THE GOLDEN APPLE OF DISCORD: NAVIGATING THE DARK WATERS OF CCI’S INVESTIGATIVE COMPLEXITIES

The authors are Vibhor Maloo and Shubhanshu Dubey, 3rd year students at Hidayatullah National Law University, Raipur

INTRODUCTION

Recently, the Gauhati High Court quashed the proceedings of the CCI on three cement companies in the North-East Region over alleged cartelization by the companies. This came in the wake of the Delhi HC quashing another CCI investigation which commenced on the ground of diabolical litigation for harassment. The CCI alleged that predatory litigation would be covered under the scope of abuse of dominance under Section 3 and Section 4. The DHC held that the mediation has resulted in a settlement therefore, the continuation of the CCI proceeding would be contrary to the intent of the mediation.

This article critically examines the legal developments under Section 26(1) and Section 4 of the Competition Act, focusing on the evidentiary thresholds for forming a prima facie opinion (PFO) and the procedural complexities in cartelization investigations. Recent judgments of Star Cement and JCB India, emphasize the challenges of balancing procedural safeguards with the need for effective enforcement. The rulings caution against investigative overreach while underscoring the importance of indirect evidence in detecting covert anti-competitive conduct like cartelization. A more structured legal approach is needed to support the CCI's enforcement capabilities.

TANTALUS' REACH: THE INTRICACIES OF PROVING ANTI-COMPETITIVE CONDUCT

Under Section 26(2) of the Competition Act, if the CCI, upon receiving information under Section 19, finds a prima facie case then it can order an investigation. At this stage, the CCI only needs to form a prima facie opinion, without proving anti-competitive practices or providing a detailed factual analysis. The standard and burden of proof to discharge under Section 26 can be observed in the Inox Case under Section 26(2) where the CCI relied on the NCLAT judgment in Reprographic India v. CCI, whereby it was held that the informant must demonstrate a substantial basis in the allegations so as to seek an investigation, as mere unsubstantiated accusations would not amount to a prima facie case. It is understood that the initial burden of proof lies on the informant to establish with substantial certainty that a prima facie case exists against the opposite party. In the Maruti Suzuki Case, however, there has been a discrepancy in the CCI's procedure, as it initiated suo motu in response to an anonymous complaint with respect to anti-competitive behaviour by Maruti and the burden of proof was determined to be on the Respondent, underscoring a shift in their approach. Moreover, in the recent Delhi Vyapar verdict, the CCI utilized message screenshots as part of the evidence to initiate an inquiry into Amazon. These screenshots, forming part of the initial receipt of information, raised concerns about the CCI’s reliance on informal evidence and whether it met the standard of prima facie evidence required for initiating an investigation under the Competition Act, 2002. This reliance on informal evidence led to apprehensions about the robustness of the investigative standards employed by the CCI. The preliminary issue came out to be whether the use of such evidence, undermines the clarity of what constitutes as prima facie material for investigations, thereby calling for a more stringent and transparent assessment procedure to safeguard the credibility of competition law enforcement.

While, the procedural problems addressed in the above cases highlight the complexities of detecting anti-competitive behaviour, especially when informal or covert evidence is used. Building on which, the Neeraj Malhotra case expanded our scope, as to what constitutes an agreement under Section 4 of the Competition Act. Based on the precedent established in Registrar of Restrictive Trade Agreements v. W.H. Smith and Sons, it was determined that even subtle affirmative behaviours, such as a nod or a wink, could constitute an agreement. This perspective reflects the clandestine character of cartelization, in which overt acts are frequently minimized to avoid detection and punishment. By extending the meaning of agreements, the CCI aimed to overcome the inherent complexities of proving anti-competitive action. However, this raises questions regarding the evidentiary requirements required to prove such allegations, especially given the procedural disparities seen in recent cases. The intricacy of affirmative activities, as well as the reliance on informal evidence, such as message screenshots, highlight the combined problems of establishing covert agreements while adhering to stringent evidentiary standards. Thus, these occurrences underline the importance of a clear and demanding assessment method for balancing enforcement effectiveness with the credibility of competition law instruments.

Moreover, in Rajasthan Cylinders and Containers Ltd. v. Competition Commission, the Supreme Court underscored the inadequacy of economic evidence for cartelization, attributing this to the CCI's neglect in assessing IOCL's impact on the tender process. Lastly, in the case of Excel Crop Ltd., the Supreme Court affirmed the CCI's conclusions on bid rigging in the pesticide sector pursuant to Section 3(3)(d) of the Competition Act. The court expressed apprehensions regarding the sufficiency of the investigative framework, highlighting the necessity to validate economic data with circumstantial evidence. These concerns underscore the challenges in tackling subtle and clandestine practices such as cartelization while complying with rigorous evidential standards. These cases illustrate that maintaining a balance between the efficacy of enforcement and the credibility of competition law instruments is a persistent challenge.

REGULATORY OVERREACH? A JUDICIAL EXAMINATION OF CCI'S POWERS

The case developed after the Assam Real Estate and Developer Association lodged a complaint against Star Cement and other cement work-related manufacturing companies, alleging cartelisation and pricing manipulation through abuse of dominance in the North-East region. Subsequently, CCI initiated an inquiry pursuant to Section 26(1) of the Competition Act, but did not furnish essential facts to Star Cement and others. The question arose whether CCI’s orders hold validity and whether the penalties imposed on Star Cement, in light of the prerequisite of establishing a prima facie opinion under Section 26 (1), were fulfilled prior to commencing an inquiry on the said company. The Gauhati HC annulled the CCI’s rulings dated December 6, 2016, and December 8, 2018, and rescinded the Rs. 5 lakh penalty imposed by the CCI. The court determined that CCI failed to satisfy the necessary requisite of establishing a prima facie opinion before initiating the inquiry. In the absence of the same, the inquiry lacked proper and appropriate jurisdiction, ergo declaring the orders null and void. The court further cited and relied its verdict on the Supreme Court's ruling in Bhajan Lal, reiterating that the HC has the authority to quash the registration of investigative procedures as CCI's actions lacked legal foundation.

Similarly, in JCB India Limited & Anr. v. The Competition Commission of India & Anr.,  in which JCB and Bull Machines Private Limited (BMPL) were involved, the former accused the latter of indulging in anti-competitive practices. A suit had been filed under the Designs Act, 2000, in the Delhi High Court by JCB against BMPL in 2011. BMPL, in turn, approached the Competition Commission of India under Section 19(1) of the Competition Act, 2002, as JCB's suit was an abuse of dominance and a machination to deny entry into the market. Accordingly, the CCI conducted an investigation under Section 26(1) of the Competition Act by directing the Director General to conduct a search and seizure of the documents of JCB.

It reached the Supreme Court owing to the multiple writ petitions. On 26th August 2021, the Court made a note of settlement before the parties. The parties are directed to approach the Delhi High Court for early disposal of pending writ petitions. Whether the suit filed by JCB constitutes an abuse of dominance under Section 3 of the Competition Act, 2002. Whether the CCI had jurisdiction to investigate. The Court ensured that the settlement agreement is binding and the scope of the CCI's jurisdiction is further limited only to the scope of allegations made by BMPL under Section 19(1). The proceedings of the CCI are quashed with all material seized ordered to be returned to JCB, thus reaffirming the enforceability of settlements and limiting the investigative authority of CCI.

DAWN OF FAIRNESS: REVIVING EFFECTIVE COMPETITION THROUGH LEGAL REASSESSMENT

The Gauhati High Court’s ruling in the Star Cement case further elucidates the problem of investigative overreach by the CCI. The High Court annulled the CCI’s orders on the grounds that it failed to establish the requisite prima facie opinion before initiating an inquiry, leading to the conclusion that the inquiry lacked jurisdiction. This is directly comparable to the JCB case, where the Supreme Court limited the scope of CCI’s investigative authority to the precise allegations under Section 19(1). 

The CCI’s increasing reliance on less traditional forms of evidence, as seen in cases like Delhi Vyapar where screenshots were used to justify an investigation, raises concerns about the rigor of CCI’s investigative standards. This lack of stringent procedural safeguards is further evident in the Maruti Suzuki case, where the burden of proof was controversially shifted to the respondent in a suo motu investigation based on an anonymous complaint. Such deviations from established legal principles call for a reassessment of CCI’s investigative framework, particularly the need for adherence to procedural propriety and the rights of parties under investigation. The Director General (DG) has the authority to expand the scope of an investigation beyond the original information filed, including investigating allied and related conduct.

The JCB judgment reinforces these concerns by clarifying that CCI’s jurisdiction must be carefully circumscribed to prevent unwarranted interference in legitimate legal actions, such as the exercise of intellectual property rights under the Designs Act, of 2000. It highlights the delicate interplay between competition law and intellectual property rights, where legitimate protection of proprietary designs can easily be misconstrued as anti-competitive conduct. 

The Gauhati HC’s judgment on the CCI appears to undermine the Commission’s investigative autonomy by imposing procedural constraints that could hinder timely intervention in anti-competitive practices. Additionally, it risks weakening enforcement by prioritizing technicalities over the broader public interest in maintaining fair competition.

Section 26(1) requires the CCI to bring forth a prima facie opinion, which is meant to be a preliminary evaluation rather than a final evidentiary conclusion of anticompetitive behaviour by any organisation. However, the Gauhati HC  ruling appears to set a higher standard for this prima facie view than is usually necessary at this point of the proceedings. This might lead to a precedent that acts as an impediment to the CCI's ability to launch investigations without first obtaining extensive information, which is not always attainable prior to an inquiry into the issue at hand. The Gauhati High Court's reliance on the principles as set out in the case of Bhajan Lal, in order to overturn the CCI's probe demonstrates a strict interpretation of the procedural framework under Section 26(1). Albeit, this may be the way to go, the CCI's fixation on rigorous procedural compliance risks restricting its capacity to probe certain complicated anti-competitive activities like the sorts of cartelization, which sometimes rely on indirect evidence and nuanced conduct. Cartelization, per se, is inherently hidden, and there may be little apparent proof at the outset. The court's emphasis on the CCI's inability to establish a prima facie case raises worries that such an approach may discourage thorough investigations into anti-competitive acts, particularly when dealing with complex behaviours such as price-fixing and bid-rigging in the antitrust domain. 

CONCLUSION AND WAY AHEAD

The recent decisions of the Gauhati High Court in Star Cement and the Delhi HC in JCB India reveal substantial obstacles for the Competition Commission of India (CCI) in its investigation operations. While these decisions underline the significance of procedural compliance, they also highlight the possibility of restricting CCI's capacity to probe complicated anti-competitive actions such as cartelization. The necessity for a strong prima facie case may limit the discovery of covert acts like price fixing and bid rigging, which are frequently subtle and indirect. Moving ahead, a balance must be struck between procedural rigour and the flexibility required for the CCI to carry out its mandate successfully. Clear criteria for establishing prima facie cases, as well as a more comprehensive investigation structure, particularly with a focus on indirect evidence and economic analysis, might better equip the CCI to confront complex anti-competitive behaviour while protecting procedural rights.