Are the decisions of the Competition Commission in rem?

A few days ago I had a discussion on competition law with a distinguished colleague of mine whose depth and perspicacity I deeply respect. During the course of the discussion, the question that came to my mind was whether the orders/decisions of the Competition Commission of India (CCI) are judgments in rem, or are they restricted to the parties to a given case? Following are the scenarios which need to be looked into: 

1.       If an agreement entered into by X with Y is ultimately held to be anti-competitive under Section 3 by the CCI, would the finding apply to an identical agreement entered into subsequently by X and Z?  Also, would the finding apply to an identical agreement entered into by X and P prior to the finding of the CCI? 

2.       Would the finding apply to identical/similar agreements entered into by A and B either before or after the finding of the CCI in the case involving X and Y?

Be it Section 3 of the Act which deals with anti-competitive agreements, or Section 4 which deals with abuse of dominant position, or Section 6 which deals with regulation of combinations, the attempt is to proscribe/forbid certain types of behaviour which have an adverse bearing on competition in the market. In other words, the focus is on the behaviour of the entities, as opposed to the entities themselves. Therefore, it could be said that if a certain clause or transaction or practice is held to be anti-competitive or abusive, such a finding could apply to third party enterprises indulging in identical/similar practices, even if such parties were strangers to the earlier proceedings. To that extent, it could be said that the CCI is laying down the law on legally acceptable behaviour in the market.

However, practically, does this mean the CCI can forego investigation and proceed to declare as anti-competitive the agreements between X and Z, or X and P, or A and B? Sections 42A and 53N could help address these questions. Reproduced below are the said provisions:

Compensation in case of contravention of orders of Commission

42A.Without prejudice to the provisions of this Act, any person may make an application to the Appellate Tribunal for an order for the recovery of compensation from any enterprise for any loss or damage shown to have been suffered, by such person as a result of the said enterprise violating directions issued by the Commission or contravening, without any reasonable ground, any decision or order of the Commission issued under sections 27, 28, 31, 32 and 33 or any condition or restriction subject to which any approval, sanction, direction or exemption in relation to any matter has been accorded, given, made or granted under this Act or delaying in carrying out such orders or directions of the Commission.

Awarding compensation

53N.(1)Without prejudice to any other provisions contained in this Act, the Central Government or a State Government or a local authority or any enterprise or any person may make an application to the Appellate Tribunal to adjudicate on claim for compensation that may arise from the findings of the Commission or the orders of the Appellate Tribunal in an appeal against any findings of the Commission or under section 42A or under sub-section(2) of section 53Q of the Act, and to pass an order for the recovery of compensation from any enterprise for any loss or damage shown to have been suffered, by the Central Government or a State Government or a local authority or any enterprise or any person as a result of any contravention of the provisions of Chapter II, having been committed by enterprise.

 (2) Every application made under sub-section (1) shall be accompanied by the findings of the Commission, if any, and also be accompanied with such fees as may be prescribed.

 (3) The Appellate Tribunal may, after an inquiry made into the allegations mentioned in the application made under sub-section (1), pass an order directing the enterprise to make payment to the applicant, of the amount determined by it as realisable from the enterprise as compensation for the loss or damage caused to the applicant as a result of any contravention of the provisions of Chapter II having been committed by such enterprise:

Provided that the Appellate Tribunal may obtain the recommendations of the Commission before passing an order of compensation.

 (4) Where any loss or damage referred to in sub-section (1) is caused to numerous persons having the same interest, one or more of such persons may, with the permission of the Appellate Tribunal, make an application under that sub-section for and on behalf of, or for the benefit of, the persons so interested, and thereupon, the provisions of rule 8 of Order 1 of the First Schedule to the Code of Civil Procedure, 1908 (5 of 1908), shall apply subject to the modification that every reference therein to a suit or decree shall be construed as a reference to the application before the Appellate Tribunal and the order of the Appellate Tribunal thereon.

 Explanation.—For the removal of doubts, it is hereby declared that—

(a) an application may be made for compensation before the Appellate Tribunal only after either the Commission or the Appellate Tribunal on appeal under clause (a) of sub-section(1) of section 53A of the Act, has determined in a proceeding before it that violation of the provisions of the Act has taken place, or if provisions of section 42A or sub-section(2) of section 53Q of the Act are attracted.

(b) enquiry to be conducted under sub-section(3) shall be for the purpose of determining the eligibility and quantum of compensation due to a person applying for the same, and not for examining afresh the findings of the Commission or the Appellate Tribunal on whether any violation of the Act has taken place.

Following are the similarities and differences between Sections 42A and 53N: 

1. Section 42A applies to violation of specific directions/orders issued against a specific enterprise, whereas Section 53N applies to situations covered by Section 42A as well as to subsequent violations of Chapter II of the Act (which contains Sections 3, 4 and 6) by the same enterprise. In other words, the scope of Section 53N is broader and in either instance, it is the COMPAT that shall decide an application for compensation.

2.  Under both provisions, an application for compensation may be moved by “any person” who is aggrieved either by violation of the CCI’s directions/orders by an enterprise against which the directions/orders were issued, or by a violation of the Act itself by such an enterprise subsequent or prior to the its conduct being declared as anti-competitive by the CCI or the COMPAT. 

Critically, Section 53N(1) read with the Explanation (a) to Section 53N answers the queries raised in the post. An application for compensation against an enterprise such as X may be moved only after its conduct has been found violative of the Act either by the CCI or COMPAT. Further, such an application can be moved by “any person” who has suffered damage or loss as a result of the conduct. Therefore, if X’s conduct with Y has been found anti-competitive, and X has entered into identical/similar transactions with P and Z in the past or future, Y,P and Z may all apply to COMPAT for compensation against X.

However, as the explanation implicitly clarifies, the finding with respect to X’s conduct cannot be directly applied/extended to an agreement between A and B, even if the agreement is identical/similar to the X’s agreement with Y, until it is determined afresh by the CCI or COMPAT (in appeal) that such agreement between A and B is violative of the Act.

Simply put, if a certain conduct of a party has been found violative of the Act, the Commission need not revisit the illegality of the party’s conduct over and over again in order to award compensation to parties affected by the party’s conduct.  However, if a stranger to the earlier proceedings indulges in identical/similar conduct, it needs to be investigated and a fresh finding must be arrived at.

The other important caveat is that if a party’s conduct involves abuse of dominance under Section 4 of the Act, it may not be possible to extend the findings arrived at in one case to past or future conduct since it would need to be ascertained if the party was in a position of dominance in each of the impugned transactions. This is because under Section 4, only the conduct of dominant parties may be investigated. Therefore, if a party is no more dominant at the time of the subsequent transaction, the earlier finding may not be valid, which means a de novo investigation is necessary to arrive at the finding of abuse of dominance.

Comments and corrections are welcome!