Scope of powers of the Director General:
It was in 1984, on the recommendation of the Sachar Committee, that the position of the Director General was first created in the Monopolies and Restrictive Trade Practices (MRTP) Act. The DG was to take over the two important functions- the Director of Investigation and the Registrar of Restrictive Trade Agreements. Section 11 (2) of the MRTP Act provided:
“The Director General may, upon his own knowledge or information or on a complaint made to him, make, or cause to be made, a preliminary investigation in such manner as he may think fit to enable him to satisfy himself as to whether or not an application should be made by him to the Commission under section 10.”
As per this provision, apart from acting upon the directions of the CCI the DG may also take suo motu cognizance of a matter and investigate on the same. The power to take suo motu cognizance was taken away with the coming of the Competition Act in 2002. Under the new Act, when the CCI receives information and is of the opinion that a prima facie case does exist, then the DG is directed to conduct an investigation. Thus, Section 19 (1) of the Competition Act reads:
On receipt of a complaint or a reference from the Central Government or a State Government or a statutory authority or on its own knowledge or information, under section 19, if the Commission is of the opinion that there exists a prima facie case, it shall direct the Director General to cause an investigation to be made into the matter.
And 19(2) reads:
The Director General shall, on receipt of direction under sub-section (1), submit a report on his findings within such period as may be specified by the Commission.
And 41(1) reads:
The Director General shall, when so directed by the Commission, assist the Commission in investigating into any contravention of the provisions of this Act or any rules or regulations made thereunder.
The investigation is a tricky intermediate step in the entire process conducted by the CCI. In ITC vs. MRTP Commission (available here: http://indiankanoon.org/doc/330573/) the Court held that a report submitted after investigation wasn’t a judicial decision and that it wouldn’t affect the rights of the parties. However, the investigation was still expected to be carried out in accordance with the principle of natural justice. At the same time for the purpose of the investigation the DG has the same powers as a Civil Court.
Delhi High Court decision:
In Grasim Industries vs. CCI (available here: http://indiankanoon.org/doc/199082044/) the Court had to look into matters related to the above. In the instant matter the CCI forming a prima facie opinion based on the information received by it directed the DG to look into alleged anti-competitive agreements While the DG investigation was being undertaken, the informant provided additional information regarding the abuse of dominance practices carried on by the accused party. The DG without having received a direction from the CCI to do so, increased the ambit of investigation to look into violation of Section 4 as well. In the course of the investigation however, it was found that though no anti-competitive agreements had been entered into, there was evidence of abuse of dominant position by the parties. The DG thus submitted, in his report to the CCI, that there was a case of violation of Section 4 in spite of the fact that CCI directed investigation was regarding Section 3 violations.
The bone of contention in this case therefore is two pronged: firstly the power of DG to investigate into information which have not been prima facie opined by the CCI to be anti-competitive and secondly on the consequence of such DG investigation i.e. the rights of the parties to adequately defend themselves at the stage of DG investigation. They will elaborated by the author subsequently.
Scope of investigation:
The parties contended that since the Commission had directed the DG to investigate into matters of Section 3, an investigation into Section 4 violations was outside the scope of the DG’s powers. For these reasons they argued that the report submitted by the DG was not valid in law. On the other hand the Commission submitted that the material which constitutes a violation of Section 3 could also form a violation of Section 4. Moreover, the parties would receive ample opportunity to defend their cases before the Commission gave its order and therefore the omission at the stage of investigation would not affect the rights of the parties.
The Delhi High Court held that the DG would not be allowed to consider different information in the course of his investigations. In this case, the DG suo moto set the terms of investigation and the information alleging the abuse of dominance was not considered by the Commission. From an analysis of the Competition Act, 2002, the Court concluded that the DG does not have the power of suo moto investigation (contrast against investigative authority of the police, who are bestowed with the power to suo moto investigate). The formation of an opinion by the Commission that prima facie there is a contravention of the Act, is a sine qua non, for investigation by the Director General. Hence, it held that the DG acted beyond the scope of his power. Further, the DG is at liberty to report such contravention of Section 4 only when the Commission had considered the information supporting violation of Section 4 while forming its prima facie case. Therefore the Act did not intend the DG to investigate an altogether different information during the course of investigation.
Rights of the Parties:
It was contended from the Commission’s side that since the party will get opportunity to be heard at the stage of inquiry by the Commission in terms of Section 26(8); the rights of the party would not have not been prejudiced by DG investigation. The Court came to conclusion that the provision for hearing at a later stages doesn’t preclude the parties’ rights to present their cases before the Director General. The scheme of the Act provides for multiple stages of hearings. The law entitles the opportunity to be heard by the parties before the DG as well as before the Commission. Moreover further inquiry under Section 26 by the Commission is not mandatory and Commission can pass his order based under Section 27 on the basis of the DG Report. In such a case if the party is deprived of adequate opportunity to defend his case at the stage of DG investigations, he will not be able to lead evidence and to cross-examine the witnesses of the opposite party, even before the Commission. The principles of natural justice demand the administrator to provide for a reasonable opportunity to be heard (audi alterum partem) before making a decision concerning quasi-judicial matters. Therefore, in this case the rights of the parties are prejudice by such actions of the DG.
All said, the Court permitted the Commission to treat the part of the Report alleging violation of Section 4 as independent ‘information’ as per Section 19 and to proceed with the investigation for abuse of dominance.
Conclusion
To conclude, the Grasim scenario highlights that while the scope of power of the DG during investigation has been narrowed under the 2002 Act, it does not compromise on CCI’s propaganda of ensuring free trade. In other words, in case the DG sidesteps the mandate given by the Commission during investigation, the aggrieved party can approach the Court to set aside the Report. But the same Report can be used as an ‘information’ by the CCI to start a fresh course of action. This also addresses the aggrieved party’s issue of not having ample opportunity to defend its case during the investigation.
Therefore from the CCI’s perspective in case the DG sidesteps the mandate, it would in effect mean taking a step back in the same path before continuing with the investigation. In other words it would be a back-loop in the process with collateral consequences of delay and procedural hassles. Under such circumstances, it is worthy of thought though whether the DG’s decision of continuing the investigation under the garb of the initial scope and consequently providing the parties an opportunity to have the Report set aside is a better choice than enlightening the Commission about the altered scope of investigation at the earliest to allow it the opportunity to form a prima facie opinion for a fresh start.
This post has been authored by Anjali Kumar and Debkanya Naskar, students at the West Bengal National University of Juridical Sciences.
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