HomeAuto NewsExplained: Why India’s competition watchdog fined Maruti Suzuki Rs 200 crore

Explained: Why India’s competition watchdog fined Maruti Suzuki Rs 200 crore

Maruti's fine would have been stiffer. But mindful of the automobile sector's recovery in a post-COVID world, the CCI imposed a penalty of Rs 200 crore. Normally, It would have been 10 percent of the company's average turnover in the last three financial years.

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By CNBCTV18.com August 24, 2021, 8:23:50 PM IST (Published)

Explained: Why India’s competition watchdog fined Maruti Suzuki Rs 200 crore
The Competition Commission of India (CCI) has fined the country’s largest automaker, Maruti Suzuki India Ltd (MSIL), Rs 200 crore for restraining discounts offered to consumers by dealers beyond what’s approved by the company. MSIL has been asked to “cease and desist” from its discount control policy, which is anti-competitive by law in India.


CCI’s findings

Tipped off by an anonymous complaint from a dealer in 2017, the CCI found that dealers in Maharashtra were penalised for giving discounts to customers beyond those prescribed by MSIL. This was part of an agreement between the dealers and MSIL called the “discount control policy,” which led to resale price maintenance (RPM).

A probe revealed that MSIL appointed independent mystery shopping agencies to monitor the discount being offered by the dealer. Agents would pose as customers and visit dealers to check if discounts were being offered. They would then send audio proof of the discount to the MSIL management.

The errant dealers would be intimated of the penalty through an email, which did not mention the reason as it was in violation of the competition norms. Penalty cheques were collected from the dealership.

Such a policy was implemented across India, especially in cities where more than four to five dealerships operated.

“Such practice of resale price mechanism by MSIL caused appreciable adverse effect on competition within India. It lowered inter-brand and intra-brand competition and led to products not being offered to the consumers at best prices,” CCI said in its order.

The CCI also accessed incriminating emails from MSIL managers to dealers, one of which revealed that Rs 2 lakh was imposed as penalty on a Pune dealer for a second violation of the contract.

Another mail showed a penalty if Rs 1 lakh imposed on a dealer for offering a Rs 4,500 discount on the basic kit.

Why only Rs 200 crore

MSIL had claimed that it acted as a third party in the enforcement of the discount control mechanism through the appointment of the mystery shopping agencies. The CCI rejected such claims saying the company received such penalties and used them for advertisements.

According to CCI, “When a significant player such as MSIL imposes minimum selling price restrictions in the form of maximum discounts that can be offered by the dealers, RPM can decrease the pricing pressure on competing manufacturers. This is more so in case of dealers who may be in interlocking relationships with multiple manufacturers.”

Taking a considerate view of the recovery in the automobile sector amid the COVID-19 slowdown, the CCI imposed a penalty of Rs 200 crore, which could have otherwise extended to 10 percent of the average turnover of the company in three preceding financial years.

Role of CCI

The Competition Commission of India (CCI) is a statutory body that was established on October 14, 2003. The Centre appoints its members and the chairperson.

The CCI implements the competition laws and philosophy of the Competition Act, 2002. It ensures that there are no unfair practices in the market that have a negative impact on healthy competition. This is because competition is good for consumers.

The competition watchdog has penalised companies like cement cartels, pharma companies, auto majors and even e-commerce players in the past over activities that were found to be detrimental to the interests of the consumers as well as the economy.

Maruti’s reaction

“We are examining the order and will take appropriate actions under the law,” a Maruti spokesperson said, adding that the company has always upheld the best interests of the consumer and will continue to do so in the future.
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