5A. Competition Act · Cartel "Cartel" includes an association of producers, sellers, distributors,...

CHAPTER

11

CHAPTER

5

Competition Act, 2002

149

Competition Act, 2002 5

© Siddharth Agarwal. All Rights Reserved.

Topic 1 ‐ Few Important Definition u/s 2 Topic 2 ‐ Competition Commission of India Section 8 – Composition of Commission Section 9 ‐ Selection Committee for Chairperson and Members of Commission Section 10 ‐ Term of office of Chairperson and other Members Section 11 ‐ Resignation, Removal and Suspension of Chairperson and other Members Section 12 ‐ Restriction on Employment of Chairperson and other Members in certain cases Section 15 ‐ Vacancy, etc., not to invalidate proceedings of Commission Section 36 – Power to call upon Experts.

Topic 3 ‐ Prohibition of Certain Agreements, Abuse of Dominant position & Regulation of Combinations Section 3 ‐ Anti‐competitive agreements Section 4 ‐ Prohibition of Abuse of Dominant Position

Topic 4 ‐ Procedures for Dealing with Anti‐Competitive Agreements and Abuse of Dominant Position Section 19 ‐ Inquiry into Certain Agreements and Dominant Position of Enterprise Section 27 ‐ Orders by Commission after Inquiry into Agreements or Abuse of Dominant Position Section 28 ‐ Division of Enterprise enjoying Dominant Position Section 5 ‐ Division of Enterprise enjoying Dominant Position Section 6 ‐ Regulation of Combination & CCI Regulations 2011

Topic 5 ‐ Miscellaneous Topics Section 49 ‐ Competition Advocacy Section 53 ‐ Furnishing of returns, Etc., to Central Government Section 53A ‐ Competition Appellate Tribunal Section 54 ‐ Power of Central Government Section 56 ‐ Power of Central Government to Supersede Commission

27 Questions and Answers.

150

Siddharth Agarwal Classes


Term Definitions

Agreement "Agreement" includes any arrangement or understanding or action in concert: (i) Whether or not, such arrangement, understanding or action is formal or in writing;

or (ii) Whether or not such arrangement, understanding or action is intended to be

enforceable by legal proceedings;

Cartel "Cartel" includes an association of 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;

Consumer "Consumer" means any person who— (i) In relation to goods

(a) Buyer of any goods for a consideration which has been paid or promised or partly paid and partly promised, or under any system of deferred payment;

(b) User of such goods when such use is made with the approval of Buyer, (c) Whether such purchase of goods is for resale or for any commercial purpose

or for personal use; (ii) In relation to services

(a) Hirer of any services for a consideration which has been paid or promised or partly paid and partly promised, or under any system of deferred payment;

(b) Beneficiary of such services when such services are availed of with the approval of the Hirer,

(c) Whether such hiring or availing of services is for any commercial purpose or for personal use;

Enterprise "Enterprise" means – a) a person or b) a department of the Government, who or which is, or has been, engaged in any activity, relating to the 1. Production, storage, supply, distribution, acquisition or control of articles or

goods, or 2. Provision of services, or 3. In the business of acquiring, holding, underwriting or dealing with shares,

debentures or other securities of any other body corporate, either directly or through one or more of its units or divisions or subsidiaries, whether such unit or division or subsidiary is located at the same place where the enterprise is located or at a different place or at different places.

Sovereign functions of Government are not Enterprises:

Few Important Definitions

Topic 1

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Term Definitions

However, Enterprise does not include any activity of the Government relatable to the sovereign functions of the Government including all activities carried on by the departments of the CG dealing with a. Atomic energy, b. Currency, c. Defense, d. Space.

Goods "Goods" means goods as defined in the Sale of Goods Act, 1930 and includes— a. Products manufactured, processed or mined; b. Debentures, stocks and shares after allotment;

c. In relation to goods supplied, distributed or controlled in India, goods imported into India;

Section 7 ‐ The Central Government shall establish the "Competition Commission of India".

Central Government has already established CCI on 14th October 2003. However, the provisions of Competition Act were notified gradually.

Topic Detailed Explanation

Composition The Commission shall consist of – (a) Chairperson and (b) 2 ≤ Other Members ≤ 6 to be appointed by the Central Government.

Qualification The Chairperson and every other Member shall be a person of ability, integrity and standing and who has special knowledge of, and such professional experience of ≥ 15 years, in, international trade, economics, business, commerce, law, finance, accountancy, management, industry, public affairs or competition matters, including competition law and policy, which in the opinion of the Central Government, may be useful to the Commission.

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8 Composition of Commission

Competition Commission of India

Topic 2

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Selection Committee

The Chairperson and other Members of the Commission shall be appointed by the Central Government from a panel of names recommended by a Selection Committee consisting of— a. the Chief Justice of India or his nominee...........Chairperson; b. the Secretary in the Ministry of Corporate Affairs.........Member; c. the Secretary in the Ministry of Law and Justice..............Member; d. two experts of repute who have special knowledge of, and professional experience

in international trade, economics, business, commerce, law, finance, accountancy, management, industry, public affairs or competition matters including competition law and policy ............... Members.


Tenure The Chairperson and every other Member shall hold office as such for a term of 5 years up to the age of 65 years and shall be eligible for reappointment.

Vacancy of by resignation or removal

A vacancy caused by the resignation or removal of the Chairperson or any other Member shall be filled by fresh appointment in accordance with the provisions of sections 8 and 9.

Vacancy of office of Chairperson

In the event of the occurrence of a vacancy in the office of the Chairperson by reason of his death, resignation or otherwise, the senior‐most Member shall act as the Chairperson, until the date on which a new Chairperson enters upon his office.

When Chairperson is unable to discharge his functions

When the Chairperson is unable to discharge his functions owing to absence, illness or any other cause, the senior‐most Member shall discharge the functions of the Chairperson until the date on which the Chairperson resumes the charge of his functions.

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9 Selection Committee & Members of Commission

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10 Term of Office of Chairperson & Other Members

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Resignation The Chairperson or any other Member may, by notice in writing under his hand addressed to the Central Government, resign his office: Provided that the Chairperson or a Member shall, unless he is permitted by the Central Government to relinquish his office sooner, continue to hold office ‐ 1. until the expiry of 3 months from the date of receipt of such notice or 2. until a person duly appointed his successor enters upon his office or 3. until the expiry of his term of office, whichever is the earliest

Removal Central Government may remove the Chairperson or any other Member from his office if such Chairperson or Member — 1. is, or at any time has been, adjudged as an insolvent; or 2. has engaged at any time, during his term of office, in any paid employment; or 3. has been convicted of an offence which, in the opinion of the Central Government,

involves moral turpitude; or 4. has acquired such financial or other interest as is likely to affect prejudicially his

functions as a Member; or 5. has so abused his position as to render his continuance in office prejudicial to the

public interest; or 6. has become physically or mentally incapable of acting as a Member.

For clause (4) or (5) the Supreme Court, on a reference being made to it in this behalf by the Central Government, has, on an inquiry, held by it in accordance with such procedure as may be prescribed in this behalf by the Supreme Court, reported that the Member, ought on such ground or grounds to be removed.


Restriction on Employment

The Chairperson and other Members shall not accept any employment in any enterprise which has been a party to a proceeding before the Commission under this Act, for a period of 2 years from the date on which they cease to hold office.

Exception Provided that this section shall not apply to any employment under 1. the Central Government or a State Government or local authority or in 2. any statutory authority or any corporation established by or under any Central,

State or Provincial Act or 3. a Government company

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11 Resignation, Removal & Suspension of Chairperson & Other Members

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12 Restriction on Employment of Chairperson & Other Members in Certain Cases

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Vacancy not to invalidate the Proceedings of the Commission

No act or proceeding of the Commission shall be invalid merely by reason of: 1. any vacancy in, or any defect in the constitution of, the Commission; or 2. any defect in the appointment of a person acting as a Chairperson or as a Member;

or 3. any irregularity in the procedure of the Commission not affecting the merits of the

case.


Power to call Experts

The Commission may call upon such experts, from the fields of economics, commerce, accountancy, international trade or from any other discipline as it deems necessary, to assist the Commission in the conduct of any inquiry by it. As per Regulation 54 of the Competition Commission (General) Regulations, 2004 made by the Commission under Section 64 of the Competition Act, 2002, it may draw up a panel of such experts.

Competition Act

Prohibition of Anti‐competitive Agreements

Section 3

Prohibition of Abuse of Dominant Position

Section 4

Regulation of Combinations Section 5 & 6

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15 Vacancy, etc., not to invalidate proceedings of the Commission

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36 Power to call upon Experts

Prohibition of Certain Agreements, Abuse of Dominant Position & Regulation of Combination

Topic 3

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Anti‐competitive agreements between enterprises which have an appreciable adverse effect on competition within India are void.

S. NO. Horizontal agreements Vertical agreements

1 Horizontal agreements referred to agreements among competitors.

Vertical agreements to an actual or potential relationship buying or selling to each other.

2 Horizontal agreements are those agreements among competitors operating at the same level in the economic process i.e., enterprises engaged in the same activity. For example the agreements between the producers or between whole sellers or between retailers, dealing in similar kind of products.

Vertical agreements are those agreements between non competing undertakings operating at different levels of manufacturing and distribution process. For example, the agreements between manufacturers of components, manufacturers of products, between producers and whole‐sellers or between producers, whole‐sellers and retailers.

3 Here the rule of Presumption applies i.e., the Court will assume the agreement to cause an AAEC.

Here the rule of Reason applies i.e., the Court will assume that the agreement is not prima facie causing AAEC.

4 The burden of proof is on the respondent to prove that the agreement was not causing AAEC.

The burden of proof is on the plaintiff to prove that the agreement is causing AAEC.

5 Horizontal agreements examples are CARTEL and Bid Rigging.

Vertical agreements like Tie in arrangements; exclusive Supply/ distribution agreements and refusal to deal are generally not anti‐competitive.

Factors to be considered while determining “Appreciable Adverse Effect on Competition

The Commission shall, while determining whether an agreement has an appreciable adverse effect on competition under section 3, have due regard to all or any of the following factors, namely:— 1. creation of barriers to new entrants in the market; 2. driving existing competitors out of the market; 3. foreclosure of competition by hindering entry into the market; 4. accrual of benefits to consumers; 5. improvements in production or distribution of goods or provision of services; or 6. Promotion of technical, scientific and economic development by means of production

or distribution of goods or provision of services.

Bid Rigging "Bid Rigging" means any 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.

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3 Anti-Competitive Agreements

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Caveat Any agreement entered into by way of joint ventures if such agreement increases efficiency in production, supply, distribution, storage, acquisition or control of goods or provision of services shall not be regarded as anti‐competitive.

Vertical Anti-Competitive Agreements

Any agreement amongst enterprises or persons 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—

GIST DETAILS

Tie‐In Arrangement Tie‐in arrangement (e.g. requiring a purchaser of goods to purchase some other goods as condition of such purchase)

Exclusive Supply Arrangement

Exclusive supply arrangement (e.g. restricting a purchaser in course of his trade from dealing in any goods other than those of the seller)

Exclusive Distribution Arrangement

Exclusive distribution arrangement (e.g. limiting/restricting supply of goods or allocate any area or market for sale of goods)

Refusal to Deal Refusal to deal (e.g. restricting by any method any person/classes of persons to whom goods are sold)

Resale Price Maintenance

Resale price maintenance (e.g. selling goods with condition on resale at stipulated prices) – However if the Seller has permitted the buyer to resale at a lower price than stipulated price, it is not anti‐competitive.

The above agreements shall be Anti‐competitive agreements if such agreement causes or is likely to cause an appreciable adverse effect on competition in India.

Exemptions

Nothing contained in this section shall restrict: 1. The right of any person to restrain any infringement of, or to impose reasonable conditions, as may be

necessary for protecting any of his rights which have been or may be conferred upon him under— a. Copyright Act, 1957 b. Patents Act, 1970 c. Trade and Merchandise Marks Act, 1958 (43 of 1958) or the Trade Marks Act, 1999 d. Geographical Indications of Goods (Registration and Protection) Act, 1999 e. Designs Act, 2000 f. Semi‐conductor Integrated Circuits Layout‐Design Act, 2000

2. The right of any person to export goods from India to the extent to which the agreement relates

exclusively to the production, supply, distribution or control of goods or provision of services for such export.

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Prohibition of Abuse of Dominant Position


Meaning of Dominant Position

Dominant Position means a position of strength, enjoyed by an enterprise, in the relevant market, in India, which enables it to: 1. Operate independently of competitive forces prevailing in the relevant market; or2. Affect its competitors or consumers or the relevant market in its favour;

Factors to be considered while determining “Dominant Position”

1. Market share of the enterprise; 2. Size and resources of the enterprise; 3. Size and importance of the competitors; 4. Economic power of the enterprise including commercial advantages over

competitors; 5. Vertical integration of the enterprises or sale or service network of such

enterprises; 6. Dependence of consumers on the enterprise; 7. Monopoly or dominant position whether acquired as a result of any statute or by

virtue of being a government company or a public sector undertaking or otherwise;

8. Entry barriers including barriers such as regulatory barriers, financial risk, high capital cost of entry, marketing entry barriers, technical entry barriers, economies of scale, high cost of substitutable goods or service for consumers;

9. Countervailing buying power; 10. Market structure and size of market; 11. Social obligations and social costs; 12. Relative advantage, by way of the contribution to the economic development, by

the enterprise enjoying a dominant position having or likely to have appreciable adverse effect on competition;

13. Any other factor which the commission may consider relevant for the inquiry.

Abuse of Dominant Position

Exploitative

(excessive or discriminatory pricing)

Exclusionary

(denial of market access)

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Competitive Advantage

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.

Abuse of Dominant Position – When?

There shall be an abuse of dominant position if an enterprise— 1. directly or indirectly, imposes unfair or discriminatory—

a. condition in purchase or sale of goods or services; or b. price in purchase or sale (including predatory price) of goods or service.

2. limits or restricts— a. production of goods or provision of services or market therefor; or b. technical or scientific development relating to goods or services to the

prejudice of consumers; or 3. indulges in practice or practices resulting in denial of market access in any manner;

or 4. makes 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; or

5. Uses its dominant position in one relevant market to enter into, or protect, other relevant market.

Predatory Price (Explanation to Section 4)

Predatory Price 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 the goods or provision of services, with a view to reduce competition or eliminate the competitors.

Cost = AVC The Competition Commission of India (Determination of Cost of Production) Regulations, 2009 Regulation 3 ‐ Determination of cost. – 1. “Cost” in the Explanation to section 4 of the Act shall, generally, be taken as

average variable cost, as a proxy for marginal cost: Provided that in specific cases, for reasons to be recorded in writing, the Commission may, depending on the nature of the industry, market and technology used, consider any other relevant cost concept such as avoidable cost, long run average incremental cost, market value.

2. In arriving at the figures of costs, the Commission /Director General may take the help of suitable experts.

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Inquiry in Certain Agreements

The Commission may inquire into any alleged contravention of the provisions contained in section 3 and 4 either on its own motion or on:— a. receipt of any information, in such manner and accompanied by such fee as may

be determined by regulations, from any person, consumer or their associations or trade association; or

b. a reference made to it by the Central Government or a State Government or a statutory authority.

Where after inquiry the Commission finds that any agreement referred to in section 3 or action of an enterprise in a dominant position, is in contravention of section 3 or section 4, as the case may be, it may pass all or any of the following orders, namely:

S. No. Order

1 Direct to – a. discontinue and not to re‐enter such agreement or b. discontinue such abuse of dominant position, as the case may be

2 Impose such penalty (for Non – Cartel) – not exceeding 10% of the average of the turnover for the last three preceding financial years, upon each of such person or enterprises which are parties to such agreements or abuse.

3 Impose such penalty (for Cartel) – Higher of – a. penalty of up to 3 times of its profit for each year of the continuance of such agreement or b. 10% of its turnover for each year of the continuance of such agreement

4 Direct that the agreements shall stand modified to the extent and in the manner as may be specified by the Commission.

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19 Inquiry into Certain Agreements & Dominant Position of Enterprises

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27 Orders by Commission after Inquiry into Agreements or Abuse of Dominant Position

Procedures for Dealing with Anti-Competitive Agreements and Abuse of Dominant Position

Topic 4

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The Commission, may, notwithstanding anything contained in any other law for the time being in force, by order in writing, direct division of an enterprise enjoying dominant position to ensure that such enterprise does not abuse its dominant position. The order may provide for all or any of the following matters, namely— (i) The transfer or vesting of property, rights, liabilities or obligations; (ii) The adjustment of contracts either by discharge or reduction of any liability or obligation or otherwise; (iii) The creation, allotment, surrender or cancellation of any shares, stocks or securities; (iv) The formation or winding up of an enterprise or the amendment of the memorandum of association or

articles of association or any other instruments regulating the business of any enterprise; (v) The extent to which, and the circumstances in which, provisions of the order affecting an enterprise may

be altered by the enterprise and the registration thereof; (vi) Any other matter which may be necessary to give effect to the division of the enterprise.


What is Combination?

A Combination is an acquisition of one or more enterprises by one or more persons, merger or amalgamation of enterprises, if it meets the prescribed monetary thresholds and involves: a. Any acquisition of control, shares, voting rights or assets of any enterprise b. Any acquisition of control by a person over an enterprise, where such person

already has direct/indirect control over another enterprise in a similar business c. Any merger or amalgamation of enterprises

Points to be noted

1. Combinations above the defined monetary thresholds require filing and prior approval of the CCI before they can be made effective. CCI has powers to investigate combinations and modify/reject them.

2. Separate provisions exist in case of acquisitions pursuant to loan/ investment agreements of public financial institutions, FII, banks or VC funds.

3. The CCI must be notified within 30 days of the ‘trigger event’ of such combinations

‘Trigger Event’ in a Combination

1. Board approval of the enterprises in case of a proposed merger/ amalgamation; or2. Execution of any agreement or ‘other document’ in case of a proposed acquisition

Combinations Threshold Levels

The initial limits given in the Act for Assets was 1000 crores and Turnover was 3000 crores. This Threshold was raised by 50% via Notification dated 4th March 2011 and now it has been raised by 100% via Notification dated 4th March 2016.

Assets Turnover

India No Group ` 2000 crore ` 6000 crore Group ` 8000 crore ` 24000 crore

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28 Division of Enterprises enjoying Dominant Position

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5 Minimum Size of the Combination for Regulation

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Assets Turnover

In India and Outside India

Total In India Total In India

No Group $ 1 billion ` 1000 crore

$ 3 billion ` 3000 crore

Group $ 4 billion ` 1000 crore

$ 12 billion ` 3000 crore

Any combination which causes or is likely to cause appreciable adverse effect on competition (AAEC) in markets in India is void.

Exempted Acquisition

The Central Government, in public interest, hereby exempts an Acquired enterprise from Section 5 for 5 years, if it satisfies any of the following 2 thresholds: ‐

4th March 2011 (Old Limits) 4th March 2016 (New Limits)

Assets ≤ ` 250 crores in India Or

Turnover ≤ ` 750 crores in India

Assets ≤ ` 350 crores in India Or

Turnover ≤ ` 1000 crores in India .

What is a ‘Group’?

To be considered a Group, two or more enterprises, directly or indirectly, must be in a position to either: 1. exercise 26% or more (see special exemptions below) of the voting rights in the

other enterprise; or 2. appoint more than half the board of directors in the other enterprise; or 3. control the management or affairs of the other enterprise

Exempted Group

The Central Government, in public interest, had exempted the ‘Group’ exercising less than 50% of voting rights in other enterprise from the provisions of section 5 of the said Act for a period of 5 years via Notification dated 4th March 2011. This exemption has been renewed for another 5 years with effect from 4th March 2016.


Process for filing notices with CCI

The notice must be filed in the prescribed form with the requisite filing fee within 30 days of the trigger event. Three forms are prescribed: 1. Form I (Short Form) with a filing fee of INR 15,00,000 2. Form II (Long Form) with a filing fee of INR 50,00,000 3. Form III (for public financial institution, foreign institutional investor, banks and

VC funds) without any filing fee 4. Form IV for Advertisement.

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Parties are ordinarily required to file notices in Form I but may opt to file in Form II or the CCI may, during the course of inquiry seek information in Form II. Note: ‐ Fees paid with Form I will be adjusted with Fees of Form II if Form II is filed.,

Timeline and process for evaluation by CCI

The CCI must pass an order or issue directions with respect to a Combination notified for approval within a period of 210 days from the date of filing notice. Till CCI passes an order, the Combination cannot take effect. If CCI does not pass any order within the 210 days, the Combination shall be deemed to have been approved.

The review by CCI with respect to AAEC is conducted in two phases

CCI forms a prima facie opinion in 30 days of receipt of the notice; If such opinion confirms that there is likely to be an AAEC in India, then CCI undertakes a detailed investigation within 180 days thereafter.

Nature of orders passed by CCI

The CCI may pass the following orders: 1. Approve the combination 2. In case it finds that a combination shall have or is likely to have AAEC in the relevant

market, CCI may order that the combination should not be given effect to; or 3. suitable modifications to amend the transaction structure and based on the

response of the parties, pass further orders.

Contravention of Competition Act attracts severe consequences

Infringement Fine/Penalty Who is liable?

Failure to notify a reportable combination

Fine of up to 1% of combined turnover or assets whichever is higher.

Person or enterprise Directors/officials also liable

Failure to comply with directions of CCI

Fines of ` 1,00,000 per day subject to a maximum of ` 1 crore.

Person failing to comply Directors /officials also liable.

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49 Competition Advocacy

Miscellaneous Topics

Topic 5

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Opinion from Commission

The Central Government or a State Government may, in formulating a policy on competition shall make a reference to the Commission for its opinion on possible effect of such policy on competition and on the receipt of such a reference, and the Commission shall, within 60 days, give its opinion.

Opinion not to be binding on CG/SG

The opinion shall not be binding upon the Central Government or the State Government, in formulating such policy.

Promotion of Competition Advocacy

The Commission shall take suitable measures for the promotion of competition advocacy, creating awareness and imparting training about competition issues.


Returns and Statement to be submitted by Commission

The Commission shall furnish to the Central Government such returns and statements and such particulars in regard to any proposed or existing measures for the promotion of competition advocacy, creating awareness and imparting training about competition issues, as the Central Government may, from time to time, require.

Annual Report The Commission shall prepare once every year, in such form and at such time as may be prescribed, an annual report giving a true and full account of its activities during the previous year and copies of the report shall be forwarded to the Central Government.

The Central Government shall, by notification, establish an Appellate Tribunal to be known as Competition Appellate Tribunal, 1. to hear and dispose of appeals against any direction issued or decision made or order passed by the

Commission 2. to adjudicate on claim for compensation that may arise from the findings of the Commission or the orders

of the Appellate Tribunal.

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53 Furnishing of Returns, etc., to Central Government

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53A Competition Appellate Tribunal

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The Central Government may exempt: 1. any class of enterprises if such exemption is necessary in the interest of security of the state or public

interest; 2. any practice or agreement arising out of and in accordance with any obligation assumed by India under

any treaty, agreement or convention with any other country or countries; 3. any enterprise which performs a sovereign function on behalf of the CG or a SG.


Circumstances in which CG will supersede Commission

If at any time the Central Government is of the opinion: 1. That the Commission is unable to discharge the functions or perform the duties

imposed on it under the provisions of this Act; or 2. That the Commission has persistently made default in complying with any

direction given by the Central Government under this Act & as a result of such default the financial position of the Commission or the administration of the Commission has suffered; or

3. That circumstances exist which render it necessary in the public interest so to do,

Notification by CG

The Central Government may, by notification and for reasons to be specified therein, supersede the Commission for such period, ≤ 6 months, as may be specified in the notification.

Effect of Publication of Notification

Upon the publication of a notification superseding the Commission, a. the Chairperson and other Members shall, as from the date of supersession,

vacate their offices as such; b. all the powers, functions and duties shall be exercised and discharged by the

Central Government; c. all properties owned or controlled by the Commission shall vest in the Central

Government. On or before the expiration of the period of supersession, the Central Government shall reconstitute the Commission by a fresh appointment of its Chairperson and other Members and in such case any person who had vacated his office shall not be deemed to be disqualified for re‐appointment.

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54 Power of Central Government

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56 Power of Central Government to Supersede Commission

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Question 1 How will the Chairperson and other members of the Competition Commission of India be appointed? State whether the Chairperson shall be only a person, who has been or is qualified to be, a Judge of a High Court. (November, 2003)

Refer Theory in Section 9. As the qualification prescribed in the Act is the same for chairperson and other members, chairperson of commission may or may not be a judicial person.

Question 2 An understanding has been reached among the manufacturers of cement to control the price of cement, but the understanding is not in writing and it is also not intended to be enforced by legal proceedings. Examine whether the above understanding can be considered as an ‘Agreement’ with the meaning of Section 2(b) of the Competition Act, 2002. (May, 2004)

Definition of Agreement – Refer Theory in Section 2(b) In view of the above definition of ‘agreement’, an understanding reached by the cement manufacturers to control the price of cement will be an ‘agreement’ within the meaning of Section 2(b) of the Competition Act, 2002 even though the understanding is not in writing and it is not intended to be enforceable by legal proceedings.

Question 3 Poly Ltd., (hereinafter referred to as “Seller”), manufacturer of footwears entered into an agreement with City Traders (hereinafter referred to as “purchaser”), for sale of its products. The agreement includes, among others, the following clauses: (i) That the Purchaser shall not deal with goods, products, articles, by whatever name called,

manufactured by any person other than the Seller. (ii) That the Purchaser shall not sale the goods manufactured by the Seller outside the municipal limits of the

city of Secunderabad. (iii) That the Purchaser shall sale the goods manufactured by the Seller at the price as embossed on the price

label of the footwear. However, the purchaser is allowed to sale the footwear at prices lower than those embossed on the price label.

You are required to examine with relevant provisions of the Competition Act 2002, the validity of the above clauses. (November, 2004)

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Section 3 prohibits any agreement for goods or services that may have an appreciable adverse effect on competition in India. Any such agreement entered into shall be VOID. Vertical Anti‐competitive agreements Any agreement among enterprises or persons at different stages 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 the following shall be treated as agreements in contravention of Section 3: (a) Tie‐in Arrangement; (b) Exclusive Supply Agreement; (c) Exclusive Distribution Agreement; (d) Refusal to Deal (e) Re‐Sale Price Maintenance

The clauses of the agreement given in the question are covered by above mentioned provisions (i) Exclusive supply agreement; (ii) Exclusive distribution agreement (iii) Re‐sale price maintenance.

For Explanations of the above terms – Refer Theory in this chapter In view of the above provisions of the Competition Act, 2002, validity of the clauses of the agreement as given in the question can be determined as follows: (i) Clause (i) restricts the purchaser to deal in the goods of manufacturers other than the seller. Hence this

is in contravention of the provisions of section 3(1) of the said Act. VOID (ii) Clause (ii) restricts the purchaser to sell the goods within a specified area. Hence this is in contravention

of the provisions of section 3(1) of the said Act. VOID (iii) Clause (iii) stipulates the resale price, but it allows the purchaser to sell the goods at lower prices than

the stipulated prices. Hence this is a valid clause. VALID

Note: All the above are Vertical Anti‐competitive agreements and cannot be presumed to be void unless it is proven that it is causing “Appreciable Adverse Effect on Competition”.

Question 4 Mr. MKP was a member of the Competition Commission of India. He ceased to be such member on 31st March, 2005. Thereafter, he was offered the post of Executive Director with appropriate remuneration and perquisites in the following organisations to join his duties on and from 1st July, 2005:

(i) HLL Ltd., a private sector public limited company, whose case was disposed off by the Competition Commission under the provisions of the Competition Act, 2005 in the month of February, 2005.

(ii) Life Insurance Corporation of India. You are required to state with relevant provisions of the Competition Act, 2002 the option available to Mr. MKP in respect of accepting the above offers. (May 2005)

Restriction on Employment of Chairperson and other Members in certain cases –

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Section 12 Refer theory portion in this chapter.

Based on the above provisions of the Competition Act, 2002, Mr. MKP will not be able to accept the offer of HLL Ltd. for 2 years from the date of his cessation as a member of the Competition Commission since the said company was a party to the proceedings before the Commission.

However, since Life Insurance Corporation of India is a Corporation established under the Central Act, the above restriction does not apply and Mr. MKP can accept the offer to join as the Executive Director of the said corporation with effect from 1st July, 2005.

Question 5 The CG has formed an opinion that Mr. CBM (a member of the Competition Commission of India) has acquired such financial interest that it may affect prejudicially his functions as a member of the Competition Commission and it wants to remove him from his office. You are required to state with reference to the provisions of the Competition Act, 2002, whether the Central Government can do so

and if yes, how? (Nov 2005)

Refer Section 11 of this Mat.

Question 6 Examine with reference to the relevant provisions of the Competition Act, 2002 the following: (i) Whether a Government Department supplying water for irrigation to the Agriculturists after levying charges for water supplied (and not a water tax) can be considered as an ‘Enterprise’. (ii) Whether a person purchasing goods not for personal use, but for resale can be considered as a

‘consumer.’ (May 2006)

Enterprise: The term ‘enterprise’ is defined in Section 2(h) of Competition Act, 2002. Accordingly ‘enterprise’ means a person or a department of the Government, who or which is engaged in any activity, relating to the production, storage, supply, distribution, acquisition or control of articles or goods, or the provision of services of any kind. But the term does not include any activity of the Government relatable to sovereign functions of the Government including all activities carried on by the departments of the Central Government dealing with atomic energy, currency, defence and space.

Certain specific activities of Government departments like dealing with atomic energy, etc,. and sovereign functions of the Government (like police, defence, etc.) are excluded from the purview of the said terms. Hence, a Government department engaged in the activity of providing service in the form of supply of water for irrigation to the agriculturists after levying charges can be considered as an ‘enterprise’ within the meaning of Section 2(h) of Competition Act, 2002. Consumer: The term ‘consumer’ is defined in Section 2(f) of Competition Act, 2002. Accordingly ‘consumer’ means any person who buys any goods for a consideration, which has been paid or promised or partly paid and partly promised, whether such purchase of goods is for resale or for any commercial purpose or for personal use.

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Hence, it is not necessary that a person must purchase the goods for personal use in order to be considered as a ‘consumer’ under Competition Act, 2002. Even a person purchasing goods for resale or for any commercial purpose will also be considered as a ‘Consumer’ within the meaning of Section 2(f) of Competition Act, 2002.

Question 7 ABC Ltd. made an initial public offer of certain number of equity shares. Examine whether these shares can be considered as ‘Goods’ under the Competition Act, 2002 before allotment. (November 2006)

Refer Theory of this Mat.

Question 8 Mr. ZPM was appointed as a Member of the Competition Commission of India by Central Government. He has a professional experience in international business for a period of 12 years, which is not a proper qualification for appointment of a person as member. Pointing out this defect in the Constitution of Commission, Mr. YKJ, against whom the commission gave a decision, wants to

invalidate the proceedings of the commission. Examine with reference to the provisions of the Competition Act, 2002 whether Mr. YKJ will succeed.

Refer Section 15 of this Mat. Here in this case Mr. ZPM should have professional qualification of not less than 15 years as per section 8 of the Act but this disqualification will not invalidate the proceeding of the Commission.

Question 9 The Competition Act, 2002 deals with the agreement. Differentiate between Horizontal Agreement and Vertical Agreement. (6 Marks)

Refer text for answer.

Question 10 Mr. Raj Behari retired as a Member of Competition Commission of India (CCI) on 31st October, 2008. He was offered the post of Chief Executive in M/s. LSD Ltd. which was earlier a party in the proceedings before CCI. Can he join the Company with effect from 1st November, 2009?

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What will be the position if Mr. Raj Behari joins Oil & Natural Gas Commission Ltd., a Government Company with effect from 1st April, 2009? ONGC was also earlier a party in the proceedings before CCI. (6 Marks)

Under Section 12 of the Competition Act, 2002, a Member of CCI shall not, for a period of two years from the date on which he ceased to hold office, accept any employment in any enterprise, which has been a party to a proceeding before the Commission. However, these provisions will not apply to any employment in a Government Company or Government or local authority or any Corporation established under any Central or state Act. In view of the aforesaid, Mr. Raj Behari cannot join M/s LSD Ltd on 1‐11‐2009 as only one year has expired from the date of his retirement. However, there is no bar for him to join ONGC on 1‐4‐2009 even earlier than two years of his retirement as it is a Government Company.

Note: The period of one year was increased to two years by the Competition (Amendment) Act, 2007 w.e.f 12.10.2007.

Question 11 P Ltd and Q Ltd, both dealing in chemicals and fertilizers have entered into an agreement to jointly promote the sale of their products. A complaint has been received by the Competition Commission of India (CCI) stating that the agreement between the two is anti‐competitive and against the interests of others in the trade. Examine with reference to the provisions of the Competition Act 2002, what

are the factors CCI will take into account to determine whether the agreement in question will have any appreciable adverse effect on competition in the market. (6 marks) (May 2010)

Refer Theory in this Mat.

Question 12 What are the Agreements prohibited u/s 3(1) of the Competition Act, 2002? (4 marks) (Nov 2010)

All the vertical and horizontal anti‐competitive agreements. Refer text for detailed answer.

Question 13 The Competition Commission of India has received a complaint that M/s ABC company has been abusing its dominant position in the food processing industry. Explain briefly the factors that will be considered by the Commissions to ascertain whether M/s ABC company enjoys a dominant position in the industry. (4 Marks) (May 2011)

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Refer Theory in this Chapter.

Question 14 The CG on the recommendation of selection committee appoints Mr. Ramesh aged 56 years as Member of the CCI to be effective from 1st January, 2010. State with the reference to the provisions of Competition Act, 2002 the term for which he will be appointed & whether he can be reappointed as such and also if he resigns after 2 years whether the vacancy can be filled up by the Chairman of

the Commission. (4 Marks) (Nov 2011)

Term of office of chairperson and other members as contained in Section 10 of the Competition Act, 2002: As per this section the chairperson and every other member shall hold office as such for a term of five years from the date on which he enters upon his office and shall be eligible for re‐appointment. They shall not hold office as such after attaining the age of sixty‐five years. [Section 10(1)]

A vacancy caused by the resignation or removal of the chairperson or any other member by death or otherwise shall be filled by fresh appointment in accordance with the provisions of Sections 8 and 9 of the Act. [Section 10(2)]

Keeping the above provision in mind Mr. Ramesh can be appointed as member of the commission for a term of 5 years as he is aged 56 years on 1st January, 2010. He can also be reappointed but his re‐appointment will be only up to the age of 65 years. If Mr. Ramesh resigns as member after working for two years the resulting vacancy can be filled up by fresh appointment approved by the Selection Committee and the Chairman has no power to fill up the vacancy on his own.

Question 15 The CG, without referring the matter to the Supreme Court of India for inquiry, removed a member of the CCI on the ground that he has become physically or mentally incapable of acting as a member. Decide, under the provisions of the Competition Act, 2002, whether removal of the member by the CG is lawful? (4 Marks) (Nov 2012)

Removal of Member of Competition Commission of India: Section 11(2) of the Competition Act, 2002 empowers the Central Government to remove, by an order, a member of the Competition Commission of India from his office if such member has become physically or mentally incapable of acting as a member. However, provisions of Section 11(3) of the said Act put some restrictions on such power of the Central Government. According to this Section, the Central Government has to make a reference to the Supreme Court of India under the two conditions‐ where the member has acquired such financial or other interest as is likely to affect prejudicially his functions as a Member; or where a member has abused his position as to render his continuance in office prejudicial to the public interest.

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As the ground of removal mentioned in the question does not fall under these two categories, thus, the Central Government can remove a member of the Competition Commission of India without referring the matter to the Supreme Court for Inquiry. In view of the above, the action of the Central Government is in order and removal of member is valid.

Question 16 Bombay Textiles Limited and Gujarat Textiles Limited marketing their products in India propose to be amalgamated. The enterprise created as a result of the said amalgamation will have assets of value of ` 300 crore and turnover of ` 1000 crore. Examine whether the proposed amalgamation attracts the provisions of the Competition Act, 2002? (4 Marks) (May 2013)

Section 5 deals with combination of enterprises and persons. The amalgamation of enterprises shall be a combination of such enterprises if the enterprise created as a result of the amalgamation, as the case may be, have either in India, the assets of the value of more than ` 2,000 crores or turnover more than ̀ 6,000 crores.

Hence, in the present case, the proposed amalgamation of Bombay Textiles Limited and Gujarat Textiles Limited will not attract the provisions of the Competition Act, 2002 as they have assets of value of ` 300 crore and turnover of ` 1000 less than the specified under the provisions.

Question 17 A truck manufacturing company proposes to enter into distributorship agreements requiring the dealers not to sell trucks of other manufacturers and also not to sell the trucks outside the territory assigned to them. Examine with reference to the Provisions of the Competition Act, 2002 whether the proposed agreements will be considered as Anti‐Competitive Agreements and void in case the

company entered into such agreements. (4 Marks) (Nov 2013)

Anti‐Competitive Agreements: Under section 3 of the Competition Act, 2002 any agreement amongst enterprises of persons 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 service, shall be a void agreement if it causes or is likely to cause an appreciable adverse effect on competition. According to the problem, there are two conditions given in the agreement, which fall under the following stages‐ (i) exclusive supply agreement: includes any agreement restricting in any manner the purchaser in the course

of his trade from acquiring or otherwise dealing in any goods other than those of the seller or any other person.

(ii) exclusive distribution agreement: includes any agreement to limit, restrict or withhold the output or supply of any goods or allocate any area or market for the disposal or sale of the goods.

In view of the above provisions of the Competition Act, 2002 validity of the clauses of the agreement as given in the question can be determined as follows:

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Part (i) of the question restricts the dealer to deal in the goods of other manufacturers. Hence the proposed agreement is anti‐competitive and void.

Part (ii) of the question restricts the dealers not to sell the goods outside the territory assigned to them. This is a Vertical Anti‐competitive agreement and cannot be presumed to be void unless it is proven that it is causing “Appreciable Adverse Effect on Competition”

Question 18 MNO Tyres Limited is in the business of manufacture of automotive tyres for the past 1 year. To increase its market share, the company has decided to reduce the prices of tyres. The cost structure of the passenger car tyres is as under:

Particulars Amount (`)Cost of production ` 5,000 per tyre. Selling price ` 6,000 per tyre.

The company started selling tyres @ ` 5,200 per tyre and the other tyre manufacturers made a complaint to the CCI stating that MNO Tyres Limited is guilty of predatory pricing having the effect of reducing the competition or eliminating the competition. Advise MNO Tyres Limited as to the meaning of predatory pricing and whether the company can be said to have indulged in the said practice having regard to the provisions of the Competition Act 2002. (4 Marks) (May 2014)

Section 4(2)(a) of the Competition Act, 2002 prohibits abuse of dominant position by any enterprise or group. There shall be abuse of dominant position if an enterprise or a group directly or indirectly, imposes unfair or discriminatory‐ (i) condition in purchase or sale of goods or services; or (ii) price in purchase or sale (including predatory price) of goods or service.

“Predatory price” 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 the goods or provision of services, with a view to reduce competition or eliminate the competitors. In the present case, MNO Tyres Limited is in the business of manufacture of automotive tyres for the past one year. To increase its market share, the company has decided to reduce the prices of tyres. The cost of production is ` 5,000 and selling price is ` 6000. The company started selling tyres @ ` 5,200 per tyre. The other tyre manufacturers made a complaint to the Competition Commission of India stating that MNO Tyres Limited is guilty of predatory pricing having the effect of reducing the competition or eliminating the competition. According to the provisions given under section 4(2)(a) of the Competition Act, 2002, MNO Tyres Limited cannot be said to have indulged in predatory pricing as the revised selling price (` 5,200 per tyre) is more than its cost of production (` 5,000 per tyre).

Question 19 X a member of the CCI was removed by the CG on the grounds that he had acquired financial interest likely to affect prejudicially his functions as a member. X challenged his removal by the Central Government claiming that the Central Government had no authority to pass order for removal. Clarify whether X`s contention is right as per the provisions under the Competition Act, 2002. (4 marks)

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Refer Section 11 of this Mat.

Question 20 Mr. Chetan retired as a member of the CCI on 31st October, 2014. He was offered the post of CEO in LCD Ltd., which was earlier a party in a proceeding before the CCI. Can Mr. Chetan join the company with effect from 1st November, 2015? What will be the position if Mr. Chetan joins MONA Ltd, a Government company with effect from 1st April, 2015, if MONA Ltd was also a party in a proceeding

before the CCI? (4 marks) (Nov 2015)

As per the provisions of Section 12 of the Competition Act, 2002, the Chairman and other Member of CCI shall not, for a period of two years from the date on which he ceased to hold office, accept any employment in or connected with the management or administration of any enterprise, which has been a party to a proceeding before the Commission. However, these provisions will not apply to any appointment in a Government Company or the Central Government or any State Government or local authority or any Corporation established by or under any Central or State or Provincial Act. In view of the aforesaid, Mr. Chetan cannot join M/s. LCD Ltd. On 1st November, 2015 as only one year has expired from the date of his retirement. However, there is no bar for him to join MONA Limited, on 1st April 2015 even earlier than two years of his retirement, since it is a Government Company.

Question 21 The mango producers in Lucknow have entered into an arrangement among themselves whereby they have decided not to sell the mango below certain price. This arrangement has been made in writing but not intended to be enforced by any legal proceedings. Referring to the provisions of the Competition Act, 2002, examine whether the said arrangement shall fall within the jurisdiction of the

term “agreement” within the meaning of the said Act.

In accordance with the provisions of the Competition Act, 2002, as contained under Section 2(b), an agreement includes any arrangement or understanding or action in concert: (1) whether or not, such arrangement, understanding or action is formal or in writing; or (2) whether or not, such arrangement, or undertaking or action is intended to be enforceable by legal

proceedings. In the given case, the understanding reached among the mango producers not to sell below a certain price shall amount to an agreement as defined under Section 2(b) notwithstanding the fact that though the arrangement is in writing but not intended to be enforced by legal proceeding.

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Question 22 The coconut producers in Tirunelveli (Tamil Nadu) have formed an association to control the production of coconuts. Referring to the provisions of the Competition Act, 2002, examine whether the said association to control the production of coconuts shall fall within the jurisdiction of the term ‘Cartel’ under the provisions of the said Act. (4 Marks) (Nov 2015)

In accordance with the Provisions of Section 2(c) of the Competition Act, 2002, the term ‘Cartel’ includes an association of producers, sellers, distributors, traders or service providers who, by agreement among themselves, limit, control or attempt to control the production, distribution, sale or price of or trade in goods or provision of services. The term ‘cartel’ has an inclusive meaning. Thus, an association formed to control the production of coconuts is within the aforesaid definition of a cartel. Hence, the association of coconut producers in Tirunelveli in the given case will be considered as a cartel under the provisions of the Act.

Question 23 The CCI has received a complaint from a SG alleging that X Limited and Y Limited have entered into an informal agreement, not enforceable at law, to limit or control production, supply and market, to determine the sale price of their products. Such an action of these companies has an appreciable effect on competition. Examining the provisions of the Competition Act, 2002:

(A) Decide whether the above agreement has appreciable effect on competition. (B) What factors shall the CCI consider while taking the above decision?

(C) What orders can the CCI pass on completion of the inquiry?

(A) The term ‘agreement’ as defined in section 2 (b) of the Competition Act, 2002, includes any arrangement or understanding or action in concert. (i) whether or not such arrangement, understanding or action is formal or in writing, or (ii) whether or not such arrangement, understanding or action is intended to be enforceable by legal

proceedings. Thus agreement between X Ltd. and Y Ltd. satisfies the above ingredients of an agreement as per section 2 (e) of the Act.

(B) Factors to be considered:

(1) creation of barriers to new entrants in the market. (2) driving existing competitors out of the market. (3) foreclosure of competition by hindering entry into the market. (4) accrual of benefits to consumers. (5) improvements in production or distribution of goods or provision of services

(C) Orders of CCI: If after enquiry by the Director General, the Commission finds the agreement entered into

by X Ltd. and Y Ltd. are in contravention of section 3, it may pass all or any of the following orders u/s 27: (1) direct X Ltd. and Y Ltd. to discontinue and not to reenter such agreement.

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(2) impose such penalty as it may deem fit which shall not be more than 10% of the average of the turnover for the last 3 preceding financial years, upon each of such person or enterprises which are parties to such agreement or abuse;

(3) direct that agreement shall stand modified to the extent and in the manner as may be specified in the order by the commission

(4) direct X Ltd and Y Ltd. to abide by such other orders as the commission may pass and comply with the directions including payment of cost, if any.

(5) pass such other orders or issue such directions as it may deem fit.

Question 24 Shyam & Co. is engaged in the manufacture of cement. It sold the goods initially below the cost price for a year and slowly, its other competitors went out of the market. Thereafter, the enterprise changed its strategy and sold the goods above its cost price and made substantial profits. Examine the action, if any, which may lie against this enterprise under the Competition Act, 2002. (2 Marks) (May 2016)

Abuse of dominant position According to section 4 of the Competition Act, 2002, no enterprise or group shall abuse its dominant position. In the given instance, Shyam and Co. abused its dominant position by imposing predatory price of goods. Action against this enterprise shall lie in section 27 of the Competition Act, 2002. For actions by CCI refer “orders of CCI u/s 27” in the above answer.

Question 25

What do you mean by anti‐competitive agreements, viz, tie‐in arrangement and resale price maintenance? (2 Marks) (Nov 2015)

Anti‐competitive agreements According to section 3 of the Competition Act, 2002, it shall not be lawful for any enterprise or association of enterprises or person or association of persons to 'enter' into an agreement in respect of production, supply, storage, distribution, acquisition or control of goods or provision of services, which causes or is likely to cause an appreciable adverse effect on competition within India. These agreements are called as anti‐competitive agreements. All such agreements entered into in contravention of the aforesaid prohibition shall be void. Tie‐in arrangement & Resale Price Maintenance Refer Theory in this Chapter.

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Question 26

A dispute between PQR Limited and ABC Limited is pending in the Competition Commission of India. During the course of hearing, PQR Limited submitted an application that services of experts may be obtained for deciding an issue. ABC Limited raised objection that services of experts cannot be obtained. Decide whether the Commission can obtain the services of experts under the

provisions of the Competition Act, 2002. or In a proceeding before the Competition Commission of India involving two pharmaceutical companies, the plaintiff requested the presiding officer to call upon the services of experts from the pharmaceutical sector to determine the truth of the allegations levelled by it against the respondent. The respondent opposed the request on the ground that such action cannot be taken by the Competition Commission. You are required to state with reference to the provisions of the Competition Act, 2002, whether the contention of the respondent is tenable.

Refer Section 36 given in this Mat.

Question 27 Upon an equity made by the Competition Commission of India it was found that Huge Limited is enjoying dominant position in the market and there is every possibility that the company may abuse its dominant position. In order to overcome such a possible situation, the Competition Commission of India wants to order for division of Huge Limited. Referring to the provisions of

the Competition Act, 2002, describe the matters which may be provided in the said order. (4 Marks) (November 2016)

Refer Section 28 given in this Mat.

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5A. Competition Act · Cartel "Cartel" includes an association of producers, sellers, distributors,...

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