Case Title: Excel Crop Care Limited v. Competition Commission of India and Others
The Supreme Court on May 8, 2017, held that the "relevant turnover" of the company, rather than the "total turnover," should be used to determine the punishment to be imposed on firms using anti-competitive techniques.
FACTS OF THE CASE
Food Corporation of India submitted a complaint to the Indian Competition Commission, alleging that four firms had implemented anti-competitive arrangements namely:-
M/s. Excel Crop Care Limited
M/s. United Phosphorus Limited
M/s. Sandhya Organics Chemicals (P) Ltd
M/s Agrosynth Chemicals Limited
These businesses produced tablets containing aluminium phosphate, and it was claimed that they formed an alliance by entering into an anti-competitive pact. The Director General of the Competition Commission of India conducted an investigation after the Competition Commission of India accepted the complaint, and he found that from 2002 to 2009, these businesses had been submitting their bids by citing matching rates in the proposals requested by the Food Corporation of India for the acquisition of APT. These businesses were found to be in violation of section 3(3) of the Competition Act, 2002, which bars anti-competitive agreements, according to the Director General of the Competition Commission of India's statement. The Competition Commission of India determined via order dated April 23, 2012, that M/s. Excel Crop Care Limited, M/s. United Phosphorus Limited, and M/s. Sandhya Organics Chemicals (P) Ltd had violated section 3 of the Act and as a result, enforced punishment on them at the rate of 9% on the average aggregate turnover of these institutions based on the report of the Director General of the Competition Commission of India and complaints filed by the four companies.
In addition to the Competition Commission of India's ruling, the appellants filed appeals at COMPAT (Competition Appellate Tribunal). The appellants violated Section 3 of the Act, according to COMPAT. However, the COMPAT ruled that only "relevant turnover" and not "total turnover" should be taken into account when determining the weight of the penalty for multi-product firms under section 27(b). While total turnover refers to the whole turnover of the incorrect person or company, including all goods, appropriate turnover refers to the turnover in connection to the product in issue with respect to which the Act's conditions were violated. The appellants then petitioned the Supreme Court of India, pleading with it to declare the COMPAT results invalid and to determine their individual penalty. The CCI also filed a petition with the Supreme Court asking it to dismiss the portion of the COMPAT request that said that providers should only be punished for suitable turnover, not for total turnover.
ISSUES BEFORE THE COURT
Whether "turnover" as used in Section 27 of the Act stands for "relevant turnover" or "total turnover"?
Whether the Competition Commission of India is authorised to investigate a tender offer that the parties put up prior to the effective date of Section 3 of the Act?
JUDGMENT
An issue in determining turnover: -
The idea of "turnover" for businesses with multiple offerings: When a corporation with many products has entered into an arrangement that is anti-competitive and may only be related to one product, punishing a firm based on its whole revenue would therefore have unfair consequences. Such unjust or ridiculous results should be avoided. There doesn't seem to be any justification for including additional goods of a firm since an agreement that violates Section 3 requires just one product in order to enforce punishment. As a result, the product that is violating or infringing should be the turnover.
In Excel Crop, a two-judge Supreme Court panel agrees to insert the word "relevant" into the punishment provision, particularly in the situation of multiproduct enterprises. A three-judge Supreme Court panel stated in CCI v. Steel Authority of India Ltd. (2010) that, "it is not essential for the court to implant, or to remove words, or to overemphasise language when it is straightforward and simple." It is argued that Section 27 is clear and does not call for such an interpretation. Moreover, the Court's current interpretation assures that the punishment for these multiproduct corporations practically reduces to little more than a tap on the wrist.
Furthermore, it is reasonable to presume that multiproduct corporations are often bigger businesses with a variety of economic interests. These companies frequently have the scale and market strength to have an impact on other participants and end users. In addition to making the punishment clause essentially meaningless, the Court's ruling on relevant turnover may also give multiproduct corporations more confidence to apply market pressure because any violations would be restricted to a certain industry.
The Doctrine of Proportionality: The Supreme Court of India used the "doctrine of proportionality" to strike a balance between the Act's goal of ending anti-competitive behaviours and the violator's right to avoid a penalty that would be excessive given the gravity of the offence. The Act aims to penalise those who violate it. Relying upon judgments like Coimbatore District Central Coop. Bank v. Employees Assn. Coimbatore District Central Coop. Bank v. Employees Assn., State of Jharkhand v. Govind Singh State of Jharkhand v. Govind Singh, the Court ruled that lawbreakers should be treated fairly, and that the punishment should not be disproportionate.
The Doctrine of Purposive Interpretation: The Supreme Court of India asserted that there was a statutory relationship between the harm caused and the profits amassed from the cartel activities using the "purposive construction" theory. The Court relied on the decision of the Competition Appeal Court of South Africa in Southern Pipeline Contractors v. Competition Commission, 2011 SCC OnLine ZACAC 5 which ruled that there needed to be a connection between the crime and the gain attributable to it. Therefore, the relevant turnover, or "concerned turnover," becomes a yardstick for the imposition of a penalty in light of this form of co-relation.
Calculation of Penalty: The Supreme Court relied on a number of grounds to decide that considering "relevant turnover" to assess the punishment of criminal organisations was necessary. In a decision by the Constitution Bench in Abhiram Singh v. C.D., this Court examined the pertinent case law on the matter and applied this approach even when interpreting "corrupt activity" in elections, which is of a quasi-criminal nature.
For the purpose of determining the appropriate punishment under section 27 of the Act, the Court further established a two-step test.
Step 1:-
"Determination of relevant turnover": The entity's sales of goods and services that were impacted by the infringement are considered to be the appropriate turnover. The Court ruled that the evaluating authority should consider the entity's audited financial reports when determining the punishment to be meted out to an offender. If there are no such statements, appropriate records reflecting the company's relevant turnover or an estimation of relevant turnover may be taken into account.
Step 2:-
"Determination of appropriate percentage of punishment based on aggravating and mitigating circumstances": Factors that should be taken into account when imposing an acceptable fraction of a penalty include nature, gravity, scope of the violation, the role performed by the infringer, the extent and intensity of involvement, loss or harm suffered because of such a violation, market conditions in which the violation took place, nature of the product.
However, such a fine would not exceed a total of 10% of the relevant turnover of the firm. The Supreme Court affirmed the penalty imposed on the petitioners based on COMPAT's calculation of the appropriate turnover of the enterprises in light of the aforementioned factors.
Before the start of Section 3, issue of CCI to undertake a tender investigation:-
The Competition Commission of India's investigation into the March 2009 tender, which began on the day before Section 3 became operational, was covered by Section 3 of the Act, according to the Supreme Court, because the tender procedure continued past May 20, 2009, the date on which Section 3 of the Act's requirements were imposed. The court emphasised on the judgment of Competition Commission of India v. SAIL CCI v. SAIL, stating that they were of the opinion that Section 3 of the Act is applicable to CCI's investigation into the March 2009 offer since the tender process lasted well after 20 May 2009, the day on which Section 3's provisions took effect. They concurred with Compat that the appellants' participation did not cease with the filing of the offer on August 5, 2009.
CONCLUSION
According to the ruling from the country's highest court, the Competition Commission of India and COMPAT were able to decide how to penalise lawbreakers in the future depending on the proper turnover of their firms. The Supreme Court also provided an informative list of factors to take into account when determining the proportion of punishment. Businesses have been spared from being subjected to unduly hefty fines that would have been way out of proportion as compared to the gravity of offence committed by them. The Competition Commission of India has the authority to impose fines of up to "three times the company's profit" if they are greater than 10% of the company's annual turnover, which should be taken into consideration by companies that have increased their revenues significantly through the creation of cartels.