2015 (4) TMI 21 - HC - Indian Laws

Penalties imposed by the Competition Commission of India (hereafter CCI ) for non-filing of undertakings to cease and desist from anti-competitive conduct - Held that - penalties as contemplated under Section 42(2) of the Act are levied as a punitive measure for noncompliance of orders including orders under Section 27 of the Act. Given the nature of penalties and the wide discretion vested with CCI, the same are to be considered keeping in view several relevant factors including the nature of directions that have remained uncomplied whether they are substantive or merely formal, the effect of such non-compliance, the intention of the parties accused of non-compliance, the benefit derived by such parties, causes for non-compliance. Penalties by their very nature are punitive measures and thus, have to be considered in light of the gravity of the offence in respect of which they are imposed. There is no allegation that the petitioners had indulged in any anti-competitive conduct or had failed to comply with the directions to cease and desist from anti-competitive conduct as directed by CCI. In the case of petitioner (RSI) had lost its registration with DGS&D on 21.12.2011. Thus even prior to the information being filed with CCI and CCI recording its prima facie opinion, the petitioner had ceased to be a DGS&D Rate Contractor. Consequently, the petitioner had neither participated in the Rate Contract nor was capable of doing so. In the circumstances, the question of the petitioner entering into any arrangement or bid rigging or indulging in anticompetitive conduct proscribed by CCI, did not arise. - In the given circumstances, it is amply clear there was neither any allegation that the petitioners had failed to comply with the cease and desist order nor in fact the petitioners could have indulged in an anti-competitive conduct after CCI s order of 06.08.2013. Thus, in the present case, CCI has imposed penalty even though CCI s cease and desist order was not violated and had been fully complied with. - 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. - Decided in favour of appellant.

Summary

Issues Involved:
1. Legality of penalties imposed by the Competition Commission of India (CCI) for non-filing of undertakings to cease and desist from anti-competitive conduct.
2. Whether the penalties imposed by CCI were arbitrary and/or unreasonable.
3. Validity of show cause notices issued by CCI.
4. Applicability of the doctrine of proportionality in the context of penalties imposed by CCI.

Detailed Analysis:

1. Legality of penalties imposed by CCI for non-filing of undertakings to cease and desist from anti-competitive conduct:

The petitions challenged the penalties imposed by CCI under Section 42 of the Competition Act, 2002, for failing to file undertakings to cease and desist from anti-competitive conduct as directed by CCI. The penalties amounted to Rs. 14,10,000 for RSI and Rs. 13,65,000 for Rajkumar Dyeing. The penalties were imposed due to non-compliance with CCI's order dated 06.08.2013, which directed the petitioners to file the undertakings within 30 days.

2. Whether the penalties imposed by CCI were arbitrary and/or unreasonable:

The court examined whether the penalties were arbitrary and/or unreasonable. It was noted that CCI's substantive order to cease and desist from anti-competitive conduct had not been violated by the petitioners. The court found that the penalties were shockingly disproportionate, as they were imposed solely for non-filing of a document in aid of compliance with a substantive direction that was undisputedly complied with. The court emphasized the doctrine of proportionality, which mandates that punitive measures must be commensurate with the gravity of the offending acts.

3. Validity of show cause notices issued by CCI:

The petitioners contended that the show cause notices issued by CCI were defective and invalid as they did not mention the period for which the penalty was sought to be imposed. The court noted that the show cause notices were issued for non-compliance with CCI's direction to file undertakings. However, the notices did not specify the period of non-compliance, which rendered them defective.

4. Applicability of the doctrine of proportionality in the context of penalties imposed by CCI:

The court applied the doctrine of proportionality, a recognized facet of Article 14 of the Constitution of India, to assess the reasonableness of the penalties. The court held that the penalties imposed by CCI were disproportionate and failed the Wednesbury test of unreasonableness. The court observed that CCI had not considered relevant factors such as the petitioners' compliance with the substantive direction to cease and desist from anti-competitive conduct, the lack of any adverse effect on public interest, and the petitioners' status as small scale industries.

Conclusion:

The court found that CCI had imposed penalties without proper application of mind and in a wanton exercise of powers, ignoring relevant factors and constitutional principles. Consequently, the impugned order was set aside, and the petitions were allowed. The parties were directed to bear their own costs.