The Competition Commission of India (CCI) on February 2 said that Supreme Court has dismissed the special leave petition (SLP) filed by tyre companies wherein they had challenged the CCI order of August 2018 imposing penalties totaling over Rs 1,788 crore on them for indulging in cartelisation — Rs 425.53 crore on Apollo Tyres, Rs 622.09 crore on MRF Ltd, Rs 252.16 crore on CEAT Ltd, Rs 309.95 crore on JK Tyre and Rs 178.33 crore on Birla Tyres.
Besides asking them to pay up, it has also asked them to cease and desist from indulging in unfair business practices. A fine of Rs 8.4 lakh was imposed on ATMA and it was directed to disengage and disassociate itself from collecting wholesale and retail prices through the member tyre companies or otherwise. In other words, ATMA was found to be playing the handmaiden role for all these companies. Cartelisation or collusive price fixing is clearly anti-competition prohibited by section 3 of the Competition Act, 2012.
Realty major DLF had got a stay in 2018 on the Rs 630-crore penalty imposed on it by the CCI in 2011. The stay was granted by the Competition Appellate Tribunal. In a major relief to the top 11 cement companies, the Supreme Court in October 2018 stayed a penalty of Rs 6,300 crore levied by the CCI on cement companies in 2016 on charges of cartelisation. However, the apex court had directed the companies to deposit 10 per cent of the penalty. And more recently in December 2021 the National Company Law Appellate Tribunal (NCLAT) has imposed a stay on the orders passed by the CCI slapping penalties on several beer makers, including United Breweries of the order of Rs 751.8 crore.
Why is it that the massive penalties imposed by the CCI haven’t translated into revenue into the coffers of the Consolidated Fund of India? The answer seems to be arbitrariness in the penalties. The Competitions Act, 2002 (the Act) does allow the CCI to Impose a monetary penalty which doesn’t exceed 10 percent of the average turnover for the previous three financial years for anti-competitive practices. And for cartelisation, the CCI may choose to impose a stiffer penalty that is three times the profit of the concerned business or 10 percent of its turnover for each year of the continuance of the agreement whichever is higher. The penalty is imposed on the producer, seller, distributor, trader or service provider of the cartel.
Vexed with non-compliance of its penalty orders, CCI even toyed with the idea of getting the penalties collected by income tax authorities but the idea seems to have been still-born. It is for the government to ponder whether penalty for anti-competitive practices can be so egregiously arbitrary namely based on turnover and profits. If based on turnover, it smacks of additional GST and if based on profits, it smacks of additional income tax. And it makes punishment proportionate to one’s turnover or profits. It is like a mob baying for a rich person’s blood. The truth is unlike income tax, penalties and punishments must be uniform. There is no way companies can be stopped from appealing against such orders and there is no way they can be precluded either from doing so unless they cough up the entire or a part of say 50 percent of the penalty.
In addition, every company likes to redeem its name by going on appeal which in India takes years and often decades to be heard. There are trigger-happy policemen. CCI seems to revel in slapping heavy penalties just as assessing officers invariably go for high-pitched assessments so that they are not later on hauled over coals by the CAG. A pro-Revenue order begets a favorable entry in the employee’s record.
Cartelisation though as rampant as insider-trading is as difficult to prove as insider trading. The Indian track record on nailing someone on charges of insider trading is abysmal. On cartelisation, the CCI goes for the jugular of association members invariably on the basis of formal existence of industry or trade associations. Who knows, industries wiser from their face-offs with CCI might disband such formal associations and settle for a tight and secretive clique.
The government may also ponder if compounding of penalties as allowed by the market regulator SEBI should be allowed by the CCI also in the interest of quick end to the vexatious appellate process. Compounding within close doors isn’t a very transparent dispensation which is perhaps why the government has abolished the Settlement Commission mechanism under the income tax law. But given the arbitrary powers for CCI in the matter of penalty, it would be perhaps poetic justice to counter and match its downside with some indulgence of the corporates with the option to compound.
— S. Murlidharan is a CA by qualification and writes on economic issues, fiscal and commercial laws. The views expressed in the article are his own.
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(Edited by : Ajay Vaishnav)