This article is written by Monesh Mehndiratta, a law student at Graphic Era Hill University, Dehradun. This article deals with antitrust laws in India, explains the meaning and various other provisions of such laws.
It has been published by Rachit Garg.
Imagine going to the market to buy some vegetables, but you could only find one shop selling carrots at a high price. What will you do in such a situation? You cannot complain about this because there is no such legislation that deals with this particular problem.
Similarly, when we talk about businesses and companies, it is very important that choices are available to the consumers so that they can buy the products of their choice from the company they wish. What if ‘Whirlpool’ has created a monopoly in the market and there is no other company for refrigerators? You, as the consumer, will have no option but to buy the refrigerator only from this company. You can neither negotiate the prices nor complain to any authority. This makes you realise that it is necessary to have legislation that could prevent monopolies in the market and ensure fair trade practices with the aim of protecting the interests of consumers. That is why we need antitrust laws.
The laws enacted to provide a free and open market for the benefit of the economy of the country and its consumers are known as antitrust laws. These laws provide such rules and regulations for the proper conduct of business in the market without anyone indulging in malpractices. They help in limiting multiple companies from being formed with the intention of defrauding and fixing prices to control the competition and protect consumers. The current legislation that serves the purpose of antitrust laws in India is the Competition Act of 2002. The article talks about the development of antitrust laws in the country and gives an overview of the Act.
Need for antitrust laws
A market is said to be competitive when consumers are given a fair choice to use the product of any company without any imbalance in the cost of the product. In such a market, a particular product is manufactured by various companies and businessmen, but none dominates the market and establishes a monopoly. On the other hand, a market where one company dominates all others and does not provide a fair chance to grow may affect the economy of the country as well. The consumer will have no option but to use the products of only one particular company. Such a market is known as a monopolistic market.
Imagine yourself going into the market to purchase electronics and you only find the products of one particular ‘XYZ’ company with fixed prices. You would have no option but to buy that product as you can neither compare the prices with other companies manufacturing electronics nor can buy their products.
The balance that is created between the seller and the buyer or the consumer in a competitive market is absent in a monopolistic market as a result of which there are fluctuations in cost. Thus, there was a need to regulate the market and keep a check on businesses from establishing a monopoly in the market. To serve that purpose, antitrust laws were enacted.
Development of antitrust laws in India
Antitrust laws tend to protect the interests of consumers and, thus, are essential for any country. The development of such laws in India can be understood in two phases, i.e., pre-liberalisation and post-liberalisation.
This era is marked by a lot of problems faced by the country as it seeks to become self-reliant. This is the phase when India became an independent country and was struggling to establish its governance and other systems to regulate the conduct of the organs of the country. The government of that time decided to set up the Planning Commission to look into the growth and stability of each sector in the country. The Commission, in its First Five Year Plan, focused on the rehabilitation of the refugees who were the result of partition and were facing hardships. No attention was paid to the economy and stability of the Indian market until the Second Five Year Plan. The Second Five Year Plan is also known as the Mahalanobis Plan. This Mahalanobis Model was adopted to increase the pace of industrialisation. This plan aimed at establishing more and more industries to expand the market and increase the manufacturing process for the development of the country with the goal of a socialistic society.
With the establishment of industries and businesses in the market, the government felt the need to regulate monopolistic practices and formed the Monopolies Inquiry Commission in 1965 to report on the conditions of the monopoly of a particular company in the market and suggest measures in this regard. On the suggestion of the Commission, the Parliament enacted The Monopolies and Restrictive Trade Practices Act, 1969 (MRTP Act). The aim of the Act was to prevent a monopoly and ensure an equal distribution of resources to all industries.
However, the act was vague and ambiguous and could not serve the purpose at large and could not prevent practices like cartelisation, predatory pricing, and other such strategies. Moreover, it required a lot of paperwork, licences, and permission to set up one industry in the country. There were specified sectors in which a private industry could not be set up and the government held the monopoly. This restricted the growth and expansion of the market. The other plans of the commissions failed due to natural disasters like drought, famine, etc. and also instances of inflation due to various other revolutions in other countries around the world. The Commission, in its Sixth Five Year Plan, thought to introduce liberalisation in the market and adopted its policy and other taxation reforms. The Parliament also amended the Act.
Previously, the government focussed on the prevention of monopolies in the market but forgot about the effectiveness of competition. Industries controlled by the state were not competitive and, hence, did not believe in the improvement of products and services. After liberalisation, the nature of the economy changed from one that was controlled by the state to one that was regulated and driven by the market. This era also witnessed foreign companies and investors investing in the Indian market and industry. The government decided to make the procedure easy in order to attract foreign investment. But the MRTP Act could not fulfil the objective, and so the Raghavan Committee was organised to work on the same. The Committee recommended repealing the Act and framing new laws in this regard. Thus, the said Act was repealed by the government.
The other recommendations of the committee included the enactment of legislation that encourages competition in the market and gives choice to consumers. As a result of this, the Competition Act of 2002 was enacted. The Act promoted competition, protected the interests of consumers and provided the opportunity for fair trade and business in the Indian market. It did not completely make all the monopolistic practices illegal, nor did it make the combination of various companies punishable, but it provided an opportunity to defend against anti-competitive practices if they had a valid reason to do so. It gave all industrialists and businessmen the right to free trade, but with reasonable restrictions. This Act continued to be called Antitrust law in the country and serves all the purposes of such laws.
Competition Act, 2002 : an overview
The Act was enacted in 2002 to ensure freedom of trade and provide rules and regulations for the conduct of businesses in the market. The Act mainly deals with and regulates 3 things: anti-competitive agreements, the dominant position of any business and abuse of that position, combinations of various companies by way of mergers, acquisitions, amalgamations etc. However, the government felt the need to amend the Act to make it as per the needs of society, and thus, the Competition (Amendment) Act, 2007 came into force.
Scheme of the Competition Act, 2002
The effects doctrine is the basis of the Act and it gives jurisdiction to the Competition Commission of India (CCI) on every anti-competitive agreement, abuse of position by a company having a dominant position in the market or such combinations outside the country or have an Appreciable Adverse Effect on the Competition (AAEC). It provides that all such agreements are not permitted and, hence, will be void. It also talks about horizontal and vertical agreements.
Section 3 of the Act deals with anti-competitive agreements that are signed by the parties. The Act mentions two types of anti-competitive agreements. These are:
- Anti-competitive horizontal agreements (Section 3(3))- the presumptions of these agreements are rebuttable. Such agreements include:
- Agreement for fixing a price,
- An agreement limiting the production or supply,
- The agreement that allocates the market,
- Agreement of collusing biddings.
- Anti-competitive vertical agreements (Section 3(4)) – these are made by the parties during production, distribution, supply etc. However, some conditions are necessary in order to protect the intellectual property rights and are not seen as a violation of the Act as per Section 3(5). The following are such agreements:
- Tie-in arrangements,
- Arrangement of exclusive supply,
- Refusal to deal,
- Maintenance of resale price.
In 2021, penalties were imposed on some firms by the CCI for bid rigging in a tender by GAIL, as reported by a press release.
Abuse of dominant position
This is given under Section 4 of the Act. If a company or enterprise uses its position to gain independent control over the market or is affecting the competitors, the company is said to be in a dominant position. No company is prohibited from being in a dominant position, but if it uses its position for illegal means or abuses it, then such abuse of position is prohibited in the Act. The Act gives certain conducts that can be termed as abuse of dominant position. These are:
- If a position is used to impose any unfair prices or conditions, which includes predatory prices as well,
- If it is used to limit production or development,
- Denies access to the market,
- To conclude the contract over unnecessary conditions,
- To gain an advantage in other markets.
A press release recently showed that CCI issued a desist order against the Amateur Baseball Federation of India in 2022 on the ground that it abused its dominant position.
Some agreements may cause AAEC in the market and, hence, are prohibited under the Act. It is a kind of civil offence and so punishable. Such agreements are called cartel agreements and fall under the list of horizontal agreements. According to a press release in 2022, the CCI imposed a penalty on maritime transport for cartelisation. Another press release reports that a cease order was issued against firms which were guilty of bid rigging and cartelisation in a tender by Eastern Railways.
Mergers and Acquisitions
Any combination, whether a merger, an acquisition, or an amalgamation, must adhere to the provisions of Section 5 and Section 6 of the Act and needs prior approval from the CCI. The two requirements are the filing of such mergers and combinations and the de minimis test. The Act also gives jurisdiction to the CCI over all the combinations, even those outside the country. A notification prior to the combination is required within 30 from the board of directors showing approval in the case of mergers and amalgamations or within 30 of the execution of such an agreement which shows the intention to acquire a business if it is an acquisition. The failure will pave the way for an investigation as authorised by the Act to the CCI.
However, Schedule 1 of the combination regulations provides certain exemptions where a pre-notification to CCI is not necessary. These are:
- Acquisition made only as an investment and where the acquirer does not hold 25% of the shares or more directly or indirectly,
- Acquisition of additional shares which is not more than 5 % in a financial year and where the acquirer holds more than 25% but less than 50% of the shares or voting rights prior to or after such acquisition.
- An acquisition where the acquirer already holds more than 50% of the shares of the company to be acquired except where the transaction is from joint control to sole control.
- Renewed tender where the notice has already been filed with the Commission.
- Acquisition of raw materials, stock-in-trade, spares etc in the course of business.
- Acquisition by a person in the same group except if the business is jointly controlled and they do not belong to the same group.
- A merger or amalgamation where one has more than 50% of shares in another and the transaction is not from joint control to sole control.
Penalties and liabilities under the Competition Act, 2002
The Act also provides provisions for penalties and gives the CCI the power to impose such penalties. In the case of anti-competitive agreements, it can fine up to 10% of the average turnover of the last 3 financial years. For cartel agreements, the fine is equal to the profits made in 3 continuous years of such agreement. It can also order desist or ask to modify the agreements. The Act also provides penalties for non-compliance with the order of the Commission under Section 42 and false information under Section 44 of the Act. The Act also empowers CCI to impose lesser penalties under Section 46 of the Act.
Impact of the Competition Act, 2002 on various organisations
Organisations run by the state
These include various public sector undertakings and organisations controlled by the State. In the Pre-liberalisation era, they had a monopoly in the market, but with liberalisation, the private sector gloomed and so they lost their monopoly. These organisations usually face hardships due to the high cost of production as compared to the private sector and hence can not compete with them. However, they are not exempted from the control of the Act but no provision applies to the sovereign functions of such organisations if any.
Medium and small-scale industries
Medium and small industries in India have not gained much recognition yet. At times, they are unable to compete with big private industries and tend to come together to form a combination. They also indulge in bid rigging, which is an anti-competitive practice as per the Act. Hence, they are governed by the Act and any practice made void by the Act, if done, will be punished.
With the expansion of e-commerce like Amazon, Flipkart, Zomato, etc., a new challenge has come into existence, i.e., protection of local traders. This type of e-commerce tends to create a link between buyer and seller and even regulate the fee. They also sell the products at a lower price, because of which there is a clear disadvantage to the local traders who are not associated with such companies and suffer badly. Thus, there is a need to protect their interests and amend the Act to meet their needs.
Competition Commission of India (CCI)
CCI is a statutory body within the Ministry of Corporate Affairs set up in 2009 to regulate competition in the market and ensure free and fair trade practices. It is authorised under the Act to prevent activities affecting competition and investigate such cases brought before it. The Competition (Amendment) Act, 2007 led to the establishment of two bodies named the CCI and the Competition Appellate Tribunal (CAT). However, CAT was replaced by the National Company Law Appellate Tribunal (NCLAT) in 2017, but CCI is still in existence and deals with cases violating the Act.
Objectives of CCI
Following are the objectives of the Commission:
- It works to eliminate such activities resulting in adverse effects on the competition in the market.
- It tries to establish a healthy competitive environment by:
- Engaging all the stakeholders like consumers, industrialists, government etc.
- Serving as an organisation having high competence.
- Showcasing and promoting transparency and wisdom while using its powers.
- The main objective is to protect consumers from unfair trade practices.
- Promotes competition and ensures a fair and free right to trade in the market.
- It helps and promotes domestic and small-scale businesses and ventures.
Composition of CCI
The Commission consists of one chairperson and a minimum of 2 members, which can go up to 6 members at max. These are appointed by the Central Government and it can reduce the number of members to one chairperson and 3 other persons rather than 6 for speedy hearing of the cases. It serves as a quasi-judicial body, which means that its decisions are binding on the parties, and it also works to implement the Act besides hearing cases.
Eligibility of the members
Every person to be appointed either as a chairperson or as any other member of the Commission must be:
- A person of integrity, ability and skills,
- He must have been a judge of the High Court or have qualified to become so,
- He must have 15 years of experience in international trade, business, public affairs, law, commerce, economic issues, accountancy, industry, administration, etc which is useful to carry out the functions and duties of the Commission.
Functions of CCI
The main function of the Commission is to work for the development of the economy and to promote fair competition as well as fair/just trade practices, as provided by the Preamble of the Act. The other functions are:
- It makes sure that the consumer interest is protected and given importance in the market.
- It promotes healthy competition and deals with cases of unfair trade practices and antitrust agreements if enforced.
- It also works as a body regulating and protecting small businesses against competition from large firms and companies.
- It ensures that large companies and businesses do not abuse their position and become dominant in the market, which can easily be done if a particular company controls the supply and production of a product, fixes the price of the product and uses its position to prevent the growth and access of the market to other companies making similar products.
- It is given the power under the Act to tell and ask a particular venture to sell the business to the government of the country if it tends to have a negative impact on the market and its development.
- The Commission makes sure that any foreign company that wants to invest in the country or any of the businesses in the country has complied with all the processes and fulfilled all the requirements.
Recent news and reports of CCI
- A recent report from 2022 shows that CCI has approved and accepted the acquisition of a telecom player by Google International LLC and Airtel. Both the parties decided to invest and buy shares of telecom players and therefore drafted an agreement for the same. But it was observed that any deal which is beyond the set limit requires the approval of a regulator. This is done to prevent unfair trade practices and the CCI acts as the regulator.
- Another report of June 2022 reveals that in an ongoing case before the Bombay High Court, it is argued that the antitrust regulator, i.e., the CCI must be prevented from investigating on its own in the matter of alleged price cartels done by debenture trustees of a Non-Banking Financial Companies (NBFC) against the complaint registered by an NBFC with the Securities and Exchange Board of India (SEBI) and CCI regarding the debenture trustees that they are misusing their dominant position. The court in this case had put a stay on the investigation by CCI and further asked SEBI to provide the required documents and its expert opinion while the case is pending in court.
- Another latest news regarding the working and functioning of the CCI shows that it has accepted the acquisition of Air Asia by Air India on the condition that it will not have any negative impact on the competition in the market nor will it have any such adverse effect.
- In its decision against bid-rigging in tenders of the Indian railways, the CCI imposed penalties of Rs. 30 lacs on the seven entities who indulged in such activities and were found guilty. One of them filed an application before the Commission for a lesser penalty under Section 46 of the Competition Act, 2002, and the application was accepted. It was also held that an application regarding a lesser penalty can be made to CCI with true and genuine disclosure regarding the particular allegation or activity.
Challenges faced by CCI
With the expansion of businesses and industries in the market, the dangers of companies using unfair means to earn money and generate profit at the instance of others are increasing. The Commission is facing regular challenges due to an increase in ventures and companies. More companies imply more competition in the market, which also implies that they will misuse their position and create a situation leading to a monopoly in the market. Also, there is a pendency of cases and complaints in the Commission due to less number of members. The Commission must be made efficient enough and should be given more staff to deal with investigations and hear cases in a speedy manner so that they can deal with such situations and prevent violations of rules and provisions of the Competition Act.
Another challenge faced by the Commission is related to e-commerce and the digital economy. The Act currently does not deal with the digital economy and e-commerce due to which the interests of consumers are at stake. Provisions relating to network issues, accessibility of online data, and prevention of unfair practices to earn profit while dealing with a client online, etc., must be included in the Act to deal with the loopholes and drawbacks of the digital economy and e-commerce.
Antitrust laws are the laws that regulate the market and its activities. Such laws aim at reducing unfair trade practices and prevent monopolies. The concept of antitrust laws was for the first time introduced in the USA in 1890 when the Sherman Act was passed. In India, the MRTP Act dealt with such problems, but with the expansion of industrialisation and urbanisation, the Parliament felt the need to have a whole new Act that could deal with increasing unfair trade practices and keep a check on the businesses. Thus, the Competition Act was enacted in 2002. It was further amended in 2007 and NCLAT was established for the speedy disposal of cases.
The Act has been successful in preventing the monopolies in the market but facing some new challenges. The introduction of the digital economy and e-commerce have created some new problems like network issues, delayed payments, privacy and protection of data stored online etc. it has further increased the chances of monopolies in the market as the company having the facility of e-commerce and digital economy will attract more consumers. Moreover, there has been an enormous increase in the cases of fraud and cheating. All this needs to be addressed by the Act and hence, the government must work on how to deal with such problems.
Frequently asked questions (FAQs)
Why is the Competition Act, 2002 called an antitrust law?
Antitrust law is a kind of competition law and the concept originated to check on the abuse of various trusts in the late 19th century. It is a law against any combination or trust which prevents them from indulging in unfair trade practices which cause stagnant growth of other businesses or enterprises. The Competition Act, 2002 fulfils the objectives and is hence called antitrust law.
Does the Competition Act, 2002 provide the provisions to appeal against an order of CCI?
Section 40 of the Act provides that an aggrieved person may file an appeal to the Supreme Court against the order of CCI within 60 days of such order. But this Section has been repealed by Section 32 of the Competition (Amendment) Act, 2007. The amendment also provides for the establishment of the Competition Appellate Tribunal (CAT) under Section 53A, which has the power to hear appeals against any order. Further, the appeal against the order of CAT will lie directly to the Supreme Court.
What are antitrust laws in the USA?
There are 3 antitrust laws in the United States of America. These are:
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