This article has been written by Shoronya Banerjee, a student from Amity University, Kolkata. The article talks about the facets of Indian competition law that every entrepreneur must be aware of.
Table of Contents
Introduction
Competition law has been developed to provide a framework for the functioning of market competition and the sustenance of the same. While referring to competition in association with a marketplace, the basic feature of a flexible market economy stands to be the operation of business enterprises and the rivalry amongst them for the sustenance of customers. The ability of competition law to act as a safeguard against anti-competitive practices, unjustifiable government and regulatory intervention, potential anti-competitive mergers, has led to most of the countries adopting a set of competition laws.
Constructive competition law and policy preserves and furthers the process of a brewing rivalry between firms, preventing unfair business practices, mergers and acquisitions positioning to reduce competition and so on. While consumers are considered to be individuals, businesses are also consumers and the rudimentary objective of competition law and policy alongside protecting the competitive process is to also look after ‘consumer welfare.’ Both competition authority and business are accountable for protecting and promoting the competitive process. Thereafter, competition and liberalization, act in conjunction to together unbind the entrepreneurial forces in the economy. For an entrepreneurial venture, it is extremely essential for an entrepreneur to have an idea about competition law.
Status of Indian competition law
- The Monopolies and Restrictive Trade Practices Act, 1969 (MRTP Act) obstructing the growth of monopolies in the market and the Indian market changing over to that of a free market, led to the eventual annulment of the MRTP Act.
- India enacted the Competition Act, 2002 dealing with subsistence and regulation of competition and monopolies, which was meant to replace the MRTP Act.
- With reference to the Competition (Amendment) Bill, 2007, the Act was amended in 2007 for economic developments and liberalization. The amendment provided for:
- The Competition Commission of India (CCI) to be a regulator for preventing and administering anti-competitive practices in the country as per the Act.
- Notice to be given to the CCI for any merger or combination within 30 days. Failure to do so would mean the levying of a penalty.
- The 2009 Amendment saw the Competition Appellate Tribunal and National Consumer Commission receiving the pending cases from the Monopolies and Restrictive Trade Practices Commission.
- The Competition Appellate Tribunal (COMPAT) ceased to exist after the 2017 amendment.
The Indian Competition Act, 2002
The Competition Act, 2002 had been enacted to guarantee the sustainability of competition in the market in consideration with the interests of the consumers and facilitate the freedom to trade in the Indian market. This law promotes competition between enterprises and leaves the market unbound by the manipulation of stronger trading enterprises. A thriving, healthy and competitive environment is what this Act seeks to facilitate. Following are some essential elements of Indian competition law that an entrepreneur must be aware of.
Objectives
- To avert practices that could hamper or unfavorably affect competition.
- Safeguarding interests of customers.
- Facilitating the promotion and sustenance of competition in markets.
- Guaranteeing freedom of trade conducted and engaged in by other participants.
Anti-competitive agreements
Section 3(1) forbids the entrance of any enterprise, person or association into an agreement related to production, allocation, supply, storing, acquisition or control of goods or services that bear the potential of having a severe effect on competition within India. An agreement infringing Section 3(1) shall be void. 2 types of anti-competitive agreements are:
Horizontal agreements
These agreements are in the nature of cartels or concerted actions, achieved because of the assistance of the people, associations or enterprises. Section 3(3) of the Act indicates that these agreements include cartels bound to similar trade of goods or provision of services that in some way ascertain the purchase prices, puts a cap on production and supply, leads to bid-rigging or collusive bidding etc. The horizontal agreement is presumed to be anti-competitive.
Vertical agreements
The common form of such agreements is tie-up agreements, exclusive supply, exclusive distribution, refusal to deal and resale price maintenance agreements. Two or more enterprises from different levels of production entering in an agreement are referred to as a vertical agreement.
- Nothing according to this section shall restrict a person’s right of taking a course of certain ways or conditions to protect his rights as provided under Acts like the Copyright Act, 1957, the Trade and Merchandise Marks Act, 1958, the Geographical Indications of Goods (Registration and Protection) Act, 1999, etc. It also shall not restrict a person from exporting Indian goods in accordance with the agreement related to such export. The CCI can scrutinize irrational conditions connected to the IPR agreements and also impose a penalty for the same.
Abuse of dominant position
Section 4 restricts any enterprise or group from abusing their dominant position with which they can tilt the consumers and market in their favour. Some of the activities that signify abuse of dominant position:
- The imposition of discriminatory conditions in the purchase or sale of goods or service.
- Restricting technical or scientific development associated with goods or services to the favored customers.
- Using a dominant position in one relevant market to enter into, or protect another one, etc.
Relevant market
Section 2(r) of the Act defines ‘relevant market.’ It is the market that the Commission verifies in association with the relevant product market or the relevant geographic market or with reference to both markets.
Meaning of ‘group’
It refers to 2 or more enterprises who, directly or indirectly:
- Exert 26 % or more of the voting rights in the other enterprise; or
- Can appoint more than 50% of directors on the Board of directors or other enterprises; and
- Controls the management or affairs of the other enterprise.
Combinations
As per Section 5 and 6 of the Act, acquisition of one or more enterprises in the market by one or more person through a merger or amalgamation of enterprises refers to the regulation of combinations. Combinations exceeding specified limits as per the Act calls for scrutiny of the Commission. The limit for acquisitions ranges from combined assets of the firm more than Rs. 3,000 crore ($500 million if one firm situated outside India) to more than Rs. 4,000 crore or 12,000 crores and $2 billion and 6 billion in case the acquirer is a group in India or outside India respectively. In the case of mergers for assets of the merged entity more than Rs. 1,000 crore or turnover more than Rs. 3,000 crore ($500 million and 1,500 million in case one of the firms is situated outside India) to more than Rs. 4,000 crore or Rs. 12,000 crore and $2 billion and 6 billion if the merged entity belongs to a group in India or outside India respectively. Further, the combination, seen to be causing or likely to cause an adverse effect on the economy, is treated as void.
Competition Commission of India
As per Chapter III of the Competition Act, the Competition Commission of India (CCI), a quasi-judicial body was established by the Central Government of India and sought to achieve the objectives of the Competition Act. It has 1 chairperson and 6 members who shall be appointed by the Central Government.
- The Commission functions as the country’s competition administrator and regulator.
- Protects the smaller organizations who cannot defend themselves against large corporations.
- If CCI considers and feels that an organisation is influencing the Indian domestic market competition in a negative way, then they have the authority to notify such organizations.
- It can Issue of interim orders for anti-competitive agreements and in case of abuse of dominant position. The interim order, for the time being, prevents any party from seeking such an Act.
- If a foreign company wants to enter India through an acquisition or merger, the company has to follow India’s competition laws. Its assets and turnover surpassing a certain monetary value will them under the purview of the CCI.
The Competition Appellate Tribunal (COMPAT) was established as a result of the 2017 amendment for judging appeals brought in against the orders passed by the CCI and ascertain the arising compensation claims. But the Competition Appellate Tribunal (COMPAT) ceased to exist with immediate effect on 26 May 2017 vesting its powers in the National Company Law Appellate Tribunal (NCLAT).
Acts outside India
The CCI with its authority can look into unfair agreements, abuse of dominant position or combinations taking place outside India but with its effect on competition in India, provided in the circumstances where:
- One of the contracting parties resides outside the country.
- The agreement was executed outside India.
- The enterprise abusing its position is outside India.
- The established combination is outside India.
- A party to the combination is in abroad.
- Such matters arising out of such agreement or dominant position or combination is outside India.
CCI can enter into any MoU or significant process with a foreign agency depending on the prior approval from the government, for dealing with cross border issues.
Penalties
The Act puts for the penalties under its Chapter VI. An individual or entity can make an application to the Appellate Tribunal for claiming compensation for any loss or damage which was the result of another person or individual’s defiance. The Commission thereafter, either approves, sanctions or exempts the non-compliant company, instructing them to fulfil the losses. Some of the important provisions related to penalties are:
Infringing Commission’s orders
- If someone without a reasonable cause disregards and fails to adhere to the orders or directions of the Commission as under Sections 27, 28, 31, 32, 33, 42A and 43A, he shall be punishable with fine which may extend to rupees one lakh for each day, this could extend to a maximum of rupees ten crores, as according to the Commission.
- A person failing to comply with the orders or directions issued, or pay the fine as per Section 42(2) shall, without prejudice to any proceeding under section 39, be liable to a punishment of imprisonment for a term which may extend to three years, or with fine which may extend to rupees twenty-five crore, or with both, according to the Chief Metropolitan Magistrate, Delhi.
Failing to adhere to the directions of commission and Director-General
As per Section 43, when someone fails to abide by or comply with the directions given under Section 36(2) and Section 36(4) which widely talks about the power of that the Commission has for regulating its procedure; or the directions given by the Director-General in association to the powers put forth under Section 41(2), without reasonable cause, then that person is liable to a punishment entailing a fine which has the possibilities of getting extend up to a sum of one lakh rupees for each day of non-compliance. But this sum can not exceed one crore rupees.
Non-furnishing of Information on combinations
Under Section 6(2), it is specified that any person or enterprise if wants to enter into combination then he may notify the Commission in the prescribed form, particular fees, details of combination, etc. Section 43A specifies that if any person or entity fails to give notice to the Commission under Section 6(2), then a penalty shall be imposed, which may extend up to 1% of the total turnover of the assets of such a combination. This was introduced by the Competition (Amendment) Act, 2007.
Penalty for making false statement or omission to furnish the material information
A person, party to a combination makes a false statement or withholds material facts then such a person is liable to a penalty of not less than fifty lakh rupees which may extend maximum to one crore rupees as set forth by the Commission.
Penalty for the offences in relation to furnishing the information
If a person who has to provide information under the Competition Act 2002 in particular and he makes a false statement or keeps out and alters material information, or tries to conceal or destroy such document, then such a person is liable to be punished with a fine which may extend up to one crore rupees.
Conclusion
Competition law can be easily highlighted as the Magna Carta of free enterprise. It is very significant in terms of helping entrepreneurs pave a way through the subsisting competition whereas, also protecting the right of the consumers. International trade and globalisation have thrown light on international competition laws, where even though there is no specific authority appointed for its enforcement, organisations like World Trade Organization, International Chamber of Commerce: ICC Commission on Competition, Global Competition Form (GCF) and so on helps in its effective implementation. The Competition Act is indeed reflective of the changing times and economy of our country, and helps in safeguarding the interests of the consumers, prevents unfair market practices etc. Therefore, even an entrepreneur is required to be equipped with the basics of competition law to facilitate stability and protect his/her own business. Competition law is an essential ingredient of entrepreneurial ventures. To succeed in it, one has to be aware of the same.
References
- https://www.mondaq.com/india/antitrust-eu-competition-/33971/indian-competition-act-an-overview
- https://www.indiafilings.com/learn/competition-law-in-india/
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