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Debarring Directors: A New Deterrent In Competition Law?
Recently, the Competition and Markets Authority of the United Kingdom secured an undertaking from a director of a company, to the effect that the person would not act as a director of any UK-based company for a period of five years, as the Authority had found that the concerned company had been engaged in a price-fixing cartel. While the Authority's power to apply for a...
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Recently, the Competition and Markets Authority
of the United Kingdom secured an undertaking
from a director of a company, to the effect that
the person would not act as a director of any
UK-based company for a period of five years, as
the Authority had found that the concerned company had
been engaged in a price-fixing cartel. While the Authority's
power to apply for a competition disqualification order
against the directors of companies engaging in anti-
competitive conduct has been in the rule book since 2003,
this is the first instance where such an undertaking has
been furnished. In the event the undertaking was not
furnished, the Authority would have had the power to seek
an order from a court, which may have also resulted in
additional costs for the director.
Under Indian law, the Competition Commission of India
(CCI) is endowed with the power to impose the highest
economic penalties amongst all regulators in India. It is
also empowered to proceed against and penalize individuals
responsible for the conduct of a company's business, such
as directors, managers, secretaries, or other officers. The
Competition Act provides that in case of a contravention by
a company, in addition to the company itself, every person
who at the time of the contravention was in charge and
responsible to the company for its conduct would be deemed
to be responsible for such contravention and be liable to
be proceeded against and penalized. Under the Indian
competition law regime, the CCI can impose a penalty of up
to 10% of the average turnover for the last three years on
the enterprise in question as also individuals in-charge at
the time of the contravention.
In one of the cases in India where the CCI dealt with
individual liability, it was held that an anti-competitive
decision or practice could be attributed to the members of
a trade association who were responsible for its affairs and
actively participated in giving effect to anti-competitive
decisions taken by the association. The trend of penalizing
responsible officers has become increasingly common
as the CCI has started to direct the Director General, the
investigative arm of the CCI, to investigate the role of
responsible individuals in-charge of the affairs of the
enterprise in parallel with an investigation into the conduct
of the enterprise itself. However, this endeavor of the CCI
to commence simultaneous proceedings against individuals
contemporaneously with finding a contravention by the
enterprise has been met with serious challenges. Questions
have been raised as to whether the CCI can legitimately
proceed with investigating the role of individuals without
first having found the enterprise itself in contravention or
whether such an investigation is simply premature. The
issue has found itself mired in controversy, more so on
account of the established principles of jurisprudence under
other legislations that nearly mirror the provisions of the
Competition Act.
Since 2014, when the CCI began imposing penalties on
individuals, it has been seen that such penalties range
from one to ten percent of an individual's earnings from
the last three financial years. This has resulted in penalties
of a few thousand to lakh rupees being imposed on
individuals. It goes without saying that such penalties also
cause significant reputational damage. Another potential
repercussion that would be faced by such a person is that
under the revised Companies Law in India, such a person
would not be eligible for appointment as a managing
director, whole-time director, or manager of a company.
In addition to monetary penalties and reputational damage,
the CCI has powers to pass any such orders and directions
as it may deem fit. Under this wide residuary power made
available, the CCI may also be inclined to pass orders that
are, in effect, similar to the one seen recently in the United
Kingdom. The CCI's fines and directions are meant to be a
deterrent not only for the actual violator but also for the
public at large, and an order that would result in a person
being barred for a considerable period as a director from all
companies would certainly act as a heavy deterrent.
The only possible solution for avoiding such high monetary
and reputational risks is strict compliance with the rule
book. It is imperative that directors and key managerial
personnel of companies and office bearers in trade
associations organize regular checks on the manner in
which business is being conducted. Competition compliance
audits enable responsible people to be aware of any
wrongdoings that may result in their personal liability. A
strict competition compliance code that directs employees
to act only in a manner which would be in line with the
law is the need of the hour. Such a code is important for
all players in the market, be they large or small. While the
procedural issues with respect to individual liability would
get resolved in the near future, the only resolution to avoid
risks under competition law remains stringent compliance.
Disclaimer
- The views expressed in this article are the personal views of the author and are purely informative in nature.