TaxTMI 
TaxTMI 
2019 (9) TMI 568
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....'Act'). 1.3 The learned Single Judge has, in the impugned judgment, held that inasmuch as the direction issued by the CCI to the DG was to investigate violations of Section 3(3) (a), (b) and (c) of the Act, pertaining to anticompetitive agreements, by manufacturers of Man Made Fibre ('MMF'), including GIL, the DG could not have investigated into any violation by GIL of Section 4 of the Act which pertained to abuse of dominant position. The learned Single Judge clarified that CCI would be entitled to treat the aforesaid 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 by GIL of Section 4 of the Act. 1.4 In the judgment that follows, this Court reverses the judgment of the learned Single Judge and holds that the DG was within his powers in terms of Section 26 (1) of the Act read with Regulations 18, 20 and 41 of the CCI (General) Regulations 2009 (CCI Regulations), to submit a report regarding the violation of Section 4 of the Act by GIL, although the direction issued by the CCI under Section 26 (1) of the Act was with reference to information pe....
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....in India which enables it to: (i) Operate independently of competitive forces prevailing in the relevant market; or (ii) Affect its competitors or consumers or the relevant market in its favour. 7. It is thus seen that the focus of Section 4 is on a particular enterprise or group. 'Enterprise' is defined under Section 2 (h) of the Act to mean a person or a department of the government engaged in any activity relating to production, storage, supply, distribution, acquisition or control of articles or goods or the provision of services of any kind. Under Section 2 (l) of the Act, a person includes a company. It is thus seen that the scope of enquiry under Section 4 of the Act would be different from the scope under Section 3 of the Act. However, it is entirely possible that, as has happened in the present case, while investigating activities attracting Section 3 of the Act, the DG may come across 'information' that prima facie reveals activities attracting Section 4 of the Act. CCI's directions under Section 26 (1) of the Act 8. The report dated 26th February, 2013 of the DG was pursuant to the following directions issued by the CCI on 22nd June, 2011: ....
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....ed its dominant position with respect to the following: (1) The GIL has kept dual basic price and differential discounts. for the sale of VSF, by imposing unfair conditions relating to subsequent production and sale of yarn (either domestic or export) by virtue of its dominance and violated the provisions of section 4(2) (a) of the Act. (2) The GIL provides segmental discounts for export or domestic consumption on the condition that a minimum of 35% content of VSF is necessary in yarn. In case the content of VSF is less than that, no discounts are offered. GIL obtains proof of production/export before providing discounts. Customers have no choice but to manufacture the yarn in the given manner to obtain such discount. Otherwise they have to pay higher prices for the same VSF. GIL being dominant in the relevant market have imposed such unfair conditions and violated the provisions of section 4(2)(a) of the Act. (3) A continuity discount/rebate is given by GIL with a condition that the yarn manufacturer shall not purchase VSF from anybody (including imports) other than GIL. The policy of GIL in this regard is not transparent and through such conditions, the....
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.... case was worth investigation or not. Referring to Regulations 18 (1) and 20 (4) of the Competition Commission of India (General) Regulations, 2009 ('CCI Regulations'), the CCI held that the DG had to submit a report on each of the allegations made in the 'information' or the 'reference', as the case may. It was further held as under: "10. The scope of investigation to be made by the DG cannot be limited by the prima facie opinion expressed by the Commission. Neither, the DG is bound by the views given by the Commission. While the Commission may have found a matter prima facie showing violation of the provisions of the Act, DG may come to a contrary conclusion. Similarly, the Commission may form a view (prima facie) on the basis of facts available to it regarding violation of one or the other provisions of the Competition Act. DG on investigation may find the violations in respect of different provisions of the Competition Act." 14. The CCI further 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 the purpose of Section 26(1) was neither to scuttle nor to limit the investigation. As regard....
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....ered 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, GIL 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. Since the part of the information provided to the DG during the course of investigation alleging contravention by GIL of Section 4 of the Act was not available to the CCI, it was not the subject matter of the directions issued by the CCI to the DG. Consequently, GIL had no occasion to make an application to the DG under Regulation 41(4) and (5) of the CCI Regulations. (v) 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. (vi) The report of the DG, to the extent that it reported a contravention of Section 4 of the Act ....
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....ace the burden of proof of all violations on the informant. The information was meant to trigger investigation followed by submission of a report by the DG, on the basis of which the CCI could pass its final order. A complete investigation by the DG involved analysing the fact from all angles and finding out every possible violation of the Act. Reliance was placed on the observations of the Supreme Court in Competition Commission of India v Steel Authority of India Limited (supra). (iv) In the present case, it could not be said that the DG exceeded his jurisdiction in examining the conduct of GIL for violation of Section 4 of the Act. The information provided in the case on file with the CCI was a comprehensive one. It sought an enquiry against the MMF Industry and Association of MMF Industry in India by referring inter alia to Section 19 (4) and (6) of the Act, which specifically dealt with abuse of dominance provision under Section 4 of the Act. The information highlighted that GIL manufactured VSFs. The source of such information was a Tecoya Trend article dated 11th May, 2011, which stated that GIL had reported a "30% hike in VSF price realisation". All of this was for....
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....rike out unnecessary parties. Under Regulations 27 and 28, it is only the CCI which can "join multiple information" and allow amendment of the information. Therefore, if the DG, during the investigation, came across additional information, pointing to violation of Section 4 of the Act, he had to place such information before the CCI, and seek its approval, before proceeding further. (v) A reading of Section 26 (1) of the Act with Regulation 20 (4) of the CCI Regulations, revealed that the DG cannot initiate any suo moto investigation, based on the information that was never placed before the CCI, in the first instance. If the DG was held not be bound by the prima facie view of the CCI, then the DG would be "virtually on a higher pedestal than the CCI itself", and this would be contrary to the legislative intent. (vi) To the extent that the report of the DG found GIL to be in violation of Section 4 of the Act, it would be violative of principles of natural justice, as GIL was never put to notice during investigation that the DG was examining such violations. Had it been given such an opportunity, GIL would have made submissions on facts, law and economics, regardin....
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....elevant provisions of the Act are required to be referred to. The object of the Act is to ensure fair competition by prohibiting trade practices which have an adverse effect on competition in the markets within India. The focus of the Act is to prohibit anti-competitive agreements, which are the subject matter of Section 3 of the Act, and abuse of dominant position, which forms the subject matter Section 4 of the Act. The Act also seeks to regulate 'combinations' under Sections 5 and 6 of the Act. 25. Under Section 18 of the Act, the CCI is tasked with the duty of eliminating practices that have an adverse effect on competition 'and to promote and sustain competition, protect the interest of consumers, and ensure freedom of trade carried on by other participants in the markets in India'. Section 19 of the Act deals with "inquiry by the CCI into certain agreements and dominant position of enterprise." While Section 19 (3) lists out the factors that will be examined by the CCI while determining whether an agreement has an appreciable adverse effect on competition under Section 3 of the Act, Section 19 (4) of the Act lists out those factors which would be kept in view when the CCI ....
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....laint if there is a prima facie case. (9) If the report of the Director General referred to in sub-section (2) recommends that there is contravention of any of the provisions of this Act, and the Commission is of the opinion that further inquiry is called for, it shall inquire into such contravention in accordance with the provisions of this Act." 27.1 The scope of the powers of the CCI under Section 26 of the Act has been examined in sufficient detail by the Supreme Court in Competition Commission of India v. Steel Authority of India Limited (supra). It was observed in paragraphs 37 to 39 of the said decision as under: "37. As already noticed, in exercise of its powers, the Commission is expected to form its opinion as to the existence of a prima facie case for contravention of certain provisions of the Act and then pass a direction to the Director General to cause an investigation into the matter. These proceedings are initiated by the intimation or reference received by the Commission in any of the manners specified under Section 19 of the Act. At the very threshold, the Commission is to exercise its powers in passing the direction for investigation; or wher....
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....say so specifically. This can be illustrated by referring to the Customs Tariff (Identification, Assessment and Collection of Anti-Dumping Duty on Dumped Articles and for Determination of Injury) Rules, 1995 under the Customs Tariff Act, 1975. Rule 5(5) provides that while dealing with an application submitted by aggrieved domestic producers accounting for not less than 25% of total production of the like article, the designated authority shall notify the government of exporting country before proceeding to initiate an investigation. Rule 6(1) also specifically requires the designated authority to issue a public notice of the decision to initiate investigation. In other words, notice prior to initiation of investigation is specifically provided for under the Anti-Dumping Rules, whereas, it is not so under the provisions of Section 26(1) of the Act. 78. Cumulative reading of these provisions, in conjunction with the scheme of the Act and the object sought to be achieved, suggests that it will not be in consonance with the settled rules of interpretation that a statutory notice or an absolute right to claim notice and hearing can be read into the provisions of Section 26(1) ....
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....is a specific right of notice and hearing available to the aggrieved/affected party. Thus, keeping in mind the nature of the functions required to be performed by the Commission in terms of Section 26(1), we are of the considered view that the right of notice of hearing is not contemplated under the provisions of Section 26(1) of the Act." 27.4 The Supreme Court also drew a distinction between the expression 'enquiry' occurring in Regulation 18 (2) of the CCI Regulations and 'investigation' and held as under: "115. The first and the foremost question that falls for consideration is, what is 'inquiry'? The word 'inquiry' has not been defined in the Act, however, Regulation 18(2) explains what is 'inquiry'. 'Inquiry' shall be deemed to have commenced when direction to the Director General is issued to conduct investigation in terms of Regulation 18(2). In other words, the law shall presume that an 'inquiry' is commenced when the Commission, in exercise of its powers under Section 26(1) of the Act, issues a direction to the Director General. Once the Regulations have explained 'inquiry' it will not be permissible to give meaning to this expression c....
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....irections to the DG under Section 26 (1) of the Act is, by no means, intended to restrict the opinion that may be formed by the DG on such investigation. 28. Both Regulations 18 (1) and 20 (4) of the CCI Regulations, require the DG to investigate the matter i.e. the allegations "made in information or reference, as the case may be", together with all evidence, documents, statements or analysis collected during investigation. The investigation has to be a comprehensive one. The DG may not, in fact, be able to anticipate what information may emerge during such investigation. Merely because the information that emerges does not pertain to the specific subject matter which the DG has been asked to investigate, would not constrain the DG from examining such information as well if it points to violation of some other provisions of the Act. Indeed, the directions given by the CCI to the DG under Section 26 (1) of the Act is only to 'trigger' investigation. 29.1 In Excel Crop Care Limited v. Competitive Commission of India (supra), the Supreme Court further explained the powers of the DG in broad terms. In that case, an enquiry was initiated by the CCI on the basis of a letter/compla....
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....ould not be the subject matter of inquiry when it was not referred to in the communication of the FCI or order of the CCI. The COMPAT has rejected this contention holding that Section 26(1) is wide enough to cover the investigation by the DG, with the following discussion: (Excel Crop Care Ltd. case): '28. As per the Sub-section (1) of Section 26, there can be no doubt that the DG has the power to investigate only on the basis of the order passed by the Commission Under Section 26(1). Our attention was also invited to Sub-section (3) of Section 26 under which the Director-General, on receipt of direction under Sub-section (1) is to submit a report of its findings within such period as may be specified by the Commission. The argument of the parties is that if on the relevant date when the Commission passed the order, even the tender notice was not floated, then there was no question of Direction General going into the investigation of that tender. It must be noted at this juncture that Under Section 18, the Commission has the duty to eliminate practices having adverse effect on competition and to promote and sustain competition. It is also required to protect the interests ....
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....Director of FCI, providing information to the CCI. The language of the letter is clear enough to show that the complaint was not in respect of a particular event or a particular tender. It was generally complained that Appellants had engaged themselves in carteling. The learned Counsel Shri Virmani as well as Shri Balaji Subramanian are undoubtedly correct in putting forth the argument that this information did not pertain to a particular tender, but it was generally complained that the Appellants had engaged in the anticompetitive behaviour. When we consider the language of the order passed by the CCI Under Section 26(1) dated 23.04.2012 the things become all the more clear to us. The language of that order is clearly broad enough to hold, that the Director General was empowered and duty bound to look into all the facts till the investigation was completed. If in the course of investigation, it came to the light that the parties had boycotted the tender in 2011 with preconcerted agreement, there was no question of the DG not going into it. We must view this on the background that when the information was led, the Commission had material only to form a prima facie view. The said pr....
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.... generally complained about the anticompetitive behaviour of the Appellant. It was held that the language of the order passed by the CCI was broad enough to enable the DG to look into "all the facts till the investigation was completed". Therefore, the DG was not prevented from examining any anti-competitive practice adopted by the Appellant in the 2011 tender as well. 30. Turning to the facts of the present case, the Court finds that while the information with the CCI did pertain to the alleged violation by GIL and others under Section 3(3) (a) and (b) of the Act, the direction given to the DG was to investigate 'the matter', and this enabled the DG to examine violations not only of under Section 3 of the Act, but any other violation that may have come to his notice while undertaking the investigation. 31. It must be noticed here that when the learned Single Judge passed the impugned judgment, he did not have the benefit of the decision in Excel Crop Care Limited v. Competitive Commission of India (supra), and this Court is in no doubt that if such judgment was available at that point in time, the learned Single Judge would not have taken the view that he has taken in the im....
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....ing to the pattern of behaviour that infects the marketplace. Its only window is the information given to it. Based on it, the DG is asked to look into the matter. During the course of that inquiry, based on that solitary complaint or information, facts leading to pervasive practises that amount to abuse of dominant position on the part of one or more individuals or entities might unfold. At this stage, the investigation is quasi inquisitorial, to the extent that the report given is inconclusive of the rights of the parties; however, to the extent that evidence is gathered, the material can be final. Neither is the DG's power limited by a remand or restricted to the matters that fall within the complaint and nothing else. Or else, the Excel Crop Care would not have explained the DG's powers in broad terms: (if other facts also get revealed and are brought to light, revealing that the 'persons' or 'enterprises' had entered into an agreement that is prohibited by Section 3 which had appreciable adverse effect on the competition, the DG would be well within his powers to include those as well in his report....If the investigation process is to be restr....
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....n an adverse order, under Sections 27-34 of the Act. Consequently, Cadila's argument that a specific order by CCI applying its mind into the role played by it was essential before the DG could have proceeded with the inquiry, is rejected." 33. Mr Mehta sought to distinguish both Excel Crop Care Limited v. Competitive Commission of India (supra) and Cadila Healthcare Limited v. Competition Commission of India (supra) on the ground that they did not involve a situation where the initial complaint was for violation of Section 3 of the Act, but what was found by the DG was a violation of another provision. This submission is unconvincing when the binding ratio decidendi of both decisions is distilled. The decision in Excel Crop Care Limited v. Competitive Commission of India (supra) makes it abundantly clear that while the initial complaint may be on a limited aspect, the DG can investigate into other violations that emerged during the investigation of such complaint. For instance, in Excel Crop Care Limited v. Competitive Commission of India (supra), the validity of the DG's report which pointed to the existence of a cartel in relation to a tender which was not even mentioned i....
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.... Section 4 of the Act by GIL cannot be sustained in law. 38. There is also merit in the contention of the CCI that even the consequential directions issued by the learned Single Judge that the report of the DG can at best constitute information, which again had to be placed before the CCI under Section 19 of the Act for an order for fresh investigation, actually serves no purpose. While the learned Single Judge may be right in concluding that there is a two-step process before the CCI can pass a final order, i.e. the first stage before the DG and then before the CCI, this Court is unable to agree with the conclusion that the scope of the opportunity available to GIL before the DG, at the stage of investigation, is no different from the opportunity available to it before the CCI, at the stage of the enquiry, following the report of the DG. 39. No doubt under Regulation 41 of the CCI Regulations, both the CCI and the DG can determine the manner in which evidence may be adduced in the proceedings before them, and the DG also has the powers to call for information and examine witnesses and documents under Regulation 45 of the CCI Regulations, it is not mandatory that in every suc....