Delhi HC upholds the expansion of the DG’s investigation beyond CCI’s prima facie finding

On September 12, 2019, the Delhi High Court reversed its single judge bench’s finding that the Director General (‘DG’) cannot expand the scope of its investigation beyond what is directed in CCI’s prima facie order. [1]

On May 30, 2011, information was filed with the CCI which alleged that all the manufacturers of man-made fibre (‘MMF’), including Grasim Industries limited (‘GIL’), had imposed anti-competitive restrictions upon the Indian textile industry. Thereafter, CCI passed an order under Section 26(1) of the Act (‘26(1) Order’), wherein CCI directed the DG to investigate the conduct of MMF manufacturers (including GIL) under Section 3(3)(a), (b) and (c) of the Act, which deal with anti-competitive horizontal agreements. The DG’s investigation report (‘DG Report’) did not find any violation under Section 3 of the Act by any of the MMF manufacturers. However, it was observed by the DG in his report that GIL (as the sole manufacturer of Viscose Staple Fibre, which is a type of MMF) had abused its dominant position under Section 4 of the Act. Thereafter, GIL requested the CCI to quash the DG Report on the ground that the investigation of the DG was limited to allegations under Section 3(3) of the Act and the DG could not suo motu enlarge the scope of the investigation to a violation of Section 4. CCI dismissed this request, noting that a prima facie order under Section 26(1) was only a direction to the DG and was no meant to limit the scope of investigation. GIL preferred a writ petition before a single judge bench of the Delhi High Court against this dismissal order of CCI.

Before the single judge, GIL contended that the DG Report had found GIL to have abused its dominant position, in contravention of Section 4 of the Act whereas the 26(1) Order only directed the DG to investigation GIL’s conduct in relation to Section 3(3) of the Act. GIL also argued that it was not provided with any notice that it was also being investigated for alleged violation of Section 4, and therefore had no opportunity to make submissions to the DG on market definition, dominance and abuse of dominance. GIL claimed that this was a violation of principles of natural justice. The single judge upheld GIL’s contentions, stating that the DG does not have the power to suo moto expand the scope of investigation beyond what it is directed to investigate in CCI’s prima facie order. However, the single judge clarified that any information collected by the DG which alluded to the violation of any other provision of the Act would be treated as ‘information’ under Section 19 of the Act, on which CCI was required to pass a separate prima facie order directing the DG to investigate.

CCI challenged this order of the single judge before a division bench, which while coming to its decision, placed reliance on Competition Commission of India v. Steel Authority of India Limited, where the Supreme Court of India held that CCI’s opinion as recorded in a prima facie order under Section 26(1) of the Act does not restrict the DG’s investigation. The Supreme Court had clarified that under Section 26(1), CCI merely triggers an investigation. The division bench also relied on the Supreme Court’s judgment in Excel Crop. Care Limited v. Competition Commission of India and the Delhi High Court’s judgment in Cadila Healthcare Limited v. Competition Commission of India[2] to conclude that while the information filed with CCI did pertain to allegations of violation of Section 3(3), the direction given to investigate ‘the matter’ enabled the DG to examine any other violation that may have come to its notice during the course of the investigation.

In relation to GIL’s contention on violation of principles of natural justice, the division bench relied on the Delhi High Court’s previous decision in Cadila to reassert that the DG Report is inconclusive, and the final determination of the parties’ rights happens before CCI. Accordingly, the DB held that GIL had an opportunity to present its case before CCI, and therefore there was no violation of principles of natural justice, and reversed the judgement of the single judge.

[1]       Competition Commission of India v. M/s Grasim Industries Limited, LPA 137 of 2017.
[2]       Letter Patent Appeal 160 of 2018.

Published In:Inter Alia Special Edition - Competition Law - October 2019 [ English
Date: October 18, 2019