Excel Corp Care Ltd. v. CCI

This article is written by Kalyani Gupta, a Master’s in Law student from Amity University, Noida. This commentary discusses in brief about the case Excel Corp Care Ltd. v. CCI.

Citation

(2017) 8 SCC 47

Equivalent Citation

AIR 2017 SC 2734

Petitioner

Excel Crop Care ltd.

Respondent

Competition Commission of India

Date of Judgement

08/05/2017

Bench

A.K. Sikri, N.V. Ramana

INTRODUCTION

The Supreme Court, in this case of “Excel Crop Care Limited vs. Competition Commission of India and Another” dated May 8, 2017 held that the punishment to be enforced on enterprises engaged in anti-competitive methods should be assessed on the base of ‘relevant turnover’ of the business and not the ‘total turnover’.

Facts of the Case

‘Food Corporation of India’ offered a letter to the Competition Commission of India dated February 4, 2011 claiming implementation of anti-competitive agreements amongst four companies –

M/s. Excel Crop Care Limited
M/s. United Phosphorus Limited
M/s. Sandhya Organics Chemicals (P) Ltd
M/s Agrosynth Chemicals Limited

These enterprises were engaged in the production of Aluminium Phosphide Tablets and were claimed to have established an alliance by joining into an anti-competitive agreement between themselves. On acceptance of such a complaint by Competition Commission of India, an investigation was performed by the Director General of Competition Commission of India who initiated that since 2002 to 2009, these companies had been presenting their tenders by citing matching rates in the proposals asked by the Food Corporation of India for the acquisition of APT. The statement of the Director General of Competition Commission of India discovered these enterprises to be in breach of section 3(3) of the Competition Act, 2002 which forbids anti-competitive agreement. On the base of the report of the Director General of Competition Commission of India, and complaints recorded by the four companies, the Competition Commission of India established vide order dated April 23, 2012 that M/s. Excel Crop Care Limited, M/s. United Phosphorus Limited, M/s. Sandhya Organics Chemicals (P) Ltd had breached section 3 of the Act and consequently, enforced punishment on them at the rate of 9% on the average aggregate turnover of these institutions for the past three years, under section 27 (b) of the Act.

The appellants recorded appeals alongside the order of Competition Commission of India at COMPAT (Competition Appellate Tribunal). COMPAT found the appellants to be offensive of section 3 of the Act. Though, the COMPAT held that whilst evaluating burden of penalty under section 27(b) on multi product enterprises, only ‘relevant turnover’ should be deemed and not ‘total turnover’. Appropriate turnover implies to the turnover in relation to the product in question in regard to which terms of the Act were breached although total turnover implies to the whole turnover of the wrong person or enterprise including all the products. Subsequently, the appellants approached the Supreme Court of India demanding it to proclaim the outcomes of COMPAT as untenable and to set separately the punishment levied on them. The CCI also recorded an appeal to the Supreme Court to set away that element of the requisition of COMPAT in which it held that punishment upon providers should be confined to appropriate turnover and not the overall turnover.

Issue

Section 27(b) of the Act authorizes the Competition Commission of India to enforce punishment on individuals or companies in violation of Section 3 or 4 of the Act to the possibility as it deliberates suitable but not greater than 10% of the average of the turnover for the preceding three monetary years. The matter in front of the court was whether ‘turnover’ as occurring under Section 27 of the Act intended to describe ‘relevant turnover’ or ‘total turnover’. Another issue that came up before the Court was whether the Competition Commission of India had jurisdiction to conduct investigation regarding a tender offer that was proposed by the parties before the commencement of Section 3 of the Act. Section 3 of the Act came into operation on May 20, 2009.

Judgment

Issue of determination of turnover:

“The concept of ‘turnover’ for multiproduct enterprises”: When a multiproduct company has penetrated into an anti-competitive agreement and such an agreement may be in regard to a single product. Hence, inflicting punishment on the total turnover of such business would bring out unjust results. Such unfair or absurd outcomes are to be avoided. When an agreement which is in contravention of Section 3 requires one product, there appears to be no explanation for involving other products of a business for the objective of enforcing penalty. Therefore, the turnover ought to be of the violating or infringing product.

“The doctrine of proportionality”: The Supreme Court of India applied the ‘doctrine of proportionality’ to foray a stability between the object of the Act to stop anti-competitive practices and the right of the person infringing in not suffering the penalty which may be unequal to the significance of the Act. The Act seeks to punish offenders of the Act. Though, the Court held that the punishment should not be unbalanced, and lawbreakers should be appropriately punished.

“The doctrine of purposive interpretation”: The Supreme Court of India used the doctrine of ‘purposive interpretation’ to state that there was a legislative connection amongst the damage instigated and the revenues which accumulated from the cartel activity. The Court also stated that there had to be a link between the type of offence and the benefit obtained from such crime. Hence, keeping in mind this kind of co-relation, the concerned turnover, i.e., ‘relevant turnover’ turns into a yardstick for levying a punishment.

“Calculation of Penalty”: The Supreme Court depended on several principles to ascertain the requirement of using ‘relevant turnover’ to evaluate the punishment of criminal organizations. In continuation of this, the Court also placed down a two-step test to determine the punishment under section 27 of the Act.

Step 1:

“Determination of relevant turnover”: Appropriate turnover has been taken to be the entity’s turnover relating to products and services that have been influenced by such violation. The Court held that while evaluating the punishment to be levied on an offender, the evaluating authority should have regard to the entity’s audited financial reports, and in the absence of such statements, appropriate records reflecting the company’s pertinent turnover or estimation of relevant turnover may be taken into consideration.

Step2:

“Determination of appropriate percentage of penalty based on aggravating and mitigating circumstances”: Aspects that are to be taken into consideration while imposing suitable fraction of penalty comprises of

Nature
Gravity
Scope of the violation
Role performed by the infringer
The extent and intensity of involvement
Loss or harm suffered because of such violation
Market conditions in which the violation took place
Nature of the product

Though, such punishment would not be more than the total cap of 10% of the entity’s relevant turnover. In view of the above principles, the Supreme Court upheld the penalty enforced on the petitioners as determined by COMPAT on the basis of appropriate turnover of the companies.

Issue of CCI to conduct inquiry for tender prior to commencement of the Section 3: The Supreme Court held that the investigation led by Competition Commission of India into the tender of March 2009 was enclosed by Section 3 of the Act as the tender procedure, though started on the preceding date when Section 3 became operational, continual beyond May 20, 2009, the date on which the requirements of Section 3 of the Act were imposed.

Takeaway: The judgment from the apex court of the country stated that to decide punishment based on appropriate turnover of companies has set a historic precedent for the Competition Commission of India and COMPAT to determine punishment of lawbreaker’s hereafter. Not only the vagueness of the term ‘turnover’ has been made to imply relevant turnover, but the Supreme Court has also given an instructive list of aspects to be considered while deciding the proportion of penalty. Enterprises have been saved from being enforced excessively high amounts of fine which would have been unequal to their offence. Though, it is to be noted that businesses which have grown high amounts of revenues by arriving at cartels may still stand the chance of being forced higher penalties because proviso of section 27(b) of the Act empowers Competition Commission of India to levy a penalty of up to ‘three times the profit of the company’ if it is higher than 10% of the turnover of the company.

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