INDIVIDUAL LIABILITY IN CARTEL CASES
Author: Mr. Badal Khurana, JIMS School of Law
Competition Law seeks to ensure healthy market competition and its effective functioning by felicitating competition outcomes and prescribing anti-competitive acts. Competition Law in India is governed by the Competition Act, 2002 which aims at preventing anti-competitive acts and to promote the interests of consumers by ensuring free trade-in in the market.
The enforcement regimes or authorities which are involved with anti-competitive acts are the Competition Commission of India (CCI) which is the statutory authority, National Company Appellate Tribunal (NCLAT) which is the appellate authority and then-Supreme Court.
NOTE– In some cases, CCI’s orders can be challenged before High Courts also.
Cartel is an arrangement/organization among producers or business firms to exert control over the market by influencing the price of the product or setting production targets. The main purpose of cartels is to maximize profit or to avoid losses among the member firms.
INDIAN LAWS RELATING TO PUNISH CARTELS
Cartels are prohibited under Section 3 of Competition Act, 2002 and are presumed to have an adverse effect on competition in the market. In terms of punishment for anti-competitive agreements, Section 27 of Competition Act, 2002 provides for the imposition of financial penalty on the participating firms and persons to the extent of 3% of their annual turnover for the three preceding financial years. The proviso of this section further enumerates higher penalties for cartels, which involve penalty equivalent to 3 times the amount of profit made through cartel or 10% of the average turnover of the cartel for the preceding three financial years, whichever is higher.
Further Section 48 of Competition Act, 2002 prescribes individual liability responsible for the antitrust contravention by the company unless they were not aware or exercised due diligence to prevent such contravention.
Section 48 of the Competition Act, 2002 (as amended) (Act) empowers the Competition Commission of India (CCI) to impose penalties on individuals employed by a company that has contravened the provisions of the Act. In practice, while such penalties are imposed on individuals, the CCI makes a fine distinction between Sections 48(1) and (2) before coming to its decision. In this piece, we elaborate on the distinction between Sections 48(1) and (2) of the Act and then discuss their scope in the context of CCI’s practice. Thereafter, we provide certain key takeaways for both individuals and companies, as we discussed above also.
DISTINCTION — SECTION 48(1) V. SECTION 48(2)
Section 48(1) of the Act states that, if a company is found to have contravened the provisions of the Act, then, every person who is in charge of and responsible for the company’s conduct shall be deemed to be guilty of the contravention, and shall be liable to punishment according to the provisions of the Act. However, the proviso to Section 48(1) provides that nothing contained in Section 48(1) shall apply if the relevant individual can prove that the company’s contravention was without his/her knowledge or that he/she had exercised due diligence to prevent the commission of such contravention.
On the other hand, Section 48(2) of the Act states that, if a contravention of the Act has been committed by a company, and it is proved that the contravention of the Act has taken place with the consent, connivance or is attributable to the neglect on the part of any director, manager, secretary or other officers of the company, then such persons shall also be deemed to be guilty of the contravention, and shall be liable to be punished according to the provisions of the Act.
In this regard, the essential distinction between Sections 48(1) and (2) of the Act is that Section 48(1) presupposes guilt only on the relevant individuals who were in charge and responsible for the conduct of the company at the time of the contravention of the Act. S. 48(1) also allows this presumption to be rebutted, if the relevant individual(s) can demonstrate that the infringing act was committed without their knowledge, or that they had exercised due diligence to prevent such contravention. In contrast, under Section 48(2), the consent, connivance, or neglect of the relevant individuals is established by their de facto involvement and is therefore not rebuttable. Additionally, Section 48(2) extends to any individual or person that has been involved with the company’s contravention and is not limited to persons in charge of the company at the time of such contravention.
JURISDICTION AND EMERGING PRACTICE OF CCI
Despite the CCI’s powers under Section 48 of the Act being in force since the inception of the competition law regime in India, penalties have been imposed on individuals only since 2014. Initially, its position on the issue of liability seemed to have been that separate proceedings were required to proceed against directors and officers, which proceedings would need to be initiated after following the necessary procedure.
In Varca Druggists & Chemists v Chemists &Duggists Association, it was opined by the CCI that an association of enterprises cannot be considered as a company and therefore, the office bearers of CDAG would not be covered under section 48, so no penalty is leviable on the office bearers.
Later, in M/s Santuka Associates Pvt Ltd v AIOCD &Ors, the CCI held that “the anti-competitive decision or practice of the association can be attributed to the members who were responsible for running the affairs of the association and actively participated in giving effect to the anti-competitive decision for practice of the association.”
This trend buckled in 2014 when in the Bengal Chemist case(which was investigated by the CCI in its Cuomo to capacity), the CCI not only held the Bengal Chemists and Druggists Association (BDCA) guilty for anti-competitive practices and penalized it, but also held the office bearers of the BDCA guilty under section 48 of the Act. To determine the penalty of the individuals, the CCI took into account, the income certificates of the concerned office bearers and imposed a cumulative penalty of INR 18.38 crores (of which, the penalty on BDCA was a mere INR 13.24 lakh). This decision was a breakthrough for the CCI, given that this was the first instance wherein penalties on individuals were imposed.
Similarly, the CCI found the office bearers of the Indian Jute Mills Association to be vicariously liable and were penalized for their anticompetitive conduct in the Indian Jute Mills Association case in the latter half of 2014.
In Sports Broadcasters case, the CCI explicitly held certain key managerial personnel (such as Managing Directors and Chief Executive Officers) to be liable under Section 48(1) of the Act, solely because such individuals were “persons in-charge for the conduct of business” at the time of the company’s contravention of the Act. Additionally, the CCI has also held individuals liable under both Sections 48(1) and (2) on grounds that such an individual was not only in charge of the company but was also “actively” involved in the company’s contravention of the Act’s provisions.
This article focuses on the ongoing anti-competitive practices such as cartels in most of the markets and aims to specify and determine the individual liability in such cases. What steps can be undertaken to prevent and curb the anti-competitiveness in the market is the main take away from this article.
The CCI’s practice and jurisprudence suggest that an individual who is part of a company’s key managerial personnel, or who is in charge of the affairs and conduct of the company is never outside the purview of Section 48 of the Act. It is a good thing from an economic perspective as an organization is eventually governed by its decision-makers.
Proper enforcement and implementation of the competition laws in India will go a long way in attracting foreign investments into India as in any competitive economy/market, a potential investor will value a level playing field and assurances that the government will not accord unfair advantage to domestic players.
It can be inferred that the standard for implicating Directors and CEO’s with the acts of their colleagues and subordinates is the fact that they were in-charge and had responsibility for the conduct of the business of the company.
Thus, the risk of poor compliance and contravening such actions is as high as being actively engaged in an anti-competitive act. Therefore, it is necessary for companies to conduct regular competition compliance seminars and audits to ensure that all stakeholders and members of a company are sensitized to the potential consequences for contravening the provisions of the Act.
MRTP Case No. C-127/2009/DGIR (4/28)
Case No. 20 of 2011
Bengal Chemists and Druggists Association, Suo Moto Case No. 2 of 2012
Indian Sugar Mills Association v Indian Jute Mills Association, Case No. 28 of 2011
In re, 2018 SCC OnLine CCI 58