Competition Commission Of India's Enforcement Zeal And Cost Of Overlooking Due Process

Brief Factual Background

Grasim Industries Limited, part of the Aditya Birla group of companies holds a monopoly position in the domestic supply of VSF, a man-made fibre serving as a substitute for cotton in spinning yarn. In Case No. 62 of 2016, the CCI found the company guilty of abusing its dominant position under Section 4 of the Competition Act, 2002. The alleged violation was charging discriminatory prices to the customers (Section 4(2)(a)(ii)) and imposition of supplementary obligations (mainly in the form of obliging spinners to supply information on their productions and exports before getting the discount).

The Two Contradictions That Sank CCI's Order

The DG's investigation report had addressed both issues with commendable clarity.

Both the charges against Grasim were established by DG report too. The Tribunal has refused to go into the substance of these two points since there was no challenge to the findings either of the DG or of the Commission. However, the remaining two points discussed in operative para 124 of the CCI's order (which was appealed against) constituted a direct contradiction with the DG report. It is pertinent to state that the CCI failed to give Grasim an opportunity to refute this point. The Two Contradictory Directives Issued By the CCI to Grasim Regarding non-disclosure of pricing/discounting policy, the DG report stated, “Not disclosing pricing/discounting policy by OP2 does not appear in itself to be contravention of the Act.” Though this non-disclosure might have resulted in discriminatory pricing, the same was separately examined and the DG held that this act did not constitute violation of Section 4 of the Act. With regard to traders, the DG clearly held that Grasim supplied VSF to spinners only and traders were not included in the scheme. He admitted that the DG was right in stating the above position of facts, but he went on to clarify “OP2 has no obligation to keep the traders in business, and it cannot be faulted for not doing so. Thus, it does not appear to fall in the realm of Section 4 of the Act.” Despite obtaining the DG report containing the above conclusions of the DG and Grasim's objections thereto, the Commission went ahead to give directives contradictory to the above findings without notifying Grasim about it or providing Grasim any opportunity to present its case.

The argument made by CCI before the Tribunal against the findings and directive of the DG regarding traders buying VSF from Grasim and their right to trade in the said VSF was that the term “buyers” used in the operative para 124 refers only to the spinners. This ingenious argument was however rejected by the NCLAT. The Tribunal noted that there was no mention anywhere in para 124 of the restriction of meaning of buyers only to the spinners. Common sense dictates that if a buyer is entitled to trade in the goods purchased by him then he must necessarily be a trader in the said goods. This argument was simply rejected.

The Audi Alteram Partem Problem

In “BCCI v. CCI (2015 SCC OnLine Comp. AT 238)” COMPAT has stated unambiguously that where the CCI differs from DG on definition of market or question of abuse, etc., the Commission must notify it to the opposite party. This must be followed by opportunity to oppose. In another case namely “Interglobe Aviation Ltd. (IndiGo Airlines) v. CCI (Appeal No. 07/2016)”, the Competition Appellate Tribunal has once again emphasized that when the Commission makes a final determination and holds that the opposite party committed contravention under the Act without even a word of disagreement in respect of such finding then grave prejudice is caused especially when financial penalty running into crores of rupees is imposed against the opposite party. Any explanation thereafter will not serve to remove the procedural defect. NCLAT has faithfully followed the above two precedents in the instant case of “Grasim Industries Ltd. v. Competition Commission of India”. It has held that the CCI, despite its difference of opinion on the above two points, issued directions adverse to Grasim without issuing any show-cause notice notifying that it disagrees with the DG's findings on the above two points. In its objections to the DG report, Grasim made no such submissions. This constituted clear violation of natural justice principle.

Amendment in Section 26 of the Act in 2024: Catching Up with Law

Parliament has amended the provisions of Section 26(9) of the Act in 2024 and provided that before passing an order the Commission must issue a show-cause notice notifying the alleged contravention. The NCLAT has noted with satisfaction the above provision of 2024 amendment which is no more than repetition of what has been laid down in COMPAT's earlier decisions namely “BCCI v. CCI” and “Interglobe Aviation Ltd. v. CCI”. This statutory change in law was not an innovation on the part of the legislature. Parliament had merely reiterated a settled law as per the precedents laid down by the courts years ago. CCI was thus below the established standard of procedure in this case. The amendment in 2024 makes a compelling question to arise in our mind as regards other such cases as may be decided during the intervening period.

What the Tribunal Did Not Decide

It needs to be clarified at the outset that NCLAT has not gone into the merit of the case. Findings of the DG (and CCI also) regarding discriminatory pricing and supplementary obligation both under Section 4(2)(a)(ii) and 4(2)(d) of the Act respectively remain unaffected. The entire order passed by the CCI in the case has been set aside and has been remanded to the Commission for reconsideration in a time-bound manner. Crucially the NCLAT has stated that it has not pronounced on the merit of the case and thus the Commission need not be influenced in any way while deciding the case.

The Wider Significance of the Judgment

The powers of CCI are very high and it can pass order for financial penalties (even as much as 10% of turnover of the company) and can ask for structural change in business practices or for making public disclosures, etc. This power is extremely potent as the adverse consequence of the order cannot be remedied even through an appeal against such order. In such circumstances, natural justice requirements acquire special significance. One of such requirements which the NCLAT in the instant case has laid emphasis upon is that if the CCI has any difference of opinion from DG findings, it must give due notice to the opposite party. Grasim, having been given due notice, could have opposed the findings. In the absence thereof, it has been put to disadvantage as the CCI in para 124 went beyond the DG findings. The above observation by NCLAT in the Grasim case shows judicial restraint in its proper place. The Court has not acquitted Grasim on the ground of procedural defect. On the other hand, it gave a proper chance to the CCI to decide the matter afresh in accordance with principles of natural justice. The merits of the abuse case will be adjudicated upon afresh. Whether they are valid or otherwise will depend upon evidence. Six years and 301 crores of fine later Grasim has returned to the starting line. Natural justice is a necessary concomitant of any decision of the regulator. It is not a gratuitous gesture on its part.

Reference

Grasim Industries Ltd. v. Competition Commission of India, Competition Appeal (AT) No. 13 of 2020, decided 05.05.2026 (NCLAT, Principal Bench, New Delhi).