Business Standard

Penalising individuals makes corporate India uneasy

This approach is consistent with the international best practices in countries such as France, Spain, Germany, the Netherlands and Denmark, where directors and officers are liable for breach of competition law

Piyush Gupta 

Directors and officers of companies (D&Os) have the responsibility (and indeed the duty) to ensure that the best interests of the company, its employees and stakeholders and the community at large are adequately safeguarded. This fiduciary duty may lead to a triaging of interests, whereby some interests (maximising the revenues for the company and its shareholders) may supersede others (acting for the benefit of the community). The emerging jurisprudence in the space of directors' duties entails an exposure to personal liability for those in default for any violation of the laws, which includes, amongst others, the competition law regime in India. Interestingly, there is an emerging trend of the competition regulator to penalise the office bearers of companies, under the Competition Act, 2002 thereby making the decision-makers at companies uneasy. Initially when the regulator was still in its infancy, its position on the issue of liability seemed to have been that separate proceedings were required to proceed against any defaulting directors and officers (Kapoor Glass Pvt Ltd v Schott Glass India Pvt Ltd, Case No. 22 of 2010; GKB Hi-Tech Lenses Pvt Ltd v Transition Optical India Pvt Ltd, Case No. 01 of 2010) after following the necessary procedure. Then in 2012, in the Varca case (Varca Druggists & Chemists v Chemists & Duggists Association, Goa, MRTP Case No. C-127/2009/DGIR (4/28) ) it was opined by the CCI that "an association of enterprises cannot be considered as a company ... so no penalty is leviable on the office bearers". However, in 2013 while deciding the Santuka case (M/s Santuka Associates Pvt Ltd v AIOCD & Ors, Case No. 20 of 2011) the CCI said that "the anti-competitive decision or practice of the association can be attributed to the members who were responsible for running the affairs of the association ...." Up until 2013, even though the CCI had attributed liability on to office bearers of companies and associations, no penalties had been ascribed to them in any case. This trend buckled in 2014 when in the Bengal Chemist case (Bengal Chemists and Druggists Association, Suo Moto Case No. 2 of 2012), the CCI not only held the Bengal Chemists and Druggists Association (BDCA) guilty for anti-competitive practices, but also held the office bearers of the BDCA guilty under the Act, and imposed a cumulative penalty of Rs 18.38 crore onto the office bearers.

This decision was a breakthrough for the CCI, given that this was the first instance wherein penalties on individuals were imposed. A similar approach was adopted by the CCI in the Indian Jute Mills Association case (Indian Sugar Mills Association v Indian Jute Mills Association, Case No 28 of 2011). By the advent of 2015, the CCI evidently started broadening their focus and started targeting industries other than the pharmaceutical industry. Consequently, the transport sector in the Shivam Enterprises case (Shivam Enterprises v Kiratpur Sahib Truck Operators Co-operative Transport Society Limited & Ors, Case No. 43 of 2013) and the entertainment industry in the Kerala Cine Exhibitors case (Kerala Cine Exhibitors Association and Kerala Film Exhibitors Federation, Case No. 45 of 2012) were targeted. In the last couple of years we have seen an increasing trend where the CCI has started seeking individual culpability in cases for which it has penalised entities. The intent of the CCI by way of this trend is to ensure that the directors and officers act carefully and examine the matters before them from all legal angles while making decisions on behalf of companies / trade associations. However, the CCI is seemingly not dealing with the individual culpability stricto senso. It appears that the CCI is presently only penalising those individuals whose names appear multiple times and who have been given a fair chance to be heard. This approach is consistent with international best practices, for instance, in a number of jurisdictions like France, Spain, Germany, Netherlands, Denmark, directors and officers are liable for breaches of competition law by their companies by way of individual fines. (The writer is partner and head of the competition and aviation law practice groups at Kochhar & Co. Research assistants Aishwerya Kansal and Iyina Grover also contributed to the piece)

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First Published: Sun, August 28 2016. 21:33 IST
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