CASE STUDY OF SHAMSHER KATARIA VERSUS HONDA SIEL CARS

Ltd. & OTRS.

Submitted by

Sivaganga.S.R

B.A. LL.B.(Hons.)(4TH Year VII th Semester)

Submitted to

Ms. Arshiya

Reg.No: 46017210013

13th SEPT 2020

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 Table Of Contents

SL.NO CONTENTS PAGES

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 DECLARATION

I undersigned Sivaganga.S.R student of B.A. LLB SEM- V, hereby declare that the project is my
own work and has been carried out under the guidance and supervision of Ms.Arshiya of SRM
University, Sonepat, Haryana,Delhi– NCR.

This work has not been previously submitted to any other university for any purpose.

Date:13/09/2020 Name & signature of candidate :Sivaganga.S.R

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 ACKNOWLEDGEMENT

This project would not have been possible without the essential and gracious support of
Ms.Arshiya (Assistant Professor of Competition law) from SRM University, Sonepat, Haryana,
Delhi– NCR. Her willingness to motivate me contributed tremendously to my project. I also
would like to thank her for showing me some examples related to topic of this project.

Besides I would like to thank the authorities of SRM University, Sonepat, Haryana,Delhi– NCR
and faculties of Law department for providing me good environment and facilities to complete
this project.

Last but not the least, I would like to thank my family and friends for their understandings and
supports towards me for completing this project.

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 FACTS
The following are the facts of the case:

 The commission got knowledge of some illegal competition acts such as the violation of
section 3(4) ( anti- competitive vertical agreements) and section 4 (abuse of dominant
position) of Competition Act , 2002 which has been done by certain Original Equipment
Manufacturers (OEM).
 The other acts which were accused them are:
1. entering into agreements with original equipment suppliers (OES) and authorized
dealers
2. Restricting free availability of spare parts in the arena of market and imposing
unfair prices.
3. Restriction over direct sale of spare parts to the independent repairers and car
customers in the open market.
4. The OEM also restricted in providing technological information, diagnostic
systems and other software programs to independent repairers which are happens
to be quintessential method to maintain, service and repair technological
advanced automobiles.
 These illegal acts ended up to imposition of unfair and discriminatory scenario in
purchase of spare parts for independent repairers and it also resulted in restricted market
access.
 Therefore, the DG requested the Commission that the investigation shall not be confined to
the alleged 3 car manufacturers alone, instead it should be expanded to examine the alleged
anti-competitive trade practices of all car manufacturers in the Indian economy.
 And according to this request of DG, the commission released an order on 24/04/2011 which
stating the initiation of the investigation against 14 other OEMs operating in India.
 After the submission of the DG’s report, Reva and Preimer put up an application dating on
01/02/2013 and 21/12/2012 respectively under Regulation 26 of the Competition
Commission of India (General) Regulations, 2009 requesting for striking out of their names
from the array of parties but later the Commission decided to dispose of these applications.
 Then Hyundai had filed Writ Petition at Madras High Court for challenging the jurisdiction
of the Commission. Madras HC granted an ex parte stay over the matter.

Issues Raised
The following are the issues raised in the case:
 Whether the automobile market is a single “unified market” or there exists separate
relevant markets at different stages?
 Is there abuse of dominance by OES in spare parts market ?

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 Whether agreements by OEM with OES and authorized dealers are anti-competitive in
nature?

Contentions of Plaintiffs
DG concluded that activities of OEMs were in violation of sections 3 and 4 of the Act.5. DG
identified two separate markets for passenger vehicle sector in India as ‘relevant market’,i.e,
i. Primary market and;
ii. Secondary market
 Technical difference between various primary market products (i.e., differences within
individual brands of a car manufacturer such as Maruti Alto, Maruti Ertiga, Maruti Dzire
etc.) restricted consumers’ choice in complimentary products/services. Hence, consumers
were ‘locked into’ aftermarket suppliers of the car purchased.
 Each OEM was in a dominant position in the supply of its spare parts for its brand of cars
as the OEMs through restrictions limited the OESs from selling these spare parts in the
open market. DG also found that even if there was no restrictive clause, OESs did not sell
in the open market.
 OEMs were not able to demonstrate that they owned IPRs and technology transfer
agreements (“TTAs”) were not covered by the exception under Section 3 (5) of the Act.
 Restrictive clauses in agreements between OEMs and OESs caused lack of supply in the
open market of spare parts, tools and services.
DG analyzed the appreciable adverse effect on competition (“AAEC”) by examining vertical
agreements that OEMs had with:
 local OESs who manufacture spare parts for OEMs for their assembly line or to be sold in
the aftermarket through authorized dealers,
 overseas suppliers who supply OEMs with spare parts, and,
 dealers, through whom cars are sold and who provide after sales services.
DG observed that OEMs were able to substantially mark-up prices for spares. Hence, DG
concluded that vertical agreements entered into between OEMs and their authorized dealers
cause AAEC in terms of conditions set forth under section 19(3) of the Act.
Contentions of defendant
OEM challenged the defendants on following grounds:
 Firstly, the 14 OEMs objected the DG’s report by saying that CCI did not have the
authority to add them into the list.
 Secondly, the OEMs also challenged the classification of the market as ‘primary’ and
‘secondary’ and stated that the relevant markets were actually an indivisible and

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 unified ‘system of market’ where the market of the vehicle itself and its spare parts
are indivisible. They also reasoned that consumer purchase both at one go. Further
consumers while purchasing cars engage in ‘whole life costing’ where they anticipate
future costs of ownership of the car.
 Thirdly, they were discouraged from the setting ‘supra-competitive prices’ (i.e. a
contesting the high markup) as it would cause catastrophic harm over their own
profits in future sales of their primary product(i.e. vehicle). The OEMs contended
they were not in a dominant or principal position in the unified systems market where
the market has been exploded with several competitors.
 Lastly, they also contended that the DG take no notice of statutory levies and other
taxes and costs while calculating the rise in the level of markup.
OEMs refuted the finding that consumers were ‘locked-in’ and that consumers exclusively
purchased only from authorized dealers. It was contended that after the warranty period,
substantial percentage of consumers switched to independent repairers.
Order
After the prolonged discussion the commission have imposed a penalty of 2 % total turnover
in India on 14 Opposite parties and ordered them to submit a compliance report within 180
days. So they were been instructed to cease and abstain from any anti-competitive acts, and
these instructions were clearly stated by the Commission in the Main Order which under the
ambit of section 27 of the Act:-
i) The parties are hereby directed to immediately cease and desist from indulging in conduct
which has been found to be in contravention of the provisions of the Act.
ii) OPs are directed to put in place an effective system to make the spare parts and diagnostic
tools easily available through an efficient network.
iii) OPs are directed to allow OESs to sell spare parts in the open market without any restriction,
including on prices. OESs will be allowed to sell the spare parts under their own brand name, if
they so wish. Where the OPs hold intellectual property rights on some parts, they may charge
royalty/fees through contracts carefully drafted to ensure that they are not in violation of the
Competition Act, 2002.
iv) OPs will place no restrictions or impediments on the operation of independent
repairers/garages.
v) The OPs may develop and operate appropriate systems for training of independent
repairer/garages, and also facilitate easy availability of diagnostic tools. Appropriate
arrangements may also be considered for providing technical support and training certificates on
payment basis.
vi) The OPs may also work for standardization of an increasing number of parts in such a
manner that they can be used across different brands, like tyres, batteries etc. at present, which
would result in reduction of prices and also give more choice to consumers as well as
repairers/service providers.

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vii) OPs are directed not to impose a blanket condition that warranties would be cancelled if the
consumer avails the services of any independent repairer. While necessary safeguards may be put
in place from safety and liability point of view, OPs may cancel the warranty only to the extent
that damage has been caused because of faulty repair work outside their authorized network and
circumstances clearly justify such action.
viii) OPs are directed to make available in the public domain, and also host on their websites,
information regarding the spare parts, their MRPs, arrangements for availability over the counter,
and details of matching quality alternatives, maintenance costs, provisions regarding warranty
including those mentioned above, and any such other information which may be relevant for full
exercise of consumer choice and facilitate fair competition in the market. 1

Analysis
This is one of the first and quintessential ruling in the case of vertical restraints and
excessive pricing which falls under Sec.4 of the Act. The Order has led to creation of wide
ranging implications for similar industries such as electronic goods including software
services where there is bright chances of a manufacturer imposing unwanted restrictive
measures on the manner in which spares and services are distributed.
While the decision has been graciously welcomed by the Automotive Component
Manufacturers Association (“ACMA”), SIAM had a critical view on the passing of the order
and following are the reasons behind it:
 Denial of the concept of ‘systems market’ had resulted in an incongruous scenario
where the consumption of spares has been analyzed independent of how consumers
purchase cars.
 The Commission’s stress on open access of diagnostic tools and spares would seem
mislaid since it completely ignores the technical aspects of the vehicle and its
components and the quintessential part of authorized dealers in the market.
 It’s blanket imposition of 2% penalty on turnover would seem insensitive step given
that no reasons have been provided as to why 2% penalty is appropriate and why 2%
penalty was imposed on total turnover, given that only spares was identified as the
relevant product.

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https://www.cci.gov.in/sites/default/files/032011_0.pdf