The Madras High Court (MHC), on 30 April 2024, quashed a Competition Commission of India (CCI) investigation against MRF Ltd, a prominent tyre manufacturer, due to procedural deficiencies concerning transparency and due process.

The court criticized the CCI for not providing prior notice to MRF before changing its status from a third party to a party under investigation and held that the CCI must issue a “speaking order” to justify such changes, highlighting the necessity for procedural fairness and adherence to legal standards.

The decision of the MHC serves as a critical reminder for impleaded parties to challenge any procedural discrepancies that could affect their legal rights and be proactive in seeking clarity on their status in any regulatory proceedings.

BACKGROUND

The case originated from a 2018 online tender by the Directorate of State Transport, Haryana, for replacing worn-out tyres on the buses run by Harayana Roadways, where JK Tyres was the sole bidder for the supply of new steel radial tyres of different sizes and specifications. The High-Power Purchase Committee (HPPC) is referred to in instances where the procurement exceeds INR 1 crore. In this case, suspecting price rigging and cartelization, the CCI initiated an investigation against multiple tyre manufacturers, including MRF, under the Competition Act, 2002 (Act).

Why did the HPPC suspect cartelization?

• The rates quoted by JK Tyres were considerably higher than the last purchase rates;
• The negotiations attempted with JK Tyres on the quoted prices were not fruitful as JK Tyres remained firm on its initial bid; and
  JK Tyres had been the sole bidder in three different occasions where tenders were floated.
• An order was passed on 1 November 2019 by the CCI directing the Director General (DG) to investigate this matter. Notably, only JK Tyres was impleaded as a opposite party in such reference made by the CCI to the DG and for the purpose of the investigation, other companies manufacturing comparable radial tyre models (Apollo, MRF, Birla, CEAT) participated as third parties to assist the DG in its investigation into unearthing the modus operandi for the suspected bid rigging.

Through order dated 26 August 2020, the investigation expanded to include CEAT Ltd., Birla Tyre Ltd., Michelin Tyre Ltd., Continental, Apollo Tyres, MRF Ltd. and Bridgestone as a party without prior notification or the provision of a speaking order detailing the reasons for the shift in its status from ‘participant’ in the investigation to an ‘opposite party’, which MRF contested.

ARGUMENTS BY MRF

MRF argued that it was initially treated merely as a third party in the investigation against JK Tyres but was later, without proper notice or justification, treated as a direct party to the proceedings.

Further, MRF argued that the CCI’s failure to notify it before altering its participation status violated statutory provisions ensuring transparency and procedural fairness. This shift in status denied them the opportunity to contest the allegations effectively.

KEY OBSERVATIONS FROM THE MHC JUDGMENT

• There has been considerable opaqueness in the manner of the conduct of the proceedings and considerable delay in making the order dated 26 August 2020 available to [MRF]… it was incumbent upon the authorities to have solicited the response of [MRF] prior to changing the status, which change has serious and grave implications[1],an entity is entitled to know the status under which its presence and participation is sought in statutory proceedings[2].
• The Court held the proceedings lacked transparency on the grounds that (i) the order dated 26 August 2020 was passed ex-parte; (ii) a copy was served on MRF only on 1 March 2024 (implying a delay of 3 years, 6 months and 4 days); and (iii) the DG’s investigation report was not furnished to MRF despite a statutory mandate under Section 26(4) of the Act.

Thus, for a party to be subject to the rigour of Section 27 (scope of the Commission’s orders and penalties), it must be afforded sufficient opportunity to contest its inclusion / impleadment as a contesting party / opposite party and must be put on notice[3]
[MRF] ought to have been given notice prior to its impleadment as a party and the satisfaction of the authority as to the justification for such impleadment ought to have been made out by way of a speaking order. [4]
Evidently, the court concurred with MRF, criticizing the CCI for its opaque procedural conduct and the delay in providing critical documents, which compromised MRF’s ability to contest the allegations effectively. Accordingly, the MHC quashed several actions by the CCI in its investigation against MRF Ltd.

CONCLUSION

This landmark decision underscores a crucial judicial stance on maintaining procedural integrity in regulatory investigations and the role of ‘parties’ impleaded to investigations by the DG, given that the MHC reiterates that provisions in the Act that use the term ‘party’ ought not to stand attracted in case of a mere ‘participant’. The judgment will impact how the CCI and other regulatory bodies conduct investigations, particularly emphasizing the need for transparency and strict adherence to due process.

This decision will likely influence ongoing and future CCI probes, compelling them to adhere strictly to due process norms. Relying on this judgment as potentially a strategic tool in ensuring fair treatment in regulatory proceedings, companies involved in CCI investigations or those that might be impleaded in the future should be vigilant about their procedural rights and ensure any impleadment in investigations is preceded by clear communication and legal justification.

[1] Paragraph 22 of the MHC judgement.

[2] Paragraph 24 of the MHC judgment.

[3] Paragraph 44 of the MHC judgement.

[4] Paragraph 46 of the MHC judgement.