Ethanol cartel: NCLAT sets aside CCI’s order imposing ₹38 crore penalty on sugar mills
The National Company Law Appellate Tribunal (NCLAT) on Tuesday set aside an order of Competition Commission of India (CCI) that imposed aggregate penalties of ₹38 crore on 18 sugar mills and their two trade associations (Indian Sugar Mills Association & Ethanol Manufacturers Association of India) in 2018.
The CCI imposed penalty for rigging the bids in respect of a joint tender floated by oil marketing companies (OMCs) for procurement of ethanol for blending with petrol.
The joint tender was floated pursuant to a notification issued by the Ministry of Petroleum and Natural Gas regarding mandatory 5 per cent blending of ethanol with motor spirit/gasoline. OMCs invited quotations from alcohol manufacturers for supply of ethanol through a tender which was issued by BPCL on behalf of OMCs—as the coordinator of the tender process.
Appeal before NCLAT
The ruling of CCI was challenged by Sugar mills before NCLAT which on Tuesday while setting aside the order remanded the matter back to CCI.
Sugar mills challenged the order on the ground that CCI did not comply with the principles of natural justice as the matter was heard by CCI on various occasions by six members, but the final judgment was signed and pronounced by only three members, and therefore, the principle of ‘one who hears must decide’ was not adhered to.
Referring to CCI (Meeting for Transaction of Business) Regulations, 2009 and Delhi High Court ruling in Mahindra Electric case, the Appellate Tribunal noted that once final hearings in any complaint begin, the membership of the commission should not vary.
“It should preferably be heard by a substantial number of 7 or at least, 5 members”.
Notably, CCI has only four members presently, including the chairperson, and going forward, many rulings of the CCI may face judicial challenge due to inadequate coram of five members as observed by the tribunal.
“We also note that this judgment of Hon’ble Delhi High Court was delivered in petition under Article 226 of the Constitution of India, whereby the petitioners had challenged the vires of some provisions of the Competition Act, 2002.
“We are of the opinion that it is not necessary to look at the issue of retrospective operation of Regulation 3-A, since in the present case we have already formed an opinion that the Impugned Order suffers from illegality of a smaller body of members signing and pronouncing the final order than the body of members that heard the case and the inordinate delay in pronouncing the judgments – with both the reasons having struck at the spirit of principle of natural justice”, noted NCLAT.
NCLAT noted that the Impugned Order does not comply with the requirement of adherence to the principle of natural justice for the reason that the “coram” of CCI that heard the final arguments did not pass the necessary orders within reasonable period of time.
Also by the time, the orders were pronounced in the case, one member was not present in at least four later hearings and two members had demitted office and therefore they neither participated in the decision making nor signed and authenticated the final order.
Thus the delay in pronouncing the impugned order also resulted in serious infirmity in that ‘one who hears must decide’ was not followed in letter and spirit.
“Further, we are also of the opinion that CCI should have afforded an opportunity of oral hearing to the opposite parties after the Supplementary Investigation Report was received from the DG, and before pronouncing the final Impugned Order on September 18, 2018.
We thus find that the Impugned Order does not satisfy the basic tenet of adherence to the principle of natural justice which was ingrained in section 36 of the Competition Act”, said the NCLAT order.
Expert’s take
Sonam Chandwani, Managing Partner KS Legal & Associates, said, “The National Company Law Appellate Tribunal’s decision to overturn the Competition Commission of India’s penalty on sugar mills and their associations underscores the intricate nuances of competition law. While the initial penalty stemmed from allegations of bid-rigging in a significant ethanol procurement tender, NCLAT’s move to remand the case back to CCI showcases the dynamism of legal interpretations and emphasises the importance of thorough due process in assessing anti-competitive behaviors in the market.”
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