3 April, 2020
Introduction
The Competition Commission of India (‘CCI’) can impose significant monetary penalties on individuals for contravention of the provisions of the Competition Act, 2002 (‘Act’) under Section 48 of the Act[1]. CCI presumes responsibility and penalises any person in charge of and responsible for the conduct of the company at the time of the contravention[2].
This presumption of responsibility is particularly difficult to dispel where the individual in question, who is charged with the contravention, is a director, manager, secretary or any other officer of a company. In such cases, the concerned individuals need to clearly establish that the contravention has taken place without their consent, connivance, or negligence[3]. The penalty for contraventions by individuals found to be responsible may go up to 10% of the average income of the concerned individuals, for the last three preceding financial years. The penalty imposed on such individuals is in addition to that imposed on the enterprise in question, and failure to pay the penalty amount could result in such individuals being imprisoned for up to three years, under Section 42(3) of the Act. Clearly, the Act empowers CCI to impose significant penalties on individuals found to be responsible for anti-competitive conduct, and is increasingly choosing to do so.
CCI’’s Increasing Focus on Individal Penalties
CCI’s initial ‘light touch’ approach to penalties in its early years of enforcement meant that it chose not to impose significant penalties on individuals. However, penalising the individuals of an enterprise responsible for contravention of provision of the Act appears to have become an enforcement priority recently. This emphasis on affixing individual
responsibility for anticompetitive conduct could be attributed to three key factors:
(i) an increased awareness of the Act and its provisions amongst senior management in companies, as a result of CCI’s extensive advocacy efforts in its initial years;
(ii) an overall reduction in the quantum of penalty (and consequently the deterrent effect) that could be imposed upon an enterprise as a result of the decision in EExxcceell CCrroop CCaarree LLiimiitteed vv.. CCCCII aand oorrss..[4], which limits maximum penalty to the ‘relevant turnover’ of an enterprise; and
(iii) a perceptible inability to deter repeated anti-competitive cartel behavior amongst trade associations, through penalties, since such associations have low ‘turnovers’. CCI after a number of cartel decisions, particularly in the film exhibition and pharmaceutical distribution sectors, probably realised that merely levying a nominal penalty on the negligible turnover of an industry association was not deterring its significantly more wealthy individual members from engaging in anti-competitive behavior. To remedy this situation, CCI has been increasingly imposing penalties on individual office bearers involved in contraventions, with the first penalty on an individual being levied by CCI, only in 2014[5].
When Can an Individual be Investigated?
The imposition of penalties on individual officers of an enterprise has not gone unchallenged. To start with, individual officers have questioned CCI’s imposition of personal penalties without conducting a separate investigation into their respective roles in the contravention. The Company Law Appellate Tribunal in its early orders[6], found favour in this contention and held that a separate proceeding for examining the liability of individual company officers was required after CCI had first established a contravention against the company. The rationale for this was that Section 48(1) of the Act pre-supposes guilt against every person and the use of the word ‘committed’ in the two sub-sections, i.e., Section 48(1) and 48(2), makes the finding of contravention against the company, a necessary pre-condition to establishing individual responsibility. However, the Delhi High Court (‘DHCC’) has since held in at least two of its judgements (See, Cadila Healthcare Limited vv.. CCI[7] and Mahyco Monsanto Biotech (India) Private Limited v. CCI and ors.[8]) that an investigation into the liability of the company and the individuals can be carried out contemporaneously. The DHC’s view, does however protect an individual director’s right of defense by way of its numerous decisions, holding that:
(i) an investigation into the behavior of a company and its officers does not preclude such officers from demonstrating that they had not committed anti-competitive acts, or that they had exercised requisite due diligence;
(ii) CCI must have some basis to investigate the role of individual officers and is required to form a prima facie opinion of contravention of the Act by the company and individuals before ordering an investigation against them under Section 26(1) by the DHC[9]; and finally
(iii) CCI must have adequate evidence to conclude that such officers were indeed in-charge and/or responsible for
the conduct of the business of the concerned company to impose a penalty on them[10].
Conclusion
CCI’s approach to maintaining significant deterrence by penalising individuals responsible and involved in the contravening acts on behalf of the concerned company is in keeping with international best practices. The courts have however balanced the need for individual penalties to be effective deterrents, with requisite protections to their rights of defense.
This is evident from the proposed amendments in Competition (Amendment) Bill, 2020[11], which removes any ambiguity on how individual penalties will be computed.
The proposal stipulates that the quantum of penalty that can be levied on individuals will be limited:
(i) to a maximum cap of 10% of an individual’s average ‘income’ for the last three preceding financial years; and
(ii) specifically in cases of cartel, up to 10% of the individual’s average income for each year of the continuance of the anti-competitive agreement. Companies would do well to take note of the increased focus on penalising individuals responsible for anti-competitive conduct and consider conducting regular compliance trainings and spreading awareness about the Act, and its requirements. Such compliance exercises will go a long way in mitigating penalties for the company and limiting liability for its senior officers. It is also worth noting that individual officers can also avail penalty reductions available under The Competition Commission of India (Lesser Penalty) Regulations, 2009 (as amended) (‘Leniency Regulations’), and that companies should consider including their individuals as applicants at the time of applying for leniency[12].
For further information, please contact:
Zia Mody, Partner, AZB & Partners
zia.mody@azbpartners.com
[1] The Act is available at https://www.cci.gov.in/sites/default/files/cci_pdf/competitionact2012.pdf
(https://www.cci.gov.in/sites/default/files/cci_pdf/competitionact2012.pdf)
[2] Section 48(1) of the Act
[3] Section 48(2) of the Act
[4] Excel Crop Care Limited v. CCI and ors., 2017(6) SCALE 241.
[5] Suo Moto Case No. 2 of 2012, available at https://www.cci.gov.in/sites/default/files/022012_0.pdf
(https://www.cci.gov.in/sites/default/files/022012_0.pdf)
[6] Appeal No. 5 of 2016, order dated May 10, 2016, Appeal No. 9 of 2016, order dated May 10, 2016.
[7] Cadila Healthcare Limited v. CCI, LPA No. 690 of 2018.
[8] Mahyco Monsanto Biotech (India) Private Limited v. CCI and ors., LPA No. 637 of 2018.
[9] National Engineering Industries Limited v. CCI, W.P. (C) No. 1714 of 2020.
[10] Mahyco Monsanto Biotech (India) Private Limited v. CCI and ors., LPA No. 637 of 2018.
[11] Available at http://feedapp.mca.gov.in/pdf/Draft-Competition-Amendment-Bill-2020.pdf
(http://feedapp.mca.gov.in/pdf/Draft-Competition-Amendment-Bill-2020.pdf)
[12] Amendments to the Leniency Regulations were notified on 22 August 2017. Pre-amendment, the benefit of a lesser
penalty under the Leniency Regulations was only available to ‘enterprises’. CCI in various orders in last few years and most
recently in the Electric Power Steering Case, Suo Moto Case No. 07(01) of 2014, available at
https://www.cci.gov.in/sites/default/files/Suo-Moto-07-01-2014.pdf (https://www.cci.gov.in/sites/default/files/Suo-Moto-07-
01-2014.pdf), has granted equal reductions in penalty to the individuals, and their enterprise which filed for leniency.
