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TMI Blog2017 (5) TMI 542X X X X Extracts X X X X X X X X Extracts X X X X ..... (for short, 'COMPAT'). These proceedings have their origin in the letter dated February 04, 2011 written by the Food Corporation of India (for short, 'FCI') to the Competition Commission of India (for short, 'CCI') complaining of an anti-competitive agreement purportedly arrived at between M/s. Excel Crop Care Limited, M/s. United Phosphorous Limited (for short, 'UPL'), M/s. Sandhya Organics Chemicals (P) Ltd. respectively (the appellants in CA Nos. 2480, 2874 and 2922 of 2014 and hereinafter referred to as the 'appellants') and Agrosynth Chemicals Limited, in relation to tenders issued by the FCI for Aluminium Phosphide Tablets (for short, 'APT') of 3 gms. between the years 2007 and 2009. The CCI entrusted the matter to the Director General (DG) for investigation, who submitted his report on October 14, 2011 giving his prima facie findings affirming the allegations of the FCI that the appellants had entered into an anti-competitive agreement, which was violative of Section 3(3) of the Competition Act, 2002 (hereinafter referred to as the 'Act'). On receipt of this complaint, the CCI issued notices to the appellants who filed their objections. After hearing the parties, the CCI pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncies were procuring APT tablets of `40 crores annually. (b) There were only four manufacturers of APT, namely, M/s. Excel Crop Care Limited, M/s. UPL, M/s. Sandhya Organics Chemicals (P) Ltd. (which are the three appellants herein) and Agrosynth Chemicals Limited. (c) It was noted that the FCI had adopted the process of tender, which is normally a global tender. The concerned tender had two-bid system, that is first techno commercial and then the financial bid. On the basis of the bids, the rate running contracts are executed with successful bidders. The DG found that there was also a Committee comprising of responsible officers for evaluation of technical and price bids. As per the practice, the lowest bidder is invited by the Committee for negotiations and after negotiations, the Committee submits the report giving its recommendations and the contracts are awarded and after that the payment for the purchased tablets is released by the concerned regional offices. (d) It was found that right from the year 2002, up to the year 2009, all the four parties used to quote identical rates, excepting for the year 2007. In 2002, Rs. 245/- was the rate quoted by these four parties and in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed e-tender, which was closed on July 25, 2011. According to the DG, explanation given by the appellants and M/s. Agrosynth Chemicals Limited for boycotting the said tender to the effect that tender conditions were very stringent, was an afterthought and did not inspire any confidence. As per the DG, even if the conditions were stringent, the appellants could discuss the same with the FCI as there was sufficient time between March 2011 and July 25, 2011, but it was not done. On the basis of the aforesaid findings, the DG framed an opinion that the appellants had contravened the provisions of Sections 3(3)(a), 3(3)(b) and 3(3)(d) read with Section 3(1) of the Act. 3) The CCI took up the report of the DG for consideration and for this purpose sent a copy thereof to all the four manufacturers inviting their objections, if any, thereupon. Since M/s. Agrosynth Chemicals Limited was ultimately exonerated and spared by the CCI, it may not be necessary to deal with the objections of the said party. The three appellants contested the report on facts as well as in law. Identical legal submissions were made, which are pointed out, in capsulated form, as under: (a) Since Sections 3 and 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unreasonable conditions prescribed in the tender making it impossible to submit the bid, particularly, the condition of depositing `30 lakhs as Earnest Money Deposit (EMD), whereas in the earlier tenders the EMD was only `10 lakhs and `8.25 lakhs. It was further submitted that, notwithstanding the same price quoted by the appellants, each time the tender was evaluated by a Committee of Officers of the FCI and no such suspicion was raised by the Committee. On the contrary, this aspect was specifically gone into and the Committee was satisfied that quoting of identical price was not due to any cartalisation. M/s. Sandhya Organics Chemicals (P) Ltd. raised an additional plea qua non-participation in the 2011 tender by submitting that it did not have the capacity to supply 75 MT per month, which was the requirement in the said tender and, therefore, it chose not to participate. 4) The CCI passed the order discussing all the aforesaid aspects in detail and rejecting each and every contention of the appellants, and, thereby concluding that the appellants had entered into an agreement or understanding, and indulged in anti-competitive activities while submitting their bids in response ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it becomes manifest that following issues arise for consideration in these appeals: (i) Whether the dispute regarding violation of Section 3 of the Act by the appellants could not be gone into in respect of tender of March, 2009, as Section 3 was operationalised only by notification dated 20th May, 2009? (ii) Whether CCI was barred from investigating the matter pertaining to the tender floated by FCI in March, 2011 because of the reason that FCI in its complaint dated 4th February, 2011 given to the CCI had not complained about this tender? (iii) Whether, on the facts of the case, conclusion of CCI that the appellants had entered into an agreement/arrangement and pursuant thereto indulged in collusive bidding by forming a cartel, resulting into contravention of Section 3(3)(a), 3(3)(b) and 3(3)(d) read with Section 3(1) of the Act, is justified? (iv) 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? 9) First two issues are in the nature of preliminary objections that were raised by the appellants, which are jurisdictional issues as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o in sub-section (3) engaged in identical or similar production or trading of goods or provision of services, which has the effect of eliminating or reducing competition for bids or adversely affecting or manipulating the process for bidding (4) Any agreement amongst enterprises or persons at different stages or levels of the production chain in different markets, in respect of production, supply, distribution, storage, sale or price of, or trade in goods or provision of services, including- (a) tie-in arrangement; (b) exclusive supply agreement; (c) exclusive distribution agreement; (d) refusal to deal; (e) resale price maintenance, shall be an agreement in contravention of sub-section (1) if such agreement causes or is likely to cause an appreciable adverse effect on competition in India. Explanation.-For the purposes of this sub-section,- (a) "tie-in arrangement" includes any agreement requiring a purchaser of goods, as a condition of such purchase, to purchase some other goods; (b) "exclusive supply agreement" includes any agreement restricting in any manner the purchaser in the course of his trade from acquiring or otherwise dealing in any goods other than ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y other provisions came into force on 20th May, 2009 vide S.O. 1241(E) dated 15th May, 2009 on which date the said notification was published in the Gazette of India as well. Remaining provisions were notified by subsequent notifications. It is, thus, a unique example where the entire Act was not enforced by one single notification but different provisions of the Act were enforced in bits and pieces by issuing various notifications over a span of time. 12) NIT in question was issued by FCI on 28th March, 2009. Last date for submission of bids was 8th May, 2009. Few days thereafter, i.e., on 20th May, 2009, Section 3 of the Act was notified. It is on these facts, the argument constructed by the appellants is that as on 8th May, 2009 when the appellants had submitted their bids, Section 3 of the Act was not in operation and, therefore, tender of March, 2009 could not be the subject matter of inquiry by the CCI. According to the appellants, if this is allowed, it would amount to introducing the provisions of Section 3 of the Act retrospectively though the provision was introduced only prospectively that is from the date of the notification. 13) The answer to the aforesaid argument g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .2009 are equally crucial. This discussion would mean that the illegality of collusive bidding or rigging the bidding which commenced on 8.5.2009 was continued thereafter on 1.6.2009 and 17.6.2009 also. The negotiation of prices with the lowest bidder, and in this case all the three appellants were the lowest bidders, undoubtedly forms the part of the process of bid rigging and cannot be seen separately from the process of bidding. For that matter the process of bidding cannot be restricted to only one date i.e. on 8.5.2009. We have seen in this behalf the investigation report by the D.G. as also the finding arrived at by the CCI which in our opinion is a correct finding. In this behalf it cannot be ignored that all the three appellants were informed by identical letters by the FCI one of which is found in Appeal No. 80 /2012 more particularly on pages 361-362. The letter is in the following terms :- "Sub : Tender Enquiry No. Pur-15(4)/2008 dated 28.3.2009 for supply of 600 MTs +/- 10% Al. Phosphide conforming to BIS Specification No. IS:6438-1980 with up to date amendments, Technical Bid opened on 08.05.09; Price Bid opened on 01.06.2009 and negotiation held on 17.06.09. Gentlem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... manufacturers, i.e. the appellants, continued right up to the year 2011, much after Section 3 of the Act had come into force. Therefore, even if 2009 tender was to be completely ignored, the provisions of the Act would nevertheless be attracted in the instant case. We are in complete agreement with the aforesaid view taken by the COMPAT. We are also of the firm view that provisions of Section 3 are applicable to 2009 tender as well. 16) Chapter II of the Act deals with three kinds of practices which are treated as anti-competitive and prohibited. These are: (a) where agreements are entered into by certain persons with a view to cause an appreciable adverse effect on competition; (b) where any enterprise or group of enterprises, which enjoys dominant position, abuses the said dominant position; and (c) regulating the combination of enterprises by means of mergers or amalgamations to ensure that such mergers or amalgamations do not become anti-competitive or abuse the dominant position which they can attain. 17) In the instant case, we are concerned with the first type of practices, namely, anti-competitive agreements. The Act, which prohibits anti-competitive agreements, ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rowth to the ultimate benefit of consumers, in terms of better choice (new products), better quality and lower prices. Consumer welfare protection may be required in order to redress a perceived imbalance between the market power of consumers and producers. The imbalance between consumers and producers may stem from market failures such as information asymmetries, the lack of bargaining position towards producers and high transaction costs. Competition policy may serve as a complement to consumer protection policies to address such market failures." 18) The aforesaid guidelines also spell out few more benefits of such laws incorporating competition policies by highlighting the following advantages: "2.2.2 In addition, competition policy is also beneficial to developing countries. Due to worldwide deregulation, privatisation and liberalisation of markets, developing countries need a competition policy, in order to monitor and control the growing role of the private sector in the economy so as to ensure that public monopolies are not simply replaced by private monopolies. 2.2.3 Besides contributing to trade and investment policies, competition policy can accommodate other policy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to more efficient firms. Overall productivity increases when an entrant is more efficient than the average incumbent and when an exiting firm is less efficient than the average incumbent. Entry - and the threat of entry -incentivizes firms to continuously improve in order not to lose market share to or be forced out of the market by new entrants. Encouraging innovation. Innovation acts as a strong driver of economic growth through the introduction of new or substantially improved products or services and the development of new and improved processes that lower the cost and increase the efficiency of production. Incentives to innovate are affected by the degree and type of competition in a market. Pressure to Improve Infrastructure. Competition puts pressure on communities to keep local producers competitive by improving roads, bridges, docks, airports, and communications, as well as improving educational opportunities. Benchmarking. Competition also can contribute to increased productivity by creating the possibility of benchmarking. The productivity of a monopolist cannot be measured against rivals in the same geographic market, but a dose of competition quickly will expos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tempts to sub-serve and the mischief which it seeks to remedy. As pointed out above, Section 18 of the Act casts an obligation on the CCI to 'eliminate' anti-competitive practices and promote competition, interests of the consumers and free trade. It was rightly pointed out by Mr. Neeraj Kishan Kaul, the learned Additional Solicitor General, that the Act is clearly aimed at addressing the evils affecting the economic landscape of the country in which interest of the society and consumers at large is directly involved. This is so eloquently emphasised by this Court in Competition Commission of India v. Steel Authority of India Limited & Anr. (2010) 10 SCC 744 in the following manner: "6. As far as the objectives of competition laws are concerned, they vary from country to country and even within a country they seem to change and evolve over the time. However, it will be useful to refer to some of the common objectives of competition law. The main objective of competition law is to promote economic efficiency using competition as one of the means of assisting the creation of market responsive to consumer preferences. The advantages of perfect competition are threefold: allocative e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s should be dealt with and taken to the logical end of pronouncement of final orders without any undue delay. In the event of delay, the very purpose and object of the Act is likely to be frustrated and the possibility of great damage to the open market and resultantly, country's economy cannot be ruled out. xx xx xx 125. We have already noticed that the principal objects of the Act, in terms of its Preamble and the Statement of Objects and Reasons, are to eliminate practices having adverse effect on the competition, to promote and sustain competition in the market, to protect the interest of the consumers and ensure freedom of trade carried on by the participants in the market, in view of the economic developments in the country. In other words, the Act requires not only protection of free trade but also protection of consumer interest. The delay in disposal of cases, as well as undue continuation of interim restraint orders, can adversely and prejudicially affect the free economy of the country. Efforts to liberalise the Indian economy to bring it on a par with the best of the economies in this era of globalisation would be jeopardised if time-bound schedule and, in any ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n their bids, things would have been different. Then L-I could have been called for negotiations. However, all the three appellants quoted identical rates of Rs. 388/-. Because of this reason all the appellants were LI and had to be called for negotiations. Therefore, bidding process did not come to an end on May 08, 2009 as argued by the appellants. It continued even thereafter when the appellants appeared before the committee for negotiations, much beyond May 20, 2009 the date on which provisions of Section 3 of the Act were enforced. 26) In the aforesaid conspectus, principle of retroactivity would definitely apply. For this, we may usefully refer to the judgment of this Court in R. Rajagopal Reddy (Dead) by LRs. & Ors. v. Padmini Chandrasekharan (Dead) By LRs. (1995) 2 SCC 630 wherein it was held that merely because an agreement relating to benami transaction was entered into prior to the coming into force of the Benami Transactions (Prohibition) Act, 1988, it would not mean that the provisions of the said Act would not apply retroactively to such an agreement and render it void. Likewise, in Zile Singh v. State of Haryana & Ors. (2004) 8 SCC 1, this Court held that rule again ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot say so. It is because the parties still want to act upon the agreement even after coming into force of the Act that difficulty arises. If the parties treat the agreement as still continuing and subsisting even after coming into force of the Act, which prohibits an agreement of such nature, such an agreement cannot be said to be valid from the date of the coming into force of the Act. If the law cannot be applied to the existing agreement, the very purpose of the implementation of the public policy would be defeated. Any and every person may set up an agreement said to be entered into prior to the coming into force of the Act and then claim immunity from the application of the Act. Such thing would be absurd, illogical and illegal. The moment the Act comes into force, it brings into its sweep all existing agreements. This can be explained further by quoting the following example: "A and B enter into agreement of sale of land on 2/1/2008. It is agreed between them that sale-deed would be executed on or before 2/1/2009. Meanwhile, i.e. on 10/8/2008, the Government decides to impose a ban on transfer of the land and declares that any such transfer, if effected, shall be void. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h vehemence by urging that bid rigging and collusive bidding are not mutually exclusive and these are overlapping concepts. Illustratively, he referred to the findings of the CCI, as approved by the COMPAT, in the instant case itself to the effect that the appellants herein had 'manipulated the process of bidding' on the ground that bids were submitted on May 08, 2009 collusively, which was only the beginning of the anti-competitive agreement between the parties and this continued through the opening of the price bids on June 01, 2009 and thereafter negotiations on June 17, 2009 when all the parties reduced their bids by same figure of `2 to bring their bid down to `386 per kg. from `388 per kg. From this example, he submitted that on May 08, 2009 there was a collusive bidding but with concerted negotiations on June 17, 2009, in the continued process, it was rigging of the bid that was practiced by the appellants. We are inclined to agree with this pellucid submission of the learned Additional Solicitor General. 32) Richard Whish and David Bailey Competition Law, 7th Edition, page 536, in their book, have given illustrations of various forms of collusive bidding/bid rigging, which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reements or informal arrangements among independent competitors, which limit competition. Agreements among competitors which violate the law include but are not limited to: (1) Agreements to adhere to published price lists. (2) Agreements to raise prices by a specified increment. (3) Agreements to establish, adhere to, or eliminate discounts. (4) Agreements not to advertise prices. (5) Agreements to maintain specified price differentials based on quantity, type or size of product." (e) Australian Competition & Consumer Commission "Bid rigging, also referred to as collusive tendering, occurs when two or more competitors agree they will not compete genuinely with each other for tenders, allowing one of the cartel members to 'win' the tender. Participants in a bid rigging cartel may take turns to be the 'winner' by agreeing about the way they submit tenders, including some competitors agreeing not to tender." 34) As the Leigman of the law, it is our task, nay a duty, to give proper meaning and effect to the aforesaid 'Explanation': it can easily be discussed that the Legislature had in mind that the two expressions are inter-changeably used. It is also necessary to kee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l. Keeping in mind the principle of purposive interpretation, we are inclined to give this meaning to 'collusive bidding'. It is more so when the expressions 'bid rigging' and 'collusive bidding' would be overlapping, under certain circumstances which was conceded by the learned counsel for the appellants as well. We are, therefore, of the opinion that the two expressions are to be interpreted using the principle of noscitur a sociis, i.e. when two or more words which are susceptible to analogous meanings are coupled together, the words can take colour from each other {See - Leelabai Gajanan Pansare & Ors. v. Oriental Insurance Company Limited & Ors. (2008) 9 SCC 720, Thakorlal D. Vadgama v. State of Gujarat (1973) 2 SCC 413, and M.K. Ranganathan v. Government of Madras & Ors. (1955) 2 SCR 374}. We, thus, answer Issue No. 1 in the negative by holding that the CCI was well within its jurisdiction to hold an enquiry under Section 3 of the Act in respect of tender of March, 2009. ISSUE NO.2 Re.: Jurisdiction of DG/CCI to investigate into the boycott of 2011 FCI's tender 35) The CCI had entrusted the task to DG after it received representation/complaint from the FCI vide its com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the information or reference, as the case may be, together with all evidences or documents or statements or analyses collected during the investigation:" (proviso not necessary) From this, the learned counsel argued that the Director General could have seen into the tender floated on 08.05.2009 only, and no other tender as the information did not contain any allegation about the tender floated in 2011. Therefore, the investigation made into the tender floated in 2011 was outside the jurisdiction of the Director General. This argument was more particularly pressed into service, as the Director General as well as the Competition Commission of India have found that all the appellants had entered into an agreement to boycott the tender floated in 2011 and thereby had rigged the bids. 29. We have absolutely no quarrel with the proposition that the Director General must investigate according to the directions given by the CCI under Section 26(1). There is also no quarrel with the proposition that the Director General shall record his findings on each of the allegations made 29 in the information. However, it does not mean that if the information is made by the FCI on the basis of te ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... starting point of inquiry would be the allegations contained in the complaint. However, while carrying out this investigation, if other facts also get revealed and are brought to light, revealing that the 'persons' or 'enterprises' had entered into an agreement that is prohibited by Section 3 which had appreciable adverse effect on the competition, the DG would be well within his powers to include those as well in his report. Even when the CCI forms prima facie opinion on receipt of a complaint which is recorded in the order passed under Section 26(1) of the Act and directs the DG to conduct the investigation, at the said initial stage, it cannot foresee and predict whether any violation of the Act would be found upon investigation and what would be the nature of the violation revealed through investigation. If the investigation process is to be restricted in the manner projected by the appellants, it would defeat the very purpose of the Act which is to prevent practices having appreciable adverse effect on the competition. We, therefore, reject this argument of the appellants as well touching upon the jurisdiction of the DG. ISSUE NO. 3: RE.: MERITS 37) It is not in dispute ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 010 436 - 436 - 15. Punjab State Co-op SS & Mktg. Fed. 14/02/2011 415 415 - - 16. Punjab State Civil Supplies Corp. 15/03/2011 - 415 - 415 38) The aforesaid table shows identical pricing by these parties even in respect of tenders floated by the U.P. State Warehousing Corporation and Punjab State Civil Supplies Corporation. It was repeated in respect of 2008 tender floated by the Central Warehousing Corporation. Tenders up to S.No.7 above, no doubt, relate to the period which is earlier to coming into force of the provisions of Section 3. At S.No. 8 is the tender of the FCI of March, 2009, which is held to be covered on the principle of retroactivity, as already held above. However, insofar as tenders mentioned at S.Nos. 9 to 16 are concerned, they all pertain to the period after Section 3 became operational. These are clear cut examples of identical pricing by the three appellants. No doubt, the appellants cannot be penalised in respect of tenders mentioned at S.Nos. 1 to 7 as there was no provision like Section 3 at that time. However, such illustrations become important in finding out the mens rea of the appellants, i.e. arrivin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in this behalf need to be highlighted: (a) there is a 10 years' history of quoting identical prices; (b) there are only four suppliers of the product in the market out of which three are the appellants; (c) even when the cost of production is different, they have quoted identical price; (d) even when the geographical location of the three suppliers is different, strange coincidence of identical pricing is found, that too repeatedly; (e) profit margins would be different, still quotations are same; and (f) to different parties in respect of different tenders, different rates are quoted. Still whatever price is quoted in respect of one particular tender, that is identical. It would be too much of a coincidence, difficult to believe. Thus, onus was on the appellants in view of Section 3 of the Act, and that too heavy onus, to justify the above trend, but they have failed to discharge this burden. We are, therefore, of the opinion that ingredients of Section 3 stand satisfied and the CCI rightly held that provisions of Section 3(3)(a), 3(3)(b) and 3(3)(d) have been contravened by the appellants. 41) It needs to be emphasised that collusive tendering is a practice whereb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... concerted practice, it may however amount to strong evidence of such a practice if it leads to conditions of competition which do not respond to the normal conditions of the market, having regard to the nature of the products, the size and number of the undertakings, and the volume of the said market. Such is the case especially where the parallel behaviour is such as to permit the parties to seek price equilibrium at a different level from that which would have resulted from competition, and to crystallise the status quo to the detriment of effective freedom of movement of the products in the [internal] market and free choice by consumers of their suppliers (emphasis added. At the same time, the Court also added that the existence of a concerted practice could be appraised correctly by keeping in mind the following test: "If the evidence upon which the contested decision is based is considered, not in isolation, but as a whole, account being taken of the specific features of the products in question." 44) It would be significant to note that in Dyestuffs' judgment, the Court rejected the argument predicated on Oligopolistic market structure, after finding that the market is no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is concerned, it did not even bother to give any representation. Likewise, M/s. Sandhya Organics did not approach the FCI at all with the representation that the quantities to be supplied were huge and the tender conditions be suitably modified. 48) We feel that COMPAT has examined the matter in right perspective. After examining the record, one finds that important fundamental conditions were the same which used to be in the earlier tenders. In 2009 tender, a specific quantity of 600 MT was prescribed. At that time, all the three appellants participated and did not object to the same. As against this in 2011 tender, the tentative annual requirement of APT was stated to be 400 MT and not 75 MT per month. The condition referred to by the appellants was not for supply of 75 MT per month. It only stated that in a given month the tenderer should have capacity to supply 75 MT. It was nowhere stated that 75 MT will have to be supplied by the successful tenderer every month. In any case, from the conduct of the three appellants, it becomes manifest that reason to boycott the May 2011 tender was not the purported onerous conditions, but it was a concerted action. Otherwise, if the appella ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... three years turnover (in Crore) Penalty at 9% of average turnover (in Crore) Excel Crop Care Ltd. 710.09 63.90 United Phosphorus Ltd. 2804.95 252.44 Sandhya Organics Chemicals (P) Ltd. 57.4 Crore 1.57 Crore 52) Under Section 27(b) of the Act, penalty of 10% of the turnover is prescribed as the maximum penalty with no provision for minimum penalty. CCI had chosen to impose 9% of the average turnover keeping in view the serious nature of the breach on the part of these appellants. 53) The COMPAT has maintained the rate of penalty i.e. 9% of the three years average turnover. However, it has not agreed with the CCI that 'turnover' mentioned in Section 27 would be 'total turnover' of the offending company. In its opinion it has to be 'relevant turnover' i.e. turnover of the product in question. Since, M/s. Excel Crop Care and UPL were multi-product companies, products other than APT could not have been included for the purpose of imposing the penalty. It, therefore, held that penalty of 9% would be limited to the product/service in question - in this case, the APT - which was the relevant product for the enquiry. The penalty, thus, stands substantially reduced in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t position, is in contravention of section 3 or section 4, as the case may be, it may pass all or any of the following orders, namely:- xxx xxx xxx (b) impose such penalty, as it may deem fit which shall be not more than ten per cent. of the average of the turnover for the last three preceding financial years, upon each of such person or enterprises which are parties to such agreements or abuse: [provided that in case any agreement referred to in section 3 has been entered into by a cartel, the Commission may impose upon each producer, seller, distributor, trader or service provider included in that cartel, a penalty of up to three times of its profit for each year of the continuance of such agreement or ten per cent of its turnover for each year of the continuance of such agreement, whichever is higher.]" 57) Extensive as well as intensive argument of Mr. Kaul, learned Additional Solicitor General, was that in S. 27(b) of the Act, there is no reference to 'relevant turnover'. On the contrary, clause (b) of S. 27 in clear terms, stipulates penalty on the 'turnover' i.e. average of the turnover for the last three preceding financial years and it plainly suggests that this 'tur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot the 'product' or the 'service' alone which is made the subject of the violation. As such, the expression 'turnover' must necessarily mean the turnover of the 'person' or the 'enterprise' which is party to the anti-competitive agreement or abuse of dominance. 61) Critiquing the approach of the COMPAT, he submitted that it has introduced the concept of 'relevant' turnover in Section 27 despite the absence of the word 'relevant', failing to notice that wherever the Act wanted to introduce the concept of 'relevance' the word 'relevant' has, in fact, been used in the appropriate sections. In this regard, he referred to Sections 2(r), 2(s), 2(t), 4(2)(e), 6, 19(6), 19(7), etc. where the expression 'relevant' is specifically used. He also referred to the definition of 'turnover' as contained in Section 2(y) of the Act, which includes value of goods or services, and submitted that it is the aforesaid definition of 'turnover' which has to be applied wherever this expression occurs in the Act and it cannot be read to have different criteria for determining penalty and the thresholds applicable for regulation of combinations. He also sought to highlight that where the expression is used i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es where the turnover covering non-offending products, is quite high, the CCI can always impose much lesser rate of penalty so that the penalty does not sound to be excessive and unconscionable and remains proportionate to the nature of contravention. However, it is not permissible to tinker the language of a statute. 66) Adverting to the specific case of M/s. Sandhya Organics Chemicals (P) Ltd., submission of Mr. Kaul was that the reason given by COMPAT in reducing the penalty was self-contradictory inasmuch as contention of this appellant that it did not bid in May 2011 tender of FCI was because of the reason that its production capacity was mere 25 MT per month was specifically rejected by the COMPAT, but this very rejected contention formed the basis of reducing the penalty. It was also submitted that in any case there was no justification in reducing the penalty to 1/10th of the penalty imposed by the CCI, i.e. from 9% to 0.9%, when the COMPAT itself observed that the nature of breach committed by the appellants was very serious and going by this consideration, the COMPAT maintained the penalty @ 9% in the case of the other two appellants. 67) Learned counsel appearing for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. The relevance of the maximum penalty is only for the limited purpose to ensure that the quantum so determined, does not exceed the maximum penalty. 68) Learned counsel for the appellants also advocated for applying the doctrine of proportionality which has universal application and lays down that 'the broad principles that the punishment must be proportioned to the offence is or ought to be of universal application' as held in Arvind Mohan Sinha v. Amulya Kumar Biswas & Ors. (1974) 4 SCC 222 Attention of the Court was also drawn to another judgment of this Court in State of Haryana & Ors. v. Sant Lal & Anr. (1993) 4 SCC 380 where penalty for evasion of tax sought to be levied on the basis of 20% of the value of the tax was held to be ultra vires. Likewise, application of this doctrine of proportionality applied in Bhagat Ram v. State of Himachal Pradesh & Ors. (1983) 2 SCC 442 was emphasised by referring to the following passage therein: "16...It is equally true that the penalty imposed must be commensurate with the gravity of the misconduct, and that any penalty disproportionate to the gravity of the misconduct would be violative of Article 14 of the Constitution..." 69) Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e same very issue, the judgment of the Competition Appeal Court of South Africa in the case of Southern Pipeline Contractors Conrite Walls (Pty) Ltd. v. The Competition Commission Case No. 105/CAC/Dec 10) (106/CAC/Dec 10) provides the answer in the following manner: "51. The concept of 'turnover' is not defined in the Act and is only referred to in Section 59(2), being annual turnover. There is thus some uncertainty as to the precise meaning of 'turnover'. However, Section 59(3) refers on more than one occasion to 'the contravention', in particular, in dealing with the nature, duration, gravity and extent 'of the contravention', the loss or damage suffered as a result of the 'contravention' the market circumstances in which 'the contravention' the market circumstances in which 'the contravention' took place and the level of profit derived from 'the contravention'. Thus there is a legislative link between the damage caused and the profits which accrue from the cartel activity. The inquiry, in terms of Section 59(20), appears to envisage that consideration be given to the benefits which accrue from the contravention: that is to amount to affected turnover. By using the baseline of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be pursuant to an 'agreement'. Such an agreement may relate to a particular product between persons or enterprises even when such persons or enterprises are having production in more than one product. There may be a situation, which is precisely in the instant case, that some of such enterprises may be multi-product companies and some may be single product in respect of which the agreement is arrived at. If the concept of total turnover is introduced it may bring out very inequitable results. This precisely happened in this case when CCI imposed the penalty of 9% on the total turnover which has already been demonstrated above. (b) Interpretation which brings out such inequitable or absurd results has to be eschewed. This fundamental principle of interpretation has been repeatedly made use of to avoid inequitable outcomes. The Canadian Supreme Court in Ontario vs. Canadian Pacific Ltd. (1995) 2 SCR 1031 wherein the expression 'use' occurring in Environment Protection Act was given restricted meaning. The principle that absurdity should be avoided was explained in the following manner: "The expression "for any use that can be made of the natural environment has an identifiable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld be understood as covering the situations captured by paras. 13(1)(b) through (h), and any analogous situations that might arise." We would also like to quote the following observations from State of Jharkhand and Another v. Govind Singh (2005) 10 SCC 437: "20. While interpreting a provision the court only interprets the law and cannot legislate it. If a provision of law is misused and subjected to the abuse deemed necessary. [See CST v. Popular Trading C. : (2000) 5 SCC 511 : AIR 2000 SC 1578] . The legislative casus omissus cannot be supplied by judicial interpretative process." Likewise, following passages from the judgment of this Court in Commissioner of Income Tax, Bangalore v. J.H Yadagiri (1985) 4 SCC 343 shed light of similar nature. "45. In the case of K.P. Varghese v. IT0 [(1981) 4 SCC 173 : 1981 SCC (Tax) 293 : (1981) 131 ITR 597] this Court emphasised that a statutory provision must be so construed, if possible, that absurdity and mischief may be avoided. 46. Where the plain literal interpretation of a statutory provision produces a manifestly unjust result which could never have been intended by the Legislature, the Court might modify the language used by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s hereunder. Xxx xxx xxx "25. In Oxford University Press v. Commissioner of Income Tax [MANU/SC/0052/2001]:(2001) 3 SCC 359, Mohapatra, J. has opined that interpretation should serve the intent and purpose of the statutory provision. In that context, the learned Judge has referred to the authority in State of T.N. v. Kodaikanal Motor Union (P) Ltd. [MANU/SC/0127/1986] : (1986) 3 SCC 91 wherein this Court after referring to K.P. Varghese v. ITO [MANU/SC/0300/1981] : (1981) 4 SCC 173 and Luke v. IRC (1964) 54 ITR 692 has observed: The courts must always seek to find out the intention of the legislature. Though the courts must find out the intention of the statute from the language used, but language more often than not is an imperfect instrument of expression of human thought. As Lord Denning said it would be idle to expect every statutory provision to be drafted with divine prescience and perfect clarity. As Judge learned Hand said, we must not make a fortress out of dictionary but remember that statutes must have some purpose or object, whose imaginative discovery is judicial craftsmanship. We need not always cling to literalness and should seek to endeavour to avoid an unjus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions which is of a quasi criminal nature. We would like to reproduce following discussion from the said judgment : "98. Election petitions alleging corrupt practices have a quasi-criminal character. Where a statutory provision implicates penal consequences or consequences of a quasi-criminal character, a strict construction of the words used by the legislature must be adopted. The Rule of strict interpretation in regard to penal statutes was enunciated in a judgment of a Constitution Bench of this Court in Tolaram Relumal v. State of Bombay [(1951) 1 SCR 158 = AIR 1954 SC 496] where it was held as follows: "...It may be here observed that the provisions of Section 18(1) are penal in nature and it is a well settled Rule of construction of penal statutes that if two possible and reasonable constructions can be put upon a penal provision, the Court must lean towards that construction which exempts the subject from penalty rather than the one which imposes penalty. It is not competent to the Court to stretch the meaning of an expression used by the Legislature in order to carry out the intention of the Legislature. As pointed out by Lord Macmillan in London and North Eastern Railwa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of proportionality which is based on equity and rationality. It is, in fact, a constitutionally protected right which can be traced to Article 14 as well as Article 21 of the Constitution. The doctrine of proportionality is aimed at bringing out 'proportional result or proportionality stricto sensu'. It is a result oriented test as it examines the result of the law in fact the proportionality achieves balancing between two competing interests: harm caused to the society by the infringer which gives justification for penalising the infringer on the one hand and the right of the infringer in not suffering the punishment which may be disproportionate to the seriousness of the Act. No doubt, the aim of the penal provision is also to ensure that it acts as deterrent for others. At the same time, such a position cannot be countenanced which would deviate from 'teaching a lesson' to the violators and lead to the 'death of the entity' itself. If we adopt the criteria of total turnover of a company by including within its sweep the other products manufactured by the company, which were in no way connected with anti-competitive activity, it would bring about shocking results not comprehen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e relevant turnover. It is in the public interest as well as in the interest of national economy that industries thrive in this country leading to maximum production. Therefore, it cannot be said that purpose of the Act is to 'finish' those industries altogether by imposing those kinds of penalties which are beyond their means. It is also the purpose of the Act not to punish the violator even in respect of which there are no anti-competitive practices and the provisions of the Act are not attracted. We may mention that Mr. Kaul, learned Additional Solicitor General had referred to the statutory regimes in various other countries in his endeavour to demonstrate that it is the concept of total turnover which was recognised in other jurisdictions as well. The attempt was to show that the principle of 'total turnover' was prevalent across the globe wherever such laws are enforced. On the contrary, the learned counsel for the appellants pointed out the provision contained in similar statutes of some countries where the concept of relevant turnover had been adopted. South Africa is one such example and, in fact, COMPAT has referred to the judgment of Southern African Competition Appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er 'SOCL' for brevity] (three appellants herein) and Agrosynth Chemicals Ltd. [hereinafter 'ACL' for brevity] were involved in collusive bidding in relation to tenders issued by FCI for Aluminium Phosphide Tablets [hereinafter 'APT' for brevity]. Following chart would indicate the pattern of bidding undertaken by the aforesaid companies- TABLE 1.1 - pattern of bidding YEAR NAME OF TENDERS RATES QUOTED TENDERS AWARDED RRC RATES REMARKS 2002 UPL UPL Rs. 245/- per Kg. inclusive of all charges and taxes F.O.R destinatio n against issue of 'C' Form. FCI had to award Rate Running Contract to all tenders as they quoted to same rates ECCL ECCL SOCL SOCL ACL ACL Mar -05 UPL Rs. 310 per Kg. was quoted by all the parties Tender was scrapped Tender was scrapped Tenders had quoted same rates and upon negotiatio ns all the parties reduced to the rate to Rs. 290/- ECCL SOCL ACL Nov -05 UPL No party submitted tender Tender was scrapped Tender was scrapped All parties abstained from the process of tendering ECCL SOCL ACL 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould be useful to reproduce Section 27 (b) of the Act as a starting point before we delve into discussions in this case- SECTION 27 ... (b) impose such penalty, as it may deem fit which shall be not more than ten per cent. of the average of the turnover for the last three preceding financial years, upon each of such person or enterprises which are parties to such agreements or abuse: Provided that in case any agreement referred to in section 3 has been entered into by a cartel, the Commission may impose upon each producer, seller, distributor, trader or service provider included in that cartel, a penalty of up to three times of its profit for each year of the continuance of such agreement or ten per cent. of its turnover for each year of the continuance of such agreement whichever is higher; ... A plain reading of this Section elucidates that the commission is empowered to impose penalty and to the extent as it deems fit but not exceeding ten percent of the turnover. Section 27 (b) emphasize that penalty is to be levied on 'person or enterprise' who have contravened Section 3 or Section 4 of the Act. It is to be noted that proviso to Section 27(b), before it was amended ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s my considered opinion that the interpretation to Section 27(b) of the Act requires fresh indigenous consideration rather than relying on foreign jurisprudence. 8. First a word on interpretation, before we indulge ourselves in the legal discussion. As the interpretative exercise, as this case, involves various equitable facets Such as proportionality., literal interpretation might not be conclusive. It should be noted that an interpretation should sub-serve the intent and purpose of the statutory provision. Therefore we would have to look beyond the plain and simple meaning, to extract the intention of the Act and rationalize the fining policy under Section 27 (b) of the Act. 9. It is well settled that the Competition Act, 2002 is a regulatory legislation enacted to maintain free market so that the Adam Smith's concept of invincible hands operate unhindered in the background. CCI v. SAIL, (2010) 10 SCC 744. Further it is clear from the Statement of objects and reason that this law was foreseen as a tool against concentration of unjust monopolistic powers at the hands of private individuals which might be detrimental for freedom of trade. Competition law in India aims to achieve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hoo Committee, only to harass the assesse. The approach of the Assessing Officer in this behalf must be fair and objective." (emphasis supplied) Moreover in the case of Hindustan Steel Ltd. vs. State of Orissa, AIR 1970 SC 253 this Court made following observations- "An order imposing penalty for failure to carry out a statutory obligation is the result of a quasi criminal proceedings and penalty will not ordinarily be imposed unless the party obliged either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligation. Penalty will not also be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances. Even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of the provisions of the Act or where the breach flows from a bona fide belief that the offender is not liable to act in the manner pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... udited financial statements are not available, the Commission may consider any other reliable records reflecting the entity's relevant turnover or estimate the relevant turnover based on available information. However the Tribunal is free to consider facts and circumstances of a particular case to calculate relevant turnover as and when it is seized with such matter. STEP 2: DETERMINATION OF APPROPRIATE PERCENTAGE OF PENALTY BASED ON AGGRAVATING AND MITIGATING CIRCUMSTANCES. 13. After such initial determination of relevant turnover, commission may consider appropriate percentage, as the case may be, by taking into consideration nature, gravity, extent of the contravention, role played by the infringer (ringleader? Follower?), the duration of participation, the intensity of participation, loss or damage suffered as a result of such contravention, market circumstances in which the contravention took place, nature of the product, market share of the entity, barriers to entry in the market, nature of involvement of the company, bona fides of the company, profit derived from the contravention etc. These factors are only illustrative for the tribunal to take into consideration while i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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