Appeal against Order of Investigation under Section 26 of the Competition Act, 2002
The Competition Act, 2002 (hereinafter, “the Act”) is a unique economic legislation whose primary objective is to promote and sustain healthy competition in the market. To enable the Competition Commission of India (hereinafter, “CCI”) to investigate agreements which appeared to be in violation of the Act, Section 26 of the was enacted. Section 26 of the Act empowers the CCI to order the Director General (hereinafter, “DG”) to investigate into cases where it is satisfied that there exists a prima facie case of violation of the Act. Recent jurisprudence has also recognised the Director General’s office as the CCI’s specialised investigative wing.[i]
When the CCI orders an investigation after forming a prima facie opinion under Section 26 of the Act, the company against which such an order is passed may prefer to appeal against the proposed investigation by the DG. The purpose of this article is to examine some notable judgments in which such appeals have been preferred.
Section 41 and consequently Section 36 (2) of the Act affords generous powers to the DG, while conducting an investigation, including the power to seize and keep, in his custody, certain books and papers. In Google Inc. v. CCI,[iii], the Delhi High Court has rightly observed that the powers of the DG during the Section 26 investigation are far more sweeping and wider than the powers of investigation conferred on the Police under the Code of Criminal Procedure. Hence, the investigation by the DG is tantamount to commencement of trial / inquiry on the basis of an ex parte prima facie opinion.[iv] It is in view of such wide investigative powers of the DG that companies may prefer to appeal against an order of investigation under Section 26.
IMPORTANCE OF DG REPORT
This Report of the DG is crucial as it lays down the groundwork for the CCI to proceed with the matter, possibly penalizing the company for the violation of the Act. The Delhi High Court in the matter of Google Inc. has observed that the statement on oath of witnesses summoned during the course of investigation is being recorded and the said witnesses are also being permitted to be cross-examined including by the informant / claimant. Such evidence forms part of the DG’s Report, and serves as the basis of further proceedings before the CCI. Hence, this DG Report is very significant. There are various reasons to oppose an investigation by the DG. Fear of loss of reputation and credibility in the market appears to be the chief reason for preferring an appeal. Companies also fear breach of privacy, given the wide powers conferred upon the DG while investigating. Appeals are also preferred if the company believes that the prima facie view taken by the CCI lacks merit and can be challenged.
An analysis of the Judgments passed in appeals against the Section 26 orders shows that the appeals are made based on the individual facts of the case. Efforts are made to question the “prima facie” opinion of the CCI behind the order. Companies endeavour to discredit the order passed by the CCI through strong legal arguments, precedents and placing heavy reliance on the facts of the matter. References are also made to the Competition and Antitrust laws of the European Union and the other countries to question the CCI’s prima facie logic.[v] If the party successfully challenges the prima facie view of the CCI, the High Court shall set aside the Section 26 order and, hence, there shall be no investigation by the DG. It must be noted that the parties are not provided an opportunity of being heard by the CCI at the time of passing the Section 26 order.[vi] As mentioned above, such appeals are made based on the facts of individual cases. Through this Article, the authors make a modest attempt to analyse some landmark judgments strictly in light of the topic at hand.
GOOGLE INC. & ORS VS COMPETITION COMMISSION OF INDIA & ANR.
This judgment[vii] gains importance as it held that the CCI had the power to review / recall its judgments. However, the exercise of such power shall be within certain parameters and subject to certain restrictions without causing delay in the investigation process. Further, it reiterated that the CCI will only direct an investigation if it has a prima facie opinion of a violation of the Act. Primary issue being dealt in this matter was that whether the CCI has the power to recall / review an order passed by it directing / causing investigation in exercise of powers under Section 26 (1) of the Act. A plethora of notable case laws were cited by the parties and the Court, in its judgment, gave detailed reasons for its decision.
The Delhi High Court with detailed reasons concluded that the power exercised by the CCI under Section 26 is administrative in nature and is capable of being reviewed / recalled. The Court was further of the view that the Review / Recall Application filed against the Section 26 order should be disposed of by the CCI on the very first date when it is brought up for discussion without even requiring a response and without an elaborate hearing. This is due to the fact that the grounds for a recall / review application are limited and must be clear on the face of the material before the CCI. Even if the CCI is of the opinion that the application for recall / review requires reply / further hearing, it is for the CCI to order, depending upon the facts, whether the investigation by the DG is to proceed or not in the interim period.
The Court further clarified that it is not the case that in every matter in which the CCI has ordered investigation without hearing the party complained against, such person would have the right to apply for review / recall of that order. The CCI’s power to issue review / recall order has to be used sparingly, keeping in mind the law laid down by the Supreme Court in Competition Commission of India v. Steel Authority of India & Anr. Furthermore, the CCI must exercise such a power within the well-defined limits of the power of review / recall, without extensive arguments, and without causing the investigation to be stalled. Interestingly, the Court also empowered the CCI to continue with the review / recall proceedings without stalling the DG’s investigation that is already ordered.
Narrowing down the scope of review / recall power of the CCI, the Court held that:
“The jurisdiction of review / recall would be exercised only if without entering into any factual controversy, CCI finds no merit in the complaint / reference on which investigation had been ordered”
Thus, taking the facts of the case out of the equation, the CCI shall now pass review / recall orders based upon the strength of the legal arguments presented by the complainant. Conversantly, the aggrieved company must now challenge the law points raised by the complainant to establish a contravention of the Act. It is pertinent to draw the attention of the readers to another interesting point made by the Hon’ble Delhi High Court in this case. The Court observed that, “The application for review / recall of the order under Section 26(1) of the Act is not to become the Section 26(8) stage of the Act.” Section 26 (8) of the Act provides that in case the DG’s Report recommends a contravention, the CCI may order further inquiry in case it believes that such an inquiry is necessary. Thus, the review / recall proceedings before the CCI are not to be considered as a further inquiry by the CCI.
STAR INDIA PVT. LTD. VS. COMPETITION COMMISSION OF INDIA AND ORS.
Here, based on the information from Respondent No. 2 (NSTPL), CCI passed an order of investigation under Section 26 of the Act against the Petitioner and Respondent No. 3. (Sony Pictures). The CCI framed a prima facie opinion that Star India and Sony Pictures were acting in violation of Section 3 (4) of the Act by “refusing to deal” with the Informant. The facts of this case are very similar to the Supreme Court’s decision in Competition Commission of India v. Bharti Airtel Ltd. & Ors.[viii]Hence, the Bombay High Court relied extensively upon Bharti Airtel while deciding this matter.
The Court also addressed a challenge to the jurisdiction of CCI in relation to the jurisdiction of the Sectoral regulator, Telecom Regulatory Authority of India (TRAI). Relying on Bharti Airtel, the Court held that, if there is a dispute involving telecom services, TRAI has the power to inquire into the matter, and if the result of such inquiry or investigation reveals an anti-competitive agreement, only then CCI has the power to direct investigation. The High Court reiterated the Supreme Court’s observation in Bharti Airtel that there is an overlap of jurisdiction between CCI and TRAI, but TRAI will have first instance jurisdiction in such matters.
The facts of this case are complex and deal extensively with the telecom laws and the companies that are engaged in the telecom sector. Strictly discussing in relation to the topic at hand, the Court set aside the order of Investigation under Section 26 of the Act and observed that in order to hold a prima facie contravention of Section 3 (4) of the Act, CCI ought to have formed a prima facie finding as to the existence of an agreement refusing to deal and that such agreement causes / is likely to cause Appreciable Adverse Effect of Competition (AAEC) in India. The Court further reiterated that formation of a prima facie opinion is a sine qua non for CCI to exercise its jurisdiction.
CADILA HEALTHCARE LIMITED AND ANR V. COMPETITION COMMISSION OF INDIA
The Delhi High Court in Cadila Healthcare Limited[ix] has clarified / laid down certain important points in relation to the Section 26 investigation. It has also clarified that the law laid down by the Court in Google Inc. v. CCI in relation to the review / recall application against Section 26 orders. Cadila’s main contention was that the DG launched an investigation against it without any specific order from the CCI forming a prima facie opinion on the role that it played. Cadila’s argument was rejected by the Court. It held that, while relying on the Excel Crop Case, the DG’s authority was not limited to the matters covered by the complaint and nothing else.
The Court also said that when the CCI takes cognizance of information on a complaint and orders an inquiry, it does not always have detailed information or evidence relating to the behaviour pattern that affects the market. Hence, liberty should be given to the DG to investigate into the conduct of other parties, if the investigation reveals that such parties have indulged in anti-competitive conduct. It observed that the Excel Crop Case gave wide powers to the DG while conducting investigation and the same is essential to curb appreciable adverse effect on competition in the market. Also, Cadila had filed an application for recall of the Section 26 order after the Director General submitted his Report to the CCI. The Delhi High Court held that the review / recall application can be filed only during the DG’s investigation and not after the DG’s Report is submitted to the CCI.
KINGFISHER AIRLINES LIMITED AND ANR. V. COMPETITION COMMISSION OF INDIA
In Kingfisher Airlines Limited,[x] the writ petition arose from an agreement entered between the petitioners and Jet Airways in May 20, 2000. The Commission established by the Monopolies and Restrictive Trade Practices Act (MRTP Act) took cognizance of the matter and ordered an investigation by the DG. Meanwhile, CCI on the basis of information filed by the Respondent No. 3 opined that there exists a prima facie case and referred the matter to the DG for investigation.
It is here that the petitioner challenged the Section 26 order and contended that the MRTP Commission is already seized of the matter and therefore, the cognizance taken by the CCI was one without jurisdiction. The Competition Act came into effect in 2009, effectively repealing the MRTP Act.
The petitioner argued that since the Act contained some penal provisions, it could not have retroactive effect under existing law and appealed against the Section 26 order. While deciding the present Writ Petition, the Bombay High Court devised a test known as the “continuing effect test”.[xi]
According to this test, if any agreement is formed prior to the commencement of the Act and continues after the Act has been established and enforced, the provisions of the Act will apply regardless of whether the Act is retroactive or not. In other words, if an agreement is formed and then terminated or comes to an end before the Act takes effect, the Act’s provisions will not apply. However, if the agreement is formed after the Act takes effect or prior to it taking effect but “continues” after its existence, then the Act’s provisions will apply to such an agreement. As a result, because the matter was not decided conclusively by the MRTP, the CCI has the authority to take cognizance of the matter if it is found to be in violation of Sections 3 or 4 of the Act.
An analysis of these cases show that the judiciary has played an important role in interpreting and clarifying various provisions of the Competition Act, particularly those relating to a Section 26 order. However, some ambiguity still remains which needs to be addressed. Interestingly, the CCI has passed a Section 26 order against WhatsApp in relation to its recently announced new privacy update that is on a “take-it-or-leave-it” basis. Users must grant WhatsApp permission to share their personal information in order to use the application. Given WhatsApp’s market dominance, the CCI deemed this a misuse of its dominant position and thus a violation of Section 4 of the Act. As a result, the CCI directed the DG to conduct an investigation and file a report within 60 days. Considering the grave and widespread implications of an investigation by the DG, the authors assume that the parties may prefer an appeal against the Section 26 order.
ABOUT THE AUTHOR
This blog has been authored by Roma Liya and Vishakha Dube, both 5th Year B.L.S., LL.B. students at Mumbai University.
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