Power of Director General to investigate under the Competition Act – What the Delhi HC held

Power of Director General to investigate under the Competition Act – What the Delhi HC held

Aditi Singh

The Delhi High Court has held the Director General (DG) has the power to proceed with his inquiry against parties who are not specifically named in the general complaint made to the Competition Commission of India (CCI).  Absence of a specific direction against a party in an order passed in terms of Section 26(1) of the Competition Act, 2002, would also not deter the DG to proceed against it, the Court held.

The power of the DG is not limited by a remand or restricted to the matters that fall within the complaint, the Court clarified.

It observed that if during the investigation, facts reveal the existence of a contravention beyond scope of the complaint, the DG would be well within his powers to include those as well in his report.

The judgment was pronounced by a Division Bench comprising Justice S Ravindra Bhat and AK Chawla in a Letters Patent Appeal by Pharmaceutical company Cadila Healthcare against an order passed by the CCI directing the DG to investigate the conduct of “such other parties who may have indulged in such contravention”.

Cadila’s recall/review applications against the direction were also rejected by the CCI. A single judge Bench of the Delhi High Court had upheld the investigation by the DG pursuant to these directions.

The Court iterated that the trigger for the assumption of jurisdiction of the CCI is receipt of complaint or information, and when it is of the opinion that there exists a prima facie case, an order under Section 26(1) can be issued.

Although the order is administrative in nature, it should disclose application of mind and should be reasoned.

It, however, rejected Cadila’s argument that a specific order by CCI applying its mind to the role played by it was essential before the DG could have proceeded with the inquiry.

In the absence of any specific order under Section 26 (1), the “subject matter” of inquiry would include not only the one alleged, but other allied and unenumerated ones, involving third parties as well, the Court said.

It observed,

The express terms of the statute.. Section 26 (1) talks of action by CCI directing the DG to inquire into “the matter”. At this stage, there is no individual; the scope of inquiry is the tendency of market behaviour, of the kind frowned upon in Sections 3 and 4.”

At the stage when the CCI takes cognizance of information, based on a complaint, and requires investigation, it does not necessarily have complete information or facts relating to the pattern of behaviour that infects the marketplace. Its only window is the information given to it. Based on it, the DG is asked to look into the matter. During the course of that inquiry, based on that solitary complaint or information, facts leading to pervasive practises that amount to abuse of dominant position on the part of one or more individuals or entities might unfold.”, it further stated.

The Court also held that a recall/review application can be filed during the investigation and not after the submission of the report by the DG. Once the report is submitted, an action/procedure under Section 26(5) or 26(8) gets triggered. This takes the case out of the realm of 26(1) or 26(2) of the Act. The only remedy for the parties, then,  is to argue the report before the Commission and not on the order u/s. 26(1).

It further held that if the DG’s report apparently discloses some prima facie material, the Commission can proceed with the next stage of the investigation, notwithstanding the fact that the order directing an investigation was as a result of fraud or misrepresentation by any party.

The Court, nonetheless, accepted Cadila’s application for permission to cross-examine three witnesses who had deposed before the DG.

Observing that CCI’s discretion to permit or refuse cross-examination of witness is to be exercised judiciously, the Court held that CCI erred in refusing to grant cross-examination to Cadila for giving a non-satisfactory justification. The Commission had also stated that statements of these witnesses were not relied upon in the DG’s report, hence cross-examination was not necessary.

This court is of the opinion that such reasons are not germane; mere “dissatisfaction” does not imply judicious exercise of discretion. As regards the reliance by the DG in his report is concerned, the grounds of cross examination are necessarily wider; it is avowedly to establish whether the witnesses were credible and whether any part of their statements could be relied on; furthermore they can be cross examined on relevant facts, which are not necessarily confined to what they depose about.”, the Court observed.

The Court, thus, dismissed Cadila’s appeal while allowing it to cross-examine the three individuals named by Cadila in its application before the Commission.

Cadila Healthcare was represented by Senior Advocate Krishnan Venugopal alongwith Advocates Rahul Goel,  Anu Monga, Neeraj Lalwani, Rishabh Arora and Nitish Sharma.

The Competition Commission was represented by Advocates Samar Bansal, Shreya Singh, Manan Shishodia and Aakansha Kaul.

Read the judgement:

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