Recently, the Supreme Court addressed a dispute involving the Kerala Film Exhibitors Federation, where allegations surfaced of pressure tactics and boycotts against a theatre. The matter raised concerns of anti-competitive practices in the film industry and the accountability of the Federation’s office bearers. The case also raised questions about whether penalties could be imposed without issuing a separate show-cause notice.
Brief Facts:
The case arose from complaints by the Crown Theatre alleging that the Kerala Film Exhibitors Federation (herein referred to as “KFEF”) and its office bearers engaged in anti-competitive conduct by pressuring film distributors not to release movies for screening at Crown Theatre. The Federation reportedly called for a strike by its member theatres, effectively boycotting the Crown Theatre and forcing it to resign from the Federation. These actions prompted the Competition Commission of India to investigate for violations of competition law, leading to the present legal proceedings.
Contentions of the Appellant:
The Appellant contended that the President and General Secretary of the KFEF were the key persons in charge of and Responsible for the conduct of the Federation. As such, under Section 48 of the Competition Act, they were liable for the contravention committed by KFEF. The Appellant argued that issuing the Director General’s investigation report to the Respondents, and seeking their comments, was sufficient notice regarding the penalty. There was no need for a separate show-cause notice for penalty imposition. The Appellant also contended that the procedure contemplated by the Act was a single hearing wherein a reasonable opportunity of being heard is sufficient, and the penalties and behavioural directions imposed were proportionate and justified to curb anti-competitive conduct.
Contentions of the Respondents:
The Respondents argued that the Competition Appellate Tribunal (herein referred to as “COMPAT”) was justified in setting aside penalties and directions against the office-bearers because no specific show-cause notice was issued to them proposing a penalty, which is a violation of principles of natural justice. They asserted that merely furnishing the DG report did not amount to adequate notice for penalties. The Respondents also raised that imposing personal penalties on office-bearers for decisions collectively taken by the Federation would infringe their fundamental right to form associations under Article 19 of the Constitution. Further, they claimed that the penalties imposed were disproportionate to the alleged contravention.
Observations of the Court:
The Court, while examining the issues, made detailed observations on the scope of notice, the necessity of a second show-cause notice, and the principles guiding the imposition of penalties under the Competition Act.
The Court first addressed the sufficiency of notice issued by the Commission. It noted that the Director General’s report had specifically identified Respondents as “key persons/key decision makers” in the affairs of the Federation. A copy of this report was furnished to them along with a direction to file their replies, submit income details, and appear for oral hearing. The Court held that such a procedure fully satisfied the requirement of natural justice as applicable under the Act at the relevant time, observing that “We are fully convinced that the notice dated 10.06.2015 issued in the present case fulfils the requirement in law as it then stood.”
On the contention that a second show-cause notice was required before imposing a penalty, the Court rejected this argument. It emphasised that the Act does not contemplate a two-stage procedure for liability and penalty, and that once parties are put on notice of the contravention, no further notice of the proposed punishment is mandated. As the Bench observed that “There is no mandate in the statute for the issuance of a second show cause notice setting out the proposed penalty.”
The Court then elaborated on the principle of proportionality in the matter of penalties. Referring to its earlier decision in Excel Crop Care Ltd. v. CCI, the Bench underscored that penalties serve both corrective and deterrent functions, but must not be excessive. As held that “The penalty cannot be disproportionate and it should not lead to shocking results. That is the implication of the doctrine of proportionality which is based on equity and rationality. It is, in fact, a constitutionally protected right which can be traced to Article 14 as well as Article 21 of the Constitution. The doctrine of proportionality is aimed at bringing out “proportional result or proportionality stricto sensu”. It is a result-oriented test as it examines the result of the law in fact, the proportionality achieves balancing between two competing interests: harm caused to the society by the infringer which gives justification for penalising the infringer on the one hand and the right of the infringer”
Further, the Court clarified that consideration of past conduct or earlier penalties is permissible in determining punishment. Drawing support from State Bank of India v. Mohammad Badruddin, it observed that “There cannot be any bar to take into consideration previous punishments in the constitutional scheme as interpreted by this Court. Thus, the non-communication of the previous punishments in the show-cause notice will not vitiate the punishment imposed.”
The Bench also repelled the argument that making office-bearers personally liable for anti-competitive conduct infringes their fundamental right to form associations under Article 19(1)(c). It was categorically held that such a right is not absolute, and unlawful or unethical practices cannot be shielded behind it. As the Court stated that “Unethical practices can always be checked since the right under Article 19(1)(c) is not absolute and reasonable restrictions can be imposed under Article 19(4).”
Lastly, on the question of whether notice of the proposed punishment itself is necessary, the Court cited Associated Cement Companies Ltd. v. T.C. Shrivastava to reaffirm that what is required is notice of the charges, not of the quantum of penalty. The Court observed that “The opportunity given was to explain the charges and not the proposed punishment… neither the ordinary law of the land nor the industrial law requires an employer to give such a notice. The only class of cases where such a notice has been held to be necessary are those arising under Article 311.”
Accordingly, the Court concluded that forwarding the DG’s report, directing replies, and granting oral hearing constituted sufficient compliance with natural justice, and that a second show-cause notice under Section 27 was not necessary.
The decision of the Court:
The Supreme Court has restored the Competition Commission of India’s orders imposing penalties on the KFEF and its office bearers for anti-competitive practices. The Court held that the notice issued by the Commission was sufficient and rejected the contention that separate show-cause notices were required. Upholding the penalties and behavioural directions, the Court emphasised the need to deter anti-competitive conduct in the film exhibition sector.
Case Title: Competition Commission of India V. Kerala Film Exhibitors Federation & Ors.
Case No.: Civil Appeal No. 9726 Of 2016
Citation: 2025 Latest Caselaw 925 SC
Coram: HMJ Manoj Misra and HMJ K. V. Viswanathan
Counsel For The Appellant: AOR Arjun Krishnan
Counsel For The Respondents: AOR Harshad V. Hameed, Adv. Dileep Poolkkot, Adv. Ashly Harshad, Adv. Mahabir Singh, Adv. Anshul Saharan
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