2016 (5) TMI 1625 - AT - Law of Competition

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 ... Whether the Commission could, without recording a finding that All Kerala Chemists and Druggists Association, of which the appellants are the President and the Secretary respectively with effect from 11.08.2013, has contravened the provisions of the Competition Act, 2002? - HELD THAT:- In the present case, investigation into the role of the persons incharge of and responsible to Respondent No. 5 for the conduct of its affairs was initiated by the Commission at the threshold i.e. while passing order dated 29.09.2014 under Section 26(1) of the Act and Jt. DG returned a finding in paragraph 8 of his report that the appellants are equally complicit in the practices being carried on and the decisions being taken by Respondent No. 5, which were found to be contrary to the provisions of the Act. This exercise was ex facie contrary to the plain language of Section 48 of the Act. That apart, in the absence of a determination by the Commission that Respondent No. 5 had acted in contravention of Section 3, the finding recorded by the Jt. DG in paragraph 8.2.2 of his report about the alleged complicity of the appellants in the anti-competitive practices being carried on and the decisions taken by Respondent No. 5 could not have been made basis for passing an order under Section 27(b) or 27(g) and on that ground alone, the penalty imposed on Appellant No. 1 and the direction contained in the second part of paragraph 14 of the impugned order are liable to be set aside. The record produced before the Tribunal does not show that the Commission had, at any point of time, informed the appellants that it was intending to impose penalty on either of them under Clause (b) of Section 27 of the Act. Therefore, they did not get any opportunity to show that paragraph 5 of the order passed by the Commission under Section 26(1) and the conclusion recorded by the Jt. DG in paragraph 8.2.2 of his report were ultravires the provisions of the Act and also represent their cause against the proposed penalty. Thus, there is no escape from the conclusion that the penalty imposed on Appellant No. 1 is vitiated due to violation of the principles of natural justice. Whether the direction given by the Commission to Respondent No. 5 not to associate the appellants with its affairs including administration, management or governance for a period of two years is legally sustainable? - HELD THAT:- Clause (g) of Section 27, which gives power to the Commission to pass such other orders or issue such other directions as it may deem fit has to be interpreted by applying the rule of contextual interpretation and keeping in view the objects sought to be achieved by enactment of the Act, namely, to prevent practices having adverse effect on competition, to promote and sustain competition in markets, to protect interest of consumers and to ensure freedom of trade carried on by other participants in the markets in India and for matters connected therewith or incidental thereto. The powers vested in the Commission under Clauses (a), (b), (d) and (e) of Section 27 are in consonance with one of the objectives of the Act i.e. to prevent practices having adverse effect on competition - in exercise of power vested in it under Section 27(g), the Commission cannot make an order or issue a direction which would directly or indirectly impinge upon the provisions of other statutes. The election to the offices of the President and the Secretary of Respondent No. 5 and such like bodies are governed by the provisions contained in the Travancore Cochin Literary, Scientific and Charitable Societies Registration Act, 1955, rules, regulations and by-laws made thereunder. The order passed by the Tribunal dismissing the appeal filed by AKCDA (Appeal No. 17 of 2016) has no bearing on the present case because the only issue raised by the appellant in that case was whether the Commission was justified in holding it guilty of having acted in contravention of Section 3(3)(b) read with Section 3(1) of the Act and the same was answered in affirmative. The question whether the Commission could penalise the appellants by invoking Section 27(g) and that too without giving them action-oriented notice and opportunity of hearing was neither raised nor considered by the Tribunal. Therefore, dismissal of the appeal filed by AKCDA cannot be relied upon for denying relief to the appellants. Conclusion - 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. The CCI must comply with principles of natural justice and cannot exercise powers that interfere with statutory rights under other laws. The impugned order is set aside in so far as it relates to the imposition of penalty on Appellant No. 1 @ 10% of the average of his income of preceding three financial years - appeal allowed. 1. ISSUES PRESENTED and CONSIDEREDThe 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 ANALYSISIssue 1: Investigation without Prior Contravention FindingLegal 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 NoticeLegal 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 OfficialsLegal 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 HOLDINGSLegal 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.