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2022 (8) TMI 1537

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..... cy was in operation. In either of the cases, it cannot be stated that the CCI does not have the authority look into this affair being the market regulator. The contention of the Appellants that the CCI in Vinod Kumar Gupta [ 2017 (6) TMI 1399 - COMPETITION COMMISSION OF INDIA (LB)] has already assessed the 2016 Policy, and has come to conclusion that the breach of the IT Act, 2000, does not fall within the purview of the CCI, is irrelevant on the ground that, as has been stated in the CCI Order as well, the CCI is only concerned with data accumulation that may result in exploitative and exclusionary competitive practices as well as the effect of data sharing on market capture and competitors offerings. Furthermore, it is pertinent to note that the 2021 Policy is a substantially modified version of the 2016 Policy inasmuch as the 2016 Policy had an opt-out option, which is absent from the 2021 Policy that places its users in a take-it-or-leave-it situation. It is the opt-out option that primarily led to CCI rendering its conclusion that the 2016 Policy did not violate the Competition Act, 2002. The instant appeals are primarily on the issue as to whether the CCI ought to wait till f .....

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..... y Policy of July 2012. In the year 2014, WhatsApp was acquired by Facebook (the Appellant in LPA 164/2021). Facebook Inc. is now known as Meta Platforms , however, for ease of comprehension, this Court shall refer to the Appellant in LPA 164/2021 by its former nomenclature. ii. On 25.08.2016, the Terms and Services and the Privacy Policy of WhatsApp (hereinafter referred to as 2016 Policy ) was updated, and WhatsApp users were informed of Facebook's acquisition of WhatsApp and how Facebook would use WhatsApp s information for its advertisement and products. A one-time opportunity was given to WhatsApp users to opt out of Facebook using their information that was shared over WhatsApp. However, users who joined WhatsApp after the 2016 Policy, were not offered this option. iii. The 2016 Policy, was challenged by way of a writ petition in Karmanya Singh Sareen Anr. v. Union of India Ors., W.P.(C) 7663/2016, and the policy was upheld vide Judgement dated 23.09.2016. This Judgment has been challenged before the Hon'ble Supreme Court and adjudication on the same is pending. iv. On 04.01.2021, WhatsApp announced an update to its Terms of Service and Privacy Policy (hereinafter refe .....

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..... ondent No. 1 upheld the 2016 Policy with the finding that there had been no abuse of dominance by the Appellant. He also states that the Ministry of Electronics and Information Technology (MeiTY) is in the process of promulgating a Personal Data Protection Bill and the policies of the Appellant would be answerable to the provisions stipulated in the same, and therefore, the CCI should refrain from adjudicating on this issue before the Bill is promulgated. 4. The learned Senior Counsel further submits that the preliminary order makes it clear that the issues before the Supreme Court and the issues before Respondent No. 1 are identical and overlapping. He states that as per the principle of judicial discipline, Respondent No. 1 must exercise restraint and refrain from issuing the CCI order on the ground that the Supreme Court in Karmanya Singh Sareen v. Union of India and Ors., [SLP (Civil) No. 804 of 2017] and this Court in Chaitanya Rohilla v. Union of India Ors., [W.P.(C) No. 677 of 2021] and Dr. Seema Singh v. Union of India Ors., [W.P.(C) No. 1355 of 2021] are already seized of the issues pertaining to the same subject matter. In this regard, he also brings to notice of this Cou .....

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..... articular action is in itself in question, then the question of CCI inquiry does not arise. He further brings to the notice of this Court Section 57 of the Act and Regulation 35 of the Competition Commission of India (General) Regulations, 2009, and states that these provisions do not ensure that the confidentiality of the matter is maintained as the same is only dependent on the discretion of the CCI at the end of the day. Further, there is no guarantee regarding the maintenance of confidentiality as is evident by the fact that other entities such as the Internet Freedom Foundation (IFF) and one Prachi Kohli have filed intervention applications on being made aware of the issue. He states that, therefore, an intrusive and unnecessary investigation by the DG would have the potential of revealing the internal workings of the Appellant to the public, thereby hampering its business. 7. Mr. Mukul Rohatgi, learned Senior Counsel appearing for Appellant in LPA 164/2021, at the outset, states that he is adopting the arguments of Mr. Harish Salve, learned Senior Counsel appearing for the Appellant in LPA 163/2021, and submits that the Appellant in LPA 164/2021 has been roped in the instant .....

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..... certain agreements and dominant position of enterprise. He further states that Section 4 of the Act stipulates what constitutes dominant position and there is nothing in the Order to indicate that the Appellant is abusing its dominant position. 10. The learned Senior Counsel submits that the interpretation of the learned Single Judge of Competition Commission of India v. Bharti Airtel (supra) is misplaced as in the said matter, the issue was between two regulators. In the instant case, it is the Constitution Bench of the Supreme Court which is seized of the matter pertaining to the 2021 Policy, and therefore, judicial propriety would dictate that CCI should stay its hands before initiating any investigation whatsoever before the Supreme Court has rendered its decision. 11. Mr. Parag Tripathi, learned Senior Counsel appearing for Facebook India Online Services Pvt. Ltd. (hereinafter referred to as the Applicant ) by way of an Impleadment Application, submits that there is no material which clubs the Applicant with the Appellants herein and that the Applicant has nothing to do with the activities of Facebook Inc. itself. He contends that the entity has been incorporated to carry out .....

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..... s out of those proceedings. 15. Per contra, Mr. N. Venkataraman, learned ASG appearing for Respondent No. 1/CCI, submits that there is no overlap factually with any pending proceedings across other Courts. He states that the Order of the CCI indicates that a careful and thoughtful consideration of the matter was done before arriving at the conclusion that there were concerns regarding violation of the provisions of the Act. He states that the CCI is examining the 2021 Policy through the prism of the Competition Act, 2002, in a bid to discharge its statutory functions as a competition law regulator and is, therefore, not concerned with the possible violation of fundamental rights that is being delved into by the Supreme Court. Mr. Venkataraman, therefore, argues that the scope of jurisdiction of the CCI lies on a different plane than that of a Constitutional Court, and the fact that the latter is seized of the matter has no bearing on the investigation that is being conducted by the DG, CCI. Furthermore, attention has been drawn to Sections 60 and 62 of the Act to state that the Act shall have an overriding effect, and that the application of other laws would not be barred. 16. The .....

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..... ovisions and legal limitations which are stipulated under the respective statute. Undoubtedly it can be that there may be an overlapping investigation but in my opinion such an eventuality cannot prevent any investigating authority from carrying out investigation in respect of their jurisdiction conferred on them under the statute. I am also of the further opinion that the investigation in respect of the corporate fraud can be initiated and considered by the central government under section 237(b)(i) of the companies Act. I have not been able to come across any provisions under the SEBI act in which any corporate fraud can be investigated by the SEBI. Undoubtedly it can be investigated under normal criminal law by the CBI. I am further of the opinion that merely because the material on the basis of which investigation is being undertaken is identical to the material which is subject matter of investigation by the other authority it can not be stated that both the authorities can not simultaneously investigate pursuant to power conferred on them under their respective statutes. I am of the opinion that every authority is entitled to investigate even may be in respect of the same mat .....

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..... I, after duly analysing how the take it or leave it nature of the 2021 Policy and Terms of Service of WhatsApp, and the information sharing stipulations therein, has held that the same merit a detailed investigation in view of the market position and market power enjoyed by WhatsApp. He further states that the existence of Regulation 35 of the Competition Commission of India (General) Regulations, 2009, ensures that whatever happens during the course of investigation is kept confidential. 20. Mr. Venkataraman refers to the letter dated 18.05.2021 issued by MeiTY to state that the Ministry had warned WhatsApp as to how the 2021 Policy was violative of not only the right to privacy enshrined in our Constitution of India, 1950, but further violated the legal framework under the Information Technology Act, 2000, the Competition Act, 2002, and other statutory provisions. He states that WhatsApp s response dated 22.05.2021 to the said letter reveals that the entity has not stopped the exercise of its policy. He further submits that Rule 5(7) of the Information Technology (Reasonable Security Practices and Procedures and Sensitive Personal Data or Information) Rules, 2011 (hereinafter ref .....

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..... our, and that Section 4 of the Act categorically uses the term enterprise to denote the concept of a group. He states that it would not be in the realm of law to investigate only WhatsApp and not Facebook, and that the language of Section 26 itself indicates that the issue is not about a party, but about the matter. He further states that by virtue of being a group company as well as the holding company of WhatsApp, Facebook inhabits a position whereby they can virtually use the information being shared by WhatsApp and potentially misuse the same. 24. The learned ASG concludes his submissions by reiterating that the Competition Commission of India v. Bharti Airtel (supra) is not applicable in the instant case as the issue in that case was a Point of Interconnect which was in realm of the telecom sector, and that it had never been said that CCI had no jurisdiction at all. Furthermore, Mr. Singh submits that there is enough material to showcase that the entire group, including Facebook India Online Services Pvt. Ltd. which is seeking impleadment in the instant matter, belongs to the Facebook company. The learned ASG, in this regard, relies upon Cadila Healthcare Limited v. Competitio .....

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..... petition Commission of India v. Steel Authority of India (supra), the main objective of competition law is to promote economic efficiency using competition as one of the means of assisting the creation of a market responsive to consumer preferences. Satisfactory implementation of competition law would lead to a threefold advantageous system wherein there would be allocative efficiency, which ensures effective allocation of resources; productive efficiency, which ensures that costs of production are kept at a minimum; and dynamic efficiency, which promotes innovative practices. One can only proceed ahead with a matter entailing an attack to the jurisdiction of the CCI by keeping these objectives of the Competition Act in mind. 28. The primary issue that has been submitted before this Court is with regard to the overlapping jurisdiction of the CCI and the Constitutional Courts, and whether CCI should abstain from exercising its jurisdiction to maintain comity between decisions of different authorities on the same issues. In this context, the Appellants have placed heavy reliance on Competition Commission of India v. Bharti Airtel (supra) to submit that therein the sectoral regulator, .....

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..... d by the IDOs in terms of the licences granted to them. The TRAI Act and Regulations framed thereunder make detailed provisions dealing with intense obligations of the service providers for providing POIs. These provisions also deal as to when, how and in what manner POIs are to be provisioned. They also stipulate the charges to be realised for POIs that are to be provided to another service provider. Even the consequences for breach of such obligations are mentioned. 104. We, therefore, are of the opinion that the High Court is right in concluding that till the jurisdictional issues are straightened and answered by TRAI which would bring on record findings on the aforesaid aspects, CCI is ill-equipped to proceed in the matter. Having regard to the aforesaid nature of jurisdiction conferred upon an expert regulator pertaining to this specific sector, the High Court is right in concluding that the concepts of subscriber , test period , reasonable demand , test phase and commercial phase rights and obligations , reciprocal obligations of service providers or breaches of any contract and/or practice , arising out of the TRAI Act and the policy so declared, are the matters within the j .....

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..... Competition Act frowns at the anti-competitive agreements. It deals with three kinds of practices which are treated as anti-competitive and are prohibited. To recapitulate, these are: (a) where agreements are entered into by certain persons with a view to cause an appreciable adverse effect on competition; (b) where any enterprise or group of enterprises, which enjoys dominant position, abuses the said dominant position; and (c) regulating the combination of enterprises by means of mergers or amalgamations to ensure that such mergers or amalgamations do not become anti-competitive or abuse the dominant position which they can attain. 109. CCI is specifically entrusted with duties and functions, and in the process empower as well, to deal with the aforesaid three kinds of anti-competitive practices. The purpose is to eliminate such practices which are having adverse effect on the competition, to promote and sustain competition and to protect the interest of the consumers and ensure freedom of trade, carried on by other participants, in India. To this extent, the function that is assigned to CCI is distinct from the function of TRAI under the TRAI Act. The learned counsel for the ap .....

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..... conclusion of the aforesaid discussion is to give primacy to the respective objections (sic objectives) of the two regulators under the two Acts. At the same time, since the matter pertains to the telecom sector which is specifically regulated by the TRAI Act, balance is maintained by permitting TRAI in the first instance to deal with and decide the jurisdictional aspects which can be more competently handled by it. Once that exercise is done and there are findings returned by TRAI which lead to the prima facie conclusion that the IDOs have indulged in anticompetitive practices, CCI can be activated to investigate the matter going by the criteria laid down in the relevant provisions of the Competition Act and take it to its logical conclusion. This balanced approach in construing the two Acts would take care of Section 60 of the Competition Act as well. 114. We, thus, do not agree with the appellants that CCI could have dealt with this matter at this stage itself without availing the inquiry by TRAI. We also do not agree with the respondents that insofar as the telecom sector is concerned, jurisdiction of CCI under the Competition Act is totally ousted. In a nutshell, that leads to .....

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..... ts is not acceptable. It is the case of the Appellants that while the Apex Court is looking into whether the 2021 Policy is violative of the right to privacy under Article 21 of the Constitution of India or not, the investigation by CCI is confined to whether the 2021 Policy is in furtherance of the dominant position occupied by WhatsApp and institutes anti-competitive practices. The sphere of operation of both are vastly different. Neither this Court nor the Supreme Court are analysing the 2021 Policy through the prism of competition law. The Order dated 24.03.2021 rendered by the CCI also notes the same: 13. In relation to the above mentioned contentions of WhatsApp, the Commission is of the view that the judgments relied by WhatsApp have no relevance to the issues arising in the present proceedings and its plea is misplaced and erroneous. The judgment of the Hon'ble Supreme Court in Bharti Airtel Case has no application to the facts of the present case as the thrust of the said decision was to maintain 'comity' between the sectoral regulator (i.e. TRAI, in the said case) and the market regulator (i.e. the CCI). WhatsApp has failed to point out any proceedings on the .....

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..... ill not be affected by the outcome of the proceedings pending before the Apex Court and this Court. In the event the Supreme Court upholds the 2021 Policy, then surely CCI can venture into the question as to whether the provisions of the Act have been violated or not. In the event that the 2021 Policy is set aside by the Supreme Court, the CCI will still possess the jurisdiction to investigate the violation of the Act, if any, during the pendency of the matter before the Supreme Court when the 2021 Policy was in operation. In either of the cases, it cannot be stated that the CCI does not have the authority look into this affair being the market regulator. 34. It further becomes necessary to examine the scope and ambit of Section 26(1) of the Act which has been done in Competition Commission of India v. Steel Authority of India (supra) and has been relied upon by the learned Single Judge. The relevant portion of the said Judgement is as follows: 38. In contradistinction, the direction under Section 26(1) after formation of a prima facie opinion is a direction simpliciter to cause an investigation into the matter. Issuance of such a direction, at the face of it, is an administrative .....

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..... ection 26(1), we are of the considered view that the right of notice or hearing is not contemplated under the provisions of Section 26(1) of the Act. 93. We may also usefully note that the functions performed by the Commission under Section 26(1) of the Act are in the nature of preparatory measures in contrast to the decision-making process. That is the precise reason that the legislature has used the word direction to be issued to the Director General for investigation in that provision and not that the Commission shall take a decision or pass an order directing inquiry into the allegations made in the reference to the Commission. 35. A reading of the above Judgement indicates that the jurisdiction of the CCI under Section 26(1) does not contemplate an adjudicatory function, but is merely a function of an administrative nature. Accordingly, there is no right of notice or hearing contemplated under the provisions of Section 26(1) of the Act. It is in nature of preparatory measures in contrast to the decision-making process, and this nature is evident from the usage of the term direction that is issued to the Director General for investigation in that provision. In light of this, it .....

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..... agitated before this Court by both the Appellants is that the CCI has failed to discern a prima facie case that would entail a direction to the DG to investigate the alleged anti-competitive practices. Before delving into this, it would be prudent to reproduce relevant portions of Sections 4, 19 and 26 of the Act: 4. [(1) No enterprise or group shall abuse its dominant position.] (2) There shall be an abuse of dominant position [under sub-section (1), if an enterprise or a group]. - (a) directly or indirectly, imposes unfair or discriminatory (i) condition in purchase or sale of goods or service; or (ii) price in purchase or sale (including predatory price) of goods or service. Explanation. For the purposes of this clause, the unfair or discriminatory condition in purchase or sale of goods or service referred to in sub-clause (i) and unfair or discriminatory price in purchase or sale of goods (including predatory price) or service referred to in sub-clause (ii) shall not include such discriminatory condition or price which may be adopted to meet the competition; or (b) limits or restricts (i) production of goods or provision of services or market therefor; or (ii) technical or scie .....

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..... st of entry, marketing entry barriers, technical entry barriers, economies of scale, high cost of substitutable goods or service for consumers; (i) countervailing buying power; (j) market structure and size of market; (k) social obligations and social costs; (l) relative advantage, by way of the contribution to the economic development, by the enterprise enjoying a dominant position having or likely to have an appreciable adverse effect on competition; (m) any other factor which the Commission may consider relevant for the inquiry ***** 26. (1) On receipt of a reference from the Central Government or a State Government or a statutory authority or on its own knowledge or information received under section 19, if the Commission is of the opinion that there exists a prima facie case, it shall direct the Director General to cause an investigation to be made into the matter: Provided that if the subject matter of an information received is, in the opinion of the Commission, substantially the same as or has been covered by any previous information received, then the new information may be clubbed with the previous information. 38. Whether or not the Appellants occupy a dominant position .....

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..... rimarily psychological. 87. As regards the barriers to entry, they may arise indirectly as a result of the networks effects enjoyed by the dominant player in the market, i.e. WhatsApp, in the present case. Since networks effects lead to increased switching costs, new players may be disincentivized from entering the market. 88. Thus, in view of the aforementioned factors, the Commission prima facie finds WhatsApp to be dominant in the first relevant market i.e. market for OTT messaging apps through smartphones in India‟. 39. The dominance of the Appellant in LPA 163/2021 has also been deliberated upon by the Respondent No. 1 and the following has been stated by the same in its Order dated 24.03.2021: 20. Based on the above, the Commission concluded that WhatsApp is dominant in the relevant market for OTT messaging apps through smartphones in India. As such, in light of the said holding of the Commission in Harshita Chawla case, there is no occasion to separately and independently examine the issue of relevant market and dominance of WhatsApp therein, when there is no change in the market construct or structure since the passing of the said order in August, 2020 and announcing .....

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..... d then pass a direction to the Director General to cause an investigation into the matter. These proceedings are initiated by the intimation or reference received by the Commission in any of the manners specified under Section 19 of the Act. At the very threshold, the Commission is to exercise its powers in passing the direction for investigation; or where it finds that there exists no prima facie case justifying passing of such a direction to the Director General, it can close the matter and/or pass such orders as it may deem fit and proper. In other words, the order passed by the Commission under Section 26(2) is a final order as it puts an end to the proceedings initiated upon receiving the information in one of the specified modes. This order has been specifically made appealable under Section 53-A of the Act. ***** 97..........Even if it is a direction under any of the provisions and not a decision, conclusion or order passed on merits by the Commission, it is expected that the same would be supported by some reasoning. At the stage of forming a prima facie view, as required under Section 26(1) of the Act, the Commission may not really record detailed reasons, but must express .....

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..... the CCI Order dated 24.03.2021 reveals that sufficient reasoning has been provided before the CCI arrived at the conclusion that a prima facie case of violation of Section 4 of the Act was made. The paragraphs of the said Order indicating the same are as under: 25. Having considered the overarching terms and conditions of the new policy, the Commission is of prima facie opinion that the 'take-it-or-leave-it' nature of privacy policy and terms of service of WhatsApp and the information sharing stipulations mentioned therein, merit a detailed investigation in view of the market position and market power enjoyed by WhatsApp. The Commission has also taken note of the submission of WhatsApp that 2021 Update does not expand WhatsApp's ability to share data with Facebook and the said 'update intends to provide users with further transparency about how WhatsApp collects, uses and shares data. The veracity of such claims would also be examined during the investigation by the DG. 26. WhatsApp is the most widely used app for instant messaging in India. A communication network/platform gets more valuable as more users join it, thereby benefiting from network effects. The OTT m .....

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..... 39;includes', 'such as', 'For example', etc., which suggests that the scope of sharing may extend beyond the information categories that have been expressly mentioned in the policy. Such opacity, vagueness, open-endedness and incomplete disclosures hide the actual data cost that a user incurs for availing WhatsApp services. It is also not clear from the policy whether the historical data of users would also be shared with Facebook Companies and whether data would be shared in respect of those WhatsApp users also who are not present on other apps of Facebook i.e., Facebook, Instagram, etc. 28. Further, users are not likely to expect their personal data to be shared with third parties ordinarily except for the limited purpose of providing or improving WhatsApp's service. However, it appears from the wordings of the policy that the data sharing scheme is also intended to, inter alia, 'customise', 'personalise' and 'market' the offerings of other Facebook Companies. Under competitive market condition, users would have sovereign rights and control over decisions related to sharing of their personalised data. However, this is not the case w .....

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..... the Act. 31. Given the pronounced network effects it enjoys, and the absence of any credible competitor in the instant messaging market in India, WhatsApp appears to be in a position to compromise quality in terms of protection of individualised data and can deem it unnecessary to even retain the user-friendly alternatives such as 'optout' choices, without the fear of erosion of its user base. Moreover, the users who do not wish to continue with WhatsApp may have to lose their historical data as porting such data from WhatsApp to other competing apps is not only a cumbersome and time consuming process but, as already explained, network effects make it difficult for the users to switch apps. This would enhance and accentuate switching costs for the users who may want to shift to alternatives due to the policy changes. 32. Today's consumers value non-price parameters of services viz. quality, customer service, innovation, etc. as equally if not more important as price. The competitors in the market also compete on the basis of such non-price parameters. Reduction in consumer data protection and loss of control over their personalised data by the users can be taken as redu .....

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..... increase in the downloads of Telegram and Signal when the 2021 Policy was announced, the number of users of WhatsApp have remained unchanged. By and large, to ensure retention of its user base and to prevent any other disruptive technology from entering the market, data is utilised by tech companies to customise and personalise their own platforms so that its userbase remains hooked. When data concentration is seen through this prism, it does give meaning to the new adage that data is the new oil , and, as noted in the CCI Order dated 24.03.2021, it raises competition concerns because it prima facie amounts to imposition of unfair terms and conditions upon its users, thereby violating Section 4(2)(a)(i) of the Act. 45. Furthermore, as Paragraph 33 of the CCI Order dated 24.03.2021 (which has been reproduced hereinabove) states, accumulation and processing of personal data from WhatsApp, in addition to its own direct data collection, can be done by Facebook for the purposes of consumer profiling that allows for targeted ads, inter alia, which in turn has the potential to undermine competitive processes and create further barriers to market entry in stark violation of Section 4(2)(c .....

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..... e aspect of impleading the said party on account of the fact that the decision of the DG to issue notice to the Applicant, designating it as an Opposite Party , stems from the information it has secured from Internet Freedom Foundation in Case No. 30 of 2021 regarding its relevance in the investigation. The decision taken by the DG lies in the fact that a thorough investigation can only be conducted if the Applicant cooperates in the same. 49. Furthermore, it is not contemplated in law that a party should be impleaded at the stage of an appeal when it has not been a party to the matter at the stage when the decision from which the appeal arises has been given, and the remedy of the Applicant only lies by way of a writ against the Order by which it is aggrieved. The contention of Mr. Tripathi that the Applicant has chosen to implead itself in the appeal filed by Facebook cannot be accepted by this Court. The Applicant will have to first make out a prima facie case before the learned Single Judge that there is no allegation against it in the Order of the CCI. The case of the Applicant would involve independent application of mind by the learned Single Judge. The instant appeals are p .....

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