Non-renewal of dealership agreement does not amount to abuse of dominant position, NCLAT

Non-renewal of dealership agreement does not amount to abuse of dominant position, NCLAT

Aditi Singh

The National Company Law Appellate Tribunal (NCLAT) has held that non-renewal of a dealership agreement after its expiry would not amount to an abuse of dominant position in terms of Section 4 of the Competition Act, 2002.

The Judgment was passed by a two-member Bench of Chairperson, Justice SJ Mukhopadhyay and Member (Judicial) Justice Bansi Lal in an appeal preferred by Parsoli Motors Works Pvt Ltd (appellant) against an order passed by the Competition Commission of India (CCI).

The appellant had a dealership agreement with BMW for selling its cars in Gujarat for the period of 2007 to December 31, 2017.

After BMW refused to renew the dealership agreement, the appellant filed an information with CCI under Section 19 (1)(a) for the abuse of dominant position by BMW India Pvt Ltd and BMW India Financial Services Pvt Ltd  (respondents).

The complaint was closed by CCI and the appellant moved in appeal.

It was the appellant’s case that since it was not given sufficient time to exit from the business, dealers from outside Gujarat were allowed to sell BMW vehicles to customers based in Gujarat. This, the appellant argued, resulted in a financial loss to the appellant as well as the State Exchequer and in abuse of dominant position.

After hearing the appellant, the NCLAT opined that the appellant’s contentions were without substance and the concerns raised with respect to the violation of the Competition was unfounded.

The NCLAT observed that even if it is assumed that the refusal to renew dealership was in derogation of the Government’s policies or that it resulted in a loss to the appellant due to its investment in infrastructure etc, the respondents’ conduct might give rise to civil liability but would not attract consequences under Section 4 of the Competition Act.

It added that the question of setting up a dealership depended on the profitability of the business which lied within the domain of the manufacturer.

Merely because, the act of refusal on the part of OP-1 to renew dealership of Informant beyond 31st December, 2017 may have caused pecuniary loss to the Informant does not raise any competition concern, even if, the consequence of such termination of dealership has proved advantageous to the dealers of OP-1 in neighbouring states of Gujarat to sell BMW cars to customers hailing from Gujarat…

..As regards, fiscal loss to the State of Gujarat in the form of Taxes leviable on sale of cars suffice it to say that apart from the Informant having no locus to raise such issue the revenue resources available to the State would depend on the profitability of business and it lies within the domain  of the manufacturer, whether setting up of dealership in a particular State would promote its business and generate profit. It is inconceivable that an Automobile Company would setup a dealership solely for the benefit of the dealer or for generating the revenue for the State where such dealership is located.”

The NCLAT also recorded CCI’s finding that Section 4 would not be attracted in this case as BMW India had a negligible share in the relevant market ie. passenger car segment in India.

Additionally, the NCLAT took note of an insolvency application under Section 7 of the Insolvency and Bankruptcy Code before NCLT against the appellant at the hands of BMW India Financial Services Pvt Ltd for recovery of a debt of over Rs 54 Crores.

In the context of this factual background, the allegation emanating from the Respondents that the information filed by the Informant with CCI raising competition concern was merely as a counterblast cannot be dismissed offhand.”, it said.

In view of the above, the NCLAT concluded that there was no merit in the appeal.

The appellant was represented by Advocates Rajshekahar Rao, Arjun Sheth, Adya, Anandh Venkataramani, Raghav Kacker. 

The respondents were represented by Advocates Diwakar Maheshwari, Karun Mehta, Shreyas E, Pratisha Vij.

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