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The Delhi High Court has declared Section 22(3) of the Competition Act, 2002 as unconstitutional and void.
It has also decreed that Section 53E of the Act, as it existed prior to the amendment in 2017, is unconstitutional and void. The same is however subject to the final decision of the Supreme Court in the writ petitions challenging the Finance Act, 2017 which omitted the Section from the Act.
Additionally, it has also directed the Central Government to take expeditious steps to fill all existing vacancies in the Competition Commission of India (CCI), within 6 months.
The 152-page Judgement was passed by a Division bench headed by Justice S Ravindra Bhat in a batch of petitions by several auto producers, assailing various provisions of the Competition Act.
The genesis of the dispute arose from a CCI order holding all the car manufacturers including the petitioners guilty of anti-competitive practices through agreements for spares and after-sales services. They were held in contravention of Sections 3(4)(b), 3(4)(c), 3(4)(d), 4(2)(a)(i) and(ii), 4(2)(c) and 4(2)(e) of the Competition Act and a penalty of Rs. 2,544-crore was imposed.
The Petitioners argued that although CCI and the Appellate Authority are tribunals, the procedure under the Competition Act was anathema to judicial decision making and ultra vires Article 14 of the Constitution of India.
It was contended that the composition, manner of appointment, executive control over the CCI etc must, therefore, be in consonance with the doctrine of separation of powers and principles of preserving the independence of the judiciary.
Challenging the validity of Section 22(3) of the Competition Act, the Petitioners submitted that the section was “ex facie unconstitutional“.
The Section invests the CCI’s President with the power of a ‘casting vote’ when an even member tribunal is equally differing. It was submitted that no judicial tribunal with a multiplicity of members, which decides a lis, permits greater weight to the decision of one or some of its members.
The terms used, i.e. “meetings”, “voting”, “second” or “casting vote” and “quorum” are anathema to adjudicatory functions, it was argued.
“..The CCI’s hearing procedure ingrains the concept of the “revolving door” whereby members of the body participate in any proceeding at any given point of time, without any principle or pre-determined manner, essentially destroying the guarantee of fair hearing: this is enabled by Section 22(3) of the Act and violates the basic principle that one who hears must decide.”, it was further put forth.
Defending the Section, CCI argued that the practice of ‘casting vote’ was an effective and logical working tool as it enabled a majority decision in case of a deadlock.
After hearing the parties, the Court concluded that a casting vote was anathema to and destroys the Rule of Law in the context of the Indian Constitution. It opined that the principle of equal weight for the decisions of each participant of a quasi-judicial tribunal is undoubtedly destroyed by Section 22(3).
“The potential mischief which the casting vote provision can result in is that the Chairperson may well take recourse to the second or casting vote and tip the balance the other way and direct that a prima facie case exists in order to investigate into the matter further. There can be several such illustrations where the potential repercussions can be felt in the ultimate adjudicatory result. Consequently, the provision of Section 22(3) is incapable of a clear or neat segregation and has to be declared void in entirety.“
The Court, however, clarified that the proviso which mandates a minimum quorum of three members (including the Chairman) would stand on its own and survive.
It observed that the argument that the proviso to Section 22(3) could permit the possibility of the “revolving door”. It would, however, not result in its invalidity.
“..it is held that the mere circumstance that in a given case or group of cases, the practise of “revolving door” hearing is resorted to, would not ipso facto, constitute a valid ground to declare Section 22 invalid or arbitrary.”
The Court has nevertheless directed that when a case is set down for final hearing, the membership of the CCI should be constant. There would thus be no addition, deletion or substitution in the composition of the bench during the course of the final hearing. If at all, it becomes impossible to continue the hearing before the same bench, the matter would be heard afresh by the new bench even if the composition is partly common with the previous bench. The same has been directed to be assimilated in the form of regulations and followed by the CCI and all its members in all the final hearings.
Furthermore, the Court has asked CCI members to avoid “walk out and walk in” practice. It has directed that no member of the CCI should take a recess individually, during the course of the hearing or take a break to rejoin the proceedings later.
To enable the Chairman to ensure that substantial numbers (of at least five) are present at every substantial hearing and final hearing, the Court has directed the Central Government to fill all existing vacancies in CCI.
As far as the selection to the appellate tribunal under Section 53E was concerned, the court noticed the decisions of the Supreme Court in Madras Bar Association v. Union of India (2015) and Swiss Ribbons Pvt. Ltd v Union of India (2019).
Following the dicta of the Supreme Court that members should be chosen with the approval of the Chief Justice, and at least a judge of the Supreme Court, the Court held Section 53E- as it stood prior to amendment, cannot be sustained. The same is, however, subject to the decision of Supreme Court in the writ petitions challenging the Finance Act, 2017 which has omitted the Section from the Act.
With respect to the contention that CCI was unconstitutional for being in violation of the separation of powers principle, the Court concluded in negative. After perusing the entire scheme of the Act, the Court observed that Section 11 of the Act “sufficiently entrenches the office of the Chairman and the members of the CCI” and insulates them from arbitrary inroads by the executive.
It also concluded that the argument with respect to the illegality of the CCI’s procedure, in expanding the scope of inquiry under Section 26(1) was insubstantial as the proceeding at that stage is quasi-inquisitorial.
Section 27(b) of the Act and the provision for imposing penalties were also held to be Constitutional. The Court observed that the nature of the proceeding before the CCI and the procedure it adopts to impose any penalty gave sufficient safeguard to parties who were likely to be affected adversely, both as regards findings and the sanctions.
Partly allowing the plea, the Court also granted 6 weeks’ time to the Petitioners to appeal against the CCI order before the Appellate Tribunal, if they wished to do so.
Read the Judgement: