CCI: Bank acting under SARFAESI for recovery cannot be termed as a dominant entity under Competition Act, 2002

The Competition Commission of India (“CCI”) vide its order dated May 14, 2020 in the matter of RH Agro Private Limited v. State Bank of India and ors., held that a bank acting as per the remedies available to it under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (“SARFAESI”) for recovery cannot be termed as a dominant entity when it acts in accordance with provision thereof. Brief facts R.H. Agro Overseas Private Limited (“Informant”) is engaged in basmati manufacturing and was availing cash credit limit to the extent of Rs. 1600000000 in favour of its unit engaged in basmati processing, mainly for export of basmati rice. In consideration of the credit facility extended, the Informant had provided properties in the form of factory land and building, including plant and machinery mortgaged as primary security and land situated in village Kalupur, Sonepat in the name of Chelsia Apartments Private Limited as collateral security. Afterwards the plant was closed due to a huge crisis in the export business of basmati rice, and the plant was taken into possession by the banks and the cash credit account of the Informant was declared NPA. An e- auction was held on September 7, 2016 in respect of the mortgaged property of the Informant in accordance with the provisions of SARFAESI and Security Interest (Enforcement) Rules, 2002. The Informant sought information on the e-auction on September 08, 2016 via letter to the Deputy General Manager, SBI and was informed that there were two bidders, namely Patanjali Ayurveda Limited and International Traders who participated in the auction and the assets of the Informant had been sold to Patanjali Ayurveda Limited being the highest bidder. The Informant alleges that the earnest money on behalf of International Traders was also arranged by Patanjali Ayurveda Limited in order to make International Traders participate in the bidding process and create a smokescreen to make it look like as though International Trader was an independent bidder. Mr. Saket Aggarwal i.e. proprietor of International Traders was in clear collusion with Patanjali Group in order to rig the bidding process which directly lead to an appreciable adverse effect on competition. The Informant alleges that arbitrary practices adopted by the officials of the State Bank of India (“SBI”) by rigging the biding process in connivance with the promoters of Patanjali Ayurveda Limited and International Traders, are anticompetitive in nature as the officials of the Bank abused their dominant position by restricting access to market to other players. Issue Whether CCI has jurisdiction to adjudicate upon an auction conducted under the provisions of the SARFAESI? Whether a bank while effecting recovery of loans advanced can be said to cause appreciable adverse effect on competition or abuse their dominant position under the provisions of Competition Act, 2002? Order Regarding SBI’s contention that CCI lacked jurisdiction to investigate an auction which has taken place under the provisions of SARFAESI Act being a special enactment, relying on Section 62 of the Competition Act, 2002, CCI held that, “In respect of matters falling within the provisions of the Competition Act, 2002, the Commission's jurisdiction is never ousted. Allegation of bid rigging in any auction, even if conducted under the aegis of any special law, will fall within the provisions of Section 3(3)(d) of the Competition Act, 2002. The Commission is within its power to initiate an enquiry in respect of a suspected anticompetitive conduct, either on its own motion or pursuant to an information received under Section 19(1) of the Act”. The CCI further held that, the conduct of a secured creditor in effecting sale of an asset secured to it, through an auction process permitted under SARFAESI Act cannot be examined under the provision of Section 3(3)(d) of the Competition Act, 2002. Therefore, the CCI held that the auction process as conducted by SBI did not raise any competition concern, stating as follows “[..]..a bank acting as per the remedies available to it under the SARFAESI Act for recovery cannot be termed as a dominant entity when it acts in accordance with provision thereof as it is acting in recovery of its funds/money in order to mitigate losses in such transaction (where account has been declared NPA). It is also noted that auction of primary security by a secured debtor for realization of funds cannot be said to be a transaction done in ordinary course of business. The sale of security of an account declared NPA is a remedy available to a secured creditor under the provisions of SARFAESI Act.” Please find a copy of the order here. This update has been contributed by Arka Majumdar (Partner) and Debanik Bid (Associate).