2023 (1) TMI 196 - HC - Companies Law

Anti-Competitive Acts - whether the warranty policy has (i) potentially resulted in denial of market access to parallel importers resellers of Boxed Micro-Processors for Desktop and Laptop PCs (ii) the risk of higher pricing for the said articles in India? - powers under Section 26(1) of the Competition Act, 2002 - HELD THAT - The argument of learned Senior Advocate Dr. A.M.Singhvi that the investigation now ordered under section 26(1) of the 2002 Act may have a detrimental effect on the business reputation of the petitioners, may be arguably true, to some extent. He also contended that the investigation to be undertaken by the Director General in terms of order under section 26(1) of the 2002 Act, (which he termed draconian law ) involves an intrusive and free ranging inquiry into every aspect of his clients business. Hon ble Delhi High Court in GOOGLE vs. COMPETITION COMMISSION OF INDIA 2015 (4) TMI 1234 - DELHI HIGH COURT although did not use the word draconian observed that the powers of Director General to investigate under section 26(2) are far wider than the powers of the police under the Code of Criminal Procedure, 1973, is also true. However, similar contentions taken up by the very same counsel in FLIPKART INTERNET PVT. LTD., AMAZON SELLER SERVICES PRIVATE LIMITED VERSUS COMPETITION COMMISSION OF INDIA AND ORS. 2021 (7) TMI 1398 - KARNATAKA HIGH COURT were repelled by the Division Bench of this Court and the same has attained finality - It would once again be fruitful to advert to the foundational philosophy of competition law. The central concern is that firm or firms can harm competition and inflict harm on customers and ultimately end consumers where they possess some degree of market power. Even otherwise, there are several checks balances against the abuse of power vested in the Commission which comprises of experts and qualified persons as its constituent members. Commission s stature and track record as can be ascertained from several rulings of the Apex Court and various High Courts, is also a fair assurance against the abuse of power. An opportunity of hearing is also provided to the stakeholders at the stage of investigation and thereafter whilst punitive or corrective action are being considered. This apart, a right of appeal is provided under section 53 A of the Act, as amended in 2007, once the report of investigation is submitted by the Director General. The adverse consequences of proceedings taken in accordance with law ordinarily fall under the maxim, damnum sine injuria . It is not that in no case in which Commission directs investigation under section 26(1) of the Act arbitrarily and unreasonably, the aggrieved cannot invoke writ jurisdiction. Such cases warranting indulgence of Court ordinarily involve manifest arbitrariness as discussed in SHAYARA BANO vs. UNION OF INDIA 2017 (9) TMI 1302 - SUPREME COURT and therefore, even in respect of proceedings at the preliminary stage, remedy can be had by the aggrieved. However, in this petition no such case is made out, despite lengthy arguments and bulky pleadings of the petitioners that justified indulgence of this Court. The petitioners hastily rushed to this Court and unjustifiably secured an interim order that interdicted an inquiry of preliminary nature, for all these years, to the enormous prejudice of public interest. This Writ Petition, besides being premature and absolutely devoid of merits, is an abortive attempt by the petitioners to scuttle the innocuous statutory proceedings of the Commission. Therefore, this is a fit case for dismissal with exemplary costs. This petition is liable to be dismissed and accordingly it is, with a cost of Rs.10,00,000/- only, payable to the 1 st respondent Competition Commission of India within six weeks.

Summary

Issues Involved:

1. Legitimacy of the Competition Commission of India's (CCI) order for investigation under Section 26(1) of the Competition Act, 2002.
2. Whether the petitioners' warranty policy constitutes an abuse of dominance under Section 4 of the Competition Act, 2002.
3. Applicability of the principles of precedent and legal certainty from previous cases (ASHISH AHUJA vs. SNAPDEAL and KAPIL WADHWA vs. SAMSUNG ELECTRONICS CO. LTD).
4. The doctrine of res judicata in the context of competition law.
5. Whether the proceedings under the Competition Act are 'in rem' and their implications.
6. The impact of Section 26 proceedings on the petitioners' business reputation and the nature of such proceedings.

Detailed Analysis:

1. Legitimacy of the CCI's Order for Investigation:

The petitioners challenged the CCI's order dated 09.08.2019, which directed an investigation into their warranty policy under Section 26(1) of the Competition Act, 2002. The court noted that the CCI's order was based on a prima facie opinion that the petitioners' warranty policy might contravene Sections 4(2)(a)(i), 4(2)(b)(i), and 4(2)(c)(i) of the Act. The court emphasized that the CCI's directive for investigation is an administrative order and does not determine any rights or obligations of the parties. The court upheld the legitimacy of the CCI's order, stating that it complied with the requirements outlined in the SAIL case, which mandates that the CCI must form a prima facie opinion substantiated with reasons.

2. Abuse of Dominance:

The court examined whether the petitioners' warranty policy, which limited warranty services to products purchased from authorized distributors in India, constituted an abuse of dominance. The petitioners argued that their policy was consistent with normal business practices and previous legal rulings. However, the court found that the policy potentially limited market access for parallel importers and resellers, thus raising concerns about abuse of dominance. The court noted that the investigation was necessary to determine the actual impact of the policy on competition and consumer welfare.

3. Precedent and Legal Certainty:

The petitioners relied on the ASHISH AHUJA and KAPIL WADHWA cases to argue that their warranty policy was consistent with legal precedents. However, the court distinguished these cases based on their specific fact matrices. In ASHISH AHUJA, the products were purchased from unauthorized sources, whereas in the present case, the products were imported from authorized distributors abroad. The court also noted that the KAPIL WADHWA case involved issues under the Trademarks Act, 1999, and not the Competition Act, 2002. Therefore, the court held that the principles of precedent and legal certainty did not apply in the petitioners' favor.

4. Doctrine of Res Judicata:

The petitioners argued that their warranty policy should be protected under the doctrine of res judicata, as it was based on previous legal decisions. The court rejected this argument, stating that the doctrine of res judicata does not apply to evolving market conditions and competition law. The court emphasized that competition law aims to address dynamic market practices and ensure consumer welfare, which requires continuous scrutiny and adaptation.

5. Proceedings Under the Competition Act as 'In Rem':

The petitioners contended that the proceedings under the Competition Act are 'in rem' and affect public interest, thus entitling them to rely on previous legal observations. The court clarified that the term 'in rem' in the context of the Competition Act refers to the broad impact on public interest rather than individual parties. The court highlighted that the proceedings aim to protect competition and consumer welfare, and the CCI's orders are administrative steps in this broader regulatory framework.

6. Impact on Business Reputation and Nature of Proceedings:

The petitioners expressed concerns about the detrimental impact of the investigation on their business reputation. The court acknowledged these concerns but emphasized that the investigation is a necessary step to ensure compliance with competition law. The court noted that the CCI comprises experts and qualified members, and there are safeguards against abuse of power. The court also pointed out that the petitioners have the right to challenge the investigation report and any adverse findings through appeals.

Conclusion:

The court dismissed the petition, upholding the CCI's order for investigation. The court imposed a cost of Rs. 10,00,000 on the petitioners, emphasizing the importance of completing the long-pending inquiry. The court reiterated that the investigation is crucial for protecting competition and consumer welfare and that the petitioners' arguments did not justify interfering with the CCI's administrative process.