When markets work hard, they bring sustainability, profits, efficiency,
innovation and long-term benefits to the economy. Competition law is one of the
laws aimed primarily at eradicating anti-competitive practices by preventing the
abuse of anti-competitive contracts and prevailing market conditions. The
purpose of this Section is to explore key aspects of competition law and to
present these basic concepts precisely to the reader.
Consumer awareness of
competition laws is essential because in many cases consumers are unaware of the
harmful effects of such practices and do not realize that these practices are
dominating the market. If the market is not competitive, it creates monopolies
and oligopoly's, which are detrimental in the long run.
There is a growing recognition that a flexible, dynamic and competitive private
sector is essential to promote sustainable economic development. Promotion of
competition offers more high-quality products at lower prices. Competition also
promotes greater accountability and transparency and reduces corruption and
Competition as an efficient system for market operations stimulates
entrepreneurship and expands choices. Economic theory assumes that in a
competitive market price and quantity are balanced to a level that produces an
effective outcome. Competition laws and policies do not kill competition, but
promote competition by punishing anti-competitive behaviours such as
anti-competitive agreements and abuse of power.
Competition in any field is
considered a healthy practice that creates opportunities and motivates if
conducted legally. Perfect competition is where all firms sell a homogeneous and
fully sharable product, all producers and consumers accept prices, all firms
have a relatively small market share, and buyers and sellers It can be defined
as an informed market outcome.
The price and quality of products The industry is
classified as free entry and exit and there are no external factors. This is the
basis on which the market system works and the economy grows.
(control). Most competition laws provide three areas of enforcement.
An Overview of the Law
- Anti-competitive agreements involving cartels;
- Misuse of a position of power; and
- Mergers that may have anti-competitive effects.
The Competition Law was passed in 2002 and came into force on January 13, 2003.
The aim of the act is to provide for establishment of a Commission (i.e.
Competition Commission of India) to prevent anticompetitive practices, to
promote and sustain competition in the market, to protect the consumers and to
ensure freedom of trade carried on by the other participants of the market.
The Act regulates three Anticompetitive practices namely Anticompetitive
agreements, Abuse of Dominant Position and Mergers & Acquisitions
(Combinations). The main criteria used for the regulation of anticompetitive
practices are that such practices should not cause an appreciable adverse effect
on competition within India.
"Section 3 of the Act explains as to what
agreements are anticompetitive in nature and it classifies such agreements into
two categories namely Horizontal agreements and vertical agreements." "Section 4
addresses the issue of abuse of control and provides a list of actions that may
constitute abuse of control. Additional sections 5 and 6 describe aspects of
consolidation and prescribe certain rules for regulating consolidation."
Key Concepts and Salient Features of Competition Act 2002
To understand the law in detail, it is important to understand some important
concepts and features of the law.
They are described below:
The Act provides several key definitions that must be understood in order to
understand the function of the Act. These include:
The law defines a "cartel" as an association of manufacturers, sellers,
distributors, traders or service providers who produce, distribute, sell or
price or trade by agreement between them. Provision of goods or services
Enterprise: For purposes of "section 2(h) of the Act, "enterprise" means and
includes any individual or governmental entity that has engaged in, has engaged
in, or has been involved in, 100 or participating in any of the following
Person: According to the "Section 2(i) of the Act the definition of 'person' is:
- Manufacture, store, supply, distribute, purchase or control any item or
- Providing services of any kind;
- Investing in or underwriting any business that owns or trades stocks or
other securities of any other legal entity, either directly or through its
subsidiaries;" However, departments of government that carry out activities
related to the sovereign function of government, including those related to
nuclear, currency, defence and space, are not "enterprises" for purposes of the
- An individual, an undivided Hindu family, company or company;
- Associations of individuals, whether registered in India or abroad;
- Any corporation established by Central or government or a Government
Company as defined under Companies Act.
- Anybody corporate incorporated by or under the laws of a rustic outside
- Any Cooperative Society, government agency or an artificial juridical
The definition of the term 'relevant market' relies on two
terms namely 'relevant geographic market' and 'relevant product market' as
section 2(r) of the Act lays down that for determination of relevant market.
Commission needs to refer either 'relevant geographic market' or 'relevant
product market' or both.
Basic Concepts of Law
The Competition Law of 2002 mainly deals with four concepts, which are explained
- Relevant geographic market implies a market in a section where homogeneous
conditions prevails for various aspects of trade and commerce.
- Relevant Product Market refers to a market where the products and
services are of such a nature that those will be interchanged or substituted
by other products and services available in this market.
- Anti-Competition Agreement
An anti-competitive agreement is an agreement between people involved in a
business transaction that tends to harm competition in a particular market or
that provides an undue advantage to at least one person or group rather than
losing another. Such anti-competitive agreements are prohibited by the
Competition Act 2002. "The term "contract" as defined in section 2(b) of the Act
provides that the contract need not be in the form of an appropriate document
signed by the parties, it should or might not be in writing." Clearly, the
definition so provided is inclusive in nature and not exhaustive and could be a
The main reason for adopting a good connotation for the term `agreement` in
Competition law is because the persons so involved in anticompetitive activities
might not enter into formal written agreements so on keep it a secret affair. as
an example, Cartels are usually shrouded in secrecy. According to the provisions
of Section 3 of the Law, anti-competition contracts are divided into two
categories: horizontal contracts and vertical contracts.
- Horizontal contract:
This is an agreement between two or more entities or
entities that are generally equivalent in terms of production, distribution of
supply, etc. in the same market. For example, an agreement in which a
manufacturer of a particular product agrees not to sell a selected product at a
price lower than an agreed upon price or not supply the product to a particular
market is considered a horizontal anti-competitive agreement.
The Competition Act 2002 prohibits horizontal contracts that:
Cartels are created by anticompetitive horizontal agreements among business
enterprises. They pose an excellent threat to competition and ultimately tend to
destroy the trade. after all cartels are secret agreements between business
firms with the only real objective of fixing prices or sharing markets between
- A contract that fixes a direct or indirect price for the purchase or sale
of a product.
- Agreements on the control of restrictions, production, supply,
investment and provision of services in relation to specific products and
- Market sharing agreements;
- Agreement on Bidding Tactics.
- Agreements within the variety of Cartels.
- Vertical Agreements:
"They are in line with Section 3(4) of the Act
"vertical agreements" are those agreements which occur among enterprises or
persons at different stages or levels of production in respect of production,
supply, distribution, storage, sale or price of products etc. as an example, any
agreement between manufacturer and wholesaler which might adversely affect
competition within the market are termed as a vertical anticompetitive
Competition Act, 2002 envisages various forms of Vertical
agreements. These are:
- Tie-in Arrangement:
This arrangement includes any agreement that needs the
purchaser of the products to buy another goods together with the desired goods
as a condition mandate. Such reasonably agreements is typically entered into by
the sellers so on increase their sales and earn more profit. A tie-in
arrangement will become illegal when an enterprise uses its market power that
it's on a selected product and by taking advantage doesn't sell or lease that
product to the customer until and unless he agrees to shop for another product
that the enterprise wants him to shop for.
- Exclusive Supply Agreement:
Such contracts are usually entered into using
dominant market position. For example, a buyer of a certain product contracts
with a manufacturer to avoid producing the same product for another buyer.
However, such agreements should not be confused with agreements between the
buyer and seller/manufacturer regarding specifications, quality, size, etc.,
which are legal and not inherently anti-competitive. "Section 5 of this Act
defines combinations by setting certain thresholds at which combinations are not
subject to competition law scanners." The main justification for imposing these
restrictions is that the combination of small businesses or organizations cannot
have a noticeable negative impact on competition in the Indian market.
restrictions provided under Section 5 of the Act are set forth below:
- Acquiring Shares, Voting Rights, or Control Rights: The acquirer of the
shares and the entity jointly acquiring the shares, assets or voting rights
- Indian assets: Rs 1,000 crore and above turnover: Rs 3,000
- Total assets in or outside India: approximately $500 million including
at least RUR 500 crore in India. Sales: About $1,500 million including at least Rs
1,500 crore in India. the joint assets and acquisition group are:
- Indian assets: about Rs 4,000 turnover: over Rs 12,000
- Total assets outside India and outside India: approximately $2 billion
including at least Rs 500 million in India. Turnover: over $6 billion including
at least Rs 1,500 crore in India.
- In the case of a merger or merger, the legal entity remaining after the
merger or the legal entity created after the merger must have:
- Indian assets: approximately Rs 1,000 crore turnover: approximately Rs
In addition, Section 6 of the Act deals with prescription provisions for
combinations. This stipulates that the Commission shall be obliged to notify the
Commission of the details of the merger, along with the prescribed fee, within
30 days of the board's acquisition of the merger or transaction proposal or the
signing of the approval document.
- For mergers, it is valid to request 210 days after the notice to the
Commission or the date on which the order was placed with reference to this
notice, whichever comes first. However, there are exceptions in favour of
The enactment of the 2002 Competition Law could be a step by the government to
deal with changing economic scenarios. Matches with changes in the economic
mindset of liberalization, privatization and globalization. It shows the
country's willingness to move from a controlled economy to a free economic
system, but with proper control and control measures. The law not only focuses
on the regulatory part, but also adopts the concept of "advocacy" to promote
competition and raise awareness.
As a social mission of the committee. The Commission has occasionally made
itself feel in the market by imposing heavy penalties on companies involved in
anti-competitive practices. The ultimate benefit of such measures lies with the
buyer, who currently enjoys the good side of healthy competition in the market
and is given the opportunity to choose the budget that best suits him. However,
there are still some questions that the government needs to consider.
In addition, by the Commission itself to make India's competitive system more
practical. As a late entry, Indian competition law had the advantage of adopting
selected features of competition law from other countries. However, according to
experts, Indian law misses some important aspects of competition law that may be
included in existing law.
For example, settlements and settlement clauses, such as those available in
other countries, make the regulatory and arbitrage process faster and more
practical, but India has chosen to oppose such measures. This is one of the
reasons for the delay in getting judgments. Another disadvantage that has
recently emerged is the ambiguity within the Commission's authority. Many
proceedings pending before the Court of Competitive Appeals will be revoked
because the Commission did not respect the principles of natural justice or made
other procedural errors.
Increasing backlog of cases thanks to staff crunch is another concern that`s
needed to be dealt by the government Another area where the Commission has to re
think is that the role of the competition laws within the overlap between
belongings laws and competition laws. Such matters must be preoccupied for
serious consideration by the concerned authorities to attain the required
objectives with which the Competition Act was enacted.
- Adam Smith
- Section 3 of The Competition Act, 2002.
- Section 4 of The Competition Act, 2002.
- Section 2(h) of The Competition Act, 2002.
- Section 2(i) of The Competition Act, 2002.
- Section 2(r) of The Competition Act, 2002.
- Section 2(b) of The Competition Act, 2002.
- Section 3(4) of The Competition Act, 2002.
- Section 5 of The Competition Act, 2002.
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