TaxTMI 
TaxTMI 
2022 (8) TMI 1537
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....T SUBRAMONIUM PRASAD, J. 1. The Appellant seeks to challenge the Judgement dated 22.04.2021, passed by the learned Single Judge in W.P.(C) 4378/2021 & W.P.(C) 4407/2021 by which the learned Single Judge rejected the Writ Petition filed by the Appellants. The Appellants herein, by way of the abovementioned Writ Petition, had sought to challenge the Order dated 24.03.2021 passed by the Respondent No. 1 herein directing the Director-General, CCI, to initiate investigation into the 2021 Terms of Service and Privacy Policy of the Appellant in LPA No. 163/2021 on the ground that it violates the provisions of the Competition Act, 2002 (hereinafter referred to as 'the Act'). 2. The facts, in brief, leading to the instant Appeals are as under:- i. Prior to 25.08.2016, WhatsApp (the Appellant in LPA 163/2021), a messaging platform, was governed by its Terms of Service and Privacy Policy of July 2012. In the year 2014, WhatsApp was acquired by Facebook (the Appellant in LPA 164/2021). Facebook Inc. is now known as "Meta Platforms", however, for ease of comprehension, this Court shall refer to the Appellant in LPA 164/2021 by its former nomenclature. ....
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....d Single Judge in W.P.(C) 4378/2021 and W.P.(C) 4407/2021, the Appellants have approached this Court by filing the instant Appeals. 3. Mr. Harish Salve, learned Senior Counsel appearing for Appellant in LPA 163/2021, submits that WhatsApp provides an end-to-end encryption service for sending and receiving of messages to safeguard the privacy of its users. He submits that this very issue has been considered by this Court in Karmanya Singh Sareen & Anr. v. Union of India & Ors., W.P.(C) 7663/2016, and this Court vide Judgment dated 23.09.2016 had upheld the 2016 Policy by holding that the users of WhatsApp, having voluntarily opted to avail services of the said application, were bound by the terms of service offered by WhatsApp, and it is always open to users of WhatsApp who do not want their information to be shared with Facebook to opt for deletion of their accounts. Mr. Salve further relies upon Vinod Kumar Gupta v. Whatsapp Inc., (Case No. 99/2016), wherein the CCI, i.e. Respondent No. 1 upheld the 2016 Policy with the finding that there had been no abuse of dominance by the Appellant. He also states that the Ministry of Electronics and Information Technology (MeiTY)....
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.... the learned Single Judge has come to the conclusion that there is an overlap of jurisdiction in paragraph 33 of the impugned Judgment and, after arriving at the said conclusion, the learned Single Judge has observed that it would be prudent for the Commission to keep its hands off till the issues pending before the Supreme Court are decided. He states that a perusal of the additional affidavit demonstrates that the questions that have been posed by MeiTY in its letter dated 18.05.2021 with regard to the 2021 Policy to the Appellant are the same as the questions that have been referred by Respondent No. 1 to the Appellant. Therefore, the learned Senior Counsel argues that if the same issue is decided by different authorities, then it might lead to conflicting opinions being rendered. 6. Mr. Salve contends that the challenge is not to any inquiry under Section 26 of the Act, but the challenge is jurisdictional in nature. He states that currently the challenge to the policy itself is pending, and if the Appellant's right to continue a particular action is in itself in question, then the question of CCI inquiry does not arise. He further brings to the notice of this Court ....
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.... LPA 164/2021. He, therefore, states that just because information can be shared by virtue of those policies, it is not a ground to investigate into the affairs of Facebook. 9. Mr. Rohatgi also relies upon Vinod Kumar Gupta v. Whatsapp Inc., (Case No. 99/2016), wherein the CCI had found that no prima facie case of contravention of the provisions of Section 4 of the Act had been made out with regard to the 2016 Policy, and CCI did not have jurisdiction over violations arising out of the Information Technology Act, 2000, to submit that the CCI is bound by its own order and that judicial discipline requires the CCI not to intrude into this arena when the highest authority of the land is seized of the matter. He also places on record a judgement of NCLAT dated 02.08.2022 wherein the NCLAT upheld the Order of the CCI in Vinod Kumar Gupta (supra), thereby cementing the findings of the CCI. The learned Senior Counsel submits that Section 26 of the Act stipulates the procedure of inquiry into complaints under Section 19 of the Act, which in turn is regarding inquiry into certain agreements and dominant position of enterprise. He further states that Section 4 of the Act stipulates w....
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....the learned Single Judge had already upheld the Order passed by the CCI, no useful purpose would have been served by approaching the Single Judge. He, therefore, submits that the Applicant has moved the present application for impleadment in the instant LPAs. 14. Mr. Tripathi further places reliance on Union of India v. Special Tehsildar (ZA) &Ors., (1996) 2 SCC 332, Jatan Kumar Golcha v. Golcha Properties Pvt. Ltd., (1970) 3 SCC 573, Harvinder Singh v. Paramjit Singh, (2013) 9 SCC 261, and V.N. Krishna Murthy v. Ravikumar, (2020) 9 SCC 501, to argue that the impleadment application of the Facebook India Online Services Pvt. Ltd. should be allowed as the rights of the party are being directly affected by the actions of the CCI and, thus, the Applicant falls within the four corners of the category of an "aggrieved person" whose standing shall be in jeopardy if the investigation is allowed to be continued and if a right of hearing is not provided. Relying on the aforesaid judgements, he states that it is always open to a person who is aggrieved by an Order to approach in appeal which arises out of those proceedings. 15. Per contra, Mr. N. Venkataraman, learned ASG appearing for....
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....he Enforcement Directorate as well as the Institute of Chartered Accountants of India (ICAI), but also by the Central Government with regard to issues of violation of RBI/FDI policies and The Chartered Accountants Act, 1949. He states that, similarly, in the instant case, as different aspects of the 2021 Policy were to be considered and the CCI would not be denuded of its power to conduct the investigation solely on the basis that the Supreme Court was also looking into the aspect of violations of right to privacy. 18. Further reliance has been placed on Panther Fincap and Management Services Ltd. v Union of India, (2005 SCC OnLine Bom 386), and the following paragraph of the Bombay High Court judgement has been cited: "33. I have considered these rival submissions of the parties and I am of the opinion that the jurisdiction and the power of the various investigating authorities derived from the jurisdiction vested in them by the various legislations or statutes, the authority which is doing the inquiry and or conducting the investigation is required to carry out investigation keeping in mind the legal provisions and legal limitations which are stipulated under the resp....
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....s' affairs. That of course is in the public interest. Since the Secretary of State's powers under s 432(2) are exercisable where there are circumstances suggesting fraud, it is likely that in many cases where inspectors are appointed an investigation by the police or the Serious Fraud Office could also be appropriate. But the code under the 1985 Act is a separate code even though it may overlap the field of criminal investigation."" 19. The learned ASG relies upon Section 4(2) of the Act to submit that the focus of a competition law-based investigation is apparent from a reading of the said provision. It has further been submitted that the learned Single Judge has rightly observed that the CCI Order records that WhatsApp is a dominant entity in the relevant market for OTT messaging apps through smartphones in India [as has been held by CCI in Harshita Chawla v. WhatsApp Inc and Anr., (Case No. 15 of 2020)], and that the 2021 Policy is a product that emanates out of the entrenched dominant position of WhatsApp in the said market. Furthermore, Paragraph 25 of the CCI Order has been referred to in order to argue that the CCI, after duly analysing how the "take it or le....
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....sarily follow in the interests of justice, and that Courts and other judicial processes should not interfere in the course of investigation which must proceed unhampered by Court orders. 22. Mr. Balbir Singh, learned ASG, supplements the submissions of Mr. N. Venkataraman, and argues that the long-term objective of such technology and devices is to consume every inch of human time, and to capitalise on it. He states that in pursuance of this, exclusionary tactics are adopted by such entities which are backed by the dominant position that these entities occupy. He submits that there is a design and object behind these tech companies, and that the Competition Act, 2002, was brought in to ensure that these companies did not use their position to institute anticompetitive practices to the detriment of their users. He further submits that the principle of res judicata would not apply in the case of Vinod Kumar Gupta (supra) for the reason that it was the 2016 Policy which was under assessment therein and that there had been a varied change in circumstances since the said Policy. 23. Mr. Singh contends that competition is not a conduct; it is a behaviour, and that Section 4 of the ....
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....APPL. 40334/2021, and perused the material on record. 26. At the outset, it becomes pertinent to delineate the objective of the Competition Act, 2002, and the role of the CCI. The objective of the Act is set out in the Preamble itself, i.e. to establish a Commission to prevent practices having adverse effect on competition, to promote and sustain competition in markets, to protect the interests of consumers, and to ensure the freedom of trade carried on by other participants in markets, in India, and for matters connected therewith or incidental thereto. Chapter II of the Competition Act prohibits certain agreements, abuse of dominant position, and regulation of combinations, with Section 4 specifically prohibiting the abuse of dominant position. Chapter IV of the Act deals with provisions which set out the duties, powers and functions of the CCI, with Section 18 stating that it shall be the duty of the Commission to eliminate practices relating to the principles set down in the Preamble itself [Refer to Competition Commission of India v. State of Mizoram and Ors., 2022 SCC OnLine SC 63]. 27. Therefore, as has been succinctly enumerated by the Supreme Court in Competition Com....
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.... aspects of the disputes are to be decided by TRAI in the first instance. These are jurisdictional aspects. Unless TRAI finds fault with the IDOs on the aforesaid aspects, the matter cannot be taken further even if we proceed on the assumption that CCI has the jurisdiction to deal with the complaints/information filed before it. It needs to be reiterated that RJIL has approached the DoT in relation to its alleged grievance of augmentation of POIs which in turn had informed RJIL vide letter dated 6-9-2016 that the matter related to interconnectivity between service providers is within the purview of TRAI. RJIL thereafter approached TRAI; TRAI intervened and issued show-cause notice dated 27-9- 2016; and post issuance of show-cause notice and directions, TRAI issued recommendations dated 21-10- 2016 on the issue of interconnection and provisioning of POIs to RJIL. The sectoral authorities are, therefore, seized of the matter. TRAI, being a specialised sectoral regulator and also armed with sufficient power to ensure fair, non-discriminatory and competitive market in the telecom sector, is better suited to decide the aforesaid issues. After all, RJIL's grievance is that interconne....
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....ews. Such a situation needs to be avoided. This analysis also leads to the same conclusion, namely, in the first instance it is TRAI which should decide these jurisdictional issues, which come within the domain of the TRAI Act as they not only arise out of the telecom licences granted to the service providers, the service providers are governed by the TRAI Act and are supposed to follow various regulations and directions issued by TRAI itself. ***** 108. Such a submission, on a cursory glance, may appear to be attractive. However, the matter cannot be examined by looking into the provisions of the TRAI Act alone. Comparison of the regimes and purpose behind the two Acts becomes essential to find an answer to this issue. We have discussed the scope and ambit of the TRAI Act in the given context as well as the functions of TRAI. No doubt, we have accepted that insofar as the telecom sector is concerned, the issues which arise and are to be examined in the context of the TRAI Act and related regime need to be examined by TRAI. At the same time, it is also imperative that specific purpose behind the Competition Act is kept in mind. This has been taken note of and disc....
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.... and offends Section 3 of the Competition Act, the consequences thereof are provided in the Competition Act. ***** 112. Obviously, all the aforesaid functions not only come within the domain of CCI, TRAI is not at all equipped to deal with the same. Even if TRAI also returns a finding that a particular activity was anticompetitive, its powers would be limited to the action that can be taken under the TRAI Act alone. It is only CCI which is empowered to deal with the same anticompetitive act from the lens of the Competition Act. If such activities offend the provisions of the Competition Act as well, the consequences under that Act would also follow. Therefore, contention of the IDOs that the jurisdiction of CCI stands totally ousted cannot be accepted. Insofar as the nuanced exercise from the standpoint of the Competition Act is concerned, CCI is the experienced body in conducting competition analysis. Further, CCI is more likely to opt for structural remedies which would lead the sector to evolve a point where sufficient new entry is induced thereby promoting genuine competition. This specific and important role assigned to CCI cannot be completely wished away an....
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....se in the first place, which it is more suitable to carry out." (emphasis supplied) 30. A reading of the aforesaid paragraphs of the Judgement indicates that the sole issue therein was a conflict between the jurisdiction of a sectoral regulator and the market regulator. The Supreme Court came to a finding that the matter pertained to the telecom sector, which was specifically regulated by the TRAI Act. However, it noted that the jurisdiction of TRAI would not oust that of CCI to deal with violations of Competition Act and violations thereunder. Moreover, Paragraph 100 of the Judgement states that in the case therein, the dispute pertained to how Incumbent Dominant Operators (IDOs) had not given Points of Interconnect (POIs) as per the license conditions, and Reliance Jio Infocomm Ltd. (RJIL) had specifically approached TRAI for the settlement of this dispute. TRAI, being the authority that would mandate the adherence to licensing conditions, was, therefore, deemed fit to be seized of the matter before the charge of investigation could be given to the CCI. 31. It is the contention of the Appellants that since the underlying issues arising before the Apex Court and thi....
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....hich is a subject matter of examination under competition law. It is trite to mention that the provisions of the Act are in addition to and not in derogation of the provisions of any other law, as declared under Section 62 of the Act." 32. The observation of the learned Single Judge that certain issues that the CCI is seized of "may substantially be in issue before the Supreme Court and this Court" does not lead to a conclusion that the Supreme Court or this Court are adjudicating upon the same issue. Contrary to what has been submitted by the Appellants, this observation cannot be interpreted as a holding that the issues being considered by both the authorities are the same. Even if the issues are the same, the approach of the authorities is vastly dissimilar, and there exists no inviolable rule that the CCI would completely lack jurisdiction in the instant matter. Parallel inquiries by two different authorities in their respective spheres of adjudication is not uncommon and a slight overlap between the inquiries does not mean that one must lead to the ouster of the other. Therefore, in the absence of any irreconcilable repugnancy between the jurisdiction of both the authoritie....
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....where such order will only pave the way for final decision, it would not make that direction as an order or decision which affects the rights of the parties and therefore, is not appealable. ***** 91. The jurisdiction of the Commission, to act under this provision, does not contemplate any adjudicatory function. The Commission is not expected to give notice to the parties i.e. the informant or the affected parties and hear them at length, before forming its opinion. The function is of a very preliminary nature and in fact, in common parlance, it is a departmental function. At that stage, it does not condemn any person and therefore, application of audi alteram partem is not called for. Formation of a prima facie opinion departmentally (the Director General, being appointed by the Central Government to assist the Commission, is one of the wings of the Commission itself) does not amount to an adjudicatory function but is merely of administrative nature. At best, it can direct the investigation to be conducted and report to be submitted to the Commission itself or close the case in terms of Section 26(2) of the Act, which order itself is appealable before the Tribuna....
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.... which is absent from the 2021 Policy that places its users in a "take-it-or-leave-it" situation. It is the "opt-out" option that primarily led to CCI rendering its conclusion that the 2016 Policy did not violate the Competition Act, 2002. However, in the face of changed circumstances, considering the dominant position occupied by WhatsApp, the investigation proposed to be conducted by CCI does not warrant interference, and res judicata would, thus, not be applicable in the instant case. In view of this, the fact that the Order of the CCI in Vinod Kumar Gupta (supra) has been upheld by the NCLAT vide Order dated 02.08.2022 is of no relevance and does not sway the opinion of this Court. Similarly, the emphasis placed by the Appellants on the letter dated 18.05.2021 is wholly irrelevant as the mere mentioning of the Competition Act does not denote that MeiTY is seized of the violations that may be incited by the 2021 Policy. The sphere of jurisdiction occupied by MeiTY is different from that of the CCI, and solely because the said letter alludes to possible violations of the Act does not oust the jurisdiction of the CCI. Per contra, the letter only strengthens the contention of Respo....
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....ect its competitors or consumers or the relevant market in its favour. (b) "predatory price" means the sale of goods or provision of services, at a. price which is below the cost, as may be determined by regulations, of production of the goods or provision of services, with a view to reduce competition or eliminate the competitors." ***** 19. (1) The Commission may inquire into any alleged contravention of the provisions contained in subsection (1) of section 3 or sub-section (1) of section 4 either on its own motion or on- (a) [receipt of any information, in such manner and] accompanied by such fee as may be determined by regulations, from any person, consumer or their association or trade association; or (b) a reference made to it by the Central Government or a State Government or a statutory authority ***** 19. (4) The Commission shall, while inquiring whether an enterprise enjoys a dominant position or not under section 4, have due regard to all or any of the following factors, namely:- (a) market share of the enterprise; (b) size and resources of the enterprise; (c) size and importance of....
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....apchat, WeChat etc. showing its relative strength. Given that WhatsApp messenger and Facebook Messenger are owned by the same group, they do not seem to be constrained by each other, rather adding on to their combined strength as a group. Moreover, WhatsApp Messenger works on direct network effects where an increase in usage of a particular platform leads to a direct increase in the value for other users-and the value of a platform to a new user will depend on the number of existing users on that platform. Thus, given its popularity and wide usage, for one-to-one as well as group communications and its distinct and unique features, WhatsApp seems to be dominant. 85. The Commission is cognizant that the data relied upon by the Informant cannot be said to be free from infirmities and is based on global usage or users. However, in the absence of concrete data/information available in the Indian context other than the subjective information on popularity of WhatsApp, the Commission is of the view that these trends and results can be used as a proxy. More so, these trends appear to be intuitively in sync with the information available in public domain, which though does not con....
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.... in succeeding paras, the network effects working in favour of WhatsApp reinforces its position of strength and limit its substitutability with other functionally similar apps/platforms." 40. The learned Single Judge, after a careful consideration of the CCI Order dated 24.03.2021, has also arrived at the same conclusion that WhatsApp assumes a dominant position in the relevant product market and the relevant geographical market, and has recorded its observations as under: "20. A reading of the above would show that the respondent no. 1 has prima facie concluded that WhatsApp is dominant in the relevant market for Over the- Top (OTT) messaging apps through smartphones in India; due to lack of/restricted interoperability between platforms, the users may find it difficult to switchover to other applications except at a significant loss; there is opacity, vagueness, open-endedness and incomplete disclosures in the 2021 Update on vital information categories; concentration of data in WhatsApp and Facebook itself may raise competition concerns; data-sharing amounts to degradation of non-price parameters of competition." Therefore, as can be discerned from the foregoing, W....
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....ther decisions and orders, which are not directions simpliciter and determining the rights of the parties, should be well reasoned analysing and deciding the rival contentions raised before the Commission by the parties. In other words, the Commission is expected to express prima facie view in terms of Section 26(1) of the Act, without entering into any adjudicatory or determinative process and by recording minimum reasons substantiating the formation of such opinion, while all its other orders and decisions should be well reasoned. 98. Such an approach can also be justified with reference to Regulation 20(4), which requires the Director General to record, in his report, findings on each of the allegations made by a party in the intimation or reference submitted to the Commission and sent for investigation to the Director General, as the case may be, together with all evidence and documents collected during investigation. The inevitable consequence is that the Commission is similarly expected to write appropriate reasons on every issue while passing an order under Sections 26 to 28 of the Act." 42. Therefore, while forming a prima facie case, the CCI, while not being re....
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....ility with other functionally similar apps/platforms. This, in turn, causes a strong lock-in effect for users, switching to another platform for whom gets difficult and meaningless until all or most of their social contacts also switch to the same other platform. Users wishing to switch would have to convince their contacts to switch and these contacts would have to persuade their other contacts to switch. Thus, while it may be technically feasible to switch, the pronounced network effects of" WhatsApp significantly circumscribe the usefulness of the same. The network effects have been reflected when despite increase in downloads of the competing apps like Signal and Telegram, user base of WhatsApp apparently did not suffer any significant loss. As pointed out in Harshita Chawla case (supra), the second largest player in terms of market share in the relevant market of instant messaging and thus the next sizeable alternative available to users is Facebook Messenger, which too is a Facebook Group company. Thus, the conduct' of WhatsApp/ Facebook under consideration merits detailed scrutiny. 27. The Commission is of further opinion that users, as owners of their personali....
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....rms of an 'opt-out' provision available for 30 days in the previous policy updates. However, the same has not been made available to users this time. Thus, users are required to accept the unilaterally dictated 'take-it-or-leave-it' terms by a dominant messaging platform in their entirety, including the data sharing provisions therein, if they wish to avail their service. Such "consent" cannot signify voluntary agreement to all the specific processing or use of personalised data, as provided in the present policy. Users have not been provided with appropriate granular choice, neither upfront nor in the fine prints, to object to or opt-out of specific data sharing terms, which prima facie appear to be unfair and unreasonable for the WhatsApp users. 30. On a careful and thoughtful consideration of the matter, the conduct of WhatsApp in sharing of users' personalised data with other Facebook Companies, in a manner that is neither fully transparent nor based on voluntary and specific user consent, appears prima facie unfair to users. The purpose of such sharing appears to be beyond users reasonable and legitimate expectations regarding quality, security and....
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....ulting in insurmountable entry barriers for new entrants. 33. Data and data analytics have immense relevance for competitive performance of digital enterprises. Cross-linking and integration strengthen data advantage besides safeguarding and reinforcing market power of dominant firms. For Facebook, the processing of data collected from WhatsApp can be a means to supplement the consumer profiling that it does through direct data collection on its platform, by allowing it to track users and their communication behaviour across a vast number of locations and devices outside Facebook platform. Therefore, the impugned data sharing provision may have exclusionary effects also in the display advertising market which has the potential to undermine the competitive process and creates further barriers to market entry besides leveraging, in violation of the provisions of Section 4(2)( c) and (e) of the Act. As per the 2021 update to the privacy policy, a business may . give third-party service provider such as Facebook access to its communications to send, store, read, manage, or otherwise process them for the business. It may be possible that Facebook will condition provision of suc....
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....rned Single Judge has taken into consideration all these factors before observing that concentration of data in the hands of WhatsApp may raise competition concerns, thereby resulting in the violation of Section 4 of the Act. 46. Additionally, the reliance of the Appellants on CCI's Order in Vinod Kumar Gupta (supra) is misplaced for the simple reason that 2016 Policy provided its users the option to "opt-out" of sharing user account information with Facebook within 30 days of agreeing to the updated Terms of Service and Privacy Policy. The 2021 Policy, however, places its users in a "take-it-or-leave-it" situation, virtually forcing its users into agreement by providing a mirage of choice, and then sharing their sensitive data with Facebook Companies envisaged in the policy. Therefore, it cannot be said that the CCI is bound by its own findings in Vinod Kumar Gupta (supra) when the issue at hand as well as the circumstances are different. 47. Apart from the aforesaid two issues, it is also the contention of the Appellant in LPA 164/2021 that it is a separate and distinct legal entity from WhatsApp, and therefore, it should not be subjected to an intensive and intrusive inves....