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13/05/2018 India Law Journal

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Competition Commission of India – Not a
toothless tiger after all!
Board of Editors
(in alphabetical order) “With Great Power, Comes Great
Responsibility”

Advisory Council The above words, although spoken by a


fictional character in Hollywood movie,
Bishwajit Bhattacharyya
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
C.R.Dua
of Competition Commission of India . Steel Authority of India Limited
v . This
Diljeet Titus 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
Hemant Batra 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
John Callagy various controversies regarding the interpretation of the provisions of the
Act, in particular the demarcation of the powers of the Competition
K.K.Lahiri Appellate Tribunal (‘Tribunal’) and the Competition Commission of India
(‘Commission’) and also strict directions for expeditious disposal of ex post
K.S.Bagga
enquiries write Vikram Sobtiand Kanika Chaudhary
.
Lalit Bhasin
Brief Background
Dr. Linda S. Spedding
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
Martin Rogers
Authority of India Ltd. (‘SAIL’) had, inter alia, entered into an exclusive supply
M.L.Sarin 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
Prof. V.S.Mani 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
Rajiv Atmaram Commission (without considering any further information on record) opined that there,
Rajiv K.Luthra
in fact exists aprima 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
Rajiv Nayar
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
Editors investigation and that it did not fall within the purview of Section 53A of the Act.

Gitanjali Saraf 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
Vikramaditya Rai 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
Sagar S.P. Singamsetty 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
Founder & Managing Editor
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.
Vikrant Pachnanda
Appeal before the tribunal
Associate Editors
First and foremost, it is absolutely essential to examine the sections pertaining to
Naina Pachnanda 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
Shashank Manish 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
Vishwam Jindal
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
Apurv Kumar Mishra
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
Editorial Team
the procedure provided therein.
Conference Corner 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
Internship Corner it puts an end to the proceedings leading to determination of rights of the concerned

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Scholarship Corner 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
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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:

a. 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;
b. it is necessary to issue order of restraint and

c. 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 . Kartik
v
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

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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
ex parte
specifically provides for passing of interim orders under Section 33 of the Act
and therefore does not provide any justification for treating the formation of prima
facieopinion 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 Union of India,
v. 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.

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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
i. 2010 CompLR 0061 (Supreme Court).

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

iii. 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.

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

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

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

vii. 2005 (2) SCC 431

viii. 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.

ix. Supra., n. 7.

x. Supra., n. 7.

xi. Supra., n. 1, Para 81

xii. (1994) 4 SCC 225

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

xiv. Notification No. L-3(2)/Regln- Gen. (Amdt.)/2009-10/CCI, dated 20-10-2010 issued by


Competition Commission of India.

xv. Regulation 20 (2).

xvi. Regulation 20 (6).

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