Hyundai faces 420 cr penalty after Madras HC dismisses challenge to CCI DG’s jurisdiction

The Madras High Court has dismissed the appeal filed by Hyundai Motor India Limited contesting the proceedings initiated against it by the Competition Commission of India (CCI) in 2011..On Monday, a Division Bench of Justices HG Ramesh and RMT Teekaa Raman passed an order confirming an earlier single judge judgment which had dismissed Hyundai’s 2011 writ petitions..Hyundai was represented by Senior Counsel Vijay Narayan and advocate AR Karunakaran briefed by a team from M/s. IPN Associates. CCI was represented by Additional Solicitor General G Rajagopalan assisted by advocate P Mahadevan..The Dispute.In January 2011, one Shamser Khan approached the CCI, levelling allegations of anti-competitive restriction on the supply of genuine automotive spare parts against three major automobile companies – Honda Siel Cars India Limited, Volkswagen India Private Limited, and Fiat India Automobiles Limited..The CCI took cognisance of the same and tasked the Director General (DG) with investigation into the complaint..In April 2011, the Additional Director General (ADG) submitted a report alleging that similar anti-competitive practices were being indulged in by other car manufacturers as well. Therefore, permission was sought to expand the scope of the investigation to include other car manufacturers, including Hyundai..In response, the CCI passed an order allowing permission to expand the scope of the investigation to cover a total of 14 car manufacturers. Consequently, the DG issued a notice to Hyundai in May 2011..Hyundai approaches Court.Hyundai approached the Madras High Court through two writ petitions, challenging the CCI order which had expanded the scope of the investigation. Another manufacturer, Nissan also filed a similar writ petition..A single judge eventually dismissed Hyundai’s petitions in February 2015. Hyundai filed appeals against this verdict, which were then posted before the Division Bench..An interim order was passed in April 2015 directing that the CCI not pass any final orders pending the disposal of the appeals in the High Court..However, in August 2015, the CCI passed a final order imposing a collective penalty of over Rs 2500 crore on the 14 car manufacturers. Hyundai was awarded a fine of Rs 420 crores. This was done overlooking the High Court’s earlier stay on final orders by the CCI..This punitive order was kept in abeyance by the CCI pending the disposal of the writ appeals, after it admitted oversight. The Court was informed that the final order was erroneously passed owing to a communication gap between the CCI and their counsel..By this time, Nissan had withdrawn its case from the High Court, with plans to move the now defunct Competition Appellate Tribunal..Questions before the Court.Hyundai’s case was based on the premise that the DG/ADG of the CCI had initiated suo motu investigation against it, when the scope of inquiry was expanded. Hyundai contended that the DG did not have powers to initiate such suo motu proceedings. Therefore, the following questions emerged:.Whether the DG of the CCI has suo motu power to initiate an investigation?Whether the DG has overstepped the jurisdiction vested in him by law?.It was also contended that for the CCI to order an investigation, there has to be a formation of opinion regarding whether there is a prima facie case. This sine quo non requirement was absent as far the expansion of inquiry to include Hyundai was concerned. .The single judge, however, re-framed the question to assume a more factual character, as follows,.“…whether on the facts and circumstances of the case in hand, what was done by the Director General, the second respondent herein could amount to suo motu initiation of the investigation or not.”.In ruling against Hyundai, the single judge took the view that the actions of the DG, CCI did not amount to initiation of investigation suo motu..This was because the original complaint itself indicated that the investigation should extend to any vehicle manufacturer found indulging the alleged anti-competitive practices..“Therefore, the very contention of the main complaint was not only against three manufacturers. The learned single Judge, in respect of the first contention held that the permission to expand the scope of the enquiry cannot be construed as the initiation of investigation suo motu by the Director General.”.Division Bench rules no infirmity in CCI order against Hyundai.The Division Bench echoed the view taken by the single judge that the DG’s acts do not amount to suo motu initiation of investigation against Hyundai. Rather, it was based on the CCI’s April 2011 order that the DG issued notice to Hyundai..“After hearing both the parties and after going through the impugned order passed, we find that the second respondent Director General did not initiate suo motu enquiry and it was based upon the direction of the Competition Commission dated 26.04.2011 wherein, investigation was ordered against the appellant herein.”.In particular, the Court made note of the following observations,.CCI acted under Sections 19 (1)(a) read with Section 26 (1) of Competition Act.It was pointed out that the CCI is empowered to act on receipt of information from any person, which includes DG as well under Section 26 (1) of the Competition Act, 2002 (Act). Section 2(1)(x) of the Act also includes an artificial jurisdiction person under its definition of person. Hence, as in the instance case, information given by the DG would also enable the CCI to order investigation into anti-competitive practices..Furthermore, a 2007 Amendment has ensured that the CCI can act on its own knowledge or information, and not just on complaints under Section 26. Therefore, the Court held,.“Considering the object of the Act, it is the duty of the first respondent Competition Commission to investigate into the matter by giving notice to the concerned Car Manufacturers…hence, the contention of the learned counsel for the appellant that the Director General suo motu expanded the proceedings to other Car Manufacturers including that of the appellant is factually incorrect.”.No need for separate CCI opinion in case of supplementary information in the same case.Another contention addressed by the Court was whether there was a need to for the CCI to form a separate opinion before enlarging the scope of investigation by its April 2011 order..This question was also answered in the negative, given that the order was only passed in view of additional information in a case where the CCI had already formed its opinion..Moreover, the proviso to Section 26 (1) of the Act also allows clubbing of new information in a case with previous information if they are substantially the same. The Court noted that such supplementary information does not require subjective satisfaction..DG was acting under Section 41 (1) of the Competition Act.Further, the additional information was furnished by the DG in terms of his function to assist the CCI under Section 41 (1) of the Act. Thus, the argument that the DG had overstepped his jurisdiction also stood dismissed..“…the Director General merely placed an additional information before the Commission in his memo dated 19.04.2011. If the Commission had not issued a direction on 26.04.2011, the Director General could not have proceeded against all other car manufacturers..The direction issued by the Commission on 26.04.2011 would tantamount to a direction under Section 41(1) of the Act. Therefore, in our considered view, the question of overstepping of jurisdiction does not arise and finally that contention also stands rejected for the above said reason.”.On these grounds, the Court concluded that there is no irregularity or infirmity in the order passed by the DG, CCI against Hyundai, and dismissed the writ appeal on merits..Read the Judgment: