Competition Act

Competition Act 2002

Introduction

Competition is not defined in law but is generally understood to mean the process of rivalry to attract more customers or enhance profit or both. Competition law deals with market failures on account of restrictive business practices in the market. Restrictive business practices can be of many kinds and include inter-alia agreements to restrict competition, cartelization, predatory pricing, tie-in sales, re-sale price maintenance, abuse of dominance etc.

The history of competition law is usually traced back to the enactment of Sherman Act in 1890 in the US. This act was directed against the power and predations of the large trusts formed in the wake of the Industrial Revolution where a small control group acquired and held the stock of competitors, usually in asset, and controlled their business. Gradually, competition law came to be recognized as one of the key pillars of a market economy. This recognition led to enactment of competition law in many countries, including developing countries, and the number now stands at around 105.

Competition is the lifeblood of the market economy. It spurs innovation and higher productivity leading to accelerated economic growth; to the consumers it brings the benefit of lower prices, wider choices and better products and services.

The value of freeing entrepreneurial energies and allowing competition to drive growth has become all the more important for India to emerge as dominant market player in world economy.

Old Law On Competition: MRTP Act, 1969

Earlier, MRTP Act, 1969 was the law on competition matters. However, it was enacted during era of licenses, permits and controls. Monopoly and dominant position in market was regarded as bad in law. The ‘public interest' and ‘consumer welfare' were the core principles of competition law. The MRTP Commission, the implementing body of the law, had only powers to issue orders directing a respondent to ‘cease and desist' from the alleged monopolistic, restrictive and unfair trade practices. The commission did not have the power to levy penalty for breach of law no other penalties could be imposed.

The Act underwent several amendments during the course of its journey till date. Prominent among them are amendments of 1984 and 1991. In 1984, unfair trade practices enquiries were added and in 1991 the chapter dealing with mergers and amalgamation was deleted.

However, the increasing complexities of globalised business environment took the concept of competition to much elevated levels. The new age competition and its effects permeated the physical boundaries of countries. Technological growth also added new dimensions to competition issues.

India too witnessed these new developments in market competition and realized the resultant inadequacy of extant competition law i.e., MRTP Act, 1969. In the era of liberalization and globalisation, the MRTP Act had become obsolete in certain respects of competition issues. There was a need to shifting focus from curbing monopolies to promoting competition. Accordingly a new law on competition was promulgated in the name of Competition Act, 2002.

Objectives:

The preamble of this act states that this is an act to establish a commission, protect the interest of the consumers and ensure freedom of trade in markets in India.

There are some elements or the objectives for the act.

  1. To prohibit the agreements or practices that restricts free trading and also the competition between two business entities.

  2. To ban the abusive situation of the market monopoly.

  3. To provide the opportunity to the entrepreneur for the competition in the market.

  4. To have the international support and enforcement network across the world.

  5. To prevent from anti-competition practices and to promote a fair and healthy competition in the market.

Elements Of Competition Law

Typically, a modern competition law has three major elements:

(i) Anti-competitive agreements

(ii) Abuse of dominance

(iii) Regulation of combinations

Major Areas In Focus:

  1. Anti-Competitive Agreements

Section-3. (1) No enterprise or association of enterprises or person or association of persons shall enter into any agreement in respect of production, supply, distribution, storage, acquisition or control of goods or provision of services, which causes or is likely to cause an appreciable adverse effect on competition within India.

(2) Any agreement entered into in contravention of the provisions contained in sub-section (1) shall be void.

(3) Any agreement entered into between enterprises or associations of enterprises or persons or associations of persons or between any person and enterprise or practice carried on, or decision taken by, any association of enterprises or association of persons, including cartels, engaged in identical or similar trade of goods or provision of services, which—

(a) Directly or indirectly determines purchase or sale prices;

(b) Limits or controls production, supply, markets, technical development, investment or provision of services;

(c) Shares the market or source of production or provision of services by way of allocation of geographical area of market, or type of goods or services, or number of customers in the market or any other similar way;

(d) Directly or indirectly results in bid rigging or collusive bidding,

Shall be presumed to have an appreciable adverse effect on competition:

Provided that nothing contained in this sub-section shall apply to any agreement entered into by way of joint ventures if such agreement increases efficiency in production, supply, distribution, storage, acquisition or control of goods or provision of services.

Explanation:->For the purposes of this sub-section, “bid rigging” means any agreement, between enterprises or persons referred to in sub-section (3) engaged in identical or similar production or trading of goods or provision of services, which has the effect of eliminating or reducing competition for bids or adversely affecting or manipulating the process for bidding;

(4) Any agreement amongst enterprises or persons at different stages or levels of the production chain in different markets, in respect of production, supply, distribution, storage, sale or price of, or trade in goods or provision of services, including—

(a) Tie-in arrangement;

(b) Exclusive supply agreement;

(c) Exclusive distribution agreement;

(d) Refusal to deal;

(e) Resale price maintenance,

Shall be an agreement in contravention of sub-section (1) if such agreement causes or is likely to cause an appreciable adverse effect on competition in India.

  1. Abuse Of Dominance

Section-4

(a) Directly or indirectly, imposes unfair or discriminatory:->

(i) Condition in purchase or sale of goods or services

(ii) Price in purchase or sale (including predatory price) of goods or service

Explanation :-> For the purposes of this clause, the unfair or discriminatory condition in purchase or sale of goods or services referred to in sub-clause

  1. And unfair or discriminatory price in purchase or sale of goods

(Including predatory price) or service referred to in sub-clause

  1. Shall not include such discriminatory conditions or prices which may be adopted to meet the competition.

(b) Limits or restricts :->

(i) Production of goods or provision of services or market therefore

(ii) Technical or scientific development relating to goods or services to the prejudice of consumers

(c) Indulges in practice or practices resulting in denial of market access (in any manner)

(d) Makes 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; or

(e) Uses its dominant position in one relevant market to enter into, or protect, other relevant market.

  1. Regulation Of Combinations

Section-5. The 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, if :->

(a) Any acquisition where :->

(i) The parties to the acquisition, being the acquirer and the enterprise, whose control, shares, voting rights or assets have been acquired or are being acquired jointly have:->

(A) Either, in India, the assets of the value of more than rupees one thousand crores or turnover more than rupees three thousand crores

(ii) The group, to which the enterprise whose control, shares, assets or voting rights have been acquired or are being acquired, would belong after the acquisition, jointly have or would jointly have:->

(B) Either in India, the assets of the value of more than rupees four thousand crores or turnover more than rupees twelve thousand crores

(b) Acquiring of control by a person over an enterprise when such person has already direct or indirect control over another enterprise engaged in production, distribution or trading of a similar or identical or substitutable goods or provision of a similar or identical or substitutable service, if:->

(i) The enterprise over which control has been acquired along with the enterprise over which the acquirer already has direct or indirect control jointly have:->

(A) Either in India, the assets of the value of more than rupees one thousand crores or turnover more than rupees three thousand crores

(ii) The group, to which enterprise whose control has been acquired, or is being acquired, would belong after the acquisition, jointly have or would jointly have :->

(A) Either in India, the assets of the value of more than rupees four thousand crores or turnover more than rupees twelve thousand crores

(c) Any merger or amalgamation in which :->

(i) The enterprise remaining after merger or the enterprise created as a result of the amalgamation, as the case may be, have :->

(A) Either in India, the assets of the value of more than rupees one thousand crores or turnover more than rupees three thousand crores

(ii) The group, to which the enterprise remaining after the merger or the enterprise created as a result of the amalgamation, would belong after the merger or the amalgamation, as the case may be, have or would have :->

(A) Either in India, the assets of the value of more than rupees four thousand crores or turnover more than rupees twelve thousand crores

Remedies In Competition Act

Section 27 of the Act provides various remedies for restoring competition and penalizing the offenders in case of contravention of this law. They are :->

  1. Passing ‘cease and desist order'.

2. Providing agreements having appreciable adverse effect on competition to be void.

3. Imposing penalty up to 10% of the turnover or 3 times of cartelised profit, whichever is higher.

4. Awarding compensation or damages as per Section 34.

5. Directing modifications to agreements.

6. In case of combinations, they can be approved with or without modification or even be refused approval.

7. In case of dominant enterprise, order can recommend division as provided in Section 28 of the Act Mrtp Act 1969

Introduction

The MRTP Act, 1969 has its genesis in the Directive Principles of State Policy embodied in the Constitution of India. Clauses (b) and (c) of Article 39 of the Constitution lay down that the State shall direct its policy towards ensuring:

  1. That the ownership and control of material resources of the community are so distributed as to best serve the common good

  1. That the operation of the economic system does not result in the concentration of wealth and means of production to the common detriment.

Objectives

The principal objectives sought to be achieved through the MRTP Act are:

  1. Prevention of concentration of economic power to the common detriment;

  2. Control of monopolies;

  3. Prohibition of Monopolistic Trade Practices (MTP);

  4. Prohibition of Restrictive Trade Practices (RTP);

  5. Prohibition of Unfair Trade Practices (UTP).

Provisions Relating To Monopolistic, Restrictive And Unfair Trade Practices

  1. Section 10 of the MRTP Act, 1969 empowers the MRTP Commission to enquire into monopolistic or restrictive trade practices upon a reference from the Central Government or upon its own knowledge or on information. The MRTP Act, 1969 also provides for appointment of a Director General of Investigation and Registration for making investigations for the purpose of enquiries by the MRTP Commission and for maintenance of register of agreements relating to restrictive trade practices.

  1. The MRTP Commission receives complaints both from registered consumer and trade associations and also from individuals either directly or through various Government Departments. Complaints regarding Restrictive Trade Practices or Unfair Trade Practices from an association are required to be referred to the Director General of Investigation and Registration for conducting preliminary investigation in terms of Sections 11 and 36C of the MRTP Act, 1969 and Regulation 119 of the MRTP Commission Regulations, 1974. The Commission can also order a preliminary investigation by the Director General of Investigation and Registration when a reference on a restrictive trade practice is received from the Central/ State Government, or when Commission's own knowledge warrants a preliminary investigation. Enquiries are instituted by the Commission under relevant Sections of the MRTP Act, 1969 after the Director General of Investigation and Registration has completed the preliminary investigation and as a result of the findings, submits an application to the Commission for an enquiry.

Monopolistic Trade Practices

Five enquiries under Section 10(b) were pending with the MRTP Commission at the beginning of the year 2005, while no fresh inquiry was instituted during the period April, 2005- December, 2005. All the 5 enquiries were pending as on 31.12.2005.

Restrictive Trade Practices

Under Section 10(A) (I)

293 enquiries, including 267 brought forward from the previous year, were considered during April 2005-December 2005 of which 48 enquiries were disposed of during the said period and the remaining 245 enquiries were pending with the Commission as on 31st December 2005.

Under Section 10 (A) (Ii)

Neither any enquiry was not brought forward from the previous year nor was any enquiry instituted under this Section during the year.

Under Section 10 (A) (Iii)

39 enquiries including 37 brought forward from the previous year were taken up by the Commission during April 2005 to December 2005. One enquiry was disposed of during the period and the remaining 38 were pending with the Commission as on 31st December 2005.

Under Section 10 (A) (IV)

58 enquiries were brought forward from the previous year and 3 fresh enquiries were instituted by the Commission during the year from April 2005 to December 2005. 6 enquiries were disposed of during the said period and 55 enquiries were pending with the Commission as on 31stDecember 2005.

Unfair Trade Practices

Provisions relating to Unfair Trade Practices were incorporated in the MRTP Act, 1969 in 1984. Unfair Trade Practices have been defined in Section 36A as trade practices which for the purpose of promoting the sale, use or supply of any goods or for provision of any services, adopt one or more of the practices mentioned therein and thereby cause loss or injury to the consumers of such goods or services, whether by eliminating or restricting competition or otherwise.

Under Section 36B (A)

491 enquiries including 410 enquiries brought forward from the previous year were considered by the Commission during April, 2005 - December 2005. Of these, 54 enquiries were disposed of and the remaining 437 enquiries were pending as on 31st December 2005.

Under Section 36B (B)

Neither any enquiry under Section 36B (b) of the MRTP Act, 1984 was initiated nor any enquiry was brought forward during April, 2005- December, 2005.

Under Section 36B (C)

1 enquiry brought forward from the previous year before the Commission is still pending as on 31.12.2005.

Under Section 36B (D)

176 enquiries, including 169 brought forward from the previous year, were taken up by the Commission during April, 2005 - December 2005. Eight enquiries were disposed of and 168 enquiries were pending with the Commission as on 31st December 2005.

Temporary Injunctions

Besides 143 applications pending under Section 12A with the MRTP Commission as on 1st April, 2005, 43 applications were received by the Commission during the period April, 2005 - December 2005. Out of 186 applications, 55 were disposed of and the remaining 131 applications were pending under Section 12A with the Commission as on 31st December, 2005.

Award Of Compensation

During the period April, 2005 - December 2005, 1341 applications under Section 12B including 1264 applications brought forward from the previous year were considered by the Commission. Of these, 126 applications were disposed of by the Commission during the period and the remaining 1215 applications were pending as on 31st December, 2005

Registration Of Agreements

  1. Section 35 of the MRTP Act, 1969 requires every agreement relating to Restrictive Trade Practices falling within one or more of the categories enumerated in Section 33(1) of the Act to be furnished for registration within 60 days of the making of such agreement.

  1. In pursuance of this provision, during the period April, 2005 to December 2005, 7 agreements were received for registration. The same were registered and entered in the Register of Agreements.

  1. A total number of 39,993 agreements were filed up to the end of 31st December, 2005, by various undertakings. Out of these, particulars of 39,116 agreements were entered in the Register of Agreements.

Investigation By Director General (Investigation & Registration)

Investigation

The Director General is required to conduct preliminary investigation in respect of restrictive, monopolistic and unfair trade practices as and when an order of preliminary investigation is received from the MRTP Commission. As on 1.4.2005, one investigation was in progress. During the period from 1.4.2005 to 31.12.2005, 49 fresh orders of preliminary investigations were received. Out of 50 investigations, Preliminary Investigation Report was submitted in 11 cases and 39 investigations were pending at the end of the year. Besides, the Director General has suo motto powers to initiate preliminary investigations into monopolistic, restrictive and unfair trade practices, and in case any of these trade practices are detected during such investigation, the Director General is empowered to file applications under Sections 10(a) (iii)/ 10(b)/36B(c) of the Act for initiation of enquiry proceedings by the MRTP Commission. As a result of such suo Moto investigations, 5 applications were filed under Section 36B(c) along with 4 applications under Section 12A of the Act for interim injunction

during the period 1.4.2005 to 31.12.2005. In addition, 3 applications were filed under Section 10(a) (iii) of the Act for enquiry into restrictive trade practices during the said period. Thus, a total of 12 applications have been filed during the period 1.4.2005 to 31.12.2005.

Consumer Protection

Of late, consumer protection movement has been sweeping across the whole country. The consumers have been organising themselves into consumer bodies all over the country to safeguard the public and consumers' interest against unfair trade practices being indulged in by parties through misleading advertisements, bargain-sales, organisation of sale promotion contests, marketing goods which do not conform to standards of safety etc. An independent Chapter regarding unfair trade practices was inserted in the MRTP Act in 1984 and the consumers are taking full benefit of the provisions contained in this Chapter by filing complaints in this office. Facility of speedy redressal of their grievances is provided by this office. During the period April, 2005 to December, 2005, this office has handled as many as 123 complaints received from consumers and other parties including 22 brought forward from the previous year. Of these, 64 complaints were disposed of during the period and 59 complaints were pending as on 31.12.05.

Failure Of The MRTP Act And The Reforms Of The Nineties

However, the MRTP Act was unable to deliver as expected - partly because of the inherent weaknesses in its own structure and the composition of the MRTP Commission, and partly due to the fact that the attributes of competition (entry, price, scale, location etc) were regulated by a separate set of policies. Although the country did witness industrial growth and diversification during this period, the complex network of controls and regulations fettered the freedom of enterprises. Administrative delays and rent seeking opportunities spawned an inefficient industrial structure, which was beset with problems of sub-optimal scales of operation, capacity under-utilization, lack of technological up gradation and high levels of industry concentration.

The Industrial Policy Statement of 1980 focused attention on the need for promoting competition in the domestic market, technological up gradation and modernization. Far-reaching changes were made by the MRTP (Amendment) Act, 1991. The Reforms covered a broad spectrum such as further liberalization of industrial licensing dispensing with the requirement of prior government approval before affecting expansion by undertakings, registered under the MRTP Act, 1969 progressively diluting the monopoly of the public sector industries, except where security and strategic concerns still dominate, abolition of levy and non-levy price system, and reducing purchase preference for public sector enterprises. The Industrial policy statement of 1991 also emphasized the attainment of technological dynamism and international competitiveness. It noted that the Indian industry could scarcely be competitive with the rest of the world if it had to operate within an over-regulated environment. The main thrust, as it stood before the Reforms of 1991, to prevent concentration of economic power to the common detriment, has now shifted to effectively curb monopolistic, restrictive and unfair trade practices.

The Need For A New Competition Law

However, even the reforms of 1991 were considered inadequate, accentuating the need for a new competition law. This led to the constitution of a High Level Committee on Competition Policy and Law in October, 1999 also known as the Raghavan Committee. The terms of reference of the Committee, inter alia included recommending a suitable legislative framework relating to competition law, changes relating to legal provisions in respect of restrictive trade practices and suitable administrative measures required to implement the proposed recommendations. This committee went into the modalities of bringing into a law and a law enforcement authority in the form of the Competition Act and the Competition Commission of India respectively. The Raghavan Committee Report states that the essence and spirit of competition should be preserved as it encourages efficiency in the production and allocation of goods and services, and over time, through its effects on innovation and adjustment to technological change, a dynamic process of sustained economic growth. The Parliamentary Standing Committee on Home Affairs to which the Competition Bill, 2001 was referred for examination, concluded that the rigidly structured MRTP Act necessitated its repeal in view of the Government's policy of being facilitator rather than regulator. Keeping in view the economic developments that have resulted in opening up of the Indian economy, removal of controls and consequent economic liberalization which required that the Indian market be geared to face competition within the country and outside, the Competition Act, 2002 was enacted pursuant to Raghavan Committees Report.

The Competition Act Of 2002

The Competition Act has been designed as an omnibus code to deal with matters relating to the existence and regulation of competition and monopolies. Its objects are lofty, and include the promotion and sustenance of competition in markets, protection of consumer interests and freedom of trade of other participants in the market, all against the backdrop of the economic development of the country. It is compact, composed of 66 sections. The legislation is procedure-intensive and is structured in an uncomplicated manner. The initial part contains the definition clause. The first part also includes a description of activities prohibited under the Competition Act. This is crucial to our understanding of the letter and spirit of the Competition Act, as all principles enunciated subsequently flow from these provisions. Structurally this is followed by a description of the Competition Commission of India (CCI). Quite logically, a significant portion of the Competition Act has been devoted to the CCI and the executive powers granted to this statutory body since it is ultimately the decision taken by the Commission, which would provide both direction to the Act as well as the trends displayed in enforcement of the various provisions of the Act. Similar to most legislation, the Competition Act is concluded by a chapter discussing the miscellaneous aspects of the legislation and generally applicable principles.

The rubric of the Act has essentially four compartments:

  1. Anti- Competition Agreements

  2. Abuse of Dominance

  3. Combination Regulations

  4. Competition Advocacy

The Competition (Amendment) Bill, 2006

The Competition (Amendment) Bill, 2006, contains provisions designed to address the Supreme Courts concerns. It also proposes to make several other changes in sections of the Act dealing with anti-competitive practices. Some proposed amendments are quite sensible, while others (notably a modified leniency programme for firms that provide information about their participation in a cartel) have been inadequately thought out. The amendments designed to placate the Supreme Court will also have some negative consequences. Several weaknesses in the original Act remain unaddressed. Finally, the scarcity of the kind of economic expertise required to interpret the Acts multifarious technical clauses also remains a matter of concern. Intensive capacity building and a re-assessment of the Act itself are urgently required.

Conclusion

The quality of governance of the state is being watched very closely by citizens, investors and the international community. As more freedom is available to businesses to choose from various countries for investment, the competing governments are also conscious about the role of governance in attracting investment. Any perception that the environment is not conducive to competition and the state has been captured by a few big businesses certainly negatively affects the global investment decisions of firms. The same is also true of the situation within different provinces in a country as same considerations are used by the firms in making investment decisions while choosing locations for establishment of an industry. In a market structure where firms face weak competitive pressures and the profits and prices are predictable the firms have little or no incentive to use resources efficiently. Hence competition is accepted worldwide as the lifeblood of the market economy. It spurs innovation and higher productivity leading to accelerated economic growth; to the consumers it brings the benefit of lower prices, wider choices and better services. The effect of competition on price and accessibility is best illustrated with an example from Indian telecommunications. Tele-density in India has risen from mere 2.32 in 1999 to 11.32 in December 2005-07. Also there has been a dramatic fall in telecom tariffs from Rs.16 per minute to Re.1 per minute with increased competition in this sector. Similarly, consumers have benefited from competition in other sectors such as civil aviation, automobiles, newspapers and consumer electronics.

The enactment of the Competition Act is a commendable step towards achieving the twin mantra of open market economy and liberalization in a mixed economic system. The need for reform in the legal system with regard to competition law has been rightly recognized by the legislative bodies in the country. However, the reforms have not been smooth or speedy which has resulted in a stagnation of the legal framework guiding the corporate sector. Further reforms need to be undertaken as fast as possible to ensure that the development of the nation does not take a backseat due to the pending legal reforms. Reforms must provide for good corporate governance, less of government controls and interference, protection of consumers and public interest, rewarding the merits and all to be achieved as soon as possible because world has also options available other than India.

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