Excel Crop Care Limited V. Competition Commission of India


This case comment has been written by Kritika Goyal,

a student at Amity Law School, GGSIPU.




Supreme Court (Civil Appeal 2480/2014 dated 08.05.2017)


FACTS OF THE CASE-


Information was given to CCI by the Food Corporation of India (FCI), regarding the anti-competitive activity being committed by M/s Excel Crop Care Ltd. (ECCL), M/s United Phosphorus Ltd (UPL), & M/s Sandhya Organic Chemicals (SOC), through collusive bidding by the formation of cartel, respecting the production and supply of Aluminium Phosphide tablets (APT), in order to eliminate competition among themselves. One Agrosynth Chemicals Ltd (ACL), was also involved in some of the alleged activities but it stopped making bids after 2007 and since the concerned provision of the Competition Act came into force in 2009 only, therefore any such act before the enforcement date cannot be penalized and hence ACL is not a party to the present case.


More specifically, the complaint was that the said four companies had been submitting bids by either quoting identical rates or abstaining to make any bid, at the same time, for the last eight years. These four companies were the only manufacturers of the tablets and their customers were largely government agencies only.


Findings of the DG- By the rule of practice, there used to be two fold bids and lowest bidder would be invited to negotiate, after which evaluating committee would submit its recommendation and price of tablets to be decide accordingly. It was found that right from the year 2002, up to the year 2009, all the four parties used to quote identical rates, excepting for the year 2007.


In 2002, Rupees 245/- was the rate quoted by these four parties and in the year 2005 it was 310/- (though the tender was scrapped in that year and the material was purchased from Central Ware Housing Corporation for Rs. 290/-). In November 2005, though the tenders were invited, all the parties had abstained from quoting. In 2007, M/s. UPL had quoted the price which was much below the price of other competitors. In 2008, all the parties abstained from quoting, while in 2009 only the three appellants, barring ACL, participated and quoted uniform rate of 388/-, which was ultimately brought down to Rs. 386/- after negotiations. The Joint abstention was done again in March 2011.


COMPETITION COMMISSION OF INDIA-


CCI after perusal of the DG findings passed the order, that all the three companies had entered into an agreement or understanding, and indulged in anti-competitive activities while submitting their bids in response to the tenders issued by the FCI and thus contravened section 3 of the Act.

CCI, by holding such order, relied on the following reasoning-

a. The bidding patterns wherein identical prices were quoted by all the manufacturers, for which no satisfactory justification is culled out from their contentions.

b. Again no satisfactory justification has been given for abstentions done by all at the same time.

c. Examination of the cost structure of each company, reflected that there was nothing common among the companies in this respect, hence, quoting of identical prices by them was unnatural.

d. The contention that the identical prices were due to the reason that China had increased the prices of phosphorus during Beijing Olympics, is unconvincing since it was noted that even during the period when the Phosphorous prices had fallen, no reflection thereof was seen in the high prices quoted by the companies.

e. The reason for abstentions that there were unreasonable terms and conditions, also does not hold any logic since they could discuss the same with the FCI as there was sufficient time, but it was not done.

Hence, CCI under section 27(b), imposed penalty on all three companies, at 9% of their total average three year turnover for the contravention of section 3(3)(a), 3(3)(b) and 3(3)(d) of the Act, i.e. apart from collusive bidding, they also through cartel determined the purchase or sale price of the tablets, controlled the market for the same.


COMPETITION APPELATE TRIBUNAL-


COMPAT affirmed the CCI order, except the penalty imposed by it on total turnover and converter the same to 9% of average three years “relevant turnover” i.e. the turnover in respect of the quantum of supplies made qua the product for which cartel was formed and supplies made. Basically COMPAT intended that it had to relate to the goods in question, namely, APT and turnover of other products manufactured and sold by the establishments, which were without blemish, could not be included for calculating the penalty.


THE SUPREME COURT-


Appeal was filed by all the three companies, as aggrieved by the order of COMPAT.

Jurisdiction of CCI, to consider the activities, done before the enforcement date of the concerned provision - Court agreed with the findings of the commission, by stating that act of the appellants did result in undue acquisition and control market power, consumer harm in the forms of higher prices, lower quality, limited choices and lack of innovation. Since the provision came into force only on May 20, 2009, so said activities done before that cannot be penalized under section 3, however, such acts as continuing in nature, went ahead even after the enforcement date, can definitely be taken into consideration as circumstance, to prove the act done after such date and thereby the act so done after May 20, 2009, will be penalized, once established to have been actually done.


The entire circumstance can be established through the established fact that the appellants had submitted their bids on May 08, 2009, which was the last date for this purpose. Bids were to be submitted by 2.00 pm on that day and were to be opened at 3.00 pm on the same day. All the appellants raised identical prices at 388/-, and therefore they all were called for negotiation much beyond the enforcement date, hence acts continued after such date as well. Thus CCI was well within its jurisdiction to consider the alleged activities of the appellants, committed before enforcement date i.e. May 20, 2009.


Contravention of Section 3- Court has relied on the reasoning provided by CCI, as stated in the head of the same, that the practice of identical pricing and abstention has been carried for last 10 years, by the appellants, which is too much to be a coincidence, in light of fact that appellants were the only manufacturers of APT and all having different cost structure.

Court further held, section 3 gets attracted, since, every essential has been fulfilled-

a. The appellants are both “enterprise” and “person”, defined under section 2.

b. They are engaged in an economic activity, as they supply AP tablets.

c. Their act of collusive bid fall under the definition provided for bid-rigging in the explanation, since two terms “collusive bid” and “bid-rigging” are inclusive for each other according to legislative intent as well as latin maxim noscitur a sociis, i.e. when two or more words which are susceptible to analogous meanings are coupled together, the words can take color from each other. Thus the act fall under section 3(3)(d), and therefore appreciable adverse effect is presumed to have been caused on the competition by the doers of such act.


The appellants determined the price of sale themselves, and controlled the market by eliminating the competition among them, hence their act also fall under section 3(3)(a) and 3(3)(b).


Jurisdiction of Director General to investigate – It was held that section 26(1) is wide enough, as for the DG to carry investigation as to the fact not mentioned in the directions of the CCI.


Starting point of investigation of course would be the upon the alleged facts as directed by the CCI, notwithstanding if other circumstances are culled out of the investigation, related or ancillary to the complaint, then DG is well within its jurisdiction, to further investigate upon those facts under section 26(1).


Penalty- Section 27(b) prescribes the maximum 10% of average three year turnover, as penalty, so the question before the apex court arose that whether such 10% to be counted on “total turnover” as perceived by the CCI or on “relevant turnover” as held by the COMPAT on the basis of principle of equity.


Since, the issue is unaddressed by the Act as it uses the sole term “turnover”, and so for its proper interpretation apex court, in this regard relied on the following concepts-

a. EU guidelines – The Guidelines do not specifically use the term “relevant” with turnover, but in totality it means the same only.

b. The law of South Africa- In the case of Southern Pipeline Contractors Conrite Walls (Pty) Ltd. v. The Competition Commission, Case No. 105/CAC/Dec 10) (106/CAC/Dec 10), Court used the term “affected turnover” which lies in consonance with the doctrine of proportionality and is equivalent to “relevant turnover”. There, the Court held that the appropriate amount of penalty had to be determined keeping into consideration the damage caused and the profits which accrue from the cartel activity.

c. Principle of equivalence – A person to be penalized only for the act done and therefore in present case, the other markets in which appellants were operating and which is not relevant to the issue, should not be penalized. The relevant market was of the supply of ATP, and hence whatever turnover is derived from that particular relevant market should be only considered for the purpose of penalty.

d. Doctrine of “purposive interpretation” – Since the competition law in India, has been adopted from western countries, hence legislature should be deemed to have adopted the concept of “relevant turnover” as well, irrespective of the fact that its not specifically mentioned.



Disclaimer: This article is an original submission of the Author.

NLR does not hold any liability arising out of this article.

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