UNIVERSITY INSTITUTE OF LEGAL STUDIES

PANJAB UNIVERSITY, CHANDIGARH

PROJECT REPORT OF BUSINESS LAWS ON-

SHAMSHER KATARIA V. HONDA SIEL CARS INDIA LTD

Submitted by: Ananya Kalia Submitted to: Ms Neha Dewan

Roll Number: 192/20

SEC – D

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 ACKNOWLEDGEMENT

This project of Business Law on the topic on “Shamsher Kataria v. Honda Siel Cars India Ltd”
would not have been possible without the kind support of many individuals. I would like to
extend my sincere thanks to all of them. First, I would like to thank God for keeping me in good
health throughout this project and making me able to complete this project. I am highly indebted
to my teacher Ms. Neha Dewan for her able guidance which has been the ones that has helped
me patch this Project.

Her suggestions and instructions have served as major contributors towards the completion of
this project. Then, I would like to thank my parents for their motivation who have helped me
with their valuable suggestions and guidance in the completion of this project.

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 INDEX

1- INTRODUCTION …………………………………………………….……….…4

2- PARTIES INVOLVED………………………………………….…………..……5

3- ISSUE RAISED………………………………………………………….………..6

4- ISSUE DISCUSSED………………………………………………………………7

5- HELD……………………………………………………..…….…………………8

6- CONCLUSION……………………………………………………………………8

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 SHAMSHER KATARIA V. HONDA SIEL CARS INDIA LTD.

CCI Case No- 03/2011

FACTS

The informant i.e. Shamsher Kataria informed that under section 19(1) of the competition act 2002,
Honda Siel Cars India Ltd., Volkswagen India Pvt. Ltd. and Fiat India Automobiles Ltd., are not
availing the general spare parts of their vehicles in the open market. The commission took the
matter into its consideration and ordered Director General under section 26(1) on the date
24.02.2011 directed the DG to conduct an investigation into the matter and submit his investigation
report. From the preliminary enquiries which were made during the investigation process, the DG
opined that other automobile manufactures or Original Equipment Manufacturers (“OEMs”) (other
than the three car manufacturers) might be indulging in same restrictive trade practices while their
sales service, procurement and sale of spare parts from the Original Equipment Suppliers (“OES”),
setting up of dealerships etc. Later it appeared that the case has a much wider perspective, and
anti-competitive agreements are done on the larger area. Then there were 14 other automobile
companies who came into existence.

After the reports of the DG, the Commission decided to forward the copies of to all the 17 Opposite
Parties for filing their replies/objections of its order dated 04.09.2012. Further companies like Reva
and Premier filed the applications on 01.02.2013 and 21.12.2012 respectively under Regulation 26
of the Competition Commission of India (General) Regulations, 2009 in it these firms requested
for striking out their names from the list of the parties. Then ‘The Commission made it clear that
at this stage, the present order governs the alleged anti-competitive practices. The Commission
shall pass separate order in respect of three car manufacturers, viz., Hyundai, Reva and Premier
after giving them reasonable opportunity to make their submissions.

PARTIES INVOLVED IN THE CASE THE CASE

INFORMANT- Shree Shamsher Kataria

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OPPOSITE PARTIES- Honda Siel Cars India Ltd., Volkswagen India Pvt Ltd., Fiat India
Automobiles Ltd., BMW India Pvt. Ltd. , Ford India Pvt. Ltd., General Motors India Pvt. Ltd.
Hindustan Motors Ltd., Mahindra & Mahindra Ltd., Maruti Suzuki India Ltd. Mercedes-Benz
India Pvt. Ltd., Nissan Motor India Pvt Ltd., Skoda Auto India Pvt. Ltd., Tata Motors Ltd., Toyota
Kirloskar Motor Pvt. Ltd.

ISSUES RAISED

• Whether the parties have violated the provisions of section 3 or not?

ISSUES DISCUSSED

1. Whether the parties have violated the provisions of section 3 or not?

According to the section 3 clause (3) and (4), the act of the parties is violating and is creating an
appreciable adverse effect. The OEMs enter into the three types of agreements:

(a) agreements with overseas suppliers;

(b) agreements with local OESs

(c) agreements with authorized dealers

As noted in the order dated 25.08.2014, the spare parts supplied by the OESs can be broadly
categorized under the following heads:

(1) Where the design, drawing, technical specification, technology, knowhow, toolings (which are
essentially large machines required for manufacture of the spare parts), quality parameters etc., are
provided by the OEMs. The OESs are required to manufacture and supply such spare parts
according to the specified parameters;

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(2) Where the patents, know-how, technology belongs to the OES, however, the parts are
manufactured based on the specifications, drawings, designs supplied by the OEM. The
tooling/tooling cost may also be borne by the OEM in some of these cases; and

(3) Where the spare parts are developed by the OESs as per their own specifications or designs or
designs and specifications which are commonly used in the automobile industry. Such parts are
only a few for instance, batteries, tyres etc.

Thus, the nature of any exclusive purchasing/distributive agreement on the part of a dominant
undertaking is abusive as there is denial of market access to certain portion of traders, irrespective
of the positive impact of the agreement on the competition. 1On the basis of the report of the DG
report and all the submission made by all the parties, the Commission is of the view that none of
the present three OEMs allow their OESs to supply genuine spare parts directly into the
aftermarket. Also, all the three OEMs have justified their restrictions on the basis of IPR protection
and sought an exemption under section 3(5)(i) of the Act. Accordingly, the Commission deems it
appropriate to assess whether such an exemption is available to these OEMs or not before
concluding that the agreements between the OEMs and the OESs are in the nature of “exclusive
distribution agreements” and “refusal to deal” as contemplated under section 3(4)(c) and 3(4)(d)
read with section 3(1) of the Act respectively.

All the present Opposite Parties have claimed IPR exemptions stating that on account of the
provisions of section 3(5)(i) of the Act, the restrictions imposed upon the OESs from undertaking
sales, of their proprietary parts to third parties without seeking prior consent would fall within the
ambit of reasonable condition to prevent infringements of their IPRs. OEMs had failed to show
that their restriction amounted to imposition of reasonable conditions, as may be necessary for
protection any of their rights. In the light of these observations, therefore, the Commission will
ascertain as to whether the exemption under section 3(5)(i) of the Act.

2. Whether the parties have violated the provisions of section 4 or not?

According to the High court, there was an abuse of dominant position. On the issue of leveraging,
the Commission had held that since the car owners purchasing spare parts have to necessarily avail

1 Competition Law by Richard Whish and David Bailey, Seventh Edition, Oxford University Press, p.
684.

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the services of the authorized dealers of the OEMs, OEMs have used their dominance in the
relevant market of supply of spare parts to protect the relevant market for after sales service and
maintenance thereby violating Section 4(2)(e) of the Act. Further, in a vertical integration set-up,
vertical foreclosure effects are very likely to arise where a combined undertaking controls essential
facilities.2 Further, since the access to specialized diagnostic tools, fault codes, technical manuals,
training etc. is critical for undertaking maintenance and repair services of such vehicles, the
independent repairers are substantially handicapped from effectively attending to the aftermarket
requirements of automobiles due to the lack of access to specialized diagnostic tools. Further, it
may be noted that the facts pertaining to the present OPs are substantially similar to the other
OEMs considered in the Main Order. Applying the same reasoning, therefore, the Commission is
of the view that the conduct of the present OEMs is in contravention of section 4(2)(e) of the Act.
In view of the aforesaid, the Commission finds Hyundai, Reva and Premier to be indulging in
abuse of their dominant position thereby contravening the provisions of section 4(2)(a)(i), 4(2)(c)
and 4(2)(e) of the Act.

3. Whether the market is relevant or not?

The Commission is of the view that the relevant market definition with respect to the present OPs
would be the same as provided in the Main Order. Therefore the relevant market in the present
case would be as follows:

(i) manufacture and sale of cars in India,

(ii) sale of spare parts in India.

a. supply of spare parts, including diagnostic tools, technical manuals, catalogues etc. for the
aftermarket usage in India and;

b. provision of aftersale services, including servicing of vehicles, maintenance and repair services
in India Assessment of Dominance of OEMs

2Competition Assessment of Vertical Mergers and Vertical Agreements in the New Economy, Gide Loyrette Nouel,
November 2001,

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HELD

The commission held that the 3 OPS were liable under the section 3(4)(b), 3(4)(c), 3(4)(d),
4(2)(a)(i), 4(2)(c) and 4(2)(e) of the Act. The Ops involved were directed to immediately cease
and desist from indulging in conduct which has been found to be in contravention of the provisions
of the Act and to make the spare parts and diagnostic tools easily available through an efficient
network. Altogether the penalty of 2500 crores were imposed on the parties.

CONCLUSION

It can be concluded that this case being India’s first landmark judgment on vertical agreements in
the automobile sector in an era of competition, has definitely raised some questions and
debatable issues. However, it remains to be seen that how the automobile R&D will be affected
in the country by the decision and the floodgates of complaints open before the CCI regarding
similar anti-competitive practices operating in the aftermarkets of other industries (for e.g.
electronic industry, mobile industry etc.). But the present order is definitely going to change the
existing scenario. The CCI is determined to bring the companies engaged in anti-competitive
agreements to task, which is a positive development for the competition law regime in the
country. Nevertheless, whatever the changed scenario would be, corrective measures or lacunae,
the consumers are going to welcome the decision whole-heartedly.