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Scope of Challenging the CCI prima facie orders under Article 226 of the Constitution

Introduction

The Madras High Court in the case MRF Ltd. v. MCA and Ors. on 06.01.2022, held that a prima facie order passed by the Competition Commission of India (‘CCI’) under Section 26(1) of the Competition Act, 2002 (‘Act’), cannot be interfered with by virtue of the writ jurisdiction under Article 226 of the Constitution of India (‘the Constitution’).

The Court clarified that an order for investigation issued u/s. 26(1) of the Act is a preliminary order that carries no civil consequences and does not resolve the issue raised against the parties. Hence, any interference by the Courts at this stage would only allow the parties to avoid the investigation, defeating the purpose of the Act.


Facts

The All-India Tyre Dealers Federation (‘AITDF’) sent information on 28.12.2007 to the Ministry of Corporate Affairs (MCA’) alleging that the five tyres manufacturing companies, M/s MRF Ltd. ('MRF’), Apollo Tyres Ltd., CEAT Ltd., JK Tyre and Industries Ltd., and Birla Tyres Ltd., control 90% of tyres production in India and have abused their dominant position through price parallelism. Also, these five enterprises increased the prices of tyres when the price of rubber climbed, however they did not reduce the prices of tyres when the price of rubber declined. On this premise, AITDF sought suo motu action against tyre manufacturers and the MCA forwarded this information to the CCI under Section 19(1)(b) of the Act, to inquire into the alleged matter. The MCA and AITDF were then instructed by the CCI to address the preliminary contentions and submissions.

Post this, the CCI passed an order dated 24.06.2014 u/s. 26(1) of the Act, stating that there exists a prima facie case and directed the Directorate General (“DG”) to investigate the matter of price parallelism by the alleged five tyre manufacturers. After completing the investigation, the DG on 08 December 2015, submitted an investigation report to the CCI. MRF filed a writ petition in the Madras High Court against the prima facie order of CCI and to stay investigation by the DG. The Learned Single judge, of MHC passed an interim order directing the CCI to continue the investigation while keeping the investigation report submitted by DG in a sealed cover. The order further observed that the parties are at liberty to raise objections before the DG and subsequently before the CCI prior to passing the final order under Section 27 of the Act. Therefore, MRF filed a writ appeal challenging the order passed by the Single Judge, MHC and praying to set aside the order passed by the Commission under 26(1) of the Act to cause an investigation into the matter.


Analysis

The Indian Competition law regime has progressively evolved through the years. However, the current antitrust scenario in India reveals strong yet healthy tension. On one hand, we are seeing a recent trend wherein the parties are running pillar to post to stay the CCI’s orders for initiating an investigation u/s. 26(1) of the Act and on the other hand we are seeing the higher judicially subsequently allowing it. The case being discussed is an example to back this statement. The parties in the cases Amazon v. CCI, Vardayani Offset, Grasim Industries Ltd. v. Competition Commission of India, JCB v. CCI, not only filed the writ against the order passed by the CCI under section 26(1) of the Act, but also succeeded in getting judgements in their favour. All these writs were filed after the landmark judgement of CCI v. SAIL, wherein the Apex court observed that the order pronounced by the CCI u/s. 26(1) of the Act is of preliminary nature albeit the CCI only directs the DG to conduct the investigation and to submit the report within a stipulated time. This direction of the CCI u/s. 26(1) of the Act, can also be termed as an internal departmental process or administrative process of the CCI. Further, the Apex Court ruled that the order can only be made appealable when the final order has been pronounced by the CCI u/s. 26(2) of the Act. Moreover, Section 53-B of the Act clearly states that there shall be an appeal only against the order passed u/s. 26(2) and 26(6), which means the legislature also intended to make only the final orders appealable.


Situations When These Interferences May Become Valid

In light of the various precedents pertaining to the CCI’s section 26(1) order. The interference with the CCI’s section 26(1) order can only be valid under the two circumstances; (a) In case of non-speaking order by the CCI (b) In case of the jurisdictional clash.

In case of non-speaking order by the CCI

The Supreme Court of India in CCI v. SAIL observed that the CCI while forming a prima facie opinion must have reasons to believe that the parties have on the face of it, infringed the provisions of the Act. However, that does not imply that the CCI is obligated to do a detailed analysis of the opinion. The Karnataka High Court, in Flipkart v. CCI, observed that the CCI at the stage of forming prima facie opinion, must in the order, in writing substantiate its stance with at least some minimum reasons. The minimum reasons inter alia mean that the CCI must demonstrate a clear link between the materials placed by the litigants and the opinion formed by the CCI. Pursuant to which CCI must also express a prima facie opinion on the contravention of the provisions of the Act. Therefore, in the case of the non-speaking order, under Section 26(1), by the CCI, the litigants have the freedom to approach the higher judiciary.


In case of the jurisdictional clash

In the case of CCI v. Bharti Airtel, there was a tussle between the CCI and the Telecom Regulatory Authority of India (“TRAI”). The Supreme Court stipulated the need for CCI to use Section 21A of the Act, which requires CCI to first seek the opinion of the sector regulator on sector-specific problems. As a result, in the event of a violation with any sector-specific regulators, the parties can seek judicial intervention. However, the principles enumerated by the Supreme Court in this case must be borne in mind before allowing the appeals to branch out from the issue of the jurisdiction. In the CCI v. Bharti Airtel, it was observed that the factors enumerated in Section 19(3) of the Act must be taken into account when investigating suspected contraventions and assessing whether any agreements violate the Act. Section 19(3) of the Act includes factors such as the creation of barriers to new entrants in the market, driving existing competitors out of the market and foreclosure of competition by hindering entry into the market, etc.


Conclusion

In recent times we are seeing parties rushing to the High Courts against the CCI’s order under Section 26(1) of the Act. These writ petitions can be seen as a new tactic been adopted by the parties with an intent to delay the investigations initiated by the CCI. For instance in the present case, the investigation was initiated in the year 2014, however, going through the process of staying and vacating, four years passed till the final order passed by the CCI on 31 August 2018 attained finality as reported by the CCI on 02 February 2022. Therefore, it is suggested that seeing the dramatic fluctuations in the market the antitrust agencies should have sufficient powers to timely conduct the investigations. To sum up, it is expected that the High Courts will see take this decision of the MHC into consideration, while entertaining matters involving Section 26(1), and shall only allow the appeal under two circumstances as elaborated above.

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