Namrata Marketing Pvt. Ltd. vs Competition Commission Of India And 5 ... on 4 December, 2013

[Cites 24, Cited by 2]

Allahabad High Court

Namrata Marketing Pvt. Ltd. vs Competition Commission Of India And 5 ... on 4 December, 2013

Equivalent citations: AIR 2014 ALLAHABAD 11, 2014 (1) ALL LJ 762 (2013) 10 ADJ 629 (ALL), (2013) 10 ADJ 629 (ALL)

Bench: Sheo Kumar Singh, Pradeep Kumar Singh Baghel

HIGH COURT OF JUDICATURE AT ALLAHABAD

AFR

Reserved Civil Misc. Writ Petition No. 42783 of 2013.

Namrata Marketing Pvt. Ltd. .... .... ... Petitioner.

Versus

Competition Commission of India and others. ..... ... Respondents.

-------

Present:

Hon'ble Mr. Justice Sheo Kumar Singh, &

Hon'ble Mr. Justice Pradeep Kumar Singh Baghel.

----------

By the Court.--1. The petitioner has preferred this writ petition seeking issuance of a writ of certiorari to quash the impugned order/notice dated 28th May, 2013 issued by the Director General, Competition Commission of India, New Delhi under Section 41 (2) read with Section 36 (2) of the Competition Act, 2002 (for short, the "Competition Act"), and further a direction has been sought for upon the Competition Commission of India to keep the said proceedings in respect of the petitioner in abeyance till the decision of Civil Appeal No. 4766 of 2010 (Rajiv Kumar Mishra v. State of U.P. and others) pending before the Supreme Court of India.

2. The petitioner is a company registered under the provisions of the Companies Act, 1956. The Company is engaged in the business of production and sale of the sugar. It has four subsidiaries; they are also carrying on the same business.

3. On 29th June 2009 the Government of Uttar Pradesh/respondent no. 2 published an "Expression of Interest-cum-Request for Qualification" as well as a "Request for Proposal" inviting bids for sale of 11 Sugar Mills of the Uttar Pradesh State Sugar Corporation Limited (for short, the "Sugar Corporation")/respondent no. 4, in slump sale. Pursuant to aforesaid, the petitioner also participated and was found successful bidder for 4 Sugar Mills namely, (i) Ablaz Sugar Mills Pvt. Ltd.; (ii) Elkon Sugar Mills Pvt. Ltd.; (iii) Adarsh Sugar Solutions Pvt. Ltd; and (iv) Agili Sugar India Pvt. Ltd. The respondent no 1 i.e. the Competition Commission of India (for short, the "Commission") on its own motion has initiated investigation on the allegation that in the slump sale there was bid rigging and other serious irregularities. We shall refer the details of such irregularities at appropriate place of this judgement, but before that, at this stage, it would be advantageous to refer background facts in some detail.

4. It is stated that in the late 1960s several private sugar mills were creating problem for the State Government as they were unable to make timely payments of the cane growers and in spite of the best efforts made by the State Government, the position with regard to payment of cane dues of the farmers/cane growers did not improve. The aforesaid situation led to enactment of the Uttar Pradesh Sugar Undertakings (Acquisition) Act, 1971 (for short, the "Acquisition Act, 1971"). The State Government exercising its powers under the provisions of the said Act of 1971 had taken over a number of private sugar mills in private sector and those sugar mills, which were acquired, were vested in the Sugar Corporation. The Sugar Corporation was incorporated as a Government Company in terms of Section 617 of the Companies Act, 1956.

5. After their vesting with the Sugar Corporation/respondent No 4, the affairs of these sugar units were exclusively managed by it. Over a period of time, it was realized that main object of the acquisition could not be achieved for the multiple reasons and almost all the acquired units started incurring huge losses. Therefore, the State Government took a policy decision for privatisation/ disinvestment of those units whose annual loss was more than Rs. 10 crores and eroded net worth by 50 percent or more. It is stated that net worth of the Sugar Corporation had been eroded more than 50 percent on account of huge accumulated losses over the years. Therefore, in the year 1995 the matter was referred to the Board for Industrial and Financial Reconstruction (for short, the "BIFR") for rehabilitation of the sugar units, as some of the units were lying closed.

6. The State Government found that various attempts made for rehabilitation did not yield any positive result, therefore, it took a decision on 04th June, 2007 to disinvest in the Sugar Corporation and it was resolved that the State Government would sell its shares in the Sugar Corporation/respondent no. 4. Consequently, an advertisement was issued inviting bids from the persons who were interested for purchasing the shares/ equities of the State Government in the respondent no. 4.

7. The decision of the State Government for disinvestment of its shares in the Sugar Corporation was challenged in this Court by means of Civil Misc. Writ Petition No. 47934 of 2008 (Rajiv Kumar Mishra v. State of U.P. and others), on 10th September, 2008, praying inter alia for quashing the request for proposal of strategic sale of entire equity of the Government of Uttar Pradesh in the Sugar Corporation. On 30th September, 2008 a Division Bench of this Court passed an interim order that no third party right shall be created till the next date of listing. However, the Court was informed that on 29th September, 2008 an Ordinance, being the Uttar Pradesh Sugar Undertakings (Acquisition) (Amendment) Ordinance, 2008, was issued and promulgated. On 19th February, 2009 the Ordinance was replaced by the Uttar Pradesh Sugar Undertakings (Acquisition) (Amendment) Act, 2009 (U.P. Act No. 3 of 2009). Therefore, said Writ Petition No. 47934 of 2008 was amended challenging the vires of the said Amendment Act, 2009.

8. Vide U.P. Act No. 3 of 2009 new sections, being Sections 3-A, 3-B, 3-C, 3-D and 3-E, were inserted in the Acquisition Act, 1971. Section 3-A of the Acquisition Act provides that the State Government may, in the public interest, divest, sell off, transfer or otherwise part with all or any of its shares in the Sugar Corporation. Section 3-B gives power to the State Government to transfer the assets and liabilities in the Sugar Corporation. Section 3-C permits the State Government to change the land use. Section 3-D provides that the Government Order dated 04th June, 2007 and all subsequent Government Orders, notifications or policy statements issued and actions taken in relation to disinvestment, privatisation, sale, transfer in any form shall stand validated. Section 3-E empowers the State Government to issue orders if any difficulty arises in giving effect of the amended provisions.

9. The previous advertisement issued regarding proposal for strategic sale/ transfer of entire equity of the State Government in the Sugar Corporation failed to bring desired result. Response to the said advertisement was very poor. Consequently, the State Government by the Government Order dated 14th November, 2008 took another decision to change the policy of disinvestment in the Sugar Corporation and accordingly, the earlier process was terminated/ closed.

10. After the enforcement of U.P. Act No. 3 of 2009, the State Government took another policy decision for the "slump sale" of operating units of the Sugar Corporation. Relevant it would be to mention that there were 11 operating units of the Sugar Corporation and 18 units were closed as they were not viable. Therefore, 18 units were transferred to Uttar Pradesh State Sugar Cane Development Limited (UPSSCDL), which is a wholly owned subsidiary company of the Sugar Corporation. Pursuant to the said policy decision, M/s. IFCI Limited was appointed as Advisor for advising the State Government on the disinvestment in the Sugar Corporation.

11. On 29th June, 2009 the State Government, after the enforcement of the U.P. Act No. 3 of 2009, issued notice for expression-cum-request for sale/privatisation of 11 operating units, pursuant to which the petitioner also applied. Petitioner's bids being the highest bids for 4 units, namely, Ablaz Sugar Mills Pvt. Ltd.--Laxmi Ganj Sugar Unit; Elkon Sugar Mills Pvt. Ltd.--Deoria Sugar Unit; Adrash Sugar Solutions Pvt. Ltd.--Berali Sugar Mill; and, Agili Sugar India Pvt. Ltd.--Hardoi Sugar Mill, were accepted.

12. Another writ petition, being Civil Misc. Writ Petition No. 39850 of 2009 (Chini Mill Karmchari Sangh v. State of U.P. and others) was also filed by the Union of Workers of Mohiuddinpur Unit. In this writ petition also, the privatisation policy of the State Government was challenged.

13. In both the aforementioned writ petitions, i.e. Civil Misc. Writ Petition No. 39850 of 2009 (Chini Mill Karmchari Sangh v. State of U.P. and others) and Civil Misc. Writ Petition No. 47934 of 2008 (Rajiv Kumar Mishra v. State of U.P. and others), the principal ground of challenge was:

(i)The Amendment Act, 2009 is beyond the legislative competence of the State Legislature as the said amendment entrenches in the legislative field of the Parliament under Entry 52, List-I of Seventh Schedule of the Constitution. It was also contended that the sugar having been declared controlled industries as specified in the First Schedule of the Industries (Development and Regulation) Act, 1951, the field was occupied by the Industries (Development and Regulation) Act, 1951 denuding the legislative competence of the State Legislature to enact the Amendment Act, 2009, and the Amendment Act, 2009 is not a law passed by the State Legislature referable to Entry 42 of List III of the Seventh Schedule of the Constitution.

14. The Division Bench of this Court vide its judgement and order dated 01st April, 2010 [reported in 2010 (2) UPLBEC 1077 (Chini Mill Karmchari Sangh v. State of U.P. and another)] partly allowed both the writ petitions and held that Sections 3-C and 3-D were beyond the legislative competence of the State Legislature.

15. Feeling aggrieved by the aforesaid judgement and order of the Division Bench, the respondent no. 5, namely, Sri Rajiv Kumar Mishra filed a special leave petition, being Special Leave Petition No. 16362 of 2010 (Rajiv Kumar Mishra v. State of U.P. and others), which is now converted to Civil Appeal No. 4766 of 2010 and is pending before the Supreme Court.

16. Now, coming to the facts of present dispute, we find that the Comptroller and Auditor General (for short, the "CAG") in one of its reports has considered the 'slump sale' of the above noted sugar Units to private entrepreneurs including the petitioner. The Competition Commission of India took note of the report of CAG and on the basis of its own motion, issued a notice to the petitioner on 19th March, 2013 under Section 41(2) read with Section 36 (2) of the Competition Act regarding entire tendering process. A copy of the said notice is Annexure-P9 to the writ petition. It is stated that the petitioner submitted its reply thereto on 05th April, 2013 taking a stand that the information sought by the Commission are subject matter of Writ Petition No 5283 (MB) of 2011 (Sachchidanand Gupta v. State of U.P. and others) pending in the Allahabad High Court (Lucknow Bench) and Special Leave Petition No 16362 of 2010 pending in Supreme Court. A copy of the reply submitted by the petitioner is annexure-P10 to the writ petition.

17. The respondent-Commission issued another notice on 09th April, 2013 seeking complete information upto 20th April, 2013. The petitioner in its reply dated 18th April, 2013 reiterated its stand taken in the earlier communication/reply. The Commission was not satisfied with the said reply of the petitioner and issued another notice dated 28th May, 2013, wherein it mentions that as there is no stay order by any Court, in view of the provisions of Section 62 of the Competition Act the Commission is empowered to proceed in view of the notice issued under Section 41 of the Competition Act. Only said notice dated 28th May, 2013 is impugned in the present writ petition.

18. Sri S.P. Singh, learned Senior Advocate, assisted by Sri P.S. Chauhan, learned Counsel for the petitioner, submits that the Commission has arbitrarily exercised its power under Section 19 of the Competition Act on its own motion, as there was no material available before the Commission; the objection raised by the CAG regarding the auction of the Sugar Mills is under consideration before the Allahabad High Court in Writ Petition No. 5283 (MB) of 2011 (Sachchidanand Gupta v. State of U.P. and others); the Director General of the Commission has misinterpreted Section 62 of the Competition Act as the proceedings pending before the Hon'ble Supreme Court of India and the Allahabad High Court are in exercise of the powers contained in civil appellate jurisdiction and extra-ordinary jurisdiction under Article 226 of the Constitution; once the matter is pending in the Supreme Court of India in its appellate jurisdiction, then it is not proper that same issue be got adjudicated by a quasi-judicial authority; and, once the judicial and constitutional machinery is exercising the judicial power, then the delegated authority and body created by the delegated legislation is not empowered to adjudicate upon the same issue.

19. Learned Assistant Solicitor General of India Sri R.B. Singhal, assisted by Sri F.A. Ansari, learned Counsel for the respondents-Union, submitted that the petitioner has challenged the notice under Section 26 of the Competition Act without furnishing necessary information to the Director General, thus the writ petition is not maintainable as no order has been passed against the petitioner causing any prejudice to its right. He further urged that the petitioner may file its reply before the Director General as the final decision shall be taken by the Commission only after considering the report of the Director General.

20. We have heard learned Counsel for the respective parties and perused the record.

21. India, after its independence, adopted central planning and mixed economy. Over the years public sector continued to incur huge losses. It led to protectionism, inefficiency, wasteful expenditure and corruption. The heavy industry, steel, power, telecommunication, mines, coal, etc. were under the control of the Government. The private sectors were not allowed to compete with the public sector. After 1991 debt crisis, when foreign exchange reserve of the Country dipped to $ 5834 level, India took several measures to liberalise its economy and it turned its back to Fabien socialism. Suffice, would it be to mention that several major policy decisions were taken for economic reforms. The liberalization policy achieves spectacular results. Now India has more than five thousand listed Companies. In 2011 the foreign investments in India was 32 billion dollar. The economic growth on average increased from 3 percent to 6.5 percent in a year. Its highest growth of GDP was recorded 9.5 percent in the year 2010-11. But the new liberalized policy has its own complexities; the crony capitalism is one of them. It is believed that it undermines competition and has negative effect on economic progress.

22. United States of America faced the same problem in pre- industrialization period. It had to enact antitrust laws, Sherman Act, 1890; Clayton Act, 1914; the Federal Trade Commission Act, 1914; and the Robinson-Patman Act, 1936. Other industrial countries had also followed the same suit.

23. India also felt the need to enact such law; to encourage the foreign investment, to protect free market economy, removing controls and License Raj, urgently required new legislations. With a view to achieve said objective, a High Power Committee was constituted in this regard and on its recommendation, the Parliament enacted the Competition Act, 2002 (Act No. 12 of 2003).

24. The object of the Competition Act is to promote economic efficiency using competition as one of the means of assessing the creation of market responsibility to the consumer preferences. Briefly stated the objects of the competition law are: (i) to promote efficiency, (ii) to protect the interest of the consumers, and (iii) to avoid the monopoly of a group of industries.

25. Section 3 of the Competition Act provides that no agreement in respect of production, supply, acquisition or control of the goods can be made which causes or is likely to cause adverse effect on competition within India. It also prohibits agreements which result in bid rigging; and directly or indirectly determines purchase or sale prices. Section 4 deals with prohibition of abuse of dominant position. Section 5 deals with acquisition of the assets of the value of more than rupees 1000 crores or turnover more than rupees 3000 crores.

26. In dealing with the point involved in this case, it is necessary to read Sections 19 and 26 of the Competition Act.

27. Section 19 of the Competition Act empowers the Commission to make enquiry into any contravention of the provisions of sub-section (1) of Section 3 or sub-section (1) of Section 4 thereof, on its motion or upon the receipt of any information or upon a reference made to it by the Central Government or the State Government or the statutory authority, as the case may be. Section 19 of the Competition Act runs as under:

"19. Inquiry into certain agreements and dominant position of enterprise.--(1) The Commission may inquire into any alleged contravention of the provisions contained in sub-section (1) of section 3 or sub-section (1) of section 4 either on its own motion or on--

(a) receipt of any information, in such manner and accompanied by such fee as may be determined by regulations, from any person, consumer or their association or trade association; or

(b) a reference made to it by the Central Government or a State Government or a statutory authority.

(2) Without prejudice to the provisions contained in sub-section (1), the powers and functions of the Commission shall include the powers and functions specified in sub-sections (3) to (7).

(3) The Commission shall, while determining whether an agreement has an appreciable adverse effect on competition under section 3, have due regard to all or any of the following factors, namely:--

(a) creation of barriers to new entrants in the market;

(b) driving existing competitors out of the market;

(d) accrual of benefits to consumers;

(e) improvements in production or distribution of goods or provision of services;

(f) promotion of technical, scientific and economic development by means of production or distribution of goods or provision of services.

(4) The Commission shall, while inquiring whether an enterprise enjoys a dominant position or not under section 4, have due regard to all or any of the following factors, namely:--

(a) market share of the enterprise;

(b) size and resources of the enterprise;

(d) economic power of the enterprise including commercial advantages over competitors;

(e) vertical integration of the enterprises or sale or service network of such enterprises;

(f) dependence of consumers on the enterprise;

(g) monopoly or dominant position whether acquired as a result of any statute or by virtue of being a Government company or a public sector undertaking or otherwise;

(h) entry barriers including barriers such as regulatory barriers, financial risk, high capital cost of entry, marketing entry barriers, technical entry barriers, economies of scale, high cost of substitutable goods or service for consumers;

(i) countervailing buying power;

(j) market structure and size of market;

(k) social obligations and social costs;

(l) relative advantage, by way of the contribution to the economic development, by the enterprise enjoying a dominant position having or likely to have appreciable adverse effect on competition;

(m) any other factor which the Commission may consider relevant for the inquiry.

(5) For determining whether a market constitutes a "''relevant market" for the purposes of this Act, the Commission shall have due regard to the "relevant geographic market" and "relevant product market".

(6) The Commission shall, while determining the "relevant geographic market", have due regard to all or any of the following factors, namely:--

(a) regulatory trade barriers;

(b) local specification requirements;

(d) adequate distribution facilities;

(e) transport costs;

(f) language;

(g) consumer preferences;

(h) need for secure or regular supplies or rapid after-sales services.

(7) The Commission shall, while determining the "relevant product market", have due regard to all or any of the following factors, namely:--

(a) physical characteristics or end-use of goods;

(b) price of goods or service;

(d) exclusion of in-house production;

(e) existence of specialised producers;

(f) classification of industrial products."

28. A simple reading of Section 19, as aforesaid, makes it clear that if the Commission is prima facie satisfied that the information needs investigation, it will ask the Director-General to make the necessary inquiry/investigation in respect of violation of Section 3 or 4 of the Competition Act. Pertinently, the Director General is appointed by the Central Government in terms of Section 16 of the Competition Act to assist the Commission in conducting inquiry into contravention of the provisions of the Act. At this stage it would be advantageous to reproduce Section 26 of the Competition Act, as under:

"26. Procedure for inquiry under Section 19.--(1) On receipt of a reference from the Central Government or a State Government or a statutory authority or on its own knowledge or information received under section 19, if the Commission is of the opinion that there exists a prima facie case, it shall direct the Director-General to cause an investigation to be made into the matter:

Provided that if the subject-matter of an information received is, in the opinion of the Commission, substantially the same as or has been covered by any previous information received, then the new information may be clubbed with the previous information.

(2) Where on receipt of a reference from the Central Government or a State Government or a statutory authority or information received under section 19, the Commission is of the opinion that there exists no prima facie case, it shall close the matter forthwith and pass such orders as it deems fit and send a copy of its order to the Central Government or the State Government or the statutory authority or the parties concerned, as the case may be.

(3) The Director-General shall, on receipt of direction under sub-section (1), submit a report on his findings within such period as may be specified by the Commission.

(4) The Commission may forward a copy of the report referred to in sub-section (3) to the parties concerned:

Provided that in case the investigation is caused to be made based on reference received from the Central Government or the State Government or the statutory authority, the Commission shall forward a copy of the report referred to in sub-section (3) to the Central Government or the State Government or the statutory authority, as the case may be.

(5) If the report of the Director-General referred to in sub-section (3) recommends that there is no contravention of the provisions of this Act, the Commission shall invite objections or suggestions from the Central Government or the State Government or the statutory authority or the parties concerned, as the case may be, on such report of the Director- General.

(6) If, after consideration of the objections or suggestions referred to in sub-section (5), if any, the Commission agrees with the recommendation of the Director-General, it shall close the matter forthwith and pass such orders as it deems fit and communicate its order to the Central Government or the State Government or the statutory authority or the parties concerned, as the case may be.

(7) If, after consideration of the objections or suggestions referred to in sub-section (5), if any, the Commission is of the opinion that further investigation is called for, it may direct further investigation in the matter by the Director-General or cause further inquiry to be made in the matter or itself proceed with further inquiry in the matter in accordance with the provisions of this Act.

(8) If the report of the Director-General referred to in sub-section (3) recommends that there is contravention of any of the provisions of this Act, and the Commission is of the opinion that further inquiry is called for, it shall inquire into such contravention in accordance with the provisions of this Act."

29. Thus, a full reading of Sections 3, 4, 19 and 26 of the Competition Act make it clear that theCommission may form its opinion with regard to the prima facie case for contraventions of the provisions of Section 3 or Section 4. The Commission can form its opinion on its own motion or from a reference received from the Central Government, the State Government or a statutory authority. In case the Commission initiates the proceeding under Section 19 of the Competition Act on its own motion, it examines the material and if it is satisfied prima facie from such enquiry that there is any alleged contravention of the provisions in sub-section (1) of Section 3 or sub-section (1) of Section 4, it shall ask the Director General to cause an investigation.

30. The function of the Director General is to assist the Commission in conduct of enquiry into contravention of any provision of the Competition Act. The Director General, on receipt of direction from the Commission under sub-section (1), makes an enquiry and submits a report on his findings to the Commission. Thereupon, the Commission shall forward a copy of its report to the parties concerned. If the investigation was initiated on the reference of Central Government or the State Government or the statutory authority, it shall forward the report to such authority. If the report finds that there is no contravention of Section 3 or 4 of the Competition Act, the Commission invites objections or suggestions from the Central Government or the State Government or the statutory authority or the parties concerned, as the case may be, on the report of the Director General, and after considering the objections/suggestions received from the concerned party if the Commission agrees with the recommendation of the Director General, it closes the matter. However, if the Commission is of the opinion that further investigation is required, it may direct further investigation in the matter by the Director General or it may itself make further inquiry in accordance with the provisions of the Act.

31. On 10th January, 2013 the Commission took note of the Comptroller and Auditor General's audit report titled "Performance Audit Report on Sale of Sugar Mills" (CAG Report), wherein the CAG made an observation that in respect of sale of 11 Sugar Mills by the Sugar Corporation and 14 Sugar Mills by Uttar Pradesh Rajya Chini Evam Ganna Vikas Nigam Limited (UPRCGVNL) there was a lack of competitive process. CAG also found that bidders were engaged in bid rigging activities. According to the Commission, low bidding pattern indicates a situation where bidders have been engaged in cover/courtesy bidding tactics. Consequently, it affected the fair value of the Sugar Mills. While initiating the proceedings on its own motion, in its order dated 10th January, 2013 the Commission has considered in detail several relevant and material facts. From the said materials, the Commission was of the opinion that there exists prima facie case that there was adverse affect on competition under Section 3(3)(d) of the Competition Act. Some of the material facts, on the basis of which the Commission made its prima facie opinion, are extracted herein below:

"There was only one bid for each of the 11 mills, divided among the three bidders and there was apparently no competition among the bidders for any of the mills.

The six challengers who submitted financial bids under SCM challenging the highest after made the offer for separate mills with no competition among them. That there was only one bid for a mill both in original bidding and bidding under SCM rounds.

**** **** ****

All the bidders at initial stage and SCM round were related companies, for example, Namrata Marketing Private Limited ("Namrata") was a fully controlled subsidiary of Giriasho Company Private Limited ("Giriasho") as Giriasho held 86.42% equity shares of Namrata.

One of the sugar mills (Bhatni) purchased by M/s Trikal was handed over to be managed by a person who was the authorized signatory of Namrata.

Company directors were found initial M/s Wave and M/s Nilgiri Food Products Private Limited ("Nilgiri") and M/s Wage and M/s Trikal. There were common directors of the SPVs of the original bidders as well as the SPVs of the bidders at the SCM rounds.

**** **** ****

Correspondence address, email in and contact number mentioned by two bidders, viz., M/s Namrata and M/s Girasho in their EOI-cum-RFQ and the RFP were same.

**** **** ****

Against the total expected price of Rs. 173.63 crore only Rs. 91.65 crore was realized resulting in a short realization of Rs. 81.98 crore."

"a) Agreement on not to complete: the bidding pattern shown by the firms in the initial round of bidding as well as in the SCM round indicates some understanding among them for not submitting more than one bid for a sugar mills. This evident from the act that only one bid has been received for each of the 11 sugar mills despite number of bidders being available.

b) Meeting of mind of the bidders: the consecutive number of drafts of the original bidders for purchasing the EOI cum RQF as well as for the submission of the bid security amount is indicative of a pre-existing relationship among them. Additionally, there is evidence to indicate that the whole bidding process was schemed to pre-determine which companies would bid for which sugar mill and select in advance the winner of each bid.

c) Related Bidders: the bidders were related to each other (directly or indirectly) which facilitated the creation of the understanding to perpetrate the conspiracy. This is evident from the following facts:

Initial bidders. The address as well as contact number mentioned on the letter head of M/s Nilgiri as the same as M/s PBS which were related enterprise of M/s Wave. Further, there are common shareholders in (a) M/s Nilgiri (b) M/s Wave and M/s Trikal. There were common directorships in SPVs formed by the three bidders of the initial round i.e. M/s Wave, M/s Trikal and M/s Nilgiri, SCM Bidders M/s Giriasho is the holding company of M/s Namrata. The correspondence address, email id and contact number of M/s Namrata and M/s Giriasho are the same. Together the two enterprises have won the bids for seven sugar mills out of the eleven sold. Further there are common directorship in the SPVs of M/s Namrata, M/s Giriasho and M/s S.R. Buildcon Private Limited.

Original Bidders and SCM Bidders. There were common directors in SPVs of M/s Wave, M/s Trikal, M/s Nilgiri and M/s Namrata.

d) **** **** ***

e) **** **** ***

f) Unusual Withdrawal of the Bids: For the 11 Mills of UPRCGVNL challenge bids were invited under the SCM method. Bids from five challengers for all the 11 mills were received by November 2010. The management by 15 November 2010 had informed all the original highest bidders about the SCM challenge bids and asked them to match the bids so received. Initially, all the original highest bidders conveyed their willingness to accept the challenge bids. However, three original bidders withdrew their consent by December 24, 2010 and allowed their bid security amount to be forfeited in respect of 8 of the sugar mills they had originally bid for."

32. The Commission, thus, referred the matter to the Director General for investigation. The Director General was directed to submit investigation report within sixty days. The petitioner has brought the order dated 10th January, 2013 on the record along with supplementary affidavit.

33. Upon receipt of the direction from the Commission, the Director General issued a notice dated 19th March, 2013 to the petitioner under Section 41(2) read with Section 36(2) of the Competition Act, wherein certain informations were required from the petitioner. The details of the documents and the information were mentioned in the said notice. A copy of the notice dated 19th March, 2013 is annexed to the writ petition as annexure-P9. The petitioner in response thereto submitted an application dated 05th April, 2013 seeking four weeks' time for submitting the necessary documents and information. The Director General on 09th April, 2013 extended the time till 20th April, 2013. On 18th April, 2013 the petitioner submitted another application, wherein it sought further three weeks' time on the ground that pertaining to the auction of the Cooperative Sugar Mill, the matter is pending before the Supreme Court in Civil Appeal No. 4766 of 2010 (Rajiv Kumar Mishra v. State of U.P. and others) and a writ petition in the nature of public interest litigation, being Writ Petition No. 5283 (MB) of 2011 (Sachchidanand Gupta v. State of U.P. and others) is also pending before the Allahabad High Court (Lucknow Bench).

34. The Director General vide impugned order dated 28th May, 2013 turned down the request of the petitioner for extension of time and to keep the matter in abeyance on the ground of pendency of Civil Appeal in the Supreme Court and the Writ Petition (PIL) in the Allahabad High Court (Lucknow Bench). The Director General was of the opinion that there is no stay order in respect of the present proceeding by the Court, and he has recorded that the present investigation has been initiated on the basis of the order of the Commission dated 10th January, 2013 in terms of Section 26 (1) of the Competition Act and it is a time bound process. The petitioner has impugned the said notice in the present writ petition.

35. In the case in hand, the Commission has formed its opinion suo motu on the basis of the report of the CAG. The Comptroller and Auditor General (CAG) is appointed under Article 148 of the Constitution of India. Article 149 of the Constitution deals with the duties and powers of the Comptroller and Auditor-General, which reads as under:

"149. Duties and powers of the Comptroller and Auditor-General.--The Comptroller and Auditor-General shall perform such duties and exercise such powers in relation to the accounts of the Union and of the States and of any other authority or body as may be prescribed by or under any law made by Parliament and, until provision in that behalf is so made, shall perform such duties and exercise such powers in relation to the accounts of the Union and of the States as were conferred on or exercisable by the Auditor-General of India immediately before the commencement of this Constitution in relation to the accounts of the Dominion of India and of the Provinces respectively."

36. In 1971, the Parliament enacted the Comptroller and Auditor-General's (Duties, Powers and Conditions of Service) Act, 1971. Section 10 of the said Act provides that the CAG shall compile the accounts of the Unions and the States and on the basis of those accounts it prepares the annual accounts, which are submitted to the President of India or the Governor of State.

37. One of the objects of the audit is to examine whether the fund allocated for various expenditure has been properly utilized or not. The CAG also examines the various decisions of the Central Government and the State Governments, which have financial implications including the propriety of the decision making. It is a true that the said report is laid before each House of Parliament in terms of Article 151 (1) and in relation to States in terms of Article 151 (2) of the Constitution and the reports are scrutinized by the Public Accounts Committee (PAC), but the report of the CAG cannot be ignored simply because the procedure laid down under Article 151 of the Constitution has not been followed in the present case. The importance of the CAG's report has been considered by the Supreme Court in the case of Arun Kumar Agrawal v. Union of India and others, (2013) 7 SCC 1. It is enough to quote only relevant part of the judgment as under:

"68. We may, however, point out that since the report is from a constitutional functionary, it commands respect and cannot be brushed aside as such, but it is equally important to examine the comments what respective Ministries have to offer on the CAG's Report. The Ministry can always point out, if there is any mistake in the CAG's report or the CAG has inappropriately appreciated the various issues. For instance, we cannot as such accept the CAG report in the instance case."

38. Pertinently, the Commission in exercise of its power under Section 19 of the Competition Act has considered the observation of the CAG and after considering the CAG's report and other materials, it formed an opinion that there exists a prima facie case. Therefore, we are unable to accept the submission of learned Counsel for the petitioner that there was no material before the Commission to initiate the suo-motu proceedings against the petitioner in terms of Section 19 of the Competition Act.

39. The object and scheme of the Competition Act fell for consideration recently before the Supreme Court in the case of Competition Commission of India v. Steel Authority of India Limited and another, (2010) 10 SCC 744. The Supreme Court, after examining the provisions of the Competition Act and the Regulations framed thereunder, was of the opinion that the matter related to contraventions of the Act, ought to be disposed of expeditiously in a time bound programme. The Court went elaborately into various aspects of the scheme of the Act and aptly observed as under:

"10. The Act and the Regulations framed thereunder clearly indicate the legislative intent of dealing with the matters related to contravention of the Act, expeditiously and even in a time-bound programme. Keeping in view the nature of the controversies arising under the provisions of the Act and larger public interest, the matters should be dealt with and taken to the logical end of pronouncement of final orders without any undue delay. In the event of delay, the very purpose and object of the Act is likely to be frustrated and the possibility of great damage to the open market and resultantly, country's economy cannot be ruled out."

40. The Supreme Court in the above noted case of Competition Commission of India (supra) has formulated six points for determination. One of the points, which is relevant for our purpose, reads as under:

"(2) What is the ambit and scope of power vested with the Commission under Section 26(1) of the Act and whether the parties, including the informant or the affected party, are entitled to notice or hearing, as a matter of right, at the preliminary stage of formulating an opinion as to the existence of the prima facie case?"

The Supreme Court answered the aforesaid question thus:

"(2) Neither any statutory duty is cast on the Commission to issue notice or grant hearing, nor any party can claim, as a matter of right, notice and/or hearing at the stage of formation of opinion by the Commission, in terms of Section 26(1) of the Act that a prima facie case exists for issuance of a direction to the Director General to cause an investigation to be made into the matter."

41. The Supreme Court held further that formation of the prima facie opinion under Section 26(1) is a direction simpliciter and it is administrative in nature, and a direction is like a departmental proceeding, which does not entail civil consequences. The Supreme Court observed as under:

"38. In contradistinction, the direction under Section 26(1) after formation of a prima facie opinion is a direction simpliciter to cause an investigation into the matter. Issuance of such a direction, at the face of it, is an administrative direction to one of its own wings departmentally and is without entering upon any adjudicatory process. It does not effectively determine any right or obligation of the parties to the lis. Closure of the case causes determination of rights and affects a party i.e. the informant; resultantly, the said party has a right to appeal against such closure of case under Section 26(2) of the Act. On the other hand, mere direction for investigation to one of the wings of the Commission is akin to a departmental proceeding which does not entail civil consequences for any person, particularly, in light of the strict confidentiality that is expected to be maintained by the Commission in terms of Section 57 of the Act and Regulation 35 of the Regulations."

42. The principle of law that could be deduced from the above decision is that an enquiry under Section 26(1) of the Competition Act by the Director General is an administrative enquiry. In the present case, the petitioner has been simply asked to furnish some documents mentioned in the impugned order/notice of the Director General dated 28th May, 2013. No prejudice will be caused to the petitioner if the Director General causes an investigation into the matter, as on the receipt of his report under sub-section (3) of Section 26 of the Competition Act, the Commission, after considering the report, may direct for further investigation or it can make a further enquiry itself in accordance with the provisions of the Act.

43. The matter can be looked at from another angle also.

44. The impugned notice issued by the Director General is in the nature of a show cause notice. The Supreme Court in a long line of decisions has held that the writ petition against the show cause notice is not maintainable. There are very limited grounds when writ petition can be entertained against show cause notice, i.e. when it is totally without jurisdiction or against the vires of statutory provision. In the present case, the petitioner has not challenged the impugned notice on the ground that the Commission does not have power to investigate or enquire into the matter.

45. The Supreme Court in the case of Special Director and another v. Mohd. Ghulam Ghouse and another, (2004) 3 SCC 440, has deprecated the practice of the High Courts in entertaining the writ petitions against the show cause notice, and observed as under:

"5. This Court in a large number of cases has deprecated the practice of the High Courts entertaining writ petitions questioning legality of the show-cause notices stalling enquiries as proposed and retarding investigative process to find actual facts with the participation and in the presence of the parties. Unless, the High Court is satisfied that the show-cause notice was totally non est in the eye of law for absolute want of jurisdiction of the authority to even investigate into facts, writ petitions should not be entertained for the mere asking and as a matter of routine, and the writ petitioner should invariably be directed to respond to the show-cause notice and take all stands highlighted in the writ petition. Whether the show cause notice was founded on any legal premises, is a jurisdictional issue which can even be urged by the recipient of the notice and such issues also can be adjudicated by the authority issuing the very notice initially, before the aggrieved could approach the court. Further, when the court passes an interim order it should be careful to see that the statutory functionaries specially and specifically constituted for the purpose are not denuded of powers and authority to initially decide the matter and ensure that ultimate relief which may or may not be finally granted in the writ petition is accorded to the writ petitioner even at the threshold by the interim protection granted."

46. The same view was taken by the Supreme Court in the case of Executive Engineer, Bihar State Housing Board v. Ramesh Kumar Singh and others, AIR 1996 SC 691. Paragraph-10 of the judgment is as follows:

"10. We are concerned in this case, with the entertainment of the writ petition against a show cause notice issued by a competent statutory authority. It should be borne in mind that there is no attack against the vires of the statutory provisions governing the matter. No question of infringement of any fundamental right guaranteed by the Constitution is alleged or proved. It cannot be said that Ext. P-4 notice is ex facie a "nullity" or totally "without jurisdiction" in the traditional sense of that expression--that is to say, that even the commencement or initiation of the proceedings, on the face of it and without anything more, is totally unauthorised. In such a case, for entertaining a writ petition under Article 226 of the Constitution of India against a show-cause notice, at that stage, it should be shown that the authority has no power or jurisdiction, to enter upon the enquiry in question. In all other cases, it is only appropriate that the party should avail of the alternate remedy and show cause against the same before the authority concerned and take up the objection regarding jurisdiction also, then. In the event of an adverse decision, it will certainly be open to him, to assail the same either in appeal or revision, as the case may be, or in appropriate cases, by invoking the jurisdiction under Article 226 of the Constitution of India."

47. Reference may also be made to some other judgments of the Supreme Court in the cases of State of Uttar Pradesh v. Brahm Datt Sharma and another, AIR 1987 SC 943; Union of India and another v. Kunisetty Satyanarayana, (2006) 12 SCC 28; and Siemens Ltd. v. State of Maharashtra and others, (2006) 12 SCC 33.

48. As regards the submission of learned Counsel for the petitioner that the Commission/Director General may keep the matter in abeyance till the decision of Civil Appeal No. 4766 of 2010 (Rajiv Kumar Mishra v. State of U.P. and others) pending before the Supreme Court and the writ petition (PIL), being Writ Petition No. 5283 (MB) of 2011 (Sachchidanand Gupta v. State of U.P. and others), pending before the Allahabad High Court (Lucknow Bench), we are of the view that the Supreme Court in Competition Commission of India (supra) has held that the scheme of the Competition Act provides that the matter relating to contravention of the Act should be decided expeditiously in time-bound program, keeping in view larger public interest, without any undue delay. The Court has further held that in the event of delay, the very purpose and object of the Act is likely to be frustrated and the possibility to great damage to the open market and country's economy cannot be ruled out. In view of the said law laid down by the Supreme Court, in our opinion, it would not be appropriate to keep the matter in abeyance till the decision of the aforesaid Civil Appeal pending in the Supreme Court. If the petitioner will feel aggrieved by the order passed by the Commission, it may challenge the same in the appropriate forum.

49. Learned Counsel for the petitioner has not cited any law in support of his submission that if similar issue is involved in a case pending before the superior court, the statutory authority should keep their hands off till the decision of the Court.

50. On a careful consideration of the submissions made by the respective parties, relevant provisions of the Competition Act, Regulations and for the aforestated reasons, we are of the view that no prejudice shall be caused to petitioner in case it submits the necessary information/ documents to the Director General in response to the impugned notice dated 28th May, 2013. Thus, the writ petition lacks merit and it is liable to be dismissed. Accordingly, it is dismissed.

51. No order as to costs.

Order Date :- 04th December, 2013.

SKT/DS.

Hon. Sheo Kumar Singh, J.

Hon. Pradeep Kumar Singh Baghel, J.

The writ petition is dismissed.

For order, see our order of the date passed on the separate sheets (twenty one pages).

Dt./- 04.12.2013.

SKT/-

Legal Document View

Unlock Advanced Research with PRISMAI

Allahabad High Court