The Competition Commission of India (CCI) has asked its director general to initiate an investigation against Asian Paints Ltd under the provisions of section 26(1) of the Competition Act, 2002, based on information received from JSW Paints Pvt Ltd.
In its 14 January 2020 order, the CCI bench of Ashok Kumar Gupta (chairman), Sangeeta Verma and Bhagwant Singh Bishnoi, both members, noted that "...the alleged restrictions on dealers not to deal with JSW Paints or any other company manufacturing paints can create barriers for suppliers of paints, who compete with these suppliers besides not allowing the benefit of better prices to the consumers. A stipulation that appears to create barriers to entry and restricts choice of consumers is likely to result in appreciable adverse effect on competition resulting in higher prices for consumers."
"Based on material available on record, the Commission is of the view that evidence provided by JSW Paints is prima-facie sufficient to indicate that Asian Paints has denied access to the distribution channels in the relevant market to JSW Paints by threatening and coercing such dealers through various means. In view of foregoing, Asian Paints, prima-facie, appears to be in contravention of provisions of Section 4(2)(c) of the Act," the order says.
The Commission then directed its DG to investigate the matter and submit reports within 60 days.
In its complaint, JSW Paints has alleged that immediately after the launch of its decorative paints, Asian Paints began pressurising dealers who had agreed to stock and display decorative paints manufactured by the Jindal group company.
"Asian Paints targeted dealers, distributors and retailers partnering with JSW Paints directing them to stop dealing with JSW Paints, stopping supplies to these dealers, dropping service levels by delaying supplies and deliveries, asked dealers to remove display of JSW Paints products from their retail shelves and dealer signboards, threatened dealers by not allowing discretionary discounts, not inviting them for trips and loyalty schemes. Asian Paints did this through its sale personnel in the relevant regions. Such conduct has been alleged to have created fear amongst retailers and dealers, as a result of which a number of them stopped dealing with JSW Paints, despite having provided the initial cheque of Rs1 lakh," JSW Paints had said.
The complaint filed by JSW Paints also cites allegedly similar tactics used by Asian Paints against Nippon Paint India Pvt Ltd. It says, "Asian Paints had taken punitive action against a dealer in the past on account of its decision to stock and sell paints manufactured by Nippon Paint. Asian paints is stated to have resumed its supplies only after the dealer agreed to cease business relations with Nippon. In the year 2015-16, Nippon had attempted to enter the decorative paints market in Chennai. However, Asian Paints took similar action against the dealers who entered into commercial relationship with Nippon."
As per the information, decorative paints constitute 74% of the market sales. Industrial paints comprise general industrial, automotive, protective powder coatings, and coil coatings constitute 26% of the market sales.
In its order, the CCI observed sales of decorative paints require extensive dealer networks, especially in the rural and semi-urban markets; hence, a strong supply chain and pan-India distribution is essential for making products successful. Brand also plays an important role in the decorative paints segment. Within the decorative paints segment, consumers prefer branded products in the organised sector rather than unbranded products of the unorganised sector, it noted.
The Commission noted that Asian Paints is the largest player in the relevant market. As per the information, Asian Paints has the highest market share based on all parameters including revenues, earnings before interest, taxes, depreciation, and amortisation (EBITDA) and installed capacity. Based on revenue, it has a market share of 55.92%, with the second player, Berger Paints being at 18.79 % for the FY17-18.
It has also been stated that Asian Paints has 60,000 dealers and 135 depots across the length and breadth of the country. The next competitor is Berger Paints at second place with 25,000 dealers and 129 depots.
There are four top operators in this industry, namely, Asian Paints, Berger Paints, Kansai Nerolac, Akzo Nobel, who have occupied around 80% of the relevant market, with Asian Paints maintaining its highest market share consistently over the years. Based on this, the Commission noted that Asian Paints prima-facie appears to enjoy a dominant position in the relevant market delineated above.
In a regulatory filing, Asian Paints says "The company is currently examining the order and will take appropriate legal recourse and will extend full co-operation to CCI in the matter."