Competition Law: A Bulldog or a Watchdog - A close Juxtaposition

The Genesis: The post-independence dawn of a liberated India saw itself immersed in various challenges of development. Nehruvian Socialism model of development, also called mixed economy, was chosen unlike the market economy of USA or the socialist economy of USSR. The unique feature of mixed economy is the complete control over strategic industries such as mining, electricity, Banking, Insurance, Heavy industries, infrastructure development etc. coupled with regulatory control over the private sectors. Industrial Licensing was used as a tool to achieve this objective. Alas this resulted in creating trade barriers and decreased efficiency and productivity. This planned economy model lead to the concentration of wealth and economic power in few big business houses, leading to emergence of the MRTP Act (Monopoly and restrictive Trade Practices Act) in 70's to regulate and control the economic power in Indian Industry. Economic reforms were initiated in 80's and 90's to convert India to a market-based economy.

The MRTP Act: Precursor to the Competition Act,2002: An overview of this act is necessary to understand the context under which the competition legislation was enacted.

The objective of MRTP Act was to prevent

  • Concentration of economic power
  • Prohibition of monopolistic, unfair or restrictive trade practices,
  • All incidental or connected matters thereto.

Complainants could only get a maximum remedy of 'cease and desist order' to the respondent and no other penalties or fines could be imposed by the MRTP commission. Further the act lacked many aspects as to extra territorial jurisdiction, lack of clarity on many key terms used for market rigging. Alas the act acted as a watchdog with no punitive powers. Thus, necessity was felt at the end of 90's to introduce a competition Law to promote competition rather than to curb monopolies. An apparent need was felt for a change in approach to promote competition as was the practice in major economies worldwide. This act was repealed in 2009.

Competition Act,2002:

Micro Perspective:

The Competition act (Called the 'Act') was introduced on the recommendation of the Raghavan committee, to uphold the spirits and principles of the Directive Principles. This act though enacted in December' 2002, came into force wef March - 2003. The basic objective of the act was 'to prevent practices and methods having adverse and detrimental effect on competition, to promote, sustain and safeguard all kinds of competition in markets, to safeguard & protect the interests of the consumers and to ensure freedom of trade carried on in markets, in India'. With the opening of the economy due to globalization, a supportive environment needed to be created, which promotes and sustains competition and provides opportunities of inclusive growth. Thus, the need for the act.

Salient Features of Competition Act:

1) To prevent Anti-Competitive agreements (Section 3 of Competition Act): Any type of agreement which causes or is likely to cause an appreciable adverse effect (AAE)/ significant harmful effect on competition in India is deemed to be anti-competitive. Section 3 prohibits any such agreement with respect to 'production, distribution, supply, storage, and control or acquisition of goods or services, which causes or is likely to cause a significant amount of harmful effect on competition within markets in India' Collusive bidding, Bid rigging, tie in arrangement, exclusive supply agreement, exclusive distribution agreement, exclusive marketing agreements etc. shall be covered under the ambit of competitive agreements.

Few precedents on section 3: 'Builders Association of India vs. Cement manufacturers association and 11 cement companies':-CCI case no 29/2010 decided on 20th June'2012, In this case, the respondent were found to be at fault and CCI imposed a penalty of 0.5 times of net profit of year 2009-10 and year 2010-11 in case of each cement manufacturer. 'Film & Television Producers Guild of India vs Multiplex Association of India & Others': case no 37 of 2011 decided on 3rd January'2013 In this case the decision of CCI was given in favor of respondents, as violation of section 3 and section 4 could not be proved against MAI.

Exceptions to Anti-Competitive agreements: Any kind of agreement for imposing reasonable restrictions for the purpose of protection of rights conferred under the following statutes/ Acts, do not fall within the ambit of section 3:

  • Copyright Act, 1957
  • Patents Act, 1970
  • Trademarks Act, 1999
  • Geographical Indications of Goods Act, 1999
  • Semi-Conductor IC layout- Design Act,2000

2) To prevent abuse of Dominance (Section 4 of Competition Act): This section prohibits any enterprise from abusing/ misusing its dominant position in the market to secure benefits and significantly affecting the competition in India. The term 'dominant position' in reference to an enterprise means 'a position of strength, which allows it to operate independently of the competitive forces, prevailing in the relevant market, or significantly affect its competitors or consumers or the relevant market in its favor'.

Exploitive/ Exclusionary practices:

• Imposing unfair condition in sale or purchase
• Imposing unfair pricing
• Limiting or restricting production/ supply/ distribution
• Limiting or restricting technical/ scientific development
• Restricting market access in any manner
• Using its significant position in one relevant market to enter other relevant markets

Few precedents on section 4:

a) 'MCX Stock exchange Limited vs National stock exchange Limited, DoTEx International Limited, and Omnesys Technologies Private Limited '-CCI case no 13/2009 decided on 3rd June'2011 In this case CCI had concluded clear intention on the part of NSE to eliminate competitors from the relevant market and was penalized appropriately.

b) 'Kapoor Glass Private Limited vs Schott Glass India Private Limited' - CCI case no 22 of 2010 decided on 29th March'2012, In this case, CCI found the contravention of various provisions of section 4 by Schott Glass India Limited and thus adversely affecting competition and penalized it appropriately. 3)To regulate the operation and activities of Combinations (Section 5 & Section 6): Combination comprise any/ all the following as per act (section 5):

• Any kind of acquisition of - control / voting rights/ controlling shares/ assets of enterprises by one or more persons in India or outside India;

• Acquisition of control by a person over an enterprise, where such person already has direct/indirect control over another enterprise engaged in same/ similar/ competitive business in India or outside India;

• Any kind of merger /or amalgamation/ coming together between enterprises in case it exceeds the monetary threshold of assets and or turnover as defined in the act in India or outside India.

Further the section states that 'no person or enterprise shall get into a combination, which may cause or is likely to cause an appreciable adverse effect/ significant harmful effect, on competition within the relevant market in India and any such combination shall be void'. Thus, Government needs to have control over combinations to ensure the survival of the small competitors/ businesses in the market

 Types of combinations:

• Horizontal combinations: It involves the merging/ amalgamation of enterprises with identical productions processes.

Thus, such combinations are focused on improving business performance, greater share value, bigger market share and secured financial gains. Such combinations may not be good for the economy and may lead to creation of monopolistic markets, with retrenchment leading to long term adverse impact on the economy.

• Vertical Combinations: It involves coming together of enterprises engaged in either different processes of the same business or different business altogether. Such combinations aim to create a bigger market share, with greater synergy over its resources thus leading to monopoly markets of its products.

They may become very powerful and may become threatening to the economy. Example Reliance Industries Limited who are controlling the entire processes from refining to distribution of petrochemical products.

Few precedents on section 5 & 6:

a) 'Kingfisher Airlines vs. Competition commission of India- writ petition of 1785 of 2009'

In this case a fine of Rs one crore was imposed by CCI on Kingfisher Airlines for not providing adequate information regarding its alliance with Jet Airways

b) 'Hawkins Cookers Limited vs. Morgan Enterprises- MIPR 2008 (1) 128'

It was held that Hawkins Cookers could not be allowed to create a monopoly in the incidental market

c) 'Sun Pharma- Ranbaxy Merger'

In this case merger was approved on condition to divest its products relating to seven relevant markets for formulations. Organizational, Regulatory and Appellate structure to regulate the act: Competition Commission India (CCI) -(Section 7 to Section 17): CCI is a quasi-judicial highest body established under this act and is bound by the rule of law while decision making and needs to abide by the doctrine of precedents. CCI is vested with enough powers of a civil court, authority and responsibility for implementation of the provisions of the act, elimination of unfair and restrictive trade practices, promote, sustain & safeguard competition and to ensure freedom of trade for the protection of the interests of public.

Establishment, composition, appointment of selection committee for chairperson and members of commission, term of office, resignation, removal, suspension, & restriction of employment, powers, salary and allowances of chairperson and other members and all matters connected thereto shall be covered by the ambit of the aforesaid sections.

Duties, Powers and Functions of Commission (Section 18 to section 40: The duties, powers and functions of the competition commission of India shall be covered by the ambit of aforesaid sections along with all matters connected thereto. CCI is entrusted with certain powers of Civil Court under the relevant sections of the act. Penal provisions (Section 42 to section 48): Penal actions on various defaults such as contravention of orders of the commission, non-furnishing of adequate information to commission, making false statement to commission, omission to submit material/ significant information, failure to comply with the directions of commission and director general etc. are covered by the ambit of aforesaid sections including all matters connected thereto.

Competition Advocacy (section 49): While formulating policy on competition law, the central government may refer the matter to CCI for its opinion on possible effect of such a policy on competition. Though the opinion made shall not be binding on the central government.

Appellate Tribunal- Section 53A to section 53U: The National company Law appellate tribunal (NCLAT) shall be the appellate tribunal for all purposes of the act and is empowered to hear and decide any appeals arising out of the directions made by CCI and to adjudicate on compensation claims arising out of the orders of the commission.

Appeal against the orders passed by the appellate tribunal may be filed with the Supreme Court for resolution. All Appellate authorities have been entrusted with significant powers. Landmark precedents: 'CCI vs Steel Authority of India Limited- (2010) 10 SCC 744'

Other features of the act :

• The Act is very compact and consists of 66 sections;
• Director General (DG) reserves the right to conduct detailed investigations;
• The act is flexible enough to change/ modify its provisions as per its requirement and needs;
• Civil courts do not have any jurisdictions within the provisions of the act.

Achievements of CCI:

Table of cases received till 31st March'2019 Status of cases Number of cases
Total number of cases handled till 31st March'2019 1008
Cases settled at prima facie stage 560
Cases settled/ closed after DG's report 256
Cases pending before CCI 97
Cases pending and lying before DG 91
Cases stayed by various courts 04

Way Forward: A relatively young statute, Competition Act aimed to promote and sustain equal distribution of wealth and power in the economy of the country.

The sole object of its enactment was to form a commission to prevent practices, which are detrimental to competition and to promote a sustainable competition in the business structure prevailing in the country to ensure freedom of trade, and to protect consumers interests. Though enacted in 2002, the commission (CCI) got its enforcement and regulatory powers/ authority relating to antitrust provisions in 2009, followed by powers relating to regulation of combinations in 2011. During these ten years till March'2019, the commission has received and examined 1008 cases of anti-competitive agreements, and abuse of dominance, of which 816 cases have been resolved/ closed and rest are pending at various levels, either at the level of CCI/ NCLAT/ SC (Refer table).

Further it has also reviewed 656 merger filings, of which 646 cases have been disposed of. Thus, CCI has been able to build a robust and reliable body of jurisprudence in line with the requirement of India's economic development and market needs. CCI has strived and has been successful to create a culture of competition in the markets through credible antitrust enforcement and continuous engagement with various stakeholders in the market. The Competition Act is a giant leap in India's competition Law framework from the previous' MRTP' regime. The CCI must be consistent, cautious and proactive in its approach in terms of operations and advocacy, which would lead the industry to plan pro-competitive business strategy as per the needs of the economy, within the existing structure of the Competition Act. Thus, over the years, the Competition Act has evolved as a bulldog.

 

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Arunesh Roy Online
on 23 October 2019
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