Institute of Legal and Management Studies

The Supreme Court today(September 26) restored the September 8, 2015 order of the Competition Commission of India ("CCI"), which imposed penalties on the Kerala Film Exhibitors Federation (KFEF) and two of its office bearers (P.V. Basheer Ahmed and M.C. Bobby) for indulging in anti-competitive practices by denying the screening of Tamil and Malayalam films in the theatres of the informant (Crown Theatre).

The Court allowed the appeal filed by the CCI against the order of the Competition Appellate Tribunal(COMPAT) which interfered with the penalty order on the ground that show-cause notice was not issued to the office-bearers.

Two complaints were filed before the CCI alleging anti-competitive activities by KFEF and its office-bearers. In the first, CCI found the allegations to be true and imposed a penalty of 7% of their salary on the KFEF and its two office bearers.

Despite this order, such activities continued. Therefore, in the second case, the CCI directed the office-bearers and the KFEF not to associate with each other for a period of two years. The KFEF and its office bearers challenged the orders. While the challenge to the first order was dismissed by the COMPAT the challenge to the second order was partly allowed to the extent that the CCI should have issued a show cause notice to the office bearers in the second case before imposing such directions. Against this case, the CCI moved the civil appeal.

A bench comprising Justice Manoj Misra and Justice KV Viswanathan held in favour of the CCI, stating that no show cause notice was required as the report of the Director General in terms of the contravention by the KFEF and the two office-bearers in the first case was clear, based on which 7% penalty was imposed.

It held: "As far as the present case is concerned, the Director General report was concurred by the Commission and the notice in the nature of the one issued on 10.6.2015 which is traceable to Regulation 21 read with Regulation 48 and Section 26 of the Act is enough compliance with the provisions of the Act for the purpose of imposition of the penatly under Section 27 of the Act.

Under Section 48, every person at the time of contravention who was in charge of and responsible for the company is deemed to be guilty of the contravention is liable to be proceeded with and punished. The liability is fixed by the statute itself. The notice of 10.6.2015 is categorical in pointing out that there are contraventions alleged in the DG report and it was clear in fixing the individuals who were the key persons in the affairs of the Respondent no. 1. A clear opportunity was given to file objections. Respondents no 2 and 3 complained of no prejudice, and if on this basis the Commission held them guilty in contravening the Act and proceeded to impose a penalty under Section 27, we are fully convinced that the notice dated 10.6. 2015 fulfils the requirement under the law as it then stood."

Judgment authored by Justice Viswanathan held: "On facts, we have found the penalty to be proportionate. Respondents no 2(Basheer) and 3(Bobby) were also found to be indulging in anti-competitive activities in case no 45/2012 before the Commission, and in that, a penalty of 7% of average earnings income for the past three years was imposed. In spite, they continued their anti-competitive conduct, resulting in the present case being lodged. It is very clear that the monetary penalty did not act as a deterrent to Respondent 2 and 3 as well as Respondent no. 1(KFEF). Behavioural remedies like the one ordered in the present case would alone protect the interests of the consumers and uphold the majesty of law. For the reasons stated above, we allow the present appeal and set aside the judgment dated 4.2.2016 in appeal no. 99 of 2015 in so far as it set aside the penalty imposed on Respondent 2 and 3 and directions contained in clause d and e. We restore the findings of 8.9.2015 in its entirety."

The Court has sought a report on whether the directions issued by order dated September 8, 2015 has been complied with or not.

Background

The Association of Cinema Theatres, the Kerala Cine Exhibitors Association, in 2012 filed information under Section 19(1)(a) of the Competition Act, 2002, complaining of anti-competitive conduct on the part of KFEF and others. The allegation is that due to anti-competitive practices adopted by them, new film releases were not permitted to be screened in the informant's members' cinema theatres.

The CCI registered a case no.45/2012 and formed a prima facie opinion, and directed the Director General to conduct an investigation.

Crown Theatres, Respondent 4, also filed information against KFEF, making similar allegations. As per their allegations, due to the anti-competitive conduct of the KFEF, Tamil and Malayalam films were not screened in their theatre. Based on this information, another case 16/2014 was registered.

In the first case, the DG found that two of the office bearers of the KFEF, namely the President, P.V. Basheer Ahamad(Respondent 2) and General Secretary M.C. Bobby(Respondent 3), were key decision makers within the KFEF. Similarly, in the second case, the DG submitted that KFEF and its office bearers had violated Section 3 of the 2002 Act. Upon the report, the CCI communicated the said report on June 6, 2015 to the three Respondents seeking their response.

On June 23, 2015, the CCI passed an order in the first case, holding that the KFEF and its office bearers had violated Section 3(1) read with Section 3(3)(b) of the 2002 Act. It directed the KFEF and the two office bearers to cease and desist from their anti-competitive conduct and also levied a monetary penalty on them at the rate of 7%.

Similarly, in the second case, on September 8, 2015, the CCI passed orders finding once again that Section 3(1) has been violated. In view of the second violation, it passed directions against the two office bearers under Section 27(g) that KFEF shall not associate Basheer and Bobby with its affairs, including administration, management and governance, in any manner for a period of two years.

All three respondents filed appeals before the Tribunal challenging both orders. While the first appeal was dismissed, the second appeal was partly allowed by an order dated April 19, 2016. While the Tribunal upheld the order dated September 8, 2015, on merits and upheld the monetary penalties levied on KFEF, the Tribunal set aside the penalty imposed on office bearers, including the directions pertaining to not associating with KFEF for two years.

The ground for setting aside the said directions was that the office bearers were denied natural justice by the CCI by not issuing a show cause as to why they should not be debarred from acting as office bearers.

Against this is the present civil appeal.

Case Details: COMPETITION COMMISSION OF INDIA AND ORS. v KERALA FILM EXHIBITORS FEDERATION AND ORS.|C.A. No. 9726/2016

Citation : 2025 LiveLaw (SC) 955

Appearances: For Appellant(s) : Mr. Arjun Krishnan, AOR

For Respondent(s) : Mr. Harshad V. Hameed, AOR Mr. Dileep Poolakkot, Adv. Mrs. Ashly Harshad, Adv. Mr. Anshul Saharan, Adv.

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