Background
The Supreme Court in Excel Crop Care Ltd v. Competition Commission of India and Others dated May 8, 2017, ruled that the “relevant turnover” of the company, rather than the “total turnover,” should be used to determine the punishment to be imposed on firms using anti-competitive techniques.
Facts
Food Corporation of India made an application to the Competition Commission of India on February 4, 2011, alleging that four companies had implemented anti-competitive agreements, those were:
- M/s. Excel Crop Care Limited
- M/s. United Phosphorus Limited
- M/s. Sandhya Organics Chemicals (P) Ltd
- M/s Agrosynth Chemicals Limited
These enterprises produced tablets containing aluminium phosphate, and it was claimed that they formed an alliance by entering into an anti-competitive agreement. The Director General of the Competition Commission of India conducted an investigation after the Competition Commission of India approved the complaint, and he found that from 2002 to 2009, these enterprises had been submitting their tenders by citing matching rates in the proposals requested by the Food Corporation of India for the acquisition of APT. according to the Director General of the Competition Commission of India, these enterprises were found to be in violation of section 3(3) of the Competition Act, 2002, which bars anti-competitive agreements.
The Competition Commission of India determined via order dated April 23, 2012 that M/s. Excel Crop Care Limited, M/s. United Phosphorus Limited, and M/s. Sandhya Organics Chemicals (P) Ltd had violated section 3 of the Act and as a result, CCI based on the report of the Director General and complaints filed by the four companies. enforced punishment on them at the rate of 9% on the average aggregate turnover of these institutions for the past three years, under section 27 (b) of the Act.
In addition to the Competition Commission of India’s ruling, the appellants filed appeals at COMPAT (Competition Appellate Tribunal). COMPAT found the appellants to be offensive of section 3 of the Act. However, the COMPAT ruled that only “relevant turnover” and not “total turnover” should be taken into account when determining the weight of the penalty for multi-product enterprises under section 27(b). Appropriate turnover implies to the turnover in relation to the product in question in regard to which terms of the Act were breached although total turnover implies to the whole turnover of the wrong person or enterprise including all the products. Subsequently, the appellants approached the Supreme Court of India demanding it to proclaim the outcomes of COMPAT as untenable and to set separately the punishment levied on them. The CCI also recorded an appeal to the Supreme Court to set away that element of the requisition of COMPAT in which it held that punishment upon providers should be confined to appropriate turnover and not the overall turnover.
Issues
- whether the Competition Commission of India had jurisdiction to conduct an investigation regarding a tender offer that was proposed by the parties before the commencement of Section 3 of the Act came into operation on May 20, 2009?
- Whether section 3 of the act was violated?
- Whether the penalty charged u/s 27(b) had to be total turnover or it could be only relevant turnover?
Contentions of the petitioners
- The COMPAT explanation for S. 3(3)(d) is irrelevant because it only mentions “bid rigging,” not “collusive bidding,”
- Only the FCI, the Central Warehousing Company, or the Central and State Warehousing Corporations require APT insecticide, creating a monopoly that makes the buyer dominant.
- Due to the dominance of the buyers, parallel pricing takes place, which forces suppliers to quote the same price.
- Merely on the fact that appellants quoted the same price in respect of the 2009 FCI tender, it isn’t wise to jump to the conclusion that there is some sort of ‘agreement’ between the parties, in the absence of any other evidence.
Contentions of the respondents
- The price negotiation is to be done with the lowest bidder, but here all three appellants are the lowest bidders, arousing suspicion and the presence of the process of bid-rigging.
- Keeping the above argument in context, only 8th May 2009 isn’t the crucial date but 1st June 2009 and 17th June 2009 are as well. Concluding that the illegality of bid-rigging commenced on 8th May 2009 and was in action on 1st June 2009 and 17th June 2009 as well.
- Bid rigging and collusive bidding aren’t inconsistent with each other and are conjoining concepts.
- “There are only four suppliers of the said product out of which three are the appellants”
Provisions involved
- Clause (a) of sub-section 3 of section 3 provides that an agreement between enterprises or persons determining purchase or sale prices shall be probable to possess an adverse impact on competition.
- Clause (b) of sub-section 3 of section 3 states that an agreement between enterprises or persons that limits or controls any production, supply, markets, technical developments, investment, or provision of services shall be probable to possess an adverse impact on competition.
- Clause (d) of sub-section 3 of section 3 states that an agreement that directly or indirectly ends up in bid rigging or collusive bidding shall be probable to possess an adverse impact on competition.
- Section 4 provides that no enterprise shall abuse its dominant position
- Clause (b) of Section 27 offers power to the CCI to impose such penalty, as it may deem fit which shall be not more than 10% of the average of the turnover for the last three monetary years, upon every such person or enterprises which are parties to such agreement or abuse.
- Section 53B of the Act makes provision for the appeal to the Appellate Tribunal within a period of 60 days from the date on which the order is communicated
Judgment
the Supreme Court held that the imposition of penalty adopting the criteria of “relevant turnover” will be “more in tune with the ethos of the Act and the legal principles which surround matters pertaining to imposition of penalties.”
Role of Equity in penalty imposition
The Supreme Court held that accepting the CCI’s interpretation of the term “turnover” as “total turnover” in all situations would “bring about very inequitable results”. Relying on various judgments stating that interpretation that brings out inequitable or absurd results has to be eschewed, the Supreme Court held that the interpretation extended by CCI does not commend acceptance. In this regard, the Supreme Court took note of illustrations demonstrating that imposition of penalty on the basis of “total turnover” in all cases would inequitably discriminate against enterprises committing the same contravention depending on the manner in which their product/business lines are structured.
Strict interpretation
The Supreme Court justified its decision and discovered that the theory supporting a strict interpretation of “penal” statutes would also support and augment the evaluation of “relevant turnover” as opposed to “total turnover.” The Supreme Court held that when an agreement leading to a violation involves other products of an enterprise, there is “no justification for including other products of an enterprise for the purpose of imposing penalty” and that the “one that leans in favor of infringer has to be adopted” in light of the principle of strict interpretation (relying on a recent Constitution Bench decision in Abhiram Singh and Ors v C.D. Commachen (Dead) by L.Rs and Ors.1
Proportionality and Purposive Interpretation
According to the Supreme Court, “the penalty cannot be disproportionate and it should not result in shocking results” in response to the CCI’s arguments regarding the goal of discouraging and ending anti-competitive activities. It was decided that providing an interpretation that might result in “the death of the entity” itself could not be justified in the name of deterrence. the supreme court stated that the idea of proportionality, which is grounded in equality and reason, is a “constitutionally protected right that can be traced to both Article 14 and Article 21 of the Constitution,”.
The Supreme Court observed certain overlaps between the proportionality and purposive interpretation doctrines. It was decided that the Competition Act’s goal could not be to “finish” certain businesses. The Supreme Court reiterated that “there is a legislative link between the damage inflicted and the profits which derive from the cartel action,” citing the South African decision in Southern Pipelines. The Supreme Court concluded that this purposive reading of “turnover” also favors taking into account “relevant turnover”. In his concurring opinion, Hon. Mr. Justice N.V. Ramana stated that any penalty imposed under Section 27 of the Competition Act “has to be infused with proportionality.”
“Calculation of Penalty”:
The Supreme Court depended on several principles to ascertain the requirement of using ‘relevant turnover’ to evaluate the punishment of criminal organizations. In continuation of this, the Court also placed down a two-step test to determine the punishment under section 27 of the Act
Step-wise Methodology for Penalty Imposition
Step 1: Determination of Relevant Turnover – “Relevant turnover” refers to the “entity’s turnover pertaining to products and services that have been affected by such contravention”. The Supreme Court has clarified that the above definition is not exhaustive.
Step 2: Determination of Appropriate Percentage of Penalty Based on Aggravating and Mitigating Circumstances The Supreme Court provided an illustrative list of factors to be considered when determining such percentage.
Final Step: The penalty imposed “should not be more than the overall cap of 10% of the entity’s relevant turnover”. The Supreme Court’s approach in this ruling shows a healthy respect for foreign law, which is restrained by the need to develop indigenous law that is based on and relevant to the Indian legal and constitutional framework.
Key takeaways
The decision establishes the framework for imposing penalties under India’s competition law regime, bringing more certainty and transparency to the process. All parties operating within the parameters of the Competition Act will profit in the same way. This judgment, from the highest court of the land, is likely to be followed in all cases where the issue of “relevant turnover” is pending or raised either before the DG/CCI or at the Appellate Stage, or even before the Supreme Court itself.
Conclusion
The CCI and the DG appointed by it have the authority to look into circumstantial evidence and proceed with the investigation if they are of the viewpoint/opinion /suspect that a violation has occurred. Emphasizing the proportionality of punishment, the penalty at relevant turnover is also a deterrent, companies aren’t to be penalized out of the revenue generated from products outside the concerned issue which in this case is APT. The benchmark of relevant turnover would make sure that no person or company can get to pay a penalty for a product that had not profaned any provision. The decision further 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.
Notes :
1. AIR 2017 SC 401
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Author: Vaishnavi Soni from the University of Petroleum and Energy Studies, currently enrolled in a 3-year LLB (2nd year).
