Unethical Practices Can Always Be Checked; Right To Form Associations Not Absolute: Supreme Court Allows CCI’s Appeal Against Kerala Film Exhibitors Federation

While allowing an Appeal against the Kerala Film Exhibitors Federation (KFEF), the Supreme Court emphasised that unethical practices can always be checked since the right under Article 19(1)(c) of the Constitution is not absolute and reasonable restrictions can be imposed under Article 19(4).

The Court was deciding a Civil Appeal preferred by the Competition Commission of India (CCI), challenging the Judgment of the Competition Appellate Tribunal (COMPAT).

The two-Judge Bench comprising Justice Manoj Misra and Justice K.V. Viswanathan observed, “We are not impressed with the argument of violation of Article 19(1)(c) of the Constitution. Unethical practices can always be checked since the right under article 19(1)(c) is not absolute and reasonable restrictions can be imposed under Article 19(4). In the present case there is no challenge to the validity, and we have to proceed on the basis that the statute is valid.”

The Bench said that the ecosystem of competition law provides for behavioural and structural remedies to be imposed depending on the facts of the case.

AOR Arjun Krishnan appeared on behalf of the Appellant while AOR Harshad V. Hameed appeared on behalf of the Respondents.

Case Background

An information was filed by M/s Crown Theatre (Respondent No. 4) before the CCI, alleging anti-competitive activities by KFEF and its office bearers. This was registered as a case and the gravamen of the allegation was that the film distributors were threatened that their films would not be screened at the cinema halls belonging to members of KFEF, if those distributors offered their films for exhibition at Crown Theatre-Informant. It was further alleged that KFEF and Respondent No. 2 took steps to ensure that whenever new Tamil and Malayalam movies were released, it would not be screened at Crown Theatre. KFEF called for a strike/ban on exhibition of films by its members in their cinema halls. Crown Theatre even resigned from KFEF’s membership. The CCI directed the Director General (DG) to investigate the matter.

Specific direction was given to investigate the role of the persons who were in charge of KFEF for their conduct with respect to the affairs of the Federation. Thereafter, the DG concluded that KFEF contravened Section 3(3) of Competition Act. The CCI also found KFEF guilty under the said Act. By the Judgment of the COMPAT, the findings of the CCI that Respondent-KFEF acted in contravention of Section 3(1) read with Section 3(3)(b) of the Competition Act, 2002 and the penalty imposed on it, was upheld. However, it set aside the penalty imposed on other Respondents and also the directions which were in the nature of behavioural remedies, contained in clause (d) and (e) of para 9 of the Order of the Commission. Being aggrieved, the CCI was before the Apex Court.

Reasoning

The Supreme Court in the above regard, enunciated, “Under Section 48, every person who, at the time of the contravention, was in charge of, and was responsible along with the company was deemed to be guilty of the contravention and was liable to be proceeded and punished. The liability was fixed by the statute itself.”

The Court was convinced that the notice issued in this case fulfils the requirement in law as it then stood.

“A behavioural remedy or a structural remedy is principally imposed on the enterprise. When a behavioural remedy impinges on corporate governance, corollary orders to give effect to the behavioural remedy may have to be made on individuals. Stricto senso the penalty is on the enterprise and the corollary direction is a consequential direction to give effect to the penalty imposed on the enterprise”, it noted.

The Court added that without such powers to impose corollary directions, behavioural remedies and structural remedies imposed on enterprises which incidentally impinge on individuals could never be given effect to.

“The behavioural remedy imposed on Respondent No. 1 can never be given effect to unless the corollary part of that direction, directing the Respondent No. 2 and 3 not to associate themselves with Respondent No.1 (KFEF), is given effect to. This also reinforces the holding that the penalty of a behavioural remedy is primarily on Respondent no. 1 with incidental consequences on Respondent Nos. 2 and 3”, it said.

Principle of Proportionality in penalty imposition

The Court was of the view that length of the application of remedies should be balanced inasmuch as while it should be long enough to allow intended effects to materialize and short enough to account for the dynamic nature of the markets.

“… in abuse cases proportional remedies should restore, as much as possible, the competitive situation that existed before the abuse occurred, without seeking to improve the market structure that existed prior to the abuse”, it observed.

The Court elucidated that notice and the supply of DG Report is to enable the parties to answer on the contravention and it is for the Commission to maintain the principles of proportionality in the imposition of penalty as prescribed in Section 27 of the Act, which may include monetary penalty and behavioural and structural remedies.

Time is of essence – No notice needed of proposed penalty

“Considering the importance of fair competition and the ultimate goal of protecting the interest of the consumers, these internationally recognized remedies, the power to impose which is statutorily engrafted in the different sub-sections of Section 27, are within the powers of the Commission to impose. This is the only way that the change that was desired from the erstwhile MRTP regime which only rest contented with the cease-and-desist orders, could be achieved”, it remarked.

The Court added that if these penalties are not recognized in the statute, the purpose of enacting the Competition Act would be defeated and the Commission, like the MRTP Commission would continue to be a toothless body.

“As to what remedy will best address the mischief in the individual case and act as a deterrent not only for the violator but also generally would be for the Commission to decide. Internationally, these remedies are well accepted and our statute in Section 27 vests the power in the Commission to pass such orders as deemed necessary to check the malaise. The ecosystem of the Competition Act is sufficient notice to the violator that the regulating body has vast discretion and depending on the factual scenario can fashion an appropriate remedy”, it further observed.

The Court added that the only check is that it should be proportionate and should have nexus with the object sought to be achieved- namely to punish the recalcitrant party and also ensure that the penalty acts as a deterrent.

“Providing a back and forth between the regulator and the person in breach to arrive at an appropriate penalty can defeat the purpose of the Act and can be a source of great abuse as the time given can be used to even present the Commission with a fait accompli, defeating the object of the Act. That will also result in enormous loss of time when time is of essence under the statute”, it also said.

The Court explained that as to what penalty to impose, it will be guided by the doctrine of proportionality, when it chooses the penalty or penalties from the menu of penalties available.

“Being an appellate authority, its powers are co-ordinate with original authority and it can even modify the penalty. It is not bound by the constraints a judicial review court exercising powers under Article 226 may be faced with. There is no need to remit the matter to the original authority for imposition of an appropriate penalty. The appellate Tribunal can itself substitute the penalty. This itself is a salutary safeguard”, it noted.

Conclusion

The Court was of the view that the behavioural and structural remedy to be imposed should be dependent on what the facts of the case warrant, depending on the nature of the contravention and the most appropriate remedy that will prevent the recurrence is for the Commission to decide.

“The only requirement is that it should be proportionate and should have the objective of preventing the recurrence of the contravention”, it added.

Coming to the facts of the case, the Court held that the penalty is not disproportionate.

“The monetary penalty was meagre. The acts committed had serious and deleterious effect on the informant and the general public and unless deterrent penalties were imposed prejudice to public would have been enormous. The penalty imposed, as above, cannot be said to be of such a nature as to shock the conscience of a judicially trained mind”, it remarked.

Furthermore, the Court said that a behavioural remedy like the one ordered in this case would alone protect the interest of the consumers and uphold the majesty of law.

“Equally, the holding of the COMPAT that the findings recorded by the Additional DG against Respondent Nos.2 and 3 were without issuing notice to them stating that he proposes to make observations adverse to their conduct, is in the teeth of Section 48. … In any event Respondent Nos.2 and 3 are being roped-in and rendered liable for the contravention in view of the deeming provision in Section 48 since it is undisputed that they were, at the time when the contravention was committed, in charge of and were responsible for the affairs of Respondent No.1”, it concluded.

Accordingly, the Apex Court allowed the Appeal, set aside the COMPAT’s Judgment, and restored the findings of the CCI.

Cause Title- Competition Commission of India v. Kerala Film Exhibitors Federation & Ors. (Neutral Citation: 2025 INSC 1167)

Click here to read/download the Judgment