CCI Closes Complaint Against Sepson AB And Sepson India, Citing No Contravention Of Competition Act From The Contractual Matters

The Commission observed that no contravention of Section 3(4) or 4 of the Act is made out of the contractual matters at hand between Informants and Opposite Parties.

Brief Facts:

Informant No.1 is involved in manufacturing recovery winch systems, automotive components, etc. in the defense sector with Informant No. 2 as its Managing Director and Promoter. Sepson AB, a Swedish company, produces winch systems, and Sepson India is its wholly-owned subsidiary. The Informants and Sepson AB formed a strategic alliance in 2006 to promote winches in India. The approval from the Ministry of Defence came in 2013-14. The first major MoD order was for vehicles with Sepson AB’s winches, giving them a monopoly as approved vendors for military vehicles. Only approved vendors can supply such winches to the Indian Army.

Between 2007 and 2013, Informant No.1 was Sepson AB’s Indian distributor. In 2014, they entered a Sub-Contracting and Manufacturing Agreement (SCM) for Informant No.1 to manufacture and assemble winches for military vehicles. Informant No.1 invested heavily in this endeavor. Sepson AB established Sepson India in 2014, and Informant No. 2 became a non-executive Director. Informant No. 2 signed an employment agreement as MD of Sepson India and a detailed SCM-2015 was executed, making Informant No.1 the exclusive manufacturing contractor for Sepson India. SCM-2015 included a condition tying it to Informant No.2's MD role, which the Informants claim they weren't aware of when they made significant investments.

Informant No.1 manufactured and supplied 433 winches to Tata Motors between June 2015 and August 2016. On 17.03.2016, Informant No. 2 resigned as MD of Sepson India. The Informants noticed delays, wrong drawings, and higher import costs from the Opposite Parties regarding winch orders. They realized Sepson AB aimed to establish its manufacturing arm in India.

In June 2016, Sepson AB introduced stringent conditions in a revised manufacturing agreement, requiring Informant No.2's involvement with Sepson India. Sepson AB stopped dealing with Informant No.1 in August 2016, directly supplying Original Equipment Manufacturers (OEMs). The non-compete duration was extended to five years. Informant No.2 resigned as Sepson India's director, leading to Sepson AB ending its association with Informant No.1, effectively removing them from the winch manufacturing business for defense vehicles.

Contentions of the Parties:

Opposite Parties

The Opposite Parties submitted that Informant No. 1 and Sepson AB formed a strategic alliance for industrial cooperation wherein Informant No. 1 acted as a distributor for India under this alliance and Informant No. 2 was appointed as MD of Sepson India. They contended that Informant No. 1 did not adhere to the terms of their agreements, especially SCM-2015, leading to delays and financial losses. They accused Informant No. 1 of demanding excessive advance payments and creating dependency. Allegations of forum shopping and harassment are also made against the Informants.

The Opposite Parties argued that the restrictions imposed on the Informants were standard commercial practices and reasonable. The abrupt resignation of Informant No. 2 was attributed to his demand for an additional 8% commission, which was denied. It's emphasized that he was free to resign after giving proper notice.

Further, they stated that they aren't registered vendors for the Indian Army and supply to OEMs like Tata Motors and Ashok Leyland. Approval processes are conducted by the OEMs, not the Opposite Parties. They defined the relevant market as "vehicle-mounted winches in India" due to competition among various players in the segment. They also stated that the conditions in SCM-2015, including automatic termination, were deemed reasonable and not unfairly discriminatory and were necessary for legal compliance.

Observations of the Commission:

The CCI closed the case and observed that the matter was related to the SCM-2015 agreement involving Tata Motors' order for a specific winch model to be installed on vehicles. It highlighted that a separate employment agreement was established between Sepson India and Informant No.2, appointing him as the Managing Director of Sepson India to oversee daily operations. Clause 3.8 of the SCM-2015 and Clause 18.5(iv) stipulate that the said agreement could be terminated if the Employment Agreement was terminated.

The CCI acknowledged the legal issues that arose since Informant No. 2 resigned, and the Employment Agreement was terminated, leading to the termination of the SCM-2015 agreement. It also took note of various litigations filed by the Informants and Opposite Parties before various commissions due to the termination of SCM 2015.

The Commission observed that no contravention of Section 3(4) or 4 of the Act is made out from these contractual matters and it decided not to assess the relevant market or undertake further assessment.

The CCI also addressed the parties' request for confidentiality over certain documents and granted confidentiality in accordance with the relevant regulations for a period of three years. However, the CCI clarified that the contents of its order are not considered confidential, as they pertain to the Act's provisions. Additionally, the CCI emphasized that its findings should not be interpreted as expressing any opinion on the ongoing legal proceedings between the parties in other courts or forums.

Case Title: Transvahan Technologies India Pvt. Ltd. & Another And Sepson AB and its group entities & Another

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