Blindsided by the Watchdog? Madras HC Ruling Raises Stakes for CCI Investigations

The authors are Agam Gupta and Shubhanshu Dubey, third year students at Hidayatullah National Law University.

The Competition Commission of India (“CCI”) has long served as a stalwart guardian of fair competition within the Indian market. However, a recent judgment by the Madras High Court (“HC”) in MRF Ltd. v. CCI has cast a shadow on the CCI’s established investigative procedures. This case presents a compelling question: has the Madras HC merely identified a procedural irregularity, or has it fundamentally altered the landscape of CCI investigations?

The case centers on MRF Ltd., a prominent tire manufacturer, which found itself unexpectedly embroiled in a CCI investigation initially targeting its competitor, JK Tyre & Industries Ltd. The crux of the matter lies in the lack of prior notice provided to MRF before its status transitioned from a “third person” – a source of information – to a “contesting party.” This seemingly minor distinction carries significant weight, as the latter designation exposes parties to potential penalties under the Competition Act, 2002 (“Act”). The HC took a critical view of the CCI's lack of transparency, highlighting the potential for prejudice arising from such an opaque process. 

This blog delves into the MRF Ltd. v. CCI case, a judgment with the potential to disrupt the established playbook of CCI investigations. We will explore the relevant legal landscape surrounding the Commission’s investigative procedures, analyze the HC judgment and its reasoning, and assess the long-term sustainability of this ruling. We will further examine the potential implications for ongoing investigations and future enforcement strategies, considering the precedents set by the Apex Court’s ruling and the concept of suo moto cognizance by the Director General (“DG”). Will this decision force the CCI to revise its investigative procedures, or is it a singular event with limited long-term impact?

Navigating Legal Ambiguities: A Framework for Categorization and Transparency 

The Act, in its initial form, had a definitional lacuna regarding the term “party.” This ambiguity created uncertainty for entities drawn into the investigation proceedings of the CCI.  The distinction between the settled law cited by the CCI and the present case has been made relying on the alteration of scope of the term ‘party’, after the Competition (Amendment) Act, 2023 which relied on the report of the Competition Law Review Committee. Notably, crucial sections like Section 4(“abuse of dominant position”) and Section 26 (“procedure for inquiry”) relied on the term “party” without providing a clear definition. This gap in the legal framework left room for potential inconsistencies and lack of clarity regarding the rights and obligations of investigated entities.

The CCI in the instant case cited relevant judgments issued prior to the 2023 Amendment that introduced a specific definition for “party.” These cases include Excel Crop Care Ltd. v. Competition Commission of India, Cadila HealthCare Ltd. & Ors., v. Competition Commission of India & Ors., and Competition Commission of India v. Grasim Industries. While the legal landscape has evolved with the introduction of a formal definition in the Competition Commission of India General Regulations, these judgments remain significant. They underscore the considerable impact that an upgrade in status from a third party to a party has on an investigated entity.

The General Regulations, introduced in 2009, broadly define “party,” encompassing a diverse range of entities. This includes consumers, enterprises, and various authorities as outlined in the Act. Importantly, the definition extends to information providers, consumer or trade associations, the DG himself, and even the Central or State Governments or statutory authorities. Most significantly, it also includes enterprises against whom an inquiry or proceeding is instituted, along with any person permitted to join the proceedings or act as an intervener. This distinction between parties and third parties carries substantial weight.

Section 41(4) of the Act empowers the DG to investigate potential contraventions. Notably, it specifically authorizes the DG to seek information and production of documents from “third parties” – entities not yet designated as parties under investigation. This distinction is central to the court's reasoning. Entities categorized as parties face far greater consequences. Section 27 of the Act empowers the CCI to impose substantial penalties on parties found guilty of anti-competitive conduct. These penalties can be significant, reaching up to 10% of the average turnover or income for the preceding three financial years.

The court further scrutinizes Section 26, governing the Commission’s inquiry procedures. This section, in subsection (4), mandates that the DG forward a copy of the investigation report to the “parties concerned.” The MRF case serves as a prime example of how a lack of transparency in this process can raise concerns about due process. Despite being upgraded from a third party to a party under investigation, MRF wasn't given a copy of the DG’s report. This suggests the authorities continued to treat them as a mere third party despite their inclusion within the investigation.

Moreover, a speaking order requires the Commission to clearly explain the rationale behind their decisions, ensuring a fair and informed process for all parties involved. In the MRF case, the order changing their status from a third party to a party lacked a “speaking order” justification. This lack of transparency strengthens the court's argument that the CCI failed to provide MRF with proper notice under Section 26. Without proper notice and the opportunity to contest their inclusion as a party, MRF’s ability to effectively defend themselves was compromised.

Ensuring Fair Play: MRF Case and the HCs Scrutiny 

The HC judgment stems from a 2018 online tender floated by the Directorate of State Transport, Haryana, to replace worn-out tyres on their buses run by Haryana Roadways. The tender specifications called for the supply of new steel radial tyres in various sizes. However, a red flag went up when JK Tyres emerged as the sole bidder. The High-Power Purchase Committee (“HPPC”), responsible for overseeing procurements exceeding INR 1 crore, found several irregularities that raised suspicions of price rigging and cartelization. These suspicions stemmed from three key observations. Firstly, an unexplained price hike: The rates quoted by JK Tyres were considerably higher than the prices paid for similar tyres in previous purchases. This significant increase, without justification, triggered concerns about potential price manipulation, secondly, the unsuccessful negotiations: Attempts to negotiate a lower price with JK Tyres proved futile. Their insistence on the initial bid further fueled the suspicion of a pre-determined pricing strategy, and, thirdly, a pattern of sole bidding: This wasn't the first time JK Tyres emerged as the sole bidder. The HPPC noted that JK Tyres had been the only participant in three separate tyre tenders floated earlier. This recurring pattern added weight to the suspicion of coordinated activity among tyre manufacturers.

Based on these red flags, the CCI, on 1 November 2019 (“first order”), ordered a formal investigation by the DG to investigate the potential anti-competitive conduct in the tender process. Interestingly, at this stage, only JK Tyres was named as an “opposite party” in the investigation. Pursuant to the first order, notices were issued to MRF Ltd., starting with a notice dated 24.04.2020, calling for various particulars. This implies that the CCI, while suspecting irregularities, did not have enough evidence to implicate other tyre manufacturers, including MRF. Consequently, other companies manufacturing similar radial tyre models (Apollo, MRF, Birla, CEAT) were initially included as “third parties.” As third parties, they were expected to assist the DG in the investigation by providing relevant information and documents.

However, the plot thickened in August 2020. Through an order dated 26 August 2020, the CCI significantly expanded the scope of the investigation. This order included CEAT Ltd., Birla Tyre Ltd., Michelin Tyre Ltd., Continental, Apollo Tyres, MRF Ltd., and Bridgestone as “parties” to the investigation. However, despite being upgraded to a party, MRF argues they were unaware of this change in status until much later. According to MRF, they only received a copy of the initial investigation order dated 26 August 2022 on 01 March 2024, months after their designation as a party. Hence, this shift in status for MRF (and the other companies) lacked transparency and adherence to due process. Even in the case of Hyundai Motor India Ltd. v. CCI, the HC highlights the importance of transparency within the investigation. Here, the DG sought approval from the CCI to include a newly discovered party. This proactive approach ensures that the expansion of the investigation is formally sanctioned and communicated to all involved entities.

However, in the instant case, the absence of a prior notice, and a speaking order left MRF in the dark about the reasons for their upgraded status and the specific evidence implicating them in the alleged anti-competitive conduct. The HC, in its judgment, sided with MRF. The court’s decision emphasizes the importance of providing entities with proper notice and clear justifications for their inclusion as parties in CCI investigations. 

Forging Fairness: The Madras High Court's Impact on CCI’s Investigative Standards

The impact of the Madras High Court decision is expected to extend to the Cement Cartel Case. In 2019, the CCI took suo moto cognizance of the issue (Suo Moto Order 2 of 2019), and then unilaterally raised the status of multiple entities without prior notice. Given the established precedent, which grants the DG broad investigation powers, the current case is critical. The court's distinction, based on the post-2023 modification to the definition of 'party,' implies that the CCI's processes may need to be reviewed. Section 27 orders, according to the judgment, should be issued in response to a Section 26(4) report and should allow affected parties to address such orders. The current case establishes a third party's ability to request a reconsideration of their status on the basis that such an elevation may have negative consequences. The court's ruling emphasizes the need for the CCI to maintain transparency and procedural fairness by providing notice when changing the status of participating businesses, therefore protecting third parties' rights. 

The current case may ensure the application of natural justice principles, emphasizing the importance of following these principles in administrative rulings. Although the court did not explicitly address the issue of natural justice, it did indirectly accept it, implying that the CCI should strive to conduct its investigations and inquiries in accordance with natural justice principles. This decision means that the CCI should improve its openness and procedural fairness. Specifically, when the CCI changes the status of entities from third parties to parties under investigation, it must offer notice and a chance for these companies to oppose the new status. The court's decision emphasizes the need for the CCI to make speaking orders that properly clarify the reasons for its determinations, ensuring that impacted parties have a fair opportunity to comment and defend their views. Compliance with natural justice principles is critical to ensuring the integrity and fairness of the CCI's investigation processes.

While the judgment upholds fairness for investigated entities, some argue it may increase the procedural burden on the CCI. Issuing notices and providing opportunities to contest inclusion could potentially lead to delays in investigations. Additionally, the decision raises a valid question: if entities added mid-investigation deserve a chance to contest inclusion, shouldn't the same right be extended to those named from the outset? The judgment deviates from the existing legal framework, potentially creating a domino effect of challenges to other ongoing CCI cases. This could lead to delays and uncertainties surrounding investigations. Unless clarified at a higher judicial level, the decision might trigger a surge of challenges against the CCI's investigative procedures, further complicating ongoing cases.

Conclusion

In conclusion, the HC’s observations in MRF v. CCI helps in understanding the prospects of procedural fairness in CCI’s investigations. The case puts pressure on the CCI to be more transparent and ensure that the due process of law is afforded to the investigated parties. Although this decision may require moderations of the CCI’s procedures and may possibly affect investigative time frames, the focus on natural justice principles is a major improvement. This makes the application of competition law in India have a more balanced and fair setting in relation to the enforcement of the law.