NCLAT Upholds CCI Order Finding Contravention by Geep Industries, While Reiterating Principle of Proportionality vis-à-vis Imposition of Penalty

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Apr 28, 2023

NCLAT Upholds CCI Order Finding Contravention by Geep Industries, While Reiterating Principle of Proportionality vis-à-vis Imposition of Penalty

As background, an appeal was filed before the NCLAT by Geep Industries Private Limited (‘Geep’) under Section 53B of the Act. The appeal was preferred against the CCI’s Order under Section 27 of the Act, penalising Geep for cartelisation (in the dry cell batteries segment), in violation of Section 3 of the Act.^[1]The CCI decided to impose upon Geep a penalty of 4% of its turnover for each year of the continuance of the cartel which amounted to INR 9,64,06,682.

On March 31, 2023, the NCLAT allowed the appeal, whereby it agreed with the CCI’s finding that Geep had violated Section 3 of the Act,^[2]but reduced the penalty imposed on Geep to 1% from 4% of its turnover, on the following basis:^[3]

i. Geep is a ‘very small player’ with an insignificant market share in the dry cell battery market and therefore, was not in a position to: (a) influence prices in the relevant market; and (b) bargain with other bigger players which had cartelised;

ii. The market share of Geep in the relevant market was only about 1%, and it was barely able to function with meagre profit, and accordingly, an exorbitant fine will be fatal for it;

iii. The CCI failed to give appropriate reasons for imposing the penalty it did; and

iv. It was observed that the quantum of penalty should be such that it acts as a deterrent and regulates anti-competitive behavior. However, while arriving at the penalty amount, the business dynamics of the contravening party (such as market shares, bargaining power ) will need to be considered.

Significantly, the NCLAT did not reduce the penalty imposed on directors of Geep, holding that they are responsible for entering into the cartel, despite being ‘knowledgeable persons’ who are supposed to have ‘knowledge and understanding of law’ in relation to behavior of corporate entities in a market.

[1] Competition Appeal (AT) No. 87 of 2018.

[2] In this case the relevant parties (including Geep) had entered an agreement to regulate sale prices of dry cell batteries, which was never an issue of contention, as one of the parties had filed a leniency application, admitting to cartelisation.

[3] The NCLAT also referred to its previous judgments wherein penalty had been reduced due to certain mitigating factors.

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