Case Summary: Mahindra Electric Mobility Limited v. Competition Commission of India (2019) | Constitutional Validity of the Competition Act

The case of Mahindra Electric Mobility Limited v. Competition Commission of India (2019) involved a constitutional challenge to various provisions of the Competition Act, 2002 (“the Act”). The petitioners, which included prominent automobile manufacturers, filed writ petitions under Article 226 of the Constitution of India before the Delhi High Court, contesting the constitutionality of certain sections of the Act and specific regulations framed under it.

The primary grievance arose from how the Competition Commission of India (CCI) conducted its proceedings and imposed penalties, which the petitioners argued were inconsistent with constitutional principles, including the right to a fair hearing and the separation of powers doctrine.

The case stemmed from a complaint filed under Section 19(1)(a) of the Act, alleging anti-competitive behaviour by major car manufacturers in the spare parts and after-market services sector. The CCI’s decision to penalize the manufacturers led to the challenge on the grounds of violating Articles 14 and 21 of the Constitution, lack of procedural safeguards, and inconsistency with principles of natural justice.

Case Title: Mahindra Electric Mobility Limited v. Competition Commission of India 

Citation: 2019 OnLine Del 8032

Court: Delhi High Court

Bench: Justice S. Ravindra Bhat and Justice Prateek Jalan

Date of Judgment: April 10, 2019

Background of the Case

Complaint and Initial Investigation

1. The genesis of the dispute arose from a complaint filed by Mr. Shamsher Kataria on 18.01.2011 under Section 19(1)(a) of the Act.
2. Kataria alleged that car manufacturers, including Honda Siel Cars India Ltd., Volkswagen India Pvt. Ltd., and Fiat India Automobiles Limited, were indulging in anti-competitive practices by controlling the supply of spare parts and maintenance services, which restricted competition in the aftermarket.
3. On 27.01.2011, Kataria filed supplementary information, implicating other manufacturers such as Toyota, Skoda, General Motors, Ford, Nissan Motors, Mercedes Benz, BMW, and Audi.
4. The CCI recorded its prima facie opinion on 24.02.2011 and directed the Director General (DG) to investigate the matter.
5. The DG, in his investigation report submitted on 19.04.2011, recommended expanding the scope of the investigation to cover other car manufacturers, including Mahindra & Mahindra.
6. The CCI, through an order dated 26.04.2011, allowed the DG to expand the investigation to include other car manufacturers.
7. The DG issued notices on 04.05.2011 to the implicated manufacturers, seeking detailed information on their supply, maintenance, and repair practices.

Stay of Proceedings and Interim Orders

1. The proceedings before the CCI were stayed by the Madras High Court in WP 31808/2012 filed by Hyundai Motors India Ltd. challenging the CCI’s order.
2. In parallel, Maruti Suzuki India Ltd. approached the Delhi High Court through W.P.(C) 2734/2013, which allowed the CCI to continue proceedings but restrained it from issuing a final order for 10 days.
3. Mahindra & Mahindra filed an application on 10.07.2013 seeking assurance that the varying quorum of CCI members would not affect the fairness of the final order.
4. The CCI rejected this application on 24.07.2013, stating that only those members who had heard the arguments would participate in the final decision.

Final Order of the CCI

1. On 25.08.2014, the CCI issued its final order in Case No. 03/2011, concluding that the car manufacturers had violated Sections 3(4)(b), 3(4)(c), 3(4)(d), 4(2)(a)(i) and (ii), 4(2)(c), and 4(2)(e) of the Competition Act.
2. The CCI imposed penalties and directed corrective measures to address anti-competitive practices in the automobile spare parts and after-market services sector.

Legal Issues and Grounds of Challenge

1. Constitutional Validity of the Act’s Provisions

The petitioners challenged the constitutionality of the following provisions of the Competition Act:

• Section 22(3) – Allowed varying quorum requirements in CCI’s adjudication.
• Section 27(b) – Granted CCI authority to impose penalties without issuing a separate notice or conducting a specific hearing.
• Sections 53A to 53F – Related to the appellate mechanism through the Competition Appellate Tribunal (COMPAT), which was replaced by the National Company Law Appellate Tribunal (NCLAT) following the Finance Act, 2017.
• Section 61 – Barred jurisdiction of civil courts over CCI matters.

2. Procedural Fairness and Principles of Natural Justice

• The petitioners contended that the procedure under the Act lacked procedural safeguards such as a mandated hearing before imposing penalties, making it inconsistent with Articles 14 and 21 of the Constitution.
• They argued that Regulation 48(1) of the General Regulations, which allowed the CCI to impose penalties without a separate hearing, violated principles of natural justice.

3. Quorum and Composition of CCI

• The petitioners argued that the CCI’s composition, its members’ appointment, and executive control over it violated the doctrine of separation of powers.
• The petitioners contended that since the CCI performed quasi-judicial functions, its members should be appointed in a manner consistent with the principles of judicial independence.

Court’s Analysis and Findings

1. Validity of Section 27(b)

The court rejected the challenge to Section 27(b), holding that the procedure followed by the CCI provided sufficient safeguards, including:

• Notice at the investigation stage.
• Access to the DG’s report and supporting materials.
• Opportunity for detailed submissions and hearing at the final stage.
• The court ruled that a separate penalty hearing was not essential, as long as the procedure afforded an adequate opportunity to present a defense.

2. Validity of Section 22(3)

• The court declared Section 22(3) unconstitutional to the extent that it permitted quorum variation during hearings.
• It directed that CCI should ensure consistency in its quorum and adopt guidelines to prevent prejudice due to member rotation.

3. Validity of Appellate Provisions

• The challenge to Sections 53A to 53F was held in abeyance, subject to the outcome of the pending Supreme Court challenge to the Finance Act, 2017.

4. Procedural Fairness and Natural Justice

• The court held that the procedural safeguards under the Act were consistent with constitutional principles.
• It rejected the contention that the absence of a separate hearing before imposing penalties rendered the process unfair.

Directions and Relief Granted

• Section 22(3) (except its proviso) was declared unconstitutional.
• Section 53E (prior to 2017 amendment) was declared unconstitutional, subject to the Supreme Court’s decision.
• CCI was directed to frame guidelines ensuring consistent quorum and procedure.
• CCI was required to maintain judicial consistency by ensuring a judicial member’s presence during final hearings.
• Petitioners were granted liberty to approach the appellate tribunal (NCLAT) within 6 weeks.

Conclusion

The court upheld the constitutional validity of most provisions of the Competition Act, except for Section 22(3) and Section 53E (prior to amendment). It ruled that the CCI’s procedure complied with constitutional requirements, and procedural safeguards were sufficient to ensure fairness. The petitioners’ challenge to the penalty procedure and lack of guidelines under Section 27(b) was rejected.

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