Tribunal asks CCI to consider penalty as per wrongdoing

Observation was made by Compat while ruling on an appeal against a Commission order where it had slapped a penalty of Rs 317.91 crore on 3 entities

In a observation that can have a significant impact on future penalties by CCI, the Competition Appellate Tribunal has asked the regulator to decide quantum of fine as per "factual aspects", and not by "mechanically or blindly" applying the principles.

 

Appeals against orders passed by fair trade watchdog Competition Commission of India (CCI) are made before the Competition Appellate Tribunal (Compat).

 

The tribunal's observation assumes significance since many high profile orders, including the Commission's decision against cricket body BCCI and realty major DLF, are being challenged.

 

The observation was made by Compat while ruling on an appeal against a Commission order where it had slapped a penalty of Rs 317.91 crore on three entities for alleged anti-competitive ways.

 

In April 2012, the Commission had slapped penalties of Rs 317.91 crore on three companies for alleged cartelisation and collusive bidding in a FCI tender in 2009 and collective boycott of another FCI tender in 2011.

 

Even though the tribunal agreed with CCI ruling that these entities indulged in unfair trade practices, it reduced the quantum of penalties.

 

"Time and again we have been reiterating the necessity of the reasons while ordering the penalty. We hope that the CCI takes serious note of that factor," the tribunal said in its judgement pronounced on October 29.

 

The tribunal also observed that the authorities should "apply those principles not mechanically or blindly but after carefully considering the factual aspects".

 

Under Section 27 (b) of the Competition  Act, the Commission has the discretion to impose a penalty of up to 10% of the three-year average turn over on entities indulging in unfair trade practices.

 

A penalty of Rs 252.44 crore was imposed United Phosphorus Ltd, Rs 63.90 crore on Excel Corp Care Ltd and Rs 1.57 crore on Sandhya Organics Chemicals Pvt Ltd.

 

Ruling on their appeal, the tribunal slashed the penalty on United Phosphorus to Rs 6.94 crore while that on Excel Corp

 

 And Sandhya Organics have been reduced to Rs 2.91 crore and Rs 15.7 lakh, respectively.

 

"While arriving at a conclusion about the relevant turn over it would be open to the authorities like CCI to rely on the general principles expressed in those guidelines regarding the method of calculation etc," the order said. 

 

The tribunal observed that the authorities should apply those principles not mechanically or blindly but after carefully considering the factual aspects.

 

Such factual aspects, according to the tribunal, could include the company's financial health, necessity of the product, the likelihood of the firm being closed down on account of unreasonable harsh penalty.

 

Besides, general reputation and other factors such as first time breaches and attitude of the company could also be taken into account before deciding on the penalty, it added.

 

The ruling said: "This list is certainly not exhaustive and the authority can and should consider all the relevant factors while considering the relevant turn over as also considering the extent of penalty on that basis.

 

"Generally the award of penalty should be in proportion to the wrong done. While considering the wrong done, of course the authority would be justified in taking into consideration all the aspects including mitigating and aggravating circumstances."