The Competition Commission of India (CCI) on Wednesday ruled that Tata Motors has not violated the provisions of the Competition Act, 2002. The fair trade watchdog’s crucial verdict brings to close a contentious investigation, putting the auto giant under intense scrutiny.

At the centre of the controversy were two long-standing authorised dealers of Tata Motors. 

Their terminated or non-operational dealership agreements led them to file formal complaints against Tata Motors. 

Complaints filed

The accusations included Tata Motors abusing its dominant position by dictating vehicle off-take preferences to dealers. 

The company was also accused of imposing certain restrictive clauses in their dealership agreements, notably, the requirement for dealers to obtain a No Objection Certificate (NOC) before venturing into or acquiring new businesses. Another point of contention was Tata Motors’ alleged vertical restraint on its dealers, restricting them from selling vehicles outside their designated territory.

Post-receipt of these complaints, the Commission noted prima facie infraction of competition law and directed its investigation arm — the Director General (DG) to probe deeper into the allegations. 

DG’s findings

The DG concluded that Tata Motors did impose off-take requirements and territorial restrictions on its dealers. However, the company was cleared of the NOC-related allegations by the DG.

Overruling the DG’s findings, the CCI in its ruling noted that the alleged misconduct of Tata Motors did not display any evident negative impact on competition within the country. 

Crucially, the off-take requirement allegations were found to be contradicted by testimonies from several other Tata Motors’ dealers. 

The Commission also highlighted the fact that the informants, having been long-term dealers, had never raised such concerns in the past.

On the issue of NOC requirement for dealers, the CCI concurred with the DG’s assessment. The mere inclusion of such a clause, without evidence of it being unjustly enforced, was not deemed sufficient for establishing violation of the law, noted CCI in its ruling.

Relief for company

The most significant point of relief for Tata Motors was the CCI’s stance on the territorial restriction allegations. The CCI reasoned in its order that without substantial evidence to demonstrate appreciable adverse effect on competition – actual or likely, it was impossible to ascertain the real-world implications of such a policy on competition.

“The Commission further notes the submissions of Tata Motors that it imposed restrictions on active sales outside the designated territory to inter alia ensure that dealers do not free-ride another dealer’s marketing and investments, incentivising dealers to invest in the dealership, enhance intra-brand competition, etc. 

In this regard, the Commission observes that while arriving at a finding of contravention of Section 3 (4) of the Act, it is imperative to carry out an assessment of the factors mentioned under Section 19(3) thereof to determine whether the alleged vertical restraint results in or likely to result in an appreciable adverse effect on competition or not. 

In the absence of any factual basis or foundational evidence in this regard brought out by the DG, the Commission is unable to return a finding of appreciable adverse effect on competition arising out of the impugned conduct, observed CCI while closing the case.

Samir Gandhi, Co-Founder, Axiom5 Law Chambers, told businessline, “The CCI’s order is based on a thorough analysis of facts and a detailed assessment of the applicable law. The order reflects the CCI’s pragmatic approach when dealing with contractual disputes which do not involve any competition law infringement”.

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