Appeal No. 93 of 2015. Case: Film Distributors Association (Kerala) Vs Competition Commission of India and Ors.. COMPAT (Competition Appellate Tribunal)

Order:

1. This is an appeal for setting aside order dated 24.06.2015 passed by the Competition Commission of India (for short, 'the Commission'), whereby penalty of Rs. 38,00,000/- was imposed on the appellant - Film Distributors Association (Kerala) under Section 43 of the Competition Act, 2002 (for short, 'the Act') for non-compliance of the notice issued under Section 36(2) read with Section 41 of the Act.

2. The appellant is an association of film distributors in Kerala. It is registered under the Travancore Cochin Literary, Scientific and Charitable Societies Act, 1955 (for short, 'the 1955 Act') and about 221 distributors in the State of Kerala are its members. Its main objective is to encourage and develop proper distribution of feature film in the State of Kerala and to safeguard the interest of its members. As per Clause 7 of the Memorandum of Association of the appellant, its Governing Body consists of the following:

   President: 1
   Vice-President: 1
   General Secretary: 1
   Joint Secretary: 3
   Treasurer: 1
   Committee Members: 20
   Committee Members (nominated): 6
   Total: 33

3. Rule 9(i) of the Rules framed by the appellant provides for holding of Annual General Body meeting on or before 30th day of June every year to (1) receive and consider the statement of accounts and balance sheet relating to the previous year audited by the recognized Auditor appointed by the Association; (2) to consider the annual report prepared by the General Secretary and approved by the Executive Committee and to conduct election to the post of office bearers and Executive Committee and office bearers elected before this amendment shall be treated as if amendment of the Rule had not taken effect. Rule 9(ii) lays down that election of members of Governing Body mentioned in Clause 7 of the Memorandum of Association shall be conducted every one year and the period of the office of the Governing Body shall expire on the 30th day of June every year. Rule 15(a) lays down that the office bearers of the Association shall be the President, Vice-President, General Secretary, 3 Joint Secretaries and Treasurer. Rule 15(b) lays down that the Executive Committee of the Association shall consist 20 elected members, 6 nominated members from affiliated Associations (one from each affiliated Association) and the office bearers of the Association, who shall be ex-officio members making a total of 33 members. As per Rule 15(2) elections to the Executive Committee are required to be held annually. Rule 17 provides that the Executive Committee shall meet every month and as often as necessary for the conduct of business and regulate its meetings and proceedings as it thinks fit. Rule 22, which enumerates the functions of the office bearers, reads as under:

   22. The office bearers shall hold office and function as per their respective portfolios as detailed below: THE PRESIDENT: Shall have the general control over all affairs of the Association. He shall have power to appoint the staff of establishment, to fine, suspend, or dismiss them subject to the approval of the Executive Committee in the last two cases. He shall also have the power to operate on bank accounts jointly with the Treasurer. He shall also preside over all the meetings. He is empowered to give directions to the General Secretary to call for and also to convene any meeting and also to give directions in regard to the business of the Association.

   THE GENERAL SECRETARY: Shall be the executive administrator of the Association and shall be responsible for all the working of the Association subject to the control of the committee. He shall be the officer to sue or to be sued on behalf of the Association. He shall enter into all contracts and execute all the agreements and other documents subject to the approval of the committee. He shall convene the General Body Meeting and Committee meetings.

   JOINT SECRETARIES: Shall assist the General Secretary in all matters. In the absence of the General Secretary one of the joint secretaries authorised by the President shall act as General Secretary of the Association in all dealings.

   THE TREASURER: Shall be the custodian of all the properties of the Association. He shall sign receipts for all moneys received on behalf of the Association. He shall also operate all Bank accounts jointly with the President. The treasurer shall maintain a regular account and shall be held liable and responsible for all money transaction of the Association. The treasurer may keep with him an amount of Rs. 10,000/- for urgent requirements. The exceeding amount will be deposited in any Bank approved by the Committee.

   ALL OFFICE BEARERS: Shall carry the function defined supra subject to the approval of the executive committee who are responsible for the entire management of the Association.

4. Respondent No. 2 - Kerala Cine Exhibitors Association, which is the oldest association of theatre owners in the State of Kerala and has 171 members, is engaged in the exhibition of movies and running of theatres. It filed an information dated 22.06.2012 under Section 19(1)(a) of the Act alleging that Respondent No. 3 and the appellant have formed a cartel and successfully prevented exhibitions of new films in the theatres owned by its members, despite the fact that the same have been classified as Class 'A' or Class 'B' theatres as per the recommendations made by the Committee setup by Kerala State Chalachitra Academy (Respondent No. 5). The precise nature of the allegations levelled by Respondent No. 2 is evident from paragraphs 4 to 8 of the information, which are reproduced below:

   4. The film industry in the State was facing very serious problems as a result of the cartel formation by a group of theater owners, through the 1st respondent Federation and the Film Distributors Association (Kerala), the 2nd respondent herein. The Film Distributors Association (Kerala) is only a middle man between the producers and the theater owners. Copy of their byelaws is produced as Annexure A-III. They are in league with the 1st respondent Federation. In the process, the Federation and the Film Distributors Association (Kerala) had formed a cartel as between. The producers and theater owners have no say in reality for exhibiting films as a result of the formation of the cartel. This had invited the attention of the authorities in the State Government at various levels. The authorities have been convinced of the adverse consequences in the film industry as a result of the formation of the cartel by the 1st respondent and as between respondents 1 and 2. Consequently a committee was formed by the Government to study the issues that are faced in the Industry. As part of resolving the issues that are faced in the industry in the State of Kerala, the Government had issued an order on 19-10-2011 for classifying the theatres as A, B, C categories. For the purpose of the said categorization committees were also formed by dividing the State into three regions. Copy of the Government Order issued in this regard is produced as Annexure- A-IV. On the basis of the submission of the report by the committees thus constituted Kerala State, Chalachitra Academy, the Government organization in the field of cinema had published the report classifying the theaters in the State as A, B, C categories. According to the said report, theaters which are categorized as A & B are entitled for fresh release or new films thereby widening the area of release and strengthening the film industry. Even though classification was made in that regard, even the theaters included in the said classification a and entitled for fresh release are not getting the release as a result of the cartel formed by the Federation in junction with the distributors association, thereby compelling the producers to agree to the terms as dictated by the Federation since the withdrawal of the existing releasing centers will adversely affect the collections when the films are not released simultaneously in all A Class or B Class theaters together which have satisfied the requirements for such release.

   5. As stated earlier, the committee had identified new releasing centers and theaters in the State. Copy of the report with the list thus prepared by the committee and approved by Kerala State Chalachitra Academy, a Government controlled body is produced as Annexure -A-V. Even though the releasing centers were thus identified by the committee so formed by the Government and finalized the list, these centers are not allowed to exhibit cinemas as a result of the undue pressure exerted by the members of the Federation in junction with the Film Distributors Association (Kerala) who are moving together to protect their common interest. As a matter of fact, the committee constituted by the Government had found that new films are given release to theaters which are not entitled for the release as they do not come within the classification for the purpose of new release as they have not provided the facilities. The same is given solely on account of the fact that the owners of such cinema theaters are members of the 1st respondent Federation. This will show, one face of the adverse consequence of the cartel formation. When films are given for new release to theaters who are not members of the Federation also, the Federation member theaters are withdrawing from exhibition cinema from all...