In a judgment that has far reaching consequences, the Delhi High Court (Delhi HC) has adjudicated upon the constitutional validity of various regulations formulated under the Competition Act, 2002 (Act) addressing confidentiality of sensitive information that is submitted to the Competition Commission of India (CCI).[i]

The petitioners in the Writ Petitions are opposite parties in a suo moto investigation by the CCI for alleged participation in a bid-rigging cartel in the conveyor belt sector in India. The CCI found prima facie evidence of violation of the provisions of the Act and directed its investigative arm, i.e., the office of the Director General (DG), to commence an investigation against the petitioners, amongst others.

In the course of the investigation, the petitioners filed an application before the CCI for inspecting the information relied upon by the CCI to arrive at its prima facie view and procure copies under Regulation 37 of the Competition Commission of India (General) Regulations, 2009 (General Regulations). The above application by the petitioners was denied by the CCI on the grounds that the information/documents requested by the petitioners formed part of the confidential records of the CCI and accordingly could not be disclosed to the petitioners at this stage of the investigation.

Aggrieved by such denial of access to the information and documents, forming part of the investigation, the petitioners approached the Delhi HC challenging the constitutional vires of Regulation 35 along with the proviso to Regulation 37(1) of the General Regulations and Regulation 6 of the Competition Commission of India (Lesser Penalty) Regulations, 2009 (Lesser Penalty Regulations) on the grounds that they violate the fundamental rights provided under the Constitution of India. The petitioners argued that commencement of investigation by the DG is akin to trial/inquiry and such denial of access to information forming part of the records of the case to the accused parties restricts their ability to defend themselves and consequently is a violation of the principles of natural justice.

The Delhi HC reiterated the findings of the Supreme Court of India in Steel Authority of India v. Competition Commission of India[ii], which states that the prima facie order of the CCI does not amount to an adjudicatory function and is administrative in nature. Further, at this stage the CCI does not determine the rights of any person. In relation to the alleged violation of principles of natural justice, the Delhi HC relied upon the Supreme Court’s judgment in Natwar Singh v. Director of Enforcement[iii] to emphasise that the duty of adequate disclosure is only an additional procedural safeguard to ensure the attainment of fairness and it has its own limitations.

Additionally, the Delhi HC highlighted that Section 57 of the Act (the principal legislation) unequivocally states that no information relating to any enterprise, which has been obtained by the CCI for the purposes of the Act shall be disclosed, otherwise than in compliance with or for the purposes of the Act or any other law for the time being in force. Given that the Act is the principal legislation and the regulations form subordinate legislation, the Delhi HC observed that the constitutional validity of the subordinate legislation is presumed and cannot be struck down unless and it is “manifestly arbitrary or if so unreasonable that the Parliament never intended to confer such power on the Regulator”.

Accordingly, given that the petitioners failed to demonstrate how the regulations under challenge were arbitrary and in violation of the Constitution, the Delhi HC upheld the constitutionality of Regulation 35 as well as the proviso to Regulation 37(1) of the General Regulations and Regulation 6 of the Lesser Penalty Regulations.

Key Takeaways:

The key takeaways from this judgment are as follows:

  1. There is a presumption of validity and constitutionality in favour of subordinate legislation (such as the CCI’s regulations regarding confidentiality of information), and courts will not strike down such legislation unless they are shown to be arbitrary and patently unreasonable.
  2. The investigation by the DG pursuant to a prima facie order of the CCI is akin to a departmental inquiry and does not determine the rights of any of the parties under investigation.
  3. Accordingly, denial of access to confidential information at this stage by the CCI does not interfere with any party’s ability to defend itself and does not violate the principles of natural justice.

Natural justice is not an absolute obligation on the CCI; the requirement of the principles of natural justice must depend upon the nature and subject matter of investigation, circumstances of the case, rules under which the investigation is being carried out, and the consequences which may visit a person after such investigation.

 

[i] Somi Conveyor Beltings Ltd. & Anr. v. Union of India & Ors., W.P.(C) 1416/2016 & CM No. 6194/2016 (Stay) clubbed with Premier Rubber Mills v. Union of India & Ors., W.P.(C) 1969/2016 (Writ Petitions)

[ii] (2010) 10 SCC 744

[iii] (2010) 13 SC 255

* The authors were assisted by Rahul Satyan, Principal Associate – Designate and Neelambera Sandeepan, Associate

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Photo of Anshuman Sakle Anshuman Sakle

Partner in the Competition Practice at the Mumbai office of Cyril Amarchand Mangaldas. Anshuman advises on the full range of competition matters, including merger control, abuse of dominance and cartel enforcement. He can be reached at anshuman.sakle@cyrilshroff.com

Photo of Bharat Budholia Bharat Budholia

Partner in the Competition Practice at the Mumbai office of Cyril Amarchand Mangaldas. Bharat advises on the full range of competition matters, including cartel enforcement, abuse of dominance, merger control and competition audit and compliance. He can be reached at bharat.budholia@cyrilshroff.com