Case Summary: Excel Crop Care Limited v. Competition Commission of India and Another (2017) | Anti-Competitive Agreements

The case of Excel Crop Care Limited & Others v. Competition Commission of India & Anr., (2017) 8 SCC 47, is a landmark judgment addressing issues of anti-competitive agreements and the calculation of penalties under the Competition Act, 2002. The judgment delivered by a bench comprising Justice A.K. Sikri and Justice N.V. Ramana examines the allegations of cartelization, the findings of the Competition Commission of India (CCI), the appellate decision of the Competition Appellate Tribunal (COMPAT), and the interpretation of the term "turnover" under Section 27(b) of the Competition Act, 2002. 

Background and Facts of the Case

The case originated from a complaint dated February 4, 2011, filed by the Food Corporation of India (FCI) with the Competition Commission of India (CCI). FCI alleged that four manufacturers of Aluminium Phosphide Tablets (APT)—

1. M/s. Excel Crop Care Limited
2. M/s. United Phosphorous Limited (UPL)
3. M/s. Sandhya Organics Chemicals (P) Ltd.
4. M/s. Agrosynth Chemicals Limited

—had formed a cartel and engaged in anti-competitive practices by quoting identical prices in tenders issued by FCI for the purchase of APT between 2007 and 2009.

Allegations by FCI

• FCI alleged that the manufacturers colluded to manipulate tender prices.
• The requirement for APT had nearly doubled between 2007 and 2009 due to increased demand for food grain preservation by FCI, Central Warehousing Corporation, and other state agencies.
• The four companies were accused of collectively fixing bid prices and participating in joint boycotts of tenders to influence procurement terms and prices.

Proceedings Before the CCI

Investigation by the Director General (DG):

The CCI referred the complaint to the Director General (DG) for investigation. The DG submitted a detailed report on October 14, 2011, which concluded that the appellants had engaged in cartel-like behavior, violating Section 3(3) of the Competition Act, 2002.

Key Findings of the DG:

• There were only four manufacturers of APT in the market.
• Tenders followed a two-bid system—technical and financial bids—where successful bidders were selected through a negotiation process.
• From 2002 to 2009, the manufacturers regularly quoted identical rates, except in 2007 when UPL quoted a lower price.
• In the 2009 tender, the appellants quoted identical rates of ₹388 per unit, which were reduced to ₹386 after negotiation.
• The bid documents were submitted in person, and the entries in the visitor’s register were made by one person, indicating concerted action.
• The explanation for price rise due to increased costs in China was rejected as prices remained high even when input costs fell.
• The boycott of tenders in 2011 by the manufacturers was interpreted as an attempt to collectively control market conditions.

Violation Established:

The DG held that the manufacturers violated the following provisions of the Competition Act, 2002:

• Section 3(3)(a): Directly or indirectly determining purchase or sale prices.
• Section 3(3)(b): Limiting or controlling production, supply, markets, technical development, investment, or provision of services.
• Section 3(3)(d): Collusive bidding.

Order by CCI:

Based on the DG’s report, the CCI passed an order on April 23, 2012, concluding that the manufacturers had engaged in cartelization and anti-competitive behaviour.

• A penalty of 9% of the average turnover of the preceding three years was imposed on the appellants under Section 27(b) of the Act.
• Penalties imposed:

Excel Crop Care Limited: ₹63.90 crores

UPL: ₹252.44 crores

Sandhya Organics: ₹1.57 crores

Proceedings Before COMPAT

The appellants challenged the CCI’s order before the Competition Appellate Tribunal (COMPAT) under Section 53B of the Competition Act.

Issues Raised:

Whether the manufacturers were engaged in cartelization.

Validity of the penalties imposed based on "total turnover" rather than "relevant turnover."

Findings of COMPAT:

COMPAT upheld the findings of cartelization by the CCI but modified the calculation of penalties.

The penalty was found to be justified at 9% but should have been imposed on ‘relevant turnover’ (turnover related to APT sales) instead of the total turnover (including turnover from unrelated products).

The penalties were recalculated based on relevant turnover.

Proceedings Before the Supreme Court

The appellants further challenged the order of COMPAT before the Supreme Court of India.

Key Issues Before the Supreme Court:

• Whether the finding of cartelization was valid.
• Whether the penalty should be calculated on "relevant turnover" or "total turnover."

Judgment

Justice A.K. Sikri:

Cartelization:

The Supreme Court upheld the findings of cartelization.

The identical pricing pattern, joint submission of bids, and collective boycotting of tenders were sufficient evidence of concerted action and anti-competitive behavior under Section 3 of the Act.

Calculation of Penalty:

The Supreme Court ruled that penalties should be imposed on ‘relevant turnover’ rather than ‘total turnover.’

The term "turnover" under Section 27(b) refers to turnover generated from products or services involved in anti-competitive behaviour.

This interpretation aligns with the principle of proportionality and avoids excessive penalties that could discourage investment and innovation.

Justice N.V. Ramana:

• Justice Ramana concurred with Justice Sikri and provided additional reasoning.
• Section 27(b) allows discretion to the CCI to impose penalties based on turnover.
• The principle of proportionality requires that penalties should not exceed what is appropriate and necessary to achieve the objectives of the Competition Act.
• Penalties should be based on the following two-step process:

Step 1: Determine relevant turnover based on financial statements and market impact.

Step 2: Apply a reasonable percentage (up to 10%) based on aggravating and mitigating factors (e.g., market share, duration of cartelization, profit made).

Final Decision

• The Supreme Court upheld COMPAT's finding of cartelization.
• The court affirmed that penalties should be based on relevant turnover and not total turnover.
• The penalties calculated by COMPAT were deemed appropriate.

Significance of the Judgment

1. Clarification on ‘Turnover’:

The Supreme Court provided a definitive interpretation of "turnover" under Section 27(b), limiting it to "relevant turnover."

2. Proportionality in Penalties:

The ruling reinforced the principle of proportionality, ensuring that penalties reflect the actual impact of anti-competitive behaviour.

3. Impact on Future Cases:

This decision has set a precedent for calculating penalties under competition law, balancing deterrence with fairness.

Conclusion

The Supreme Court's judgment in Excel Crop Care Limited & Others v. Competition Commission of India clarified the scope of anti-competitive agreements and the methodology for calculating penalties. By limiting penalties to "relevant turnover," the court struck a balance between effective deterrence and fairness, ensuring that competition law fosters a free and competitive market environment without imposing excessive penalties.

Click Here to Read the Official Judgment

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