2016 (7) TMI 1705 - Commission - Companies Law

Seeking to challenge the directions of the Commission to investigate the role of the officers/ persons in-charge of the company - vicarious liability of individuals in charge of a company for contraventions committed by the company - HELD THAT - In Vasu Tech Limited and Others vs. Ratna Commercial Enterprises Limited 2009 (11) TMI 517 - HIGH COURT OF PUNJAB AND HARYANA the Directors who were in-charge of and responsible for the conduct of the business of the company were prosecuted under Section 138 of Negotiable Instruments Act 1881 read with Section 420 of the Indian Penal Code 1860 by virtue of provisions under Section 141 of the Act along with the company. The directors moved the Hon ble Delhi High Court under Section 482 of the Code of Criminal Procedure 1973 (Cr.P.C.) for quashing of the summoning orders issued against them. However their prayer was declined and their petition dismissed. In other words prosecution of the Directors the persons in-charge of and responsible for the conduct of the business of the company simultaneously along with the company was upheld. Further in Dilip S. Dhanukar vs. Air Force Group Insurance Society 2007 (1) TMI 655 - DELHI HIGH COURT the petitioner Dilip Dhanukar was convicted under Section 138 read with Section 141 of the Negotiable Instruments Act 1881. In the revision petition before the Hon ble High Court the Petitioner raised the plea that he was not separately arraigned and summoned as an accused in the case alongwith the Company. However the Company of course was prosecuted through its Chairman the Petitioner and there his name was specifically mentioned. Hence rejecting the said plea the conviction of the Petitioner simultaneously with the company was upheld. If the proposition canvassed by the Applicants that a company is to be first held guilty of contravention of provisions of Sections 3 or 4 or both of the Act and only then investigation can be initiated against the persons who were in-charge of and responsible for the conduct of the business of the company at the relevant time is accepted it would render such person defenseless. This is most likely scenario if the company is handicapped to defend itself. The company could be non-existent or could have become defunct. Or the person who was in the know of things and had a role in a particular conduct of the company at the relevant time might have left the company. Or the person who has in possession some material which demonstrates the non-contravention of the provisions of the Act by the company might be posted in some other department now and not involved in defending the company. If the company fails to defend itself properly for whatsoever reason and as a consequence it is found guilty the person concerned would be left with no option but to suffer consequences under Section 48 of the Act. In the considered opinion of the Commission since the liability of the company makes such person in-charge vicariously liable such person must have an opportunity to contest the proceedings at the very threshold and cannot be deprived of the opportunity to plead and demonstrate that the company itself is not liable at all. A company cannot be held guilty at the back of such person in-charge or anyone else who may be sought to be made vicariously liable under Section 48 (1) or (2) of the Act. Conclusion - The DG needs to investigate into the matter at one go in all its dimensions comprehensively. The investigations under the Competition Act should be comprehensive and simultaneous to uphold natural justice and ensure effective enforcement. The applications are found to be devoid of any merit and the same are accordingly dismissed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal issues considered in this judgment are:

• Whether the Competition Commission of India (CCI) can direct the Director General (DG) to investigate the role of individuals in charge of a company before a contravention by the company is established under Section 27 read with Section 48 of the Competition Act, 2002.
• The interpretation of Section 48 of the Competition Act concerning vicarious liability of individuals in charge of a company for contraventions committed by the company.
• The applicability and binding nature of judgments from higher authorities, such as the Competition Appellate Tribunal and the High Court, on the CCI.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Investigation of Individuals Before Establishing Company Contravention

• Relevant Legal Framework and Precedents: Section 26(1) of the Competition Act empowers the CCI to direct the DG to investigate alleged contraventions. Section 48 deals with the liability of individuals in charge of a company if a contravention is established.
• Court's Interpretation and Reasoning: The Commission interpreted that the DG's investigation must be comprehensive and simultaneous, covering both the company and individuals, to ensure due process and effective enforcement.
• Key Evidence and Findings: The Commission referenced various precedents, including the Supreme Court's judgment in Aneeta Hada vs. Godfather Travels, which emphasized the need for simultaneous proceedings against the company and individuals.
• Application of Law to Facts: The Commission concluded that the DG could investigate individuals' roles without waiting for a final contravention finding against the company.
• Treatment of Competing Arguments: The Applicants argued that investigating individuals before establishing company contravention was ultra vires. The Commission disagreed, citing legal precedents and the need for comprehensive investigation.
• Conclusions: The Commission held that the DG could investigate individuals' roles alongside the company's alleged contraventions.

Issue 2: Interpretation of Section 48 and Vicarious Liability

• Relevant Legal Framework and Precedents: Section 48 of the Competition Act, which is similar to provisions in other statutes like the Negotiable Instruments Act, Essential Commodities Act, etc., outlines the conditions for vicarious liability.
• Court's Interpretation and Reasoning: The Commission emphasized that vicarious liability under Section 48 requires a finding against the company but does not necessitate separate proceedings for the company and individuals.
• Key Evidence and Findings: The Commission referred to judgments like SMS Pharmaceuticals and Pran Mehra vs. CCI, which support simultaneous proceedings.
• Application of Law to Facts: The Commission applied the principle that simultaneous proceedings ensure individuals have the opportunity to defend themselves effectively.
• Treatment of Competing Arguments: The Applicants cited the Tribunal's judgment in A.N. Mohana Kurup, arguing for sequential proceedings. The Commission found this inconsistent with broader legal principles and precedents.
• Conclusions: The Commission concluded that Section 48 allows for simultaneous investigation and proceedings against individuals and companies.

3. SIGNIFICANT HOLDINGS

• Preserve verbatim quotes of crucial legal reasoning: "The DG needs to investigate into the matter at one go in all its dimensions comprehensively."
• Core principles established: The Commission reaffirmed that investigations under the Competition Act should be comprehensive and simultaneous to uphold natural justice and ensure effective enforcement.
• Final determinations on each issue: The applications challenging the CCI's directions for a simultaneous investigation were dismissed, affirming the DG's authority to investigate individuals' roles alongside the company's alleged contraventions.

The judgment underscores the importance of a holistic approach in competition law enforcement, ensuring that both companies and their responsible individuals are accountable for contraventions, thereby maintaining the integrity of the competitive process.