INTRODUCTION

“Section 27(b) of Competition Act,2002:-

Commission orders after inquiry into contracts or misuse of a dominant position .— Where the
Commission determines after investigation that any arrangement referred to in section 3 or a
company's conduct in a dominant position is contrary to section 3 or section 4, as the case may
be, the commission may impose such a fine, as it may deem appropriate, not exceeding 10%.
Of the average turnover for the last three preceding financial years, the Commission shall
impose a fine equal on each of the suppliers, dealers, distributors, brokers or service providers
included in that cartel if any of the arrangements referred to in section 3 have been concluded.
Average cartel turnover for the last three financial years preceding, whichever is greater.”1
RELEVANT TURNOVER :-
For a company engaged in different areas of production, relevant turnover refers to the turnover
from the produce that forms the subject matter of the contravention. Relevant turnover refers
to the entity’s turnover pertaining to products and services that have been affected by such
contravention”.
TURNOVER
“Section 2(y) of Competition Act 2002:-
Turnover includes value of sale of goods or services.”2
“In general sense, Turnover is the total sales generated by a business in a specific period. It's
sometimes referred to as gross revenue, or income. It's different to profit, which is a measure
of earnings.”
Under this assignment, I mainly discuss about the term “turnover” used in Section 27(b) of
competition act is relevant turnover or total turnover. For this, I discussed main two case laws
that is Excel crop care vs. CCI and Hiranandani hospital case.

1 Section 27 of Competition Act,2002

https://indiankanoon.org/doc/585688/
2 Section 2(y) of Competition Act, 2002

https://indiankanoon.org/doc/585688/

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Excel Crop Care v. Competition Commission of India3
FACTS OF CASE
“On 28 March 2009, the Food Corporation of India (hereinafter referred to as' FCI') released a'
Notice Inviting Tender' (hereinafter referred to as' NIT') for the manufacture of 3 gram
Aluminum Phosphide Tablets (hereinafter referred to as' APT'), with the last bid date being 08
May 2009. The bids were released on June 1st, 2009, and the bidders were called for talks on
June 17th, 2009. The dispute exploded when the FCI submitted a complaint to India's
Competition Commission (hereinafter referred to as "CCI") on 04 February 2011 complaining
about an anti-competitive agreement that was allegedly signed between M / s. Excel Crop Care
Ltd.(' ECCL ' hereinafter), M / s. Sandhya Organics Chemicals (P) Ltd. (hereinafter Sandhya),
M / s. United Phosphorous Ltd. (hereinafter "UPL") and M / s, respectively. Agrosynth
Chemicals Ltd. (hereinafter referred to as "ACL"), in relation to contracts issued between 2007
and 2009 by FCI for ATP. The CCI assigned the matter for review to the Director-General
(hereinafter the "DG"). On 14 October 2011, the DG presented its report confirming FCI's
charges that ECCL, Sandhya and UPL had engaged into an anti-competitive agreement that
breached Section 3(3) of the Act.”4 “The DG found that APT's major customers were
government entities, and APT produced only four companies in India. While government bids
for APT have been released internationally, usually no bids have come from outside India. The
DG also noted that all of the corporations quoted the same prices at each FCI invited bid from
2002 to 2009, except in 2007. Moreover, between 2007 and 2011, at least two of the three
vendors had given similar offers to several government agencies at least 13 times, including
twice after FCI's complaint was filed. Finally, a tender offer offered by FCI in 2011 was
unanimously boycotted by the firms. The DG argued that these facts eliminated the likelihood
of chance, and that an arrangement must have been established to prevent competition.
The CCI sent notices to ECCL, Sandhya and UPL after receiving the DG's report, asking them
to lift their objections to the DG's report, if at all they wanted to. ECCL, Sandhya and UPL
submitted objections. The companies have given broadly similar reasons in reply to the DG's
findings. Firstly, they claimed that any arrangement could not be considered for a May 2009
bid because Section 3 was informed after the closing of the tender. They also argued that the
2011 boycott was out of the complaint's purview, and could not be addressed. Second, they
said a price change was the result of an increase in the cost of an imported raw APT ingredient
from China. Second, there was no further proof of a transaction happening, no phone call, no
text, or anything else. The same rates could be applied to the companies that base their offers
on previous tendering offers. The same rates could be applied to the companies that based their
offers on previous tendering offers. They said that there were no agreements made between
them about their bid rates.”5

3 (2017) 8 SCC 47,

4 Shivam Goel, Relevant Turnover vis-à-vis Total Turnover – Section 3 of the Competition Act, 2002
(Oct 30, 2017 at 10.00A.M)
https://tilakmarg.com/opinion/relevant-turnover-vis-a-vis-total-turnover-section-3-of-the-competition-act-
2002/
5 James Thomas Cox, PSA

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“CCI ORDER
Given the claims and conclusions, between 2009 and 2011 the CCI decided that the businesses
had infringed Section 3 requirements by their behaviour. With regard to the practical
application of the law and DG's ability to investigate the boycott, the CCI stated that it was the
DG's duty to determine whether any illegal behaviour had ever happened. He should not make
a specific or limited inquiry into the facts and could examine the 2011 boycott and signs of
understanding in 2009 after Section 3 was informed, even though those actions originated from
a previous agreement. The CCI then maintained that the "coincidence" of the same price quote
had a zero percent chance of occurring without some type of agreement. Though there was no
"true" evidence, the circumstantial evidence was adequate. The firms had different cost
structures and geographical locations which would mean different bid prices under normal
situations.
The CCI issued fines of approximately USD 9.8 million for Excel, USD 241.538 for Sandhya,
and USD 39 million for United.6 The fines were measured as 9 per cent of the average turnover
of the companies over the previous 3 years as allowed under Section 27(b).

COMPAT's Findings
Unsatisfied with both the decision and the fines, all three firms sought an appeal before
COMPAT and with the additional lawsuit posed the same concerns that the fines were too high.
They stated that only appropriate turnover would have been seen as a penalty basis. Specific
turnover is not specified or listed in the Act, but is usually related to the product
concerned. Businesses felt that they were penalized too high for the harm they might have
caused and should have been penalized only on turnover related to Appropriate production.
All appeals were dismissed by COMPAT except for the sum of fine levied by CCI. Seeing the
claims, COMPAT first chided the CCI because there was no basis for the penalty of 9 per cent.
Then, it agreed that the penalty was not excessive at 9 percent of total turnover since the APT
was used in the public distribution system for food grains and the conduct of the firms was
taken from the poorest people in society. Nonetheless, COMPAT ruled that the penalty should
be based on relevant turnover," a penalty that was more compatible with the doctrine of
proportionality and stressed the need for the CCI to justify its reasoning when handing out
harsh sanctions. Penalties for Excel and United were lowered to around USD 450,000 and USD
1 million. COMPAT found a decrease separately for Sandhya, since its only product was APT,
and it was much smaller than the other firms. As a result, both of these considerations were
enough to minimize their penalty by 1/10th for a total of USD 24, 154.”6
And finally COMPAT held that the appropriate measure of penalty in the case of a multi-
product company would be only the turnover of the product or service in relation to which the

(09 August 2017 at 10.00 A.M)

https://www.mondaq.com/india/Anti-trustCompetition-Law/618112/The-Excel-Crop-Case-Turnover-vs-
Relevant-Turnover
6 James Thomas Cox, mondaq

(09 August 2017 at 11.00 AM)

https://www.mondaq.com/india/Anti-trustCompetition-Law/618112/The-Excel-Crop-Case-Turnover-vs-
Relevant-Turnover

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contravention is alleged, and not the turnover of the entire multi-product company. This is
sometimes referred to as ‘relevant turnover’.

“SUPREME COURT

The CCI has appealed COMPAT's decision before the Supreme Court. CCI argued that, in
violation, the word "turnover" as used in the Competition Act must always be defined as the
enterprise's total turnover. The CCI argued that the COMPAT added terms to the Competition
Act by adding the word ' relevant' before the word ' turnover.' On the other side, ALP tablet
manufacturers, led by Excel, resisted the same by claiming that it was the definition provided
by the CCI that led to the inclusion of the word ' all' or' complete' before the phrase ' turnover.'
Held - Ultimately, the Supreme Court held that the application of a punishment following the
"relevant turnover" requirements would be "more in line with the ethos of the Act and the legal
concepts underlying the issue of the application of sanctions."
Role of Equity in Penalty Imposition
The Supreme Court held that, in all cases, to embrace the CCI's definition of the word
"turnover" as "absolute turnover" would "bring very unequal results." Based on various
decisions indicating that interpretation that creates unequal or ludicrous effects must be
avoided, the Supreme Court held that CCI's expanded interpretation does not warrant
acceptance.
In this regard, the Supreme Court took note of examples demonstrating that the application of
a penalty on the basis of total turnover" in all situations will inequitably discriminate against
firms that conduct the same contravention, based on how their product / business lines are
organized.
STRICT INTERPRETATION
The Supreme Court also supported its decision and found that the principle of strict
interpretation of "criminal" laws would also endorse and complement the "appropriate
turnover" criterion rather than "absolute turnover."
Having regard to the principle of strict interpretation (based on a recent judgment of the
Constitution Bench in Abhiram Singh and Ors v C.D. Commachen (Dead) by L.Rs and Ors 7),
the Supreme Court held that "even if two interpretations are possible, the one that leans in favor
of the infringer must be adopted" and that "there is no reason for the inclusion of other company
goods for the purpose of infringing"
Proportionality and Purposive Interpretation
As regards the CCI's claims on the goal of stopping and halting anti-competitive activities, the
Supreme Court held that "the punishment can not be excessive and should not lead to surprising
results." It was held that the object of deterrence can not be justified in giving an interpretation
which could lead to "the entity's death" itself. The Supreme Court stressed that the concept of
proportionality, based on equality and justice, is a "constitutionally protected right that can be
traced to both Article 14 and Article 21 of the Constitution".

7 AIR 2017 SC 401.

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The Supreme Court acknowledged that certain overlaps exist between the doctrine of purposive
interpretation and the doctrine of proportionality. This held that the object of the Competition
Act could not be to "finish" any undertakings. The Supreme Court affirmed on the basis of the
South African judgment in Southern Pipelines that "there is a statutory correlation between the
damage caused and the income obtained from cartel activity." Accordingly, the Supreme Court
found that the purposeful use of the word "turnover" also favours relevant turnover."
Hon'ble Mr. Justice N.V. Ramana's parallel judgment held that "proportionality must be
integrated into any penalty levied under section 27" of the Competition Act. Accordingly, it set
out step-by-step procedures to be adopted by the CCI when imposing sanctions.
Step-wise Methodology for Penalty Imposition
Step 1: Determination of Relevant Turnover
“Relevant turnover” refers to the “entity’s turnover pertaining to products and services that
have been affected by such contravention”. The Supreme Court has clarified that the above
definition is not exhaustive.
Step 2: Determination of Appropriate Percentage of Penalty Based on Aggravating and
Mitigating Circumstances
The Supreme Court provided an illustrative list of factors to be considered when determining
such percentage.
Final Step: The penalty imposed “should not be more than overall cap of 10% of the entity’s
relevant turnover.”8

“HIRANANDANI HOSPITAL V. COMEPTITION COMMISSION OF

INDIA & ORS., (APPEAL NO. 19/2014) COMPAT ORDER
The Appellant was a multi-speciality hospital that offered healthcare services like maternity. It
signed an agreement with Cyrobank to provide pregnancy patients with facilities for the
umbilical cord stem cell banks beginning on 01.09.2011. Previously, for two years i.e. 2009-
2010 and 2010-2011, the appellant had signed into similar contracts with Lifecell International
Private Limited(' Lifecell'). Mrs. Manju Jain, who was pregnant with her second child, reached
an arrangement with Lifecell to receive umbilical cord banking. On 17 October 2011, Ms. Jain
inspected the Appellant Hospital to meet with Dr. Vinita Raut (Gynaecologist) employed in
the Hospital. At that point, she didn't reveal that she had signed an agreement with Lifecell for
her umbilical cord to receive stem cells, nor was she registered with the appellant. When she
visited Dr. Raut again, Mrs. Jain said she had signed a deal with Lifecell. Since the appellant
had concluded an exclusive arrangement with Cyrobank, it was told to Mrs. Jain that Lifecell
could not be permitted to offer such services. It prompted Mrs. Manju Jain, at the eleventh
hour, to switch hospitals. Following this event, mr. Ramakant Kini, who was not linked to Mrs

8Rahul Goel, A Cyril Amarchand Mangaldas Blog,

( May 16, 2017 at 10.00 AM)
https://competition.cyrilamarchandblogs.com/2017/05/supreme-court-limits-ccis-penalty-powers-relevant-
turnover-upheld/#:~:text=%E2%80%9CRelevant%20turnover%E2%80%9D%20refe

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Manju Jain, lodged a complaint with the CCI alleging abuse of dominant position and
infringement of free and fair trade.

CCI
The CCI found the Appellant liable after its inquiries and thus levied a fine of Rs. 3.81 crore.
This was based on the fact that:-that the Appellants had a dominant position on the Mutli–
specialty Hospital sector (where Super Speciality Hospitals offered maternity facilities within
a distance of 0-12 K.M. from Hiranandani Hospital covering S, L, N, K / E, T and P / SEBI
wards of Municipal Corporation of Greater Mumbai).
It was further held that the Appellant's actions resulted in refusal of market access and that the
deal between Hiranandani Hospital and M / s was being made. Cryobanks was an arrangement
with section 3(1) read in contravention of section 3(4) of the Competition Act, 2002.
The commission thus held that the behavior of M / s was based on the above. L.H. Hiranandani
Hospital had read 4(2)(a)(i), 4(2)(c) and 3(1) in violation of the provisions of section 4(1) of
the Act.

COMPAT
Hiranandnani Hospital filed an appeal before the COMPAT, following the CCI findings. There
were therefore two questions before the Tribunal: Is the conclusion reported by the majority of
the Commission that the appellant is guilty of acting in violation of Section 3(1) of the Act
legally sustainable?
If the Commission's fine of Rs. 3,81,58,303/-is legally justified by taking into account the
appellant's gross turnover over the past three financial years?
The tribunal found the commission to be incorrect in determining the business involved. While
the CCI determined that the appropriate market is the maternity services provided by Multi-
Speciality Hospitals, the COMPAT held that the entire case revolved around the market for
stem cell services and there are currently 13 players across the country. The tribunal found that
the hospital-Cyrobank arrangement only placed a limit on the hospital for the provision of stem
cell services via Cyrobank. This arrangement did not set up any limitations on the public to
make use of such services, since 13 different players were on the market. Aside from this,
Cyrobank could also enroll any patient who had access to maternity services at other hospitals
so this arrangement did not create any limitations whatsoever. Consequently the Commission
held that the refusal of the appellants to provide stem cell services via Lifecell did not create
any appreciable adverse effect on competition. In addition, the tribunal acknowledged that the
entrance of two new entities, i.e. Novacord and Unistem Biosciences, further demonstrates that
the Appellant's actions did not prevent competition in the related stem cell industry.
The court further held that it could not enforce the fine levied under section 27 of the Act. This
was because the 'Turnover' measured for enforcing a hospital fine could not be focused on the
income received from other sources. The turnover had to be the' relevant turnover' directly
received by the violation, i.e. stem cell services so named.”9

9 Ayushi Chaudhary COMPETITIONLAWOBSERVER,

( AUGUST 20, 2016 at 11.00 PM)

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 CONCLUSION
The decision of the Hon’ble Supreme Court of India in the Excel Crop Care Ltd. case is one of
the most balanced and thoughtful decision of the recent times, operating in the periphery of
competition law, chiefly for two reasons: firstly, it declares that when a statute is regulatory in
nature and disobedience of any of its provision calls for imposition of penalty then the rule of
literal (or strict) interpretation must give way to the ‘doctrine of proportionality’ which states
that ‘where scissor suffices, sledgehammer must be avoided’.
In Hiranandani Hospital’s case, COMPAT held that the ‘Turnover’ calculated to impose a
penalty of the hospital could not be based on the income earned through other sources. The
turnover had to be the ‘relevant turnover’ earned directly through the infringement so identified
i.e stem cell services. On this bases we can say that expression turnover used in section 27(b)
is not total turnover but a relevant turnover.
According to my view, the term turnover mentioned under section 27(b) talks about “total
turnover” and not about “relevant turnover” because the intention of the legislature to enact
such provision was to provide for total turnover as it has not expressly mention anything about
relevant turnover . so it can be concluded that the legislature was not having any intention to
provide penalty on relevant turnover. According to my view, penalty must be impose on total
turnover so that people may not abuse its dominant position and not engage in anti competitive
agreements, if penalty imposed is kept high.

https://competitionlawobserver.wordpress.com/2016/08/20/hiranandani-hospital-v-comeptition-
commission-of-india-ors-appeal-no-192014-compact-order/#

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