Wednesday, August 20, 2014

Competition law violations get personal | Business Standard

Competition law violations get personal
Directors and senior officers could be now fined for the anti-competitive conduct of their companies
Avirup Bose

The Competition Commission of India (CCI) has upped the ante on competition law compliance by Indian companies. Now a director or a senior officer incharge of the affairs of a company may be held personally liable for anti-competitive conduct of the company. The company may be penalised separately for such anti-competitive conduct.

The CCI in a recent order against Bengal Chemist and Druggist Association (BCDA) not only penalised the association for its anti-competitive conduct but additionally held 78 of its senior officers to be personally liable for taking/endorsing such anti-competitive conduct of the BCDA. The aggregate fine imposed on the BCDA and its officers was approximately Rs 18.38 crore (out of which the amount of fine imposed upon the BCDA was a mere Rs 13.24 lakh). The BCDA case marks the first instance when the infringement of competition law by a trade association triggered action against its senior officers.

Under the Competition Act, the term "company" includes a partnership firm or a trade association. Thus, the provisions of the Competition Act under which the BCDA officers were held personally liable are equally applicable to directors and senior officers of a company or the managing partner of a firm. Therefore, from now on directors and senior officers of a company are equally vulnerable to such liability.

At the core of an anti-competitive conduct by a company is a decision of a director and/or its corporate officers to pursue such an anti-competitive conduct. A company cannot remain in compliance with rules of competition law if its corporate officers either willingly or unknowingly adopt corporate practices that are anti-competitive in nature or willingly ignore their commitment towards competition law compliance programmes. A survey conducted by Deloitte in 2007 revealed that one of the top-most incentives for senior management to comply with competition rules are sanctions that operate at the individual, as opposed to corporate, level. Section 48 of the Competition Act provides such an incentive by rendering directors and other officers who are in charge of the affairs of the company to be personally liable, where their actions result in the company falling foul of the rules of Indian competition law.

In the BCDA case, the CCI found, among other things, that the trade association engaged in issuing anti-competitive circulars directing its member-retailers not to give any discount to consumers and to sell drugs only at their MRP, thereby indirectly determining the sale prices of drugs and controlling or limiting the supply of such drugs in the market. The CCI found such practices of the BCDA to be anti-competitive in nature and violative of the provisions of the Competition Act. The CCI also identified: (a) senior officers of the BCDA who were directly responsible for the BCDA to adopt such anti-competitive practices; and (b) members of the BCDA's executive committee who ratified such decisions. The senior officers and the executive committee members were penalised at the rate of 10 and seven per cent of their annual salary/receipts for the preceding three years, respectively.

The law does not expect the directors or the senior management of a company to be experts in competition law. However, they should be aware of the basic rules, which will allow them to manage and avoid the risk of a competition law infringement.

It is pertinent to note that since offences under the Competition Act are not criminal in nature, the CCI may hold directors personally liable for offences committed by their corporations based solely on circumstantial or indirect evidence. There is, however, a silver lining. The Competition Act provides that directors and senior officers may avoid liability through a "due diligence defence". This would require them to demonstrate that an anti-competitive act occurred despite there being an appropriate competition law compliance programme in place, which consisted of proper controls and systems, or without their knowledge. The due diligence defence relies more on the process that the directors or senior officers followed than on the result. Therefore, if the directors "inform" themselves before making a decision - for example, if they approve the merger of the company with a competitor after due discussions, asking the appropriate questions and seeking advice from experts - they may be able to use the due diligence defence to avoid personal liability, even if their decision produces results that contravene Indian competition law. The CCI would usually not second-guess the business judgement of a company's directors where they have followed the proper procedure in reaching their business decisions.

In the BCDA decision, the CCI did not have an opportunity to address the issue of personal liability of an independent director for the company's anti-competitive conduct, since the decision dealt with the anti-competitive conduct of a trade association that typically does not have any independent board members. In my opinion, executive directors are more likely to be held liable for anti-competitive acts of a company than independent directors because they usually have decision-making responsibilities and a supervisory role over the company's business on an ongoing basis. However, even an independent director may be held liable if s/he knowingly endorses an anti-competitive conduct of the company.


Monday, August 18, 2014

Karwar Express and Kannur Express - Confusion creating Railways Penalised

Railways fined for confusing passenger

The same locomotive pulls 16523 Karwar and 16517 Kannur till Mangalore

Same engine pulls trains to both Karwar and Kannur; confused passenger missed train and sued Railways in consumer court

A train with two destination names confused a passenger and he failed to board it. He was to board the Karwar Express (night train) but the first half of the train's coaches had boards identifying it as the Kannur Express. It was only when the train was moving that he noticed that the last few coaches were marked as Karwar Express. After missing the train, he filed a complaint with the consumer forum in Bangalore which has held the Railways responsible for deficiency in service and confusing passengers and fined it. This has come as yet another instance of the confusion created by the Railways to use the same locomotive to pull the trains to Kannur and Karwar till Mangalore, from where they are separated to head to their respective destinations.

Anup Nair, a resident of Thippasandra, filed the complaint last year on October 28. He had purchased a ticket to travel from Bangalore to Byndoor Mookambika Road (the railway station used by those heading to the Mookambika temple) on August 31, 2013, to perform a ritual called the 'Vidyarambh' at the Mookambika temple. He claimed to have reached the City Railway Station one hour in advance before the train was to depart at 8.40 pm. At the enquiry counter, he was told that the train would depart from platform number 10. Anup says he checked the display chart on the platform and that too showed train No. 16523 Karwar Express, along with train No. 16517 Kannur Express.

A train arrived at 8.20 pm on platform 10, and the digital signboard indicated it as 16517 Kannur Express. Even the coaches on the train had boards that read Kannur Express. Anup verified his ticket to confirm that it said Karwar Express. The complainant said he checked the TVs installed on the platform and found they were either showing only advertisements, or were not working. The train on the platform began to move and as it left the station, Anup noticed to his dismay that some of the coaches at the end had boards which said Karwar Express.

Anup could not board the moving train. Later he came to know that both the Kannur Express and Karwar Express were pulled by the same engine. When he confronted the officials, he was refunded Rs 465 out of the ticket fare of Rs 945.

In the consumer court, the Divisional Manager of South Western Railways claimed that Karwar Express left Bangalore City Railway Station at the scheduled time of 8.40 pm and there was no delay. Since the display showed Karwar Express too, the consumer was not misled. He claimed that "train No 16523 Karwar Express and 16517 Kannur Express leave as a single formation from Bangalore to Mangalore, where they are bifurcated. The coach position is disseminated through a public announcement system and electronic display boards. Hence, there was no reason for the complainant to presume that the train would come late... "

The court in its order, said: "The facts clearly goes to show that there was no proper display at the railway station on platform No.10 clearly stating that both Karwar Express and Kannur Express are one and the same, and there was no separate display of the train number of Karwar Express on that platform....That led to confusion to the complainant. In our opinion, the contention of the complainant is acceptable because when two trains are departing from the same platform and pulled by the same engine, the opposite party ought to have displayed in the digital sign board the train numbers and the names of both the trains, and not doing so leads to confusion to passengers." The court directed the Railways to refund Rs 480 to Anup along with a compensation of Rs 5,000, and another Rs 2,000 as litigation cost.


The confusion over the two trains from Bangalore to Karwar and Kannur is a creation of the Railways. Ever since the metre gauge track between Bangalore and Mysore was converted to broad gauge, there was a demand to introduce a night train to Karwar. The first train (on the broad gauge) was introduced between Bangalore and Mangalore, but it was extended to Karwar in 2009. It would have been a long distance train running entirely within Karnataka. However, the train was later extended to Kannur in Kerala. Then came a High Court order directing the train to Karwar. The Railways bifurcated the train. While a few coaches were extended to Karwar, and the others continued towards Kannur.
Meanwhile, from Independence Day this year, the Railways has decided to shift the origin point of Yeshwantpur Kannur/ Karwar Express to Bangalore City Railway station (Majestic) instead ofYeshwantpur. The reason? Kannur Express was creating confusion even at the Yeshwantpurstation. Passengers who used to board the train at Yeshwantpur (the originating point) were caught between two Kannur Express' which used to start from the same place and at almost same time! To avoid confusion about the two 'Kannur' trains (16527 and 16517) leaving Yeshwantpur at almost the same time, the combined Karwar/Kannur Express is now starting from the City RailwayStation, instead of Yeshwantpur station

Wednesday, August 6, 2014

Monsanto and DuPont - Public Perception

Public perception is a curious thing. 

Two companies can do many of the same things, and yet one will take a much larger amount of flack and criticism for it. Or, as the Seattle Organic Restaurants website says, “the difference between a rainforest and a jungle is that a rainforest has a PR agent”. 

To that end, I find it very interesting that Monsanto is one of the most-hated companies on the planet, with the internet and social media full of stories and passed-around memes that declare it to be one of the worst companies in the world. And yet, DuPont is just as big in genetically-modified seeds and agricultural chemicals, and pursues largely the same policies as Monsanto with respect to pricing, IP enforcement, and so on.

So it merits the question – Why is Monsanto evil, but DuPont isn't?

Similar Unpleasant Histories

One of the most commonly-circulated bits on Monsanto in the social media space appears to be a piece that takes Monsanto to task for a long corporate history of developing dangerous products. In prior corporate incarnations, Monsanto did indeed produce Agent Orange, polychlorinated biphenyl (PCBs), DDT, and artificial sweeteners like saccharin and aspartame. While there is still vigorous debate about the safety of artificial sweeteners, nobody disputes that Agent Orange, PCBs, and DDT are bad news.

But let us have a look at DuPont's history.

DuPont started as a virtual monopoly manufacturer of gunpowder, making money hand over fist during the U.S. Civil War and then expanding into various other military explosives. Unlike Alfred Nobel, who felt so guilt-ridden about his invention of dynamite and its subsequent use in warfare that he established the Nobel Prizes, the DuPont family was apparently more interested in arranging marriages between cousins to maintain the family fortune. 

DuPont was also involved in the development of nuclear weapons. Later, DuPont developed synthetic materials like nylon and polyester that will, in many cases, still be on this earth for a long, long time. Likewise, DuPont has had its share of dangerous pesticides, herbicides, and other chemicals include coatings like C8. By the way, DuPont also manufactured Agent Orange, DDT, and PCBs … just like Monsanto did.

The point is, it's difficult to be a large player in the chemicals industry and not eventually produce a dangerous product and/or experience a significant industrial accident. Many of the chemical companies large enough and old enough to be around at the time (including Monsanto, DuPont, and Dow made products like Agent Orange, DDT, PCBs. Likewise, investors and those worried about the environment ought to be at least as worried about the neonicotinoid insecticides made by the likes of crop science companies Bayer and Syngenta  that have been implicated in colony collapse disorder affecting honeybees.


Tuesday, August 5, 2014

Jurisdiction of cheque dishonor complaint - Judgement

Dis-honour of Cheque cases can be filed only to the Court within whose local jurisdiction, the offence was Committed; ie, where the cheque is dishonoured by the bank on which it is drawn.

Bhaskaran Vs Balan (2009) which allowed Five territorial Jurisdictions overruled [Read the Judgment]On August 4, 2014 by M.A.Rashid

A three Judge Bench of the Supreme Court finally held that  a Complaint of Dis-honour of Cheque can be filed only  to  the  Court  within  whose  local jurisdiction the offence was committed, which  in  the  present  context  is where the cheque is dishonoured by the bank on which it is drawn. The Court clarified that the Complainant  is  statutorily  bound  to comply with Section 177 etc. of the CrPC and therefore the  place  or  situs where the Section 138 Complaint is to be filed is not of his choosing.

The Supreme Court in Dashrath Rupsingh Rathod Vs. State of Maharashtra & Anr. Overruled the two Judge Bench Judgment in K. Bhaskaran v. Sankaran Vaidhyan  Balan  (1999)  7 SCC 510 wherein  it was held that “the offence under Section 138 of the Act can be completed only with the concatenation of a number of acts.

Following are the acts which are components of the said offence : (1) Drawing of the cheque, (2) Presentation of the cheque to the bank, (3) Returning the cheque unpaid by the drawee bank, (4) Giving notice in writing to the drawer of the cheque demanding payment of the cheque amount, (5) failure of the drawer to make payment within 15 days of the receipt of the notice”.” if the five different acts were done in five different localities any one of the courts exercising jurisdiction in one of the five local areas can become the place of trial for the offence under Section 138 of the Act. In other words, the complainant can choose any one of those courts having jurisdiction over any one of the local areas within the territorial limits of which any one of those five acts was done.”

The Court accepted the view of another two Judge Bench Judgment in Harman  Electronics  Pvt.Ltd. v. National Panasonic India Pvt. Ltd. (2009) 1  SCC  720. “It is one thing to say that sending of a notice is one of the ingredients for maintaining the complaint but it is another thing to say that dishonour of a cheque by itself constitutes an offence.

For the purpose of proving its case that the accused had committed an offence under Section 138 of the Negotiable Instruments Act, the ingredients thereof are required to be  proved. What would constitute an offence is stated in the main provision. The proviso appended thereto, however, imposes certain further conditions which are required to be fulfilled before cognizance of the offence can be taken.

 If the ingredients for constitution of the offence laid down in the provisos (a), (b) and (c) appended to Section 138 of the Negotiable Instruments Act intended to be applied in favour of the accused, there cannot be any doubt that receipt of a notice would ultimately give rise to the cause of action for filing a complaint. As it is only on receipt of the notice the accused at his own peril may refuse to pay the amount. Clauses (b) and (c) of the proviso to Section 138 therefore must be read together. Issuance of notice would not by itself give rise to a cause of action but communication of the notice would.”.

Justice Vikramjit Sen who wrote the main Judgment held that “We  respectfully agree  with  this  statement  of  law  and  underscore  that   in   criminal jurisprudence there is  a  discernibly  demarcated  difference  between  the commission of an offence and its  cognizance  leading  to  prosecution.

The Harman  approach  is  significant  and  sounds  a  discordant  note  to  the Bhaskaran ratio.  Harman also highlights the reality  that  Section  138  of the NI Act is being rampantly misused so  far  as  territorial  jurisdiction for trial of the Complaint is concerned.  With the passage of time  equities have therefore transferred from one end of the pendulum to  the  other.

 It is now not uncommon for the Courts to encounter the issuance of a notice  in compliance with clause (b) of the proviso to Section 138 of the NI Act  from a situs which bears no connection with the Accused or with any facet of  the transaction between the parties, leave aside the place where  the  dishonour of the cheque has taken place.
This is also the  position  as  regards  the presentation of the cheque, dishonour  of  which  is  then  pleaded  as  the territorial platform of the Complaint under  Section  138  of  the  NI  Act.