2025 (9) TMI 1640 - SC - Law of Competition

Commission findings and order restored; 10.06.2015 notice and DG report valid under Section 48; no second show-cause needed

Competition Commission Of India Versus Kerala Film Exhibitors Federation & Ors.

SC upheld the Commission's findings and restored its order in entirety, holding the 10.06.2015 notice and supply of the DG report constituted valid notice ... Valid service of notice - Anti-competitive practices - notice issued by the appellant to Respondent Nos. 2 and 3 constitutes sufficient notice or not - entitlement to second SCN proposing to impose the penalty u/s 27 of the Competition Act, 2002 - HELD THAT:- Under Section 48, every person who, at the time of the contravention, was in charge of, and was responsible along with the company was deemed to be guilty of the contravention and was liable to be proceeded and punished. The liability was fixed by the statute itself. The notice of 10.06.2015 was categoric in pointing out the fact that there are contraventions alleged in the DG Report and it was clear in fixing the individuals who were the key personnel in charge of the affairs of Respondent No. 1. A clear opportunity was given to file reply/objections. Respondent Nos. 2 and 3 can complain of no prejudice if on the basis of this notice, the Commission held them guilty for contravening the Act and proceeded to impose penalty under Section 27. We are fully convinced that the notice dated 10.06.2015 issued in the present case fulfils the requirement in law as it then stood. A behavioural remedy or a structural remedy is principally imposed on the enterprise. When a behavioural remedy impinges on corporate governance, corollary orders to give effect to the behavioural remedy may have to be made on individuals. Stricto senso the penalty is on the enterprise and the corollary direction is a consequential direction to give effect to the penalty imposed on the enterprise. Without such powers to impose corollary directions, behavioural remedies and structural remedies imposed on enterprises which incidentally impinge on individuals could never be given effect to. The behavioural remedy imposed on Respondent No. 1 can never be given effect to unless the corollary part of that direction, directing the Respondent No. 2 and 3 not to associate themselves with Respondent No. 1 (KFEF), is given effect to. This also reinforces the holding that the penalty of a behavioural remedy is primarily on Respondent no. 1 with incidental consequences on Respondent Nos. 2 and 3. Principle of proportionality in penalty imposition - HELD THAT:- In abuse cases proportional remedies should restore, as much as possible, the competitive situation that existed before the abuse occurred, without seeking to improve the market structure that existed prior to the abuse. Further, length of the application of remedies should be balanced inasmuch as while it should be long enough to allow intended effects to materialize and short enough to account for the dynamic nature of the markets. In Excel Crop Care Limited vs. Competition Commission of India And Another [2017 (5) TMI 542 - SUPREME COURT] this Court recognized the doctrine of proportionality in the context of Section 27 of the Act, holding that 'The doctrine of proportionality is aimed at bringing out “proportional result or proportionality stricto sensu”. It is a result-oriented test as it examines the result of the law in fact the proportionality achieves balancing between two competing interests : harm caused to the society by the infringer which gives justification for penalising the infringer on the one hand and the right of the infringer in not suffering the punishment which may be disproportionate to the seriousness of the Act.' No second notice contemplated under the statute - HELD THAT:- It will be clear that all that the Act contemplates after the receipt of a report from the DG indicating contravention is to set the procedure in motion under Section 26(8) of the Act, as it then stood, read with Section 48 of the Act, Regulation 21 and 48 of the Commission (General) Regulations, 2009. This aspect has already been dealt with. There is no mandate in the statute for the issuance of a second show cause notice setting out the proposed penalty. Report of the review committee - HELD THAT:- The Review Committee specifically deliberated on the issue but concluded that the Act as it stood provided a fair opportunity and in view of that it felt that a separate penalty hearing was not recommended. The Review Committee, no doubt, recommended that mandatorily Commission should issue penalty guidelines along with reasons in case of deviation from the guidelines. That does not detract from the fact that the Act did not contemplate a second notice at the time of imposition of penalty. With the furnishing of the DG Report and the opportunity being given to the parties which have been duly complied with in this case, a fair opportunity has been given to Respondent Nos. 2 and 3 to address on all aspects of the contravention. It should also not be forgotten that notice and the supply of DG Report is to enable the parties to answer on the contravention. It is for the Commission to maintain the principles of proportionality in the imposition of penalty as prescribed in section 27 of the Act, which may include monetary penalty and behavioural and structural remedies. Time is of essence - no notice needed of proposed penalty - HELD THAT:- The ecosystem of competition law provides for behavioural and structural remedies to be imposed depending on the facts of the case. As to what remedy will best address the mischief in the individual case and act as a deterrent not only for the violator but also generally would be for the Commission to decide. Internationally, these remedies are well accepted and our statute in Section 27 vests the power in the Commission to pass such orders as deemed necessary to check the malaise. The ecosystem of the Competition Act is sufficient notice to the violator that the regulating body has vast discretion and depending on the factual scenario can fashion an appropriate remedy - Providing a back and forth between the regulator and the person in breach to arrive at an appropriate penalty can defeat the purpose of the Act and can be a source of great abuse as the time given can be used to even present the Commission with a fait accompli, defeating the object of the Act. That will also result in enormous loss of time when time is of essence under the statute. Notice to answer the contravention, not the proposed penalty - HELD THAT:- The appellate authority/court is not curing the violation of natural justice since there is no violation of natural justice by the original authority/court but what it does is to review whether the penalty is proportionate. Being an appellate authority, its powers are co-ordinate with original authority and it can even modify the penalty. It is not bound by the constraints a judicial review court exercising powers under Article 226 may be faced with. There is no need to remit the matter to the original authority for imposition of an appropriate penalty. The appellate Tribunal can itself substitute the penalty. This itself is a salutary safeguard. The behavioural and structural remedy to be imposed should be dependent on what the facts of the case warrant, depending on the nature of the contravention. The most appropriate remedy that will prevent the recurrence is for the Commission to decide. The only requirement is that it should be proportionate and should have the objective of preventing the recurrence of the contravention. Penalty on facts - proportionate - HELD THAT:- It is undisputed that the Additional DG issued notice to Respondent No. 1, and Respondent No. 2 who was present before the Additional DG, was confronted with the evidence. In any event Respondent Nos. 2 and 3 are being roped-in and rendered liable for the contravention in view of the deeming provision in Section 48 since it is undisputed that they were, at the time when the contravention was committed, in charge of and were responsible for the affairs of Respondent No. 1. The findings of the Commission dated 08.09.2015 is restored in its entirety - appeal allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether forwarding the Director General's investigation report to identified office-bearers and calling for their replies/oral hearing (notice dated 10.06.2015) constituted a valid show-cause notice for purposes of imposing penalties under Section 27 read with Section 48 of the Competition Act, 2002. 2. Whether the statute/regulations contemplate a separate or second show-cause notice specifically proposing the quantum and nature of penalty to be imposed on individuals after a finding of contravention by the Commission. 3. The extent to which principles of natural justice require a separate penalty hearing when the Commission imposes behavioural and/or monetary remedies on individuals deemed liable under Section 48. 4. Whether the Commission may reach conclusions differing from the Director General's findings and, if so, what procedural safeguards are required when it does. 5. Whether the monetary and behavioural penalties imposed were disproportionate on the facts and contrary to the doctrine of proportionality. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Sufficiency of forwarding DG report and call for replies as show-cause (legal framework) Legal framework: Section 26 (procedure after DG report), Section 27 (orders including penalty and behavioural/structural remedies), Section 36 (natural justice), Section 48 (liability of persons in charge), and the Commission's General Regulations (Regulations 21, 22 and then-Regulation 48 governing procedure for imposition of penalty). Precedent treatment: Followed decisions holding that no notice is required at initial prima facie stage but that parties must be given opportunity after DG report (as recognized in earlier case-law cited by the Court). Interpretation and reasoning: The Court reads Sections 26 and 48 and Regulations as requiring the Commission, upon receipt of a DG report indicating contravention, to forward the report to the parties and invite replies and oral hearing; such forwarding (coupled with the opportunity to file objections and appear) satisfies the requirement of a show-cause notice for imposition of penalty on persons identified under Section 48, provided the Commission concurs with the DG's findings and does not record fresh adverse findings differing from the DG without specifying those differences. Ratio vs. Obiter: Ratio - forwarding of DG report with invitation to reply and hearing constitutes adequate show-cause for penalty when Commission adopts DG findings. Obiter - observations on consequent regulatory amendments and later Regulations are explanatory. Conclusion: The notice dated 10.06.2015 (forwarding DG report, calling for written replies, documentation and oral hearing) fulfilled the statutory/regulatory requirement for a show-cause in the circumstances where the Commission accepted the DG's findings. Issue 2 - Necessity of a second show-cause notice proposing penalty (legal framework) Legal framework: Text of Sections 26 and 27 as then in force; Regulation 48 (pre-amendment) and later legislative/regulatory amendments (noted but not applied to facts). Precedent treatment: Relied upon and aligned with prior authorities and with recommendations of the Competition Law Review Committee which did not mandate a separate penalty hearing. Interpretation and reasoning: The statutory scheme contemplates a single consolidated process where the DG's report is supplied to parties, parties get full knowledge of materials and an opportunity to be heard, and the Commission then decides both findings and sanctions. No express statutory requirement for a distinct second show-cause specifically setting out the proposed penalty existed at the relevant time; requiring such a second notice would import into the statute a two-stage procedure not provided for and would impede expeditious adjudication which the Act emphasises. Ratio vs. Obiter: Ratio - no statutory mandate for a separate/post-finding show-cause on penalty when parties have been furnished the DG report and afforded opportunity to respond and be heard; Obiter - comparative remarks on foreign regimes and Review Committee recommendations. Conclusion: A separate second show-cause notice proposing the penalty was not required under the statute/regulations as they stood at the relevant time. Issue 3 - Natural justice and adequacy of opportunity (legal framework) Legal framework: Section 36(1) (principles of natural justice), Regulation provisions on notice/hearing, general principles from administrative/service jurisprudence regarding change of adverse findings. Precedent treatment: Applied principle from Yoginath and other authorities that when the adjudicating authority proposes findings different from the inquiry officer, opportunity must be given to meet those differing findings. Interpretation and reasoning: Natural justice requires a reasonable opportunity to meet the case against a person. Where the Commission adopts the DG's adverse findings against specific individuals (as here, where DG named office-bearers and those persons were given DG report and opportunity to respond and to be heard), the requirement is satisfied. A separate opportunity is necessary only if the Commission intends to depart from the DG's findings and record fresh adverse findings; in that scenario, notice of the differing findings is required so individuals can address them. Ratio vs. Obiter: Ratio - natural justice is satisfied by furnishing the DG report and permitting replies/hearing when Commission concurs with DG; Ratio - departure from DG findings mandates specific notice of new adverse aspects; Obiter - analogies to service disciplinary procedure are illustrative. Conclusion: No breach of natural justice occurred because the individuals were identified in the DG report, received the report, were called to file replies and to appear for oral hearing, and the Commission adopted the DG's findings rather than recording fresh adverse findings without notice. Issue 4 - Commission differing from DG and procedural consequences (legal framework) Legal framework: Sections 26 and 36, Regulations governing forwarding reports and fixing meetings/hearings. Precedent treatment: Followed the reasoning that the Commission may differ with the DG; when it does, it must specify the points of divergence and provide opportunity to the affected parties to meet those new findings (citing service jurisprudence analogy). Interpretation and reasoning: The Court recognises that Commission can and sometimes must reach conclusions differing from the DG. If the Commission records conclusions different from the DG, the parties must be apprised of those differences because mere forwarding of the DG report would not inform parties of the new findings; fairness then requires targeted notice of the issues on which the Commission disagrees with the DG to enable effective response. Ratio vs. Obiter: Ratio - Commission can differ with DG; procedural duty to notify parties of points of divergence is binding; Obiter - discussion of analogous service law principles. Conclusion: Where the Commission adopts DG findings, forwarding the DG report is adequate; where the Commission proposes divergent adverse findings it must issue notice setting out those differences before imposing penalties. Issue 5 - Proportionality of penalties and appropriateness of behavioural remedies (legal framework) Legal framework: Section 27's wide remedial powers (monetary, behavioural, structural), principle of proportionality as articulated in earlier jurisprudence, Section 48 provisos and caps as they stood. Precedent treatment: Followed established doctrine that penalties must be proportionate; appellate review can reassess proportionality and modify penalties. Interpretation and reasoning: The Court applied the proportionality doctrine to evaluate the monetary and behavioural sanctions imposed. It found the monetary penalties modest (10% cap and applied amounts), that prior similar misconduct by the individuals justified deterrent measures, and that behavioural directions (disassociation for two years) were incidental and necessary to give effect to the remedy imposed on the enterprise and to protect consumer interest. The Commission's choice of remedies must bear nexus to the contravention and be proportionate; on facts the penalties met that test. Ratio vs. Obiter: Ratio - penalties and behavioural directions were proportionate to contravention on facts; Obiter - general observations on behavioural vs structural remedies and international practice. Conclusion: Monetary and behavioural penalties imposed were proportionate and sustainable on the factual matrix (including prior repeated misconduct), and appellate authority can itself modify penalties if disproportionate. Final Disposition (conclusive holdings) 1. The forwarding of the DG's report to the identified office-bearers, coupled with an express invitation to file written replies and appear for oral hearing, fulfilled the statutory/regulatory requirement of a show-cause notice insofar as penalties under Section 27 and liability under Section 48 were concerned, where the Commission adopted the DG's adverse findings. 2. The statute, as it stood at the relevant time, did not mandate a separate second show-cause notice specifically indicating the proposed penalty; requiring one would be contrary to the statutory scheme and undermine expeditious adjudication. 3. Principles of natural justice are met by disclosure of the DG report and opportunity to be heard; if the Commission intends to depart from the DG's conclusions it must give notice of the areas of divergence to the affected persons. 4. The monetary and behavioural remedies imposed were not disproportionate on the facts and were within the Commission's powers under Section 27 and Section 48; appellate fora retain power to reassess proportionality and substitute appropriate sanctions where necessary.