CCI introduces Leniency “Plus” regime in India- Will it suffice?
Delhi High Court clears procedural and jurisdictional issues in antitrust inquiry by CCI
The Division Bench of the High Court of Delhi comprising of Justice S. Ravindra Bhatt and Justice A K Chawla, vide its landmark judgment dated 12 September 2018 has cleared some important procedural ambiguities surrounding the inquiry by the Competition Commission of India (CCI) under the Competition Act,2002 (the Act). The Hon’ble DB of the High Court while dismissing three out of four pleas appealed by Cadila Healthcare Limited (“Cadila”) in a Letter Patent Appeal (LPA) against an earlier judgment dated 09 March 2018 of the Single Bench of the Delhi High Court (Justice V Kameshwar Rao) , has held that (i) The investigation by the Director General (DG) does not get vitiated in the absence of specific prima facie finding against a particular party by CCI under section 26(1) of the Act; (ii) CCI can hold simultaneous inquiry under section 48 of the Act against the Managing Director and other officials of the company without first arriving at a finding of violation of anti-competitive conduct against the company ; (iii) There is no power with CCI to recall its prima facie order under section 26(1) of the Act after the DG investigation report is received, in terms of the Google decision of Delhi High Court. The Hon’ble DB however, allowed Cadila’s contention on grounds of violation of principles of nature justice and directed CCI to permit cross examination of 3 witnesses specifically requested by Cadila.
Cadila had initially filed a writ petition under Article-226 of the Constitution of India before Delhi High Court alleging that investigation and the DG investigation report of DG was nullity without a separate order under Section-26(1) of the Act finding a prima facie case against Cadila and that since DG had proceeded with the investigation against Cadila without being authorized by CCI vis-à-vis Cadila, the CCI’s order under section 26(1) of the Act was required to be recalled. . The single bench of the High Court (Justice V Kameshwar Rao) dismissed the writ petition on all the grounds filed by Cadila vide Judgment dated 09 March 2018.
The inquiry was initiated by CCI based on 3 information filed by 3 stockists namely M/s Alis Medical Agency, M/s Stockwell Pharma, M/s Apna Dawa Bazar) of Ahmedabad, Surat and Baroda respectively, who along with another stockist, M/s Reliance Medical Agency of Baroda, who had filed complaints against the Federation of Gujarat Chemists and Druggists Association (Federation) , Amdavad Chemist Association, Surat Chemists and Druggists Association, the Chemists and Druggists Association of Baroda and 25 pharmaceutical companies including Cadila besides their C&F agents. It was alleged that when the Informants approached pharmaceutical companies or their C&F agents for supply of medicines, they were allegedly denied the same on the alleged directions of the Federation and that pharmaceutical companies were in tacit collusion with the Federation or the district level chemist associations and insisted upon obtaining a “No objection Certificate” from the Federation / Associations. The CCI vide its orders dated 16 January 2018, 17 January 2018 and 17 November 2015 under section 26(1) of the Act in the 4 cases had found prima facie case for investigation by the DG in the conduct of the Federation and the district level chemists associations and any other party which may be found to be violating the provisions of section 3 of the Act.
In the LPA filed by Cadila against the Judgment of the Single Bench of the Delhi High Court dated 09 March 2018, the Hon’ble DB of the Delhi High Court framed the following issues for adjudication:
- Whether the DG’s investigation in the absence of a specific order under Section 26(1) by CCI having formed a prima facie opinion, is vitiated
- Rejection of Recall application by CCI (based on grounds of fraud, res judicata and/or no cause of action )
- CCI rejection of Cadila’s application for permission to cross examine three witnesses who had deposed before the DG.
- Whether simultaneous proceedings against the Company and its Managing Director and other officials can be initiated under section 48 of the Act?
The gist of the Judgment passed by the Hon’ble DB of the Delhi High Court on each of the above issues is as under:
On the first issue i.e., DG’s investigation in the absence of a specific order under Section 26(1) by CCI having formed a prima facie opinion, is vitiated, the Court has said that DG’s power is not limited by a remand or restricted to the matters that fall within the complaint. The Court rejected the reliance placed by Cadila upon the Judgment of the Single Bench in the case of Grasim Industries[1] where it was held that without an order by CCI into the matter with respect to a particular party for a particular violation, it is not competent for the DG to investigate in to allegations. The Court relied on the judgement passed by the Hon’ble Supreme Court of India where the power of DG has been explained power of DG in the broader term i.e. Excel Crop Care Limited v. Competition Commission of India & Anr.[2]:
“if other facts also get revealed and are brought to light, revealing that the ‘persons’ or ‘enterprises’ had entered into an agreement that is prohibited by Section 3 which had appreciable adverse effect on the competition, the DG would be well within his powers to include those as well in his report….If the investigation process is to be restricted in the manner projected by the Appellants, it would defeat the very purpose of the Act which is to prevent practices having appreciable adverse effect on the competition.”
The Court stated that cognizance of a case is taken by CCI on the basis of the information received and which further requires investigation. On the stage of information it is not necessary that CCI has the complete information about the conducts that contaminate the entire market and it is during the inquiry only the whole picture with regard to the conduct of the persons becomes clear. Therefore, the Court held that investigation done by DG without CCI’s recording prima facie opinion against Cadila is acceptable.
On the second issue i.e. CCI has rejected the recall application filed by Cadila the Court said that there are some concerns with regard to review power of CCI as to whether such a role played by the Commission is in “administrative power” or “statutory power”. The CCI was vested with the review power under Section-37 (now repealed) of the Act, now the question arises how to understand the review power of the CCI. As per Section-38[3] of the Act, the Commission may rectify a mistake in its order either on its own motion or on application by the party.
With regard to case in hand the Court has distinguished from the case of Google Inc v Competition Commission of India[4] (“Google order”) where CCI has reviewed its order. Cadila has argued that review application was accepted by CCI in Google order, therefore, in the instant case also the application should also be accepted. The Court has pointed out that while deciding the Google order the Court had relied on several other decisions which dealt with pure administrative power, or power which was statutory for which no specific power was conferred, to recall (or review). In the latter category, the Supreme Court had consistently ruled that Section 21 of the General Clauses Act 1897 applied. That provision specifically states that where a statute does not enable the recall of an order or notification, or bye-law (note that all are legislative or quasi legislative statutory powers) the power to recall those exists, provided it is exercised in the same manner as in the case of the exercise of original power.
While answering the second issue on the recall application the Court held that Google order doesn’t have a bearing on the present case because in the Google order the recall application was filed before the DG has submitted the investigation report before the Commission while in the matter of Cadila the recall application is filed after the submission of the DG investigation report. Therefore, CCI and the single bench didn’t err on rejecting the recall application.
The next point attached to the second issue is whether CCI erred in holding that the question of investigation into its conduct, was as a result of fraud or misrepresentation by any party? The Court finds CCI’s order is irreproachable. To this issue, the Court drew a similarity with the inherent power of the High Court under Section-482 of Cr. PC. stating that “for instance, the charge sheet disclosing prima facie materials reasonably disclosing the complicity of any accused is filed in court, the inherent power to quash proceedings is rarely, if ever resorted to.” In the instant case Cadila filed a 110 page recall application which contained complicated questions of law and detailed analysis of facts, therefore, by rejecting the recall application the Commission has not acted erroneously.
On the final point of res judicata attached to the second issue, the Court finds that the Commission or similar expert body should “ordinarily” not be crippled or hamstrung in their efforts by the application of technical rules of procedure.
On the third issue i.e. CCI didn’t allow Cadila to cross-examine three witnesses named in the review application, the Court has accepted Cadila’s disposition by saying that, though there is a discretion vested with the CCI with regard to accept or refuse the plea of cross-examine of a person within the ambit of Regulation 41(5)[5] of The Competition Commission of India (General) Regulations, 2009, (“General Regulations”) but the reason given by CCI for not accepting the request of cross-examination i.e. “dissatisfaction” does not imply judicious exercise of discretion. Therefore, CCI erred in rejecting Cadila’s plea of cross-examination of the witness.
On the fourth issue of whether a simultaneous case against the Managing Director and other officials of Cadila can be filed without recording Cadila guilty of the anti-competitive conduct, the Court has relied on the case of Pran Mehra vs. Competition Commission of India and Another[6] wherein the court observed that “there cannot be two separate proceedings in respect of the company and the key-persons as the scheme of the Act, does not contemplate such a procedure. In the course of the proceedings qua a company, it would be open to the key-persons to contend that the contravention, if any, was not committed by them, and that, they had in any event employed due diligence to prevent the contravention. These arguments can easily be advanced by key- persons without prejudice to the main issue, as to whether or not the company had contravened, in the first place, the provisions of the Act, as alleged by the D.G.I., in a given case.” The Court held that, Cadila’s grievance with regard to issuance of notice to its Managing Director and other officials under Section-48 of the Act is without substance.
Conclusion- By rejecting three out of four pleas raised by Cadila, the Division Bench of the Delhi High Court has not only upheld the decisions passed by CCI and the single judge bench of the Delhi High Court but also cleared the web of uncertainties on important jurisdictional and procedural issues. The only aspect on which Cadila has succeeded, is about allowing cross examination of the witness named under the review application.
Comment
This case holds significance because Firstly, the Court has clarified the issue with regard to period when the recall application can be filed. Secondly, the Court has stated that while exercising the discretion vested with CCI with regard to permitting cross examination, as per Regulation 41(5) of the General Regulation, the Commission should act judicially. Thirdly, though the Commission has already cleared the air with regard to simultaneous proceeding initiated against company and its key personnel. The Court while dealing with the specific issue that proceedings against the office bearers cannot be initiated under Section- 48 of the Act unless the “enterprise” or “person” is found guilty of anti-competitive conduct has reinforced its earlier stand i.e. notice and proceedings in composite manner against the Managing Director and officials of a company is in accordance with the law.
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[1] 206 (2014) DLT-42-Grasim Industries Limited Vs. CCI.
[2] (2017) 8 SCC 47
[3] Rectification of orders
(1) With a view to rectifying any mistake apparent from the record, the Commission may amend any order passed by it under the provisions of this Act. (2) Subject to the other provisions of this Act, the Commission may make— (a) an amendment under sub-section (1) of its own motion; (b) an amendment for rectifying any such mistake which has been brought to its notice by any party to the order. Explanation.—- For the removal of doubts, it is hereby declared that the Commission shall not, while rectifying any mistake apparent from record, amend substantive part of its order passed under the provisions of this Act.
[4] 2015 (150) DRJ 192.
[5] If the Commission or the Director General, as the case may be, directs evidence by a party to be led by way of oral submission, the Commission or the Director General, as the case may be, if considered necessary or expedient, grant an opportunity to the other party or parties, as the case may be, to cross examine the person giving the evidence.
[6] Writ Petitions No. 6258/ 2014, 6259/ 2014 and 6669/ 2014
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