FADA calls for legislative protection akin to developed nations

S Ronendra Singh New Delhi | Updated on October 27, 2021

Seeks meeting with Commerce Minister Piyush Goyal in this regard

The Federation of Automobile Dealers Associations (FADA) on Wednesday said that original equipment manufacturer (OEM)-dealer contracts in India are not balanced or equitable, and called for polices similar to those prevalent in developed countries like the US and Australia.

Triggered by Ford Motor’s exit from India recently, the industry body said that the country should also have an Automobile Dealers’ Protection Act so that they are not left in losses in the future. After General Motors (2017), MAN Trucks (2018), UM Lohia (2019), Harley Davidson (2020), Ford is the fifth major auto company to stop domestic production and sales and make an exit from the market.

FADA has already written to the Ministries of Heavy Industries and Micro Small and Medium Enterprises (MSME) and will send the same letter to the Commerce Ministry also in the next two days.

“We are already following up with the Heavy Industries Ministry and MSME. Now, we are seeking for the help from the Commerce Ministry also and have sought a meeting with Minister Piyush Goyal as his Ministry will also be involved,” Vinkesh Gulati, President, FADA told BusinessLine.

He said in countries like the US, Australia and even in some European countries, there are Acts and the governments support them by giving a level-playing field.

“While we (India) are number one in motorcycles and number four in passenger cars market in the world, and wanting to come to number three or two, we don’t have such regulations. Unfortunately, the existing legal regime in India is inadequate to address these specific concerns of dealers. While OEM-Dealer agreements are governed under the Indian Contract Act, the law does not contain any clear solutions for us,” Gulati said.

‘Balanced contracts’

India should also urgently consider the introduction of an ‘Automobile Dealers Protection Act’ to make contracts more balanced and equitable. Such legislation should introduce robust contract enforcement and dispute settlement measures by incorporating a special authority with adequate representation from the government, FADA and Society of Indian Automobile Manufacturers (SIAM), he said.

At present, disputes between the OEMs and dealers in India are usually subject to arbitration under the dispute resolution clauses of the dealership agreements. However, under the terms of most dealership agreements, there is no recourse for the dealer when the day-to-day business operations are against their interests.

“The dealer is rarely given an opportunity for course correction before the threat of termination and/or litigation is brandished upon them. Even if a dispute arises and is referred to arbitration, the imbalance of power between the parties is very evident and would only make matters worse for the dealer that has a huge amount of capital locked into the dealership,” Gulati added.

Published on October 27, 2021

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