Appeal No. 19 of 2016. Case: Shubham Sanitarywares Vs Competition Commission of India and Ors.. COMPAT (Competition Appellate Tribunal)
| Case Number | Appeal No. 19 of 2016 |
| Counsel | For Appellant: M.M. Sharma, Deepika Rajpal and Danish Khan, Advocates |
| Judges | G.S. Singhvi, J. (Chairman), Rajeev Kher and Anita Kapur, Members |
| Issue | Competition Act, 2002 - Sections 19(1)(a), 19(6), 26(1), 26(2), 3, 3 (4), 3(1), 3(3)(a), 3(4), 3(4)(a), 3(4)(e), 4, 4(2) |
| Judgement Date | November 29, 2016 |
| Court | COMPAT (Competition Appellate Tribunal) |
Order:
G.S. Singhvi, J. (Chairman)
-
This is an appeal for setting aside order dated 09.09.2015 passed by the Competition Commission of India (for short, 'the Commission') under Section 26(2) of the Competition Act, 2002 (for short, 'the Act') in Case No. 9 of 2015, whereby the Commission declined to order an investigation into the allegations of anticompetitive practices levelled by the appellant against Respondent No. 2 and closed the matter under Section 26(2) of the Act.
-
The appellant is a partnership firm engaged in the business of sanitaryware, faucetware and tiles of various brands at Indore, Madhya Pradesh. Respondent No. 2 is a public limited company incorporated under the Companies Act, 1956 and is engaged in the business of manufacturing and selling bathroom fittings such as sanitaryware, faucetware, ceramic tiles, kitchen appliances etc. including imported items.
-
Respondent No. 2 appointed the appellant as its authorized dealer of its products subject to the terms and conditions embodied in agreement dated 28.10.2003 executed between the parties. At the time of execution of the agreement, the appellant is said to have informed Respondent No. 2 that it is already stocking and selling products of Johnson Pedder Sanitarywares and will continue to do so in addition to the products of Respondent No. 2.
-
On 29.10.2009, the appellant sold two piece EWC water closet named as EWC Monalisa with cistern: Item Code No. H-92011 and H-92015 to M/s. Vimal Sales, Khandwa. Since the lid of the cistern got damaged, the appellant placed an order with Respondent No. 2 for supply thereof. The latter informed the appellant that it will take about one month time to fulfill the above order. After seeking one extension, Respondent No. 2 conveyed to the appellant that it will not be able to supply the item because production thereof has been discontinued and that the appellant can be supplied one piece Monalisa closet Item code No. H-92049, for fulfilling its obligation towards the customers. Thereupon, the appellant purchased the item suggested by Respondent No. 2 and supplied the same to M/s. Vimal Sales, Khandwa vide invoice No. 2001 dated 20.02.2010 by charging only the difference of Rs. 4,500/-.
-
In March, 2010, the Branch Manager of Respondent No. 2 is said to have discontinued the supply of products to the appellant on the ground that it was selling the products of another manufacturer, namely, Johnson Pedder Sanitarywares. The appellant protested against this by sending letter to the Senior Management of Respondent No. 2 and pointed out that at the time of the execution of agreement dated 28.10.2003, it had made clear that he was already selling the products of Johnson Pedder Sanitarywares will continue to do so along with those of Respondent No. 2. After about two months, the supply of the items manufactured by Respondent No. 2 was restored to the appellant.
-
On 12.03.2013, the appellant received an e-mail from the Branch Manager of Respondent No. 2 informing it that the supply of the items manufactured by Respondent No. 2 is being stopped because the appellant was giving more than the prescribed discount to the customers and thereby causing loss to the other dealers. The appellant claims to have protested against this action of the Branch Manager by writing letters to the management of Respondent No. 2 but without avail. Thereafter, it filed a detailed information running into 36 pages under Section 19(1)(a) of the Act through its partner, Shri Sunil Paliwal, along with 27 documents marked as Annexures P-1 to P-27. In the information, the appellant questioned some of the clauses of agreement dated 28.10.2003 on the ground that the same were anti-competitive. The appellant further averred that the supply of the products manufactured by Respondent No. 2 was stopped on wholly untenable grounds that it was selling the products of Johnson Pedder Sanitarywares and was giving higher discounts to the customers. According to the appellant, this clearly amounts to violation of Section 4(2) of the Act. On the basis of these averments and allegations, the appellant made multiple prayers including the one for award of damages of Rs. 5 Lakhs on account of the losses suffered due to the blocking of the supply of the products, mental agony and harassment with interest @ 12% and cost of Rs. 7735/- for defective goods.
-
The Commission considered the averments/allegations contained in the information and determined the relevant market as "the market of branded ceramic sanitaryware in India". The Commission then examined the allegation that Respondent No. 2 was indulging in the anti-competitive practices but did not find any substance in the same. The Commission opined that the terms and conditions embodied in the agreement executed between the parties were as per the prevailing business practices in the industry. The Commission further observed that stoppage of supply to the appellant was intermittent and was due to strained relationship between the appellant and Respondent No. 2. The allegation of resale price maintenance was also rejected by the Commission and the case was closed under Section 26(2) of the Act vide order dated 05.02.2014, paragraphs 8 to 14 of which are reproduced below:
"8. Informant had alleged that the OP-1 has abused its dominant position by prescribing unfair and discriminatory conditions in "dealership agreement"; however, an examination of the relevant clauses of the "dealership agreement" does not disclose any unfairness or discrimination, rather it reveals that these terms and conditions were as per the prevailing business practices in the industry. As regards the stoppage of supply to the informant, it may be noted from the facts that the stoppage of supply was intermittent and was due to strained commercial relationship between OP-1 and the informant. Thus, the alleged terms and conditions of the dealership agreement, does not appear to be unfair or discriminatory, and do not constitute a violation of Section 4 of the Act.
-
Informant has alleged further that OP-1 had engaged into the vertical "resale price maintenance" by regulating the discount structure. Clause 10 of the dealership agreement states "We shall advise you maximum retail prices from time to time for selling HINDWARE products to your customers. Under no circumstances, you will charge prices higher than our recommended MRP." There is no illegality with this clause, as it only prescribes for the MRP and the dealer is free to give discount, i.e. the minimum sale price is not prescribed or monitored. Informant had further alleged that the differential discount policy of OP-1 is creating vertical price maintenance which is in contravention of the Act.
-
The rationale for differentiating the discount offered between the various category of buyers such as retail consumers, dealers and bulk buyers is owing to the difference in quantity of demand made by each of the category of buyers. A retail buyer might place an order for one or two pieces at a time, a dealer might place order for a large number of pieces while a bulk buyer such as a builder might place an order for still larger quantity at a time. In case of bulk purchase, a seller can offer more discount because of occurrence of economies of scale to it. When a seller sells large quantity, it is able to reduce its administrative and logistic expenses substantially which it pass to the purchaser. Thus, differentiating the discount offered between various categories of buyers such as retail consumers, dealers and bulk buyers cannot be per se construed as anticompetitive.
-
Offering differential discounts to different group of buyers seems to be the practice followed within the industry and it could be the avenue for competition enabling the players to compete with each other by offering higher discounts to consumers as large numbers of items are brought. Thus, the practice of offering differential discounts to different consumers i.e. less discount for retail buyers and a higher discount for bulk buyers (such as institutions, builders, colonizers and persons of importance) may not be construed as a violation of Section 3(4) of the Act but maintaining the specific rate of discounts to different consumers as the policy of differential discounts which are forcibly implemented by the OP-1 on their dealers may be construed as a violation of Section 3(4)(e) of the Act subject to this practice causing an Appreciable Adverse Effect on Competition (AAEC) in markets in India. In the instant case the Opposite Party has set a range of discount for different group of customers which is based on economic rationale as said supra. The dealer has the flexibility to pass the discount to the end consumers within the prescribed range provided by the Opposite Party. Thus, the allegation of the Informant that by specifying the varied rate of discount for different groups of customers the Opposite Party No. 1 has maintained resale price under Section 3(4) (e) of the Act does not get substantiated. Moreover, there does not seem to be any AAEC caused due to the aforesaid scheme of discounts. Hence, prima facie, no case is made out against the Opposite Party No. 1 under Section 3(4) of the Act.
-
Informant had also alleged that OP1, OP-2 and OP-3 have formed a cartel by raising the prices of ceramic sanitaryware products despite a marginal rise in the price of raw materials. However, there is no material available on record to indicate a meeting of minds by OPs on pricing of the sanitaryware products nor there is any evidence regarding the behaviour of OPs indicating a cartelization.
-
An examination of the wholesale price index for non-ferrous Sanitaryware between 2010-11 and 2012-13 indicates that the value of the index has been hovering between 137.66 and 139.40. Further, an examination of year-to-year changes in wholesale price index for this category indicates that the index has hardly...
To continue reading
Request your trial