INQUIRY PROCEDURES UNDER THE COMPETITION ACT, 2002

The Competition Act, 2002 empowers the Competition Commission of India (CCI) to initiate an inquiry into any alleged contravention of the Act through multiple channels. As per Section 19(1), the Commission can commence an inquiry either suo moto (on its own motion), upon receiving any information from any person, consumer or their association or trade association, or based on a reference made to it by the Central Government, a State Government, or a statutory authority.

Before directing the Director General (DG) to conduct an investigation, Section 19(3) mandates the Commission to form a prima facie opinion on the existence of a contravention. This acts as a preliminary filter to weed out frivolous or unsubstantiated complaints. If the Commission finds no prima facie case, it must pass a reasoned order to that effect.

Once the Commission directs the DG to investigate, the DG is required to submit the investigation report within the time frame specified by the Commission. This is typically 60 days, but can be extended based on the complexity of the case. After receiving the report, the Commission forwards it to the concerned parties, giving them an opportunity to file their objections or suggestions.

The Commission then considers the DG report along with the submissions made by the parties. Based on this, it may either:

1. Close the matter if no contravention is found,
2. Invite the parties for further hearing if a contravention is found, before passing any final orders, or
3. Direct further investigation by the DG if required.

This multi-stage inquiry process can be summarized into the following key steps:

1. Receipt of Information/Reference by the Commission
2. Formation of Prima Facie Opinion by the Commission
3. Investigation by the DG
4. Consideration of the Investigation Report by the Commission
5. Further Inquiry if needed
6. Passing of Final Orders by the Commission

The Supreme Court, in Competition Commission of India v Steel Authority of India Ltd. (2010), held that the CCI is not bound by the findings of the DG report and can independently assess the evidence on record. In Matrimony.com Limited v Google LLC & Ors. (2018), the CCI reiterated that the 2-step inquiry process involving forming a prima facie view followed by a detailed investigation is mandatory under the scheme of the Act.

POWERS OF INVESTIGATION OF CCI AND DG

To ensure effective investigation and inquiry into anti-competitive practices, the Competition Act, 2002 vests wide powers with the CCI and the office of the Director General (DG).

Section 36(2) confers upon the Commission the same powers as are vested in a Civil Court under the Code of Civil Procedure when trying a suit, in respect of the following matters:

• (a) Summoning and enforcing the attendance of any person and examining them on oath,
• (b) Requiring the discovery and production of documents,
• (c) Receiving evidence on affidavit,
• (d) Issuing commissions for the examination of witnesses or documents, and
• (e) Requisitioning any public record or document from any office.

Additionally, under Section 41, the DG has been granted the power to summon individuals and examine them on oath, require the production of documents, and conduct ‘search and seizure’ operations when authorized by the Chief Metropolitan Magistrate (CMM), Delhi.

The power to conduct unannounced search and seizure operations, colloquially known as “dawn raids”, is a potent tool in the hands of the DG, especially for unearthing evidence in clandestine cartel investigations.

Both the Commission and the DG also have the authority to call for information from any enterprise that is party to a proceeding before them. Non-compliance with the directions of the Commission or the DG attracts penalties, ensuring compliance with the investigation process.

DAWN RAIDS AND SEARCH & SEIZURE POWERS

One of the most striking features of the investigation process under the Competition Act is the power of the DG’s office to conduct surprise ‘search and seizure’ operations, popularly known as “dawn raids”. This power is derived from Section 41(3) of the Act read with Section 240A of the Companies Act, 1956.

Dawn raids are a crucial investigative tool, particularly for uncovering incriminating documents and evidence in cartel cases, which by their very nature are secretive and where the element of surprise is key.

The procedure for conducting dawn raids is as follows:

1. The DG’s office files an application before the Chief Metropolitan Magistrate (CMM), Delhi, specifying the premises to be searched and seized, along with the reasons for such action.
2. If satisfied that there are reasonable grounds, the CMM grants a search warrant.
3. Armed with this warrant, DG officials conduct simultaneous unannounced raids at the premises of companies suspected to be involved in the cartel.
4. During the raids, relevant documents, hard drives, emails, records, etc. are seized.
5. Statements of key officials may also be recorded.
6. A Panchnama or Memo of search and seizure is prepared on the spot.
7. The seized material is then taken into safe custody of the DG’s office for further investigation.

The DG’s office has conducted dawn raids in several high-profile cartel cases, such as:

• Flashlights Cartel Case (2018),
• Dry Cell Batteries Cartel Case (2019), and
• Beer Cartel Case (2022).

The powers of ‘search and seizure’ granted to the DG under the Competition Act were upheld by the Delhi High Court in Excel Crop Care Limited v Competition Commission of India (2017).

To provide certain safeguards and to streamline the procedure, the CCI (General) Amendment Regulations, 2018 were introduced. These regulations provide for certain rights of the company being raided, such as:

• The right to see the search warrant,
• The right to have a legal representative present during the raid,
• The requirement to place seized documents in a sealed envelope, and
• The obligation to provide copies of seized documents to the company.

LENIENCY PROGRAMME

In a bid to destabilize hard-core cartels, the Competition Act, under Section 46, provides for a leniency program. Under this, the CCI can grant reduced penalties to cartel members who make a full and true disclosure of information regarding the cartel, which is vital to the investigation.

The detailed procedure and the extent of leniency available are laid out in the CCI (Lesser Penalty) Regulations, 2009:

The quantum of reduction in penalty depends on the priority status of the applicant:

• The 1st applicant can get up to 100% reduction,
• The 2nd applicant can get up to 50% reduction,
• The 3rd applicant can get up to 30% reduction.

However, to avail of these benefits, the applicant must fulfill certain conditions:

• Cease participation in the cartel immediately,
• Provide vital disclosure of violation,
• Extend continuous and expeditious cooperation during the investigation,
• Not disclose the fact of leniency application to others,
• Not have played a leading role in the cartel, and
• Make the application in the prescribed format.

The CCI has granted leniency in several cases. For instance:

• In Re: Cartelization by broadcasting service providers (2018), Globecast India was granted 100% reduction, while Essel Shyam Communication got a 30% reduction.
• In the Dry Cell Batteries Cartel (2019), Panasonic was granted 100% leniency.
• In the Beer Cartel Case (2022), Dawn Raids were conducted within just 3 days of receiving a leniency application.

PENALTIES AND SANCTIONS

To deter anti-competitive conduct, the Competition Act provides for the imposition of heavy penalties and sanctions on erring companies and individuals. The quantum of penalties depends on the nature and gravity of the violation.

Under Section 27, after an inquiry, the CCI can pass orders:

• Directing the parties to discontinue and not re-enter anti-competitive agreements,
• Directing modification of agreements,
• Imposing penalties up to 10% of the average turnover for the preceding three years, and
• Directing division of a dominant enterprise in case of abuse of dominance.

Failure to comply with the orders of the CCI attracts further penalties under Section 43, which may extend to INR 1 lakh per day during the period of default, subject to a maximum of INR 10 crores.

Making false statements or omitting material information is also punishable under Section 42 with a fine which may extend to INR 1 crore. In cases where a company contravenes the provisions of the Act, Section 48 extends liability to every person in charge of the company, unless they prove that the contravention was committed without their knowledge.

Interestingly, the Commission also has the power to impose a lesser penalty under Section 46 in cases where a cartel member makes a full and true disclosure of information regarding the cartel (leniency provision).

A significant ruling regarding the determination of penalties came from the Supreme Court in Excel Crop Care Limited v CCI & Another (2017), where it was held that the penalty should be determined based on the ‘relevant turnover’ (from the infringing product/service) instead of the ‘total turnover’ of an enterprise.

Some notable cases where the CCI has imposed hefty penalties include:

• In Re: Cartelization in respect of zinc carbon dry cell batteries market in India (2018): INR 215.96 crores on Eveready, Nippo, and Panasonic,
• Beer Cartel Case (2022): INR 873 crores on United Breweries, AB InBev, and Carlsberg,
• Google Abuse of Dominance Case (2022): INR 1338 crores on Google for abusing its dominant position in the Android mobile device ecosystem.

APPEALS AND REVIEW OF CCI ORDERS

The Competition Act, 2002 provides for a robust appellate mechanism against the orders of the Commission, ensuring necessary checks and balances.

Under Section 53B, any person aggrieved by any direction, decision, or order of the Commission can file an appeal to the National Company Law Appellate Tribunal (NCLAT) within 60 days of communication of the order.

The NCLAT is not only empowered to hear appeals against the orders of the Commission, but can also adjudicate on claims for compensation that may arise from the findings of the Commission or its own findings in an appeal. It can also pass orders for recovery of compensation.

If a party is aggrieved by the decision or order of the NCLAT, a further appeal lies to the Supreme Court of India under Section 53T, within 60 days.

It is important to note that there is no statutory provision for appeal against the orders of the Commission directing investigation under Section 26(1). However, the constitutional writ jurisdiction of High Courts and the Supreme Court is still available against such orders.

This position was clarified by the Supreme Court in SAIL v CCI (2010), where it held that the orders of the Commission directing investigation under Section 26(1) are not appealable before COMPAT (now NCLAT).

Apart from the appellate mechanism, the Act, under Section 38, also provides for a limited power of review and recall of orders by the CCI itself. However, this power can be exercised only in cases of:

• Change in law,
• Change in facts, or
• Some mistake or error apparent on the face of the record.

Some landmark cases on appeal and review of CCI orders include:

• Google v CCI (2015): The Delhi High Court held that CCI’s prima facie order is not appealable.
• Cadila Healthcare v CCI (2018): The Supreme Court held that no appeal lies from a Section 26(1) order.
• Airtel v CCI (2022): The High Courts can entertain writ petitions against Section 26(1) orders.

CONCLUSION

In conclusion, the Competition Act, 2002 provides for a comprehensive framework for investigation and enforcement to check and penalize anti-competitive practices in the Indian market. The wide powers of inquiry and investigation vested with the CCI and the DG, the robust appellate mechanism, and the deterrent penalties prescribed, collectively ensure the effective implementation of Competition Law in India.