In this article, Minali Pathak pursuing M.A, in Business Law from NUJS, Kolkata discusses evolution and development of Competition Law in India.

Introduction

In India, the decade of 80s and 90s has been a crucial one, specifically due to the introduction of new economic policy and opening up of the Indian market to the world. The New Economic Policy of 1991 which brought about Liberalisation, Privatisation and Globalisation of the Indian Economy, progressively widened the space for market forces and reduced the role of Government in business and various other economic sectors. It was realised that a new competition law was also called for because the existing Monopolies and Restrictive Trade Practices Act, 1969 (MRTP Act) had become obsolete in certain respects and that now there was a need to shift focus from curbing monopolies to promoting competition in the Indian market. A high-level committee was appointed in 1999 to suggest a modern competition law in line with international developments to suit the Indian conditions. The committee recommended the enactment of new competition law, called the Competition Act, and the establishment of a competition authority, the Competition Commission of India, along with repealing of the MRTP Act and the winding up of the MRTP Commission. It also recommended further reforms in Government policies as the foundation over which the edifice of new competition policy and law would be built.

The Competition Act came into existence in January 2003 and the Competition Commission of India was established in October 2003. The Act states that it shall be the duty of the Commission to eliminate practices having an adverse effect on competition, to promote and sustain competition, protect the interests of consumers and ensure freedom of trade carried on by other participants, in markets in India.

Evolution of Competition Laws across the Globe

Competition Law is the key tool to promote competition. The scope, application and implementation of Competition Law vary widely across jurisdictions. As Fox Eleanor M. puts it “Even within a particular national system, the goals of competition law may evolve and transmogrify, often depending upon the state of industrialisation of the economy, the strength of the political democracy, the power of the judiciary and the bureaucrats, and the exposure of the domestic firms to global competition.”[1]

Competition laws have a long history. Some authors claim that the first laws against anti-competitive practices date as far back as the middle ages, when cartels, the so-called guilds, were formed in most European cities. The first prohibition of contracts that restrain trade can be traced to English common law of the early fifteenth century.[2]

The first modern body of competition law can be traced back to the enactment of the Sherman Act of 1890 and the Clayton Act of 1914 in the United States. In the second half of the nineteenth century, the United States and Canada experienced a turbulent process of economic change. Railroads and steamships expanded the scope of many markets, and managerial innovations led to larger corporations and trusts.

At the same time, agricultural prices fell as a consequence of monetary stringency associated with the gold standard. Farmers and small business owners discovered that they had to pay high prices for the inputs charged by the trusts while receiving lower prices for their own outputs. They subsequently lobbied for legislation to limit the trusts’ power.  Their movement was successful and led to the adoption of competition laws in Canada (1889) and the United States (1890).[3]

The turn of the century also saw the formation of many cartels in Germany and other parts of Europe. Cartels steadily expanded their economic importance in countries such as Austria, Switzerland, Italy, France, the Scandinavian countries and were even recorded in Japan. With the practice of cartelization reaching its peak during the great recession of the 1930s, European countries began to follow the United States’ lead in enacting competition laws.

After World War II, the Allies, led by the United States, introduced tight regulation of cartels and monopolies in occupied Germany and Japan. In Germany, despite the existence of laws against unfair competition passed in 1909 (Gesetz Gegen Den Unlauteren Wettbewerb or UWB), the industry was dominated by a few large cartels. Similarly, in Japan, business was organized along family and nepotistic ties, and a few business houses controlled much of the industry. Thus after the end of the World War II more strict competition laws based on the US legislations were introduced in these countries.

Further developments in competition law, however, were considerably overshadowed by the move towards nationalization and industry wide planning in many countries. Making the economy and industry democratically accountable through direct government action became a priority. Coal industry, railroads, steel, electricity, water, health care and many other sectors were targeted for their special qualities of being natural monopolies. In contrast, Commonwealth countries were slow in enacting statutory competition law provisions. The United Kingdom introduced the (considerably less stringent) Restrictive Practices Act in 1956. Australia introduced its current Trade Practices Act in 1974.

Competition laws have been adopted more recently in developing countries compared to the more developed counterparts. Argentina and Mexico, were the early entrants amongst the developing countries, and adopted competition laws in 1923 and 1917 respectively. Competition laws were introduced in Chile, Brazil and Colombia in the 1960s.[4]

In the early 1990s, there were only about 35 developing countries with a competition law in place, but with rapid industrialization and integration into the world market, several other developing countries have taken steps to introduce competition laws and presently the number of developing countries with competition related statutes is estimated to exceed 100, with several more in the process of adopting a competition legislation very soon.[5]

Evolution and Development of Competition Law in India

India adopted its first competition law way back in 1969 in the form of Monopolies and Restrictive Trade Practices Act (MRTP). The Monopolies and Restrictive Trade Practices Bill was introduced in the Parliament in the year 1967 and the same was referred to the Joint Select Committee. The MRTP Act, 1969 came into force, with effect from, 1 June, 1970. However, with the changing nature of business, market, economy on the whole within and outside India, there was felt a necessity to replace the obsolete law by the new competition law and hence the MRTP Act was replaced with the Competition Act of 2002.

The enactment of MRTP Act, 1969 was based on the socio – economic philosophy enshrined in the Directive Principles of State Policy contained in the Constitution of India. The MRTP Act, 1969 underwent amendments in 1974, 1980, 1982, 1984, 1986, 1988 and 1991. The amendments introduced in the year 1982 and 1984 were based on the recommendations of the Sachar Committee, which was constituted by the Govt. of India under the Chairmanship of Justice Rajinder Sachar in the year 1977.

The Sachar Committee pointed out that advertisements and sales promotions having become well established modes of modern business techniques, representations through such advertisements to the consumer should not become deceptive. The Committee also noted that fictitious bargain was another common form of deception and many devices were used to lure buyers into believing that they were getting something for nothing or at a nominal value for their money. The Committee recommended that an obligation is to be cast on the seller to speak the truth when he advertises and also to avoid half truth, the purpose being preventing false or misleading advertisements.

However, as the times changed, the need was felt for a new competition law. With introduction of new economic policy and opening up of the Indian market to the world, there was a need to shift focus from curbing monopolies to promoting competition in the Indian market. As pointed out by the then Finance Minister in his budget speech in February, 1999–

“The MRTP Act has become obsolete in certain areas in the light of international economic developments relating to competition laws. We need to shift our focus from curbing monopolies to promoting competition. The Government has decided to appoint a committee to examine this range of issues and propose a modern competition law suitable for our conditions.”

In October 1999, the Government of India constituted a High Level Committee under the Chairmanship of Mr. SVS Raghavan [‘Raghavan Committee’] to advise a modern competition law for the country in line with international developments and to suggest legislative framework, which may entail a new law or suitable amendments in the MRTP Act, 1969. The Raghavan Committee presented its report to the Government in May 2000.

The committee inter alia noted: In conditions of effective competition, rivals have equal opportunities to compete for business on the basis and quality of their outputs, and resource deployment follows market success in meeting consumers’ demand at the lowest possible cost.

On the basis of the recommendations of the Raghavan Committee, a draft competition law was prepared and presented in November 2000 to the Government and the Competition Bill was introduced in the Parliament, which referred the Bill to its Standing Committee. After considering the recommendations of the Standing Committee, the Parliament passed December 2002 the Competition Act, 2002.

Hence, the Monopolies and Restrictive Trade Practices Act, 1969 [MRTP Act] was repealed and was replaced by the Competition Act, 2002, with effect from 1 September, 2009.

Salient Features of Competition Act, 2002

The Competition Act provides for establishment of a Competition Commission of India which will be a quasi judicial body bound by principles of rule of law (i.e. predictability in reasoning and uniform and consistent application of law) in giving decisions and the doctrine of precedents. The CCI has all the powers of a civil court for gathering evidence.

There are three major elements in the Competition Act

  • Anti-competitive Agreements (Section 3)
  • Abuse of Dominant Position (Section 4)
  • Combinations (Section 5 and 6)

Anti-competitive Agreements

Anti-competitive Agreements are prohibited under the Competition Act. The following agreements entered into by enterprise, association or persons are considered as anti-competitive:

  1. Agreement having appreciable adverse effect on competition(AAEC) – no one 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 appreciable adverse effect on competition within India. Following factors are to be considered by the Commission to determine whether an agreement has appreciable adverse effect on competition in India:
  • Creation of barriers to new entrants in the market
  • Driving existing competitors out of the market
  • Foreclosure of competition by hindering entry into the market
  • Accrual of benefits to the consumers
  • Improvements in production or distribution of goods or provision of services.
  1. Any agreement entered into, including cartels engaged in identical or similar trade of goods or provision of services, which:
  • Determines purchase or sale prices
  • Limits or controls production, supply, markets, technical development, investment or provision of services
  • Shares the market of source of production or the provision of services by way of allocation of geographical area of the market, or type of goods or services, or number of customers in the market or any other similar way
  • Results in bid rigging or collusive bidding having AAEC in India.
  1. Agreement 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:
  • Tie-in arrangement
  • Exclusive supply agreement
  • Exclusive distribution agreement
  • Refusal to deal
  • Resale price maintenance

If the aforesaid agreement causes an AAEC in India, then such agreements will be considered as anti-competitive agreements and such agreements are prohibited under the Act.

Remedies available against Anti-competitive Agreements

Section 27: Competition Commission of India has the following powers in this regard:

  • Passing an interim order during the pendency of inquiry
  • Serve a cease and desist notice directing the offending parties to a cartel to discontinue and not to repeat such agreements in future
  • Order the offending parties to modify the agreement
  • Impose on each member of the cartel a hefty pecuniary penalty

Abuse of Dominant Position

The Act defines dominant position (dominance) in terms of a position of strength enjoyed by an enterprise, in the relevant market in India, which enables it to: a operate independently of the competitive forces prevailing in the relevant market; or an affect its competitors or consumers or the relevant market in its favor.

The relevant market (Section 2(r)) means “the market that may be determined by the Commission with reference to the relevant product market or the relevant geographic market or with reference to both the markets”.

Factors that Determine Dominant Position

Section 19(4) of the act mentions the factors that help in determining dominant position in the market.

Dominance has been traditionally defined in terms of market share of the enterprise or group of enterprises concerned. However, a number of other factors play a role in determining the influence of an enterprise or a group of enterprises in the market. These include: a market share, a the size and resources of the enterprise; a size and importance of competitors; a economic power of the enterprise; a vertical integration; a dependence of consumers on the enterprise; a extent of entry and exit barriers in the market; countervailing buying power; a market structure and size of the market; source of dominant position viz. whether obtained due to statute etc.; a social costs and obligations and contribution of enterprise enjoying dominant position to economic development. The Commission is also authorized to take into account any other factor which it may consider relevant for the determination of dominance.

Abuse of Dominance

Dominance is not considered bad per se but its abuse is. Abuse is stated to occur when an enterprise or a group of enterprises uses its dominant position in the relevant market in an exclusionary or/ and an exploitative manner.

Section 4 (2) of the Act specifies the following practices by a dominant enterprises or group of enterprises as abuses

  • directly or indirectly imposing unfair or discriminatory condition in purchase or sale of goods or service;
  • directly or indirectly imposing unfair or discriminatory price in purchase or sale (including predatory price) of goods or service;
  • limiting or restricting production of goods or provision of services or market;
  • limiting or restricting technical or scientific development relating to goods or services to the prejudice of consumers;
  • denying market access in any manner;
  • making 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;
  • using its dominant position in one relevant market to enter into, or protect, other relevant markets.

Abuses as specified in the Act fall into two broad categories:

  • Exploitative (excessive or discriminatory pricing) and
  • Exclusionary (for example, denial of market access).

Predatory Pricing

The “predatory price” under the Act means “the sale of goods or provision of services, at a price which is below the cost, as may be determined by regulations, of production of goods or provision of services, with a view to reduce competition or eliminate the competitors” [Explanation (b) of Section 4]

Predation is exclusionary behaviour and can be indulged in only by enterprises(s) having dominant position in the concerned relevant market.

The major elements involved in the determination of predatory behaviour are:

  • Establishment of dominant position of the enterprise in the relevant market
  • Pricing below cost for the relevant product in the relevant market by the dominant enterprise [‘Cost’, for this purpose, has been defined in the Competition Commission of India (Determination of Cost of Production) Regulations, 2009 as notified by the Commission.]
  • Intention to reduce competition or eliminate competitors This is traditionally known as the predatory intent test

Powers of the Commission

After inquiry the Commission may pass inter- alia any or all of the following orders

  • Under section 27 the Commission may direct the parties to discontinue and not to re-enter such agreement; direct the enterprise concerned to modify the agreement. direct the enterprises concerned to abide by such other orders as the Commission may pass and comply with the directions, including payment of costs, if any; and pass such other orders or issue such directions as it may deem fit.
  • The Commission can impose such penalty as it may deem fit. The penalty can be up to 10% of the average turnover for the last three preceding financial years upon each of such persons or enterprises which are parties to bid-rigging or collusive bidding.
  • Section 28 empowers the Commission to direct division of an enterprise enjoying dominant position to ensure that such enterprise does not abuse its dominant position.
  • Under section 33 of the Act, during the pendency of an inquiry into abuse of dominant position, the Commission may temporarily restrain any party from continuance with the alleged offending act until conclusion of the inquiry or until further orders, without giving notice to such party, where it deems necessary.

Regulation of Combinations

As per the Competition Act, Combinations include Mergers, Acquisitions, and Amalgamations. The term combination according to the Act means:

  • Section 5(a): Acquisition of control, voting rights or assets;
  • Section 5(b): Acquisition of control by a person over an enterprise where such person has control over another enterprise in similar or identical business;
  • Section 5(c): Mergers and Acquisitions.

Section 6 provides for regulation of combinations so that they do not have an adverse effect on competition. As per this section, No enterprise should enter into any combination that is likely to cause an AAEC. When any enterprise enters into a combinations and if the value of assets or turnover increases beyond a threshold declared by the government such enterprise shall give notice to the Commission in the prescribed form by disclosing the details of the proposed combination and any such combination shall not come into effect until 210 days have passed from the date on which the notice has been given to the Commission.

Investigation of Combinations

  • The CCI can either by itself or through a Director General conduct an investigation to determine the proposed combination is likely to cause appreciable adverse effect on competition within India.
  • If the CCI is of the opinion that a combinations is likely to have an AAEC then it will issue show cause notice to the parties and they have to respond within 30 days of receipt of the notice.
  • After receipt of the reply to show cause notice, the CCI can call for the report from the Director General.
  • Within 7 days of receipt of reply from the parties or of the recpt of the report from the Director General, the CCI will direct the parties to publish the details of the combination to the public.
  • CCI can invite affected or likely to be affected parties or members of the public to file written objections to the combinations.
  • CCI can call for additional information from the parties to the combination within 15 working days of the expiry of the time for filing objections from the affected parties or the members of the public.
  • Additional document s are to be filed by the parties within further 15 days.
  • On receipt of the requested information the CCI must deal with the case within 45 days.

Final decision can be taken by the CCI to accept, reject or modify the combination within an addition 180 working days. If the CCI does not give its final decision then the combination is deemed to be approved.

Conclusion

India and the world was going through a new phase of globalisation, liberalisation and privatisation and these changing times were bringing newer challenges and the existing MRTP Act had become obsolete in the modern era. Hence the new Competition Act came into being in order to suit the need of the hour. The new act is based on the regulation of conduct or behaviour of the players in the market and is result oriented rather than being procedure oriented like the MRTP Act.

Further its main purpose is to protect and promote competition in the market. Competition is very essential as it benefits: the Consumers as they get wider choice of goods and services, better quality and improved value for money; it benefits the Businesses as a level playing field is created and a redressal of anti-competitive practices is available, the inputs are competitive priced, they tend to have greater productivity and ability to compete in global markets and finally it also benefits the state as there is optimal realisation from sale of assets and there is enhanced availability of resources for social sector.

Thus, by protecting competition in the market the competition law helps benefit all the players in the market which in turn is beneficial for the economy as a whole.

References

[1] Fox Eleanor M., “Anti Trust Law on Global Scale: Race up, down and sideways”, Public Law and Legal Theory Working Paper Series, Working Paper 3, New York University School of Law, December 15, 1999)

[2]Passmen Berend R., “Multilateral Rules on Competition Policy: An Overview of the Debate”, Comercio Internacional Serie 2, International Trade Unit, Santiago, Chile, December 1999.

[3] Ibid.

[4] Passmen Berend R., “Multilateral Rules on Competition Policy: An Overview of the Debate”, Comercio Internacional Serie 2, International Trade Unit, Santiago, Chile, December 1999.

[5]Competition Commission of India, available at http://www.competition-commission-india.nic.in/

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