{"id":215370,"date":"2019-06-06T08:00:19","date_gmt":"2019-06-06T02:30:19","guid":{"rendered":"https:\/\/www.scconline.com\/blog\/?p=215370"},"modified":"2023-07-18T16:33:58","modified_gmt":"2023-07-18T11:03:58","slug":"landmark-decision-by-delhi-high-court-on-constitutional-validity-of-certain-provisions-of-the-competition-act","status":"publish","type":"post","link":"https:\/\/www.scconline.com\/blog\/post\/2019\/06\/06\/landmark-decision-by-delhi-high-court-on-constitutional-validity-of-certain-provisions-of-the-competition-act\/","title":{"rendered":"Landmark Decision by Delhi High Court on Constitutional Validity of Certain Provisions of the Competition Act"},"content":{"rendered":"

Background<\/strong><\/span><\/p>\n

In a landmark decision on 10-4-2019[1]<\/a>, a Division Bench of the High Court of Delhi (Delhi HC), pronounced a judgment relating to a batch of petitions filed by car manufacturers wherein the constitutionality of certain provisions of the Competition Act, 2002 (Act) was challenged. The genesis of the matter arose from the Competition Commission of India\u2019s (CCI) findings in what has come to be known as the Auto Parts case[2]<\/a>. The complaint alleged that 3 car manufacturers, M\/s Honda Siel Cars India Ltd., Volkswagen India Pvt. Ltd. and Fiat India Automobiles Limited, restricted free availability of spare parts in the open market, which caused a denial of market access for independent repairers, in addition to other anti-competitive effects including high prices of spare parts and repair and maintenance services for automobiles.\"\"<\/p>\n

After a detailed investigation by the Director General (DG) into the practices of 14 car manufacturers (the informant had only complained about 3 car manufacturers), the CCI found that the car manufacturers had contravened the provisions of Sections 3 and 4 of the Act and levied a penalty of 2% of the total turnover in India on each of the manufacturers. As a consequence, some car manufacturers filed a writ before the Delhi HC challenging the constitutional validity of certain provisions of the Act, which directly impacted the validity of the CCI\u2019s final order in Auto Parts case[3]<\/a>.<\/p>\n

Key Issues for Determination<\/strong><\/span><\/p>\n

The Delhi HC delineated the following key issues for determination: (i) whether the CCI is a tribunal exercising judicial functions; (ii) whether the composition of the CCI is unconstitutional and violates the principle of separation of powers; (iii) whether the \u201crevolving door\u201d practice at the CCI vitiates any provisions of the Act and more specifically, if the manner for decision-making provided under Section 22(3) of the Act is unconstitutional; and (iv) whether an expansion in scope of inquiry by the CCI is illegal.<\/p>\n

Ruling on the first issue, the Delhi HC held that the CCI is in part administrative, expert (when discharging advisory and advocacy functions) and quasi-judicial (while issuing final orders, directions and penalties) and cannot be characterised as a tribunal solely discharging judicial powers.<\/p>\n

On the second issue, the Delhi HC dealt with each of the provisions of the Act that were challenged by the petitioners and also undertook a comparison of regulatory models of different specialised bodies\/tribunals vis-\u00e0-vis the CCI. In particular, Section(s) 61 and 53-T of the Act (which deal with exclusion of jurisdiction of civil courts and High Courts, respectively); Section 9 (which provides for the selection procedure\/committee for members of the CCI); Section(s) 11, 55 and 56 (which deal with tenure of the members of the CCI and the provision for supersession by the Central Government in the event the CCI is unable to discharge its functions); Section 53-D (which prescribes the composition and constitution of the Appellate Tribunal) were upheld to be valid. Regarding Section 8 of the Act, the Delhi HC clarified that the requirement for the CCI to have a judicial member at all times is mandatory and in line with precedents of the Honourable Supreme Court of India (SC) as well. The Delhi HC declared Section 53-E of the Act (which deals with composition of the Selection Committee of the Appellate Tribunal), to be unconstitutional subject to the decision of the Honourable SC in Central Administrative Tribunal v. Union of India[4]<\/a> (wherein certain provisions of the Finance Act, 2017 have been challenged).\"\"<\/p>\n

Most importantly, the Delhi HC declared Section 22(3) of the Act which provides a casting vote (to the Chairperson of the CCI) to be void. It was held that the principle of equal weight for decisions of each participant of a quasi-judicial tribunal is destroyed by this provision. Whereas the proviso to Section 22(3), mandating a minimum quorum of three members (including the Chairman) for any meeting of CCI \u2014 where an adjudicatory decision is made \u2014 was upheld.<\/p>\n

Regarding the \u201crevolving door policy\u201d the Delhi HC emphasised on the principle of \u201cwho hears must decide\u201d and stated that any violation of this rule would render any final order void. It was also clarified that much would depend on the factual context and merely resorting to the practice of \u201crevolving door\u201d would not render Section 22 of the Act invalid or arbitrary. It is necessary that the party raising such objections must have been prejudiced.<\/p>\n

Further, in line with the decision of the Honourable SC in Excel Crop Care Ltd. v. CCI[5]<\/a>, the Delhi HC held that the CCI is well within its power to expand the scope of inquiry to include other issues and parties. This is because at the prima facie stage, the CCI may not have all information in respect of the parties\u2019 conduct.<\/p>\n

Finally, the Delhi HC has directed the CCI to frame guidelines ensuring that the principle of \u201cone who hears decides\u201d is embodied in letter and spirit in its functioning. It concluded that in all cases where final hearings begin, the membership should not vary, and a matter should preferably be heard by 7 or at least, 5 members. The CCI has also been directed to ensure that a judicial member is present and participating at all times during a final hearing. The directions also mandate the Central Government to take expeditious steps and fill all existing vacancies in the CCI within 6 months.<\/p>\n

Key Takeaway<\/strong><\/span><\/p>\n

While the directions of the Delhi HC will go a long way in entrenching principles of natural justice in the CCI\u2019s practice and procedure, they may have immediate ramifications on its functioning (given that the CCI is currently composed of 3 members with no judicial member). Interestingly, this may also have a bearing on the decision of the Union Cabinet which had approved \u201cright sizing\u201d of the CCI to 4 members (including the Chairperson) in April last year.<\/p>\n

Having said that, this may not be the last we hear from the judiciary as the Delhi HC order is likely to be challenged before the Supreme Court of India.<\/p>\n

\n

*Bharat Budholia, Partner<\/strong> can be contacted at Bharat.budholia@cyrilshroff.com, Aishwarya Gopalakrishnan, Principal Associate<\/strong> can be contacted at Aishwarya.gopalakrishnan@cyrilshroff.com and Dhruv Rajain, Senior Associate<\/strong> can be contacted at dhruv.rajain@cyrilshroff.com with the Competition Law Practice at Cyril Amarchand Mangaldas.<\/p>\n

[1]<\/sup><\/a>\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 Mahindra Electric Mobility Ltd. v. CCI, 2019 SCC OnLine Del 8032<\/a>.<\/p>\n

[2]<\/sup><\/a>\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 Shamsher Kataria v. Honda Siel Cars India Ltd., 2014 SCC OnLine CCI 95<\/a>.<\/p>\n

[3]<\/sup><\/a>\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 Shamsher Kataria v. Honda Siel Cars India Ltd., 2014 SCC OnLine CCI 95<\/a>.<\/p>\n

[4]<\/sup><\/a>\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 WP (C) No. 640 of 2017 (SC).<\/p>\n

[5]<\/sup><\/a>\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 (2017) 8 SCC 47<\/a>.<\/p>\n

\n","protected":false},"excerpt":{"rendered":"

Bharat Budholia, Partner,\u00a0 Aishwarya Gopalakrishnan, Principal Associate and Dhruv Rajain, Senior Associate, Cyril Amarchand Mangaldas<\/p>\n

Cite as: (2019) PL (Comp. 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