Often times, courts have opined on questions of law related to the role and functioning of the Director General (DG), the investigative arm of the Competition Commission of India (CCI). But recently, the Delhi High Court in a decision in National Engineering Industries Ltd. v. Competition Commission of India & Anr.1 settled a question of law pertaining to CCI's powers vis-à-vis the DG's Investigation report and the findings therein.
The case presented an interesting question - in the absence of any adverse material in the DG's Report, whether the CCI can even issue notice(s) to the company and its officials in terms of the Competition Act, 2002 (Act), leave aside potentially arriving at a finding of contravention. The High Court of Delhi ruled against the CCI. Before taking a look at the facts of the case, it would only be imperative to understand the scheme of investigation under the Act.
The Scheme under the Act
Under S. 26(1), on receipt of an Information (or suo-moto), the CCI can arrive at a finding that a prima facie case exists and can direct the DG to investigate. If the CCI does not so believe, it can pass an order under S. 26(2) closing the matter. If a prima facie order under S. 26(1) is passed, the DG is required to submit its report in the time set out in terms of S. 26(3). Then, the CCI forwards a copy of the report to the parties in terms of S. 26(4). Here's the catch – if the report of the DG recommends that there isn't a cartel / contravention, the CCI shall invite objections or suggestions from the parties involved in terms of S. 26(5). The CCI can choose to agree with the said objections or suggestions in terms of S. 26(6) and close the matter.
In the alternate, if the CCI on considering the said objections or suggestions opines that further investigation is necessary, it can in terms of S. 26(7) either direct the DG to inquire further / inquire further itself. Lastly, if the DG's report makes a finding of contravention and the CCI believes that further inquiry is required, in terms of S. 26(8), CCI can inquire into such a contravention within the scheme of the Act (i.e. either through the DG or itself). Additionally, if the CCI does arrive at a finding of contravention eventually, it can issue 'cease and desist' orders along with penalties under S. 27 and penalize the officers-in-charge and key managerial people under S. 48. It would now be suitable to review the facts.
Back in 2014, the CCI had taken suo-moto cognizance of an alleged cartel in the market for supply of automotive components including industrial and automotive bearings to original equipment manufacturers (OEMs). It is understood that the alleged cartel was not just limited to India but multi-jurisdictional and that the aim was to exchange commercially sensitive information in order to rig-bids and collude on prices. What followed was an order under Section 26 (1) directing the DG to conduct investigation in the matter (1st order). National Engineering Industries Ltd. (NEI) was one of the named parties.
From the oral arguments that took place before the Delhi High Court, it is understood that the DG submitted its report in 2018 stating that the allegedly violative conduct had ceased much prior to the enforcement of the Act (in May 2009) and thus there was no cartel in effect. It was also stated that the CCI, under S. 26(8), directed the DG to further investigate and ascertain whether the exchange of information between certain entities had caused any appreciable adverse effect on competition (AAEC) in India post May 2009 (2nd order).
It is understood that the DG submitted its supplementary report which allegedly did not contain any findings against NEI, but only oblique references. Post receipt of the report, the CCI directed (by way of the 3rd order) several parties and their officials to file their objections / suggestions to the cumulative Investigation reports along with their financial statements. Herein, NEI was identified as a party. In response to this, NEI filed an application seeking review / recall of the 3rd order. It also sought removal of its name from the array of parties as it had been erroneously identified. NEI explained that it was only a JV partner in NTN NEI, i.e. with one of the parties which had allegedly been found guilty (i.e. NTN).
In November 2019, the CCI dismissed (by way of the 4th order) the said review / recall application relying on the DG's oblique references.
Aggrieved by the 2nd, 3rd and 4th orders, NEI filed a writ. NEI pleaded that principles of natural justice had not been followed and an opportunity to be heard had not been granted while rejecting the review / recall application by the 4th order, which lacked reason. NEI's contention was that the supplementary report should not have been relied upon to reject the said application. Most significantly, NEI alleged a denial of an opportunity of being heard prior to rejection, that the order was non-reasoned and passed in the absence of a judicial member. NEI was also aggrieved with the fact that, neither the DG's investigation report, nor the supplementary report entailed a finding of cartelization in respect of NEI.
The Court's brisk judgment
The High Court's decision was extremely remedial. The High Court in its decision referred to the 'oblique reference' to NEI in DG's supplementary report and found that the DG had merely recorded that NEI had a relationship with NTN. The Court held that without any further material before it, CCI could not have issued a notice to NEI directing it to file a response to the DG's report along with its financials.
The High Court referred to its decision in Google Inc. & Ors. v. CCI & Anr.2 in which it had been observed that even at the stage of ordering investigation under S. 26(1), the CCI can order / direct investigation only if it forms a prima facie opinion of violation of the provisions of the Act have been committed. The Court noted that where such an opinion, though formed and expressed was unsustainable, the remedy of writs under Article 226 was always available. Referring to its decision in Telefonaktiebolaget LM Ericsson (Publ) vs. Competition Commission of India and Anr3, the Court held that commencement of investigation itself was sufficient to cause prejudice to a party.
The Court's references to S. 26(1) and the above two cases, while quashing subsequent notices / orders in the NEI case seems to be misplaced. While passing this order, the High Court seems to have made an apples-to-oranges comparison. The current case is at the stage where the CCI has formed its prima facie opinion basis which the DG has finalized its investigation report and the matter is pending consideration before the CCI, i.e., at the final argument stage. However, while passing this order, the High Court has compared this to the decisions in Google and Ericsson which essentially discuss the prima facie satisfaction that needs to be arrived at by the CCI prior to ordering investigation and the remedies that are available to a party.
Any party of course has legal remedies available, though it begs the following questions – why didn't NEI approach the court at the prima facie stage or at the stage when it became aware of the investigation? Why did it approach the High court post receipt of the DGs Investigation report, when it could have made the same case before the CCI? NEI's alternative was to file its financials along with obligatory comments / objections stating that there was no contravention on its behalf, interpreting the observations in the DG's reports. While the other perspective is that if the CCI had in fact gone ahead and penalized NEI for its alleged conduct, it would then have to challenge the CCI's Final Order to bring the entire proceedings in question, which is a much more onerous task in comparison to the relief it currently obtained from the High Court. The other questions that require an answer are whether the CCI followed the correct procedure? Should it have done something differently? Is it required to evaluate whether notices should be sent to all named opposite parties irrespective of the findings of the DGs report? Wouldn't the DG Report be treated as a diktat and not as a recommendation if the CCI were under an obligation to only send across the DGs report to parties who the DG found to have contravened the law?
In Uttrakhand Agricultural Produce Marketing Board v. International Spirits and Wines Association of India & Ors4, CCI initiated an investigation on allegations of resorting to exclusionary practices against certain Indian foreign liquor brands and trying to restrict and manipulate consumer preferences, resulting in denial of market access. The DG in its report found Uttrakhand Agricultural Produce Marketing Board (UAPMB) to have abused its dominance, whereas found Garhwal Mandal Vikas Nigam Ltd. (GMVN) and Kumaon Mandal Vikas Nigam Ltd (KMVN) were not liable as they had no independent authority to procure liquor on their own and depended on UAPMB. However, CCI issued show cause notices (SCN) to all parties. UAPMB approached the National Company Law Appellate Tribunal (NCLAT) alleging that the order issuing SCN was a final order under S. 27 as well as a composite order under S. 26(4) and S. 26(5). The NCLAT5, made it clear that the DG Report was to be sent to all Opposite Parties who could then state their view on it, and that an order issuing an SCN was not final and did not uphold liability, dismissed the appeal.
The finding by the High Court in NEI's case seems to be in variance with those of the NCLAT in UAPMB's case. In terms of S. 26(5), objections / comments are sought from all Opposite Parties by the CCI if the DG's Investigation report recommends that there is no contravention.
While High Court's approach will save time and resources for parties arrayed in an investigation against whom no incriminating finding has been returned, the High Court's judgment creates a situation contrary to that required by S. 26(5), - per the decision, post receipt of the DG's Investigation report, CCI must review the said report in detail and must not send a notice to any party (seeking comments / objections or the parties' financials) against the whom the DG has not been unable to unearth evidence explicitly, even though 26(5) mandates it to do so.
The judgment also creates a slight lacuna – if the CCI chooses to disagree with the DG (who had found no contravention), under which provision does the CCI issue a direction to the DG? That having been said, CCI would mandatorily have to send the matter back to the DG (as it does under S. 26(7), but only after considering the comments / objections) and only when the DG arrives at a finding of violation, can the CCI issue a notice to the party (as it does under S. 26(8)).
While it seems that NEI was cautious and successful in nipping the problem at the bud, this decision may create a fair amount of confusion for the CCI, going forward.
1 W.P.(C) 1714 / 2020 dated 25.02.2020;
2 LPA 733/2014 dated 27.04.2015;
3 WP (C) 464/2014 dated 30.03.2016;
4 Case No. 2 of 2016;
5 Competition Appeal (AT) No. 84 of 2018 dated 12.03.2020.
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