[The following 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.
Computation of Penalty: 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 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.
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.
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.
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.
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.
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.
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.
Additionally, furthering its study into the 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.
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.
- Akshay Bhatia