SC strengthens competition law, affirms tough penalties

It is imperative to closely examine the September 26 judgment authored by Justice Viswanathan, given its crucial implications for upholding fair competition,

In a ruling that underscores the strength of India’s competition law framework, the Supreme Court has upheld the power of the Competition Commission of India (CCI) to impose both structural and behavioural penalties on violators, clarifying that such deterrent measures are intrinsic to the mandate of the Competition Act, 2002.

Tracing the legislative backdrop, the judgment noted that the Competition Act, 2002 replaced the Monopolies and Restrictive Trade Practices Act, 1969 (MRTP Act), which had become obsolete in the wake of global economic reforms and India’s liberalisation. (File)

A bench of justices Manoj Misra and KV Viswanathan restored penalties imposed by CCI on the Kerala Film Exhibitors Federation (KFEF) and two of its office-bearers, who were found guilty of anti-competitive conduct by boycotting the screening of films at Crown Theatre in Thrissur. The court held that the remedies imposed, which included restraining KFEF leaders from associating with the federation for two years in addition to financial penalties, were proportionate and essential to protect consumer interest and preserve market freedom.

It is imperative to closely examine the September 26 judgment authored by Justice Viswanathan, given its crucial implications for upholding fair competition, protecting consumer welfare, and safeguarding economic freedom.

From MRTP to Competition Act

Tracing the legislative backdrop, the judgment noted that the Competition Act, 2002 replaced the Monopolies and Restrictive Trade Practices Act, 1969 (MRTP Act), which had become obsolete in the wake of global economic reforms and India’s liberalisation.

While the MRTP Act focused largely on preventing the concentration of economic power and curbing monopolistic practices, it was criticised for lacking enforcement teeth. The MRTP Commission could only pass cease-and-desist orders, and penalties were limited to instances of disobedience of such orders. This, the judgment highlighted, meant that violators could operate with impunity until pulled up, often escaping with mere compliance.

In contrast, the Competition Act, 2002 was designed as a modern regulatory law aligned with international best practices. Its preamble emphasises promotion of competition, protection of consumer interests, and ensuring freedom of trade. The court noted that the new law created a dedicated regulator — CCI, with powers not just to investigate and adjudicate, but also to impose a wide array of penalties, both monetary and corrective.

Under Section 27, CCI can impose fines, behavioural remedies (such as directing changes in conduct or management), and even structural remedies (like altering the structure of an enterprise). The law also introduced personal liability under Section 48 for individuals in charge of contravening entities — an innovation absent in the MRTP regime.

Behavioural vs Structural remedies

In its judgment, Justice Viswanathan took note of the global discourse on competition remedies, citing an Organisation for Economic Co-operation and Development (OECD) background paper by Dr Anna Renata Pisarkiewicz to illustrate the two principal tools available to regulators — behavioural and structural remedies. Both, the bench underlined, are well within the scope of the Competition Act, 2002, to curb anti-competitive conduct and ensure markets remain fair and open.

Behavioural remedies, the court noted, focus on altering how a dominant firm conducts its business without necessarily changing its size or market structure. These can range from compliance programmes, changes in governance and pricing schemes, to obligations that prevent exclusivity arrangements or enable consumer switching. Depending on the case, such measures may be prohibitory, like a cease-and-desist order to stop abusive conduct, or positive, such as requiring a company to supply products it had earlier withheld from rivals.

Structural remedies, on the other hand, go deeper by addressing the very source of market power. These involve divestment of assets, release of intellectual property, or other measures that reduce a firm’s dominance outright. The advantage, the court underscored, lies in their one-time nature, which makes them easier to monitor and harder for companies to circumvent, unlike behavioural orders that often demand continuous oversight. Together, the two sets of remedies form a robust arsenal that allows the Competition Commission to tailor penalties proportionate to the harm caused.

Facts of the Kerala film exhibitors’ case

The dispute arose in 2014 when Crown Theatre complained to CCI that the Kerala Film Exhibitors Federation (KFEF) and its leaders had threatened distributors to prevent their films from being screened at Crown Theatre. KFEF allegedly called for a strike or boycott, ensuring that newly released Tamil and Malayalam films were not shown at the theatre.

CCI’s investigation concluded that KFEF’s conduct violated Section 3(3) of the Act, which prohibits anti-competitive agreements, and that its office-bearers, President PV Basheer Ahamed and General Secretary MC Bobby, played key roles in orchestrating the boycott.

In its 2015 order, CCI imposed a monetary penalty of 10% of the average income of the office-bearers, amounting to ₹56,397 for Ahamed and ₹47,778 for Bobby. More significantly, it directed that the two leaders be barred from associating with KFEF’s administration, management, or governance for two years.

Although the Competition Appellate Tribunal (COMPAT) upheld the finding of contravention, it set aside the penalties and behavioural directions against the individuals. CCI challenged this before the Supreme Court.

The Supreme Court, however, firmly restored CCI’s order in its entirety, holding that the penalties were proportionate and necessary.

It emphasised three key principles. First, it underscored that the 2002 Act provided for deterrence through remedies. Unlike the MRTP regime, the Competition Act empowers CCI to impose deterrent remedies, not just symbolic ones. Behavioural and structural remedies are globally accepted tools of competition law enforcement and are vital to restore fair market conditions, the court held.

The second emphasis of the court was on the test of proportionality. The judgment clarified that penalties under the Act must be proportionate, addressing the specific competition harm without going beyond what is necessary. In this case, financial penalties alone had not deterred repeated misconduct, making behavioural restrictions essential.

The third limb of the verdict dealt with the liability of office-bearers. By invoking Section 48, the court upheld individual accountability, noting that Ahamed and Bobby had actively enforced KFEF’s boycott decision and could not plead ignorance. Prior history of similar conduct in earlier cases only reinforced the need for stricter remedies.

The bench dismissed arguments that such restrictions violated Article 19(1)(c) of the Constitution (right to association), noting that the right is subject to reasonable restrictions under Article 19(4), particularly where unethical and anti-competitive practices harm public interest.

Significance of the ruling

The judgment carries broader significance beyond the film distribution market in Kerala.

By restoring CCI’s directions, the ruling reinforces the central principle that fair competition is integral to consumer welfare and economic freedom. It signals to industry bodies and associations that coercive practices, such as boycotts or strikes aimed at throttling rivals, will attract not just financial penalties but also deeper corrective measures to reform conduct.

More broadly, the judgment highlights how the Competition Act, unlike its predecessor, was crafted to give real teeth to the regulator that has the power to impose both behavioural and structural remedies. Where the MRTP regime was criticised as a “toothless body” that stopped at cease-and-desist orders, the Competition Act arms CCI with powers to tailor remedies to the mischief at hand, ensuring that anti-competitive conduct is not merely interrupted but meaningfully deterred.