CCI's Order For Preliminary Enquiry Does Not Attract Civil Consequences; Writ Court Can't Interfere : Madras HC

A bench of Justice T. Raja and Justice T.V. Thamilselvi, while looking at a case pertaining to abuse of dominant position through price parallelism and cartelization by five tyre manufacturers controlling 90% of tyre production in India, stated that "There is no iota of prejudice that has been suffered by the appellant or supporting private respondents and thus, any irregularity in following the procedure of the Commission will not make the proceedings of the Commission invalid, unless such irregularity affects the merits of the case."

The facts of the case are as follows:

AITDF (All India Tyre Dealers Federation – respondent no. 3) had sent a representation to the MCA (Ministry of Corporate Affairs – respondent no. 1) that the five tyre manufacturing companies (M/s MRF, Apollo, CEAT, JK and Birla), have control of 90% of tyre production in India and they have engaged in abusing this dominant position through price parallelism. According to AITDF's representation, these five companies increased the price of tyres when the price of rubber increased but subsequent deduction in tyre prices did not follow when prices of rubber decreased, which had resulted in huge loss to the public. They did this under the aegis of the cartel association – ATMA (Automotive Tyre Manufacturers Association- respondent no. 9). On this basis, AITDF had sought suo motu action against the domestic tyre manufacturers alleging that none of the leading domestic tyre manufacturers rolled back their tyre prices even after a steep drop in the rubber prices. MCA forwarded this communication from AITDF to CCI under S.19(1)(b) of the Competition Act, requesting CCI to inquire into the matter. CCI then directed the MCA and AITDF to address preliminary arguments. ATMA requested an inspection of documents at this stage and was allowed. MCA sought exemption from further proceedings on the basis that they had no further submissions to make and that was allowed too.

After considering the written submissions made by AITDF and ATMA, the CCI passed an order under S.26(1) of the Competition Act holding that CCI prima facie believed that the case required further investigation by the Director-General (DG-respondent no.3). A writ petition was then filed in Madras High court by the appellant but the investigation by Director-General and the CCI enquiry were permitted to go on and when the DG's report was completed and submitted to CCI, the writ petition was dismissed. Then a writ appeal was filed in the same court which passed an interim order directing the CCI to keep the report in a sealed cover. This appeal is an ongoing one and has been filed under Clause 15 of Letters Patent against the order dismissing the writ petition passed by a learned single judge.

Now the case of the appellant (M/s MRF ltd.- One of the 5 tyre manufacturers, the rest four are respondents in this case), represented by Senior Counsel Shri G. Masilamani was that neither did AITDF (All India Tyre Dealers Association – 4^th respondent) in its representation to MCA, show any proof of price cartelization nor did this representation follow regulation 2(j), 10(2), 11(2) and 15 of CCI (General) Regulations, 2009 and thus, if the reference itself is totally invalid, non est in the eye of the law, all actions done on the non-existing reference shall be without jurisdiction including the order passed by the CCI invoking S.26(1) of the Competition Act. Further assailing the order of the learned single judge (who had dismissed the writ petition), the learned Counsel stated that the findings of the single judge that CCI had suo motu power to inquire and order an investigation in this matter, was faulty and that the learned single judge had failed to consider whether the regulations given in 15(3), 40 and above-mentioned regulations are mandatory or directory, although this issue was specifically raised. Finally, talking about how CCI's action was barred by res judicata considering that a similar issue in June-July, 2011 was adjudicated upon by the CCI and was dismissed, the same issue could not be raised once again and the learned single judge had overlooked this fallibility, argued the senior counsel.

Arguments for the respondents: The respondents, in this case, included the four other tyre manufacturers (Apollo, CEAT, JK and BIRLA), CCI, AITDF, ATMA and MCA and DG. While CEAT tyres (respondent no. 4) supported the appellant's argument regarding CCI order to direct investigation being barred by res judicata and non-compliance with regulations 10(2), 10(3) and 11(2) and regulation 15(3), makes the reference of MCA to CCI invalid and thus, had to be declared so and the appeal should be allowed.

ATMA (9^th respondent) argued that they are not involved in conduct and management of affairs of any of its members and when MCA forwarded the letter to CCI, it did not comply with the Regulations, thus acting in gross violation of Regulation 10 and that the CCI failed to appreciate that there was not enough material under the reference to form a prima facie opinion. While the learned Additional Solicitor General appearing for respondents 2 and 3 (CCI and Additional director-general, CCI) urged the Court to dismiss the writ appeal because the appellant had not come with clean hands and had abused the process of the court by committing forum shopping.

The Judgment

Whether the reference made by MCA to CCI under S.19(1)(b) of the Competition Act is invalid and non est in law? And whether regulation 15(3) is mandatory or directory?

The court at the outset cleared that the power of the CCI to go into the merits of allegations given in the reference made is within its domain as it is the original adjudicating authority and thus, the writ court should not interfere at the preliminary stage. The court stated that "CCI being the fact-finding authority shall be left free to find out the truth of the allegations after conducting a proper inquiry and thus, any interference at the stage of investigation would certainly amount to usurping the original jurisdiction of such authority unless the interference is so warranted for want of jurisdiction."

The bench also clarified that Regulation 15(3) has to be read in sync with regulation 15(5), regulation 40, S.15 ( c ) and Section 19. Regulation 15 deals with the procedure for scrutiny of information and reference 15(5) specifically states that nothing contained herein shall preclude the commission from using the contents of the information/reference to inquire into any possible contravention of any provision of the Act, which, the court said, would empower the CCI to consider the contents of the information received in any manner as it deems fit to inquire into any possible violations of provisions of the Act, notwithstanding Regulation 15(3). The court further looked at Regulation 40 which states that failure to comply with any requirement of these regulations shall not invalidate any proceeding merely by reason of such failure unless such failure has resulted in miscarriage of justice.

The bench thus stated that "In our considered opinion, a conjoint reading of Regulation 15(3), Regulation 15(5) and Regulation 40 and Section 15( c) would indicate the clear wisdom of the legislature that non-compliance of regulations in each case shall not invalidate the proceedings initiated by the CCI. Only in two situations, namely, if there is an irregularity or non-compliance of the procedures affecting the merits of the case, regulation 15(3) will come into operation. Secondly, if there is any irregularity or non-compliance of procedures or regulations resulting in miscarriage of justice alone, regulation 15(3) will take effect."

Thus, the court noted that no miscarriage of justice has been caused to the appellants and nowhere any party to the CCI proceedings had complained that any prejudice had been caused to them. Further, the court recorded that a conjoint reading of Regulation 15(3), Regulation 15(5) and regulation 40 and S.15 (c ) "will certainly make Regulation 15(3) as directory, but not mandatory and if the makers of the law intended to hold any defective reference invalid under Regulation 15(3), they would not have brought in Regulation 15(5)."

Whether the order passed by CCI under S.26(1) of the Competition Act, liable to be quashed?

Regarding this, the court looked at the scope of S.26(1) as laid down in Apex Court's judgment of Competition Commission of India v. Steel Authority of India, where it was held that, "The order or direction issued under S.26(1) after forming a prima facie opinion is a direction simpliciter to cause an investigation in the matter and it does not effectively determine any right or obligation of the parties to the list, because it passes the interim order or direction at the preliminary stage without recording a finding which would bind the parties and it would not make the direction an order which affects the rights of the parties and thus, such an order is not appealable."

And the court, while looking at the Apex court judgment of Maharastra State Board of Secondary and Higher Secondary Education and another v. Paritosh Bhupeshkumar Sheth & Ors., had held that the Court should avoid any decision or interpretation of a statutory provision that would render the system unworkable, this bench held that "The allegations made by AITDF that appellant/writ petitioner had joined hands with his cartel and unfairly decided the price fixation of tyres and tubes, as a result of which the common man, was and is put to immense prejudice and the CCI, which had been constituted for such purposes can alone go into these issues and order investigation and this investigation cannot be interdicted for some procedural lapses."

"Construction of rules or procedures which promotes justice has to be preferred because rules and procedures are the handmaid of justice and not its mistress, therefore, it shall not override the object of securing the ends of justice." – the court observed.

The court also clarified that an order for investigation passed under S.26(1) is a preliminary order and does not attract any civil consequences and does not determine the issue raised against the parties finally and any interference by the court at that stage would only allow the parties to escape the investigation itself that would defeat the object sought to be achieved by the Act and thus, the court held that the learned single judge was right in not interfering with the order of CCI and in dismissing the petition.

Regarding the res judicata argument, the court held that the AITDF complaint relates to the year 2011-2012, 2012-2013 and 2013-2014 and not the year 2008 (relating to which the earlier complaint was filed) and reading S.31 of Competition Act with S.33, the court stated that "CCI is empowered to inquire into the fresh complaint for each year, for S.27 of the Competition Act empowers the CCI to pass an adjudicatory order for each year of cartelization."

Whether the conduct of ATMA in approaching Delhi high court would amount to forum shopping?

Here the court, after considering the judgments in Taylor v. Taylor, Nazir Ahmad v. King Emperor and AR Antulay v. RS Nayak, stated that "when this court had directed that CCI's order be kept in a sealed cover, diluting the said direction and trying to get an order from another forum, Delhi high court in this case, would tantamount to browbeating not only this court but also the process of law, therefore, writ appeal brought up by this appellant in partnership with unclean respondents shall fail."

Thus, the court dismissed the appeal filed by the petition because it lacked merit in the court's opinion and there was no order as to costs. However, respondents 2 and 3 (CCI and Additional Director General, CCI) were given the liberty to proceed further in a lawful manner.