WHETHER THE SCHEME OF COMPETITION ACT, 2002 PERMITS A COMPROMISE TO BE REACHED BETWEEN PARTIES?

[Mr. M. GOVINDARAJAN]

Memo of compromise

In a normal civil litigation of adversial nature, if any settlement arrives between the disputed parties the same would have been simply recorded the memo of compromise and close the case.   The filing of memo of compromise is after coming to an agreement between the disputed parties.   The memo of compromise is recorded by the Court and passed the compromise decree.   Once the memo of compromise is filed and allowed the court to pass compromise decree the parties to the suit cannot turn around and say that the said compromise is a fraudulent one.

Issue

The issue to be discussed in this article is whether the scheme of Competition Act, 2002 permits a compromise to be reached between the two parties with reference to decided case law.   In this regard we have to analyze the scheme of the Act.

Scheme of Competition Act, 2002

The Competition Act, 2002 ‘(‘Act’ for short) seeks to cover three Anti-Trusts namely:

• Anti-competitive agreements by an enterprise or association of enterprises or person or association of persons;
• Abuse of dominant position; and
• Combinations.

The duties of Competition Commission of India as enunciated in Section 18 are as following:

• to eliminate practices having adverse effect on competition;
• to promote and sustain competition;
• to protect the interest of consumers; and
• to ensure freedom of trade carried on by other participants in the markets in India.

To enable the Commission to perform the duties imposed upon it under Section 18, the Commission is given power under Section 19 to make inquiry into the alleged contravention of the provisions dealing with anti-competitive practices and abuse of dominant position.  The powers and functions of the Commission, while holding an inquiry under Section 19(1), include the following:

• to ensure whether an agreement has an appreciable adverse effect on competition in the light of certain factors;\
• to ensure whether the enterprise enjoys a dominant position, in the light of certain factors.

Section 20(4) of the Act provides that for the purposes of determining whether a combination would have the effect of or is likely to have an appreciable adverse effect on competition in the relevant market, the Commission shall have due regard to all or any of the facts as mentioned in this section.

The Competition Commission is given power under Section 26(1) and 26(2) either to direct the Director General to cause an investigation or to close the matter, depending upon whether a prima facie exists or not.  On the basis of the report submitted by the Director General the Commission is empowered to pass orders as indicate in Section 27.

Section 27 of the Act gives powers to the Competition Commission to pass all or any of the following orders:

• to direct an enterprise or association of enterprises of person or association of persons who are involved in Anti-competitive agreements or the abuse of dominant position to discontinue and not to enter any such agreement or discontinue any abuse of dominant position;
• to impose penalty which shall not be more than 10% of the average of the turnover for the last three preceding financial years;
• to direct the anti-competitive agreements to stand modified to the extend and in the manner as specified in the order;
• to direct the concerned enterprise to abide by such other orders as the Commission may pass and comply with the directions including payment of costs;
• to pass such other orders and issue such directions as it may deem fit.

The scheme of the Act thus is concerned about the existence of anti-competitive agreements or abuse of dominant position and combinations.  It is not concerned about private individual disputes as held  ‘Tamil Nadu Film Exhibition Association V. Competition Commission of India and others’ – 2015 (3) TMI 1149 - MADRAS HIGH COURT

In the above said case the Madras High Court held that the Competition Commission may entertain the memo of compromise filed between the parties subject to conditions.

The facts of the case run as follows:

 The appellant is the Tamil Nadu Film Exhibitors Association registered under the Tamil Nadu Societies Registration Act as a society.  The second respondent in this case is a producer of feature films.   He made a complaint before the Competition Commissioner of India on 08.01.2013 alleging that the Tamil Nadu Theatre Owners’ Association by resolution dated 20.12.2012 decided to ban the screening of films which are released via DTH.  The allegation is that the resolution would tantamount to an anti-competitive practice, violating Section 3(3)(b) of the Competition Act, 2002.

The Competition Commission held that there existed a prima facie case requiring an investigation by the Director General of the Competition Commission and passed an order on 16.01.2013 in terms of Section 26(1) of the Act directed for enquiry.  In the meantime some group managed to force the Commissioner of Police, Chennai to issue an order on 23.01.2013 under Section 144 of the Code of Criminal Procedure against the second respondent prohibiting the exhibition of his film for public view.  By means of later developments the Commissioner of Police invoked the said order on 03.02.2013 and got released the film in the theatres.

The appellant filed writ petitions against the notice issued by the Competition Commission directing the inquiry and also another writ petition seeking a mandamus to direct the Commissioner of Police to take their complaint on record and initiate action against the second respondent.   Both the writ petitioners were dismissed by the High Court.  Aggrieved by the said order he filed the present appeal.

The High Court took note of the fact that the Director General of Investigation was proceeding with the investigation.   Therefore the Court passed an interim order on 11.02.2014 permitting the Director General to proceed with the investigation and finalize the same.   However the Competition Commission was directed not to proceed with the matter without the leave of the Court.

Subsequently the appellant and the second respondent arrived at a settlement by which the appellant agreed to withdraw the police complaint made against the second respondent and the second respondent agreed to withdraw the complaint filed before the Competition Commissioner.  The parties filed a memo praying for the recording of the compromise memo and the disposal of the writ appeal in accordance with the memo.

The Competition Commission opposed the compromise memo on the ground that the Director General of Investigation had already filed a report before the Competition Commission holding that the allegations relating to infringement of the provisions of the Act are found to be true and that, therefore, a settlement inter parties cannot be accepted in matters of this nature.

The High Court framed the following two questions of primary importance:

• Whether, it is possible, in the context of the Scheme of the Competition Act, 2002, for two adversaries to reach a settlement, thereby closing the doors for an investigation or inquiry; and
• Whether the High Court can record a memorandum of settlement like the one that the parties have reached in this case.

The High Court analyzed the provisions of the Competition Act, 2002 which give powers to Competition Commission.  The High Court relied on the decision of Supreme Court in ‘The Competition Commission of India V. Sail’ – 2010 (9) TMI 215 - SUPREME COURT OF INDIA, in which the Supreme Court held that the powers conferred upon the Commission are of  wide magnitude and are of serious ramifications.   The powers of the Commission include the power to issue such directions as would achieve the object of the Act and ensure its proper implementation.

Section 36 of the Act empowers the Commission to regulate its own procedure.  The Commission is not bound to follow the procedure prescribed by the Code of Civil Procedure.   But it should be guided by the principles of Natural Justice.  The High Court found it clear that-

• The Commission is not really concerned about a private dispute between he individuals, but is concerned about the existence of Anti Competitive agreements or abuse of dominant position that has adverse effect on Competition and oppr3ess freedom of trade; and
• The Commission has residuary powers under Section 27 to pass such other orders and issue such directions as it may deem fit.

The High Court was of the view that once it is conceded that the Competition Commission has residuary powers and its powers to pass such orders are wide in amplitude, it cannot be contended that the Commission would not have the power to accept a settlement or compromise between the parties.

The High Court cited one example.  A party which is held guilty of entering into an Anti Competitive Agreement or abusing its dominant position comes up before the Commission and agrees for the discontinuance of the agreement with an undertaking and not to re-enter into such agreements or to indulge in the abuse of  dominant position.  The same should be accepted by the Commission.  If a party agrees to abide by the mandate of Sections 3 and 4, the Commission will be actually saved of botheration to proceed with the full fledged inquiry.  In such cases the only question that would be left for the Commission to deal with, is the question of imposition of penalty.  Imposing penalty, in the view of the High Court is not a bar for recording of any settlement or compromise.

The High Court held that the Court was of the considered view that the scheme of the Competition Act, 2002 allows the parties to enter into a compromise or settlement but the same shall be subject to-

• the scrutiny by the Commission, for examining whether public interest would continue to suffer; and
•  whether the object of the inquiry would stand defeated by the acceptance of the compromise.

The High Court also referred to the position prevailing in the European Union and the United States.

Position in European Union

Both in the European Union and the United States permit the settlement in case of cartels.   The cartel settlement procedure under European Union Rules allows the Commission to settle a case with the companies involved under a streamlined procedure if the parties agree with the Commission’s findings on the infringement.   The procedure was created in the year 2008 through an amendment of Commission Regulation 773/2004.   Earlier Cartel settlement decisions are prohibition decisions based on articles 7 and 23 of Regulation 1/2003.

In European Union the Commission investigates all cartel cases (including cases which later on follow the settlement route).   However settlement remains a choice of the Commission; it is neither a right nor an obligation for the companies.   Even if all parties request to settle, it remains in the Commission’s discretion to decide if the case is suitable.   If the discussions have already started, the Commission may decide to discontinue them if there is insufficient progress towards a ‘common understanding’.

Position in United States

In the United States, plea bargain process can be initiated at any time.  The settlement process may be initiated either by the Anti-trust Division staff or the defendant at any state of the investigation.   Discussions are held behind closed doors, away from the courts.   The plea agreement is filed before the court and the court must accept the plea and imposed actual sentence.  The rules governing the negotiation and acceptance of plea agreements can be found in the Federal Rules of Criminal Procedure, the Federal Rules of Evidence, the US Attorney Manual and the US Sentencing Guidelines.

In US, there are certain pre conditions for the acceptance of a settlement.  They are-

• Presence of a cartel;
• Admission of guilt or factual basis (the defendant entering into a plea agreement with the Anti Trust Division must be willing to plead guilty to the charged cartel conduct at arraignment and make a factual admission of guilt);
• Cartel participant’s co-operation (the inclusion in cartel settlement, agreements of commitment by the settling party to provide full, continuing and complete co-operation);
• Promise by the Government not to bring further charges (however certain violations such as those of federal tax, securities law or crimes of violence are specifically exempted from the non prosecution terms of such plea agreements.

Therefore it is clear that a settlement is possible both in EU and US to the extend discussed as above.   The WTO also imposed obligations upon its member countries in this regard are the same.   The High Court held that why it should be taken that the Scheme of the Competition Act, 2002 prohibits any settlement, especially when the scope of Section 27 of the Act is very wide, conferring jurisdiction upon the Commission to pass residuary orders.  It is possible within the framework and the scheme of the Act, to allow settlements and compromises to be reached between the parties.   The Commission is to ensure before allowing such settlements that such settlement and compromises-

• Would not lead to the continuance of anti-competitive practices;
• Would not allow the abuse of dominant position to continue; and
• Would not be prejudicial to the interest of consumers or to the freedom of trade.

Recording of settlement by Commission

The High Court held that despite the fact that the orders of the Competition Commission are subject to Appellate jurisdiction of the Competition Appellate Tribunal and despite the fact that the orders of the Appellate Tribunal are subject to a statutory appeal under Section 53-T of the Act, the jurisdiction of the High Court under  Article 226 will not stand ousted.  As such the High Court may record the compromise or memo of settlement reached between the parties pending before the Competition Commission.   But the High Court would not exercise such a power, as it may prevent an expert body like Competition Commission from examining the ramifications of such a settlement or compromise.

The investigation report of the Director General not only concludes that the appellant is guilty of violation of the provisions of the Act relating to Anti-competitive practices, but also points out that it is the second instance of such nature.   The High Court permitted the appellant to file the Memorandum of Compromise/Settlement entered into between then and the second respondent, before the Competition Commission. The Competition Commission may look into the same and pass appropriate orders either rejecting the compromise or accepting the same with or without modifications.   The High Court further indicated that the Commission may bear in the mind that if in the light of the compromise, any further proceedings would only be an exercise in futility, the same shall not be undergone just for the purpose of completion of the formalities.

Conclusion

The judgment of Madras High Court explicitly held that the Competition Commission may entertain the memo of compromise subject to the conditions.   The memo of compromise may be rejected or accepted the same with or without modifications.