Exclusive Motors Pvt. Limited (ExMo) is a South Delhi based supercars selling company whose primary business is, to make agreements with the Super Sports Car Companies like Lamborghini, Aston Martin, Bentley etc. and buy cars from those companies and sell it to the Customers throughout India through their dealerships. For this purpose, some companies had signed an agreement with ExMo to be their official dealer to sell their cars in India.
One of such was Automobili Lamborghini S.P.A. which is an Italian Brand but owned by the Volkswagen Group which is based in Germany. In the year 2005, Lamborghini entered into an agreement with ExMo to make them their official & exclusive importer & seller in India. This went long till the next 7 years. For Indian sales-based promotions costs were borne by ExMo.
In the year 2011, Volkswagen India, another sub-company belonging to the Volkswagen Group was launched in India to sell cars under the Volkswagen badge. Thus, Volkswagen dealerships were opened and Lamborghini cars were decided to be sold through these dealerships as against the existing ExMo dealerships. In lieu of this, Lamborghini sent a notice in 2012 to ExMo to terminate their dealership agreement citing the decision to sell their cars through their sister concern Volkswagen India.
The termination notice period was reduced from 12 months to 3 against the agreement signed in 2005. ExMo denied this and Lamborghini served a 12-month notice again. Now, in this notice period, the importing price of Lamborghini cars was much higher to ExMo against the prices bought by Volkswagen India. ExMo claimed this as a price discriminatory policy and violation of Section 3 and 4 of Competition Act.
The agreements of Lamborghini with Volkswagen India were suspected to be anti-competitive and contravening Section 3 (3) (a) as they directly determined the sale and purchase price of the Lamborghini cars. Also, the exclusive distribution of the agreement made between Lamborghini and its group company Volkswagen India was alleged to be in violation of Section 3 (4) (c), since it excluded ExMo and other prospective dealers to become the importers and dealers of Lamborghini cars.
Further considering the super sports cars market share held by Volkswagen Group would amount to 60 per cent as the other supercar brands that they own will also be counted into this, ExMo alleged that there was an abuse of dominance and violation of Section 4, imposing discriminatory and unfair market conditions under 4 (2)(a)(i) & (ii), and denied market access, thereby violating Section 4(2)(c). On account of this, ExMo moved to the Commission. On this basis, the appellant-Informant prayed the Commission to direct an inquiry under Section 26(1) into the anti-competitive practices adopted by opposite party Lamborghini and Volkswagen India.
ISSUES RAISED :
- Whether Volkswagen India and Automobili Lamborghini be considered as separate enterprises although they both belong to Volkswagen Group under Section 2 (h)?
- Can an internal agreement between the two subsidiaries belonging to the same group be considered as an agreement for the purpose of Section 3 ?
- Did does Automobili Lamborghini deny market access of its cars as a result of its agreement with Volkswagen India?
LAW APPLIED :
The law applied in the above mentioned cases are as follows :
THE COMPETITION ACT, 2002
- Sec. 2(h) – “‘enterprise’ means a person or a department of the Government, who or which is, or has been, engaged in any activity, relating to the production, storage, supply, distribution, acquisition or control of articles or goods, or the provision of services, of any kind, or in investment, or in the business of acquiring, holding, underwriting or dealing with shares, debentures or other securities of any other body corporate, either directly or through one or more of its units or divisions or subsidiaries, whether such unit or division or subsidiary is located at the same place where the enterprise is located or at a different place or at different places, but does not include any activity of the Government relatable to the sovereign functions of the Government including all activities carried on by the departments of the Central Government dealing with atomic energy, currency, defence and space.
Explanation.-For the purposes of this clause,— (a) “activity” includes profession or occupation; (b) “article” includes a new article and “service” includes a new service; (c) “unit” or “division”, in relation to an enterprise, includes (i) a plant or factory established for the production, storage, supply, distribution, acquisition or control of any article or goods; (ii) any branch or office established for the provision of any service;”
- Sec. 3 – Anti-competitive agreements
S.3(3). Any agreement entered into between enterprises or associations of enterprises or persons or associations of persons or between any person and enterprise or practice carried on, or decision taken by, any association of enterprises or association of persons, including cartels, engaged in identical or similar trade of goods or provision of services, which—
(a) directly or indirectly determines purchase or sale prices;
Sec.3(4). Any agreement amongst enterprises or persons at different stages or levels of the production chain in different markets, in respect of production, supply, distribution, storage, sale or price of, or trade in goods or provision of services, including—
(c) exclusive distribution agreement;
- Sec. 4 – Abuse of dominant position
(2) There shall be an abuse of dominant position [under sub-section (1), if an enterprise or a group].—-
(a) directly or indirectly, imposes unfair or discriminatory—
(i) condition in purchase or sale of goods or service; or
(ii) price in purchase or sale (including predatory price) of goods or service.
(c) indulges in practice or practices resulting in denial of market access [in any manner]; or
4. Sec.19 – Inquiry into certain agreements and dominant position of enterprise
(1) The Commission may inquire into any alleged contravention of the provisions contained in subsection (1) of section 3 or sub-section (1) of section 4 either on its own motion or on—
(a) 29[receipt of any information, in such manner and] accompanied by such fee as may be determined by regulations, from any person, consumer or their association or trade association; or
5. Sec 26 – Procedure for inquiry under section 19
(2) Where on receipt of a reference from the Central Government or a State Government or a statutory authority or information received under section 19,
The Commission held that:
- Since both Volkswagen India and Lamborghini belong to the same group, they are part of a Single Economic Entity and there is no question of Cartelisation.
- Lamborghini was not dominant in the market and hence there was no ground for investigation.
This is a landmark case that helped Competition Commission of India to step up Certain principle for the concept of ‘Single Economic Entity’ via the lens of Cartelization. In India, the concept of SEE began gaining momentum through its application in various cases and Exclusive motors being one of the first few to which it was applied to. In the above mentioned case the question arose as to whether it is possible to be involved in cartelization when there are two completely separate entities involved. In this case, the two entities where part of the same group, forming a Single Economic Entity, and there was no question of cartelisation; as it was merely an internal arrangement of the group from a business perspective and thus, it was not looked upon it as an agreement at all. Here, the CCI accepted the concept of SEE and opined that “Agreements between entities constituting one enterprise cannot be assessed under the Act. This is with accord with the internationally accepted doctrine of ‘single economic entity’…. As long as the opposite party and Volkswagen India are part of the same group, they will be considered as a single economic entity for the purpose of the Act”.
In the appeal before COMPAT, it was observed that “an internal agreement between subsidiaries, which are a part of the same group, cannot be considered as an agreement for the purpose of Section 3 of the Act”, thereby endorsing the view of the CCI.
Therefore, even though the act provided a bit of clarity in interpreting the concept of SEE, the CCI has still yet to have clear the stance in relation its application to international scenarios.
List Of Similar Judgements:
None. The Commission stated that there was no prima facie case either under Section 3 or Section 4 of the Competition Act in this Case’s regard.
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