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2018 (1) TMI 969 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL, NEW DELHI Law of Competition

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Appeal Dismissed: No Evidence of Anti-Competitive Practices Found, Appellant to Pay Costs to Respondents.
The appeal was dismissed with costs quantified at Rs. 1 Lakh, to be equally divided and paid by the Appellant to Respondent Nos. 2 and 3. The Competition Commission of India (CCI) upheld its order, concluding that OP-1 did not contravene the Competition Act, 2002. The CCI found no abuse of dominant position by OP-1 due to the presence of multiple competitors and a declining market share. The Appellant failed to provide sufficient evidence of anti-competitive practices, and the CCI determined that OP-1's actions were indicative of enhanced services rather than coercive or anti-competitive behavior.

Relevant market - dominant position - abuse of dominant position - competitive constraint - prima facie case for investigation - vertical anti-competitive agreement - Direct Port Delivery - closure under Section 26(2) of the Competition Act, 2002Relevant market - closure under Section 26(2) of the Competition Act, 2002 - Whether the Commission correctly closed the matters under Section 26(2) after finding no case of contravention of the provisions complained of - HELD THAT: - The Tribunal noted that the Commission accepted the informant's delineation of the relevant market as the provision of container terminal services at Jawaharlal Nehru Port, Mumbai, and proceeded to examine dominance and anti competitive conduct. Having considered the record, the Commission concluded that no case of contravention of sub section 3(4) or Section 4 of the Act was made out and therefore disposed of the matters under Section 26(2). The Tribunal found the Commission's reasoning to be grounded on the material before it and intervened only if there was a demonstrable absence of material or perversity. The appellate court found no such defect and therefore upheld the Commission's closure of the matters under Section 26(2). [Paras 2, 9, 16]The Commission was correct to close the matters under Section 26(2); the impugned orders are upheld.Dominant position - competitive constraint - abuse of dominant position - Whether OP 1 held a dominant position in the relevant market and, if so, whether it abused that position - HELD THAT: - The Commission evaluated OP 1's market shares over successive years and other market features. It observed declining market share figures for OP 1 and the presence (or imminent presence) of multiple other terminals, including partially operational and forthcoming terminals with significant quay length and capacity, which act as competitive constraints. The Commission also noted the existence of numerous CFS operators and regulatory provisions leaving CFS choice to consignees or shipping lines, and that OP 1 offered Direct Port Delivery, a service enhancing competition. On these bases the Commission found OP 1 not to be in a position to act independently of competitive forces and rejected the claim of vertical anti competitive agreement or abuse. The Tribunal found these factual and legal conclusions to be supported by the record and not open to interference. [Paras 10, 11, 12, 13, 14]OP 1 was not shown to be in a dominant position nor to have abused any such position; the Commission's finding to that effect is sustained.Prima facie case for investigation - vertical anti-competitive agreement - Whether the material relied upon by the informant (movement charts) amounted to a prima facie case warranting an investigation into alleged forced diversion of ships to Pipavav - HELD THAT: - The informant relied on charts showing ship movements to argue that OP 1 was blocking capacity at Jawaharlal Nehru Port to coerce diversion to Pipavav. The Commission found the charts insufficiently probative and characterised the allegations as bald and conjectural, observing that ships may call at multiple terminals for legitimate commercial reasons. The Tribunal agreed that the chart entries, without corroborative evidence showing causation or coercion by OP 1, do not constitute evidence 'worthy of the name' to initiate an investigation under the Act. The Tribunal therefore endorsed the Commission's refusal to proceed to investigation on that basis. [Paras 6, 15]The chart and other material relied upon did not make out a prima facie case for investigation into alleged forced diversion; the Commission rightly declined to investigate further.Final Conclusion: The appeal is dismissed; the Competition Commission's orders closing the matters under Section 26(2) are upheld, its findings that OP 1 was not dominant and had not abused any dominant position are sustained, and the material produced by the informant was held insufficient to institute an investigation. Costs were awarded against the appellant as recorded in the order.

2017 (9) TMI 196 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL, NEW DELHI Law of Competition

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Issues: (i) Whether, after finding no contravention of Section 4 of the Competition Act, 2002, the Commission could still issue directions to the State Government regarding the flexi rate scheme and route classification; (ii) Whether the findings that the appellant was dominant but had not abused its dominant position required interference.

Issue (i): Whether, after finding no contravention of Section 4 of the Competition Act, 2002, the Commission could still issue directions to the State Government regarding the flexi rate scheme and route classification.

Analysis: The Commission had expressly recorded that no contravention of the Act was made out and that the allegations of unfair and anti-competitive conduct were not established. Once such a conclusion was reached, there was no surviving basis for issuing a further direction to the State Government on how it should rework the scheme or classify routes. In the absence of a finding of violation or any specific evidentiary foundation for a prima facie contravention, the Commission could not travel beyond its adjudicatory determination and issue policy-like directions in the larger public interest.

Conclusion: The direction contained in paragraph 20 was without jurisdiction and was set aside.

Issue (ii): Whether the findings that the appellant was dominant but had not abused its dominant position required interference.

Analysis: The finding that the appellant was dominant in the relevant market and had not abused that position had attained finality so far as the informant was concerned, since that finding was not challenged. Independently, no reason was found to disagree with the Commission's conclusion that the challenged conduct did not amount to abuse of dominance or anti-competitive conduct under Section 4 of the Competition Act, 2002.

Conclusion: The findings on dominance and absence of abuse were affirmed.

Final Conclusion: The appeal succeeded only to the extent that the Commission's additional direction was quashed, while the substantive findings rejecting the allegation of abuse of dominance were left undisturbed.

Ratio Decidendi: Once the Commission records that no contravention of the Competition Act, 2002 is made out, it cannot issue extraneous directions on policy matters in the guise of public interest without a specific jurisdictional foundation.

Competition law limits on policy directions: extraneous directions were quashed after no abuse of dominance was found.
Once the Commission recorded that no contravention of the Competition Act, 2002 was made out, it had no jurisdiction to issue further policy-like directions to the State Government on the flexi rate scheme and route classification. That additional direction was therefore set aside as beyond the Commission's adjudicatory power. The findings that the appellant was dominant in the relevant market, but had not abused its dominant position, were left undisturbed because they had not been challenged by the informant and no basis existed to interfere with the conclusion that Section 4 was not violated.

Abuse of dominant position - Dominant position - Jurisdiction to issue directions in absence of finding of contravention - Alleged contravention of Section 4 of the Competition Act, 2002Dominant position - Relevant market - Whether Karnataka State Road Transport Corporation was in a dominant position in the relevant market. - HELD THAT: - The Commission had concluded that the Appellant (KSRTC) was dominant in the relevant market after considering the facts, the General Standing Order issued by KSRTC and the Government notification. The present appeal does not challenge that finding; the Tribunal finds no reason to disagree with the Commission's conclusion that KSRTC occupies a dominant position in the relevant market. [Paras 4, 7]The finding that KSRTC is in a dominant position is affirmed.Abuse of dominant position - Alleged contravention of Section 4 of the Competition Act, 2002 - Whether KSRTC abused its dominant position or engaged in unfair or anti-competitive conduct under Section 4 of the Act. - HELD THAT: - The Commission examined the allegations, including the reservation of certain routes for state corporations and the operation of the 'Flexi Rate' scheme, and concluded that the grievance that KSRTC charged less than the notified fare and that it engaged in anti competitive conduct was misconceived and not supported by sound business or economic rationale. The informant did not challenge that conclusion before the Tribunal. In the absence of contrary material, the Tribunal finds no reason to interfere with the Commission's conclusion that KSRTC did not abuse its dominant position. [Paras 4, 7]The finding that KSRTC did not abuse its dominant position and that the allegations under Section 4 are not proved is affirmed.Jurisdiction to issue directions in absence of finding of contravention - Administrative consultation - Whether the Commission had jurisdiction to direct the State Government to undertake a consultative exercise despite recording no contravention of the Act. - HELD THAT: - Although the Commission did not record any contravention, it observed that the flexi rate scheme and route classification had been challenged and recommended that the Government of Karnataka take a fresh view after inviting stakeholder suggestions. The Tribunal held that once the Commission has concluded that a dominant entity has not abused its position and that no contravention is established, the Commission lacks jurisdiction to issue directions to the State as to what it should do in the larger public interest absent specific evidence or a finding of prima facie contravention. Consequently, the Tribunal set aside the part of the Commission's order that amounted to such a direction (paragraph 20) while affirming the remainder of the order. [Paras 5, 8]The Commission acted without jurisdiction in issuing the direction to the State; that part of the order (paragraph 20) is set aside, and the rest of the order is affirmed.Final Conclusion: The Tribunal affirms the Commission's findings that KSRTC is dominant and that no abuse of dominance under Section 4 was proved, but it quashes the Commission's direction to the State Government contained in paragraph 20 for lack of jurisdiction; the impugned order dated 27th February, 2017 is modified accordingly and the appeal is disposed of with no order as to costs.

2016 (12) TMI 1734 - COMPETITION APPELLATE TRIBUNAL , NEW DELHI Law of Competition

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Issues: (i) Whether the public sector insurers constituted a single economic entity so as to exclude the application of section 3 of the Competition Act, 2002; (ii) whether the meeting of 7.12.2009 and the subsequent conduct in relation to the Kerala RSBY and CHIS tenders amounted to bid rigging or a co-insurance arrangement; (iii) whether the presumption of appreciable adverse effect on competition under section 3(3) was rebutted; (iv) whether the investigation and order travelled beyond the scope of the prima facie direction under section 26(1); (v) whether the proceedings were vitiated by breach of natural justice because the Chairman had participated in earlier deliberations but did not sign the final order; (vi) whether the finding of virtual fraud was sustainable; (vii) whether penalty was leviable and, if so, whether it had to be based on relevant turnover.

Issue (i): Whether the public sector insurers constituted a single economic entity so as to exclude the application of section 3 of the Competition Act, 2002.

Analysis: The statutory scheme of the General Insurance Business (Nationalisation) Act, 1972 showed that the four insurers were separate companies with independent corporate existence, separate boards and autonomy in operational decisions. The statutory framework contemplated competition among them and required them to act on business principles. Common ownership by the Central Government and administrative control through the Department of Financial Services did not convert them into one enterprise. A Government department was not itself engaged in insurance business through subsidiaries within the meaning of the Act. The plea that they formed a single economic entity was therefore inconsistent with the statutory language and the legislative design.

Conclusion: The insurers were not a single economic entity, and section 3 of the Competition Act, 2002 applied.

Issue (ii): Whether the meeting of 7.12.2009 and the subsequent conduct in relation to the Kerala RSBY and CHIS tenders amounted to bid rigging or a co-insurance arrangement.

Analysis: The minutes of the 7.12.2009 meeting recorded a prior understanding that one insurer would quote the lowest bid and the others would quote correspondingly higher bids, along with a predetermined sharing arrangement. That understanding was reflected in the bids actually submitted and in later internal notes. The supposed co-insurance plea failed because no disclosed consortium or co-insurance arrangement was placed before the tendering authority, and the bids were submitted as separate independent bids rather than as a transparent joint bid. The conduct therefore amounted to manipulation of the bidding process within the meaning of the Act.

Conclusion: The conduct amounted to bid rigging and not a lawful co-insurance arrangement.

Issue (iii): Whether the presumption of appreciable adverse effect on competition under section 3(3) was rebutted.

Analysis: Once bid rigging was established, section 3(3) created a statutory presumption of appreciable adverse effect on competition. The appellants did not establish that the arrangement was a qualifying joint venture or that it generated efficiencies of the kind contemplated by the proviso. Losses suffered under the scheme, or the existence of other bidders, did not displace the statutory presumption. Bid rigging is treated as a per se anti-competitive practice and does not require a separate rule-of-reason inquiry once the prohibited agreement is proved.

Conclusion: The presumption was not rebutted and the contravention stood established.

Issue (iv): Whether the investigation and order travelled beyond the scope of the prima facie direction under section 26(1).

Analysis: The original information alleged cartelisation and repeated increase in premium every year, and the prima facie order referred broadly to rigging of tenders issued for the RSBY scheme. In that context, examination of the tenders for the relevant later years was within the scope of the inquiry. The investigation was therefore not confined only to the first tender or the minutes of the 7.12.2009 meeting.

Conclusion: The investigation and the impugned order did not exceed the scope of the prima facie direction.

Issue (v): Whether the proceedings were vitiated by breach of natural justice because the Chairman had participated in earlier deliberations but did not sign the final order.

Analysis: No personal interest or actual prejudice was shown. The final order was made by the members who heard the matter, and the record did not establish that the Chairman's earlier participation in some deliberations resulted in bias or denied the appellants a fair hearing. The mere fact that he had been present at some internal discussions was insufficient to invalidate the decision.

Conclusion: No violation of natural justice was made out.

Issue (vi): Whether the finding of virtual fraud was sustainable.

Analysis: The record showed that the insurer had exited contracts when losses were genuine and the State authorities had themselves treated the losses and re-tendering as bona fide. The expression "virtual fraud" was not supported on the facts, particularly when the terminations were exercised under contractual clauses and the insurers were allowed to participate again. The impugned characterisation was therefore unwarranted.

Conclusion: The finding of virtual fraud was set aside.

Issue (vii): Whether penalty was leviable and, if so, whether it had to be based on relevant turnover.

Analysis: Penalty was justified because the anti-competitive agreement and bid rigging were proved. However, for the purpose of section 27(b), turnover had to be confined to the relevant turnover arising from the impugned activity, namely the premium received under the RSBY and CHIS scheme, rather than the total turnover of each appellant. The Commission's aggravating circumstance was not accepted on the facts, and the penalty rate was reduced accordingly.

Conclusion: Penalty was leviable, but it had to be computed with reference to relevant turnover and was reduced to 1%.

Final Conclusion: The appeals succeeded only in part: the findings of single economic entity and virtual fraud were rejected, the bid-rigging findings and liability under section 3 were upheld, and the penalty was moderated by restricting it to relevant turnover.

Ratio Decidendi: Separate companies with independent commercial autonomy do not become a single economic entity merely because they are wholly owned and administratively overseen by the same Government department; once a collusive bidding arrangement falling within section 3(3)(d) is proved, appreciable adverse effect on competition is presumed, and penalty must be linked to the relevant turnover from the impugned conduct.

Competition law bid rigging: separate public insurers were not one economic entity, and penalty was tied to relevant turnover.
Separate public sector insurers were held not to be a single economic entity because they retained distinct corporate existence, separate boards and operational autonomy under the nationalisation framework, so section 3 of the Competition Act applied. The 7.12.2009 meeting and subsequent tender conduct were found to show a prior understanding to submit coordinated bids, amounting to bid rigging rather than a genuine co-insurance arrangement. Once that contravention was proved, the statutory presumption of appreciable adverse effect on competition was not rebutted. The inquiry was not beyond the prima facie direction, no natural justice breach was established, and the finding of virtual fraud was set aside. Penalty was upheld but confined to relevant turnover.

Single economic entity - anti-competitive agreement - bid rigging / collusive bidding - presumption of appreciable adverse effect on competition - co-insurance / consortium as defence to cartel allegation - scope of investigation under Section 26(1) - natural justice - participation and signing of order - penalty - relevant turnover and quantumSingle economic entity - Whether the four public sector insurers and the Department of Financial Services (DFS) constituted a single economic entity precluding application of Section 3 of the Competition Act. - HELD THAT: - The Tribunal held that each appellant is a separate board managed company with distinct Memoranda and Articles of Association and is an "enterprise" under Section 2(h) of the Act. The statutory scheme of GIBNA (including Section 18 and Section 19) contemplates separate acquiring companies and expressly envisages competition among them; DFS is a government department not engaged directly in insurance business and therefore cannot be aggregated as a subsidiary or part of a single enterprise with the insurers. Reliance on governmental ownership, issuance of advisories, transfers or appointments did not establish decisive operational control amounting to a single economic entity, particularly in light of statutory recognition of competition and business principles applicable to the acquiring companies. The DG/Commission correctly treated the insurers as independent enterprises for the purposes of Section 3.Appellants are not a single economic entity; Section 3 applies to their conduct.Anti-competitive agreement - bid rigging / collusive bidding - co-insurance / consortium as defence to cartel allegation - Whether the ICCC meeting of 7.12.2009 and subsequent conduct amounted to bid rigging under Section 3(3) of the Act or were legitimate co-insurance/consortium arrangements. - HELD THAT: - The Tribunal accepted the contemporaneous minutes, internal office notes and bidding pattern as establishing an agreement to have UIICL bid as L1 while others submitted higher bids and later shared business - a classic cover bidding / collusive scheme that manipulated the tender process. The alleged co insurance defence failed because co insurance/consortium arrangements required disclosure to the client and a single common bid or documented consortium/co insurance structure; no such notified arrangement existed in the tenders. The fact that the arrangement did not produce supernormal profits or that parties incurred losses does not negate the per se illegality of bid rigging under Section 3(3).The meeting and conduct constituted an anti competitive agreement resulting in bid rigging; the co insurance defence is not tenable.Presumption of appreciable adverse effect on competition - Whether the appellants could rebut the statutory presumption that an agreement resulting in bid rigging had an appreciable adverse effect on competition. - HELD THAT: - Section 3(3) creates a statutory presumption that agreements resulting in bid rigging have an appreciable adverse effect on competition. The appellants did not fall within the proviso (joint venture increasing efficiency) nor did they demonstrate the requisite benefits to consumers or efficiencies to rebut the presumption. The Tribunal accordingly upheld the Commission's conclusion that the presumption operated and that no rule of reason analysis was required to establish contravention.Appellants could not escape the statutory presumption; bid rigging is established as appreciably adverse to competition.Scope of investigation under Section 26(1) - Whether the DG and the Commission exceeded the mandate of the Section 26(1) order by investigating tenders beyond the 2009 matter (i.e., 2010 11 to 2012 13). - HELD THAT: - The original suo moto inquiry arose from an anonymous letter alleging annual cartelisation and attached minutes; the Commission's prima facie order directed investigation of alleged bid rigging in tenders (plural). Given the allegation of repeated annual cartelisation and the documentary attachment, the DG's investigation and the Commission's consideration of tenders for 2010 11 through 2012 13 were within the scope of the mandate.Investigation and adjudication of the subsequent tenders were valid and within the mandate under Section 26(1).Natural justice - participation and signing of order - Whether the non signing of the final order by the Chairman (who had participated in some deliberations) and the quorum at the time of order vitiated the Commission's order for breach of principles of natural justice. - HELD THAT: - The Tribunal found no material establishing any personal interest or prejudicial influence by the Chairman; mere participation in some internal deliberations without evidence of bias does not invalidate the decision of the Members who heard the parties. The circumstances were distinguishable from authorities where an interested person sat on a deciding body. The appellants failed to show prejudice arising from the Chairman's conduct or signature status.No violation of natural justice; the impugned order is not vitiated on this ground.Virtual fraud - Whether the Commission's characterization of the appellants' conduct as a 'virtual fraud' on the State of Kerala was justified. - HELD THAT: - The Tribunal examined the admitted facts, internal notes and the Government of Kerala's own acceptance of the insurers' claims of loss and its decisions to re tender or accept revised premiums. Given that UIICL legitimately invoked contractual exit clauses and that the State treated the losses as genuine in its re tendering decisions, the Tribunal held that the Commission's aggravating characterization as 'virtual fraud' was not supported by the record and set aside that particular finding.The 'virtual fraud' finding is unjustified and is set aside.Penalty - relevant turnover and quantum - Whether penalty was leviable and, if so, whether the quantum and the base for computation (total turnover v. relevant turnover) were appropriate. - HELD THAT: - The Tribunal affirmed that contravention of Section 3 warrants imposition of penalty. However, consistent with prior authorities and the statutory scheme, 'turnover' for calculation must relate to the value of goods/services forming the subject matter of the investigated conduct. Accordingly, penalty must be computed with reference to the gross premium received under the RSBY/CHIS contracts (relevant turnover) and apportioned to each appellant according to its share in such premium. While the Commission had considered mitigating (insurer solvency) and aggravating (public procurement/social welfare context) factors, the Tribunal concluded that the identified aggravating circumstance did not apply on the facts; having regard to mitigation and public ownership implications, the penalty rate was reduced from 2% to 1% of the relevant turnover.Penalty is sustainable but must be computed on relevant turnover (gross premiums under RSBY/CHIS) apportioned by each appellant's share; rate reduced to 1% of relevant turnover.Final Conclusion: Appeals partly allowed. The Tribunal upholds the Commission's finding of an anti competitive agreement resulting in bid rigging by the four public sector insurers (they are not a single economic entity), rejects natural justice and scope of investigation challenges, sets aside the 'virtual fraud' observation, and confirms liability for penalty but directs that it be computed on the relevant turnover (gross premium under the RSBY/CHIS contracts) with the rate reduced to 1%.

2016 (5) TMI 1625 - COMPETITION APPELLATE TRIBUNAL Law of Competition

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1. ISSUES PRESENTED and CONSIDERED

The legal judgment revolves around several core legal questions:

Whether the Competition Commission of India (CCI) could direct an investigation into the role of the appellants without first establishing that the All Kerala Chemists and Druggists Association (AKCDA) contravened the Competition Act, 2002.
Whether the CCI could impose penalties and direct the AKCDA not to associate the appellants with its affairs without issuing a notice and providing an opportunity for a hearing.
Whether the CCI's actions violated principles of natural justice.
Whether the CCI has the authority to issue directions that affect the tenure and rights of elected office-bearers of an association.
Whether the CCI's findings and penalties were justified under the relevant legal framework.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Investigation without Prior Contravention Finding

Legal Framework: Section 48 of the Competition Act, 2002, requires a finding of contravention by a company before individuals in charge can be deemed guilty.
Court's Interpretation: The Tribunal held that the CCI cannot initiate an investigation into individuals' roles without first determining that the company (AKCDA) contravened the Act.
Conclusion: The CCI's initiation of investigation at the threshold was contrary to the Act's provisions.

Issue 2: Imposition of Penalties without Notice

Legal Framework: Principles of natural justice require notice and an opportunity to be heard before imposing penalties.
Court's Interpretation: The Tribunal found that the appellants were not given specific notice regarding the imposition of penalties, which violated natural justice.
Conclusion: The penalty imposed on Appellant No. 1 was set aside due to the lack of notice and opportunity to contest the findings.

Issue 3: Authority to Affect Tenure of Elected Officials

Legal Framework: Section 27(g) of the Competition Act allows the CCI to issue directions, but these must not contravene other statutory rights.
Court's Interpretation: The Tribunal held that the CCI does not have the authority to issue directions that affect the tenure of elected officials of associations, as this would interfere with statutory rights under other laws.
Conclusion: The direction to disassociate the appellants from AKCDA's affairs was set aside as ultra vires.

3. SIGNIFICANT HOLDINGS

Legal Reasoning: "The deeming provisions contained in Section 48 can be invoked only after it is found that the company has contravened the provisions of the Act."
Core Principles: The CCI must comply with principles of natural justice and cannot exercise powers that interfere with statutory rights under other laws.
Final Determinations: The penalties and directions against the appellants were set aside due to procedural violations and overreach of authority.

The Tribunal's decision emphasizes the importance of adhering to procedural fairness and the limits of the CCI's authority under the Competition Act, ensuring that individuals are not penalized without due process and that statutory rights are respected.

Competition tribunal overturns penalties on association office-bearers for procedural violations and jurisdictional overreach under Section 48
The Competition Appellate Tribunal allowed the appeal, setting aside penalties imposed on association office-bearers. The tribunal held that the Competition Commission of India (CCI) erred by investigating individual liability under Section 48 before determining that the association itself contravened competition law provisions. The CCI violated natural justice principles by not providing adequate notice before imposing penalties. Additionally, the tribunal ruled that the CCI's direction barring appellants from association affairs for two years exceeded its powers under Section 27(g), as it interfered with rights governed by the Travancore Cochin Literary, Scientific and Charitable Societies Registration Act, 1955. The penalty and administrative restrictions were set aside.

Deeming provision in Section 48(1) - requirement of an affirmative finding against the enterprise before invoking Section 48 - principles of natural justice in Competition Commission proceedings - Commission's power to impose penalty under Section 27(b) - scope and limits of Section 27(g) - cannot impinge rights under other statutesDeeming provision in Section 48(1) - requirement of an affirmative finding against the enterprise before invoking Section 48 - Whether the deeming clause in Section 48 can be invoked against persons in charge before there is a finding that the enterprise has contravened the Act. - HELD THAT: - The Tribunal held that the deeming provision in Section 48(1) must be strictly construed and can be invoked only after a competent authority records an affirmative finding that the company/association has contravened the provisions of the Act (or any rule, regulation, order or direction). The word 'committed' in Section 48(1) implies that the contravention by the company must be established before persons in charge can be proceeded against as deemed guilty. Under the statutory scheme the final determination of contravention lies with the Commission and not the Director General; consequently, initiating investigation into the role of persons in charge at the threshold and treating DG findings as a basis to invoke Section 48(1) is contrary to the plain language and scheme of the Act. [Paras 29, 30, 31]Deeming clause in Section 48(1) cannot be invoked in respect of persons in charge until the Commission has recorded a finding that the enterprise committed the contravention.Principles of natural justice in Competition Commission proceedings - Commission's power to impose penalty under Section 27(b) - Whether the imposition of penalty on Appellant No. 1 was vitiated by violation of natural justice and absence of a notice proposing penalty under Section 27(b). - HELD THAT: - The Tribunal found that the appellants were never supplied with the Section 26(1) order that initiated investigation into persons in charge, nor were they given any action oriented notice that a penalty under Section 27(b) was proposed against them. The Commission's decision to supply the DG's report electronically and to call for income details could not be treated as a show cause notice proposing imposition of penalty, particularly because the Commission had not yet recorded a finding that the association had contravened the Act (a precondition to invoke Section 48). In these circumstances the penalty imposed on Appellant No. 1 was held to be vitiated for lack of notice and breach of principles of natural justice. [Paras 33, 34]Penalty imposed on Appellant No. 1 under Section 27/48 was quashed as vitiated by failure to give notice and opportunity of hearing.Scope and limits of Section 27(g) - cannot impinge rights under other statutes - principles of natural justice in Competition Commission proceedings - Whether the Commission could direct the association not to associate the appellants with its affairs for two years under Section 27(g), and whether that direction was issued after giving notice and opportunity. - HELD THAT: - The Tribunal held that Section 27(g) must be read in context with the other clauses of Section 27 and the objects of the Act; it does not confer an unbridled power to issue orders that directly or indirectly curtail rights conferred by other statutes (such as the tenure and rights of office bearers under the Societies Registration Act and the association's own bylaws). Consequently an order that effectively curtailed the elected office holders' tenure and their statutory rights was ultra vires. Further, even if Section 27(g) could, in principle, support directions of a regulatory character, the particular direction in paragraph 14 had the effect of depriving appellants of legitimate office bearing rights and could not have been issued without an action oriented notice and effective opportunity of hearing; absence of such notice rendered the direction unsustainable. [Paras 36, 37, 38]Direction disentitling the appellants from association affairs for two years is ultra vires and, in any event, quashed for want of notice and opportunity.Final Conclusion: The appeal is allowed; the impugned order dated 01.12.2015 is set aside insofar as it imposed penalty on Appellant No. 1 and insofar as it directed Respondent No. 5 not to associate the appellants with its affairs for two years, on the grounds that the deeming provision in Section 48 could not be invoked before a finding against the enterprise, and for breach of principles of natural justice and excess of jurisdiction under Section 27(g).

2016 (5) TMI 1624 - COMPETITION APPELLATE TRIBUNAL, NEW DELHI Law of Competition

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1. ISSUES PRESENTED and CONSIDERED

The core legal issues considered in the judgment include:

Whether the suppression of facts by the Informant (Respondent No. 2) makes the proceedings infructuous and whether the Informant is liable to be penalized under section 45(1)(b) of the Competition Act, 2002.
Whether the conduct/practices of Alkem Laboratories Ltd. (Appellant No. 1) and/or All Kerala Chemists and Druggists Association (AKCDA - Respondent No. 3) amount to contravention of any provisions of section 3 of the Competition Act, 2002.
Whether Appellants Nos. 2 and 3 can be held liable under Section 48(1) of the Act for the anti-competitive conduct of Appellant No. 1.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Suppression of Facts by the Informant

Relevant Legal Framework and Precedents: Section 45(1)(b) of the Competition Act, 2002, which deals with penalties for making false statements or omissions.
Court's Interpretation and Reasoning: The Commission found that the Informant had suppressed material facts, such as his appointment as a stockist by Appellant No. 3 and the supply of medicines, which could have influenced the Commission's decision to initiate an investigation.
Conclusions: Despite the suppression, the Commission did not penalize the Informant, concluding that the non-disclosure was not significant enough to warrant action under Section 45(1)(b).

Issue 2: Anti-competitive Conduct of Appellant No. 1 and AKCDA

Relevant Legal Framework and Precedents: Section 3(1) of the Competition Act, 2002, which prohibits anti-competitive agreements.
Court's Interpretation and Reasoning: The Commission found that AKCDA had been issuing diktats to pharmaceutical companies to obtain NOC before appointing stockists, which Appellant No. 1 allegedly complied with, thus contravening Section 3(1).
Key Evidence and Findings: The Commission relied on complaints and communications suggesting that AKCDA exerted pressure on pharmaceutical companies, including Appellant No. 1, to follow its instructions.
Conclusions: The Commission concluded that Appellant No. 1 acted in violation of Section 3(1) by facilitating AKCDA's anti-competitive practices.

Issue 3: Liability of Appellants Nos. 2 and 3 under Section 48(1)

Relevant Legal Framework and Precedents: Section 48(1) of the Competition Act, 2002, which holds individuals in charge of a company liable for the company's contraventions.
Court's Interpretation and Reasoning: The Commission found Appellants Nos. 2 and 3 liable under Section 48(1) based on their positions within the company, despite a lack of direct evidence showing their involvement in the anti-competitive conduct.
Conclusions: The Tribunal found that the Commission's decision to hold Appellants Nos. 2 and 3 liable was not supported by evidence and violated principles of natural justice.

3. SIGNIFICANT HOLDINGS

Core Principles Established: The judgment emphasizes the need for evidence to support findings of contravention under Section 3(1) and the importance of adhering to principles of natural justice, especially when invoking Section 48(1) to hold individuals liable.
Final Determinations on Each Issue: The Tribunal set aside the Commission's findings against Appellants Nos. 1, 2, and 3, concluding that the evidence did not support the allegations of anti-competitive conduct or the individual liability of Appellants Nos. 2 and 3.

The Tribunal's decision underscores the necessity for thorough and evidence-based investigations in competition law cases and highlights the procedural safeguards that must be observed to ensure fair adjudication.

Competition Appellate Tribunal quashes penalties finding no anti-competitive agreement under Section 3 due to coercion
The Competition Appellate Tribunal allowed the appeal and set aside the Commission's order. The Tribunal found that the informant deliberately suppressed vital facts and documents from the Commission, though no penalty was imposed. The Commission's findings regarding anti-competitive practices under Section 3 were deemed self-contradictory and perverse, as coercion by one party negated the element of agreement required for violation. The Tribunal held that Section 48(1) could not be invoked against individual appellants without first establishing company contravention and without providing them adequate opportunity to defend. The penalty imposed on all appellants was quashed due to lack of evidence supporting anti-competitive conduct allegations.

Suppression of material facts - penalty for suppression of material facts under Section 45 - anti-competitive practice and appreciable adverse effect on competition (AAEC) - application of Section 3(1) to agreements outside Section 3(3) and 3(4) - deemed liability of persons in charge under Section 48 - principles of natural justice in investigation and adjudicationSuppression of material facts - penalty for suppression of material facts under Section 45 - Whether the informant deliberately suppressed material facts in the information and whether he should be penalised under the provision for suppression of material facts. - HELD THAT: - The Tribunal found that the informant knowingly omitted to disclose material developments (notably the Assistant Drugs Controller's letter accepting that the informant was not an authorised stockist and the subsequent lawful appointment and supply to the informant on 19-20 March 2014) when re-filing the information, and recorded that these omissions had materially contributed to the Commission's prima facie order directing investigation. Despite recording deliberate suppression, the Tribunal exercised its discretion not to impose a monetary penalty on the informant in view of the apology tendered to the DG and the Commission. The finding of deliberate suppression is explicit and forms part of the basis for criticism of the Commission's decision to proceed without adequate regard to those omissions. [Paras 50, 51, 52]The Tribunal held that the informant deliberately suppressed material facts but declined to impose a penalty, taking into account the apology tendered.Anti-competitive practice and appreciable adverse effect on competition (AAEC) - application of Section 3(1) to agreements outside Section 3(3) and 3(4) - Whether the Director General's and Commission's conclusion that the association (AKCDA) and certain pharmaceutical companies engaged in anti-competitive practices (including insisting on NOCs) and whether Alkem Laboratories Ltd. contravened Section 3(1) is legally sustainable. - HELD THAT: - The investigation and the Commission reached findings that AKCDA practised insistence on NOCs and exerted pressure (including threats of boycott) on pharmaceutical companies, and concluded that such conduct contravened Section 3(3)(b) read with Section 3(1). The Tribunal accepted that the DG/Commission recorded evidence of AKCDA's diktats, but held that the Commission's simultaneous conclusion that Alkem (OP-2) had an agreement or concurrence with AKCDA was self-contradictory and legally unsustainable: if AKCDA coerced companies, the element of an agreement or concurrence necessary to sustain a Section 3(1) finding against Alkem is undermined. The Tribunal also noted that Alkem consistently maintained that the initial offer letter was unauthorized and that the supplies ultimately made after formal appointment were not conditioned on any NOC; on that factual matrix the Tribunal held the finding of contravention by Alkem to be perverse. [Paras 23, 24, 25, 56, 57]The Tribunal held that the finding that Alkem contravened Section 3(1) was not legally sustainable and set aside the Commission's finding against Alkem for the reasons stated.Deemed liability of persons in charge under Section 48 - principles of natural justice in investigation and adjudication - Whether the two individual appellants (persons alleged to be 'in charge' and 'responsible') can be held liable under the deeming provisions applicable to companies and whether due process was followed before fixing personal liability. - HELD THAT: - The Tribunal analysed Section 48 and relevant authorities, observing that the deeming provision imposes a presumption only after a proper finding that the company committed the contravention and that the primary burden to show a person was 'in charge of and responsible for' the company's business lies on the complainant (and must be supported by evidence). The record showed that the DG did not collect evidence establishing that the two individuals were in charge and responsible for Alkem's business at the material time; no notice or opportunity specific to personal liability under Section 48 was given to them during investigation and the Commission's order imposes liability without the requisite proof. The Tribunal held that invoking Section 48 in those circumstances violated the rule of audi alteram partem and the authorities requiring strict construction of deeming clauses. [Paras 64, 65, 66, 70, 71]The Tribunal held that the imposition of liability and penalty under the deeming clause against the two individuals was unsustainable for want of evidence and for breach of natural justice, and quashed the penalties imposed on them.Final Conclusion: The appeals are allowed. The Tribunal set aside the Commission's order insofar as it relates to the three appellants: the informant was found to have suppressed material facts (but was not penalised), the Commission's finding that Alkem contravened Section 3(1) was declared legally unsustainable, and the personal penalties imposed under the deeming provision were quashed for lack of evidence and breach of natural justice.

2016 (4) TMI 1329 - COMPETITION APPELLATE TRIBUNAL , NEW DELHI Law of Competition

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Tribunal overturns penalties, clears appellants of bid-rigging charges due to lack of evidence beyond identical pricing.
The Tribunal overturned the Commission's decision, concluding that the appellants were not guilty of collusive bidding or bid-rigging due to insufficient evidence of an agreement beyond identical pricing. It also annulled the penalty imposed by the Commission, ruling that penalties should be based on the turnover of the specific product involved in the violation, not the total turnover. The Tribunal ordered the refund of any penalties paid by the appellants, with interest accruing if not refunded within three months.

Bid-rigging - collusive bidding - determination of price by agreement - quantity restrictions and market allocation - presumption under Section 3(3) - penalty under Section 27(b) - turnover for penalty - relevant turnoverBid-rigging - collusive bidding - determination of price by agreement - presumption under Section 3(3) - Whether the appellants had indulged in bid rigging/collusive bidding and thereby contravened Section 3(1) read with Sections 3(3)(a) and 3(3)(d) of the Competition Act, 2002. - HELD THAT: - After a holistic review of the record, relevant jurisprudence and the special features of the market for the Jungle Boots, the Tribunal concluded that the concurrent findings of the Director General and the Commission - founded primarily on identical or near identical pricing and ancillary 'plus' factors - were legally unsustainable. The Tribunal noted distinguishing characteristics: the product was manufactured strictly to DGS&D specifications, sold only to government agencies under Rate Contracts, not readily marketable otherwise, had no substitutes and exhibited a static requirement that explained the lack of new entrants; these factors were not given due weight by the DG/Commission. Applying the Supreme Court's teaching that mere parallel or identical pricing, without sufficient plus factors and a reasonable inference of concerted action, does not conclusively establish a cartel, and having regard to the Tribunal's own precedents, the Court held that the DG/Commission over relied on conjecture and circumstantial indicia and failed to establish collusion on the requisite legal standard. Consequently, the finding of contravention of Section 3(1) read with Sections 3(3)(a) and 3(3)(d) was set aside. [Paras 37]Findings that the appellants had engaged in bid rigging/collusive bidding and thereby violated Section 3(1) read with Sections 3(3)(a) and 3(3)(d) are set aside.Penalty under Section 27(b) - turnover for penalty - relevant turnover - Whether the Commission could impose penalty computed on the appellants' total turnover for the three preceding financial years. - HELD THAT: - The Tribunal examined the scope of Section 27(b) and the definition of 'turnover' in the context of an investigation confined to a particular product. Relying on principles of contextual statutory interpretation and its earlier decisions, the Tribunal held that penalty assessment must relate to the goods or services that are the subject matter of the finding under Section 3 and that the Commission erred in taking the appellants' total turnover across all products. The Commission failed to give appropriate consideration to the appellants being multi product enterprises and to mitigating factors relevant to exercise of the discretion conferred by Section 27(b). Therefore, computation of penalty on total turnover was held legally impermissible and the imposed penalties were quashed with direction for refund. [Paras 38, 40, 41]Penalty imposed on the basis of total turnover for all products was quashed; the Commission erred in computing penalty on the appellants' entire turnover rather than on turnover relevant to the product under investigation.Final Conclusion: The appeals are allowed: the Tribunal set aside the Commission's finding of cartelisation/bid rigging and quashed the penalty imposed (which was computed on total turnover); amounts deposited shall be refunded with statutory interest if not refunded within the stipulated period.

2016 (3) TMI 1327 - COMPETITION APPELLATE TRIBUNAL, NEW DELHI Law of Competition

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Tribunal Sends Case Back for Fresh Penalty Decision; Orders New Turnover Data & Fair Hearing on LPG Cylinder Sales.
The Tribunal allowed the appeals, set aside the impugned order, and remitted the matter to the Commission for a fresh decision on penalties. It directed the appellants to submit fresh representations, including turnover figures for LPG cylinders of 14.2 Kg over the last three financial years, and separate turnover figures for other products. The Commission was instructed to provide a hearing opportunity to the appellants, consider mitigating factors, and determine penalties based on the relevant turnover of the specific product involved in the anti-competitive conduct. The Tribunal emphasized the necessity for a fair and objective assessment of penalties, ensuring reasoned orders that account for all relevant circumstances.

Relevant turnover (turnover relatable to the goods or services under investigation) - penalty under Section 27(b) of the Competition Act - doctrine of proportionality in fixing penalties - mitigating factors (financial health, size, first offence, nature of industry) - contextual interpretation of statutory termsRelevant turnover (turnover relatable to the goods or services under investigation) - contextual interpretation of statutory terms - Meaning of the word 'turnover' in Section 27(b) and its proviso for the purpose of imposing penalty - HELD THAT: - The term 'turnover' in Section 27(b) must be read in the context of the Act, its definitions and the subject-matter of the inquiry. A finding of contravention under Sections 3 or 4 is necessarily confined to particular goods, products or services which are the subject of the investigation under Section 26. Accordingly, 'turnover' for the purpose of quantifying penalty relates to the value of sale of the goods or services that form the subject-matter of the investigation (the relevant turnover) and not the total turnover of the enterprise across unrelated products or activities. The investigating jurisdiction is similarly confined to the products/services specified in the Section 26 order and findings and penalties must be linked to that scope. [Paras 22, 23, 24, 25, 26]For imposing penalty under Section 27(b) the Commission shall, as a general principle, consider turnover only of the goods or services which are the subject-matter of the finding (the relevant turnover) and not the total turnover of the enterprise.Penalty under Section 27(b) of the Competition Act - doctrine of proportionality in fixing penalties - mitigating factors (financial health, size, first offence, nature of industry) - Whether the Commission must apply objective criteria and consider mitigating factors while deciding quantum of penalty - HELD THAT: - The proviso to Section 27(b) vests the Commission with discretion to impose penalty, and Parliament deliberately used 'may' to confer judicial discretion. In the absence of statutory methodology, the Commission is duty bound to consider relevant factors - including nature of industry, age and size of the enterprise, nature of goods, availability of competitors, financial health of the enterprise, whether first offence, and other mitigating or aggravating circumstances - and to apply the doctrine of proportionality and give reasons for the quantum imposed. Precedents (including Supreme Court authority on imposition of penalties) require that such discretion be exercised judicially and with reasons; otherwise it risks arbitrariness. [Paras 28, 29, 30, 31, 32]The Commission must apply objective criteria, have regard to mitigating and aggravating factors and the doctrine of proportionality, and record reasoned findings when fixing the amount of penalty under Section 27(b).Penalty under Section 27(b) of the Competition Act - mitigating factors (financial health, size, first offence, nature of industry) - Validity of the Commission's penalty order in these appeals and remedial directions - HELD THAT: - The Commission, after taking note of representations and mitigating factors, nevertheless reiterated a uniform penalty calculated on average total turnover without calling for or considering product-specific turnover or giving cogent reasons for the chosen rate. That approach ignored the Tribunal's observations and settled principles and resulted in a failure to exercise judicial discretion properly. The Tribunal's earlier remand and the Supreme Court's interim direction required the Commission to determine penalties afresh; the appellate court finds the Commission erred in reiterating the penalty and accordingly sets aside the impugned order and remits the matter for fresh decision limited to quantification of penalty. [Paras 31, 32, 33, 34, 35]The appeals are allowed; the impugned order is set aside and the matter is remitted to the Commission to reconsider and decide, by a reasoned order, whether and what penalty should be imposed, having regard to product-specific turnover and mitigating/aggravating factors; appellants to furnish relevant turnover and representations and Commission to hear and decide accordingly.Final Conclusion: The Court held that 'turnover' for the purpose of Section 27(b) ordinarily means the turnover relevant to the goods or services which were the subject of the investigation (relevant turnover), not the enterprise's total turnover; the Commission must consider objective criteria, mitigating and aggravating factors and apply the doctrine of proportionality with reasons when fixing penalties; the Commission's penalty order was set aside and the matter remitted for fresh, reasoned quantification of penalty limited to the product-specific turnover and after affording the appellants an opportunity to supply relevant data and be heard.

2016 (3) TMI 1326 - COMPETITION APPELLATE TRIBUNAL , NEW DELHI Law of Competition

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Tribunal Rules Healthcare Providers as Enterprises Under Competition Law; Commission to Reconsider Investigation Case.
The Tribunal determined that the DGHS and ECHS qualify as 'enterprises' under Section 2(h) of the Competition Act, 2002, as they engage in the provision of healthcare services, which do not fall under sovereign functions. Consequently, the Tribunal found that the Commission had erred in its interpretation and dismissed the initial decision. The appeal was allowed, and the matter was remitted to the Commission for reconsideration. The Commission was instructed to take a prima facie view on whether there is a case for investigation under Section 26(1) of the Act, acknowledging DGHS as an 'enterprise'.

'enterprise' under Section 2(h) - sovereign functions - abuse of dominance - investigation under Section 26(1)'enterprise' under Section 2(h) - sovereign functions - Whether DGHS/CGHS (and by parity ECHS) fall within the definition of 'enterprise' under Section 2(h) of the Competition Act, 2002 - HELD THAT: - The Tribunal held that the definition of 'enterprise' in Section 2(h) is wide enough to include departments of the Government engaged in provision of services. The exclusion in the definition is confined to activities relatable to the sovereign functions of the Government and to specified departments (atomic energy, currency, defence and space). Relying on established authorities, the Tribunal emphasised that only primary, inalienable and non-delegable sovereign functions qualify for the exclusion; welfare, regulatory or service-provision activities do not. The material (including the Ministry's Annual Report and the institutional description of CGHS) showed that CGHS/ DGHS not only facilitate access to private hospitals but themselves provide outpatient services and maintain a large network of dispensaries, polyclinics, labs and empanelled private hospitals. These activities constitute provision of services and are not shown to be sovereign in the narrow sense; accordingly DGHS/CGHS fall within 'enterprise' under Section 2(h). [Paras 26]DGHS/CGHS are covered by the definition of 'enterprise' under Section 2(h); their functions in the present context are not sovereign functions excluded from that definition.Abuse of dominance - investigation under Section 26(1) - Whether the differential pricing for NABH-accredited and non-accredited hospitals amounts to discriminatory treatment and abuse of dominance by DGHS/CGHS - HELD THAT: - The Tribunal declined to finally adjudicate this question on the merits. It observed that whether differential pricing is justified, and whether it creates an environment for abuse of dominance, requires detailed investigation and examination of facts and evidence. Because the Commission had premised closure on the view that DGHS/CGHS were not 'enterprise', the Tribunal found the Commission's conclusion simplistic and set the closure order aside. The matter is remitted to the Commission to take a prima facie view recognizing DGHS/CGHS as enterprises and to decide whether a full investigation under Section 26(1) is warranted to examine allegations of discriminatory pricing and abuse of dominance. [Paras 27, 29]The question of discriminatory pricing and abuse of dominance was not finally decided; the matter is remitted to the Commission for reconsideration and, if appropriate, investigation under Section 26(1).Final Conclusion: The appeal is allowed; the Commission's order closing the matter is set aside. The matter is remitted to the Commission to take a prima facie view recognizing DGHS/CGHS as 'enterprise' under Section 2(h) and to consider whether a full investigation under Section 26(1) of the Competition Act is warranted into the allegations of discriminatory pricing and abuse of dominance.

2015 (12) TMI 1776 - COMPETITION APPELLATE TRIBUNAL , NEW DELHI Law of Competition

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Issues: (i) Whether the agreement between the hospital and the stem cell bank was an anti-competitive vertical restraint causing appreciable adverse effect on competition under the Act; (ii) whether the appellant was dominant in the relevant market and had abused that position; (iii) whether the penalty could be sustained on the basis of the appellant's entire turnover.

Issue (i): Whether the agreement between the hospital and the stem cell bank was an anti-competitive vertical restraint causing appreciable adverse effect on competition under the Act.

Analysis: The conclusion of contravention rested on the assumption that the impugned arrangement foreclosed the stem cell banking market. The record did not support that assumption. The complaint was substantially driven by a third party and the alleged affected patient was not examined. The agreement did not prevent the stem cell bank from enrolling patients through other hospitals, and the market contained multiple players. In the absence of proof that the arrangement restricted competition in the stem cell banking market or created entry barriers of a legally significant kind, the finding of contravention could not stand.

Conclusion: The agreement was not proved to be anti-competitive under Section 3 of the Competition Act, 2002.

Issue (ii): Whether the appellant was dominant in the relevant market and had abused that position.

Analysis: The finding of dominance was founded on an over-narrow market definition and on conjectural assumptions rather than reliable evidence. The material did not establish that the appellant had the requisite strength in the relevant market, and the Commission itself had reservations about the dominance analysis. Once dominance was not established, the allegation of abuse under Section 4 could not survive.

Conclusion: Dominance and abuse of dominant position were not established against the appellant.

Issue (iii): Whether the penalty could be sustained on the basis of the appellant's entire turnover.

Analysis: Penalty under the Act must bear a rational nexus to the contravention found. The appellant was a multi-speciality hospital and the impugned conduct, if at all, related only to stem cell banking in the context of maternity services. Clubbing the turnover of all hospital services was impermissible. In any event, once the substantive contravention failed, the penalty lacked foundation.

Conclusion: The penalty based on the appellant's total turnover was unsustainable.

Final Conclusion: The Commission's order could not be upheld, the information was liable to fail, and the appellant was entitled to complete relief.

Ratio Decidendi: A vertical agreement will attract liability under Sections 3 and 4 of the Competition Act, 2002 only when the relevant market, dominance, and anti-competitive effect are proved on reliable evidence, and any penalty must be confined to the turnover connected with the proven contravention.

Competition law analysis of hospital-stem cell bank tie-up: no proven foreclosure, dominance, or broad turnover-based penalty.
A vertical agreement between a hospital and a stem cell bank was analysed under the Competition Act, 2002 for alleged foreclosure of the stem cell banking market. The material did not prove appreciable adverse effect on competition because the record did not support market foreclosure, the complainant evidence was weak, and the bank could still enroll patients through other hospitals, so liability under Section 3 was not established. Dominance was also not proved, as the relevant market definition was too narrow and unsupported by reliable evidence, so the abuse claim under Section 4 failed. Penalty could not be based on the hospital's entire turnover because any conduct, if at all, was limited to the relevant service segment.

Anti-competitive agreement - appreciable adverse effect on competition - tie-in arrangement - exclusive supply agreement - refusal to deal - relevant product market - dominant position - abuse of dominant position - Section 3 of the Competition Act - Section 4 of the Competition Act - Section 19 factors - penalty under Section 27Anti-competitive agreement - appreciable adverse effect on competition - relevant product market - Section 3 of the Competition Act - Section 19 factors - The majority finding that the hospital's agreement with Cryobanks violated Section 3(1) of the Competition Act is legally unsustainable and is set aside. - HELD THAT: - The Tribunal held that the DG and the majority of the Commission proceeded on conjecture and failed to examine crucial facts and statutory factors. The informant's information showed indicia of being supplied by a competitor and lacked personal knowledge; the Commission did not examine the alleged victim (Mrs. Jain) although her testimony was central. The DG and majority also mischaracterised the relevant market by treating stem cell banking as integral to maternity services and by adopting the narrow concept of 'super-speciality hospitals' without adequate demand-side analysis under Section 2(t) and the factors in Section 19(7). There was no evidence of foreclosure or that the agreement restricted access to the broader market for stem cell banking: multiple stem cell banks operated in the market and new entrants appeared after the impugned agreement. The minority Member's analysis that no contravention of Section 3(3) or 3(4) was made out was accepted. On these bases the Tribunal concluded the Commission's finding of an anti-competitive agreement was erroneous and set aside the majority order holding otherwise. [Paras 31, 33, 34, 35, 36]The Commission's finding of violation of Section 3(1) is quashed and the information is dismissed.Penalty under Section 27 - turnover - relevant product market - Section 3 of the Competition Act - The penalty imposed by the Commission is set aside as unjustified. - HELD THAT: - Having rejected the finding of anti-competitive conduct, the Tribunal held the penalty could not be sustained. Further, the Commission erred in treating the appellant's entire corporate turnover as the base for penalty rather than turnover attributable to the specific service/market in question; the Tribunal relied on its prior approach that penalties should reflect the relevant turnover and require stated reasons. The Commission also failed to apply contextual statutory interpretation to the term 'turnover' and ignored material showing that the commission/impact related only to a limited part of the hospital's business. For these reasons the monetary penalty is held legally impermissible and is set aside. [Paras 37, 38, 39, 40]The penalty imposed by the Commission is vacated.Final Conclusion: The appeal is allowed: the majority order of the Competition Commission of India is set aside; the information is dismissed and the penalty imposed is vacated.

2015 (12) TMI 1773 - COMPETITION APPELLATE TRIBUNAL , NEW DELHI Law of Competition

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Tribunal Overturns Cartel and Bid Rigging Ruling, Citing Lack of Evidence Beyond Identical Pricing.
The Tribunal overturned the findings of cartel formation and bid rigging by the Commission and the DG, concluding that identical pricing alone was insufficient evidence of collusion without further corroborative factors. It also ruled that the penalties imposed were incorrectly calculated, as they should have been based solely on the turnover related to feed valves rather than the total turnover from all products. Consequently, the Tribunal allowed the appeals and quashed the penalties imposed on the appellants.

Cartelisation - bid rigging / collusive bidding - identical bids as an indicium of collusion - presumption under Section 3(3) regarding cartels - appreciable adverse effect on competition - penalty under Section 27 and assessment of relevant turnover - role of procurement practices and buyer side conduct in assessing collusion - reliance on plus factors to infer agreementCartelisation - bid rigging / collusive bidding - identical bids as an indicium of collusion - reliance on plus factors to infer agreement - Validity of the Director General's and Commission's finding that the appellants formed a cartel and indulged in bid rigging in relation to Tender No. 201320510. - HELD THAT: - The Tribunal examined the DG's and Commission's reliance on identical total prices, market structure (few RDSO approved vendors, stagnant demand, installed capacity), past pricing patterns and purported 'complementary' or cover bids as supporting indicia of an agreement. Applying the reasoning in Union of India v. Hindustan Development Corporation, the Tribunal held that mere identity of bids, even if a strong indicator, is not conclusive of a cartel without adequate probabilistic or corroborative proof. The Tribunal found material errors in the DG's and Commission's analysis: (a) over reliance on the fact of identical total bids without sufficient corroboration; (b) incorrect treatment of prior purchase orders and tax/levy calculations (notably mis assumption about the Central Sales Tax rate and failure to account correctly for changes in Excise Duty), which undermined the conclusion that bids could not be independently derived; (c) improper use of procurement irregularities and the role of RDSO/Indian Railways as standalone 'plus factors' imputing concerted action to the appellants; and (d) speculative inference of complementary/cover bidding without giving the appellants an opportunity to meet that specific charge. On these bases the Tribunal concluded that the DG's and Commission's findings of cartelisation and bid rigging were legally unsustainable and set those findings aside. [Paras 24]The findings of the DG and the Competition Commission that the appellants formed a cartel and engaged in bid rigging are set aside as legally unsustainable.Penalty under Section 27 and assessment of relevant turnover - role of contextual interpretation in statutory penalty assessment - Validity of the penalty imposed by the Commission and the method of calculating turnover for imposition of penalty. - HELD THAT: - Following the setting aside of the substantive finding, the Tribunal also examined the legality of the penalty. The Tribunal held that the Commission erred in its approach to quantification: it improperly relied on aggregate company turnover without adequate application of the contextual and 'relevant turnover' considerations indicated by prior Tribunal guidance. The Tribunal emphasised principles of contextual statutory interpretation and the need to consider the connection between the contravention and the turnover taken for penalty purposes. Given that the substantive findings were quashed and that the Commission's reasoning on quantum and the basis for using total turnover were flawed, the penalty could not stand. The Tribunal therefore quashed the penalty and ordered return of amounts deposited pursuant to interim directions. [Paras 26]The penalty imposed by the Commission is quashed as legally unsustainable; the appellants are entitled to refund of amounts deposited under interim orders.Final Conclusion: Appeals allowed. The Tribunal set aside the DG's and Commission's findings of cartelisation and bid rigging and quashed the penalties imposed by the Commission; the appellants are entitled to the refund of amounts deposited under interim orders.

2015 (12) TMI 1893 - COMPETITION APPELLATE TRIBUNAL NEW DELHI Law of Competition

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Issues: (i) Whether the Competition Commission, while deciding contraventions under the Act, acts as a quasi-judicial body bound by the principles of natural justice. (ii) Whether the final order was vitiated because the Chairperson, who had not heard the oral arguments, participated in and signed the decision.

Issue (i): Whether the Competition Commission, while deciding contraventions under the Act, acts as a quasi-judicial body bound by the principles of natural justice.

Analysis: The statutory scheme, including the inquiry, investigation, hearing and penalty provisions, showed that the Commission exercised adjudicatory powers affecting civil consequences. The governing provision required the Commission to be guided by the principles of natural justice, and the procedure under the Act and the Regulations was akin to adjudication, not a purely administrative exercise.

Conclusion: The Commission was bound to act fairly and in conformity with natural justice while deciding the allegations under the Act.

Issue (ii): Whether the final order was vitiated because the Chairperson, who had not heard the oral arguments, participated in and signed the decision.

Analysis: The oral hearing had been conducted by six Members, but the Chairperson later joined the decision-making and initialled each page of the final order. The rule that the person who hears must decide is a fundamental facet of natural justice, and the participation of a member who had not heard the parties created prejudice and undermined the fairness of the adjudicatory process. The defect was not cured by the appellate remedy, and the protective provision against procedural irregularity did not apply to such a substantive breach.

Conclusion: The impugned order was vitiated and could not be sustained.

Final Conclusion: The appeals succeeded, the penalty order was set aside, and the matter was remitted for fresh adjudication after hearing the parties in accordance with law.

Ratio Decidendi: An adjudicatory authority statutorily bound by natural justice cannot validly decide a matter through a member who did not hear the parties, and such participation vitiates the final order where prejudice to fairness is inherent in the process.

Natural justice requires Competition Commission decision-makers to hear parties; participation by an unheard Chairperson invalidated the penalty order.
Competition Commission proceedings concerning alleged contraventions involve adjudicatory powers with civil consequences and must comply with natural justice. The Commission's inquiry, investigation, hearing and penalty framework is not purely administrative. The requirement that the decision-maker hear the parties is a fundamental element of procedural fairness. Where a Chairperson who did not hear oral arguments participated in and signed the final decision, the resulting prejudice vitiated the order. An appellate remedy and protection for procedural irregularities did not cure this substantive breach. The penalty order was set aside and the matter remitted for fresh adjudication after a lawful hearing.

Principles of natural justice - one who hears must decide - audi alteram partem - quasi-judicial character of the Competition Commission of India - bias and predetermination - rectification and remand for fresh adjudicationPrinciples of natural justice - one who hears must decide - quasi-judicial character of the Competition Commission of India - Validity of the Commission's final order where the Chairperson, who had not heard the oral arguments, joined in and authenticated the final order - HELD THAT: - The Tribunal held that the Commission, when exercising adjudicatory functions under the Act, is bound to be guided by the principles of natural justice. The Court applied the long standing rule that the person who hears must decide and concluded that the Chairperson's participation in the decision making and his initials/signature on each page of the final orders, despite his non attendance at the oral hearings of 21-23 February 2012, vitiated the impugned order. The reasoning emphasises (a) the statutory requirement that the Commission be guided by principles of natural justice (Section 36(1) and related regulations), (b) the undoubted possibility of subtle influence by a Chairperson on coordinating Members in collective decision making, and (c) authorities establishing that divided responsibility (one person hears and another decides) undermines the concept of a personal hearing. The Tribunal found that the Chairperson, though present at earlier stages, did not hear the decisive oral arguments yet joined in passing and authoring the final order; that circumstance infected the proceeding with a breach of fair procedure and impartiality; and therefore the order could not stand. The Tribunal declined to decide other substantive challenges in view of this procedural infirmity, but directed a fresh adjudication by the Commission in accordance with law and natural justice. [Paras 75, 76, 98, 99, 100]Impugned final order quashed for violation of natural justice (the Chairperson, who had not heard the oral arguments, improperly joined in and authored the final order); matter remitted to the Commission for fresh adjudication in accordance with law and within three months; appellants entitled to withdraw amounts deposited pursuant to interim order.Final Conclusion: The Tribunal set aside the Commission's final order of 20.06.2012 because the Chairperson, who did not hear the oral arguments, participated in and authenticated the final order in breach of principles of natural justice; the matter is remitted to the Commission for fresh adjudication in accordance with law (to be completed within three months), and amounts deposited under the interim order may be withdrawn by the appellants.

2015 (11) TMI 1818 - Competition Appellate Tribunal Law of Competition

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CCI Ordered to Reinvestigate Allegations After Tribunal Finds Initial Evaluation Was Flawed.
The appeal was allowed, and the matter was remanded to the Competition Commission of India (CCI) for directing an investigation under Section 26(1) of the Competition Act, 2002. The Tribunal determined that the CCI had erred by evaluating the merits of the allegations instead of solely assessing whether a prima facie case existed. It was emphasized that the CCI should not confuse the formation of a prima facie opinion with the final determination of issues. The Tribunal directed that the investigation should proceed without being influenced by its order, and the CCI must issue an appropriate order based on the Director General's report.

Prima facie case - Investigation under Section 26(1) - Closure under Section 26(2) - Abuse of dominant position - Relevant market - Definition of dominance - Section 3(4) anti-competitive agreements - Appellate scrutiny under Section 53-B - Director General investigationPrima facie case - Investigation under Section 26(1) - Closure under Section 26(2) - Appellate scrutiny under Section 53-B - Legality of the Commission's refusal to order an investigation under Section 26(1) on the ground that no prima facie case existed - HELD THAT: - The Tribunal held that while the Commission, when examining an information under Section 19, must satisfy itself only whether a prima facie case exists to direct an investigation under Section 26(1), it must not delve into the merits, rely on undisclosed material or record final findings. The Commission erred by undertaking a merits-based inquiry - using industry data from the Ministry website, analysing installed refining capacity and concluding no player was dominant - thereby treating formation of a prima facie opinion as a final adjudication. Reliance on such merits-level assessment was inconsistent with the limited threshold prescribed by Section 26(1). The Tribunal further observed that orders closing matters under Section 26(2) are amenable to appellate scrutiny under Section 53-B where the negative prima facie opinion is vitiated by an error of law. Applying these principles, the Tribunal found that the allegations and written submissions filed by the informant disclosed a prima facie case and that the Commission committed an error in refusing to order an investigation. [Paras 8, 9, 10, 11, 12]The Commission's order refusing investigation under Section 26(1) was set aside on the ground that it impermissibly went into merits and failed to recognise a prima facie case.Director General investigation - Remand for investigation - Abuse of dominant position - Relevant market - Section 3(4) anti-competitive agreements - Remedial direction to the Commission to obtain an investigation report from the Director General - HELD THAT: - Having found the Commission's negative prima facie conclusion unsustainable, the Tribunal remanded the matter to the Commission with a direction to issue a formal order under Section 26(1) directing the Director General to conduct an investigation. The Tribunal emphasised that the Director General must carry out the investigation independently and without being influenced by the Tribunal's order; upon receipt of the investigation report the Commission is to pass appropriate orders in accordance with law. The remand was for the purpose of conducting the investigative process envisaged by the Act and not a final adjudication on the merits of allegations concerning abuse of dominance, relevant market definition or alleged anti-competitive clauses of the dealership agreements. [Paras 12, 13]Matter remanded to the Commission directing it to order an investigation by the Director General under Section 26(1); investigation to be conducted independently and the Commission to act on the DG's report in accordance with law.Final Conclusion: The appeal succeeds: the Tribunal set aside the Commission's closure order for having impermissibly examined merits instead of determining whether a prima facie case existed, found that a prima facie case is disclosed, and remitted the matter to the Commission with a direction to direct the Director General to investigate under Section 26(1), leaving final adjudication to the Commission after the DG's report.

2015 (9) TMI 1691 - COMPETITION APPELLANT TRIBUNAL Law of Competition

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Tribunal Orders Probe into Cartel Allegations, Overturns Competition Commission's Decision to Halt Investigation.
The Tribunal overturned the majority order of the Competition Commission of India, which had refused to initiate an investigation into allegations of cartel formation and bid rigging. It directed the Director General to investigate the claims made by the appellant, emphasizing that the investigation should not assume Respondent No. 2's involvement in the cartel. The Tribunal instructed the Secretary of the Commission to provide the Director General with the necessary documents to facilitate the investigation, which must be completed within three months.

Prima facie case for investigation under Section 26(1) - inquiry on information under Section 19(1)(a) - duty to eliminate practices having adverse effect on competition - abuse of dominant position and cartelisation - binding nature of Supreme Court findings on subordinate bodiesInquiry on information under Section 19(1)(a) - clean hands and locus to file information - Whether the appellant could be non-suited on the ground that he lacked locus or had not approached the Commission with clean hands. - HELD THAT: - The Tribunal held that Parliament prescribed no qualification or condition for a person to file information under Section 19(1)(a) and that the Commission's power includes suo motu cognizance; therefore an informant need not demonstrate personal interest or absence of association with other parties. The fact that the appellant practises as an advocate with counsel who represented M/s B.S.N. Joshi & Sons Ltd. did not justify drawing an adverse inference of bad faith. The respondents did not dispute that the appellant was a consumer of electricity supplied by Respondent No.2, which sufficed to support his locus to file information under Section 19(1)(a). [Paras 23]Appellant's locus and bona fides upheld; he cannot be non-suited on the ground of alleged lack of clean hands.Prima facie case for investigation under Section 26(1) - abuse of dominant position and cartelisation - binding nature of Supreme Court findings on subordinate bodies - Whether the majority order of the Commission refusing to direct an investigation under Section 26(1) was vitiated by an error of law and required setting aside. - HELD THAT: - The Tribunal emphasised that the narrow question for the Commission under Section 26(1) is whether a prima facie case exists to order investigation. The majority of the Commission was found to have overlooked and not given effect to the Supreme Court's findings (in Civil Appeal No. 4613/2006 and the order in Contempt Petition No. 245/2007) that Respondent Nos. 3 to 5 had formed a cartel. The Tribunal noted that subsequent repeated allocations of liaison work at substantially similar rates strengthened the prima facie inference of cartelisation and foreclosure of competition. The majority's reliance on a rate-chart for 2010, without considering the Supreme Court findings and the documents filed by the appellant, amounted to a patent legal infirmity. The dissenting member's approach, including the identification of the relevant product and geographic market and finding of prima facie contravention of Section 3(3) and 3(4), was held to be legally sound. Consequently the Tribunal set aside the majority order and directed the Director General to investigate the information, with the specific clarification that the Director General should not proceed on the premise that Respondent No.2 was part of the cartel. [Paras 25, 26, 27, 28, 29]Majority order set aside; Director General directed to investigate the allegations and submit a report within three months, subject to the caveat that investigation should not presume Respondent No.2's participation in the cartel.Final Conclusion: Appeal allowed; impugned majority order of the Commission is set aside and the Director General is directed to investigate the information filed under Section 19(1)(a) and report to the Commission within three months, with the investigation not to proceed on the assumption that the procurer (Respondent No.2) was part of the cartel.

2015 (2) TMI 1410 - COMPETITION APPELLATE TRIBUNAL Law of Competition

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Issues: (i) Whether the finding on the relevant market was vitiated for want of notice and opportunity when the Commission departed from the Director General's market definition; (ii) Whether the finding of abuse of dominance was unsustainable because the Commission relied on material from public domain and newspaper reports without disclosing it to the appellant and without proper proof; (iii) Whether the discussion and direction concerning clause 9.1(c)(i) of the Media Rights Agreement could stand when that clause was not part of the Director General's adverse finding and was not specifically put to the appellant.

Issue (i): Whether the finding on the relevant market was vitiated for want of notice and opportunity when the Commission departed from the Director General's market definition.

Analysis: The proceedings under the Competition Act become adjudicatory once the Commission enters the stage of inquiry after the Director General's report. If the Commission proposes to differ from the Director General on a material issue, the affected party must be given notice of that proposed departure and a fair opportunity to meet it. Here, the Director General proceeded on one market definition, while the Commission adopted a different and broader market definition without indicating its disagreement beforehand.

Conclusion: The finding on relevant market was held to be vitiated by breach of audi alteram partem and was set aside.

Issue (ii): Whether the finding of abuse of dominance was unsustainable because the Commission relied on material from public domain and newspaper reports without disclosing it to the appellant and without proper proof.

Analysis: Any material not forming part of the Director General's report and proposed to be used against the noticee must be disclosed for rebuttal. Further, newspaper reports and internet-derived material are not evidence of the facts stated therein unless proved by admissible evidence. The Commission relied on TRP data, reports, and similar materials without putting them to the appellant or proving them through proper evidence.

Conclusion: The finding of abuse of dominance was held to be legally unsustainable and was set aside.

Issue (iii): Whether the discussion and direction concerning clause 9.1(c)(i) of the Media Rights Agreement could stand when that clause was not part of the Director General's adverse finding and was not specifically put to the appellant.

Analysis: The adverse use of the clause was beyond the specific findings contained in the Director General's report and was not the subject of a fair opportunity of defence before the Commission. A party cannot be held liable on the basis of a clause or issue not specifically raised against it in the inquiry stage.

Conclusion: The Commission's discussion of clause 9.1(c)(i) and the connected direction were held to be vitiated and were set aside.

Final Conclusion: The impugned order could not be sustained because the decisive findings were reached in violation of natural justice and on material not duly disclosed or proved, so the matter was sent back for fresh disposal in accordance with law.

Ratio Decidendi: In quasi-judicial competition proceedings, any material or issue on which adverse findings are proposed must be disclosed to the affected party and proved by admissible evidence; a finding reached on undisclosed material or without opportunity to meet a new basis of decision is liable to be set aside.

Natural justice in competition proceedings requires disclosure of adverse material and notice before departing from the director general's findings.
In quasi-judicial competition proceedings, if the Commission departs from the Director General's market definition on a material issue, it must give the affected party notice and a fair opportunity to respond; the relevant market finding was set aside for breach of audi alteram partem. Material relied on against the noticee that was not part of the Director General's report had to be disclosed, and newspaper or internet-derived material was not proof of the facts stated unless independently proved; the abuse of dominance finding was set aside. A clause not specifically put to the appellant in the inquiry could not form the basis of an adverse discussion or direction, and that part was also set aside.

Principles of natural justice - rule of audi alteram partem - duty to disclose materials relied upon - admissibility of public domain/newspaper evidence - quasi-judicial function of regulatory authority - abuse of dominant position - remand for fresh disposalPrinciples of natural justice - rule of audi alteram partem - duty to disclose materials relied upon - quasi-judicial function of regulatory authority - Whether the Commission's change in the definition of the relevant market from that in the DG's report without giving the appellant notice and opportunity of hearing vitiated the impugned order - HELD THAT: - The Tribunal held that once the Commission proceeded to an inquiry under Sections 26(7)/26(8) and was to pass an order under Section 27 it exercised adjudicatory/quasi judicial functions and was therefore bound to observe the facets of natural justice. The Commission had transmitted the DG's report (which defined the relevant market as the 'underlying economic activities ancillary for organizing the IPL Twenty 20 tournament') and invited objections. The Commission, however, adopted a different relevant market - 'Organization of Private Professional Cricket Leagues/Events in India' - without giving the appellant notice of its intention to depart from the DG's market definition or an opportunity to contest that new market definition. The Tribunal found that because the appellant naturally limited its replies to the DG's findings, it was denied an effective opportunity to meet the Commission's different case. In those circumstances the finding that Organization of Private Professional Cricket Leagues/Events in India is the relevant market is vitiated for breach of audi alteram partem and failure to disclose the change of case. [Paras 24]Finding on the relevant market is vitiated for violation of audi alteram partem.Admissibility of public domain/newspaper evidence - duty to disclose materials relied upon - principles of natural justice - Whether the Commission could rely on information downloaded from the internet and newspaper/public domain material not placed before the appellant to establish abuse of dominance - HELD THAT: - The Tribunal held that the Commission relied on various public domain sources (TRP data, news reports, KPMG/FICCI material and the like) which were not part of the DG's report and were not disclosed to the appellant. Two legal defects were identified: (i) non disclosure of material proposed to be relied upon deprived the appellant of an effective opportunity to controvert that material, thereby breaching natural justice; and (ii) such public domain downloads/newspaper reports have no evidentiary value unless proved by admissible evidence (witnesses or other proof) and cannot be the basis for an adverse adjudicatory finding. On both counts the Tribunal concluded the Commission's abuse of dominance finding was legally unsustainable. [Paras 26, 27, 28, 36]Reliance on undisclosed internet/newspaper material was impermissible; the abuse of dominance finding is unsustainable on that basis.Principles of natural justice - rule of audi alteram partem - Whether the Commission's reliance on clause 9.1(c)(i) of the Media Rights Agreement (without the DG having adverted to it) and without giving the appellant opportunity to defend that clause vitiated the order - HELD THAT: - The Tribunal noted that the DG's report did not record any finding specifically on clause 9.1(c)(i) and the appellant had therefore not been called on to defend that clause. The Commission, however, proceeded to base an adverse finding and a direction to delete that clause in its majority order. Because the clause had neither been the subject of the DG's findings nor put to the appellant for defence, the Commission's discussion and reliance on the clause amounted to a breach of natural justice. The Tribunal held that the discussion and direction relating to clause 9.1(c)(i) are vitiated on that ground. [Paras 37]Discussion and reliance on clause 9.1(c)(i) is vitiated for want of notice and opportunity; appellant was not given an opportunity to defend the clause.Final Conclusion: Appeal allowed. The impugned Commission order is set aside and the matter is remitted to the Commission for fresh disposal in accordance with law after disclosing the materials it proposes to rely upon and affording the appellant effective opportunity of hearing.

2014 (8) TMI 1251 - COMPETITION APPELLATE TRIBUNAL Law of Competition

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NSE penalty upheld for predatory pricing in currency derivatives through waived transaction fees
The Competition Appellate Tribunal upheld CCI's penalty against NSE for abusing its dominant position by introducing predatory pricing through waiving transaction fees in the Currency Derivatives Segment. The Tribunal rejected NSE's argument that penalty should be calculated only on relevant segment turnover, holding that NSE's entire turnover should be considered as the relevant market encompasses all stock exchange segments. The 5% penalty on average turnover was maintained. However, the Tribunal deleted CCI's direction requiring NSE to maintain segment-wise accounts, finding it unnecessary given the broad relevant market definition. The appeal was dismissed with no merits found.

Relevant market - Service market versus product/segment market - Dominant position - Abuse of dominance - Predatory pricing - Average variable cost (AVC) and Determination of Cost of Production Regulations, 2009 - Leveraging dominance (section 4(2)(e)) - Penalty and remedial directions under section 27Relevant market - Service market versus product/segment market - The relevant market for the complaint is the services offered by stock exchanges (across segments) and not a narrowly confined product-market limited to the currency derivatives (CD) segment. - HELD THAT: - The Tribunal held that competition analysis in this case must focus on the trading and allied services provided by stock exchanges rather than on the underlying traded instruments as distinct product-markets. A stock exchange supplies a common platform/service to brokers and traders regardless of which underlying instrument they trade; therefore the proper frame for assessing dominance and abuse is the services offered by exchanges, not the CD contracts as separate products. The Tribunal rejected the CCI majority's narrower framing that confined the relevant market to the CD segment and explained that (i) exchanges do not create or sell the underlying traded products, (ii) the competition enquiry is about provision of exchange services, and (iii) merger jurisprudence and merger-market definitions relied upon by parties are not determinative for an ex-post abuse enquiry. On that basis the DG's approach to treat stock exchange services as the relevant product market was endorsed.The relevant market is the services offered by stock exchanges (across segments), not the CD product alone.Dominant position - Size and resources - Network effects - NSE was held to be in a dominant position in the relevant market (services offered by stock exchanges) and would also be regarded as dominant even if the market were narrowly confined to the CD segment. - HELD THAT: - Having affirmed that the proper market is the services provided by exchanges, the Tribunal accepted the DG and CCI majority findings that NSE possessed position of strength and market power. The Tribunal noted NSE's sustained high market shares across segments, extensive national presence, large reserves and profitability, vertical integration, and network effects which together furnished the ability to operate with comparative advantages unavailable to MCX-SX. The Tribunal also reviewed the minority's emphasis on changing short term market shares and found that the majority's holistic appraisal of factors under section 19(4) (size/resources, economic power, vertical integration, entry barriers, etc.) correctly supported the conclusion of dominance; it further observed that NSE would remain the dominant firm even on the narrower CD only analysis for the relevant period.NSE is a dominant undertaking in the relevant market.Abuse of dominance - Predatory pricing - Average variable cost (AVC) and Determination of Cost of Production Regulations, 2009 - NSE abused its dominant position by adopting and continuing a zero price policy (waiver of transaction fees and related waivers) for the CD segment following commencement of the CD service and after section 4 came into force, constituting predatory/exclusionary conduct in breach of section 4(2)(a)(ii). - HELD THAT: - The Tribunal agreed with the DG and the CCI majority that (a) the zero transaction fee, data feed fee, admission/deposit waivers were not justified as bona fide promotional measures for an indefinite period; (b) NSE's assertion that average variable cost (AVC) was zero was unsupported and implausible given documented segment related expenditures (IT, manpower, surveillance, clearing/settlement costs) and increases in fixed assets after launch of the CD segment; and (c) the waivers had the foreseeable effect of imposing unsustainable losses on the rival MCX SX which relied solely on the CD segment. The Tribunal held that pricing at zero in these circumstances was predatory/exclusionary because it was below relevant cost benchmarks and continued despite the activation of section 4, with the effect and intent (on the available evidence) to impede effective competition. The Tribunal therefore affirmed the finding of abuse under section 4(2)(a)(ii).NSE's conduct in continuing zero transaction fees and related waivers amounted to predatory/exclusionary pricing and was an abuse of dominance under section 4(2)(a)(ii).Leveraging dominance (section 4(2)(e)) - The finding that NSE breached section 4(2)(e) by leveraging dominance from 'non CD' markets to protect or enter the CD market was set aside. - HELD THAT: - Section 4(2)(e) requires conduct across two distinct relevant markets (dominance in one market used to enter or protect another). Because the Tribunal held the correct relevant market is the services of stock exchanges (encompassing all segments), there was no legally distinct second market in which NSE was alleged to have leveraged power. The CCI's approach of treating non CD segments as a separate market to establish leveraging was held to be conceptually and legally flawed. For this reason the Tribunal reversed the CCI majority's leveraging finding under section 4(2)(e).The CCI finding of breach of section 4(2)(e) (leveraging) was overturned.Penalty and remedial directions under section 27 - Proportionality of penalty - The penalty imposed by CCI at 5% of average turnover was upheld, but the direction requiring NSE to maintain separate segment wise accounts was deleted. - HELD THAT: - On penalty, the Tribunal reviewed CCI's consideration of aggravating and mitigating factors and its exercise of discretion. Having found abuse of dominance, the Tribunal found the CCI acted within its remit and that a 5% penalty on average turnover was justified (and restrained, being less than the maximum). The Tribunal rejected appellant's arguments that novelty or uncertainty precluded penalty. However, because the Tribunal held the relevant market to be exchange services across segments, it found the CCI's direction to maintain separate segment accounts unnecessary and therefore deleted that particular remedial direction while otherwise dismissing the appeal.Penalty at 5% of average turnover upheld; direction to maintain segment wise accounts deleted.Final Conclusion: The appeal is dismissed. The Tribunal affirms that the proper market is the services offered by stock exchanges, finds NSE dominant and that its continued zero fee and related waivers constituted predatory/exclusionary abuse under section 4(2)(a)(ii), upholds the 5% penalty imposed by CCI, but sets aside the CCI finding under section 4(2)(e) and deletes the direction to maintain separate segment accounts.

2013 (12) TMI 1666 - COMPETITION APPELLATE TRIBUNAL, NEW DELHI Law of Competition

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Issues Involved:
1. Collusive Agreement and Bid Rigging
2. Penalty under Section 27 of the Competition Act, 2002

Summary:

Collusive Agreement and Bid Rigging:
The judgment addresses the appeals of 44 companies found guilty of contravening Section 3(3)(d) of the Competition Act, 2002, for engaging in bid rigging. The CCI initiated suo-motu proceedings based on information from M/s. Pankaj Gas Cylinders Ltd. regarding unfair conditions in a tender floated by IOCL for LPG cylinders. The Director General (DG) found a pattern of identical or near-identical bids among the 50 qualified bidders, indicating collusion. The DG's investigation revealed that the LPG Cylinder Manufacturers had formed an association and held meetings just before the tender submission, where prices were likely fixed. The CCI considered various factors such as market conditions, small number of suppliers, repetitive bidding, and identical products, concluding that these factors suggested collusive bidding. The CCI's detailed analysis of bids across different states showed identical or near-identical pricing, reinforcing the finding of collusion. The CCI rejected arguments that price parallelism in an oligopolistic market was natural, emphasizing the presence of plus factors like the association and meetings. The judgment confirms the CCI's findings of bid rigging and collusion among the appellants.

Penalty under Section 27 of the Competition Act, 2002:
The CCI imposed a penalty of 7% of the average turnover of the last three years on the guilty companies. However, the judgment criticizes the CCI for not providing reasons for choosing the 7% penalty and for applying it uniformly without considering individual circumstances. The judgment highlights the need for the CCI to consider relevant turnover, mitigating factors, and the doctrine of proportionality. The matter is remanded to the CCI for reconsideration of the penalties, with the direction to hear the parties and decide within three months. The interim order of staying the penalties upon depositing 10% and furnishing security for the rest remains in effect until the CCI's final decision.

Separate Judgment by Shri Prasad:
Shri Prasad, in his minority order, found two companies, JBM Industries Ltd. and Punjab Cylinders Ltd., guilty of contravening Section 3(3)(d) and Section 3(3)(a) of the Act, disagreeing with their exoneration by the majority. He concurred with the majority on the guilt of the other appellants and the penalty under Section 27 of the Act.

Court Upholds Bid-Rigging Findings, Orders CCI to Reassess Penalties for 44 Companies in LPG Tender Case.
The judgment confirms the Competition Commission of India's (CCI) findings of bid rigging and collusion under Section 3(3)(d) of the Competition Act, 2002, involving 44 companies in a tender for LPG cylinders. The CCI imposed a penalty of 7% of the average turnover over the last three years on the guilty parties. However, the judgment criticized the CCI for not justifying the uniform penalty rate and failing to consider individual circumstances. Consequently, the matter is remanded to the CCI for reconsideration of penalties, with instructions to hear the parties and decide within three months. The interim stay on penalties, requiring a 10% deposit and security for the remainder, remains effective until the CCI issues its final decision. A minority opinion found two additional companies guilty, disagreeing with their exoneration by the majority.

Cartelisation and bid rigging under Section 3(3)(d) of the Competition Act, 2002 - appreciable adverse effect on competition and the rebuttable presumption arising from proof of an agreement - plus factors for inferring concerted action (active trade association, pre bid meetings, appointment of common agents, repetitive and identical bids) - standard of proof in competition matters: civil standard / strong probability on the balance of probabilities - penalty under Section 27-requirement of reasoned exercise of discretion and proportionality in computing turnover based finesCartelisation and bid rigging under Section 3(3)(d) of the Competition Act, 2002 - plus factors for inferring concerted action (active trade association, pre bid meetings, appointment of common agents, identical bids) - appreciable adverse effect on competition and the rebuttable presumption arising from proof of an agreement - standard of proof in competition matters: strong probability / balance of probabilities - The appellants engaged in collusive agreement resulting in bid rigging in the IOCL tender, constituting infringement of Section 3(3)(d) of the Competition Act, 2002. - HELD THAT: - The Tribunal affirmed the CCI's finding of concerted action. The finding rests on multiple corroborative factors: existence of an active industry association, meetings held on the two days immediately preceding bid submission attended by several bidders, admission that common agents were appointed to monitor competitors' prices, and pervasive identical or near identical bids across 25 States (including identical bids to the last decimal and repeated odd figures). The CCI and the DG's detailed state wise analysis of bids, the pattern of awards to groups quoting identical rates, the absence of a plausible independent commercial explanation (despite variation in location, input costs and taxes), and evidence of higher supply prices compared with earlier tenders together constituted 'plus factors' that, on the civil standard (strong probability / balance of probabilities), justified inferring an agreement. Once agreement was established, the statutory presumption as to appreciable adverse effect on competition applied and was not successfully rebutted by the appellants. The Tribunal therefore confirmed the CCI's conclusion of contravention of Section 3(3)(d). [Paras 31, 35, 36, 37, 49]Confirmed the CCI's finding that the appellants breached Section 3(3)(d) by engaging in bid rigging; appeals are disposed of on this issue.Penalty under Section 27-requirement of reasoned exercise of discretion and proportionality in computing turnover based fines - relevant turnover and methodology for computation of fines - remand for reconsideration of penalties - The quantum and computation of penalties imposed by the CCI were not finally adjudicated; the penalty exercise was remanded to the CCI for fresh consideration and reasons. - HELD THAT: - The Tribunal found defect in the CCI's penalty exercise: the CCI applied a uniform rate (7%) of average turnover without adequate reasoning, without tailoring the measure to relevant turnover for the infringement, and in some cases used two or one years' turnover where three years' data were lacking. The Tribunal emphasised the need for a reasoned, proportionate exercise (taking into account aggravating and mitigating factors and, where appropriate, relevant turnover) before fixing fines under Section 27. Given the multiplicity of parties and that many appellants had not addressed penalty before the CCI, the Tribunal remanded the matter to the CCI to hear the parties afresh on penalties and decide within a specified period; meanwhile the penalties were stayed subject to the interim deposit/security directions previously issued by the Tribunal. [Paras 52, 55, 56, 58, 60]Penalties remanded to the CCI for fresh, reasoned consideration; CCI to hear parties and decide penalties within the prescribed timeframe. Penalties stayed pending that decision, subject to interim deposit/security arrangement.Final Conclusion: The Tribunal confirmed the CCI's finding of cartelisation and bid rigging (Section 3(3)(d)) against the appellants based on a confluence of plus factors and detailed bid analysis; however, the matter was remanded to the CCI for a reasoned and proportionate determination of penalties under Section 27, with the imposed penalties stayed pending that exercise.

2013 (10) TMI 1504 - COMPETITION APPELLATE TRIBUNAL , NEW DELHI Law of Competition

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Competition Tribunal Adjusts Penalties for Collusive Bidding, Criticizes CCI's Penalty Calculations.
The Tribunal upheld the finding of a breach of the Competition Act by the appellants, confirming the jurisdiction of the Competition Commission of India (CCI) over the pre-notification acts and the evidence of collusive bidding and cartel formation. It validated the investigation of tenders from other organizations and the 2011 tender, dismissing the appellants' defenses. The Tribunal criticized the CCI's penalty calculation method, emphasizing the need for proportionality and relevant turnover, and subsequently adjusted the penalties: Rs. 15.70 lakhs for Sandhya Organic Chemicals Pvt. Ltd., Rs. 6.94 crores for United Phosphorous Ltd., and Rs. 2.91 crores for Excel Crop Care Ltd. The appeals were dismissed with these modifications.

Cartel - bid rigging / collusive bidding - manipulating the process for bidding - continuous tendering process (notice to award) - prospectivity / retrospectivity of competition law - jurisdiction of Competition Commission of India and Director General under Section 26(1) - contravention of Section 3(3)(a), 3(3)(b) and 3(3)(d) - imposition of penalty - relevant turnover and proportionality - mitigating/aggravating factors in penalty assessmentBid rigging / collusive bidding - cartel - contravention of Section 3(3)(d) and Section 3(3)(a) - Whether the appellants indulged in collusive bidding and formed a cartel in contravention of Section 3(3)(d) (and Section 3(3)(a)). - HELD THAT: - On the material of consistent identical and odd-priced bids across multiple tenders (including the 8.5.2009 bid at Rs. 388/- and identical negotiated offers at Rs. 386/-), and a subsequent collective boycott of the 2011 tender, the Tribunal upheld the finding that the conduct could not be ascribed to coincidence or lawful parallelism. The pattern of repeated identical pricing, lack of satisfactory explanations (different cost structures, locations, capacities), the oddness of the quoted figure, and the collective boycott amounted to a pre-concerted design amounting to an agreement. The Tribunal therefore affirmed CCI's finding of contravention of Section 3(3)(d) (bid rigging) and also concurred that actions amounted to determining sale price and limiting supply such that Section 3(3)(a) was attracted. [Paras 15, 16, 35, 40, 41]CCI's findings that the appellants contravened Section 3(3)(d) and Section 3(3)(a) are upheld.Prospectivity / retrospectivity of competition law - manipulating the process for bidding - continuous tendering process (notice to award) - Whether the CCI had jurisdiction to enquire into bidding conduct that began before notification of Section 3, by treating the entire bidding process (including post-bid negotiations and award) as part of the offence. - HELD THAT: - The Tribunal accepted the interpretation of the explanation to Section 3(3) that 'manipulating the process for bidding' encompasses all stages from the notice inviting tenders to award, including pre-bid clarifications, opening of bids and negotiations. Because the process continued after notification (price-bid opening on 1.6.2009 and negotiated offers on 17.6.2009), the CCI possessed jurisdiction to investigate and adjudicate the matter notwithstanding that the initial bid submission occurred before notification. The Tribunal rejected the appellants' contention that the original bid date alone governed jurisdiction and that negotiations wiped out earlier conduct. [Paras 16, 18, 19, 21, 22]CCI had jurisdiction to investigate and decide the complained bid-rigging as the bidding process extended beyond the date of initial bids and included acts after notification of Section 3.Jurisdiction of Competition Commission of India and Director General under Section 26(1) - scope of DG investigation - Whether the Director General exceeded his mandate by investigating the 2011 tender or other tenders not specifically identified in the FCI's information. - HELD THAT: - The Tribunal examined the FCI's information and the CCI's broad direction under Section 26(1) and held that the complaint was not limited to a single event but alleged a general practice of cartelisation. Given the breadth of the information and the wide language of the Commission's directions, the DG was entitled to carry out a comprehensive investigation and to examine related tenders (including the 2011 tender) where evidence of a continuing pattern surfaced during inquiry. Consequently, findings based on investigation of other tenders were within jurisdiction. [Paras 25, 26, 27, 28]DG did not exceed jurisdiction; investigation and findings regarding the 2011 tender and other related tenders were validly within the scope of the Commission's direction.Imposition of penalty - relevant turnover and proportionality - mitigating/aggravating factors in penalty assessment - Whether the penalty imposed by CCI (9% of three years' average turnover) was justified in principle and quantum, and what turnover base is to be used for multi product companies. - HELD THAT: - The Tribunal acknowledged that CCI failed to give reasons for selecting 9% but affirmed that penalties must observe proportionality and consider relevant turnover and mitigating/aggravating factors. It accepted that for multi product companies the 'relevant turnover' (turnover related to the product/service affected by the contravention) is a proper consideration and that EU/OFT guidelines and comparative jurisprudence may inform but not dictate the method. Applying these principles to facts placed before it, the Tribunal recalculated penalties: for Excel Crop Care it adopted the company's submitted relevant turnover and imposed 9% on that relevant turnover; for United Phosphorus Ltd. it accepted post hearing figures for ALP turnover and imposed 9% of that relevant ALP turnover; for Sandhya Organics (a small, single product/limited capacity enterprise) the Tribunal reduced CCI's penalty to one tenth in recognition of size and proportionality. The Tribunal emphasised the need for reasoned findings by CCI when fixing penalties and that proportionality and deterrence must be balanced. [Paras 61, 62, 66, 67, 68]CCI's imposition of penalty is sustained in principle but modified: penalties recalculated on relevant turnover - Excel Crop Care and United Phosphorus Ltd. penalised at 9% of relevant ALP turnover as determined, and Sandhya Organics' penalty reduced to one tenth of CCI's figure.Final Conclusion: The Tribunal upholds CCI's findings that the appellants engaged in cartelisation and bid rigging (Sections 3(3)(d) and 3(3)(a)), rejects jurisdictional and parallel pricing only defences, confirms DG's scope of investigation, and affirms penalties in principle but remodifies quantum by applying the concept of relevant turnover and proportionality - imposing 9% on the relevant ALP turnover for the larger appellants and reducing the small manufacturer's penalty to one tenth of CCI's award.

2013 (5) TMI 993 - COMPETITION APPELLATE TRIBUNAL, NEW DELHI Law of Competition

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Conditional stay of competition penalties granted, while cease and desist directions remained in force pending fuller hearing.
Interim protection in competition proceedings was granted only against recovery of monetary penalties, where the appellants raised prima facie objections on the adjudicatory character of the process after statutory amendments, procedural irregularities, and issues concerning hearing, cross-examination, and participation of members. The Tribunal considered those objections fit for fuller examination and stayed recovery of the penalties, but only on condition that 10% of the penalties be deposited within one month to protect revenue interests. No prima facie infirmity was found in the cease and desist directions, so interim stay of those directions was refused.

Prima facie case for grant of interim stay - stay of penalties pending appeal - refusal to stay cease and desist orders - requirement of deposit as condition for stay - principles of natural justice - adjudicatory role of the Competition Commission of India - procedural irregularity not affecting meritsPrima facie case for grant of interim stay - stay of penalties pending appeal - requirement of deposit as condition for stay - Grant of interim stay of the monetary penalties imposed by the CCI - HELD THAT: - The Tribunal found a strong prima facie case warranting interim relief given the substantial nature of the penalties and the serious procedural and substantive questions raised by the appellants. The Commission had imposed very large penalties, calculated by reference to net profits and turnover, and appellants demonstrated substantial arguments on procedural fairness and on the scope of the Commission's powers. Balancing these considerations, the Tribunal held that stay of the penalty component was appropriate but conditioned the stay on a protective deposit by the appellants equal to 10% of the penalties imposed, to be made within one month; non-deposit would result in dismissal of the appeal. The Tribunal explained that procedural irregularities identified were closely connected to individual merits and could not be finally decided at the interim stage, so a conditional stay was the suitable interim remedy. [Paras 36]Interim stay granted on the monetary penalties subject to deposit of 10% of the penalties within one month; failure to deposit will result in the appeal being treated as dismissed.Refusal to stay cease and desist orders - Whether the 'cease and desist' directions issued by the CCI should be stayed - HELD THAT: - The Tribunal examined the nature of the non-monetary directions and, on the material before it, found no prima facie basis to stay the cease and desist orders. Unlike the penalties, these directions did not warrant interim suspension at this stage in light of the parties' contentions and the public interest considerations implicated by cessation of injunctive-type orders. [Paras 37]Applications to stay the 'cease and desist' directions are refused.Adjudicatory role of the Competition Commission of India - principles of natural justice - procedural irregularity not affecting merits - Scope of the Commission's adjudicatory role and impact of alleged procedural irregularities (interlocutory treatment and further consideration required) - HELD THAT: - The Tribunal identified a substantial and complex question concerning the exact scope of the CCI's adjudicatory functions post-amendment and the extent to which judicial norms (including natural justice) bind the Commission. It observed that amendments to Section 22 and related provisions raised important issues that cannot be resolved at the interlocutory stage. Many procedural complaints raised by appellants are inextricably linked to the merits and individual statistical inquiries; therefore these matters require full adjudication on the merits rather than determination on the stay applications. The Tribunal accordingly did not finally decide these questions and left them for detailed consideration in the course of the appeals. [Paras 31, 32, 33, 34, 35]Substantial questions about the CCI's adjudicatory role and alleged procedural infirmities are left to be decided on the merits at the hearing of the appeals.Final Conclusion: The Tribunal granted an interim stay of the monetary penalties imposed by the CCI subject to deposit of 10% of the penalty amounts within one month and refused to stay the cease and desist directions; substantial questions regarding the CCI's adjudicatory role and procedural objections are reserved for full hearing of the appeals.

2013 (4) TMI 905 - COMPETITION APPELLATE TRIBUNAL Law of Competition

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Issues: (i) Whether non-supply of the informant's objections and supporting documents amounted to denial of natural justice; (ii) whether the participation of a member against whom bias was alleged vitiated the proceedings; (iii) whether the explosive suppliers had concertedly boycotted the electronic reverse auction and manipulated the bidding process in contravention of Section 3(3)(d) of the Competition Act, 2002; and (iv) whether the penalty imposed under Section 27 required modification.

Issue (i): Whether non-supply of the informant's objections and supporting documents amounted to denial of natural justice.

Analysis: The appellants had received notice of the DG's report and were afforded repeated opportunities to appear, file objections, and seek inspection. They chose not to participate despite notice. In those circumstances, the absence of advance supply of the informant's objections and documents did not establish prejudice or a breach of fair hearing, particularly where the regulations contemplated inspection and the parties failed to avail themselves of the opportunity.

Conclusion: The plea of violation of natural justice was rejected.

Issue (ii): Whether the participation of a member against whom bias was alleged vitiated the proceedings.

Analysis: The alleged bias was founded on earlier correspondence addressed to the member in his capacity as Coal Secretary and on a later copy-marked communication. Those facts, by themselves, did not establish a real likelihood of bias in the adjudication. The objection was not raised at the earliest opportunity before the Commission, and the materials relied on were insufficient to displace the presumption of impartiality.

Conclusion: The bias challenge was rejected.

Issue (iii): Whether the explosive suppliers had concertedly boycotted the electronic reverse auction and manipulated the bidding process in contravention of Section 3(3)(d) of the Competition Act, 2002.

Analysis: The record showed prior opposition to the reverse auction, repeated attempts to defer it, knowledge of the ceiling price through the relevant communication, logging into the auction system by the eligible suppliers, and a collective failure to submit price bids on the scheduled dates. The subsequent participation in the rescheduled auction, with substantially lower prices, reinforced the inference that the earlier non-participation was not coincidental but a concerted boycott that adversely affected the bidding process.

Conclusion: The finding of contravention under Section 3(3)(d) was upheld.

Issue (iv): Whether the penalty imposed under Section 27 required modification.

Analysis: Although the contravention was sustained, the Commission had imposed penalty without adequate consideration of mitigating factors. The appellants were being proceeded against for the first time under the Act, the auction was later participated in, and supplies were not ultimately disrupted. These circumstances warranted leniency in quantum while preserving deterrence.

Conclusion: The penalty was reduced to 10% of the penalty originally imposed by the Commission.

Final Conclusion: The appeals failed on the merits of the competition-law violation, but the quantum of penalty was substantially reduced in view of mitigating circumstances.

Ratio Decidendi: A coordinated refusal by technically qualified bidders to submit bids in a reverse auction, when supported by surrounding conduct showing prior collective resistance and subsequent participation at lower prices, constitutes bid rigging and manipulation of the bidding process under Section 3(3)(d) of the Competition Act, 2002; however, penalty must reflect mitigating circumstances and proportionality.

Reverse auction bid rigging under competition law upheld, but penalty reduced for mitigating circumstances.
Non-supply of the informant's objections did not amount to denial of natural justice where notice of the DG report was given and opportunities to inspect and respond were available but not used. The allegation of bias against a member was rejected because the materials did not show a real likelihood of bias and the objection was not raised promptly. On the merits, coordinated non-participation by eligible explosive suppliers in a reverse auction, followed by later participation at lower prices, supported a finding of concerted boycott and bid manipulation under Section 3(3)(d) of the Competition Act, 2002. The penalty was reduced because mitigating factors and proportionality were not adequately considered.

Concerted action - boycott of bidding / bid rigging - manipulation of bidding process - appreciable adverse effect on competition - natural justice - service of documents and opportunity to inspect - discretion of Competition Commission upon DG report - recusal / apprehension of bias of adjudicating member - mitigating circumstances in fixation of penaltyConcerted action - boycott of bidding / bid rigging - manipulation of bidding process - Appellants contravened Section 3(3)(d) by concerted boycott of the Electronic Reverse Auction held on 4th and 5th January, 2010. - HELD THAT: - The Tribunal upheld the Commission's finding that virtually all qualified manufacturers logged into the reverse auction but refrained from submitting price bids on 4th and 5th January, 2010 (save two non-appellant firms), and that parallel silence was not attributable to coincidence. The historical opposition to short closing the 2008 running contract, the representative letter of EMWA, identical pre auction letters by several suppliers, participation in mock bids, and subsequent participation with markedly lower bids on 15th January, 2010, cumulatively supported an inference of concerted action that manipulated the bidding process. The appellants' principal defence that the ceiling price was unknown was rejected on the basis of the letter dated 08.12.2009 which communicated the revised ceiling prices and explained the price variation mechanism; other proffered excuses (draft Rules, worries about ammonium nitrate, threats in CIL's 05.01.2010 letter, earnest money payment) were found insufficient to rebut the inference of concerted boycott. The Tribunal therefore affirmed liability under Section 3(3)(d). [Paras 38, 41, 43, 47, 51]Liability for contravention of Section 3(3)(d) is upheld.Appreciable adverse effect on competition - parallel conduct versus meeting of minds - Appellants were exonerated of contraventions under Section 3(3)(a) and Section 3(3)(b). - HELD THAT: - The Tribunal noted that although identical bids occurred in historical years prior to notification of Section 3 and 4, those events pre dated the statutory provisions and could not constitute violations. The DG's findings that price fixing evidence was absent post notification and that stoppages of supply were not established as collective conduct were accepted; the Commission also found the EMWA letter of 13.10.2009 did not amount to an anti competitive agreement under Section 3(3). Accordingly, the appellants were exonerated on fixation of bid prices and collective limitation of supply. [Paras 16, 17, 31]No contravention of Section 3(3)(a) or Section 3(3)(b); appellants exonerated on those counts.Natural justice - service of documents and opportunity to inspect - Complaints of denial of natural justice for non supply of CIL's objections and documents were rejected. - HELD THAT: - The Tribunal held that appellants were given notice of the DG report and multiple hearing dates and that they largely failed to appear; the Commission had invited inspection of records and furnished the DG report before hearings. The appellants' contention that CIL should have proactively served its objections and documents in advance was held not to be mandated by the Act or Regulations; absence from the hearings and failure to seek inspection or copies when present disentitled them to a remedy for alleged non service. Reliance on precedents was distinguished on facts. [Paras 21, 22, 23, 24, 25]No breach of natural justice; complaint dismissed.Discretion of Competition Commission upon DG report - procedure under Section 26 - scope of Section 26(7) - CCI did not err in declining to order a further inquiry under Section 26(7) after receiving a DG report that found no contravention; CCI may independently form an opinion and pass final orders under Section 27. - HELD THAT: - The Tribunal explained that the DG's report is recommendatory and not binding on the Commission. Section 26(5) permits the Commission to consider the report and, if satisfied, to proceed under Section 26(6) and ultimately under Section 27; only if the Commission forms an opinion that further investigation is necessary would Section 26(7) be invoked. Regulations (General Regulations, Regulation 21) provide procedures for each eventuality. Given the DG's exoneratory report, CCI's decision to write its own finding and conclude contravention under Section 3(3)(d) without initiating a fresh DG inquiry did not amount to procedural impropriety. [Paras 10, 11, 12, 27]No procedural error in CCI's handling of DG report; no mandatory obligation to order further inquiry under Section 26(7) in these circumstances.Recusal / apprehension of bias of adjudicating member - Appellants' plea for recusal of Member H.C. Gupta on grounds of apprehended bias was rejected. - HELD THAT: - The Tribunal found the two contested letters (one of 2007 and one of 06.01.2010) insufficient to establish a real likelihood of bias. The earlier correspondence to Shri Gupta in his former capacity as Coal Secretary did not demonstrate any prejudicial conduct when he later sat as a CCI member; no objection was raised before the CCI at the earliest opportunity and the matter was not properly pursued below. Precedents cited were distinguished on facts and the belated challenge was treated as an afterthought. [Paras 28, 29]No bias; no disqualification of Member H.C. Gupta; plea rejected.Mitigating circumstances in fixation of penalty - Penalty quantum imposed by CCI was modified: appellants' aggregate penalty is reduced to 10% of the penalty originally imposed by the CCI, subject to deposit directions. - HELD THAT: - The Tribunal acknowledged the seriousness of bid boycott conduct but also considered mitigating factors: this was the first contravention under the Act established against these parties (pre Act conduct could not be used for penalty), the appellants participated in the subsequent auction of 15th January, 2010 which yielded substantial price reductions benefitting CIL, and supplies were not disrupted thereafter. Applying mitigation principles and prior Tribunal guidance that Commission must reason quantum, the Tribunal reduced the CCI's penalties so that the final liability equals 10% of the penalty originally imposed by CCI; appellants who had earlier deposited 5% as stay condition were directed to deposit an additional 5% within one month. [Paras 64, 65, 66, 68, 69]CCI penalty modified - final penalty fixed at 10% of the original amount imposed by CCI with specified deposit directions.Selection of parties / adequacy of Informant's prosecution - Allegation that CIL arbitrarily selected only ten suppliers for proceedings does not vitiate the order. - HELD THAT: - The Tribunal accepted CCI's explanation that CIL proceeded against those parties for whom it possessed material; absence of action against other suppliers with similar conduct is not a valid defence to allegations of concerted boycott by the named appellants. The appellants' remedy was to rebut the allegation that they acted with a concerted mind; the selective prosecution did not invalidate the finding on boycott. [Paras 26]Selective inclusion of parties in the information does not invalidate the adjudication; complaint rejected.Final Conclusion: Appeals dismissed on merits; the finding of contravention of Section 3(3)(d) by boycott/manipulation of the reverse auction is affirmed, exoneration on Section 3(3)(a) and 3(3)(b) is maintained, procedural and bias challenges are rejected, and the penalties imposed by CCI are substantially reduced so that appellants' final liability equals 10% of the penalty originally imposed by the Commission subject to the Tribunal's deposit directions.

2013 (2) TMI 867 - COMPETITION APPELLATE TRIBUNAL, NEW DELHI Law of Competition

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Penalties Reduced for First-Time Cartelization in India: Tribunal Lowers Fines from 5% to 3% of Turnover.
The Tribunal modified the penalties imposed by the Competition Commission of India (CCI) on the appellants for contravention of Section 3(3)(d) read with Section 3(1) of the Competition Act, 2002, by reducing the penalty from 5% to 3% of the average turnover of the last three years. This decision considered the nascent stage of competition jurisprudence in India and the fact that this was the first instance of cartelization and bid rigging by the parties. The appellants were ordered to deposit the revised penalty amounts within 90 days.

Bid rigging - Cartelisation - Complementary/cover bids - Meeting of minds - Appreciable adverse effect on competition - Inference from common typographical and bid document errors - Section 3(3)(d) read with Section 3(1) of the Competition Act, 2002 - Penalty determination under Section 27 - Turnover for penalty assessment - Consideration of aggravating and mitigating factors in fixing penaltyBid rigging - Cartelisation - Complementary/cover bids - Meeting of minds - Appreciable adverse effect on competition - Inference from common typographical and bid document errors - Section 3(3)(d) read with Section 3(1) of the Competition Act, 2002 - Contravention of Section 3(3)(d) read with Section 3(1) by the three appellants in the tender for supply and installation of MOT and MGMS at SIC, Safdarjung Hospital - HELD THAT: - The Tribunal upheld CCI's finding that the three firms had acted in concert to manipulate the bidding process. The conclusion rested on a combination of factors: large disparity between the successful bid and the losing bids; identical and unusual percentages quoted by two losing bidders for comprehensive maintenance; numerous identical typographical and other errors across the three price schedules; evidence of commercial inter linkages and transactions among the firms; and post tender conduct (including award of installation work and routing of manufacturer authorisations). The Tribunal rejected isolated inferences relied on by appellants (for example, that identical percentages alone are insufficient), holding that the combined weight of the circumstances permitted an inferential finding of a meeting of minds and that PES and MPS submitted complementary/cover bids so as to enable MDD to win. The Tribunal did, however, record that certain narrow findings of CCI (paragraphs 6.49-6.50) that MPS's bid existed solely to meet a minimum three bids norm were factually erroneous and could not be relied upon; that error did not, nevertheless, overturn the overall finding of collusion. On the facts and inferences drawn, the acts amounted to bid rigging and cartelisation in contravention of Section 3(3)(d) read with Section 3(1), causing an appreciable adverse effect on competition. [Paras 6, 17]The Tribunal affirmed that the three appellants contravened Section 3(3)(d) read with Section 3(1) of the Competition Act, 2002.Penalty determination under Section 27 - Turnover for penalty assessment - Consideration of aggravating and mitigating factors in fixing penalty - Validity and quantum of penalties imposed by CCI under Section 27 and the basis for computation - HELD THAT: - The Tribunal held that the CCI was correct in imposing penalties but erred in not recording reasons for fixing the rate at 5% of average turnover; absence of reasons rendered the exercise susceptible to arbitrariness. The Tribunal set out factors that ought to be considered in fixing penalty (single incident, first time offenders, post tender performance and timely execution) and rejected appellants' submission that turnover should be confined to sales under government tenders (finding no principled basis to split turnover between government and private supplies). Because of the lack of reasoned justification and having regard to mitigating considerations (nascent competition regime, first offence, timely completion of the project for Commonwealth Games), the Tribunal reduced the penalty rate from 5% to 3% of the average turnover of the last three years for each of the three enterprises and directed deposit within 90 days. [Paras 26, 27, 28, 29, 30]CCI's penalties were modified: penalty fixed at 3% of the average turnover of the last three years for each appellant (reduction from 5%), with payment directed within 90 days.Final Conclusion: The Tribunal upheld CCI's finding of bid rigging and cartelisation by the three firms in relation to the SIC tender (Section 3(3)(d) read with Section 3(1)) but found the CCI's penalty reasoning deficient. Applying mitigating considerations and rejecting a narrow approach to turnover, the Tribunal reduced the penalty rate from 5% to 3% of average turnover for the last three years for each appellant and directed deposit within 90 days.

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