Ms. Pushpa M. vs Competition Commission Of India & Ors.

[Per: Dr. Alok Srivastava, Member (Technical)]

The appeals considered in this judgment have been filed by the Appellant -Geep Industries (India) Pvt. Ltd. (in short “Geep Industries”) under Section 53B(1) of the Competition Act, 2002 (in short the “Act”) against impugned order dated 30.08.2018 passed by the Competition Commission of India (in short “CCI”). The impugned order was passed by the CCI in suo moto case No. 20 of 2017.

The Appellant - Geep Industries is a private company with registered office in Thane, Maharashtra and has interest in multiple sectors including trading of dry cell batteries procure from other manufacturers under the trademark “GEEP”. The Respondent No.1-CCI is the Regulatory and quasi-judicial authority which has passed the impugned order, Respondent No.2 is the company Panasonic Corporation, Japan (in short ‘Panasonic Corporation’) along with Respondent No. 3-Panasonic Energy India Company Limited (in short “PECIN”) are both Applicants of Lesser Penalty Application filed by them before the CCI under Section 46 of the Act r/w Regulation 5 of the Competition Commission of India (Lesser Penalty) Regulations, 2009 (in short “Lesser Penalty Regulations”).

The conspectus of the case is that the Appellant - Geep Industries used to manufacture dry cell batteries but stopped manufacturing them from the year 2008-09 onwards and instead started procuring locally--produced batteries from various manufacturers including R-3/Panasonic India. In the course of its business, the Appellant entered into a ‘Product Supply Agreement’ (in short “PSA”) with R-3 and according to the PSA, R-3 manufactured Zinc and Aluminum chloride dry cell batteries and supplied them to the Appellant, who would sell it under their brand name ‘GEEP’, while R-3 was holding a large market share in the dry cell battery market where it sold its self-manufactured batteries under the brand name ‘Panasonic’.

According to the Appellant, in the beginning, Geep Industries was procuring dry cell batteries from local manufacturers on quotation basis but later signed a PSA with PECIN on 01.10.2010, whereby it started procuring dry cell batteries of various types and specifications and would affix its brand name “GEEP” on such supplies and the pricing and payment were also regulated by the PSA.

The Appellant has further stated that Eveready, Nippo and Panasonic are the three brands of dry cell batteries which control the major part of the market and the existence of ‘primary cartel’ of these three manufacturers was disclosed to the CCI by way of an application filed under the ‘Lesser Penalty Regulations’ by PECIN on 25.05.2016, and subsequently Eveready and Nippo also filed applications under the ‘Lesser Penalty Regulation’ before the CCI on 26.08.2016 and 30.08.2016 respectively. He has added that the applications by Eveready and Nippo were filed subsequent to a “search and seizure” operation conducted by the Director General, CCI on the premises of the manufacturers. He also added that the existence of a ‘primary cartel’ comprising of the three major manufactures viz. Eveready, Nippo and Panasonic is admitted by all the parties of the said cartel and the Lesser Penalty Application was filed by R-2 along with R-3 on 07.09.2016 for grant of lesser penalty under Section 46 of the Act r/w Regulation 5 of the ‘Lesser Penalty Regulations’ with respect to the existence of an ‘ancillary cartel’ comprising of PECIN and Geep Industries.

The Appellant has further added that as is evidenced by Clause 4.3 of the PSA, an understanding was arrived at between R-2 and the Appellant to regulate the sale price of the dry cell batteries in the same market where the primary cartel existed. After the CCI passed an order under Section 26(1) of the Act directing the DG to investigation into the information contained in the ‘Lesser Penalty Application’, the DG investigated the allegations content in the application and submitted the investigation report on 16.10.2017 to the CCI for consideration, whereupon the CCI after due consideration and giving an opportunity to all the parties for hearing, passed the impugned order.

We heard the arguments advanced by the Ld. Counsel for the Appellant and Ld. Senior Counsel for R-1 (CCI) and Ld. Counsel for R-3 (PECIN) and perused the record.

The Ld. Counsel for the Appellant has argued that Geep Industries is a very small player in the dry batteries market having a minuscule share of about 1% whereas the three major players viz. Eveready, Nippo and Panasonic controlled about 98% of the said market. He has added that since Geep Industries was not in a position to manufacture batteries, it decided to procure the dry cell batteries manufactured by PECIN and a Product Supply Agreement was signed on 01.10.2010 whereby on a ‘principal to principal’ basis, PECIN would supply the batteries on an agreed price. He has added that since Geep industries is a very small player in the dry batteries market, it entered into this agreement with PECIN for supply of dry cell batteries to promote its business with no intention of affecting competition in the market.

The Ld. Counsel for the Appellant has further argued that the PSA stipulated procurement of batteries from PECIN at certain pre-determined price which was subject to change on the facts of market conditions, and brand them as “Geep” and sell them in the same market where PECIN with its Panasonic brand of batteries was one of the major players. He has further added that a ‘primary cartel’ was found to be operative in the dry cell batteries market comprising of Eveready, Nippo and Panasonic and the PSA entered into by Geep Industries with PECIN is essentially an agreement to let Geep maintain its small share in the said market with its own brand name and any clause in the PSA cannot be said to be anti-competitive. He has further added that the existence of ‘primary cartel’ and the ‘bilateral ancillary cartel’ are both existing in the dry cell batteries market and while the PSA could be seen as anti-competitive due to the formation of ‘bilateral ancillary cartel’, it can in no way influence the market conditions since Geep being a very small player in that market is in no position to have any substantial influence on competition in the said market.

The Ld. Counsel for Appellant/Geep Industries has not pressed his case on merits and argues that in the light of the finding of a ‘bilateral ancillary cartel’ of Geep and Panasonic, an incommensurately high penalty has been imposed on Geep Industries though its offensive behavior is mitigated by the fact that it is an extremely small player in the market and further it was in no position to refuse the condition suggested by PECIN. He has referred to Clause 4.3 of the PSA to contend that since Panasonic, which was manufacturing and supplying unbranded batteries to Geep, was a major player in the same market it imposed a condition on Geep that it will not take any steps which are detrimental to PECIN’s market interests particularly in respect of market prices, and Geep was not in a position to contest this clause as its business was largely depended on the supply of dry cell batteries by Panasonic.

The Ld. Counsel for Geep Industries has, therefore, focused his arguments on the quantum of penalty imposed on Geep Industries in the impugned order claiming that since the business of dry cell batteries of Geep Industries is very small and it has not been profitable in three of the six years when the PSA was operative, the quantum of penalty imposed on it is excessive in view of the facts of the case, and such a high penalty would result in wiping of Geep’s business and pushing it out of dry cell batteries market. In support of his argument, he has stated that the Lesser Penalty Application filed by Panasonic has resulted in a ‘zero’ penalty on Panasonic, but Geep, which is the minor party in the PSA has been made to share the entire burden of the ‘bilateral ancillary cartel’, which is not fair. In support of his argument, he has pointed to the Table –IV included in Para 34 of the impugned order to show that for year 2010-11, 2011-12 and 2012-13 Geep industries actually made a net loss and it was only from the year 2013-14 till 2016-17 (one month of April, 2016 in the financial year) that Geep made some meagre profits in its entire business. He has further argued that if an excessive penalty of Rs.9,64,06,682/- is paid by the Geep Industries on account of a penalty @4% of the turnover for six years, Geep Industries would certainly get thrown out of the dry cell batteries market which would not be a good sign even for maintaining competition in the said market. On this basis, he has argued that the penalty imposed on Geep industries @4% of turnover for each year of the continuance of the cartel is disproportionate to the anti-competitive behavior of Geep as found by CCI, and therefore, in fairness and also to let Geep continue to function in the dry cell batteries market, the penalty should be reduced to an amount which is proportionate to the offence which would act as a deterrent in the future conduct of Geep Industries in the market. The Ld. Counsel for Geep Industries has also pointed out that in cases of similar nature that CCI has decided later, the CCI has either directed the offending parties to ‘cease and desist’ from such behavior or impose penalty that is proportionate to their offence and similar yardstick should also be applied in the present case.

In reply, the Ld. Sr. Counsel for CCI has initiated his argument by claiming that the anti-competitive behavior of Geep Industries and PECIN is clearly found in DG’s Investigation and on the basis of DG’s report as well as the response of all the parties before the CCI, the existence of bilateral ancillary cartel comprising of Geep and Panasonic is very unambiguously found in the dry cell batteries market. He has further argued that Geep Industries did not participate in the proceedings before the CCI and provided no comments on the DG’s report, nor its officers/employees submitted any replies before the CCI, even though the DG’s report was forwarded to them and the point about infringement of Section 3 of the Act was clearly made out. The Ld. Sr. Counsel for CCI has thus maintained that the Geep Industries has not attempted to provide any defence to its anti-competitive behavior and has therefore, admitted to infringing Section 3 of the Act and is, therefore, liable for penalty as is laid down in law.

The Ld. Sr. Counsel for CCI has referred to Section 3 of the Act to contend that once anti-competitive behavior of a party has been established, there is no option for the CCI but to impose penalty under Section 27 of the Act. He has clarified that the ‘Lesser Penalty Regulations’ and Section 46 of the Act allow the party making the ‘Lesser Penalty Application to be let off in a lenient manner but Geep industries, which is also a defaulter, cannot be allowed to go scot free since it is found to be contravening the law. He has further pointed to the quantum of penalty which is @4% of the turnover for each year of the continuation of the cartel from 2010-11 till the first month of the year 2016-17 already takes into account the size and conduct of Geep in the dry cell batteries market and, therefore, it is not excessive or disproportionate by any yardstick.

In the light of the fact that the Ld. Counsel for the Appellant has not pressed his case on merit regarding infringement of Section 3 of the Act by Geep industries, we are focusing in the judgment on the quantum of penalty that is imposed on Geep industries.

The Ld. Counsel for Appellant, during the course of arguments, cited some orders/judgments of the CCI, where in view of mitigating factors, the quantum of penalty has either been kept very small, or merely direction to ‘cease and desist’ has been given to the offending party.

Section 3 of the Act and Regulation 5 of the Lesser Penalty Regulations are reproduced below for ready reference:

We note that sub-section (1) of section 3 of the Act prohibits an enterprise to enter into any agreement in respect of supply of goods or services which causes or is likely to cause an ‘appreciable adverse effect on competition’ within India and sub-section (2) of Section 3 of the Act lays down that any agreement entered into in contravention of provisions of sub-section (1) of Section 3 of the Act shall be void. Such an agreement, which directly or indirectly determined purchase or sale price of goods is also ‘presumed’ to have an appreciable adverse effect on competition as per sub-section 3 of section 3.

Thus, it is lucidly clear that once an agreement has been entered into by parties which is in contravention of the provision of sub-section 1 of section 3, shall be ‘presumed’ to have an appreciable adverse effect on competition, and there such behavior is anti-competitive that would invite penalty under section 27 of the Act.

In the present case, the PSA entered into between Geep Industries and PECIN, while being about the manufacture and supply of dry cell batteries by PECIN to Geep Industries, it is Clause 4.3 that has been found to be offensive by the CCI, clause 4.3 of PSA is as follows:

The Clause 4.3 of the PSA as reproduced above, is in the form of an advice which is agreed TO by Geep Industries to not take steps detrimental to PECIN’s market interest particularly with respect to market prices. Further, by the application of said clause 4.3, Geep Industries also agreed to comply with the level of prices as agreed after periodic review of market conditions by PECIN. Thus, Geep Industries is very clearly in a ‘bilateral ancillary cartel’ with the Panasonic, while Panasonic is found to be member of ‘primary cartel’ in the dry cell batteries market. Thus, even though Geep is an extremely small player in the dry cell batteries market which may not be capable of influencing the market in any appreciable manner, the fact that it agrees through the PSA to follow market prices as set by Panasonic makes it clear that such behavior is anti-competitive, and Geep Industries being in contravention of Section 3 (1), (2) and (3) is clearly established, as has been adjudicated by the CCI in the impugned order.

With regard to the quantum of penalty imposed on Geep Industries, we note that the impugned order considers the quantum on the basis of Section 27(B) of the Act which is as follows:

The Proviso to Section 27(B) empowers the CCI to impose upon a cartelizing company a penalty which can be upto three times of its profits for each year of the continuance of such agreement or 10% of its turnover for each year of the continuance of such agreement, whichever is higher. It is not disputed that the duration during which the ‘bilateral ancillary cartel’ was operating by virtue of the PSA was from 01.10.2010 to 30.04.2016. On this basis the CCI relied on the figures of turnover and profits provided by Geep Industries to infer that penalty of upto 10% of its turnover for each year of the continuance of the cartel is found to be more than the penalty of upto three times of its profits for each year of continuance of the cartel, and in such a situation, the CCI decided to impose upon Geep Industries a penalty @ 4% of its turnover for each year of the continuance of the cartel each year of the continuance of the cartel which amount to Rs. 9,64,06,682/-.

We now consider the quantum of penalty which the Appellant has argued to be very high and disproportionate to its offensive behavior, and sought reduction in the penalty amount. We note that the impugned order, in paragraph 37, records that Geep Industries is a ‘very small player’ having insignificant market share in the market for dry cell batteries and was not in a bargaining/ negotiating position with PECIN. Thus, the Impugned Order recognizes that while Geep Industries is an offender of Section 3 of the Act, it was neither in a bargaining position vis-à-vis PECIN nor having a significant market share to be able to influence prices in the said market. Therefore, it was not in a position to disagree with clause 4.3 of the PSA in view of Panasonic’s interest in influencing the prices in the dry cell batteries market as a big market shareholder. We are of the opinion that the offensive behavior of Geep Industries should be seen in this context and background, and it would be a mitigating factor.

The learned Counsel for the Appellant has cited a number of judgments in support of his contention that even in cases where contravention of Section 3(3) of the Act was found, there was no imposition of monetary penalty. In this connection, Ld. Counsel for the Appellant has cited the following judgments:

The learned counsel for the Appellant has also contended that amount of penalty has been reduced in cases in appeal when the defensive behavior was not found to be serious he has cited the judgment in the matter of National Insurance Co. Ltd. V. CCI (Appeal No. 94 of 2015) in which bid rigging by PSUs was found in public health schemes and wherein penalty was reduced from 2% to 1%. He has also cited the judgment in the matter of Bengal Chemists & Druggists Association & Ors. V. CCI & Anr. (Appeal No. 37 of 2014) in which penalty was reduced from 10% to 1%, and also cited judgment in the matter of Gulf Oil Corporation Ltd. Vs. CCI & Ors. (Appeal No. 82 of 2012) wherein penalty was reduced from 3% to 0.3%.

Thus, it is true that the imposition of penalty and the quantum thereof in all the cases cited above, was dependent on the facts and circumstances of each of the cited cases and the quantum of penalty was reduced in some cases. In the facts and circumstances of the present cases, we are, persuaded to hold the view that in the present case Geep Industries which holds a miniscule share of the total market, which is less than 1%, was not in a position to influence competition in the market by resorting to price fixation by participating in the ‘bilateral ancillary cartel’ and, therefore, this would be a mitigating factor while imposing penalty on Geep Industries.

Ld. Counsel for the Appellant has also cited the judgment of Hon’ble Supreme Court in S.N.Mukherjee V. Union of India [1990 4 SCC 594] which is as follows:

The above-mentioned judgment holds that clear and explicit reasons should be given by the Adjudicating Authority while giving a decision and in the present case, according to the Ld. Counsel for the Appellant, while imposing penalty no reasons have been recorded as to why penalty @4% of the average turnover of 3 years has been imposed. We feel that in case, a penalty @4% was imposed, the Commission should have given appropriate reasons for the same, which is not apparent from the impugned order.

Ld. Counsel for the Appellant has also cited the judgments of Hon’ble Supreme Court in the matter N.K.Wahi Vs. Sekhar Singh & Ors. (2007) 9 SCC 481 which is as follows:

According to the above-mentioned judgment, penalty should be imposed for failure to perform statutory obligations using the as a discretion of the Authority. In the present case while discretion has been exercised, is not clear about the basis for exercising such a discretion which has resulted in a penalty @4% of average turnover of last three years. We are, therefore, of the view that sufficient reasons should have been cited by CCI while imposing a certain quantum of penalty, which has not been done in the instant case.

Another argument of the Learned Counsel for the Appellant is that twice the annual turnover of the Appellant is quite small, a high quantum of penalty will be onerous and will wipe out this. Appellant form the market of dry cell batteries. Such a view has been held in the case of Rajasthan Cylinders and Containers Ltd. Vs. Union of India & Anr. (2020) 17 SCC 615 wherein the following was held by the Hon’ble Supreme Court:

We are of the view that the market share of the Appellant in the relevant market was only about 1%, and it was barely able to function with meagre profit, an exorbitant fine would have been fatal for the business of the Appellant and may have thrown the Appellant out of the market. In the present case, we note that the Appellant has been imposed a penalty @4% amounting to Rs. 9,64,06,682/-which is certainly exorbitant looking to the annual turnover and profits of the Appellant from 2010-11 to 2016-17 as is evident from para 34 of the impugned order. In such a situation, we feel that this would be a mitigating factor with respect to Geep Industries in the present case.

We also take note of the fact that Geep Industries has turned in losses for the years 2010-11, 2011-12 & 2012-13 and given small profits in later years, and therefore it has barely managed to hold on to its meagre market share to survive in the said market. Thus, Geep Industries is only a minor player in the dry cell batteries market which, in order to run its business, was buying unbranded batteries from PECIN. PECIN, being the complainant of the Lesser Penalty Application, has received benefit and no penalty has been imposed on it by the CCI, though it is a significant player in the market. It was, through the clause 4.3 of the PSA, attempting to save its interest in the said market and also imposing an anti-competitive condition in the PSA, but Geep was not in a position to resist or contest the clause 4.3, in view of its business interest in continuing to sell dry cell batteries even if with an insignificant and miniscule market presence.

In view of the extenuating conditions as discussed in preceding paragraphs, we are of the view that while the quantum of penalty should be such that it acts as a deterrent and regulate anti-competitive behavior. We consider Geep Industries business dynamics and situation in the market to be such that it was neither in a negotiating strength vis-à-vis PECIN nor having a market share that could actually influence the price in the said market. In view of such a situation, and fully conscious of the fact that Geep Industries has turned losses in the first three years under review by CCI of its anti-competitive behavior, we are of the view that Geep deserves a further reduction in the imposed penalty, and we are of the opinion that penalty @1% of the turnover for each year of continuance of the cartel would be appropriate penalty in keeping with the extent and seriousness proportionality of the anti-competitive behavior of Geep Industries.

The penalties imposed on the respective directors, officers and employees as included in Table-6 in para 43 of the impugned order are commensurate with their offensive behavior as they were the persons responsible for entering into PSA and being knowledgeable persons were supposed to have knowledge and understanding of law in relation to behaviour of corporate entities in a market. Therefore, we are of the opinion that the penalties imposed on Ms. Pushpa M, Mr. Joeb Thanawala, and Mr. Jainuddin Thanawala by the Impugned Order need no modification.

With the above-mentioned modifications in the impugned order with regard to penalties imposed on Geep Industries, we allow the appeal and dispose it of accordingly.

There is no order as to costs.