Constitutional laws in India

Competition Act, 2002 And Its Relevance

Written by: Surabhi Singhi - Student
Company Lawyers in India
Legal Service
  • 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 recognized.

    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:
    S.No MRTP Act, 1969 Competition Act, 2002
    1 Based on the pre-reforms scenario Based on the post-reforms scenario
    2 Based on size as a factor Based on structure as a factor
    3 Competition offence implicit or not defined Competition offences explicit and defined
    4 Complex in arrangement and language Simple in arrangement and language and easily comprehensible
    5 14 per se offences negating the principles of natural justice 4 per se offences and all the rest subjected to rule of reason
    6 Frowns upon dominance Frowns upon abuse of dominance
    7 Registration of agreements compulsory No requirement of registration of agreements
    8 No combinations regulation Combinations regulated beyond a high threshold limit.
    9 Competition Commission appointed by the Government Competition Commission selected by a Collegium (search committee)
    10 Very little administrative and financial autonomy for the Competition Commission Relatively more autonomy for the Competition Commission
    11 No competition advocacy role for the Competition Commission Competition Commission has competition advocacy role
    12 No penalties for offences Penalties for offences
    13 Reactive and rigid Proactive and flexible
    14 Unfair trade practices covered Unfair trade practices omitted (consumer fora will deal with them)
    15 Does not vest MRTP Commission to inquire into cartels of foreign origin in a direct manner. Competition Law seeks to regulate them.
    16 Concept of Group Act had wider import and was unworkable Concept has been simplified

    The Act is therefore a new wine in a new bottle. Wine gets better as it ages. The proposed Law provides for a Competition fund, which shall be utilised for promotion of competition advocacy, creating awareness about competition issues and training in accordance with the rules that may be prescribed. The extent MRTP Act 1969 has aged for more than three decades and has given birth to the new law (the Act) in line with the changed and changing economic scenario in India and rest of the world and in line with the current economic thinking comprising liberalization, privatization and globalization.

    The message is loud yet clear that a well planned exhaustive competition compliance programme can be of great benefit to all enterprises irrespective of their size, area of operation, jurisdiction involved, nature of products supplied or services rendered and the same is essential for companies, its directors and the delegatee key corporate executives to avoid insurmountable hardships of monetary fines, civil imprisonment, beside loss of hard-earned reputation when the Competition Authorities, the media and others reveal the misdeeds in public.

    In the changed scenario, India do needs a fresh law for competition and a new regulatory authority, which under this policy is the `Competition Commission of India’. The law will serve the purpose only if it is made independently, runs independently and is less expensive.

    Also Read:
    Competition Protection:
    The main legislation governing competition in India is the Competition Act, 2002 which repealed the Monopolies and Restrictive Trade Practices (MRTP) Act, 1969 and provided for a modern framework of competition protection.

    Competition Act, 2002: An Incomplete Act:
    The various forms of mergers, amalgamations and combinations in India are done as per the provisions of Competition Act, 2002. Prior to competition Act, 2002 there was MRTP ACT, 1969 Act,

    The Competition Law, 2002 & Its Development Factors:
    Today, the whole world is facing the thought cut competition and to stand ‘in’; every nation is trying to pull their economy up. The globalization and urbanization is also playing a good role in the same.

    Trade Secrets & Competition Act : A bird’s eye view:
    Intellectual property rights create monopolies, while a competition law battles monopolies. How do the two policies interact? Is there a balance?

    New competition regime in India:
    The UK White Paper on competition published in July 2001 interalia observed that vigorous Competition is vital to innovation, strong and effective markets, consumer interest and productivity growth in the economy.

    Cross Border Mergers: Implications under the Competition Act, 2002:
    On January 31, 2007, the steel goliath Tata Steel Limited concluded one of the biggest Indian cross-border merger deals by acquiring the Anglo-Dutch steel company, Corus Group Plc. for $13.70 billion.

    Enforcement of Competition Law In India: A Comparative Analysis With U.K & EU:
    India has some unique features including a mixed economy, where private sector participation has been allowed in some public sector undertakings.

    Competition Law and Intellectual Property Laws:
    The Government of India in pursuit of increasing the economic efficiency of the country acknowledged the Liberalization Privatization Globalization (LPG) era by liberalizing the economy and reducing governmental control.

    The author can be reached at: [email protected]

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