How the Competition Act failed to achieve the legislative intent

November 12, 2018

In this article, Neha Jain does an analysis on why the  Competition Act failed to achieve the legislative intent.

Understanding the importance of free market

In the last two centuries, the world has seen major shift in every sphere of human life be it social, technological, cultural or economical. All these dimensions are interwoven. The humankind has seen major changes in economic dynamics that ultimately affect cultural and social aspects of human life. With the advent of Industrial revolution, there has always been a rift about which economic theory would be more beneficial – Capitalism or Socialism?

The world can follow these major systems. Although there are ample differences between these two economic systems, but the main difference is that the former promotes non-intervention by promoting competition among the sellers, the latter eliminates any kind of competition thereby ensuring equal distribution of resources. The struggle for supremacy between these forms has taken the world politics in completely new dimension. However, with the beginning of twenty-first century, it became almost clear that the world has chosen Capitalism as form of economic system that the countries wanted to go for.[1]

One of the basic tenants of Capitalism is free market i.e., there should be no or minimal intervention of any third party (generally the government), to enable producers to reap the maximum benefit possible. This non-intervention was also important since it enables maximisation of consumer welfare, as more producers will come to reap the benefits that will provide more and better choices to consumers and thus maximise the utility of their money. But, after the great depression of 1920s, modern economic theory realised that it was necessary to have government intervention so as to ensure smooth working of the market.[2]

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History of Antitrust Legislation

From this the countries realised the importance of proper functioning of free market, where buyers and sellers both are free to choose products and markets respectively. In order to ensure this freedom, it was felt important to have competitive market, which enables best usage of sources to the best way possible and thereby offering of best goods and services to the consumers. Countries like USA realised it way before the rest of the world. In 1890, it enacted its first anti-trust legislation, viz, Sherman Act that inspires many other countries to enact the same. India also had similar legislation in 1969, namely Monopolies and Restrictive Trade Practices (MRTP) Act.

The main aim of this act was to prevent monopolies of any industry which government feels not fit for society. However, with the country shifting to completely new economic system in 1990s, i.e. adopting LPG polices of Liberalisation, Privatisation and Globalisation, the need was felt for a completely new legislation. India now became the member of World Trade Organisation (WTO) and thus many new multinational companies entered into Indian market. As a result, in the year 2002, the Country passed the Competition Act, 2002 replacing the MRTP Act. Fundamentally, the Competition Act, 2002 is a law that addresses Anti-Trust issues.[3]

Objectives of Competition Act, 2002

This is an Act to provide for the establishment of a Commission to prevent practices having adverse effect on competition, to promote and sustain competition in markets, to protect the interests of consumers and to ensure freedom of trade carried on by other participants in markets, in India, and for matters connected therewith or incidental thereto.[4] However, there has always been a sense of disgruntlement towards the success of this legislation. Due to this reason, the Government of India has constituted a nine-member panel to review the competition law. The committee would review “the Competition Act/ Rules/ Regulations, in view of changing business environment and bring necessary changes, if required.[5] This paper will also aim to analyse whether this Act has been able to achieve the objectives it set for itself.

Now, the objective as set out by Competition Act, 2002 mainly points to one main task of the Commission that is to ensure that enough competition in particular industry is maintained. To understand whether the Act has been successful or not, first we need to briefly understand how the firms or industry eliminates the competition from the market. It has been established that competitors are meant to compete with one another for the business of their customers, and not to cooperate with one another for the business of their customers, and not to cooperate with one another to distort the process of competition.[6]

Industry, in general, takes certain steps that aim at eliminating the various competitors to their business. This can be done by adopting various methods. One of the most common methods used by industry to curb the competition is forming cartels. Two most common form of cartel are horizontal cartels and vertical cartels. Horizontal cartels are the agreements between independent undertakings to fix prices, divide markets, to restrict output and to fix the outcome of supposedly competitive tenders, the most obvious target for any system of competition law.[7]

This is mostly used form of cartel. The other one is Vertical Cartel, which means agreements between undertakings at different levels of supply chain: manufacturer and distributor; distributor and retailer.[8] For example, agreement between manufacturer and distributor to sell products of only that manufacturer and not of his competitor. Besides these, there are other methods to counter the competition in the market such as bundling, predatory pricing, margin squeeze and mergers etc. This article will try to analyse how such practices are used by Companies in India to avoid the competition and whether Competition Act has been able to stop the same or not.

How the Competition Commission failed in fulfilling its obligations

One of the recent major cases of Competition Commission, which depicts how it has failed to fulfil its obligations is in Telecom Sector. In December 2016, Reliance Jio Info COMM Limited (RJIL) filed a case with the Competition Commission of India (CCI) under Section 19(1)(a) of the Competition Act, 2002. This was against Cellular Operators Association of India (COAI), Vodafone India, Vodafone Mobile Services Limited (VMSL), Vodafone Group (Vodafone PLC), Bharti Airtel Limited (Airtel), Bharti Hexacom Limited (Bharti Hexacom), and Idea Cellular Limited (Idea). These are incumbent telecommunication providers in India, alleging contravention of the provisions of Section 3 of the act.[9] In this case, the Reliance made allegations of predatory pricing against the incumbents and before that the company had also approached the Telecom Regulatory Authority of India (TRAI), with the complaint that incumbents are denying the point of interconnections to the Reliance, which is important for quality of calls.[10]

In this case, complaint has been made to sector specific regulatory body i.e. TRAI and CCI, which is the umbrella body to look into any kind of anti-competitive activities of industries. The basic aim of both these bodies is to ensure such practices which would maximises the consumer benefit.

The sub-objective or the mode through which it is achieved can be different. Now the main question is whether we need to have two separate legislations for the same cause of actions when one is in position to solve it. It must be noted that sector specific legislations establishing regulatory body like TRAI work under special laws. While the CCI works under a general law. It has been general rule of interpretation that whenever a conflict arises between general legislation and specific legislation, latter will prevail over former. So according to this rule, if any conflict arises between TRAI and CCI, the former will prevail over the latter.

Similarly, it happens in case of conflict between Patents Act and Competition Act, where a major contention has been raised. Conflicts arise when one legislation overlaps the jurisdiction of another legislation. One of glaring example of this conflict is Pharmaceutical industry.

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There has always been a struggle between consumer welfare and Producer protection and his right to earn profits. Although, Courts in India are bound to follow the doctrine of harmonious construction i.e. when conflicts arise between two legislations they are to be interpreted in such a manner so as to avoid the conflict between the two. However, even after application of this doctrine, overlapping and conflict may still arise, and then, in that case, it is always special legislation that prevails over the general one. Similarly happened in case of The Chairman, Thiruvalluvar v The Consumer Protection Council.[11] In that case, the question involved before the Supreme Court was whether a claim for compensation in respect of motor vehicle accidents could be entertained under the Consumer Protection Act, 1986.

The claims for compensation under both the Acts could not be made simultaneously and, therefore, the inconsistency between the two Acts was apparent. The Supreme Court further noted that the Motor Vehicles Act was a special Act while the Consumer Protection Act, which dealt with extending protection to consumers in general was a general Act. Thus, general law must yield to the special law. The same can also be applicable in case, if conflict arises between Patents Act and Competition Act and TRAI and Competition Act.

We must understand that the reason why any special legislation is enacted is to cater to the need of any special problem. For example, India Penal Code, 1860 had already provisions as to definition and punishment of sexual offences,[12] but still special enactment in the form of Sexual Offences Act, 2003 was made by the legislature in order to further outline the sexual offences. Similarly, there are many sections of IPC like section 465 to 500.[13] However, Information Technology Act was enacted in 2000, so as to counter the problem of cybercrimes in the country.

Thus, it can be ascertained that special legislations are enacted where issues involved are technical in nature or the society demands such special legislations. For example, in case of Reliance (supra), no. of PIOS, insufficient supply of which is complained by the company is a highly technical question. Experts dealing in these matters on daily basis must be in better position to deal with such questions. However, in this case, if one seeks to approach CCI, they would not be in best position to adjudicate the matter, as they lack the requisite specialisation. One of the reasons why special courts and tribunals were set up in case of Company and Consumer Forum issues so that experts can adjudicate the matter with specialised skills required to do so.

Case of Google

Next, if we look at the example of Google, which has been served a notice by CCI of following practices unhealthy for competition, CCI here also has not received much success as well. However, to understand such allegations, it is necessary to understand the modus operandi of the search giant. Whenever any user enters any information, search engines should show the information as per relevance, which is used by the user believing such relevance. However, in real situation, market ploys do play role while presenting the search results.

This happens with the help of “paid placement” and “paid inclusion”. Both are ways in which URLs can be placed in higher ranking by making payments or a case where URLs can be included in search results even without relevance by making certain payments. As a result of which, consumer is not getting search results based solely on relevance but it is also based on payment power of individual websites and URLs. However, it must be noted that this is the basic business model of the search engines. Another allegation which Google faces is that it promotes its own websites as compare to others.

A clear line of demarcation is required in this case to differentiate between malpractices affecting consumer welfare and business model required to be followed to earn maximum available profits. Thus, it can be held that people who understands such business model of whole new sector of web pages is in better position to distinguish between the two. Next major complaint filed against Google is that it violates the trademark rights of the individual websites. It was alleged that Google auctioned the keywords to prospective advertisers, irrespective of who held the trademark for the same. This is matter of trademark infringement.[14]

Trademark infringement is the unauthorized use of a trademark or service mark on or in connection with goods and/or services in a manner that is likely to cause confusion, deception, or mistake about the source of the goods and/or services.[15] Again, this is the matter related to Trade Marks Act, 1999. Addressing such infringement with the help of special legislation should be preferred over general legislation (in this case Competition Act), since the special legislation is made to solve such specific problems only.

It must be noted that in general Competition Commission deals with the matters that affect the economy i.e. adjudicate the major players as they have potential to disturb the free economy balance and thereby effect the consumer welfare. That is why major players in any sector has been parties to CCI such as Reliance, Cement Cartel, Google. Each of these organisations has power to affect the consumer welfare and other economic practices. Each organisation has the ability to affect the working of whole of the sector. Therefore, every sector has certain type of technological as well as economic characteristics which is unique to that sector only. It is thus should be preferred to have specialised regulatory body instead of having an umbrella body in all sectors, since former knowing the nuances of that particular sector can better manage the issues arising in that sector.

Statistics on the success rate of CCI

Further, if we look at the success rate of CCI. It has not been very impressive. After levying fines of Rs 13,981 crore since inception, the CCI has only recovered Rs 96 crore till March 2016. In fact, even its very first landmark verdict against real estate developer DLF for Rs 630 crore continues to linger in Supreme Court.[16]

Clearly, it can be ascertained lower collection of fine provides less scope for compensation those affected by anti-competitive practices. Since 2009, when the Indian Commission was formed, till March 2016, the body ordered 277 investigations and issued 632 orders. Of these, 360 were challenged in the Competition Appellate Tribunal (Compat) and 114 were sent back to the commission, largely on technicalities. Of the remaining, 30 orders were overturned.[17]

Thus, it can be safely presumed that majority of cases has been struck in vicious circle of appeals in higher judiciary. Another impact it has that without enforcement, it lost its deterrent power to other industries.

There have been many instances where the CCI has proven to be professionally incapable. For example- In the case against the Board of Control for Cricket in India (BCCI), the commission did not allow BCCI to refute all the facts and charges it later presented in court, when its penalty was challenged. Next, in penalties imposed on Coal India and the All India Organization of Chemists and Druggists, the CCI member who signed off the penalty hadn’t been present at the hearings when organisations were defending their stance before the commission. Similarly, in its case against Adani Gas, when the commission found the court questioning the proof it had, CCI presented new documents as evidence. The appellate court did not accept these and said CCI must first share and hear the company’s rebuttal, before presenting any further documents in court.[18] These all instance prove how CCI lacks not only technological level but also personnel level.

Simply Put

The ultimate objective of any law is to set out regulations in order to solve the conflict between the parties. Competition Act was enacted with the same thought. But, since it is unable to fulfil its major objective of consumer welfare, questions need to be asked regarding its viability. It has not been able to perform up to the expectations due to factors like non-availability of requisite technical expertise, lack of personnel and lack of infrastructures. Thus, an urgent need is there to review the working of CCI and thereafter to scrap or revamp it as per the requirements.

[1]  Available at https://unctad.org/en/Docs/ux_tdxrt1d3.en.pdf

[2] Available at  https://www.imf.org/external/pubs/ft/fandd/2014/09/basics.htm

[3] Available at https://www.latestlaws.com/articles/critical-analysis-of-competition-law-in-india-by-mohammad-asad-mahmood/

[4]  Objective Clause the Competition Act 2002, also see https://www.cci.gov.in/sites/default/files/cci_pdf/competitionact2012.pdf

[5] Available at https://www.latestlaws.com/latest-news/government-sets-up-9-member-panel-to-review-competition-act-in-view-of-changing-business-environment/

[6] See Richard Whish and David Bailey’s Competition Law (edition 8th, Oxford University Press) at page 546

[7] Ibid

[8] Available at https://uk.practicallaw.thomsonreuters.com/0-381-3369?transitionType=Default&contextData=(sc.Default)&firstPage=true&comp=pluk&bhcp=1

[9] Available at https://www.epw.in/journal/2018/38/market-power-and-competition-policy/conflict-between-regulation-and.html

[10] Available at https://www.epw.in/journal/2018/38/market-power-and-competition-policy/conflict-between-regulation-and.html

[11] AIR 1384, 1995 SCC (2) 479)

[12] Section 375 to 376E

[13] Forgery of electronic records and sending defamatory messages by email resp.

[14] Available at https://www.epw.in/engage/article/should-google-search-engine-be

[15] Available at https://www.uspto.gov/page/about-trademark-infringement

[16] Available at www.economictimes.indiatimes.com/articleshow/62329440.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst

[17] ibid

[18] Ibid

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