In Supreme Court of India
(2017) 8 SCC 47
AIR 2017 SC 2734
Excel Crop Care ltd.
Competition Commission of India
Date of Judgement
A.K. Sikri, N.V. Ramana
Food Corporation of India wrote a letter to the Competition Commission of India on February 4, 2011 complaining of an anti-competitive agreement arrived at between M/s. Excel Crop Care Limited, M/s. United Phosphorous Limited, M/s. Sandhya Organics Chemicals (P) Ltd, and Agrosynth Chemicals Limited, in relation to the tenders issued by the FCI for Aluminium Phosphide Tablets of 3 gms. between the years 2007 and 2009. It was alleged in this complaint that these four manufactures of APT had formed a cartel by entering into an anti-competitive agreement amongst themselves and on that basis they had been submitting their bids for the last eight years by quoting identical rates in the tenders invited by the FCI for the purchase of APT.
The CCI initiated the inquiry by entrusting the matter to the Director General (DG) for investigation. After collecting the aforesaid information, the DG submitted his report with the following findings:
(a) The main market of APT in India was that of the institutional sales and sale of these 3 gms. tablets was restricted to the Government agencies and approved pest control operators, which could not be sold in the open market.
b) It was noted that the FCI had adopted the process of tender. As per the practice, the lowest bidder is invited by the Committee for negotiations.
c) It was found that right from the year 2002, up to the year 2009, all the four parties used to quote identical rates. In November 2005, though the tenders were invited, all the parties had abstained from quoting.
d) The explanation given by the appellants was unconvincing. Though, the appellants had stated that rise in the price was mostly attributed to increase in price by China during the Beijing Olympics, but it was noticed that even during the period when the Phosphorous prices had fallen, no reflection thereof was seen in the high prices quoted by the appellants;
e) Examination of the cost structure of each company reflected that there was nothing common between the appellants as far as the said cost structure was concerned and, therefore, quoting of identical prices by all the appellants was unnatural; and
f) joint boycotting by the appellants, at times, showed their concerted action, According to the DG, explanation given by the appellants and M/s. Agrosynth Chemicals Limited for boycotting the said tender to the effect that tender conditions were very stringent, was an afterthought and did not inspire any confidence. As per the DG, even if the conditions were stringent, the appellants could discuss the same with the FCI as there was sufficient time between March 2011 and July 25, 2011 , but it was not done.
On the basis of the aforesaid findings, affirming the allegations of the FCI, the DG framed an opinion that the appellants had entered into an anti-competitive agreement contravening the provisions of Sections 3(3)(a), 3(3)(b) and 3(3)(d) read with Section 3(1) of the Act. On receipt of this complaint, the CCI issued notices to the appellants who filed their objections. After hearing the parties, the CCI passed the order dated April 23, 2012 whereby it concluded that the appellants had entered into the anti-competitive agreement in a concerted manner thereby offending the provisions of Section 3 of the Act. As a consequence, it imposed penalty @ 9% on the average total turnover of these establishments for the last three years under Section 27(b) of the Act.
The appellants filed three separate appeals before the COMPAT under Section 53-B of the Act. The legal and factual arguments remained the same before COMPAT as well. In addition, argument was raised on the quantum of penalty. In these appeals, the issue on merits has been decided against the appellants. The COMPAT has on October 29, 2013, rejected all the contentions, except the penalty, of the appellants. Insofar as imposition of penalty is concerned, COMPAT has held that though penalty @ 9% of three years’ average turnover was not unreasonable, the penalty cannot be on the `total turnover’ of these establishments, and has to be restricted to 9% of the `relevant turnover’, i.e. the turnover in respect of the quantum of supplies made qua the product for which cartel was formed and supplies made namely APT and turnover of other products manufactured and sold by the establishments, which were without blemish, could not be included for calculating the penalty.
The appeals arise out of the common judgement and order dated October 29, 2013 passed by COMPAT. Three appeals are filed by these manufacturers/suppliers against the findings of the COMPAT holding that there was violation of Sections 3(3)(a), 3(3)(b) and 3(3)(d) of the Act on the part of the appellants to declare the findings as untenable and to set aside the penalty imposed. On the other hand, the CCI has also preferred an appeal against that part of the impugned order whereby penalty imposed upon these suppliers is restricted to `relevant turnover’ instead of `total turnover’.
(a) Since Sections 3 and 4 of the Act were activated and brought into force only with effect from May 20, 2009, tenders prior to this date could not be the subject matter of inquiry for ascertaining whether there was any violation of Section 3 of the Act or not. In case of March 2009 tender, it was contended that last date of submission of tender was May 08, 2009 and the bids were submitted by the appellants on that date, i.e., before the enforcement of Section 3, which came into operation on May 20, 2009. No doubt, the tender was evaluated and awarded only after May 20, 2009, but insofar as role of the appellants is concerned, that came to an end on the submission of the tender and, therefore, tender of March, 2009 could not be the subject matter of enquiry.
(b) Insofar as tender of 2011 is concerned, it was contended that inquiry in respect of boycotting the said tender by the appellants was without jurisdiction inasmuch as the FCI in its complaint dated February 04, 2011 did not mention about the said tender.
(c) On merits, increase in the price over a period of time, particularly between years 2009 and 2011, was sought to be justified on the ground that the `price of yellow phosphorous, which was to be procured from China, had increased’. It was further submitted that merely because there was identity of prices quoted by the appellants, it would not mean that there was any bid rigging or formation of cartel by the appellants. Submission in this behalf was that the market forces brought the situation where the prices became so competitive and it had led to the aforesaid trend. According to them, as a practice, the Central Warehousing Corporation finalised the tender in the beginning of a particular year which used to be considered as the benchmark for other tenders for that year resulting in likelihood of identical pricing.
Boycotting of tender of May 2011 was tried to be justified on the ground that there were unreasonable conditions prescribed in the tender making it impossible to submit the bid, particularly, the condition of depositing `30 lakhs as Earnest Money Deposit (EMD), whereas in the earlier tenders the EMD was only `10 lakhs and `8.25 lakhs. It was further submitted that, notwithstanding the same price quoted by the appellants, each time the tender was evaluated by a Committee of Officers of the FCI and no such suspicion was raised by the Committee. On the contrary, this aspect was specifically gone into and the Committee was satisfied that quoting of identical price was not due to any cartelisation. M/s. Sandhya Organics Chemicals (P) Ltd. raised an additional plea qua non-participation in the 2011 tender by submitting that it did not have the capacity to supply 75 MT per month, which was the requirement in the said tender and, therefore, it chose not to participate.
(e) The explanation to Section 3 has no application as it referred only to `bid rigging’ which is different from `collusive bidding’. In an attempt to distinguish the two expressions, it was argued that although the terms `bid rigging’ or `collusive bidding’ may, in certain contexts, overlap or even may be referred to as `synonyms’, in certain context they may cover activities which are not identical. `Bid rigging’ may cover larger and more varied activities than `collusive bidding’. It was submitted that in view of the specific exclusion of `collusive bidding’ from the `Explanation’, an activity which squarely falls within the scope of `collusive bidding’ would not be covered by the `Explanation’ and would be excluded from it. Submission is that since the allegation in the present case relating to identical pricing or identical reduction in price squarely falls within the term `collusive pricing’, the `Explanation’ has no relevance to the present case.
Mr. Neeraj Kishan Kaul, learned Additional Solicitor General
- a) The tender in question did not come to an end with the submission of bid on May 08, 2009. This bid was opened only on June 01 , 2009, on which date Section 3 of the Act had already been activated. Not only this, bidders, that is all the appellants, were called for negotiations on June 17, 2009 and thereafter the award of work was given by placing requisite orders.
- b) He refuted the aforesaid submission with vehemence by urging that bid rigging and collusive bidding are not mutually exclusive and these are overlapping concepts. Illustratively, he referred to the findings of the CCI, as approved by the COMPAT, in the instant case itself to the effect that the appellants herein had `manipulated the process of bidding’ on the ground that bids were submitted on May 08, 2009 collusively, which was only the beginning of the anti-competitive agreement between the parties and this continued through the opening of the price bids on June 01, 2009 and thereafter negotiations on June 17, 2009 when all the parties reduced their bids by same figure to bring their bid down to `386 per kg. from `388 per kg. From this example, he submitted that on May 08, 2009 there was a collusive bidding but with concerted negotiations on June 17, 2009, in the continued process, it was rigging of the bid that was practiced by the appellants.
(i) Whether the dispute regarding violation of Section 3 of the Act by the appellants could not be gone into in respect of tender of March, 2009, as Section 3 was operationalised only by notification dated 20th May, 2009?
(ii) Whether CCI was barred from investigating the matter pertaining to the tender floated by FCI in March, 2011 because of the reason that FCI in its complaint dated 4th February, 2011 given to the CCI had not complained about this tender?
(iii) Whether, on the facts of the case, conclusion of CCI that the appellants had entered into an agreement/arrangement and pursuant thereto indulged in collusive bidding by forming a cartel, resulting into contravention of Section 3(3)(a), 3(3)(b) and 3(3)(d) read with Section 3(1 ) of the Act, is justified?
(iv) Whether penalty under Section 27(b) of the Act has to be on total/entire turnover of the offending company or it can be only on “relevant turnover“, i.e., relating to the product in question?
Issue No 1
Section 3 deals with those agreements which are entered into by certain persons with a view to cause an appreciable adverse effect on competition i.e. anti-competitive agreements as cartels or anti-competitive agreements cause harm to consumers by fixing prices, limiting outputs or allocating markets.
Dealing with the applicability, though, the Competition Act is of the year 2002 and was passed by the Legislature on 13th January, 2003, as per the provisions of Section 1(3), the Act was to come into force from the date to be notified by the Central Government in the Official Gazette. It is, thus, a unique example where the entire Act was not enforced by one single notification but different provisions of the Act were enforced in bits and pieces by issuing various notifications over a span of time. Insofar as Section 3 of the Act is concerned, this provision along with many other provisions came into force on 20th May, 2009.
Tender in question was issued by FCI on 28th March, 2009. Last date for submission of bids was 8th May, 2009. Few days thereafter, i.e., on 20th May, 2009, Section 3 of the Act was notified. The COMPAT, in the impugned order, rejecting petitioner’s contention that this will amount to applying the provisions retrospectively held that merely because 8th May, 2009 was the last date for submitting the tender, that would not be the end of the matter as that is not the relevant date for the purpose of applicability of Section 3 when the tendering process continued, as the appellants had participated in the said tender process on 1st June, 2009 when the price bids were opened and offered the negotiated price on 17th June, 2009. This would mean that the process of bidding was still on which went well beyond the date of notifying provisions of Section 3 of the Act. The negotiation of prices with the lowest bidder, and in this case all the three appellants were the lowest bidders, undoubtedly forms the part of the process of bid rigging and cannot be seen separately from the process of bidding. For that matter the process of bidding cannot be restricted to only one date i.e. on 8.5.2009.
The term “process for bidding“ used in the explanation in Section 3(3) would thus cover every stage from notice inviting tender till the award of the contract and would also include all the intermediate stages such as pre-bid clarification and bid notifications also.
The COMPAT has also noted that the anti-competitive conduct of the appellants was not limited to the 2009 tender alone. It had considered tender dated November 03, 2009 floated by the U.P. State Warehousing Corporation, tender dated July 13, 2010 of the Central Warehousing Corporation, tender dated July 15, 2010 of the M.P. State Warehousing Corporation, and tender dated February 14, 2011 of the Punjab State Cooperative SS & Marketing Federation and found that even against these tenders the appellants had quoted identical prices. Keeping in view the said pattern of quotation, the COMPAT opined that notwithstanding any objection of the appellants premised on retrospective application of Section 3, the anti-competitive conduct of APT manufacturers, i.e. the appellants, continued right up to the year 2011, much after Section 3 of the Act had come into force. Therefore, even if 2009 tender was to be completely ignored, the provisions of the Act would nevertheless be attracted in the instant case.
The Court agreeing with the view taken by COMPAT held that the act has no retrospective application i.e. agreements or conduct prior to the enforcement of the act on 20th may 2009 would fall outside its scope but where the effect of the agreement continues after 20th may 2009 it would fall within its purview.
Further answering the petitioner contention that the explanation does not contain the word collusive tendering, the Court held that the Legislature had in mind that the two expressions are interchangeably used, both aimed at illegal anti competitive activity. The `Explanation’ beneath sub-section (3), which uses the expression `bid rigging’, has to be understood and given an appropriate meaning. It could never be the intention of the Legislature to exclude `collusive bidding’ by construing the expression `bid rigging’ narrowly. No doubt, clause (d) of sub-section (3) of Section 3 uses both the expressions `bid rigging’ and `collusive bidding’, but the Explanation thereto refers to `bid rigging’ only. However, it cannot be said that the intention was to exclude `collusive bidding’. Even if the Explanation does contain the expression `collusive bidding’ specifically, while interpreting clause (d), it can be inferred that `collusive bidding’ relates to the process of bidding as well. Keeping in mind the principle of purposive interpretation, we are inclined to give this meaning to `collusive bidding’. We are, therefore, of the opinion that the two expressions are to be interpreted using the principle of noscitur a sociis, i.e. when two or more words which are susceptible to analogous meanings are coupled together, the words can take colour from each other.
Even internationally,`collusive bidding is not understood as being different from `bid rigging’. These two expressions have been used interchangeably in the various international commentaries/ glossaries and websites of competition authorities like UNCTAD and OECD.
Jurisdiction of DG/CCI to investigate into the boycott of 2011 FCI’s tender
There can be no doubt that the DG has the power to investigate only on the basis of the order passed by the Commission under Section 26(1) and that the Director General on his own cannot act and unlike the Commission, the Director General has no suo-moto power to investigate. That is clear from the language of Section 41 also, which suggests that when directed by the Commission, the Director General is to assist the Commission in investigating into any contravention of the provisions of the Act but the COMPAT has rejected the petitioner’s contention holding that Section 26(1) is wide enough to cover the investigation by the DG. It must be noted at this juncture that under Section 18, the Commission has the duty to eliminate practices having adverse effect on competition and to promote and sustain competition. It is also required to protect the interests of the consumers. It does not mean that if the information is made by the FCI on the basis of tender notice dated 08.05.2009, the investigation shall be limited only to that tender. Everything would depend upon the language of the order passed by the CCI on the basis of information and the directions issued therein. If the language of the order of Section 26(1) is considered, it is broad enough. At this juncture, we must refer to the letter written by Chairman and Managing Director of FCI, providing information to the CCI. The language of the letter is clear and broad enough to show that the complaint was not in respect of a particular event or a particular tender but was generally complained that appellants had engaged themselves in cartelizing and that the Director General was empowered and duty bound to look into all the facts till the investigation was completed. If in the course of investigation, it came to the light that the parties had boycotted the tender in 2011 with pre-concerted agreement, there was no question of the DG not going into it. We must view this on the background that when the information was led, the Commission had material only to form a prima facie view. The said prima-facie view could not restrict the Director General, if he was duty bound to carry out a comprehensive investigation in keeping with the direction by CCI.
If the contention of the appellants is accepted, it would render the entire purpose of investigation nugatory. The entire purpose of such an investigation is to cover all necessary facts and evidence in order to see as to whether there are any anti-competitive practices adopted by the persons complained against. For this purpose, no doubt, the starting point of inquiry would be the allegations contained in the complaint. However, while carrying out this investigation, if other facts also get revealed and are brought to light, revealing that the `persons’ or `enterprises’ had entered into an agreement that is prohibited by Section 3 which had appreciable adverse effect on the competition, the DG would be well within his powers to include those as well in his report. Even when the CCI forms prima facie opinion on receipt of a complaint which is recorded in the order passed under Section 26(1) of the Act and directs the DG to conduct the investigation, at the said initial stage, it cannot foresee and predict whether any violation of the Act would be found upon investigation and what would be the nature of the violation revealed through investigation. If the investigation process is to be restricted in the manner projected by the appellants, it would defeat the very purpose of the Act which is to prevent practices having appreciable adverse effect on competition. The Court therefore, rejected this argument of the appellants as well touching upon the jurisdiction of the DG.
Issue No. 3
The appellants have attempted to give their explanations and have contended that the quoting of same prices cannot be presumed to be the result of any prior agreement or arrangement between them.
Mr. Krishnan Venugopal, learned senior counsel appearing for M/s. Excel Crop Care Limited, contended that the APT pesticide is needed only by the FCI and the Central Warehousing Corporation or the Central and State Warehousing and it creates a monopoly situation where buyer is in a dominant position. There are only four suppliers but since the supply is only to the aforesaid Government agencies, the supplier is entirely dependent upon these parties for supplies. It creates oligopoly market. It was argued that since dominant position is enjoyed by the buyer, it leads to parallel pricing and this conscious parallelism takes place leading to quoting the same price by the suppliers. The explanation, thus, given for quoting identical price was the aforesaid economic forces and not because of any agreement or arrangement between the parties. It was submitted that merely because same price was quoted by the appellants in respect of the 2009 FCI tender, one could not jump to the conclusion that there was some `agreement’ as well between these parties, in the absence of any other evidence corroborating the said factum of quoting identical price.
The Court held that it is not only the 2009 FCI tender in respect of which DG found the violation. Pertinently, the investigation of DG revealed that the appellants had been quoting such identical rates much prior to and even after May 20, 2009. No doubt, in relation to tenders prior to 2009, it cannot be said that there was any violation of law by the appellants. However, prior practice definitely throws light on the formation of cartelisation by the appellants, thereby making it easier to understand the events of 2009 tender. This trend of quoting identical price in respect of so many tenders, not only of FCI but other Government bodies as well, is sufficient to negate all explanations given by the appellants taking the pretext of coincidence or economic forces.
Further the court held that the argument of parallelism is not applicable in bid cases and it fits in the realm of market economy. It is for this reason the entire history of quoting identical price before coming into operation of Section 3 and which continued much after Section 3 of the Act was enforced has been highlighted. There cannot be coincidence to such an extent that almost on all occasions price quoted by the three appellants is identical, not even few paisa more or less from each other. That too, when the cost structure, i.e. cost of production of this product, of the three appellants sharply varies with each other. Following factors in this behalf need to be highlighted:
(a) there is a 10 years’ history of quoting identical prices;
(b) there are only four suppliers of the product in the market out of which three are the appellants;
(c) even when the cost of production is different, they have quoted identical price;
(d) even when the geographical location of the three suppliers is different, strange coincidence of identical pricing is found, that too repeatedly;
(e) profit margins would be different, still quotations are same; and
(f) to different parties in respect of different tenders, different rates are quoted. Still whatever price is quoted in respect of one particular tender, that is identical. It would be too much of a coincidence, difficult to believe.
Relating to the 2011 tender, According to all the appellants, their decision not to participate in the aforesaid bid was the onerous, unreasonable, arbitrary and unquestionable conditions that were put in the said tender. As these were not acceptable to them, they individually decided not to take part in the tender, which was a valid business decision and not result of pre-concerted agreement of the appellants. Before the COMPAT, M/s. Excel Crop Care Limited attempted to project their bona fides by showing that they had even written letter dated May 26, 2011 to the FCI conveying their inability to take part in that tender.
The COMPAT, after discussing the matter, arrived at the conclusion that it was clearly an after-thought move, inasmuch as the tender was published on April 28, 2011 and the last date for submitting the price bids was May 27, 2011, but only a day before i.e. on May 26, 2011, such a letter was sent by M/s. Excel Crop Care Limited to the FCI. Insofar as M/s. UPL is concerned, it did not even bother to give any representation. Likewise, M/s. Sandhya Organics did not approach the FCI at all with the representation that the quantities to be supplied were huge and the tender conditions be suitably modified. We feel that COMPAT has examined the matter in right perspective. After examining the record, one finds that important fundamental conditions were the same which used to be in the earlier tenders. In 2009 tender, a specific quantity of 600 MT was prescribed. At that time, all the three appellants participated and did not object to the same. As against this in 2011 tender, the tentative annual requirement of APT was stated to be 400 MT and not 75 MT per month. The condition referred to by the appellants was not for supply of 75 MT per month. It only stated that in a given month the tenderer should have capacity to supply 75 MT. It was nowhere stated that 75 MT will have to be supplied by the successful tenderer every month. In any case, from the conduct of the three appellants, it becomes manifest that reason to boycott the May 2011 tender was not the purported onerous conditions, but it was a concerted action. Otherwise, if the appellants were genuinely interested in participating in the said tender and were aggrieved by the aforesaid conditions, they could have taken up the matter with the FCI well in time. They, therefore, could request the FCI to drop the same (in fact FCI dropped these conditions afterwards when the matter was brought to their notice). However, no such effort was made. As pointed out above, M/s. Excel Crop Care wrote the letter only a day before, just to create the record which cannot be termed as a bona fide move on its part. UPL did not even make any such representation in writing. Likewise, M/s. Sandhya Organics Chemicals (P) Ltd. would not have liked itself to be rendered disqualified and silently swallowed this situation. After all, it would have liked to remain a supplier of APT to FCI having regard to the fact that the said product is consumed by handful of Government sector undertakings. Therefore, not making any sincere effort in this behalf by any of the appellants clearly shows that they were in hand in glove in taking a decision not to bid against this tender. This conclusion gets strengthened by the fact that these are the only suppliers (including three appellants) in the market for this product. Reaction of not participating in the said tender by four suppliers could have been perceived otherwise, had there been a number of manufacturers in the market and four out of them abstaining. Abstention by hundred percent (who are only four) makes the things quite obvious.
Since collusion stands proved by the aforesaid conduct of the appellants in abstaining from the bidding in respect of May 2011 tender, requirement of Section 3(3)(d) of the Act read with `explanation’ thereto stands satisfied, viz., concerted action based on an agreement/arrangement between the appellants, resulted in restricting or manipulating competition or process of bidding, since the said act was collusive in nature. We, therefore, agree with the conclusions of the COMPAT on this aspect as well.
Issue No. 4:
The COMPAT has maintained the rate of penalty i.e. 9% of the three years average turnover. However, it has not agreed with the CCI that `turnover’ mentioned in Section 27 would be `total turnover’ of the offending company. In its opinion it has to be `relevant turnover’ i.e. turnover of the product in question. Since, M/s. Excel Crop Care and UPL were multi-product companies, products other than APT could not have been included for the purpose of imposing the penalty. It, therefore, held that penalty of 9% would be limited to the product/service in question – in this case, the APT – which was the relevant product for the enquiry. The penalty, thus, stands substantially reduced in the cases of M/s. Excel Crop Care and UPL
Insofar as M/s. Sandhya Organics Chemicals (P) Ltd. is concerned, the `relevant turnover’ and `total turnover’ is the same as this company produced only APT tablets. CCI had imposed penalty of `1.57 crores on the basis of their turnover of this product. However, in its case also, penalty is reduced on the ground that it is relatively a small enterprise. Moreover, in respect of May 2011 tender, it could not have taken part since its production capacity was only 25 MT a month. Though, the aforesaid plea was not accepted while discussing the merits of the case, the COMPAT deemed it proper to take this aspect into consideration when it came to imposition of penalty. On the aforesaid basis, COMPAT reduced the penalty to 1/10th of penalty awarded by CCI i.e. `15.70 lakhs.
The CCI is not happy with the aforesaid outcome whereby penalty imposed by it is sharply reduced by the COMPAT. Against this part of the impugned judgment, CCI is in appeal.
In the aforesaid backdrop, the moot question is as to whether penalty under Section 27(b) of the Act has to be on `total/entire turnover’ of the company covering all the products or it is relatable to `relevant turnover’, viz., relating to the product in question in respect whereof provisions of the Act are contravened. Section 27 of the Act stipulates nature of the orders which the CCI can pass after enquiry into agreements or abuse of dominant position. As per clause (b), CCI is empowered to inflict monetary penalties, the upper limit whereof is 10% “of the average of turnover for the last three preceding financial years“.
Mr. Kaul, learned Additional Solicitor General, argued that in S. 27(b) of the Act, there is no reference to `relevant turnover’. On the contrary, clause (b) of S. 27 in clear terms, stipulates penalty on the `turnover’ i.e. average of the turnover for the last three preceding financial years and it plainly suggests that this `turnover’ has to be of the enterprise which had contravened the provisions of Section 3 or Section 4. He submitted that clear intention of the Legislature was to take into consideration entire turnover of the enterprise. Reading the word `relevant’ thereto would be doing violence to the plain language of the statute, by adding the word which is not there. He premised his submission on well-settled principle of statutory interpretation that where the language of a statute is plain and clear, the Court ought not to add words to limit or alter the meaning of the statute.
According to him, a plain reading of Section 27 as a whole makes it clear that the target of the penalty is the `person’ or `enterprise’ that has acted in violation of the Act, and not the `product’ or the `service’ alone which is made the subject of the violation. As such, the expression `turnover’ must necessarily mean the turnover of the `person’ or the `enterprise’ which is party to the anti-competitive agreement or abuse of dominance.
He further submitted that the aforesaid provision imposed a cap on the penalty by stipulating that it shall not be more than 10%. Thus, the CCI had the discretion to impose the penalty from 0% to 10% and this was sufficient safeguard to take care of the proportionality aspects of the penalty wherever penalty on total turnover is found to bring unreasonable results. In other words, in respect of multi-product companies where the turnover covering non-offending products, is quite high, the CCI can always impose much lesser rate of penalty so that the penalty does not sound to be excessive and unconscionable and remains proportionate to the nature of contravention. However, it is not permissible to tinker the language of a statute.
Learned counsel appearing for the three appellants argued that even the plain language of Section 27(b) leads to the interpretation that is given by the COMPAT. They also stressed that this provision being a penal provision, has to be strictly construed. No wider meaning can be given to it. submitted that there would be no justification for prescribing the maximum penalty based on the total turnover of the enterprise, as it would result in prescribing a higher maximum penalty for multi-product companies, as against the single product companies, thereby bringing very inequitable results .Since it was a provision relating to penalty, which was to be imposed on `turnover’, the said `turnover’ was necessarily relatable to the offending product only and Legislature never intended to punish any person or enterprise even in respect of unblemished product. It was also emphasized that penalty under Section 27(b) is to be levied for contravention of Section 3 in respect of any `agreement’ resulting in appreciable adverse effect on competition. Therefore, it would not relate to all the products of the company included in the total turnover of the enterprise. As such, when penalty is being imposed in respect of any infringing product, the turnover of that product would be relevant.
Learned counsel for the appellants also advocated for applying the doctrine of proportionality which has universal application and lays down that `the broad principles that the punishment must be proportioned to the offence is or ought to be of universal application’
The Court finally looking into the matter with reference to `turnover’ of the person or enterprise held that Section 2(y) which defines `turnover’ does not provide any clarity to the aforesaid issue. It only mentions that turnover includes value of goods or services. In the absence of specific provision as to whether such turnover has to be product specific or entire turnover of the offending company, we find that adopting the criteria of `relevant turnover’ for the purpose of imposition of penalty will be more in tune with ethos of the Act and the legal principles which surround matters pertaining to imposition of penalties.
For the imposition of penalties, the court emphasized on the doctrine of proportionality holding that the penalties imposed on ‘total turnover’ would not have equitable and proportionate results. The court further applied ‘the doctrine of strict construction’ arguing that there is no justification to include other products/services of an enterprise when imposing penalties for contraventions committed in respect of only one product/service.
In light of the above discussion a two step calculation has to be followed while imposing the penalty under Section 27 of the Act:
Step 1: Determination of Relevant Turnover
At this point of time it needs to be clarified that relevant turnover is the entity’s turnover pertaining to products and services that have been affected by such contravention. The aforesaid definition is not exhaustive. The authority should have regard to the entity’s audited financial statements. Where audited financial statements are not available, the Commission may consider any other reliable records reflecting the entity’s relevant turnover or estimate the relevant turnover based on available information.
Step 2: Determination of appropriate percentage of penalty based on aggravating and mitigating circumstances
After such initial determination of relevant turnover, commission may consider appropriate percentage, based on facts and circumstances of the case and by taking into consideration various factors such as the nature, gravity, extent of the contravention, role played by the infringer, the duration of participation, the intensity of participation, loss or damage suffered as a result of such contravention, market circumstances in which the contravention took place, nature of the product, market share of the entity, barriers to entry in the market, nature of involvement of the company, bona fides of the company, profit derived from the contravention etc. But such penalty should not be more than the overall cap of 10% of the entity’s relevant turnover.
Finally the court held that the penalty imposed by COMPAT is appropriate in this case at hand and requires no further interference.
The Supreme Court has delivered a landmark judgement limiting the extent of penalties that can be imposed by the Competition Commission of India providing much needed clarity. The decision provides relief to those multi product enterprises that have been penalized based on their total turnover, since such enterprises are likely to have such penalties significantly reduced on appeal.
Edited by J. Madonna Jephi
Approved & Published – Sakshi Raje