Analysis of the Verdict of the Apex Court in CCI v. SAIL Vikram Sobti* and Kanika Chaudhary** The Judgment of the Hon'ble Supreme Court in the matter of CCI v. SAIL is the stepping stone towards the development of competition jurisprudence in India It has clearly defined the powers of the Competition Commission of India and erased all ambiguities about the extent of such powers under the Competition Act, 2002, The article is focused on examining and critically analyzing the judgment which puts at rest various controversies, in particular, the demarcation of the powers between the Competition Appellate Tribunal and the Competition Commission of India and also lays down strict directions for prompt and expeditious disposal of ex post enquiries besides norms to be adhered while granting interim orders. Wirt Great Power, Comes Gaeat 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 9 September, 2010 in the case of Competition Commission of India v. Stel Authority of India Limited.' This can without a doubt be labelled 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. 1. Brief Background exclusive supply agreement with Indian InOctober 209 finda Stel Powers | Was said te have abed ils dominant (SPL) invoked Section 19 read with | PoStion im the market (Section 4), Section 26(1) of the Act by providing | eee en ene nn eee information to the Commission alleging | ¢Ptived others of f petition by ner tiye Set other af aint | eSNG Inlo| an “antncompetitiv (Sart Nadel emered int ah | SESeMeNt (Section 3) and therfore, Members, Competition Law Team, Luthra de Luthra, Law Offices, New Delhi, E-mail; ‘vsobti@luthra.com. The views expressed herein are personal. Members, Competition Law Team, Luthra & Luthra, Law Ofices, New Delhi, E-mail chaudhary@luthra.com. The views expressed herein ate personal 1 2010 CompLR 0061 (Supreme Court), 2. Sections 3 and 4 of the Competition Act were brought into force on 20 May, 2008. (Get. 2010 - Dee. 2010 189‘The Commission before forming a prina facie view on the matter requested SAIL. for the supply of further information 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 15° February, 2010 dismissed the application of the Commission for impleadment stating that the Commission is neither a necessary nor a proper party in the | the | appellate proceedings before Tribunal. It also held that aright 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 tobe 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. Competition Law» Reports [Vol.1 2. Appeal before the Tribunal First and foremost, it is absolutely [essential to examine the sections pertaining to appeal under the Act vis-- vis the judgment. The Hon’ble Supreme | Court has held as under | In terms of Section 53A(1)(a)' of the ‘Act appeal shall lie only against such directions, decisions or orders passed by the Commission before the Tribunal | which have been specifically stated under the provisions of Section | S3A()(@). The orders, which have not been specifically made appealable, cannot be treated appealable by implication, For example, taking a prima facie view and issuing a i direction to the Director General for investigation would not be an order appealable under Section 53A.* | The Tribunal has been vested with the | powers to hear and dispose of appeals | funder Section 33A) against any | direction issued or decision made oF order passed by the Commission. The appeals preferred are to be heard and dealt. with as. per the procedure | established under Section 59B of the net ‘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 thatthe ‘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 i 3. Section 33A(I)- The Cental Government shall, by notification establish an Appellate Tabunal to be known as Competition Appellate Tribunal (2) to hear and dispose of appeals against any direction issued or decision made or order passed by the Commission under Sub-sections (2) and (6) of Section 26, Section 27, Section 28, Section 31, Section 32, Section 33, Section 38, Section 39, Section 43, Section 434, Section 44, Section 45 or Section 46 of this Act 4 Supra. 2.1, para 19(1, ct. 2010 - Dee. 20102010} [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 ‘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 isto be inferred from the terms used in the said provision of the Act. It reads “..ang direction issued or decision made or order passed by the Commission under Sab-sections (2) and (6) of Section 26...” The Court has held that the direction, decision or order is not to be read disjunetively and should be read as a whole. R has failed to recognize, the significance of the terminology of Section 26(1) and (2) of Analysis of the Verdict ofthe Apex Court in CCI SAIL | | | the Act which very clearly distingui 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 ofthe 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 53, y of the Act. Section 26{1)-On receipt lareference from the Central Government or a State Government fF 8 statutory authonty orem is own knowledge or information received under Section 19, if the Commission is of the opinion thet There exists a prime facie case, it shall dicect the Director General to cause an investigation to be maul into the matter: (2) Where on receipt ofa reference from the Central Government ora State Government ‘ra statutory authanty or information received under section 19, the Commission is fof the opinion that thee exists no prima facie case i shall close the matter forthwith land pass such ordes as it deems fit and send a copy of its order to the Central ‘Government orthe Site Government or the statutory authority f the parties concerned, ‘as the case may be Get. 2010 - Dee. 2010 1913. Right to Notice/Hearing ‘The Supreme Court has held that the Commission had no statutory duty to issue notice or grant a hearing atthe stage of formation of a prima facie opinion in terms of Section 26(1) of the Act. Itis the prerogative of the Commission to call upon the concerned party(s) to render assistance or produce requisite information, if required* [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) ofthe Acts 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 asthe case may be. Therefore, | where the legislature intended the Commission to issue notice or call for © Supra, al, para 190). Competition Laie Reports {Vol.1 hearing of the affected parties, ithas 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 tunder 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. 4. 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* 7 Competition Commission of India (General) Regulations, 2008, 8 Supra, nt, para 1965). 192 ‘Oct. 2010 - Dee. 20102010) [ Section 26(1) order does not require detailed reasoning as itisadirectonsimpliciter. | 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 a 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 simplicter 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. 5. Commission —Necessary/Proper Party The Hon'ble Supreme Court has partly agreed with the view taken by the Analysis ofthe Verdict ofthe Apex Court in CCL. SAL Bas 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 tobe a necessary party, inall other cases, the necessary parties are the informant and the defendant.’ The inference drawn from this statement is clear that the Commission is neither a necessary nor a proper party in other cases. The Court is of the view that the Commission being a regulatory body would be a proper party to the proceedings before the Tribunal. In | Braim Dutt v. Union of Inia,® 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 | 6 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. 9 Order of Competition Appellate Tribunal dated February 15, 2010, pars 29. 10 MANU/SC/0054/2005: 2005 (2) SCC 431 11 Section 33 - Where during an inguiry, the Commission is satistid that an actin contravention lof sub-section (I) of section 3 or sub-section (1) of section 4 or section 6 has becn commited and continues tobe committed or that Such act is about to be committe, the Commission may, by frder, temporarily restrain any party from carrying on such act until the conclusion of such inquiry or unt frther orders, without giving notice to such party, where it deems necessary. (ct. 2010 - Dee. 2010 193Bae [Words “inquiry” and | “investigation” are quite distinguishable which is clear {from the various provisions of | the Act as well as the scheme || {framed thereunder. _|| 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 £0 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 investig. in terms of Section 26(1) of the Act. | Reading into the findings of the Supreme | Court on the point of interim orders, it seems thatthe conclusions arrived at by the Court are 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 12 Supra, m7 13 Supa. n. 7, 14 Supt, n.1, Para 81 194 aie Reports [Volt 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 fo 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 38 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 oF is about to be committed; () it is necessary to issue order of restraint and 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. © (Get. 2010 - Dee, 20102010) Analysis of the Verdict of the Apes Court in UCI» SAL 8.77 In our view, the standards adopted by | __acts within a period much shorter the Hon’ble Supreme Court in the | than provided under the Act. judgment to form a prima facie opinion | () All proceedings, including under Section 26(1) of the Act are different investigation and inquiry should from the ones adopted for grant of interim be completed by the Commission/ order under Section 33. There is no DG most expeditiously ensuring rational basis for the above differential that the time taken in completion treatment. The judgment of Morgan of such proceedings does not Stanley Mutual Funds v. Kartik Das", relied adversely affect any of the parties upon by the Supreme Court dealt with | as weil as the open market in the Consumer Protection Act, 1986, | purposeful implementation of the which has no provision for passing of ex | provisions of the Act 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 | y parte interim orders under Section 33 of | the Act and therefore does not provide | any justification for treating the formation ‘of prina facie opinion for grant of interim relief on a stricter parameter. (0) Wherever the Commission exercises its jurisdiction to pass interim orders, it should pass a final order in that behalf expeditiously and in any case not iater than 60 days. ‘The Director General in terms of Regulation 20 is expected to submit his report within a reasonable time but in all cases not later than 45 days {rom the date of passing of directions | __interms of Section 26(1) of the Act. ‘i . issio1 {e) The Commission as well as the ZDuteotinecomssionOG | ie Corer aa mat complete (confidentiality” as envisaged under Section 37 of the Act and Regulation 35 of the Regulations and wherever the “confidentiality” is breached, the aggrieved party has the right to approach the Commission for issuance of appropriate directions | __ interms ofthe provisions of the Act The following directions have been | _ and the Regulations in force. issued for a meaningful construction to the words “reasonable time” mentioned | timelines is to ensure that the in Regulations 15 and 16,* namely: Commission/DG gear up to eliminate (@) Though the time period for holding,’ anti-competitive practices from markets of Commission's ordinary meeting | at the earliest. However, timelines as are to consider prima facie case and for | drawn up for the DG to submit its report the formation of prinia facie opinion | within 45 days is unreasonable and has been specified under | impracticable as the DG will not be able Regulation 16, stil itis expected of | to churn out a wholesome and effective the Commission to perform such | report. As is known, it takes a few days ‘The Hon'ble Supreme Court, keeping in | mind the scheme of the Act, 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 15 MANU/SC /0853/1994: (1998) 4 SCC 225, 16 Supra, n7. (ct. 2010 - Dee. 2010 195B78 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 fling 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 dearly be inadequate, the DG's office would be taking recourse to furnishing of ‘Supplementary Report.” 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 20% October, 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 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 17 Supra, n. 7, Regulation 20 (@ Competition Law Reports [Vol.1 ‘order under Section 33 of the Act has been passed, a final order, as far as possible, shail be passed by the Commission, within ninety days from the date of interim order.” 8, Powers Conferred on the ‘Commission With the order of 9% September, 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 18 Notification No, L-32)/Regle- Gen. (Amdlt)/2008-10/CCI, dated 20° October, 2010 issued bby Competition Commission of India, 19 Regulation 20 (2) 20 Regulation 20 (6) 196 ‘Oct. 2010 - Dec. 2010nut Analysis of the Veni of the Apex Court on CCT» SA Ba mmission in almost all cases appealed hetore the Tribunal amplifies the crucial tole tobe played by the Commission when te Tribunal exercises its adjudicatory tunction, thus, it will be clearly seen that the hunctions of the Commission which were lescribed by the very same Court to be in consonance with international practice vw the judgment of Brahm Dutt v. Union of India, are expressly stated to cover inquisitorial, investigative, regulatory, uljudicatory and toa limited extent even, wlvisory jurisdiction under the “impugned judgment 4. Caution All the powers attributed to the ‘Commission through this judgment come with a rider of utmost responsibility which requires the Commission to ceweute such powers keeping in mind the underlying scheme and spirit of the Act. ‘his is amplified by the fact that the Court has sssued directions to the Commission tor speedy and expeditious disposal of the matters ‘One of such directions relate to maintaining “confidentiality” by the ‘Commission ‘as provided under Section 12° of the Act and Regulation 35 of the Regulation. Even though Regulation 35 provides for the procedure for submission of confidential documents with the Director General or the Commission, Section 57 put a general embargo on any information obtained from any party by or on behalf of the Commission under the provisions of the Act to be disclosed without obtaining prior permission in writing of the concerned enterprise. However, the danger of passing on competitive sensitive information remains in the _gatb of ‘for the purpose of the Act or any other law for the time being in force’. 10. Conclusion 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 goa long way in formulating the competition law landscape in India Copyright © Vikram Sobti and Kanika Chaudhary 21 Section 57 No information relating to any enterprise, being an information which has been. ‘obtained by of on behalf of the Commission of the Appellate Tribunal forthe purposes of this Act, shall, without the previous permission in writing of the enterprise, be disclosed otherwise than in compliance with or for time being in force (0c 2010 - Dee, 2010 the purposes of this Act or any other law for the 197