Background
In 2011, the Indian Sugar Mills Association, the National Federation of Co-operative Sugar Factories Ltd and All India Flat Tape Manufacturers Association (Informants) had alleged before the Competition Commission of India (CCI) that Indian Jute Mills Association (IJMA) and Gunny Trades Association (GTA) had cartelised and have entered into anti-competitive agreement which is violative of Section 3 of the Competition Act, 2002 (Competition Act).
The CCI in its order dated October 31, 2014 (CCI Order) held that impugned acts of IJMA and GTA are in contravention of the provisions of the Competition Act.
While overturning CCI’s order, Competition Appellate Tribunal (COMPAT) in the matter of IJMA and others v. The Secretary, CCI and other (Appeal No.: 73 of 2014) vide its order dated July 1, 2016 (COMPAT Order) held that there was no express or tacit agreement or understanding between IJMA and GTA for fixing the price of jute bags and the Director General-Investigation (DG) and the CCI committed grave error by holding that IJMA had acted in contravention of Section 3(3)(a) and 3(3)(b) read with Section 3(1) of the Competition Act.
Some salient features of the COMPAT
Order and points to ponder
There are
several interesting procedural and substantive jurisprudential issues discussed
by the COMPAT in its 586 pages order. Some of the salient features of the
COMPAT Order are discussed below:
Practice of
preliminary conference
In terms
of Section 26(1) of the Competition Act read with Regulation 17 of the
Competition Commission of India (General) Regulations, 2009 (General Regulations), before forming a prima facie opinion and ordering for
investigation by the DG, the CCI may call for a preliminary conference with the
informants and such other persons, if it deems necessary. The preliminary
conference is not a mandatory requirement and there are no set or standard procedure
followed by the CCI for conducting such meeting and in practice the CCI seems
to have preliminary conferences with the parties concerned on case to case
basis and such meetings are ad hoc in
nature.
The COMPAT
in the COMPAT Order observed that:
“the Commission could have
invited Indian Jute Mills Association (IJMA)( Appellant in Appeal No. 73
/2014) and Gunny Trade Association (GTA) against whom the allegation of
cartelization had been levelled by Respondents Nos. 2 to 4 for preliminary
conference but without undertaking that exercise, it passed an order
dated 02.08.2011 under Section 26(1) of the Act.”
The COMPAT
seems to suggest, that the CCI should have undertaken the exercise of
preliminary conference with IJMA and GTA and had that meeting happened, perhaps
the CCI’s preliminary view may have been diluted. This observation, in my
humble opinion should not act as a binding force for the CCI to follow in
future cases especially in cases involving allegation of cartelization (where
concrete evidences are produced by the informants) and the CCI believes that
conducting dawn raid in terms of Section 41(3) of the Competition Act is the
only solution.
However, a
preliminary conference may be considered by the CCI in behavioural cases
involving abuse of dominance and other anti-competitive agreement cases (except
cartel offences) where the evidences and supporting documents submitted by the
informants are feeble and not very strong in nature. This practice, will in
turn save the precious time of the DG and the CCI.
Only the person who
hears can decide
In the
instant case, one of the Member of the CCI (Mr. U.C. Nahta), had joined the CCI
much after the proceedings of the case had begun (important steps such as
perusal of the information of the Informants, passing of order under Section
26(1), hearing of the case on two dates etc., were already done) and still he
participated in the final CCI Order. Also, the Chairperson including the other
Members and Mr. Nahta himself were not able to produce an affidavit to submit
that Mr. Nahta had been properly briefed by the other Members or the
Chairperson about the matter.
The COMPAT
noted:
“It can thus be safely inferred
that when he signed the impugned order Shri U.C. Nahata did not have any
inkling about the nature of the allegations contained in the information,
the investigation conducted by the DG by obtaining replies/submissions of the
informant and IJMA and GTA, Ministry of Textile and Jute Commissioner,
Government of India, the statements of representatives of Respondent Nos. 2 and
3 herein and IJMA and GTA as also the replies given by the members of IJMA and he
mechanically endorsed the conclusion recorded by the Chairman and other
Members as if he was deciding an administrative matter in the Government.
Thus, there is no escape from the conclusion that participation of Shri U.C.
Nahata in the impugned order is per se contrary to the basics of natural
justice and has the effect of vitiating the impugned order.”
The CCI
Order was signed by six individuals (one Chairperson and five Members which
included Mr. Nahta). In my humble opinion, the absence of one of the Members in
the preliminary stages of the case should not be the sole reason for the COMPAT
to overrule the orders of the CCI. In terms of Section 22 of the Competition
Act, the quorum of the meeting of the Members is satisfied if the minimum
number of Members attending the meeting is three in number. Subtracting the
presence of Mr. Nahta in this case, will result in the order given by five
Members (which include Chairperson too). My point here is that any proceedings
of the CCI should not be vitiated only because, a vacancy is caused due to
absence of the Member or there is a mere procedural irregularity not affecting
the merits of the case (as long as the quorum requirements are met). It must be
understood that the proceedings before the CCI are not regular court
proceedings and if a case is properly heard by the minimum quorum prescribed
under the Competition Act and the merits of the case are not compromised, then
certain leeway should be given to the CCI.
I wish the
CCI now appeal before the Supreme Court to clarify this proposition i.e.,
whether the absence of one of the Members in tribunal (in cases where quorum
requirements are met), make the order of the tribunal per incuriam. Reference may be taken from a Patna High Court (Patna HC) decision of Ram Autar
Santosh Kumar v. State of Bihar and others (AIR 1987 Pat
13), where the Patna HC, with approval quotes the decision of Supreme Court in
the case of Ishwar Chandra v. Satya Narayan Sinha (AIR 1972 SC 1812):
“It is also not denied that the
meeting held by two of the three members on the 4th April, 1970, was legal
because sufficient notice was given to all the three members. If, for one
reason or the other, one of them could not attend, that does not make the
meeting of others illegal. In such circumstances, where there is no rule or
regulation or any other provision for fixing the quorum, the presence of the
majority of the members would constitute it a valid meeting and matters
considered thereat cannot be held to be invalid.”
The Patna
HC also quoted, the case of The Punjab
University, Chandigarh v. Vijay Singh
Lamba (AIR 1976 SC 1441), where the Supreme Court held:
“If the quorum consists of 2 members,
any 2 out of the 3 members, can perform the functions of the Standing
Committee, though the Committee may be composed of 3 members. When Regulation
32.1 speaks of the Committee being unanimous, it refers to the unanimity of the
members who for the time being are sitting as the Committee and who, by forming
the quorum, can validly and lawfully discharge the functions of the Committee
and transact all business on behalf of the Committee.”
Establishing cartel offenses
COMPAT
after perusing the facts of the case along with the evidences submitted came to
the conclusion that, IJMA and GTA have not entered into an agreement for fixing
the price of jute bags (A-Twill jute bags).
The COMPAT
noted:
“A careful scrutiny of the record
shows that neither the informants produced nor the DG could collect any
substantive evidence to prove that there was an agreement between GTA and IJMA
about fixation of price…The material produced by the informants or collected by
the DG unmistakably show that neither there was any meeting between the
representatives of the two entities, namely, IJMA and GTA and no deliberation
had taken place between their members on the issue of fixation of price of
A-Twill jute bags…On its part, the Commission did not independently analysed the
documents produced by the informants/collected by the DG and simply approved
the findings recorded by the latter.”
The case for
proving a cartel offence essentially boils down to production of viable
evidences (direct or circumstantial) which should be substantial and impactful
so that an act of collusion can be established in terms of Section 3(3) of the
Competition Act. Robust and modern techniques for investigations (such as
e-discovery examination etc) should be developed by the DG for establishing the
cartel offences. Further, dawn raid exercises should be adopted if the DG and
the CCI wants to reach and get the direct and substantial evidences.
However, I
understand the above may not be as easy, given the litigations CCI has been
involved in relation to search and seizure of electronic documents / hard disks
and necessity of dawn raids before the Supreme Court and the Delhi High Court.
I am sure these things will get more clarity with the passage of time.
Procedure for
prosecuting the members/ office bearers and employees
As per the COMPAT, only after the ingredients
mentioned under Section 48(1) and 48(2) (Contravention by companies) are
satisfied (which is - there must exist an
affirmative finding by some competent authority (i.e., CCI) that the company
has contravened the provisions of the Competition Act), the proceedings can be initiated against the person who
was in-charge (including any director, manager et al) of the business of the
company at the time the antitrust offence was committed by the company.
The above proposition was also held by
the COMPAT recently in the matter of M/s.
Alkem Laboratories Limited v. CCI
(Appeal No. 09 of 2016).
This means that an order passed by the
CCI under Section 27 determining the guilt of a company for violation of
Competition Act is a condition precedent for any investigation conducted by the
DG under Section 48(1) and 48(2).
However, if we read some of the recent Section
26(1) orders of the CCI, the CCI categorically mentions that:
“During
the course of investigation, if involvement of any other party is found, the DG
shall investigate the conduct of such other parties who may have indulged in
the said contravention”.
These are very broad wordings and
there is an apparent dichotomy between the views of the COMPAT (as held in the
present case as well as the Alkem Laboratories case) and the practice adopted
the CCI. With due respect to the COMPAT,
in my humble opinion, given the drafting of the Competition Act, the practice
adopted by the CCI appears to give more credence and purpose to the ideals of
the Competition Act. The investigation by DG can simultaneously proceed against
the company as well as the individual concerned. Performing these two processes
divergently may be counter-productive and time consuming. The words (such as
word ‘committed’) under Section 48 should be given a purposive interpretation
and not merely a literal understanding.
Concept of turnover for assessing
penalty
This is
the issue over which the COMPAT and the CCI are at loggerhead since the
decision by the COMPAT in the matter of M/s.
Excel Crop Care Limited v. CCI
(Appeal No. 79 of 2012) in October, 2013.
As per
COMPAT, as recently held in the case of M/s.
ECP Industries and another v. CCI (Appeal
No. 47 of 2015), in relation to interpretation of word ‘turnover’:
“Therefore the term, ‘turnover’
used in Section 27(b) and its proviso will necessarily relate to the goods,
products or services qua which finding
of violation of Section 3 and/or Section 4 is recorded and while imposing
penalty, the Commission cannot take average of the turnover of the last three
preceding financial years in respect of other products, goods or services of an
enterprise or associations of enterprises or a person or associations of
persons.”
“Since the legislature has not laid
down any criteria for imposing penalty, the Commission is duty bound to
consider all the relevant factors like – nature of industry, the age of
industry, the nature of goods manufactured by it, the availability of
competitors in the market and the financial health of the industry etc. and
also take note of the law laid down by the Supreme Court, the High Courts and
the Tribunal.”
The above legal
fiction as to the interpretation of word ‘turnover’ is sub judice before the Supreme Court in the matter M/s. ECP Industries v. CCI (Appeal No. 4342 of 2014) along with
couple of other similar matters. It will be interesting to see how the Supreme
Court view the concept of ‘turnover’.
