CCI’s Obligation to Put Parties under Investigation to Notice — An Analysis of a Recent Madras High Court Ruling

Introduction

The Madras High Court (Madras HC) ruled in MRF v. CCI¹, that in an investigation under the Competition Act, 2002 (Competition Act) an entity that has not been named in the complaint (i.e. third party) should be given prior notice and sufficient opportunity to contest its inclusion in the investigation as an opposite party.

Moreover, the Competition Commission of India’s (CCI) decision to this effect should be recorded by way of a “speaking order”. A contravention of the Competition Act exposes parties to staggering penalties and therefore, the Madras HC held it important for a third party to know about its status in the investigation.

This ruling appears to be at variance with the scheme of the Competition Act and the jurisprudence that has evolved over the years in relation to the rights of enterprises at the time of initiation of an investigation by the CCI. In this article we discuss the conflict arising from this judgment and its likely impact on present and future investigations by the CCI.

Upon receiving a complaint (known as “information” under the Competition Act), the CCI may pass a prima facie order under Section 26(1) of the Competition Act to direct investigation by the Director General (DG) into the allegations. The prima facie order of the CCI is not appealable before the National Company Law Appellate Tribunal (NCLAT) under the scheme of the legislation. The non-appealability of a prima facie order was clarified by the Supreme Court in CCI v. SAIL², stating that the prima facie order is an administrative order of the CCI, not determining the rights of the parties involved, because of which it does not require a provision for appeal. The Supreme Court in SAIL³, also held that the CCI is not required to put the parties to notice while forming its prima facie opinion i.e. the CCI has the option to call the parties for an oral hearing, but the parties cannot seek an oral hearing as a matter of right. This is why the right of notice or hearing is not contemplated in the procedure for forming a prima facie view under Section 26(1) of the Competition Act. The opposite parties do not have the right to dispute their inclusion either, since the prima facie order cannot be challenged on any count including the issues and parties under investigation.

Expansion of scope of investigation by the DG

While the prima facie order of the CCI mentions the subject-matter and the opposite parties against whom the investigation is to be initiated, the DG is empowered to expand the scope of the investigation with respect to issues as well as parties. The Delhi High Court in Cadila Healthcare Ltd. v. CCI⁴, noted that at the stage of forming a prima facie opinion, the CCI is not in possession of complete information or facts relating to the pattern or behaviour resulting in an appreciable adverse effect on competition. Due to this, it is not equipped to lay down the exact boundaries for investigation within which the DG must operate at the stage of directing an investigation. As such, in the course of investigation, if involvement of any other party is found, the DG shall investigate the conduct of such other party who may have indulged in an act of contravention. The Supreme Court also noted in SAIL⁵ that while all its other orders and decisions should be well-reasoned, the CCI in its prima facie order is not required to enter any adjudicatory or determinative process and record minimum reasons substantiating the formation of such opinion. Separately, in CCI v. Grasim Industries Ltd.⁶, the Delhi High Court held that the prima facie order of the CCI only triggers an investigation, and the DG can go beyond the subject-matter prescribed.

The Madras HC has previously backed the inclusion of additional opposite parties by the DG in an investigation if the CCI has approved of it. In Hyundai Motor India Ltd. v. CCI⁷, during investigation, the DG came across an additional party whose conduct appeared to be in contravention. The DG sought an approval from the CCI to include the newly discovered party and the approval was held to be akin to the direction of the CCI under Section 41(1) of the Competition Act, which enables the DG to investigate a matter.

In the abovementioned scenarios, at the time of initiation of an investigation under Section 26(1) as well as inclusion of new parties in an ongoing investigation, there is no requirement to put the parties to notice or give an opportunity to contest their inclusion. In contradistinction, the Madras HC ruling in MRF case⁸, has flagged this process for its opacity and the impact.

While a party may not be specifically put to notice that it is under investigation by the CCI, once the DG issues a notice to a party (opposite party or third party), it knows that the CCI is undertaking an investigation into certain business activities of enterprises operating in a sector. At this stage, irrespective of the status of a party, it is required to provide information sought by the DG. Moreover, it is possible that only once the investigation has been concluded, and all the evidence has been reviewed, that the DG can conclusively find the extent and nature of involvement of a party in the anti-competitive conduct under investigation. Thereafter, all the parties (informant as well as the opposite parties) are provided with a copy of the investigation report to defend themselves against the findings. Thus, it is not the case that the parties do not have the opportunity to defend themselves and be informed of the potential penalty exposure in case of a finding against them until the penalty is finally imposed.

Impact of the intimation on parties

The CCI has the power to suo motu initiate investigations. The CCI thus starts investigations without giving prior notice to the parties. Further, the CCI is not required to give parties notice and opportunity to contest their inclusion as set out above. In several cases the CCI has added parties under investigation without prior notice. Such a requirement would need an amendment to the Competition Commission of India (General) Regulations, 2009.

Another likely impact is that a host of challenges will arise in the ongoing investigations including cases where the CCI has passed final orders.

In terms of the process of investigation, there is no difference in the extent of information sought from a third party or an opposite party.

This additional requirement may result in increasing delays in the investigation timelines. The recent Report of the Committee on Digital Competition Law of 2024 mentions prolonged investigations timelines under the Competition Act as one of the factors necessitating ade novo digital competition legislation. The MRF judgment⁹, will only add to the procedural delays without materially impacting the outcome of investigations and the findings against parties.

Conclusion

The ruling of the Madras HC is at variance with the existing legal framework and jurisprudence. The judgment will surely have a significant impact on the ongoing cases and will result in delay in investigations on account of the CCI having to issue notices and provide sufficient opportunity to opposite parties to contest their inclusion. Moreover, if the judgment requires that parties added in the course of the investigation should be given an opportunity to contest their inclusion, it raises the question that why parties named in the information not be given the same opportunity? The ruling increases procedural burden on the CCI without positively impacting the rights of the parties. Unless this judgment is struck down, the CCI would have to brace itself for a floodgate of challenges.