Amazon and Flipkart found violating Competition law in India-DG investigation report out
Delhi High Court again holds DG Report Not Binding on CCI -further clarifies interpretational issues under Competition Act
By way of judgement dated 10.10.2019, the Honorable High Court of Delhi dismissed an appeal filed by Mr. Saurabh Tripathy (“Petitioner”) against an order passed by the Competition Commission of India (“CCI/Commission”) dated 16.02.2017 holding that the Director General’s Investigation Report (“DG Report”) is not binding on the CCI and the Commission can differ with the findings of the DG Report, including taking a decision to close the case.
Background
The Petitioner was an employee of SRMB Srijan Ltd. (“SRMB’) – a rolling mill which is an energy intensive industrial unit which uses Coalbed Methane Gas (CBM) for its operations. Great Eastern Energy Corporation Ltd. (“GEECL’) is a company engaged in the business of exploration, development, production, distribution and sale of CBM. GEECL and SRMB had entered into a Gas Sale Purchase Agreement (GSPA) on 11.05.2011. The Petitioner, on 16.09.2019, filed an Information before the CCI alleging Abuse of Dominant Position by GEECL for imposing unfair and discriminatory conditions for supply of CBM in terms of GSPA.
The Commission, after forming a prima facie view that GEECL is dominant in the relevant geographic market of Asansol-Raniganj-Durgapur Region in the State of West Bengal and that the terms of the GSPA appeared to be in favor of the GEECL and against the buyer, therefore, is in contravention of Section 4 of the Competition Act, 2002 (“the Act”), directed the DG vide order dated 29.12.2014 to conduct an investigation into the matter.
The DG submitted the investigation report on 29.12.2014, recommending violation of Section 4 of the Act by finding that Clause 2, Clause 4.4, Clause 5.2, Clause 6.1, Clause 9.2, Clause 11.2 and Clause 15 of the GSPA were unfair and discriminatory. CCI, after hearing both the parties, passed the impugned order dated 16.02.2017 holding that GEECL has not abused its dominant position in the relevant market. An appeal was filed against the impugned order before the COMPAT, which rejected the appeal on the ground that the appeal was not maintainable. The Petitioner, thereafter, approached the High Court on 28.02.2018.
Submissions in brief
The Petitioner contended that the decision of the CCI was erroneous as it rejected the DG Report which recommended violation of Section 4 of the Act. As per the petitioner, the CCI was instead required to direct further inquiry under Section 26(8) of the Act. It was also submitted that the order was in violation to Principles of Natural Justice as the petitioner was not granted an opportunity to contest the premise on which CCI rejected the DG Report. The petitioner contended that the CCI was required to indicate the reasons on the basis of which it proposed to reject the DG report before proceeding further, which would have enabled the petitioner to contest the same. The petitioner also challenged the decision of the CCI to reject the findings with respect to the clauses held to be unfair by the DG on the basis that the said agreement was entered into after negotiation between the concerned parties.
On the other hand, GEECL contended that the petition was not maintainable as the petitioner cannot be considered as an aggrieved person as he has no interest and has no locus to challenge the order passed by the CCI. GEECL also submitted that the proceedings were an abuse of process of court, as none of the parties to the GSPA (SRMB and GEECL) had contended that the agreement was unfair.
Decision
The first question before the Court was to determine whether the CCI was required to pass an order directing further inquiry under Section 26(8) of the Act in the event it did not agree with the finding of the DG. The Court observed that in the event CCI is of the view that no further inquiry is required, it is no necessary for the CCI to conduct any further inquiry or issue any such directions for the DG to conduct the same. The Hon’ble Court noted that there is no provision in the Act which mandates that the CCI must accept the DG Report recommending that there are contraventions of the provisions of the Act. In other words, the DG Report is not binding on the CCI and it can differ with the findings of the DG. If the contentions of the petitioner is accepted, that would mean that CCI can never disagree with the report of the DG, which is not the scheme of Section 26 and 27 of the Act. The Court held that the DG Report is merely recommendatory in nature and the CCI is required to examine the same and take a view after hearing the parties, and, provisions of further inquiry/investigation (sub-section 7 and 8 of Section 26 of the Act) are only enabling provisions which enable the Commission to direct further investigation or conduct further inquiry if it is of the opinion that such further inquiry is necessary. Accordingly, the Court rejected the contention of the petitioner that CCI was required to conduct further inquiry.
The second question before the High Court was to examine whether the impugned order dated 16.02.2017 suffered from any infirmity which warranted interference by the High Court under Art. 226 of the Constitution of India. The petitioner contended that GEECL had abused its dominant position by imposing unfair and discriminatory conditions for purchase and sale of CBM and CCI was required to view the same in light of Section 27(d) of the Act which empowers the CCI to modify an agreement (GSPA in the present case) to the extent it deems fit.
The High Court rejected this contention based on two reasons- (i) GSPA was an agreement which was negotiated between SRMB and GEECL, and, neither of the parties had approached the CCI for such relief. It cannot be the case that CCI should have exercised powers to modify the GSPA at the instance of a third party, who clearly has no interest in the said agreement. (ii) The basic premise that GEECL had violated Section 3 and 4 of the Act was unmerited.
It was further contended by the petitioner that CCI was wrong in rejecting the contention that certain clauses of GSPA were discriminatory and/or unfair on the ground that the GSPA was entered into by the parties after negotiations. The petitioner submitted that once a condition imposed for the purchase and sale of goods and services has been found to be unfair or discriminatory, it would not cease to exist because it was negotiated between the parties.
This contention was rejected by the Court on the observation that the fact that a commercial contract has been negotiated between two parties is an important factor in determining whether an enterprise has abused its dominant position by imposing unfair and discriminatory terms, particularly more so, where none of the parties have lodged any complaint against the said contract.
The High Court acknowledged that there may be cases where it is established by one of the parties that certain unfair terms and conditions were unilaterally imposed by a dominant enterprise and the concerned party was commercially coerced to accept the same. In such cases, the fact that the parties had entered into the negotiations may be of little relevance. However, in cases where the parties to the contract have not made any such allegations, the fact that the contract had been freely negotiated would be of vital importance in determining whether Section 3 or 4 of the Act were violated. Accordingly, CCI had noticed that the parties had exchanged drafts of the GSPA before finalizing the same. More importantly, some of the clauses which the petitioner claimed were unfair and discriminatory, had not been objected to by SRMB during contractual negotiations. Therefore, the Court held that the decision of CCI to take into account that the GSPA was a negotiated contract, cannot be faulted.
In addition to making the above observations, the Court also examined the various clauses which were found to be contravening Section 4 by the DG and held that the CCI was right in rejecting the recommendation of the DG. The reasons of the Court were in support of the analysis given by CCI in the impugned order.
Pertinent to note, the Delhi High Court while dismissing the petition, imposed a cost of INR 50,000/- on the petitioner to be paid to both the CCI and GEECL for abusing the process of law.
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