Excel Crop Care Limited vs. Competition Commission of India and Another
A Supreme Court ruling on the extent of the penal powers of the CCI
27 July 2017
The The Supreme Court of India (Supreme Court), in a judgment dated 8 May 2017 (Judgment), has curtailed the penal powers of the Competition Commission of India (CCI). The Judgment also ruled on the power of the CCI to investigate potential anticompetitive practices.
The Food Corporation of India (FCI), in a letter dated 4 February 2011, complained to the CCI of the anti-competitive agreement arrived at between M/s Excel Crop Care Limited, M/s United Phosphorous Limited, M/s Sandhya Organic Chemicals (P) Limited (collectively, the Appellants) and Agrosynth Chemicals Limited (Agrosynth). The FCI alleged that anticompetitive practices were carried out in relation to tenders relating to procurement of aluminum phosphide tablets, issued by the FCI between 2007 and 2009.
The FCI further alleged that the four manufacturers had formed a cartel by entering into an anti-competitive agreement among themselves and on that basis, they had been submitting their bids for the last eight years by quoting identical rates in response to the tenders issued by the FCI. In response to the compliant, the CCI assigned the complaint to the Director General (DG) for investigation.
Based on a thorough investigation, the DG determined that there was a violation of Section 3 of the Competition Act, 2002 (Act) by the Appellants and Agrosynth. The CCI, after hearing the parties, concluded that the Appellants had entered into an anti-competitive agreement and had violated the provisions of Section 3 of the Act and that Agrosynth was exonerated of wrongdoing. The CCI imposed a penalty of 9% of the total average turnover for the last three years on each of the Appellants, vide an order dated 23 April 2012.
The Appellants then appealed against the order of the CCI to the Competition Appellate Tribunal (COMPAT) under Section 53 – B of the Act using the same legal and factual argument as before the CCI, with the addition of an argument against the quantum of penalty imposed by the CCI. The COMPAT, in an order dated 29 October 2013, rejected all the contentions of the Appellants save for the one on penalty. The COMPAT held that the penalty at 9% of the three years’ average turnover was not unreasonable. However, it also held that the penalty could not be imposed on the “total turnover” but had to be restricted to the “relevant turnover,” which was the turnover in respect of the product for which the cartel was formed. The Appellants then appealed to the Supreme Court.
The Supreme Court determined that the following issues, among others, required consideration in this case:
- Whether the dispute regarding violation of Section 3 of the Act by the Appellants could not be gone into in respect of the tender of March 2009, as Section 3 was operationalized only by a notification dated 20 May 2009.
- Whether the CCI was barred from investigating the matter pertaining to the tender floated by FCI in March 2011 because of the reason that FCI had not complained about this tender in its complaint dated 4 February 2011.
- Whether penalty under Section 27(b) of the Act has to be on total/entire turnover of the offending company or it can be only on “relevant turnover,” i.e., relating to the product in question.
The findings of the Supreme Court in respect of each of the issues are set out below:
1. Dispute in relation to Section 3 of the Act
Section 3 of the Act deals with the prohibition of anti-competitive agreements. This section came into force on 20 May 2009, which was after the date of submission of bids for the March 2009 tender. However, the opening of the bid was after the date of notification of the section.
The Appellants argued that retrospective operation could not be given to the provisions of the Act. However, the Supreme Court held that as the anticompetitive conduct of the Appellants continued much after the date of the coming into force of Section 3, the section would still be attracted. The Supreme Court based this on the fact that after the coming into force of Section 3, the Appellants entered into negotiations with the FCI and continued the bidding process. Therefore, the process of “manipulating the process of bidding” continued after the coming into force of Section 3 of the Act.
2. Jurisdiction of the CCI to investigate matters not in the complaint
The Supreme Court held that restricting the CCI only to the matters set out in the complaint would defeat the entire purpose of carrying out an investigation. The Supreme Court held that the purpose of an investigation was to uncover all necessary facts and evidence in relation to a case to determine if there have been any anti-competitive practices and if these necessarily require the inclusion of any extraneous facts not covered in the initial complaint.
3. Quantum of penalty
The Supreme Court, in relation to the issue of the quantum of penalty, upheld the decision of COMPAT and held that the basis for computation of penalty should be “relevant turnover” instead of “total turnover.” The Supreme Court based this on the following factors:
- Imposing the penalty on “total turnover” would lead to very inequitable results in respect of companies that deal in multiple products. Interpretation that brings out inequitable or absurd results has to be eschewed.
- In a situation where two interpretations are possible, the one that leans in favor of the infringer is to be preferred.
- In case the anti-competitive agreement leading to the violation of Section 3 involves only one product, there is no justification for including the other products of the infringer for the purpose of imposing the penalty.
- The doctrine of proportionality would require the court to lean in favor of imposing the penalty on “relevant turnover” as the punishment that is imposed must be proportional to the wrong committed and should not be arbitrary.
- The principle of purposive interpretation also requires that the penalty be calculated on “relevant turnover” rather than “total turnover.”
The Judgment has had the effect of curtailing the power of the CCI to impose penalties and has provided clarification on the meaning of the term “turnover” in relation to the Act. This Judgment comes as a relief to multi-product companies, which are often subject to some very inequitable penalties compared to singleproduct companies. Given that other jurisdictions have detailed guidelines and enough legal precedent to guide courts in the determination of penalties, the lack thereof in India was very concerning especially since the penalties imposed by the CCI are very large. The Judgment has now ensured that there is more uniformity and greater equity in determining these penalties.