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TMI Blog2017 (5) TMI 542X X X X Extracts X X X X X X X X Extracts X X X X ..... peration, continued much beyond May 20, 2009, the date on which the provisions of Section 3 of the Act were enforced. We agree with the COMPAT that the role of the appellants did not come to an end with the submission of bid on May 08, 2009. No doubt, clause (d) of sub-section (3) of Section 3 uses both the expressions bid rigging and collusive bidding , but the Explanation thereto refers to bid rigging only. However, it cannot be said that the intention was to exclude collusive bidding . Even if the Explanation does contain the expression collusive bidding specifically, while interpreting clause (d), it can be inferred that collusive bidding relates to the process of bidding as well. Keeping in mind the principle of purposive interpretation, we are inclined to give this meaning to collusive bidding . It is more so when the expressions bid rigging and collusive bidding would be overlapping, under certain circumstances which was conceded by the learned counsel for the appellants as well. We are, therefore, of the opinion that the two expressions are to be interpreted using the principle of noscitur a sociis, i.e. when two or more words which are susceptible to a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the three appellants, it becomes manifest that reason to boycott the May 2011 tender was not the purported onerous conditions, but it was a concerted action. Otherwise, if the appellants were genuinely interested in participating in the said tender and were aggrieved by the aforesaid conditions, they could have taken up the matter with the FCI well in time. They, therefore, could request the FCI to drop the same (in fact FCI dropped these conditions afterwards when the matter was brought to their notice). However, no such effort was made. As pointed out above, M/s. Excel Crop Care wrote the letter only a day before, just to create the record which cannot be termed as a bona fide move on its part. We feel that COMPAT has examined the matter in right perspective. After examining the record, one finds that important fundamental conditions were the same which used to be in the earlier tenders. In 2009 tender, a specific quantity of 600 MT was prescribed. At that time, all the three appellants participated and did not object to the same. As against this in 2011 tender, the tentative annual requirement of APT was stated to be 400 MT and not 75 MT per month. The condition referred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot total turnover of the violator. - Civil Appeal No. 2480 of 2014, Civil Appeal Nos. 53-55 of 2014, Civil Appeal Nos. 2874 of 2014 And Civil Appeal No. 2922 of 2014 - - - Dated:- 8-5-2017 - Mr. A.K. Sikri And Mr. N. V. Ramana JJ. Counsel For The Parties: Mr. N.K. Kaul, ASG, Mr. Vaibhav Gaggar, Adv., Mr. Arjun Krishnan, Adv., Mr. Saksham Dhingra, Adv., Mr. Sanyat Lodha, Adv., Ms. Neha Mishra, Adv., Mr. Ankur Singh, Adv., Mr. Shiv Johar, Adv., Mr. A.K. Jha, Adv., Mr. Rohit K. Singh,Adv., Mr. Rajan Narain,Adv., Mr. Mohit Paul,Adv., Mr. Krishnan, Venugopal, Sr. Adv., Mr. Rahul Goel, Adv., Ms. Anu Monga, Adv., Mr. Neeraj Lalwani, Adv., Mr. Rishabh Arora, Adv., Mr. Nitish Sharma, Adv., Mr. Gaurav Ray, Adv., Mr. Rohit K. Singh, Adv., Mr. Ajit Pudussery,Adv., Mr. K. Vijayan, Adv. And Mr. S.S. Haranka, Adv. JUDGMENT A.K. SIKRI, J. All these Civil Appeals arise out of the common judgment and order dated October 29, 2013 passed by the Competition Appellate Tribunal (for short, COMPAT ). These proceedings have their origin in the letter dated February 04, 2011 written by the Food Corporation of India (for short, FCI ) to the Competition Commission of India (for sho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es for preservation of food grains, which these agencies were storing in their godowns. The CCI assigned the complaint to the DG for investigation. The DG collected required information from the FCI and other Government agencies dealing in warehousing and storage of food grains and also from Central Insecticides Board and Registration Committee, Faridabad. Representatives of FCI were also examined. After collecting the aforesaid information, the DG submitted his report with the following findings: ( a) The main market of APT in India was that of the institutional sales and a majority of buyers were Government agencies. The number of private buyers was insignificant. APT is sold in the box of 3 gms. tablets, 12 gms. tablets, and a sachet of 10 gms. in powder. Out of this, 3 gms. tablets constitute 56% of the total sale. Sale of these 3 gms. tablets was restricted to the Government agencies and approved pest control operators, which could not be sold in the open market. These Government agencies were procuring APT tablets of `40 crores annually. ( b) There were only four manufacturers of APT, namely, M/s. Excel Crop Care Limited, M/s. UPL, M/s. Sandhya Organics Chemicals ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he total number of 16 tenders, including tenders dated May 08, 2009, the DG recorded that: ( i) pricing pattern definitely showed the practice of quoting identical pricing by all the three appellants or at some other times by two appellants, including M/s. Agrosynth Chemicals Limited; ( ii) the explanation given by the appellants was unconvincing. Though, the appellants had stated that rise in price was mostly attributed to increase in price by China during the Beijing Olympics, but it was noticed that even during the period when the Phosphorous prices had fallen, no reflection thereof was seen in the high prices quoted by the appellants; ( iii) examination of the cost structure of each company reflected that there was nothing common between the appellants as far as the said cost structure was concerned and, therefore, quoting of identical prices by all the appellants was unnatural; and ( iv) joint boycotting by the appellants, at times, showed their concerted action, which happened again in March 2011 when the FCI had issued e- tender, which was closed on July 25, 2011. According to the DG, explanation given by the appellants and M/s. Agrosynth Chemicals L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the appellants, it would not mean that there was any bid rigging or formation of cartel by the appellants. Submission in this behalf was that the market forces brought the situation where the prices became so competitive and it had led to the aforesaid trend. According to them, as a practice, the Central Warehousing Corporation finalised the tender in the beginning of a particular year which used to be considered as the benchmark for other tenders for that year resulting in likelihood of identical pricing. As far as common entry having been made by Mr. S.K. Bose of M/s. Excel Crop Care Limited on May 08, 2009 on behalf of the representatives of the other competitors as well in the Visitors Register is concerned, it was stated that since the representatives knew each other well and had entered the premises of FCI at the same time, Mr. Bose mentioned the names of others as well which was neither unnatural nor abnormal and no inference of cartel formation could be drawn therefrom. Boycotting of tender of May 2011 was tried to be justified on the ground that there were unreasonable conditions prescribed in the tender making it impossible to submit the bid, particularly, the conditio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... APT and turnover of other products manufactured and sold by the establishments, which were without blemish, could not be included for calculating the penalty. 7) As noted above, before us, three appeals are filed by these manufacturers/suppliers against the findings of the COMPAT holding that there was violation of Sections 3(3)(a), 3(3)(b) and 3(3)(d) of the Act on the part of the appellants. On that basis, it is pleaded that those findings be declared as untenable and penalty imposed be set aside. On the other hand, the CCI has also preferred Civil Appeal Nos. 53-55 of 2014 against that part of the impugned order whereby penalty imposed upon these suppliers is restricted to relevant turnover instead of total turnover . Since submissions before us remain substantially the same, we are not pointing out the reasons given by the COMPAT which weighed with it after taking the aforesaid course of action, inasmuch as, while discussing the submissions of the parties, we shall be referring to the reasons adopted by the COMPAT. 8) Having painted the canvas with seminal and essential facts, it becomes manifest that following issues arise for consideration in these appeals: (i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce carried on, or decision taken by, any association of enterprises or association of persons, including cartels, engaged in identical or similar trade of goods or provision of services, which- (a) directly or indirectly determines purchase or sale prices; (b) limits or controls production, supply, markets, technical development, investment or provision of services; (c) shares the market or source of production or provision of services by way of allocation of geographical area of market, or type of goods or services, or number of customers in the market or any other similar way; (d) directly or indirectly results in bid rigging or collusive bidding, shall be presumed to have an appreciable adverse effect on competition: Provided that nothing contained in this sub-section shall apply to any agreement entered into by way of joint ventures if such agreement increases efficiency in production, supply, distribution, storage, acquisition or control of goods or provision of services. Explanation. -For the purposes of this sub-section, bid rigging means any agreement, between enterprises or persons referred to in sub-section (3) engaged in identical or similar production ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9); (e) the Designs Act, 2000 (16 of 2000); (f) the Semi-conductor Integrated Circuits Layout-Design Act, 2000 (37 of 2000); (ii) the right of any person to export goods from India to the extent to which the agreement relates exclusively to the production, supply, distribution or control of goods or provision of services for such export. 11) At this juncture, it is the applicability of this Section which is dealt with. Though, the Competition Act is of the year 2002 and was passed by the Legislature on 13th January, 2003, as per the provisions of Section 1(3), the Act was to come into force from the date to be notified by the Central Government in the Official Gazette. Notification was issued by the Central Government wherein 31st March, 2003 was specified as the appointed date. However, vide this notification, some of the provisions of the Act, and not all the provisions, were enforced. Many other provisions came into force vide notification dated 19th June, 2003 and thereafter by notification dated 20th December, 2007 some more provisions were notified. Insofar as Section 3 of the Act is concerned, this provision along with many other provisions came into force on 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inuing arrangement of cartalisation, period of 2009 and even thereafter gets included. (h)Even boycott of 2011 tender by all the appellants depicted their common intention which was the result of arrangement/agreement between them. 14) It is not in dispute that against this tender of 2009, all the appellants had offered price of `388, even though their cost of production differed. The COMPAT, in the impugned order, has held that merely because 8th May, 2009 was the last date for submitting the tender, that would not be the end of the matter as that is not the relevant date for the purpose of applicability of Section 3 when the tendering process continued, as the appellants had participated in the said tender process on 1st June, 2009 when the price bids were opened and offered the negotiated price on 17th June, 2009. This would mean that process of bidding was still on which went well beyond the date of notifying provisions of Section 3 of the Act. Relevant discussion in this behalf of the COMPAT is as under: 15. ...In this behalf the CCI has also recorded a finding in paragraph 7.13 that 8.5.2009 is not the crucial date but even 1.6.2009 and 17.6.2009 are equally crucial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e inviting tender till the award of the contract and would also include all the intermediate stages such as pre-bid clarification and bid notifications also. Once this inference is reached on the basis of the interpretation of Section 3(3) explanation there would be no question of dearth of jurisdiction on the part of the CCI to firstly order the investigation into the matter and also to inquire itself into the complained illegality. 15) The COMPAT has also noted that the anti-competitive conduct of the appellants was not limited to the 2009 tender alone. It had considered tender dated November 03, 2009 floated by the U.P. State Warehousing Corporation, tender dated July 13, 2010 of the Central Warehousing Corporation, tender dated July 15, 2010 of the M.P. State Warehousing Corporation, and tender dated February 14, 2011 of the Punjab State Cooperative SS Marketing Federation and found that even against these tenders the appellants had quoted identical prices. Keeping in view the said pattern of quotation, the COMPAT opined that notwithstanding any objection of the appellants premised on retrospective application of Section 3, the anti-competitive conduct of APT manufacturer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tive use and allocation of the economy's resources. Competition tends to bring about enhanced efficiency, in both a static and a dynamic sense, by disciplining firms to produce at the lowest possible cost and pass these cost savings on to consumers, and motivating firms to undertake research and development to meet customer needs. 2.2.1.2 Economic growth and development: Economic growth the increase in the value of goods and services produced by an economy is a key indicator of economic development. Economic development refers to a broader definition of an economy's well-being, including employment growth, literacy and mortality rates and other measures of quality of life. Competition may bring about greater economic growth and development through improvements in economic efficiency and the reduction of wastage in the production of goods and services. The market is therefore able to more rapidly reallocate resources, improve productivity and attain a higher level of economic growth. Over time, sustained economic growth tends to lead to an enhanced quality of life and greater economic development. 2.2.1.3 Consumer Welfare: Competition policy contributes to economic g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m eliminates domestic regulation that restricts entry and exit in the markets. Effective competition policy can also increase investor confidence and prevent the benefits of trade from being lost through anticompetitive practices. In this way, competition policy can be an important factor in enhancing the attractiveness of an economy to foreign direct investment, and in maximizing the benefits of foreign investment. 19) In fact, there is broad empirical evidence supporting the proposition that competition is beneficial for the economy. Economists agree that it has an important role to play in improving productivity and, therefore, the growth prospects of an economy. It is achieved in the following manner: International Competition Network - Economic Growth and Productivity: Competition contributes to increased productivity through: Pressure on firms to control costs . In a competitive environment, firms must constantly strive to lower their production costs so that they can charge competitive prices, and they must also improve their goods and services so that they correspond to consumer demands. Easy market entry and exit . Entry and exit of firms re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se harm to consumers by fixing prices, limiting outputs or allocating markets. Effective enforcement against such practices has direct visible effects in terms of reduced prices in the market and this is also supported by various empirical studies. 21) Keeping in view the aforesaid objectives that need to be achieved, Indian Parliament enacted Competition Act, 2002. Need to have such a law became all the more important in the wake of liberalisation and privatisation as it was found that the law prevailing at that time, namely, Monopolistic Restrictive Trade Practices Act, 1969 was not equipped adequately enough to tackle the competition aspects of the Indian economy. The law enforcement agencies, which include CCI and COMPAT, have to ensure that these objectives are fulfilled by curbing anti-competitive agreements. 22) Once the aforesaid purpose sought to be achieved is kept in mind, and the same is applied to the facts of this case after finding that the anti-competitive conduct of the appellants continued after coming into force of provisions of Section 3 of the Act as well, the argument predicated on retrospectivity pales into insignificance. One has to keep in mind the af ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting practices having adverse effect on competition, to protect the interest of the consumer and to ensure fair trade carried out by other participants in the market in India and for matters connected therewith or incidental thereto. 9. The various provisions of the Act deal with the establishment, powers and functions as well as discharge of adjudicatory functions by the Commission. Under the scheme of the Act, this Commission is vested with inquisitorial, investigative, regulatory, adjudicatory and to a limited extent even advisory jurisdiction. Vast powers have been given to the Commission to deal with the complaints or information leading to invocation of the provisions of Sections 3 and 4 read with Section 19 of the Act. In exercise of the powers vested in it under Section 64, the Commission has framed regulations called the Competition Commission of India (General) Regulations, 2009 (for short the Regulations ). 10. The Act and the Regulations framed thereunder clearly indicate the legislative intent of dealing with the matters related to contravention of the Act, expeditiously and even in a time-bound programme. Keeping in view the nature of the controversies arising ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tender process, though initiated prior to the date when Section 3 became operation, continued much beyond May 20, 2009, the date on which the provisions of Section 3 of the Act were enforced. We agree with the COMPAT that the role of the appellants did not come to an end with the submission of bid on May 08, 2009. 25) In this behalf, it is to be emphasised again that merely by submitting the tenders, role of the appellants as tenderers had not come to an end. As already pointed out, the DG in its report noted that FCI resorted to global tender which had two-bid systems: techno-commercial bid and financial bid. Those who qualified in techno-commercial process, their financial bids were to be opened. The appellants had submitted their bids on May 08, 2009, which was the last date for this purpose. Bids were to be submitted by 2.00 pm on that day and were to be opened at 3.00 pm on the same day. The committee of responsible officers for evaluating the technical price bids was constituted. As per the practice, the lowest bidder is invited by the committee for negotiations. And after negotiations, the committee submits the report giving its recommendations on the basis of which contr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enter into an agreement in contravention of the provisions of the Act and if entered into, same shall be void. This, to our mind, at the most, would mean that the Act does not render the agreement entered into, prior to coming into force of the Act, void ab initio. Had the Act been retrospective in operation, it would render the agreement void ab initio. The agreement prior to coming into force of the new act was, therefore, certainly valid, for it was not in breach of any law or affected any law then existing. The question here is whether this agreement, which was valid until coming into force of the Act, would continue to be so valid even after the operation of the law. The parties as on today certain propose to act upon that agreement. All acts done in pursuance of the agreement before the Act came into force would be valid and cannot be questioned. But if the parties want to perform certain things in pursuance of the agreement, which are now prohibited by law, would certainly be an illegality and such an agreement by its nature, therefore, would, from that time, be opposed to the public policy. We would say that the Act could have been treated as operating retrospectively, had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot be the determinative date on which the bid was submitted, as manipulating the process of bidding is also covered by virtue of the said explanation and this process of bidding continued even after May 20, 2009. 30) Learned counsel for the appellants submitted that this explanation has no application as it referred only to bid rigging which is different from collusive bidding . In an attempt to distinguish the two expressions, it was argued that although the terms bid rigging or collusive bidding may, in certain contexts, overlap or even may be referred to as synonyms , in certain context they may cover activities which are not identical. Bid rigging may cover larger and more varied activities than collusive bidding . It was submitted that in view of the specific exclusion of collusive bidding from the Explanation , an activity which squarely falls within the scope of collusive bidding would not be covered by the Explanation and would be excluded from it. Submission is that since the allegation in the present case relating to identical pricing or identical reduction in price squarely falls within the term collusive pricing , the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ticular form of collusive price-fixing behaviour by which firms coordinate their bids on procurement or project contracts. There are two common forms of bid rigging. In the first, firms agree to submit common bids, thus eliminating price competition. In the second, firms agree on which firm will be the lowest bidder and rotate in such a way that each firm wins an agreed upon number or value of contracts. Since most (but not all) contracts open to bidding involve governments, it is they who are most often the target of bid rigging. Bid rigging is one of the most widely prosecuted forms of collusion. Collusive bidding (tendering) See Bid Rigging [This shows collusive bidding and bid rigging are treated as one and the same] (c) OECD Guidelines for fighting bid rigging Bid rigging (or collusive tendering) occurs when businesses, that would otherwise be expected to compete, secretly conspire to raise prices or lower the quality of goods or services for purchasers who wish to acquire products or services through a bidding process. (d) United States Office of the Inspector General, Investigations (Fraud Indicators Handbook) Collusive bidding, price fixing or b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n, supply, distribution, storage, acquisition or control of goods or provision of services. Third part pertains to the effect of such an agreement, namely, appreciable adverse effect on competition , and if this is the effect, purpose behind this provision is not to allow that. Obvious purpose is to thwart any such agreements which are anti-competitive in nature and this salubrious provision aims at ensuring healthy competition. Sub-section (2) of Section 3 specifically makes such agreements as void. Sub-section (3) mentions certain kinds of agreements which would be treated as ipso facto causing appreciable adverse effect on competition. It is in this backdrop and context that Explanation beneath sub-section (3), which uses the expression bid rigging , has to be understood and given an appropriate meaning. It could never be the intention of the Legislature to exclude collusive bidding by construing the expression bid rigging narrowly. No doubt, clause (d) of sub-section (3) of Section 3 uses both the expressions bid rigging and collusive bidding , but the Explanation thereto refers to bid rigging only. However, it cannot be said that the intention was to e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was also invited to sub-section (3) of Section 26 under which the Director-General, on receipt of direction under sub-section (1) is to submit a report of its findings within such period as may be specified by the Commission. The argument of the parties is that if on the relevant date when the Commission passed the order, even the tender notice was not floated, then there was no question of Direction General going into the investigation of that tender. It must be noted at this juncture that under Section 18, the Commission has the duty to eliminate practices having adverse effect on competition and to promote and sustain competition. It is also required to protect the interests of the consumers. There can be no dispute about the proposition that the Director General on his own cannot act and unlike the Commission, the Director General has no suo-moto power to investigate. That is clear from the language of Section 41 also, 28 which suggests that when directed by the Commission, the Director General is to assist the Commission in investigating into any contravention of the provisions of the Act. Our attention was also invited to the Regulations and more particularly to Regulation 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tive behaviour. When we consider the language of the order passed by the CCI under Section 26(1) dated 23.04.2012 the things becomes all the more clear to us. The language of that order is clearly broad enough to hold, that the Director General was empowered and duty bound to look into all the facts till the investigation was completed. If in the course of investigation, it came to the light that the parties had boycotted the tender in 2011 with pre-concerted agreement, there was no question of the DG not going into it. We must view this on the background that when the information was led, the Commission had material only to form a prima facie view. The said prima-facie view could not restrict the Director General, if he was duty bound to carry out a comprehensive investigation in keeping with the direction by CCI. In fact the DG has also taken into 30 account the tenders by some other corporations floated in 2010 and 2011 and we have already held that the DG did nothing wrong in that. In our opinion, therefore, the argument fails and must be rejected. We entirely agree with the aforesaid view taken by the COMPAT. 36) If the contention of the appellants is accepted, it would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it easier to understand the events of 2009 tender. Therefore, to take a holistic view of the matter, it would be essential to point out that the DG in his report had tabulated this tendency of quoting identical rates by these parties in respect of various tenders issued by even other Government bodies before and after 2009. The statistics in this behalf, given in tabulated form by the DG, are reproduced below: S.No. Tendering Agency Tender Opening Date Rates quoted (Rs. Per kg.) Excel United Sandhya Agro 1. U.P. State Warehousing Corp. 14/03/2007 225 225 - - 2. Punjab State Civil Supplies Corp. 28/04/2008 260 260 - - 3. Central Warehousing Corp. 06/08/2008 450 - 450 - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5 - 415 38) The aforesaid table shows identical pricing by these parties even in respect of tenders floated by the U.P. State Warehousing Corporation and Punjab State Civil Supplies Corporation. It was repeated in respect of 2008 tender floated by the Central Warehousing Corporation. Tenders up to S.No.7 above, no doubt, relate to the period which is earlier to coming into force of the provisions of Section 3. At S.No. 8 is the tender of the FCI of March, 2009, which is held to be covered on the principle of retroactivity, as already held above. However, insofar as tenders mentioned at S.Nos. 9 to 16 are concerned, they all pertain to the period after Section 3 became operational. These are clear cut examples of identical pricing by the three appellants. No doubt, the appellants cannot be penalised in respect of tenders mentioned at S.Nos. 1 to 7 as there was no provision like Section 3 at that time. However, such illustrations become important in finding out the mens rea of the appellants, i.e. arriving at an agreement to enter into collusive bidding which continued with impunity right up to 2011. Further, this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; (b) there are only four suppliers of the product in the market out of which three are the appellants; (c) even when the cost of production is different, they have quoted identical price; (d) even when the geographical location of the three suppliers is different, strange coincidence of identical pricing is found, that too repeatedly; (e) profit margins would be different, still quotations are same; and (f) to different parties in respect of different tenders, different rates are quoted. Still whatever price is quoted in respect of one particular tender, that is identical. It would be too much of a coincidence, difficult to believe. Thus, onus was on the appellants in view of Section 3 of the Act, and that too heavy onus, to justify the above trend, but they have failed to discharge this burden. We are, therefore, of the opinion that ingredients of Section 3 stand satisfied and the CCI rightly held that provisions of Section 3(3)(a), 3(3)(b) and 3(3)(d) have been contravened by the appellants. 41) It needs to be emphasised that collusive tendering is a practice whereby firms agree amongst themselves to collaborate over their response to invitations to tender. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it leads to conditions of competition which do not respond to the normal conditions of the market, having regard to the nature of the products, the size and number of the undertakings, and the volume of the said market. Such is the case especially where the parallel behaviour is such as to permit the parties to seek price equilibrium at a different level from that which would have resulted from competition, and to crystallise the status quo to the detriment of effective freedom of movement of the products in the [internal] market and free choice by consumers of their suppliers (emphasis added. At the same time, the Court also added that the existence of a concerted practice could be appraised correctly by keeping in mind the following test: If the evidence upon which the contested decision is based is considered, not in isolation, but as a whole, account being taken of the specific features of the products in question. 44) It would be significant to note that in Dyestuffs judgment, the Court rejected the argument predicated on Oligopolistic market structure, after finding that the market is not a pure oligopoly: rather it was one in which firms could realistically be ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... kewise, M/s. Sandhya Organics did not approach the FCI at all with the representation that the quantities to be supplied were huge and the tender conditions be suitably modified. 48) We feel that COMPAT has examined the matter in right perspective. After examining the record, one finds that important fundamental conditions were the same which used to be in the earlier tenders. In 2009 tender, a specific quantity of 600 MT was prescribed. At that time, all the three appellants participated and did not object to the same. As against this in 2011 tender, the tentative annual requirement of APT was stated to be 400 MT and not 75 MT per month. The condition referred to by the appellants was not for supply of 75 MT per month. It only stated that in a given month the tenderer should have capacity to supply 75 MT. It was nowhere stated that 75 MT will have to be supplied by the successful tenderer every month. In any case, from the conduct of the three appellants, it becomes manifest that reason to boycott the May 2011 tender was not the purported onerous conditions, but it was a concerted action. Otherwise, if the appellants were genuinely interested in participating in the said tender ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er (in Crore) Penalty at 9% of average turnover (in Crore) Excel Crop Care Ltd. 710.09 63.90 United Phosphorus Ltd. 2804.95 252.44 Sandhya Organics Chemicals (P) Ltd. 57.4 Crore 1.57 Crore 52) Under Section 27(b) of the Act, penalty of 10% of the turnover is prescribed as the maximum penalty with no provision for minimum penalty. CCI had chosen to impose 9% of the average turnover keeping in view the serious nature of the breach on the part of these appellants. 53) The COMPAT has maintained the rate of penalty i.e. 9% of the three years average turnover. However, it has not agreed with the CCI that turnover mentioned in Section 27 would be total turnover of the offending company. In its opinion it has to be relevant turnover i.e. turnover of the product in question. Since, M/s. Excel Crop Care and UPL were multi-product companies, products other than APT could not have been included for the purpose of imposing the penalty. It, therefore, held that penalty of 9% would be limited to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ereof is 10% of the average of turnover for the last three preceding financial years . Operative portion of Section 27 of the Act is reproduced below: 27. Orders by Commission after inquiry into agreements or abuse of dominant position. Where after inquiry the Commission finds that any agreement referred to in section 3 or action of an enterprise in a dominant position, is in contravention of section 3 or section 4, as the case may be, it may pass all or any of the following orders, namely:- xxx xxx xxx (b) impose such penalty, as it may deem fit which shall be not more than ten per cent. of the average of the turnover for the last three preceding financial years , upon each of such person or enterprises which are parties to such agreements or abuse: [provided that in case any agreement referred to in section 3 has been entered into by a cartel, the Commission may impose upon each producer, seller, distributor, trader or service provider included in that cartel, a penalty of up to three times of its profit for each year of the continuance of such agreement or ten per cent of its turnover for each year of the continuance of such agreement, whichever is higher.] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovisions of the Act should be permitted to have their full operation rather than causing any impediment in their application by unnecessarily expanding the scope of the provisions by implication. 60) According to him, a plain reading of Section 27 as a whole, which includes Section 27(a) as well, also makes it clear that the target of the penalty is the person or enterprise that has acted in violation of the Act, and not the product or the service alone which is made the subject of the violation. As such, the expression turnover must necessarily mean the turnover of the person or the enterprise which is party to the anti-competitive agreement or abuse of dominance. 61) Critiquing the approach of the COMPAT, he submitted that it has introduced the concept of relevant turnover in Section 27 despite the absence of the word relevant , failing to notice that wherever the Act wanted to introduce the concept of relevance the word relevant has, in fact, been used in the appropriate sections. In this regard, he referred to Sections 2(r), 2(s), 2(t), 4(2)(e), 6, 19(6), 19(7), etc. where the expression relevant is specifically used. He also referred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... over and is not restricted to relevant turnover . 65) He further submitted that the aforesaid provision imposed a cap on the penalty by stipulating that it shall not be more than 10%. Thus, the CCI had the discretion to impose the penalty from 0% to 10% and this was sufficient safeguard to take care of the proportionality aspects of the penalty wherever penalty on total turnover is found to bring unreasonable results. In other words, in respect of multi-product companies where the turnover covering non-offending products, is quite high, the CCI can always impose much lesser rate of penalty so that the penalty does not sound to be excessive and unconscionable and remains proportionate to the nature of contravention. However, it is not permissible to tinker the language of a statute. 66) Adverting to the specific case of M/s. Sandhya Organics Chemicals (P) Ltd., submission of Mr. Kaul was that the reason given by COMPAT in reducing the penalty was self-contradictory inasmuch as contention of this appellant that it did not bid in May 2011 tender of FCI was because of the reason that its production capacity was mere 25 MT per month was specifically rejected by the COMPAT, bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rise. As such, when penalty is being imposed in respect of any infringing product, the turnover of that product would be relevant. The learned counsel criticised the approach of the CCI in imposing penalties by taking the maximum penalty as the starting point of determination and then purporting to reduce it suitably, as totally incorrect approach. It was argued that the quantum of appropriate amount of penalty has to be first determined after taking into consideration the relevant factors. The relevance of the maximum penalty is only for the limited purpose to ensure that the quantum so determined, does not exceed the maximum penalty. 68) Learned counsel for the appellants also advocated for applying the doctrine of proportionality which has universal application and lays down that the broad principles that the punishment must be proportioned to the offence is or ought to be of universal application as held in Arvind Mohan Sinha v. Amulya Kumar Biswas Ors. (1974) 4 SCC 222 Attention of the Court was also drawn to another judgment of this Court in State of Haryana Ors. v. Sant Lal Anr. (1993) 4 SCC 380 where penalty for evasion of tax sought to be levie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... At the outset, it may be mentioned that Section 2(y) which defines turnover does not provide any clarity to the aforesaid issue. It only mentions that turnover includes value of goods or services. There is, thus, absence of certainty as to what precise meaning should be ascribed to the expression turnover . Somewhat similar position appears in EU statute and in order to provide some clear directions, EU guidelines on the subject have been issued. These guidelines do refer to the concept of relevant turnover . Grappling with the same very issue, the judgment of the Competition Appeal Court of South Africa in the case of Southern Pipeline Contractors Conrite Walls (Pty) Ltd. v. The Competition Commission Case No. 105/CAC/Dec 10) (106/CAC/Dec 10) provides the answer in the following manner: 51. The concept of turnover is not defined in the Act and is only referred to in Section 59(2), being annual turnover. There is thus some uncertainty as to the precise meaning of turnover . However, Section 59(3) refers on more than one occasion to the contravention , in particular, in dealing with the nature, duration, gravity and extent of the contravention , the loss o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re in tune with ethos of the Act and the legal principles which surround matters pertaining to imposition of penalties. For arriving at this conclusion, we are influenced by the following reasons: (a) Under Section 27(b) of the Act, penalty can be imposed under two contingencies, namely, where an agreement referred to in Section 3 is anti-competitive or where an enterprise which enjoys a dominant position misuses the said dominant position thereby contravening the provisions of Section 4. In case where the violation or contravention is of Section 3 of the Act it has to be pursuant to an agreement . Such an agreement may relate to a particular product between persons or enterprises even when such persons or enterprises are having production in more than one product. There may be a situation, which is precisely in the instant case, that some of such enterprises may be multi-product companies and some may be single product in respect of which the agreement is arrived at. If the concept of total turnover is introduced it may bring out very inequitable results. This precisely happened in this case when CCI imposed the penalty of 9% on the total turnover which has already been demo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be made of it . When viewed in this way, the restrictions place on the word use in paras. (b) through (h) can be seen as imported into (a) through a variant of the ejusdem generis princile. Interpreted in this manner, s.13(1)(a) is no longer unconstitutionally overbroad, since the types of harms captured by paras. (b) through (h) fall squarely within the legislative intent underlying the section. In light of the presumption that the legislature intended to act in accordance with the constitution, it is appropriate to adopt this interpretation of s.13(1)(a). Thus, the subsection should be understood as covering the situations captured by paras. 13(1)(b) through (h), and any analogous situations that might arise. We would also like to quote the following observations from State of Jharkhand and Another v. Govind Singh (2005) 10 SCC 437: 20. While interpreting a provision the court only interprets the law and cannot legislate it. If a provision of law is misused and subjected to the abuse deemed necessary. [See CST v. Popular Trading C. : (2000) 5 SCC 511 : AIR 2000 SC 1578] . The legislative casus omissus cannot be supplied by judicial interpretative process. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... liability created for counteracting the effect only of attempts by the assessee to reduce tax liability by transfer. It has also been noted how for various purposes the business from which profit is included or loss is set off is treated in various situations as assessee's income. The scheme of the Act as worked out has been noted before. In Southern Motors vs. State of Karnataka and Others AIR 2017 SC 476 , the Court explained the task that is to be undertaken by a Court while interpreting such statutes: 33. The following excerpts from Tata Steel Ltd. (supra), being of formidable significance are also extracted as hereunder. Xxx xxx xxx 25. In Oxford University Press v. Commissioner of Income Tax [MANU/SC/0052/2001]:(2001) 3 SCC 359, Mohapatra, J. has opined that interpretation should serve the intent and purpose of the statutory provision. In that context, the learned Judge has referred to the authority in State of T.N. v. Kodaikanal Motor Union (P) Ltd. [MANU/SC/0127/1986] : (1986) 3 SCC 91 wherein this Court after referring to K.P. Varghese v. ITO [MANU/SC/0300/1981] : (1981) 4 SCC 173 and Luke v. IRC (1964) 54 ITR 692 has observed: The courts must a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... results in anomaly or absurdity, the courts must seek to find out the underlying intention of the legislature and in the said pursuit, can within permissible limits strain the language so as to avoid such unintended mischief. (iii) The principle of strict interpretation of a penal statute would support and supplement the aforesaid conclusion arrived at by us. In a recent Constitution Bench judgment in the case of Abhiram Singh and Others v. C.D. Commachen (Dead) by L.Rs. and Ors. AIR 2017 SC 401, this Court scanned through the relevant case law on the subject and applied this principle even while construing corrupt practice in elections which is of a quasi criminal nature. We would like to reproduce following discussion from the said judgment : 98. Election petitions alleging corrupt practices have a quasi-criminal character. Where a statutory provision implicates penal consequences or consequences of a quasi-criminal character, a strict construction of the words used by the legislature must be adopted. The Rule of strict interpretation in regard to penal statutes was enunciated in a judgment of a Constitution Bench of this Court in Tolaram Relumal v. State ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the infringing products and when that is the proper yardstick, it brings home the concept of relevant turnover . (vi) Even the doctrine of proportionality would suggest that the Court should lean in favour of relevant turnover . No doubt the objective contained in the Act, viz., to discourage and stop anti-competitive practices has to be achieved and those who are perpetrators of such practices need to be indicted and suitably punished. It is for this reason that the Act contains penal provisions for penalising such offenders. At the same time, the penalty cannot be disproportionate and it should not lead to shocking results. That is the implication of the doctrine of proportionality which is based on equity and rationality. It is, in fact, a constitutionally protected right which can be traced to Article 14 as well as Article 21 of the Constitution. The doctrine of proportionality is aimed at bringing out proportional result or proportionality stricto sensu . It is a result oriented test as it examines the result of the law in fact the proportionality achieves balancing between two competing interests: harm caused to the society by the infringer which gives justifi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er, i.e., relevant turnover that becomes the yardstick for imposing such a penalty. In this hue, doctrine of purposive interpretation as well as that of proportionality overlaps. In fact, some justifications have already appeared in this behalf while discussing the matter on the application of doctrine of proportionality. What needs to be repeated is only that the purpose and objective behind the Act is to discourage and stop anti-competitive practice. Penal provision contained in Section 27 of the Act serves this purpose as it is aimed at achieving the objective of punishing the offender and acts as deterrent to others. Such a purpose can adequately be served by taking into consideration the relevant turnover. It is in the public interest as well as in the interest of national economy that industries thrive in this country leading to maximum production. Therefore, it cannot be said that purpose of the Act is to finish those industries altogether by imposing those kinds of penalties which are beyond their means. It is also the purpose of the Act not to punish the violator even in respect of which there are no anti-competitive practices and the provisions of the Act are n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d brother, there was a need felt by me to pen down my own thoughts on a small aspect concerning imposition of penalty under Section 27(b) of the Competition Act, 2002 [ hereafter Act for brevity ]. Though my opinion is only limited to the legal question involved in this case, a brief reference to facts might be necessary. 2. On a complaint being instituted by the Food Corporation of India [ hereinafter FCI for brevity ], Director General for Investigation (Competition Commission of India) ( DG ) investigated into the matter and found that four companies namely Excel Corp. Care Ltd. [ hereinafter ECCL for brevity ], United Phosphorus Ltd. [ hereinafter UPL for brevity ], Sandhya Organics Chemicals (Pvt.) Ltd. [ hereinafter SOCL for brevity ] (three appellants herein) and Agrosynth Chemicals Ltd. [ hereinafter ACL for brevity ] were involved in collusive bidding in relation to tenders issued by FCI for Aluminium Phosphide Tablets [ hereinafter APT for brevity ]. Following chart would indicate the pattern of bidding undertaken by the aforesaid companies- TABLE 1.1 - pattern of bidding YEAR NAME ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - per KG. UPL, ECCL, SOCL After negotiatio ns the rate was brought down to ₹ 386 per Kg. ECCL SOCL 3. After considering the report of DG, CCI exonerated ACL but found the three appellant companies had indulged in anti-competitive practices in violation of Section 3 of the Act and imposed 9% of average 3 years of total turnover under Section 27(b) of the Act in the following manner- TABLE 1.2 penalty as imposed by the CCI NAME OF THE COMPANY AVERAGE OF THREE YEARS TURNOVER (IN CRORE) PENALTY OF 9% OF AVERAGE TURNOVER (IN CRORE) ECCL 710.09 63.9 UPL 2804.95 252.44 SOCL 17.52 1.57 4. Aggrieved by the order of the CCI, appellants approached COMPAT by way of separate appeals. By a common order, dated 29.10.2013, COMPAT held that in case of multi-product companies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 27 (b) emphasize that penalty is to be levied on person or enterprise who have contravened Section 3 or Section 4 of the Act. It is to be noted that proviso to Section 27(b), before it was amended, was couched in following terms- provided that in case any agreement referred to in section 3 has been entered into by any cartel, the commission shall impose upon each producer, seller, distributor, trader or service provider included in that cartel, a penalty equivalent to three times of the amount of profits made out of such agreement by the cartel or ten per cent of the average of the turnover of the cartel for the last preceding three financial years. After the amendment [ Central Act 39 of 2007 ] the proviso as it stands today has been quoted above. The change which was brought about by the aforesaid amendment is that the mandatory nature of the Proviso was made discretionary by substitution of shall with may . This amendment was done to bring the proviso in tune with the rest of Section 27, which uses the expression it may pass all or any of the following order and main part of clause (b), which confers discretion upon the Commission to impose penalty as it may de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd reason that this law was foreseen as a tool against concentration of unjust monopolistic powers at the hands of private individuals which might be detrimental for freedom of trade. Competition law in India aims to achieve highest sustainable levels of economic growth, entrepreneurship, employment, higher standards of living for citizens, protect economic rights for just, equitable, inclusive and sustainable economic and social development, promote economic democracy, and support good governance by restricting rent seeking practices. Therefore an interpretation should be provided which is in consonance with the aforesaid objectives. 10. At this point, I would like to emphasize on the usage of the phrase as it may deem fit as occurring under Section 27 of the Act. At the outset this phrase is indicative of the discretionary power provided for the fining authority under the Act. As the law abhors absolute power and arbitrary discretion, this discretion provided under Section 27 needs to be regulated and guided so that there is uniformity and stability with respect to imposition of penalty. This discretion should be governed by rule of law and not by arbitrary, vague or fanci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t to impose the penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of the provisions of the Act or where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the statute. ( emphasis supplied ) 11. It should be noted that any penal law imposing punishment is made for general good of the society. As a part of equitable consideration, we should strive to only punish those who deserve it and to the extent of their guilt. Further it is well established by this Court that the principle of proportionality requires the fine imposed must not exceed what is appropriate and necessary for attaining the object pursued. In Coimbatore Distict Central Co-operative Bank v. Coimbatore District Central Co-operative Bank Employees Assn ., (2007) 4 SCC 699 this Court has explained the concept of proportionality in the following manner- proportionality is a principle where the Court is concerned with the process, method or manner in which the decision-maker has ordered his priorities, reached a conclusion or arrived at a decision. The very essence of the decision-making consists in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ature of the product, market share of the entity, barriers to entry in the market, nature of involvement of the company, bona fides of the company, profit derived from the contravention etc. These factors are only illustrative for the tribunal to take into consideration while imposing appropriate percentage of penalty. 14. At the cost of repetition it should be noted that starting point of determination of appropriate penalty should be to determine relevant turnover and thereafter the tribunal should calculate appropriate percentage of penalty based on facts and circumstances of the case taking into consideration various factors while determining the quantum. But such penalty should not be more than the overall cap of 10% of the entity s relevant turnover. Such interpretation of Section 27 (b) of the Act, wherein the discretion of the commission is guided by principles established by law would sub-serve the intention of the enactment. 15. Lastly, I am of the opinion that the penalty imposed by COMPAT is appropriate in this case at hand and requires no further interference. 16. These appeals are, accordingly, disposed of in the above terms. - - TaxTMI - TMITax - Corpor ..... X X X X Extracts X X X X X X X X Extracts X X X X
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