2017 (5) TMI 542 - SC - Companies Law

Validity of anti-competitive agreement - offending the provisions of Section 3(3) of the Competition Act, 2002 - penalty imposed by COMPAT - CCI jurisdiction to hold enquiry - Held that - Merely because the purported agreement between the appellants was entered into and bids submitted before May 20, 2009 are no yardstick to put an end to the matter. No doubt, after the agreement, first sting was inflicted on May 8, 2009 when the bids were submitted and there was no provision like S. 3 on that date. However, the effect of the arrangement continued even after May 20, 2009, with more stings, as a result of which the appellants bagged the contracts and fruits thereof reaped by the appellants when Section 3 had come into force which frowns upon such kinds of agreements. We are, thus, of the opinion that inquiry into the tender of March 2009 by the CCI is covered by Section 3 of the Act inasmuch as the tender process, though initiated prior to the date when Section 3 became operation, continued much beyond May 20, 2009, the date on which the provisions of Section 3 of the Act were enforced. We agree with the COMPAT that the role of the appellants did not come to an end with the submission of bid on May 08, 2009. No doubt, clause (d) of sub-section (3) of Section 3 uses both the expressions bid rigging and collusive bidding , but the Explanation thereto refers to bid rigging only. However, it cannot be said that the intention was to exclude collusive bidding . Even if the Explanation does contain the expression collusive bidding specifically, while interpreting clause (d), it can be inferred that collusive bidding relates to the process of bidding as well. 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. 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. Jurisdiction of DG/CCI to investigate into the boycott of 2011 FCI s tender - Held that - The 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. 2009 tender of the FCI, all the three appellants had quoted the same price, i.e. ₹ 388 per kg. for the APT - Held that - 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 appellants were genuinely interested in participating in the said tender and were aggrieved by the aforesaid conditions, they could have taken up the matter with the FCI well in time. They, therefore, could request the FCI to drop the same (in fact FCI dropped these conditions afterwards when the matter was brought to their notice). However, no such effort was made. As pointed out above, M/s. Excel Crop Care wrote the letter only a day before, just to create the record which cannot be termed as a bona fide move on its part. 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 appellants were genuinely interested in participating in the said tender and were aggrieved by the aforesaid conditions, they could have taken up the matter with the FCI well in time. They, therefore, could request the FCI to drop the same (in fact FCI dropped these conditions afterwards when the matter was brought to their notice). However, no such effort was made. As pointed out above, M/s. Excel Crop Care wrote the letter only a day before, just to create the record which cannot be termed as a bona fide move on its part. Penalty - whether penalty under Section 27(b) has to be on total/entire turnover of the company covering all the products or it is relatable to relevant turnover ? - Held that - In the absence of specific provision as to whether such turnover has to be product specific or entire turnover of the offending company, we find that adopting the criteria of relevant turnover for the purpose of imposition of penalty will be more in tune with ethos of the Act and the legal principles which surround matters pertaining to imposition of penalties. Cases at hand itself amply demonstrate that the CCI s contention, if accepted, would bring about anomalous results. In the case of M/s. Excel Crop Care Limited, average of three years turnover in respect of APT, in respect whereof anti-competitive agreement was entered into by the appellants, was only 32.41 crores. However, as against this, the CCI imposed penalty of ₹ 63.90 crores by adopting the criteria of total turnover of the said company with the inclusion of turnover of the other products as well. Likewise, UPL was imposed penalty of 252.44 crores by the CCI as against average of the three years turnover of APT of ₹ 77.14 crores. Thus, even when the matter is looked into from this angle, we arrive at a conclusion that it is the relevant turnover, i.e., turnover of the particular product which is to be taken into consideration and not total turnover of the violator.

Summary

Issues Involved:
1. Applicability of Section 3 of the Competition Act, 2002 to the March 2009 tender.
2. Jurisdiction of the CCI to investigate the 2011 FCI tender.
3. Determination of anti-competitive practices by the appellants.
4. Calculation of penalties under Section 27(b) of the Act.

Detailed Analysis:

Issue 1: Applicability of Section 3 of the Act in respect of Notice Inviting Tender (NIT) dated March 28, 2009
Section 3 of the Competition Act, 2002, which prohibits anti-competitive agreements, came into force on May 20, 2009. The appellants argued that since the tender was submitted on May 8, 2009, Section 3 should not apply. However, the court held that the tender process continued beyond May 20, 2009, with bids opened on June 1, 2009, and negotiations held on June 17, 2009. Thus, the provisions of Section 3 were applicable. The court emphasized that the anti-competitive conduct continued beyond the enforcement date, making the principle of retroactivity applicable. The court also noted that the appellants' anti-competitive behavior persisted in subsequent tenders, reinforcing the applicability of Section 3.

Issue 2: Jurisdiction of CCI to Investigate the Boycott of 2011 FCI’s Tender
The appellants contended that the CCI could not investigate the 2011 tender as it was not mentioned in the FCI's complaint dated February 4, 2011. The court rejected this argument, stating that the CCI's order under Section 26(1) was broad enough to cover the investigation of the 2011 tender. The court emphasized that the purpose of the investigation was to uncover anti-competitive practices, and limiting the investigation to the initial complaint would defeat this purpose. The court upheld the COMPAT's view that the DG was empowered to investigate all relevant facts, including the 2011 tender.

Issue 3: Determination of Anti-Competitive Practices by the Appellants
The court found that the appellants had engaged in anti-competitive practices by quoting identical prices in various tenders, including the 2009 FCI tender. The court dismissed the appellants' explanation of economic forces and conscious parallelism, noting the consistent pattern of identical pricing over several years. The court highlighted factors such as different cost structures and geographical locations of the appellants, which made the identical pricing highly suspicious. The court also found that the appellants' boycott of the 2011 tender was a concerted action, not a result of onerous tender conditions. The court concluded that the appellants had violated Sections 3(3)(a), 3(3)(b), and 3(3)(d) of the Act.

Issue 4: Calculation of Penalties under Section 27(b) of the Act
The CCI imposed penalties based on the total turnover of the appellants, but the COMPAT reduced the penalties, basing them on the "relevant turnover" related to the product in question. The court upheld the COMPAT's approach, emphasizing that penalties should be proportionate and based on the affected turnover. The court reasoned that using total turnover could lead to inequitable results, especially for multi-product companies. The court also highlighted the principle of proportionality, stating that penalties should be commensurate with the gravity of the misconduct. The court agreed with the COMPAT's decision to reduce the penalties for M/s. Sandhya Organics Chemicals (P) Ltd. due to its smaller size and limited production capacity.

Conclusion:
The court upheld the COMPAT's decision on all issues, confirming the applicability of Section 3 to the 2009 tender, the CCI's jurisdiction to investigate the 2011 tender, the finding of anti-competitive practices by the appellants, and the calculation of penalties based on relevant turnover. The appeals by the appellants and the CCI were dismissed, with no order as to costs.