Reality Bites: A Review of Penal Provisions under the Competition Law

B-1532012]
COMPETITION LAW REPORTS APRIL, 2012
Reality Bites: A Review of Penal Provisions under the
Competition Law
Kaushal Kumar Sharma*
Despite being a new law in its own right, the Competition Act, 2002 (the Act)
is still perceived as a successor to the Monopolies and Restrictive practices Act,
1969 (MRTPC Act). There is a need for a better appreciation that, unlike MRTPC,
the CCI has adequate powers to deal with the delinquent enterprises, to ensure
that it is in a position to effectively fulfill the mandate given to it. Through a
discussion of the penal provisions of the Act, the author, who played a pioneering
role in establishing the CCI, sets the record straight about the adequate penal
powers given to the CCI to be in a position to be an effective regulator by making
a comparison between the earlier MRTPC regime and, after its repeal, the present
competition regime under CCI. On comparison, the author feels that the CCI
has adequate powers to deal with the responsibility entrusted to it.
On 29th
March, 2012, the Competition
Commission of India (CCI) passed an
order, in Case No. 22 of 2010, imposing
a fine of Rs. 566 lacs, at the rate of
4 per cent of the average turnover of last
three years, on Schott Glass India Pvt.
Ltd. on information filed in 2010 by
Kapoor Glasses for abusive conduct
under the Act. Over a month before that,
on 24th
February, 2012, the CCI had also
imposed penalties , on nearly four dozen
LPG Cylinder manufacturers for
submitting collusive bids for supply of
LPG Cylinders to PSU Oil Companies in
Case No. 3 of 20111
. The interesting fact
of this case was that it was an instance
wherein the CCI, on its own motion, took
cognizance of the issue from the facts
emerging in the investigation in another
Case No. 10 of 2010. Similarly, in the case
of a “collective boycott” not to sell the
tickets of Singapore Airlines, the CCI
directed the six travel agents
associations in India not to indulge in
such conduct in future while, at the same
time imposing a penalty of ` 1 lac each
on the three travels Agents’ Associations
viz. TAFI, TAAI and IAAI, in Case No. 3
of 2009 on 4th
October, 20112
.
A little before this, on 12th
August, 2011,
in Case No. 19 of 20103
, the CCI imposed
a fine of Rs. 6,300 lacs, at the rate of
7 per cent of the average turnover for the
last three years, on DLF Ltd. on the
information filed by Belaire Owners’
Association. This had come on the heels
of another order imposing a penalty of
` 555 lacs at the rate of 5 per cent of
* Commissioner of Income Tax, Kochi. He was Director General and Head of Merger Control,
CCI, till recently. The views in this article are personal. E-mail: kksharmairs@gmail.com
1 Ed.: MANU/CO/0022/2012: 2012 CompLR 0197 (CCI)
195

Competition Law ReportsB-154 [Vol. 1
average annual turnover of the last three
years, on National Stock Exchange of
India Ltd., through its order dated
23rd
June, 2011, on information filed by
the MCX Stock Exchange Ltd.4
About
30 days before this, on 25th
May, 2011, in
Case No. 1 of 20095
, the CCI, on
information of FICCI Multiplex
Association of India, imposed a fine of
Rs. 1 lac each on a group of 27 Hindi film
producers and distributors.
(RTPE 1 of 1971), the MRTPC closed the
enquiry after receiving undertaking from
the eight firms (Incheck Tyres Ltd.,
Dunlop India, Good Year India, Fire Stone
Tyre and Rubber Co Ltd., etc.) involved
that such practice would not be indulged
in future. Interestingly, this general code
agreement was nothing but a cartel
arrangement, in plain and simple
language, amongst the eight firms
manufacturing tyres. However, in a way,
after admission of a cartel like agreement,
the concerned parties were directed to
behave. An undertaking was given and
accepted by MRTPC in the belief (as if there
was any other way) that they will behave
like good boys. It is not authentically
known whether, later, they behaved or not
but allegations of similar continuing
conduct by the tyre dealers’ associations
survive till date. Secondly, if newspaper
reports throw any light on the practices
in this segment, PTI reported on 15th
January, 2012, that Apollo Tyres was
fined Rs. 30 crores (45 million Rands) by
the South African competition
commission for cartelisation charges. The
company claimed that the charge related
to the period it was being managed by
Dunlop before acquisition by the present
company. Incidentally, Dunlop India was
a part of the eight firms mentioned in the
case before MRTPC. Readers are free to
draw their own inferences.
In the case of Bombay Cotton Waste
Merchants Association, RTPE 127 of 1984,
a collective boycott, in the nature of the
boycott call given by the travel agents
associations, discussed above, in an
order dated 20th
March, 1986, the enquiry
was closed on receipt of undertakings,
under Section 37(2) of the MRTP Act, 1969,
claiming that they shall not indulge into
such practices in future.
The stark contrast between the two
situations cannot be missed. Despite
having been caught, the culprits were
If anything has made the
difference, it is the penal
provisions in the Act which
were conspicuous by their
absence in the MRTP
Act, 1969
Not that the cartels did not exist earlier
in the country or the allegations were not
made, or even if the allegations were
made, these were not proved. All that was
happening, to some extent, under the
provisions of the MRTP Act. If anything
has made the difference, it is the penal
provisions in the Act which were
conspicuous by their absence in the
MRTP Act, 1969. In absence of any other
recourse available, and because of the
fact that the provisions of the then
MRTP Act, 1969 did not have any penal
provisions except the order to “cease and
desist”, similar cases did come up before
the MRTP Commission but met with a
totally different treatment.
In the above background, for a quick
comparison, let us have a look at the
outcome of some nearly similar cases
brought before MRTPC under MRTP Act,
1969. By the order dated 19th
April, 1976,
in the matter pertaining to the “General
Code of Conduct” for Members of the
Automotive Tyre Industry of India
196

B-1552012]
advised not to indulge in their earlier
conduct. The parties to the cartel were
also kind enough to see the reason that
such conduct should not be repeated and
promptly gave the needed undertakings.
It was expected that, as good boys, they
would keep their word. It appears to be a
good solution and logic except for the
fact that if it worked so well, at least half
of our police force may be diverted for
more productive avenues and nearly all
the jails would be relieved of the immense
pressure and not be called upon to
accommodate more prisoners that they
can hold actually, there may not be any
criminals needing punishment at all.
Instead of handing out punishment, the
Courts would busy themselves with
collecting undertakings from the erring
persons. The real life dilemma is that such
a proposition is too idealistic to be true.
These were the circumstances that
necessitated the enactment of the Act.
As is generally known, the Competition
Act, 2002 (the Act) was enacted in
January 2003. Under the provisions of
the Act, the Competition Commission of
India (CCI) was established on
14th
October, 2003. On account of certain
legal challenges, the CCI could not be
duly constituted and till 1st
March, 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-professed undertakings of good
conduct from erring enterprises.
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
Therefore, there is 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” and are deterrent
enough on 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. What
happens if the delinquent parties do not
behave as good boys?
Having moved from the times when
the sitting minister of the cabinet
getting into jail used to be a big news
(Imprisonment and subsequent death in
prison of Rao Shiv Bahadur Singh
who was a minister in the cabinet of
Late Pt. Jawaharlal Nehru) to the times
when the ministers (now former) of the
ruling combine were jostling for space in
Tihar with the media having abandoned
their stories in favour of, still more spicy,
other goings on in the country, it may be
economic liberalisation having crossed
over the Indian shoes from 1991 onwards,
these remedies were not considered
enough. When the economy grew, with
liberalisation in different sectors, it also
enhanced the possibilities of some of the
market players being driven by a sense
of excess greed leading to their indulging
in a conduct which may suite their own
profit motives but be not conducive to a
competitive market functioning.
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"
197
Reality Bites: A Review of Penal Provisions under the Competition Law

too much to expect the erring enterprises
to give undertakings of good conduct
and abide by it. 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,
COMPACT and the Supreme Court
which will finally lead to the evolution
of the law in this land.
In this connection, it may be said with
satisfaction that the judgment enunciated
by the Hon’ble Supreme Court in the CCI
v. SAIL6
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 in the way in
which the investigation should be
conducted by the investigation wing of the
CCI, i.e. Office of the 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 v.
SAIL given by the Hon’ble Supreme Court,
on 9th
September, 2010, indicates the
maturity of judiciary in understanding the
provisions of the new and modern law.
However, other two organisations
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 synchronised with the global
market realities.
The penal provisions in the Act are
found not only in chapter titled as
“Penalties”, i.e. Chapter VI of the Act but
also at other places such as Sections 27
and 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 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:
Section 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,
provisionsoftheorderaffecting
an enterprise may be altered by
the enterprise and the
registration thereof;
198
6 Ed.: MANU/SC/0690/2010: 2010 CompLR 0061 (SC)

B-1572012]
(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.
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 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, 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”.
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:
Section 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
(b) impose such penalty, as it
may deem fit which shall be
not more than 10 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 agree-
ment or 10 per cent of its
turnover for each year of the
continuance of such agree-
ment, whichever is higher.
(c) Omitted by Competition
(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;
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;
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
199

(e) direct thee enterprises con-
cerned 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
(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 per cent 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 anti-competitive
agreement or to abuse of dominant
position. This penalty goes to become
a more deterrent penalty if an
anti-competitive 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
suchagreementor10percentofitsturnover
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:
Section 43. Penalty for failure to comply
with directions of Commission and
Director General.- If any person fails to
200

B-1592012]
comply, without reasonable cause,
with a direction given by:
(a) the Commission under
Sub-sections (2) and (4) of
Section 36; or
(b) 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 ` 1 lacs for each day during
which such failure continues subject
to a maximum of ` 1 crore, as may be
determined by the Commission
Section 43A. Power to impose penalty
for non-furnishing of information on
combinations.- If any person or
enterprise who fails to give notice to
the Commission under Sub-section (2)
of Section 6, the Commission shall
impose on such person or enterprise
a penalty which may extend to 1 per
cent of the total turnover or the assets,
whichever is higher, of such a
combination.
Section 44. Penalty for making false
statement or omission to furnish material
information.- If any person, being a
party to a combination:
(c) makes a statement which is
false in any material particu-
lar, 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 ` 50 lacs
but which may extend to
` 1 crore, as may be deter-
mined by the Commission.
Penalty for offences in relation to
furnishing of information
Section 45 - (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; or
(g) 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 ` 1 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 penalise 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 ` 50 lacs but extendable to
Rs. 1 crore which is substantive deterrent
in the Act. Similarly, if some body
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
pre-emptive methods of market
regulation to safeguard any disturbance
into otherwise competitive markets.
Section 43A provides a mechanism by
which CCI is empowered to impose a
penalty which can extend up to 1 per cent
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.
201

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 up to `1 lacs 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 `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 non-compliance. 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
noncompliance, the ceiling of ` 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. Therefore, 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 non-
compliant enterprises.
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 will enable the CCI to use
carrot and stick policy in enforcing
compliance. It is in view of this that, in
keeping with global trends, the CCI has
also come up with the regulations for
lesser penalties which are also popularly
known as leniency regulation.
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 per cent 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 lacunae 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.
Put together, the entire array of penal and
prosecution provisions in the Act are
enough to ensure compliance and put
the Act on a much stronger footing
compared to the earlier MRTP Act. Now,
it remains to be seen how the CCI and
COMPAT would actually make use of the
law to lay down the foundation of a
stronger competition law and
compliance regime in the country.
Copyright © Kaushal Kumar Sharma
202

Reality Bites: A Review of Penal Provisions under the Competition Law

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