India: Order Against 14 Car Makers: CCI Again Shows Its Might!

Last Updated: 10 October 2014
Article by Ankush Goyal


Keeping up with its reputation of imposing hefty penalties, on August 25, 2014, the Competition Commission of India ("CCI or Commission") in its first order1 on vertical agreements have found 14 automobile companies2 ("OEMs") guilty of anti-competitive conduct and imposed a staggering penalty of INR 25.4464 billion (US$ 424 million approx.).3 This is the largest penalty imposed by the Commission in the year 2014. Under the Competition Act ("Act"), CCI has been authorised to impose fines on entities engaging in price manipulation, cartel formation or misuse of their dominance, which can go as high as 10% of their turnover or three times their annual profits.

However, the moot question is about the impact of the order. In the absence of governing regulations and a specific regulator in the auto manufacturing and after sales service/repair sector, the implementation of CCI's order is a challenge. On penalties specifically, the precedents largely suggest that these high amounts have either been drastically reduced in appeal or a stay has been granted. For instance in cases like Cement Cartel or Coal India, where penalties over INR 63 billion (US$ 1.05 billion approx.) and 17 billion (US$ 283 million approx.) were imposed, the matters are still being contested and nothing has been collected as such. There are a few promising instances as well, such as the DLF case, where the penalty of about INR 6.3 billion (US$ 105 million) imposed by the Commission has been upheld by the Supreme Court of India.

Keeping the above in regard, this newsletter analyzes the August 25 order and talks about its implication on the business model of interested parties including OEMs.

1. Brief Facts

The Commission had received information against 3 OEMs for violation of section 3(4) (anti-competitive vertical agreements) and section 4 (abuse of dominant position) by entering into agreements with original equipment suppliers ("OESs") and authorized dealers, restricting free availability of auto spare parts in the market and imposing unfair prices. These agreements restricted OESs from directly selling spare parts to the independent repairers and car users in the open market. Further, OEM's were not providing technological information, diagnostic tools and software programs to independent repairers that are required to maintain, service and repair technologically advanced automobiles. This led to imposition of unfair and discriminatory condition in purchase of spare parts for independent repairers and amounts to denial of market access.

2. Finding of Director General ("DG")

The DG found all OEMs guilty of abuse of dominant position and found their agreement with OESs and authorized dealers to be anti-competitive. He reported that:

2.1 There are 3 separate relevant markets for the purpose of this case (a) 1 primary market – "sale of passenger vehicles in India" and (b) 2 aftermarkets4 - "sale of spare parts including the diagnostic tools, technical manuals, catalogues etc. for the aftermarket usage in India" and "after sale service of repair and maintenance in India."

2.2 Each OEM is the only source of spare parts of their brands and there is nil possibility of interchangeability of spare parts; therefore, each OEM is in dominant position. OEMs are abusing their dominance by non-availability of spare parts and diagnostic tools in open market imposing unfair terms on independent repairers in violation of section 4(2)(a)(i) and denying them market access in contravention of section 4(2)(c). Further, they are using their dominant position to impose unfair prices on consumers, which contravenes section 4(2)(a)(ii).

2.3 Agreements between OEMs and authorized dealers do not allow them to deal in competing brands of cars or to sell spare parts and diagnostic tools to independent repairers. This amounts to exclusive distribution agreement and refusal to deal in violation section 3(4)(c) and 3(4)(d). Further, the authorized dealers are required to source spare parts directly from OEMs or their approved vendors only, which is in nature of exclusive supply agreement in violation of section 3(4)(b).

All the above is prejudicial to the consumer interest and has appreciable adverse effect on competition.

3. Issues

3.1 Whether the automobile market as whole, from manufacturing to aftermarket service, is a single unified "system market" or there exists separate relevant markets at different stages?

3.2 Is there abuse of dominance by OESs in spare parts market?

  • Abuse by denying access to market to the independent repairers/service providers;
  • Abuse by imposing unfair prices for aftermarket sale of spare parts;

3.3 Whether the OEMs are entitled to benefit

3.4 Whether agreements by OEMs with OESs and authorized dealers are anti-competitive in nature?

4. Main Contentions of the Opposite Parties

The OEMs contended that:

4.1 The relevant market in the present case is an indivisible and unified "system market" of cars. The market of sale of spare parts is not distinctive from market of sale of cars. A "system market" for complimentary products is appropriate for durable products like car as customers engage in "whole life costing".5 The relevant product market would be various product markets in the Indian automotive sector based on various segments of automobiles, viz. small or economy car segment, mid market car segment and the luxury car segment.

4.2 On the issue of unfair pricing they contended that reputation of each OEM and price consideration by the consumers deter them from charging supra-competitive prices hence there prices are not unfair.

4.3 Restriction imposed by them on OESs and authorized dealers are for the safety of consumers and to enhance the service to the car owners in the absence of "matching quality"6 law in India. Further, the restriction under agreements with OESs from sale in open market without the consent of OEM is a reasonable condition imposed to protect their IPRs, and such agreements are protected from scrutiny of the Commission by section 3(5).

5. Decision of the Commission

5.1 Relevant Market

The Commission agreed with the finding of the DG on identification of the relevant market. It held that primary market of "manufacture and sale of cars" and aftermarkets "sale of spare parts, diagnostic tools etc." and "service of repair and maintenance" are three separate relevant markets. It rejected the contention of unified "system market" and opined that Indian car owners do not engage in "whole life costing" because they do not have access to relevant information for such analysis. Interestingly, the Commission took the position that determination of relevant market is not an end by itself but a means to determine strength of an enterprise in a particular market. Therefore, the Commission has to identify that market as a relevant one where dominance of an enterprise is felt. Here it may be noted that the Commission took a circular path for determining relevant market. At first, the Commission is presuming/considering that in a particular market the enterprise is dominant or can be proven dominant and then considering that as relevant market, it subsequently establishes dominance using the factors enshrined in the Act.

5.2 Abuse of Dominance

5.2.1 Determining Dominance: The Commission considered the factors that allow OEMs to act independently and afford the OEMs with an opportunity to foreclose markets for its competitors and exploit customers. It noted that there is no intra or inter-brand interchangeability and compatibility between spare parts of one brand/model of car and spare parts of another brand/car. Therefore, customers do not have choice to switch and each OEM acts independently of its competitors. OEMs strength in primary market (manufacture and sale of cars) enables it to affect the competitors in the secondary market i.e. independent service providers, thereby limiting consumer choice to OEM recognised authorised dealers only. This forces the consumers to react in a manner which is beneficial to each OEM. The lock-in-effect and entry barriers imposed by the OEMs result into high dependency of car owners on them and gives OEMs a position of strength and, therefore, a position of dominance.

5.2.2. Abuse of Dominant Position: The Commission held that all the OEMs restrict the availability of the diagnostic tools/repair manuals etc. which is required to effectively repair models of their respective brand of automobiles to independent service providers and multi brand retailers. Such practices amounts to denial of market access by OEMs under section 4(2)(c) of the Act. Further, there is a high mark up margin in prices of aftermarket spare parts, disproportionate to the economic value of the products supplied and the prices are exploitive and unfair under section 4(2)(a)(ii). The CCI also found the OEMs guilty of leveraging under section 4(2)(e) by using dominance in the market of sale of spare parts for protecting the relevant market of after sale service and repairing.

5.3 Anti-competitive Agreements

5.3.1 Vertical agreements between OEMs and OESs have restrictions on OESs from supplying spare parts in the independent after market without the approval of the OEM. The DG couldn't find even a single instance where such an approval would have been given. Therefore, these agreements are in the nature of exclusive supply agreement as per section 3(4)(b) leading to appreciable adverse effect on competition in India. Further, the agreements with authorized dealers require them to source spare parts from OEMs or their approved vendors only. The authorized dealers are not allowed to deal in competing brands of cars and cannot sell spare parts and diagnostic tools over the counter resulting in exclusive distribution agreement and refusal to deal as per section 3(4)(c) and 3(4)(d). Such agreements also restrict access to genuine spare parts and diagnostic tools and lead to the rise in the usage of spurious spare parts jeopardizing consumer safety.

5.3.2 The Commission rejected the safe harbour of section 3(5) (protection of intellectual property rights) to agreements between OEMs with OESs. The Commission held that the Act only recognizes protection to those IPRs which have been conferred under those Indian legislations which are listed in section 3(5). None of the OEMs could provide sufficient evidence to establish their claim over a particular type of IPR. Further, the Commission said that only reasonable and necessary restriction related to IPRs are protected and restrictions imposed by OEMs are not reasonable and necessary.

5.4 Order

The Commission imposed a penalty of 2% of total turnover in India on 14 OEMs and ordered them to submit a compliance report within 180 days. The OEMs have been directed to cease and desist from anti-competitive conducts, allow OESs to sell spare parts in the open market and put in place an effective system to ensure availability of aftermarket spare parts, diagnostic tools and other relevant information in the public domain. The Commission said that OEMs can make reasonable and necessary provision in their agreements with respect to protection of IPRs. Further, the OEMs have been directed not to impose a blanket condition that warranties would be cancelled if the consumer avails services of any independent repairer. However, necessary safeguards may be put in place from safety and liability point of view.

Analysis and Conclusion

The Commission has imposed penalty on "total turnover" of the OEM's rather than on "relevant turnover" in the spare parts market. According to Competition Appellate Tribunal's ("COMPAT") decision in Aluminium Phosphide tablets cartelisation case,7 penalty should be calculated on the basis of the "relevant turnover" instead of overall turnover of the guilty enterprise. The Commission in this case had clearly distinguished the primary market and aftermarkets, and have held aftermarket of sale of spare parts as the relevant market. Clearly, the turnover of only the relevant market should have been considered for determining the penalty. The OEMs may use this ground in appeal.

This decision of the Commission is a wakeup call for all the market players and the government as well. The Commission has espoused the need to have an appropriate framework for safety and standards relating to spare parts and after sales services and have requested the government to look into it. The order also sends a message to the business world to do assessment of their market behaviors and their agreements. Sophisticated industries similar to the auto manufacturing sector (e.g. computer industry, mobile industry and other industries where after sale services and use of defective parts is sensitive due to model specific technology and standard) need to assess their after market conducts.

Further, the OESs and authorized dealers who have contracted with OEMs need to quickly asses there agreements and question OEMs on implication of the order. Though the Commission's order does not give any specific directions to them, nonetheless they are a party to these anti-competitive agreements. This also raises an interesting question – whether every non-protesting party to a vertical anti-competitive agreement is hit by the order or only the dominant party? Only time will tell!


1 Shri Shamsher Kataria v. Honda Siel Cars India Ltd. & Ors, Case No. 03 of 2011. 2 BMW India, Ford India, General Motors India, Hindustan Motors, Mahindra & Mahindra, Maruti Suzuki,

2 BMW India, Ford India, General Motors India, Hindustan Motors, Mahindra & Mahindra, Maruti Suzuki, Mercedes-Benz India, Nissan Motor India, Skoda Auto India, Tata Motors, Toyota, Honda India, Volkswagen India and Fiat India. CCI is yet to pass final order against Hyundai India, Mahindra Reva and Premier.

3 1 USD = INR 60.

4 "Aftermarket" means a market comprising of complementary or secondary products and services which are purchased after another product i.e. the primary product which they relate to.

5 "Whole life costing" means analysis of costs of life cycle of a car from purchasing to repair and maintenance based on information available to the customers.

6 "Matching Quality" law is an appropriate legislative and regulatory framework for safety and standards relating to spare parts and after sales services.

7 M/s Excel Corp Care Ltd v. CCI, Appeal No. 79, 80 and 81 of 2012. The Commission has challenged this order before the Supreme Court of India.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions