[Posted by Umakanth Varottil]
[The following
post is contributed by Akshay Bhatia,
who is a 4th year student at the National Law University Odisha]
post is contributed by Akshay Bhatia,
who is a 4th year student at the National Law University Odisha]
The Supreme Court (SC) in its order on 8 May,
2017 in Excel
Crop Care Limited v. the Competition Commission of India has adopted
for the first time the concept of
relevant turnover while computing the penalty to be imposed in
contravention of section 3 of the Competition Act, 2002 (the Act). The case has
its genesis in 2012 when, on a complaint by the Food Corporation of India (FCI),
the Director General investigated into the matter and found four manufacturers,
namely Excel Crop Care Ltd., United Phosphorus Ltd, Sandhya Organics Chemicals
Pvt. Ltd and Agrosynth Chemicals Ltd. guilty of collusive bidding in relation
to tenders issued by the FCI for aluminium phosphide tablets. Aggrieved by the
order of the Competition Commission of India (CCI), the manufacturers approached
the Competition Appellate Tribunal (COMPAT) which held in its order dated 29
October 2013 that the manufacturers were engaging in anti-competitive practices,
but held that in case of multi-product companies, only ‘relevant turnover’ of
the product in question should be taken into consideration while imposing
penalty. This SC has endorsed this view of the COMPAT.
2017 in Excel
Crop Care Limited v. the Competition Commission of India has adopted
for the first time the concept of
relevant turnover while computing the penalty to be imposed in
contravention of section 3 of the Competition Act, 2002 (the Act). The case has
its genesis in 2012 when, on a complaint by the Food Corporation of India (FCI),
the Director General investigated into the matter and found four manufacturers,
namely Excel Crop Care Ltd., United Phosphorus Ltd, Sandhya Organics Chemicals
Pvt. Ltd and Agrosynth Chemicals Ltd. guilty of collusive bidding in relation
to tenders issued by the FCI for aluminium phosphide tablets. Aggrieved by the
order of the Competition Commission of India (CCI), the manufacturers approached
the Competition Appellate Tribunal (COMPAT) which held in its order dated 29
October 2013 that the manufacturers were engaging in anti-competitive practices,
but held that in case of multi-product companies, only ‘relevant turnover’ of
the product in question should be taken into consideration while imposing
penalty. This SC has endorsed this view of the COMPAT.
Computation of Penalty:
Relevant Turnover or Total Turnover?
Relevant Turnover or Total Turnover?
The crucial question in the case was whether
the penalty under section 27(b) of the Act has to be on ‘total/entire turnover’
of the company covering all the products or ’relevant turnover’, relating to the product in question in respect whereof
provisions of the Act are contravened.”
the penalty under section 27(b) of the Act has to be on ‘total/entire turnover’
of the company covering all the products or ’relevant turnover’, relating to the product in question in respect whereof
provisions of the Act are contravened.”
The thrust of the CCI’s submission was that a
plain reading of section 27 made 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 ‘service’ alone which is the subject matter of the violation. The CCI also
contended that it had discretion to impose penalty from 0% to 10%. This would
allow the CCI to impose much lesser rate of penalty, so that the penalty does
not amount to one that is excessive and unconscionable and remains
proportionate to the nature of the contravention.
plain reading of section 27 made 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 ‘service’ alone which is the subject matter of the violation. The CCI also
contended that it had discretion to impose penalty from 0% to 10%. This would
allow the CCI to impose much lesser rate of penalty, so that the penalty does
not amount to one that is excessive and unconscionable and remains
proportionate to the nature of the contravention.
The manufacturers stressed that section 27(b),
being a penal provision, should be construed strictly. In cases of infringement
in respect of several enterprises, the fact that some may be ‘single product
companies’ and others may be ‘multi-product companies’ may result in highly
inequitable results. For identical infringement, there would be no
justification for prescribing differential maximum limits to multi-product
companies and single-product companies.
being a penal provision, should be construed strictly. In cases of infringement
in respect of several enterprises, the fact that some may be ‘single product
companies’ and others may be ‘multi-product companies’ may result in highly
inequitable results. For identical infringement, there would be no
justification for prescribing differential maximum limits to multi-product
companies and single-product companies.
The SC relied on the judgment of the
Competition Appeal Court of South Africa in the case of Southern Pipeline
Contractors Conrite Walls (Pty) Ltd v. The Competition Commission and agreed
with the decision that says the appropriate amount of penalty is to be
determined keeping in consideration the damage caused and the profits that
accrue from the cartel activity.
Competition Appeal Court of South Africa in the case of Southern Pipeline
Contractors Conrite Walls (Pty) Ltd v. The Competition Commission and agreed
with the decision that says the appropriate amount of penalty is to be
determined keeping in consideration the damage caused and the profits that
accrue from the cartel activity.
The SC in its judgement also recognised that since
section 27 is a penal provision, it shall act as a deterrent for others.
Importantly, it has also noted that such an interpretation should not deviate
from ‘teaching a lesson’ to the violator to the ‘death of the entity itself’.
The SC held that while the purpose and objective of the act is to discourage
and stop anti-competitive market practices, the purpose of penal provisions
under section 27 of the Act can be adequately served by considering the
relevant turnover.
section 27 is a penal provision, it shall act as a deterrent for others.
Importantly, it has also noted that such an interpretation should not deviate
from ‘teaching a lesson’ to the violator to the ‘death of the entity itself’.
The SC held that while the purpose and objective of the act is to discourage
and stop anti-competitive market practices, the purpose of penal provisions
under section 27 of the Act can be adequately served by considering the
relevant turnover.
Key Takeaways from the Case
While the SC has not laid down any guidelines
for computation of penalties, it has observed that the CCI should conduct a two-phased
assessment of the relevant turnover, and the appropriate percentage of penalty
to be imposed.
for computation of penalties, it has observed that the CCI should conduct a two-phased
assessment of the relevant turnover, and the appropriate percentage of penalty
to be imposed.
Relevant Turnover: This is the turnover pertaining to the
relevant product or service that is subject matter of such contravention. The
SC has laid down that where the relevant turnover of the entity is to be
ascertained for multi-product companies, the consideration has to be only that of
the affected or offending products and services and not the entire turnover.
relevant product or service that is subject matter of such contravention. The
SC has laid down that where the relevant turnover of the entity is to be
ascertained for multi-product companies, the consideration has to be only that of
the affected or offending products and services and not the entire turnover.
Appropriate percentage of penalty: This would be decided based on aggravating
and mitigation circumstances, including but not limited to the nature, gravity,
extent of contravention, role played by infringer (ringleader or the follower),
the duration of participation, the intensity of participation, loss or damage suffered
as a result of such contravention, market circumstances, nature of involvement
and profit derived from such contravention.
and mitigation circumstances, including but not limited to the nature, gravity,
extent of contravention, role played by infringer (ringleader or the follower),
the duration of participation, the intensity of participation, loss or damage suffered
as a result of such contravention, market circumstances, nature of involvement
and profit derived from such contravention.
Additionally, furthering its study into the
computation of penalties, the SC has further made two key observations.
computation of penalties, the SC has further made two key observations.
First, an agreement which was entered into before
the date of enforcement of the Act (20 May 2009) would be subject to the
provisions of the Act if the effects of the agreement continue beyond the date
of enforcement.
the date of enforcement of the Act (20 May 2009) would be subject to the
provisions of the Act if the effects of the agreement continue beyond the date
of enforcement.
Second, the penal provisions of the Act should be
interpreted strictly, and in cases of ambiguity and multiple interpretations,
the one favourable to infringer must be adopted.
interpreted strictly, and in cases of ambiguity and multiple interpretations,
the one favourable to infringer must be adopted.
Normal
0
false
false
false
EN-IN
X-NONE
X-NONE
/* Style Definitions */
table.MsoNormalTable
{mso-style-name:”Table Normal”;
mso-tstyle-rowband-size:0;
mso-tstyle-colband-size:0;
mso-style-noshow:yes;
mso-style-priority:99;
mso-style-parent:””;
mso-padding-alt:0in 5.4pt 0in 5.4pt;
mso-para-margin-top:0in;
mso-para-margin-right:0in;
mso-para-margin-bottom:10.0pt;
mso-para-margin-left:0in;
line-height:115%;
mso-pagination:widow-orphan;
font-size:11.0pt;
font-family:Calibri;
mso-ascii-font-family:Calibri;
mso-ascii-theme-font:minor-latin;
mso-hansi-font-family:Calibri;
mso-hansi-theme-font:minor-latin;
mso-ansi-language:EN-IN;
mso-fareast-language:EN-IN;}
– Akshay Bhatia
Leave a Reply