CCI Need Not Record Reasoned Order Before Ordering DG Probe: Calcutta High Court

The Calcutta High Court has recently held that the Competition Commission of India (CCI) need not record a separate, reasoned order setting out its prima facie opinion before directing the Director General (DG) to investigate under Section 26(1) of the Competition Act, 2002.

“Section 26(1) does not contemplate recording of a reasoned order by the Commission,” a Division Bench of Justice Shampa Sarkar and Justice Arjun Ray Mukherjee observed.

The Bench, however, found that the CCI had formed a prima facie opinion through its deliberations before directing the investigation.

The Bench was hearing two appeals against a Single Judge's refusal to stay a DG investigation. The appeals were filed by Shyam Steel Industries Ltd. and Gobind Beriwal.

The investigation followed a July 29, 2021 order of the Madras High Court on a complaint by the Coimbatore Corporation Contractors Welfare Association. The association had alleged that steel manufacturers had formed a syndicate, restricted supply and artificially increased steel prices.

The Madras High Court directed the DG to proceed further and take necessary and appropriate action on the complaint.

Before the Single Judge, Shyam Steel argued that the DG could investigate only after the CCI formed a prima facie opinion and directed an investigation under Section 26(1). It also contended that it was not a party to the Madras High Court proceedings and was not among the steel manufacturers named in the complaint.

The Single Judge refused to stay the investigation. Before the Division Bench, Shyam Steel maintained that formation of a prima facie opinion was a mandatory precondition for a DG investigation.

The CCI argued that the DG had acted pursuant to the Madras High Court's direction. It submitted that a fresh formation of opinion was therefore unnecessary. The investigation was in rem, it added, and had commenced on August 23, 2021. The investigation report and supplementary reports had since been placed before the CCI.

The Division Bench agreed with the Single Judge that the investigation was in rem. It held that the DG could examine the conduct of the cartel beyond the steel manufacturers specifically named in the Madras High Court proceedings.

The Bench differed from the Single Judge on whether the CCI had formed a prima facie opinion. The Single Judge had held that no further opinion was required because the investigation followed the Madras High Court's direction.

The Division Bench found that the CCI had, in fact, formed such an opinion. It noted that the Commission convened an urgent special meeting on August 17, 2021 after receiving the Madras High Court order. Following detailed deliberations, it directed the Secretariat to register the matter as a suo motu case and the DG to investigate.

The bench observed, “The expression 'detailed deliberation' which was used by the Commission, itself indicates that an opinion was formed, before registration of a suo motu case. This in our, prima facie, view amounts to substantial compliance of Section 26(1) of the said Act.”

The Bench also considered the Orissa High Court's decision in Rungta Mines Ltd., Kolkata & Anr. v. Union of India & Ors., which held that an investigation was vitiated for want of a prior Section 26(1) order. The Calcutta High Court expressly disagreed with that view.

Relying on the Supreme Court's ruling in Competition Commission of India v. Steel Authority of India Ltd., the Bench noted that a Section 26(1) direction, after the formation of a prima facie opinion, is an administrative direction to the DG and does not involve an adjudicatory process or entail civil consequences.

The bench held that the CCI's deliberation and subsequent direction to investigate amounted to sufficient compliance with Section 26(1). It declined to stay the proceedings as the investigation had already been completed and the report filed.

The appeals and connected applications were dismissed. The Bench clarified that the writ court would decide the matter independently and would not be influenced by its interim-stage order

For Appellants: Senior Advocates Mukul Rohatgi, Soumyo Mazumdar, Ratnanko Banerjee, Advocates Mahesh Agarwal, Vaibhavi Pandey, Naman Chowdhury, Sanskriti AgarwaL and Aman Khemka

For Respondents: Senior Advocate Madhavi Divan, Advocates Ajay Gaggar, Uttiyo Mallick, Sayan Banerjee and Aishani Narain