The Competition Commission of India (“CCI”) has opined that disputes arising out of a failed business arrangement raising no competition concerns are not strictly within the realm of the Competition Act, 2002, as amended (“Act”) and that the remedy for such disputes and allegations solely involving cheating, defrauding and misrepresenting do not lie with the CCI but to other appropriate courts and forums.
This was opined by the CCI in its order dated 27th June, 2023 whereby it dismissed the information in which it was alleged that the actions of the Opposite Parties, namely Shubham Consumer Durables Pvt Ltd (“SDPL”); Shri Sampat Lai Kothari, being the owner and Managing Director of SDPL; and Shri Anil Kumar N, being the Area Sales Manager of SDPL amounted to cheating, fraud and misrepresentation and had, inter-alia, caused the Informant, namely N. Rajesh Kumar being the proprietor of M/s Shree Padmavathi Enterprises (“SPE”), loss of business, loss of reputation, loss of future earnings and affecting mental peace apart from resulting in downgrading of its financial credit rating and leading to banks refusing lending. According to the Informant, such actions on part of the Opposite Parties were in contravention of Section 3 (anti-competitive agreement) and Section 4 (abuse of dominant position) of the Act.
The information filed by the Informant was related to a franchise agreement entered into by the Informant with SDPL, under which SDPL was to supply consumer durable goods (such as electronics, electrical items, home appliances, computer products, furniture, mobile and accessories) to the SPE for retail sales as a franchisee. As per the Informant, at the time of execution of the franchise agreement, it was agreed that INR 3,00,000/- was payable by the Informant as refundable deposit amount to open a showroom near the Railway Station in the town of Chikkaballapura in the State of Karnataka. However, this was subsequently changed by executing another franchise agreement which stipulated that out of the INR 3,00,000/- to be deposited, INR 2,00,000/- was a non-refundable franchise fee and INR 1,00,000/- was refundable security deposit. Further, the Informant was aggrieved by the conduct of the Opposite Parties with regard to deciding the location of the premises unilaterally, which also resulted in delay in procuring trade license; not sending profit from sales to the Informant’s account in terms of the franchise agreement; ignoring the purchase orders of the Informant and subsequently disabling the system login of the Informant, and not fulfilling the assurances given by them to the Informant at the time of execution of the franchise agreement. These conduct, according to the Informant, amounted to cheating, misappropriation and fraud on the part of the Opposite Parties.
The CCI examined the alleged conduct under Section 3 and noted that Section 3(3) will have no application in the matter as Section 3(3) of the Act requires two or more enterprises engaged in identical or similar trade of goods or provision of services whereas the Informant and SDPL were at different levels of production and supply chain.
With regard to contravention of Section 3 (4) of the Act, the CCI noted that the Informant appeared to have been aggrieved by the conduct of the Opposite Parties in allegedly cheating, defrauding and misrepresenting the Informant and came to the considered opinion that the allegations are purely in the realm of commercial disputes arising out of a failed business arrangement raising no competition concerns for which the remedies lie elsewhere. For the same reason, the CCI did not delve deeper into allegations under Section 4 of the Act and also because of the fact that SDPL did not appear to command sufficient market power prima facie considering the relevant market to be the ‘market for supply of consumer durable goods in the State of Karnataka’, due to the market construct and presence of multiple players – both local and multinational.
By: Competition Team at Chitale & Chitale Partners
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