Whether CCI has the Authority to Issue an Order for Additional Inquiry

On 21-12-2022, the National Company Law Appellate Tribunal (NCLAT) by its judgment¹ set aside the order² dated 31-8-2018 passed by the Competition Commission of India (CCI) in Case No. 73 of 2014, wherein CCI had held that the contravention of Section 4 of the Competition Act, 2002³ (the Act) was not established, and hence the case was ordered to be closed under Section 26(6) of the Act⁴. The CCI order⁵ was based on a supplementary report submitted by the Director General (DG). The Bench held that CCI can only direct further investigation in a case of closure and not where DG has submitted a report showing contravention of provisions of the Act.

Brief facts

On 3-12-2012, the appellant was allotted an apartment in DLF Regal Gardens, Gurgaon, for which the apartment buyers’ agreement was executed on 1-9-2012. A dispute was subsequently brought up in the month of January 2014 due to a number of arbitrarily written and biased elements in the agreement. On September 30, the appellant filed an information application before CCI, which was registered as Case No.73 of 2014. On receipt of the information application, CCI examined the report and noticed a prima facie case of abuse of the dominance provisions under Section 4(2)(a)(i) of the Act. CCI while passing an order under Section 26(1) of the Act on 4-2-2015 while directing an investigation by the DG, categorically noticed that the respondents were earlier also found involved in violation of the Act.

After the aforesaid order, the DG conducted a detailed investigation, and it was concluded that opposite parties (OPs) were a group said to violate the provisions of Section 4(2)(a)(i) read with Section 19(4) of the Act⁶. Even though the DG in its investigation report dated 18-3-2016 noticed the violation committed by respondents under Section 4 of the Act, CCI while exercising its jurisdiction under Regulation 20(6) of the Competition Commission of India (General) Regulations, 2009⁷ (the General Regulations), on 9-11-2016, directed the DG to conduct a supplementary investigation and submit a report. The DG concluded in the supplementary investigation report that “the OPs as a group were found to have higher financial strength; however, the same does not appear to bestow a position of strength to the OP group”. The present appeal has been preferred by the informant under Section 53-B of the Act⁸, against the order dated 31-8-2018⁹ passed by CCI under Section 26(6) of the Act.

DG’s findings in supplementary investigation

When evaluating OP’s dominance in the relevant market, the DG considered a number of variables, including the market shares of OP and other developers, the size and resources of the enterprise, the enterprise’s economic power, including its competitive advantage over rivals, and the reliance of customers on the company. The DG concluded its analysis of the data provided by the developers by noting that no developer, including the OP group, could be characterised as the dominant player in the relevant market during the relevant period. Instead, the market share was in the range of 8% to 9% in a fragmented market with a number of players. It was determined that the OP group had a better position than other developers in the relevant market during the relevant period based on an overall analysis of the financial data for the entire OP group. Even while the OP group has strong financial standing relative to its rivals, the DG has discovered that this does not give it the ability to act independently of the competitive pressures present in the relevant market throughout the relevant period.

Additionally, the DG noted that the extent to which the OP group could operate independently of competitive forces or affect its competitors or consumers in the pertinent market of “the provision of services of development and sale of residential apartments/flats in Gurgaon” in the pertinent period was negligible after taking all the aforementioned factors into account. In light of the foregoing discussion, the DG concluded that even though the OP group held top positions when compared to some factors, it was not possible to conclude that it possessed market dominance or power during the relevant period in accordance with Section 4 read with Section 19(4) of the Act even though it held top positions. CCI concludes that contravention of the provisions of Section 4 of the Act was not established in the case hence the case was ordered to be closed under Section 26(6) of the Act.

Contention before NCLAT

It was contended before the Tribunal that the order impugned is liable to be set aside since the order is based on its supplementary investigation report, for which direction for further investigation was given by CCI without being authorised under the provisions of the Act. It is submitted that in Belaire Owner’s Assn. v.DLF Ltd.¹⁰, based on almost identical facts, CCI found that DLF was enjoying a dominant position and that it had abused the same. It is pertinent to mention here that CCI in its order dated 9-11-2016 had taken a distorted shelter of Regulation 20(6) of the Competition Commission of India (General) Regulations, 2009 and on facts not appropriate to the present circumstances.

Analysis by NCLAT

Examining the provisions in Section 26 of the Act, it is clear that CCI has very little authority to order further investigation, especially when, as stated in Section 26(5) of the Act, the DG recommends that there has not been a violation of provisions of the Act. Instead, CCI must first invite any objections or suggestions, and then, under Section 26(7) of the Act, after taking the objections and suggestions into consideration the aforementioned Regulation 20 outlines the process for the DG’s inquiry, while CCI is given the authority to direct the DG for additional investigation under Regulation 20(6).

However, it can be inferred from Section 26 of the Act that Regulation 20(6) of the Competition Commission of India (General) Regulations, 2009 can be utilised to further the exercise of jurisdiction under Section 26(7) of the Act, which must be invoked in a situation where the DG, under Section 26(5), submits a report regarding non-contravention of the Act’s provisions. In any case, CCI was not authorised to grant an order for further inquiry by taking refuge under Regulation 20(6) of the General Regulations, 2009, and the same cannot be justified. As a result, the matter is sent back to the CCI so that it can issue a new order based on the first DG report, which is the report that the DG submitted on 18-3-2016.

Way forward

The author draws the conclusion that CCI has taken a skewed shelter under Regulation 20(6) of the Competition Commission of India (General) Regulations, 2009 and that its justification is based on the information that is inappropriate in light of the current situation. It is obvious that the emphasis is solely on “additional inquiry on certain concerns”. There is not even a hint of a proposal to grant the CCI the authority to completely alter the scope of an investigation or order in violation of the initial directive. According to Section 26 of the Act, CCI must issue the proper order if the DG submits a report outlining a violation of the Act’s requirements following an investigation. When the DG presents a closure report and CCI is satisfied pursuant to Section 26(5) of the Act, after inviting objections, only then may CCI issue a directive for additional inquiry pursuant to Section 26(7) of the Act. In a case of closure, additional inquiry is necessary in accordance with the Act, but not in a case where the DG has submitted a report indicating that a party or parties have violated the Act’s provisions.