Dominance abuse probe ordered by CCI against Tata Motors

Dominance abuse probe ordered by CCI against Tata Motors

The probe panel wants report within 60 days on charges that the Indian commercial vehicle market leader is trying to kill competition

The Competition Commission of India (CCI) has ordered an investigation against Tata Motors Ltd over allegations that the Indian commercial vehicle market leader is indulging in practices to kill the competition with its eschewed dealership agreements.

The competition panel has ordered its investigation arm to probe the allegations with the detailed response from Tata Motors and submit the report within 60 days after finding that Tata Motors' conduct was prima facie abuse of dominance and anti-competitive.

The regulator took note of Tata Motors' dealership agreement and felt that certain clauses can prevent the entry of new players in the market and potentially also result in killing competition by hindering rival's entry into the commercial vehicles market.

Complainants that Tata Motors imposed unfair terms and conditions in its dealership agreement for commercial vehicles was brought before the CCI for consideration. It was alleged that Tata Motors, which controls 43 per cent of space in the Indian commercial vehicles market, was coercing its dealers to order the vehicles according to its whims and fancies by compelling the dealers to copy-paste the list of vehicles provided by Tata Motors on dealer's letterhead and sending it back to the company.

The clauses in the agreement also allowed Tata Motors to restrict and confine the territory of its dealers, the complainants alleged.

The regulator concluded that using its dominant position in the market, Tata Motors was hurting its rivals in the commercial vehicles segment, namely Mahindra & Mahindra, Ashok Leyland and VECV-Eicher, by operating independently of the competing forces.

The competition panel then proceeded to examine the allegations of abuse of dominance and anti-competitive clauses in the dealership agreement.

The regulator, citing the company's email exchanges with its dealer Varanasi Auto Sales Pvt. Ltd., said that on the face of it, the emails suggest that Tata Motors indulged in the practice of coercing the dealers to bill vehicles as per its own needs and requirement.

"The same may result in swarming dealers with a stock of slow-moving vehicles and may further impair the financial health of the dealer … Such a practice appears to be an unfair imposition upon the dealers," the CCI observed.

The regulator found that prima facie it amounted to an abuse of dominance and a violation of the provisions that prohibit dominant entities from imposing unfair and discriminatory conditions in contracts.

The CCI also examined a clause in the Tata Motors dealership agreement which says that the dealer shall not start, acquire or indulge in any new business of product or services even if it is not related to the automobile industry.

"The Commission is prima facie of the opinion that such clause is an unfair imposition upon the dealers besides resulting in denial of market access to the dealers to other markets," the CCI observed and said that the matter requires an in-depth investigation.

According to the regulator, certain clauses in the dealership agreement could harm competition. Specifically, the clause that restricts and confines dealers to the allotted territory. The territory, as per the complaint, could be extended or curtailed simply by oral instruction from Tata Motors.

The Commission said that such a clause has the potential to create barriers to new entrants in the restricted market besides having the consequence of foreclosing of competition by hindering entry into the market. The regulator found this to be a violation of the competition law provision that prohibits exclusive distribution agreements.