Principled approach to Competition Law Enforcement in India
Published: Oct 05, 2016
STEERING through appellate challenges is an anathema which the Competition Commission of India (CCI) is currently facing in India after about seven years of notification of its substantive provisions related to anti competitive agreements and abuse of dominance. Upheld by the Supreme Court, the law mandates wide powers to CCI; and if not used judiciously can prove counterproductive to the objective of sustaining and promoting competition in India.
Amongst various challenges faced by the CCI at the appellate stage, the fundamental challenge is regarding the fair process of decision making. Inefficient decision making process leads to sub optimal decisions and can foster disrespect for competition law and for competition authority. In contrast, sound decision making promotes effective decisions and thus bolsters the legitimacy of competition authority.In absence of fair hearing, it is not possible to address other challenges faced by the CCI.
In December 2015, in a much debated cement cartel case, setting aside CCI order levying penalty of Rs. 6,300/- crores, the competition appellate tribunal (COMPAT) observed that the time has come for the Commission to evolve a comprehensive protocol and lay down guidelines for conducting investigation/inquiry in consonance with the principles of natural justice (PNJ). This article will analyse some of the recent orders passed this year in which the CCI has not been able to navigate through the challenges related to the violations of principles of natural justice. Further, the article while enumerating the benefits of having a fair and effective investigative and adjudicative framework suggest that the time has come for a principled base approach to competition law enforcement in India.
Trinity of Principles of Natural Justice
In a number of cases, COMPAT has made detailed analysis of the provisions of the Competition Act and the General Regulations framed under the Act and ruled that while performing adjudicatory functions, the Commission acts as a quasi-judicial authority and it is bound to act inconsonance with the principles of natural justice. This conclusion was founded on the judgement of the Supreme Court in CCI v SAIL - 2015-TIOLCORP-03-SC-CL-LB, in which the Supreme Court interpreted that the CCI functions as a quasi-judicial body.
PNJ is a concept of common law and signifies procedural principles developed by the courts, which every judicial, quasi-judicial and administrative agency must follow while taking any decision adversely affecting the rights of a private individual. Fundamental to PNJ is an opportunity for a fair hearing and defense, although no fixed procedure is demanded. Further PNJ includes the principle that one who hears must decide, fair hearing and passage of reasoned orders. As has been held by the Supreme Court in various cases, PNJ do not supplant the law of the land but supplement it. The concept of natural justice has undergone a great deal of change in recent years. In the past it was thought that it included just two rules namely: (1) no one shall be a judge in his own case (Nemo debetessejudexpropria causa) and (2) no decision shall be given against a party without affording him a reasonable hearing (audi alteram partem). A third rule has also evolved which provides that quasi-judicial enquiries must be held in good faith, without bias and not arbitrarily or unreasonably. In course of time, many more subsidiary rules came to be added to the rules of natural justice. Summing it, the aim of the PNJ is to secure justice or to put it negatively to prevent miscarriage of justice.
The Indian Administrative system owes a lot to British System and the notions there are worth considering on this point. As early as 1957 in UK, the Franks Committee Report of the Committee on Administrative Tribunal sand Enquiries, suggested a trinity of principles at the core of the tribunal system, namely: openness , fairness and impartiality. World-over this trinity still lays at the core of developing a tribunal system which is independent, professional, coherent, cost-effective and user-friendly. Without fairness in the decision making process, other elements of effective adjudicative system are nearly impossible to achieve. Fairness should not only be followed but also reflected in the decision making process and the decisions so as to get upheld at the appellate stages and to gain respect amongst stakeholders.
In India, the High Courts and Supreme Court have invoked these principles in innumerable cases and even quashed administrative, quasi-judicial or even judicial orders on the ground of violation thereof. As held by the Supreme Court in CCI v SAIL, the adjudicatory functions of the Commission are quasi-judicial in nature and thus it is bound to act in consonance with PNJ. The Competition Act has been given wide powers to authorities including those of inquiry, investigation and imposing penalties for violations. Though the Commission is having the powers to regulate its own procedure, the law clearly articulates that in the discharge of its functions, the Commission shall be guided by the PNJ.
PNJ is required to be followed in each and every case where an order adversely affecting a person is passed, except when the application of the particular facet of natural justice or all of them are excluded by legislation. Section 36(1) of the Competition Act mandates that the Commission to be guided by the principles of natural justice in the discharge of its functions. In other words, the principles of natural justice have been statutorily engrafted in the scheme of the Act and the Commission is bound to comply with the same in the exercise of its functions.
Nature of challenges related to PNJ
Lack of concrete evidence in arriving at decisions, lack of economic analysis in the findings of the commission, breach of confidentiality in the applications and information under consideration submitted by various parties are some of the grounds on which the orders of CCI are being challenged in the COMPAT and the judiciary. As described above, here the focus will be on the fundamental issue related to the fair decision making and the challenges related to violation of PNJ.
One challenge relates to the violation of principle that one who hears must decide. COMPAT in chemist and drugs distribution case - 2015-TIOLCORP-06-COMPATquoted Supreme Court and held that very person who accords the hearing must also submit the decision. Further, if a successor in the CCI decides the case without giving a fresh hearing, the order would stand vitiated having been passed in violation of the PNJ. Succinctly this implies, one who hears must decide. This is a cardinal principle and sustains on the footing that violation of this principle can have adverse impact on the comprehension, analysis and outcome of the dispute in question.
In Narendra Explosive Ltd case - 2016-TIOLCORP-35-COMPAT, the COMPAT held that impugned order is vitiated due to the violation of the principles of natural justice inasmuch as the arguments were heard by the Commission comprising the Chairperson and three Members but the order was passed by the Chairperson and four Members. In the same case, another ground given by COMPAT for holding the impugned order to be legally unsustainable was that the Commission did not deal with and decide the objections filed by the suppliers to contest the findings and conclusions recorded by the Dy. DG. COMPAT held that the impugned order of CCI is legally unsustainable and is liable to be set aside.
Lack of opportunity to contest evidence also amounts to unfairness. In BCCI case - 2015-TIOLCORP-07-COMPAT, the COMPAT did not make any determinations on the merits as it found the CCI's findings to be legally unsustainable and liable to be set aside due to PNJ breaches which included not providing the BCCI an opportunity to contest evidence used against it. COMPAT explicitly held that a failure by the CCI to apply and understand basic principles of natural justice can very well lead to a failure of justice itself.
Further another interesting aspect of violation of PNJ is at the stage when the DG submits its investigation report to CCI. This aspect came into question in recent case of Airlines Fuel Surcharge Cartel (FSC) case - 2016-TIOLCORP-12-COMPAT. In Airlines FSC case, CCI disagreed with the findings and conclusion recorded by the Jt. DG and held that the appellants have acted in a concerted manner in fixing and revising the FSC rates and thereby contravened the provisions by forming cartel under Section 3(1) and Section 3(3)(a) of the Act. It was rightly argued by the parties in COMPAT that the CCI did not give any notice to the incorporating the reasons for disagreement with Jt. DG report and opportunity to file objections qua such reasons and make arguments justifying their position. COMPAT held that the objections raised by the appellants regarding violation of principles of natural justice by the DG were quite serious and the Commission was duty bound to consider and decide the same before delving into the merits of the findings recorded in the report of the DG. COMPAT further held that that if CCI disagrees with certain findings of the report of the DG, a show-cause notice must be issued along with an opportunity extended to the opposite parties to file their response.
Another important aspect is of fair hearing at the stage of levying penalty on the violators. As per the provisions of the Act, the CCI has got discretion in matters of levying penalty. In May, 2016 COMPAT, upheld the Commission's finding that there was a LPG cylinders - 2016-TIOLCORP-34-COMPAT cartel. But on the issue of penalty, COMPAT held that CCI shall decide the issue relating to imposition of the penalty on the appellant afresh after giving an opportunity of hearing and then pass appropriate order in accordance with law. Quoting the precedents the COMPAT observed, if there is discretion, authority is bound to take into account aggravating or mitigating circumstances and exercise discretion laid down under the law, as in the absence of reason, the discretion tends to become arbitrary. It further directed CCI to pass a speaking order whether or not penalty in terms of Section 27(b) should be imposed and if so at what rate. Speaking orders on the issue of levying penalty are also critical aspect of the competition law enforcement; as such speaking orders bring clarity and certainty while reinforcing the confidence of market players on the working of CCI.
Another interesting aspect came in Kerala Film Exhibitors Federation case - 2016-TIOLCORP-36-COMPATdecided in April, 2016 by COMPAT. In its report establishing violation, DG without giving any notice discussed the role of two office bearers of the Kerala Film Exhibitors Federation and opined that they were the key decision-makers on behalf of the federation and instrumental in anti competitive activities. The CCI holding them guilty, also gave no notice proposing to impose penalty and debarring the office bearers from participating in the affairs of federation, thereby giving no opportunity of hearing to them to represent their cause. COMPAT observed that under section 27(g), the Commission is vested with omnibus powers to pass such other order or issue such direction as it may deem fit, but that power has to be exercised in consonance with the principles of natural justice which the CCI is bound to comply with in view of Section 36(1) of the Act. Thus COMPAT concluded that part of the CCI order imposing penalty on the office bearers and debarring office bearers is liable to be quashed due to violation of the principles of natural justice.
The question whether the CCI could penalise the individuals by invoking Section 27(g)and that too without giving them action-oriented notice and opportunity of hearing came before COMPAT in the case of All Kerala Chemists and Druggists Association - 2016-TIOLCORP-19-COMPAT, decided by COMPAT in May, 2016.COMPAT held that under Section 27(g), the Commission cannot make an order or issue a direction which would directly or indirectly impinge upon the provisions of other statutes, in this case provisions contained in the Travancore Cochin Literary, Scientific and Charitable Societies Registration Act, 1955, rules,regulations and by-laws made thereunder providing for the tenure of the elected office-bearers. COMPAT held that CCI cannot use its discretion to pass order having effect of directly or indirectly curtailing the tenure, right to exercise powers and discharge the functions of the duly elected office-bearers under a statute. Further, it noted that such direction of CCI is liable to be quashed for the simple reason that before issuing direction effectively curtailed the tenure of the office bearers, the Commission did not give any notice or opportunity of hearing.
Benefits of building image of a Fair Regulator
As per the concept of Proportionate Dispute Resolution, ‘Getting it right first time' is regarded as being critical. In such cases, as there is better decision-making at first instance, there will be less need for recourse to other forms of available redress including appellate tribunal and the courts. As noted by COMPAT in cement case, much of the appellate litigation would be obviated if a just and fair procedure is adopted for conducting investigation, inquiry and passing of orders by CCI. Sound decision making through fair process will ensure that there is optimum use of resources available at disposal of the CCI and time saved can be put for other important activities including Competition Advocacy, under the wide mandate of the CCI.
Procedural impropriety strikes at the base of a sound administrative adjudicative framework and should be avoided at any cost. Well-reasoned order can be easily defended right up to the appellate levels. Such orders will also ensure that CCI is able to combat the challenge of collection of fines by the violators. Friction between the courts and administrative system is unavoidable and is necessary instrument for checks and balances in the Indian legal framework. This will also help in evolution of country specific jurisprudence and competition principles which will guide the Commission working later on.
Following a principled approach will help in numerous ways in creating a better image of the CCI. First, it will generate a confidence in the independence and impartiality of the authority. Second, it will help in better utilisation of resources as the cases would not be needed to be revisited. Third, laying down guidelines for conducting investigation as mandated by COMPAT will bring in clarity amongst the market players, will lead to transparency and due process of law will be ensured. Fourth, speaking orders will lead to development of sound competition law jurisprudence in India. Thus following PNJ will help in transparency, independence, predictability, thereby ensuing legitimacy and respect for the authority.
Way forward: Principled Approach to Competition Law Enforcement
Lack of effective transparency and due process has a broader economy wide impact and such uncertainty may hurt the ability of firms to do business effectively. As noted by COMPAT in Airlines FSC case, failure by CCI to give effective opportunity to firms to show that they had not formed any cartel for jacking-up fuel surcharge has not only resulted in gross violation of principles of natural justice, but has also caused prejudice to them. In these formative years, this learning phase will consolidate the functioning of CCI if CCI is able to tackle these challenges effectively. As held by COMPAT, the time has come for the CCI to evolve a comprehensive protocol and lay down guidelines for conducting investigation/inquiry in consonance with the principles of natural justice (PNJ). About seven years of active enforcement has given significant lessons for the commission to introspect, and now time has come for CCI to reflect the principled approach to competition law enforcement in its working.
(Saket Sharma works as an Associate Fellow at CUTS Institute for Regulation & Competition, New Delhi.He is a PhD Scholar at Faculty of Law, University of Delhi. Views are personal and comments are welcome at email@example.com)