THE CONUNDRUM OF LIABILITIES UNDER SECTION 48
Updated: Sep 21, 2020
[Aditendra Singh is a 3rd Year B.A., LL.B. student at National Law University, Delhi]
Competition Act, 2002, (hereinafter Act) which finds its genesis in the Raghavan Committee Report, was enacted, to prevent practices which could have an adverse effect on competition. In pursuance of this, Competition Commission of India (hereinafter CCI or commission) was given the power not only to inquire into anti-competitive practices of any ‘person’, but also, to enforce competition law rules. Thus, it is also entrusted with the various penal powers, of which, one is found under section 48 of the Act. This post, in particular, highlights the issue of misplaced liability under section 48. For this, emphasis has been laid on rules of statutory interpretation and reasoning adopted by CCI in the process of adjudication under the said section.
Section 48 entrusts CCI to impose penalties on individuals who are at the helm of a company. The rule states that if a company is found in contravention of the provisions of the Act, then all the persons ‘who are in charge of or responsible for the conduct’ of the business of the company shall be deemed to be guilty of the such contravention. The proviso to this section provides for a defence to such entity. It states that if the aforementioned person can prove that such contravention was committed without his knowledge or that, he exercised due diligence, that shall allow him to escape the liability.
On the other hand, section 48(2) of the Act states that if a company commits a contravention of the provisions of the Act, with the consent or connivance or, the same contravention is attributable to the neglect on the part of any director, manager, secretary or other officer of the company, then such persons shall be deemed to be guilty of such contravention.
Thus, section 48(1) of the Act presupposes guilt on individuals who are in charge of the company, a presumption which is rebuttable, whereas sub-section 2 provides for a de-facto involvement of individual in such contravention, which, therefore, is not rebuttable. Furthermore, under this section, CCI does not have to adhere to the requirement of having to prove its case beyond a reasonable doubt, but the same is only dependent on the preponderance of probabilities test.
In the case of Varca Druggist and Chemist Association, CCI found the druggist and chemist association to be involved in the anti-competitive agreements which are not permitted as per the Act. In the same vein, it also held key personnel of the Association guilty of the contravention of section 48. With respect to this section, the said judgment was marred by two flaws. Firstly, it read both the sub-sections jointly. While placing the liability on the key personnel, it held that the person shall be held responsible for running the affairs of association (de-jure element) and actively participating in giving effect to the anti-competitive scheme (de-facto element). Thus, a conjunctive test was laid down. The first flaw was corrected in the case of Indian Sugar Mills Association and then the same precedent was followed in Maruti & Company, Bangalore case, where the difference between the two sub-sections was finally clarified.
Secondly, in the same judgment, CCI clarified its position of holding the ‘association of enterprises’ liable under the rules. This reasoning has been adopted by CCI in various subsequent cases, including the Bengal Chemists and Druggists Association case, which was the first one wherein the CCI imposed penalty on any individual, holding it guilty of infringement of the provisions of the Act. Now, even a cursory look at the section would entail that the ‘company’ in section 48 includes ‘body corporate and includes a firm or other association of individuals.’ Moreover, section 2(h), which gives the definition of ‘enterprise’, does not include any reference to individual. It is only in clause (i), that one finds the mention of the term ‘individual’. Additionally, the cardinal rule is that any interpretation of the statute must be done literally and strictly.[i] Furthermore, to keep terms such as ‘association of persons’ or ‘association of enterprises’ outside the ambit of this section by giving the explanation in the section itself, the legislative intent becomes clear. This view was also reiterated by Dhingra J. in his dissenting opinion in M/S Santuka Associates Pvt. Ltd. v All India Organization of Chemists and Druggists .
Another area where liability under section 48 is imposed is the cases of cartels. A cartel, according to section 2, is an association of producers, sellers and various other entities and thus, is very aptly covered under the scope of section 48. This view was also upheld in the cases of In Re: Cartelisation in respect of zinc carbon dry cell batteries market in India and In Re: Cartelisation by broadcasting service providers by rigging the bids submitted in response to the tenders floated by Sports Broadcasters. It is also pertinent to note that even though there are limitations on penal powers of the CCI under section 48, it can pass any order under section 27 of the Act, which it may deem fit. This power was recently used by the commission in the Alkem Case.
The Competition Act, 2002 has given wide powers to the commission to curb anti-competitive practices. But in its attempt towards achieving the said aim, CCI has gone beyond the periphery of section 48. With its implied interpretation of ‘association of individuals’ as ‘association of enterprise’, it has not only digressed from strict construction of the section, but has also failed to include the legislative intention. As umpteen rulings have upheld this reasoning, the interpretation has now taken a monolithic form. Therefore, the commission must take a cue from the minority opinion of Dhingra J. and correct this anomaly at the earliest.
[i] S M Dugar: Guide to Competition Law, 7th Ed, Vol. 1, Introduction to Competition Law, pp. 3
The views and opinions expressed in this article are those of the authors alone and do not
necessarily reflect the views of RICLP.