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Competition Commission of India – Not a toothless tiger after all!

“With Great Power, Comes Great Responsibility”

The above words, although spoken by a fictional character in Hollywood movie,
hold great significance when seen in light of the recent judgment of the Hon’ble Supreme Court of India passed on September 09, 2010 in the case of Competition Commission of India v. Steel Authority of India Limited. This can without a doubt be labeled as a landmark judgment in the field of competition law in India wherein the Hon’ble Supreme Court has put forth in great detail the rationale behind the enforcement of this Indian Competition Act, 2002 (‘Act’). Through this judgment, the Hon’ble Court has put to rest various controversies regarding the interpretation of the provisions of the Act, in particular the demarcation of the powers of the Competition Appellate Tribunal (‘Tribunal’) and the Competition Commission of India (‘Commission’) and also strict directions for expeditious disposal of ex post enquiries write Vikram Sobti and Kanika Chaudhary.
Brief Background
In October 2009, Jindal Steel & Power Ltd. (‘JSPL’) filed information under Section 19 read with Section 26(1) of the Act before the Commission alleging that M/s. Steel Authority of India Ltd. (‘SAIL’) had, inter alia, entered into an exclusive supply agreement with Indian Railways for the supply of rails. SAIL was alleged to have abused its dominant position in the market (Section 4), deprived others of fair competition by entering into an anti-competitive agreement (Section 3) and therefore, acted in violation of this law. SAIL sought time to file the relevant information but the Commission (without considering any further information on record) opined that there, in fact exists a prima facie case which requires investigation by the Director General (‘DG’). SAIL questioned the legality of the Commission’s order before the Tribunal and the Commission applied for impleadment in the matter. The crux of the Commission’s argument was the maintainability of the appeal before the Tribunal since the order under appeal before the Tribunal amounted to a direction simpliciter to conduct investigation and that it did not fall within the purview of Section 53A of the Act.

The Tribunal in its order of February 15, 2010 dismissed the application of the Commission for impleadment stating that the Commission is neither a necessary nor a proper party in the appellate proceedings before the Tribunal. It also held that a right to reason is an indispensable part of a sound system of judicial review and accordingly the Commission was directed to give reasons while passing any order, direction or taking any decision. The appeal therefore, was held to be maintainable in terms of Section 53A of the Act. While setting aside the said order of the Commission, the Tribunal granted further time to SAIL to file its reply. This order of the Tribunal in turn was appealed before the Hon’ble Supreme Court.

Appeal before the tribunal

First and foremost, it is absolutely essential to examine the sections pertaining to appeal under the Act vis-à-vis the judgment. The Tribunal has been vested with the powers to hear and dispose off appeals (under Section 53A) against any direction issued or decision made or order passed by the Commission. The appeals preferred are to be heard and dealt with as per the procedure established under Section 53B of the Act. The Hon’ble Court while deciding the rights of the aggrieved party to appeal against the direction, decision or order of the Commission has rightly determined that the ‘right to appeal’ is a statutory right and not a natural or an inherent right that may be assumed to exist. It is strictly controlled by the provisions of the relevant Act and the procedure provided therein.

The Supreme Court has distinguished between orders passed under Section 26 (1) and (2) of the Act. It has held that an order under Section 26 (2) is conclusive in nature as it puts an end to the proceedings leading to determination of rights of the concerned parties, and thus is specifically appealable under Section 53A of the Act. However, the direction of the Commission under Section 26(1) of the Act is merely an administrative direction to its investigative arm without acting under the scope of its adjudicatory functions.

While interpreting Section 53A, the Supreme Court emphasizes that the intent of the legislature is to be inferred from the terms used in the said provision of the Act. It reads “…any direction issued or decision made or order passed by the Commission under sub-sections (2) and (6) of Section 26…” The Court has held that the direction, decision or order is not to be read disjunctively and should be read as a whole. It has failed to recognize the significance of the terminology of Section 26(1) and (2) of the Act which very clearly distinguishes between the words ‘direction’ and ‘order’ respectively. To corroborate this, even Section 26(3) requires the DG to submit a report on his findings, on receipt of a direction under Sub-section (1). The above abundantly clarifies the distinction between the terms ‘direction’ and ‘order’ under the Act and the requirement of differential treatment when interpreted in light of Section 53A of the Act. Moreover, the Supreme Court has left the door open for challenging the directions under Section 26(1) at a later stage, while appealing against the final order.

Even though the Supreme Court has created a distinction between order and direction in the context of the determination of the rights of the parties, the intent of the legislature is quite apparent through Section 26 of the Act. However, the controversy regarding the interpretation of the provisions relating to appeal under the Act has finally been dispelled by restricting its scope to the directions, decisions or orders passed by the Commission under the specifically mentioned provisions under Section 53A. This is largely perceived to be in the interests of justice as taking a contrary view would have meant making any/all directions, decisions and orders of the Commission appealable which would defeat the purpose of specific mention of the appealable Sections under Section 53A of the Act.
Right to notice/hearing

The Supreme Court has held that the Commission had no statutory duty to issue notice or grant a hearing at the stage of formation of a prima facie opinion in terms of Section 26(1) of the Act. When Section 26(1) of the Act is read with Regulation 17(2)which empowers the Commission to invite the information provider and such other person, as is necessary, for a preliminary conference to aid in formation of a prima facie opinion, there is nothing to suggest that the Commission is obliged to issue notice or grant a hearing to the affected parties.

The above inference is further strengthened by the fact that the Commission after receiving the report from the DG is not only expected to forward the copy of the report, issue notice, invite objections or suggestions from the informant, Central Government, State Government, Statutory Authorities or the parties concerned, but also to provide an opportunity of hearing to the parties before arriving at any final conclusion under Section 26(7) or 26(8) of the Act, as the case may be. Therefore, where the legislature intended the Commission to issue notice or call for hearing of the affected parties, it has done so expressly. Furthermore, issuance of notice to a party at the initial stage of proceedings, which are not determinative in nature, can hardly be implied. Therefore, issuance of notice is not an obvious conclusion in this respect.

While excluding the application of principles of natural justice, the court has expressed such views depending upon the nature of the duty to be performed by the authorities under the statute. The Commission is required to perform inquisitorial and regulatory functions in order to form a prima facie opinion under Section 26(1) of the Act and that is different from the adjudicatory function performed by it under Section 26(2) of the Act. Therefore, the functioning of the Commission under Section 26(1) is a mere fact finding enquiry which has no effect on the determination of the rights of the parties concerned and provides discretion to the Commission for grant of hearing to the affected parties.

Reasoned Order:

The Tribunal held that the Commission is required to record reasons and pass a speaking order under Section 26 (1) of the Act. The Hon’ble Supreme Court has agreed to the findings of the Tribunal in part and held that at least some reason should be recorded while forming a prima facie view – i) expressing its mind in certain terms that a prima facie view exists and ii) requiring issuance of directions for investigation to the DG. It has also held that the Commission, while passing directions and orders dealing with the rights of the parties in its adjudicatory and determinative capacity, is required to pass speaking orders, upon due application of mind.

This provides the Commission with a vast discretion while recording minimum reasons for forming a prima facie view and poses ambiguity in the directions passed by the Commission under Section 26(1) of the Act. The Court highlights the importance of a reasoned order furnishing adequate and appropriate grounds in the event the order is to be challenged before a higher authority. This requirement is supported by the fact that the parties while appealing against the final order of the Commission, have been explicitly granted the right by the Supreme Court to take up grounds challenging the directions passed by it in the proceedings leading up to such appeals.

Thus, recording minimal reasons while forming a prima facie view would serve no purpose at the time a party desires to go in appeal against the said directions of the Commission. The Supreme Court has held that a Section 26(1) order does not require detailed reasoning as it is a direction simpliciter without entering into any adjudicatory or determinative process, whereas the right to challenge grounds of the same when appealing against the final order of the Commission treats this order of the Commission as more than just a direction simpliciter.

Commission- Necessary/Proper Party

The Hon’ble Supreme Court has partly agreed with the view taken by the Tribunal that, where proceedings are initiated suo moto by the Commission, the principles of fairness demand that such party should be heard before passing any orders and this makes the Commission a necessary party in such proceedings before the Tribunal. While in other cases where the information is received under Section 19 of the Act, the Supreme Court is not in agreement with the Tribunal. The Tribunal believes that except as described above where the Commission needs to be a necessary party, in all other cases, the necessary parties are the informant and the defendant. However, the Hon’ble Court is of the view that the Commission being a regulatory body would be a proper party to the proceedings before the Tribunal. In Brahm Dutt v. Union of India , the court observed that it might be appropriate if two bodies are created for performing two kinds of functions, one, advisory and regulatory and other adjudicatory. Therefore, in order to make the Commission as an effective watchdog, the Court has held that the presence of the Commission for proceedings before the Tribunal would be proper.

Interim Orders

While discussing the scope and power of the Commission to issue interim orders under Section 33 of the Act, the Hon’ble Supreme Court has come to the conclusion that such power should be exercised sparingly and under compelling and exceptional circumstances. An important observation noted by the Hon’ble Supreme Court is that Section 33 uses the word ‘inquiry’ and according to Regulation 18(2) , ‘inquiry’ should be deemed to have commenced when a direction has been issued to the DG under Section 26(1) to conduct investigation. The words ‘inquiry’ and ‘investigation’ are quite distinguishable which is clear from the various provisions of the Act as well as the scheme framed thereunder. The former is a definite expression of the satisfaction recorded by the Commission upon due application of mind while the latter is a tentative view at that stage. Therefore, the combined reading of the above provisions leads to the obvious conclusion that the power to pass a temporary restraint order under Section 33 of the Act can only be exercised by the Commission when it has formed a prima facie opinion and directed investigation in terms of Section 26(1) of the Act.

The conclusions arrived at by the Court are seemingly only with regard to ex parte injunctions and the instance of parties being heard before passing interim orders by the Commission has not been considered. The Supreme Court while interpreting Section 33 states that the legislature intentionally uses the words ‘ex parte’ as well as ‘without notice to any party’ imposing a duty on the Commission to issue a notice to the opposing party to appear and file objections once the interim orders are passed. However, the term ‘ex parte’ is not mentioned in Section 33 at all. Although Regulation 31(2) clearly mandates giving a short notice to the party against whom the interim order is passed to appear and to file objections to the continuation or otherwise of such order, the suo motu use of the words ‘ex parte’ by the Apex court gives a clear indication of the intention of the court restricting its findings to cases of ex parte injunctions. Therefore, the three conditions mentioned below for grant of interim orders are to be assessed only while passing an ex parte injunction and do not hold good in other cases for passing of interim orders.

The judgment enunciates the conditions to be satisfied by the Commission while recording a reasoned order under Section 33 of the Act, which inter alia, should:

  1. record its satisfaction (which has to be of much higher degree than formation of a prima facie view under Section 26(1) of the Act) in clear terms that an act in contravention of the stated provisions has been committed and continues to be committed or is about to be committed;

  2. it is necessary to issue order of restraint and

  3. from the record before the Commission, there is every likelihood that the party to the lis would suffer irreparable and irretrievable damage, or there is definite apprehension that it would have adverse effect on competition in the market
In our view, the standards adopted by the Hon’ble Supreme Court in the judgment to form a prima facie opinion under Section 26(1) of the Act are different from the ones adopted for grant of interim order under Section 33. There is no rational basis for the above differential treatment. The judgment of Morgan Stanley Mutual Funds v. Kartik Das, relied upon by the Supreme Court dealt with the Consumer Protection Act, 1986, which has no provision for passing of ex-parte interim orders and hence the Apex court in the abovementioned case spelt out the factors to be considered before passing of interim order under the said Act. However, the Competition Act, 2002 specifically provides for passing of ex parte interim orders under Section 33 of the Act and therefore does not provide any justification for treating the formation of prima facie opinion for grant of interim relief on a stricter parameter.

Duties of the Commission/DG

The Hon’ble Supreme Court, keeping in view the legislative intent and the object sought to be achieved by enforcement of the provisions of the Act, has issued directions to the Commission which shall remain in force till appropriate regulations are framed by the competent authority.

The intent and purpose of the above timelines is to ensure that the Commission/DG gear up to eliminate anti-competitive practices from markets at the earliest. However, timelines as are drawn up for the DG to submit its report within 45 days is unreasonable and impracticable as the DG will not be able to churn out a wholesome and effective report. As is known, it takes a few days for the DG to understand all the aspects of the case and then formulate an appropriate questionnaire. The parties are given a week to ten days to respond which again is insufficient and invariably leads to either the parties seeking an extension or filing incomplete and irrelevant information which delays the process. It takes the parties in question a considerable time to collate all the data/documentation - this may be attributed to the procedure in the Act itself which states that it is not necessary to inform or hear the charged parties at the preliminary stage hence, very often until the receipt of notice, the parties are still unaware of any such proceedings against them. The DG needs to be given further time so as to allow him to carry out his investigation in a proper manner and provide the Commission with a conclusive and substantial report. If the 45 day limit remains, then the DG’s office would be handing over half baked reports and since that would clearly be inadequate, the DG’s office would be taking recourse to furnishing of Supplementary Report.

Powers conferred on the Commission

With the order of September 09, 2010, the Commission has been greatly empowered as its directions under Section 26(1) of the Act have been made non-appealable. Moreover, they are not required to be well reasoned and will be valid as long as they show some application of mind while forming a prima facie opinion which in turn provides ample discretion to the Commission to commence an investigation against the alleged charged parties without assigning much weightage to the information received. Additionally, the Commission has the option of issuing a notice or grant of hearing to the concerned parties while forming a prima facie view under Section 26(1), thereby depriving the parties of any right of contesting the allegations made against it at the initial stages - which if made mandatory, would have saved time and lead to expeditious disposal of cases under the Competition Act.

As far as interim orders passed by the Commission under Section 33 are concerned, the Hon’ble Supreme Court has formulated a stricter approach while coming to a prima facie opinion of the contravention of the provisions of the Act and granted the Commission with the power to call upon the parties before making such interim orders, only if it considers it necessary to do so. Even the necessary impleadment of the Commission in almost all cases appealed before the Tribunal amplifies the crucial role to be played by the Commission when the Tribunal exercises its adjudicatory function. Thus, it will be clearly seen that the functions of the Commission which were described by the very same Court to be in consonance with international practice in the judgment of Brahm Dutt v. Union of India, are expressly stated to cover inquisitorial, investigative, regulatory, adjudicatory and to a limited extent even advisory jurisdiction under the impugned judgment.

Conclusion

Keeping in view the stringent timelines imposed by the Supreme Court and the difficulties highlighted above in abiding by the same, the Commission has amended its General Regulations as on October 20, 2010 stating that the DG would be granted a period of time not exceeding sixty days from the date of receipt of the directions of the Commission to submit his report. The Commission may also grant a period not exceeding 45 days for the preparation of a supplementary report by the DG, if the case so desires. Further, a new sub-regulation 31 (3) has been inserted which states that “Where in a case an interim order under Section 33 of the Act has been passed, a final order, as far as possible, shall be passed by the Commission, within ninety days from the date of interim order.”

This verdict of the Supreme Court assumes importance and impacts the development of the jurisprudence to a large extent keeping in mind the timing of the issues raised in the judgment. This judgment is the first step towards the building of competition jurisprudence in our country which is much needed at present. We would like to conclude by saying that the Hon’ble judges of the Supreme Court have rightly upheld the essence of the law and endorsed the intent of the Act which is protecting the interest of the consumer and ensuring freedom of trade. This shall go a long way in formulating the competition law landscape in India.
VIKRAM SOBTI & KANIKA CHAUDHARY are Associates in the competition law team at Luthra & Luthra Law Offices. The views reflected are the authors' personal views.
 
REFERENCES
  1. 2010 CompLR 0061 (Supreme Court).

  2. Section 3 and 4 of the Competition Act were brought into force on May 20, 2009.

  3. Section 26 (1) - On receipt of a reference from the Central Government or a State Government or a statutory authority or on its own knowledge or information received under section 19, if the Commission is of the opinion that there exists a prima facie case, it shall direct the Director General to cause an investigation to be made into the matter:

    (2) Where on receipt of a reference from the Central Government or a State Government or a statutory authority or information received under section 19, the Commission is of the opinion that there exists no prima facie case, it shall close the matter forthwith and pass such orders as it deems fit and send a copy of its order to the Central Government or the State Government or the statutory authority or the parties concerned, as the case may be.

  4. Competition Commission of India (General) Regulations, 2009.

  5. Supra., n.1, para 19(5).

  6. Order of Competition Appellate Tribunal dated February 15, 2010, para 29.

  7. 2005 (2) SCC 431

  8. Section 33 - Where during an inquiry, the Commission is satisfied that an act in contravention of sub-section (1) of section 3 or sub-section (1) of section 4 or section 6 has been committed and continues to be committed or that such act is about to be committed, the Commission may, by order, temporarily restrain any party from carrying on such act until the conclusion of such inquiry or until further orders, without giving notice to such party, where it deems it necessary.

  9. Supra., n. 7.

  10. Supra., n. 7.

  11. Supra., n. 1, Para 81

  12. (1994) 4 SCC 225

  13. Supra., n. 7, Regulation 20 (6).

  14. Notification No. L-3(2)/Regln- Gen. (Amdt.)/2009-10/CCI, dated 20-10-2010 issued by Competition Commission of India.

  15. Regulation 20 (2).

  16. Regulation 20 (6).
 
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