Supreme Court restores CCI penalty on Kerala Film Exhibitors Federation

The Supreme Court on Friday upheld the penalties imposed by the Competition Commission of India (CCI) on the Kerala Film Exhibitors Federation (KFEF) and its office bearers for anti-competitive conduct [Competition Commission of India v. Kerala Film Exhibitors Federation].

A Bench of Justices Manoj Misra and KV Viswanathan overturned a 2016 order of the now defunct Competition Appellate Tribunal (COMPAT) which had set aside the penalties on procedural grounds.

The Court ruled that no second show-cause notice was required before imposing penalties.

“The notice was categoric in pointing out the contraventions alleged and clearly fixed the individuals in charge. Respondent Nos. 2 and 3 can complain of no prejudice if, on the basis of this notice, the Commission held them guilty and proceeded to impose penalty,” the Court observed.

The case arose from information filed by Crown Theatre alleging that KFEF and its office bearers threatened distributors that their films would not be screened if they were released at Crown Theatre. The Federation also called for a boycott of films at the theatre, prompting Crown Theatre to resign from KFEF membership.

The CCI Director General (DG) investigation concluded that KFEF had contravened Section 3(3) of the Competition Act and found PV Basheer Ahamed and MC Bobby, President and General Secretary of the Federation, to be key decision makers who played an “active role” in the anti-competitive measures.

The DG noted that a Tamil film, Raja Rani, was taken down from Crown Theatre after three days on the instructions of Basheer Ahamed.

Acting on the report, the CCI in September 2015 held that KFEF had violated Section 3(3)(b) of the Act and imposed a penalty of 10% of average income on the Federation, Ahamed and Bobby. It further directed that the two office bearers should not be associated with the Federation for two years, and mandated competition awareness programmes for members.

COMPAT, while upholding the contravention, set aside the penalties against the office bearers on the ground that they had not been issued a specific notice proposing to penalise them.

This led to the appeal before the apex court. The Court disagreed with COMPAT and ruled that a clear opportunity was given the respondents to file their replies.

“It is undisputed that the DG who investigated the complaint concluded that Respondent No.1-KFEF contravened Section 3(3) of the Act causing appreciable adverse effects on competition. The report also by name found Respondent Nos.2 and 3 as the key persons/key decision makers who played active role in Respondent No.1-KFEF.” The Bench added: “A clear opportunity was given to file reply/objections. Respondent Nos.2 and 3 can complain of no prejudice.”

The Court stressed that statutory liability under Section 48 of the Act was fixed by law itself:

“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.”

While restoring the penalties, the Supreme Court clarified that the Competition Act, prior to the 2023 amendments, envisaged only one round of notice and hearing before penalty.

CCI was represented by Advocate Arjun Krishnan.

KFEF was represented by Advocates Harshad Hameed, Dileep Poolakkot, Ashly Harshad and Anshul Saharan.

[Read Judgment]