Certain provisions of the Competition Act are held to be unconstitutional

[Case Brief] Mahindra Electric Mobility Limited and Ors. v/s Competition Commission of India and Ors.

Case name Mahindra Electric Mobility Limited and Ors. v/s Competition Commission of India and Ors.
Case number W.P. (C) 11467/2018
Court Delhi High Court 
Bench Justice S Ravindra Bhat and Justice Prateek Jalan
Author of the judgment Justice S Ravindra Bhat
Decided on April 10, 2019
Relevant Act/Sections Competition Act, 2002- Sections 22(3), 27(b), 53A, 53B, 53C, 53D, 53E, 53F and 61
Author of the case summary Aditya Gor


Brief facts and Procedural history

In the famous spare-parts case of Shamsher Kataria vs Honda Siel & Others (2014), the Competition Commission of India (CCI) found the car manufacturers guilty of restricting free availability of spare parts in the open market which consequently denied market access to independent repairers. 

It was observed by the CCI that these car manufacturers had contravened provisions of Sections 3 and 4 of the Competition Act and thereby it levied a penalty of 2% of the total turnover in India on each of the three alleged car manufacturers.

Being aggrieved by the said decision of CCI, these car manufacturers filed writ petitions before the High Court of Delhi (Delhi HC) challenging the constitutional validity of certain provisions of the Competition Act, 2002 (Act). The said challenge to sections 22(3), 27(b), 53A to 53F and 61 and the Notification dated 31.03.2011 amending Regulation 48(1) of the competition Commission of India (General) Regulations 2009 was made in such a manner that directly affected the validity of the CCIs order in the Spare parts case.

The issues to be decided

(1) Is the CCI a tribunal exercising judicial functions, or is it performing administrative and investigative functions and also adjudicating issues before it;

(2) Is the CCI unconstitutional inasmuch as it violates the separation of powers principle, which underlies the Constitution – and is now recognized as a basic or essential feature of the Constitution of India;

(3) Is Section 22 (3) unconstitutional for the reasons urged by the petitioners and does the “revolving door” practise vitiate any provision of the Act or the decisions rendered by the CCI;

(4) Was the power exercised by the CCI to expand the scope of inquiry and notice under Section 26 (1) in an illegal and in an overboard manner;

(5) Is Section 27 (b) of the Act and the provision for penalties unconstitutional or the orders impugned arbitrary, for the reason that no separate hearing is provided, and the statute provides no guideline for exercise of discretion.

Ratio and decision of the Court

The Delhi HC upheld the constitutional validity of Sections 9, 11, 53D and 53T, Sections 55, 56 and 61 of the Act.

In lieu of the specific functions of CCI, it was held that CCI does not perform only or purely adjudicatory functions so as to be characterized as a tribunal solely discharging judicial powers of the state; it is rather, a body that is in parts administrative, expert (having regard to its advisory and advocacy roles) and quasi-judicial when it proceeds to issue final orders, directions and (or) penalties. The CCI also performs certain important regulatory tasks. The expression “regulate” is adaptable enough to include the power to issue directions. CCI thus is not purely a judicial tribunal but discharges multifarious functions, one of which is adjudicatory.

It is well settled principle of law that in considering the complaint that a law violates the separation of powers feature of the Constitution what is necessary for the Court to examine is whether the executive or any other branch “takes over an essential function”. The Competition Act does not take away or supplant the jurisdiction of the pre-existing jurisdiction of any court or tribunal.

The Court did not accept that Section 61 is unconstitutional since such provisions are not alien to the body of law as they already exist in the Income Tax Act (Section 293); Goods and Services Tax Act, 2017 (Section 162); Securities and Exchange Board of India Act (Section 20A); Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (Section 18); Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (Section 34); Telecom Regulatory Authority of India Act, 1997 (Section 15) etc. The CCI does not decide a traditional lis which is premised on an adversarial proceeding, which the courts are wont to, in their regular course of work. Hence the challenge to the bar of jurisdiction of civil courts, contained in Section 61 failed accordingly.

The next challenge addressed was with respect to Section 53T, which provides for an appeal to the Supreme Court. The Court held that there are no cogent reasons available to observe that this provision is unconstitutional and similar provisions have been made in the TRAI Act, SEBI Act, Electricity Act, etc. The Court also observed that, at all times, when adjudicatory orders (especially final orders) are made by CCI, the presence and participation of the judicial member is necessary.

With regards to the challenge made to Section 53D of the Act, it was observed by the Court that the mandate that the Chairman should have been a Supreme Court judge or a Chief Justice of a High Court sufficiently guarantees the application of a judicial mind and, more importantly, application of judicial principles to the issues brought/agitated before the tribunal. Hence it cannot be said to be void.

Subsequently, section 8 of the Act was also held to be valid since it is to be resorted to for selection at all times. This itself according to the Court, is a sufficient safeguard to ensure that executive domination in the selection process does not prevail.

At the same time, Section 53E of the Act, as it stood before the amendment by the Finance Act, 2017, was held to be unconstitutional. The said issue is however subjective to the decision of the Supreme Court which is pending consideration in the case of Central Administrative Tribunal vs Union of India – WP(c) 640/2017.

The HC also declared Section 22(3) of the Act to be unconstitutional on the ground that the principle of equal weight for decisions of each participant of a quasi-judicial tribunal is destroyed by its existence. It however upheld the proviso to section 22(3) thereby mandating the minimum quorum of three members (alongside the chairman) for any meeting of CCI.

With regards to casting vote, it was opined that it destroys the Rule of Law in the context of Indian Constitution. Moreover, the principle of equal weight for the decisions of each participant of a quasi-judicial tribunal is undoubtedly destroyed by Section 22(3). Consequently this provision of section 22(3) is incapable of a clear or neat segregation and was to be declared void in entirety. Thus the only provision which survives is the proviso to the section which mandates a minimum quorum of three members (including the chairman).

It was additionally also observed by the Court that CCI should stick to the principle that the bench which hears the matter decides it and that every member who participates in the hearing, is also party to the final decision. Furthermore, the CCI should be manned fully with all the nine members. The Court observed that CCI is well within its powers to expand the scope of inquiry under Section 26(1) of the Act. At the stage the CCI decided to act on a complaint, and direct investigation, it does not always have all information or material in respect of the general pattern or method adopted by parties that vitiates the marketplace.

The following decision and directions were issued by the Delhi HC

(i) Section 22(3) of the Competition Act (except the proviso thereto) was declared unconstitutional and void;

(ii) Section 53E (prior to the amendment in 2017) was declared unconstitutional and void: however, this was subject to the final decision of the Supreme Court in the writ petitions challenging the Finance Act, 2017;

(iii) All other provisions of the Competition Act were held to be valid subject to the following orders:

(a) The CCI shall frame guidelines with respect to the directions to ensure that one who hears decides is embodied in letter and spirit in all cases where final hearings are undertaken and concluded. In other words, once final hearings in any complaint or batch of complaints begin, the membership should not vary- it should preferably be heard by a substantial number of 7 or at least, 5 members.

(b) The Central Government shall take expeditious steps to fill all existing vacancies in the CCI, within 6 months;

(c) The CCI shall ensure that at all times, during the final hearing, the judicial member is present and participates in the hearing;

(d) The parties should in all cases, at the final hearing stage, address arguments, taking into consideration all the relevant factors; they may also indicate in their written submissions, or separate note, of submissions, to the CCI, why penalty should not be awarded, and if awarded, what should be the mitigating factors and the quantum- without prejudice to their other submissions.

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