Challenging CCI's Interest Mandate: A Legal Analysis of GEEP Industries vs CCI

A writ petition was filed by (“petitioners”) in the Delhi High Court (“Delhi HC") challenging an order issued by the Competition Commission of India (“CCI”) on July 18, 2023. The order directed the petitioners to pay interest on a penalty amount for the period between December 10, 2018 and July 7, 2023 on the ground that the CCI could not have mandated the payment of interest without adhering to the procedures outlined in CCI (Manner of Recovery of Monetary Penalty) Regulations, 2011 (“2011 Regulations”).

In 2018 CCI, by an order dated August 30, 2018, directed the petitioners to cease cartelization in the Dry Cell Batteries market in India and imposed penalties on them by an order dated August 30, 2018.

An appeal was filed against the CCI’s order and NCLAT allowed the appeal whereby it agreed with the CCI’s order but reduced the penalty of Geep Industries from 4% to 1% of its turnover by an order dated March 31, 2023.

During the appeal, the CCI's order was stayed on condition that petitioner no.1 deposits 10% of the penalty amount. After the NCLAT's decision, the CCI issued demand notices for the penalty amount with simple interest @ 1.5% for every month or part of a month from December 10, 2018.

The petitioners requested the CCI to retract the demand notices regarding payment of interest per month from December 10, 2018 onwards and requested to pay penalties in instalments. However, the CCI denied this request. The petitioners, therefore, approached the Delhi HC challenging the power of CCI to levy interest on payment of penalty.

1. Whether the CCI had the authority to levy interest on the delayed payment of the penalty without adhering to the guidelines outlined in the 2011 Regulations?

2. Whether the demand notice for the payment of interest complied with the statutory regulations?

The main argument presented by the petitioners was that interest can only be levied on penalty amounts by the 2011 Regulations and that the CCI could not demand interest without following the prescribed procedure.

As per Regulation 3(1) of the 2011 Regulations, stating that after the expiration of the specified period in the penalty order, a demand notice must be served on the enterprise through the Recovery Officer. They further argued that Regulation 3(2) mandates 30 days for the enterprise to deposit the penalty after receiving the demand notice, and Regulation 3(3) specifies the payment procedure. They asserted that unless this procedure is adhered to, interest on the penalty amount, as specified in Regulation 5 of the 2011 Regulations, cannot be imposed.

The main argument of CCI was that once the penalty is imposed, it must be complied with, and any delay in payment will automatically trigger the payment of interest under Regulation 5 of the 2011 Regulations.  

They clarified that the NCLAT did not rule out the imposition of penalties on the petitioners; rather, there was only a reduction in the penalty amount for one of the petitioners. Therefore, they asserted that the demand notice was merely consequential, and instructed the petitioners to pay interest on the penalty amount from the date it was initially due. The CCI elaborated that upon the dismissal of the appeals by the NCLAT, the original demand specified in the Order dated August 30, 2018 was reinstated, automatically lifting any stay granted by the NCLAT. Consequently, they argued that the amount originally due within 60 days from the order date would naturally accrue interest. They contended that the obligation to pay interest for delayed penalty payment isn't solely contingent on the issuance of a demand notice to the petitioners, as Regulation 3 of the 2011 Regulations is procedural and directory in nature, not mandatory. Therefore, they argued that demanding interest for delayed penalty payment based on the order dated August 30, 2018 is justified and cannot be faulted.

The CCI argued that Regulation 5 of the 2011 Regulations stipulates that if the penalty is not paid within the specified period, the enterprise is liable to pay simple interest at a rate of 1.5% per month or part of a month, starting from the day after the expiry of the specified period mentioned in the demand notice until the penalty is paid. 

The Court set aside the CCI’s levy of interest observing that interest can only be levied as statutorily provided and specifically under the Penalty Recovery Regulations; interest cannot be levied if the CCI has not issued and served a demand notice on the party. Interest should be calculated from the date CCI's formal demand notice was issued in 2023 for recovery of penalty. Even when a demand notice is issued and served, interest can only be levied on failure to pay penalty within the time specified in such a demand notice.

The Delhi HC referred to Regulation 3(1) of the 2011 Regulations which reveals that when the CCI imposes a penalty on an enterprise, it is obligated to issue a demand notice following the format outlined in Form-I attached to the regulations. This regulation, in conjunction with Form I, establishes that a person subject to a penalty must first be notified of the penalty's imposition. This notification requirement applies regardless of whether the person was present during the hearing or at the time of the final order. Form-I specifies the precise amount of penalty owed by the individual and the deadline for payment. It also states that failure to pay the penalty within the specified time will incur simple interest at a rate of 1.5% per month or part thereof, starting from the day immediately after the specified deadline until the penalty is paid.

Further, Regulation 3(2) of the 2011 Regulations states that a demand notice must allow the enterprise 30 days from the date of service to deposit the penalty as specified.

It's important to note that the interest amount mentioned in the notice aligns with what's outlined in Regulation 5 of the 2011 Regulations. This regulation clearly states that if the amount specified in the demand notice isn't paid within the specified period, then interest must be paid. Additionally, the demand notice itself states that the amount must be paid within 30 days of receiving the notice as per Form-I. These provisions are therefore mandatory and must be followed.

Additionally, the Supreme Court has consistently ruled that when there exists a power, along with corresponding duties, to perform a task in a specific manner, it must be done in that manner alone, with other methods being prohibited. 

The Court held that CCI erred in levying interest on the delayed payment of the penalty without adhering to 2011 Regulations. Further, the Court set aside the order dated July 18, 2023 that imposed interest on the penalty amount from December 12, 2018 to July 7, 2023. The writ petition filed by the petitioners was allowed.

About the authors: Shivani Gupta is an Associate and Kunal Vyas is a Partner at Gandhi Law Associates.

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