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 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.