Demand Notice Issued During Stay Period is invalid: Delhi HC Quashes CCI's Demand for Interest on Penalty against United India Insurance [Read Order]
The court held that since the demand notice was served during the subsistence of the stay order, it was rendered inoperative and could not be considered a valid "demand notice" as defined under Regulation 2(1)(c)
The Delhi High Court has quashed the Competition Commission of India's demand for interest on a monetary penalty imposed against United India Insurance Company Limited, holding that the demand notice issued during the stay period was invalid and that the doctrine of merger applies to the case.
The appeal was filed by United India Insurance Company Limited challenging the CCI's Order dated 06.12.2018 and Demand Notices dated 01.10.2015, 17.01.2017, and 14.12.2018, which demanded interest on the penalty under Regulation 5 of the Competition Commission of India (Manner of Recovery of Monetary Penalty) Regulations, 2011. The original penalty of Rs. 156.62 crores was imposed by the CCI on 10.07.2015 for alleged cartelization in health insurance schemes floated by the State of Kerala.
The Counsel for the appellant argued that the demand notice dated 01.10.2015 was served after the Competition Appellate Tribunal (COMPAT) had already stayed the operation of the penalty order on 05.10.2015, making it invalid. They further contended that the original order had merged with COMPAT's final order dated 09.12.2016, which substantially reduced the penalty to Rs. 1.56 crores, and that the appellant had promptly paid this reduced amount without any delay.
The Counsel for the CCI submitted that the power to recover interest arises directly from Regulation 5 of the 2011 Regulations, and that the interim stay did not extinguish the statutory liability to pay interest. They relied on precedents including State of Rajasthan v. J.K. Synthetics Ltd. and Kanoria Chemicals and Industries Ltd. v. U.P. SEB to argue that the grant of an interim stay does not absolve the beneficiary from the obligation to pay interest.
A division bench comprising Justice Anil Kshetarpal and Justice Harish Vaidyanathan Shankar analyzed the provisions of the 2011 Regulations, particularly Regulation 3 which defines a "demand notice" and Regulation 5 which provides for interest on penalty. The bench observed that Regulation 3(2) categorically provides that the 30-day period for payment shall begin "from the date of service of the demand notice to the enterprise."
The court held that since the demand notice was served during the subsistence of the stay order, it was rendered inoperative and could not be considered a valid "demand notice" as defined under Regulation 2(1)(c). The court applied the doctrine of merger, noting that the COMPAT's final order had merged with the CCI's original order, and the modified penalty was fully satisfied by the appellant.
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Finding that the demand notice was invalid and that no interest could lawfully arise on the basis of such notice, the court allowed the appeal and quashed the CCI's Order dated 06.12.2018 and the Demand Notices dated 01.10.2015, 17.01.2017, and 14.12.2018. The court distinguished the precedents relied upon by the CCI, noting that in those cases, the liability to pay interest had arisen either statutorily or contractually prior to the grant of any stay, which was not the situation in the present case.
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