Competition Act | Order Of Inquiry U/S 26 Does Not Affect Parties' Rights, Opportunity Of Hearing Not Mandatory: Gujarat High Court

The Gujarat High Court has held that an order of inquiry under Section 26 of the Competition Act is only a prima facie opinion and does not affect the rights of any person. Thus, it held that such an order cannot be reviewed by the High Court unless and until it is shown that it is contrary to the provisions of the Act or the order has included irrelevant material or not included relevant material.

Justice AP Thaker further held that at the stage of passing any order for inquiry, no right of the person concerned is breached and such person cannot claim as of right of being hearing be provided to him at that stage.

It also explained:

"After submission of the Report by the Inquiry Officer i.e. Director General, the person concerned against whom any report is made, will also get an opportunity to defend and place his case before the Commission. At that stage, if no any opportunity of hearing is afforded, then, definitely the person concerned against whom any adverse order is passed, has every right to challenge the same on various grounds, one of which may be breach of natural justice."

The High Court was hearing a group of petitions filed by some private companies who were bidders in a tender issued by Gujarat State Board of School Text Books and were facing inquiry by the Competition Commission.

Petitioners argued that the order of CCI had not complied with the requirements of Section 26(1) since it had failed to provide cogent reasons for forming a prima facie case against the them. Reliance was placed on CCI v/s Steel Authority of India Limited to insist that an opinion should be formed on the basis of the records as u/s 26(1). Attention was drawn to Section 3(1) of the Act to aver that there existed no agreement in respect of supply of goods and services amongst successful parties which could cause an adverse effect on competition. Thus, the allegations of bid rigging/collusive bidding were said to be baseless.

Per contra, party-in-person at whose instance CCI had passed the order had submitted that there was a cartel between the private Petitioners because bidders had quoted more than one bid and that necessary data was provided to CCI basis mathematical calculation. Meanwhile, the ASG had submitted that challenging the impugned order amounted to an appeal against the order which did not warrant judicial review under Art 226. The proceedings at the stage of Section 26(1) order were also not adjudicatory in nature and they could not be assailed at this juncture. Section 26(1) order was only to 'trigger investigation' as explained in the CCI v/s Grasim Industries Ltd order. The ASG also argued that the Petitioners were trying to escape the investigation ordered by CCI.

Perusing Section 2(b) of the Act which provides that an agreement includes any arrangement to act in a concerted manner to collude, the High Court explained that there may not be patent evidence as to formation of a cartel or an arrangement, but the CCI can form a prima facie opinion for the same. Additionally, the Commission is empowered to inquire into agreements and dominant position vide Section 19. This power is administrative and not judicial in nature.

Further, interference in such administrative action is not permissible as is settled principle. Addressing section 26(1), Justice Thaker clarified that the Commission is within its jurisdiction to pass an ex-parte ad-interim injunction provided it does not violate principles of natural justice. This function is also inquisitorial and regulatory in nature done at a preliminary stage. The function also is a preparatory measure and in contrast to the decision making process.

Considering the nature of Section 26(1) of the Act, the High Court opined:

"Further, as observed earlier in various decisions, it is the prerogative of the Commission to invite any person or sought information from any person for forming prima facie opinion as to whether any inquiry contemplated under Section 26(1) of the Act is necessary or not. Such action of the Commission cannot be said to be bias one or giving any right to other person against whom any order of inquiry is passed."

Thus, all petitions were dismissed and the Court granted 4 weeks' time to the Petitioners to respond to the notice issued by the Commission for initiation of penalty action.

Case No.: C/SCA/11152/2020

Case Title: M/S. SHREE SHIVAM CORPORATION THROUGH ITS SOLE PROPEIRTOR MR. PRAHLAD DURLABHJIBHAI JOSHI v/s COMPETITION COMMISSION OF INDIA

Citation: 2022 LiveLaw (Guj) 379

Click Here To Read/Download Judgment