2014 (1) TMI 1462 - HC - Companies Law

Violation of the provisions of Section 3(3)(a)(b)(c) - Whether the Commission is required to give notice or hearing, to the person against whom an information is given or a reference is made, in terms of Section 19 of the Competition Act, 2002, before the Commission directs further investigation, in exercise of the powers conferred upon it by sub-section (7) of Section 26 of the Act - Held that - investigation by the Director General, pursuant to the Commission forming an opinion that prima facie there exists a contravention of the provisions of the Act and directing investigation by the Director General, cannot be treated at par with the investigation by a police officer into a cognizable offence in exercise of the powers conferred upon him by the Code of Criminal Procedure, 1973. Section 156 of the Code of Criminal Procedure empowers any officer in charge of a police station to investigate any cognizable case, without the order of a Magistrate, wherever a cognizable offence is committed within the local area of jurisdiction. As regards non- cognizable offences, sub-section (2) of Section 155 of the Code of Criminal Procedure mandates that no police officer shall investigate a non-cognizable case, without the order of the Magistrate having power to try such case or commit the case for trial. There is no provision in the Code of Criminal Procedure for an accused to apply to the investigating officer to permit him to examine his witnesses. Under the scheme of the Code, a police officer investigating a criminal case cannot allow cross-examination of witness, during the course of investigation conducted by him. On the other hand, clause (4) of the Regulation 41 expressly permits the Director General to record evidence and the power conferred upon him includes the power to record evidence of the enterprise against whom the information is being investigated by him. Unlike the provisions of the Code of Criminal Procedure, clause (5) of Regulation 41 empowers the Director General to allow cross-examination of a witness by the opposite party during the course of investigation conducted by him. Therefore, the scheme of investigation by a police officer, in terms of the provisions contained in the Code of Criminal Procedure and investigation by the Director General in terms of the Competition Act, are altogether different. If a police officer, while carrying out investigation into a cognizable offence, receives information or evidence relating to Commission of yet another offence, whether that be cognizable or non-cognizable, he is competent to carry out investigation into the said offence as well, the reason being that investigation in a cognizable case can be carried out without the order of the Magistrate and as provided in sub-section (4) of Section 155, where the case relates to two or more offences, of which at least one is cognizable, the case shall be deemed to be a cognizable one, notwithstanding that the other offences are non- cognizable. The Director General, on the other hand, does not have any suo motu power of investigation and, therefore, cannot be treated at par with a police officer, investigating a cognizable case. Under Section 147 of Income-tax Act is given by the same authority which undertakes the scrutiny and assessment, whereas under the scheme of the Act, the opinion is framed by one authority, whereas the investigation is conducted by another authority, in terms of the directions of the first authority - report of the Director General, to the extent he has reported contravention of the provisions of Section 4 of the Act by the petitioner by misuse of its dominant position as a VSF manufacturer, shall not be subjected to the procedure prescribed in sub-section (8) of Section 26 nor shall the Commission be entitled to pass order on the said report, in terms of the provisions of Section 27 of the Act. The Commission, however, shall be entitled to treat the aforesaid part of the report of the Director General as an information in terms of Section 19 of the Act and proceed accordingly in terms of the provisions of the Act, if the Commission on consideration of the aforesaid part of the report of the Director General, is of the opinion that there exists a prima facie case of contravention of the provisions of Section 4 of the Act by the petitioner - Decided in favour of Petitioner.

Summary

Issues Involved:
1. Price fixation of MMF products in the domestic markets.
2. Domestic manufacturers of MMF basing their price on import landed cost.
3. Selling cheaper in overseas market than domestic market.
4. Allocation of customers for specific suppliers and other suppliers not supplying to these customers/regions.
5. Consumer-based division on the basis of region, quantity, quality, and supplier preference.
6. Cutting down production jointly to avoid competition.
7. Prices becoming higher in the domestic market due to the imposition of ADD.
8. Export incentives provided to exporters of MMF manufacturers.
9. Alleged anti-competitive practices by Grasim Industries Limited (GIL) due to its dominant position in the VSF market.

Detailed Analysis:

1. Price Fixation of MMF Products in the Domestic Markets:
The Competition Commission of India (CCI) received information that MMF manufacturers were fixing prices of MMF products in the domestic market. The CCI formed a prima facie opinion that there existed a case to direct the Director General (DG) to investigate the matter. The DG was instructed to conduct an investigation into the allegations against MMF manufacturers under Section 3(3)(a)(b)(c) of the Competition Act, 2002.

2. Domestic Manufacturers of MMF Basing Their Price on Import Landed Cost:
The investigation also addressed the allegation that domestic MMF manufacturers were basing their prices on the import landed cost, potentially leading to anti-competitive practices.

3. Selling Cheaper in Overseas Market Than Domestic Market:
Another allegation was that MMF manufacturers were selling their products cheaper in overseas markets than in the domestic market, which could be indicative of anti-competitive behavior.

4. Allocation of Customers for Specific Suppliers and Other Suppliers Not Supplying to These Customers/Regions:
The DG investigated claims that MMF manufacturers were allocating customers for specific suppliers and restricting other suppliers from supplying to these customers or regions, which could violate Section 3(3)(c) of the Competition Act.

5. Consumer-Based Division on the Basis of Region, Quantity, Quality, and Supplier Preference:
The investigation also covered allegations of consumer-based division on the basis of region, quantity, quality, and supplier preference, which could restrict competition in the market.

6. Cutting Down Production Jointly to Avoid Competition:
The DG examined whether MMF manufacturers were jointly cutting down production to avoid competition, which could constitute a violation of Section 3(3)(b) of the Competition Act.

7. Prices Becoming Higher in the Domestic Market Due to the Imposition of ADD:
The investigation considered whether the imposition of Anti-Dumping Duty (ADD) led to higher prices in the domestic market, which could have anti-competitive effects.

8. Export Incentives Provided to Exporters of MMF Manufacturers:
The DG also looked into whether export incentives provided to MMF manufacturers gave them an extra benefit, potentially leading to anti-competitive practices.

9. Alleged Anti-Competitive Practices by Grasim Industries Limited (GIL):
During the investigation, it was alleged that GIL, the only manufacturer of Viscose Staple Fibre (VSF) in the country, was indulging in various anti-competitive practices due to its dominant position. The DG investigated the following issues:
- Unfair, ambiguous, monopolistic, and dominating policies on pricing, discounts, and dispatches.
- Refusal to disclose sales and discount policies in writing.
- Increased prices and improved margins after the imposition of ADD.
- Discriminatory discount policies.
- Limiting supplies to domestic buyers by exporting more quantities or cutting down production.
- Not addressing quality-related complaints.
- Selling fibre at commercial/invoice weight, leading to higher costs for spinners.

Director General's Findings:
The DG reported no violation of Section 3(3)(a)(b)(c) by GIL or other MMF manufacturers but found that GIL had abused its dominant position in the VSF market, thereby contravening Sections 4(2)(a) & 4(2)(b) of the Competition Act. The DG found that GIL imposed unfair conditions relating to subsequent production and sale of yarn, provided segmental discounts with conditions, and prevented trading of VSF in the relevant market.

Legal Proceedings:
The petitioner (GIL) filed an application before the CCI seeking to quash the DG's report regarding the alleged violation of Section 4 of the Act, arguing that the DG's investigation into Section 4 was beyond its scope. The CCI dismissed the application, leading the petitioner to seek relief from the High Court.

High Court Judgment:
The High Court concluded that the DG does not have the power to investigate information not considered by the CCI while forming its prima facie opinion. The DG's investigation into the alleged contravention of Section 4 of the Act by GIL was deemed ultra vires. The Court directed that the DG's report on the contravention of Section 4 should not be subjected to further inquiry or orders by the CCI. However, the CCI could treat the DG's findings as new information under Section 19 of the Act and proceed accordingly if it deemed there was a prima facie case.

Conclusion:
The judgment emphasized the procedural requirements under the Competition Act, highlighting that the DG can only investigate matters directed by the CCI. The Court provided clarity on the scope of the DG's powers and the procedural safeguards for enterprises under investigation.