The Supreme Court has curbed the powers of the Competition Commission of India (CCI) by holding that penalty levied for cartelisation and price manipulation has to be calculated on the relevant product turnover and not on the ‘total turnover’ of companies, a decision contrary to that of the anti-trust body. In a batch of cases led by Excel Crop Care Ltd, a bench comprising justice AK Sikri and NV Ramana, in separate but concurring judgments, endorsed the Competition Appellate Tribunal’s (Compat) October 29, 2013 order, emphasising that in case of multi-product companies, only ‘relevant turnover’ of the product/service should be taken into consideration while imposing penalty.
“In other words, the relevant turnover is the entity’s turnover pertaining to products and services that have been affected by such contravention. While doing so, the authority should have regard to the entity’s audited financial statements. And 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,” Ramana said.
“No doubt the objective of the Competition Act, 2002 is to discourage and stop anti-competitive practices but the penalty cannot be disproportionate and it should not lead to shocking results,” Sikri said. If we adopt the criteria of the total turnover of a company by including within its sweep other products manufactured by the company, which were in no way connected with the anti-competitive activity, it would bring about shocking results not comprehended in a country governed by Rule of Law, the judge further added.
Ramana while taking a cue from foreign jurisprudence, said: “As the law abhors absolute power and arbitrary discretion, this discretion provided under Section 27 needs to be regulated and guided so that there are uniformity and stability with respect to the imposition of penalty. This discretion should be governed by rule of law and not by arbitrary, vague or fanciful considerations.” Under Section 27(b), a penalty of 10% of the turnover is prescribed as maximum with no provision for a minimum.
SC’s decision came on cross-appeals by CCI and the three agrochemical companies against the tribunal’s order that reduced the penalty it had imposed on Excel Crop, United Phosphorus and Sandhya Organic Chemicals, for an anti-competitive agreement that raised the cost of procurement of Aluminium Phosphide tablets by FCI. CCI had taken cognisance of the FCI’s 2011 complaint that alleged that four manufactures had formed a cartel by entering into an anti-competitive agreement amongst themselves. It said that they had been submitting their bids for last eight years by quoting identical rates in the FCI tenders for purchase of tablets used for preservation of grains that are given to consumers through PDS.
CCI in April 2012 held them guilty of the anti-competitive agreement and imposed penalty @ 9% on the average total turnover of these establishments for last three years. This amounted to Rs 63.9 crore on Excel, Rs `252.44 crore on United Phosphorus and Rs 1.57 crore on Sandhya Organic. Agrosynth Chemicals was exonerated. While Compat upheld the charge against the companies, it held that the competition regulator had wrongly calculated the penalties. Legal experts feel that the apex court’ decision will impact many other cases as various companies have questioned similar penalty imposed on them by CCI.
“This landmark judgment has set a progressive precedent to govern the imposition of excessive penalty by the fining authority under the Competition Act,” according to SC Advocate-on-Record Mohit Paul. In the recent past, the anti-trust body has often found itself at the receiving end of the tribunal for many reasons. Various decisions of CCI have been set aside by the tribunal, primarily on grounds of failure to adhere to the principles of natural justice, they feel. This should be the guiding principle for CCI going ahead, according to competition law advocate Vaibhav Gaggar.
Even the tribunal has disapproved the CCI’s order by setting aside its prima facie decision ordering closure of the matter in a case of alleged abuse of dominant position and anti-competitive practices by Uber, as alleged by its rival Meru Travel Solutions. The case is pending in the Supreme Court. Experts are still debating the role of two statutory bodies. According to Anshuman Sakle, partner in the Competition Practice at Cyril Amarchand Mangaldas, the Compat is “steadily slipping into the CCI’s adjudicatory shoes.”
Others feel that the Act allows the appellate body to pass such orders. Some say that the power to direct an investigation lies solely with the CCI considering that the DG is the investigative arm of the CCI. While the clarity with regard to calculation of penalty under the 2002 law has emerged now, the SC should also decide the Uber case at the earliest so as to have a clear demarcation of powers between the competition watchdog and its appellate body.