Clipping The DG’s and CCI’s Investigative Power: Recent Trends

Introduction

Section 26(1) of the Competition Act, 2002 (as amended) (Act) is an important provision under the Act and empowers the Competition Commission of India (CCI) to order an investigation by the Director-General (DG) if it forms an opinion that there exists a prima facie case (PF order) in respect of an information. Post the PF order, the DG initiates his investigation into the alleged anti-competitive conduct of the parties. 

The scope of the DG’s investigative powers and the manner in which the DG can exercise such powers has been a contentious issue since the introduction of the Act. Parties to a matter often challenge the reports submitted by a DG (DG reports) by questioning either the scope of the investigation or the jurisdiction of the DG.

Over the years, the Supreme Court of India (SC) and certain High Courts have laid down precedent and partially clarified the scope of the DG’s powers. These precedents have touched upon fundamental questions such as—can the DG include any additional information, implead other parties, increase the scope of the investigation, etc. in the absence of a specific direction from the CCI or otherwise.

Can the DG Investigate Facts not Considered by the CCI in their PF Order

In May 2017, the SC in Excel Crop Care Ltd. v. Competition Commission of India[1](Excel Crop) held that the DG would be well within its powers to investigate and analyse additional facts during its investigation subject to certain conditions. The SC decision was in respect of an order of the CCI wherein the information was received in the form of a letter from the Food Corporation of India (FCI) and a DG investigation was ordered to see whether there existed an agreement between manufacturers of a certain food element. The DG in its investigation also took into account a letter written to them separately by the FCI. 

The SC clarified that the purpose behind a DG investigation is to inquire into anti-competitive practices and this includes that the DG considers all necessary facts and evidence. The SC stated that if during an investigation, other facts pertaining to the case were brought to light; the DG would be within their powers to bring them to the forefront in their report. However, the starting point of the inquiry would be the allegations, which are contained in the information. The SC reasoned that at the initial stage, the CCI could not foresee and predict whether any violation of the Act would be found upon the investigation and the nature of violations that would become known.

It is pertinent to point out that the order of the SC did not lay down any general guiding principles in respect of the powers of the DG and thus, different aspects of this issue have been analysed and decided upon by various High Courts in subsequent decisions. 

Addition of Third Parties to the DG Report

In July 2018, the High Court of Madras (Madras HC), in Hyundai Motor India Ltd. v. Competition Commission of India [2]heard an appeal challenging the order of the CCI through which it expanded the scope of the investigation over and above the three-car manufacturing companies to cover other manufacturers who were not specifically mentioned in the complaint. In this case, the DG had found some information against certain car manufacturers who were not named in the original complaint following which he sought permission from the CCI to expand the scope of investigation. The Madras HC noted that the DG did not initiate an investigation suo motu, and sought permission of the CCI. The Madras HC also reiterated the position adopted by the SC in Excel Crop[3] by stating that the scope of DG’s investigation is not limited to the allegations contained in the original complaint and he is empowered to investigate other facts that get revealed while the investigation is carried out.

The Madras HC also made a reference to the proviso to Section 26(1) of the Act stating that if the subject-matter of information received is substantially the same as, or has been covered by any previous information received, then the new information may be clubbed with the previous information. In the present case, the information placed before the CCI was already available in the complaint, and the CCI had already formed a prima facie opinion regarding the information and no further recording of subjective satisfaction was required.

Therefore, the Madras HC found that expanding the scope of the investigation to car manufacturers who were not expressly mentioned in the complaint was well within the DG’s jurisdiction. 

Similarly, the Division Bench of the High Court of Delhi (Delhi HC) in September 2019 in  Cadila Healthcare Ltd. v. Competition Commission of India [4]delved into the issue of whether the DG could have proceeded against Cadila Healthcare Limited (Cadila) without a separate order under Section 26(1) authorising investigation against it. In the present case, Cadila was added as a party based on a DG report. It was argued by Cadila that the DG could not have proceeded against it on the strength of a previous order, which was not based on any material or allegation with respect to complicity of Cadila and consequently, the investigation and report against it was a nullity.

Further, Cadila tried to distinguish the Excel Crop case [5] by arguing that an initial order covering a few issues relating to anti-competitive practices of a particular period against one party can lead to a valid investigation into similar, later actions against the same party. However, there was no legal sanction for investigation into acts or omissions of another party by the DG, in the absence of express authorisation regarding its role by the CCI, in a separate and subsequent PF order under Section 26(1).

The Delhi HC rejected this argument observing that the scope of an inquiry at Section 26(1) stage is to investigate the market behaviour frowned upon under Sections 3 and 4 of the Act and not to look at specifically mentioned individuals. The Court also stated that a specific order by CCI applying its mind into the role played by Cadila was not essential before the DG could have proceeded with the inquiry.

Subject-Matter of Investigation

Recently in September 2019, a Division Bench of the Delhi HC decided upon the scope of investigation by the DG in Competition Commission of India v. Grasim Industries Ltd.[6](Grasim). The decision arose out of a letter patent appeal filed against the order of the Single Judge in Grasim Industries Ltd. v. Competition Commission of India (impugned order)[7]. The Single Judge Bench of the Delhi HC had held that a direction issued by the CCI to the DG to investigate violations of Section 3(3) of the Act did not empower the DG to conduct an investigation of any potential violation of Section 4 of the Act. The impugned order stated that the CCI would be entitled to treat the aforesaid part of the report of the DG as a separate “information” under Section 19 of the Act requiring the CCI to proceed differently if it was of the opinion that there existed a prima facie case of contravention of Section 4 of the Act.

The Division Bench of the Delhi HC overturned the decision of the Single Judge, referring to Competition Commission of India v. SAIL[8](SAIL case) and stating that the opinion formed by the CCI at the stage of issuing directions to the DG under Section 26(1) of the Act is not intended to restrict the opinion that may be formed by the DG upon such investigation. The Court observed that an order of the CCI under Section 26(1) of the Act only “triggers” an investigation by the DG, and that the powers of the DG are not necessarily circumscribed to examine only the subject-matter of the original complaint.

The Delhi HC made a reference to Regulations 18(1) and 20(4) of the CCI (General) Regulations, 2009 (CCI Regulations) emphasising that the DG is required to comprehensively investigate a matter and the DG cannot be constrained from examining additional facts and violations of competition law merely because the information before the CCI does not pertain to additional facts. 

Applying the principle of the SC in Excel Crop.[9], the Delhi HC held that the language of the CCI order was broad enough for the DG to investigate a violation under Section 4 of the Act. It was also clarified that the scope of investigation by the DG is not limited to the PF order by CCI under Section 26 of the Act and the DG may also examine other violations that may have come to his notice while undertaking the investigation pursuant to CCI’s PF order.

Conclusion 

The SC’s ruling in Excel Crop [10] along with all the decisions of the Delhi HC and Madras HC has increased the scope of the DG’s investigative powers. However, the powers of the DG emanate from the CCI’s PF order only. It is important to note that the courts have emphasised that a restrictive interpretation of the DG’s powers would negate the purpose of investigation. The trend is moving towards achieving the goals of competition by bringing to light any information that arouses suspicion of an anti-competitive practice and investigate such conduct. 

This approach of the courts is in line with the SAIL case [11] and ensures that issues that could not be identified by the CCI at the PF order stage are identified and investigated by the DG instead. 

However, the powers of the DG are still restricted by the language in which the CCI directs such an investigation and ensures that the DG does not have unfettered powers to carry out roving inquiries against unrelated parties. 


*Dhruv Rajain, Principle Associate, can be contacted at dhruv.rajain@cyrilshroff.com. Siddhant Khetawat, Associate can be contacted at siddhant.khetawat@cyrilshroff.com, Shreya Joshi, Associate can be contacted at shreya.joshi@cyrilshroff.com and with the Competition Law Practice at Cyril Amarchand Mangaldas.

[1] (2017) 8 SCC 47

[2] Competition Appeal (AT) No. 6 of 2017, decided on 19-9-2018.

[3] (2017) 8 SCC 47

[4] 2018 SCC OnLine Del 11229

[5] (2017) 8 SCC 47

[6] 2019 SCC OnLine Del 10017

[7] 2013 SCC OnLine Del 5109

[8] (2010) 10 SCC 744

[9] (2017) 8 SCC 47

[10] Ibid.

[11] (2010) 10 SCC 744

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