Liability of Key Personnel of Companies under the Indian Competition Law Regime

[Nishant Pande is a IV Year, BA LLB (Hons.) student at NALSAR University of Law, Hyderabad]

Personnel at the helm of a company’s decision-making ought to act in furtherance of its best interests. Nevertheless, the actions taken in search of this best interest sometimes bring the company’s practices into the realm of the anti-competitive. To account for such transgressions on behalf of the key personnel, section 48 of the Competition Act, 2002 contemplates a co-extensive liability on their behalf for the company’s anti-competitive practices. This provision can be traced back to the Raghavan Committee Report which is the primary source of Indian’s Competition Law regime. Paragraph 6.2.1 of the Report states:

“…The Whole-time Directors including the Managing Director/Chief Executive Officer will also be responsible for breach of Competition Law. Directors-simplicitors [sic] or part-time Directors should not ordinarily be prosecuted, unless their liability is clearly established on record.”

It is evident that sections 48(1) and 48(2) have been crafted in light of the aforementioned. Interestingly, the jurisprudence of the Competition Commission of India (CCI) surrounding the provision has undergone substantial change in the last decade. This post seeks to trace the crux of these jurisprudential developments and provides a critique of the CCI’s approach in cases involving associations of enterprises.

Framework of Section 48

Under sub-section (1) of section 48, an individual who was responsible for the company at the time of the contravention will be deemed liable for it. However, according to its proviso, when the said individual proves that the contravention took place without her knowledge or that she exercised all due diligence to prevent the contravention, she cannot be held liable.

Contrarily, under sub-section (2) of section 48, there is no possibility of rebutting the presumption of the individual’s liability. According to this sub-section, if it is proved that the contravention took place by consent of or it is attributable to the individual, she will be liable for it.

Key developments in Section 48 jurisprudence

One of the earliest cases pertaining to liability under section 48 was the Varca Druggist & Chemist case. The CCI found the Chemist & Druggist Association in violation of sections 3(3)(a) and 3(3)(b) of the Competition Act. It also held that the key personnel of the Association were liable under Section 48, as for the purpose of the section, ‘company’ included firms and other association of individuals. An anti-competitive decision or practice was found to be attributable to the members who, at the time of the contravention, were –

1. responsible for running the affairs of the association, and
   
   
2. actively participated in giving effect to the anti-competitive scheme.
   

The CCI seemingly read sections 48(1) and 48(2) together to conclude a conjunctive test for deciding the liability of key personnel.

The distinction between sections 48(1) and 48(2) was, in essence, brought forth by the CCI in the Indian Sugar Mills Association case; as the key personnel failed to show any evidence that would absolve them, they were vicariously liable under section 48 for the anti-competitive behaviour of the company. However, after the Indian Sugar Mills Association case, the CCI relapsed to not appreciating the aforesaid distinction for about two years.

It was only in the Maruti & Company, Bangalore case that the CCI discussed the difference between liability arising under sections 48(1) and 48(2) at great length. The CCI found that section 48(1) would only be triggered when the key personnel “is found to be in-charge of, and responsible for the conduct of the business of the contravening company/firm/association”; whereas section 48(2) “attributes liability on the basis of the de-facto involvement of an officer.” In its conclusion, the CCI found the key personnel liable under both sections. This well-formed distinction has homogeneously been followed in subsequent cases such as Reliance Agency, Alis Medical Agency, G. Krishnamurthy and In Re: Anticompetitive conduct in the Dry-Cell Batteries.

A critique of the CCI’s approach in cases involving associations of enterprises

To put things into context, a fair share of the CCI’s orders on section 48 were against key personnel of associations of enterprises. This section contemplates liability on key personnel of a ‘company’ and, according to its explanation, “company means a body corporate and includes a firm or other association of individuals.” This explanation was visited in Justice (Retd.) Dhingra’s dissenting note in the Santuka Associates case; the Member held that “company” under the section did not include an ‘association of enterprises’ as the same had purposely been left out of the ambit of the section by the legislature. Though the Member did not substantiate his point any further, the author believes that the line of reasoning adopted by them is legally tenable.

It is pertinent to note that:

1. under section 3 of the Act, an anti-competitive agreement can be entered into by an “enterprise or association of enterprises or person or association of persons”.
   
   
2. Under sections 4 and 6 of the Act, an enterprise is barred from abusing its dominant position and from entering a combination without the approval of the CCI.
   
   
3. for the purpose of the Act, ‘enterprise’ includes “an association of persons” [section 2(l)(v)] wherein “person” is inclusive of a company [section 2(l)(iii)].
   

Hence, it is evident that an association of companies is susceptible to a claim of any violation of competition law envisaged under the Act. Explanation to section 48 exhibits a departure from this scheme as the only association susceptible to a section 48 claim is an ‘association of individuals’; the absence of the terms ‘association of persons’ or ‘association of enterprises’ augments the possibility that the legislature did not intend them to be tried on the touchstone of section 48.

A cardinal rule of interpretation of statutes is that the court must indulge in literal construction of a statute, that is to say, the text must be understood in its natural sense. Furthermore, courts are expected not to add or amend the phrasing of a piece of legislation. According to the literal interpretation of the explanation to section 48, it can be construed that associations of enterprises do not fall under the ambit of the section and, consequently, the imposition of penalty on key personnel of such associations is bad in law.

Conclusion

This post highlights the key jurisprudential developments in key personnel liability under section 48 of the Competition Act, 2002. It is observed that the CCI’s interpretation of section 48 has become highly sophisticated over the years and it has delineated a clear distinction between sections 48(1) and 48(2). However, the author, in light of the aforementioned discussion, is of the opinion that, as the law stands today, the imposition of penalty on key personnel of associations of enterprises is improper.

– Nishant Pande