Section 43 – Indian Competition and Anti-Trust Blog

The case of M/s. Crown Theatre v. Kerala Film Exhibitors Federation (KFEF), Case No. 16 of 2014 (Decided on 08.09.2015) is another case of the C.C.I. which is probably going to get added to the list of cases which is receiving criticism from the COMPAT in Appeal. Not necessarily on the merits of the case but more so on procedure. After all, the K.F.E.F. is a serial competition law violator and has been found to be guilty of the violation of competition law and fined multiple times before (In fact, even the individuals penalised are the same). The problem is with the way fines are being calculated in this particular case.

Shockingly, the fine, which was supposed to be ten percent of the average turnover of the past three years (Financial years 2011 – 2012, 2012 – 2013, 2013 – 2014) has been calculated only on the basis of the turnover of 2011 – 2012. Section 27 clearly mandates that it must be calculated on the turnover of the last three years. It is not optional for the C.C.I. to calculate it without taking into account one or more financial years. Also, the only explanation which has been provided in the table is “not submitted”, which, while understandable, is not a good enough excuse for the non calculation of any statutory penalty as per the law for which a clear formula has been provided under the Act.

Now as per procedure, the C.C.I. always calls for the financial statements of the past three years without prejudice to the merits of the case of the Respondents, so that in the event they are found guilty, the fine, if any, can be calculated. It is possible that the Respondents herein did not comply with the Order of the Commission and intentionally avoided the submission of the statements before the Commission. Thus, a perfect case for the Commission to exercise powers under Section 43 (or Section 45, as the case may be) under the Act. If there is a genuine and reasonable reason for this omission, then the Commission should have clearly stated the same in the Order.

Either way, it gives the COMPAT a clear cut reason to remand he matter back for reconsideration on the issue of penalty, just like it did in the Gas Cylinder Bid Rigging Case.

To be honest, I did not know what to write about this Order (begins from page thirteen of the document), which is the primary reason for the delay to this post. The issue arose more as a result of bad drafting and communication rather than any actual serious question of law. Furthermore, what the Tribunal has actually enumerated is a well accepted principle of natural justice rather than a recognition of any previously unrecognised principle of competition law.

Nevertheless, important growths and developments always have small beginnings, and so till that extant this decision stands on its own. To quickly reiterate the facts, the Appellants challenged the Order passed by the CCI whereby all the appellants were imposed a penalty of Rs.25,000/- per day under Section 43 of The Competition Act, 2002 (hereinafter the ‘Act’). It was further provided that if the information asked was not supplied within 30 days, the penalty was to be Rs.50,000/- per day for the next 30 days and Rs.1,00,000/- per day thereafter, till penalty amount culminates to Rs.1.00 crore. Before the Commission, the Respondent in the present case approached the Commission under Section 19 of the Act with an information because of the action taken against her by Eastern India Motion Picture Association, the Appellant. The matter was referred to the Director General for Investigation under Section 26 (1) of the Act and the Director General in his report observed that the action taken by the appellant was not anti-competitive or in violation of Section 3 of the Act. The CCI however directed the Appellants to appear before the Commission on 03.11.2012 for making submissions. The CCI later in a meeting observed that the members of the Appellant’s association did not comply with the directives of the CCI as they had failed to file their individual profit and loss statements as called for by the CCI and directed the Appellant to file the individual financial statements and issued a show cause notice, consequent to which, the penalty.

Important portions of the Order:

We have found nothing in the impugned order justifying the action only against the four office bearers. The learned counsel pointed out before us that at the relevant time, there was 28 members of the Executive Committee of first appellant and that was clear from the records. (Paragraph 21)

We must clarify that the directions which are to be followed imperatively under Sections 48 read with Section 36 cannot be given casually. There must be some application of mind before issuing such directions and the orders must reflect such application of mind…. A look at the complaint would suggest that there were no allegations against the office bearers individually. If that was so and more particularly when the DG had exonerated the first appellant, it is not known as to why the CCI thought it fit to call the information about the personal accounts of appellant Nos.2, 3, 4 and 5. (Paragraph 22)

The last words of Clause of sub-Section (4)(a) [of Section 36] namely — “the examination of which may be required for the purposes of this Act” would in our opinion entail and would require the Commission to state at least prima-facie as to why the examination of the books of accounts was required. The Clause of sub-Section (4)(b) also uses the similar words. Therefore, the Commission would have to show before issuing any such direction that it has come to the conclusion that it would be necessary to examine such books or documents or for that matter the Commission would have to come to the conclusion that the information in possession of such persons would be required for the purposes of this Act. The Section is not meant to give an untrammeled and uncontrolled discretion to the Commission to ask for any information from anybody. It cannot be a mere ipse-dixit on the part of the Commission to decide to call for the production of books and documents or supply of information and the non-compliance of which would result in the penalty under Section 43. We find that the language of sub-Section (4)(a) and (b) of Section 36 would require a deeper examination of the issue as to whether production of books or documents in custody of such persons are necessary at all, the examination of which would be required for the purposes of the Act. (Paragraph 23)