Second show-cause notice not required for penalty; Supreme Court restores CCI order imposing penalties and two‑year ban on office‑bearers

A bench of Justices K.V. Viswanathan and Manoj Misra heard the Competition Commission of India’s appeal against a COMPAT judgment which had, while upholding the finding of contravention by the Kerala Film Exhibitors Federation (KFEF), set aside the monetary penalties and behavioural directions imposed on two of its office‑bearers for want of a separate show‑cause notice on penalty.

The Court allowed the appeal, held that the notice dated 10.06.2015 forwarding the Director‑General’s report and calling for replies satisfied the statutory requirements as they stood then, and restored the Commission’s order dated 08.09.2015 in full. The Court held that the statutory scheme envisaged a single, reasoned opportunity to answer the contravention and that no separate, second show‑cause notice inviting response specifically on the proposed penalty was mandated by the Act as it then stood. The Court emphasised that the notice was “to answer the contravention — not the proposed penalty” and rejected the COMPAT’s view that omission of a separate penalty notice vitiated the exercise. The Court, in its reasoning, observed: The Court restored the penalties and behavioural directions, directing that the two‑year disassociation period would commence from 01.12.2025 and ordered compliance reports to the Commission within three months.

Background An information by M/s Crown Theatre alleged that KFEF and its office‑bearers — P.V. Basheer Ahamed (President) and M.C. Bobby (General Secretary) — had coerced film distributors not to supply films to Crown Theatre and had organised a boycott against the theatre. The Commission directed the Director‑General (DG) to investigate and the DG submitted a report on 22.05.2015 concluding that KFEF contravened Section 3(1) read with Section 3(3)(b) of the Competition Act and identified the two office‑bearers as key decision‑makers who actively participated in the anti‑competitive conduct.

The Commission forwarded the DG report by its 10.06.2015 notice to KFEF and to the two individuals, called for audited accounts and income tax returns and fixed an oral hearing for 22.07.2015. After hearings, the Commission, by order dated 08.09.2015, found contravention, imposed monetary penalties (10% of average income as calculated) on KFEF and the two office‑bearers and directed that the individuals not associate with KFEF’s administration, management and governance for two years; KFEF was required to organise competition‑awareness programmes and file compliance reports.

On appeal before COMPAT, the Tribunal upheld the finding of contravention against KFEF but set aside the penalties and the disassociation directions insofar as they affected the two individuals, concluding that the DG’s adverse observations against them required a separate show‑cause on penalty and that they had not been afforded a distinct opportunity. The Commission challenged that part of COMPAT’s order.

The Supreme Court analysed the statutory scheme (Sections 26, 27 and 48) and the relevant Regulations as they then stood, reviewed authorities and the Competition Law Review Committee’s report, and held that once the DG report was forwarded and parties were given an opportunity to respond and be heard, the statutory purpose was met. The Court also examined proportionality of remedies and found the monetary and behavioural penalties proportionate on the facts, including prior similar findings against the office‑bearers. The appeal was allowed; COMPAT’s order setting aside the penalties and clauses (d) and (e) of paragraph 9 of the Commission’s order was set aside and the Commission’s order of 08.09.2015 was restored. The Court directed compliance filings and made no order as to costs.

Case Details: Case No.: CIVIL APPEAL NO. 9726 OF 2016 Case Title: Competition Commission of India v. Kerala Film Exhibitors Federation & Ors. Appearances: For the Petitioner(s): Mr. Arjun Krishnan (Advocate) for the Competition Commission of India For the Respondent(s): Mr. Harshad V. Hameed (Advocate) for Respondent Nos.1–3 (Kerala Film Exhibitors Federation and office‑bearers)