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18 October 2018
By way of a landmark judgment issued on 12 September 2018 the Division Bench of the Delhi High Court (comprising Justices S Ravindra Bhatt and A K Chawla) clarified some important procedural ambiguities surrounding an inquiry by the Competition Commission of India (CCI) under the Competition Act 2002.
Cadila Healthcare Limited submitted a letter of appeal against an earlier 9 March 2018 judgment from the single bench (comprising Justice V Kameshawar Rao) of the Delhi High Court. On review, the Division Bench dismissed three out of Cadila's four pleas, holding as follows:
However, the Division Bench allowed Cadila's contention that its right to natural justice had been violated and directed the CCI cross-exam three witnesses specifically requested by Cadila.
Cadila initially filed a writ petition before the Delhi High Court under Article 226 of the Constitution alleging that the director general's investigation and report was null without a separate order under Section 26(1) of the Competition Act finding a prima facie case against Cadila. According to Cadila, as the director general had proceeded with its investigation without CCI authorisation, the CCI's order under Section 26(1) of the act had to be revoked.
In its 9 March 2018 judgment, the single bench dismissed the writ petition on all grounds.
The inquiry was initiated by the CCI based on information filed by three stockists (ie, M/s Alis Medical Agency, M/s Stockwell Pharma and M/s Apna Dawa Bazar of Ahmedabad, Surat and Baroda, respectively) which, along with another stockist (M/s Reliance Medical Agency of Baroda), filed complaints against the Federation of Gujarat Chemists and Druggists Association, Amdavad Chemist Association, Surat Chemists and Druggists Association, the Chemists and Druggists Association of Baroda, 25 pharmaceutical companies, including Cadila, and various carrying and forwarding agents.
It was alleged that when the informants approached the pharmaceutical companies or their carrying and forwarding agents for supply of medicines, they were denied on the alleged direction of the Federation of Gujarat Chemists and Druggists Association. Further, the informants alleged that the pharmaceutical companies were in tacit collusion with the federation or the district-level chemist associations and insisted on obtaining a no-objection certificate from the federation or associations.
By way of three orders dated 16 January 2018, 17 January 2018 and 17 November 2015, the CCI held that there was a prima facie case for the director general to investigate four cases under Section 26(1) of the Competition Act to determine whether the Federation of Gujarat Chemists and Druggists Association and the district-level chemist associations (and any other parties) were acting in violation of Section 3 of the act.
In Cadila's letter of appeal against the single bench's 9 March 2018 judgment, the Division Bench considered the following issues:
On the first issue, the Division Bench ruled that the director general's powers are not restricted to the matters within the complaint. The court rejected Cadila's reliance on the single bench's decision in Grasim Industries, where it was held that without a CCI order regarding a particular party's violation, the director general could not investigate. The court relied on the Supreme Court's judgment in Excel Crop Care Limited v Competition Commission of India, which set out the director general's powers in a broader sense:
if other facts also get revealed and are brought to light, revealing that the 'persons' or 'enterprises' had entered into an agreement that is prohibited by Section 3 which had appreciable adverse effect on the competition, the [director general] would be well within his powers to include those as well in his report… If the investigation process is to be restricted in the manner projected by the Appellants, it would defeat the very purpose of the Act which is to prevent practices having appreciable adverse effect on the competition.
According to the Division Bench, the CCI's understanding of a case is based on the information that it receives, which requires further investigation. During this stage, the CCI need not have all of the information about the alleged misconduct. Instead, it is only during further inquiry that the whole picture regarding any misconduct becomes clear. As such, the court held that the director general's investigation was appropriate.
In relation to the second issue, the Division Bench expressed some concern over the CCI's review power and whether this power should be considered administrative or statutory. The CCI was vested with review powers under the now-repealed Section 37 of the Competition Act. The question was how the CCI's review powers should be understood now. As per Section 38 of the act, the CCI may rectify a mistake in its order either on its own motion or by way of a party application.
The Division Bench distinguished the case at hand from the Google decision, wherein the CCI had reviewed its order. Cadila argued that as the CCI had accepted the review application in Google, it should also accept this application. The Division Bench highlighted that the Google court had relied on several other decisions which dealt with purely administrative powers and statutory powers for which no specific power was conferred to reach its decision. In the latter category, the Supreme Court has consistently ruled that Section 21 of the General Clauses Act 1897 applies. Section 21 specifically states that where a statute does not enable the recall of an order, notification or bylaw (note that all of these are legislative or quasi-legislative statutory powers), the power to recall still exists, provided that it is exercised in the same manner as the original power.
While answering the second question regarding the recall application, the Division Bench held that the Google decision had no bearing on the present case because the recall application in Google was filed before the director general had submitted its investigative report before the CCI. In the case at hand, Cadila submitted its recall application after the director general had submitted its report. Therefore, the CCI and the single bench did not err in rejecting the recall application.
The next point raised with regard to the second issue was whether the CCI had erred in holding that the question regarding the investigation into its conduct had been based on fraud or misrepresentation by a party. The Division Bench found the CCI's order irreproachable. The court drew a similarity between the high courts' inherent power under Section 482 of the Code of Criminal Procedure, stating as following:
for instance, the charge sheet disclosing prima facie materials reasonably disclosing the complicity of any accused is filed in court, the inherent power to quash proceedings is rarely, if ever resorted to.
Cadila had filed a 110-page recall application which contained complicated questions of law and detailed analysis of facts; therefore, by rejecting the application, the CCI had not acted erroneously.
On the final point regarding res judicata, the Division Bench found that the CCI or similar expert bodies should not ordinarily be hamstrung in their efforts by the application of technical rules of procedure.
On the third issue, the Division Bench accepted Cadila's disposition by stating that, although the CCI has discretion with regard to the acceptance or refusal of requests to cross-examin witnesses within the ambit of Regulation 41(5) of the Competition Commission of India (General) Regulations 2009, the CCI's reason for rejecting the request (ie, that it was dissatisfied) was inappropriate, as this was not a judicious exercise of its discretion. Therefore, the court ruled that the CCI had erred in rejecting Cadila's cross-examination plea.
On the final issue, the Division Bench relied on the decision in Pran Mehra v Competition Commission of India, which held as follows:
there cannot be two separate proceedings in respect of the company and the key-persons as the scheme of the Act, does not contemplate such a procedure. In the course of the proceedings qua a company, it would be open to the key-persons to contend that the contravention, if any, was not committed by them, and that, they had in any event employed due diligence to prevent the contravention. These arguments can easily be advanced by key- persons without prejudice to the main issue, as to whether or not the company had contravened, in the first place, the provisions of the Act, as alleged by the D.G.I., in a given case.
The court held that Cadila's grievance regarding the issuance of notices to its managing director and other officials under Section 48 of the act was without substance.
By rejecting three out of four pleas raised by Cadila, the Division Bench of the Delhi High Court not only upheld the decisions passed by the CCI and the single bench of the Delhi High Court, but also clarified the uncertainties regarding important jurisdictional and procedural issues. The only aspect on which Cadila succeeded centred on the cross-examination of the witnesses named under the review application.
This case is significant because the court has clarified when a recall application can be filed. Further, the court has stated that while exercising its discretion in permitting cross-examinations under Regulation 41(5) of the Competition Commission of India (General) Regulations, the CCI must act judicially. Finally, although the CCI had already clarified its policy regarding simultaneous proceedings, while dealing with the specific issue of whether proceedings against office bearers can be initiated under Section 48 of the act, the court reinforced its earlier stance, holding that bringing proceedings against the managing director and officials of a company is legal.
For further information on this topic please contact MM Sharma at Vaish Associates by telephone (+91 11 4249 2525) or email (firstname.lastname@example.org). The Vaish Associates website can be accessed at www.vaishlaw.com.
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