The Delhi High Court ruled that any attempt by the CCI to impose interest retrospectively, or without compliance with the prescribed statutory procedure, would not merely constitute a procedural irregularity but a substantive violation of constitutional guarantees under Articles 14, 19, 21, 265, and 300A of the Constitution of India. Further, the levy of interest without the statutory foundation of a valid demand notice would offend both the rule of law and the constitutional prohibition against deprivation of property without valid authority of law.
The Court strongly stated that the imposition of interest on the penalty that is recoverable is contingent upon and triggered by the non-compliance with the Demand Notice, as expressly specified in the Competition Commission of India (Manner of Recovery of Monetary Penalty) Regulations, 2011, and thus, the principle of restitution cannot be invoked in a manner such as to give retrospective operation to the triggering event, namely the Demand Notice itself.
The Court therefore dismissed the appeal and upheld the order passed by the Single Judge in W.P.(C) No. 10332/2023, whereby it was held that in the absence of a valid demand notice under Regulation 3, the levy of interest by the CCI is without jurisdiction and contrary to the mandatory procedural scheme of the 2011 Regulations.
The Division Bench comprising Justice Harish Vaidyanathan Shankar and Justice Anil Kshetarpal observed that issuance of a demand notice under Regulation 3 and the consequent imposition of interest for default under Regulation 5 form part of a sequential and mandatory statutory process. These provisions nowhere empower the CCI to impose interest retrospectively or from a date preceding the valid service of a demand notice. Since these procedural requirements are both mandatory and chronological, they must be followed in that precise manner alone, and any deviation therefrom renders the levy of interest legally unsustainable.
The Bench went on to observe that no single provision under the Competition Act or the 2011 Regulations authorises the automatic or mandatory accrual of interest merely upon the expiry of the period stipulated in the penalty order. On the contrary, Regulation 3 expressly mandates the issuance of a demand notice in Form I, and interest under Regulation 5 accrues only upon failure to make payment within the time specified in such notice.
Therefore, the Bench deprecated the action of the CCI in not issuing a notice to the respondents in Form I, as mandated under Regulation 3 of the 2011 Regulations, before imposing the interest upon the penalty, which is in complete defiance of Regulation 3(2) which categorically provides that the 30-day period for payment shall begin “from the date of service of the demand notice to the enterprise.” Once it is established that no demand notice was ever issued to the respondents, the question of any default in payment does not arise.
Briefly, the CCI (appellant) found the respondent company and its directors guilty of engaging in cartelization in the Dry Cell Batteries market in India, in violation of the provisions of Section 3(3)(a) read with Section 3(1) of the Competition Act, and therefore, directed them to cease from such anti-competitive conduct, in addition to levy of monetary penalties under Section 27(b) of the Competition Act.
Challenging the same, the respondents approached the National Company Law Appellate Tribunal (NCLT), which stayed the operation of the CCI‘s Order, subject to the condition that the first respondent company deposits 10% of the penalty amount and its directors deposit their respective penalties in full. Subsequently, the NCLAT upheld the finding of contravention but reduced the quantum of penalty imposed on the first respondent to Rs. 2.41 crores, being 1% of its turnover for each year of cartel participation, while maintaining the penalties imposed on the directors.
Pursuant to the NCLAT‘s Judgment, the CCI issued Demand Notices to pay penalty amounts within thirty days, along with interest at the rate of 1.5% per month, to be made into the Consolidated Fund of India. The respondents objected to the levy of interest and sought permission to pay the penalty in instalments. The interest waiver request was rejected by the CCI; however, the respondents were allowed to pay the penalty in instalments.
Not satisfied, the respondents approached the High Court, where the Single Judge held that the issuance of a demand notice in the prescribed form under the 2011 Regulations is a mandatory precondition before any interest can be levied. Accordingly, the Single Judge set aside the CCI‘s Order to the extent it imposed interest on the penalty.
Case Distinguished:
State of U.P. vs. Prem Chopra [(2024) 12 SCC 426]
Case Dissented:
State of Rajasthan vs. J.K. Synthetics Ltd [(2011) 12 SCC 518]
Appearances:
ASG N. Venkataraman, along with Advocates Shivshankar, Ankur Singh, Kaustav Som, and Pritha Banerjee, for the Appellant
Advocates Ravisekhar Nair, Parthsarathi Jha, and Aayushi Sharma, for the Respondent
Area: Competition Law
