Read About Case Brief On Shri Shamsher Kataria v. Honda Siel Cars India Ltd. & Ors

Shri Shamsher Kataria v. Honda Siel Cars India Ltd. & Ors
(on 25 August 2014)

Case Brief On Shri Shamsher Kataria v. Honda Siel Cars India Ltd. & Ors

Read About Case Brief On Shri Shamsher Kataria v. Honda Siel Cars India Ltd. & Ors


ABSTRACT

The Competition Commission is India’s competition regulator and an antitrust guard dog for more humble associations that can’t secure themselves against enormous organizations.

The primary objective of CCI is to ensure fair and competitive conditions in the financial sector of the country in order to achieve faster and more inclusive economic growth and development by initiating policies that promote productive use of financial resources.

This case discusses the problems with anti-competitive acts including price fixing between Honda Steel car Ltd, Volkswagen and Fiat.

Competition Commission has imposed huge penalties on these companies, as a consequence a case was filed in the High Court, where the decision was made in favor of the Competition Commission of India in order to secure ends of Justice.


CASE COMMENT


Shri Shamsher Kataria v. Honda Siel Cars India Ltd. & Ors on 25 August 2014


Facts [2011-2019]

  • In 2011, Shamsher Kataria filed a complaint to the Competition Commission of India (CCI) against Honda, Volkswagen, and Fiat (carmakers) alleging that these three companies were abusing their dominant position in the market and were indulged in anti-competitive practices by controlling the operations of those workshops and service centers which sell automobile spare parts.
  • These firms limited supply for original spares parts software programs or technical information without which it is impossible to keep such vehicle maintained or repaired
  • Spare parts supply through authorized dealerships only;
  • Dealers are prohibited from selling OEM spare parts directly to consumers;
  • OEMs restricted selling genuine spare part through non-dealer sources;
  • Authorised dealers sold genuine spare parts at uncompetitive prices; thus imposing vertical restraints on them
  • CCI ordered its Director General’s office to investigate into matter; during investigation fourteen other automobile makers who indulge in similar anti-competitive activities were discovered by the director general.
  • .
  • Report By DG-
    • According to DG’s opinion, it was found that the acts of OEMs are against sections 3 and 4 of this Act.
    • Technical difference between various primary market product offerings “locked in” consumers into aftermarket suppliers due to which they were unable to choose from a variety of complementary products/services
    • DG observed that there were vertical agreements amongst OEMs, which led their authorized dealers to cause AAEC in violation of section 19(3) of the Act.
  • Objections Raised by OEM’s
  • The consequences of this approach will be a substantial increase in costs and timeframes for all participants;
  • They decided that the market for cars is an integrated systems market where sometimes parts price is part of the selling price.
  • The manufacturers claimed not have any monopoly because after-sales services were subject to statutory levies and other costs on which no mark-up was allowed.
  • OEMs said that generally after the warranty period many consumers switch to independent repairers so consumers are not ‘locked in’ in any way.
  • CCI’s Order (25th August 2014)
  • Having considered all the facts and circumstances, CCI found that each OEM had a dominant position in the market which precluded local distributors from entering the open market.
  • Commission needs to strike down if any agreement or act kills competition in the market no matter what.
  • Hence, for violating Sections 3(4) (b), 3(4) (c), 3(4) (d, 4(2) (a) (i), 4(2) (c) and 4(2) (e) of the Competition Act OEMs were held liable.
  • The penalty was levied on Rs.25.54 Billion approx. i.e. equivalent to 2% of total turnover of OEMs
  • In the year 2016
  • OEM challenged COMPAT on this penalty pronounced by CCI on August 25th,2014 then COMPAT reduced it on December 9,2016 to an amount equal to two percent of average relevant turnover(i.e.,average annual turnover of spare parts in the aftermarket)
  • However they agreed with CCI’s order because appellants were said to have prevented independent repairers of automobiles from getting into market through practices which contravened section 4 sub-section c and e of the competition act,2002.
  • Therefore in reaction they filed Writ petition before Delhi High Court in 2019 after expressing dissatisfaction with decision made by CCI and COMPAT.


    Issues


    The following issues were raised before the High Court

    • A number questions arose before High Court:
    • Does CCI have jurisdiction over this matter? Does it function as a tribunal having judicial functions or is it an investigative body as well as administration which hears matters?
    • Is composition of CCI unconstitutional because there is violation against separation of powers doctrine?
    • Whether Section22(3)makes Competition Act2003 unconstitutional?
    • Was expansion of scope investigation illegal by CCIs under Section26(1)? Do ‘revolving door’ practice contravene any provision of the Act?
    • Is section 27(b) of the act unconstitutional or not?


    Contentions


    Car Manufacturing Co. (Appellant)


    • They argued that they adopted this restrictive trade policy in order to prevent exploitation from customers and use original spare parts for their cars.

    • It was also contended that Section 22(3) ‘revolving door’ policy is against justice and fairness since there was no fair hearing in which only a few members voted based on the principle “one who hears must decide”. Non-disclosure by DG as to whether penalty should be imposed is an infringement of human rights.

    • They also held that it was unconstitutional for DG to make decisions regarding penalty through his recommendation.

    CCI contends that under Companies Act, any restrictive trade policy is prohibited as it hinders free entry or exit thus competition in market is affected.

    • On behalf of CCI, Sanjay Jain contested the claim that some members were not present during the hearing. According to him, “the principle of one who hears must decide” was applied. Since most of them were new members they could not take part in this session; therefore, they did not sign for it.

    • In other words, CCI stated clearly that it took its own decision on imposing a penalty and DG had nothing to do with finalizing it.

    Judgment


    On 10th April 2019, a landmark judgment was passed by the High Court of Delhi, where

    The step taken by CCI at the beginning of an inquiry does not have to be in aid to adjudication, but what is important is that the succeeding steps must lead towards it. It stated that in the present case CCI had performed advisory, investigative, administrative and adversarial functions but it had not performed exclusive adjudicatory functions of a tribunal. In this regard, the court enunciated that CCI’s order is subject to appeal to a tribunal (i.e., an appellate tribunal). The provision for judicial review as regards any procedural flaw under Article 226 of the Constitution will always be there.

    • The Delhi High Court observed that the DG only conducted investigations (pursuant to Section26 (1)) and made findings, hence no separation of powers violation occurred; thus Section 26(1) was not unconstitutional. For this reason, one legal practitioner should be kept by cci among its members who can tell if there has been any violation of the law.

    • The High Court observed that casting a vote may sway the vote hence section 22(3) was declared void ab initio. However, it would retain proviso which states that quorum shall consist of three members. Therefore, court asked CCI to frame guidelines so that when final hearing starts membership of CCI does not vary depending upon number of members attending. It also said final hearing should be heard before minimum five members including judicial members(mandatory).

    • The Supreme Court in Excel Crop case has held that even third parties can become part of investigation thus referring to this case while investigating other 14 companies was valid.

    • Further more , after analyzing deeply into this suit ,the Delhi high court noted that “all steps prescribed by law for conducting proper investigation were followed” thereby justifying the penalty imposed by cci . Subsequently ,High Court said that though Section 27 of the competition act does not provide any guidelines for imposing a penalty but the principles followed by cci were in accordance with the principle laid down by supreme court in excel crop and hindustan steel ltd v state of orissa, hence they are valid and acceptable.


    • References
    • Bare Acts
      • The Constitution of India
      • Competition Act 2002
    • Web Links

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