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India – Delhi High Court Strikes Down CCI Penalty For Alleged Non-Compliance As “Disproportionate”.

28 December, 2014

 

 

On November 19, 2014, the Delhi High Court (‘DHC’) allowed a writ petition and set aside an order of CCI imposing a penalty under Section 42 of the Competition Act (‘Impugned Order’) for
alleged non-compliance with its order under Section 27 of the Competition Act, inter alia directing
R S Industries and Rajkumar Dyeing & Printing (‘Petitioners’) to cease and desist from anticompetitive conduct in the future and also file an undertaking to that effect within a period of 30
days from the date of receipt of the order (‘Final Order’). CCI passed the Final Order on August
6, 2013 holding that the Petitioners and certain other enterprises had engaged in bid rigging in a
tender for supply of polyester blended duck ankle boot with rubber sole.

 

The Petitioners and other bidders filed appeals against CCI’s Final Order before the Competition
Appellate Tribunal (‘COMPAT’). COMPAT allowed the interim applications filed by the
appellants, and inter alia directed the appellants to deposit 5% of the penalty imposed by CCI.
However, after COMPAT’s stay order, CCI issued show cause notices under Section 42 of the Competition Act read with Regulation 48 of the Competition Commission of India (General) Regulations, 2009 (‘General Regulations’) to the Petitioners who had failed to file the undertakings to cease and desist from anti-competitive conduct within the time period prescribed by CCI in the
Final Order (by September 2013) and only filed these undertakings in June 2014, after CCI’s show
cause notice. CCI then passed the Impugned Order, imposing a penalty for non-compliance with
its Final Order.

 

DHC assailed the Impugned Order on 2 counts:

 

i. Violation of Doctrine of Proportionality: DHC held that the penalty imposed by way
of the Impugned Order was shockingly disproportionate as it has been imposed only
on account of non-filing of document in aid of compliance of a direction, viz. that of
ceasing and desisting from engaging in anti-competitive conduct, which was already
substantively complied with. DHC relied on a judgment of the Supreme Court of India3,
which had held that a disproportionate punitive measure which is not commensurate
with the offence would fall foul of Article 14 of the Constitution of India.

 

ii. Improper Exercise of Discretion: DHC examined the powers granted to CCI under
Section 42 of the Competition Act, and noted the wide discretion vested with the
regulator. DHC observed that it was necessary to exercise such wide discretion after
proper consideration of a number of factors such as nature of directions that have not
been complied with, whether they are substantive or merely formal, the effect of such
non-compliance, the intention of the parties accused of non-compliance, the benefit
derived by such parties, causes for non-compliance, etc. DHC, in its order, noted that
CCI failed to apply its mind to the below relevant considerations:

 

• CCI’s substantive direction to cease and desist from anti-competitive conduct had
not been violated;
• CCI had not considered any element of public interest warranting an imposition of
such penalty; and
• The Petitioners did not benefit from non-filing of the undertaking and hence, there
was no reason why the Petitioners’ contention that the failure to file was unintentional,
should not have been accepted.

 

On this basis, DHC struck down the Impugned Order as being “clearly without application
of mind and has been passed in wanton exercise of powers, ignoring the relevant factors and the
constitutional principles.”

 

 

AZB

 

For further information, please contact:

 

Zia Mody, AZB & Partners
zia.mody@azbpartners.com

 

Abhijit Joshi, AZB & Partners 
abhijit.joshi@azbpartners.com

Shuva Mandal, AZB & Partners 
shuva.mandal@azbpartners.com

 

Samir Gandhi, AZB & Partners
samir.gandhi@azbpartners.com

Percy Billimoria, AZB & Partners 
percy.billimoria@azbpartners.com

 

Aditya Bhat, AZB & Partners 
aditya.bhat@azbpartners.com

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