DEL refund its dealers the penalty imposed for non-compliance with respect to resale price maintenance (RPM), pursuant to the CCP’s order before the Competition appellate tribunal

Islamabad,  15-05-2023

On 11 March 2022, the Competition Commission of Pakistan (CCP) passed an order holding that RPM arrangements, including those that limit discounts, fix the price, and/or set a minimum or maximum price floor or ceiling, fall under the purview of Section 4(2)(a) of the Competition Act, 2010 (the Act), constitute a fixation of the selling price of a good or service, and should be regarded as anti-competitive because they harm both intra-brand and inter-brand competition. Del Electronics and Haier Pakistan were both found to have violated Section 4 of the Act by imposing pricing and other restrictions through RPM (resale price maintenance) agreements, and any agreements or arrangements that these firms had in place were deemed null and void.

The matter concerned a CCP's enquiry into the price control circulars released by Del Electronics (Private) Limited and Haier Pakistan (Private) Limited. Four Haier Pakistan circulars dealt with the implementation of a fixed price list for products and the levying of fines against select dealers for disregarding the fixed price lists. Regarding Del Electronics, two circulars that were similar to one another were discovered, in which dealers were fined for selling appliances for less than the amounts set by Del Electronics.

Del Electronics stated that it will abide by the CCP’s ruling and reimburse its dealers for any fines or punishments imposed and that the anti-competitive practice had been stopped following a management change at the company. Due to Del Electronics' compliance-focused approach, a penalty of Rs. 100 million only was imposed. The reduced fine was made contingent upon Del Electronics honouring its promise to reimburse its dealers for the penalties and fines within the CCP’s mandated time frame in terms of its order.

Del Electronics later challenged the CCP’s order in the Competition Appellate Tribunal under Section 42 of the Act, and it was admitted for a regular hearing. The Tribunal directed Del Electronics to pay refunds of the penalty amounts/sanctions to its dealers under the CCP’s order after hearing the parties.

In pursuance of the directive of the Competition Appellate Tribunal and in compliance with the order of CCP, Del has refunded its dealers the amount of the fine it had imposed on them for failing to abide by its fixed price lists. This practice is known as Resale Price Maintenance (RPM) and is forbidden by Pakistani competition law. The electrical company, Del Electronics, has informed the Tribunal that, out of 451 dealers, Del Electronics has issued refunds of penalty amounts/sanctions to 143 dealers totalling Rs. 8,134,000/- following the orders of the Tribunal and CCP. Del Electronics added that because the remaining dealers (a total of 308) could not be found or tracked down, penalties and sanctions had not yet been returned to them. Del Electronics stated that, as a backup plan, it was prepared and willing to pay CCP the balance of the penalty, which comes to Rs. 16,105,500.

CCP bench in its order cautioned all retailers, suppliers, manufacturers, dealers or any other undertaking as RPM agreements are ‘by object’ anti-competitive in nature and a violation of Section 4(2)(a) of the Act. The bench considered the same to be a serious violation of competition law. Any party wishing to implement the same has been required to notify such agreements/arrangements and first seek clearance from CCP through exemption under Section 5 of the Act addressing the efficiencies specified under Section 9 of the Act. In the absence of such exemption, such agreements/arrangements are void.

RPM, in whatever form, be it maximum or minimum price floors or discount restrictions, are all forms of price-fixing under Section 4(2)(a) of the Act, i.e., a fixation of the selling price of a product/good and are treated as by object anti-competitive. In America, several States still prohibit RPM arrangements, and other jurisdictions reviewed including the UK, Australia, EU, India, and China, RPM arrangements/practices have been heavily penalized and are considered to be serious violations of competition law.