Non-Compliance With S.26(1) Of Competition Act: Gauhati HC Sets Aside Rs 5 Lakh Penalty Imposed On Star Cement Ltd By CCI

The Gauhati High Court recently set aside an order passed by the Competition Commission of India by which it imposed a penalty of Rs. 5 Lakhs on Star Cement Ltd. under Section 43 of the Competition Act, 2002 for non-compliance with the order of its Director General.

The single judge bench of Justice Kaushik Goswami further quashed the proceedings against Star Cement Ltd. (petitioner) and reviewed the order passed by the Competition Commission of India (CCI) under various provisions of the Competition Act, 2002 (the Act, 2002) on the ground that the same has been passed without fulfilment of the precondition of Section 26(1) of the said Act, 2002.

Facts

On September 08, 2016, Assam Real Estate and Developer Association filed information under Section 19(1)(a) of the Act, 2002 before the CCI, alleging that the petitioner company along with some other cement manufacturing companies have been indulging in cartelization and abuse of dominants to manipulate the prices of their respective brands of cement in North East Region of India.

Two cases were registered by the CCI on the said allegations and vide order dated December 06, 2016, the CCI formed an opinion that the petitioner company and some other cement manufacturing companies by seeking to stifle competition in the market through collusive practices have indulged in anti-competitive activities in violation of Sections 3(3) and 3(1) of the Act, 2002.

Therefore, the CCI under Section 26(1) of the said Act, 2002 directed the Director General to conduct an investigation into the matters and complete the investigation within a period of 60 days from the date of receipt of the mentioned order.

However, on December 08, 2017, the Joint Director General issued a notice under Section 36 (2) read with Section 41(2) of the Act, 2002, by which the petitioner company was directed to furnish various information as called for in the said notice. The order dated December 06, 2016, was not furnished to the petitioner company, despite the same being said to have been annexed with the said notice.

By letter dated December 19, 2017, the petitioner company requested the CCI to provide additional details and to date, the said details have not been furnished, the timeline for submission of the requisite information be extended.

Thereafter, the petitioner company was served with the impugned order dated December 06, 2016, passed by the CCI.

On May 30, 2018, the petitioner company filed an application for review and recall of the said impugned order dated December 06, 2016, passed by the CCI.

However, the said application filed by the petitioner was rejected by the CCI vide order dated August 08, 2018.

Aggrieved, by the aforesaid order of the CCI rejecting the review application as well as the order of the CCI drawing prima facie opinion against the petitioner company and the order of investigation thereof, the present writ petition was filed by the petitioner.

Pursuant to the registration of the investigation, the Director General issued notice to the petitioner company under Section 36(2) read with Section 41(2) of the Act, 2002 directing the petitioner company to furnish various information as enumerated in the said notice.

Though various responses and submissions are made by the petitioner, the CCI by impugned Order dated August 27, 2018, held that the petitioner company has not only failed to provide complete information to the Director General but also did not show any reasonable cause for not providing the same within the stipulated time and thereafter, by invoking the provisions of Section 43 of the Act, 2002 imposed a penalty of Rs. 5,00,000/- for non-compliance.

Aggrieved by the said order, the petitioner filed another writ petition before the High Court. The Court took up both the writ petitions together for hearing.

Court's Observation

The Court noted that the impugned order dated December 06, 2016, makes it apparent that the Director General has been directed to cause an investigation wherein no right of the parties is adjudicated.

“However, the basic requirement under the provisions of Section 26(1) of the said Act, 2002 requires the CCI Authorities to form a 'prima facie' opinion as regards existence of anti competitive activities in violation of the provision of Section 3 and/or 4 of the said Act, 2002 before directing the investigation into the matter. Therefore, the mandate of law is that it is mandatory for the CCI to arrive at a prima facie opinion upon reading the information received as to whether if the said information is taken on its face value, to be true, the provisions of Section 3 and/or Section 4 of the said Act, 2002 are being contravened or not. Therefore, an investigation cannot be directed by the CCI mechanically and/or in a routine manner,” the Court said.

The Court relied upon the judgment of the Supreme Court in State of Haryana & Others v. Bhajan Lal & Others (1992) Supp(1) SCC 335 wherein it was held that the power of the High Court to quash such registration of proceeding for investigation is akin to the powers of the High Court under Section 482 of CrPC for quashing FIR or complaints.

“….it is apparent that the information received does not disclose the existence of the prima facie case as regards contravention of the provisions of Section 3 and/or 4 of the said Act, 2002, and since the same is a sine qua non for CCI to direct the investigation, the decision of the CCI in directing investigation without fulfilment of the said mandatory pre-condition is totally without jurisdiction and is therefore, null and void,” the Court noted.

Thus, the Court held the impugned orders dated December 06, 2016, and December 08, 2018, passed by CCI were null and void.

“Therefore, the impugned Order dated 06.12.2016 having been passed without fulfilment of the precondition of Section 26(1) of the said Act, 2002, i.e., without arriving a prima facie finding under Section 3(1) and 3(3) of the said Act, 2002 is without jurisdiction and as such, is a nullity. Resultantly, the Review Order dated 08.12.2018 is also null and void,” the Court said.

Thus, the Court quashed and set aside the impugned orders dated December 06, 2016, and December 08, 2018, passed by the CCI.

“Consequently, in WP(C) No. 6342/2018, the impugned Order dated 27.08.2018 passed by the CCI imposing a penalty to the tune of Rs. 500,000/- (Rupees Five lakhs) under Section 43 of the said Act, 2002 also stands quashed and set aside,” the Court observed.

Citation: 2024 LiveLaw (Gau) 57

Case No.: WP(C)/6343/2018

Case Title: Star Cement Ltd. v. The Competition Commission of India & 4 Ors.

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