Maruti Suzuki has said it is examining the order and will take “appropriate actions under law”.

Maruti Suzuki Nexa showroom view from across the roadPicxy
Money Auto Tuesday, August 24, 2021 - 12:36
Written by  Inputs PTI

The Competition Commission of India (CCI) on Monday, August 24, imposed a penalty of Rs 200 crore on Maruti Suzuki.  The watchdog slapped the fine of Rs 200 crore as it found that Maruti Suzuki India Ltd (MSIL) indulged in anti-competitive conduct of Resale Price Maintenance (RPM) in the passenger vehicle segment by way of implementing discount control policy vis-a-vis dealers, an official release said on Monday.

MSIL had an agreement with its dealers whereby the dealers were restrained from offering discounts to the customers beyond those prescribed by it. In other words, the company had a discount control policy and dealers who wanted to offer additional discounts were required to compulsorily seek the company's prior approval, as per the regulator.

The penalty was levied for restricting discounts offered by its dealers. The CCI directed the country's largest car maker to cease and desist from indulging in unfair business practices. In a 39-page order, the fair trade regulator also flagged practices like appointing 'Mystery Shopping Agencies' and preparing 'Mystery Audit Reports' as part of enforcing the company's discount control policy.

An MSIL spokesperson said, "We are examining the order and will take appropriate actions under law." 

While deciding on the Rs 200 crore penalty, the regulator also took into consideration the post-pandemic phase of recovery of the auto sector. According to the CCI, any dealer found violating the policy was threatened with imposition of penalty, not only upon the dealership but also upon its individual persons, including direct sales executive, regional manager and showroom manager.

To enforce the discount control policy, the watchdog said the company appointed 'Mystery Shopping Agencies' (MSAs) who used to pose as customers to MSIL dealerships to find out if any additional discounts were being offered to customers.

"If found offered, the MSA would report to MSIL management with proof (audio/ video recording) who, in turn, would send an e-mail to the errant dealership with a 'Mystery Shopping Audit Report', confronting them with the additional discount offered and asking for clarification," the release said.

Further, the CCI noted that if the clarification offered by the dealer concerned was not satisfactory, then penalty would be imposed on the dealership and its employees, accompanied in some cases, by the threat of stopping supplies.

"MSIL would even dictate to the dealership where the penalty had to be deposited and utilisation of the penalty amount was also done as per the diktats of MSIL," the release said.

The CCI found that the car maker not only imposed the discount control policy on its dealers but also monitored and enforced the same by monitoring dealers through MSAs, imposing penalties on them and threatening strict action like stoppage of supply, collecting and recovering penalty, and utilisation of the same.

Such activities have resulted in appreciable adverse effect on competition within India, it noted.

"Having considered the nature of the infringing conduct and the post pandemic phase of recovery of automobile sector, the Commission takes a considerate view and deems it appropriate to impose a penalty of Rs 200 crore... only upon MSIL, as against a maximum penalty permissible under the provisions of the Act, which may extend up to ten percent of the average of the turnover of the entity for the last three preceding financial years," the order said.

The case was taken up suo motu by the regulator based on an anonymous e-mail, dated November 2017, received from a purported MSIL dealer. It was alleged that MSIL's sales policy is against the interest of customers as well as the provisions of the Competition Act.

On July 2019, after finding prima-facie evidence of competition law violations, the CCI ordered a detailed probe into the matter by its Director General (DG).