Bombay High Court sets aside profiteering order against McDonald’s Master Franchisee

Shishir Sinha New Delhi | Updated on October 21, 2019 Published on October 21, 2019

Anti-profiteering body had directed Hardcastle Restaurants to deposit ₹7.49 crore for not passing on GST cuts

The Bombay High Court has set aside profiteering order against Hardcastle Restaurants (HRPL), a Master Franchisee of famous fast food brand McDonald’s.

HRPL operates nearly 300 McDonald’s outlets across 34 cities and 10 States in the West and South India.

In November 2018, the National Anti-profiteering Authority (NAA) passed an order against HRPL saying that it did not pass the benefits of lower GST rate cut to its customers.

It accordingly directed it to lower the price and to deposit profiteered amount of ₹7.49 crore to the Consumer Welfare Fund along with 18 per cent benefit. Later, direction to continue the investigations till commensurate price reduction takes place and initiation of penalty proceeding was stayed by the High Court.

Principles of natural justice

HRPL challenged the anti-profiteering order on the ground of violation of the principles of natural justice. The main contention was that hearing was only by three members and the impugned order was pronounced by four members, thus, the HRPL was not afforded an opportunity to present its case before the fourth signatory.

After hearing the arguments from both sides, the Division Bench noted the contention of the Respondents (Revenue Department and NAA) that if the role of the fourth member is removed, then the remaining three constitute a quorum and the order can be sustained, is also not correct and was rejected.

“We conclude that when the three members of the Authority had heard the Petitioner and participated in the entire hearing, the collectively signed decision, when the fourth member joined only for signing the order has resulted in violation of the principles of natural justice and fairness, and is liable to be set aside,” the bench said.

It also held that the NAA is guided by the principles of natural justice.

A hearing is contemplated not merely looking at the records. “There is a deliberation amongst the members. Therefore, the presence of a member of the Authority during the hearing is not a formality. Multi-member panels are constituted so a decision through discussion and exchange of opinions takes place.”

According to the bench, the litigant is entitled to be heard by all members who are the ultimate decision-makers so the litigant can try to convince each member of the adjudicating Authority.

Therefore, oral hearing is clearly contemplated and the argument of the Respondent that since all the record was before the Authority, there is no illegality in the fourth member in signing the order, is not correct.

If the scheme itself provides for hearing by all members, not giving hearing itself will cause prejudice. Therefore the argument of the Respondents that there is no prejudice, also cannot be accepted

“The issues that come up before the Anti-Profiteering Authority are complex. The Act and Rules provide no appeal.

“The Authority can impose a penalty and can cancel the registration. The term profiteering, under the Act and Rules, is used in a pejorative sense. Such a finding can severely dent the business reputation.

“The Authority is newly established. Therefore, as guidance to this Authority, highlighting the importance of fair decision-making is necessary,” the bench said while setting aside the order.

This is not the first order by NAA, failed to face scrutiny by the higher court. Earlier, orders against Hindustan Uniliver and Pyramid Infrastructure were also stayed.

Published on October 21, 2019

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