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Competition law in India

Many countries of the world have formulated their own competition laws so as to curb anti-competitive etiquette or unfair trade practices. The competition law mainly focuses on avoiding certain activities in the market that hurt the business or consumers or both the sectors and curb the practices violating the ethical behavior of the market.

In India, The Competition Act, 2002 has been enacted to ensure the sustainability of competition in the market and also consider the interests of the consumers and also allow the participants of Indian market to trade with freedom. This law promotes the competition between enterprises and leaves the market unbound by the manipulation of stronger trading enterprises.

The main objectives of the Act:
  • To prevent practices having adverse effect on competition
  • To promote and sustain competition in markets
  • To protect the interests of consumers
  • To ensure freedom of trade

The motto of the act was Fair Competition For Greater Good..

The key provisions include:
  • Section 3: dealing with anti-competitive agreements(cartels, tie-in arrangements
  • Section 4: Prohibition of abuse of dominant position.
  • Section 5 and 6: Deals with combination of enterprises. The combination maybe an acquisition or a merger.
  • Section 21 and 21A: Dealing with advisory.
  • Section 49: Deals with advocacy

The Competition Law and the MRTP Act.
The Monopolies and Restrictive Trade Practices Act,1969 is currently not in force as it was repealed and replaced by the Competition Act,2002 and the MRTP Commission was replaced by the Competition Commission of India.

The main objectives of the MRTP Act were:
  • The make sure that the operation of the economic system does not react in the concentration of economic power in the hand of the few rich enterprises;
  • To control monopolistic practice in the market;
  • To prevent monopolistic and restrictive trade practices.

The MRTP Commission was established under the section 5 of the Monopolies and Restrictive Trade Practices Act that works in accordance with the provisions of the Act.
  • The MRTPC was a quasi-judicial body.
  • Its main job was to take action against unfair trade practices and restrictive trade practices.
     
The Contrast:
  • The MRTP concentrates on preventing the concentration of economic power while the competition act concentrates on promoting and sustaining competition.
  • The MRTP Commission has no advocacy provisions while the Competition Commission of India has competition advocacy provisions.
  • The MRTPC has no provisions to seek opinion from any statutory or government body regarding any cases while the CCI has to seek from the government or statutory authority regarding cases according to section 21 and 21A of the Competition act, 2002.
  • No penalties are imposed under the MRTP Act while the Competition act has provisions of penalty for violations under the act.

The Repealing Of MRTP ACT

It had been noted that the MRTP Act was inadequate in comparison to the competition laws of many countries for regulating anti-competitive practices. The MRTP Act had not covered numerous categories of anti-competitive agreements like: abuse of dominance, cartels, collusion and price fixing, predatory pricing and bid-rigging etc. Instead of transferring the sections in MRTP Act dealing with unfair trade practices to the Consumer Protection Act,1986(CPA), the formulation of a new competition law was decided.

The Competition Act, 2002

The Competition Act, 2002 received the approval of the President of India on January 13, 2003 and was published in Gazette of India dated January 14, 2003. However, the sections have come partially into force, a few on March 31, 2003 and majority of others on June 19, 2003. The entire act has yet come into force.

The key instruments of the Competition Act are:
  • The Anti-competitive agreements
  • The Abuse of dominance
  • The Mergers or Combinations
  • The Competition Advocacy

Anti-Competitive Agreements

Anti-Competitive Agreements - Classified mainly into two types:
  • Horizontal Agreements, Section 3(3) cartel, bid-rigging etc.: between two or more enterprises operating at same level of business.
  • Vertical Agreements, Section 3(4) exclusive supply/distribution, tie-in arrangement, Resale price maintenance, refusal to deal etc.

Horizontal Agreements

  • Directly or indirectly determining purchase or sale price.
  • Limit or control production, supply, market, technical development, investment or provision of services.
  • Shares the market by way of allocation of geographical area
  • Bid rigging/collusive bidding
  • Shall presume rule applies to Horizontal Agreements.
  • Burden of proof is on the person or enterprise

Penalty:
Up to 3 times of profit of contravening enterprise for each year of the continuance of such agreement or 10% of its average turnover, whichever is higher.

Case Study:
  • Case No 29/2010 (CCI Order Date 20th June, 2012 was remanded back to CCI on violation of principles of natural justice vide COMPAT order dated 11.12.2015): Cement Manufacturer's Association (CMA) and 11 cement manufacturing companies were found to have entered into cartel, price fixing, limiting the production and supply of cement. Builders' association of India was the informant. CCI's orders of 20.06.2012 and 31.08.2016- imposed penalty above Rs. 6,714 crore - pending in NCLAT.
     
  • Case No 30/2011 (Order Date 9th December, 2013): All India Association of Chemists and Druggists (AIOCD) and its associated bodies entered into agreement and indulged in practices of obtaining NOC, refusal to launch product of manufacturers and importers for not getting Product Information Service (PIS) charges, fixing trade margins, boycotting pharmaceutical companies etc.- Cease and desist order by CCI. AIOCD issued circular to Members and State Associations: PIS charges not mandatory and NOC not required for appointment of stockiest. No penalty was imposed as penalty of Rs.47.4 lakh was imposed on AIOCD in case no 20/2011 for same violation vide CCI order dated 19.02.2013. COMPAT set aside CCI's order on 09.12.2016. Case now in Supreme Court2.

Vertical Agreements.

Agreements between different level of production and distribution chain are called vertical agreements viz. Manufacturer-Dealer; Dealer-Supplier and Wholesaler-Retailer etc.

Following agreements are prohibited under Competition Act:
  • Tie-in arrangements
  • Exclusive Supply Agreement
  • Exclusive Distribution Agreement
  • Refusal to Deal
  • Resale Price Maintenance

Case Study:
Shamsher Kataria vs. Honda Siel Cars ltd. (Case No.03/2011). In a first major Order passed under section 3(4) of the Competition Act,2002, CCI had imposed penalty of more than Rs.2500 Crores upon 14 major car manufacturers for violating the Act. It was held that all the major auto manufactures were not allowing its spare parts and diagnostic tools to be sold in the open car market and forcing the consumers to buy it from their authorized dealers.

The CCI relied various judgments while passing the detailed order. Some of the Car Manufacturers have filed writ petitions in different High Courts to stop the proceedings before the Commission and DG but in vain. The Appellate Tribunal upheld the order passed by the CCI on merits. Now the matter is pending in Supreme Court3.

Abuse Of Dominance.

Abuse of dominance refers to a situation where a firm or a group of firms that have a dominant role in the market intend to eliminate a competitor or a competing firm or dissuade a new firm from entering the market. The dominant enterprise or group exercise certain practices that the Section 4 of the Competition Act prohibits. Some of them are: imposition of predatory prices, denying market access, limiting the supply of goods and services, use dominant position in one market to enter into another market.

There are a number of factors that determine the influence of a dominant enterprise or a group of the same. They are:
  • The market share owned
  • The consumers relying on the enterprise
  • The size of the enterprise
  • The importance of the competitors
  • Contribution of the dominant enterprise to the economic development

Section 4 (2)4 of the Act specifies the following practices by a dominant enterprises or group of enterprises as abuses:
  1. directly or indirectly imposing unfair or discriminatory condition in purchase or sale of goods or service;
  2. directly or indirectly imposing unfair or discriminatory price in purchase or sale (including predatory price) of goods or service;
  3. limiting or restricting production of goods or provision of services or market;
  4. limiting or restricting technical or scientific development relating to goods or services to the prejudice of consumers;
  5. denying market access in any manner;
  6. making conclusion of contracts subject to acceptance by other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts;
  7. using its dominant position in one relevant market to enter into, or protect, other relevant market.


Combinations / Acquisitions.

According to Section 5 of the Act, combination is defined as:
Acquisition of one or more enterprises by one or more persons or merger or amalgamation of enterprises shall be a combination of such enterprises and persons or enterprises.

Combination within the Competition Law is the merger of two or more firms or businesses. The Government controls mergers or combinations country-wide in order to promote minor industries and make sure that these small firms are not outshined or swallowed by reputed enterprises. The mergers of huge profit

firms not only make it difficult but also impossible for smaller firms to get to the mark or make profits. Accumulation of large amount of wealth in certain business sectors and also the varying consumer preferences may lead to major economic and social disparities within the nation.

Types of Combinations:
Horizontal Combinations:
Horizontal Combinations involve the merging of enterprises or firms with identical level of production process, with substitute goods and are competitors. The horizontal combination is primarily a friendly merger between companies.

Non-Horizontal Combinations:
These are of two types:
  1. Vertical combination:
    Vertical merging is combining of business firms engaged in different phases of the manufacture and distribution of a product into an interacting whole. This leads to increased competitiveness, a greater process control, wider market share, a better supply chain co-ordination and decline in cost as this sort of integration is the structuring of supply chain of companies under a particular company.
     
  2. Conglomerate combination:
    Conglomerate combinations involve firms or enterprises in unrelated business fields. Such combination happens when two companies that provide different services and goods or are integrated into varying sectors of business merge together. This sort of merger happens when the companies achieve a stronger stand in the market both in products and services and profit management unlike when they are individual enterprises.

Competition Advocacy.

Competition Advocacy is one of the main objectives of Competition Law which deals with creating a competitive environment in the market. Competition Advocacy means the activities that spread awareness among the people about the benefits of a competitive market. The Competition Commission of India (CCI) is obliged to take charge of advocacy for Competition Law are the consumers whose welfare forms the key objective of the law.

The CCI has taken competition advocacy efforts in the Central as well as the State Government along with other sectors consisting of business enterprises, consumer activists and statutory bodies consisting of professionals like advocates, chartered accountants and company secretaries.

The CCI has undertaken various initiatives to promote competition law such as:
  • National and State level Workshops and Seminars
  • Special lectures organised for CCI officers
  • Papers and studies published for competition advocacy and for creating awareness of competition issues.
  • Capacity building of stakeholders or for CCI officials to participate in competition regulatory process
  • Competition related sectoral/ regulatory impact assessment; market studies and research projects carried out by the commission.
  • Consultation papers published/ placed on website of the Commission.
  • Press conferences and press releases

Competition Law is not applicable in:
  1. Public Financial Institutions.
  2. Foreign Institutional Investors (FIIs).
  3. Banks.
  4. Venture capital Funds (VCFs).
  5. Agreements related to intellectual property rights (IPRs) such as trademarks, patents, copyrights etc.
  6. Central Government has the authority to exempt any class of enterprises from the provisions of Act in the common interest of national security or public interest.

Competition Law In Other Countries.

  • Canada- 1889
  • U.S.A- 1890
  • European Union -1957
  • Brazil- 1994
  • South Africa- 1998
  • India- 2003 (1970 (MRTP Act))
  • Russia- 2006
  • China -2008
Overview of Indian Competitive Law, CCI.

Conclusion
The Competition Law,2002 is therefore regarded as a landmark legislation. This law does not promote dominance abuse. This law mainly works in promoting competition in the market and also helps in distributing profits to firms of all sizes so as to increase the business potential in the community. Though the full law has not been enacted yet, the enactment of the whole act would definitely enhance the competition in the market nationally and internationally.

End-Notes:
  • Article by Yogesh K. Dubey, Dy. Director, CCI.
  • Article by Yogesh K. Dubey, Dy. Director, CCI.
  • https://blog.ipleaders.in/combination-under-the-competition-law/

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