Supreme Court Upholds Competition Commission’s Findings Against Excel Crop Care and Others for Cartelisation in Aluminium Phosphide Tablet Tenders

Landmark ruling affirms anti-competitive conduct under Section 3 of Competition Act, endorses retrospective applicability, and clarifies penalty computation based on relevant turnover.

In a significant judgment delivered on May 8, 2017, the Supreme Court of India dismissed appeals filed by Excel Crop Care Limited, United Phosphorus Limited (UPL), and Sandhya Organics Chemicals (P) Ltd., affirming the findings of the Competition Commission of India (CCI) and the Competition Appellate Tribunal (COMPAT) that these companies engaged in anti-competitive practices by forming a cartel and quoting identical bids in tenders floated by the Food Corporation of India (FCI) for Aluminium Phosphide Tablets (APT).

The dispute originated from a complaint dated February 4, 2011, by FCI to CCI alleging that the four main manufacturers of APT in India, including the appellants and Agrosynth Chemicals Limited, colluded to rig bids by quoting identical prices repeatedly between 2002 and 2011. This collusion was alleged to have resulted in inflated prices and restricted competition in tenders for essential pesticides used by government warehousing agencies.

The CCI entrusted the matter to its Director General (DG) for investigation, who found prima facie evidence of cartelization and anti-competitive agreements violating Section 3(3) of the Competition Act, 2002. Specifically, the DG’s report highlighted that the appellants consistently quoted the same prices across multiple tenders, including the crucial 2009 FCI tender, and even boycotted the 2011 tender in a concerted manner.

The appellants challenged these findings before COMPAT, raising preliminary objections on the jurisdiction of CCI to inquire into tenders where bids were submitted before Section 3 became operational on May 20, 2009, and contesting the inclusion of the 2011 tender, which was not mentioned in the FCI complaint. They also denied the existence of any anti-competitive agreement, attributing identical pricing to market forces and oligopolistic conditions, and questioned the penalty quantum based on total turnover rather than product-specific turnover.

The Supreme Court thoroughly examined the timeline and process of tendering, noting that the tender process extended beyond the May 20, 2009 notification date, including bid openings and negotiations in June 2009, during which anti-competitive conduct continued. Consequently, the Court held that Section 3(3) applied retrospectively to the entire tender process, and the CCI was within its jurisdiction to inquire into bids submitted before the notification but finalized after it.

On the scope of investigation regarding the 2011 tender boycott, the Court observed that the DG’s inquiry was not limited strictly to the complaint’s allegations but was broad enough to cover all anti-competitive conduct revealed during investigation. Therefore, the investigation into the 2011 tender boycott was valid.

Addressing the merits, the Court found the appellants’ explanations unconvincing and emphasized the improbability of consistent identical pricing over ten years given differing cost structures and geographical locations. The Court rejected the argument that parallel pricing in an oligopoly justified the conduct, holding that the pattern of conduct established the existence of a cartel and collusive bidding, violating Section 3(3)(a), (b), and (d) of the Act.

Regarding penalty imposition under Section 27(b), the Court considered whether the penalty should be calculated on the total turnover of the offending companies or only on the “relevant turnover” attributable to the infringing product. The CCI had imposed penalties at 9% of total turnover, resulting in hefty fines—Rs. 63.90 crores for Excel Crop Care and Rs. 252.44 crores for UPL. COMPAT reduced these penalties, restricting the base to relevant turnover of the APT product, and further reduced the penalty for the smaller appellant Sandhya Organics.

The Supreme Court concurred with COMPAT’s approach, emphasizing that the statute’s language neither specifies total nor relevant turnover, but adopting relevant turnover aligns better with the principles of proportionality, equity, and the legislative intent of the Competition Act. The Court underscored that penal provisions must be strictly construed and penalties must be proportionate to the offense to avoid absurd or inequitable results, especially for multi-product companies. It adopted a two-step approach for penalty calculation: first, determining relevant turnover linked to the anti-competitive product, and second, assessing the appropriate penalty percentage based on factors such as gravity, duration, role in infringement, and market circumstances.

In conclusion, the Supreme Court upheld the findings of anti-competitive conduct by the appellants, validated the retrospective application of Section 3 to the entire tender process, confirmed the CCI’s jurisdiction over related tenders discovered during investigation, and endorsed the calculation of penalties based on relevant turnover. The appeals filed by both the appellants and the CCI (challenging penalty quantum) were dismissed, confirming the COMPAT’s order without costs.

This judgment reinforces India’s commitment to curbing cartelization and promoting fair competition in public procurement, offering clarity on the enforcement scope and penalty imposition under the Competition Act.

Statutory provisions

Competition Act, 2002 Sections 3(1), 3(3)(a), 3(3)(b), 3(3)(d), 18, 26(1), 27(b), 27(c), 27(d), 53-B

Excel Crop Care Limited v. Competition Commission of India, (SC) : Law Finder Doc Id # 856133