DELHI HIGH COURT REFUSES TO INTERFERE WITH CCI PRIMA FACIE ORDER POST INVESTIGATION
Delhi High Court vide a recent judgement dated 09.03.2018 in a writ petition filed by Cadila Health Care has refused to interfere in a pending inquiry after the submission of the Director General’s (DG) investigation report .The High Court has provided clarity on the procedural issue which will enhance the powers of the Competition Commission of India (CCI), during the post-investigation inquiry under the Competition Act, 2002(“the Act”).
The petitioner , Cadila Healthcare Limited , challenged the orders dated January 16, 2018 and January 17, 2018 and order dated November 17, 2015 passed CCI/ respondent No.1 ( hereinafter , the orders) , whereby , CCI dismissed an application for review / recall of its prima facie order passed under section 26(1) of the Act. It was submitted that the informant (Reliance Medical Agency) had placed an order for the supply of certain drugs/ medicines on the petitioners with an advance demand draft of Rs. 1 Lakh on 09.07.2015 and thereafter filed an information with the CCI on 03.08.2015 stating that it was denied supplies by the petitioners on account of not obtaining No Objection Certificate (NOC) from Chemist and Druggist Association of Baroda (“CDAB”). The petitioner challenged the impugned orders of CCI mainly on the grounds that it refused to take note of the ill motives of the informant by filing the information immediately after placing an order for supply with the petitioners and suppressing the fact that supplies were already made to the informant by the Petitioners on 29.09.2015, against the order dated 09.07.2015. Thus, alleging suppression of material facts and fraudulent conduct on the part of the informant , petitioner requested for review/ recall of the order under Section 26(1) of the Act which was rejected by the CCI vide order dated 16.01.2018 , which was under challenge in the present writ petition including many ground on merits of the case .
- What is the appropriate stage for Review / Recall of Section 26(1) order – Referring to a previous judgment of the Delhi High Court in the case of Google wherein the Delhi High court had held that the order of CCI directing the DG, CCI in exercise of power under Section 26(1) of the Act (“prima facie order”) to cause investigation is capable of review/recall, the petitioner requested for quashing of the CCI prima facie order in this case also.
2. Whether investigation can be ordered by CCI without finding a prima facie case against a party? – The second main issue raised in the petition was whether an investigation can be legally ordered by CCI without finding a prima facie case qua a specific party, the petitioner, in this case?
The Delhi High Court relying on series of judgments, made the following significant observations in respect of the two issues as under:
On the first issue -. The Court, distinguishing the present case from the Google Case held that in the Google order dated 24.04.2015 it was laid down that a person/enterprise would have a right to apply for review/recall of CCI prima facie order but such a power has to be exercised on the well-recognized parameters of the power of review/recall and without the investigation already ordered being stalled indefinitely. In the Google Case when the petitioners challenged the CCI prima facie order the investigation was still underway, when the application for recall was filed and also when the petition was filed in this Court. Whereas in the present case the recall application was filed after the DG report has been submitted to CCI. The Court thus read/understood its judgment in Google Case to mean that a recall/review application can be filed before or during investigation and not after the submission of the investigation report by the DG. Once the DG report is submitted, then an action/procedure under Section 26(5) or 26(8) gets triggered, taking the case out of the realm of 26(1) or 26(2) of the Act, [which was the position in Google)]. The only remedy for the parties left was to argue the DG report on merits before the Commission and not on the order u/s 26(1) as was sought to be done in the case in hand. The same is impermissible in law, inasmuch as procedure as contemplated/provided must be allowed to be gone through. Thus the High Court is barred from interfering with the CCI inquiry proceedings post the stage of submission of the DG investigation under section 26(3) of the Act.
On the second issue– The Delhi High Court relying on the judgement of the Supreme Court in the Excel Crop Case observed that, even if the CCI has not formed a prima facie opinion against the petitioners in its prima facie Order, the DG would still be within his power to inquire against the party if investigation reveals facts that the persons/enterprises had entered into an agreement, which is prohibited by Section 3 of the Act. The Court noted that it was precisely for this reason, that the CCI in the impugned order dated 17.11.2015 had used the words “investigate the conduct of such other party, who may have indulged in the said contravention”. The said words are in conformity with the position of law as laid down by the Supreme Court in Excel Crop Case. Further, even otherwise, this issue cannot be a ground to challenge the prima facie order after the DG report has been submitted. The Court held that the stage of challenging the prima facie order stands closed once the DG report has been filed before the CCI and noted that the CCI is not under obligation to find the prima facie case against every aspect involved in the matter, as it cannot foresee and predict whether any violation of the Act would be found upon by investigation by the DG. One cannot restrict the scope of investigation, as it would defeat the very purpose of the Act which is to prevent practices having appreciable adverse effect on competition. Insofar as the other submissions on merits made by the petitioner were concerned such as:
- Mala fide intention behind the information /suppression of material facts by the informant amounting to fraud ;
- no vertical or horizontal relationship between the petitioners and the Federation/Association and as such Section 3(1) of the Act being not applicable or even otherwise, the alleged Agreement between the Association/Federation and petitioners assume to exist, the same would not fall within Section 3(3)or 3(4) of the Competition Act;
- proceedings are barred by res judicata/double jeopardy;
- Initiation of proceedings under Section 48 at preliminary stage being erroneous.
It was observed by the Delhi High Court that CCI in the impugned order has clearly left open all these questions being on merits and had observed that the petitioners shall be at liberty to argue on merits before the CCI while rebutting the evidence collected by the DG during investigation. However, while dismissing the petition, the court clarified that when CCI is hearing the petitioners on the report of the DG, surely it will be doing so without being influenced by any finding on facts in its order rejecting the review/recall application and shall consider all the material and position of law as put forward by the petitioners and directed the CCI to complete the inquiry proceedings most expeditiously and while ensuring that the time taken in completion of such proceedings does not adversely affect any of the parties as well as the open market in purposeful implementation of the provisions of the Act.
The present Judgment / ruling provides the much needed clarity on two important issues viz. the stage or the timelines during which an aggrieved party may challenge the jurisdiction of the CCI and whether CCI is empowered to order an investigation without first finding a prima facie case against a specific party .The Court has restricted the scope of the CCI’s power of review/recall of its prima facie order to cases where the investigation is yet to start or has just started without causing delay in the investigation process. This judgment would definitely encourage CCI and will provide clarity to the aggrieved companies on the issue of proper time lines and the scope of the order under section 26(1). The Petitioner may, however, still challenge this ruling before the Division Bench of the Delhi High Court.