The Division Bench (DB) of the Delhi High Court comprising of the Chief Justice Rajendra Menon and Justice V K Rao in a recent judgement dated 18th December 2018 has reiterated its earlier decision in the Cadila case that simultaneous inquiry can be held against Monsanto and its Directors/officers for alleged violation of the Competition Act , 2002 ( the Act) . The Court has also clarified that penalties can be imposed against individuals on the basis of their income derived from the company in terms of section 27 of the Act.
The Hon'ble DB of the High Court , while dismissing a Letter Patent Appeal (LPA) preferred by Mahyco Monsanto Biotech (India) Private Ltd.( " Monsanto" ) & Anr.( Nuziveedu Seeds, Prabhat Adri Biotech, and Pravardhan Seeds) against an order dated 12th October 2018 of the Single Bench ( Justice Vibhu Bhakru) of the Delhi High Court, has reiterated that CCI can hold simultaneous inquiry under section 48 of the Act against the Managing Director and other officials of the company without first arriving at a finding of violation of anti-competitive conduct against the company. Further, the Officers / Directors can only be liable if the CCI were to come to the conclusion that they were the key persons who were In-charge and responsible for the conduct of the business of the Company.
Brief History
In 2016, the CCI vide its common prima facie order dated 9th June 2016 under section 26(1) of the Act , after finding evidence of abuse of dominant position by imposing unfair and discriminatory conditions in the sub-license agreements through which Bt. technology is sub-licensed to the seed manufacturing companies in India; charging unfair trait value; limiting scientific development relating to Bt. cotton technology as well as Bt. cotton seeds; denial of market access and leveraging its dominant position in Bt. cotton technology market for expanding their presence in Bt. cotton seeds market, directed investigation against Monsanto, Monsanto Holdings Private Limited, Maharashtra Hybrid Seeds Company, and Mahyco Monsanto Biotech for abusing its dominant position in the country's Bt. cotton seeds market. Though the investigation report was submitted by the Director General yet no final order of the CCI could be passed earlier on account of the writ petitions pending in Delhi High Court. The writ petitions filed by Monsanto Inc. and Monsanto's against the prima facie order were dismissed by the Single Bench of the High Court ( Justice Vibhu Bhakru) vide judgement dated 12th October 2018.
In the LPA filed by Monsanto against the said Judgment of the Single Bench of the Delhi High Court, the Hon'ble DB of the Delhi High Court framed the following issues for adjudication:
- Whether no notice can be issued to the Directors / Persons In-charge of the Company till the CCI returns a finding against the Company that it has indulged in anti-competitive activities under Sections 3 and 4 of the Competition Act?
- Whether Section 48 of the Competition Act, which provides for vicarious liability of persons In-charge and responsible for the conduct of business of the Company, will apply only on contravention of orders of CCI or DG under Sections 42 to 44 of the Competition Act and not to contravention of Sections 3 and 4 of the Competition Act?
The gist of the Judgment passed by the Hon'ble DB of the Delhi High Court on each of the above issues is as under:
On the first issue of whether a simultaneous proceeding against the Managing Director and other officials of Monsanto can continue , the Court has reiterated its earlier judgment in the case of Cadila , wherein the DB of the Court , relying upon the judgement of the High Court in Pran Mehra vs. Competition Commission of India and Anr1 wherein, the court observed that "there cannot be two separate proceedings in respect of the company and the key-persons, as the scheme of the Act does not contemplate such a procedure. In the course of the proceedings qua a company, it would be open to the key-persons to contend that the contravention, if any, was not committed by them, and that, they had in any event employed due diligence to prevent the contravention. These arguments can easily be advanced by key- persons without prejudice to the main issue, as to whether or not the company had contravened, in the first place, the provisions of the Act, as alleged by the Director General , in a given case." Accordingly, the Court held that, Appellant's grievance with regard to issuance of notice to its Managing Director and other officials under Section-48 of the Act is without substance.
On the second issue , in view of conclusion to issue No.1 above, and while affirming the order passed by the Single Judge Bench, DB held that Officers or Directors can be proceeded against, along with the Company, in case of an alleged violation of the Act. If the Company is found to be indulging in an anti-competitive act, a penalty can also be imposed upon the Officers/Directors in charge pursuant to Section 27 and Section 48 of the Act. On the intent of Sections 27(b) and 48, the Court held that penalty can be imposed on Officers/ Directors even if they are found to be violating Sections 3 and 4 observing that "On a perusal of Section 27 of the Act, it is clear that if there is a contravention of Section 3 or Section 4, the Commission can pass orders against an 'enterprise' and a 'person' i.e. individual, who has been proceeded against, imposing penalty. Further, relying on State of Bihar & Ors. V. Anil Kumar and Ors2 and National Insurance Co. Ltd. v. Laxmi Narain Dhut3, wherein Court observed that " A statute is an edict of the Legislature and in construing a statute, it is necessary to seek the intention of its maker. A statute has to be construed according to the intent of those who make it and the duty of the court is to act upon the true intention of the Legislature. If a statutory provision is open to more than one interpretation the Court has to choose that interpretation which represents the true intention of the Legislature". Thereby, giving a purposive interpretation to Section 27, the Court further held that the term "turnover" in Section 27(b), would thus refer to the "income" of the Director/Officer. It thus rejected Monsanto's argument that the scheme of Act does not contemplate punishment of the Directors / Officers of a company under Section 27, and that they be proceeded against only if the orders or directions of CCI are not obeyed and/or are flouted by the company under Chapter VI of the Act . The Court observed that Section 48 contemplates liability on persons-in-charge of the Company at the time of contravention of the provisions of this Act and therefore, one shall be liable for contravention of Sections 3 and 4 as well. It thus rejected Monsanto's argument that Section 48 applies only when there is a contravention of Sections 42 to 44 of the Act.
Comment
This case holds significance as the Court has affirmed the core procedural issue with regard to initiation of simultaneous proceeding both against company and its key personnel. Moreover, The Court has rejected the main contention of Monsanto that categories of orders prescribed under section 27 of the Act, including imposition of monetary penalties can be directed only against "enterprise" and not against individual Directors /officers , unless they have been found to have personally flouted any order of CCI in terms of Chapter VI of the Act dealing with Penalties .
Footnotes
1. W.P (C) 6258/2014
2. AIR 2017 SC 2716
3. (2007) 4 SCALE 36
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