In a landmark ruling, the Madras High Court has quashed the Competition Commission of India (CCI) investigation against MRF, a leading tyre manufacturer, citing a lack of prior notice before impleading it as a party under investigation.

The court’s decision came in response to a plea filed by MRF before the Madras High Court, which was drawn into an inquiry originally targeting J K Tyre, where MRF’s input was sought as a “third party.”

The court’s ruling criticizes the CCI for its “considerable opaqueness” in proceedings, emphasizing that the transition of MRF’s status from a third party to an entity under investigation was executed without appropriate notice. This shift, the court noted, carries significant and serious implications for the parties added in investigations.

“Clearly, the proceedings lack transparency,” the court observed, emphasizing that MRF should have been notified before being impleaded as a party. The judgment further insists that the CCI must also provide a “speaking order” justifying such decisions.

Implications of the ruling

This decision is poised to have far-reaching consequences for many ongoing CCI investigations. Legal experts indicate that in several ongoing probes,  the CCI has similarly not issued prior notices to the parties before their impleadment, leave aside issuing a “speaking order”.

This ruling may prompt a wave of challenges from companies in similar situations, potentially halting or reversing numerous ongoing investigations.

“The ruling underscores the necessity for regulatory bodies to adhere strictly to procedural transparency and due process. Companies implicated in ongoing and future CCI investigations will likely leverage this precedent to demand more rigorous compliance with procedural norms, ensuring that any changes in their status within investigations are preceded by proper notifications and justifications,” added a competition law expert.

Impact of ruling on Suo Moto inquiries by CCI

The ruling is expected to have substantial implications for the CCI’s suo moto investigations where probes are opened without external complaints, often based on information received from various sources or through its own market surveillance.

In such cases, the CCI opens investigations against multiple parties without issuing prior notices. This practice will now be under challenge after the Madras High Court’s ruling. Issuing prior notice to potential violators may, however, result in destruction of evidence, added an expert.

Impact on the Cement Cartel case

The ongoing cement cartel investigation initiated by the CCI in 2019 is a prime example of a suo moto probe that could be significantly impacted by the ruling. This investigation was based on multiple complaints, which expressed concerns about anti-competitive practices in the cement industry.

The CCI, acting on these complaints, ordered an investigation against many cement companies, even though they were not specifically named or made opposite parties.

Many of the implicated cement companies were added to the investigation without prior notice, a practice now deemed procedurally flawed by the Madras High Court. The lack of a speaking order justifying the inclusion of these companies could further lead to procedural challenges.

Dinoo Muthappa, a competition law expert, told businessline that the ruling is likely to have major implications in a number of cases, where CCI has proceeded against third parties and converted them into opposite parties during investigation - without the prior notice or opportunity to contest their impleadment.

This is also likely to negatively impact cases which have been suo motu initiated by the CCI, she added.