CCI introduces Leniency “Plus” regime in India- Will it suffice?
Division Bench of High Court removes fetters on investigative powers of DG – holds not limited by CCI prima facie order -overrules Grasim
By way of judgement dated 12.09.2019, a Division Bench of Delhi High Court (comprising of Justice Muralidhar and Justice Talwant Singh) has set aside the judgement dated 17.12.2013 passed by a Single Bench and upheld the order of the Competition Commission of India (“CCI/Commission”) dated 30.05.2013 holding that the Director General was well within the powers to submit a report regarding violation of Section 4 of the Competition Act, 2002(“the Act”) although the direction issued by the CCI under Section 26(1) of the Act was with reference to violation of Section 3(3) (a), (b) and (c) of the Act. The judgment has quashed the oft quoted and famous Grasim judgment , which was relied upon by competition law practitioners in a large number of cases.
Background
CCI order under Section 26(1)
Information was filed before the CCI on 30.05.2011 that all manufacturers of Man Made Fibre (‘MMF”), including Grasim Industries Ltd. (“Grasim”)[1], had imposed anti-competitive restrictions on the Indian textile industry. After forming a prima facie view that the information disclosed violation under Section 3(3) (a), (b) and (c) of the Act by manufacturers of MMF, CCI directed the DG to investigate the matter vide order dated 22.06.2011.
DG Report
The DG submitted its investigation report on 26.02.2013 holding that none of the parties named in the information contravened Section 3 of the Act. However, based on evidence , DG found that Grasim had abused its dominant position in the market in violation of Section 4 of the Act by imposing unfair and/or discriminatory conditions in purchase/sale of Viscose Stable Fibre (VSF- a variety of MMF), imposing unfair and/or discriminatory price in purchase/sale of VSF and indulging in practices resulting in denial of market access. The DG came to such conclusion on the basis of the following conduct of Grasim: (i) It kept dual basic price and differential discounts for the sale of VSF; (ii) provided segmental discounts for export or domestic consumption on the condition that a minimum of 35% content of VSF is necessary in yarn. No discount if content of VSF is less than 35%; (iii) offered continuity discount/rebate with a condition that yarn manufacturer shall not purchase VSF from anybody (including imports) other than Grasim; (iv) Grasim sold VSF to yarn manufacturers directly and the production, composition and quantity of yarn was monitored to prevent trading of VSF in the relevant market;(v) provided discounts on lifting or consumption of VSF, whichever is lower and thereby monitored the sale and production of yarn and prevented trading of VSF;(vi) took advantage of import landed price and imposed unfair conditions in pricing and sales thereby maximizing its profits and not passing it to the customers.
CCI Order quashing Grasim’s plea
On consideration of the investigation report, the CCI decided to send a copy each to the informant and Grasim. Grasim, aggrieved by the fact that the DG examined violations with respect to Section 4 of the Act, which was not referred to the DG for investigation by CCI in the initial order dated 22.6.2011 , challenged the finding before the CCI. The CCI on 30.05.2013, passed the impugned order whereby Grasim’s plea that the DG could not have suo motu enlarged the scope of investigation into violation of Section 4 of the Act was rejected.
The Commission held that the directions given to the DG under Section 26(1) of the Act are only meant to initiate the process of investigation and purpose of Section 26(1) is neither to scuttle nor to limit the investigation. Grasim had contended that it was never put to its notice that the DG will be investigating potential violation of Section 4 and this denied an opportunity to present its arguments in relation to such violation. To this, CCI observed that that Grasim was given a copy of the investigation report and it had the opportunity to file the relevant documents before the CCI and the CCI would have considered all the documents and evidence filed by Grasim with its objections to the investigation report. Moreover, as per the CCI, the questionnaire sent by the DG to Grasim was self-explanatory and reflected the direction of investigation.
Judgement of the Single Bench- impugned judgement
Grasim challenged the CCI Order dated 30.5.2013 before the Delhi High Court . The Ld. Single Judge of the Delhi High Court ( Justice VK Jain) held that inasmuch as the directions issued to the DG was to investigate violations of Section 3(3) (a),(b) and (c) of the Act (anti-competitive agreements) by the manufacturers of MMF, the DG could not have investigated into the violation of Section 4 (Abuse of dominant position). The Ld. Single Judge however clarified that the Commission would be entitled to treat the part of the report of the DG as ’information’ under Section 19 of the Act and proceed accordingly if the CCI was of the opinion that there existed a prima facie case of contravention of Section 4 by Grasim.
The Ld. Single Judge made the following observations and set aside the CCI order:
- If the investigation by the DG is based upon information which the CCI did not consider while forming its opinion with respect to the existence of a prima facie case, the DG’s action would be contrary to the scheme of the Act.
- Regulation 18 (4) of the Competition Commission of India (General) Regulations, 2009 (“CCI Regulations”) requires the DG to give a report containing its findings on each of the allegations in the information or the reference, as the case may be, which meant that the DG was to be confined to the allegations in the information or the reference received by the CCI and he is “not competent to travel outside the said information or reference”.
- Under the scheme of the Act, the enterprise against whom the information is given to the CCI is entitled to defend itself, first before the DG during the course of investigation, and in case the DG is not satisfied and reports a contravention of the provisions of the Act, then before the CCI, during the course of enquiry by the CCI. Had the information, alleging contravention of Section 4 of the Act by Grasim, been considered by CCI, for forming its opinion under Section 26(1) of the Act, and the DG been directed to cause an investigation to be made into the said information, Grasim could have requested the DG, under Regulation 41 (4) of the CCI Regulations, to permit it to lead evidence to satisfy the DG that no contravention of Section 4 of the Act had been committed by it.
- Although there was no power given to the CCI under the Act to quash or set aside the report of the DG, if the DG carried out an investigation into an information, which was not considered by the CCI, while forming its opinion under Section 26 (1) of the Act, CCI was entitled to reject that part of the report, which pertained to such investigation.
- The report of the DG, to the extent that it reported a contravention of Section 4 of the Act by Grasim, could not be forwarded to Grasim under Section 26 (4) of the Act, nor could the CCI hold a further enquiry into it under Section 26 (8) of the Act, or proceed to pass an order on its basis under Section 27 of the Act. However, CCI in its discretion could treat the said part of the report as ‘information‟ under Section 19 of the Act (concerning prima facie contravention of Section 4 of the Act) and direct the DG to undertake an investigation into such information.
Noticeably , the above judgment of the Justice VK Jain of Delhi High Court dated 17.12.2013 came to be known as the famous Grasim judgment and was quoted frequently by competition lawyers before CCI, COMPAT and the High courts in several famous cases including the Cadilla case .
CCI challenged this finding before the Division Bench of the Delhi High Court and it took the Hon’ble High Court over 6 years to decide this contentious issue .
Proceedings before the Division Bench
Submissions in brief
The primary contention on behalf of the CCI was that, in the present case, the directions by the CCI after forming a prima facie view was to investigate ‘into the matter’ and such expression was wide enough to include a violation not limited to Section 3 of the Act but any other violation which may emerge in the course of investigation. It was further submitted that if the view of the Single Judge is accepted, it would confer a very narrow interpretation on the scope of ‘information’ which triggers the order under Section 26 of the Act and equates it to a ‘complaint’. It was also submitted that a correct interpretation of Regulation 18(1) and Regulation 20(4) of the CCI Regulations provides that the DG has to attach all the evidence and documents, statements, and analysis collected during investigation which might not be limited to the prima facie opinion expressed by the CCI.
On the other hand, Grasim submitted that the expression ‘into the matter’ only referred to violations of Section 3(3)(a), (b) and (c) of the Act and not Section 4. It was further submitted that the prima facie opinion of the CCI was a sine qua non for initiation of an investigation by the DG, and therefore, the jurisdiction of the DG is limited by the scope and ambit of Section 26(1) of the Act. It was also contended that a combined reading of Section 26(1) of the Act and Regulation 20(4) of the CCI Regulations would reveal that DG cannot initiate any suo moto investigation based on information which was never placed before the CCI and if the DG was not bound by the prima facie view of CCI that would mean that the DG is at a higher pedestal than CCI.
Decision of the Division Bench
The Division Bench, after carefully examining the decisions of the Supreme Court in Excel Crop[2] and in Cadila[3], observed that an order of the CCI under Section 26(1) of the Act ‘triggers’ investigation by the DG and the powers of the DG are not necessarily limited to examine only such mattes that formed the subject matter of the original complaint. The language of the order passed by the CCI issuing directions to the CCI will also have a bearing on the scope of investigation by the DG and in the present case the language of the order was broad enough to cover an investigation by the DG into possible violation of Section 4 of the Act by Grasim. The Division Bench held that although the information with CCI pertained to the alleged violation by Grasim and others under Section 3 (3) (a), (b) and (c) of the Act, the direction given to the DG was to ‘investigate the matter’ which enabled the DG to examine violations not only of Section 3 but any other violations which unearthed during investigation.
The Division Bench also examined the Supreme Court’s decision in the SAIL case[4] and observed that opinion formed by the CCI at the stage of issuing directions to the DG under Section 26(1) is by no means intended to restrict the opinion that may be formed by the DG on such investigation.
Differing from the view of the Single Judge that the report of the DG can at best constitute information, the Division Bench held that placing the investigation report as an information before the CCI will not serve any purpose.
The Division Bench observed that it is not necessary that in every case, even at the stage of investigation, the party will have to be given opportunity to adduce evidence, cross examine persons who may have given evidence adverse to them, in the course of investigation. The Division Bench held that the scope of powers and functions of the CCI when considering the investigation report is quasi-judicial. It undertakes that exercise after furnishing copies of the Investigation report to the parties and then permits them to make its submissions which is followed by a full-fledged hearing. At this stage, the CCI also permits the affected party to lead evidence. Therefore, the scope and extent of participation of Grasim is different at the stage of investigation before the DG and at the subsequent stage of consideration of the investigation report by CCI. Accordingly, the contention of Grasim that Principles of Natural Justice were violated due to the fact that investigation into violation of Section 4 was not brought into notice of Grasim was rejected.
The Division Bench, while passing this judgement, acknowledged that when the Single judge passed the impugned judgement, he did not have the benefit of the decision in Excel Crop and if such judgement was available at that point of time the Single judge would not have taken the view which he had taken.
Comment : The present judgment of the Delhi High court , though a reiteration of the earlier judgments in the Excel Corp and Cadila case is still important since but for this judgment , CCI could not have been allowed to proceed with the inquiry into an apparently monopolistic behaviors adopted by Grasim in the market for manufacture and supply of VSF , which , as per my knowledge has closed the shutting down of many small fabric manufactures who depend entirely upon Grasim for its supply.
[1] Grasim is a manufacturer of Viscose Staple Fibre- a variety of MMF
[2] Excel Crop Care Limited v Competition Commission of India (2017) 8 SCC 47
[3] Cadila Healthcare Limited v Competition Commission of India 2018 SCC OnLine Del 11229
[4] Competition Commission of India v Steel Authority of India
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