2025 (4) TMI 669 - HC - Law of Competition

CCI must establish prima facie case under Sections 3/4 before ordering investigation under Section 26(1)

Star Cement Ltd. (Formerly Known As Cement Manufacturing Co. Ltd) Versus The Competition Commission Of India, Assam Real Estate And Infrastructure Developers Association, Rajesh Prasad Commisssioner And Secretary Deptt Of Food Civil Supplies And Consumer Affairs, Director General CCI, Joint Director General CCI, New Delhi.

HC quashed CCI's investigation order under Section 26(1) of Competition Act, 2002, holding that CCI must establish prima facie case of anti-competitive ... Anti-competitive practices - jurisdiction of Competition Commission of India (CCI) to direct an investigation under Section 26(1) of the Competition Act, 2002, without first establishing a prima facie case of anti-competitive practices under Sections 3 and/or 4 of the Act - levy of penalty upon the petitioner company for non-compliance of the direction passed by the Director General - HELD THAT:- The CCI is empowered to conduct enquiry into certain agreements and dominant possession of enterprise upon receipt of any information as provided under Section 19 of the said Act, 2002. However, it appears that under Section 26 (1) of the said Act, the CCI before directing the Director General to cause an investigation, has to form an opinion on the basis of the information received thereof that there exist a ‘prima facie’ case. Therefore, it is amply apparent that only after the CCI is of the opinion that there exists a ‘prima facie’ case, it shall direct the Director General to cause an investigation to be made in the matter - it appears that under Section 4 of the said Act, 2002, there shall be abuse of dominant position if an enterprise or a group directly or indirectly imposes unfair or discriminatory condition in purchase or sell of goods or service; or price in purchase or sell of goods or service; or limits or restricts productions of goods of provision of service or market thereof; or indulges in practice or practices resulting in denial of market assess; or makes conclusion of contract subject to acceptance by other parties of supplementary obligation which, by the nature or according to commercial usage, have no connection with the subject of such contract; or uses its dominance position in one relevant market enter into, or protect, other relevant market. Section 53A of the said Act, 2002 stipulates the order or decision passed by the CCI which are appealable before the appellate Tribunal i.e. the National Company Law Appellate Tribunal (NCLAT). Apparent thus, that the orders passed by the CCI after inquiry into agreement or abuse of dominant position, is appealable under the said provision. However, the order of the CCI directing the Director General to investigate as provided under Section 26 (1) of the said Act, 2002 is not included in the said list of appealable orders. As such, such orders of the CCI directing the Director General to investigate, which is the order impugned in the present writ petition is not an appealable order under the provision of Section 53A of the said Act, 2002. The mandate of law is that it is mandatory for the CCI to arrive at a prima facie opinion upon reading the information received as whether if the said information is taken on its face value, to be true, the provisions of Section 3 and/or Section 4 of the said Act, 2002 are being contravened or not. Therefore, an investigation cannot be directed by the CCI mechanically and/or in a routine manner. Though the CCI is not required to conduct a mini trial or determine the reasonableness or credibility of the information received before directing such investigation, however, it is a condition precedent for the CCI for directing investigation that the information received discloses prima facie contravention of Section 3 and/or Section 4 of the said Act, 2002. Whether at the stage of the CCI directing investigation under Section 26 (1) of the said Act, 2002, a writ petition under Article 226 of the Constitution of India is maintainable? - HELD THAT:- Any investigation directed under Section 26 (1) of the said Act, 2002 without the existence of the prima facie case is totally without jurisdiction. In fact, the CCI derives jurisdiction to direct investigation only upon the fulfillment of the said condition precedent. This Court, under Article 226 of the Constitution of India in the considered opinion of this Court is certainly empowered to intervene if the investigation is directed under Section 26 (1) of the said Act, 2002 without the existence of the prima facie case. The issue of maintainability of writ petition under Article 226 of the Constitution of India against an Order passed under Section 26 (1) of the said Act, 2002 is accordingly decided. eference is made to the decision of the Apex Court in Competition Commission of India Vs. Bharati Airtel Limited & Others [2018 (12) TMI 1683 - SUPREME COURT], wherein the Apex Court was considering the question as to whether a writ petition challenging the order passed under Section 26 (1) of the said Act, 2002 was maintainable. How to adjudge whether a “prima facie” case existed or not for the CCI to direct investigation by the Director General? - HELD THAT:- The test is to take the information received at its face value and examine whether there has been any prima facie violation of Section 3 and/or 4 of the said Act, 2002. By applying the aforesaid test, if it appears that a prima facie case exist, this Court shall not thereafter go into the merits of the matter. However, if it appears that no prima facie case exists, then in such a situation, this Court for the ends of justice, is entitled to quash such proceedings. The power of this Court to quash such registration of proceeding for investigation is akin to the powers of this Court under Section 482 of Cr.PC for quashing FIR/complaints, parameters of which has been well settled by the Apex Court in the case of State of Haryana & Others Vs. Bhajan Lal & Others [1990 (11) TMI 386 - SUPREME COURT]. Having laid down the test as hereinabove, what is relevant to be seen is that, if the information received by the CCI even if taken at its face value, then, whether there exist some ‘agreement’ or ‘understanding’ between the various cement manufacturers including the petitioner company to determine the price of cement in contravention of Section 3 and/or 4 of the said Act, 2002. The information received does not disclose existence of the prima facie case as regards contravention of the provisions of the Section 3 and/or 4 of the said Act, 2002, and since the same is a sine qua non for CCI to direct the investigation, the decision of the CCI in directing investigation without fulfillment of the said mandatory pre-condition is totally without jurisdiction and is therefore, null and void. Conclusion - The impugned Order dated 06.12.2016 having been passed without fulfillment of the precondition of the Section 26 (1) of the said Act, 2002, i.e., without arriving a prima facie finding under Section 3 (1) and 3 (3) of the said Act, 2002 is without jurisdiction and as such, is a nullity. Petition allowed. ISSUES PRESENTED and CONSIDEREDThe Court considered several core legal questions, including:1. Whether the Competition Commission of India (CCI) had jurisdiction to direct an investigation under Section 26(1) of the Competition Act, 2002, without first establishing a prima facie case of anti-competitive practices under Sections 3 and/or 4 of the Act.2. Whether the orders passed by the CCI, including the imposition of a penalty for non-compliance, were valid and within the jurisdiction of the CCI.3. The maintainability of a writ petition under Article 226 of the Constitution of India challenging the CCI's order under Section 26(1) of the Act.ISSUE-WISE DETAILED ANALYSIS1. Jurisdiction and Prima Facie Case Requirement:- Relevant Legal Framework and Precedents: The Court examined Sections 3, 4, and 26(1) of the Competition Act, 2002, which require the CCI to form a prima facie opinion of anti-competitive practices before directing an investigation. The Court also referred to the Supreme Court's decision in Competition Commission of India vs. Bharti Airtel Limited, which clarified that an order under Section 26(1) is administrative and requires a prima facie case.- Court's Interpretation and Reasoning: The Court emphasized that the CCI must form a prima facie opinion based on the information received and cannot direct an investigation mechanically. The absence of a prima facie case renders the CCI's order without jurisdiction.- Key Evidence and Findings: The Court found that the price variations among the cement companies did not uniformly indicate cartelization, as the price increases were not consistent across companies.- Application of Law to Facts: The Court applied the requirement of a prima facie case to the information received by the CCI and found that the allegations did not support a prima facie case of anti-competitive practices.- Treatment of Competing Arguments: The Court rejected the respondents' argument that the writ petition was premature, noting that the absence of a prima facie case made the CCI's order without jurisdiction.- Conclusions: The Court concluded that the CCI's order directing an investigation was without jurisdiction due to the lack of a prima facie case.2. Validity of CCI's Orders and Imposition of Penalty:- Relevant Legal Framework and Precedents: Section 43 of the Competition Act, 2002, allows the CCI to impose penalties for non-compliance with its orders. The Court referenced the requirement for a valid underlying order to impose such penalties.- Court's Interpretation and Reasoning: The Court found that since the initial order directing an investigation was without jurisdiction, the subsequent penalty for non-compliance was also invalid.- Key Evidence and Findings: The penalty was based on the petitioner's alleged non-compliance with an investigation order that was found to be without jurisdiction.- Application of Law to Facts: The Court applied the principle that an invalid underlying order cannot support a penalty for non-compliance.- Treatment of Competing Arguments: The Court dismissed the argument that the penalty was justified, as it was based on an invalid order.- Conclusions: The penalty imposed by the CCI was invalid and without jurisdiction.3. Maintainability of Writ Petition:- Relevant Legal Framework and Precedents: The Court examined the scope of judicial review under Article 226 of the Constitution of India, particularly in relation to administrative orders.- Court's Interpretation and Reasoning: The Court held that a writ petition is maintainable to challenge an order under Section 26(1) of the Competition Act, 2002, if it is alleged that the order was passed without jurisdiction.- Key Evidence and Findings: The Court found that the absence of a prima facie case constituted a jurisdictional error, justifying judicial review.- Application of Law to Facts: The Court applied the principles of judicial review to the facts, determining that the writ petition was maintainable.- Treatment of Competing Arguments: The Court rejected the respondents' argument that the writ petition was premature, as the issue was the jurisdictional validity of the CCI's order.- Conclusions: The writ petition was maintainable under Article 226 of the Constitution of India.SIGNIFICANT HOLDINGS- The Court held that the CCI must form a prima facie opinion of anti-competitive practices before directing an investigation under Section 26(1) of the Competition Act, 2002.- The Court found that the CCI's order directing an investigation was without jurisdiction due to the lack of a prima facie case, rendering the order null and void.- The penalty imposed by the CCI for non-compliance was invalid as it was based on an order that was without jurisdiction.- The Court affirmed the maintainability of a writ petition under Article 226 of the Constitution of India to challenge an order under Section 26(1) of the Competition Act, 2002, when it is alleged to be without jurisdiction.- The Court quashed the CCI's orders dated 06.12.2016, 08.08.2018, and 27.08.2018, thereby disposing of the writ petitions in favor of the petitioner.