COMPETITION LAW IN INDIA : - A CRITICAL REVIEW

*Prof.sunil kumar

**Dr. C.P.Gupta

Abstract

India has, in the recreation of globalization, responded to aperture up its financial system, removing joystick and resorting to liberalization, As a normal significance of this Indian market has to be geared up to face competition from within and outside the country. The Monopolies and Restrictive Trade Practices Act, 1969 has become outmoded in certain respects in the light of international economic developments relating more predominantly to competition laws and there is a need to shift the focus from shortening monopolies to promoting competition. The design of a new carves a very important role for the Competition Commission of India, This article deals with metamorphosis of the MRTP Act, 196 into The Competition Act, 2002 and describes the necessity for a new Act.

Very few cartels were prosecuted, the development of a rule of reason for vertical agreements was hamstrung by the legislature, and merger review was terminated in 1991. Thereafter, judgments increasingly tried to enforce “fair” business conduct “in the public interest,” often protecting competitors rather than competition. India thus has little relevant experience for the many technical economic criteria in the Competition Act. Although the new Act has several positive features, it is riddled with loopholes that might condone hard-core cartels, predatory pricing, and potentially anticompetitive cross-border mergers, while it also perpetuates the earlier tendency to penalize ‘unfair” behavior with no bearing on competition. I argue that several institutional limitations will also impair the Act’s effectiveness and conclude with a plea for capacity building and phased implementation.

Introduction

The decision of [he Government of India to liberalize its economy with the intention of removing controls persuaded the Indian Parliament to enact laws

*professor,Govt.Law college, Ajmer

** LL.M., DLL, DCL, PH.D. Faculty Member Department of law, University of Rajasthan,

Jaipur, E-mail : (drcpgupta97[at-the-rate-of]gmail[dot]com

) providing for cheeks and balances in the free economy. The laws were required to be enacted, primarily, for the objective of taking measures to avoid anti-competitive agreements and abuse of dominance as to regulate mergers and takeovers which result in distortion of the market. The earlier Monopolies and Restrictive Trade Practices Act, 1969 was not only found to be inadequate but also obsolete in certain respects, particularly, in the light of international economic developments relating to competition law. Most countries in the world have enacted competition laws to protect their free market economies- an economic system in which the allocation of resources is determined solely by supply and demand. The rationale of free market economy is that the competitive offers of different suppliers allow the buyers to make the best purchase. The motivation of each participant in a free market economy is to maximize self-interest but the result is favorable to society. The overall intention of competition law policy has not changed markedly over the past century. Its intent is to limit the role of market power that might result from substantial concentration in a particular industry. The major concern with monopoly and similar kinds of concentration is not that being big is necessarily undesirable. However, because of the control exerted by a monopoly over price, there are economic efficiency losses to society and product quality and diversity may also be affected. Thus, there is a need to protect competition.

Constitution and Trigger Cause

Competition Law for India was triggered b Articles 38 and of the Constitution of India. these Articles are a part of the Directive Principles of State Policy. Pegging on the Directive Principles, the first Indian competition law was enacted in 1969 and was christened the MONOPOLIES AND RESTRICT WE TRADE PRACTICES ACT, 1969 (MRTP Act). Articles 38 and 39 of the Constitution of India mandate, inter alia, that the State shall strive to promote the welfare of the people by securing and protecting as effectively, as it may, a social order in which justice — social, economic and political — shall inform all the institutions of the national life, and the State shall, in particular, direct its policy towards securing

1. The ownership and control of material resources of the community are so distributed as best to sub serve the common good; and

2. The operation of the economic system does not result in the concentration of wealth and means of production to the common detriment.

In line with the Antitrust legislation being an integral part of the economic life in many countries, India’s outgoing law, namely, the MRTP Act is regarded as the competition law of India, because it defines a restrictive trade practice to mean a trade practice, which has, or may have the effect of preventing, distorting or restricting competition in any manner. But the MRTP Act, in comparison with competition laws of many countries, is inadequate for fostering competition in the market and trade and for reducing, if not eliminating, anti—competitive practices in the country’s domestic and international trade.

Doctrine Behind MRTP Act

Behavioral and reformist doctrines inform the MRTP Act. In terms of the behavioral doctrine, the conduct of the entities, undertakings and bodies which indulge in trade practices in such a manner as to be detrimental to public interest is examined with reference to whether the said practices constitute any Monopolistic, Restrictive or Unfair Trade Practice. In terms of the reformist doctrine, the provisions of the MRTP Act provide that if the MRTP Commission, on enquiry comes to a conclusion that an errant undertaking has indulged either in Restrictive or Unfair Trade Practice, it can direct such undertakings to discontinue or not to repeat the undesirable trade practice. The MRTP Act also provides for the acceptance of an assurance from an errant undertaking that it has taken steps to ensure that prejudicial effect of trade practice no more exists. The veneer of the MRTP Act is essentially based on an advisory or reformist approach. There is no deterrence by punishment.

Scope of Competition Law

Competition law, also known as anti-trust law in some jurisdictions is that branch of law which is designed to protect the interest of the consumer by protecting ‘competition’ in the market. This ‘competition’ is protected by protecting trade and commerce from restraints, monopolies, price-fixing, and price discrimination. A perfect competition exists in “a completely efficient market situation characterized by numerous buyers and sellers, a homogenous product, perfect information for all parties, and complete freedom to move in and out of the market (Black’s Law Dictionary)”. Even though perfect competition is a utopian concept, it is used as a standard for measuring market performance.

Even though the history of competition law can be traced back to Roman empire, the modern day competition law has its genesis in the American antitrust statutes like Sherman Act of 1890 and Clayton Act of 1914. But it was only after the Second World War that the American concept of Competition law became widely accepted. European Community incorporated the provisions of Competition law in Articles 81 and 82 of Treaty of Rome, signed in 1957. Subsequently most of the major countries, like China, Brazil, Russia, Singapore, South Korea and Japan established their own competition regimes. Today, over hundred jurisdictions have their competition regimes in place and any enterprise having aspirations to go multinational cannot afford to ignore this law.

Indian Parliament passed the Competition Act in 2002 and it received the President’s assent in January, 2003. To fulfill the objectives of the Act, government established CCI with effect from October 14, 2003. Certain provisions of the Act were challenged in the Hon’ble Supreme Court and Hon’ble Chennai High Court. In response, Government promised to carry out certain amendments to the Act. This amendment bill was introduced in Parliament in 2006 and was adopted in 2007. Dhanendra Kumar, Former Executive Director of the World Bank took over as the Chairman of CCI on 28th February, 2009.

Competition Act 2002

In India, a High Level Committee on Competition Policy and Law was constituted to examine its various aspects and make suggestions keeping in view the competition policy of India. This Committee made recommendations and submitted its report on 22nd of May, 2002. After completion of the consultation process, the Competition Act, 2002 (for short, the Act) as Act 12 of 2003, dated 12th December, 2003, was enacted. As per the statement of objects and reasons, this enactment is India’s response to the opening up of its economy, removing controls and resorting to liberalization. The natural corollary of this is that the Indian market should be geared to face Competition from within the country and outside. The Bill sought to ensure fair competition in India by prohibiting trade Practices which cause appreciable adverse effect on the competition in market within India and for this purpose establishment of a quasi—judicial body was considered essential. The other object was to curb the negative aspects of competition through such a body namely, the Competition Commission of India’ (for short, the. ‘Commission’) which has the power to perform different kinds of functions, including passing of interim orders and even awarding compensation and imposing penalty. The Director General appointed under Section 16(1) of the Act is a specialized investigating wing of the Commission In short, the establishment of the Commission and enactment of the Act was aimed at preventing practices having adverse effect on competition, to protect the interest of the consumer and to ensure fair trade carried out by other participants in the market in India and for matters connected therewith or incidental thereto.

In ‘Gir Prasad vs. Government of Uttar Pradesh (Irrigation Department)’ the MRTPC has, inter alia, held that

i) Government Department is an enterprise, and hence an undertaking under the Act;

ii) Water rate levied by the Department of Irrigation for the service of provision of irrigation facility is not ‘Tax” as distinguished from ‘Fee’;

iii) Provision of irrigation facilities by irrigation department was service, as the said service was not free of charge but was visited with levy of water rate under the Northern India Canal &Drainage Act, 1873; and

iv) Hence complaint relating to restrictive, unfair or monopolistic trade practice is maintainable under the MRTP Act before the Commission.

Concluding the discussion, it appears that the post — 1991 changes had set the trend and the said trend has been broadened under the Competition Act, 2002. Now every activity other than sovereign activities and excepted ones fall within the purview of the Competition Act and the Commission established under the said Act.

Pillars of Competition Act, 2002

The rubric of the new law, Competition Act, 2002 (Act, for brief) has essentially four compartments:

Anti - Competitive Agreements

Abuse of Dominance

Combinations Regulation

Competition Advocacy

Extra-Teeth of Competition Act 2002

Sections 60 and 61 of the Act give further teeth to the Commission. Section 60 is a ‘Non-obstinate’ clause and the principle laid down by the Supreme Court in this regard is given hereinafter. “The enacting part of the statute must, where it is clear, be taken to control the non-obstinate clause where both cannot be read harmoniously; for, even apart from such clause a later law abrogates earlier laws clearly inconsistent with it”

“A non-obstinate clause is a legislative device usually employed to give overriding effect to certain provisions over some contrary provisions that may be found either in the same enactment or some other enactment, that is to say to avoid the operation and effect of all contrary provisions.”

Therefore, it becomes interesting to note that when we consider the case of an Enterprise or a Person or any Statutory Authority regulating production, supply or provision of any service and such a case if happens to deal with competition issues then the jurisdiction of the Commission may not possibly be ignored. That appears to be the intentions of the Legislatures.

Competition Act, 2002

Competition Act, 2002 (“CAO2”) is the Indian Statute which provides for the establishment of CCI to achieve the following goals:

• Prevent practices having adverse effect on competition;

• Promote and sustain competition in the market;

• Protect the interests of consumers; and

• Ensure freedom of trade carried on by participants in markets.

For achieving the abovementioned goals, CAO2 prohibits the following:

• Anti-competitive agreements — These are agreements between entities in respect of production, supply, distribution, storage, acquisition or control of goods or provisions of services, which cause or are likely to cause an appreciable effect on competition within India. Commonly these agreements are entered into with the following objective:

• Determining prices;

• Limiting and controlling production, supply, markets, technical development, investment or provisions for services;

• Allocating market; and

• Bid rigging or Collusive bidding.

Such an agreement need not be in writing and can be at any level of production or sale. It may be a horizontal agreement (eg. Cartels) at the same level of production/supply or it may be a Vertical Agreement. Following are some of the most common examples of anti- competitive agreements:

• Agreement to limit production & supply

• Agreement to allocate markets

• Agreement to fix price

• Bid rigging or collusive bidding

• Conditional purchase/sale (tie-in arrangement)

• Exclusive supply/distribution arrangement

• Resale price maintenance

• Refusal to deal

• Abuse of dominant position — Dominant position means a position of strength enjoyed by an enterprise in the relevant market in India which allows it to:

• Operate independently of competitive forces prevailing in the relevant market; or

• Affect its competitors or consumers or the relevant market in its favour.

However, dominance per se is not considered bad by the statute. It’s the abuse of this position of dominance that is prohibited. That statute lays down an exhaustive list of actions which will be considered to be abuse of dominance. These are:

• Imposing unfair or discriminatory condition or price in purchase or sale of goods or services; or

• Limiting or restricting:

o Production of goods or provision of services or market therefore;

o Technical or scientific development relating to goods or services to the prejudice of consumers.

o Indulging in practices which amount to denial of market access.

o Making unrelated supplementary obligations a condition precedent for entering into a contract.

o Using the dominant position in one relevant market to enter into or protect its position in another relevant market.

Regulation of Combinations — Apart from prohibiting the above mentioned anti-competitive actions, CAO2 also empowers CCI to regulate Combinations. Combination has not been defined in the act but includes the following, when they exceed the threshold limits specified in CAO2 in terms of assets or turnovers:

• Acquisition of controls, shares, voting rights or assets;

• Acquisition of control by a person over an enterprise where such person has control over another enterprise engaged in competing business:

• Merger or amalgamation between or amongst enterprises

Any entity which proposes to enter into a Combination has to notify CCI and seek its approval before entering the Combination. If CCI concludes that the proposed combination will cause or is likely to cause an appreciable adverse effect on competition within the relevant market in India, it can either prohibit it or propose suitably modification to the proposal.

Common violations

Anti-Competitive Practice Description

Bid Rigging .

An agreement, between enterprises or persons engaged in identical or similar production or trading of goods or provision of services, which has the effect of eliminating or reducing competition for bids or adversely affecting or manipulating the process for bidding (Source: Sec 3 of CAO2).

Bid rigging is a particular form of collusive price-fixing behaviour by which firms coordinate their bids on procurement or project contracts (Source: OECD Glossary of Statistical Terms).

Bundling/Tied Selling A marketing strategy in which a dominant enterprise sells one product in proportion to another as a requirement for the sale. It is quite common in the Software industry. For instance bundling operating system with media player or bundling of channels by cable operators.

Cartelization An act of forming a cartel. A Cartel includes an association ot producers, sellers, distributors, traders or service providers who, by agreement amongst themselves, limit, control or attempt to control the production, distribution, sale or price of, or, trade in goods or provision of services. (Source: Sec. 2(c) of CAO2).

A cartel is a formal agreement among firms in an oligopolistic industry. Cartel members may agree on such matters as prices, total industry output, market shares, allocation of customers, allocation of territories, bid-rigging, establishment of common sales agencies, and the division of profits or combination of these. (Source: OECD Glossary of Statistical Terms)

Conscious Parallelism/Tacit Collusion/Price Leadership Price-fixing strategy followed by the competitors without explicit verbal or written, discussion or agreement. One of the competitors called the Price Leader will raise the prices and others will simply follow trend without undercutting each other. It is difficult to prosecute such acts because of lack of evidence

Exclusive Dealing/Exclusive Exclusive Dealing can be in two forms. It can be an agreement by which a single distributor is the only one who obtains the rights Territory from a manufacturer to market the product (Source: OECD Glossary of Statistical Terms). Or it can be an agreement requiring a buyer to purchase all needed good from one seller (Black’s Law Dictionary, Seventh Ed.).

Leveraging Leveraging in a strategy in which a monopolist uses its dominance in one market to leverage its product in another market. For instance, consider two markets, one of ink and other of Pen. Firm A has monopoly in the market for ink but there are many competitors in the market for pen. Leveraging would occur when Firm A starts selling its ink on the condition that the buyer also purchases the pen manufactured by Firm A. Such a strategy would can kill competition in the market for pens.

Predatory Pricing/ Destroying Price/ Dumping Predatory Pricing is a strategy for driving out competitors by selling goods at prices which are less than their cost of production.

Price Discrimination It is the practice of offering identical good or service to customers in different segments of market for reasons unrelated to costs (Source: OECD Glossary of Statistical Terms).

Price-fixing

Price fixing occurs when two or more firms agree to raise or fix the prices in order to increase their profits by reducing competition. It is an attempt at forming a collective monopoly.

Refusal to deal The practice of restricting persons or class of persons to whom the goods are sold or from whom the goods are bought.

Resale Price Maintenance/

Markups It is a situation in which the supplier forces the distributor/retail seller to sell the good to the customer at prices stipulated by the supplier.

Conclusion

After the Act was placed on the web-site and came into the public domain, a question often asked is whether it is not still the old 1av in substance although not in form. A clear answer to this question is in the title of this section. The Act is a new wine in a new bottle. The extant MRTP Act 1969 has aged for more than three decades and has give birth to the new law (the Act) in line with the changed and changing economic scenario in India and rest of the world and in line with the current economic thinking comprising liberalization, privatization and globalization. The Act is therefore a new vine in a new bottle. Wine gets better as it ages.

The gains sought through competition law can only be realized with effective enforcement. Weak enforcement of competition law is perhaps worse than the absence of competition law. Weak enforcement often reflects a number of factors such as inadequate funding of the enforcement authority. The Government should provide the required infrastructure and funds to make the Corn petition Commission an effective Tribunal to prevent, if not eliminate anti—competition practices and also to play its role of competition advocacy.

Thought it is too soon at present, it should be borne in mind that the effectiveness of any legislation may be improved by a periodic review of its working. Section 49 of the Act itself has provided for a review of the laws related to competition. The Central Government may formulate a policy on Competition and refer to the Competition Commission seeking its opinion on the possible effect of the proposed policy on Competition. The opinion of the Commission is not binding on the Government and it may formulate its Competition Policy as it deems fit. A responsibility is also cast on the Commission to take suitable measures for the promotion of Competition Advocacy, creating awareness and imparting training about Competition Issues.

References

(1) Competition Commission of India v. Steel Authority of India Ltd and Anr, (2010)10 SCC 744.

(2) Chakravathi, S. ‘Extent Competition Law and Effort to Evolve New to Emergent Need’, (2001) 12 CLA (mag) 39

(3) Competition Commission of India v. Steel Authority of India Limited and Anu. (20.10)10 5CC 744.

(4) (1996) 3 Comp U 286 (MRTPC); RTP Enquiry No. 241 of 1995 — decided on 01.7.1996

(5) Section 3 of the Competition Act, 2002

(6) Section 4 of the Competition Act, 2002

(7) Section 5 of the Competition Act, 2002

(8) Section 49 of the Competition Act, 2002.

(9) Aswini Kumar Ghose v. Arabinda Bose, AIR 1952 SC 369 at p. 377.

(10) Union of India v. GM Kokil, AIR 1984 SC 1022