Orders and Remedies: Sections 27, 28 and 48

Section 27 states what the Commission may do once it finds a contravention of Section 3 or Section 4. The orders fall into three groups: directions as to conduct, modification of agreements, and penalty. Section 28 adds the extreme structural remedy of dividing a dominant enterprise, which has never been exercised. Section 48 extends liability to the individuals in charge of a company. The law on penalty has changed twice in a decade: Excel Crop Care introduced proportionality through the relevant turnover doctrine, and the amendment of 2023 redefined turnover as global turnover, with proportionality preserved through the Commission's penalty guidelines.

1. The Orders under Section 27

1. Cease and desist. A direction to any enterprise or association or person involved in the agreement, or abuse of dominant position, to discontinue and not to re-enter such agreement or to discontinue such abuse of dominant position. This is the basic remedy and is made in almost every case in which a contravention is found.
2. Penalty. A penalty as the Commission may deem fit, not exceeding ten per cent of the average of the turnover or income for the last three preceding financial years. In the case of a cartel, the Commission may impose upon each producer, seller, distributor, trader or service provider included in that cartel a penalty of up to three times its profit for each year of the continuance of the agreement, or ten per cent of its turnover or income for each such year, whichever is higher.
3. Modification of agreements. A direction that the agreement shall stand modified to the extent and in the manner specified in the order, which allows the Commission to preserve a commercial arrangement while removing the offending restriction.
4. Compliance directions. A direction to the enterprises concerned to abide by such other orders as the Commission may pass and to comply with the directions, including payment of costs.
5. Such other order or direction as it may deem fit. The residuary clause, under which behavioural remedies of the kind described below are framed.

Two limits on the section should be noted. It contains no power to award compensation to a person injured; that is dealt with separately by Section 53N, on an application to the Appellate Tribunal following a finding. And the earlier power to recommend to the Central Government the division of an enterprise has been recast as a direct power in Section 28.

2. Behavioural and Structural Remedies

• Behavioural remedies regulate future conduct: to supply on non-discriminatory terms, to publish a standard price list, to cease exclusivity or tying, to license on stated terms, to grant access to a facility or platform, to refrain from using data collected in one capacity in another, or to maintain firewalls between businesses. Their advantage is that they preserve the enterprise and can be tailored; their weakness is that they require continuing monitoring, which the Commission is not designed to provide.
• Structural remedies change the enterprise itself: divestiture of a business or an asset, or in the extreme the division of an enterprise. They are one-time, self-enforcing and need no supervision, and for that reason are preferred where they are proportionate. In enforcement cases under Sections 3 and 4 they are rare; in merger cases under Section 31 they are the standard form of modification.
• Compliance mechanisms. Orders commonly require the appointment of a compliance officer, periodic reporting to the Commission, and in some cases an independent monitoring agency, which is how behavioural remedies are made workable.

3. Division of a Dominant Enterprise: Section 28

The Commission may, notwithstanding anything contained in any other law for the time being in force, by order in writing, direct division of an enterprise enjoying a dominant position to ensure that such enterprise does not abuse its dominant position. The order may provide for the transfer or vesting of property, rights, liabilities or obligations, the adjustment of contracts, the creation, allotment, surrender or cancellation of shares, the formation or winding up of an enterprise, the amendment of its memorandum or articles, and the extent to which and the circumstances in which provisions of the order affecting an enterprise may be altered and the registration of the alterations.

4. Penalty: The Development of the Law

The base on which a penalty is computed has been the most litigated question under Section 27, and the position has moved through three stages.

1. Before 2017. Penalties were computed on total turnover, which produced figures out of all proportion in the case of diversified enterprises.
2. From 2017 to 2023. Relevant turnover governed, following Excel Crop Care.
3. After 2023. The amendment substituted the definition of turnover in Section 2(y) so that it means global turnover derived from all products and services by a person or an enterprise. The statutory ceiling is therefore computed on a much larger base. Proportionality survives, but it operates through the guidelines rather than through the definition: the Commission has notified guidelines on the determination of penalty which begin from the turnover or income of the products or services to which the contravention relates and then adjust for aggravating and mitigating factors, subject to the overall statutory cap.

5. Penalties on Cartels

Section 27(b) provides a distinct and higher measure for cartels: up to three times the profit for each year of the continuance of the agreement, or ten per cent of turnover or income for each such year, whichever is higher. Three features follow. The multiplier is applied to each member individually rather than to the cartel collectively. The measure is per year of continuance, so duration multiplies the exposure. And the alternative of three times profit exists because the gain from a cartel may exceed any percentage of turnover, particularly in a bid-rigging case where the turnover affected is small but the margin extracted is large.

6. Factors in Fixing the Penalty

• Nature and gravity of the contravention. A cartel is treated as the most serious, an abuse of dominance next, and a vertical restraint least.
• Duration. Directly relevant, and expressly so for cartels.
• The role of the party. Whether it initiated, led or enforced the arrangement, or was a reluctant participant.
• Gain and harm. The profit derived and the loss caused, so far as they can be estimated.
• Conduct during the proceeding. Cooperation, or obstruction and non-compliance with directions, which attracts its own penalty under Section 43.
• Repetition. Whether the party has previously been found in contravention.
• Ability to pay and the effect on viability. Considered, though not as a licence to contravene.
• Leniency. A reduction under Section 46, which operates on the penalty that would otherwise have been imposed.

7. Liability of Individuals: Section 48

The section is modelled on the familiar vicarious liability provisions found in other Indian statutes, and the same learning applies. Sub-section (1) operates on office: a person in charge of and responsible to the company for the conduct of its business is liable by reason of that position, subject to the statutory defence of absence of knowledge or of due diligence. Sub-section (2) operates on participation: any director, manager, secretary or other officer is liable if the contravention took place with his consent or connivance or is attributable to his neglect, and here the burden is on the Commission to establish that mental element.

• Consent is agreement to the conduct with knowledge of the facts that make it unlawful.
• Connivance is knowing the conduct and permitting it, a wilful blindness or tacit encouragement falling short of agreement.
• Neglect is a failure to exercise the care the office required, which is why the contravention occurred.
• Procedure. The individual must be given notice and an opportunity to be heard in his own right, and the Commission's practice is to issue separate notices under Section 48 once the contravention by the enterprise is established.
• Compliance programmes. Evidence of a genuine competition compliance programme, with training, audit and reporting, is the principal material by which the due diligence defence is made out.

8. Enforcement of Orders

Section 42 provides a penalty for contravention of an order of the Commission, extending to a daily penalty for continuing failure and, where the failure persists, to a further penalty and reference to the Chief Metropolitan Magistrate for punishment. Section 39 provides for the recovery of monetary penalties, including by reference to the income tax authorities and as arrears of land revenue. An appeal against an order imposing a penalty is entertained by the Appellate Tribunal only on deposit of twenty-five per cent of the penalty, which was added by the amendment of 2023.

9. Related Topics and Provisions