The Competition Commission of India (CCI) has imposed a penalty of Rs 420 crore on Hyundai for anti-competitive practices in the sale of its spare parts through authorised dealers alone. In August last year, CCI had imposed penalties of Rs 2,554 crore on 14 carmakers for failure to make spare parts available in the open market. Most companies have secured individual stays on the CCI order and haven't paid the fine.
In an order dated Monday, Hyundai was directed to deposit Rs 420 crore within 60 days. The amount is two per cent of the three-year average turnover of Hyundai. In February 2013, the company had secured a stay on CCI proceedings from the Madras High Court.
That stay was lifted early this year and Hyundai was asked to participate in a CCI investigation. However, CCI was asked not to pass an order till the court gave a final order.
While Tata Motors was imposed a fine of Rs 1,346 crore, a Rs 471-crore fine was imposed on Maruti in August last year. Maruti secured a stay from the Delhi High Court, which said the CCI order wouldn't be effective until the Madras High Court disposed of the Hyundai case. "The matter is sub judice. We reserve our comment, as the matter is pending before the Madras High Court," said a Hyundai spokesperson.
Two other carmakers, Reva and Premier, were also found to be adopting in similar practices, though these companies weren't penalised. It was also found that Hyundai charged a high mark-up, ranging from 28 per cent to 644 per cent, on spare parts due to lack of a 'competitive structure'. Also, these companies made warranties null and void if the vehicle was repaired by any entity other than an authorised service centre. Hyundai told CII as its case is different from those of other car companies, its penalty should be reduced.
However, the regulator noted "most of the factors cited by Hyundai are general in nature, which does not qualify for a reduced penalty". The commission found the companies' agreements with authorised dealers were a violation of section 3(4) of the Competition Act, as these imposed absolute restrictive conditions and completely foreclosed the aftermarket for supply of spare parts and other diagnostic tools to independent dealers. "It was found all these car companies had stringent warranty conditions that required their customers to get their automobiles repaired through the authorised service network of dealers alone; otherwise, their warranty would be invalidated," CCI said.
It added these companies restricted or prohibited the sale of spare parts over the counter, resulting in prescribing exclusive distribution agreements. In the case of Reva, a Mahindra company, the regulator its spare parts were, to an extent, available over the counter. In the case of Premier, it was found during the investigation that all its cars were under warranty and its abuse of dominance remained untested. "Premier did not impose any restrictions on its authorised dealers to deal with vehicles of competing brands," CCI said.
Consequently, these were "mitigating factors" that worked in favour of Reva and Premier. Both these companies, however, were just asked to "cease and desist" from such anti-competitive practices.
In August 2014, CCI had imposed penalties amounting to Rs 2,554 crore on 14 other carmakers in the same case. Those charged of failing to sell spare parts in the open market included Honda Siel, Fiat, Volkswagen, BMW, Ford, General Motors, Hindustan Motors, M&M, Maruti Suzuki, Mercedes-Benz, Nissan Motors, Skoda, Tata Motors and Toyota Kirloskar Motors.
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