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Synopsis

The Calcutta High Court has recently declined to stay an ongoing investigation with regard to the alleged cartelization of steel by the manufacturers.

The court refused to stay the summons issued by the Director General of the Competition Commission of India (CCI) to two senior officials including a Director of Shyam Steel Industries Ltd.

The single judge bench of Justice Moushumi Bhattacharya observed, “It follows from the above that section 26(1) does not involve any adjudicatory processes and would also not cause any particular prejudice to the petitioners at the stage of the investigation. In the absence of any adjudication, the petitioners would not be visited with civil consequences or any imminent threat of irreversible prejudice. The petitioners will have every opportunity to challenge the investigation process or the decision arising therefrom at a later stage.”

The summons in question referred to an investigation being conducted by the DG, CCI into alleged cartelization by steel manufacturers in accordance with the provisions of the Competition Act, 2002. According to the statement, the DG learned that the Director of the petitioner company may be in possession of evidence pertinent to the investigation. The Director was summoned on April 25, 2023, in accordance with the authorities granted by sections 41(2) and 36(2) of the Act.

It was argued by the counsel appearing for petitioners that the impugned summons were issued without following the statutory mandate under section 26(1) of the Act, and that the requirement to form a prima facie opinion on the Commission must be met before the Director General can be directed to conduct an investigation.

The counsel further placed reliance on an order of the Madras High Court dated July 29, 2021, in Coimbatore Corporation Contractors Welfare Association v. Central Bureau of Investigation wherein the court directed the Director-General to act in accordance with the law.

It was argued that the company was not identified in the Madras High Court judgment and that the Commission's decision directing the DG to examine the case in accordance with the said order, dated August 23, 2021, was made accessible to the petitioners only on April 21, 2023.

The ASG standing for the CCI, on the other hand, contended that, after the Madras High Court's direction, the Director General had no choice but to launch an investigation into the incident. It was further argued that the investigation was of more public interest because the allegations concern steel price manipulation, and therefore the balance of convenience favours continuing the investigation.

Court noted that Section 26(1) of the Act requires the Commission to form an opinion on the existence of a prima facie case, after which the Commission shall direct the DG to investigate the matter, and the Supreme Court recognised this requirement of formation of opinion in Competition Commission of India v. Steel Authority of India Limited.

The court noted that the Madras High Court's order dated 29 July 2021 was issued in response to a complaint filed by the Coimbatore Corporation Contractors Welfare Association against the Central Bureau of Investigation and the Deputy Superintendent of Police alleging profiteering and price hikes by a syndicate of steel owners.

The court did, however, point out that the petitioner corporation was not mentioned in the lawsuit. The court also stated that because the complaint had already been forwarded to the DG (Investigation), CCI, the DG in charge should be directed to proceed further in this regard and take appropriate action on the complaint filed by the Welfare Association in accordance with the law.

“Therefore, the Madras High Court order compresses and subsumes the sequential steps for the Commission to inquire into any alleged contravention on receipt of any information or information received under section 19 or on its own knowledge of such contravention/s,” the court said.

In the absence of a jurisdictional error, the court determined that the petitioners had no reason to hinder the investigation and seek interruption or interference with the process. “Section 26(2) of the Act provides a further exit route to the petitioners where the entire process may be closed if the prima facie case ceases to exist. The petitioners have the opportunity to disprove the charges made against them and lead the proceedings to a close,” said the court.

Court noted that the claims are of cartelization and manipulation of steel supply and pricing and that the consequences of such acts reach beyond a few to the general public, including end-users, consumers, and home buyers. It was also noted that the greater public interest viewpoint necessitates the continuation of the probe.

“Section 26(2) of the Act provides a further exit route to the petitioners where the entire process may be closed if the prima facie case ceases to exist. The petitioners have the opportunity to disprove the charges made against them and lead the proceedings to a close,” said the court.

Thus, the court noted that there was no pressing or compelling reason to interfere with the investigation by restraining the respondents from stay their hands with reference to the impugned Summons.

Case Title: Shyam Steel Industries Ltd. & Anr. vs. Union of India