India - Directors And Officers Take Heed: Personal Liability Is A New Priority Of The CCI
Under India’s Competition Act, 2002, directors and officers of a company may be held personally liable for a beach of their duties owed to the company exposing themselves to civil penalties and possible incarceration. Directors and officers should take notice of these provisions since the Competition Commission of India (“CCI”) has stated that apart from curbing anti-competitive practices, one of its enforcement priorities is to examine the role of directors and officials in behavioral cases.
We had a chance to speak with the Competition Team at AZB & Partners on this topic as well as recent developments in case law in this area of law, and here is what they had to say.
Conventus Law: Under India’s Competition Act, may directors and officers of a corporation be held personally liable for a breach of their duties that result in a violation of any competition laws, and if yes, under what circumstances may they be held liable?
AZB & Partners: Section 48 of the Competition Act, 2002 (“CA02”) specifically empowers the CCI to initiate proceedings for levy of penalty against individual office bearers of a corporation found guilty of infringing the provisions of the CA02. Section 48 of the CA02 envisages two alternate means for prosecuting individual office bearers. The first part of Section 48 empowers the CCI to prosecute every individual who was in charge of, and was responsible for, the conduct of the business of the company at the time of contravention of the provisions of the CA02 on the basis of the assumption that they are equally guilty of the contravention. If the individual is able to prove that the contravention was committed without his knowledge or that he had exercised due diligence to prevent the contravention from being committed, then he would be exempt from personal liability.
The second part of Section 48 of the CA02 requires the CCI to prove that a contravention has taken place with the consent, connivance or negligence of any director, manager, secretary or other officer of the company found guilty of contravening the provisions of the CA02, before penalizing them. To establish the involvement of individual office bearers, the CCI is increasingly looking at minutes of meetings, evidence of interaction between officials of competing enterprises in the form of email communications, registers of meeting places, hotel bills, and phone calls.
CL: Are the penalties civil, criminal, or both, and is this only an action that can be brought by the CCI or may private individuals who may be victims bring suit?
AZB: Individual personal liability in case of contravention of the provisions of the CA02 is civil in nature where the CCI can impose a penalty of up to 10% of the average income of the concerned individuals for the last three preceding financial years.
In case of a failure to pay the penalty amount or comply with the orders or directions of the CCI, individual office bearers can be exposed to additional risk of imprisonment extending up to three years or penalty up to INR 250 million or with both.
Penalty proceedings are specifically initiated by the CCI under the provisions of the CA02. While private individuals can file information with the CCI naming certain officers as part of/responsible for the alleged anti-competitive conduct, the initiation of proceedings to penalize individual office bearers is CCI’s prerogative.
CL: Has there been an increasing trend within CCI to penalize officers and directors in this sense, and if yes, can you briefly describe the evolution of this trend?
AZB: The CCI has stated that apart from curbing anti-competitive practices, one of its enforcement priorities is to examine the role of directors and officials in behavioral cases.
In its early cases, involving cartels facilitated by trade associations in the pharmaceutical sector, the CCI showed its keenness to investigate the individual officer bearers and other officers in charge. Subsequently, it examined the conduct of individual office bearers in cartel cases involving jute industry, film exhibition and transport- in each instance the cartel was facilitated by trade associations. CCI’s decision to use the powers under Section 48 of the CA02 could be motivated by the fact the monetary penalty, linked to the turnover of trade associations would not have the desired deterrent effect, whereas penalizing the individual office bearers of trade associations could. In recent cases, the CCI has indicated its intent to prosecute individual office bearers by directing the Director General to examine the role of individual officers along with the conduct of the companies under investigation. It appears that the CCI’s use of the power under Section 48 of the CA02 is likely to extend beyond cartels facilitated by trade associations.
CL: Are there any recent cases worth noting that bears on this issue of personal culpability for office bearers?
AZB: Recently in Ministry of Agriculture and Farmers Welfare v. M/s Mahyco Monsanto Biotech (India) Limited., the CCI dismissed an application made by Mahyco Monsanto Biotech (India) Limited and its associated entities (Monsanto) challenging the initial investigation order passed by the CCI directing the Director General (“DG”) to probe into the allegations raised against the companies as well as the individual office bearers. Monsanto relied on the decision of the Competition Appellate Tribunal in A.N. Mohana Kurup and Others v. Competition Commission of India and Others, where it was held that the CCI was not at liberty to issue any directions to the Director General to look into the role of the persons in-charge until the CCI has issued a finding of contravention against the company. Relying on provisions similar to Section 48 of the CA02 in other statues, the CCI rejected this contention. The CCI also relied on the decision of the Delhi High Court in Pran Mehra v. Competition Commission of India and Others which stated that there cannot be two separate proceedings: following the inquiry, the finding of contravention has to be recorded against the company, and if found liable, the respective officers in-charge who are responsible for the business are probed but this is not necessarily to be done in a particular order. The CCI favored simultaneous proceedings so as to avoid procedural delays. In sum, investigation against a company and its officials can be undertaken simultaneously.
 Proviso to Section 48(1) of the CA02.
 Varca Druggists & Chemists Association v. Chemists and Druggists Association, Goa, MRTP Case No. C-127/2009/DGIR(4/28); Vedant Bio Sciences v. Chemists & Druggists Association of Baroda, C-87/2009/DGIR; Santuka Associates Pvt. Ltd. v. All India Chemists and Druggists, Case No. 20/2011; Sandhya Drug Agency v. Assam Drug Dealers Association, Case No. 41/2011
 Indian Sugar Mills Association & Ors. v. Indian Jute Mills Association & Ors., Case No. 38/2011; Swastik Stevedores Private Limited v. M/s Dumper Owner’s Association & Ors., Case No. 42/2012; Rohit Medical Stores v. Macleods Pharmaceutical Limited & Ors., Case No. 78/2012; Shivam Enterprises v. Kiratpur Sahib Truck Operators Co-operative Transport Society Limited & Ors., Case No.43/2013; Kerala Cine Exhibitors Association v. Kerala Film Exhibitors Federation & Ors., Case No. 45/2012
 Ref. Case No.2/2015, Case No. 107/2015, Case No. 3/2016, Ref Case No. 1/2016
 Appeal No. 5/2016
 W.P. No. 6258/2014
For further information, please contact:
Rahul Rai, AZB & Partners