The legislative intent to prescribe punishments is to ensure that the provisions of the enactments are rigorously followed by the fellow citizens. The punishments are either "Reformative" or "Deterrent" in nature. An endeavour is made to show, how over the years the Competition law in India has transformed from Reformative punishments to Deterrent punishments and therefore, the compliance of the Competition law by an enterprise is the need of the hour.
The Competition law in India is in vague since June 01, 1970. At that time it was known as the Monopolise and Restrictive Trade Practices Act, 1969 (the MRTP Act) which was administered by the Monopolise and Restrictive Trade Practices Commission (the MRTP Commission). The MRTP Commission passed the final orders by directing the delinquent party(s) to refrain from the prohibited trade practices (cease) and not to indulge in such prohibited practices in future (desist) which were in the nature of Reformative punishment.1 However, certain penalties were provided in relation to various procedural offences under the MRTP Act but those were tried before the Court of Session on a compliant in writing by a Public Servant and not before the MRTP Commission. Thus, the MRTP Commission had no power for such offences except the power of passing Cease and Desist order as above.
In the pursuit of globalization, in the year 1991, India had responded by opening up its economy, removing control and resorting to liberalization so that its markets should be geared to face competition from within the country and outside. Slowly, it was found that MRTP Act was not sufficient to prevent practices having an adverse effect on competition, to promote and sustain competition in the markets, to protect the interest of the consumers and to ensure freedom of trade carried on by competitors. Therefore, the Competition Act, 2002 (the Competition Act) was enacted and notified on March 31, 2002. The substantial provisions of the Competition Act were finally enforced w.e.f. May 20, 20092 and June 01, 2011.3 However, the MRTP Act was repealed and the MRTP Commission was dissolved w.e.f. September 01, 2009.4
The Competition Commission of India (the CCI) was established to administer the Competition Act5 and vested with ample powers to investigate6 and to impose heavy penalties in the nature of deterrent punishment for the violation of the provisions of the Competition Act. Under the Competition Act deterrent punishment can be imposed (i) before completion of inquiry and (ii) after completion of inquiry. Now, an attempt is made herein below to highlight the provisions relating to deterrent punishments in the Competition Act:
I Deterrent Punishments before completion of Inquiry
The CCI or the Director General (the DG) under the Competition Act can direct any person to furnish certain information and/or documents for the purpose of investigation of violations of the provisions of the Competition Act. However, any failure to comply with such directions, without reasonable cause, attracts a penalty which may extend to rupees one lakh for each day during which such failure continues subject to a maximum of rupees one crore.7 The nature of such an offence is a continuing one and not the one which is committed for once and for all.
Further, in complying the above directions of the CCI or the DG, if any person (a) makes any statement or furnish any document which he knows or has reason to believe to be false in any material particulars; or (b) Omit any material fact knowing it to be material; or (c) Wilfully alters, supresses or destroys any document which is required to be furnished, may attract a penalty which may extend to Rs. one crore.8
Under the Act, any person who is a party to a combination is required to give Notice of such combination to the CCI, failure to which attract a penalty which may extend to one percent of total turnover or the assets whichever is higher of such a combination;9
Further, in giving a Notice of combination as above any person (a) makes a statement which is false in any material particular or knowing it to be false or (b) omits to state any material particular knowing it to be material, attracts a penalty which shall not be less than fifty lakhs but which may extend to one crore.10
II Deterrent Punishments after completion of Inquiry
After completion of the inquiry, the CCI under the Act can direct the delinquent party (a) to discontinue (cease) and not to re-enter such agreement or discontinue abuse of dominant position (desist); (b) impose penalty up to three times of the profit or ten percent of average turnover of the last preceding three financial years, whichever is higher; (c) direct the amendment/ modification of the agreement;11 (d) direct division of undertaking of such delinquent party.12
Further, in case of violation, individual officers of company responsible for the conduct of business of company are also deemed to be guilty of that violation and are liable to be proceeded against and punished accordingly;13
Additionally, affected party(s) can approach the Competition Appellate Tribunal for award of compensation,14 which can be quite large depending on the kind of violation involved.
It is seen that the CCI has come heavily on the violators of the Competition Act by imposing a penalty of more than Rupees Nine Thousand Eight Hundred Crore, during the last three financial years.15 Thus, the focus of competition laws in India has changed from the earlier "Reformative punishments" under the MRTP Act where no penalties were imposed to "Deterrent punishments" under the Competition Act where hefty penalties are being imposed.
How to avoid such hefty penalties under the Competition law is always a moot question for a law abiding enterprise. It is well said that preventive actions are always advisable as the ignorance of law is no excuse (ignorantia juris non excusat). Therefore, the Compliance of the Competition law becomes necessary as a legal obligation for every enterprise.
Competition law compliance implies a systemic and active approach to run a business in compliance with the written legal and unwritten ethical rules of competition and minimise risk of infringement of the law. When the enterprise takes certain necessary and concrete steps to ensure that knowingly or unknowingly it does not infringe the provisions of the Competition Act, it can be stated to maintain a Competition Compliance Programme (CCP). The main objectives of CCP are (i) Prevent violation of competition law; (ii) Promote a culture of compliance; and (iii) Ensure good corporate citizenship.
CCP should contains the basic principles of competition law that impacts the relationships with competitors, agents, suppliers, distributors, customers and other third parties. It also contains guidelines that are designed to help officials to distinguish between permissible business conduct and illegal anti-competitive behaviour under the Competition law.
CCP can be implemented by (i) constitution of high "Competition Compliance Committee" to drive the compliance agenda in the enterprise; (ii) putting in place a voluntary "Competition Compliance Manual"; (iii) carrying competition active risk management which includes- internal audit of procedures and documents and internal audit of commercial agreements. (iv) reviewing compliance programme periodically by Board of Directors; (v) evaluating the compliance programme regularly; (vi) training and education programme.
CCP may yield innumerable benefits such as (i) helps avoid the risk/cost associated with non-compliance; (ii) helps early detection of violation and take corrective measures; (iii) helps educate employees to confidently handle business as per "rules of game"; (iv) inculcates culture of compliance and enhances business credibility; (v) save precious time of top management; (vi) save damage to reputation and goodwill; (vii) save significant legal cost etc.
In conclusion, the Competition laws in India have seen a sea change from year 1970 to 2014 by transforming from Reformative theory of punishment to Deterrent theory of punishment and pursuant thereto imposition of hefty penalties by the CCI for the violation of the provisions of the Competition law. Therefore, in order to avoid violations of the provisions of the Competition law it is high time for the enterprises in India to consider having a compulsory "Competition Compliance Programme".
Footnotes
1 For the first time, vide Amending Act no. 30 of 1984, with effect from August 01, 1984, the MRTP Commission was empowered to award compensation as a result of prohibited trade practices carried on by any person/undertaking for any loss or damage caused to any person/consumer. In addition to this, MRTP Commission was also empowered to punish for its contempt under the provisions of the Contempt of Courts Act, 1971 vide Amending Act no. 58 of 1991 with effect from September 27, 1991.
2 Section 3- Anticompetitive Agreements of the Competition Act, 2002 and Section 4- Abuse of Dominant Position of the Competition Act, 2002
3 Section 5- Combination and Section 6- Regulations of Combinations of the Competition Act, 2002
4 Vide Notification No. S.O. 2204(E), Dated August 28, 2009, Issued by Ministry of Corporate Affairs
5 Section 7 of the Competition Act, 2002
6 Section 26 of the Competition Act, 2002
7 Section 43 of the Competition Act, 2002
8 Section 45 of the Competition Act, 2002
9 Section 43A of the Competition Act, 2002
10 Section 44 of the Competition Act, 2002
11 Section 27 of the Competition Act, 2002
12 Section 28 of the Competition Act, 2002
13 Section 48 of the Competition Act, 2002
14 Section 53N of the Competition Act, 2002
15 In FY 2011-12, Rs 858,38,05,261/-; in FY 2012-13, Rs. 7156,11,96,257/- and in FY 2013-14, Rs. 9817,18,19,911/- (approx.)
* Atul Dua, Senior Partner, Seth Dua & Associates, New Delhi, Dr. Vijay Kumar Aggarwal, Partner, Seth Dua & Associates, New Delhi
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