EXCEL CROP CARE LIMITED v. COMPETITION COMMISSION OF INDIA & Anr.

Judgment

: Interpretation which brings out inequitable or absurd results has to be eschewed - Even if two interpretation are possible, one that leans in favow; of i1?fi"inger has to be adopted, on the principle of strict interpretation that needs to be given to such statutes - Per Ramana, J.: Where interpretative exercise involves various equitable facets, literal interpretation might not be conclusive - An interpretation should sub-serve the intent and purpose of the statutory provision. Doctri nes!Princ iples: Doctrine of proportionality - Applicability of- Discussed. Doctrine of purposive inte1pretatio11 - Applicability of: Principle of 'Noscitur a sociis' - Applicability ol Dismissing the appeals, the Court HELD: Per A. K. Sikri, J.: 1.1 Though, the Competition Act is of the year 2002 and was passed by the Legislature on 13•h January, 2003, as per the provisions of Section 1(3) thereof, the Act was to come into force from the date to be notified by the Central Government in the Official Gazette. Notification was issued by the Central Government wherein 31'' March, 2003 was specified as the appointed date. However, vide this notification, some of the provisions of the Act, and not all the provisions, were enforced. Section 3 of the Act came into force on 20'" May, 2009 vide S.O. 124l(E) dated 15'h May, 2009 on which date the said notification was published in the Gazette of India as well. [Para 11 I [928-B-D I EXCEL CROP CARE LIMITED v. COMPETITION COMMISSION OF INDIA 903

1.2 It is not in dispute that against tender of 2009, all the A c B appellants had offered price of '388, even though their cost of production differed. The Competition Appellate Tribunal (COMPAT), in the impugned order has rightly held that merely because 8'11 May, 2009 was the last date for submitting the tender, that would not be the end of the matter as that is not the relevant date for the purpose of applicability of Section 3 when the tendering process continued, as the appellants had participated in the said tender process on 1'' June, 2009 when the price bids were opened and offered the negotiated price on 17'11 June, 2009. This would mean that process of bidding was still on which went well beyond the date of notifying provisions of Section 3 of the Act. The COMPAT has also rightly noted that the anti-competitive conduct of the appellants was not limited to the 2009 tender alone. It had considered tender dated November 03, 2009 floated by the U.P. State Warehousing Corporation, tender dated .luly 13, 2010 of the Central Warehousing Corporation, tender dated July D 15, 2010 of the M.P. State Warehousing Corporation, and tender dated February 14, 2011 of the Punjab State Cooperative SS & Marketing Federation and found that even against these tenders the appellants had quoted identical prices. Keeping in view the said pattern of quotation, the COMPAT rightly opined that notwithstanding any objection of the appellants premised on retrospective application of Section 3, the anti-competitive conduct of Aluminium Phosphide Tablets (APT) manufacturers, i.e. the appellants, continued right up to the year 2011, much after Section 3 of the Act had come into force. Therefore, even if 2009 tender was to be completely ignored, the provisions of the Act would nevertheless be attracted in the instant case. The provisions of Section 3 are applicable to 2009 tender as well. !Paras 14, 151 [929-E-F; 931-C-EI E F

1.3 The Act, which prohibits anti-competitive agreements, has a laudable purpose behind it. It is to ensure that there is a healthy competition in the market, as it brings about various benefits for the public at large as well as economy of the nation. In fact, the ultimate goal of competition policy (or for that matter, even the consumer policies) is to enhance consumer well-being. These policies are directed at ensuring that markets function effectively. Competition policy towards the supply side of the H G 904 SUPREME COURT REPORTS [2017] 5 S.C.R. A B c D E market aims to ensure that consumers have adequate and affordable choices. Another purpose in curbing anti-competitive agreements is to ensure 'level playing field' for all market players that helps markets to be competitive. It sets 'rules of the game' that protect the competition process itself, rather than competitors in the market. In this way, the pursuit of fair and effective competition can contribute to improvements in economic efficiency, economic growth and development of consumer welfare. Competition is beneficial for the economy. (Paras 17, 19) (932-A-C; 934-C-D)

1.4 Competition law enforcement deals with anti-competitive practices arising from the acquisition or exercise of undue market power by firms that result in consumer harm in the forms of higher prices, lower quality, limited choices and lack of innovation. Enforcement provides remedies to avoid situations that will lead to decreased competition in markets. Effective enforcement is important not only to sanction anti-competitive conduct but also to deter future anti-competitive practices. (Para 19) (935-E)

1.5 Cartels or anti-competitive agreements cause harm to consumers by fixing prices, limiting outputs or allocating markets. Effective enforcement against such practices has direct visible effects in terms of reduced prices in the market and this is also supported by various empirical studies. (Para 201 (935-F-G)

1.6 Keeping in view the afor.esaid objectives that need to be achieved, Indian Parliament enacted Competition Act, 2002. F Need to have such a law became all the more important in the wake of liberalisation and privatisation as it was found that the law prevailing at that time, namely, Monopolistic Restrictive Trade Practices Act, 1969 was not equipped adequately enough to tackle the competition aspects of the Indian economy. The law enforcement agencies, which include Competition G Commission of India (CCI) and COMPAT, have to ensure that these objectives are fulfilled by curbing anti-competitive agreements. (Para 21) 1935-G-H; 936-A-BI

1. 7 In view of the explanation to Section 3(3)(d) also May 08, 2009 cannot be the determinative date on which the bid was H EXCEL CROP CARE LIMITED v. COMPETITION COMMISSION OF INDIA 905 submitted, as 'manipulating the process of bidding' is also covered by virtue of the said explanation and this process of bidding continued even after May 20, 2009. The appellants had 'manipulated the process of bidding' on the ground that bids were submitted on May 08, 2009 collusively, which was only the beginning of the anti-competitive agreement between the parties and this continued through the opening of the price bids on June 01, 2009 and thereafter negotiations on June 17, 2009 when all the parties reduced their bids by same figure of '2 to bring their bid down to '386 per kg. from '388 per kg. From this example, he submitted that on May 08, 2009 there was a collusive bidding but with concerted negotiations on June 17, 2009, in the continued process, it was rigging of the bid that was practiced by the appellants. [Paras 29, 311 [941-G-H; 942-E-Fl

1.8 Collusive bidding/bid rigging which includes: (a) Level tendering/bidding (i.e. bidding at same price - as in the present case); (b) Cover bidding/courtesy bidding; (c) Bid rotation; (d) Bid Allocation. Even internationally, 'collusive bidding' is not understood as being different from 'bid rigging'. These two expressions have been used interchangeably. [Paras 32, 33[ [942- G-H; 943-A-Bl Competition Law by Richard Whish and David Bailey 7'h Edition, page 536; UNCTAD Competition Glossmy dated June 22, 2016; OECD Glossmy of Industrial Organisation Economics & Competition Law; OECD Guidelines for.fighting bid rigging; United States 0.ffice of the Inspector General, Investigations (Fraud Indicators Handbook)- referred to.

1.9 The Legislature had in mind that the two expressions are inter-changeably used. Sub-section (1) of Section 3 is couched in the negative terms which mandates that no enterprise or association of enterprises or person or association of persons shall enter into any agreement, when such agreement is in respect of production, supply, distribution, storage, acquisition or control of goods or provision of services and it causes or is likely to cause an appreciable adverse effect on competition within India. It can be discerned that first part relates to the parties which are prohibited from entering into such an agreement and embraces A B c D E F G H 906 SUPREME COURT REPORTS [2017) 5 S.C.R. A B c within it persons as well as enterprises thereby signifying its very wide coverage. This becomes manifest from the reading of the definition of "ente171rise" in Section 2(h) and that of 'person' in Section 2(1) of the Act. Second part relates to the subject matter of the agreement. Again it is very wide in its ambit and scope as it covers production, supply, distribution, storage, acquisition or control of goods or provision of services. Third part pertains to the effect of such an agreement, namely, 'appreciable adverse effect on competition', and if this is the effect, purpose behind this provision is not to allow that. Obvious purpose is to thwart any such agreements which are anti-competitive in nature and this salubrious provision aims at ensuring healthy competition. Sub-section (2) of Section 3 specifically makes such agreements as void. Sub-section (3) mentions certain kinds of agreements which would be treated a.s ipso facto causing appreciable adverse effect on competition. It is in this backdrop and context that 'Explanation' beneath sub-section (3), which uses the expression 'bid rigging', has to be understood and given an appropriate meaning. It could never be the intention of the Legislature to exclude 'collusive bidding' by construing the expression 'bid rigging'narrowly. No doubt, clause (d) of sub-section (3) of Section 3 uses both the expressions 'bid rigging' and 'collusive bidding', but the Explanation thereto refers to 'bid rigging' only. However, it cannot be said that the intention was to exclude 'collusive bidding'. Even if the Explanation does contain the expression 'collusive bidding' specifically, while interpreting clause (d), it can be inferred that 'collusive bidding' relates to the process of bidding as well. Keeping in mind the principle of purposive interpretation, this meaning is given to 'collusive bidding'. It is more so when the expressions 'bid rigging' and 'collusive bidding' would be overlapping, under certain circumstances. The two expressions are to be interpreted using the principle of 11oscit11r a sociis, i.e. when two or more words which are susceptible to analogous G meanings arc coupled together, the words can take colour from F E D each other. (Para 34( f944-H; 945-A-II] Leelabai Gajanan Pansare & Ors. v. Oriental insurance Company Limited & Ors. (2008) 9 SCC 720 : f 2008] 12 SCR 248; Thakorla/ D. Vadgama v. State of Gujarat (1973) 2 sec 413 : (1974] lSCR 178; M. K. H EXCEL CROP CARE LIMITED v. COMPETITION COMMISSION OF INDIA Ranganathan v. Government of Madras & Ors. [19551 2 SCR 374 - relied on. 907 A

1.10 In view of the aforesaid purpose sought to be achieved and when applied to the facts of the present case, after finding that the anti-competitive conduct of the appellants continued after coming into force of provisions of Section 3 of the Act as well, the B plea of retrospectivity pales into insignificance. In the aforesaid conspectus, principle of retroactivity would definitely apply. The CCI was well within its jurisdiction to hold an enquiry under Section 3 of the Act in respect of tender of March, 2009. [Paras 22, 26 and 341 1936-B; 939-E; 946-BI Competition Commission of India v. Steel Authority of India Limited & Anr. (2010) 10 SCC 744: [20101 11 SCR112; R. Rajagopal Reddy (Dead) by LRs. & Ors. v. Padmini Chandrasekharan (Dead) By Lrs. (1995) 2 SCC 630 : (19951 1 SCR 715; Zile Singh v. State of Haryana & Ors. (2004) 8 SCC 1 : (20041 5 Suppl. SCR 272 - relied on. Kingfisher Airlines v. Competition Commission of India (2010) 4 Comp. LJ 557 (Born) - approved.

2. It cannot be said that the 2011 tender could not be the subject matter of inquiry when it was not referred to in the communication of the Food Corporation of India (FCI) or order of the CCI. Section 26(1) is wide enough to cover the investigation by the Director General (DG). The entire purpose of such an investigation is to cover all necessary facts and evidence in order to see as to whether there are any anti-competitive practices adopted by the persons complained against. For this purpose, no doubt, the starting point of inquiry would be the allegations contained in the complaint. However, while carrying out this . investigation, if other facts also get revealed and are brought to light, revealing that the 'persons' or 'enterprises' had entered into an agreement that is prohibited by Section 3 which had appreciable adverse effect on the competition, the DG would be Well within his powers to include those as well in his report. Even when the CCI forms prima facie opinion on receipt of a complaint which is recorded in the order passed under Section 26(1) of the c D E F G H SUPREME COURT REPORTS [2017] 5 S.C.R. Act and directs the DG to conduct the investigation, at the said initial stage, it cannot foresee and predict whether any violation of the Act would be found upon investigation and what would be the nature of the violation revealed through investigation. If the investigation process is to be restricted in the manner projected by tile appellants, it would defeat the very purpose of the Act which is to prevent practices having appreciable adverse effect on the competition. [Paras 35, 361 [946-D; 948-G-H; 949-A-Cf

3.1 It was not only 2009 FCI tender in respect of which DG found the violation. Pertinently, the investigation of DG revealed that the appellants had been quoting such identical rates much prior to and even after May 20, 2009. No doubt, in relation to tenders prior to 2009, it cannot be said that there was any violation of law by the appellants. However, prior practice definitely throws light on the formation of cartelisation by the appellants, thereby making it easier to understand the events of 2009 tender. [Para 37) [949-E-GI

3.2 The trend of quoting identical price in respect of so many tenders, not only of FCI but other Government bodies as well, is sufficient to negate all explanations given by the appellants taking the pretext of coincidence or economic forces. [Para 381 [951-DI

3.3 It is not correct to say that since dominant position is enjoyed by the buyer, it leads to parallel pricing and this conscious parallelism takes place leading to quoting the same price by the suppliers. Argument of parallelism is not applicable in bid cases and it fits in the realm of market economy. There cannot be coincidence to such an extent that almost on all occasions price quoted by the three appellants is identical, not even few paisa more or less from each other. That too, when the cost structure, i.e. cost of production of this product, of the three appellants sharply varies with each other. [Paras 39, 401 [951-F; 952-A-Cf

3.4 There is a 10 years' history of quoting identical prices. There are only four suppliers of the product in the market out of which three are the appellants. Even when the cost of production is different, they have quoted identical price. Even when. the geographical location of the three suppliers is different, strange coincidence of identical pricing is found, that too repeatedly. Profit 908 A B c D E F G H EXCEL CROP CARE LIMITED v. COMPETITION COMMISSION OF INDIA 909 margins would be different, still quotations are same. To different A parties in respect of different tenders, different rates are quoted. Still whatever price is quoted in respect of one particular tender, that is identical. It would be too much of a coincidence, difficult to believe. Thus, onus was on the appellants in view of Section 3 of the Act, and that too heavy onus, to justify the above trend, but B they have failed to discharge this burden. Therefore, the ingredients of Section 3 stand satisfied and the CCI rightly held that provisions of Section 3(3)(a), 3(3)(b) and 3(3)(d) have been contravened by the appellants. [Para 40] [952-C-G[ c 3 .5 It is not in dispute that all the three appellants, as well as M/s. Agrosynth Chemicals Limited did not participate in the tender of May, 2011. These are the four manufacturers in all. According to all the appellants, their decision not to participate in the aforesaid bid was the onerous, unreasonable, arbitrary and unquestionable conditions that were put in the said tender. As these were not acceptable to them, they individually decided not D to take part in the tender, which was a valid business decision and not result of pre-concerted agreement of the appellants. From the conduct of the three appellants, it becomes manifest that reason to boycott the May 2011 tender was not the purported onerous conditions, but it was a concerted action. Otherwise, if the appellants were genuinely interested in participating in the E said tender and were aggrieved by the aforesaid conditions, they could have taken up the matter with the FCI well in time. They, therefore, could request the FCI to drop the same (in fact FCI dropped these conditions afterwards when the matter was brought to their notice). However, no such effort was made. Therefore, not making any sincere effort in this behalf by any of the appellants clearly shows that they were in hand in glove in taking a decision not to bid against this tender. This conclusion gets strengthened by the fact that these are the only four suppliers (including three appellants) in the market for this product. Reaction of not participating in the said tender by four suppliers could have been G perceived otherwise, had there been a number of manufacturers in the market and four out of them abstaining. Abstention by hundred percent (who are only four) makes the things quite obvious. Events get quite apparent when examined along with past history of quoting identical prices. Since collusion stands H F 910 SUPREME COURT REPORTS [2017] 5 S.C.R. A B proved by the conduct of the appellants in abstaining from the bidding in respect of May 2011 tender, requirement of Section 3(3)(d) of the Act read with 'explanation' thereto stands satisfied, viz., concerted action based on an agreement/arrangement between the appellants, resulted in restricting or manipulating competition or process of bidding, since the said act was collusive in nature. [Paras 45, 48 and 491 [954-E-G; 955-F-H; 956-A-EI Dyestuffs, Imperial Chemical Industries Ltd v. Commission of the European Communities (1972) ECR 619 - referred to. c

4.1 Under Section 27(b) of the Act, penalty of 10% of the turnover is prescribed as the maximum penalty with no provision for minimum penalty. CCI had chosen to impose 9% of the average turnover keeping in view the serious nature of the breach on the part of these appellants. The COMPAT has maintained the rate of penalty i.e. 9% of the three years average turnover. D However, it has not agreed with the CCI that 'turnover' mentioned in Section 27 would be 'total turnover' of the offending company. In its opinion it has to be 'relevant turnover' i.e. turnover of the product in question. [Paras 52, 531 (957-A-Cf E F G 4 .2 Insofar as the third appellant is concerned, the 'relevant turnover' and 'total tu.rnover' is the same as this company produced only APT. CCI had imposed penalty of '1.57 crores on the basis of their turnover of this product. However, in its case also, penalty is reduced on the ground that it is relatively a small enterprise. Moreover, in respect of May 2011 tender, it could not have taken part since its production capacity was only 25 MT a month. Though, the aforesaid plea was not accepted while discussing the merits of the case, the COMPAT deemed it proper to take this aspect into consideration when it came to imposition of penalty. On the aforesaid basis, COMPAT reduced the penalty to 1110"' of penalty awarded by CCI i.e. '15.70 lakhs. It, therefore, held that penalty of 9% would be limited to the product/service in question - in this case, the APT - which was the relevant product for the enquiry. The penalty, thus, stands substantially reduced in the cases of the two appellants. (Paras 53, 54] [957-C-D, F-H; 958-A] H

4.3 Section 27(b) of the Act while prescribing the penalty EXCEL CROP CARE LIMITED v. COMPETITION COMMISSION OF INDIA on the 'turnover', neither uses the prefix 'total' nor 'relevant'. In the absence of specific provision as to whether such turnover has to be product specific or entire turnover of the offending company, adopting the criteria of 'relevant turnover' for the purpose of imposition of penalty will be more in tune with ethos of the Act and the legal principles which surround matters pertaining to imposition of penalties. [Paras 73, 741 [965-E-FI

4.4 Under Section 27(b) of the Act, penalty can be imposed under two contingencies, namely, where an agreement referred to in Section 3 is anti-competitive or where an enterprise which enjoys a dominant position misuses the said dominant position thereby contravening the provisions of Section 4. In case where the violation or contravention is of Section 3 of the Act, it has to be pursuant to an 'agreement'. Such an agreement may relate to a particular product between persons or enterprises even when such persons or enterprises are having production in more than one product. There may be a situation, which is precisely in the instant case, that some of such enterprises may be multi-product companies and some may be single product in respect of which the agreement is arrived at. [Para 74[ [965-G-H; 966-A-B[

4.5 Interpretation which brings out such inequitable or absurd results has to be eschewed. The principle of strict interpretation of a penal statute would support and supplement the aforesaid conclusion. Even if two interpretations are possible, one that leans in favour of infringer has to be adopted, on the principle of strict interpretation that needs to be given to such statutes. [Para 74[ [966-C; 970-F; 971-F-GI Abhiram Singh and Others v. C.D. Commachen (Dead) by L.Rs. and Ors. AIR 2017 SC 401: [20171'1 SCR 158 - followed. 911 A B c D E F

4.6 When the agreement leading to contravention of Section 3 involves one product, there seems to be no justification G for including other products of an enterprise for the purpose of imposing penalty. This is also clear from the opening words of Section 27 read with Section 3 which relate to one or more specified products. It also defies common sense that though penalty would be imposed in respect of the infringing product, the 'maximum penalty' imposed in all cases be prescribed on the H 912 A B c D E F G H SUPREME COURT REPORTS [2017] 5 S.C.R. basis of 'all the products' and the 'total turnover' of the enterprise. It would be more so when total turnover of an enterprise may involve activities besides production and sale of products, like rendering of services etc. It, therefore, leads to the conclusion that the turnover has to be of the infringing products and when that is the proper yardstick, it brings home the concept of 'relevant turnover'. [Para 741 [971-G-H; 972-A-BJ

4. 7 Even the doctrine of 'proportionality' would suggest that the Court should lean in favour of 'relevant turnover'. No doubt the objective contained in the Act, viz., to discourage and stop anti-competitive practices has to be achieved and those who are perpetrators of such practices need to be indicted and suitably punished. It is for this reason that the Act contains penal provisions for penalising such offenders. At the same time, the penalty cannot be disproportionate and it should not lead to shocking results. That is the implication of the doctrine of proportionality which is based on equity and rationality. It is, in fact, a constitutionally protected right which can be traced to Article 14 as well as Article 21 of the Constitution. The doctrine of proportionality is aimed at bringing out 'proportional result or proportionality stricto sensu '. It is a result oriented test as it examines the result of the law in fact the proportionality achieves balancing between two competing interests: harm caused to the society by the infringer which gives justification for penalising the infringer on the one hand and the right of the infringer in not suffering the punishment which may be disproportionate to the seriousness of the Act. (Para 741 1972-C-EI

4.8 No doubt, the aim of the penal provision is also to ensure that it acts as deterrent for others. At the same time, such a position cannot be countenanced which would deviate from 'teaching a lesson' to the violators and lead to the 'death of the entity' itself. (Para 74] 1972-FI

4.9 If the criteria of total turnover of a company by including within its sweep the other products manufactured by the company, which were in no way connected with anti-competitive activity, it would bring about shocking results not comprehended in a country governed by Rule of Law. Cases at hand itself amply demonstrate that the CCI's contention, if accepted, would bring about EXCEL CROP CARE LIMITED v. COMPETITION COMMISSION OF INDIA anomalous results. (Para 741 [972-G) 913 A

4.10 The doctrine of 'purposive interpretation' may again lean in favour of 'relevant turnover' as the appropriate yardstick for imposition of penalties. There is a legislative link between the damage caused and the profits which accrue from the cartel activity. There has to be a relationship between the nature of B offence and the benefit derived therefrom and once this co-relation is kept in mind, while imposing the penalty, it is the affected turnover, i.e., 'relevant turnover' that becomes the yardstick for imposing such a penalty. In this hue, doctrine of 'purposive interpretation' as well as that of 'proportionality' overlaps. (Para 74) [973-C-El c

4.11 The purpose and objective behind the Act is to discourage and stop anti-competitive practice. Penal provision contained in Section 27 of the Act serves this purpose as it is aimed at achieving the objective of punishing the offender and acts as deterrent to others. Such a purpose can adequately be D served by taking into consideration the relevant turnover. It is in the public interest as well as in the interest of national economy that industries thrive in this country leading to maximum production. Therefore, it cannot be said that purpose of the Act is to 'finish' those industries altogether by imposing those kinds E of penalties which are beyond thefr means. It is also the purpose of the Act not to punish the violator even in respect of which there are no anti-competitive practices and the provisions of the Act are not attracted. [Para 74) [973"F-Hl

4.12 In the countries where the principle of 'total turnover' was prevalent, in some of the jurisdictions, the guidelines are also framed which ensure that the penalty does not become disproportionate, for example, in the UK, the Office of Fair Trade (OFT) has 'guidelines as to the appropriate amount of penalty'. In contrast, there are no similar guidelines issued as far as India is concerned and in the absence thereof imposition of penalty, taking into consideration total turnover, may bring about disastrous results which happened in the instant case itself with the imposition of penalty by the CCI. Thus, there is no error in the approach of the order of the COMPAT interpreting Section 27(b). [Para 74) [974-B-E) F G H 914 A B • c D E F G SUPREME COURT REPORTS [2017] 5 S.C.R.