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IRAC on Tamil Nadu Film Exhibitors Association v. CCI

Tamil Nadu Film Exhibitors Association v. CCI (2015) 2 Comp LR 420 (Mad)

The appellants in this case are- The Tamil Nadu Film Exhibitors Association
The defendants in this case are-
a) Competition Commission of India
b) Raaj Kamal Film International
c) The State of Tamil Nadu
d) S. Sridhar and R. Ramanujam

1. This appeal has been combined from two different cases by the High Court of Madras. The appellants through two different writ appeals had approached the High Court, but the court combined both these cases as they arose from the same cause of action.

2. The appellants are a registered society and the second appellants are film producers. The producers alleged that the Film exhibitors had joined their hands in placing a ban on the film ‘Viswaroopam’. The Appellants were against the fact that the film was to be released through DTH service a day before the theatre release.

3. Due to this ban, the producers filed a complaint in CCI saying that it was anti-competitive and in violation of section 3(3) (b) of the Competition Act.

4. Thus, the Competition Commission, under section 26 of the act, ordered the Director General (DG) to start the investigation.

5. During that time, a small group of people, filed a complaint with the Police Commissioner and thus the film was banned from theatres. But later the commissioner himself lifted the ban and thus the movie got released.

6. The DG while investigating the complaint, asked the appellants to submit some documents.

7. Immediately, the appellants, filed a writ petition in the court challenging the order of the Competition Commission. They also filed a Police complaint saying that the Producers had filed a complaint based on a forged document. Thus, these appellants filed another writ petition seeking a mandamus to direct the Commissioner of Police to take their complaint on record and initiate action against the Producers.

8. But, the court dismissed for both the writs petition immediately. Hence, the appellants appealed before the High Court of Madras.

9. While this happened, the Producers and the appellants reached at a settlement. They decided that the producers will withdraw the complaint and that the appellant will the Police compliant. Hence, they prayed before this court that their compromise be recorded ad that they wished to withdraw the case.

10. But, the counsel appearing for the Competition Commission, said that as per the investigation of the DG, all the reports said that the Film Exhibitors had acted in an anti- competitive manner and that they had violated section 3(3)(b) of the Competition Act.

11. Thus, the High Court had to frame a different set of issues on the fact whether the settlement could be used by the appellants and the respondents to withdraw the case.

There are 2 issues in this particular case which is being answered by the Madras High Court. Both these issues instead of answering the question of whether there have been anti-competitive agreements or not, they concentrate more on the compromise between the appellants and the respondents. The issues in the case are as follows (written as it is)-

A) whether it is possible, in the context of the scheme of the Competition Act, 2002, for two adversaries to reach a settlement, thereby closing the doors for an investigation or inquiry?

B) whether this court can record a memorandum of settlement like the one that the parties have reached in this case?’

Rules Applied-
This court applies some sections of the Competition Act, 2002 to answer the issues in the case.

To answer issue 1 the court explains the history and the scheme of competition act.

The sections used in this case are-
Section 3(3) (b)- Any agreement entered into between enterprises or associations of enterprises or persons or associations of persons or between any person and enterprise or practice carried on, or decision taken by, any association of enterprises or association of persons, including cartels, engaged in identical or similar trade of goods or provision of services, which— limits or controls production, supply, markets, technical development, investment or provision of services.[1]

Section 18- Duties of Commission[2]
Section 19- Inquiry into certain agreements and dominant position of enterprise[3]
Section 26- Procedure for inquiry under section 19[4]
Section 27- Orders by Commission after inquiry into agreements or abuse of dominant position[5]
Section 61- Exclusion of jurisdiction of civil courts[6]
Section 62- Application of other laws not barred[7]

In this case the focus has been shifted from other issues to the ones mentioned above. There were several issues that were to be answered by the High Court, but due to the fact that there was a settlement between respondent no.2 and the appellant, the focus shifted on that. Instead of concentrating on the fact whether the appellant had acted in an anti-competitive manner or not, the attention shifted on the question whether in Competition Act the two parties who are fighting against each other can settle the dispute between them by reaching a compromise or not.

The contention of the counsel appearing for the CCI was, that as the DG had already finished his investigation and come up with the conclusion that there were anti-competitive agreements and acts committed by the appellants, they could not settle the dispute through a compromise. The High court too agrees with this contention and says that Competition act is not about two private individuals rather, it is about the investigation, inquiry into the question whether one of the parties is abusing its dominant position or not or whether they have acted in an anti-competitive manner or not. Thus, the initial complaint maybe made by a private individual but when the investigation and the inquiry starts then it is for the general pubic that the CCI works for, as anti-competitive arrangements and abuse of dominant position actually effects the public at large rather than the private individual who complained. The court says that had it been, that this case was about two private individuals and had it been in a civil court then the High Court would have had no inhibitions in recording the Memorandum of Compromise between the two parties but due to the reason that this case is about anti-competitive arrangements the court cannot dismiss the case as prayed for.

While trying to answer the first issue the court uses the mischief rule of interpretation. It tells us the history of Competition Act and as to how it came to be enacted. It discusses how before the Competition Act was enacted, we had the MRTP Act in India. The MRTP Act was considered to be ineffective and it was repealed as it had ‘no teeth’. After liberalisation in India in 1991 it became even more clear that MRTP act could not effectively control all the Multi- National Companies. Thus, finally in the year 2002 the Competition Act was enacted to control the mischief which the MRTP act could not.

There have been amendments in the Competition act throughout the years. It was mainly after the case of Brahm Dutt vs. Union of India [(2005) 2 SCC 431] that there was an amendment in the act. Thus, the act not only regulates the market but also acts as an adversary. Thus, today the act mainly covers Anti-trust issues like -a) Anti-competitive arrangements b) Abuse of Dominant position c) combination of the above two mentioned issues.

After discussing the history of the act, then the court discusses the Scheme of the act to answer the first issue. The Competition Act under section 18 enlists the duties of the CCI and under S.19 of the act, the Commission has got the power to inquire into the complaints in order to check whether there is abuse of dominant position, anti-competitive arrangements etc. Then the court discusses section 26 which talks about the procedure to be followed during inquiry and then section 27 which discusses the types of orders which the commission can pass.

The main reason why the Court discusses the history and the scheme of the act is that it wants to show that the act is not really concerned about the disputes between 2 private individuals rather it is more concerned about anti-competitive agreements and abuse of dominant position in the market which might effect the freedom of trade.

Thus, after discussing these above mentioned sections, the court says that the commission has the power to record the compromise between the parties but only if the party guilty of acting in an anti-competitive manner has accepted its fault and it promises not to continue its act anymore. If this happens then the Commission only has to concentrate on the penalty provisions. But the most important thing which is necessary while recording the compromise is that the Commission look into the fact that the compromise between the parties is not a way of avoiding the investigation into their anti-competitive agreements or their acts of abusing the dominant position. Hence, as a precautionary step, the commission should always look at the compromise and should understand its purpose, if the intention is malafide, then it cannot be used by the parties to withdraw the case. The court then discusses the situation of compromise or settlement between the parties in a cartel system in both the USA and the European Union. In both these places, the parties can reach a settlement but only upto a certain extent. Thus, in India CCI has got the power under section 27 of the Competition Act to record such compromise but with the condition that the settlement is not a way to hide all the anti-competitive activities and that it is not against the interest of the consumers or the public.

For the second issue, the court says that it is section 62 of the Competition act that talks about the exclusive jurisdiction of the CCI in competition matters. It is due to this section that the jurisdiction of other civil courts is ousted. But Article 226 of the Indian Constitution gives special power to the High Court. Hence, High Court has the power to record the compromise, but it chooses not to, due to the fact that as per the reports of the Director General the appellants have engaged in anti-competitive activities and that too more than once. This is the reason why the High Court has dismissed the appeal and reverted the case back to CCI.

The High Court of Madras, says that the Competition Commission of India has the power to record the compromise or the settlement arrived between the two parties. But the only condition that has to be fulfilled by the CCI is that, it needs to look carefully that the compromise between the 2 parties is not a way of avoiding investigation into their anti-competitive agreements. If and only if the compromise is a kind of a promise that they will discontinue their anti-competitive agreements then the CCI can record such a settlement in order to close the case.

But in this case what has been seen is that the appellants are guilty of practicing anti-competitive agreements not just once but more than that. Hence, their settlement with the respondent no.2 should not be a way of making the respondents withdraw their police case. The settlement should not have been backed by a malicious intention which might harm the freedom of trade and the consumer’s interest in the future.

[1] The Competition Act, 2002
[2] Ibid
[3] Ibid
[4] Ibid
[5] Ibid
[6] Ibid
[7] Ibid

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