The Competition Appellate Tribunal (‘COMPAT’) passed a landmark judgment on October 29, 2013 when it introduced the concept of ‘relevant turnover’ to Indian competition law jurisprudence. This judgment of COMPAT was pronounced in the appeal to the decision of CCI in the aluminum phosphide tablet cartelization case.

Excel Crop Care Ltd. (‘Excel Crop Care’), Sandhya Organics Private Ltd. (‘Sandhya Organics’) and United Phosphorus Ltd. (‘United Phosphorus’) (collectively, the ‘Appellants’), were found guilty of bid-rigging under Section 3(3)(d) of the Competition Act and fined INR 63.90 crore, INR 1.57 crore and INR 252.44 crore respectively by CCI.

In their appeal to COMPAT, the Appellants challenged CCI’s order on the following grounds-

i.The Director General, CCI (‘DG’) went beyond the scope of his jurisdiction by investigating tenders not mentioned in the Information Memorandum submitted to CCI;
ii. Mere identical pricing does not establish cartelization;
iii. CCI did not give any reasons while imposing the penalty; and
iv. Calculation of penalty based on the total turnover of the enterprise was incorrect.

On the first issue, COMPAT held that while DG must record his findings on each of the allegations made in the Information Memorandum as per Regulation 20(4) of CCI (General) Regulations, 2009, CCI may enlarge the scope of the investigation while passing an order under Section 26(1) of the Competition Act. COMPAT also ruled that Section 18 of the Competition Act casts a duty on CCI to eliminate practices having an appreciable adverse effect on competiton (‘Adverse Effect’) and to promote and sustain competition, which implied that CCI could expand the scope of an investigation beyond the content of the Information Memorandum.

While agreeing with the proposition that mere identical pricing did not establish a cartel, COMPAT found that the facts of the case did not support the theory. In particular, it held that while identical pricing on one or two occasions only raises a suspicion, when it is repeated constantly without any reasonable explanation, such behaviour would draw the inference of a cartel.

The critical issue in this appeal was that of penalty calculation and imposition. COMPAT criticized the approach taken by CCI in fixing the quantum of penalty for the Appellants at 9% of the average turnover for the previous three years. The adjudicatory role of CCI means it must not only give reasons while imposing penalties but must also consider all relevant factors, including the financial health of the company, and the likelihood of the company being closed down on account of the harsh penalty. The judgment reiterated the doctrine of proportionality while imposing penalties.

COMPAT upheld the quantum of penalty at 9% for United Phosphorus and Excel Crop Care, but reduced the penalty on Sandhya Organics by 90% on account of Sandhya Organics’ production capacity not being at par with the other two Appellants.

Interestingly, COMPAT accepted the contentions of United Phosphorus and Excel Crop Care that being multi-product companies, only the ‘relevant turnover’ ought to be considered while imposing the penalty, i.e. the turnover generated from the product under investigation, rather than the overall turnover of the enterprise. This is in line with the practices in several advanced competition law jurisdictions across the world.

For further information, please contact:

Zia Mody, AZB & Partners
[email protected]

Abhijit Joshi, AZB & Partners 
[email protected]

Shuva Mandal, AZB & Partners 
[email protected]

Samir Gandhi, AZB & Partners
[email protected]

Percy Billimoria, AZB & Partners 
[email protected]

Aditya Bhat, AZB & Partners 
[email protected]