Investigation under the Competition Act, 2002

By Tanishka Tiwari

Published on: November 20, 2023 at 10:12 IST

Competition serves as the initial phase towards accomplishing a goal. Once markets stabilize, the economy attains sustainable, profitable, effective, and progressive characteristics. The Competition Act of 2002 exemplifies legislation aiming to eradicate anti-competitive behavior by prohibiting agreements that hinder competition and mishandling situations where one entity dominates the market. Competition is perceived as a constructive practice that fosters opportunities and serves as a driving force in any field as long as it abides by legal guidelines.

Perfect competition is characterized by a market outcome where all firms sell an identical and easily divisible product, where all producers and consumers accept prices, where firms have a small market share, and where buyers and sellers possess complete knowledge about the market, including the cost and quality of the product, and where there are no external factors influencing the market.

The Competition Act of 2002 is a comprehensive legislation that aims to nurture equitable competition and prohibit anti-competitive practices within the Indian market.

The Competition Commission of India (CCI) operates as the principal regulatory authority that has been given the duty of ensuring that trade practices are fair and that competition remains healthy. The CCI can initiate investigations into potential competition law violations in light of the Act.

It is of utmost importance to comprehend the role played by the CCI in promoting fair market practices by understanding the triggers and criteria that prompt the initiation of such investigations.

Investigation under the Competition Act, 2002

The Competition Act, 2002, is a legislation in India that addresses issues related to competition and antitrust practices in various economic sectors. Under this Act, the Competition Commission of India (CCI) is established as the regulatory body responsible for ensuring fair competition in the market and preventing anti-competitive practices. When there are concerns or suspicions of anti-competitive behavior, an investigation may be initiated under the provisions of the Competition Act.

How is an investigation into a suspected breach of competition law started?

The Competition Commission of India (CCI) has the authority to initiate an inquiry into an alleged breach of competition law regulations upon receipt of information from any individual (including businesses, trade organisations, and consumer associations), exercising its own volition (suo moto), or being referred to it by the central or state governments by section 19 of the Competition Act 2002.¹

Following an examination of the facts, if the Competition Commission of India (CCI) is satisfied on a prima facie basis that the matter requires detailed investigation, the CCI is required to pass an order under section 26(1) of the Competition Act directing the Office of the Director General to initiate an investigation into the suspected breaches of competition law and submit its report within a specified timeframe.²

As an informant, a third party or a person not a cartel member can file information with the CCI under Section 19(1)(a) of the Competition Act.³

Inquiry and Investigation into Anti-Competitive Agreements and Abuse of Dominance

The CCI’s investigation mechanism is outlined in Section 19 of the Act, which states that the Commission conducts inquiries in situations of specific agreements believed to be in violation of the Act or information claiming abuse of dominant position by a business in the following manner:

When the CCI receives a reference or its knowledge or information under Section 19 regarding an anti-competitive agreement or abuse of dominance, it must form a preliminary opinion that a case exists and, once started, it must direct the DG to investigate the matter.

If the CCI does not find a prima facie case, it will close the matter, issue an appropriate Order, and notify the parties involved.

The DG is required to submit a report on his findings to the CCI within the time specified by the Commission’s Order, such that:

• Suppose the DG recommends that no case of anti-competitive agreement or abuse of dominance exists and/or that there is no violation of the Act’s provisions. In that case, the CCI shall invite objections/suggestions from the concerned parties.
• If CCI agrees with the DG after considering these concerns or suggestions, the case will be closed. If the CCI disagrees with the DG’s suggestion, it may order additional inquiry or further investigation.
• Suppose the DG advises in its report that there is a violation of the Act’s provisions and the CCI believes that additional investigation is warranted. In that case, it shall conduct such investigation per the Act’s requirements.

In CCI v SAIL,⁴ it was observed that the CCI enquires into the subject at the outset, and if, at the inquiry stage, it is of the view that prima facie an infringement case exists, it orders the DG to examine the matter under Section 26 of the Act.

The scope of the DG’s probe was discussed in Excel Crop Care Limited v. Competition Commission of India & Others.⁵ In this case, the SC determined that the DG should investigate compliance with the CCI’s directive.

The SC determined that the goal of a DG inquiry is to “cover all necessary facts and evidence to determine whether the persons complained against have engaged in any anti-competitive practices.”

As a result, “the starting point of the inquiry would be the allegations contained in the complaint,” but “if other facts also get revealed and brought to light during the investigation, the DG would be well within his powers to include those as well in his report,” according to the SC.

The Supreme Court concluded the above because the CCI “cannot foresee and predict whether any violation of the Act would be found upon investigation and what the nature of the violation revealed through investigation” at the outset. As a result, the Supreme Court concludes that limiting the investigative process “would defeat the very purpose of the Act.”

As a result, the SC order enlarged the boundaries/ paradigm of DG investigations. The DG has the authority to investigate additional facts about a violation (not considered by the CCI) that the DG finds later during the inquiry.

Inquiry and Investigation into Combination by CCI

Section 20 of the Act authorises the Commission to investigate whether a combination significantly affects competition in the relevant Indian market. The commission may launch an investigation based on its knowledge, information obtained, or a referral from the federal government, a state government, or a statutory entity.

Before the Commission may launch an investigation into a proposed combination transaction, the legislation requires various conditions to be met. These are:

• If the outcome exceeds the statutory standards, prima facie evidence of a significant detrimental effect on competition in India’s relevant product and geographic market.
• Factors relevant to determining a significant unfavourable effect on competition have been statutorily provided for in the legislation, reducing arbitrariness.
• The legislation provides for local linkage or “de minimis” criteria for international transactions that have an unfavourable effect in India. Cross-border transactions not exceeding the statutory “de minimis” standards are excluded from Commission investigation.
• Government-aided companies are not free from scrutiny, guaranteeing a fair playing field between competing private and public sector enterprises.

Section 20(4), as advice, imposes a duty to consider all or any of the elements listed in the clause when considering whether a combination has a considerable unfavourable effect on competition in the relevant market.⁶

After determining that the combination is likely to produce or has caused a significant detrimental effect on competition in the relevant market:

The commission shall issue a show cause notice to the parties to the combination, requiring them to show cause why an investigation of such variety should not be performed within 30 days of receipt.

Following receipt of the parties’ responses, the commission may request a report from the DG within the time frame given:

• Following receipt of the response and the DG’s report, if the commission believes that the combination has or is likely to have an appreciable adverse effect on competition, it may direct the parties to publish the details of such variety within 10 days of such direction for the knowledge of the general public and the persons affected or likely to be affected by such combination.
• The public or affected parties must register any complaints or recommendations within 15 days after such posting.
• The commission may request more information from the parties to the combination within 15 days within the period above 15 days.
• The parties must provide the extra information within 15 days following the expiration of the 15 days the data was sorted.
• The Commission is required to take action within 45 days following the expiration of the 15 days for providing new information.

Investigation Procedure under the Competition Act, 2002

According to Section 19(1) of the Competition Act, any person, consumer, or association may file a complaint with the CCI claiming anti-competitive practices and/or abuse of a dominant position by an entity.

To that aim, the Central or State Governments, or a statutory authority, may make a referral to the CCI. Upon receipt of such information or reference, the CCI may either dismiss the notification outright under Section 26(2) of the Competition Act or direct the DG to investigate the matter if it believes there is a prima facie case of violation of the Competition Act.

The CCI issues a Prima Facie Order in the latter case. As a result, the Prima Facie Order serves as the foundation for the DG’s inquiry.

Typically, a Prima Facie Order enunciates the factual foundation upon which the CCI forms its preliminary perspective regarding the contravention of the stipulations outlined in the Competition Act.

The identified provisions (namely, Section 3 and/or Section 4 of the Competition Act) whose contraventions have been prima facie established pertain to enterprises that have engaged in anti-competitive practices and necessitate inquiry into their conduct.

The DG’s investigative powers are derived from Section 41,⁷ read with Section 36(2) of the Competition Act.⁸ These provisions vest the CCI, and by extension, the DG, with the same powers as a Civil Court under the Code of Civil Procedure, 1908, namely, the ability to summon and enforce a person’s attendance; examine him on oath; require the discovery and production of documents; receive evidence on affidavit, and so on.

During the inquiry, the DG gathers information from the firms under investigation, other parties, and the informant. The DG prepares a report of its conclusions, together with the evidence/documents gathered during the investigation, when the inquiry is completed.

This non-binding report is then presented to the CCI for review. During an inquiry, the DG may find new facts and occurrences or determine that an organisation violated additional sections of the Competition Act that were not specified in the Prima Facie Order.

Investigation Powers under Section 48

According to Section 48 of the Act, the Commission shall have the authority to investigate the individuals in control of the company.⁹

The motivation for enacting such rules is to maintain management’s fiduciary obligation to the government, shareholders, and the public in general. Only in 2014 did the Commission decide to penalise the company’s employees.

The Commission has issued several orders on individual liability since then. As incorporated in the CCI’s governance, the Commission’s approach to the problem of individual liability and penalty has been to generate a higher deterrent impact. This was a positive step because the Commission advocated for improved corporate governance requirements for Indian companies.

Section 48 of the Act authorises the Commission to prosecute any individual who was in charge of the company at the time of the violation. The second section requires the Commission to demonstrate that the violation occurred with active knowledge or negligence on the part of the company’s executives.

Individual blame in the event of a violation is civil. The Commission may levy a penalty of up to 10% of the individual’s average income over the previous three years. If an individual fails to comply with the order, they might face extra fines or jail for up to three years, or both.

Conclusion

The Competition Commission of India plays a crucial role in upholding equitable competition and deterring activities that inhibit competition in the Indian market. The legislation outlines explicit factors and standards that guide the CCI in commencing inquiries.

Whether prompted by grievances or suo moto cognizance, the CCI relies on initial evidence, anti-competitive conduct or abuse of market power, considerations of the public’s interest, and the potential detriment to competition before initiating formal investigations.

Familiarity with the factors and standards that trigger inquiries by the CCI is imperative for businesses, consumers, and rivals alike, as it ensures the preservation of a competitive marketplace and safeguards consumer welfare in India.

References

• The Investigation of Individuals under the Competition Act: An Unsettled question
• (PDF) Regulation of Combinations Under the Competition Law in India
• The Big(Data) Problem with the Competition Act, 2002 by Urbi Sinha :: SSRN
• India Law Journal
• At a glance: competition infringement investigations in India
• INQUIRY & INVESTIGATION UNDER THE COMPETITION ACT, 2002
• Scope-of-Director-Generals-Investigation-Under-The-Competition-Act-2002.pdf

Endnotes

1. The Competition Act, 2002, s.19, No.12, Acts of Parliament, 2002 (India)

2. The Competition Act, 2002, s.26(1), No.12, Acts of Parliament, 2002 (India)

3. The Competition Act, 2002, s.19(1)(a), No.12, Acts of Parliament, 2002 (India)

4. (2010) 10 SCC 744

5. (2017) 8 SCC 47

6. The Competition Act, 2002, s.20(4), No.12, Acts of Parliament, 2002 (India)

7. The Competition Act, 2002, s.41, No.12, Acts of Parliament, 2002 (India)

8. The Competition Act, 2002, s.36(2), No.12, Acts of Parliament, 2002 (India)

9. The Competition Act, 2002, s.48, No.12, Acts of Parliament, 2002 (India)