Amazon and Flipkart found violating Competition law in India-DG investigation report out
Bombay High Court sets aside CCI order directing investigation against Sony and Star; reopens the conflict of jurisdiction issue between the Competition and Sector Regulator
The Bombay High Court , vide judgement dated 16.10.2019, has set aside the orders passed by the prima facie order of the Competition Commission of India (“CCI”) directing the Director General (“DG”) to investigate whether Star India Pvt. Ltd (“Star”) and Sony Pictures Network India Pvt. Ltd (“Sony”) have engaged in refusal to deal with Noida Software Technology Park Limited (“NSTPL”) primarily on the following grounds: (i) CCI did not have the jurisdiction to pass such an order as in personam disputes were pending before the Telecom Disputes Settlement and Appellate Tribunal (“TDSAT”); (ii) CCI did not adhere to the procedure laid down under Competition Act before passing an order for investigation under Section 26(1) of the Act.
Background
NSTPL had filed the information before the CCI on 7th June 2017 against Star, Sony and the Indian Broadcasting Federation (“IBF”) alleging that Star and Sony have adopted anti-competitive market practices, owing to their strategic position in the broadcasting market by imposing unfair terms and limiting their services to less Distribution Platform Operators such as NSTPL in violation of Section 3 and 4 of the Competition Act, 2002 (“the Act”). When the information was filed before the CCI, NSTPL and Sony, Star were engaged in a string of litigations before the TDSAT with respect to the Rate Interconnect Offer (“RIO”) agreements entered into by the parties.
CCI passed the two prima facie orders on 27th and 31st July 2017 under Section 26(1) of the Competition Act, 2002 (“the Act”) directing the Director General (“DG”) to investigate to ascertain whether or not Star, Sony and IBF have refused to deal by way of discrimination with NSTPL in contravention of Section 3(4) of the Act. The writ petition was filed against these orders passed by the CCI primarily on the ground that CCI did not have jurisdiction to pass such an order since the issue was pending before TDSAT.
Arguments
Star submitted that the Impugned Order had been passed without jurisdiction. Placing reliance on the Supreme Court Decision in Competition Commission of India v Bharti Airtel[1], Star submitted that CCI could only have exercised jurisdiction if and when TRAI and/or the TDSAT had come to a finding that parties have indulged in anti-competitive practices. It was submitted that CCI has disregarded the fact that the issue of price discrimination by Star in the supply of television channels to NSTPL has not been finally decided by TRAI/TDSAT. TDSAT had itself held that the issue of the legality and validity of the demand raised by Star has not been finally decided. Star also submitted that CCI must form a prima facie view with some reasons prior to passing an order under Section 26(1) of the Competition Act. This requirement is also a sine qua non for the exercise of power. According to Star, CCI had not satisfied the ingredients of Section 3(4) of the Competition Act. Star finally submitted that an order directing the Director General to investigate is far reaching, conclusive and will stain Star with a stigma.
In addition to the arguments submitted by Star, Sony also submitted that the Impugned Order completely ignored the false statements and suppression indulged in by NSTPL which would clearly show that the Information is merely an attempt to wriggle out of NSTPL’s defaults. According to them, TDSAT had not adjudicated as to whether Sony’s RIO was discriminatory or not. Sony ,therefore, concluded that the Impugned Order ought to be quashed by this Court.
The aforesaid submissions can be broadly summarized as follows: (i) That the Supreme Court’s decision in CCI vs. Bharti Airtel prevented CCI from passing the Impugned Order as in personam and inter-party disputes were not adjudicated under the TRAI Act; and (ii) CCI has failed to arrive at a prima facie finding as to the existence of an agreement refusing to deal and that such agreement causes/is likely to cause AAEC in India.
On the other hand, CCI submitted that the decision in CCI vs. Bharti Airtel did not lay down the standard as had been submitted by the Petitioners. CCI submitted that in the facts of this case, the telecom regulatory system had effectively and conclusively ruled that there is anticompetitive behavior in the relevant market. According to CCI, Section 3(4) deals with, among others, two forms of abuses that appear to exist in the facts of the case viz. “tie-in arrangement” and “refusal to deal”. CCI claimed that these two abuses are present in the case. They claimed that in the instant case, at the time the Impugned Order was passed, the confirmation of conduct of violation was far firmer than a mere clarification. It was submitted that the strong and repeated emphasis by the Petitioners on the conduct of the NSTPL was irrelevant for purposes of the investigation under the Competition Act.
According to CCI, NSTPL was merely an informant, and had no relevant role to play in the investigations. It was submitted that the Petitioners have simplistically characterized the conclusive 7th December, 2015 Order passed by TDSAT (“7th December Order”) as a “general” order that does not conclude allegations between NSTPL and the Petitioners. Disputes between NSTPL and the Petitioners are disputes in-personam whereas anti-competitive conduct and market abuse, are matters in-rem, which indeed have been conclusively determined by the TDSAT. According to them, the judgment of the Supreme Court in CCI vs. Bharti Airtel did not at all deal with a fact pattern similar to the facts of the instant case indeed apart from the relevant market falling within the TRAI administered telecom sector. CCI relied upon two documents on EU Competition Law tendered by them during their arguments. They placed reliance on these documents to ascertain the meaning of the terms “refusal to deal” and “refusal to supply”.
Decision of the Bombay High Court
The High Court , after examining the 7th December 2015 Order passed by the TDSAT, concluded that NSTPL had made various in personam specific allegations against Star, which in return, denied all of NSTPL’s allegations. TDSAT while passing the 7th December Order itself recognized the different factors which may play a role in determining whether a broadcaster had actually discriminated against a distributor, and therefore, the critical issues identified by NSTPL are pending adjudication before the TDSAT, none of which were decided by the 7th December Order.
The Court noted that, in the 7th December Order itself, TDSAT had specifically directed that the question of liability, and , therefore, the inter-party disputes between NSTPL and Star is to be decided. Therefore, the issue as to whether NSTPL was entitled to the same price, bouquets and incentives as ‘similarly situated distributors’ was yet to be decided by TDSAT and if NSTPL does not establish that it is ‘similarly situated’ it will not be entitled to the same price/incentives etc. The Court held that these are jurisdictional aspects and facts which must be decided before CCI could have ordered investigation.
Further, as per the High court, a prima facie finding of Appreciable Adverse Effect on Competition (“AAEC”) is an essential and mandatory finding before CCI could direct investigation, however, the impugned order lacked this necessary finding. The High Court noted that the CCI did not provide any reasons for why after determining that Star and Sony are in a dominant position in the relevant market, no analysis of the likelihood of AAEC was carried out based on the factors set out under Section 19(3) while passing the impugned order for investigation of conduct of refusal to deal under Section 3(4) of the Act.
The High Court observed that in order to hold a prima facie contravention of Section 3(4), the CCI should have formed a prima facie view that there exists an agreement either between Star/Sony and NSTPL which provides for refusal to produce, supply, distribute or store or trade in goods or provision of services with/to NSTPL and that such agreement caused AAEC. The Court held that the Commission was under an obligation to arrive at a prima facie finding that the conduct of Star and Sony causes AAEC and since there is no prima facie finding by CCI on AAEC, the mandatory jurisdictional pre-requisite of a prima facie view of Section 3(4) was absent.
Accordingly, the impugned order passed by the CCI was quashed as it did not adhere to the procedure laid down in the Competition Act, 2002 and the Supreme Court’s decision in CCI v Bharti Airtel.
Comment: The Bombay High Court decision is a reiteration of the Supreme Court judgment in the CCI vs. Bharti Airtel case which , as reported earlier in my blog had settled the conflict of jurisdiction issue . Though the CCI ‘s view in this case that irrespective of the pendency of the inter party dispute before the sector regulator (TDSAT in this case) it has jurisdiction to examine the competition issue per se is already rejected by the Supreme Court yet this judgment has reopened the debate once again in case CCI decides to challenge it before the Supreme Court .
[1] (2019) 2 SCC 521
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