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An analysis of anti-monopoly laws

August 8, 2021

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This article is written by Anurag Singh from ILS Law College, Pune. This is a comprehensive article that critically analyses anti-monopoly laws.

Table of Contents

Introduction

India got its independence in 1947, however, the Indian economic system was suffering at the time, most importantly the two major contributors to the revenue of the country were, agriculture and industrial sector, service sectors were nowhere to be seen. Therefore, the government felt the need to be liberal in its approach towards the service and the industrial sector for them to grow exponentially. However, this approach from the government served them no good as the industrialists were quick to spot the loophole and exploit it, by indulging in unfair, restrictive, and monopolistic trade practices. As a result, the government had to formulate the Monopolies and Restrictive Trade Practices Act, 1969 (MRTP Act) for the regulation of such activities, however, it was later repealed, and the Competition Act, 2002 came into force in 2009 for regulating restrictive and monopolistic trade practices.

Anti-monopoly laws : a lookout in the existing structure

The MRTP Act, 1969 was outdated because the main focus of the Act was to curb monopolies and not promote competition in India. Importantly, the Act aimed to protect the consumer from exploitation. However, the Act in place just lost its essence and made it more difficult for industrialists rather than making it easier for the customers. Therefore the government set up the Raghavan Committee to suggest a suitable legislative framework and that is how the Competition Act, 2002 was formulated.

Interestingly, the Act was passed in 2002 and was assented by the President in 2003, however, the Act did not come into force until 2009. This was because the government wanted this Act to not have any major deficiencies like the earlier one. Therefore, even though the Competition Act had been passed, all the proceedings for seven years were still functioning under the old MRTP Act. Once the Competition Act was amended in 2007 the government was confident to repeal the old Act and bring in the new one.

Competition Commission of India (CCI)

Competition Commission of India is the regulator of competition under the Competition Act, 2002 in the Indian market. This commission comprises members and a chairperson. There cannot be less than 2 and more than 6 members and all of them are appointed by a selection committee by the Centre. The goal for the formation of the commission was to accomplish the objectives of the Act, moreover, imposing fines and granting relief in certain cases. After approaching the CCI, if the parties feel the right sentence has not been pronounced, the appellate body is the Competition Appellate Tribunal (COMPAT).

The objective and the scope

The main objectives of the Competition Act are herein laid down below:

The Act prevents activities that have an adverse effect on competition.
To protect the interest of the consumer.
To promote and sustain competition in the Indian market.
To ensure freedom of trade to all the participants in the market.

In order to study the scope of the Competition Act, three main sections had to be looked at; those are Sections 3, 4, and 5 of the Competition Act, 2002. Let’s briefly discuss what is in those sections.

Prohibition of Anticompetitive agreement (Section 3)

The agreement has been defined in Section 2(b) of the Act, agreement for the Act means any arrangement, understanding, or action, it does not have to necessarily be formal or in writing. Moreover, it does not necessarily have to be intended to be enforceable by law. However, in the case of DG (S&D) v M/S Puja Enterprises & Ors.,2012, it was held that the scope of ‘agreement’ under the section is not exhaustive rather it is a wide one. CCI also discussed ‘preponderance of probabilities’, which means that in some cases parties give their assent by a nod or a wink that has not been covered under the ambit of agreement in the Act.

There are two types of agreements that the parties can enter into:

Horizontal agreement

Horizontal agreements are agreements in which the enterprises engaging in the same activity (competitors) enter into an agreement. For example, if Samsung agrees with Nokia then that is a Horizontal agreement. However, these agreements don’t need to be entered by two companies. If the producers, wholesalers, and retailers dealing with a similar product enter into an agreement, that will also fall within the ambit of horizontal agreement.

These types of agreements are always on the radar of the CCI because in such an agreement the Commission can suo moto cognizance if they find the agreement having an adverse effect on competition, the CCI does not hold back in imposing heavy penalties on the organization part of such agreements. For example, in 2012 the CCI imposed a hefty penalty of 6200 cr on 11 leading cement companies for price cartelization.

Vertical agreement

Vertical agreements are the exact opposite, these agreements are between two entities at a different level of the manufacturing and distribution process (Non-competitor). For example, Tata Motor enters an agreement with CEAT Tyres for the supply of tires for their cars, then it is a vertical agreement. Therefore, it will not be out of place to state here that these agreements are formed between the companies within the supply chain of the industry.

Importantly, these agreements are more liberal than the horizontal ones because there can be an agreement between the retailer and the distributor to help the business scale. For example, Dominos, Raymond, etc. ask their distributors to only sell the products that they produce but if these agreements have an adverse effect on competition then CCI can hold them liable as well. However, in these cases, the liability lies on the complainant to prove the same.

Now that we have understood what is agreement and what are the kinds of agreements in the Act, let’s understand what an Anti-Competitive agreement is.

Anti-Competitive agreements are those agreements that have an appreciable adverse effect on competition (AAEC). The formation of a cartel is an example of such an agreement. In simple words, a cartel is an association of producers or manufacturers with the sole aim of restricting competition and maintaining the prices high. Determining factors for AAEC are:

Creation of a barrier for a new entrant.
Driving existing competition in the market.
Foreclosure of competition by hindering entry.
Benefits to the customer in the long run.
Improvement in production or distribution of goods/services.
Promotion of technical, scientific, and economic development by the means of production or distribution of goods/ services.

Whenever any organization enters into a contract these indicators are looked into carefully for maintaining a healthy and competitive environment to do business, at the same time looking after the needs of the customers. However, in the case of Competition Commission of India v. Co-Ordination Committee of Artists and Technicians of W. B. Film and Television, 2017, the Supreme Court held that, if an agreement falls into any of the categories for horizontal agreements under Section 3(3) of the Act, it is per se treated as adversely affecting competition and would be void. There is no requirement of proof as to whether it has caused an appreciable adverse effect on competition (AAEC).

Abuse of dominant position

A dominant position can be said to be a position of strength in the industry, in a way that they can influence the consumer to use their products/services instead of their competitors. Interestingly, in the Indian market, it is not wrong to hold a dominant position, however, its abuse is prohibited.

Under this, the enterprises cannot enter into any agreement which demonstrates clear abuse of its dominant position. For example, Conditional sale or purchase and predatory pricing.

Illustration: If A has a dominant position in its industry then if A asks B (a distributor) to buy a new product X if they want their Y product (Which is the best seller), or if A decides to sell its product lower than its cost of production so that its competitors can no longer sustain in the market. These two instances are clear cases of abuse of the dominant position.

But the scope of this section is not limited to the competitors. In the case of Competition Commission of India v. M/s Fast Way Transmission Pvt. Ltd, 2018 the Supreme Court held that the inclusion of the words “in any manner” in Section 4(2)(c) of the Act indicates that it is broad and accordingly, Section 4(2)(c) cannot be limited to usage by competitors but also includes other aggrieved non-competing parties. Once a dominant position is established, it is irrelevant for Section 4(2)(c) to assess whether the broadcaster is competing with the channel operator. Section 4(2)(c) would be applicable if the broadcaster is denied market access due to unlawful termination of the agreement between the broadcaster and the dominant entity.

Factors that determine the dominant position of an enterprise in an industry:

Market capitalization.
Economic advantages over the competitors.
Dependence of consumer.
Vertical integration.
Market Structure and size.

The case of the T-series was a classic example in this regard, it is a known fact that T-series has a crystalline dominant position in the music industry, therefore abusing its power T-series asked all the radio stations to only play their songs. However, HT media, a competitor, complained about the same and CCI asked T-series to stop this monopolistic behavior.

Combinations

The acquisition, amalgamation, or merger between two or more enterprises is known as a combination under the Act. There is a very strong reason to regulate such activities by the enterprises because combinations in some cases create a monopoly in an industry which makes it very tough for the other competitors to enter the market. For example, if A and B have a market capitalization of 40% and 35% respectively and they both decide to merge then a monopoly will be created in that industry as the two biggest players have merged.

There are three types of combinations:

Horizontal Combination (occurs when two enterprises in the same industry combine).
Vertical Combination (Occurs when one enterprise combines with another enterprise that makes raw material for their industry).
Conglomerate Combination (occurs when two enterprises of the different industries combine).

In order to combine with other companies above the threshold, a proposal should be made to CCI via an application and after examining this combination the CCI will announce its result within 150 days an extension of 30 days can be requested. In case of no response or approval, the companies can effectively combine and if the proposal is not approved then the parties are not satisfied with the decision then they can appeal to the COMPAT, and the final appeal lies with the Supreme Court.

The threshold for Combination:

		Asset		Turnover
Enterprise-level	India	> INR 2000 CR	OR	>INR 6000 CR
	Worldwide	> USD 1 Bn with at least INR 1000 CR in India		>USD 3 Bn with at least INR 3000 CR in India
Group level	India	> INR 8000 CR	OR	> INR 24000 CR
	Worldwide	> USD 4 Bn with at least INR 1000 CR in India		> USD 12 Bn with at least INR 3000 CR in India

The achievements associated with the anti-monopoly laws

Increased competition in the Indian market.
Removes barriers for trade in the market.
The formation of CCI has provided a forum for complaints and disputes regarding the competition.
Prohibits the formation of Anti-competitive agreements.
Companies can no longer abuse their dominant position in the market.
Regulating the operations, mergers, amalgamations, and acquisitions of the enterprises, so that big companies do not form a monopoly in the market.
Abolition of formation of cartels and inducing predatory pricing.
One-stop solution for all the problems concerning the competition in India.
Increased India’s ranking in the ease of doing business index.

Need for amendments

The Competition Act, 2002 is not aligned with the antitrust laws of other top countries. Therefore, India should take cues from them and implement them in the Indian market.
All the businesses around the world are changing, earlier there was only physical business but now with the whole internet revolution globally as well as in India, there is a need for laws regulating the business online.
Moreover, there should be a specific provision for regulating the use of big data in e-commerce.
Provisions should regulate the use of customer’s data, where and how it is being used.
Amendments with regards to the holding of ‘dominant position’ in the market, because holding a dominant position is not seen as a problem but the abuse of the position is a problem.
These competition regulation bodies are present in metropolitan cities and there is no trace of their existence in rural areas. To resolve this, the government in the Amendment of 2020 asked the National Company Law Tribunal (NCLT) and the National Company Law Appellate Tribunal (NCLAT) to handle competition cases as well. However, the government should set up regulatory bodies specifically operating in the competition cases across the countries for more effective results.

Conclusion

The Competition Act, 2002 is a revolutionary Act because after the enactment of this Act businesses got the right to compete in the Indian market. This legislation by the centre promotes fair competition and regulates all the anti-competitive actions by firms and enterprises. This Act curbs three major issues in the Indian market, anti-competitive agreements, abuse of dominant positions, and regulation on the combination. Though this legislation is revolutionary, there are still some amendments that need to be enacted for the better functioning of the Act and so that this Act is at par with international practices.

References

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An analysis of anti-monopoly laws

Introduction

Anti-monopoly laws : a lookout in the existing structure

Competition Commission of India (CCI)

The objective and the scope