Module 6

objections/suggestions, the CCI can only pass an order under sections 26(8)78 or
under

section 27,79 neither of which permit it to go against the finding of the DG where the

DG has held a contravention.

The correct interpretation of the Act was adopted in its dissenting order. The order

rightly stated that "Under section 27 of the Act, an order can only be passed when a

contravention is established. Therefore, dropping of a case after DG has found a

contravention is not authorized under the Act." Since then, numerous cases have been

heard by the CCI where, despite the DG's confirmation of a contravention, the CCI

passed an order closing the case. 80

Proposed law: The Bill proposes to expand the scope of section 26(8) 81 by giving

the CCI statutory provisions under which it can close a case even if the DG finds a

contravention of the Act. The amendment will also allow the CCI to "make

appropriate orders thereon after hearing the concerned parties." Thus if the

amendment is effected then the CCI will legally be able to pass any order, irrespective

of the finding of the DG during its investigations. This is in addition to passing an

order directing a further inquiry.

Opportunity to be heard before imposition of penalty
Present law: Hindustan Steel Ltd. vs. State of Orissa82
The Supreme Court of India in the above case held that "...an order imposing penalty
for failure to carry out a statutory obligation is the result of a quasi-criminal
proceeding, and penalty will not ordinarily be imposed unless the party obliged either
acted deliberately in defiance of law or was guilty of conduct contumacious or
dishonest, or acted in conscious disregard of its obligation. Penalty will not also be
imposed merely because it is lawful to do so. Whether penalty should be imposed for
failure to perform a statutory obligation is a matter of discretion of the authority to be



78 In the event the DG recommends a contravention of the Act, the CCI can only pass an order under
section 26(8) for further inquiring into the contravention in accordance with the Act. This section does
not empower the CCI to close a case in such situations.
79 Under section 27, orders are passed by the CCI after inquiry into agreements of abuse of dominant
position is completed by the DG. These orders only pertain to directing parties to discontinue the
alleged practice, impose a penalty or modify the terms of any impugned agreement.
80 CCI's orders in (i) All India Tyre Dealer's Federation vs. Tyre Manufacturers, MRTP Case: RTPE
No. 20 of 2008 dated October 30, 2012; (ii) Film and Television Producers Guild of India vs. Multiplex
Association of India, Mumbai and Others, Case No. 37 of 2011 dated January 03, 2013.
81 The Competition Act, 2002.
82 1969(2)SCC627

exercised judicially and on a consideration of all the relevant circumstances." In
accordance with section 27(b) of the Act, the CCI can impose a penalty for
contravention of section 3 or 4. This penalty can be up to 10% the average turnover
for the last 3 financial years, or, in cases of a cartel, up to 3 times the profit or 10% of
the turnover, whichever is higher, for each year the alleged cartel is in force. In the
last couple of years the CCI has in multiple cases imposed penalties for contravention.
But once the contravention was proved the CCI without even offering any hearing
imposed penalties to the parties. This practice is followed due to the lack of a
corresponding provision in the Act mandating a hearing, which is inconsistent with
the judicial process followed in the courts. Some of other judgements pertaining to the
principle of judiciously exercising the right to levy penalties are Kesar Enterprises
Limited vs. State of Uttar Pradesh and Others, 83wherein the SC emphasized on the
principles of natural justice to be followed before imposition and recovery of penalty.
Proposed law: The Bill now proposes to amend the language of section 27(b) as well
as 27(g)84 to include a proviso requiring the CCI to grant a hearing to the party(s)
before it passes any order under any of the aforementioned sections.
This will be consistent with the judicial practice which offers a fair chance to the
parties to defend any imposition of penalty that the CCI imposes once they are held in
contravention of the Act

6.10 CONCLUSION:

Competition Law is a complex mixture of a country’s legal, economic and
administrative action whose intention is to favour competition in that economy. The
principal objective of competition law is to foster competition as an instrument for
accelerating growth through innovation and economic efficiencies thus maximising
consumer welfare by offering better products at lower prices. The underlying theory
behind competition law is the positive effect of competition in an economy's market,
acting as a safeguard against misuse of economic power. The link between
competition law and economic development emphasized over and over again seems
rather undeniable and the need for competition law seems like the order of the day.


83 2011(13) SCC 733
84 Section 27(g) of the Act empowers the CCI to pass any order or issue such directions as it may deem
fit. This is a broad section giving residuary powers to the CCI.

The operation of competition law by prevention of anti-competitive agreements,
prohibiting abuse of dominant position by firms and regulation of combinations which
might adversely affect competition in the economy, thus seems crucial for India. It is
therefore keeping that in mind that the Indian Parliament enacted the Competition
Act, 2002.
The implementation of the Competition Act in May 2009 marks the beginning of the
modern competition law regime in India. Although the act was passed in 2002, it was
delayed due to judicial intervention at the highest level because of the earlier
proposed constitution of the Competition Commission, which included a judicial
function, but did not have a judge as its chairperson. The 2007 amendment to the
Competition Act removed this anomaly and created an appellate tribunal headed by a
sitting or retired Supreme Court judge or a chief justice of a high court, while leaving
the regulatory space for the Competition Commission as an expert body.
Notwithstanding litigation in the Supreme Court relating to the constitution of the
Competition Commission, for its part the commission continued primarily with
competition advocacy (42) during the interregnum period from 2003 to 2007, together
with drafting most of its implementing regulations under the Competition Act. After
the reconstitution of the full Competition Commission under the amended act and the
enforcement of the key provisions relating to anticompetitive agreements and abuse of
dominant positions, the pace of disposal of complaints received by the commission
has been rather slow. This could be due to the lack of a proper organizational setup.
The reported recent appeal filed by the commission in the Supreme Court against an
appellate tribunal order dated February 15 2010 in the appeal filed by the Steel
Authority of India Limited85 against the making of an opinion on a prima facie case
and referring the complaint of Jindal Steel & Power Limited to the director general
for investigation under Section 26(1) of the Competition Act is another noticeable
development. The outcome of the appeal will set an important judicial precedent.
Similarly, the recent Bombay High Court decision that dismissed Kingfisher Airlines'
petition against the commission's notice to investigate the reported alliance of
Kingfisher Airlines with Jet Airways reported in 2009 is another welcome
development. However, the merger control regulations under the Competition Act are
yet to be notified. The draft regulations prepared by the Competition Commission are



85 W. P. (C) 2691/2011.

reportedly under examination by the Ministry of Corporate Affairs. Given the nascent
stage of its development and the high penalties contemplated under the Competition
Act, international businesses with existing activities in or with India or those
contemplating investing in business in India are advised to have their contracts and
business practices reviewed to ensure that they reflect the changes brought about by
the new law and that they will comply with it in future. The true test of legality is
whether the restraint imposed is such as merely regulates and perhaps thereby
promotes competition or whether it is such as may suppress or even destroy
competition. To determine that question the court must ordinarily consider the facts
peculiar to the business to which the restraint is applied; its condition before and after
the restraint was imposed; the nature of the restraint and its effect, actual or probable.
The history of the restraint, the evil believed to exist, the reason for adopting the
particular remedy, the purpose or end sought to be attained, are all relevant facts.
Competition Commission of India vs. Steel Authority of India & Anr. On 9
September, 201086
Jindal Steel & amp. Powers Ltd. “the informant” invoked the provisions of Section 19
which when read with Section 26(1) of the Act alleged to the Commission that M/s.
Steel Authority of India Ltd. “SAIL” had, entered into an exclusive supply agreement
with Indian Railways for supply of rails. The SAIL, thus, was alleged to have abused
its dominant position in the market and deprived others of fair competition and
therefore, acted contrary to Section 3(4) (Anti-competitive Agreements) and Section
4(1) (Abuse of dominant position) of the Act.
The matter was deferred at the request of the informant and was registered by the
Commission and was considered on 27th October, 2008. During the course of
hearing, it was also brought to the notice of the Commission that a petition being Writ
Petition (C) No.8531 of 2009, filed by the informant against the Ministry of Railways,
was also pending in the High Court of Delhi at New Delhi. Vide order dated 10th
November, 2009 the Commission directed the informant to file an affidavit with
respect to the information furnished by it. A reply to the allegations was to be
submitted by SAIL within two weeks as per the direction of the Commission. On 19th
November, 2009 a notice was issued to SAIL enclosing all information submitted by
the informant. SAIL requested for an extension of 6 weeks but the Commission found



86 CIVIL APPEAL NO.7779 OF 2010.

no justification for the same and declined the prayer. In this order, it also formed the
opinion that prima facie case existed against SAIL, and resultantly, directed the
Director General, appointed under Section 16(1) of the Act, to make investigation into
the matter in terms of Section 26(1) of the Act. It also granted liberty to SAIL to file
its views and comments before the Director General during the course of
investigation. Despite these orders SAIL filed an interim reply before the Commission
along with an application that it may be heard before any interim order is passed by
the Commission in the proceedings. The Commission only reiterated its earlier
directions made to the Director General for investigation and granted liberty to SAIL
to file its reply before the Director General. The correctness of the directions
contained in the order dated 8th December, 2009 was challenged by SAIL before the
Competition Appellate Tribunal (for short, the `Tribunal'). The Commission filed an
application on 28th January, 2010 before the Tribunal seeking impleadment in the
appeal filed by SAIL. It also filed an application for vacation of interim orders which
had been issued by the Tribunal on 11th January, 2010, staying further proceedings
before the Director General in furtherance of the directions of the Commission dated
8th December, 2009.
The decision of Government of India to liberalize its economy with the intention of
removing controls persuaded the Indian Parliament to enact laws providing for checks
and balances in the free economy. The laws were required to be enacted, primarily,
for the objective of taking measures to avoid anti-competitive agreements and abuse
of dominance as well as to regulate mergers and takeovers which result in distortion
of the market. The earlier Monopolies and Restrictive Trade Practices Act, 1969 was
not only found to be inadequate but also obsolete in certain respects, particularly, in
the light of international economic developments relating to competition law. The
application for leave to appeal was allowed. To protect the free market economies
most countries have enacted Competition Laws, to an economic system where the
allocation of resources which is determined solely by the supply and demand. A free
market economy aims to offer different buyers to make the best purchase from
different suppliers.
“The overall intention of competition law policy has not changed markedly over the
past century. Its intent is to limit the role of market power that might result from
substantial concentration in a particular industry. The major concern with monopoly

and similar kinds of concentration is not that being big is necessarily undesirable.
However, because of the control exerted by a monopoly over price, there are
economic efficiency losses to society and product quality and diversity may also be
affected. Thus, there is a need to protect competition. The primary purpose of
competition law is to remedy some of those situations where the activities of one firm
or two lead to the breakdown of the free market system, or, to prevent such a
breakdown by laying down rules by which rival businesses can compete with each
other. The model of perfect competition is the `economic model' that usually comes to
an economist's mind when thinking about the competitive markets. As far as the
objectives of competition laws are concerned, they vary from country to country and
even within a country they seem to change and evolve over the time. However, it will
be useful to refer to some of the common objectives of competition law. The main
objective of competition law is to promote economic efficiency using competition as
one of the means of assisting the creation of market responsive to consumer
preferences. The advantages of perfect competition are three- fold: allocative
efficiency, which ensures the effective allocation of resources, productive efficiency,
which ensures that costs of production are kept at a minimum and dynamic efficiency,
which promotes innovative practices. These factors by and large have been accepted
all over the world as the guiding principles for effective implementation of
competition law.
In India, a High Level Committee on Competition Policy and Law was constituted to
examine its various aspects and make suggestions keeping in view the competition
policy of India. This Committee made recommendations and submitted its report on
22nd of May, 2002. After completion of the consultation process, the Competition
Act, 2002 (for short, the `Act') as Act 12 of 2003, dated 12th December, 2003, was
enacted. As per the statement of objects and reasons, this enactment is India's
response to the opening up of its economy, removing controls and resorting to
liberalization. The natural corollary of this is that the Indian market should be geared
to face competition from within the country and outside. The Bill sought to ensure fair
competition in India by prohibiting trade practices which cause appreciable adverse
effect on the competition in market within India and for this purpose establishment of
a quasi judicial body was considered essential. The other object was to curb the
negative aspects of competition through such a body namely, the `Competition

Commission of India' (for short, the `Commission') which has the power to perform
different kinds of functions, including passing of interim orders and even awarding
compensation and imposing penalty. The Director General appointed under Section
16(1) of the Act is a specialized investigating wing of the Commission. In short, the
establishment of the Commission and enactment of the Act was aimed at preventing
practices having adverse effect on competition, to protect the interest of the consumer
and to ensure fair trade carried out by other participants in the market in India and for
matters connected therewith or incidental thereto.”87
The legislative intention that the investigations and inquiries of the Act and
regulations framed intends to be concluded as expeditiously as possible. Regulations
15 and 16 among other provisions and regulations seem to have a direct conclusion of
the investigation or proceedings. The concept of “reasonable” therefore has to be
construed in an elaborative and meaningful fashion keeping in mind the rational of the
Act and the larger interest which is domestic and international trade.
It was a combined view of the bench that the scheme and essence of the Act and its
regulations are in a clear sense suggestive of speedy and expeditious disposal of the
matters. It was further held that the Competent Authority “should frame Regulations
providing definite time frame for completion of completion of investigation, inquiry
and final disposal of the matters pending before the Commission. Till such
Regulations are framed, the period specified by us supra shall remain in force and we
expect all the concerned authorities to adhere to the period specified.”
In June 2012, 11 cement companies were penalised for collusion with a total fine of
Rs. 6,300 crore based on three times their profits since the cartel functioned. The
association was also penalised. But if one has to consider the leniency that the
Competition Commission of India levied a penalty of Rs. 52.24 crore on the Board of
Cricket Control of India (BCCI)88 for abusing its dominance then the same principle
of the sympathy factor for the BCCI should be considered as a yardstick. Then cement
companies too should have received a smaller penalty for their contributions to
infrastructure building, their CSR work, etc. It would be as silly as stating that Rajat
Gupta should get away from being jailed for insider trading as his track record



87 Competition Commission Of India vs Steel Authority Of India & Anr. on 9 September, 2010,
http://indiankanoon.org/doc/864375/
88 Sh. Surinder Singh Barmi vs. BCCI, Case no. 61/ 2010. http://onelawstreet.com/blog/2013/02/cci-
order-against-bcci-in-ipl-abuse-of-dominant-position-case/

suggests that he is a great philanthropist as certified by Bill Gates and Kofi Annan
among others. Even if the legislative intention has been properly construed by the
significant authority, the fact that there is an uncertainty between the penalties that is
being imposed between two different cases which comes within the same ambit has to
be strictly amended in order to bring about a uniformity between the penalties so
imposed.