This article is written by Shraddha Jain, a student of the Institute of Law, Nirma University, Ahmedabad. The article discusses anti-competitive agreements, abuse of dominance, acquisitions, and mergers in order to establish an effective competition regime in India. It also discusses several important decisions concerning the Competition Act, 2002.

It has been published by Rachit Garg.

Introduction

The Parliament of India passed the Competition Act, 2002 on January 13, 2003, which repealed the Monopolies and Restrictive Trade Practices Act, 1969. It came into force on March 31st, 2003. The Competition Act, 2002 was changed twice after its enactment, with the Competition (Amendment) Act, 2007 and the Competition (Amendment) Act, 2009. It was a result of India’s drive for globalisation and economic liberalisation. The primary goal of the Act is to control the anti-competitive behaviour of a firm or company that has a negative impact on competition in India’s market. Furthermore, the Act seeks to encourage and maintain market competition, safeguard the interests of consumers, and safeguard market freedom in our country.

The Competition Act, 2002, was adopted in India to achieve the dual goals of regulating anti-competitive conduct and lending support to the agreements of the World Trade Organisation (WTO). The Act also establishes the Competition Commission of India (CCI) as a market controller for stopping and controlling anti-competitive behaviour in the country. It also establishes the Competition Appellate Tribunal (COMPAT), a quasi-judicial authority formed to listen to and decide on appeals against any direction issued or decision taken by the CCI.

Evolution and development of Competition Act

The Monopolistic and Restrictive Trade Practices Act, 1969

The Monopolies and Restrictive Trade Practices Act of 1969 (MRTP Act) was the first competition law established in India. The MRTP Act came into effect on June 1st, 1970, with the goal of ensuring that the functioning of the market structure did not result in the concentration of the economy in a few hands. It also prohibited monopolistic and discriminatory acts that are harmful to the public at large.

Economic liberalisation and the abolition of the MRTP Act in 1991

In 1991, economic liberalisation was introduced, which was a major turning point for Indian markets in the globalised world. With the elimination of trade barriers, the nation began to face competition from both within and beyond the country. As a result, in order to pave the way for globalisation, India implemented plenty of new economic plans, reduced government interference, and progressively started opening opportunities for industry and international investment. Among such new provisions, plenty of changes were made to India’s competitive system, such as:

Amendment to the Monopolies and Restrictive Trade Practices Act has eliminated-

  • the method of pre-entry critical examination of investment by MRTP Industries,
  • the scope of MRTP in mergers, acquisitions, and combination, and
  • the precondition of government permission for spreading and forming new enterprises.

Following economic liberalisation in 1991, it became essential to establish a competition law system that was more relevant to domestic economic forces and compatible with international practices.

Emergence of Competition Act, 2002

The Indian Parliament enacted the Competition Act in 2002 to govern the anti-competitive behaviour of firms in the Indian market. It was introduced to avoid behaviours that have an Appreciable Adverse Effect on Competition (AAEC). The goal of the Competition Act, 2002 is to develop and preserve an open, just, competitive, and creative environment that will protect the interests of consumers and foster long-term economic progress in the nation.

According to the Act, MRTP has become outdated and unnecessary as a result of worldwide economic trends. Hence, there is a need to switch from ‘curtailing monopolies’ to ‘supporting competition’.

The Competition Act, 2002 was modified by the Competition (Amendment) Act 2007, which came into effect on May 20, 2009, when the Indian government notified some sections of the Competition Act relating to anti-competitive agreements and abuse of dominant positions.

After three more years, in June 2011, certain provisions related to acquisition control came into force.

Difference between MRTP Act, 1969 and Competition Act, 2002

Point of differenceMRTP Act, 1969Competition Act, 2002
MeaningThe MRTP Act is India’s first competition law, consisting of laws and regulations that govern discriminatory market practices.The Competition Act, 2002 was established to encourage and maintain economic competition and protect commercial liberty.
BasisMRTP Act 1969 was based on the pre-liberalisation and pre-globalisation phases.The Competition Act, 2002 is based on a modernised economy after liberalisation and globalisation.
Purpose of the ActTo prevent monopolistic markets and unjust practices.To encourage competition and maintain business autonomy.
Nature of the ActMRTP Act, 1969 is reformatory in nature.Competition Act, 2002 is punitive in nature.
OffencesIt contains fourteen offences that violate the notion of natural justice.It only acknowledges four offences that are regarded to be violative of the concept of natural justice.
Appointment of the chairmanThe central government appointed the head of the MRTP Commission.The chairman of the CCI will be chosen by a panel composed of retired judges and other professionals with expertise from various fields like trade, commerce, industries, finance, and so forth.
PenaltyThere is no punishment for the violation.Offences under this Act are punishable.

Importance of Competition Act, 2002

The Competition Act is concerned with enforcing rules to ensure that firms and corporations compete effectively with one another. This promotes entrepreneurship and productivity, increases customer choices and helps reduce prices and enhance quality.

  1. Low prices: Offering a lower price is the easiest approach for a firm to achieve a large market share. Prices are driven down in a competitive market. This is not simply beneficial to consumers; where more people can afford to buy items, it motivates firms to produce and helps the economy as a whole.
  2. Innovation: To develop high-quality products, firms must be innovative in their product concepts, design, manufacturing processes, services, and so on.
  3. Better quality: The Competition Act encourages firms to enhance the quality of their goods and services in order to attract more consumers and extend their customer base. Quality can refer to a variety of things, including items that last longer or perform better, better after-sales or technical advice, and better service.
  4. More options: In a competitive market, firms will seek to differentiate their products from the competition. As a result, consumers have more options, allowing them to choose the product that provides the most value for money.

Features of Competition Act, 2002

The following are some of the main features of the Competition Act:

  1. Anti-competitive agreements: The competition law forbids any agreement involving two or more firms or individuals to maintain market competition and serve the public interest in India.
  2. Dominance-abuse prevention: Any firm that exploits its dominating position will be penalised.
  3. Anti-cartels: Any agreement between businesses or individuals that harms competition is a civil offence.
  4. Mergers and acquisitions: The Commission will only approve mergers and acquisitions if they do not undermine market competition. 
  5. Informative nature of this act: In order to provide clarity and avoid misunderstandings between companies or people, a business must notify CCI of any interactions that are likely to harm market competition prior to adopting such action or engaging in such an agreement.

Key concepts of Competition Act, 2002

The Competition Act, 2002 primarily covers four aspects.

  1. Anti-competitive agreements
  2. Abuse of the dominant position
  3. Combinations and their regulation
  4. The Competition Commission of India

Anti-Competitive Agreements

Anti-competitive agreements are agreements among companies in a commercial transaction that have the ability to weaken competition in a specific market or enrich one specific group at the cost of the others. Such anti-competitive contracts are prohibited by the Competition Act, 2002.

The word ‘agreement’, as mentioned in Section 2(b) of the Competition Act, 2002 does not necessitate the use of a legal instrument to be signed by the parties. It may or may not be in writing. The definition provided is evidently broad rather than exhaustive, and it includes a number of issues. The primary reason for having a wider definition of ‘agreement’ under the Competition Act, 2002 is that those individuals who engage in anti-competitive behaviour are unable to get into an official written contract in order to suppress their conduct.

Section 3 of the Competition Act, 2002 makes it illegal to enter into any agreement pertaining to the manufacturing, sale, transport, warehousing, purchasing, or management of goods and services that has or is likely to have an adverse effect on the market in India. Section 3(2) further specifies that any agreement entered into in contravention of this provision is null and void.

The Competition Act aims to govern two types of agreements:

  1. Horizontal Agreements, and
  2. Vertical Agreements.

Horizontal Agreements

Section 3(3) of the Competition Act, 2002 talks about horizontal agreements. These are agreements between two or more business entities working at the same level of production and distribution. Under the Competition Act, some forms of horizontal agreements are deemed to have an appreciable adverse effect on competition in India. This assumption does not suggest that all horizontal agreements are always anti-competitive; the companies involved in such a contract must produce proof that their contract will not have an appreciable adverse effect on competition.

An example of horizontal agreement is when two manufacturers of a particular commodity fix the price of their commodity.

Some horizontal agreements that are prohibited under the Competition Act, 2002 are as follows:

  1. Agreements involving the explicit or implicit setting of the commodity’s buying or selling price.
  2. Contracts that limit or regulate the manufacturing, sales, expenditure, or service provisions for specific goods and numbers.
  3. Contract related to market sharing.
  4. Contracts for bid rigging: Section 3(3)(d) defines bid rigging as an agreement between two parties engaged in a similar business that has the effect of removing or lowering bid competition or adversely affecting or influencing bidding.
  5. Agreements in the form of cartels: Cartels, in reality, are confidential contracts between corporations that exist only to fix prices or share markets. They pose a substantial danger to competition and, as a consequence, choke free trade.

Vertical Agreements

Section 3(4) of the Competition Act, 2002 talks about vertical agreements. These are the agreements formed between firms or individuals at various levels or tiers of the manufacturing chain. Vertical agreements are normally allowed unless it has been proven that they create, or are likely to induce, an appreciable adverse effect on competition in the Indian markets. The Competition Act contains an inclusive list of vertical agreements that may be banned based on their impact on competition situations in India.

For example, an agreement between a producer and a supplier that has the ability to affect competition in the market can be termed a vertical agreement.

Various vertical agreements permitted under the Competition Act, 2002 are as follows:

  • Tie-in agreement
  • Exclusive supply agreement
  • Exclusive distribution agreement
  • Refusal to deal
  • Maintenance of resale prices

Abuse of dominant position

When an individual or a firm is in a stronger position, which allows them to act freely irrespective of competitive pressures in the market sector, they are said to be in a dominant position. They also have a positive influence on their rivals, customers, or the current market situation. A dominant position refers to a company’s power in a particular market in India that allows it to function freely irrespective of business pressures.

To establish an abuse of dominant position, a corporation must first have a dominant position in terms of a specific product and the geographic market for that product. Section 4 of the Competition Act, 2002, focuses on the prohibition of such misuse. It implies that no firm or organisation should use its dominating position to its benefit. It also illustrates what activities can be considered an abuse of a dominant position. Such activities are as follows:

  1. Imposing unfair or discriminatory terms on the purchase or sale of goods and services, or increasing costs on the purchase or sale of goods and services (particularly aggressive rates), either explicitly or implicitly
  2. To the harm of customers, reducing or controlling the manufacturing of goods or services, or constraining scientific or technological advancement related to goods or services.
  3. Participating in activities that restrict access to markets in any manner.
  4. Taking advantage of a dominating position in the market to defend or enter another particular market.

Following are a few cases related to the abuse of dominant position:

M/s Saint Gobain Glass India Ltd. v. M/s Gujarat Gas Company Limited

In the judgement of M/s Saint Gobain Glass India Ltd. v. M/s Gujarat Gas Company Limited, the CCI evaluated elements to be considered for defining the significant geographic market as well as the appropriate product market while identifying the ‘relevant market’.

According to the CCI, when defining the ‘relevant product market’, the commission must take into account all or any of the following criteria: the cost of goods or services, the rejection of in-house manufacturing, physical features or final goods, customer tastes, the presence of specialised manufacturers, and also the categorization of manufactured goods, in compliance with the conditions contained in.

M/s Fast Track Call Cab Private Limited v. ANI Technologies

In the judgement of M/s Fast Track Call Cab Private Limited v. ANI Technologies, it was found that Ola had provided refunds, rewards, loyalty, and unfair discounts. The Commission remarked that Ola’s conduct of giving large discounts to its customers and rewarding its staff at the expense of incurring losses seems to be a well-planned strategy by the firm to exclude other market competitors from the particular market. This case demonstrates that CCI’s stance on the security of regular taxi service providers has been modified.

Combinations and their regulation

A combination, as defined in Section 5 of the Competition Act, 2002, is the active or passive procurement of shares, voting power, or resources, or command over management or supervision over assets of more than one enterprise by one or even more people. It is the merger or amalgamation among companies. In the context of the competition law, a combination is defined as the merging of two or more businesses or organisations, or the takeover of a business sector (such as a company or firm) by another commercial entity. In India, mergers can be of two types:

  1. Merger through absorption: Absorption is the amalgamation of two or more businesses into one ‘established business’. Apart from one, all firms lose their identities in such a combination.
  2. Merger by consolidation: A merger by consolidation is the merger of two or more businesses into a ‘new organisation’. All firms are officially abolished in this type of merger, and a new company is formed.

The Competition Act contains some rules and regulations regarding combinations to ensure that such mergers do not harm competition in the market. These rules are as follows:

  • No organisation can enter into any merger that is likely to provoke an appreciable adverse effect on competition.
  • Section 6(1) prevents the establishment of combinations that seem to have an appreciable adverse effect on competition in the pertinent market in the country, and thus further says that certain combinations should be regarded as void.
  • If any individual or firm intends to create an amalgamation, the CCI must approve the creation of the combination.
  • The following procedures should be followed before the CCI issues a permission or disapproval decision for the proposed merger:
  1. Give notice to the Commission;
  2. CCI will conduct an inquiry into the merger in accordance with Section 29 of the Competition Act, 2002;
  3. Following an investigation, if the Commission determines that a merger does not have, or is unlikely to have, a significant negative impact on competition, the combination is permitted.

Competition Commission of India

The Competition Act provides for the formation of a CCI. It acts as the regulator of competition in the Indian market. The commission was founded in 2003, but it did not become fully operational until 2009. The central government appoints a chairman and six members to the CCI. It is the commission’s responsibility to eradicate anti-competitive activities, encourage and maintain competition, safeguard consumer rights, and guarantee free trade in India’s marketplaces. It is a quasi-judicial body tasked with the following duties:

  1. Prevent practices that have a negative effect on competition.
  2. Encourage and maintain market competition.
  3. Safeguard the interests of all consumers.
  4. Safeguard commercial liberty.
  5. Investigate problems related to or ancillary to trade.

Application and enforcement of competition law in India

The Competition Act established the CCI, which is entirely responsible for the application and enforcement of the Competition Act. The CCI currently has six members and one chairperson, Ashok Kumar Gupta. The CCI can start an investigation into an anti-competitive agreement or abuse of dominance on its own, based on facts or evidence in its possession, or upon receiving information or a recommendation from the state or legal authority. Anyone, including customers and other organisations, can register a complaint or provide details on anti-competitive agreements and misuse of dominant positions. In the case of mergers and acquisitions, the CCI may initiate an investigation by itself or based on information from the enterprises intending to merge. The CCI and its inquiry team are vested with broad investigative powers with regard to anti-competitive practices, such as the power to summon and administer the participation of any individual, investigate them under oath, and receive evidence on affidavit, as well as other similar powers. If CCI believes that there is a prima facie case, it shall instruct the Director General to conduct an investigation and submit its conclusions. The Director General is also authorised to conduct police raids as part of its inquiry. The CCI may depend on the recommendations of the Director General in its investigation and after providing the accused parties with a reasonable chance to be heard. After this, they can issue any measures they deem proper, such as an instruction to cease and desist and impose fines. The Competition Act provides for an appeal to the Competition Appellate Tribunal against some of the CCI rulings. A further appeal from the COMPAT judgement may be filed with the Supreme Court of India.

Competitive advocacy

Competition Act broadens the jurisdiction of CCI beyond just monitoring the rules to include competition advocacy and the creation of a competitive environment. Competition advocacy, as mentioned in Section 49 of the Competition Act, 2002, refers to initiatives that raise public awareness about the importance of a competitive industry. The customers, whose wellbeing is the primary goal of the legislation, are obligated to take responsibility for advocating for competition law by the CCI. The CCI has undertaken competition advocacy activities in both the Union and State governments, in collaboration with other sectors such as corporate entities, consumer activists, and regulatory organisations composed of experts such as attorneys, chartered accountants, and corporate executives. Based on a government’s political and financial context, competitive advocacy can perform a variety of functions.

The Union government may seek advice from the CCI or establish its own judgement on the possible implications of a strategy in the development or any applicable competition law. The Commission is required to provide its recommendation to the Union government within sixty days after taking such a recommendation. As a result, the CCI will be assumed as the competition advocate, working to develop government policies that support free trade, decrease entry barriers, and increase competition in the market.

The Act intends to establish a direct link between competition law enforcement and competition advocacy. One of the primary goals of competition advocacy is to create environments that favour corporate conduct and more competition in the market structure without the CCI’s penalties. In the framework of the law, the opinion of CCI will be a significant factor contributing to the government to execute its law or policy.

Development of competition law in 2022

The central government has proposed the Competition (Amendment) Bill, 2022, which proposes to alter the system of governance of the CCI.

About the bill in brief

  • The bill intends to amend the fundamental provisions to accommodate the demands of the modern market.
  • It also intends to check anti-competitive practices in the online business, a field that has faced significant legal and regulatory concerns.
  • It also intends to strengthen the regulatory framework by boosting the CCI’s responsibility, adaptability, and implementation capacity.

Amendments proposed by the bill

The following are some of the main amendments proposed by the bill:

  • A board of directors composed of part-time experts to oversee CCI operations.
  • CCI must establish punishment criteria and provide explanations for any discrepancies.
  • The merger evaluation time has been reduced from 210 to 150 days.
  • The establishment of a green channel for merger proposals.
  • CCI can bring appeals to the National Company Law Appellate Tribunal (NCLAT) conditional on a pre-deposit of not more than 25 percent of the CCI’s punishment.
  • CCI would be capable of engaging in structured conversations with parties and reach an amicable solution without the need to go through long-established processes, bringing it up to speed with the Securities and Exchange Board of India (SEBI).

Relevance of competition law in the digital era

The usage of digital platforms has increased during the past few years. Under the Competition Act, 2002, CCI has implemented aggressive regulating procedures and taken proactive action against digital platforms engaged in anti-competitive activities. CCI examines network effects, internet privacy, data manipulation, data collection, incorporation, and exchange to enhance competition regulation in digital markets. CCI has revised the particular market by confining itself primarily to online market segments, rather than its previous practice of integrating online and offline marketplaces, thereby bringing additional technology platforms under investigation. While competition laws successfully regulate digital markets, there is an opportunity for competitive markets to be strengthened through proper modifications to keep up with the intricacies of evolving technologies. The future of antitrust regulation of digital marketplaces looks to be bright.

Landmark cases on competition law

Google Inc. & Ors v. Competition Commission of India

The judgement of Google Inc. & Ors v. Competition Commission of India (2015) is as follows:

Fact

The CCI received a complaint alleging that Google Inc. misused its dominating position in the online advertising market by marketing its vertical online services such as YouTube, Google News, Google Maps, and so on. In other words, regardless of their popularity or relevancy, such services display prominently on the Google search engine result page.

Issues

The main question was whether an administrative authority, such as CCI, has inherent rights to examine or recall a decision issued under Section 26(1) without any particular provisions in the Competition Act 2002.

Decision

The Delhi High Court stated that the CCI has the authority to recall or reconsider its decision in accordance with specific conditions and that this should be done selectively but not in all cases in which the investigation has been conducted without a thorough inquiry.

Mohit Manglani v. M/s Flipkart India Pvt. Ltd. & Ors

The judgement of Mohit Manglani v. M/s Flipkart India Pvt. Ltd. & Ors (2015) is as follows:

Facts

Mohit Manglani challenged four prominent firms in the Indian e-commerce sector: Flipkart, Jasper Infotech, Xerion Retail, and Amazon Vector E-commerce (collectively, the ‘Opposite Parties’). The complainant claimed that the opposite parties established exclusive selling and distribution contracts with producers of goods and services to engage in anti-competitive acts in contravention of the Competition Act, 2002. He further claimed that as a result of such exclusive contracts, the opposite parties had obtained a product-specific monopoly, i.e., all of the opposite parties had a hundred percent market domination for commodities that were solely offered on their websites.

Issue

Is it a violation of the Competition Act to engage in exclusive agreements for the sale and acquisition of products via e-commerce?

Decision

The Commission found that the OPs’ digital distribution channels allow consumers to compare prices as well as the benefits and disadvantages of the service. It also offers the choice of delivery at their leisure. As a result, it appears that the exclusive agreement between manufacturers and e-portals does not result in AAEC in the industry.

Shortcomings in the Competition Act

The basic idea of collective dominance is missing in the Competition Act despite its critical importance in a changing economy like India. The omission of the idea of “collective dominance” in the Indian competition law has often prevented the CCI from taking appropriate remedies whenever necessary. Collective dominance refers to a situation wherein two or more separate companies, united by economic relations, collectively retain a superior position to the other traders. Collective dominance is visible in both vertical and horizontal markets. As a result, parties in a dominating position do not need to be a member of an anti-competitive agreement or cartelization. 

Furthermore, some say that because of the complexity of competition law analysis, along with the lack of organisational endowment in most emerging economies, adopting a competition law regime may end up doing more harm than benefit, as the risk of making incorrect conclusions is quite high.

The government has the authority to overrule the CCI. Such limitations have a significant impact on the CCI’s autonomy and effectiveness. In reality, discussion with the CCI by the Central Government under developing competition policy should be made necessary, rather than optional, as provided for in the Act. Furthermore, the Act does not cover infringements on intellectual property rights, which are monopoly rights for a limited period of time. 

Relation of competition law and IPR law in India

At first look, IPR and competition law appear to be like fire and water, operating in opposition to one another. This perspective has shifted through time, and the current opinion is that they share similar ideas.

The relationship between intellectual property rights and competition law allows an individual to engage in increasing competition while restricting inflexible competition. It allows the holder to make exclusive use of his product for a specified period of time. During such a time, patent holders enjoy monopolistic control and are in a position of dominance. Such dominance will not result in a violation of antitrust law.

The purpose of competition law is to safeguard and enhance consumer welfare by reducing monopolistic power. On the contrary, IPR is focused on innovation by granting the owners exclusive rights to execute a commercial business, but this does not imply that they may exercise a monopoly position in the market. Even while IPR confers a preventative right on the holder, this right cannot be exclusive enough to confer monopoly status. This is where competition law comes in, and if the IPR owner engages in any anti-competitive behaviour or activity, it becomes subject to competition law.

Conclusion

The Competition Act of India is quite broad and was designed to fulfil the requirements of growth in the economy and worldwide economic trends concerning competition law. As a result, the competition law of 2002 is recognised as a historic law. This legislation does not allow misuse of power. This law primarily promotes competition in the market while also providing flexibility in the distribution of income to firms of all sizes in order to boost the industry’s commercial viability. Though the entire law has still not been implemented, the adoption of the entire Act will undoubtedly increase market competitiveness on a national and worldwide scale.

Frequently Asked Questions (FAQs)

What is the need for a Competition Act?

Consider that you have to buy a smartphone from a certain store because that is the only shop in your neighbourhood. In today’s world, having no alternatives and having to pay whatever is requested is a scenario that we all fear. That is precisely why competition laws were enacted. These regulations ensure that market competition is promoted and that people, as a customer, have access to high-quality items at reasonable rates.

Who has the authority to implement competition laws in India?

The CCI is always on the alert for any business or enterprise attempting to enter into an anti-competitive contract with each other in order to influence the industry. It also has the authority to inquire into and examine anti-competitive agreements, amalgamations and acquisitions, and abuses of dominant positions. It has the authority to punish such firms with fines.

Who can lodge a complaint with CCI?

Anyone can lodge a complaint with the CCI about a corporation. If you are a dissatisfied customer who is tired of a lack of variety in the industry, or any person, corporation, business, local government, etc., who is aware of companies planning to make the industry less competitive, you may easily file a complaint with the CCI. In fact, the CCI committee can launch the investigation on its own initiative.

References


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