Cyril Amarchand MangaldasExperts Corner

Background

In a landmark decision on 10-4-2019[1], a Division Bench of the High Court of Delhi (Delhi HC), pronounced a judgment relating to a batch of petitions filed by car manufacturers wherein the constitutionality of certain provisions of the Competition Act, 2002 (Act) was challenged. The genesis of the matter arose from the Competition Commission of India’s (CCI) findings in what has come to be known as the Auto Parts case[2]. The complaint alleged that 3 car manufacturers, M/s Honda Siel Cars India Ltd., Volkswagen India Pvt. Ltd. and Fiat India Automobiles Limited, restricted free availability of spare parts in the open market, which caused a denial of market access for independent repairers, in addition to other anti-competitive effects including high prices of spare parts and repair and maintenance services for automobiles.

After a detailed investigation by the Director General (DG) into the practices of 14 car manufacturers (the informant had only complained about 3 car manufacturers), the CCI found that the car manufacturers had contravened the provisions of Sections 3 and 4 of the Act and levied a penalty of 2% of the total turnover in India on each of the manufacturers. As a consequence, some car manufacturers filed a writ before the Delhi HC challenging the constitutional validity of certain provisions of the Act, which directly impacted the validity of the CCI’s final order in Auto Parts case[3].

Key Issues for Determination

The Delhi HC delineated the following key issues for determination: (i) whether the CCI is a tribunal exercising judicial functions; (ii) whether the composition of the CCI is unconstitutional and violates the principle of separation of powers; (iii) whether the “revolving door” practice at the CCI vitiates any provisions of the Act and more specifically, if the manner for decision-making provided under Section 22(3) of the Act is unconstitutional; and (iv) whether an expansion in scope of inquiry by the CCI is illegal.

Ruling on the first issue, the Delhi HC held that the CCI is in part administrative, expert (when discharging advisory and advocacy functions) and quasi-judicial (while issuing final orders, directions and penalties) and cannot be characterised as a tribunal solely discharging judicial powers.

On the second issue, the Delhi HC dealt with each of the provisions of the Act that were challenged by the petitioners and also undertook a comparison of regulatory models of different specialised bodies/tribunals vis-à-vis the CCI. In particular, Section(s) 61 and 53-T of the Act (which deal with exclusion of jurisdiction of civil courts and High Courts, respectively); Section 9 (which provides for the selection procedure/committee for members of the CCI); Section(s) 11, 55 and 56 (which deal with tenure of the members of the CCI and the provision for supersession by the Central Government in the event the CCI is unable to discharge its functions); Section 53-D (which prescribes the composition and constitution of the Appellate Tribunal) were upheld to be valid. Regarding Section 8 of the Act, the Delhi HC clarified that the requirement for the CCI to have a judicial member at all times is mandatory and in line with precedents of the Honourable Supreme Court of India (SC) as well. The Delhi HC declared Section 53-E of the Act (which deals with composition of the Selection Committee of the Appellate Tribunal), to be unconstitutional subject to the decision of the Honourable SC in Central Administrative Tribunal v. Union of India[4] (wherein certain provisions of the Finance Act, 2017 have been challenged).

Most importantly, the Delhi HC declared Section 22(3) of the Act which provides a casting vote (to the Chairperson of the CCI) to be void. It was held that the principle of equal weight for decisions of each participant of a quasi-judicial tribunal is destroyed by this provision. Whereas the proviso to Section 22(3), mandating a minimum quorum of three members (including the Chairman) for any meeting of CCI — where an adjudicatory decision is made — was upheld.

Regarding the “revolving door policy” the Delhi HC emphasised on the principle of “who hears must decide” and stated that any violation of this rule would render any final order void. It was also clarified that much would depend on the factual context and merely resorting to the practice of “revolving door” would not render Section 22 of the Act invalid or arbitrary. It is necessary that the party raising such objections must have been prejudiced.

Further, in line with the decision of the Honourable SC in Excel Crop Care Ltd. v. CCI[5], the Delhi HC held that the CCI is well within its power to expand the scope of inquiry to include other issues and parties. This is because at the prima facie stage, the CCI may not have all information in respect of the parties’ conduct.

Finally, the Delhi HC has directed the CCI to frame guidelines ensuring that the principle of “one who hears decides” is embodied in letter and spirit in its functioning. It concluded that in all cases where final hearings begin, the membership should not vary, and a matter should preferably be heard by 7 or at least, 5 members. The CCI has also been directed to ensure that a judicial member is present and participating at all times during a final hearing. The directions also mandate the Central Government to take expeditious steps and fill all existing vacancies in the CCI within 6 months.

Key Takeaway

While the directions of the Delhi HC will go a long way in entrenching principles of natural justice in the CCI’s practice and procedure, they may have immediate ramifications on its functioning (given that the CCI is currently composed of 3 members with no judicial member). Interestingly, this may also have a bearing on the decision of the Union Cabinet which had approved “right sizing” of the CCI to 4 members (including the Chairperson) in April last year.

Having said that, this may not be the last we hear from the judiciary as the Delhi HC order is likely to be challenged before the Supreme Court of India.


*Bharat Budholia, Partner can be contacted at Bharat.budholia@cyrilshroff.com, Aishwarya Gopalakrishnan, Principal Associate can be contacted at Aishwarya.gopalakrishnan@cyrilshroff.com and Dhruv Rajain, Senior Associate can be contacted at dhruv.rajain@cyrilshroff.com with the Competition Law Practice at Cyril Amarchand Mangaldas.

[1]        Mahindra Electric Mobility Ltd. v. CCI, 2019 SCC OnLine Del 8032.

[2]        Shamsher Kataria v. Honda Siel Cars India Ltd., 2014 SCC OnLine CCI 95.

[3]        Shamsher Kataria v. Honda Siel Cars India Ltd., 2014 SCC OnLine CCI 95.

[4]        WP (C) No. 640 of 2017 (SC).

[5]        (2017) 8 SCC 47.

Hot Off The PressNews

Petitioner named Imtiyaz Ali Palsaniya has filed for a review petition in the Supreme Court against the Constitution Bench decision in K.S. Puttaswamy v. Union of India (Aadhaar-5 Judge), 2018 SCC Online SC 1642.

In the1448-pages detailed judgment, 5- Judge Bench comprising of former CJ Dipak Misra and A.K. Sikri, A.M. Khanwilkar, Dr D.Y. Chandrachud and Ashok Bhushan, JJ. by a majority of 4:1, declared the Aadhaar (Targeted Delivery of Financial and Other Subsidies, Benefits and Services) Act, 2016 to be valid and not violative of the fundamental right to privacy.

The said judgment has been challenged by the petitioner who stated that ‘various grounds urged in applications filed weren’t considered by the Court.

[Source:https://theleaflet.in]

Case BriefsForeign Courts

Constitutional Court of South Africa: Bench comprising of Cachalia, Dlodlo, Goliath and Petse, AJ., Froneman, Jafta, Khampepe, Madlanga, and Theron, JJ., confirmed two declarations of constitutional invalidity given by the High Court of South Africa, Gauteng Division.

The facts of the case are that a settlement agreement was concluded between Nxasana, former National Director of Public Prosecutions (NDPP), President Zuma, Minister of Justice and Correctional Services whereby payment was made to Nxasana if he vacated his office. Following which Abraham was appointed as NDPP. Issue before Constitution Court was to confirm if the manner in which Mr Nxasana vacated office and Abraham was appointed thereafter were constitutional compliant.

Court was of the view that independence of office of National Director of Public Prosecution (NDPP) is essential to maintain and the fact that former President Zuma wanted to get rid of Nxasana suggested by a blank check offered to Nxasana to fill any amount he wanted, why the president did not go with the inquiry and rather went for huge payment in form of a settlement agreement. Thus, independence of NDPP office was compromised as all the terms of settlement agreement was constitutionally invalid. On the same reasoning Section 12(4) and (6) of the National Prosecuting Authority Act, 1998 were also constitutionally invalidated. This led to the question of constitutional validity of Advocate Abraham’s appointment to which court concluded that if the first act is set aside, a second act that depends for its validity on the first act must be invalid as the legal foundation for its performance was non-existent. Now that the manner in which Mr Nxasana vacated office has been declared constitutionally invalid, it follows that the appointment of Advocate Abrahams is constitutionally invalid. Court though invalidated removal of Nxasana and appointment of Abraham it did not reinstate Nxasana and directed that a new person should be appointed. [Corruption Watch NPC v. President of the Republic of South Africa,2018 SCC OnLine CCSA 14, order dated 13-08-2018]

Case BriefsHigh Courts

Bombay High Court: Following the orders of the Supreme Court to hear petitions challenging the constitutional validity of several provisions of the Real Estate (Regulation and Development) Act of 2016, a Division Bench comprising of Naresh Patil and Rajesh Ketkar, JJ. held the provisions to be constitutionally valid and legal after their harmonious construction.

The petitioners challenged the enactment on the following grounds:

1) By making Section 4 of RERA (requirement to deposit 70% of the amount realized from allottess in an escrow account) applicable to ‘ongoing projects’, the legislature has enacted a retrospective legislation without taking into consideration past agreements and contracts entered into between the promoters and the buyers and the rights and liabilities flowing from them.

2) Sections 5 and 6 (provisions for registration and extension) had been challenged on the grounds that only an extension of one year was allowed without considering circumstances other than force majeure that might be beyond the control of the promoter (like genuine dispute resulting in an injunction, shortage of raw materials), thereby making the provision unreasonable and arbitrary.

3) Challenging the obligation of the authority to complete the remaining development work consequent to lapse or revocation of registration provided in Section 8, the petitioners contended that the provision was very vague, lacked clarity and was also against the interest of the allottees in the absence of any guidelines governing such procedure. It was also contended to be in violation of Article 300-A since the authority cannot sell the unsold flats unless the property is vested with the authority along with the right to sell the same.

4) Section 18 was contended to be contrary to Articles 14 and 19(1)(g). In case the registration of promoter is revoked and the allottee doesn’t withdraw from the project, or if the promoter is not able to give possession of an apartment, then till the possession is handed over, a promoter has to pay interest for every month of delay (from the date of agreement of sale) till the handing over of the possession at such rate as may be prescribed. Hailing this provision as a penal provision, it was prayed that such a retro-active mandate should be held to be unreasonable, arbitrary and unconstitutional and also contrary to Article 20.

5) Since RERA doesn’t provide for any mechanism for redressal of the grievances of the promoter or for getting a refund in case the promoter desires to leave the project or his registration gets cancelled, the enactment is unreasonable.

6) The composition of the authority was challenged since there was no mandate to include a judicial member when the dispute resolution process would involve judicial scrutiny. The explanation to Section 46(1) including member of the Indian Legal Service who has held the post of Additional Secretary was also challenged on grounds of it being violative of established case law that “whenever an authority would discharge adjudicatory functions, presence of a Judicial member is mandatory” [Union of India v. R. Gandhi, (2010) 11 SCC 1]

The pleas of the petitioners were dismissed by the Court holding that RERA is not arbitrary and unconstitutional, keeping the objects and reasons of the legislation in mind that the interests of the allottees need to be protected. The Court however stated that “in case the authority is satisfied that there are exceptional and circumstances due to which promoter could not complete the project in spite of extension granted under Section 6, then the authority would be entitled to continue registration for completing the project”.

The Court also struck down the appointment of Additional Secretary as the judicial member in the Tribunal stating that “in the constitution of a tribunal, majority members must be judges or judicial officers.” [Neelkamal Realtors Suburban Pvt. Ltd. v. Union of India,  2017 SCC OnLine Bom 9302, order dated 06-12-2017]

Case BriefsSupreme Court

Supreme Court: Upholding the Constitutional validity of the provisions of Rule 3 and Rule 3-A of Chapter XXIV of the Allahabad High Court Rules, 1952, the Bench of Dr. A.K. Sikri and N.V. Ramana, JJ held that keeping in mind the administration of justice and regulating the Court proceedings and right to practice and right to appear before the high Courts and Subordinate Courts, power is conferred on the High Courts, to frame rules.

It was alleged by the appellant that the Rules put an unreasonable restriction on his right to practice as an Advocate and are also ultra vires the provisions of Section 30 of the Advocates Act, 1961 that provides for the right to practice of advocates in any Court. The impugned Rules put bar on the Advocate who is not on the Roll of Advocate or the Bar Council of the State to appear, act or plead before the High Court of Allahabad.

Stating that the right under Section 30 of the 1961 Act is subject to Section 34 which provides for power of the High Court to make rules, the Court held that the Act does not confer any absolute right to practice. The right can be regulated by the High Courts by prescribing conditions. If High Court keeping in mind, several relevant factors like the purity in administration of justice, the interest of the litigant public and easy availability of the advocate to assist the court for proper adjudication of the dispute pending before it or expeditious disposal of such proceedings or for any other valid or good reasons which High Court considered just and proper frames such rules. It was, hence, held that that Rules 3 and 3A of the Allahabad High Court Rules, 1952 are perfectly valid and legal and do not violate the right of the appellant under Article 19(1)(g) of the Constitution of India. [Jamshed Ansari v. High Court of Judicature at Allahabad2016 SCC OnLine SC 868,  decided on 26.08.2016]