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Liability of Mystery Shopping Agencies under Indian Competition Law

Kunal Singh[i]



Monitoring the strategies employed by rival competitors is the most desirable thing that a market player wishes to undertake. Through the lens of competition law, this may seem like anti-competitive conduct at first sight in leading to sharing of competitively sensitive information between the market players. However, there is a legitimate business practice of appointing Mystery Shopping Agencies (MSA) that is adopted by enterprises to monitor the marketing strategies adopted by rival competitors.

Recently, the Competition Commission of India (CCI) passed an order in Re: Alleged anti-competitive conduct by Maruti Suzuki India Limited in implementing discount control policy vis-à-vis dealers against Maruti Suzuki India Limited (MSIL) for entering and enforcing an agreement of Resale Price Maintenance with its dealers through MSA, and imposed a whopping penalty of 200 crores against MSIL. The automobile sector in India, in particular, has witnessed the use of MSA for enforcement of anti-competitive agreements; before MSIL, the penalty was imposed against Hyundai in Fx Enterprise Solutions India Pvt. Ltd. v. Hyundai Motor India Limited (2017) for a similar cause of action. The similarity in both the orders of CCI, i.e., MSIL and Hyundai, is that while both enterprises engaged MSA to facilitate their anti-competitive agreements, the penalty was imposed only against the enterprises and not the MSA.

Through this article, the author argues on the scope of penalty imposition on MSA acting as facilitators of anti-competitive agreements and lays down an analogy between the MSIL case and landmark cases in the European Union (EU) antitrust jurisprudence that discussed the liability of third parties acting as facilitators of anti-competitive agreements.

Resale Price Maintenance

Resale Price Maintenance (RPM) is a vertical restraint on free and fair competition entered between enterprises operating at different levels of the production chain and is provided under Section 3(4)(e) of the Competition Act, 2002 (Act). RPM includes agreements that require the purchaser to resell the goods at a price stipulated by the seller. In the instant case, MSIL entered into RPM with its dealers not to give a discount more than what was stipulated by MSIL, thus enforcing a Discount Control Policy.

How MSA may facilitate Anti-Competitive Agreements

Enterprises engage MSAs to keep a healthy check on rival market players' activities and business strategies in the industry. The MSA then hire mystery shoppers who go to dealerships and commercial establishments disguised as customers to monitor and keep a healthy check on what the rival competitor is doing or not doing. It should be ensured by enterprises engaging MSA and they themselves must ensure what they are doing is legal, i.e., mystery shopping should not go too far. It is evident from the instant case of MSIL that the MSA acted as an intermediary in collecting sales data and monitoring the already existing anti-competitive arrangement between the parties.

The European Court of Justice gave a significant decision regarding third parties' liability in antitrust lawsuits in AC Treuhand v. Commission. In this case, the Court held that a company could be fined for facilitating a cartel even if it does not operate on the relevant market of the cartel. The consultancy firm was hired to collect and distribute sales data and monitor the enforcement of the anti-competitive agreement. In the case at hand, the MSA hired by MSIL was also entrusted with collecting sales data, including the discounts given to customers, and monitoring the implementation of RPM. Therefore, it is established that the nature of both the MSA and the consultancy firm is same in respect to the collection of data, and it can be said that the MSA facilitated the RPM.

The Requirement of Market for MSA

The Commission asserted that MSIL functions in an upstream market and the dealerships functioned in a downstream market but avoided discussing the relevant market of the MSA. However, the Court in AC Treuhand held that it is not necessary for the third-party to function in a market viz. upstream, downstream, or a neighbouring market, as the third-party can still be held liable if it facilitates an anti-competitive agreement. The requirement of delineation of the relevant market under the Act and causing of Appreciable Adverse Effect on Competition (AAEC) in India absolves third parties like MSA of liability. Thus, the author argues that Commission needs to consider the role of third parties in the enforcement of anti-competitive agreements irrespective of their relevant market and effect on free and fair competition.

The Approach of Reasonable Foresee-ability

The extant Indian competition regime holds only those parties accountable for infringement of competition law provisions that are capable of exerting restraint on free and fair competition. In AC Treuhand, the Court held that it should be proved that the third party involved in the transaction intentionally contributed to the anti-competitive agreement or was aware of the arrangement undertaken by other entities or could have reasonably foreseen the outcome of its dealings. If the requirement of reasonable foreseeability is met, then that third party can be made liable for its involvement in the transaction.

The European Commission (EC) recently fined ICAP, a UK-based broker, for facilitating several cartels in the Yen Interest Rate Derivative sector between 2007 – 2010. Here as well, the EC adopted the reasonable foreseeability approach to decide the inferred knowledge of the anti-competitive arrangement on the part of ICAP. It also scrutinized the complementarity between the conduct of ICAP and the banks and held that had ICAP not facilitated the cartel, the probability of the cartel's success would have been very low.

In the instant case of MSIL, MSAs were engaged for conducting mystery visits to the dealers, ensuring whether the dealers were offering discounts to the consumers within the discount cap fixed by the MSIL, preparing a Mystery Shopping Audit Report including the names of violators of arrangement of RPM, and lastly, sending the audit report to MSIL. Pursuant to the audit report, MSIL asked for the dealers’ justification, threatened to impose penalties and restricted the supplies of premium car models. The conduct of MSA in the instant case is in deviation of the common purpose for which MSAs are primarily appointed. Thus, the author argues that MSA can be assumed to have inferred the existence of RPM between MSIL and its dealers, and its conduct was highly complementary to the arrangement of RPM, therefore, contributing to the common objective of RPM. Thus, the presumed reasonable foreseeability on the part of MSA and high degree of complementarity of its conduct with the enforcement of RPM aligns its conduct with ICAP in the derivatives case.

Facilitating Practices in a Vertical Restraint

In the preceding sections, the role of third parties in facilitating a horizontal restraint has been discussed. Likewise, third parties have also adopted facilitating practices in vertical restraints in the past, although the jurisprudence on this has not been developed much. In Argos and Littlewoods, Hasbro, one of the largest toy manufacturers of UK, adopted the role of a third party for facilitating a Recommended Retail Price (RRP) between Argos and Littlewoods (retailer), held individual conversations and entered into two bilateral agreements with each of the retailers. The Office of Fair Trading (OFT) held that Argos and Littlewoods entered into an anti-competitive arrangement with Hasbro and imposed hefty penalties on both the retailers, although no provision was imposed on Hasbro (third party) due to the provisions of leniency.

Another instance of the third party facilitating a vertical anti-competitive restraint was in the Replica Football Kits case in 2003. In this, Manchester United (licensor and retailer) established a similar RRP with other retailers, as it felt that it was being undercut by them, through Umbro (manufacturer), which adopted the role of a third party in facilitating RRP between Manchester United and other retailers. Unlike the case mentioned above, a penalty of £6.641 million was imposed on Umbro. Liability of third parties has also been acknowledged under Paragraph 55 of Guidelines on the Applicability of Article 101 of the Treaty on the Functioning of European Union (TFEU). It states that information can be shared between entities through a common agency or its own suppliers and retailers. In the instant case of MSIL, the MSA can be presumed to have the reasonable foreseeability of anti-competitive conduct and its conduct in collecting sales data, generating an audit report, and providing it to the MSIL for the enforcement of RPM is highly in consonance with the conduct of Hasbro and Umbro as they had also facilitated RRP as a third-party between the entities.

The Way Forward

Imposition of penalties on third parties is as vital as the attribution of liability. As evident from the Replica Football Kits case, a hefty penalty was imposed on Umbro for facilitating an RRP thereby paving the way for future attribution of liability to third parties. The author argues that imposition of liabilities on third parties will serve as a two-pronged approach. Firstly, it will deter enterprises from hiring third-parties as facilitators of anti-competitive agreements. Secondly, it will allow third parties to ensure that their conduct complies with antitrust provisions.

In the instant case, the author argues that in case of violation by third parties, the Commission should formulate an approach for the imposition of penalty in alignment with the approach of relevant turnover that was adopted by the Competition Appellate Tribunal (COMPAT) in M/s Excel Crop Care Limited v. Competition Commission of India. In the Excel Crop Care case, the Supreme Court held that in case of multi-product enterprises, turnover of only such commodity should be calculated whose relevant product market is in question, thereby emphasizing the principle of proportionality. Since MSA are also multi-product enterprises dealing with provision of services, penalty should be imposed in a manner proportionate to the extent of services offered to MSIL and not in respect to the overall services offered by MSA in the preceding financial years. To conclude, the Commission should delve into the role of the MSA in facilitating an anti-competitive arrangement, critically analyse the gravity of its conduct, and accordingly impose penalties on MSA. Often, MSA dodge the eyes of antitrust regulators in cases like that of MSIL, but it is imperative that they should be held accountable for their conduct because if it were not for the MSA, enforcement of anti-competitive agreements could have been highly improbable in these circumstances.


Kunal Singh is a third-year law student at Vivekananda Institute of Professional Studies, GGSIPU, New Delhi. He has strong inclination towards the subject of Competition Law. For any discussion related to the article, he can be contacted via mail at Singh[i]

Liability of Mystery Shopping Agencies under Indian Competition Law
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