2015 (11) TMI 1818 - AT - Law of Competition

CCI Ordered to Reinvestigate Allegations After Tribunal Finds Initial Evaluation Was Flawed.

The appeal was allowed, and the matter was remanded to the Competition Commission of India (CCI) for directing an investigation under Section 26(1) of the ... Prima facie case - Investigation under Section 26(1) - Closure under Section 26(2) - Abuse of dominant position - Relevant market - Definition of dominance - Section 3(4) anti-competitive agreements - Appellate scrutiny under Section 53-B - Director General investigationPrima facie case - Investigation under Section 26(1) - Closure under Section 26(2) - Appellate scrutiny under Section 53-B - Legality of the Commission's refusal to order an investigation under Section 26(1) on the ground that no prima facie case existed - HELD THAT: - The Tribunal held that while the Commission, when examining an information under Section 19, must satisfy itself only whether a prima facie case exists to direct an investigation under Section 26(1), it must not delve into the merits, rely on undisclosed material or record final findings. The Commission erred by undertaking a merits-based inquiry - using industry data from the Ministry website, analysing installed refining capacity and concluding no player was dominant - thereby treating formation of a prima facie opinion as a final adjudication. Reliance on such merits-level assessment was inconsistent with the limited threshold prescribed by Section 26(1). The Tribunal further observed that orders closing matters under Section 26(2) are amenable to appellate scrutiny under Section 53-B where the negative prima facie opinion is vitiated by an error of law. Applying these principles, the Tribunal found that the allegations and written submissions filed by the informant disclosed a prima facie case and that the Commission committed an error in refusing to order an investigation. [Paras 8, 9, 10, 11, 12]The Commission's order refusing investigation under Section 26(1) was set aside on the ground that it impermissibly went into merits and failed to recognise a prima facie case.Director General investigation - Remand for investigation - Abuse of dominant position - Relevant market - Section 3(4) anti-competitive agreements - Remedial direction to the Commission to obtain an investigation report from the Director General - HELD THAT: - Having found the Commission's negative prima facie conclusion unsustainable, the Tribunal remanded the matter to the Commission with a direction to issue a formal order under Section 26(1) directing the Director General to conduct an investigation. The Tribunal emphasised that the Director General must carry out the investigation independently and without being influenced by the Tribunal's order; upon receipt of the investigation report the Commission is to pass appropriate orders in accordance with law. The remand was for the purpose of conducting the investigative process envisaged by the Act and not a final adjudication on the merits of allegations concerning abuse of dominance, relevant market definition or alleged anti-competitive clauses of the dealership agreements. [Paras 12, 13]Matter remanded to the Commission directing it to order an investigation by the Director General under Section 26(1); investigation to be conducted independently and the Commission to act on the DG's report in accordance with law.Final Conclusion: The appeal succeeds: the Tribunal set aside the Commission's closure order for having impermissibly examined merits instead of determining whether a prima facie case existed, found that a prima facie case is disclosed, and remitted the matter to the Commission with a direction to direct the Director General to investigate under Section 26(1), leaving final adjudication to the Commission after the DG's report. Issues Involved:1. Whether the Competition Commission of India (CCI) was justified in refusing to order an investigation into the alleged abuse of dominant position by the respondents.2. Determination of the relevant market.3. Assessment of dominance in the relevant market.4. Examination of contravention of Section 3(4) read with Section 3(1) of the Competition Act, 2002.5. Judicial scrutiny of the CCI's order under Section 26(2) of the Competition Act, 2002.Detailed Analysis:1. Justification of CCI's Refusal to Order Investigation:The primary issue was whether the CCI was legally correct in refusing to order an investigation into the alleged abuse of dominant position by the respondents. The appellant, an association of petroleum dealers, alleged that the respondents, public sector undertakings, were forcing them into one-sided agreements and issuing Marketing Discipline Guidelines without consultation. The CCI refused to order an investigation under Section 26(2) of the Competition Act, 2002, stating that there was no prima facie case of abuse of dominant position.2. Determination of the Relevant Market:The appellant argued that the relevant market should be defined as the market for oil marketing and distribution within the state of Assam, distinct from oil exploration and refining. The CCI, however, considered the relevant market as the market for refining and sale of petroleum products in India. The appellant provided detailed arguments and documents to support their definition, emphasizing local specifications, regional distribution facilities, and consumer preferences within Assam.3. Assessment of Dominance in the Relevant Market:The appellant contended that the respondents held a dominant position in the market for oil distribution and marketing in Assam, with IOCL being in a 'super dominant' position. They argued that the three public sector undertakings operated in coordination, maintaining uniform prices and not competing with each other. The CCI, however, analyzed the market based on installed refining capacity and concluded that none of the players held a dominant position, with IOCL's share being only 28.92% in 2011 and 25.44% in 2012.4. Examination of Contravention of Section 3(4) Read with Section 3(1):The CCI examined the dealer agreements under Section 3(4) of the Act and found no contravention. The clauses in question, such as Clause 62(a) regarding arbitration and Clause 42 concerning Marketing Discipline Guidelines, were not found to be anti-competitive. The CCI concluded that the agreements did not create barriers to new entrants, drive existing competitors out of the market, or foreclose competition.5. Judicial Scrutiny of CCI's Order under Section 26(2):The Tribunal held that the CCI erred by delving into the merits of the allegations instead of merely determining whether a prima facie case existed. The Tribunal emphasized that the CCI should not confuse the formation of a prima facie opinion with the final determination of the issues. The Tribunal found that a prima facie case was disclosed from the allegations and set aside the CCI's order, directing an investigation under Section 26(1) of the Act.Conclusion:The appeal was allowed, and the matter was remanded to the CCI for directing an investigation under Section 26(1). The Tribunal clarified that the investigation should be conducted without being influenced by its order, and the CCI should pass an appropriate order based on the Director General's report. The Tribunal's decision highlighted the importance of not delving into the merits of allegations while forming a prima facie opinion under Section 26(1).