By Sakshi Malhotra

1.      Introduction

This case[*] deals with the powers of Competition Commission of India (hereinafter CCI) to punish for the contravention of the order of the Commission under Section 42 of the Competition Act 2002 (hereinafter the Act). Author will analyse the ‘Doctrine of Proportionality’ to judge the reasonability of the order passed by CCI.

The facts of the present case are as below:

  • The Directorate General of Supplies & Disposals (hereinafter DGS&D) issued parallel Rate Contract Tenders.
  • Petitions also participated in the tender. The difference in the price quoted by different bidders was very narrow.
  • Therefore, DGS&D filed a reference before CCI under Section 19(1)(b) alleging bid rigging and market allocation.
  • CCI passed an order under Section 27 of the act directing the bidders to file an undertaking to cease and desist from the anticompetitive conduct in future to that effect within a period of 30 days of receipt of the order.  Petitioner has filed a writ petition seeking the quashing of order by CCI, which imposed penalty of a sum of Rs. 5000/- per day on each petitioner.
  • Petitioners appealed against CCI’s order under section 53B of the Act. Competition Appellate (hereinafter COMPAT) Tribunal allowed the interim application by directing appellants (RSI not included) to deposit 5% of the penalty. COMPAT granted a complete stay of penalty to RSI. However, COMPAT did not interfere with cease and desist issue.
  • CCI passed an order of non-compliance of its order of filing undertaking and imposed a penalty of a sum of Rs. 5000/- per day on each petitioner.

Therefore, petitioners filed the writ petition seeking the quashing of the order passed by CCI.

2.      Issues

Whether penalty imposed on M/s. R S Industries and M/s. Rajkumar Dyeing & Printing Works Pvt. Ltd. by CCI under section 42 of the act is arbitrary and unreasonable?

3.      Analysis

Argument by the Parties

Counsel for petitioners submitted that CCI did not examine or consider the ‘reasonable clause’ mentioned in Section 42 of the Act. Counsel for petitioners argued that CCI failed to take into account that the petitioners are small scale industries. Therefore, the penalty of Rs 5,000/- per day is grossly disproportionate according to the facts of the case. It was further argued that impugned order is in violation of Article 14, Article 19(1)(g) and Article 300-A of the Constitution of India.

Counsel for CCI submitted that COMPAT reject to stay the filing of undertaking to ‘cease and desist’ from anticompetitive object. Regulation 36 of the Regulation 2009 gives power to CCI to levy penalty for non-filing of the undertaking. Interim stay granted by COMPAT would not inhibit CCI from passing an order under Section 42 of the Act.

Reasoning by the High Court

Relevant Factors for direction under Section 42 of the Act-

The Court observed that CCI has been vested with wide discretion to impose the penalty under Section 42 (2) of the act. However, nature of penalty should be in keeping view several relevant factors:-  whether direction is substantial or merely formal, the effect of such non-compliance, the intention of the parties accused of non-compliance, the benefit derived by such parties, cause for non compliance.

In the present case, the petitioner had ceased to be a DGS&D Rate Contractor. Therefore, there is no violation of Cease & Desist order because there is no competitive conduct after CCI’s order.The petitioners have been faulted for not filing an undertaking, which direction as stated earlier was only in aid of the substantive ‘cease and desist’ order.

Decision of COMPAT-

CCI had contended that COMPAT had rejected the interim prayer for stay of the direction for filing an undertaking to cease and desist from anti-competitive conduct directed by CCI. However, this is not entirely accurate. COMPAT had not found the necessity to interfere with CCI’s direction to ‘cease and desist’ and the question of filing the undertaking was not commented upon by COMPAT.

Doctrine of Proportionality-

The doctrine of proportionately is well established in the Article 14 of the Constitution of India. “Proportionality” is a principle where the court is concerned with the process, method or manner in which the decision-maker has ordered his priorities, reached a conclusion or arrived at a decision. De Smith states that “proportionality” involves “balancing test” and “necessity test”. Whereas the former (balancing test) permits scrutiny of excessive onerous penalties or infringement of rights or interests and a manifest imbalance of relevant considerations, the latter (necessity test) requires infringement of human rights to the least restrictive alternative.[1] The After applying the aforesaid principles to the facts of the present case, Honorable Court held that there is little correlation between the penalty imposed by CCI and gravity of the offending act.

The Court further held that, the impugned order even fails the Wednesbury test of unreasonableness, which was explained by Lord Diplok in Council of Civil Service Unions v. Minister for Civil Service[2]. The test lays down, “So outrageous in its defiance of logic or accepted moral standards that no sensible person who had applied his mind to the question to be decided could have arrived at it”. The same test has been reiterated by Honorable Supreme Court in the case of Indian Rly. Construction Co. Ltd. v. Ajay Kumar[3]. “Therefore, to arrive at a decision on “reasonableness” the court has to find out if the administrator has left out relevant factors or taken into account irrelevant factors. The decision of the administrator must have been within the four corners of the law, and not one which no sensible person could have reasonably arrived at, having regard to the above principles, and must have been a bona fide one.”

In the present case, CCI has ignored relevant considerations:

  • 1) CCI has not taken into account that its substantive direction to cease and desist from anti-competitive conduct had not been violated.
  • 2) CCI has not considered any element of public interest, warranting an imposition of such penalty.
  • 3) CCI did not consider tt petitioners are small scale industries and the penalty imposed is not in proportion.

4.      Criticism of Judgment

One issue has not been discussed either by COMPAT or by High Court in its decision. Section 27 of the Act is a remedial provision which enables commission to pass suitable order including direction to discontinue and not to re-enter such agreement or discontinue such abuse of dominant position.[4] This direction is commonly known as “cease and desist” order. Order passed under section 27 is appealable before COMPAT within 60 days of the receipt of the order.[5]

The legislative intent of Section 27 is very unambiguous as it confers powers upon the Commission to pass all or any of the seven directives laid down in clauses (a) to (g) of this Section. In directing the party to file an undertaking of compliance relatable to “cease and desist” portion within 30 days by the Honorable Commission is in gross violation of the intent and construct of the law.  Therefore, the order is nullity in law as it is curtailing the statutory limitation period to file an appeal that is sixty days.

5.      Conclusion

The Honorable High Court of New Delhi found that the impugned order is, clearly, without application of mind and has been passed in wanton exercise of powers, ignoring the relevant factors and the constitutional principles.

Therefore, the petitions are allowed and the impugned order is set aside.

[*] W.P. (C) 5947/2014 and WP (C) 6260/2014.

[1]Judicial Review of Administrative Action (1995), pp. 601-05, para 13.085

[2](1984) 3 All ER 935.

[3] (2003) 4 SCC 579.

[4] Section 27(a), The Competition Act 2002.

[5] Section 53B (2), The Competition Act 2002.

Disclaimer- The article is written by an author who is member of centre. The centre holds no responsibility.


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