TaxTMI 
TaxTMI 
2015 (4) TMI 21
X X X X Extracts X X X X
X X X X Extracts X X X X
....lia seeking quashing of a common order dated 06.08.2014 (hereafter the 'impugned order') passed by CCI in Ref. Case No.1/2012 whereby CCI imposed a penalty of a sum of Rs. 5000/- per day on each of the petitioners, which works out to Rs. 14,10,000/- in the case of RSI and Rs. 13,65,000/- in case of Rajkumar Dyeing. The said penalties were imposed under Section 42 of the Competition Act, 2002 (hereafter the 'Act') for failure on part of the petitioners to comply with the direction to file an undertaking to cease and desist from anti- competitive conduct in future, as ordered by CCI in its order of 06.08.2013 passed under section 27 of the Act. 3. Briefly stated, the relevant facts necessary for adressing the controvery are as under:- 3.1 The Directorate General of Supplies & Disposals (DGS&D) issued parallel Rate Contract tenders for supply of Polyster Blended Duck Ankle Boot with Rubber Sole (hereafter 'the product') for the period 01.12.2011 to 30.11.2012. Amongst others, both the petitioners also participated in the tender which was opened on 29.07.2011. 3.2 DGS&D noticed that the difference in the prices quoted by different bidders was in a very narrow range and all the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r noncompliance of its order. 4. The learned counsel appearing for the petitioners submitted that the non-filing of the undertaking within the prescribed time was neither intentional nor deliberate and there were 'reasonable causes' which CCI failed to examine and consider. Therefore, CCI had acted de hors its powers under Section 42 of the Act in passing the impugned order. It was submitted that, in the alternative, the penalty of Rs. 5,000/- per day was grossly disproportionate in facts and circumstances of the case as CCI failed to take into account various factors that were relevant for determining the quantum of penalty. It was submitted that CCI failed to take into account that the petitioners are small scale industries and had not willfully acted in defiance of CCI's order. 5. The learned counsel for RSI drew the attention of this court to the fact that RSI had been de-registered as a small scale industry with DGS&D on 21.12.2011 and had neither supplied any products under the Rate Contract in question nor could possibly participate in any other DGS&D tender on account of its de-registration. The learned counsel for Rajkumar Dyeing pointed out that Rajkumar Dyeing and ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... acted in contravention of the provisions of Section 3(1) read with Section 3(3)(b), (c) & (d) of the Act. 10. In view of the above findings, CCI imposed a penalty at the rate of 5% of the average annual turnover of the delinquent entities for the preceding three years. In addition, the entities including the petitioners were directed "to cease and desist from indulging in such anti-competitive conduct in future". CCI also directed the parties to file an undertaking by way of compliance. 11. The findings of CCI with respect to anti-competitive conduct of the petitioners, the imposition of penalty and the direction to cease and desist from anti-competitive conduct as ordered by CCI in its order of 06.08.2013 under Section 27 of the Act, are not subject matter of dispute in the present petition; an appeal has been preferred by the petitioners against the said order before COMPAT. However, the directions issued by CCI to cease and desist from anti-competitive conduct and for filing an undertaking to the said effect are relevant for the present proceedings and the relevant extract from CCI's order dated 06.08.2013 is quoted below:- "48. In view of the above discussion, the Com....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ly disputes. In that case, the appellant is justified in praying for an absolute stay of the penalty. We, therefore, order accordingly. 9. In all the matters, the Tribunal does not see any necessity of staying the 'cease & desist' order of the CCI. Thus this order shall continue." 13. It is important to note that COMPAT had stayed the deposit of 95% of the penalty in all cases and granted a complete stay in the case of RSI for the reason that all entities were small scale industries and small scale industries required encouragement to grow. COMPAT also noted the submission that the appellants were facing hardships on account of blacklisting pursuant to the orders passed by CCI. In the case of RSI, COMPAT also noted that the manufacturer had not made any supplies under the Rate Contract and had further lost its registration with DGS&D. 14. Before proceeding further, it would be apposite to consider the provisions of Section 27 of the Act which provides for the orders that can be passed by CCI after it has found contravention of Section 3 or 4 of the Act. Section 27 is quoted below:- "27. Orders by Commission after inquiry into agreements or abuse of dominant posi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....enalty. In addition, CCI also has the power to direct that the parties involved in an offending agreement/arrangement, discontinue the same and not enter into such agreement in future. The directions passed by CCI in its order of 06.08.2013, imposing penalty and directing the opposite parties (i.e. all bidders including the petitioners) to cease and desist from indulging in anticompetitive conduct in future, are clearly covered within the provisions of Section 27 of the Act; the direction to file an undertaking to cease and desist from anti-competitive conduct, was only to aid and ensure compliance of the 'cease and desist' direction as contained in paragraph 48 of the said order. It is, thus, apparent that, in substance, the order passed under Section 27 of the Act by CCI was one of imposing penalty and directing the parties to cease and desist from anti-competitive conduct in future. In this perspective,the direction to file an undertaking was not a part of the substantive measures taken by CCI. It was necessary for CCI to bear this aspect in mind while considering imposition of penalty under Section 42 of the Act. At this stage, it is necessary to refer to Section 42 of the Act ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... its prima facie opinion, the petitioner had ceased to be a DGS&D Rate Contractor. Consequently, the petitioner had neither participated in the Rate Contract nor was capable of doing so. In the circumstances, the question of the petitioner entering into any arrangement or bid rigging or indulging in anticompetitive conduct proscribed by CCI, did not arise. In W.P.(C) 5947/2014, the petitioner - Rajkumar Dyeing was blacklisted and debarred from participating in Rate Contract by the DGS&D after CCI's order of 06.08.2013 and so were other bidders. 18. In the given circumstances, it is amply clear there was neither any allegation that the petitioners had failed to comply with the 'cease and desist' order nor in fact the petitioners could have indulged in an anti-competitive conduct after CCI's order of 06.08.2013. Thus, in the present case, CCI has imposed penalty even though CCI's 'cease and desist' order was not violated and had been fully complied with. 19. Essentially, the petitioners have been faulted for not filing an undertaking, which direction - as stated earlier - was only in aid of the substantive 'cease and desist' order. The learned counsel appearing for CCI argued t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ction was reasonable, not done in unreasonable manner or capriciously or at pleasure without adequate determining principle, rational, and has been done according to reason or judgment, and certainly does not depend on the will alone." 24. In recent years, in matters relating to punitive measures, the emphasis has shifted from the wednesbury principle of unreasonableness to one of proportionality. A disproportionate punitive measure, which is not commensurate with the offence, would fall foul of Article 14 of the Constitution of India. The Supreme Court in Coimbatore District Central Coop. Bank v. Employees Assn.: (2007) 4 SCC 669 observed as under:- "Doctrine of proportionality 17. So far as the doctrine of proportionality is concerned, there is no gainsaying that the said doctrine has not only arrived in our legal system but has come to stay. With the rapid growth of administrative law and the need and necessity to control possible abuse of discretionary powers by various administrative authorities, certain principles have been evolved by courts. If an action taken by any authority is contrary to law, improper, irrational or otherwise unreasonable, a court of law can int....
X X X X Extracts X X X X
X X X X Extracts X X X X
....which was explained by Lord Diplok in Council of Civil Service Unions v Minister for Civil Service: (1984) 3 All ER 935 as"So outrageous in its defiance of logic or accepted moral standards that no sensible person who had applied his mind to the question to be decided could have arrived at it". 27. The learned counsel for CCI sought to draw the attention of this court to various provisions of the Act and contended that CCI has wide discretion and extensive powers. Undoubtedly so. But, greater the powers, larger the responsibility on the authority vested with it to exercise the same judicially and in public interest. The question involved in the present case is not one of width of CCI's power but the exercise of it. 28. The discretion vested with CCI has to be exercised in a reasonable manner and after considering the relevant factors. In Associated Provincial Picture Houses v. Wednesbury Corporation: [1948] 1 KB 223 Lord Greene, M.R had explained acting unreasonably as under:- "It is true the discretion must be exercised reasonably. Now what does that mean? Lawyers familiar with the phraseology commonly used in relation to exercise of statutory discretions often use the. w....