Imagine 87 crores of penalty? That is what is imposed on Hyundai Motors by Competition Commission of India. In the case of FX enterprise v. Hyundai Motors, the two dealers had alleged that the Hyundai Motors was liable for the following anti-competitive practices:

  • Exclusive dealership arrangement with its dealers
  • Prior Consent of Hyundai before taking up dealership of any other brands
  • Dealers are bound to procure spare parts from Hyundai or vendors approved by Hyundai.
  • Discount Control Mechanism where the dealers are only allowed to provided discount to a maximum rate prescribed.

Issue

Whether the Hyundai Motors are liable for violation Section 3 and 4 of the Act?

If yes, how shall the compensation be ascertained in such a case?

Judgment

The Competition Commission of India found this conduct violating Section 3 of the Competition Act. To specifically state, it was violating Section 3(1) and 3(4) of the Competition Act.  Therefore to consider the penalty, the Competition Commission of India noted that:-

infringing anti-competitive conduct of HMIL in the instant case included putting in place arrangements, which resulted into Resale Price Maintenance by way of monitoring of maximum permissible discount level through a Discount Control Mechanism and a penalty mechanism for non-compliance of the discount scheme.

 Such conduct pertains to and emanates out of the sale of motor vehicles. Hence, for the purposes of determining the relevant turnover for this infringement, revenue from the sale of motor vehicles alone has to be taken into account.

Thus, the starting point of determination of appropriate penalty should be to determine relevant turnover and thereafter, to calculate the appropriate percentage of the penalty based on facts and circumstances of the case.

Further, the Commission was adamant in giving a high penalty. The twin objectives behind the imposition of penalties are: (a) to reflect the seriousness of the infringement; and (b) to ensure that the threat of penalties will deter the infringing undertakings. Therefore, the quantum of penalties imposed must correspond with the gravity of the offense and the same must be determined after having due regard to the mitigating and aggravating circumstances of the case.

The Commission was guided by the judgment of the Hon’ble Supreme Court of India in Excel Crop case which enunciates the principle of proportionality for ascertaining the Compensation. The formula used for the calculation of penalty is at the rate of 0.3 % of Hyundai Motors average relevant turnover of the last three financial years.

Responding to the order, Hyundai said in a statement: “we are really surprised with this order. We are studying the order in detail and will take the necessary course of action to challenge the order at an appropriate level to protect the interest of our customers and channel partners by abiding (with) all the laws of the land.”[1]

Well, that implies that we can see some serious legal tussles in the Apex Court in the near future.

Learning Outcome

The highlighting factor of this case was indeed the calculation of the compensation. It had applied the doctrine of proportionality and took into account the significance of creating a difference in the minds of the people while awarding this whooping sum as a penalty

[1] http://indianexpress.com/article/business/companies/competition-commission-slaps-rs-87-crore-fine-on-hyundai-for-unfair-business-practices-4704192/

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