Laying down Competition Law Jurisprudence

The Chairman of the CCI has stated recently that the architecture of CCI is different from that of legal architecture in judicial system per se. The Economic Times in its report on 27^th December 2015, quoted him saying that:

"The legal architecture in a judicial system per se and the architecture in a regulatory system has to be operated in a different manner," and

"I think this appreciation of the fact that this architecture has a specific objective is something which the system external to the Commission has to appreciate and then things will actually, substantively move forward.”

He is also on record stating that CCI should move with time rather than implement legislation with 20^th and 19^th century tools. Earlier it had been said that a sound body of jurisprudence would be helpful for a young regulator like CCI.

The anguish of the Chairman, though perceptible, is misplaced. The views are a result of overturning of several CCI decisions by the Competition Appellate Tribunal (COMPAT) – forum which hears appeal against the CCI orders. In the context of recent decisions, he has been quoted as:

"That is an issue and perhaps it arises out of a strict application of the rules of the judicial system to an architecture which is different in terms of what the Parliament has legislated.”

Whether the principles applied in those decisions are termed as old century tools or not, it is beyond doubt that CCI cannot give a short shrift to legal requirements on the pretext of selective investigations or expeditious disposal. None of the decisions of COMPAT is contrary to the scheme of Competition Act nor do they stretch the legal requirements for quasi - judicial actions.

The judgments of COMPAT, all authored by Justice G. S. Singhvi (Retd.), have focused on two aspects of “principal of natural justice” – (a) fair and proper opportunity to be given to the parties and (b) reasoned orders to be passed indicating due application of mind.

Fair and Proper Opportunity:

In three significant decisions, COMPAT held that it is the duty of the CCI to disclose any adverse material to the parties concerned. The duty exists at all stages – (a) pre – investigation, (b) during investigation, and (c) post investigation while considering objections against the report of the Director General of the CCI – office that is incharge of investigations conducted by the CCI - (hereinafter referred to as DG). The underlying principle is that a party should have effective opportunity to controvert the adverse material against it.

In February last year, a penalty of Rs. 52.24 crores imposed on BCCI on allegations of abuse of dominant position regarding IPL was set aside. The DG has defined the relevant market for the purposes of the investigation to be the market for "underlying economic activities which are ancillary for organizing the IPL twenty-20 cricket tournament being carried out under the aegis of BCCI as per provisions of Section 2(r) of the Act." On the other hand, the Commission differed from the DG and defined the relevant market to be the market for "organization of private professional cricket leagues/events in India".BCCI did not get any opportunity to contest the proposed determination of the 'relevant market' by the Commission.

COMPAT held that the “relevant market” determined by the CCI for purposes of determining “abuse of dominant position” was different from that considered by the Director General. Thus, CCI should have given BCCI an opportunity of hearing if in CCI’s view the “relevant market” was different from that considered at the stage of the investigation.

Likewise, the investigation conducted against the Chemist and Druggist Association, Ferozpur by the DG was held to be wrong by the COMPAT. During the course of investigation, the Association was not disclosed the adverse material proposed to be used for concluding that Association had indulged in anti – competitive practice by insisting that No objection certificates should be taken by the Distributors from it before they could get stocks from pharmaceutical companies.

While rejecting the procedure adopted by the DG, it was held that:

“The Jt. DG conducted investigation with a pre-determination to return a finding that the Association and its office bearers are guilty of anti-competitive conduct and violation of Section 3(3)(b). This is the reason why he neither confronted the appellants with the material collected in the form of three responses sent by Respondent No. 2, his affidavit, replies sent by the pharmaceutical companies and wholesalers and retailers, some of which contained suggestive references to mandatory character of NOC/LOC. He did ask several leading questions to the Association and its office-bearers but without disclosing them, the adverse material proposed to be used for recording findings on the issue of violation of Section 3. This methodology adopted by the Jt. DG was totally unjustified and contrary to the basics of fairness and natural justice.”

Thereafter in an appeal filed by North East Petroleum Dealers Association, Greater Guwahati Unit it was held that while deciding whether to refer a matter for enquiry, the CCI could not have relied upon the website of the Ministry of Petroleum and Natural Gas, among other things, without giving the informant a chance to rebut the same. The CCI had refused to order investigation in a complaint against oil marketing companies alleging abuse of dominant position by forcing the dealers to enter into one sided agreements.

Reasons to be disclosed:

In recent orders, it has also been held that the orders of the CCI should indicate application of mind with cogent reasons. Penalties have been set aside because the CCI routinely approved the findings of the investigation and did not properly consider submissions made by the parties.

In a matter relating to boycott of Hindi movie – Mausam, in parts of South India, penalty on Andhra Pradesh Film Chamber of Commerce (APFCC) was set aside on the ground that CCI abdicated its duty by failing to consider the specific role of APFCC and mixing it with actions of Telangana Telugu Film Distributors Association and Karnataka Film Chamber of Commerce.

Penalty on Chemist and Druggist Association, Ferozpur, was set aside on the grounds that the CCI did not objectively deal with the objections taken by the Association and did not advert to the unequivocal stand taken by the eight out of ten pharmaceutical companies that NOC/LOC was not mandatory for appointment of a distributor in district Ferozepur. It was held that:

“In the scheme of things, it is bounden duty of the Commission to objectively consider the report of the Director General together with the findings recorded by him, make its own analysis of the pleadings and documents to find out whether or not there has been contravention of Sections 3 or 4. This necessarily implies that the Commission must consider the allegations made in the information, the replies received in response to notices issued under Section 36(2) read with Section 41(2), the information and documents collected by the Director General/Jt. DG and then record its own findings. The Commission cannot abdicate its duty and simply approve the findings of the facts and the conclusion recorded by the Director General and pass order under Section 27 and/or Section 48 of the Act.

…

To put it differently, no quasi judicial body has the right to trample over the fundamentals of the rule of law, constitute an integral part of democracy in our country. One of the facets of the rules of natural justice is that every quasi judicial authority must record reasons in support of its order. Such reasons reflect and demonstrate the application of mind by the quasi judicial authority. An order which is bereft of reasons is just like inscrutable face of a sphinx.”

Likewise, penalty imposed on a former Executive Committee Member of Bengal Chemist and Druggist Association was set aside due to failure of CCI to appreciate that the concerned individual had resigned and was not part of decision making process of the Association. It was held that the investigation report was mechanically approved.

One who decides must hear:

Perhaps, the most scathing observations have come in judgment on the cement cartelization matter in December last year. The CCI order was set aside on the principle that “one who decides must hear.” The COMPAT was critical of the functioning of CCI and held that

“(i)t is a matter of mystery that without having any idea about the arguments advanced by the Advocates representing the parties, which lasted for three days, the Chairperson of the Commission could become party to the final order, which resulted in imposition of penalty of over Rs. 6100 crores.”

It was held that the order of CCI was passed without thorough examination of the record of the Director General, the submissions made by the parties and the interlocutory orders passed earlier.

In the same decision, COMPAT also advised the CCI to evolve a comprehensive protocol and lay down guidelines for conducting investigation/inquiry in consonance with the rules of natural justice.

Implications:

In view of the judgments of COMPAT, the entire decision making process adopted by CCI so far thus requires improvement. The practice, hitherto, was not to share information till the investigation report was circulated to parties. Even the informant would remain clueless about the material which would be relied upon. Furthermore, the general experience was that hearings before the CCI were very brief. The orders invariably endorsed the investigation report, without categorically responding to objections of the parties concerned.

It can be argued that now investigations may result in long drawn process akin to normal litigation. However, the current legislative scheme has enough safeguards. It is also settled law that natural justice is not inflexible concept and would depend on facts of each case. Thus, it is not as if in each and every matter and instance, cross examination has to be allowed and investigation results in a civil trial.

By reinforcing the seminal principles, the COMPAT has reminded the CCI that whichever tools are used, it has to act within the boundaries of our legal system. No architecture – legal or regulatory – allows passing of orders having huge ramifications without full and proper opportunity and that orders have to be passed with cogent reasons which indicate application of mind. Principles of fair play ought to be part of each decision making process and justice should not only be done, but also seen to be done.