Supreme Court: While considering an appeal concerning interpretation of certain provisions of the Competition Act, 2002 (the Act), the Division Bench of Manoj Misra and K.V. Viswanathan*, JJ., stated the ecosystem of competition law provides for behavioural and structural remedies to be imposed depending on the facts of the case. As to what remedy will best address the mischief in the individual case and act as a deterrent not only for the violator but also generally would be for the CCI to decide. Internationally, these remedies are well accepted and Competition Act, 2002 in Section 27 vests the power in the CCI to pass such orders as deemed necessary to check the malaise. The ecosystem of the Competition Act is sufficient notice to the violator that the regulating body has vast discretion and depending on the factual scenario can fashion an appropriate remedy.
Background:
An information was filed by Crown Theatre (Respondent 4) before the Competition Commission of India (CCI) alleging anti-competitive activities by Kerala Film Exhibitors Federation (KFEF) and its office-bearers (Respondents 2 and 3). It was alleged that film distributors were threatened that their films would not be screened at the cinema halls belonging to members of KFEF, if those distributors offered their films for exhibition at Crown Theatre.
The Director General (DG), pursuant to the order passed by the CCI, investigated the matter and concluded that KFEF contravened Section 3(3) of the Act; it was further stated in the report that Respondents 2 and 3 played an active role in anti-competitive activities of KFEF. The CCI found that KFEF had violated Section 3(3)(b) of the Act, and Respondents 2 and 3, being the President and the General Secretary of KFEF, were found to be in charge of the affairs of KFEF, liable under Section 48. CCI had directed the Respondents to not associate with each other for a period of 2 years.
The 3 Respondents filed a common appeal before erstwhile Competition Appellate Tribunal (COMPAT) and via its impugned order upheld CCI’s findings on merits but set aside the penalty and directions only insofar as Respondent 2 and Respondent 3 were concerned on the ground that no opportunity of hearing was afforded to Respondents 2 and 3.
The present statutory appeal under Section 53 T of the Competition Act, 2002 was filed against the judgment passed by the COMPAT whereby the findings of the CCI that KFEF acted in contravention of Section 3(1) read with Section 3(3)(b) of the Act and the penalty imposed on KFEF was upheld. Via the impugned judgment, COMPAT set aside the penalty imposed on Respondents 2 and 3 and set aside CCI directions which were in the nature of behavioural remedies.
Aggrieved against that portion of the order of the COMPAT, the CCI appealed before the Supreme Court.
Court’s Assessment:
Perusing the facts of the case, the Court had to consider whether notice issued by the CCI to Respondents 2 and 3 on 10-06-2015, constituted sufficient notice and/or whether the Respondents 2 and 3 were entitled to a second show cause notice proposing to impose the penalty under Section 27 of the Act.
Surveying the relevant provisions of the Competition Act, the Court pointed out that the precursor to the Act was the Monopolies and Restrictive Trade Practices Act, 1969 (“the MRTP Act”) which had become obsolete in certain respects in the light of international economic developments and there was a felt need to shift the focus from curbing monopolies to promoting competition. Therefore, the Competition Act was enacted keeping in view the economic development of the country.
The Competition Act established the CCI which is a quasi-judicial body. The Act aimed at curbing negative aspects of competition through the medium of CCI. The CCI was to look into violations of the Act based on its own knowledge or information or complaints received, and references received by the Central Government, the State Governments or statutory authorities. The Commission was empowered to pass orders for granting interim relief or any other appropriate relief and compensation or to pass orders imposing penalties. Originally, the Act proposed an appeal to the Supreme Court directly. However, thereafter an appeal was provided by Section 53A to the COMPAT. Since 26-05-2017, the National Company Law Appellate Tribunal (“NCLAT”) was designated as the Appellate Tribunal for matters arising out of the area of the CCI.
The Court further noted that the Act empowered the CCI to impose penalties. Section 3 deals with anti-competitive agreements; Section 4 which deals with abuse of dominant position; Section 19 which speaks of inquiry into certain agreements and dominant position of enterprise; Section 26 which talks of procedure for inquiry under Section 19; Section 27 which provides for order by CCI after inquiry into agreements or abuse of dominant position; Section 28 which speaks of division of enterprise enjoying dominant position, and Section 48 which deals with contravention by companies. The Court took note of Regulation 21, 22 and 48 of the Competition Commission of India (General) Regulations, 2009, as it then stood and pointed out that with effect from 17-09-2024, the Competition Commission of India (General) Regulations, 2024 amended Regulation 22 and renumbered Regulation 48 as 49 with certain additions.
The Court further stated that prior to the amendment of Section 26 in 2023, once the Director General files the report, and the CCI does not feel the need for a further investigation/inquiry, all that is required is to issue a notice to the party by forwarding the report eliciting an answer to the contravention. In case the parties are not able to give a satisfactory answer and violation of the Act is found, penalty may be imposed under Section 48. It may happen that, in the event of the Director General not finding a contravention and the Commission on further investigation or inquiry finding contravention, mere forwarding of the report of the Director General or the supplementary report of DG will be of no avail. In that situation the notice should set out the new findings arrived at which are the aspects where the Commission has differed with the Director General. “This principle is akin to the situation prevalent in service jurisprudence about the Disciplinary Authority being obligated to serve a notice setting out the areas where such authority differs from the inquiry officer”.
The Court pointed out that in the present case, the Director General’s report was concurred with by the CCI and hence a notice in the nature of the one issued on 10-06-2015 which is traceable to Regulation 21 read with Regulation 48 and 22 and Section 26 of the Act is enough compliance with the provisions of the Act, for the purpose of imposition of a penalty under Section 27.
Delving into the notice issued on 10-6-2015, the Court pointed out that this notice was in terms of Section 26 of the Act read with Regulation 21 as it then stood. Equally, the notice also fulfilled the requirement of Section 48 of the Act read with Regulation 21 and Regulation 48 of the Commission (General) Regulations, 2009, as it then stood.
The CCI by its order of 08-09-2015, found KFEF and Respondents 2 and 3 to have indulged in anti-competitive conduct in violation of Section 3 of the Act. Thereafter, it imposed penalties on Respondent Nos. 1-3 including the monetary penalty. Apart from monetary penalty, KFEF was directed not to associate Respondents 2 and 3 with its affairs including administration, management and governance in any manner for a period of two years. Respondents 2 and 3 were also directed not to associate with KFEF.
Under Section 48, every person who, at the time of the contravention, was in charge of, and was responsible along with the company was deemed to be guilty of the contravention and was liable to be proceeded and punished. The liability was fixed by the statute itself. The notice of 10-06-2015 was categoric in pointing out the fact that there are contraventions alleged in the DG Report and it was clear in fixing the individuals who were the key personnel in charge of the affairs of KFEF. A clear opportunity was given to file reply/objections as per the provisions as it stood before Amendments in statute w.e.f. 18-05-2023 and the regulations w.e.f. 17-09-2024. “Respondents 2 and 3 can complain of no prejudice if on the basis of this notice, the Commission held them guilty for contravening the Act and proceeded to impose penalty under Section 27. We are fully convinced that the notice dated 10-06-2015 issued in the present case fulfils the requirement in law as it then stood”.
The Court further pointed out that under Section 27, the CCI apart from monetary penalty, can also direct imposition of cease-and-desist orders and other behavioural and/or structural remedies. The Court emphasised that the Act, which is intended to provide teeth to the regulator, namely, the CCI to check anti-competitive agreements and abuse of dominant position empowers the Commission, under Section 27, to pass monetary penalties as well as behavioural and structural remedies and such power is traceable to the opening clause of Section 27 read with Section 27(a) (b) (d) (e) and (g). “The idea was that the contravention be effectively brought to an end, keeping in mind the principle of proportionality”.
A behavioural remedy or a structural remedy is principally imposed on the enterprise. When a behavioural remedy impinges on corporate governance, corollary orders to give effect to the behavioural remedy may have to be made on individuals. Stricto senso the penalty is on the enterprise and the corollary direction is a consequential direction to give effect to the penalty imposed on the enterprise. Without such powers to impose corollary directions, behavioural remedies and structural remedies imposed on enterprises which incidentally impinge on individuals could never be given effect to.
The behavioural remedy imposed on KFEF can never be given effect to unless the corollary part of that direction, directing the Respondent 2 and 3 not to associate themselves with KFEF, is given effect to. This also reinforces the holding that the penalty of a behavioural remedy is primarily on KFEF with incidental consequences on Respondents 2 and 3.
The Court further clarified there is no mandate in the statute for the issuance of a second show cause notice setting out the proposed penalty. The Court further stated that it is for the CCI to maintain the principles of proportionality in the imposition of penalty as prescribed in Section 27 of the Act, which may include monetary penalty and behavioural and structural remedies. Providing a back and forth between the regulator and the person in breach to arrive at an appropriate penalty can defeat the purpose of the Act and can be a source of great abuse as the time given can be used to even present the Commission with a fait accompli, defeating the object of the Act. That will also result in enormous loss of time when time is of essence under the statute.
Perusing the penalty of 10 percent of the average income and disassociation as imposed by CCI on the Respondents, the Court did not find it to be disproportionate. The monetary penalty was meagre. The acts committed had serious and deleterious effect on the informant and the general public and unless deterrent penalties were imposed prejudice to public would have been enormous. The Court further found that Respondents 2 and 3 continued to with their anti-competitive conduct resulting in the present case being lodged. It was clear that mere monetary penalty has not acted as a deterrent on Respondents. A behavioural remedy of disassociation would have alone protected the interest of the consumers and uphold the majesty of law.
Decision:
The Court thus allowed the present appeal and set aside the impugned judgement of the COMPAT. The Court restored CCI’s findings in its entirety.
Directions to KFEF not to associate with Respondents 2 and 3 with its affairs including administration, management and governance of and the directions to Respondents 2 and 3 not to associate with KFEF in the administration, management and governance for a period of 2 years shall commence from 01-12-2025 and continue till the period of 2 years is over.
[Competition Commission of India v. Kerala Film Exhibitors Federation, 2025 SCC OnLine SC 2092, decided on 26-9-2025]
*Judgment by Justice K.V. Viswanathan
Advocates who appeared in this case:
For Appellant(s): Mr. Arjun Krishnan, AOR
For Respondent(s): Mr. Harshad V. Hameed, AOR Mr. Dileep Poolakkot, Adv. Mrs. Ashly Harshad, Adv. Mr. Mahabir Singh, Adv. Mr. Anshul Saharan, Adv.
