This article is written by Sparsh Agrawal, from Symbiosis Law School, Hyderabad. In this article, a detailed analysis of Section 26, 27 and 29 of the Competition Act, 2002 is given. Furthermore, the aforementioned sections are discussed in length in the light of relevant case laws. 

Section 26

Section 26 of the Competition Act, 2002  allows the Competition Commission of India (CCI) to ask for the Director General’s investigation in case of “prima facie” violations of the Act. Pertinently, the result of such an investigation under no circumstance is bound to influence the final decision given by the CCI. DG’s investigation is imperative to analyze and understand the facts and issues of the matter. 

Although, such an investigation looks procedural in nature but it bears importance to understand what standard of proof qualifies to be the ‘prima-facie’ violation for the CCI for catena of reasons:

• Firstly, while carrying out such an investigation, the CCI has to carry out a cost-benefit analysis since the CCI has limited finances and operates within limited resources.
• Secondly, such an investigation carried out by CCI plays a direct role in order to determine the business practices adopted by the parties, so that they follow this set-pattern to avoid judicial scrutiny.
• Lastly, the scheme of the Competition Act, 2002 does not allow the CCI to find an ultimate contravention until and unless the Director General’s investigation is ordered. The aforesaid scheme of the Act allows the opposite parties involved in the matter to defend themselves at two stages i.e. the investigation stage and after the submission of report to the Director General. 

From the date of enforcement of the Competition Act, 2002 there are about 750 cases registered before the commission with respect to the anti-competitive agreements (Section 3) and abuse of dominant position (Section 4). Therefore, because of such overwhelming numbers it becomes imperative to allocate resources to achieve the aim and objectives of the Act. 

Furthermore, the CCI General Regulations, 2009 suggests that the investigation must be completed within the 60 days, but a research conducted at Centre for Competition Law and Economics states that the median time taken to investigate the matters was 240 days. In the light of such findings it can be stated that any prima facie violation of the Act found by the CCI results in considerable expenditure through the Director General’s Office.

Relevant cases

Here are some analyses of some relevant case laws to reflect upon the evidence taken into consideration by CCI for initiating an investigation under Section 26(1), or to close the matter in accordance with Section 26(2) of the Act. In these rulings, it was duly stated that the informant party has to demonstrate substance in its allegations in order to convince the Competition Commission of India (CCI) to order the Director General’s investigation.

Android case

The instant case was initiated by Umar Javeed against Google. It was alleged that Google was abusing its dominant position by imposing unfair terms on the app developers and end-users which was causing foreclosure in the market and harming the competitive environment in the market. The informants placed the reliance on the international precedents decided by other antitrust regulators which had already found Google to be dominant in the relevant market. In the present case, the CCI relied on the findings provided by the informants. This shifted the burden of proof to the opposite party to discharge the doubt placed by the informants.  [Google v. Android]

Maruti Suzuki Case

This particular case was a suo moto case initiated by the Competition Commission of India (CCI) after it received an anonymous mail which alleged that Maruti Suzuki is abusing its dominant position in the relevant market. It stated that Maruti did not allow the dealers to give discounts to the end consumers based on their own discretion and it placed a cap on the same. If any dealer is giving a discount and he would be subjected to penalty. Moreover, it was stated that such information resulted in consumer harm since they were not able to acquire the best price which was prevailing in the relevant market.

The Competition Commission of India (CCI) invoked Section 3(4) of the Competition Act, 2002 and also ordered for the investigation in order to form a “prima facie” of the violation. It is pertinent to note that, Maruti filed several affidavits for testifying and countering the allegations of the mail, however, the CCI shifted the burden of proof to Maruti to justify itself for not causing contravention to any provisions of the Act. In this particular case, the CCI adopted the  “omission of act” approach for formulating its opinion.  [In re: Maruti Suzuki Case]

OYO Rooms Case

In Federation of Hotel & Restaurant Associations of India v. Ashok Kumar Gupta, RKG Travels Pvt. Ltd (Informants) alleged that OYO is abusing its dominant position in the relevant market by imposing unfair conditions on owners of the hotel for maximizing its revenue and consumer base. The Competition Commission of India (CCI) did not form any ‘prima facie’ view of the violation of Competition Act, 2002 and closed the case in accordance with 26(2) of the Act. Moreover, the CCI defined the relevant market as “market for franchising services for budget hotels in India”. However, it tracked back the same later. And also, ultimately took view on the opposite party based on the relevant market which was defined in the first place. [OYO rooms case] 

Inox case

In this particular case, the informants i.e. Unilazer Ventures Private Limited alleged multiple cinema owners such as PVR, Inox, Cinepolis that they were levying “virtual printing fee” from the informants and also they are acting in collusion which is anti-competitive conduct as per the Competition Act, 2002. The CCI did not find “prima facie” violations as per the Act. And it also held that the informants have to discharge the burden of proof on it as per the scheme of the Competition Act, 2002 in order to have an order for investigation. Therefore, it failed to define the “initial burden of proof” which is placed upon the parties. [Inox case]

Therefore it can be stated that there is an evident gap between CCI ‘s rulings on Inox case and OYO rooms case.

Section 27

By virtue of Section 27 of the Competition Act, 2002, the Competition Commission of India has been provided with wide-ranging powers. This section empowers the CCI to impose a penalty on entities which are involved in the anti-competitive conduct such as abusing its dominant position and entering into an anti-competitive agreement.

This provision also states that if at all the CCI deems it to be fit it can impose a penalty on the entity which must not be more than 10 percent of the average of the turnover for the last 3 preceding financial years of the entity.

It has been unfortunate that CCI has been following an inconsistent pattern when it comes to imposing penalties for the cases wherein the firm has entered into an anti-competitive agreement or abused its dominant position. Moreover, there has been catena of orders, wherein CCI has failed to justify itself the quantum of penalty imposed. It can be stated that the CCI must record more robust reasons for the imposition of such penalties.

Pertinently, Section 27 of the said Act uses the term “average of the turnover” and does not specify whether the turnover is to be considered based on acts or agreements in question. Section 2(y) of the Competition Act, 2002 states that the term “turnover” only includes the value of goods and services. Therefore, it is imperative for the Act to have a precise meaning of the term “turnover”.

The corundum of Section 27 of the Competition Act, 2002 was clarified in the Excel Corporation v. Competition Commission of India. In this case, the CCI imposed a penalty based on the “total turnover” of the affected companies in relation to the anti-competitive agreements entered by these affected companies, which resulted in the formation of a cartel.

The Supreme Court in the aforesaid case held that the imposition of penalty by CCI must only be based on “relevant turnover” i.e. the turnover relevant to the case in dispute and not the overall turnover.  The Supreme Court also stated that such punishments must be based on the universal principle of proportionality.

Even the other foreign antitrust regulators have a tendency to impose a penalty on the entity as per the “relevant turnover” and not the overall turnover of the company. Moreover, the European Union guidelines on Competition Law also support the same principle. 

The CCI many times take into consideration the decisions given by other foreign law jurisdictions, especially common law jurisdictions since the jurisprudence of competition law is comparatively new. In the Exel Corporation case itself, the Supreme Court relied upon the judgment given by the South African Anti-trust regulator i.e. the case of Southern Pipeline Contractors Conrite Walls (Pty) Ltd. V. The Competition Commission wherein it was stated that the quantum of penalty has to be determined based on consideration i.e. the damage caused and the profits which accrue the cartel activity. 

Section 29

Section 29 of the Competition Act 2002 binds the parties to the combination and sends the mandatory notification to the CCI for a combination and the aforesaid Act provides for high thresholds with regard to assets and turnover.

According to Section 5 of the Competition Act, 2002 a combination is an “acquisition of one or more enterprises by one or more persons or merger or amalgamation of enterprises shall be a combination of such enterprises and persons or enterprises”.

In simple words, a combination can be defined as a merger, acquisition, amalgamation between two or more enterprises or businesses. The aforesaid Act puts up a responsibility on the government to control such merger, acquisition and amalgamations by the Multinational Companies, as MNCs with their huge power and resources tend to dominate the Indian small scale industries. Therefore, the provisions of the Competition Act, 2002 ensures that there is fair competition in the market.

Prima Facie Opinion

As per Section 29(1) of the Competition Act, 2002 the Competition Commission of India needs to have a prima facie opinion within 30 days of the receipt of the notice for approving any combination. Moreover, in accordance with the 2016 Amendment Regulations, the commission may order the parties to the combinations to file additional information.

Furthermore, the parties to a combination or a merger are asked to publish the requisite details of the combinations in accordance with Section 29(2) which creates an open invitation to the public to come forth with a statement of objections within the 15 days from the publishing under Section 29(3). Moreover, the Competition Commission of India reserves a right to demand additional information regarding the combination or merger under Section 29(4) read with Section 29(5).

Pertinently, in order to simplify the filing requirements for the mergers and acquisitions (M&A), in the year 2018 the Competition Commission of India revised its combination regulations. The impugned amendment allows the parties to the combination to submit the remedies in response to the show-cause notice on the apprehension of adverse effect on the competition.

Conclusion

Section 26(1) of the Competition Act, 2002 allows the Competition Commission of India(CCI) to form a ‘prima facie’ view as per the violations of the Act.

From the cogent reading of Android case, Maruti Suzuki case, OYO rooms case and Inox case, it can be stated that CCI placed reliance on NCLT’s decision only in one case out of the four aforementioned cases. This makes CCI adopt a more coherent approach for deciding ‘prima facie’ violations as per the Act. With the presence of NCLT’s decision, it is imperative for the Competition Commission of India (CCI) to pay more attention to NCLT’s ruling so that there is much better allocation of resources.  

Section 27 of the Competition Act, 2002 which talks about the imposition of penalty, has been an issue for entities which were subjected to scrutiny under the Act.  The Supreme Court judgment pertaining to the Excel Corporation case can be a precedent for clarifying the imposition of penalties under section 27 of the Act. However, there can be several instances wherein the entities use this Supreme Court judgment as a means to appeal against the decision of CCI order to sell alteration or revision on the fines imposed on them.

The impugned amendment in Section 29 of the Competition Act, 2002 allows the parties to the combination to submit the remedies in response to the show-cause notice on the apprehension of adverse effect on the competition. This will result in transparency to expedite faster disposal of the combination cases. In such a way, the parties to the combination could address the deficiencies without facing any invalidation by the Competition Commission of India.

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