Divyank Diwan & Sakshi Sharma
INTRODUCTION
The National Company Law Appellate Tribunal (“NCLAT”) decided upon the appeals filed by United Breweries, Carlsberg India Pvt. Ltd., and others against the order of the Competition Commission of India (“CCI”) dated 24th Sep 2021. The CCI is the statutory body formed under the Competition Act, 2002 (“Act”) to regulate competition in economic activities in India for sustainable development. The said appeals were filed by the appellants for reducing the penalty imposed by CCI for their anti-competitive activities in the beer market. The NCLAT dismissed their appeals and observed that the leniency application(s) filed by United Breweries, Carlsberg India Pvt. Ltd., All India Breweries Association, and other Respondents is an admission of guilt of cartelization and hence a proof of anti-competitive arrangements amongst them.[1]
CONTEXT
The issue was stirred up by the application filed by Crown Beers India Private Limited and SABMiller under Section 46 of the Act, which provides that a cartel member may file an application to CCI for a lesser penalty after providing full, true and vital disclosure of the cartel.[2] Crown Beers India Pvt Ltd., in its application, alleged the formation of a cartel by all the appellants in relation to the production, marketing, distribution, and sale of beer in India.[3] Following this application, the CCI issued a prima facie order to Director General (“DG”) under Section 26(1) of the Act which empowers the CCI to direct the DG to investigate and submit a report on the concerned issue.[4] This order led to a detailed investigation, search, and seizure operations (“dawn raids”) by DG on the premises of the said Beer Companies. These raids provided both oral and documentary evidence to the CCI against Beer Companies on the alleged violation of the law. Meanwhile, Calsberg India Pvt. Ltd. and its CFO and Executive Director, Chief Supply Officer, and former Managing Director of All India Brewers Association filed a leniency application before the CCI under Section 46 of the Act seeking a lesser penalty.
Deciding the leniency application, a three-member Bench of the CCI in its order held United Breweries Ltd, Carlsberg India Ltd, All India Brewers Association, and other 11 individuals guilty of violating sections 3(3)(a), 3(3)(b), and 3(3)(c) of the Act by forming a cartel regarding the sale and supply of beer. The said order of CCI was being impugned before NCLAT by appellants.[5]
SUBSTANTIVE ISSUES
- Whether the CCI is authorised to conduct inquiry and pass orders under Section 26(1) of the Act on the basis of leniency application filed under Section 46 of the Act.
- Whether the non-availability of the Judicial Member on the bench provides a ground for the order to be set aside by an Appellate forum.
- Whether the parties can get a lesser penalty as a matter of right after admission of guilt under the scheme of existing legal framework.
OBSERVATION OF THE COURT
The NCLAT constituted a bench of Justice Rakesh Kumar and Ashok Kumar Mishra for deciding upon the leniency applications of appellants. The bench observed that the present case is based on the admission made by Carlsberg India Ltd. through its leniency application, which was further backed by leniency applications by other appellants. It further held that the CCI is right in considering the leniency application of Carlsberg India Ltd as a suo motu case under Section 19 of the Act and it is well within the jurisdiction of the CCI to direct investigation into this matter under Section 26(1) of the Act.[6]
They noticed that the contention of the appellants that the order impugned is liable to be set aside in the absence of a Judicial Member is untenable owing to Sections 8 and 9 of the Act.[7] Section 8 stipulates the composition of CCI while section 9 lays down a selection committee for the chairperson and members of CCI. It is evident on perusal of the scheme of sections of the Competition Act, which nowhere indicates that CCI must consist of a Judicial Member while deciding the matters.[8]
So far as the quantum of penalty is concerned, it observed that a party may claim a lesser penalty after admission of guilt and disclosure of the alleged violation of Section 3 of the Act. Once the party is given a lesser penalty, it cannot resile from its admission of guilt and the alleged violation. If the party resiles from its admission of alleged violation after a lesser penalty is granted, it may lead to severe consequences like dismissal of the lesser penalty. It further clarified that lesser penalty cannot be claimed as a matter of right on the admission of guilt and disclosure of violation. Granting of lesser penalty is the discretionary power of the CCI which is dependent on the facts and circumstances of the case concerned.[9]
In the instant case, the amount of penalty was already reduced by the CCI considering the request of the appellants through their leniency application(s). Once it was reduced, their right to appeal on merit against the order of the CCI is deemed to have been forfeited. Thus, the bench dismissed and rejected the appeals on merits in view of the written submissions filed by CCI and other parties along with facts & circumstances.[10]
ANALYSIS
The NCLAT upheld the Competition Commission of India (CCI) order imposing a penalty of Rupees 870 crore upon the beer companies — United Breweries Ltd. (UBL), Carlsberg India Pvt., and SABMiller India Ltd.—for cartelisation.
The Court has set a precedent in this case by upholding the penalties as imposed by CCI, which directed UBL and CIPL to pay Rs 751.83 crore and Rs 120.56 crore in fines. This was a strong move amidst the increasing number of cases of cartelisation such as cement cartelisation (Ambuja Cement).[11] It essentially sends out a strong message that the CCI is strictly implementing its regulations, and any violation of the same will lead to the imposition of a penalty thereby discouraging anti-competitive practices.
During an extensive investigation, the CCI found several pieces of evidence regarding coordination between UBL and AB InBev in the purchase of second-hand bottles. The Director General of AIBA, along with four individuals each from UBL and AB InBev, six persons from CIPL were held guilty of anti-competitive conduct by CCI.
The NCLAT also dismissed the submissions made by the brewers that the impugned order is liable to be set aside in the absence of a judicial member, the rejection of this was notable. It threw light on § 8 & § 9 of the Act which doesn’t mandate the presence of a judicial member in the panel for the validity of CCI order.
The appellants filed leniency applications for lower penalties for which, the NCLAT held that “the lesser penalty application is like an admission of guilt. Once an appellant admits his or her guilt and makes a disclosure of an alleged violation of Section 3 (cartelisation) of the Act, he/she may claim a lesser penalty. However, one cannot claim it as a matter of right.”[12] Hence, the NCLAT, while deciding upon the rate of a penalty observed that, though the CCI had the discretion to impose a penalty of up to 10 percent of the average turnover for the last three financial years, it had taken a lenient approach in the determination of their penalty. It determined the quantum of penalty at 0.5 times profit for each year of the continuance of the cartel or 2 percent of the turnover for each year of the continuance of the cartel, whichever was higher.[13]
WAY FORWARD
The case of Pawan Jagetia v. Competition Commission of India established multiple precedents such as the right of the party to seek a lower penalty in case of admission of guilt, the aspect pertaining to non-absence of any judicial member, and strict imposition of penalty in cases of violations of regulations.
Thus, the decision of NCLAT to uphold the CCI Order will act as a deterrent to large organizations forming cartels. It is evident that there was a cartel formed after a lot of planning as it even accounted for the sale of second-hand bottles and hence, the penalty by the regulator seems justified. Another aspect may be that it can pave way for easier investigations as in this case owing to the admission of guilt, there was the imposition of a lower penalty. This can act as an incentive for the accused in such cases or companies under investigation to accept their wrongdoings and in turn demand a shorter penalty by admission and cooperating during the investigations.
[1] Pawan Jagetia v. CCI, Competition Appeal (AT) No. 16 of 2021, decided on 23-12-2022, ¶ 33.
[2] The Competition Act, 2002, § 46, No. 12, Acts of Parliament, 2003 (India).
[3] Pawan Jagetia, supra note 1, ¶ 6.
[4] The Competition Act, 2002, § 26(1), No. 12, Acts of Parliament, 2003 (India).
[5] Id., § 3.
[6] Pawan Jagetia, supra note 1, ¶ 3 & 6.
[7] Id., § 8 & 9.
[8] Pawan Jagetia, supra note 1, ¶ 31.
[9] Pawan Jagetia, supra note 1, ¶ 33.
[10] Pawan Jagetia, supra note 1, ¶ 38.
[11] Ambuja Cement Limited v Competition Commission of India, Appeal No. 110/2012 with IA No. 222/2012 and IA No. 223/2012.
[12] Pawan Jagetia, supra note 1, ¶ 3.
[13] Pawan Jagetia, supra note 1, ¶ 37.