India's antitrust body on Thursday said it had ordered an investigation into how the country's biggest carmaker Maruti Suzuki controls discounts its dealers offer.
Reuters reported in May the Competition Commission of India (CCI) was looking into allegations that Maruti forces its dealers to limit the discounts they offer, effectively stifling competition among them and harming consumers.
The CCI has now asked its investigations unit to complete the probe within 150 days.
Car makers at times set a limit on discounts to ensure there is no price war among dealers but Indian law says the practice, described as "resale price maintenance", is prohibited if it causes "appreciable adverse effect on competition in India".
The CCI on Thursday said a detailed probe was needed to assess the methods used by Maruti as the allegations showed it was a "fit case for investigation in respect of the alleged resale price maintenance arrangement".
"We have seen the order on CCI web site. We are examining the same," said a Maruti spokesperson.
Maruti, majority-owned by Japan's Suzuki Motor Corp, is a household name in India where it commands a 51 percent market share. It sold 1.73 million passenger vehicles in the year to March and has nearly 3,000 dealers in the country.
In a similar case in 2017, South Korean firm Hyundai Motor Co's India unit was fined $12.5 million by CCI for antitrust violations, including resale price maintenance.
An appeals court overturned the fine on Hyundai last year, citing lack of evidence, but the CCI has challenged the ruling at India's Supreme Court. The case is still pending.
The CCI said it started looking into the Maruti case in November 2017 after a person identifying himself as a dealer wrote to it and alleged dealers were not being permitted to give extra discounts to their customers in the western part of the country.
Maruti also conducted "mystery shopping" through an agency in which a fake customer visited dealers to check whether extra discounts were being offered or not, the person alleged, according to the CCI. If dealers offered extra discounts, Maruti imposed a penalty on them, the person continued.
Maruti argued it does not impose a discount control policy and the complaint should be quashed, but the watchdog disagreed.
The CCI said it was not convinced by Maruti's argument that penalties are imposed on account of "violation of schemes and guidelines launched by the dealers and their failure to ensure consumer satisfaction."