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Exercising their Writ: Courts and Competition Enforcement in India

1st UCL Conference South Asian Competition Law Conference

At

UCL, London

06 November 2018

MM SharmaHead, Competition Law and Policy

SCHEME OF PRESENTATION

1. Role in Regulatory Structure of the CCI

2. Role in Enforcement of the Competition Act,2002 (“Act” )q Procedural issues q Due process challenges q Substantive & Interpretational issuesq Sectoral overlaps q Gun jumping

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Role in Regulatory Structure

§ Though enacted in 2002, the Competition Act, 2002 (Act) could not beenforced due to challenges to the structure of CCI itself before theSupreme Court of India by an individual – chaired by bureaucratinstead of a judge- combining adjudicatory and regulatory functions .(Brahm Dutt v. Union of India, AIR 2005 SC 730)

§ Central Government proposed amendments in the Act to separateregulatory and adjudicatory functions.

§ The proposed amendments (Amendment Act, 2007) separated theregulatory and adjudicatory powers of the erstwhile CCI as follows:

(a)Regulatory powers - to be exercised by the re-constituted CCI;(b)Adjudicatory powers- to be exercised by an Appellate Authority

constituted in the nature of a judicial body.

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Role in Regulatory Structure

§ The Amendment Act, 2007 led to setting up of the CompetitionAppellate Tribunal (COMPAT) to hear appeals against CCI orders.

§ Consequently, the main enforcement provisions relating to prohibition ofanti-competitive agreements and abuse of dominant position (Section 3and 4) and regulation of combinations i.e. merger control provisions ofthe Act (Section 5 and 6) were brought into force only on 20th May 2009and 1st June, 2011 respectively.

§ The implementing regulations under the Act were also published in 2009.

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Role in Enforcement of the Act

§ Courts in India, including COMPAT, have played a decisive rolein streamlining the jurisprudence on enforcement of the mainprovisions of the Act by CCI- mainly in relation to the manner ofexercise of powers of inquiry into anti-competitive agreementsand/or abuse of dominant position and few “gun jumping” casesby CCI .

§ Due process challenges admitted by COMPAT – quashed manyCCI orders on violation of the principles of natural justice.

§ Procedural challenges admitted by Courts but challenges to CCIjurisdiction on issues of sectoral overlap or forum shoppingdiscouraged.

§ Few judgments on substantive law 5

Role in Enforcement of the Act

Supreme Court- Procedural Challenge- Whether parties have right tobe heard before formation of prima facie view by CCI- Whether orderpassed by CCI u/s- 26(1) of the Act is appealable ?§ Competition Commission of India (CCI) vs. Steel Authority of India(SAIL) and Ors., (2010) 10 SCC 744 (9.9.2010)

Ø Direction given by the CCI to the Director General (DG) u/s-26(1) ofthe Act to investigate an alleged anti-competitive conduct is merelyadministrative and inquisitorial in nature;

Ø CCI not expected to give notice to the parties or hear the parties at thepreliminary stage before directing investigation by DG u/s- 26(1) ofthe Act;

Ø But the CCI is expected to record at least some reasons while formingits prima facie opinion i.e. while directing investigation by DG u/s-26(1) of the Act.

Ø Prima facie order passed by CCI directing investigation by DG u/s-26(1) of the Act cannot be challenged in appeal before COMPAT.

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Role in Enforcement of the Act

Delhi High Court –Limits DG’s power not to investigate into violationbeyond specific direction by CCI in prima facie order u/s 26(1) of theAct.§ Grasim Industries Ltd. vs. Competition Commission of India - 206(2014) DLT-42 (17.12.2013)

Ø DG not authorized to carry out investigation into any allegation of violation inan information which , in the first instance was not considered by theCommission while forming its opinion with respect to existence of a primafacie case of contravention of the provisions of the Act.

Ø The Act contains no provision authorizing the DG to investigate anycontravention…. without a direction of the Commission u/s- 26(1). Theformation of a prima facie view is a sine qua non for DG investigation.

Ø DG report is in the nature of recommendations, which do not bind theCommission.

Ø In this case CCI directed DG to investigate alleged violation of section 3(3)(a), (b), (c) but DG report recommended abuse of dominant position byGrasim u/s 4 of the Act.

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Role in Enforcement of the Act

Delhi High Court –Whether investigation by DG can be stayed pendingexamination of challenge to the manner of conduct of dawn raid by DGbefore the High Court ?Competition Commission of India vs. JCB India Ltd. & Ors.- LNIND2014 DEL 5585- LPA 715/2014 (02.12.2014)Ø Pending the challenge to the CCI prima facie order (directinginvestigation against JCB) before Delhi High Court in which the interimorder allowed the investigation to continue, DG conducted a “dawn raid” ,the manner of which was challenged again JCB resulting into passing thestay order dated 26.09.2014 against further investigation by the SingleBench.

Ø In the appeal filed by CCI before the DB to challenge the stay order, JCBobjected to the locus of CCI to file the LPA when the original writpetition was still pending before the Single Bench.

Ø It was held that CCI did have the locus to prefer the appeal when itsregulatory powers in relation to investigation process are hampered.

Ø The matter is still pending in the Single Bench .8

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Role in Enforcement of the ActMadras High Court –Whether DG can investigate parties other than thoseoriginally impleaded order u/s 26(1) of the Act.§ Hyundai Motor India Limited and Ors. vs. Competition Commission of

India - (2015) 127 CLA 46 (Mad.): 2015 (3) CTC 290: (2015) 2 MLJ 560 (04.02.2015)

Ø Information was filed against Honda Siel cars, Fiat and Volkswagen forrefusal to make genuine spare parts of their respective brands of cars freelyavailable in the after market for OEM spare parts. On starting investigationDG found similar anti-competitive conduct being committed by HyundaiMotors , amongst others OEMs. DG placed this additional informationbefore CCI with a memo requesting for including Hyundai and other OEMsin the investigation. CCI passed fresh prima facie order dated 22.06.2011u/s 26(1) against Hyundai and other OEMs for investigation.

Ø Reliance was placed on the Grasim case decided by Delhi High Court.Ø But Madras High Court did not find that the DG had exceeded itsjurisdiction since it did not suo moto initiated the investigation but on thebasis of CCI second prima facie order dated 22.06.2011.

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Role in Enforcement of the ActCOMPAT–Whether CCI should go into the merits or facts of the case indetail , while making a prima facie view u/s 26(1) of the Act ?§ North East Petroleum Dealers Association v CCI & Ors.,-Appeal No.51/2014 ( 26.11.2015)

§ Gujarat Industries Power Co. Ltd. vs. CCI & GAIL -Appeal No. 3/2016(28.11.2016)

Ø While examining the information u/s 26(1) of the Act to determinewhether a prima facie case exists to merit DG investigation or not, CCIcan not delve deep into the merits of the allegation, rely uponundisclosed material and record a finding.

Ø CCI is required to form a prima facie opinion on the basis of avermentsor contents in the information and can not make a detailed examinationof the allegations in the information or evaluate/analyze the evidenceproduced with the information, particularly, after holding a preliminaryconference.

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Role in Enforcement of the Act

Delhi High Court –Whether or not parties under investigation before theDG can be assisted by their counsels including during recording ofstatements before the DG?Oriental Rubber Industries Pvt. Ltd. vs. CCI - WP (C) 11411/2015(22.04.2016)CCI vs. Oriental Rubber Industries Pvt. Ltd. – LPA No. 607/2016(24.05.2018)Ø Held that right to practice is not only a statutory right under the Advocates Act,1961 but also a fundamental right of advocates.

Ø Section 30 of the Advocates Act, 1961 confers an advocate right to practicebefore any person legally authorized to take evidence and since DG is soauthorized under the Act, advocate has right to practice before DG which wouldinclude accompanying a person who has been summoned by the DG forinvestigation.

Ø In the LPA filed by CCI, the DB however directed the DG to ensure that ‘thecounsel does not sit in front of the witness but is some distance away and thewitness should be not able to confer or consult her or him

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Role in Enforcement of the ActDelhi High Court – (1) Whether DG can investigate without specific prima facieorder against a party u/s 26(1) of the Act (2) Whether prima facie order can berecalled/ reviewed after DG investigation report (3) Whether CCI can holdsimultaneous inquiry under section 48 of the Act against the Managing Directorand other officials of the company without first arriving at a finding of violationof anti-competitive conduct against the company ?Cadila HealthCare Ltd. & Anr. vs. CCI & Ors.- W.P.(C) 2106/2018 (09.03.2018)Cadila HealthCare Ltd. & Anr. vs. CCI & Ors.- LPA 160/2018 & CM APPL. Nos. 11741-44/2018 (12.09.2018)Ø (1) Relied upon SC judgement in Excel Crop and differed from Grasim Case –held that DG can investigate without any specific finding of a prima facie caseagainst a party, if its named in the information.

Ø (2) Distinguished from the facts in the Google Case- Prima facie order cannotbe recalled or reviewed after completion of investigation.

Ø (3) Simultaneous inquiry against the Managing Director and other officials ofCadila can be held without first finding Cadila guilty of the anti-competitiveconduct.

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Role in Enforcement of the Act

Delhi High Court -Existence of an arbitration agreement would not oustthe jurisdiction of CCI.

Union of India Vs Competition Commission of India (2012) AIR 66(DelHC)(23.02.2012)

Delhi High Court-Proceedings before CCI under the Act are not barreddue to previous decisions of Uttarakhand High Court under principles of resjudicata provided the scope of the petitions filed before the UttarakhandHigh Court and the matter brought before CCI are materially different.

Uttarakhand Agricultural Produce Marketing Board and Ors VsCompetition Commission of India-W.P (c) 10411/2016/ (22.09.2017)

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Role in Enforcement of the ActDelhi High Court – Whether Writ Petition can be filed if no appeal lies u/s 53A of the Act?-Jyoti Swaroop Arora vs CCI and Ors. -W.P.(C) No.6262/2015 (16.05.2016)Ø Held that if on the facts of the case there was no scope for interventionby the High Court and Writ jurisdiction can not be exercised to examinethe correctness of the conclusions drawn by CCI, an expert body.

COMPAT also refused to entertain appeals against orders of closure ofcases passed by CCI where DG had found violation- grey area u/s 26(8)of the Act.

Jindal Steel & Power Ltd. vs CCI & Ors.- Appeal No. 45/2012 (03.04.2013)M/s. Arshiya Rail Infrastructure Ltd vs CCI and Ors. -Appeal No.136/2012 (04.04.2013)

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Role in Enforcement of the Act

COMPAT- Due process challenges- When CCI disagrees with the findings of noviolation recorded by the DG, then it shall indicate the reasons for suchdisagreement and issue notice to the parties incorporating the reasons ofdisagreement and give them opportunity to file their replies/ objections, and afterreceiving replies of the parties , it shall hear them before passing order of violationu/s 27 of the Act.Interglobe Aviation Ltd. (IndiGo Airlines) and Ors. Vs. The Secretary,Competition Commission of India & Ors., Appeal No. 07,8 and Appeal No. 07,8and 11/2016 ( 18.04.2016) ( Fuel surcharge case) filed by Express Industry Councilof India against major airlines.

COMPAT- Due process challenges- After oral hearing was completed, final ordersigned by 2 new members who did not hear- Order quashed on grounds of violationof principles of natural justice.All India Organization of Chemists and Druggists v. Competition Commission ofIndia, Appeal No. 56/2014 (24.04.2015)

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Role in Enforcement of the Act

COMPAT- Due process challenges- During oral hearing, though Chairman wasnot present yet he signed the Final Order- held the ability of the Chairman toinfluence other members cannot be ruled out -Order quashed on grounds ofviolation of principles of natural justice.Ambuja Cements Ltd. & Ors. vs CCI & Ors. Appeal No. 125-129/2012(11.12.2015)

Delhi High Court –Due process challenges- Cross examination of witnesses -other parties need not be heard by CCI before allowing application for crossexamination during further investigation by DG u/s 26(7) of the Act.South Asia LPG Co. Pvt Ltd. vs. CCI – LPA 857/2013-(03.09.2014) 2014CompLR285(Delhi), 2014(145)DRJ368

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Role in Enforcement of the ActCOMPAT- Due process challenges- CCI’s disagreement with relevant marketdetermined by DG not informed to the Opposite party before passing final order ofviolation- quashed on violation of principles of natural justiceBoard of Control for Cricket in India v. Competition Commission of India,-Appeal No. 17/2013 (23.02.2015)COMPAT- Incorrect determination of relevant geographic market by CCI – led toclosing of the case of abuse of dominance against Uber- Order quashed and DGdirected to investigate the matter- Whether COMPAT has powers to directinvestigation by the DG while quashing CCI Order of closure of case u/s 26(2)of the Act? – ambiguity in language of Section 53B(3)- Order challenged byUber in Supreme Court.Meru Travels solution Pvt. Ltd vs CCI and Uber India and Ors.-Appeal No.31/2016 (07.12.2016)COMPAT-Locus standi for filing appeal against CCI orders-only personsaggrieved by the order of the CCI can challenge the CCI’s orders in the appellateforum.Jitendra Bhargava v. CCI and Ors.,- Appeal No. 44/2013(27.03.2014) 17

Role in Enforcement of the Act

Delhi High Court –Interpretational Challenge- Whether Ministry ofRailways is an “Enterprise” u/s 2(h) of the Act ?

§ Union of India vs. Competition Commission of India (2012) AIR 66(DelHC) (20.03.2012)

Ø It was urged that operating the Indian Railways was a “sovereign”function and hence excluded from the purview of the Act under thedefinition of “Enterprise” u/s 2(h) of the Act.

Ø Held that there is a "commercial angle" to the services rendered by theIndian Railways and it is not an inalienable function of the State, whichis capable of being performed by private enterprises, like in otherdeveloped Countries.

Ø Court also noted that Central Government had also rejected the requestof the Indian Railways seeking exemption from the ambit ofCompetition Act u/s 54 of the Act .

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Role in Enforcement of the Act

Delhi High Court- Substantive law - Whether CCI has right toreview/recall its prima facie order u/s 26(1) of the Act?Google Inc. & Ors. vs. Competition Commission of India & Ors. [2015]127 CLA 367 (Delhi) ; 2015 CompLR 391 (Delhi) (27.04.2015)Ø Held that CCI has an inherent power to recall its own order finding aprima facie case under section 26(1) of the Act in certain limitedcircumstances, e.g. where the order was passed by the Commission onaccount of fraud, misrepresentation or suppression of material factsby the informant or where the allegations are absurd or inherentlyimprobable or where there is an express legal bar to the institutions andcontinuance of the investigation or where the information / reference /complaint is filed with mala fide or ulterior motives or the like.

Ø CCI objection that its power to review its orders u/s 37 of the Act werespecifically deleted in the Competition (Amendment) Act, 2007 rejected.

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Role in Enforcement of the ActSupreme Court – Substantive law laid on extent of penalty – Whether on the“total” turnover or on the “relevant” turnover. Also clarified procedural issue -Whether DG can investigate into all allegations made in the information in theabsence of specific direction of CCI to investigate each of them u/s 26(1) of theAct directing investigation by DG?Excel Crop Care Ltd. vs. CCI & Anr. (2017) 8 SCC 47 (08.05.2017)Ø Collusive bidding and bid rigging mean the same thing.Ø Anti-competitive agreement entered prior to 20.05.2009 but continued after thesaid date can be examined by CCI – applied the rule of retroactivity to antitrustproceeding.

Ø In a multi product company, penalty can not be disproportionate and imposedon the “total” turnover and has to be restricted to the turnover derived from thesale of the product in respect of which anti-competitive conduct was found i.e.on the “relevant” turnover; applied doctrine of proportionality and “purposiveinterpretation”.

Ø DG can investigate parties other than those mentioned in prima facie CCI orderor even in the information. Information is only the starting point of inquiry.Even the prima facie opinion by CCI can’t foresee and predict completely.

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Role in Enforcement of the ActSupreme Court of India- Substantive law/ Interpretations

Ø Rejected COMPAT’s finding that denial of market access u/s 4(2)(c) canonly be by one competitor against another and that as a broadcastercannot be said to compete with MSOs, there would be no violation ofeither Section 3 or Section 4 of the Act. Further, also rejected the findingthat there cannot be an abuse of dominance of denial of market accessagainst a consumer u/s 4(2)(c) of the Act.

Competition Commission of India Vs Fastway Transmission Pvt. Ltd andOrs. Civil Appeal No. 7215/2014 ( 24.01.2018)

Ø Determination of a ‘relevant market’ is not a mandatory pre-conditionfor undertaking an assessment of an alleged violation of Section 3 of theAct.

Competition Commission of India vs Co-ordination committee of artistsand Ors. Civil Appeal No. 6691/2014 (07.05.2018)

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Role in Enforcement of the ActSupreme Court of India- Landmark judgment on cartels/ bid riggingØ In the absence of sufficient evidence to establish collusion amongstbidders, it cannot be presumed under the standard of proof of“preponderance of probability”.

Ø It is necessary to demonstrate by evidence that such “agreement” evenwhen presumed resulted into foreclosure of entry of new players i.e. itresulted in an appreciable adverse effect on competition in the relevantmarket.

Ø In brief, in a oligopsonistic market where buyers ultimately decide thelowest price at which suppliers will supply, an “agreement” for collusivebid rigging cannot be presumed merely by quotation of parallel oridentical prices by the bidders under the preponderance of probabilitystandard provided there are no direct or indirect evidence of suchcollusion.

Rajasthan Cylinder and Containers Ltd & Ors vs Union of India & Anr.-Civil Appeal No. 3546/2014 and 43 others ( 01.10.2018) 22

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Role in Enforcement of the ActDelhi High Court- Jurisdictional Challenge –Sectoral overlap- WhetherCCI has jurisdiction to examine allegations of anti-competitive conductand abuse of dominance even if the Patents Act provides for efficaciousremedies in the nature of grant of compulsory licenses?Telefonaktiabolaget LM Ericsson (PUBL) vs. CCI & Anr. – W.P. (C)464/2014 (30.03.2016)Ø Ericsson challenged jurisdiction of CCI, on grounds that since anefficacious remedy in the nature of compulsory license exists under thePatents Act, the Competition Act will not apply and CCI has nojurisdiction to decide the rate of royalty and other terms for grant oflicense for its SEP to two Indian mobile manufacturers.

Ø Held that the jurisdiction of the CCI under the Act to probe allegationsof anti-competitive practices and abuse of dominance arising out of themonopoly granted by patent rights cannot be taken away even if thePatents Act provides for efficacious remedies inter alia in the nature ofgrant of compulsory license.

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Role in Enforcement of the ActDelhi High Court-Jurisdictional challenge-Sectoral overlap – In case ofconflict between the Act and the Copyright Act,1957, the jurisdiction issuewill be decided by CCI. CCI decided that it has jurisdiction to examineallegations of abuse of dominant position in charging royalties for musiclicensed to one FM Radio station since there is no provision for suchviolation in Copyright Act. Moreover, there is no exemption to preventexercise of monopoly power under the Copyright Act u/s 4 of the Act unlikesection 3(5) of the Act.Super Cassettes Industries Ltd. vs UOI & Ors. W.P(c) 1119/2012(04.10.2012)COMPAT-sectoral overlap -In case of a conflict between the Act and theElectricity Act,2003 , even though Section 60 of Act contains a non obstanteclause, the Electricity Act would prevail as it is a ‘later special statute’.Moreover, Electricity Act has its own system to check on Abuse ofdominance and specifically mentions the Act.Anand Prakash Agarwal Vs Dakshin Haryana Bijli Vitran Nigam andOrs-Appeal No. 33 of 2016 (16.02.2017)

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Role in Enforcement of the ActSupreme Court of India – “Gun jumping”-

Ø Market purchase of 9.93% shares from open market constitutes “inter-dependent” or “composite transactions” under Regulation 9(4) andtherefore needs to be notified, even if the market purchase target was inthe ambit of de minims exemption..

Ø Not notifying the above constituted “substantial” gun jumping andpenalty under Section 43A leviable.

Ø There is no requirement of mens rea u/s 43A of the Act or intentionalbreach as an essential element for levy of penalty.

Competition Commission of India Vs Thomas Cook (India) Ltd. & Ors. -Civil Appeal No. 13578 of 2015/ (17.04.2018)

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Role in Enforcement of the ActSupreme Court of India – “Gun jumping”-Ø First purchase of 24.46% of equity shares on a single day were strategicand cannot be considered as having been made as investment in theordinary course of business – Hence benefit of exemption under Item 1of Schedule 1 of the Combination Regulations not available. Constitutessubstantial gun-jumping u/s 43A of the Act.

Ø Second purchase of 1.7% of equity shares and keeping them in escrowaccount until receipt of the CCI approval did not absolve the party fromthe violation of procedural gun-jumping u/s 43A of the Act.

Ø Sections 31 and 43A of the Act operate in two different fields. Grant ofapproval for the transaction by CCI u/s 31 of the Act does not absolve theparties from violation of gun-jumping.

Ø There is no requirement of mens rea u/s 43A of the Act or intentionalbreach as an essential element for levy of penalty.

SCM Solifert Limited & Ors. Vs Competition Commission of India CivilAppeal No. 10678/2016 (17.04.2018) 26

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Disclaimer

This presentation is intended to provide general information ina summary form. It does not constitute legal advice and shouldnot be relied upon as such. Formal legal advice should besought in particular matters

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28Disclaimer: While every care has been taken to ensure accuracy of this presentation, Vaish Associates shall not assumeany liability/ responsibility for any errors that might creep in. The material herein does not constitute/ substituteprofessional advice that may be required before acting on any matter.

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Thank You

Contact:MM Sharma , Advocate ,Head-Competition Law & Policy Vaish Associates, AdvocatesEx-Addl. Registrar, CCIE- mmsharma@vaishlaw.comMobile- +91-9958821720