Competition Act gets constitutionality check

By Karan Singh Chandhiok, Vikram Sobti and Lagna Panda, Chandhiok & Mahajan

In a seminal decision, Delhi High Court, while deciding on the constitutionality of certain provisions of the Competition Act, 2002 (act), has given various observations on the remit of the Competition Commission of India (CCI). The decision arose from a batch of writ petitions filed primarily by passenger car manufacturers (petitioners), where the composition and powers of the CCI, as well as the composition of the erstwhile Competition Appellate Tribunal, were challenged. The petitioners had also challenged the order (auto-parts order) passed by the CCI imposing a penalty of approximately ₹254.5 billion (US$3.65 billion) on 14 passenger car manufacturers, including the petitioners, on the grounds that the order was passed under provisions of the act, which are unconstitutional.

Karan Singh Chandhiok
Chandhiok & Mahajan

The decision acknowledges the unique nature of proceedings before the CCI, which do not concern the resolution of lis (dispute) between parties in the traditional sense. The decision notes that the CCI “does not perform exclusive adjudicatory functions to be called a tribunal”, but is a body performing multiple functions which are administrative, advisory, advocacy, and quasi-judicial in nature. Being entrusted with a multitude of functions, it is not necessary for the CCI to have members with legal or judicial experience to perform these functions, the high court observed.

The high court also observed that inquiries by the CCI enter adjudicatory stage only after the Director General submits investigation reports and evidence-taking by the CCI is complete. All stages before that, including forming of prima facie opinion by the CCI, are administrative in nature. As adjudicatory proceedings have wide ramifications and far-reaching consequences, the high court has held that the CCI’s composition must consist of members with legal expertise or judicial experience for the CCI to adjudicate.

Vikram Sobti
Chandhiok & Mahajan

Notably, the Supreme Court, in the SAIL decision, had observed that a prima facie opinion formed by the CCI initiating an investigation is an order simpliciter and, therefore, is administrative in nature. Although the high court decision discusses prima facie orders in the context of the initiation of an investigation, it does not clarify if a prima facie order of the CCI concluding that an investigation is not warranted, would be administrative in nature. In the latter case, prima facie orders of the CCI closing a case are “final orders” and are also appealable, and such orders, arguably, may not be administrative in nature.

The high court has also looked at the “revolving door system” of participation of CCI members in proceedings to conclude that such a system can exist in terms of proviso to section 22(3) of the act. The decision, however, notes that once an investigation report is submitted by the DG and evidence-taking is complete, the case has to be put up for “final hearing”, and the members of the CCI presiding over final or substantial hearings and writing the final order must not change.

To ensure that final hearings are not vitiated by a change in composition of the CCI, the high court has observed that: 1) the CCI must ensure that a substantial number of members are present at “every substantial hearing and final hearing”, and 2) if the same bench cannot continue with the final hearing in a case then a new bench must hear the case afresh, even if the composition of the two benches is partly common.

In issuing these observations, the high court has not considered the fact that hearings leading up to the issuance of prima facie opinion or grant of injunctive relief would also be “substantial” hearings. Arguably, the composition of the CCI, for the purpose of forming a prima facie opinion or grant of injunctive relief, should also remain constant until the concerned stage is completed. Interestingly, the high court has also observed that the extent to which the composition of the CCI would affect its orders would depend on the facts and circumstances of the case. In fact, the court did not strike down the auto-parts order of the CCI, which was passed by a bench that did not have a judicial member.

This apart, the decision has also looked at the power conferred upon the chairperson or the presiding member of the CCI to have the last say in inquiries through “casting votes”. Referring to casting vote as an “anathema” to proceedings that are judicial in nature, on grounds that it vitiates fair procedure and subverts collegiality, the high court has struck down section 22(3) of the act.

Though the decision addresses several issues that plagued competition law enforcement in India, it also leaves open several questions on the procedure followed by the CCI. The lack of clarity on these issues may lead to further uncertainty in the implementation of the act.

Karan Singh Chandhiok and Vikram Sobti are partners and Lagna Panda is a senior associate at Chandhiok & Mahajan.


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