Maruti Suzuki fined ₹200 Cr by Competition Commission of India over dealer discount policy

India's biggest carmaker Maruti Suzuki India Limited (MSIL), has been levied with a fine of Rs. 200 crores by the Competition Commission of India (CCI) on August 23. The CCI directed MSIL to 'cease and desist' from indulging in anti-competitive practices related to dealer discounts. It also commanded the company to deposit the fine within 60 days.

Reacting to the CCI order, Maruti Suzuki said: “We have seen the order dated 23 August 2021 published by the CCI. We are examining the order and will take appropriate actions under the law. The MSIL has always worked in the best interests of consumers and will continue to do so in the future.” MSIL had earlier said that it does not exercise control or supervision over the dealers, except to maintain a balance between the satisfaction of consumers and uniformity in schemes.

A statement issued by the CCI reads: “The Competition Commission of India passed a final order against Maruti Suzuki India Limited (MSIL) for indulging in anti-competitive conduct of Resale Price Maintenance (RPM) in the passenger vehicle segment by way of implementing Discount Control Policy vis-à-vis dealers, and accordingly, imposed a penalty of Rs 200 crore upon MSIL, besides passing a cease-and-desist order.”

It added: “CCI found that MSIL had an agreement with its dealers whereby the dealers were restrained from offering discounts to the customers beyond those prescribed by MSIL.”

“In other words, MSIL had a ‘Discount Control Policy’ in place for its dealers whereby the dealers were discouraged from giving extra discounts, freebies, etc. to the consumers beyond what was permitted by MSIL. If a dealer wanted to offer additional discounts, prior approval of MSIL was mandatory. Any dealer found violating such Discount Control Policy was threatened with the imposition of penalty, not only upon the dealership but also upon its individual persons, including direct sales executive, regional manager, showroom manager, team leader, etc.”

Investigation launched by CCI in 2019

The CCI had launched an investigation into the allegations in 2019. It was probing allegations that Maruti forces its dealers to limit the discounts they offer, effectively stifling competition among them and harming consumers who could have benefited from lower prices if dealers operated freely. In a 10-page report released earlier, the CCI had said that the matter arose after an e-mail was sent by a purported dealer anonymously against MSIL, alleging resale price maintenance resorted to by the carmaker in certain areas.

A similar discount control policy was reportedly being practised by MSIL across India, specifically in cities where more than five dealers operate in a single city. The latest CCI probe revealed that to enforce the Discount Control Policy, MSIL 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. If the dealership did not offer clarification to the satisfaction of MSIL, a 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.

CCI found that MSIL imposed the Discount Control Policy on its dealers and 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. Hence, such conduct of MSIL, which resulted in an appreciable adverse effect on competition within India, was found by CCI to be in contravention of the provisions of Section 3(4)(e) read with Section 3(1) of the Competition Act, 2002.

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