Introduction
CCI's jurisprudence
Comment
When India legislated the Competition Act 2002, it chose to be part of the list of jurisdictions that prescribe only civil consequences for anti-competitive conduct.(1) While this significantly allays the concerns of directors, officers and other employees of companies at a personal level, an often-overlooked provision under section 48 of the Act empowers the Competition Commission of India to heavily penalise and attribute liability to individuals.
Section 48, in addition to the CCI's body of decisions, suggests that an individual can be held liable, even if they are not actively or explicitly involved in the contravening entity's activities. The only respite for personnel is that section 48 presupposes an adverse finding against an entity to impose liability on individuals, and a contravention cannot be concluded against individuals if a contravention against the company they serve has not been established.
The scheme provided for in section 48 provides for both direct(2) and indirect (vicarious)(3) individual liability. Section 48(1) is triggered by virtue of an individual who is in charge of, and responsible for, the conduct of the business of the contravening entity. Once this role is established, the individual must either prove that the anti-competitive activity was committed without their knowledge or that they exercised all due diligence to prevent such conduct,(4) in order to be absolved from liability under this subsection.
In contrast to section 48(1), section 48(2) attributes liability based on de facto involvement of an employee in an entity's anti-competitive conduct. The significance of this subsection is, however, quite broad. A director, manager, secretary or any other officer of a contravening entity is deemed guilty under section 48(2) if it can be determined that the contravention took place with the consent or connivance of, or was attributable to any form of neglect on the part of, such an employee.
Typically, the CCI separately evaluates an individual's role under section 48(1), as well as their actual involvement in the entity's anti-competitive conduct under section 48(2), before ascertaining their liability under the Act.
Section 48(1)
The CCI's decisional practice indicates that the following individuals at the head of an organisation that is involved in anti-competitive behaviour are considered, by virtue of their role, to be in charge of, and responsible for, the conduct of business of the contravening entity:
- the managing director or chief executive officer (companies);
- the president, chairman or general secretary (associations and unions); and
- a partner (partnership firms).
Such individuals are normally held liable under section 48(1), even in the absence of evidence of their direct involvement in anti-competitive activities. A finding of liability under section 48(1) does not preclude an adverse finding under section 48(2) if such an individual is found to be involved in the contravention.
Individuals who are implicated under section 48(1) have, in several cases, contended that their role does not require involvement in day-to-day operations of the infringing entity and that it only entails key strategic decisions and discussions in relation to operations and management. Further, such individuals have also made assertions on their lack of awareness of the entity's anti-competitive behaviour, claiming satisfaction of the test provided in the proviso to section 48(1) for exoneration from liability. However, the CCI has, on equally numerous occasions, remained unconvinced and it has categorically rejected such assertions.(5) The CCI requires that these individuals positively demonstrate either lack of knowledge of, or exercise of due diligence to prevent, anti-competitive behaviour. Therefore, in absence of any proof or evidence to establish lack of guilt, it is unlikely that an individual holding a designation that is normally assessed under section 48(1) will escape liability. For example, in Batteries Cartel,(6) the CCI observed that the managing director and chief executive officer of Indo National Limited (one of the cartel entities in this case), had held the position since 2009, and the long period of collusion itself implied his knowledge and approval of the conduct.
The Beer Cartel(7) case illustrates the standard of proof expected by the CCI to vindicate individuals from liability under section 48(1) of the Act. While determining the liability of Steven Bosch, a former executive director and the chief financial officer (CFO) of one of the contravening entities, the CCI carefully considered Bosch's role in the company and observed that his primary responsibility was to manage profit and loss accounts and monitor the company's performance against the agreed budget. It further observed that Bosch only had broad and high-level knowledge of:
- pricing;
- pricing strategy;
- sales data and targets; and
- volume data.
The CCI held that Bosch could not be deemed liable under section 48(1) of the Act, noting that Bosch's submission regarding his unawareness of the company's anti-competitive behaviour was plausible because:
- he was a leniency applicant; and
- he had initiated an external audit when a potential violation was brought to his attention.
Several other individuals, primarily managing directors, were held liable under section 48(1) in this case.
The CCI has, at times, held liable individuals in the following non-conventional roles under section 48(1), after determining that they were, based on the facts and circumstances of each case, in charge of, and responsible for, the conduct of the contravening entity's business:
- directors;
- CFOs;
- business development directors;(8) and
- heads of sales.
For example, in Shipping Lines,(9) while ascertaining a Japanese entity's director's liability, the CCI observed that, as directors under Japanese law have the highest authority in a company, he was ultimately responsible for the conduct of the contravening entity's business and, therefore, he was liable. Similarly, the CCI did not initially hold liable the treasurer of an association engaged in anti-competitive conduct liable under section 48(1), after noting the nature of his duties as he was only the custodian of funds and responsible for maintaining financial statements.(10) However, in a subsequent case(11) that involved the same individual in the same position, the CCI held him liable after evidence revealed his role in the contravention as a custodian of funds.(12)
Section 48(2)
In order to determine liability under section 48(2) of the Act, evidence of an individual's involvement in an entity's anti-competitive conduct is necessary. Forms of evidence that the CCI has previously used include:
- emails and WhatsApp messages relating to prohibited conduct(13) (as the sender or as the recipient);
- signatures on bid documents, advisories and minutes of meetings;(14) and
- presence in meetings with competitors.(15)
The CCI has refused to take action against individuals when a specific investigation to link their role with the contravening entities' conduct was not undertaken.(16)
The CCI has imposed penalties on individuals who have held a wide range of designations under section 48(2), and it has interpreted the subsection broadly to hold all kinds of employees liable, including:
- vice presidents;
- heads of sales;
- marketing chiefs;
- general managers;
- sales managers;
- distribution managers; and
- assistant managers.
In an unprecedented case (Batteries Cartel),(17) the CCI held an executive assistant liable under section 48(2) for exchanging commercially sensitive information with competitors and executing the anti-competitive directions of his seniors.
Although the CCI has wide discretion to impose penalties under section 48, the CCI generally levies penalties in a manner similar to its powers under section 27 of the Act on individuals – namely, as a percentage of their average income for the past three preceding financial years. However, given the statutory discretion provided to the CCI, it is possible that the CCI will use different metrics to impose penalties on individuals in the future. In some recent cases,(18) the CCI has imposed nominal absolute penalties on individuals, without considering their income. The CCI's imposition of penalties as a percentage of average income instead of an absolute penalty has led to unfavourable outcomes for individuals who have been found liable under the Act. In fact, the CCI has already imposed a penalty of more than 400,000 Indian rupees (approximately $5 million) on a single individual.(19) Considering this, employees cannot disregard the potential consequences of an adverse finding against their company under the Act and they must be guarded in their approach to anti-competitive conduct.
For further information on this topic please contact Pranjal Prateek or Armaan Gupta at Khaitan & Co by telephone (+91 22 6636 5000) or email ([email protected] or [email protected]). The Khaitan & Co website can be accessed at www.khaitanco.com.
Endnotes
(1) A breach of the substantive provisions of the Act entails only civil consequences including penalties. In certain cases where a party fails to comply with the CCI's directions or orders, it could lead to imprisonment.
(4) Proviso to section 48(1) of the Act.
- Alleged anti-competitive conduct by various bidders in supply and installation of signages at specified locations of State Bank of India across India, order dated 3 February 2022 in suo motu case 02 of 2020;
- Alleged anti-competitive conduct in the Beer Market in India, order dated 24 September 2021 in suo motu case 06 of 2017;
- Cartelisation in Industrial and Automotive Bearings, order dated 5 June 2020 in suo motu case 05 of 2017; and
- Anticompetitive conduct in the Dry-Cell Batteries Market in India, order dated 15 January 2019 in suo motu case 03 of 2017.
(6) Cartelisation in respect of zinc carbon dry cell batteries market in India, order dated 19 April 2018 in suo motu case 02 of 2016.
(7) Alleged anti-competitive conduct in the Beer Market in India, order dated 24 September 2021 in suo motu case 06 of 2017.
(8) Cartelisation by broadcasting service providers by rigging the bids submitted in response to the tenders floated by Sports Broadcasters, order dated 11 July 2018 in suo motu case 02 of 2013.
(9) Cartelisation by Shipping Lines in the matter of provision of Maritime Motor Vehicle Transport Services to the Original Equipment Manufacturers, order dated 20 January 2022 in suo motu case 10 of 2014.
(10) Mr PK Krishnan v Alkem Laboratories Limited and Others, order dated 1 December 2015 in case 28 of 2014.
(11) Sudeep PM and Others v All Kerala Chemists and Druggists Association, order dated 31 October 2017 in case 54 of 2015.
(12) The individual was held liable on the basis of the position held by him under section 48(1) and on the basis of his active involvement in the anti-competitive practice under section 48(2) of the Act.
(13) Alleged anti-competitive conduct in the Beer Market in India, order dated 24 September 2021 in suo motu case 06 of 2017 and Cartelisation by broadcasting service providers by rigging the bids submitted in response to the tenders floated by Sports Broadcasters, order dated 11 July 2018 in suo motu case 02 of 2013.
(14) M/s International Subscription Agency v Federation of Publishers' and Booksellers' Associations in India, order dated 23 February 2021 in case 33 of 2019.
(15) Cartelisation in Industrial and Automotive Bearings, order dated 5 June 2020 in suo motu case 05 of 2017.
(16) Director, Supplies & Disposals, Haryana v Shree Cement Limited and Others, order dated 19 January 2017 in case 05 of 2013.
(17) Cartelisation in respect of zinc carbon dry cell batteries market in India, order dated 19 April 2018 in suo motu case 02 of 2016.
(18) M/s International Subscription Agency v Federation of Publishers' and Booksellers' Associations in India, order dated 23 February 2021 in case 33 of 2019.
(19) Bengal Chemist and Druggist Association, order dated 11 March 2014 in suo motu case 02 of 2012.