2016 (3) TMI 1327 - AT - Indian Laws

Anti-Competitive Activities - interpretation of statute - meaning of Turnover appearing in Section 27(b) of the Competition Act, 2002 - imposition of penalty under Section 27(b) or its proviso. Whether the term turnover appearing in Section 27(b) of the Competition Act, 2002 and its proviso means the total turnover of any enterprise or association of enterprises or person or association of persons, who may have entered into any agreement in respect of production, supply, distribution, storage, acquisition or control of goods or provision of services in violation of Section 3 of the Act or of an enterprise or a group which may be found guilty of abuse of dominant position within the meaning of Section 4? - Held that - One of the well-recognized rules of interpretation of statutes is the rule of contextual interpretation. This rule requires that the Court should examine every word of a statute in its context. In doing so, the Court has to keep in view preamble of the statute, other provisions thereof, pari materia statutes, if any, and the mischief intended to be remedied. Context often provides the key to the meaning of the word and the sense it carries. Its setting gives colour to it and provides a cue to the intention of the legislature in using it. 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. The definition of the term turnover which includes value of sale of goods or services will necessarily mean the value of goods or services which are made subject-matter of investigation under Section 26 and order of punishment under Section 27. If the accusation/allegation relates to abuse of dominant position, then the Commission is required to take into consideration the factors enumerated in Section 19(4), (5), (6) and (7). Whether while deciding the issue relating to imposition of penalty under Section 27(b) or its proviso, the Commission is required to follow some objective criteria and take into consideration factors like the nature of anti-competitive agreement and/or abuse of dominant position, appreciable adverse effect on competition, financial health of the enterprise and market condition? - Held that - Proviso to Section 27(b) (unamended) was couched in a language, which made it mandatory for the Commission to impose on each producer, seller, distributor, trader or service provider included in a cartel, a penalty equivalent to three times of the amount of profits made out of such agreement by the cartel or 10% of the average of the turnover of the cartel for the last preceding three financial years, whichever was higher. It is thus clear that if the proviso to Section 27(b) had not been amended, then the Commission had no option but to impose penalty on each producer, seller, distributor, trader or service provider in cases involving formation of cartel. However, in its wisdom, Parliament amended the proviso and substituted the word shall with the word may - 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. Unfortunately, the Commission has, while reiterating the penalty imposed on the appellants by the original order dated 24.02.2012, altogether ignored the principles laid down by the Supreme Court and the High Courts on the interpretation of statutes, which confer power upon the competent authority to impose penalty on a person who is found guilty of having acted in violation of the particular provision - Another error committed by the Commission is that even though it took cognisance of the mitigating factors highlighted by the appellants and others, it brushed aside the same simply because they were found guilty of forming a cartel and indulging in bid-rigging. The fact that many of the appellants were small scale units was also not given due weightage by the Commission while passing the impugned order. The impression which we gather from the impugned order is that the Commission proceeded to decide the issue of penalty with a determination that the appellants who were found to be guilty of formation a cartel/collusive bidding must be punished so that others may learn a lesson from this. This approach is wholly inconsistent with the objective sought to be achieved by the Act, which is not only aimed at preventing practices having adverse effect on competition, but also to promote and sustain competition in market and to protect the interest of consumers. The Commission could not have over looked the fact that the appellants had reduced their rates after negotiations with IOCL and there was no evidence that they had made unwarranted profits by supplying cylinders at the particular rates. The matter is again remitted to the Commission for deciding the issue relating to imposition of penalty under Section 27(b).

Summary

Issues Involved:
1. Interpretation of the term 'turnover' in Section 27(b) of the Competition Act, 2002.
2. Criteria and factors for imposing penalties under Section 27(b) of the Act.
3. Consideration of mitigating factors in determining penalties.
4. Application of the relevant turnover concept for multi-product companies.
5. Procedural fairness in imposing penalties.

Detailed Analysis:

1. Interpretation of the term 'turnover' in Section 27(b) of the Competition Act, 2002:
The primary issue was whether the term 'turnover' in Section 27(b) and its proviso refers to the total turnover of the enterprise or only the turnover related to the specific product or service involved in the anti-competitive conduct. The Tribunal concluded that the term 'turnover' should be confined to the turnover of the product or service that was the subject of the investigation and found to be in violation of Section 3 or Section 4 of the Act. It emphasized that the definition of 'turnover' includes the value of sales of goods or services related to the specific anti-competitive conduct.

2. Criteria and factors for imposing penalties under Section 27(b) of the Act:
The Tribunal highlighted that the imposition of penalties under Section 27(b) is discretionary and should not exceed 10% of the average turnover for the last three preceding financial years. It noted that the Commission must consider various factors such as the nature of the anti-competitive agreement, the financial health of the enterprise, market conditions, and any mitigating circumstances. The Tribunal criticized the Commission for imposing a uniform penalty rate of 7% without conducting a comparative study or providing sufficient reasons for this decision.

3. Consideration of mitigating factors in determining penalties:
The Tribunal underscored the importance of considering mitigating factors when determining penalties. It referred to several mitigating factors presented by the appellants, such as their financial health, the nature of their business, and their cooperation with the investigation. The Tribunal found that the Commission had failed to give due weightage to these factors and had adopted an arbitrary approach in imposing penalties. It emphasized that penalties should not be imposed merely because it is lawful to do so but should be based on a fair and objective assessment of all relevant circumstances.

4. Application of the relevant turnover concept for multi-product companies:
The Tribunal addressed the issue of whether the turnover of other products manufactured by multi-product companies should be considered when imposing penalties. It concluded that only the turnover related to the specific product or service involved in the anti-competitive conduct should be considered. The Tribunal referred to its previous decisions, including Excel Corp Care Ltd. v. Competition Commission of India, where it had held that the relevant turnover should be confined to the turnover of the product or service subject to the investigation.

5. Procedural fairness in imposing penalties:
The Tribunal criticized the Commission for not providing a fair opportunity to the appellants to present their case on the issue of penalties. It noted that the Commission had not called upon the appellants to furnish statements of their turnover of LPG cylinders of 14.2 Kg and had not given due consideration to the mitigating factors highlighted by the appellants. The Tribunal emphasized that the Commission must follow a fair and transparent process in determining penalties and must provide reasoned orders that take into account all relevant factors.

Conclusion:
The Tribunal allowed the appeals, set aside the impugned order, and remitted the matter to the Commission for a fresh decision on the issue of penalties. It directed the appellants to file fresh representations, including their turnover of LPG cylinders of 14.2 Kg for the last three preceding financial years, and to provide separate turnover figures for other products. The Commission was instructed to afford an opportunity of hearing to the appellants, consider the mitigating factors, and determine the penalties based on the relevant turnover of the specific product involved in the anti-competitive conduct. The Tribunal emphasized the need for a fair and objective assessment of penalties, taking into account all relevant circumstances and providing reasoned orders.