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Introduction To
Competition Act, 2002
Since attaining Independence in 1947,India, for the better part of half a
century thereafter, adopted and followed policies comprising what are known as
Command-and-Control
laws, rules, regulations and executive orders. The competition law of India,
namely, the Monopolies and Restrictive Trade Practices Act, 1969 (MRTP Act, for
brief) was one such. It was in 1991 that widespread economic reforms were
undertaken and consequently the march from
Command-and-Control
economy to an economy based
more on free market principles commenced its stride. As is true of many
countries, economic liberalisation has taken root in India and the need for an
effective competition regime has also been recognised.
In the context of the new
economic policy paradigm, India has chosen to enact a new competition law called
the Competition Act, 2002. The MRTP Act has metamorphosed into the new law,
Competition Act, 2002. The new law is designed to repeal the extant MRTP Act. As
of now, only a few provisions of the new law have been brought into force and
the process of constituting the regulatory authority, namely, the Competition
Commission of India under the new Act, is on. The remaining provisions of the
new law will be brought into force in a phased manner. For the present, the
outgoing law, MRTP Act, 1969 and the new law, Competition Act, 2002 are
concurrently in force, though as mentioned above, only some provisions of the
new law have been brought into force.
Competition Law for India
was triggered by Articles 38 and 39 of the Constitution of India. These Articles
are a part of the Directive Principles of State Policy. Pegging on the Directive
Principles, the first Indian competition law was enacted in 1969 and was
christened the
Monopolies And Restrictive
Trade Practices,
1969
(MRTP Act). Articles 38 and 39 of the Constitution of India mandate, inter alia,
that the State shall strive to promote the welfare of the people by securing and
protecting as effectively, as it may, a social order in which justice
social, economic and
political shall
inform all the institutions of the national life, and the State shall, in
particular, direct its policy towards securing.
1. That the ownership and
control of material resources of the community are so distributed as best to
subserve the common good; and
2. That the operation of the economic system does not result in the
concentration of wealth and means of production to the common detriment.
In October 1999, the
Government of India appointed a High Level Committee on Competition Policy and
Competition Law to advise a modern competition law for the country in line with
international developments and to suggest a legislative framework, which may
entail a new law or appropriate amendments to the MRTP Act. The Committee
presented its Competition Policy report to the Government in May 2000 [the
report will be referred to hereinafter as High Level Committee (2000)]. The
draft competition law was drafted and presented to the Government in November
2000. After some refinements, following extensive consultations and discussions
with all interested parties, the Parliament passed in December 2002 the new law,
namely, the Competition Act, 2002.
Salient Features Of New
Competition Policy
#
The Industries (Development
and Regulation) Act, 1951
may no longer be necessary except for location (avoidance of urban-centric
location), for environmental protection and for monuments and national heritage
protection considerations, etc.
#
The Industrial Disputes Act,
1947
and the connected statutes
need to be amended to provide for an easy exit to the non-viable, ill-managed
and inefficient units subject to their legal obligations in respect of their
liabilities.
# The Board for Industrial Finance & Restructuring (BIFR) formulated under the
provisions of
Sick Industrial Companies
(Special Provisions) Act, 1985
should be abolished.
#
World Trade Organistions (WTO)
There should be necessary provision and teeth to examine and adjudicate upon
anti-competition practices that may accompany or follow developments arising out
of the implementation of WTO Agreements. Particularly, agreements relating to
foreign investment, intellectual property rights, subsidies, countervailing
duties, anti-dumping measures, sanitary and psytosanitary measures, technical
barriers to trade and Government procurement need to be reckoned in the
Competition Policy/Law with a view to dealing with anti-competition practices.
The competition law should be made extra territorial.
#
MRTP Act
It is suggested that:
* The MRTP Act 1969 may be repealed and the MRTP Commission wound up. The
provisions relating to unfair trade practices need not figure in the Indian
Competition Act as they are presently covered by the Consumer Protection Act,
1986.
* The pending UTP cases in the MRTP Commission may be transferred to the
concerned consumer Courts under the Consumer Protection Act, 1986. The pending
MTP and RTP Cases in MRTP Commission may be taken up for adjudication by the CCI
from the stages they are in.
Components Of Competition
Act
The rubric of the new law, Competition Act, 2002 (Act, for brief) has
essentially four compartments:
#
Anti - Competition
Agreements
#
Abuse of Dominance
#
Combinations Regulation
#
Competition Advocacy
Anti Competition
Agreements
Firms enter into agreements, which may have the potential of restricting
competition. A scan of the competition laws in the world will show that they
make a distinction between
horizontal
and
vertical
agreements between firms. The former, namely the horizontal agreements are those
among competitors and the latter, namely the vertical agreements are those
relating to an actual or potential relationship of purchasing or selling to each
other. A particularly pernicious type of horizontal agreements is the cartel.
Vertical agreements are pernicious, if they are between firms in a position of
dominance. Most competition laws view vertical agreements generally more
leniently than horizontal agreements, as, prima facie, horizontal agreements are
more likely to reduce competition than agreements between firms in a purchaser -
seller relationship. An obvious example that comes to mind is an agreement
between enterprises dealing in the same product or products. Such horizontal
agreements, which include membership of cartels, are presumed to lead to
unreasonable restrictions of competition and are therefore presumed to have an
appreciable adverse effect on competition. In other words, they are per se
illegal. The underlying principle in such presumption of illegality is that the
agreements in question have an appreciable anti-competitive effect. Barring the
aforesaid four types of agreements, all the others will be subject to the
rule of reaso
test in the Act.
Abuse Of Dominance
Dominant Position
has been appropriately defined in the Act in terms of the
position of strength,
enjoyed by an enterprise, in the relevant market, in India, which enables it to
(i) operate independently of competitive forces prevailing in the relevant
market; or (ii) affect its competitors or consumers or the relevant market, in
its favour.
Section 4 enjoins,
No enterprise shall abuse
its dominant position.
Dominant position
is the position of strength enjoyed by an enterprise in the relevant market
which enables it to operate independently of competitive forces prevailing in
the market or affects its competitors or consumers or the relevant market in its
favour. Dominant position is abused when an enterprise imposes unfair or
discriminatory conditions in purchase or sale of goods or services or in the
price in purchase or sale of goods or services. Again, the philosophy of the
Competition Act is reflected in this provision, where it is clarified that a
situation of monopoly per se is not against public policy but, rather, the use
of the monopoly status such that it operates to the detriment of potential and
actual competitors.
At this point it is worth
mentioning that the Act does not prohibit or restrict enterprises from coming
into dominance. There is no control whatsoever to prevent enterprises from
coming into or acquiring position of dominance. All that the Act prohibits is
the abuse of that dominant position. The Act therefore targets the abuse of
dominance and not dominance per se. This is indeed a welcome step, a step
towards a truly global and liberal economy.
The Act on Combinations
Regulation
The Competition Act also is designed to regulate the operation and activities of
combinations,
a term, which contemplates acquisitions, mergers or amalgamations. Thus, the
operation of the Competition Act is not confined to transactions strictly within
the boundaries of India but also such transactions involving entities existing
and/or established overseas.
Herein again lies the key to
understanding the Competition Act. The intent of the legislation is not to
prevent the existence of a monopoly across the board. There is a realisation in
policy-making circles that in certain industries, the nature of their operations
and economies of scale indeed dictate the creation of a monopoly in order to be
able to operate and remain viable and profitable. This is in significant
contrast to the philosophy, which propelled the operation and application of the
MRTP Act, the trigger for which was the existence or impending creation of a
monopoly situation in a sector of industry.
The Act has made the
pre-notification of combinations voluntary for the parties concerned. However,
if the parties to the combination choose not to notify the CCI, as it is not
mandatory to notify, they run the risk of a post-combination action by the CCI,
if it is discovered subsequently, that the combination has an appreciable
adverse effect on competition. There is a rider that the CCI shall not initiate
an inquiry into a combination after the expiry of one year from the date on
which the combination has taken effect.
Competition Advocacy
In line with the High Level Committee's recommendation, the Act extends the
mandate of the Competition Commission of India beyond merely enforcing the law
(High Level Committee, 2000). Competition advocacy creates a culture of
competition. There are many possible valuable roles for competition advocacy,
depending on a country's legal and economic circumstances.
The Regulatory Authority under the Act, namely, Competition Commission of India
(CCI), in terms of the advocacy provisions in the Act, is enabled to participate
in the formulation of the country's economic policies and to participate in the
reviewing of laws related to competition at the instance of the Central
Government. The Central Government can make a reference to the CCI for its
opinion on the possible effect of a policy under formulation or of an existing
law related to competition. The Commission will therefore be assuming the role
of competition advocate, acting pro-actively to bring about Government policies
that lower barriers to entry, that promote deregulation and trade liberalisation
and that promote competition in the market place.
Perhaps one of the most crucial components of the Competition Act is contained
in a single section under the chapter entitled
competition advocacy.
Competition Policy In The
International Context
The international dimension of competition policy, in particular the case for a
multilateral agreement on competition (MAC). The relationship between trade and
competition policy was one of the four
Singapore Issues,
which were given that label because they were put on the WTO agenda for study
and discussion (not negotiations) at the 1996 Singapore Ministerial Conference.
But the issue of international competition policy is actually much older. It
figured prominently at an international forum for the first time as early as
1946 in the Havana Charter, which laid the groundwork for an International Trade
Organization (ITO).
The 1996 Singapore
Ministerial resolved to set up working groups on each of the Singapore issues.
The mandate of the Working Group on the Interaction between Trade and
Competition Policy (WGTCP) was
to study issues raised by
Members relating to the interaction between trade and competition policy,
including anticompetitive practices in order to identify any areas that may
merit further consideration in the WTO framework.
Consequently, the relevant paragraphs of the 2001 Doha Ministerial Declaration
tried to give a development-friendly slant to the issue. WGTCP discussions
during the first few years of its existence were diffused and non-converging.
Faced with a lack of consensus on so many issues, the Doha Declaration of the
2001 Ministerial Conference of the WTO limited further discussion at the WGTCP
to the issue of hard-core cartels; application of the fundamental WTO principles
of non- discrimination, transparency and procedural fairness in competition
policy; capacity building in developing countries; and voluntary cooperation
between Members.
Can Competition Act
Replace MRTP ACT
In view of the policy shift from curbing monopolies to promoting competition,
there was a need to repeal the Monopolies and Restrictive Trade Practices Act.
Hence, the Competition Law aims at doing away with the rigidly structured MRTP
Act. The Competition Law proposed is flexible and behaviour oriented.
After the Act was placed on
the web-site and came into the public domain, a question often asked is whether
it is not still the old law in substance although not in form. A clear answer to
this question is in the title of this section. The Act is a new wine in a new
bottle. The differences between the old law (namely the MRTP Act, 1969) and the
new law (the Competition Act, 2002) may perhaps be best captured in the form of
a table displayed below:
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Competition
Act, 2002 And Its Relevance
