Penalty under S. 27(b) of Competition Act only on ‘relevant turnover’ and not ‘total turnover’, Supreme Court

In a significant ruling, the Supreme Court has held that the penalty under Section 27(b) of the Competition Act will be only on the ‘relevant turnover’ of the product in question and not the ‘total turnover’..The decision was rendered by a Bench of Justices AK Sikri and NV Ramana in a batch of appeals against the decision of the Competition Appellate Tribunal (COMPAT). Justice Ramana wrote a separate concurring judgment..Senior Counsel Krishnan Venugopal appeared for the appellant while Additional Solicitor General Neeraj Kishan Kaul appeared for the CCI..By way of background, the case has its genesis in a letter by the Food Corporation of India (FCI) to the Competition Commission of India (CCI) alleging that four manufactures of Aluminium Phosphide Tablets (APT) had formed a cartel by entering into an anti-competitive agreement amongst themselves and submitted their bids for eight years by quoting identical rates in the tenders invited by the FCI for the purchase of APT..The CCI assigned the complaint to the DG for investigation. Based on the report of the DG, the CCI after hearing the parties, passed an order whereby it concluded that the four companies had entered into the anti-competitive agreement in a concerted manner thereby offending the provisions of Section 3 of the Act..As a consequence, it imposed penalty @ 9% on the average total turnover of the establishments for last three years. Appeals were filed by the companies before the COMPAT under Section 53-B of the Act. The COMPAT rejected all contentions of the companies except the contention with respect to the penalty imposed. On the issue of penalty, it ruled that penalty can be only on the relevant turnover of the establishments and not total turnover..The companies appealed against the COMPAT order holding them guilty of violation of the statute, while CCI appealed against the ruling on penalty..The Court turned down the appeals of the company and agreed with the conclusions of the CCI and COMPAT on the aspect of cartelisation. The court then proceeded to consider the question relating to the imposition of penalty..It observed that the statute is silent on this aspect..“At the outset, it may be mentioned that Section 2(y) which defines ‘turnover’ does not provide any clarity to the aforesaid issue. It only mentions that turnover includes value of goods or services. There is, thus, absence of certainty as to what precise meaning should be ascribed to the expression ‘turnover’.”.The Court then proceeded to cite a judgment of the Competition Appeal Court of South Africa in the case of Southern Pipeline Contractors Conrite Walls (Pty) Ltd. v. The Competition Commission..“Judgement in the case of Southern Pipeline Contractors Conrite Walls (Pty) Ltd. reveals that the Court therein was concerned with the provisions of Section 59 of the Competition Act, 1998 of South Africa which also provides for maximum penalty of 10% of the annual turnover. The Court held that the appropriate amount of penalty had to be determined keeping into consideration the damage caused and the profits which accrue from the cartel activity. The Appeal Court used the words ‘affected turnover’. It determined the amount of penalty on the basis of these guidelines issued by the European Union (EU) and the Office of Fair Trade (OFT).”.The court, therefore, held that in the absence of a specific provision, adopting ‘relevant turnover’ would be more in tune with the ethos of the statute..“In the absence of specific provision as to whether such turnover has to be product specific or entire turnover of the offending company, we find that adopting the criteria of ‘relevant turnover’ for the purpose of imposition of penalty will be more in tune with ethos of the Act and the legal principles which surround matters pertaining to imposition of penalties.”.Further, it held that when the agreement leading to contravention of Section 3 involves one product, there would be no justification for including other products of an enterprise for the purpose of imposing penalty..“This is also clear from the opening words of Section 27 read with Section 3 which relate to one or more specified products. It also defies common sense that though penalty would be imposed in respect of the infringing product, the ‘maximum penalty’ imposed in all cases be prescribed on the basis of ‘all the products’ and the ‘total turnover’ of the enterprise. It would be more so when total turnover of an enterprise may involve activities besides production and sale of products, like rendering of services etc. It, therefore, leads to the conclusion that the turnover has to be of the infringing products and when that is the proper yardstick, it brings home the concept of ‘relevant turnover’.”.Read the judgment below.