M/S ECP INDUSTRIES LTD V. COMPETITION COMMISSION OF INDIA

AnushkaKadiresan[1]

Introduction

The case deals with Section 27 (b) ofthe Competition Act, 2002 (“the Act”), which empowers the Competition Commission of India (“CCI”) to penalize offenders for a contravention of Section 3 (anti-competitive agreements) and Section 4 (abuse of dominant position) of the Act.The penalty under Section 27 has been imposed on multiple enterprises by the CCI without them being given an opportunity of being on heard on the “quantum” of penalty. This practice has continued as the Act does not mandate a hearing.

In the present case, the Commission imposed a penalty of 7% on the average turnover of the preceding three financial years. The Commission did not take into account the aggravating or mitigating circumstances. The imposition of penalty was found to be arbitrary by the COMPAT and the LPG manufactures were given an opportunity of being heard to decide the penalty and the rate at which it is to be imposed.

Facts of the case

The instant case is an appeal against the CCI order dated 6.08.2014 in suo-moto case against LPG cylinder manufactures[2],wherein, a tenderwas floated by Indian Oil Corporation (“IOCL”) for the year 2010-2011 for the supply of 14.2 kg capacity cylinders. Out of the 63 bidders, only 50 were considered eligible to submit bids. Due to the identical rates that were quoted by the manufacturers, the Director General (“DG”) took note of the similarity on the pattern of the bids. The matter was then referred to the Commission for further investigation under Section 26(1) of the Act. The report of the DG concluded that the bidders appeared to have formed a cartel. Thereafter, the CCI took suo-moto cognizance of the case under Section 19 of the Act.

The CCI found that the 50 cylinder manufactures had indeed formed a cartel and indulged in collusive bidding in violation of Section 3(3) of the Act and imposed therefore it imposed a penalty of 7% on the average turnover of the preceding three financial years.

The appellants challenged the CCI order by filling an appeal under Section 53B of the Act. This appeal was disposed by the COMPAT, however, the penalty that was imposed by the CCI, was set aside by the COMPAT as it was considered arbitrary. Many issues such as the companies being first time offenders, competition law being a nascent jurisdiction and the hefty penalty had not been raised before the CCI. Since, large number of manufactures were involved the COMPAT permitted the parties to go back and raise their pleas before the Commission and ordered a re-assessment of the penalty.

Issues

  • Whether the term ‘turnover’ in Section 27(b) of the Act and its proviso means, the ‘total turnover’ for an enterprise or a group found guilty under section 4 for abuse of dominant position.
  • Whether an objective criteria is required to be followed by the Commission in the determination of a penalty under section 27(b) of the Act.

 

Analysis

Arguments by the parties

The main contention put forth by the appellants is that the term ‘turnover’ used in Section 27(b)

and its proviso is to be read such that it is confined to the turnover of the product 14.2 Kg LPG

which the allegation of cartel formation was investigated. In a multi-product company the turnover of other products cannot be clubbed into for the purpose of imposing penalty.They relied on cases like Excel Corp Care v. CCI[3], wherein the Court followed the doctrine of proportionality and restricted the turnover to relevant turnover rather than the total turnover of the company.

The appellants also pleaded a plethora of mitigating factors that were not given due consideration by the Commission. The manufacturers argued at length about the fact that they are multi-product industries and are also engaged in other products associated with LPG, wherein LPG constituted only a minor portion of their business. Further, they also argued that as they are a small scale industry, they were not in a financial position to pay the hefty penalty. Moreover, mitigating factors such as nascent stage of Competition jurisdiction in Indiaand the fact that the companies were first time offenders was also argued. The appellants relied on the case MDD Medical Systems India Private Limited v. Foundation of Common Cause & People Awareness &Ors[4] wherein, the COMPAT after assessing the relevant facts and circumstances in light of certain mitigating factors determined that excessive penalty was being imposed, and therefore reduced the same to 3%.

The Commission considered the mitigating factors, however it rejected the same on various grounds. On the issue of ‘relevant turnover’ the Commission submitted that the term ‘turnover’ in section 2(y) of the Act is  inclusive and hence, should be given the widest interpretation as sought by the legislature.  Moreover, it was contended that by a restricted interpretation of ‘turnover’ the parties are not entitled to any relief as they have not filed the statistics of their product. Further, production of incidental or ancillary products would not convert them into multi-product companies.

Reasoning by COMPAT

The COMPAT analyzed provisions of the Act along with the rule of contextual interpretation and the objective for the enactment of the Act. The Commissioncame to a conclusion that the term ‘turnover’ used in Section 27 (b) and the proviso will relate to the goods and products which were made subject- matter of investigation, in violation of Section 3 and/or Section 4. The Act does not empower the commission to order an investigation into the products/goods/services that are not alleged anti-competitive. While investigation into a particular goods, service or product the authorized person cannot investigate into those activities on which there is no allegation of breach of Section 3 or 4 of the Act.

In the instant case, the investigation was conducted with respect to 14.2 KG cylinders, hence, the turnover of other products could not be considered for the purpose of imposing penalty. COMPAT relied on the order passed by the South African Tribunal in the case of Southern Pipeline Contractors Contrite Walls. [5]

Further, as the Act does not lay down not any criteria for imposing penalty, the commission is duty bound to consider all the relevant factors.

Conclusion

 

The COMPAT under Section 53 (1) (a) has the authority to hear and dispose appeals against any directions made or passed by the Commission. Further Section 53B (3), the COMPAT also has the power to modify the orders passed by the Commission. In the present case, the COMPAT has failed to exercise its powers, leading to an unwarranted extension of proceedings. Further, the parties should be given an opportunity of being heard before imposition of penalty on them, even though it is not mandated under law.

The COMPAT ought to have utilized the powers vested to it, and should have modified the penalty in the first instance itself  to avoid a prolonged litigation over the subject matter of ‘turnover’ that has already been decided in landmark judgments like Excel Care Corp an

[1]3rd year student, B.B.A LL.B (Hons), National Law University, Jodhpur, (Rajasthan, India).

[2]In re: suo-moto case against LPG cylinder manufactures, No.03/2011.

[3]Appeal 79 of 2012, Order dated October 29, 2013.

[4]MDD Medical Systems India Pvt. Ltd. v. Foundation forCommon Cause &Ors. (Appeal No.93 of 2012).

[5]Southern Pipeline Contractors Contrite Walls 105/CAC/Dec10

Disclaimer: This article has been written by a member of Centre for Competition Law and Policy. The article is just an opinion of the Author and no legal consequences follow from the same.

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