CCI’S Probe into TATA Motors: A Fork in the Road of Competition Jurisprudence?
Updated: Jul 6, 2021
Authors: Aniket Panchal and Yash Khanna
Second-year students at Gujarat National Law University
II. Factual Background
Varanasi Auto Sales Pvt. Ltd. and M/S Kanchan Motors based in Varanasi and Nashik respectively filed two separate information’s against Tata Motors Ltd., Tata Capital Financial Services Limited and Tata Motors Finance Ltd. (“Opposite Parties”). The informants alleged that the Opposite Parties imposed territorial and price-maintenance restrictions on the dealers. In light of the overlapping issues, a common order was passed by the CCI on 4th May 2021.
III. Issues Involved in the Case
The core issues before the CCI were the clauses of the dealership agreements and the conduct of Opposite Parties for commercial vehicles in light of Sections 3(4) and 4 of the Act. The CCI had to determine whether the Opposite Parties hold a dominant position in the market and whether the act of inserting unfair conditions in the dealership agreements is an abuse of dominant position by the Opposite Parties. Further, the locus standi of the informants was also contested in light of the period of limitation and commercial nature of the transactions between the dealers and OPs.
IV. Strengthening the foundation of Competition Law Principles
Challenging the jurisdiction of the CCI, the Opposite parties averred that this matter arises from an entirely commercial and contractual transaction having no connection whatsoever with the competition law regime. The CCI rejected this argument and enounced that contractual relationships are unfailingly inherent in any transaction of purchase or sale of services or goods. ‘If such a plea is accepted, the dominant undertakings would virtually acquire an immunity from anti-trust actions,’ highlighted the CCI. In fact, the informants approached the Commission not only with regards to the restrictive nature of the clauses in their agreements with Tata Motors but also for the anti-competitive conduct of the Opposite Parties which unequivocally comes within the jurisdiction of the CCI.
Further, the Opposite Parties also objected to the delays and laches of the informants in approaching the commission. The CCI spurned this argument with a remark that the scheme of the Act does not lay down any period of limitation. The CCI emphasized that its inquiries are in rem in their nature and thus ought not to acquire characteristics of an in personam dispute. Resultantly, the matters before the commission are not in the nature of a lis between the parties. While the CCI cautioned that an inordinate delay on the part of the Informant could affect the initiation of inquiry as market dynamics may have changed, it held that the present case does not suffer from an inordinate delay. This pronouncement is also in line with the NCLAT decision in the case of Maj. Pankaj Rai wherein the Tribunal had redefined the limitation in filing competition appeals.
Moreover, dismissing these preliminary objections, the CCI relied on the landmark case of Samir Agarwal v. Competition Commission of India & Ors. wherein the Apex Court had dispelled the ambiguity concerning locus standi of the informant. In that case, it was held that the CCI discharges adjudicatory, inquisitorial and regulatory functions, and, while performing inquisitorial functions, its doors will always be open to any person (as against an aggrieved person only) for the larger public interest. Resultantly, the pronouncement of the CCI in the case of Tata Motors would further stimulate the growth of a more competitive market as a complainant would not have to go through the rigours of proving a personal injury suffered by him/her owing to a trade practice alleged to be causing AAEC.
V. The First Step to Investigate: CCI's Prima Facie Assessment
While assessing the relevant product market, the CCI concluded that the relevant product market in question was the "market for the manufacture and sale of commercial vehicles”. For the relevant geographic market, the CCI noted that the supply, demand and trade conditions for the manufacture and sale of commercial vehicles were homogeneous throughout India and therefore the relevant market was drawn as the “market for the manufacture and sale of commercial vehicles in India”. Addressing the question of Tata Motors’ dominance in the market, the CCI considered Tata Motors’ Annual Report of 2019-20, wherein Tata Motors claimed to have a 43% market share in the commercial vehicle segment in India. Based on this fact, the Commission held that on a prima facie basis, Tata Motors was a dominant entity in the defined relevant market.
The CCI considered three allegations made by the Informants in relation to the abuse of dominance by Tata Motors. The Informant’s first allegation was with regard to coercive billing, and the CCI noted through a trail of email evidence that ex facie Tata Motors used to unfairly compel their dealers to purchase slow-moving products and this would burden them with excess inventory. Deeming this to be an unfair imposition on the dealers, the CCI held that such actions were in contravention of Sections 4(2)(1)(a) and 4(2)(d) of the Act.
The Informants’ second allegation was that their dealership agreement with Tata Motors restricted them from acquiring and venturing into any new business even if it was unrelated to the automobile industry unless they were granted a NOC from Tata Motors. The CCI opined that the actions of Tata Motors were restrictive of the freedom to trade freely encompassed under Article 19(1)(g) of the Indian Constitution and constituted a violation of Sections 4(2)(a)(i) and 4(2)(c) of the Act.
The Informants’ third allegation was that Tata Motors unfairly obligated them to undertake the financing services from Tata NBFC’s such as Tata Motors Finance and Tata Capital, as they would not issue any comfort letters to enable financing from other financiers. The CCI held that there was no evidence to support this allegation and that the Informant dealers had availed finances from other financiers such as PNB and SBI. They, therefore, denied any merit to this allegation.
Further, the Informants raised an allegation that the dealership agreement proscribed dealers from conducting their business activities beyond their allocated geographic territory. In this regard, the CCI observed that this clause could potentially create barriers for new entrants to enter the market apart from foreclosing on the competition. The CCI also noted that it could not sense any tangible benefit which would accrue to the consumers through this practice. Therefore, it deemed such a clause to be in the nature of an exclusive distribution agreement which was infracting Section 3(4)(c) of the Act.
All in all, this order will play a big role in solidifying general principles of competition law in India. The CCI’s decision of solidifying the status of antitrust violations as those of rights in rem and laying down the principle of locus standi has both positive and negative effects. Positively, the CCI’s position would allow anyone to allege violations of competition law, therefore, allowing the CCI to perform its inquisitorial functions on a larger scale; extending its functions of inquisitions from a mere injury-based standing, strengthening its functions as a watchdog of competition law violations. On the other end of this spectrum, interestingly, the solidification of the competition law regime as rights in rem might make it difficult for India to move towards arbitrability of competition disputes in the hopeful future due to the Indian scepticism of arbitrating disputes involving rights in rem. While the position of non-arbitrability of competition disputes has been solidified in India through the pronouncement in Union of India v. Commission of India; much away from the present position taken in the United States and the TFEU jurisdictions. A deviation from this position might be difficult in the future, with the pronouncement of competition violations as rights in rem.
On the merits of the case, there are three interesting takeaways from the order. First, the delineation of the relevant market by the commission. The CCI defined the relevant product market to involve ‘commercial vehicles’. However, interestingly, the commercial vehicle segment contains several classes of products inter alia Light Commercial Vehicles, Small Commercial Vehicles and Large Commercial Vehicles. Moreover, these classes of vehicles have different utilities and they are non-substitutable with one another. Second, the CCI assessed Tata Motors’ dominance based on their 43% market share in 2018, which has been decreasing in the last two years. Conversely, the commercial vehicle market has stiff competition from Mahindra & Mahindra and Ashok Leyland holding almost 28% and 13% market shares respectively.
Going by the CCI’s pronouncement in Fast Track Call Cab Pvt. Ltd. v. ANI Technologies, when an entity is facing strict competition in the market with a decreasing market share, that entity cannot be given a status of dominance. Therefore, it will be interesting to see how the parties and the Commission assess Tata Motor’s dominance in the market. Lastly, the CCI, while holding Tata Motors in contravention of section 3(4)(c) of the Act, will investigate the geographic dealership model followed by Tata Motors. Adjudication over this claim will be pertinent in the dealership space as several franchisees and dealership models for several industries in India limit dealerships to geographic locations. Therefore, the CCI’s finding will have a big part to play in future dealership business models in India.