An Entity Is Entitled To Know Status Under Which Its Presence And Participation Is Sought In Statutory Proceedings: Madras HC

The Madras High Court observed that an entity is entitled to know the status under which its presence and participation is sought in statutory proceedings.

The Court observed thus in a batch of writ petitions challenging the orders and for final disposal of the matter before the Competition Commission of India (CCI).

A Single Bench of Justice Anita Sumanth remarked, “In my considered view, an entity is entitled to know the status under which its presence and participation is sought in statutory proceedings. The application of the statutory provisions and connected Regulations, their consequences, as well as available protections would vary depending on the status of the party. Thus, unless a party is aware as to the specific provision under which its involvement is sought and obtained, it would be in the dark as to the measures available to it under the law.”

The Bench said that for a party to be the subject to the rigour of Section 27 of the Competition Act, 2002, it must be afforded sufficient opportunity to contest its inclusion/impleadment as a contesting party/opposite party and must be put on notice.

Senior Advocate AL Somayaji appeared on behalf of the petitioner while Additional Solicitor General N. Venkatraman and Central Government Standing Counsel R. Thirunavukkarasu appeared on behalf of the respondents.

In this case, a reference was made by the Directorate of State Transport, Haryana under Section 19(1)(b) of the Competition Act against JK Tyres & Industries Limited (JK Tyres). An order was passed in 2019 by CCI directing investigation to be made into the matter and for submission of an investigation report within 60 days. JK Tyres was arrayed as opposite party in that reference and the same based on the following factual pattern –

The Haryana State had invited online tenders in 2018 for purchase of new steel radial tyres of different sizes and specifications. The tyre sets were required at 25 different destinations to replace worn-out tyres on the buses run by Haryana Roadways. There was only one bidder i.e., JK Tyres and after technical and financial scrutiny, the matter was referred to the High Power Purchase Committee (HPPC) since the procurement value exceeded a sum of Rs. 1 crore. In the meeting held, it was felt that the rates quoted by JK Tyres were considerably higher than the last purchase rates. The ensuing negotiations attempted with JK Tyres were not fruitful and the bidder remained firm on its quoted prices. Due to this, HPCC suspected cartelization and rigging of prices by tyre manufacturing firms. A tabulation of other companies manufacturing comparable radial tyre models were set out, including the petitioner (MRF Ltd.).

CCI was of the view that a detailed investigation was to be carried out to unearth the modus operandi for the suspected rigging and the Director General was directed to cause such investigation. Hence, such order was challenged before the High Court.

The High Court after hearing the arguments of parties noted, “The records reveal that the petitioner has responded to the notices issued post passing of the first order, on the clear understanding that it is only a third party participant in the proceedings. The change in status to ‘party’ was never intimated to it, and neither was the petitioner put to notice prior to such change in status. It is only when order dated 26.08.2020 was furnished to the petitioner on 01.03.24, that the petitioner was aware of the change/enhancement in status.”

The Court said that there has been considerable opaqueness in the manner of conduct of the proceedings and considerable delay on the part of the respondents in making available order to the petitioner and hence, it was incumbent upon the authorities to have solicited the response of the petitioner prior to changing the status, which change has serious and grave implications.

“In the present case, a report dated17.08.2020 has been furnished by the DG which has not been furnished to the petitioner. Sub-section (4) provides for the Commission to forward a copy of the report referred to in sub-section (3) and (3B) to the parties concerned. The term used in Section 26(4) is ‘parties’. Since a copy of the report u/s 26(3) has not been furnished to the petitioner, it is clear that it is still being treated on par with a third party to the proceedings. This is despite the updation in status exparte to contesting party, under order dated 26.08.2020 furnished to the petitioner in 2024”, it enunciated.

The Court added that neither Section 41 nor Section 26(4) elaborate on the procedure to be followed when a third party is escalated to the position of contesting/opposite party, however it is clear that this escalation is triggered by virtue of the reports of the DG (Director General) under Section (3) and (3B).

“If the reports under Section (3) and (3B) contain recommendations that there is no contravention of the statutory provision, the Commission, under sub-section(5), shall invite objections or suggestions from the concerned Government. On consideration of the objections as well as suggestions of the concerned Government, the Commission could close the matter if it agrees with the recommendations of the DG”, it further noted.

The Court also said that if the objections/suggestions of the Government are contrary to the reports of the DG and if the Commission concurs, it may direct further investigation into the matter and if on the other hand, the reports under sub-section (3) and (3B) recommend contravention of statutory provisions and if the Commission is of the opinion that further enquiry is called for, it shall cause such further enquiry under sub-section (8) of Section 26.

“… the scheme of Section 26 makes it possible for the report of the DG under sub-section (3) and (3B) to be the final word on the matter, if the concerned Government concurs and the Commission is of the opinion that the enquiry by the DG has been comprehensive. It thus becomes all the more incumbent for opportunity to be afforded to a third party, prior to conversion of its status from ‘third person’ to ‘contesting party”, it observed.

The Court concluded that the petitioner ought to have been given notice prior to impleadment as a party and the satisfaction of the authority as to the justification for such impleadment ought to have been made out by way of a speaking order.

Accordingly, the High Court quashed the impugned order and notice.

Cause Title- MRF Ltd. v. Competition Commission of India and Ors. (Neutral Citation: 2024:MHC:2115)

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