2023 (4) TMI 56 - AT - Companies Law

Anti-Competition Act - Cartelization - Seeking grant of Lesser penalty under Section 46 of the Act r/w Regulation 5 of the Competition Commission of India (Lesser Penalty) Regulations, 2009 - Appellant argued that Geep Industries is a very small player in the dry batteries market having a minuscule share of about 1% whereas the three major players viz. Eveready, Nippo and Panasonic controlled about 98% of the said market - HELD THAT - Sub-section (1) of section 3 of the Act prohibits an enterprise to enter into any agreement in respect of supply of goods or services which causes or is likely to cause an appreciable adverse effect on competition within India and sub-section (2) of Section 3 of the Act lays down that any agreement entered into in contravention of provisions of sub-section (1) of Section 3 of the Act shall be void. Such an agreement, which directly or indirectly determined purchase or sale price of goods is also presumed to have an appreciable adverse effect on competition as per sub-section 3 of section 3 - once an agreement has been entered into by parties which is in contravention of the provision of sub-section 1 of section 3, shall be presumed to have an appreciable adverse effect on competition, and there such behaviour is anti-competitive that would invite penalty under section 27 of the Act. Geep Industries is very clearly in a bilateral ancillary cartel with the Panasonic, while Panasonic is found to be member of primary cartel in the dry cell batteries market. Thus, even though Geep is an extremely small player in the dry cell batteries market which may not be capable of influencing the market in any appreciable manner, the fact that it agrees through the PSA to follow market prices as set by Panasonic makes it clear that such behavior is anti-competitive, and Geep Industries being in contravention of Section 3 (1), (2) and (3) is clearly established, as has been adjudicated by the CCI in the impugned order. The Proviso to Section 27(B) empowers the CCI to impose upon a cartelizing company a penalty which can be upto three times of its profits for each year of the continuance of such agreement or 10% of its turnover for each year of the continuance of such agreement, whichever is higher. It is not disputed that the duration during which the bilateral ancillary cartel was operating by virtue of the PSA was from 01.10.2010 to 30.04.2016 - the quantum of penalty which the Appellant has argued to be very high and disproportionate to its offensive behavior, and sought reduction in the penalty amount. We note that the impugned order, in paragraph 37, records that Geep Industries is a very small player having insignificant market share in the market for dry cell batteries and was not in a bargaining/ negotiating position with PECIN. Thus, the Impugned Order recognizes that while Geep Industries is an offender of Section 3 of the Act, it was neither in a bargaining position vis- -vis PECIN nor having a significant market share to be able to influence prices in the said market. The market share of the Appellant in the relevant market was only about 1%, and it was barely able to function with meagre profit, an exorbitant fine would have been fatal for the business of the Appellant and may have thrown the Appellant out of the market. In the present case, it is noted that the Appellant has been imposed a penalty @4% amounting to Rs. 9,64,06,682/- which is certainly exorbitant looking to the annual turnover and profits of the Appellant from 2010-11 to 2016-17 as is evident from para 34 of the impugned order. In such a situation, it is felt that this would be a mitigating factor with respect to Geep Industries in the present case. While the quantum of penalty should be such that it acts as a deterrent and regulate anti-competitive behaviour. Geep Industries business dynamics and situation in the market to be such that it was neither in a negotiating strength vis- -vis PECIN nor having a market share that could actually influence the price in the said market. In view of such a situation, and fully conscious of the fact that Geep Industries has turned losses in the first three years under review by CCI of its anti-competitive behavior. The penalties imposed on the respective directors, officers and employees as included in Table-6 in para 43 of the impugned order are commensurate with their offensive behavior as they were the persons responsible for entering into PSA and being knowledgeable persons were supposed to have knowledge and understanding of law in relation to behaviour of corporate entities in a market. Therefore, the penalties imposed on Ms. Pushpa M, Mr. Joeb Thanawala, and Mr. Jainuddin Thanawala by the Impugned Order need no modification. Appeal allowed.

Summary

Issues Involved:
1. Existence of Cartels: Primary cartel among Eveready, Nippo, and Panasonic; ancillary cartel between PECIN and Geep Industries.
2. Anti-Competitive Agreement: Product Supply Agreement (PSA) between PECIN and Geep Industries.
3. Quantum of Penalty: Imposition and appropriateness of penalty on Geep Industries.

Summary:

Existence of Cartels:
The appeals were filed by Geep Industries against an order by the Competition Commission of India (CCI) regarding a suo moto case revealing a primary cartel among Eveready, Nippo, and Panasonic, and an ancillary cartel between PECIN and Geep Industries. The CCI's investigation, prompted by Lesser Penalty Applications from PECIN, Eveready, and Nippo, confirmed the existence of these cartels.

Anti-Competitive Agreement:
Geep Industries had a PSA with PECIN for the supply of dry cell batteries, which included Clause 4.3, stipulating that Geep would not take steps detrimental to PECIN's market interests, particularly regarding market prices. This clause was found to contravene Section 3 of the Competition Act, 2002, as it indirectly determined market prices, thereby having an appreciable adverse effect on competition.

Quantum of Penalty:
The CCI imposed a penalty of Rs. 9,64,06,682/- on Geep Industries, calculated at 4% of its turnover for each year of the cartel's operation. Geep Industries argued that this penalty was excessive given its minor market share and financial losses during several years. The Tribunal acknowledged Geep's small market share and lack of bargaining power with PECIN as mitigating factors. It cited precedents where penalties were reduced or not imposed in similar circumstances and concluded that a penalty at 1% of turnover for each year of the cartel's operation would be more appropriate.

The Tribunal upheld the penalties on the directors and officers of Geep Industries as commensurate with their involvement in the PSA.

Conclusion:
The appeal was allowed with a modification in the penalty imposed on Geep Industries, reducing it to 1% of turnover for each year of the cartel's operation. The penalties on the directors and officers remained unchanged. No order as to costs was made.