"Passed Without Fulfilment Of Precondition U/S 26(1), Competition Act": Gauhati HC Sets Aside Penalty Of Rs 5 Lakhs On Star Cement
|The Gauhati High Court has overturned an order issued by the Competition Commission of India, which had imposed a penalty of Rs. 5 Lakhs on Star Cement Ltd. under Section 43 of the Competition Act, 2002, for failing to comply with the directives of its Director General.
In that context, the Bench of Justice Kaushik Goswami observed that, "the impugned Order dated 06.12.2016 having been passed without fulfillment of the precondition of the Section 26(1) of the said Act, 2002, i.e., without arriving a prima facie finding under Section 3(1) and 3(3) of the said Act, 2002 is without jurisdiction and as such, is a nullity... Consequently, the impugned Order dated 27.08.2018 passed by the CCI imposing penalty to the tune of Rs. 500,000/- (Rupees Five lakhs) under Section 43 of the said Act, 2002 also stands quashed and set aside."
On September 08, 2016, the Assam Real Estate and Developer Association filed a complaint with the Competition Commission of India (CCI) under Section 19(1)(a) of the Competition Act, 2002, alleging that a petitioner company, along with other cement manufacturers, had engaged in cartelization and abuse of dominance to manipulate cement prices in the North East Region of India. The CCI registered two cases based on these allegations and, on December 06, 2016, issued an order stating that the petitioner company and other cement manufacturers were involved in anti-competitive activities, violating Sections 3(3) and 3(1) of the Competition Act, 2002. Consequently, the CCI directed the Director General to conduct an investigation under Section 26(1) of the Act and complete it within 60 days.
On December 08, 2017, the Joint Director General issued a notice to the petitioner company under Section 36(2) read with Section 41(2) of the Act, directing them to provide various pieces of information. However, the December 06, 2016 order was not provided to the petitioner company, even though it was mentioned as being attached to the notice. The petitioner company requested additional details from the CCI on December 19, 2017, and asked for an extension to submit the required information. The CCI eventually served the petitioner with the December 06, 2016 order.
On May 30, 2018, the petitioner company filed an application with the CCI to review and recall the December 06, 2016 order, but the CCI rejected this application on August 08, 2018. Aggrieved by the CCI's rejection of their review application, as well as the initial order of investigation, the petitioner company filed a writ petition with the High Court.
During the investigation, the Director General issued another notice to the petitioner company to provide the requested information. Despite multiple submissions by the petitioner, the CCI, on August 27, 2018, held that the petitioner company had failed to provide complete information and did not show a reasonable cause for the delay. Consequently, the CCI imposed a penalty of Rs. 5,00,000/- on the petitioner company under Section 43 of the Act for non-compliance. Aggrieved by this penalty, the petitioner filed another writ petition with the High Court, which then heard both petitions together.
The High Court held that the CCI's orders dated December 06, 2016, and December 08, 2018, were null and void due to the failure to fulfill the mandatory requirement under Section 26(1) of the Competition Act, 2002. The Court emphasized that before directing an investigation, the CCI is required to form a "prima facie" opinion on whether the information received suggests a violation of Sections 3 and/or 4 of the Act. The Court stated, "an investigation cannot be directed by the CCI mechanically and/or in a routine manner," underscoring the necessity of this preliminary assessment.
Relying on the Supreme Court's judgment in State of Haryana & Others v. Bhajan Lal & Others (1992), the Court highlighted that the power to quash such proceedings for investigation is similar to the High Court's power under Section 482 of the CrPC to quash FIRs or complaints. The Court noted, "...it is apparent that the information received does not disclose the existence of the prima facie case as regards contravention of the provisions of Section 3 and/or 4 of the said Act, 2002, and since the same is a sine qua non for CCI to direct the investigation, the decision of the CCI in directing investigation without fulfilment of the said mandatory pre-condition is totally without jurisdiction and is therefore, null and void."
Cause Title: Star Cement Ltd. vs The Competition Commission of India & 4 Ors. (Neutral Citation: GAHC010204292018)
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