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CCI orders probe against Asian Paints for restricting the entry of JSW Paints in the southern states

The Competition Commission of India (CCI) has ordered a probe against Asian Paints for allegedly threatening dealers and misusing its dominant position in the market to restrict the entry of JSW Paints in the three southern states of Karnataka, Telangana and Tamil Nadu. The commission has asked the Director General (DG) of CCI to conduct an independent investigation and submit its report in 60 days from the date of the order.

Asian Paints, which enjoys a dominant position in the decorative paints market with a 56% market share, is reported to have taken punitive action against the dealers who dealt with JSW Paints. JSW Paints claimed that Asian Paints threatened the dealers to discontinue their supplies, and disallowed discretionary discounts. The latter is also alleged to have pressurised enterprises that provided infrastructure facilities like warehouses to JSW Paints.

It has been further stated that Asian Paints has always maintained the highest market share and there have been no new players in the relevant market over the last ten years. Asian Paints’ conduct is alleged to have created significant trade barriers for any upcoming entrant. JSW Paints claimed that its rival was directly aiming at foreclosing the entry of a new entrant like JSW Paints in relevant market.

The Commission noted that based on material available on record, it is of the view that evidence provided by JSW Paints is prima facie 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. It added that Asian Paints, “prima facie”, appeared to be in contravention of provisions of the Competition Act.

The Commission, in its order, said they have carefully examined various instances of alleged abusive conduct of Asian Paints brought out by JSW Paints in the three states, which included a transcript of a conversation between a dealer and representatives of Asian Paints. The Commission further stated that the denial of market access is a severe form of abuse of dominant position. Without access to the dealers, there is no scope for a new or existing entity to survive in the market as dealers are “interface of business” with customers.

Asian Paints has 60,000 dealers and 135 depots across the country. The next competitor is Berger Paints at second place with 25,000 dealers and 129 depots. Based on various reports, the Commission notes that extensive dealership networks are required in decorative paints market to create a strong presence in rural and urban areas. With its large number of dealers, Asian Paints appears to have penetrated deeply in the relevant market and appears to enjoy competitive advantage over its competitors. Given that dealers are small traders with few resources, they are dependent upon Asian Paints. Further, these dealers do not have countervailing buying power.

The alleged conduct of Asian Paints prima facie means Asian Paints has denied access to necessary distribution channels in the market and limited the availability of alternate products, reducing the competition in the market in contravention of provisions of Section 4(2)(c) of the Competition Act. “As a result of the conduct of Asian Paints, the final consumers may also be deprived of choice to purchase different kinds of paints at competitive prices,” the Commission assessed.

The Commission is of the opinion that there exists a prima-facie case which requires an investigation by the DG, to determine whether the same has resulted in contravention of the provisions of the Act.

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