Case study on competition act,2002

1. Case study on Competition Act
NAME : KANIKA GOEL
COURSE : B.COM HONORS
DEPARTMENT : COMMERCE
YEAR : 3RD YEAR (SEMESTER 5)
PROJECT ON : COMPETITION ACT
SUBMITTED TO : GYATI GUPTA MA’AM

2. SHAMSHER KATARIA V. HONDA SIEL CARS
INDIA LTD AND OTHERS
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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 fundamental goal of CCI is to guarantee sensible and strong competition in
financial exercises in the country for speedier and far-reaching advancement
and improvement of the economy execute competition methodologies with an
assumption to effectuate the most capable utilization of money-related
resources.
• This case is related to anticompetitive agreements done by the companies like
Honda Steel car Ltd, Volkswagen, and Fiat.

3. FACTS OF THE CASE
• 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 companies put a restriction on the availability of original spare
parts, software programs, and technical information without which
services and maintenance of the automobile is impossible
• The aforementioned car companies and their respective dealers
refused to supply genuine spare parts and technological equipment in
the open market for providing maintenance and repair services.
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• The car manufacturers mandated that the authorized dealers source
their spare parts only from the Original Equipment Manufacturers
(OEMs) and such spare parts could not be sold in the open market thus
monopolizing this spare-parts market.
• OEMs and their authorized dealers charged high prices to the
consumers for spare parts and maintenance services thus imposing
vertical restraints on their authorized dealers.
• CCI ordered the Director-General to investigate the allegations. While
investigating, the director general found 14 more such automobile
companies who were indulged in anti-competitive practices of the
same kind.

5. • Report By DG-
• DG agreeing with the allegations made by Shamsher Kataria stated that the
activities performed by of OEMs were in violation of sections 3 and 4 of the Act.
• Consumers were ‘locked into’ aftermarket suppliers of the car purchased due to
the Technical difference between various primary market products as it
restricted consumers’ choice in complementary products/services
• DG emanated that there were vertical agreements between OEMs due to which
their authorized dealers cause Appreciable Adverse Effect on Competition
(AAEC), thus violating section 19(3) of the Act.
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6. OBJECTIONS RAISED BY OEMs
• They objected to enlarging the ambit of DG’s investigation.
• The OEMs argued that the automobile market is a unified
‘systems market’ where the spare parts are an indivisible part
of the automobile market.
• The OEMs claimed that they were not in a dominant position
and alleged that DG ignored statutory levies and other costs
while computing the mark-up.
• OEMs said that generally after the warranty period many
consumers switch to independent repairers so consumers
are not ‘locked in’ in any way.
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CCI’S ORDER
• After observing all the facts and circumstances CCI observed that
each OEM was enjoying a dominant position in the market, which
restricted local dealers to enter the open market.
• Irrespective of any fact, if an agreement or act eliminates the
competition in the market then the commission has to strike it down.
• Consequently OEMs held liable 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.
• A penalty of 2% of the total turnover was imposed on the OEMs
(Rs25.54 Billion approx.)

8. ISSUES
• The following issues were raised before the High Court
• Whether CCI has jurisdiction to administer and investigate in this case? A
tribunal with judicial functions or does it have administrative and investigative
functions and adjudicates issues?
• Whether the composition of CCI is unconstitutional because it violates the
doctrine of separation of powers?
• Whether Section 22(3) of the Competition Act 2003 constitutionally valid or not?
• Whether the expansion of the scope of investigation by CCI’s under Section 26(1)
illegal? Does ‘revolving door’ practice vitiate any of the provisions of this act?
• Whether Section 27(b) of the act is unconstitutional or not?
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9. CONTENTIONS
Car Manufacturing Co. (Appellant)
•
• The car companies stated that the restrictive trade policy is adopted by them just
to avoid customer exploitation and to ensure that they use original spare parts.
• Section 22(3) ‘revolving door’ policy, was challenged as no fair and just hearing could
take place due to this policy, as only a few members could cast vote merely on the
basis of the ‘one who hears must decide’ principle. Voting by only 3 members of CCI is
the mark of an unjust hearing.
• It was argued that how DG can be Involved in taking decisions regarding penalty, is
unconstitutional.
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CCI (Respondent)
• CCI argued that restrictive trade policy is prohibited under the Companies
Act, as it hinders free entry or exit thus affecting the competition in the
market.
• Sanjay Jain, on behalf of the CCI, refuted the allegation regarding the
presence of members during the hearing. He said that the principle of ‘one
who hears must decide’ was followed by them. As most of the members
were new so it was not possible to make them part of the hearing, so they
did not sign the hearing.
• CCI clearly stated that the decision taken them of imposing a penalty was
exclusively taken by them and there was no role of DG in finalizing the
penalty.

11. JUDGEMENT
• On 10th April 2019, a landmark judgment was passed by the High Court of Delhi,
where
• The Delhi High Court enunciated that it is not necessary that the first step taken
by CCI is always in aid to adjudication, what matters is the further steps, which
means that the step in furtherance of the inquiry must be towards adjudication.
While referring to the case CCI v Steel Authority of India Ltd, It stated that in the
present case CCI had performed advisory, investigative, administrative, and
adversarial functions but it had not performed the exclusive adjudicatory
functions of a tribunal. In this regard, the court enunciated that the order passed
by CCI is subject to appeal to a tribunal (i.e., an appellate tribunal).
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12. • The Delhi High Court observed that CCI gave the order and DG only
performed the investigation (under Section26 (1)) and presented the
facts before CCI, so there is no violation of the separation of power,
thus Section 26(1) is not unconstitutional. The High Court asked CCI to
keep at least one legal practitioner as a member of CCI, who can check
the violation of the law
• .
• The High Court observed that casting a vote may sway the vote, so it
declared Section 22(3) void in its entirety. However, the proviso which
mandates a quorum of three members would be retained. Court asked
CCI to frame guidelines to ensure that the membership of CCI should
not vary when the final hearing starts. It also stated that the final
hearing must be heard by at least 5 members inclusive of judicial
members (mandatory).
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• The Delhi High Court referred to the case of Excel Crop where the
Supreme Court held that the subject matter of the investigations can
be extended even to the third parties. So, investigating the other 14
companies was not illegal.
• The Delhi High Court observed that CCI has done a deeper analysis of
the suit and also it has followed all the steps for proper investigation as
prescribed by law thus the penalty imposed by CCI was justified.
Subsequently, High Court said that though Section 27 of the Competition
Act doesn’t provide any guidelines for imposing a penalty the principal
followed by CCI were in accordance with the principle laid down by the
Supreme Court in the case of Excel Crop and Hindustan Steel Ltd v State
of Orissa, thus valid and acceptable.

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