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The Appellate Tribunal gives an unwarranted twist to ‘Agreement’ in Tamil Nadu Film Distribution case

Nissy Solomon

The Competition Commission of India (CCI) in its order dated 5th November 2013, held Tamil Nadu Film Exhibition Association (TNFEA) in violation of Section 3(1) and 3(3)(b) of the Competition Act. It levied a penalty of 10 per cent of the turnover on TNFEA, amounting to around 41 thousand rupees. However the said decision was overturned in the Appellate Tribunal (AT).

The facts of the cases were that one Reliance Big Entertainment (the “informant”) alleged TNFEA was abusing its dominant position in the film exhibition market, thereby imposing unfair and discriminatory conditions on its members. It pleaded the Commission to pass a ‘cease and desist’ order in the same regard, thereby compensating for the financial losses it has incurred because of imposition of such conditions.

Even though CCI found violation in the said case, the AT overturned the same. Evidences relied upon by the commission included documentary furnished by the distributors and the video clip of the press conference of General Secretary of the association held on 03.12.2011. The Tribunal in its order held that General Secretary (GS) only stated his personal opinions at the press conference, and that he only has a ceremonial role. Therefore his statement is not a legally admissible evidence. It also held that any decision to be applicable on the Association’s behalf, it has to be reduced in writing and entered in the books maintained for the purpose, as per their bye-laws.

The Tribunal’s stand appears problematic from multiple viewpoints. First, stating that GS only has a ceremonial role to play goes in direct contrast with what is mentioned in clause 5(m)(i) of TNFEA. It reads as, “The General Secretary shall be empowered to give directions in regard to the day-to-day affairs of the business of the Society”. A plain reading of the same would establish that GS has relation with executive activities of the Association, contrary to ceremonial. Second, section 2(b) of the Act defines ‘agreement’ as “Agreement includes any arrangement or understanding or action in concert, whether or not… is…in writing.” Therefore the Indian lawmaker was clear in his intend that he wanted to keep even unwritten agreements under its purview, unlike in other legislations.

Other peculiarity was that even though TNFEA, by virtue of it being neither a person nor a department of government, does not come under the direct definition of enterprise (“person or a department of the Government ...engaged in any activity, relating to the production, storage, distribution, or the provision of services”), wordings of section 3(1) (“person…association of person”) would suggest that it falls under the purview of section 3, where ‘person’ is again a defined term as per section 2(l) of the Act.

The overall facts of the case are in resonance with the CCI’s reasoning. The said video clipping of GS did actually result in collective refrain of the movie in question, and reflected the stand of the association as a whole. When the DG directed the questionnaire to the GS, he did not respond to the same on account of illness. This further creates a doubt in the reader’s mind as one would expect a delayed response, if not timely, in case of illness.

Even though the evidence to establish ‘intent’ of TNFEA to cause harm in the said case was dicey, the said conduct still falls foul of section 3(3)(b) of the Act. There is no requirement for CCI to establish ‘intent’ on part of the opposite parties, to put section 3 into action. Section 3(3) of the Act also has a presumption for Appreciable Adverse Effect on Competition (AAEC), once a case of controlling supply is established. This shifts the burden of proof on the opposite party. In absence of convincing defence by the TNFEA, the overall loss incurred by the distributors and the exhibitors due to anti-competitive behaviour displayed by the opposite party does warrant a penalty of 10 per cent of the turnover.