Section 27 of Competition Act: SC Clarifies Powers to Impose Behavioural & Structural Remedies

Court allowed an appeal filed against a 2016 order by the Competition Appellate Tribunal (COMPAT), which had set aside the penalty imposed on P V Basheer Ahamed, President, and M C Bobby, General Secretary, of the Kerala Film Exhibitors Federation (KFEF) for anti-competitive practices. Court upheld the CCI's 2015 order in its entirety.

Furthermore, court directed both Ahamed and Bobby not to associate with the affairs of the KFEF, including its administration, management, and governance, for a period of two years.

The apex court found that the monetary penalty imposed was not disproportionate. The Commission had noted that both Ahamed and Bobby played an active role in enforcing the directives of the KFEF to control and restrict the exhibition of new movies across the State of Kerala. The penalty imposed was 10 percent of the average income, which amounted to Rs 56,397.07 for Ahamed and Rs 47,778.60 for Bobby. It was also noted that both Ahamed and Bobby had previously indulged in similar anti-competitive conduct.

The bench rejected the argument alleging a violation of Article 19(1)(c) of the Constitution. "Unethical practices can always be checked since the right under article 19(1)(c) is not absolute and reasonable restrictions can be imposed under Article 19(4)," the bench observed, noting there was no challenge to the validity of the statute itself.

The bench pointed out that under Section 48 of the Competition Act, 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, the bench stated, was fixed by the statute itself.

The Act, which is intended to provide teeth to the regulator, namely, the Commission, to check anti-competitive agreements and abuse of dominant position, empowers the Commission under Section 27 to pass monetary penalties as well as behavioural and structural remedies. This power is traceable to the opening clause of Section 27 read with Section 27(a) (b) (d) (e) and (g), the bench pointed out, adding that the idea was that the contravention be effectively brought to an end, keeping in mind the principle of proportionality.

Court also emphasised that there is no mandate in the statute for the issuance of a second show cause notice setting out the proposed penalty. The Commission's order arose from an information filed by M/s Crown Theatre, alleging anti-competitive activities by the respondents in threatening film distributors that their films would not be screened at the cinema halls belonging to members of the KFEF if they offered their films for exhibition at the informant's theatre.

"The acts committed had serious and deleterious effect on the informant and the general public and unless deterrent penalties were imposed prejudice to public would have been enormous. The penalty imposed cannot be said to be of such a nature as to shock the conscience of a judicially trained mind," the bench said.

A key question for consideration was whether the notice issued by the appellant, the Commission, to Ahamed and Bobby on June 10, 2015, constituted sufficient notice and/or whether they were entitled to a second show cause notice proposing to impose the penalty under Section 27 of the Competition Act, 2002. "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," the bench held.

The bench contrasted the current law with the previous MRTP Act, under which the Commission had limited powers to pass only cease and desist orders. Penalties were prescribed only after a cease-and-desist order was passed and subsequently violated. "There was no deterrent inasmuch as there was no penalty for the violation and only a penalty for violation of an order passed by the Commission was contemplated. This was found to be very ineffective," the court said. However, under Section 27 of the 2002 Act, the Commission can direct imposition of cease and desist orders and other behavioural and/or structural remedies, apart from monetary penalty, it pointed out.

In the present matter, court noted that the Director General’s (DG) report was concurred with by the Commission. Hence, a notice in the nature of the one issued on June 10, 2015, traceable to Regulation 21 read with Regulation 48 and 22 and Section 26 of the Act, was sufficient compliance with the provisions of the Act for the purpose of imposing a penalty under Section 27. The DG, who investigated the complaint, had concluded that KFEF contravened Section 3(3) of the Act, causing appreciable adverse effects on competition. It was also found that Ahamed and Bobby were the key persons/key decision makers who played an active role in the KFEF. Both were supplied with the report and asked to appear for an oral hearing.

"After hearing the parties and analysing the evidence, the Commission, by its order of September 08, 2015, found Respondent Nos. 1-3 to have indulged in anti-competitive conduct in violation of Section 3 of the Act," the court noted. Thereafter, the Commission imposed penalties on Respondent Nos. 1-3, including the monetary penalty, and also directed the KFEF not to associate with Ahamed and Bobby with its affairs, including administration, management and governance, in any manner for a period of two years.

Court pointed out that the behavioural remedy imposed on the KFEF could never be given effect to unless the corollary direction, mandating Ahamed and Bobby not to associate themselves with the federation, was also enforced. This 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, the bench added.

Court found that with the furnishing of the DG Report and the opportunity being given to the parties, which was duly complied with in this case, a fair opportunity had been given to Ahamed and Bobby to address on all aspects of the contravention.

Court held that the ecosystem of the Competition Act serves as sufficient notice to the violator that the regulating body has vast discretion and can fashion an appropriate remedy depending on the factual scenario. The only check, the court noted, is that the remedy should be proportionate and have nexus with the object sought to be achieved, namely, to punish the recalcitrant party and also ensure that the penalty acts as a deterrent.

"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," the bench said.

Court, therefore, directed for compliance with the Commission's directions within three months.