Section 3 (4)- Exclusive

Agreements;
RPM
 Re: Ghanshyam Das Vij v Bajaj Corp. Ltd,
Sonepat Distributors Association, and Ors.

The Informant is a Sole Proprietor of M/s Durga Drugs & General Stores which is stated to
be engaged in the business of sales and distribution of ayurvedic and general health products
of various companies. The Informant has been working as a stockist/ distributor of Bajaj
since 1986 selling and distributing its products which include inter alia hair oils.

Under the regulations of the Sonepat Distributors association, it is mandatory for each
distributor and retailer to become a member of the said association. No new stockist/
distributor is appointed by drugs and pharmaceutical companies unless the person desirous of
becoming a stockist/ distributor becomes member of the said association and gets “No
Objection Certificate” (NOC) from the association. It is also incumbent for the manufacturing
company to obtain an NOC from the association before appointing any distributor at Sonipat.
The OP1 had proposed to appoint another distributor in place of the Informant and the
Sonipat Distributor (FMCG) Association sought NOC from the Informant stating inter
alia that he had nothing to do with the company and that he would have no objection if
any other member of the association takes the distributorship of the company.

The Informant responded to the Opposite Parties stating that he had no objection to the
appointment of another stockist; however, he should also be allowed to continue the
business. As this was not acceptable to the Opposite Parties, the Informant refused to sign
the NOC on the dotted lines. At this, the Informant was asked to resign from the
membership of the association which the Informant did. As a result, the Opposite Parties
refused to deal with the Informant and stopped the supply of goods.
The Informant has alleged that non-supply of goods by the Opposite Parties and
withholding the amount paid by the Informant caused an appreciable adverse effect on
competition, apart from the fact that the business of the Informant suffered greatly.

Alleged violations of Section 3 (4) (c); section 3 (4) (b)

Also alleged that alleged that various clauses of Bye-laws of Sonipat Distributor (FMCG)
Association (Regd.) are also anti-competitive as these clauses cause appreciable adverse
effect on competition in India.
Investigation by the Director General

It was concluded by the DG that the members of SDA agreed to certain bye-laws which
restricted freedom of trade and limited competition amongst the distributors of FMCG
products in the area of Sonipat. The association also enforced geographical area restriction on
the members. The association enforced the requirement of NOC on newly appointed
distributors before starting business of distribution of the products of any company. This
practice was found to be limiting and controlling the supply and distribution of FMCG
products in the area of Sonipat. Thus, such conduct of SDA was noted as anti-competitive
within the ambit of section 3(3)(b) of the Act.
The DG found that Bajaj indulged in the practice of allocating geographical area to its
distributors and thus noted that it indulged in exclusive distribution agreement, which violates
the provisions of section 3(4)(c) of the Act.

The DG also found that Bajaj indulged in the practice of stopping supply of goods to any
deviant distributor and also restricted its distributor from supplying Bajaj products to retailers
who came from area outside the territory allocated to the distributor by the company.
However, such refusal to supply was noted as an outcome of the area restriction and was
considered another aspect of the same practice. Thus, it was also concluded that Bajaj has
indulged in refusal to deal, which violates the provisions of section 3(4)(d) of the Act.

Further, the DG also concluded that Bajaj has indulged in re-sale price maintenance which
violates provisions of section 3(4)(e) of the Act.
Replies by Bajaj Corp.

It was submitted that the bulk purchasers of OP-1 could sell the products
at any price in any area and that there were no area restrictions. It was
further submitted that the price suggestion was merely recommendatory in
nature and that a bulk purchaser was free to sell the product at lower
price.

It was stated that apart from the misbehaviour of the Informant with OP-
1’s staff, the other reason for stopping supply of products to the Informant
was bad-mouthing by the Informant about the products of OP- 1.
Replies by the SDA

It was submitted that OP- 5 never intended to overrule the orders of the Commission in
any manner and whatever has been done so far is in accordance with its bye- laws and
constitution of the association. It was further submitted that the Informant has signed the
contract at its own free will and for that OP-5 cannot be held responsible.
Analysis by the CCI

Issue No. (i) : Whether the bye-laws of SDA/ (OP-5) and its conduct are violative of the
provisions of section 3(1) read with section 3(3) of the Act?
The member distributors of SDA entered into the agreement whereunder it was agreed
that any new dealer, before starting any work with a company, shall have to seek
permission (NOC) from the old dealer. Further, it is provided that if any party starts
business without obtaining NOC, the association shall impose a fine of Rs. 2,500/- upon
such dealer. Moreover, it was provided therein that if any outside person or stockist enters
the authorized area of SDA member by violating the prescribed area for sale by the
company then, on the complaint of affected party, such person shall be prevented from
doing so.
OP-5 is an association of distributors/ dealers of FMCG companies who are engaged in the supply of
FMCG products to the consumers. Therefore, such members/ constituents fall squarely within the
definition of ‘enterprise' provided in the Act.

Further, section 3(3) of the Act not only covers agreements entered into between enterprises or
associations of enterprises but also the practices carried on or decision taken by any association of
enterprises engaged in identical or similar trade of goods or provision of services. Thus, all actions and
practices of OP-5 including, laying down provisions for the operation of distributorship such as issuing
NOC and geographical restriction, squarely fall within the ambit of the expression “decision taken by”
an “association of enterprises” under section 3(3) of the Act.

The Commission, therefore, holds that OP-5, being an association of its constituent enterprises, is taking
decisions relating to distribution of FMCG products on behalf of the members who are engaged in
similar or identical trade of goods and that such decisions taken by OP-5 as an association of enterprises
are covered within the scope of section 3(3).
A plain reading of the above mentioned clauses of the bye-laws of the association would
indicate that the members of SDA, by agreeing to such bye-laws, have disturbed the forces of
free trade and limited competition amongst the distributors of FMCG products in the area of
Sonipat. Besides, the association also imposed geographical restrictions upon the members
doing business. The requirement to obtain NOC by a newly appointed distributor before starting
of a business creates entry barriers besides limiting and controlling the supply of services.

It is no doubt true that the distributors/ dealers have the right to form associations or unions
within the constitutionally circumscribed limits, yet their conduct and decisions including the
rules which are binding upon the members have to abide by the laws of the land including the
provisions of the Act. Also noted that competition law is not an impediment to appropriate trade
association activities and members of such associations should be fully aware of the types of
conduct the law proscribes when carrying out an association’s programs and activities.
Such non-compete obligation imposed on the dealers, who are potential competitors in the market, will not only lessen
the competition but will also deter otherwise efficient entities into the market. Also, taking action against anyone who
goes against the said provision within the geographical area is not only unreasonable but also anti-competitive in
nature. Furthermore, it deprives the end-consumer of wider choice which would have been available in the market but
for the bye-laws. Such case of entry barrier, competition foreclosure and non- accrual of consumer benefits are factors
enumerated under section 19(3) of the Act to determine appreciable adverse effect on competition.

It is apparent that such bye-laws, besides limiting/ controlling the supplies, also allocated the markets and as such fall
within the presumption engrafted by the statute under section 3(3)(b). In the present case, OP-5 could not rebut the
said presumption. It has not been shown as to how the impugned clauses resulted into accrual of benefits to consumers
or made improvements in production or distribution of goods in question. Further, it could also not explain as to how
the same did not foreclose competition. Resultantly, the Commission has no hesitation in holding that the above
excerpted clauses of the bye-laws of OP-5 association are evidently in contravention of the provisions of section 3(1)
read with section 3(3)(b) & (c) of the Act.
Issue No. (ii): Whether OP-1 has contravened the provisions of section 3(4) of
the Act?

The DG, after having examined the statements of the Informant, officials of OP-1 and other third
parties, observed that OP-1 had allocated area of business to every dealer and did not want them to
infiltrate into the territory of the other dealer. It was noted that there was a vertical restraint
imposed on the distributors to supply the products in the area limited by the company and the
arrangement was monitored and enforced by the sales staff of OP-1. After further examination of
statements given by several market participants and the president of OP- 5, the DG gathered that
the reason for termination of dealership with the Informant was that the Informant was not abiding
by the diktats of OP-1 to restrict supply to the area allocated to him. It was noted that OP-1 in its
own submission indicated the same reason. Thus, OP-1 clearly did not want intra-brand
competition of its products resulting into wanton price cutting.
The DG was also of the view that OP-1 failed to substantiate the reason for stopping
supply of its products to the Informant. Therefore, it was concluded that OP-1
indulged in the practice of allocation of geographical area to its distributors which
amounted to exclusive agreement and thereby violated section 3(4)(c) of the Act. It
was also opined that the conduct of OP-1 contravened section 3(4)(d) of the Act since
OP-1 stopped the supply of goods to any deviant distributor and restricted its
distributors from supplying Bajaj products to retailers who came from an area outside
the territory allocated to the distributor by the company.

The DG stated that OP-1 had also indulged in resale price maintenance by prescribing
rate at which its products were to be re-sold by the dealers to the retailers.
Exclusive distribution agreement in broader sense means an arrangement between the
supplier and distributor wherein the distributor sells the product/s within a defined area or
to a particular group / category of customers. Such arrangements particularly affect intra-
brand competition as they restrict entry of another player into the market. It may also
affect the inter-brand competition since the outlets of distribution are limited thereby
impeding competition amongst players engaged in several similar services. However, it
may be noted that such arrangement can be objectively justified on certain grounds like
protection from free riding, efficient management of sales of products, economic
efficiency, etc.
Refusal to deal/ supply is wherein an enterprise, generally with stronger market
power refuses to deal with its customers or suppliers. The obvious effect in
such scenario is that the downstream market gets affected due to such refusal. It
may also be noted that no enterprise is obliged to supply its products to any
company/ supplier/ distributor. However, under certain circumstances, such
conduct may attract the provisions of the Act which will depend on case to case
basis.
It should be noted that as per the provisions of section 3(4) of the Act, only agreements which cause or
are likely to cause an Appreciable Adverse Effect on Competition (AAEC) on competition in India shall
be within the discipline of section 3(1) of the Act. Hence, in order to determine if the agreements entered
between OP-1 and the authorized dealers are in the nature of an “exclusive distribution agreement” or
“refusal to deal” or “resale price maintenance” under section 3(4)(c) and 3(4)(d) and 3(4)(e) of the Act
respectively, the Commission needs to determine if such agreements cause an AAEC in the market based
upon the factors listed in section 19(3) of the Act.

It is pertinent to note that clauses (a)- (c) of section 19(3) deal with factors which restrict the competitive
process in the markets where the agreements operate (negative factors) while clauses (d)-(f) deal with
factors which enhance the efficiency of the distribution process and contribute to consumer welfare
(positive factors). An agreement which creates barriers to entry may also induce improvements in
promotion or distribution of goods or vice-versa. Thus, whether an agreement restricts the competitive
process is always an analysis of the balance between the positive and the negative factors listed under
section 19 (3)(a)-(f).
Even considering the effect of the impugned agreement on the touchstone of factors elucidated
under section 19(3) of the Act, the Commission is of the view that the DG has not been able to
demonstrate satisfactorily that the impugned agreements are adversely affecting the competition
in the markets. It is not conclusively borne out that the arrangements have either created entry
barriers for new entrants or drove existing competitors out of the market, nor is there any
appreciable effect on the benefits accruing to the ultimate consumers.

The Commission further noted that the other factor that can militate against appreciable
adverse effect is the doctrine of de minimis. The doctrine of de minimis deals with the
concept wherein agreements of enterprises have insignificant effect on the market i.e., it
is unlikely to cause appreciable adverse effect on competition in the market. It is possible
mostly in cases where the positions of the said enterprises are weak in the market.
At this stage, it would be apposite to appreciate the market construct of FMCG products particularly the segment
of hair oil.

The Indian FMCG market offers a level playing ground for both domestic and international brands. Some of the
major FMCG companies operating in India are ITC Limited, Hindustan Unilever Limited, Nestle India, Parle
Agro, Britannia Industries Limited, Marico Limited, Godrej Consumer Products Limited (GCPL), Colgate-
Palmolive (India) Pvt. Ltd, Procter & Gamble Co. (P&G), Anand Milk Union Limited (AMUL), etc. to name a
few. In terms of hair oil categories, Marico is a leading FMCG Indian manufacturer providing consumer
products and services in the areas of Health and Beauty. Its products include Parachute, Oil of Malaba, Hair &
Care, Nihar, Shanti, etc. Other brands, apart from OP-1, include Dabur India Limited, Emami Ltd., Figaro, etc.
This indicates that the market of hair oil is wide and consumers have various brands as options to choose from.

In view of the above noted market structure of FMCG products and particularly the hair oil segment in India, it
appeared that OP-1 does not have position of strength in this sector in comparison with other brands. Such
arrangement, in the presence of several companies and considering the dynamic nature of the sector, is unlikely
to affect the inter-brand competition in the market. As such, the impact of restrictions imposed by OP-1 would
be negligible.
Considering the above factors, the Commission disagreed with the conclusion of the DG
that the vertical restraints imposed by OP-1 on its distributors caused appreciable adverse
effect on competition in the market which contravene section 3(4) of the Act. The DG has
failed to analyze in its report that though OP-1 may be one of the leading brands in the
FMCG industries, the fact remains that there is no dearth of products of other equally and
better brands in the market. The DG has only looked into the sales, distribution model
and other aspects of OP-1 and has left out market study of other players in the sector. In
view of the above facts and analysis, the Commission opined that though OP-1 has
imposed vertical restraints upon its distributors, the effect on the market has not been
shown to have caused appreciable adverse effect on competition.
Re: Fx Enterprises India v Hyundai Motor India Ltd

FX had a Hyundai dealership for sale and service of Hyundai cars (being cars
manufactured by the OP from May 2006 to May 2014). Shri Ankit Agrawal is the
Managing Director of FX. Fx commenced a dealership for sales and services of spare
parts of Hyundai cars from May 2006. Informant-1 submitted a notice of termination of
dealership to HMIL on 25.04.2014.
It is alleged in Information - 1 that the OP enters into exclusive dealership
arrangements with its dealers, and dealers are required to obtain prior consent of the
OP before taking up dealerships of another brand. It is further alleged that HMIL’s
dealers are bound to procure spare parts, accessories and all other requirements,
either directly from OP or through vendors approved by the OP.

It is further alleged that the OP also imposes a “Discount Control Mechanism”

through which dealers are only permitted to provide a maximum permissible discount
and the dealers are not authorised to give discount which is above the recommended
range. This is alleged to amount to “resale price maintenance” in contravention of
Section 3(4)(e) of the Act.
DG’s Report
The DG noted that Clause 5(iii) of the Dealership Agreement and arrangements incidental thereto, require the
OP’s dealers to seek ‘prior permission’ from the OP for investing into any business other than Hyundai
dealership. This has been held by the DG to amount to an ‘exclusive supply arrangement’ in contravention of
Section 3(4)(b) of the Act and ‘refusal to deal’ in contravention of Section 3(4)(d) read with Section 3(1) of the
Act.

The DG further found that strict discount control mechanism imposed by OP on the cars sold through its dealers
is an arrangement of implementing resale price maintenance. The DG found that the OP penalizes dealers who
have breached the discount control mechanism and rewards dealers that participate in the same. Such resale price
maintenance practised by the OP has been found by the DG to contravene Section 3(4)(e) read with Section 3(1)
of the Act.

The DG also found that the OP has entered into tie-in arrangements with regard to sale of cars and: (a) supply and
retrofitting of CNG kits; (b) sale and supply of lube oils; and (b) sale of insurance policies and services incidental
thereto. The DG found that these tie-in arrangements amount to exclusive supply agreement and refusal to deal
and therefore, it found the OP to have violated the provisions of Sections 3(4)(b) and 3(4)(d), respectively, read
with Section 3(1) of the Act.
Contentions by Hyundai

The DG cannot embark on an investigation that is beyond the prima facie determination made by the
Commission and therefore, the mandate of the DG would be limited to investigation qua the allegations
made in respect of contravention of Section 3 of the Act and any investigation in respect of
contravention of Section 4 of the Act would plainly be ultra vires besides being in violation of the
principles of natural justice.

The issues raised in the present cases are contractual in nature and the remedy, if any, for the Informants
lies under the provisions of the Indian Contract Act, 1872. Further, it was pointed out that the Dealership
Agreement entails a provision for arbitration and as such, the proper course for remedying the grievance
of the Informants shall be by appointment of an arbitrator under the agreement.
Contentions

It was pointed out that over 100 dealers of HMIL are engaged in such activities and
many of them have not even informed HMIL about the same. HMIL has not taken any
action against them.

The purpose of Clause 5(iii) in multi fold such as - to keep HMIL updated as to the
financial health of the dealer and also to check and prevent the dealership from
diverting and investing in other businesses using the financial resources provided by
HMIL meant for HMIL dealership.
On the DG’s finding that HMIL operates a Discount Control Policy on its dealers
which amounts to retail price maintenance in contravention of Section 3(4) of the Act,
it was submitted that maintaining the financial health of the dealers is an extremely
important factor to ensure a robust and healthy dealership network for HMIL, so that
the dealers have the ability to invest in sales, services, and promotion of new and
existing products and also to avoid providing discounts of a predatory nature which
are detrimental to their finances. As a result, HMIL often monitors discounts provided
by the dealers to keep any predatory practice by dealers in check.
With regard to CNG Kit, it was submitted that HMIL did not mandate customers to fit
HMIL approved CNG kits. It was argued that HMIL only recommended purchase of
CNG kit from a specified high quality vendor, keeping in mind safety and performance of
the cars. The warranty on HMIL cars was also impacted only to a limited extent on
purchase of those parts affected by non-approved CNG kits i.e. engine related parts.

On insurance services, it was pointed out that HMIL did not mandate its customers to buy
insurance through Aditya Birla Insurance Brokers Limited (ABIBL). It is evident from
the data provided by HMIL that almost 50 percent of all HMIL cars sold pan-India have
non-ABIBL insurance and one third of all HMIL cars sold in Delhi/ NCR have non-
ABIBL insurance. HMIL merely offered insurance services as additional services keeping
up with current market offerings and environment.
Analysis of the CCI

On Scope of DG’s investigation

It is observed that the Commission had not directed the DG to investigate whether the OP has abused
its dominant position in contravention of Section 4 of the Act. Further, both Information - 1 and
Information - 2 filed by the Informants, only allege contravention of Section 3(4) read with Section
3(1) of the Act. No allegations of abuse of dominance have been put forth by the Informants.
In this regard, it may be observed that the Hon’ble Supreme Court of India in Competition Commission of
India v. Steel Authority of India & Ors., Civil Appeal No. 7779 of 2010 decided on 09.09.2010 has held
that “[t]he Director General is expected to conduct an investigation only in terms of the directive of the
Commission and thereafter, inquiry shall be deemed to have commenced, which continues with the
submission of the report by the Director General, unlike the investigation under the MRTP Act, 1969,
where the Director General can initiate investigation suo moto”. The Hon’ble Court has further held that
the Commission’s prima facie opinion should be formed on the basis of the records, including the
information furnished and reference made to the Commission under the various provisions of the Act.
Thus, in absence of any information stating that the OP has contravened the provisions of Section 4 and in
the absence of the Commission’s prima facie finding and direction to the DG to investigate the OP for any
violation of Section 4 of the Act, the Commission is of considered opinion that the DG Report, in so far as
it relates to an investigation of whether the OP has contravened Section 4 of the Act, is ex facie void.

Accordingly, the Commission is of the view that the DG’s investigation of contravention of Section 4 of
the Act by the OP, being dehors the directions given to the DG, is ultra vires the scope of investigation
deserves to be disregarded.
On Refusal to deal and exclusive supply
Clause 5(iii) of the Dealership Agreement provides that “except with prior written permission, the
dealer shall not invest in any new or existing business not relating to Hyundai dealership”.

Both the Informants, during deposition, stated that the Dealership Agreement is a standard agreement
and that no opportunity was given to them to raise any objection thereto and such agreement was
entered into only as a formality as the business started only on issue of Letter of Intent (LOI).

The OP, through its circular dated 30.04.2010 sent to its dealers / distributors, raised serious concerns
that its dealerships were accepting LOI of competitors, directly or indirectly, in breach of the terms of
its Dealership Agreement. The said circular stated that all dealers, who have accepted competitor
dealership/LOI or are in the process of accepting such LOI must submit an explanation to the OP
within 7 days, failing which the action of stoppage of supply of all future upcoming Hyundai models,
disallowing network expansion and serious review of future business relationship would be taken.
The rationale given for such a clause is to protect the business and the customers of the OP so
that the resources of dealers dedicated for HMIL are not diverted. The OP further submitted a
list of various dealers who have dealership of competing brands.
Clause 5 does not strictly set out an exclusivity obligation or prevent a dealer from dealing with
competing dealerships or other businesses; it only requires the prior written permission of the OP in
order for the dealers to do so. Thus, Clause 5 does not provide for de jure exclusivity. However, if
OP does not, in practice, provide such permission to its dealers to operate competing dealerships or
other businesses, Clause 5 may result in imposition of de facto exclusivity.

In this regard, it is observed that the OP has submitted a list of over 100 Hyundai dealerships that
operate dealerships of competing brands. Further, it is noted that upon examination on oath of Hans
Hyundai, Capital Hyundai and Koncept Hyundai dealerships (which, along with dealership of the
OP’s cars, operate dealerships of other car companies), that each has stated that the OP has not
raised any objection to them operating a competing dealership. Accordingly, it is observed that
Clause 5(iii) of the Dealership Agreement does not result in imposition of de facto exclusivity.
Accordingly, it cannot be concluded that the OP imposes an exclusive supply obligation or refusal
to deal on its dealers.
On Resale Price Maintenance
The DG found that the OP has established an admitted “Discount Control Mechanism”, by which
the maximum discount which a dealer can offer to its end consumers is maintained. Accordingly,
by fixing the maximum resale price as well as the maximum amount of discount that can be
granted to customers, the OP has been effectively found to have fixed the minimum resale price.
The DG has found that the OP itself maintains certain schemes through which various discounts
are offered to the customers (such as on Diwali or schemes for teachers). It has been found that
the maximum discount which can be offered by a dealer to the end-customer during the operation
of the schemes launched by the OP from time to time is also fixed by the OP. OP also kept a
check on the prices by appointing ‘mystery shoppers’ and imposed penalties for non-compliance.

The DG found these arrangements perpetuated by the OP restricting intra-brand competition

amongst Hyundai dealers, as the same impairs their ability to compete in price competition in the
sale and distribution of Hyundai cars.
In this regard, it is observed that an agreement that has as its direct or indirect object the
establishment of a fixed or minimum resale price level, may restrict competition. This
would include fixing the distribution margin or the maximum level of discount, making
the grant of rebates or the sharing of promotional costs conditional on adhering to a given
price level, linking a resale price to the resale prices of competitors, or using threats,
intimidation, warnings, penalties, delay or suspension of deliveries as a means of fixing
the prices charged by the buyer (i.e., retailer).
In the present case, the OP and certain dealers of the OP have contended that discount
mechanism was implemented at the behest of the distributors. Even if that was the case, the
implementation of the Discount Control Mechanism through the appointment of mystery
shopping agency and imposition of penalty on erring dealers is not conducive to competition
in the market. Undoubtedly, once RPM is enforced, it leads to reduced intra-brand
competition and overall higher prices for consumers.

RPM, when enforced at the instance of the distributors/dealers, is particularly problematic

since it helps maintain collective interest of the downstream players, i.e. the distributors, to
maintain higher resale prices, causing consumer harm. In this case, the OP has stated that the
discount control mechanism was put in place at the behest of the dealers themselves to
safeguard the financial health of the entire dealership network. Evidently, the discount control
policy was an instrument to maintain a collusive outcome at the level of the distributors.
The Commission notes that the DG has conducted an analysis of appreciable adverse effect on
competition arising out of the afore-discussed arrangement of HMIL, which results in RPM in light of
the factors enumerated in Section 19(3) of the Act. It may be noted that the impugned agreements/
arrangements did not result into accrual of any consumer benefits; rather, the same resulted into denial
of due benefits to the consumers as they were made to pay high prices. Further, the said arrangements
and agreements are not resulting into any improvements in production or distribution of goods or
provision of services. The arrangements perpetuated by the OP caused

In view of the above discussion, the Commission is of the view that the OP has sought to impose an
arrangement that results in RPM, which includes monitoring of the maximum permissible discount level
through a “Discount Control Mechanism” and a penalty punishment mechanism upon non-compliance
of the discount scheme. The level of discount was determined by the OP for each model and variant of
the passenger cars and the OP had also appointed a Mystery Shopping Agency to collect data from
dealers for such monitoring and reporting to the OP. Based on the above, the Commission is of the
opinion that the OP has contravened the provisions of Section 3(4)(e), read with Section 3(1) of the Act.
Accordingly, HMIL is directed to cease and desist from indulging in conduct that has
been found to be in contravention of the provisions of the Act, as noted above.
 M/s Jasper Infotech Pvt Ltd v
M/s Kaff Appliances Ltd.
The Informant is a company that owns and operates the online marketplace website
www.snapdeal.com (hereinafter, ‘Snapdeal’) which provides a medium for buyers and
sellers/third party sellers to sell various products in 4000 towns and cities in India. It has a
wide assortment of products from thousands of international, national and regional brands
across diverse categories like mobile telephones, laptops, cameras, appliances, apparel,
watches, home and kitchen, automotive, health, etc. The Opposite Party is stated to be a
company engaged in manufacturing and selling of a wide variety of kitchen appliances such
as electric chimneys, kitchen hobs, induction cookers, air purifiers, dishwashers, refrigerators,
microwave, ovens and other apparatus for lighting, heating, etc. in the brand name ‘Kaff’.
The present case is pertaining to the information filed by Jasper Infotech (P) Ltd. against Kaff
Appliances India (P) Ltd. for the alleged contravention of Section 3(4) of Competition Act.
The Informant displayed OP-Kaff’s products on its online portal ‘Snapdeal’ at a discounted
price, aggrieved by which the OP displayed a caution notice on its website alleging that the
OP’s products sold by Informant through its website are without authorization and are
counterfeit. The stated caution notice said that OP will not honour warranties on its products
sold through the said website and any purchase made from it would be at customer’s own risk.
According to the Informant, the main grievance of OP was regarding the discounted price at
which such products were sold by the Informant through its website and to substantiate the
said claim it revealed an e-mail which attempted to impose a price restriction in the form of
Minimum Operating Price (MOP) on the website to make sales at a minimum price and
threatened to ban online sales if such prices were not maintained, which resultantly is a
contravention of Section 3(4)(e) of the Competition Act.
On perusal of the facts, Commission directed DG for an enquiry.
DG in conclusion to its report said that, firstly OP is not involved in maintaining a resale
price and secondly, it does not possess sufficient market power to cause AAEC as
provided under Section 18(3) and accordingly no contravention could be established
under the provisions of Section 3(4)(e) of the Act. Further, on the establishment of the
said report by DG, further investigation was directed under Section 26(7) of the Act. In
the said investigation, DG concluded that alleged conduct of OP did not lead to any
AAEC under Section 19(3) of the Act.
Issue of the applicability of Section 3(4) of the Act to the facts of the present case:

DG opined that section 3 (4) is not applicable to the facts of the present case. The DG has
primarily made the said observation based on three pronged arguments, firstly, the
Informant/e-retailer/online portal does not perform any material function which could
make it a part of vertical/supply chain; secondly, the Informant not being the
buyer/purchaser of goods in the distribution chain, the basic ingredient for sustaining an
allegation of RPM (i.e. presence of purchaser and seller) is not fulfilled; and thirdly, the
Informant does not have any influence on price on its online platform.
The Commission finds this observation inconsistent with the working of the technology driven markets.
The online portals or platforms often provide various value added services e.g. logistics (inbound as well
as outbound), warehousing, marketing and sales including provision of assistance to consumers in
sorting and buying products, return/replacement services, tracking services for orders placed etc. Such e-
portals perform series of activities designed to meet business needs as well as consumer satisfaction by
adding value or cost in each phase of the process. Capitalising on the advantages of internet penetration,
these online market platforms synthesize the advantages of traditional commerce and e- commerce and
reduce their administrative and transaction costs. In many ways these online portals act as a parallel
distribution chain along with the off-line distribution channels. The customer/buyer also, when
purchasing the products online, perceives the online portal as a valuable link between such customer and
the seller. their capability to match a very large number of users in a market in order to facilitate an
exchange.
The inference of the DG, that the Informant not being the buyer/purchaser of goods in the
distribution chain, the basic ingredient for sustaining allegation of RPM (i.e. presence of
purchaser and seller) is not fulfilled, is not tenable. In the traditional brick and mortar
business (offline), the stages/players forming part of the vertical chain are predefined.
However, considering the entry of digital markets and online platforms, the same
customary structure may not be present in every situation, especially in constantly
evolving markets. Any entity/firm contributing value to product/service will be deemed to
be a part of the value chain. The ownership of such product to pass through every
stage/entity cannot be considered as a prerequisite in the value addition process.

though the online platform does not take possession of the goods in the literal sense of the
word, it may not be appropriate to say that it does not form part of the value chain
through which ownership is transferred from the seller to the buyer.
The argument regarding absence of seller-purchaser relationship in case of online platforms is premised
on ‘form’ rather than ‘substance’. The definition of RPM under the Act is inclusive and the basic
ingredients are ‘resale’ and seller’s determination of the resale price. RPM essentially refers to
agreements among enterprises at different levels in a distribution channel, wherein the resale price at
which a product or service must be sold by a distributor is pre-determined by the seller in some manner.

There can be no two views on the ‘resale’ of the products on the platform and the platform’s direct and
active role in such resale and as elucidated in the ensuing para, in determination of the price of such
resale. Thus, regardless of the identity of the direct purchaser, the resale of the product is effected
through the platform and thus, the essential ingredients of resale price maintenance are fulfilled.
Moreover, owing to the nature of the high-tech digital markets, the principles of transit/movement of
products in traditional market cannot be applied stricto senso to such digital markets.
Also, upon a bare perusal of the provisions and the material available on record, it is evident
that the Informant’s online portal, i.e. Snapdeal, is offering an online distribution service to
various distributors/dealers. It may also be relevant to highlight that the Commission has
earlier held, though not in a case involving similar issues, that online retail portals are a part
of distribution channel.
The Commission, therefore, observes that in the instant case also, when the distributors/ dealers are
using the services of Informant while selling the products of the OP, it ipso facto becomes a part of
distribution/vertical chain and thus, it would be incorrect to state that the Informant is only a market
place facilitating interaction of the buyers and sellers online.
Issue 2: RPM?
An RPM agreement is recognized under Section 3(4)(e) of the Act. It is a vertical imposition whereby a
manufacturer/seller dictates the price at which the product can be resold by the downstream
distributor/wholesaler/retailer (hereinafter, the ‘reseller’). An RPM can be of various forms, but the Act generally
proscribes a price prescription/agreement when the agreement imposes a restriction on a resale at a price below the
price stipulated in the agreement between manufacturer and downstream distributor. The purpose of such stipulation is
to set a floor price so as to avoid price competition between retailers beyond a certain price. The economic objective
of infusing competition at all levels is to ensure efficiency that leads to consumer welfare in the form of reduced prices
and wider set of choices.
In India, however, the alleged RPM is assessed under rule of reason analysis i.e. only if such
conduct/agreement/understanding causes or is likely to cause an AAEC, that the same falls foul of Section 3(4)(e) read
with Section 3(1) of the Act. This is in sync with the existing economic literature which suggests that vertical
agreements deserve a rule of reason analysis, simply owing to the fact that the vertical agreements are concluded
between entities operating at different levels in the production chain who generally produce complementary products
or services and are not as such placed in a competitive relationship. To safeguard their respective interests, such
entities necessarily enter into number of commercial agreements, many of which may not necessarily be anti-
competitive and rather may be efficiency enhancing with sound economic justifications.
Thus, to establish a contravention under Section 3(4) read with Section 3(1) of the Act, two
conditions need to be fulfilled – firstly, that the agreement/arrangement/understanding ought
to exist and, secondly, that such agreement/arrangement/understanding has caused or has the
potential to cause AAEC. Section 19(3) lays down the analytical framework to examine
whether an agreement/arrangement/understanding has or is likely to have an AAEC.
A right of the manufacturer to choose the most efficient distribution channel ought not to
be interfered with, unless the said choice leads to anti-competitive effects. The
Commission finds merit in the justifications offered by the OP. Further, the Commission
observes that the evidence on record does not demonstrate that the conduct/practice of the
OP led to any AAEC.
In the present case there was no AAEC. Further, the presence of a large number of dealers
who were competing with each other suggests a fair degree of intra-brand competition.
The data collected by the DG showed that there were 1422 dealers selling OP’s kitchen
appliances all over India during the relevant time period who were found to be competing
for the turnover linked incentives. Discounts were variable in nature and linked to the
target being achieved. Since incentives were variable, the net landing price for each
dealer was also different. This enabled different dealers to offer different prices to
customers for the same product.
Therefore, no violation of the Act.