Analysing CCI's penal power under Section 27 of the Competition Act, 2002

Written by Aarushi Tomar

Fourth Year law student at Symbiosis Law School, Hyderabad



Disclaimer: Please note that the views expressed below represent the opinions of the article's author. The following does not necessarily represent the views of Law & Order.


 

Introduction:


Under section 27[1] of the Competition Act of 2002, a wide range of powers have been provided to the Competition Commission of India (CCI). Section 27 gained prominence recently when the CCI passed an order against Excel Corporation Care Limited, United Phosphorus Ltd., Sandhya Organics Chemicals Pvt. Ltd. and Agrosynth Chemicals Ltd.[2] and imposed a penalty of 9% of average 3 years of the “total turnover” of the affected companies under Section 27(b) of the Act in relation to anti- competitive agreements entered by the affected companies. This decision was given under the ambit of section 27 as it gives the power to CCI to impose a penalty that shall not be more than ten percent of the average turnover of the company for the last three preceding financial years.


The Competition Commission of India had investigated the entire arrangement of the affected companies on the basis of the letter that they received by the Food Corporation of India.

In this letter it was alleged that the affected companies had explicitly formed a cartel as they themselves had entered into an anti-competitive agreement and also quoted similar rates in their tenders in order to purchase “Aluminium Phosphide tablets”. These companies then by the way of separate appeals in the year 2014 approached the Competition Appellate Tribunal (COMPAT). In furtherance of the said appeals COMPAT held that “in case of multi-product companies, only “relevant turnover” of the product/service in question should be taken into consideration while imposing penalty.”[3] The affected companies, being aggrieved by the said order, they filed an appeal in the Supreme Court. The Supreme Court held that the penalty imposed by CCI must be restrained and further stated that “where the CCI was justified in imposing a penalty under Section 27(b) of the Competition Act, 2002 on the Affected Companies, the penalty imposed should only be calculated on the turnover relevant to a case in dispute and not their overall turnover as directed by the CCI.”[4]


CCI has been imposing penalties in relation to anti- competitive agreements but in a number of cases the lack of diligence to decide the amount of penalty has been observed, this is because the term ‘average of the turnover’ does not explicitly specify any such restrictive amount. The Supreme Court as well in the present case observed that section 2 (y)[5] though defines the term ‘turnover’ but here also it only mentions that it includes the value of goods or services. Hence, there is no certainty in the definition of turnover under the competition act. It must also be taken into consideration that until the amendment of 2007 section 27(b) stated that CCI can impose a penalty as it may deem fit’ which shall not be more than ten percent. It was only after the amendment that the word ‘shall’ was used to replace the term ‘may’[6].


This practice is not only done under the competition law in India but certain foreign competition laws such as the European Union Guidelines[7] have also calculated penalties taking into consideration the ‘relevant’ turnover’ which in certain cases leads to ambiguity. The CCI at times does refer to foreign law jurisdiction cases and in the case of Excel Corporation Care Limited, United Phosphorus Ltd., Sandhya Organics Chemicals Pvt. Ltd. and Agrosynth Chemicals Ltd.[8] , the Supreme Court itself relied upon the judgment given by the Competition Commission (CompCom) of South Africa which is an anti-trust regulatory body in the case of Southern Pipeline Contractors Concrete Walls (Pty) Ltd. V. The Competition Commission[9] wherein it was stated that the quantum of penalty has to be determined based on consideration i.e. the damage caused and the profits which accrue the cartel activity[10].


There have been constant debates about the term ‘relevant turnover’ and CCI’s disagreement with COMPAT’s (Competition Appellate Tribunal) reduction in the penalty imposed on these companies is also considerable.

CCI believes that if ‘relevant turnover’ is taken into consideration then the need to add the term ‘relevant’ into the competition act of 2002 will arise and that would be unjustifiable. Further, it said that “the penalties are primarily used as a deterrent for future behaviour, and, therefore, were justified if slightly out of proportion.”[11] Whereas, the Supreme Court agreed with the decision given by COMPAT that relevant turnover shall only be taken into account when imposing a penalty upon the defaulting companies. It also emphasized that proportionality in imposing punishment is also important. This decision aligns the Indian competition law practices to that of the developed law regimes such as America and Europe. With this case the SC seems to have cut CCI's penal powers and it may be possible other companies who were fined on overall turnover, may set the appeal process in motion.


The Supreme Court stated that imposition penalty while adopting the criteria of “relevant turnover” shall be “more in tune with ethos of the Act and the legal principles which surround matters pertaining to imposition of penalties.”[12]The judgment given by the Supreme Court of India in the present case provides certain clarity on the said subject and also serves as a source of relief for the companies. This judgment given by the Indian Supreme Court may act as a source of encouragement for some companies to appeal the decision of Competition Commission of India and seek revision or some kind of alteration for the fines that were earlier imposed on them. As the decision given by the apex court in the said case has laid down the grounds to determine the penalty on the basis of the “relevant turnover” and has succeeded in setting a landmark judgment for both the Competition Commission of India as well as COMPAT. The enterprises have been pardoned from paying extraordinarily high amount of penalty which would have not been in proportion to their offence[13].


However it should be noted that certain companies which have earned profit by entering into cartels are still under the watch of the vigilant CCI and can be subjected to higher amount of penalties as section 27[14] empower it to impose penalty of up to three times of the profit of the company, in case it is higher than ten percent of the total turnover of the company. Therefore, the companies shall act accordingly and within the ambits of the Competition law of India.

 

[1] Competition Act, 2002, § 27, Act of Parliament, 1949 (India).

[2] Civil Appeal No. 2480 (2014).

[3] Excel Corporation Care Limited, United Phosphorus Ltd., Sandhya Organics Chemicals Pvt. Ltd. and Agrosynth Chemicals Ltd. Civil Appeal No. 2480 (2014).

[4] Ibid.

[5] Competition Act, 2002, § 2(y), Act of Parliament, 1949 (India).

[6] Avaantika Kakkar and Aman Singh Baroka, “India: Supreme Court Clarifies Scope of Penalties and Other Provisions under the Competition Act”, https://www.mondaq.com/india/antitrust-eu-competition-/593630/supreme-court-clarifies-scope-of-penalties-and-other-provisions-under-the-competition-act, (last updated: 12th May 2017).

[7] EU Competition Law: Rules Applicable to Antitrust Enforcement, Vol. I, General Rules (Luxembourg, Publication Office of the European Union, 1st July 2013), https://ec.europa.eu/competition/antitrust/legislation/handbook_vol_1_en.pdf.

[8] Excel Corporation Care Limited, United Phosphorus Ltd., Sandhya Organics Chemicals Pvt. Ltd. and Agrosynth Chemicals Ltd. Civil Appeal No. 2480 (2014).

[9] CAC 105 Dec 2010.

[10] Competition Act 89 of 1998, https://www.gov.za/sites/default/files/gcis_document/201409/a89-98.pdf.

[11] Southern Pipeline Contractors Concrete Walls (Pty) Ltd. V. The Competition Commission, CAC 105 Dec 2010.

[12] Excel Corporation Care Limited, United Phosphorus Ltd., Sandhya Organics Chemicals Pvt. Ltd. and Agrosynth Chemicals Ltd. Civil Appeal No. 2480 (2014).

[13] Ibid.

[14] Competition Act, 2002, § 27, Act of Parliament, 1949 (India).

BIBLIOGRAPHY


Books, Articles, Statutes:


  1. Avaantika Kakkar and Aman Singh Baroka, “India: Supreme Court Clarifies Scope of Penalties and Other Provisions under the Competition Act”, https://www.mondaq.com/india/antitrust-eu-competition-/593630/supreme-court-clarifies-scope-of-penalties-and-other-provisions-under-the-competition-act, (last updated: 12th May 2017).

  2. Competition Act, Act of Parliament, 1949 (India).

  3. Competition Act 89 of 1998, https://www.gov.za/sites/default/files/gcis_document/201409/a89-98.pdf.

  4. EU Competition Law: Rules Applicable to Antitrust Enforcement, Vol. I, General Rules (Luxembourg, Publication Office of the European Union, 1st July 2013), https://ec.europa.eu/competition/antitrust/legislation/handbook_vol_1_en.pdf.


Cases:


  1. Excel Corporation Care Limited, United Phosphorus Ltd., Sandhya Organics Chemicals Pvt. Ltd. and Agrosynth Chemicals Ltd. Civil Appeal No. 2480 (2014).

  2. Southern Pipeline Contractors Concrete Walls (Pty) Ltd. V. The Competition Commission, CAC 105 Dec 2010

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