres authorised by the manufacturers, or else you stand to lose the warranty.
Now, the competition commission of India (CCI), a regulator and quasi-judicial body meant to “promote and sustain competition”, may well have provided a second freedom. What’s more, it appears as if the watchdog, though operating since 2009 and always having had teeth unlike its predecessor monopolies and restrictive, trade practices commission (MRTPC), has finally found its feet and taken the game to the automobile companies.
Days after the commission came to the rescue of lakhs of car owners and imposed a total penalty of over '2,500 crore on 14 carmakers for unfair trade practices in spare parts and after-sales services, there is a buzz at many workshops in the national capital region. There could be good days coming for the independent, or so-called non-authorised, workshops if the CCI’s order is implemented, and auto manufacturers make available their spare parts and train the technicians at these workshops as well.
If implemented, it would help car buyers save quite a bit, too.On a muggy post-monsoon weekday, swanky sedans and SUVs of varying brands stand outside independent car repairer Rajesh Chhabra’s workshop in Gurgaon, a major hub of auto component manufacturing units and one housing two manufacturing units of India’ largest car maker – Maruti Suzuki. Taking a break from his work, Chhabra says many car owners prefer workshops like his over a company-authorised service centre due to the cost factor. Servicing a car, fixing a small defect or even getting a small spare part at the latter would entail shelling out a lot more – up to 100 percent, in some cases.
And all this at the risk of losing the company’s warranty for availing after-sales services. “Cars of all brands come to my workshop, including many still within the warranty period,” Chhabra says. “The customer has to take the risk because otherwise the same service is costlier by more than 50-100 percent in company-run or authorised workshops.”
Chhabra regrets that it doesn’t help not to have access to branded spare parts: “It hampers my business and it also limits the customer’s choice. Many of them are forced to go to company-authorised service centres and shell out a premium every time they need to repair or replace a malfunctioning control unit, or, say, a broken driving shaft, a problematic gearbox or even a rear or side view mirror.”
According to another workshop owner, they depend on genuine spare parts from abandoned or run-down cars. Then, of course, there’s the grey market to source all your needs from. To believe the Automotive Component Manufacturers Association (ACMA), this parallel market is growing, and how! Data collated by ACMA shows the market for spurious spare parts is worth anything between '10,500 crore and '14,000 crore.
Major orders of CCI
WHEN: August 27, 2014
WHAT: '2,545.64 crore penalty
WHO: 14 car makers
WHY: Unfair trade practices in spare parts and after-sales services market
WHEN: December 2013
WHAT: '1,773 crore penalty
WHO: Coal India Limited
WHY: Abuse of dominance after complaint by power generation corporations of Maharashtra and Gujarat
WHEN: February 2013
WHAT: '52.24 crore fine
WHO: Board of control for cricket in India (BCCI)
WHY: Abuse of dominant position in awarding franchise rights for team ownership, media rights and sponsorship rights for IPL and another professional league
WHEN: June 2012
WHAT: '6,200 crore penalty
WHO: 11 prominent cement firms, including Ambuja Cement, Ultratech, Jaypee and ACC
WHY: For price cartelisation
CCI opens a new chapter
There are close to 3 lakh independent auto repairers in India, and according to the Society of Indian Automobile Manufacturers (SIAM), 1.7 million cars were sold in the last financial year.
These figures tell us the expanse of the anti-trust watchdog’s August 25 order – it can be a game-changer for billions of car users, and lakhs of repairers like Rajesh Chhabra. The automobile aftermarket (spare parts, accessories, and components) business in India is pegged at approximately '33,000 crore.
Besides the penalty of '2,545.64 crore, CCI in its order said these automakers are indulging in “abuse of dominance” of the market and asked them to make available branded spare parts and diagnostic tools to independent repair workshops. The order also clarified that warranties can be cancelled only if it is established clearly that damage is caused in the product due to faulty repair outside the authorised network.
Aside from a seminal impact on the automobile manufacturing industry, the CCI’s order marks the beginning of a new, and important, chapter in India’s competition law regime. CCI had never extended its investigation to establish an ‘aftermarket’ in a particular sector, unfair vertical agreements in that market – in this case agreement that the original equipment manufacturers (OEMs) have with the original equipment supplier (OES), overseas dealers and car dealerships.
Significantly, the CCI received a ratification for one of its earlier orders from the supreme court in August itself. Two days after the anti-trust watchdog passed its order on the automakers, the apex court asked realty giant DLF to pay up '630 crore as a precondition to hear its appeal against a judgment by the competition appellate tribunal (Compat) – the appellate authority for CCI, or where appeals can be made once the anti-trust watchdog has passed a verdict.
The Compat case relates to upholding a 2010 CCI order that imposed the hefty fine on the real estate giant. The CCI had then acted on a complaint filed by buyers’ associations of three DLF high-rise properties in Gurgaon – DLF Park Place, Belaire and Magnolias – over delay in construction and adding more floors than the initial building plan.
In both cases, the consumers – vehicle buyers and apartment owners – find themselves ‘locked in’ after buying the product, becoming vulnerable to “dominant” and “abusive” conduct of the companies, as the CCI said in its ruling.
“If you look at the latest order imposing penalty on automakers, a well-thought-of and watertight case has been made. CCI has established a relevant market as well as the domination of auto manufacturers in the auto-spares and aftermarket,” says Vaibhav Choukse, senior associate (competition law) at Delhi-based law firm Vaish Associates.
Gautam Shahi, competition lawyer at J Sagar Associates, explains further: “More than four decades of controlled economy has not encouraged competition in Indian markets. As a result, certain accepted practices end up being in contravention of competition law. Amid this, CCI’s role becomes very significant. When the regulator takes cognizance and acts on anti-competitive practices in any sector, it raises the bar and helps create a better ecology for fair competition in the sectoral and overall market.
“A proper implementation of the competition law will ensure that companies compete on merits.”Harsh Sehgal, president of DLF Park Place residents’ welfare association, which is fighting the suit against the realty giant, says there are thousands of consumers like him at the mercy of builders. “It is thus good that we have an anti-trust watchdog that seems to be willing to rise to the occasion and check the predatory, one-sided buyer agreements that are imposed on consumers,” he says.
Emphasising that the CCI set a good example with “our case”, he says a “belief has grown that even common consumers can take on the big fish with the help of existing laws.”
Showing more teeth
While Maruti Suzuki India Ltd (penalised '471.14 crore) and Hyundai have already got a stay on CCI’s penalty in the Delhi and Madras high courts, respectively, and many other carmakers are learnt to be mulling over moving the court, experts say the CCI has done what is accepted practice globally. In fact, in August itself, China slapped a total penalty of more than $200 million on 10 Japanese auto parts manufacturing firms for violating the country’s anti-monopoly law.
The CCI, legal experts say, has tried to address the whole issue by looking at global practices.While India is an attractive market for auto-makers, consumers here are treated shabbily compared to their counterparts in, say, Europe. Carmakers have made consumer-friendly arrangements in European markets but have failed to adopt similar practices in India. In 2010, the European Union (EU), after detailed analysis, decided that independent car workshops should get spare parts at fair prices. The EU also concluded that technical designs and knowhow should be licensed to them by the original equipment manufacturers against payment of fees or royalty.
The CCI’s order comes along similar lines. The main contention of the automobile manufacturers is that giving access of original spare parts and diagnostic tools to unauthorised workshops can compromise safety and security features of their vehicles, and eventually tarnish the brand’s image. But the CCI tried to address this by underlining that appropriate arrangements should be made by auto manufacturers to provide support and training certificates to independent repairers against a fee.
If you look at the latest order imposing penalty on automakers, a well-thought-of and watertight case has been made. CCI has established a relevant market as well as the domination of auto manufacturers in the auto-spares and aftermarket.
Vaibhav Choukse, Competition Lawyer, Vaish Associates
Since its inception in 2009, CCI has imposed penalties worth over '10,000 crore on various companies for collusion and abuse of their dominant position in the market.
The arrival of the modern competition regime in India, however, has been relatively late. When CCI replaced the MRTPC – in 2008 – the decaying predecessor had about 2,000 cases pending. The initiation, thus, was not a breeze. On the positive side, unlike MRTPC, which passed only cease-and-desist orders with no penal impact, CCI was allowed to impose fines and penalties – in some cases up to 10 percent of the previous three years’ turnover of an entity.
In nearly six years since, CCI has been able to intervene in diverse sectors such as real estate, automobiles, pharmaceuticals, mining, publishing, stock exchanges and more.
Though the CCI’s orders against the car manufacturers and the SC order in the DLF case are subject to final executions, the two cases have certainly come as a boon to consumer rights in India. For, they open a gate of possibilities for rationalisation of ‘aftermarket’ services in other sectors, too.
(This article appeared in the October 01-15, 2014 print issue)
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