COMPAT recognizes principle of ‘relevant turnover’ for imposing penalty Bar and Bench

COMPAT recognizes principle of ‘Relevant Turnover’ for imposing penalty; Ramji Srinivasan, Rahul Goel, Ravinder Narain, V.K. Aggarwal argue for ALP manufacturers

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COMPAT

In a landmark judgment dated October 29, 2013, the Competition Appellate Tribunal (COMPAT) has recognized the concept of 'Relevant Turnover' for calculation of penalty in cartel cases. The COMPAT, in its order, accepted the contention that in the case of multi-product companies, the penalty for cartelisation should be calculated on the basis of the ‘Relevant Turnover’ instead of overall turnover of the entire company/group. 

The judgment was delivered in an appeal against a 2012 order of the Competition Commission of India (CCI) imposing a penalty of Rs. 317 crore on three manufacturers of Aluminium Phosphide tablets (ALP) for cartelisation and collusive bidding. The penalty was calculated at the rate of 9% of the average turnover of the preceding three years.

The three ALP tablet manufacturers -- United Phosphorus, Excel Crop and Sandhya Organics appealed against this order of CCI.

The COMPAT on appeal upheld the CCI’s findings against the three companies of forming a cartel and manipulating bids of Food Corporation of India to supply ALP tablets. However, the COMPAT modified the penalties imposed by CCI and ordered 9% penalty on the 'Relevant Turnover' instead of the turnover of the entire company/ group. 

Below is the team of lawyers representing each of the parties at COMPAT

 

 

 

 

 

 

 

Both United Phosporus and Excel Corp argued before the COMPAT that they were “multi-product companies” and that the turnover from the ALP tablets business was insignificant. They further argued that the CCI should not have considered the overall turn over and should have restricted itself to the ‘Relevant Turnover’, which in this case is the business of manufacturing ALP tablets.

Relying on the guidelines issued by the European Union and the Office of Fair Trading (UK), the COMPAT held that the ‘Relevant Turnover’ should be considered in case of United Phosphorus and Excel Corp, as they are multi-product companies.

The COMPAT concluded that although the penalty at 9% of three years average turn over was not unreasonable, the said turn over would have to be a ‘Relevant Turnover’. The penalty on Excel Corp was thus reduced from Rs. 63.9 crore to Rs. 2.92 crore and the penalty on United Phosphorus reduced from Rs. 252.4 crore to Rs. 6.94 crore.

The COMPAT also came down heavily on CCI for not stating the reasons as to why the penalty had been imposed and directed that the CCI should provide reasons.

Talking about the judgment, Rahul Goel, Partner at Dhir & Dhir Associates, said that the recognition of the relevant turnover principle was a, “welcome step”.

He further said, “The introduction of 'Relevant Turnover' will not only benefit the industry especially multi-product corporations but also is a step forward in development of jurisprudence in competition law space in India. It is expected that going forward even CCI will take into account the turnover of relevant product while imposing penalties.

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