CCI has publicly stated that it is keen to examine the role of companies’ directors and key officials as part of their efforts to curb anti-competitive practices. The Competition Act empowers the CCI to proceed against any director, manager or other official of a company whose acts are found to be in contravention of the provisions of the Act. Equally, CCI has the power to impose penalty on individuals who fail to comply with its orders and even initiate proceedings for imprisonment for non-compliance of its orders or failure to pay penalty. However, being a new regulator, CCI has largely refrained from proceeding against erring company officials. CCI’s reluctance may partly stem from the ambiguity in the text of the law. In equal measure, CCI’s reluctance also reflects its relatively soft approach to enforcement. The recent public utterances by CCI clearly indicate that the gloves are off and CCI may be willing to initiate proceedings against individual office bearers as well. This article examines the different provisions under the Competition Act which empower CCI to initiate proceedings against individual employees of a company.

The ascribing of personal liability under Indian competition law is given effect to under two different provisions of the Competition Act. Section 42 states that any person who, without reasonable cause, fails to comply with any order of direction made by the CCI in exercise of its powers under the Competition Act, may be punishable with a fine which may extend to INR 100,000 for each day where such non-compliance occurs (subject to a maximum of INR 100 million). Further, if any person fails to comply with orders or directions issued, or fails to pay the fine imposed by the CCI for such non compliance, he shall be punishable with imprisonment for a term which may extend upto three years, or with penalty which may extend to INR 250 million, or with both, as the Chief Metropolitan Magistrate, Delhi, may deem fit.

The second aspect of individual liability is found in Section 48 of the Competition Act. Under Section 48, every person in charge of and responsible for the conduct of the business of the company would be deemed guilty of any contravention of the provisions of the Competition Act or any rule, regulation, order or direction issued thereunder, along with the company itself. As a consequence of this presumption of guilt, it falls on the concerned individual to discharge the burden of proving that the contravention was committed without his knowledge or that he had exercised all due diligence to prevent such contravention.

Further, in the event that a contravention is committed by a company and it is proved that such contravention took place with the consent or connivance of, or is attributable to any neglect on part of any director, manager, secretary or officer of the company, Section 48 deems such officer guilty of that contravention and liable to be proceeded against and punished accordingly. While the Competition Act does not specify the extent of punishment for such individuals, CCI is likely to impose punishments with significant deterrence value.

The provisions of the Competition Act that prescribe personal liability for contraventions are widely worded and somewhat ambiguous in terms of when and who they apply to. CCI did have occasion to consider the question of individual liability under Section 48, albeit briefly, in a few early cases. In Varca Drugs & Chemists & Others v. Chemist & Druggist Association (‘CDAG’), CDAG’s practices were themselves found restrictive and anti-competitive in the pricing and supply of pharmaceutical drugs, in violation of the cartel provisions under Section 3 of the Competition Act.¹ CCI went a step further to also hold members of the executive committee of CDAG liable for the same violation. The test used to identify these individuals was their level of involvement and decision-making capacity in relation to CDAG. This standard of review permitted CCI to extend the inquiry to those individuals that were not members, but were active in the affairs of the association. Although an actual penalty was not imposed on these individuals as part of this order, a request for their financial statements was made, upon which to base any future punitive action.

In another pharmaceutical cartel investigation, the Chemists & Druggists Association of Baroda (‘CDAB’), was held in contravention of Section 3, and was also faced with a request for personal financial records of its executive members.² This issue was temporarily suspended solely on account of a currently pending action filed before the Gujarat High Court by executive members of CDAB, which issued an interim stay on CCI’s proceedings.

To round off the trilogy is CCI’s decision in M/s Santuka Associates Pvt Ltd v. All India Organization of Chemists and Druggists³ (‘AIOCD’), where details of office bearers were specifically sought to determine the imposition of liability in conjunction with that of AIOCD. As with the members of CDAG, the issue was set aside for determination upon submission of the requested information.

In all these three cases, the CCI has for one reason or the other, stopped short of actually imposing tangible individual liability for cartel infringements by companies. However, competition authorities elsewhere have similar powers to impose sanctions on individuals for the offenses committed by companies, and have not stopped short of actually using them. In the United States (‘US’) for example, individual liability for violations of antitrust law is predicated on when the person, “knowingly participates in effecting the illegal contract, combination, or conspiracy”⁴ and can be both monetary as well as punitive in the form of imprisonment. Similarly, in the United Kingdom (‘UK’), under the UK Enterprise Act, 2003, individuals can face an unlimited fine and/or imprisonment up to 5 years in addition to a potential disqualification for up to 15 years.⁵ A notable example is the Marine Hose case, ⁶ which saw the disqualification and imprisonment of three top officials.

Regulators have also embarked on a trend of cooperation on cases of individual liability, most famously seen in the air cargo and fuel surcharge cartels, which ended in the extradition and imprisonment of company executives.

It appears that the provisions of the Competition Act, as well as the few cases in which CCI has dealt with the subject of individual liability, focus on aspects of control and responsibility. Parallels to this may be drawn from other Indian legislation like the Companies Act, 1956, which provides that an ‘officer who is in default’ must be one of the following – the managing director/s, whole-time director/s, the manager, the secretary, any person according to whose instructions the board is accustomed to act and any person who has been charged by the board with the responsibility of complying with that provision. These are all roles traditionally associated with control or responsibility. This is further reflected by the view of the Supreme Court in K.K Ahuja v V.K Vohra⁷ where the Apex Court clearly drew the link between control and personal liability by holding that a person can be made vicariously liable only if he is responsible for the conduct of the business. A director who was not in charge of the business or responsible for the conduct of the business cannot be held to be liable for the offences of the company. However, a managing director is prima facie liable for the conduct of the business of the company and can be prosecuted for offences by the company.

Being a new regulator, CCI has yet to formally articulate a comprehensive stand on the topic of personal liability, but it certainly is not unaware of the extent of its powers under Section 48. Keeping in mind the potential scope and extent of individual liability contemplated by the Competition Act, it is imperative that companies invest seriously in risk attenuation in this area. The person concerned must be able to prove that he exercised all due diligence to prevent the contravention, and a comprehensive in-house competition compliance programme is key to achieving this goal.

End Notes:

1 MRTP C-127/2009/DGIR4/28, June 11, 2012.
2 Vedant Bio Sciences v. Chemists & Druggists Association of Baroda, C-87/2009/DGIR, September 5, 2012
3 Case 20/2011, February 19, 2013.
4 US v. Wise, 370 U.S 405 (1962).
5 As per the provisions of the UK Company Directors Disqualification Act, 1986 as amended by the Enterprise Act
2003.
6 R v. Whittle, Brammar & Allison, [2008] EWCA Crim. 2560.

7 (2009) 10 SCC 48

For further information, please contact:

Zia Mody, AZB & Partners
[email protected]

Abhijit Joshi, AZB & Partners 
[email protected]s.com

Shuva Mandal, AZB & Partners 
[email protected]

Samir Gandhi, AZB & Partners
[email protected]

Percy Billimoria, AZB & Partners 
[email protected]

Aditya Bhat, AZB & Partners 
[email protected]