Asian Paints & CCI;

Asian Paints

The Competition Commission of India (CCI), in a significant and nuanced move, recently revised its initial order directing an investigation against Asian Paints Limited. While upholding the decision to launch a probe by its investigative arm, the Director General (DG), the Commission strategically removed its prima facie findings of contravention of the Competition Act, 2002. This decision, stemming from a complaint filed by JSW Paints, is more than a mere procedural tweak; it is a noteworthy development that carries profound implications for India's competition law jurisprudence, corporate conduct, and the overarching policy direction of the nation's antitrust regulator.

This article analyses the CCI's revised order through the lenses of Indian law and procedure, its wider policy ramifications for the Indian market, and a comparative perspective with global antitrust enforcement practices.

The dispute originated with allegations from JSW Paints, a relatively new entrant in the decorative paints sector, against the market leader, Asian Paints. JSW Paints alleged that Asian Paints was leveraging its dominant position to obstruct its entry and expansion. The core of the allegations revolved around practices constituting potential violations of Section 3 (anti-competitive agreements) and Section 4 (abuse of dominant position) of the Competition Act, 2002. Specifically, JSW Paints claimed that Asian Paints was pressuring dealers and distributors who were engaging with JSW, allegedly demanding exclusivity and threatening to refuse dealings or curtail supplies if they stocked JSW's products.

In its initial order under Section 26(1) of the Act, the CCI formed a prima facie opinion that Asian Paints' conduct amounted to an abuse of its dominant position. A Section 26(1) order is the gateway to a full-fledged investigation. It signifies that, based on the information presented, the Commission believes there is sufficient preliminary evidence to warrant a deeper inquiry by the DG. The threshold for such an order is low; it is not a final determination of guilt but an administrative decision to investigate.

However, the subsequent revision of this order is where the legal complexity lies. In its revised directive, the CCI, while still deeming an investigation necessary to ascertain the full facts, explicitly removed its preliminary findings of contravention. The Commission stated that a probe was required to examine the allegations on their merits, but it refrained from re-stating that a prima facie case of abuse of dominance was established.

This distinction is legally crucial for several reasons:

1. Scope and Direction of the Investigation: A prima facie finding often sets the tone and provides a clear, albeit preliminary, direction for the DG's investigation. By removing this finding, the CCI has effectively broadened the DG's mandate to a more fact-finding mission, rather than one aimed at confirming a pre-identified contravention. The probe is now framed as an inquiry into the allegations rather than an investigation into a prima facie violation.

2. Reputational and Market Impact: For a publicly listed and market-leading entity like Asian Paints, a prima facie finding of abuse of dominance by a statutory body like the CCI has immediate and significant reputational consequences. It can impact stock prices, investor confidence, and business relationships. By rescinding this preliminary observation, the CCI has mitigated this immediate prejudicial impact, signalling that the investigation should proceed without a presumption of guilt, however tentative.

3. Procedural Fairness and Due Process: This move can be interpreted as a strong signal of the CCI's commitment to procedural fairness. Antitrust investigations are often protracted, resource-intensive, and disruptive for the companies involved. Initiating such a process under the shadow of a prima facie finding places the defendant on the back foot from the outset. By revising the order, the CCI acknowledges that while the allegations are serious enough to be investigated, the evidence presented at the preliminary stage was perhaps not robust enough to form a definitive initial opinion of contravention. This reflects a more cautious and evidence-driven approach, aligning with the principles of natural justice.

The CCI's decision resonates deeply within the broader policy landscape governing business and competition in India. It highlights the delicate balancing act the regulator must perform.

On one hand, the CCI's core mandate is to foster competition and protect new entrants from anti-competitive practices by dominant incumbents. Allowing the investigation to proceed sends a clear message that the Commission is vigilant and will not hesitate to scrutinise the conduct of market leaders. This is vital for ensuring that markets remain contestable and that innovation is not stifled by established players.

On the other hand, the revision of the order speaks to another critical policy objective: promoting a stable and predictable regulatory environment, often encapsulated in the "ease of doing business" narrative. Baseless or weakly supported investigations can be used as a tool for commercial harassment, imposing significant legal and operational costs on established businesses. By raising the implicit bar for forming a prima facie opinion, the CCI signals to the industry that while it encourages fair competition, it will not allow its processes to be weaponised without sufficient cause.

This decision, therefore, sends a nuanced message to different stakeholders:

• For Dominant Firms: It serves as a reminder that their conduct, particularly concerning distribution channels and supplier relationships, remains under strict scrutiny. However, it also provides a degree of assurance that the CCI will act with procedural rigour and not rush to judgment.

• For New Entrants: It underscores the importance of substantiating allegations with concrete and compelling evidence at the information stage. While the door to investigation remains open, triggering one with a formal prima facie finding against a competitor may require a higher quality of preliminary proof.

A Global Comparative,

Comparing the CCI's process with that of mature antitrust regimes in other jurisdictions provides valuable context.

• European Union: The European Commission's Directorate-General for Competition (DG COMP) typically conducts a preliminary investigation before taking a formal step. If it finds sufficient evidence of an infringement, it issues a "Statement of Objections" to the parties concerned. This is a formal document detailing the Commission's case and is issued at a much later stage than the CCI's Section 26(1) order. The initial phases of an EU investigation are often less public, thereby avoiding premature reputational damage. The CCI's revised, more cautious approach in the Asian Paints case aligns it conceptually closer to this model of thorough investigation before formal accusation.

• United States: In the U.S., the Department of Justice (DOJ) and the Federal Trade Commission (FTC) conduct their investigations largely in private. A formal, public complaint is typically filed in a federal court only after the agency has gathered substantial evidence and is prepared to litigate. The concept of a public prima facie order at the start of an investigation is not a feature of the U.S. system. The high reputational cost associated with the Indian model's early-stage public order is thus avoided.

• United Kingdom: The Competition and Markets Authority (CMA) also follows a phased approach. It undertakes an initial review or a "Phase 1" investigation to determine if a practice could lead to a substantial lessening of competition. Only if this threshold is met does it proceed to a more in-depth "Phase 2" inquiry. This tiered structure ensures that the most disruptive and intensive investigative tools are reserved for cases that are well-substantiated.

From this comparative viewpoint, the CCI's initial model of issuing a public prima facie order under Section 26(1) is somewhat of an outlier in its potential for early reputational harm. The decision to revise the Asian Paints order, removing the preliminary finding while proceeding with the probe, can be seen as a jurisprudential maturation. It subtly shifts the Indian practice towards the global norm of separating the decision to investigate from the formal, albeit preliminary, judgment of wrongdoing.

The CCI's revised order in the Asian Paints case is a masterful exercise in regulatory balance. It upholds the Commission's duty to investigate potentially anti-competitive conduct while simultaneously reinforcing its commitment to procedural sanctity and fairness. By untethering the DG's investigation from a pre-determined prima facie finding, the CCI has ensured that the probe will be a comprehensive fact-finding exercise, free from the prejudice of an initial conclusion.

This development signals a maturing of India's competition jurisprudence, reflecting a deeper appreciation for the profound impact of regulatory pronouncements. For businesses, lawyers, and policymakers, the message is clear: the Competition Commission of India is evolving into a regulator that is not only robust in its enforcement but also refined and meticulous in its process. The final outcome of the DG's investigation will now be awaited with even greater interest, as it will set a crucial precedent for competitive conduct in India's highly concentrated markets.