Review petition dismissed on Competition Act Section 29 interpretation regarding CCI's discretionary investigation powers

SC dismissed review petition challenging interpretation of Section 29 of Competition Act, 2002. Court held that Section 29(1) uses "shall" making investigation mandatory upon issuing show cause notice, while Section 29(1A) uses "may" giving CCI discretion whether to entrust investigation to Director-General. Court emphasized literal interpretation distinguishing between mandatory and directory provisions. The majority judgment incorrectly interpreted "may" as "shall" thereby curtailing CCI's discretion contrary to explicit statutory language. CCI as expert body retains discretion to decide investigation course after receiving responses to show cause notices.

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Issues Presented and Considered

The core legal questions addressed by the Court revolve primarily around the interpretation and application of Section 29 of the Competition Act, 2002, particularly:

• Whether the issuance of a show cause notice (SCN) under Section 29(1) mandates a mandatory investigation into the combination by the Competition Commission of India (CCI).
• The nature of the discretion vested in the CCI under Section 29(1A) regarding whether to entrust the investigation to the Director-General (DG).
• The procedural framework and phases of review under Section 29, including the role of voluntary modifications under Regulation 25(1A) of the Combination Regulations, 2011.
• The impact of the majority judgment's interpretation on the jurisdictional practices and discretionary powers of the CCI in regulating combinations.
• The adequacy and role of monitoring mechanisms and conditional approvals in the regulatory framework governing combinations.
• Whether the grounds for review fall within the scope of review jurisdiction under Article 137 of the Constitution, especially concerning the construction of the proviso to Section 31(4) of the Insolvency and Bankruptcy Code, 2016 (IBC, 2016).

Issue-wise Detailed Analysis

1. Interpretation of Section 29 of the Competition Act, 2002

Legal Framework and Precedents: Section 29 governs the procedure for inquiry into combinations that may cause an appreciable adverse effect on competition (AAEC). Sub-section (1) mandates issuance of an SCN when the CCI forms a prima facie opinion of AAEC. Sub-section (1A) empowers the CCI to direct the DG to investigate the combination, using the word "may," indicating discretion. Sections 29(2) to 29(6) outline the procedural steps following the SCN.

The Court referred to established principles distinguishing mandatory and directory provisions, citing P.T. Rajan v. T.P.M. Sahir, which emphasizes that the character of statutory provisions depends on their purpose, not merely the language used.

Court's Interpretation and Reasoning: The majority judgment had interpreted the issuance of an SCN under Section 29(1) as mandating a full investigation, including a DG-led inquiry under Section 29(1A), effectively treating "may" as "shall." This interpretation was challenged in the review petition.

The Court in the review emphasized the distinction in language: "shall" in Section 29(1) imposes a mandatory duty to issue an SCN once a prima facie opinion is formed, but "may" in Section 29(1A) confers discretion on the CCI whether to order a DG investigation. The Court held that the majority's literal interpretation conflated these two and curtailed the CCI's discretion, contrary to the legislative intent.

Key Evidence and Findings: The Court noted the CCI's established practice of rarely referring cases to the DG and the practical necessity of discretion to balance regulatory rigor with ease of doing business.

Application of Law to Facts: The Court applied the principle that procedural provisions using "shall" may still be directory if no prejudice results. It found that the CCI is mandated to issue an SCN but retains discretion post-response to decide whether further investigation is warranted.

Treatment of Competing Arguments: The review petition argued that the majority view disrupted the two-phase review process, undermined voluntary modifications under Regulation 25(1A), and risked making certain provisions unworkable. The Court accepted these contentions, noting that the majority's interpretation would force unnecessary investigations and limit regulatory flexibility.

Conclusion: The Court allowed the review petition, substituting the majority's paragraphs 128-131 with a clarified interpretation that Section 29(1) mandates SCN issuance, but Section 29(1A) permits discretionary DG investigation.

2. Procedural Phases and Voluntary Modifications under the Combination Regulations

Legal Framework: The Combination Regulations provide a structured approach: Phase I involves forming a prima facie opinion and issuing an SCN, with options including approval, approval with voluntary modifications, or referral for investigation. Phase II involves detailed inquiry under Sections 29(2) to (6).

Court's Reasoning: The Court acknowledged that the majority judgment blurred the distinction between these phases, potentially depriving parties of the opportunity to resolve concerns through voluntary modifications and avoid protracted investigations.

Application: The Court emphasized that voluntary modifications under Regulation 25(1A) are a legitimate and integral part of the process, allowing combinations to be approved without mandatory DG investigation if concerns are adequately addressed.

Conclusion: The Court's interpretation preserves the phased approach and the CCI's discretion to approve combinations with or without further investigation, upholding the regulatory scheme's intent.

3. Impact on Jurisdictional Practice and Discretionary Powers of the CCI

Arguments: The review petition contended that the majority judgment's interpretation would disrupt the CCI's established jurisdictional practices, increase litigation, and undermine its regulatory independence and discretion.

Court's Response: The Court agreed that the majority view risked curtailing the CCI's expert discretion, which Parliament intended to preserve to balance market competition and business facilitation.

Conclusion: The Court restored the CCI's discretion as an expert body, allowing it to decide the necessity and extent of investigations post-SCN response.

4. Adequacy of Monitoring Mechanisms and Conditional Approvals

Background: The majority judgment noted the absence of a robust monitoring mechanism for conditional approvals and modifications, which the CCI disputed, citing detailed mechanisms in its prior orders.

Court's Treatment: While acknowledging the issue raised, the Court did not elaborate extensively but implied that the absence of mandatory oversight mechanisms remains a lacuna in the regulatory framework, as noted in the majority judgment.

5. Scope of Review Jurisdiction under Article 137 and Review Petition under the IBC, 2016

Legal Framework: Review jurisdiction under Article 137 is limited to errors apparent on the face of the record and does not permit re-agitation of settled legal questions.

Findings: The Court found that the grounds for review concerning the proviso to Section 31(4) of the IBC, 2016, did not disclose an error apparent but sought a different legal view, thus falling outside the scope of review.

Conclusion: The review petition relating to the IBC provision was dismissed as lacking merit.

6. Directions Regarding Resolution Plan and Corporate Insolvency Resolution Process

The Court noted submissions regarding commitments by parties involved in the insolvency resolution process, directing the Committee of Creditors (CoC) to reconsider resolution plans in light of these commitments and to complete the insolvency resolution within prescribed timelines.

Significant Holdings

"The expression used in Sections 29(1) and 29(1A) of the Competition Act needs to be appreciated. In Section 29(1), the word 'shall' is used, and in Section 29(1A), the word 'may' is used. The literal construction of the particular expressions or words gives sufficient discretion to the Commission, i.e., after receiving the response to the SCN issued under Section 29(1) of the Act."

"The word 'may' in Section 29(1A) has been interpreted as 'shall', warranting unintended steps in exercising the discretion of CCI. Therefore, the view taken in paragraphs 128 to 131 is contrary to the plain construction of Sections 29(1) and 29(1A) of the Competition Act."

"Where the legislation uses two words may and shall in two different fronts of the same provision prima facie it would appear that the legislature manifested its intention to make one part directory and another mandatory."

"The Competition Commission, being an Expert Body, decides on the course of action to be followed by the Commission after receiving a response to the SCN that it is not always necessary to escalate the verification to the DG for investigation under Section 29(1A) of the Act."

"The grounds under review, do not fall within the purview of an error apparent on the face of the record, but re-agitate to take a different view in law... Such an exercise does not fall strictly within the ambit of review."

Core Principles Established

• Issuance of an SCN under Section 29(1) is mandatory upon formation of a prima facie opinion of AAEC.
• The decision to order a DG investigation under Section 29(1A) is discretionary, not mandatory.
• The regulatory framework contemplates a two-phase process for review of combinations, preserving the opportunity for voluntary modifications to address competition concerns without full investigation.
• The CCI's discretion and jurisdictional practices must be respected to maintain regulatory efficacy and balance between competition oversight and business facilitation.
• Review jurisdiction is confined to correcting errors apparent on the face of the record and does not extend to re-opening settled legal interpretations.

Final Determinations on Each Issue

• The review petition challenging the majority judgment's interpretation of Section 29(1) and 29(1A) was allowed, with the Court clarifying the mandatory and discretionary aspects of these provisions.
• The review petition concerning the proviso to Section 31(4) of the IBC, 2016, was dismissed for lack of merit.
• The Court directed the CoC to reconsider resolution plans in accordance with prior commitments and complete the insolvency resolution process within specified timelines.

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