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A 360 Degree Review of Penal Provisions’ Application under Competition Law

-K K Sharma1

Short Summary:

Perhaps not many laws have been subject to so much public scrutiny as competition law either before its enactment or afterwards. Almost immediately after its enactment, just after a duly appointed Member had assumed office and before a duly appointed Chairman could enter office, the Competition Act, 2002(Act) was challenged on various counts. This resulted in a very strange situation. The Competition Commission of India (CCI) could not be called a Commission in terms of the Act which needed a minimum quorum of a Chairman and, at least, two Members for being a legally recognized Commission. So, the CCI remained a one Member body (not a full Commission) till as late as March 1, 2009 when, for the first time, a Chairman and two Members were in office and the CCI, in the eyes of law, was a full Commission. The enforcement powers to CCI came in stages. In first phase only advocacy functions were allowed. This was followed by antitrust enforcement powers being given to the Commission from May 20, 2009. Thereafter, regulations of combinations (popularly known as Merger Review) came into force with effect from June 1, 2011. There were always fears that the CCI may turn out to be as effective (or ineffective depending upon one’s perspective) as MRTPC. Now, that five years have passed since the time the CCI began to get its enforcement powers, it is high time to look back if the fears about the efficacy of the powers given to the CCI were justified or misplaced. The author, the only official in senior echelons of the CCI who not only saw the transition from a CCI doing only competition advocacy to a fully functional Commission but also played a very crucial role in this transition by way of being the very first Director General of the functional CCI, laying down the investigative framework of investigation, and later as the first head of Merger Control who gave the country its very efficient Merger Review Format, takes a look at this issue.

Main Article:

Any law is as good as its implementation is an old wisdom. In any debate on the effectiveness of any law, two things take precedence on any other. These are: First the deterrent provisions in the law for the likely violation and the second is the effectiveness of enforcement of this law. It does not need to be emphasized that the best intentioned and drafted legislations shall fail if not effectively implemented. Jurisdictions across the world are moving towards criminalization of competition law violations. The trend is recognition of the serious harm of competition law infringements on consumers, other stakeholders, the process of competition and the economy as a whole.

With respect to India, there is a need for a better appreciation that, unlike Monopolies and Restrictive Trade Practices Commission (MRTPC), the Competition Commission of India (CCI) has adequate powers to deal with the non compliant enterprises and to ensure that it is in a position to effectively 1 Chairman , KK Sharma Law Offices and ex Director General and Head of Merger Control and Antitrust Divisions, CCI. The author can be contacted on kksharmairs@gmail.com or kksharma@kkslawoffices.com .

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fulfill the mandate given to it. This write up aims to elaborate on the adequate penal powers given to the CCI so as to be in a position to be an effective regulator. This has also been done by drawing a comparison with the erstwhile MRTPC regime and, after its repeal, the present competition regime under CCI. By all accounts, the CCI has adequate powers to deal with the responsibility entrusted to it. Be that as it may, still the criminal consequences for violations of different provisions of competition law are not there on the statute in India. Or if we see the world trends, we may say that the criminal consequences of the violations of competition law in India are still some time away from the present times we are living in. There are some provisions relating to contravention of the orders of the Commission. This does become harsher with the contravention of the orders of CCI inviting not just economic fines but also an imprisonment of up to three years. However, even this fine and imprisonment can only be a consequence after a case is filed before Chief Metropolitan Magistrate by CCI and not imposed by CCI itself.

In the present discussion, the competition law being a civil law, none of the violations of competition law are treated as criminal acts inviting imprisonment in a jail. The term sanction, essentially, is an abstract term connoting different meanings in different contexts. However, speaking loosely, it may refer to a liability imposed on a person who is held to be involved in a wrongdoing. Depending on the nature of the wrong committed, a sanction may be classified as a civil sanction or a criminal sanction. While a civil sanction implies an order in the form of directions, prohibitions, injunctions, imposition of monetary fines, confiscation of assets, etc from the adjudicatory authority on account of contravention of a provision of a civil law, a criminal sanction usually entails punishment by way of incarceration for a specified term, adverse publicity, disqualification, etc on account of commission of an offence as defined, by and large, in the penal code of the nation. Having stated this, it must be borne in mind that treating violations of any particular law as inviting either civil or criminal consequences is a matter of state policy. In India, the legislature, in its wisdom, has provided hefty penalties but not imprisonment for any violations of competition law. In the

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entire array of consequences, provided in the Act, the only place where a person may be visited by a term of imprisonment is section 42 of the Competition Act, 2002(the Act). For a ready reference, the section 42 of the Act is being reproduced below:

“42 Contravention of orders of Commission(1) The Commission may cause an inquiry to be made into compliance of its orders or directions made in exercise of its powers under the Act.(2) If any person, without reasonable clause, fails to comply with the orders or directions of the Commission issued under sections 27, 28, 31, 32, 33, 42A and 43A of the Act, he shall be punishable with fine which may extend to rupees one lakh for each day during which such non-compliance occurs, subject to a maximum of rupees ten crore, as the Commission may determine. (3) If any person does not comply with the orders or directions issued, or fails to pay the fine imposed under sub-section (2), he shall, without prejudice to any proceeding under section 39, be punishable with imprisonment for a term which may extend to three years, or with fine which may extend to rupees twenty-five crore, or with both, as the Chief Metropolitan Magistrate, Delhi may deem fit: Provided that the Chief Metropolitan Magistrate, Delhi shall not take cognizance of any offence under this section save on a complaint filed by the Commission or any of its officers authorized by it.”

The above provisions do indicate that any contravention of any orders or directions passed by the Competition Commission of India(CCI) can invite imprisonment, after following due process laid down under the Act, but for any violations of the Act, the CCI does not have the powers to sent the wrongdoer to jail. To that extent, there are no criminal sanctions in the Act. Nonetheless there are sufficient deterrent provisions in the Act and, if we are not looking for not necessarily putting some one behind bars, the enforcement provisions are adequate to do justice to the mandate given to it by law.

Before delving into the sanctions provided under the Act, it would be relevant to highlight general framework of the Act and the circumstances that necessitated the enactment of the Act. As is generally known, the Act was enacted in January, 2003. Under the provisions of the Act, the (CCI) was established on October 14, 2003. On account of certain legal challenges, the CCI could not be duly constituted and till March 1, 2009, and it remained a single member body not recognised as a duly constituted Commission in terms of section 8 of the Act. The legal challenges led to a process wherein the Act underwent amendments in September 2007. The Act, as on today, contains a fairly good mechanism to enable the CCI to be in a position to enforce compliance through deterrent means instead of collecting self

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professed undertakings of good conduct from erring enterprises as was the case with erstwhile MRTPC.

It may be recalled that under the MRTP Act, the only remedy for any anti- competitive acts carried on by any enterprises or persons was only to direct them to “cease and desist”. The market having grown considerably over a period of time and winds of challenge of economic liberalisation having crossed over the Indian shores from 1991 onwards, these remedies were not considered enough. When the economy grew, with liberalization in different sectors, it also enhanced the possibilities of conduct of some of the market players being driven by a sense of excessive greed leading to their indulging in a conduct which may suite their own profit motives but be not conducive to a competitive market functioning and overall state of competition in market .

Therefore, there was felt a strong need for the State to put a regulatory mechanism in place so that recently opened markets were not hijacked by some of the market participants for their own good at the cost of the market freedom and other small players in the market. This being so, it was considered really appropriate to introduce the penal provisions which are not merely “cease and desist” but are deterrent enough for the wrong doers lest they should hijack the market leadership at the cost of other new entrants waiting to enter the market through fair means. In was in this background that the legislature in its wisdom gave enough teeth to the newly constituted competition agency, known as CCI, to deal with the enterprises which were not compliant with the law of the land.

Going by the general standards of probity in public life, it may, perhaps, be too much to expect the erring enterprises to give undertakings of good conduct and abide by it. Such measures proved futile in the earlier regime of MRTPC. Accordingly, adequate penal provisions were incorporated in the Act. However, as is true with any new legislation, it is not just the provisions of the law which determine the fate of its future but also the implementing machinery - in the present case, the CCI, COMPAT and the Supreme Court which will finally lead to the evolution of the law in this land.

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In this connection, it may be said with satisfaction that the judgment enunciated by the Hon. Supreme Court in the CCI vs. SAIL has really shown that the Apex Court in the land is fully abreast of the philosophy behind implementation of the competition law in India and has, accordingly, dealt at length and how it should be followed. The judgment also laid down broad parameters for the way the investigation should be conducted by the investigation wing of the CCI i.e. Office of the Director General(DG) as well as how the CCI should deal with the provisions of the section 33 of the Act for giving interim orders and many such other issues. To this extent, this judgment in the case of CCI Vs. SAIL given by the Hon’ble Supreme Court, on 09.09,2010, indicates the maturity of judiciary in understanding the provisions of the new and modern law. However, other two organizations including CCI and COMPAT also have to display some level of understanding and follow that understanding to ensure that the functioning of competition law in the country is synchronized with the global market realities.

The recognition of the effective harm of competition law infringements has been increasing the world over. Three types of violations are the basic concerns of the competition law authorities across the globe, viz., anti-competitive agreements, abuse of dominant position and anti-competitive mergers. Amongst these, it is the anti-competitive agreements which are considered to be most harmful amongst all competition law violations. Cartels, referring to agreements or arrangements or understanding amongst firms or entities engaged in provision of similar goods or services for the purpose of suppressing competition in the market, are considered to be the most pernicious competition law violations. As a matter of fact, Former EU Competition Commissioner Monti described cartels as a “cancer” on the European economy.2 Cartels may take various forms, viz., price fixing cartels, output restricting cartels, market allocating cartels or bid rigging cartels. Notwithstanding the form, the primary purpose of cartel is joint profit maximization. Wherever cartels operate, nations experience social and

2 Foreword by Mario Monti to the XXXI Report on Competition Policy 2001, European Commission, 2002, p. 4.

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economic disruption since the local industries or small business houses cannot compete with big combinations that have lower costs of production, supply, distribution and collusive strategies to sell the products. As it would be seen in subsequent paragraphs, it is cartels which are mostly subjected to criminal sanctions across jurisdictions.

Right at the beginning, it would be relevant to point out that jurisdictions across the world are now moving towards introducing criminal sanctions, particularly imprisonment of the delinquent persons, against competition law contraventions, particularly hard core cartels which are widely considered as most pernicious amongst competition law violations and obstruction to justice.

A move towards criminalization of competition law violations is argued to substantially increase the prospects of deterrence. In Arthur Liman’s words, ‘For the purse snatcher, a term in the penitentiary may be little more unsettling than basic training in the army. To the businessman, however, prison is the inferno, and conventional risk-reward analysis breaks down when the risk is jail. The threat of imprisonment, therefore, remains the most meaningful deterrent to antitrust violations’3 A criminal conviction severely damages the defendant’s image and reputation, and the associated stigma and negative publicity far outweigh the inconvenience and embarrassment of an adverse decision in a civil proceeding.4 Let us a look at how this issue is dealt by different jurisdictions. For ease of reference, selected jurisdictions which have inclined their competition law towards introducing criminal sanctions are reproduced below in a tabular format:

Serial No.

Jurisdiction

Criminal Sanction

Offence Period of commencement

Governing Law

1A Israel Imprisonment up to 3 years

(1) Being party to a restrictive arrangement not duly approved, nor issued with a Temporary Permit nor granted an

1988

In the earlier version, it was 2 years

Section 47(a) of Restrictive Trade Practices Law 1988

Latest version available herehttp://eng-

3 A. L. Liman, ‘The Paper Label Sentences: Critique.’ (1977) 86 The Yale law Journal 619.4 Vicky Comino, ‘Civil or Criminal Penalties for Corporate Misconduct: Which Way Ahead?’ (2006) 34 Australian Business Law Review 428

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Exemption pursuant to Section 14;

(2) Not complying with a condition stipulated upon an Approval of a restrictive arrangement or issuance of a Temporary Permit or grant of an Exemption, as may be applicable;(3) Not giving notice of a corporate merger or performing an act tantamount to a full or partial merger, contrary to the provisions of Chapter III;(4) Not complying with a condition stipulated upon the grant of a consent to a merger;(4a) Abusing his or her position in the market pursuant to the provisions of Section 29A, provided that his or her intention to reduce competition in the marketplace or to injure the public is proven(5) Violating instructions given pursuant to Section 30 or an order issued pursuant to Sections 25 or 31;(6) Violating an order issued pursuant to Sections 35 (ancillary order) or 36 (interim ruling)

Earlier version available here: http://eng-archive.antitrust.gov.il/files/197/RTP.PDF

archive.antitrust.gov.il/files/27/RTP%20Law.pdf

1B Israel Imprisonment of up to 5 years

Committing the following offence under aggravating circumstances

(1) Being party to a restrictive arrangement not duly approved, nor granted a temporary permit or exemption pursuant to Section 14;(2) Not complying with a condition for the approval of a restrictive arrangement or the grant of a temporary permit or an exemption, as may be applicable;(3) Not giving notice of a merger of companies or performing an act tantamount to a full or partial merger, contrary to the provisions of Chapter III;(4) Not complying with a condition stipulated for approval of a merger;(4a) Abusing his position in the market pursuant to

2000 Section 47 A of Restrictive Trade Practices Law 1988 (As amended in 2000)

See Section 47(a) and 47A, available herehttp://www.antitrust.gov.il/eng/Antitrustlaw.aspx

OECD document evidencing that amendments were made in 2000, available herehttp://www.oecd.org/competition/50104572.pdf

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the provisions of Section 29A, provided that his intention to reduce business competition or to injure the public has been proven;

2 Germany Imprisonment of up to 5 years

Bid RiggingRestricting competition through agreements in the context of public bids.

1998

Act Against Restraints of Competition, 2005 available here http://www.gesetze-im-internet.de/englisch_gwb/index.html does not provide for imprisonment.

Section 298 of the Criminal Code (STGB)

available here file:///C:/Users/KKOFFICE1/Downloads/Germany_CC_1971_amended_2009_en.pdf

3 UK Imprisonment of up to 5 years

Cartel 2002 Section 188, The Enterprise Act, 2002

available herehttp://www.legislation.gov.uk/ukpga/2002/40/contents

4 Australia Imprisonment of up to 10 years

Cartel 2009 Sections 44ZZRF, 44ZZRG, 79, Competition and Consumer Act, 2010.

Section 79, available here: http://www.austlii.edu.au/au/legis/cth/consol_act/caca2010265/s79.html

Section 44ZZRF, available here:http://www.austlii.edu.au/au/legis/cth/consol_act/caca2010265/s44zzrf.html

Section 44ZZRG, available here:http://www.austlii.edu.au/au/legis/cth/consol_act/caca2010265/s44zzrg.html

5A Korea Imprisonment of up to 3 years

Engaging in abusive conduct; Engaging in unfair concerted practices or caused others to engagein such practice; Hindering, refusing or evading investigation.

2011 Article 66 of Monopoly regulation and Fair Trade Act, 2011Available here:file:///C:/Users/KKOFFICE1/Downloads/1.+Monopoly+Regulation+and+Fair+Trade+Act.PDF

5B Korea Imprisonment up to 2 years.

Engaging in Resale Price Maintenance.

2011 Article 67 of Monopoly regulation and Fair Trade Act, 2011Available here:file:///C:/Users/KKOFFICE1/Downloads/1.+Monopoly+Regulation+and+Fair+Trade+Act.PDF

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The above table clearly indicates the gradually growing trend towards introducing or increasing criminal sanctions against individuals responsible for competition law infringements. We should not lose sight of the fact that if and when the violations are visited by imprisonment and there is a criminal sanction behind such violations, the standard of proof needed by court shall suddenly become very high in comparison to present times when the violations of competition law are visited by economic penalties alone.

Generally speaking, a conversion of a civil contravention into criminal offence necessarily entails escalation of the ‘standard of proof’ required to prove the commission of an offence. While the ‘standard of proof’ applied in the case of civil contravention is ‘preponderance of probabilities,’ the ‘standard of proof’ applied in the case of criminal offence is ‘beyond reasonable doubt’. Needless to state, the later standard is harder to achieve but is, nonetheless, essential before restrictions are imposed upon the liberty of the offender. Further, due recognition of general principles of criminal law, outlining appropriate violations in competition law which are sought to be made criminal, putting in place an effective investigative mechanism as well as leniency or reward schemes are essential elements to achieve successful enforcement of criminal sanctions.

Be that as it may, it is relevant to keep in mind that any debate about criminalization is never immune from arguments of over-criminalization. The most significant economic cost of criminalization would be its chilling effect on legitimate business activity. It carries a serious risk of making managers risk averse – more than the shareholders in a company would wish them to be – because of the possibly devastating personal fears of a prosecution.

With respect to the penal provisions within the framework of the Act, it is interesting to state that they are found not only in chapter titled as “Penalties” i.e. Chapter VI of the Act but also at other places such as section 27 and section 28, in Chapter IV of the Act. There are certain other areas where provisions give enough deterrent power to the CCI although not named as penalties. Interestingly, substantial chunk of penal powers are outside the

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chapter of “penalties”. However, these penal provisions are also equally important and effective. One such section is section 28 of the Act which gives power to CCI to divide an enterprise. For ready reference, section 28 of the Competition Act 2002 is being quoted below:

“28 (1) The [Commission] may, notwithstanding anything contained in any other law for the time being in force, by order in writing, direct division of an enterprise enjoying dominant position to ensure that such enterprise does not abuse its dominant position.

(2) In particular, and without prejudice to the generality of the foregoing powers, the order referred to in sub-section (1) may provide for all or any of the following matters, namely:—

(a) the transfer or vesting of property, rights, liabilities or obligations;(b) the adjustment of contracts either by discharge or reduction of any liability

or obligation or otherwise;(c) the creation, allotment, surrender or cancellation of any share,stocks or

securities;(d) [Omitted by Competition (Amendment) Act, 2007](e) the formation or winding up of an enterprise or the amendment of the memorandum of association or articles of association or any other instruments regulating the business of any enterprise;(f) the extent to which, and the circumstances in which, provisions of the order affecting an enterprise may be altered by the enterprise and the registration thereof;(g) any other matter which may be necessary to give effect to the division of the enterprise.

(3) Notwithstanding anything contained in any other law for the time being in force or in any contract or in any memorandum or articles of association, an officer of a company who ceases to hold office as such in consequence of the division of an enterprise shall not be entitled to claim any compensation for such cesser.”

The afore-stated provision endorses the remedy adopted against abuse of dominant position in mature jurisdictions, as United States (US). Way back in the year 1974, American Telephone and Telegraph Company (AT & T) was charged with abusing its dominant position in an antitrust suit filed by the US Department of Justice (DoJ), which had sought divestiture of AT&T from the Bell operating companies and the divestiture and dissolution of Western Electric, AT &T’s manufacturing subsidiary. The said divestiture was complete in the year 1984, dividing the former telephone monopoly into eight units. From the above provisions of Section 28, it is noticed that the CCI has the power to divide an enterprise in order to ensure that such an enterprise does not abuse its dominant position. Interestingly, this section does not require the enterprise to have actually abused its dominant position for invoking this section. This is indeed a significant power and enough to create a great deterrence. However, interestingly, this section 28 of the Act, does not find place in chapter for penalties but in chapter IV relating to duties, powers and functions of the CCI. Similarly, Section 27 ,dealing with the orders of the CCI,

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and containing the penal provisions which are substantial in nature, is also not in the penalty chapter and has been titled merely as ‘orders by Commission after inquiry into agreements or abuse of dominant position’. Therefore, the present scheme of the Act is such although the main headline making penalties have been levied under section 27 of the Act but this section is not within the Chapter VI, titled as “penalties” but in Chapter IV titled as “orders by Commission after inquiry into agreements or abuse of dominant position”.

Now coming to the substantive penalties which can be imposed by the CCI-whether in the Chapter VI of the Act titled as ‘penalties’ or elsewhere- the most significant section in this regard is section 27 of the Act which is being quoted below for ready reference:

“27. 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:—

(a) direct any enterprise or association of enterprises or person or association of persons, as the case may be, involved in such agreement, or abuse of dominant position, to discontinue and not to re-enter such agreement or discontinue such abuse of dominant position, as the case may be;(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.](c) [Omitted by Competition (Amendment) Act, 2007](d) direct that the agreements shall stand modified to the extent and in the manner as may be specified in the order by the Commission;(e) direct thee enterprises concerned to abide by such other orders as the Commission may pass and comply with the directions, including payment of costs, if any:;(f) [Omitted by Competition (Amendment) Act, 2007](g) pass such other [order or issue such directions] as it may deem fit.[Provided that while passing orders under this section, if the Commission comes to a finding, that an enterprise in contravention to section 3 or section 4 of the Act is a member of a group as defined in clause (b) of the Explanation to section 5 of the Act, and other members of such a group are also responsible for, or have contributed to, such a contravention, then it may pass orders, under this section, against such members of the group.]

From the above we find that, in terms of clause (b) of section 27 of the Act, the CCI can impose a penalty up to 10% of the average of the turnover for the last three preceding financial years upon each of the person or enterprise who are/were parties for entering into an anticompetitive agreement or

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abusing their dominant position. This penalty goes to become a more deterrent penalty if an anticompetitive agreement has been entered into by a cartel. It may be recalled that harm caused to the society at large by cartels, almost universally, has been held to be the most pernicious form of anti-competitive conduct and is looked down upon across the competition world. Therefore, if an agreement is found to have been entered into by a cartel, the CCI may impose upon each member of such cartel, a penalty which can go up to three times of its profit for each year of continuation of such agreement or 10% of its turnover for each year of such agreement whichever is higher. It implies that if a cartel is indulging in anti competitive agreement, in that event, the limit of penalty at the average of turnover of last three preceding financial years does not apply and the period of continuation of the agreement by the cartel is also a determining factor thereby making it really tough as far as the deterrence impact is concerned. In terms of clause (d) of section 27, the CCI can also direct that the agreement shall stand modified to the extent and in the manner as may be specified by CCI. The CCI also has the authority to direct the enterprises involved to comply with any directions including payment of cost in terms of clause (e) of section 27 of the Act. The clause (g) of this section is also in the nature of an omnibus clause by which the CCI is empowered to pass such order or issue such directions as it may deem fit. This is over and above the specific provisions for monetary penalty given in section 27 of the Act.

For the enterprises which may not comply with the directions of CCI under section 27 of the Act or such other acts which deal with the penalties on erring parties, there are enough provisions in the chapter VI titled as ‘penalties’. These sections are section 43 - penalty for failure to comply with the directions of the Commission and DG, section 43A dealing with power to impose penalty for non furnishing of information on combination, section 44 relating to the penalty for making false statements or omission or furnishing material information, section 45 for offences in relation to furnishing of information. For a ready reference, these sections are being quoted below:

“Penalty for failure to comply with directions of Commission and Director General

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43. If any person fails to comply, without reasonable cause, with a direction given by—a. the Commission under sub-sections (2) and (4) of section 36; orb. the Director General while exercising powers referred to in sub-section (2)

of section 41, such person shall be punishable with fine which may extend to rupees one lakh for each day during which such failure continues subject to a maximum of rupees one crore, as may be determined by the Commission]”

“[Power to impose penalty for non-furnishing of information on combinations][43A.If any person or enterprise who fails to give notice to the Commission under subsection(2) of section 6, the Commission shall impose on such person or enterprise a penalty which may extend to one per cent. of the total turnover or the assets, whichever is higher, of such a combination.]”“Penalty for making false statement or omission to furnish material information44. If any person, being a party to a combination,—

c. makes a statement which is false in any material particular, or knowing it to be false; or

d. omits to state any material particular knowing it to be material, such person shall be liable to a penalty which shall not be less than rupees fifty lakhs but which may extend to rupees one crore, as may be determined by the Commission.”

“Penalty for offences in relation to furnishing of information45.(1)Without prejudice to the provisions of section 44, if a person, who furnishes or is required to furnish under this Act any particulars, documents or any information,—

e. makes any statement or furnishes any document which he knows or has reason to believe to be false in any material particular; or

f. omits to state any material fact knowing it to be material; org. wilfully alters, suppresses or destroys any document which is required to

be furnished as aforesaid, such person shall be punishable with fine which may extend to rupees one crore as may be determined by the Commission.](2) Without prejudice to the provisions of sub-section(1), the Commission may also pass such other order as it deems fit. “

No institution or body can be effective if it does not have enough powers to enforce its mandate. In the process of regulation of a combination or in other matters, it is necessary for a regulator to be able to punish or penalize those who do not furnish the correct or complete information as well as do not give correct statements. This has been taken care of in terms of section 44 wherein for making a false statement, omission to state material particulars, a person is liable to penalty not less than Rs. 50 lakhs but extendable to Rs. 1 crore which is substantive deterrent in the Act. Similarly, if somebody furnishes information which is found to be false, he shall be punishable with a fine to the extent of Rs. 1 crore as may be determined by the CCI.

Regulation of combinations is one of the ex-ante methods of market regulation to safeguard any disturbance into otherwise competitive markets. When any acquisition, acquiring of control or merger or amalgamation is being contemplated, the parties to the combination are expected to give a notice of such a combination to CCI within a period of thirty days for the approval of the board and wait for the CCI to clear the transaction. There are two expectations from these combining parties in terms of law. Firstly, the

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expectation is of submitting a true and fair account of the transaction to the competition agency. Secondly, within a period of two hundred and ten days after which the notice to combination is deemed treated as cleared by CCI, the parties to the combination are expected to wait for the clearance from the CCI and not go ahead with the transaction. Section 43A provides a mechanism by which CCI is empowered to impose a penalty which can extend up to 1% of the total turnover if the CCI has not been given notice of a combination in terms of section 6 of the Act.

All the above mechanisms would remain only holy homilies if the CCI did not have any power to enforce compliance of its orders on monetary penalties. This mechanism has been provided by way of section 42 of the Act. In terms of section 42, the CCI may cause an enquiry to be made into compliance of its order and a fine extending upto Rs. 1 lakh per day for non compliance of any order or directions of the CCI issued under sections 27, 28, 31, 32, 33, 42A and 43A can be imposed during the period of non compliance. The only fetter on the powers of the CCI is subject to a maximum of Rs. 10 crores. This is of enough deterrence value.

It may be mentioned that this compliance is one time compliance and the CCI is free to invoke the provisions of section 42(2) of the Act in every instances of compliance. This section does not say that the maximum limit of Rs. 10 crores is with reference to a person. On the face of it, this is with reference to a case and instance of noncompliance. It would automatically follow that the CCI is free to invoke these provisions in instances of more than one compliance except for the fact that in each episode of non compliance, the ceiling of Rs. 10 crores would be applicable.

If even that fine imposed under section 42(2) of the Act remains not complied with, there is a provision of imprisonment for a period up to three years or an additional fine up to Rs. 25 crores or both for which the Commission can move before the Chief Metropolitan Magistrate, New Delhi. Here, it would be pertinent to point out that jurisdictions across the world have now been inclining towards criminalization of competition law violations, Therefore,

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although the violations of Competition Law are not criminal offence as is the case in USA, UK etc, the law provides enough teeth to put a fear of mind in the case of noncompliant enterprises.

The fight against select competition law violations, particularly cartels, is legally and practically a demanding task. This is because first of all, cartel members, by their very definition, are secretive about their prohibited behavior and, therefore, agencies have to undertake great efforts to detect concealed cartels. Secondly, agencies need extraordinary powers and skills to collect sufficient evidence to mount a viable case against sometimes uncooperative defendants. It is the ‘cloak of secrecy’ within which a cartel operates which gives rise to the need for an effective ‘leniency’ mechanism. This scheme is grounded on the premise that successful prosecution of cartels requires incriminating evidence to be voluntarily supplied by a member of the cartel. Leniency has been employed by almost all the competition regimes across the world to successfully unmask and prosecute most competition law violators. Leniency could mean any reduction in the penalty compared to what would be sought in the absence of full, voluntary co-operation. The clearest, most complete form of leniency is amnesty. In the US program, where cartels are subject to criminal sanctions, leniency implies immunity from prosecution. In the EU program, leniency is described in terms of reductions in fines. Other enforcement agency decisions that could be considered lenient treatment include agreeing not to refer a matter for criminal prosecution, or not to pursue penalties against individuals.5 Pakistan and Korea have introduced payment of monetary reward to the informants of prohibited activity in respective jurisdictions.

The CCI has also been given the power to leverage its power to impose penalties for effective compliance by way of giving the power to relax and impose lesser than the due penalty on an erring enterprise in terms of the provisions of section 46 of the Act. This is an important provision. This enables the CCI to use carrot and stick policy in enforcing compliance. It is in

5 Fighting Hard Core Cartels: Harm, Effective Sanctions and Leniency Programmes (OECD, 2002).

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view of this and, in keeping with global experience, the CCI has also come up with the regulations for lesser penalties which are also popularly known as leniency regulations. The Act empowers the CCI to grant leniency by levying a lesser penalty on a member of the cartel who provides full, true and vital information regarding the cartel. If a member of the cartel comes forth and makes a full, true and vital disclosure regarding the cartel and its practices, the CCI may after the consideration of the information given by the cartel member, award reduction in the penalty of up to 100%. An applicant who applies for lesser penalty after the first application for lesser penalty can also benefit from reduction in penalty of up to or equal to 50% of the full penalty leviable, upon making disclosure of the evidence that provides significant added value to the evidence already in possession of the CCI. Similarly, members or applicants who are third may be granted reduction in penalty of up to 30%, as according to the information provided by them and its use to the CCI in the case. The scheme is designed to induce members to help in detection and investigation of cartels.

However, there is one area and that is section 43A of the Act about non furnishing of information in case of combinations where there is a scope of improvement. This appears to be a case where deterrence appears to have been of lesser impact which may not be enough. In terms of section 20(1) of the Act, the CCI can look into cases of combinations having appreciable adverse effect on competition within a period of one year of the combination having come into effect. If we look at the fee paid to the advisors for combination, it is noticed that the fine of 1% of turnover may be taken as a reasonable cost by some of the delinquent but really enterprising enterprises. These enterprises may choose not to report a transaction and thereafter wait for a period of one year to lapse. If they are caught, the penalty amount may be treated as the cost of such an adventure. If this aspect is improvised and some higher and more meaningful penalty is prescribed, it would make this, otherwise little light fine, also worth being a deterrent. Except for this, the penal provisions, as of now, are enough to ensure compliance.

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Having analysed the substantive provisions of the Act, it would be now pertinent to examine the penalties imposed by CCI in different cases and their status at the time of writing. Given below in a tabular format are different penalties imposed by CCI and their present status:

Serial No.

Case Competition law Violation

Penalty imposed by CCI (In INR- crores)

Percentage of Turnover (In %)

Status of appeal (if applicable)

Penalty imposed by COMPAT(In INR- crores)

Percentage of Turnover (In %)

1 Indian Sugar Mills Association & Ors. vs Indian Jute Mills Association & Ors.

Cartel 0.48 5 N.A. - -

2 Collective boycott/refusal to deal by the Chemists & Druggists Association, Goa (CDAG), M/s Glenmark Company and, M/s Wockhardt Ltd.

Cartel 0.10 10 N.A. - -

3 Builders Association of India vs Cement Manufacturers' Association (CMA) & Ors.

Cartel 0.73(On CMA)

10 Pending - -

4 In re: Suo Moto case against LPG cylinder manufacturers

Cartel 165.58 7 Decided Penalty imposed by CCI upheld

7

6 In re: Aluminium Phosphide Tablets Manufacturers

Cartel 317.00 9 Decided 10.00** 9(Reduced to 1 % in case of M/s. Sandhya Organic Chemicals (P) Ltd.)

7 Ref Case filed by Director General (Supplies & Disposals), Directorate General of Supplies & Disposals, Department of Commerce, Ministry of Commerce & Industry,

Cartel 6.18 5 Pending - -

18

Government of India against M/s Puja Enterprise & Ors. (Shoe Makers Case)

8 Coal India Ltd. vs. Gulf Oil Corporation Ltd. ( Explosives Manufacturers Case)

Cartel 60.00 3 Decided 5.80 0.3

9Sunshine Pictures Private Limited & Eros International Media Limited vs Central Circuit Cine Association, Indore & Ors. 

0.02 10 N.A. - -

10 A Foundation for Common Cause & People Awareness vs. PES Installation Private Limited & Ors.

Cartel 3.00 5 Decided 1.80 3

11 In re: Varca Druggist & Chemist & Ors. vs. Chemists & Druggists Association, Goa

Cartel 0.20 10 N.A - -

12 Vedant Bio Sciences vs Chemists & Druggists Association of Baroda. 

Cartel 0.005 10 Pending - -

13 M/s Cinergy Independent Film Services Pvt. Ltd vs Telangana Telugu Film Distribution Association & Ors.

Cartel 0.12 10 N.A. - -

14 M/s Santuka Associates Pvt. Ltd. vs All India Organization of Chemists and Druggists and Ors.

Cartel 0.47 10 Pending - -

15 M/s Reliance Big Entertainment Private Limited vs Tamil Nadu Film Exhibitors Association.

Cartel 0.46 10 Decided Penalty imposed by CCI upheld

10

16 In Re: 1. M/s Maharashtra State

Abuse of Dominant

1773 3 Pending - -

19

Power Generation Company Ltd. vs M/s Mahanadi Coalfields Ltd. & Ors. 2. M/s Maharashtra State Power Generation Company Ltd. vs M/s Western Coalfields Ltd. & Ors, 3. M/s Gujarat State Electricity Corporation Limited vs M/s South Eastern Coalfields Ltd. & Ors

(Coal India Case)

Position

17 In Re. M/s HT Media Limited & M/s Super Cassettes Industries Limited

Abuse of Dominant Position

2.83 8 N.A - -

18 Sh. Surinder Singh Barmi vs. Board for Control of Cricket in India (BCCI)

Abuse of Dominant Position

52.24 6 Pending - -

19 MCX Stock Exchange Ltd. & Ors. vs National Stock Exchange of India Ltd. & Ors.

Abuse of Dominant Position

55.5 5 Decided Penalty imposed by CCI upheld

5

20 Belaire Owner's Association vs DLF Limited and Ors.

Abuse of Dominant Position

630 7 Decided Penalty imposed by CCI upheld

7

21 Shri Shamsher Kataria vs Honda Siel Cars India Ltd. & Ors.

Abuse of Dominant Position

2545 2 Pending - -

22 M/s Kansan News Pvt. Ltd. vs M/s Fastway Transmission Pvt. Ltd. & Ors.

Abuse of Dominant Position

8.04 6 Decided CCI order set aside

Penalty imposed by CCI set aside

*A total penalty of Rs 6,317 crores was imposed on 11 cement companies and Cement Manufacturers Association (CMA). While the penalty levied on CMA was a percentage of its turnover for the preceding financial years, penalty was imposed on the cement companies at the rate of 0.5 % of their net profit for the preceding financial years.

** The penalty levied by the CCI on the three ALP Tablet manufacturers was at the rate of 9% of their ‘overall turnover.’ The COMPAT, on appeal, upheld the finding of CCI of cartelization against the three companies but ordered 9% penalty on the ‘relevant turnover’ instead of the turnover of the entire group. This led to reduction in penalties, as the delinquent companies were ‘multi-product companies.’

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It would be relevant to point out that in European Union, albeit even under the erstwhile Council Regulation 17/1962 relating with imposition of fines, the Commission was empowered to impose penalty on a competition law violator of up to 10% of the turnover in the preceding business year of each of the undertakings participating in the infringement, the rate of penalty imposed upon the delinquent undertakings remained between 2% and 4% for the initial 16 years.6 In contrast, as it can be inferred from above, in the very first five years of enforcement of competition act by the CCI, the Commission has been able to send a strong message by imposing penalties ranging from 2 % to up to fully permissible 10% of the turnover of the delinquent enterprises for the preceding financial years.

Put together, the entire array of penal and prosecution provisions in the Act, as of now, are enough to ensure compliance and put the Act on a much stronger footing, not only as compared to the earlier MRTP Act but also vis-à-vis few mature jurisdictions.

6 See Damien Geradin, ‘The EC fining policy for violations of competition law: An empirical review of the Commission decisional practice and the Community courts’ Judgments’(2005) available here: https://www.coleurope.eu/content/gclc/documents/GCLC%20WP%2003-05.pdf.