2025 (11) TMI 202 - HC - Law of Competition

Interest on cartel penalty cannot be levied without a valid Form I demand notice; Reg.3 and Reg.5 control.

Competition Commission of India Versus Geep Industries & Ors.

HC affirmed the Single Judge: in a cartelization penalty under s.3(3)(a) read with s.3(1) of the Competition Act, interest on the penalty cannot be levied ... Demand of interest on the penalty amount - Cartelization in the Dry Cell Batteries market in India - violation of the provisions of Section 3(3)(a) read with Section 3(1) of the Competition Act - HELD THAT:- Once it stands established that no demand notice was ever issued to the Respondents, the question of any default in payment does not arise. Regulation 5 of the 2011 Regulations, which provides for the imposition of interest “if the amount specified in the demand notice is not paid within the period specified by the Commission”, can operate only when a valid and duly served demand notice, as required under Regulation 3, exists in respect of a recoverable penalty. Regulation 5 further clarifies that “the enterprise concerned shall be liable to pay simple interest at one and one half per cent, for every month or part of a month comprised in the period commencing from the day immediately after the expiry of the period mentioned in demand notice and ending with the day on which the penalty is paid”. Thus, where a demand notice itself has not been served, the statutory precondition for invoking Regulation 5 is not fulfilled. To hold otherwise would not only violate the principle of legality but would also unjustly penalize the Respondent for no fault of its own, which would be contrary to the statutory mandate and the settled principles of law. Significantly, the CCI could not point to a single provision under the Competition Act or the 2011 Regulations that authorizes the automatic or mandatory accrual of interest merely upon the expiry of the period stipulated in the penalty order. On the contrary, Regulation 3 expressly mandates the issuance of a demand notice in Form I, and interest under Regulation 5 accrues only upon failure to make payment within the time specified in such notice. Therefore, the CCI’s assumption that interest accrues by operation of law after the penalty order’s period expires is wholly misplaced and unsupported by the statutory scheme. Under the Competition Act and the 2011 Regulations, there exists no pari materia provision that creates an equivalent or automatic liability to pay interest upon the expiry of a particular time period, without following the procedure. Pithily put, the imposition of interest on the penalty that is recoverable is contingent upon and triggered by the non-compliance with the “Demand Notice” as expressly specified in the 2011 Regulations. The principle of restitution cannot be invoked in a manner such as to give retrospective operation to the triggering event, namely the “Demand Notice” itself. There are no infirmity, legal or factual, in the Impugned Judgment dated 26.04.2024 passed by the learned Single Judge - The learned Single Judge has rightly held that in the absence of a valid demand notice under Regulation 3, the levy of interest by the CCI is without jurisdiction and contrary to the mandatory procedural scheme of the 2011 Regulations. Accordingly, the Impugned Judgment merits affirmation - appeal dismissed. ISSUES PRESENTED AND CONSIDERED 1. Whether issuance and service of a demand notice in Form I under the Competition Commission of India (Manner of Recovery of Monetary Penalty) Regulations, 2011 is a mandatory, condition precedent to the accrual and levy of interest under Regulation 5. 2. Whether interest on a penalty imposed under Section 27(b) of the Competition Act accrues automatically upon expiry of the period specified in the penalty order, independent of any demand notice, or only upon failure to comply with a demand notice issued under Regulation 3. 3. Whether the principle of restitution or the effect of an appellate stay (vacation of stay) entitles the Commission to recover interest retrospectively from the date following expiry of the penalty order period despite non-issuance of a demand notice. 4. Whether reliance on precedents from taxation and other statutory contexts (including cases permitting automatic accrual of interest) is applicable to the statutory scheme under the Competition Act and the 2011 Regulations. 5. Whether imposition of interest without compliance with the procedural prescription of Regulations 3 and 5 would infringe constitutional protections (Articles 14, 19, 21, 265, 300A) by amounting to arbitrary or unsupported deprivation. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Mandatory nature of Form I demand notice as condition precedent to levy of interest Legal framework: Regulations 3 and 5 of the 2011 Regulations require issuance and service of a demand notice in Form I after expiry of the period specified in the penalty order; Regulation 3(2) grants a 30-day period from service; Regulation 5 makes interest payable 'if the amount specified in any demand notice is not paid within the period specified by the Commission.' Precedent treatment: The Court relied on authorities interpreting analogous statutory provisions in tax and revenue statutes (Mohan Wahi; Joy Varghese; Homely Industries) which treat service of demand notice as foundational to recovery proceedings and to the accrual of penal interest. Interpretation and reasoning: A plain and purposive reading shows the scheme is sequential and mandatory - demand notice must be issued and served before the 30-day window and before any default can be said to have occurred. Regulation 3(2)'s express language that time runs 'from the date of service of the demand notice' reinforces that interest under Regulation 5 is triggered only after service and lapse of the period specified therein. Ratio vs. Obiter: Ratio - issuance and service of Form I is a mandatory precondition for the accrual of interest under Regulation 5. Observations citing tax cases are applied as guiding precedent rather than determinative of Competition law. Conclusions: In the absence of a valid demand notice in Form I served under Regulation 3, there is no statutory basis to levy interest under Regulation 5. Issue 2 - Whether interest accrues automatically from expiry of penalty order period Legal framework: The 2011 Regulations prescribe a distinct post-order procedure for demand and recovery; no provision expressly creates an automatic interest liability from the date following expiry of the penalty order itself. Precedent treatment: The Court distinguished authorities where a statutory provision expressly created automatic interest (e.g., Prem Chopra under Section 38-A of the UP Excise Act) and noted J.K. Synthetics concerned a pre-existing interest liability which revived post-vacation of stay. Interpretation and reasoning: The Regulations' structure contemplates demand notice as the activating instrument; to hold interest accrues automatically from expiry of the penalty order would contravene the explicit sequential scheme and amount to judicial rewriting of the regulatory machinery. Legislative silence post-amendments (Act 9 of 2023 and 2025 Regulations substantially mirroring earlier provisions) supports the view that no automatic accrual was intended. Ratio vs. Obiter: Ratio - interest does not accrue automatically from the expiry of the period in the penalty order; accrual is contingent on a demand notice and lapse of the period specified therein. Conclusions: Interest cannot be imposed retrospectively from the date following expiry of the penalty order where no demand notice was issued and served in accordance with Regulation 3. Issue 3 - Applicability of restitution and effect of appellate stay/vacation on entitlement to interest Legal framework: Principles of restitution and restoration of status quo ante are equitable doctrines; Regulations provide specific machinery for recovery and adjustment of penalty and interest where appellate reduction occurs. Precedent treatment: The Court treated restitution as an equitable principle that cannot override explicit statutory sequences; it distinguished cases where statute created pre-existing liability (J.K. Synthetics) or where the authority was merely prevented by stay but liability had already accrued. Interpretation and reasoning: Restitution cannot engraft a retrospective triggering event (demand notice) where the statutory scheme requires issuance and service before accrual. The fact that judicial stays impeded issuance does not operate to convert inchoate statutory steps into retrospective triggers absent express statutory authorization. Ratio vs. Obiter: Ratio - equitable restitution does not supply statutory authority to impose retrospective interest contrary to the mandatory procedural sequence in the Regulations. Conclusions: Vacation of stay does not automatically entitle the Commission to recover interest from dates prior to service of a valid demand notice; restitution cannot be used to circumvent procedural preconditions. Issue 4 - Reliance on taxation and other statutory precedents Legal framework: Principles of statutory interpretation (strict construction of penal provisions; purposive interpretation; expressio unius est exclusio alterius) guide analysis across statutes but application depends on statutory text and context. Precedent treatment: The Court relied on a suite of authorities (Mohan Wahi; Joy Varghese; Steel Authority; J.K. Synthetics; Excel Crop Care and decisions on strict construction) to extract interpretive principles, distinguishing those cases where the tax statute or other acts contained express, automatic triggers for interest. Interpretation and reasoning: While analogies to taxation jurisprudence are instructive for interpretive approach, they cannot override the specific language and sequential mechanics of the 2011 Regulations. Penal or quasi-penal provisions demand strict construction favoring the charged party where ambiguity exists. Ratio vs. Obiter: Ratio - interpretive principles from taxation jurisprudence support, not displace, the conclusion that demand notice is a condition precedent; distinctions drawn from tax cases where statute expressly authorized accrual are determinative and support refusal to apply those outcomes here. Conclusions: Tax precedents do not assist the Commission where the statutory scheme under the Competition Act and Regulations prescribes a procedural trigger that was not complied with. Issue 5 - Constitutional dimension of imposing interest without procedural foundation Legal framework: Articles 14, 19, 21, 265 and 300A protect against arbitrary administrative action and require authority of law for imposition/collection of charges or deprival of property. Precedent treatment: The Court invoked constitutional safeguards as reinforcing the requirement that penal liabilities be established by clear statutory authority and procedural compliance. Interpretation and reasoning: Imposing interest absent the statutory procedural foundation would amount to deprivation without authority and risk arbitrariness and discrimination, contrary to constitutional guarantees; hence statutory prerequisites must be observed. Ratio vs. Obiter: Ratio - absence of statutory compliance for levy of interest raises constitutional infirmity; this underpins the legal conclusion that levy was unsustainable. Conclusions: Levying interest without issuance and service of demand notice is constitutionally impermissible and unsupported by law. Overall Disposition Conclusive ratio: The demand notice in Form I under Regulation 3 is a mandatory, sequential precondition to the accrual of interest under Regulation 5; in the factual matrix where no demand notice was issued and served, the imposition of interest retrospectively from 10.12.2018 was without jurisdiction and contrary to the mandatory procedural scheme and settled principles of statutory and constitutional law. The earlier judgment setting aside the interest demand is affirmed and the Commission's appeal is dismissed.